Document:

Exhibit 10.4

 

OPTION AGREEMENT

 

made by and between

 

 

DIANA SHIPPING INC.

 

and

 

LIMON COMPANIA NAVIERA S.A.,

AZUERO COMPANIA NAVIERA S.A.,

HERRERA COMPANIA NAVIERA S.A.,

EL REAL COMPANIA ARMADORA S.A.,

 

and

 

SIMEON PALIOS

 

 

in respect of

 

All of the issued and outstanding common shares of Diana Shipping
Services S.A.

 

February     ,
2005

 

 

AGREEMENT

 

This Agreement is dated as of the    
day of         , 2005, by and among
DIANA SHIPPING INC., a Marshall Islands corporation (referred to herein as “DSI”),
each of the stockholders of DIANA SHIPPING SERVICES S.A., a Panamanian
corporation (“DSS”), listed on Schedule I hereto (referred to herein as
the “Sellers”), and SIMEON PALIOS (“Palios”).

 

W  I  T  N  E  S  S  E  T  H  :

 

WHEREAS, DSI is engaged, directly and/or indirectly
through wholly-owned subsidiaries, in the ownership and operation of dry bulk
carriers and has entered, directly and/or indirectly through wholly-owned
subsidiaries, into vessel management agreements with DSS (the “Management
Agreements”) pursuant to which DSS provides technical and commercial vessel
management to DSI and its wholly owned subsidiaries;

 

WHEREAS, DSI expects to complete an initial public
offering of its common stock  (the “IPO”)
during the first calendar quarter of 2005;

 

WHEREAS, the Sellers collectively own all of the
issued and outstanding capital stock of DSS (the “DSS Shares”);

 

WHEREAS, DSI wishes to grant the Sellers an option
jointly and not severally, commencing on the first business day following the
closing of the IPO and terminating on the first anniversary of such closing,
subject to the terms and condition set forth in this Agreement, to sell to DSI
all, but not less than all, of the DSS Shares;

 

WHEREAS, if the sale and purchase of the DSS shares
does not take place pursuant to the aforesaid option, the Sellers wish to
provide DSI an option, commencing on the first anniversary of the closing of
the IPO and terminating on the second anniversary of such closing, subject to
the terms and condition set forth in this Agreement, to purchase all, but not
less than all, of the DSS Shares; and

 

WHEREAS, Palios has agreed to give the indemnity set
forth herein in order to facilitate the transactions described herein.

 

NOW, THEREFORE, in consideration of the premises and the
mutual covenants set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged hereby,
the parties hereto, intending to be legally bound, hereby agree as follows:

 

 

Article I

 

Representations and
Warranties

 

1.1         Sellers’
Representations.  The Sellers hereby
jointly and severally represent and warrant to, and agree with DSI both as of
the date hereof and as of the Put Option Closing Date or Call Option Closing
Date (both as defined below) (the date hereof and such closing date being
referred to collectively herein after as the “Reference Dates”), as applicable,
as follows:

 

(a)                    Capacity;
Authority; Validity.  The Sellers
have all necessary capacity, power and authority to enter into this Agreement and
to perform all the obligations to be performed by them hereunder; the execution
of this Agreement and the consummation by the Sellers of the transactions
contemplated hereby have been duly and validly authorized by all necessary
action of the Sellers.  This Agreement
has been duly executed and delivered by the Sellers; and assuming the due
execution and delivery of this Agreement by DSI, constitutes the legal, valid
and binding obligation of the Sellers: enforceable against the Sellers in
accordance with its terms.

 

(b)                   Title to
Shares.  The DSS Shares constitute
all of the issued and outstanding capital stock of DSS.  Each of the Sellers is the legal and
beneficial owner of, and has good, valid and marketable title to, the DSS
Shares held by such Seller, as set forth on Schedule 1, free and clear of
any lien, pledge, claim, security interest, encumbrance or charge of any kind
(each a “Lien”).  Other than as
contemplated by this Agreement, prior to the Call Option Termination Date (as
defined below), none of the Sellers shall sell, assign, or otherwise transfer
all or any portion of his/her/its right, title and interest in and to the DSS
Shares held by the Sellers, or create, incur, assume or permit to exist any
Lien on the Shares.

 

(c)                    No
Violation of Law or Agreement. 
Neither the execution and delivery of this Agreement by the Sellers, nor
the consummation of the transactions contemplated hereby by the Sellers, will
violate any judgment, order, writ, decree, law, rule or regulation or agreement
applicable to the Sellers or create any Lien over the Shares.

 

(d)                   No Consents.  All consents, approvals or authorizations of,
or registrations, filings or declarations with, any governmental authority or
any other person, if any, required in connection with the sale of the DSS
Shares, have been, or prior to the sale of the DSS Shares by the Sellers to DSI
will have been obtained, by the Sellers and will be in full force and effect.

 

(e)                    DSS
Representations.  The representations
and warranties set forth on Schedule II hereto are incorporated by
reference.  Such representations and
warranties are true and complete as of the Reference Dates.

 

1.2         DSI’s Representations. DSI hereby represents and warrants to,
and agrees with, the Sellers as of the Reference Dates, as follows:

 

2

 

(a)                    Capacity;
Authority; Validity.  DSI has all
necessary capacity, power and authority to enter into this Agreement and to
perform all the obligations to be performed by it hereunder; the execution of
this Agreement and the consummation by DSI of the transactions contemplated
hereby have been duly and validly authorized by all necessary action of
DSI.  This Agreement has been duly
executed and delivered by DSI; and assuming the due execution and delivery of
this Agreement by the Sellers, this Agreement constitutes the legal, valid and
binding obligation of DSI enforceable against DSI in accordance with its terms.

 

(b)                   No Violation
of Law or Agreement.  Neither the
execution and delivery of this Agreement by DSI, nor the consummation of the
transactions contemplated hereby by DSI, will violate any judgment, order,
writ, decree, law, rule or regulation or agreement applicable to DSI.

 

(c)                    No Consents.  All consents, approvals or authorizations of,
or registrations, filings or declarations with, any governmental authority or
any other person, if any, required in connection with the purchase of the DSS
Shares by DSI have been, or prior to the purchase of the DSS Shares will have
been obtained, by DSI and will be in full force and effect.

 

Article II

 

Put Option

 

2.1         Sellers’ Put Option. (a) DSI hereby grants to the Sellers,
jointly and not severally, an irrevocable option (the “Put Option”) to cause
DSI (or a wholly owned subsidiary of DSI to be designated by DSI) to purchase
from the Sellers all, but not less than all, of the DSS Shares for the
aggregate purchase price of $20 million (the “Purchase Price”).  The Put Option shall commence on the first
business day following the closing of the IPO and shall terminate on the first
anniversary of the IPO (the “Put Option Termination Date”).

 

2.2         Exercise of Put
Option.  The Put Option shall be
exercised by the Sellers’ delivery to DSI of a written notice no later than 30
days prior to the Put Option Termination Date of the Sellers’ intent to cause
DSI (or its designee) to purchase all, but not less than all, of the DSS Shares
(the “Put Option Notice”).  Upon the
exercise of the Put Option, DSI (or its designee) shall purchase, and the
Sellers shall sell on a date selected by DSI (the “Put Option Closing Date”),
the DSS Shares, free and clear of any Liens, not more than 30 days following
receipt by DSI of the Put Option Notice, at which time the Purchase Price shall
be transferred to an account or accounts designated by the Sellers and the
certificates for the DSS Shares shall be delivered to DSI, together with such
instruments of transfer as are necessary to vest title to the DSS Shares in
DSI.

 

2.3         Conditions Precedent
to Exercise of Put Option.  Each of
the Sellers and DSI hereby agree that:

 

(a)                    Upon the
reasonable request of DSI following the delivery of the Put Option Notice, the
Sellers shall deliver to DSI prior to the Put Option Closing Date a certificate

 

3

 

executed by an authorized
person of DSS certifying that: (i) DSS does not hold title, directly or
indirectly, to any real property, and (ii) DSS has entered into employment,
consulting or similar agreements with persons qualified and in sufficient number
to allow DSS to provide the services contemplated in the Management Agreements;
and

 

(b)                   It shall be a
condition precedent to the exercise of the Put Option that there shall have
occurred between the Reference Dates (i) no breach of the representations made
by the Sellers hereunder and (ii) no material change in such representations
that reflects a material adverse change in DSS’s business, results of
operations, financial conditions or prospects between such Reference Dates.

 

Article III

 

DSI Call Option

 

3.1         DSI’s Call Option. (a) The Sellers hereby grant to DSI (or
its designee) an irrevocable option (the “Call Option”) to purchase all, but
not less than all, of the DSS Shares for the Purchase Price.  The Call Option shall commence on the first
anniversary of the closing of the IPO and shall terminate on the second
anniversary of the IPO (the “Call Option Termination Date”).

 

3.2         Exercise of Call
Option.  The Call Option shall be
exercised by DSI’s delivery to the Sellers of a written notice no later than 14
days prior to the Call Option Termination Date of DSI’s (or its designee’s)
intent to purchase all, but not less than all, of the DSS Shares (the “Call
Option Notice”).  Upon the exercise of
the Call Option, DSI (or its designee) shall purchase, and the Sellers shall
sell on the date specified by DSI in the Call Option Notice no earlier than
seven days after the date of the Call Option Notice and no later than the Call
Option Termination Date (the “Call Option Closing Date”), the DSS Shares, free
and clear of any Liens, at which time the Purchase Price shall be transferred
to such account or accounts designated by the Sellers and the certificates for
the DSS Shares shall be delivered to DSI, together with such instruments of
transfer as are necessary to vest title to the DSS Shares in DSI.

 

Article IV

 

Term of Agreement

 

4.1         Term of Agreement. This Agreement shall commence on the
date hereof and shall continue in full force and effect until the earlier of
(i) the purchase of the DSS Shares by DSI (or its designee) pursuant to this
Agreement, or (ii) the Call Option Termination Date, provided, however, that
the provisions of Article V of this Agreement shall survive the
termination of this Agreement.

 

4

 

Article V

 

Indemnification

 

5.1              Indemnification.

 

(a)                    The Sellers
and Palios, jointly and severally, agree to indemnify, defend and hold harmless
DSI, its subsidiaries and their respective directors, officers, shareholders,
employees, attorneys, accountants, agents and representatives and their heirs,
successors and assigns (each an “Indemnified Person”) (other than
Indemnified Persons who are Sellers) from and against any and all losses,
obligations, damages, claims, judgments, fines, payments, settlements, costs
and expenses (including, without limitation, taxes, reasonable costs of
investigation, remediation and reasonable attorneys’ fees) suffered or incurred
by such Indemnified Person based upon or arising out of (i) any inaccuracy in
or any breach of any representation or warranty of the Sellers contained in
this Agreement, (ii) the failure of any of the Sellers to perform or observe
fully any agreement or provision to be performed or observed by the Sellers
pursuant to this Agreement, or (iii) the operation or business of DSS prior to
the purchase of the DSS Shares by DSI (or its designee) pursuant to this
Agreement.

 

(b)                   DSI agrees to
indemnify, defend and hold harmless each of the Sellers, their affiliates and
their respective directors, officers, shareholders, employees, attorneys,
accountants, agents and representatives and their heirs, successors and assigns
from and against any and all damages based upon, arising out of or otherwise in
respect of (i) any inaccuracy in or any breach of any representation or
warranty of DSI contained in this Agreement, or (ii) the failure of DSI to
perform or observe fully any agreement or provision to be performed or observed
by DSI pursuant to this Agreement.

 

Article VI

 

Miscellaneous

 

6.1         Complete Agreement /
Amendment.  This Agreement
constitutes the complete understanding among the parties with respect to its
subject matter and no amendment, alteration or modification of any of its
provisions shall be valid except by means of a written agreement signed by each
of the parties.

 

6.2         Closing Date Balance
Sheet.  To the extent necessary, the
Sellers shall cooperate with DSI in causing DSS to prepare a balance sheet,
audited in accordance with generally accepted accounting principles in the
United States, dated as of the Put Option Closing Date or the Call Option
Closing Date, as the case may be.

 

6.3         Successors and
Assigns.  All of the terms of this
Agreement shall inure to the benefit of and shall be binding upon the heirs,
executors, administrators, personal representatives,

 

5

 

successors and permitted
assigns of the Sellers and upon the successors and assigns of the Buyer, except
as otherwise specifically provided herein.

 

6.4         Notices.  All notices (including a Put Option Notice and
a Call Option Notice), offers, acceptance and other communications required or
permitted hereunder shall be sufficient if given (a) in writing and
personally delivered, or (b) sent by fax provided that “answer-back”
confirmation is received by the sender, in any case addressed, (i) if to
DSI, to its then principal office, Attention: President, (ii) if to any of
the Sellers, to its then address set forth for such Seller in the books and
records of DSS and (iii) if to Palios, care of DSS, in all cases copied to
Seward & Kissel LLP, One Battery Park Plaza, New York, NY 10004, fax:
+1 212 480-8421 Attn: Gary J. Wolfe, Esq.  Any party may change the address to which
each such notice or communication shall be sent by giving written notice to the
other parties of such new address in the manner provided herein for giving
notice.

 

6.5         Waiver.  Except as provided herein, compliance with any
provision of this Agreement may be omitted or waived, only by the written
agreement of the Sellers and DSI.

 

6.6         Governing Law.  This Agreement shall be governed by, and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to the provisions, policies or principles thereof
respecting conflict or choice of laws.

 

6.7         Submission to
Jurisdiction.  Any legal action or
proceeding in connection with this Agreement or the performance hereof may be
brought in the state and federal courts located in the Borough of Manhattan,
City, County and State of New York, and the parties hereby irrevocably submit
to the non-exclusive jurisdiction of such courts for the purpose of any such
action or proceeding.

 

6.8         Service of Process. Each of the Sellers and DSI hereby
irrevocably designates Seward & Kissel LLP, One Battery Park Plaza, New
York, New York 10004 as agent upon whom process against each of Seller and DSI
may be served.

 

6.9         Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same agreement.

 

6.10   Further Assurances.  Each of the Sellers and DSI agrees to execute
and deliver such documents and instruments as may be necessary or advisable in
order to implement the provisions of this Agreement.

 

6.11   Severability.  If at any time subsequent to the date of this
Agreement, any provision of this Agreement shall be held by any court of
competent jurisdiction to be illegal, void or unenforceable, such provision
shall be if no force or effect but the illegality or unenforceability of such
provision shall have no effect upon or impair the enforceability of any other
provision.

 

6

 

IN WITNESS WHEREOF, the parties have signed this
Agreement as of the date first set forth above.

 

	
  DIANA SHIPPING
  INC.

  	
  LIMON COMPANIA
  NAVIERA S.A.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Name:

  
	
  Title:

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AZUERO COMPANIA NAVIERA
  S.A.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  HERRERA
  COMPANIA NAVIERA S.A.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  EL
  REAL COMPANIA ARMADORA S.A.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SIMEON PALIOS

  
				

 

7

 

SCHEDULE I

 

	
  Name

  	
   

  	
  No. of Shares

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  LIMON COMPANIA NAVIERA S.A.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  AZUERO COMPANIA NAVIERA S.A.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HERRERA COMPANIA NAVIERA S.A.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  EL REAL COMPANIA ARMADORA S.A.

  	
   

  	
   

  	
   

  

 

 

SCHEDULE II

 

Representations and
Warranties of the Sellers

Regarding DSS

 

1.  Organization
Good Standing and Authority.  DSS is
a corporation duly organized, validly existing and in good standing under the
laws of Panama. DSS has full corporate power to carry on its business as it is
now and has since its incorporation been conducted, and is entitled to own,
lease or operate the properties and assets it now owns, leases or
operates.  DSS is qualified to do
business, is in good standing and has all required and appropriate licenses and
authorizations in each jurisdiction in which its failure to obtain or maintain
such qualification, good standing, licensing or authorization would have a
material and adverse effect on the condition (financial or otherwise), assets,
properties, business or prospects of DSS.

 

2.  Capitalization.
The authorized capitalization of DSS consists solely of                 
authorized shares of common stock, $ .01 par value per share (“Common Stock”),
all of which are issued and outstanding on the date hereof, fully paid and
nonassessable.  There are not outstanding
(i) any options, warrants or other rights to purchase  any capital stock of DSS, (ii) any
securities convertible into or exchangeable for shares of such stock or
(iii) any other commitments of any kind for the issuance of additional
shares of capital stock or options, warrants or other securities of DSS.

 

3.  No
Subsidiaries. DSS has no equity interests in any other entity.

 

4.  Financial
Statements.  The Sellers have
provided  to DSI, DSS’s audited balance
sheets, and the related statements of income and retained earnings and changes
in financial position for the fiscal year ended December 31, 2004 and for
any subsequent fiscal years ending prior to the latest of the Reference Dates
(the “Financial Statements”).  The
Financial Statements (i) were prepared in accordance with the books and
records of DSS; (ii) were prepared in accordance with accounting
principles generally accepted in the United States consistently applied; and
(iii) fairly represent the financial condition of DSS for the periods
presented and as of  the Reference Dates
..

 

5.  Absence
of Certain Changes.  Except as
disclosed to DSI in writing, since the date of the Financial Statements, there
has not been (i) any declaration or payment of dividends by DSS or any
transfer of cash or other assets of any kind whatsoever by DSS to any of its
shareholders with respect to any shares of DSS’s capital stock; (ii) any
transaction not in the ordinary course of business; (iii) any material
adverse change in the consolidated results of operations, condition (financial
or otherwise), assets, liabilities (whether absolute, accrued, contingent or
otherwise), business or prospects of DSS; (iv) any damage, destruction or
loss, whether or not covered by insurance, which has had or may have a material
and adverse effect on any of the properties, business or prospects of DSS;
(v) any sale or transfer of any of 
DSS’s assets or any cancellation of any debts or claims, except sales in
the ordinary course of business; (vi) any mortgage, pledge or subjection
to lien, charge or encumbrance of any kind, except liens for taxes not due, of
any of  DSS’s properties or assets;
(vii) any material amendment, modification or termination of any material
contract or agreement to which DSS is a party; (viii) any increase in, or
commitment to increase, the compensation payable or to become

 

 

payable to any officer, director, employee or agent of
DSS, or any bonus payment or similar arrangement made to or with any of such
officers, directors, employees or agents, other than routine increases made in
the ordinary course of business; (ix) any incurrence of, assumption of, or
taking any property subject to, any liability, except for liabilities incurred
or assumed or property taken subsequent to the date(s) of the Financial
Statements in the ordinary course of business and consistent with past
practice; (x) any adoption of a plan or agreement or amendment to any plan
or agreement providing any new or additional “fringe benefits”; (xi) any
material alteration in the manner of keeping the books, accounts or records of
DSS, or in the accounting practices therein reflected; or (xii) any other
event or condition of any character which has had or may have a material and
adverse effect on the condition (financial or otherwise), assets, properties,
business or prospects of DSS.

 

6.  Charter
Documents.  The Sellers have made
available to DSI true and correct copies of the Articles of Incorporation and
Bylaws or other appropriate charter documents of DSS, in each case as is and
will be in effect on the Reference Dates.

 

7.  Tangible
Personal Property. The Sellers have provided to DSI (i) a description
of each item of tangible personal property owned by DSS having on the Reference
Dates either a depreciated book value or estimated fair market value, whichever
is greater, per unit in excess of $10,000, or not owned by DSS but in the
possession of or used in the business of DSS and having rental payments
therefor in excess of $10,000 per year; and (ii) a description of the
owner of, and any agreement relating to the use of, each such item of tangible
personal property not owned by DSS and the circumstances under which such
property is used.

 

(a)                                  DSS
has good and marketable title to each item of such tangible personal property
free and clear of all Liens, except for Liens, if any, for personal property
taxes not due;

 

(b)                                 Each
item of such tangible personal property not owned by DSS is in such condition
that upon the return of such property to its owner in its present condition at
the end of the relevant lease term or as otherwise contemplated by the
applicable agreement between DSS and the owner or lessor thereof, the
obligations of DSS will be discharged;

 

(c)                                  Each
such item of tangible personal property is in good operating condition and
repair and is fit for its intended purposes; and

 

(d)                                 DSS
owns or otherwise has the right to use all of the tangible personal properties
used by it in the operation of its business or the use of which is necessary
for the performance of any material contract, letter of intent or proposal to
which it is a party.

 

8.  Intangible
Personal Property.  The Sellers have
provided to DSI as of the Reference Dates (i) a description of the items
of intangible personal property owned by, or used in the business of, DSS,
including, but not limited to, patents, patent applications, tradenames,
trademarks, tradename and trademark registrations, copyright registrations and
applications for any of the foregoing and (ii) a true and complete list of
all licenses or similar agreements or

 

2

 

arrangements to which DSS is a party either as
licensee or licensor for each such item of intangible personal property.

 

(a)                                  DSS
is the owner of all right, title and interest in and to each such item of
intangible personal property, free and clear of all Liens;

 

(b)                                 DSS
has the right and authority to use said items of intangible personal property
in connection with the conduct of its respective business in the manner
presently conducted, and such use does not conflict with, infringe upon or
violate any rights of any other person, firm or corporation; and

 

(c)                                  There
are no outstanding, nor to the best knowledge of the Sellers, any threatened
disputes or other disagreements with respect to any licenses or similar
agreements described in this Section.

 

9.  Real
Property and Leaseholds.  DSS does
not own any real property.  The Sellers
have provided to DSI a description of each lease of real property under which
DSS is a lessee, lessor, sublessee or sublessor.  DSS holds such leaseholds free and clear of
all mortgages, Liens, encumbrances, leases, equities, claims, charges, easements,
rights-of-way, covenants, conditions and restrictions, except for liens, if
any, for property taxes not due.  DSS is
not in default with respect to any material term or condition of any such
lease, nor has any event occurred which through the passage of time or the
giving of notice, or both, would constitute a default thereunder by DSS or
would cause the acceleration of any obligation of DSS or the creation of a Lien
upon any asset of DSS

 

10.  Agreement
Not in Breach of Other Instruments. 
Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will violate, or result
in a breach of, any of the terms and provisions of, or constitute a default
under, or conflict with, or give any other party thereto a right to terminate
any agreement, indenture or other instrument to which DSS is a party or by
which it is bound, the Articles of Incorporation and Bylaws or other
appropriate charter documents of DSS, or any judgment, decree, order or award
of any court, governmental body or arbitrator applicable to DSS or its assets.

 

11.  Insurance.  The Sellers have provided to DSI a correct
list of all insurance policies of any nature whatsoever maintained by DSS at
any time during the three (3) years prior to the Reference Dates and the annual
or other premiums payable from time to time thereunder.  There are no outstanding requirements or
recommendations by any insurance company that issued any such policy or issued
by any insurance industry body, mutual protection and indemnity association or
any governmental authority which requires or recommends any changes in the
conduct of the business of, or any repairs or other work to be done on or with
respect to any of the properties or assets of DSS.  DSS’s insurance policies are valid
(i) and in full force and effect and are not voidable; (ii) provide
DSS with such coverages and in such amounts, including deductibles, as is
customarily carried by corporations of established reputation engaged in the
same or similar businesses similarly situated; and, (iii)  will remain
valid and in full force and effect as of the Reference Dates.  DSS has not received any notice or other
communication from any such insurance company within the three (3) years
preceding the Reference Dates cancelling or materially amending or materially
increasing the annual or other premiums payable

 

3

 

under any of such insurance policies, and to the best
knowledge of the Sellers, no such cancellation, amendment or increase of
premiums is threatened.

 

12.  Labor
and Employment Agreements.  The
Sellers have disclosed to DSI (i) each collective bargaining agreement and
other labor agreement to which DSS is a party or by which it is bound;
(ii) each employment, profit sharing, deferred compensation, bonus, stock
option, stock purchase, pension, retainer, consulting, retirement, health,
welfare, or incentive plan or contract to which DSS is a party, or by which it
is or may be bound, and (iii) each plan and agreement under which “fringe
benefits” (including, but not limited to, vacation plans or programs, sick
leave plans or programs, dental or medical plans or programs, and related or
similar benefits) are afforded to employees of DSS.  DSS is not, and to the best knowledge of the
Sellers, no other party to any such agreement, plan, program or contract is, in
default with respect to any material term or condition thereof, nor has any
event occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or would cause the acceleration of
any obligation of any party thereto.  DSS
has complied in all material respects with all applicable laws, rules and
regulations relating to the employment of labor, including those relating to
wages, hours, collective bargaining and the payment and withholding of taxes
and other sums as required by appropriate governmental authorities.  Except as has been disclosed in writing to
DSI, as of the Reference Dates:

 

(a)                                  No
unfair labor practice complaint is pending against DSS, no labor strike or
other labor trouble affecting DSS is pending, and no labor grievance of any
kind is pending against DSS;

 

(b)                                 No
organization or representation question is pending respecting the employees of
DSS, and no such question has been raised within the three (3) year period
prior to the Reference Dates;

 

(c)                                  No
arbitration proceeding arising out of or under any collective bargaining
agreement is pending, and to the best knowledge of the Sellers no basis for any
such proceeding exists;

 

(d)                                 All
reasonably anticipated obligations of DSS, whether arising by operation of law,
contract, past custom or otherwise, for unemployment compensation benefits,
pension benefits, salaries, bonuses, sick leave, vacation and other forms of
compensation payable to the officers, directors and/or other employees of DSS
in respect of the services rendered by any of them prior to the date hereof
have been paid or adequate accruals therefor have been made in the books and
records and consolidated financial statements of DSS.

 

13.  Tax
Returns.  Except as disclosed in
writing to DSI:

 

(a)                                  Within
the times and in the manner prescribed by law, DSS has filed all tax returns
for all countries, provinces, states and other governing bodies having
jurisdiction to levy taxes upon it or to require it to withhold or collect
taxes including, without limitation, income taxes, excise taxes, sales taxes,
value added taxes, employment taxes and property taxes, customs taxes, etc.;

 

4

 

(b)                                 All
tax returns filed by DSS for the taxable years ending as of the Reference Dates
hereof constitute complete and accurate representations of DSS’s tax
liabilities for such years and accurately set forth all items (to the extent
required to be included or reflected in such returns) relevant to DSS’s future
tax liabilities, including the tax bases of DSS’s properties and assets;

 

(c)                                  DSS
has not waived or extended any applicable statute of limitations relating to
the assessment of taxes by any country, province, state or other governing body
having jurisdiction to levy taxes upon DSS; and

 

(d)                                 No
examinations of any of the tax returns of DSS are currently in progress nor, to
the best knowledge of the Sellers, is any such examination threatened;

 

14.  Litigation.  Except for collection actions instituted by
DSS involving less than $50,000 individually and actions against DSS covered by
insurance and involving claims with alleged damages not more than $100,000
individually or $500,000 in the aggregate and except as disclosed to DSI in
writing:

 

(a)                                  There
is no action, suit or proceeding to which DSS is a party (either as a plaintiff
or defendant) pending before any court or governmental agency, authority or
body or arbitrator; to the best knowledge of the Sellers, there is no action,
suit or proceeding threatened against DSS; and to the best knowledge of the
Sellers, there is no basis for any such action, suit or proceeding;

 

(b)                                 Neither
DSS, nor any officer, director or employee of DSS, has been permanently or
temporarily enjoined by any order, judgment or decree of any court or any
governmental agency, authority or body from engaging in or continuing any
conduct or practice in connection with the business, assets, or properties of
DSS; and

 

(c)                                  There
is not in existence on the date hereof any order, judgment or decree of any
court or other tribunal or other agency enjoining or requiring DSS to take any
action of any kind with respect to its business, assets or properties.

 

15.  Intercompany
Transactions.  Except as disclosed in
writing to DSI, no intercompany transactions, including dividends, transactions
creating intercompany indebtedness, and stock or asset transfers or
assignments, between DSS and any other corporate or other business affiliate of
DSS, have occurred within the three (3) years preceding the Reference Dates.

 

16.  Indebtedness
to and from Officers, etc.  Except as
disclosed in writing to DSI, DSS is not indebted, directly or indirectly, to
any person who is an officer, director, stockholder or employee of DSS or any
spouse, child, or other relative or any affiliate of any such person, in any
amount whatsoever, other than for salaries for services rendered or
reimbursable business expenses, nor is any such officer, director, stockholder,
employee, relative or affiliate indebted to DSS except for advances made to DSS
in the ordinary course of business to meet reimbursable business expenses
anticipated to be incurred by such obligor.

 

5

 

17.  Personnel.  The Sellers have provided to DSI a true and
complete list of the names and current salaries of all the directors and
officers of DSS and all employees of DSS who earn in excess of $60,000 per
year.

 

18.  Banking
Facilities.  The Sellers have
provided to DSI a true and complete list of:

 

(a)                                  each
bank, savings and loan or similar financial institution in which DSS has an
account or safety deposit box and the numbers of the accounts or safety deposit
boxes maintained by DSS thereat; and

 

(b)                                 the
names of all persons authorized to draw on each such account or to have access
to any such safety deposit box facility, together with a description of the
authority (and conditions thereof, if any) of each such person with respect
thereto.

 

19.  Powers
or Attorney and Suretyships.  Except
as disclosed in writing to DSI, DSS does not have any general or special powers
of attorney outstanding (whether as grantor or grantee thereof) or has any
obligation or liability (whether actual, accrued, accruing, contingent or otherwise)
as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity, except as endorser or maker
of checks or letters of credit, respectively, endorsed or made in the ordinary
course of business.

 

20.  Contracts
and Agreements.  The Sellers have
provided to DSI a true and correct list of each contract, agreement, purchase
order, lease, license, indenture or commitment, written or oral, to which DSS
is a party or by which any of its assets are bound, except:

 

(i)                                     Agreements
for the purchase by DSS of goods, materials, supplies or services in the
ordinary course of business involving less than $30,000 in consideration in
each such case; and

 

(ii)                                  Agreements
for the sale of goods or services in the ordinary course of business in which
the sales price of the goods to be sold and the services to be rendered
pursuant to each such agreement is less than $75,000 for each such non-listed
agreement.

 

The contracts, agreements, purchase orders, leases,
licenses, indentures or commitments referred to above are hereinafter defined
as the “Contracts.”  True and complete
copies of each of the Contracts, or where they are oral, true and complete
written summaries thereof, have been delivered to DSI.  Except as disclosed in writing to DSI:

 

(a)                                  Each
of the Contracts is a valid and binding agreement of DSS and to the best
knowledge of the Sellers, all other parties thereto;

 

(b)                                 DSS
has fulfilled all material obligations required pursuant to each Contract to
have been performed by it prior to the date hereof, and the Sellers have no
reason to believe that DSS will not be able to fulfill, when due, all of its

 

6

 

obligations under the
Contracts which remain to be performed after the date hereof;

 

(c)                                  There
has not occurred any material default under any of the Contracts on the part of
DSS, or to the best knowledge of the Sellers, on the part of any other party
thereto nor has any event occurred which with the giving of notice of the lapse
of time, or both, would constitute any material default on the part of DSS
under any of the Contracts nor, to the best knowledge of the Sellers, has any event
occurred which with the giving of notice or the lapse of time, or both, would
constitute any material default on the part of any other party to any of the
Contracts;

 

(d)                                 No
consent of any party to any of the Contracts is required in connection with the
execution, delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby;

 

(e)                                  DSS
is not restricted or purported to be restricted by any contract agreement or
arrangement from carrying on their respective business anywhere in the world;
and

 

(f)                                    DSS
is not under any liability or obligation with respect to the return of
inventory or products of DSS or any Subsidiary in the possession of customers
or others.

 

21.  Compliance
with Law.  The conduct of business by
DSS does not violate any laws, statutes, ordinances, rules, regulations,
decrees, orders, permits or other similar items in force on the Reference Dates
(including, but not limited to, any of the foregoing relating to employment
discrimination, environmental protection or conservation) of any country,
province, state or other governing body, the enforcement of which would
materially and adversely affect the business, assets, condition (financial or
otherwise) or prospects of DSS nor has DSS received any notice of any such
violation.

 

22.  No
Undisclosed Liabilities.  Except as
and to the extent specifically reflected or reserved against in the Financial
Statements otherwise disclosed in writing to DSI, DSS does not have any
liabilities or obligations of any nature, whether absolute, accrued, contingent
or otherwise, and whether due or to become due (including, without limitation,
any liability for taxes and interest, penalties and other charges payable with
respect to any such liability or obligation) which are material to the
condition (financial or otherwise), assets, properties, business or prospects
of DSS.

 

7Exhibit
10.6

 

Dated
             February 2005

 

 

DIANA
SHIPPING INC.

as Borrower

 

– and –

 

THE ROYAL
BANK OF SCOTLAND PLC

as Lender

 

 

LOAN
AGREEMENT

 

relating to a revolving
credit facility of up to USD$230,000,000

 

 

WATSON,
FARLEY & WILLIAMS

London

 

 

INDEX

 

	
  Clause

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  INTERPRETATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  FACILITY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  DRAWDOWN

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4

  	
   

  	
  INTEREST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5

  	
   

  	
  INTEREST
  PERIODS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6

  	
   

  	
  DEFAULT
  INTEREST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7

  	
   

  	
  REPAYMENT,
  PREPAYMENT AND CANCELLATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8

  	
   

  	
  MISMATCH
  BETWEEN FACILITY AND TRANSACTIONS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9

  	
   

  	
  CONDITIONS
  PRECEDENT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10

  	
   

  	
  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  11

  	
   

  	
  GENERAL
  UNDERTAKINGS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  12

  	
   

  	
  CORPORATE
  UNDERTAKINGS AND FINANCIAL COVENANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  13

  	
   

  	
  INSURANCE

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  14

  	
   

  	
  SHIP
  COVENANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  15

  	
   

  	
  SECURITY
  COVER

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  16

  	
   

  	
  PAYMENTS AND CALCULATIONS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  17

  	
   

  	
  APPLICATION OF RECEIPTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  18

  	
   

  	
  APPLICATION OF EARNINGS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  19

  	
   

  	
  EVENTS OF DEFAULT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  20

  	
   

  	
  FEES AND EXPENSES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  21

  	
   

  	
  INDEMNITIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  22

  	
   

  	
  NO SET-OFF OR TAX DEDUCTION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  23

  	
   

  	
  ILLEGALITY,
  ETC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  24

  	
   

  	
  INCREASED COSTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  25

  	
   

  	
  SET-OFF

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  26

  	
   

  	
  ASSIGNMENTS,
  TRANSFERS AND CHANGES IN LENDING OFFICE

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  27

  	
   

  	
  VARIATIONS AND WAIVERS

  	
   

  

 

 

	
  28

  	
   

  	
  NOTICES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  29

  	
   

  	
  SUPPLEMENTAL

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  30

  	
   

  	
  GOVERNING LAW AND
  JURISDICTION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE 1  DRAWDOWN NOTICE

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE 2  CONDITION PRECEDENT DOCUMENTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE 3  THE EXISTING SHIPS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE 4  MANDATORY COST FORMULA

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE 5

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  LENDER COMMITMENT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE 6

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  FORM OF COMPLIANCE
  CERTIFICATE

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  EXECUTION
  PAGE

  	
   

  
	
   

  	
   

  

 

 

THIS LOAN
AGREEMENT
is made on
             February 2005

 

BETWEEN:

 

(1)           DIANA SHIPPING INC., a company incorporated in the
Marshall Islands whose registered office is at Trust Company Complex, Ajeltake
Island, P O Box 1405, Majuro, Marshall Islands MH96960 (the “Borrower”); and

 

(2)           THE ROYAL BANK OF SCOTLAND
PLC, acting
through the Shipping Business Centre at 5-10 Great Tower Street, London EC3P
3HX (the “Lender”).

 

BACKGROUND

 

The Lender has
agreed to make available to the Borrower a revolving credit facility of up to
$230,000,000 as follows:

 

(A)          to enable the Borrower or other members of
the Group to finance the acquisition of New Ships and the shares of New
Companies;

 

(B)           to assist the Borrower in its acquisition of
the Approved Manager for a consideration of up to US$20,000,000; and

 

(C)           to provide the Borrower with working capital
in an amount of up to US$30,000,000 for an initial period of 18 months commencing
on the Availability Date and such working capital facility may be renewed
annually thereafter subject to the Lender’s annual review,

 

in each case,
subject to the limitations, reductions and other terms and conditions contained
in this Agreement.

 

IT IS
AGREED as follows:

 

1              INTERPRETATION

 

1.1          Definitions.  Subject to Clause 1.5, in this
Agreement:

 

“Account Charge”  means the deed in respect of the Operating
Account executed or to be executed by the Borrower in favour of the Lender
substantially in the form set out in Appendix C (or in such other form as the
Lender may approve or require);

 

“Accounting Information”  means the quarterly financial statements
and/or the annual audited financial statements to be provided by the Borrower
to the Lender in accordance with Clause 11.7;

 

“Accounting Period”  means each consecutive period of
approximately three months falling during the Security Period (ending on the
last day in March, June, September and December of each year) for
which quarterly Accounting Information is required to be delivered pursuant to
Clause 11.7;

 

“Adjusted Net Worth”  means, in respect of an Accounting Period,
the amount of Total Assets less Consolidated Debt;

 

“Advance” 
means each of the New Ship Advances, the Approved Manager Advance and
the Working Capital Advances and, in the plural, means all of them;

 

“Approved Broker”  means H. Clarkson & Company, Galbraiths
Limited, Braemar Seascope, Arrow Shipbrokers or such other firm of independent
sale and purchase 

 

 

shipbrokers as shall
be approved by the Lender (in substitution for any of the foregoing), in its
sole and absolute discretion, from time to time for the purposes of this
Agreement;

 

“Approved Flag”  means any of the Greek or Bahamas or any
other flag as the Lender may, in its sole and absolute discretion approve as
the flag on which a Ship may be registered;

 

“Approved Flag State”  means any of Greece or the Commonwealth of
the Bahamas or any other country in which the Lender, may in its sole and
absolute discretion, approve that a Ship may be registered;

 

“Approved Manager”  means, for the time being, Diana Shipping
Services S.A., a company incorporated under the laws of the Republic of Panama
and whose registered office is at Edificio “Centro Magna Corp”, Ave. Manuel MA,
De y Caza y Calle 51, Panama, Republic of Panama or any other company which the
Lender may, in its sole and absolute discretion, approve from time to time as
the manager of the Ships;

 

“Approved Manager Advance”  means the advance requested by the Borrower
or, as the context requires, made or to be made by the Lender pursuant to
Clause 3.2(d) to assist the Borrower in funding its acquisition of the shares
of the Approved Manager;

 

“Availability Date”  means the date on which all the conditions
referred to in Schedule 2 Parts A and B have been satisfied (in the
opinion of the Lender) in full and shall be no later than 31 March 2005
unless the Lender otherwise agrees in its sole and absolute discretion;

 

“Availability Period”  means the period commencing on the date of
this Agreement and ending on:

 

(a)        the Termination Date (or such later date as
the Lender may agree with the Borrower); or

 

(b)        if earlier, the date on which the Commitment
is fully cancelled or terminated,

 

save that in the
case of each Working Capital Advance, such period shall end on the date the
Lender notifies the Borrower that the Commitment shall be reduced in accordance
with the proviso in Clause 7.1;

 

“Available Commitment”  means, at any time, the Commitment less the
amount of the Facility at that time;

 

“Business Day”  means a day (other than a Saturday or Sunday)
on which banks and financial markets in London are open for business and, in
respect of a day on which a payment is required to be made under a Finance
Document, also a day on which banks and financial markets are open for business
in New York City;

 

“Calculation Period”  means the period commencing on the date on
which the last payment or delivery has been made under section 2(d)(i) of
the Master Agreement with respect to a Transaction (or in the case of the first
such period the date the relevant Transaction has been entered into) and ending
on the next date upon which such a payment on delivery is to be made;

 

“Collateral Ship”  means any New Ship which is registered under
an Approved Flag, is the subject of a Mortgage and which the Borrower nominates
as a “Collateral Ship” for the purposes of this Agreement and, in the plural,
means all of them;

 

“Commitment” 
means the maximum amount of the Facility at any given time to be determined
in accordance with the commitment schedule set out in Schedule 5 as
that 

 

2

 

amount may be
limited, reduced, cancelled or terminated in accordance with this Agreement;

 

“Confirmation”  has the meaning given to that expression in section 14
of the Master Agreement;

 

“Consolidated Debt”  means, in respect of an Accounting Period,
the aggregate amount of Debt due by the members of the Group (other than any
such Debt owing by any member of the Group to another member of the Group) as
stated in the then most recent Accounting Information;

 

“Consolidated Financial Indebtedness”  means, in respect of each Accounting Period,
the aggregate amount of Financial Indebtedness (including current maturities)
due by the members of the Group (other than any such Financial Indebtedness
owing by any member of the Group
to another member of the Group) as stated in the then most recent Accounting
Information;

 

“Contractual Currency”  has the meaning given in Clause 21.5;

 

“Credit Support Document”  has the meaning given to that expression in section 14
of the Master Agreement;

 

“Credit Support Provider”  has the meaning given to that expression in section 14
of the Master Agreement;

 

“Current  Assets”  means, in respect of each Accounting Period,
the aggregate of the cash and marketable securities, trade and other
receivables from persons other
than a member of the Group, realisable within one year, inventories
and prepaid expenses which are to be charged to income within one year less any doubtful debts and any discounts or
allowances given as stated in the then most recent Accounting Information;

 

“Debt” 
means in relation to any member of the Group (the “debtor”):

 

(a)           Financial Indebtedness of the debtor;

 

(b)           liability for any credit to the debtor from a
supplier of goods or services or under any instalment purchase or payment plan
or other similar arrangement;

 

(c)           contingent liabilities of the debtor
(including without limitation any taxes or other payments under dispute) which
have been or, under GAAP, should be recorded in the notes to the Accounting
Information;

 

(d)           deferred tax of the debtor; and

 

(e)           liability under a guarantee, indemnity or
similar obligation entered into by the debtor in respect of a liability of
another person who is not a member of the Group which would fall within (a) to
(d) if the references to the debtor referred to the other person;

 

“Dollars” and “$”  means the lawful
currency for the time being of the United States of America;

 

“Drawdown Date”  means, in relation to an Advance, the date
requested by the Borrower for the Advance to be made pursuant to Clause 3, or
(as the context requires) the date on which the Advance is actually made;

 

“Drawdown Notice”  means a notice in the form set out in Schedule 1
(or in any other form which the Lender approves or reasonably requires);

 

3

 

“Early Termination Date”  has the meaning given to that expression in section 14
of the Master Agreement;

 

“EBITDA” 
means, in respect of an Accounting Period, the aggregate amount of
consolidated pre-tax profits of the Group before extraordinary or exceptional
items, depreciation, interest, rentals under finance leases and similar charges
payable as stated in the then most recent Accounting Information;

 

“Earnings” 
means, in relation to each Ship, all moneys whatsoever which are now, or
later become, payable (actually or contingently) to the Owner of that Ship and
which arise out of the use or operation of that Ship, including (but not
limited to):

 

(a)           all freight, hire and passage moneys,
compensation payable to the Owner of that Ship in the event of requisition of
that Ship for hire, remuneration for salvage and towage services, demurrage and
detention moneys and damages for breach (or payments for variation or
termination) of any charterparty or other contract for the employment of that
Ship;

 

(b)           all moneys which are at any time payable
under Insurances in respect of loss of earnings; and

 

(c)           if and whenever that Ship is employed on
terms whereby any moneys falling within paragraphs (a) or (b) are pooled or
shared with any other person, that proportion of the net receipts of the
relevant pooling or sharing arrangement which is attributable to that Ship;

 

“Environmental Claim”  means

 

(a)           any claim by any governmental, judicial or
regulatory authority which arises out of an Environmental Incident or an
alleged Environmental Incident or which relates to any Environmental Law; or

 

(b)           any claim by any other person which relates
to an Environmental Incident or to an alleged Environmental Incident,

 

and “claim” means a claim for damages,
compensation, fines, penalties or any other payment of any kind, whether or not
similar to the foregoing; an order or direction to take, or not to take,
certain action or to desist from or suspend certain action; and any form of
enforcement or regulatory action, including the arrest or attachment of any
asset;

 

“Environmental Incident”  means, in relation to each Ship:

 

(a)           any release of Environmentally Sensitive
Material from that Ship; or

 

(b)           any incident in which Environmentally
Sensitive Material is released from a vessel other than that Ship and which
involves a collision between that Ship and such other vessel or some other
incident of navigation or operation, in either case, in connection with which
that Ship is actually or potentially liable to be arrested, attached, detained
or injuncted and/or that Ship and/or the Owner of that Ship and/or any operator
or manager of that Ship is at fault or allegedly at fault or otherwise liable
to any legal or administrative action; or

 

(c)           any other incident in which Environmentally
Sensitive Material is released otherwise than from that Ship and in connection
with which that Ship is actually or potentially liable to be arrested and/or
where the Owner of that Ship and/or any operator or manager of that Ship is at
fault or allegedly at fault or otherwise liable to any legal or administrative
action;

 

4

 

“Environmental Law”  means any law relating to pollution or
protection of the environment, to the carriage of Environmentally Sensitive
Material or to actual or threatened releases of Environmentally Sensitive
Material;

 

“Environmentally Sensitive Material”  means oil, oil products and any other
substance (including any chemical, gas or other hazardous or noxious substance)
which is (or is capable of being or becoming) polluting, toxic or hazardous;

 

“Event of Default”  means any of the events or circumstances
described in Clause 19.1;

 

“Existing Ships”  means any of the ships more particularly
described in Schedule 3 and, in the singular, means any one of them;

 

“Facility” 
means the principal amount of the borrowing by the Borrower which has
been advanced and is for the time being outstanding under this Agreement;

 

“Finance Documents”  means:

 

(a)           this Agreement;

 

(b)           the Master Agreement;

 

(c)           the Master Agreement Security Deed;

 

(d)           each Guarantee;

 

(e)           each General Assignment;

 

(f)            each Mortgage;

 

(g)           the Account Charge;

 

(h)           each Negative Pledge Agreement;

 

(i)            any other document (whether creating a
Security Interest or not) which is executed at any time by the Borrower, any
Security Party or any other person as security for, or to establish any form of
subordination or priorities arrangement in relation to, any amount payable to
the Lender under this Agreement or any of the other documents referred to in
this definition;

 

“Financial Indebtedness”  means, in relation to any member of the Group
(the “debtor”), a liability of the
debtor:

 

(a)           for principal, interest or any other sum
payable in respect of any moneys borrowed or raised by the debtor; 

 

(b)           under any loan stock, bond, note or other
security issued by the debtor;

 

(c)           under any acceptance credit, guarantee or
letter of credit facility made available to the debtor;

 

(d)           under a financial lease, a deferred purchase
consideration arrangement (in each case, other than in respect of assets or
services obtained on normal commercial terms in the ordinary course of
business) or any other agreement having the commercial effect of a borrowing or
raising of money by the debtor;

 

(e)           under any foreign exchange transaction any
interest or currency swap or any other kind of derivative transaction entered
into by the debtor or, if the agreement under

 

5

 

which any such
transaction is entered into requires netting of mutual liabilities, the
liability of the debtor for the net amount; or 

 

(f)            under a guarantee, indemnity or similar
obligation entered into by the debtor in respect of a liability of another
person which would fall within (a) to (e) if the references to the debtor
referred to the other person;

 

“Fixed Charges”  means, in respect of an Accounting Period,
the aggregate of Interest Expenses and the portion of Consolidated Financial
Indebtedness (other than balloon repayments) falling due during that period, as
stated in the then most recent Accounting Information.;

 

“GAAP” 
means accounting principles, concepts, bases and policies generally
adopted and accepted in the United States of America consistently applied;

 

“General Assignment”  means, in relation to each Ship, a general
assignment of the Earnings, the Insurances and any Requisition Compensation of
that Ship executed or to be executed by the Owner of that Ship in favour of the
Lender substantially in the form set out in Appendix B (or such other form as
the Lender may approve or require);

 

“Group” 
means the Borrower and its subsidiaries (whether direct or indirect)
from time to time during the Security Period and “member of the Group” shall be construed accordingly;

 

“Guarantee” 
means, in relation to each Owner, the guarantee by that Owner of the
Borrower’s liabilities under this Agreement, the Master Agreement and the
Finance Documents executed or to be executed by the relevant Owner in favour of
the Lender substantially in the form set out in Appendix D (or such other form
as the Lender may approve or require);

 

“Insurances” 
means, in relation to each Ship:

 

(a)           all policies and contracts of insurance,
including entries of that Ship in any protection and indemnity or war risks
association, which are effected in respect of that Ship, her Earnings or
otherwise in relation to her; and

 

(b)           all rights and other assets relating to, or
derived from, any of the foregoing, including any rights to a return of a
premium;

 

“Interest Expenses”  means, in respect of an Accounting Period,
the aggregate on a consolidated basis of all interest incurred by any member of
the Group (excluding any amounts owing by one member of the Group to another
member of the Group) and any net amounts payable under interest rate hedge
agreements;

 

“Interest Period”  means a period determined in accordance with
Clause 5;

 

“IPO” 
means, the sale of an underwritten initial public offering registered
under the U.S. Securities Act of 1933, as amended, of shares of common stock of
the Borrower; 

 

“ISM Code” 
means, in relation to its application to each Owner, the Approved
Manager, each Ship and its operation, the International Safety Management Code
(including the guidelines on its implementation), adopted by the International
Maritime Organisation Assembly as Resolution MSC 104 (73) (amending Resolution
A.741 (18)) and Resolution A.913 (22) (superceding Resolution A.788 (19)), as
the same may be amended, supplemented or superceded from time to time (and the
terms “safety management system”, “Safety Management Certificate” and “Document of Compliance” have the same
meanings as are given to them in the ISM Code);

 

6

 

“ISPS Code” 
means, in relation to its application to each Owner, the Approved
Manager, each Ship and its operation, the International Ship and Port Facility
Security Code constituted pursuant to Resolution A.924 (22) of the
International Maritime Organisation (“IMO”)
adopted by a Diplomatic Conference of the IMO on Maritime Security on 13 December 2002
and now set out in Chapter XI-2 of the Safety of Life at Sea Convention (SOLAS)
1974 (as amended);

 

“Lender” 
means The Royal Bank of Scotland plc, a company incorporated in Scotland
having its registered office at 36 St. Andrew Square, Edinburgh EH2 2YB,
Scotland acting through the Shipping Business Centre at 5-10 Great Tower Street,
London EC3P 3HX, England or through any other branch notified to the Borrower
from time to time pursuant to Clause 26.3 and includes all persons directly or
indirectly deriving title under it (whether by permitted assignment,
amalgamation, operation of law or otherwise);

 

“Liquid Funds”  means, in respect of an Accounting Period:

 

(a)           cash in hand or held with banks or other
financial institutions of the Borrower and/or any other member of the Group in
Dollars or another currency freely convertible into Dollars, which is free of
any Security Interest (other than a Permitted Security Interest and other than
ordinary bankers’ liens which have not been enforced or become capable of being
enforced);

 

(b)           any other short-term financial investment
which is free of any Security Interest (other than a Permitted Security
Interest) as stated in the then most recent Accounting Information; and 

 

(c)           the amount of the Available Commitment;

 

“Major Casualty”  means any casualty to the Ship in respect of
which the claim or the aggregate of the claims against all insurers, before
adjustment for any relevant franchise or deductible, exceeds $1,000,000 or the
equivalent in any other currency;

 

“Mandatory Cost Rate”  means the percentage rate which represents
the cost to the Lender, relative to the Facility, of compliance with the
requirements of the Bank of England, the Financial Services Authority or any
other regulatory authority, as determined by the Lender in accordance with the
formula detailed in Schedule 4;

 

“Margin” 
means 1 per cent.  per annum;

 

“Master Agreement”  means the Master Agreement (on the 1992 ISDA
(Multicurrency - Crossborder) form as modified) entered into by the Lender and
the Borrower dated the date of this Agreement, and includes all transactions
from time to time entered into and confirmations from time to time exchanged
under the Master Agreement and any amending, supplementing or replacement
agreements made from time to time;

 

“Master Agreement Liabilities”  means, at any relevant time, all liabilities
actual or contingent, present or future, of the Borrower to the Lender under
the Master Agreement;

 

“Master Agreement Security Deed”  means the deed containing, inter alia, a
charge in respect of the Master Agreement executed or to be executed by the Borrower
in favour of the Lender substantially in the form set out in Appendix F (or
such other form as the Lender may approve or require);

 

“Mortgage” 
means, in relation to each Ship, the first priority or preferred ship
mortgage on that Ship and, if required by the Approved Flag State, a collateral
deed of covenants, executed or to be executed by the Owner of such Ship in
favour of the Lender substantially in the form of Appendix A or such other form
as the Lender may approve or require and modified as necessary to conform with
the laws of the Approved Flag State;

 

7

 

“Negative Pledge Agreement”  means an agreement executed or to be executed
by any Unencumbered Owner in favour of the Lender in respect of each New Ship
which is not designated by the Borrower as a Collateral Ship, substantially in
the form set out in Appendix E (or in such other form as the Lender may approve
or require);

 

“New Company”  means any company which:

 

(a)           has as its principal business the ownership,
chartering or operation of vessels;

 

(b)           the Borrower notifies to the Lender pursuant
to Clause 3.4 as a company the Borrower wishes to acquire (either directly or
through a subsidiary) with the assistance of a New Ship Advance; and

 

(c)           the Lender, in its sole and absolute
discretion, shall notify to the Borrower as being acceptable to the Lender, in
accordance with Clause 3.4; and

 

(d)           is the subject of a Drawdown Notice,

 

and in the plural, means all such companies;

 

“New Ship”  means any dry bulk carrier or cellular
container ship (which is not an Existing Ship) which:

 

(e)           the Borrower notifies to the Lender pursuant
to Clause 3.4 as a vessel which the Borrower wishes to purchase (either
directly or through a subsidiary) with the assistance of a New Ship Advance;

 

(f)            will be no greater than 10 years old at the
date of the proposed purchase;

 

(g)           shall be registered on an Approved Flag on
and from the date of its purchase by a member of the Group;

 

(h)           the Lender, in its sole and absolute
direction, shall notify to the Borrower as being acceptable to the Lender, in
accordance with Clause 3.4; and

 

(i)            is the subject of a Drawdown Notice,

 

and, in the
plural, means all such ships;

 

“New Ship Advance”  means each advance requested by the Borrower
or, as the context requires, made or to be made by the Lender pursuant to
Clause 3.2(c) to assist the Borrower directly or indirectly in its acquisition
of New Ships and the shares of New Companies and, in the plural, means all such
advances;

 

“Operating Account”  means, for the time being, an account opened
or to be opened in the name of the Borrower with the Lender designated “Diana
Shipping – Operating Account”, or any other account or sub-account (with that
or another office of the Lender or with a bank or financial institution other
than the Lender) which is designed by the Lender as the Operating Account for
the purposes of this Agreement;

 

“Owner” 
means any member of the Group who owns a Ship which is the subject of a
Mortgage and, in the plural, means all of them;

 

“Payment Currency”  has the meaning given in Clause 21.5;

 

“Permitted Security Interests”  means:

 

(a)           Security Interests created by the Finance
Documents;

 

8

 

(b)           liens for unpaid master’s and crew’s wages in
accordance with usual maritime practice;

 

(c)           liens for salvage;

 

(d)           liens arising by operation of law for not
more than 2 months’ prepaid hire under any charter in relation to a Ship
not prohibited by this Agreement;

 

(e)           liens for master’s disbursements incurred in
the ordinary course of trading and any other lien arising by operation of law
or otherwise in the ordinary course of the operation, repair or maintenance of
a Ship, provided such liens do not secure amounts more than 30 days
overdue (unless the overdue amount is being contested by the Borrower in good
faith by appropriate steps) and subject, in the case of liens for repair or
maintenance, to Clause 14.12(f);

 

(f)            any Security Interest created in favour of a
plaintiff or defendant in any proceedings or arbitration as security for costs
and expenses where the Borrower is actively prosecuting or defending such
proceedings or arbitration in good faith by appropriate steps; and

 

(g)           Security Interests arising by operation of
law in respect of taxes which are not overdue for payment or in respect of
taxes being contested in good faith by appropriate steps and in respect of
which appropriate reserves have been made;

 

“Pertinent Document”  means:

 

(a)           any Finance Document;

 

(b)           any policy or contract of insurance
contemplated by or referred to in Clause 13 or any other provision of this
Agreement or another Finance Document;

 

(c)           any other document contemplated by or
referred to in any Finance Document; and

 

(d)           any document which has been or is at any time
sent by or to the Lender in contemplation of or in connection with any Finance
Document or any policy, contract or document falling within paragraphs (b) or
(c);

 

“Pertinent Jurisdiction”, in relation to a
company, means:

 

(a)           England and Wales;

 

(b)           the country under the laws of which the
company is incorporated or formed;

 

(c)           a country in which the company has the centre
of its main interests or in which the company’s central management and control
is or has recently been exercised;

 

(d)           a country in which the overall net income of
the company is subject to corporation tax, income tax or any similar tax;

 

(e)           a country in which assets of the company
(other than securities issued by, or loans to, related companies) having a substantial
value are situated, in which the company maintains a branch or a permanent
place of business, or in which a Security Interest created by the company must
or should be registered in order to ensure its validity or priority; and

 

(f)            a country the courts of which have
jurisdiction to make a winding up, administration or similar order in relation
to the company whether as main or territorial or ancillary proceedings or which
would have such jurisdiction if their 

 

9

 

assistance were
requested by the courts of a country referred to in paragraphs (b) or (c)
above;

 

“Pertinent Matter”  means:

 

(a)           any transaction or matter contemplated by,
arising out of, or in connection with a Pertinent Document; or

 

(b)           any statement relating to a Pertinent
Document or to a transaction or matter falling within paragraph (a);

 

and covers any
such transaction, matter or statement, whether entered into, arising or made at
any time before the signing of this Agreement or on or at any time after that
signing;

 

“Potential Event of Default”  means an event or circumstance which, with
the giving of any notice, the lapse of time, a determination of the Lender
and/or the satisfaction of any other condition, would constitute an Event of
Default;

 

“RBS  LIBOR”  means, for an Interest Period, the rate per
annum at which deposits in Dollars in an amount approximately equal to the
Facility (or any part thereof) are (or would have been) offered by the Lender
to leading banks in the London Interbank Market at or about 11.00 a.m. (London
time) on the second Business Day prior to commencement of such Interest Period
for that Interest Period for a period equal to that Interest Period and for
delivery on the first Business Day of it;

 

“Receiving Bank”  means American Express Bank Limited, 3 World
Financial Centre, 23rd Floor, New York, NY 10285-2300, USA or such other bank
as may from time to time be notified by the Lender to the Borrower;

 

“Relevant Interest Rate”  means RBS LIBOR or, in the case where a
Transaction is to be, or has been, entered into under the Master Agreement and
the Borrower has not made an election pursuant to Clause 4.3 , TELERATE;

 

“Relevant Person”  has the meaning given in Clause 19.7;

 

“Repayment Date”  means, a date on which the Commitment is
reduced in accordance with the commitment schedule set out in Schedule 5
and on which the Borrower shall repay any sums necessary to ensure that the
Facility does not exceed the then current Commitment;

 

“Requisition Compensation”  includes all compensation or other moneys
payable by reason of any act or event such as is referred to in paragraph (b)
of the definition of “Total Loss”;

 

“Secured Liabilities”  means all liabilities which the Borrower, the
Security Parties or any of them have, at the date of this Agreement or at any
later time or times, under or in connection with any Finance Document or any
judgment relating to any Finance Document; and for this purpose, there shall be
disregarded any total or partial discharge of these liabilities, or variation
of their terms, which is effected by, or in connection with, any bankruptcy,
liquidation, arrangement or other procedure under the insolvency laws of any
country;

 

“Security Interest”  means:

 

(a)           a mortgage, charge (whether fixed or
floating) or pledge, any maritime or other lien or any other security interest
of any kind;

 

10

 

(b)           the security rights of a plaintiff under an
action in rem; and

 

(c)           any arrangement entered into by a person (A)
the effect of which is to place another person (B) in a position which is
similar, in economic terms, to the position in which B would have been had he
held a security interest over an asset of A; but this paragraph (c) does not
apply to a right of set off or combination of accounts conferred by the
standard terms of business of a bank or financial institution;

 

“Security Party”  means the Owners, the Unencumbered Owners and
any other person (except the Lender) who, as a surety or mortgagor, as a party
to any subordination or priorities arrangement, or in any similar capacity,
executes a document falling within the last paragraph of the definition of “Finance
Documents”;

 

“Security Period”  means the period commencing on the date of
this Agreement and ending on the date on which the Lender notifies the Borrower
and the Security Parties that:

 

(a)           all amounts which have become due for payment
by the Borrower or any Security Party under the Finance Documents have been
paid;

 

(b)           no amount is owing or has accrued (without
yet having become due for payment) under any Finance Document;

 

(c)           neither the Borrower nor any Security Party
has any future or contingent liability under Clause 20, 21 or 22 or any
other provision of this Agreement or another Finance Document; and

 

(d)           the Lender does not consider that there is a
significant risk that any payment or transaction under a Finance Document would
be set aside, or would have to be reversed or adjusted, in any present or
possible future bankruptcy of the Borrower or a Security Party or in any
present or possible future proceeding relating to a Finance Document or any
asset covered (or previously covered) by a Security Interest created by a
Finance Document;

 

“Ships” 
means, together, the Existing Ships and the Collateral Ships and, in the
singular, means any one of them;

 

“Tangible Fixed Assets”  means, in respect of an Accounting Period,
the value (less depreciation computed in accordance with GAAP) on a
consolidated basis of all the assets of the Group which would, in accordance
with GAAP, be classified as tangible fixed assets, namely items held for
ongoing use to the business of the Group including, without limitation, any
land, plant, machinery and vessels as such value is stated in the then most
recent Accounting Information; Provided that,
for the purposes of determining compliance with the covenants set forth in
Clause 15.2, the value of such tangible fixed assets attributable to the Ships
shall be equal to the aggregate value of such Ships (as determined by one or
more of the Approved Brokers in the manner provided for in Clauses 15.5 and
15.6) rather than the value of such Ships as stated in the then most recent
Accounting Information;

 

“Taxes” 
includes all present and future income, corporation or value-added taxes
and all stamp and other taxes and levies, imposts, deductions, duties, charges
and withholdings whatsoever together with interest thereon and penalties with
respect thereto, if any, and charges, fees or other amounts made on or in
respect thereof (and references to “Taxation”
shall be construed accordingly);

 

“TELERATE” 
means, for an Interest Period:

 

(a)           the rate per annum equal to the offered
quotation for deposits in Dollars for a period equal to, or as near as possible
equal to, that Interest Period or other 

 

11

 

relevant period
which appears on Telerate Page 3750 at or about 11.00 a.m. (London time) on the
second Business Day prior to the commencement of that Interest Period or other
period (and, for the purposes of this Agreement, “Telerate Page 3750” means the
display designated as “page 3750” on the Telerate Service or such other page as
may replace Page 3750 on that service for the purpose of displaying rates
comparable to that rate or on such other service as may be nominated by the
British Bankers’ Association as the information vendor for the purpose of
displaying British Bankers’ Association Interest Settlement Rates for Dollars);
or

 

(b)           if no rate is quoted on Telerate Page 3750,
the rate per annum determined by the Lender to be the rate per annum which
leading banks in the London Interbank Market offer for deposits in Dollars in
the London Interbank Market at or about 11.00 a.m. (London time) on the second
Business Day prior to the commencement of that Interest Period or other period
for a period equal to that Interest Period or other period and for delivery on
the first Business Day of it;

 

“Termination Date”  means the date falling 10 years after the
Availability Date;

 

“Total Assets”  means, in respect of an Accounting Period,
the aggregate of Current Assets and Tangible Fixed Assets”;

 

“Total Loss” 
means:

 

(a)           actual, constructive, compromised, agreed or
arranged total loss of the Ship;

 

(b)           any expropriation, confiscation, requisition
or acquisition of the Ship, whether for full consideration, a consideration
less than its proper value, a nominal consideration or without any
consideration, which is effected by any government or official authority or by
any person or persons claiming to be or to represent a government or official
authority (excluding a requisition for hire for a fixed period not exceeding 1
year without any right to an extension) unless it is within 1 month redelivered
to the Borrower’s full control;

 

(c)           any arrest, capture, seizure or detention of
the Ship (including any hijacking or theft) unless it is within 1 month
redelivered to the Borrower’s full control;

 

“Total Loss Date”  means:

 

(a)           in the case of an actual loss of the Ship,
the date on which it occurred or, if that is unknown, the date when the Ship
was last heard of;

 

(b)           in the case of a constructive, compromised,
agreed or arranged total loss of the Ship, the earliest of:

 

(i)            the date on which a notice of abandonment is
given to the insurers; and

 

(ii)           the date of any compromise, arrangement or
agreement made by or on behalf of the Borrower with the Ship’s insurers in
which the insurers agree to treat the Ship as a total loss; and

 

(c)           in the case of any other type of total loss,
on the date (or the most likely date) on which it appears to the Lender that
the event constituting the total loss occurred.

 

“Transaction”  means a Transaction as defined in the
introductory paragraph of the Master Agreement; 

 

12

 

“Unencumbered Owners”  means any owner of a New Ship which is not a
Collateral Ship; and

 

“Working Capital Advance”  means each advance requested by the Borrower
or, as the context requires, made or to be made by the Lender pursuant to
Clause 3.2(e) to provide the Group with working capital and, in the plural,
means all such advances.

 

1.2          Construction of
certain terms. 
In this Agreement:

 

“administration notice” means a notice
appointing an administrator, a notice of intended appointment and any other
notice which is required by law (generally or in the case concerned) to be
filed with the court or given to a person before, or in connection with, the
appointment of an administrator;

 

“approved” means, for the purposes of
Clause 13, approved in writing by the Lender;

 

“asset” includes every kind of property,
asset, interest or right, including any present, future or contingent right to
any revenues or other payment;

 

“company” includes any partnership, joint
venture and unincorporated association;

 

“consent” includes an authorisation,
consent, approval, resolution, licence, exemption, filing, registration,
notarisation and legalisation;

 

“contingent liability” means a liability
which is not certain to arise and/or the amount of which remains unascertained;

 

“document” includes a deed; also a letter,
fax or telex;

 

“excess risks” means the proportion of
claims for general average, salvage and salvage charges not recoverable under
the hull and machinery policies in respect of the Ship in consequence of its insured
value being less than the value at which the Ship is assessed for the purpose
of such claims;

 

“expense” means any kind of cost, charge or
expense (including all legal costs, charges and expenses) and any applicable
value added or other tax;

 

“law” includes any order or decree, any form
of delegated legislation, any treaty or international convention and any
regulation or resolution of the Council of the European Union, the European
Commission, the United Nations or its Security Council;

 

“legal or administrative action” means any
legal proceeding or arbitration and any administrative or regulatory action or
investigation;

 

“liability” includes every kind of debt or
liability (present or future, certain or contingent), whether incurred as
principal or surety or otherwise;

 

“months” 
shall be construed in accordance with Clause 1.3;

 

“obligatory insurances” means all insurances
effected, or which the Borrower is obliged to effect, under Clause 13 or
any other provision of this Agreement or another Finance Document;

 

“parent company”  has the meaning given in Clause 1.4;

 

“person” 
includes any company; any state, political sub-division of a state and
local or municipal authority; and any international organisation;

 

13

 

“policy”, in relation to any insurance,
includes a slip, cover note, certificate of entry or other document evidencing
the contract of insurance or its terms;

 

“protection and indemnity risks” means the
usual risks covered by a protection and indemnity association managed in
London, including pollution risks and 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
in them of clause 6 of the International Hull Clauses (01/11/02 or 01/11/03) or
clause 8 of the Institute Time Clauses (Hulls)(1/11/1995) or the Institute
Amended Running Down Clause (1/10/71) or any equivalent provision;

 

“regulation” includes any regulation, rule,
official directive, request or guideline whether or not having the force of law
of any governmental, intergovernmental or supranational body, agency,
department or regulatory, self-regulatory or other authority or organisation;

 

“subsidiary” 
has the meaning given in Clause 1.4;

 

“tax” 
includes any present or future tax, duty, impost, levy or charge of any
kind which is imposed by any state, any political sub-division of a state or
any local or municipal authority (including any such imposed in connection with
exchange controls), and any connected penalty, interest or fine; and

 

“war risks” includes the risk of mines and
all risks excluded by clause 23 of the Institute Time Clauses (Hulls)(1/10/83)
or clause 24 of the Institute Time Clauses Hulls) (1/11/1995).

 

1.3          Meaning of “month”.  A period of one or more “months” ends on the day in the relevant
calendar month numerically corresponding to the day of the calendar month on
which the period started (“the numerically corresponding day”),
but:

 

(a)           on the
Business Day following the numerically corresponding day if the numerically
corresponding day is not a Business Day or, if there is no later Business Day
in the same calendar month, on the Business Day preceding the numerically
corresponding day; or

 

(b)           on the
last Business Day in the relevant calendar month, if the period started on the
last Business Day in a calendar month or if the last calendar month of the
period has no numerically corresponding day;

 

and “month” and “monthly” shall be construed accordingly.

 

1.4          Meaning of “subsidiary”.  A company (S) is a subsidiary of another
company (P) if:

 

(a)           a
majority of the issued shares in S (or a majority of the issued shares in S
which carry unlimited rights to capital and income distributions) are directly
owned by P or are indirectly attributable to P; or

 

(b)           P has
direct or indirect control over a majority of the voting rights attaching to
the issued shares of S; or

 

(c)           P has
the direct or indirect power to appoint or remove a majority of the directors
of S; or

 

(d)           P
otherwise has the direct or indirect power to ensure that the affairs of S are
conducted in accordance with the wishes of P;

 

and any company
of which S is a subsidiary is a parent company of S.

 

14

 

1.5          General
Interpretation. 
In this Agreement:

 

(a)           references
in Clause 1.1 to a Finance Document or any other document being in the form of
a particular appendix include references to that form with any modifications to
that form which the Lender approves or reasonably requires;

 

(b)           references
to, or to a provision of, a Finance Document or any other document are
references to it as amended or supplemented, whether before the date of this
Agreement or otherwise;

 

(c)           references
to, or to a provision of, any law include any amendment, extension,
re-enactment or replacement, whether made before the date of this Agreement or
otherwise; 

 

(d)           words
denoting the singular number shall include the plural and vice versa; and

 

(e)           Clauses
1.1 to 1.5 apply unless the contrary intention appears.

 

1.6          Headings.  In interpreting a Finance Document or any
provision of a Finance Document, all clause, sub-clause and other headings in
that and any other Finance Document shall be entirely disregarded.

 

2              FACILITY

 

2.1          Amount of
facility. 
Subject to the other provisions of this Agreement (including, without
limitation, Clauses 3.2, 3.3 and 9.1(f)) and in reliance (inter alia) on the
representations and warranties of the Borrower and the Security Parties set out
in the Finance Documents, the Lender shall make a revolving credit facility not
exceeding $230,000,000 available to the Borrower.

 

2.2          Purpose of
Advances. 
The Borrower undertakes with the Lender to use each Advance only for the
purposes stated in the preamble to this Agreement.

 

3              DRAWDOWN

 

3.1          Request for
Advance. 
Subject to the following conditions, the Borrower may request an Advance
to be made by ensuring that the Lender receives a completed Drawdown Notice not
later than 11.00 a.m. (London time) 2 Business Days prior to the intended
Drawdown Date.

 

3.2          Availability.  The conditions referred to in Clause 3.1
are that:

 

(a)           the
first Drawdown Date must be on or after the Availability Date unless the Lender
otherwise agrees in its sole and absolute discretion;

 

(b)           a
Drawdown Date must be a Business Day during the Availability Period;

 

(c)           subject
to Clauses 3.3 and 3.4 the amount of a New Ship Advance:

 

(i)            shall not be less than $5,000,000;

 

(ii)           shall be a multiple of $1,000,000; 

 

(iii)          shall not exceed the Available Commitment; and

 

(iv)          shall not exceed 100 per cent. of the cost of the New Ship or the
shares of the New Company which, as the case may be, is the subject of such New
Ship Advance;

 

(d)           the
amount of the Approved Manager Advance shall not exceed $20,000,000;

 

15

 

(e)           the
aggregate amount of the Working Capital Advances shall not exceed $30,000,000,
each Working Capital Advance shall not be less than $5,000,000 and shall be a
multiple of $1,000,000; and

 

(f)            the
aggregate amount of the Advances shall not exceed the Commitment.

 

3.3          Initial
Commitment.  Prior
to the date of delivery of m.v.s “CALIPSO”, “CLIO” and “ERIC L.D.” (more
particularly described in Schedule 3) to the relevant members of the
Group, the Commitment shall be limited to the greater of:

 

(a)           $168,000,000;
and

 

(b)           60 per
cent. of the aggregate market value (as determined by one or more Approved
Brokers in the manner provided for in Clauses 15.5 and 15.6) of the Ships which
are the subject of a Mortgage subject to a maximum amount of $230,000,000.

 

3.4          Availability of
New Ship Advances.  Where
the Borrower wishes to borrow a New Ship Advance to assist the Borrower in
funding the acquisition cost of a New Ship or a New Company, the Borrower shall
notify the Lender of the following:

 

(a)           in the
case of the proposed acquisition of a New Ship, the proposed flag, general
description, deadweight tonnage and purchase price of the vessel nominated by
the Borrower and whether the nominated vessel shall be a Collateral Ship
subject to a Mortgage for the purposes of this Agreement; and

 

(b)           in the
case of the proposed acquisition of a New Company, the name, place of
incorporation and financial statements (if any) of the company nominated by the
Borrower and the acquisition price of the shares of the nominated company,

 

together with such further information as the Lender may
reasonably require.  

 

Upon
receipt of such information from the Borrower, the Lender shall, as soon as reasonably
practical, notify the Borrower of its acceptance or rejection of such nominated
vessel or company for the purposes of a New Ship Advance (which acceptance or
rejection shall, in the case of a nominated vessel, not be unreasonably
withheld and, in the case of a nominated company be in the sole and absolute
discretion of the Lender) and if the Lender rejects such vessel or company, the
Lender shall be under no obligation to make any such New Ship Advance in
relation thereto. 

 

3.5          Drawdown Notice
irrevocable. 
A Drawdown Notice must be signed by a director or other duly authorised
representative of the Borrower; and once served, a Drawdown Notice cannot be
revoked without the prior consent of the Lender. 

 

3.6          Disbursement of
Advance. 
Subject to the provisions of this Agreement, the Lender shall on each
Drawdown Date make each Advance to the Borrower; and payment to the Borrower
shall be made to the account which the Borrower specifies in the Drawdown
Notice.

 

4              INTEREST

 

4.1          Payment of
normal interest. 
Subject to the provisions of this Agreement, interest on an Advance in
respect of the Interest Period applicable to it shall be paid by the Borrower
on the last day of that Interest Period.

 

4.2          Normal rate of
interest. 
Subject to the provisions of this Agreement, the rate of interest on an
Advance in respect of the Interest Period applicable to it shall be the
aggregate of (a) the Margin, (b) the Relevant Interest Rate for that Interest
Period and (c) the Mandatory Cost Rate, if any.

 

16

 

4.3          Interest rate
when Transactions under Master Agreement. If a
Transaction is to be entered into under the Master Agreement, the Relevant
Interest Rate for each Interest Period applicable to that part of the Facility
the subject of the Transaction (commencing with the first Interest Period
relating to such Transaction) shall be TELERATE unless the Borrower, by giving
written notice (which shall be irrevocable) to the Lender not later than 11.00
a.m. (London time) 2 Business Days before the commencement of such first
Interest Period, elects that the Relevant Interest Rate shall be RBS LIBOR
rather than TELERATE.

 

4.4          Payment of
accrued interest. 
In the case of an Interest Period longer than 6 months, accrued interest
shall be paid every 6 months during that Interest Period and on the last day of
that Interest Period.

 

4.5          Notification of
market disruption. 
The Lender shall promptly notify the Borrower if for any reason the
Lender is unable to obtain Dollars in the London Interbank Market in order to
fund an Advance (or any part of it) during the Interest Period applicable to
it, stating the circumstances which have caused such notice to be given and the
Lender’s obligation to make the Advance shall be suspended while the circumstances
referred to in the Lender’s notice continue.

 

5              INTEREST PERIODS

 

5.1          Duration of
normal Interest Periods. 
There shall be a single Interest Period for each Advance which shall be
notified by the Borrower to the Lender in the Drawdown Notice for that Advance
and, subject to Clauses 5.2 and 5.3, that Interest Period shall be: 

 

(a)           1, 3,
6 or 12 months as notified by the Borrower to the Lender in the Drawdown Notice
for that Advance; or 

 

(b)           3
months, if the Borrower fails to notify the Lender in the Drawdown Notice for
that Advance; or 

 

(c)           such
other period as the Lender may agree with the Borrower.

 

Provided
that any
Interest Period selected by the Borrower under this Clause is subject to
availability as determined by the Lender in its sole and absolute discretion
and when implementing a scheduled reduction in the Lender’s Commitment as set
out in Schedule 5, the selection of Interest Periods under this Clause 5.1
shall be made in such manner as to ensure that the expiry of an Interest Period
in respect of an amount of the Facility equal to such scheduled reduction
amount shall coincide with such reduction date.

 

5.2          Non-availability
of matching deposits for Interest Period selected.  If, after the Borrower has selected and the
Lender has agreed an Interest Period longer than 6 months, the Lender notifies
the Borrower by 11.00 a.m. (London time) on the third Business Day before the
commencement of the Interest Period that it is not satisfied that deposits in
Dollars for a period equal to the Interest Period will be available to it in
the London Interbank Market when the Interest Period commences, the Interest
Period shall be of 6 months.

 

5.3          No Interest
Period to extend beyond Termination Date.  No Interest Period shall end after the
Termination Date and any Interest Period which would otherwise extend beyond
the Termination Date shall instead end on the Termination Date.

 

6              DEFAULT INTEREST

 

6.1          Payment of
default interest on overdue amounts.  The Borrower shall pay interest in accordance
with the following provisions of this Clause 6 on any amount payable by
the 

 

17

 

Borrower under any Finance Document which the Lender does
not receive on or before the relevant date, that is:

 

(a)           on or
within 2 Business Days of the date on which the Finance Documents provide that
such amount is due for payment; or

 

(b)           if a
Finance Document provides that such amount is payable on demand, within 3
Business Days of the date on which such demand is served; or

 

(c)           if
such amount has become immediately due and payable under Clause 19.4, the
date on which it became immediately due and payable.

 

6.2          Default rate of
interest. 
Interest shall accrue on an overdue amount from (and including) the
relevant date until the date of actual payment (as well after as before
judgment) at the rate per annum determined by the Lender to be 1 per cent.
above:

 

(a)           in the
case of an overdue amount of principal, the higher of the rates set out at
Clauses 6.3(a) and (b); or

 

(b)           in the
case of any other overdue amount, the rate set out at Clause 6.3(b).

 

6.3          Calculation of
default rate of interest. 
The rates referred to in Clause 6.2 are:

 

(a)           the
rate applicable to the overdue principal amount immediately prior to the
relevant date (but only for any unexpired part of any then current Interest
Period applicable to it) together with the Mandatory Cost Rate;

 

(b)           the
Margin together with the Mandatory Cost Rate plus, in respect of successive
periods of any duration (including at call) up to 3 months which the Lender may
select from time to time:

 

(i)            RBS LIBOR; or

 

(ii)           if the Lender determines that Dollar deposits for any such period are
not being made available to it by leading banks in the London Interbank Market
in the ordinary course of business, a rate from time to time determined by the
Lender by reference to the cost of funds to it from such other sources as the
Lender may from time to time determine.

 

6.4          Notification of
interest periods and default rates.  The Lender shall promptly notify the Borrower
of each interest rate determined by it under Clause 6.3 and of each period
selected by it for the purposes of paragraph (b) of that Clause; but this
shall not be taken to imply that the Borrower is liable to pay such interest only
with effect from the date of the Lender’s notification.

 

6.5          Payment of
accrued default interest. 
Subject to the other provisions of this Agreement, any interest due
under this Clause shall be paid on the last day of the period by reference to
which it was determined.

 

6.6          Compounding of
default interest. 
Any such interest which is not paid at the end of the period by
reference to which it was determined shall thereupon be compounded.

 

7              REPAYMENT, PREPAYMENT AND CANCELLATION

 

7.1          Repayment of
the Facility.  The
Borrower shall repay those sums (if any) necessary on each Repayment Date to
ensure that the Facility does not exceed the Commitment as determined on that
Repayment Date by reference to Schedule 5 (as such Schedule may be
amended from time to time in accordance with the provisions of this Agreement) 

 

18

 

Provided that the Lender shall be entitled to
conduct a review of the Borrower’s utilisation of the Working Capital Advances
on the date falling 18 months from the Availability Date and annually
thereafter until the Termination Date and, if, following such review, the
Lender, in its sole and absolute discretion, determines that one or more of the
Working Capital Advances should be repaid, the Lender shall notify the Borrower
accordingly and the Commitment shall be reduced by the amount so repaid; the
figures set out in Schedule 5 shall be adjusted downwards accordingly at
such time.

 

The Lender shall
be entitled to debit the Operating Account without prior notice on the
Repayment Dates in order to discharge any amount payable to it under this
Clause 7.1.

 

7.2          Additional
payments on Termination Date. 
On the final Termination Date, the Borrower shall additionally pay to
the Lender all other sums then accrued or owing under any Finance Document.

 

7.3          Voluntary
prepayment. 
Subject to the following conditions, the Borrower may prepay the whole
or any part of an Advance.

 

7.4          Conditions for
voluntary prepayment. 
The conditions referred to in Clause 7.3 are that:

 

(a)           the
Lender has received from the Borrower at least 14 days’ prior written notice of
its intention to make such a prepayment and specifying the amount and date on
which the prepayment is to be made;

 

(b)           the
amount of any such partial prepayment shall be not less than $5,000,000 (or a
higher integral multiple thereof); and

 

(c)           the
Borrower has provided evidence satisfactory to the Lender that any consent
required by the Borrower or any Security Party in connection with the
prepayment has been obtained and remains in force, and that any regulation
relevant to this Agreement which affects the Borrower or any Security Party has
been complied with.

 

7.5          Effect of
notice of prepayment. 
A prepayment notice may not be withdrawn or amended without the consent
of the Lender and the amount specified in the prepayment notice shall become
due and payable by the Borrower on the date for prepayment specified in the
prepayment notice.

 

7.6          Amounts payable
on prepayment. 
A prepayment shall be made together with accrued interest (and any other
amount payable under Clause 20.2 below or otherwise) in respect of the amount
prepaid and, if the prepayment is not made on the last day of an Interest
Period together with any sums payable under Clause 21.1(b) but without premium
or penalty.

 

7.7          Reborrowing
permitted. 
Subject to the terms of this Agreement, any amount repaid or prepaid may
be reborrowed unless at the time of such repayment or prepayment, the Borrower
permanently cancels the whole or part of the Commitment in accordance with
Clauses 7.8, 7.9 and 7.10.

 

7.8          Voluntary
cancellation of Commitment. 
Subject to the following conditions, the Borrower may cancel the whole
or any part of the Commitment.

 

7.9          Conditions for
cancellation of the Commitment. 
Those conditions are:

 

(a)           that a
partial cancellation shall be $5,000,000 or a multiple of $5,000,000; and

 

19

 

(b)           that
the Lender has received from the Borrower at least 14 days’ prior written
notice specifying the amount of the Commitment to be cancelled and the date on
which the cancellation is to take effect.

 

7.10        Effect of
notice of cancellation. 
The service of a cancellation notice under Clause 7.9(b) shall cause the
amount of the Commitment specified in the notice to be permanently cancelled
and the Commitment figures set out in Schedule 5 shall be reduced by an
amount corresponding to the amount of such cancellation.

 

8              MISMATCH BETWEEN FACILITY AND TRANSACTIONS

 

8.1          Hedging
position following repayment, prepayment or reduction of the Commitment.  On or prior to any repayment or prepayment of
all or part of the Facility or a reduction of the Commitment (whether scheduled
or not) under this Agreement then, subject to Clause 8.2, the Lender shall be
entitled but not obliged:

 

(a)           to
amend, supplement, cancel, net out, terminate, liquidate, transfer or assign
all or such part of the rights, benefits and obligations created by the Master
Agreement which equate or relate to the part of the Facility so repaid or
prepaid or the part of the Commitment so reduced; and/or 

 

(b)           to
obtain or re-establish any hedge or related trading position in any manner and
with any person the Lender in its absolute discretion decides,

 

and, in the case
of a repayment or prepayment of part of the Facility or a reduction of the part
of the Commitment and the Lender exercising any part of that entitlement, the
Borrower’s continuing obligations under the Master Agreement shall, unless
agreed otherwise by the Lender, be calculated so far as the Lender considers
practicable by reference to the amended commitment reduction schedule taking
account of the fact that less than the full amount of the Commitment remains
outstanding.

 

8.2          Obligation to
provide additional security. 
If:

 

(a)           at any
time, the Borrower maintains Transactions which are in amounts not wholly
matched with or linked to, all or part of the Facility; and

 

(b)           following
a written request from the Borrower, the Lender in its absolute discretion
agrees that the Borrower may be permitted to maintain all or part of such
Transactions, 

 

the Borrower
shall, within 15 days of being notified by the Lender of such requirement,
provide the Lender with, or procure the provision to the Lender of, such
additional security as shall, in the opinion of the Lender, be adequate to
secure the performance of any relevant Transaction in excess of the Commitment.

 

8.3          Form of
additional security. 
The additional security referred to in Clause 8.2 shall take such form,
be constituted by such documentation and be entered into by such parties, as
the Lender may, in its absolute discretion, approve or require, and each
document comprising such additional security shall constitute a Credit Support
Document.

 

8.4          Indemnity.  The Borrower shall, on the first written demand
of the Lender, indemnify the Lender in respect of all expenses (including the
fees of legal advisers) incurred or sustained by the Lender as a consequence
of, or in relation to, the effecting of any matters or transactions referred to
in Clauses 8.1, 8.2, and 8.3.

 

8.5          Consequences of
Transactions being terminated.  Without prejudice to or limitation of the
obligations of the Borrower under Clause 8.5, if the Lender exercises any of
its rights under Clause 8.1 and such exercise results in all or part of a
Transaction being terminated, such termination shall be treated under the
Master Agreement in the same manner as if it 

 

20

 

were
a Terminated Transaction (as defined in section 14 of the Master
Agreement) effected by the Lender after an Event of Default by the Borrower,
and, accordingly, the Lender shall be permitted to recover from the Borrower a
payment for early termination calculated in accordance with the provisions of section 6(e)(i)
of the Master Agreement.

 

9              CONDITIONS PRECEDENT

 

9.1          Documents, fees
and no default. 
The Lender’s obligation to make an Advance is subject to the following
conditions precedent: 

 

(a)           that,
on or before the service of the first Drawdown Notice, the Lender receives the
documents described in Part A of Schedule 2 in form and substance
satisfactory to it and its lawyers;

 

(b)           that,
on or before the first Drawdown Date but before the making of the first
Advance, the Lender receives the documents described in Part B of Schedule 2
in form and substance satisfactory to it and its lawyers;

 

(c)           that,
on or before the Drawdown Date of each New Ship Advance but prior to the making
of such New Ship Advance, the Lender receives the documents described in Part C
of Schedule 2 in form and substance satisfactory to it and its lawyers;

 

(d)           that,
on the date of this Agreement, the Lender has received the fee referred to in
Clause 20.1(a) and has received payment of the expenses referred to in
Clause 20.2; and

 

(e)           that
both at the date of each Drawdown Notice and at each Drawdown Date:

 

(i)            no Event of Default or Potential Event of Default has occurred and is
continuing or would result from the borrowing of the relevant Advance; 

 

(ii)           the representations and warranties in Clause 10.1 and those of the
Borrower or any Security Party which are set out in the other Finance Documents
would be true and not misleading if repeated on each of those dates with
reference to the circumstances then existing; and

 

(iii)          none of the circumstances contemplated by Clause 4.5 has occurred
and is continuing; and

 

(f)            that,
if the aggregate market value of the Existing Ships on or before service of the
first Drawdown Notice, as determined in accordance with paragraph 8 of Part A
of Schedule 2, is less than $350,000,000, either:

 

(i)            the Lender has notified the Borrower that the amount of the Commitment
shall be permanently reduced pro rata by an amount corresponding to the
percentage of the market valuation shortfall; or

 

(ii)           on or before service of the first Drawdown Notice, the Borrower has
provided such additional security as shall, in the opinion of the Lender, be
adequate to make up such deficiency in market values, which additional security
shall take such form, be constituted by such documentation and be entered into
by such parties as the Lender, in its absolute discretion may approve or
require;

 

(g)           that,
if the ratio set out in Clause 15.2 were applied immediately following the
making of any Advance, the Borrower would not be obliged to provide additional
security or prepay part of the Facility under that Clause;

 

21

 

(h)           that
the Lender has received, and found to be acceptable to it, any further
opinions, consents, agreements and documents in connection with the Finance
Documents which the Lender may request by notice to the Borrower prior to the
Drawdown Date.

 

9.2          Waivers of
conditions precedent. 
If the Lender, at its discretion, permits an Advance to be borrowed
before certain of the conditions referred to in Clause 9.1 are satisfied,
the Borrower shall ensure that those conditions are satisfied within 5 Business
days after the Drawdown Date (or such longer period as the Lender may specify).

 

10           REPRESENTATIONS AND WARRANTIES

 

10.1        General.  The Borrower represents and warrants to the
Lender as follows.

 

10.2        Status.  The Borrower was duly incorporated under the
laws of the Republic of Liberia, was duly domesticated under the laws of the
Republic of The Marshall Islands and is validly existing and in good standing
under the laws of the Republic of The Marshall Islands.

 

10.3        Share capital
and ownership. 
The Borrower is authorised to issue:

 

(a)           100,000,000
registered shares of common stock each with a par value of $0.01; and

 

(b)           25,000,000
registered preferred shares each with a par value of $0.01.

 

10.4        Corporate
power.  The Borrower (or, in
the case of paragraph (a), each Owner) has the corporate capacity, and has
taken all corporate action and obtained all consents necessary for it:

 

(a)           to own
and register the Ship owned by it in its name under the Approved Flag;

 

(b)           to
execute the Finance Documents to which the Borrower is a party; and

 

(c)           to
borrow under this Agreement and to make all the payments contemplated by, and
to comply with, those Finance Documents.

 

10.5        Consents in
force.  All the consents
referred to in Clause 10.4 remain in force and nothing has occurred which
makes any of them liable to revocation.

 

10.6        Legal validity;
effective Security Interests. 
The Finance Documents to which the Borrower is a party, do now or, as
the case may be, will, upon execution and delivery (and, where applicable,
registration as provided for in the Finance Documents): 

 

(a)           constitute
the Borrower’s legal, valid and binding obligations enforceable against the
Borrower in accordance with their respective terms; and

 

(b)           create
legal, valid and binding Security Interests enforceable in accordance with
their respective terms over all the assets to which they, by their terms,
relate;

 

subject to any
relevant insolvency laws affecting creditors’ rights generally.

 

10.7        No third party
Security Interests. 
Without limiting the generality of Clause 10.6, at the time of the
execution and delivery of each Finance Document:

 

(a)           the
Borrower will have the right to create all the Security Interests which that
Finance Document purports to create; and

 

22

 

(b)           no
third party will have any Security Interest (except for Permitted Security
Interests) or any other interest, right or claim over, in or in relation to any
asset to which any such Security Interest, by its terms, relates.

 

10.8        No conflicts.  The execution by the Borrower of each Finance
Document, and the borrowing by the Borrower of the Facility, and its compliance
with each Finance Document will not involve or lead to a contravention of:

 

(a)           any
law or regulation; or

 

(b)           the
constitutional documents of the Borrower; or

 

(c)           any
contractual or other obligation or restriction which is binding on the Borrower
or any of its assets.

 

10.9        No withholding
taxes.  All payments which
the Borrower is liable to make under the Finance Documents may be made without
deduction or withholding for or on account of any tax payable under any law of
any Pertinent Jurisdiction.

 

10.10      No default.  No Event of Default or Potential Event of
Default has occurred and is continuing.

 

10.11      Information.  All information which has been provided in
writing by or on behalf of the Borrower or any Security Party to the Lender in
connection with any Finance Document satisfied the requirements of
Clause 11.6; all audited and unaudited accounts which have been so
provided satisfied the requirements of Clause 11.8; and there has been no
material adverse change in the financial position or state of affairs of the
Borrower from that disclosed in the latest of those accounts.

 

10.12      No litigation.  No legal or administrative action involving
the Borrower has been commenced which would be likely to have a material
adverse effect on the Borrower’s business or condition (financial or
otherwise).

 

10.13      Compliance with
certain undertakings. 
At the date of this Agreement, the Borrower is in compliance with
Clauses 11.2, 11.3, 11.10 and 11.11.

 

10.14      Taxes paid.  The Borrower has paid all Taxes applicable
to, or imposed on or in relation to the Borrower, its business.

 

10.15      Registration.  Save for such registrations and filings as
are referred to in this Agreement and the other Finance Documents, it is not
necessary for the legality, validity, enforceability or admissibility in
evidence of this Agreement, the Master Agreement and the other Finance
Documents that any of them or any document relating thereto be registered,
filed, recorded or enrolled with any court or authority in any relevant
jurisdiction or that any stamp, registration or similar Taxes be paid on or in
relation to this Agreement, the Master Agreement or any of the other Finance
Documents.

 

10.16      ISM and ISPS
Code compliance. 
All requirements of the ISM Code and the ISPS Code as they relate to the
Owners, the Approved Manager and the Ships have been complied with and, without
limiting the foregoing, each Owner has complied with all other statutory and
other requirements relative to its business and in particular has obtained and
maintains (or has ensured that the Approved Manager has obtained and
maintained) a valid Safety Management Certificate for the Ship owned by it and
Document of Compliance.

 

10.17      No money
laundering. 
The Borrower is acting for its own account and the borrowing of the
Facility and the performance and discharge of the Borrower’s obligations and
liabilities under this Agreement, the Master Agreement and the other Finance
Documents 

 

23

 

to
which it is a party and other arrangements effected or contemplated by this
Agreement 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 Community or any Pertinent Jurisdiction.

 

10.18      Time when
representations made. 
The representations and warranties in this Clause 10  are made on the date of this Agreement, shall
survive the execution of this Agreement and the advance of the Facility and, in
addition, shall be deemed to be repeated on the date on which each Drawdown
Notice is given and (other than those in Clauses 10.9 and 10.12) at the
commencement of each Interest Period, with respect to the facts and circumstances
existing at each such time, as if made at each such time.

 

11           GENERAL UNDERTAKINGS

 

11.1        General.  The Borrower undertakes with the Lender to
comply with the following provisions of this Clause 11 at all times during
the Security Period, except as the Lender may otherwise permit.

 

11.2        Title; negative
pledge.  The Borrower will:

 

(a)           hold
the legal title to, and own either directly or indirectly the entire beneficial
interest in each Owner and each Unencumbered Owner free from all Security
Interests and other interests and rights of every kind, except for those
created by the Finance Documents; and

 

(b)           not
create or permit to arise any Security Interest (except for Permitted Security
Interests) over any other asset, present or future other than in the normal
course of its business of acquiring, financing and operating vessels and
companies with shipping interests.

 

11.3        No disposal of
assets.  The Borrower will
not transfer, lease or otherwise dispose of:

 

(a)           all or
a substantial part of its assets, whether by one transaction or a number of
transactions, whether related or not; or

 

(b)           any
debt payable to it or any other right (present, future or contingent right) to
receive a payment, including any right to damages or compensation,

 

Provided
that the
provisions of this Clause 11.3 shall not prevent:

 

(i)            any disposal by a subsidiary of the Borrower to the Borrower or by the
Borrower to a subsidiary of the Borrower or by a subsidiary of the Borrower to
another subsidiary of the Borrower;

 

(ii)           the sale of property or assets for its or their full value in cash to
the extent that the net sale proceeds (after taking into account any taxation
arising as a consequence of such sale) are applied within 3 months after such
sale in the acquisition of assets of a similar nature and approximately equal
value to be used in a business for the time being carried on by the Borrower or
the relevant subsidiary of the Borrower;

 

(iii)          any distribution of the surplus assets of a subsidiary of the Borrower
as part of a solvent winding up of such subsidiary;

 

(iv)          any exchange of assets for other assets of a substantially similar
nature and approximately equal value;

 

(v)           the application of cash in the acquisition of assets or services in the
ordinary course of trading of the Borrower;

 

24

 

(vi)          the sale, transfer, loan or disposal in the ordinary course of trading
of obsolete plant and machinery; or

 

(vii)         the repayment of any principal or interest in respect of any moneys borrowed
by members of the Group and the payment of any dividend or distribution
permitted under this Agreement,

 

which, in each case, does
not result in the reduction of the Adjusted Net Worth or otherwise result in a
material adverse change in the Group’s financial position

 

11.4        No other
liabilities or obligations to be incurred.  The Borrower will not, and will procure that
none of its subsidiaries will, incur any liability or obligation except
liabilities and obligations under the Finance Documents to which each is a
party and liabilities or obligations reasonably incurred in the ordinary course
of acquiring, financing, owning operating and chartering vessels .

 

11.5        Compliance with
ISM and ISPS Code. 
The Borrower shall procure that each Owner and each Unencumbered Owner
shall comply with the ISM Code and the ISPS Code and notify the Lender in
writing in the event that either the Document of Compliance and Safety
Management Certificate is withdrawn, cancelled or suspended.

 

11.6        Information
provided to be accurate. 
All financial and other information which is provided in writing by or
on behalf of the Borrower under or in connection with any Finance Document will
be true and not misleading and will not omit any material fact or
consideration.

 

11.7        Provision of
financial statements. 
The Borrower will send to the Lender:

 

(a)           as
soon as possible, but in no event later than 6 months after the end of each
financial year of the Borrower, the audited consolidated accounts of the Group
and audited individual accounts of the Borrower;

 

(b)           as
soon as possible, but in no event later than 3 months after the end of each
quarter in each financial year of the Borrower unaudited consolidated accounts
of the Group and unaudited individual accounts of the Borrower and which are
certified as to their correctness by the chief financial officer of the
Borrower; 

 

(c)           on the
date of this Agreement, on or before service of the first Drawdown Notice and
thereafter, simultaneously with each of the annual audited accounts, the unaudited
accounts and the management accounts, to be sent to the Lender under paragraphs
(i) and (ii), a compliance certificate signed by the chief financial officer of
the Borrower in the form set out in Schedule 6, duly completed and
supported by calculations setting out in reasonable detail the materials
underling the statements made in such compliance certificate.

 

11.8        Form of
financial statements. 
All accounts (audited and unaudited) delivered under Clause 11.7
will:

 

(a)           be
prepared in accordance with all applicable laws, the requirements of the United
States Securities and Exchange Commission and GAAP;

 

(b)           give a
true and fair view of the state of affairs of the Borrower and its subsidiaries
at the date of those accounts and of their profit for the period to which those
accounts relate; and

 

(c)           fully
disclose or provide for all significant liabilities of the Borrower and its
subsidiaries.

 

25

 

11.9        Shareholder,
creditor and other notices. 
The Borrower will send the Lender, at the same time as they are
despatched, copies of all communications which are despatched to the Borrower’s
shareholders or creditors or any class of them and any documents filed with the
United States Securities and Exchange Commission.

 

11.10      Consents.  The Borrower will maintain in force and
promptly obtain or renew, and will promptly send certified copies to the Lender
of, all consents required:

 

(a)           for
the Borrower and any other Security Party to perform its obligations under any
Finance Document to which it is a party;

 

(b)           for
the validity or enforceability of any Finance Document;

 

(c)           for
each Owner to continue to own and operate the Ship owned by it;

 

and the Borrower
will comply (or procure compliance) with the terms of all such consents.

 

11.11      Business.  The Borrower shall not make any material
change to its business from that being conducted at the date of this Agreement
and shall procure that each Owner shall not conduct any business or activity
other than the ownership, chartering and operation of vessels.

 

11.12      Approved
Manager.  Each
Ship shall be managed by the Approved Manager and the Borrower shall procure
that no Owner shall employ a manager of any Ship other than the Approved
Manager, nor change the terms and conditions of the management of any Ship
other than upon such terms and conditions as the Lender shall approve.

 

11.13      Maintenance of
Security Interests. 
The Borrower will:

 

(a)           at its
own cost, do all that it reasonably can to ensure that any Finance Document
validly creates the obligations and the Security Interests which it purports to
create; and

 

(b)           without
limiting the generality of paragraph (a), at its own cost, promptly
register, file, record or enrol any Finance Document with any court or authority
in all Pertinent Jurisdictions (including, without limitation, any Approved
Flag State if at the relevant time a Ship is registered under the laws of such
Approved Flag State), pay any stamp, registration or similar tax in all
Pertinent Jurisdictions in respect of any Finance Document, give any notice or
take any other step which may be or become necessary or desirable for any
Finance Document to be valid, enforceable or admissible in evidence or to
ensure or protect the priority of any Security Interest which it creates. 

 

11.14      Notification of
litigation. 
The Borrower will provide the Lender with details of any legal or
administrative action involving the Borrower, any Security Party, the Approved
Manager or any Ship, its Earnings or the Insurances as soon as such action is
instituted, unless it is clear that the legal or administrative action cannot
be considered material in the context of any Finance Document. 

 

11.15      Principal place
of business. 
The Borrower will maintain its place of business, and keep its corporate
documents and records, at the address stated at the commencement of this
Agreement; and the Borrower will not establish, or do anything as a result of
which it would be deemed to have, a place of business in any country other than
the Marshall Islands and in the case of the Borrower’s principal executive
offices, Pendelis 16, 175 64 Palaio Faliro, Athens, Greece.

 

11.16      Acquisition of
further tonnage. 
The Borrower shall not and shall procure that none of its subsidiaries
shall acquire any further tonnage other than the Ships or New Ships without the
prior written consent of the Lender (such consent not to be unreasonably 

 

26

 

withheld)
and the Borrower shall keep the Lender fully informed from time to time of any
proposed purchases of tonnage by the Borrower or any of its subsidiaries.

 

11.17      Confirmation of
no default. 
The Borrower will, within 2 Business Days after service by the Lender of
a written request, serve on the Lender a notice which is signed by 2 directors
of the Borrower and which:

 

(a)           states
that no Event of Default has occurred and is continuing unremedied and
unwaived; or

 

(b)           states
that no Event of Default has occurred and is continuing unremedied and
unwaived, except for a specified event or matter, of which all material details
are given.

 

11.18      Notification of
default. 
The Borrower will notify the Lender as soon as the Borrower becomes
aware of:

 

(a)           the
occurrence of an Event of Default; or

 

(b)           any
matter which indicates that an Event of Default may have occurred;

 

and will keep the
Lender fully up-to-date with all developments.

 

11.19      Provision of
further information. 
The Borrower will, as soon as practicable after receiving the request,
provide the Lender with any additional financial or other information relating:

 

(a)           to the
Borrower, the Ships, the Earnings or the Insurances; or

 

(b)           to any
other matter relevant to, or to any provision of, a Finance Document;

 

which may be
requested by the Lender at any time.

 

12           CORPORATE UNDERTAKINGS AND FINANCIAL COVENANTS

 

12.1        General.  The Borrower also undertakes with the Lender
to comply with the following provisions of this Clause 12 at all times
during the Security Period except as the Lender may otherwise permit.

 

12.2        Maintenance of
status.  The Borrower will
maintain its separate corporate existence and remain in good standing under the
laws of the Republic of the Marshall Islands.

 

12.3        Negative
undertakings. 
The Borrower will not:

 

(a)           pay
any dividend or make any other form of distribution or effect any form of
redemption, purchase or return of share capital which would result in a breach
of the financial covenants set out in Clause 12.4 or if an Event of Default has
occurred and is continuing unremedied and unwaived;

 

(b)           provide
any form of credit or financial assistance to:

 

(i)            a person who is directly or indirectly interested in the Borrower’s
share or loan capital; or

 

(ii)           any company in or with which such a person is directly or indirectly
interested or connected;

 

or enter into any
transaction with or involving such a person or company on terms which are, in
any respect, less favourable to the Borrower than those which it could obtain
in a 

 

27

 

bargain made at arms’
length Provided that this shall
not prevent or restrict the Borrower from on-lending Advances to members of the
Group for the purposes permitted in accordance with the terms of this
Agreement;

 

(c)           reduce
its issued share capital or issue, allot or grant any person a right to any
shares in its capital or repurchase or reduce its issued share capital other
than pursuant to the IPO;

 

(d)           acquire
any shares or other securities other than US or UK Treasury bills, certificates
of deposit issued by major North American or European banks and shares in New
Companies, or enter into any transaction in a derivative other than the Master
Agreement;

 

(e)           enter
into any form of amalgamation, merger or de-merger or any form of
reconstruction, reorganisation or consolidation;

 

(f)            without
the prior written consent of the Lender, permit a majority of the seats (other
than vacant seats) on the board of directors of the Borrower to be held by
persons other than persons who are either:

 

(i)            nominated by the Borrower’s then current board of directors; or

 

(ii)           appointed by persons as so nominated in accordance with (i) above; or

 

(g)           save
as permitted in paragraph (h) of this Clause 12.3, permit and shall procure
that its shareholders shall not permit any one person (or associated (in the
sole opinion of the Lender) persons) to hold more than 25 per cent of the
Borrower’s issued share capital at any one time;

 

(h)           permit
and shall procure that its shareholders shall not permit less than 25 per cent
of the Borrower’s issued share capital to vest in the ownership of members of
the Palios and Margaronis families.

 

12.4        Financial
Covenants. 
The Borrower shall ensure that at all times:

 

(a)           Adjusted
Net Worth is not less than $200,000,000;

 

(b)           EBITDA
is at least twice the amount of Interest Expenses;

 

(c)           Adjusted
Net Worth exceeds 35 per cent. of Total Assets; and

 

(d)           Liquid
Funds shall not be less than $750,000 for each of the Ships and the New Ships.

 

13           INSURANCE

 

13.1        General.  The Borrower also undertakes
with the Lender to procure that each Owner will comply with the following
provisions of this Clause 13 at all times during the Security Period
except as the Lender may otherwise permit.

 

13.2        Maintenance of
obligatory insurances. 
The Borrower shall procure that each Owner keep the Ship owned by it
insured at the expense of the Owner against:

 

(a)           fire
and usual marine risks (including hull and machinery and excess risks);

 

(b)           war
risks;

 

(c)           protection
and indemnity risks (without any exclusion for any Environmental Incident); 

 

(d)           any
other risks against which the Lender considers, having regard to practices and
other circumstances prevailing at the relevant time, it would in the opinion of
the Lender be 

 

28

 

reasonable for that Owner to insure and which are specified
by the Lender by notice to that Owner.

 

13.3        Terms of
obligatory insurances. 
The Borrower shall procure that each Owner shall effect such insurances:

 

(a)           in
Dollars;

 

(b)           in the
case of fire and usual marine risks and war risks, in an amount on an agreed
value basis at least the greater of (i) the market value of the Ship owned by
it and (ii) together with the other Ships then subject to a Mortgage, 120% of
the Commitment; and

 

(c)           in the
case of oil pollution liability risks, for an aggregate amount equal to the
highest level of cover from time to time available under basic protection and
indemnity club entry and in the international marine insurance market;

 

(d)           in
relation to protection and indemnity risks in respect of the full tonnage of
the Ship owned by it.

 

(e)           on
approved terms; 

 

(f)            through
approved brokers and with approved insurance companies and/or underwriters or,
in the case of war risks and protection and indemnity risks, in approved war
risks and protection and indemnity risks associations; and

 

(g)           if so
required by the Lender (but without, as between the Owner and the Lender,
liability on the part of the Lender for premiums or calls) with the Lender
named as co-assured.

 

13.4        Further
protections for the Lender. 
In addition to the terms set out in Clause 13.3, the Borrower shall
procure that the obligatory insurances shall:

 

(a)           whenever
the Lender requires name (or be amended to name) the Lender as additional named
assured for its rights and interests, warranted no operational interest and
with full waiver of rights of subrogation against the Lender, but without the
Lender thereby being liable to pay (but having the right to pay) premiums,
calls or other assessments in respect of such insurance;

 

(b)           name
the Lender as loss payee with such directions for payment as the Lender may
specify;

 

(c)           provide
that all payments by or on behalf of the insurers under the obligatory
insurances to the Lender shall be made without set-off, counterclaim or deductions
or condition whatsoever;

 

(d)           provide
that such obligatory insurances shall be primary without right of contribution
from other insurances which may be carried by the Lender;

 

(e)           provide
that the Lender may make proof of loss if the Owner fails to do so.

 

13.5        Renewal of
obligatory insurances. 
The Borrower shall procure that each Owner shall:

 

(a)           at
least 14 days before the expiry of any obligatory insurance or contract for
such insurance:

 

(i)            notify the Lender of the brokers (or other insurers) and any protection
and indemnity or war risks association through or with whom the Borrower
proposes to renew that obligatory insurance and of the proposed terms of
renewal; and

 

29

 

(ii)           obtain the Lender’s approval to the matters referred to in paragraph
(i);

 

(b)           at
least 7 days before the expiry of any obligatory insurance or contract for such
insurance, renew that obligatory insurance in accordance with the Lender’s
approval pursuant to paragraph (a); and

 

(c)           procure
that the approved brokers and/or the war risks and protection and indemnity
associations with which such a renewal is effected shall promptly after the
renewal notify the Lender in writing of the terms and conditions of the
renewal.

 

13.6        Copies of
policies; letters of undertaking. 
The Borrower shall procure that each Owner shall ensure that the
approved brokers provide the Lender with pro forma copies of all policies
relating to the obligatory insurances which they are to effect or renew and of
a letter or letters or undertaking in a form required by the Lender and
including undertakings by the approved brokers that:

 

(a)           they
will have endorsed on each policy, immediately upon issue, a loss payable
clause and a notice of assignment complying with the provisions of
Clause 13.4; 

 

(b)           they
will hold such policies, and the benefit of such insurances, to the order of
the Lender in accordance with the said loss payable clause; 

 

(c)           they
will advise the Lender immediately of any material change to the terms of the
obligatory insurances; 

 

(d)           they
will notify the Lender, not less than 7 days before the expiry of the
obligatory insurances, in the event of their not having received notice of
renewal instructions from that Owner or its agents and, in the event of their
receiving instructions to renew, they will promptly notify the Lender of the
terms of the instructions; and

 

(e)           they
will not set off against any sum recoverable in respect of a claim relating to
the Ship owned by that Owner under such obligatory insurances any premiums or
other amounts due to them or any other person whether in respect of that Ship
or otherwise, they waive any lien on the policies, or any sums received under
them, which they might have in respect of such premiums or other amounts, and
they will not cancel such obligatory insurances by reason of non-payment of
such premiums or other amounts, and will arrange for a separate policy to be
issued in respect of that Ship forthwith upon being so requested by the Lender.

 

13.7        Copies of
certificates of entry. 
The Borrower shall procure that each Owner shall ensure that any
protection and indemnity and/or war risks associations in which the Ship owned
by it is entered provides the Lender with:

 

(a)           a
certified copy of the certificate of entry for that Ship;

 

(b)           a
letter or letters of undertaking in such form as may be required by the Lender;
and

 

(c)           a
certified copy of each certificate of financial responsibility for pollution by
oil or other Environmentally Sensitive Material issued by the relevant
certifying authority in relation to that Ship.

 

13.8        Deposit of
original policies. 
The Borrower shall procure that each Owner shall ensure that all
policies relating to obligatory insurances are deposited with the approved
brokers through which the insurances are effected or renewed.

 

13.9        Payment of
premiums. 
The Borrower shall procure that each Owner shall punctually pay all
premiums or other sums payable in respect of the obligatory insurances and
produce all relevant receipts when so required by the Lender.

 

30

 

 

13.10                 Guarantees.  The Borrower shall procure that each Owner
shall ensure that any guarantees required by a protection and indemnity or war
risks association are promptly issued and remain in full force and effect.

 

13.11                 Compliance with terms of insurances.  The Borrower shall procure that no Owner
shall do nor omit to do (nor permit to be done or not to be done) any act or
thing which would or might render any obligatory insurance invalid, void,
voidable or unenforceable or render any sum payable under an obligatory
insurance repayable in whole or in part; and, in particular:

 

(a)                                  each Owner shall
take all necessary action and comply with all requirements which may from time
to time be applicable to the obligatory insurances, and (without limiting the
obligation contained in Clause 13.7(c)) ensure that the obligatory
insurances are not made subject to any exclusions or qualifications to which
the Lender has not given its prior approval;

 

(b)                                 no Owner shall make
any changes relating to the classification or classification society or manager
or operator of the Ship owned by it unless approved by the underwriters of the
obligatory insurances;

 

(c)                                  if applicable, each
Owner shall make (and promptly supply copies to the Lender of) all quarterly or
other voyage declarations which may be required by the protection and indemnity
risks association in which the Ship owned by it is entered to maintain cover
for trading to the United States of America and Exclusive Economic Zone (as
defined in the United States Oil Pollution Act 1990 or any other applicable
legislation); and

 

(d)                                 no Owner shall
employ the Ship owned by it, nor allow it to be employed, otherwise than in
conformity with the terms and conditions of the obligatory insurances, without
first obtaining the consent of the insurers and complying with any requirements
(as to extra premium or otherwise) which the insurers specify.

 

13.12                 Alteration to terms of insurances.  The Borrower shall procure that no Owner
shall make or agree to any alteration to the terms of any obligatory insurance
nor waive any right relating to any obligatory insurance.

 

13.13                 Settlement of claims.  The Borrower shall procure that no Owner
shall settle, compromise or abandon any claim under any obligatory insurance
for Total Loss or for a Major Casualty, and shall do all things necessary and
provide all documents, evidence and information to enable the Lender to collect
or recover any moneys which at any time become payable in respect of the
obligatory insurances.

 

13.14                 Provision of copies of communications.  The Borrower shall procure that each Owner
shall provide the Lender, at the time of each such communication, copies of all
written communications between that Owner and:

 

(a)                                  the
approved brokers; and

 

(b)                                 the approved
protection and indemnity and/or war risks associations; and

 

(c)                                  the approved
insurance companies and/or underwriters, which relate directly or indirectly
to:

 

(i)                                     the Owner’s
obligations relating to the obligatory insurances including, without
limitation, all requisite declarations and payments of additional premiums or
calls; and

 

31

 

(ii)                                  any
credit arrangements made between the Owner and any of the persons referred to
in paragraphs (a) or (b) relating wholly or partly to the effecting or
maintenance of the obligatory insurances.

 

13.15                 Provision of information.  In addition, the Borrower shall procure that
each Owner shall promptly provide the Lender (or any persons which it may
designate) with any information which the Lender (or any such designated
person) requests for the purpose of:

 

(a)                                  obtaining or
preparing any report from an independent marine insurance broker as to the
adequacy of the obligatory insurances effected or proposed to be effected;
and/or

 

(b)                                 effecting,
maintaining or renewing any such insurances as are referred to in
Clause 13.16 or dealing with or considering any matters relating to any
such insurances;

 

and the Borrower
shall, forthwith upon demand, indemnify the Lender in respect of all fees and
other expenses incurred by or for the account of the Lender in connection with
any such report as is referred to in paragraph (a).

 

13.16                 Mortgagee’s interest insurance.  The Lender shall be entitled from time to
time to effect, maintain and renew a mortgagee’s interest insurance policy on
any Ship in such amounts which the Lender may from time to time consider
appropriate (such amount to be equal to or greater than 120 per cent. of the
Facility) such policy to be on such terms, through such insurers and generally
in such manner as the Lender may from time to time consider appropriate.  The Borrower shall upon demand fully
indemnify the Lender in respect of all premiums and other expenses which are
incurred in connection with or with a view to effecting, maintaining or
renewing any such insurance or dealing with, or considering, any matter arising
out of any such insurance.

 

13.17                 Endorsement of mortgagee’s interest.  Without prejudice to Clauses 13.3 and 13.4,
the Borrower shall procure that the interest to the Lender shall be duly
endorsed upon all slips, cover notes, policies, certificates of entry or other
instruments of insurance issued or to be issued in connection with the
obligatory or other insurances by means of a loss payable clause and a notice of
assignment signed by the Owner of each Ship, each in such form as shall from
time to time be approved in writing by the Lender.

 

13.18                 Application of insurance proceeds.  The Borrower shall procure that each Owner
shall apply all such sums receivable in respect of the obligatory or other
insurances as are paid to the Lender in accordance with the General Assignment
for the purpose of making good the loss and fully repairing all damage in
respect of which the insurance moneys shall have been received.

 

13.19                 Changing requirements.  The Lender shall be entitled to review the
requirements of this Clause 13 from time to time and notify the Borrower in
writing of any modifications to the provisions of this Clause 13 which the
Lender may reasonably specify in order to take account of changes in
circumstances after the date of this Agreement (such changes in circumstances
to include, without limitation, changes in each Ship’s trading patterns,
changes in applicable law and changes in the price and availability of insurance
coverage) and such notification shall be binding on the Borrower and the
relevant Owner.

 

14                                  SHIP COVENANTS

 

14.1                        General.  The Borrower also undertakes with the Lender
to procure that each Owner shall comply with the following provisions of this Clause 14
at all times during the Security Period except as the Lender may otherwise
permit.

 

14.2                        Ship’s name and registration.  Each Owner shall keep the Ship owned by it
registered in its name as a ship registered under an Approved Flag and shall
not do or allow to be done

 

32

 

anything as a result of which such registration might
be cancelled or imperilled; and shall not change the name or port of registry
of that Ship.

 

14.3                        Repair and classification.  Each Owner shall keep the Ship owned by it in
a good and safe condition and state of repair:

 

(a)                                  consistent with
first-class ship ownership and management practice;

 

(b)                                 so as to maintain
the highest class with a classification society which is a member of the
International Association of Classification Societies free of overdue
recommendations and conditions affecting class; and

 

(c)                                  so as to comply
with all laws and regulations applicable to vessels registered on the Approved
Flag or to vessels trading to any jurisdiction to which that Ship may trade
from time to time, including but not limited to the ISM Code and the ISPS Code.

 

14.4                        Modification.  The Borrower shall procure that each Owner
shall not make any modification or repairs to, or replacement of, the Ship
owned by it or equipment installed on her which would or might materially alter
the structure, type or performance characteristics of that Ship or materially
reduce her value.

 

14.5                        Removal of parts.  The Borrower shall procure that each Owner
shall not remove any material part of the Ship owned by it, or any item of
equipment installed on that Ship, unless the part or item so removed is
forthwith replaced by a suitable part or item which is in the same condition as
or better condition than the part or item removed, is free from any Security
Interest or any right in favour of any person other than the Lender and becomes
on installation on that Ship the property of that Owner and subject to the
security constituted by the relevant Mortgage Provided
that an Owner may install equipment owned by a third party if the
equipment can be removed without any risk of damage to the Ship owned by it.

 

14.6                        Surveys.  The Borrower shall procure that each Owner
shall submit the Ship owned by it regularly to all periodical or other surveys
which may be required for classification purposes and, if so required by the
Lender provide the Lender, with copies of all survey reports.

 

14.7                        Inspection.  The Borrower shall procure that each Owner
shall permit the Lender (by surveyors or other persons appointed by it for that
purpose) to board the Ship owned by it at all reasonable times to inspect its
condition or to satisfy themselves about proposed or executed repairs and shall
afford all proper facilities for such inspections.

 

14.8                        Prevention of and release from arrest.  The Borrower shall procure that each Owner
shall promptly discharge:

 

(a)                                  all liabilities
which give or may give rise to maritime or possessory liens on or claims
enforceable against the Ship owned by it, her Earnings or the Insurances;

 

(b)                                 all Taxes, dues and
other amounts charged in respect of the Ship owned by it, her Earnings or the
Insurances; and

 

(c)                                  all other outgoings
whatsoever in respect of the Ship owned by it, her Earnings or the Insurances;

 

and, forthwith upon
receiving notice of the arrest of that Ship, or of her detention in exercise or
purported exercise of any lien or claim, the Borrower shall procure that the
Owner of that Ship shall procure its release by providing bail or otherwise as
the circumstances may require.

 

33

 

14.9                        Compliance with laws etc.  The Borrower shall procure that each Owner
and the Approved Manager shall:

 

(a)                                  comply, or procure
compliance with the ISM Code, the ISPS Code, all Environmental Laws and all
other laws or regulations relating to the Ship owned by it, its ownership,
operation and management or to the business of that Owner;

 

(b)                                 not employ the Ship
owned by it nor allow her employment in any manner contrary to any law or
regulation in any relevant jurisdiction including but not limited to the ISM
Code, the ISPS Code or in carrying illicit or prohibited goods or in any manner
whatsoever which may render her liable to condemnation in Prize Court or to
destruction, seizure or confiscation; and

 

(c)                                  in the event of
hostilities in any part of the world (whether war is declared or not), not
cause or permit the Ship owned by it to enter or trade to any zone which is
declared a war zone by any government or by that Ship’s war risks insurers
unless the prior written consent of the Lender has been given and that Owner
has (at its expense) effected any special, additional or modified insurance
cover which the Lender may require.

 

14.10                 Provision of information.  The Borrower shall procure that each Owner
shall promptly provide the Lender with any information which it requests
regarding:

 

(a)                                  the Ship owned by
it, her employment, position, engagements and Insurances;

 

(b)                                 the Earnings and
payments and amounts due to the master and crew of the Ship owned by it;

 

(c)                                  any expenses
incurred, or likely to be incurred, in connection with the operation,
maintenance or repair of the Ship owned by it and any payments made in respect
of the Ship;

 

(d)                                 any towages and
salvages;

 

(e)                                  the Owner’s
compliance, the Approved Manager’s compliance or the compliance of the Ship
owned by it, with the ISM Code and the ISPS Code;

 

and, upon the Lender’s
request, the Borrower shall procure that each Owner shall provide copies of any
current charter relating to the Ship owned by it, of any current charter
guarantee and of that Ship’s Safety Management Certificate and the Document of
Compliance.

 

14.11                 Notification of certain events.  The Borrower shall immediately notify the
Lender by fax, confirmed forthwith, by letter of:

 

(a)                                  any casualty which
is or is likely to be or to become a Major Casualty;

 

(b)                                 any occurrence as a
result of which the Ship owned by it has become or is, by the passing of time
or otherwise, likely to become a Total Loss;

 

(c)                                  any requirement or
recommendation made by any insurer or classification society or by any
competent authority which is not immediately complied with;

 

(d)                                 any arrest or
detention of the Ship owned by it, any exercise or purported exercise of any
lien on that Ship or her Earnings or any requisition of that Ship for hire;

 

(e)                                  any intended dry
docking of the Ship owned by it;

 

34

 

(f)                                    any Environmental
Claim made against that Owner or in connection with the Ship owned by it, or
any Environmental Incident;

 

(g)                                 any claim for
breach of the ISM Code or the ISPS Code being made against that Owner, the
Approved Manager or otherwise in connection with the Ship owned by it; or

 

(h)                                 any other matter,
event or incident, actual or threatened, the effect of which will or could lead
to the ISM Code or the ISPS Code not being complied with;

 

and the Borrower
shall and shall procure that each Owner shall keep the Lender advised in
writing on a regular basis and in such detail as the Lender shall require of
the Owner’s, the Approved Manager’s or any other person’s response to any of
those events or matters.

 

14.12                 Restrictions on chartering, appointment of managers etc.  The Borrower shall procure that no Owner
shall in relation to any Ship owned by it:

 

(a)                                  let the Ship owned
by it on demise charter for any period;

 

(b)                                 enter into any time
or consecutive voyage charter in respect of the Ship owned by it for a term
which exceeds, or which by virtue of any optional extensions may exceed, 13
months;

 

(c)                                  enter into any
charter in relation to the Ship owned by it under which more than 2 months’
hire (or the equivalent) is payable in advance;

 

(d)                                 charter the Ship
owned by it otherwise than on bona fide arm’s length terms at the time when that
Ship is fixed;

 

(e)                                  de-activate or lay
up the Ship owned by it; or

 

(f)                                    put the Ship owned
by it into the possession of any person for the purpose of work being done upon
her in an amount exceeding or likely to exceed $1,000,000 (or the equivalent in
any other currency) unless that person has first given to the Lender and in
terms satisfactory to it a written undertaking not to exercise any lien on the
Ship or her Earnings for the cost of such work or for any other reason.

 

14.13                 Creation of Mortgage.  The Borrower shall procure that each of m.v.s
“CALIPSO”, “CLIO” and “ERIC L.D.” (as more particularly described in Schedule 3)
shall become the subject of a Mortgage immediately upon its delivery to the
relevant member of the Group and that all the other documents and evidence
listed in Schedule 2, Part B as they relate to m.v.s “CALIPSO”, “CLIO” and
“ERIC L.D.” shall be provided to the Lender on or prior to the date on which
the relevant members of the Group take delivery of m.v.s “CALIPSO”, “CLIO” and “ERIC
L.D.”, as the case may be.

 

14.14                 Notice of Mortgage.  The Borrower shall procure that each Owner
shall keep the Mortgage registered against the Ship owned by it as a valid
first priority mortgage, carry on board that Ship a certified copy of the
relevant Mortgage and place and maintain in a conspicuous place in the
navigation room and the Master’s cabin of that Ship a framed printed notice
stating that the Ship is mortgaged by that Owner to the Lender.

 

14.15                 Sharing of Earnings.   The Borrower shall procure that the Owner
shall not enter into any agreement or arrangement for the sharing of any
Earnings.

 

14.16                 Books of account.  The Borrower shall procure that each Owner
shall keep proper books of account in respect of the Ship owned by it and her
Earnings and, as and when the Lender so requires, the Borrower shall make or
shall procure that each Owner makes such books available for inspection on
behalf of the Lender.

 

35

 

15                                  SECURITY COVER

 

15.1                        General.  The Borrower shall comply with the following
provisions of this Clause 15 at all times during the Security Period except as
the Lender may otherwise permit.

 

15.2                        Minimum required Security Cover.  If, and so often as, the aggregate market
value of the Ships which are the subject of a Mortgage (as determined in
accordance with Clauses 15.5 and 15.6) plus the market value of any additional
security for the time being actually provided to the Lender pursuant to Clause
15.3 falls below 130 per cent. of:

 

(a)                                  the Facility; and

 

(b)                                 such amount (the “Termination Amount”) as determined by the
Lender in its absolute discretion as the amount due from the Borrower on
terminating any Transaction under the Master Agreement in the same manner as if
it were a Terminated Transaction (as defined in Section 14 of the Master
Agreement) effected by the Lender after an Event of Default,

 

the Borrower shall,
within 15 days of being notified by the Lender of such requirement (which
notification shall be conclusive and binding on the Borrower), comply with
Clause 15.3 or 15.4.

 

15.3                        Provision of additional security.  Subject to Clause 15.4, on receipt of the
notification referred to in Clause 15.2, the Borrower shall, within 15 days of
receipt of the notification, provide the Lender with, or procure the provision
to the Lender of, such additional security as shall, in the opinion of the
Lender, be adequate to make up such deficiency, which additional security shall
take such form, be constituted by such documentation and be entered into by
such parties as the Lender in its absolute discretion may approve or require.

 

15.4                        Prepayment of Facility.  If the Borrower does not make proposals
satisfactory to the Lender in relation to the additional security referred to
in Clause 15.3 within 10 days of the date of the receipt by the Borrower of the
Lender’s notification referred to in Clause 15.2, the Borrower shall make an
offer to prepay (subject to, and in accordance with, Clause 7.4), such part of
the Facility as will ensure that the aggregate market value (as determined in
accordance with Clauses 15.5 and 15.6) of the Ships plus the market value of
any additional security for the time being actually provided to the Lender
pursuant to Clause 15.3 is, after such prepayment, at least 130 per cent. of
(a) the Facility and (b) the Termination Amount.

 

15.5                        Market value of the Ship. 
For the purposes of Clauses 15.3 and 15.4, the market
value of a Ship shall be determined (at the expense of the Borrower) at any
time as the Lender may request by means of a valuation made by an Approved
Broker appointed by the Lender (the “First
Valuation”).

 

15.6                        Procedure for valuation.  For the purposes of ascertaining the market
value referred to in Clause 15.5, the First Valuation shall be made with or
without physical inspection of the relevant Ship (as the Lender may require),
on the basis of a sale for prompt delivery for cash at arm’s length on normal
commercial terms as between a willing seller and a willing buyer, free of any
existing charter or other contract of employment.  The Borrower may either:

 

(i)                                     accept the
valuation set out in the First Valuation as conclusive evidence of the market
value of the relevant Ship at the date of such valuation; or

 

(ii)                                  within
10 days of receipt of the First Valuation from the Lender, appoint a second
Approved Broker (at the Borrower’s expense) to provide a second valuation (the “Second Valuation”) addressed to the Lender
and given on the same basis as the First Valuation.

 

36

 

In the event the
Borrower obtains a Second Valuation as aforesaid, the average of the First
Valuation and the Second Valuation shall be taken to establish the market value
of the relevant Ship and such average shall be conclusive evidence of the
market value of the relevant Ship.

 

15.7                        Provision of information. 
The Borrower shall supply to the Lender and to any
Approved Broker such information concerning the relevant Ship being valued and
her condition as such Approved Broker may require for the purpose of making a
valuation.

 

15.8                        Market value of additional security.  For the purpose of
this Clause 15, the market value of any additional security provided or to be
provided to the Lender shall be determined by the Lender in its absolute
discretion without any necessity for the Lender to assign any reason therefore Provided that:

 

(a)                                  if such additional
security provided to the Lender is in the form of cash in a currency other than
Dollars, then the market value of such cash will be equal to an equivalent amount
in Dollars calculated at the exchange rate determined by the Lender in its
absolute discretion; and

 

(b)                                 if such additional
security provided to the Lender is a vessel, then the market value of such
vessel shall be determined in accordance with the provisions of Clauses 15.5
and 15.6.

 

15.9                        Additional documentation. 
In connection with any additional security provided in
accordance with this Clause 15, the Lender shall be entitled to receive
certified copies of such documents of the kind referred to in paragraphs 2, 3,
4, 5, 6 and 15 of Part A of Schedule 2 and such favourable legal opinions
as the Lender shall, in its absolute discretion, require.

 

15.10                 Payment of valuation expenses.  Without prejudice to the generality of the
Borrower’s obligations under Clauses 20.2, 20.3 and 20.4, the Borrower shall,
on demand, pay the Lender the amount of the fees and expenses of any Approved
Broker instructed by the Lender under this Clause and all legal and other
expenses properly incurred by the Lender in connection with any matter arising
out of this Clause.

 

15.11                 Conditions for release of Negative Pledges.  If the Borrower
notifies the Lender that it intends to sell a New Ship which is not a
Collateral Ship for the purposes of this Agreement and requests in such notice
that the Unencumbered Owner of such New Ship be released from its obligations
under the Negative Pledge to which such Unencumbered Owner is party, the Lender
shall consent to such release Provided that,
at the time of such release:

 

(a)                                  the aggregate
market value of the Ships which are the subject of a Mortgage (as determined in
accordance with Clauses 15.5 and 15.6) is no less than 130 per cent. of:

 

(i)                                     the Facility; and

 

(ii)                                  the
Termination Amount; and

 

(b)                                 the sale of such
New Ship is at arm’s length on normal commercial terms between a willing seller
and a willing buyer;

 

(c)                                  the sale of such
New Ship will not result in a breach of any undertakings given by the Borrower
or any Security Party under any Finance Document; and

 

(d)                                 no Event of Default
has occurred.

 

37

 

16                                  PAYMENTS AND
CALCULATIONS

 

16.1                        Currency and method of payments.  All payments to be made by the Borrower to
the Lender under a Finance Document shall be made to the Lender:

 

(a)                                  by not later than
11.00 a.m. (New York City time) on the due date;

 

(b)                                 in same day Dollar
funds settled through the New York Clearing House Interbank Payments System (or
in such other Dollar funds and/or settled in such other manner as the Lender
shall specify as being customary at the time for the settlement of
international transactions of the type contemplated by this Agreement); and

 

(c)                                  to the account of
the Lender at the Receiving Bank (Account No 00261123), or to such other
account with such other bank as the Lender may from time to time notify to the
Borrower.

 

16.2                        Payment on non-Business Day.  If any payment by the Borrower under a
Finance Document would otherwise fall due on a day which is not a Business Day:

 

(a)                                  the due date shall
be extended to the next succeeding Business Day; or

 

(b)                                 if the next
succeeding Business Day falls in the next calendar month, the due date shall be
brought forward to the immediately preceding Business Day;

 

and interest shall be
payable during any extension under paragraph (a) at the rate payable on the
original due date.

 

16.3                        Basis for calculation of periodic payments.  All interest and commitment fee and any other
payments under any Finance Document which are of an annual or periodic nature
shall accrue from day to day and shall be calculated on the basis of the actual
number of days elapsed and a 360 day year.

 

16.4                        Lender accounts.  The Lender shall maintain an account showing
the amounts advanced by the Lender and all other sums owing to the Lender from
the Borrower and each Security Party under the Finance Documents and all
payments in respect of those amounts made by the Borrower and any Security
Party.

 

16.5                        Accounts prima facie evidence.  If the account maintained under
Clauses 16.4 shows an amount to be owing by the Borrower or a Security
Party to the Lender, that account shall be prima facie evidence that that
amount is owing to the Lender.

 

17                                  APPLICATION
OF RECEIPTS

 

17.1                        Application.  All
moneys received by the Lender under the Finance Documents and expressed to be
applied in accordance with this Clause 17.1 shall (unless the Lender otherwise
requires) be applied by the Lender in the following manner:

 

FIRST:  in or towards satisfaction of any amounts as
are then accrued due and payable under this Agreement, the Master Agreement and
the other Finance Documents (or any of them) or are then due and payable by
virtue of payment demanded under this Agreement, the Master Agreement or the
other Finance Documents in such order of application as the Lender shall think
fit;

 

38

 

SECONDLY:  in retention of an amount equal to any
amounts which are not then due and payable under this Agreement, the Master
Agreement or any other Finance Document but which (in the sole and absolute
opinion of the Lender) will or may become due and payable in the future and,
upon their becoming due and payable, in or towards satisfaction thereof in
accordance with the foregoing provisions of this Clause 17.1; and

 

THIRDLY:  the surplus (if any) shall be paid to the
Borrower or to whomsoever else may be entitled thereto.

 

17.2                        Notice of variation of order of application.  The Lender may, by notice to the Borrower and
the Security Parties, provide for a different order of application from that set
out in Clause 17.1 either as regards a specified sum or sums or as regards
sums in a specified category or categories.

 

17.3                        Effect of variation notice.  The Lender may give notices under
Clause 17.2 from time to time; and such a notice may be stated to apply
not only to sums which may be received or recovered in the future, but also to
any sum which has been received or recovered on or after the third Business Day
before the date on which the notice is served.

 

17.4                        Appropriation rights overridden.  This Clause 17 and any notice which the
Lender gives under Clause 17.2 shall override any right of appropriation
possessed, and any appropriation made, by the Borrower or any Security Party.

 

18                                  APPLICATION
OF EARNINGS

 

18.1                        Payment of Earnings.  The Borrower undertakes with the Lender to
ensure that, throughout the Security Period (and subject only to the provisions
of the General Assignments), all the Earnings of each Ship are paid to the
Operating Account.

 

18.2                        Location of accounts.  The Borrower shall promptly :

 

(a)                                  comply with any
requirement of the Lender as to the location or re-location of the Operating
Account;

 

(b)                                 execute any
documents which the Lender specifies to create or maintain in favour of the
Lender a Security Interest over (and/or rights of set-off, consolidation or
other rights in relation to) the Operating Account.

 

18.3                        Debits for expenses etc.  The Lender shall be entitled (but not
obliged) from time to time to debit the Operating Account without prior notice
in order to discharge any amount due and payable to it under Clause 20 or
payment of which it has become entitled to demand under Clause 20.

 

18.4                        Release of Earnings.  Any amounts standing to the credit of the
Operating Account shall be available to the Borrower to meet the operating
expenses of each Ship and for any other purpose permitted by this Agreement Provided that no Event of Default or
Potential Event of Default has occurred.

 

19                                  EVENTS OF
DEFAULT

 

19.1                        Events of Default.  An Event of Default occurs if:

 

(a)                                  the Borrower or any
Security Party fails to pay within 2 Business Days of the due date or, if
payable on demand, within 3 days of the Lender’s demand any sum payable under a
Finance Document or under any document relating to a Finance Document; or

 

(b)

 

39

 

(i)                                     any breach occurs
of Clause 8.3, 9.2, 11.2, 11.3, 11.16, 12.2, 12.3, 14.2, 14.14 or 18.1, ;
or

 

(ii)                                  the
Borrower fails to provide additional security or make a prepayment of part of
the Facility in the circumstances referred to in Clauses 9.1(f), 15.2, 15.3 and
15.4 within the time limit prescribed; or

 

(c)                                  any breach by the
Borrower or any Security Party occurs of any provision of a Finance Document
(other than a breach covered by paragraph (a) or (b) if, in the opinion of the
Lender, such default is capable of remedy and such default continues unremedied
10 days after written notice from the Lender requesting action to remedy the
same; or

 

(d)                                 (subject to any
applicable grace period specified in any Finance Document) any breach by the
Borrower or any Security Party occurs of any provision of a Finance Document
(other than a breach covered by paragraph (a), (b) or (c); or

 

(e)                                  any representation,
warranty or statement made by, or by an officer of, the Borrower or a Security
Party in a Finance Document or in the Drawdown Notice or any other notice or
document relating to a Finance Document is untrue or misleading when it is made
or deemed repeated; or

 

(f)                                    any of the
following occurs in relation to any Financial Indebtedness of a Relevant Person
in an amount exceeding $500,000 or its equivalent in other currencies (singly
or in aggregate):

 

(i)                                     any Financial
Indebtedness of a Relevant Person is not paid when due or, if so payable, on
demand; or

 

(ii)                                  any
Financial Indebtedness of a Relevant Person becomes due and payable or capable
of being declared due and payable prior to its stated maturity date as a
consequence of any event of default; or

 

(iii)                               a
lease, hire purchase agreement or charter creating any Financial Indebtedness
of a Relevant Person is terminated by the lessor or owner or becomes capable of
being terminated as a consequence of any termination event; or

 

(iv)                              any
overdraft, loan, note issuance, acceptance credit, letter of credit, guarantee,
foreign exchange or other facility, or any swap or other derivative contract or
transaction, relating to any Financial Indebtedness of a Relevant Person ceases
to be available or becomes capable of being terminated as a result of any event
of default, or cash cover is required, or becomes capable of being required, in
respect of such a facility as a result of any event of default; or

 

(v)                                 any Security
Interest securing any Financial Indebtedness of a Relevant Person becomes
enforceable; or

 

(g)                                 any of the
following occurs in relation to a Relevant Person:

 

(i)                                     a Relevant Person
becomes, in the opinion of the Lender, unable to pay its debts as they fall
due; or

 

(ii)                                  any
assets of a Relevant Person are subject to any form of execution, attachment,
arrest, sequestration or distress, or any form of freezing order, in respect of
a sum of, or sums aggregating, $500,000 or more or the equivalent in another
currency and such execution, attachment, arrest, sequestration, distress or
other form of freezing order is not dismissed, discharged, stayed or
restrained, in each case, within 14 days of the institution or presentation
thereof; or

 

40

 

(iii)                               any
administrative or other receiver is appointed over any asset of a Relevant
Person; or

 

(iv)                              an
administrator is appointed (whether by the court or otherwise) in respect of a
Relevant Person; or

 

(v)                                 any formal
declaration of bankruptcy or any formal statement to the effect that a Relevant
Person is insolvent or likely to become insolvent is made by a Relevant Person
or by the directors of a Relevant Person or, in any proceedings, by a lawyer
acting for a Relevant Person; or

 

(vi)                              a
provisional liquidator is appointed in respect of a Relevant Person, a winding
up order is made in relation to a Relevant Person or a winding up resolution is
passed by a Relevant Person; or

 

(vii)                           a
resolution is passed, an administration notice is given or filed, an
application or petition to a court is made or presented or any other step is
taken by (aa) a Relevant Person, (bb) the members or directors of a Relevant
Person, (cc) a holder of Security Interests which together relate to all or
substantially all of the assets of a Relevant Person, or (dd) a government
minister or public or regulatory authority of a Pertinent Jurisdiction for or
with a view to the winding up of that or another Relevant Person or the
appointment of a provisional liquidator or administrator in respect of that or
another Relevant Person, or that or another Relevant Person ceasing or suspending
business operations or payments to creditors, save that this paragraph does not
apply to a fully solvent winding up of a Relevant Person other than the
Borrower which is, or is to be, effected for the purposes of an amalgamation or
reconstruction previously approved by the Lender and effected not later than 3
months after the commencement of the winding up; or

 

(viii)                        an
administration notice is given or filed, an application or petition to a court
is made or presented or any other step is taken by a creditor of a Relevant
Person (other than a holder of Security Interests which together relate to all
or substantially all of the assets of a Relevant Person) for the winding up of
a Relevant Person or the appointment of a provisional liquidator or administrator
in respect of a Relevant Person in any Pertinent Jurisdiction, unless the
proposed winding up, appointment of a provisional liquidator or administration
is being contested in good faith, on substantial grounds and not with a view to
some other insolvency law procedure being implemented instead and either (aa)
the application or petition is dismissed or withdrawn within 30 days of being
made or presented, or (bb) within 30 days of the administration notice being
given or filed, or the other relevant steps being taken, other action is taken
which will ensure that there will be no administration and (in both cases (aa)
or (bb)) the Relevant Person will continue to carry on business in the ordinary
way and without being the subject of any actual, interim or pending insolvency
law procedure; or

 

(ix)                                a
Relevant Person or its directors take any steps (whether by making or
presenting an application or petition to a court, or submitting or presenting a
document setting out a proposal or proposed terms, or otherwise) with a view to
obtaining, in relation to that or another Relevant Person, any form of
moratorium, suspension or deferral of payments, reorganisation of debt (or
certain debt) or arrangement with all or a substantial proportion (by number or
value) of creditors or of any class of them or any such moratorium, suspension
or deferral of payments, reorganisation or arrangement is effected by court
order, by the filing of documents with a court, by means of a contract or in
any other way at all; or

 

(x)                                   any meeting of the
members or directors, or of any committee of the board or senior management, of
a Relevant Person is held or summoned for the purpose of

 

41

 

considering a resolution or proposal to authorise or
take any action of a type described in paragraphs (iv) to (ix) or a step
preparatory to such action, or (with or without such a meeting) the members,
directors or such a committee resolve or agree that such an action or step
should be taken or should be taken if certain conditions materialise or fail to
materialise; or

 

(xi)                                in a
Pertinent Jurisdiction other than England, any event occurs, any proceedings
are opened or commenced or any step is taken which, in the opinion of the
Lender is similar to any of the foregoing; or

 

(h)                                 the Borrower or any
Security Party ceases or suspends carrying on its business or a part of its
business which, in the opinion of the Lender, is material in the context of
this Agreement; or

 

(i)                                     it becomes unlawful
in any Pertinent Jurisdiction or impossible:

 

(i)                                     for the Borrower or
any Security Party to discharge any liability under a Finance Document or to
comply with any other obligation which the Lender considers material under a
Finance Document; or

 

(ii)                                  for
the Lender to exercise or enforce any right under, or to enforce any Security
Interest created by, a Finance Document; or

 

(j)                                     any consent
necessary to enable any Owner to own, operate or charter the Ship owned by it
or to enable the Borrower or any Security Party to comply with any provision of
a Finance Document, which the Lender considers material, is not granted,
expires without being renewed, is revoked or becomes liable to revocation or
any condition of such a consent is not fulfilled; or

 

(k)                                  without the Lender’s
prior consent, a change occurs after the date of this Agreement in the ultimate
beneficial ownership of any of the shares in the Borrower or any of its
subsidiaries so that persons other than:

 

(i)                                     members of the
Palios and Margaronis family;

 

(ii)                                  beneficiaries
of any employee stock ownership plan or other employee benefit plan of the
Borrower and/or its subsidiaries; or

 

(iii)                               one or
more underwriters temporarily holding shares of the Borrower pursuant to an
offering of such shares,

 

have acquired or shall acquire direct or indirect
legal or beneficial ownership of more than 25 per cent. of the issued and
outstanding share capital of the Borrower; or

 

(l)                                     any provision which
the Lender considers material of a Finance Document proves to have been or
becomes invalid or unenforceable, or a Security Interest created by a Finance
Document proves to have been or becomes invalid or unenforceable or such a
Security Interest proves to have ranked after, or loses its priority to,
another Security Interest or any other third party claim or interest; or

 

(m)                               the security
constituted by a Finance Document is in any way imperilled or in jeopardy; or

 

(n)                                 the Lender gives
notice of an Early Termination Date under Section 6(a) of the Master
Agreement; or

 

(o)                                 a person entitled
to do so gives notice of an Early Termination Date under Section 6(b)(iv)
of the Master Agreement; or

 

42

 

(p)                                 an Event of Default
(as defined in Section 14 of the Master Agreement) occurs; or

 

(q)                                 the Master
Agreement is terminated, cancelled, suspended, rescinded or revoked or
otherwise ceases to remain in full force and effect for any reason other than
because of any action by the Lender; or

 

(r)                                    any of the
financial covenants set out in Clause 12.4 are contravened;

 

(s)                                  any other event
occurs or any other circumstances arise or develop including, without
limitation:

 

(i)                                     a change in the
financial position, state of affairs or prospects of the Borrower or any Owner;
or

 

(ii)                                  any
casualty or other event involving any Ship or another vessel owned, chartered
or operated by a Relevant Person;

 

in the light of which
the Lender considers that there is a significant risk that the Borrower or any
Owner is, or will later become, unable to discharge its or their liabilities
under the Finance Documents as they fall due.

 

19.2                        Actions following an Event of Default.  On, or at any time after, the occurrence of
an Event of Default the Lender may:

 

(a)                                  serve on the
Borrower a notice stating that all obligations of the Lender to the Borrower
under this Agreement are terminated; and/or

 

(b)                                 serve on the
Borrower a notice stating that the Facility, all accrued interest and all other
amounts accrued or owing under this Agreement and the Master Agreement are
immediately due and payable or are due and payable on demand; and/or

 

(c)                                  take any other
action which, as a result of the Event of Default or any notice served under
paragraph (a) or (b), the Lender is entitled to take under any Finance Document
or any applicable law.

 

19.3                        Termination of obligations.  On the service of a notice under
Clause 19.2(a), all the obligations of the Lender to the Borrower under
this Agreement shall terminate.

 

19.4                        Acceleration of Facility.  On the service of a notice under
Clause 19.2(b), the Facility, all accrued interest and all other amounts
accrued or owing from the Borrower or any Security Party under this Agreement
and every other Finance Document shall become immediately due and payable or,
as the case may be, payable on demand.

 

19.5                        Multiple notices; action without notice.  The Lender may serve notices under
Clauses 19.2(a) and (b) simultaneously or on different dates and it may
take any action referred to in Clause 19.2 if no such notice is served or
simultaneously with or at any time after the service of both or either of such
notices.

 

19.6                        Exclusion of Lender liability.  Neither the Lender nor any receiver or
manager appointed by the Lender, shall have any liability to the Borrower or a
Security Party:

 

(a)                                  for any loss caused
by an exercise of rights under, or enforcement of a Security Interest created
by, a Finance Document or by any failure or delay to exercise such a right or
to enforce such a Security Interest; or

 

(b)                                 as mortgagee in
possession or otherwise, for any income or principal amount which might have
been produced by or realised from any asset comprised in such a Security
Interest or for any reduction (however caused) in the value of such an asset;

 

43

 

except that this does
not exempt the Lender or a receiver or manager from liability for losses shown
to have been caused directly or mainly by the dishonesty or the wilful
misconduct of the Lender’s own officers and employees or ( as the case may be)
such receiver’s or manager’s own partners or employees.

 

19.7                        Relevant Persons.  In this Clause 19 a “Relevant Person” means the Borrower, a
Security Party, and any company which is a subsidiary of the Borrower or a
Security Party or of which the Borrower or a Security Party is a subsidiary;
but excluding any company which is dormant and the value of whose gross assets
is $50,000 or less.

 

19.8                        Interpretation.  In Clause 19.1(f) references to an event
of default or a termination event include any event, howsoever described, which
is similar to an event of default in a facility agreement or a termination
event in a finance lease; and in Clause 19.1(g) “petition” includes an application.

 

20                                  FEES AND
EXPENSES

 

20.1                        Arrangement and commitment fees.  The Borrower shall pay to the Lender:

 

(a)                                  on the date of this
Agreement, a fee of $1,200,000; and

 

(b)                                 quarterly in
arrears during the period from (and including) the Availability Date to the
last day of the Availability Period, a commitment fee at the rate of 0.375 per
cent. per annum on the amount of the Available Commitment.

 

20.2                        Costs of negotiation, preparation etc.  The Borrower shall
reimburse to the Lender on demand all costs, fees and expenses (including, but
not limited to, legal fees and expenses) and Taxes thereon properly incurred by
the Lender in connection with:

 

(a)                                  the negotiation,
preparation and execution of this Agreement, the Master Agreement and the
Finance Documents the insurance consultant’s report referred to in paragraph 4
of Part B of Schedule 2 and paragraph 12 of Part C of Schedule 2 and
the foreign lawyer opinions referred to in paragraph 5 of Part B of Schedule 2
and paragraphs 13 and 9 of Part C of Schedule 2; and/or

 

(b)                                 the preserving or
enforcing of, or attempting to preserve or enforce, any of its rights under this
Agreement, the Master Agreement and the other Finance Documents.

 

20.3                        Costs of variations, enforcement etc.  The Borrower shall
reimburse to the Lender on demand all costs, fees and expenses (including, but
not limited to, legal fees and expenses) and Taxes thereon properly incurred by
the Lender in connection with:

 

(a)                                  any variation of,
or supplement to, this Agreement, the Master Agreement and the other Finance
Documents (or any of them); and/or

 

(b)                                 any consent or
waiver required from the Lender in relation to this Agreement, the Master
Agreement and any other Finance Document, and in each case, regardless of
whether the same is actually implemented, completed or granted.

 

20.4                        Stamp and other duties. 
The Borrower shall pay promptly all stamp, documentary
and other like duties and Taxes to which this Agreement, the Master Agreement
and the other Finance Documents may be subject or give rise and shall indemnify
the Lender on demand against any and all liabilities with respect to, or
resulting from, any delay or omission on the part of the Borrower to pay any
such duties or Taxes.

 

44

 

21                                  INDEMNITIES

 

21.1                        Indemnities regarding borrowing and repayment of Facility.  The Borrower shall fully indemnify the Lender
on its demand in respect of all claims, expenses, liabilities and losses which
are made or brought against or incurred by the Lender, or which the Lender
reasonably and with due diligence estimates that it will incur, as a result of
or in connection with:

 

(a)                                  an Advance not
being borrowed on the date specified in the Drawdown Notice for any reason
other than a default by the Lender;

 

(b)                                 the receipt or
recovery of all or any part of the Facility or an overdue sum otherwise than on
the last day of an Interest Period or other relevant period;

 

(c)                                  any failure (for
whatever reason) by the Borrower to make payment of any amount due under a
Finance Document on the due date or, if so payable, on demand (after giving
credit for any default interest paid by the Borrower on the amount concerned
under Clause 6);

 

(d)                                 the occurrence
and/or continuance of an Event of Default and/or the acceleration of repayment
of the Facility under Clause 19;

 

and in respect of any
Tax (other than Tax on its overall net income) for which the Lender is liable
in connection with any amount paid or payable to the Lender (whether for its
own account or otherwise) under any Finance Document.

 

21.2                        Breakage costs.  Without limiting its generality,
Clause 21.1 covers any claim, expense, liability or loss, including a loss
of a prospective profit, or an amount equal to the Margin in the circumstances
envisaged in Clause 21.1(b), incurred or suffered by the Lender:

 

(a)                                  in liquidating or
employing deposits from third parties acquired or arranged to fund or maintain
all or any part of the Facility and/or any overdue amount (or an aggregate
amount which includes the Facility or any overdue amount); and

 

(b)                                 in terminating, or
otherwise in connection with, the Master Agreement and any interest and/or
currency swap or any other transaction entered into (whether with another legal
entity or with another office or department of the Lender) to hedge any
exposure arising under this Agreement or a number of transactions of which this
Agreement is one Provided that the
Lender shall take all reasonable steps to minimise losses arising under this
paragraph (b).

 

21.3                        Miscellaneous indemnities.  The Borrower shall fully indemnify the Lender
on its demand in respect of all claims, expenses, liabilities and losses which
may be made or brought against or incurred by the Lender, in any country, as a
result of or in connection with:

 

(a)                                  any action taken,
or omitted or neglected to be taken, under or in connection with any Finance
Document by the Lender or by any receiver appointed under a Finance Document;

 

(b)                                 any other Pertinent
Matter;

 

other than claims,
expenses, liabilities and losses which are shown to have been directly and
mainly caused by the dishonesty or wilful misconduct of the officers or
employees of the Lender.

 

21.4                        ISM Code and indemnity.  Without prejudice to the generality of Clause
21.3, the indemnities referred to in Clause 21.3 cover any claims, expenses,
liabilities and losses

 

45

 

which arise, or are asserted, under or in connection
with any law relating to safety at sea or the ISM Code.

 

21.5                        Currency indemnity.  If any sum due from the Borrower or any
Security Party to the Lender under a Finance Document or under any order or
judgment relating to a Finance Document has to be converted from the currency
in which the Finance Document provided for the sum to be paid (the “Contractual Currency”) into another
currency (the “Payment Currency”)
for the purpose of:

 

(a)                                  making or lodging
any claim or proof against the Borrower or any Security Party, whether in its
liquidation, any arrangement involving it or otherwise; or

 

(b)                                 obtaining an order
or judgment from any court or other tribunal; or

 

(c)                                  enforcing any such
order or judgment;

 

the Borrower shall
indemnify the Lender against the loss arising when the amount of the payment
actually received by the Lender is converted at the available rate of exchange
into the Contractual Currency.

 

In this
Clause 21.5, the “available rate of
exchange” means the rate at which the Lender is able at the opening
of business (London time) on the Business Day after it receives the sum
concerned to purchase the Contractual Currency with the Payment Currency.

 

This Clause 21.5
creates a separate liability of the Borrower which is distinct from its other
liabilities under the Finance Documents and which shall not be merged in any
judgment or order relating to those other liabilities.

 

21.6                        Environmental indemnity. 
The Borrower shall indemnify the Lender on demand
against all costs, expenses, liabilities and losses sustained or incurred as a
result of or in connection with, Environmental Claims being made against the
Lender or otherwise howsoever arising out of any Environmental Incident

 

21.7                        Receiving Bank.  The
Borrower shall indemnify the Lender on demand against all costs and expenses
paid or incurred by the Lender arising out of the role of any Receiving Bank in
relation to the Facility.

 

21.8                        Certification of amounts.  A notice which is signed by 2 officers of the
Lender, which states that a specified amount, or aggregate amount, is due to
the Lender under this Clause 21 and which indicates (without necessarily
specifying a detailed breakdown) the matters in respect of which the amount, or
aggregate amount, is due shall be prima facie evidence that the amount, or
aggregate amount, is due.

 

22                                  NO SET-OFF OR
TAX DEDUCTION

 

22.1                        No deductions.  All amounts due from the Borrower under a
Finance Document shall be paid:

 

(a)                                  without any form of
set-off, cross-claim or condition (including but not limited to, any set-off,
compensation, cross claim or condition arising under, or in relation to, or in
connection with, the Master Agreement); and

 

(b)                                 free and clear of
any Tax deduction except a tax deduction which the Borrower is required by law
to make.

 

46

 

22.2                        Grossing-up for Taxes.  If the Borrower is required by law to make a
Tax deduction from any payment:

 

(a)                                  the Borrower shall
notify the Lender as soon as it becomes aware of the requirement;

 

(b)                                 the Borrower shall
pay the tax deducted to the appropriate taxation authority promptly, and in any
event before any fine or penalty arises;

 

(c)                                  the amount due in
respect of the payment shall be increased by the amount necessary to ensure
that the Lender receives and retains (free from any liability relating to the
Tax deduction) a net amount which, after the Tax deduction, is equal to the
full amount which it would otherwise have received.

 

22.3                        Evidence of payment of taxes.  Within one month after making any Tax
deduction, the Borrower shall deliver to the Lender documentary evidence
satisfactory to the Lender that the Tax had been paid to the appropriate
taxation authority.

 

22.4                        Exclusion of Tax on overall net income.  In this Clause 21.6  “Tax
deduction” means any deduction or withholding for or on account of
any present or future tax except tax on the Lender’s overall net income.

 

22.5                        Tax credit.  If the
Lender receives for its own account a repayment or credit in respect of tax on
account of which the Borrower has made an increased payment under Clause 22.2,
the Lender shall pay to the Borrower a sum equal to the repayment or credit
received, Provided always that:

 

(a)                                  the Lender shall
not be obliged to allocate to this transaction any part of a tax repayment or
credit which is referable to a class or number of transactions;

 

(b)                                 nothing in this
Clause 22.5 shall oblige the Lender to arrange its tax affairs in any
particular manner to claim any type of relief, credit, allowance or deduction
instead of, or in priority to, another or to make any such claim within a
particular time;

 

(c)                                  nothing in this
Clause 22.5 shall oblige the Lender to make a payment which would leave it in a
worse position than it would have been in if the Borrower had not been required
to make a tax deduction from a payment; and

 

(d)                                 any allocation or
determination made by the Lender under or in connection with this Clause 22.5
shall be conclusive and binding on the Borrower.

 

23                                  ILLEGALITY, ETC

 

23.1                        Illegality.  This Clause 23 applies if the Lender
notifies the Borrower that it has become, or will with effect from a specified
date, become:

 

(a)                                  unlawful or
prohibited as a result of the introduction of a new law, an amendment to an
existing law or a change in the manner in which an existing law is or will be
interpreted or applied; or

 

(b)                                 contrary to, or
inconsistent with, any regulation,

 

for the Lender to
maintain or give effect to any of its obligations under this Agreement in the
manner contemplated by this Agreement.

 

23.2                        Notification and effect of illegality.  On the Lender notifying the Borrower under
Clause 23.1, the Commitment shall terminate; and thereupon or, if later,
on the date specified in the Lender’s notice under Clause 23.1 as the date
on which the notified event would become effective the Borrower shall prepay
the Facility in full in accordance with Clause 7.

 

47

 

23.3                        Mitigation.  If circumstances arise which would result in
a notification under Clause 23.1 then, without in any way limiting the
rights of the Lender under Clause 23.1, the Lender shall use reasonable
endeavours to transfer its obligations, liabilities and rights under this
Agreement and the Finance Documents to another office or financial institution
not affected by the circumstances but the Lender shall not be under any
obligation to take any such action if, in its opinion, to do would or might:

 

(a)                                  have an adverse
effect on its business, operations or financial condition; or

 

(b)                                 involve it in any
activity which is unlawful or prohibited or any activity that is contrary to,
or inconsistent with, any regulation; or

 

(c)                                  involve it in any
expense (unless indemnified to its satisfaction) or tax disadvantage.

 

24                                  INCREASED COSTS

 

24.1                        Increased costs.  This Clause 24 applies if the Lender
notifies the Borrower that it considers that as a result of:

 

(a)                                  the introduction or
alteration after the date of this Agreement of a law or an alteration after the
date of this Agreement in the manner in which a law is interpreted or applied
(disregarding any effect which relates to the application to payments under
this Agreement of a tax on the Lender’s overall net income); or

 

(b)                                 complying with any
regulation (including any which relates to capital adequacy or liquidity
controls or which affects the manner in which the Lender allocates capital
resources to its obligations under this Agreement) which is introduced, or
altered, or the interpretation or application of which is altered, after the date
of this Agreement,

 

the Lender (or a
parent company of it) has incurred or will incur an “increased cost”.

 

24.2                        Meaning of “increased costs”.  In this Clause 23, “increased costs” means:

 

(a)                                  an additional or
increased cost incurred as a result of, or in connection with, the Lender
having entered into, or being a party to, this Agreement or having taken an
assignment of rights under this Agreement, of funding or maintaining the
Commitment or performing its obligations under this Agreement, or of having outstanding
all or any part of the Facility or other unpaid sums; or

 

(b)                                 a reduction in the
amount of any payment to the Lender under this Agreement or in the effective
return which such a payment represents to the Lender or on its capital;

 

(c)                                  an additional or
increased cost of funding all or maintaining all or any of the advances
comprised in a class of advances formed by or including the Facility or (as the
case may require) the proportion of that cost attributable to the Facility; or

 

(d)                                 a liability to make
a payment, or a return foregone, which is calculated by reference to any
amounts received or receivable by the Lender under this Agreement;

 

but not:

 

(i)                                     an item
attributable to a change in the rate of Tax on the overall net income of the
Lender (or a parent company of it); or

 

(ii)                                  an
item covered by the Mandatory Cost Rate; or

 

(iii)                               an
item covered by the indemnity for Tax in Clause 21.1; or

 

48

 

(iv)                              an
item covered by the grossing-up provisions in Clause 22.2; or

 

(v)                                 an item arising
directly out of the implementation by the applicable authorities having
jurisdiction over the Lender of matters set out in the statement of the Basle
Committee on Banking Regulations and Supervisory Practices dated July, 1988 and
entitled “International Convergence of Capital Measurement and Capital
Standards” to the extent and according to the timetable provided for in the
statement.

 

For the purposes of
this Clause 24.2, the Lender may in good faith allocate or spread costs and/or
losses among its assets and liabilities (or any class of its assets and
liabilities) on such basis as it considers appropriate.

 

24.3                        Payment of increased costs.  The Borrower shall pay to the Lender, on its
demand, the amounts which the Lender from time to time notifies the Borrower
that it has specified to be necessary to compensate it for the increased cost.

 

24.4                        Notice of prepayment.  If the Borrower is not willing to continue to
compensate the Lender for the increased cost under Clause 24.3, the
Borrower may give the Lender not less than 14 days’ notice of its intention to
prepay the Facility at the end of an Interest Period.

 

24.5                        Prepayment; termination of Commitment.  A notice under Clause 24.4 shall be
irrevocable; and on the date specified in its notice of intended prepayment,
the Commitment shall terminate and the Borrower shall prepay (without premium
or penalty) the Facility, together with accrued interest thereon at the
applicable rate plus the Mandatory Cost Rate plus the Margin.

 

24.6                        Application of prepayment.  Clause 7 shall apply in relation to the
prepayment.

 

25                                  SET-OFF

 

25.1                        Application of credit balances.  The Lender may without prior notice:

 

(a)                                  apply any balance
(whether or not then due) which at any time stands to the credit of any account
in the name of the Borrower at any office in any country of the Lender in or
towards satisfaction of any sum then due from the Borrower to the Lender under
this Agreement, the Master Agreement or any other Finance Document; and

 

(b)                                 for that purpose:

 

(i)                                     break, or alter the
maturity of, all or any part of a deposit of the Borrower;

 

(ii)                                  convert
or translate all or any part of a deposit or other credit balance into Dollars;

 

(iii)                               enter
into any other transaction or make any entry with regard to the credit balance
which the Lender considers appropriate.

 

25.2                        Set-off between this Agreement and the Master Agreement.  If the Borrower is
the defaulting party under the Master Agreement, the Lender, as the
non-defaulting party, may (without prejudice to or limitation of its right of
set-off under section 6(e) of the Master Agreement and its rights under
Clause 25.1) at the same time as, or at any time after, the Borrower’s default,
set-off any amount due from the Borrower to the Lender under this Agreement
against any amount due from the Lender to the Borrower under the Master
Agreement and apply the first amount in discharging the second amount.  The effect of any set-off under this Clause
25.2 shall be effective to extinguish or, as the case may require, reduce the
liabilities of the Lender under the Master Agreement.

 

49

 

25.3                        Existing rights unaffected.  The Lender shall not be obliged to exercise
any of its rights under Clause 25.1; and those rights shall be without
prejudice and in addition to any right of set-off, combination of accounts,
charge, lien or other right or remedy to which the Lender is entitled (whether
under the general law or any document).

 

25.4                        No Security Interest.  This Clause 25 gives the Lender a contractual
right of set-off only, and does not create any equitable charge or other
Security Interest over any credit balance of the Borrower.

 

26                                  ASSIGNMENTS,
TRANSFERS AND CHANGES IN LENDING OFFICE

 

26.1                        Successors etc.  This
Agreement shall be binding upon and inure to the benefit of the Lender and the
Borrower and their respective successors and permitted assigns.

 

26.2                        Transfer by Borrower.  The Borrower may not, without the consent of
the Lender, transfer any of its rights, liabilities or obligations under any
Finance Document.

 

26.3                        Assignment etc. by Lender.  The Lender may, with the prior consent of the
Borrower, such consent not be unreasonably withheld, assign or transfer all or
any of the rights and/or obligations and interests which it has under, or by
virtue of, the Finance Documents or change its lending office.  The Lender shall notify the Borrower promptly
following any such assignment, transfer or change in lending office.

 

26.4                        Rights of assignee.  In
respect of any breach of a warranty, undertaking, condition or other provision
of a Finance Document, or any misrepresentation made in or in connection with a
Finance Document, a direct or indirect assignee of any of the Lender’s rights
or interests under, or by virtue of, the Finance Documents shall be entitled to
recover damages by reference to the loss incurred by that assignee as a result
of the breach or misrepresentation irrespective of whether the Lender would
have incurred a loss of that kind or amount.

 

26.5                        Sub-participation; subrogation assignment.  The Lender may,
with the prior consent of the Borrower, such consent not to be unreasonably
withheld, sub-participate all or any part of its rights and/or obligations
under, or in connection with, the Finance Documents; and the Lender may assign,
in any manner and on terms agreed by it, all or any part of those rights to an
insurer or surety which has become subrogated to them.

 

26.6                        Disclosure of information.  The Lender may not disclose to a potential
assignee, transferee or sub-participant or any other person who may otherwise
enter into contractual relations with the Lender in relation to this Agreement
or any other Finance Document any information which the Lender has received in
relation to the Borrower and its related entities or their respective affairs
without the consent of the Borrower, such consent not to be unreasonably
withheld or delayed Provided that
no such consent shall be required if an Event of Default has occurred.

 

27                                  VARIATIONS
AND WAIVERS

 

27.1                        Variations, waivers etc. by Lender.  A document shall be effective to vary, waive,
suspend or limit any provision of a Finance Document, or the Lender’s rights or
remedies under such a provision or the general law, only if the document is
signed, or specifically agreed to by fax, by the Borrower and the Lender and,
if the document relates to a Finance Document to which a Security Party is
party, by that Security Party.

 

27.2                        Exclusion of other or implied variations.  Except for a document which satisfies the
requirements of Clauses 27.1, no document, and no act, course of conduct,
failure or neglect to act, delay or acquiescence on the part of the Lender (or
any person acting on its behalf) shall result in the Lender (or any person
acting on its behalf) being taken to have

 

50

 

varied, waived, suspended or limited, or being
precluded (permanently or temporarily) from enforcing, relying on or
exercising:

 

(a)                                  a provision of this
Agreement or another Finance Document; or

 

(b)                                 an Event of
Default; or

 

(c)                                  a breach by the
Borrower or a Security Party of an obligation under a Finance Document or the
general law; or

 

(d)                                 any right or remedy
conferred by any Finance Document or by the general law;

 

and there shall not
be implied into any Finance Document any term or condition requiring any such
provision to be enforced, or such right or remedy to be exercised, within a
certain or reasonable time.

 

28                                  NOTICES

 

28.1                        General.  Unless otherwise specifically provided, any
notice under or in connection with any Finance Document shall be given by
letter, fax or, subject to that set out below, telex; and references in the
Finance Documents to written notices, notices in writing and notices signed by
particular persons shall be construed accordingly, provided that the Borrower
may not send notices or other communications by telex to the Lender but the
Lender reserves right to send notices or other communications by telex to the
Borrower.

 

28.2                        Addresses for communications. 
A notice shall be sent:

 

	
  (a)

  	
  to the Borrower:

  	
  Pendelis 16

  
	
   

  	
   

  	
  175 64 Palaio Faliro

  
	
   

  	
   

  	
  Athens

  
	
   

  	
   

  	
  Greece

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Telex No:

  	
  214605 BELL GR

  
	
   

  	
   

  	
  Fax No:

  	
  + 302 10 942 4975

  
	
   

  	
   

  	
  Attention:

  	
  Mr S P Palios

  
	
   

  	
   

  	
   

  
	
  (b)

  	
  to the Lender:

  	
  Shipping Business Centre

  
	
   

  	
   

  	
  5-10 Great Tower Street

  
	
   

  	
   

  	
  London EC3P 3HX

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fax No:

  	
  +44 20 7615 0119

  

 

or to such other
address as the relevant party may notify the other.

 

28.3                        Effective date of notices.  Subject to Clauses 28.4 and 28.5:

 

(a)                                  a notice which is
delivered personally or posted shall be deemed to be served, and shall take
effect, at the time when it is delivered;

 

(b)                                 a notice which is
sent by telex or fax shall be deemed to be served, and shall take effect, 2
hours after its transmission is completed.

 

28.4                        Service outside business hours.  However, if under Clause 28.3 a notice would
be deemed to be served:

 

(a)                                  on a day which is
not a business day in the place of receipt; or

 

(b)                                 on such a business
day, but after 5 p.m. local time;

 

51

 

the notice shall
(subject to Clause 28.5) be deemed to be served, and shall take effect, at 9
a.m. on the next day which is such a business day.

 

28.5                        Illegible notices.  Clauses 28.3 and 28.4 do not apply if the
recipient of a notice notifies the sender within 1 hour after the time at which
the notice would otherwise be deemed to be served that the notice has been
received in a form which is illegible in a material respect.

 

28.6                        Valid notices.  A notice under, or in connection with, a
Finance Document shall not be invalid by reason that its contents or the manner
of serving it do not comply with the requirements of this Agreement or, where
appropriate, any other Finance Document under which it is served if:

 

(a)                                  the failure to
serve it in accordance with the requirements of this Agreement or, as the case
may be, another Finance Document has not caused any party to suffer any
significant loss or prejudice; or

 

(b)                                 in the case of
incorrect and/or incomplete contents, it should have been reasonably clear to the
party on which the notice was served what the correct or missing particulars
should have been.

 

28.7                        English language.  Any notice under, or in connection with, a
Finance Document shall be in English.

 

28.8                        Meaning of “notice”.  In this Clause 28, “notice” includes any demand, consent,
authorisation, approval, instruction, waiver or other communication.

 

29                                  SUPPLEMENTAL

 

29.1                        Time.  Time
shall be of the essence in this Agreement as regards compliance by the Borrower
of its obligations under this Agreement.

 

29.2                        Delay.  No delay or omission on the part of the
Lender in exercising any right, power or remedy under this Agreement shall
impair such right, power or remedy or be construed as a waiver thereof nor
shall any single or partial exercise of any such right, power or remedy
preclude any further exercise thereof or the exercise of any other right, power
or remedy.

 

29.3                        Rights cumulative, non-exclusive.  The rights, powers
and remedies herein provided are cumulative and not exclusive of any rights,
powers and remedies provided by law and may be exercised from time to time and
as often as the Lender deems expedient.

 

29.4                        Waiver.  Any
waiver by the Lender of any provision of this Agreement or any consent or
approval given by the Lender under this Agreement shall only be effective if
given in writing and then only for the purpose and upon the terms for which it
is given.

 

29.5                        Partial invalidity.  If at
any time any one or more of the provisions of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any law or regulation,
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not be in any way affected or impaired thereby.

 

29.6                        Duration of obligations. 
The obligations of the Borrower under this Agreement
shall remain in full force and effect until the Lender shall have received all
amounts due or to become due to it under this Agreement and under the other
Finance Documents in accordance with this Agreement and of the other Finance
Documents.  Without prejudice to the
foregoing, the obligations of the Borrower under Clauses 6, 22, 24 and 25 shall
survive the repayment of the Facility.

 

52

 

29.7                        Counterparts.  A Finance Document may be executed in any
number of counterparts.

 

29.8                        Third party rights.  A person who is not a party to this Agreement
has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce
or to enjoy the benefit of any term of this Agreement.

 

29.9                        Certificates.  A
certificate or determination of the Lender as to any matter provided for in
this Agreement or any other Finance Document shall, in the absence of manifest
error, be conclusive and binding on the Borrower.

 

30                                  GOVERNING LAW
AND JURISDICTION

 

30.1                        English law.  This Agreement shall be governed by, and
construed in accordance with, English law.

 

30.2                        Exclusive English jurisdiction.  Subject to Clause 30.3, the courts of England
shall have exclusive jurisdiction to settle any disputes which may arise out of
or in connection with this Agreement.

 

30.3                        Choice of forum for the exclusive benefit of the Lender.  Clause 30.2 is for the exclusive benefit of
the Lender, which reserves the rights:

 

(a)                                  to commence
proceedings in relation to any matter which arises out of or in connection with
this Agreement in the courts of any country other than England and which have
or claim jurisdiction to that matter; and

 

(b)                                 to commence such
proceedings in the courts of any such country or countries concurrently with or
in addition to proceedings in England or without commencing proceedings in
England.

 

The Borrower shall
not commence any proceedings in any country other than England in relation to a
matter which arises out of or in connection with this Agreement.

 

30.4                        Process agent.  The Borrower irrevocably appoints C&C
Legal Services Limited at its registered office for the time being, presently
at 20 Upper Ground, Sea Containers House, Blackfriars Bridge, London SE1 9QT,
to act as its agent to receive and accept on its behalf any process or other
document relating to any proceedings in the English courts which are connected
with this Agreement.

 

30.5                        Lender’s rights unaffected.  Nothing in this Clause 30 shall exclude or
limit any right which the Lender may have (whether under the law of any
country, an international convention or otherwise) with regard to the bringing
of proceedings, the service of process, the recognition or enforcement of a
judgment or any similar or related matter in any jurisdiction.

 

30.6                        Meaning of “proceedings”.  In this Clause 30, “proceedings” means proceedings of any kind,
including an application for a provisional or protective measure..

 

THIS
AGREEMENT has been entered into on the date stated at the
beginning of this Agreement.

 

53

 

SCHEDULE 1

DRAWDOWN NOTICE

 

	
  To:

  	
  The Royal Bank of Scotland
  plc

  
	
   

  	
  5-10 Great Tower Street

  
	
   

  	
  London

  
	
   

  	
  EC3P 3HX

  

 

Attention: The Shipping Business Centre

 

[•]

 

DRAWDOWN NOTICE

 

2                                         We
refer to the facility agreement (the “Facility
Agreement”) dated [•] 2005 and made between
ourselves, as Borrower, and yourselves, as Lender, in connection with a
revolving credit facility of up to US$230,000,000.  Terms defined in the Facility Agreement have
their defined meanings when used in this Drawdown Notice.

 

3                                         We
request to borrow [a Working Capital], [the Approved Manager], [a New Ship]
Advance as follows:-

 

(a)                                  Amount: US$[•];

 

(b)                                 Drawdown Date:  [•];

 

(c)                                  Duration of the
Interest Period shall be [•] months;

 

(d)                                 Payment
instructions : account in our name and numbered [•] with
[•] of [•].

 

4                                         We
represent and warrant that:

 

(a)                                  the
representations and warranties in Clause 10 of the Facility Agreement
would remain true and not misleading if repeated on the date of this notice
with reference to the circumstances now existing;

 

(b)                                 no
Event of Default or Potential Event of Default has occurred or will result from
the borrowing of the Facility.

 

5                                         This
notice cannot be revoked without the prior consent of the Lender.

 

 

	
   

  	
   

  	
   

  
	
  Director

  
	
  for
  and on behalf of

  
	
  DIANA SHIPPING INC.

  

 

54

 

SCHEDULE 2

CONDITION PRECEDENT DOCUMENTS

 

PART A

 

The following are the documents referred to in
Clause 9.1(a) required before service of the first Drawdown Notice.

 

1                                         A duly
executed original of this Agreement, the Master Agreement and all the Finance
Documents (other than the Mortgages, the General Assignments and any Negative
Pledge Agreements and of each document required to be delivered by each such
Finance Document).

 

6                                         Copies
of the certificate of incorporation and constitutional documents (or equivalent
documents) and all amendments thereto of the Borrower and each Security Party
and any other documents required to be filed or registered or issued under the
laws of the country of its incorporation to establish its incorporation and/or
good standing.

 

7                                         Copies
of resolutions passed at a meeting of the board of directors and shareholders
of the Borrower and each Security Party authorising the execution of each of the
Finance Documents to which the Borrower or that Security Party is a party and,
in the case of the Borrower, authorising named officers or attorneys to give
the Drawdown Notice and other notices under this Agreement or other evidence of
such approvals and authorisations as shall be acceptable to the Lender.

 

8                                         The
original of any power of attorney under which any Finance Document is executed
on behalf of the Borrower or a Security Party.

 

9                                         A list
specifying the directors and officers of the Borrower and each Security Party
(together with specimen signatures) and specifying the authorised and issued
share capital of the Borrower and each Security Party.

 

10                                  Copies
of all consents which the Borrower or any Security Party requires to enter
into, perform or make any payment under, any Finance Document.

 

11                                  The
originals of any mandates or other documents required by the Lender in
connection with the opening or operation of the Operating Account.

 

12                                  A
valuation of each of the Existing Ships, including m.v.s “CALIPSO”, “CLIO” and “ERIC
L.D.” (more particularly described in Schedule 3), addressed to the
Lender, stated to be for the purposes of this Agreement and dated not earlier
than 30 days before the first Drawdown Date provided by an Approved Broker
which shows an aggregate value for the Existing Ships of not less than
$350,000,000 Provided that if the
aggregate value of the Existing Ships is shown to be less than $350,000,000,
then the provisions of Clause 9.1(f) shall apply.

 

13                                  Evidence
satisfactory to the Lender, in its sole and absolute opinion, that the Borrower
has successfully completed the IPO and that:

 

(a)                                  such IPO has
generated net proceeds (excluding costs and expenses) of not less than
$110,000,000; and

 

(b)                                 the new equity
raised pursuant to the IPO is non-convertible (unless the Lender has otherwise
consented in writing).

 

55

 

14                                  Evidence
satisfactory to the Lender, in its sole and absolute opinion, that after
completion of the IPO referred to in paragraph 9 above, at least 25 per cent.
of the issued share capital of the Borrower is vested in the ownership of
members of the Palios and Margaronis families and, other than in the case of
ownership of members of the Palios and Margaronis families as aforesaid, no one
person (or associated (in the sole opinion of the Lender) persons) holds more
than 25 per cent of the Borrower’s issued share capital.

 

15                                  A duly
signed compliance certificate in the form set out in Schedule 6 confirming
that the Borrower is in compliance with the financial covenants set out in
Clause 12.4.

 

16                                  If so
required by the Lender, a survey report addressed to the Lender, stated to be
for the purposes of this Agreement and dated not earlier than 30 days before
the first Drawdown Date from an independent marine surveyor selected by the
Lender in respect of the physical condition of each Existing Ship.

 

17                                  Documentary
evidence that the agent for service of process named in Clause 29.1 has
accepted its appointment.

 

18                                  Such
documents and evidence as the Lender shall require, based on applicable law and
regulations and the Lender’s own internal guidelines, relating to the Lender’s
knowledge of its customers.

 

19                                  If the
Lender so requires, in respect of any of the documents referred to above, a
certified English translation prepared by a translator approved by the Lender.

 

56

 

PART B

 

The following are the documents referred to in
Clause 9.1(b) required on or before the first Drawdown Date.

 

In Part B of Schedule 3, the following
definitions shall have the following meanings:

 

“Relevant Owner” means the member of the
Group which is the registered owner of the Relevant Ship; and

 

“Relevant Ship” means each and every
Existing Ship which is owned by the Relevant Owner as at the first Drawdown
Date.

 

1                                         A duly
executed original of the Guarantee, the Mortgage and the General Assignment
relative to the Relevant Ship and of each document to be delivered pursuant to
each such Finance Document.

 

2                                         Documentary
evidence that:

 

(a)                                  the
Relevant Ship is registered in the ownership of the Relevant Owner under an
Approved Flag;

 

(b)                                 the
Relevant Ship is in the absolute and unencumbered ownership of the Relevant
Owner save as contemplated by the Finance Documents relative thereto;

 

(c)                                  the
Relevant Ship maintains the highest classification available to ships of the
same type, specification and age of such Ship with a classification society
which is a member of the International Association of Classification Societies
free of all overdue recommendations and conditions of such Classification
Society affecting class;

 

(d)                                 the
Relevant Ship is insured in accordance with the provisions of this Agreement
and all requirements therein in respect of insurances have been complied with;
and

 

(e)                                  the
Mortgage relating to the Relevant Ship has been duly registered or recorded
against the Relevant Ship as a valid first priority or preferred ship mortgage
in accordance with the laws of the relevant Approved Flag State.

 

3                                         Documents
establishing that the Relevant Ship will, as from the first Drawdown Date be
managed by the Approved Manager on terms acceptable to the Lender, together
with:

 

(a)                                  a
letter of undertaking executed by the Approved Manager in favour of the Lender
in the terms required by the Lender agreeing certain matters in relation to the
management of the Relevant Ship and subordinating the rights of the Approved
Manager against the Relevant Ship and the Relevant Owner to the rights of the
Lender under the Finance Documents; and

 

(b)                                 copies
of the Document of Compliance and Safety Management Certificate issued pursuant
to the ISM Code in respect of the Relevant Ship.

 

4                                         At the
cost of the Borrower a favourable opinion from an independent insurance
consultant acceptable to the Lender on such matters relating to the insurances
for the Relevant Ship as the Lender may require.

 

5                                         Favourable
legal opinions from lawyers appointed by the Lender on such matters concerning
the laws of the Marshall Islands, any relevant Approved Flag State relating to
the Relevant Ship such other relevant jurisdictions as the Lender may required.

 

57

 

6                                         If the
Lender so requires, in respect of any of the documents referred to above, a
certified English translation prepared by a translator approved by the Lender.

 

58

 

PART C

 

The following are the documents referred to in
Clause 9.1(c) required before the Drawdown Date of each New Ship Advance.

 

In this Part C of Schedule 3, the
following definitions shall have the following meanings:

 

“Relevant Advance” means, in relation to
each New Ship or New Company, the New Ship Advance which shall be used to
part-finance the acquisition of such New Ship or New Company;

 

“Relevant Owner” means the member of the
Group or New Company which is the buyer of the Relevant Ship; and

 

“Relevant Ship” means, in relation to each
New Ship Advance, the New Ship which is to be financed by such New Ship Advance
or any vessel to be acquired as part of the purchase of a New Company.

 

The following documents apply where the
Borrower nominates the New Ship as a Collateral Ship for the purposes of this
Agreement pursuant to Clause 3.4(b):

 

1                                         Copies
of resolutions of the shareholders and directors of the Relevant Owner
authorising the execution of each of the Finance Documents to which such
Relevant Owner is a party (unless already supplied to the Lender under this
Agreement).

 

2                                         The
original of any power of attorney under which any Finance Document is executed
on behalf of the Relevant Owner.

 

3                                         Copies
of all consents which the Relevant Owner requires to enter into, or make any
payment under, any Finance Document to which it is a party.

 

4                                         The
written confirmation of the Lender that the Relevant Ship and/or the New
Company, as the case may be, has been approved by the Lender as a Collateral
Ship for the purposes of this Agreement.

 

5                                         A duly
executed original of the Guarantee of the Relevant Owner and of the Mortgage
and the General Assignment relative to the Relevant Ship and of each document
to be delivered pursuant to each such Finance Document.

 

6                                         Documentary
evidence that:

 

(a)                                  the
Relevant Ship has been unconditionally delivered to, and accepted by, the
Relevant Owner and the full purchase price payable the seller of the Relevant
Ship (in addition to the part to be financed by the Relevant Advance) has been
duly paid;

 

(b)                                 the
part of the purchase price of the Relevant Ship which has not been funded out
of the proceeds of the Relevant Advance and which has been borrowed by the
Relevant Owner or the Borrower is subordinated to the obligations of the
Relevant Owner or Borrower to the Lender under the Finance Documents in terms
satisfactory to the Lender in its absolute discretion.

 

(c)                                  the
Relevant Ship is registered in the ownership of the Relevant Owner under an
Approved Flag;

 

(d)                                 the
Relevant Ship is in the absolute and unencumbered ownership of the Relevant
Owner save as contemplated by the Finance Documents;

 

59

 

(e)                                  the
Relevant Ship maintains the highest classification available for ships of the
same type, specification and age as such Ship with a classification society
which is a member of the International Association of Classification Societies
free of all overdue recommendations and conditions of such classification
society affecting class;

 

(f)                                    the
Mortgage relating to the Relevant Ship has been duly registered or recorded
against the Relevant Ship as a valid first priority ship mortgage in accordance
with the laws of the relevant Approved Flag State; and

 

(g)                                 the
Relevant Ship is insured in accordance with the provisions of this Agreement
and all requirements therein in respect of Insurances have been complied with.

 

7                                         Documents
establishing that the Relevant Ship will, as from the Drawdown Date relative to
the Relevant Advance, be managed by the Approved Manager on terms acceptable to
the Lenders, together with:

 

(a)                                  a
letter of undertaking executed by the Approved Manager in favour of the Lender
in the terms required by the Lender agreeing certain matters in relation to the
management of the Relevant Ship and subordinating the rights of the Approved
Manager against the Relevant Ship and the Relevant Owner to the rights of the
Lender under the Finance Documents; and

 

(b)                                 copies
of the document of compliance (DOC) and safety management certificate (SMC)
issued pursuant to the ISM Code in respect of the Relevant Ship.

 

8                                         A
valuation (at the expense of the Borrower) of each Ship which is the subject of
a Mortgage (including, for these purposes, the Relevant Ship), addressed to the
Lender, stated to be for the purposes of this Agreement and dated not earlier
than 14 days before the Drawdown Date relative to the Relevant Advance, from
one or more Approved Brokers and determined in the manner set out in Clauses
15.5 and 15.6 which shows an aggregate market value of the Ships which are the
subject of a Mortgage in an amount which does not breach the ratio set out in
Clause 15.2.

 

9                                         If
required by the Lender, a satisfactory (in the absolute opinion of the Lenders)
survey report (at the cost of the Borrower) in respect of the Relevant Ship,
addressed to the Lender, stated to be for the purposes of this Agreement and
dated not earlier than 30 days before the Drawdown Date relative to the
Relevant Advance, from an independent marine surveyor selected by the Lender
who shall have conducted a physical inspection of the Relevant Ship.

 

10                                  Such
documents and evidence as the Lender shall require in relation to each Relevant
Owner based on applicable laws and regulations and the Lender’s own internal
guidelines, relating to the Lender’s knowledge of its customer.

 

11                                  Documentary
evidence that any agent for service of process covered in the Guarantee given
by the Relevant Owner, the Mortgage and General Assignment in respect of the
Relevant Ship has accepted its appointment for the purpose of the relevant
Finance Document.

 

12                                  At the
cost of the Borrower, a favourable opinion from an independent insurance
consultant acceptable to the Lender on such matters relating to the insurances
for the Relevant Ship as the Lender may require.

 

13                                  Favourable
legal opinions from lawyers appointed by the Lender on such matters concerning
the laws of the Marshall Islands, the Approved Flag State and such other
relevant jurisdictions as the Lender may require.

 

60

 

14                                  If the
Lender so requires, in respect of any of the documents referred to above, a
certified English translation prepared by a translator approved by the Lender.

 

The following documents apply where the
Borrower does not nominate the New Ship as a Collateral Ship for the purposes
of this Agreement pursuant to Clause 3.4(b):

 

15                                  Copies
of resolutions of the shareholders and directors of the relevant Unencumbered
Owner authorising the execution of the Negative Pledge Agreement and any other
Finance Documents to which such Unencumbered Owner is a party (unless already
supplied to the Lender under this Agreement).

 

16                                  The
original of any power of attorney under which the Negative Pledge Agreement and
any other Finance Document is executed on behalf of the relevant Unencumbered
Owner.

 

17                                  Copies
of all consents which the relevant Unencumbered Owner requires to enter into,
or make any payment under, the Negative Pledge Agreement and any other Finance
Document to which it is a party.

 

18                                  Written
confirmation of the Lender that the Relevant Ship and/or New Company, as the
case may be, which is the subject of the Relevant Advance has been approved by
the Lender as a New Ship or a New Company for the purposes of this Agreement.

 

19                                  A duly
executed original of the Negative Pledge Agreement relating to the Relevant
Advance and each document to be delivered pursuant to such Negative Pledge
Agreement.

 

20                                  A
satisfactory, in the opinion of the Lender, valuation (at the expense of the
Borrower) of the Ships, addressed to the Lender, stated to be for the purposes
of this Agreement and dated not earlier than 30 days before the Drawdown Date
relative to the Relevant Advance, from an Approved Broker.

 

21                                  Such
documents and evidence as the Lender shall require in relation to each
Unencumbered Owner based on applicable laws and regulations and the Lender’s
own internal guidelines, relating to the Lender’s knowledge of its customer.

 

22                                  Documentary
evidence that any agent for service of process covered in any Negative Pledge
Agreement signed in connection with the Relevant Advance has accepted its
appointment for the purposes of the relevant Negative Pledge Agreement.

 

23                                  Favourable
legal opinions from lawyers appointed by the Lender in such matters concerning
such relevant jurisdictions as the Lender may require.

 

24                                  If the
Lender so requires, in respect of any of the documents referred to above, a certified
English translation prepared by a translator approved by the Lender.

 

61

 

SCHEDULE 3

THE EXISTING SHIPS

 

	
  Vessel Name

  	
   

  	
  Owner

  	
   

  	
  Vessel Type

  	
   

  	
  Flag

  	
   

  	
  Dead Weight

  Tonnage

  	
   

  	
  Year Built

  
	
  “OCEANIS”

  	
   

  	
  Panama Compania Armadora
  S.A.

  	
   

  	
  Bulk carrier

  	
   

  	
  Bahamas

  	
   

  	
  75,211

  	
   

  	
  2001

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “ALCYON”

  	
   

  	
  Buenos Aires Compania
  Armadora S.A.

  	
   

  	
  Bulk carrier

  	
   

  	
  Bahamas

  	
   

  	
  75,247

  	
   

  	
  2001

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “NIREFS”

  	
   

  	
  Skyvan Shipping Company
  S.A.

  	
   

  	
  Bulk carrier

  	
   

  	
  Bahamas

  	
   

  	
  75,311

  	
   

  	
  2001

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “TRITON”

  	
   

  	
  Husky Trading S.A.

  	
   

  	
  Bulk carrier

  	
   

  	
  Bahamas

  	
   

  	
  75,336

  	
   

  	
  2001

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “DIONE”

  	
   

  	
  Chorrera Compania Armadora
  S.A.

  	
   

  	
  Bulk carrier

  	
   

  	
  Greece

  	
   

  	
  75,172

  	
   

  	
  2001

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “DANAE”

  	
   

  	
  Eaton Marine S.A.

  	
   

  	
  Bulk carrier

  	
   

  	
  Greece

  	
   

  	
  75,106

  	
   

  	
  2001

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “PROTEFS”

  	
   

  	
  Cypres Enterprises Corp.

  	
   

  	
  Bulk carrier

  	
   

  	
  Bahamas

  	
   

  	
  73,700

  	
   

  	
  2004

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “CALIPSO” (Anticipated
  delivery March 2005)

  	
   

  	
  Darien Compania Armadora
  S.A.

  	
   

  	
  Bulk carrier

  	
   

  	
  Bahamas

  	
   

  	
  73,700

  	
   

  	
  2005

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “CLIO” (Anticipated
  delivery May 2005)

  	
   

  	
  Texford Maritime S.A.

  	
   

  	
  Bulk carrier

  	
   

  	
  Approved Flag

  	
   

  	
  73,700

  	
   

  	
  2005

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “ERIC L.D.”

  	
   

  	
  Cerada International S.A.

  	
   

  	
  Bulk carrier

  	
   

  	
  Approved Flag

  	
   

  	
  169,883

  	
   

  	
  1999

  

 

62

 

SCHEDULE 4

 

MANDATORY COST FORMULA

 

The Mandatory Cost Rate will be calculated in
accordance with the following formula:

 

	
  F
  x 0.01

  	
   

  
	
  300

  	
   

  

 

where on the day(s) of application of the
formula:

 

F.                                      is the
rate of charge payable by the Lender to the Financial Services Authority
pursuant to paragraph 2 of the Fees Regulations (but where for this purpose,
the figure at paragraph 2.02b/2.03b shall be deemed to be zero) and expressed
in pounds per £1 million of the Fee Base of the Lender.

 

For the purposes of this Schedule:

 

Fee Base has the meaning ascribed to it for the
purposes of, and all be calculated in accordance with, the Fees Regulations.

 

Fees Regulations means, as appropriate, either
the Banking Supervision (Fees) Regulations 2000 or such regulations as from
time to time may be in force, relating to the payment of fees for banking
supervision in respect of periods subsequent to 31 March 2001.

 

Any reference to a provision of any statute,
directive, order or regulation herein is a reference to that provision as
amended or re-enacted from time to time.

 

If alternative or additional financial
requirements are imposed which in the Lender’s opinion make the formula set out
above no longer appropriate, the Lender shall be entitled to stipulate such
other formula as shall be suitable to apply in substitution for the formula set
out above.

 

63

 

SCHEDULE 5

 

LENDER
COMMITMENT

 

	
  REPAYMENT DATE

  (Number of months after the

  Availability Date)

  	
   

  	
  COMMITMENT

  REDUCTION 

  	
   

  	
  COMMITMENT

  	
   

  
	
   

  	
   

  	
  (US$)

  	
   

  	
  (US$)

  	
   

  
	
  0

  	
   

  	
   

  	
   

  	
   

  	
  230,000,000

  	
   

  
	
  60

  	
   

  	
   

  	
  20,000,000

  	
   

  	
  210,000,000

  	
   

  
	
  66

  	
   

  	
   

  	
  13,500,000

  	
   

  	
  196,500,000

  	
   

  
	
  72

  	
   

  	
   

  	
  13,500,000

  	
   

  	
  183,000,000

  	
   

  
	
  78

  	
   

  	
   

  	
  13,500,000

  	
   

  	
  169,500,000

  	
   

  
	
  84

  	
   

  	
   

  	
  13,500,000

  	
   

  	
  156,000,000

  	
   

  
	
  90

  	
   

  	
   

  	
  13,500,000

  	
   

  	
  142,500,000

  	
   

  
	
  96

  	
   

  	
   

  	
  13,500,000

  	
   

  	
  129,000,000

  	
   

  
	
  102

  	
   

  	
   

  	
  13,500,000

  	
   

  	
  115,500,000

  	
   

  
	
  108

  	
   

  	
   

  	
  13,500,000

  	
   

  	
  102,000,000

  	
   

  
	
  114

  	
   

  	
   

  	
  13,500,000

  	
   

  	
  88,500,000

  	
   

  
	
  120

  	
   

  	
   

  	
  88,500,000

  	
   

  	
  0

  	
   

  

 

64

 

SCHEDULE 6

 

FORM OF COMPLIANCE CERTIFICATE

 

	
  To:

  	
  The Royal Bank of Scotland
  plc

  
	
   

  	
  Shipping Business Centre

  
	
   

  	
  5-10 Great Tower Street

  
	
   

  	
  London

  
	
   

  	
  EC3P 3HX

  

 

[•]

 

Dear Sirs

 

Facility
Agreement dated [•] 2005 (the “Facility
Agreement”) made between (i) Diana Shipping Inc. as borrower (the “Borrower”)
and (ii) The Royal Bank of Scotland plc as lender (the “Lender”) in connection with
a revolving credit facility of up to US$230,000,000.

 

We refer to the Facility Agreement.  Terms defined in the Facility Agreement have
their defined meanings when used in this Compliance Certificate.

 

We also refer to the financial covenants set
out in clause [•] of the
Facility Agreement.

 

We confirm that, as at the date of this
Compliance Certificate, we are in compliance with the following covenants:

 

(a)                                  Clause
12.4(a); Adjusted Net Worth is not less than US$200,000,000; and

 

(b)                                 Clause
12.4(b); EBITDA is at least twice the amount of Interest Expenses;

 

(c)                                  Clause
12.4(c); Adjusted Net Worth exceeds 35 per cent. of Total Assets;

 

(d)                                 Clause
12.4(d); Liquid Funds are not less than US$750,000 for each of the Existing
Ships and each of the New Ships; and

 

(e)                                  Clause
12.3(a); no dividends have been declared or paid which would result in the
breach of any of the above financial covenants [save as expressly agreed by the
Lender in writing].

 

To evidence such compliance, we attach a copy
of the latest [annual audited][quarterly unaudited] accounts of the Borrower
together with calculations setting out in reasonable detail the data and
calculations resulting therefrom which we have used to support the
confirmations made above.

 

No Event of Default or Potential Event of
Default has occurred in relation to the Borrower or the Owner.

 

Signed

 

 

	
   

  	
   

  
	
  Chief
  Financial Officer

  
	
  for and on behalf of

  
	
  DIANA
  SHIPPING INC.

  

 

65

 

EXECUTION
PAGE

 

BORROWER

 

	
  SIGNED by

  	
  )

  
	
   

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  DIANA
  SHIPPING INC.

  	
  )

  
	
  in the presence of:

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  LENDER

  	
   

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
   

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  THE ROYAL
  BANK OF

  	
  )

  
	
  SCOTLAND
  PLC

  	
  )

  
	
  in the presence of:

  	
  )

  

 

66

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