Document:

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                                                                    EXHIBIT 10.1

                           SECOND AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT

                                 VistaCare, Inc.
                            Vista Hospice Care, Inc.
                               VistaCare USA, Inc.
                            FHI Health Systems, Inc.
                                  FHI GP, Inc.
                                  FHI LP, Inc.
                            Family Hospice, Ltd. and
                              FHI Management, Ltd.

                                  as BORROWERS

                                      with

                     HEALTHCARE BUSINESS CREDIT CORPORATION

                                    as LENDER

                          dated as of December 23, 2004
<PAGE>
                                  EXHIBIT LIST

Exhibit 1.1            --    Form of Pledge Agreement
Exhibit 2.1(c)(i)      --    Form of Amended and Restated Revolving Credit Note
Exhibit 2.1(c)(ii)     --    Form of Acquisition Term Loan Note
Exhibit 2.2(b)         --    Form of Borrowing Base Report
Exhibit 2.2(c)         --    Loan Request
Exhibit 4.1            --    Form of Opinion of Counsel
Exhibit 4.2A           --    Notice Letter Re: Commercial Obligors
Exhibit 4.2B           --    Notice Letter Re: Government Obligors
Exhibit 6.8            --    Officer's Certificates

Schedule 1             --    Ineligible Obligors and Concentration Limits

Schedule 2             --    Borrowers' States of Qualifications
                       --    Chief Executive Office
                       --    Places of Business/Other Names
                       --    Provider Identification Numbers
                       --    Pending Litigation
                       --    Permitted Liens
                       --    Fiscal Year End
                       --    Federal Tax I.D. Numbers
                       --    Existing Guaranties, Investments and Borrowings
                       --    Other Associations
                       --    Environmental Matters
                       --    Capital Stock and Equity Interests
<PAGE>
                           SECOND AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT

         This Second Amended and Restated Loan and Security Agreement (as the
same may from time to time be amended, restated, modified or otherwise
supplemented, this "AGREEMENT") is dated this 23 day of December, 2004 by and
among VistaCare, Inc., a Delaware corporation, Vista Hospice Care, Inc., a
Delaware corporation, VistaCare USA, Inc., a Delaware corporation, FHI Health
Systems, Inc., a Delaware corporation, FHI GP, Inc., a Texas corporation, FHI
LP, Inc., a Nevada corporation, Family Hospice, Ltd., a Texas limited
partnership, FHI Management, Ltd., a Texas limited partnership (together with
each of their successors and permitted assigns, collectively referred to as the
"BORROWERS" and each individually referred to as a "BORROWER"), and Healthcare
Business Credit Corporation, a Delaware corporation, as lender (together with
its successors and assigns, the "LENDER").

                                   BACKGROUND

         WHEREAS, BORROWERS and LENDER entered into an Amended and Restated Loan
and Security Agreement dated as of June 3, 2002, as amended by that certain
First Amendment to Amended and Restated Loan and Security Agreement dated as of
June   , 2003 (said Loan and Security Agreement, as amended and in effect on the
date hereof, the "Existing Credit Agreement");

         WHEREAS, pursuant to the Existing Credit Agreement, LENDER has made
certain revolving loans (collectively, the "Prior Loans") to BORROWERS which
Prior Loans are evidenced by that certain revolving credit note of BORROWERS
dated as of April 16, 2001 in the original principal amount of $30,000,000 (the
"Prior Note");

         WHEREAS, BORROWERS and LENDER desire that, on the terms and conditions
herein, (i) the Existing Credit Agreement be amended and restated into this
Agreement, (ii) the Prior Loans continue under this Agreement, (iii) the
Acquisition Term Loan (as defined hereinafter) provide for Permitted
Acquisitions in accordance with the terms of this Agreement, and (iv) the Loans
under the Existing Credit Agreement continue in full force and effect and,
together with the other Loan Documents, secure the Obligations of BORROWERS (as
such terms are defined hereinafter).

         NOW, THEREFORE, in consideration of the premises, the following mutual
agreements and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
that the Existing Credit Agreement be amended and restated to read in its
entirety, as follows:

SECTION 1. DEFINITIONS AND INTERPRETATION

         1.1. Terms Defined: As used in this Agreement, the following terms have
the following respective meanings:

                                       1
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                  "ACCOUNT" or "ACCOUNTS" means a right to payment of a monetary
obligation, whether or not earned by performance for services rendered or to be
rendered or for a secondary obligation incurred or to be incurred, including but
not limited to (a) the third party reimbursable portion of accounts receivable
owing to a BORROWER arising out of the delivery by such BORROWER of medical,
surgical, diagnostic or other professional, medical or dental services and/or
the supply of goods related to any of such services (whether such services are
supplied by a BORROWER or a third party), including all rights to reimbursement
under any agreements with an Obligor, (b) all accounts, general intangibles,
rights, remedies, guarantees, and security interests in respect of the
foregoing, all rights of enforcement and collection, all books and records
evidencing or related to the foregoing, and all rights under this Agreement in
respect of the foregoing, (c) all information and data compiled or derived by
such BORROWER in respect of such accounts receivable, subject to the
confidentiality rights under applicable law and under rights and rules of JCAHO
and (d) all proceeds of any of the foregoing. The term includes health-care
insurance receivables.

                  "ACCOUNTS DETAIL FILE" has the meaning set forth in Section
2.2(b) hereof.

                  "ACQUISITION TERM LOAN" has the meaning set forth in Section
2.1(a) hereof.

                  "ACQUISITION TERM LOAN AMOUNT" means an amount equal to Twenty
Million and No/100 Dollars ($20,000,000.00).

                  "ACQUISITION TERM LOAN COMMITMENT FEE" has the meaning set
forth in Section 2.8 hereof.

                  "ACQUISITION TERM LOAN MATURITY DATE" has the meaning set
forth in Section 2.1(e) hereof.

                  "ACQUISITION TERM LOAN NOTE" has the meaning set forth in
Section 2.1(c) hereof.

                  "ACQUISITION TERM LOAN TERMINATION FEE" has the meaning set
forth in Section 2.8 hereof.

                  "ADVANCE(S)" means any monies advanced or credit extended,
including without limitation the Revolving Loans to or for the benefit of
BORROWERS, or any of them by LENDER, under the Total Facility.

                  "ADVANCE RATE" means eighty five percent (85%) or such other
percentage(s) resulting from an adjustment pursuant to Section 2.1(f) below, and
such other rate as may be increased from time to time by Lender in Lender's sole
discretion upon and after the occurrence of an Event of Default.

                  "AFFILIATE" means with respect to any Person (the "Specified
Person"), (a) any Person which directly or indirectly controls, or is controlled
by, or is under common control with, the Specified Person, and (b) any director
or officer (or, in the case of a Person which is not a corporation, any
individual having analogous powers) of the Specified Person or of a Person who
is an Affiliate of the Specified Person within the meaning of the preceding
clause (a). For purposes of

                                       2
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the preceding sentence, "control" of a Person shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, or direct or indirect ownership
(beneficially or of record) of, or direct or indirect power to vote, 5% or more
of the outstanding shares of any class of capital stock of such Person (or in
the case of a Person that is not a corporation, 5% or more of any class of
equity interest).

                  "APPLICABLE REVOLVING LOAN MARGIN" means for any day, with
respect to any Revolving Loan under the Total Facility, at the following rate as
determined according to the applicable level ("LEVEL") as indicated by the
following grid:

<TABLE>
<CAPTION>
                             LEVEL 1             LEVEL 2
                             -------             -------
<S>                      <C>                <C>
Advance Rate                  < 85%          > 85% but < 90%

Applicable Revolving     LIBOR Rate, plus   LIBOR Rate, plus
Loan Margin                   3.00%              3. 50%
</TABLE>

provided that during the period from the Closing Date through and including the
date on which the BORROWERS receive written notice from LENDER that LENDER has
agreed to increase the Advance Rate up to an amount not to exceed 90%, the
Applicable Revolving Loan Margin shall be equal to Level 1.

                  "APPLICABLE TERM LOAN MARGIN" means for any day, with respect
to the Acquisition Term Loan, at the following rate as determined according to
the applicable level ("LEVEL") as indicated by the following grid, with such
Level to be determined on the basis of the Leverage Ratio of the BORROWERS as of
the last day of each fiscal quarter of the BORROWERS as reflected on the
financial statements for such fiscal quarter delivered by the BORROWERS pursuant
to Section 6.7:

<TABLE>
<CAPTION>
                           Leverage Ratio      Applicable Term Loan Margin
                           --------------      ---------------------------
<S>                      <C>                   <C>
Level 1                      > 3.50:1.00          LIBOR Rate, plus 5.00%

                         < 3.50:1.00 but >
Level 2                      3.25:1.00            LIBOR Rate, plus 4.75%

                         < 3.25:1.00 but >
Level 3                      3.00:1.00            LIBOR Rate, plus 4.50%

Level 4                 < 3.00:1.00 but
                         >.2.7500:1.00            LIBOR Rate, plus 4.00%

</TABLE>

                                       3
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<TABLE>
<S>                      <C>                      <C>
                         < 2.75:1.00 but >
Level 5                      2.50:1.00            LIBOR Rate, plus 3.75%

                         < 2.50:1.00 but >
Level 6                      2.25:1.00            LIBOR Rate, plus 3.50%

                         < 2.25:1.00 but >
Level 7                      2.00:1.00            LIBOR Rate, plus 3.25%

Level 8                     < 2.00:1.00           LIBOR Rate, plus 3.00%
</TABLE>

provided that during the period from the Closing Date through and including the
date on which the BORROWERS deliver the financial statements under Section 6.7
for the fiscal quarter ending September 30, 2004, the Applicable Term Loan
Margin shall equal the LIBOR Rate, plus five percent (5.00%), and thereafter and
until the Acquisition Term Loan Maturity Date, the Applicable Term Loan Margin
shall be equal to the Level as set forth above and shall be effective on the
date on which the BORROWERS deliver the financial statements under Section 6.7
for the applicable fiscal quarter and provided at such time no Event of Default
or Unmatured Event of Default has occurred, however, if there shall have
occurred an Event of Default which has not been cured or waived, the Applicable
Term Loan Margin shall immediately be adjusted to the Default Rate until the
Event of Default shall have been cured or waived, as the case may be. Each
change in the Applicable Term Loan Margin shall be effective on the first
Business Day following delivery of the most recent financial statements pursuant
to Section 6.7 subject to the proviso set forth in the preceding sentence.

                  "AUTHORIZED OFFICER" means any officer or partner of a
BORROWER authorized by specific resolution of such BORROWER to request Revolving
Loans as set forth in the incumbency certificate referred to in Section 4.1(d)
of this Agreement.

                  "BILLING DATE" means the date on which the bill for services
rendered or goods provided was sent to the respective Obligor.

                  "BORROWING BASE" means, at any date, an amount equal to the
lesser of (a) the sum of (i) the Revolving Loan Commitment, plus (ii) if the
LENDER has made any Revolving Loan under the Tranche A Facility, the Tranche A
Loan Commitment, plus (iii) if the LENDER has made any Revolving Loan under the
Tranche B Facility, the Tranche B Loan Commitment or (b) the product of (i) the
applicable Advance Rate then in effect, times (ii) the Estimated Net Value of
all Eligible Accounts as of such date.

                  "BORROWING BASE DEFICIENCY" means, as of any date, the amount,
if any, by which (a) the aggregate amount of all Advances outstanding as of such
date exceeds (b) the Borrowing Base as of such date.

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                  "BORROWING BASE EXCESS" means, as of any date, the amount, if
any, by which (a) the Borrowing Base as of such date exceeds (b) the aggregate
amount of all Advances outstanding as of such date.

                  "BORROWING BASE REPORT" has the meaning set forth in Section
2.2(b) hereof.

                  "BUSINESS DAY" means any day other than a Saturday, Sunday or
any day on which banking institutions in Philadelphia, Pennsylvania or New York
City, New York are permitted or required by law, executive order or governmental
decree to remain closed or a day on which LENDER is closed for business.

                  "CAPITALIZED LEASE" means a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP.

                  "CHAMPUS" means the Civilian Health and Medical Program of the
Uniformed Service, a part of TRICARE, a medical benefits program supervised by
the U.S. Department of Defense.

                  "CLOSING" has the meaning set forth in Section 4.6 hereof.

                  "CLOSING DATE" has the meaning set forth in Section 4.6
hereof.

                  "CMS" means the Centers for Medicare and Medicaid Services, a
division of the U.S. Department of Health and Human Services.

                  "COLLATERAL" has the meaning set forth in Section 3.1 hereof.

                  "COLLECTIONS" means with respect to any Account, all cash
collections on such Account.

                  "COLLECTION ACCOUNT" has the meaning set forth in Section
2.7(a) hereof.

                  "COMMERCIAL LOCKBOX" means a lockbox in the name of LENDER (or
a nominee of LENDER) and maintained at the Lockbox Bank, or such other bank as
is acceptable to LENDER, to which Collections on all Accounts, other than
Government Accounts, are sent.

                  "COMMITMENT FEE" has the meaning set forth in Section 2.8
hereof.

                  "CONCENTRATION LIMITS" means the various financial tests,
expressed as percentages of the then current ENV of all Eligible Accounts,
described on SCHEDULE 1 as in effect from time to time.

                  "CONTRACT" means an agreement by which an Obligor is obligated
to pay for services rendered to patients of BORROWER.

                  "DEBT SERVICE COVERAGE RATIO" means the ratio of (a) the sum
of (i) Net Income, plus (ii) Interest Expense, plus (iii) income taxes, plus
(iv) depreciation and amortization expenses,

                                       5
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plus (v) expenses resulting from non-cash items in connection with non-cash
stock compensation expense minus non-financed capital expenditures to (b) the
sum of (i) Interest Expense, plus (ii) the current portion of long-term debt,
plus (iii) the current portion of lease payments under capitalized leases plus
(iv) Distributions, all as determined for BORROWERS on a consolidated basis in
accordance with GAAP; provided that for purposes of determining the Debt Service
Coverage Ratio, Distributions which consist of repurchasing capital stock of the
BORROWERS shall be excluded from such calculation as long as such Distributions
do not exceed $50,000,000 and no Event of Default shall have occurred.

                  "DEFAULT RATE" means 200 basis points above the interest rate
otherwise applicable on the Revolving Loans or Acquisition Term Loan.

                  "DEFAULTED ACCOUNT" means an Account as to which (a) the
initial ENV has not been received in full as Collections within one hundred and
eighty (180) days of the Billing Date, or (b) LENDER reasonably deems
uncollectible because of the bankruptcy or insolvency of the Obligor or any
other reason.

                  "DEPOSITORY AGREEMENT(S)" means those certain Depository
Agreements entered into in connection with this Agreement among BORROWERS,
LENDER and the Lockbox Bank, relating to the Commercial Lockbox and the
Government Lockbox, as applicable.

                  "DESIGNATED FUNDING DATE" has the meaning set forth in Section
2.2(a) hereof.

                  "DISTRIBUTION" means (i) dividends or other distributions on
capital stock or other equity interests of a BORROWER; (ii) the redemption,
repurchase or acquisition of such stock or equity interests or of warrants,
rights or other options to purchase such stock or equity interest; and (iii)
loans made to any Shareholders.

                  "DOWNLOAD DATE" has the meaning set forth in Section 2.2(b)
hereof.

                  "ELIGIBLE ACCOUNT" means an Account of a BORROWER:

                  (a) which is a liability of an Obligor which is (i) a
commercial insurance company reasonably acceptable to LENDER, organized under
the laws of any jurisdiction in the United States, having its principal office
in the United States, other than those listed on SCHEDULE 1 as ineligible, (ii)
a Blue Cross/Blue Shield Plan other than those listed on SCHEDULE 1 as
ineligible, (iii) CHAMPUS, Medicare or Medicaid, or (iv) a HMO, PPO or an
institutional Obligor reasonably acceptable to LENDER, or any other type of
Obligor, not included in the categories of Obligors listed in the foregoing
clauses (i) - (iii), organized under the laws of any jurisdiction in the United
States, having its principal office in the United States, and is listed on
SCHEDULE 1 as an eligible Obligor,

                  (b) the Obligor of which is not an Affiliate of BORROWER,

                                       6
<PAGE>
                  (c) the Obligor of which has received a letter substantially
in the form of EXHIBIT 4.2A (in the case of all Accounts other than Government
Accounts) or a letter substantially in the form of EXHIBIT 4.2B (in the case of
all Government Accounts),

                  (d) in an amount, as relating to a specific bill of an
individual patient, not less than Five and No/100 Dollars ($5.00) nor more than
Fifty Thousand and No/100 Dollars ($50,000.00), denominated and payable in
United States dollars,

                  (e) as to which the representations and warranties of Section
5.21 hereof are true,

                  (f) which (i) does not arise from the delivery of cosmetic
surgery services and (ii) is not a workers' compensation claim (unless expressly
approved by LENDER) and (iii) does not arise from any services delivered for
injury sustained in a motor vehicle accident (unless the Obligor on such Account
is a type of Obligor permitted pursuant to clause (a) of this definition) and
(iv) does not have an Obligor who is the individual patient or person who
received the goods or services rendered,

                  (g) which is not outstanding more than (i) one hundred and
eighty (180) days past the Billing Date in the case of Accounts that have been
billed, and (ii) forty five (45) days past the last day of the month in which
the corresponding services and/or goods were provided in the case of Accounts
that have not been billed, provided that in no event may the Account be
outstanding more than two hundred and twenty five (225) days past the last day
of the month in which the corresponding services and/or goods were provided, and
provided further that such services rendered but not yet billed are Eligible
Accounts to the extent (A) such services are reflected in BORROWERS' accounting
records in a manner consistent with the recording of the billed accounts
receivable and (B) that such amount does not exceed one hundred percent (100%)
of eligible billed accounts receivable,

                  (h) to the extent such Account does not include late charges
or finance charges,

                  (i) which complies with such other criteria and requirements
as may be specified from time to time by LENDER in its reasonable discretion,
and

                  (j) which is an Estimated Additional Unbilled Account.

                  "ESTIMATED ADDITIONAL UNBILLED ACCOUNTS" has the meaning set
forth in Section 2.2(b) hereof.

                  "ESTIMATED NET VALUE" or "ENV" means on any date of
calculation with respect to any Account an amount equal to the anticipated cash
collections as calculated by LENDER using the Value Track System(TM) (which
system periodically adjusts such amount to reflect LENDER's evaluation of the
performance of similar Accounts and to reflect payments received with respect
thereto), except that if LENDER determines that all Obligor payments with
respect to an Account

                                       7
<PAGE>
have been made or if an Account has become a Defaulted Account, the ENV of such
Account shall be zero.

                  "EVENT OF DEFAULT" has the meaning set forth in Section 8.1
hereof.

                  "EXPENSES" has the meaning set forth in Section 9.5 hereof.

                  "FUNDING DATE" has the meaning set forth in Section 2.2(a)
hereof.

                  "GAAP" means generally accepted accounting principles,
consistently applied.

                  "GOVERNMENT ACCOUNTS" means Accounts on which any federal or
state governmental unit or any intermediary for a federal or state governmental
unit is the Obligor.

                  "GOVERNMENT LOCKBOX" means a lockbox and deposit account in
the name of BORROWER(s) maintained at the Lockbox Bank, or such other bank as is
acceptable to LENDER, to which Collections on all Government Accounts are sent.

                  "HAZARDOUS SUBSTANCES" means any substances defined or
designated as hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance or similar term, by any environmental statute, rule or
regulation of any governmental entity presently in effect and applicable to such
real property.

                  "INITIAL CREDIT FACILITY" has the meaning set forth in Section
2.1(a) hereof.

                  "INITIAL CREDIT TERM" has the meaning set forth in Section
2.1(d) hereof.

                  "INITIAL TRANCHE TERM" has the meaning set forth in Section
2.1(d) hereof.

                  "INTEREST EXPENSE" means, for any period of BORROWERS, the
consolidated interest expense of BORROWERS and their Subsidiaries for such
period payable in connection with the Debt for Borrowed Money of BORROWERS and
such Subsidiaries (including all computed interest on Capitalized Leases).

                  "JCAHO" means the Joint Commission for Accreditation of
Healthcare Organizations, a nationally recognized organization providing
accreditations to hospitals and other healthcare facilities, or any successor
entity charged with performing its functions.

                  "LEVERAGE RATIO" means, at any date of determination thereof,
the ratio of (i) the sum of (A) the Obligations, plus (B) Subordinated Debt, to
(ii) the sum of (A) Net Income, plus (B) Interest Expense, plus (C) income tax
expense, plus (D) depreciation and amortization expenses, plus (E) expenses
resulting from non-cash items in connection with non-cash stock compensation
expense, plus (F) non-financed capital expenditures, all as determined for
BORROWERS on a consolidated basis in accordance with GAAP.

                  "LIBOR RATE" means an annual rate equal to the sum of the
annual rate in effect in the London Interbank market applicable to one (1) month
deposits of U.S. dollars as reported

                                       8
<PAGE>
in the Wall Street Journal on the second Business Day preceding the date of
determination. If the Wall Street Journal is not published on such Business Day
or does not report such rate, such rate shall be as reported by such other
publication or source as LENDER may select.

                  "LOAN DOCUMENTS" means this Agreement, the Revolving Credit
Note, the Acquisition Term Loan Note, each Pledge Agreement, the Depository
Agreements and all agreements relating to the Government Lockbox and the
Commercial Lockbox, all financing statements and any other agreements,
instruments, documents and certificates executed and/or delivered in connection
with this Agreement, as each may be amended, restated, modified or otherwise
supplemented from time to time.

                  "LOAN REQUEST" has the meaning set forth in Section 2.2(c)
hereof.

                  "LOCKBOX BANK" means PNC Bank, National Association, or such
other bank that is acceptable to LENDER.

                  "MONITORING FEE" has the meaning set forth in Section 2.8
hereof.

                  "NET INCOME" means, with respect to any period, the aggregate
of the net income (loss) of Borrowers for such period, determined in accordance
with GAAP on a consolidated basis. There shall be excluded in computing Net
Income (i) any after tax gains (but not losses) attributable to dispositions of
assets (other than sales of inventory in the ordinary course of business) and
(ii) any after tax extraordinary gains (but not losses).

                  "NET WORTH" means the aggregate amount, determined on a
consolidated basis in accordance with GAAP, of all of the assets of the
BORROWERS less all liabilities of the BORROWERS.

                  "OBLIGATIONS" means all now existing or hereafter arising
loans, advances, liabilities, debts, obligations, covenants, and duties of
payment or performance of every kind, matured or unmatured, direct or
contingent, owing, arising, due or to become due, or payable to LENDER, by or
from BORROWERS, or any of them, in each case to the extent arising out of this
Agreement or any other Loan Document or otherwise, including, without
limitation, all obligations to repay principal of and interest on all the
Revolving Loans, and to pay interest, fees, including but not limited to renewal
fees, Unused Line Fees, Non-use Fees, any Revolving Loan Termination Fee, any
Acquisition Term Loan Termination Fee, the Monitoring Fee, other collateral
monitoring fees, examination fees, closing fees, facility fees, costs, charges,
expenses, professional fees, and any other sums chargeable to BORROWERS, or any
of them, under the Loan Documents or any other agreement with LENDER, whether or
not evidenced by any note or other instrument.

                  "OBLIGOR" means the party primarily obligated to pay an
Account.

                  "PERSON" means any individual, corporation, partnership,
limited liability partnership, limited liability company, association, trust,
unincorporated organization, joint venture, court or government or political
subdivision or agency thereof, or other entity.

                                       9
<PAGE>
                  "PERMITTED ACQUISITION" means any acquisition by any BORROWER
(i) if, after giving effect to such acquisition, the projected pro forma Debt
Service Coverage Ratio for the immediately succeeding twelve (12) month period
is not less than 1.25:1.00, (ii) which is otherwise approved by Lender in
accordance with the terms of this Agreement and (iii) so long as no Event of
Default or Unmatured Event of Default has occurred hereunder.

                  "PERMITTED LIENS" has the meaning set forth in Section 5.6
hereof.

                  "PLEDGE AGREEMENTS" means the collective reference to those
certain, and "PLEDGE AGREEMENT" means each of that certain, (i) Pledge Agreement
dated as of December 23, 2004 made by VistaCare, Inc. in favor of LENDER, (ii)
Pledge Agreement dated as of December 23, 2004 made by Vista Hospice Care, Inc.
in favor of LENDER, (iii) Pledge Agreement dated as of December 23, 2004 made by
FHI Health Systems, Inc. in favor of LENDER, (iv) Pledge Agreement dated as of
December 23, 2004 made by FHI GP, Inc. in favor of LENDER, (v) Pledge Agreement
dated as of December 23, 2004 made by FHI LP, Inc. in favor of LENDER, as each
may from time to time be amended, restated, modified or otherwise supplemented,
substantially in the form set forth in EXHIBIT 1.1 attached hereto and made a
part hereof.

                  "PROPERTY" means an interest of BORROWER in any kind of
property or asset, whether real, personal or mixed, or tangible or intangible.

                  "REVOLVING CREDIT NOTE" has the meaning set forth in Section
2.1(c) hereof.

                  "REVOLVING LOAN(S)" has the meaning set forth in Section
2.1(b) hereof.

                  "REVOLVING LOAN COMMITMENT" means an amount equal to Twenty
Million and No/100 Dollars ($20,000,000.00).

                  "REVOLVING LOAN MATURITY DATE" has the meaning set forth in
Section 2.1(d) hereof.

                  "REVOLVING LOAN TERMINATION FEE" has the meaning set forth in
Section 2.3(d) hereof.

                  "SECURITIES" has the meaning set forth in Section 6.14 hereof.

                  "SHAREHOLDER" means, as applicable, a shareholder, member or
partner of BORROWER.

                  "SUBORDINATED DEBT" means debt or other obligations of a
BORROWER that is subordinated to the Obligations of BORROWERS to LENDER on terms
and conditions that are satisfactory to LENDER in its sole discretion.

                  "SUBSIDIARY" shall mean, individually, and "SUBSIDIARIES"
shall mean the collective reference to, any corporation, limited liability
company, partnership, joint venture, trust, or other legal entity of which any
BORROWER owns directly or indirectly 50% or more of the

                                       10
<PAGE>
outstanding voting stock or interest, or of which any BORROWER has effective
control, by contract or otherwise.

                  "TOTAL FACILITY" has the meaning set forth in Section 2.1(a)
hereof.

                  "TOTAL FACILITY COMMITMENT" has the meaning set forth in
Section 2.1(a) hereof.

                  "TRANCHE A FACILITY" has the meaning set forth in Section
2.1(a) hereof.

                  "TRANCHE A LOAN COMMITMENT" means an amount equal to Five
Million and No/100 Dollars ($5,000,000.00).

                  "TRANCHE B FACILITY" has the meaning set forth in Section
2.1(a) hereof.

                  "TRANCHE B LOAN COMMITMENT" means an amount equal to Five
Million and No/100 Dollars ($5,000,000.00).

                  "TRICARE" means the medical program for active duty members,
qualified family members, CHAMPUS eligible retirees and their family members and
survivors, of all uniformed services.

                  "UNIFORM COMMERCIAL CODE" or "UCC" means the Uniform
Commercial Code as in effect from time to time in the State of New Jersey.

                  "UNMATURED EVENT OF DEFAULT" means an event which with the
passage of time, giving of notice or both, would become an Event of Default.

                  "UNUSED LINE FEE" has the meaning set forth in Section 2.3(c)
hereof.

                  "VALUE TRACK SYSTEM(TM)" means the proprietary business system
used by LENDER to value and record the status of Accounts.

         1.2. Matters of Construction: The terms "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. Wherever appropriate in the context, terms
used herein in the singular also include the plural and vice versa. All
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations. Unless otherwise provided, all
references to any instruments or agreements to which LENDER is a party,
including, without limitation, references to any of the Loan Documents, shall
include any and all modifications or amendments thereto and any and all
extensions or renewals thereof. All other undefined terms contained in this
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein.

         1.3. Accounting Principles: Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, this shall be done in

                                       11
<PAGE>
accordance with GAAP, to the extent applicable, except as otherwise expressly
provided in this Agreement.

         1.4. Restructuring: On the Closing Date, and at the time on such date
that the restructuring contemplated by this Agreement occurs, (a) the Prior
Loans shall continue as Revolving Loans under this Agreement and be evidenced by
the Revolving Note, (b) the proceeds of the Acquisition Term Loan shall be used
for Permitted Acquisitions pursuant to the terms of the Agreement and (c) the
security interests and liens granted by BORROWERS under the Loan Documents and
the documents delivered in connection therewith shall continue in full force and
effect under this Agreement. None of the Prior Loans shall be deemed to have
been repaid as a result of the restructuring described in this Section 1.4. None
of the liens of BORROWERS granted to LENDER pursuant to the Loan Documents shall
be terminated as a result of the restructuring described in this Section 1.4.

         1.5. Restatement: This Agreement shall not constitute a novation of the
Existing Agreement or all or any portion of the Obligations evidenced thereby.

SECTION 2. THE LOANS

         2.1. Total Facility - Description:

                  (a) Subject to the last sentence of this Section 2.1(a) and
the other terms and conditions of this Agreement, LENDER hereby establishes for
the joint and several benefit of BORROWERS a total facility (the "TOTAL
FACILITY") of up to Thirty Million and No/100 Dollars ($30,000,000) (the "TOTAL
FACILITY COMMITMENT") consisting of (i) a line of credit facility (the "INITIAL
CREDIT FACILITY") which shall not at any time exceed the maximum aggregate
principal amount of the Revolving Loan Commitment, (ii) a line of credit
facility (the "TRANCHE A FACILITY") in a maximum aggregate principal amount at
any time not to exceed the Tranche A Loan Commitment and (iii) a line of credit
facility (the "TRANCHE B FACILITY") in a maximum aggregate principal amount at
any time not to exceed the Tranche B Loan Commitment. In addition to the Total
Facility, LENDER shall also provide to BORROWERS two acquisition term loans
(each, an "ACQUISITION TERM LOAN", and collectively, the "ACQUISITION TERM
LOANS") in the principal amount not to exceed the Acquisition Term Loan Amount
which shall be made available to BORROWERS in accordance with the terms hereof
and in two separate tranches, each tranche not to exceed Ten Million and No/100
Dollars ($10,000,000), the proceeds of which will be used for Permitted
Acquisitions. Notwithstanding anything to the contrary contained in this Section
2.1(a) or any other provision of this Agreement, BORROWERS and LENDER hereby
agree that prior to any BORROWER obtaining any Advance under the Total Facility
or any tranche under the Acquisition Term Loan, BORROWERS shall (i) enter into
Depository Agreements which will replace those currently in effect at such time
and which will further comply with the other terms and provisions of this
Agreement and (ii) deliver a legal opinion in form and substance satisfactory to
LENDER which opines as to the pledge of Medicaid Accounts by BORROWER in each
State where any BORROWER has Medicaid Accounts.

                  (b) The Total Facility shall include Advances which may be
extended by LENDER to or for the benefit of BORROWERS from time to time
hereunder in the form of revolving

                                       12
<PAGE>
credit loans ("REVOLVING LOANS"). The aggregate outstanding amount of all
Advances under the Total Facility, at any time, shall not exceed the Borrowing
Base. In no event shall the initial principal amount of any Revolving Loan be
less than One Hundred Thousand and No/100 Dollars ($100,000.00). Subject to such
limitation, the outstanding balance of all Advances may fluctuate from time to
time, either to be reduced by repayments made by BORROWERS or to be increased by
future Advances which may be made by LENDER. If the aggregate outstanding amount
of all Advances exceeds the Borrowing Base, BORROWERS shall immediately repay
such excess in full. LENDER has the right at any time, and from time to time, in
its reasonable discretion (but without any obligation) to set aside reasonable
reserves against the Borrowing Base in such amounts as LENDER may reasonably
deem appropriate. The Obligations of BORROWERS under the Total Facility, the
Acquisition Term Loan and this Agreement are joint and several and shall at all
times be absolute and unconditional.

                  (c) At Closing, BORROWERS shall duly execute and deliver to
LENDER (i) an amended and restated promissory note made payable to the order of
LENDER in the principal amount of the Total Facility Commitment (as the same may
be amended, modified or replaced from time to time, the "REVOLVING CREDIT NOTE"
and (ii) a promissory note made payable to the order of LENDER in the principal
amount of the Acquisition Term Loan Amount (as the same may be amended, modified
or replaced from time to time, the "ACQUISITION TERM LOAN NOTE"). The Revolving
Credit Note and the Acquisition Term Loan Note shall evidence BORROWERS' joint
and several, absolute and unconditional obligation to repay LENDER for all
Revolving Loans made by LENDER under the Total Facility and the Acquisition Term
Loan, respectively, with interest as herein and therein provided. Each and every
Advance under the Total Facility shall be evidenced by the Revolving Credit
Note, which is hereby incorporated herein by reference and made a part hereof.
The Revolving Credit Note and the Acquisition Term Loan Note shall be
substantially in the form of EXHIBIT 2.1(C)(I) and EXHIBIT 2.1(C)(II),
respectively, attached hereto and made a part hereof.

                  (d) The term ("INITIAL CREDIT TERM") of the Total Facility
shall expire on December 23, 2009. All Revolving Loans under the Total Facility
shall be repaid on or before the earlier of (i) the last day of the Initial
Credit Term, (ii) upon termination of the Total Facility, and (iii) termination
of this Agreement (the earliest of such dates, the "REVOLVING LOAN MATURITY
DATE"). After the Maturity Date no further Revolving Loans shall be available
from LENDER.

                  (e) The Acquisition Term Loan shall be repaid on or before the
earlier of (i) December 23, 2009 and (ii) termination of this Agreement (the
earlier of such dates, the "ACQUISITION TERM LOAN MATURITY DATE").

                  (f) From time to time, upon not less than three (3) Business
Days notice to BORROWERS and provided that an Event of Default or Unmatured
Event of Default has not occurred hereunder, LENDER may adjust the Advance Rate
in order to reflect, in LENDER's reasonable judgment, the experience with
BORROWERS (including by way of illustration, to adjust for any known or
potential offsets by Medicare or Medicaid) or the aggregate amount or percentage
of the Collections with respect to the Accounts.

                                       13
<PAGE>
         2.2. Funding Procedures:

                  (a) Subject to the terms and conditions of this Agreement and
so long as no Event of Default or Unmatured Event of Default has occurred
hereunder, LENDER will make Revolving Loans to BORROWERS once a week, on a
specified Business Day of each week (such day to be mutually agreeable to
Borrowers and LENDER ("DESIGNATED FUNDING DATE") whether or not Borrowers have
requested a Revolving Loan to be made on such date), and on such other day of
the week as BORROWERS may request (such day along with the Designated Funding
Date is referred to herein as the "FUNDING DATE").

                  (b) Not later than 11:00 a.m. (Eastern Time) two (2) Business
Days prior to each Designated Funding Date ("DOWNLOAD DATE"), BORROWERS will
deliver to LENDER the computer file data associated with the Accounts, which
shall include, without limitation, the information (including changes in the
Obligor reimbursement rates and changes in federal or state laws or regulations
affecting payment for medical services), required by LENDER to enable LENDER to
process and value the outstanding Accounts of BORROWERS on LENDER's Value Track
System(TM), as well as bill and collect such Accounts following an Event of
Default ("ACCOUNTS DETAIL FILE"). Upon completion of the processing of the data
with respect to such Accounts, LENDER will prepare and deliver to BORROWERS by
no later than 5:00 p.m. (Eastern Time) on the first Business Day following the
Download Date (or if such Accounts Detail File is not delivered until after
11:00 a.m. (Eastern Time) on the Download Date, the second Business Day
following the Download Date) a report regarding the Borrowing Base then in
effect, which shall be substantially in the form of EXHIBIT 2.2(B) (a "BORROWING
BASE REPORT"). Notwithstanding the foregoing, until such time as BORROWERS
request a Revolving Loan to be made, BORROWERS hereby agree to submit to the
LENDER such Accounts Detail File monthly to be received by LENDER no later than
the tenth day of each month.

                  (c) On the Designated Funding Date, BORROWERS will sign and
return the Borrowing Base Report to LENDER. If BORROWERS are requesting that a
Revolving Loan be made on such Designated Funding Date, BORROWERS shall also
deliver to LENDER, concurrently with the Borrowing Base Report, a written
request for such Revolving Loan substantially in the form of EXHIBIT 2.2(C) (a
"LOAN REQUEST"). The Borrowing Base Report and Loan Request may be delivered via
telecopy and BORROWERS acknowledge that LENDER may rely on BORROWERS' signatures
by facsimile, which shall be legally binding upon BORROWERS.

                  (d) Subject to the terms and conditions of this Agreement, if
the Borrowing Base Report and Loan Request are delivered to LENDER before 11:00
a.m. (Eastern Time) on the Funding Date, LENDER will advance on the Designated
Funding Date (or the next Business Day if the Borrowing Base Report and Loan
Request are delivered after 11:00 a.m. (Eastern Time)) to BORROWER a Revolving
Loan in an amount equal to the lesser of (i) the amount of the Revolving Loan
requested by BORROWERS in the Loan Request or (ii) the Borrowing Base Excess as
of such date; provided that such Revolving Loan is not less than One Hundred
Thousand and No/100 Dollars ($100,000.00). Any Advances made by Lender hereunder
shall be treated for all purposes as, and shall accrue interest at the same rate
applicable to, Revolving Loans.

                                       14
<PAGE>
                  (e) LENDER's determination of the Estimated Net Value of the
Eligible Accounts and other amounts to be determined or calculated under this
Agreement shall, in the absence of manifest error, be binding and conclusive.

         2.3. Interest and Fees:

                  (a) Each Advance shall bear interest on the outstanding
principal amount thereof from the date made until such Advance is paid in full.
The BORROWERS agree to pay interest on the unpaid principal amount of each
Revolving Loan from time to time outstanding hereunder at the following rates
per year:

                           (i) before maturity of any Revolving Loan, whether by
                           acceleration or otherwise, at a rate equal to the
                           Applicable Revolving Loan Margin. The interest rate
                           on all amounts outstanding under the Total Facility
                           shall be adjusted weekly based on the LIBOR Rate as
                           of each Designated Funding Date; or

                           (ii) after the Maturity Date, until paid, at a rate
                           equal the Default Rate.

                  (b) The Acquisition Term Loan shall bear interest on the
outstanding principal amount thereof from the Closing Date until such
Acquisition Term Loan is paid in full. The BORROWERS agree to pay interest on
the unpaid principal amount of the Acquisition Term Loan until the Acquisition
Term Loan Maturity Date at the Applicable Term Loan Margin. The BORROWERS
further agree to pay interest on the unpaid principal amount of the Acquisition
Term Loan after the Acquisition Term Loan Maturity Date, until paid, at a rate
equal to the Default Rate.

                  (c) BORROWERS shall unconditionally pay to LENDER a fee
("UNUSED LINE FEE") equal to one-quarter of one percent (0.25%) per annum of the
unused portion of the Total Facility. The unused portion of the Total Facility
shall be the difference between (a) an amount equal to the sum of (i) the
Revolving Loan Commitment plus (ii) the Tranche A Loan Commitment, if BORROWERS
obtain any Advance under such facility, plus (iii) the Tranche B Loan
Commitment, if BORROWERS obtain any Advance under such facility, minus (b) the
average daily outstanding balance of the Revolving Loans during each month (or
portion thereof), which fees shall be calculated and payable monthly, in
arrears, and prior to the time the LENDER makes any Advance to any BORROWER,
such fees shall be due and payable on the fifteenth date of each calendar month,
or if such day is not a Business Day the next succeeding Business Day,
commencing October 15, 2004 and continuing each calendar month thereafter, until
such time as LENDER makes any Advance to any BORROWER such fees shall be due and
payable on the first Designated Funding Date of each calendar month.

                  (d) If any Event of Default shall occur and be continuing, the
rate of interest applicable to each Revolving Loan then outstanding shall be the
Default Rate. The Default Rate shall apply from the date of the Event of Default
until the date such Event of Default is waived or cured, and interest accruing
at the Default Rate shall be payable upon demand.

                                       15
<PAGE>
                  (e) Should the Total Facility terminate for any reason prior
to the last day of the Initial Credit Term, in addition to repayment of all
Obligations under this Agreement and termination of LENDER's commitment
hereunder, BORROWERS shall unconditionally be obligated to pay at the time of
such termination, a fee ("REVOLVING LOAN TERMINATION FEE") in an amount equal to
the product of (i) the product of (A) an amount equal to the sum of the
Revolving Loan Commitment plus the Tranche A Loan Commitment, if BORROWERS'
obtained any Advance under the Tranche A Facility, plus the Tranche B Loan
Commitment, if BORROWERS' obtained any Advance under the Tranche B Facility,
multiplied by (i) two percent (2.00%) if the effective date of such termination
is on or prior to the second annual anniversary of the Closing Date and (ii) one
percent (1.00%) if the effective date of such termination is after the second
annual anniversary of the Closing Date and prior to the third annual anniversary
of the Closing Date (for purposes of such calculation, such number of years is
rounded up to the next whole number for any partial year remaining). BORROWERS
acknowledge that the Revolving Loan Termination Fee is an estimate of Lender's
damages in the event of early termination and is not a penalty. In the event of
termination of the Total Facility, all of the Obligations under the Total
Facility shall be immediately due and payable upon the termination date stated
in any notice of termination. Notwithstanding the foregoing, should LENDER
terminate the Total Facility for any reason other than acceleration or as a
result of an Event of Default, LENDER and BORROWERS hereby acknowledge that no
Revolving Loan Termination Fee shall be due and payable by BORROWERS.

                  (f) Should the Acquisition Term Loan terminate for any reason
prior to the Acquisition Term Loan Maturity Date, in addition to repayment of
all Obligations related to the Acquisition Term Loan, BORROWERS shall
unconditionally be obligated to pay at the time of such termination, a fee
("ACQUISITION TERM LOAN TERMINATION FEE") in an amount equal to (i) two percent
(2.00%) of the outstanding principal amount of the Acquisition Term Loan Amount
if the effective date of such termination is on or prior to the second annual
anniversary of the Closing Date and (ii) one percent (1.00%) of the outstanding
principal amount of the Acquisition Term Loan Amount if the effective date of
such termination is after the second annual anniversary of the Closing Date and
prior to the third annual anniversary of the Closing Date. In the event
Borrowers do not activate either tranche of the Acquisition Term Loan prior to
the Acquisition Term Loan Maturity Date, in addition to repayment of all
Obligations related to the Acquisition Term Loan, BORROWERS shall
unconditionally be obligated to pay at the time of such termination, an
Acquisition Term Loan Termination Fee equal to one percent (1.00%) of the
Acquisition Term Loan Amount. BORROWERS acknowledge that the Acquisition Term
Loan Termination Fee is an estimate of LENDER's damages in the event of early
termination and is not a penalty. In the event of termination of the Acquisition
Term Loan, all of the Obligations under the Acquisition Term Loan shall be
immediately due and payable upon the termination date stated in any notice of
termination. Notwithstanding the foregoing, should LENDER terminate the
Acquisition Term Loan for any reason other than acceleration or as a result of
an Event of Default, LENDER and BORROWERS hereby acknowledge that no Acquisition
Term Loan Termination Fee shall be due and payable by BORROWERS.

                  (g) All undertakings, agreements, covenants, warranties and
representations of BORROWERS contained in the Loan Documents shall survive any
termination as set forth in Section 2.3(e) or Section 2.3(f) above, and LENDER
shall retain its liens in the Collateral and all

                                       16
<PAGE>
of its rights and remedies under the Loan Documents notwithstanding such
termination until BORROWERS have paid the Obligations to LENDER, in full, in
immediately available funds, together with the applicable Revolving Loan
Termination Fee or Acquisition Term Loan Termination Fee, if any.
Notwithstanding the payment in full of the Obligations, LENDER shall not be
required to terminate its security interests in the Collateral unless, with
respect to any loss or damage LENDER may incur as a result of dishonored checks
or other items of payment received by LENDER from BORROWERS or any Obligor and
applied to the Obligations, LENDER shall (i) have received a written agreement
duly executed by BORROWERS and by any Person whose loans or other advances to
BORROWERS are used in whole or in part to satisfy the Obligations, indemnifying
LENDER from any such loss or damage; or (ii) have retained such monetary
reserves and security interests on the Collateral for such period of time as
LENDER, in its reasonable discretion, may deem necessary to protect LENDER from
any such loss or damage.

         2.4. Additional Interest Provisions:

                  (a) Calculation of Interest: Interest shall be computed for
the actual number of days elapsed on the basis of a year consisting of 360 days,
including the date a Revolving Loan or Acquisition Term Loan, as applicable, is
made and excluding the date such Revolving Loan or Acquisition Term Loan, as
applicable, or any portion thereof is paid or prepaid.

                  (b) Continuation of Interest Charges: All contractual rates of
interest chargeable on any outstanding Acquisition Term Loan or Revolving Loan,
as applicable, shall continue to accrue and be paid even after default,
maturity, acceleration, judgment, bankruptcy, insolvency proceedings of any kind
or the happening of any event or occurrence similar or dissimilar.

                  (c) Applicable Interest Limitations: In no contingency or
event whatsoever shall the aggregate of all amounts deemed interest hereunder
and charged or collected pursuant to the terms of this Agreement exceed the
highest rate permissible under applicable law. In the event that any court of
competent jurisdiction determines LENDER has charged or received interest
hereunder in excess of the highest applicable rate, LENDER may, in its sole
discretion, apply and set off such excess interest received by LENDER against
other Obligations due or to become due and such rate shall automatically be
reduced to the maximum rate permitted by such law.

         2.5. Payments:

                  (a) All accrued interest on the Revolving Loans bearing
interest at the LIBOR Rate shall be due and payable weekly on the Designated
Funding Date, at the Maturity Date and upon payment in full beginning with the
first of such dates to occur after the date of the first Revolving Loan
hereunder, and to each Revolving Loan to which the LIBOR Rate applies, on the
last Business Day of each month of each year until maturity, at the Maturity
Date or Acquisition Term Loan Maturity Date, as applicable, and upon payment in
full. After the Maturity Date or Acquisition Term Loan Maturity Date, as
applicable, interest shall be payable on demand. Any Unused Line Fees shall be
due and payable monthly on the first Funding Date of each month with respect to
Unused Line Fees which accrued during the prior month.

                                       17
<PAGE>
                  (b) If at any time the aggregate principal amount of all
Advances outstanding exceeds the Borrowing Base then in effect, BORROWERS shall
immediately make such principal prepayments of the Revolving Loans (subject to
the terms of Section 2.3(e)) as is necessary to eliminate such excess.

                  (c) Except as set forth below, the entire outstanding
principal balance of all of the Advances, together with all unpaid accrued
interest thereon and any unpaid Unused Line Fees, shall be due and payable on
the Maturity Date. The outstanding principal balance of the Acquisition Term
Loan, together with all unpaid accrued interest thereon, shall be due and
payable on the Acquisition Term Loan Maturity Date. BORROWERS shall repay the
Acquisition Term Loan to LENDER (i) on the first Business Day of each month
commencing with the month after which Borrowers activate any tranche under the
Acquisition Term Loan and continuing for three consecutive months and in
payments of interest only and (ii) commencing with the next Business Day through
and including the Acquisition Term Loan Maturity Date, in consecutive monthly
payments of principal and interest based on a five-year amortization schedule;
provided that at such time as an Event of Default or Unmatured Event of Default
has occurred, the BORROWERS shall be required to pay both principal and interest
payments to LENDER based on a revised five-year amortization schedule as
calculated by LENDER at such time.

                  (d) Subject to the terms of Sections 2.3(c) and 2.3(e) above,
BORROWERS may prepay the principal of the Revolving Loans on any Designated
Funding Date by giving LENDER written notice of the proposed prepayment two (2)
Business Days prior to such Designated Funding Date.

                  (e) All payments and prepayments shall be applied first to any
unpaid interest and fees and thereafter to the principal of the Revolving Loans
and to other amounts due LENDER, in the order provided in Section 2.7(f) hereof.
Except as otherwise provided herein, all payments of principal, interest, fees,
or other amounts payable by BORROWERS hereunder shall be remitted to LENDER in
immediately available funds not later than 11:00 a.m. (Eastern Time) on the day
due. Whenever any payment is stated as due on a day which is not a Business Day,
the maturity of such payment shall be extended to the next succeeding Business
Day and interest shall continue to accrue during such extension.

         2.6. Use of Proceeds: The extensions of credit under and proceeds of
the Total Facility shall be used to repay existing indebtedness of BORROWERS and
for working capital and general corporate purposes, including acquisitions. The
proceeds of the Acquisition Term Loan shall be used for Permitted Acquisitions
in accordance with the terms of this Agreement.

         2.7. Lockboxes and Collections:

                  (a) BORROWERS will enter into lockbox agreements in respect of
the Government Lockbox and Commercial Lockbox in such form and with the Lockbox
Bank or such other bank as is acceptable to LENDER. BORROWERS shall instruct the
Lockbox Bank maintaining the Government Lockbox and the Commercial Lockbox to
initiate, or accept an initiation from LENDER which effectuates, a daily
transfer of all available funds to an account of LENDER to be designated by
Lender (the "COLLECTION ACCOUNT").

                                       18
<PAGE>
                  (b) BORROWERS will cause all Collections with respect to all
of the Accounts, other than Government Accounts, to be sent directly to the
Commercial Lockbox, and will cause all Collections with respect to all of the
Government Accounts to be sent directly to the Government Lockbox (which may be
effectuated by electronic transfer directly to the Government Lockbox). In the
event that a BORROWER receives any Collections that should have been sent to the
Commercial Lockbox or the Government Lockbox, such BORROWER will, promptly upon
receipt and in any event within one (1) Business Day of receipt, forward such
Collections directly to the Commercial Lockbox or Government Lockbox, as
applicable, in the form received, and if requested by LENDER, promptly notify
LENDER of such event. Until so forwarded, such Collections not generated from
Government Accounts shall be held in trust for the benefit of LENDER.

                  (c) No BORROWER shall withdraw any amounts from the accounts
into which the Collections remitted to the Commercial Lockbox are deposited nor
shall any BORROWER change the procedures under the agreements governing the
Commercial Lockbox and related accounts.

                  (d) BORROWERS will cooperate with LENDER in the identification
and reconciliation on a daily basis of all amounts received in the Commercial
Lockbox and the Government Lockbox. If more than ten percent (10%) of the
Collections since the most recent Designated Funding Date is not identified or
reconciled to the satisfaction of LENDER within ten (10) Business Days of
receipt, LENDER shall not be obligated to make further Revolving Loans until
such amount is identified or is reconciled to the reasonable satisfaction of
LENDER, as the case may be. In addition, if any such amount cannot be identified
or reconciled to the satisfaction of LENDER, LENDER may utilize its own staff
or, if it deems necessary, engage an outside auditor, in either case at
BORROWERS' expense (which in the case of LENDER's own staff shall be in
accordance with LENDER's then prevailing customary charges (plus expenses)), to
make such examination and report as may be necessary to identify and reconcile
such amount.

                  (e) No BORROWER will send to or deposit in the Commercial
Lockbox or the Government Lockbox any funds other than payments made with
respect to Accounts.

                  (f) Prior to the occurrence of an Event of Default, on the
second Business Day following the day on which Collections are deposited in the
Collection Account, LENDER shall cause such Collections to be applied to reduce
the aggregate outstanding amount of the Advances, provided that, on each Funding
Date, LENDER shall cause all Collections on deposit in the Collection Account on
the day immediately preceding such Designated Funding Date to be disbursed in
the following order of priority:

                           (i) to LENDER for any costs and expenses of LENDER
required to be paid or reimbursed by BORROWERS under this Agreement or under any
of the other Loan Documents;

                           (ii) to LENDER in an amount equal to the unpaid
accrued interest on the aggregate outstanding Advances as of such Designated
Funding Date;

                                       19
<PAGE>
                           (iii) to LENDER in an amount equal to any unpaid
accrued Unused Line Fees which are then due and payable as of such Designated
Funding Date;

                           (iv) to LENDER in the amount of any Borrowing Base
Deficiency, if any;

                           (v) subject to Section 2.3(c) and 2.3(e), to LENDER,
the amount of any prepayment of principal of which BORROWERS have given notice
to LENDER in accordance with Section 2.5(d) hereof; and

                           (vi) to LENDER for the aggregate outstanding amount
of the Advances and all other fees due and payable hereunder.

In addition, promptly upon request of BORROWERS, so long as no Event of Default
shall have occurred, LENDER shall disburse to BORROWERS the amount, if any, by
which the collected balance in the Collection Account exceeds the aggregate
outstanding principal amount of the Advances and all interest and other amounts
that will be payable on the next Designated Funding Date. Following the
occurrence of an Event of Default, LENDER may apply all Collections to
BORROWERS' Obligations in such order as LENDER may in its sole discretion
determine.

         2.8. Fees:

                  (a) As of the Closing, LENDER shall have fully earned, and
BORROWERS shall have paid to LENDER, a non-refundable commitment fee
("COMMITMENT Fee") equal to Two Hundred Thousand and No/100 Dollars
($200,000.00) all of which has been paid to LENDER.

                  (b) Subject to the terms and conditions of this Agreement and
so long as no Event of Default or Unmatured Event of Default has occurred
hereunder, if LENDER makes any Advance under either the Tranche A Facility or
the Tranche B Facility, BORROWERS shall pay to LENDER a non-refundable
commitment fee under each of the Tranche A Facility and the Tranche B Facility,
each of which will be deemed to be fully earned by LENDER as of such date and
each of which shall be in an amount equal to Fifty Thousand and No/100 Dollars
($50,000.00).

                  (c) Prior to the time the LENDER makes any Advance to any
BORROWER BORROWERS shall pay to LENDER on the fifteenth date of each calendar
month, or if such day is not a Business Day the next succeeding Business Day, a
nonrefundable monitoring fee ("MONITORING FEE"), which when paid shall be deemed
fully earned by LENDER, equal to Fifteen Hundred and No/100 Dollars ($1,500.00),
commencing July 15, 2003 and continuing each calendar month thereafter; provided
that after such time as LENDER makes any Advance to any BORROWER such fees shall
be due and payable on the first Designated Funding Date of each calendar month.

                  (d) As of the Closing Date, LENDER shall have fully earned,
and BORROWERS shall have paid to LENDER, a non-refundable portion of the total
acquisition term loan commitment fee in an amount equal to Fifty Thousand and
No/100 Dollars ($50,000.00) ("INITIAL FEE"). At such time as Borrowers activate
either tranche under the Acquisition Term

                                       20
<PAGE>
Loan, Borrowers shall pay and Lender shall have fully earned the remaining
portion of the total acquisition term loan commitment fee in an amount equal to
One Hundred Fifty Thousand and No/100 Dollars ($150,000.00) (together with the
Initial Fee, the "ACQUISITION TERM LOAN COMMITMENT FEE").

SECTION 3. COLLATERAL

         3.1. Description: To secure the payment, promptly when due, and the
punctual performance, of all of the Obligations, each BORROWER assigns to LENDER
to the extent assignable under federal, state or local law, including without
limitation administrative pronouncements, and grants to LENDER a security
interest in, all of such BORROWER'S right, title and interest in and to the
following property of such BORROWER whether now owned or hereafter acquired
(collectively, the "COLLATERAL"):

                  (i) Accounts, Contract Rights, etc. - All now owned and
         hereafter acquired, created, or arising accounts (including, without
         limitation, the Accounts), accounts receivable, notes receivable,
         contract rights, chattel paper, documents (including documents of
         title), instruments and letters of credit;

                  (ii) Inventory - All now owned or hereafter acquired, created
         or arising inventory of every nature and kind, wherever located;

                  (iii) General Intangibles - All now owned and hereafter
         acquired, created or arising general intangibles of every kind and
         description, including, but not limited to, all existing and future
         customer lists, telephone lists and directories, choses in action,
         loans, claims, books, records, patents and patent applications,
         copyrights, trademarks, tradenames, tradestyles, trademark
         applications, blueprints, drawings, designs and plans, trade secrets,
         contracts, contract rights, distributorship agreements, licenses,
         license agreements, formulae, tax and any other types of refunds,
         rights (if any) to or in employee or other pension, retirement or
         similar plans and any assets thereof (to the extent permitted by
         applicable law and subject always to the rights of the beneficiaries
         thereof), or any portion thereof, including, without limitation,
         refunds for overpayments, distributions upon termination, reversion of
         any surplus assets or otherwise, returned and unearned insurance
         premiums, rights and claims under insurance policies including, without
         limitation, credit insurance and key man life insurance policies,
         computer information, software, records and data, and rights, remedies
         and guarantees evidencing, securing or otherwise relating to any
         BORROWER'S accounts including, without limitation, all rights of
         enforcement and collection;

                  (iv) Equipment - All now owned and hereafter acquired
         equipment, including, without limitation, machinery, vehicles,
         furniture, leasehold improvements and fixtures, wherever located, and
         all replacements, parts, accessories, accessions, substitutions and
         additions thereto;

                  (v) Deposit Accounts and Related Property - All now existing
         and hereafter acquired or arising deposit accounts, Commercial
         Lockboxes, Governmental

                                       21
<PAGE>
         Lockboxes, Collection Accounts, investment accounts, commercial paper,
         investment securities, investment property, and certificates of
         deposit, of every nature, wherever located, and all funds received
         thereby, deposited therein or associated therewith, any checks or
         instruments from time to time representing or evidencing the same and
         all documents and records associated therewith;

                  (vi) Property in LENDER's Possession - All Property, now or
         hereafter in LENDER's possession; and

                       (vii) Proceeds - The collections and proceeds (including,
         without limitation, insurance proceeds), whether cash or non-cash, of
         all of the foregoing.

         3.2. Lien Documents: At Closing and thereafter as LENDER reasonably
deems necessary, each BORROWER shall duly authorize, execute and deliver to
LENDER or shall have duly authorized, executed and delivered (all in form and
substance reasonably satisfactory to LENDER):

                  (a) Financing Statements - Financing statements pursuant to
the UCC, which LENDER may file in any jurisdiction where any Collateral is or
may be located and in any other jurisdiction that LENDER deems appropriate; and

                  (b) Other Agreements - Any other agreements, documents,
instruments and writings, including, without limitation, security agreements and
assignment agreements, lawfully and reasonably required by LENDER to evidence,
perfect or protect LENDER's liens and security interest in the Collateral.

         3.3. Other Actions: In addition to the foregoing, each BORROWER shall
do anything further that may be lawfully and reasonably required by Lender to
perfect its security interests and to effectuate the intentions and objectives
of this Agreement, including, but not limited to, the execution and delivery of
continuation statements, amendments to financing statements, security
agreements, contracts and any other documents required hereunder. At Lender's
request, each BORROWER shall also immediately deliver (with execution by such
BORROWER of all necessary documents or forms to reflect LENDER's security
interest therein) to LENDER all items for which LENDER determines it should have
physical possession in order to perfect and protect LENDER's security interest
therein, duly endorsed or assigned to LENDER without restriction.

         3.4. Searches: LENDER shall, as LENDER may reasonably request from time
to time and at BORROWERS' expense, obtain the following searches (the results of
which are to be consistent with the warranties made by BORROWERS in this
Agreement):

                  (a) UCC Searches: With respect to each BORROWER, UCC searches
with the Secretary of State and local filing office of each state where such
BORROWER is organized and where such BORROWER maintains its chief executive
office, a place of business, or assets;

                                       22
<PAGE>
                  (b) Judgments, Etc.: Judgment, federal and state tax lien and
corporate tax lien searches against each BORROWER in all applicable filing
offices of each state searched under subparagraph (a) above.

BORROWERS shall, prior to or at Closing and at BORROWERS' expense, obtain and
deliver to LENDER good standing or equivalent certificates showing each Borrower
to be in good standing in its state of incorporation or organization and
authorized to transact business and in good standing as a foreign corporation in
each other state or foreign country in which it is doing and presently intends
to do business for which such BORROWER'S failure to be so qualified might have
material adverse effect on such BORROWER'S business, financial condition,
Property or LENDER's rights hereunder.

         3.5. Filing Security Agreement: A carbon, photographic or other
reproduction or other copy of this Agreement is sufficient as and may be filed
in lieu of a financing statement.

         3.6. Power of Attorney: Each of the officers of LENDER is hereby
irrevocably made, constituted and appointed the true and lawful attorney-in-fact
for each BORROWER (without requiring any of them to act as such) with full power
of substitution to do the following (such power to be deemed coupled with an
interest): (1) after an Event of Default or Unmatured Event of Default occurs
hereunder, endorse the name of such BORROWER upon any and all checks, drafts,
money orders and other instruments for the payment of monies that are payable to
such BORROWER and constitute Collections on the Collateral; (2) execute in the
name of such BORROWER any financing statements, schedules, assignments,
instruments, documents and statements that such BORROWER is obligated to give
LENDER hereunder or that LENDER deems is necessary to perfect LENDER's security
interest or lien in the Collateral; (3) after an Event of Default or Unmatured
Event of Default occurs hereunder, to verify validity, amount or any other
matter relating to the Collateral by mail, telephone, telecopy or otherwise; and
(4) after an Event of Default or Unmatured Event of Default occurs hereunder, do
such other and further acts and deeds in the name of such BORROWER that LENDER
may reasonably deem necessary or desirable to enforce its right with respect to
any Collateral.

SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES

         Closing under this Agreement and the making of each Revolving Loan are
subject to the following conditions precedent (all documents to be in form and
substance satisfactory to LENDER and LENDER's counsel):

         4.1. Resolutions, Opinions, and Other Documents: Prior to the Closing,
BORROWERS shall have delivered to LENDER the following:

                  (a) a duly and fully executed Agreement, Revolving Credit
Note, Acquisition Term Loan Note and each Pledge Agreement;

                  (b) each instrument, document and agreement required to be
executed under any provision of this Agreement or any of the other Loan
Documents;

                                       23
<PAGE>
                  (c) certified copies of (i) resolutions of each BORROWER'S
board of directors or partners, as applicable, authorizing the execution of this
Agreement, the Revolving Credit Note, the Acquisition Term Loan Note and each
document required to be delivered by this Agreement and (ii) each BORROWER'S
Articles of Incorporation and By-laws or Certificate of Limited Partnership and
Partnership Agreement, as applicable, or certifications that such documents have
not been amended since being delivered under the Existing Credit Agreement;

                  (d) incumbency certificates identifying all Authorized
Officers of each BORROWER, with specimen signatures;

                  (e) a written opinion of BORROWERS' independent counsel
addressed to Lender in the form attached hereto as EXHIBIT 4.1, which shall
include without limitation, an opinion that Lender has a perfected security
interest in the Collateral;

                  (f) payment by BORROWERS of the Commitment Fee, the
Acquisition Term Loan Commitment Fee and all Expenses associated with the Total
Facility and the Acquisition Term Loan incurred to the Closing Date;

                  (g) a Collateral Access Agreement with respect to real
property leased by BORROWERS located at 4800 North Scottsdale Road, Suite 5000,
Scottsdale, Arizona, 85251;

                  (h) LENDER shall have received copies of each of the
accreditations, licenses, certifications required by Section 5.3 below and all
Contracts requested by LENDER;

                  (i) a balance sheet as of June 30, 2004 and related statement
of income and statement of cash flows for the month and fiscal year then ended,
prepared in accordance with GAAP; and

                  (j) all other instruments, certificates, documents,
information and reports required or requested to be executed and/or delivered by
BORROWERS under any provision of this Agreement or any of the Loan Documents.

         4.2. Additional Preconditions to Loans: LENDER's obligation to make the
initial Revolving Loan and each subsequent Revolving Loan shall be subject to
the satisfaction of each of the following conditions:

                  (a) After giving effect to such Revolving Loan:

                           (i) the aggregate principal amount of all Advances
outstanding shall not exceed the Borrowing Base then in effect; and

                           (ii) the ENV of all Eligible Accounts shall not
exceed any of the Concentration Limits.

                  (b) All representations and warranties of BORROWERS shall be
deemed reaffirmed as of the making of such Revolving Loan and shall be true both
before and after giving effect to such Revolving Loan and no Event of Default or
Unmatured Event of Default

                                       24
<PAGE>
shall have occurred and be continuing, BORROWERS shall be in compliance with
this Agreement and the other Loan Documents, and BORROWERS shall have certified
such matters to LENDER.

                  (c) Each BORROWER shall have signed and delivered to LENDER
notices, in the form of EXHIBIT 4.2A, directing the Obligors (other than
Obligors with respect to Government Accounts) to make payment to the Commercial
Lockbox; and, in the form of EXHIBIT 4.2B, directing the Obligors with respect
to Government Accounts to make payment to the Government Lockbox.

                  (d) BORROWERS shall have taken all actions necessary to permit
LENDER to record all of the Eligible Accounts in LENDER's Value Track
System(TM).

                  (e) The lockbox arrangements required by Section 2.7 hereof
shall be in effect, and the amounts received in the lockboxes shall have been
identified or reconciled to LENDER's satisfaction, as required by Section 2.7(d)
hereof.

                  (f) BORROWERS shall have taken such other actions, including
the delivery of documents and opinions, as LENDER may reasonably request.

         4.3. Absence of Certain Events: As of the Closing Date and prior to
each Revolving Loan, no Event of Default or Unmatured Event of Default hereunder
shall have occurred and be continuing.

         4.4. Compliance with this Agreement: BORROWERS shall have performed and
complied with all agreements, covenants and conditions contained herein
including, without limitation, the provisions of Sections 6 and 7 hereof, which
are required to be performed or complied with by BORROWERS before or at the
Closing Date and as of the date of each Advance and the Acquisition Term Loan.

         4.5. Closing Certificate: LENDER shall have received a certificate
dated the Closing Date and signed by the chief financial officer of each
BORROWER certifying that all of the conditions specified in this Section have
been fulfilled and that there has not occurred any material adverse change in
the operations and conditions (financial or otherwise) of such BORROWER since
June 30, 2004.

         4.6. Closing: Subject to the conditions of this Section 4, the Initial
Credit Facility and the Acquisition Term Loan shall be made available on the
date (the "CLOSING DATE") this Agreement is duly executed and all of the
conditions contained in Section 4.1 hereof are completed (the "CLOSING").

         4.7. Non-Waiver of Rights: By completing the Closing hereunder, or by
making Advances hereunder, LENDER does not thereby waive a breach of any
warranty, representation or covenant made by BORROWERS hereunder or under any
agreement, document, or instrument delivered to LENDER or otherwise referred to
herein, and any claims and rights of LENDER resulting from any breach or
misrepresentation by BORROWERS are specifically reserved by LENDER.

                                       25
<PAGE>
SECTION 5. REPRESENTATIONS AND WARRANTIES

      To induce LENDER to complete the Closing and make the Revolving Loans
under the Total Facility and to make the Acquisition Term Loan to each BORROWER,
each BORROWER represents and warrants to LENDER that:

      5.1. Organization and Validity:

            (a) Such BORROWER is duly organized as either a corporation or a
partnership and validly existing under the laws of its state of incorporation or
formation, is duly qualified, is validly existing and in good standing and has
lawful power and authority to engage in the business it conducts in each state
and other jurisdiction where the nature and extent of its business requires
qualification, except where the failure to so qualify would not have a material
adverse effect on such BORROWER'S business, financial condition, Property or
prospects. A list of all states and other jurisdictions where such BORROWER is
qualified to do business is attached hereto as SCHEDULE 2 and made a part
hereof.

            (b) The execution, delivery and performance of this Agreement, the
other Loan Documents and all related agreements and each document required by
any Section hereof will not violate any law, government rule or regulation,
which violation could have a material adverse effect on the business, financial
condition, Property or prospects of the BORROWERS, taken as a whole, or the
charter, minutes, partnership agreement or bylaw provisions of BORROWER, violate
or result in a default (immediately or with the passage of time) under any
contract, agreement or instrument to which such BORROWER is a party, or by which
such BORROWER is bound, which violation or default could have a material adverse
effect on the business, financial condition, Property or prospects of the
BORROWERS, taken as a whole. Such BORROWER is not in violation of nor has
knowingly caused any Person to violate any term of any agreement or instrument
to which it or such Person is a party or by which it may be bound or of its
charter, minutes, partnership agreement or bylaws, which violation could have a
material adverse effect on the business, financial condition, Property or
prospects of the BORROWERS, taken as a whole.

            (c) Such BORROWER has all requisite power and authority to enter
into and perform this Agreement and the other Loan Documents and to incur the
Obligations herein provided for, and has taken all proper and necessary
corporate action or other necessary action to authorize the execution, delivery
and performance of this Agreement and the other Loan Documents.

            (d) This Agreement, the Revolving Credit Note, the Acquisition Term
Loan Note and the other Loan Documents, when delivered, will be valid and
binding upon all such BORROWER party thereto and enforceable in accordance with
their respective terms.

      5.2. Places of Business: Each BORROWER'S jurisdiction of organization,
chief executive office and the only other places of business of each such
BORROWER are located at the corresponding addresses set forth on SCHEDULE 2.
Except as disclosed on SCHEDULE 2: (i) no BORROWER has changed

                                       26
<PAGE>

any such location in the last five (5) years (ii) no BORROWER has changed its
name in the last five (5) years and (iii) during such period, no BORROWER used,
nor does any BORROWER now use, any fictitious or trade name.

      5.3. Operation of Facilities: Each BORROWER owns or leases and operates
facilities to provide health care services and (a) maintains Medicare and
Medicaid provider status and is the holder of the provider identification
numbers identified on SCHEDULE 2 hereto, all of which are current and valid and
such BORROWER has not allowed, permitted, authorized or caused any other Person
to use any such provider identification number, and (b) has obtained all
material licenses, accreditations and approvals of governmental authorities and
all other Persons necessary for such BORROWER to own its assets, to carry on its
business, to execute, deliver and perform the Loan Documents, and to receive
payments from the Obligors and, if organized as a not-for-profit entity, has and
maintains its status, if any, as an organization exempt from federal taxation
under Section 501(c)(3) of the Internal Revenue Code. No BORROWER has been
notified by any such governmental authority or other Person during the
immediately preceding twenty four (24) month period that such Person has
rescinded or not renewed, or intends to rescind or not renew, any such license
or approval.

      5.4. Pending Litigation: There are no judgments or judicial or
administrative orders, proceedings or investigations (civil or criminal)
pending, or to the knowledge of such BORROWER, threatened, against any BORROWER
in any court or before any governmental authority or arbitration board or
tribunal, other than as set forth on SCHEDULE 2 hereto, none of which, if
adversely determined, would have a material adverse effect on such BORROWER. No
BORROWER is in default with respect to any order of any court, governmental
authority, regulatory agency or arbitration board or tribunal. No directors or
executive officer of any BORROWER has been indicted or convicted in connection
with or is engaging in any criminal conduct, or is currently subject to any
lawsuit or proceeding or under investigation in connection with any
anti-racketeering or other conduct or activity.

      5.5. Medicaid and Medicare Cost Reporting: The Medicaid and/or Medicare
cost reports, as applicable, of each facility and of the home office of each
BORROWER for all cost reporting periods have been submitted when and as required
to (i) as to Medicaid, the state agency, or other CMS-designated agent or agent
of such state agency, charged with such responsibility or (ii) as to Medicare,
the Medicare intermediary or other CMS-designated agent charged with such
responsibility.

      5.6. Title to Collateral: Such BORROWER has good and marketable title to
all the Collateral it respectively purports to own, free from liens, claims and
encumbrances, except those of LENDER and those listed on SCHEDULE 2 hereto
("PERMITTED LIENS").

      5.7. Governmental Consent: Neither the nature of any BORROWER or of any
BORROWER'S business or Property, nor any relationship between any BORROWER and
any other Person, nor any circumstance affecting any BORROWER in connection with
the issuance or delivery of any Loan Document, is such as to require a consent,
approval or authorization of, or filing, registration or qualification with, any
governmental authority on the part of any such BORROWER in connection with the
execution and delivery of this Agreement or the issuance or delivery of the
Revolving Credit Note, the Acquisition Term Loan Note or other Loan

                                       27
<PAGE>

Documents; except for instances in which the lack of such consent, approval or
authorization of, or filing, registration or qualification with, any
governmental authority on the part of any such BORROWER would not have a
material adverse effect on the business, financial condition, Property or
prospects of the BORROWERS, taken as a whole.

      5.8. Taxes: All tax returns required to be filed by BORROWERS, or any of
them, in any jurisdiction have in fact been filed, and all taxes, assessments,
fees and other governmental charges upon BORROWERS, or any of them, or upon any
of their respective Property, income or franchises, which are shown to be due
and payable on such returns have been paid, except for those taxes being
contested in good faith with due diligence by appropriate proceedings. No
BORROWER is aware of any proposed additional tax assessment or tax to be
assessed against or applicable to any BORROWER that could reasonably be expected
to have a material adverse effect on such BORROWER'S business, financial
condition, Property or prospects.

      5.9. Financial Statements: BORROWERS' internally-prepared balance sheets
as of June 30, 2004 and the related income statements and statements of cash
flows for the period then ended (complete copies of which have been delivered to
LENDER) have been prepared in accordance with GAAP and present fairly,
accurately and completely the financial position of BORROWERS as of such dates
and the results of their operations for such period. The fiscal year for each
BORROWER currently ends on the date set forth on SCHEDULE 2 hereto. Each
BORROWER'S federal tax identification number is as set forth on SCHEDULE 2
hereto.

      5.10. Full Disclosure: Neither the financial statements referred to in
Section 5.9, nor this Agreement, the other Loan Documents or related agreements
and documents or any written statement furnished by any BORROWER to LENDER in
connection with the negotiation of the Total Facility and the Acquisition Term
Loan and contained in any financial statements or documents relating to any
BORROWER contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained therein or herein not misleading.

      5.11. Guarantees, Contracts, etc.:

            (a) No BORROWER owns nor holds equity or long term debt investments
in, has any outstanding advances to, or serves as guarantor, surety or
accommodation maker for the obligations of, or has any outstanding borrowings
from, any Person except as described in SCHEDULE 2 hereto.

            (b) No BORROWER is a party to any contract or agreement, or subject
to any charter or other corporate restriction, which unduly materially and
adversely affects its business, financial condition, Property or prospects.

            (c) Except as otherwise specifically provided in this Agreement, no
BORROWER has agreed or consented to cause or permit any of the Collateral to be
subject in the future (upon the happening of a contingency or otherwise) to a
lien or encumbrance not permitted by this Agreement.

      5.12. Compliance with Laws:

                                       28
<PAGE>

            (a) No BORROWER is in violation of, has received written notice that
it is in violation of, or has knowingly caused any Person to violate, any
applicable statute, regulation or ordinance of the United States of America, or
of any state, city, town, municipality, county or of any other jurisdiction, or
of any agency, or department thereof (including without limitation,
environmental laws and regulations) which may materially and adversely affect
its business, financial condition, Property or prospects.

            (b) Each BORROWER is current with all reports and documents required
to be filed with any state or federal securities commission (if any) or similar
agency and is in compliance in all material respects with all applicable rules
and regulations of such commissions.

      5.13. Other Associations: No BORROWER is engaged in nor has an interest in
any joint venture or partnership with any other Person or has any subsidiaries
or Affiliates, except as described on SCHEDULE 2 hereto.

      5.14. Environmental Matters: Except as disclosed on SCHEDULE 2 hereto, no
BORROWER has knowledge:

            (a) of the presence of any Hazardous Substances on any of the real
property where any BORROWER conducts operations or has its personal property, or

            (b) of any on-site spills, releases, discharges, disposal or storage
of Hazardous Substances that have occurred or are presently occurring on any of
such real property or where any Collateral is located, or

            (c) of any spills, releases, discharges or disposal of Hazardous
Substances that have occurred, are presently occurring on any other real
property as a result of the conduct, action or activities of any BORROWER.

      5.15. Capital Stock and Equity Interests: The authorized and outstanding
shares of capital stock and other equity interests of each BORROWER is as set
forth on SCHEDULE 2 hereto. All of the capital stock and equity interests of
such BORROWER have been duly and validly authorized and issued and are fully
paid and non-assessable and have been sold and delivered to the holders thereof
in compliance with, or under valid exemption from, all Federal and state laws
and the rules and regulations of all regulatory bodies thereof governing the
sale and delivery of securities. Except for the rights and obligations set forth
in SCHEDULE 2, there are no subscriptions, warrants, options, calls,
commitments, rights or agreements by which any BORROWER or any of the
Shareholders of any BORROWER is bound relating to the issuance, transfer, voting
or redemption of shares of its capital stock, partnership units or any
pre-emptive rights held by any Person with respect to the shares of capital
stock or partnership units of any such BORROWER. Except as set forth in SCHEDULE
2, no Borrower has issued any securities convertible into or exchangeable for
shares of its capital stock or partnership units or any options, warrants or
other rights to acquire such shares or partnership units or securities
convertible into or exchangeable for such shares or partnership units.

                                       29
<PAGE>

      5.16. Lockboxes; Lockbox Agreements: The Government Lockbox and the
Commercial Lockbox are the only lockbox accounts maintained by BORROWERS, and
each Obligor of an Eligible Account has been directed by the notice attached as
EXHIBIT 4.2A to this Agreement, and is required to, remit all payments with
respect to such Account for deposit in the Commercial Lockbox (other than the
Obligors of Government Accounts which have been directed by the notice attached
as EXHIBIT 4.2B to this Agreement to remit all payments with respect to such
Accounts for deposit in the Government Lockbox). Each agreement relating to each
Government Lockbox and each Commercial Lockbox is in full force and effect as of
the date hereof and has not been amended, restated or modified.

      5.17. Borrowing Base Reports: Each Borrowing Base Report signed by
BORROWERS, on behalf of Borrowers, contains and will contain an accurate summary
of all Eligible Accounts of BORROWERS contained in the Borrowing Base as of its
date.

      5.18. Security Interest: Each BORROWER has granted to LENDER a valid,
perfected first priority and only security interest in the Accounts and the
other Collateral subject to no other liens, claims or encumbrances, other than
Permitted Liens.

      5.19. Accounts:

            (a) No BORROWER has done nor shall do anything to interfere with the
collection of the Accounts and no BORROWER shall amend or waive the terms or
conditions of any Account or any related Contract in any material adverse manner
without LENDER's prior written consent.

            (b) Each BORROWER has made and will continue to make all payments to
Obligors necessary to prevent any Obligor from offsetting any earlier
overpayment to such BORROWER against any amounts such Obligor owes on an
Account.

      5.20. Pension Plans: Each pension or profit sharing plan, if any, to which
any BORROWER is a party has been and will be funded in accordance with the
obligations of such BORROWER set forth in such plan.

      5.21. Representations and Warranties for each Loan: As of each date that
BORROWERS shall request any Revolving Loan, each BORROWER shall be deemed to
make, with respect to each Eligible Account included in the Borrowing Base, each
of the following representations and warranties:

            (a) Such Account satisfies each of the conditions of an Eligible
Account.

            (b) All information relating to such Account that have been
delivered to LENDER are true and correct in all material respects. With respect
to each such Account that has been billed, the corresponding BORROWER has
delivered to the Obligor all requested supporting claim documents and all
information set forth in the bill and supporting claim documents is true,
complete and correct in all material respects.

                                       30
<PAGE>

            (c) There is no lien or adverse claim (other than Permitted Liens)
in favor of any third party, nor any filing against any BORROWER, as debtor,
covering or purporting to cover any interest in such Account.

            (d) Such Account is (i) owed by the Obligor identified by BORROWERS
as being obligated to do so for an amount not less than such Account's Estimated
Net Value and, to BORROWERS' knowledge, is recognized as such by the Obligor,
(ii) to BORROWER'S knowledge, the legally enforceable obligation of such Obligor
and (iii) an account receivable or general intangible within the meaning of the
UCC, or is a right to payment under a policy of insurance or proceeds thereof,
and is not evidenced by any instrument or chattel paper. To BORROWERS'
knowledge, there is no payor other than the Obligor identified by BORROWERS as
the payor primarily liable on such Account.

            (e) No such Account (i) requires the approval of any Person for such
Account to be assigned to LENDER hereunder (except as the same may have been
obtained or such requirement for approval may not be enforceable), (ii) is
subject to any legal action, proceeding or investigation (pending or
threatened), dispute, set-off, counterclaim, defense, abatement, suspension,
deferment, deductible, reduction or termination by the Obligor or (iii) is past,
or within one hundred and eighty (180) days of, the statutory limit for
collection applicable to the Obligor.

            (f) Such BORROWER does not have any guaranty of, letter of credit
support for, or collateral security for, such Account, other than any such
guaranty, letter of credit or collateral security as has been assigned to
LENDER; provided, however, that BORROWERS may have letters of credit support
for, or guaranty of, or collateral security for, such Accounts which in the
aggregate do not exceed Two Million and No/100 Dollars ($2,000,000) as long as
no Event of Default shall have occurred.

            (g) The services constituting the basis of such Account (i) were
provided as a result of a written or documented verbal certification from an
attending physician or a medical director of VistaCare, Inc., (ii) at the time
such services were rendered, all such services were covered by the insurance
policy or Contract obligating the applicable Obligor to make payment with
respect to such Account (and the corresponding BORROWER has verified such
determination) and (iii) the patient received such services in the ordinary
course of such BORROWER'S business.

            (h) The fees and charges charged for the services constituting the
basis for such Account were when rendered and are currently consistent with (i)
the usual, customary and reasonable fees charged by BORROWERS or (ii) pursuant
to negotiated fee contracts, or imposed fee schedules, with or by the applicable
Obligors.

            (i) The Obligor with respect to such Account is located in the
United States, and is (i) a party which in the ordinary course of its business
or activities agrees to pay for healthcare services received by individuals,
including commercial insurance companies and non-profit insurance companies
issuing health, or other types of insurance, employers or unions, self-insured
healthcare organizations, preferred provider organizations, and health insured,
prepaid maintenance organizations, (ii) a state, an agency or instrumentality of
a state or a political

                                       31
<PAGE>

subdivision of a state or (iii) the United States or an agency or
instrumentality of the United States.

            (j) The insurance policy or Contract obligating an Obligor to make
payment (i) does not prohibit the transfer of such payment obligation from the
patient to the corresponding BORROWER and (ii) is and was in full force and
effect and applicable to the patient at the time the services constituting the
basis for such Account were performed.

            (k) The representations and warranties made by BORROWERS in the Loan
Documents and all financial or other information delivered to LENDER with
respect to BORROWERS and such Account do not contain any untrue statement of
material fact or omit to state a material fact necessary to make the statement
made not misleading.

            (l) If requested by LENDER, a copy of each related Contract to which
each BORROWER is a party has been delivered to LENDER unless any such BORROWER
shall have, prior to the related Funding Date, certified in an Officer's
Certificate that such delivery is prohibited by the terms of the Contract or by
law, and the circumstances of such prohibition.

            (m) If such Account has not been billed, the services giving rise to
such Account have been properly recorded in the corresponding BORROWER'S
accounting system.

            (n) Such Account was (or if unbilled, will be) in any event billed
no later than forty-five (45) days after the last day of the month in which the
services or goods giving rise to such Account were rendered or provided, as
applicable, and each bill contains an express direction requiring the Obligor to
remit payments to either the Government Lockbox or Commercial Lockbox, as
applicable.

            (o) Such Account has an Estimated Net Value which, when added to the
Estimated Net Value of all other Accounts owing by the same Obligor and which
constitute Eligible Accounts included in the Borrowing Base, does not exceed any
applicable Concentration Limits.

            (p) Neither such Account nor the related Contract contravenes any
laws, rules or regulations applicable thereto (including, without limitation,
laws, rules and regulations relating to usury, consumer protection,
truth-in-lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy), and no party to such
related Contract is in violation of any such law, rule or regulation in
connection with such Contract.

            (q) As of the applicable Funding Date, to BORROWERS' knowledge, no
Obligor on such Account is bankrupt, insolvent, or is unable to make payment of
its obligations when due, and no other fact exists which would cause any
BORROWER reasonably to expect that the amount billed to the related Obligor for
such Account will not be paid in full when due.

      5.22. Interrelatedness of BORROWERS: The business operations of each
BORROWER are interrelated and complement one another, and such companies and
partnerships have a common business purpose, with intercompany bookkeeping and
accounting adjustments used to separate

                                       32
<PAGE>

their respective Properties, liabilities and transactions. To permit their
uninterrupted and continuous operation, such companies and partnerships now
require and will from time to time hereafter require funds for general business
purposes. The proceeds of the Acquisition Term Loan and of Advances under the
Total Facility will directly or indirectly benefit each BORROWER hereunder,
jointly and severally, regardless of which BORROWER requests or receives part or
all of the proceeds of such Acquisition Term Loan or Advance, as applicable.

SECTION 6. BORROWERS' AFFIRMATIVE COVENANTS

      Each BORROWER covenants that until all of BORROWERS' Obligations to LENDER
are paid and satisfied in full and the Total Facility and the Acquisition Term
Loan have been terminated:

      6.1. Payment of Taxes and Claims: Each BORROWER shall pay, before they
become delinquent, all taxes, assessments and governmental charges or levies
imposed upon it or upon such BORROWER'S Property, except for those being
contested in good faith with due diligence by appropriate proceedings and for
which appropriate reserves have been maintained under GAAP.

      6.2. Maintenance of Insurance, Financial Records and Legal Existence:

            (a) Property Insurance - Each BORROWER shall maintain or cause to be
maintained insurance on its Property against fire, flood, casualty and such
other hazards in such amounts, with such deductibles and with such insurers as
are customarily used by companies operating in the same industry as such
BORROWER. The policies of all such casualty insurance shall contain standard
lender loss payable and additional insured clauses issued in favor of LENDER
pursuant to which all losses thereunder shall be paid to LENDER as LENDER's
interests may appear. Such policies shall expressly provide that the requisite
insurance cannot be altered or canceled without thirty (30) days prior written
notice to LENDER and shall insure LENDER notwithstanding the act or neglect of
the insured. At or prior to Closing, BORROWER shall furnish LENDER with
insurance certificates certified as true and correct and being in full force and
effect as of the Closing Date or such other evidence of insurance as LENDER may
require, provided that such BORROWER shall furnish to LENDER such insurance
certificates naming LENDER as loss payee and as additional insured no later than
sixty (60) days subsequent to the Closing Date. In the event BORROWER fails to
procure or cause to be procured any such insurance or to timely pay or cause to
be paid the premium(s) on any such insurance, LENDER may do so for BORROWER, but
BORROWER shall continue to be liable for the same. BORROWER hereby appoints
LENDER as its attorney-in-fact, exercisable at LENDER's option, to endorse any
check which may be payable to BORROWER in order to collect the proceeds of such
insurance.

            (b) Public Liability and Business Interruption Insurance - BORROWERS
shall maintain, and shall deliver to LENDER upon LENDER's request evidence of
public liability and business interruption insurance in such amounts as is
customary for companies in the same or similar businesses located in the same or
similar area.

            (c) Financial Records - BORROWERS shall keep current and accurate
books of records and accounts in which full and correct entries will be made of
all of its business transactions, and will reflect in its financial statements
adequate accruals and appropriations to

                                       33
<PAGE>

reserves, all in accordance with GAAP. No BORROWER shall change its respective
fiscal year end date without the prior written notice to LENDER.

            (d) Existence and Rights - Each BORROWER shall do (or cause to be
done) all things necessary to preserve and keep in full force and effect its
legal existence, good standing, rights and franchises.

            (e) Compliance with Laws - Each BORROWER shall be in compliance with
any and all laws, ordinances, governmental rules and regulations, and court or
administrative orders or decrees to which it is subject, whether federal, state
or local (including without limitation environmental or environmental-related
laws, statutes, ordinances, rules, regulations and notices) and shall obtain and
maintain any and all licenses, permits, franchises, certificates of needs or
other governmental authorizations necessary to the ownership of its Property or
to the conduct of its businesses, which violation or failure to obtain may
materially adversely affect the business, Property, financial conditions or
prospects of such BORROWER.

      6.3. Business Conducted: The BORROWERS shall continue in the primary
business presently engaged in by them, it being agreed that the BORROWERS may
engage in businesses reasonably related to their primary business.

      6.4. Litigation: BORROWERS shall give prompt notice to LENDER of any
litigation claiming in excess of $250,000 from BORROWERS, or any of them, or
which may otherwise have a material adverse effect on the business, financial
condition, Property or prospects of BORROWERS, or any of them.

      6.5. Taxes: BORROWERS shall pay all taxes (other than taxes based upon or
measured by LENDER's income or revenues), if any, solely in connection with the
Revolving Loans and/or the recording of any financing statements or other Loan
Documents. The obligations of BORROWERS under this section shall survive the
payment of BORROWERS' Obligations under this Agreement and the termination of
this Agreement.

      6.6. Financial Covenants: BORROWERS shall perform and comply with each of
the following financial covenants as reflected and computed from their financial
statements:

            (a) BORROWERS shall maintain at all times, a Debt Service Coverage
Ratio of at least 1.25 to 1.0 measured quarterly on a rolling four-quarter basis
beginning with the quarter ending March 31, 2002.

            (b) BORROWERS shall maintain at all times a Leverage Ratio of less
than (i) 4.00 to 1.0 for each fiscal quarter during the fiscal year ended
September 30, 2005, (ii) 3.75 to 1.0 for each fiscal quarter during the fiscal
year ended September 30, 2006, (iii) 3.50 to 1.0 for each fiscal quarter during
the fiscal year ended September 30, 2007 and (iii) 3.00 to 1.0 for each fiscal
quarter thereafter.

                                       34
<PAGE>

            (c) BORROWERS shall maintain as of Closing and at all times
thereafter a Net Worth measured quarterly at the end of each fiscal quarter of
at least Eighteen Million and No/100 Dollars ($18,000,000.00).

      6.7. Financial and Business Information: BORROWERS shall deliver to LENDER
the following (all to be in form and substance satisfactory to LENDER):

            (a) Financial Statements and Collateral Reports:

                  (i) as soon as available but in any event, within one hundred
and fifty (150) days after the end of each fiscal year of BORROWERS, deliver
financial statements of BORROWERS for such year which present fairly BORROWERS'
financial condition including the balance sheet of BORROWERS as at the end of
such fiscal year, an income statement and a statement of cash flows for such
fiscal year, all on a consolidated and consolidating basis, setting forth in the
consolidated statements in comparative form, the corresponding figures as at the
end of and for the previous fiscal year, all in reasonable detail, including all
supporting schedules, and audited by independent public accountants of
recognized standing, selected by BORROWERS and reasonably satisfactory to
LENDER, and prepared in accordance with GAAP;

                  (ii) as soon as available but in any event within forty-five
(45) days after the end of each fiscal quarter, deliver to LENDER BORROWERS'
internally prepared quarterly consolidated and consolidating financial
statements along with year to date information, including balance sheet, income
statement and statements of cash flows with respect to the periods measured;

                  (iii) promptly upon request, deliver such other information
concerning BORROWERS as LENDER may from time to time request, including Medicare
and Medicaid cost reports and audits, annual reports, security law filings and
reports to any security holders;

                  (iv) not more than (60) days after the commencement of each
fiscal year deliver to LENDER final annual consolidated and consolidating
projections for BORROWERS, including balance sheets, income statements and
statements of cash flows, all prepared on a monthly basis;

                  (v) at least thirty (30) days prior to the beginning of each
fiscal year commencing with fiscal year beginning October 1, 2005 deliver to
LENDER preliminary fiscal year annual consolidated and consolidating projections
for BORROWERS, including balance sheets, income statements and statements of
cash flows, all prepared on a monthly basis; and

                  (vi) and such other data, reports, statements and information
(financial or otherwise), as LENDER may reasonably request.

            (b) Notice of Event of Default - promptly upon becoming aware of the
existence of any condition or event which constitutes an Event of Default or
Unmatured Event of Default under this Agreement, a written notice specifying the
nature and period of existence thereof and what action BORROWERS are taking (and
propose to take) with respect thereto;

                                       35
<PAGE>

            (c) Notice of Claimed Default - promptly upon receipt by any
BORROWER of a notice of default, oral or written, given to such BORROWER by any
creditor for borrowed money in excess of $50,000.

      6.8. Officers' Certificates: Along with the set of financial statements
delivered to LENDER at the end of each fiscal quarter and fiscal year pursuant
to Section 6.7(a) hereof, deliver to LENDER a certificate (in the form of
EXHIBIT 6.8 attached hereto and made a part hereof) from the chief financial
officer of each BORROWER setting forth:

            (a) Covenant Compliance - the information (including reasonably
detailed calculations) required in order to establish whether BORROWERS are in
compliance with the requirements of Sections 6.6 as of the end of the period
covered by the financial statements then being furnished (and any exhibits
appended thereto) under Section 6.7; and

            (b) Event of Default - that the signer in his capacity as an officer
of such BORROWER has reviewed the relevant terms of this Agreement, and has made
(or caused to be made under his supervision) a review of the transactions and
conditions of such BORROWER from the beginning of the accounting period covered
by the financial statements being delivered therewith to the date of the
certificate, and that such review has not disclosed the existence during such
period of any condition or event which constitutes an Event of Default or
Unmatured Event of Default or if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action such
BORROWER has taken or proposes to take with respect thereto.

      6.9. Inspection: Prior to the time Lender makes an Advance to any
Borrower, provided that no Event of Default or Unmatured Event of Default
exists, no more frequently than once per fiscal year, BORROWERS will permit any
of LENDER's officers or other representatives to visit and inspect any
BORROWER'S location(s) or where any Collateral is kept during regular business
hours to examine and audit all of such BORROWER'S books of account, records,
reports and other papers, to make copies and extracts therefrom and to discuss
its affairs, finances and accounts with its officers, employees and independent
certified public accountants and attorneys. BORROWERS shall pay to LENDER all
reasonable fees based on standard rates for such inspections, currently at the
rate of $850 per day, per person (plus out-of-pocket expenses); provided that
after such time as Lender makes an Advance to any Borrower such inspections
shall be no more frequently than semi-annual as long as no Event of Default or
Unmatured Event of Default exists.

      6.10. Tax Returns and Reports: At LENDER's request from time to time,
BORROWERS shall promptly furnish LENDER with copies of the annual federal and
state income tax returns of BORROWERS.

      6.11. Material Adverse Developments: Each BORROWER agrees that immediately
upon it or any of its officers becoming aware of any development or other
information which would reasonably be expected to materially and adversely
affect the businesses, financial condition, Property, prospects of a BORROWER or
a BORROWER'S ability to perform under this Agreement, it shall give to LENDER
telephonic or facsimile notice specifying the nature of such development or

                                       36
<PAGE>

information and such anticipated effect. In addition, such verbal communication
shall be confirmed by written notice thereof to LENDER on the next Business Day
after such verbal notice is given.

      6.12. Places of Business; Jurisdiction of Organization; Name: Each
BORROWER shall give thirty (30) days prior written notice to LENDER of any
changes in the location of any of its chief executive office or any other places
of business, any changes in its jurisdiction of organization, change of name or
the establishment of any new, or the discontinuance of any existing place of
business.

      6.13. Notice of Action: Each BORROWER will promptly notify LENDER in the
event of any legal action, dispute, setoff, counterclaim, defense or reduction
that is or may be asserted by an Obligor with respect to any Account that may
have a material adverse effect on the collectibility of such Account or all
Accounts collectively.

      6.14. Verification of Information: At the reasonable request of LENDER,
BORROWERS will promptly provide and verify the accuracy of information
concerning BORROWERS and their Affiliates of the type provided by or on behalf
of BORROWERS and their Affiliates to LENDER in connection with LENDER's decision
to enter into this Agreement. BORROWERS agree to provide complete and accurate
copies of such documents and other materials and such other information
concerning BORROWERS and their Affiliates as LENDER may reasonably request in
connection with any securitization of, and sale of securities backed by, the
Eligible Accounts (the "SECURITIES"). Such information may be relied upon by
LENDER and any party arranging the offering of such Securities by LENDER or its
assignee. Such information provided by or on behalf of BORROWERS and their
Affiliates will be true and complete in all material respects and will not omit
to state a material fact necessary to make the statements contained in such
information, in light of the circumstances under which they were made, not
misleading. The BORROWERS shall not be required to review, and assume no
liability or responsibility for, the offering documents or other disclosure
materials prepared in connection with the issuance of the Securities.

      6.15. Value Track System(TM): BORROWERS shall permit LENDER to interface
its Value Track System(TM) to BORROWERS' data files and will reasonably assist
LENDER in completing and maintaining such interface such that the interface can
interpret, track and reconcile the Accounts Detail File provided by BORROWERS.

SECTION 7. BORROWERS' NEGATIVE COVENANTS

      Each BORROWER covenants that until all of BORROWERS' Obligations to LENDER
are paid and satisfied in full and the Total Facility and the Acquisition Term
Loan have been terminated, that:

      7.1. Merger, Consolidation, Dissolution or Liquidation:

            (a) No BORROWER shall sell, lease, license, transfer or otherwise
dispose of its Property other than (i) to another BORROWER, (ii) with respect to
Property sold in the ordinary course or ordinary operation of such BORROWER'S
business, (iii) in a transaction permitted under

                                       37
<PAGE>

subsection (b) below, and (iv) sales of assets for fair market value in an
aggregate amount not to exceed $1,000,000 per year, in each case without
LENDER's prior written consent.

            (b) No BORROWER shall merge or consolidate with, or acquire, any
other Person or commence a dissolution or liquidation, other than through a
merger with another BORROWER, provided, that any BORROWER may effect any
Permitted Acquisition.

      7.2. Liens and Encumbrances: No BORROWER shall: (i) execute a negative
pledge agreement with any Person covering any of the Collateral, or (ii) cause
or permit or agree or consent to cause or permit in the future (upon the
happening of a contingency or otherwise) the Collateral, whether now owned or
hereafter acquired, to be subject to any lien, claim or encumbrance other than:

                  (i) Permitted Liens,

                  (ii) purchase money liens and liens of a capital lease upon
any Property acquired by or held by a BORROWER in the ordinary course of
business not to exceed Two Hundred Seventy Five Thousand and No/100 Dollars
($275,000.00) per transaction or series of related transactions, provided that
in no event shall the aggregate amount secured by such purchase money liens and
liens of capital leases exceed One Million and No/100 Dollars ($1,000,000.00) in
any fiscal year,

                  (iii) liens on property of a Person existing at the time such
Person is merged into or consolidated with a BORROWER or becomes a subsidiary of
a BORROWER, provided that such liens do not extend to any assets other than
those of the Person so merged into or consolidated with such BORROWER or Person,
provided that such liens do not include any accounts receivable of a BORROWER,

                  (iv) the replacement, renewal or extension of liens permitted
by clauses (ii) or (iii) above, without any increase of the indebtedness secured
thereby.

      7.3. Negative Pledge: No BORROWER shall pledge, grant or permit any lien
(other than Permitted Liens) to exist on the common stock or membership units of
its Subsidiaries and Affiliates.

      7.4. Transactions With Affiliates or Subsidiaries:

            (a) No BORROWER shall enter into any transaction with any subsidiary
or other Affiliate (other than another BORROWER) including, without limitation,
the purchase, sale, lease or exchange of Property, or the loaning,
capitalization or giving of funds to any such Affiliate or any subsidiary,
unless (i) such subsidiary or Affiliate is engaged in a business substantially
related to the business permitted to be conducted by such BORROWER hereunder and
(ii) the transaction is in the ordinary course of and pursuant to the reasonable
requirements of such BORROWER'S business and upon terms substantially the same
and no less favorable to such BORROWER as it would obtain in a comparable
arm's-length transactions with any Person not an Affiliate or a subsidiary and
(iii) such transaction is not prohibited hereunder.

                                       38
<PAGE>

            (b) Subject in any event to the limitations of Section 7.4(a) above,
except with the prior written consent of LENDER, no BORROWER shall create or
acquire any subsidiary unless such subsidiary engages in a business permitted to
be conducted by BORROWERS hereunder, and if required by LENDER, such subsidiary
becomes a BORROWER hereunder.

      7.5. Guarantees: Except as set forth on SCHEDULE 2 hereto and excepting
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection, no BORROWER shall become or be liable, directly or
indirectly, primary or secondary, matured or contingent, in any manner, whether
as guarantor, surety, accommodation maker, or otherwise, for the existing or
future indebtedness of any kind of any other Person.

      7.6. Loans to Other Persons: No BORROWER shall make or be permitted to
have outstanding any loans, advances or extensions of credit to any Person
(other than advances to employees or loans, advances or extensions of credit to
another BORROWER in an aggregate amount outstanding not to exceed $500,000 at
any point in time).

      7.7. Change in Ownership: Each BORROWER, other than VistaCare, Inc., shall
remain wholly-owned, directly or indirectly, by VistaCare, Inc. No Change of
Control (as defined below) shall occur with respect to VistaCare, Inc. For the
purposes of this Section 7.7, a Change of Control shall have occurred if any
Person or two or more Persons acting in concert (in each case, other than
present holders of the voting stock of VistaCare, Inc.) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934), directly or
indirectly, of the voting stock of VistaCare, Inc. (or other securities
convertible into such voting stock) representing fifty one percent (51%) or more
of the combined voting power of all voting stock (including securities
convertible into such voting stock) of VistaCare, Inc. without the consent of
LENDER, which consent may not be unreasonably withheld or delayed.

      7.8. Distributions: BORROWERS shall not, following an Event of Default or
Unmatured Event of Default, declare or pay or make any forms of Distributions to
its Shareholders, their successors or assigns, nor may any BORROWER declare or
pay or make any forms of Distributions if in each case, after giving effect to
such Distributions, an Event of Default or Unmatured Event of Default will
result.

      7.9. Change in Business: The BORROWERS shall not change their primary
business from that engaged in by the BORROWERS on the Closing Date, it being
agreed that the BORROWERS may engage in businesses reasonably related to their
primary business.

      7.10. Adverse Transactions: No BORROWER shall enter into any transaction
which is reasonably likely to materially and adversely affect the Collateral or
such BORROWER'S ability to repay the Obligations in full as and when due.

SECTION 8. DEFAULT

      8.1. Events of Default: Each of the following events shall constitute an
event of default ("EVENT OF DEFAULT") and LENDER shall thereupon have the option
to declare the

                                       39
<PAGE>

Obligations immediately due and payable, all without demand, notice, presentment
or protest or further action of any kind (it also being understood that the
occurrence of any of the events or conditions set forth in subparagraphs (j),
(k), (l) or (r) shall automatically cause an acceleration of the Obligations):

            (a) Payments - if BORROWERS fail to make any payment of principal or
interest on the date when such payment is due and payable and such failure
continues for a period of one (1) Business Day; provided however, that the one
(1) Business Day grace period shall not be applicable if such payments are due
and payable due to maturity, acceleration or demand, whether following an Event
of Default or otherwise; or

            (b) Other Charges - if BORROWERS fail to pay any other charges,
fees, Expenses or other monetary obligations owing to LENDER, arising out of or
incurred in connection with this Agreement on the date when such payment is due
and payable, whether upon maturity, acceleration, demand or otherwise and such
failure continues for a period of five (5) Business Days after the earlier of a
BORROWER becoming aware of such failure or a BORROWER receiving written notice
from LENDER of such failure; provided however, that the five (5) Business Day
grace period shall not be applicable if such payments are due and payable due to
maturity, acceleration or demand, whether following an Event of Default, or
otherwise; or

            (c) Particular Covenant Defaults - if any BORROWER fails to perform,
comply with or observe any covenant or undertaking contained in this Agreement
not otherwise described in this Section 8.1, and such failure continues for a
period of fifteen (15) days after the earlier of a BORROWER becoming aware of
such failure or a BORROWER receiving written notice from LENDER of such failure;
or

            (d) Financial Information - if any statement, report, financial
statement, or certificate made or delivered by a BORROWER or any of their
officers, employees or agents, to LENDER is not true and correct, in all
material respects, when made; or

            (e) Uninsured Loss - if there shall occur any uninsured damage to or
loss, theft, or destruction in excess of $100,000 with respect to any portion of
any BORROWER'S Property; or

            (f) Warranties or Representations - if any warranty, representation
or other statement by or on behalf of BORROWERS, or any of them, contained in or
pursuant to this Agreement, any of the Loan Documents, or in any document,
agreement or instrument furnished in compliance with, relating to, or in
reference to this Agreement, is false, erroneous, or misleading in any material
respect when made; or

            (g) Agreements with Others - if BORROWERS, or any of them, shall
default beyond any grace period under any agreement with any creditor for
borrowed money having an outstanding principal amount of $100,000 or more and
(i) such default consists of the failure to pay any principal, premium or
interest with respect to such indebtedness or (ii) such default consists of the
failure to perform any covenant or agreement with respect to such indebtedness,
if the effect of such default is to cause or permit BORROWERS', or any of their
obligations which are

                                       40
<PAGE>

the subject thereof to become due prior to its maturity date or prior to its
regularly scheduled date of payment;

            (h) Other Agreements with LENDER - if BORROWERS, or any of them,
breach or violate the terms of, or if a default or an event of default, occurs
under, any other existing or future agreement (related or unrelated) between or
among BORROWERS, or any of them and LENDER, including without limitation, the
Loan Documents and any lease agreements or finance agreements with any affiliate
of LENDER; or

            (i) Judgments - if any final judgment for the payment of money in
excess of $100,000 which is not covered by insurance or an appeal bond, or for
which BORROWERS have not established a cash or cash equivalent reserve in the
amount of such judgment, shall be rendered and shall remain unsatisfied and
unstayed for a period of at least ten (10) days;

            (j) Assignment for Benefit of Creditors, etc. - if BORROWERS, or any
of them, make or propose an assignment for the benefit of creditors generally,
offers a composition or extension to creditors, or makes or sends notice of an
intended bulk sale of any business or assets now or hereafter owned or conducted
by any BORROWER which might materially and adversely affect such BORROWER; or

            (k) Bankruptcy, Dissolution, etc. - upon the commencement of any
action for the dissolution or liquidation of BORROWERS, or any of them, or the
commencement of any proceeding to avoid any transaction entered into by
BORROWERS, or any of them, or the commencement of any case or proceeding for
reorganization or liquidation of BORROWERS, or any of their debts under the
Bankruptcy Code or any other state or federal law, now or hereafter enacted for
the relief of debtors, whether instituted by or against any BORROWER; provided,
however, that BORROWERS shall have sixty (60) days to obtain the dismissal or
discharge of involuntary proceedings filed against a BORROWER, it being
understood that during such sixty (60) day period, LENDER shall be not obligated
to make Advances hereunder and LENDER may seek adequate protection in any
bankruptcy proceeding; or

            (l) Receiver - upon the appointment of a receiver, liquidator,
custodian, trustee or similar official or fiduciary for BORROWERS, or any of
them, or for any of any BORROWER'S Property; or

            (m) Execution Process, Seizure, etc. - the issuance of any execution
or distraint process affecting any material portion of the Property of any
BORROWER, or any material portion of the Property of any BORROWER is seized by
any governmental entity, federal, state or local; or

            (n) Pension Benefits, etc. - if BORROWERS fail to comply with ERISA,
so that grounds exist to permit the appointment of a trustee under ERISA to
administer BORROWERS' employee plans or to allow the Pension Benefit Guaranty
Corporation to institute proceedings to appoint a trustee to administer such
plan(s), or to permit the entry of a lien to secure any deficiency or claim; or

                                       41
<PAGE>

            (o) Investigations - any indication or evidence received by LENDER
that reasonably leads it to believe BORROWERS, or any of them, have directly or
indirectly been engaged in any type of activity which would be reasonably likely
to adversely affect any Collateral or result in the forfeiture of any Collateral
to any governmental entity, federal, state or local; or

            (p) Material Adverse Events -

                  (i) LENDER reasonably determines that an event which adversely
affects the collectibility of a material portion of the Accounts has occurred;
or

                  (ii) a material adverse change occurs in the business or
condition of BORROWERS, or any of them, which impairs BORROWERS' ability to
repay the Obligations in full as and when due; or

            (q) Lockbox Instructions - any instruction or agreement regarding
the Commercial Lockbox or the Government Lockbox or the bank accounts related
thereto is amended or terminated by any BORROWER without the written consent of
LENDER, or if any BORROWER fails, within one Business Day of receipt, to forward
Collections it receives with respect to any Accounts to the Commercial Lockbox
or the Government Lockbox, as the case may be.

      8.2. Cure: Nothing contained in this Agreement or the Loan Documents shall
be deemed to compel LENDER to accept a cure of any Event of Default hereunder,
except as outlined in Section 8.1(c) hereof.

      8.3. Rights and Remedies on Default:

            (a) In addition to all other rights, options and remedies granted or
available to LENDER under this Agreement or the Loan Documents, or otherwise
available at law or in equity, upon or at any time after the occurrence and
during the continuance of an Event of Default or Unmatured Event of Default,
LENDER may, in its discretion, withhold or cease making Advances under the Total
Facility.

            (b) In addition to all other rights, options and remedies granted or
available to LENDER under this Agreement or the Loan Documents (each of which is
also then exercisable by LENDER), LENDER may, in its discretion, upon or at any
time after the occurrence and during the continuance of an Event of Default,
terminate the Total Facility and accelerate the Acquisition Term Loan.

            (c) In addition to all other rights, options and remedies granted or
available to LENDER under this Agreement or the Loan Documents (each of which is
also then exercisable by LENDER), LENDER may, upon or at any time after the
occurrence and during the continuance of an Event of Default, exercise all
rights under the UCC and any other applicable law or in equity, and under all
Loan Documents permitted to be exercised after the occurrence of an Event of

                                       42
<PAGE>

Default, including the following rights and remedies (which list is given by way
of example and is not intended to be an exhaustive list of all such rights and
remedies):

                  (i) Subject to all applicable laws and regulations governing
payment of Medicare and Medicaid receivables, the right to "take possession" of
the Collateral, and notify all Obligors of LENDER's security interest in the
Collateral and require payment under the Accounts to be made directly to LENDER
and LENDER may, in its own name or in the name of the applicable BORROWER,
exercise all rights of a secured party with respect to the Collateral and
collect, sue for and receive payment on all Accounts, and settle, compromise and
adjust the same on any terms as may be satisfactory to LENDER, in its sole and
absolute discretion for any reason or without reason and LENDER may do all of
the foregoing with or without judicial process (including without limitation
notifying the United States postal authorities to redirect mail addressed to
BORROWERS, or any of them, to an address designated by LENDER); or

                  (ii) Require BORROWERS at BORROWERS' expense, to assemble all
or any part of the Collateral and make it available to LENDER at any place
designated by LENDER, which may include providing LENDER or any entity
designated by LENDER with access (either remote or direct) to BORROWERS'
information system for purposes of monitoring, posting payments and rebilling
Accounts to the extent deemed desirable by LENDER in its sole discretion; or

                  (iii) The right to reduce or modify the Revolving Loan
Commitment, the Borrowing Base or any portion thereof or the Advance Rates or to
modify the terms and conditions upon which LENDER may be willing to consider
making Advances under the Total Facility or to take additional reserves in the
Borrowing Base for any reason.

            (d) BORROWERS hereby agree that a notice received by them at least
ten (10) days before the time of any intended public sale or of the time after
which any private sale or other disposition of the Collateral is to be made,
shall be deemed to be reasonable notice of such sale or other disposition. If
permitted by applicable law, any Collateral which threatens to speedily decline
in value or which is sold on a recognized market may be sold immediately by
LENDER without prior notice to BORROWERS. Each BORROWER covenants and agrees not
to interfere with or impose any obstacle to LENDER's exercise of its rights and
remedies with respect to the Collateral.

      8.4. Nature of Remedies: All rights and remedies granted LENDER hereunder
and under the Loan Documents, or otherwise available at law or in equity, shall
be deemed concurrent and cumulative, and not alternative remedies, and LENDER
may proceed with any number of remedies at the same time until all Obligations
are satisfied in full. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy, and LENDER, upon or at
any time after the occurrence and during the continuance of an Event of Default,
may proceed against BORROWERS, or any of them, at any time, under any agreement,
with any available remedy and in any order.

      8.5. Set-Off: If any bank account or other Property held by or with
LENDER, or any Affiliate of LENDER, or any participant is attached or otherwise
liened or levied upon by any third party, LENDER (and such participant) shall
have and be deemed to have, without notice to

                                       43
<PAGE>

BORROWERS, the immediate right of set-off and may apply the funds or other
amounts or property thus set off against any of BORROWERS' Obligations
hereunder.

SECTION 9. MISCELLANEOUS

      9.1. GOVERNING LAW: THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL
RELATED AGREEMENTS AND DOCUMENTS, SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW JERSEY. THE PROVISIONS
OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL OTHER AGREEMENTS AND
DOCUMENTS REFERRED TO HEREIN ARE TO BE DEEMED SEVERABLE, AND THE INVALIDITY OR
UNENFORCEABILITY OF ANY PROVISION SHALL NOT AFFECT OR IMPAIR THE REMAINING
PROVISIONS WHICH SHALL CONTINUE IN FULL FORCE AND EFFECT.

      9.2. Integrated Agreement: The Revolving Credit Note, the Acquisition Term
Loan Note, the other Loan Documents, all related agreements and this Agreement
shall be construed as integrated and complementary of each other and as
augmenting and not restricting LENDER's rights and remedies. If, after applying
the foregoing, an inconsistency still exists, the provisions of this Agreement
shall constitute an amendment thereto and shall control.

      9.3. Waiver and Indemnity:

            (a) No omission or delay by LENDER in exercising any right or power
under this Agreement or any related agreements and documents will impair such
right or power or be construed to be a waiver of any default, or Event of
Default or an acquiescence therein, and any single or partial exercise of any
such right or power will not preclude other or further exercise thereof or the
exercise of any other right, and as to any BORROWER no waiver will be valid
unless in writing and signed by LENDER and then only to the extent specified.

            (b) Each BORROWER releases and shall indemnify, defend and hold
harmless LENDER, and its respective officers, employees and agents, of and from
any claims, demands, liabilities, obligations, judgments, injuries, losses,
damages and costs and expenses (including, without limitation, reasonable legal
fees) resulting from (i) acts or conduct of a BORROWER under, pursuant or
related to this Agreement and the other Loan Documents, (ii) any BORROWER'S
breach, or alleged breach, or violation of any representation, warranty,
covenant or undertaking contained in this Agreement or the other Loan Documents,
and (iii) any BORROWER'S failure, or alleged failure, to comply with any or all
laws, statutes, ordinances, governmental rules, regulations or standards,
whether federal, state or local, or court or administrative orders or decrees
(including without limitation environmental laws, etc.), and all costs,
expenses, fines, penalties or other damages resulting therefrom, unless, in each
case resulting from acts or conduct of LENDER constituting willful misconduct or
gross negligence.

            (c) LENDER shall not be liable for, and BORROWERS hereby agree that
LENDER's liability in the event of a breach by LENDER of this Agreement shall be
limited to BORROWERS' direct damages suffered and shall not extend to, any
consequential or incidental damages. In the

                                       44
<PAGE>

event BORROWERS bring suit against LENDER in connection with the transactions
contemplated hereunder, and LENDER is found not to be liable, BORROWERS shall
indemnify and hold LENDER harmless from all costs and expenses, including
attorneys' fees, incurred by LENDER in connection with such suit.

      9.4. Time: Whenever BORROWERS, or any of them, shall be required to make
any payment, or perform any act, on a day which is not a Business Day, such
payment may be made, or such act may be performed, on the next succeeding
Business Day. Time is of the essence in BORROWERS' performance under all
provisions of this Agreement and all related agreements and documents.

      9.5. Expenses of LENDER:

            (a) At Closing and from time to time thereafter, BORROWERS will pay
all reasonable expenses of LENDER on demand (including, without limitation,
search costs, audit fees, appraisal fees, and the fees and expenses of legal
counsel for LENDER) relating to this Agreement, and all related agreements and
documents, including, without limitation, expenses incurred in the analysis,
negotiation, preparation, closing, administration and enforcement of this
Agreement and the other Loan Documents, the enforcement, protection and defense
of the rights of LENDER in and to the Revolving Loans and Collateral or
otherwise hereunder, and any reasonable expenses relating to extensions,
amendments, waivers or consents pursuant to the provisions hereof, or any
related agreements and documents or relating to agreements with other creditors,
or termination of this Agreement (collectively, the "EXPENSES"). Any Expenses
not paid upon demand by LENDER shall bear interest at the per annum rate equal
to the interest rate applicable to the Advances.

            (b) In addition, at any time following the date of this Agreement,
BORROWERS effect any changes which results in a change in the format or sequence
of BORROWERS' data, BORROWERS shall pay to LENDER its reasonable charge for
implementing such changes as are necessary to accommodate the changes in the
format or sequence of the data such that the Value Track System(TM) is capable
of importing such data, including an hourly fee of $125.

      9.6. Confidentiality: Except as provided in Section 9.18 hereof or to the
extent required by law or applicable regulations, BORROWERS and LENDER agree to
maintain the confidentiality of this Agreement and other Loan Documents and not
to disclose the contents hereof or provide a copy hereof to any third party,
except as required by law and (i) accountants, lawyers and financial advisers of
the parties who are informed of and agree to be bound by this Section 9.6, and
(ii) that copies hereof may be provided to any assignee or participant (or
potential assignee or participant) of LENDER's interests herein, any investors
or prospective investors who acquire or may acquire Securities backed by
Accounts and any parties which facilitate the issuance of such Securities,
including rating agencies, guarantors and insurers. LENDER agrees to maintain
the confidentiality of patient information obtained as a result of its interests
in, or duties with respect to, the Accounts in accordance with HIPAA and
applicable state privacy laws and shall not use, disclose or release patient
information except as specifically authorized herein or in any addendum hereto
or as required by HIPAA or applicable state law.

                                       45
<PAGE>

      9.7. Notices:

            (a) Any notices or consents required or permitted by this Agreement
shall be in writing and shall be deemed given if delivered in person or if sent
by telecopy or by nationally recognized overnight courier, or via first class,
Certified or Registered mail, postage prepaid, to the address of such party set
forth on the signature pages hereof, unless such address is changed by written
notice hereunder.

            (b) Any notice sent by LENDER or BORROWERS, or any of them, by any
of the above methods shall be deemed to be given when so received.

            (c) LENDER shall be fully entitled to rely upon any facsimile
transmission or other writing purported to be sent by any Authorized Officer
(whether requesting an Advance or otherwise) as being genuine and authorized.

      9.8. Headings: The headings of any paragraph or Section of this Agreement
are for convenience only and shall not be used to interpret any provision of
this Agreement.

      9.9. Survival: All warranties, representations, and covenants made by any
or all BORROWERS herein, in any Loan Document, or in any agreement referred to
herein or on any certificate, document or other instrument delivered by it or on
its behalf under this Agreement, shall be considered to have been relied upon by
LENDER, and shall survive the delivery to LENDER of any Loan Document,
regardless of any investigation made by LENDER or on its behalf. All statements
in any such certificate or other instrument prepared and/or delivered for the
benefit of LENDER shall constitute warranties and representations by BORROWERS
hereunder. Except as otherwise expressly provided herein, all covenants made by
any or all BORROWERS hereunder, in any Loan Document or under any other
agreement or instrument shall be deemed continuing until all Obligations are
satisfied in full.

      9.10. Successors and Assigns:

            (a) This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties. No BORROWER may transfer,
assign or delegate any of its duties or obligations hereunder.

            (b) The LENDER may at any time assign all of its Advances and
commitments hereunder to any other Person with the consent of BORROWERS, which
consent shall not be unreasonably withheld or delayed.

      9.11. Duplicate Originals: Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument. This
Agreement may be executed in counterparts, all of which counterparts taken
together shall constitute one completed fully executed document.

      9.12. Modification: No modification hereof or any agreement referred to
herein shall be binding or enforceable unless in writing and signed by BORROWERS
and LENDER.

                                       46
<PAGE>

      9.13. Signatories: Each individual signatory hereto represents and
warrants that such signatory is duly authorized to execute this Agreement on
behalf of such signatory's principal and that such signatory executes the
Agreement in such capacity and not as a party.

      9.14. Third Parties: No rights are intended to be created hereunder, or
under any related agreements or documents for the benefit of any third party
donee, creditor or incidental beneficiary of any BORROWER. Nothing contained in
this Agreement shall be construed as a delegation to LENDER of any BORROWER'S
duty of performance, including, without limitation, such BORROWER'S duties under
any account or contract with any other Person.

      9.15. Waivers:

            (a) BORROWERS each hereby irrevocably, unconditionally and fully
subordinate in favor of LENDER, any and all rights they or any of them, may have
at any time (whether arising directly or indirectly, by operation of law or
contract) to assert or receive payment on any claim against each other or any of
them, on account of payments made under this Agreement, including without
limitation, any and all rights of subrogation, reimbursement, exoneration,
contribution or indemnity. Each BORROWER waives any event or circumstances which
might constitute a legal or equitable defense of, or discharge of, such
BORROWER. Furthermore, each BORROWER agrees that if any payment on the
Obligations is recovered from or repaid by LENDER in whole or in part in any
bankruptcy, insolvency or similar proceeding instituted by or against any
BORROWER, the remaining BORROWERS and/shall be obligated to the same extent as
if the recovered or repaid payment had never been originally made on such
Obligation.

            (b) Each BORROWER hereby consents and agrees that LENDER, at any
time or from time to time in its discretion may: (i) settle, compromise or grant
releases for liabilities of other BORROWERS, and/or any other Person or Persons
liable for any Obligations, (ii) exchange, release, surrender, sell, subordinate
or compromise any Collateral to the extent allowed under federal, state or local
law, including without limitation administrative pronouncements, of any party
now or hereafter securing any of the Obligations, and (iii) following an Event
of Default, apply any and all payments received at any time against the
Obligations in any order as LENDER may determine; all of the foregoing in such
manner and upon such terms as LENDER may see fit, without notice to or further
consent from such BORROWER who hereby agrees and shall remain bound upon this
Agreement notwithstanding any such action on LENDER's part.

            (c) The liability of each BORROWER hereunder is absolute and
unconditional and shall not be reduced, impaired or affected in any way by
reason of (i) any failure to obtain, retain or preserve, or the lack of prior
enforcement of, any rights against any Person or Persons (including other
BORROWERS) or in any Property, (ii) the invalidity or unenforceability of any
Obligations or rights in any Collateral, (iii) any delay in making demand upon
other BORROWERS or any delay in enforcing, or any failure to enforce, any rights
against other BORROWERS or in any Collateral even if such rights are thereby
lost, (iv) any failure, neglect or omission to obtain, perfect or retain any
lien upon, protect, exercise rights against, or realize on, any Property of any
BORROWER, or any other party securing the Obligations, (v) the existence or
non-existence of any defenses which may be available to the other BORROWERS with
respect to the Obligations or (vi)

                                       47
<PAGE>

the commencement of any bankruptcy, reorganization, liquidation, dissolution or
receivership proceeding or case filed by or against any of BORROWERS.

      9.16. CONSENT TO JURISDICTION: EACH BORROWER AND LENDER HEREBY IRREVOCABLY
CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE STATE
OF NEW JERSEY IN ANY AND ALL ACTIONS AND PROCEEDINGS WHETHER ARISING HEREUNDER
OR UNDER ANY OTHER AGREEMENT OR UNDERTAKING. BORROWERS WAIVE ANY OBJECTION TO
IMPROPER VENUE AND FORUM NON-CONVENIENS TO PROCEEDINGS IN ANY SUCH COURT AND ALL
RIGHTS TO TRANSFER FOR ANY REASON. EACH BORROWER IRREVOCABLY AGREES TO SERVICE
OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO THE ADDRESS OF THE
APPROPRIATE PARTY SET FORTH HEREIN.

      9.17. WAIVER OF JURY TRIAL: EACH BORROWER AND LENDER HEREBY WAIVE ANY AND
ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION
COMMENCED BY OR AGAINST LENDER WITH RESPECT TO RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO OR UNDER THE LOAN DOCUMENTS, WHETHER SOUNDING IN TORT, CONTRACT
OR OTHERWISE.

      9.18. Publication: BORROWERS grant LENDER the right to publish and/or
advertise information to the effect that this transaction has closed, which
information may include, without limit, (i) the names of BORROWERS and LENDER,
(ii) the size of the transaction and (iii) those items of information commonly
included within a "tombstone advertisement" of the type customarily published in
financial or business periodicals.

      9.19. Discharge of Taxes, BORROWER'S Obligations, Etc.: LENDER, in its
sole discretion, shall have the right at any time, and from time to time, with
prior notice to BORROWERS, if BORROWERS fail to do so five (5) Business Days
after requested in writing to do so by LENDER, to: (a) pay for the performance
of any of BORROWERS' obligations hereunder, and (b) discharge taxes or liens, at
any time levied or placed on any of BORROWERS' Property in violation of this
Agreement unless BORROWERS are in good faith with due diligence by appropriate
proceedings contesting such taxes or liens. Expenses and advances shall be
deemed Advances hereunder and shall be deemed Advances hereunder and shall bear
interest at the same rate applied to the Revolving Loans until reimbursed to
LENDER. Such payments and advances made by LENDER shall not be construed as a
waiver by LENDER of an Event of Default under this Agreement.

      9.20. Injunctive Relief: The parties acknowledge and agree that, in the
event of a breach or threatened breach of any party's obligations hereunder, may
have no adequate remedy in money damages and, accordingly, shall be entitled to
an injunction (including without limitation, a temporary restraining order,
preliminary injunction, writ of attachment, or order compelling an audit)
against such breach or threatened breach, including without limitation,
maintaining the cash management and collection procedure described herein.
However, no specification in this Agreement of a specific legal or equitable
remedy shall be construed as a waiver or prohibition against any other legal or
equitable remedies in the event of a breach or threatened breach of any
provision of this Agreement.

                                       48
<PAGE>

SECTION 10. SPECIAL INTER-BORROWER PROVISIONS

      10.1. Certain BORROWER Acknowledgments and Agreements:

            (a) Each BORROWER acknowledges that it will enjoy significant
benefits from the business conducted by the other BORROWERS because of, inter
alia, their combined ability to bargain with other Persons including without
limitation their ability to receive the Total Facility and the Acquisition Term
Loan on favorable terms granted by this Agreement and other Loan Documents which
would not have been available to an individual BORROWER acting alone. Each
BORROWER has determined that it is in its best interest to procure the Total
Facility and the Acquisition Term Loan which each BORROWER may utilize directly
and which receive the credit support of the other BORROWERS as contemplated by
this Agreement and the other Loan Documents.

            (b) LENDER has advised BORROWERS that it is unwilling to enter into
this Agreement and the other Loan Documents and make available the Total
Facility and the Acquisition Term Loan extended hereby to any BORROWER unless
each BORROWER agrees, among other things, to be jointly and severally liable for
the due and proper payment of the Obligations of each other BORROWER under this
Agreement and other Loan Documents. Each BORROWER has determined that it is in
its best interest and in pursuit of its purposes that it so induce LENDER to
extend credit pursuant to this Agreement and the other documents executed in
connection herewith (i) because of the desirability to each BORROWER of the
Total Facility and the Acquisition Term Loan, the interest rates and the modes
of borrowing available hereunder, (ii) because each BORROWER may engage in
transactions jointly with other BORROWERS and (iii) because each BORROWER may
require, from time to time, access to funds under this Agreement for the
purposes herein set forth.

            (c) Each BORROWER has determined that it has and, after giving
effect to the transactions contemplated by this Agreement and the other Loan
Documents (including, without limitation, the inter-BORROWER arrangement set
forth in this Section 10.1), will have assets having a fair saleable value in
excess of the amount required to pay its probable liability on its existing
debts as they fall due for payment and that the sum of its debts is not and will
not then be greater than all of its Property at a fair valuation, that such
BORROWER has, and will have, access to adequate capital for the conduct of its
business and the ability to pay its debts from time to time incurred in
connection therewith as such debts mature and that the value of the benefits to
be derived by such BORROWER from the access to funds under this Agreement
(including, without limitation, the INTER-BORROWER arrangement set forth in this
Section 10.1) is reasonably equivalent to the obligations undertaken pursuant
hereto.

            (d) VistaCare, Inc. (on behalf of each BORROWER) shall maintain
records specifying (a) all Obligations incurred by each BORROWER, (b) the date
of such incurrence, (c) the date and amount of any payments made in respect of
such Obligations and (d) all inter-BORROWER obligations pursuant to this Section
10. VistaCare, Inc. shall make copies of such records available to LENDER, upon
request.

                                       49
<PAGE>

      10.2. Maximum Amount Of Joint and Several Liability: To the extent that
applicable law otherwise would render the full amount of the joint and several
obligations of any BORROWER hereunder and under the other Loan Documents invalid
or unenforceable, such BORROWER'S obligations hereunder and under the other Loan
Documents shall be limited to the maximum amount which does not result in such
invalidity or unenforceability, provided, however, that each BORROWER'S
obligations hereunder and under the other Loan Documents shall be presumptively
valid and enforceable to their fullest extent in accordance with the terms
hereof or thereof, as if this Section 10.2 were not a part of this Agreement.

      10.3. Authorization of VistaCare, Inc. by BORROWERS:

            (a) Each of BORROWERS hereby irrevocably authorizes VistaCare, Inc.
to give notices, make requests, make payments, receive payments and notices,
give receipts and execute agreements, make agreements or take any other action
whatever on behalf of such BORROWER under and with respect to any Loan Document
and each BORROWER shall be bound thereby. This authorization is coupled with an
interest and shall be irrevocable, and LENDER may rely on any notice, request,
information supplied by VistaCare, Inc., every document executed by VistaCare,
Inc., every agreement made by VistaCare, Inc. or other action taken by
VistaCare, Inc. in respect of BORROWERS or any thereof as if the same were
supplied, made or taken by any or all BORROWERS. Without limiting the generality
of the foregoing, the failure of one or more BORROWERS to join in the execution
of any writing in connection herewith shall not, unless the context clearly
requires, relieve any such BORROWER from obligations in respect of such writing.

            (b) BORROWERS acknowledge that the credit provided hereunder is on
terms more favorable than any BORROWER acting alone would receive and that each
BORROWER benefits directly and indirectly from all Advances hereunder. Each of
the other BORROWERS, shall be jointly and severally liable for all Obligations,
regardless of, inter alia, which BORROWER requested (or received the proceeds
of) a particular Advance.

                                       50
<PAGE>

ADDRESS FOR NOTICES TO BORROWERS:                BORROWERS:

4800 North Scottsdale Road, Suite 5000           VISTACARE, INC.
Scottsdale, AZ  85251
Attn: Mark Liebner, Chief Financial Officer      By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________

                                                 VISTA HOSPICE CARE, INC.

                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________

                                                 VISTACARE USA, INC.

                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________

                                                 FHI HEALTH SYSTEMS, INC.

                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________

                                                 FHI GP, INC.

                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________

                                SIGNATURE PAGE TO
             SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
                               FOR VISTACARE, INC.
<PAGE>

                                                 FHI LP, INC.

                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________

                                                 FAMILY HOSPICE, LTD.

                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________

                                                 FHI MANAGEMENT, LTD.

                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________

Address for notices:                             LENDER:
Healthcare Business Credit Corporation
305 Fellowship Road, Suite 300                   HEALTHCARE BUSINESS CREDIT
Mount Laurel, NJ 08054                            CORPORATION
Attn: Bernard J. Lajeunesse, President           By:____________________________
Fax:     856-727-5170                            Name:__________________________
                                                 Title:_________________________

                                SIGNATURE PAGE TO
             SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
                               FOR VISTACARE, INC.
<PAGE>

                                   SCHEDULE 1

                  Ineligible Obligors and Concentration Limits

<PAGE>

                                   SCHEDULE 2

Each BORROWER'S States of Qualifications (Section 5.1)

Chief Executive Office of each BORROWER (Section 5.2)

Places of Business/Other Names of each BORROWER (Section 5.2)

Provider Identification Numbers of each BORROWER (Section 5.3)

Pending Litigation for each BORROWER (Section 5.4)

Permitted Liens of each BORROWER (Section 5.6)

Fiscal Year End of each BORROWER (Section 5.9)

<PAGE>

Federal Tax I.D. Numbers of each BORROWER (Section 5.9)

Existing Guaranties, Investments and Borrowings of each BORROWER (Section 5.11)

Other Associations of each BORROWER (Section 5.13)

Environmental Matters of each BORROWER (Section 5.14)

Capital Stock and Equity Interests of each BORROWER (Section 5.15)<PAGE>
                                                                    EXHIBIT 10.1

                             DATED 23 DECEMBER 2004

                         GULF OFFSHORE N.S. LIMITED               (1)
                                  (AS BORROWER)

                           GULFMARK OFFSHORE INC.                 (2)
                                 (AS GUARANTOR)

             THE BANKS AND FINANCIAL INSTITUTIONS LISTED HEREIN   (3)
                                  (AS LENDERS)

                            NORDEA BANK NORGE ASA                 (4)
                                  (AS ARRANGER)

                                       AND

                  NORDEA BANK FINLAND PLC, NEW YORK BRANCH        (5)
                    (AS FACILITY AGENT AND SECURITY TRUSTEE)

                     ---------------------------------------
                         SENIOR SECURED REVOLVING CREDIT
                               FACILITY AGREEMENT
                                      FOR A
                           $50,000,000 CREDIT FACILITY

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

                                                              [NORTON ROSE LOGO]

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                                    CONTENTS

<TABLE>
<CAPTION>
CLAUSE                                                                                     PAGE
<S>                                                                                        <C>
1        Purpose and definitions........................................................    1
1.1      Purpose........................................................................    1
1.2      Definitions....................................................................    1
1.3      Headings.......................................................................   12
1.4      Construction of certain terms..................................................   12
1.5      Insurance terms................................................................   12
1.6      Accounting terms...............................................................   13
1.7      Agreed forms...................................................................   13
1.8      Majority Lenders...............................................................   13
2        The Facility...................................................................   13
2.1      Amount.........................................................................   13
2.2      Obligations several............................................................   13
2.3      Interests several..............................................................   14
3        Conditions.....................................................................   14
3.1      Documents and evidence.........................................................   14
3.2      General conditions precedent...................................................   14
3.3      Waiver of conditions precedent.................................................   14
3.4      Notification...................................................................   14
4        Advances.......................................................................   14
4.1      Drawdown.......................................................................   14
4.2      Amount.........................................................................   15
4.3      Termination of Commitments.....................................................   15
4.4      Application of proceeds........................................................   15
</TABLE>

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<TABLE>
<S>                                                                                        <C>
5        Interest and Interest Periods; alternative interest rates; Margin..............   15
5.1      Normal interest rate...........................................................   15
5.2      Selection of Interest Periods..................................................   15
5.3      Determination of Interest Periods applicable to the Outstandings...............   15
5.4      Interest for late payment......................................................   16
5.5      Notification of Interest Periods and interest rate.............................   16
5.6      Reference Bank quotations......................................................   16
5.7      Market disruption; non-availability............................................   16
5.8      Variable Margin................................................................   17
6        Repayment, prepayment and cancellation.........................................   17
6.1      Repayment......................................................................   17
6.2      Rollover of Advances...........................................................   17
6.3      Voluntary Prepayment...........................................................   18
6.4      Prepayment on Loss and sale, etc...............................................   18
6.5      Amounts payable on prepayment..................................................   19
6.6      Additional voluntary prepayment................................................   19
6.7      Notice of prepayment...........................................................   20
6.8      Currency amounts repayable.....................................................   20
6.9      Cancellation...................................................................   20
7        Commitment commission, fees and expenses.......................................   20
7.1      Fees...........................................................................   20
7.2      Expenses.......................................................................   21
7.3      Value Added Tax................................................................   21
7.4      Stamp and other duties.........................................................   21
</TABLE>

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<TABLE>
<S>                                                                                        <C>
8        Payments and taxes; accounts and calculations..................................   21
8.1      No set-off or counterclaim.....................................................   21
8.2      Payment by the Lenders.........................................................   21
8.3      Non-Banking Days...............................................................   22
8.4      Facility Agent may assume receipt..............................................   22
8.5      Calculations...................................................................   22
8.6      Certificates conclusive........................................................   22
8.7      Grossing-up for Taxes..........................................................   22
8.8      Claw-back of Tax benefit.......................................................   22
8.9      Bank accounts..................................................................   23
8.10     Partial payments...............................................................   23
9        Representations and warranties.................................................   23
9.1      Continuing representations and warranties......................................   23
9.2      Initial representations and warranties.........................................   26
9.3      Repetition of representations and warranties...................................   28
9.4      Confirmation of representation and warranties..................................   28
10       Undertakings...................................................................   28
10.1     General........................................................................   28
10.3     Vessel Substitution............................................................   31
10.4     Negative Undertakings..........................................................   31
10.5     Mortgaged Vessel covenants.....................................................   32
10.6     Financial Covenants of the Guarantor...........................................   41
11       Events of Default..............................................................   42
</TABLE>

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<TABLE>
<S>                                                                                        <C>
11.1     Events.........................................................................   42
11.2     Acceleration...................................................................   45
11.3     Demand basis...................................................................   45
11.4     No restriction on exercise of rights...........................................   45
12       INDEMNITIES....................................................................   45
12.1     MISCELLANEOUS INDEMNITIES......................................................   45
12.2     CURRENCY OF ACCOUNT; CURRENCY INDEMNITY........................................   46
12.3     ENVIRONMENTAL INDEMNITY........................................................   47
13       Unlawfulness and increased costs...............................................   47
13.1     Unlawfulness...................................................................   47
13.2     Increased costs................................................................   47
13.3     Exception......................................................................   48
14       Set-off, pro rata payments.....................................................   48
14.1     Set-off........................................................................   48
14.2     Pro rata payments..............................................................   49
14.3     No release.....................................................................   49
14.4     No charge......................................................................   49
15       Guarantee......................................................................   49
15.1     Guarantee......................................................................   49
15.2     GUARANTOR AS PRINCIPAL DEBTOR; INDEMNITY.......................................   50
15.3     Statements of account conclusive...............................................   50
15.4     Interest.......................................................................   50
15.5     Continuing guarantee...........................................................   50
15.6     Liability unconditional........................................................   50
</TABLE>

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<TABLE>
<S>                                                                                        <C>
15.7     Collateral Instruments.........................................................   51
15.8     Waiver of Guarantor's rights...................................................   51
15.9     Suspense accounts..............................................................   51
15.10    Settlements conditional........................................................   51
15.11    Guarantor to deliver up certain property.......................................   52
15.12    Changes in constitution or reorganisations of Creditors........................   52
16       Transfer and lending office....................................................   52
16.1     Benefit and burden.............................................................   52
16.2     No assignment by Borrower or Guarantor.........................................   52
16.3     Transfers......................................................................   52
16.4     Reliance on Transfer Certificate...............................................   53
16.5     Transfer fees and expenses.....................................................   54
16.6     Documenting transfers..........................................................   54
16.7     Sub-participation..............................................................   54
16.8     Lending office.................................................................   54
16.9     Disclosure of information......................................................   54
16.10    No additional costs............................................................   54
17       Facility Agent, Security Trustee and Reference Banks...........................   55
17.1     Appointment of the Facility Agent and the Security Trustee.....................   55
17.2     Reference Banks................................................................   55
18       Notices and other matters......................................................   55
18.1     Notices........................................................................   55
18.2     No implied waivers, remedies cumulative........................................   56
18.3     Further assurance..............................................................   56
</TABLE>

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<TABLE>
<S>                                                                                        <C>
18.4     Amendments and waivers.........................................................   56
18.5     Conflicts......................................................................   57
18.6     English language...............................................................   57
18.7     Contracts (Rights of Third Parties) Act 1999...................................   57
18.8     Money laundering...............................................................   57
19       Governing law and jurisdiction.................................................   57
19.1     Law............................................................................   57
19.2     Submission to jurisdiction.....................................................   57
Schedule 1 The Lenders and their Commitments............................................   58
Schedule 2 The Mortgaged Vessels........................................................   59
Schedule 3 Form of Drawdown Notice......................................................   60
Schedule 4 Documents and evidence required as conditions precedent......................   61
Schedule 5 Form of Transfer Certificate.................................................   66
Schedule 6 Certificate of Compliance....................................................   70
</TABLE>

<PAGE>

THIS AGREEMENT is dated 23 December 2004 and made BETWEEN:

(A)      GULF OFFSHORE N.S. LIMITED, as borrower (the "BORROWER");

(B)      GULFMARK OFFSHORE INC. as guarantor (the "GUARANTOR");

(C)      THE BANKS AND FINANCIAL INSTITUTIONS WHOSE NAMES AND ADDRESSES ARE SET
         OUT IN SCHEDULE 1, as lenders (together the "LENDERS" and each a
         "LENDER");

(D)      NORDEA BANK NORGE ASA, as arranger; and

(E)      NORDEA BANK FINLAND PLC, NEW YORK BRANCH, as facility agent and
         security trustee.

IT IS AGREED as follows:

1        PURPOSE AND DEFINITIONS

1.1      PURPOSE

         This Agreement sets out the terms and conditions upon and subject to
         which the Lenders agree to make available to the Borrower a facility of
         up to $50,000,000 to be used to finance the acquisition of offshore
         supply vessels and/or other related assets in the offshore support
         industry.

1.2      DEFINITIONS

         In this Agreement, unless the context otherwise requires:

         "ADVANCE" means each borrowing hereunder made by the Borrower;

         "AGENCY AGREEMENT" means the agency and trust agreement executed or (as
         the context may require) to be executed between the Arranger, the
         Facility Agent, the Security Trustee, the Lenders, the Borrower and the
         Guarantor in the agreed form;

         "ANNUAL FINANCIAL STATEMENTS" means annual consolidated financial
         statements of the Borrower and the annual consolidated financial
         statements of the Guarantor each comprising a profit and loss account
         and a balance sheet and cash flow statement and audited by the
         Auditors;

         "ANNUAL VALUATION DATE" means the date of this Agreement and each
         anniversary thereof during the Security Period;

         "APPROVED BROKERS" means, in relation to a Mortgaged Vessel, Aon Risk
         Services of Texas, Inc and/or such firm of international insurance
         brokers, appointed by the Borrower or the Guarantor, as may from time
         to time be approved in writing by the Facility Agent on behalf of the
         Majority Lenders for the purposes and in accordance with this
         Agreement;

         "APPROVED VALUER" means Fearnley Offshore AS, R.S. Platou Offshore AS
         and Seabrokers A.S. or such other firm of international offshore
         shipbrokers as may from time to time be approved in writing by the
         Facility Agent (acting reasonably) on behalf of the Majority Lenders
         for the purposes of and in accordance with this Agreement;

         "ARRANGER" means Nordea Bank Norge ASA acting through its office at
         Middelthuns gate 17, P.O. Box 1166, Sentrum, 0107 Oslo, Norway;

         "AUDITORS" means Messrs Ernst & Young or another firm of international
         accountants acceptable to the Facility Agent acting reasonably;

         "BANKING DAY" means a day (other than Saturday or Sunday) on which
         banks are open for business in London, Oslo and New York City;

         "BORROWED MONEY" means, without double-counting, Indebtedness in
         respect of:

         (a)      money borrowed or raised and debit balances at banks;

                                       1
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         (b)      any bond, note, loan stock, debenture or similar debt
                  instrument;

         (c)      acceptance or documentary credit facilities;

         (d)      receivables sold or discounted (otherwise than on a
                  non-recourse basis);

         (e)      deferred payments for assets or services acquired;

         (f)      the amount of any liability in respect of any lease or hire
                  purchase contract which constitutes a Capitalised Lease
                  Obligation;

         (g)      Derivatives Contracts;

         (h)      any counter-indemnity obligation in respect of a guarantee,
                  indemnity, bond, standby or documentary letter of credit or
                  any other instrument issued by a lender or financial
                  institution (other than customs bonds, bid bonds and
                  performance bonds);

         (i)      any other transaction (including without limitation forward
                  sale or purchase agreements) having the commercial effect of a
                  borrowing or raising of money or of any of (b) to (h) above;
                  and

         (j)      guarantees in respect of Indebtedness of any person falling
                  within any of (a) to (i) above;

         "BORROWER" means Gulf Offshore N.S. Limited and includes its successors
         in title;

         "BREAKAGE COSTS" shall have the meaning ascribed to it in clause 12.1;

         "CAPITALISED LEASE OBLIGATION" of any person means the obligation to
         pay rent or other payment amounts under a lease of (or other Borrowed
         Money arrangements conveying the right to use) real or personal
         property which is required to be classified and accounted for as a
         capitalised lease or a liability on the face of a balance sheet of such
         person in accordance with U.S. GAAP or the generally accepted
         accounting principles of any other Relevant Jurisdiction, as the case
         may be;

         "CASUALTY AMOUNT" means five hundred thousand Dollars ($500,000) (or
         the equivalent in any other currency);

         "CERTIFICATE OF COMPLIANCE" means a certificate to be issued by the
         Guarantor from time to time pursuant to clause 10.1.6 substantially in
         the form set out in Schedule 6;

         "CHARTERER" means Gulf Offshore Marine International, Inc. being the
         bareboat charterer of the Mortgaged Vessels, "HIGHLAND SCOUT" and
         "HIGHLAND GUIDE";

         "CLASSIFICATION" means, with respect of each Mortgaged Vessel, the
         classification specified in Schedule 2 or such other classification as
         the Majority Lenders shall, at the request of the Borrower or the
         Guarantor, have agreed in writing shall be treated as the
         Classification of that Mortgaged Vessel for the purposes of this
         Agreement and the other Security Documents;

         "CLASSIFICATION SOCIETY" means with respect to each Mortgaged Vessel,
         the classification society specified in Schedule 2 or such other
         classification society which the Majority Lenders shall, at the request
         of the Borrower or the Guarantor, have agreed in writing shall be
         treated as the classification society of that Mortgaged Vessel for the
         purposes of this Agreement and the Security Documents;

         "COLLATERAL DEED" means:

         (a)      in relation to a Mortgaged Vessel whose Flag State is the
                  United Kingdom, a deed of covenant in respect of such
                  Mortgaged Vessel executed or (as the context may require) to
                  be executed by the Borrower in favour of the Security Trustee
                  (for the benefit of the Creditors) in the agreed form;

         (b)      in relation to a Mortgaged Vessel whose Flag State is the
                  Republic of Panama, a general assignment of the Earnings,
                  Insurance and Requisition Compensation in respect of such
                  Mortgaged Vessel executed or (as the context may require) to
                  be executed by the Guarantor

                                       2
<PAGE>

                  and the Charterer in favour of the Security Trustee (for the
                  benefit of the Creditors) in the agreed form,

         and "COLLATERAL DEEDS" means all of such deeds of covenant and general
         assignments;

         "COLLATERAL INSTRUMENTS" means notes, bills of exchange, certificates
         of deposit and other negotiable and non-negotiable instruments,
         guarantees and any other documents or instruments which contain or
         evidence an obligation (with or without security) to pay, discharge or
         be responsible directly or indirectly for, any indebtedness or
         liabilities of the Borrower, the Guarantor or any other person liable
         and includes documents creating or evidencing Encumbrances;

         "COMMITMENT" means, in relation to each Lender, the amount set opposite
         its name in Schedule 1 and/or, in the case of a Transferee Lender, the
         amount novated as specified in the relevant Transfer Certificate, as
         reduced, by any prepayment under clause 6.4 or any cancellation
         pursuant to clause 6.9, so that, if at such time the Commitment has
         been reduced to zero, references to the Lenders' Commitment in relation
         thereto shall be construed as a reference to the Lenders' Commitment
         immediately prior to such reduction to zero;

         "COMPULSORY ACQUISITION" means requisition for title or other
         compulsory acquisition, requisition, appropriation, expropriation,
         deprivation, forfeiture or confiscation for any reason of any Mortgaged
         Vessel by any Government Entity or other competent authority, whether
         de jure or de facto, but shall exclude requisition for use or hire not
         involving requisition of title;

         "CONSENTS AND ACKNOWLEDGEMENTS" means all notices of assignment and
         acknowledgements thereof issued in connection with this Agreement and
         any of the other Security Documents;

         "CONSOLIDATED EBIT" means, with respect of the Guarantor on a
         consolidated basis calculated in accordance with U.S. GAAP, for any
         relevant period:

         (a)      the sum of the amounts for such period of:

                  (i)      consolidated net income;

                  (ii)     provisions for Taxes based on income;

                  (iii)    Consolidated Interest Expense;

                  (iv)     amortisation or write-off deferred financing costs to
                           the extent deducted in determining consolidated net
                           income; and

                  (v)      losses on sales of assets (excluding sales in the
                           ordinary course of business) and other extraordinary
                           losses;

         minus

         (b)      the sum of the amounts for such period of gains from the sale
                  of assets (excluding sales in the ordinary course of business)
                  and other extraordinary gains;

         "CONSOLIDATED EBITDA" means, with respect of the Guarantor on a
         consolidated basis calculated in accordance with U.S. GAAP, for any
         relevant period, the sum of the amounts for such period of:

         (a)      Consolidated EBIT;

         (b)      depreciation expense;

         (c)      amortisation expense; and

         (d)      non-transactional foreign exchange losses (gains);

         "CONSOLIDATED INTEREST EXPENSE" means, with respect to the Guarantor on
         a consolidated basis calculated in accordance with U.S. GAAP, for any
         relevant period, total interest expense (including that attributable to
         Capitalised Lease Obligations) as detailed under consolidated
         statements of

                                       3
<PAGE>

         operations and to include capitalised interest with respect to all
         outstanding Indebtedness of the Guarantor and its Subsidiaries,
         including, without limitation, all commissions, discounts and other
         fees and charges owed with respect to letters of credit and bankers'
         acceptance financing;

         "CONTROL" when used with respect to any person means either the
         ownership of more than 50 percent (or such other amount as may be
         specified) of the voting share capital (or equivalent rights of
         ownership) of such person or the power to direct the management and
         policies of such person, directly or indirectly, whether through the
         ownership of voting securities, by contract or otherwise, and the terms
         "CONTROL", "CONTROLLING" and "CONTROLLED" shall be construed
         accordingly;

         "CREDITORS" means the Lenders, the Arranger, the Facility Agent and the
         Security Trustee;

         "DEFAULT" means any Event of Default or any event or circumstance which
         with the giving of notice or lapse of time or the satisfaction of any
         other condition (or any combination thereof) would constitute an Event
         of Default;

         "DERIVATIVES CONTRACT" means a contract, agreement or transaction which
         is:

         (a)      a rate swap, basis swap, commodity swap, forward rate
                  transaction, commodity option, equity (or equity or other
                  index) swap or option, bond option, interest rate option,
                  foreign exchange transaction, cap, collar or floor, currency
                  swap, currency option or any other similar transaction; and/or

         (b)      any combination of such transactions,

         in each case, whether on-exchange or otherwise;

         "DISPOSAL REDUCTION DATE" means:

         (a)      where a Mortgaged Vessel has become a Total Loss, its Total
                  Loss Reduction Date; or

         (b)      where a Mortgaged Vessel is being sold in accordance with
                  clause 10.5.14 the date upon which the sale of such Mortgaged
                  Vessel is completed by the transfer of title to such Mortgaged
                  Vessel to the purchaser in exchange for payment of the
                  relevant purchase price;

         "DISPOSAL REPAYMENT AMOUNT" means in relation to a Disposal Reduction
         Date, the amount in Dollars, in relation to a Mortgaged Vessel which
         has become a Total Loss or is being sold, which is one hundred and
         fifteen percent (115%) of the Relevant Fraction of the Total
         Commitments as at the Disposal Reduction Date;

         "DOLLARS" and "$" mean the lawful currency of the United States of
         America and in respect of all payments to be made under this Agreement
         or any of the Security Documents mean funds which are for same day
         settlement in the New York Clearing House Interbank Payments System (or
         such other U.S. dollar funds as may at the relevant time be customary
         for the settlement of international banking transactions denominated in
         U.S. dollars);

         "DRAWDOWN DATE" means the date on which an Advance is, or is to be,
         drawn down;

         "DRAWDOWN NOTICE" means a notice substantially in the terms of Schedule
         3 duly completed by the Borrower with particulars of the relevant
         Advance;

         "DRAWDOWN PERIOD" means the period commencing on the date of this
         Agreement and ending on the date falling no later than one month before
         the Final Maturity Date;

         "EARNINGS" means, in relation to any Mortgaged Vessel, all moneys
         whatsoever from time to time due or payable to any person during the
         Security Period arising out of the use or operation of such Mortgaged
         Vessel including (but without limiting the generality of the foregoing)
         all freight, hire and passage moneys, or other agreement with any
         operator, income arising out of pooling arrangements, compensation
         payable to the Borrower or the Guarantor in the event of requisition of
         such Mortgaged Vessel for hire, remuneration for salvage or towage
         services, demurrage and detention moneys and damages for breach (or
         payments for variation or termination) of any charterparty or other
         contract for

                                       4
<PAGE>

         the employment of such Mortgaged Vessel and any sums recoverable under
         any loss of earnings insurance;

         "ENCUMBRANCE" means any mortgage, charge (whether fixed or floating),
         pledge, lien, hypothecation, assignment by way of security, trust
         arrangement for the purpose of providing security or other security
         interest of any kind securing any obligation of any person or any other
         arrangement having the effect of conferring rights of retention or
         set-off or other disposal rights over an asset (including without
         limitation title transfer and/or retention arrangements having a
         similar effect) and includes any agreement to create any of the
         foregoing;

         "ENVIRONMENTAL AFFILIATE" means any agent or employee of the Borrower
         or any other Relevant Party or any person having a contractual
         relationship with the Borrower or any other Relevant Party in
         connection with any Relevant Vessel or its operation or the carriage of
         cargo and/or passengers thereon and/or the provision of goods and/or
         services on or from the Relevant Vessel;

         "ENVIRONMENTAL APPROVAL" means any consent, authorisation, licence or
         approval of any governmental or public body or authorities or courts
         applicable to any Relevant Vessel or its operation or the carriage of
         cargo and/or passengers thereon and/or the provision of goods and/or
         services on or from the Relevant Vessel required under any
         Environmental Law;

         "ENVIRONMENTAL CLAIM" means any and all enforcement, clean-up, removal
         or other governmental or regulatory actions or orders instituted or
         completed pursuant to any Environmental Law or any Environmental
         Approval together with claims made by any third party relating to
         damage, contribution, loss or injury, resulting from any actual or
         threatened emission, Spill, release or discharge of a Pollutant from
         any Relevant Vessel;

         "ENVIRONMENTAL INCIDENT" means any Spill:

         (a)      from any Vessel; or

         (b)      from any other vessel in circumstances where:

                  (i)      any Vessel or its owner, operator or manager may be
                           liable for Environmental Claims arising from the
                           Spill (other than Environmental Claims arising and
                           fully satisfied before the date of this Agreement);
                           and/or

                  (ii)     any Vessel may be arrested or attached in connection
                           with any such Environmental Claims;

         "ENVIRONMENTAL LAWS" means all national, international and state laws,
         rules, regulations, treaties and conventions applicable to any Relevant
         Vessel pertaining to the pollution or protection of human health or the
         environment including, without limitation, the carriage of Pollutants
         and actual or threatened emissions, Spills, releases or discharges of
         Pollutants;

         "EVENT OF DEFAULT" means any of the events or circumstances described
         in clause 11.1;

         "FACILITY AGENT" means Nordea Bank Finland Plc acting through its New
         York branch at 437 Madison Avenue, New York, NY 10022, USA and includes
         its successors in title or such other person as may from time to time
         be appointed as Facility Agent for the Lenders pursuant to clause 2.17
         of the Agency Agreement;

         "FAIR MARKET VALUE" means, in relation to each Mortgaged Vessel at any
         relevant time, the value of such Mortgaged Vessel as determined in
         accordance with the valuation carried out in accordance with clause
         10.2.2;

         "FINAL MATURITY DATE" means the earlier of 31 January 2008 or three (3)
         calendar years from the first Drawdown Date;

         "FLAG STATE" means:

         (a)      the United Kingdom in the case of the Mortgaged Vessels
                  registered or to be registered in the United Kingdom;

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<PAGE>

         (b)      the Republic of Panama in the case of Mortgaged Vessels
                  registered or to be registered in the Republic of Panama;

         or such other state or territory as the Lenders may approve at the
         request of the Borrower, as being the "Flag State" of any of its
         Mortgaged Vessels for the purposes of this Agreement or any of the
         Security Documents;

         "FUNDED DEBT" means, with respect to the Guarantor and its
         Subsidiaries, on a consolidated basis calculated in accordance with
         U.S. GAAP, the sum of:

         (a)      Indebtedness for Borrowed Money which in accordance with U.S.
                  GAAP would be shown on the liability side of the balance
                  sheet; and

         (b)      all Indebtedness of a second person secured by any Encumbrance
                  on any property of the Guarantor, or any of its Subsidiaries,
                  whether or not such Indebtedness has been assumed;

         "GOVERNMENT ENTITY" means and includes (whether having a distinct legal
         personality or not) any national or local government authority, board,
         commission, department, division, organ, instrumentality, court or
         agency and any association, organisation or institution of which any of
         the foregoing is a member or to whose jurisdiction any of the foregoing
         is subject or in whose activities any of the foregoing is a
         participant;

         "GROUP" means the Guarantor and all of its Subsidiaries controlled by
         the Guarantor;

         "GUARANTEE" means the guarantee of the Guarantor contained at clause 15
         and includes each separate or independent stipulation or agreement by
         the Guarantor contained in this Agreement;

         "GUARANTEED LIABILITIES" means all moneys, obligations and liabilities
         expressed to be guaranteed by the Guarantor in clause 15.1; and

         "GUARANTOR" means GulfMark Offshore, Inc., a company incorporated in
         the State of Delaware in the United States, whose chief executive and
         corporate offices are in Houston, Texas and includes its successors in
         title;

         "INCAPACITY" means in relation to a person the insolvency, liquidation,
         dissolution, winding-up, administration, receivership, amalgamation,
         reconstruction or other incapacity of that person whatsoever;

         "INDEBTEDNESS" means any obligation for the payment or repayment of
         money, whether as principal or as surety and whether present or future,
         actual or contingent;

         "INSURANCES" means all policies and contracts of insurance (which
         expression includes all entries of the Mortgaged Vessels in a
         protection and indemnity or war risks association) which are from time
         to time during the Security Period in place or taken out or entered
         into by or for the benefit of, among others, the Borrower or the
         Guarantor, (whether in the sole name of the Borrower or the Guarantor,
         or in the joint names of the Security Trustee and the Borrower or the
         Guarantor or otherwise) in respect of each Mortgaged Vessel and her
         Earnings or otherwise howsoever in connection with such Mortgaged
         Vessels and all benefits thereof (including claims of whatsoever nature
         and return of premiums);

         "INTEREST PAYMENT DATE" means, subject to the provisions of clause
         5.1and clause 8.3, the last day of an Interest Period;

         "INTEREST PERIOD" means, in relation to any Advance or the
         Outstandings, each period for the calculation of interest in respect of
         the Outstandings ascertained in accordance with clauses 5.2and 5.3;

         "INTERMEDIATE VALUATION" has the meaning given at clause 10.2.2;

         "ISM CODE" means the International Safety Management Code for the Safe
         Operation of Ships and for Pollution Prevention constituted pursuant to
         Resolution A.741 (18) of the International Maritime

                                       6
<PAGE>

         Organisation and incorporated into the Safety of Life at Sea Convention
         and includes any amendments or extensions of it and any regulation
         issued pursuant to it;

         "ISPS CODE" means the International Ship and Port Facility Security
         Code constituted pursuant to Resolution A.924 (22) of the International
         Maritime Organisation and incorporated into the Safety of Life at Sea
         Convention and includes an amendments or extensions of it and any
         regulation issued pursuant to it;

         "LENDERS" means the banks and financial institutions listed in Schedule
         1 and includes their successors in title and permitted assignees and
         transferees;

         "LEVERAGE RATIO" means the Guarantor's ratio of Funded Debt to Total
         Capitalisation;

         "LIBOR" means, in relation to a particular period, the rate for
         deposits of the relevant currency for a period equivalent to such
         period at or about 11 a.m. (London time) on the Quotation Date for such
         period as displayed on Telerate page 3750 (British Bankers' Association
         Interest Settlement Rates) (or such other page as may replace such page
         3750 on such system or on any other system for the time being
         designated by the British Bankers' Association to calculate the BBA
         Interest Settlement Rate (as defined in the British Bankers'
         Association's Recommended Terms and Conditions dated August, 1985)),
         provided that if on such date no such rate is so displayed, LIBOR for
         such period shall be the arithmetic mean (rounded upward if necessary
         to five (5) decimal places) of the rates respectively quoted to the
         Facility Agent by each of the Reference Banks at the request of the
         Facility Agent as such Reference Bank's offered rate for deposits of
         the relevant currency in an amount approximately equal to the amount in
         relation to which LIBOR is to be determined for a period equivalent to
         such period to prime lenders in the London Interbank Market at or about
         11 a.m. (London time) on the Quotation Date for such period;

         "LOSS PAYABLE CLAUSES" shall have the meaning given thereto in each of
         the Collateral Deeds;

         "MAJORITY LENDERS" means at any relevant time Lenders the aggregate of
         whose Commitments at such time exceed sixty six and two thirds per cent
         (662/3%) of the Total Commitments or, if all of the Commitments have
         been reduced to zero at or prior to that time, Lenders the aggregate of
         whose Commitments immediately prior to that reduction exceeded sixty
         six and two thirds per cent (66 2/3%) of the Total Commitments at that
         time;

         "MARGIN" means the rates adjusted in accordance with the following
         table:

<TABLE>
<CAPTION>
                  TEST (N.B. BASED ON THE GUARANTOR)                    MARGIN
                  ----------------------------------                    ------
<S>                                                                     <C>
Leverage Ratio equal to or less than 0.50:1.00                           1.20%
Leverage  Ratio is equal to or less than 0.60:1.00 but
greater than 0.50:1.00                                                   1.30%

Leverage Ratio is greater than 0.60:1.00                                 1.50%
</TABLE>

         and as determined in accordance with clause 5.8;

         "MARGIN ADJUSTMENT DATE" means, with respect to each Margin
         Re-calculation Period, the last day of that period;

         "MARGIN RE-CALCULATION PERIOD" means each period of ten (10) days
         commencing sixty (60) days after each Quarterly Financial Statements
         Preparation Date;

         "MATERIAL ADVERSE EFFECT" means the effect of any event or circumstance
         or series of events or circumstances which in the reasonable opinion of
         the Majority Lenders is likely to have a material adverse effect on:

         (a)      the business, conditions (financial or otherwise), property,
                  performance, prospects or results of operation of the person
                  concerned; or

                                       7
<PAGE>

         (b)      the ability of the person concerned to comply with any of its
                  material obligations under this Agreement or any Security
                  Document to which it is a party; or

         (c)      the legality, validity or enforceability of this Agreement or
                  any Security Document or the rights or remedies of any
                  Creditors thereunder.

         "MONTH" or "MONTHS" means a period beginning in one calendar month and
         ending in the next calendar month on the day numerically corresponding
         to the day of the calendar month on which it started, provided that:

         (a)      if the period started on the last Banking Day in a calendar
                  month or if there is no such numerically corresponding day, it
                  shall end on the last Banking Day in such next calendar month;
                  and

         (b)      if such numerically corresponding day is not a Banking Day,
                  the period shall end on the next following Banking Day in the
                  same calendar month but if there is no such Banking Day it
                  shall end on the preceding Banking Day and "MONTHS" and
                  "MONTHLY" shall be construed accordingly;

         "MORTGAGE" means in relation to a Vessel, a first priority or first
         preferred mortgage of such Vessel executed (or as the context may
         require) to be executed by the Borrower or the Guarantor in favour of
         the Security Trustee (for the benefit of the Creditors) in the agreed
         form and "MORTGAGES" means all of such mortgages;

         "MORTGAGED VESSEL" means, at any relevant time, those Vessels listed in
         Schedule 2 and any other vessel substituted in accordance with clause
         10.3 which become subject to a Mortgage and/or the Earnings, Insurances
         and Requisition Compensation of which are subject to an Encumbrance
         pursuant to the relevant Mortgage or Collateral Deed in relation
         thereto and for the purposes of this Agreement a Vessel shall be deemed
         to be a Mortgaged Vessel as from the date that the Mortgage of that
         Vessel shall have been executed and registered in accordance with this
         Agreement until whichever shall be the earlier of (A) the due
         performance by the Borrower or the Guarantor of all its obligations
         under clause 6.4 following the sale or Total Loss of such Mortgaged
         Vessel as the case may be and (B) the end of the Security Period;

        "NET PROCEEDS FROM EQUITY OFFERINGS" means, in the case of the Guarantor
        and its Subsidiaries, the proceeds (after deducting the Guarantor's
        reasonable costs and expenses and any commissions, fees and other
        expenses due in connection therewith) received by the Guarantor or any
        of its Subsidiaries from any issue of corporate stock, shares, bonds,
        notes, debentures or other securities;

         "NET SALE PROCEEDS" means, in relation to a Mortgaged Vessel, the sale
         price of such Mortgaged Vessel received by the Borrower or the
         Guarantor (after deducting the Borrower's or the Guarantor's reasonable
         costs and out-of-pocket expenses incurred in connection with such sale
         including reasonable and proper costs of drydocking the relevant
         Mortgaged Vessel and carrying out any repairs on such Mortgaged Vessel
         for the purposes of complying with its obligations under the relevant
         sale agreement);

         "NET WORTH" means, with respect to the Guarantor and its Subsidiaries,
         on a consolidated basis determined in accordance with U.S. GAAP, its
         shareholder equity (excluding treasury stock and cumulative
         translation);

         "NOTES" means the Guarantor's 7.75% Senior Notes due July 15, 2014
         issued pursuant to the Indenture dated July 21, 2004 for an amount of
         $160,000,000 between the Guarantor and U.S. Bank National Association
         or any exchange notes exchanged therefor;

         "OUTSTANDINGS" means the portion of the Total Commitments advanced or
         to be advanced (as the context requires) by the Lenders to the Borrower
         pursuant to and in accordance with this Agreement;

         "PERMITTED CHARTER" means the bareboat charters made between the
         Guarantor and the Charterer in respect of the Mortgaged Vessels
         "HIGHLAND GUIDE" and "HIGHLAND SCOUT";

         "PERMITTED ENCUMBRANCE" means:

                                       8
<PAGE>

         (a)      any Encumbrance in favour of the Lenders created pursuant to
                  this Agreement and any of the other Security Documents;

         (b)      any lien on any Mortgaged Vessel for master's, officer's or
                  crew's wages outstanding in the ordinary course of trading,
                  any lien for salvage and any ship repairer's or outfitter's
                  possessory lien for a sum in each case not (except with the
                  prior written consent of the Facility Agent) exceeding the
                  Casualty Amount; and

         (c)      any lien arising by operation of law or otherwise in the
                  ordinary course of business permitted under this Agreement and
                  any of the other Security Documents to which the Borrower is a
                  party, provided such liens do not secure amounts more than
                  thirty (30) days overdue;

         (d)      any other Encumbrance created after the date of this Agreement
                  with the prior written consent of the Lenders; and

         (e)      any Purchase Money Mortgage created after the date of this
                  Agreement;

         "POLLUTANT" means and includes oil and its products, any other
         polluting, toxic or hazardous substance and any other substance whose
         release into the environment is regulated or penalised by Environmental
         Laws;

         "PURCHASE MONEY MORTGAGE" means an Encumbrance on or against any assets
         or documents of title thereto securing a Purchase Money Obligation for
         such assets, provided that any Encumbrance given in respect of a
         Purchase Money Obligation shall not extend to any asset or documents of
         title thereto other than:

         (a)      the asset acquired with the proceeds giving rise to the
                  creation or assumption of that Purchase Money Obligation
                  (including any earnings or other receivables derived from that
                  asset and its insurance or any other compensation for or
                  relating to its loss, damage, or any other matter whatsoever);
                  and

         (b)      fixed or structural improvements or modifications, if any,
                  made to, erected or constructed on that asset;

         "PURCHASE MONEY OBLIGATIONS" means any Indebtedness created or assumed
         as part of the non-recourse project financing of the purchase price of
         real or tangible property and any extension, renewals or refinancing of
         such Indebtedness;

         "QUARTERLY FINANCIAL STATEMENTS" means quarterly consolidated financial
         statements of the Guarantor prepared as at each Quarterly Financial
         Statements Preparation Date comprising a profit and loss account and a
         balance sheet;

         "QUARTERLY FINANCIAL STATEMENTS PREPARATION DATE" means 31 March, 30
         June, 30 September and 31 December in each year (or three, six, nine
         and twelve months after the commencement of the Guarantor's accounting
         period should its accounting reference date be changed);

         "QUOTATION DATE" means, in relation to an Interest Period or other
         period for which LIBOR is to be determined, the date (which shall not
         in any event be less than two (2) Banking Days before the commencement
         of any such Interest Period or other period) on which quotations would
         customarily be provided by leading banks in the London or other
         relevant Interbank Market for deposits in the relevant currency for
         delivery on the first day of that Interest Period or other period;

         "REFERENCE BANKS" means the New York branch of Nordea Bank Finland Plc
         and/or any other Lender appointed as such pursuant to the Agency
         Agreement;

         "REGISTRY" means, in relation to each Mortgaged Vessel, such registrar,
         commissioner or representative of the relevant Flag State who is duly
         authorised and empowered to register the Relevant Vessel, the
         Borrower's or the Guarantor's title to such Mortgaged Vessel, and the
         relevant Mortgages under the laws and flag of the relevant Flag State;

         "RELATED COMPANY" of a person means any Subsidiary of such person, any
         company or other entity of which such person is a Subsidiary and any
         Subsidiary of any such company or entity;

                                       9
<PAGE>

         "RELEVANT FRACTION" shall mean a fraction whose numerator is the Fair
         Market Value of the relevant Mortgaged Vessel in the case of a
         Mortgaged Vessel that has suffered a Total Loss or is being sold
         (prevailing immediately before the Total Loss or sale) and whose
         denominator is the aggregate of the Fair Market Values of all the
         Mortgaged Vessels (including such Mortgaged Vessel) at the relevant
         date;

         "RELEVANT INSURED AMOUNT" means, in relation to a Mortgaged Vessel as
         at any relevant date, an amount in Dollars equal to the Relevant
         Fraction as at such date;

         "RELEVANT JURISDICTION" means any jurisdiction in which or where any
         Security Party is incorporated, resident, domiciled, has a permanent
         establishment, carries on, or has a place of business or is otherwise
         effectively connected;

         "RELEVANT PARTY" means each Security Party and any Security Party's
         Related Companies;

         "RELEVANT VESSEL" means any Mortgaged Vessel or any other vessel from
         time to time (whether before or after the date of this Agreement)
         owned, managed or crewed by, or chartered to, any Relevant Party;

         "REQUISITION COMPENSATION" means in relation to each Mortgaged Vessel
         all sums of money or other compensation from time to time payable
         during the Security Period by reason of the Compulsory Acquisition of
         such Mortgaged Vessel;

         "SEC" means the U.S. Securities and Exchange Commission or any
         successor governmental body or agency;

         "SECURITY DOCUMENTS" means this Agreement, the Agency Agreement, the
         Mortgages, the Collateral Deeds, all Consents and Acknowledgements, and
         any other documents as may have been or shall from time to time after
         the date of this Agreement be executed to guarantee and/or secure all
         or any part of the Outstandings, interest thereon and other moneys from
         time to time owing by the Borrower pursuant to this Agreement (whether
         or not any such document also secures moneys from time to time owing
         pursuant to any other document or agreement);

         "SECURITY PARTY" means the Borrower, the Guarantor, the Charterer and
         any of the Guarantor's Subsidiaries which may at any time be a party to
         this Agreement and/or any of the other Security Documents;

         "SECURITY PERIOD" means the period commencing on the date of this
         Agreement and so long as all or any part of the Outstandings or the
         Commitments, interest thereon or any other moneys are owing, actually
         or contingently, under this Agreement and/or any of the other Security
         Documents remain outstanding;

         "SECURITY REQUIREMENT" means the amount in Dollars (as certified by the
         Facility Agent whose certificate shall, in the absence of manifest
         error, be conclusive and binding on the Borrower and the Facility
         Agent) which is at any relevant time no less than one hundred and forty
         percent (140%) of the aggregate of the Outstandings;

         "SECURITY TRUSTEE" means Nordea Bank Finland Plc acting through its New
         York branch at 437 Madison Avenue, New York, NY 10022, USA and includes
         its successors in title or such other person as may from time to time
         be appointed as Security Trustee and trustee for the Lenders and the
         Creditors pursuant to clause 2.18 of the Agency Agreement;

         "SECURITY VALUE" means the amount in Dollars (as certified in good
         faith by the Facility Agent whose certificate shall, in the absence of
         manifest error, be conclusive and binding on the Borrower and the
         Facility Agent) which, at any relevant time, is the aggregate of the
         Fair Market Value of the Mortgaged Vessels,

         (a)      all as most recently determined in accordance with clause
                  10.2.2; and

         (b)      the Fair Market Value of any additional security for the time
                  being actually provided by the Borrower or any Security Party
                  to the Security Trustee pursuant to clause 10.2.1(b);

                                       10
<PAGE>

         "SEMI-ANNUAL VALUATION DATE" means each day falling six (6) months
         after the immediately preceding Annual Valuation Date;

         "SPILL" means any actual or threatened emission, spill, release or
         discharge of a Pollutant into the environment;

         "SUBSIDIARY" means

         (a)      in the case of the Borrower, a subsidiary within the meaning
                  of section 736 of the Companies Act 1985; and

         (b)      in the case of the Guarantor, any business entity of which
                  more than fifty percent (50%) of the voting stock or other
                  equity interest is owned directly or indirectly by the
                  Guarantor and/or one or more other Subsidiary of the
                  Guarantor;

         "TAXES" includes all present and future taxes, levies, imposts, duties,
         fees or charges of whatever nature together with interest thereon and
         penalties in respect thereof and "TAXATION" shall be construed
         accordingly;

         "TOTAL COMMITMENTS" means at any relevant time the total of the
         Commitments of all the Lenders at such time;

         "TOTAL LOSS" means:

         (a)      the actual, constructive, compromised or arranged total loss
                  of any Mortgaged Vessel; or

         (b)      the Compulsory Acquisition of any Mortgaged Vessel; or

         (c)      the hijacking, theft, condemnation, capture, seizure, arrest,
                  detention or confiscation of any Mortgaged Vessel (other than
                  where the same amounts to the Compulsory Acquisition of any
                  Mortgaged Vessel) by any Government Entity, or by persons
                  acting or purporting to act on behalf of any Government
                  Entity, unless any Mortgaged Vessel be released and restored
                  to the Borrower from such hijacking, theft, condemnation,
                  capture, seizure, arrest, detention or confiscation within
                  ninety (90) days or such other time agreed in writing by the
                  Facility Agent after the occurrence thereof;

         "TOTAL LOSS REDUCTION DATE" means, in relation to a Mortgaged Vessel,
         the date which is the earlier of:

         (a)      the date one hundred and twenty (120) days after such
                  Mortgaged Vessel became a Total Loss or such later date as may
                  be agreed in writing by the Facility Agent (acting on the
                  instructions of the Majority Lenders) if they are satisfied
                  that the relevant Mortgaged Vessel was properly insured at the
                  time of such Total Loss and that insurance proceeds in respect
                  of such Total Loss will be recovered in amounts sufficient to
                  enable the Borrower to comply with its prepayment obligations
                  under clause 6.4 of this Agreement arising as a consequence of
                  such Total Loss and will be applied in accordance with this
                  Agreement and any of the other Security Documents by the later
                  date so agreed; and

         (b)      the date upon which insurance proceeds or Requisition
                  Compensation in respect of such Total Loss are received by the
                  Borrower (or the Security Trustee as the Borrower's assignee
                  pursuant to the relevant Collateral Deed),

         provided always that in the case of clause 6.4.4(b) the Total Loss
         Reduction Date shall not in any event be later than 180 days from the
         date on which notice of abandonment of the Mortgaged Vessel was given
         to the insurers and in the case of clause 6.4.4(c) the Total Loss
         Reduction Date shall not in any event be later than 180 days after the
         first date on which discussions were commenced with the insurers
         regarding the basis on which the compromised or arranged total loss
         would be settled;

         "TRANSFER CERTIFICATE" means a transfer certificate for the purposes of
         clause 16 substantially in the form set out in Schedule 5 (or such
         other form as the Facility Agent may approve or require);

         "TRANSFEREE LENDER" has the meaning ascribed thereto in clause 16.3;

                                       11
<PAGE>

         "UNITED STATES" or "U.S." means the United States of America;

         "U.S. GAAP" means generally accepted accounting principles in the
         United States;

         "VALUATION DATE" means an Annual Valuation Date and/or a Semi-Annual
         Valuation Date as the context shall require; and

         "VESSELS" means the Mortgaged Vessels or any of them as the context
         shall require.

1.3      HEADINGS

         Clause headings and the table of contents are inserted for convenience
         of reference only and shall be ignored in the interpretation of this
         Agreement.

1.4      CONSTRUCTION OF CERTAIN TERMS

         In this Agreement, unless specified otherwise or the context otherwise
         requires:

1.4.1        references to clauses and Schedules are to be construed as
             references to clauses of, and Schedules to, this Agreement and
             references to this Agreement include its Schedules;

1.4.2        references to (or to any specified provision of) this Agreement or
             any other document shall be construed as references to this
             Agreement, that provision or that document as in force for the time
             being and as amended in accordance with terms thereof, or, as the
             case may be, with the agreement of the relevant parties and (where
             such consent is, by the terms of this Agreement or the relevant
             document, required to be obtained as a condition to such amendment
             being permitted) the prior written consent of the Facility Agent;

1.4.3        references to a "REGULATION" include any present or future
             regulation, rule, directive, requirement, request or guideline
             (whether or not having the force of law) of any agency, authority,
             central bank or government department or any self-regulatory or
             other national or supra-national authority;

1.4.4        words importing the plural shall include the singular and vice
             versa;

1.4.5        references to a time of day are to London time;

1.4.6        references to a "PERSON" shall be construed as references to an
             individual, firm, company, corporation, unincorporated body of
             persons or any Government Entity;

1.4.7        references to "ASSETS" include all or part of any business,
             undertaking, real property, personal property, uncalled capital and
             any rights (whether actual or contingent, present or future) to
             receive, or require delivery of, any of the foregoing;

1.4.8        references to a "GUARANTEE" include references to an indemnity or
             other assurance against financial loss including, without
             limitation, an obligation to purchase assets or services as a
             consequence of a default by any other person to pay any
             Indebtedness and "guaranteed" shall be construed accordingly;

1.4.9        references to the "EQUIVALENT" of an amount specified in a
             particular currency (the "SPECIFIED CURRENCY AMOUNT") shall be
             construed as a reference to the amount of the other relevant
             currency which can be purchased with the specified currency amount
             in the London foreign exchange market at or about 11 a.m. on the
             day on which the calculation falls to be made for spot delivery as
             determined by the Facility Agent; and

1.4.10       references to any enactment shall be deemed to include references
             to such enactment as re-enacted, amended or extended.

1.5      INSURANCE TERMS

         In clause 10.5.1:

                                       12
<PAGE>

1.5.1        "EXCESS RISKS" means the proportion (if any) of claims for general
             average salvage and salvage charges and under the ordinary
             collision clause not recoverable in consequence of the value at
             which a Mortgaged Vessel is assessed for the purpose of such claims
             exceeding her insured value;

1.5.2        "PROTECTION AND INDEMNITY RISKS" means the usual risks (including
             oil pollution) covered by a United Kingdom protection and indemnity
             association or a protection and indemnity association which is
             managed in the United Kingdom or Norway (including, without
             limitation, the proportion (if any) of any sums payable to any
             other person or persons in case of collision which are not
             recoverable under the hull and machinery policies by reason of the
             incorporation therein of Clause 8 of the Institute Time Clauses
             (Hulls) (1/11/95) or the Institute Amended Running Down Clause
             (1/10/71) or any equivalent provision) or (if placed on Norwegian
             terms) means protection and indemnity risks as defined in the
             Norwegian Marine Insurance Plan of 1996 as amended ; and

1.5.3        "WAR RISKS" includes those risks covered by the standard form of
             English marine policy with Institute War and Strikes Clauses - time
             (1/11/95) attached or similar cover or (if placed on Norwegian
             terms means the war risks described in the Norwegian Marine
             Insurance Plan of 1966 as amended).

1.6      ACCOUNTING TERMS

         All accounting terms not otherwise defined in this Agreement shall have
         the meanings assigned to them in accordance with U.S. GAAP (whether or
         not such is indicated in this Agreement).

1.7      AGREED FORMS

         In this Agreement, any document expressed to be "IN THE AGREED FORM"
         means a document in a form agreed by (and for the purposes of
         identification signed by or on behalf of) the Borrower and the Facility
         Agent (acting on the instructions of the Lenders) or (in the case of
         any of the other Security Documents) a document in the form actually
         executed by both the relevant Security Party or relevant Security
         Parties and the Security Trustee.

1.8      MAJORITY LENDERS

         Where this Agreement provides for any matter to be determined by
         reference to the opinion of the Majority Lenders or the Lenders or to
         be subject to the consent or request of the Majority Lenders or the
         Lenders or for any action to be taken on the instructions of the
         Majority Lenders or the Lenders, such opinion, consent, request or
         instructions shall (as between the Lenders) only be regarded as having
         been validly given or issued by the Majority Lenders or the Lenders (as
         the case may be) if all the Lenders shall have received prior notice of
         the matter on which such opinion, consent, request or instructions are
         required to be obtained and the relevant majority of Lenders or all the
         Lenders (as the case may be) shall have given or issued such opinion,
         consent, request or instructions but so that (as between the Borrower
         and the Lenders) the Borrower shall be entitled (and bound) to assume
         that such notice shall have been duly received by each Lender and that
         the relevant majority shall have been obtained to constitute Majority
         Lenders or the Lenders (as the case may be) whether or not this is in
         fact the case.

2        THE FACILITY

2.1      AMOUNT

2.1.1    The Lenders, relying upon each of the representations and warranties in
         clause 9, agree to lend to the Borrower and upon and subject to the
         terms of this Agreement the Total Commitment.

2.1.2    The obligation of each Lender under this Agreement shall be to
         contribute that proportion of each Advance which, as at the Drawdown
         Date of such Advance, its Commitment bears to the aggregate amount of
         the Total Commitments.

2.2      OBLIGATIONS SEVERAL

         The obligations of each Lender under this Agreement are several; the
         failure of any Lender to perform such obligations shall not relieve any
         other Lender, the Arranger, the Facility Agent or the Borrower of any
         of their respective obligations or liabilities under this Agreement nor
         shall the Facility Agent or the
                                       13
<PAGE>

         Arranger be responsible for the obligations of any Lender (except for
         its own obligations, if any, as a Lender) nor shall any Lender be
         responsible for the obligations of any other Lender under this
         Agreement.

2.3      INTERESTS SEVERAL

         Notwithstanding any other term of this Agreement (but without prejudice
         to the provisions of this Agreement relating to or requiring action by
         the Majority Lenders or all the Lenders (as the case may be)) the
         interests of the Facility Agent, the Arranger and the Lenders are
         several and the amount due to the Facility Agent (for its own account)
         and to the Arranger and to each Lender is a separate and independent
         debt. The Facility Agent, the Arranger and (subject always to the
         provisions of the Agency Agreement) each Lender shall have the right to
         protect and enforce its rights arising out of this Agreement and it
         shall not be necessary for the Facility Agent, the Arranger or any
         Lender (as the case may be) to be joined as an additional party in any
         proceedings for this purpose.

3        CONDITIONS

3.1      DOCUMENTS AND EVIDENCE

         The obligation of each Lender to make its Commitment available shall be
         subject to the condition that the Facility Agent, or its duly
         authorised representative, shall have received:

3.1.1        on the date of this Agreement (or such later date as the Lenders
             may agree in accordance with clause 3.3 but in any event no later
             than four (4) Banking Days before the day on which the first
             Drawdown Notice is given) the documents and evidence specified in
             part 1 of Schedule 4;

3.1.2        not later than four (4) Banking Days before the day on which the
             Drawdown Notice in respect of the first Advance is given, (or such
             later date as the relevant Lenders may agree in accordance with
             clause 3.3) the documents and evidence specified in part 2 of
             Schedule 4;

         in each case in form and substance satisfactory to the Facility Agent.

3.2      GENERAL CONDITIONS PRECEDENT

         The obligation of each Lender to contribute to any Advance is subject
         to the further conditions that at the date of each Drawdown Notice and
         on each Drawdown Date:

3.2.1        the representations and warranties set out in clause 9.1 (and so
             that the representation and warranty in clause 9.1.1 shall for this
             purpose refer to the then latest audited financial statements
             delivered to the Facility Agent under clause 10.1.5) are true and
             correct on and as of each such date as if each were made with
             respect to the facts and circumstances existing at such date; and

3.2.2        no Default shall have occurred and be continuing or would result
             from the making of such Advance.

3.3      WAIVER OF CONDITIONS PRECEDENT

         The conditions specified in this clause 3 are inserted solely for the
         benefit of the Lenders and may be waived on their behalf in whole or in
         part and with or without conditions by the Facility Agent acting on the
         instructions of all the Lenders without prejudicing the right of the
         Facility Agent (acting on such instructions) to require fulfilment of
         such conditions in whole or in part in respect of any other Advance.

3.4      NOTIFICATION

         The Facility Agent shall notify the Lenders and the Borrower promptly
         after receipt by it of the documents and evidence referred to in clause
         3.1 in form and substance satisfactory to it.

4        ADVANCES

4.1      DRAWDOWN

         Subject to the terms and conditions of this Agreement an Advance shall
         be made available to the Borrower during the Drawdown Period following
         receipt by the Facility Agent from the Borrower of a

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         Drawdown Notice not later than 11 a.m. on the third (3rd) Banking Day
         before the proposed Drawdown Date. A Drawdown Notice shall be effective
         on actual receipt by the Facility Agent, and, once given, shall,
         subject as provided in clause 5.7, be irrevocable.

4.2      AMOUNT

4.2.1    The aggregate amount of each Advance shall be a minimum of two million
         Dollars ($2,000,000) or the balance of the Commitments.

4.2.2    No more than six (6) Advances shall be outstanding at the same time.

4.2.3    The aggregate amount of all Advances drawn but unpaid at any time shall
         not exceed the Total Commitments at such time.

4.3      TERMINATION OF COMMITMENTS

         Any part of the Commitments undrawn and uncancelled at the end of the
         Drawdown Period shall thereupon be automatically reduced to zero.

4.4      APPLICATION OF PROCEEDS

         Without prejudice to the Borrower's obligations under clause 1.1, none
         of the Lenders, the Arranger or the Facility Agent shall have any
         responsibility for the application of the proceeds of any Advance by
         the Borrower.

5        INTEREST AND INTEREST PERIODS; ALTERNATIVE INTEREST RATES; MARGIN

5.1      NORMAL INTEREST RATE

         The Borrower shall pay interest on each Advance or, as the case may be,
         the Outstandings in respect of each Interest Period on the relevant
         Interest Payment Date (or, in the case of Interest Periods of more than
         three (3) months, by instalments, every three (3) months from the
         commencement of the Interest Period and on the relevant Interest
         Payment Date) at the rate per annum determined by the Facility Agent to
         be the aggregate of:

5.1.1        the Margin; and

5.1.2        LIBOR.

5.2      SELECTION OF INTEREST PERIODS

         With respect to the Outstandings the Borrower may by notice received by
         the Facility Agent not later than 11 a.m. on the third (3rd) Banking
         Day before the beginning of each Interest Period or (as appropriate) in
         a Drawdown Notice, select a duration of one (1), three (3) or six (6)
         months (or such longer period as the Majority Lenders may agree with
         the Borrower) for such Interest Period provided that the Borrower shall
         not be entitled to select a period of one (1) month more than three (3)
         times in any period of twelve (12) months.

5.3      DETERMINATION OF INTEREST PERIODS APPLICABLE TO THE OUTSTANDINGS

         Each Interest Period applicable to the Advances shall be of the
         duration selected by the Borrower in accordance with clause 5.2 but so
         that:

5.3.1        the initial Interest Period in respect of each Advance (or, as the
             case may be, the Outstandings) as the case may be, shall commence
             on the relevant Drawdown Date and each subsequent Interest Period
             in respect of such Advance (or, as the case may be, Outstandings)
             shall commence on the expiry of the previous Interest Period;

5.3.2        the initial Interest Period in respect of each Advance after the
             first Advance shall end on the same day as the then current
             Interest Period of the previous Advance;

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<PAGE>

5.3.3        if the Borrower fails to select the duration of an Interest Period
             for any Advance in accordance with the provisions of clause 5.2 and
             this clause 5.3 such Interest Period shall, subject to the other
             provisions of this clause 5.3, have a duration of three (3) months.

5.4      INTEREST FOR LATE PAYMENT

5.4.1        If the Borrower fails to pay any sum (including, without
             limitation, any sum payable pursuant to this clause 5.4) on its due
             date for payment under this Agreement the Borrower shall pay
             interest on such sum from the due date up to the date of actual
             payment (as well after as before judgment) at a rate determined by
             the Facility Agent pursuant to this clause 5.4.

5.4.2        The period  beginning  on such due date and ending on such date of
             payment shall be divided into successive periods of not more than
             three (3) months as selected by the Facility Agent (after
             consultation with the Lenders so far as reasonably practicable in
             the circumstances) each of which (other than the first, which shall
             commence on such due date) shall commence on the last day of the
             preceding such period. The rate of interest applicable to each such
             period shall be the aggregate (as determined by the Facility Agent)
             of (a) two percent (2%) per annum, (b) the Margin, and (c) LIBOR,
             unless such unpaid sum is an amount of principal which shall have
             become due and payable, by reason of a declaration by the Facility
             Agent under clause 11.2.1 or a prepayment pursuant to clauses 6.4,
             6.6 or 13.1, prior to the next succeeding Interest Payment Date
             relating thereto, in which case the first such period selected by
             the Facility Agent shall end on such Interest Payment Date and
             interest shall be payable on such unpaid sum during such period at
             a rate two percent (2%) above the rate applicable thereto
             immediately before it shall have become so due and payable.

5.4.3        Interest under this clause 5.4 shall be due and payable on the last
             day of each period determined by the Facility Agent pursuant to
             this clause 5.4 or, if earlier, on the date on which the sum in
             respect of which such interest is accruing shall actually be paid.
             If, for the reasons specified in clause 5.7.1 or 5.7.2, the
             Facility Agent is unable to determine a rate in accordance with the
             foregoing provisions of this clause 5.4, each Lender shall promptly
             notify the Facility Agent of the cost of funds to such Lender and
             interest on any sum not paid on its due date for payment shall be
             calculated for each Lender at a rate determined by the Facility
             Agent to be two percent (2%) per annum above the aggregate of the
             Margin and the cost of funds to such Lender.

5.5      NOTIFICATION OF INTEREST PERIODS AND INTEREST RATE

         The Facility Agent shall notify the Borrower and the Lenders promptly
         of the duration of each Interest Period or other period for the
         calculation of interest (or, as the case may be, default interest) and
         of each rate of interest determined by either of them under this clause
         5.

5.6      REFERENCE BANK QUOTATIONS

         If any Reference Bank is unable or otherwise fails to furnish a
         quotation for the purpose of calculating LIBOR (where such a quotation
         is required having regard to the definition of LIBOR in clause 1.2) the
         interest rate for the relevant Interest Period shall be determined,
         subject to clause 5.7, on the basis of the quotations furnished by the
         remaining Reference Banks.

5.7      MARKET DISRUPTION; NON-AVAILABILITY

5.7.1    If and whenever, at any time prior to the commencement of any Interest
         Period:

         (a)      at a time when Reference Bank quotations are required for
                  LIBOR the Facility Agent shall have determined in good faith,
                  after consultation with the Reference Banks (which
                  determination shall, in the absence of manifest error, be
                  conclusive), that adequate and fair means do not exist for
                  ascertaining LIBOR during such Interest Period; or

         (b)      none or only one of the Reference Banks supplies the Facility
                  Agent with a quotation for the purpose of calculating LIBOR
                  (where such a quotation is required having regard to the
                  definition of LIBOR in clause 1.2); or

         (c)      the Facility Agent shall have received notification from the
                  Lenders with Commitments aggregating not less than one-third
                  of the Outstandings (or, prior to the first Drawdown Date,

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<PAGE>

                  Commitments aggregating not less than one-third of the
                  Commitments) that deposits in Dollars are not available to the
                  Lenders in the London or other relevant Interbank Market (as
                  the case may be) in the ordinary course of business in
                  sufficient amounts to fund their Commitments for such Interest
                  Period or that LIBOR does not accurately reflect the cost to
                  such Lenders of obtaining such deposits,

         the Facility Agent shall forthwith give notice (a "DETERMINATION
         NOTICE") to the Borrower and to each of the Lenders. A Determination
         Notice shall contain particulars of the relevant circumstances giving
         rise to its issue. After the giving of any Determination Notice the
         undrawn amount of the Commitments shall not be borrowed until notice to
         the contrary is given to the Borrower by the Facility Agent.

5.7.2    During the period of ten (10) days after any Determination Notice has
         been given by the Facility Agent under clause 5.7.1 each Lender shall
         certify an alternative basis (the "SUBSTITUTE BASIS") for making
         available or, as the case may be, maintaining its Commitment. The
         Substitute Basis may (without limitation) include alternative interest
         periods, alternative currencies or alternative rates of interest but
         shall include a margin above the cost of funds including Additional
         Cost, if any, to such Lender equivalent to the relevant Margin. Each
         Substitute Basis so certified shall be binding upon the Borrower and
         shall take effect in accordance with its terms from the date specified
         in the Determination Notice until such time as the Facility Agent
         notifies the Borrower that none of the circumstances specified in
         clause 5.7.1 continues to exist whereupon the normal interest rate
         fixing provisions of this Agreement shall apply.

5.8      VARIABLE MARGIN

5.8.1    During each Margin Re-Calculation Period the Facility Agent shall
         review the Leverage Ratio (as at the relevant Quarterly Financial
         Statements Preparation Date) (for the purpose of this clause 5.8 the
         "PREVAILING RATIO") based on the calculations contained in the relevant
         Certificate of Compliance accompanying the Quarterly Financial
         Statements. If, after reviewing the calculations contained in any
         Certificate of Compliance, the Facility Agent is of the opinion that
         the Certificate of Compliance does not accurately determine the
         Prevailing Ratio, the Facility Agent shall notify the Borrower in
         writing and the parties shall in good faith endeavour to resolve the
         error in calculation or difference of opinion (as the case may be)
         prior to the expiry of the Margin Re-Calculation Period. If the
         Facility Agent and the Borrower fail to reach agreement as aforesaid
         the Facility Agent shall in good faith determine the Prevailing Ratio.

5.8.2    The Facility Agent shall notify the Borrower and the Lenders in writing
         before the expiry of the Margin Re-Calculation Period of the Prevailing
         Ratio and whether or not the Prevailing Ratio would result in a change
         of the Margin in accordance with the table set out in the definition of
         such Margin in clause 1.2.

5.8.3    Any adjustment in the Margin as a result of clauses 5.8.1 and 5.8.2
         shall take effect on and with effect from the relevant Margin
         Adjustment Date and apply to all of the Advances as at such date until
         further adjusted under the provisions of this clause 5.8 and the
         Facility Agent's notice referred to in clause 5.8.2) shall include a
         statement setting out the re-calculated interest due with respect to
         each such Advance.

6        REPAYMENT, PREPAYMENT AND CANCELLATION

6.1      REPAYMENT

         The Borrower shall repay any Advances on the last day of the Interest
         Period relating to such Advance.

6.2      ROLLOVER OF ADVANCES

         6.2.1 This clause 6.2 applies if an Advance is to be drawn on a day
         when another Advance is due to be repaid.

6.2.2    The maturing Advance will be deemed to be repaid on the last day of the
         Interest Period relating to such Advance either in whole (if the new
         Advance is equal to or greater than the maturing Advance) or in part
         (if the new Advance is less than the maturing Advance).

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<PAGE>

6.2.3    To the extent that the maturing Advance is deemed to be repaid under
         clause 6.2.2, the principal amount of the new Advance will be deemed to
         be credited to the account of the Borrower by the Facility Agent on
         behalf of the Lenders.

6.2.4    If the new Advance is less than the maturing Advance, the Borrower will
         repay the difference.

6.2.5    If the new Advance is greater than the maturing Advance, the Lenders
         will make the difference available to the Borrower.

6.3      VOLUNTARY PREPAYMENT

         The Borrower may prepay its relevant Outstandings or any relevant
         Advance in whole or part (being not less than $1,000,000 in any case
         calculated in accordance with clause 6.8) on any Interest Payment Date
         relating to the part of such Outstandings or Advance to be repaid.
         Amounts prepaid pursuant to this clause 6.3 may be re-borrowed subject
         always to clause 4.1 and clause 6.1.

6.4      PREPAYMENT ON LOSS AND SALE, ETC.

6.4.1    REDUCTION OF COMMITMENT

         If:

             (a)      a Mortgaged Vessel becomes a Total Loss; or

             (b)      a Mortgaged Vessel is sold,

         the Commitments shall be reduced on the applicable Disposal Reduction
         Date by the relevant Disposal Repayment Amount. If, upon reduction of
         the Commitments by such Disposal Repayment Amount, the Outstandings at
         such time exceed the Commitments as thereby reduced, the Borrower shall
         on such Disposal Reduction Date prepay such amount of the Outstandings
         or any Advance as will ensure that immediately thereafter the
         Outstandings will not exceed the Commitments as so reduced.

6.4.2    VALUATION OF MORTGAGED VESSELS

         For the purposes of this clause 6.4 and to determine the Relevant
         Fraction of the Commitments, the Mortgaged Vessels shall be valued in
         accordance with clause 10.2.2 at the cost of the Borrower save that, in
         the case of the sale of such a Mortgaged Vessel, the value of such
         Mortgaged Vessel shall, for the purposes of this clause, be deemed to
         be the Net Sale Proceeds of such Mortgaged Vessel or, if higher and if
         the purchaser is a Subsidiary of the Borrower or the Guarantor, the
         value of such Mortgaged Vessel as determined in accordance with clause
         10.2.2.

6.4.3    VALUATION CONCLUSIVE AND COSTS

         The values determined in accordance with clause 6.4.2 shall be binding
         upon the parties hereto for the purposes of determining the Disposal
         Reduction Amount for a Disposal Reduction Date and all costs in
         connection with the Facility Agent obtaining any valuation for such
         purpose shall be borne by the Borrower.

6.4.4    DATE OF TOTAL LOSS

         For the purpose of this Agreement, a Total Loss shall be deemed to have
         occurred:

         (a)      in the case of an actual total loss of a Mortgaged Vessel on
                  the actual date and at the time such Mortgaged Vessel was lost
                  or, if such date is not known, on the date on which such
                  Mortgaged Vessel was last reported;

         (b)      in the case of a constructive total loss of a Mortgaged
                  Vessel, upon the date and at the time notice of abandonment of
                  such Mortgaged Vessel is given to the insurers of such
                  Mortgaged Vessel for the time being (provided a claim for
                  total loss is admitted by such insurers) or, if such insurers
                  do not forthwith admit such a claim, at the date and at the
                  time at which either a total loss is subsequently admitted by
                  the insurers or a total loss is subsequently adjudged by

                                       18
<PAGE>

                  a competent court of law or arbitration panel to have occurred
                  or, if earlier, the date falling six (6) months after notice
                  of abandonment of such Mortgaged Vessel was given to the
                  insurers;

         (c)      in the case of a compromised or arranged total loss, on the
                  date upon which a binding agreement as to such compromised or
                  arranged total loss has been entered into by the insurers of
                  the relevant Mortgaged Vessel;

         (d)      in the case of Compulsory Acquisition of a Mortgaged Vessel,
                  on the date upon which the Compulsory Acquisition of such
                  Mortgaged Vessel occurs; and

         (e)      in the case of hijacking, theft, condemnation, capture,
                  seizure, arrest, detention or confiscation of a Mortgaged
                  Vessel (other than where the same amounts to Compulsory
                  Acquisition of such Mortgaged Vessel) by any Government
                  Entity, or by persons purporting to act on behalf of any
                  Government Entity, which deprives the owner of the Mortgaged
                  Vessel of the use of such Mortgaged Vessel for more than
                  ninety (90) days, upon the expiry of the period of ninety (90)
                  days after the date upon which the relevant hijacking, theft,
                  condemnation, capture, seizure, arrest, detention or
                  confiscation occurred or such other longer period as agreed by
                  the Facility Agent on behalf of the Majority Lenders.

6.4.5    APPLICATION OF TOTAL LOSS AND SALE PROCEEDS

         Default has occurred and is continuing and provided the Borrower shall
         have complied with clauses 6.4 and 6.5, any of the following moneys:

         (a)      insurance moneys or Requisition Compensation in respect of a
                  Total Loss of a Mortgaged Vessel; or

         (b)      any proceeds of sale of a Mortgaged Vessel,

         received by the Facility Agent or the Security Trustee pursuant to any
         Security Document shall be paid to the Borrower or the Guarantor or (if
         and to the extent necessary to ensure compliance with clause 6.4)
         retained by the Facility Agent for application in or towards making any
         prepayment and paying any other moneys required under clauses 6.4and
         6.5. For this purpose, any such moneys so received (or the relevant
         part thereof) shall be applied, in effecting any prepayment required in
         accordance with clause and paying related amounts due under clause 6.5.

6.5      AMOUNTS PAYABLE ON PREPAYMENT

         Any prepayment of all or part of the Outstandings under this Agreement
         shall be made together with:

6.5.1    accrued interest on the amount to be prepaid to the date of such
         prepayment;

6.5.2    any additional amount payable under clause 8.7 or 13.2; and

6.5.3        all others sums payable by the Borrower to the Creditors under this
             Agreement or any of the other Security Documents including, without
             limitation, any accrued commitment commission payable under clause
             7.1.2 and any amounts payable under clause 12.

6.6      ADDITIONAL VOLUNTARY PREPAYMENT

         The Borrower may also prepay (in whole but not in part only), without
         premium or penalty, but without prejudice to its obligations under
         clauses 5.7, 8.7 and 13.2:

6.6.1        the Outstandings of any Lender to which the Borrower shall have
             become obliged to pay additional amounts under clauses 8.7 or 13.2;
             or

6.6.2        any Lender's Outstandings to which a Substitute Basis applies by
             virtue of clause 5.7.2.

         Upon any notice of such prepayment being given, the Commitment of the
         relevant Lender shall be reduced to zero and for the avoidance of
         doubt, any amount prepaid under this clause 6.6 shall be applied in
         reducing the Reduction Amounts proportionately amongst the Lenders.

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<PAGE>

6.7      NOTICE OF PREPAYMENT

6.7.1    No prepayment may be effected under clause 6.3 unless the Borrower
         shall have given the Facility Agent at least three (3) Banking Days'
         notice of its intention to make such prepayment. Every notice of
         prepayment shall be effective only on actual receipt by the Facility
         Agent, shall be irrevocable, shall specify the amount to be prepaid and
         shall oblige the Borrower to make such prepayment on the date
         specified.

6.7.2    Any amount prepaid pursuant to clauses 6.4, 6.6or 10.2.1(a) or
         cancelled pursuant to clause 6.9 shall be applied in reducing the
         Advances under clause 6.1 in inverse order of their due dates for
         payment/reduction. The Borrower may not prepay the Outstandings or any
         part thereof save as expressly provided in this Agreement.

6.8      CURRENCY AMOUNTS REPAYABLE

         Each repayment or prepayment of any Advance under this Agreement shall
         be made in Dollars.

6.9      CANCELLATION

         The Borrower may at any time during the Drawdown Period by notice to
         the Facility Agent (effective only on actual receipt) cancel with
         effect from a date not less than ten (10) days after the receipt by the
         Facility Agent of such notice the whole or any part (being not less
         than one million Dollars ($1,000,000) or, if less, the balance) of the
         Commitments which has not then been borrowed or requested by the
         Borrower in a Drawdown Notice. Any such notice of cancellation, once
         given, shall be irrevocable and upon such cancellation taking effect
         the Commitment of each Lender shall be reduced proportionately amongst
         the Lenders. No amount cancelled under this clause 6.9 may be made
         available for borrowing or re-borrowing.

7        COMMITMENT COMMISSION, FEES AND EXPENSES

7.1      FEES

         The Borrower shall pay to the Facility Agent:

7.1.1        ARRANGEMENT FEE

             for the account of the Arranger an arrangement fee of an amount
             agreed between the Borrower and the Arranger in a separate letter
             and such amount shall be paid on or before the first Drawdown Date;

7.1.2        COMMITMENT COMMISSION

             on the dates falling at three (3) monthly intervals from the date
             of this Agreement and for so long as any Commitments remain
             available for drawing until the date of cancellation in full of the
             Commitments, for the account of each Lender, commitment commission
             computed from the date of this Agreement at the percentage rate per
             annum on the amount of the daily undrawn and uncancelled amount of
             the Commitment which is equal to fifty per cent (50%) of the Margin
             applicable during each such period of calculation of commitment
             commission; and

7.1.3        AGENCY FEE

             an agency fee for the account of the Facility Agent in the amount
             agreed between the Borrower and the Facility Agent in a separate
             letter payable on the date of the first Transfer Certificate and
             then in advance on each anniversary of such date until the end of
             the Security Period.

         The fees referred to in clause 7.1.1 shall be payable by the Borrower
         to the Facility Agent whether or not any part of the relevant
         Commitment is ever advanced.

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<PAGE>

7.2      EXPENSES

         The Borrower shall pay to the Facility Agent on a full indemnity basis
         on demand all reasonable expenses (including legal, printing and
         out-of-pocket expenses) properly incurred by any of the Creditors:

7.2.1        in connection with due diligence, the negotiation, preparation,
             closing and, where relevant, registration of this Agreement and the
             other Security Documents, and of any amendment or extension of or
             the granting of any waiver or consent under, this Agreement or any
             of the other Security Documents; and

7.2.2        in contemplation of, or otherwise in connection with, the
             enforcement of, or maintenance and preservation of any rights
             under, any of this Agreement and the Security Documents, or
             otherwise in respect of the moneys owing under this Agreement and
             any of the Security Documents,

         together with interest at the rate referred to in clause 5.4 from the
         date on which such expenses were invoiced to or otherwise demanded in
         writing from the Borrower to the date of payment (as well after as
         before judgment).

7.3      VALUE ADDED TAX

         All fees and expenses payable pursuant to this clause 7 shall be paid
         together with value added tax or any similar tax (if any) properly
         chargeable thereon. Any value added tax chargeable in respect of any
         services supplied by any Creditor under this Agreement shall, on
         delivery of the value added tax invoice, be paid in addition to any sum
         agreed to be paid hereunder.

7.4      STAMP AND OTHER DUTIES

         The Borrower shall pay all stamp, documentary, registration or other
         like duties or Taxes (including any duties or Taxes payable by the
         Creditors) imposed on or in connection with this Agreement, the other
         Security Documents or the Outstandings and shall indemnify the
         Creditors against any liability arising by reason of any delay or
         omission by the Borrower to pay such duties or Taxes.

8        PAYMENTS AND TAXES; ACCOUNTS AND CALCULATIONS

8.1      NO SET-OFF OR COUNTERCLAIM

         The Borrower acknowledges that in performing their respective
         obligations under this Agreement the Lenders will be incurring
         liabilities to third parties in relation to the funding of amounts to
         the Borrower, such liabilities matching the liabilities of the Borrower
         to the Lenders and that it is reasonable for the Lenders to be entitled
         to receive payments from the Borrower gross on the due date in order
         that the Lenders are put in a position to perform their matching
         obligations to the relevant third parties. Accordingly, all payments to
         be made by the Borrower under this Agreement or any of the Security
         Documents shall be made in full, without any set-off or counterclaim
         whatsoever and, subject as provided in clause 8.7, free and clear of
         any deductions or withholdings, in Dollars (except for costs, charges
         or expenses which shall, at the request of the Facility Agent, be
         payable in the currency in which they are incurred) on the due date to
         the Facility Agent for the account of each Lender to such account as
         the Facility Agent may from time to time specify for this purpose. Save
         where this Agreement specifically provides for a payment to be made for
         the account of a particular Lender (including, without limitation,
         clauses 5.1, 6.3, 6.6, 6.8, 7.2, 8.7, 12.1,12.2, 12.3, 13.1 and 13.2)
         in which case the Facility Agent shall distribute the relevant payment
         to the Lender concerned, payments to be made by the Borrower under this
         Agreement shall be for the account of all the Lenders and the Facility
         Agent shall forthwith distribute such payments in like funds as are
         received by the Facility Agent to the Lenders rateably in accordance
         with their Commitments.

8.2      PAYMENT BY THE LENDERS

         All sums to be advanced by the Lenders to the Borrower under this
         Agreement shall be remitted in Dollars in the case of the drawdown of
         an Advance, on the Drawdown Date to the account of the Facility Agent
         at such bank as the Facility Agent may have notified to the Lenders and
         shall be paid by the Facility Agent on such date in the funds as are
         received by the Facility Agent to the account of the Borrower specified
         in the relevant Drawdown Notice.

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<PAGE>

8.3      NON-BANKING DAYS

         When any payment under this Agreement or any of the other Security
         Documents would otherwise be due on a day which is not a Banking Day,
         the due date for payment shall be extended to the next following
         Banking Day unless such Banking Day falls in the next calendar month in
         which case payment shall be made on the immediately preceding Banking
         Day.

8.4      FACILITY AGENT MAY ASSUME RECEIPT

         Where any sum is to be paid under this Agreement to the Facility Agent
         for the account of another person, the Facility Agent may assume that
         the payment will be made when due and may (but shall not be obliged to)
         make such sum available to the person so entitled. If it proves to be
         the case that such payment was not made to the Facility Agent, then the
         person to whom such sum was so made available shall on request refund
         such sum to the Facility Agent together with interest thereon
         sufficient to compensate the Facility Agent for the cost of making
         available such sum up to the date of such repayment and the person by
         whom such sum was payable shall indemnify the Facility Agent for any
         and all loss or expense which the Facility Agent may sustain or incur
         as a consequence of such sum not having been paid on its due date.

8.5      CALCULATIONS

         All payments of interest in respect of an Advance shall be made in the
         currency in which the Advance is outstanding at the relevant time. All
         interest and other payments of an annual nature under this Agreement or
         any of the other Security Documents shall accrue from day to day and be
         calculated on the basis of actual days elapsed and a 360 day year.

8.6      CERTIFICATES CONCLUSIVE

         Any certificate or determination of the Facility Agent as to any rate
         of interest, rate of exchange or any other amount pursuant to and for
         the purposes of this Agreement or any of the other Security Documents
         shall be issued or given in good faith and, in the absence of manifest
         error, be conclusive and binding on the Borrower.

8.7      GROSSING-UP FOR TAXES

         If at any time the Borrower is required to make any deduction or
         withholding in respect of Taxes from any payment due under this
         Agreement or any of the other Security Documents for the account of any
         Lender, the Arranger or the Facility Agent (or if the Facility Agent is
         required to make any such deduction or withholding from a payment to
         the Arranger or a Lender), the sum due from the Borrower in respect of
         such payment shall be increased to the extent necessary to ensure that,
         after the making of such deduction or withholding, each Lender, the
         Arranger and the Facility Agent receives on the due date for such
         payment (and retains, free from any liability in respect of such
         deduction or withholding), a net sum equal to the sum which it would
         have received had no such deduction or withholding been required to be
         made and the Borrower shall indemnify each Lender against any losses or
         costs incurred by it by reason of any failure of the Borrower to make
         any such deduction or withholding or by reason of any increased payment
         not being made on the due date for such payment. The Borrower shall
         promptly deliver to the Facility Agent any receipts, certificates or
         other proof evidencing the amounts (if any) paid or payable in respect
         of any deduction or withholding as aforesaid.

8.8      CLAW-BACK OF TAX BENEFIT

         If, following any such deduction or withholding as is referred to in
         clause 8.7 from any payment by the Borrower, any Lender shall receive
         or be granted a credit against or remission for any Taxes payable by
         it, the relevant Lender shall, subject to the Borrower having made any
         increased payment in accordance with clause 8.7 and to the extent that
         the relevant Lender can do so without prejudicing the retention of the
         amount of such credit or remission and without prejudice to the right
         of the relevant Lender to obtain any other relief or allowance which
         may be available to it, reimburse the Borrower with such amount as the
         relevant Lender shall in good faith in its absolute discretion certify
         to be the proportion of such credit or remission as will leave the
         relevant Lender (after such reimbursement) in no better or worse
         position than it would have been in had there been no such deduction or
         withholding from the payment by the Borrower as aforesaid. Such
         reimbursement shall be made

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<PAGE>

         forthwith upon the relevant Lender certifying that the amount of such
         credit or remission has been received by it. Nothing contained in this
         Agreement shall oblige the relevant Lender to rearrange its tax affairs
         or to disclose any information regarding its tax affairs and
         computations. Without prejudice to the generality of the foregoing, the
         Borrower shall not, by virtue of this clause 8.8, be entitled to
         enquire about the relevant Lender's tax affairs.

8.9      BANK ACCOUNTS

         Each Lender shall maintain, in accordance with its usual practices, an
         account or accounts evidencing the amounts from time to time lent by,
         owing to and paid to it under this Agreement. The Facility Agent shall
         maintain a control account showing each Advance and other sums owing by
         the Borrower under this Agreement and all payments in respect thereof
         made by the Borrower from time to time. The control account shall, in
         the absence of manifest error, be conclusive as to the amount from time
         to time owing by the Borrower under this Agreement.

8.10     PARTIAL PAYMENTS

         If, on any date on which a payment is due to be made by the Borrower
         under this Agreement and/or any of the other Security Documents, the
         amount received by the Facility Agent from the Borrower falls short of
         the total amount of the payment due to be made by the Borrower on such
         date then, without prejudice to any rights or remedies available to the
         Facility Agent and the Lenders under this Agreement and/or any of the
         other Security Documents, the Facility Agent shall apply the amount
         actually received from the Borrower in or towards discharge of the
         obligations of the Borrower under this Agreement in the following
         order, notwithstanding any appropriation made, or purported to be made,
         by the Borrower:

8.10.1       firstly, in or towards payment, on a pro rata basis, of any unpaid
             fees, costs and expenses of the Facility Agent, the Arranger, the
             Lenders (including any portion of the arrangement fee payable under
             clause 7.1.1 which remains unpaid) and the Security Trustee under
             this Agreement and/or the Security Documents;

8.10.2       secondly, in or towards payment to the Lenders, on a pro rata
             basis, of any accrued commitment commission payable under clause
             7.1.2 which shall have become due but remains unpaid;

8.10.3       thirdly, in or towards payment to the Lenders, on a pro rata basis,
             of any accrued interest which shall have become due but remains
             unpaid;

8.10.4       fourthly, in or towards payment to the Lenders, on a pro rata
             basis, of any principal which shall have become due but remains
             unpaid; and

8.10.5       fifthly, in or towards payment of any other sum which shall have
             become due but remains unpaid (and, if more than one such sum so
             remains unpaid, on a pro rata basis).

         The order of application set out in clauses 8.10.1 to 8.10.5 shall be
         varied by the Facility Agent if all the Lenders so direct, without any
         reference to, or consent or approval from, the Borrower; but once the
         order of application has been so varied the Facility Agent shall notify
         the Borrower of that fact.

9        REPRESENTATIONS AND WARRANTIES

9.1      CONTINUING REPRESENTATIONS AND WARRANTIES

         The Borrower and the Guarantor represents and warrants to the Creditors
         that:

9.1.1        DUE INCORPORATION

             it is duly incorporated and validly existing in good standing under
             the laws of its country of incorporation, in the case of the
             Borrower, as a limited liability company and, in the case of the
             Guarantor, as a corporation, and has power to carry on its business
             as it is now being conducted and to own its property and other
             assets; the Borrower does not have a chief executive office in the
             United States;

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<PAGE>

9.1.2        CORPORATE POWER

             it has power to execute, deliver and perform its obligations under
             this Agreement and the other Security Documents to which it is a
             party and, in the case of the Borrower, to borrow the relevant
             Commitment; all necessary corporate, shareholder and other action
             has been taken to authorise the execution, delivery and performance
             of the same and no limitation on the powers of the Borrower to
             borrow will be exceeded as a result of borrowing the relevant
             Outstandings;

9.1.3        BINDING OBLIGATIONS

             this Agreement and the other Security Documents to which it is a
             party constitute or will, when executed, constitute valid and
             legally binding obligations of the Borrower and the Guarantor
             enforceable by the Security Trustee (for the benefit of the
             Lenders) in accordance with their respective terms save as may be
             subject to applicable bankruptcy, insolvency, moratorium or other
             laws for the protection of debtors and creditors generally, and to
             the principles of equity;

9.1.4        NO CONFLICT WITH OTHER OBLIGATIONS

             the execution and delivery of, the performance of its obligations
             under, and compliance with the provisions of, this Agreement and
             the Security Documents to which it is a party will not :

             (a)  contravene any existing applicable law, statute, rule or
                  regulation or any judgment, decree or permit to which the
                  Borrower or the Guarantor is subject;

             (b)  conflict with, or result in any breach of any of the terms of,
                  or constitute a default under, any agreement or other
                  instrument to which the Borrower or the Guarantor is a party
                  or is subject or by which it or any of its property is bound;

             (c)  contravene or conflict with any provision of the
                  constitutional documents or other organisational documents of
                  the Borrower or the Guarantor; or

             (d)  result in the creation or imposition of or oblige the Borrower
                  or the Guarantor to create any Encumbrance (other than a
                  Permitted Encumbrance) on any of the undertakings, assets,
                  rights or revenues of the Borrower or the Guarantor;

9.1.5        NO LITIGATION

             save as disclosed to the Facility Agent in writing on or before the
             date of this Agreement, no litigation, arbitration or
             administrative proceeding is taking place, pending or, to the
             knowledge of the officers of the Borrower or the Guarantor,
             threatened against the Borrower or the Guarantor which is likely to
             have a Material Adverse Effect on the Borrower or the Guarantor;

9.1.6        NO FILINGS REQUIRED

             save for the registration of each of the Mortgages with the
             relevant Registry under the laws of the relevant Flag State it is
             not necessary to ensure the legality, validity, enforceability or
             admissibility in evidence of this Agreement or any of the other
             Security Documents nor that they or any other instrument be
             notarised, filed, recorded, registered or enrolled in any court,
             public office or elsewhere in any Relevant Jurisdiction or that any
             stamp, registration or similar tax or charge be paid in any
             Relevant Jurisdiction on or in relation to this Agreement or the
             Security Documents and each of this Agreement and the Security
             Documents is in proper form for its enforcement in the courts of
             each Relevant Jurisdiction;

9.1.7        CHOICE OF LAW

             the choice of English law by the Borrower and the Guarantor to
             govern this Agreement, and the other Security Documents to which it
             is a party (other than those Mortgages relating to Mortgaged
             Vessels not registered in the United Kingdom) and the submissions
             by the Borrower and each Guarantor to the jurisdiction of the
             English courts is valid and binding;

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<PAGE>

9.1.8        NO IMMUNITY

             neither the Borrower, 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 judgement, execution
             or other enforcement);

9.1.9        FINANCIAL STATEMENTS CORRECT AND COMPLETE

             the Annual Financial Statements of the Borrower and the Guarantor
             in respect of the financial year ended on 31st December 2003 as
             delivered to the Facility Agent have been prepared in accordance
             with U.S. GAAP (and, in the case of the Borrower, the generally
             accepted accounting principles of the jurisdiction in which it is
             incorporated) and present fairly and accurately the financial
             position of the Guarantor and the consolidated financial position
             of the Guarantor and its Related Companies as at such date and the
             results of the operations of the Guarantor and the consolidated
             results of the operations of the Guarantor and its Related
             Companies for the financial year ended on such date and, as at such
             date, the Guarantor nor any of the Guarantor's Related Companies
             had any significant liabilities (contingent or otherwise) or any
             unrealised or anticipated losses which are not disclosed by, or
             reserved against or provided for in, such financial statements in
             respect of the period to which the financial statements relate;

9.1.10       CONSENTS OBTAINED

             every consent, authorisation, licence or approval of, or
             registration with or declaration to, governmental or public bodies
             or authorities or courts required by the Borrower or the Guarantor
             to authorise, or required by the Borrower in connection with, the
             execution, delivery, validity, enforceability or admissibility in
             evidence of this Agreement and each of the other Security Documents
             or the performance by the Borrower or the Guarantor of its
             obligations under this Agreement and the other Security Documents
             to which it is a party has been obtained or made and is in full
             force and effect and there has been no default in the observance of
             any of the conditions or restrictions (if any) imposed in, or in
             connection with, any of the same;

9.1.11       NO DEFAULT

             no Default has occurred and is continuing;

9.1.12       COMPLIANCE WITH ENVIRONMENTAL LAWS AND APPROVALS

             except as may already have been disclosed by the Borrower or the
             Guarantor in writing to, and acknowledged in writing by, the
             Facility Agent:

             (a)  the Borrower and the Guarantor and the other Relevant Parties
                  and their respective Environmental Affiliates have complied in
                  all material respects with the provisions of all applicable
                  Environmental Laws;

             (b)  the Borrower and the Guarantor and the other Relevant Parties
                  and their respective Environmental Affiliates have obtained
                  all necessary Environmental Approvals and are in compliance in
                  all material respects with all such Environmental Approvals;

             (c)  the Borrower or the Guarantor or any other Relevant Party or
                  any of their respective Environmental Affiliates has received
                  notice of any Environmental Claim that the Borrower, the
                  Guarantor or any other Relevant Party or any such
                  Environmental Affiliate is not in compliance in any material
                  respect with any Environmental Law or any Environmental
                  Approval; and

             (d)  there has been no Environmental Incident;

9.1.13       NO ENVIRONMENTAL CLAIMS

             except as may already have been disclosed by the Borrower or the
             Guarantor in writing to, and acknowledged in writing by, the
             Facility Agent there is no Environmental Claim pending or, to the
             best of the Borrowers' or the Guarantor's knowledge and belief,
             threatened against:

             (a)  the Borrower, the Guarantor or any Mortgaged Vessel; or

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<PAGE>

             (b)  (having made due enquiry) any other Relevant Party or any
                  other Relevant Vessel or any of their respective Environmental
                  Affiliates which the Borrower or the Guarantor reasonably
                  believes could be determined by the Majority Lenders as having
                  a Material Adverse Effect on the Borrower or the Guarantor;

9.1.14       NO POTENTIAL ENVIRONMENTAL CLAIMS

             except as may already have been disclosed by the Borrower or the
             Guarantor in writing to, and acknowledged in writing by, the
             Facility Agent, there has been no emission, Spill, release or
             discharge of a Pollutant from any Mortgaged Vessel or any other
             Relevant Vessel owned by, managed or crewed by or chartered to the
             Borrower or the Guarantor nor to the best of the Borrower's or the
             Guarantor's knowledge and belief (having made due enquiry) from any
             Relevant Vessel owned by, managed or crewed by or chartered to any
             other Relevant Party which could give rise to an Environmental
             Claim which might have a Material Adverse Effect on the Borrower or
             the Guarantor;

9.1.15       NO OTHER ENVIRONMENTAL PROBLEMS

             except as may have already been disclosed by the Borrower prior to
             the date of this Agreement in writing to and acknowledged in
             writing by, the Facility Agent, to the best of the knowledge and
             belief of the Borrower and the Guarantor and their respective
             directors and other officers (having made due enquiry) there are no
             circumstances arising from any breach of Environmental Laws or
             which may give rise to an Environmental Claim which constitutes, or
             may give rise to, the Event of Default specified in clause 11.1.27;

9.1.16       NO MATERIAL ADVERSE EFFECT

             there has been no event or circumstance during the period of the
             negotiation of and prior to the date of this Agreement which the
             Borrower or the Guarantor reasonably believes could be determined
             by the Majority Lenders as having a Material Adverse Effect on the
             Borrower or the Guarantor;

9.1.17       COMPLIANCE WITH ISM CODE AND ISPS CODE

             the Borrower and the Guarantor has complied at all material times
             in all material respects with the ISM Code and the ISPS Code; and

9.1.18       LIABILITY TO TAXATION

             (a)  all Taxation for which the Borrower or the Guarantor is liable
                  has, where such tax was due on or before the date of this
                  Agreement, been paid or, where such tax was not yet due on or
                  before the date of this Agreement, been fully provided for in
                  the Annual Financial Statements; and/or

             (b)  the Borrower or the Guarantor has not in the period of three
                  (3) years ending on the date hereof paid or become liable to
                  pay any penalty or interest charged by virtue of any
                  provisions relating to Taxation,

             except, in either case, such Taxes and/or penalty or interest
             charged, as the case may be, which is being disputed in good faith
             by the Borrower and/or the Guarantor, as the case may be, and has
             been disclosed in writing to the Facility Agent; and

9.1.19       PARENT COMPANY

             the Borrower is a wholly owned Subsidiary of the Guarantor.

9.2      INITIAL REPRESENTATIONS AND WARRANTIES

         The Borrower and the Guarantor further represents and warrants to the
         Creditors that as at the date of this Agreement:

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<PAGE>

9.2.1        PARI PASSU

             the obligations of the Borrower and the Guarantor under this
             Agreement are direct, general and unconditional obligations of the
             Borrower and the Guarantor and rank at least pari passu with all
             other present and future unsecured and unsubordinated Indebtedness
             of the Borrower and the Guarantor, respectively;

9.2.2        INFORMATION

             all written information furnished by any Security Party to the
             Lenders in connection with the negotiation and preparation of this
             Agreement was in the opinion of the Borrower and the Guarantor
             (formed on a reasonable basis):

             (a)  correct and complete in all material respects; and

             (b)  did not contain any untrue statement of a material fact or, in
                  relation to its subject matter and the purpose for which it
                  was provided, omit to state a material fact the absence of
                  which would make the statements contained in that information
                  misleading in the light of the circumstances under which they
                  were made when read by a person interpreting them reasonably;

9.2.3        NO WITHHOLDING TAXES

             no Taxes are imposed by withholding or otherwise on any payment to
             be made by the Borrower or the Guarantor under this Agreement or
             the other Security Documents or are imposed on or by virtue of the
             execution or delivery by the Security Parties of this Agreement or
             the other Security Documents or any other document or instrument to
             be executed or delivered under this Agreement or any of the other
             Security Documents;

9.2.4        THE MORTGAGED VESSELS

             each Mortgaged Vessel will on the first Drawdown Date be:

             (a)  in the absolute ownership of the Borrower or the Guarantor who
                  will on and after the first Drawdown Date be the sole, legal
                  and beneficial owner of any Mortgaged Vessel;

             (b)  permanently registered in the name of the Borrower or the
                  Guarantor through the relevant Registry as a vessel under the
                  laws and flag of the relevant Flag State;

             (c)  operationally seaworthy and in every way fit for service
                  unless undergoing scheduled drydocking and maintenance; and

             (d)  classed with the Classification free of all conditions and
                  recommendations of the Classification Society that would
                  affect the maintenance of class;

9.2.5        MORTGAGED VESSEL'S EMPLOYMENT

             no Mortgaged Vessel will on or before the first Drawdown Date be
             subject to any charter or contract or to any agreement to enter
             into any charter or contract other than a Permitted Charter which,
             if entered into after the date of the relevant Mortgage would have
             required the consent of the Lenders under clauses 10.5.9 or 10.5.15
             and on or before the first Drawdown Date there will not be any
             agreement or arrangement whereby the Earnings may be shared with
             any other person;

9.2.6        FREEDOM FROM ENCUMBRANCES

             none of the Mortgaged Vessels, nor their Earnings, Insurances or
             Requisition Compensation nor any other properties or rights which
             are, or are to be, the subject of this Agreement or any of the
             Security Documents nor any part thereof will be, on the first
             Drawdown Date, subject to any Encumbrance other than Permitted
             Encumbrances; and

9.2.7        COPIES TRUE AND COMPLETE

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<PAGE>

             the copies of the documents delivered or to be delivered to the
             Facility Agent pursuant to clause 9.1 are, or will when delivered
             be, a true and complete copies of such documents; such documents
             will when delivered constitute valid and binding obligations of the
             parties thereto enforceable in accordance with its terms and there
             will have been no amendments or variations thereof or defaults
             thereunder.

9.3      REPETITION OF REPRESENTATIONS AND WARRANTIES

         On and as of each Drawdown Date and on each Interest Payment Date the
         Borrower and the Guarantor shall be deemed to repeat the
         representations and warranties in clause 9.1 (and so that the
         representation and warranty in clause 9.1.9 and 9.1.18 shall for this
         purpose refer to the then latest audited financial statements delivered
         to the Creditors under clause 10.1.5 as if made with reference to the
         facts and circumstances existing on such day.

9.4      CONFIRMATION OF REPRESENTATION AND WARRANTIES

         the Guarantor confirms that the representation and warranties made and
         repeated by the Borrower under this Agreement and the other Security
         Documents will, when made and repeated by the Borrower, be complete,
         accurate, correct and, not materially misleading.

10       UNDERTAKINGS

10.1     GENERAL

         The Borrower and the Guarantor undertakes with each of the Creditors
         that, from the date of this Agreement and so long as any moneys are
         owing under this Agreement or any of the other Security Documents and
         while all or any part of the Commitment remains outstanding, it will:

10.1.1       NOTICE OF DEFAULT

             promptly inform the Facility Agent of any occurrence of which it
             becomes aware which acting reasonably and in good faith it believes
             would adversely affect the ability of any Security Party to perform
             its obligations under this Agreement or any of the other Security
             Documents and, without limiting the generality of the foregoing,
             will inform the Facility Agent of any Default forthwith upon
             becoming aware thereof and will from time to time, if so requested
             by the Facility Agent, confirm to the Facility Agent in writing (in
             a certificate signed by one (1) authorised officer (or as otherwise
             required by its constitutive documents) of the Borrower and
             delivered to the Facility Agent no later than seven (7) days after
             having been requested) that, save as otherwise stated in such
             confirmation, no Default has occurred and is continuing;

10.1.2       CONSENTS AND LICENCES

             without prejudice to clauses 9.1 and 9.3 obtain or cause to be
             obtained, maintain in full force and effect and comply in all
             material respects with the conditions and restrictions (if any)
             imposed in, or in connection with, every consent, authorisation,
             licence or approval of governmental or public bodies or authorities
             or courts and do, or cause to be done, all other acts and things
             which may from time to time be required under applicable law for
             the continued due performance of all the obligations of the
             Security Parties under this Agreement and each of the other
             Security Documents;

10.1.3       USE OF PROCEEDS

             use the Outstandings exclusively for the purposes specified in
             clause 1.1;

10.1.4       PARI PASSU

             ensure that its obligations under this Agreement shall, without
             prejudice to the provisions of clause 10.3, at all times rank at
             least pari passu with all its other present and future unsecured
             and unsubordinated Indebtedness with the exception of any
             obligations which are mandatorily preferred by law and not by
             contract;

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<PAGE>

10.1.5       FINANCIAL STATEMENTS

             in the case of the Borrower, prepare Annual Financial Statements in
             accordance with generally accepted accounting principles in the
             jurisdiction in which the Borrower is incorporated and, in the case
             of the Guarantor, prepare Annual Financial Statements in accordance
             with U.S. GAAP in respect of each financial year and cause the same
             to be reported on by the Auditors and, in the case of the
             Guarantor, prepare Quarterly Financial Statements on the same basis
             as the Annual Financial Statements and deliver sufficient copies of
             the same to the Facility Agent for distribution to the Lenders as
             soon as practicable but not later than one hundred and twenty (120)
             days (in the case of Annual Financial Statements to be prepared by
             the Guarantor) or one hundred and eighty (180) days (in the case of
             the Annual Financial Statements to be prepared by the Borrower) or
             sixty (60) days (in the case of Quarterly Financial Statements)
             (or, in any such case, such longer period as may be agreed in
             writing by the Facility Agent) after the end of the financial
             period to which they relate;

10.1.6       CERTIFICATE OF COMPLIANCE WITH CLAUSE 10.6

             at the same time as the Guarantor delivers to the Facility Agent,
             pursuant to clause 10.1.5, copies of the Annual Financial
             Statements or Quarterly Financial Statements (as the case may be)
             the Guarantor shall provide a statement signed by at least two
             officers (including the Chief Financial Officer or another senior
             officer) (in substantially the form set out in Schedule 6)
             confirming:

             (a)  that such Annual Financial Statements or Quarterly Financial
                  Statements were prepared in accordance with U.S. GAAP (and, in
                  the case of the Borrower, the generally accepted accounting
                  principles of the jurisdiction in which it is incorporated);

             (b)  that as at the date to which the relevant financial statements
                  are made up, the Guarantor was in compliance with the
                  covenants and undertakings set out in clause 10.6 (or, if it
                  was not in such compliance, indicating the extent of the
                  breach and the steps intended to be taken to remedy the same);
                  and

             (c)  that, as at the date not more than seven (7) days prior to the
                  delivery of the certificate, no Default has occurred and is
                  continuing (or, if such is not the case, specifying the same);

10.1.7       DELIVERY OF REPORTS

             deliver to the Facility Agent as many copies as the Facility Agent
             may reasonably require of every report, circular, SEC filing,
             notice or like document issued by the Guarantor and the Borrower to
             their respective shareholders or creditors generally;

10.1.8       PROVISION OF FURTHER INFORMATION

             provide the Facility Agent with such financial and other
             information concerning the Guarantor and the Borrower, their
             respective Related Companies, the other Security Parties and their
             respective affairs as the Majority Lenders may from time to time
             reasonably require; and

10.1.9       OBLIGATIONS UNDER SECURITY DOCUMENTS

             duly and punctually perform each of the obligations expressed to be
             assumed by it under this Agreement and any of the other Security
             Documents to which it is a party.

10.2     SECURITY VALUE MAINTENANCE

10.2.1   SECURITY SHORTFALL

         If at any time any Security Value shall be less than the relevant
         Security Requirement, the Facility Agent shall (upon the instructions
         of the Lenders) give notice to the Borrower requiring that such
         deficiency be remedied and then the Borrower shall (unless any relevant
         Mortgaged Vessel has become a Total Loss (in which case clause 6.4
         shall apply)) either:

             (a)  prepay within a period of fifteen (15) days of the date of
                  receipt by the Borrower of the Facility Agent's said notice
                  such sum in Dollars as will result in the relevant Security
                  Requirement

                                       29
<PAGE>

                  after such prepayment (taking into account any other repayment
                  of the Outstandings made between the date of the notice and
                  the date of such prepayment) being equal to the corresponding
                  Security Value; or

             (b)  within fifteen (15) days of the date of receipt by the
                  Borrower of the Facility Agent's said notice constitute to the
                  satisfaction of the Lenders such further security for the
                  Outstandings as shall be acceptable to the Security Trustee
                  having a value for security purposes at the date upon which
                  such further security shall be constituted which, when added
                  to the relevant Security Value, shall not be less than the
                  corresponding Security Requirement as at such date,

         and until the Facility Agent is satisfied with any action taken
         pursuant to paragraph (a) or paragraph (b) above, the Borrower shall
         not be entitled to drawdown or continue any further Advances. Clause
         6.5 shall apply to prepayments under clause 10.2.1(a);

10.2.2   VALUATION OF MORTGAGED VESSELS

             (a)  The Mortgaged Vessels shall, for the purposes of this clause
                  10.2.2, be valued in Dollars, on each Annual Valuation Date by
                  two (2) of the Approved Valuers selected by the Borrower (each
                  such valuation to be made without, unless required by the
                  Facility Agent on behalf of the Lenders, physical inspection,
                  and on the basis of a sale for prompt delivery for cash at
                  arms length on normal commercial terms as between a willing
                  buyer and a willing seller without taking into account the
                  benefit of any charterparty or other engagement concerning the
                  Mortgaged Vessels). At any time when:

                  (i)   there are moneys outstanding under this Agreement on a
                        Semi-Annual Valuation Date; and/or

                  (ii)  a drawdown is requested more than six (6) months after
                        the most recent Annual Valuation Date when no valuations
                        have been obtained on the most recent Semi-Annual
                        Valuation Date,

               the Mortgaged Vessels shall be valued on the basis described in
               the preceding sentence of this clause 10.2.2(a).

               The Borrower shall procure that each valuation obtained under
               this clause 10.2.2 shall be delivered by the Approved Valuers to
               the Facility Agent at the same time as they are delivered to the
               Borrower no later than four (4) days before each Valuation Date.
               Subject to clause 10.2.2(b) the mean of the valuations of the
               Mortgaged Vessels attributed to the Borrower at any relevant time
               pursuant to clause 10.2.2 shall constitute the Security Value for
               the purposes of this clause 10.2.

             (b)  If the Facility Agent is not satisfied with the valuation of
                  any of the Mortgaged Vessels, the Facility Agent shall be
                  entitled to request a valuation by a third Approved Valuer in
                  respect of any such Mortgaged Vessel or Vessels, as the case
                  may be. The Facility Agent shall (in its absolute discretion)
                  be entitled to discard one of the earlier valuations and
                  substitute the third valuation therefore and the mean of the
                  remaining valuations shall constitute the Security Value for
                  the purposes of this clause 10.2.

             (c)  If at any time between valuations of any of the Mortgaged
                  Vessels, the Lenders are reasonably of the opinion that the
                  value of any Mortgaged Vessel may have materially deteriorated
                  since its most recent valuation, the Facility Agent, on behalf
                  of the Lenders, shall be entitled to request a new valuation
                  by an Approved Valuer (an "Intermediate Valuation") of such
                  Mortgaged Vessel or Vessels, as the case may be. The Facility
                  Agent shall (in its absolute discretion) be entitled to
                  discard the earlier valuations and substitute the Intermediate
                  Valuation therefore.

             (d)  The value of the Mortgaged Vessels determined in accordance
                  with the provisions of this clause 10.2 shall be binding upon
                  the parties hereto until such time as any further such
                  valuations shall be obtained.

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10.2.3   INFORMATION

         The Borrower and the Guarantor undertake to the Facility Agent to
         supply to the Facility Agent and to any such shipbrokers such
         information concerning each relevant Mortgaged Vessel and its condition
         as such shipbrokers may reasonably require for the purpose of making
         any such valuation.

10.2.4   COSTS

         All reasonable costs in connection with the Facility Agent obtaining
         any valuation of the Mortgaged Vessels referred to in clause 10.2.2(a)
         and 10.2.1(b), and any valuation either of any additional security for
         the purposes of ascertaining the Security Value at any time or
         necessitated by the Borrower electing to constitute additional security
         pursuant to clause 10.2.1(b) shall be borne by the Borrower. All
         reasonable costs in connection with the Facility Agent obtaining any
         valuation of the Mortgaged Vessels referred to in clause 10.2.2(c)
         shall be borne equally by the Lenders and the Borrower.

10.2.5   VALUATION OF ADDITIONAL SECURITY

         For the purpose of this clause 10.2, the market value of any additional
         security provided or to be provided to the Security Trustee shall be
         determined in good faith by the Security Trustee subject to the
         approval of the Lenders without any necessity for the Security Trustee
         assigning any reason thereto.

10.2.6   DOCUMENTS AND EVIDENCE

         In connection with any additional security provided in accordance with
         this clause 10.2, the Facility Agent shall be entitled to receive such
         evidence and documents of the kind referred to in Schedule 4 as may in
         the Facility Agent's reasonable opinion be appropriate and such
         favourable legal opinions as the Facility Agent shall in its absolute
         discretion require in good faith.

10.3     VESSEL SUBSTITUTION

         The Borrower or the Guarantor may substitute one or more vessels
         (collectively, the "NEW VESSELS" and each a "NEW VESSEL") for any of
         the vessels listed in Schedule 2 (collectively, the "ORIGINAL VESSELS"
         and each an "ORIGINAL VESSEL") provided that each New Vessel shall:

10.3.1       be built no earlier than 1996;

10.3.2       be an offshore supply vessel of the Borrower's usual quality and
             standard or otherwise approved by the Facility Agent;

10.3.3       have a Fair Market Value equal to or greater than that of the
             Original Vessel for which the substitution is made; and

10.3.4       shall maintain a Classification and Flag acceptable to the Facility
             Agent,

         and for the purposes of this clause 10.3 any New Vessel shall become an
         Original Vessel once it has satisfied the requirements of being a
         Mortgaged Vessel as listed in the definition thereof.

10.4     NEGATIVE UNDERTAKINGS

         The Guarantor shall ensure that, from the date of this Agreement and so
         long as any moneys are owing under this Agreement or any of the
         Security Documents and while all or any part of the Commitment remains
         outstanding, neither it, the Borrower or any Related Company, will,
         without the prior written consent of the Facility Agent (acting on the
         instructions of the Lenders) (such consent not to be unreasonably
         withheld or delayed):

10.4.1       NO MERGER

             merge or consolidate with any other person, enter into any demerger
             transaction or participate in any other type of corporate
             reconstruction other than by and amongst Group companies where the

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             prior written consent of the Lenders has been obtained (such
             consent not to be unreasonably withheld);

10.4.2       DISPOSALS

             except as permitted by the listed exceptions below, sell, transfer,
             abandon, lend or otherwise dispose of or cease to exercise direct
             control over a Material Part of the Business of the Guarantor or
             the Borrower.

             The exceptions referred to above are:

             (a)  transfers, sales or disposals of assets for full consideration
                  on an arm's length basis and in the ordinary course of trading
                  whether by one or a series of transactions related or not,
                  including transfers, disposals or sales which are made in or
                  by way of exchange for other assets of comparable or superior
                  type, value or quality; or

             (b)  sales, disposals, transfers, abandonments, loans or cessations
                  or direct control of a Material Part of the Business of the
                  Borrower to the Guarantor or to any of its directly or
                  indirectly wholly-owned Subsidiaries; or

             (c)  the sale, disposal or transfer by the Borrower or the
                  Guarantor of any Mortgaged Vessel pursuant to clause 10.5.14;
                  or

             (d)  any other sale, transfer, abandonment, lending or other
                  disposal or cessation of direct control of any undertaking,
                  asset, right or revenue expressly permitted under this
                  Agreement or any of the other Security Documents.

             For the purpose of this clause 10.4.2, in relation to any relevant
             person, a "MATERIAL PART OF THE BUSINESS" is any part of the
             undertaking, assets, rights and revenues of that person which has a
             book value of 15% or more of the book value of the whole); and

10.4.3       OTHER BUSINESS

             undertake any business other than the business currently conducted
             by it as at the date of this Agreement.

10.5     MORTGAGED VESSEL COVENANTS

         The Borrower and the Guarantor hereby covenants with each of the
         Creditors and undertakes throughout the Security Period that it will:

10.5.1       INSURANCE

             (a)   INSURED RISKS, AMOUNTS AND TERMS

                   insure and keep its Mortgaged Vessels insured free of cost
                   and expense to the Security Trustee and in the name of the
                   Borrower or the Guarantor (but in the case of the insurances
                   referred to in sub-paragraph (i) below, no other person, save
                   with the prior written consent of the Security Trustee and
                   subject to such person having executed to the satisfaction of
                   the Security Trustee, a first priority assignment in favour
                   of the Security Trustee of such person's interest in the
                   Insurances of such Mortgaged Vessel on similar terms to the
                   assignment in the relevant Collateral Deed) or, if so
                   required by the Security Trustee, in the joint names of the
                   Borrower or the Guarantor and the Security Trustee, the
                   Facility Agent and/or the Lenders (but without liability on
                   the part of the Security Trustee, the Facility Agent and/or
                   the Lenders for premiums or calls):

                   (i)  the hull and machinery against fire and usual marine
                        risks (including excess risks) and, subject to clause
                        10.5.1(o) war risks, on an agreed value basis, in such
                        amounts (but not in any event less than, in the case of
                        each Mortgaged Vessel, the higher of (A) one hundred and
                        twenty five percent (125%) of the Relevant Insured
                        Amount for such Mortgaged Vessel and (B) its market
                        value as most recently determined in accordance with
                        clause 10.2.2 prior to the commencement of the period of
                        the relevant policy) and

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                        upon such terms as shall from time to time be approved
                        in writing by the Security Trustee; and

                   (ii) against protection and indemnity risks including
                        pollution risks for a minimum amount of $500,000,000 or
                        such higher or lower maximum amount of cover against
                        pollution risks as shall at any time be available by
                        entry of the relevant Mortgaged Vessel with, and/or
                        arrangement by, and/or under any cover arranged by, or
                        through either a protection and indemnity association
                        which is a member of either the "International Group" of
                        protection and indemnity associations (or any successor
                        organisation designated by the Security Trustee for this
                        purpose) or the International Group (or such successor
                        organisation) itself or, if the International Group or
                        any such successor ceases to exist or ceases to provide
                        or arrange any cover for pollution risks, or any
                        supplemental cover for pollution risks over and above
                        that afforded by the basic entry of the Mortgaged Vessel
                        with its protection and indemnity association, the
                        maximum aggregate amount of cover against pollution
                        risks as shall be available on the open market and by
                        basic entry with a protection and indemnity association
                        provided that, if the Mortgaged Vessel in question has
                        ceased trading or is in lay up (and its cargo fully
                        discharged) and in either case has discharged all cargo,
                        the level of pollution risks cover afforded by ordinary
                        protection and indemnity cover available through a
                        member of the International Group or such successor
                        organisation or, as the case may be, on the open market
                        in such circumstances shall be sufficient for such
                        purpose) for vessels of the same type, size, age and
                        flag as the relevant Mortgaged Vessel) for the full
                        value and tonnage of such Mortgaged Vessel (as approved
                        in writing by the Security Trustee) and upon such terms
                        as shall from time to time be approved in writing by the
                        Security Trustee by reference to customary market
                        practice;

                   and pay the Security Trustee the cost (as conclusively
                   certified by the Security Trustee) of any other insurance
                   cover which the Security Trustee may from time to time effect
                   in respect of any Mortgaged Vessel and/or in respect of the
                   interest of any or all of the Creditors in relation to such
                   Mortgaged Vessel or potential third party liability of any or
                   all of the Creditors in relation to such Mortgaged Vessel as
                   the Security Trustee shall reasonably deem desirable having
                   regard to (1) any limitations in respect of amount or extent
                   of cover which may from time to time be applicable to any of
                   the other insurances referred to in this clause 10.5.1 and
                   are not customarily applicable on the date of this Agreement
                   and/or (2) any change in the practice of leading lenders
                   providing loans to finance vessels of a type or category
                   similar to the Mortgaged Vessels which carry Pollutants as to
                   the insurances which they require to be taken out to protect
                   their security interests in the Mortgaged Vessels and/or
                   their liability to third parties as a consequence of
                   financing the Mortgaged Vessels and/or taking a security
                   interest in such Mortgaged Vessels and/or (3) changes of
                   applicable laws (or the judicial or official interpretation
                   thereof) concerning the priority of Environmental Claims as
                   against vessel mortgages and/or the liability of mortgagees
                   and lenders in relation to Environmental Claims;

             (b)   APPROVED BROKERS, INSURERS AND ASSOCIATIONS

                   effect the Insurances aforesaid in Dollars or such other
                   currency as the Security Trustee (acting on the instructions
                   of the Majority Lenders) may approve and through the Approved
                   Brokers (if any) and with such insurance companies and/or
                   underwriters as shall from time to time be approved in
                   writing by the Security Trustee (acting on the instructions
                   of the Majority Lenders); provided however that the
                   insurances against war risks and protection and indemnity
                   risks may be effected by the entry of any Mortgaged Vessel
                   with such war risks and protection and indemnity associations
                   as shall from time to time be approved in writing by the
                   Security Trustee (acting on instructions of the Majority
                   Lenders);

             (c)   FLEET LIENS, SET OFF AND CANCELLATION

                   if any of the insurances referred to in 10.5.1(a) form part
                   of a fleet cover, procure that the Approved Brokers shall
                   undertake to the Security Trustee that they shall neither set
                   off against any claims in respect of any Mortgaged Vessel any
                   premiums due in respect of other vessels under such fleet
                   cover or any premiums due for other insurances, nor cancel
                   the insurance for reason of non-payment of premiums for other
                   vessels under such fleet cover or of premiums for such other
                   insurances, and shall undertake to issue a separate policy in
                   respect of each Mortgaged Vessel;

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             (d)   PAYMENT OF PREMIUMS AND CALLS

                   punctually pay all premiums, calls, contributions or other
                   sums payable in respect of all such insurances and produce
                   all relevant receipts or other evidence of payment when so
                   required by the Security Trustee;

             (e)   RENEWAL

                   at least fourteen (14) days (or such shorter period as the
                   Security Trustee may from time to time agree) before the
                   relevant policies, contracts or entries expire, notify the
                   Security Trustee of the names of the brokers and/or the war
                   risks and protection and indemnity associations proposed to
                   be employed by the Borrower or the Guarantor or any other
                   party for the purposes of the renewal of such insurances and
                   of the amounts in which such insurances are proposed to be
                   renewed and the risks to be covered and, subject to
                   compliance with any requirements of the Security Trustee
                   pursuant to this clause 10.5.1, that the Approved Brokers
                   and/or the approved war risks and protection and indemnity
                   associations will at least seven (7) days before such expiry
                   (or within such shorter period as the Security Trustee may
                   from time to time agree) confirm in writing to the Security
                   Trustee whether or not there is likely to be any changes in
                   the names of the brokers and/or war risks and protection and
                   indemnity associations and advise when it is expected that
                   such renewals shall be effected in accordance with the
                   instructions so given provided always that the renewal is
                   effected before the then current insurances expire;

             (f)   GUARANTEES

                   arrange for the execution and delivery of such guarantees or
                   indemnities as may from time to time be required by any
                   protection and indemnity or war risks association;

             (g)   HULL POLICY DOCUMENTS, NOTICES, LOSS PAYABLE CLAUSES AND
                   BROKERS' UNDERTAKINGS

                   deposit with the Approved Brokers (or procure the deposit of)
                   all slips, cover notes, policies, certificates of entry or
                   other instruments of Insurance from time to time issued in
                   connection with such of the insurances referred to in clause
                   10.5.1 as are effected through the Approved Brokers and
                   procure that the interest of the Security Trustee, the
                   Facility Agent and the Lenders shall be endorsed thereon by
                   incorporation of the relevant Loss Payable Clause and by
                   means of a Notice of Assignment of Insurances (signed by the
                   Borrower and by any other assured who shall have assigned its
                   interest in the Insurances to the Security Trustee) and that
                   the Security Trustee shall be furnished with pro forma copies
                   thereof and, unless the insurances are placed, to the
                   satisfaction of the Security Trustee, upon the terms of the
                   Norwegian Marine Insurance Plan of 1996 as amended, a letter
                   or letters of undertaking from the Approved Brokers in such
                   form as shall from time to time be required by the Security
                   Trustee by reference to customary market practice;

             (h)   ASSOCIATIONS' LOSS PAYABLE CLAUSES, UNDERTAKINGS AND
                   CERTIFICATES

                   procure that any protection and indemnity and/or war risks
                   associations in which any Mortgaged Vessel is for the time
                   being entered shall endorse the relevant Loss Payable Clause
                   on the relevant certificate of entry or policy and shall
                   furnish the Security Trustee with a copy of such certificate
                   of entry or policy and, unless the insurances are placed, to
                   the satisfaction of the Security Trustee, upon the terms of
                   the Norwegian Marine Insurance Plan of 1996 as amended, a
                   letter or letters of undertaking in such form as shall from
                   time to time be required by the Security Trustee by reference
                   to customary market practice;

             (i)   EXTENT OF COVER AND EXCLUSIONS

                   take all necessary action and comply with all requirements
                   which may from time to time be applicable to the Insurances
                   (including, without limitation, the making of all requisite
                   declarations within any prescribed time limits and the
                   payment of any additional premiums or calls) so as to ensure
                   that the Insurances are not made subject to any exclusions or
                   qualifications to which the Security Trustee has not given
                   its prior written consent and are otherwise maintained on
                   terms and conditions from time to time approved in writing by
                   the Security Trustee pursuant to this Agreement;

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<PAGE>

             (j)   INDEPENDENT REPORT

                   if so requested by the Security Trustee where there has, in
                   the reasonable opinion of the Majority Lenders, been a
                   significant change in circumstances or the insurance
                   arrangements or the status of any insurer or association
                   which may, in the reasonable opinion of the Majority Lenders,
                   adversely affect the interests of the Lenders, but at the
                   cost of the Borrower, furnish the Security Trustee from time
                   to time with a detailed report signed by an independent firm
                   of marine insurance brokers appointed by the Security Trustee
                   dealing with the Insurances maintained on any Mortgaged
                   Vessel and stating the opinion of such firm as to the
                   adequacy thereof;

             (k)   COLLECTION OF CLAIMS

                   do all things necessary and provide all documents, evidence
                   and information to enable the Security Trustee to collect or
                   recover any moneys which shall at any time become due in
                   respect of the Insurances;

             (l)   EMPLOYMENT OF MORTGAGED VESSELS

                   not employ any Mortgaged Vessel or suffer such Mortgaged
                   Vessel to be employed otherwise than in conformity with the
                   terms of the Insurances (including any warranties express or
                   implied therein) without first obtaining the consent of the
                   insurers to such employment and complying with such
                   requirements as to extra premium or otherwise as the insurers
                   may prescribe;

             (m)   APPLICATION OF RECOVERIES

                   apply all sums receivable under the Insurances which are paid
                   to the Borrower or the Guarantor in accordance with the Loss
                   Payable Clauses in repairing all damage and/or in discharging
                   the liability in respect of which such sums shall have been
                   received;

             (n)   FURTHER INSURANCE ASSIGNMENTS

                   unless the relevant Mortgaged Vessel is insured against the
                   risks referred to in clause 10.5.1(a)(i) upon the terms of
                   the Norwegian Insurance Plan of 1996 as amended, not permit
                   the insurances referred to in such clause to be effected in
                   the name of any person (other than the Security Trustee
                   and/or the other Creditors) unless such person has to the
                   satisfaction of the Security Trustee executed a first
                   priority assignment of the Security Trustee of such person's
                   interest in the Insurances of such Mortgaged Vessel on
                   similar terms (mutatis mutandis) to the assignment by the
                   Borrower or the Guarantor in the relevant Collateral Deed;

             (o)   UNAVAILABILITY OF INSURANCES

                   If requested to do so by the Borrower and if in the absolute
                   discretion of the Facility Agent (acting upon the
                   instructions of the Lenders) the requirement of the Borrower
                   and/or of the Guarantor to provide war risk insurance in
                   accordance with the terms of this Agreement and/or any of the
                   other Security Documents is not capable of fulfilment by
                   Insurance placed in the marine insurance market through first
                   class insurers of internationally recognised responsibility
                   and standing or is a requirement that is not capable of
                   fulfilment at premium levels which are commercially sensible
                   then the Borrower and/or the Guarantor and the Facility Agent
                   (acting upon the instructions of the Lenders) shall negotiate
                   together in good faith for a period not exceeding ninety (90)
                   days with a view to agreeing such amendments to the
                   requirements of this Agreement and/or any of the other
                   Security Documents as shall be necessary to take account of
                   (i) the current practice of the marine insurance market in
                   respect of war risks; and (ii) levels and scope and terms of
                   cover available in the marine insurance market, in respect of
                   war risks, at premium levels which are, in the absolute
                   discretion of the Facility Agent (acting upon the
                   instructions of the Lenders), commercially sensible.

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10.5.2       MORTGAGED VESSEL'S NAME AND REGISTRATION

             (a)  not change the name of any Mortgaged Vessel without first
                  notifying the Facility Agent and so long as any such change in
                  name does not jeopardise the Insurances relating to any such
                  Mortgaged Vessel;

             (b)  keep each Mortgaged Vessel registered under the laws of its
                  Flag State at the relevant port of Registry;

             (c)  not do or suffer to be done anything, or omit to do anything
                  the doing or omission of which could or might result in such
                  registration being forfeited or imperilled or which could or
                  might result in a Mortgaged Vessel being required to be
                  registered otherwise than under the laws of its Flag State at
                  the relevant port of Registry;

             (d)  not register any Mortgaged Vessel or permit its registration
                  under any other flag or at any other port without the prior
                  written consent of the Lenders (such consent not to be
                  unreasonably withheld or delayed);

             (e)  if the said registration of a Mortgaged Vessel is for a
                  limited period, renew the registration of such Mortgaged
                  Vessel at least fifteen (15) days prior to the expiry of such
                  registration and provide evidence of such renewal to the
                  Security Trustee at least five (5) days prior to such expiry;

10.5.3       REPAIR

             regularly monitor the condition of each Mortgaged Vessel and keep
             each Mortgaged Vessel and its equipment, outfit and appurtenances
             in good condition and repair and in all respects seaworthy and fit
             for its intended service and procure that all repairs to or
             replacement of any damaged, worn or lost parts or equipment are
             effected in such manner (both as regards workmanship and quality of
             materials) as not to diminish the value of such Mortgaged Vessel;

10.5.4       MODIFICATION; REMOVAL OF PARTS; EQUIPMENT OWNED BY THIRD PARTIES

             not without the prior written consent of the Lenders (such consent
             not to be unreasonably withheld or delayed):

             (a)  make any modification to any Mortgaged Vessel in consequence
                  of which her structure, type or performance characteristics
                  would be materially altered and her value materially reduced;
                  or

             (b)  remove any material part of any Mortgaged Vessel or any
                  equipment the value of which is such that its removal from
                  such Mortgaged Vessel would materially reduce the value of
                  such Mortgaged Vessel without replacing the same with
                  equivalent parts or equipment which are owned by the Borrower
                  or the Guarantor free from Encumbrances; or

             (c)  install on any Mortgaged Vessel any equipment owned by a third
                  party which cannot be removed without causing damage to the
                  structure or fabric of such Mortgaged Vessel other than in
                  circumstances where any damage so caused can be repaired and
                  made good such that there is no material reduction in the
                  Mortgaged Vessel's value as a result thereof,

             or allow any other person to do any of the above;

10.5.5       MAINTENANCE OF CLASS; COMPLIANCE WITH REGULATIONS

             at all times and without cost or expense to any Creditors keep its
             Mortgaged Vessel, or cause her to be kept, in such condition as
             will entitle her to the highest classification or, with the prior
             written consent of the Facility Agent, such other classification
             satisfactory to the Facility Agent (acting upon the instructions of
             the Lenders), at any time free of any conditions and all
             recommendations that affect classification and rating for vessels
             of the same age and type in the Classification Society or other
             classification society of like standing approved by the Majority
             Lenders and to deliver to the Facility Agent within fourteen (14)
             days of receipt from the relevant Classification Society a
             certificate from such Classification Society showing such
             Classification to be maintained and will

                                       36
<PAGE>

             without cost or expense to the Facility Agent instruct and
             authorise each Classification Society to give an undertaking to the
             Facility Agent as follows:

             (a)  to send to the Facility Agent, following receipt of a written
                  request from the Facility Agent, certified true copies of all
                  original class records held by the Classification Society
                  relating to the Mortgaged Vessel;

             (b)  to allow the Facility Agent (or its agents), at any time and
                  from time to time, to inspect the original class and related
                  records of the Borrower or the Guarantor and the Mortgaged
                  Vessels at the offices of the Classification Society and to
                  take copies of them;

             (c)  following receipt of a written request from the Facility Agent
                  at any time:

                  (i)   to advise of any facts or matters which may result in or
                        have resulted in a change, suspension, discontinuance,
                        withdrawal or expiry of any Mortgaged Vessel's class
                        under the rules or terms and conditions of the
                        Borrower's, the Guarantor's or the relevant Mortgaged
                        Vessel's membership of the Classification Society; and

                  (ii)  to confirm that neither the Borrower nor the Guarantor
                        is in default of any of its contractual obligations or
                        liabilities to the Classification Society and, without
                        limiting the foregoing, that it has paid in full all
                        fees or other charges due and payable to the
                        Classification Society; and

                  (iii) if the Borrower or the Guarantor is in default of any of
                        its contractual obligations or liabilities to the
                        Classification Society, to specify to the Facility Agent
                        in reasonable detail the facts and circumstances of such
                        default, the consequences thereof, and any remedy period
                        agreed or allowed by the Classification Society; and

                  (iv)  to notify the Facility Agent immediately in writing if
                        the Classification Society receives notification from
                        the Borrower, the Guarantor or any other person that a
                        Mortgaged Vessel's Classification Society is to be
                        changed.

                  Neither the Borrower nor the Guarantor shall revoke such
                  instructions to the Classification Society for any of its
                  respective Mortgaged Vessels without the prior written consent
                  of the Majority Lenders (which consent shall not be withheld
                  or delayed in circumstances where a Mortgaged Vessel is being
                  disposed of in accordance with clause 10.5.14 and otherwise
                  shall not be unreasonably withheld or delayed).
                  Notwithstanding the above instructions and undertaking given
                  for the benefit of the Facility Agent, the Borrower and the
                  Guarantor shall continue to be responsible to the
                  Classification Society for the performance and discharge of
                  all its obligations and liabilities relating to or arising out
                  of or in connection with the contract it has with the
                  Classification Society, and nothing herein or therein shall be
                  construed as imposing any obligation or liability of the
                  Facility Agent to the Classification Society;

10.5.6       SURVEYS

             submit each Mortgaged Vessel to such periodical or other surveys as
             may be required for classification purposes and, if so requested by
             the Facility Agent or if the survey report relates to or recommends
             or requires repairs and/or other work the cost of which will or may
             exceed the Casualty Amount, supply to the Facility Agent copies of
             all survey reports issued in respect thereof;

10.5.7       INSPECTION

             ensure that the Facility Agent, by surveyors or other persons
             appointed by it for such purpose, may, upon giving the Borrower or
             the Guarantor reasonable notice of its intention, to board any
             Mortgaged Vessel once in each calendar year (for so long as moneys
             remain outstanding under this Agreement) at reasonable times
             without interfering with the operation of such Mortgaged Vessel for
             the purpose of inspecting her and to afford all proper facilities
             for such inspections and for this purpose to give to the Facility
             Agent reasonable advance notice of any intended drydocking of any
             Mortgaged Vessel (whether for the purpose of classification, survey
             or otherwise) (provided that any such surveyor or other person
             shall undertake confidentiality with respect to disclosure of the
             results of such inspection to any third parties other than the
             Creditors and their advisers). The cost of such inspections and
             surveys shall be paid by the Borrower or the Guarantor. All

                                       37
<PAGE>

             inspections and surveys of each Mortgaged Vessel shall be carried
             out at such times and places and in such manner as to minimise
             delaying the use and operation of the Mortgaged Vessel, but the
             Facility Agent shall not be obliged to carry out such inspections
             only during periods of drydocking. If the Facility Agent requires
             any additional inspections then the cost of such further
             inspections shall be borne by the Facility Agent (for the account
             of the Lenders) if the result of the further inspection does not
             reveal a material non-compliance with the terms of this Agreement
             but shall be borne by the Borrower or the Guarantor if the result
             does indicate a material non-compliance with the terms of this
             Agreement;

10.5.8       PREVENTION OF AND RELEASE FROM ARREST

             promptly in accordance with good vessel owning practice pay and
             discharge all debts, damages, liabilities and outgoings whatsoever
             which have given or may give rise to maritime, statutory or
             possessory liens on, or claims enforceable against, each Mortgaged
             Vessel, her Earnings or Insurances or any part thereof and, in the
             event of a writ or libel being filed against any Mortgaged Vessel,
             her Earnings or Insurances or any part thereof, or of any of the
             same being arrested, attached or levied upon pursuant to legal
             process or purported legal process or in the event of detention of
             any Mortgaged Vessel in exercise or purported exercise of any such
             lien or claim as aforesaid, procure the release of such Mortgaged
             Vessel, her Earnings and Insurances from such arrest, detention
             attachment or levy or, as the case may be, the discharge of the
             writ or libel forthwith upon, or in any event within ten (10)
             Banking Days after, receiving notice thereof by providing bail or
             procuring the provision of security or otherwise as the
             circumstances may require;

10.5.9       EMPLOYMENT

             not employ any Mortgaged Vessel or permit her employment in any
             manner, trade or business which is forbidden by international law,
             or which is unlawful or illicit under the law of any Relevant
             Jurisdiction, or in carrying illicit or prohibited goods, or in any
             manner whatsoever which may render her liable to condemnation in a
             prize court, or to destruction, seizure, confiscation, penalty or
             sanctions and, in the event of hostilities in any part of the world
             (whether war be declared or not), not employ any Mortgaged Vessel
             or permit her employment in carrying any contraband goods, or enter
             or trade to or to continue to trade in any zone which has been
             declared a war zone by any Government Entity or by the relevant
             Mortgaged Vessel's war risks insurers unless the prior written
             consent of the Facility Agent is obtained and such special
             insurance cover as the Facility Agent may require based on the
             advice of its insurance advisors, shall have been effected by the
             Borrower or the Guarantor at its expense;

10.5.10      INFORMATION

             promptly furnish the Facility Agent with all such information as it
             may from time to time reasonably require regarding each Mortgaged
             Vessel, her Insurances, her employment, position and engagements,
             particulars of all towages and salvages, and copies of all charters
             and other contracts for her employment entered into by the Borrower
             or the Guarantor, or otherwise howsoever concerning her;

10.5.11      NOTIFICATION OF CERTAIN EVENTS

             notify the Facility Agent forthwith by telefax or other means of
             telecommunication in permanent written form thereafter confirmed by
             letter of:

             (a)  any Default;

             (b)  any damage to any Mortgaged Vessel requiring repairs the cost
                  of which will or might exceed its Casualty Amount;

             (c)  any occurrence in consequence of which any Mortgaged Vessel
                  has or may become a Total Loss;

             (d)  any requisition of any Mortgaged Vessel for hire;

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<PAGE>

             (e)  any requirement or recommendation made in relation to any
                  Mortgaged Vessel by any insurer or its Classification Society
                  or by any competent authority which is not complied with in
                  accordance with its terms;

             (f)  any arrest or detention of any Mortgaged Vessel or any
                  exercise or purported exercise of a lien or other claim on
                  such Mortgaged Vessel or her Earnings or Insurances or any
                  part thereof;

             (g)  the occurrence of any material Environmental Claim against the
                  Borrower or the Guarantor, any Mortgaged Vessel or any
                  Relevant Party or any other vessel from time to time owned,
                  technically managed or crewed by, or bareboat chartered to,
                  any Relevant Party or any incident, event or circumstances
                  which may give rise to any such Environmental Claim or an
                  Event of Default specified in clause 11.1.27;

10.5.12      PAYMENT OF OUTGOINGS AND EVIDENCE OF PAYMENTS

             promptly pay all tolls, dues and other outgoings whatsoever in
             respect of each Mortgaged Vessel and her Earnings and Insurances
             and keep proper books of account in respect of each Mortgaged
             Vessel and her Earnings and, as and when the Facility Agent may so
             require, make such books available for inspection on behalf of the
             Facility Agent, and furnish satisfactory evidence that the wages
             and allotments and the insurance and pension contributions of the
             Master and crew are being promptly and regularly paid and that all
             deductions from crew's wages in respect of any applicable tax
             liability are being properly accounted for and that the Master has
             no claim for disbursements other than those incurred by him in the
             ordinary course of trading on the voyage then in progress;

10.5.13      ENCUMBRANCES

             not without the prior written consent of the Facility Agent acting
             on the instructions of all of the Lenders (and then only subject to
             such conditions as the Facility Agent may impose in accordance with
             such instructions) create or purport or agree to create or permit
             to arise or subsist any Encumbrance (other than Permitted
             Encumbrances) over or in respect of any Mortgaged Vessel, any share
             or interest therein or in any other part of the Mortgaged Property
             (as defined in the Collateral Deed in respect of such Mortgaged
             Vessel);

10.5.14      SALE OR OTHER DISPOSAL

             not without the prior written consent of the Facility Agent acting
             on the instructions of the Majority Lenders (and then only subject
             to such conditions as the Facility Agent may reasonably impose in
             accordance with such instructions) sell, agree to sell, transfer,
             abandon or otherwise dispose of any Mortgaged Vessel or any share
             or interest therein if the Net Sale Proceeds of such Mortgaged
             Vessel will or may be insufficient to enable the Borrower or the
             Guarantor to comply with its obligations under clause 6.4 of this
             Agreement arising upon the sale of such Mortgaged Vessel (including
             (without limitation) prepayment in full of the Outstandings if
             required by clause 6.4) and the Borrower or the Guarantor has not
             first demonstrated to the reasonable satisfaction of the Facility
             Agent that the Borrower or the Guarantor will have other funds
             available to it to enable it to comply with such obligations upon
             completion of the sale of such Mortgaged Vessel;

10.5.15      BAREBOAT CHARTERS

             not without the prior written consent of the Facility Agent acting
             on the instructions of the Majority Lenders (which the Facility
             Agent shall have full liberty to withhold in accordance with such
             instructions) and, if such consent is given, only subject to such
             conditions as the Facility Agent (acting as aforesaid) may impose:

             (a)  let any Mortgaged Vessel on demise charter for any period
                  except for bareboat charters within the Group provided that
                  the relevant charterer within the Group undertakes to the
                  Security Agent (for the benefit of the Creditors) to
                  relinquish possession of the Mortgaged Vessel under such
                  bareboat charter upon receipt of written notice from the
                  Facility Agent that the obligations of the Borrower under this
                  Agreement have been accelerated in accordance with clause 11.2
                  and/or clause 11.3 of this Agreement;

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<PAGE>

             (b)  let any Mortgaged Vessel other than on arm's length terms.

10.5.16      LAY UP

             in the event of any de-activation or lay up of a Mortgaged Vessel,
             the Borrower or the Guarantor shall notify the Facility Agent of
             such circumstance and the anticipated period of any such
             de-activation or lay up; the Borrower's or the Guarantor's
             insurance, maintenance and classification obligations with respect
             to any such Mortgaged Vessel under this Agreement shall continue
             during any such period;

10.5.17      PAYMENT OF EARNINGS

             to procure that the Earnings of any Mortgaged Vessel are paid to
             the Security Trustee at all times if and when the same shall be or
             shall have become so payable in accordance with this Agreement or
             the Security Documents and that any Earnings of any Mortgaged
             Vessel which are so payable and which are in the hands of the
             Borrower's or the Guarantor's brokers or agents are duly accounted
             for and paid over to the Security Trustee forthwith on demand;

10.5.18      REPAIRERS' LIENS

             not without the prior written consent of the Facility Agent (acting
             on the instructions of the Lenders) put any Mortgaged Vessel into
             the possession of any person for the purpose of work being done
             upon her unless either:

             (a)  such person shall first have given to the Facility Agent in
                  terms satisfactory to it, a written undertaking not to
                  exercise any lien on the relevant Mortgaged Vessel or her
                  Earnings for the cost of such work or otherwise; or

             (b)  any such lien of such person would be a Permitted Encumbrance;
                  or

             (c)  the Borrower or the Guarantor demonstrates that it has the
                  proceeds of insurance or other unencumbered resources
                  available to it to meet the cost of the work being done or
                  proposed to be done;

10.5.19      MANAGEMENT

             ensure that the Mortgaged Vessels are managed by a company within
             the Group;

10.5.20      NOTICE OF MORTGAGE

             place and at all times and places retain a properly certified copy
             of each Mortgage (which shall form part of the relevant Mortgaged
             Vessel's documents) on board each Mortgaged Vessel with her papers
             and cause such certified copy of such Mortgage to be exhibited to
             any and all persons having business with such Mortgaged Vessel
             which might create or imply any commitment or encumbrance
             whatsoever on or in respect of such Mortgaged Vessel (other than a
             Permitted Encumbrance) and to any representative of the Security
             Trustee and place and keep prominently displayed on the bridge and
             in the Master's cabin of each Mortgaged Vessel a framed printed
             notice in plain type which shall read as specified in the relevant
             Mortgage but substantially as follows:

                               "NOTICE OF MORTGAGE

             This Vessel is subject to a first [FOR UK VESSELS: priority] [FOR
             PANAMANIAN VESSELS: preferred] mortgage [FOR UK VESSELS: and
             collateral deed of covenants] in favour of [INSERT NAME OF SECURITY
             TRUSTEE] of [INSERT ADDRESS OF SECURITY TRUSTEE] as security
             trustee. Under the said mortgage, neither [FOR UK VESSELS: Gulf
             Offshore N.S. Limited] [FOR PANAMANIAN VESSELS: GulfMark Offshore,
             Inc.] nor any charterer nor the Master of this Vessel has any
             right, power or authority to create, incur or permit to be imposed
             upon this Vessel any commitments or encumbrances whatsoever other
             than for Permitted Encumbrances as defined in that certain Senior
             Secured Reducing Credit Facility Agreement by and among Gulf
             Offshore N.S. Limited, GulfMark Offshore, Inc., Nordea Bank Norge
             ASA, Nordea Bank Finland plc, New York Branch and

                                       40
<PAGE>

             the lenders named therein dated December __, 2004, as modified,
             amended, or supplemented from time to time."

             and in terms of the said notice it is hereby agreed that save and
             subject as otherwise herein provided, neither the Borrower, the
             Guarantor, any charterer, the Master of any Mortgaged Vessel nor
             any other person has any right, power or authority to create, incur
             or permit to be imposed upon any Mortgaged Vessel any lien
             whatsoever other than for a Permitted Encumbrance;

10.5.21      CONVEYANCE ON DEFAULT

             where a Mortgaged Vessel is (or is to be) sold in exercise of any
             power contained in the relevant Mortgage or otherwise conferred on
             the Security Trustee, execute, forthwith upon request by the
             Security Trustee, such form of conveyance of such Mortgaged Vessel
             as the Security Trustee may require;

10.5.22      ANTI-DRUG ABUSE

             without prejudice to clause 10.5.9, ensure compliance with the
             Anti-Drug Abuse Act of 1986 of the United States of America or any
             similar legislation applicable to any Mortgaged Vessel in any
             jurisdiction in or to which any Mortgaged Vessel shall be employed
             or located or trade or which may otherwise be applicable to any
             Mortgaged Vessel and/or the Borrower and/or the Guarantor;

10.5.23      COMPLIANCE WITH ENVIRONMENTAL LAWS

             to comply in all material respects with all Environmental Laws
             applicable to it and/or its Mortgaged Vessel including, without
             limitation, requirements relating to manning and establishment of
             financial responsibility and to obtain and comply with all
             Environmental Approvals applicable to it and/or its Mortgaged
             Vessel; and

10.5.24      COMPLIANCE WITH ISM CODE AND ISPS CODE

             comply at all material times in all material respects with the ISM
             Code and ISPS Code.

10.6     FINANCIAL COVENANTS OF THE GUARANTOR

10.6.1   The Guarantor undertakes and agrees with the Creditors that throughout
         the Security Period it will ensure that:

10.6.2       on each Quarterly Financial Statements Preparation Date, the ratio
             of Consolidated EBITDA (prevailing during the four (4) financial
             quarters ending on each Quarterly Financial Statements Preparation
             Date) to Consolidated Interest Expense (prevailing during the four
             (4) financial quarters ending on each Quarterly Financial
             Statements Preparation Date) from the first Drawdown Date until 30
             September 2005 inclusive, is equal to or greater than 2.00 to 1.00
             and thereafter is equal to or greater than 2.75 to 1.00; and

10.6.3       the ratio of Funded Debt to Total Capitalisation (as at the
             relevant Quarterly Financial Statements Preparation Date) is equal
             to or less than 0.65 to 1.00; and

10.6.4       Net Worth is at least equal to the aggregate of:

             (a)  two hundred million Dollars ($200,000,000); and

             (b)  fifty percent (50%) of positive consolidated net income on an
                  annual basis from January 1, 2005; and

             (c)  one hundred percent (100%) of Net Proceeds from Equity
                  Offerings after January 1, 2005; and

10.6.5       the Security Value shall be no less than the Security Requirement.

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<PAGE>

11       EVENTS OF DEFAULT

11.1     EVENTS

         There shall be an Event of Default if:

11.1.1       NON-PAYMENT: any Security Party fails to pay any sum payable by it
             under this Agreement or any of the Security Documents at the time,
             in the currency and in the manner stipulated in this Agreement or
             the relevant Security Document and such amount remains unpaid for
             three (3) Banking Days after the date the payment was due; or

11.1.2       BREACH OF INSURANCE OBLIGATIONS: the Borrower or the Guarantor
             fails to obtain and/or maintain the Insurances (in accordance with
             the requirements of this Agreement or any of the other Security
             Documents for any of the Mortgaged Vessels) or if any insurer in
             respect of such Insurances cancels the Insurances or disclaims
             liability by reason, in either case, of mis-statement in any
             proposal for the Insurances or for any other failure or default on
             the part of the Borrower, the Guarantor or any other person; or

11.1.3       BREACH OF FINANCIAL COVENANTS AND RELATED UNDERTAKINGS: the
             Borrower commits any breach of or omits to observe any of the
             obligations or undertakings expressed to be assumed by it under
             clauses 10.2 and 10.3 and/or the Guarantor commits any breach of or
             omits to observe any of the obligations or undertakings expressed
             to be assumed by it under clauses 10.2, 10.3 or 10.6; or

11.1.4       BREACH OF OTHER OBLIGATIONS: any Security Party commits any breach
             of or omits to observe any of its obligations or undertakings
             expressed to be assumed by it under this Agreement or any of the
             Security Documents (other than those referred to in clauses 11.1.1,
             11.1.2 or 11.1.3 above) and, in respect of any such breach or
             omission which in the reasonable opinion of the Facility Agent
             (acting on the instructions of the Majority Lenders in accordance
             with the Agency Agreement) is capable of remedy, such action as the
             Facility Agent may require shall not have been taken within ten
             (10) days (or such longer period as the Facility Agent may specify)
             of the Facility Agent notifying the relevant Security Party of such
             default and of such required action; or

11.1.5       MISREPRESENTATION: any representation or warranty made or deemed to
             be made or repeated by or in respect of any Security Party in or
             pursuant to this Agreement or any of the other Security Documents
             or in any notice, certificate or statement referred to in or
             delivered under this Agreement or any of the other Security
             Documents is or proves to have been incorrect or misleading in any
             material respect when it was made or repeated; or

11.1.6       CROSS-DEFAULT: any Borrowed Money of any Security Party is not paid
             when due or any Borrowed Money of any Security Party becomes
             (whether by declaration or automatically in accordance with the
             relevant agreement or instrument constituting the same) due and
             payable prior to the date when it would otherwise have become due
             (unless as a result of the exercise by the relevant Security Party
             of a voluntary right of prepayment), or any creditor of any
             Security Party becomes entitled to declare any such Borrowed Money
             due and payable being, in any such case, an amount, or aggregate
             amount at any one time, of not less than (subject to the proviso
             below) three million Dollars ($3,000,000), (or its equivalent in
             any other currency) or any facility or commitment available to any
             Security Party relating to Borrowed Money, being in any such case,
             an amount, or aggregate amount at any one time, of not less than
             (subject to the proviso below) three million Dollars ($3,000,000),
             (or its equivalent in any other currency) is withdrawn, suspended
             or cancelled by reason of any default (however described) of the
             person concerned unless the relevant Security Party shall have
             satisfied the Facility Agent that such withdrawal, suspension or
             cancellation will not affect or prejudice in any way the relevant
             Security Party's ability to pay its debts as they fall due and fund
             its commitments, or any guarantee given by any Security Party in
             respect of Borrowed Money is not honoured when due and called upon
             in respect of the foregoing; or

11.1.7       LEGAL PROCESS:

             (a)  any judgment or order made against any Security Party is not
                  stayed or complied with within fourteen (14) days unless it is
                  being contested in good faith and with adequate resources; or

             (b)  a creditor attaches or takes possession of, or a distress,
                  execution, sequestration or other process is levied or
                  enforced upon or sued out against, any of the undertakings,
                  assets,

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<PAGE>

                  rights or revenues of any Security Party (other than in
                  respect of a Mortgaged Vessel to which clause 11.1.16 applies)
                  in an amount which exceeds one million Dollars ($1,000,000)
                  and is not discharged within fourteen (14) days or such longer
                  period as the Facility Agent may agree; or

11.1.8       INSOLVENCY: any Security Party:

             (a)  is unable or admits inability to pay its debt as they fall
                  due;

             (b)  suspends making payments on any of its debts or announces an
                  intention to do so;

             (c)  becomes insolvent;

             (d)  has assets the value of which is less than the value of its
                  liabilities (taking into account contingent and prospective
                  liabilities); or

             (e)  suffers the declaration of a moratorium in respect of any of
                  its Indebtedness; or

11.1.9       REDUCTION OR LOSS OF CAPITAL: a meeting is convened by any Security
             Party for the purpose of passing any resolution to purchase, reduce
             or redeem any of its share capital other than any share repurchase
             program which has been instituted by the Borrower after having
             obtained the prior written consent of the Facility Agent (acting on
             the instructions of the Lenders); or

11.1.10      WINDING UP: any corporate action, legal proceedings or other
             procedure or step is taken for the purpose of winding-up any
             Security Party (not being an action, proceedings or procedure which
             the relevant Security Party can demonstrate to the satisfaction of
             the Facility Agent, by providing an opinion of leading counsel to
             that effect, is frivolous, vexatious or an abuse of the process of
             the court or relates to a claim to which the relevant Security
             Party has a good defence and which is being vigorously contested by
             the relevant Security Party) or an order is made or resolution
             passed for the winding up of any Security Party or a notice is
             issued convening a meeting for the purpose of passing any such
             resolution; or

11.1.11      ADMINISTRATION: any petition is presented or other formal step is
             taken for the purpose of the appointment of an administrator of any
             Security Party or the Facility Agent acting reasonably believes
             that any such petition or other formal step is imminent or an
             administration order is made in relation to any Security Party; or

11.1.12      APPOINTMENT OF RECEIVERS AND MANAGERS: any administrative or other
             receiver is appointed of any Security Party or any material part of
             its assets and/or undertaking or any other formal steps are taken
             to enforce any Encumbrance over all or any part of the assets of
             any Security Party; or

11.1.13      COMPOSITIONS: any corporate action, legal proceedings or other
             procedures or steps are taken, or negotiations commenced, by any
             Security Party or by any of its creditors with a view to the
             general readjustment or rescheduling of all or part of its
             indebtedness or to proposing any kind of composition, compromise or
             arrangement involving such company and any of its creditors; or

11.1.14      ANALOGOUS PROCEEDINGS: there occurs, in relation to any Security
             Party, in any country or territory in which any of them carries on
             business or to the jurisdiction of whose courts any part of their
             assets is subject, any event which, in the reasonable opinion of
             the Majority Lenders, appears in that country or territory to
             correspond with, or have an effect equivalent or similar to, any of
             those mentioned in clauses 11.1.7 to 11.1.13 (inclusive) or any
             Security Party otherwise becomes subject, in any such country or
             territory, to the operation of any law relating to insolvency,
             bankruptcy or liquidation; or

11.1.15      CESSATION OF BUSINESS: any Security Party suspends or ceases to
             carry on its business; or

11.1.16      SEIZURE: all or a material part of the undertaking, assets, rights
             or revenues of, or shares or other ownership interests in, any
             Security Party are seized, nationalised, expropriated or
             compulsorily acquired by or under the authority of any Government
             Entity without the affected Security Party receiving adequate (as
             reasonably determined by the Facility Agent on behalf of the
             Majority Lenders) insurance proceeds or other compensation; or

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<PAGE>

11.1.17      INVALIDITY: this Agreement or any of the other Security Documents
             shall at any time and for any reason become invalid or
             unenforceable or otherwise cease to remain in full force and
             effect, or if the validity or enforceability of this Agreement or
             any of the other Security Documents shall at any time and for any
             reason be contested by any Security Party which is a party thereto;

11.1.18      UNLAWFULNESS: it becomes impossible or unlawful at any time for any
             Security Party, to fulfil any of the covenants and obligations
             expressed to be assumed by it in this Agreement or any of the other
             Security Documents or for the other Security Trustee to exercise
             the rights or any of them vested in it under this Agreement or any
             of the Security Documents or otherwise; or

11.1.19      REPUDIATION: any Security Party repudiates this Agreement or any of
             the other Security Documents or does or causes or permits to be
             done any act or thing evidencing an intention to repudiate this
             Agreement or any of the other Security Documents; or

11.1.20      ENCUMBRANCES ENFORCEABLE: any Encumbrance (other than Permitted
             Encumbrances) in respect of any of the property (or part thereof)
             which is the subject of this Agreement or any of the other Security
             Documents becomes enforceable; or

11.1.21      ARREST: any Mortgaged Vessel is arrested, confiscated, seized
             (other than a seizure contemplated by clause 11.1.16), taken in
             execution, impounded, forfeited, detained in exercise or purported
             exercise of any possessory lien or other claim or otherwise taken
             from the possession of the Borrower and the Borrower shall fail to
             procure the release of any Mortgaged Vessel within a period of
             sixty (60) days thereafter (or such longer period as the Lenders
             may agree in writing); or

11.1.22      REGISTRATION: the registration of any Mortgaged Vessel under the
             laws and flag of the Flag State is cancelled or terminated without
             the prior written consent of the Facility Agent or, if any
             Mortgaged Vessel is only provisionally registered on the date of
             Delivery, such Mortgaged Vessel is not permanently registered under
             the laws and flag of the Flag State within such period as is
             permitted by those laws or if such registration of any Mortgaged
             Vessel is not renewed prior to the expiry of such registration; or

11.1.23      UNREST: any Flag State becomes involved in hostilities or civil war
             or there is a seizure of power in any Flag State by
             unconstitutional means if, in any such case, such event is
             determined by the Majority Lenders to have a Material Adverse
             Effect on the Borrower or the Guarantor; or

11.1.24      ENVIRONMENT: the Borrower or any other Relevant Party fails to
             comply with any Environmental Law or any Environmental Approval or
             any Mortgaged Vessel or any other Relevant Vessel is involved in an
             Environmental Incident which gives rise or is likely to give rise
             to an Environmental Claim if, in any such case, such non-compliance
             or Environmental Incident or the consequences thereof could in the
             opinion of the Majority Lenders reasonably be expected to have a
             Material Adverse Effect on the Borrower or the Guarantor; or

11.1.25      P&I: the Borrower or the Guarantor or any other person fails or
             omits to comply with any requirements of the protection and
             indemnity association or other insurer with which a Mortgaged
             Vessel is entered for insurance or insured against protection and
             indemnity risks (including oil pollution risks) to the effect that
             any cover (including, without limitation, any cover in respect of
             liability for Environmental Claims arising in jurisdictions where
             such Mortgaged Vessel operates or trades) is or may be liable to
             cancellation, qualification or exclusion at any time; or

11.1.26      PARENT COMPANY: the Borrower ceases to be a wholly owned Subsidiary
             of the Guarantor; or

11.1.27      MATERIAL ADVERSE EFFECT: any other event occurs or circumstance
             arises in relation to any Security Party or any Mortgaged Vessel
             which is determined by the Lenders to have a Material Adverse
             Effect on the Borrower, and the other Security Parties taken as a
             whole; or

11.1.28      CHANGE OF CONTROL: any person obtains legal or beneficial ownership
             of thirty percent (30%) or more of the issued and outstanding
             capital stock of the Guarantor (excluding Lehman Bros. Inc. and its
             Subsidiaries or affiliates, such legal or beneficial ownership not
             to exceed fifty one percent (51%) of the issued and outstanding
             capital stock of the Guarantor); and

11.1.29      NOTE REDEMPTION: there occurs a mandatory redemption of the Notes
             whether by virtue of a repurchase at the option of the holders of
             the Notes or a voluntary redemption of the Notes, in

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<PAGE>

             either case without the Guarantor having obtained the prior written
             consent of the Facility Agent such consent not to be unreasonably
             withheld.

11.2     ACCELERATION

11.2.1   Without prejudice to clause 11.2.2 below, the Facility Agent may, and
         if so requested by the Majority Lenders, shall without prejudice to any
         other rights of the Lenders, at any time after the occurrence of an
         Event of Default which is then continuing beyond the relevant cure
         period as described in clause 11.2.3 below, if any, by notice to the
         Borrower declare that:

         (a)   the obligation of each Lender to make its Commitments available
               to the Borrower shall be terminated, whereupon the relevant
               Commitment or Commitments shall be reduced to zero forthwith;
               and/or

         (b)   the relevant Outstandings and all interest and commitment
               commission accrued and all other sums payable under this
               Agreement and any of the other relevant Security Documents have
               become due and payable, whereupon the same shall, immediately or
               in accordance with the terms of such notice, become due and
               payable.

11.2.2   With respect to the Borrower and the Guarantor, if a Default occurs
         under clauses 11.1.8 or 11.1.10 all relevant Outstandings and all
         interest and commitment commission accrued and all other sums payable
         under this Agreement and any of the other relevant Security Documents
         shall be immediately due and payable without declaration or other
         notice by the Facility Agent to the Borrower and/or the Guarantor.

11.2.3   If clauses 11.1.16, 11.1.17, 11.1.18, 11.1.19, 11.1.22, or 11.1.23,
         apply and the Lenders, in their absolute discretion, consider the
         circumstances giving rise to that application are capable of remedy
         within fifteen (15) Banking Days, no notice will be given under clause
         11.2.1 during that period for so long as the Lenders remain satisfied
         all appropriate steps are being taken to remedy the circumstances and
         they remain capable of remedy.

11.3     DEMAND BASIS

         If, pursuant to clause 11.2.1 the Facility Agent declares any
         Outstandings to be due and payable on demand, the Facility Agent may,
         (and, if so instructed by the Majority Lenders, shall) by written
         notice to the Borrower and/or the Guarantor:

11.3.1       call for repayment of the relevant Outstandings and/or all of the
             Outstandings on such date as may be specified whereupon such
             Outstandings shall become due and payable on the date so specified
             together with all interest and commitment commission accrued and
             all other sums payable under this Agreement; or

11.3.2       withdraw such declaration with effect from the date specified in
             such notice.

11.4     NO RESTRICTION ON EXERCISE OF RIGHTS

         For the avoidance of doubt, upon the occurrence of any Event of
         Default, the Facility Agent shall be entitled to exercise its rights
         under this clause 11 against the Borrower as it shall in its absolute
         discretion determine. The Facility Agent shall also be entitled to
         exercise its rights under clause 15 at any time after the occurrence of
         an Event of Default which is continuing and shall not be obliged to
         commence any proceeding under or enforce any other Encumbrance created
         by this Agreement or any other Security Document before claiming or
         commencing proceedings under the Guarantee.

12       INDEMNITIES

12.1     MISCELLANEOUS INDEMNITIES

         THE BORROWER SHALL ON DEMAND INDEMNIFY EACH CREDITOR, WITHOUT PREJUDICE
         TO ANY OF ITS OTHER RIGHTS UNDER THIS AGREEMENT OR ANY OF THE SECURITY
         DOCUMENTS, AGAINST ANY LOSS (INCLUDING LOSS OF MARGIN ACCRUING UPON AND
         UNTIL SUCH TIME AS ALL SUMS DUE UNDER THIS AGREEMENT HAVE BEEN REPAID
         IN FULL)

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<PAGE>

         OR EXPENSE WHICH EACH CREDITOR ACTING REASONABLY SHALL CERTIFY AS
         SUSTAINED OR INCURRED BY IT AS A CONSEQUENCE OF:

12.1.1       ANY DEFAULT IN PAYMENT BY THE BORROWER OF ANY SUM UNDER THIS
             AGREEMENT OR ANY OF THE OTHER SECURITY DOCUMENTS WHEN DUE;

12.1.2       THE OCCURRENCE OF ANY OTHER EVENT OF DEFAULT;

12.1.3       RECEIVING OR RECOVERING ALL OR ANY PART OF A SUM UNPAID OTHERWISE
             THAN ON THE DUE DATE FOR THE PAYMENT OF INTEREST IN RESPECT
             THEREOF;

12.1.4       ANY PREPAYMENT OF THE OUTSTANDINGS OR PART THEREOF BEING MADE UNDER
             CLAUSE 5.7, 6.3, 6.4, 6.6, 6.8, 8.8 OR 13.1, OR ANY OTHER REPAYMENT
             OF THE OUTSTANDINGS OR PART THEREOF BEING MADE OTHERWISE THAN ON AN
             INTEREST PAYMENT DATE OR ANY DUE DATE RELATING TO THE PART OF THE
             OUTSTANDINGS PREPAID OR REPAID;

12.1.5       ANY ADVANCE NOT BEING MADE FOR ANY REASON (EXCLUDING ANY DEFAULT BY
             THE RELEVANT CREDITOR) AFTER A DRAWDOWN NOTICE HAS BEEN GIVEN,

         INCLUDING, IN ANY SUCH CASE, BUT NOT LIMITED TO, ANY LOSS OR EXPENSE
         SUSTAINED OR INCURRED BY SUCH CREDITORS IN MAINTAINING OR FUNDING ALL
         OR ANY PART OF ITS COMMITMENT OR IN LIQUIDATING OR RE-EMPLOYING
         DEPOSITS FROM THIRD PARTIES ACQUIRED TO EFFECT OR MAINTAIN ITS
         COMMITMENT OR ANY PART THEREOF (COLLECTIVELY "BREAKAGE COSTS").

12.2     CURRENCY OF ACCOUNT; CURRENCY INDEMNITY

         NO PAYMENT BY THE BORROWER OR THE GUARANTOR UNDER THIS AGREEMENT WHICH
         IS MADE IN A CURRENCY OTHER THAN THE CURRENCY ("CONTRACTUAL CURRENCY")
         IN WHICH SUCH PAYMENT IS REQUIRED TO BE MADE PURSUANT TO THIS AGREEMENT
         SHALL DISCHARGE THE OBLIGATION IN RESPECT OF WHICH IT IS MADE EXCEPT TO
         THE EXTENT OF THE NET PROCEEDS IN THE CONTRACTUAL CURRENCY RECEIVED BY
         THE FACILITY AGENT UPON THE SALE OF THE CURRENCY SO RECEIVED, AFTER
         TAKING INTO ACCOUNT ANY PREMIUM AND COSTS OF EXCHANGE IN CONNECTION
         WITH SUCH SALE. FOR THE AVOIDANCE OF DOUBT THE FACILITY AGENT AND THE
         LENDERS SHALL NOT BE OBLIGED TO ACCEPT ANY SUCH PAYMENT IN A CURRENCY
         OTHER THAN THE CONTRACTUAL CURRENCY NOR SHALL THE FACILITY AGENT OR THE
         LENDERS BE LIABLE TO THE BORROWER OR THE GUARANTOR FOR ANY LOSS OR
         ALLEGED LOSS ARISING FROM FLUCTUATIONS IN EXCHANGE RATES BETWEEN THE
         DATE ON WHICH SUCH PAYMENT IS SO RECEIVED BY THE FACILITY AGENT AND THE
         DATE ON WHICH THE FACILITY AGENT EFFECTS SUCH SALE, AS TO WHICH THE
         FACILITY AGENT SHALL (AS AGAINST THE BORROWER OR THE GUARANTOR) HAVE AN
         ABSOLUTE DISCRETION. IF ANY SUM DUE FROM ANY BORROWER OR THE GUARANTOR
         UNDER THIS AGREEMENT OR ANY ORDER OR JUDGMENT GIVEN OR MADE IN RELATION
         HERETO IS REQUIRED TO BE CONVERTED FROM THE CONTRACTUAL CURRENCY OR THE
         CURRENCY IN WHICH THE SAME IS PAYABLE UNDER SUCH ORDER OR JUDGMENT (THE
         "FIRST CURRENCY") INTO ANOTHER CURRENCY (THE "SECOND CURRENCY") FOR THE
         PURPOSE OF (A) MAKING OR FILING A CLAIM OR PROOF AGAINST THE BORROWER
         OR THE GUARANTOR, (B) OBTAINING AN ORDER OR JUDGMENT IN ANY COURT OR
         OTHER TRIBUNAL OR (C) ENFORCING ANY ORDER OR JUDGMENT GIVEN OR MADE IN
         RELATION TO THIS AGREEMENT, THE BORROWER OR THE GUARANTOR (AS THE CASE
         MAY BE) SHALL INDEMNIFY AND HOLD HARMLESS THE FACILITY AGENT, THE
         ARRANGER AND EACH LENDER FROM AND AGAINST ANY LOSS SUFFERED AS A RESULT
         OF ANY DIFFERENCE BETWEEN (a) THE RATE OF EXCHANGE USED FOR SUCH
         PURPOSE TO CONVERT THE SUM IN QUESTION FROM THE FIRST CURRENCY INTO THE
         SECOND CURRENCY AND (b) THE RATE OR RATES OF EXCHANGE AT WHICH THE
         FACILITY AGENT, THE ARRANGER OR SUCH LENDER MAY IN THE ORDINARY COURSE
         OF BUSINESS PURCHASE THE FIRST CURRENCY WITH THE SECOND CURRENCY UPON
         RECEIPT OF A SUM PAID TO IT IN SATISFACTION, IN WHOLE OR IN PART, OF
         ANY SUCH ORDER, JUDGMENT, CLAIM OR PROOF. ANY AMOUNT DUE FROM ANY
         BORROWER OR THE GUARANTOR UNDER THE INDEMNITY CONTAINED IN THIS CLAUSE
         12.2 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 AND THE TERM

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         "RATE OF EXCHANGE" INCLUDES ANY PREMIUM AND COSTS OF EXCHANGE
         PAYABLE IN CONNECTION WITH THE PURCHASE OF THE FIRST CURRENCY WITH
         THE SECOND CURRENCY.

12.3     ENVIRONMENTAL INDEMNITY

         THE BORROWER AND THE GUARANTOR SHALL INDEMNIFY EACH CREDITOR ON DEMAND
         AND HOLD EACH CREDITOR HARMLESS FROM AND AGAINST ALL COSTS, EXPENSES,
         PAYMENTS, CHARGES, LOSSES, DEMANDS, LIABILITIES, ACTIONS, PROCEEDINGS
         (WHETHER CIVIL OR CRIMINAL), PENALTIES, FINES, DAMAGES, JUDGEMENTS,
         ORDERS, SANCTIONS OR OTHER OUTGOINGS OF WHATEVER NATURE ("LOSSES")
         WHICH MAY BE SUFFERED, INCURRED OR PAID BY, OR MADE OR ASSERTED AGAINST
         THE RELEVANT CREDITOR AT ANY TIME, WHETHER BEFORE OR AFTER THE
         REPAYMENT IN FULL OF PRINCIPAL AND INTEREST UNDER THIS AGREEMENT,
         RELATING TO, OR ARISING DIRECTLY OR INDIRECTLY IN ANY MANNER OR FOR ANY
         CAUSE OR REASON WHATSOEVER OUT OF AN ENVIRONMENTAL CLAIM MADE OR
         ASSERTED AGAINST SUCH CREDITOR IF SUCH ENVIRONMENTAL CLAIM WOULD NOT
         HAVE BEEN, OR BEEN CAPABLE OF BEING, MADE OR ASSERTED AGAINST THE
         RELEVANT CREDITOR IF IT HAD NOT ENTERED INTO THIS AGREEMENT OR ANY OF
         THE OTHER SECURITY DOCUMENTS AND/OR EXERCISED ANY OF ITS RIGHTS, POWERS
         AND DISCRETIONS THEREBY CONFERRED AND/OR PERFORMED ANY OF ITS
         OBLIGATIONS THEREUNDER AND/OR BEEN INVOLVED IN ANY OF THE TRANSACTIONS
         CONTEMPLATED BY THIS AGREEMENT OR ANY OF THE OTHER SECURITY DOCUMENTS.

13       UNLAWFULNESS AND INCREASED COSTS

13.1     UNLAWFULNESS

         If it is or becomes contrary to any law or regulation for any Lender to
         contribute to Advances or to maintain its Commitment or fund its
         contribution in the Outstandings, such Lender shall promptly, through
         the Facility Agent, notify the Borrower whereupon:

13.1.1       such Lender's Commitment shall be reduced to zero; and

13.1.2       the Borrower shall be obliged to prepay the Outstandings of such
             Lender either (a) forthwith or (b) on a future specified date not
             being earlier than the latest date permitted by the relevant law or
             regulation together with interest and commitment commission accrued
             to the date of prepayment and all other sums payable by the
             Borrower under this Agreement.

         Any prepayment pursuant to this clause 13.1 shall be made together with
         all amounts referred to in clause 6.5.

13.2     INCREASED COSTS

         If the result of any change in, or in the interpretation or application
         of, or the introduction of, any law or any regulation, request or
         requirement (whether or not having the force of law, but, if not having
         the force of law, with which any Lender or, as the case may be, its
         holding company habitually complies), including (without limitation)
         those relating to Taxation, capital adequacy, liquidity, reserve
         assets, cash ratio deposits and special deposits, is to:

13.2.1       subject any Lender to Taxes or change the basis of Taxation of any
             Lender with respect to any payment under this Agreement or any of
             the other Security Documents (other than Taxes or Taxation on the
             overall net income, profits or gains of such Lender imposed in the
             jurisdiction in which its principal or lending office under this
             Agreement is located); and/or

13.2.2       increase the cost to any Lender or its holding company in making or
             keeping the Commitment available or maintaining or funding all or
             part of such Lender's Outstandings; and/or

13.2.3       reduce the amount payable or the effective return to any Lender
             under this Agreement or any of the other Security Documents; and/or

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13.2.4       reduce any Lender's or its holding company's rate of return on its
             overall capital by reason of a change in the manner in which it is
             required to allocate capital resources to its obligations under
             this Agreement or any of the other Security Documents; and/or

13.2.5       require any Lender or its holding company to make a payment or
             forgo a return on or calculated by reference to any amount received
             or receivable by it under this Agreement or any of the other
             Security Documents; and/or

13.2.6       require any Lender or its holding company to incur or sustain a
             loss (including a loss of future potential profits) by reason of
             being obliged to deduct all or part of the Commitment or
             Outstandings from its capital for regulatory purposes,

         then and in each such case (subject to clause 13.3):

         (a)   such Lender shall notify the Facility Agent who shall notify the
               Borrower in writing of such event promptly upon its becoming
               aware of the same; and

         (b)   the Borrower shall on demand, made at any time whether or not the
               relevant Lender's Outstandings have been repaid, pay to the
               Facility Agent for the account of such Lender the amount which
               such Lender specifies (in a certificate setting forth the basis
               of the computation of such amount but not including any matters
               which such Lender or its holding company regards as confidential)
               is required to compensate such Lender and/or (as the case may be)
               its holding company for such liability to Taxes, cost, reduction,
               payment , forgone return or loss.

         For the purposes of this clause 13.2 "HOLDING COMPANY" means the
         company or entity (if any) within the consolidated supervision of
         which the relevant Lender is included.

13.3     EXCEPTION

         Nothing in clause 13.2 shall entitle any Lender to receive any amount
         in respect of compensation for any such liability to Taxes, increased
         or additional cost, reduction, payment, foregone return or loss (a) to
         the extent that the same is taken into account in calculating the
         Additional Cost or (b) to the extent that the same is the subject of an
         additional payment under clause 8.7.

14       SET-OFF, PRO RATA PAYMENTS

14.1     SET-OFF

14.1.1   The Borrower and the Guarantor authorises each Lender (without
         prejudice to any of such Lender's rights at law, in equity or
         otherwise), at any time when an Event of Default has occurred for so
         long as the same is continuing:

            (a) to apply any credit balance to which the Borrower or the
                Guarantor is then entitled standing upon any account of the
                Borrower or the Guarantor with any branch of such Lender in or
                towards satisfaction of any sum due and payable from the
                Borrower or the Guarantor to such Lender under this Agreement or
                any of the other Security Documents;

            (b) in the name of the Borrower or the Guarantor or such Lender to
                do all such acts and to execute all such documents as may be
                necessary or expedient to effect such application; and

            (c) to combine and/or consolidate all or any accounts in the name of
                the Borrower or the Guarantor with such Lender.

         For such purposes, each Lender is authorised to purchase with the
         moneys standing to the credit of such account such other currencies as
         may be necessary to effect such application. No Lender shall be obliged
         to exercise any right given to it by this clause 14.1. Each Lender
         shall notify the Facility Agent and the Borrower or the Guarantor
         forthwith upon the exercise or purported exercise of any right of
         set-off giving full details in relation thereto and the Facility Agent
         shall inform the other Lenders.

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14.2     PRO RATA PAYMENTS

14.2.1   If at any time any Lender (the "Recovering Lender") receives or
         recovers any amount owing to it by the Borrower under this Agreement by
         direct payment, set-off or in any manner other than by payment through
         the Facility Agent pursuant to clause 8.1 or 8.10 (not being a payment
         received from a Transferee Lender or a sub-participant in such Lender's
         Outstandings or any other payment of an amount due to the Recovering
         Lender for its sole account pursuant to clauses 5.1, 5.7, 6.4, 6.6,
         6.8, 6.9, 12.1, 12.3, 13.1 and 13.2 the Recovering Lender shall, within
         two Banking Days of such receipt or recovery (a "RELEVANT RECEIPT")
         notify the Facility Agent of the amount of the Relevant Receipt. If the
         Relevant Receipt exceeds the amount which the Recovering Lender would
         have received if the Relevant Receipt had been received by the Facility
         Agent and distributed pursuant to clause 8.1 or 8.10 as the case may
         be) then:

         (a)   within two (2) Banking Days of demand by the Facility Agent, the
               Recovering Lender shall pay to the Facility Agent an amount equal
               (or equivalent) to the excess;

         (b)   the Facility Agent shall treat the excess amount so paid by the
               Recovering Lender as if it were a payment made by the Borrower
               and shall distribute the same to the Lenders (other than the
               Recovering Lender) in accordance with clause 8.10; and

         (c)   as between the Borrower and the Recovering Lender the excess
               amount so re-distributed shall be treated as not having been paid
               but the obligations of the Borrower to the other Lenders shall,
               to the extent of the amount so re-distributed to them, be treated
               as discharged.

14.2.2   If any part of the Relevant Receipt subsequently has to be wholly or
         partly refunded by the Recovering Lender (whether to a liquidator or
         otherwise) each Lender to which any part of such Relevant Receipt was
         so re-distributed shall on request from the Recovering Lender repay to
         the Recovering Lender such Lender's pro rata share of the amount which
         has to be refunded by the Recovering Lender.

14.2.3   Each Lender shall on request supply to the Facility Agent such
         information as the Facility Agent may from time to time request for the
         purpose of this clause 14.2.

14.2.4   Notwithstanding the foregoing provisions of this clause 14.2 no Lender
         shall be obliged to share any Relevant Receipt which it receives or
         recovers pursuant to legal proceedings taken by it to recover any sums
         owing to it under this Agreement with any other party which has a legal
         right to, but does not, either join in such proceedings or commence and
         diligently pursue separate proceedings to enforce its rights in the
         same or another court (unless the proceedings instituted by the
         Recovering Lender are instituted by it without prior notice having been
         given to such party through the Facility Agent).

14.3     NO RELEASE

         For the avoidance of doubt it is hereby declared that failure by any
         Recovering Lender to comply with the provisions of clause 14.2 shall
         not release any other Recovering Lender from any of its obligations or
         liabilities under clause 14.2.

14.4     NO CHARGE

         The foregoing provisions of this clause 14 shall not, and shall not be
         construed so as to, constitute a charge by a Lender over all or any
         part of a sum received or recovered by it in the circumstances
         mentioned in clause 14.2.

15       GUARANTEE

15.1     GUARANTEE

         The Guarantor hereby irrevocably, unconditionally:

            (a) guarantees to each Creditor, the due performance by the Borrower
                of all its respective obligations under or pursuant to the
                Security Documents; and

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            (b) guarantees to each Creditor, the payment of all moneys now or
                hereafter due, owing or incurred by the Borrower under or
                pursuant to the Security Documents when the same become due
                whether by acceleration or otherwise.

         If for any reason the Borrower fails to discharge any such obligation
         or to pay any such moneys, the Guarantor shall immediately on demand by
         the Security Trustee discharge such obligation or, as the case may be,
         pay such moneys to the Security Trustee. This is a guarantee of payment
         and not of collection only.

15.2     GUARANTOR AS PRINCIPAL DEBTOR; INDEMNITY

         AS A SEPARATE AND INDEPENDENT STIPULATION, THE GUARANTOR IRREVOCABLY
         AND UNCONDITIONALLY AGREES THAT IF ANY PURPORTED OBLIGATION OR
         LIABILITY OF THE BORROWER WHICH WOULD HAVE BEEN THE SUBJECT OF THIS
         GUARANTEE HAD IT BEEN VALID AND ENFORCEABLE IS NOT OR CEASES TO BE
         VALID OR ENFORCEABLE AGAINST THE BORROWER ON ANY GROUND WHATSOEVER
         WHETHER OR NOT KNOWN TO THE CREDITORS OR ANY OF THEM (INCLUDING,
         WITHOUT LIMITATION, ANY IRREGULAR EXERCISE OR ABSENCE OF ANY CORPORATE
         POWER OR LACK OF AUTHORITY OF, OR BREACH OF DUTY BY, ANY PERSON
         PURPORTING TO ACT ON BEHALF OF THE BORROWER OR ANY LEGAL OR OTHER
         LIMITATION, WHETHER UNDER THE LIMITATION ACTS OR OTHERWISE OR ANY
         DISABILITY OR INCAPACITY OR ANY CHANGE IN THE CONSTITUTION OF THE
         BORROWER) THE GUARANTOR SHALL NEVERTHELESS BE LIABLE IN RESPECT OF THAT
         PURPORTED OBLIGATION OR LIABILITY AS IF THE SAME WERE FULLY VALID AND
         ENFORCEABLE AND THE GUARANTOR WERE THE PRINCIPAL DEBTOR IN RESPECT
         THEREOF. THE GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO
         INDEMNIFY AND KEEP INDEMNIFIED THE CREDITORS AGAINST ANY LOSS OR
         LIABILITY ARISING FROM ANY FAILURE OF THE BORROWER TO PERFORM OR
         DISCHARGE ANY SUCH PURPORTED OBLIGATION OR LIABILITY OR FROM ANY
         INVALIDITY OR UNENFORCEABILITY OF ANY OF THE SAME AGAINST THE BORROWER.

15.3     STATEMENTS OF ACCOUNT CONCLUSIVE

         Any statement of account of the Borrower, signed as correct by an
         officer of the Facility Agent, showing the amount of the Guaranteed
         Liabilities shall, in the absence of manifest error, be binding and
         conclusive on and against the Guarantor.

15.4     INTEREST

         The Guarantor agrees to pay interest on each amount demanded of it
         under this Guarantee from the date of such demand until payment (as
         well after as before judgment) at the rate specified in clause 5.4
         which shall apply to this Guarantee mutatis mutandis provided however
         that interest shall not be payable if and to the extent that interest
         under clause 5.4 is payable by the Borrower on the demanded amount and
         such interest payable by the Borrower is comprised in the Guaranteed
         Liabilities.

15.5     CONTINUING GUARANTEE

         This Guarantee shall extend to the ultimate balance from time to time
         owing to the Creditors by the Borrower and shall be a continuing
         guarantee, notwithstanding any intermediate payment, partial settlement
         or other matter whatsoever.

15.6     LIABILITY UNCONDITIONAL

         The liability of the Guarantor shall not be affected nor shall this
         Guarantee be discharged or reduced by reason of:

15.6.1      the Incapacity or any change in the name, style or constitution of
            the Borrower or any other person liable;

15.6.2      any of the Creditors granting any time, indulgence or concession to,
            or compounding with, discharging, releasing or varying the liability
            of the Borrower or any other person liable; or

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15.6.3       any amendment, variation or waiver (however material or
             fundamental) of the Security Documents; or

15.6.4       any act or omission which would not have discharged or affected the
             liability of the Guarantor had it been a principal debtor instead
             of the Borrower or by anything done or omitted which but for this
             provision might operate to exonerate the Guarantor.

15.7     COLLATERAL INSTRUMENTS

         None of the Creditors shall be obliged to make any claim or demand on
         the Borrower or to resort to any Collateral Instrument or other means
         of payment before enforcing this Guarantee and no action taken or
         omitted in connection with any such Collateral Instrument or other
         means of payment shall discharge, reduce, prejudice or affect the
         liability of the Guarantor under this Guarantee. None of the Creditors
         shall be obliged to apply any money or other property received or
         recovered in consequence of any enforcement or realisation of any such
         Collateral Instrument or other means of payment in reduction of the
         Guaranteed Liabilities.

15.8     WAIVER OF GUARANTOR'S RIGHTS

         Until all the Guaranteed Liabilities have been paid, discharged or
         satisfied in full (and notwithstanding payment of a dividend in any
         liquidation or under any compromise or arrangement) the Guarantor
         agrees that, without the prior written consent of the Security Trustee,
         it will not:

15.8.1       exercise any rights of subrogation, contribution or indemnity
             against the Borrower or any other person liable;

15.8.2       demand or accept any Encumbrance to be executed or created in
             respect of any of its obligations under this Guarantee or any other
             Indebtedness now or hereafter due to the Guarantor from the
             Borrower or from any other person liable;

15.8.3       take any step to enforce any right against the Borrower or any
             other person liable in respect of any Guaranteed Liabilities; or

15.8.4       exercise any right of set-off or counterclaim against the Borrower
             or any other person liable or claim or prove or vote as a creditor
             in competition with any of the Creditors in the liquidation,
             administration or other insolvency proceeding of the Borrower or
             any other person liable or have the benefit of, or share in, any
             payment from or composition with, the Borrower or any other person
             liable or any Collateral Instrument now or hereafter held by any of
             the Creditors for any Guaranteed Liabilities or for the obligations
             or liabilities of any other person liable.

15.9     SUSPENSE ACCOUNTS

         Any money received in connection with this Guarantee (whether before or
         after any Incapacity of the Borrower or the Guarantor) may be placed to
         the credit of an interest-bearing suspense account with a view to
         preserving the rights of the Creditors to prove for the whole of their
         respective claims against the Borrower or any other person liable or
         may be applied in or towards satisfaction of such of the Guaranteed
         Liabilities as the Security Trustee may from time to time conclusively
         determine in its absolute discretion (but acting on the instructions of
         the Lenders) notwithstanding any appropriation (or purported
         appropriation) by the Guarantor.

15.10    SETTLEMENTS CONDITIONAL

         Any release, discharge or settlement between the Guarantor and the
         Security Trustee or any of the Creditors shall be conditional upon no
         security, disposition or payment to any of the Creditors by the
         Borrower or any other person liable being void, set aside or ordered to
         be refunded pursuant to any enactment or law relating to bankruptcy,
         liquidation, administration or insolvency or for any other reason
         whatsoever and if such condition is not fulfilled the Creditors shall
         be entitled to enforce this Guarantee as if such release, discharge or
         settlement had not occurred and such payment had not been made.

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15.11    GUARANTOR TO DELIVER UP CERTAIN PROPERTY

         If, contrary to clause 15.8, the Guarantor takes or receives the
         benefit of any Encumbrance or receives or recovers any money or other
         property, such Encumbrance, money or other property shall be held on
         trust for the Creditors and shall be delivered to the Security Trustee
         on demand.

15.12    CHANGES IN CONSTITUTION OR REORGANISATIONS OF CREDITORS

         For the avoidance of doubt and without prejudice to the provisions of
         clause 16, this Guarantee shall remain binding on the Guarantor
         notwithstanding any change in the constitution of the Creditors or any
         of them or their or its absorption in, or amalgamation with, or the
         acquisition of all or part of their or its undertaking or assets by,
         any other person, or any reconstruction or reorganisation of any kind,
         to the intent that this Guarantee shall remain valid and effective in
         all respects in favour of any assignee, transferee or other successor
         in title of the Creditors in the same manner as if such assignee,
         transferee or other successor in title had been named in this Guarantee
         as a party instead of, or in addition to, the relevant Creditor.

16       TRANSFER AND LENDING OFFICE

16.1     BENEFIT AND BURDEN

         This Agreement shall be binding upon, and enure for the benefit of,
         each of the Creditors, the Borrower and the Guarantor and their
         respective successors.

16.2     NO ASSIGNMENT BY BORROWER OR GUARANTOR

         Neither the Borrower nor the Guarantor may assign or transfer any of
         their respective rights or obligations under this Agreement or any of
         the Security Documents.

16.3     TRANSFERS

16.3.1   Any Lender (the "TRANSFEROR LENDER") may at any time, transfer all or
         any part of its rights, benefits and/or obligations under this
         Agreement and the Security Documents to its Subsidiaries, affiliates or
         associates or to a federal reserve bank, central bank or other monetary
         or regulatory authority having jurisdiction over such Lender or to any
         other Lender without the consent of the Borrower.

16.3.2   So long as no Default has occurred and is then continuing, any other
         transfers to any other bank or financial institution shall require the
         consent of the Borrower (such consent not to be unreasonably withheld
         or delayed (and for the purposes of this clause 16.3, it shall be
         deemed unreasonable for the Borrower to withhold or delay such consent
         on the grounds that any proposed transfer by a Lender of part of its
         rights, benefits and/or obligations would result in the number of
         Lenders being increased if, after such transfer, there would be no more
         than eight (8) Lenders) provided always that there shall not at any
         time be more than eight (8) Lenders unless all of the parties to this
         Agreement have otherwise agreed).

16.3.3   Transfers to any lender or financial institution (a "TRANSFEREE
         LENDER") shall be effected by the Transferor Lender delivering to the
         Facility Agent a Transfer Certificate duly completed and duly executed
         by the Transferor Lender and the Transferee Lender.

16.3.4   Any transfer by a Lender shall be offered and effected in compliance
         with all applicable laws and regulations. If the Borrower fails to
         respond to a request for such consent within ten (10) days of such
         request being made, the Borrower shall be deemed to have given such
         consent. No such transfer is binding on, or effective in relation to,
         the Guarantor, the Borrower, the Facility Agent, or the Security
         Trustee unless it is effected or evidenced by a Transfer Certificate
         which complies with the provisions of this clause 16.3 and is signed by
         or on behalf of the Transferor Lender, the Transferee Lender and the
         Facility Agent (on behalf of itself, the Guarantor, the Borrower, the
         Security Trustee and the other Lenders). Upon signature of any such
         Transfer Certificate by the Facility Agent, which signature shall be
         effected as promptly as is practicable after such Transfer Certificate
         has been delivered to the Facility Agent, and subject to the terms of
         such Transfer Certificate, such Transfer Certificate shall have effect
         as set out below.

16.3.5   The following further provisions shall have effect in relation to any
         Transfer Certificate:

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         (a)   a Transfer Certificate may be in respect of a Lender's rights in
               respect of all or part, of its Commitment and shall be in respect
               of the same proportion of its Outstandings;

         (b)   a Transfer Certificate shall only be in respect of rights and
               obligations of the Transferor Lender in its capacity as a Lender
               and shall not transfer its rights and obligations as Facility
               Agent or Security Trustee or in any other capacity, as the case
               may be and such other rights and obligations may only be
               transferred in accordance with any applicable provisions of the
               Agency Agreement;

         (c)   a Transfer Certificate shall take effect in accordance with
               English law as follows:

                  (i)   to the extent specified in the Transfer Certificate, the
                        Transferor Lender's payment rights and all its other
                        rights (other than those referred to in paragraph (b)
                        above) under this Agreement are assigned to the
                        Transferee Lender absolutely, free of any defects in the
                        Transferor Lender's title and of any rights or equities
                        which the Borrower had against the Transferor Lender;

                  (ii)  the Transferor Lender's Commitment is discharged to the
                        extent specified in the Transfer Certificate;

                  (iii) the Transferee Lender becomes a Lender with Outstandings
                        and an undrawn Commitment of the amount specified in the
                        Transfer Certificate;

                  (iv)  the Transferee Lender becomes bound by all the
                        provisions of this Agreement and the Security Documents
                        which are applicable to the Lenders generally, including
                        those about pro-rata sharing and the exclusion of
                        liability on the part of, and the indemnification of,
                        the Facility Agent and the Security Trustee in
                        accordance with the provisions of the Agency Agreement
                        and to the extent that the Transferee Lender becomes
                        bound by those provisions, the Transferor Lender ceases
                        to be bound by them;

                  (v)   the contribution to the Outstandings which the
                        Transferee Lender makes after the Transfer Certificate
                        comes into effect rank in point of priority and security
                        in the same way as it would have ranked had it been made
                        by the Transferor Lender, assuming that any defects in
                        the Transferor Lender's title and any rights or equities
                        of any Security Party against the Transferor Lender had
                        not existed; and

                  (vi)  the Transferee Lender becomes entitled to all the rights
                        under this Agreement which are applicable to the Lenders
                        generally, including but not limited to those relating
                        to the Majority Lenders and those under clauses 5.7, 7
                        and 13, and to the extent that the Transferee Lender
                        becomes entitled to such rights, the Transferor Lender
                        ceases to be entitled to them;

         (d)   the rights and equities of the Borrower or of any other Security
               Party referred to above include, but are not limited to, any
               right of set off and any other kind of cross-claim; and

         (e)   the Guarantor, the Borrower, the Security Trustee and the Lenders
               hereby irrevocably authorise and instruct the Facility Agent to
               sign any such Transfer Certificate on its behalf (and, in the
               case of the Security Trustee, on behalf of any Security Party
               which has in the relevant Security Document given a corresponding
               authorisation and instruction to the Security Trustee) and
               undertake not to withdraw, revoke or qualify such authority or
               instruction at any time. Promptly upon its signature of any
               Transfer Certificate, the Facility Agent shall notify the
               Guarantor, the Borrower, the Security Trustee the Transferor
               Lender, the Transferee Lender and the other Lenders.

16.4     RELIANCE ON TRANSFER CERTIFICATE

16.4.1   The Facility Agent shall be entitled to rely on any Transfer
         Certificate believed by it to be genuine and correct and to have been
         presented or signed by the persons by whom it purports to have been
         presented or signed, and shall not be liable to any of the parties to
         this Agreement and the Security Documents for the consequences of such
         reliance.

                                       53

<PAGE>

16.4.2   The Facility Agent shall at all times during the continuation of this
         Agreement maintain a register in which it shall record the name,
         Commitments, or, as the case may be, Outstandings and administrative
         details (including the lending office) from time to time of each Lender
         holding Transfer Certificates and the date at which the transfer
         referred to in such Transfer Certificate held by each Lender was
         transferred to such Lender, and the Facility Agent shall make the said
         register available for inspection by any Lender, the Security Trustee
         and the Borrower during normal banking hours upon receipt by the
         Facility Agent of reasonable prior notice requesting the Facility Agent
         to do so.

16.4.3   The entries on the said register shall, in the absence of manifest
         error, be conclusive in determining the identities of the Commitments
         or, as the case may be, the Outstandings and the Transfer Certificates
         held by the Lenders from time to time and the principal amounts of such
         Transfer Certificates and may be relied upon by the Facility Agent, the
         Security Trustee and the other Security Parties for all purposes in
         connection with this Agreement and the Security Documents.

16.5     TRANSFER FEES AND EXPENSES

         If any Lender causes the transfer of all or any part of its rights,
         benefits and/or obligations under this Agreement or the Security
         Documents, it shall pay or procure that the Transferee Lender pays to
         the Facility Agent for its own account a registration fee of one
         thousand Dollars ($1,000) for each transfer, and shall also pay to the
         Facility Agent on demand all out of pocket costs, fees and expenses
         (including, but not limited to, legal fees and expenses), and all value
         added tax thereon, certified by the Facility Agent as having been
         reasonably and properly incurred by it in connection with such
         transfer.

16.6     DOCUMENTING TRANSFERS

         If any Lender transfers all or any part of its rights, benefits and/or
         obligations as provided in clause 16.3 the Guarantor and the Borrower
         undertakes, immediately on being requested to do so by the Facility
         Agent and at the cost of the Transferor Lender, to enter into, and
         procure that the other Security Parties shall enter into, such
         documents as may be necessary or desirable to transfer to the
         Transferee Lender all or the relevant part of such Lender's interest in
         this Agreement and the Security Documents and all relevant references
         in this Agreement to such Lender shall thereafter be construed as a
         reference to the Lender and/or its Transferee Lender (as the case may
         be) to the extent of their respective interests.

16.7     SUB-PARTICIPATION

         A Lender may sub-participate all or any part of its rights and/or
         obligations under this Agreement and the Security Documents to another
         bank or financial institution with the prior consent of the Borrower
         and the Facility Agent (such consent not to be unreasonably withheld or
         delayed).

16.8     LENDING OFFICE

         Each Lender shall lend through its office at the address specified in
         Schedule 1 or, as the case may be, in any relevant Transfer Certificate
         or through any other office of such Lender selected from time to time
         by it through which such Lender wishes to lend for the purposes of this
         Agreement. If the office through which such Lender is lending is
         changed pursuant to this clause 16.8, such Lender shall notify the
         Facility Agent promptly of such change and the Facility Agent shall
         notify the Borrower.

16.9     DISCLOSURE OF INFORMATION

         Any Lender may (with the prior written consent of the Borrower such
         consent not to be unreasonable withheld or delayed) disclose to a
         prospective assignee, substitute or transferee or to any other person
         who may propose entering into contractual relations with such Lender in
         relation to this Agreement such information about the Guarantor and the
         Borrower as such Lender shall consider appropriate.

16.10    NO ADDITIONAL COSTS

         If at the time of, or immediately after, any assignment by any Lender
         of all or any part of its rights or benefits under this Agreement or
         any transfer by any Lender of any part of the rights, benefits and/or
         obligations under this Agreement, or any change in the office through
         which it lends for the purposes of this Agreement, the Borrower would
         be obliged to pay to the assignee or Transferee Lender or (in

                                       54

<PAGE>

         the case of a change of lending office) the Lender under clause 8.9 or
         13.2 any sum in excess of the sum (if any) which it would have been
         obliged to pay to such Lender under the relevant clause in the absence
         of such assignment, transfer or change, the Borrower shall not be
         obliged to pay that excess.

17       FACILITY AGENT, SECURITY TRUSTEE AND REFERENCE BANKS

17.1     APPOINTMENT OF THE FACILITY AGENT AND THE SECURITY TRUSTEE

         The terms and basis on which the Facility Agent and the Security
         Trustee have been appointed by the Lenders as Facility Agent and as
         Security Trustee respectively are set out in the Agency Agreement
         including, among other things, the manner in which any decision to
         exercise any right, powers, discretion or authority or to carry out any
         duty are to be made between the Lenders, the Facility Agent and the
         Security Trustee.

17.2     REFERENCE BANKS

         If:

17.2.1       the Outstandings (if any) of any Reference Bank is prepaid; or

17.2.2       the Commitments (if any) of any Reference Bank are reduced to zero
             in accordance with clause 13; or

17.2.3       a Reference Bank transfers the whole of its rights and obligations
             (if any) as a Lender under this Agreement; or

17.2.4       where applicable, any Reference Bank ceases to provide quotations
             to the Facility Agent for the purposes of determining LIBOR,

         the Facility Agent may, acting on the instructions of the Majority
         Lenders, terminate the appointment of such Reference Bank and appoint
         another Lender to replace such Reference Bank.

18       NOTICES AND OTHER MATTERS

18.1     NOTICES

         Every notice, request, demand or other communication under this
         Agreement or (unless otherwise provided therein) under any of the other
         Security Documents shall:

18.1.1       be in writing delivered personally or by first-class prepaid letter
             (airmail if available) or facsimile transmission or other means of
             telecommunication in permanent written form;

18.1.2       be deemed to have been received, subject as otherwise provided in
             any relevant Security Document, in the case of a letter, when
             delivered personally or seven (7) days after it has been put in to
             the post and, in the case of a facsimile transmission or other
             means of telecommunication in permanent written form, at the time
             of despatch (provided that if the date of despatch is not a
             business day in the country of the addressee or if the time of
             despatch is after the close of business in the country of the
             addressee it shall be deemed to have been received at the opening
             of business on the next such business day); and

18.1.3       be sent:

             (a) to the Borrower at:

                 Gulf Offshore N.S. Limited
                 184-192 Market Street
                 Aberdeen AB11 5PQ
                 Scotland

                 Fax No: + 44 1224-336-039
                 Attention: David Kenwright

                                       55

<PAGE>

             (b) to the Guarantor at:

                 GulfMark Offshore, Inc.
                 10111 Richmond Ave., Suite 340
                 Houston,
                 TX 77042

                 Fax No: 713-963-9796
                 Attention:Edward A. Guthrie

             (c) to the Security Trustee or Facility Agent at:

                 Nordea Bank Finland Plc
                 437 Madison Avenue
                 New York
                 NY 10022
                 USA

                 If in respect of credit matters:
                 Fax: +1 212 421 4420
                 Attn: Shipping, Offshore and Oil Services

                 If in respect of loan administration matters:
                 Fax no: +1 212 750 9188
                 Attention: Loan Administration

             (d) to each Lender at its address or fax number specified in
                 Schedule 1 or in any relevant Transfer Certificate,

             or to such other address and/or numbers as is notified by one party
             to the other party under this Agreement.

18.2     NO IMPLIED WAIVERS, REMEDIES CUMULATIVE

         No failure or delay on the part of any Creditor to exercise any power,
         right or remedy under this Agreement or any of the other Security
         Documents shall operate as a waiver thereof, nor shall any single or
         partial exercise by any Creditor of any power, right or remedy preclude
         any other or further exercise thereof or the exercise of any other
         power, right or remedy. The remedies provided in this Agreement or the
         other Security Documents are cumulative and are not exclusive of any
         remedies provided by law.

18.3     FURTHER ASSURANCE

         The Guarantor and the Borrower undertake that this Agreement and each
         of the other Security Documents shall both at the date of execution and
         delivery thereof and so long as any moneys are owing under this
         Agreement or any of the other Security Documents, be valid and binding
         obligations of the respective parties thereto and the rights of the
         Creditors thereunder enforceable in accordance with their respective
         terms and that they will, at their expense, execute, sign, perfect and
         do, and will procure the execution, signing, perfecting and doing by
         each of the other Security Parties of, any and every such further
         assurance, document, act or thing as in the reasonable opinion of the
         Security Trustee may be necessary or desirable for perfecting the
         security contemplated or constituted by this Agreement or the Security
         Documents.

18.4     AMENDMENTS AND WAIVERS

         Amendments to and waivers under this Agreement may only be agreed in
         accordance with clause 2.4.2 of the Agency Agreement.

                                       56

<PAGE>

18.5     CONFLICTS

         In the event of any conflict between this Agreement and any of the
         other Security Documents, the provisions of this Agreement shall
         prevail.

18.6     ENGLISH LANGUAGE

         All certificates, instruments and other documents to be delivered under
         or supplied in connection with this Agreement or any of the other
         Security Documents shall be in the English language or shall be
         accompanied by a certified English translation upon which the Facility
         Agent shall be entitled to rely.

18.7     CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

         No term of this Agreement is enforceable under the Contracts (Rights of
         Third Parties) Act 1999 by a person who is not a party to this
         Agreement.

18.8     MONEY LAUNDERING

         Without prejudice to the generality of the foregoing in relation to the
         borrowing by the Borrower of the Outstandings, the performance and
         discharge of their respective obligations and liabilities under this
         Agreement and the other Security Documents, and the transactions and
         other arrangements effected or contemplated by this Agreement and the
         other Security Documents to which the Borrower is a party, the Borrower
         confirms it is acting for its own account and that the foregoing will
         not involve or lead to contravention of any law, official requirement
         or other regulatory measure or procedure implemented to combat "MONEY
         LAUNDERING" (as defined in Article 1 of the Directive (91/308/EEC) of
         the Council of the European Communities).

19       GOVERNING LAW AND JURISDICTION

19.1     LAW

         This Agreement is governed by and shall be construed in accordance with
         English law.

19.2     SUBMISSION TO JURISDICTION

         The Borrower and the Guarantor agree, for the benefit of the Creditors,
         that any legal action or proceedings arising out of or in connection
         with this Agreement against the Borrower or the Guarantor and any of
         their respective assets may be brought in the English courts. The
         Borrower and the Guarantor irrevocably and unconditionally submit to
         the jurisdiction of such courts and the Guarantor irrevocably
         designates, appoints and empowers the Borrower at present of 10
         Charlotte Road, Barnes, London SW13 9Q3, United Kingdom to receive for
         it and on its behalf, service of process issued out of the English
         courts in such legal action or proceedings. The submission to such
         jurisdiction shall not (and shall not be construed so as to) limit the
         right of any Creditor to take proceedings against the Borrower and/or
         the Guarantor in the courts of any other competent jurisdiction nor
         shall the taking of proceedings in any one or more jurisdictions
         preclude the taking of proceedings in any other jurisdiction, whether
         concurrently or not. The parties further agree that only the courts of
         England and not those of any other state shall have jurisdiction to
         determine any claim which the Borrower and/or the Guarantor may have
         against any Creditor arising out of or in connection with this
         Agreement.

IN WITNESS whereof the parties to this Agreement have caused this Agreement to
be duly executed on the date first above written.

                                       57
<PAGE>

                                   SCHEDULE 1

                        THE LENDERS AND THEIR COMMITMENTS

<TABLE>
<CAPTION>
                                                                      TOTAL COMMITMENT
        NAME                        ADDRESS AND FAX NUMBER                  USD
-----------------------        --------------------------------       ----------------
<S>                            <C>                                    <C>
Nordea Bank Finland Plc        437 Madison Avenue                        50,000,000
                               New York
                               NY 10022
                               USA

                               Credit Matters:
                               Fax: +1 212 421 4420
                               Attn: Shipping, Offshore and Oil
                               Services

                               Loan Administration Matters:
                               Fax: +1 212 750 9188
                               Attn: Loan Administration

TOTAL COMMITMENTS                                                        50,000,000
                                                                         ----------
</TABLE>

                                       58
<PAGE>

                           SCHEDULE 2
                      THE MORTGAGED VESSELS

<TABLE>
<CAPTION>
                                                                CLASSIFICATION
      VESSEL                OWNER        FLAG STATE                SOCIETY                     CLASSIFICATION
-----------------         ---------   --------------      ---------------------------    ---------------------------
<S>                       <C>         <C>                 <C>                            <C>
 HIGHLAND DRUMMER         Borrower    United Kingdom              Det Norske                         [-]
                                                                    Veritas

HIGHLAND FORTRESS         Borrower    United Kingdom              Det Norske                         [-]
                                                                    Veritas

  HIGHLAND ROVER          Borrower    United Kingdom              Det Norske                         [-]
                                                                    Veritas

 HIGHLAND SPIRIT          Borrower    United Kingdom              Det Norske                         [-]
                                                                    Veritas

  HIGHLAND PIPER          Borrower    United Kingdom              Det Norske                         [-]
                                                                    Veritas

 HIGHLAND CITADEL         Borrower    United Kingdom              Det Norske                         [-]
                                                                    Veritas

  HIGHLAND GUIDE          Guarantor   Panama              American Bureau of Shipping    +A1, Fighting Vessel, Class
                                                                                             I, E (circled) + AMS

  HIGHLAND SCOUT          Guarantor   Panama              American Bureau of Shipping       +A1, E (circled) + AMS
</TABLE>

                                       59
<PAGE>

                                   SCHEDULE 3

                             FORM OF DRAWDOWN NOTICE

                           (referred to in clause 3.1)

(DATE)

To:   [Name and address of Facility Agent]

U.S.$50,000,000 SENIOR SECURED REVOLVING CREDIT FACILITY DATED - December 2004
("AGREEMENT")

We refer to the above Agreement and hereby give you notice that we wish to draw
down an Advance of $- [NB: SPECIFY DOLLAR AMOUNT] on - [NB: SPECIFY DATE] and
[select a first Interest Period in respect thereof of - months] [the first
Interest Period in respect thereof to expire on - [NB: SPECIFY]]. The funds
should be credited to [NB: NAME AND NUMBER OF ACCOUNT] with - [NB: SPECIFY
DETAILS OF LENDER IN NEW YORK CITY].

We confirm that:

(a)   no event or circumstance has occurred and is continuing which constitutes
      a Default;

(b)   the representations and warranties contained in clauses 9.1 of the
      Facility Agreement (and so that the representation and warranty in clause
      9.1.9 refers for this purpose to the audited financial statements of the
      Guarantor [and the consolidated financial statements of the Guarantor and
      its Subsidiaries] in respect of the financial year ended on - [NB: INSERT
      DATE]) are true and correct at the date hereof as if made with respect to
      the facts and circumstances existing at such date;

(c)   the borrowing to be effected by the drawdown of such Advance will be
      within our corporate powers, has been validly authorised by appropriate
      corporate action and will not cause any limit on our borrowings (whether
      imposed by statute, regulation, agreement or otherwise) to be exceeded;
      and

(d)   there has been no event or occurrence which would have a Material Adverse
      Effect upon the Borrower or on the Guarantor.

Words and expressions defined in the Agreement shall have the same meanings
where used herein.

For and on behalf of
GULF OFFSHORE N.S. LIMITED

                                       60
<PAGE>

                                   SCHEDULE 4
             DOCUMENTS AND EVIDENCE REQUIRED AS CONDITIONS PRECEDENT

                          (referred to in clause 3.1.1)

                                     PART 1

(a)      CONSTITUTIONAL DOCUMENTS

         copies, certified by an officer of each Security Party as true,
         complete and up to date copies of all documents which contain or
         establish or relate to the constitution of that Security Party;

(b)      CORPORATE AUTHORISATIONS

         copies of resolutions of the directors of each Security Party approving
         this Agreement and the Security Documents to which such Security Party
         is, or is to be, party and authorising the signature, delivery and
         performance of such Security Party's obligations thereunder, certified
         (in a certificate dated no earlier than five (5) Banking Days prior to
         the date of this Agreement) by an officer of such Security Party as:

         (i)      being true and correct;

         (ii)     being duly passed at meetings of the directors of such
                  Security Party each duly convened and held;

         (iii)    not having been amended, modified or revoked; and

         (iv)     being in full force and effect

         together with originals or certified copies of any powers of attorney
         issued by any Security Party pursuant to such resolutions;

(c)      SPECIMEN SIGNATURES

         copies of the signatures of the persons who have been authorised on
         behalf of each Security Party to sign this Agreement and the Security
         Documents to which such Security Party is, or is to be, party and to
         give notices and communications, including notices of drawing, under or
         in connection with this Agreement and the Security Documents, certified
         (in a certificate dated no earlier than five (5) Banking Days prior to
         the date of this Agreement) by an officer of such Security Party as
         being the true signatures of such persons;

(d)      CERTIFICATE OF INCUMBENCY

         a list of directors and officers of each Security Party specifying the
         names and positions of such persons, certified (in a certificate dated
         no earlier than five (5) Banking Days prior to the date of this
         Agreement) by an officer of such Security Party to be true, complete
         and up to date;

(e)      IDENTIFICATION PAPERS

         the certificates of incumbency (and any power of attorney of
         individuals acting on behalf of any Security Party) should be
         accompanied by certified copies of identification papers (such as
         passports and identification cards) of each individual acting on behalf
         of any Security Party;

(f)      BORROWER CONSENTS AND APPROVALS

         a certificate (dated no earlier than five (5) Banking Days prior to the
         date of this Agreement) from an officer of the Borrower that no
         consents, authorisations, licences or approvals are necessary for the
         Borrower to authorise or are required by the Borrower in connection
         with the

                                       61
<PAGE>

         borrowing by the Borrower of its Commitment pursuant to this Agreement
         or the execution, delivery and performance of the Security Documents;

(g)      OTHER CONSENTS AND APPROVALS

         a certificate (dated no earlier than five (5) Banking Days prior to the
         date of this Agreement) from an officer of each Security Party (other
         than the Borrower) that no consents, authorisations, licences or
         approvals are necessary for such Security Party to guarantee and/or
         grant security for the borrowing by the Borrower of the Commitment
         pursuant to this Agreement and execute, deliver and perform the
         Security Documents insofar as such Security Party is a party thereto;

(h)      FEE LETTERS

         the fee letters referred to in clause 7.1 duly executed by the parties
         thereto;

(i)      FEES AND EXPENSES

         evidence that the fees due on or before the First Drawdown Date under
         the fee letters referred to above have been paid in full;

(j)      VALUATIONS

         valuation reports dated no more than thirty (30) days before the date
         of this Agreement for each of the Vessels listed in Schedule 2
         evidencing the Fair Market Value of the relevant Vessels in form and
         substance satisfactory to the Facility Agent;

(k)      GUARANTOR'S PROCESS AGENT

         an original letter from the Guarantor's agent for receipt of service of
         proceedings referred to in clause 19.2 accepting its appointment under
         clause 19 and under each of the other Security Documents in which it is
         or is to be appointed as the Guarantor's agent.

                                       62
<PAGE>

                                     PART 2

                          (referred to in clause 3.1.2)

(a)      VESSEL CONDITIONS

         evidence that each Mortgaged Vessel:

         (i)      REGISTRATION AND ENCUMBRANCES

                  is permanently registered in the name of the Borrower or the
                  Guarantor under the laws and flag of the Flag State and that
                  any such Mortgaged Vessel and its Earnings, and Insurances and
                  Requisition Compensation are free of Encumbrances (other than
                  any Permitted Encumbrance and the relevant Mortgage);

         (ii)     CLASSIFICATION

                  maintains the Classification as required by this Agreement;
                  and

         (iii)    INSURANCE

                  is insured in accordance with the provisions of this Agreement
                  and the Security Documents and all requirements of this
                  Agreement and the Security Documents in respect of such
                  insurance have been complied with;

(b)      SECURITY DOCUMENTS

         the Mortgages, the Collateral Deeds, any Consents and Acknowledgements
         relating to each Mortgaged Vessel and the Agency Agreement duly
         executed;

(c)      MORTGAGE REGISTRATION

         under the laws of each Flag State evidence that each Mortgage has been
         registered against each Mortgaged Vessel in its Flag State so that such
         Vessel has become a Mortgaged Vessel;

(d)      ENGLISH OPINION

         an opinion of Messrs Norton Rose, legal advisers in England to the
         Facility Agent and of Messrs Peachey & Co., legal advisers to the
         Borrower in England, in each case addressed to the Facility Agent (for
         the benefit of itself and the Lenders) dated no earlier than five (5)
         days earlier than the date of drawdown of the first Advance;

(e)      UNITED STATES OPINION

         an opinion of Messrs Holland & Knight special legal advisers regarding
         United States law to the Facility Agent and an opinion of Strasburger &
         Price, LLP legal advisers to the Borrower and the Guarantor in the
         United States, in each case addressed to the Facility Agent (for the
         benefit of itself and the Lenders) dated no earlier than five (5) days
         prior to the date of drawdown of the first Advance;

(f)      PANAMANIAN OPINION

         an opinion of Messrs Patton, Moreno & Asvat special legal advisers
         regarding Panamanian law to the Facility Agent addressed to the
         Facility Agent (for the benefit of itself and the Lenders) dated no
         earlier than five (5) days prior to the date of drawdown of the first
         Advance;

(g)      FURTHER OPINIONS

         any such further opinion as may be reasonably required by the Facility
         Agent;

                                       63
<PAGE>

(h)      INSURANCE OPINION

         an opinion from Marsh Marine & Energy AS, insurance consultants to the
         Facility Agent, evidencing that the Insurances for the Mortgaged
         Vessels have been placed in accordance with customary market practices
         and the provisions of this Agreement and otherwise in accordance with
         market practice (such opinion to be at the cost of the Borrower);

(i)      VALUATIONS

         such further valuation reports as may be required pursuant to clause
         10.2.2;

(j)      CERTIFICATE OF COMPLIANCE

         a Certificate of Compliance in the agreed form from the Guarantor;

(k)      NON-CONTRAVENTION STATEMENT

         a "non-contravention statement" from the Guarantor's external U.S.
         counsel (approved by the Facility Agent) as to certain matters arising
         out of the Indenture relating to the Notes in form and substance
         satisfactory to the Lenders; (N.B. may be contained in the legal
         opinion issued by Strasburger & Price, LLP under (e) above);

(l)      FEES AND COMMISSIONS

         evidence that any fees and commissions due but unpaid under the letters
         referred to in clause 7 have been, or will be, paid in full;

(m)      MATERIAL ADVERSE CHANGE

         the Facility Agent being satisfied that no event or circumstance has
         occurred during the period commencing on the date of this Agreement and
         ending on the date of the first Advance which would constitute a
         Material Adverse Effect on any Security Party;

(n)      NO OUTSTANDING LITIGATION

         a certificate from the Guarantor and the Borrower certifying that no
         litigation, arbitration or administrative proceedings are taking place,
         pending or threatened against the Guarantor or the Borrower which would
         have a Material Adverse Effect on any Security Party;

(o)      UCC FILINGS

         evidence, satisfactory to the Facility Agent that all applicable
         Uniform Commercial Code US filings required to perfect the security
         interests of the Lenders under the Security Documents have been or will
         be made (as the case may be);

(p)      GOOD STANDING

         a certificate confirming that the Guarantor is in good standing in the
         state of Texas and the state of Delaware;

(q)      GULF OFFSHORE MARINE INTERNATIONAL, INC.'S PROCESS AGENT

         an original letter from Gulf Offshore Marine International, Inc.'s
         agent for receipt of service of proceedings referred to in the relevant
         Collateral Deeds accepting its appointment under such Collateral Deed
         in which it is or is to be appointed as Gulf Offshore Marine
         International, Inc.'s agent; and

                                       64
<PAGE>

(r)      CHARTERS

         a certified copy of each Permitted Charter.

                                       65

<PAGE>

                                   SCHEDULE 5
                          FORM OF TRANSFER CERTIFICATE

                          (referred to in clause 16.3)

                              TRANSFER CERTIFICATE

[Note: Lenders are advised not to employ Transfer Certificates or otherwise to
assign or transfer interests in the Facility Agreement without further ensuring
that the transaction complies with all applicable laws and regulations,
including the Financial Services and Markets Act 2000 and regulations made
thereunder and similar statutes which may be in force in other jurisdictions]

To:      [-], as Facility Agent on its own behalf and for and on behalf of the
         Guarantor, the Borrower, the Security Trustee and the Lenders defined
         in the Facility Agreement referred to below.

                                                           - 200 -
             Attention: [-]

This certificate ("TRANSFER CERTIFICATE") relates to a Facility Agreement dated
[-] 2004 (the "FACILITY AGREEMENT") and made between (1) Gulf Offshore N.S.
Limited (the "BORROWER"), (2) GulfMark Offshore Inc. as guarantor (the
"GUARANTOR"), (3) the banks and financial institutions defined therein as
lenders (the "LENDERS"), (4) Nordea Bank Norge ASA as arranger and (5) Nordea
Bank Finland Plc as Facility Agent and Security Trustee, for a loan facility of
up to USD50,000,000. Terms defined in the Facility Agreement shall, unless
otherwise defined herein, have the same meanings herein as therein.

In this Certificate:

the "TRANSFEROR" means [FULL NAME] of [LENDING OFFICE]; and

the "TRANSFEREE" means [FULL NAME] of [LENDING OFFICE].

1        The Transferor with full title guarantee assigns to the Transferee
         absolutely all rights and interests (present, future or contingent)
         which the Transferor has as a Lender under or by virtue of the Facility
         Agreement and all the Security Documents in relation to [-] percent
         ([-]%) of the Outstandings of the Transferor (or its predecessors in
         title) which are set out below:

         DATE OF CONTRIBUTION TO OUTSTANDINGS                  AMOUNT

         [-]                                                   USD [-]

2        By virtue of this Transfer Certificate and clause 16 of the Facility
         Agreement, the Transferor is discharged [entirely from its undrawn
         Commitment which amounts to USD[-]] [from [-] percent ([-]%) of its
         undrawn Commitment, which percentage represents USD[-]].]

3        The Transferee hereby requests the Borrower, the Guarantor, the
         Facility Agent, the Security Trustee and the Lenders to accept the
         executed copies of this Transfer Certificate as being delivered
         pursuant to and for the purposes of clause 16.3 of the Facility
         Agreement so as to take effect in accordance with the terms thereof on
         [-][DATE OF TRANSFER].

4        The Transferee:

         (a)      confirms that it has received a copy of the Facility Agreement
                  and the Security Documents together with such other documents
                  and information as it has required in connection with the
                  transaction contemplated thereby;

         (b)      confirms that it has not relied and will not hereafter rely on
                  the Transferor, the Facility Agent or the Security Trustee to
                  check or enquire on its behalf into the legality, validity,

                                       66

<PAGE>

                  effectiveness, adequacy, accuracy or completeness of the
                  Facility Agreement, any of the Security Documents or any such
                  documents or information;

         (c)      agrees that it has not relied and will not rely on the
                  Transferor, the Facility Agent, the Security Trustee or the
                  Lenders to assess or keep under review on its behalf the
                  financial condition, creditworthiness, condition, affairs,
                  status or nature of the Borrower or any other Security Party
                  (save as otherwise expressly provided therein);

         (d)      warrants that it has power and authority to become a party to
                  the Facility Agreement and has taken all necessary action to
                  authorise execution of this Transfer Certificate and to obtain
                  all necessary approvals and consents to the assumption of its
                  obligations under the Facility Agreement and the Security
                  Documents;

         (e)      acknowledges and accepts the provisions of paragraph 4(c)
                  above; and

         (f)      if not already a Lender, appoints the Facility Agent to act as
                  its agent and the Security Trustee to act as its trustee as
                  provided in the Facility Agreement and the Security Documents
                  and agrees to be bound by the terms of the Agency Agreement.

5        The Transferor:

         (a)      warrants to the Transferee that it has full power to enter
                  into this Transfer Certificate and has taken all corporate
                  action necessary to authorise it to do so;

         (b)      warrants to the Transferee that this Transfer Certificate is
                  binding on the Transferor under the laws of England, [and o]
                  [(IF DIFFERENT) THE COUNTRY IN WHICH THE TRANSFEROR IS
                  INCORPORATED AND THE COUNTRY IN WHICH ITS LENDING OFFICE IS
                  LOCATED]; and

         (c)      agrees that it will, at its own expense, execute any documents
                  which the Transferee reasonably requests for perfecting in any
                  relevant jurisdiction the Transferee's title under this
                  Transfer Certificate or for a similar purpose.

6        The Transferee hereby undertakes with the Transferor and each of the
         other parties to the Facility Agreement and the other Security
         Documents that it will perform in accordance with its terms all those
         obligations which by the terms of the Facility Agreement and the other
         Security Documents will be assumed by it after delivery of the executed
         copies of this Transfer Certificate to the Facility Agent and
         satisfaction of the conditions (if any) subject to which this Transfer
         Certificate is expressed to take effect.

7        By execution of this Transfer Certificate on their behalf by the
         Facility Agent and in reliance upon the representations and warranties
         of the Transferee, the Borrower, the Guarantor, the Facility Agent, the
         Security Trustee and the Lenders accept the Transferee as a party to
         the Facility Agreement and the Security Documents with respect to all
         those rights and/or obligations which by the terms of the Facility
         Agreement and the Security Documents will be assumed by the Transferee
         (including those about pro-rata sharing and the exclusion of liability
         on the part of, and the indemnification of, the Facility Agent and the
         Security Trustee as provided by the Agency Agreement and the Facility
         Agreement) after delivery of the executed copies of this Transfer
         Certificate to the Facility Agent and satisfaction of the conditions
         (if any) subject to which this Transfer Certificate is expressed to
         take effect.

8        None of the Transferor, the Facility Agent, the Security Trustee or the
         Lenders:

         (a)      makes any representation or warranty nor assumes any
                  responsibility with respect to the legality, validity,
                  effectiveness, adequacy or enforceability of the Facility
                  Agreement or any of the Security Documents or any document
                  relating thereto;

         (b)      assumes any responsibility for the financial condition of the
                  Borrower or any other Security Party or any party to any such
                  other document or for the performance and observance by the
                  Borrower or any other Security Party or any party to any such
                  other document (save as otherwise expressly provided therein)
                  and any and all such conditions

                                       67

<PAGE>

                  and warranties, whether express or implied by law or
                  otherwise, are hereby excluded (except as aforesaid).

9        The Transferor and the Transferee each undertake that they will on
         demand fully indemnify the Facility Agent and the Security Trustee in
         respect of any claim, proceeding, liability or expense which relates to
         or results from this Transfer Certificate or any matter concerned with
         or arising out of it unless caused by the Facility Agent's or Security
         Trustee's gross negligence or wilful misconduct, as the case may be.

10       The agreements and undertakings of the Transferee in this Transfer
         Certificate are given to and for the benefit of and made with each of
         the other parties to the Facility Agreement and the Security Documents.

11       This Transfer Certificate shall be governed by, and construed in
         accordance with, English law.

         TRANSFEROR                        TRANSFEREE

         By:                                   By:

         Dated:                                Dated:

         Facility Agent

         Agreed for and on behalf of itself as Facility Agent,
         the Borrower, the Guarantor, the Security Trustee,
         the Lenders and all other parties to the Facility Agreement and the
         Agency Agreement

         NORDEA BANK NORGE ASA

         By:

         Dated:

         NOTE:         The execution of this Transfer Certificate alone may not
                       transfer a proportionate share of the Transferor's
                       interest in the security constituted by the Facility
                       Agreement the Security Documents in the Transferor's or
                       Transferee's jurisdiction. It is the responsibility of
                       each individual Lender to ascertain whether any other
                       documents are required to perfect a transfer of such a
                       share in the Transferor's interest in such security in
                       any such jurisdiction and, if so, to seek appropriate
                       advice and arrange for execution of the same.

                                       68

<PAGE>

                                  THE SCHEDULE

<TABLE>
<S>                               <C>
Outstandings                      USD [-]
Undrawn Commitment ($)            USD [-]
Portion Transferred                   [-]%
</TABLE>

                      ADMINISTRATIVE DETAILS OF TRANSFEREE

<TABLE>
<S>                                          <C>
Name of Transferee:

Lending Office:

Contact Person
(Loan Administration Department):

Telephone:
Fax:

Contact Person
(Credit Administration Department):

Telephone:
Fax:

Account for payments:
</TABLE>

                                       69

<PAGE>

                                   SCHEDULE 6
                            CERTIFICATE OF COMPLIANCE

To:      Nordea Bank Norge ASA
         Middelthuns gate 17
         P.O. Box 1166 Sentrum
         N-0107 Oslo
         Norway

Attn:    Shipping Department

                                                                  Date: [      ]

Dear Sirs

CERTIFICATE OF COMPLIANCE - US$50,000,000 CREDIT FACILITY MADE AVAILABLE TO GULF
OFFSHORE N.S. LIMITED (THE "FACILITY AGREEMENT")

Words and expressions defined in the Facility Agreement shall, unless the
context otherwise requires or unless otherwise defined herein, have the same
meanings when used in this Certificate of Compliance.

We refer to clause 10.6 of the Facility Agreement and hereby confirm that on
each date of the calculation specified below in paragraphs 1, 2 and 3 and,
during the period which is 12 months prior to such date, the covenants of the
Guarantor under the Facility Agreement were satisfied as follows:

1. CONSOLIDATED EBITDA/ CONSOLIDATED INTEREST EXPENSE

Date of Calculation:_________________

A        CONSOLIDATED EBITDA

  (a)    CONSOLIDATED EBIT:

         (i) Consolidated Net Income                        USD_________________

         Plus

         (ii) provisions for taxes based on income          USD_________________

         Plus

         (iii) Consolidated Interest Expense                USD_________________

         Plus

         (iv) amortisation or write-off deferred financing costs to the extent
         deducted in determining Consolidated Net Income    USD_________________

         Plus

         (v) losses on sales of assets (excluding sales in the ordinary course
         of business) and other extraordinary losses        USD_________________

         Minus

                                       70
<PAGE>

         (vi) the sum of the amounts for such period of gains from the sale of
         assets (excluding sales in the ordinary course of business) and other
         extraordinary gains

                                                            USD_________________

   TOTAL (a)                                                USD_________________

Plus

(b) Depreciation expense                                    USD_________________

 Plus

(c) Amortisation Expense                                    USD_________________

 Plus

(d) Non-transactional foreign exchange losses (gains)       USD ________________

TOTAL A:                                                    USD_________________

B        CONSOLIDATED INTEREST EXPENSE

(a) Consolidated Interest Expense in accordance with Profit & Loss Statement

                                                            USD_________________
Plus

(b) Consolidated Capitalised Interest Expense

                                                            USD_________________

TOTAL B:                                                    USD_________________

A DIVIDED BY B                                              ____________________

REQUIREMENT: [from first Drawdown Date to 30 September 2005: > or = 2.00:1.00]
[thereafter: > or = 2.75:1.00]

2.       NET WORTH

Date of Calculation:_________________

NET WORTH AS OF___/___/___:                                 USD_________________

REQUIREMENT:

(a) USD 200,000,000

Plus

(b) fifty percent (50%) of accumulated positive consolidated net income
    calculated on an annual basis.

                                        USD_________________

(c) one hundred percent (100%) of Net Proceeds from Equity Offerings

                                        USD_________________

TOTAL REQUIRED NET WORTH:               USD_________________

                                       71
<PAGE>

3.       SECURITY VALUE

The Security Value is no less than the Security Requirement.

Yours faithfully,
for and on behalf of
GULFMARK OFFSHORE INC.

_________________________________                           ____________________
[Director] [Chief Financial Officer]                        [Director]

                                       72
<PAGE>

                                  SIGNING PAGE

SIGNED for and on behalf of          )
GULF OFFSHORE N.S. LIMITED           )
by its duly authorised officer       )     /s/ David W. Dare
David W. Dare                        )     --------------------------------
in the presence of:                  )     Duly authorised officer

Signature of witness: /s/ Romero [illegible]

Name of witness: Romero [illegible]

Address of witness: 49 Sherwood Close -- W139YW

Occupation of witness: Despatch Courier

EXECUTED AS A DEED                   )
for and on behalf of                 )
GULFMARK OFFSHORE INC.               )
(as Guarantor)                       )
by its duly authorised officer       )     /s/ Edward A. Guthrie
Edward A. Guthrie                    )     --------------------------------
in the presence of:                  )     Duly authorised officer

Signature of witness: /s/ Mary Kay Kutka

Name of witness: Mary Kay Kutka

Address of witness: 10111 Richmond, Suite 340
                    Houston, Texas 77042

Occupation of witness: Executive Assistant

SIGNED by Davide Barzilai            )
for and on behalf of                 )
NORDEA BANK NORGE ASA                )
(as Arranger)                        )
pursuant to a Power of Attorney      )     /s/ Davide Barzilai
dated 21 December 2004               )     --------------------------------
in the presence of:                  )     Attorney-in-fact

Signature of witness: /s/ Mdramed Yousef

Name of witness: Mdramed Yousef

Address of witness: Norton Rose, Kempson House, Camomile Street, London EC3A 7AN

Occupation of witness: Trainee Solicitor

                                       73
<PAGE>
                                           /s/ Martin Lunder
SIGNED by Martin Lunder              )     --------------------------------
and by Alison Barber                 )     Authorised Signatory
for and on behalf of                 )
NORDEA BANK FINLAND PLC              )     /s/ Alison Barber
(as Lender, Facility Agent and             --------------------------------
 Security Trustee)                   )     Authorised Signatory

in the presence of:                  )

Signature of witness: /s/ Hans Chr. Kjelsrud

Name of witness: /s/ Hans Chr. Kjelsrud

Address of witness: 437 Madison Ave.
                    New York, NY 10022

Occupation of witness: Banker

                                       74

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