LOAN AND SECURITY AGREEMENT
 
by and between
 
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., ACTING THROUGH ITS DIVISION,
Merrill Lynch Capital
As Lender
 
and
 
STERLING SHIPPING CORP.

and

REMSEN NAVIGATION CORP.

As Debtors
 
Dated as of December ____, 2005
 

 
 

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LOAN AND SECURITY AGREEMENT
 
LOAN AND SECURITY AGREEMENT (this “Agreement”), dated as of December 15, 2005,
by and between MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., acting through
its division, Merrill Lynch Capital (“Lender”), a Delaware corporation, as
lender, and∙STERLING SHIPPING CORP. (“Sterling Shipping”), and REMSEN NAVIGATION
CORP. (“Remsen Navigation”), as borrowers (each of Sterling Shipping and Remsen
Navigation, a “Debtor” and collectively the “Debtors”), each a corporation
organized under the laws of the Republic of the Marshall Islands with an address
at Trust Company Complex, Ajeltake Island, P.O. Box 1405, Majuro, Marshall
Islands, MH 96960. In consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
 
RECITALS
 
The Debtors have entered into a series of transactions, pursuant to which (i)
Sterling Shipping has purchased the Panama registered bulk carrier m.v. BILOXI
BELLE, IMO No. 8316261, currently under bareboat charter registry in the
Republic of the Philippines, under Philippine flag and port of registry, Manila
(the “BILOXI BELLE”); and (ii) Remsen Navigation has purchased the Panama
registered bulk carrier m.v. MAORI MAIDEN, IMO No. 8312746, currently under
bareboat charter registry in the Republic of the Philippines, under Philippine
flag and port of registry, Manila (the “MAORI MAIDEN”).
 
By this Agreement, the Debtors desire, among other things, (i) to provide for
the making of a single Loan by Lender on the same date to the Debtors in an
aggregate principal amount not to exceed U.S.$17,500,000 to enable Sterling
Shipping to refinance its acquisition of the BILOXI BELLE and Remsen Navigation
to refinance its acquisition of the MAORI MAIDEN, (ii) to provide for the
issuance by the Debtors to Lender of one joint and several Note evidencing the
consolidated Loan to be made by Lender to the Debtors as herein provided, and
(iii) to provide for the assignment and mortgage by each Debtor to Lender of,
among other things, all such Debtor’s right, title and interest in and to its
respective Vessel and all payments and other amounts received hereunder or
thereunder in accordance with the terms hereof, as security for the Debtors’
obligations to Lender.
 
Lender is willing to make the Loan to the Debtors on the terms and conditions of
this Agreement in partial consideration for, among other things, the Debtors’
agreement to be jointly and severally liable for all Obligations and to grant
and to cause certain other parties to grant to Lender security interests in the
Collateral as provided hereunder and to grant to Lender a Mortgage on the whole
of each Vessel and to obtain the guaranty by the Guarantors of the Obligations
pursuant to the Guaranty.
 
All things have been done to make the Note, when issued, executed and delivered
to Lender by the Debtors hereunder, the legal, valid and binding joint and
several obligation of the Debtors.
 
Section 1.  DEFINITIONS.
 
1.1  Defined Terms. As used in this Agreement, the following terms shall have
the following defined meanings, unless the context otherwise requires (such
terms to be equally applicable to both singular and plural forms of the terms
defined):
 
“Additional Valuations” as defined in Section 5.37 hereof.
 
“Affiliate” of any specified Person shall mean any other Person which, directly
or indirectly, controls, is controlled by, or is under common control with, such
Person. For purposes of this definition, “control” of a Person shall mean the
power, direct or indirect, to vote forty percent (40%) or more of the securities
having voting power for the election of directors of such Person, or otherwise
to direct or cause the direction of the management and policies of such Person,
whether by contract or otherwise.
 
“Agreement”, “hereof”, “hereto”, “hereunder” and words of similar import shall
mean this Loan and Security Agreement, as the same may from time to time be
amended, modified or supplemented.
 
“Amendment No. 2 to the August 2004 Loan Agreement” shall mean that certain
amendment no. 2 to the August 2004 Loan Agreement, between the Collateral Vessel
Owners, as debtors and Lender, as lender, which further amends certain
provisions of the August 2004 Loan Agreement.
 
“Applicable Interest Rate” shall mean a floating rate equal to two and one-half
percent (2.5% ) plus LIBOR. Interest shall be calculated on the basis of a
360-day year, in each case for the actual number of days occurring in the period
for which interest or fees are payable.
 
“Appraisal Value” shall mean the fair market value of each Vessel as determined
by an opinion of value rendered by a recognized, independent appraisal firm,
mutually acceptable to all parties, and at the Debtors’ cost. The appraisal will
be on a “willing seller, willing buyer” basis for a charter-free vessel.
 
“Approved Shipbrokers” shall mean Compass Maritime Services LLC, Simpson, Spence
& Young and Merrill Marine Services LLC.
 
“Assigned Charters” shall mean the Head Charters and the Subcharters.
 
“Assignments” shall mean, collectively, the Earnings Assignments and the
Assignments of Insurances.
 
“Assignment of Insurances” shall mean each of the first priority assignments of
insurances granted in favor of Lender in form and substance satisfactory to
Lender.
 
“August 2004 Loan” shall mean the U.S. $15,000,000 loan advanced by Lender to
the Collateral Vessel Owners under the August 2004 Loan Agreement.
 
“August 2004 Loan Agreement” shall mean that certain loan and security agreement
dated as of August 26, 2004, as amended by an amendment no. 1 to loan and
security agreement dated as of March 30, 2005, each between the Collateral
Vessel Owners, as borrowers and Lender, as lender pursuant to which Lender made
a term loan in the amount of U.S. $15,000,000 available to the Collateral Vessel
Owners.
 
“B of A Commitment” shall mean that certain loan commitment from the Bank of
America N.A. to be obtained by TBS before April 29, 2006 in a minimum amount of
U.S. $150,000,000.
 
“Breakage Costs” shall mean any costs incurred by Lender as a result of payment
of principal or interest other than on a scheduled Installment Payment Date in
accordance with the scheduled amortization of the Loan.
 
“Business Day” shall mean a day other than a Saturday, Sunday or legal holiday
under the laws of the State of New York.
 
“CERCLA” means the Comprehensive Environmental Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act,
42 U.S.C. Section 9601 et seq. and as further amended from time to time.
 
“Charterer’s Consent” shall mean the consent and subordination of each charterer
that is a party to an Assigned Charter to the rights of Lender and the Earnings
Assignments, the Mortgage, the Collateral Vessel Owners’ Second Assignment of
Earnings, the Collateral Vessel Owners’ Second Mortgage in respect of the
applicable Security Vessel, in form and substance acceptable to Lender.
 
“Classification Society” shall mean a classification society which is a member
of the International Association of Classification Societies reasonably
acceptable to Lender
 
“Closing Fee” shall have the meaning ascribed thereto in the Proposal Letter.
 
“Code” or “UCC” shall mean the Uniform Commercial Code as from time to time in
effect in any applicable jurisdiction.
 
“Collateral” as defined in Section 6.1 hereof.
 
“Collateral Vessel” shall mean each of the vessels m.v. IROQUOIS MAIDEN, IMO
Number 8109008 and m.v. MANHATTAN PRINCESS, IMO Number 8029715, together with
all of its machinery, anchors, cables, chains, rigging, tackle, fittings, tools,
pumps, pumping equipment, gear, apparel, furniture, appliances, equipment, spare
and replacement parts and all other appurtenances thereunto appertaining or
belonging, whether now owned or hereafter acquired and whether on board or not,
and also any and all additions, improvements and replacements made in or to such
Collateral Vessel or any part thereof or in or to any equipment and
appurtenances thereto appertaining or belonging.
 
“Collateral Vessel Owners” shall mean Stratford and Sheffield.
 
“Collateral Vessel Owners’ Guaranty” shall mean the guaranty by the Collateral
Vessel Owners of the Obligations of the Debtors under this Agreement.
 
“Collateral Vessel Owners’ Second Assignment of Insurances” shall mean each of
the second priority assignments of insurances relating to each of the Collateral
Vessels granted in favor of Lender in form and substance satisfactory to Lender,
and collectively, the “Collateral Vessel Owners’ Second Assignments of
Insurances”.
 
“Collateral Vessel Owners’ Second Assignments”shall mean the Collateral Vessel
Owners’ Second Assignments of Insurances and the Collateral Vessel Owners’
Second Earnings Assignments.
 
“Collateral Vessel Owners’ Second Earnings Assignment” shall mean each of the
second priority assignments of earnings relating to each of the Collateral
Vessels granted in favor of Lender in form and substance satisfactory to Lender,
and collectively, the “Collateral Vessel Owners’ Second Earnings Assignments”.
 
“Collateral Vessel Owners’ Second Mortgage” shall mean each Panamanian second
preferred ship mortgage, as the same may hereafter be amended and/or
supplemented from time to time, granted by a Collateral Vessel Owner on the
whole of its Collateral Vessel, in favor of Lender, to secure the obligations
guaranteed by the such Collateral Vessel Owner under the Collateral Vessel
Owners’ Guaranty, and collectively the “Collateral Vessel Owners’ Second
Mortgages”.
 
“Commitment” shall mean the obligation of Lender to make the Loan in the
aggregate principal amount specified in Section 2.1 hereof.
 
“Debtor(s)” as defined in the preamble of this Agreement.
 
“Debtors’ Guaranty” shall mean the joint and several guaranty by the Debtors of
the obligations of the Collateral Vessel Owners under the August 2004 Loan
Agreement.
 
“Default” shall mean any event which, with notice, lapse of time or both, would
constitute an Event of Default.
 
“DOC”means a Document of Compliance issued to a Company in accordance with
Regulation 4.1 of SOLAS Chapter IX, Management for the Safe Operation of Ships.
 
“Earnings” as defined in the Earnings Assignments.
 
“Earnings Assignments” shall mean the first priority assignment of charter
parties, charter hire, freights and earnings granted by each Debtor with respect
to its Vessel and the assignments of charter parties, charter hire and earnings
granted by any other disponent owner or intermediate charterer with respect to
such Vessel, in favor of Lender in form and substance satisfactory to Lender and
its counsel.
 
“Environmental Action” means any administrative, regulatory or judicial action,
suit, demand, demand letter, claim, notice of non-compliance or violation,
notice of liability or potential liability, investigation, proceeding, consent
order or consent agreement arising under any Environmental Law or Environmental
Permit relating to Hazardous Materials or arising from alleged injury or threat
of injury to health, safety or the environment in connection with or arising
from exposure to or the actual or potential release of Hazardous Materials,
including (a) by any Governmental Authority for enforcement, cleanup, removal,
response, remedial or other actions or damages, and (b) by any Governmental
Authority or any third party for damages, contribution, indemnification, cost
recovery, compensation or injunctive relief.
 
“Environmental Event” shall mean (i) an environmental event that has occurred or
any environmental condition that is discovered in, on, beneath, from or
involving any Security Vessel (including the presence, emission or release of
Hazardous Materials or the violation of any applicable Environmental Law) for
which a remediation or reporting could reasonably be required under applicable
Environmental Law, or (ii) notification received by any Debtor or Collateral
Vessel Owner that a Debtor, Collateral Vessel Owner or any Security Vessel is
the subject of an Environmental Action relating to such Security Vessel that
could reasonably be expected to result in any ordered remediation or corrective
action or other material liability under applicable Environmental Law.
 
“Environmental Law” shall mean any and all applicable international, foreign,
federal, state, regional and local Laws (as well as obligations, duties and
requirements relating thereto under common law) relating to: (a) emissions,
discharges, spills, releases or threatened releases of pollutants, contaminants,
Hazardous Materials, materials containing Hazardous Materials, or hazardous or
toxic materials or wastes into ambient air, surface water (including, without
limitation, all inland and ocean waters), groundwater, watercourses, publicly or
privately-owned treatment works, drains, sewer systems, wetlands, septic systems
or onto land; (b) the use, treatment, storage, disposal, handling,
manufacturing, transportation, or shipment of Hazardous Materials, materials
containing Hazardous Materials or hazardous and/or toxic wastes, materials,
products or by-products (or of equipment or apparatus containing Hazardous
Materials); or (c) pollution or the protection of human health, safety or the
environment from exposure to or injury or damage caused by Hazardous Materials.
Without limitation, “Environmental Law” includes CERCLA and OPA 90 and IMO 13(g)
(when and if the latter comes into effect). Debtors hereby agree to comply with,
take or abstain from, any action, as the case may be, as the International
Maritime Organization may require.
 
“Environmental Permit” means any permit, approval, identification number,
license or other authorization required under any Environmental Law.
 
“Event of Default” as defined in Section 7 hereof.
 
“Event of Loss” shall mean, with respect to a Security Vessel, the actual or
constructive loss or the disappearance of such Security Vessel or the loss of
use thereof, due to theft, destruction, damage beyond repair or damage from any
reason whatsoever, to an extent, in the sole judgment of Lender, which makes
repair uneconomical, or rendition thereof unfit for normal use, or the
condemnation, confiscation or seizure of, or requisition of title to or use of,
such Security Vessel by any governmental authority or any other Person, whether
or not acting under color of governmental authority.
 
“Financial Statements” shall mean, as to any Person or group of Persons, the
balance sheets and statements of income and cash flows, prepared in accordance
with GAAP, of such Person or group of Persons as required from time to time to
be provided by the Debtors under this Agreement.
 
“Funding Date” shall mean the date on which Lender shall make the Loan to the
Debtors pursuant hereto.
 
“GAAP” shall mean generally accepted accounting principles consistently applied
in the United States.
 
“GMTBS Africa” shall mean GMTBS Africa Line Limited, a corporation organized and
existing under the laws of Hong Kong.
 
“GMTBS Africa Gmbh” shall mean GMTBS Africa Line Gmbh, a company organized and
existing under the laws of the Federal Republic of Germany.
 
“Governmental Authority” shall mean any governmental or quasi-governmental
authority, whether executive, legislative, judicial, administrative or other, or
any combination thereof, including, without limitation, any national, Federal,
state, local, territorial, county, municipal or other government or governmental
or quasi-governmental agency, arbitrator, board, body, branch, bureau,
commission, corporation, court, department, instrumentality, master, mediator,
panel, referee, system or other political unit or subdivision or other entity of
any of the foregoing, whether domestic or foreign.
 
“Guarantor” shall mean each of the entities listed on Schedule 1 hereto, as the
same may be hereafter amended or modified.
 
“Guaranty”shall mean a joint and several guaranty of all Obligations given by
the Guarantors in form and substance satisfactory to Lender.
 
“Hazardous Materials” shall mean (a) hazardous materials, hazardous wastes, and
hazardous substances as those or similar terms are defined under any
Environmental Laws, including, but not limited to, the following: the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801 et seq., as amended from
time to time, the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901
et seq., as amended from time to time, CERCLA, the Clean Water Act, 33 U.S.C.
Section 1251 et seq., as amended from time to time, the Clean Air Act, 42 U.S.C.
Section 7401 et seq., as amended from time to time, and/or the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq., as amended from time to time, OPA
90; (b) petroleum and petroleum products, including crude oil and any fractions
thereof; (c) natural gas, synthetic gas, and any mixtures thereof; (d) asbestos
and/or any material which contains any hydrated mineral silicate, including, but
not limited to, chrysolite, amosite, crocidolite, tremolite, anthophylite and/or
actinolite, whether friable or non-friable; (e) polychlorinated biphenyls
(“PCBs”), or PCB-containing materials or fluids; (f) radon; (g) any other
hazardous radioactive, toxic or noxious substance, material, pollutant, or
solid, liquid or gaseous waste; and (h) any hazardous substance that, whether by
its nature or its use, is subject to regulation under any Environmental Law or
with respect to which any international, federal, state or local Environmental
Law or governmental agency requires environmental investigation, monitoring or
remediation.
 
“Head Charter” shall mean each of the bareboat charter parties between a Debtor
or a Collateral Vessel Owner and identified under the heading “Head Charters” on
Schedule 5 hereto, registered under the laws of the Republic of the Philippines,
as any such charter is amended, extended or renewed from time to time.
 
“Hire” shall mean all freights, earnings and charter hire under any and all
charters and contracts of affreightment, or requiring or contemplating the use
of, a Security Vessel from time to time, together with additional hire,
supplemental hire, requisition hire and any other amounts paid on account of the
use or employment of such Security Vessel.
 
“Indebtedness” shall mean with respect to any Person, at any date of
determination (without duplication), (i) all indebtedness or other obligation
for borrowed money or for the deferred purchase price of property or services
which in accordance with GAAP would be shown on the liability side of the
balance sheet of such Person, (ii) the face amount of all letters of credit
issued for the account of such Person and, without duplication, all drafts drawn
thereunder, (iii) obligations as lessee under any lease which shall have been or
should be, in accordance with GAAP, recorded as capital leases, (iv) obligations
under direct or indirect guarantees in respect of, and obligations (contingent
or otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of other
Persons of the kinds referred to in clause (i), (ii) or (iii) above.
 
“Installment Payment Date” shall mean, with the respect to the Note, each of the
sixty (60) consecutive monthly dates during the Note Term, the first of which
shall be February 1, 2006 on which a regular installment of principal and
interest is due on the Note. If any such date is not a Business Day, then any
amounts owing on such day shall be payable on the next succeeding Business Day.
 
“Interest Period” shall mean, during the Note Term, each monthly period ending
on an Installment Payment Date, provided the first Interest Period shall
commence on the Funding Date and end on the first Installment Payment Date, and
the last Interest Period of the Note Term shall end on the Maturity Date.
 
“ISM Code” means the International Safety Management Code for the Safe Operation
of Ships and Pollution Prevention, as adopted by the Assembly of the
International Maritime Organization on 4 November 1993 by resolution A.741 (18)
and incorporated on 19 May 1994 as Chapter IX of the Safety of Life at Sea
Convention 1974.
 
“ISPS Code”means the International Ship and Port Facility Security Code adopted
by the International Maritime Organization; in accordance with Regulation 1.12
of SOLAS Chapter XI-2; Special Measures to Enhance Maritime Security.
 
“ISSC”means a valid and current International Ship Security Certificate issued
under the ISPS Code.
 
“Late Charge Rate” shall mean a rate per annum equal to five (5) percentage
points higher than the Applicable Interest Rate, however, in no event to exceed
the highest rate allowed by applicable law, if any.
 
“Law” shall mean any law, rule, regulation or official code, consent decree,
constitution, decree, directive, enactment, guideline, injunction,
interpretation, judgment, order, ordinance, policy statement, proclamation,
promulgation, requirement, rule of law, rule of public policy, settlement
agreement, statute, or writ, of any Governmental Authority.
 
“Lender” as defined in the preamble of this Agreement.
 
“Letter of Undertaking” shall mean a Letter of Undertaking delivered to Lender
by the Manager of each Vessel in the form attached hereto as Exhibit A.
 
“LIBOR” means the rate of interest per annum at which deposits in U.S. dollars
are offered to major banks in the London interbank market as reported by the
Wall Street Journal, as determined in accordance with Section 2.2 hereof.
 
“Liens” shall mean any interest in property securing an obligation owed to, or a
claim by, any Person other than the owner of the property, whether such interest
shall be based on common law, maritime law, statute, contract or conveyance,
including, but not limited to, the security interest lien arising from any
pledge, mortgage, chattel mortgage, charge, encumbrance, conditional sale or
trust receipt, or from a charter, consignment or bailment for security purposes
and any maritime lien, right of retention, tax lien, mechanic’s lien,
materialman’s lien, workman’s lien, repairman’s lien, any financing statement or
other similar charge or encumbrance.
 
“Liner Guarantors” as identified on Schedule 1 hereto.
 
“Loan” shall mean the loan made by Lender to the Debtors, as provided in
Section 2.1 and evidenced by the Note, as provided for in Section 2.2 of this
Agreement.
 
“Loan Balances” shall mean, collectively, any and all amounts advanced by Lender
under and in connection with this Agreement and the August 2004 Loan Agreement.
 
“Loan Documents” shall mean, collectively, this Agreement, the Note, the
Mortgages, the Collateral Vessel Owners’ Second Mortgages, the Assignments, the
Collateral Vessel Owners’ Second Assignments, the Pledge, the Guaranty, the
Collateral Vessel Owners’ Guaranty, the Debtors’ Guaranty, the Letter of
Undertaking, the Assigned Charters, Amendment No. 2 to the August 2004 Loan
Agreement and any consents or other instruments given with respect to the
foregoing, each as may hereinafter be amended, modified or supplemented pursuant
to the terms hereof or thereof respectively.
 
“Management Agreement” shall mean an agreement to be entered into between the
Manager and the disponent owner of each Vessel, in form and substance acceptable
to Lender, and providing for the waiver by the Manager of any lien or security
interest in such Vessel.
 
“Manager” shall mean TBS Shipping Services, Inc., a New York corporation, with
an address at Commerce Building, Suite 306, One Chancery Lane, Hamilton HM 12,
Bermuda.
 
“Material Adverse Effect” shall mean any fact or circumstance which
(i) materially and adversely affects the business, operations, property or
condition of any of the Debtors, the Collateral Vessel Owners, the Guarantors or
any charterer of an Assigned Charter, (ii) has a material adverse effect on the
ability of any of the Debtors, the Collateral Vessel Owners, the Guarantors or
any charterer of an Assigned Charter to perform its respective obligations under
this Agreement, the Note or the other Loan Documents to which it is a party, or
(iii) has a material adverse effect on the Collateral or Lender’s security
interest therein (including, without limitation, any event, fact or circumstance
which results in the imposition of any Lien (other than a Permitted Lien not
discharged within the periods provided in this Agreement or the Loan Documents).
 
“Maturity Date” shall mean the last day of the Note Term.
 
“Mortgage” shall mean each Panamanian first preferred ship mortgage, as the same
may hereafter be amended and/or supplemented from time to time, granted by a
Debtor on the whole of its Vessel, in favor of Lender, to secure the Obligations
contemplated in this Agreement and under the Debtors’ Guaranty, and
collectively, the “Mortgages”.
 
“MTSA”means the Maritime Transportation Security Act of 2002, as amended, Public
Law 107-295.
 
“Note” shall mean the joint and several secured promissory note of the Debtors,
substantially in the form of Exhibit B attached hereto (including Schedule A
thereto), evidencing the Loan made by Lender to the Debtors hereunder, as
described in Section 2.2 hereof.
 
“Note Term” shall mean the period commencing with the Funding Date and ending on
January ____, 2011.
 
“Obligations” shall mean (i) the aggregate unpaid principal amount of, and
accrued interest on, the Note; (ii) all other obligations and liabilities of the
Debtors and any of them, now existing or hereafter incurred, under, arising out
of or in connection with this Agreement, the Loan, the Note, the Debtors’
Guaranty or any of the other Loan Documents; and (iii) any and all other present
and future indebtedness, obligations and liabilities of any kind under the Loan
Documents whatsoever of either Debtor to Lender, whether direct or indirect,
joint or several, absolute or contingent, liquidated or unliquidated, secured or
unsecured, matured or unmatured and whether originally contracted with Lender or
otherwise acquired by Lender or from time to time reduced and thereafter
increased.
 
“OPA 90” means the United States Oil Pollution Act, 1990, as amended from time
to time, and the Environmental Law of any jurisdiction, whether or not in effect
on the Funding Date, the violation of which includes either strict liability of
any Debtor or unlimited liability of any Debtor.
 
“Other Shipowners” shall mean the entities identified on Schedule 2 hereto and
the term shall be deemed to include any current or future Affiliate (but
excluding GMTBS Africa and GMTBS Africa Gmbh) hereafter acquiring one or more
vessels.
 
“Permitted Liens” with respect to a Security Vessel, shall have the meaning
assigned to it in the Mortgage or Collateral Vessel Owner’s Second Mortgage of
such Security Vessel only in respect of such Security Vessel and generally it
shall also mean the following: (a) Liens securing payment of the Obligations,
granted pursuant to any Loan Document; (b) Liens by operation of law for taxes,
assessments or other governmental charges or levies not at the time delinquent
or being diligently contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside on its
books; and where, by posting of bonds or other substitute security, there is no
material risk of attachment or other levy on any Collateral; (c) Liens incurred
by operation of law in the ordinary course of business in connection with
workmen’s compensation, unemployment insurance or other forms of governmental
insurance benefits, or to secure performance of statutory obligations; and
(d) deposits to secure the performance of statutory obligations incurred in the
ordinary course of business.;.
 
“Person” shall mean any individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority (whether domestic or foreign) or other entity of whatever
nature.
 
“Pledge” shall mean a pledge and assignment by Pledgor of its legal and
beneficial shareholding interest in each Debtor in form and substance
satisfactory to Lender.
 
“Pledgor” shall mean Westbrook Holdings, Ltd., a Marshall Islands corporation.
 
“Pool” as defined in the Pooling Agreement.
 
“Pooling Agreement” shall mean that certain agreement among the Debtors, the
Other Shipowners, the Liner Guarantors and TBS Worldwide Services, Inc., as
amended from time to time and as the same may from time to time add or delete
one or more parties.
 
“Prepayment Date” shall mean, as to the Note, the date on which prepayment of
the Note is to be made pursuant to notice given in compliance with
Section 2.4(b) of this Agreement.
 
“Proceeds” shall have the meaning assigned to it in the Code and, in any event,
shall include, but not be limited to, (i) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to any Debtor or Collateral Owner from
time to time with respect to its Security Vessel or other Collateral; (ii) any
and all payments (in any form whatsoever) made or due and payable to a Debtor or
Collateral Vessel Owner from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all and any part of a
Security Vessel by any governmental body, authority, bureau or agency of any
other Person (whether or not acting under color of governmental authority); and
(iii) accounts arising out of, any charter, contract of affreightment or chattel
paper evidencing, any lease or charter of, any and all other rents, hire or
profits or other amounts from time to time paid or payable in connection with,
the Security Vessel. In no event shall the term be construed more narrowly than
the meaning set forth in the Assignments, the Second Assignments, the Mortgages
and the Collateral Vessel Owners’ Second Mortgages.
 
“Prohibited Jurisdiction” means any country or jurisdiction, from time to time,
(a) that, at any relevant time, is subject of a prohibition order (or any
similar order or directive), sanctions or restrictions promulgated or
administered by the Office of Foreign Assets Control of the United States
Treasury Department or the United Nations, or (b) in which, or for which, Lender
or any assignee thereof is otherwise prohibited or restricted, under laws,
regulations, sanctions or restrictions applicable to it or its business, from
extending credit, transferring property or assets, engaging in or facilitating
trade or other economic activity, or otherwise doing business.
 
“Prohibited Person” means any Person appearing on the Specially Designated
Nationals List compiled and disseminated by the Office of Foreign Assets Control
of the United States Treasury Department, as the same may be amended from time
to time.
 
“Proposal Fee” shall have the meaning given thereto in the Proposal Letter.
 
“Proposal Letter” shall mean that certain letter dated October 26, 2005 from
Lender to TBS regarding the transaction provided for in this Agreement.
 
“Relevant Percentage(s)” as defined in Section 5.37 hereof.
 
“Security Vessels” shall mean, collectively, the Vessels and the Collateral
Vessels.
 
“Sheffield” shall mean Sheffield Maritime Corp., a corporation organized and
existing under the laws of the Republic of the Marshall Islands.
 
“SMC”means the Safety Management Certificate issued to a Vessel in accordance
with Regulation 4.3 of SOLAS Chapter IX; Management for the Safe Operation of
Ships.
 
“Stratford” shall mean Stratford Shipping Corp., a corporation organized and
existing under the laws of the Republic of the Marshall Islands.
 
“Subcharters” shall mean each time charter of a Security Vessel, including,
without limitation, those identified under the heading “Subcharters” on Schedule
5 hereto and to the August 2004 Loan Agreement and any other contracts for use
or employment of any Security Vessel, other than the Head Charters.
 
“TBS” shall mean TBS International Limited, a corporation organized and existing
under the laws of the Commonwealth of Bermuda.
 
“Valuation” as defined in Section 5.37 hereof.
 
“Vessel” shall mean each of the vessels BILOXI BELLE and MAORI MAIDEN, together
with all of its machinery, anchors, cables, chains, rigging, tackle, fittings,
tools, pumps, pumping equipment, gear, apparel, furniture, appliances,
equipment, spare and replacement parts and all other appurtenances thereunto
appertaining or belonging, whether now owned or hereafter acquired and whether
on board or not, and also any and all additions, improvements and replacements
made in or to such Vessel or any part thereof or in or to any equipment and
appurtenances thereto appertaining or belonging.
 
1.2  Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP.
 
Section 2.  AMOUNT AND TERMS OF LOAN.
 
2.1  Commitment. Subject to the terms and conditions of this Agreement, Lender
agrees to make a single Loan to the Debtors in the principal amount of
U.S.$17,500,000. Lender shall have no obligation to make the Loan to the Debtors
after December 30, 2005.
 
2.2  The Note.
 
(a)  Note Term. The Loan shall be evidenced by the Note, which Note (i) shall be
dated the Funding Date; (ii) shall be for a term equal to the Note Term,
commencing on the Funding Date and ending on the Maturity Date, and (iii) shall
be payable on each Installment Payment Date in sixty (60) consecutive monthly
installments of principal and interest, commencing February 1,2006, with the
first twenty-four (24) such installments to be in the amount of U.S.$401,041.67
and the next thirty-six (36) such installments to be in the amount of
U.S.$218,750; provided, further, that the Note shall bear interest from the date
thereof on the unpaid principal amount thereof at the Applicable Interest Rate
at all times while any amounts are outstanding under the Note during the Note
Term.
 
(b)  Interest. The Loan shall bear interest at the Applicable Interest Rate. The
Applicable Interest Rate shall be determined by Lender two (2) Banking Days
prior to the first (1st) day of the relevant Interest Period. Lender shall
promptly notify the Debtors in writing of the Applicable Interest Rate as and
when determined. Each such determination, absent manifest error, shall be
conclusive and binding upon the Debtors.
 
(c)  Cross-Collateralization. The Note and all Obligations shall be equally
secured by all Collateral. No lien securing the Obligations or any of them shall
be released or deemed released unless and until all Obligations are fully and
finally repaid and discharged except as otherwise provided herein.
 
2.3  Late Charges. Any amount of principal or interest not paid on or before the
third Business Day following the due date thereof under the Note shall, to the
extent permitted by applicable law, bear late charges thereon, calculated at the
Late Charge Rate, from the due date thereof until such amount shall be paid in
full. Debtors shall continue to pay in full regular installments under the Note
as and when due, notwithstanding any Event of Loss, until all Obligations are
entirely paid and performed.
 
2.4  Prepayment.
 
(a)  An Event of Loss. In the event that either Vessel shall suffer an Event of
Loss and unless Lender agrees in writing to a lesser prepayment amount, the
Debtors shall make a prepayment of the Note, in an amount equal to the lesser of
(i) all Obligations remaining due under the Loan Documents, or (ii) 167% of the
then outstanding principal amount of the Loan multiplied by a fraction, the
numerator of which is the Appraisal Value of the Vessel suffering an Event of
Loss and the denominator of which is the aggregate Appraisal Value of the lost
Vessel and the other Vessel then remaining (with Appraised Value determined as
at the time immediately preceding such Event of Loss), together with any other
amounts then due under this Agreement, the Note or any other Loan Document, on
the next Installment Payment Date after (1) the earlier of 180 days after the
date of such Event of Loss, or (2) the date the relevant Debtor or Lender
receives all insurance proceeds in respect of such Event of Loss.
 
(b)  Voluntary Prepayment: At any time after the twelfth (12th) Installment
Payment Date, with not less than 30 days’ prior written notice to Lender,
Debtors may prepay all, but not less than all, of the Loan on an Installment
Payment Date. If any prepayment is made after the twelfth (12th) Installment
Payment Date or on or before the thirty-sixth (36th) Installment Payment Date,
Debtors shall pay a prepayment fee equal to two percent (2%) of the principal
amount of such prepayment. If the Debtors make prepayment after the thirty-sixth
(36th) Installment Payment Date, Debtors shall pay a prepayment fee equal to one
percent (1%) of the amount of principal then being prepaid. Notwithstanding the
foregoing, should TBS obtain the B of A Commitment, with not less than 30 days’
prior written notice, the Debtors may prepay all, but not less than all, of the
Loan on or prior to the twelfth (12th) Installment Payment Date, provided that
prepayment occurs on an Installment Payment Date, and is made from the proceeds
of the B of A Commitment. If the Debtors prepay the Loan in accordance with the
foregoing sentence, the Debtors shall pay an early termination fee equal to one
percent (1%) of the principal amount of such prepayment.
 
(c)  Except as expressly provided in the foregoing subsections (a) and (b), the
Debtors shall not be permitted to make any prepayments on the Note.
 
2.5  Use of Proceeds. The proceeds of the Loan shall be advanced to the Debtors
and used by them to finance, maintain and operate the Vessels in the Pool under
the Pooling Agreement and for other lawful purposes of the Debtors only.
 
2.6  Application of Payments.
 
(a)  Note Payments Received During the Note Term. So long as no (x) Default with
respect to any payments due hereunder or under any of the Obligations or (y)
Event of Default shall have occurred and be continuing, each payment of an
installment under the Note received by Lender during the Note Term shall be
applied, first, to any costs, expenses, fees or other amounts due under this
Agreement or under the other Loan Documents not constituting principal and
interest due under the Note, second, to late charges due under the Note, third,
to interest due under the Note, and fourth, to the payment of principal and all
other Obligations which are then due and payable.
 
(b)  Casualty Payments. So long as no (x) Default with respect to any payments
due hereunder or under any of the Obligations or (y) Event of Default shall have
occurred and be continuing, any amounts received by Lender as a result of an
Event of Loss with respect to any Vessel (including, without limitation, any
payment of prepayment amounts under Section 2.4(a) or insurance or condemnation
proceeds) shall be applied, first, to the prepayment amounts required to be paid
by Section 2.4 hereof; second, to the payment in full of all of the Obligations
set forth in the Note and the other Loan Documents then due and owing; and,
third, the balance, if any, after payment of the foregoing amounts shall be
released by Lender to the Debtors.
 
(c)  Other Amounts. So long as no (x) Default with respect to any payments due
hereunder or under any other Obligation or (y) Event of Default shall have
occurred and be continuing, all Proceeds (other than Proceeds received in
respect of damage to a Security Vessel, which shall be distributed in accordance
with Section 1.22 of the applicable Mortgage or Collateral Vessel Owners’ Second
Mortgage) from time to time received by Lender shall be applied, first, to any
costs, expenses, fees or other amounts due under this Agreement and the other
Loan Documents not constituting principal and interest due under the Note,
second, to late charges due under the Note, third, to interest due under the
Note, fourth, to principal installments due under the Note in the inverse order
of maturities, fifth, to the payment in full of all other Obligations which are
then due and payable, and sixth, if provision as to the application of such
amounts is made in this Agreement or any other Loan Document, Lender shall, in
its sole discretion, either apply such payment to the purpose for which it was
made or pay it to the Debtors, which shall so apply it, and seventh, if due to
the Debtors, Lender shall pay such amounts to the Debtors.
 
(d)  Application After Declaration. After an Event of Default shall have
occurred and be continuing and after Lender has either, (i) as assignee from the
Debtors of any charter, declared such charter to be in default, or (ii) declared
the Note to be due and payable pursuant to Section 8 hereof, or done both (i)
and (ii), all payments received and amounts realized by Lender, as well as all
payments or amounts then held by Lender as part of the Collateral, shall be
applied as set forth in said Section 8 hereof and as otherwise provided in the
other Loan Documents and the documents evidencing the other Obligations, and the
balance, if any, shall be paid by Lender to the Debtors.
 
(e)  Application After Default or Event of Default. Subject to Section 2.6(a)
hereof, all payments received and amounts realized by Lender after a Default or
an Event of Default shall have occurred and be continuing, but prior to any
declaration thereof by Lender or any acceleration of the Note shall be held by
Lender as part of the Collateral until such time as no Defaults or Events of
Default shall be continuing hereunder (at which time such funds shall be paid to
the Debtors) or until such funds are applied pursuant to Section 8 hereof.
 
2.7  Nature of the Obligations. Each Debtor is jointly and severally liable for
each and every Obligation. Each Debtor consents that, without the necessity of
any reservation of rights against it and without notice to or further assent by
it, the obligations and liabilities of each Debtor and any other party or
parties for or upon any of the obligations of any Affiliate of each Debtor, or
any collateral security or guaranty therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
modified, accelerated, compromised or released by Lender; all as Lender may deem
advisable from time to time without impairing, abridging, releasing or affecting
the obligations set forth in this Section 2.7.
 
Section 3.  CONDITIONS OF BORROWING.
 
3.1  Conditions to Be Fulfilled Prior to the Funding Date. Lender shall not be
required to make the Loan hereunder unless on the Funding Date:
 
(a)  Inspection. Lender shall have inspected and found satisfactory the Security
Vessels.
 
(b)  Appraisal. Lender shall have received an independent third party appraisal
of each Security Vessel to determine the fair market value of each Security
Vessel, as completed by an independent appraiser mutually acceptable to Lender
and the Debtors, all at the sole cost and expense of the Debtors. Such appraisal
shall be determined not more than fifteen (15) days prior to the Funding Date.
 
(c)  Certificate of Incumbency of Each Debtor. Lender shall have received a
current certificate of incumbency of each Debtor signed by its Secretary or
Assistant Secretary (or other authorized officer), which certificate shall
certify the names of the officers of it authorized to execute and deliver any
Loan Documents hereunder or under any other related document on its behalf,
together with specimen signatures of such officers, and Lender may conclusively
rely on such certificate until receipt of a further certificate of the Secretary
or Assistant Secretary (or other authorized officer) of such Debtor canceling or
amending its prior certificate and submitting the signatures of the officers
named in such further certificate.
 
(d)  Certificate of Incumbency of Each Charterer of an Assigned Charter. Lender
shall have received a current certificate of incumbency of each charterer of an
Assigned Charter signed by its Secretary or Assistant Secretary (or other
authorized officer), which certificate shall certify the names of the officers
of it authorized to execute and deliver any Loan Documents to which it is a
party hereunder or under any other related document on its behalf, together with
specimen signatures of such officers, and Lender may conclusively rely on such
certificate until receipt of a further certificate of the Secretary or Assistant
Secretary (or other authorized officer) of such charterer canceling or amending
its prior certificate and submitting the signatures of the officers named in
such further certificate.
 
(e)  Certificate of Incumbency of the Manager. Lender shall have received a
current certificate of incumbency of the Manager signed by its Secretary or
Assistant Secretary (or other authorized officer), which certificate shall
certify the names of the officers of it authorized to execute and deliver any
Loan Documents to which it is a party hereunder or under any other related
document on its behalf, together with specimen signatures of such officers, and
Lender may conclusively rely on such certificate until receipt of a further
certificate of the Secretary or Assistant Secretary (or other authorized
officer) of the Manager canceling or amending its prior certificate and
submitting the signatures of the officers named in such further certificate.
 
(f)  Certificate of Incumbency of Pledgor. Lender shall have received a current
certificate of incumbency of Pledgor signed by its Secretary or Assistant
Secretary (or other authorized officer), which certificate shall certify the
names of the officers of it authorized to execute and deliver any Loan Documents
to which it is a party hereunder or under any other related document on its
behalf, together with specimen signatures of such officers, and Lender may
conclusively rely on such certificate until receipt of a further certificate of
the Secretary or Assistant Secretary (or other authorized officer) of Pledgor
canceling or amending its prior certificate and submitting the signatures of the
officers named in such further certificate.
 
(g)  Certificate of Incumbency of Each Collateral Vessel Owner. Lender shall
have received a current certificate of incumbency of each Collateral Vessel
Owner signed by its Secretary or Assistant Secretary (or other authorized
officer), which certificate shall certify the names of the officers of it
authorized to execute and deliver any Loan Documents to which it is a party
hereunder or under any other related document on its behalf, together with
specimen signatures of such officers, and Lender may conclusively rely on such
certificate until receipt of a further certificate of the Secretary or Assistant
Secretary (or other authorized officer) of each Collateral Vessel Owner
canceling or amending its prior certificate and submitting the signatures of the
officers named in such further certificate.
 
(h)  Certificate of Incumbency of Each Guarantor. Lender shall have received a
current certificate of incumbency of each Guarantor signed by its Secretary or
Assistant Secretary (or other authorized officer), which certificate shall
certify the names of the officers of it authorized to execute and deliver any
Loan Documents to which it is a party hereunder or under any other related
document on its behalf, together with specimen signatures of such officers, and
Lender may conclusively rely on such certificate until receipt of a further
certificate of the Secretary or Assistant Secretary (or other authorized
officer) of each Guarantor canceling or amending its prior certificate and
submitting the signatures of the officers named in such further certificate.
 
(i)  Resolutions of Each Debtor. Lender shall have received a current certified
copy of all corporate proceedings of each Debtor evidencing that all action
required to be taken in connection with the authorization, execution, delivery
and performance of this Agreement, the Note, its Mortgage, the Assignments, the
Debtors’ Guaranty and the other Loan Documents to which it is a party and the
transactions contemplated hereby and thereby has been duly taken.
 
(j)  Resolutions of Charterers of Assigned Charters. Lender shall have received
a current certified copy of all corporate proceedings of each charterer of an
Assigned Charter (except for the Head Charters) evidencing that all action
required to be taken in connection with the authorization, execution, delivery
and performance of the Loan Documents to which it is a party and the
transactions contemplated hereby and thereby has been duly taken.
 
(k)  Resolutions of Pledgor. Lender shall have received a current certified copy
of all limited liability company proceedings of Pledgor evidencing that all
action required to be taken in connection with the authorization, execution,
delivery and performance of the Pledge, and the transactions contemplated hereby
and thereby has been duly taken.
 
(l)  Resolutions of the Collateral Vessel Owners. Lender shall have received
from each Collateral Vessel Owner a copy of all corporate or other entity
proceedings of such Collateral Vessel Owner evidencing that all action required
to be taken in connection with the authorization, execution, delivery and
performance of the Collateral Vessel Owners’ Guaranty and the Loan Documents to
which each is a party, shall have been taken by the owners, members, partners or
shareholders and directors thereof.
 
(m)  Resolutions of the Guarantors. Lender shall have received from each
Guarantor a copy of all corporate or other entity proceedings of such Guarantor
evidencing that all action required to be taken in connection with the
authorization, execution, delivery and performance of each Guarantor shall have
been taken by the owners, members, partners or shareholders and directors
thereof.
 
(n)  Resolutions of the Manager. Lender shall have received a current certified
copy of all corporate proceedings of the Manager evidencing that all action
required to be taken in connection with the authorization, execution, delivery
and performance of the Loan Documents to which it is a party and the
transactions contemplated hereby and thereby has been duly taken.
 
(o)  Opinions of Counsel. Lender shall have received the written opinions
addressed to it of New York, Panama, Marshall Islands, and Bermuda counsel for
each Debtor, the Pledgor, each Collateral Vessel Owner, each Guarantor and each
charterer of an Assigned Charter (except for the Head Charters), satisfactory in
form and substance to Lender.
 
(p)  Documents. Each of the Note, the Mortgages, the Assignments and the other
Loan Documents shall be in form and substance satisfactory to Lender and its
counsel and shall have been duly executed and delivered to Lender by the parties
thereto and acknowledgments and consents to Assignments, including, but not
limited to, Charterers’ Consents, in form and substance satisfactory to Lender,
from any charterer of or any party to a contract of affreightment relating to
any Vessel shall have been duly authorized, executed and delivered to Lender.
 
(q)  Insurance. Lender shall have received evidence satisfactory to it that each
Vessel is insured in accordance with the provisions of this Agreement, the
applicable Mortgage and the Assignments of Insurances.
 
(r)  Mortgages and Security Interests. All filings, including all applicable
UCC-1 filings pursuant to the Code, recordings and other actions deemed
necessary or desirable by Lender in order to establish, protect, preserve and
perfect (i) the Mortgage as a first naval mortgage on the whole of each Vessel
in favor of Lender and Lender’s lien on and security interest in all other
Collateral as a valid perfected first priority security interest, (ii) the
Collateral Vessel Owners’ Second Mortgage as a second naval mortgage on the
whole of each Collateral Vessel in favor of Lender and Lender’s lien on and
security interest in all other collateral securing the Collateral Vessel Owners’
Guaranty as a valid perfected second priority security interest, shall all have
been duly effected, including, without limitation, the filing of financing
statements and the filing and recordation of the Mortgages and the Collateral
Vessel Owners’ Mortgages and all other actions required to perfect Lender’s
security interest in the Collateral, all in form and substance satisfactory to
Lender, and all fees, taxes and other charges relating to such filings and
recordings shall have been paid by the Debtors. Lender shall have received UCC-3
releases or other documents satisfactory to Lender from such Persons as Lender
shall deem necessary or desirable to evidence the release of any liens such
Person may have on the Collateral.
 
(s)  Discharge of Any Existing Liens. Lender shall be satisfied that,
concurrently with the funding of the Loan, the Security Vessels are free and
clear of all Liens other than Permitted Liens, as the term is defined herein and
in the relevant Mortgage or Collateral Vessel Owners’ Second Morgage.
 
(t)  Representations. Lender shall have received a certificate of the Debtors
confirming that (i) the representations and warranties contained in this
Agreement, the Mortgages and in all of the other Loan Documents and other
documents and instruments executed and delivered to Lender in connection
herewith shall be true and correct in all material respects on and as of the
Funding Date with the same effect as if made on and as of such date; (ii) no
Default or Event of Default shall be in existence on the Funding Date or shall
occur as a result of the Loan; (iii) no Event of Default shall have occurred and
be continuing under any charter of any Security Vessel on the Funding Date; and
(iv) the acceptance by the Debtors of the Loan shall constitute a representation
by the Debtors that the statements contained in clauses (i), (ii) and (iii)
above are true and correct on the Funding Date.
 
(u)  No Material Adverse Change. In the sole determination of Lender, there
shall have been no material adverse change since, in the financial condition,
business or operations (as the case may be) of any Debtor, Pledgor, Guarantor,
Collateral Vessel Owner or the Manager.
 
(v)  Certificates of Ownership. Lender shall have received and found to be
satisfactory, or will receive upon the funding of the Loan to the Debtors, an
abstract of title or documents of similar effect as to each Security Vessel
confirming that such Security Vessel is owned by such Debtor or Collateral
Vessel Owner and registered in the Republic of Panama upon the funding of the
Loan, free of all recorded Liens other than the applicable Mortgage and with
respect to the Collateral Vessels, the first preferred mortgage recorded in
favor of Lender and the Collateral Vessel Owners’ Second Mortgage and that such
Security Vessel is authorized by both the Republic of Panama and the Philippines
to fly the Philippine flag and show its official number and port of registry
under Philippines law, accordingly.
 
(w)  No Event of Loss. No Event of Loss shall have occurred with respect to any
Security Vessel.
 
(x)  Consent and Subordination; Execution of Charter Assignments. Lender shall
have received and found to be satisfactory each Charterer’s Consent,
subordinating any rights of any charterer under an Assigned Charter (except the
Head Charters) in the Collateral to the rights of Lender under the Earnings
Assignments, Assignment of Insurances and the Mortgages. Additionally, the
Debtors shall have entered into the Earnings Assignments, in form and substance
satisfactory to Lender, providing, among other things, for the assignment to
Lender of all of the Debtors’ rights and earnings under the Assigned Charters
and the acknowledgment of and consent to such assignment by any charterer under
such Assigned Charter.
 
(y)  Other Documents and Information. Lender shall have received from each
Debtor, in form and substance satisfactory to Lender, such other documents and
information as Lender may reasonably request.
 
(z)  Legal Matters. All legal matters with respect to and all legal documents
(including, but not limited to, the Loan Documents) executed in connection with
the transactions contemplated by this Agreement shall be satisfactory to counsel
for Lender.
 
(aa)  Pay Proceeds Letter. The Debtors jointly shall submit a letter at least
two (2) Business Days prior to the Funding Date, acceptable to Lender
authorizing and instructing Lender to: (i) make the Loan in proper amount,
(ii) to retain and apply U.S.$87,500 as the Closing Fee on the Funding Date, and
(iii) pay to Lender’s counsel the amount of Lender’s legal fees and
disbursements.
 
Section 4.  REPRESENTATIONS AND WARRANTIES.
 
In order to induce Lender to enter into this Agreement and to make the Loan,
each Debtor represents and warrants to Lender that:
 
4.1  Organization. Each Debtor is a corporation duly organized, validly existing
and in good standing under the laws of the Republic of the Marshall Islands, has
the necessary right, power and authority to own its Vessel and its other assets
and to transact the business in which it is engaged, and each Debtor is duly
qualified to do business in each jurisdiction where such qualification is
legally required and where the failure to so qualify would materially adversely
affect the enforceability of the Loan Documents or otherwise materially
adversely affect the Collateral or any Debtor’s ability to perform its
obligations under any of the Loan Documents. Pledgor is the record and
beneficial owner of one hundred percent (100%) of the authorized, issued and
outstanding stock of Sterling Shipping and Remsen Navigation.
 
4.2  Power and Authority. Each Debtor, Pledgor, Collateral Vessel Owner,
Guarantor and any charterer of an Assigned Charter has full corporate power,
authority and legal right to execute and deliver the Loan Documents to which it
is a party, and to perform its obligations hereunder and thereunder
respectively, and the Debtors have full corporate power, authority and legal
right to borrow hereunder and to grant the security interests created by this
Agreement, its Mortgage and each of the Assignments, the Collateral Vessel
Owners have full corporate power, authority and legal right to grant the
security interests created by its Collateral Vessel Owners’ Second Mortgages and
Collateral Vessel Owners’ Second Assignments.
 
4.3  Consents and Permits. No consent of any other Person (including any
stockholder, trustee or holder of indebtedness), and no consent, license,
approval or authorization of, exemption by, or registration or declaration with,
any governmental body, authority, bureau or agency (or other Person) is required
in connection with the execution, delivery or performance by (i) each Debtor of
this Agreement, the Note, its Mortgage, the Assignments, the Debtors’ Guaranty
or any other Loan Document to which it is party other than the filing of its
Mortgage and the UCC-1 financing statements and (ii) each Collateral Vessel
Owner of its Collateral Vessel Owners’ Guaranty, Collateral Vessel Owners’
Second Mortgages, the Collateral Vessel Owners’ Second Assignments or any other
Loan Document to which it is party other than the filing of its Collateral
Vessel Owners’ Second Mortgages and the UCC-1 financing statements.
 
4.4  No Legal Bar. The execution, delivery and performance by each Debtor,
Guarantor, Pledgor and Collateral Vessel Owner of any Loan Document to which it
is a party, does not and will not violate any provision of any applicable law or
regulation or of any judgment, award, order, writ or decree of any court or
governmental instrumentality, will not violate any provision of the
organizational documents of any Debtor, Pledgor, Collateral Vessel Owner or
Guarantor, and will not violate any provision of, or cause a default under, any
mortgage, indenture, contract, agreement or other undertaking to which any
Debtor, Pledgor, Collateral Vessel Owner or Guarantor is a party or which
purports to be binding upon any Debtor, Pledgor, Collateral Vessel Owner or
Guarantor or upon any of their respective assets, and will not result in the
creation or imposition of any Lien on any of the respective assets of any
Debtor, Pledgor, Collateral Vessel Owner or Guarantor other than the security
interests and mortgage intended to be created hereby and under the Assignments,
the Mortgages, the Collateral Vessel Owners’ Second Assignments, the Collateral
Vessel Owners’ Second Mortgages and the Pledge.
 
4.5  No Defaults. None of the Debtors, Pledgor, Collateral Vessel Owners or
Guarantors is in default, and no event or condition exists which after the
giving of notice or lapse of time or both would constitute an Event of Default
under this Agreement, the Note, the Mortgages, the Collateral Vessel Owners
Second Mortgages, the Pledge, the Guaranty, the Assignments, the Collateral
Vessel Owners Second Assignments, the Collateral Vessel Owners’ Guaranty, the
Debtors’ Guaranty or any other Loan Document or under any mortgage, indenture,
contract, agreement, judgment or other undertaking to which any is a party or
upon any of their respective assets, except for any such default, event or
condition which, individually or in the aggregate, would not materially
adversely affect any of the Debtors’, Pledgor’s, the Collateral Vessel Owners’
or Guarantors’ ability to perform their respective obligations under any of this
Agreement, the Note, the Mortgages, the Collateral Vessel Owners Second
Mortgages, the Pledge , the Guaranty, the Assignments, the Collateral Vessel
Owners Second Assignments, the Collateral Vessel Owners’ Guaranty, the Debtors’
Guaranty or any other Loan Document to which they are a party, or any such
mortgage, indenture, contract, agreement, judgment or other undertaking.
 
4.6  Enforceability. Each of Loan Documents has been duly authorized, executed
and delivered by the parties thereto (other than Lender) and constitutes a
legal, valid and binding obligation of the Debtors, Pledgor, the Collateral
Vessel Owners or the Guarantors, as the case may be, enforceable in accordance
with its respective terms except as the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors’ rights generally, by general equitable principles (whether
enforcement is sought by proceedings in equity or at law) and an implied
covenant of good faith and fair dealing.
 
4.7  No Litigation. Except as described on Schedule 3 hereto, there is no
action, suit, proceeding or, to our knowledge, investigation (whether or not
purportedly on behalf of any Debtor, Pledgor, Collateral Vessel Owner or
Guarantor) pending or to our knowledge threatened against any Debtor, Pledgor,
Collateral Vessel Owner or Guarantor or any of their respective assets in any
jurisdiction, which, if adversely determined, could reasonably be expected to
have a Material Adverse Effect. There is no action, suit or proceeding or, to
our knowledge, investigation (a) which involves any Vessel, or Collateral
Vessel, the Assignments, the Collateral Vessel Owners’ Second Assignments, or
any of the transactions contemplated by this Agreement or the other Loan
Documents  which, if adversely determined, could reasonably be expected to have
a Material Adverse Effect, or (b) which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect, pending or threatened
in any jurisdiction.
 
4.8  Title to Vessel. Each Debtor has and will have, while any Obligation
remains outstanding, valid and marketable title to its Vessel, subject to no
Liens except Permitted Liens, and each Vessel shall be registered in the name of
its respective Debtor with the Republic of Panama and to the extent permitted by
the Republic of Panama and the Philippines, under the flag of the Philippines
with respect to the period of such Vessel’s Head Charter; Each Collateral Vessel
Owner has and will have, while any Obligation remains outstanding, valid and
marketable title to its Collateral Vessel, subject to no Liens except Permitted
Liens, and each Collateral Vessel shall be registered in the name of its
respective Collateral Vessel Owner with the Republic of Panama and to the extent
permitted by the Republic of Panama and the Philippines, under the flag of the
Philippines with respect to the period of such Collateral Vessel’s Head Charter
(as defined in the August 2004 Loan Agreement).
 
4.9  Lender’s Security Interest. On the Funding Date, Lender shall have a legal,
valid and continuing (i) first preferred ship mortgage (as amended, supplemented
or otherwise modified from time to time) and a perfected first lien on and
security interest in each Vessel, and Lender shall have a perfected first lien
on and security interest in Collateral (except for the second liens of the
Collateral Vessel Owners’ Second Mortgages and the collateral Vessel Owners’
Second Assignments pursuant to which the Lender shall have a perfected second
lien and security interest in the Collateral the subject of such Loan Documents)
subject only to Permitted Liens and (ii) second preferred ship mortgage (as
amended, supplemented or otherwise modified from time to time) and a perfected
second lien on and security interest in each Collateral Vessel, and Lender shall
have a perfected second lien on and security interest in the collateral securing
the Collateral Vessel Owners’ Guaranty subject only to Permitted Liens and all
taxes, fees and other charges in connection with all of the foregoing shall have
been duly paid. There are no charters in effect on (i) any Vessel other than the
Assigned Charters specifically identified on Schedule 5 hereto and (ii) any
Collateral Vessel other than the Assigned Charters (as defined in the August
2004 Loan Agreement) identified on Schedule 5 to the August 2004 Loan Agreement.
 
4.10  Income Taxes. Each Debtor has filed all federal, state and local income
tax returns that are required to be filed, and has paid all taxes as shown on
said returns or which are required to be paid and all assessments received by it
to the extent that such taxes and assessments have become due, and each Debtor
does not have any knowledge of any actual or proposed deficiency or additional
assessment in connection therewith. The charges, accruals and reserves on the
books of each Debtor in respect of federal, state and local taxes for all open
years, and for the current fiscal year, make adequate provision for all unpaid
tax liabilities for such periods.
 
4.11  No Other Name. During the past five (5) years, none of the Debtors, the
Collateral Vessel Owners or Pledgor has changed its name and none has done
business in any name other than as set forth in the introductory paragraph of
this Agreement.
 
4.12  Payment of Taxes. All sales, use, property or other taxes, licenses,
tolls, inspection or other fees, bonds, permits or certificates which were or
may be required to be paid or obtained in connection with the acquisition by
each Debtor, or Collateral Vessel Owner, of its Security Vessel, as the case may
be or such vessel’s subsequent employment will have been, or when due will be,
paid in full or obtained.
 
4.13  Environmental Compliance. Each Debtor, Collateral Vessel Owner and any
charterer under an Assigned Charter has duly complied in all material respects
with, and its business, operations, assets, equipment, property, leaseholds, or
other facilities are in compliance in all material respects with, the provisions
of all federal, state and local environmental, health and safety laws, codes and
ordinances, and all rules and regulations promulgated thereunder. Except as
disclosed in Schedule 4 hereto, neither Pledgor, any Debtor, any Collateral
Vessel Owner, any charterer under an Assigned Charter, nor any Affiliate thereof
is in, or has been notified of, any violation of any Environmental Law with
respect to the ownership, chartering or operation of any Security Vessel, which
violation could have a Material Adverse Effect under OPA 90 or could otherwise
reasonably be expected to have a Material Adverse Effect on the ability of any
Debtor, Collateral Vessel Owner or of any charterer of an Assigned Charter to
perform the transaction contemplated in this Agreement or under an Assigned
Charter.
 
4.14  Investment Company Act. 
 
4.15  Neither TBS nor any of its Affiliates is an “investment company” or an
“affiliated person” of, or a “promoter” or “principal underwriter” for or a
company “controlled” by an “investment company” as such terms are defined in the
Investment Company Act of 1940, as amended; neither the making of the Loan nor
the application of the proceeds or repayment thereof by the Debtors, nor the
consummation of the other transactions contemplated hereby, will violate any
provision of such act or any rule, regulation or order of the Securities and
Exchange Commission thereunder.
 
4.15  Hire of Security Vessels. Each of the relevant Debtor or Collateral Vessel
Owner, together with the Affiliate Charterers (as defined in the relevant
Earnings Assignments and Collateral Vessel Owners Second Earnings Assignment)
are the only Persons entitled to receive Hire with respect to the Security
Vessels.
 
Section 5.  COVENANTS.
 
Each Debtor covenants and agrees that, from and after the date hereof and so
long as the Commitment or the Obligations are outstanding:
 
5.1  Notices. Such Debtor will promptly after obtaining knowledge thereof give
written notice to Lender of (i) the occurrence of any Default or Event of
Default; (ii) the occurrence of an Event of Loss relating to any Security
Vessel; (iii) the commencement or threat of any material litigation or
proceedings or threatened or asserted claim of lien affecting any Debtor,
Pledgor, Guarantor, the Manager or a Security Vessel; and (iv) any dispute
between any Debtor, Pledgor, the Manager and any governmental regulatory body or
other party that involves and Material Adverse Effect respecting any Vessel or
that could reasonably be expected to materially interfere with the normal
business operations of any Debtor.
 
5.2  Laws, Obligations; Operations. Each Debtor will and will cause each of the
Pledgor, Guarantor, Collateral Vessel owner to (i) duly observe and conform to
all requirements of any governmental authorities relating to the conduct of its
business or to its properties or assets; (ii) maintain its existence as a legal
entity and obtain and keep in full force and effect all rights, franchises,
licenses and permits which are necessary to the proper conduct of its business;
(iii) obtain or cause to be obtained as promptly as possible any governmental,
administrative or agency approval and make any filing or registration therewith
which at the time shall be required with respect to the performance of the
Obligations or the operation of its business; and (iv) pay all fees, taxes,
assessments and governmental charges, withholdings or levies imposed upon any of
the Collateral, and at all times, such Debtor shall pay or cause to be paid all
fees, taxes, assessments and governmental charges or levies imposed upon any of
the Collateral except for such contested in good faith by appropriate
proceedings not involving any risk of loss of the Vessels or such other
Collateral or Lender’s interest or priority therein.
 
5.3  Inspection. Lender or its authorized representative may, at any reasonable
time or times and annually at the Debtors’ expense, inspect any Security Vessel
and at Lender’s cost (provided, if an Event of Default has occurred and is
continuing, every inspection thereafter shall be at the Debtors’ expense), it
shall have the right to review the operating and insurance records of the
Debtors upon reasonable notice and during normal business hours. Inspection will
be conducted in such a manner as to minimize interference in the Security
Vessels’ operation, provided that no Event of Default shall be then continuing.
The Debtors shall provide, and shall require any charterer under an Assigned
Charter to provide, Lender advance notice of all known surveys and regulatory
inspection in order that Lender may observe and participate.
 
5.4  Books. The Debtors will keep proper books of record and account in which
full, true and correct entries in accordance with GAAP will be made of all
dealings or transactions in relation to their businesses and activities.
 
5.5  Financial Information. The Debtors will furnish or cause to be furnished to
Lender (a) as soon as available, but in any event not later than ninety (90)
days after the end of each fiscal year of the Debtors and Guarantors, Financial
Statements of TBS and its consolidated subsidiaries as at the end of such fiscal
year, all in reasonable detail, complying in all material respects with all
applicable rules and regulations promulgated by the Securities and Exchange
Commission, prepared in accordance with GAAP applied on a basis consistently
maintained throughout the period involved and audited by independent certified
public accountants reasonably acceptable to Lender; (b) as soon as available,
but in no event later than forty-five (45) days after the end of each fiscal
quarter of the Debtors and Guarantors unaudited financial statements of such
entity as at the end of such fiscal quarter, all certified (subject to normal
year-end adjustments) as to fairness of presentation and compliance in all
material respects with all applicable rules and regulations of the Securities
and Exchange Commission with respect to interim financial statements all in
reasonable detail, prepared in accordance with GAAP applied on a basis
consistently maintained throughout the period involved and certified by the
chief financial officer of such entity; (c) within ninety (90) days of the end
of each fiscal year of Debtors and Guarantors, consolidating internally prepared
annual financial statements for each Debtor and each Guarantor; (d) with each
submission of Financial Statements as herein provided, each of the Debtors and
Pledgor shall submit a written executed Certificate of Compliance, a form of
which is attached hereto as Exhibit C, confirming to Lender the accuracy of the
respective Financial Statements submitted on that date (subject to normal
year-end audit adjustment),identifying the current charter or other contract
under which the Vessels are employed and the basic deal economics of such
contract including rates, term of the contract and any renewals, confirming to
Lender that there exists no Default or Event of Default under this Agreement or
any other of the Loan Documents or, if such Default or Event of Default exists,
the steps being taken to remedy such Default or Event of Default; and
(e) promptly, such additional financial and other information as Lender may from
time to time reasonably request.
 
5.6   Vessel Classification.
 
5.7   The Debtor shall do or cause to be done all things necessary to ensure
that each of the Security Vessels is classed, at a minimum, at the
classification and rating required by the respective Head Charter by the
respective Classification Society without any material outstanding
recommendations.
 
5.7  Incurrence of Indebtedness. No Debtor shall contract, create, incur, assume
or suffer to exist any Indebtedness except (i) Indebtedness represented by the
Loan, or any other Loan Documents or other Obligations, (ii) trade debt incurred
in the ordinary course of such Debtor’s business in a manner and to an extent
consistent with past practices and necessary for the prudent operation of its
business or operation, including, without limitation, contingent liabilities
under Protection and Indemnity entries for club calls and back calls.
 
5.8  Advances or Loans; No Transaction of Other Business or Activities. No loans
or advances to any Person shall be made by any Debtor.
 
5.9  Further Assurances. Each Debtor will, promptly at any time and from time to
time, at its sole expense, execute and deliver, and cause any charterer under an
Assigned Charter, Pledgor, Collateral Vessel Owner, Guarantor and the Manager to
execute and deliver, to Lender such further instruments and documents, and take
such further action, as Lender may from time to time reasonably request in order
to further carry out the intent and purpose of the Loan Documents and to
establish and protect the rights, interests and remedies created, or intended to
be created, in favor of Lender hereby and thereby, including, without
limitation, the execution, delivery, recordation and filing of financing
statements and continuation statements. The Debtors hereby authorize Lender, in
such jurisdictions where such action is authorized by law, to effect any such
recordation or filing of financing statements and continuation statements
without the signature of any Debtor thereon and to file as valid financing
statements in the applicable financing statement records, photocopies hereof and
of any other financing statement executed in connection herewith. Lender agrees
to provide the Debtors with copies of UCC filings, but shall have no liability
for failure to do so and such failure shall not serve as a defense to the
performance by any party of its obligations under the Documents. The Debtors
will pay, or reimburse Lender for, any and all reasonable fees, reasonable costs
and expenses of whatever kind or nature incurred in connection with the
creation, preservation and protection of Lender’s security interest in the
Security Vessels, the Assignments and the other Collateral, including, without
limitation, all fees and taxes in connection with the recording or filing of
instruments and documents in public offices, payments or discharge of any taxes
or Liens upon or in respect of the Collateral not discharged as herein required
and all other fees, reasonable costs and expenses in connection with protecting,
maintaining or preserving the Collateral and Lender’s interests therein, whether
through judicial proceedings or otherwise, or in connection with defending or
prosecuting any actions, suits or proceedings arising out of or related to any
Security Vessel, the Pledge and the other Collateral and premiums for insurance
with respect to any Security Vessel; and all such amounts that are paid by
Lender shall, until reimbursed by or on behalf of the Debtors, constitute
Obligations of the Debtors secured by the Collateral.
 
5.10  No Disposition of Collateral. No Debtor will and will not permit any
charterer under an Assigned Charter, Collateral Vessel Owner, Pledgor, Guarantor
or the Manager sell, convey, transfer, exchange, lease or otherwise relinquish
possession or dispose of any of the Collateral (other than obsolete or worn out
equipment disposed of and replaced with equipment of the same or better quality
and value, in the ordinary course of business), or attempt or offer to do any of
the foregoing, without Lender’s prior written consent.
 
5.11  No Liens. The Debtors will not and will not permit any charterer under an
Assigned Charter, Collateral Vessel Owner, Pledgor, Guarantor or the Manager to
create, assume or suffer to exist any Lien of any kind upon the Collateral
except for liens in favor of Lender and Permitted Liens.
 
5.12  Environmental Compliance. (a) The Debtors shall, and shall require the
Collateral Vessel Owners and that any charterer under an Assigned Charter, and
any and all subcharterers, managers, employees, contractors, subcontractors,
agents, representatives, Affiliates, consultants, occupants and any and all
other Persons (other than Lender) to (i) comply in all material respects with
all applicable Environmental Laws, (ii) use, employ, process, emit, generate,
store, handle, transport, dispose of and/or arrange for the disposal of any and
all Hazardous Materials in, on, or, directly or indirectly, related to or in
connection with a Security Vessel or any portion thereof in a manner consistent
with prudent industry practice and in compliance in all material respects with
all applicable Environmental Laws, and in a manner which does not pose a
significant risk to human health, safety (including occupational health and
safety) or the environment, and (iii) obtain, maintain, and have on board each
Security Vessel any required Certificate of Financial Responsibility (“COFR”).
 
(b)  The Debtors shall, and shall require that a Collateral Vessel Owner and
that any charterer under an Assigned Charter or any other Persons in custody of
a Security Vessel shall, upon the occurrence or discovery of an Environmental
Event with respect to such Security Vessel, promptly carry out, using the
Debtors’ or such other Person’s own funds or proceeds of insurance with respect
thereto, such actions as may be necessary to remediate or cure such
Environmental Event in compliance in all material respects with all applicable
Laws, to comply in all material respects with all applicable Environmental Laws
and to alleviate any significant risk to human health or the environment if the
same arises from a condition on or in respect of such Security Vessel, whether
existing prior to or during the Note Term or the term of any charter. Once a
Debtor or such other Person commences such actions, such Debtor shall, and shall
cause such other Person to, thereafter diligently and expeditiously proceed to
comply in all material respects in a timely manner with all Environmental Laws
and to eliminate any significant risk to human health or the environment arising
from such Environmental Event and shall, at the request of Lender, give periodic
progress reports to Lender on its compliance efforts and actions.
 
5.13  The Debtors’ Title; Lender’s Security Interest; Personal Property. Each
Debtor shall and shall cause the Collateral Vessel Owners to warrant and defend
its good and marketable title to its Security Vessel and Lender’s perfected
first priority security interest in all Collateral (except its second priority
security interest in the Collateral Vessels, the Collateral Vessel Owners’
Second Mortgages and the Collateral Vessel Owners’ Second Assignments, wherein
each, Debtor shall cause the Collateral Vessel Owners to warrant and defend
Lenders perfected second priority security interest), against all claims and
demands whatsoever. The Debtors agree that the Security Vessels shall be, and at
all times remain, separately identifiable personal property.
 
5.14  No Changes in Any Debtor. No Debtor, and the Debtor shall procure that no
Guarantor, Collateral Vessel Owner or Pledgor, shall (a) liquidate, dissolve,
consolidate or merge itself into or with any other entity; (b) materially change
its business; (c) change the form of organization of its business; or
(d) without thirty (30) days’ prior written notice to Lender, change its name,
address or jurisdiction of organization.
 
5.15  Use of Vessels; Maintenance; Operation. The Debtors shall require and
shall cause the Collateral Vessel Owners to require at all times that any
charterer shall use its due diligence to operate, maintain, repair, insure, man
and supply the Security Vessels in a careful and proper manner, comply in all
material respects with and conform to all governmental laws, rules and
regulations and insurance restrictions relating thereto, and operate the
Security Vessels with competent and duly qualified personnel. The Debtors shall
and shall cause the Collateral Vessel Owner to ensure that, except as
specifically permitted from time to time by an appropriate license issued by the
United States government and a copy of which shall have been theretofore
furnished to Lender, the Security Vessels shall not be traded, located, operated
or used, directly or indirectly, in a Prohibited Jurisdiction or by a Prohibited
Person, and no charterer nor Pledgor nor any subcharterer or shipper shall be a
Prohibited Person or organized in a Prohibited Jurisdiction.
 
5.16  Indemnification. Without limiting the generality of any other provision
hereof, the Debtors shall jointly and severally indemnify, protect, save and
keep harmless Lender, its agents, servants, employees, officers, directors and
shareholders from and against any reduction in the amount payable out of the
Collateral to Lender with respect to the Obligations, or any other loss, cost or
expense (including reasonable legal fees) incurred by Lender, as the result of
any breach of the provisions of Section 5 hereof, except to the extent any such
amount or loss is incurred solely as a result of the gross negligence or willful
misconduct of Lender or solely by the breach by Lender of its obligations,
representations or warranties under any of the Loan Documents.
 
5.17  Performance of Contracts. The Debtors will, and shall require the
Collateral Vessel Owner to duly observe and perform in all material respects all
covenants and obligations to be performed by it under any charter of any
Security Vessel, including, without limitation, the Head Charters, and will
promptly take any and all action as may be reasonably necessary to enforce its
rights under any such charter or to secure the performance by such charterer of
the charterer’s obligations under any such charter. No Debtor, Collateral Vessel
Owner or charterer of any Assigned Charter, Guarantor or any Affiliate of any of
the foregoing shall enter into any charter or other contract for the use,
employment or operation of a Security Vessel for a term in excess of six (6)
months (except for any renewal of any Head Charter), without the prior written
consent of Lender, which shall not be unreasonably withheld or delayed, but to
which reasonable conditions may be attached; provided, however, Lender shall
have no obligation to consent to any charters or other contracts if, in Lender’s
judgment such charter or other contract would materially increase Lender’s risks
in this transaction, reduce its returns or otherwise disadvantage Lender.
 
5.18  Governmental Approvals. The Debtors will obtain from time to time all
permits, licenses, approvals and authorizations of, and will file all
registrations and declarations with, all governmental authorities, bureaus and
agencies required in connection with the execution, delivery, performance,
validity or enforceability of this Agreement (including, without limitation, the
payment to Lender at its office address referred to in this Agreement, in lawful
money of the United States of America, of the obligations of the Debtors under
this Agreement) and any other Loan Document and will take all action necessary
to maintain each such permit, license, approval or authorization, or
registration or declaration, in full force and effect.
 
5.19  Special Purpose Covenants. (a)  Positive Covenants. Throughout the Note
Term, each Debtor shall:
 
(i)  hold itself out to the public as a legal entity that is separate and
distinct from any other Person, including the other Debtor, the Collateral
Vessel Owners, Guarantors, Pledgor, charterer of Assigned Charters, the Manager,
and their respective Affiliates, and shall conduct its business solely in its
own name and separate and apart from those of any Affiliate of such Debtor in
order not to (1) mislead others to believe that they are transacting business
with or relying on the credit of any entity other than such Debtor, or
(2) except as provided herein or in the other Loan Documents, suggest that such
Debtor is responsible for the debts of any third party (including any Collateral
Vessel Owner, Pledgor, any charterer of Assigned Charters, Guarantors, the
Manager or any Affiliate of such Debtor, Pledgor or the Manager) or that any
such third party is liable for the debts of Pledgor;
 
(ii)  timely file all tax returns required by applicable Law;
 
(iii)  allocate fairly and reasonably any overhead expenses that are shared with
any Affiliate of any Debtor, any charterer under any Assigned Charter, Pledgor,
Guarantor or the Manager;
 
(iv)  maintain records and books of account and prepare financial statements
showing its own assets and liabilities as being separate from those of such
Debtor or any other Affiliate of Debtor, Collateral Vessel Owner, the Pledgor,
any charterer under any Assigned Charter, Guarantor or the Manager, in each case
sufficient to ensure that it will not be costly or difficult to ascertain the
separate identity of such Debtor’s assets from those of any Affiliate or the
separate financial condition of such Debtor from the financial condition of any
Affiliate;
 
(v)  pay its liabilities out of its own funds, including salaries of any
employees of such Debtor, and not out of the funds of any Collateral Vessel
Owner, the Pledgor, charterer under any Assigned Charter, Guarantor, the Manager
or any other Affiliate of such Debtor or Pledgor;
 
(vi)  use separate stationery and invoices;
 
(vii)  take commercially reasonable steps to correct any known misunderstanding
regarding the separate identity and financial condition of such Debtor; and
 
(viii)  maintain adequate capital for the normal obligations reasonably
foreseeable in a business of its size and character and in light of its
contemplated business.
 
5.20  Obtain Consents.
 
  
 
Each Debtor will, and will cause each Guarantor, Pledgor, Collateral Vessel
Owner to, without prejudice to Section 4 and this Section 5, obtain every
consent and do all other acts and things which may from time to time be
necessary or advisable for the continued due performance of all its and the
Guarantors’, the Pledgor’s and the Collateral Vessel Owners’ respective
obligations under the Loan Documents to which they are a party. 
 
5.21  Taxes and Assessments.
 
Each Debtor will pay and discharge, and cause each of the Guarantors, the
Pledgor and the Collateral Vessel Owners to pay and discharge, all material
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or property prior to the date upon which penalties attach thereto;
provided, however, that it shall not be required to pay and discharge, or cause
to be paid and discharged, any such tax, assessment, charge or levy so long as
the legality thereof shall be contested in good faith and by appropriate
proceedings or other acts and it shall set aside on its books adequate reserves
with respect thereto.
 
5.22  Insurance.
 
  
 
Each Debtor shall maintain and shall cause each Collateral Vessel Owner to
maintain, insurance on its Security Vessel in accordance with Section 1.22 of
its respective Mortgage or Collateral Vessel Owners’ Second Mortgage and shall
furnish Lender with all reports in accordance with Section 1.24 of such mortgage
. Subject to the foregoing sentence, each Debtor shall maintain, and cause each
Guarantor, the Pledgor and the Collateral Vessel Owners to maintain, with member
clubs of the International Group of P&I Clubs insurance on all their respective
properties and against all such risks and in at least such amounts as are
usually insured against by companies of established reputation engaged in the
same or similar business from time to time (including, without limitation,
mortgagee's interest insurance additional perils (pollution) to be taken out by
such mortgagee with costs to be born by the Debtors).
 
5.23  ISM and ISPS Code and MTSA Matters.  
 
 
 
Each Debtor will:
 
(i)  procure that the relevant charterer will comply with and ensure that each
Security Vessel will comply with the requirements of the ISM Code , ISPS Code
and MTSA in accordance with the implementation schedule thereof, including (but
not limited to) the maintenance and renewal of valid certificates pursuant
thereto throughout the duration of this Agreement;
 
(ii)  procure that any charterer will immediately inform Lender if there is any
threatened or actual withdrawal of its DOC, SMC or the ISSC in respect of any
Vessel; and
 
(iii)  procure that the relevant charterer will promptly inform Lender upon the
issue to the relevant Debtor or charterer of a DOC and to any Security Vessel of
an SMC or ISSC.
 
5.24  Charterer and Information.
 
  
 
The Debtors shall deliver to Lender all financial information of the charterers
of the Assigned Charters available to the Debtors as Lender may from time to
time reasonably request (unless subject to a non-disclosure agreement
prohibiting such disclosure).
 
5.25  Stock Exchange Listing.
 
  
 
If TBS is listed on NASDAQ Stock Exchange, do or cause to be done all things
necessary to ensure that TBS remains listed on such stock exchange.
 
5.26  Negative Covenants. Throughout the Note Term, no Debtor shall:
 
(i)  engage in any activity other than the ownership and operation of its Vessel
and those other activities expressly required or permitted in the Loan
Documents;
 
(ii)  other than as expressly provided in the Loan Documents, enter into any
transaction with Pledgor, any Collateral Vessel Owner, any charterer under an
Assigned Charter, any Guarantor, the Manager or any other Affiliate of Pledgor,
any charterer under an Assigned Charter, the Manager or such Debtor except on
arms-length terms;
 
(iii)  make any loans or advances to any third party, including any Affiliate of
such Debtor (except only as provided in the Pooling Agreement), or buy or hold
evidence of indebtedness issued by any Affiliate; or
 
(iv)  identify itself as a department or division of Pledgor, Guarantor,
charterer under any Assigned Charter, the Manager or any other Person.
 
5.27  Sale or Pledge of Shares.
 
  
 
The Debtors will not, and will procure that the Collateral Vessel Owners will
not, sell, assign, transfer, pledge or otherwise convey or dispose of any of the
shares (including by way of spin-off, installment sale or otherwise) of the
capital stock, or limited liability company interests, as the case may be, of
either Debtor or the Collateral Vessel Owners.
 
5.28  Change of Flag or Classification Society.
 
  
 
The Debtors will not, and will procure that the Collateral Vessel Owners will
not, change the flag, class or Classification Society of any Security Vessel.
 
5.29  Capital Expenditures.
 
  
 
The Debtors will not, and will procure that the Collateral Vessel Owners will
not, make any investment or material capital expenditures, excluding
expenditures for drydocking and repairs for the Security Vessels.
 
5.30  Change of Vessel Management.
 
  
 
The Debtors will not, and will procure that the Collateral Vessel Owners will
not, change the charterer or otherwise change the technical or commercial
management of any Security Vessel.
 
5.31  Use of Corporate Funds.
 
  
 
5.32   Other than as provided in the Pooling Agreement, the Debtors will not
permit any Debtor, and will procure that no Collateral Vessel Owner is
permitted, to pay out any funds to any company or person except (i) in the
ordinary course of business in connection with the management of the business of
such Debtor or Collateral Vessel Owner, as the case may be, including the
operation and/or repair of the Security Vessels and other vessels owned or
operated by such parties, (ii) the servicing of the Indebtedness permitted
hereunder (but excluding, any prepayments of any Indebtedness other than the
Loan) and (iii) provided no Event of Default has occurred and is continuing, or
will occur as a consequence of the payment thereof, the payment of dividends.
 
5.32  Issuance of Shares.
 
  
 
The Debtors will not issue or dispose of any shares of its own capital stock or
limited liability company interests, as the case may be, to any Person.
 
5.33  Transactions with Affiliates.
 
  
 
  
 
Other than as provided in the Pooling Agreement, the Debtors will not enter into
any transactions with any Affiliate unless on an arm's length basis, except, so
long as no Event of Default, or event which, but for the giving of notice or
passage of time or both, would constitute an Event of Default, shall have
occurred, any of the Guarantors may make investments in, capital investments in
respect of, or loans to, or issue guarantees for its subsidiaries (including in
respect of construction financing).
 
5.34  Indebtedness.
 
  
 
Other than as provided in the Pooling Agreement, the Debtors will not incur any
Indebtedness excluding Indebtedness hereunder to Lender and any Indebtedness
existing (or for which a written commitment has been made on or before the date
hereof) on the date hereof.
 
5.35  Material Contract.
 
  
 
The Debtors will not, and will procure that the Collateral Vessel Owner will
not, amend or permit the amendment of any material provision of the Assigned
Charters.
 
5.36  No Bankruptcy Petition.  
 
Neither Debtor, nor any Collateral Vessel Owner, will file a petition, or permit
its shareholders or directors to file a petition, under the United State
Bankruptcy Code, and TBS shall not include the Debtors or Collateral Vessel
Owners in any such filings they make (unless required by applicable law to do
so).
 
5.37  Valuation . The Appraisal Value of the Security Vessels during the Note
Term Period shall be greater than or equal to a minimum of 160% of the Loan
Balances during such period (the "Relevant Percentage"). The Appraisal Value of
each Security Vessel shall be determined at Lender’s discretion, but no less
frequently than annually on the anniversary of the Funding Date, on the basis of
a valuation (the "Valuation") by an Approved Shipbroker provided to Lender. In
the event Lender or the Debtors disagree with the Valuation, then the Debtors
and Lender shall each obtain a separate valuation (the "Additional Valuations")
from an Approved Shipbroker, and the Appraisal Value shall be determined to be
the arithmetic average of the Additional Valuations. All costs relating to any
Valuation or Additional Valuations shall be paid by the Debtors.
 
5.38  Collateral Maintenance. If the Appraisal Value of the Security Vessels, as
determined pursuant to Section  5.37 falls below the Relevant Percentage, within
a period of ten (10) Banking Days following receipt by the Debtors of written
notice from Lender notifying the Debtors of such shortfall and specifying the
amount thereof (which amount shall, in the absence of manifest error, be deemed
to be conclusive and binding on the Debtors) the Debtors shall (a) deliver to
Lender, upon its request, additional collateral satisfactory to Lender, in its
sole discretion (including the deposit of cash in a cash collateral account
maintained with Lender), or (b) prepay the Loan or part thereof such that (x)
the sum of (i) the value of the Security Vessels, as determined in accordance
with the latest valuation delivered pursuant to Section 5.37, plus (ii) the
value of additional collateral other than cash collateral, such value to be
determined by Lender when divided by (y) the Loan (less any cash collateral held
by Lender in a cash collateral account) shall be equal to or greater than the
Relevant Percentage of the Loan.
 
5.39  Post-Funding Date Filing. Debtors’ covenant within 45 days of the Funding
Date to have the lien of the Mortgages and the Collateral Mortgages noted on the
Record Book of the Maritime Industry Authority of the Republic of the
Philippines Department of Transportation and Communication and shall provide
Lender with evidence of such notation.
 
Section 6.  SECURITY INTEREST CONTINUING OBLIGATIONS OF DEBTORS.
 
6.1  Grant of Security. In addition to, and not in lieu of, the grant of liens,
rights and interests made by the Debtors pursuant to the Assignments, the Pledge
and the Mortgage, and in order to further secure the prompt and complete (x)
payment (whether at the stated maturity, by acceleration or otherwise) of all
principal of, interest on, late fees and Breakage Costs with respect to the Loan
and all other amounts payable by the Debtors under the Loan Documents now in
existence or hereafter incurred, and (y) the performance and observance by each
Debtor of all of the agreements and covenants to be performed or observed by it
for the benefit of Lender contained in the Assignments, the Pledge, the Mortgage
and the other Loan Documents and in consideration of the Note, the premises and
of the covenants contained herein and in the other Loan Documents and of other
good and valuable consideration given to the Debtors by Lender at or before the
Funding Date, the receipt of which is hereby acknowledged, the Debtors do hereby
grant, bargain, sell, convey, transfer, mortgage, assign, pledge, and confirm
unto Lender and its permitted successors and assigns, for the security and
benefit of Lender, a security interest in, and mortgage lien on, all estate,
right, title and interest of any Debtor in, to and under, all and singular, the
following described properties, rights, interests and privileges whether now or
hereafter acquired:
 
(a)  the Vessels;
 
(b)  continuing rights of any Debtor in respect of any warranty, indemnity or
agreement, express or implied, as to title, materials, workmanship, design or
patent infringement or related matters with respect to the Vessels, and (ii) all
rights, powers, privileges, options and other benefits of Debtors thereunder
(subject to such reservation) with respect to the Vessels, including, without
limitation, the right to make all waivers and agreements, to give and receive
all notices and other instruments or communications, to take such action upon
the occurrence of a default thereunder, including the commencement, conduct and
consummation of legal, administrative or other proceedings, as shall be
permitted thereby or by law, and to do any and all other things which Debtors
are or may be entitled to do thereunder (subject to such reservation);
 
(c)  all property that may, from time to time, hereafter in accordance with the
provision of this Agreement, be expressly subjected to the Lien of this
Agreement;
 
(d)  all records reflecting or relating to the foregoing; and
 
(e)  all Proceeds of the foregoing;
 
(all of the foregoing referred to in (a) through (e), together with the security
interests granted pursuant to the Mortgages, the Collateral Vessel Owners Second
Mortgage, the Pledge, the Assignments, the Collateral Vessel Owners Second
Assignments, shall be referred to as the “Collateral”).
 
provided, however, that, notwithstanding any of the foregoing provisions of this
Section 6.1, so long as no Event of Default shall have occurred and be
continuing, each Debtor shall have the right, to the exclusion of Lender, to
quiet enjoyment of its Vessel and the other Collateral and to possess, use,
retain and control its Vessel and the other Collateral.
 
TO HAVE AND TO HOLD all and singular the Collateral unto Lender, its permitted
successors and assigns, forever, in trust, upon the terms and trusts herein set
forth, for the benefit, security and protection of Lender from time to time, and
for the uses and purposes and subject to the terms and provisions set forth in
this Agreement.
 
It is expressly agreed that notwithstanding anything herein to the contrary,
each Debtor shall remain liable under the agreements and instruments granting
the security interests in the Collateral to perform all of its obligations
thereunder, and, except to the extent expressly provided herein or in any other
Loan Document, Lender shall not be required or obligated in any manner to
perform or fulfill any obligations of any Debtor under or pursuant to any
thereof, or to make any inquiry as to the nature or sufficiency of any payment
received by it, or present or file any claim or take any action to collect or
enforce the payment of any amount which may have been assigned to it or to which
it may be entitled at any time or times.
 
6.2  Debtors Not Relieved of Obligations.
 
(a)  It is expressly agreed that, anything contained herein to the contrary
notwithstanding, (i) each Debtor shall at all times perform all of its duties
and obligations under any contracts or charters of its Vessel, including, but
not limited to, its Head Charter or similar contracts relating to the use or
operation of its Vessel to the same extent as if this Agreement and the
Assignments had not been made, (ii) the exercise by Lender of any of the rights
assigned hereunder shall not release any Debtor from any of its duties or
obligations under any Head Charter or similar contracts relating to the use or
operation of its Vessel, and (iii) Lender shall not have any obligation or
liability under any Head Charter or similar contracts relating to the use or
operation of its Vessel by reason of this Agreement, the Assignments or the
receipt by Lender of any payment or property under any such charter or similar
contracts relating to the use or operation of its Vessel or pursuant hereto, nor
shall Lender be obligated to perform or fulfill any of the duties or obligations
of the “owner” under any Head Charter or similar contracts relating to the use
or operation of its Vessel or to make any payment thereunder, or to make any
inquiry as to the nature or sufficiency of any payment or property received by
it thereunder, or the sufficiency of performance by any Person thereunder, or to
present or file any claim, or to take any action to collect or enforce any
performance or the payment of any amounts or the delivery of any property which
may have been assigned to it or to which it may be entitled at any time or
times.
 
6.3  Lender Appointed as Attorney-in-Fact.
 
Each Debtor hereby irrevocably constitutes and appoints Lender, with full power
of substitution, as its true and lawful attorney-in-fact with full and
irrevocable power and authority in the place and stead of such Debtor and in the
name of such Debtor or in its own name, from time to time following the
occurrence and during the continuance of an Event of Default in Lender’s sole
discretion to the maximum extent permitted by applicable law, for the purpose of
carrying out the terms of this Agreement or any other Loan Document, to take any
and all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to protect and preserve, and/or exercise its
rights and remedies hereunder and with respect to the Collateral and, without
limiting the generality of the foregoing, hereby gives Lender the power and
right, on behalf of such Debtor and without notice to or assent by such Debtor,
to do the following, upon the occurrence and during the continuance of an Event
of Default: to demand, enforce, collect, receive, receipt, and give release for
any monies due or to become due under or arising out of or with respect to, any
of the Collateral, and to endorse all checks and other instruments, and to do
and take all such other actions relating to any of the Collateral, to file any
claims or institute any proceedings with respect to any of the foregoing which
Lender deems necessary or desirable in its sole discretion, and to compromise
any such demand, claim or action. Each Debtor hereby ratifies all that said
attorney shall lawfully do or cause to be done by virtue hereof. This power of
attorney is a power coupled with an interest and shall be irrevocable.
 
The powers conferred on Lender hereunder are solely to protect Lender’s interest
in the Collateral and shall not impose any duty upon it to exercise any such
powers. Lender shall be accountable only for amounts that it actually receives
as a result of the exercise of such powers and neither it nor any of its
officers, directors, employees or agents shall be responsible to any Debtor for
any act or failure to act (except for any act of willful misconduct or gross
negligence).
 
Section 7.  EVENTS OF DEFAULT.
 
Each of the following events shall constitute an event of default (herein called
“Event of Default”) under this Agreement:
 
(a)  The Debtors shall fail to pay any amount of principal or interest when due
or to pay any other Obligation within five (5) Business Days after the same
becomes due (whether on demand, at the stated maturity, by acceleration or
otherwise); or
 
(b)  Any representation or warranty made by any Debtor, Collateral Vessel Owner,
Guarantor, charterer under an Assigned Charter, Pledgor or the Manager (as the
case may be) in this Agreement, any Mortgage or any other Loan Document, or in
any document, certificate or financial or other statement now or hereafter
furnished by any Debtor, Collateral Vessel Owner, Guarantor, charterer under any
Assigned Charter, Pledgor or the Manager in connection with this Agreement, the
Mortgage or any other Loan Document shall at any time prove to be untrue or
misleading in any material respect as of the time when made or when deemed to be
made; provided, however, that, if any fact or state of affairs was
misrepresented through demonstrable inadvertence and is corrected by the maker
of such representation to comply with the requirements of this Agreement within
ten (10) days of becoming aware thereof, such Event of Default shall be deemed
cured; or
 
(c)  Any Debtor shall fail to observe any covenant, condition or agreement
contained in Sections 5.6, 5.7, 5.8, 5.10, 5.13, 5.14, 5.19, 5.22, 5.26, 5.36,
5.37, 5.38 or 5.39 hereof, and such failure shall be continuing; or
 
(d)  Any Debtor, charterer under an Assigned Charter, Pledgor, Collateral Vessel
Owner, Guarantor or the Manager shall fail to observe or perform any other
covenant, condition or agreement contained in this Agreement or any other Loan
Document, and such failure shall continue unremedied for a period of thirty (30)
days after the earlier of (i) the date on which a Debtor obtains knowledge of
such failure, or (ii) the date on which notice thereof shall be given by Lender
to the Debtors; or
 
(e)  Any Debtor, Pledgor, Collateral Vessel Owner, Guarantor or charterer under
an Assigned Charter shall (i) default in the payment of any Indebtedness to
Lender or to any of Lender’s Affiliates beyond the period of grace, if any,
provided with respect thereto, or (ii) default in the performance or observance
of any other term, condition or agreement contained in any such obligation or in
any agreement relating thereto, if the effect of such default is to cause, or
permit, the holder or holders of such obligation (or a trustee on behalf of such
holder or holders) to cause such obligation to become due prior to its stated
maturity or to realize upon any collateral given as security therefor, or
(iii) default in the payment of any Indebtedness singly or in the aggregate in a
principal amount greater than U.S.$250,000 to any Person other than Lender or
any of Lender’s Affiliates beyond the period of grace, if any, or (iv) default
in the performance or observance of any other term, condition or agreement
contained in any such obligation or in any agreement relating thereto, if the
effect of such default is to cause, or permit, the holder or holders of such
obligation (or a trustee on behalf of such holder or holders) to cause such
obligation to become due prior to its stated maturity or to realize upon any
collateral given as security therefor; or
 
(f)  The institution by any Debtor, charterer under an Assigned Charter,
Collateral Vessel Owner, Pledgor or Guarantor of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by any of them to the institution of
bankruptcy or insolvency proceedings against it, or the commencement by any
Debtor, Collateral Vessel Owner, Pledgor, charterer under an Assigned Charter or
Guarantor of a voluntary proceeding or case under the federal bankruptcy laws,
as now or hereafter constituted, or any other applicable federal, state or
foreign bankruptcy, insolvency or other similar law, or the consent by any of
them to the filing of any such petition or to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian or
sequestrator (or other similar official) of any Debtor, Collateral Vessel Owner,
Pledgor, charterer under an Assigned Charter or Guarantor or of any substantial
part of their respective properties, or the making by any of them of any
assignment for the benefit of creditors or the admission by any of them of an
inability to pay its debts generally as they become due or its willingness to be
adjudicated a bankrupt or the failure of any Debtor, Collateral Vessel Owner,
Pledgor, charterer under an Assigned Charter or Guarantor generally to pay its
debts as they become due or the taking of corporate action by any Debtor,
Collateral Vessel Owner, Pledgor, charterer under an Assigned Charter or
Guarantor in furtherance of any of the foregoing; or
 
(g)  The entry of a decree or order for relief by a court having jurisdiction in
respect of any Debtor, Collateral Vessel Owner, charterer under an Assigned
Charter, Pledgor or Guarantor, adjudging such Person a bankrupt or insolvent, or
approving as properly filed a petition seeking a reorganization, arrangement,
adjustment or composition of or in respect of such Person in an involuntary
proceeding or case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal, state or foreign bankruptcy,
insolvency or other similar law, or appointing a receiver, liquidator, assignee,
custodian, trustee or sequestrator (or other similar official) of the such
Person, or of any substantial part of its property, or ordering the winding-up
or liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of sixty (60) days or an assignment for the
benefit of creditors of a majority of all the assets of any Debtor, any
Collateral Vessel Owner, any charterer under an Assigned Charter, Pledgor or
Guarantor; or
 
(h)  A Mortgage Event of Default (as defined in any Mortgage or Collateral
Vessel Owners’ Second Mortgage) shall have occurred or be continuing; or
 
(i)  The receipt by Lender of its first notice of an oil spill or discharge or a
hazardous discharge by or an environmental complaint against any Security Vessel
or any Debtor or Collateral Vessel Owner from a source other than a Debtor,
where Lender does not receive notice (which may be given in oral form, provided
same is followed with all due dispatch by written notice given by Certified
Mail, Return Receipt Requested) of such hazardous discharge or environmental
complaint from a Debtor or the Manager within three (3) Business Days from the
time Lender first receives said notice from a source other than a Debtor or the
Manager; or
 
(j)  Assertion by any federal, state, or local agency of a Lien (i) upon any
Collateral, or (ii) if it materially adversely affects any Debtor, Collateral
Vessel Owner, charterer under any Assigned Charter or Guarantor, upon any of the
other assets, equipment, property, leaseholds or other facilities of any Debtor
by reason of the occurrence of a hazardous discharge or environmental complaint
and such lien is not removed within ten (10) days of Debtors becoming aware
thereof or as otherwise provided in the Mortgages or the Collateral Vessel
Owners’ Mortgages; or
 
(k)  Any party thereto shall terminate, purport to terminate, rescind or cease
to perform in any material respect the provisions of any Assigned Charter; or
 
(l)  This Agreement or any other Loan Document shall cease to be in full force
and effect or shall be declared to be null and void, or the validity or
enforceability thereof shall be contested by any Debtor, Pledgor, Collateral
Vessel Owner, charterer under any Assigned Charter, Guarantor or Manager.
 
Section 8.  REMEDIES.
 
8.1  If an Event of Default specified in Sections 7(f) or (g) above shall occur,
then, and in any such event, the Commitment shall immediately terminate and the
principal amount outstanding under the Note, together with accrued interest
thereon, and all other amounts owing under or with respect to this Agreement and
the other Loan Documents, shall become immediately due and payable without any
notice or other action by Lender, and if any other Event of Default shall occur
and be continuing, then, and in any such event, Lender may, by notice of default
given to the Debtors, (a) terminate forthwith the Commitment and/or (b) declare
the Note and all other amounts owing thereunder or with respect to this
Agreement to be forthwith due and payable, whereupon the principal amount of the
Note, together with accrued interest thereon and all other amounts owing
thereunder or with respect to this Agreement and the other Loan Documents shall
become immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived to the extent
permitted by applicable law. During the continuance of any Event of Default
hereunder, Lender shall have the right to pursue and enforce any of its rights
and remedies under this Section 8.
 
8.2  If an Event of Default shall occur and be continuing, Lender may exercise,
in addition to all other rights and remedies granted to it in this Agreement,
the Note, the Mortgages, the Pledge , the Collateral Vessel Owners’ Guaranty,
the Collateral Vessel Owners’ Second Mortgages, the Collateral Vessel Owners’
Second Assignments, the Guaranty, the Debtors’ Guaranty, the Assignments, any
other Loan Document and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of secured
parties under the Code or under any other applicable law. Without limiting the
generality of the foregoing, each Debtor agrees that in any such event, Lender
may exercise any or all of such Debtor’s respective rights, and Lender, without
demand of performance or other demand, advertisement or notice of any kind
(except the notice specified below of time and place of public or private sale)
to or upon the Debtors, the Collateral Vessel Owners, Pledgor, Guarantors, any
charterer under any Assigned Charter or any other Person (all and each of which
demands, advertisements and/or notices are hereby expressly waived), may
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give an option or
options to purchase or otherwise dispose of and deliver the Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange or broker’s board or at any of Lender’s
offices or elsewhere at such prices as it may deem best, for cash or a credit or
for future delivery without assumption of any credit risk. Lender shall have the
right upon any such public sale or sales, and, to the extent permitted by law,
upon any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in any Debtor,
Collateral Vessel Owner or Pledgor, which right or equity is hereby expressly
released to the extent permitted by applicable law. Each Debtor further agrees,
at Lender’s request, to assemble and to cause Pledgor and the Collateral Vessel
Owners to assemble the Collateral, make it available to Lender at places which
Lender shall reasonably select, whether at any Debtor’s premises or elsewhere.
Lender shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale (after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care, safekeeping
or otherwise of any or all of the Collateral or in any way relating to the
rights of Lender hereunder, including reasonable attorneys’ fees and expenses)
to the payment in whole or in part of the Obligations, in such order as Lender
may elect and only after so applying such net proceeds and after the payment by
Lender of any other amount required by any provision of law need Lender account
for the surplus, if any, to the Debtor. To the extent permitted by applicable
law, each Debtor waives all claims, damages, and demands against Lender arising
out of the repossession, retention or sale of the Collateral. Each Debtor agrees
that Lender need not give more than ten (10) days’ notice (which notification
shall be deemed given when mailed, postage prepaid, addressed to such Debtor at
its address set forth in Section 9.4 hereof) of the time and place of any public
sale or of the time after which a private sale may take place and that such
notice is reasonable notification of such matters. The Debtors shall be jointly
and severally liable for any deficiency if the proceeds of any sale or
disposition of the Collateral are insufficient to pay any and all Obligations
due Lender under any of this Agreement, the Note and the other Loan Documents.
 
8.3  The Debtors agree to pay all costs of Lender, including reasonable
attorneys’ fees and disbursements, incurred with respect to the collection of
any of the Obligations and the enforcement of any of their rights hereunder or
under any other of the Loan Documents.
 
8.4  The Debtors hereby waive presentment, demand, protest or any notice (to the
extent permitted by applicable law) of any kind in connection with this
Agreement, any other Loan Document or the Collateral.
 
Section 9.  MISCELLANEOUS
 
9.1  Limitation of Liability/Continuing Indemnities. Notwithstanding anything to
the contrary contained in this Agreement, in the event that any court or other
judicial body of competent jurisdiction determines that legal principles of
fraudulent conveyances, fraudulent transfers or similar concepts are applicable
in evaluating the enforceability against any Debtor or its respective assets of
this Agreement and that under such principles, this Agreement would not be
enforceable against such Debtor or its assets unless the following provisions of
this Section 9.1 had effect, then, the maximum liability of each Debtor
hereunder (the “Maximum Liability Amount”) shall be limited so that in no event
shall such amount exceed the lesser of (i) the aggregate outstanding principal
amount of the Loan and (ii) an amount equal to the aggregate, without double
counting, of (a) ninety-five percent (95%) of such Debtor’s Adjusted Net Worth
(as hereinafter defined) on the date hereof, or on the date enforcement of this
Agreement is sought (the “Determination Date”), whichever is greater and (b) the
amount of any Valuable Transfer (as hereinafter defined) to such Debtor;
provided that such Debtor’s liability under this Agreement shall be further
limited to the extent, if any, required so that the obligations of such Debtor
under this Agreement shall not be subject to being set aside or annulled under
any applicable law relating to fraudulent transfers or fraudulent conveyances.
As used herein “Adjusted Net Worth” of the respective Debtor shall mean, as of
any date of determination thereof, an amount equal to the lesser of (a) an
amount equal to the excess of (i) the amount of the present fair saleable value
of the assets of such Debtor over (ii) the amount that will be required to pay
such Debtor’s probable liability on its then existing debts, including
contingent liabilities (exclusive of its contingent liabilities hereunder), as
they become absolute and matured, and (b) an amount equal to (i) the excess of
the sum of such Debtor’s property at a fair valuation over (ii) the amount of
all liabilities of such Debtor, contingent or otherwise (exclusive of its
contingent liabilities hereunder), as such terms are construed in accordance
with applicable laws governing determinations of the insolvency of debtors. In
determining the Adjusted Net Worth of a Debtor for purposes of calculating the
Maximum Liability Amount for such Debtor, the liabilities of such Debtor to be
used in such determination pursuant to each clause (ii) of the preceding
sentence shall in any event exclude (a) the liability of such Debtor under this
Agreement and (b) the liabilities of such Debtor subordinated in right of
payment to this Agreement. As used herein “Valuable Transfer” shall mean, in
respect of such Debtor, (a) all loans, advances or capital contributions made to
such Debtor with proceeds of the Loan , (b) all debt securities or other
obligations of such Debtor acquired from such Debtor or retired by such Debtor
with proceeds of the Loan (c) the fair market value of all property acquired
with proceeds of the Loan and transferred, absolutely and not as collateral, to
such Debtor, (d) all equity securities of such Debtor acquired from such Debtor
with proceeds of the Loan, and (e) the value of any other economic benefits in
accordance with applicable laws governing determinations of the insolvency of
debtors, in each such case accruing to such Debtor as a result of the Loan and
this Agreement. 
 
9.2  Customer Identification- USA Patriot Act Notice; OFAC and Bank Secrecy Act.
Lender hereby notifies each of the Debtors that pursuant to the requirements of
the USA Patriot Act (Title III of Pub. L. 107-56, signed into law October 26,
2001) (the “Act”), and Lender’s policies and practices, Lender is required to
obtain, verify and record certain information and documentation that identifies
each Debtor, which information includes the name and address of each Debtor and
such other information that will allow the Lender to identify each Debtor in
accordance with the Act. In addition, each Debtor shall (a) ensure that no
Person who owns a controlling interest in or otherwise controls any Debtor or
any subsidiary of any Debtor is or shall be listed on the Specially Designated
Nationals and Blocked Person List or other similar lists maintained by the
Office of Foreign Assets Control (“OFAC”), the Department of the Treasury or
included in any Executive Orders, (b) not use or permit the use of the proceeds
of the Loan to violate any of the foreign asset control regulations of OFAC or
any enabling statute or Executive Order relating thereto, and (c) comply, and
cause any of its subsidiaries to comply, with all applicable Bank Secrecy Act
(“BSA”) laws and regulations, as amended.
 
9.3  No Waiver; Cumulative Remedies. No failure or delay on the part of Lender
in exercising any right, remedy, power or privilege hereunder or under the Note
or any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. No right or remedy in this Agreement or
any other Loan Document is intended to be exclusive but each shall be cumulative
and in addition to any other remedy referred to herein or otherwise available to
Lender at law or in equity; and the exercise by Lender of any one or more of
such remedies shall not preclude the simultaneous or later exercise by Lender of
any or all such other remedies. To the extent permitted by law, each Debtor
waives any rights now or hereafter conferred by statute or otherwise which limit
or modify any of Lender’s rights or remedies under this Agreement or any other
Loan Document.
 
9.4  Notices. All notices, requests and demands to or upon any party hereto
shall be deemed to have been duly given or made when sent by telecopier with
telephonic confirmation, or deposited in the United States mail, first class
postage prepaid, or sent by a nationally recognized overnight courier service,
addressed to such party as follows, or to such other address as may be hereafter
designated in writing by such party to the other party hereto:
 
Debtors:
Sterling Shipping Corp.
P.O. Box HM 2522
Hamilton HMGX
BERMUDA
Attention: William J. Carr
Facsimile No.: 1441-295-4957
 
 
Remsen Navigation Corp.
P.O. Box HM 2522
Hamilton HMGX
BERMUDA
Attention: William J. Carr
Facsimile No.: 1441-295-4957
 
with a copy to:
TBS Shipping Services Inc.
612 East Grassy Sprain Rd.
Yonkers, NY 10710 USA
Attention: Ferdinand V. Lepere
Facsimile No.: 914/961-5121
and:
Cardillo & Corbett
29 Broadway
New York, NY 10006 USA
Attention: Tulio R. Prieto, Esq.
Facsimile No.: 212/797-1212
Lender:
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., ACTING THROUGH ITS DIVISION,
MERRILL LYNCH CAPITAL
222 N. LaSalle St.
Chicago, IL 60601
Attention: Group Senior Credit Officer
Facsimile No.: 312/750-6108
with a copy to:
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., ACTING THROUGH ITS DIVISION,
MERRILL LYNCH CAPITAL
222 N. LaSalle St.
Chicago, IL 60601
Attention: Portfolio Manager
Facsimile No.: 312/750-6108

9.5  
Payment of Expenses and Taxes; Indemnity; Performance by Lender of the Debtors’
Obligations.

 
(a)  The Debtors agree, whether or not the transactions contemplated by this
Agreement and the other Loan Documents shall be consummated, to be jointly and
severally liable for and to pay (i) all reasonable costs and expenses of Lender
in connection with the negotiation, preparation, execution and delivery of this
Agreement and the other Loan Documents, and the other documents relating hereto,
including, without limitation, the fees and disbursements of counsel to Lender;
(ii) all fees and taxes in connection with the recording of this Agreement, the
Mortgages, the Collateral Vessel Owners’ Second Mortgages, and the other Loan
Documents or any other document or instrument required hereby or thereby; and
(iii) all reasonable costs and expenses of Lender in connection with the
enforcement of this Agreement, the Note and the other Loan Documents, including
all reasonable legal fees and disbursements arising in connection therewith. The
Debtors also jointly and severally agree to pay, and to jointly and severally
indemnify and save Lender harmless from and against any and all taxes,
including, without limitation, non-U.S. taxes imposed on Lender and measured by
or with reference to income of Lender based on receipt of payments made or on
behalf of any Debtor pursuant to this Agreement, the Note or other Loan
Documents, sales, use, stamp and personal property taxes (other than any
corporate income, capital, franchise or similar taxes payable by Lender with
respect to the payments made to Lender hereunder or thereunder) and all license,
filing, and registration fees and assessments and other charges, if any, which
may be payable or determined to be payable in connection with the execution,
delivery and performance of this Agreement, the Note or the other Loan Documents
or any modification thereof or supplement thereto.
 
(b)  The Debtors hereby further jointly and severally agree, whether or not the
transactions contemplated by this Agreement shall be consummated, and whether or
not the Loan has been made by Lender to the Debtors, to jointly and severally
pay, indemnify, and hold Lender harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, suits, out-of-pocket costs, expenses (including legal expenses) or
disbursements of any kind or nature whatsoever arising out of or with respect to
this Agreement, the other Loan Documents, the Security Vessels, the other
Collateral or Lender’s interest therein, including, without limitation, the
execution, delivery, enforcement, performance, administration, amendment or
modification of this Agreement, the Note and the other Loan Documents and the
manufacture, purchase, ownership, possession, use, selection, operation or
condition of any Security Vessel or any part thereof (the foregoing being
referred to as the “indemnified liabilities”); provided, however, that the
Debtors shall not have any obligation hereunder with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of Lender.
 
(c)  If any Debtor fails to perform or comply, or otherwise cause performance or
compliance, with such agreement, the expenses of Lender incurred in connection
with such performance or compliance, together with interest thereon at the rate
provided for in the Note shall be payable by the Debtor to Lender on demand and
until such payment shall constitute Obligations secured hereby.
 
9.6  Proposal Fee. Debtors have already paid, and Lender acknowledges receipt of
the U.S.$87,500 Proposal Fee.
 
9.7  Survival of Representations and Warranties. All representations and
warranties made in this Agreement or any of the other Loan Documents and any
certificates delivered pursuant hereto or thereto shall survive the execution
and delivery of this Agreement and the making of the Loan hereunder and the
agreements contained in Section 9.3 hereof shall survive payment of the Note.
 
9.8  Amendments; Waivers. No provision of this Agreement, the Note, any other
Loan Document or any related agreements may be amended or modified in any way,
nor may noncompliance therewith be waived, except pursuant to a written
instrument executed by Lender and the Debtors. In the case of any waiver, Lender
and the Debtors shall be restored to their former position and rights hereunder,
under the Note, any other Loan Document and under any related agreements, and
any Default or Event of Default waived shall be deemed to be cured and not
continuing, but no such waiver shall in any way be, or be construed to be, a
waiver of any other or subsequent Default or Event of Default, or impair any
right consequent thereon.
 
9.9  Counterparts. This Agreement may be executed by the parties hereto on any
number of separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
 
9.10  Authorization to Date, Complete Blanks and Correct Errors. Each Debtor
hereby irrevocably authorizes Lender and Lender’s agents, representatives and
employees to date, to complete any blank spaces contained in, and to correct any
typographical or mathematical errors appearing in, this Agreement, the Note or
in any other Loan Documents or other documents pertaining hereto or thereto.
 
9.11  Merger Clause. This Agreement and the other Loan Documents contain the
complete, final and exclusive statement of the terms of the agreement between
Lender and the Debtors relating to the transactions hereby contemplated
 
9.12  Successors or Assigns. This Agreement shall inure to the benefit of
Lender, its successors and assigns, and shall be binding upon the successors of
either of the Debtors. The rights and obligations of the Debtors under this
Agreement may not be assigned or delegated. Lender reserves the right to sell,
assign, transfer, negotiate or grant participations in all or any part of, or
any interest in, Lender’s rights and obligations hereunder, in the Note, in any
other Loan Document, in the Collateral and/or the Obligations held by it to
others at any time and from time to time; and Lender may disclose to any such
purchaser, assignee, transferee or participant (the “Participant”), or potential
Participant, this Agreement and all information, reports, financial statements
and documents executed or obtained in connection with this Agreement which
Lender now or hereafter may have relating to the Loan, either of the Debtors, or
the business of either Debtor. Lender shall, acting for this purpose as an agent
of each of the Debtors, maintain at its offices a register for the recordation
of the names and addresses of its participants or assignees, and the amount and
terms of its participations and assignments including specifying any such
participant’s or assignee’s entitlement to payments of principal and interest,
and any payments made, with respect to each such participation or assignment.
The Debtors hereby grant to any Participant all liens, rights and remedies of
Lender under the provisions of this Agreement or any other documents relating
hereto or under applicable laws. Each of the Debtors agrees that any Participant
may enforce such liens and exercise such rights and remedies in the same manner
as if such Participant were Lender and a direct creditor of the Debtors.
 
9.13  Construction. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability shall
not invalidate or render unenforceable such provision in any other jurisdiction.
To the extent permitted by law, each Debtor hereby waives any provision of law
which renders any provision hereof prohibited or unenforceable in any respect.
THIS AGREEMENT AND (EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN ANY OTHER LOAN
DOCUMENT) THE OTHER LOAN DOCUMENTS SHALL IN ALL RESPECTS BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, UNITED STATES
OF AMERICA, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE
(WITHOUT REFERENCE TO CONFLICTS OF LAWS PRINCIPLES (OTHER THAN TITLE 14 OF
ARTICLE 5 OF THE GENERAL OBLIGATIONS LAW). 
 
9.14  Jurisdiction. EACH DEBTOR HEREBY IRREVOCABLY CONSENTS AND AGREES THAT ANY
LEGAL ACTION, SUIT, OR PROCEEDING ARISING OUT OF OR IN ANY WAY IN CONNECTION
WITH THIS AGREEMENT MAY BE INSTITUTED OR BROUGHT IN THE COURTS OF THE STATE OF
NEW YORK, IN THE COUNTY OF NEW YORK, OR THE UNITED STATES COURTS FOR THE
SOUTHERN DISTRICT OF NEW YORK, AS LENDER MAY ELECT, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH DEBTOR HEREBY IRREVOCABLY ACCEPTS AND SUBMITS
TO, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,
THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT, AND TO ALL PROCEEDINGS IN SUCH
COURTS. EACH DEBTOR IRREVOCABLY CONSENTS TO SERVICE OF ANY SUMMONS AND/OR LEGAL
PROCESS BY REGISTERED OR CERTIFIED UNITED STATES AIR MAIL, POSTAGE PREPAID, TO
SUCH DEBTOR AT THE ADDRESS SET FORTH IN SECTION 9.4 HEREOF, SUCH METHOD OF
SERVICE TO CONSTITUTE, IN EVERY RESPECT, SUFFICIENT AND EFFECTIVE SERVICE OF
PROCESS IN ANY SUCH LEGAL ACTION OR PROCEEDING. NOTHING IN THIS AGREEMENT SHALL
AFFECT THE RIGHT TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
LIMIT THE RIGHT TO BRING ACTIONS, SUITS OR PROCEEDINGS IN THE COURTS OF ANY
OTHER APPROPRIATE JURISDICTION. EACH DEBTOR FURTHER AGREES THAT FINAL JUDGMENT
AGAINST IT IN ANY SUCH LEGAL ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN ANY OTHER JURISDICTION, WITHIN OR OUTSIDE THE UNITED STATES
OF AMERICA, BY SUIT ON THE JUDGMENT, A CERTIFIED OR EXEMPLIFIED COPY OF WHICH
SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT OF THE LIABILITY.
 
9.15  Waiver of Trial by Jury. EACH DEBTOR AND LENDER IN ANY LITIGATION RELATING
TO OR IN CONNECTION WITH THIS AGREEMENT IN WHICH THEY SHALL BE ADVERSE PARTIES
WAIVE TRIAL BY JURY. 
 
9.16  Necessary or Indispensable Parties. EACH DEBTOR WAIVES ANY CLAIM OR
DEFENSE IT MAY HAVE THAT ANY OTHER DEBTOR, PLEDGOR, GUARANTOR, COLLATERAL VESSEL
OWNER, CHARTERER OF AN ASSIGNED CHARTER, OR ANY OTHER PERSON WHATSOEVER IS
EITHER A NECESSARY OR INDISPENSABLE PARTY IN ANY ACTION COMMENCED BY LENDER
AGAINST SUCH DEBTOR’S VESSEL OR AGAINST SUCH DEBTOR IN ANY WAY IN RESPECT OF THE
LOAN, ANY VESSEL, THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENT. 
 
[signature page follows]
 

 
 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered by their proper and duly authorized officers as of the day and
year first above written.
 

 
STERLING SHIPPING CORP.
 
By: 
 
Name: Tara DeMakes
 
Title: Attorney-in-Fact
 
 
REMSEN NAVIGATION CORP.
 
By: 
 
Name: Tara DeMakes
 
Title: Attorney-in-Fact
 
 
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., acting through its division,
Merrill Lynch Capital
 
By: 
Name:
Title:

 
 

--------------------------------------------------------------------------------

 

ACKNOWLEDGMENT
 
STATE OF NEW YORK
)
   
)
SS.:
COUNTY OF NEW YORK
)
 

On this 15 day of December, 2005 before me personally appeared Tara DeMakes,
who, being by me duly sworn, deposes and says that she resides
at _______________________________,
that he is Attorney-in-Fact of STERLING SHIPPING CORP. the corporation described
in and which executed the foregoing instrument; and that he signed her name
thereto by order of the Board of Directors of said corporation and the said
instrument is the act and deed of said corporation.
 
In witness whereof, I have hereunto set my hand and affixed my official seal.
 
________________________________________
Notary Public

 
 

--------------------------------------------------------------------------------

 

ACKNOWLEDGMENT
 
STATE OF NEW YORK
)
   
)
SS.:
COUNTY OF NEW YORK
)
 

On this ___ day of December, 2005 before me personally appeared Tara DeMakes,
who, being by me duly sworn, deposes and says that she resides
at _______________________________,
that he is Attorney-in-Fact of REMSEN NAVIGATION CORP., the corporation
described in and which executed the foregoing instrument; and that he signed her
name thereto by order of the Board of Directors of said corporation and the said
instrument is the act and deed of said corporation.
 
In witness whereof, I have hereunto set my hand and affixed my official seal.
 
________________________________________
Notary