-----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, DyjXJdQuT4/w6eSBxN0hgxZ6sfo8SnTYWRo9u2fLdJ/5eNIetEr/RyD886uHPTWA cNv+mFAbm3uztfPecgup1w== /in/edgar/work/20000814/0000950137-00-003714/0000950137-00-003714.txt : 20000921 0000950137-00-003714.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950137-00-003714 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN CLASSIC VOYAGES CO CENTRAL INDEX KEY: 0000315136 STANDARD INDUSTRIAL CLASSIFICATION: [4400 ] IRS NUMBER: 310303330 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09264 FILM NUMBER: 700968 BUSINESS ADDRESS: STREET 1: TWO N RIVERSIDE PLZ STREET 2: 2ND FLOOR CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3122581890 MAIL ADDRESS: STREET 1: TWO NORTH RIVERSIDE PLAZA STREET 2: 2ND FLOOR CITY: CHICAGO STATE: IL ZIP: 60606 10-Q 1 e10-q.txt QUARTERLY REPORT 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------------------- FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NUMBER: 0-9264 AMERICAN CLASSIC VOYAGES CO. (Exact name of registrant as specified in its charter) DELAWARE 31-0303330 (State or other jurisdiction of (I.R.S. Employer identification No.) incorporation or organization) TWO NORTH RIVERSIDE PLAZA, CHICAGO, IL 60606 (Address of principal executive offices) (Zip Code) (312) 258-1890 (Registrant's telephone number, including area code) 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 [X] No [ ] As of August 10, 2000, there were 20,929,256 shares of Common Stock outstanding. ================================================================================ 2 AMERICAN CLASSIC VOYAGES CO. INDEX
ITEM DESCRIPTION PAGE - ---------------- ---- Part I. Financial Information: Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets at June 30, 2000 and December 31, 1999......................................................... 3 Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2000 and 1999.................. 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999....................................... 5 Notes to Condensed Consolidated Financial Statements...................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................. 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk ............... 16 Part II. Other Information: Item 1. Legal Proceedings......................................................... 17 Item 6. Exhibits and Reports on Form 8-K.......................................... 17
2 3 AMERICAN CLASSIC VOYAGES CO. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except shares and par value)
(Unaudited) (Audited) June 30, December 31, 2000 1999 ----------- ----------- ASSETS Cash and cash equivalents........................................................... $ 58,368 $ 42,399 Restricted cash..................................................................... 30,289 289 Short-term investments.............................................................. 13,274 -- Accounts receivable................................................................. 2,578 1,205 Inventory........................................................................... 3,336 2,529 Prepaid air tickets................................................................. 3,372 1,930 Prepaid expenses and other current assets........................................... 4,593 3,491 ----------- ----------- Total current assets........................................................... 115,810 51,843 Property and equipment, net......................................................... 190,174 150,797 Vessels under construction.......................................................... 143,589 74,601 Deferred income taxes, net.......................................................... 16,240 12,446 Other assets........................................................................ 7,640 4,303 ----------- ----------- Total assets................................................................... $ 473,453 $ 293,990 =========== =========== LIABILITIES Accounts payable.................................................................... $ 14,826 $ 14,534 Note payable........................................................................ 25,000 -- Other accrued liabilities........................................................... 25,633 23,712 Current portion of long-term debt................................................... 4,100 4,100 Unearned passenger revenues......................................................... 55,348 41,381 ----------- ----------- Total current liabilities...................................................... 124,907 83,727 Long-term debt, less current portion................................................ 71,238 80,463 ----------- ----------- Total liabilities.............................................................. $ 196,145 $ 164,190 =========== =========== Company-obligated mandatorily redeemable convertible preferred securities of subsidiary trust holding solely 7% convertible subordinated debentures of the Company......................................... $ 100,000 $ -- COMMITMENTS AND CONTINGENCIES (NOTE 8) STOCKHOLDERS' EQUITY Preferred stock, $.01 par value (10,000,000 and 5,000,000 shares authorized, respectively; none issued and outstanding)............................ $ -- $ -- Common stock, $.01 par value (100,000,000 and 40,000,000 shares authorized, respectively; 20,971,423 and 18,653,206 shares issued, respectively)................ 210 187 Additional paid-in capital.......................................................... 203,532 151,094 Accumulated deficit................................................................. (24,629) (19,573) Common stock in treasury, at cost (51,000 shares)................................... (757) (757) Unearned restricted stock and stock units........................................... (1,048) (1,151) ----------- ----------- Total stockholders' equity..................................................... 177,308 129,800 ----------- ----------- Total liabilities and stockholders' equity..................................... $ 473,453 $ 293,990 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 4 AMERICAN CLASSIC VOYAGES CO. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
For the Three Months For the Six Months Ended June 30, Ended June 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ----------- ------------ ----------- ------------ Revenues................................................ $ 58,302 $ 55,200 $ 97,262 $ 95,766 Cost of operations (exclusive of depreciation expense shown below).......................................... 35,434 33,694 63,669 62,462 ----------- ------------ ----------- ------------ Gross profit............................................ 22,868 21,506 33,593 33,304 Selling, general and administrative expenses............ 16,808 12,584 33,172 29,449 Depreciation expense.................................... 4,015 4,187 7,956 8,342 ----------- ------------ ----------- ------------ Operating income (loss) ................................ 2,045 4,735 (7,535) (4,487) Interest income......................................... 1,901 889 3,164 1,211 Interest expense and other financing costs.............. 27 1,500 1,031 3,070 Other expense........................................... 7 -- 7 -- ----------- ------------ ----------- ------------ Income (loss) before income taxes and accrued distributions on convertible preferred securities of subsidiary trust..................................... 3,912 4,124 (5,409) (6,346) Income tax (expense) benefit............................ (1,445) (1,649) 1,999 2,538 Accrued distributions on convertible preferred securities of subsidiary trust, net of income tax benefit of $668 and $963, respectively......... 1,143 -- 1,646 -- ----------- ------------ ----------- ------------ Net income (loss)....................................... $ 1,324 $ 2,475 $ (5,056) $ (3,808) =========== ============ =========== ============ Per Share Information Basic: Weighted-average shares outstanding................ 20,853 17,209 20,208 15,773 Income (loss) per share............................ $ 0.06 $ 0.14 $ (0.25) $ (0.24) Diluted: Weighted-average shares outstanding................ 21,396 17,891 20,208 15,773 Income (loss) per share............................ $ 0.06 $ 0.14 $ (0.25) $ (0.24)
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 AMERICAN CLASSIC VOYAGES CO. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
For the Six Months Ended June 30, ------------------------------- 2000 1999 ---------- ---------- OPERATING ACTIVITIES: Net loss ....................................................................... $ (5,056) $ (3,808) Depreciation expense........................................................ 7,956 8,342 Changes in working capital and other: Working capital changes and other....................................... (5,412) (4,248) Unearned passenger revenues............................................. 13,967 21,974 ---------- ---------- Net cash provided by operating activities................................... 11,455 22,260 ---------- ---------- INVESTING ACTIVITIES: Capital expenditures............................................................ (116,321) (15,060) Purchase of marketable securities............................................... (13,274) -- Increase in restricted investments.............................................. (30,000) -- ---------- ---------- Net cash used in investing activities....................................... (159,595) (15,060) ---------- ---------- FINANCING ACTIVITIES: Proceeds from borrowings........................................................ 41,300 2,000 Repayment of borrowings......................................................... (25,525) (4,050) Issuance of convertible preferred securities of subsidiary trust................ 100,000 -- Proceeds from issuance of common stock, net..................................... 52,418 64,798 Deferred financing fees......................................................... (4,084) (2,134) ---------- ---------- Net cash provided by financing activities.................................. 164,109 60,614 ---------- ---------- Increase in cash and cash equivalents.............................................. 15,969 67,814 Cash and cash equivalents, beginning of period..................................... 42,399 27,004 ---------- ---------- Cash and cash equivalents, end of period........................................... $ 58,368 $ 94,818 ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of capitalized interest)...................................... $ 949 $ 2,863 Income taxes................................................................ 71 100
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 6 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (Unaudited) 1. BASIS OF PRESENTATION These accompanying unaudited Condensed Consolidated Financial Statements ("Financial Statements") have been prepared pursuant to Securities and Exchange Commission ("SEC") rules and regulations and should be read in conjunction with the Consolidated Financial Statements and Notes thereto included on Form 10-K for the year ended December 31, 1999 (the "Form 10-K") for American Classic Voyages Co. ("AMCV") and its subsidiaries. These Financial Statements include the accounts of AMCV and its wholly owned subsidiaries, The Delta Queen Steamboat Co. ("DQSC"), Great Hawaiian Cruise Line, Inc. ("GHCL") and Project America, Inc. (collectively with such subsidiaries, the "Company"). The following notes to the Financial Statements highlight significant changes to the notes included in the Form 10-K and such interim disclosures as required by the SEC. These Financial Statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. Certain previously reported amounts have been reclassified to conform to the 2000 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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. 2. RESTRICTED CASH The $30 million increase in restricted cash through June 30, 2000 reflects $30 million invested in a certificate of deposit which is being used as a collateral deposit for a letter of credit related to an October 2000 ship acquisition (see Notes 7 and 8 for further information). 3. SHORT-TERM INVESTMENTS Under the definitions provided in Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company has purchased securities which have been classified as available for sale and are, therefore, recorded at their fair values. The fair value for these securities approximates cost due to the short maturities of the instruments. 4. VESSELS UNDER CONSTRUCTION Capitalized interest on the vessels under construction amounted to $2.0 million and $0 for the three months ended June 30, 2000 and 1999, respectively. Capitalized interest amounted to $4.0 million and $0 for the six months ended June 30, 2000 and 1999, respectively. The Columbia Queen riverboat was placed into service on May 27, 2000 and its capitalized cost of $42.4 million, including capitalized interest, was transferred from vessels under construction to property and equipment. The vessel is being depreciated over 30 years with a 15% salvage value. 5. NOTE PAYABLE On February 10, 2000, the Company issued $25 million of notes guaranteed by the Maritime Administration ("MARAD"). This is the first issuance of debt under the $1.1 billion of financing guarantees from MARAD for the construction of the Hawaii cruise vessels. The notes bear interest at LIBOR minus 0.05%. Interest is payable quarterly beginning April 28, 2000. The entire principal amount is due on January 31, 2001. The Company intends to refinance these notes on or before the maturity date. 6 7 6. DEBT Long-term debt consisted of (in thousands):
June 30, December 31, 2000 1999 -------------- -------------- U.S. Government Guaranteed Ship Financing Note, American Queen Series............. $ 13,173 $ 14,385 U.S. Government Guaranteed Ship Financing Bond, American Queen Series............. 36,198 36,198 U.S. Government Guaranteed Ship Financing Note, Independence Series A ............ 7,265 7,926 U.S. Government Guaranteed Ship Financing Bond, Independence Series A............. 13,215 13,215 U.S. Government Guaranteed Ship Financing Note, Independence Series B ............ 1,947 2,124 U.S. Government Guaranteed Ship Financing Bond, Independence Series B............. 3,540 3,540 Chase credit facility (maximum availability of $70 million) ...................... -- 7,175 -------------- -------------- 75,338 84,563 Less current portion.............................................................. 4,100 4,100 -------------- -------------- $ 71,238 $ 80,463 ============== ==============
The Chase credit facility is available only for the conversion of the Columbia Queen riverboat, the construction of the first two coastal vessels, and Delta Queen working capital. The facility is secured by all of the assets of DQSC except the American Queen, and has various limitations and restrictions on investments, additional indebtedness, the construction costs of the new vessels, and other capital expenditures. In 1999, the Company received a commitment from MARAD for up to $1.1 billion in financing guarantees. The commitment amount represents 87.5% of the total maximum potential cost of the initial two Hawaii vessels, including shipyard costs, contingencies, capitalized interest, and guarantee fees. See Notes 5 and 11 for further information. On March 31, 2000, the Company received a commitment from MARAD for up to $78.3 million in financing guarantees. The commitment amount represents 87.5% of the total maximum potential cost of the initial two coastal vessels currently under construction, including shipyard costs, contingencies, capitalized interest, and guarantee fees. As of June 30, 2000, the Company complied with all covenants under its various debt agreements. 7. TRUST PREFERRED SECURITIES On February 22, 2000, the Company completed an offering of 2,000,000 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust ("trust preferred securities"). Each $50 security bears interest at 7% and is convertible at the holder's election into 1.6207 shares of common stock. All outstanding preferred securities will be redeemed on February 15, 2015 or upon early redemption. The outstanding preferred securities may be redeemed for cash at the Company's option on or after February 19, 2003. The net proceeds to the Company, after underwriting fees and other costs, were approximately $96.5 million. A portion of the proceeds were used to fund the $30 million letter of credit facility related to the ms Nieuw Amsterdam purchase (see Note 8 for further information) and to pay down outstanding amounts on the Chase credit facility. The underwriters' overallotment option of 300,000 additional trust preferred securities was not exercised. 8. COMMITMENTS AND CONTINGENCIES In 1999, the Company finalized an agreement with Holland America Line to purchase the ms Nieuw Amsterdam for $114.5 million. The purchase agreement required the Company to make an earnest money deposit of $30 million by January 17, 2000. The Company arranged for an unsecured letter of credit facility with The Chase Manhattan Bank for up to $30 million and satisfied the deposit requirement by posting a letter of credit for $30 million. 7 8 In 1999, persons and entities affiliated with Equity Group Investments, Inc. ("Equity"), the Company's largest stockholder, guaranteed the letter of credit facility for the Company with The Chase Manhattan Bank for up to $30 million. Under an agreement dated October 15, 1999, as consideration for issuance of the guarantee, the Company paid Equity a commitment fee of $500,000 in 1999 and agreed to pay Equity additional compensation in the form of stock appreciation units contingent, in part, upon appreciation in the Company's common stock. Equity's rights to receive this additional compensation vested, on a monthly basis, during the period that the guarantee remained outstanding. On February 22, 2000, the Company deposited $30 million into a cash collateral account with Chase from proceeds received by the Company from the Company's securities offering, as discussed in Note 7, thereby terminating the Equity guarantee. The Company has the right to retire Equity's stock appreciation units by paying a per unit price, which escalates each year, during the first three years after issuance. The price of the Company's right to retire Equity's stock appreciation units is $11 per share if the Company retires the units by October 15, 2000, $13 per share if the Company retires the units by October 15, 2001, and $15 per share if the Company retires the units by October 15, 2002. If the Company does not retire Equity's stock appreciation units during the first three years after issuance, Equity may exercise, during the fourth and fifth years after issuance, its right to receive payment based upon the market value of the Company's common stock at such time. On or before the first three anniversary dates of the issuance of Equity's stock appreciation units, the Company will evaluate whether to exercise its right to retire the units based on the Company's then current stock price and other factors. Holland America Line has agreed to provide financing for the remaining portion of the purchase price of the ms Nieuw Amsterdam totaling $84.5 million for 75 months at the prevailing prime rate. The Holland America Line financing will be secured by a first preferred ship mortgage. 9. STOCKHOLDERS' EQUITY ACCUMULATED DEFICIT Changes in accumulated deficit for the six months ended June 30, 2000 were (in thousands): Accumulated deficit at December 31, 1999............. $(19,573) Net loss............................................. (5,056) --------- Accumulated deficit at June 30, 2000................. $(24,629) ========= COMMON STOCK OFFERING On February 22, 2000, the Company completed an offering of an additional 2,000,000 shares of common stock. The proceeds to the Company, after underwriting commissions and other costs, were $46.8 million and are being used for the construction of the second Hawaii vessel. The underwriters' overallotment option of 300,000 additional shares was not exercised. 10. EARNINGS PER SHARE Earnings per share have been computed as follows (in thousands, except per share data):
For the Three Months Ended June 30, ----------------------- 2000 1999 ----------- --------- Basic: Net income.................................................. $ 1,324 $ 2,475 Weighted average shares outstanding......................... 20,853 17,209 ----------- --------- Earnings per share ......................................... $ 0.06 $ 0.14 =========== ========= Diluted: Net income.................................................. $ 1,324 $ 2,475 Weighted average shares outstanding......................... 20,853 17,209 Additional shares issuable under various stock plans........ 543 682 ----------- --------- Diluted weighted average shares outstanding................. 21,396 17,891 ----------- --------- Earnings per share ......................................... $ 0.06 $ 0.14 =========== =========
8 9 As the Company reported losses for the six months ended June 30, 2000 and 1999, diluted earnings per share was computed in the same manner as basic earnings per share. Conversion of trust preferred securities is not assumed, as the result would be antidilutive to the earnings and loss per share. 11. SUBSEQUENT EVENT On August 10, 2000, the Company issued $50 million of one-year notes guaranteed by the Maritime Administration. The notes bear interest at LIBOR minus 0.05%. This is the second issuance of debt under the $1.1 billion of financing guarantees from the Maritime Administration for the construction of the Hawaii cruise vessels. The proceeds are being used for the construction of the first Hawaii vessel. 9 10 AMERICAN CLASSIC VOYAGES CO. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL American Classic Voyages Co. is a holding company which owns and controls The Delta Queen Steamboat Co., Great Hawaiian Cruise Line, Inc. and Project America, Inc. Through our various subsidiaries, we currently operate two cruise lines: Delta Queen, which owns and operates the American Queen, Mississippi Queen and Delta Queen steamboats; and American Hawaii, which owns and operates the Independence steamship. Delta Queen also owns and operates the Columbia Queen riverboat which began its inaugural cruise on May 27, 2000. We have formed a third cruise line, United States Lines, to operate the ms Patriot and the new Hawaii cruise vessels. Our revenues are composed of: (1) cruise fares; (2) onboard revenues, such as those from gift shops and shore excursions; and (3) trip cancellation insurance and pre- and post-cruise hotel packages. Additional revenue is also derived from the sale of airplane tickets to and from points of embarkation or disembarkation. Our cost for air tickets typically matches the revenue we generate from sales of airline tickets, so we recognize minimal profits from such sales. Our cost of operations are composed of: (1) passenger expenses, such as employee payroll and benefits and the cost of food and beverages; (2) vessel operating costs including lay-up and drydocking costs for our vessels; (3) insurance costs; (4) commissions paid to travel agents; and (5) air ticket and hotel costs. When we receive deposits from passengers for cruises, we establish a liability for unearned passenger revenue. We recognize these deposits as revenue on a pro-rata basis during the associated cruise. Our revenues and some of our expenses vary considerably when measured on a quarterly basis. This is due to the seasonality of our Delta Queen revenues, the timing of our layups and drydockings, and fluctuations in airfares. Fare revenue variations are reflected in our fare revenues per passenger night, which are commonly referred to as fare per diems, and our occupancy rates. Delta Queen's operations are seasonal. Historically, we have had greater passenger interest and higher yields in the spring and fall months of the year. The vessels typically undergo their annual layups in December or January. While American Hawaii has historically experienced greater passenger interest in the summer and fall months of the year, quarterly variations in its revenues are much smaller than those of Delta Queen. During the summer months, in particular, American Hawaii tends to have average occupancies in excess of 100% as the number of families sharing cabins with children increases significantly during this period. The following discusses the Company's consolidated results of operations and financial condition for the three months and six months ended June 30, 2000 versus the comparable periods ended June 30, 1999. This section should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Form 10-K for the year ended December 31, 1999. 10 11 RESULTS OF OPERATIONS Operations data expressed as a percentage of total revenue for the periods indicated is as follows: Three Months Six Months Ended June 30, Ended June 30, --------------- -------------- 2000 1999 2000 1999 ------ ------ ------ ------ Revenues 100% 100% 100% 100% Costs and Expenses: Operating expenses.................. 61 61 65 65 Selling and administrative.......... 29 23 34 31 Depreciation........................ 7 8 8 9 Operating income (loss)................ 4 9 (8) (5) Net income (loss)...................... 2 4 (5) (4) Selected operating statistics for the periods indicated are as follows:
Three Months Six Months Ended June 30, Ended June 30, ---------------------- -------------------- 2000 1999 (5) 2000 1999 (5) -------- -------- ------- -------- Fare revenue per passenger night.............. $ 243 $ 232 $ 230 $ 219 Total revenue per passenger night............. $ 330 $ 322 $ 322 $ 313 Weighted average operating days (1): DELTA QUEEN.............................. 84 91 138 158 AMERICAN HAWAII.......................... 91 91 164 181 Vessels capacity per day (berths) (2): DELTA QUEEN.............................. 1,183 1,026 1,183 1,026 AMERICAN HAWAII.......................... 867 867 867 867 Passenger nights (3).......................... 176,805 171,470 301,910 306,370 Physical occupancy percentage (berths) (4).... 99.5% 99.5% 98.8% 96.2%
- ------------------------ (1) Weighted average operating days for each cruise line is determined by dividing capacity passenger nights for each cruise line by the cruise line's total vessel capacity per day. Capacity passenger nights is determined by multiplying, for the respective period, the actual operating days of each vessel by each vessel's capacity per day. (2) Vessel capacity per day represents the number of passengers each cruise line can carry assuming double occupancy for cabins which accommodate two or more passengers. Some cabins on the Independence and the American Queen can accommodate three or four passengers. (3) A passenger night represents one passenger spending one night on a vessel; for example, one passenger taking a three-night cruise would generate three passenger nights. (4) Physical occupancy percentage is passenger nights divided by capacity passenger nights. (5) For the three months ended June 30, 1999, passenger nights, fare and total revenue per passenger night and occupancy percentage were previously reported as 168,281, $236, $328 and 98% respectively. For the six months ended June 30, 1999, passenger nights, fare and total revenue per passenger night and occupancy percentage were previously reported as 299,655, $224, $320 and 94%, respectively. 1999 amounts have been recalculated to conform to the current presentation, which now includes passengers sailing on complimentary tickets. The current presentation will be used in the future. 11 12 RESCISSION OF ACCOUNTING METHOD On November 2, 1999, we announced that we had rescinded our prior adoption of the American Institute of Certified Public Accountants Accounting Standards Executive Committee's Statement of Position ("SOP") No. 93-7, "Reporting on Advertising Costs," relating to the deferral of direct response advertising costs. The deferral method provided for in SOP 93-7 was adopted in 1999, and made effective as of January 1, 1999. Under SOP 93-7, we deferred recognition of direct response advertising costs related to direct response advertising efforts for future cruises. These deferred costs were recognized in the periods that the cruises promoted by the efforts were completed, and the related cruise revenue recognized. We rescinded our adoption of SOP 93-7 due to difficulties encountered in implementing the new method. In rescinding SOP 93-7, we returned to our prior method of recognizing expenses for direct response advertising costs when those costs are incurred. As a result of the rescission of SOP 93-7, we restated our earnings for the first quarter of 1999 to reflect a loss of $6.3 million, or ($0.44) per share, compared to its previously reported loss of $4.5 million, or ($0.32) per share. We also restated our earnings for the second quarter of 1999 to $2.5 million, or $0.14 per share compared to our previously reported earnings of $2.4 million or $0.13 per share. QUARTER ENDED JUNE 30, 2000 COMPARED TO QUARTER ENDED JUNE 30, 1999 Consolidated second quarter 2000 revenues increased $3.1 million to $58.3 million from $55.2 for the second quarter of 1999. This represents a $3.3 million increase in fare revenues combined with a $0.2 million decrease in other revenues. American Hawaii's fare revenues increased $1.0 million due to an 8% increase in fare per diems to $196 from $182 offset by a 1% decrease in occupancy to 105% from 106%. Delta Queen's fare revenues increased $2.3 million. Capacity increased by 6% due to the Columbia Queen introduction. Occupancy rates also increased 1% from 94% to 95% and fare per diems increased 2% to $285 from $279. As a result, consolidated fare per diems for the second quarter of 2000 increased 5% to $243 from $232. The $0.2 million decrease in other revenues was attributable to a decrease in land package revenue. Consolidated cost of operations for the second quarter of 2000 increased $1.7 million to $35.4 million from $33.7 million for 1999. American Hawaii's operating costs decreased $0.3 million reflecting lower commission, air and land expenses associated with two charter cruises during the current quarter offset by higher fuel costs. Delta Queen's operating costs increased $2.0 million as a result of the Columbia Queen introduction and higher fuel costs. Maintenance expenses also increased by $0.6 million at Delta Queen. Consolidated gross profit increased $1.4 million in the second quarter of 2000 from 1999 as a result of the Columbia Queen introduction and higher fare per diems at American Hawaii. Consolidated selling, general and administrative expenses increased $4.2 million to $16.8 million for the second quarter of 2000 from $12.6 million in 1999. Marketing expenses for the Patriot and the Delta Queen Coastal vessels were $4.2 million. We also incurred $0.7 million of start-up costs during the quarter, primarily related to the Columbia Queen. We incurred no marketing or start-up costs in connection with our new vessels in the second quarter of 1999. Marketing expenses for our vessels in operation were lower than in the prior year. This decrease was offset by an increase in general and administrative expenses primarily related to salary and benefits associated with new personnel hired within the past year and consulting costs incurred in connection with our capacity expansion efforts. The consolidated operating income for the second quarter of 2000 was $2.0 million as compared to $4.7 million for 1999. Interest income increased by $1.0 million as a result of higher average cash and marketable securities balances resulting from proceeds received by us upon the sale of additional common stock and other securities in February 2000. During the current quarter, we capitalized $2.0 million of interest expense related to our vessels under construction. We capitalized no interest expense in the prior year. We accrued for distributions on trust preferred securities of $1.1 million, net of tax, in the second quarter of 2000 due to the February 2000 issuance of trust preferred securities. 12 13 SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 Consolidated first half 2000 revenues increased $1.5 million to $97.3 million from $95.8 million for the first half of 1999. This represents a $2.0 million increase in fare revenues combined with a $0.5 million decrease in other revenues. American Hawaii's fare revenues decreased $1.2 million due to a 9% decrease in capacity passenger nights as a result of the scheduled 18-day Independence drydock. This was offset by a 5% increase in fare per diems to $198 from $188 and a 1% increase in occupancy to 104% from 103%. Delta Queen's fare revenues increased $3.2 million. Capacity passenger nights increased 1% due to the Columbia Queen introduction. Occupancy rates also increased 5% from 89% to 94% and fare per diems increased 2% to $260 from $255. As a result, consolidated fare per diems for the first half of 2000 increased 5% to $230 from $219. The $0.5 million decrease in other revenues was attributable to fewer capacity passenger nights at American Hawaii during such period. Consolidated cost of operations for the first half of 2000 increased $1.2 million to $63.7 million from $62.5 million for 1999. American Hawaii's operating costs decreased $1.7 million reflecting lower passenger, commission, air and hotel expenses associated with the capacity passenger night decrease offset by higher fuel prices. Delta Queen's operating costs increased $2.9 million reflecting the capacity and occupancy increase, and higher fuel costs. Maintenance expenses also increased by $0.9 million at Delta Queen. Consolidated gross profit increased $0.3 million in the first half of 2000 from 1999 as a result of capacity and occupancy increase at Delta Queen offset by the capacity decrease at American Hawaii. Consolidated selling, general and administrative expenses increased $3.7 million to $33.2 million for the first half of 2000 from $29.4 million in 1999. Marketing expenses for the Delta Queen coastal vessels and Patriot were $5.3 million. We also incurred $0.7 million of start-up costs in the first half of 2000, primarily related to the Columbia Queen. We incurred no marketing or start-up costs in connection with our new vessels in the first half of 1999. Marketing expenses for our vessels in operation were lower than in the prior year. This decrease was offset by an increase in general and administrative expenses primarily related to salary and benefits associated with new personnel hired or contracted within the past year in connection with our capacity expansion efforts. The consolidated operating loss for the first half of 2000 was $7.5 million as compared to $4.5 million for 1999. Interest income increased by $2.0 million as a result of higher average cash and marketable securities balances resulting from proceeds received by us upon the sale of additional common stock and other securities in April 1999 and February 2000. Interest expense and other financing costs of $1.0 million in the first half of 2000 represent the accrual of $0.5 million payable to the guarantor of our letter of credit facility related to our agreed upon purchase of the ms Nieuw Amsterdam in October 2000. We amortized $0.4 million of deferred financing fees related to this transaction. During the first half of 2000, we capitalized $4.0 million of interest expense related to our vessels under construction. We capitalized no interest expense in the prior year. We accrued for distributions on trust preferred securities of $1.6 million, net of tax, in the first half of 2000 due to the February 2000 issuance of trust preferred securities. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION Operating Activities For the six months ended June 30, 2000, cash provided by operations was $11.5 million compared to $22.3 million in 1999. Of the decrease, $8.0 million reflects a smaller seasonal increase in unearned passenger revenue, which increased $14.0 million from December 31, 1999 to June 30, 2000, as compared to an increase of $22.0 million from December 31, 1998 to June 30, 1999. The increase in unearned passenger revenues was greater in 1999 than in 2000 due to deposits received in 1999 for millennium cruises and differences in the timing of receipts of final payment from travel agents. The remainder of the decrease in cash provided by operations reflects 1) the greater net loss through the first six months of 2000 as compared to 1999 and 2) the payment of costs during the first quarter of 2000 that had been accrued as of December 31, 1999 for layups, drydockings and employee bonuses. Such costs accrued at December 31, 1999 and paid during the first quarter of 2000 were approximately $5.0 million higher than similar costs accrued at December 31, 1998 and paid in the first quarter of 1999. Also, at June 30, 2000 remaining capital expenditures for the Columbia Queen of $5.1 million are included in other accrued liabilities. 13 14 Investing Activities Our capital expenditures of $116.3 million included $111.4 million for vessels under construction which mainly consists of payments to shipyards. Other capital costs for the new shipbuilding programs include technical design, engineering, architectural fees and capitalized interest. For the Hawaii cruise ships under construction, we have spent $52.0 million during the first half of 2000, while $59.4 million was spent on the Columbia Queen and Delta Queen coastal vessels projects. Remaining expenditures for the Columbia Queen of $5.1 million are included in other accrued liabilities. Other capital expenditures of $4.9 million were mainly related to layups for our existing Delta Queen vessels and the Independence drydock, all of which were completed in the first quarter of 2000. With proceeds from our common stock and preferred securities offerings, as described below, we purchased $13.3 million of short-term investments. Proceeds from these offerings were also used to fund a $30 million cash collateral account related to the October 2000 acquisition of the ms Nieuw Amsterdam. Financing Activities Total proceeds from borrowings of $41.3 million reflects the issuance of $25 million of one year notes related to the first Hawaii vessel under construction. The remaining amount represents borrowings under our credit facility. Our total repayments of borrowings of $25.5 million represents the paydown of all outstanding amounts on our credit facility of $23.5 million and scheduled principal payments of $2.0 million under the American Queen and Independence ship financing notes. We completed a public offering of an additional 2,000,000 shares of common stock. The net proceeds to us, after underwriting commissions and other costs, were approximately $46.8 million and are being used for construction of the second Hawaii vessel. Additional proceeds from the issuance of common stock were received from employee stock option exercises. We also completed a public offering of 2,000,000 American Classic Voyages Co. obligated mandatorily redeemable convertible preferred securities of a subsidiary trust (trust preferred securities). The net proceeds to us, after deferred financing fees, consisting of underwriting fees and other costs of $3.7 million, were $96.3 million. Capital Expenditures and Debt At June 30, 2000, we had approximately $101.9 million in cash, restricted cash, and short-term investments. These funds, along with future cash from operations and debt to be issued with the financing guarantees from the Maritime Administration, are expected to be our principal source of capital to fund our working capital and debt service requirements, ship construction costs and distributions on trust preferred securities. Additionally, we may also fund a portion of these cash requirements from borrowings under our revolving credit facility of which we had a maximum of $70 million available to us at June 30, 2000. For the Hawaii cruise market, we are constructing two new cruise ships over the next five years and plan to introduce an existing foreign-built cruise ship, which we have a contract to acquire, into the Hawaii market prior to delivery of the new vessels. In 1999, we signed a definitive agreement with Ingalls Shipbuilding to construct two passenger ships, each containing approximately 1,900 passengers berths, with options to build up to four additional vessels. The estimated construction cost of the two initial ships, inclusive of shipyard contract price, shipyard incentives, furniture, fixtures, and owner-furnished equipment, will be approximately $490 million each. The agreement provides that the first ship will be delivered in January 2003 and the second ship in January 2004. We will finance a significant portion of the construction cost of the Hawaii cruise ships through the Maritime Administration, which provides guarantees of private financing for new vessel construction projects conducted in U.S. shipyards. During the next twelve months, we expect to spend approximately $210 million on building the two new Hawaii cruise vessels, which includes anticipated payments to Ingalls Shipbuilding. In 1999, we finalized an agreement with Holland America Line to purchase the ms Nieuw Amsterdam for $114.5 million. We intend to rename the ship and operate it as the ms Patriot. The purchase agreement required us to make an earnest money deposit of $30 million by January 17, 2000. We arranged for an unsecured letter of credit facility with The Chase Manhattan Bank for up to $30 million and satisfied the deposit requirement by posting letters of credit for $30 million. In 1999, persons and entities affiliated with Equity Group Investments, Inc. ("Equity"), our largest stockholder, guaranteed the letter of credit facility for us with The Chase Manhattan Bank for up to $30 million. Under an agreement dated October 15, 1999, as consideration for issuance of the guarantee, we paid Equity a commitment fee of $500,000 in 1999 and agreed to pay Equity additional compensation in the form of stock appreciation units contingent, in part, upon 14 15 appreciation in our common stock. Equity's rights to receive this additional compensation vested, on a monthly basis, during the period that the guarantee remained outstanding. On February 22, 2000, we deposited $30 million into a cash collateral account with Chase from proceeds received by us from our securities offering thereby terminating the Equity guarantee. We have the right to retire Equity's stock appreciation units by paying a per unit price, which escalates each year, during the first three years after issuance. The price of our right to retire Equity's stock appreciation units is $11 per share if we retire the units by October 15, 2000, $13 per share if we retire the units by October 15, 2001, and $15 per share if we retire the units by October 15, 2002. If we do not retire Equity's stock appreciation units during the first three years after issuance, Equity may exercise, during the fourth and fifth years after issuance, its right to receive payment based upon the market value of our common stock at such time. On or before the first three anniversary dates of the issuance of Equity's stock appreciation units, we will evaluate whether to exercise our right to retire the units based on our then current stock price and other factors. Holland America Line has agreed to provide financing for the remaining portion of the purchase price of the ms Nieuw Amsterdam totaling $84.5 million for 75 months at the prevailing prime rate. The Holland America Line financing will be secured by a first preferred ship mortgage. Prior to introducing the ms Patriot into service in December 2000, we expect to spend approximately $12 to $16 million on improvements to the ship. We entered into a construction contract in 1999 with Atlantic Marine, Inc. of Jacksonville, Florida to construct the first two coastal cruise vessels for our Delta Queen line. Under the construction contract, the price of the vessels will be $30 million each. We expect each coastal cruise vessel to have a total construction cost, including furnishing, fixtures and equipment, of approximately $38 million. The contract provides that the delivery date will be March 2001 for the first vessel and June 2001 for the second vessel. During the next twelve months, we expect to spend up to $45 million on building the new coastal cruise vessels, which includes anticipated payments to Atlantic Marine. This will be funded from cash on hand and debt guaranteed by the Maritime Administration. On March 31, 2000, we received a commitment from the Maritime Administration for up to $78.3 million in financing guarantees. The commitment amount represents 87.5% of the total maximum potential cost of the initial two coastal vessels, including shipyard costs, contingencies, capitalized interest, and guarantee fees. As of June 30, 2000, we complied with all covenants under our various debt agreements. We believe we will have adequate access to capital resources, both internally and externally, to meet our current short-term and long-term capital commitments. Such resources may include cash on hand, new borrowings from lenders, and the ability to secure additional financing through the capital markets. We continually evaluate opportunities to increase capacity at both Delta Queen and in Hawaii and to strategically grow our business. Although we believe that we have obtained sufficient equity and debt financing from the capital markets to satisfy our financial obligations relating to construction of the new vessels, and to acquire, renovate and introduce the ms Patriot into service, we cannot assure you that we will be able to obtain additional financing, if necessary, at commercially acceptable levels to finance these projects and, if we so choose, to pursue strategic business opportunities. If we fail to obtain such financing, we may have to postpone or abandon some of our plans. OTHER MATTERS Stock Repurchase Plan In June 1997, our board of directors approved a stock repurchase plan. The plan authorizes us to repurchase up to one million shares of our stock. These shares may be purchased from time to time in the public market or through privately negotiated transactions. As of December 31, 1998, we had repurchased 51,000 shares at an average purchase price of $14.84 per share under the plan. We have not purchased any additional shares since then and currently have no intention to repurchase any additional shares of common stock. Factors Concerning Forward-Looking Statements Certain statements in "Management's Discussion and Analysis of Financial Condition and Results of Operations" constitute "forward-looking statements" which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions. Such factors include, among others, the following: the SEC is conducting an informal inquiry of our accounting practices with 15 16 respect to direct response advertising costs; construction delays and deviations from specifications for the new vessels may adversely affect expansion plans and future financial performance; failure to obtain significant amounts of capital to build, purchase and renovate vessels, may adversely affect our expansion plans and future operating results; increased leverage may adversely affect our financial performance and cash flow; inability to maintain adequate managerial resources during our expansion may adversely affect our business; inability to manage our financial resources during our expansion may adversely affect our financial performance; if demand for our new cruise products fails to develop as expected or competition increases, our business may be adversely affected; increased capacity in Hawaii may reduce occupancy on the Independence, adversely affecting revenues; loss of exclusive rights of the Pilot Project Statute may adversely affect our revenue growth in Hawaii; modification of existing governmental regulations may adversely affect our business; increased fuel prices may adversely affect our financial performance; increased competition in the Hawaii cruise market and from other vacation alternatives may adversely impact our financial performance; increases in cruise industry capacity may adversely affect our revenues; sensitivity of the vacation and leisure industry to general economic and business conditions; failure to complete drydocking on schedule or within budget may adversely affect our revenues; weather factors can adversely affect our operations and our financial performance; the loss of vessels from service would adversely impact our business; anti-takeover and transferability limitations of U.S. ownership requirements may adversely affect the liquidity of our common stock; our controlling stockholder may take actions that adversely affect our business; sales of our controlling stockholder's shares could have an adverse effect on our common stock price or ability to raise capital; and our controlling stockholder may have conflicts of interest with competing interests. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk For a discussion of certain market risks related to us, see Part I Item 7A "Quantitative and Qualitative Disclosures About Market Risks" in our Annual Report on Form 10-K for the fiscal year ended December 31, 1999. There have been no significant developments with respect to exposure to market risk. 16 17 AMERICAN CLASSIC VOYAGES CO. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings There are no other material legal proceedings, to which the Company is a party or of which any of its property is the subject, other than ordinary routine litigation and claims incidental to the business. The Company believes it maintains adequate insurance coverage and reserves for such claims. ITEM 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders of the Company was held on June 21, 2000 (the "Annual Meeting"). Holders of Common Stock were entitled to elect twelve directors. On all matters which came before the Annual Meeting, holders of Common Stock were entitled to one vote for each share held. Proxies for 20,023,556 of the 20,772,508 shares of Common Stock entitled to vote were received in connection with the Annual Meeting. The following table sets forth the names of the twelve persons elected at the Annual Meeting to serve as directors until the next annual meeting of shareholders of the Company and the number of votes cast for, or withheld with respect to each person.
NAME OF DIRECTOR FOR WITHHELD John R. Berry 19,824,748 198,808 Philip C. Calian 19,828,480 195,076 Bradbury Dyer, III 19,797,548 226,008 Laurence S. Geller 19,795,248 228,308 Terence C. Golden 19,826,048 197,508 Arthur Greenberg 19,827,550 196,006 Jerry R. Jacob 19,828,380 195,176 Emanuel L. Rouvelas 19,827,948 195,608 Mark Slezak 19,798,048 225,508 Joseph Sullivan 19,826,278 197,278 Jeffrey N. Watanabe 19,827,949 195,607 Samuel Zell 19,827,954 195,602
The following table sets forth an additional matter which was submitted to the shareholders for approval at the Annual Meeting and the tabulation of the votes with respect to such matter.
FOR AGAINST ABSTAIN Approval of the amendment to the Company's Certificate of Incorporation 14,671,699 5,343,071 3,786
ITEM 6. Exhibits and Reports on Form 8-K a) Exhibits: 3.(iii) Certificate of Amendment to Second Amendment and Restated Certificate of Incorporation of the Company 4.(ii)(d)(1) Commitment to Guarantee Obligations dated February 10, 2000 by The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator, and accepted by Project America Ship I, Inc., the Shipowner. 4.(ii)(d)(2) Note Purchase Agreement dated February 10, 2000 as it relates to United States Government Guaranteed Ship Financing Notes -- Variable Rate Notes due January 31, 2001 signed by Project America, Inc., and accepted by Chase Securities, Inc. 4.(ii)(d)(3) Trust Indenture Relating to United States Government Guaranteed Ship Financing Obligations dated February 10, 2000 between Project America Ship I, Inc., as Shipowner, and The Bank of New York, as Indenture Trustee. 4.(ii)(d)(4) Authorization Agreement dated February 10, 2000 between The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator, and The Bank of New York, as the Indenture Trustee under the Trust Indenture dated February 10, 2000 between the Indenture Trustee and Project America Ship I, Inc., the Shipowner. 4.(ii)(d)(5) Security Agreement Relating to United States Government Guaranteed Ship Financing Obligations dated February 10,2000 between Project America Ship I, Inc., as Shipowner, and The United States of America. 4.(ii)(d)(6) Promissory Note to United States of America dated February 2000 by Project America Ship I, Inc. 4.(ii)(d)(7) Title XI Reserve Fund and Financial Agreement dated February 10, 2000 between Project America Ship I, Inc. and The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator. 4.(ii)(d)(8) Guaranty Agreement in Favor of the United States of America dated February 10, 2000 by and between Project America, Inc., as Guarantor, and The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator. 27. Financial data schedule. b) Reports on Form 8-K: None 17 18 SIGNATURES Pursuant to the requirements 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. AMERICAN CLASSIC VOYAGES CO. By: /s/ Philip C. Calian ----------------------------------------------- Philip C. Calian Chief Executive Officer By: /s/ Randall L. Talcott ----------------------------------------------- Randall L. Talcott Vice President-Finance and Treasurer (Principal Financial and Accounting Officer) Dated: August 14, 2000 18 EX-3.(III) 2 ex3-iii.txt CERTIF. OF AMENDMENT TO 2ND AMEND. & RESTATED CERT 1 CERTIFICATE OF AMENDMENT TO SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMERICAN CLASSIC VOYAGES CO. AMERICAN CLASSIC VOYAGES CO., a Delaware corporation, (the "Corporation"), in order to amend its Second Amended and Restated Certificate of Incorporation, hereby certifies as follows: 1. That the Board of Directors of the Corporation, by unanimous vote at a meeting of the Board of Directors duly called and held on March 22, 2000, adopted resolutions proposing and declaring advisable the following amendment (the "Amendment") to the Second Amended and Restated Certificate of Incorporation: That Article FOURTH of the Corporation's Second Amended and Restated Certificate of Incorporation be amended and restated in its entirety to read as follows: FOURTH: The maximum number of shares of capital stock which the Corporation is authorized to issue or to have outstanding at any time shall be 110,000,000 shares, of which 100,000,000 shall be Common Stock of $.01 (one cent) par value and 10,000,000 shall be Preferred Stock of $.01 (one cent) par value. The Preferred Stock may be issued from time to time in one or more series, upon resolution or resolutions providing for such series adopted by the Board of Directors, with such distinctive designations as shall be stated in such resolution or resolutions. The resolution or resolutions providing for the issue of shares of a particular series shall fix, subject to the applicable laws and provisions of this Article FOURTH, the designation, rights, preferences and limitations of the shares of each such series. The authority of the Board of Directors with respect to each series shall include, but not be limited to, the determination of the following: (a) The number of shares constituting such series, including the authority to increase or decrease such number, and the distinctive designation of such series; (b) The dividend rate of the shares of such series, whether the dividends shall be cumulative and, if so, the date from which they shall be cumulative, and the relative rights of priority, if any, of payment of dividends on shares of such series; (c) The right, if any, of the Corporation to redeem shares of such series and the terms and conditions of such redemption including the redemption price; (d) The rights of the shares in case of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of such series; (e) The voting rights, if any, for such series and the terms and conditions under which such voting rights may be exercised; 2 (f) The obligation, if any, of the Corporation to retire shares of such series pursuant to a retirement or sinking fund or fund of a similar nature and the terms and conditions of such obligation; (g) The terms and conditions, if any, upon which shares of such series shall be convertible into or exchangeable for shares of stock of any other class or classes or of any other series of preferred stock, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; and (h) Any other rights, preferences or limitations of the shares of such series as may be permitted by law. 2. That the stockholders of the Corporation, at the annual meeting of stockholders of the Corporation held June 21, 2000, have given their approval of such amendment in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. 3. That the Amendment to the Corporation's Second Amended and Restated Certificate of Incorporation was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware and in accordance with other applicable laws and regulations. Signed and attested to on August 9, 2000. AMERICAN CLASSIC VOYAGES CO. By: /s/ Jordan B. Allen ----------------------------------------- Jordan B. Allen, Executive Vice President ATTEST: /s/ Pam Stringer - ---------------------------------- Pam Stringer, Assistant Secretary EX-4.(II)(D)(1) 3 ex4-iid1.txt COMMITMENT TO GUARANTEE OBLIGATIONS 1 EXHIBIT 4.(ii)(d)(1) Contract No. MA-13579 COMMITMENT TO GUARANTEE OBLIGATIONS by THE UNITED STATES OF AMERICA Accepted by PROJECT AMERICA SHIP I, INC., Shipowner (Under Title XI, Merchant Marine Act, 1936, as amended, and in effect on the date of this Guarantee Commitment) Dated February 10, 2000 2 TABLE OF CONTENTS COMMITMENT TO GUARANTEE OBLIGATIONS
ARTICLE HEADINGS PAGE RECITALS...................................................................................................1 ARTICLE I FINDINGS AND DETERMINATIONS OF SECRETARY....................................................2 ARTICLE II COMMITMENT TO GUARANTEE OBLIGATIONS..........................................................2 ARTICLE III THE OBLIGATIONS..............................................................................2 ARTICLE IV CONDITIONS TO EXECUTION AND DELIVERY OF THE GUARANTEE........................................3 ARTICLE V VARIATION OF GUARANTEE COMMITMENT ...........................................................5 ARTICLE VI TERMINATION OR ASSIGNMENT OF GUARANTEE COMMITMENT............................................5 ARTICLE VII MISCELLANEOUS................................................................................6
3 COMMITMENT TO GUARANTEE OBLIGATIONS THIS COMMITMENT TO GUARANTEE OBLIGATIONS, dated February 10, 2000 (the "Guarantee Commitment"), made and entered into by the UNITED STATES OF AMERICA (the "United States"), represented by the SECRETARY OF TRANSPORTATION, acting by and through the MARITIME ADMINISTRATOR (the "Secretary"), and accepted on said date by Project America Ship I, Inc., a Delaware corporation (the "Shipowner"). RECITALS: A. The Shipowner is the sole owner of Hull No. 7671, an 840' passenger vessel (the "Vessel") being constructed pursuant to the Construction Contract between Ingalls Shipbuilding, Inc. (the "Shipyard") and Project America, Inc. (the "Guarantor"), dated March 9, 1999, and subsequently assigned to the Shipowner. B. To aid in financing the Construction of the Vessel, the Shipowner will borrow an aggregate principal amount in Obligations not to exceed 87.5% of the Depreciated Actual Cost or Actual Cost of the Vessel, as the case may be, as of the Closing Dates. To accomplish such financing, the Shipowner has accepted this Guarantee Commitment subject to the terms and conditions set forth herein. C. The Shipowner has entered into the Note Purchase Agreement providing for the sale and delivery, on the Note Closing Date, of notes in the aggregate principal amount of $250,000,000, to be designated "United States Government Guaranteed Ship Financing Notes" (the "Notes") having the maturity dates and interest rates set forth in the Notes. D. As security for the Guarantees and the Secretary's Note, (i) the Shipowner will execute and deliver the Security Agreement, Contract No. MA-13581, the Indenture, the Authorization Agreement, Contract No. MA-13580, the Secretary's Note, the Financial Agreement, Contract MA-13583, and the Depository Agreement, Contract No. MA-13584 and (ii) the Guarantor shall execute and deliver the Parent Guarantee. E. On the Bond Closing Date, the Shipowner will execute and deliver the Bond Purchase Agreement providing for the sale and delivery, on the Bond Closing Date, of bonds to be designated "United States Government Guaranteed Ship Financing Bonds" (the "Bonds" and together with the Notes, the "Obligations") in an aggregate principal amount, together with any Outstanding Notes, not to exceed $534,447,000 having the maturity dates and interest rates set forth in the Bond Purchase Agreement, the Indenture, and the Bonds. WITNESSETH That under the provisions of Title XI of the Merchant Marine Act, 1936, as amended and in consideration of (i) the covenants of the Shipowner contained herein and (ii) other good and 4 valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Secretary hereby commits itself as herein provided. ARTICLE I FINDINGS AND DETERMINATIONS OF THE SECRETARY Pursuant to Section 1104A(b)(1) of Title XI, the Secretary has approved the Shipowner as responsible and possessing the ability, experience, financial resources and other qualifications necessary to the adequate operation and maintenance of the Vessel. Pursuant to Section 1104A(b)(2) of Title XI, the Secretary has determined that the Depreciated Cost or Actual Cost of the Vessel, as the case may be, is $610,797,578. Prior to the Closing Dates, the Secretary, in its discretion, may redetermine the Depreciated Actual Cost or Actual Cost of the Vessel. On the Closing Dates, the aggregate principal amount of the Outstanding Obligations will not exceed 87.5% of the Depreciated Actual Cost or the Actual Cost, as the case may be. Pursuant to Sections 1104A(b)(3), 1104A(b)(4) and 1104A(b)(5) of Title XI, the Secretary has determined or will determine that: (1) the maturity dates of the Obligations are satisfactory, (2) payments of principal required by the Obligations are satisfactory and (3) the interest rates to be borne by the Obligations to be issued on the Closing Dates are reasonable. Pursuant to Section 1104A(d) of Title XI, the Secretary has found that the Shipowner's proposed use of the Vessel will be economically sound. ARTICLE II COMMITMENT TO GUARANTEE OBLIGATIONS The United States, represented by the Secretary, hereby commits itself to guarantee the payment of the unpaid interest on, and the unpaid balance of the principal of, the Obligations, including interest accruing between the date of default under the Obligations and the payment in full of the Guarantees, and, to effect this Guarantee Commitment, hereby commits itself to execute and deliver, the Security Agreement, the Financial Agreement, the Authorization Agreement and the Depository Agreement on the Note Closing Date, and the Mortgage on the Delivery Date pursuant to the terms of the Guarantee Commitment. ARTICLE III THE OBLIGATIONS The Obligations shall be issued as a series of Notes and Bonds as provided in the Indenture and in the form of the Note and the Bond, annexed to the Indenture as Exhibit 2A and Exhibit 2B, respectively. The Obligations shall be subject to all of the terms and conditions set forth in the Indenture. 2 5 ARTICLE IV CONDITIONS TO EXECUTION AND DELIVERY OF THE GUARANTEE A. The obligation of the Secretary to execute and deliver the Guarantee on a Note Closing Date and a Bond Closing Date shall be subject to the following conditions unless waived in writing by the Secretary: (a) the first Note Closing Date shall occur on or prior to April 8, 2000 and the final Bond Closing Date shall occur on or prior to one year from the Delivery Date; (b) the Shipowner and the Shipyard shall have executed and delivered to the Secretary a copy of the Construction Contract and the Shipyard shall have executed the Consent of Shipyard; (c) the Shipowner shall have executed and delivered the following documents in the form attached hereto: the Security Agreement, the Financial Agreement, the Indenture, the Note Purchase Agreement, the Secretary's Note, the Depository Agreement, the Authorization Agreement and the Notes; (d) the Indenture Trustee shall have executed, in the form attached hereto, the Indenture and the Authorization Agreement and the Depository shall have executed the Depository Agreement; (e) The Note purchaser shall have executed the Note Purchase Agreement; (f) the Guarantor shall have executed and delivered, in the form attached hereto, the Parent Guaranty; (g) the following documents shall have been delivered to the Secretary: (i) two executed counterparts of the Indenture, (ii) two specimen copies of the Notes; (iii) two executed originals of the legal opinion issued under section (l) of this Article; (iv) two copies of the legal opinion delivered to the Obligees pursuant to the Note Purchase Agreement; and (v) two originals of all other documents delivered by the Shipowner, the Guarantor, the Indenture Trustee or the Depository in connection with this Closing. (h) if the Shipowner intends to operate the Vessel in the U.S. domestic trade, the Shipowner and any bareboat charterers of such Vessel shall have furnished to the Secretary on the Note Closing Date an affidavit complying with the requirements of 46 CFR Section 355, demonstrating U.S. citizenship; (i) the Shipowner shall have executed an Officer's Certificate representing and warranting the truth of the following statements as of the Note Closing Date: (i) each of the representations and warranties set out at Section 2.01 of the General Provisions of the Security Agreement in Appendix III; and 3 6 (ii) the Shipowner is not in violation of any Federal laws having a substantial adverse effect on the interests of the United States of America and that the consummation of the Commitment complies with non-Title XI Federal law. (j) At the Closing of each Note or Bond, the Secretary shall receive the Guarantee Fee based upon the principal amount and maturity of each Obligation to be issued, set at three-eighths of one percent for each Note issued during the construction of the Vessel, and three-quarters of one percent (i) for each Note issued after the Delivery Date, and (ii) for each Bond, and paid at the Closing of each Note or Bond; (k) the Shipowner shall have complied in all material respects with its agreements under this Guarantee Commitment; (l) there shall not have occurred any event which constitutes (or after any period of time or any notice, or both, would constitute) a "Default" under the Security Agreement; (m) there shall have been delivered to the Secretary by the Shipowner an opinion of counsel acceptable to the Secretary, in the form annexed hereto as Schedule 1 which shall include, among other things, an opinion to the effect that: (i) by the terms of the Security Agreement, the Shipowner has granted to the Secretary a fully perfected, first priority security interest in each of the assets which constitutes the Security; and (ii) all filings, recordings, notices and other actions required to perfect the Secretary's interests in the Security and to render such security interests valid and enforceable under applicable State law have been duly effected; (n) the Secretary shall have received a letter agreement from the Shipowner to provide the Secretary within a reasonable time after the Note Closing Date, with five conformed copies of the Guarantee Commitment and each of the Appendices and Exhibits thereto executed on or prior to such date; (o) on the Note Closing Date, the qualifying requirements set forth in Section 11 of the Financial Agreement shall have been complied with and certified to as required therein; and (p) at least ten days prior to the Note Closing Date, there shall have been delivered to the Secretary, pro forma balance sheets for the Shipowner as of the Note Closing Date, certified by an officer of the Shipowner showing, among other things, all non-Title XI debt of the Shipowner; (q) on the Note Closing Date, the Shipowner shall certify that all non-Title XI loans to the Shipowner relating to the Vessel have been discharged or subordinated satisfactorily to the Secretary; (r) at least ten days prior to the Note Closing Date, the Shipowner shall have provided the Secretary with satisfactory evidence of insurance as required by the Security Agreement; 4 7 (s) the Guarantor shall have executed and delivered the Parent Guarantee, and; (t) on the Note Closing Date the Shipowner shall execute a declaration, in conformance with 31 USC 1352, disclosing all lobbying activities. B. The obligation of the Secretary to execute and deliver a Secretary's Determination on any subsequent Note Closing or the Bond Closing Date shall be subject to the following conditions unless waived in writing by the Secretary: (a) the Shipowner shall have executed and delivered the following documents in the form attached hereto: the Notes and the Note Purchase Agreement or the Bonds and the Bond Purchase Agreement, as the case may be; (b) the Note purchaser or the Bond purchaser, as the case may be shall have executed the Note Purchase Agreement or the Bond Purchase Agreement, as applicable; (c) the following documents shall have been delivered to the Secretary: (i) one executed counterpart and one copy of the Note Purchase Agreement or Bond Purchase Agreement and two conformed copies of the Offering Circular; (ii) two specimen copies of the Notes or Bonds; (iii) two executed originals of the legal opinion issued under section (k) of this Article; (iv) two copies of the legal opinion delivered to the Obligees pursuant to the Note Purchase Agreement or Bond Purchase Agreement, and (v) two originals of all other documents delivered by the Shipowner, Indenture Trustee or the Depository in connection with the Note Closing or Bond Closing; ARTICLE V VARIATION OF GUARANTEE COMMITMENT No variation from the terms and conditions hereof shall be permitted except pursuant to an amendment executed by the Secretary and the Shipowner. ARTICLE VI TERMINATION OR ASSIGNMENT OF GUARANTEE COMMITMENT This Guarantee Commitment may be terminated and the parties hereto shall have no further rights or obligations hereunder, upon written notice by the Secretary of the termination of the obligations of the United States pursuant to the Shipowner's failure to satisfy one or more conditions set forth in Article IV hereof or upon the Secretary's determination, at or before the Note Closing Date, that (i) the Shipowner is in violation of Federal law and such violation would have a substantial, adverse affect on the interests of the United States of America or (ii) the consummation of the Commitment would violate non-Title XI Federal law. The Shipowner's warranties and representations shall survive the termination of this Agreement and the Secretary's issuance of the Guarantees. This Guarantee Commitment may not be assigned by the Shipowner without the prior written approval of the Secretary and any attempt to do so shall be null and void ab initio. 5 8 ARTICLE VII MISCELLANEOUS (a) The table of contents and the titles of the Articles are inserted as a matter of convenient reference and shall not be construed as a part of this Guarantee Commitment. This Guarantee Commitment may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. (b) For all purposes of this Guarantee Commitment, unless otherwise expressly provided or unless the context shall otherwise require, capitalized terms used herein shall have the meaning given in Schedule X to the Security Agreement. 6 9 IN WITNESS WHEREOF, this Commitment to Guarantee Obligations has been executed by the United States and accepted by the Shipowner, all as of the day and year first above written. UNITED STATES OF AMERICA, SECRETARY OF TRANSPORTATION BY: MARITIME ADMINISTRATOR (SEAL) /s/ Joel C. Richard ---------------------------- Secretary ATTEST: /s/ Sarah J. Washington - ----------------------- Assistant Secretary 10 SHIPOWNER: PROJECT AMERICA SHIP I, INC. (SEAL) ......... By /s/ Jordan B. Allen ------------------------ Its Executive Vice President ATTEST: By /s/ Pam Stringer ----------------------- Its Assistant Secretary EX-4.(II)(D)(2) 4 ex4-iid2.txt NOTE PURCHASE AGREEMENT 1 EXHIBIT 4.(ii)(d)(2) PROJECT AMERICA SHIP I, INC. $25,000,000 United States Government Guaranteed Ship Financing Notes -------------------------------------- NOTE PURCHASE AGREEMENT -------------------------------------- Dated February 10, 2000 2 PROJECT AMERICA SHIP I, INC. $ 25,000,000 United States Government Guaranteed Ship Financing Notes Variable Rate Notes due January 31, 2001 NOTE PURCHASE AGREEMENT To each of the respective Purchasers named in Schedule 1 hereto: Dated February 10, 2000 Dear Sirs: The undersigned, Project America Ship I, Inc., a Delaware corporation (the "Shipowner"), hereby agrees with each of you (each, a "Purchaser") as follows: 1. The Notes. The United States Government Guaranteed Ship Financing Notes, due January 31, 2001, referred to above (collectively the "Notes") in the aggregate principal amount set forth above are proposed to be issued and sold by the Shipowner upon fulfillment of the terms and conditions set forth herein. The Notes will be issued and sold to aid in the financing of the construction of Hull No. 7671 (the "Vessel"). The Notes will be in fully registered form only and will bear interest from the date of issuance at LIBOR minus .05%, adjusted quarterly, payable quarterly, on April 28, July 31 and October 31, 2000 and at maturity, commencing April 28, 2000. The Notes will be issued under a Trust Indenture (the "Indenture") between the Shipowner and The Bank of New York, as Trustee (the "Indenture Trustee"). Payment of the principal of and interest on the Notes will be fully and unconditionally guaranteed by the United States of America pursuant to the guarantee imprinted by the Indenture Trustee pursuant to an Authorization Agreement, on each of the Notes (the "Guarantee") under Title XI of the Merchant Marine Act, 1936, as amended and in effect on the date hereof (the "Act"). Since the Notes are guaranteed with the full faith and credit of the United States of America, it is understood that you will not independently review the financial condition of the Shipowner and will rely completely on the Secretary's Determination regarding the financial resources and maritime ability of the Shipowner. The capitalized terms used herein and not defined herein have the meanings ascribed thereto in Schedule A to the Indenture. The Notes, the Indenture and the Guarantees conform in all material respects to the descriptions thereof contained in the Offering Circular dated February 10, 2000 (the "Offering 3 Circular"), which is being used by the Purchasers, with the consent of the Shipowner, for resales of the Notes to investors. 2. Interest Rate on Notes. The rate of interest to be borne by the Notes shall be determined in accordance with the provisions of the Notes and the Indenture and in each case shall be equal to a per annum rate adjusted quarterly for each Interest Period to LIBOR calculated on the Interest Determination Date for such Interest Period minus .05% which rate is applicable until the next Interest Payment Date provided, however, in no event shall the rate of interest payable thereunder exceed 12% per annum, for any Interest Period. Prior to authorizing the Guarantees, the rate of interest to be borne by the Notes must be determined by the Secretary to be reasonable, taking into account the range of interest rates prevailing in the private market for similar loans and the risks assumed by the Secretary. 3. Agreement to Purchase. Subject to the conditions hereinafter set forth, and the representations and warranties contained herein, the Shipowner agrees to sell to you and you agree to purchase on the Note Closing Date the Notes in the principal amount set forth opposite your name in Schedule 1 hereto (subject to adjustment as set forth in Section 6 hereof) at 100% of such principal amount thereof. 4. Closing. Delivery of the Notes shall be made at the office of the Maritime Administration, 400 Seventh Street, S.W., Washington, D.C., at a closing commencing at 9:00a.m., Eastern time, on February 10, 2000 (the "Note Closing Date") or such other place or such later business day (which, without the approval of Purchasers of at least 50% of the aggregate principal amount of Notes, shall not be later than April 8, 2000) as the Shipowner shall designate by at least 3 days' prior written notice to the Indenture Trustee and to you at your address specified in Schedule 1 hereto. Delivery of the Notes shall be made against payment therefor in funds immediately available to the Shipowner in Washington, D.C. Except as you may otherwise direct three (3) business days before the Note Closing Date, a single Note in global form dated the Note Closing Date, authenticated by the Indenture Trustee, guaranteed by the United States of America, and registered in the name of the Depository Trust Company ("DTC") or its nominee and issued in a denomination equal to the aggregate principal amount of the Notes, will be delivered to DTC or its custodian for the account of the Purchaser. For the purposes of this Agreement, a "business day" is a day which is not a Saturday, Sunday or bank holiday under the laws of the United States of America or the State of Illinois. 5. Representations and Warranties by the Shipowner. The Shipowner represents and warrants to you that this Agreement, the Indenture, and the Notes have been duly authorized, executed and delivered by the Shipowner and constitute, each in accordance with their terms, a legal, valid and binding instrument enforceable against the Shipowner, except as limited by bankruptcy, insolvency, or other laws affecting the enforcement of creditors' rights generally. On the Note Closing Date, the Indenture and the Notes will have been duly authorized, executed and delivered by the Shipowner and will constitute legal, valid and binding instruments enforceable against the Shipowner, and the Notes will be entitled to the benefits of the Indenture, the Guarantees and the Authorization Agreement. The Shipowner represents that the Notes, the Indenture, and the Authorization Agreement conform in all material respects to the descriptions 2 4 thereof contained in the Offering Circular dated February 10, 2000 unless you consent to a change. 6. Conditions to Purchaser's Obligations. Your obligation under this Agreement to purchase Notes on the Note Closing Date is subject to the accuracy of the representations and warranties of the Shipowner contained in Section 4 hereof on and as of the Note Closing Date and to the following further conditions: (A) Opinion of Counsel for the Shipowner. On the Note Closing Date, the Shipowner shall have furnished an opinion of its counsel addressed to you and satisfactory to you and the Indenture Trustee regarding the representations and warranties set out in Item 4 of this Agreement; (B) Opinion of the Chief Counsel of the Maritime Administration. On the Note Closing Date, your counsel shall have received a copy of a legal opinion from the Maritime Administration addressed to the Purchasers and the Indenture Trustee to the effect that the Guarantees and the Authorization Agreement have been duly authorized, executed and delivered by the United States of America, and constitute the legal, valid and binding obligations of the United States of America; and (C) Opinion of Counsel for the Purchasers. On the Note Closing Date, you shall have received an opinion from your counsel satisfactory to you as to the sufficiency of this Agreement, the Indenture, the Notes, the Authorization Agreement and the Guarantee. (D) Certificate of Officer of the Shipowner. On the Note Closing Date, you shall have received a certificate signed by an authorized representative of the Shipowner to the effect that (a) the Shipowner has performed all agreements and satisfied all conditions on its part to be performed or satisfied hereunder on or prior to the Note Closing Date, (b) the representations and warranties of the Shipowner herein contained are true and correct in all material respects to the same extent as if made on and as of the Note Closing Date, and (c) the terms of the Indenture have been complied with by the Shipowner, and as of the Note Closing Date, there shall not exist any condition or event which constitutes, or which after lapse of time or notice or both would constitute, an Indenture Default as defined in the Indenture. If any of the conditions specified in this Section 5 shall not have been fulfilled by the Shipowner when and as required by this Agreement, you may cancel this Agreement and all of your obligations hereunder on, or at any time prior to, the Note Closing Date. Notice of such cancellation shall be given to the Shipowner in writing. 7. Conditions of Shipowner's Obligations. The obligations of the Shipowner to sell and deliver the Notes under this Agreement on the Note Closing Date are subject to all of the following conditions: (A) on the Note Closing Date all the Notes to be delivered by the Shipowner shall have simultaneously been purchased by the Purchasers; and (B) on or before the Note Closing Date (i) the Secretary shall have duly authorized the execution and delivery of the Guarantee of the Notes and shall have duly executed and delivered the Authorization Agreement; 3 5 and (ii) the Indenture Trustee shall have duly executed and delivered the Indenture and the Authorization Agreement. 8. Expenses. Whether or not the transactions contemplated hereby are consummated, the Shipowner agrees to pay all reasonable fees and expenses incident to the transactions contemplated hereby and by the Offering Circular, including without limitation, reasonable fees and expenses (i) of the Purchaser's special counsel in connection with the transactions contemplated hereby and in connection with any future modifications requested by the Shipowner of this Agreement, the Notes or the Indenture or any waiver or consent under or in respect of any thereof; (ii) relating to the preparation, printing and filing of, and the performance by the Shipowner of its obligations under the Offering Circular, this Agreement, and the Indenture (including all instruments constituting exhibits or appendices thereto or annexed thereto); (iii) for payment of necessary stamp and other taxes, if any, in connection with the original issuance of the Notes (the Shipowner hereby agrees to hold the Purchaser harmless in respect thereof, such agreement to survive any disposition or payment of the Notes), (iv) of the Indenture Trustee and its counsel, (v) of the Purchaser, as agreed between such firm and the Shipowner in connection with the sale of the Notes, and (vii) otherwise relating to the issuance and delivery of the Notes. 9. Indemnification. (A) The Shipowner shall indemnify Chase Securities, Inc. ("CSI") and hold CSI and each person, if any, who controls CSI, harmless from and against any loss, claim, damage or liability and any action in respect thereof, joint or several, to which CSI or such controlling person may become subject, under any statute or common law, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement of material fact contained in the Offering Circular dated February 10, 2000 (the "Offering Circular") or any preliminary version thereof given to CSI or arises out of, or is based upon any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse CSI and such controlling person for any legal and other expenses reasonably incurred by CSI or such controlling person in investigating or defending or preparing to defend against any such loss, claim, damage, liability or action. The foregoing indemnity agreement is in addition to any liability which the Shipowner may otherwise have to CSI or any person who controls CSI. (B) Promptly after receipt by CSI under this Section 9 of notice of any claim or the commencement of any action, CSI shall, if a claim in respect thereof is to be made against the Shipowner under this Section 9, notify the Shipowner in writing of the claim or the commencement of that action, provided that the failure to notify the Shipowner shall not relieve it from any liability that it may have to CSI otherwise than under this Section 9 unless the Shipowner is actually prejudiced by such delay. If any such claim or action shall be brought against CSI, and it shall notify the Shipowner thereof, the Shipowner shall be entitled to participate in or to assume the defense thereof with counsel reasonably satisfactory to CSI unless and until CSI shall elect to employ separate counsel as hereinafter provided. After notice from the Shipowner to CSI of its election to assume the defense of such claim or action, 4 6 the Shipowner shall not be liable to CSI of its election to assume the defense of such claim or action, the Shipowner shall not be liable to CSI under this Section 9 for any legal or other expenses subsequently incurred by CSI in connection with the defense thereof other than reasonable costs of investigation; provided that CSI shall have the right to employ counsel to represent it if, in its reasonable judgment, it is advisable for it to be represented by separate counsel, and in that event the fees and expenses of such separate counsel shall be paid by the Shipowner. The Shipowner shall not be required to indemnify CSI under this Section 9 for any payment made to any claimant in settlement of any suit or claim unless such payment is approved by the Shipowner. 10. Entire Agreement Embodied, Changes, etc. This Agreement embodies the entire agreement and understanding among the Shipowner and you relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. Neither this Agreement nor any term hereof may be changed, waived, discharged, or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought and with the written consent of the Secretary. 11. Miscellaneous. (A) Except as otherwise expressly provided in this Agreement, (i) whenever notice is required by the provisions hereof to be given to the Shipowner, such notice shall be in writing addressed to Project America Ship I, Inc., c/o American Classic Voyages Company, 2 North Riverside Plaza, Chicago, Illinois 60606, (ii) whenever notice is required by the provisions hereof to be given to the Guarantor, such notice shall be in writing addressed to Project America, Inc., c/o American Classic Voyages Company, 2 North Riverside Plaza, Chicago, Illinois 60606, and (iii) whenever notice is required by the provisions of this Agreement to be given to you, such notice shall be in writing addressed to you at your address set forth in Schedule 1 hereto or any other address specified in a written notice to the Shipowner; (B) This Agreement is made solely for the benefit of and is binding upon and enforceable by you, the Shipowner, and your respective successors and assigns, and no other person shall acquire or have any right under, or by virtue of, this Agreement; (C) If this Agreement shall be canceled or terminated by you because of nonfulfillment of the conditions set forth in Section 6 hereof or because of the Shipowner's failure to comply on or before the Note Closing Date with the conditions precedent set forth herein, the Shipowner shall have no further obligations or liability hereunder to you except that the Shipowner will reimburse you for out-of-pocket costs and expenses reasonably incurred by you (including without limitation reasonable fees and other charges of your counsel and other experts) in connection with the engagement of the Note Purchaser, the purchase of the Notes, and any of the transactions contemplated therewith; (D) This Agreement shall be governed and construed in accordance with the laws of the State of New York. 5 7 If you are in agreement with the foregoing, please sign the form of acceptance on the accompany counterparts of this Agreement, retain one counterpart for your records and return the other counterparts to the Shipowner, whereupon this Agreement shall become a binding contract among you, the Shipowner and Purchaser. Very truly yours, PROJECT AMERICA SHIP I, INC. By: /s/ Randall L. Talcott --------------------------------------- Its Vice President - Finance 8 The foregoing Agreement is hereby confirmed and accepted as of the date first above written. Chase Securities Inc. By: /s/ Michael K. Clare -------------------------------- Its Managing Director 9 SCHEDULE 1
Aggregate Principal Amount of Notes To Purchaser Be Purchased: - --------- ------------- Chase Securities Inc. $25,000,000
Address for all communications and notices: Chase Securities Inc. 270 Park Avenue 7th Floor New York, NY 10017 EX-4.(II)(D)(3) 5 ex4-iid3.txt TRUST INDENTURE RELATING TO US GOV. OBLIGATIONS 1 EXHIBIT 4.(ii)(d)(3) ================================================================================ TRUST INDENTURE Relating to United States Government Guaranteed Ship Financing Obligations Between PROJECT AMERICA SHIP I, INC., Shipowner And THE BANK OF NEW YORK, Indenture Trustee Dated February 10, 2000 ================================================================================ 2 TRUST INDENTURE SPECIAL PROVISIONS THIS TRUST INDENTURE, dated February 10, 2000 (the "Indenture"), between (i) Project America Ship I, Inc., a Delaware corporation (the "Shipowner"), and (ii) The Bank of New York, a New York banking corporation (the "Indenture Trustee"). RECITALS WHEREAS, pursuant to the understandings set forth in the Security Agreement, the Shipowner has authorized the issuance of certain Obligations to be issued pursuant to this Indenture, with the aggregate principal amount of the Obligations not to exceed $534,447,000 to finance the cost of construction of the Vessel; and WHEREAS, the Secretary, on behalf of the United States, has agreed to Guarantee the payment of the unpaid interest to the date of such payment on, and the unpaid balance of the principal of, such Obligations under the provisions of Title XI of the Act, and has authorized the Indenture Trustee to cause the Guarantees to be imprinted on the Obligations pursuant to the Authorization Agreement. NOW THEREFORE, in consideration of the premises, of the mutual covenants herein contained, of the purchase of the Obligations by the Holders thereof, and of other good and valuable consideration, the receipt and adequacy of which the parties hereby acknowledge, and for the equal and proportionate benefit of all the present and future Holders of the Obligations, parties hereto agree as follows: 1. Incorporation of General Provisions. This Indenture shall consist of two parts: the Special Provisions and the General Provisions attached hereto as Exhibit 1, and they shall be treated as one instrument. In the event of a conflict, the terms of the Special Provisions shall prevail. 2. The Obligations. (a)(1) The Obligations issued hereunder shall be designated "United States Government Ship Financing Obligations", shall be in the maximum principal amount of $534,447,000, and shall be issued in tranches in the form of the Notes set forth in Exhibit 2A hereto, and in the form of Bonds set forth in Exhibit 2B hereto. (2) The maximum principal amount of the Notes which may be issued and outstanding at any time shall not exceed $250,000,000. (3) The first tranche of the financing shall be funded on the first Note Closing Date in the aggregate principal amount of $25,000,000, and shall be designated "United States 3 Government Guaranteed Ship Financing Note, 2000 Series A", (the "Note") the proceeds of the first tranche and all subsequent tranches of the financing to be used for the construction of the Vessel shall be deposited into the Escrow Fund and administered in accordance with the provisions of Article V of the Security Agreement. (4) From time to time, the Shipowner shall submit to the Secretary a Request to issue subsequent Obligations or to refinance an Outstanding Obligation or additional obligations at maturity and to increase the amount Outstanding through the issuance of an additional Obligation. (5) The Secretary shall consider the Shipowner's submissions under Subsection (4), and shall, in the absence of a default under the Security Agreement and the Construction Contract, issue a determination establishing the amount of the additional Obligations (the "Secretary's Determination", a form of which is attached hereto as Exhibit 4). The Secretary shall thereafter inform the Indenture Trustee, the Shipowner, and such purchaser as the Shipowner may designate of the amount authorized to be included in any additional tranche (such amount, together with all amounts advanced pursuant to all other tranches shall not exceed 87.5% of the Actual Cost). (6) If the purchaser designated by the Shipowner under Subsection (a)(1)(5) hereof, and the Holders are the same entities, then the Holders shall fund any subsequent tranche, and provide evidence of the disbursement of the Obligation proceeds to the Indenture Trustee and the Secretary, in form and substance satisfactory to the Secretary and to the Indenture Trustee. If the purchaser and the Holders are not the same entities, then prior to the disbursement of the Obligation proceeds, the new purchaser, the Shipowner and the Indenture Trustee shall obtain the Secretary's consent to the form and substance of the proposed additional Obligation if it differs from Exhibit 2A or Exhibit 2B hereto, as the case may be. Thereafter, the purchaser of the additional Obligations shall provide evidence of the disbursement of the Obligation proceeds to the Indenture Trustee and to the Secretary, which evidence shall be in form and substance satisfactory to both. (7) Until each of the actions required by this Article Second (a)(2)-(6) has been accomplished, the Secretary's Guarantee of any tranches subsequent to the first one shall not be legal, binding or enforceable. (b) The denominations of the Obligations shall be in integral multiples of $1,000. (c) The Shipowner shall at all times cause to be maintained in the City of Chicago, State of Illinois, an office or agency for the purposes specified in Section 5.03 of this Indenture. (d) The Indenture Trustee shall at all times have its Corporate Trust Office in the City of New York, State of New York. 3. Additions, Deletions, and Amendments to Exhibit 1. The following additions, deletions, and amendments are hereby made to Exhibit 1 to this Indenture: 2 4 (a) Concerning Section 2.01. (1) Section 2.01(c) is hereby amended by inserting the words ", holding Obligations in an aggregate principal amount of $1,000,000 or more," on the fourth line after "request of an Obligee" and prior to "received by the Indenture Trustee". (2) Section 2.01(e) is hereby amended by deleting it in its entirety and inserting the following in lieu thereof: "(e) If the Maturity of any Bond or an Interest Payment Date for any Bond shall be a day other than a Business Day, then such payment may be made on the next succeeding Business Day, with the same force and effect as if made on the nominal date for such payment, and no interest shall accrue thereon for the period after said nominal date; provided, however, in the case of any Note, if any Interest Payment Date (other than an Interest Payment Date at maturity) falls on a day that is not a Business Day, such Interest Payment Date will be postponed until the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Payment Date will be made on the first preceding Business Day." (b) Concerning Section 2.02. At any time and from time to time prior to one (1) year from the Delivery Date, the Shipowner and the Indenture Trustee may Request a Secretary's Determination, pursuant to Section 2(a) hereof, to provide for the issuance of the Bonds in the form of Exhibit 2B hereto for the purpose, inter alia, of repaying the Note, provided, however, that (a) except for the final issuance, each issuance of Bonds must be in a minimum aggregate principal amount of $50,000,000, and (b) the proceeds from the issuance of Bonds shall be applied, at the Shipowner's option, to pay off, satisfy and cancel some or all of the Outstanding principal amount of the Note, provided, however, that during the Construction Period, the Note need not be paid off in its entirety and need only be reduced by the net proceeds from the issuance of the Bonds; provided further that one year from the delivery date the Shipowner shall request a Secretary's Determination to provide for the redemption of the total principal amount of the Note by issues of one or more Bonds. (c) Concerning Notice of Stated Maturity. Article II of Exhibit 1 hereto is hereby amended by adding a new Section 2.11 as follows: "Section 2.11. Notice of Stated Maturity. (a) In the event the Delivery Date shall occur prior to December 15, 2004, then not more than 30 days after the Delivery Date, a notice indicating the date fixed as the Stated Maturity of the Bonds, which date shall not be later than twenty-five years after the Delivery Date, shall be given by or on behalf of the Shipowner or, at the Shipowner's or at the Secretary's written request (provided, that the Indenture Trustee shall have received such request not more than 20 days after the Delivery Date), by the Indenture Trustee in the name and at the expense of the Shipowner by mailing a 3 5 copy of such notice, by first class mail, postage prepaid, to each Holder of an Outstanding Bond at his last address appearing on the Obligations Register. "(b) Each Bond issued by the Shipowner and authenticated and delivered by the Indenture Trustee subsequent to the date of any notice referred to in this Section 2.11 shall be appropriately legended by the Indenture Trustee, in the name and at the expense of the Shipowner, to reflect the matters set forth in such notice." (d) Concerning Section 3.03. Section 3.03 is hereby amended by deleting the words "Special Provisions" and inserting in lieu thereof the word "Obligations". (e) Concerning Section 3.09. Section 3.09 is hereby amended by inserting the words "of immediately available funds" on the third line after "an amount" and prior to "sufficient for". (f) Concerning Section 3.07. Section 3.07 is hereby amended by inserting the words "from each Holder" on the third line after "redeemed" and prior to "by multiplying" and deleting the words "each Holder of an Outstanding Obligation is owed" on the fourth line and substituting in lieu thereof the words "of Outstanding principal amount of Obligations held by such Holder". (g) Concerning Section 5.03. Section 5.03 is hereby amended by deleting the words "Article Second" located on the second line thereof and inserting in lieu thereof the words "Section 2". (h) Concerning Section 7.03. Section 7.03 is hereby amended by adding a new subsection (r) as follows: "(r) The Indenture Trustee shall be responsible for the calculation of the interest due on any Outstanding Notes and providing notice of said amount to the Shipowner, the Secretary, the Note Purchaser, and all Noteholders at least two Business Days prior to the Interest Payment Date." (i) Concerning Section 7.04. Section 7.04 is hereby deleted in its entirety and replaced with the following: "Section 7.04. Compensation, Expenses and Indemnification of Indenture Trustee. The Shipowner shall (1) pay the Indenture Trustee such compensation as may be agreed upon by the Shipowner and the Indenture Trustee and reimburse it for its reasonable expenses and disbursements (including counsel fees and expenses) incurred in accepting the trusts created hereunder and in connection with the administration of such trusts; and (2) indemnify the Indenture Trustee for, and hold it harmless against, any loss, liability or expense (including counsel fees and expenses) which it may incur or suffer without negligence or bad faith in acting under this Indenture or the Authorization Agreement. The compensation of the Indenture Trustee shall not be limited to the compensation provided by law for 4 6 a trustee acting under an express trust. The rights of the Indenture Trustee under this Section 7.04 shall survive the resignation or removal of such Indenture Trustee or the satisfaction and discharge of the Indenture." (j) Concerning Section 8.01. Section 8.01 is hereby amended by deleting the phrase "on the Proportionate Part of the Outstanding Obligations, as determined by the Secretary," contained on the ninth and tenth lines thereof. (k) Concerning Registered and Beneficial Ownership of the Obligations; Legends. (i) Each issue of Notes and Bonds shall be issued initially in the form of one permanent global Note or Bond, as the case may be, in definitive, fully registered form without interest coupons (the "Global Obligation"). Except as provided in paragraph (iii) below, owners of beneficial interests in the Global Obligation ("Obligation Owners") will not be entitled to receive separate certificated Obligations ("Definitive Obligations") and will not be considered the Holders thereof. The Global Obligation shall be deposited with the Depository Trust Company ("DTC") or the Indenture Trustee, as custodian for DTC, registered in the name of DTC or a nominee of DTC, and duly executed by the Shipowner and authenticated by the Indenture Trustee as provided in the Indenture, and DTC or such nominee of DTC shall be the sole Holder for purposes of this Indenture until the Global Obligation becomes exchangeable for Definitive Obligations in accordance with paragraph (iii)(2) below. The Global Obligation shall bear such legend as DTC may require. (ii) Members of, or participants in, DTC shall have no rights under the Indenture with respect to the Global Obligation held on their behalf by DTC or by the Indenture Trustee as the custodian of DTC or under such Global Obligation, and DTC may be treated by the Shipowner, the Indenture Trustee and any agent of the Shipowner or the Indenture Trustee as the absolute owner of such Global Obligation for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Shipowner, the Indenture Trustee or any agent of the Shipowner or the Indenture Trustee from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its members and participants, the operation of customary practices of DTC governing the exercise of the rights of an owner of a beneficial interest in the Global Obligation. (iii) (1) The transfer and exchange of the Global Obligation or beneficial interests therein shall be effected through DTC or the Indenture Trustee, as the custodian for DTC, in accordance with the Indenture. (2) The Global Obligation shall be exchangeable for Definitive Obligations registered in the names of Obligation Owners only if any of the following events shall have occurred: (1) DTC notifies the Shipowner that it is unwilling or unable to continue as depositary for such Global Obligation or DTC ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, at a time when DTC is required to be so registered in order to act as depositary, and a successor depositary is not appointed by the Shipowner within 90 days thereafter, (2) the Shipowner or the Indenture Trustee elects to terminate DTC's service or the book entry system, (3) the Secretary assumes the Obligations, or (4) the Secretary instructs the Shipowner and the 5 7 Indenture Trustee to terminate the Letter of Representations dated February 10, 2000, between the Shipowner and the Indenture Trustee and accepted by DTC. (3) Any Global Obligation that is exchangeable for Definitive Obligations registered in the name of the Obligation Owners pursuant to this paragraph (iii) shall be surrendered by DTC to the Indenture Trustee to be so exchanged, without charge, and the Shipowner shall execute and the Indenture Trustee shall authenticate and deliver, upon such exchange of such Global Obligation, an equal aggregate principal amount of Definitive Obligations of authorized denominations. Definitive Obligations issued in exchange for a beneficial interest in a Global Obligation pursuant hereto shall be registered in such names and in such authorized denominations as DTC, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Indenture Trustee in writing. The Indenture Trustee shall deliver such Definitive Obligations to the Obligation Owners in whose names such Obligations are so registered in accordance with the instructions of DTC. (4) The registered Holder of a Global Obligation may grant proxies and otherwise authorize any Obligation Owner, including the DTC's members and participants and Obligation Owners that may hold interests through such members and participants, to take any action which a Holder is entitled to take under the Indenture or the Obligations. (5) In the event of the occurrence of any of the events specified in paragraph (iii)(2), the Shipowner will promptly make available to the Indenture Trustee a reasonable supply of Definitive Obligations. (6) Notwithstanding any other provision of the Indenture, the Global Obligation may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC. (iv) At such time as all beneficial interests in the Global Obligation have either been exchanged for Definitive Obligations, redeemed, repurchased or canceled, such Global Obligation shall be returned to DTC for cancellation or retained and canceled by the Indenture Trustee. (v) The Indenture Trustee shall have no responsibility or obligation to any Obligation Owner, a member of, or a participant in DTC with respect to the accuracy of the records of DTC or its nominee or of any participant or member thereof, with respect to any ownership interest in the Obligations or with respect to the delivery to any participant, member, or other Obligation Owner (other than DTC) of any notice (including any notice of redemption) or the payment of any amount or delivery of any Obligations (or other security or property) under or with respect to such Obligations. All notices and communications to be given to the Holders and all payments to be made to Holders in respect of the Obligations shall be given or made only to or upon the order of the registered Holders (which shall be DTC or its nominee in the case of the Global Obligation). The rights of owners of beneficial interest in the Global Obligation shall be exercised only through DTC subject to the applicable rules and procedures of DTC. The Indenture Trustee may rely and shall be fully protected in relying upon information furnished by DTC with respect to its members, participants and any Obligation Owner. 6 8 4. Miscellaneous. (a) Concerning Notices. Subject to the provisions of Section 13.01 of Exhibit 1 to this Indenture, any notice, request, demand, direction, consent, waiver, approval or other communication to be given to a party hereto or the Secretary, shall be deemed to have been sufficiently given or made when addressed to: The Indenture Trustee as: The Bank of New York 101 Barclay Street New York, NY 10286 Attention: Corporate Trust Administration The Shipowner as: PROJECT AMERICA SHIP I, INC. c/o American Classic Voyages Co. 2 North Riverside Plaza Chicago, Illinois 60606 The Secretary as: SECRETARY OF TRANSPORTATION c/o Maritime Administrator U.S. Department of Transportation 400 Seventh Street, SW Washington, D.C. 20590 (b) Concerning Applicable Law. This Indenture and each Obligation shall be governed by the federal laws of the United State of America, but to the extent that they are inapplicable by the laws of the State of New York. (c) Execution of Counterparts. This Indenture may be executed in any number of counterparts. All such counterparts shall be deemed to be originals, and shall constitute but one and the same instrument. 7 9 IN WITNESS WHEREOF, this Indenture has been duly executed by the parties hereto as of the day and year first above written. SHIPOWNER: PROJECT AMERICA SHIP I, INC. By /s/ Jordan B. Allen -------------------------------- Its Executive Vice President ATTEST: By /s/ PAM STRINGER --------------------------------- Its Assistant Secretary INDENTURE TRUSTEE: THE BANK OF NEW YORK By /s/ T. C. Knight -------------------------------- Its Assistant Vice President ATTEST: By /s/ Robert A. Mammils --------------------------------- Its Assistant Vice President 10 Document 6 Schedule Of Definitions Schedule A To Trust Indenture SCHEDULE OF DEFINITIONS to TRUST INDENTURE Dated February 10, 2000 "Act" means the Merchant Marine Act, 1936, as amended and in effect on the Closing Date. "Act of Obligees" means any request, demand, authorization, direction, notice, consent, waiver or other action to be given or taken by the Obligees and embodied in one or more documents as required by the Indenture. "Authorization Agreement" means the Authorization Agreement, Contract No. MA-13580, between the Secretary and the Indenture Trustee, whereby the Secretary authorizes the Guarantee of the United States to be endorsed on each of the Obligations, as the same is originally executed, or as modified, amended or supplemented therein. "Authorized Newspapers" means The Wall Street Journal and The Journal of Commerce or if they cease to exist, then in such other newspapers as the Secretary may designate. 11 "Bond" means each, and "Bonds" means every, long term obligation of the Shipowner bearing a Guarantee that is authenticated and delivered under the Indenture, the Authorization Agreement and/or a Secretary's Determination. "Bond Closing Date" or "Bond Closing" means each date when Bonds are issued by the Shipowner and authenticated by the Indenture Trustee pursuant to the Authorization Agreement, and a Secretary's Determination. "Bond Purchase Agreement" means the agreement for the purchase of the Bonds, executed by the Shipowner and the purchaser named therein, as originally executed, modified or supplemented. "Business Day" means a day which is not a Saturday, Sunday or a bank holiday under the laws of the United States or the State of Illinois and the State of New York; provided, however, that for purposes of making payments of principal and interest on any Obligations bearing interest determined by reference to LIBOR, "Business Day" means any day on which commercial banks and foreign exchange markets are open for business, including dealings in deposits in US Dollars, in New York and London. "Closing Dates" or "Closings" means collectively each and every Note Closing Date and each and every Bond Closing Date. "Corporate Trust Office" means the principal office of the Indenture Trustee at which, at any time, its corporate trust business is administered, which office is currently located at 101 Barclay Street, New York, New York 10286. "Definitive Obligation" has the meaning specified in Section 4(f) of the Special Provisions of the Indenture. "Delivery Date" means the date on which the Vessel is delivered to and accepted by the Shipowner. "Guarantee" means each, and the "Guarantees" means every, guarantee of an Obligation by the United States pursuant to Title XI of the Act, as provided in the Authorization Agreement. "Global Obligation" has the meaning specified in Section 4(f) of the Special Provisions of the Indenture. "Holder" means each, and "Holders" means every, registered holder of an Obligation. "Indenture" means the Trust Indenture dated the Bond Closing Date between the Shipowner and the Indenture Trustee, as originally executed, or as modified, amended or supplemented. "Indenture Default" has the meaning specified in Article VI of the Indenture. 12 "Indenture Trustee" means The Bank of New York, a New York banking corporation, and any successor trustee under the Indenture. "Interest Determination Date" for any Interest Period means the second day on which commercial banks are open for business, including dealings in deposits in U.S. dollars in London (or, for purposes of paragraph (iii)(B) of the definition of LIBOR, New York) prior to the commencement of such Interest Period. "Interest Payment Date" means with respect to any Obligation, the date when any installment of interest on such Obligation is due and payable. "Interest Period" means with respect to any Obligation, the period beginning on, and including, the Original Issue Date and ending on, but excluding, the next Interest Payment Date thereafter, and each successive period beginning on and including, an Interest Payment Date and ending on, but excluding, the next succeeding Interest Payment Date. "LIBOR" means with respect to any Interest Period, a rate per annum determined as follows: (i) At approximately 11:00 a.m. (London time) on the Interest Determination Date prior to the commencement of the Interest Period for which such rate will apply, the Indenture Trustee will calculate LIBOR for such Interest Period as, subject to the provisions described below, the rate per annum equal to the rate appearing on the Telerate Page 3750 on the Reuter Monitor Dow Jones Telerate Service (or such other page as may replace that page on that service for the purpose of displaying London interbank rates of major banks) for three-month U.S. dollar deposits in the London inter-bank market on such Interest Determination Date. (ii) If on any Interest Determination Date an appropriate rate cannot be determined from the Dow Jones Telerate Service, LIBOR for the next Interest Period will, subject to the provisions described below, be the rate per annum that the Indenture Trustee certifies to be the arithmetic mean of the offered quotations, as communicated to and at the request of the Indenture Trustee by not less than three major banks in London selected by the Indenture Trustee (the "Reference Banks," which expression will include any successors nominated by the Indenture Trustee), to leading banks in London by the principal London offices of the Reference Banks for three-month U.S. dollar deposits in the London inter-bank market as at 11:00 a.m. (London time) on such Interest Determination Date. (iii) If on any Interest Determination Date fewer than three of such offered rates are available, LIBOR for the next Interest Period will be whichever is the higher of (A) LIBOR in effect for the last preceding Interest Period to which (i) or (ii) above applied; and (B) the rate per annum that the Indenture Trustee determines to be either (i) the arithmetic mean of the U.S. dollar offered rates which at least three New York City banks selected by the Indenture Trustee are or were quoting, on the relevant Interest Determination Date, for three-month deposits to the Reference Banks or those of them (being at least three in number) to which such quotations are or were, in the opinion of the Indenture Trustee, being so made, or (ii) in the event that the Indenture Trustee can determine no such arithmetic mean, the arithmetic 13 mean of the U.S. dollar offered rates that at least three New York City banks selected by the Indenture Trustee are or were quoting on such Interest Determination Date to leading European banks for a period of three months; provided, however, that if the banks selected as aforesaid by the Indenture Trustee are not quoting as mentioned above, LIBOR will be LIBOR specified in (A) above. "Maturity" when used with respect to any Obligation, means the date on which the principal of such Obligation becomes due and payable as therein provided, whether at the Stated Maturity or by redemption or declaration of acceleration or otherwise. "Mortgage" means the first preferred ship mortgage on the Vessel, Contract No. MA-13582, by the Shipowner to the Secretary, as originally executed, modified, amended or supplemented. "Note" means each and "Notes" means every short term obligation of the Shipowner, the maturity of which shall not exceed one year from the Delivery Date, bearing a Guarantee that is authenticated and delivered under the Indenture, the Authorization Agreement and/or a Secretary's Determination. "Note Closing Date" or "Note Closing" means the date when the Security Agreement is executed and delivered by the Shipowner and each subsequent date when Notes are issued by the Shipowner and authenticated by the Indenture Trustee pursuant to the Authorization Agreement and a Secretary's Determination. "Note Purchase Agreement" means each agreement for the purchase of the Notes, executed by the Shipowner and the purchaser named therein, as originally executed, modified or supplemented. "Obligations" mean collectively each and every Bond delivered and each and every Note delivered under the Indenture authenticated pursuant to the Authorization Agreement and a Secretary's Determination. "Obligation Owners" has the meaning specified in Section 4(f) of the Special Provisions of the Indenture. "Obligation Register" has the meaning specified in Section 2.07 of the Indenture. "Obligee" means each, and "Obligees" means every, Holder of a Bond. "Officer's Certificate" means a certificate conforming to Section 1.02 of the Indenture. "Original Issue Date" means a date on which an Obligation was initially authenticated by the Indenture Trustee even if the Obligation is subsequently given a later date by reason of transfer, exchange or substitution. 14 "Outstanding" when used with reference to the Obligations, shall mean all Obligations theretofore issued under the Indenture, except: (1) Obligations Retired or Paid; and (2) Obligations in lieu of which other Obligations have been issued under the Indenture. Obligations which are not Outstanding shall not be entitled to any rights or benefits provided in the Indenture. "Paying Agent" means any bank or trust company meeting the qualifications in Sections 7.02(a) of the Indenture and appointed by the Shipowner under Section 4.02 of the Indenture to pay the principal of (and premium if any) or interest on the Obligations on behalf of the Shipowner. "Payment Default" has the meaning specified in Section 6.01 of the Indenture. "Person" or "Persons" means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, unincorporated organization, government, or any agency or political subdivision thereof. "Redemption Date" means a date fixed for the redemption of a Bond by the Indenture. "Redemption Price" means the price at which a Bond is redeemed under the Indenture. "Request" means a written request from a Person for the action therein specified, signed by a Responsible Officer of the Person making such request. "Responsible Officer" means (1) in the case of any business entity, the chairman of the board of directors, the president, any executive or senior vice president, the secretary, the treasurer, member or partner, (2) in the case of any commercial bank, the chairman or vice-chairman of the executive committee of the board of directors or trustees, the president, any executive or senior vice president, any vice president, any assistant vice president, the secretary, the treasurer, any trust officer, any assistant secretary or any assistant treasurer, and (3) with respect to the signing or authentication of Obligations and Guarantees by the Indenture Trustee, any person specifically authorized by the Indenture Trustee to sign or authenticate Obligations. "Retired or Paid" as applied to Obligations and the indebtedness evidenced thereby, means that such Obligations shall be deemed to have been so retired or paid and shall no longer be entitled to any rights or benefits provided in the Indenture if: (1) such Obligations shall have been paid in full; (2) such Obligations shall have been canceled by the Indenture Trustee and shall have been delivered to the Indenture Trustee for cancellation; or (3) such Obligations shall have become due and payable at Maturity and funds sufficient for the payment of such Obligations (including interest to the date of Maturity, or in the case of a payment after Maturity, to the date of payment, together with any premium thereon) and available for such payment (whether as a result of payment pursuant to the Guarantees or otherwise) shall be held by the Indenture Trustee or any Paying Agent in trust for the purpose, or with irrevocable directions, to apply the same; provided that, the foregoing definition is subject to Section 6.08 of the Indenture. 15 "Secretary" means the Secretary of Transportation. "Secretary's Determination" has the meaning specified in Section 2(a)(5) of the Indenture. "Secretary's Notice" means a notice from the Secretary to the Indenture Trustee, that a Default, within the meaning of Section 6.01(b) of the Security Agreement has occurred. "Secretary's Supplemental Indenture" means a Supplemental Indenture, pursuant to Section 6.09 of the Indenture, evidencing the succession of the Secretary to the Shipowner, and the Secretary's assumption of the Shipowner's obligations under the Indenture. "Security Agreement" means the security agreement, Contract No. MA-13581, dated the Note Closing Date, consisting of the special provisions, the general provisions and Schedule X thereto, executed by the Shipowner as security for the Secretary, as originally executed or as modified, amended or supplemented. "Shipowner" means Project America Ship I, Inc., a Delaware corporation, and its successors and assigns. "Stated Maturity" means the date determinable as set forth in any Bond as the final date on which the principal of such Bond is due and payable. "Title XI" means Title XI of the Act. "Vessel" means Hull No. 7671, financed with the Obligations. 16 Document 10 GENERAL PROVISIONS INCORPORATED INTO THE TRUST INDENTURE BY REFERENCE Exhibit 1 to Trust Indenture 17 TABLE OF CONTENTS GENERAL PROVISIONS INCORPORATED INTO THE TRUST INDENTURE BY REFERENCE EXHIBIT 1 TO TRUST INDENTURE
ARTICLES & SECTIONS HEADINGS PAGE ARTICLE I.........................................................................................................4 DEFINITIONS; OFFICER'S CERTIFICATES AND OPINIONS OF COUNSEL....................................................4 Section 1.01. Definitions..................................................................................4 Section 1.02. Officer's Certificate and Opinions of Counsel................................................4 ARTICLE II........................................................................................................4 THE OBLIGATIONS................................................................................................4 Section 2.01. Issuance of Obligations of Initial Series....................................................4 Section 2.02. Additional Obligations; Obligations of Additional Series.....................................5 Section 2.03. Legends on Obligations.......................................................................5 Section 2.04. Dates of Obligations.........................................................................5 Section 2.05. Execution of Obligations.....................................................................5 Section 2.06. Authentication of Obligations and Guarantees.................................................5 Section 2.07. Registration, Transfer and Exchange..........................................................5 Section 2.08. Who Treated as Owners........................................................................6 Section 2.09. Lost, Stolen, Destroyed or Mutilated Obligations.............................................6 Section 2.10. Reacquired Obligations; Cancellation and Disposition of Obligations..........................6 ARTICLE III.......................................................................................................7 REDEMPTION OF OBLIGATIONS......................................................................................7 Section 3.01. Redemptions Suspended During Default.........................................................7 Section 3.02. Redemptions Without Premium..................................................................7 (a) Mandatory Sinking Fund Redemptions....................................................7 (b) Credit Against Mandatory Sinking Fund Redemptions.....................................7 (c) Optional Sinking Fund Redemptions.....................................................7 (d) Mandatory Redemptions Without Premium.................................................8 (e) Adjustments of Redemption Payments....................................................8 Section 3.03. Optional Redemptions of Obligations at Premium...............................................8 Section 3.04. Redemptions to Comply with Section 1104a(B)(2) of the Act....................................8 Section 3.05. Redemption After Total Loss, Requisition of Title, Seizure or Forfeiture of A Vessel or Termination of Certain Contracts................................................8 Section 3.06. Redemption After Assumption by the Secretary.................................................8 Section 3.07. Determination of Obligations to be Redeemed..................................................8 Section 3.08. Notices of Redemption........................................................................9 Section 3.09. Deposit of Redemption Moneys.................................................................9 Section 3.10. Payment of Redemption Price..................................................................9 ARTICLE IV........................................................................................................9 CASH HELD BY INDENTURE TRUSTEE OR PAYING AGENTS................................................................9 Section 4.01. Generally....................................................................................9
18 Section 4.02. Paying Agents...............................................................................10 Section 4.03. Unclaimed Amounts...........................................................................10 Section 4.04. Application of Funds........................................................................10 ARTICLE V........................................................................................................10 SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS....................................................................10 Section 5.01. Authorization, Execution and Delivery of Indenture..........................................10 Section 5.02. Payment.....................................................................................10 Section 5.03. Offices or Agencies of Shipowner.............................................................10 ARTICLE VI.......................................................................................................11 INDENTURE DEFAULTS AND REMEDIES...............................................................................11 Section 6.01. What Constitutes "Indenture Defaults.......................................................11 Section 6.02. Demand for Payment of Guarantees............................................................11 Section 6.03. Appointment of Indenture Trustee and Holders of Outstanding Obligations as Attorneys-in-Fact.....................................................................11 Section 6.04. Termination and Payment of the Guarantees...................................................11 Section 6.05. Rights of Indenture Trustee After Indenture Default.........................................12 Section 6.06. Obligees' Right to Direct Indenture Trustee After Indenture Default.........................12 Section 6.07. Attorneys' Fees and Costs...................................................................13 Section 6.08. Rescission of Payments......................................................................13 Section 6.09. Assumption of Obligations by Secretary......................................................13 ARTICLE VII......................................................................................................14 THE INDENTURE TRUSTEE.........................................................................................14 Section 7.01. Acceptance of Trusts........................................................................14 Section 7.02. Eligibility of Indenture Trustee............................................................14 Section 7.03. Rights and Duties of Indenture Trustee......................................................14 Section 7.04. Compensation, Expenses and Indemnification of Indenture Trustee..............................4 Section 7.05. Resignation and Removal of Indenture Trustee................................................16 Section 7.06. Appointment of Successor Indenture Trustee..................................................16 Section 7.07. Effect of Appointment of Successor Indenture Trustee........................................16 Section 7.08. Merger, Consolidation or Sale of Indenture Trustee..........................................17 ARTICLE VIII.....................................................................................................17 CONSOLIDATION OR MERGER OF SHIPOWNER OR SALE OF VESSEL........................................................17 Section 8.01. Consolidation or Merger of Shipowner or Sale of Vessel......................................17 ARTICLE IX.......................................................................................................17 ACTS OF OBLIGEES..............................................................................................17 Section 9.01. Acts of Obligees............................................................................17 ARTICLE X........................................................................................................18 SUPPLEMENTAL INDENTURES.......................................................................................18 Section 10.01. Permissible Without Action by Obligees......................................................18 Section 10.02. Protection of Indenture Trustee.............................................................18 Section 10.03. Reference in Obligations to Supplemental Indentures.........................................18 Section 10.04. Waivers and Supplemental Indentures with Consent of Obligees................................18 Section 10.05. Consent of Secretary........................................................................19 Section 10.06. Continued Validity of the Guarantees........................................................19
ii 19 ARTICLE XI.......................................................................................................19 PERFORMANCE OF OBLIGATIONS TO SECRETARY.......................................................................19 Section 11.01. Performance of Obligations to Secretary.....................................................19 ARTICLE XII......................................................................................................19 SATISFACTION AND DISCHARGE OF INDENTURE.......................................................................19 Section 12.01. Satisfaction and Discharge of Indenture.....................................................19 ARTICLE XIII.....................................................................................................19 MISCELLANEOUS.................................................................................................19 Section 13.01. Notices and Demands.........................................................................19 Section 13.02. Waivers of Notice...........................................................................20 Section 13.03. Benefit of Indenture........................................................................20 Section 13.04. Execution of Counterparts...................................................................20 Section 13.05. Table of Contents; Titles and Headings......................................................20 Section 13.06. Immunity of Incorporators, Stockholders, Limited Partners, Members, Officers and Directors..................................................................20
iii 20 GENERAL PROVISIONS INCORPORATED INTO THE TRUST INDENTURE BY REFERENCE ARTICLE I DEFINITIONS; OFFICER'S CERTIFICATES AND OPINIONS OF COUNSEL Section 1.01. Definitions. For the purposes of this Indenture, capitalized terms shall have the meanings specified in Schedule A to the Indenture unless otherwise expressly provided. Section 1.02. Officer's Certificate and Opinions of Counsel. The Responsible Officer of the Person executing an Officer's Certificate with respect to a covenant or condition provided for in this Indenture shall certify that the officer (a) has read such covenant or condition; (b) has made or caused to be made such independent examination or investigation as is necessary to enable him to express an informed opinion with respect to such covenant or condition; and (c) believes to the best of his knowledge that such condition or covenant has been met. A lawyer issuing an Opinion of Counsel shall include the same representations, except that if, in the lawyer's professional opinion, reliance upon a certificate or an Opinion of Counsel signed by such Person or by another counsel is appropriate, the lawyer may so rely upon such certificate or opinion. Each Officer's Certificate and Opinion of Counsel shall set forth the pertinent supporting information and shall be subject to the Secretary's review of its adequacy and accuracy. ARTICLE II THE OBLIGATIONS Section 2.01. Issuance of Obligations of Initial Series. (a) At any time and from time to time after the execution and delivery of this Indenture, the Shipowner may deliver to the Indenture Trustee Obligations of the initial series issuable under this Indenture duly executed by the Shipowner, accompanied by a Request of the Shipowner, and thereupon the Indenture Trustee shall authenticate such Obligations, after endorsing thereon and authenticating the Guarantees of the United States in accordance with the Authorization Agreement, and shall deliver such Obligations and Guarantees in accordance with such Request. Each such Request shall specify the principal amounts, interest rates and Stated Maturities of the Obligations to be authenticated and the names and addresses of the Persons in whose name the Obligations are to be registered. (b) The initial series of Obligations shall set forth their respective principal amounts (in the denominations provided in the Special Provisions), interest rates per annum, and Stated Maturities, and shall be payable as to principal and interest and premium, if any, in any legal coin or currency of the United States and shall be subject to redemption as provided in Article III. (c) The principal and interest and any premium due on the Obligations shall be paid by (i) the Corporate Trust Office, or (ii) a Paying Agent by (x) certified or official bank check mailed by first class postage prepaid to the addresses of the Obligees appearing on the Obligation Register or (y) at the request of an Obligee, received by the Indenture Trustee at least three Business Days prior to the date of payment, by wire transfer to a commercial bank in the United States or by credit to an account maintained by the Obligee with the Indenture Trustee without presentment of the Obligation. Prior to any sale, assignment or transfer of such Obligation, the Holder is required to present the Obligation to the Indenture Trustee so that a proper notation of all principal payments under (y) are made on the Obligation. (d) The Indenture Trustee agrees that within 30 days from the date of any payment of principal or interest when the same shall become due and payable by reason of Maturity or redemption, a Responsible Officer in the Corporate Trust Office of the Indenture Trustee shall ascertain to his satisfaction that checks in payment of such amounts have been mailed to the addresses of the Obligees as provided above, if payment is to be made by check, or if payment is to be made by wire transfer, or by credit to an account maintained by the Obligee with the Indenture Trustee, that such funds have been wired or credited, or if payment is to be made at the Corporate Trust 21 Office, that funds were held by the Indenture Trustee for such payment on the date the payment was due. The Indenture Trustee shall have no obligation to determine whether such checks or payments were received by the Obligees. (e) If the Maturity of any Obligation or an Interest Payment Date for any Obligation shall be a day other than a Business Day, then such payment may be made on the next succeeding Business Day, with the same force and effect as if made on the nominal date for such payment, and no interest shall accrue thereon for the period after said nominal date. Section 2.02. Additional Obligations; Obligations of Additional Series. At any time, the Shipowner may, with the approval of the Secretary, issue additional Obligations of any series and Stated Maturity theretofore issued or of one or more additional series, which shall be for the purpose of aiding in financing or refinancing the construction, reconstruction or reconditioning of one or more of the Vessels and shall be (i) in such principal amount, and mature on such dates, bear interest at such rate or rates, be in such form or forms and have such other terms and provisions, as shall be set forth in a Supplemental Indenture providing for the issue thereof and (ii) guaranteed by the United States under the Act pursuant to a supplement to the Authorization Agreement. Section 2.03. Legends on Obligations. Any Obligation may have imprinted or stamped thereon any legend, consistent herewith, which is prescribed by the Shipowner and approved by the Indenture Trustee, and approved by the Secretary. Section 2.04. Dates of Obligations. Each Obligation of any series shall be dated the date of its authentication by the Indenture Trustee. Section 2.05. Execution of Obligations. The Obligations shall from time to time be executed on behalf of the Shipowner by a Responsible Officer thereof (whose signature may be a facsimile), and its corporate seal (which may be a facsimile), if any, shall be imprinted thereon and attested by its secretary, assistant secretary or assistant trust officer (whose signature may be a facsimile). If a Shipowner's officer, whose signature appears on any Obligation, shall cease to be such an officer before such Obligation shall have been authenticated by the Indenture Trustee, the Obligation nevertheless may be delivered with the same force and effect as though the person had not ceased to be a Shipowner's officer. Section 2.06. Authentication of Obligations and Guarantees. No Obligation or the Guarantee of the United States thereon shall be valid unless such Obligation shall bear thereon an authentication certificate, executed by the Indenture Trustee in accordance with the terms and conditions of the Authorization Agreement. A duly executed authentication certificate shall be conclusive evidence, and the only competent evidence, that such Obligation and such Guarantee have been duly executed, authenticated and delivered hereunder. Section 2.07. Registration, Transfer and Exchange. (a) The Indenture Trustee shall keep an Obligation Register at the Corporate Trust Office for the registration of ownership, transfers and exchanges of Obligations. (b) A registered Obligee may transfer an Obligation, at the Corporate Trust Office, by surrender of such Obligation for cancellation, accompanied by an instrument of transfer in form satisfactory to the Shipowner and the Indenture Trustee, duly executed by the Obligee or its duly authorized attorney, and thereupon the Shipowner shall execute, and the Indenture Trustee shall authenticate and deliver in the name of the transferee, a new Obligation, and the Guarantee of the United States thereon, in authorized denominations of like series, tenor, interest accrual date and Stated Maturity and for the same aggregate principal amount. (c) The Shipowner shall not be required to register transfers or make exchanges of (1) Obligations for a period of 15 days immediately prior to (A) an Interest Payment Date or (B) any selection of Obligations to be redeemed; (2) Obligations after demand for payment of the Guarantees and prior to the payment thereof or rescission of such demand pursuant to Section 6.02(a); or (3) any Obligation which has been selected for redemption in whole or in part. If any Obligation surrendered for transfer or exchange has been selected for redemption in whole or in part, there may be endorsed on any Obligation issued therefor an appropriate notation of such fact. 22 (d) Any Obligation may be exchanged for a like principal amount of Obligations of the same series, tenor, interest accrual date and Stated Maturity but of different authorized denominations. Obligations to be exchanged shall be surrendered at the Corporate Trust Office, and the Shipowner shall execute, and the Indenture Trustee shall authenticate and deliver in exchange therefor, the Obligation or Obligations, and the Guarantee or Guarantees of the United States thereon, requested by the Obligee in accordance with this paragraph. (e) As a condition precedent to any transfer or exchange of Obligations, the Shipowner may require the payment of a sum sufficient to reimburse it for any taxes or other governmental charges that may be imposed with respect thereto and a sum not exceeding $2.00 for each Obligation delivered upon any such transfer or exchange. Section 2.08. Who Treated as Owners. The Shipowner, the Indenture Trustee, the Secretary, and any Paying Agent for the payment of principal of (and premium, if any) or interest on the Obligations may deem the Person in whose name any Obligation is registered in the Obligation Register as the absolute owner of such Obligation for all purposes, and neither the Shipowner, the Indenture Trustee, the Secretary, nor any such Paying Agent shall be affected by any notice to the contrary, whether such Obligation shall be past due or not. All payments of or on account of principal (and premium, if any) or interest, or pursuant to the Guarantee, to such registered Obligee shall be valid and effectual to satisfy and discharge the liability of the Shipowner and the Secretary to the extent of the sum or sums so paid, except as otherwise provided in Section 6.08. Section 2.09. Lost, Stolen, Destroyed or Mutilated Obligations. Upon receipt by the Shipowner and the Indenture Trustee of evidence satisfactory to them of the loss, theft, destruction or mutilation of any Outstanding Obligation ("Lost Obligation"), the Shipowner may execute, and upon request of the Shipowner, the Indenture Trustee shall authenticate and deliver, a new replacement Obligation, with the Guarantee of the United States thereon, of like series, tenor, interest accrual date, principal amount and Stated Maturity (which may bear such notation as may be required by the Indenture Trustee and which shall bear a serial number different from that of the Lost Obligation) and in the event such Lost Obligation has or is about to become due and payable, the Indenture Trustee may deem the applicant with respect thereto to be the owner of said Obligation for the purpose of receiving any payments due on account thereof; provided that (1) the Shipowner, the Indenture Trustee and the Secretary shall receive an indemnity satisfactory to the Shipowner, the Indenture Trustee and the Secretary; (2) the Shipowner shall be reimbursed for all reasonable expenses (including any fees or expenses of the Indenture Trustee) incident thereto; and (3) in the case of a mutilated Obligation, it shall be surrendered. Once the Indenture Trustee has issued a replacement Obligation, the Lost Obligation shall not be enforceable. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of Lost Obligations. Section 2.10. Reacquired Obligations; Cancellation and Disposition of Obligations. In the event the Shipowner shall reacquire any Obligations (whether by purchase or otherwise), such Obligations shall forthwith be delivered to the Indenture Trustee for cancellation. Except as provided in Section 3.10(b), all Obligations surrendered for the purpose of payment, redemption, transfer, exchange, or substitution, or in discharge in whole or in part of any sinking fund payment shall, if surrendered to the Shipowner or any Paying Agent, be delivered to the Indenture Trustee and shall be cancelled by it. No Obligation shall be authenticated in lieu of or in exchange for any Obligation cancelled as provided in this Section, except as may be expressly permitted by this Indenture. Obligations cancelled by the Indenture Trustee shall be delivered or disposed of as directed by a Request of the Shipowner. 23 ARTICLE III REDEMPTION OF OBLIGATIONS Section 3.01. Redemptions Suspended During Default. Notwithstanding the following provisions of this Article III, neither the Shipowner nor the Indenture Trustee shall redeem any Obligations, except pursuant to Sections 3.04 or 3.05, during the continuance of any Indenture Default, except that, where the mailing of notice of redemption of any Obligations shall have theretofore been made, the Indenture Trustee shall redeem or cause to be redeemed such Obligations if it shall have received a sum sufficient for such redemption. Except as aforesaid, any moneys received by the Indenture Trustee for the redemption of Obligations which may not be applied to the redemption thereof shall be held in trust by the Indenture Trustee and applied in the following manner: (1) in case such Indenture Default or such event shall no longer be continuing, such moneys shall thereafter be applied to the redemption of Obligations in accordance with the applicable provisions of the Obligations and of this Article III; (2) in the event the Secretary shall have assumed the Obligations pursuant to Section 6.09 or shall have been required to pay the Guarantees, such moneys shall be paid over by the Indenture Trustee to the Secretary; or (3) if no Obligation shall be Outstanding, and the Secretary shall not have been required to pay the Guarantees, such moneys shall be paid to the Shipowner. Section 3.02. Redemptions Without Premium. (a) Mandatory Sinking Fund Redemptions. The Obligations are subject to redemption at a Redemption Price equal to 100% of the principal amount thereof, together with interest accrued thereon to the Redemption Date, through the operation of a mandatory sinking fund providing for semi-annual redemption commencing and continuing on the dates and in the principal amounts specified in the Obligations, plus interest accrued thereon to the applicable sinking fund Redemption Date; provided, however, that in the event of any special redemption pursuant to Sections 3.04, 3.05 or 3.06 below, the principal amount of Obligations to be redeemed on each subsequent mandatory sinking fund Redemption Date shall be reduced by an amount equal to the principal amount of the Obligations retired by reason of such special redemption divided by the number of mandatory sinking fund Redemption Dates (including the Stated Maturity of the Obligations) scheduled thereafter. (b) Credit Against Mandatory Sinking Fund Redemptions. In lieu of making all or any part of any such mandatory sinking fund redemption of the Obligations, the Shipowner may, at its option, receive 100% credit for Obligations that have been (1) redeemed by the Shipowner pursuant to the optional redemption provision provided in subsection (c) below and in Section 3.03 below; or (2) purchased or acquired by the Shipowner (other than by redemption) and delivered to the Indenture Trustee for cancellation pursuant to Section 2.10 above. These Obligations shall be credited by the Indenture Trustee only under the following conditions: at least 40 days but not more than 60 days prior to the due date for such mandatory sinking fund redemption, the Shipowner delivers a Request to the Indenture Trustee, (i) specifying the principal amount of Obligations to be credited, (ii) certifying that none of the Obligations have previously been made the basis of any credit and that the Shipowner is not restricted by contract from seeking the requested credit, and (iii) in the case of Obligations purchased or acquired by the Shipowner, if it has not already done so, presenting the uncancelled Obligations to be credited. (c) Optional Sinking Fund Redemptions. At its option, the Shipowner may redeem on any mandatory sinking fund Redemption Date, at a redemption price equal to 100% of the principal amount thereof, an additional principal amount of Obligations up to the principal amount of the Obligations required to be redeemed under subsection (a) above on such date, and before any reduction pursuant to the proviso of that subsection. The right to make any such optional sinking fund redemption shall not be cumulative. If the Shipowner shall elect to make any such optional sinking fund redemption, the Shipowner shall, at least 40 days but not more than 60 days prior to such mandatory sinking fund Redemption Date, deliver to the Indenture Trustee a Request stating that the Shipowner intends to exercise its right as set forth in this subsection to make such optional sinking fund redemption and specifying the additional principal amount of Obligations which the Shipowner intends to redeem on such mandatory sinking fund Redemption Date. 24 (d) Mandatory Redemptions Without Premium. The Obligations of each series shall be subject to redemption without premium when redemption is required by the conditions specified in Sections 3.02, 3.04, 3.05 and 3.06. (e) Adjustments of Redemption Payments. If there is an adjustment in mandatory redemption payments as a result of redemptions under this Section or any other provision of the Indenture, the Shipowner shall recompute the remaining mandatory redemption payments pursuant to such provisions and shall, at least 60 days prior to the next Interest Payment Date, submit to the Secretary for his review of such recomputation to ascertain compliance with the provisions of this Indenture, a table of revised mandatory redemption payments on the Obligations of such series reflecting the adjustments made pursuant to such provisions as a result of such redemption. Upon advice by the Secretary that he finds such recomputation to comply with such provisions, the Shipowner shall submit said table to the Indenture Trustee and the Indenture Trustee shall promptly submit a copy thereof to each Holder of an Obligation of such series. Section 3.03. Optional Redemptions of Obligations at Premium. At its option, the Shipowner may redeem the Obligations, in whole or in part, at any time, at the redemption prices specified in the Obligations, together with the interest accrued thereon; provided that, no such redemption shall be made prior to the date specified in the Special Provisions, directly or indirectly with the proceeds of, or in anticipation of, borrowing by or for the account of the Shipowner if such borrowing has an effective interest cost (calculated in accordance with generally accepted financial practice) of less than the rate of interest borne by the Obligations. The Shipowner may redeem such Obligations on a date at least 40 days but not more than 60 days from the Indenture Trustee's receipt of the Request to make such an optional redemption and specifying the Redemption Date and the principal amount of Obligations which the Shipowner intends to redeem. If this Request proposes a redemption prior to the date specified in the Special Provisions, the Shipowner shall include with the Request an Officer's Certificate stating that the redemption complies with the proviso relating to early redemptions. Section 3.04. Redemptions to Comply with Section 1104a(B)(2) of the Act. The Shipowner and the Secretary may Request a Redemption Date, at least 40 days but not more than 60 days from the Indenture Trustee's receipt of the Request, for the redemption of certain Obligations because the principal amount of the Outstanding Obligations are in excess of the amount eligible for guarantee by the United States under Section 1104A(b)(2) of the Act. Upon receipt, the Indenture Trustee shall promptly give notice to the Holders of the Redemption Date as provided in Section 3.08 and on that date shall redeem the principal amount of Obligations specified in the instruction together with the interest accrued thereon. Section 3.05. Redemption After Total Loss, Requisition of Title, Seizure or Forfeiture of A Vessel or Termination of Certain Contracts. The Shipowner and the Secretary may Request a Redemption Date, at least 40 days but not more than 60 days from the Indenture Trustee's receipt of the Request, for the redemption of certain Obligations because of (1) an actual, constructive, agreed or compromised total loss of a Vessel, (2) requisition of title to, or seizure or forfeiture of a Vessel or (3) termination of a primary Construction Contract. Upon receipt, the Indenture Trustee shall promptly give notice to the Holders of the Redemption Date as provided in Section 3.08 and on that date shall redeem such principal amount of Obligations together with the interest accrued thereon. Section 3.06. Redemption After Assumption by the Secretary. At any time after the Secretary has assumed the Obligations under Section 6.09 of the Indenture, the Secretary may Request a Redemption Date, at least 40 days but not more than 60 days from the Indenture Trustee's receipt of the Request, for the redemption of all or part of the Obligations. Upon receipt, the Indenture Trustee shall promptly give notice to the Holders of the Redemption Date as provided in Section 3.08 and on that date shall redeem such principal amount of Obligations together with the interest accrued thereon. Section 3.07. Determination of Obligations to be Redeemed. If less than all the Obligations are to be redeemed pursuant to Sections 3.03, 3.04 or 3.05, the Indenture Trustee shall select the particular Obligations to be redeemed by multiplying the total principal amount to be redeemed by a fraction, the numerator of which is the 25 amount each Holder of an Outstanding Obligation is owed and the denominator is the total principal amount of the Outstanding Obligations, making adjustment so that the principal amount of any Obligation to be redeemed shall be $1,000 or an integral multiple thereof. Section 3.08. Notices of Redemption. (a) In case of any redemption of Obligations, whether mandatory or optional, the Indenture Trustee shall send a notice of redemption indicating (1) the Redemption Date, (2) the Redemption Price, (3) if only a part of such Obligations is to be redeemed, the numbers or other identification of the Obligations and the principal amount thereof to be redeemed, (4) the place of payment upon redemption and (5) that interest shall cease to accrue after the Redemption Date if the Indenture Trustee or any Paying Agent shall have in fact received the required moneys. A copy of the notice shall be mailed by first class mail, postage prepaid, at least 30 days prior to the Redemption Date, to each Holder of an Outstanding Obligation that is to be redeemed in whole or in part, at the last address appearing upon the Obligation Register. (b) Any notice of optional redemption of Obligations shall state that the redemption is subject to the receipt of the redemption moneys by the Indenture Trustee or any Paying Agent. Such notice shall be of no effect unless prior to the opening of business on the Redemption Date the Indenture Trustee or such Paying Agent shall receive an amount in cash sufficient for such redemption (after taking into account any amounts then held by the Indenture Trustee or such Paying Agent and available for such redemption). Section 3.09. Deposit of Redemption Moneys. Prior to the opening of business on any Redemption Date, the Shipowner shall cause to be deposited with the Indenture Trustee or with any Paying Agent an amount sufficient for such redemption with irrevocable directions to it to so apply the same. Section 3.10. Payment of Redemption Price. (a) If notice of redemption shall have been given as provided above, the Obligations or portions thereof specified in such notice shall become due and payable on the Redemption Date and at the place of payment and the Redemption Price stated in such notice, and on and after said Redemption Date (unless the Shipowner shall (i) default in payment of the Redemption Price; or (ii) decide to cancel a notice of redemption) interest on the Obligations or portions thereof so called for redemption shall cease to accrue. Upon presentation and surrender of such Obligations in accordance with such notice, such Obligations or the specified portions thereof shall be paid and redeemed at the applicable Redemption Price. (b) Upon presentation of any Obligation redeemed in part only, the Shipowner shall execute and the Indenture Trustee shall authenticate and deliver to the order of the Holder thereof, at the expense of the Shipowner, a new Obligation or Obligations of like series and Stated Maturity, of authorized denominations, having endorsed thereon a Guarantee executed by the Secretary, in principal amount equal to the unredeemed portion of the Obligation so presented, or, at the option of such Holder, there may be noted thereon by the Indenture Trustee or, at its direction, by any Paying Agent the payment of the portion of the principal amount of such Obligation so called for redemption. ARTICLE IV CASH HELD BY INDENTURE TRUSTEE OR PAYING AGENTS Section 4.01. Generally. (a) To the extent required by the Obligations, cash received by the Indenture Trustee or a Paying Agent shall be promptly paid to the Holders of the Outstanding Obligations and all other cash shall be held by the Indenture Trustee or a Paying Agent as a special deposit in trust for application in accordance with this Indenture. (b) Cash held by the Indenture Trustee or any Paying Agent (other than the Shipowner) under this Indenture: (1) need not be segregated; (2) shall not be invested; and (3) shall not bear interest except to the extent the Shipowner and the Indenture Trustee or Paying Agent may agree. Section 4.02. Paying Agents. (a) A Paying Agent appointed in writing by the Shipowner shall enter into 26 a contract with the Indenture Trustee, agreeing that the Paying Agent will: (1) hold in trust all sums held by it for the payment of the principal of (and premium, if any) or interest on Obligations for the benefit of the Holders of such Obligations, and for the benefit of the Indenture Trustee; (2) forthwith give written notice to a Responsible Officer in the Corporate Trust Office signed by a Responsible Officer of the Paying Agent of (A) any payment by the Shipowner of the principal of (and premium, if any) or interest on Obligations, specifying the amount paid, segregated as to principal (premium, if any) and interest, and identifying each Obligation on which any payment was made by number, date, series, Stated Maturity and the name of the Obligee, and (B) any failure of the Shipowner to make any such payment when the same shall be due and payable; and (3) promptly, and in no event later than ten days after any payment made by it hereunder, give written notice to a Responsible Officer in the Corporate Trust Office of all payments of Obligations made by it, including and identifying all endorsements of payment made on Obligations by it, signed and containing the specified information as provided in subparagraph (2) above, and deliver for cancellation to the Indenture Trustee all Obligations surrendered to the Paying Agent. (b) The Shipowner may at any time cause to be paid to the Indenture Trustee all sums held in trust by any Paying Agent pursuant to this Section, such sums to be held by the Indenture Trustee upon the same trusts. Section 4.03. Unclaimed Amounts. Subject to applicable law, including State escheat laws, any moneys received by the Indenture Trustee or a Paying Agent, for the payment of Obligations or Guarantees and remaining unclaimed by the Holders thereof for 6 years after the date of the Maturity of said Obligations shall be paid to the Shipowner upon its delivery of a Request to the Indenture Trustee, unless the Secretary has previously paid the Guarantees, in which case it shall be paid only upon a request of the Secretary. In such event, such Holders shall thereafter be entitled to look only to the Person that received the unclaimed amounts for the payment thereof, and the Indenture Trustee or such Paying Agent, as the case may be, shall thereupon be relieved from all responsibility to such Holders. No such Request or payment shall be construed to extend any statutory period of limitations which would have been applicable in the absence of such Request or payment. Section 4.04. Application of Funds. If at any time the Indenture Trustee shall hold funds under Section 4.03, the application, distribution or payment of which is not governed by a Request of the Shipowner or the Secretary delivered pursuant to any provision of the Indenture, the Indenture Trustee shall give written notice, in the absence of an Indenture Default, thereof to the Shipowner or to the Secretary if the an Indenture Default exists or the Secretary has paid the Guarantees. The Shipowner or the Secretary, as applicable, shall promptly thereafter deliver to the Indenture Trustee a Request. ARTICLE V SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS The Shipowner hereby represents and agrees, so long as Obligations are Outstanding, as follows: Section 5.01. Authorization, Execution and Delivery of Indenture. The Shipowner has duly authorized the execution and delivery of this Indenture. Section 5.02. Payment. The Shipowner will duly and punctually pay the principal of (and premium, if any) and interest on the Obligations according to the terms thereof and of this Indenture. Section 5.03. Offices or Agencies of Shipowner. The Shipowner shall at all times maintain an office in the location within the United States specified in Article Second of the Special Provisions. Obligations and demands to or upon the Shipowner may be presented for payment, registration of transfer and exchange at this office. The Corporate Trust Office and a Paying Agent shall also be deemed offices for such purpose. 27 Article VI INDENTURE DEFAULTS AND REMEDIES Section 6.01. What Constitutes "Indenture Defaults." (a) Each of the following events shall constitute an "Indenture Default": (1) Default in the payment of the whole or any part of the principal or interest on any of the Outstanding Obligations when the same shall become due and payable, whether by reason of Maturity, redemption, acceleration or otherwise, or any default referred to in Section 6.08, and continuation of any such default for a period of 30 days (herein called a "Payment Default"); and (2) The giving of a Secretary's Notice to the Indenture Trustee. (b) The Indenture Trustee shall give to the Obligees, the Secretary and the Shipowner prompt notice in writing of any Indenture Default (unless such default shall have been remedied prior to the giving of such notice); provided that, the Indenture Trustee shall have no duty to give any such notice until a Responsible Officer of the Corporate Trust Office, has actual knowledge of such Indenture Default. The notice of an Indenture Default to the Obligees shall (1) specify the nature of such Indenture Default; (2) state that, by reason thereof, the Indenture Trustee is entitled under the Indenture to demand payment by the Secretary of the Guarantees; (3) set forth the provisions of Section 6.04(b)(3) and (5); and (4) advise the Obligees of the provisions of Section 6.02. Section 6.02. Demand for Payment of Guarantees. (a) If an Indenture Default shall have occurred and be continuing, the Indenture Trustee may not later than 60 days from the date of such Indenture Default demand payment by the Secretary of the unpaid interest to the date of such payment on, and the unpaid balance of the principal of, all Outstanding Obligations, whereupon the entire unpaid principal amount of the Outstanding Obligations and all unpaid interest thereon shall become due and payable no later than 30 days from the date of such demand; provided that, in the case of a demand made as a result of a Payment Default, if, prior to the expiration of 30 days from the date of such demand and prior to any payment of the Guarantees by the Secretary, the Secretary shall find, and give written notice to the Shipowner and the Indenture Trustee to the effect that, there was no Payment Default or that such Payment Default was remedied prior to such demand, such demand and the Indenture Default shall be of no legal effect or consequence. In each such case, the Guarantees shall remain in full force and effect. The Indenture Trustee shall give to each Obligee and to the Shipowner prompt written notice of any demand made by the Indenture Trustee pursuant to this paragraph (a), any such notice to Obligees to be given as provided in Section 13.01. (b) If the Indenture Trustee shall not have made the demand referred to in paragraph (a) of this Section on or before the 30th day following an Indenture Default which shall have occurred and be continuing and if the Holders of all Outstanding Obligations shall not have theretofore elected to terminate the Guarantees as provided in Section 6.04(a)(2), any Holder of an Outstanding Obligation, by an Act of Obligees delivered to the Secretary (with copies thereof to the Indenture Trustee and the Shipowner), may, in place of the Indenture Trustee and on behalf of all Holders of Outstanding Obligations, make such demand, subject to all the provisions of, and with the effect provided in, paragraph (a) of this Section. Section 6.03. Appointment of Indenture Trustee and Holders of Outstanding Obligations as Attorneys-in-Fact. Each Holder of an Outstanding Obligation by the purchase and acceptance of its Obligation, irrevocably appoints the Indenture Trustee and each other Holder of an Outstanding Obligation its agent and attorney-in-fact for the purpose of making the demand provided for in Section 6.02 and (in the case of the Indenture Trustee) of receiving and distributing any payment or payments by the Secretary made pursuant to any such demand. Section 6.04. Termination and Payment of the Guarantees. (a) Except as otherwise provided in Section 6.08, the Guarantee with respect to any Obligation shall only terminate in case of the occurrence of one or more of the following events: (1) Such Obligation shall have been Retired or Paid; 28 (2) The Holders of all Outstanding Obligations shall have elected, by Act of Obligees delivered to the Secretary, to terminate the Guarantees; (3) Such Guarantee shall have been paid in full in cash by the Secretary; or (4) The Indenture Trustee and each Obligee shall have failed to demand payment of such Guarantee as provided herein or in such Guarantee or in the Act. (b) Subject to the provisions of Section 6.08, when the Secretary shall pay the Guarantees in full in cash to the Indenture Trustee: (1) The Indenture Trustee shall hold the entire amount thereof in trust for the sole purpose of providing for the payments specified in subparagraph (5) below; (2) No Obligation or Obligations shall thereafter be issued; (3) The Obligations (A) shall represent only the right to receive the payments from the Indenture Trustee specified in subparagraph (5) below; (B) shall otherwise no longer constitute or represent an obligation of the Shipowner; and (C) shall not be entitled to any other rights or benefits under this Indenture; (4) The Indenture Trustee shall forthwith give written notice to the Shipowner and to each of the Obligees, stating that it has received payment of the Guarantees in full in cash from the Secretary and that the same is available for distribution to the Obligees in the manner specified in subparagraph (5) below (and the Indenture Trustee shall give like notice to the Holders of the Obligations at least annually thereafter for a period of 6 years or until all Obligations shall have been cancelled, whichever is earlier); and (5) Upon the surrender for cancellation of any Obligation, the Indenture Trustee shall forthwith pay to the Holder of such Obligation in cash an amount (less the amount, if any, required to be withheld in respect of transfer or other taxes on payment to such Holder) equal to the unpaid principal amount of such Obligation and the unpaid interest accrued thereon to the date on which the Secretary shall have paid the Guarantees in full in cash to the Indenture Trustee. (c) If the Secretary shall not have paid the Guarantees in full in cash to the Indenture Trustee within 30 days after any demand therefor pursuant to Section 6.02 (whether or not because the Secretary makes any of the findings or takes the action referred to in the proviso of Section 6.02(a)), the Indenture Trustee shall give prompt written notice of such nonpayment to each Obligee and the Shipowner. If the Indenture Trustee shall have received notice of any of these findings or actions, such notice to each Obligee shall so state. Section 6.05. Rights of Indenture Trustee After Indenture Default. Unless the Guarantees have terminated as provided herein, the Indenture Trustee's sole right shall be to demand and receive payment of the Guarantees from the Secretary and to take all action, on behalf of itself and each Holder, to enforce its rights against the Secretary under the Guarantees, including but not limited to the institution and prosecution of all judicial and other proceedings. If the Guarantees have terminated under Section 6.04(a)(4) without payment by the Secretary, the Indenture Trustee shall have the right on behalf of itself and each Holder to take all action to enforce its rights directly against the Shipowner (but not the Secretary), including but not limited to the institution and prosecution of all judicial and other proceedings. Section 6.06. Obligees' Right to Direct Indenture Trustee After Indenture Default. (a) During the continuance of any Indenture Default, the Holders of a majority in principal amount of the Outstanding Obligations shall have the right, by an Act of Obligees, to direct the Indenture Trustee: (1) to exercise or to refrain from exercising any right or to enforce any remedy granted to it by this Indenture; and (2) to direct the time, method and place of the exercise of any such right or the enforcement of any such remedy; provided that, subject to Section 7.03, the Indenture Trustee shall have the right not to take any such action if it shall determine in good faith that the action would involve it in personal liability, would subject it to expenses against which it has not been offered 29 adequate security and indemnity, or would be unjustly prejudicial to the Obligees not parties to such direction; and provided further that, notwithstanding any other provision of this Indenture to the contrary, the Indenture Trustee shall be obligated to demand payment of the Guarantees as provided in Section 6.02(a) unless the Holders of all the Outstanding Obligations shall have directed him not to make demand. (b) Nothing in paragraph (a) shall affect the right of any Obligee to institute any judicial or other proceeding, if the Indenture Trustee declines to do so, against the Secretary while the Guarantees are in effect or against the Shipowner or the Indenture Trustee if the guarantees have terminated under Section 6.04(a)(4); provided, however, that such action does not seek to obtain priority or preference over any other Obligees or to enforce any right under this Indenture, except for the equal and ratable benefit of all the Obligees. Section 6.07. Attorneys' Fees and Costs. In any proceeding for the enforcement of any right or remedy under this Indenture, or in any proceeding against the Indenture Trustee for any action taken or omitted by it as Indenture Trustee, the court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant, having due regard to the merits and good faith of the claims or defense made by such party litigant. The provisions of this Section shall not apply to any proceeding instituted by the Indenture Trustee or any proceeding instituted by any Obligee against the Secretary or the Shipowner for the payment of the principal of (and premium, if any) and interest on the Obligations. Section 6.08. Rescission of Payments. Notwithstanding any other provision of this Indenture, or of the Obligations, in the event that any payment to or on behalf of an Obligee of the principal of or interest due under any Obligation, or any portion of any such payment, shall at any time be repaid by such Obligee in compliance with a final order of a court of competent jurisdiction pursuant to any provision of the Bankruptcy Code or any Federal Law replacing or superseding such Code, or applicable state law, and regardless of whether there has been any previous Indenture Default and any payment pursuant thereto, or whether such Obligation shall theretofore have been acquired by the Shipowner or cancelled, or whether an instrument satisfying and discharging this Indenture shall have been executed and delivered, (1) such Obligation shall not be deemed to have been Retired or Paid and shall be deemed to be Outstanding; (2) the return of such payment in whole or in part in compliance with the order of such court shall constitute a default in payment of such Obligation within the meaning of Section 6.01(a), which default shall be deemed to have occurred on the date of such repayment and which default, if continued for 30 days, will constitute a Payment Default; (3) the Guarantee of such Obligation and (to the extent necessary to enforce such Obligation and Guarantee) this Indenture shall be in full force and effect; and (4) the Person required to return such payment or portion thereof shall be deemed for all purposes to be a Holder of such Obligation and entitled to enforce such Obligation and Guarantee to the extent of such repayment and, if there shall not be any Indenture Trustee hereunder then in office, such Person shall also be entitled to exercise on his own behalf all the rights of the Indenture Trustee hereunder necessary for such enforcement; provided that, in the event the Guarantee of any Obligation shall have terminated for reasons set forth in Section 6.04(a)(2) or (4) of this Indenture prior to the aforesaid date of repayment the provisions of this Section shall not apply to such Obligation. Section 6.09. Assumption of Obligations by Secretary. (a) Notwithstanding anything to the contrary contained herein, in the absence of a demand under Section 6.02 hereof and upon the occurrence of a default in the payment of any principal or interest due under the Obligations which has continued for 25 days or more, or upon the Secretary's giving of a Secretary's notice under this Indenture, the Secretary may, in his sole discretion, assume the rights and obligations of the Shipowner under this Indenture and the Obligations by (i) giving to the Shipowner and Indenture Trustee a signed notice stating that it has assumed the Obligations and the Indenture and (ii) making any payment of principal or interest which is due under the Obligations. (b) The Indenture Trustee and the Shipowner hereby agree that, upon the Indenture Trustee's receipt of the notice and payments referred to in paragraph (a)(i) and (ii) of this section, the Secretary's assumption shall, as of the date of the Secretary's execution of the notice, be effective and binding upon the Indenture Trustee and the Shipowner and their respective successors or assigns without further act or deed. Upon an assumption by the Secretary, the Secretary shall succeed to and be substituted for and may exercise every right and power of the Shipowner under this Indenture and the Obligation with the same force and effect as if the Secretary has been named as the Shipowner herein and therein. The Secretary may exercise its rights under this section as often as it deems appropriate in its sole discretion. 30 ARTICLE VII THE INDENTURE TRUSTEE Section 7.01. Acceptance of Trusts. The Indenture Trustee hereby accepts the trusts of this Indenture. Section 7.02. Eligibility of Indenture Trustee. (a) The Indenture Trustee shall at all times be a bank with corporate trust powers or trust company which (1) is organized and doing business under the laws of the United States, any state or territory thereof; (2) has a combined capital and surplus (as set forth in its most recent published report of condition) of at least $25,000,000; and (3) shall not have become incapable of acting or have been adjudged a bankrupt or an insolvent nor have had a receiver appointed for itself or for any of its property, nor have had a public officer take charge or control of it or its property or affairs for the purpose of rehabilitation, conservation or liquidation. (b) Should the Indenture Trustee at any time cease to be eligible, pursuant to this Section, to act as trustee, it shall promptly notify the Obligees, the Shipowner and the Secretary of such fact; and should the Shipowner obtain knowledge of such ineligibility, it shall promptly advise the Indenture Trustee, the Secretary, and the Obligees of all the relevant facts. Section 7.03. Rights and Duties of Indenture Trustee. (a) The Indenture Trustee shall not be responsible for the correctness of the Recitals in the Special Provisions hereof or in the Obligations (except the Indenture Trustee's authentication certificate thereon), all of which Recitals are statements made solely by the Shipowner. (b) The Indenture Trustee shall not be responsible for the validity, execution by other parties thereto, or sufficiency of this Indenture, the Authorization Agreement, the Obligations or the Guarantees. (c) The Indenture Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (d) Except during the continuance of any Indenture Default, the Indenture Trustee shall perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustee. (e) No provision of this Indenture shall relieve the Indenture Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct; provided that: (1) Except during the continuance of an Indenture Default, in the absence of bad faith on the part of the Indenture Trustee, the Indenture Trustee may conclusively rely upon certificates or opinions conforming to the requirements of this Indenture as to the truth of the statements and the correctness of the opinions expressed therein; and (2) The Indenture Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with an Act of Obligees relating to the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee. (f) Subject to paragraph (i) of this Section, the Indenture Trustee shall be under a duty to examine certificates and opinions required by this Indenture to be furnished to it to determine whether or not they conform to the requirements hereof. 31 (g) Subject to paragraph (c) of this Section, the Indenture Trustee may rely and shall be protected in acting upon any resolution, certificate, opinion, notice, request, consent, order, appraisal, report, bond, or other paper or document believed by it to be genuine, to have been signed by the proper party or parties and to be in conformity with the provisions of this Indenture. (h) Subject to paragraph (c) of this Section, in all cases where this Indenture does not make express provision as to the evidence on which the Indenture Trustee may act or refrain from acting, the Indenture Trustee shall be protected in acting or refraining from acting hereunder in reliance upon an Officer's Certificate as to the existence or nonexistence of any fact. (i) Subject to paragraph (c) of this Section, the Indenture Trustee may consult with counsel satisfactory to the Indenture Trustee, and an Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel. (j) Whenever it is provided that the Indenture Trustee shall take any action, including the giving of any notice or the making of any demand, or refrain from taking any action upon the happening or continuation of a specified event (including an Indenture Default) or upon the fulfillment of any condition or upon the Request of the Shipowner or of Obligees or upon receipt of any notice, including a Secretary's Notice, the Indenture Trustee shall, subject to paragraph (c) of this Section, have no liability for failure to take such action or for failure to refrain from taking such action until a Responsible Officer in the Corporate Trust Office, has actual knowledge of such event or continuation thereof or the fulfillment of such conditions or shall have received such Request. (k) Subject to paragraph (c) of this Section, the Indenture Trustee shall not be under any obligation to exercise any of the trusts or powers hereof at the request, order or direction of any Obligees or the Secretary, unless such Obligees or the Secretary shall have offered to the Indenture Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities to be incurred thereby. (l) The Indenture Trustee, in its individual or any other capacity, may become the owner or pledgee of Obligations with the same rights it would have if it were not Indenture Trustee. (m) Notwithstanding any other provision of this Indenture, the Indenture Trustee shall not take any action contrary to the terms of the Authorization Agreement, and any such purported action or any attempt to take such action shall be void and of no effect. (n) No provision of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (o) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Indenture Trustee shall be subject to the provisions of this Section. (p) Upon the execution and delivery of an instrument satisfying and discharging this Indenture as provided in Section 12.01 hereof, all duties and obligations of the Indenture Trustee hereunder (except with respect to the application of funds for the payment of Obligations then held by the Indenture Trustee) shall cease and shall not thereafter be revived, whether or not the Indenture shall thereafter be in full force and effect as provided in Section 6.08. 32 (q) Notwithstanding any other provision of this Indenture or the Authorization Agreement, the Indenture Trustee shall have no duty to exercise any of its rights or powers hereunder with respect to a Payment Default by reason of a repayment referred to in Section 6.08 unless and until it shall have received notice of such default and information concerning (1) the date thereof; (2) the Obligation to which such repayment relates; (3) the Person making such repayment; (4) the amounts of such repayment attributable to principal, premium and interest on such Obligation; and (5) the Interest Payment Date or other date on which the Obligee received the moneys to which the court order mentioned in Section 6.08 relates. Section 7.04. Compensation, Expenses and Indemnification of Indenture Trustee. The Shipowner shall (1) pay reasonable compensation to the Indenture Trustee and reimburse it for its reasonable expenses and disbursements (including counsel fees and expenses); and (2) indemnify the Indenture Trustee for, and hold it harmless against, any loss, liability or expense which it may incur or suffer without negligence or bad faith in acting under this Indenture or the Authorization Agreement. The compensation of the Indenture Trustee shall not be limited to the compensation provided by law for a trustee acting under an express trust. Section 7.05. Resignation and Removal of Indenture Trustee. (a) The Indenture Trustee may resign at any time by giving written notice to the Shipowner. Within 10 days thereafter, the resigning Indenture Trustee shall give notice of such resignation to the Obligees in the manner provided in Section 13.01. If the resigning Indenture Trustee fails to do so within such 10-day period, within the next succeeding 10 days the Shipowner shall give such notice in the same manner. (b) The Indenture Trustee may at any time be removed by (1) written notice to the Indenture Trustee and the Shipowner by the Holders of a majority in principal amount of the Outstanding Obligations; or (2) written notice to the Indenture Trustee by the Shipowner or the Secretary that the Indenture Trustee has ceased to be eligible under Section 7.02(a). (c) Any resignation or removal of the Indenture Trustee shall be effective only upon appointment of a successor Indenture Trustee approved by the Secretary. Section 7.06. Appointment of Successor Indenture Trustee. (a) If any notice of resignation or of removal shall have been given pursuant to Section 7.05, then a successor Indenture Trustee may be appointed by the Shipowner; provided that, if such successor Indenture Trustee is not so appointed (or has not accepted such appointment) within 15 calendar days after the giving of any such notice, such appointment may be made (1) by the Secretary; or (2) by a court of competent jurisdiction upon the application of the Secretary, the Shipowner, the retiring Indenture Trustee or any Person who then is, and has been, the Holder of an Outstanding Obligation for at least 6 months. (b) No successor Indenture Trustee shall be appointed without the prior written consent of the Secretary and until such successor Indenture Trustee shall enter into an amendment to the Authorization Agreement as provided therein. (c) If a successor Indenture Trustee is appointed, approved by the Secretary and accepts such appointment, the Shipowner shall give notice to the Obligees of such appointment in the manner provided in Section 13.01. The failure of the Shipowner to give such notice shall not affect the validity of any such appointment. Section 7.07. Effect of Appointment of Successor Indenture Trustee. Each successor Indenture Trustee shall forthwith, without further act or deed, succeed to all the rights and duties of its predecessor in trust under this Indenture and the Authorization Agreement. Upon the written request of the successor Indenture Trustee or the Shipowner and upon payment by the Shipowner of all amounts due to such predecessor under this Indenture, such predecessor shall promptly deliver to such successor Indenture Trustee all sums held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Indenture 33 Trustee under this Indenture and shall transfer, assign and confirm to the successor Indenture Trustee all its rights under this Indenture in such manner as deemed by such successor Indenture Trustee or the Shipowner to be necessary or appropriate in connection therewith. Section 7.08. Merger, Consolidation or Sale of Indenture Trustee. In the event of any merger (including for the purposes of this Section, the conversion of a state bank into a national banking association or vice versa) or consolidation of the Indenture Trustee into any other Person or in the event of the sale of all or substantially all the Indenture Trustee's corporate trust business, the Person resulting from such merger or consolidation, or the transferee in the case of any such sale, shall forthwith notify the Shipowner and, subject to Section 7.02(a) and 7.06(b), shall be the Indenture Trustee under this Indenture and the Authorization Agreement without further act or deed. ARTICLE VIII CONSOLIDATION OR MERGER OF SHIPOWNER OR SALE OF VESSEL Section 8.01. Consolidation or Merger of Shipowner or Sale of Vessel. (a) Nothing in this Indenture shall prevent any lawful consolidation or merger of the Shipowner with or into any other Person, or any sale of a Vessel by the Shipowner, the Secretary or a court of law to any other Person lawfully entitled to acquire and operate such Vessel or any sale by the Shipowner, the Secretary, or a court of law of all or substantially all of its assets to any other Person; provided that, except where the Shipowner shall be the Person surviving a merger or consolidation, either (1) the Person formed by or surviving such consolidation or merger, or the Person to which the sale of such Vessel shall be made, shall expressly assume, by Supplemental Indenture, the payment of the principal of and interest (and premium, if any) on the Proportionate Part of the Outstanding Obligations, as determined by the Secretary, relating to such Vessel and expressly assume the Shipowner's duties under the Indenture; or (2) to the extent that the Secretary determines that the Outstanding Obligations and the duties under the Indenture are not so assumed, the Shipowner shall redeem the principal amount of those unassumed Obligations in accordance with the terms of the Obligations and of the Indenture. (b) When a Person so assumes this Indenture and such Proportionate Part of the Outstanding Obligations, the Supplemental Indenture shall discharge and release the Shipowner from any and all obligations thereunder relating to such Proportionate Part of the Outstanding Obligations. In the event of such an assumption by a Person to whom a Vessel has been sold (1) such Person shall succeed to, and be substituted for, and may exercise every right and power of the original Shipowner with the same effect as if such successor Shipowner had been named as the Shipowner herein; and (2) such Proportionate Part of the Outstanding Obligations shall be surrendered to the Indenture Trustee for appropriate notation or for the issuance of new Obligations in exchange for such Proportionate Part of the Outstanding Obligations in the name of the successor Shipowner, as required by the Secretary. The principal amount of the Proportionate Part of the Outstanding Obligations shall be determined by the Secretary. ARTICLE IX ACTS OF OBLIGEES Section 9.01. Acts of Obligees. (a) Except as herein otherwise expressly provided, an Act of Obligees shall become effective when it is delivered to the Indenture Trustee and, where it is expressly required, to the Shipowner and the Secretary. Proof of execution of any instrument appointing an agent or attorney to execute an Act of Obligees made in the manner of subsection (b) below shall be sufficient for any purpose of this Indenture. (b) The fact and date of the execution by any Person of any instrument referred to in paragraph (a) of this Section may be proved by the affidavit of a witness of such execution or by the certificate or acknowledgment of any notary public, stating that the individual signing such instrument acknowledged to him the execution thereof. The fact and date of the execution of any such instrument, or the authority of the Person executing the same, may also be proved in any other manner which the Indenture Trustee (or, if such instrument is addressed to the Secretary, the Secretary) deems sufficient. (c) Any Act of Obligees taken by the Holder of any Obligation shall bind every future Holder of any of the 34 Obligations in respect of anything done or suffered to be done by the Indenture Trustee, any Paying Agent or the Shipowner in reliance thereon, whether or not notation of such action is made upon such Obligation. ARTICLE X SUPPLEMENTAL INDENTURES Section 10.01. Permissible Without Action by Obligees. The Shipowner, the Indenture Trustee, or, where applicable, the Secretary, may at any time, without the consent of or notice to any of the Obligees, subject to Sections 10.02 and 10.05, enter into an indenture or other instrument supplemental hereto and which thereafter shall form a part hereof, for any one or more of the following purposes: (1) to add to the covenants of the Shipowner; (2) to evidence, pursuant to Article VIII, the succession of another corporation or entity to the Shipowner or any assumption of all or part of the Obligations; (3) to eliminate any right reserved to or conferred upon the Shipowner; (4) to make such provisions for the purpose of curing any ambiguity or correcting or supplementing any provisions in this Indenture as the Shipowner or the Secretary may deem necessary or desirable, provided such provisions are not inconsistent with this Indenture and shall not adversely affect the interests of the Obligees; (5) to provide for the issuance of additional Obligations of any series and Stated Maturity theretofore issued under this Indenture or to set forth the terms and provisions of any one or more additional series of Obligations in accordance with Section 2.02; or (6) to evidence the assumption pursuant to Section 6.09 by the Secretary of the Shipowner's obligations under this Indenture and the Outstanding Obligations. Section 10.02. Protection of Indenture Trustee. Upon receipt of a Request of the Shipowner that the Indenture Trustee execute any Supplemental Indenture and upon receipt of any Act of Obligees required pursuant to Section 10.04 and the consent of the Secretary required pursuant to Section 10.05, the Indenture Trustee shall enter into such Supplemental Indenture; provided that, the Indenture Trustee shall not be obligated to enter into any Supplemental Indenture which the Indenture Trustee believes adversely affects the Indenture Trustee's own rights, duties or immunities under this Indenture. Section 10.03. Reference in Obligations to Supplemental Indentures. Obligations authenticated and delivered after the execution and delivery of any Supplemental Indenture may, with the consent and approval of the Shipowner and the Indenture Trustee, contain a text modified to conform to such Supplemental Indenture or have imprinted or stamped thereon a legend with respect to such Supplemental Indenture, but no such modification or legend shall be necessary to make such Supplemental Indenture effective. Section 10.04. Waivers and Supplemental Indentures with Consent of Obligees. With the consent of the Holders of not less than 60% in principal amount of the Outstanding Obligations of each series affected thereby, by Act of Obligees delivered to the Shipowner and the Indenture Trustee, (x) compliance by the Shipowner with any of the terms of the Indenture may be waived or (y) the Shipowner and the Indenture Trustee may enter into any Supplemental Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of the Obligations issued under this Indenture; provided that, no such waiver or Supplemental Indenture shall: (a) Without the consent of all Obligees affected thereby (1) change the Stated Maturity or reduce the principal of any Obligation; (2) extend the time of payment of, or reduce the rate of, interest thereon; (3) change 35 the due date of or reduce the amount of any mandatory sinking fund payment; (4) reduce any premium payable upon the redemption of any Obligation; or (5) change the coin or currency in which any Obligation or the interest thereon is payable; or (b) Without the consent of all Obligees (l) terminate or modify any of the Guarantees or the obligations of the Secretary thereunder; (2) reduce the amount of any of the Guarantees; (3) eliminate, modify or condition the duties of the Indenture Trustee to demand payment of the Guarantees or otherwise to comply with the provisions of Sections 6.02 and 6.04; (4) eliminate or reduce any of the eligibility requirements for the Indenture Trustee stated in Section 7.02; or (5) reduce the percentage in principal amount of the Outstanding Obligations of any series, the consent of whose Holders is required for any such Supplemental Indenture, or required for any waiver provided herein or to modify any of the provisions of this Section. It shall not be necessary for any Act of Obligees under this Section to approve the particular form of any proposed Supplemental Indenture, but it shall be sufficient if such Act shall approve the substance thereof. Promptly after the execution of any Supplemental Indenture pursuant to this Section, the Shipowner shall give notice thereof to the Obligees in the manner provided in Section 13.01. Any failure of the Shipowner to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. Section 10.05. Consent of Secretary. Subject to the provisions of Section 11.01, no waiver pursuant to Section 10.04 shall be effective, and neither the Shipowner nor the Indenture Trustee shall enter into any Supplemental Indenture, without the prior written consent of the Secretary, and any purported action or attempt to take such action forbidden to be taken by this Section shall be null and void ab initio and of no legal effect. Section 10.06. Continued Validity of the Guarantees. Notwithstanding anything herein to the contrary, this Indenture, the Guarantees and the Authorization Agreement shall each remain in full force and effect notwithstanding the assumption by the Secretary of the Obligations pursuant to Section 6.09, and pursuant to Section 1103(e) of the Act, the validity of the Guarantee of any Obligation shall be unaffected. ARTICLE XI PERFORMANCE OF OBLIGATIONS TO SECRETARY Section 11.01. Performance of Obligations to Secretary. Notwithstanding any provisions of this Indenture to the contrary, upon termination of the Guarantees pursuant to Section 6.04(a), each of the provisions of the Indenture which refers to the rights and duties of the Secretary shall not be effective and the Sections containing such provisions shall be read as though there were no such rights or duties. ARTICLE XII SATISFACTION AND DISCHARGE OF INDENTURE Section 12.01. Satisfaction and Discharge of Indenture. Whenever all Outstanding Obligations authenticated and delivered hereunder shall have been Retired or Paid the Indenture Trustee shall forthwith deliver to the Shipowner and the Secretary a duly executed instrument, in form submitted to it by the Shipowner and reasonably satisfactory to the Secretary, satisfying and discharging this Indenture and, at the time such form of instrument is submitted to the Indenture Trustee the Shipowner shall deliver to the Indenture Trustee an Officer's Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the Obligations of the Shipowner to the Indenture Trustee under Section 7.04 shall survive. 36 ARTICLE XIII MISCELLANEOUS Section 13.01. Notices and Demands. Any communication to, the Indenture Trustee, the Shipowner or the Secretary shall be deemed to have been sufficiently given or made by being mailed, registered or certified mail, postage prepaid, addressed to the Indenture Trustee, the Shipowner or the Secretary at their respective addresses appearing in the Special Provisions of this Indenture or at such other address as any of them may advise the others in writing from time to time. Any communication to, the Obligees shall be deemed to have been sufficiently given or made by being mailed, in the same manner, to the address of each Obligee last appearing on the Obligation Register. Section 13.02. Waivers of Notice. In any case where notice by mail or otherwise is provided herein, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event. Waivers of notice shall be filed with the Indenture Trustee, but such filing shall not be a condition precedent to the validity of any action taken thereon in reliance upon any such waiver. Section 13.03. Benefit of Indenture. This Indenture is for the sole benefit of the Shipowner, the Indenture Trustee, the Holders and (until the obligations to the Secretary shall have terminated as provided in Article XI) the Secretary. Section 13.04. Execution of Counterparts. This Indenture may be executed in any number of counterparts. All such counterparts shall be deemed to be original and shall together constitute but one and the same instrument. Section 13.05. Table of Contents; Titles and Headings. Any table of contents, the titles of the Articles and the headings of the Sections are not a part of this Indenture and shall not be deemed to affect the meaning or construction of any of its provisions. Section 13.06. Immunity of Incorporators, Stockholders, Limited Partners, Members, Officers and Directors. No recourse shall be had for any payment regarding any Obligation, or upon any provision of this Indenture, against any past, present or future incorporator, stockholder, limited partner, member, officer or director of the Shipowner or of any successor company, either directly or indirectly. It is expressly agreed that this Indenture and the Obligations are solely the obligations of the Shipowner. EX-4.(II)(D)(4) 6 ex4-iid4.txt AUTHORIZATION AGREEMENT 1 EXHIBIT 4.(ii)(d)(4) AUTHORIZATION AGREEMENT Between THE UNITED STATES OF AMERICA represented by the Secretary of Transportation and BANK OF NEW YORK as Indenture Trustee under the Trust Indenture dated February 10, 2000 between it and PROJECT AMERICA SHIP I, INC. a Delaware corporation Dated February 10, 2000 2 AUTHORIZATION AGREEMENT BETWEEN THE UNITED STATES OF AMERICA AND THE BANK OF NEW YORK, INDENTURE TRUSTEE (Under Title XI, Merchant Marine Act, 1936, as amended) THIS AUTHORIZATION AGREEMENT, dated February 10, 2000 is entered into between (i) the UNITED STATES OF AMERICA, represented by the SECRETARY OF TRANSPORTATION, acting by and through the MARITIME ADMINISTRATOR (the "Secretary"), and (ii)The Bank of New York, a New York banking corporation, as the Indenture Trustee under the Trust Indenture dated the date hereof between the Indenture Trustee and Project America Ship I, Inc., a Delaware corporation (the "Shipowner"). RECITALS A. Under the provisions of Title XI of the Merchant Marine Act, 1936, as amended (the "Act"), the Secretary has determined that the requirements of the Act with respect to the Guarantees and the Obligations proposed to be issued under the Indenture have been met; and B. The Secretary and the Indenture Trustee have entered into this Authorization Agreement in order (1) to authorize the Indenture Trustee to endorse and execute by means of a facsimile signature of the Secretary and a facsimile seal of the U.S. Department of Transportation and to authenticate on each of the Obligations the Guarantee of the United States pursuant to the terms of the Indenture, (2) to agree upon the procedures whereby the Indenture Trustee or any Holder of any Outstanding Obligation, as agent and attorney-in-fact for the Holders of all Outstanding Obligations, as provided in the Indenture, will make demand upon the Secretary for payment of the Guarantees, and (3) to provide for the payment of the Guarantees by the Secretary to the Indenture Trustee. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 3 ARTICLE I EXECUTION, AUTHENTICATION AND DELIVERY OF THE GUARANTEES Section 1.01. Authorization to Imprint, Authenticate and Deliver. (a) The Secretary hereby authorizes and directs the Indenture Trustee to cause the Guarantees, the facsimile signature of the Maritime Administrator or the Acting Maritime Administrator, and facsimile seal of the U.S. Department of Transportation to be imprinted upon Obligations consisting of the Notes and the Bonds, attached to the Indenture as Exhibit 2A and 2B, respectively, and issued in accordance with Article II and Article III of the Indenture. The form of the Guarantee to be imprinted on the Obligation is as follows: "The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator, pursuant to Title XI of the Merchant Marine Act, 1936, as amended, hereby guarantees to the holder of the Note [or the Bond, as the case may be] annexed hereto, upon demand of the holder or his agent, payment of the unpaid interest on, and the unpaid balance of the principal of, such Note [Bond], including interest accruing between the date of default under such Note [Bond], and the payment in full of the Note [Bond] under this Guarantee. The full faith and credit of the United States of America is pledged to the payment of this Guarantee. The validity of this Guarantee is incontestable in the hands of any holder of such Note [Bond] Payment of this Guarantee will be made in accordance with the provisions of such Note [Bond]. UNITED STATES OF AMERICA SECRETARY OF TRANSPORTATION (SEAL) By ----------------------------- Maritime Administrator" (b) The Secretary hereby authorizes and directs the Indenture Trustee to authenticate the Obligations and Guarantees thereon, and to deliver such Obligations and Guarantees in accordance with the Indenture and herewith. (c) Once an Obligation has been imprinted with the Guarantees, the requisite facsimile signatures and seals, authenticated by the Trustee and delivered to the Holders, then that Obligation shall bind the United States regardless of the fact that the individual signing as such Maritime Administrator or Acting Maritime Administrator ceased to hold such office prior to the authentication and delivery of the Obligation bearing such Guarantee, or did not hold such office on the date of such Obligation. Section 1.02. Issuance of Obligations. The Indenture Trustee is authorized to execute, authenticate and deliver the Guarantees in the manner set forth in Section 1.01 above, only in accordance with the Obligations issued under Sections 2.01, 2.02, 2.07, 2.09 and 3.10 (b) of the Indenture. 2 4 ARTICLE II DEMAND FOR PAYMENT OF GUARANTEES Section 2.01. Default under the Indenture. (a) In the event of any Indenture Default, the Indenture Trustee or any Holder of an Outstanding Obligation may demand, in accordance with the provisions of Section 6.02 of the Indenture, on behalf of the Holders of all the Obligations then Outstanding, payment by the Secretary of the unpaid principal and interest to the date of payment on all Outstanding Obligations. (b) Within 30 days from the date of any demand for payment made pursuant to paragraph (a) of this Section, the Secretary shall pay to the Indenture Trustee as agent and attorney-in-fact for the Holders of the Outstanding Obligations, all the unpaid interest to the date of such payment on, and the unpaid balance of the principal of, all Outstanding Obligations as aforesaid in full, in cash; provided that, in the case of a demand made as a result of a Payment Default, the Secretary shall not be required to make such payment if (i) the Secretary shall have previously assumed the Obligations pursuant to Section 6.09 of the Indenture or (ii) prior to the expiration of such 30-day period subsequent to such demand and prior to any payment of the Guarantees by the Secretary, he shall find there was no Payment Default or that such Payment Default had been remedied prior to such demand, and in any such case the Guarantees shall remain in full force and effect. The Secretary shall give prompt written notice to the Shipowner and the Indenture Trustee of each such finding. Section 2.02. Payment of the Guarantees. The Secretary and the Indenture Trustee confirm that, in accordance with the provisions of the Obligations and the Indenture, the payment of the Guarantees as provided in Section 2.01 by the Secretary to the Indenture Trustee, as agent and attorney-in-fact for the Holders of all Outstanding Obligations, shall be made by the Secretary to, and accepted by, the Indenture Trustee, solely for the benefit of the Holders of Outstanding Obligations, as payment in full of the Outstanding Obligations, and that such Obligations will thereupon cease to be Obligations of the Shipowner. ARTICLE III REPRESENTATIONS AND COVENANTS OF THE INDENTURE TRUSTEE Section 3.01. Consent of the Secretary. The Indenture Trustee covenants that it will not, without the written consent of the Secretary, and then only upon such conditions, if any, as may be specified in such consent, (a) take or participate in the taking of any action which, by the terms of the Indenture, may require the consent of the Secretary, or (b) enter into any amendment or supplement to the Indenture, or waive any condition of the Indenture, except in the case of any such waiver as the Indenture may expressly permit. Section 3.02. Authorization, Execution and Delivery. The Indenture Trustee represents and warrants that it has satisfied all requirements of law for its due execution and delivery of this 3 5 Authorization Agreement and upon execution and delivery hereof, this Authorization Agreement will constitute a valid and legally binding obligation of the Indenture Trustee, enforceable in accordance with its terms. Section 3.03. Agreements of Indenture Trustee. The Indenture Trustee agrees that it shall: (a) Furnish to the Secretary a written statement of the principal amount, interest rate, Stated Maturity and date of delivery of any (1) Obligations that are authenticated and delivered in accordance with Sections 2.01 and 2.02 of the Indenture on the date hereof and on each subsequent date of delivery of each tranche; (2) Obligations that are authenticated and delivered by the Indenture Trustee under Section 1.02 and 1.03 hereof within 15 Business Days after each such delivery, and (3) Obligations that are redeemed or Retired or Paid within 30 days of the event. (b) Permit the Secretary, at all reasonable times upon request, to make such reasonable, material and pertinent examinations and audits of its records and books of account and take such information as the Secretary deems reasonable pertaining to the Indenture, the Obligations, the Guarantees and this Authorization Agreement, and all matters related thereto; and (c) Furnish to the Secretary, promptly upon request, such reasonable, material and pertinent reports, evidence, proof or information, in addition to that furnished under other provisions hereof, bearing on matters pertaining to the Indenture, the Obligations, and the Guarantees, and acts performed by the Indenture Trustee with respect thereto, as the Secretary may reasonably deem necessary or appropriate. ARTICLE IV GENERAL PROVISIONS Section 4.01. Definitions. For all purposes of this Authorization Agreement, unless otherwise expressly provided or unless the context otherwise requires, capitalized terms not specifically defined herein shall have the respective meanings given in Schedule A to the Indenture. Section 4.02. Secretary's Agreements. The Secretary agrees that: (a) This Authorization Agreement and the Guarantees of the Obligations are made and entered into pursuant to Title XI of the Act, and conclusively evidence the eligibility of the Obligations for the Guarantees, and the validity of the Guarantees shall be incontestable; (b) The obligations of the United States to pay the Guarantees shall be subject to no conditions whatsoever, express or implied, except that demand shall have been made therefor by the Indenture Trustee or any Holder of an Outstanding Obligation not later than 60 days from the date of an Indenture Default that shall have occurred and be continuing, it being the intent of the 4 6 United States that the Guarantees will be paid under any and all circumstances upon demand duly made therefor; and (c) In the event of an Indenture Default of which the Secretary has actual knowledge, the Secretary will publish notice in the Authorized Newspapers of the occurrence of such Indenture Default within 30 days from the date of such Indenture Default, unless demand for payment under the Guarantees shall previously have been made by the Indenture Trustee, but any failure to publish such notice or any defect therein shall not affect in any way any rights of the Indenture Trustee or any Holder of an Obligation with respect to such Indenture Default, or in any way affect the rights of the Secretary. Section 4.03. Benefits to Holders of Obligations. All authorizations and directions to authenticate and deliver Obligations and Guarantees, and all other agreements of the Secretary herein are made with the Indenture Trustee for, and shall inure to, the benefit of all Holders of the Obligations. The agreements of the Indenture Trustee herein are made with the Secretary for, and shall inure to, the benefit of all Holders of the Obligations. Section 4.04. Successor Indenture Trustee; Amendments and Supplements. The authority and direction granted to the Indenture Trustee hereby, and all rights of the Indenture Trustee hereunder, are granted to and shall accrue to the benefit of any Person who from time to time acts as successor Indenture Trustee, pursuant to the terms of Article VII of the Indenture; provided that, such successor Indenture Trustee and the Secretary shall have entered into an amendment hereto whereby such successor Indenture Trustee agrees to fulfill the obligations of the Indenture Trustee hereunder. Except as provided in the preceding sentence, this Authorization Agreement may not be amended or supplemented in any regard whatever, nor may the rights or obligations of the Indenture Trustee hereunder be assigned to any other Person, except by a writing duly executed by the Indenture Trustee and the Secretary. Section 4.05. Effective Period. This Authorization Agreement and the authorization and direction to authenticate and deliver Guarantees granted to the Indenture Trustee (or any successor Indenture Trustee) shall have effect from the date hereof until termination upon, and only upon, the occurrence of one or both of the following events: (a) When the Indenture shall have been satisfied and discharged in accordance with Section 12.01 thereto; or (b) When the Guarantees of all the Outstanding Obligations shall have been terminated in accordance with Section 6.04(a) of the Indenture. Section 4.06. Payments, Notices or Other Communications. Except as otherwise provided herein, all payments, notices or other communications provided for herein may be made or delivered in person, or by registered or certified mail, postage prepaid, addressed to the party at the address of such party specified below, or at such other address as such party shall advise the other party by written notice, and shall be effective upon mailing or delivery in person. 5 7 The addresses of the Secretary and the Indenture Trustee are as follows: SECRETARY OF TRANSPORTATION c/o Maritime Administrator Department of Transportation 400 Seventh Street, S.W. Washington, D.C. 20590 The Bank of New York 101 Barclay Street New York, NY 10286 Attention: Corporate Trust Administration Section 4.07. Execution of Counterparts. This Authorization Agreement may be executed in any number of counterparts. All such counterparts shall be deemed to be originals, and shall together constitute but one and the same instrument. Section 4.08. Titles and Headings. The titles of the Articles and the headings of the Sections are not a part of this Authorization Agreement, and shall not be deemed to affect the meaning or construction of any of its provisions. Section 4.09. Conformity with Regulations. The Secretary hereby affirms that, with respect to the rights of the Indenture Trustee and the Holders, this Authorization Agreement conforms to its existing regulations governing the issuance of commitments to guarantee and guarantees under Title XI of the Act. 6 8 IN WITNESS WHEREOF, this Authorization Agreement has been duly executed by the parties hereto as of the day and year first above written. UNITED STATES OF AMERICA, SECRETARY OF TRANSPORTATION (SEAL) BY: MARITIME ADMINISTRATOR /s/ Joel C. Richard -------------------------------- Secretary ATTEST: /s/ Sarah J. Washington - --------------------------- Assistant Secretary 9 INDENTURE TRUSTEE: THE BANK OF NEW YORK (SEAL) By /s/ T. C. Knight ------------------------------- Name: Thomas Knight Title: Assistant Vice President ATTEST: By /s/ Robert A. Mammills --------------------------- Its EX-4.(II)(D)(5) 7 ex4-iid5.txt SECURITY AGREEMENT 1 EXHIBIT 4.(ii)(d)(5) Contract No. MA-13581 SECURITY AGREEMENT Relating to United States Government Guaranteed Ship Financing Obligations Between PROJECT AMERICA SHIP I, INC. And THE UNITED STATES OF AMERICA Dated February 10, 2000 2 SECURITY AGREEMENT SPECIAL PROVISIONS THIS SECURITY AGREEMENT, dated February 10, 2000 (the "Security Agreement"), between Project America Ship I, Inc., a Delaware corporation (the "Shipowner") and the UNITED STATES OF AMERICA (the "United States"), represented by the Secretary of Transportation, acting by and through the Maritime Administrator (the "Secretary"), pursuant to Title XI of the Act. RECITALS A. Project America, Inc. (the "Guarantor") entered into the Construction Contract, dated March 9, 1999, with Ingalls Shipbuilding, Inc., (the "Shipyard") for the construction of the Hull No. 7671 (the "Vessel") and subsequently assigned said contract to the Shipowner. B. On the date hereof, the Secretary entered into, and the Shipowner accepted a Commitment to Guarantee Obligations, Contract No. MA-13579, whereby the United States has committed itself to guarantee the payment in full of all the unpaid interest on, and the unpaid principal balance of, Obligations (as defined herein) in the aggregate principal amount not to exceed 87.5% of the Depreciated Actual Cost or the Actual Cost of the Vessel, as the case may be, on the Closing Date, which amounts are set out in Table A. C. The Shipowner has entered into the Note Purchase Agreement providing for the issuance of Notes in the aggregate amount up to $250,000,000 to be designated "United States Government Guaranteed Ship Financing Notes" (the "Notes") having a maturity date and interest rate set forth in the Note Purchase Agreement and the Notes. D. On the date hereof, the Shipowner and Bank of New York, a New York banking corporation, as Indenture Trustee, executed and delivered the Trust Indenture (the "Indenture") pursuant to which the Shipowner will issue the Obligations. E. On the date hereof, the Secretary and the Indenture Trustee will execute the Authorization Agreement, Contract No. MA- 13580, which authorizes the Indenture Trustee to endorse, execute, and authenticate the Secretary's Guarantee on each of the Obligations. F. As security for the due and timely payment of the Secretary's Note, issued this day by the Shipowner, and for the Secretary's issuance of the Guarantees, the Shipowner has executed and delivered the Security Agreement, Contract No. MA-13581, and the Financial Agreement, Contract No. MA-13583, granting the Secretary a security interest in, among other things, the Construction Contract, the Vessel and certain other property, tangible and intangible, which the Shipowner now has or hereafter will acquire, and all of the proceeds thereof. G. As further security to the Secretary and in consideration of the Secretary's agreeing to issue the Guarantees, the Shipyard has granted the Secretary a security interest in the Vessel, its hull, component parts, machinery, and equipment during the construction period and 3 has executed on this date the Consent of Shipyard to the assignment of the Construction Contract to the Secretary. H. In order to implement certain aspects of the transactions contemplated by the Security Agreement and the Financial Agreement, the Secretary, the Shipowner and The Bank of New York, a New York banking corporation (the "Depository") have entered into the Depository Agreement, Contract No. MA-13584, on the date hereof. I. The Shipowner intends to enter into one or more Bond Purchase Agreements providing for the sale and delivery, on one or more Bond Closing Dates, of obligations in the aggregate principal amount of $534,447,000 to be designated "United States Government Guaranteed Ship Financing Bonds" (the "Bonds" and together with the Notes, the "Obligations") having the maturity date and interest rate set forth in the Bond Purchase Agreement, the Indenture and the Bonds. J. As further security for the due and timely payment of the Secretary's Note issued this day in conjunction with the Note Closing and with the Secretary's Note to be issued in conjunction with the Bond Closing, Shipowner will execute and deliver the Mortgage, Contract No. MA-13582, on the Delivery Date. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and of other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and in order to provide security to the Secretary for the Secretary's Note provided for herein, the parties hereto hereby agree as follows: 1. Concerning these Special and General Provisions. This Security Agreement shall consist of two parts: the Special Provisions and the General Provisions attached hereto as Exhibit 1 of the Security Agreement and incorporated herein by reference. In the event of any conflict, or inconsistency between the Special Provisions of this Security Agreement and Exhibit 1, the Special Provisions shall control. 2. Additions, Deletions and Amendments to Exhibit 1. The following additions, deletions and amendments are hereby made to the Security Agreement: (a) Concerning Section 1.03. (1) Section 1.03(a)(2) is amended by inserting in the third line following the words "are recovered" and immediately prior to the period: "except those rights expressly reserved therein by the Shipowner relating to such matters as patent infringement pursuant to Article 16.2 of the Construction Contract and liquidated damages pursuant to Article 3.1 of the Construction Contract". (2) Section 1.03(a)(9) is hereby amended by renumbering it to 1.03(a)(11). 2 4 (3) Section 1.03(a) is amended by deleting Section 1.03(a)(8) in its entirety and substituting the following therefor: (8) The guaranty by Litton Industries, Inc. to Guarantor relating to the construction of the Vessel and her sistership, dated March 9, 1999, and all proceeds thereof. (9) The stock subscription agreement between American Classic Voyages Co. and Guarantor dated April 5, 1999, and all proceeds thereof. (10) All proceeds of collateral described in paragraphs (1) through (9) of this Section." (b) Concerning Section 2.02(d)(3). Section 2.02(d)(3) is hereby amended by deleting the words "current operation" located on the fourth line and inserting in lieu thereof the words "Vessel operation upon delivery and acceptance of said Vessel by Shipowner". (c) Concerning Section 2.04(e). Section 2.04(e) is hereby amended by deleting the words "substantially in the form of Exhibit A to the form of the Mortgage" located on the first line and substituting in lieu thereof the words "in form and substance satisfactory to the Secretary evidencing (i) the Vessel is free and clear of any liens and (ii) Secretary has a valid and enforceable first priority mortgage". (d) Concerning Section 2.05. (1) In connection with Sections 2.05(b)(3) and the last paragraph of Section 2.05(e) the maximum amount of self-insurance permitted to the Shipowner under the last paragraph thereof shall be $1,000,000 per accident deductible; and (2) In connection with clause (ii) of the initial paragraph of Section 2.05(c), the Secretary shall permit payment of losses up to the amount of $2,000,000 to be made directly to the Shipowner under the circumstances specified therein. (e) Concerning Section 2.08(c). Section 2.08(c) is hereby amended by deleting the word "FLEET" located on the second line and substituting in lieu thereof the word "SHIP". (f) Concerning Section 2.14. Section 2.14 is hereby deleted in its entirety. (g) Concerning Article III. Article III is amended by adding a new section 3.04 thereto, as follows: "Section 3.04. Guarantee Fee. (a) At the Closing of each Note or Bond, the Shipowner shall pay to the secretary the Guarantee Fee based upon the principal amount and maturity of each Obligation to be issued, set at three-eighths of one percent for each 3 5 Note issued during the construction of the Vessel, and three-quarters of one percent (i) for each Note issued after the Delivery Date, and (ii) for each Bond. (b) Unless otherwise specified by the Secretary in a written notice to the Shipowner, the Guarantee Fee may be paid by check (which need not be certified), payable to the order of, "Maritime Adm - Transportation", delivered in person or sent by mail, addressed to the Secretary, accompanied by a letter stating that the payment is of the Guarantee Fee required hereunder and specifying the period covered by such payment, or if the Secretary requests, the Guarantee Fee shall be paid via the United States Treasury Electronic Fund Transfer system using the form supplied by the Secretary. (c) In the event that the Secretary determines that the amount of any Guarantee Fee should be adjusted, has been erroneously calculated or is subject to increase or decrease, he shall promptly give written notice thereof to the Shipowner, specifying the correct amount, the basis of computation thereof, and the amount of the deficiency or excess. The Shipowner shall pay to the Secretary, by whichever means the Secretary may request, within 30 days after it has received said notice, the amount of the deficiency. (d) The Guarantee Fee shall be determined to be fully earned as of the commencement of the period to which it is applicable, and no refund will be made by the Secretary of any Guarantee Fee in the event the Secretary shall have assumed the Shipowner's rights and duties under the Indenture and the Obligations and made any payments in default under the Indenture, or in the event the Guarantees shall terminate after the due date of such Guarantee Fee, or the time of receipt and collection by the Secretary in the case of a deficit Guarantee Fee." (h) Concerning Article V. Notwithstanding any other provision in Article V of the General Provisions to the contrary, there may be no withdrawal from the Escrow Fund unless the Company is in compliance with this paragraph (h). Any provision of Article V of the General Provisions which are consistent with these Special Provisions shall be given effect. (a) Before each withdrawal from the Escrow Fund, a Responsible Officer of the Company shall: (1) deliver an Officer's Certificate, in form and substance satisfactory to the Secretary stating that (a)(i) the amounts of Actual Cost relative to such withdrawal are in accordance with the Construction Contract including the disbursement schedule and, (ii) each item in these amounts is properly included in the Secretary's approved estimate of Actual Cost; and (b) with respect to such withdrawal that, once the Contractor is paid, there will be no liens or encumbrances on the applicable portion of the Vessels or its component parts for which withdrawal is being requested except for security interests already approved by the Secretary, and (2) provide, in form and substance satisfactory to the Secretary, (a) an Officer's Certificate from each Contractor to be paid with the requested withdrawal that, once the Contractor is paid, there will be no liens or encumbrances on the applicable portion of the Vessel or its component parts for which withdrawal is being requested except for security interests already approved by the Secretary, (b) invoices and receipts supporting each withdrawal to the satisfaction of the 4 6 Secretary, and (c) monthly updates of the master construction schedule, material or delivery schedule, any changes in the schedule of anticipated disbursements from the Escrow Fund, and the detailed cost estimates and working plans and specifications which must be satisfactory to the Secretary. (b) The final request for a withdrawal of substantially all the proceeds in the Escrow Fund submitted by the Company shall be accompanied by Officer's Certificates of the Company and its independent auditor, together with such supporting documentation from the Contractors as the Secretary may require, stating that the Construction has been accomplished and the Vessel has been completed and delivered, and the Company's Certificate shall also state that there are no liens or claims outstanding, except those authorized by the Secretary. In addition, the Company shall provide certificates of insurance satisfactory to the Secretary, confirming that all insurance required by Section 2.06 hereof is in full effect; provided however, that these certificates shall, in no event, be supplied later than the Delivery Date. (i) Concerning Section 5.02. The Secretary has determined that a deposit of six months interest on the principal amount deposited in the Escrow Fund is not required. (j) Concerning Section 5.03. Section 5.03 is amended by adding the following paragraph after Section 5.03(h): "(i) Notwithstanding the requirements of Section 5.03, if on the Note Closing Date the Shipowner provides the Secretary with satisfactory documentation that the Shipowner has paid 12.5% of the Actual Cost of the Vessel, the Shipowner may pay from the proceeds of the issuance of the Note on the Note Closing Date the amount of the Guarantee Fee payable to the Secretary hereunder on such date." (k) Concerning Section 6.01. (1) The following paragraphs are hereby added immediately after paragraph (9) and prior to the beginning of last paragraph of Section 6.01(b) of Exhibit 1: "(10) Default under the Parent Guaranty, the Guaranty made of Litton Industries, Inc. to Guarantor relating to the construction of the Vessel and her sistership, dated March 9, 1999, or the Stock Subscription Agreement between American Classic Voyages Co. and Guarantor dated April 5, 1999, shall constitute an additional security default; (11) A breach by either the Shipowner or the Shipyard under the terms of the Construction Contract shall constitute an additional security default under this Section 6.01(b); (12) Failure of the Shipowner to provide opinions from its counsel, 5 7 within 60 days of the date hereof, regarding establishment of a first priority security interest in favor of the Secretary in the collateral described in Section 1.03(a) of Exhibit 1 hereto in the State of Mississippi and the State of Illinois; (13) Failure of the Shipowner to submit to the Secretary for its approval any future loan agreements or securities purchase agreements between the Shipowner and the Chase Securities Inc.; and (14) Failure of the Shipowner to timely pay any Guarantee Fee or any part thereof due hereunder." (2) The following paragraph is hereby added to the end of Section 6.01 of Exhibit 1: "In the event that a Default shall occur, the Secretary shall be entitled, but not be required, to deliver to the Depository a written notice that the Secretary is thereby exercising exclusive control over the Securities Accounts (as such term is defined in the Depository Agreement) ("Notice of Exclusive Control"). As further provided in the Depository Agreement following the Depository's receipt of and pursuant to said Notice of Exclusive Control, the Secretary and the Shipowner hereby acknowledge and agree that (i) the Secretary shall be entitled, but not be required, to issue to the Depository an instruction, notice or any other type of directive that would constitute an "entitlement order" within the meaning of Section 8-102(a)(8) of the New York Uniform Commercial Code (collectively, an "Entitlement Order") concerning the Securities Accounts and (ii) the Depository shall immediately cease complying with any Request, Request for Payment, instruction, notice or any other type of directive that would constitute an Entitlement Order from the Shipowner. In the event that a Default has been cured or waived as provided in Article VI hereof, the Secretary and the Shipowner hereby acknowledge and agree that the Secretary shall deliver a written notice to the Depository that (i) the Secretary is no longer exercising exclusive control over the Securities Accounts and that the Notice of Exclusive Control previously delivered is theretofore without effect and (ii) the Depository shall thereafter comply with any Request, Request for Payment, instruction, notice or any other type of directive that would constitute an Entitlement Order from the Shipowner." (l) Concerning Section 6.04(b)(4). (1) Section 6.04(a) is hereby amended by inserting the words " and shall have all rights of a secured party under the applicable UCC". (2) Section 6.04(b)(4) is hereby amended by inserting the words "and mailing said notice" between "Authorized Newspapers" and "to the Shipowner" located on the fourth line. 6 8 (m) Concerning Section 8.01(c). Section 8.01(c) is hereby amended by deleting the from the third line the number "12110(c)(3)" and substituting the number "12111(c)(3) in lieu thereof. (n) Concerning Section 9.01. Subject to Section 9.01 of the Security Agreement, any notice, request, demand, direction, consent, waiver, approval or other communication, when given to a party hereto, shall be addressed to: Secretary as: SECRETARY OF TRANSPORTATION c/o Maritime Administrator U.S. Department of Transportation 400 Seventh Street, S.W. Washington, D.C. 20590 Shipowner as: PROJECT AMERICA SHIP I, INC. c/o American Classic Voyages Co. 2 North Riverside Plaza Chicago, Illinois 60606 Indenture Trustee as: The Bank of New York 101 Barclay Street New York, NY 10286 Attention: Corporate Trust Administration (o) Governing Law. This Security Agreement and the rights and obligations of the parties hereto shall be governed by and construed in accordance with U.S. maritime laws, to the extent applicable, and otherwise in accordance with the laws of the State of Illinois, except that the rights and obligations of the parties with respect to Sections 1.03(a)(4), (5) and (6) shall be governed by the laws of the State of New York. 7 9 IN WITNESS WHEREOF, this Security Agreement has been executed by the parties as of the day and year first written. SHIPOWNER: PROJECT AMERICA SHIP I, INC. (SEAL) By /s/ Jordan B. Allen -------------------------- Its Executive Vice President ATTEST: By /s/ Pam Stringer -------------------------- Its Assistant Secretary 10 UNITED STATES OF AMERICA SECRETARY OF TRANSPORTATION (SEAL) BY: MARITIME ADMINISTRATOR /s/ Joel C. Richard --------------------------------- Secretary ATTEST: /s/ Sarah J. Washington - ------------------------------ Assistant Secretary 11 TABLE A Hull No. 7671 The aggregate Actual Cost of the Vessels as of the date hereof as determined by the Secretary, namely, (i) the amounts paid by or for the account of the Shipowner as of the date hereof for the Construction of the Vessels, plus (ii) the amount which the Shipowner was on said date obligated under the Construction Contract or otherwise to pay from time to time thereafter for the Construction of the Vessels less the Depreciation of the Vessels as of the date hereof as determined by the Secretary is $610,797,578, both calculated and itemized for each Vessel as follows:
Amount Amount Obligated Paid To Be Paid Total ------ -------------- ----- Contract Price $440,000,000 Changes and Extras 51,000,000 Owner Furnished Items 20,000,000 Engineering and Inspection 5,000,000 Net Interest During Construction 51,282,000 Estimated Guarantee Fee 43,515,578 --------- ------------ --------- Total Actual Cost $610,797,578
12 SCHEDULE OF DEFINITIONS TO SECURITY AGREEMENT Dated February 10, 2000 "Act" means the Merchant Marine Act, 1936, as amended and in effect on the First Closing Date. "Actual Cost" means the actual cost of the Vessel, as set forth in Table A of the Security Agreement or as subsequently redetermined by the Secretary pursuant to the Security Agreement and the Act. "Adjusted Cash Provided from Operating Activities" means the amount determined by taking `net cash provided from operating activities' from the statement of cash flows and adding back all interest deducted in determining such amount. "Audited Financial Statements" mean the annual audit of the Shipowner's accounts in accordance with generally accepted auditing standards by independent certified public accountants or independent licensed public accountants, certified or licensed by a regulatory authority of a state or other political subdivision of the United States, who may be the Shipowner's regular auditors. "Authorization Agreement" means the Authorization Agreement, Contract No. MA-13580, between the Secretary and the Indenture Trustee, whereby the Secretary authorizes the Guarantee of the United States to be endorsed on the Obligations, as the same is originally executed, or as modified, amended or supplemented therein. "Authorized Newspapers" means The Wall Street Journal and The Journal of Commerce or if either ceases to exist, then in such other newspapers as the Secretary may designate. "Bond" means each, and "Bonds" means every, long term obligation of the Shipowner bearing a Guarantee that is authenticated and delivered under the Indenture, the Authorization Agreement and/or a Secretary's Determination. "Bond Closing Date" means the date when the Bond is executed and delivered by the Secretary and each subsequent date when Bonds are issued by the Shipowner and authenticated by the Indenture Trustee pursuant to the Authorization Agreement. "Bond Purchase Agreement" means each agreement for the purchase of the Bonds, executed by the Shipowner and the purchaser named therein, as originally executed, modified or supplemented. "Business Day" means a day which is not a Saturday, Sunday or a bank holiday under the laws of the United States or the State of Illinois and the State of New York; provided, however, ii 13 that for purposes of making payments of principal and interest on any Obligations bearing interest determined by reference to LIBOR, "Business Day" means any day on which commercial banks and foreign exchange markets are open for business, including dealings in deposits in US Dollars, in New York and London. "Chapter 313" means the provisions of 46 United States Code Chapter 313, as amended. "Classification Society" means collectively the American Bureau of Shipping and Lloyd's Register. "Closing Date" or "Closings" means collectively each and every Note Closing Date and each and every Bond Closing Date. "Commitment to Guarantee Obligations" has the same meaning as the term Guarantee Commitment. "Consent of Shipyard" means the document evidencing such Shipyard's consent to the assignment of a Construction Contract to the Secretary under the Security Agreement as originally executed, modified, amended or supplemented. "Construction" means construction of the Vessel, including designing, inspecting, outfitting and equipping thereof. "Construction Contract" means the contract relating to the Construction of the Vessel between the Shipowner and the Shipyard, as originally executed or as modified or supplemented pursuant to the applicable provisions thereof. "Construction Fund" has the meaning specified in Article IV of the Security Agreement. "Default" when used in the Security Agreement has the meaning attributed to it in Article VI thereof. "Delivery Date" means the date on which the Vessel is delivered to and accepted by the Shipowner. "Depository" shall mean the institution designated in the Depository Agreement or any successor. "Depository Agreement" shall mean the Depository Agreement, Contract No. MA-13584 among the Shipowner, the Secretary and the Depository, as originally executed or as modified or supplemented in accordance with the applicable provisions thereof. "Depreciated Actual Cost" means the depreciated actual cost of the Vessel, as set forth in Table A of the Security Agreement or as subsequently redetermined by the Secretary pursuant to the Security Agreement and the Act. iii 14 "Eligible Investment" has the meaning given by Section 5 of the Financial Agreement. "Escrow Fund" means the account held by the Secretary, established under Section 1108 of the Act and administered pursuant to Article V of the Security Agreement. "Financial Agreement" means the Title XI Reserve Fund and Financial Agreement, Contract No. MA-13583, executed by the Shipowner and the Secretary, as originally executed or as modified, amended or supplemented. "Financial Asset" has the meaning given by Article 8-102(a)(9) of the UCC. "First Calendar Year of Vessel Operation" means the first calendar year of operation of the Vessel provided said calendar year commences no sooner than six months after delivery of the Vessel. "Fourth Calendar Year of Vessel Operation" means the calendar year subsequent to the Third Calendar Year of Vessel Operation. "Government Use" means the use of a Vessel or requisition of its title required by a government or governmental body of the United States of America. "Guarantee" means each, and the "Guarantees" means every, guarantee of an Obligation by the United States pursuant to Title XI of the Act. "Guarantee Commitment" means the Commitment to Guarantee Obligations, Contract No. MA-13579, dated February 10, 2000 executed by the Secretary and accepted by the Shipowner relating to the Guarantees, as originally executed or as modified, amended or supplemented. "Guarantor" means Project America, Inc., a Delaware corporation, and shall include its successors and assigns. "Holder" means each, and "Holders" means every, registered holder of an Obligation. "Increased Security" means the Secretary's Note, the Security Agreement, the Vessel, the Security, the Escrow Fund, the Title XI Reserve Fund, the Construction Fund, the Parent Guaranty and any other security agreement between the Secretary and the Shipowner relating to any vessels financed under the Act, and the Policies of Insurance, and the proceeds of the foregoing. "Indenture" means the Trust Indenture dated the Closing Date between the Shipowner and the Indenture Trustee, as originally executed, or as modified, amended or supplemented. "Indenture Default" has the meaning specified in Article VI of the Indenture. iv 15 "Indenture Trustee" means the Bank of New York, a New York banking corporation, and any successor trustee under the Indenture. "Interest Determination Date" for any Interest Period means the second day on which commercial banks are open for business, including dealings in deposits in U.S. dollars in London (or, for purposes of paragraph (iii)(B) of the definition of LIBOR, New York) prior to the commencement of such Interest Period. "Interest Payment Date" means with respect to any Obligation, the date when any installment of interest on such Obligation is due and payable. "Interest Period" means with respect to any Obligation, the period beginning on, and including, the Original Issue Date and ending on, but excluding, the next Interest Payment Date thereafter, and each successive three-month period beginning on and including, an Interest Payment Date and ending on, but excluding, the next succeeding Interest Payment Date. "LIBOR" means with respect to any Interest Period, a rate per annum determined as follows: (i) At approximately 11:00 a.m. (London time) on the Interest Determination Date prior to the commencement of the Interest Period for which such rate will apply, the Indenture Trustee will calculate LIBOR for such Interest Period as, subject to the provisions described below, the rate per annum equal to the rate appearing on the Telerate Page 3750 on the Reuter Monitor Dow Jones Telerate Service (or such other page as may replace that page on that service for the purpose of displaying London interbank rates of major banks) for three-month U.S. dollar deposits in the London inter-bank market on such Interest Determination Date. (ii) If on any Interest Determination Date an appropriate rate cannot be determined from the Dow Jones Telerate Service, LIBOR for the next Interest Period will, subject to the provisions described below, be the rate per annum that the Indenture Trustee certifies to be the arithmetic mean of the offered quotations, as communicated to and at the request of the Indenture Trustee by not less than three major banks in London selected by the Indenture Trustee (the "Reference Banks," which expression will include any successors nominated by the Indenture Trustee), to leading banks in London by the principal London offices of the Reference Banks for three-month U.S. dollar deposits in the London inter-bank market as at 11:00 a.m. (London time) on such Interest Determination Date. (iii) If on any Interest Determination Date fewer than three of such offered rates are available, LIBOR for the next Interest Period will be whichever is the higher of (A) LIBOR in effect for the last preceding Interest Period to which (i) or (ii) above applied; and (B) the rate per annum that the Indenture Trustee determines to be either (i) the arithmetic mean of the U.S. dollar offered rates which at least three New York City banks selected by the Indenture Trustee are or were quoting, on the relevant Interest Determination Date, for three-month deposits to the Reference Banks or those of them (being at least three in number) to which such quotations are or were, in the opinion of the Indenture Trustee, being so made, or (ii) in the event that the Indenture Trustee can determine no such arithmetic mean, the arithmetic v 16 mean of the U.S. dollar offered rates that at least three New York City banks selected by the Indenture Trustee are or were quoting on such Interest Determination Date to leading European banks for a period of three months; provided, however, that if the banks selected as aforesaid by the Indenture Trustee are not quoting as mentioned above, LIBOR will be LIBOR specified in (A) above. "Long Term Debt" means, as of any date, the total notes, bonds, debentures, equipment obligations and other evidence of indebtedness that would be included in long term debt in accordance with generally accepted accounting principles. There shall also be included any guarantee or other liability for the debt of any other Person, not otherwise included on the balance sheet. "Maturity" when used with respect to any Obligation, means the date on which the principal of such Obligation becomes due and payable as therein provided, whether at the Stated Maturity or by redemption, declaration of acceleration or otherwise. "Minimum Cash Flow Ratio" means the ratio of Adjusted Cash Provided from Operating Activities to Total Debt Service. "Moneys Due with Respect to Construction of the Vessels" has the meaning specified in Section 1.03 of the Security Agreement. "Mortgage" means the first preferred ship mortgage on the Vessel, Contract No. MA-13582, by the Shipowner to the Secretary, as originally executed, modified, amended or supplemented. "Mortgagee" means the Secretary, as mortgagee under the Mortgage. "Mortgagor" means the Shipowner, as mortgagor under the Mortgage. "Net Worth" means, as of any date, the total of paid-in capital stock, paid-in surplus, earned surplus and appropriated surplus, and all other amounts that would be included in net worth in accordance with generally accepted accounting principles, but exclusive of (1) any receivables from any stockholder, director, Officer or employee of the Company or from any Related Party (other than current receivables arising out of the ordinary course of business and not outstanding for more than 60 days) and (2) any increment resulting from the reappraisal of assets. "Note" means each and "Notes" means every short term obligation of the Shipowner, the maturity of which shall not exceed one year from the Delivery Date, bearing a Guarantee that is authenticated and delivered under the Indenture, the Authorization Agreement and/or a Secretary's Determination. "Note Closing Date" means the date when the Security Agreement is executed and delivered by the Shipowner and each subsequent date when Notes are issued by the Shipowner vi 17 and authorized by the Indenture Trustee pursuant to the Authorization Agreement and Secretary's Determination. "Note Purchase Agreement" means each agreement for the purchase of the Notes, executed by the Shipowner and the purchaser named therein, as originally executed, modified or supplemented. "Obligation" means collectively each and every Bond delivered and each and every Note issued under the Authorization Agreement and Indenture. "Obligee" means each, and "Obligees" means every, Holder of an Obligation. "Offering Circular" means each offering circular relating to the issuance and sale of the Bonds. "Officer's Certificate" means a certificate conforming to Section 1.02 of the Security Agreement or the Indenture as the context may require. "Original Issue Date" means a date on which an Obligation was initially authenticated by the Indenture Trustee even if the Obligation is subsequently given a later date by reason of transfer, exchange or substitution. "Outstanding" when used with reference to the Obligations, shall mean all Obligations theretofore issued under the Indenture, except: (1) Obligations Retired or Paid; and (2) Obligations in lieu of which other Obligations have been issued under the Indenture. "Parent Guaranty" means the guaranty issued by the Guarantor for the Title XI obligations of the Shipowner. "Paying Agent" means any bank or trust company meeting the qualifications in Section 7.02(a) of the Indenture and appointed by the Shipowner under Section 4.02 of the Indenture to pay the principal of (and premium, if any) or interest on the Obligations on behalf of the Shipowner. "Payment Default" has the meaning specified in Section 6.01 of the Security Agreement. "Person" or "Persons" means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, unincorporated organization, government, or any agency or political subdivision thereof. "Policies of Insurance" and "policies" means all cover notes, binders, policies of insurance and certificates of entry in a protection and indemnity association, club or syndicate with respect to the Vessel (including all endorsements and riders thereto), including but not limited to all insurance required under Section 2.05 of the Security Agreement. vii 18 "Redemption Date" means a date fixed for the redemption of a Note or a Bond by the Indenture. "Related Party" means one that can exercise control or significant influence over the management and/or operating policies of another Person, to the extent that one of the Persons may be prevented from fully pursuing its own separate interests. Related parties consist of all affiliates of an enterprise, including (1) its management and their immediate families, (2) its principal owners and their immediate families, (3) its investments accounted for by the equity method, (4) beneficial employee trusts that are managed by the management of the enterprise, and (5) any Person that may, or does, deal with the enterprise and has ownership of, control over, or can significantly influence the management or operating policies of another Person to the extent that an arm's-length transaction may not be achieved. "Request" means a written request to a Person for the action therein specified, signed by a Responsible Officer of the Person making such request. "Responsible Officer" means (1) in the case of any business entity, the chairman of the board of directors, the president, any executive or senior vice president, the secretary, the treasurer, member or partner, (2) in the case of any commercial bank, the chairman or vice-chairman of the executive committee of the board of directors or trustees, the president, any executive or senior vice president, the secretary, the treasurer, any trust officer, and (3) with respect to the signing or authentication of Notes or Bonds and Guarantees by the Indenture Trustee, any person specifically authorized by the Indenture Trustee to sign or authenticate Notes or Bonds. "Retired or Paid" as applied to (i) Obligations and the indebtedness evidenced thereby, means that such Obligations shall be deemed to have been so retired or paid and shall no longer be entitled to any rights or benefits provided in the Indenture if: (1) such Obligations shall have been paid in full; (2) such Obligations shall have been canceled by the Indenture Trustee; or (3) such Obligations shall have become due and payable at Maturity and funds sufficient for the payment of such Obligations (including interest to the date of Maturity, or in the case of a payment after Maturity, to the date of payment, together with any premium thereon) and available for such payment and are held by the Indenture Trustee or any Paying Agent with irrevocable directions, to pay such Obligations; provided that, the foregoing definition is subject to Section 6.08 of the Indenture. "Rights Under the Construction Contracts and Related Contracts" shall have the meaning specified in Section 1.03 of the Security Agreement. "Second Calendar Year of Vessel Operation" means the calendar year beginning January 1 in the year immediately following the First Calendar Year of Vessel Operation. "Secretary" means the Secretary of Transportation or any officials duly authorized to perform the functions of the Secretary of Transportation under Title XI of the Act. viii 19 "Secretary's Determination" has the meaning specified in Section 2(a)(5) of the Indenture. "Secretary's Note" means a promissory note or promissory notes issued and delivered by the Shipowner to the Secretary substantially in the form of Exhibit 2A of the Security Agreement, including any promissory note issued in substitution for, or any endorsement or supplement thereof. "Secretary's Notice" means a notice from the Secretary to the Indenture Trustee, if a Bond, or to the Lender, if a Note, that a Default, within the meaning of Section 6.01(b) of the Security Agreement has occurred. "Security" has the meaning specified in Section 1.03 of the Security Agreement. "Securities Account" has the meaning given by Article 8-501 of the UCC. "Securities Intermediary" has the meaning given by Article 8-102(a)(14) of the UCC and also means the Depository. "Security Agreement" means the security agreement, Contract No. MA-13581, dated the Note Closing Date, consisting of the special provisions, the general provisions and this schedule X, executed by the Shipowner as security for the Secretary, as originally executed or as modified, amended or supplemented. "Security Default" has the meaning specified in Section 6.01 of the Security Agreement. "Shipowner" means Project America Ship I, Inc., a Delaware corporation, and shall include its successors and assigns. "Shipyard" means Ingalls Shipbuilding, Inc. "Sister Shipowner" means Project America Ship II, Inc., a Delaware corporation, and shall include its successors and assigns. "Stated Maturity" means the date determinable as set forth in any Bond as the final date on which the principal of such Bond is due and payable. "Stock Subscription Agreement" means the stock subscription agreement between Guarantor and American Classic Voyages Company dated April 5, 1999, as originally executed or as modified, amended or supplemented pursuant to the applicable provisions thereof. "Successor" means a Person formed by or surviving a consolidation or merger with the Shipowner or to which the Vessels have been sold. ix 20 "Third Calendar Year of Vessel Operation" means the calendar year subsequent to the Second Calendar Year of Vessel Operation. "Title XI" means Title XI of the Act. "Title XI Reserve Fund" has the meaning specified in the Financial Agreement. "Title XI Reserve Fund and Financial Agreement" means the Financial Agreement. "Total Debt Service" means the amount determined for each given year as follows: (a) any scheduled payments on the Title XI debt (including principal and interest), plus (b) any scheduled payments (including principal and interest) on all other third party debt of the Shipowner, minus (c) cash used to pay such payments from either non-operating sources or operating sources other than the Shipowner. "UCC" means the Uniform Commercial Code as enacted in the State of Illinois, except that with respect to the terms "Financial Asset", "Securities Account" and "Securities Intermediary", "UCC" shall mean the Uniform Commercial Code as enacted in the State of New York. "Vessel" means Hull No. 7671, financed with the Obligations. "Working Capital" shall mean the excess of current assets over current liabilities, both determined in accordance with generally accepted accounting principles and adjusted as follows: (1) In determining current assets, there shall also be deducted: (A) Any securities, obligations or evidence of indebtedness of a Related Party or of any stockholder, director, officer or employee (or any member of his family) of the Company or of such Related Party, except advances to agents required for the normal current operation of the Company's vessels and current receivables arising out of the ordinary course of business and not outstanding for more than 60 days; and (B) An amount equal to any excess of unterminated voyage revenue over unterminated voyage expenses; (2) In determining current liabilities, there shall be deducted any excess of unterminated voyage expenses over unterminated voyage revenue; and (3) In determining current liabilities, there shall be added one half of all annual charter hire and other lease obligations (having a term of more than six months) due and payable within the succeeding fiscal year, other than charter hire and such other lease obligations already included and reported as a current liability on the Company's balance sheet. x 21 TABLE OF CONTENTS GENERAL PROVISIONS INCORPORATED INTO THE SECURITY AGREEMENT BY REFERENCE
SECTION HEADING PAGE ARTICLE I.....................................................................1 DEFINITIONS; OFFICER'S CERTIFICATES; GRANTING CLAUSE.......................1 Section 1.01. Definitions..............................................1 Section 1.02. Officer's Certificates...................................1 Section 1.03. Granting Clause..........................................1 ARTICLE II....................................................................2 SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS.................................2 Section 2.01. Shipowner's Representations, Agreements, Organization and Existence..........................................2 (a) General Representations.............................2 (b) Shipowner's United States Citizenship...............3 (c) Taxes...............................................3 Section 2.02. Covenants Concerning the Vessels.........................3 (a) Title to and Possession of the Vessels..............3 (b) Sale, Mortgage, Transfer or Charter of the Vessels..3 (c) Taxes and Governmental Charges......................3 (d) Liens...............................................3 (e) Compliance with Applicable Laws.....................3 (f) Vessels' Operation..................................4 (g) Vessels' Condition and Maintenance..................4 (h) Material Changes in the Vessels.....................4 (i) Documentation of the Vessels........................4 Section 2.03. Maintenance of Construction Contract.....................4 Section 2.04. Delivery Requirements....................................5 Section 2.05. Insurance................................................5 Section 2.06. Inspection of the Vessels; Examination of Shipowner's Records................................................9 Section 2.07. Requisition of Title, Termination of Construction Contract or Total Loss of a Vessel......................9 Section 2.08. Notice of Mortgage......................................10 Section 2.09. Compliance with 46 U.S.C. Chapter 313...................11 Section 2.10. Performance of Shipowner's Agreements by the Secretary..............................................11 Section 2.11. Uniform Commercial Code Filings; Further Assurances.....11 Section 2.12. Modification of Formation Agreements....................11 Section 2.13. Members of Limited Liability Companies..................11 Section 2.14. Concerning the Performance and Payment Bonds............11 ARTICLE III..................................................................16 THE SECRETARY'S NOTE......................................................16
xi 22 Section 3.01. Secretary's Note........................................12 Section 3.02. Termination of the Guarantees...........................12 Section 3.03. Execution of Additional Secretary's Note................12 ARTICLE IV...................................................................12 CONSTRUCTION FUND; MONEYS DUE WITH RESPECT TO.............................12 Section 4.01. Construction Fund.......................................12 Section 4.02. Moneys Due with Respect to Construction of the Vessels................................................13 ARTICLE V....................................................................13 ACTUAL COST; THE ESCROW FUND..............................................13 Section 5.01. Actual Cost Determinations..............................13 Section 5.02. Escrow Fund Deposits....................................13 Section 5.03. Escrow Fund Withdrawals.................................19 Section 5.04. Investment and Liquidation of the Escrow Fund...........15 Section 5.05. Income on the Escrow Fund...............................15 Section 5.06. Termination Date of the Escrow Fund.....................15 ARTICLE VI...................................................................16 DEFAULTS AND REMEDIES.....................................................16 Section 6.01. What Constitutes "Defaults;" Continuance of Defaults....16 Section 6.02. Acceleration of Maturity of the Secretary's Note........17 Section 6.03. Waivers of Default......................................17 Section 6.04. Remedies After Default..................................17 Section 6.05. Application of Proceeds.................................19 Section 6.06. General Powers of the Secretary.........................19 ARTICLE VII..................................................................20 AMENDMENTS AND SUPPLEMENTS TO.............................................20 Section 7.01. Amendments and Supplements to the Security Agreement and the Mortgage.......................................20 Section 7.02. Amendments and Supplements to the Indenture.............20 ARTICLE VIII.................................................................20 CONSOLIDATION, MERGER OR SALE.............................................20 Section 8.01. Consolidation, Merger or Sale...........................20 Section 8.02. Transfer of a General Partner's or a Joint Venturer's Interest...............................................21 ARTICLE IX...................................................................21 NOTICES...................................................................21 Section 9.01. Notices.................................................21 Section 9.02. Waivers of Notice.......................................21 Section 9.03. Shipowner's Name or Address Change......................21 ARTICLE X....................................................................21
xii 23 DISCHARGE OF SECURITY AGREEMENT AND THE MORTGAGE..........................21 Section 10.01. Discharge of Security Agreement and the Mortgage.......21 ARTICLE XI...................................................................21 MISCELLANEOUS.............................................................21 Section 11.01. Successors and Assigns.................................21 Section 11.02. Execution in Counterparts..............................22 Section 11.03. Shipowner's Rights in Absence of Default...............22 Section 11.04. Surrender of Vessels' Documents........................22 Section 11.05. Applicable Regulations.................................22 Section 11.06. Table of Contents, Titles and Headings.................22
xiii 24 GENERAL PROVISIONS INCORPORATED INTO THE SECURITY AGREEMENT BY REFERENCE ARTICLE I DEFINITIONS; OFFICER'S CERTIFICATES; GRANTING CLAUSE Section 1.01. Definitions. All capitalized terms used but, not defined herein, shall have the meaning ascribed in Schedule X. Section 1.02. Officer's Certificates. To satisfy a covenant or condition provided for in this Security Agreement, the Responsible Officer of the Person making such Officer's Certificate shall certify that the officer (a) has read such covenant or condition; (b) has made or caused to be made such examination or investigation as is necessary to enable the Officer to express an informed opinion with respect to such covenant or condition; and (c) believes to the best of the Officer's knowledge that such condition or covenant has been met. An Officer's Certificate shall set forth the pertinent supporting information and shall be subject to the Secretary's review of its adequacy and accuracy. Section 1.03. Granting Clause. (a) In order to create a present security interest in the Secretary, the Shipowner does hereby grant, sell, convey, assign, transfer, mortgage, pledge, set over and confirm unto the Secretary continuing security interests in all of the right, title and interest of the Shipowner in and to all of the following, whether now owned or existing or hereafter arising or acquired: (1) Each Construction Contract (insofar as it relates to the Construction of a Vessel under its related Construction Contract), together with all other contracts, whether now in existence or hereafter entered into, relating to the Construction of each Vessel. Said right, title and interest in and to the Construction Contracts, and the other contracts conveyed to the Secretary by this subsection are hereinafter referred to collectively as the "Rights Under the Construction and Related Contracts." (2) The Shipowner's rights to receive all moneys which from time to time may become due to the Shipowner with respect to the Construction of each Vessel regardless of the legal theory by which moneys are recovered. Said right, title and interest in and to the moneys, cash, bonds, claims, and securities conveyed by this subsection are herein referred to collectively as the "Moneys Due with Respect to the Construction of the Vessels." The Secretary acknowledges and agrees that the Moneys Due with Respect to the Construction of the Vessels will be paid directly to the Depository for application in accordance with this Security Agreement and the Indenture. (3) All goods, whether equipment or inventory appertaining to or relating to each Vessel, whether or not on board or ashore and not covered by the Mortgage, and any charter hire relating to each Vessel. (4) The Title XI Reserve Fund and all moneys, instruments, negotiable documents, chattel paper, and proceeds thereof currently on deposit or hereafter deposited in the Title XI Reserve Fund. (5) The Construction Fund and all moneys, instruments, negotiable documents, chattel paper and proceeds, etc. (6) All moneys, instruments, negotiable documents, chattel paper and proceeds thereof held by the Depository under the Depository Agreement. (7) Proceeds of Policies of Insurance relating to each Vessel and, whether or not insured, any general average claims or loss of hire claims Shipowner may have with respect to each Vessel. (8) All proceeds of the collateral described in paragraphs (1) through (7) of this Section. 25 The Secretary shall have, upon execution and delivery thereof, as further security, certain right, title and interest in and to the following: (9) The Mortgage, to be executed and delivered by the Shipowner to the Secretary, as mortgagee, on the date hereof, covering each Vessel. (b) The right, title and interest of the Secretary pursuant to Section 1.03(a) is herein, collectively, called the "Security." The Secretary shall hold the Security as collateral security for all of the obligations and liabilities of the Shipowner under the Secretary's Note and as collateral security for and with respect to the Guarantees whether now made or hereafter entered into. (c) Notwithstanding paragraphs (a) and (b) of this Section, (1) the Shipowner shall remain liable to perform its obligations under each Construction Contract and the above-mentioned other contracts; (2) the Secretary shall not, by virtue of this Security Agreement, have any obligations under any of the documents referred to in clause (1) or be required to make any payment owing by the Shipowner thereunder; and (3) if there is no existing Default, the Shipowner shall (subject to the rights of the Secretary hereunder) be entitled to exercise all of its rights under each of the documents referred to in this Section and shall be entitled to receive all of the benefits accruing to it thereunder as if paragraphs (a) and (b) of this Section were not applicable. (d) The Shipowner hereby agrees with the Secretary that the Security is to be held by the Secretary subject to the further agreements and conditions set forth herein. ARTICLE II SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS The Shipowner hereby represents and agrees, so long as this Security Agreement shall not have been discharged, as follows: Section 2.01. Shipowner's Representations, Agreements, Organization and Existence. (a) General Representations. The Shipowner hereby represents and warrants that the following are true statements as of the date hereof and further warrants that they shall remain true thereafter: (1) The Shipowner is duly organized, validly existing and in good standing under the laws of the jurisdiction designated in the initial paragraph of the Special Provisions hereof and shall maintain such existence. The Shipowner has not failed to qualify to do business in any jurisdiction in the United States in which its business or properties require such qualification, and had and has full legal right, power and authority to own its own properties and assets and conduct its business as it is presently conducted; (2) The Shipowner had and has legal power and authority to enter into and carry out the terms of the Guarantee Commitment, the Construction Contract, the Bond Purchase Agreement, the Obligations, the Indenture, the Security Agreement, the Secretary's Note, the Mortgage, the Financial Agreement, and the Depository Agreement (the "Documents"); (3) Each of the Documents has been duly authorized, executed and delivered by the Shipowner and constitutes, in accordance with its respective terms, legal, valid and binding instruments enforceable against the Shipowner, except to the extent limited by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws of general application relating to or affecting the enforcement of creditors rights as from time to time in effect; (4) The consummation of the transactions contemplated by and compliance by the Shipowner of all the terms and provisions of the Documents will not violate any provisions of the formation documents of the Shipowner and will not result in a breach of the terms and provisions of, or constitute a default under any other agreement or undertaking by the Shipowner or by which the Shipowner is bound or any order of any court or administrative agency entered into in any proceedings to which the Shipowner is or has been a party; and 2 26 (5) There is no litigation, proceeding or investigation pending or, to the best of the Shipowner's knowledge, threatened, involving the Shipowner or any of its property which could prevent or jeopardize the performance by the Shipowner of its obligations under the Documents; (b) Shipowner's United States Citizenship. The Shipowner is a citizen of the United States within the meaning of Section 2 of the Shipping Act, 1916, as amended, and shall remain such a citizen for operation in the trades in which the Shipowner proposes to operate the Vessels and in the event the Shipowner shall cease to be such a citizen, the Shipowner shall notify the Secretary immediately of such fact. (c) Taxes The Shipowner has paid or caused to be paid all taxes assessed against it, unless the same are being contested in good faith or an authorized extension of time has been granted. Section 2.02. Covenants Concerning the Vessels. (a) Title to and Possession of the Vessels. On the date of this Security Agreement, the Shipowner represents and warrants that it lawfully owns each Vessel free from any liens, encumbrances, security interests, charges, or rights in rem (subject only to (1) the equity of the Shipyard under the Construction Contract, if any; (2) liens on any undelivered Vessel which the Shipyard is obligated to discharge under the Construction Contract; (3) any security interest subordinated to the Secretary's security interest permitted under the Special Provisions hereof; (4) the Secretary's rights hereunder; and (5) the liens permitted by paragraph (d)(3) of this Section). The Shipowner shall, for the Secretary's benefit, warrant and defend the title to, and possession of, each Vessel and every part thereof against the claims and demands of all Persons whomsoever. (b) Sale, Mortgage, Transfer or Charter of the Vessels. (1) The Shipowner shall not, without the Secretary's prior written consent, sell, mortgage, demise charter or transfer any Vessel to any Person (or charter the Vessel to a Related Party under any form of charter). (2) The Shipowner hereby covenants that: (A) it will not enter into any time charter of the Vessels in excess of six months unless the time charter contains the following provision: "This time charter is subject to each of the rights and remedies of the Secretary of Transportation and has been assigned to the Secretary under a Security Agreement and Mortgage, each executed by the Shipowner in favor of the Secretary with respect to the Vessels being chartered." and (B) it shall, within 10 calendar days of entering into any time charter in excess of six months, transmit a copy of the time charter to the Secretary. (c) Taxes and Governmental Charges. The Shipowner shall pay and discharge, or cause to be paid and discharged, on or before the same shall become delinquent, all taxes, assessments, government charges, fines and penalties lawfully imposed upon each Vessel, unless the same are being contested in good faith. (d) Liens. (1) As a condition precedent to each payment by the Shipowner under the Construction Contract, the Shipowner shall require an Officer's Certificate from the Shipyard stating that once the Shipyard receives said payment, there will be no liens or rights in rem against the respective Vessel. At the Delivery Date of each Vessel, the Shipowner and the Shipyard shall provide an Officer's Certificate stating that there are no liens or rights in rem against the respective Vessel except for the Mortgage. (2) After the Delivery Date of each Vessel, the Shipowner shall satisfy, or cause to be satisfied, within 30 days of its knowledge thereof, any lien or encumbrance or right in rem which shall be filed against such Vessel unless the same is being contested in good faith; and (3) Neither the Shipowner, any charterer, the master of any Vessel, nor any other Person has or shall have any right, power or authority, without the Secretary's prior written consent, to create, incur or permit to be placed or imposed on any Vessel any lien, encumbrance, security interest, charge, or rights in rem, and statutory liens incident to current operations unless such statutory liens are subordinate to the Mortgage. (e) Compliance with Applicable Laws. The Shipowner shall at all times be in compliance with all applicable U.S. laws. In addition, each Vessel (1) shall be designed to meet, and on the Delivery Date thereof and 3 27 at all times thereafter shall meet all requirements of applicable laws, treaties and conventions, and of applicable rules and regulations thereunder; and (2) shall have on board valid certificates showing compliance therewith; provided that the foregoing shall not apply if (A) the Vessel is in Government Use; (B) there has been an actual or constructive total loss or an agreed or compromised total loss of such Vessel; or (C) there has been any other loss with respect to such Vessel and the Shipowner shall not have had a reasonable time to repair the same. (f) Vessels' Operation. Except when the Vessel is in Government Use, the Shipowner shall not (1) cause or permit the Vessels to be operated in any manner contrary to law or to any lawful rules or regulations of the Maritime Administration; (2) remove or attempt to remove the Vessels beyond the limits of the United States without the Secretary's prior written consent except on voyages with the intention of returning to the United States; or (3) abandon such Vessels in any foreign port unless there has been an actual or constructive total loss or an agreed or compromised total loss of any of the Vessels. (g) Vessels' Condition and Maintenance. (1) Each Vessel shall be constructed, maintained and operated so as to meet, at all times, the highest classification, certification, rating and inspection standards for Vessels of the same age and type as my be imposed by the Classification Society; provided that, the foregoing shall not apply if the Vessel has been (i) under Government Use; (ii) an actual or constructive total loss or an agreed or compromised total loss of such Vessel; or (iii) any other loss with respect to such Vessel and the Shipowner shall not have had a reasonable time to repair the same; (2) On the Delivery Date of each Vessel, the Shipowner shall furnish to the Secretary an Interim Class Certificate issued for each such Vessel by the Classification Society and promptly after the Delivery Date of each Vessel, furnish to the Secretary a Certificate of Class with respect to such Vessel issued by the Classification Society. Subsequently, the Shipowner shall annually (A) furnish to the Secretary a Certificate of Confirmation of Class issued by the Classification Society showing that the above-mentioned classification and rating have been retained for each Vessel; and (B) furnish to the Secretary copies of all Classification Society reports, including periodic and damage surveys for each Vessel; provided that, the foregoing shall not apply if the Vessel is in Government Use and the governmental body does not permit classification and rating of the Vessel. (3) Notwithstanding Section 2.02(g)(2), if the Vessel is a barge which is not classed, then the Shipowner shall, at all times, at its own cost and expense maintain and preserve each Vessel, so far as may be practicable, in at least as good order and condition, ordinary wear and tear excepted, as at the Delivery Date of such Vessel, and shall perform or cause to be performed at least once every five years and at any other time reasonably required by the Secretary, a survey and inspection of the Vessels by an independent marine surveyor approved by the Secretary; and provided that, no such surveys will be required within the last three years prior to the final Stated Maturity of the Obligations. The Shipowner shall furnish two copies of the report of such independent marine surveyor to the Secretary within 15 days of such survey and inspection. The Shipowner shall deliver to the Secretary annually an Officer's Certificate stating the condition and maintenance of each Vessel; provided further, that none of this Section shall apply when the Vessel is in Government Use. (h) Material Changes in the Vessels. After the Delivery Date of any undelivered Vessel or the Closing Date of any already delivered Vessel, the Shipowner shall not make, or permit to be made, any material change in the structure, means of propulsion, type or speed of such Vessel or in its rig, without the Secretary's prior written consent. (i) Documentation of the Vessels. Upon the Delivery Date and thereafter, each Vessel shall be and shall remain documented under the laws of the United States of America. Section 2.03. Maintenance of Construction Contract. (a) The Construction Contract shall be maintained in full force and effect insofar as it relates to the due performance by the Shipowner and the Shipyard of all their respective obligations thereunder and the Shipowner shall not, without the Secretary's prior written consent, amend, modify, assign or terminate the Construction Contract or consent to any change in the Construction Contract which releases the Shipyard from its obligations to comply with the provisions of the Construction Contract or any applicable laws, treaties, conventions, rules and regulations; provided that, the Secretary's prior 4 28 written consent shall not be necessary, but prompt written notice to the Secretary shall be given for (1) any mandatory or regulatory change to the Construction Contract as a result of any requirements of any governmental agency; or (2) any non-mandatory changes that the Shipyard and the Shipowner desire to make which do not, in the aggregate, exceed five (5%) percent of the total Construction Contract price of the Vessels, and which do not cause the total Construction Contract price to be increased by an individual change by more than one (1%) percent or the delivery and completion date of the Vessels to be extended by more than ten (10) days. Notwithstanding the foregoing, no change shall be made in the general dimensions and/or characteristics of the Vessels which changes the capacity of the Vessels to perform as originally intended by the Construction Contract without the Secretary's prior written consent. The Secretary will nonetheless retain its authority to review work done under a change order to ascertain whether the work should be included in Actual Cost and whether the price charged is fair and reasonable. No withdrawals may be made from the Escrow Fund for work that is not determined to be includable in Actual Cost. (b) Notwithstanding anything to the contrary contained in the Construction Contract or herein, no changes to the payment milestones and disbursement schedules shall be made without the Secretary's prior written consent, except to the extent reasonably required to reflect the change orders under paragraph (a) of this Section. Section 2.04. Delivery Requirements. At or prior to the Delivery Date, the Shipowner shall have: (a) documented the Vessel under the laws of the United States with the United States Coast Guard; (b) executed and delivered to the Secretary the Mortgage (or mortgage supplement) substantially in the form of Exhibit 3 annexed hereto; (c) recorded the Mortgage (or, if appropriate, a mortgage supplement) in the National Vessel Documentation Center of the United States Coast Guard, or its successor; (d) delivered to the Secretary an Officer's Certificate (1) from the Shipowner and the Shipyard certifying that the Vessel is free of any claim, lien, charge, mortgage, or other encumbrance of any character except as permitted under Section 2.02(d); (2) certifying that there has not occurred and is not then continuing any event which constitutes (or after any period of time or any notice, or both, would constitute) a default under the Security Agreement; (3) that the marine insurance as required under Section 2.05 will be in full force and effect at the time of Vessel delivery; (4) certifying that the Vessel was constructed substantially in accordance with the plans and specifications of the Construction Contract; (5) certifying that there have been no unusual occurrences (or a full description of such occurrences, if any) which would adversely affect the condition of the delivered Vessel. (e) delivered to the Secretary (1) an opinion of counsel substantially in the form of Exhibit A to the form of Mortgage; and (2) a certificate of delivery and acceptance from the Shipowner and the Shipyard to the Secretary with respect to the delivered Vessel; Section 2.05. Insurance. (a) Prior to the Delivery Date of each Vessel, the Shipowner shall, without cost to the Secretary or, with respect to war risk builder's risk insurance mentioned below, without cost to the Shipyard, cause each Vessel to be insured as provided in the Construction Contract and as contemplated by the Consent of Shipyard; provided that, the insurance required by this Section shall be approved by the Secretary. (b) Upon the Delivery Date of each Vessel and at all times thereafter, the Shipowner shall, without cost to the Secretary, keep such Vessel insured as indicated below and with such additional insurance as may be specified by the Secretary in an amount in U.S. dollars equal to 110% of the unpaid principal amount of the Proportionate Part of the Secretary's Note, or such greater sum, up to and including the full commercial value of such Vessel as may be required by the Secretary. The Shipowner shall provide 30 days prior written notice to the Secretary of all insurance renewals. (1) Marine and war risk hull insurance under the latest (at the time of issue of the policies in question) forms of American Institute of Marine Underwriters' policies approved by the Secretary and/or policies 5 29 issued by or for the Maritime Administration (or under such other forms of policies as the Secretary may approve in writing) insuring such Vessel against the usual risks covered by such forms (including, at the Shipowner's option, such amounts of increased value and other forms of "total loss only" insurance as are permitted by said hull insurance policies); and (2) While any Vessel is laid up, at the Shipowner's option and in lieu of the above-mentioned marine and war risk hull insurance or marine and war risk hull and increased value insurance, port risk insurance under the latest (at the time of issue of the policies in question) forms of American Institute of Marine Underwriters' policies approved by the Secretary and/or policies issued by or for the Maritime Administration (or under such other forms of policies as the Secretary may approve in writing) insuring such Vessel against the usual risks covered by such forms. (3) Notwithstanding the foregoing, the Shipowner, with the Secretary's prior written consent, shall have the right to self-insure up to the amount specified in the Special Provisions hereof for any loss resulting from any one accident or occurrence (other than an actual or constructive total loss of any Vessel). (c) All policies of insurance under this Section shall provide, so long as this Security Agreement has not been discharged, that payment of all losses shall be made payable to the Secretary for distribution by him to himself, the Shipowner and (in the case of the insurance required by paragraph (a) of this Section) the Shipyard, except that (i) as provided in paragraph (e) of this Section; and (ii) under the policies required by paragraph (b) of this Section, payment of all losses up to the amount specified in the Special Provisions hereof by all insurance underwriters with respect to any one accident, occurrence or event may be made directly to the Shipowner unless there is an existing Default, or if the Secretary shall have assumed the Shipowner's rights and duties under the Indenture and the Obligations and made any payments in default under the terms of Section 6.09 of the Indenture, in which event payment of all losses shall be made payable to the Secretary as aforesaid. Any such insurance recoveries to which the Secretary shall be so entitled shall be applied as follows: (1) In the event that insurance becomes payable under said policies on account of an accident, occurrence or event not resulting in an actual or constructive total loss or an agreed or compromised total loss of any Vessel, the Secretary shall (A) if there is no existing Default and if none of the events described in Section 2.07 has occurred, in accordance with a Shipowner's Request, pay, or consent that the underwriters pay, direct for repairs, liabilities, salvage claims or other charges and expenses (including sue and labor charges due or paid by the Shipowner) covered by the policies, or (to the extent that, as stated in an Officer's Certificate delivered to the Secretary, accompanied by written confirmation by the underwriter or a surveyor or adjuster, the damage shall have been repaired and the cost thereof paid of such liabilities, salvage claims, or other charges and expenses discharged or paid) reimburse, or consent that the underwriters reimburse, the Shipowner therefor and (after all known damage with respect to the particular loss shall have been repaired, except to the extent the Shipowner, with the Secretary's written consent, deems the said repair inadvisable, and all known costs, liabilities, salvage claims, charges and expenses, covered by the policies, with respect to such loss shall have been discharged or paid, as stated in an Officer's Certificate delivered to the Secretary, accompanied by written confirmation by the underwriters or a surveyor or adjuster) pay, or consent that the underwriters pay, any balance to the Shipowner; or (B) if there is an existing Default, in accordance with a Request of Shipowner, pay, or consent that the underwriters pay, direct for the Shipowner's proportion of such repairs, liabilities, salvage claims or other charges and expenses (including sue and labor charges due or paid by the Shipowner) covered by the policies and hold any balance until the same may be paid or applied under clauses A, C or D of this subsection, whichever is applicable; or (C) if the Guarantees shall have terminated pursuant to Section 3.02(c) or if the Secretary shall have assumed the Shipowner's rights and duties under the Indenture and the Obligations and made any payments in default under the terms of Section 6.09 of the Indenture and none of the events described in Section 2.07 has occurred, apply the insurance as provided in Section 6.05; or (D) if the Guarantees shall have terminated pursuant to Section 3.02(b) or (d), pay the insurance to the Shipowner; (2) In the event of an accident, occurrence or event resulting in an actual or constructive total loss of any Vessel prior to the Delivery Date of such Vessel, the Shipowner shall forthwith deposit with the Secretary 6 30 any insurance moneys which the Shipowner receives on account thereof under policies of insurance required by paragraph (a) of this Section, and any such insurance moneys shall be held by the Secretary for 10 days (or such lesser or further time as the Shipowner and the Secretary may agree upon). Upon the expiration of said period of time, (A) if there is no existing Default and if the Shipowner, the Shipyard and the Secretary shall have elected not to construct such Vessel under the Construction Contract, then said insurance moneys shall be applied, to the extent necessary and required pursuant to Section 2.07; or (B) if there is no existing Default and if the Shipowner, the Shipyard and the Secretary shall not have made the election contemplated by clause (A) of this subsection, then said insurance moneys (together with the Shipowner's funds to the extent, if any, required by the Secretary for deposit on account of interest under clause (ii) below) shall be deposited in the Escrow Fund, in such amount and to the extent available, so that the moneys in the Escrow Fund after such deposit shall be equal to (i) the principal amount of the Proportionate Part of the Outstanding Obligations relating to such Vessel at the time of such deposit and (ii) such interest on said deposit, if any, as may be required by the Secretary (said moneys to be subject to withdrawal in the same manner as moneys originally deposited in said Escrow Fund); and the balance, if any, of such insurance moneys held by the Secretary shall be paid to the Shipowner; and (3) In the event of an accident, occurrence or event resulting in an actual or constructive total loss or an agreed or compromised total loss of any Vessel, whether prior to or after the Delivery Date of such Vessel, and the insurance moneys have not been applied as provided in paragraph (c)(2) of this Section, the Shipowner shall forthwith deposit with the Secretary any insurance moneys which the Shipowner receives on account thereof under policies of insurance required by this Section, and any such insurance moneys received by the Secretary, whether from the Shipowner or otherwise, or held by the Secretary pursuant to paragraph (c)(2) of this Section, shall (A) if there is no existing Default, be applied, to the extent necessary, pursuant to Section 2.07; (B) if there is an existing Security Default, be held until the same may be applied under clauses (A), (C), or (D) of this subsection, whichever is applicable; (C) if the guarantees shall have terminated pursuant to Section 3.02(c) or if the Secretary shall have assumed the Shipowner's rights and duties under the Indenture and the Obligations and made any payments in default under the terms of Section 6.09 of the Indenture, be applied as provided in Section 6.05; provided that, notwithstanding the foregoing clauses (A), (B) and (C) of this subsection, the Shipowner shall not be required to so deposit with the Secretary insurance moneys in an amount which, together with funds otherwise available for the redemption of Obligations is in excess of that required for the redemption of the Proportionate Part of the Outstanding Obligations pursuant to Section 3.05 of the Indenture and for the payment to the Secretary of a Proportionate Part of all other sums that may be secured by this Security Agreement and the Mortgage; or (D) if the Guarantees shall have terminated pursuant to Section 3.02(b) or 3.02(d), be paid to the Shipowner. (d) In the event of an accident, occurrence or event resulting in a constructive total loss of any Vessel, the Secretary shall have the right (with the prior written consent of the Shipowner, unless there is an existing Default, and at any time prior to the Delivery Date of such Vessel also with the prior written consent of the Shipyard) to claim for a constructive total loss of such Vessel. If (1) such claim is accepted by all underwriters under all policies then in force as to such Vessel under which payment is due for total loss; and (2) payment in full is made in cash under such policies to the Secretary, then the Secretary shall have the right to abandon such Vessel to the underwriters of such policies, free from lien of this Security Agreement and the Mortgage. (e) Commencing on the Delivery Date of each Vessel, the Shipowner shall, without cost to the Secretary, keep each such Vessel insured against marine and war risk protection and indemnity risks and liabilities by policies of insurance approved by the Secretary as to form and amount; provided that, (1) the Shipowner shall, as soon as possible before such Delivery Date, present any such policy to the Secretary (who shall promptly approve or disapprove the same); (2) any approval of a policy under this subsection shall be effective until the end of the policy period or until 60 days after the Secretary shall notify the Shipowner of a desired change in the form and/or amount thereof, whichever shall first occur; and (3) war protection and indemnity insurance shall be required unless the Secretary gives written notice to the Shipowner stating that such insurance is not required. Such policies may provide that (1) if the Shipowner shall not have incurred the loss, damage, or expense in question, any loss under such insurance may be paid directly to the Person to whom any liability covered by such policies has been incurred (whether or not a Default then exists), and (2) if the Shipowner shall have incurred the 7 31 loss, damage or expense in question, any such loss shall be paid to the Shipowner in reimbursement if there is no existing Default of which the underwriter has written notice from the Shipowner or the Secretary, or, if there is such an existing Default, to the Secretary to be held and applied as follows: (A) applied as provided in Section 6.05 in the event the Guarantees shall have terminated pursuant to Section 3.02(c) or if the Secretary shall have assumed the Shipowner's rights and duties under the Indenture and the Obligations and made any payments in default under the terms of Section 6.09 of the Indenture; or (B) to the extent not theretofore applied pursuant to Section 6.05, paid forthwith to the Shipowner upon its Request in the event there is no existing Default or the Guarantees shall have terminated pursuant to Section 3.02(b) or (d) at the date of delivery of such Request; provided that, irrespective of the foregoing, with the Secretary's prior written consent, the Shipowner shall have the right to self-insure in an amount up to the limit specified in the Special Provisions hereof with respect to each accident, occurrence or event, except that, with respect to cargo or property carried, the Shipowner, with the Secretary's prior written consent, shall have the right to self-insure in an amount up to the limit specified in the Special Provisions hereof with respect to each cargo or property carried. (f) All insurance required under this Section shall be placed and kept with the United States Government or with American and/or British (and/or other foreign, if permitted by the Secretary in writing) insurance companies, underwriters' association or underwriting funds approved by the Secretary. All insurance required under this subsection shall be arranged through marine insurance brokers and/or underwriting agents as chosen by the Shipowner and approved by the Secretary. (g) The Secretary shall not have the right to enter into an agreement or compromise providing for an agreed or compromised total loss of any Vessel without prior written consent of (i) the Shipyard (prior to the Delivery Date of such Vessel); and (ii) (unless there is an existing Default) the Shipowner. If (1) the Shipowner shall have given prior consent thereto; or (2) there is an existing Default, the Secretary shall have the right in his discretion, and with the prior written consent of the Shipyard prior to the Delivery Date of such Vessel, to enter into an agreement or compromise providing for an agreed or compromised total loss of such Vessel; provided that, if the aggregate amount payable to the Shipowner and/or the Secretary under such agreement or compromise, together with funds held by the Secretary and available for the redemption of Obligations, is not sufficient to redeem or pay the Proportionate Part of the Outstanding Obligations pursuant to Section 2.07, the Secretary shall not enter into such agreement or compromise without the Shipowner's prior written consent. (h) During the continuance of (1) a taking or requisition of the use of any Vessel by any government or governmental body; or (2) a charter, with the Secretary's prior written consent, of the use of any Vessel by the United States Government or by any governmental body of the United States, or by any other government or governmental body, the provisions of this Section shall be deemed to have been complied with in all respects if such government or governmental body shall have agreed to reimburse, in a manner approved by the Secretary in writing, the Shipowner for loss or damage covered by the insurance required hereunder or resulting from the risks under paragraphs (a), (b), and (e) of this Section or if the Shipowner shall be entitled to just compensation therefor. In addition, the provisions of this Section shall be deemed to have been complied with in all respects during any period after (A) title to any Vessel shall have been taken or requisitioned by any government or governmental body; or (B) there shall have been an actual or constructive total loss or an agreed or compromised total loss of any Vessel. In the event of any taking, requisition, charter or loss contemplated by this paragraph, the Shipowner shall promptly furnish to the Secretary an Officer's Certificate stating that such taking, requisition, charter or loss has occurred and, if there shall have been a taking, requisition or charter of the use of any Vessel, that the government or governmental body in question has agreed to reimburse the Shipowner, in a manner approved by the Secretary, for loss or damage resulting from the risks under paragraphs (a), (b), and (e) of this Section or that the Shipowner is entitled to just compensation therefor. (i) All insurance required (A) under paragraph (a) of this Section shall be taken out in the names of the Shipowner, the United States and the Shipyard as assureds, and (B) under paragraph (b) and (c) of this Section shall be taken out in the names of the Shipowner and the United States as assureds. All policies for such insurance so taken out shall, unless otherwise consented to by the Secretary, provide that (1) there shall be no recourse against the United States for the payment of premiums or commissions; (2) if such policies provide for the payment of club calls, assessments or advances, there shall be no recourse against the United States for the payment thereof; 8 32 and (3) at least 10 days' prior written notice of any cancellation for the nonpayment of premiums, commissions, club calls, assessments or advances shall be given to the Secretary by the insurance underwriters. (j) The Shipowner shall not, without the Secretary's prior written consent, (1) do any act, nor voluntarily suffer or permit any act to be done, whereby any insurance required by this Section shall or may be suspended, impaired or defeated or (2) suffer or permit any Vessel to engage in any voyage or to carry any cargo not permitted under the policies of insurance then in effect without first covering such Vessel with insurance satisfactory in all respects for such voyage or the carriage of such cargo; provided that, this paragraph shall be subject to the requirements of any military authority of the United States and shall not apply in the case of such Vessel if and so long as the title or use of such Vessel shall have been taken, requisitioned or chartered by any government or governmental body as contemplated by Section 2.07. (k) In the event that any claim or lien is asserted against any Vessel for loss, damage or expense which is covered by insurance hereunder and it is necessary for the Shipowner to obtain a bond or supply other security to prevent arrest of such Vessel or to release such Vessel from arrest on account of said claim or lien, the Secretary, on the Shipowner's Request, may, at the Secretary's sole option, assign to any Person executing a surety or guaranty bond or other agreement to save or release such Vessel from such arrest, all right, title and interest of the Secretary in and to said insurance covering such loss, damage or expense as collateral security to indemnify against liability under said bond or other agreement. (l) Except as the Secretary shall otherwise direct by notice in writing to the Shipowner, the Shipowner shall deliver to the Secretary the original policies evidencing insurance maintained under this Section; provided that, if any such original policy shall have been delivered previously to the Secretary or to a mortgagee by the Shipowner under another ship mortgage of the Shipowner, the Shipowner shall deliver a duplicate or pro forma copy of such policy to the Secretary. The Secretary or any agent thereof (who may also be an agent of the issuer) shall at all times hold the policies delivered as aforesaid; provided that, if one or more of said policies are held by an agent of the Secretary, the Shipowner shall, upon the Secretary's request, deliver a duplicate or pro forma copy thereof to the Secretary, and provided further, that if the Shipowner shall deliver to the Secretary a Request (1) stating that delivery of such policy to the insurer is necessary in connection with the collection, enforcement or settlement of any claim thereunder (including claims for return premiums and any other amounts payable by the insurer); and (2) setting forth the name and address of the Person to whom such policy is to be delivered or mailed for such purpose, and if the Secretary approves such Request, the Secretary shall, at the Shipowner's expense, deliver or mail (by registered or certified mail, postage prepaid) such policy in accordance with such Request, accompanied by a written direction to the recipient to redeliver such policy directly to the Secretary or an agent thereof when it has served the purpose for which so delivered. The Shipowner agrees that, in case it shall at any time so cause the delivery or mailing of any policy to any Person as aforesaid, the Shipowner will cause such policy to be promptly redelivered to the Secretary or an agent thereof as aforesaid. The Secretary shall have no duty to see to the redelivery of such policy, but shall have the duty to request the redelivery thereof at intervals of 60 days thereafter. (m) Nothing in this Section shall limit the insurance coverage which the Secretary may require under any contract or agreement to which the Secretary and the Shipowner are parties. The requirements of this Section are expressly subject to the Special Provisions of this Security Agreement. Section 2.06. Inspection of the Vessels; Examination of Shipowner's Records. The Shipowner will: (a) afford the Secretary, upon reasonable notice, access to the Vessels, their cargoes and papers for the purpose of inspecting the same; (b) maintain records of all amounts paid or obligated to be paid by or for the account of the Shipowner for each Vessel's Construction; and (c) at reasonable times permit the Secretary, upon request, to make reasonable, material and pertinent examination and audit of books, records and accounts maintained by the Shipowner, and to take information therefrom and make transcripts or copies thereof. Section 2.07. Requisition of Title, Termination of Construction Contract or Total Loss of a Vessel. In the 9 33 event of requisition of title to or seizure or forfeiture of such Vessel, termination of the Construction Contract relating to such Vessel, or the occurrence of the circumstances referred to in Section 2.05(c)(3), then all of the following shall apply: (a) The Shipowner shall promptly give written notice thereof to the Secretary. (b) The Shipowner shall promptly pay all amounts it receives by reason of such requisition, seizure, forfeiture, termination or total loss ("Loss Event") to the Secretary. (c) After the Secretary has received sufficient funds to retire a Proportionate Part of the Outstanding Obligations affected by the Loss Event: (1) if there is no existing Default, (A) the Secretary and the Shipowner shall give notice to the Indenture Trustee of a redemption of Proportionate Part of the Outstanding Obligations pursuant to Section 3.05 of the Indenture; (B) such amount, if any, held by the Secretary, shall be paid by the Secretary to the Indenture Trustee not earlier than 10 days prior to, nor later than the opening of business on, the Redemption Date required by Section 3.05 of the Indenture; (C) the remainder shall next be applied by the Secretary for the payment of a Proportionate Part of all other sums that may be secured hereby; and (D) the balance shall be paid to the Shipowner including any interest earned on the proceeds which are in excess of the amount required to redeem the Obligations; (2) if there is an existing Default and the Guarantees shall not have terminated pursuant to Section 3.02, such amounts shall be held until the same may be applied or paid under paragraphs (1), (3), or (4) of this subsection, whichever is applicable; (3) if the Guarantees shall have terminated pursuant to Section 3.02(c) or if the Secretary shall have assumed the Shipowner's rights and duties under the Indenture and the Obligations and made any payments in default under the terms of Section 6.09 of the Indenture, such amounts shall be applied as provided in Section 6.05; or (4) if the Guarantees shall have terminated pursuant to Section 3.02(b) or 3.02(d) such amounts shall be paid by the Secretary to the Shipowner. Provided that, notwithstanding the foregoing, the Shipowner shall not be required to pay the Secretary any amount which the Secretary agrees is in excess of the amount needed for redemption of the Proportionate Part of the Outstanding Obligations affected by the Loss Event. Section 2.08. Notice of Mortgage. (a) A properly certified copy of the Mortgage shall be carried on board each self-propelled Vessel with that Vessel's documents and shall be exhibited on demand to any Person having business with such Vessel or to any Secretary's representative. (b) A notice printed in plain type of such size that the paragraph of reading matter shall cover a space not less than six inches wide by nine inches high, and framed, shall be placed and kept prominently exhibited in the chart room and in the master's cabin of a self-propelled Vessel. (c) The notice referred to in paragraph (b) of this Section shall read as follows: "NOTICE OF FLEET MORTGAGE" This Vessel is owned by (Insert name of Shipowner) , a (Insert jurisdiction) corporation ("Shipowner"), and is covered by a First Preferred Ship Mortgage in favor of the United States of America, under authority of Chapter 313, Title 46 of the United States Code. Under the terms of said Mortgage neither the Shipowner, any charterer, the master or agent of this Vessel nor any other person has any right, power or authority to create, incur or permit to be placed or imposed 10 34 upon this Vessel any lien other than statutory liens incident to current operations that are subordinate to the Mortgage." Section 2.09. Compliance with 46 U.S.C. Chapter 313. The Shipowner shall comply with and satisfy all of the provisions of Chapter 313, in order to establish and thereafter to maintain the Mortgage as a preferred mortgage upon each Vessel. Section 2.10. Performance of Shipowner's Agreements by the Secretary. If the Shipowner shall fail to perform any of its agreements hereunder or under the Mortgage, the Secretary may, in its discretion, at any time during the continuance of an event which by itself, with the passage of time, or the giving of notice, would constitute a Default, perform all acts and make all necessary expenditures to remedy such failure. Notwithstanding the foregoing, the Secretary shall not be obligated to (and shall not be liable for the failure to) perform such acts and make such expenditures. All funds advanced and expenses and damages incurred by the Secretary relating to such compliance shall constitute a debt due from the Shipowner to the Secretary and shall be secured hereunder and under the Mortgage prior to the Secretary's Note and shall be repaid by the Shipowner upon demand, together with interest at the rate that would have been paid by the Department of Treasury on the expended funds plus 1%. Section 2.11. Uniform Commercial Code Filings; Further Assurances. The Shipowner shall (a) furnish evidence satisfactory to the Secretary that financing statements under the UCC shall have been filed against the Shipowner and/or the Shipyard in all offices in which it may be necessary or advisable in the opinion of the Secretary to perfect the Secretary's security interests, and (b) from time to time execute and deliver such further instruments and take such action as may reasonably be required to more effectively subject the Security to the lien of this Security Agreement and the Mortgage as contemplated thereby, including but not limited to, legal opinions from an independent counsel for the Shipowner to the effect that all UCC Financing Statements have been filed to perfect the Secretary's interests in the Security as valid and enforceable first priority perfected security interests. Section 2.12. Modification of Formation Agreements. (a) If the Shipowner is organized as a general partnership, limited partnership, limited liability company or joint venture, then for so long as there is Outstanding any indebtedness to the United States of America pursuant to the Act, the partnership agreement, operating agreement, limited liability agreement, joint venture agreement (or any agreement constituting such an entity) shall not be amended, modified or voluntarily terminated without the Secretary's prior written consent. (b) In the event where any action by the Shipowner, any member of the Shipowner or the management of the Shipowner results or would result in dissolution of the Shipowner pursuant to its limited liability company agreement or governing law, each member of the Shipowner shall forthwith take all steps necessary to reform and reestablish the Shipowner. Section 2.13. Members of Limited Liability Companies. All existing and future members of a Shipowner which is a limited liability company (each being a "Member"), upon becoming a Member, shall forthwith enter into an agreement with the Secretary, in form and substance satisfactory to the Secretary, whereby each Member agrees: (1) that any amounts owed by the Shipowner to a Member with respect to its interest (as that or the equivalent term is used in the Shipowner's limited liability company agreement) (the "Distributions") shall be subordinated to the Shipowner's payment of the Secretary's Note and debts under the Security Agreement, provided that such Distributions may be paid to the extent the Shipowner is permitted to pay dividends under the Financial Agreement; (2) that in the event of default by the Shipowner under the Security Agreement, the Member shall be subordinated in its rights to receive any Distribution or to be paid any sums whatsoever by the Shipowner until the Secretary has made a full recovery of any and all amounts owed under the Secretary's Note and the Security Agreement. Section 2.14. Concerning the Performance and Payment Bonds. During the Construction, the Shipowner shall cause to be maintained Performance Bonds and Payment Bonds naming the Shipowner and the Secretary as co-obligees (the "Surety Bonds") in form and substance satisfactory to the Secretary, to be obtained by the Shipyard in the amount of the Construction Contract, issued by such surety company or companies as shall be satisfactory to the Secretary (the "Surety"). In the event that the price for the work to be performed under the Construction 11 35 Contract is increased, then the Surety Bonds shall be increased simultaneously in a corresponding amount. The Shipowner hereby agrees that the Secretary shall be the sole loss payee under the Surety Bonds and the Surety shall pay such amounts directly to the Secretary for distribution to the co-obligees as their interests may appear. The Shipowner hereby agrees that its interest as a co-obligee under each of the Surety Bonds is and shall be, upon the occurrence of a Default under the Security Agreement, fully subject and subordinate to the rights and interests of the Secretary therein. In the event of a default under the Security Agreement, which default results in a payment under any of the Surety Bonds, then the Surety Bonds proceeds shall be distributed by the Secretary in accordance with the provisions of Section 6.05 hereof. The Shipowner hereby irrevocably appoints the Secretary, the true and lawful attorney of the Shipowner, in its name and stead, to execute all consents, approvals, settlements and agreements on behalf of the Shipowner with respect to any rights related to the Surety Bonds. ARTICLE III THE SECRETARY'S NOTE Section 3.01. Secretary's Note. On this date, the Shipowner has duly executed and delivered and the Secretary has accepted the Secretary's Note payable in an amount equal to the principal amount of the Obligations. Section 3.02. Termination of the Guarantees. Except as provided in Section 6.08 of the Indenture, the Guarantee with respect to a particular Obligation, shall terminate only when, one or more of the following events shall occur: (a) Such Obligation shall have been Retired or Paid; (b) The Obligees of all the Obligations then Outstanding shall have elected to terminate the Guarantees, and the Secretary has been so notified by the Indenture Trustee or all Obligees in writing; provided that, such termination shall not prejudice any rights accruing hereunder prior to such termination; (c) Such Guarantee shall have been paid in full in cash by the Secretary; or (d) The Indenture Trustee and each Obligee shall have failed to demand payment of such Guarantee as provided in the Indenture, Guarantee, or the Act. Section 3.03. Execution of Additional Secretary's Note. (a) In the event and when each new issue of Obligations is executed, authenticated and delivered on a date or dates subsequent to the date hereof, as contemplated by, and pursuant to the Indenture, the Shipowner shall, at the time of the issuance of such Obligations, execute and deliver to the Secretary an additional Secretary's Note or, at the Secretary's discretion, an endorsement to the Secretary's Note in an amount equal to the principal amount of, and at the interest rate borne by, such issue of Obligations, on the terms stated in the Secretary's Note. (b) Each Secretary's Note or endorsement executed and delivered in accordance with Section 3.03 shall together with the Secretary's Note be secured by this Security Agreement and the Mortgage. ARTICLE IV CONSTRUCTION FUND; MONEYS DUE WITH RESPECT TO CONSTRUCTION OF THE VESSELS Section 4.01. Construction Fund. (a) The Shipowner has deposited in the Construction Fund with the Depository the amount, if any, indicated in the Depository Agreement from the proceeds of the Obligation to be held by the Depository in a Securities Account in accordance with the terms of the Depository Agreement. This Securities Account together with any future deposits and the proceeds from the investment of the amounts on deposit shall be called the "Construction Fund." (b) The Shipowner may withdraw money from the Construction Fund under the same procedures and conditions as the Shipowner may withdraw money from the Escrow Fund under Section 5.03, except that the 12 36 Shipowner's Request for withdrawal will not be subject to Section 5.03(a)(2)(A) or 5.03(h). The administration of the Construction Fund shall also be subject to the terms and conditions of Sections 5.04 and 5.05. Section 4.02. Moneys Due with Respect to Construction of the Vessels. (a) In the event that the Shipowner shall receive any moneys from any Person in connection with the Construction of any Vessel, the Shipowner shall give written notice thereof to the Secretary and shall promptly pay the same over to the Depository to be held in the Title XI Reserve Fund. (b) Upon and after a final determination of Actual Cost in accordance with Section 5.01, in the absence of a Default, any moneys held by the Depository which are not to be applied for the redemption of Obligations under Section 3.04 of the Indenture shall be paid to the Shipowner. (c) In the event there is an existing Default, the money shall be held by the Depository in accordance with the provisions of the Depository Agreement. (d) In the event the Secretary assumes the Shipowner's rights and duties under Section 6.09 of the Indenture or pays the Guarantees, the Depository shall promptly pay all moneys including all Moneys Due with Respect to Construction of the Vessels to the Secretary, who will apply it in accordance with Section 6.05. ARTICLE V ACTUAL COST; THE ESCROW FUND Section 5.01. Actual Cost Determinations. (a) The Actual Cost of each Vessel (and the aggregate Actual Cost of all of the Vessels), determined as of the date of this Security Agreement, is as set forth in Table A hereof. (b) The Secretary agrees to: (1) make a final determination of the Actual Cost of each Vessel, limited to amounts paid by or for the account of the Shipowner on account of the items set forth in Table A hereof and, to the extent approved by the Secretary, any other items or any increase in the amounts of such items, such determination to be made as of the time of payment by or for the account of the Shipowner of the full amount of said Actual Cost of such Vessel, excluding any amounts which are not to become due and payable; and (2) promptly give written notice to the Shipowner, of the results of said final determination; provided that, the Shipowner shall have requested such determination not less than 60 days in advance and shall have furnished to the Secretary not less than 30 days in advance of such determination along with a Shipowner's Officer's Certificate and a statement by an independent certified (or, with the Secretary's prior written consent, an independent) public accountant or firm of accountants of the total amounts paid or obligated to be paid by or for the account of the Shipowner for the Construction of such Vessel, together with a breakdown of such totals according to the items for which paid or obligated to be paid. Section 5.02. Escrow Fund Deposits. At the time of the sale of the Obligations, the Shipowner shall deposit with the Secretary in the Escrow Fund all of the proceeds of that sale unless the Shipowner is entitled to withdraw funds under Section 5.03. If the Obligations are issued before the delivery of all of the Vessels, then the Shipowner shall also deposit into the Escrow Fund on the Closing Date an amount equal to six months interest at the rate borne by the Obligations. Section 5.03. Escrow Fund Withdrawals. (a) The Secretary shall, within a reasonable time after written Request from the Shipowner, disburse from the Escrow Fund directly to the Indenture Trustee, any Paying Agent for such Obligations, the Shipyard, or any other Person entitled thereto, any amount which the Shipowner is obligated to pay, or to the Shipowner for any amounts it has paid, on account of the items and amounts or any other items set forth in Table A annexed hereto or subsequently approved by the Secretary, provided that, the Secretary is satisfied with the accuracy and completeness of the information contained in the following submissions: (1) A Responsible Officer of the Shipowner shall deliver an Officer's Certificate, in form and substance satisfactory to the Secretary, stating that (A) there is neither a Default under the Construction Contract 13 37 nor the Security Agreement; (B) there have been no occurrences which have or would adversely and materially affect the condition of the Vessel, its hull or any of its component parts; (C) the amounts of the Request is in accordance with the Construction Contract including the approved disbursement schedule and each item in these amounts is properly included in the Secretary's approved estimate of Actual Cost; (D) with respect to the Request, once the Contractor is paid there will be no liens or encumbrances on the applicable Vessel, its hull or component parts for which the withdrawal is being requested except for those already approved by the Secretary; and (E) if the Vessel has already been Delivered, it is in class and is being maintained in the highest and best condition. The Shipowner shall also attach an Officer's Certificate of the Shipyard, in form and substance satisfactory to the Secretary, stating that there are no liens or encumbrances as provided in clause (D) of this subsection and attaching the invoices and receipts supporting each proposed withdrawal to the satisfaction of the Secretary. (2) No payment or reimbursement under this Section shall be made (A) to any Person until the Construction Fund, if any, has been exhausted; (B) to any Person until the total amount paid by or for the account of the Shipowner from sources other than the proceeds of such Obligations equals at least 12-l/2% of the Actual Cost of the related Vessel is made; (C) to the Shipowner which would have the effect of reducing the total amounts paid by the Shipowner pursuant to clause (B) of this subsection; or (D) to any Person on account of items, amounts or increases representing changes and extras or owner furnished equipment, if any, set forth in Table A annexed hereto, unless such items, amounts and increases shall have been previously approved by the Secretary; provided, however, that when the amount guaranteed by the Secretary equals 75% or less of the Actual Cost, then after the initial 12 1/2% of Actual Cost has been paid by or on behalf of the Shipowner for such Vessel and up to 37 1/2% of Actual Cost has been withdrawn from the Escrow Fund for such Vessel, the Shipowner shall pay the remaining Shipowner's equity of at least 12 1/2% (as determined by the Secretary) before additional monies can be withdrawn from the Escrow Fund relating to such Vessel. (b) The excess, as determined by the Secretary, of any amount on deposit in the Escrow Fund which represents interest on the principal amount deposited, over and above the amount of interest due on the next Interest Payment Date on the principal amount, as determined by the Secretary, remaining on deposit on such Interest Payment Date, may, unless there is an existing Default, be disbursed by the Secretary upon the Shipowner's Request made not more than 10 Business Days prior to such Interest Payment Date or made within at least 60 days after such Interest Payment Date. (c) The Secretary shall not be required to make any disbursement pursuant to this Section except out of the cash available in the Escrow Fund. If sufficient cash is not available to make the requested disbursement, additional cash shall be provided by the maturity or sale of securities in accordance with instructions pursuant to Section 5.04. If any sale or payment on maturity shall result in a loss in the principal amount of the Escrow Fund invested in securities so sold or matured, the requested disbursement from the Escrow Fund shall be reduced by an amount equal to such loss, and the Shipowner shall, no later than the time for such disbursement, pay to the Indenture Trustee, any Paying Agent, the Shipyard, or any other Person entitled thereto, the balance of the requested disbursement from the Shipowner's funds other than the proceeds of such Obligations. (d) If the Secretary assumes the Shipowner's rights and duties under the Indenture and the Obligations, and makes any payments in default under the Indenture, or the Secretary pays the Guarantees, all amounts in the Escrow Fund (including realized income which has not yet been paid to the Shipowner), shall be paid to the Secretary and be credited against any amounts due or to become due to the Secretary under the Security Agreement and the Secretary's Note. To the extent payment of the Escrow Fund to the Secretary is not required, said amounts or any balance thereof, shall be paid to the Shipowner. (e) At any time the Secretary shall have determined that there has been, for any reason, a disbursement from the Escrow Fund contrary to this Section, the Secretary shall give written notice to the Shipowner of the amount improperly disbursed, the amount to be deposited or redeposited into the Escrow Fund on account thereof, and the reasons for such determination. The Shipowner shall thereafter promptly deposit or redeposit, as appropriate, such amount (with interest, if any) required by the Secretary into the Escrow Fund. (f) Notwithstanding any other provision of this Section, the Shipowner shall not seek or receive 14 38 reimbursement for any amount paid to the Shipyard or any Person by the Secretary. (g) In the event that one of the events described in Section 2.07 has occurred with respect to one or more of the Vessels or the Secretary shall have paid the Guarantees or shall have assumed the Shipowner's rights and duties under Section 6.09 of the Indenture, the Secretary may direct that moneys remaining on deposit in the Escrow Fund may be withdrawn in whole or in part for one of the following purposes: (1) application as provided in Section 3.05 of the Indenture (but in no event shall any such disbursement for such purpose be in an amount greater than the related Proportionate Part of the Outstanding Obligations); (2) payment to the Shipowner, or its order, in the event all Outstanding Obligations are Retired or Paid, other than by payment of the Guarantees; or (3) application as provided in Section 6.05, if the Secretary shall have paid the Guarantees or shall have assumed the Shipowner's rights and duties under the Indenture and the Obligations. (h) Any amounts remaining in the Escrow Fund on the Termination Date of the Escrow Fund which are in excess of 87 1/2% or 75% of Actual Cost, as the case may be, shall be applied pursuant to Section 3.04 of the Indenture to retire a Proportionate Part of the Outstanding Obligations. Section 5.04. Investment and Liquidation of the Escrow Fund. The Secretary may invest the Escrow Fund in obligations of the United States with such maturities that the Escrow Fund will be available as required for the purposes hereof. The Secretary shall deposit the Escrow Fund into an account with the Treasury Department and upon agreement with the Shipowner, shall deliver to the Treasury Department instructions for the investment, reinvestment and liquidation of the Escrow Fund. The Secretary shall have no liability to the Shipowner for acting in accordance with such instructions. Section 5.05. Income on the Escrow Fund. Except as provided in Section 5.03, any income realized on the Escrow Fund shall, unless there is an existing Default, be paid to the Shipowner upon receipt by the Secretary of such income. For the purpose of this Section, the term "income realized on the Escrow Fund," shall mean with respect to the Escrow Fund (1) the excess of the cash received from the sale of securities over their cost (less any losses from sale not already paid pursuant to Section 5.03(c)) and (2) cash received from the payment of principal and interest on securities. Section 5.06. Termination Date of the Escrow Fund. The Escrow Fund will terminate 90 days after the Delivery Date of the last Vessel covered by this Security Agreement (herein called the "Termination Date of the Escrow Fund"). In the event that on such date the payment by or for the account of the Shipowner of the full amount of the aggregate Actual Cost of all of the Vessels set forth in Table A hereof has not been made or the amounts with respect to such Actual Cost are not then due and payable, then the Shipowner and the Secretary by written agreement shall extend the Termination Date of the Escrow Fund for such period as shall be determined by the Shipowner and the Secretary as sufficient to allow for such contingencies. If the Secretary shall have earlier made a final determination of the aggregate Actual Cost of all of the Vessels in accordance with Section 5.01, the Termination Date of the Escrow Fund shall be deemed to be the date of such final determination; provided that, if as a result of such final determination, a redemption of Obligations is required pursuant to Section 3.04 of the Indenture, the Termination Date shall be the date specified as the Redemption Date in the notice of redemption given pursuant to Section 3.08 of the Indenture. 15 39 ARTICLE VI DEFAULTS AND REMEDIES Section 6.01. What Constitutes "Defaults;" Continuance of Defaults. Each of the following events shall constitute a "Default" within the meaning of Section 6.01: (a) A default in the payment of the whole or any part of the interest on any of the Outstanding Obligations when the same shall become due and payable; or default in the payment of the whole or any part of the principal of any of the Outstanding Obligations when the same shall become due and payable, whether by reason of Maturity, redemption, acceleration, or otherwise, or any default referred to in Section 6.08 of the Indenture; and continuation of such default for a period of 30 days shall constitute and is herein called a "Payment Default." Any corresponding default with respect to the interest on, or the principal of, the Secretary's Note is also deemed to be a Payment Default; (b) The following shall constitute and each is herein called a "Security Default:" (1) Default by the Shipowner in the due and punctual observance and performance of any provision in Sections 2.01(b), 2.02(b) and (i), 2.03, 2.04, 2.09, 2.11, 2.12, 2.14, 8.01 and 8.02; (2) Default by the Shipowner continued after written notice specifying such failure by certified or registered mail to the Shipowner from the Secretary in the due and punctual observance and performance of any provision in Sections 2.02(a), (d), (e), (f), and (g), 2.05 (except (g) and (k) thereof), 2.07, and 2.13. (3) Default by the Shipowner continued for 30 days after written notice by certified or registered mail to the Shipowner from the Secretary in the due and punctual observance of any other agreement in this Security Agreement or in the Mortgage; (4) The Shipowner shall become insolvent or bankrupt or shall cease paying or providing for the payment of its debts generally, or the Shipowner shall be dissolved or shall, by a court of competent jurisdiction, be adjudged a bankrupt, or shall make a general assignment for the benefit of its creditors, or shall lose its charter by forfeiture or otherwise; or a petition for reorganization of the Shipowner under the Bankruptcy Code shall be filed by the Shipowner, or such petition be filed by creditors and the same shall be approved by such a court of competent jurisdiction; or a reorganization of the Shipowner under said Code shall be approved by a court, whether proposed by a creditor, a stockholder or any other Person whomsoever; or a receiver or receivers of any kind whatsoever, whether appointed in admiralty, bankruptcy, common law or equity proceedings, shall be appointed, by a decree of a court of competent jurisdiction, with respect to any Vessel, or all or substantially all of the Shipowner's property, and such decree shall have continued unstayed, on appeal or otherwise, and in effect for a period of 60 days; (5) Any default in the due and punctual observance and performance of any provision in the Financial Agreement or the Construction Contract; (6) Any representation or warranty made relating to the execution and delivery of this Security Agreement, the Mortgage, the Guarantee Commitment or the Financial Agreement, or in any certificate required to be furnished pursuant thereto, shall prove to be incorrect in any material respect; (7) Any event constituting a Default under any security agreement or preferred mortgage under Chapter 313, relating to any other vessel or vessels owned by the Shipowner and financed under the Act; (8) Any additional Security Default prescribed in the Special Provisions hereof; and (9) Any event constituting a default under any bareboat or time charter or contract of affreightment of the Vessel. 16 40 At any time following the occurrence of a Security Default, the Secretary may give the Indenture Trustee a Secretary's Notice with respect to such Security Default, after which the Indenture Trustee and the Obligees shall have the right to make demand for payment of the Guarantees in accordance with the Indenture and the Authorization Agreement, unless the Secretary shall have assumed the Shipowner's rights and duties under the Indenture and the Obligations, and made any payments in default under Section 6.09 of the Indenture. Section 6.02. Acceleration of Maturity of the Secretary's Note. The Secretary may, by giving written notice to the Shipowner, declare the principal of the Secretary's Note and interest accrued thereon to be immediately due and payable, at any time after (a) the Secretary shall have been obligated to pay the Guarantees pursuant to the terms of the Indenture and the Authorization Agreement, or (b) the Secretary shall have assumed the Shipowner's rights and duties under the Indenture and the Obligations, and made any payments in default under the terms of Section 6.09 of the Indenture. Thereupon, the principal of and interest on the Secretary's Note shall become immediately due and payable, together with interest at the same rates specified in the Secretary's Note. Section 6.03. Waivers of Default. (a) If the Secretary shall not have assumed the Shipowner's rights and duties under the Indenture and the Obligations, and made any payments in default under the terms of Section 6.09 of the Indenture, and if the Secretary determines that an event which, with the passage of time, would become a Payment Default, has been remedied within 30 days after the occurrence of such event, upon a Request by the Shipowner, the Secretary shall waive the consequences of such event. (b) If the Secretary shall not have assumed the Shipowner's rights and duties under the Indenture and the Obligations, and made any payments in default under the terms of Section 6.09 of the Indenture, and if the Secretary shall have determined prior to payment of the Guarantees that a Payment Default has been remedied after the expiration of the aforesaid 30-day period, but prior to the date of demand by the Indenture Trustee or an Obligee for payment under the Guarantees, upon a Request by the Shipowner, the Secretary shall waive such Default. (c) If the Secretary shall have determined prior to the expiration of the period required for payment of the Guarantees that a Payment Default had not occurred or has been subsequently remedied by the Shipowner (and if the Secretary shall not have assumed the Shipowner's rights and duties under the Indenture and the Obligations, and made any payments in default under the terms of Section 6.09 of the Indenture and prior to any payment of Guarantees), the Secretary shall notify the Indenture Trustee and the Shipowner of such determination, and, the Secretary shall waive such Default. (d) The Secretary, in its sole discretion, may waive any Security Default or any event which by itself, or with the passage of time or the giving of notice, or both, would give rise to a Security Default; provided that, such Default is waived prior to the Secretary giving to the Indenture Trustee the Secretary's Notice. (e) The Secretary shall notify the Shipowner and the Indenture Trustee in writing of any determinations made under paragraphs (a), (b), and (c) of this Section, and the Secretary shall waive the consequences of any such Default, and annul any declaration under Section 6.02, and the consequences thereof. (f) No waiver under this Section shall extend to or affect any subsequent or other Default, nor impair any rights or remedies consequent thereon. (g) No waiver under this Section shall be deemed to have occurred because the Secretary shall have assumed the Shipowner's rights and duties under the Indenture and the Obligations, and made any payments in default under the terms of Section 6.09 of the Indenture. Section 6.04. Remedies After Default. (a) In the event of a Default, and before and after the payment of the Guarantees or the assumption by the Secretary of the Shipowner's rights and duties under the Indenture and the Obligations, and the making of any payments in default under the terms of Section 6.09 of the Indenture, the Secretary shall have the right to take the Vessels without legal process wherever the same may be (and the 17 41 Shipowner or other Person in possession shall forthwith surrender possession of the Vessels to the Secretary upon demand) and hold, lay up, lease, charter, operate, or otherwise use the Vessels for such time and upon such terms as the Secretary may reasonably deem to be in the Secretary's best interest, accounting only for the net profits, if any, arising from the use of the Vessels, and charging against all receipts from the use of the Vessels, all reasonable charges and expenses relating to such Vessel's use. (b) Upon either (i) payment of the Guarantees or (ii) the Secretary's assumption of the Shipowner's rights and duties under the Indenture and the Obligations, and the making of any payments in default under Section 6.09 of the Indenture, the Secretary shall have the right to: (1) Exercise all the rights and remedies in foreclosure and otherwise given to mortgagees by Chapter 313; (2) Bring suit at law, in equity or in admiralty to recover judgment for any and all amounts due under the Secretary's Note, this Security Agreement and the Mortgage, collect the same out of any and all of Shipowner's property, whether or not the same is subject to the lien of the Mortgage, and in connection therewith, obtain a decree ordering the sale of any Vessel in accordance with paragraph (b)(4) of this Section; (3) Have a receiver of the Vessels appointed as a matter of right in any suit under this Section (and any such receiver may have the rights of the Secretary under paragraph (b)(4) of this Section); (4) Sell any Vessel, free from any claim of the Shipowner, by a public extrajudicial sale, held at such time and place and in such manner as the Secretary may reasonably deem advisable, after twice publishing notice of the time and place of such sale prior to the proposed sale in the Authorized Newspapers to the Shipowner. Such publication and mailing is to be made at least 10 Business Days prior to the date fixed for such sale; provided that, such sale may be adjourned from time to time without further publication or notice (other than announcement at the time and place appointed to such sale or adjourned sale). It shall not be necessary to bring any such Vessel to the place appointed for such sale or adjourned sale; (5) Accept a conveyance of title to, and to take without legal process (and the Shipowner or other Person in possession shall forthwith surrender possession to the Secretary), the whole or any part of any Vessel and the Security wherever the same may be, and to take possession of and to hold the same; (6) In the Secretary's discretion, take any and all action authorized by Sections 1105(c), 1105(e) and 1108(b) of the Act and any and all action provided for, or authorized, or permitted by, or with respect to the Increased Security; (7) Receive, in the event of an actual or constructive total loss, or an agreed or compromised total loss, or a requisition of title to or use of any Vessel, all insurance or other payments therefor to which the Shipowner would otherwise be entitled, such insurance moneys to be applied by the Secretary in accordance with Section 6.05; and (8) Pursue to final collection of all the claims arising under this Security Agreement and to collect such claims from, the Increased Security. (c) The Shipowner hereby irrevocably appoints the Secretary the true and lawful attorney of the Shipowner, in its name and stead, to make all necessary transfers of the whole or any part of the Increased Security in connection with a sale, use or other disposition pursuant to Section 6.04(a) or 6.04(b), and for that purpose to execute all necessary instruments of assignment and transfer. Nevertheless, the Shipowner shall, if so requested by the Secretary in writing, ratify and confirm such sale by executing and delivering to any purchaser of the whole or any part of the Increased Security, such proper bill of sale, conveyance, instrument of transfer, or release as may be designated in such request. (d) No remedy shall be exclusive of any other remedy, and each and every remedy shall be cumulative and 18 42 in addition to any other remedy. (e) No delay or omission to exercise any right or remedy shall impair any such right or remedy or shall be deemed to be a waiver of any Default. (f) The exercise of any right or remedy shall not constitute an election of remedies by the Secretary. (g) If the Secretary discontinues any proceeding, the rights and remedies of the Secretary and of the Shipowner shall be as though no such proceeding had been taken. Section 6.05. Application of Proceeds. (a) The proceeds (from sale or otherwise) of the whole or any part of the Increased Security and use thereof by the Secretary under any of the foregoing powers, (b) the proceeds of any judgment collected by the Secretary for any default hereunder, (c) the proceeds of any insurance and of any claim for damages to the whole or any part of the Increased Security received by the Secretary while exercising any such power, and (d) all other amounts received by the Secretary, including amounts which are required by Sections 2.05 and 2.07 shall be applied by the Secretary as follows: (1) to the payment of all advances and all reasonable charges by the Secretary pursuant to this Security Agreement; (2) to the payment of the whole amount of the interest then due and unpaid upon the Secretary's Note; (3) to the payment of the whole amount of the principal then due and unpaid upon the Secretary's Note; (4) to the Secretary for application to any other debt of the Shipowner due to the Secretary under any other financing insured or guaranteed by the Secretary under to the Act; (5) to the Indenture Trustee for its reasonable fees and expenses; and (6) any balance thereof remaining shall be paid to the Shipowner. Section 6.06. General Powers of the Secretary. (a) In the event any Vessel shall be arrested or detained by a marshal or other officer of any court of law, equity or admiralty jurisdiction in any country or nation of the world or by any government or other authority, and shall not be released from arrest or detention within 15 days from the date of arrest or detention, the Shipowner hereby authorizes the Secretary, in the name of the Shipowner, to apply for and receive possession of and to take possession of such Vessel with all the rights and powers that the Shipowner might have, possess and exercise in any such event. This authorization is irrevocable. (b) The Shipowner irrevocably authorizes the Secretary or its appointee (with full power of substitution) to appear in the name of the Shipowner in any court of any country or nation of the world where a suit is pending against the whole or any part of the Increased Security because of or on account of any alleged lien or claim against the whole or any part of the Increased Security, from which the whole or said part of the Increased Security has not been released. (c) The following shall constitute a debt due from the Shipowner to the Secretary, and shall be repaid by the Shipowner upon demand: all reasonable expenses incurred pursuant to paragraphs (a) or (b) of this Section and all reasonable expenses incurred incident to the exercise by the Secretary of any remedies pursuant to Section 6.04(b) or the assumption by the Secretary of the rights and duties of the Shipowner under the Indenture and the Obligations, and the making of any payments in default under the terms of Section 6.09 of the Indenture (including, but not limited to, fees paid to the Indenture Trustee for expenses incident to said assumption of the Indenture by the Secretary), together with interest at the rate that would have been paid by the Department of Treasury on the expended funds plus 1%. The Secretary shall not be obligated to (nor be liable for the failure to) 19 43 take any action provided for in paragraphs (a) and (b) of this Section. ARTICLE VII AMENDMENTS AND SUPPLEMENTS TO THE SECURITY AGREEMENT, MORTGAGE AND INDENTURE Section 7.01. Amendments and Supplements to the Security Agreement and the Mortgage. This Security Agreement and the Mortgage may not be amended or supplemented orally, but may be amended or supplemented from time to time only by an instrument in writing executed by the Shipowner and the Secretary. Section 7.02. Amendments and Supplements to the Indenture. Notwithstanding any provisions in the Indenture, the Shipowner agrees that no amendments or supplements will be made to the Indenture without the Secretary's prior written consent, and any purported action contrary to this Section shall be null and void ab initio and of no force and effect. ARTICLE VIII CONSOLIDATION, MERGER OR SALE Section 8.01. Consolidation, Merger or Sale. (a) Nothing in this Security Agreement or the Mortgage shall prevent any lawful consolidation or merger of the Shipowner with or into any other Person, or any sale of a Vessel or Vessels to any other Person lawfully entitled to acquire and operate such Vessel or Vessels, or any sale by the Shipowner of all or substantially all of its assets to any other Person; provided that, the Secretary shall have given its prior written consent to such succession, merger, consolidation or sale. (b) Any Successor shall (by indenture supplemental to the Indenture, and by instrument amending or supplementing this Security Agreement, and the Mortgage, as may be necessary), expressly assume the payment of the principal of (and premium, if any) and interest on the Outstanding Obligations in accordance with the terms of the Obligations, shall execute and deliver to the Secretary, an endorsement to the Secretary's Note in form satisfactory to the Secretary, shall expressly assume the payment of the principal of and interest on the Secretary's Note, and shall expressly assume the performance of the agreements of the Shipowner in the Indenture, this Security Agreement, the Mortgage and any related document. (c) Upon the assumption of the documents listed in paragraph (b) of this Section, the Secretary shall consent to the surrender of each Vessel's documents pursuant to 46 U.S.C. 12110(c)(3), as amended; provided that, concurrently with such surrender, such Vessel shall be redocumented under the laws of the United States. (d) In the event of any sale of less than all the Vessels, the Secretary shall determine if there will remain adequate security for the Guarantees after discharge of any such Vessel or Vessels from the Security Agreement and Mortgage, and (1) the Shipowner shall redeem, together with any premium and/or accrued interest thereof, the Proportionate Part of the Outstanding Obligations relating to such Vessel or Vessels in accordance with the provisions of Article Third of the Indenture; or (2) the Person to which such sale shall have been made (the "Transferee"), shall assume the documents listed in paragraph (b) of this Section. Upon any such assumption, the Transferee shall succeed to and be substituted for the Shipowner with the same force and effect as if it had been named in the Indenture, the Obligations, this Security Agreement and the Mortgage (and such other documents) to the extent the same relate to such Proportionate Part of the Outstanding Obligations and to such Vessel or Vessels. 20 44 Section 8.02. Transfer of a General Partner's or a Joint Venturer's Interest. (a) If the Shipowner is organized as a partnership or a joint venture, a general partner or a joint venturer may lawfully transfer its respective interests under the terms of the partnership or joint venture agreement to any Person and may be released from all of their obligations thereunder and under this Security Agreement or the Mortgage; provided that, (i) the Secretary shall have given its prior written consent to the proposed transaction; and (ii) the transferee shall assume in full all of the existing obligations which the transferring general partner or joint venturer has under the applicable partnership or joint venture agreement, this Security Agreement, the Mortgage and any related document. ARTICLE IX NOTICES Section 9.01. Notices. Except as otherwise provided in this Security Agreement or by the Act, all notices, requests, demands, directions, consents, waivers, approvals or other communications may be made or delivered in person or by registered or certified mail, postage prepaid, addressed to the party at the address of such party specified in the Special Provisions hereof, or at such other address as such party shall advise each other party by written notice, and shall be effective upon receipt by the addressee thereof. Section 9.02. Waivers of Notice. In any case where notice by publication, mail or otherwise is provided for by this Security Agreement, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be deemed the equivalent of such notice. Section 9.03. Shipowner's Name or Address Change. The Shipowner shall not change its name or its address without first providing written notice to the Secretary of the new name and/or the change in address. ARTICLE X DISCHARGE OF SECURITY AGREEMENT AND THE MORTGAGE Section 10.01. Discharge of Security Agreement and the Mortgage. (a) If the Obligations and the related Secretary's Note shall have been satisfied and discharged, and if the Shipowner shall pay or cause to be paid all other sums that may have become secured under this Security Agreement and the Mortgage, then this Security Agreement, the Mortgage and the liens, estate and rights and interests hereby and thereby granted, shall cease, determine, and become null and void, and the Secretary, on the Shipowner's Request and at the Shipowner's cost and expense, shall forthwith cause satisfaction and discharge and duly acknowledge such satisfaction and discharge of this Security Agreement and the Mortgage to be entered upon its and other appropriate records, and shall execute and deliver to the Shipowner such instruments as may be necessary, and forthwith the estate, right, title and interest of the Secretary in and to the Security, the Increased Security, and any other securities, cash, and any other property held by it under this Security Agreement and the Mortgage, shall thereupon cease, determine and become null and void, and the Secretary shall transfer, deliver and pay the same to the Shipowner. (b) If all of the Guarantees on the Outstanding Obligations shall have been terminated pursuant to Sections 3.02(b) or 3.02(d), the Secretary shall assign to the Shipowner this Security Agreement, the Mortgage and the liens, estate, rights and interests hereby and thereby granted. ARTICLE XI MISCELLANEOUS Section 11.01. Successors and Assigns. All the covenants, promises, stipulations and agreements of the Secretary and Shipowner in this Security Agreement shall bind the Secretary and Shipowner and its respective successors and assigns. This Security Agreement is for the sole benefit of the Shipowner, the Secretary, and their respective successors and assigns, and no other Person shall have any right hereunder. 21 45 Section 11.02. Execution in Counterparts. This Security Agreement may be executed in any number of counterparts. All such counterparts shall be deemed to be originals and shall together constitute but one and the same instrument. Section 11.03. Shipowner's Rights in Absence of Default. Except during the existence of a Default, the Shipowner (1) shall be permitted to retain actual possession and use of the Vessel; and (2) shall have the right, from time to time, in its discretion and without the consent of or release by the Secretary, to dispose of, free from the lien hereof and of the Mortgage, any and all engines, machinery, masts, boats, anchors, cables, chains, rigging, tackle, apparel, furniture, capstans, outfit, tools, pumps, pumping and other equipment, and all other appurtenances to the Vessels, and also any and all additions, improvements and replacements in or to the Vessels or said appurtenances, after first or simultaneously replacing the same with items of at least substantially equal value. Section 11.04. Surrender of Vessels' Documents. The Secretary shall consent to the surrender of each Vessel's documents in connection with any redocumentation of such Vessel required on account of alterations to such Vessel which are not prohibited by this Security Agreement and by the Mortgage. Section 11.05. Applicable Regulations. Only the provisions of the regulations issued under Title XI of the Act as in effect on the date hereof (46 C.F.R. 298) shall control the Security Agreement provisions. Section 11.06. Table of Contents, Titles and Headings. The table of contents, and titles of the Articles and the headings of the Sections are not a part of this Security Agreement and shall not be deemed to affect the meaning or construction of any of its provisions. 22 EX-4.(II)(D)(6) 8 ex4-iid6.txt PROMISSORY NOTE 1 EXHIBIT 4.(ii)(d)(6) PROMISSORY NOTE TO UNITED STATES OF AMERICA Project America Ship I, Inc. (the "Shipowner"), for value received, promises to pay THE UNITED STATES OF AMERICA (the "United States"), represented by the SECRETARY OF TRANSPORTATION, acting by and through the MARITIME ADMINISTRATOR (the "Secretary"), at the office of the Maritime Administration, U.S. Department of Transportation, Washington, D.C., in lawful money of the United States of America, the aggregate principal amount of $534,447,000, or such other amount as set forth in the Obligations together with interest thereon from the date hereof at the rates and on the dates set forth in the Obligations as defined below, the terms of which Obligations are incorporated herein by reference, commencing on the date set forth in said Obligations until such principal sum has been paid. This Secretary's Note ("Secretary's Note") is subject to mandatory prepayment on the same terms and conditions as the Obligations. This Secretary's Note is given (1) in consideration of the Secretary's issuance, pursuant to the provisions of Title XI of the Merchant Marine Act, 1936, as amended, of Guarantees of payment of the unpaid interest on and the unpaid balance of the principal amount of the Shipowner's United States Government Guaranteed Ship Financing Notes and United States Government Guaranteed Ship Financing Bonds (collectively, the "Obligations") issued by the Shipowner on the dates set forth in said Obligations in order to finance a portion of the cost of construction of the Vessels, and (2) to secure the Shipowner's payment to the Secretary of any amount that the Secretary may be required to pay to the Holder of the Notes under said Guarantees. This Secretary's Note is issued pursuant to the provisions of the Security Agreement, Contract No. MA-13581 dated February 10, 2000, between the Shipowner and the Secretary. The Security Agreement contemplates that on the Delivery Date, a first preferred ship mortgage of the Vessel will be executed and delivered by the Shipowner as Mortgagor to the Secretary as Mortgagee, covering the Shipowner's interest in the Vessel. The definitions used in, and the provisions of, the Security Agreement and the Mortgage are incorporated herein by reference. This Secretary's Note has been negotiated and received by the Secretary, is secured by the Security Agreement and the Mortgage, on the Delivery Date, and are subject to all the terms of the Security Agreement and the Mortgage, on the Delivery Date, to the same extent as if said documents were set out herein in full. To the extent that any of the Obligations are Outstanding and until the Guarantees on each of the Obligations have been terminated pursuant to the provisions of Section 3.02(a), (b) or (d) of the Security Agreement, the principal of and the interest on this Secretary's Note shall remain outstanding and unpaid. Payments on the Outstanding Obligations shall be deemed a payment of principal and interest on this Secretary's Note when paid in the following manner: (1) by payment of interest on such Obligations in accordance with the provisions thereof and of the Indenture; 2 (2) by any redemption of such Obligations in accordance with the provisions thereof and of the Indenture; or (3) when such Obligations have been Retired or Paid, other than by payment of the Guarantees; If such payment is made with moneys advanced or loaned to the Shipowner by the Secretary, such payment on the Obligations shall not, as to such amount, constitute payment of principal or interest on this Secretary's Note and the same shall not in any way be discharged as to such amount. In the event that the Secretary assumes the Shipowner's rights and duties under the Indenture and the Obligations and makes any payments, such payments shall not, as to such amounts, constitute payment of principal and interest on this Secretary's Note and the same shall not in any way discharge such amounts until such time as this Secretary's Note is paid in full or otherwise discharged in an appropriate proceeding in a court of competent jurisdiction as established by the final order of a court of last resort or the final order of an inferior court which is not appealed. The unpaid balance of the principal of this Secretary's Note and the interest hereon may be declared or may become immediately due and payable by declaration of the Secretary at any time after the Secretary (i) is required to pay the Guarantees pursuant to the terms of the Indenture and the Authorization Agreement or (ii) assumes pursuant to the terms of the Indenture, the Shipowner's rights and duties under the Indenture and the Obligations. Thereupon, the unpaid balance of the principal of and the interest on this Secretary's Note shall become due and payable, together with interest thereon at the rate set out in each of the Obligations plus one percent. 2 3 IN WITNESS THEREOF, the Shipowner has caused this Secretary's Note to be signed on this ___ day of February, 2000. SHIPOWNER: PROJECT AMERICA SHIP I, INC. (SEAL) By /s/ Randall L. Talcott -------------------------- Its Vice President - Finance ATTEST: By /s/ Jordan B. Allen ------------------------------- Its Executive Vice President 3 EX-4.(II)(D)(7) 9 ex4-iid7.txt TITLE XI RESERVE FUND AND FINANCIAL AGREEMENT 1 EXHIBIT 4.(ii)(d)(7) Contract No. MA-13583 TITLE XI RESERVE FUND AND FINANCIAL AGREEMENT THIS TITLE XI RESERVE FUND AND FINANCIAL AGREEMENT (the "Financial Agreement") dated February 10, 2000 between Project America Ship I, Inc., a Delaware corporation (the "Company"), and THE UNITED STATES OF AMERICA (the "United States"), represented by the SECRETARY OF TRANSPORTATION, acting by and through the MARITIME ADMINISTRATOR (the "Secretary"). RECITALS Pursuant to the conditions and understandings set forth in the Recitals to the Security Agreement executed on this date, the Company has authorized the issuance of obligations designated either "United States Government Guaranteed Ship Financing Notes" or "United States Government Guaranteed Ship Financing Bonds" in an aggregate amount not to exceed $534,447,000 to finance the cost of construction of Hull No. 7671 (the "Vessel"); NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, and of other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereby agree as follows: Section 1. (a) Granting Clause. The Company hereby sells, grants, conveys, mortgages, assigns, transfers, pledges, confirms and sets over to the Secretary a continuing security interest in all of its right, title and interest in and to (1) the Title XI Reserve Fund, and (2) all sums, instruments, moneys, negotiable documents, chattel paper and proceeds thereof currently on deposit, or hereafter deposited in the Title XI Reserve Fund. (b) Definitions. For all purposes of this Financial Agreement, unless otherwise expressly provided or unless the context otherwise requires, the capitalized terms used herein shall have the meaning specified in Schedule X to the Security Agreement entered into on this date. Section 2. Title XI Reserve Fund Deposits. (a) Pursuant to the Depository Agreement, the Company shall establish with the Depository a depository account (herein called the "Title XI Reserve Fund"). (b)(1) If at any time the Company shall fail to meet the financial tests set forth in Section 8(b) hereof including the Proviso; the Company shall, within 105 days after the end of each fiscal year of the Company, compute its net income attributable to the operation of the Vessel ("Title XI Reserve Fund Net Income"). This computation requires the multiplication of the Company's total net income after taxes by a fraction with a numerator composed of the total original capitalized 2 cost of the Vessel and a denominator composed of the total original capitalized cost of all the Company's fixed assets. The net income after taxes, computed in accordance with generally accepted accounting principles, shall be adjusted as follows: (A) The depreciation expense applicable to the fiscal year shall be added back. (B) There shall be subtracted an amount equal to the principal amount of debt required to be paid or redeemed, and actually paid or redeemed by the Company during the fiscal year; and the principal amount of Obligations Retired or Paid, prepaid or redeemed, in excess of the required Redemptions or payments which may be used by the Company as a credit against future required Redemptions or other required payments with respect to the Obligations, but excluding payments from the Title XI Reserve Fund and the Title XI Escrow Fund. (2) Promptly after the computation of the Title XI Reserve Fund Net Income by the Company: (A) If the Vessel is owned by the Company, then from the Title XI Reserve Fund Net Income for the Vessel there shall be deducted, annually, an amount (pro rated for a period of less than a full fiscal year) which is 10% of the Company's aggregate original equity investment in said Vessel, as specified in Attachment A. (B) The Company shall, unless otherwise approved by the Secretary in writing, deposit into the Title XI Reserve Fund an amount equal to 50 percent of the balance of the Title XI Reserve Fund Net income remaining after the above deduction. (C) Irrespective of the requirements that the Company make deposits into the Title XI Reserve Fund, the Company shall not be required to make any deposits into the Title XI Reserve Fund if (i) the Obligations and the related Secretary's Note with respect to the Vessel shall have been satisfied and discharged and if the Company shall have paid or caused to be paid all other sums secured under the Security Agreement and the Mortgage, (ii) all of the Guarantees on the Outstanding Obligations shall have been terminated pursuant to the Security Agreement, or (iii) the amount (including any securities at current market value) in the Title XI Reserve Fund is equal to, or in excess of 50% of the aggregate principal amount of the Outstanding Obligations; (D) The Company shall deliver to the Secretary (with a copy to the Depository) at the time of each deposit into the Title XI Reserve Fund pursuant to Section 2(b)(2)(B), and any deposits required under the Security Agreement, a statement of an independent certified public accountant (who may be the regular auditors for the Company) stating that such deposit has been computed in accordance with Section 2(b)(2)(B), (and the Security Agreement, if applicable) and showing the pertinent calculations. (E) In addition, the Company shall deliver to the Secretary (with a copy to the Depository), within 105 days after the end of each fiscal year of the Company, a statement by such certified public accountant stating (i) the total amount of all deposits which were required to be so deposited into the Title XI Reserve Fund for such fiscal year (and showing the pertinent 2 3 calculations), or (ii) that no such deposit was required to be made for such fiscal year (and showing the pertinent calculations) and that at the end of such fiscal year no adjustments pursuant to Section 2(b)(2)(G) were required to be made (and, if such adjustments were required to be made, stating the reasons therefor). (F) The computation of all deposits required by this Section 2 shall be made on the basis of information available to the Company at the time of each such deposit. Each such deposit shall be subject to adjustments from time to time in the event and to the extent that the same would be required or permitted by mistakes or omissions, additional information becoming available to the Company, or judicial or administrative determinations made subsequent to the making of such deposits. Section 3. Withdrawals from the Title XI Reserve Fund. (a) From time to time, moneys in the Title XI Reserve Fund shall be subject to withdrawal by delivery by the Company to the Secretary of a Request for Payment (specifying the Person or Persons to be paid and the amount of such payment) executed by the Company, together with an Officer's Certificate of the Company stating the reasons and the purpose for the withdrawal. (b) Upon approval by the Secretary of the Request for Payment evidenced by the countersignature thereon of the Secretary, the Secretary shall cause the Request for Payment to be delivered to the Depository, which shall promptly make payment to such Person or Persons in accordance with the terms of such Request for Payment. Section 4. Termination of the Title XI Reserve Fund. (a) The Title XI Reserve Fund shall terminate at such time as the Secretary's Note shall have been satisfied and discharged and the Company shall have paid or caused to be paid all sums secured under the Security Agreement or the Mortgage. (b) Upon the termination of the Title XI Reserve Fund, pursuant to Section 4(a), the moneys remaining in the Title XI Reserve Fund shall be subject to withdrawal and payment into the general funds of the Company. (c) Upon payment by the Secretary to the Indenture Trustee of the Guarantees pursuant to the Indenture, the Title XI Reserve Fund shall, upon written instructions of the Secretary, be terminated and the balance remaining in the Title XI Reserve Fund shall be paid to the Secretary and the Company as determined by the Secretary. (d) Any withdrawal from the Title XI Reserve Fund pursuant to this Section 4 shall not effect a discharge of or diminish any obligations of the Company under the Security Agreement, Mortgage or any other agreement as the case may be except to the extent that the amount withdrawn is applied to payments required to be made by the Company under the Security Agreement, Mortgage or any other agreement. 3 4 Section 5. Eligible Investments; Form of Deposits. (a) Moneys held in the Title XI Reserve Fund shall, if so directed by a Request of the Company delivered to the Depository (with a copy to the Secretary), be invested by the Depository in the following Eligible Investments: (1) time deposits, negotiable certificates of deposit, or similar instruments of deposit with a bank or trust company organized as a corporation under the laws of the United States or any State thereof, or of the District of Columbia, subject to supervision or examination by Federal or State authority or authority of the District of Columbia, and having a combined capital and surplus of at least $3,000,000; provided that, the aggregate of all such time deposits and certificates of deposit with any one bank or trust company shall not exceed 10% of the combined capital and surplus of such bank or trust company; (2) short term commercial paper having either of the two highest ratings for short term commercial paper assigned by any two nationally recognized organizations regularly engaged in rating the investment quality of such commercial paper; and (3) securities (designated by the Company in such Request) which at the date of such investment are: (A) direct obligations of, or obligations (other than the Obligations or Obligations related to the Company) fully guaranteed or insured by, the United States or any agency of the United States or with the Secretary's prior written consent and subject to such conditions imposed by him, obligations or securities fully insured by an instrumentality of the United States; (B) bonds, not in default as to principal or interest of any county, municipality or state of the United States and having either of the two highest ratings for bonds assigned by any two nationally recognized organizations regularly engaged in rating the investment quality of such bonds; (C) bonds, not in default as to principal or interest, of corporations organized and existing under the laws of the United States or of the District of Columbia or of any state of the United States and having one of the three highest ratings for bonds assigned by any two nationally recognized organizations regularly engaged in rating the investment quality of such bonds; provided that, no investment under this subsection (5)(a)(3)(C) shall be made in any obligations of the Company or a Related Party; (D) capital stock, but limited at the time of acquisition to any amounts in the Title XI Reserve Fund in excess of the principal amount of Obligations to be redeemed pursuant to the mandatory sinking fund provisions of the Indenture, during the next succeeding 12 months of (i) corporations organized and existing under the laws of the United States or the District of Columbia or of any state of the United States if such stock is currently fully listed and registered 4 5 upon an exchange registered with the Securities and Exchange Commission as a national securities exchange and permitted for investment by a savings bank under the laws of the State of New York without regard to the provisions therein limiting such investments to a percentage of the assets or surplus of such savings bank, (ii) banks either regulated by the Comptroller of the Currency of the United States or subject to the Banking Law of the State of New York, or (iii) insurance companies licensed to do business in such state; provided that, no investment under this subsection shall be made in stock of the Company or a Related Party; provided further that, any request under this subsection shall be accompanied by an opinion of counsel satisfactory to the Secretary as to the qualification of such securities under this clause and provided further, that the Company shall cause to be sold, within 60 days, or at any time if the Secretary so directs the Company in writing, any securities which cease to qualify under this subsection. (b) In any case where the Company is required to deposit or redeposit sums into the Title XI Reserve Fund, the Company shall make the required deposit in cash or, in lieu thereof, with the Secretary's prior written approval, may deposit into the Title XI Reserve Fund, negotiable certificates of deposit, short term commercial paper or securities which are (1) Eligible Investments (2) owned by the Company and (3) of an equivalent current market value (based upon the last sales price thereof on the Business Day immediately preceding such deposit or, if there shall have been no sale thereof on such day, the average of the last known bid and asked prices). With the Secretary's prior written approval, the Company may exchange Eligible Investments in the Title XI Reserve Fund at current market value (determined as above provided) for an equivalent amount of cash. (c) Cash held in the Title XI Reserve Fund will be held by the Depository pursuant to the Depository Agreement. Section 6. Company's Rights with Respect to Securities Held in the Title XI Reserve Fund. Unless there is an existing Default under the Security Agreement, the Company shall have: (a) the right to vote (or direct the vote of) securities held in the Title XI Reserve Fund as to (1) the sale of all or any part of the assets of the issuer or obligor thereof, (2) the increase or reduction of the capital of such issuer or obligor, (3) the liquidation, dissolution, merger or consolidation of such issuer or obligor, or (4) any purpose which would not then impair the lien of, or the security interest granted to the Secretary; and (b) the right to exercise (or direct the exercise of) any and all rights of ownership of such securities, including the right to consent or object to the extension, modification or renewal of any thereof, the right to consent or object to any plan or reorganization, or readjustment, and the right to exercise any right, privilege or option pertaining thereto. Section 7. Annual Statement of Company with Respect to the Title XI Reserve Fund. Within 105 days after the close of each fiscal year of the Company at the end of which there are funds in the Title XI Reserve Fund (and at such other times as the Secretary may request in writing), the Company shall submit to the Secretary (with a copy to the Depository) (a) an opinion of counsel satisfactory to the Secretary as to the qualification, under Section 5(a)(3)(D), 5 6 of securities acquired pursuant to that subparagraph and then held in the Title XI Reserve Fund and (b) a list of the Eligible Investments held in the Title XI Reserve Fund at the close of said fiscal year (or at the time of the Secretary's request as aforesaid). Section 8. Financial Requirement of the Company. (a) Primary Covenants. The Company shall not without the Secretary's prior written consent: Except as hereinafter provided, make any distribution of earnings, except as may be permitted by (A) or (B) below: (A) From retained earnings in an amount specified in subsection (C) below, provided that, in the fiscal year in which the distribution of earnings is made there is no operating loss to the date of such payment of such distribution of earnings, and (i) there was no operating loss in the immediately preceding three fiscal years, or (ii) there was a one-year operating loss during the immediately preceding three fiscal years, but (a) such loss was not in the immediately preceding fiscal year, and (b) there was positive net income for the three year period; (B) If distributions of earnings may not be made under (A) above, a distribution can be made in an amount equal to the total operating net income for the immediately preceding three fiscal year period, provided that, (i) there were no two successive years of operating losses, (ii) in the fiscal year in which such distribution is made, there is no operating loss to the date of such distribution, and (iii) the distribution or earnings made would not exceed an amount specified in Section 8(a)(1)(C) below; (C) Distributions of earnings may be made from earnings of prior years in an aggregate amount equal to (i) 40 percent of the Company's total net income after tax for each of the prior years, less any distributions that were made in such years; or (ii) the aggregate of the Company's total net income after tax for such prior years, provided that, after making such distribution, the Company's Long Term Debt does not exceed its Net Worth. In computing net income for the purposes of this Section, extraordinary gains, such as gains from the sale of assets, shall be excluded. (1) Enter into any service, management or operating agreement for the operation of the Vessel (excluding husbanding type agreements), or appoint or designate a managing or operating agent for the operation of the Vessel (excluding husbanding agents) unless approved by the Secretary; (2)(A) Sell, mortgage, transfer, or demise charter the Vessel or any assets to any non-Related Party except as permitted in subsection 8(b)(9) below, or (B) sell, mortgage, transfer, or demise charger the Vessel or any assets to a Related Party, unless such transaction is (i) at a fair market value as determined by an independent appraiser acceptable to the Secretary, and (ii) a total cash transaction or, in the case of demise charter, the charter payments are cash payments. 6 7 (3) Enter into any agreement for both (A) sale and (B) leaseback of the same assets so sold unless the proceeds from such sale are at least equal to the fair market value of the property sold; (4) Guarantee, or otherwise become liable for the obligations of any Person, except in respect of any undertakings as to the fees and expenses of the Indenture Trustee, except endorsement for deposit of checks and other negotiable instruments acquired in the ordinary course of business and except as otherwise permitted in Section 8(b); (5) Directly or indirectly embark on any new enterprise or business activity not directly connected with the business of shipping or other activity in which the Company is actively engaged; (6) Enter into any merger or consolidation or convey, sell, demise charter, or otherwise transfer, or dispose of any portion of its properties or assets (any and all of which acts are encompassed within the words "sale" or "sold" as used herein), provided that, the Company shall not be deemed to have sold such properties or assets if (A) the Net Book Value (defined as the original book value of an asset less depreciation calculated on a straight line basis over its useful life) of the aggregate of all the assets sold by the Company during any period of 12 consecutive calendar months does not exceed 10% of the total Net Book Value of all the Company's assets (the assets which are the basis for the calculation of the 10% of the Net Book Value are those indicated on the most recent audited annual financial statement required to be submitted pursuant to Section 9 hereof prior to the date of the sale); (b) the Company retains the proceeds of the sale of assets for use in accordance with the Company's regular business activities; and (C) the sale is not otherwise prohibited by subsection 8(a)(3) above. Notwithstanding any other provision of this subsection, the Company may not consummate such sale without the Secretary's prior written consent if the Company has not, prior to the time of such sale, submitted to the Secretary the financial statement in clause (A) of this subsection, and any attempt to consummate a sale absent such approval shall be null and void ab initio. (b) Supplemental Covenants. Unless, after giving effect to such transaction or transactions during any fiscal year: (i) the Company's debt-to-equity ratio does not exceed 2:1; (ii) upon completion of construction of the Vessel and the First Calendar Year of Vessel Operation, the Company's Minimum Cash Flow Ratio is not less than 1.0 to 1.0; and (iii) the Company has a positive cash balance of at least $2,000,000 at the time of the delivery closing for the Vessel and has at least a positive cash balance at all other times, the Company shall not, without the Secretary's prior written consent during any fiscal year of the Company after completion of construction of the Vessel: (1) Withdraw any capital; (2) Redeem any share capital or convert any of the same into debt; (3) Pay any dividend (except dividends payable in capital stock of the Company); 7 8 (4) Make any loan or advance (except advances to cover current expenses of the Company), either directly or indirectly, to any stockholder, director, officer, or employee of the Company, or to any Related Party; (5) Make any investments in the securities of any Related Party; (6) Prepay in whole or in part any indebtedness to any stockholder, director, officer or employee of the Company, or to any Related Party; (7) Increase any direct employee compensation (as hereinafter defined) paid to any employee in excess of $100,000 per annum; nor increase any direct employee compensation which is already in excess of $100,000 per annum; nor initially employ or re-employ any person at a direct employee compensation rate in excess of $100,000 per annum; provided, however, that beginning with January 1, 2000, the $100,000 limit may be increased annually based on the previous year's closing CPI-U (Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics). For the purpose of this section the term "direct employee compensation" is the total amount of any wage, salary, bonus, commission, or other form of direct payment to any employee from all companies with guarantees under Title XI of the Act as reported to the Internal Revenue Service for any fiscal year; (8) Acquire any fixed assets other than those required for the maintenance of the Company's existing assets, including the normal maintenance and operation of any vessel or vessels owned or chartered by the Company; (9) Either enter into or become liable (directly or indirectly) under charters and leases (having a term of six months or more) for the payment of charter hire and rent on all such charters and leases which have annual payments aggregating in excess of $3,000,000; (10) Pay any indebtedness subordinated to the Obligations or to any other Title XI obligations; (11) Create, assume, incur, or in any manner become liable for any indebtedness, except current liabilities, or short term loans, incurred or assumed in the ordinary course of business as such business presently exists; (12) Make any investment, whether by acquisition of stock or indebtedness, or by loan, advance, transfer of property, capital contribution, guarantee of indebtedness or otherwise, in any Person, other than obligations of the United States, bank deposits or investments in securities of the character permitted for moneys in the Title XI Reserve Fund; or (13) Create, assume, permit or suffer to exist or continue any mortgage, lien, charge or encumbrance upon, or pledge of, or subject to the prior payment of any indebtedness, any of its property or assets, real or personal, tangible or intangible, whether now owned or hereafter acquired, or own or acquire, or agree to acquire, title to any property of any kind subject to or 8 9 upon a chattel mortgage or conditional sales agreement or other title retention agreement, except (i) loans, mortgages and indebtedness guaranteed by the Secretary under Title XI of the Act or related to the construction of a vessel approved for Title XI by the Secretary and (ii) liens incurred in the ordinary course of business as such business presently exists. Notwithstanding the requirements set forth in Section 8(b)(i) above, so long as the Company is not in Default under the Security Agreement and Guarantor's guarantee is in full force and effect, the Company will not be required to make any Title XI Reserve Fund Deposits during the First Calendar Year of Vessel Operation and the Second Calendar Year of Vessel Operation regardless of its debt-to-equity ratio and, in the Third Calendar Year of Vessel Operation and the Fourth Year of Vessel Operation unless its debt-to-equity ratio is in excess of 4.0 to 1.0. Notwithstanding the requirements in Section 8(b) above, so long as the Shipowner is not in Default under the Security Agreement and the Guarantor's guarantee is in full force and effect, the Shipowner may: (1) Make advances, loans or other distributions to the Sister Shipowner if the Sister Shipowner issues a guarantee of the Company's debt that is in form and substance acceptable to the Secretary and said guarantee is in full force and effect and the Sister Shipowner has not defaulted on its Security Agreement; (2) Make reimbursement or payments to the Guarantor and/ or Ocean Development Co. with respect to administrative, operational and/ or management expenses incurred with respect to the Vessel. (3) Make a distribution in form and substance satisfactory to the Secretary to the Guarantor to be used for equity on an option vessel as provided for in the shipbuilding contract relating to the Vessel, and the vessel being constructed by the Sister Shipowner provided the Company has met its cash flow test for the most recent reporting period, has a debt-to-equity ratio not in excess of 4.0 to 1.0 until the sixth calendar year of vessel operation, and is not in default on its Security Agreement; and (4) Make advances to the Guarantor in accordance with the Guarantor's cash management program provided such program has been approved by the Secretary and any such advances are evidenced by a receivable from the Guarantor, which receivable is due and payable to the Company at any time the Company does not have adequate funds to meet its current obligations including but limited to current obligations with respect to the Title XI debt. Section 9. (a) Annual Financial Statements. The Company shall furnish to the Secretary, in duplicate, (1) within 105 days after the end of each fiscal year of the Company commencing with 9 10 the first fiscal year ending after the date of the Security Agreement, the Company's Audited Financial Statements including balance sheet and income statement for such fiscal year along with a completed M.A. Form 172 or such other form approved by the Secretary, and (2) within 90 days after the expiration of each semi-annual period of each fiscal year commencing with the first such semi-annual period ending after the date of the Security Agreement, a completed M.A. Form 172 or such other form approved by the Secretary for such semi-annual period along with an Officer's Certificate certifying its accuracy. (b) Annual No Default Certificates. Within 105 days after the end of each fiscal year of the Company, the Company shall furnish to the Secretary, an Officer's Certificate dated as of the close of such fiscal year stating whether or not, the Company is in default in the performance of or in default in the compliance with any covenant, agreement or condition contained herein or in the Mortgage, Security Agreement or charter relating to the Vessel listed in Attachment A hereto, and if so, specifying each such default and stating the nature thereof. Section 10. Qualifying Financial Requirements of the Company. The Company shall furnish an Officer's Certificate, dated the date hereof, certifying that the Company has equity at least equal to the difference between the Vessel's capitalizable cost and the Vessel's Title XI guaranteed amount, that any other costs related to the Vessel are funded in the manner established by the Stock Subscription Agreement, and that the Parent Guaranty is in full force and effect. Section 11. Notices. Except as otherwise provided in this Agreement, notices, requests, directions, instructions, waivers, approvals or other communication may be made or delivered in person or by registered or certified mail, postage prepaid, addressed to the party as provided below, or to such other address as such party may hereafter specify in a written notice to the other parties named herein, and all notices or other communications shall be in writing so addressed and shall be effective upon receipt by the addressee thereof: The Secretary as: SECRETARY OF TRANSPORTATION c/o Maritime Administrator Maritime Administration 400 Seventh Street, S.W. Washington, D.C. 20590 The Title XI Reserve Fund Depository as: The Bank of New York 101 Barclay Street New York, NY 10286 Attention: Corporate Trust Administration The Company as: Project America Ship I, Inc. c/o American Classic Voyages Co. 2 North Riverside Plaza Chicago, Illinois 60606 10 11 Section 12. Amendments and Supplements. No agreement shall be effective to amend, supplement, or discharge in whole or in part this Financial Agreement unless such agreement is in writing signed by the parties hereto. Any amendments, additions, deletions, substitutions or other changes no made in accordance with this provision shall be invalid and of no effect. Section 13. Counterparts. This Financial Agreement may be executed in any number of counterparts. All such counterparts shall be deemed to be originals, and shall together constitute but one and the same instrument. Section 14. Governing Law. This Financial Agreement and the rights and obligations of the parties hereto shall be governed by and construed in accordance with U.S. maritime laws, to the extent applicable, and otherwise in accordance with the laws of the State of New York. 11 12 IN WITNESS WHEREOF, this Financial Agreement has been executed by the parties hereto as of the day and year first above written. UNITED STATES OF AMERICA SECRETARY OF TRANSPORTATION BY: MARITIME ADMINISTRATOR (SEAL) /s/ Joel C. Richard --------------------------------------------- Secretary ATTEST: /s/ Sarah J. Washington - ----------------------------------- Assistant Secretary 13 SHIPOWNER: PROJECT AMERICA SHIP I, INC. (SEAL) By /s/ Jordan B. Allen ------------------------------------------ Its Executive Vice President ATTEST: By /s/ Pam Stringer ----------------------------- Its Assistant Secretary EX-4.(II)(D)(8) 10 ex4-iid8.txt GUARANTY AGREEMENT 1 EXHIBIT 4.(ii)(d)(8) TABLE OF CONTENTS GUARANTY AGREEMENT
SECTION HEADING PAGE 1. Definitions......................................................................................1 2. Guarantee........................................................................................2 3. Secretary's Rights...............................................................................3 4. Primary Liability................................................................................3 5. Representations and Warranties...................................................................3 6. Continuing Guarantee.............................................................................4 7. Default..........................................................................................4 8. Notices..........................................................................................4 9. Amendments and Supplements.......................................................................5 10.Governing Law....................................................................................5 11.Counterparts.....................................................................................5
2 GUARANTY AGREEMENT IN FAVOR OF THE UNITED STATES OF AMERICA THIS GUARANTY (this "Guaranty Agreement"), dated this February 10, 2000, is by and between PROJECT AMERICA, INC., a Delaware corporation (the "Guarantor") TO THE UNITED STATES OF AMERICA (the "United States"), represented by the SECRETARY OF TRANSPORTATION, acting by and through the MARITIME ADMINISTRATOR (the "Secretary"). WITNESSETH: A. WHEREAS, the Guarantor is the parent of Project America Ship I, Inc., a Delaware corporation (the "Shipowner"); B. WHEREAS, the Shipowner, in connection with the financing of the cost of construction of the Vessel on the date hereof borrowed certain funds and created and authorized the issuance of obligations designated either "United States Government Guaranteed Ship Financing Notes" or "United States Government Guaranteed Ship Financing Bonds" in the aggregate principal amount of $534,447,000 (the "Obligations") bearing interest at the rate specified therein; C. WHEREAS, the Shipowner, on the date hereof, accepted the Secretary's Commitment to Guarantee Obligations (the "Commitment") pursuant to Title XI of the Merchant Marine Act, 1936, as amended (the "Act"), whereby the Secretary authorized a guarantee to be endorsed upon each of the Obligations (the "Guarantees"); D. WHEREAS, the Shipowner has, in consideration of the issuance of the Guarantees by the Secretary of the payment of the unpaid interest on, and the unpaid balance of the principal of the Obligations, pursuant to the terms and provisions of the Security Agreement, Contract No. MA-13581, dated the date hereof between the Shipowner and the Secretary (the "Security Agreement"), issued and delivered to the Secretary a promissory note in the principal amount of $534,447,000 (said promissory note, as originally executed and as the same may hereafter be amended, modified, supplemented or endorsed, herein called the "Secretary's Note"); E. WHEREAS, the Secretary required this Guaranty Agreement from the Guarantor as an integral part of the consideration offered by or on behalf of the Shipowner as a condition of the Secretary entering into the Commitment and issuing the Guarantees, and the Guarantor is entering into this Guaranty Agreement for the purpose of guaranteeing the Shipowner's obligations to the Secretary under the Secretary's Note. NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Guarantor hereby agrees as follows: 1. Definitions. Unless otherwise specifically defined herein, the capitalized terms used herein are defined in Schedule X to the Security Agreement and any reference therein to other instruments shall have the respective meaning stated in Schedule X of the Security Agreement or such other instruments. 3 2. Guarantee. (a) The Guarantor hereby absolutely, irrevocably, and unconditionally guarantees the due and punctual payment of the principal and interest on the Secretary's Note. The Guarantor shall be required to make said payments under this Guaranty Agreement upon receipt of a written notice from the Secretary which states that the Shipowner has not promptly, completely or effectively made said payments. The failure of Guarantor to receive such a written notice or the failure of the Secretary to send said notice shall not relieve the Guarantor of its obligations under this Guaranty Agreement. This Guaranty Agreement shall be enforceable and exercisable by the Secretary from the first day of any failure by the Shipowner to make payment or mandatory prepayment of the principal of and the interest on the Secretary's Note when the same shall be due. The Guarantor shall immediately pay to the Secretary or its designee in immediately available funds, such payments guaranteed herein. (b) The Guarantor hereby consents and agrees that its obligations under this Guaranty Agreement will not be discharged by any act or omission to act of any kind by the Secretary or any other person or any other circumstances whatsoever (including, but not limited to, any extension, rearrangement, or renewal with respect to any indebtedness or other obligation of the Shipowner with or without notice to the Guarantor, any waiver of any right of the Secretary under the terms of the Secretary's Note, the Security Agreement, the Mortgage, or this Guaranty Agreement, any release of security, any transfer or assignment of rights or obligations accruing to the Secretary under the Secretary's Note, the Security Agreement, the Mortgage, or this Guaranty Agreement, any corporate reorganization, dissolution, merger, acquisition of or by or other alteration of the corporate existence or structure of the Shipowner or the Guarantor, discharge of the Shipowner in bankruptcy, the invalidity, illegality, or unenforceability of the Secretary's Note, the Security Agreement, the Mortgage, or this Guaranty Agreement or the absence of any action to enforce the obligations of the Shipowner) which might constitute a legal or equitable discharge of the Guarantor; it being the intention of the Guarantor that this Guaranty Agreement be absolute, continuing, and unconditional and the guarantee hereunder shall only be discharged by the payment in full of all sums so guaranteed hereunder. (c) The Guarantor hereby irrevocably and unconditionally waives: (1) notice of any of the matters referred to in this Guaranty Agreement and any action by the Secretary in reliance thereon; (2) all notices which may be required by statute, rule of law, or otherwise to preserve any rights against the Guarantor hereunder, including without limitations, any demand, protest, proof of notice of non-payment of all sums payable under the Secretary's Note or any notice of any failure on the part of the Shipowner to perform or comply with any covenant, term, or obligations of any agreement to which it is a party; (3) any requirement for the enforcement, assertion, or exercise of any right, remedy, power, or privilege under or with respect to the Mortgage, the Security Agreement, or the Secretary's Note; (4) any requirement of diligence; (5) any requirement that the Shipowner be joined as a party to any proceedings for the enforcement of any provision of this Guaranty Agreement, or that the Secretary proceed against any other guarantor executing this Guaranty Agreement or any other guaranty agreement; (6) any and all defenses to payment hereunder, except the defense of payment already made, and agrees to confess without contesting liability hereunder for any judgment entered hereon; (7) presentment, demand, protest, notice of protest and dishonor, notice of intent to accelerate, and notice of acceptance; or (8) the right to require the Secretary to pursue any remedy in the Secretary's power whatsoever. 2 4 (d) The Guarantor hereby agrees that this Guaranty Agreement shall continue to be effective or shall be reinstated, as the case may be, if at any time payment of any sum hereby guaranteed is rescinded or must be otherwise restored or returned by the Secretary, upon the insolvency, bankruptcy, or reorganization of the Shipowner, or otherwise, all as though such payment had not been made. The Guarantor further agrees that if the maturity of any obligations guaranteed herein be accelerated by bankruptcy or otherwise, such maturity shall also be deemed accelerated for the purpose of this Guaranty Agreement without demand or notice to the Guarantor. (e) Any amount payable hereunder shall not be subject to any reduction by reason of any counterclaim, set-off, deduction, abatement, or otherwise. (f) The Guarantor shall pay all reasonable costs and expenses (including, without limitation, attorneys' fees and expenses) incurred in connection with the enforcement of the obligations of the Guarantor under this Guaranty Agreement. (g) The Secretary's Note may be amended, modified, or endorsed without the consent of the Guarantor. (h) The Secretary may enforce the Guarantor's obligations hereunder without in any way first pursuing or exhausting any other rights or remedies which the Secretary may have against the Shipowner or any other person, firm, or corporation or against any security the Secretary may hold. 3. Secretary's Rights. The Guarantor authorizes the Secretary, without notice or demand and without affecting the Guarantor's liability hereunder, to take and hold security for the payment of this Guaranty Agreement and/or any of the obligations guaranteed herein and exchange, enforce, waive, and release any such security; and to apply such security and direct the order or manner of sale thereof as the Secretary in his discretion may determine; and to obtain a guarantee of any of the obligations guaranteed herein from any one or more persons, corporations, or entities whomsoever and at any time or times to enforce, waive, rearrange, modify, limit or release such other persons, corporations, or entities from their obligations under such guarantees. 4. Primary Liability. It is expressly agreed that the liability of the Guarantor for the payment of the obligations guaranteed herein shall be primary and not secondary. 5. Representations and Warranties. The Guarantor represents and warrants as follows: (a) It is a corporation duly organized, validly existing, and in good standing under the laws of the state of Delaware and has full power and authority (corporate, legal and other) to execute, deliver, and carry out the terms of this Guaranty Agreement; (b) This Guaranty Agreement has been duly authorized, executed, and delivered by the Guarantor and constitutes the legal, valid, and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms; (c) The execution, delivery, and performance by the Guarantor of this Guaranty 3 5 Agreement does not require the approval or consent of its shareholders or of any governmental authority and does not contravene the Guarantor's Articles of Incorporation, or any mortgage, indenture, or other agreement binding upon it, or any law, regulation, order, judgment, or decree applicable to the Guarantor; (d) The Guarantor's guarantee pursuant to this Guaranty Agreement may be expected to benefit, directly or indirectly, the Guarantor; and (e) The Guarantor has fully adequate financial resources, funds, and assets to satisfy its obligations under this Guaranty Agreement and the Guarantor will in the future retain sufficient financial resources, funds, and assets to fully satisfy its obligations under this Guaranty Agreement. 6. Continuing Guarantee. This Guaranty Agreement is a continuing guarantee of payment and collectability and shall: (a) Remain in full force and effect so long as any obligation of the Shipowner to the Secretary referred to herein exists; (b) Be binding upon the Guarantor, its successors and assigns; (c) Be executed and issued for the sole and exclusive benefit of the United States, and no other party shall be permitted to claim any benefit, direct or indirect, therefrom. This Guaranty Agreement is nonassignable, any assignment thereof shall be null and void and have no legal effect whatsoever; and (d) Inure to the benefit of, and be enforceable by the Secretary, his successors and assigns. 7. Default. A default under the terms of this Guaranty Agreement shall be deemed to occur if the Guarantor fails to make any payment guaranteed hereunder. 8. Notices. All communications may be made or delivered in person or by certified or registered mail, postage prepaid, addressed to the Guarantor or the Secretary as provided below or to such other address as the Guarantor or the Secretary may hereafter specify in a written notice to the other and all notices or other communications shall be in writing so addressed and shall be effective upon receipt by the addressee thereof: 4 6 Guarantor: PROJECT AMERICA, INC. c/o American Classic Voyages Co. 2 North Riverside Plaza Chicago, Illinois 60606 Attn: Executive Vice President and General Counsel Secretary: SECRETARY OF TRANSPORTATION c/o Maritime Administration Department of Transportation Washington, DC 20590 Attn: Chief, Division of Ship Financing Contracts 9. Amendments and Supplements. No agreement shall be effective to change or modify, supplement, amend, or discharge in whole or in part this Guaranty Agreement unless such agreement is in writing, signed by the Guarantor and the Secretary. 10. Governing Law. This Guaranty Agreement shall be governed by federal law of the United States of America or in the absence of applicable federal law by the laws of the State of Illinois. 11. Counterparts. This Guaranty Agreement may be executed in one or more counterparts. All such counterparts shall be deemed to be originals and shall together constitute but one and the same instrument. 5 7 IN WITNESS WHEREOF, this Guaranty Agreement has been executed by the Guarantor as of the day and year first above written. GUARANTOR: PROJECT AMERICA, INC. (SEAL) By /s/ Jordan B. Allen --------------------------------- Its Executive Vice President ATTEST: By /s/ Pam Stringer ------------------------------- Its Assistant Secretary 8 ACKNOWLEDGED BY: UNITED STATES OF AMERICA, SECRETARY OF TRANSPORTATION MARITIME ADMINISTRATOR (SEAL) By /s/ Joel C. Richard --------------------------------- Its Secretary ATTEST: By /s/ Sarah J. Washington ---------------------------- Its Assistant Secretary EX-27 11 ex27.txt FDS
5 1,000 6-MOS DEC-31-2000 JUN-30-2000 88,657 13,274 2,578 0 0 115,810 290,178 100,004 473,453 124,907 71,238 100,000 0 210 177,098 473,453 0 97,262 0 63,669 0 0 1,031 (5,409) (1,999) (5,056) 0 0 0 (5,056) (0.25) (0.25) Includes restricted short-term investments of $30,289.
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