EXHIBIT 2.36

                              AMENDED AND RESTATED
                             REIMBURSEMENT AGREEMENT

                                      AMONG

                       BARRINGTON (AUSTRALIA) PTY LIMITED
                       PALMERSTON (AUSTRALIA) PTY LIMITED
                             VSSI AUSTRALIA LIMITED
                               VSSI TRANSPORT INC.

                        ALLIANCE CHARTERING PTY LIMITED,
                               as Account Parties,

                          NEDSHIP BANK (AMERICA) N.V.,
                      as Agent, Security Trustee and Issuer


                                       AND

                                    THE BANKS

                               as provided herein.


===============================================================================




                                                  April 16, 1998

01029.004 #79655

                                                        5

                                                       INDEX

                                                                            PAGE

CLAUSE 1 DEFINITIONS.........................................................  3

1.1  Defined Terms...........................................................  3
1.2  Construction............................................................ 18
1.3  Accounting Terms........................................................ 18

CLAUSE 2 LETTER OF CREDIT.................................................... 19

2.1  Issuance of the Amended Letter of Credit................................ 19
2.2  Several Obligations; Drawings........................................... 19
2.3  Reimbursement Obligation; Interest...................................... 20
2.4  Commission and Fees..................................................... 21
2.5  Increased Cost ......................................................... 22
2.6  Illegality.............................................................. 24
2.7  Substitution of Banks................................................... 24
2.8  General Provisions as to Payment........................................ 25
2.9  Obligations Absolute.................................................... 26
2.10 Determination of Losses................................................. 27

CLAUSE 3 REPRESENTATIONS AND WARRANTIES...................................... 27

3.1(a) Due Organization and Power............................................ 27
3.1(b) Authorization and  Consents........................................... 27
3.1(c) Filings,  etc......................................................... 28
3.1(d) Binding  Obligations.................................................. 28
3.1(e) No  Violation......................................................... 28
3.1(f) No  Immunity.......................................................... 28
3.1(g) Litigation............................................................ 29
3.1(h) No Default............................................................ 29
3.1(i) Charters.............................................................. 29
3.1(j) Vessel Ownership, Classification, Seaworthiness and Insurance......... 29
3.1(k) Financial Statements.................................................. 30
3.1(l) Tax Returns and Payments.............................................. 30
3.1(m) Insurance............................................................. 30
3.1(n) Offices............................................................... 31
3.1(o) Not an Investment Company............................................. 31
3.1(p) Equity Ownership...................................................... 31
3.1(q) Environmental Matters................................................. 31
3.1(r) Pending or Threatened Environmental Claims............................ 32
3.1(s) Limited Purpose....................................................... 32
3.1(t) Permitted Indebtedness................................................ 32
3.1(u) Survival.............................................................. 32

CLAUSE 4 CONDITIONS PRECEDENT................................................ 32

4.1 Conditions Precedent to Issuance of Amended Letter of Credit............. 32

CLAUSE 5 PAYMENTS............................................................ 36

5.1  Place of Payments, No Set Off........................................... 36
5.2  Tax Credits............................................................. 38
5.3  Sharing of Setoffs...................................................... 38

CLAUSE 6 EVENTS OF DEFAULT................................................... 39

6.1(a) Repayments............................................................ 39
6.1(b) Other Payments........................................................ 39
6.1(c) Loan Agreements....................................................... 39
6.1(d) Representations, etc.................................................. 39
6.1(e) Impossibility, Illegality............................................. 39
6.1(f) Covenants............................................................. 39
6.1(g) Indebtedness.......................................................... 40
6.1(h) Stock Ownership....................................................... 40
6.1(i) Default under the Security Documents.................................. 40
6.1(j) Bankruptcy............................................................ 40
6.1(k) Sale of Assets........................................................ 40
6.1(l) Judgments............................................................. 41
6.1(m) Inability to Pay Debts................................................ 41
6.1(n) Financial Position.................................................... 41
6.1(o) Amendment or Assignment of Charters................................... 41
6.1(p) Termination or Default Under Charters................................. 41
6.2  Indemnification......................................................... 42
6.3  Application of Moneys................................................... 42

CLAUSE 7 COVENANTS........................................................... 43

7.1  Covenants............................................................... 43

7.1(A)(i)   Performance of Agreements........................................ 43
7.1(A)(ii)  Notice of Default; Change in Classification of Vessel............ 44
7.1(A)(iii) Obtain Consents.................................................. 44
7.1(A)(iv)  Financial Statements............................................. 44
7.1(A)(v)   Corporate Existence.............................................. 45
7.1(A)(vi)  Books, Records, etc.............................................. 45
7.1(A)(vii) Inspection....................................................... 45
7.1(A)(viii)Taxes        .................................................... 45
7.1(A)(ix)  Compliance with Statutes, etc.................................... 46
7.1(A)(x)   Environmental Matters............................................ 46
7.1(A)(xi)  Accountants...................................................... 47
7.1(A)(xii) Continue Charters................................................ 47
7.1(A)(xiii)Class Certificate................................................ 47
7.1(A)(xiv) Maintenance of Properties........................................ 47
7.1(A)(xv)  Vessel Management................................................ 48
7.1(A)(xvi) ISM Compliance................................................... 48
7.1(A)(xvii)Limitation on Restricted Payments................................ 48
7.1(B)(i)   Liens............................................................ 50
7.1(B)(ii)  Loans and Advances............................................... 51
7.1(B)(iii) Limitation on Indebtedness....................................... 51
7.1(B)(iv)  Guarantees, etc.................................................. 53
7.1(B)(v)   Changes in Business.............................................. 53
7.1(B)(vi)  Use of Corporate Funds........................................... 53
7.1(B)(vii) Issuance of Shares............................................... 53
7.1(B)(viii)Consolidation, Merger............................................ 54
7.1(B)(ix)  Changes in Offices or Names...................................... 54
7.1(B)(x)   Limitation on Transactions with Shareholders and Affiliates...... 54
7.1(B)(xi)  Change of Flag................................................... 55
7.1(B)(xii) Sale of Vessel................................................... 55
7.1(b)(xiii)Modification of Agreements....................................... 55
7.2  Valuation of the Vessels................................................ 55
7.3  Collateral Maintenance.................................................. 55
7.4  Substitution of Collateral.............................................. 56

CLAUSE 8 ASSIGNMENT/PARTICIPATIONS........................................... 56

8.1 Assignment............................................................... 56

8.2 Participations........................................................... 57

CLAUSE 9 CURRENCY INDEMNITY.................................................. 57

9.1  Currency Conversion..................................................... 57
9.2  Change in Exchange Rate................................................. 58
9.3  Additional Debt Due..................................................... 58
9.4  Rate of Exchange........................................................ 58

CLAUSE 10 EXPENSES........................................................... 58

10.1 Expenses................................................................ 58

CLAUSE 11 APPLICABLE LAW, JURISDICTION AND WAIVER............................ 59

11.1 Applicable Law.......................................................... 59
11.2 Jurisdiction ........................................................... 59
11.3 WAIVER OF JURY TRIAL.................................................... 59

CLAUSE 12 THE AGENT.......................................................... 60

12.1 Appointment of Agent.................................................... 60
12.2 Distribution of Payments................................................ 60
12.3 No Duty to Examine, Etc................................................. 60
12.4 Agent as Banks.......................................................... 60
12.5(a) Obligations of Agent................................................. 60
12.5(b) No Duty to Investigate............................................... 60
12.6(a) Discretion of Agent.................................................. 61
12.6(b) Instructions of Majority Banks....................................... 61
12.7 Assumption re Event of Default.......................................... 61
12.8 No Liability of Agent or Banks.......................................... 61
12.9 Indemnification of Agent................................................ 62
12.10Consultation with Counsel............................................... 62
12.11Resignation ............................................................ 62
12.12Representations of Banks................................................ 63
12.13Notification of Event of Default........................................ 63
12.14Distributing Financial Statements, etc.................................. 63

CLAUSE 13 APPOINTMENT OF SECURITY TRUSTEE.................................... 63

CLAUSE 14 NOTICES AND DEMANDS................................................ 64

14.1 Notices................................................................. 64

CLAUSE 15 MISCELLANEOUS...................................................... 64

15.1 Time of Essence......................................................... 64
15.2 Unenforceable, etc., Provisions - Effect................................ 64
15.3 References ............................................................. 65
15.4 Further Assurances...................................................... 65
15.5 Prior Agreements, Merger................................................ 65
15.6 Joint and Several Obligations........................................... 65
15.7 Limitation of Liability................................................. 65
15.8 Release of Palmstar Thistle............................................. 67
15.9 Entire Agreement; Amendments............................................ 67
15.10Headings   ...........................................................   67

EXHIBITS

    A                      Amended Letter of Credit
    B                      Guaranty
    C1                     Form of Bahamian Deed of Covenants
    C2                     Form of Australian Mortgage
    C3                     Form of Mortgage Amendment
    D1 Form of Bahamian Vessels Earnings Assignment
    D2Form of Australian Vessels Earnings Assignment
    E                      Form of Insurances Assignment
    F                      Form of Sub-Charter Assignment
    G1Form of Consent and Agreement to the Earnings Assignment
    G2Form of Consent and Agreement to the Sub- Charter Assignment
    H                      Form of Share Pledge
    I                      Form of Assignment and Assumption Agreement
    J                      Form of Compliance Certificate
    K                      Accession Agreement

























01029.004 #79655




                              AMENDED AND RESTATED
                             REIMBURSEMENT AGREEMENT


     THIS AMENDED AND RESTATED  REIMBURSEMENT  AGREEMENT  dated  April __,  1998
(this "Agreement") is made among BARRINGTON (AUSTRALIA) PTY LIMITED (ACN 080 850
559)  ("Barrington")  and PALMERSTON  (AUSTRALIA)  PTY LIMITED (ACN 080 850 586)
("Palmerston"  and with  Barrington  collectively  referred to as the  "Original
Borrowers"),  each a company  organized and existing under the laws of New South
Wales,  Commonwealth  of  Australia,  and  VSSI  AUSTRALIA  LIMITED,  a  company
organized  and  existing  under  the  laws of the  Republic  of  Liberia  ("VSSI
Australia"  and with the  Original  Borrowers  collectively  referred  to as the
"Borrowers"),  VSSI TRANSPORT  INC., a company  organized and existing under the
laws of the  Republic  of  Liberia  ("VSSI  Transport"  and with  the  Borrowers
collectively  referred to as the "Owners"),  and ALLIANCE CHARTERING PTY LIMITED
(ACN 080 850 540) ("Alliance"),  a company organized and existing under the laws
of New South Wales,  Commonwealth of Australia,  as account parties  ("Alliance"
and with the Owners individually referred to as an "Obligor" and collectively as
the  "Obligors"),  the  BANKS  listed  on the  signature  pages  hereof  and any
additional banks as may become a party hereto pursuant to Clause 8 (the "Banks")
and NEDSHIP BANK (AMERICA) N.V. ("Nedship"), as agent (the "Agent") and security
trustee (the  "Security  Trustee"),  which  Agreement  amends and restates  that
certain   reimbursement   agreement  dated  December 17,   1997  (the  "Original
Reimbursement  Agreement")  made among,  inter  alia,  the  Original  Borrowers,
Palmstar  Thistle Inc., a company  organized and existing  under the laws of the
Republic of Liberia ("Palmstar  Thistle"),  Alliance,  certain of the Banks, the
Agent and the Security Trustee.

     WHEREAS the Original  Borrowers and Rabo Bank Australia Ltd. (the "Lender")
are  parties  to a loan  agreement  dated  December 17,  1997 (the  "First  Loan
Agreement")  providing  for  (among  other  things)  the  making  of a  loan  of
US$44,000,000  (the "First  Loan") by the Lender to the  Original  Borrowers  to
enable the Original  Borrowers to acquire the Australian flag vessels BARRINGTON
and PALMERSTON;

     WHEREAS,  a  condition  precedent  to the making of the First Loan was that
Nedship (the "Loan Guarantor")  deliver to the Lender a letter of guarantee (the
"Letter of Guarantee")  which secured the obligations of the Original  Borrowers
under the First Loan Agreement;

     WHEREAS,  a condition  precedent to the issuance of the Letter of Guarantee
by the  Loan  Guarantor  was  that  the  Loan  Guarantor,  as  beneficiary  (the
"Beneficiary")  receive a standby  letter of credit in the maximum stated amount
of US$46,000,000  (of which  US$44,000,000  secured the amount guaranteed by the
Loan Guarantor of the First Loan and $2,000,000  secured  interest and expenses)
(the  "Letter  of  Credit")  from the  Agent on  behalf of  certain  banks  (the
"Original  Banks") as security for the obligations of the Original  Borrowers to
the Loan Guarantor in respect of the Letter of Guarantee;

     WHEREAS, the the Agent on behalf of the Original Banks issued the Letter of
Credit on the terms and conditions of the Original Reimbursement Agreement;

     WHEREAS,  VSSI  Australia  and the Lender are  parties to a loan  agreement
dated as of the date hereof (the "Second Loan Agreement" and with the First Loan
Agreement  collectively  referred  to as the "Loan  Agreements")  providing  for
(among other  things) the making of a loan of up to  US$30,000,000  (the "Second
Loan" and with the First Loan  collectively  referred to as the  "Loans") by the
Lender to VSSI  Australia to enable VSSI  Australia to finance the Bahamian flag
vessel DAMPIER SPIRIT;

     WHEREAS,  it is a condition precedent to the making of the Second Loan that
the Loan  Guarantor  deliver  to the Lender an amended  and  restated  letter of
guarantee (the "Amended Letter of Guarantee"), which Amended Letter of Guarantee
amends and restates the Letter of Guarantee to provide for the  guarantee of the
obligations  of the Original  Borrowers  under the First Loan  Agreement and the
obligations of VSSI Australia under the Second Loan Agreement;

     WHEREAS,  it is a condition precedent to the issuance of the Amended Letter
of Guarantee by the Loan Guarantor  that the Loan  Guarantor  receive an amended
and  restated  standby  letter  of  credit  in  the  maximum  stated  amount  of
US$78,000,000,  (of which $74,000,000  secures the amount guaranteed by the Loan
Guarantor  of the Loans and  $4,000,000  secures  interest  and  expenses)  (the
"Amended  Letter of  Credit")  from the Agent on behalf of the Banks as security
for the  obligations  of the  Borrowers to the Loan  Guarantor in respect of the
Amended Letter of Guarantee;

     WHEREAS,  the Obligors  have  requested the Agent on behalf of the Banks to
issue the Amended Letter of Credit; and

     WHEREAS,  the Banks are  willing  to to have the  Agent  issue the  Amended
Letter of Credit on their behalf on the terms and conditions of this Agreement;

     NOW, THEREFORE, the parties hereto agree as follows:

     WITNESSETH THAT:

1.   DEFINITIONS

1.1  Defined Terms. In this Agreement the words and expressions  specified below
     shall,  except  where the context  otherwise  requires,  have the  meanings
     attributed to them below:

"Acceptable  Accounting  Firm"
     means Ernst & Young, or such other recognized international accounting firm
     as shall  be  approved  by the  Majority  Banks,  such  approval  not to be
     unreasonably withheld;

"Accession Agreement"
     an  agreement  substantially  in the form of Exhibit K  hereto  pursuant to
     which a  wholly-owned  subsidiary  of the  Guarantor  is made an Obligor in
     accordance with the terms hereof;  "Adjusted Consolidated Net Income" means
     the aggregate  net income (or loss) of the  Guarantor and its  consolidated
     Subsidiaries   determined  in  accordance  with  GAAP;  provided  that  the
     following items shall be excluded in computing  Adjusted  Consolidated  Net
     Income (without duplication):  (i) the effects of foreign currency exchange
     adjustments  under GAAP,  (ii) any gains or losses (on an after-tax  basis)
     attributable to vessel sales or to prepayment of Indebtedness and (iii) any
     extraordinary gains (or losses).

"Adjusted Stated Amount"
     means the Stated Amount less the aggregate of  (i) $4,000,000  and (ii) any
     principal amount of the Loans theretofore prepaid;

"Affiliate"
     means, with respect to any Person,  any other Person directly or indirectly
     controlling,  controlled by or under common  control with such Person.  For
     the purposes of this  definition,  "control"  (including,  with correlative
     meanings,  the terms  "controlled  by" and "under common  control with") as
     applied to any Person means the  possession  directly or  indirectly of the
     power to direct or cause the  direction of the  management  and policies of
     that Person whether through  ownership of voting  securities or by contract
     or otherwise;

"Agent"
     has the meaning ascribed thereto in the Preamble to this Agreement;

"Agreement"
     means this  Agreement  as such term is used in the  Preamble  hereto as the
     same shall be amended, modified or supplemented from time to time;

"Alliance"
     has the meaning ascribed thereto in the Recitals to this Agreement;

"Amended Letter of Credit"
     means the amended and restated  irrevocable letter of credit in the maximum
     stated amount of $78,000,000 referred to in the Recitals of this Agreement,
     to be  issued  by the  Agent on  behalf  of the  Banks  to the  Beneficiary
     pursuant to this  Agreement,  substantially  in the form of  Exhibit A,  as
     amended  and in  effect  from  time  to  time  and  any  letter  of  credit
     substituted therefor pursuant to Clause 2.7;

"Amended Letter of Guarantee"

     has the meaning ascribed thereto in the Recitals to this Agreement;

"Ampol"
     means  Australian  Petroleum  Pty Ltd.  (ACN 000 032  128),  a  corporation
     incorporated and existing under the laws of New South Wales, Australia;

"Apache"
     means Apache Energy  Limited (ACN 009 301 964), a corporation  incorporated
     and existing under the laws of Western Australia;

"Apache Charter"
     the  charterparty  agreement dated  December 10,  1997 entered into by VSSI
     Australia with Apache  relating to the DAMPIER  SPIRIT,  as the same may be
     modified or amended in accordance with this Agreement;

"Applicable Office"
     means,  as to each Bank, its office located at its address set forth on the
     signature  pages  hereof or such  other  office as such Bank may  hereafter
     designate as its Applicable Office by notice to the Obligors and the Agent;

"Assignment and Assumption Agreement(s)"
     means the  Assignment  and  Assumption  Agreement(s)  executed  pursuant to
     Clause 8 substantially in the form of Exhibit I;

"Assignment Notices"
means:
     a)   the notices with respect to the Earnings  Assignments  executed by the
          Owners pursuant to Clause 4.1(c)  substantially in the form set out in
          Exhibit 1 thereto or in such other form as the Agent may agree;

     b)   the notices with  respect to the  Subcharter  Assignments  executed by
          Alliance  pursuant to Clause 4.1(d)  substantially in the form set out
          in Exhibit 1 thereto or in such other form as the Agent may agree; and

     c)   the notices with respect to the Insurances Assignments executed by the
          Owners pursuant to Clause 4.1(c)  substantially in the form set out in
          Exhibit 1 thereto or in such other form as the Agent may agree;

"Assignments"
     means  the  Earnings  Assignments,   the  Subcharter  Assignments  and  the
     Insurances Assignments;

"Australian Vessels"
     means the BARRINGTON and PALMERSTON;

"Bahamian Vessels"
     means the DAMPIER SPIRIT and NASSAU SPIRIT;

"Banking Day(s)"
     means day(s) on which banks are open for the transaction of business of the
     nature  required by this  Agreement in Vancouver,  Canada,  Rotterdam,  the
     Netherlands, Curacao, Netherlands Antilles, Sydney, Australia and New York,
     New York;

"Banks"
     has the meaning ascribed thereto in the Preamble to this Agreement;

"BARRINGTON"
          means the Australian registered tanker vessel BARRINGTON, Official No.
          853229;

"Beneficiary"
          has the meaning ascribed thereto in the Preamble to this Agreement;

"Bond Offering"
          means that certain issue by the Guarantor of  US$225,000,000  of 8.32%
          First Preferred  Mortgage Notes due February 1,  2008 made pursuant to
          the Prospectus dated January 19, 1996;

"Borrowers"
          has the meaning ascribed thereto in the Preamble to this Agreement;

"Charter(s)"
means
     (a)  the time charterparty  agreements dated December 17, 1997 entered into
          by each of the  Original  Borrowers  with  Alliance  relating  to such
          Original  Borrower's  Vessel, or any substitute  charter acceptable to
          the Majority Banks in their sole discretion,

     (b)  the charterparty agreement dated January 10, 1998 entered into by VSSI
          Transport  with Palm  Shipping  relating  to the NASSAU  SPIRIT or any
          substitute  charter  acceptable  to the  Majority  Banks in their sole
          discretion,  and  (c) the  Apache  Charter or any  substitute  charter
          acceptable to the Majority Banks in their sole discretion;

"Charterers"

          means Alliance and/or Palm Shipping and/or Apache;

"Code"
          means the Internal Revenue Code of 1986, as amended, and any successor
          statute and regulations promulgated thereunder;

"Commitment"
          in  relation  to a Bank,  means the  portion  of the  Letter of Credit
          Amount set out opposite its name on the signature  pages hereto or, as
          the case may be, in any relevant Assignment and Assumption Agreement;

"Compliance Certificate"
          has the meaning ascribed thereto in Clause 7.1A(iv)(a);

"Consents"
means
          (i) the  Consent and  Agreement  to each of the  Earnings  Assignments
          executed by the relevant  Charterer  substantially in the form set out
          in Exhibit G1  and (ii) the  Consent and  Agreements to the Subcharter
          Assignments  executed  or to be  executed  by Ampol to the  Subcharter
          Assignments  substantially in the form of Exhibit G2 together with any
          amendments thereto;

"Consolidated EBITDA"
          means,  with  respect  to  any  Person  for  any  period,  the  sum of
          (i) income  from  vessel  operations,  (ii) depreciation  expense  and
          (iii) amortization  expense, as presented in the financial  statements
          of such Person;

"Consolidated Interest Expense"
     means,  with respect to any Person for any period,  the aggregate amount of
     (i) interest   expense  and  (ii) losses  on  marketable   securities  less
     (iii) interest  income and (iv) gains on marketable securities as disclosed
     on the financial statements of such Person;

"Currency Agreement"
     means any foreign  exchange  contract,  currency  swap  agreement  or other
     similar  agreement or arrangement  designed to protect the Guarantor or any
     of its  Subsidiaries  against  fluctuations  in currency values to or under
     which the Guarantor or any of its  Subsidiaries is a party or a beneficiary
     on the  date  of  this  Agreement  or  becomes  a  party  or a  beneficiary
     thereafter;

"DAMPIER SPIRIT"
     means the Bahamian registered vessel DAMPIER SPIRIT, Official No. 730939;

"Date of Issuance"
     means the date on which the Amended Letter of Credit is issued  pursuant to
     Clause 2.1;

"DOC"
     means a document of  compliance  issued to an Operator in  accordance  with
     rule 13 of the ISM Code;

"Dollars" and the sign "$"
     means the legal  currency,  at any relevant time  hereunder,  of the United
     States of America and, in relation to all payments  hereunder,  in same day
     funds settled through the New York Clearing House Interbank Payments System
     (or  such  other  Dollar  funds  as may be  determined  by the  Banks to be
     customary for the  settlement in New York City of banking  transactions  of
     the type herein involved);

"Earnings Assignments"
     means the  assignments  in respect of the  earnings of each Vessel from any
     and all  sources,  including,  but not limited to, the  respective  Charter
     relating to such Vessel,  executed or to be executed by the relevant  Owner
     in favor of the Security  Trustee for the benefit of the Banks  pursuant to
     Clause 4.1(c)(iii), substantially in the form of Exhibits D1 and D2;

"Environmental Approvals"
     shall have the meaning ascribed thereto in Clause 3.1(r);

"Environmental Claim"
     shall have the meaning ascribed thereto in Clause 3.1(r);

"Environmental Laws"
     shall have the meaning ascribed thereto in Clause 3.1(r);

"Equity"
     means, for any Person,  such Person's  shareholders'  equity  (inclusive of
     retained  earnings)  as reflected on such  Person's  most recent  quarterly
     unaudited or annual audited  financial  statements,  as the case may be, as
     prepared in accordance with GAAP;

"Event(s) of Default"
     means any of the events set out in Clause 6;

"Expiration Date"
     has the meaning set forth in Clause 2.1(b);

"First Loan Agreement"
     has the meaning ascribed thereto in the Recitals to this Agreement;

"GAAP"
     has the meaning ascribed thereto in Clause 1.3;

"Guarantor"
     means Teekay  Shipping  Corporation,  a corporation  organized and existing
     under the laws of the Republic of Liberia;

"Guaranty"
     means the amended and restated guaranty in respect of the joint and several
     obligations  of the  Obligors  under this  Agreement  to be executed by the
     Guarantor  in favor of the  Security  Trustee  for the benefit of the Banks
     pursuant to Clause 4.1(e) substantially in the form of Exhibit B;

"Indebtedness"
     means,  with  respect to any Person at any date of  determination  (without
     duplication),  (i) all  indebtedness  of such  Person for  borrowed  money,
     (ii) all obligations of such Person evidenced by bonds,  debentures,  notes
     or other  similar  instruments,  (iii) all  obligations  of such  Person in
     respect  of  letters  of credit  or other  similar  instruments  (including
     reimbursement  obligations with respect thereto),  (iv) all  obligations of
     such Person to pay the  deferred and unpaid  purchase  price of property or
     services,  which  purchase price is due more than six months after the date
     of placing  such  property  in service  or taking  delivery  thereof or the
     completion of such services, except trade payables,  (v) all obligations on
     account of  principal of such Person as lessee  under  capitalized  leases,
     (vi) all  indebtedness  of other Persons  secured by a lien on any asset of
     such Person,  whether or not such  indebtedness  is assumed by such Person;
     provided  that the  amount  of such  indebtedness  shall be the  lesser  of
     (a) the fair market value of such asset at such date of  determination  and
     (b) the  amount  of such  indebtedness,  (vii) all  indebtedness  of  other
     Persons  guaranteed  by such  Person to the  extent  such  indebtedness  is
     guaranteed by such Person,  and (viii) to the extent not otherwise included
     in this  definition,  the net  obligations  under  Currency  Agreements and
     Interest Rate  Agreements.  The amount of Indebtedness of any Person at any
     date shall be the  outstanding  balance  at such date of all  unconditional
     obligations as described above and, with respect to contingent obligations,
     the maximum liability upon the occurrence of the contingency giving rise to
     the  obligation,  provided that the amount  outstanding  at any time of any
     indebtedness  issued with original  issue discount shall be the face amount
     of such indebtedness less the remaining unamortized portion of the original
     issue  discount  of  such  indebtedness  at  such  time  as  determined  in
     conformity  with GAAP;  and provided  further that  Indebtedness  shall not
     include any liability for federal, state, local or other taxes;

"Indenture"
     means that certain  Indenture  dated as of  January 29,  1996 by and among,
     inter alia,  the  Guarantor  and United  States  Trust  Company of New York
     executed pursuant to the Bond Offering;

"Insurances Assignments"
     means the assignments in respect of the insurances of each Vessel, executed
     or to be executed by the relevant Borrower in favor of the Security Trustee
     for the benefit of the Banks pursuant to  Clause 4.1(c)(ii),  substantially
     in the form of Exhibit E;

"Interest Coverage Ratio"
     means,  with  respect  to any  Person  on any  date,  the ratio of (i)  the
     aggregate amount of Consolidated  EBITDA of such Person for the four fiscal
     quarters for which  financial  information in respect  thereof is available
     immediately prior to such date to (ii) the aggregate  Consolidated Interest
     Expense of such  Person  during such four  fiscal  quarters.  In making the
     foregoing  calculation,  (A) pro  forma  effect  shall be given to  (1) any
     Indebtedness  incurred  subsequent  to the  end of the  four-fiscal-quarter
     period  referred  to in  clause (i)  and  prior to such  date  (other  than
     Indebtedness  incurred under a revolving  credit or similar  arrangement to
     the extent of the commitment thereunder (or under any predecessor revolving
     credit or similar  arrangement)  in effect on the last day of such period),
     (2) any  Indebtedness  incurred  during  such  period  to the  extent  such
     Indebtedness  is  outstanding at such date and (3) any  Indebtedness  to be
     incurred  on such  date,  in each  case as if such  Indebtedness  had  been
     incurred  on the first  day of such  four-fiscal-quarter  period  and after
     giving pro forma effect to the  application  of the proceeds  thereof as if
     such application had occurred on such first day;  (B) Consolidated Interest
     Expense  attributable to interest on any Indebtedness  (whether existing or
     being  incurred)  computed  on a pro forma  basis and if bearing a floating
     interest  rate  shall be  computed  as if the rate in  effect  on such date
     (taking  into  account  any  Interest  Rate  Agreement  applicable  to such
     Indebtedness if such Interest Rate Agreement has a remaining term in excess
     of 12 months) had been the applicable rate of the entire period;  (C) there
     shall be excluded  from  Consolidated  Interest  Expense  any  Consolidated
     Interest Expense related to any amount of Indebtedness that was outstanding
     during  such  four-fiscal-quarter  period  or  thereafter  but  that is not
     outstanding  or is to be  repaid  on such  date,  except  for  Consolidated
     Interest Expense accrued (as adjusted  pursuant to clause (B))  during such
     four-fiscal-quarter  period under a revolving credit or similar arrangement
     to  the  extent  of the  commitment  thereunder  (or  under  any  successor
     revolving  credit or  similar  arrangement)  in effect  on such  date;  and
     (D) pro  forma  effect  shall  be given to  asset  dispositions  and  asset
     acquisitions  (including  giving  pro forma  effect to the  application  of
     proceeds   of   any   asset    disposition)    that   occur   during   such
     four-fiscal-quarter  period or thereafter and prior to such date as if they
     had  occurred  and such  proceeds had been applied on the first day of such
     four-fiscal-quarter  period; provided that to the extent that clause (D) of
     this  sentence  requires  that  pro  forma  effect  be  given  to an  asset
     acquisition or asset disposition, such pro forma calculation shall be based
     upon the four full fiscal quarters  immediately  preceding such date of the
     Person, or division or line of business of the Person,  that is acquired or
     disposed for which financial information is available; and provided further
     that for purposes of determining  the Interest  Coverage Ratio with respect
     to the acquisition of a Vessel or the financing thereof,  the Guarantor may
     apply Consolidated EBITDA for such Vessel based upon historical earnings of
     such  Vessel  or,  if  none,  of its  most  comparable  Vessel  during  the
     applicable   four-fiscal-quarter   period,   or  if,  in  the  good   faith
     determination  of the board of directors of the  Guarantor,  the  Guarantor
     does not have a comparable Vessel, based upon industry average earnings for
     comparable vessels;

"Interest Rate Agreements"
     means  any  interest  rate  protection  agreement,   interest  rate  future
     agreement,  interest rate option  agreement,  interest rate swap agreement,
     interest rate cap agreement,  interest rate collar agreement, interest rate
     hedge  agreement  or other  similar  agreement or  arrangement  designed to
     protect the Guarantor or any of its  Subsidiaries  against  fluctuations in
     interest  rates to or under which the Guarantor or any of its  Subsidiaries
     is a party or a  beneficiary  on the date of this  Agreement  or  becomes a
     party or a beneficiary hereafter;

"ISM Code"
     means the  International  Safety  Management Code for the Safe Operating of
     Ships and for Pollution  Prevention  constituted  pursuant to Resolution A.
     741(18) of the  International  Maritime  Organization and incorporated into
     the  Safety  of Life at Sea  Convention  and  includes  any  amendments  or
     extensions thereto and any regulation issued pursuant thereto;

"L/C Fee"
     shall have the meaning ascribed thereto in Clause 2.4;

"Lender"
     has the meaning ascribed thereto in the Preamble to this Agreement;

"Letter of Credit Amount"
     means,  with  respect  to any Bank at any  time,  (i)  prior to the Date of
     Issuance,  the  amount  set  forth  opposite  the name of such  Bank on the
     signature  pages  hereof  and (ii) on or after the Date of  Issuance,  such
     Bank's Percentage Share of the Stated Amount at such time;

"Letter of Credit Liabilities"
     means,  as of any date,  the sum of (i) the  Stated  Amount as of such date
     plus  (ii) the  aggregate  unpaid amount of all  Reimbursement  Obligations
     (together  with  accrued  interest  thereon) as of such date payable to all
     Banks in respect of  drawings or other  payments  made under or pursuant to
     the Amended Letter of Credit on or prior to such date;

"Loan Agreements"
     has the meaning ascribed thereto in the Recitals to this Agreement;

"Loans"
     has the meaning ascribed thereto in the Recitals to this Agreement;


"Majority Banks"
     means  Banks  whose  Commitments   exceed  fifty  percent  (50%)  of  total
     Commitments;

"Management Agreement(s)"
     means the agreement(s) entered into between the respective Manager and each
     Borrower  in respect of the  commercial  and  technical  management  of the
     Vessels;

"Manager"
     means  Australian  Tankships  Pty.  Ltd.  (ACN 079 641 580),  an Australian
     corporation and a Wholly Owned  Subsidiary of the Guarantor,  in respect of
     the Australian  Vessels and Teekay Shipping Limited, a Bahamian company and
     also a Wholly Owned Subsidiary of the Guarantor, in respect of the Bahamian
     Vessels;

"Materials of Environmental Concern"
     has the meaning ascribed thereto in Clause 3.1(r);

"Mortgage Amendments"
     means the amendment no. 1 to the first priority  Australian  ship mortgages
     dated  December 18, 1997 with respect to each  Australian  Vessel,  in each
     case  executed  or to be  executed  by the  relevant  Owner in favor of the
     Security   Trustee   for   the   benefit   of  the   Banks,   pursuant   to
     Clause 4.1(c)(i),  and to be  substantially  in the  form of  Exhibit C3  ;
     "Mortgages"  means (i) the first priority  statutory  Bahamian mortgage and
     deed of covenants  collateral  thereto with respect to each Bahamian Vessel
     and (ii) the first priority  Australian ship mortgages with respect to each
     Australian  Vessel, in each case executed or to be executed by the relevant
     Owner  in favor of the  Security  Trustee  for the  benefit  of the  Banks,
     pursuant  to  Clause 4.1(c)(i),  and to be  substantially  in the  form  of
     Exhibits C1 and C2, respectively;

"NASSAU SPIRIT"
     means the Bahamian registered vessel NASSAU SPIRIT, Official No. 730910;

"Net Debt"
     means (x) the sum of long  term  debt and  capital  leases  (including  the
     current  portions)  less  (y) to  the  extent  positive,  the  sum of  cash
     (including cash held in retention accounts for the payment of debt and cash
     pledged as collateral  against  balance sheet  obligations)  and marketable
     securities  less  the sum of the  current  portion  of long  term  debt and
     capital leases (excluding the current portion of advances outstanding under
     any revolving credit facilities);

"Net Debt to Equity Ratio"
     means,  the  ratio  of  the  Guarantor's   consolidated  Net  Debt  to  its
     consolidated  Equity as reflected on the most recent quarterly unaudited or
     annual audited financial  statements,  as the case may be, as calculated by
     the  Guarantor,  which  calculation  shall be set  forth in the  Compliance
     Certificate  accompanying  such  financial  statements,  and  agreed by the
     Agent;

"Obligor(s)"
     has the meaning ascribed thereto in the Recitals to this Agreement;

"Operator"
     means any Person who is from time to time  concerned in the  operation of a
     Vessel and falls within the  definition  of "Company" set out in rule 1.1.2
     of the ISM Code;

"Original Banks"
     has the meaning ascribed thereto in the Recitals to this Agreement;

"Original Borrowers"
     has the meaning ascribed thereto in the Recitals to this Agreement;

"Original Reimbursement Agreement"
     has the meaning ascribed thereto in the Recitals to this Agreement;

"Owner"
     means the relevant registered owner of a Vessel;

"Palm Shipping"
     means Palm Shipping  Inc., a corporation  organized and existing  under the
     laws of the  Republic of Liberia and an  affiliate  of the  Obligors  and a
     Wholly Owned Subsidiary of the Guarantor;

"PALMERSTON"
     means the  Australian  registered  tanker vessel  PALMERSTON,  Official No.
     853755;

"Palmstar Thistle"
     has the meaning ascribed thereto in the Preamble to this Agreement;

"Parent"

means, with respect to any Bank, any Person controlling such Bank;

"Percentage Share"
     means,  with respect to any Bank, the  percentage  specified as such Bank's
     Percentage  Share on the signature  pages hereof or in any  Assignment  and
     Assumption Agreement executed in connection herewith;

"Person"
     means  any  individual,  sole  proprietorship,   corporation,   partnership
     (general or limited),  limited  liability  company,  business trust,  bank,
     trust company,  joint venture,  association,  joint stock company, trust or
     other  unincorporated  organization,  whether or not a legal entity, or any
     government or agency or political subdivision thereof;

"Pledge"
     means  the  pledge of shares of VSSI  Australia  and VSSI  Transport  to be
     executed by the Guarantor  pursuant to  Clause 4.1(e)(ii)  substantially in
     the form of Exhibit H;

"Prime Rate"
     means the rate of interest announced by the Reference Bank in New York City
     from time to time as its base, prime or reference rate;

"Reference Bank"
     means Rabobank International, New York branch;

"Reimbursement Obligations"
     means,  with  respect to any Bank as of any date,  the  obligations  of the
     Obligors  then  outstanding  and unpaid to reimburse  such Bank pursuant to
     Clause 2.3  for the amounts paid by such Bank in respect of all drawings or
     other payments made under or pursuant to the Amended Letter of Credit;

"Reimbursement Period"
     means the period from the Date of Issuance until the Expiration Date;

"Security Documents"
     means the Guaranty, the Pledge, the Mortgages, the Mortgage Amendments, the
     Assignments,  the Assignment Notices, the Consents, and any other documents
     that may be executed as security for the Obligors' obligations hereunder;

"Security Trustee"
     has the meaning ascribed thereto in the Preamble to this Agreement;

"SMC"
     means a safety  management  certificate  issued in  respect  of a Vessel in
     accordance with rule 13 of the ISM Code;

"Stated Amount"
     means the amount  reflected in Column 1 of Schedule A to the Amended Letter
     of Credit in the initial amount of  $78,000,000,  such amount being reduced
     six months after each  installment  date under the Loan  Agreements  by the
     aggregate  of  the  scheduled  amount  of  principal  due  under  the  Loan
     Agreements on such date;

"Subcharter Assignments"
     means the  assignments  in respect of the  Sub-Charters  executed  or to be
     executed by Alliance  in favor of the  Security  Trustee for the benefit of
     the Banks pursuant to Clause 4.1(d)  substantially in the form of Exhibit F
     ;

"Sub-Charters"
     means  the  sub-charter  agreements  relating  to  each  of the  Australian
     Vessels, entered into between Alliance and Ampol;

"Subsidiary"
     is defined to mean,  with  respect to any Person,  any  business  entity of
     which more than 50% of the  outstanding  voting stock is owned  directly or
     indirectly  by  such  Person  and one or more  other  Subsidiaries  of such
     Person;

"Taxes"
     means any present or future income or other taxes, levies, duties, charges,
     fees,  deductions or withholdings  of any nature now or hereafter  imposed,
     levied, collected, withheld or assessed by any taxing authority whatsoever;

"Transaction Documents"
     means this Agreement,  the Amended Letter of Guarantee,  the Amended Letter
     of  Credit,  the  Security  Documents  and any  Assignment  and  Assumption
     Agreement;

"VSSI Australia"
     has the meaning ascribed thereto in the Preamble to this Agreement;

"VSSI Transport"
     has the meaning ascribed thereto in the Preamble to this Agreement;

"Vessels"
     means the Australian Vessels and the Bahamian Vessels; and

"Wholly Owned"
     means,  with respect to any  Subsidiary of any Person,  such  Subsidiary of
     such Person if all of the outstanding  common stock or other similar equity
     ownership  interests (but not including preferred stock) in such Subsidiary
     (other  than any  director's  qualifying  share or  investments  by foreign
     nationals  mandated by applicable  law) is owned  directly or indirectly by
     such Person.

1.2  Construction.  Words  importing the singular  number only shall include the
     plural and vice versa.  Words  importing  persons shall include  companies,
     firms, corporations,  partnerships,  unincorporated  associations and their
     respective successors and assigns.

1.3  Accounting  Terms.  All accounting  terms not  specifically  defined herein
     shall  be  construed  in  accordance  with  generally  accepted  accounting
     principles  as in effect from time to time in the United  States of America
     consistently  applied  ("GAAP")  and  all  financial  statements  submitted
     pursuant to this  Agreement  shall be prepared in accordance  with, and all
     financial  data submitted  pursuant  hereto shall be derived from financial
     statements prepared in accordance with, GAAP.

2.   LETTER OF CREDIT

2.1  Issuance of the Amended Letter of Credit.

     (a)  Subject to the terms and  conditions of this Agreement and in reliance
          on the representations, warranties and covenants herein contained, the
          Banks hereby agree,  upon  satisfaction  of the  conditions  precedent
          contained  in Clause 4 to procure that the Agent shall issue on behalf
          of the Banks the Amended Letter of Credit in favor of the Beneficiary.

     (b)  The Agent,  on behalf of the  Banks,shall  issue the Amended Letter of
          Credit  upon  three  Business  Days'  prior  written  notice  from the
          Obligors to the Agent requesting the issuance of the Amended Letter of
          Credit and setting forth the Date of Issuance,  which date shall be no
          later than May 31, 1998,  with  respect  thereto and the date on which
          such  Amended  Letter of Credit is to expire  which  date  shall be no
          later than June 17,  2006 (the "Expiration Date"). Each Bank severally
          and not jointly agrees,  on the terms and conditions set forth herein,
          to cause  the  Agent to issue on  behalf of the Banks on such date the
          Amended  Letter  of  Credit  to  the  Beneficiary  in  the  amount  of
          $78,000,000,  effective  on the Date of Issuance  and  expiring on the
          Expiration  Date.  The  commitment  of each Bank to cause the Agent to
          issue on  behalf of the Banks  the  Amended  Letter of Credit  and its
          obligations  hereunder and under the Amended Letter of Credit shall be
          limited to its Letter of Credit Amount as in effect from time to time.

     (c)  Upon  receipt  of the Notice of  Issuance,  the Agent  shall  promptly
          notify each Bank of the contents  thereof and of its Percentage  Share
          of the amount of the Amended Letter of Credit.

     (d)  In the event that the Borrowers  prepay part of the Loans  pursuant to
          the terms of the relevant Loan Agreement and the Beneficiary  consents
          to a  corresponding  reduction  of the  Stated  Amount of the  Amended
          Letter of Credit,  the Banks  agree that they shall cause the Agent to
          issue on their  behalf an  amended  letter  of  credit  with a reduced
          Stated Amount.

2.2. Several Obligations; Drawings.

     (a)  The  obligations of the Banks hereunder and under or in respect of the
          Amended Letter of Credit are several and not joint,  and no Bank shall
          be liable for the failure of any other Bank to perform its obligations
          hereunder  or  thereunder.  The  failure  of any  Bank  to  honor  its
          obligations  hereunder  or in respect of the Amended  Letter of Credit
          shall not excuse the several  obligations of the other Banks hereunder
          or thereunder.

     (b)  Upon receipt from the  Beneficiary of any demand for payment under the
          Amended  Letter of Credit made in accordance  with the terms  thereof,
          the Agent shall  promptly  notify the Obligors and each Bank as to the
          amount to be paid by such Bank as a result of such demand and the date
          for such payment (which shall be a Business Day). Upon receipt of such
          notice from the Agent, each Bank shall promptly transfer the amount to
          be paid by it as a result  of such  demand  in  immediately  available
          funds to the account  specified in or pursuant to  Clause 5.1  or such
          other account as the Agent shall have specified in such notice. Unless
          the Agent shall have received notice from a Bank prior to the date for
          such payment that such Bank will not make  available to the Agent such
          Bank's  Percentage  Share of such  payment,  the Agent may assume that
          such Bank has made an amount equal to such Percentage  Share available
          to the  Agent on the date for such  payment  in  accordance  with this
          subclause (b)  and the Agent may,  in reliance  upon such  assumption,
          make available to the Beneficiary on such date a corresponding amount.
          If and to the extent that the Agent in reliance  upon such  assumption
          shall have made available to the  Beneficiary,  on behalf of any Bank,
          an  amount  equal  to such  Bank's  Percentage  Share  of any  payment
          pursuant  to this  Clause  and such Bank shall not have made an amount
          equal to such  Percentage  Share  available to the Agent and the Agent
          shall not have been  reimbursed by the Obligors for such amount,  such
          Bank  agrees to pay to the Agent  forthwith  on  demand  such  amount,
          together with interest thereon, for each day from the date such amount
          is made  available  to the  Beneficiary  until the date such amount is
          repaid to the Agent at a rate per  annum  equal to the Prime  Rate for
          each such day.

2.3. Reimbursement Obligation; Interest.

     (a)  The Obligors agree to pay to the Agent,  for the account of the Banks,
          immediately  after (and on the same Business Day as) (i) any amount is
          drawn under,  or  otherwise  paid  pursuant to, the Amended  Letter of
          Credit,  a sum equal to the  amount so drawn or paid and  interest  on
          such amount as provided in  subclauses (b)  and (c) below and (ii) any
          Event of Default  shall have  occurred  and be  continuing,  an amount
          equal to the  aggregate  amount  (if any) paid or prepaid by the Agent
          pursuant  to  Clause 6.1,  and  interest on such amount as provided in
          subclauses (b) and (c) below; provided that if the Agent shall receive
          such  payment from the Obligors  later than  3:00 P.M.  (New York City
          time) on such  Business Day, such payment shall be deemed to have been
          received by the Agent on the next succeeding Business Day and interest
          shall accrue thereon pursuant to subclauses (b) and (c) below from the
          date such  payment  was due.  The  Obligors  agree  that all  payments
          required   hereunder   shall  be  free  and  clear  of  all  set-offs,
          withholdings,   taxes,   claims  or  other   deductions  of  any  kind
          whatsoever.

     (b)  Any amount owing by the  Obligors  pursuant to  subclause (a)  and not
          paid when due shall bear interest,  payable upon demand,  for each day
          from and including  the date payment  thereof was due to but excluding
          the date of actual  payment  thereof in full at a rate per annum equal
          to the sum of 2% plus the Prime Rate for such day.

     (c)  Until  payment of any  amount due  hereunder  is made,  the  Obligors'
          obligations  to the Agent and the Banks under  Clause  2.3(a) shall be
          evidenced by a loan account ledger maintained by the Agent in the name
          of the Obligors.  The Agent shall determine any amounts payable by the
          Obligors  under this  Clause 2.3 and any such  determination  shall be
          conclusive absent manifest error.

2.4  Commission and Fees.  (a) L/C Fee. The Obligors agree to pay the Agent, for
     distribution  to the Banks, a letter of credit fee (the "L/C Fee"),  on the
     Adjusted Stated Amount quarterly in arrears for the period from the Date of
     Issuance  of the  Amended  Letter of Credit  until the  earlier  of (i) the
     Expiration  Date or  (ii) termination  of the  Amended  Letter of Credit in
     accordance  with the terms hereof or thereof,  at the rate as determined in
     accordance with this Clause 2.4; provided, however, that the Obligors shall
     not be obligated  to pay the L/C Fee for the period from the maturity  date
     or prepayment of the Loans until the Expiration Date if the Loans have been
     repaid  in full.  The L/C Fee will vary  based  upon the Net Debt to Equity
     Ratio in accordance with the following schedule:

     Net Debt to Equity Ratio: L/C Fee

     If greater than or equal to 1.5 to 1.0 0.85% p.a.

     If greater than or equal to 1.0 to 1.0 but less than 1.5 to 1.0 0.70% p.a.

     If less than 1.0 to 1.0 0.60% p.a.

     The  L/C Fee  shall  be  determined  based  on the  most  recent  financial
     information  delivered to the Agent in accordance  with  Clause 7.1A(iv)(a)
     and shall  change,  effective  as of the  beginning  of any fiscal  quarter
     following the quarter during which a change in such ratio occurred.

     (b)  Commitment  Commission.  The  Obligors  agree  to pay on the  Date  of
          Issuance a commitment  commission on the available but unissued amount
          of the Adjusted Stated Amount for the period commencing on the date of
          execution of this  Agreement by the Obligors and ending on the Date of
          Issuance.  The Commitment  Commission shall accrue from day to day and
          be calculated on the actual number of days elapsed and a three hundred
          sixty (360) day year. The Commitment  Commission  will vary based upon
          the Net  Debt  to  Equity  Ratio  in  accordance  with  the  following
          schedule:

     Net Debt to Equity Ratio: Commitment Commission

     If greater than or equal to 1.5 to 1.0 0.34% p.a.

     If greater than or equal to 1.0 to 1.0 but less than 1.5 to 1.0 0.28% p.a.

     If less than 1.0 to 1.0 0.24% p.a.

     The  Commitment  Commission  shall be  determined  based on the most recent
     financial information delivered to the Agent and shall change, effective as
     of the beginning of any fiscal quarter following the quarter during which a
     change in such ratio occurred.

     (c)  Front-End  Fee. The Obligors agree to pay a  non-refundable  front-end
          fee equal to .25% of the Adjusted Stated Amount (the "Front-End  Fee")
          as of the  Date of  Issuance,  payable  to the  Banks  on the  Date of
          Issuance,  to be allocated  (including  the Original Front End Fee (as
          hereinafter  defined) by the Agent based upon their  Commitments.  The
          front-end  fee (the  "Original  Front-End  Fee") paid by the  Original
          Borrowers,  Palmstar Thistle and Alliance in connection with the First
          Loan  Agreement  pursuant  to a fee letter  dated  December  17,  1997
          executed by the  Guarantor on their  behalf shall be credited  against
          the Front-End Fee due hereunder.

2.5  Increased Cost. If any change in applicable  law,  regulation or regulatory
     requirement  or  in  the  interpretation  or  application  thereof  by  any
     governmental or other authority, shall:

     (i)  change the basis of taxation  (excluding any change in the rate of any
          Tax) to any of the Banks with respect to the Amended  Letter of Credit
          or any  drawing  or  payment  thereunder  or  pursuant  thereto or its
          obligations to make payments under or in respect of the Amended Letter
          of Credit or to issue the  Amended  Letter of Credit  pursuant to this
          Agreement  or with respect to payments of principal or interest or any
          other payment due or to become due pursuant to this  Agreement  (other
          than a change  in  taxation  of the  overall  net  income of such Bank
          effected by the  jurisdiction of  organization or the  jurisdiction of
          the  principal  place of business of such Bank,  the United  States of
          America, the State or City of New York or any governmental subdivision
          or other taxing  authority having  jurisdiction  over the Bank (unless
          such  jurisdiction  is asserted  solely by reason of the activities of
          any of the Obligors) or such other  jurisdiction where the obligations
          under this Agreement may be payable), or

     (ii) impose, modify or deem applicable any reserve requirements (including,
          without  limitation,  any such  requirement  imposed  by the  Board of
          Governors  of  the  Federal   Reserve   System  or  other   comparable
          governmental  authority  against  letters  of  credit  or  letters  of
          commitment  issued  by, or  assets  of,  or  deposits  with or for the
          account of, or credit  extended by, any Bank) or require the making of
          any  special   deposits  against  or  in  respect  of  any  assets  or
          liabilities  of, deposits with or for the account of, or loans by, any
          of the Banks, or

     (iii)impose  on  any  of  the  Banks  any  other  condition  affecting  its
          obligations  under or in respect  of this  Agreement,  or the  Amended
          Letter of Credit or any part thereof,  and the result of the foregoing
          is either to  increase  the cost to such Bank of making  available  or
          maintaining  the  Amended  Letter of Credit or any part  thereof or to
          reduce the amount of any payment  received  by such Bank,  then and in
          any such case if such  increase  or  reduction  in the opinion of such
          Bank  materially  affects  the  interests  of such  Bank  under  or in
          connection with this Agreement, then:

          (a)  such Bank shall notify the Agent and Obligors of the happening of
               such event,

          (b)  the Obligors  agree  forthwith upon demand to pay to the Agent or
               such Bank such amount as such Bank  certifies  to be necessary to
               compensate such Bank, for such additional cost or such reduction,
               and

          (c)  any such  demand  as is  referred  to in  sub-clause  (b) of this
               Clause 2.5  may be made by such Bank at any time  before or after
               any repayment of the Letter of Credit Liabilities.



2.6  Illegality.  In the event  that by reason of any  change in any  applicable
     law, regulation or regulatory  requirement or in the interpretation thereof
     any of the Banks reasonably  concludes that it has become unlawful for such
     Bank to maintain or give effect to its  obligations as contemplated by this
     Agreement, such Bank shall inform the Agent, the Agent shall forthwith give
     notice  thereof  to the  other  Banks  and the  Obligors  to  that  effect,
     whereafter  the liability of such Bank to make payments under or in respect
     of the Amended  Letter of Credit or to issue the  Amended  Letter of Credit
     pursuant to this Agreement  shall forthwith cease and the Obligors shall be
     required  to (x) replace  such Bank with one or more banks  pursuant to the
     provisions of Clause 2.7(a),(y) pay to the Agent an amount in Dollars equal
     to such Bank's  Letter of Credit  Amount as of such date which amount shall
     be retained by the Agent until such time as this  Agreement  is  terminated
     pursuant  to Clause  2.7 and  applied by the Agent from time to time to pay
     such Bank's  Percentage  Share of any drawings or other  payments  under or
     pursuant to the Amended  Letter of Credit or (z) obtain  the  Beneficiary's
     consent  to the  discharge  of such  Bank  from its  obligations  under the
     Amended Letter of Credit; provided that, upon any such discharge (except if
     such Bank is replaced  pursuant to (x) above),  the Stated  Amount shall be
     reduced by the amount of such Bank's Letter of Credit  Amount.  In any such
     event, but without  prejudice to the aforesaid  obligations of the Obligors
     to prepay such Bank's Letter of Credit  Amount,  the Obligors and such Bank
     shall  negotiate  in good faith with a view to agreeing on terms for making
     its  Letter  of  Credit  Amount  available  from  another  jurisdiction  or
     otherwise  restructuring  the  obligations  under this Agreement on a basis
     which is not  unlawful  with  respect  to such  Bank and  Agent  shall  use
     reasonable  efforts to  replace  such Bank with a bank for which the making
     and performance of this Agreement would not be illegal.


2.7  Substitution  of Banks.  If (i) any  Bank has demanded  compensation  under
     Clause 2.5 or (ii) the Obligors are obligated to replace a Bank pursuant to
     clause (x) of Clause 2.6(a) the Obligors shall have the right,  upon twenty
     (20) Business Days' prior notice to such Bank (or five Business Days' prior
     notice in the case of any  substitution  pursuant to the  foregoing  clause
     (ii)),  to cause one or more banks (which may be one or more of the Banks),
     each such bank to be acceptable to the  Beneficiary  and, if there shall at
     such time be more than one Bank hereunder,  reasonably  satisfactory to the
     Majority Banks  (determined  for this purpose as if such Bank had no Letter
     of Credit Amount and no  Reimbursement  Obligation was payable to such Bank
     hereunder),  in each case with the written  acknowledgment of the Agent, to
     assume the obligations of the Bank to be replaced (the "Old Bank(s)") under
     this Agreement and, if required by the Beneficiary, to issue (together with
     the other  Banks  hereto)  a letter  of  credit in the form of the  Amended
     Letter of Credit  then  outstanding  but in an amount  equal to the  Stated
     Amount then in effect. If one or more such banks in each case acceptable to
     the Beneficiary are identified by the Obligors and, if required pursuant to
     this  Clause,  approved as being  reasonably  satisfactory  to the Majority
     Banks  (determined  as provided  above),  the Banks  shall  consent to such
     assumption  and  issuance  pursuant to a written  instrument.  Upon (i) the
     execution and delivery of such instrument by the Obligors,  the Banks,  and
     the Agent,  (ii) the  return by the  Beneficiary  of the Amended  Letter of
     Credit, (iii) the execution and delivery to the Beneficiary of a new letter
     of credit  by the Banks  (including  the new  banks but  excluding  the Old
     Banks) and (iv) payment by the new banks (the "Substitution  Banks") to the
     Old Banks of all accrued fees to but excluding the date of such  assumption
     and issuance,  each of such Substitution Banks shall become a bank party to
     this  Agreement  (if it is not  already a party  hereto) and shall from the
     date of such  substitution  have all the rights and  obligations  of a Bank
     with a Letter  of  Credit  Amount  and  Percentage  Share  (which,  if such
     Substitution  Bank is already a party hereto,  shall take into account such
     Substitution  Bank's existing Letter of Credit Amount and Percentage Share)
     and the Old Bank shall from date of such  substitution be released from its
     obligations  under this Agreement and the Amended Letter of Credit,  and no
     further  consent or action by any other Person shall be required;  provided
     that on the date of such  assumption and issuance  (x) all  amounts payable
     under  Clause 2.3 shall have been paid in full and (y) no  Event of Default
     shall have occurred and be continuing on such date. In the event that there
     is more than one Bank party  hereto and the entity  which is the Agent,  in
     its  capacity as a Bank,  is  required  to  transfer  all of its rights and
     obligations  hereunder  pursuant  to this  Clause  2.7,  the  Agent  shall,
     promptly upon the  consummation  of any assumption  pursuant to this Clause
     2.7, resign as Agent hereunder and the Majority Banks (determined as if the
     Bank resigning as Agent had no Letter of Credit Amount and no Reimbursement
     Obligation  was  payable  to such Bank  hereunder)  shall  (subject  to the
     consent  of the  Obligors),  have the  right  to  appoint  another  Bank as
     successor Agent, all in accordance with Clause 12.11.

2.8  General  Provisions  as to  Payment.  (a)  All  Payments  to be made by the
     Obligors shall be made in Dollars and in immediately available funds to the
     Agent at its address  specified  in or pursuant  to  Clause 7.1.  The Agent
     shall  promptly  distribute  to each of the  Banks  its pro  rata  share in
     accordance  with its  Percentage  Share of each such Payment  (other than a
     Payment  pursuant to Clause  2.6)  received by the Agent for the account of
     the Bank.

     (b)  Whenever any payment  hereunder,  including  without  limitation,  any
          payment due to the Agent  pursuant to Clause  2.3,  2.4,  2.5, or 2.6,
          shall  be due on a day  which  is not a  Business  Day,  the  date for
          payment thereof shall be extended to the next succeeding  Business Day
          and any interest  payable  thereon  shall be payable for such extended
          time at the specified rate. If the date for any payment is extended by
          operation of law or otherwise,  interest  thereon shall be payable for
          such extended time.

     (c)  Interest and any fees payable hereunder shall be computed on the basis
          of a year of 360 days and paid for the actual  number of days  elapsed
          from and  including the first day of the period for which they are due
          to but excluding the last day thereof.

     (d)  Any amount owed to the Agent or any Bank under this Agreement not paid
          when due shall bear interest,  payable upon demand,  for each day from
          and  including  the date payment  thereof was due to but excluding the
          date of actual payment thereof in full as provided in subclause (b) of
          Clause 2.3.

2.9  Obligations Absolute.  The obligations of the Obligors under this Agreement
     shall be absolute,  unconditional  and irrevocable,  and shall be performed
     strictly  in  accordance  with  the  terms  of this  Agreement,  under  all
     circumstances  whatsoever,   including  without  limitation  the  following
     circumstances:

     (a) unenforceability for any reason of this Agreement or the Amended Letter
          of Credit;

     (b)  any modification, amendment or waiver of, or any consent to, departure
          from,  or  supplement  to, this  Agreement  or the  Amended  Letter of
          Credit;  provided that neither the Agent nor any Bank shall enter into
          any written  amendment to, or written  modification  or waiver of, the
          Amended Letter of Credit without the consent of the Obligors;

     (c)  the existence of any claim, set-off,  defense or other right which the
          Obligors may have at any time against the  Beneficiary  (or any Person
          for  whom  the  Beneficiary  may  be  acting),  any  Affiliate  of the
          Beneficiary,  the  Agent,  any Bank or any other  Person,  whether  in
          connection with this Agreement,  the Amended Letter of Credit,  or the
          Loan  Agreements or any unrelated  transaction;  provided that nothing
          herein shall  prevent the assertion of any such claim by separate suit
          or compulsory counterclaim;

     (d)  any statement or any other document presented under the Amended Letter
          of Credit proving to be forged, fraudulent, invalid or insufficient in
          any respect or any statement therein being untrue or inaccurate in any
          respect whatsoever;

     (e)  payment  by the Agent or any Bank under the  Amended  Letter of Credit
          against  presentation of a draft or certificate  which does not comply
          with the terms of the Amended Letter of Credit; and

     (f)  any other act or omission to act or delay of any kind by any Bank, the
          Agent  or  any  other  Person  or  any  other  event  or  circumstance
          whatsoever  which might,  but for the  provisions  of this Clause 2.9,
          constitute a legal or equitable discharge of the Obligors' obligations
          hereunder;provided  that,  with  respect to  clauses (d),  (e) and (f)
          above,  the  Obligors  shall  not be  obligated  with  respect  to any
          Reimbursement  Obligation or other obligation hereunder arising solely
          out of the gross  negligence,  willful  misconduct or bad faith of the
          Agent or any Bank to which such Reimbursement Obligation or such other
          obligation is payable,  as the case may be.  Nothing in this Agreement
          and no failure by the  Obligors  to perform  any of their  obligations
          hereunder shall affect the several  obligations of the Banks hereunder
          or under the Amended Letter of Credit.

2.10 Determination  of Losses.  A  certificate  or  determination  notice of any
     affected  Bank(s)  or the  Agent,  as the  case may be,  as to any  matters
     referred to in this Clause 2 shall, absent in manifest error, be conclusive
     and binding on the Obligors.

3    REPRESENTATIONS AND WARRANTIES

3.1  In order to induce the Banks and the Agent to enter into this Agreement and
     to make the Amended Letter of Credit available, each of the Obligors hereby
     represents and warrants (which representations and warranties shall survive
     the  execution  and  delivery  of this  Agreement  and the  issuance of the
     Amended Letter of Credit hereunder) that:

     (a)  Due Organization and Power.  Each of the Obligors and the Guarantor is
          duly formed and validly  existing in good  standing  under the laws of
          its respective jurisdiction of incorporation,  has duly qualified and,
          insofar as the Obligors are aware,  is  authorized to do business as a
          foreign  corporation  in each  jurisdiction  wherein the nature of the
          business  transacted thereby makes such qualification  necessary,  has
          full  power to carry on its  business  as now being  conducted  and to
          enter  into  and  perform  its   respective   obligations   under  the
          Transaction  Documents  to which  it is or is to be a  party,  and has
          complied  with  all  statutory,   regulatory  and  other  requirements
          relative to such business and such agreements the  noncompliance  with
          which could  reasonably be expected to have a material  adverse effect
          on  its  business,  assets  or  operations,  condition  (financial  or
          otherwise).

     (b)  Authorization  and Consents.  All necessary  corporate action has been
          taken to authorize, and all necessary consents and authorizations have
          been  obtained and remain in full force and effect to permit,  each of
          the  Obligors  and  the  Guarantor  to  enter  into  and  perform  its
          obligations  under the  Transaction  Documents  to which it is a party
          and, in the case of the Obligors,  to make all payments required under
          this  Agreement  and,  as of the date of this  Agreement,  no  further
          consents or  authorizations  are  necessary for the repayment of their
          obligations under this Agreement.

     (c)  Filings, etc. It is not necessary to ensure (i) the legality, validity
          or enforceability  of this Agreement or any of the Security  Documents
          that any of them be filed,  recorded,  registered or enrolled with any
          governmental,  state or local  authority or agency (other than (A) the
          recordation  of the Mortgages  with the relevant ship registry and (B)
          the  filing  of  (1) the  Earnings  Assignments  with  respect  to the
          BARRINGTON and the  PALMERSTON,  (2) the  Subcharter  Assignments  and
          (3) the  Insurance  Assignments with respect to each Vessel,  with the
          Australian  Securities  Commission  within  45 days  of the  execution
          thereof) or that this  Agreement or any  Security  Document be stamped
          with any stamp or similar transaction tax or (ii) the admissibility in
          evidence of this  Agreement or any Security  Document in the courts of
          the State of New York,  courts of New South  Wales,  Australia  or the
          Commonwealth  of  Australia,  that  any of  them be  filed,  recorded,
          registered or enrolled with any governmental, state or local authority
          or agency (other than usual and customary  filings and  submissions in
          the courts of such jurisdictions);

     (d)  Binding  Obligations.  The Transaction  Documents  constitute or, when
          executed and  delivered,  will  constitute,  legal,  valid and binding
          obligations  of each of the Obligors  and the  Guarantor as is a party
          thereto  enforceable  against  each  thereof as is a party  thereto in
          accordance   with  their  terms,   except  to  the  extent  that  such
          enforcement  may be limited by  equitable  principles,  principles  of
          public policy or applicable  bankruptcy,  insolvency,  reorganization,
          moratorium  or other  laws  affecting  generally  the  enforcement  of
          creditors' rights.

     (e)  No Violation.  The execution and delivery of, and the  performance  of
          the provisions of, the  Transaction  Documents by each of the Obligors
          and the Guarantor as is a party  thereto,  do not, and will not during
          the   term   of  this   Agreement,   contravene   (i) any   applicable
          law,regulation or judicial order existing at the date hereof, (ii) any
          material  agreement  or document  to which such  Obligor is a party or
          which is binding upon it or any of its assets,or  (iii)the articles of
          incorporation or by-laws (or equivalent documents) of any thereof, nor
          will it result in the creation or imposition  of any mortgage,  charge
          (whether  fixed or floating) or pledge,  any maritime or other lien or
          any other security  interest of any kind on the assets of any Obligors
          (except  for those in favor of the  Security  Trustee on behalf of the
          Banks) pursuant to the provisions of any such agreement or document;

     (f)  No immunity.  Neither any of the Obligors nor the Guarantor nor any of
          their  respective  assets are  entitled  to immunity on the grounds of
          sovereignty  or otherwise  from any legal action or proceeding  (which
          shall include, without limitation, suit, attachment prior to judgment,
          execution or other enforcement);

     (g)  Litigation.  Except as otherwise  disclosed in writing to the Banks on
          or before the date hereof, no action, suit or proceeding is pending or
          threatened  against any of the Obligors or the Guarantor  before or by
          any court,  board of arbitration or administrative  agency which has a
          reasonable  likelihood of resulting in any material  adverse change in
          the  business or  condition  (financial  or  otherwise)  of any of the
          Obligors or the Guarantor.

     (h)  No Default.  None of the Obligors or the Guarantor is in default under
          any  agreement by which it is bound,  nor is any thereof in default in
          respect of any financial commitment or obligation.

     (i)  Charters.  Each  Vessel is  subject  to a Charter  and the  Australian
          Vessels are also subject to a Sub-Charter. The certified copies of the
          Charters  and  Subcharters  delivered  to the Agent on or prior to the
          date of this  Agreement  are  true and  complete  copies  thereof  and
          constitute legal, valid and binding obligations of the parties thereto
          enforceable  against  the  parties  thereto in  accordance  with their
          respective  terms,  except to the extent that such  enforcement may be
          limited  by  equitable  principles,  principles  of  public  policy or
          applicable bankruptcy, insolvency, reorganization, moratorium or other
          laws affecting  generally the enforcement of creditors' rights, and no
          amendments  thereof or variations thereto have been proposed or agreed
          prior to the date hereof  other than  immaterial  changes,  details of
          which shall have been forwarded to the Agent.  The right of each Owner
          to all moneys  payable under its  respective  Charter and the right of
          Alliance to payment under the Subcharters are not subject to any right
          of set-off or counterclaim  or any lien,  charge,  security  interest,
          assignment  or other  encumbrance  except in favor of the  Agent,  the
          Security Trustee or the Banks.  There are no material  defaults on the
          part of any party to the Charters or the  Subcharters  and there is no
          accrued  right of any Owner to terminate its  respective  Charter with
          the  respective   Charterers  or  of  Alliance  to  terminate   either
          Subcharter with Ampol.

     (j)  Vessel Ownership, Classification,  Seaworthiness and Insurance. On the
          Issuance Date:

          (i)  each Vessel  will be in the sole and  absolute  ownership  of the
               respective Owner, unencumbered,  save and except for the Mortgage
               (and  the  respective  Mortgage  Amendment  in  the  case  of the
               Australian  Vessels) thereon,  and duly registered in the name of
               the respective  Owner under the laws and flag of the Commonwealth
               of Australia or the Commonwealth of the Bahamas,  as the case may
               be;

          (ii) each  Vessel will be classed in the  highest  classification  and
               rating   for   vessels   of  the  same  age  and  type  with  its
               classification   society   (which   shall  be  a  member  of  the
               International  Association of  Classification  Societies) or such
               other  classification  society  acceptable to the Majority  Banks
               without any  outstanding  recommendations  deemed material by the
               Majority Banks;

          (iii)each Vessel will be operationally  seaworthy and in every way fit
               for service; and

          (iv) each Vessel will be insured in accordance  with the provisions of
               the Mortgage thereon and the  requirements  thereof in respect of
               such insurances will have been complied with.

     (k)  Financial Statements.  Except as otherwise disclosed in writing to the
          Banks on or prior to the date hereof,  all  information and other data
          furnished by the Obligors and the  Guarantor to the Banks are complete
          and correct,  and all financial  statements  furnished by the Obligors
          and the  Guarantor  have been  prepared  in  accordance  with GAAP and
          accurately and fairly  present the financial  condition of the parties
          covered thereby as of the respective  dates thereof and the results of
          the operations thereof for the period or respective periods covered by
          such financial statements.  Since such date or dates there has been no
          material  adverse change in the financial  condition or results of the
          operations of any of such parties and none thereof has any  contingent
          obligations,  liabilities  for  taxes or other  outstanding  financial
          obligations which are material in the aggregate except as disclosed in
          such statements, information and data.

     (l)  Tax Returns and  Payments.  Each of the Obligors and the Guarantor has
          filed all tax returns  required  to be filed  thereby and has paid all
          taxes payable  thereby which have become due, other than those not yet
          delinquent  or the  nonpayment  of which  would  not  have a  material
          adverse  effect on any such party,  as the case may be, and except for
          those  taxes  being   contested  in  good  faith  and  by  appropriate
          proceedings  or other acts and for which  adequate  reserves have been
          set aside on its books.

     (m)  Insurance.  Each of the  Obligors  and the  Guarantor  has insured its
          properties  and assets  against  such risks and in such amounts as are
          customary for companies engaged in similar businesses.

     (n)  Offices.  The chief  executive  office and chief  place of business of
          each of the Obligors,  and the office in which the  financial  records
          relating to the Vessels are kept, is, and will continue to be, located
          at Ernst & Young at Ernst & Young Building,  321 Kent Street,  Sydney,
          Australia  or Teekay  Shipping  Limited  at 4th Floor,  Euro  Canadian
          Centre,  Marlborough  Street  and Navy Lion  Road,  P.O. Box  SS 6293,
          Nassau,  the  Bahamas,  as the  case  may  be;  none  of the  Obligors
          maintains  a place of  business  in Canada,  the United  States or the
          United Kingdom.

     (o)  Not an  Investment  Company.  Neither  the  Guarantor,  nor any of the
          Obligors  is  an  "investment  company"  within  the  meaning  of  the
          Investment Company Act of 1940, as amended.

     (p)  Equity Ownership. Each of the Obligors is a Wholly Owned Subsidiary of
          the Guarantor. On the Issuance Date, none of the Obligors will own any
          shares of  capital  stock,  partnership  interest  or other  direct or
          indirect  equity  interest in any  corporation,  partnership  or other
          entity.

     (q)  Environmental  Matters.  Except as heretofore  disclosed in writing to
          the  Banks  (i) each  of  the  Obligors  will,  when  required,  be in
          compliance with all applicable United States federal and state, local,
          foreign  and   international   laws,   regulations,   conventions  and
          agreements  relating to pollution  prevention  or  protection of human
          health or the environment (including, without limitation, ambient air,
          surface  water,  ground  water,   navigable  waters,   waters  of  the
          contiguous zone, ocean waters and  international  waters),  including,
          without  limitation,  laws,  regulations,  conventions  and agreements
          relating to (1) emissions, discharges, releases or threatened releases
          of chemicals,  pollutants,  contaminants,  wastes,  toxic  substances,
          hazardous  materials,   oil,  hazardous   substances,   petroleum  and
          petroleum  products  and  by-products   ("Materials  of  Environmental
          Concern"),  or (2) the  manufacture,  processing,  distribution,  use,
          treatment,  storage,  disposal,  transport or handling of Materials of
          Environmental  Concern  ("Environmental   Laws");   (ii) each  of  the
          Obligors will, when required, have all permits,  licenses,  approvals,
          rulings,  variances,   exemptions,   clearances,   consents  or  other
          authorizations   required   under   applicable    Environmental   Laws
          ("Environmental  Approvals")  and  will,  when  required,  be in  full
          compliance with all Environmental  Approvals required to operate their
          business  as then being  conducted;  (iii) none  of the  Obligors  has
          received   any  notice  of  any  claim,   action,   cause  of  action,
          investigation  or  demand  by  any  person,   entity,   enterprise  or
          government,  or any political  subdivision,  intergovernmental body or
          agency,  department or  instrumentality  thereof,  alleging  potential
          liability for, or a requirement to incur, investigatory costs, cleanup
          costs,   response  and/or  remedial  costs  (whether   incurred  by  a
          governmental entity or otherwise), natural resources damages, property
          damages, personal injuries,  attorneys' fees and expenses, or fines or
          penalties,  in each case arising out of,  based on or  resulting  from
          (1) the   presence,   or  release  or  threat  of  release   into  the
          environment,   of  any  Materials  of  Environmental  Concern  at  any
          location,  whether or not owned by such person,  or  (2) circumstances
          forming  the basis of any  violation,  or  alleged  violation,  of any
          Environmental Law or Environmental  Approval  ("Environmental  Claim")
          (other  than  Environmental  Claims  that have been fully and  finally
          adjudicated or otherwise determined and all fines, penalties and other
          costs,  if any,  payable by the Obligors in respect  thereof have been
          paid in full or are fully  covered by insurance  (including  permitted
          deductibles)); and (iv) there are no circumstances that may prevent or
          interfere with such full compliance in the future.

     (r)  Pending  or  Threatened  Environmental  Claims.  Except as  heretofore
          disclosed  in writing  to the Banks  there is no  Environmental  Claim
          pending or threatened  against any Obligor or past or present actions,
          activities, circumstances, conditions, events or incidents, including,
          without limitation,  the release,  emission,  discharge or disposal of
          any Materials of Environmental  Concern,  that could form the basis of
          any Environmental Claim against any Obligor.

     (s)  Limited  Purpose.  Each Owner is a special  purpose company whose sole
          capital asset is its Vessel;  no Owner  engages in any business  other
          than the owning of its Vessel.

     (t)  Permitted  Indebtedness.  The  Loans  and  the  Guaranty  thereof  are
          Indebtedness  of  the  Original  Borrowers,  VSSI  Australia  and  the
          Guarantor,  respectively,  the  incurrence  of which is  permitted  by
          Clause 4.3 of the Indenture  because the Interest  Coverage  Ratio (as
          such term is defined in the Indenture) shall be greater than 2:1 after
          consummation of the transactions contemplated herein.

     (u)  Survival.  All  representations,  covenants and warranties made herein
          and in any certificate or other document  delivered pursuant hereto or
          in  connection  herewith  shall  survive  the  issuance of the Amended
          Letter of Credit.

4    CONDITIONS PRECEDENT

4.1  Conditions   Precedent  to  Issuance  of  Amended  Letter  of  Credit.  The
     obligation of the Agent on behalf of the Banks, to issue the Amended Letter
     of  Credit to the  Beneficiary  under  this  Agreement  shall be  expressly
     subject to the following conditions precedent:

     (a)  the Agent shall have  received  the  following  documents  in form and
          substance satisfactory to the Agent and its counsel:

          (i)  copies,  certified  as true and complete by an officer of each of
               the Obligors and the Guarantor of excerpts of the  resolutions of
               each such  company's  board of directors  (and,  if any necessary
               under appropriate law,  shareholders)  evidencing approval of the
               Transaction  Documents  to which  such  company  is or is to be a
               party and  authorizing  an  appropriate  officer or  officers  or
               attorney-in-fact or  attorneys-in-fact to execute the same on its
               behalf;

          (ii) copies,  certified  as true and complete by an officer of each of
               the Obligors and the Guarantor or other applicable  party, of all
               documents   evidencing  any  other  necessary  action  (including
               actions by such  parties  thereto  other than the Obligors or the
               Guarantor as may be required by the Agent), approvals or consents
               with respect to this Agreement, the Loan Agreements, the Security
               Documents and the transactions contemplated hereby and thereby;

          (iii)copies,  certified  as true and complete by an officer of each of
               the Obligors and the Guarantor, of the articles or certificate of
               incorporation  and  by-laws (or the  equivalent  thereof) of each
               thereof  (unless such Obligor or  Guarantor  previously  provided
               such  documents in  connection  with the  Original  Reimbursement
               Agreement,  in which case such Obligor or Guarantor shall provide
               a  certificate  from an  officer  of such  Obligor  or  Guarantor
               stating  that such  documents  have not been amended or rescinded
               since the date of the Original Reimbursement Agreement);

          (iv) good standing certificates or the equivalent thereof with respect
               to  each  of  the  Obligors  and  the  Guarantor  issued  by  the
               appropriate   authorities  of  the  respective   jurisdiction  of
               incorporation of such parties; and

          (v)  executed copies,  certified as true and complete by an officer of
               the relevant  Owner,  of the Charter,  Subcharter  and Management
               Agreement  relating to its Vessel  (unless such Owner  previously
               provided  such   documents  in   connection   with  the  Original
               Reimbursement Agreement, in which case such Owner shall provide a
               certificate  from an  officer  of such  Owner  stating  that such
               documents  have not been amended or  rescinded  since the date of
               the Original Reimbursement Agreement);

          (vi) on the  Date  of  Issuance,  a  certificate  from an  officer  or
               director of each of the Obligors stating that the representations
               and warranties  stated in Clause 2 (updated  mutatis  mutandis to
               such date) are true and correct as if made on that date;

     (b)  the Agent shall have received  evidence  (unless such  evidence  shall
          have  previously  been  delivered  to the  Agent  and its  counsel  in
          connection with the Original  Reimbursement  Agreement,  in which case
          the relevant  Obligor shall  certify that such  evidence  continues to
          exist and has not in any way been changed or amended)  satisfactory to
          the Agent and its counsel that:

          (i)  each of the  Vessels is  registered  in the name of the  relevant
               Owner under the  Australian or Bahamian flag, as the case may be,
               and  that  each  Vessel  is  free  and  clear  of all  liens  and
               encumbrances  of record except for the Mortgage  (and  respective
               Mortgage Amendment in the case of the Australian Vessels) thereon
               in favor of the  Security  Trustee  for the benefit of the Banks,
               each such Mortgage having been recorded and  constituting a first
               mortgage lien over the relevant Vessel;

          (ii) each Vessel is classed in the highest  classification  and rating
               for  vessels  of the same age and  type  with its  classification
               society without any material outstanding recommendations;

          (iii)each Vessel is  operationally  seaworthy and in every way fit for
               service; and

          (iv) each Vessel is insured in accordance  with the  provisions of its
               respective  Mortgage  (evidence of which shall  include,  without
               limitation,  cover  notes,  Certificates  of Entry  and  brokers'
               letters of undertaking and an opinion of an insurance  consultant
               retained  by the  Agent  or  such  other  evidence  as  shall  be
               reasonably  satisfactory  to  the  Agent)  and  all  requirements
               thereof in respect of such insurances have been fulfilled;

     (c)  each Owner shall have duly executed and delivered:

          (i)  the Mortgage and/or Mortgage Amendment relating to its Vessel,

          (ii) the Insurances Assignment relating to its Vessel,

          (iii)the Earnings Assignment relating to its Vessel, and

          (iv) the Assignment Notices relating to (ii) and (iii) above;

     (d)  Alliance shall have executed and delivered the Subcharter Assignments,
          the Assignment Notices relating thereto and its Consents;

     (e)  the Guarantor shall have duly executed and delivered:

          (i)  the Guaranty, and

          (ii) the Pledge and related  irrevocable  proxies and stock powers and
               shall have  delivered  to the Agent the undated  resignations  of
               officers and  directors  required to be so delivered  pursuant to
               the Pledge;

     (f)  Ampol shall have duly executed and delivered its Consents;

     (g)  Palm Shipping shall have duly executed and delivered its Consent;

     (h)  the Agent shall have received payment in full of all fees and expenses
          due to the Agent and the Banks on the date thereof including,  without
          limitation,  all fees and  expenses  due under Clause 2.4 and all fees
          due the Agent and the Original Banks under the Original  Reimbursement
          Agreement shall have been paid;

     (i)  the Banks shall have received evidence  satisfactory to them and their
          legal  advisers  that,  save for the liens  created by the  respective
          Mortgage,  Mortgage  Amendment,  Earnings  Assignment  and  Insurances
          Assignment,  there are no liens,  charges or  encumbrances of any kind
          whatsoever  on any  Vessel or its  earnings  or  insurances  except as
          permitted hereby or by any of the Security Documents;

     (j)  the  Banks  shall  be  satisfied  that  none  of the  Obligors  or the
          Guarantor  is subject to any  Environmental  Claim  which could have a
          material  adverse  effect  on  the  business,  assets  or  results  of
          operations of any thereof;

     (k)  the Banks  shall have  received a  complete  copy of the  consolidated
          audited  financial  report  of  the  Guarantor  for  the  year  ending
          March 31, 1997, which shall include at least the balance sheet of such
          corporation  as of the end of such year and the related  statements of
          income,  cash  flow  and  retained  earnings  for  such  year  all  in
          reasonable  detail,   certified  by  an  Acceptable  Accounting  Firm,
          together with their opinion  (containing no  qualifications  which the
          Banks deem material);

     (l)  the  Obligors  shall  have  provided  such  evidence  as the Banks may
          require documenting the current legal and beneficial  ownership of the
          shares of the  Obligors  and the legal  ownership of the shares of the
          Guarantor; and

     (m)  the Banks  shall have  received  opinions  from  (i) Watson,  Farley &
          Williams,  counsel to the Obligors and the Guarantor on matters of New
          York law,  the  Federal  law of the United  States and  Liberian  law,
          (ii) Norton  Smith & Co.,  special  counsel  to the Banks on New South
          Wales law and Australian law,  (iii) Graham,  Thompson & Co.,  special
          counsel to the Banks on Bahamian law and (iv) Seward & Kissel, special
          counsel  to the  Banks,  in each  case in such  form as the  Banks may
          require,  as well as such other legal opinions as the Banks shall have
          required as to all or any matters  under the laws of the United States
          of  America,  the State of New York,  the  Republic  of  Liberia,  the
          Commonwealth  of  Australia,  the  State of New  South  Wales  and the
          Commonwealth  of  the  Bahamas   covering  the   representations   and
          conditions which are the subjects of Clauses 3 and 4.

5    PAYMENTS

5.1  Place of Payments, No Set Off. (a) All payments to be made hereunder by the
     Obligors  shall be made on the due dates of such  payments  to the Agent at
     its account  located at Republic  National  Bank;  in favor of Nedship Bank
     (America) N.V. Account No.  608 202 444 or to such other place as the Agent
     may direct,  for the account of the Banks,  without set-off or counterclaim
     and free from,  clear of and without  deduction  for, any Taxes,  provided,
     however,  that if the  Obligors  shall at any time be  compelled  by law to
     withhold  or  deduct  any  Taxes  from any  amounts  payable  to the  Banks
     hereunder,  then,  subject  to  Clause 5.2,  the  Obligors  shall  pay such
     additional  amounts in Dollars  as may be  necessary  in order that the net
     amounts  received after  withholding  or deduction  shall equal the amounts
     which would have been received if such  withholding  or deduction  were not
     required and, in the event any  withholding  or deduction is made,  whether
     for Taxes or otherwise,  the Obligors shall promptly send to the Banks such
     documentary  evidence with respect to such  withholding or deduction as may
     be  required  from time to time by any of the  Banks.  Notwithstanding  the
     preceding  sentence,  the Obligors  shall not be required to pay additional
     amounts or otherwise indemnify the Banks for or on account of:

     (i)  Taxes  based on or  measured  by the overall net income of any Bank or
          Taxes in the nature of franchise  taxes or taxes for the  privilege of
          doing  business   imposed  by  any   jurisdiction   or  any  political
          subdivision or taxing  authority  therein unless such are imposed as a
          result of the  activities of the Obligors  within the relevant  taxing
          jurisdiction;

     (ii) Taxes  imposed by any  jurisdiction  or any political  subdivision  or
          taxing authority  therein on any Bank that would not have been imposed
          but for such Bank's being  organized in or  conducting  business in or
          maintaining a place of business in the relevant  taxing  jurisdiction,
          or engaging in  activities  or  transactions  in the  relevant  taxing
          jurisdiction  that are unrelated to the  transactions  contemplated by
          the Transaction  Documents,  but only to the extent such Taxes are not
          imposed as a result of the  activities  of any of the Obligors  within
          the relevant  taxing  jurisdiction  or the  jurisdiction of any of the
          Obligors under the laws of the taxing jurisdiction;

     (iii)Taxes  imposed on or with respect to a Bank as a result of a transfer,
          sale, assignment, or other disposition by such Bank of any interest in
          any  Transaction  Document,  any  Note  or any  Vessel  (other  than a
          transfer  pursuant  to an  exercise  of  remedies  upon  an  Event  of
          Default);

     (iv) Taxes  imposed on, or with respect to, a  transferee  (or a subsequent
          transferee)  of an original Bank (and including as such a transferee a
          Bank whose shares of stock have been transferred or the purchaser of a
          participation  in the  Loans) to the  extent of the excess of such Tax
          over the amount of such Tax that would have been  imposed  on, or with
          respect to, such  original  Bank had there not been a transfer,  sale,
          assignment  or  other  disposition  of the  shares  of such  Bank or a
          transfer,  sale, assignment or other disposition by such original Bank
          of any interest in any Vessel,  any Note or any  Transaction  Document
          (in each case,  other than any  transfer  pursuant to the  exercise of
          remedies as a result of an Event of Default  that shall have  occurred
          and be continuing); or

     (v)  Taxes imposed on any Bank that would not have been imposed but for any
          failure of such Bank to comply with any return filing  requirement  or
          any  certification,  information,  documentation,  reporting  or other
          similar requirement known to such Bank, if such compliance is required
          to obtain or establish  relief or exemption  from or reduction in such
          Taxes.

     (b)  In the event that any Obligor has actual  knowledge  that the Obligors
          are required to, or there arises in any Obligor's reasonable opinion a
          substantial  likelihood  that the Obligors will be required to, pay an
          additional amount or otherwise indemnify any Bank for or on account of
          any Tax pursuant to  Clause 5.1(a),  such Obligor will promptly notify
          the Agent and each  relevant Bank of the nature of such Tax, and shall
          furnish  such  information  to the Agent and such Bank with respect to
          such Tax,  as the Agent or such Bank may  reasonably  request.  In the
          event of any  knowledge  or  opinion of an  Obligor  described  in the
          preceding  sentence,  the  Obligors,  the Agent and each relevant Bank
          shall consult in good faith to determine what may be required to avoid
          or reduce such Tax, and each shall use reasonable  efforts to avoid or
          reduce  such Tax (so long as such  efforts do not,  in the  reasonable
          opinion of any relevant  Bank,  result in any cost to such Bank or any
          modification of the terms or repayment of the Loans).

5.2  Tax  Credits.  If any Bank  obtains  the  benefit of a credit  against  its
     liability for Taxes imposed by any taxing  authority for all or part of the
     Taxes as to which the Obligors  have paid  additional  amounts as aforesaid
     then such Bank shall reimburse the Obligors for the amount of the credit so
     obtained.  Each Bank shall use reasonable  efforts to file such tax returns
     as are necessary to obtain any such credit.  In connection  therewith,  the
     Banks may consult with their legal advisers, all fees and expenses of which
     shall be for the account of the Obligors.

5.3  Sharing of Setoffs. Each Bank agrees that if it shall, through the exercise
     of a right of  banker's  lien,  setoff or  counterclaim  or  pursuant  to a
     secured  claim under  Section 506 of the Federal  Bankruptcy  Code or other
     security or interest  arising  from,  or in lieu of,  such  secured  claim,
     exercised  or  received  by such  Bank  under  any  applicable  bankruptcy,
     insolvency or other  similar law or otherwise,  or by any other means other
     than  pursuant to Clause 2.7 and Clause 8,  obtain  payment  (voluntary  or
     involuntary) in respect of any of its Reimbursement Obligations as a result
     of which the unpaid principal portion of its Reimbursement Obligations (and
     accrued and unpaid L/C Fees thereon) shall be proportionately less than the
     unpaid principal portion of the Reimbursement  Obligations (and accrued and
     unpaid  L/C  Fees   thereon)  of  any  other  Bank,   it  shall  be  deemed
     simultaneously  to have purchased  from such other Bank at face value,  and
     shall   promptly  pay  to  such  other  Bank  the  purchase  price  for,  a
     participation in the  Reimbursement  Obligations of such other Bank so that
     the aggregate unpaid principal amount of the Reimbursement Obligations (and
     accrued  and  unpaid  L/C  Fees   thereon)   and   participations   in  the
     Reimbursement Obligations held by each Bank shall be in the same proportion
     to the aggregate unpaid principal amount of all  Reimbursement  Obligations
     then outstanding as the principal amount of its  Reimbursement  Obligations
     (and  accrued  and  unpaid  L/C Fees  thereon)  prior to such  exercise  of
     banker's lien,  setoff or  counterclaim or other event was to the principal
     amount of all Reimbursement Obligations outstanding (and accrued and unpaid
     L/C Fees  thereon)  prior to such  exercise  of  banker's  lien,  setoff or
     counterclaim or other event; provided,  however, that, if any such purchase
     or purchases or  adjustments  shall be made pursuant to this Clause 5.3 and
     the  payment  giving rise  thereto  shall  thereafter  be  recovered,  such
     purchase or  purchases or  adjustments  shall be rescinded to the extent of
     such  recovery  and the  purchase  price or prices or  adjustment  restored
     without  interest.   Any  Bank  holding  a  participation  in  any  of  the
     Reimbursement Obligations deemed to have been so purchased may exercise any
     and all rights of banker's lien, setoff or counterclaim with respect to any
     and all  moneys  owing to such Bank by reason  thereof  as fully as if such
     Bank had made payment  with respect to the Amended  Letter of Credit in the
     amount  of  such  participation.  The  Obligors  expressly  consent  to the
     foregoing arrangement.

6    EVENTS OF DEFAULT

6.1  In  the  event  that  any  of  the  following  events  shall  occur  and be
     continuing:

     (a)  Repayments.  Any payment  due under  Clause 2.3 is not paid on the due
          date; or

     (b)  Other  Payments.  Any fees or other  amount  becoming  payable  to the
          Agent,  the Security  Trustee or the Banks under this Agreement (other
          than any  payment due under  Clause 2.3) or under any of the  Security
          Documents  or under  any of them is not paid on the due date or within
          three (3) Banking  Days after the date of demand (as the case may be);
          or

     (c)  Loan Agreement.  An Event of Default (as defined in either of the Loan
          Agreements) shall occur and be continuing; or

     (d)  Representations, etc. Any representation,  warranty or other statement
          made by the Obligors or the  Guarantor in this  Agreement or in any of
          the  Security  Documents  to  which  it is a  party  or in  any  other
          instrument,  document  or  other  agreement  delivered  in  connection
          herewith or therewith  proves to have been untrue or misleading in any
          material  respect as at the date as of which it was made or delivered;
          or

     (e)  Impossibility,  Illegality.  It becomes impossible or unlawful for the
          Obligors  or the  Guarantor  or  any of  them  to  fulfill  any of the
          covenants and obligations  contained  herein or in any of the Security
          Documents  to  which  it is a party  or for the  Agent,  the  Security
          Trustee or the Banks to  exercise  any of the rights  vested in any of
          them  hereunder  or  under  any of the  Security  Documents  and  such
          impossibility or illegality,  in the reasonable  opinion of the Agent,
          the  Security  Trustee  or the  Majority  Banks,  will have a material
          adverse effect on their rights  hereunder or under any of the Security
          Documents or on their right to enforce any thereof; or

     (f)  Covenants.  The Obligors or the  Guarantor or any of them  defaults in
          the performance of any term,  covenant or agreement  contained in this
          Agreement  or in any of the  Security  Documents  to which  they are a
          party or in any of them, or in any other instrument, document or other
          agreement  delivered in  connection  herewith or  therewith,  or there
          occurs  any  other  event  which  constitutes  a  default  under  this
          Agreement or any of the Security Documents, in each case other than an
          Event of Default  referred to elsewhere in this  Clause 6.1,  and such
          default, in the reasonable opinion of the Majority Banks, could have a
          material  adverse effect on their rights hereunder or under any of the
          Security  Documents  or on their  right to  enforce  any  thereof  and
          continues unremedied for a period of thirty (30) days; or

     (g)  Indebtedness.  The  Obligors,  the  Guarantor,  or  any  Wholly  Owned
          Subsidiary  of the  Guarantor  shall  default in the payment  when due
          (subject to any applicable  grace period),  whether by acceleration or
          otherwise,  of any Indebtedness having an outstanding principal amount
          of  $5,000,000  or more or any party  becomes  entitled to enforce the
          security for any such  Indebtedness and such party shall take steps to
          enforce  the  same,  unless  such  default  or  enforcement  is  being
          contested in good faith and by  appropriate  proceedings or other acts
          and  the  relevant  Obligors,  the  Guarantor  or  such  Wholly  Owned
          Subsidiary of the Guarantor as the case may be, shall set aside on its
          books  adequate  reserves  with respect  thereto,  and so long as such
          default or  enforcement  shall not subject any Vessel to material risk
          of forfeiture or loss; or

     (h)  Stock  Ownership.  There is, without the prior written  consent of the
          Majority  Banks  (i) any  change  in the  legal  or  beneficial  stock
          ownership or the voting control of the Obligors or (ii) any  pledge of
          the shares of the Obligors in favor of a party other than the Security
          Trustee  for the  benefit of the Banks or  (iii) less  than  fifty-one
          percent (51%) of the issued and outstanding shares of the Guarantor is
          held beneficially and of record by the Cirrus Trust and the JTK Trust;
          or

     (i)  Default  under the  Security  Documents.  There is an event of default
          under any of the Security  Documents  which shall have occurred and be
          continuing; or

     (j)  Bankruptcy.  Any  of  the  Obligors  or the  Guarantor  commences  any
          proceeding  relating to any substantial  portion of its property under
          any reorganization,  arrangement or readjustment of debt, dissolution,
          winding up, adjustment,  composition, bankruptcy or liquidation law or
          statute  of any  jurisdiction,  whether  now or  hereafter  in  effect
          ("Proceeding"),  or there is commenced  against any of the Obligors or
          the Guarantor any Proceeding and such Proceeding  remains  undismissed
          or  unstayed  for a period  of  thirty  (30)  days;  or any  receiver,
          trustee, liquidator or sequestrator of, or for, any of the Obligors or
          the  Guarantor  or any  substantial  portion  of the  property  of any
          thereof is appointed and is not  discharged  within a period of thirty
          (30)  days;  or any of  the  Obligors  or  the  Guarantor  by any  act
          indicates  consent to or approval of or acquiescence in any Proceeding
          or  to  the  appointment  of  any  receiver,  trustee,  liquidator  or
          sequestrator  of, or for,  itself or any  substantial  portion  of its
          property; or

     (k)  Sale of  Assets.  Any of the  Obligors  or the  Guarantor  ceases,  or
          threatens to cease, its operations or sells or otherwise  disposes of,
          or threatens to sell or otherwise dispose of, all or substantially all
          of its assets or all or substantially  all of its assets are seized or
          otherwise appropriated; or

     (l)  Judgments.  Any judgment or order is made the effect  whereof would be
          to render  ineffective  or  invalid  this  Agreement  or the  Security
          Documents or any of them; or

     (m)  Inability to Pay Debts. Any of the Obligors or the Guarantor is unable
          to pay or admits its inability to pay its debts as they fall due or if
          a moratorium shall be declared in respect of any Indebtedness thereof;
          or

     (n)  Financial  Position.  Any  change  in the  financial  position  of the
          Guarantor  which, in the reasonable  opinion of the Majority Banks, is
          likely  to  have a  material  adverse  effect  on the  ability  of the
          Obligors or the  Guarantor to perform its material  obligations  under
          this Agreement, the Security Documents or the Charters; or

     (o)  Amendment  or  Assignment   of  Charters.   Any  of  the  Charters  or
          Subcharters is materially  amended or modified or assigned without the
          prior written consent of the Majority Banks; or

     (p)  Termination  or  Default  Under  Charters.  Any  of  the  Charters  or
          Subcharters  is terminated  without the prior  written  consent of the
          Majority  Banks,  or any party to any  thereof  defaults  or ceases to
          perform thereunder for any reason whatsoever, unless, provided that no
          other Event of Default has occurred and is continuing,  (A) within 180
          days of the  termination of the Apache Charter by Apache in accordance
          therewith, Apache pays to the Security Trustee on behalf of the Banks,
          the  Termination  Payment  (as  such  term is  defined  in the  Apache
          Charter) or  (B) within 30 days of any default or  non-performance  of
          (1) Ampol  under a Subcharter or (2) Apache  under the Apache Charter,
          the Obligors  replace such Subcharter or Apache  Charter,  as the case
          may be, with a charter or subcharter,  as the case may be,  acceptable
          to the  Banks;then  the Banks'  obligation to cause the Agent on their
          behalf to issue the Amended Letter of Credit shall cease and the Agent
          shall,  upon the  instructions of the Majority Banks, by notice to the
          Obligors,  (i) direct the Obligors to pay to the Agent for the benefit
          of the Banks, and the Obligors shall  immediately pay, an amount equal
          to all Letter of Credit  Liabilities as of such date less the value of
          any cash collateral previously provided to the Banks or Security Agent
          on behalf of the Banks  hereunder,  to be kept as  collateral  for the
          Obligors' obligations in respect of the Amended Letter of Credit until
          the Banks'  obligations in respect of the Amended Letter of Credit are
          canceled and all of the Reimbursement  Obligations of the Obligors are
          repaid, and declare all sums payable by the Obligors hereunder due and
          payable  whereupon the same shall forthwith be due and payable without
          presentment,  demand,  protest or notice of any kind, all of which are
          hereby  expressly  waived,  and  (ii) pay or prepay all other  amounts
          owing under or in  connection  with this  Agreement  and the  Security
          Documents;  provided that upon the happening of an event  specified in
          subclause (j)   or  (m)  of   this   Clause 6.1,   the   Reimbursement
          Obligations,  accrued  interest and any other sums  payable  hereunder
          shall be  immediately  due and payable  without  presentment,  demand,
          protest,  declaration  or other  notice to the  Obligors.  In any such
          event,  the Banks,  the Agent  and/or  the  Security  Trustee  may (i)
          proceed to protect and enforce  their rights by action at law, suit in
          equity or in admiralty or other  appropriate  proceeding,  whether for
          specific performance of any covenant contained in this Agreement or in
          any of the  Security  Documents,  or to  enforce  any  other  legal or
          equitable right of the Banks,  the Agent and/or the Security  Trustee,
          or (ii) proceed to take any action  authorized or permitted  under the
          terms of any of the Security  Documents or by applicable  laws for the
          collection of all sums due, including,  without limitation,  the right
          to  appropriate  and hold or apply  (directly,  by way of  set-off  or
          otherwise)  to the payment of the  obligations  of the Obligors to the
          Banks,  the Agent and/or the Security  Trustee  hereunder and/or under
          any of the Security Documents (whether or not then due) all moneys and
          other amounts of the Obligors, then or thereafter in possession of the
          Banks, the Agent and/or Security Trustee,  inclusive of the balance of
          any deposit  account  (demand or time,  matured or  unmatured)  of the
          Obligors, then or thereafter with the Banks, the Agent and/or Security
          Trustee.

6.2  Indemnification.  The  Obligors  agree to,  and shall,  indemnify  and hold
     harmless the Agent,  the Security Trustee and the Banks against any loss or
     costs or expenses  (including legal fees and expenses) which the Agent, the
     Security  Trustee and the Banks  sustain or incur as a  consequence  of any
     default in payment of the  Reimbursement  Obligations  or interest  accrued
     thereon  or any  other  amount  payable  hereunder  or under  the  Security
     Documents  (other than costs and expenses caused by the gross negligence or
     willful  misconduct of the Agent,  the Security  Trustee or any Bank).  The
     Agent's,  Security  Trustee's  or Banks'  certification  of such  costs and
     expenses shall, absent any manifest error, be conclusive and binding on the
     Obligors.

6.3  Application  of Moneys.  (a) Except  as otherwise  provided in any Security
     Document, all moneys received by the Agent, Security Trustee or Banks under
     or pursuant to this  Agreement or any of the Security  Documents  after the
     happening of any Event of Default (unless cured to the  satisfaction of the
     Banks) shall be applied by the Agent in the following manner:

     (i)  first, in or towards the payment or  reimbursement  of any expenses or
          liabilities  incurred by the Agent,  the Security Trustee or the Banks
          in connection  with the  ascertainment,  protection or  enforcement of
          their  rights and  remedies  hereunder  and under any of the  Security
          Documents,

     (ii) secondly,  in or  towards  the  payment  of all  fees  payable  by the
          Obligors under Clause 2.4;

     (iii)thirdly,  in or towards  payment of any  interest  owing in respect of
          the Reimbursement Obligations,

     (iv) fourthly, in or towards payment of any Reimbursement Obligations,

     (v)  fifthly,  in or towards  payment of all sums which may be owing to the
          Banks,  the Agent or the Security Trustee on behalf of the Banks under
          this  Agreement or into a cash  collateral  account  maintained by the
          Agent for  amounts  which the  Banks,  in their sole  discretion  deem
          necessary to secure  against future claims under the Amended Letter of
          Credit,

     (vi) sixthly, in or towards payment of all other sums which may be owing to
          the Agent,  the Security  Trustee or the Banks under this Agreement or
          under any of the Security Documents, and

     (vii)seventhly,  the surplus  (if any) shall be paid to the  Obligors or to
          whomsoever else may be entitled thereto.

          (b)  With respect to any moneys  received by the Agent pursuant to the
               Security Documents prior to the occurrence of an Event of Default
               the Agent shall hold such moneys as  collateral in respect of the
               Obligors' obligations hereunder,  provided, however, that so long
               as no Event of Default shall have occurred and be continuing  and
               the  Obligors  are in  compliance  with their  obligations  under
               Clause  7.3,  the  Agent  shall  release  any such  moneys to the
               Obligors or to whomsoever the Obligors may direct.

7    COVENANTS

7.1  Each Obligor hereby  covenants and undertakes with the Banks, the Agent and
     Security  Trustee that,  from the date hereof and so long as any principal,
     interest  or other  monies are owing in respect of this  Agreement  and the
     Security Documents or any of them:

     A.   The Obligors will each:

          (i)  Performance of Agreements.  Duly perform and observe, and procure
               the  observance  and  performance  by all other  parties  thereto
               (other than the Agent,  the  Security  Trustee and the Banks) of,
               the terms of this Agreement and the Security Documents;

          (ii) Notice of Default;  Change in Classification of Vessel.  Promptly
               inform the Agent of the occurrence of (a) any Event of Default or
               of any event which with the giving of notice or lapse of time, or
               both, would constitute an Event of Default, (b) the withdrawal of
               any Vessel's rating by its classification society or the issuance
               by such classification  society of any recommendation or notation
               affecting class,  (c) any  litigation or governmental  proceeding
               pending  or  threatened  against  any  of  the  Obligors  or  the
               Guarantor  which could  reasonably be expected to have a material
               adverse effect on the business, assets,  operations,  property or
               financial  condition of any such party and (d) any other event or
               condition of which it becomes aware which is reasonably likely to
               have a material adverse effect on its ability,  or the ability of
               any other party thereto,  to perform its  obligations  under this
               Agreement and the Security Documents or any of them;

          (iii)Obtain  Consents.  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 any other party's
               (other than the Agent's,  the  Security  Trustee's or the Banks')
               respective  obligations  under this  Agreement  and the  Security
               Documents;

          (iv) Financial  Statements.  Deliver or cause to be  delivered  to the
               Agent  to  be  distributed  by  the  Agent  in  accordance   with
               Clause 12.14:

               (a)  as soon as  available  but not later than  ninety (90)  days
                    after the end of each fiscal year of the Guarantor  complete
                    copies of the financial  reports of the Guarantor  (together
                    with a Compliance  Certificate  substantially in the form of
                    Exhibit J,  signed by the  Chief  Financial  Officer  of the
                    Guarantor),  on a consolidated basis, which shall include at
                    least the consolidated  balance sheet of the Guarantor as of
                    the end of such year and the related consolidated statements
                    of income,  cash flow and  retained  earnings for such year,
                    all  in  reasonable  detail,   certified  by  an  Acceptable
                    Accounting  Firm,   together  with  their  opinion  (without
                    material qualifications) thereon;

               (b)  as soon as available but not later than forty-five (45) days
                    after the end of each of the first  three  quarters  of each
                    fiscal  year  of  the  Guarantor,  a  balance  sheet  of the
                    Guarantor,  on a consolidated  basis,  as at the end of such
                    quarter and the related  consolidated  statements of income,
                    cash flow and  retained  earnings for such  quarter,  all in
                    reasonable  detail,  unaudited,  but  certified by the chief
                    financial  officer  of  the  Guarantor,  together,  in  each
                    instance,  with a  Compliance  Certificate,  signed  by such
                    chief financial officer of the Guarantor;

               (c)  as soon as available,  copies of all reports,  statements or
                    other  instruments  filed with the United States  Securities
                    and Exchange Commission; and

               (d)  such other  statement or  statements,  lists of property and
                    accounts,   budgets,   forecasts,   reports  and   financial
                    information  with respect to the operation and management of
                    the Vessels and any other vessels owned or operated directly
                    or indirectly by the  Guarantor,  as the Agent may from time
                    to time reasonably request;

          (v)  Corporate Existence. Do or cause to be done, and procure that the
               Guarantor  shall do or cause to be done, all things  necessary to
               preserve  and keep in full  force  and  effect  their  respective
               corporate existence,  and all licenses,  franchises,  permits and
               assets  necessary  to the  conduct of the  business  of each such
               corporation;

          (vi) Books,  Records,  etc. Keep, and procure that the Guarantor shall
               keep,  proper  books of record  and  account  into which full and
               correct entries shall be made, in accordance with GAAP;

          (vii)Inspection.  Allow,  and procure that the Guarantor  shall allow,
               any representative or representatives  designated by the Agent or
               any of the Banks, subject to applicable laws and regulations,  to
               visit and inspect any of the  properties of any such party,  and,
               on request, to examine the books of account, records, reports and
               other  papers  (and to make copies  thereof and to take  extracts
               therefrom) of each such  corporation  and to discuss the affairs,
               finances and accounts of each such corporation, with the officers
               and  executive  employees  of each such  corporation  all at such
               reasonable  times  and  as  often  as  the  Agent  or  such  Bank
               reasonably requests;

          (viii) Taxes.  Pay and  discharge,  and cause the Guarantor to pay and
               discharge,  all taxes,  assessments and  governmental  charges or
               levies   imposed  upon  each  such   corporation   or  upon  such
               corporation's  income or  property  prior to the date upon  which
               penalties   attach   thereto;   provided,   however,   that  such
               corporations 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 or amount 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,  and so long as such  deferment  in  payment  shall  not
               subject any Vessel to material risk of forfeiture or loss;

          (ix) Compliance  with  Statutes,  etc.  Do or cause  to be  done,  and
               procure  that the  Guarantor  shall  do or cause to be done,  all
               things  necessary to comply with all material laws, and the rules
               and  regulations  thereunder,  applicable to the Obligors and the
               Guarantor and including,  without  limitation,  those laws, rules
               and   regulations   relating  to  employee   benefit   plans  and
               environmental matters;

          (x)  Environmental Matters. Promptly upon the occurrence of any of the
               following  conditions,  provide to the Agent a certificate of the
               chief executive officer thereof,  specifying in detail the nature
               of such condition and the Obligors' or the  Guarantor's  proposed
               response or the proposed response of any Environmental  Affiliate
               (as such term is hereinafter defined) of any thereof, as the case
               may be:  (a) the  Obligors'  or the  Guarantor's  receipt  or the
               receipt  by any  Environmental  Affiliate  of any  thereof of any
               communication  whatsoever that alleges that such Person is not in
               compliance with any applicable environmental law or environmental
               approval,  if such noncompliance  could reasonably be expected to
               have  a  material   adverse  effect  on  the  business,   assets,
               operations,  property or  financial  condition of the Obligors or
               the Guarantor,  (b) knowledge by the Obligors or the Guarantor or
               any Environmental  Affiliate of any thereof that there exists any
               Environmental Claim pending or threatened against any such Person
               which could  reasonably  be  expected to have a material  adverse
               effect on the business, assets, operations, property or financial
               condition  of  the  Guarantor  or  (c) any   release,   emission,
               discharge or disposal of any  material  that could form the basis
               of  any   Environmental   Claim  against  the  Guarantor  or  any
               Environmental   Affiliate  if  such  Environmental   Claim  could
               reasonably be expected to have a material  adverse  effect on the
               business, assets, operations,  property or financial condition of
               the  Guarantor.  Upon the  written  request  by the  Agent,  each
               Obligor will submit, and procure that the Guarantor shall submit,
               to the  Agent at  reasonable  intervals,  a report  providing  an
               update  of the  status of any  issue or claim  identified  in any
               notice or certificate  required  pursuant to this subclause.  For
               the purposes of this subclause,  "Environmental Claim" shall mean
               any claim under federal,  state and local  environmental,  health
               and safety  laws,  statutes  or  regulations  and  "Environmental
               Affiliate" shall mean any person or entity the liability of which
               for  Environmental  Claims the Obligors or the Guarantor may have
               assumed by contract or operation of law;

          (xi) Accountants.   Retain  an  Acceptable   Accounting  Firm  as  its
               independent certified accountants;

          (xii)Continue  Charters.  Continue  to  charter  the  Vessels  to  the
               respective  Charterer and procure that Alliance shall  subcharter
               the  Australian  Vessels to Ampol,  and ensure  that the terms of
               such  Charters and  Sub-Charters  include,  inter alia,  that the
               payments of the Charterers to the Owners under the Charters will,
               in the  aggregate,  be  sufficient  to cover all  payments of the
               Owners under this  Agreement and any operating and other expenses
               of such Owner and that  payments by Ampol to  Alliance  under the
               Subcharters  will be  sufficient  to allow  Alliance  to meet its
               obligations under the Charters;

          (xiii) Class Certificate.  Furnish,  or cause to be furnished,  to the
               Agent, upon any change of a Vessel's classification status or the
               issuance  of a  recommendation  affecting  class  by  a  Vessel's
               classification society or upon the Agent's reasonable request (to
               be made no more than once in any calendar  year),  a confirmation
               of  class   certificate   covering  each  Vessel  and  evidencing
               compliance with the applicable provisions of the Mortgage thereon
               within thirty (30) days of such change or such request;

          (xiv)Maintenance of Properties.  Maintain,  or cause to be maintained,
               and keep, or cause to be kept, and procure that the Guarantor and
               shall maintain, or cause to be maintained,  and keep, or cause to
               be kept,  all  properties  used or useful in the  conduct  of its
               business in good condition, repair and working order and supplied
               with all necessary  equipment and will cause to be made necessary
               repairs,  renewals and replacements  thereof so that the business
               carried on and in connection  therewith and every portion thereof
               may be properly and  advantageously  conducted  at all times.  In
               addition,  each Owner shall cause its Vessel to be  drydocked  as
               often as required by such Vessel's  classification society and as
               a prudent shipowner would require;

          (xv) Vessel Management.  Cause its Vessel to be managed by the Manager
               or such ship manager  selected by the Owners and  satisfactory to
               the Majority  Banks  pursuant to a written  management  agreement
               acceptable to the Majority Banks;

          (xvi) ISM Compliance. Procure:

               (a)  that any  Operator  will  comply  with and ensure  that each
                    Vessel  and any  Operator  by not later  than  July 1,  1998
                    comply with the requirements of the ISM Code, including (but
                    not  limited  to)  the  maintenance  and  renewal  of  valid
                    certificates pursuant thereto;

               (b)  that any Operator will immediately inform the Agent if there
                    is  any  threatened  or  actual  withdrawal  of  its  or  an
                    Operator's DOC or the SMC in respect of any Vessel; and

               (c)  that any Operator  will  promptly  inform the Agent upon the
                    issuance to the Borrower or any Operator of a DOC and to any
                    Vessel  of an SMC  or the  receipt  by the  Borrower  or any
                    Operator of  notification  that its application for the same
                    has been realized;


          (xvii) Limitation on Restricted Payments.

          Procure that the Guarantor will not directly or indirectly  declare or
          pay any dividend or make any  distribution  on its capital stock (such
          payments being defined as  "Restricted  Payments") if, at the time of,
          and after giving  effect to, the proposed  Restricted  Payment:  (A) a
          default or Event of Default  shall have  occurred and be continuing or
          (B) the  aggregate  amount  expended for all Restricted  Payments (the
          amount so expended,  if other than in cash,  to be  determined in good
          faith  by  the  Board  of  Directors,  whose  determination  shall  be
          conclusive  and be  evidenced  by a Board  Resolution)  after the date
          hereof shall exceed the sum of (1) 50% of the aggregate  amount of the
          Adjusted  Consolidated  Net Income (or if  Adjusted  Consolidated  Net
          Income is a loss,  minus one hundred percent (100%) of such amount) of
          the Guarantor  accrued on a cumulative  basis during the period (taken
          as one accounting period) beginning February 1, 1996 and ending on the
          last day of the last fiscal  quarter  preceding such date plus (2) the
          aggregate  net proceeds  (including  the fair market value of non-cash
          proceeds  as  determined  in good  faith by the  Board  of  Directors)
          received  by the  Guarantor  (including  the  amount of any  dividends
          reinvested  in the capital stock of the  Guarantor)  from the issuance
          and sale  permitted by the Indenture of capital stock of the Guarantor
          (other than redeemable stock),  including an issuance or sale for cash
          or other  property  upon the  conversion  of any  Indebtedness  of the
          Guarantor  subsequent to the date hereof,  or from the issuance of any
          options,  warrants  or other  rights to acquire  capital  stock of the
          Guarantor  (in each case,  exclusive  of any  redeemable  stock or any
          options, warrants or other rights that are redeemable at the option of
          the holder,  or are  required to be  redeemed,  prior to the  Maturity
          Date) plus (3) $50,000,000.

          The foregoing provision shall not take into account,  and shall not be
          violated by reason of:

          (a)  the  payment  of any  dividend  within 60 days  after the date of
               declaration thereof if, at said date of declaration, such payment
               would comply with the foregoing paragraph;

          (b)  the redemption,  repurchase,  defeasance or other  acquisition or
               retirement  for value of  Indebtedness  of the Guarantor  that is
               subordinated   in  right   of   payment   to  the   Reimbursement
               Obligations,   with  the  proceeds   of,  or  in  exchange   for,
               Indebtedness incurred under Clause 7.1(B)(iii)(III);

          (c)  the repurchase,  redemption or other acquisition by the Guarantor
               of capital  stock of the Guarantor in exchange for, or out of the
               proceeds of a  substantially  concurrent  offering of,  shares of
               capital stock of the Guarantor (other than redeemable stock);

          (d)  the  acquisition  by the  Guarantor of its  Indebtedness  that is
               subordinated in right of payment to the Reimbursement Obligations
               in  exchange  for  or  out  of  the  proceeds  of  a  substantial
               concurrent  offering of shares of capital  stock of the Guarantor
               (other than redeemable shares);

          (e)  payments or  distributions  pursuant to or in  connection  with a
               consolidation,  merger or transfer of assets that  complies  with
               the applicable provisions herein; or

          (f)  certain purchases,  redemptions,  acquisitions,  cancellations or
               other  retirements  for a nominal  value per right of any  rights
               granted  pursuant  to any  shareholders'  rights  plan  (i.e.,  a
               "poison  pill");  provided  that  in the  case  of the  foregoing
               clauses (a) and (b), no Event of Default  shall have occurred and
               be  continuing  or  occur  as a  consequence  of the  actions  or
               payments set forth therein.

B.   None of the  Obligors,  without the prior  written  consent of the Majority
     Banks, will:

     (i)  Liens. Create,  assume or permit to exist any mortgage,  pledge, lien,
          charge,  encumbrance or any security  interest  whatsoever upon any of
          such party's property or other assets,  real or personal,  tangible or
          intangible, whether now owned or hereafter acquired except:

          (a)  liens for taxes not yet payable for which adequate  reserves have
               been maintained;

          (b)  the Mortgages, the Mortgage Amendments, the Assignments and other
               liens in favor of the Security Trustee;

          (c)  liens,  charges and encumbrances against their respective Vessels
               permitted to exist under the terms of the Mortgages;

          (d)  pledges of  certificates  of  deposit  or other  cash  collateral
               securing the Obligors'  reimbursement  obligations  in connection
               with  letters of credit  hereafter  issued for the account of the
               Obligors in connection  with the  establishment  of the financial
               responsibility  of the  Obligors  under  Title 33 Code of Federal
               Regulations  ("C.F.R.") Part 130 or Title 46 C.F.R.  Part 540, as
               the case may be, as the same may be amended or replaced; and

          (e)  other liens,  charges and encumbrances  incidental to the conduct
               of the  business of each such party or the  ownership of any such
               party's  property  and assets  and which do not in the  aggregate
               materially  detract from the value of each such party's  property
               or assets or  materially  impair the use thereof in the operation
               of its business;

               (ii) Loans and  Advances.  Make any loans or advances  to, or any
                    investments in, any person, firm, corporation, joint venture
                    or other entity (including,  without limitation, any loan or
                    advance to any officer, director,  stockholder,  employee or
                    customer of any company  affiliated with the Obligors or the
                    Guarantor) except for advances and investments in the normal
                    course  of  its  business  and  loans  or  advances  to  the
                    Guarantor;

               (iii)Limitation  on  Indebtedness.  (a) Incur,  and shall procure
                    that  the  Guarantor  will  not  incur,   any   Indebtedness
                    excluding  Indebtedness hereunder to the Agent, the Security
                    Trustee or the Banks,  Indebtedness  under or in  connection
                    with the Loan Agreements and  Indebtedness  existing (or for
                    which a written  commitment  has been made on or before  the
                    date hereof) on the date hereof; provided that the Guarantor
                    or any of its Subsidiaries may incur  Indebtedness if, after
                    giving effect to the incurrence of such Indebtedness and the
                    receipt  and  application  of the  proceeds  therefrom,  the
                    Interest  Coverage  Ratio of the Guarantor  would be greater
                    than 2:1.

     Notwithstanding  the foregoing,  the Guarantor (or in the case of subclause
     (VI) below, Alliance) may incur each and all of the following:

     (I)  Indebtedness in an aggregate  principal amount such that the aggregate
          principal  amount of the  Indebtedness  of the  Guarantor  outstanding
          immediately  after  such  incurrence  does not  exceed  the  aggregate
          principal  amount of  Indebtedness  existing  on the date  hereof plus
          $50,000,000;

     (II) Indebtedness of the Guarantor to any Wholly-Owned Subsidiary;

     (III)Indebtedness  issued in exchange for, or the net proceeds of which are
          used  to  refinance  or  refund,   outstanding   Indebtedness  of  the
          Guarantor, other than Indebtedness incurred under clause (I) or (V) of
          this  paragraph  and any  refinancings  thereof,  in an amount  not to
          exceed the principal amount so exchanged, refinanced or refunded (plus
          premiums, accrued and unpaid interest, fees and expenses thereon);

     (IV) Indebtedness  (A) in  respect of  performance,  surety or appeal bonds
          provided  in the  ordinary  course  of  business,  (B) under  Currency
          Agreements and Interest Rate Agreements; provided that, in the case of
          Currency Agreements that relate to other  Indebtedness,  such Currency
          Agreements  do  not  increase  the   Indebtedness   of  the  Guarantor
          outstanding  at any time  other  than as a result of  fluctuations  in
          foreign currency exchange rates or by reason of fees,  indemnities and
          compensation  payable  thereunder,  and  (C) arising  from  agreements
          providing for indemnification, adjustment of purchase price or similar
          obligations,  or from guarantees or letters of credit, surety bonds or
          performance  bonds securing any obligations of the Guarantor  pursuant
          to such  agreements,  in any  case  incurred  in  connection  with the
          disposition  of any  business  or  assets  of the  Guarantor  and  not
          exceeding  the gross  proceeds  therefrom,  other than  guarantees  of
          Indebtedness  incurred by any Person  acquiring  all or any portion of
          such  business or assets of the Guarantor for the purpose of financing
          such acquisition;

     (V)  Indebtedness   in  connection   with  the   acquisition   of  any  new
          Wholly-Owned   Subsidiary;   provided  that,   with  respect  to  this
          Clause 7.1(B)(iii)(a)(V),   after  giving  effect  to  the  Incurrence
          thereof,  the  Guarantor  could incur at least  $1.00 of  Indebtedness
          pursuant to the first paragraph of this Clause 7.1(B)(iii)(a); and

     (VI) Indebtedness  of  Alliance  incurred  in the  ordinary  course  of the
          operation  of vessels or  Indebtedness  of Alliance  to the  Guarantor
          resulting  from  advances  to Alliance  by the  Guarantor  made in the
          ordinary course of business;

          (b)  For purposes of determining any particular amount of Indebtedness
               under this  Clause 7.1(B)(iii),  guarantees or  obligations  with
               respect to letters of credit  supporting  Indebtedness  otherwise
               included in the determination of such particular amount shall not
               be included.  For purposes of  determining  compliance  with this
               Clause 7.1(B)(iii), (i) in the event that an item of Indebtedness
               meets the criteria of more than one of the types of  Indebtedness
               described above in this Clause 7.1(B)(iii), the Guarantor, in its
               sole  discretion,  shall classify such item of  Indebtedness  and
               only  be  required  to  include  the  amount  and  type  of  such
               Indebtedness  in one of  such  clauses  and  (ii) the  amount  of
               Indebtedness  issued at a price  that is less than the  principal
               amount  thereof  shall be equal to the amount of the liability in
               respect    thereof    determined   in   conformity   with   GAAP.
               Notwithstanding  any other provision of this  Clause 7.1(B)(iii),
               the maximum amount of  Indebtedness  that the Guarantor may incur
               pursuant  to this  Clause 7.1(B)(iii)  shall  not be deemed to be
               exceeded  due solely to  fluctuations  in the  exchange  rates of
               currencies.

          (c)  The Guarantor shall not incur any Indebtedness  that is expressly
               subordinated to any other  Indebtedness  of the Guarantor  unless
               such Indebtedness,  by its terms or the terms of any agreement or
               instrument  pursuant  to which  such  Indebtedness  is  issued or
               remains  outstanding,  is also expressly made  subordinate to the
               Indebtedness of the Guarantor under the Guaranty.

     (iv) Guarantees,  etc.  Assume,  guarantee  or (other than in the  ordinary
          course of its business)  endorse or otherwise  become or remain liable
          in  connection  with any  obligation of any Person,  firm,  company or
          other  entity  except  for  guaranties  in favor  of the  Banks or the
          Security Trustee on behalf of the Banks;

     (v)  Changes in Business. Change the nature of its business or commence any
          other business;

     (vi) Use of  Corporate  Funds.  Pay out any funds to any  company or Person
          except (a) in the ordinary  course of business in connection  with the
          management  of  the  business  of  the  Obligors  and  the  Guarantor,
          including  the  operation  and/or  repair of the  Vessels  and (b) the
          servicing of the Indebtedness to the Banks;

     (vii)Issuance of Shares.  Issue or dispose of any shares of its own capital
          stock to any Person;

     (viii) Consolidation, Merger. Consolidate with, or merge into any Person;

     (ix) Changes  in  Offices  or  Names.  Change  the  location  of the  chief
          executive  office of the Obligors or the Guarantor,  the office of the
          chief  place  of  business  any such  parties,  or the  office  of the
          Obligors in which the records  relating to the earnings or  insurances
          of the Vessels are kept  unless the Banks shall have  received  thirty
          (30) days prior written notice of such change;

     (x)  Limitation on Transactions with  Shareholders and Affiliates.  None of
          the  Obligors  will and will  procure  that the  Guarantor  will  not,
          directly or indirectly,  enter into,  renew or extend any  transaction
          (including,  without limitation, the purchase, sale, lease or exchange
          of property or assets,  or the  rendering of any service) or series of
          related transactions with any holder (or any Affiliate of such holder)
          of 5% or more of any class of capital  stock of the  Guarantor or with
          any Affiliate of the Guarantor,  except upon fair and reasonable terms
          no less  favorable  to the  Obligors  or the  Guarantor  than could be
          obtained,  at the  time of  such  transaction  or  series  of  related
          transactions  or at  the  time  of  the  execution  of  the  agreement
          providing therefor,  in a comparable  arm's-length  transaction with a
          Person that is not such a holder or Affiliate.

          The foregoing limitation does not limit, and shall not apply to:

          (a)  transactions or series of related  transactions (I) approved by a
               majority of the  disinterested  members of the Board of Directors
               as fair to the  Obligors or the  Guarantor  or (II) for which the
               Obligors or the  Guarantor,  as the case may be,  delivers to the
               Agent a written  opinion of a  nationally  recognized  investment
               banking firm stating that the transaction is fair to the Obligors
               or the Guarantor,  as the case may be, from a financial  point of
               view;

          (b)  the payment of reasonable and customary regular fees to directors
               of the  Obligors or the  Guarantor  who are not  employees of the
               Obligors or the Guarantor; or

          (c)  any Restricted Payments not prohibited by Clause 7.1(A)(xvi);

     (xi) Change of Flag.  Change  the flag of any Vessel or the  management  of
          such Vessel;

     (xii) Sale of Vessel. Sell, transfer or otherwise dispose of a Vessel; or

     (xiii)  Modification   of  Agreements.   Except  as  contemplated  by  this
          Agreement,  amend,  modify or otherwise change, or allow the Guarantor
          to amend, modify or change, any of the Transaction  Documents to which
          it is a party.


7.2  Valuation of the Vessels.  The  aggregate  fair market value ("FMV") of the
     Vessels during the  Reimbursement  Period shall be greater than or equal to
     130%  of  the  Adjusted   Stated   Amount  (at  any  time,   the  "Relevant
     Percentage").  The FMV of each Vessel  shall be  determined  at the Agent's
     discretion,  but no  less  frequently  than  annually,  on the  basis  of a
     valuation  (the  "Valuation")  provided  by the  Agent.  In the  event  the
     Majority Banks or the Obligors  disagree with the Agent's  Valuation,  then
     the  Obligors  and the Agent  shall each obtain a separate  valuation  (the
     "Additional Valuations") from separate independent shipbrokers, and the FMV
     shall  be  determined  to be  the  arithmetic  average  of  the  Additional
     Valuations.  Any  valuation  obtained  with  respect to the DAMPIER  SPIRIT
     pursuant  to this  Clause  7.2  shall be made on the  basis of the  DAMPIER
     SPIRIT  as a  non-converted  trading  tanker.  The  cost of all  valuations
     obtained hereunder shall be for the account of the Obligors.

7.3  Collateral  Maintenance.  If the FMV of the Vessels, as determined pursuant
     to Clause 7.2 falls below the Relevant  Percentage,  within a period of ten
     (10) Banking Days following  receipt by the Obligors of written notice from
     the Agent  notifying  the Obligors 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 Obligors) (a) the Obligors shall
     deliver to the Agent, upon its request,  additional collateral satisfactory
     to the Banks, in their sole discretion  (including the deposit of cash in a
     cash collateral account  maintained with the Agent),  such that (x) the sum
     of (i) the  value of the Vessels,  as  determined  in  accordance  with the
     latest valuation  delivered pursuant to Clause 7.2,  plus (ii) the value of
     additional  collateral  other  than  cash  collateral,  such  value  to  be
     determined  by the Banks when  divided by (y) the  Adjusted  Stated  Amount
     (less any cash collateral  held by the Agent in a cash collateral  account)
     shall be equal  to or  greater  than the  Relevant  Percentage  or  (b) the
     Obligors  shall  prepay the Letter of Credit  Liabilities  or part  thereof
     (together with interest  thereon) as shall result in the FMV of the Vessels
     being not less than the Relevant Percentage.

7.4  Substitution  of Collateral.  In the event of the sale by VSSI Transport of
     the NASSAU  SPIRIT or the release of the NASSAU SPIRIT from the lien of the
     Mortgage  thereon  at  VSSI  Transport's  request,   VSSI  Transport  shall
     substitute  a vessel  approved by the Banks (the  "Substitute  Vessel") and
     which meets the following conditions:


     (i)  the Substitute Vessel complies with the requirements of Clause 4.1(b);

     (ii) the aggregate of the FMV of the Substitute  Vessel and the BARRINGTON,
          PALMERSTON  and DAMPIER  SPIRIT  shall be greater than or equal to the
          Relevant Percentage;

     (iii)the owner of the Substitute Vessel, if other than VSSI Transport,  has
          executed an Accession  Agreement and has executed a counterpart of the
          Note,  a Mortgage,  an  Assignment  of Earnings and an  Assignment  of
          Insurances  (and  related  notices  and  has  obtained   consents  and
          agreements  relating thereto) and the Guarantor has pledged the shares
          of such  owner in favor  of the  Security  Trustee  as  provided  with
          respect  to each other  Owner  hereunder  and has met the  conditions,
          updated mutadis mutandis,  of Clauses 4.1(a), (b), (c), (d), (e), (g),
          (h), (i), (j), (k), (l) and (m); and

     (iv) the  relevant  charterer  of the  Substitute  Vessel has  executed  an
          assignment  of any  subcharter of the  Substitute  Vessel (and related
          notices and has obtained consents and agreements relating thereto).

Upon the  satisfaction  of the  foregoing  conditions  of this Clause  7.4,  the
Security  Trustee,  on behalf of the Banks,  shall  release the Mortgage and any
Security Documents relating tothe NASSAU SPIRIT and shall release VSSI Transport
from its obligations hereunder.

8    ASSIGNMENT/PARTICIPATIONS

8.1  Assignment.  This Agreement shall be binding upon, and inure to the benefit
     of, the Obligors,  the Agent,  the Security Trustee and the Banks and their
     respective successors and assigns,  except that the Obligors may not assign
     any of their  rights or  obligations  hereunder  . The Banks may,  with the
     prior written  consent of the Obligors (such consent not to be unreasonably
     withheld)  assign a portion  of their  rights  and  obligations  under this
     Agreement to any one or more commercial  lenders (the expenses of the Banks
     in  connection  with any such  assignment  shall be for their own account),
     provided,  however, in the event of any such assignment, such assignment is
     to be made pursuant to an Assignment and Assumption Agreement substantially
     in the form of Exhibit I . The Obligors  will take all  reasonable  actions
     requested  by the  Banks to  effect  such  assignment,  including,  without
     limitation,  the  execution  of a written  consent to such  Assignment  and
     Assumption Agreement.

8.2  Participations.  Any  Bank  may,  with the  prior  written  consent  of the
     Obligors (such consent not to be unreasonably  withheld),  at any time sell
     to one or more commercial  banks or other financial  institutions  (each of
     such commercial banks and other financial  institutions being herein called
     a "Participant")  participating interests in any of its Commitment or other
     interests of such Bank hereunder; provided, however, that

     (a)  no  participation  contemplated in this Section 8.2 shall relieve such
          Bank from its Commitment or its other obligations hereunder,

     (b)  such Bank shall remain solely  responsible  for the performance of its
          Commitment and such other obligations,

     (c)  no Participant,  unless such Participant is an affiliate of such Bank,
          shall be entitled to require  such Bank to take or refrain from taking
          any  action  hereunder,  except  that  such  Bank may  agree  with any
          Participant  that  such  Bank will  not,  without  such  Participant's
          consent,   take  any  of  the  following  actions:  (i)  increase  the
          Commitment of such Bank,  reduce any fees  described in Section 2,  or
          extend the  Expiration  Date,  (ii) extend the due date for, or reduce
          the  amount  of,  any  scheduled  repayment  or  prepayment  of  fees,
          principal of or interest on any of the Reimbursement  Obligations,  or
          (iii) release any guarantor from its obligations  under any guarantee,
          and

     (d)  none  of the  Obligors  shall  be  required  to pay any  amount  under
          Clauses 2.5,  2.6 or 10 that is greater than the amount which it would
          have been required to pay had no participating interest been sold.

9    CURRENCY INDEMNITY

9.1  Currency  Conversion.  If for the  purpose  of  obtaining  or  enforcing  a
     judgment in any court in any country it becomes  necessary  to convert into
     any other currency (the "judgment currency") an amount due in Dollars under
     this Agreement or any of the Security  Documents then the conversion  shall
     be made, in the discretion of the Banks, at the rate of exchange prevailing
     either on the date of  default  or on the day  before  the day on which the
     judgment is given or the order for  enforcement is made, as the case may be
     (the "conversion  date"),  provided that the Banks shall not be entitled to
     recover under this clause any amount in the judgment currency which exceeds
     at the  conversion  date the  amount in Dollars  due under  this  Agreement
     and/or any of the Security Documents.

9.2  Change  in  Exchange  Rate.  If there is a change  in the rate of  exchange
     prevailing  between the  conversion  date and the date of actual payment of
     the amount due, the Obligors shall pay such additional amounts (if any, but
     in any event not a lesser  amount) as may be  necessary  to ensure that the
     amount paid in the judgment currency when converted at the rate of exchange
     prevailing  on the date of payment  will  produce the amount then due under
     this Agreement and/or any of the Security Documents in Dollars;  any excess
     over the amount due received or collected by the Banks shall be remitted to
     the Obligors.

9.3  Additional  Debt Due.  Any amount due from the  Obligors  under  Clause 9.2
     shall be due as a separate debt and shall not be affected by judgment being
     obtained for any other sums due under or in respect of this Agreement,  the
     Loan Agreements and/or any of the Security Documents.

9.4  Rate of Exchange.  The term "rate of exchange" in this  Clause 9  means the
     rate at which the Banks in accordance with their normal  practices are able
     on the relevant  date to purchase  Dollars  with the judgment  currency and
     includes any premium and costs of exchange  payable in connection with such
     purchase.

10   EXPENSES

10.1 The Obligors jointly and severally  agree,  whether or not the transactions
     hereby  contemplated  are  consummated,  on demand to pay, or reimburse the
     Agent,  the  Security  Trustee  and the  Banks for their  payment  of,  the
     reasonable  expenses  of the  Agent,  the  Security  Trustee  and the Banks
     incident to said  transactions  (and in  connection  with any  supplements,
     amendments,  waivers or consents relating thereto or incurred in connection
     with the enforcement or defense of any of the Agent's,  Security  Trustee's
     and Banks' rights or remedies with respect  thereto or in the  preservation
     of the Agent's,  the Security Trustee's and the Banks' priorities under the
     documentation  executed and delivered in connection  therewith)  including,
     without  limitation,  all  reasonable  costs and  expenses of  preparation,
     negotiation,  execution  and  administration  of  this  Agreement  and  the
     documents  referred to herein, the reasonable fees and disbursements of the
     Banks' counsel in connection  therewith,  including Seward & Kissel, Norton
     Smith & Co. and Graham  Thompson & Co. as well as the  reasonable  fees and
     expenses of any  independent  appraisers,  surveyors,  engineers  and other
     consultants  retained by the Agent,  the Security  Trustee and the Banks in
     connection  with  this  transaction,  all costs and  expenses,  if any,  in
     connection  with  the  enforcement  of this  Agreement,  and  the  Security
     Documents  and stamp and  other  similar  taxes,  if any,  incident  to the
     execution and delivery of the documents herein contemplated and to hold the
     Banks free and harmless in connection  with any liability  arising from the
     nonpayment  of any such stamp or other  similar  taxes.  Such taxes and, if
     any, interest and penalties related thereto as may become payable after the
     date here of shall be paid  immediately  by the Obligors to the Agent,  the
     Security Trustee or the Banks, as the case may be, when liability  therefor
     is no longer  contested by such party or parties or reimbursed  immediately
     by the  Obligors  to such party or parties  after  payment  thereof (if the
     Agent, the Security Trustee or the Banks, at their sole discretion, chooses
     to make such payment).

11   APPLICABLE LAW, JURISDICTION AND WAIVER

11.1 Applicable  Law.  This  Agreement  shall be governed  by, and  construed in
     accordance with, the laws of the State of New York.

11.2 Jurisdiction.  Each  of the  Obligors  hereby  irrevocably  submits  to the
     jurisdiction  of the  courts  of the  State of New  York and of the  United
     States  District Court for the Southern  District of New York in any action
     or proceeding brought against it by the Banks under this Agreement or under
     any document delivered hereunder and hereby irrevocably agrees that service
     of summons or other legal  process on it may be served by  registered  mail
     addressed thereto, c/o Watson,  Farley & Williams,  380 Madison Avenue, New
     York, New York 10017. The service,  as herein provided,  of such summons or
     other  legal  process  in any such  action  or  proceeding  shall be deemed
     personal  service and accepted by the Obligors as such,  and shall be legal
     and binding  upon the  Obligors  for all the purposes of any such action or
     proceeding.  Final judgment (a certified or exemplified copy of which shall
     be conclusive evidence of the fact and of the amount of any indebtedness of
     the Obligors to the Banks) against the Obligors in any such legal action or
     proceeding  shall be conclusive and may be enforced in other  jurisdictions
     by suit on the judgment. The Obligors will advise the Banks promptly of any
     change of address for the  purpose of service of  process.  Notwithstanding
     anything  herein to the  contrary,  the Banks may bring any legal action or
     proceeding in any other appropriate jurisdiction.

11.3 WAIVER OF JURY TRIAL. IT IS MUTUALLY AGREED BY AND AMONG THE OBLIGORS,  THE
     GUARANTOR,  THE AGENT, THE SECURITY TRUSTEE AND THE BANKS THAT EACH OF THEM
     HEREBY  WAIVES  TRIAL BY JURY IN ANY  ACTION,  PROCEEDING  OR  COUNTERCLAIM
     BROUGHT BY ANY PARTY  HERETO  AGAINST ANY OTHER PARTY  HERETO ON ANY MATTER
     WHATSOEVER  ARISING OUT OF OR IN ANY WAY CONNECTED  WITH THIS  AGREEMENT OR
     THE SECURITY DOCUMENTS.

12.  THE AGENT

12.1 Appointment  of Agent.  Each of the Banks hereby  irrevocably  appoints and
     authorizes  the Agent (which for purposes of this Clause 12 shall be deemed
     to include the Agent acting in its capacity as Security Trustee pursuant to
     Clause 13) to take such action as agent on its behalf and to exercise  such
     powers under this Agreement and the Security  Documents as are delegated to
     the Agent by the terms hereof and thereof. Neither the Agent nor any of its
     directors,  officers,  employees  or agents  shall be liable for any action
     taken or  omitted  to be  taken by it or them  under  this  Agreement,  the
     Amended  Letter  of  Credit  or the  Security  Documents  or in  connection
     therewith,  except  for  its or  their  own  gross  negligence  or  willful
     misconduct.

12.2 Distribution  of  Payments.  Whenever  any payment is received by the Agent
     from the Obligors for the account of the Banks, or any of them,  whether of
     Reimbursement  Obligations,   commissions,   fees  or  otherwise,  it  will
     thereafter  cause to be distributed  on the same day if received  before 11
     a.m. New York time, or on the next day if received  thereafter,  like funds
     relating to such payment ratably to the Banks according to their respective
     Commitments,  as the case may be, in each case to be applied  according  to
     the terms of this Agreement.

12.3 No Duty to Examine,  Etc. The Agent shall not be under a duty to examine or
     pass upon the validity, effectiveness or genuineness of any of the Security
     Documents or any instrument,  document or communication  furnished pursuant
     to this  Agreement or in  connection  therewith or in  connection  with any
     Security Document,  and the Agent shall be entitled to assume that the same
     are valid,  effective  and genuine,  have been signed or sent by the proper
     parties and are what they purport to be.

12.4 Agent as Banks.  With  respect  to that  portion of the  Amended  Letter of
     Credit  made  available  by it as a "Bank",  the entity  which is the Agent
     shall have the same rights and powers  hereunder as any other Banks and may
     exercise the same as though it were not the Agent,  and the term "Banks" or
     "Banks"  shall  include the entity  which is the Agent in its capacity as a
     Bank. The entity which is the Agent and its affiliates may accept  deposits
     from,  lend money to and engage in any kind of business  with the  Obligors
     and the Guarantor as if it were not the Agent.

12.5 (a) Obligations of Agent. The obligations of the Agent under this Agreement
     and under the Security  Documents are only those expressly set forth herein
     and therein.

     (b)  No Duty to  Investigate.  The Agent shall not at any time be under any
          duty to  investigate  whether an Event of  Default,  or an event which
          with the giving of notice or lapse of time, or both,  would constitute
          an Event of Default, has occurred or to investigate the performance of
          this Agreement,  the Loan Agreements or any of the Security  Documents
          by the Obligors or the Guarantor.

12.6 (a) Discretion of Agent.  The Agent shall be entitled to use its discretion
     with respect to exercising or refraining  from  exercising any rights which
     may be vested in it by,  and with  respect  to  taking or  refraining  from
     taking  any  action  or  actions  which it may be able to take  under or in
     respect of, this Agreement,  the Amended Letter of Credit, and the Security
     Documents,  unless the Agent  shall have been  instructed  by the  Majority
     Banks or all Banks, as appropriate hereunder, to exercise such rights or to
     take or refrain from taking such action; provided,  however, that the Agent
     shall  not be  required  to take any  action  which  exposes  the  Agent to
     personal  liability or which is contrary to this  Agreement  or  applicable
     law.

     (b)  Instructions of Majority Banks.  The Agent shall in all cases be fully
          protected in acting or  refraining  from acting under this  Agreement,
          under the Amended  Letter of Credit,  under the  Guaranty or under any
          Security  Document in accordance with the instructions of the Majority
          Banks or all Banks, as appropriate hereunder,  and any action taken or
          failure to act pursuant to such  instructions  shall be binding on all
          of the Banks.

12.7 Assumption   re  Event  of  Default.   Except  as  otherwise   provided  in
     Clause 12.13,  the  Agent  shall be  entitled  to  assume  that no Event of
     Default,  or event  which  with the  giving of notice or lapse of time,  or
     both, would constitute an Event of Default, has occurred and is continuing,
     unless the Agent has been notified by the Obligors or the Guarantor of such
     fact, or has been notified by a Bank that such Bank considers that an Event
     of Default or such an event  (specifying in detail the nature  thereof) has
     occurred  and is  continuing.  In the event that the Agent  shall have been
     notified  by the  Obligors  or any  Bank in the  manner  set  forth  in the
     preceding  sentence  of any Event of Default or of an event  which with the
     giving of notice or lapse of time,  or both,  would  constitute an Event of
     Default,  the Agent shall notify the Banks and shall take action and assert
     such rights under this  Agreement  and under the Security  Documents as the
     Majority  Banks or all Banks,  as appropriate  hereunder,  shall request in
     writing.

12.8 No  Liability  of Agent or  Banks.  Neither  the Agent nor any of the Banks
     shall be under any liability or responsibility whatsoever:

     (A)  To the  Obligors or the  Guarantor  or any other Person or entity as a
          consequence of any failure or delay in  performance  by, or any breach
          by,  any  other  Bank  or any  other  Person  of  any of its or  their
          obligations under this Agreement or under any Security Document;

     (B)  To any Bank or Banks,  as a  consequence  of any  failure  or delay in
          performance by, or any breach by, the Obligors or the Guarantor of any
          of their  respective  obligations  under this  Agreement  or under the
          Security Documents; or

     (C)  To  any  Bank  or  Banks,  for  any  statements,   representations  or
          warranties  contained in this Agreement,  in any Security  Document or
          any  document  or  instrument   delivered  in   connection   with  the
          transaction hereby contemplated;  or for the validity,  effectiveness,
          enforceability  or  sufficiency  of this  Agreement,  or any  Security
          Document or any document or instrument  delivered in  connection  with
          the transactions hereby contemplated.

12.9 Indemnification  of Agent.  The Banks agree to  indemnify  the Agent in its
     capacity as Agent and Security Trustee (to the extent not reimbursed by the
     Obligors or the Guarantor), pro rata according to the respective amounts of
     their Commitments,  from and against any and all liabilities,  obligations,
     losses, damages,  penalties,  actions, judgments, suits, costs, expenses or
     disbursements  of any kind or nature  whatsoever  (including legal fees and
     expenses incurred in investigating claims and defending itself against such
     liabilities)  which may be imposed on, incurred by or asserted  against the
     Agent in any way relating to or arising out of this Agreement,  the Amended
     Letter of Credit, or any Security Document,  any action taken or omitted by
     the Agent  thereunder  or the  preparation,  administration,  amendment  or
     enforcement of, or waiver of any provision of, this Agreement,  the Amended
     Letter of Credit, or any Security  Document,  except that no Banks shall be
     liable for any portion of such liabilities,  obligations,  losses, damages,
     penalties,  actions,  judgments,  suits,  costs,  expenses or disbursements
     resulting from the Agent's or the Security  Trustee's  gross  negligence or
     willful misconduct.

12.10Consultation  with  Counsel.  The  Agent may  consult  with  legal  counsel
     selected by it and shall not be liable for any action  taken,  permitted or
     omitted  by it in good  faith in  accordance  with the advice or opinion of
     such counsel.

12.11Resignation.  The Agent may  resign at any time by giving 60 days'  written
     notice  thereof to the Banks and the Obligors.  Upon any such  resignation,
     the Majority Banks shall have the right to appoint a successor Agent. If no
     successor  Agent shall have been so  appointed  by the  Majority  Banks and
     shall have  accepted  such  appointment  within 60 days after the  retiring
     Agent's  giving  notice of  resignation,  then the  retiring  Agent may, on
     behalf of the Banks,  appoint a  successor  Agent  which shall be a bank or
     trust  company of recognized  standing.  The  appointment  of any successor
     Agent shall be subject to the prior written  consent of the Obligors,  such
     consent  not  to be  unreasonably  withheld.  After  any  retiring  Agent's
     resignation as Agent  hereunder,  the  provisions of this  Clause 12  shall
     continue in effect for its  benefit  with  respect to any actions  taken or
     omitted by it while acting as Agent.

12.12Representations  of Banks.  Each Bank represents and warrants to each other
     Bank and the Agent that:

     (i)  In making its  decision to enter into this  Agreement  and to make its
          portion of the Amended Letter of Credit  available  hereunder,  it has
          independently  taken whatever steps it considers necessary to evaluate
          the financial condition and affairs of the Obligors and the Guarantor,
          that it has made an  independent  credit  judgment and that it has not
          relied  upon any  statement,  representation  or warranty by any other
          Bank or the Agent; and

     (ii) So long as any portion of its Commitments remain outstanding,  it will
          continue  to make  its own  independent  evaluation  of the  financial
          condition and affairs of the Obligors and the Guarantor.

12.13Notification of Event of Default.  The Agent hereby  undertakes to promptly
     notify the Bank, and the Bank hereby promptly undertake to notify the Agent
     and the other Banks,  of the  existence of any Event of Default which shall
     have  occurred and be  continuing of which the Agent or any Bank has actual
     knowledge.

12.14Distributing  Financial  Statements,  etc. The Agent shall, upon receipt of
     financial statements pursuant to Clause 7.1 A(iv) or other notices received
     thereunder,  deliver or cause to be delivered  copies of such  documents to
     the Banks without delay.

13   APPOINTMENT OF SECURITY TRUSTEE

     Each of the Banks  irrevocably  appoints the  Security  Trustee as security
     trustee on their respective behalf with regard to the (i) security, powers,
     rights,   titles,   benefits  and  interests   (both  present  and  future)
     constituted by and conferred on the Banks or any of them or for the benefit
     thereof under or pursuant to this  Agreement,  the Amended Letter of Credit
     or any Security Documents  (including,  without limitation,  the benefit of
     all covenants,  undertakings,  representations,  warranties and obligations
     given,  made or  undertaken  to any Bank in this  Agreement or any Security
     Document),  (ii) all moneys,  property and other assets paid or transferred
     to or vested in any Bank or any agent of any Bank or received or  recovered
     by any Bank or any agent of any Bank  pursuant to, or in  connection  with,
     this  Agreement or the Security  Documents  whether from any Obligor or the
     Guarantor  or any other Person and (iii) all money,  investments,  property
     and  other  assets at any time  representing  or  deriving  from any of the
     foregoing,  including  all  interest,  income  and  other  sums at any time
     received or  receivable  by any Bank or any agent of any Bank in respect of
     the same (or any part  thereof).  The Security  Trustee hereby accepts such
     appointment.

14   NOTICES AND DEMANDS

14.1 Notices.  All notices,  requests,  demands and other  communications to any
     party hereunder shall be in writing  (including  prepaid overnight courier,
     facsimile  transmission  or  similar  writing)  and  shall  be given to the
     Obligors at the address or telecopy  number set out below and to the Banks,
     the Agent and the Security Trustee at their address and telecopy number set
     out below its name on the  signature  pages hereto or at such other address
     or telecopy  number as such party may hereafter  specify for the purpose by
     notice to each  other  party  hereto.  Each such  notice,  request or other
     communication  shall be  effective  (i) if  given by  telecopy,  when  such
     telecopy is transmitted to the telecopy number specified in this Clause and
     telephonic  confirmation of receipt thereof is obtained or (ii) if given by
     mail,  prepaid  overnight  courier or any other means, when received at the
     address  specified  in this  Clause or when  delivery  at such  address  is
     refused.

     If to the Obligors at:

                  c/o      Teekay Shipping Limited
                           4th Floor
                           Euro Canadian Centre
                           Marlborough Street and Navy Lion Road
                           P.O. Box SS 6293
                           Nassau, Bahamas
                           Fax: (242) 328-7330

15   MISCELLANEOUS

15.1 Time of Essence. Time is of the essence of this Agreement but no failure or
     delay on the part of the Banks to  exercise  any power or right  under this
     Agreement  shall  operate  as a waiver  thereof,  nor shall  any  single or
     partial exercise by the Banks of any power or right hereunder  preclude any
     other or further  exercise  thereof or the  exercise  of any other power or
     right. The remedies provided herein are cumulative and are not exclusive of
     any remedies provided by law.

15.2 Unenforceable,  etc.,  Provisions - Effect.  In case any one or more of the
     provisions  contained in this Agreement or in any of the Security Documents
     would, if given effect, be invalid, illegal or unenforceable in any respect
     under any law applicable in any relevant jurisdiction, said provision shall
     not be  enforceable  against the  Obligors but the  validity,  legality and
     enforceability  of the  remaining  provisions  herein or therein  contained
     shall not in any way be affected or impaired thereby.

15.3 References.  References herein to Clauses, Schedules and Exhibits are to be
     construed as  references to clauses of, and schedules and exhibits to, this
     Agreement.

15.4 Further  Assurances.  Each of the Obligors agrees that if this Agreement or
     any of the Security Documents shall, in the reasonable opinion of the Agent
     or the Majority  Banks,  at any time be deemed by the Agent or the Majority
     Banks for any reason insufficient in whole or in part to carry out the true
     intent  and  spirit  hereof  or  thereof,  it will  execute  or cause to be
     executed such other and further  assurances and documents as in the opinion
     of  the  Agent  or the  Majority  Banks  may  be  required  in  order  more
     effectively  to  accomplish  the  purposes of this  Agreement or any of the
     Security Documents.

15.5 Prior Agreements,  Merger. Any and all prior  understandings and agreements
     heretofore  entered into between the Obligors and the  Guarantor on the one
     part, and the Agent,  the Security Trustee or the Banks, on the other part,
     whether  written or oral,  are superseded by and merged into this Agreement
     and the other  agreements  (the forms of which are exhibited  hereto) to be
     executed and delivered in connection herewith to which the Obligors and the
     Guarantor,  the Security Trustee and/or Agent and/or the Banks are parties,
     which  alone  fully and  completely  express  the  agreements  between  the
     Obligors and the Security Trustee, the Agent and the Banks.

15.6 Joint and Several  Obligations.  The obligations of the Obligors under this
     Agreement and under each provision  hereof are joint and several whether or
     not so specified in any provision hereof. Each Obligor shall be entitled to
     rights of  contribution  as against the other Obligor,  provided,  however,
     that such rights of  contribution  shall  (a) not in any way  condition  or
     lessen the liability of any Obligor as a joint and several borrower for the
     whole of the obligations  owed to the Banks hereunder or under the Security
     Documents  and (b) be fully  subject and  subordinate  to the rights of the
     Banks hereunder and under the Security Documents.

15.7 Limitation of Liability. Notwithstanding anything to the contrary contained
     in this Agreement or any of the other Security Documents, 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
     particular Obligor or its assets of this Agreement or any Security Document
     granted by such Obligor as security for its obligations  hereunder and that
     under such principles,  this Agreement or such Security Documents would not
     be  enforceable  against  such Obligor or its assets  unless the  following
     provisions of this Clause 15.7 had effect,  then, the maximum  liability of
     each Obligor hereunder (the "Maximum Liability Amount") shall be limited so
     that  in  no  event  shall  such  amount  exceed  the  lesser  of  (i)  the
     Indebtedness  and (ii) an amount  equal to the  aggregate,  without  double
     counting,  of (a) ninety-five  percent (95%) of the such Obligor'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,  (b) the  aggregate  fair  value of such  Obligor's
     Subrogation and  Contribution  Rights (as hereinafter  defined) and (c) the
     amount of any Valuable  Transfer (as hereinafter  defined) to such Obligor,
     provided  that such  Obligor's  liability  under  this  Agreement  shall be
     further limited to the extent,  if any, required so that the obligations of
     such Obligor under this  Agreement  shall not be subject to being set aside
     or annulled under any  applicable  law relating to fraudulent  transfers or
     fraudulent  conveyances.  In determining  the  limitations,  if any, on the
     amount  of any of such  Obligor's  obligations  hereunder  pursuant  to the
     preceding sentence, any rights of subrogation or contribution (collectively
     the "Subrogation  and Contribution  Rights") which such Obligor may have on
     the  Determination  Date  with  respect  to  any  other  guarantor  of  the
     Indebtedness  under applicable law shall be taken into account.  As used in
     this Clause  15.7,  "Indebtedness"  of the Obligor  shall mean,  all of the
     Obligor's present or future indebtedness  whether for principal,  interest,
     fees,  expenses or  otherwise,  to the Banks under this  Agreement  and the
     Security  Documents.  As used herein "Adjusted Net Worth" of the respective
     Obligor  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 Obligor over (ii)
     the amount that will be required to pay such Obligor's  probable  liability
     on its then  existing  debts,  including  contingent  liabilities,  as they
     become  absolute and matured,  and (b) an amount equal to (i) the excess of
     the sum of such Obligor's property at a fair valuation over (ii) the amount
     of all liabilities of such Obligor,  contingent or otherwise, as such terms
     are construed in accordance with  applicable laws governing  determinations
     of the insolvency of debtors. In determining the Adjusted Net Worth of such
     Obligor for purposes of calculating the Maximum  Liability  Amount for such
     Obligor,  the liabilities of such Obligor 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 Obligor  under this  Agreement  and the
     Security  Documents  to which it is a party,  (b) the  liabilities  of such
     Obligor  subordinated  in right of  payment to this  Agreement  and (c) any
     liabilities of such Obligor for Subrogation and Contribution  Rights to any
     of the other guarantors.  As used herein "Valuable Transfer" shall mean, in
     respect of any Obligor,  (a) all loans,  advances or capital  contributions
     made to such Obligor with proceeds of the Loans, (b) all debt securities or
     other  obligations of such Obligor acquired from such Obligor or retired by
     such Obligor with  proceeds of the Loans,  (c) the fair market value of all
     property  acquired with proceeds of the Loans and  transferred,  absolutely
     and not as collateral,  to such Obligor,  (d) all equity securities of such
     Obligor  acquired from such Obligor with proceeds of the Loans, 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 Obligor as a result of this Agreement.

15.8 Release of Palmstar Thistle.  Upon satisfaction of the conditions set forth
     in  Clause 4.1  and issuance of the Amended  Letter of Credit,  any and all
     obligations of Palmstar  Thistle under and in connection  with the Original
     Reimbursement  Agreement  and any of the  security  documents  executed  by
     Palmstar  Thistle in  connection  therewith  shall be deemed  satisfied and
     released  and the  Agent and the  Banks  shall  execute  and  deliver  such
     releases and other  documents as may  reasonably be required to release and
     terminate  any  mortgage  and  assignments  heretofore  granted by Palmstar
     Thistle in connection with the Original Reimbursement Agreement.

15.9 Entire  Agreement;   Amendments.  This  Agreement  constitutes  the  entire
     agreement of the parties hereto including all parties added hereto pursuant
     to an Assignment and Assumption  Agreement.  This Agreement may be executed
     in any number of  counterparts,  each of will shall be deemed an  original,
     but all  such  counterparts  together  shall  constitute  one and the  same
     instrument.  Any  provision of this  Agreement may be amended or waived if,
     but only if,  such  amendment  or waiver is in writing and is signed by the
     Obligors and the Majority Banks (and, if the rights or duties of the Banks,
     the Agent or the Security Trustee are affected thereby, by the Banks, Agent
     or the Security  Trustee,  as  applicable);  provided  that no amendment or
     waiver shall,  unless signed by all the Banks, (i) increase or decrease the
     Commitment  of any Bank or subject any Bank to any  additional  obligation,
     (ii) reduce the Amended  Letter of Credit Fee or any other fees  hereunder,
     (iii)  postpone  the  date  fixed  for  any  payment  hereunder  or for any
     termination of any Commitment, (iv) amend Clause 8, (v) waive any condition
     precedent to the making of the Loans,  (vi) release  any  collateral or the
     Guarantor or (vii) amend or modify this Clause 14.8 or otherwise change the
     percentage  of the  Commitments  or the number or category of Banks,  which
     shall be  required  for the Banks or any of them to take any  action  under
     this Clause or any other provision of this Agreement.

15.10Headings.  In this Agreement,  Clause headings are inserted for convenience
     of reference only and shall not be taken into account in the interpretation
     of this Agreement.


     IN WITNESS whereof the parties hereto have caused this Agreement to be duly
executed by their duly authorized  representatives  as of the day and year first
above written.



BARRINGTON (AUSTRALIA) PTY LIMITED
(ACN 080 850 559)

By
      Name:  Victoria L. Smith
      Title:  Attorney-in-Fact


PALMERSTON (AUSTRALIA) PTY LIMITED
(ACN 080 850 586)

By
      Name:  Victoria L. Smith
      Title:  Attorney-in-Fact


VSSI AUSTRALIA LIMITED

By
      Name:  Victoria L. Smith
      Title:  Attorney-in-Fact


VSSI TRANSPORT INC.

By
      Name:  Victoria L. Smith
      Title:  Attorney-in-Fact


ALLIANCE CHARTERING PTY LIMITED
(ACN 080 850 540)

By
      Name:  Victoria L. Smith
      Title:  Attorney-in-Fact







COMMITMENTS/PERCENTAGE AMOUNT

Commitment: $26,878,379                      NEDSHIP BANK (America) N.V.
Percentage Amount: 34.45946%                 as Agent, Security Trustee and Bank
                                             Scharlooweg 55
                                             P.O. Box 3107
                                             Curacao, Netherlands Antilles
                                             Attention:  Managing Director
                                             Telecopy:  (599) 9-652-366


                                             By_______________________________
                                               Name: Monica Treitmeier-McCarthy
                                               Title: Attorney-in-Fact

                                             copies of all notices to:
                                             Nedship International, Inc.
                                             245 Park Avenue
                                             New York, NY 10167-0062
                                             Attention:  President
                                             Telecopy:  (212) 309-5188


Commitment: $24,770,270                      THE BANK OF NEW YORK, as a Bank
Percentage Amount: 31.75676%                 One Wall Street
                                             New York, N.Y. 10286
                                             Telecopy:  (212) 635-7512


                                              By_______________________________
                                                Name:
                                                Title:


Commitment: $26,351,351                       LANDESBANK SCHLESWIG-HOLSTEIN,
Percentage Amount: 33.78378%                  as a Bank
                                              Martensdamm 6
                                              D-24103 Kiel, Germany
                                              Telecopy: 49-431-900-1130

                                              with a copy of all notices to
                                              Landesbank Schleswig-Holstein
                                              United Kingdom
                                              Representative Office
                                              50 Gresham Street
                                              London EC2V 7AY
                                              Telecopy: 011-44-1-71-600-7020


                                              By_______________________________
                                                Name: Monica Treitmeier-McCarthy
                                                Title:Attorney-in-Fact





















01029.004 #79655


                                              CONSENT AND AGREEMENT


     The  undersigned,  referred  to  in  the  foregoing  Amended  and  Restated
Reimbursement  Agreement as the "Guarantor",  hereby consents and agrees to said
Agreement  and to  the  documents  contemplated  thereby  and to the  provisions
contained  therein  relating to conditions to be fulfilled and obligations to be
performed by the  undersigned  pursuant to or in connection  with said Agreement
and  agrees  particularly  to be bound by the  representations,  warranties  and
covenants relating to the undersigned contained in Clauses 3, 7 and 10.4 of said
Agreement  to the  same  extent  as if the  undersigned  were a  party  to  said
Agreement.


                                           TEEKAY SHIPPING CORPORATION



                                           By___________________________
                                              Name: Victoria L. Smith
                                              Title:  Attorney-in-fact






01029.004 #79655