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Section 1: 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to             

 

Commission File Number: 001-06479

 

OVERSEAS SHIPHOLDING GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   13-2637623
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

302 Knights Run Avenue, Tampa, Florida   33602
(Address of principal executive office)   (Zip Code)

 

(813) 209-0600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A Common Stock (par value $0.01 per share)   OSG   New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [X] Non-accelerated filer [  ] Smaller reporting company [X]
      Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES [X] NO[  ]

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date. The number of shares outstanding of the issuer’s Class A common stock as of November 6, 2019: Class A common stock, par value $0.01 – 85,675,594 shares. Excluded from these amounts are penny warrants, which were outstanding as of November 6, 2019 for the purchase of 3,693,499 shares of Class A common stock without consideration of any withholding pursuant to the cashless exercise procedures.

 

 

 

 
 

 

TABLE OF CONTENTS

 

   

Page #

     
Part I—FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018 3
     
  Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2019 and 2018 4
     
  Condensed Consolidated Statements of Comprehensive (Loss)/Income (Unaudited) for the three and nine months ended September 30, 2019 and 2018 5
     
  Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2019 and 2018 6
     
  Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three and nine months ended September 30, 2019 and 2018 7
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 30
     
Item 4. Controls and Procedures 30
     
Part II—OTHER INFORMATION  
     
Item 1. Legal Proceedings 31
     
Item 1A Risk Factors 31
     
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 31
     
Item 3 Defaults upon Senior Securities 31
     
Item 4 Mine Safety Disclosure 32
     
Item 5 Other Information 32
     
Item 6. Exhibits 32
     
Signatures 33

 

2
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

DOLLARS IN THOUSANDS

 

   September 30,
2019
   December 31,
2018
 
   (unaudited)     
ASSETS          
Current Assets:          
Cash and cash equivalents  $49,484   $80,417 
Restricted cash   60    59 
Voyage receivables, including unbilled of $4,532 and $10,160, net of reserve for doubtful accounts   7,172    16,096 
Income tax receivable   476    439 
Other receivables   2,781    3,027 
Prepaid expenses   1,130    9,886 
Inventories and other current assets   1,998    2,456 
Total Current Assets   63,101    112,380 
Vessels and other property, less accumulated depreciation   732,675    597,659 
Deferred drydock expenditures, net   26,888    26,099 
Total Vessels, Other Property and Deferred Drydock   759,563    623,758 
Restricted cash - non current   114    165 
Investments in and advances to affiliated companies   272    3,585 
Intangible assets, less accumulated amortization   32,967    36,417 
Operating lease right-of-use assets   257,630     
Other assets   23,312    51,425 
Total Assets  $1,136,959   $827,730 
LIABILITIES AND EQUITY          
Current Liabilities:          
Accounts payable, accrued expenses and other current liabilities  $31,933   $34,678 
Current portion of operating lease liabilities   89,136     
Current portion of finance lease liabilities   4,011     
Current installments of long-term debt   30,821    23,240 
Total Current Liabilities   155,901    57,918 
Reserve for uncertain tax positions   218    220 
Noncurrent operating lease liabilities   191,046     
Noncurrent finance lease liabilities   24,075     
Long-term debt   344,696    322,295 
Deferred income taxes, net   71,456    73,365 
Other liabilities   19,982    44,464 
Total Liabilities   807,374    498,262 
Equity:          
Common stock - Class A ($0.01 par value; 166,666,666 shares authorized; 85,668,793 and 84,834,790 shares issued and outstanding)   857    848 
Paid-in additional capital   589,985    587,826 
Accumulated deficit   (254,318)   (252,014)
    336,524    336,660 
Accumulated other comprehensive loss   (6,939)   (7,192)
Total Equity   329,585    329,468 
Total Liabilities and Equity  $1,136,959   $827,730 

 

See notes to condensed consolidated financial statements

 

3
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

(UNAUDITED)

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2019   2018   2019   2018 
Shipping Revenues:                    
                     
Time and bareboat charter revenues  $63,491   $51,033   $188,619   $159,113 
Voyage charter revenues   17,435    29,503    68,503    117,820 
    80,926    80,536    257,122    276,933 
                     
Operating Expenses:                    
Voyage expenses   4,424    8,481    15,762    30,135 
Vessel expenses   33,993    33,865    98,960    101,025 
Charter hire expenses   22,802    23,079    67,645    68,394 
Depreciation and amortization   13,324    12,828    38,922    37,627 
General and administrative   5,288    6,410    16,917    19,768 
Bad debt expense           4,300     
Loss on disposal of vessels and other property, including impairments, net   36        87     
Total operating expenses   79,867    84,663    242,593    256,949 
Income/(loss) from vessel operations   1,059    (4,127)   14,529    19,984 
Equity in income/(loss) of affiliated companies   156        224    (10)
Operating income/(loss)   1,215    (4,127)   14,753    19,974 
Other income, net   375    518    992    271 
Income/(loss) before interest expense and income taxes   1,590    (3,609)   15,745    20,245 
Interest expense   (6,047)   (7,828)   (19,124)   (23,401)
Loss before income taxes   (4,457)   (11,437)   (3,379)   (3,156)
Income tax benefit   694    23,385    1,075    21,821 
Net (loss)/income  $(3,763)  $11,948   $(2,304)  $18,665 
                     
Weighted Average Number of Common Shares Outstanding:                    
Basic - Class A   89,375,668    88,535,376    89,210,136    88,337,614 
Diluted - Class A   89,375,668    89,229,282    89,210,136    89,017,866 
Per Share Amounts:                    
Basic and diluted net (loss)/income - Class A  $(0.04)  $0.13   $(0.03)  $0.21 

 

See notes to condensed consolidated financial statements

 

4
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

DOLLARS IN THOUSANDS

(UNAUDITED)

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2019   2018   2019   2018 
Net (loss)/income  $(3,763)  $11,948   $(2,304)  $18,665 
Other comprehensive income, net of tax:                    
Net change in unrealized gains on cash flow hedges               112 
Defined benefit pension and other postretirement benefit plans:                    
Net change in unrecognized prior service costs   (17)   (31)   (50)   (102)
Net change in unrecognized actuarial losses   102    134    303    435 
Other comprehensive income   85    103    253    445 
Comprehensive (loss)/income  $(3,678)  $12,051   $(2,051)  $19,110 

 

See notes to condensed consolidated financial statements

 

5
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

DOLLARS IN THOUSANDS

(UNAUDITED)

 

   Nine Months Ended
September 30,
 
   2019   2018 
Cash Flows from Operating Activities:          
Net (loss)/income  $(2,304)  $18,665 
Items included in net income not affecting cash flows:          
Depreciation and amortization   38,922    37,627 
Bad debt expense   4,300     
Loss on disposal of vessels and other property, including impairments, net   87     
Amortization of debt discount and other deferred financing costs   1,477    3,117 
Compensation relating to restricted stock awards and stock option grants   1,212    2,312 
Deferred income tax benefit   (1,851)   (22,328)
Interest on finance lease liabilities   941     
Non-cash operating lease expense   62,058     
Loss on extinguishment of debt, net   72    981 
Other - net       1,575 
Distributed earnings of affiliated companies   3,314    3,747 
Payments for drydocking   (11,477)   (9,629)
Operating lease right-of-use assets   5,999     
Operating lease liabilities   (61,366)    
Changes in operating assets and liabilities, net   4,368    7,630 
Net cash provided by operating activities   45,752    43,697 
Cash Flows from Investing Activities:          
Proceeds from disposals of vessels and other property   3,404     
Expenditures for vessels and vessel improvements   (105,244)   (10,116)
Expenditures for other property   (1,399)   (124)
Net cash used in investing activities   (103,239)   (10,240)
Cash Flows from Financing Activities:          
Payments on debt   (16,667)   (28,166)
Extinguishment of debt   (3,271)   (47,000)
Tax withholding on share-based awards   (294)   (359)
Issuance of debt   50,000     
Deferred financing costs for issuance of debt   (1,417)    
Payments on principal portion of finance lease liabilities   (1,847)    
Net cash provided by/(used in) financing activities   26,504    (75,525)
Net decrease in cash, cash equivalents and restricted cash   (30,983)   (42,068)
Cash, cash equivalents and restricted cash at beginning of period   80,641    166,269 
Cash, cash equivalents and restricted cash at end of period  $49,658   $124,201 

 

See notes to condensed consolidated financial statements

 

6
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

DOLLARS IN THOUSANDS

(UNAUDITED)

 

   Common Stock (1)   Paid-in Additional Capital (2)   Accumulated
Deficit
   Accumulated Other Comprehensive Loss (3)   Total 
Balance at December 31, 2017  $783   $584,675   $(265,758)  $(6,462)  $313,238 
Adoption of accounting standard           (1,228)       (1,228)
Net income           3,662        3,662 
Other comprehensive income               215    215 
Forfeitures, cancellations, issuance and vesting of restricted stock awards, net   4    (363)           (359)
Compensation related to Class A options granted and restricted stock awards       1,731            1,731 
Balance at March 31, 2018   787    586,043    (263,324)   (6,247)   317,259 
Net income           3,055        3,055 
Other comprehensive income               127    127 
Forfeitures, cancellations, issuance and vesting of restricted stock awards, net   3    (3)            
Compensation related to Class A options granted and restricted stock awards        391            391 
Conversion of Class A warrants to common stock   17    (17)            
Balance at June 30, 2018   807    586,414    (260,269)   (6,120)   320,832 
Net income           11,948        11,948 
Other comprehensive income               103    103 
Compensation related to Class A options granted and restricted stock awards       502            502 
Conversion of Class A warrants to common stock   39    (39)            
Balance at September 30, 2018  $846   $586,877   $(248,321)  $(6,017)  $333,385 
                          
Balance at December 31, 2018  $848   $587,826   $(252,014)  $(7,192)  $329,468 
Net income           3,197        3,197 
Other comprehensive income               83    83 
Forfeitures, cancellations, issuance and vesting of restricted stock awards, net   5    (299)           (294)
Compensation related to Class A options granted and restricted stock awards       1,559            1,559 
Balance at March 31, 2019   853    589,086    (248,817)   (7,109)   334,013 
Net loss           (1,738)       (1,738)
Other comprehensive income               85    85 
Forfeitures, cancellations, issuance and vesting of restricted stock awards, net   2    (3)           (1)
Compensation related to Class A options granted and restricted stock awards       454            454 
Conversion of Class A warrants to common stock   2    (2)            
Balance at June 30, 2019   857    589,535    (250,555)   (7,024)   332,813 
Net loss           (3,763)       (3,763)
Other comprehensive income               85    85 
Compensation related to Class A options granted and restricted stock awards       450            450 
Balance at September 30, 2019  $857   $589,985   $(254,318)  $(6,939)  $329,585 

 

  (1) Par value $0.01 per share; 166,666,666 Class A shares authorized; 85,668,793 Class A shares outstanding as of September 30, 2019.
  (2) Includes 19,475,470 outstanding Class A warrants as of September 30, 2019.
  (3) Amounts are net of tax.

 

See notes to condensed consolidated financial statements

 

7
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

Note 1 — Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Overseas Shipholding Group, Inc., a Delaware corporation (the “Parent Company”), and its wholly-owned subsidiaries (collectively, the “Company” or “OSG”, “we”, “us” or “our”). The Company owns and operates a fleet of oceangoing vessels engaged primarily in the transportation of crude oil and refined petroleum products in the U.S. Flag trade through two wholly-owned subsidiaries.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by generally accepted accounting principles in the United States. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of the results have been included. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

 

The condensed consolidated balance sheet as of December 31, 2018 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles in the United States for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“Form 10-K”).

 

Note 2 — Recently Adopted and Issued Accounting Standards

 

Recently Adopted Accounting Standards

 

In February 2016, the FASB issued ASU No. 2016-02, Leases, which is included in the ASC in Topic 842. ASU 2016-02 is intended to improve transparency and comparability of lease accounting among organizations. For leases with terms greater than 12 months, the amendments require the lease rights and obligations arising from the leasing arrangements, including operating leases, to be recognized as assets and liabilities on the balance sheet. However, the effect on the statement of operations and the statement of cash flows is largely unchanged from prior GAAP. The amendments also expand the required disclosures surrounding leasing arrangements. Subsequently, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, ASU No. 2018-11, Targeted Improvements, ASU No. 2018-20, Narrow-Scope Improvements for Lessors, and ASU 2019-01, Codification Improvements, to clarify and amend the guidance in ASU No. 2016-02.

 

The Company adopted the standard using the modified retrospective approach effective January 1, 2019. The Company’s lease portfolio is primarily comprised of vessels chartered-in and office space. As a result of adopting this standard, the Company recorded right-of-use assets of $264,546 and lease liabilities of $280,407 at January 1, 2019. The adoption of this standard did not impact the Company’s accumulated deficit, consolidated statements of operations or consolidated statements of cash flows.

 

The Company applied the package of practical expedients that allows companies not to reassess whether any expired or expiring contracts are or contain leases, lease classification for any expired or expiring leases and initial direct costs for any expired or expiring leases. Also, the Company made the accounting policy election to keep leases with a term of 12 months or less off the balance sheet. Finally, the Company implemented changes to processes and internal controls to meet the standard’s updated reporting and disclosure requirements.

 

See Note 10, “Leases,” for additional information.

 

8
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

Recently Issued Accounting Standards

 

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The new guidance is effective for fiscal years ending after December 15, 2020 and is required to be applied on a retrospective basis to all periods presented. Early adoption is permitted. The Company plans to adopt this standard on January 1, 2021. The adoption of this standard is not expected to have a material effect on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The new guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. Early adoption is permitted in interim periods, including periods for which financial statements have not been issued or financial statements have not been made available for issuance. The Company plans to adopt this standard on January 1, 2020. The adoption of this standard is not expected to have a material effect on the Company’s consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to maturity debt securities. Under current U.S. GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all recognition thresholds and will require entities to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the entity expects to collect over the instrument’s contractual life. Subsequently, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, to clarify that receivables arising from operating leases are within the scope of lease accounting standards.

 

At its meeting in October 2019, the FASB affirmed its decision to use a two-bucket approach for determining the effective dates of major accounting standards, which included the credit losses standard. Under this approach, the buckets would be defined as follows:

 

Bucket 1— All public business entities (“PBEs”) that are SEC filers (as defined in U.S. GAAP), excluding smaller reporting companies (“SRCs”) (as defined by the SEC). The credit losses standard would be effective January 1, 2020.

 

Bucket 2— All other entities, including SRCs, other PBEs that are not SEC filers, private companies, not-for-profit organizations, and employee benefit plans. The credit losses standard would be effective January 1, 2023.

 

At the annual evaluation date on June 30, 2019, the Company met the SEC definition of a smaller reporting company. Accordingly, the Company plans on adopting the credit losses standard on January 1, 2023 subject to the issuance of the final ASU from the FASB which is expected in November 2019.

 

9
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

Note 3 - Revenue Recognition

 

Shipping Revenues

 

Time Charter Revenues

 

The Company enters into time charter contracts under which a customer pays a fixed daily or monthly rate for a fixed period of time for use of a vessel. The Company recognizes revenues from time charters as operating leases ratably over the noncancellable contract term. Customers generally pay voyage expenses such as fuel, canal tolls and port charges. The Company also provides the charterer with services such as technical management expenses and crew costs. While there are lease and service (non-lease) components related to time charter contracts, the predominant component of the contract is the charterer’s lease of the vessel. The non-lease components of the contract have the same timing and pattern of transfer as the underlying lease component; therefore, the Company applied the practical expedient to combine lease and non-lease components and recognizes revenue related to this service ratably over the life of the contract term.

 

Voyage Charter Revenues

 

The Company enters into voyage charter contracts, under which the customer pays a transportation charge, voyage freight, for the movement of a specific cargo between two or more specified ports. The Company’s performance obligation under voyage charters, which consists of moving cargo from a load port to a discharge port, is satisfied over time. Accordingly, under ASC 606, Revenue from Contracts with Customers, the Company recognizes revenue from voyage charters ratably over the estimated length of each voyage, calculated on a load-to-discharge basis. The transaction price is in the form of a fixed fee at contract inception, which is the transportation charge. Voyage charter contracts also include variable consideration primarily in the form of demurrage, which is additional revenue the Company receives for delays experienced in loading or unloading cargo that are not deemed to be the responsibility of the Company. The Company does not include demurrage in the transaction price for voyage charters as it is considered constrained since it is highly susceptible to factors outside the Company’s influence. Examples of when demurrage is incurred include unforeseeable weather conditions and security regulations at ports. The uncertainty related to this variable consideration is resolved upon the completion of the voyage, the duration of which is generally less than 30 days.

 

U.S. Maritime Security Program

 

Two of the Company’s U.S. Flag Product Carriers participate in the U.S. Maritime Security Program (“MSP”), which ensures that privately-owned, military-useful U.S. Flag vessels are available to the U.S. Department of Defense in the event of war or national emergency. The Company considers the MSP contract with the U.S. government a service arrangement under ASC 606. Under this arrangement, the Company receives an annual operating-differential subsidy pursuant to the Merchant Marine Act of 1936 for each participating vessel, subject in each case to annual congressional appropriations. The subsidy is intended to reimburse owners for the additional costs of operating U.S. Flag vessels; therefore, the Company has presented this subsidy as an offset to vessel expenses.

 

Contracts of Affreightment

 

The Company enters into contracts of affreightment (“COA”) to provide transportation services between specified points for a stated quantity of cargo over a specific time period, but without designating voyage schedules. The Company has COA arrangements to provide for lightering services and other arrangements based on the number of voyages. These contracts are service contracts within the scope of ASC 606 for which the underlying performance obligation is satisfied as a series of distinct services.

 

The Company’s COA include minimum purchase requirements from customers that are expressed in either fixed monthly barrels, annual minimum barrel volume requirements or annual minimum number of voyages to complete. The Company is required to transport and the charterer is required to provide the Company with a minimum volume requirement. These contract minimums represent fixed consideration within the contract which is recognized as the distinct services of delivering barrels or voyages are performed in the series over time. The Company will adjust revenue recognized for any minimum volume unexercised right.

 

COA provide the charterer with the opportunity to purchase additional transportation services above the minimum. If this is not considered a material right, the Company recognizes revenue related to the additional services at the contractual rate as the product is transferred over time. If the additional transportation service is considered a material right, the Company applies the practical alternative to allocate the transaction price to the material right. As a result, the Company may recognize revenue related to COA at an amount which is different than the invoiced amount if the Company’s estimated volume to be transported under the contract exceeds the contractual minimum.

 

10
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

COA also include variable consideration primarily related to demurrage. The Company does not include this variable consideration in the transaction price for these contracts as the consideration is constrained since the obligation to deliver this service is outside the control of the Company. The uncertainty related to this variable consideration is resolved with the customer over the course of the contract term as individual voyages discharge. Revenue generated by COA is included within voyage charter revenues on the condensed consolidated statements of operations. 

 

At September 30, 2019, the Company had deferred revenue of $613 related to certain of the Company’s COA, which is included in accounts payable, accrued expenses and other current liabilities on the condensed consolidated balance sheets.

 

Disaggregated Revenue

 

The Company has disaggregated revenue from contracts with customers into categories which depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Consequently, the disaggregation below is based on contract type. Since the terms within these contract types are generally standard in nature, the Company does not believe that further disaggregation would result in increased insight into the economic factors impacting revenue and cash flows.

 

The following table shows the Company’s shipping revenues disaggregated by nature of the charter arrangement for the three and nine months ended September 30, 2019 and 2018:

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2019   2018   2019   2018 
Time and bareboat charter revenues  $63,491   $51,033   $188,619   $159,113 
Voyage charter revenues(1)   7,369    14,705    21,063    67,988 
Contracts of affreightment revenues   10,066    14,798    47,440    49,832 
Total shipping revenues  $80,926   $80,536   $257,122   $276,933 

 

(1) Voyage charter revenues include approximately $659 and $1,320 of revenue related to short-term time charter contracts for the three months ended September 30, 2019 and 2018, respectively, and $4,516 and $7,611 for the nine months ended September 30, 2019 and 2018, respectively.

 

Voyage Receivables

 

As of September 30, 2019 and December 31, 2018, contract balances from contracts with customers consisted of voyage receivables, including unbilled receivables, of $5,221 and $12,515, respectively, net of allowance for doubtful accounts. For voyage charters, voyage freight is due to the Company upon completion of discharge at the last discharge port. For lightering contracts, the Company invoices the customer monthly based on the actual barrels of cargo lightered. The Company routinely reviews its voyage receivables and makes provisions for probable doubtful accounts; however, those provisions are estimates and actual results could differ from those estimates and those differences may be material. Voyage receivables are removed from accounts receivable and the allowance for doubtful accounts when they are deemed uncollectible. The Company deems voyage receivables uncollectible when the Company has exhausted collection efforts.

 

11
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

Costs to Fulfill a Contract

 

Under ASC 606, for voyage charters and contracts of affreightment, the Company capitalizes the direct costs, which are voyage expenses, of relocating the vessel to the load port to be amortized during transport of the cargo. At September 30, 2019, the costs related to voyages that were not yet completed were not material.

 

Additionally, these contracts include out-of-pocket expense (i.e. fuel, port charges, canal tolls) incurred by the Company in fulfilling its performance obligation, which are reimbursed by the charterer at cost. The reimbursement for these fulfillment costs have been included in the Company’s estimated transaction price for the contract and recognized as revenue when performance obligations are satisfied.

 

Transaction Price Allocated to the Remaining Performance Obligations

 

As of September 30, 2019, there was an aggregate amount of $48,773 of revenue under COA which the Company will be entitled to providing services in the future. The Company expects to recognize revenue of approximately $12,682 in 2019, $32,296 in 2020 and $3,795 in 2021 under these contracts. These estimated amounts relate to the fixed consideration of contractual minimums within the contracts based on the Company’s best estimate of future services.

 

Practical Expedients and Exemptions

 

The Company’s voyage charter contracts and some of the Company’s COA have an original expected duration of one year or less; therefore, the Company has elected to apply the practical expedient, which permits the Company to not disclose the portion of the transaction price allocated to the remaining performance obligations within these contracts.

 

The Company expenses broker commissions for voyage charters, which are costs of obtaining a contract, as they are incurred because the amortization period is less than one year or are otherwise amortized as the underlying performance obligation is satisfied. The Company records these costs within voyage expenses in the consolidated statements of operations.

 

The Company has not retrospectively restated contracts that were modified before the January 1, 2018 adoption date.

 

Note 4 — Earnings per Common Share

 

Basic earnings per common share is computed by dividing earnings, after the deduction of dividends and undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding during the period. As management deemed the exercise price for the Class A warrants of $0.01 per share to be nominal, warrant proceeds are ignored and the shares issuable upon Class A warrant exercise are included in the calculation of basic weighted average common shares outstanding for all periods.

 

The computation of diluted earnings per share assumes the issuance of common stock for all potentially dilutive stock options and restricted stock units. Participating securities are defined by ASC 260, Earnings Per Share, as unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents and are included in the computation of earnings per share pursuant to the two-class method.

 

Class A

 

As of September 30, 2019, there were 1,718,865 shares of Class A restricted stock units and 1,478,756 Class A stock options outstanding, which were considered to be potentially dilutive securities. As of September 30, 2018, there were 912,315 shares of Class A restricted stock units and 866,011 Class A stock options outstanding, which were considered to be potentially dilutive securities.

 

The components of the calculation of basic earnings per share and diluted earnings per share are as follows:

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2019   2018   2019   2018 
Net (loss)/income  $(3,763)  $11,948   $(2,304)  $18,665 
                     
Weighted average common shares outstanding:                    
Class A common stock - basic   89,375,668    88,535,376    89,210,136    88,337,614 
Class A common stock - diluted   89,375,668    89,229,282    89,210,136    89,017,866 

 

For the three and nine months ended September 30, 2018, there were 693,906 and 680,252 dilutive equity awards outstanding, respectively.

 

12
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

Note 5 — Fair Value Measurements and Fair Value Disclosures

 

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

 

Cash and cash equivalents and restricted cash— The carrying amounts reported in the condensed consolidated balance sheet for interest-bearing deposits approximate their fair value.

 

Debt— The fair values of the Company’s publicly traded and non-public debt are estimated based on quoted market prices.

 

ASC 820, Fair Value Measurements and Disclosures, relating to fair value measurements defines fair value and established a framework for measuring fair value. The ASC 820 fair value hierarchy distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price. In addition, the fair value of assets and liabilities should include consideration of non-performance risk, which for the liabilities described below includes the Company’s own credit risk.

 

The levels of the fair value hierarchy established by ASC 820 are as follows:

 

  Level 1 - Quoted prices in active markets for identical assets or liabilities

 

  Level 2 - Quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

  Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

 

Financial Instruments that are not Measured at Fair Value on a Recurring Basis

 

The estimated fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows:

 

   Carrying   Fair Value 
   Value   Level 1   Level 2 
September 30, 2019:               
Assets               
Cash (1)  $49,658   $49,658   $ 
Total  $49,658   $49,658   $ 
Liabilities               
Term loan agreement, due 2023  $298,579   $   $305,978 
Term loan agreement, due 2024   48,855        50,150 
Term loan agreement, due 2026   27,395        27,582 
7.5% Election 2 notes due 2021   298        302 
7.5% notes due 2024   390        391 
Total  $375,517   $   $384,403 

 

13
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

   Carrying   Fair Value 
   Value   Level 1   Level 2 
December 31, 2018:               
Assets               
Cash (1)  $80,641   $80,641   $ 
Total  $80,641   $80,641   $ 
Liabilities               
Term loan agreement, due 2023  $317,472   $   $325,000 
Term loan agreement, due 2026   27,376        26,500 
7.5% Election 2 notes due 2021   297        229 
7.5% notes due 2024   390        296 
Total  $345,535   $   $352,025 

 

(1) Includes current and non-current restricted cash aggregating $174 and $224 at September 30, 2019 and December 31, 2018, respectively. Restricted cash as of September 30, 2019 and December 31, 2018 was related to the Company’s Unsecured Senior Notes.

 

Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis

 

Vessel and Intangible Assets Impairments

 

During the third quarter of 2019, the Company considered whether events or changes in circumstances had occurred since December 31, 2018 that could indicate the carrying amounts of the vessels in the Company’s fleet and the carrying value of the Company’s intangible assets may not be recoverable as of September 30, 2019. The Company concluded that no such events or changes in circumstances had occurred.

 

Note 6 — Taxes

 

For the three months ended September 30, 2019 and 2018, the Company recorded income tax benefits of $694 and $23,385, respectively, which represented effective tax rates of 16% and 205%, respectively. For the nine months ended September 30, 2019 and 2018, the Company recorded income tax benefits of $1,075 and $21,821, respectively, which represented effective tax rates of 32% and 691%, respectively. The decrease in the effective tax rate for the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018 was substantially due to the one-time settlement of the Internal Revenue Service (“IRS”) exam of the 2012 through 2015 audit years that occurred during the third quarter of 2018, which permitted us to recognize benefits that had been previously deferred. The effective tax rate for the nine months ended September 30, 2019 was more than the statutory rate due to the discrete tax benefit recorded in the first quarter and the tonnage tax exclusion. The effective tax rate for the nine months ended September 30, 2018 was more than the statutory rate as a result of stock compensation pursuant to ASU-2016-09, Improvements to Employee Share-Based Payment Accounting, offset in part by the non-taxability of income subject to the U.S. tonnage tax. The effective rate for the 2018 period was also impacted by the settlement of the IRS audit.

 

As of September 30, 2019 and December 31, 2018, the Company recorded a non-current reserve for uncertain tax positions of $218 and $220, respectively.

 

14
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

Note 7 — Related Parties

 

Equity Method Investment

 

Investments in and advances to affiliated companies are comprised of the Company’s 37.5% interest in Alaska Tanker Company, LLC (“ATC”), which manages vessels carrying Alaskan crude for BP West Coast Products, LLC (“BP”). In the first quarter of 1999, OSG, BP, and Keystone Shipping Company formed ATC to manage the vessels carrying crude oil for BP. ATC provides marine transportation services in the environmentally sensitive Alaskan crude oil trade. Each member in ATC is entitled to receive its respective share of any incentive charter hire payable by BP to ATC. The Company has accounted for the investment in ATC as an equity–method investment because the Company does not individually retain the power to significantly impact the economic performance of ATC and the Company’s maximum exposure to losses in ATC is limited to its initial capital investment in ATC, which is not material.

 

Guarantees

 

International Seaways, Inc. (“INSW”) entered into guarantee arrangements in connection with the spin-off from OSG on November 30, 2016. On October 7, 2019, INSW sold its ownership interest in their joint venture with Qatar Gas Transport Company Ltd, releasing OSG from all obligations under the guarantee arrangements.

 

Note 8 — Capital Stock and Stock Compensation

 

Share and Warrant Repurchases

 

During the nine months ended September 30, 2019, in connection with the vesting of restricted stock units (“RSUs”), the Company withheld 159,685 shares of Class A common stock at an average price of $1.84 per share (based on the market prices on the dates of vesting) from certain members of management to cover withholding taxes.

 

Warrant Conversions

 

During the nine months ended September 30, 2019, the Company issued 213,146 shares of Class A common stock as a result of the exercise of 1,128,184 Class A warrants. During the nine months ended September 30, 2018, the Company issued 5,605,911 shares of Class A common stock as a result of the exercise of 29,581,938 Class A warrants.

 

Stock Compensation

 

The Company accounts for stock compensation expense in accordance with the fair value based method required by ASC 718, Compensation – Stock Compensation. This method requires share-based payment transactions to be measured based on the fair value of the equity instruments issued.

 

Director CompensationRestricted Stock Units

 

During the nine months ended September 30, 2019, the Company awarded 357,866 time-based RSUs to its non-employee directors. The grant date fair value of these awards was $1.78 per RSU. Each RSU represents a contingent right to receive one share of Class A common stock upon vesting. These RSUs vest in full on the first anniversary of the grant date, subject to each director continuing to provide services to the Company through such date.

 

Management CompensationRestricted Stock Units and Stock Options

 

During the nine months ended September 30, 2019, the Company granted 552,598 RSUs to its employees, including senior officers, respectively. The grant date fair value of these awards was $2.02 per RSU. Each RSU represents a contingent right to receive one share of Class A common stock upon vesting. Each award of RSUs will vest in equal installments on each of the first three anniversaries of the grant date.

 

15
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

In addition, during the nine months ended September 30, 2019, the Company awarded 329,121 shares of the Company’s Class A common stock to one of its senior officers, respectively, which vested immediately. The average grant date fair value of these awards was $1.90 per share.

 

During the nine months ended September 30, 2019, the Company awarded 352,258 performance-based RSUs to its senior officers, respectively. Each performance-based RSU represents a contingent right to receive RSUs based upon continuous employment through the end of a three-year performance period (the “Performance Period”) and will vest as follows: (i) one-half of the target RSUs will vest and become nonforfeitable subject to OSG’s return on invested capital (“ROIC”) performance in the three-year ROIC performance period relative to a target rate (the “ROIC Target”) set forth in the award agreements (the formula for ROIC is net operating profit after taxes divided by the net of total debt plus shareholders equity less cash); and (ii) one–half of the target RSUs will be subject to OSG’s three–year total shareholder return (“TSR Target”) performance relative to that of a performance index over a three–year TSR performance period. The index consists of companies that comprise a combination of the oil and gas storage and transportation and marine GICS sub-industries indexes during the Performance Period. Vesting is subject in each case to the Human Resources and Compensation Committee’s certification of achievement of the performance measures and targets.

 

The ROIC Target RSU award and the TSR Target RSU award is subject to an increase up to a maximum of 176,129 target RSUs combined (528,387 RSUs in total) or decrease depending on performance against the applicable measure and targets. The ROIC performance goal is a performance condition which, as of September 30, 2019, management believed was probable of being achieved. Accordingly, for financial reporting purposes, compensation costs have been recognized for these awards. The grant date fair value of the TSR based performance awards, which have a market condition, was determined to be $2.02 per RSU.

 

During the nine months ended September 30, 2019, the Company awarded 612,745 stock options to one of its senior officers, which vested immediately. Each stock option represents an option to purchase one share of Class A common stock for an exercise price of $1.89 per share. The call option value of the options was $1.02 per option. Under the grant agreement, the stock options have a holding requirement until the earliest to occur of (i) a change in control; (ii) the separation from service date, in the event of a termination of the grantee’s employment by the Company without cause or by the grantee for good reason, and (iii) the third anniversary of the grant date. The stock options expire on the business day immediately preceding the tenth anniversary of the award date. If a stock option grantee’s employment is terminated for cause (as defined in the applicable Form of Grant Agreement), stock options (whether then vested or exercisable or not) will lapse and will not be exercisable. If a stock option grantee’s employment is terminated for reasons other than cause, the option recipient may exercise the vested portion of the stock option but only within such period of time ending on the earlier to occur of (i) the 90th day ending after the option holder’s employment terminated and (ii) the expiration of the options, provided that if the option holder’s employment terminates for death or disability the vested portion of the option may be exercised until the earlier of (i) the first anniversary of employment termination and (ii) the expiration date of the options.

 

Note 9 — Accumulated Other Comprehensive Loss

 

The components of accumulated other comprehensive loss, net of related taxes, in the condensed consolidated balance sheets follow:

 

As of  September 30,
2019
   December 31,
2018
 
Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement benefit plans)  $(6,939)  $(7,192)
Accumulated other comprehensive loss  $(6,939)  $(7,192)

 

16
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

The following tables present the changes in the balances of each component of accumulated other comprehensive loss, net of related taxes, during the three and nine months ended September 30, 2019 and 2018:

 

   Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement plans) 
     
Balance as of June 30, 2019  $(7,024)
Current period change, excluding amounts reclassified from accumulated other comprehensive income   (23)
Amounts reclassified from accumulated other comprehensive income   108 
Total change in accumulated other comprehensive income   85 
Balance as of September 30, 2019  $(6,939)
      
Balance as of June 30, 2018  $(6,120)
Current period change, excluding amounts reclassified from accumulated other comprehensive income   18 
Amounts reclassified from accumulated other comprehensive income   85 
Total change in accumulated other comprehensive income   103 
Balance as of September 30, 2018  $(6,017)

 

 

   Unrealized losses on cash flow hedges   Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement plans)   Total 
             
Balance as of December 31, 2018  $   $(7,192)  $(7,192)
Current period change, excluding amounts reclassified from accumulated other comprehensive income       (71)   (71)
Amounts reclassified from accumulated other comprehensive income       324    324 
Total change in accumulated other comprehensive income       253    253 
Balance as of September 30, 2019  $   $(6,939)  $(6,939)
                
Balance as of December 31, 2017  $(112)  $(6,350)  $(6,462)
Current period change, excluding amounts reclassified from accumulated other comprehensive income   (69)   79    10 
Amounts reclassified from accumulated other comprehensive income   181    254    435 
Total change in accumulated other comprehensive income   112    333    445 
Balance as of September 30, 2018  $   $(6,017)  $(6,017)

 

17
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

The Company includes the service cost component for net periodic benefit cost/(income) in vessel expenses and general and administrative expenses and other components in other income/(expense) on the condensed consolidated statements of operations.

 

Note 10 — Leases

 

On January 1, 2019, the Company adopted ASC 842 applying the modified retrospective method. Results for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

 

The Company’s lease portfolio is comprised of vessels chartered-in, office space and equipment under agreements with contractual periods ranging from less than 1 year to 16 years. Many of the Company’s leases contain one or more options to extend. The Company includes options that it is reasonably certain to exercise in its evaluation of the lease term after considering all relevant economic and financial factors. The impact of adopting this standard resulted in the recording of right-of-use assets of $264,546 and lease liabilities of $280,407 at January 1, 2019. The adoption of the standard did not impact the Company’s accumulated deficit, consolidated statements of operations or consolidated statements of cash flows. The Company calculates the initial lease liability as the present value of fixed payments, or in substance fixed payments, not yet paid and variable payments that are based on an index (e.g., CPI), measured at commencement. The Company’s leases are discounted using its incremental borrowing rate adjusted for risk based on the length of the lease term because the rate implicit in the lease is not readily determinable.

 

The Company applied the package of practical expedients that allows companies not to reassess whether any expired or expiring contracts are or contain leases, lease classification for any expired or expiring leases and initial direct costs for any expired or expiring leases. Also, the Company made the accounting policy election to keep leases with a term of 12 months or less off the balance sheet. Finally, the Company implemented changes to processes and internal controls to meet the standard’s updated reporting and disclosure requirements.

 

18
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

The Company’s lease right-of-use assets and lease liabilities at September 30, 2019 were as follows:

 

   September 30, 2019 
Operating leases     
Vessels chartered-in noncurrent operating lease assets  $254,973 
Office space noncurrent operating lease assets   2,657 
Total noncurrent operating lease assets  $257,630 
      
Vessels chartered-in operating lease liabilities     
Current portion of operating lease liabilities  $88,572 
Noncurrent operating lease liabilities   188,953 
    277,525 
Office space operating lease liabilities     
Current portion of operating lease liabilities   564 
Noncurrent operating lease liabilities   2,093 
    2,657 
Total operating lease liabilities  $280,182 
      
Finance lease     
Vessels and other property  $28,993 
Accumulated depreciation   (1,309)
Vessels and other property, less accumulated depreciation  $27,684 
      
Current portion of finance lease liabilities  $4,011 
Noncurrent finance lease liabilities   24,075 
Total finance lease liabilities  $28,086 

 

Charters-in

 

As of September 30, 2019, the Company had commitments to charter-in 11 vessels, which are all bareboat charters. During the second quarter of 2019, the Company commenced a bareboat charter for the Overseas Key West for a lease term of 10 years. Based on the length of the lease term and the remaining economic life of the vessel, it is accounted for as a finance lease. The remaining 10 chartered-in vessels are accounted for as operating leases. The right-of-use asset accounted for as a finance lease arrangement is reported in vessels and other property, less accumulated depreciation on our condensed consolidated balance sheets. The Company holds options for 10 of the vessels chartered-in that can be exercised for 1, 3 or 5 years with the 1-year option only usable once, while the 3- and 5-year options are available indefinitely. The lease payments for the charters-in are fixed throughout the option periods and the options are on a vessel-by-vessel basis that can be exercised individually. The Company exercised its option on one of its vessels to extend the term until June 2025. On December 10, 2018, the Company exercised its options to extend the terms of the other nine vessels. Terms for five of the vessels were extended for an additional three years, with terms ending in December 2022, and terms for four of the vessels were extended for an additional year, with terms ending December 2020.

 

Five of the Company’s chartered in vessels contain a deferred payment obligation (“DPO”) which relates to charter hire expense incurred by the Company in prior years and payable to the vessel owner in future periods. This DPO is due in quarterly installments with the final quarterly payment due upon lease termination.

 

19
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

The future minimum commitments under these leases are as follows:

 

At September 30, 2019  Operating Leases   Finance Lease 
2019  $23,007   $1,049 
2020   90,483    4,172 
2021   73,214    4,161 
2022   89,704    4,161 
2023   26,048    4,161 
Thereafter   13,702    21,352 
Net minimum lease payments   316,158    39,056 
Less: present value discount   38,633    10,970 
Total lease liabilities  $277,525   $28,086 

 

The bareboat charters-in provide for variable lease payments in the form of profit share to the owners of the vessels calculated in accordance with the respective charter agreements or based on time charter sublease revenue. Because such amounts and the periods impacted are not reasonably estimable, they are not currently reflected in the table above. Due to reserve funding requirements and current rate forecasts, no profits are currently expected to be paid to the owners in respect of the charter term through December 31, 2019.

 

For the three and nine months ended September 30, 2019, lease expense for the 10 chartered-in vessels accounted for as operating leases was $22,802 and $67,645, respectively, which is included in charter hire expense on the condensed consolidated statements of operations and operating cash flows on the consolidated statements of cash flows. The Company recognized sublease income of $46,337 and $134,058 for the three and nine months ended September 30, 2019, respectively. For the nine months ended September 30, 2019, the Company had non-cash operating activities of $46,733 for obtaining operating right-of-use assets and liabilities.

 

For the three and nine months ended September 30, 2019, lease expense related to the Company’s finance lease was $1,309 related to amortization of the right-of-use asset and $941 related to interest on the lease liability. These are included in operating cash flows on the condensed consolidated statements of cash flows. For the nine months ended September 30, 2019, the Company had non-cash financing activities of $28,993 for obtaining finance right-of-use assets.

 

Office space

 

The Company has lease obligations for office space that generally require fixed annual rental payments and may also include escalation clauses and renewal options.

 

The future minimum commitments under lease obligations for office space, which are operating leases, as of September 30, 2019 are as follows:

 

At September 30, 2019  Amount 
2019  $167 
2020   630 
2021   631 
2022   649 
2023   474 
Thereafter   1,186 
Net minimum lease payments   3,737 
Less: present value discount   1,080 
Total lease liabilities  $2,657 

 

20
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

For the three and nine months ended September 30, 2019, the rental expense for office space, which is included in general and administrative expenses on the condensed consolidated statements of operations, was $160 and $480, respectively. For the nine months ended September 30, 2019, cash paid for office space rental was $493, which is included in operating cash flows on the condensed consolidated statements of cash flows.

 

At September 30, 2019, the weighted average remaining lease term for the Company’s operating leases and finance lease was 3.72 years and 9.39 years, respectively, and the weighted average discount rate was 7.01% and 7.32%, respectively.

 

Charters-out

 

The Company enters into time charter contracts under which a customer pays a fixed daily or monthly rate for a fixed period of time for use of a vessel. The Company recognizes revenues from time charters as operating leases ratably over the noncancelable contract term. Under certain time charter contracts, the Company receives variable lease payments based on a defined profit share arrangement, which are recognized as revenue in the period in which the changes in facts and circumstances on which the variable lease payments are based occur. Customers generally pay voyage expenses such as fuel, canal tolls and port charges. The Company also provides the charterer with services such as technical management expenses and crew costs. Services are recognized ratably over the life of the contract term.

 

The Company is the lessor under its time charter contracts. For time charters, the Company applied the practical expedient to combine the lease and non-lease components for these contracts. Total time charter revenue for the three and nine months ended September 30, 2019 was equal to lease income from lease payments of $63,731 and $189,489, respectively, less straight-line adjustments of $240 and $870, respectively. The net book value of owned vessels on noncancelable time charters was equal to $206,824 at September 30, 2019.

 

The future minimum revenues, including rent escalations, which is equal to lease payments expected to be received over the noncancelable time charters term are as follows:

 

At September 30, 2019  Amount 
2019  $65,197 
2020   163,424 
2021   47,324 
2022   30,675 
2023   31,405 
Thereafter   46,059 
Net minimum lease receipts  $384,084 

 

Revenues from a time charter are not generally received when a vessel is off-hire, including time required for normal periodic maintenance of the vessel. In arriving at the minimum future charter revenues, an estimated time off-hire to perform periodic maintenance on each vessel has been deducted, although it cannot be assured that such estimate will be reflective of the actual off-hire in the future.

 

Note 11 — Vessels

 

On September 30, 2019, the Company took delivery of two 50,000 DWT class product and chemical tankers at Hyundai Mipo Dockyard Co., Ltd. The tankers, named the Overseas Gulf Coast and Overseas Sun Coast, will be operating in the international market under the Marshall Islands flag, with both vessels having entered into one-year time charters.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

In September 2019, the Company sold one of its ATBs for $1,234, net of broker commissions. As a result of the sales, the Company recognized an immaterial gain, which is included in loss on disposal of vessels and other property, including impairments on the condensed consolidated statements of operations.

 

In May and June 2019, the Company sold two of its ATBs for $1,101 and $1,069, respectively, net of broker commissions. As a result of the sales, the Company recognized an immaterial loss, which is included in loss on disposal of vessels and other property, including impairments on the condensed consolidated statements of operations.

 

In July 2018 and January 2019, the Company signed binding contracts with Gunderson Marine LLC for the construction of two approximately 204,000 BBL, oil and chemical tank barges. The anticipated delivery of the barges to the Company is during the first and second half of 2020, respectively. The Company’s annual commitments under the contracts are $24,382 for the remainder of 2019 and $36,438 in 2020.

 

For the nine months ended September 30, 2019, the Company had approximately $5,600 of non-cash investing activities for the accrual of capital expenditures related to the Company’s newbuilds.

 

Note 12 — Debt

 

During September 2019, in connection with the Company’s sale of one of its ATBs, the Company made a mandatory prepayment of $1,132 on its term loan due in 2023. The aggregate loss realized on this transaction, which related to the write-off of unamortized deferred finance costs, was not material.

 

In August 2019, two of the Company’s subsidiaries entered into loans in an aggregate principal amount of $50,000 to finance the Overseas Gulf Coast and the Overseas Sun Coast. The loans are secured by first preferred ship mortgages on the vessels and a guaranty from the Company. Funding occurred on delivery of the vessels on September 30, 2019, with $45,157 used to fund the final payment for the vessels. The loans bear a fixed rate of interest of 5.54% and have a 5-year term maturing on September 30, 2024 with a 17-year amortization schedule. The annual principal payments required to be made for the loans are $624 for the remainder of 2019, $2,586 in 2020, $2,733 in 2021, $2,888 in 2022, $3,052 in 2023 and $38,117 thereafter.

 

During May 2019 and June 2019, in connection with the Company’s sale of two of its ATBs, the Company made mandatory prepayments of $1,086 and $1,054, respectively, on its term loan due in 2023. The aggregate losses realized on these transactions, which related to the write-off of unamortized deferred finance costs, were not material.

 

Note 13 — Commitments and Contingencies

 

At September 30, 2019, the Company had aggregate capital commitments of $60,820, net of progress payments already made aggregating to $40,852, for the construction of two barges scheduled for delivery in the second quarter of 2020 and in the fourth quarter of 2020. The contracts for these barges require progress payments during the construction periods with a final payment due on delivery. The Company has made all required progress payments to date and expects to make remaining payments, including those due on delivery, with financing that the Company will need to obtain, operating cash flow and cash on hand. The Company is currently in discussion with potential lenders to obtain such financing, but the Company has not yet obtained the necessary financing.

 

Legal Proceedings Arising in the Ordinary Course of Business

 

The Company is a party, as plaintiff or defendant, to various suits in the ordinary course of business for monetary relief arising principally from personal injuries (including without limitation exposure to asbestos and other toxic materials), wrongful death, collision or other casualty and to claims arising under charter parties. A substantial majority of such personal injury, wrongful death, collision or other casualty claims against the Company are covered by insurance (subject to deductibles not material in amount). Each of the claims involves an amount which, in the opinion of management, are not expected to be material to the Company’s financial position, results of operations and cash flows.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q, including this MD&A section, contains “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.

 

All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. Please see the section titled “Forward-Looking Statements” and Item 1A. Risk Factors of our 2018 Report on Form 10-K, as updated in our subsequent quarterly reports filed on Form 10-Q and in our other filings made from time to time with the SEC after the date of this report.

 

Other factors besides those listed in our Quarterly Report or in our Annual Report also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Such factors include, but are not limited to:

 

  the highly cyclical nature of OSG’s industry;
  the market value of vessels fluctuates significantly;
  an increase in the supply of Jones Act vessels without a commensurate increase in demand;
  changing economic, political and governmental conditions in the United States or abroad and general conditions in the oil and natural gas industry;
  changes in fuel prices;
  the adequacy of OSG’s insurance to cover its losses, including in connection with maritime accidents or spill events;
  constraints on capital availability;
  public health threats;
  acts of piracy on ocean-going vessels or terrorist attacks and international hostilities and instability;
  the Company’s compliance with 46 U.S.C. sections 50501 and 55101 (commonly known as the “Jones Act”) and the heightened exposure to the Jones Act market fluctuations, including stockholder citizenship requirements imposed on us by the Jones Act;
  the effect of the Company’s indebtedness on its ability to finance operations, pursue desirable business operations and successfully run its business in the future;
  the Company’s ability to generate sufficient cash to service its indebtedness and to comply with debt covenants;
  changes in demand in specialized markets in which the Company currently trades;
  competition within the Company’s industry and OSG’s ability to compete effectively for charters;
  the Company’s ability to renew its time charters when they expire or to enter into new time charters, to replace its operating leases on favorable terms or the loss of a large customer;
  the Company’s ability to realize benefits from its acquisitions or other strategic transactions;
  the loss of, or reduction in business by, the Company’s largest customers;
  refusal of certain customers to use vessels of a certain age;
  the Company’s significant operating leases could be replaced on less favorable terms or may not be replaced;
  changes in credit risk with respect to the Company’s counterparties on contracts or the failure of contract counterparties to meet their obligations;
  increasing operating costs, unexpected drydock costs or increasing capital expenses as the Company’s vessels age, including increases due to limited shipbuilder warranties or the consolidation of suppliers;
  the Company’s compliance with complex laws, regulations and in particular, environmental laws and regulations, including those relating to the emission of greenhouse gases and ballast water treatment;
  the inability to clear oil majors’ risk assessment processes;

 

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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

  the potential for technological innovation to reduce the value of the Company’s vessels and charter income derived therefrom;
  the impact of an interruption in, failure or breach of the Company’s information technology and communication systems upon the Company’s ability to operate or a cybersecurity breach;
  work stoppages or other labor disruptions by the unionized employees of OSG or other companies in related industries or the impact of any potential liabilities resulting from withdrawal from participation in multiemployer plans;
  the Company’s ability to attract, retain and motivate key employees;
  ineffective internal controls;
  the impact of potential changes in U.S. tax laws;
  limitations on U.S. coastwise trade, the waiver, modification or repeal of the Jones Act limitations or changes in international trade agreements;
  government requisition of the Company’s vessels during a period of war or emergency;
  the impact of litigation, government inquiries and investigations;
  the arrest of OSG’s vessels by maritime claimants;
  the Company’s ability to use its net operating loss carryforwards;
  market price of the Company’s securities fluctuates significantly;
  the Company’s ability to sell warrants may be limited and the exercise of outstanding warrants may result in substantial dilution;
  the Company’s common stock is subject to restrictions on foreign ownership;
  OSG is a holding company and depends on the ability of its subsidiaries to distribute funds to it in order to satisfy its financial obligations or pay dividends;
  some provisions of Delaware law and the Company’s governing documents could influence its ability to effect a change of control; and
  securities analysts may not initiate coverage or continue to cover the Company’s securities.

 

The Company assumes no obligation to update or revise any forward looking statements. Forward looking statements in this Quarterly Report on Form 10-Q and written and oral forward looking statements attributable to the Company or its representatives after the date of this Quarterly Report on Form 10-Q are qualified in their entirety by the cautionary statement contained in this paragraph and in other reports hereafter filed by the Company with the SEC. Capitalized terms used in this Quarterly Report on Form 10-Q have the meanings given in the Company’s 2018 Annual Report on Form 10-K.

 

Business Overview

 

OSG is a publicly traded tanker company providing energy transportation services for crude oil and petroleum products in the U.S. Flag markets. OSG is a major operator of tankers and ATBs in the Jones Act industry. OSG’s 21-vessel U.S. Flag fleet consists of two conventional ATBs, two lightering ATBs, three shuttle tankers, 10 conventional MR tankers, two non-Jones Act MR tankers that participate in the U.S. Maritime Security Program (“MSP”), all of which are U.S. flagged, as well as two Marshall Island flagged non-Jones Act MR tankers trading in international markets. OSG is committed to setting high standards of excellence for its quality, safety and environmental programs. OSG is recognized as one of the world’s most customer-focused marine transportation companies and is headquartered in Tampa, FL. Our revenues are derived predominantly from time charter agreements for specific periods of time at fixed daily amounts. We also charter-out vessels for specific voyages where we typically earn freight revenue at spot market rates.

 

The following is a discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2019 and 2018. You should consider the foregoing when reviewing the condensed consolidated financial statements, including the notes thereto, and this discussion and analysis. This Quarterly Report on Form 10-Q includes industry data and forecasts that we have prepared based in part on information obtained from industry publications and surveys. Third-party industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. In addition, certain statements regarding our market position in this report are based on information derived from internal market studies and research reports. Unless we state otherwise, statements about the Company’s relative competitive position in this report are based on management’s beliefs, internal studies and management’s knowledge of industry trends.

 

All dollar amounts are in thousands, except daily dollar amounts and per share amounts.

 

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Operations and Oil Tanker Markets

 

Our revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by us and the trades in which those vessels operate. Rates for the transportation of crude oil and refined petroleum products are determined by market forces such as the supply and demand for oil, the distance that cargoes must be transported and the number of vessels expected to be available at the time such cargoes need to be transported. In the Jones Act trades within which the substantial majority of our vessels operate, demand factors for transportation are affected almost exclusively by supply and distribution decisions of oil producers, refiners and distributors based in the United States. Further, the demand for U.S. domestic oil shipments is significantly affected by the state of the U.S. and global economy, the level of imports into the U.S. from OPEC and other foreign producers, oil production in the United States, and the relative price differentials of U.S. produced crude oil and refined petroleum products as compared with comparable products sourced from or destined for foreign markets, including the cost of transportation on international flag vessels to or from those markets. The number of vessels is affected by newbuilding deliveries and by the removal of existing vessels from service, principally through storage, deletions, or conversions. Our revenues are also affected by the mix of charters between spot (voyage charter which includes short-term time charter) and long-term (time or bareboat charter).

 

We consider attaining the stability of cash flow offered by time charters to be a fundamental characteristic of the objectives of our chartering approach. As such, we have generally sought to pursue an overall chartering strategy that covers the majority of available vessel operating days with medium-term charters or contracts of affreightment. Medium-term charters may not always be remunerative, nor prove achievable under certain market conditions. Therefore, during periods of uncertainty in our markets, more of our vessels could be exposed to the spot market, which is more volatile and less predictable. Because shipping revenues and voyage expenses are significantly affected by the mix between voyage charters and time charters, we manage our vessels based on time charter equivalent (“TCE”) revenues and TCE rates, which are non-GAAP measures. TCE revenues equal GAAP shipping revenues, less voyage expenses. TCE rates are determined by dividing TCE revenues by revenue days. These measures are reported because management makes economic decisions based on anticipated TCE rates and evaluates financial performance based on TCE rates achieved.

 

TCE rates for Jones Act Product Carriers and large ATBs available for service in the spot market increased during the third quarter of 2019 compared to third quarter of 2018 for each class of vessel. The increase can be attributed to higher demand for coastwise crude oil transportation driven by the discount of domestic to international crude prices. In addition, the new construction phase of vessels with deliveries from 2015 to 2018 has ended and the supply of vessels has tightened through scrapping, lay ups and sales out of Jones Act service.

 

As of September 30, 2019, the industry’s entire Jones Act fleet of Product Carriers and large ATBs (defined as vessels having carrying capacities of between 140,000 barrels and 350,000 barrels, which excludes numerous tank barges below 140,000 barrel capacity and 11 much larger tankers dedicated exclusively to the Alaskan crude oil trade) consisted of 88 vessels, compared with 93 vessels as of September 30, 2018. There were no new deliveries and one large ATB scrapped during the third quarter of 2019.

 

The industry’s firm Jones Act orderbook as of September 30, 2019 consisted of two large ATBs with deliveries scheduled in the first half and second half of 2020, both of which were our orders. We ordered the new build ATBs in July 2018 and January 2019. The contract is with Gunderson Marine LLC for the construction of these two, approximately 204,000 BBL, oil and chemical tank barges, which will participate in the Jones Act trade.

 

Delaware Bay lightering volumes averaged 92,000 b/d in the third quarter of 2019 compared with 158,000 b/d in the third quarter of 2018. In June 2019, one of our lightering customers, Philadelphia Energy Solutions (“PES”), suffered an explosion and fire at their refinery in the Delaware Bay. The refinery has been shut down since the fire. In July 2019, PES filed for protection under Chapter 11 of U.S. Bankruptcy Code. Due to the expected reduction in lightering volumes, we have redeployed one of our two lightering ATBs to the U.S. Gulf of Mexico for alternative employment.

 

Critical Accounting Policies

 

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates in the application of its accounting policies based on the best assumptions, judgments and opinions of management. For a description of all of the Company’s material accounting policies, see Note 3, “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for 2018.

 

The Company adopted ASU No. 2016-02, Leases, effective January 1, 2019. Under the new standard, the Company recognized right-of-use assets of $264,546 and lease liabilities of $280,407 at January 1, 2019. See Note 10, “Leases,” for additional accounting policy and transition disclosures.

 

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Results of Vessel Operations

 

During the three months ended September 30, 2019, shipping revenues increased by $390, or 0.5%, compared to the same period in 2018. The increase primarily resulted from (a) an increase in average daily rates earned by the Company’s fleet, (b) decreased spot market exposure, and (c) a decrease in drydock, which is an out of service period used to perform required major maintenance to continue trading and maximize a vessel’s useful life, and repair days. The increase was offset by two fewer vessels in operation during the third quarter of 2019 compared to the third quarter of 2018. During the nine months ended September 30, 2019, shipping revenues decreased $19,811, or 7.2%, compared to the same period in 2018. The decrease primarily resulted from fewer Government of Israel voyages and two fewer vessels in operation.

 

Reconciliation of TCE revenues, a non-GAAP measure, to shipping revenues as reported in the consolidated statements of operations follows:

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2019   2018   2019   2018 
Time charter equivalent revenues  $76,502   $72,055   $241,360   $246,798 
Add: Voyage expenses   4,424    8,481    15,762    30,135 
Shipping revenues  $80,926   $80,536   $257,122   $276,933 

 

The following tables provide a breakdown of TCE rates achieved for the three and nine months ended September 30, 2019 and 2018 between spot and fixed earnings and the related revenue days.

 

   2019   2018 
Three Months Ended September 30,  Spot Earnings   Fixed Earnings   Spot Earnings   Fixed Earnings 
Jones Act Handysize Product Carriers:                    
Average rate  $2,825   $57,494   $17,133   $56,999 
Revenue days   184    1,009    276    797 
Non-Jones Act Handysize Product Carriers:                    
Average rate  $32,809   $12,810   $16,541   $ 
Revenue days   92    91    184     
ATBs:                    
Average rate  $938   $21,507   $15,233   $22,171 
Revenue days   14    166    235    224 
Lightering:                    
Average rate  $56,923   $   $65,023   $ 
Revenue days   179        158     

 

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   2019   2018 
Nine Months Ended September 30,  Spot Earnings   Fixed Earnings   Spot Earnings   Fixed Earnings 
Jones Act Handysize Product Carriers:                    
Average rate  $20,635   $57,192   $30,931   $60,759 
Revenue days   431    2,950    894    2,315 
Non-Jones Act Handysize Product Carriers:                    
Average rate  $25,213   $12,319   $28,506   $ 
Revenue days   303    242    526     
ATBs:                    
Average rate  $18,573   $21,565   $16,620   $22,438 
Revenue days   188    685    764    740 
Lightering:                    
Average rate  $65,984   $   $66,648   $ 
Revenue days   529        513     

 

During the third quarter of 2019, TCE revenues increased by $4,447, or 6.2%, to $76,502 from $72,055 in the third quarter of 2018. The increase primarily resulted from (a) an increase in average daily rates earned by the Company’s fleet, (b) decreased spot market exposure, (c) 61 day decrease in scheduled drydocking, and (d) 78 day decrease in unplanned repair days, including one vessel that was hit by a third-party ship in 2018. The increase was offset by two fewer vessels in operation during the third quarter of 2019 compared to the third quarter of 2018.

 

Vessel expenses remained stable at $33,993 in the third quarter of 2019 compared to $33,865 in the third quarter of 2018. Depreciation and amortization increased by $496, or 3.9%, to $13,324 in the third quarter of 2019 compared to $12,828 in the third quarter of 2018. The increase was due to an increase in amortization of drydock costs.

 

During the nine months ended September 30, 2019, TCE revenues decreased by $5,438, or 2.2%, to $241,360 from $246,798 during the nine months ended September 30, 2018. The decrease primarily resulted from two less Government of Israel voyages and two fewer vessels in operation during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.

 

Vessel expenses decreased 2.0%, or $2,065, to $98,960 for the nine months ended September 30, 2019 from $101,025 for the same period in 2018 primarily due to cost reductions during 2019, as well as, two fewer vessels in operation during 2019. Depreciation and amortization increased $1,295, or 3.4%, to $38,922 for the nine months ended September 30, 2019 compared to $37,627 during the nine months ended September 30, 2018. The increase was due to an increase in amortization of drydock costs.

 

In June 2019, one of our lightering customers, PES, suffered an explosion and fire at their refinery in the Delaware Bay. The PES refinery complex, which consists of two refineries, has been shut down since the fire. Due to the expected reduction in lightering volumes, we redeployed one of our two lightering ATBs to the U.S. Gulf of Mexico for alternative employment. In July 2019, PES filed a Chapter 11 bankruptcy petition. At September 30, 2019, we had outstanding receivables from PES of approximately $4,300. The ultimate recovery of these receivables is currently unknown. We established a loss provision equal to $4,300. We are working diligently to maximize our recovery.

 

Our two U.S. Flag Product Carriers participate in the MSP, which ensures that militarily useful U.S. Flag vessels are available to the U.S. Department of Defense in the event of war or national emergency. We receive an annual subsidy, subject in each case to annual congressional appropriations, which is intended to offset the increased cost incurred by such vessels from operating under the U.S. Flag. For fiscal year 2019, we expect to receive $5,000 for each vessel. This subsidy is expected to continue through 2020, and increase to $5,200 beginning in 2021, subject to congressional appropriation. During fiscal year 2018, we received a $5,000 annual subsidy for one of our participating MSP vessels and a $4,600 annual subsidy for the other participating MSP vessel. We do not receive a subsidy for any days for which either of the two vessels operate under a time charter to a U.S. government agency.

 

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General and Administrative Expenses

 

During the third quarter of 2019, general and administrative expenses decreased by $1,122 to $5,288 from $6,410 in the third quarter of 2018. This decrease was primarily driven by reduced compensation and benefit costs, as well as reduced legal, accounting and consulting fees.

 

During the nine months ended September 30, 2019, general and administrative expenses decreased by $2,851 to $16,917 from $19,768 for the nine months ended September 30, 2018. This decrease was primarily driven by reduced compensation and benefit costs, as well as reduced legal, accounting and consulting fees.

 

Interest Expense

 

Interest expense was $6,047 and $19,124 for the three and nine months ended September 30, 2019, respectively, compared with $7,828 and $23,401 for the three and nine months ended September 30, 2018, respectively. The decrease in interest expense was primarily associated with the impact of the refinancing of our term loan at the end of 2018 and interest capitalized during 2019 due to vessels under construction.

 

Income Taxes

 

For the three months ended September 30, 2019 and 2018, we recorded income tax benefits of $694 and $23,385, respectively, which represented effective tax rates of 16% and 205%, respectively. For the nine months ended September 30, 2019 and 2018, we recorded income tax benefits of $1,075 and $21,821, respectively, which represented effective tax rates of 32% and 691%, respectively. The decrease in the effective tax rate for the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018 was substantially due to the one-time settlement of the Internal Revenue Service (“IRS”) exam of the 2012 through 2015 audit years that occurred during the third quarter of 2018, which permitted us to recognize benefits that had been previously deferred. The effective tax rate for the nine months ended September 30, 2019 was more than the statutory rate due to the discrete tax benefit recorded in the first quarter and the tonnage tax exclusion. The effective tax rate for the nine months ended September 30, 2018 was more than the statutory rate as a result of stock compensation pursuant to ASU-2016-09, Improvements to Employee Share-Based Payment Accounting, offset in part by the non-taxability of income subject to the U.S. tonnage tax. The effective rate for the 2018 period was also impacted by the settlement of the IRS audit.

 

Liquidity and Sources of Capital

 

Our business is capital intensive. Our ability to successfully implement our strategy is dependent on the continued availability of capital on attractive terms. In addition, our ability to successfully operate our business to meet near-term and long-term debt repayment obligations is dependent on maintaining sufficient liquidity.

 

Liquidity

 

Working capital at September 30, 2019 was approximately $(93,000) compared with approximately $54,000 at December 31, 2018. This decrease was due to our recording of the current portion of operating and finance lease liabilities due to the adoption of ASU No. 2016-02, Leases, and progress payments we made for the construction of two barges. The decrease was offset by an increase to working capital as a result of timing of accounts payable payments made at September 30, 2019 compared to December 31, 2018. Excluding the current portion of operating and finance lease liabilities, working capital was approximately $346.

 

As of September 30, 2019, we had total liquidity on a consolidated basis comprised of $49,658 of cash (including $174 of restricted cash). We manage our cash in accordance with our intercompany cash management system subject to the requirements of our debt facilities. Our cash and cash equivalents, as well as our restricted cash balances, generally exceed Federal Deposit Insurance Corporation insurance limits. We place our cash, cash equivalents and restricted cash in what we believe to be credit-worthy financial institutions. In addition, certain of our money market accounts invest in U.S. Treasury securities or other obligations issued or guaranteed by the U.S. government or its agencies. Restricted cash as of September 30, 2019 was related to requirements under the Unsecured Senior Notes.

 

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As of September 30, 2019, we had voyage receivables of $7,172 compared to $16,096 as of December 31, 2018. The decrease in voyage receivables primarily relates to timing of collections from our customers and fewer vessels in operations in 2019.

 

As of September 30, 2019, we had total debt outstanding (net of original issue discount and deferred financing costs) of $375,517 and a total debt to total capitalization of 53.3%, compared to $345,535 and 51.2%, respectively, at December 31, 2018.

 

At September 30, 2019, the Company had aggregate capital commitments of $60,820, net of progress payments already made aggregating to $40,852, for the construction of two barges scheduled for delivery in the second quarter of 2020 and in the fourth quarter of 2020. The contracts for these barges require progress payments during the construction periods with a final payment due on delivery. The Company has made all required progress payments to date, and the Company expects to make remaining payments, including those due on delivery, with financing that the Company will need to obtain, operating cash flow and cash on hand. The Company is currently in discussion with potential lenders to obtain such financing.

 

Sources, Uses and Management of Capital

 

We generate significant cash flows through our complementary mix of time charters, voyage charters and contracts of affreightment. Net cash provided by operating activities during the nine months ended September 30, 2019 was $45,752. In addition to operating cash flows, our other current potential sources of funds are proceeds from additional issuances of equity securities, additional borrowings and proceeds from the opportunistic sales of our vessels. In the past, we have also obtained funds from the issuance of long-term debt securities.

 

We use capital to fund working capital requirements, maintain the quality of our vessels, comply with U.S. and international shipping standards and environmental laws and regulations, repay or repurchase our outstanding loan facilities and to repurchase our common stock from time to time. We may also use cash generated by operations to finance capital expenditures to modernize and grow our fleet.

 

We are presently assessing the impact of the expected discontinuation of LIBOR in 2021.

 

In August 2019, two of the Company’s subsidiaries entered into loans in an aggregate principal amount of $50,000 to finance the Overseas Gulf Coast and the Overseas Sun Coast. The loans are secured by first preferred ship mortgages on the vessels and a guaranty from the Company. Funding occurred on delivery of the vessels on September 30, 2019, with $45,157 used to fund the final payment for the vessels. The loans bear a fixed rate of interest of 5.54% and have a 5-year term maturing on September 30, 2024 with a 17-year amortization schedule. The annual principal payments required to be made for the loans are $624 for the remainder of 2019, $2,586 in 2020, $2,733 in 2021, $2,888 in 2022, $3,052 in 2023 and $38,117 thereafter.

 

Commitments

 

In July 2018 and January 2019, the Company signed binding contracts with Gunderson Marine LLC for the construction of two approximately 204,000 BBL, oil and chemical tank barges. The anticipated delivery of the barges to the Company is during the first and second half of 2020, respectively. The Company’s annual commitments under the contracts are $24,382 for the remainder of 2019 and $36,438 in 2020.

 

Off-Balance Sheet Arrangements

 

INSW entered into guarantee arrangements in connection with the spin-off from OSG on November 30, 2016. On October 7, 2019, INSW sold its ownership interest in their joint venture with Qatar Gas Transport Company Ltd, releasing OSG from all obligations under the guarantee arrangements.

 

29
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

Item 3: Quantitative and Qualitative Disclosures about Market Risk

 

Since December 31, 2018, there were no material changes to our disclosures about market risk. For an in-depth discussion of our market risks, see “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

Item 4: Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s current disclosure controls and procedures were effective as of September 30, 2019 to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There was no change in the Company’s internal control over financial reporting during the nine months ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

30
 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are party to lawsuits arising out of the normal course of business. In management’s opinion, there is no known pending litigation, the outcome of which would, individually or in the aggregate, have a material effect on our consolidated results of operations, financial position or cash flows.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 2018 Form 10-K, and as may be updated in our subsequent quarterly reports. The risks described in our 2018 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. There have been no material changes in our risk factors from those disclosed in our 2018 Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults upon senior securities

 

None.

 

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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other information

 

None.

 

Item 6. Exhibits

 

31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.
     
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.
     
32   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
10.1   Form of Overseas Shipholding Group, Inc. Non-Employee Director Incentive Compensation Plan Time-Based Restricted Stock Unit Award Agreement, Form “Non-Employee Director”.
     
10.2   Loan and Security Agreement dated as of August 7, 2019, among the Registrant, certain subsidiary of the Registrant and Banc of America Leasing & Capital, LLC as lender.
     
10.3   Loan and Security Agreement dated as of August 7, 2019, among the Registrant, certain subsidiary of the Registrant and Pacific Western Bank as lender.
     
10.4   First Amendment to Loan and Security Agreement dated as of September 30, 2019, among the Registrant, certain subsidiary of the Registrant and Banc of America Leasing & Capital, LLC as lender.
     
10.5   First Amendment to Loan and Security Agreement dated as of September 30, 2019, among the Registrant, certain subsidiary of the Registrant and Pacific Western Bank as lender.
     
EX-101.INS   XBRL Instance Document
     
EX-101.SCH   XBRL Taxonomy Extension Schema
     
EX-101.CAL   XBRL Taxonomy Extension Calculation Linkbase
     
EX-101.DEF   XBRL Taxonomy Extension Definition Linkbase
     
EX-101.LAB   XBRL Taxonomy Extension Label Linkbase
     
EX-101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

32
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  OVERSEAS SHIPHOLDING GROUP, INC.
                          (Registrant)
   
Date: November 8, 2019 /s/ Samuel H. Norton
  Samuel H. Norton
  Chief Executive Officer
   
Date: November 8, 2019 /s/ Richard Trueblood
  Richard Trueblood
  Chief Financial Officer
  (Mr. Trueblood is the Principal Financial Officer and has been duly authorized to sign on behalf of the Registrant)

 

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Section 2: EX-10.1

 

Exhibit 10.1

 

OVERSEAS SHIPHOLDING GROUP, INC.

NON-EMPLOYEE DIRECTOR INCENTIVE COMPENSATION PLAN

TIME-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT

Form Non-Employee Director

 

THIS AWARD AGREEMENT, made as of this ___________, __________ (the “Agreement”), by and between Overseas Shipholding Group, Inc. (the “Company”), and _____________ (the “Grantee”).

 

WHEREAS, the Company has adopted the Overseas Shipholding Group, Inc. Non-Employee Director Incentive Compensation Plan (the “Plan”) to promote the interests of the Company and its stockholders by providing non-employee directors of the Company with incentives and rewards to encourage them to continue in the service of the Company; and

 

WHEREAS, Section 7 of the Plan provides for the grant of Other Stock-Based Awards, including restricted stock units, to Participants in the Plan.

 

NOW, THEREFORE, in consideration of the promises and the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows:

 

1. Grant of RSUs. Pursuant to, and subject to, the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Grantee an award of _______ RSUs (collectively, the “RSUs”). Each RSU represents the right to receive one share of Common Stock subject to Section 4 below.

 

2. Grant Date. The “Grant Date” of the RSUs hereby awarded is ________________.

 

3. Incorporation of the Plan. All terms, conditions and restrictions of the Plan are incorporated herein and made part hereof as if stated herein. If there is any conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan shall govern. Unless otherwise indicated herein, all capitalized terms used herein shall have the meanings given to such terms in the Plan.

 

4. Vesting and Settlement.

 

(a) Subject to Section 4(b) below, the RSUs shall vest only in accordance with the provisions of this Agreement. Subject to the Grantee having continuously served on the Board of Directors through such date, all of the RSUs shall become vested on ______________ (the “Vesting Date”).

 

(b) If the Grantee’s service on the Board of Directors terminates due to the Grantee’s death, the RSUs shall vest and become exercisable in full as of the death of the Grantee.

 

(c) In the event that the Grantee’s service on the Board of Directors terminates, for a reason other than death, prior to the Vesting Date, the RSUs shall be forfeited on the date of such termination without payment of any consideration therefor.

 

(d) Settlement of the vested RSUs may be in either shares of Common Stock or cash, as determined by the Committee in its discretion, and shall occur as soon as practicable following the vesting date, but in no event later than 60 days after the vesting date (such date, the “Settlement Date”).

 

5. Rights as Stockholder.

 

(a) During the period beginning on the Grant Date and ending on the date that the RSU is settled, the Grantee will accrue dividend equivalents on the RSUs equal to the cash dividend or distribution that would have been paid on the RSU had the RSU been an issued and outstanding share of Common Stock on the record date for the dividend or distribution. Such accrued dividend equivalents (i) will vest and become payable upon the same terms and at the same time of settlement as the RSUs to which they relate, and (ii) will be denominated and payable solely in cash.

 

 
 

 

(b) If the RSUs are settled in shares of Common Stock, upon and following the Settlement Date and the entry of such settlement on the books of the Company or its transfer agents or registrars, the Grantee shall be the record owner of the shares of Common Stock and shall be entitled to all of the rights of a stockholder of the Company including the right to vote such shares of Common Stock and receive all dividends or other distributions paid with respect to such shares of Common Stock.

 

6. Forfeiture. RSUs, and related rights to dividend equivalents, which have not become vested, or do not vest, as of the date the Grantee’s service on the Board of Directors terminates shall immediately be forfeited on such date, and the Grantee shall have no further rights with respect thereto.

 

7. Restrictions. Subject to any exceptions set forth in this Agreement or the Plan, until such time as the RSUs are settled in accordance with Section 4, the RSUs or the rights represented thereby may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of. No purported sale, assignment, transfer, pledge, hypothecation or other disposal of the RSUs, or the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise will vest in the assignee or transferee any interest or right herein whatsoever, but immediately upon such purported sale, assignment, transfer, pledge, hypothecation or other disposal of the RSUs will be forfeited by the Grantee and all of the Grantee’s rights to such RSUs, and the rights represented thereby, shall immediately terminate without any payment or consideration from the Company.

 

8. Taxes. Except to the extent prohibited by law, the Grantee acknowledges that the Grantee is ultimately liable and responsible for any and all income taxes (including federal, state, local and other income taxes), social insurance, payroll taxes and other tax-related withholding (the “Tax-Related Items”) arising in connection with the RSUs, and related rights to dividend equivalents, regardless of any action the Company takes with respect to such Tax-Related Items. The Grantee further acknowledges that the Company (i) does not make any representation or undertaking regarding the treatment of any Tax-Related Item in connection with any aspect of the RSUs, and related rights to dividend equivalents, including the grant and vesting of the RSUs, or the subsequent sale of the shares of Common Stock and (ii) does not commit, and is under no obligation, to structure the terms of the RSUs or any aspect of the RSUs to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result.

 

9. Modification; Entire Agreement; Waiver. No change, modification or waiver of any provision of this Agreement which reduces the Grantee’s rights hereunder will be valid unless the same is agreed to in writing by the parties hereto. This Agreement, together with the Plan, represent the entire agreement between the parties with respect to the RSUs and related rights to dividend equivalents. The failure of the Company to enforce at any time any provision of this Agreement will in no way be construed to be a waiver of such provision or of any other provision hereof.

 

10. Policy Against Insider Trading; Recoupment. By accepting the RSUs, the Grantee acknowledges that the Grantee is bound by and shall comply with all the terms and conditions of the Company’s insider trading policy as may be in effect from time to time. The Grantee further acknowledges and agrees that shares of Common Stock or cash delivered in settlement of the RSUs and related rights to dividend equivalents, and any proceeds of such shares of Common Stock, are subject to any recoupment or “clawback” policy of the Company as may be in effect from time to time and applied with prospective or retroactive effect.

 

11. Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement will be binding upon the Grantee and the Grantee’s beneficiary, if applicable.

 

12. Captions. Captions provided herein are for convenience only and shall not affect the scope, meaning, intent or interpretation of the provisions of this Agreement.

 

13. Severability. The invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity or enforceability of any other provision of the Plan or this Agreement, and each provision of the Plan and this Agreement shall be severable and enforceable to the extent permitted by law.

 

 2 
   

 

14. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.

 

15. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware, without regard to the provisions governing conflict of laws.

 

16. Acceptance. The Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement. The Grantee has read and understands the terms and provisions thereof, and accepts the RSUs subject to all of the terms and conditions of the Plan and this Agreement. The Grantee hereby acknowledges that all decisions, determinations and interpretations of the Board of Directors, or a Committee thereof, in respect of the Plan, this Agreement and the RSUs shall be final and conclusive. The Grantee acknowledges that there may be adverse tax consequences upon disposition of the underlying shares and that the Grantee should consult a tax advisor prior to such disposition.

 

17. Section 409A. This Agreement is intended to comply with Section 409A of the Code or an exemption thereunder and shall be construed and interpreted in a manner that is consistent with the requirements for avoiding additional taxes or penalties under Section 409A of the Code. Notwithstanding the foregoing, the Company makes no representations that the payment and benefits provided under this Agreement comply with Section 409A of the Code and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Grantee on account of non-compliance with Section 409A of the Code.

 

* * * * *

 

 3 
   

 

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its duly authorized officer and said Grantee has hereunto signed this Agreement on the Grantee’s own behalf, thereby representing that the Grantee has carefully read and understands this Agreement and the Plan as of the day and year first written above.

 

  OVERSEAS SHIPHOLDING GROUP, INC.
   
     
  By: Samuel H. Norton
  Title: President and CEO
     
  Acknowledged and Accepted:
     
   
  Director  

 

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Section 3: EX-10.2

 

Exhibit 10.2

 

 

 

LOAN AND SECURITY AGREEMENT

 

dated as of August 7, 2019

 

between

 

BANC OF AMERICA LEASING & CAPITAL, LLC,

as Lender and

 

OVERSEAS GULF COAST LLC,

as Borrower

 

 

 

 
 

 

TABLE OF CONTENTS

 

Section  
   
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1
SECTION 1.01. Certain Defined Terms 1
SECTION 1.02. Computation of Time Periods 18
SECTION 1.03. Accounting Terms 19
SECTION 1.04. Other Interpretive Provisions 19
   
ARTICLE II THE LOAN 19
SECTION 2.01. The Loan 19
SECTION 2.02. Drawdown Procedures 19
SECTION 2.03. Advance of Loan Proceeds 20
SECTION 2.04. The Note 20
SECTION 2.05. Repayment of Principal and Interest 20
   
ARTICLE III INTEREST AND PAYMENT PROVISIONS 20
SECTION 3.01. Interest Rate 20
SECTION 3.02. Payments and Computations 20
SECTION 3.03. Prepayment 21
SECTION 3.04. Commitment Fee 22
   
ARTICLE IV SECURITY 22
SECTION 4.01. Grant of Security Interest 22
SECTION 4.02. Release of Collateral. 22
SECTION 4.03. Exercise of Powers of Attomey 22
   
ARTICLE V CONDITIONS PRECEDENT 23
SECTION 5.01. Conditions Precedent to the Initial Closing 23
SECTION 5.02. Conditions Precedent to the Funding of the Loan 24
   
ARTICLE VI REPRESENTATIONS AND WARRANTIES 25
SECTION 6.01. Representations and Warranties 25
   
ARTICLE VII COVENANTS OF BORROWER 29
SECTION 7.01. Affirmative Covenants 29
SECTION 7.02. Negative Covenants 36

 

 
 

 

ARTICLE VIII EVENTS OF DEFAULT; REMEDIES 38
SECTION 8.01. Events of Default; Acceleration, etc 38
SECTION 8.02. Additional Rights 41
   
ARTICLE IX MISCELLANEOUS 41
   
SECTION 9.01. Amendments, etc 41
SECTION 9.02. Notices, etc 41
SECTION 9.03. GOVERNING LAW 42
SECTION 9.04. Service of Process and Consent to Jurisdiction; Waiver of Venue 42
SECTION 9.05. No Remedy Exclusive 43
SECTION 9.06. Payment of Costs 43
SECTION 9.07. Further Assurances 43
SECTION 9.08. Counterparts 43
SECTION 9.09. Headings 43
SECTION 9.10. Severability 43
SECTION 9.11. Survival 44
SECTION 9.12. WAIVER OF TRIAL BY WRY 44
SECTION 9.13. Assignment; Participations 44
SECTION 9.14. Patriot Act. 45
SECTION 9.15. Indemnity 45
SECTION 9.16. Confidentiality 45
SECTION 9.17. Acknowledgment Regarding Any Supported QFCs 46

 

Exhibit A - Farm of General Assignment of Earnings
Exhibit B - Form of Assignment oflnsurances
Exhibit C - Form of Assignment of Time Charter and Time Charterer’s Consent thereto
Exhibit D - Form of First Preferred Mortgage
Exhibit E - Form of Guaranty
Exhibit F - Form of Promissory Note
Appendix A - Form of Drawdown Notice

 

ii
 

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”), dated as of August 7, 2019, is entered into by and between BANC OF AMERICA LEASING & CAPITAL, LLC, a Delaware limited liability company, as lender (the “Lender”), and OVERSEAS GULF COAST LLC, a Delaware limited liability company, as borrower (the “Borrower”).

 

RECITALS:

 

WHEREAS, the Borrower has requested that the Lender make available to it a term loan in the original principal amount of $25,000,000, the proceeds of which shall be used to finance in part the Borrower’s purchase of one (1) 50,000 DWT class product/chemical tanker, Hull No. 2716, to be classed and registered with the symbol of +Al(E), Oil and Chemical Carrier, ESP, IMO Ship type 2, +AMS, +ACCU, CSR, AB-CM, TCM, UWILD, IHM, CPS, BWT, SPMA, VEC, RRDA, to be flagged under the laws of the Republic of the Marshall Islands and built by Hyundai Mipo Dockyard Co. Ltd. in Ulsan, Korea (the “Vessel”); and

 

WHEREAS, as security for its obligations to the Lender, the Borrower has agreed to grant the Lender a first preferred mortgage over the whole of the Vessel and a continuing, first priority security interest in all of said Vessel’s earnings, insurances and requisition compensation; and

 

WHEREAS, as inducement to the Lender to make such term loan available to the Borrower, Overseas Shipholding Group, Inc., the Borrower’s parent company, has agreed to absolutely, unconditionally and irrevocably guarantee all obligations of the Borrower to the Lender; and

 

WHEREAS, the Lender is willing to make such term loan available to the Borrower subject to the terms and upon the conditions hereinafter set forth.

 

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

 

ARTICLE I

 

DEFINITIONS AND ACCOUNTING TERMS

 

SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms have the following meanings (such to be equally applicable to the singular and plural forms of the terms defined):

 

Acceptability” means a communication from an Oil Major (or other oil company, or terminal operator, or other major user of tonnage similar to the Vessel) which is reasonably understood to indicate that the Vessel is acceptable to the entity issuing such communication.

 

Acquisition” means, as to any Person, any transaction or series of related transactions for the direct or indirect (a) acquisition of all or substantially all of the property of any other Person, or of any business or division of any other Person, (b) acquisition of all of the Equity Interests of any other Person, and otherwise causing such other Person to become a Subsidiary of such acquiring Person, or (c) merger or consolidation or any other combination with any other Person.

 

 
 

 

Affiliate” means, as to any Person, any other Person (i) that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, the term “control” (including the terms “controlling”, “controlled by” and “under common control with”) of a Person means the possession, directly or indirectly, of the power to vote 10% or more of the Equity Interests having ordinary voting power for the election of directors/managers of such Person or the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Equity Interests, by contract, or otherwise.

 

Agreement” has the meaning set forth in the preamble hereto and includes all amendments, supplements and modifications thereto.

 

Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower from time to time concerning or relating to bribery or corruption, including, but not limited to, the United States Foreign Corrupt Practices Act of 1977, as amended, and all regulations issued pursuant thereto.

 

Anti-Terrorism Laws” means all laws applicable to the Borrower relating to terrorism or money laundering, including, but not limited to, the Patriot Act, and all regulations issued pursuant thereto.

 

Applicable Law” means all applicable Federal, state, local and foreign laws (including common law, maritime law and civil law), treatises, code, ordinances, judgments, decrees, injunctions, writs, rules, regulations, Orders, licenses and permits of any Governmental Authority.

 

Approved Classification Society” means the American Bureau of Shipping or other classification society that is a member of the International Association of Class Societies.

 

Approved Manager” means OSG Ship Management, Inc. or any other company which the Lender may, acting reasonably, approve from time to time as the commercial, technical and/or crewing manager(s) of the Vessel.

 

Asset Sales” means, in respect of any Person, (a) any disposition of any property by such Person, or (b) any issuance or sale of any Equity Interests of such Person.

 

Assignment of Earnings” means the General Assignment of Earnings, dated as of the Funding Date, substantially in the form attached hereto as Exhibit A, pursuant to which the Borrower shall collaterally assign to the Lender, and grant the Lender a continuing, first priority security interest in, and lien on, all Earnings of the Vessel and all proceeds thereof.

 

Assignment of Insurances” means the Assignment of Insurances, dated as of the Funding Date, substantially in the form attached hereto as Exhibit B, pursuant to which the Borrower shall collaterally assign to the Lender, and grant to the Lender a continuing, first priority security interest in and lien on, all Insurances of the Vessel and all proceeds thereof.

 

Assignment of Time Charter” means the Assignment of Time Charter, substantially in the form attached hereto as Exhibit C, pursuant to which the Lender shall collaterally assign to the Lender, and grant the Lender a continuing, first priority security interest in, and lien on, all of the Borrower’s rights, title and interests in any time charter subsequently entered into by it having a duration (including all renewals and extensions thereof) exceeding one (1) year or more and all privileges incident thereto, including the right to receive and collect all hire payable by the time charterer pursuant thereto.

 

2
 

 

Attorneys’ Fees” means and includes any and all reasonable and documented attorneys’ fees incurred by the Lender incident to, arising out of, or in any way connected with (a) the preparation, negotiation, and execution of this Agreement and the other Loan Documents (and any and all amendments, modifications, renewals, extensions, and supplements thereof and thereto), (b) the administration of this Agreement during the term of the Loan, or (c) the Lender’s enforcement of its rights and interests under this Agreement or any other Loan Document, including reasonable attorneys’ fees incurred by the Lender to collect sums due, during any work-out, with respect to settlement negotiations, or in any bankruptcy proceeding (including reasonable attorneys’ fees incurred in connection with any motion for relief from the automatic stay).

 

Attributable Indebtedness” means, when used with respect to any Sale and Leaseback Transaction, as at the time of determination, the present value (discounted at a rate equivalent to the Borrower’s then-current weighted average cost of funds for borrowed money as at the time of determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental payments (and substantially similar payments) during the remaining term of the lease included in any such Sale and Leaseback Transaction.

 

Bank Product” means transactions under Hedging Agreements extended to the Borrower by a Bank Product Provider.

 

Bank Product Agreements” means those agreements entered into from time to time by the Borrower with a Bank Product Provider in connection with the obtaining of any of the Bank Products.

 

Bank Product Obligations” means (a) all Hedging Obligations pursuant to Hedging Agreements entered into with one or more of the Bank Product Providers, and (b) all amounts that the Lender is obligated to pay to a Bank Product Provider as a result of the Lender purchasing participations from, or executing guarantees or indemnities or reimbursement obligations to, a Bank Product Provider with respect to the Bank Products provided by such Bank Product Provider to the Borrower; provided that, in order for any item described in clause (a) or (b) above, as applicable, to constitute “Bank Product Obligations,” the applicable Bank Product must have been provided on or after the Funding Date and the Lender shall have received a Bank Product Provider letter agreement from the applicable Bank Product Provider (and acknowledged by the Borrower) within thirty (30) days after the date of the provision of the applicable Bank Product to the Borrower.

 

Bank Product Provider” means any lender or any of its Affiliates (or any Person who at the time the respective Bank Product Agreement was entered into by the Borrower was a lender or an Affiliate thereof); provided, however, that no such Person shall constitute a Bank Product Provider with respect to a Bank Product (x) unless and until the Lender shall have received a Bank Product Provider letter agreement from such Person with respect to the applicable Bank Product (and acknowledged by the Borrower) within thirty (30) days after the provision of such Bank Product to the Borrower.

 

Bankruptcy Code” means 11 U.S.C. §§ 101, et -, as now or hereafter in effect, or any successor thereto.

 

Borrower” means Overseas Gulf Coast LLC, a Delaware limited liability company, together with its successors and permitted assigns.

 

Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York City, New York are not authorized or required by law or other governmental action to close.

 

3
 

 

Capital Expenditures” means, as to any Person without duplication, (a) any expenditure for any purchase or other acquisition of any asset, including capitalized leasehold improvements, which would be classified as a fixed or capital asset on a balance sheet of such Person prepared in accordance with GAAP, and (b) Capital Lease Obligations and Synthetic Lease Obligations, but excluding (i) expenditures made in connection with the replacement, substitution or restoration of property to the extent made with the Net Cash Proceeds from Asset Sales or Casualty Events, (ii) the purchase price of equipment that is purchased substantially contemporaneously with the trade-in of existing equipment to the extent of the gross amount of such purchase price that is reduced by the credit granted by the seller of such equipment for the equipment being traded in at such time, and (iii) Acquisitions.

 

Capital Lease” means, with respect to any Person, any lease of, or other arrangement conveying the right to use, any property by such Person as lessee that has been or should be accounted for as a capital lease on a balance sheet of such Person, prepared in accordance with GAAP.

 

Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any Capital Lease, any lease entered into as part of any Sale and Leaseback Transaction or any Synthetic Lease, or a combination thereof, which obligations are (or would be, if such Synthetic Lease or other lease were accounted for as a Capital Lease) required to be classified and accounted for as a Capital Lease on a balance sheet of such Person in accordance with GAAP, and the amount of such obligations shall be the capitalized amount thereof (or the amount that would be capitalized if such Synthetic Lease or other lease were accounted for as a Capital Lease) determined in accordance with GAAP as in effect on the Funding Date.

 

Cash Equivalents” means, as of any date of determination and as to any Person, any of the following (a) marketable securities issued, or directly, unconditionally and fully guaranteed or insured, by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one (1) year from the date of acquisition by such Person, (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof having maturities of not more than one (1) year from the date of acquisition by such Person and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody’s, (c) time deposits and certificates of deposit of any Lender or any commercial bank having, or which is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any state thereof or the District of Columbia having, capital and surplus aggregating in excess of $500,000,000 and a rating of “A” (or such other similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) with maturities of not more than one (1) year from the date of acquisition by such Person, (d) repurchase obligations with a term of not more than thirty (30) days for underlying securities of the types described in clause (a) above entered into with any Person meeting the qualifications specified in clause (c) above, which repurchase obligations are secured by a valid perfected security interest in the underlying securities, (e) commercial paper issued by any Person incorporated in the United States rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody’s, and in each case maturing not more than one (1) year after the date of acquisition by such Person, (t) investments in money market funds at least 95% of whose assets are comprised of securities of the types described in clauses (a) through (e) above, and (g) investments in prime money market funds reasonably acceptable to the Lender.

 

Casualty Event” means, in respect of any Person, any loss or damage to, or destruction of, or condemnation or other taking by any Governmental Authority of, any property of such Person.

 

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Change in Control” means the occurrence of any of the following:

 

(a) the Guarantor at any time ceases to own directly or indirectly 100% of the Equity Interests of the Borrower or ceases to have the power to vote, or direct the voting of, any such Equity Interests;

 

(b) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any employee benefit plan of such person or group or its respective subsidiaries, and any person acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that, for purposes of this clause, such person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “option right”)), directly or indirectly, of either (x) Voting Equity Interests of the Guarantor representing 50% or more of the voting power of the total outstanding Voting Equity Interests of the Guarantor or (y) 50% or more of the total economic interests of the Equity Interests of the Guarantor (in either case, taking into account in the numerator all such securities that such person or group has the right to acquire (whether pursuant to an option right or otherwise) and taking into account in the denominator all securities that any person has the right to acquire (whether pursuant to an option right or otherwise)); or

 

(c) during any period of twelve (12) consecutive months, a majority of the members of the Board of Directors of the Guarantor cease to be composed of individuals (i) who were members of that Board of Directors at the commencement of such period, (ii) whose election or nomination to that Board of Directors was approved by individuals referred to in preceding clause (i) constituting at the time of such election or nomination at least a majority of that Board of Directors or (iii) whose election or nomination to that Board of Directors was approved by individuals referred to in preceding clauses (i) and (ii) constituting at the time of such election or nomination at least a majority of that Board of Directors; provided, however, that for purposes hereof, the following directors shall be disregarded: (1) the replacement of any director which is appointed by a shareholder other than pursuant to a proxy solicitation, and such director seat is either left vacant or filled by a separate appointee by such shareholder, and (2) any resignation of a director by his or her own volition, and not upon request or requirement by vote of the shareholders or otherwise, or as part of a preplacement of conditional resignation notice.

 

Code” means the Internal Revenue Code of 1986, as amended from time to time.

 

Collateral” has the meaning set forth in Section 4.01 of this Agreement.

 

Competitor” means any owner (other than a bank, leasing company or other financial institution) and/or operator of petroleum/chemical tankers (including articulated tug and barge units) operating in the U.S. coastwise and/or foreign trade.

 

Consolidated Amortization Expense” means, for any period, the amortization expense of the Guarantor and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.

 

Consolidated Depreciation Expense” means, for any period, the depreciation expense of the Guarantor and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.

 

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Consolidated EBITDA” means, for any period, Consolidated Net Income of the Guarantor and its Subsidiaries for such period, adjusted by (i) adding thereto, without duplication, in each case only to the extent (and in the same proportion) deducted in determining such Consolidated Net Income:

 

(a) Consolidated Interest Expense for such period;

 

(b) Consolidated Amortization Expense for such period;

 

(c) Consolidated Depreciation Expense for such period;

 

(d) Consolidated Tax Expense for such period;

 

(e) non-recurring transaction costs and expenses (including legal, accounting, tax and appraisal and collateral field exam costs and expenses) incurred, prior to, or within one hundred thirty-five (135) days following, the Funding Date, in connection with the transactions contemplated hereby or other credit transactions of the Guarantor and its Subsidiaries, in each case during such period;

 

(f) extraordinary (as determined by reference to GAAP immediately prior to giving effect to FASB’s Accounting Standards Update No. 2015-01) losses or charges for such period;

 

(g) the aggregate amount of all other non-cash charges reducing Consolidated Net Income during such period (including (x) any write-down, write-off or impairment of assets (other than current assets) and (y) non-cash stock based compensation expense, but excluding the amortization of a prepaid cash item that was paid in a prior period);

 

(h) non-recurring fees and expenses incurred during such period in connection with any Acquisition or incurrence or issuance of Indebtedness (other than intercompany Indebtedness);

 

(i) non-recurring cash charges incurred during any twelve (12) month period in respect of restructurings, business process optimizations, headcount reductions or other similar actions, including severance charges in respect of employee terminations and related employee replacement costs;

 

G) to the extent actually reimbursed or reasonably expected to be reimbursed in cash to the Guarantor and/or its Subsidiaries within six (6) months thereof, expenses incurred during such period to the extent covered by indemnification provisions in any agreement in connection with an Acquisition;

 

(k) to the extent covered by insurance and actually reimbursed or reasonably expected to be reimbursed in cash to the Guarantor and/or its Subsidiaries within six (6) months thereof, expenses incurred during such period with respect to liability or Casualty Events or business interruption;

 

(l) other non-recurring charges incurred during such period reasonably acceptable to the Lender in an aggregate amount not to exceed $5,000,000; and

 

(ii) subtracting therefrom, without duplication,

 

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(a) the aggregate amount of all non-cash income increasing Consolidated Net Income (other than the accrual of revenue or recording of receivables in the ordinary course of business) for such period;

 

(b) any unusual, non-recurring or extraordinary income or gains for such period to the extent such unusual, non-recurring or extraordinary gains during such period exceed $5,000,000 in the aggregate;

 

(c) any gains on extinguishment of debt; and

 

(d) the aggregate amount of any cash payments or cash charges during such period on account of any non-cash charges that were added back to Consolidated EBITDA in a prior period pursuant to clause (i)(g) above.

 

Consolidated Fixed Charges” means, for any period, an amount equal to the sum of, without duplication (i) Consolidated Interest Expense of the Guarantor and its Subsidiaries for such period and (ii) scheduled principal amortization on all Indebtedness (including scheduled principal payments made on all loans), determined on a consolidated basis in accordance with GAAP.

 

Consolidated Indebtedness” means, as of any date, an amount equal to the sum of, without duplication, (i) the aggregate principal amount of all Indebtedness of the Guarantor and its Subsidiaries on such date (to the extent such Indebtedness would be included on a balance sheet prepared in accordance with GAAP) consisting only of Indebtedness for borrowed money and obligations in respect of Capital Lease Obligations, (ii) the aggregate principal amount of all debt obligations of the Guarantor and its Subsidiaries evidenced by bonds, debentures, notes, loan agreements or similar instruments (other than performance, surety or similar bonds to the extent not otherwise included in clause (i) above), (iii) the aggregate amount of unreimbursed drawings in respect of letters of credit (or similar facilities) issued for the account of the Guarantor and its Subsidiaries, and (iv) the aggregate amount of all Contingent Obligations of the Guarantor and its Subsidiaries in respect of Indebtedness of third persons of the type described in preceding clauses (i) through (iii), in each case calculated on a consolidated basis for the Guarantor and its Subsidiaries.

 

Consolidated Interest Expense” means, for any period, the total consolidated interest expense of the Guarantor and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP plus, without duplication:

 

(a) imputed interest on Capital Lease Obligations and Attributable Indebtedness of the Guarantor and its Subsidiaries for such period;

 

(b) commissions, discounts and other fees and charges owed by the Guarantor and its Subsidiaries with respect to letters of credit securing financial obligations, bankers’ acceptance financing, receivables financings and similar credit transactions for such period;

 

(c) amortization of debt issuance costs, debt discount or premium and other financing fees and expenses incurred by the Guarantor and its Subsidiaries for such period;

 

(d) cash contributions to any employee stock ownership plan or similar trust made by the Guarantor and its Subsidiaries to the extent such contributions are used by such plan or trust to pay interest or fees to any Person in connection with Indebtedness incurred by such plan or trust for such period;

 

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(e) all interest paid or payable with respect to discontinued operations of the Guarantor and its Subsidiaries for such period;

 

(f) the interest portion of any payment obligations of the Guarantor and its Subsidiaries for such period deferred for payment at any future time, whether or not such future payment is subject to the occurrence of any contingency, and includes any and all payments representing the purchase price and any assumptions of Indebtedness and/or Contingent Obligations, “earn-outs” and other agreements to make any payment the amount of which is, or the terms of payment of which are, in any respect subject to or contingent upon the revenues, income, cash flow or profits (or the like) of any Person or business; and

 

(g) all interest on any Indebtedness of the Guarantor and its Subsidiaries of the type described in clause (e) or G) of the definition of “Indebtedness” contained herein for such period;

 

provided that Consolidated Interest Expense shall be calculated after giving effect to Hedging Agreements (including associated costs) intended to protect against fluctuations in interest rates, but excluding unrealized gains and losses with respect to any such Hedging Agreements.

 

Consolidated Net Income” means, for any period, the consolidated net income (or loss) of the Guarantor and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (after deduction for minority interests).

 

Consolidated Tax Expense” means, for any period, the sum of, without duplication, (i) the tax expense (including Federal, state, local and foreign income taxes) of the Guarantor and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, and (ii) the aggregate amount of all Permitted Tax Distributions made during such period.

 

Consolidated Total Assets” means, as of any date of determination, the net book value of all assets of the Guarantor and its Subsidiaries determined on a consolidated basis in accordance with GAAP on such date.

 

Contingent Obligation” means, as to any Person, any obligation, agreement, understanding or arrangement of such Person guaranteeing any Indebtedness, leases or other obligations (“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including any obligation agreement, understanding or arrangement of such Person, whether or not contingent: (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor; (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth, net equity, liquidity, level of income, cash flow or solvency of the primary obligor; (c) to purchase or lease property, securities or services primarily for the purpose of assuring the primary obligor of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; (d) with respect to bankers’ acceptances, letters of credit and similar credit arrangements, until a reimbursement or equivalent obligation arises (which reimbursement obligation shall constitute a primary obligation); or (e) otherwise to assure or hold harmless the primary obligor of any such primary obligation against the payment of such primary obligation; provided, however, that the term “Contingent Obligation” shall not include endorsements of instruments for deposit or collection in the ordinary course of business or any product warranties given in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation, or portion thereof, in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable, whether singly or jointly, pursuant to the terms of the instrument, agreements or other documents or, if applicable, unwritten enforceable agreement, evidencing such Contingent Obligation) or, if not stated or determinable, the amount that can reasonably be expected to become an actual or matured liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith.

 

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Default” means any event, which with the giving of notice or lapse of time, or both, would constitute an Event of Default hereunder.

 

Default Rate” has the meaning set forth in Section 3.01 of this Agreement.

 

Designated Jurisdiction” means any country or territory to the extent that such country or territory itself is the subject of any Sanction.

 

Dollars” and the sign“.$” mean lawful money of the United States of America.

 

Drawdown Notice” has the meaning set forth in Section 2.02 of this Agreement.

 

Earnings” means all moneys whatsoever due or to become due to or for the account of the Borrower at any time during the term hereof arising out of any charter, contract of affreightment or other contract in connection with the use, employment or other operation of the Vessel, including, but not limited to, all charter hire, freights or other earnings, compensation payable to the Borrower in the event of requisition of the Vessel for hire, remuneration for salvage and towage services, demurrage and detention moneys and damages for breach (or payments for variation or termination) of any charter, contract of affreightment or other contract of employment of the Vessel and all sums receivable under the insurances in respect of loss of Earnings and includes, if and whenever the Vessel is employed on terms whereby any or all such moneys as aforesaid are pooled or shared with any other Person, the proportion of the net receipts of the relevant pooling or sharing arrangement which is attributable to the Vessel, including the pooling agreement.

 

Environment” means air, land, soil, surface waters, ground waters, stream and river sediments.

 

Environmental Law” means any and all applicable current and future Legal Requirements relating to the Environment, the Release or threatened Release of Hazardous Material, exposure to Hazardous Material, natural resource damages, or occupational safety or health, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601 et seq., the Hazardous Materials Transportation Act, 42 U.S.C. § 1901 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq., the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., the Clean Air Act, 42 U.S.C. § 7401 et seq., the Clean Water Act, 33 U.S.C. § 1251 et seq., the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq., the Hazardous Materials Transportation Safety and Security Reauthorization Act of 2005, 49 U.S.C. §5101 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq., as such laws, regulations, and ordinances may be amended or supplemented from time to time.

 

Environmental Permit” means any permit, license, approval, consent, registration, notification, exemption or other authorization required by or from a Governmental Authority under any Environmental Law.

 

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Equity Interest” means, with respect to any Person, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents (however designated, whether voting or non-voting), of equity of such Person, including, if such Person is a partnership, partnership interests (whether general or limited), or if such Person is a limited liability company, membership interests, and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of property of, such partnership or limited liability company, whether outstanding on the date hereof or issued on or after the Funding Date, but excluding debt securities convertible or exchangeable into such equity.

 

ERISA” has the meaning set forth in Section 6.01(1) of this Agreement.

 

ERISA Affiliate” means any corporation which is a member of the same controlled group of corporations as the Borrower within the meaning of section 414(b) of the Code, or any trade or business which is under common control with the Borrower within the meaning of section 414(c) of the Code.

 

Event of Default” has the meaning set forth in Section 8.01 of this Agreement.

 

Excluded Taxes” means (i) Taxes based on or measured by the net income, gross income or net receipts of the Lender (including, but not limited to, any minimum Taxes, any capital gain Taxes, or value added Taxes to the extent such Taxes replace or are in lieu of a tax on net income) or Taxes on or measured by items of tax preference of the Lender, other than Taxes in the nature of or in lieu of sales, use, personal property or rental taxes; and (ii) whether or not described in clause (i) above, (1) Taxes (other than Taxes in the nature of sales, use, personal property or rental Taxes) imposed on the Lender that are, or are in the nature of, Taxes on, based upon, measured by or imposed with respect to, gross receipts, (2) any Taxes on or measured by capital, net worth or excess profits, (3) any Taxes that are or are in the nature of franchise taxes, business or commercial activity or doing business taxes, and (4) any additions to tax, surcharges, interest, penalties, fines or other charges in respect of any of the foregoing.

 

First Preferred Mortgage” means the First Preferred Mortgage dated as of the Funding Date, or if the Vessel is reflagged pursuant to Section 7.0Hv) hereof, dated as of the date of such reflagging, substantially in the form attached hereto as Exhibit D, pursuant to which the Borrower shall grant the Lender a first preferred mortgage lien over the whole of the Vessel.

 

Fixed Charge Coverage Ratio” means, as of any date of determination, the ratio of (i) Consolidated EBITDA of the Guarantor and its Subsidiaries for the Test Period less cash Capital Expenditures and cash taxes paid during the Test Period to (ii) Consolidated Fixed Charges of the Guarantor and its Subsidiaries for the Test Period then most recently ended, determined on a consolidated basis in accordance with GAAP.

 

Funding Date” means the date when all conditions precedent set forth in Section 5.02 hereof have been satisfied or otherwise waived in writing by the Lender.

 

GAAP” means generally accepted accounting principles in the United States, set forth in the Financial Accounting Standards Board Codification or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

 

Governmental Authority” means any federal, state, local or foreign (whether civil, administrative, criminal, military or otherwise) court, central bank or governmental agency, tribunal, authority, instrumentality, regulatory or self-regulatory body or any subdivision thereof, including, but not limited to, the National Association oflnsurance Commissioners, or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government (including any supra-national bodies such as the European Union or the European Central Bank).

 

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Guarantor” means Overseas Shipholding Group, Inc., a Delaware corporation, its successors and permitted assigns.

 

Guaranty” means the Guaranty dated as of the Initial Closing Date, substantially in the form attached hereto as Exhibit E, pursuant to which the Guarantor shall absolutely, unconditionally and irrevocably guarantee all of the Borrower’s obligations to the Lender under the Loan Documents.

 

Hazardous Material” has the meaning set forth in Section 7.0l(m) of this Agreement.

 

Hedging Agreement” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, currency swap transactions, cross-currency rate swap transactions, currency options, cap transactions, floor transactions, collar transactions, spot contracts, futures contracts or other liabilities for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract or any other similar transactions or any combination of any of the foregoing (including any options or warrants to enter into any of the foregoing), whether or not any such transaction is governed by, or otherwise subject to, any master agreement or any netting agreement, and (b) any and all transactions or arrangements of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement (or similar documentation) published from time to time by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such agreement or documentation, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

 

Hedging Obligations” means obligations under or with respect to Hedging Agreements.

 

Hedging Termination Value” means, in respect of any one or more Hedging Agreements, after taking into account the effect of any netting agreements relating to such Hedging Agreements (to the extent, and only to the extent, such netting agreements are legally enforceable in Insolvency Proceedings against the applicable counterparty obligor thereunder), (i) for any date on or after the date such Hedging Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (ii) for any date prior to the date referenced in preceding clause (i), the amount(s) determined as the mark-to-market value(s) for such Hedging Agreements, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Hedging Agreements (which may include the Lender or any Affiliate of the Lender).

 

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Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money; (b) all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or similar instruments; (c) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (d) all obligations of such Person issued or assumed as part of the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business on normal trade terms and not overdue by more than ninety (90) days); (e) all indebtedness secured by any Lien on property owned or acquired by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not the obligations secured thereby have been assumed, but limited to the lower of (i) the fair market value of such property and (ii) the amount of the Indebtedness secured; (t) all Capital Lease Obligations, other Purchase Money Obligations and Synthetic Lease Obligations of such Person; (g) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any Equity Interests of such Person, valued, in the case of a redeemable preferred Equity Interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; (h) all Bank Product Obligations under Hedging Agreements valued at the Hedging Termination Value thereof; (i) all obligations of such Person for the reimbursement of any obligor in respect of letters of credit, letters of guaranty, bankers’ acceptances and similar credit transactions; and G) all Contingent Obligations of such Person in respect oflndebtedness or obligations of others of the kinds referred to in clauses (a) through (i) above; provided that the term “Indebtedness” shall not include (i) preferred or prepaid revenues, (ii) purchase price holdbacks in respect of a portion of the purchase price of an asset to satisfy warranty or other unperformed obligations of the seller of such asset, (iii) any obligations constituting the exercise of appraisal rights and settlements of any claim of actions (whether actual, contingent or potential) with respect thereto, and (iv) those intercompany payment obligations as and to the extent described in Schedule 1.01. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent that terms of such Indebtedness expressly provide that such Person is not liable therefor.

 

Indemnified Parties” means the Lender and its Related Parties.

 

Initial Closing Date” means the date when all conditions precedent set forth in Section 5.01 to this Agreement have been satisfied.

 

Insolvency Laws” means the Bankruptcy Code, and all other insolvency, bankruptcy, receivership, liquidation, conservatorship, assignment for the benefit of creditors, moratorium, rearrangement, reorganization, or similar Legal Requirements of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

 

Insolvency Proceeding” means (i) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (ii) any general assignment for the benefit of creditors, formal or informal moratorium, composition, marshaling of assets for creditors or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors, in each case, undertaken under United States federal or state or non-United States Legal Requirements, including the Bankruptcy Code.

 

Insurances” means (i) all policies and contracts of insurances (including, without limitation, all insurances with respect to marine hull and machinery, marine war risk, protection and indemnify, pollution, requisition of title or otherwise) in respect of the Vessel and all entries of the Vessel in a protection and indemnity or war risk association club, whether heretofore, now or hereafter effected, and all renewals and replacements for the same, (ii) all monies and claims for monies due and to become due to the Borrower under said insurances with respect to an actual, constructive, agreed, arranged or compromised total loss or any other loss or damage to the Vessel, (iii) all returns of premiums, (iv) all other rights, benefits and privileges of the Borrower under or in respect of said insurances, and (v) all proceeds of the foregoing.

 

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Investment” means the lending of money or credit (by way of guarantee, assumption of debt or otherwise) to any Person, or the purchase or acquisition of Equity Interests, bonds, notes, debentures or other obligations or securities of, or any other interest in, or the making of any capital contribution to, any Person, or the purchase of a future contract or the purchase or sale of currency or commodities at a future date in the nature of the futures contract.

 

ISM Code” means, in relation to its application, if applicable, to the Borrower, the Vessel and its operation, the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (including the guidelines on its implementation), adopted by the International Maritime Organization as Resolution A.741(18) and Resolution A.913(22), as the same may be amended, supplemented or replaced from time to time as implemented and administered in the United States by the U.S. Coast Guard pursuant to 46 U.S.C. Chapter 32 and the regulations promulgated thereunder, and the terms “safe management system”, “Safety Management Certificate” and “Document of Compliance” having the meanings specified in the ISM Code.

 

ISPS Code” means, in relation to its application, if applicable, to the Borrower, the Vessel and its operation, the International Ship and Port Facility Security Code adopted by the International Maritime Organization on December 13, 2002 and now set out in Chapter Xl-2 of the Safety of Life Sea Convention (SOLAS) 1974 (as amended).

 

Legal Requirements” means, as to any person, any treaty, law (including the common law, maritime law and civil law), statute, ordinance, code, rule, regulation, guidelines, license, permit requirement, judgment, decree, verdict, order, consent order, consent decree, writ, declaration or injunction, policies and procedures, Order or determination of an arbitrator or a court or other Governmental Authority, and the interpretation or administration thereof, in each case applicable to or binding upon such person or any of its property or to which such person or any of its property is subject.

 

Lender” means Banc of America Leasing & Capital, LLC, a Delaware limited liability company, together with its successors and assigns.

 

Lien” means any lien, mortgage, charge, security interest, pledge, attachment, levy or other encumbrance of any kind whatsoever.

 

Loan” has the meaning set forth in Section 2.01 of this Agreement.

 

“Loan Documents” mean, collectively, this Agreement, the Note, the First Preferred Mortgage, the General Assignment of Earnings, the Assignment of Insurances, the Guaranty and all other documents now or hereafter executed and delivered, to evidence, secure or guarantee the Loan, as each of said documents may be amended, amended and restated, supplemented or otherwise modified from time to time.

 

Mandatozy Equipment” has the meaning set forth m Section 7.0l{o)(vii) of this Agreement.

 

Margin Stock” has the meaning set forth in Section 6.0l(k) of this Agreement.

 

Material Adverse Effect” means (a) a materially adverse effect on the business, assets, operations, or financial condition of the Guarantor and its Subsidiaries taken as a whole, or (b) a material impairment of the ability of the Borrower or the Guarantor to perform any of its obligations under the Loan Documents to which it is a party.

 

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Material Structural Modification” has the meaning set forth in Section 7.0l{o)(vii) of this Agreement.

 

Memorandum of Particulars” means the Memorandum of Particulars in the form required by the Office of the Maritime Administrator, the Republic of the Marshall Islands, to be provided in connection with the filing of the First Preferred Mortgage with said Office.

 

Modifications” has the meaning set forth in Section 7.0l{o}(vii) of this Agreement.

 

Multiemployer Plan” means any Plan which is a “multiemployer plan” (as such term is defined in section 400l(a)(3) ofERISA).

 

Net Cash Proceeds” means: (a) with respect to any Asset Sale (other than any issuance or sale of Equity Interests), the proceeds thereof in the form of cash, Cash Equivalents and marketable securities (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable, or by the sale, transfer or other disposition of any non-cash consideration received in connection therewith or otherwise, but only as and when received) received by the Guarantor or any of its Subsidiaries (including cash proceeds subsequently received (as and when received by the Guarantor or any of its Subsidiaries) in respect of non-cash consideration initially received) net of (i) reasonable and customary selling expenses (including reasonable brokers’ fees or commissions, legal, accounting and other professional and transactional fees, survey costs, title insurance premiums, related search and recording charges, mortgage recording taxes and transfer and similar taxes and the Guarantor’s or such Subsidiary’s good faith estimate of income taxes paid or payable in connection with such sale (after taking into account any available tax credits or deductions and any tax sharing arrangements)), (ii) amounts provided as a reserve, in accordance with GAAP, against (x) any liabilities under any indemnification obligations associated with such Asset Sale or (y) any other liabilities retained by the Guarantor or any of its Subsidiaries associated with the properties sold in such Asset Sale (provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds), and (iii) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness for borrowed money that is secured by a Lien on the properties sold in such Asset Sale (so long as such Lien was permitted to encumber such properties under the Loan Documents at the time of such sale) and which is repaid with such proceeds (other than (x) any such Indebtedness assumed by the purchaser of such properties, (y) the obligations owed to the Guarantor and its Subsidiaries’ secured lenders and (z) the obligations under the Loan Documents); (b) with respect to any debt issuance, or issuance or sale of Equity Interests by the Guarantor or any of its Subsidiaries, the cash proceeds thereof received by the Guarantor or any of its Subsidiaries, net of reasonable and customary fees, commissions, costs and other expenses incurred in connection therewith; and (c) with respect to any Casualty Event, the cash insurance proceeds, condemnation awards and other compensation received by the Guarantor or any of its Subsidiaries in respect thereof, net of all reasonable costs and expenses incurred in connection with the collection of such proceeds, awards or other compensation in respect of such Casualty Event.

 

Note” means the Promissory Note dated the Funding Date, substantially in the form attached hereto as Exhibit F, evidencing the Loan made by the Lender to the Borrower.

 

NVDC” means the National Vessel Documentation Center of the United States Coast Guard, Department of Homeland Security, and any successor board, agency or other Governmental Authority.

 

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Obligation” means, with respect to any Obligor, any obligation of such Obligor of any kind in respect to or arising under the Loan Documents or otherwise with respect to the Loan, including, without limitation, any obligation to make any payment for any reason, whether or not such obligation is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such obligation is discharged, stayed or otherwise affected by any proceeding referred to in Section 8.0l(k). For purposes hereof, the Borrower’s Obligations under the Loan Documents include, without limitation, the timely payment of (i) all principal, interest, the Prepayment Fees, late charges, certain other fees and expenses (including, without limitation, reasonable Attorneys’ Fees and expenses), disbursements, indemnities and any other amounts payable by the Borrower to the Lender under or pursuant to the Loan Documents; and (ii) any amount which the Lender, in its sole discretion, may elect to pay or advance on behalf of the Borrower pursuant to and in accordance with the terms of the Loan Documents.

 

Obligors” means, collectively, the Borrower and the Guarantor.

 

OFAC” means the Office of Foreign Assets Control of the United States Department of Treasury or any successor entity.

 

Oil” has the meaning set forth in Section 7.0l(m) of this Agreement.

 

Oil Major” means BP, Chevron, ExxonMobil, Shell, Statoil and Total.

 

Order” means any judgment, decree, verdict, order, consent order, consent decree, writ, declaration or injunction.

 

Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 (2001), as restored by the USA Freedom Act of 2015, Pub. L. No. 114-23.

 

PBGC” means the Pension Benefit Guaranty Corporation.

 

Permitted Maritime Liens” has the meaning set forth in the First Preferred Mortgage.

 

Permitted Modification” has the meaning set forth in Section 7.0l(o)(vii) of this Agreement.

 

Permitted Tax Distributions” means payments, dividends or distributions by the Borrower to the Guarantor to enable the Guarantor to pay its consolidated or combined Federal, state or local taxes then due and payable for the respective period, which payments made by the Borrower to the Guarantor are not in excess of the lesser of (x) the tax liabilities that would have been payable by the Borrower on a stand-alone basis for the respective period (calculated, for the avoidance of doubt, without regard to any investment credits, foreign tax credits, net operating losses, capital losses or other tax attributes to the extent the Guarantor previously reimbursed the Borrower for utilizing such tax attribute in calculating the Guarantor’s consolidated or combined Federal, state or local tax liability) and (y) the actual tax liabilities then due and payable by the Guarantor for the respective period.

 

Person” means any individual, corporation, business trust, association, company, partnership, limited liability company, joint venture, Governmental Authority, or other entity.

 

Plan” means any “employee pension benefit plan” (as such term is defined in section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Borrower or any ERISA Affiliate.

 

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Prepayment Fee” means, as to any prepayment made, a fee equal to (a) two percent (2%) of the principal amount being prepaid assuming such prepayment occurs after the Funding Date but on or prior to the first anniversary thereof, (b) one and one-half percent (1.5%) of the principal amount being prepaid assuming such prepayment occurs after the first anniversary of the Funding Date but on or prior to the second anniversary thereof, and (c) one percent (1%) of the principal amount being prepaid assuming such prepayment occurs after the second anniversary of the Funding Date but on or prior to the third anniversary thereof.

 

Purchase Money Obligation” means, for any person, the obligations of such person in respect of Indebtedness (including Capital Lease Obligations) incurred for the purpose of financing all or any part of the purchase price of any fixed or capital assets or the cost of installation, construction or improvement of any fixed or capital assets; provided, however, that (i) such Indebtedness is incurred within one hundred twenty (120) days after such acquisition, installation, construction or improvement of such fixed or capital assets by such person and (ii) the amount of such Indebtedness (x) does not exceed the lesser of 100% of the fair market value of such fixed or capital asset or the cost of the acquisition, installation, construction or improvement thereof, as the case may be, and (y) equals at least 50% of the lesser of the two amounts referred to in preceding clause (x).

 

Regulation U” means (12 C.F.R. Part 221) of the Board of Governors of the Federal Reserve System, as from time to time in effect and all official rulings and interpretations thereunder or thereof.

 

Related Parties” means, with respect to any Person, such Person’s Affiliates, participants, members, managers, directors, officers, employees, agents, administrators, advisors and representatives, together with their respective successors and assigns.

 

Release” means any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Materials in, into, onto, from or through the Environment.

 

Requisition Compensation” means all monies or other compensation payable by reason of requisition of title or other compulsory acquisition of the Vessel during the term of this Agreement other than by requisition for hire.

 

Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer or controller of the Borrower, but in any event, with respect to financial matters, the chief financial officer, treasurer, assistant treasurer or controller of the Borrower.

 

Restricted Payment” means, with respect to any Person, that such Person has declared or paid a dividend or returned any equity capital to the holders of its Equity Interests or authorized or made any other distribution, payment or delivery of property or cash to the holders of its Equity Interests as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for consideration any of its Equity Interests outstanding (or any options or warrants issued by such Person with respect to its Equity Interests), or set aside or otherwise reserved, directly or indirectly, any funds for any of the foregoing purposes, or shall have permitted any of its Subsidiaries to purchase or otherwise acquire for consideration any of the outstanding Equity Interests of such Person (or any options or warrants issued by such Person with respect to its Equity Interests). Without limiting the foregoing, “Restricted Payment” with respect to any Person shall also include all payments made or required to be made by such Person with respect to any stock appreciation rights, plans, equity incentive or achievement plans or any similar plans or setting aside of or otherwise reserving any funds for the foregoing purposes.

 

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Sale and Leaseback Transaction” means any transaction, directly or indirectly, whereby any Person shall sell or transfer any property used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred.

 

Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by the U.S. government, including those administered by OFAC and the U.S. Department of State, or other relevant sanctions authority applicable to the Borrower.

 

Sanctions Authority” means the respective governmental institutions and agencies of the United States, European Union, United Kingdom and the United Nations, including the U.S. Treasury Department, the U.S. Commerce Department, the U.S. State Department, the United Nations Security Council, or other relevant sanctions authority of the United States, European Union, United Kingdom or the United Nations.

 

Sanctions Laws” means the economic or financial sanctions laws and/or regulations, trade embargoes, prohibitions, restrictive measures, decisions, executive orders or notices from regulators implemented, adapted, imposed, administered, enacted and/or enforced by any Sanctions Authority.

 

SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

 

Section 2 Citizen” means a “citizen of the United States” within the meaning of 46 U.S.C. §5050l(a), (b) and (d) qualified to own and operate vessels for operation in the coastwise trade of the United States.

 

Solvent” means, with respect to any Person, that, as of the date of determination, (a) the fair value of the properties of such Person will exceed its debts and liabilities, subordinated, contingent or otherwise, (b) the present fair saleable value of the property of such Person will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured, (c) such Person generally will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, (d) such Person will not have unreasonably small capital with which to conduct its business in which it is engaged as such business is now conducted and is proposed, contemplated or about to be conducted following the Funding Date, and (e) such Person is not “insolvent” as such term is defined under any bankruptcy, insolvency or similar laws of any jurisdiction in which any Person is organized. For the purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all the facts and circumstances existing at such time represents the amount that can be reasonably expected to become an actual or matured liability.

 

Subsidiary” means, with respect to any Person, any company, whether operating as a corporation, joint venture, partnership, limited liability company or other entity, which is consolidated with such Person in accordance with GAAP.

 

Synthetic Lease Obligations” means, as to any Person, an amount equal to the capitalized amount of the remaining lease payments under any Synthetic Lease that would appear on a balance sheet of such Person in accordance with GAAP if such obligations were accounted for as Capital Lease Obligations.

 

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Taxes” means all sales, use, rental and personal property taxes, ad valorem taxes, registration and license fees and all other taxes and assessments as well as all penalties and/or interest due in connection therewith, now or hereafter levied on the Borrower, the Lender or the Vessel, or any part thereof, by any Governmental Authority or upon the delivery, ownership, possession, use, lease, charter, sub-charter, operation, control, maintenance, or repair of the Vessel.

 

Test Period” means each period of four (4) consecutive fiscal quarters of the Guarantor then last ended (in each case taken as one accounting period).

 

Total Leverage Ratio” means, at any date of determination, the ratio of (i) Consolidated Indebtedness of the Guarantor and its Subsidiaries on such date to (ii) Consolidated EBITDA of the Guarantor and its Subsidiaries on such date, for the Test Period then most recently ended.

 

Total Loss” in respect of the Vessel, means the occurrence of: (i) the actual or constructive total loss, or compromised, agreed or arranged total loss, of the Vessel under the policies of hull and machinery insurance and related coverages that the Borrower is required to procure and maintain pursuant to Section 4 of the First Preferred Mortgage; or (ii) the loss, theft, hijacking, disappearance or destruction of the Vessel or damage thereto to such extent as shall make repair thereof uneconomical or shall render the Vessel permanently unfit for normal use for any reason whatsoever; or (iii) the requisition of title to or other compulsory acquisition of the Vessel (otherwise than by requisition for hire which does not extend beyond the term of the Loan); or (iv) the condemnation, capture, seizure, forfeiture, arrest, detention, confiscation or other taking of title of the Vessel by any Person or Governmental Authority, or by Persons acting or purporting to act on behalf of any government, unless the Vessel shall be released from such capture, seizure, arrest or detention within thirty (30) days after such occurrence, but in all events prior to the expiration or earlier cancellation or termination of the term of the Loan. An actual Total Loss shall be deemed to have occurred on the actual date on which the Vessel was lost, or if the date of loss is unknown, the date that the Vessel was last heard from. A constructive Total Loss shall be deemed to have occurred on the earliest of (1) the date that a claim for Total Loss is allowed by the underwriters, (2) if the underwriters do not allow a claim for Total Loss, on the date that a Total Loss is subsequently finally adjudged by a court of competent jurisdiction or an arbitration panel to have occurred, or (3) upon receipt by the Lender of a report prepared by an independent, certified marine surveyor selected by the Lender (and reasonably acceptable to the Borrower) concluding that salvage, repair and associated costs to restore the Vessel to the condition required in Section 7.0l(o) hereof would exceed the fair market value of the Vessel in sound condition. An agreed or arranged Total Loss shall be deemed to have occurred at the effective time of any agreement by the underwriters or other appropriate Person with respect thereto, and any Total Loss resulting from condemnation, seizure, forfeiture, arrest or similar actions shall be deemed to have occurred upon entry of a final order with respect thereto by the applicable Governmental Authority.

 

“Vessel” means the vessel referred to in the Recitals to this Agreement and includes all her boilers, engines, machinery, masts, rigging, anchors, fuel, spare gear, cables, chains, tackle, apparel, consumable and other stores, ropes, equipment and all additions and appurtenances thereto and replacements thereof.

 

Voting Equity Interests” means, with respect to any Person, any class or classes of Equity Interests pursuant to which the holders thereof have the power under ordinary circumstances to vote for persons to serve on the board of directors/managers of such Person.

 

SECTION 1.02. Computation of Time Periods. For purposes of this Agreement and each of the other Loan Documents, unless otherwise specified herein or therein, in computing periods of time from a specified date to a later specified date, the word “from” means “from and including” and each of the words “to” and “until” means “to but excluding”.

 

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SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall have the meanings generally attributed to such terms under GAAP, as in effect from time to time, consistently applied. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and the Borrower or the Lender shall so request, the Lender and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Lender financial statements and other documents reasonably requested by the Lender hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. Without limiting the foregoing, leases shall continue to be classified and accounted for on a basis consistent with that reflected in the audited consolidated financial statements of the Guarantor and its Subsidiaries for the fiscal year ended December 31, 2018 for all purposes of this Agreement, notwithstanding any change in GAAP relating thereto, unless the parties hereto shall enter into a mutually acceptable amendment addressing such changes, as provided for above.

 

SECTION 1.04. Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document, (a) the definitions of terms herein shall apply equally to the singular and plural forms of the terms defined, (b) the words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation” and (c) unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any articles of incorporation, bylaws or similar organizational documents) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “hereto,” “herein,” “hereof’ and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time.

 

ARTICLE II

 

THE LOAN

 

SECTION 2.01. The Loan. Subject to the terms of this Agreement and to the satisfaction of all conditions precedent set forth in Article V hereof, the Lender hereby agrees to make available to the Borrower a term loan in the original principal amount of $25,000,000 (the “Loan”), for the purposes set forth in the Recitals, and for no other purpose. Time is of the essence.

 

SECTION 2.02. Drawdown Procedures. The Borrower may request the Lender to advance the proceeds of the Loan by delivering to the Lender a duly completed Drawdown Notice, substantially in the form attached hereto as Appendix A (the “Drawdown Notice”), which notice, once given, shall be irrevocable and shall be received by the Lender not later than 11:00 a.m. Eastern time two (2) Business Days prior to the proposed funding date. The Lender’s obligation to make the Loan to the Borrower as set forth herein shall expire on October 31, 2019; provided, however, that such commitment shall terminate automatically upon the occurrence of an Event of Default.

 

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SECTION 2.03. Advance of Loan Proceeds. Subject to terms and upon the conditions specified herein, the Lender shall advance the proceeds of the Loan to the Borrower in accordance with the instructions set forth in the Drawdown Notice.

 

SECTION 2.04. The Note. The Loan shall be evidenced by the Note and shall be paid in accordance with the terms thereof. The Lender shall record and, prior to any transfer of the Note, shall endorse on any schedules forming a part thereof appropriate notations setting forth the date and the amount of each payment and of all prepayments (if any) made by the Borrower with respect thereto. The Lender is hereby irrevocably authorized by the Borrower to endorse the Note accordingly and to attach and to make a part of the Note such schedules as and when required.

 

SECTION 2.05. Repayment of Principal and Interest. The Borrower shall make all payments of principal and interest as and when due under the Note. If not sooner paid, the Note shall mature and all sums remaining due and unpaid thereunder shall be due and payable in full on or prior to October 31, 2024.

 

ARTICLE III

 

INTEREST AND PAYMENT PROVISIONS

 

SECTION 3.01. Interest Rate. Subject to the terms and conditions hereinafter set forth, the Borrower shall pay interest on the unpaid principal balance of the Loan for the period commencing on the date the Loan is made until the Loan is repaid in full, at the rate set forth in the Note. Notwithstanding the foregoing, in the event that any payment is not received by the Lender when due (whether at maturity, by acceleration, on demand or otherwise), the Borrower shall pay to the Lender interest on demand on such late payment from the date such payment was due until such payment is actually received, at a rate per annum equal to 5% over the otherwise applicable rate (the “Default Rate”).

 

SECTION 3.02. Payments and Computations

 

(a) Making of Payments. The Borrower shall make all payments of principal, Prepayment Fees (if any) and interest due under the Note in Dollars, in immediately available funds, not later than 11:00 a.m. New York time on the day when due.

 

(b) Application of Payments. Each payment received by the Lender shall be applied in the manner provided for in the Note or, in the absence of such direction, as the Lender, in its sole discretion, shall determine.

 

(c) Computations. All computations of interest shall be made by the Lender on the basis of a 360-day year for the actual number of days elapsed. Each determination by the Lender of the interest due hereunder shall be conclusive and binding for all purposes, absent manifest error.

 

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(d) Payment Net of Taxes. (i) All payments made by the Borrower to the Lender under this Agreement and the Note shall be made without any deduction, setoff or counterclaim of any kind. All payments to be made to the Lender hereunder shall be made free and clear of, and without withholding or deduction for or on account of, any Taxes (except to the extent that such withholding or deduction is compelled by law), excluding any Excluded Taxes. If the Borrower is compelled by law to make any such deduction or withholding, it will:

 

(A) pay to the relevant authorities the full amount required to be withheld or deducted;

 

(B) except in the case of Excluded Taxes, pay such additional amounts to the Lender as may be required for the Lender to receive, after such deduction or withholding (including any required deduction or withholding on such additional amounts), the amount it would have received had no such deduction or withholding been made; and

 

(C) promptly forward to the Lender an official receipt or other documentation reasonably satisfactory to the Lender evidencing such payment to such authorities.

 

If any Taxes (other than Excluded Taxes) are directly assessed against the Lender, the Lender shall promptly notify the Borrower of such assessment. Unless the Borrower promptly provides evidence satisfactory to the Lender that such Taxes have been paid, the Lender may pay such Taxes. Thereafter, the Borrower shall pay such additional amount (including, without limitation, any penalties, interest or expenses, but excluding any such items resulting from (A) the failure of the Lender promptly to notify the Borrower of the assessment of such Taxes against the Lender, or (B) the gross negligence or willful misconduct of the Lender) as may be necessary for the Lender to receive, after the payment of such Taxes (including any Taxes on such additional amount), the amount the Lender would have received had no such Taxes been assessed. The Borrower’s obligations arising from this Section 3.02 shall survive repayment of the Loan, cancellation of the Note and the termination of this Agreement.

 

Notwithstanding any provision contained in this Agreement to the contrary, in the event that the Lender should assign all or any portion of the Loan or all or any portion of its rights under this Agreement to another Person, the Borrower’s obligations under this Section 3.02 shall not be greater than what its obligations would have been if the Lender had retained a 100% interest in the Loan and in this Agreement.

 

SECTION 3.03. Prepayment

 

(a) Optional Prepayments. Subject to the terms and conditions hereinafter set forth, upon not less than thirty (30) days prior written notice, the Borrower may prepay the Note, in whole, or in part in minimum increments of $1,000,000, on any installment payment date. All partial prepayments shall be applied to the remaining principal installments due in their inverse order of maturity. On any such date, the Borrower shall pay to the Lender, in addition to the principal amount being prepaid, all accrued but unpaid interest then due thereon (including any breakage fees), the Prepayment Fee (if any), and all other sums then due hereunder.

 

(b) Mandatory Prepayments. If, at any time prior to repayment in full of the Loan,

 

(i) the Vessel is sold, the Borrower shall pay to the Lender, upon the date Vessel is sold, an amount equal to the outstanding principal balance of the Loan, plus all accrued but unpaid interest then due thereon (including any breakage fees), the Prepayment Fee (if any), and all other sums then due hereunder; or

 

(ii) the Vessel sustains a Total Loss, the Borrower shall pay to the Lender, upon the earlier of (x) ten (10) days following receipt of insurance proceeds or (y) one hundred twenty (120) days after the date of such loss (in no event to extend beyond the maturity date of the Loan), an amount equal to the outstanding principal balance of the Loan, plus all accrued but unpaid interest then due thereon (including any breakage fees), and all other sums then due hereunder. No Prepayment Fee shall be due upon the payment of the Loan pursuant to this Section 3.03(b)(ii).

 

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SECTION 3.04. Commitment Fee. In consideration of the Lender’s agreement to finance the Borrower’s purchase of the Vessel and to arrange financing for the Vessel’s sister ship, the Borrower shall pay to the Lender a commitment/arrangement fee in the amount of $1,000,000, which fee shall be deemed fully earned and non-refundable as of the date hereof. Said fee shall be payable in two (2) equal installments of $500,000 each, the first such installment to be paid on the Initial Closing Date and the second such installment to be paid on the Funding Date.

 

ARTICLE IV

 

SECURITY

 

SECTION 4.01. Grant of Security Interest. As security for the prompt payment and performance of its Obligations hereunder, under the Note and the other Loan Documents, the Borrower hereby assigns, and grants and conveys, to the Lender a continuing, first priority security interest in and lien on the following property (collectively, the “Collateral”):

 

(i) the Vessel, together with all of her boilers, engines, machinery, masts, rigging, boats, anchors, chains, cables, tackle, apparel, spare gear, fuel, consumable or other stores, ropes, equipment and all other appurtenances thereto appertaining or belonging and appropriated to the exclusive use of the Vessel, whether now owned or hereafter acquired, whether on board or not, and all additions, improvements and replacements hereafter made in or to the Vessel, or any part thereof, or in or to the stores, equipment and appurtenances aforesaid (except such equipment which, when placed aboard the Vessel, does not become the property of the Borrower or is leased equipment not belonging to the Borrower);

 

(ii) all Earnings, Insurances and Requisition Compensation of the Vessel;

 

(iii) all rights, interests and privileges of the Borrower under all time charters and contracts of affreightment having a term (including all renewals and extensions thereof) greater than one (1) year; and

 

(iv) all proceeds of the foregoing.

 

SECTION 4.02. Release of Collateral. Upon the indefeasible payment in full of all sums due under the Note and satisfaction of all of the Borrower’s other Obligations (other than contingent indemnification obligations for which no claim has been made), the Lender shall, at the Borrower’s sole cost and expense, discharge the First Preferred Mortgage of record and terminate its security interests in all other Collateral.

 

SECTION 4.03. Exercise of Powers of Attorney. The Lender shall not exercise any rights or powers pursuant to any power of attorney granted to the Lender pursuant to the First Preferred Mortgage or the other Loan Documents until the occurrence, and then only during the continuance, of an Event of Default.

 

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ARTICLEV

 

CONDITIONS PRECEDENT

 

SECTION 5.01. Conditions Precedent to the Initial Closing. The Lender’s obligation to proceed forward with this transaction and to enter into this Agreement is subject to satisfaction of each of the following conditions precedent:

 

(a) no action, suit, investigation, litigation or proceeding to which the Borrower or the Guarantor is a party shall be pending or threatened before any court, Governmental Authority or arbitrator which (i) could reasonably be expected to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Agreement, the Note, any of the other Loan Documents or the consummation of the transactions contemplated hereby or thereby;

 

(b) the Lender shall have received each of the following, in form and substance reasonably satisfactory to the Lender and its legal counsel:

 

(i) true, correct and complete copies of the articles of organization/incorporation and operating agreement/by-laws of the Borrower and the Guarantor, together with all amendments thereto, certified by the secretary or assistant secretary of the Borrower and the Guarantor, respectively, or other authorized officer or a certificate from such party certifying that the copies of the organizational documents of such party previously delivered to the Lender have remained unchanged and are still in full force and effect;

 

(ii) resolutions of the board of managers/directors of the Borrower and the Guarantor, respectively, authorizing the transactions contemplated this Agreement and the other Loan Documents to which it is a party, certified by the secretary or assistant secretary of the Borrower and the Guarantor or other authorized officer;

 

(iii) a certificate of incumbency from an appropriate officer certifying the names and specimen signatures of the persons authorized to sign this Agreement, the Note, the Guaranty and any other Loan Documents to be executed and delivered by the Borrower and the Guarantor (as applicable);

 

(iv) a certificate of good standing for the Borrower and the Guarantor from the Secretary of State of Delaware dated not more than ten (10) days prior to the Funding Date; and

 

(v) an opinion from counsel to the Borrower and the Guarantor, in form and substance reasonably acceptable to the Lender, covering, among other things, said party’s status as a limited liability company/corporation validly existing in good standing under the laws of the state of Delaware, its due authorization, execution and delivery of each of the Loan Documents to which it is a party, and the enforceability of the Loan Documents to which it is a party;

 

(c) the Borrower shall have executed and delivered, or caused the Guarantor to execute and deliver, to the Lender each of the following documents:

 

(i) this Agreement; and

 

(ii) the Guaranty.

 

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(d) the Lender and its counsel shall have received payment in full of all fees (including the portion of the Lender’s commitment/arrangement fee due on said date) and expenses then due to each of them by the Borrower to the extent invoiced to the Borrower at least two (2) days prior to the Initial Closing Date;

 

(e) no law, rule or regulation (including, without limitation, any trade sanctions, laws or regulations applicable to the Lender) shall prevent the Lender from entering into the transactions contemplated hereby or shall affect the Borrower’s and/or the Guarantor’s ability to perform any of their respective obligations under the various Loan Documents to which they are parties.

 

SECTION 5.02. Conditions Precedent to the Funding of the Loan. The Lender’s obligation to proceed forward with the transactions contemplated by the Loan Agreement and to fund the Loan is subject to the satisfaction of each of the following conditions precedent:

 

(a) no action, suit, investigation, litigation or proceeding to which the Borrower or the Guarantor is a party shall then be pending or threatened before any court, Governmental Authority or arbitrator which (i) could reasonably be expected to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Agreement, the Note, any of the other Loan Documents or the consummation of the transactions contemplated hereby or thereby;

 

(b) no Default or Event of Default shall have occurred;

 

(c) the Borrower shall have executed and delivered, or caused to be executed and delivered, to the Lender each of the following documents:

 

(i) a bringdown certificate signed by a Responsible Officer of each of the Borrower and the Guarantor confirming that the representations and warranties made by them as set forth in the Loan Agreement and the Guaranty continue to be true and accurate in all material respects as of the funding date;

 

(ii) a supplemental op1mon from counsel to the Borrower, in form and substance reasonably acceptable to the Lender, covering, among other things, the due authorization, execution and delivery by the Borrower of each of the Loan Documents set forth below, the enforceability of such Loan Documents and the perfection of all liens and security interests granted by the Borrower to the Lender under the Loan Documents to the extent perfection can be achieved by either filing a UCC-1 financing statement with the Secretary of State of Delaware or the First Preferred Mortgage with the Office of the Maritime Administrator of the Republic of the Marshall Islands;

 

(iii) the Memorandum of Particulars;

 

(iv) the First Preferred Mortgage;

 

(v) the Guaranty;

 

(vi) the UCC-1 Financing Statement;

 

(vii) the Assignment of Earnings;

 

(viii) the Assignment oflnsurances;

 

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(ix) the Assignment of Time Charter and Time Charterer’s consent thereto (if applicable);

 

(x) a copy of the current Provisional Certificate of Registry for the Vessel along with a copy of the Interim Classification Certificate for the Vessel issued by the Approved Classification Society;

 

(xi) a Certificate of Ownership and Encumbrances, dated no more than five (5) days prior to the Funding Date, showing the Vessel to be owned by the Lender, free and clear of all recorded Liens and other encumbrances;

 

(xii) copies of the Vessel’s Temporary Ship Radio Station License, Certificate of Financial Security - Oil Pollution Certificate of Financial Security - Wreck Removal, Minimum Safe Manning Certificate, and Port Authority Letter Registration;

 

(xiii) copies of all insurance certificates, cover notes, letters of undertaking from the Vessel’s Approved Managers named on said Insurances and certificates of entry (as applicable) evidencing the Insurances now in place covering the Vessel;

 

(xiv) written advice from the Borrower’s insurance brokers of the Insurances currently in place with respect to the Vessel and of the amount of coverage provided;

 

(xv) an agreement by the Borrower’s insurance brokers, in form and substance satisfactory to the Lender, which states that the Insurances of the Vessel and the claims thereunder will not be affected by non-payment of premiums on any other insurances;

 

(d) the Lender and its counsel shall have received payment in full of all fees (including the portion of the Lender’s commitment/arrangement fee due on said date) and expenses then due to each of them by the Borrower to the extent invoiced to the Borrower at least two (2) days prior to the Funding Date;

 

(e) all representations or warranties by the Borrower and the Guarantor contained herein or in each of the other Loan Documents shall be true or correct in all material respects as of the Funding Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date; and

 

(f) no law, regulation or ruling (including, without limitation, any trade sanction laws and regulations applicable to the Lender) shall prevent the Lender from entering into the transactions contemplated hereby or shall affect the ability of the Borrower to perform any of its Obligations hereunder or under each of the other Loan Documents to which it is a party.

 

ARTICLE VI

 

REPRESENTATIONS AND WARRANTIES OF BORROWER

 

SECTION 6.01. Representations and Warranties. The Borrower hereby represents and warrants to the Lender as follows:

 

(a) Organization and Powers. The Borrower is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware, and, except where failure to be so qualified could not reasonably be expected to have a Material Adverse Effect, is duly qualified and authorized to transact business as a foreign limited liability company in good standing wherever necessary to carry on its present business. The Borrower has the requisite power and authority to enter into and to perform its obligations under this Agreement and all other Loan Documents to which it is a party.

 

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(b) Authorization: No Conflict. The Borrower has duly authorized by all requisite limited liability company action the execution, delivery and performance of each of the Loan Documents to which it is a party, and the execution, delivery and performance by it of such Loan Documents will not violate any provision of law, any Order of any court or other agency of government, its organizational documents, or any indenture, agreement or other instrument to which it is a party, or by which it or any of its property or assets is bound, or be in conflict with, result in a breach of, or constitute (with due notice or lapse of time, or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any Lien or other encumbrance of any nature whatsoever upon any of its property or assets, except as otherwise permitted, required or contemplated by the Loan Documents. The Loan Documents constitute the Borrower’s legal, valid and binding obligations, enforceable against it, in accordance with the terms thereof except where such enforceability may be affected by bankruptcy, insolvency, moratorium or other similar laws affecting creditor’s rights generally and by general principles of equity.

 

(c) Litigation. There are no actions, suits or proceedings pending or, or to the Borrower’s knowledge, threatened against the Borrower or any of its properties or the rights of the Borrower by or before any court, arbitrator or Governmental Authority, domestic or foreign, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. The Borrower is not in default with respect to any Order of any court, arbitrator or Governmental Authority, domestic or foreign, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

 

(d) Financial Condition. Since the date of its formation, there has been no event or circumstance, which either individually or in the aggregate has had or could reasonably be expected to have a Material Adverse Effect.

 

(e) No Sovereign Immunity. The Borrower is subject to private commercial law and to suit in connection with matters relating to this Agreement, the Note and the other Loan Documents, and neither it nor any of its property has any right to immunity from suit or attachment on the grounds of sovereignty or on any other grounds. The execution, delivery and performance by the Borrower of this Agreement, the Note and the other Loan Documents constitute its commercial acts, which are related to its commercial activities.

 

(t) Tax Returns. The Borrower has filed, or has caused to have been filed, all Federal and state tax returns which are required to be filed, and has paid, or caused to have been paid, all Taxes as shown on such returns or on any assessment received by it, to the extent that such Taxes are not delinquent, except for such Taxes and other governmental charges that are currently being contested in good faith by appropriate legal proceedings being diligently pursued and for which adequate reserves therefor have been established on the Borrower’s books and records as required under GAAP.

 

(g) Compliance with Laws: Possession of Licenses and Permits, Etc. The Borrower is not in violation of any laws, ordinances, governmental rules or regulations applicable to it and its assets and properties, except where failure to comply could not reasonably be expected to have a Material Adverse Effect. The Borrower possesses all material franchises, certificates, licenses, development and other permits (including all Environmental Permits) and other authorizations from governmental political subdivisions or regulatory authorities and all material patents, trademarks, service marks, trade names, copyrights, licenses, easements, rights of way and other rights (collectively, “Material Rights”), free from burdensome restrictions, that are necessary, in the Borrower’s judgment, for the ownership, maintenance and operation of its business, properties and assets, including the ownership and operation of the Vessel. No event has occurred which permits, or after notice or lapse of time or both would permit, the revocation or termination of any such Material Rights.

 

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(h) Required Consents. Neither the execution and delivery by the Borrower of this Agreement, the Note and any of the other Loan Documents, nor the consummation by it of any of the transactions contemplated hereby or thereby, requires the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect of, any Governmental Authority or agency thereof, domestic or foreign, other than the filing and recording of the First Preferred Mortgage with the Office of Maritime Administrator, Republic of the Marshall Islands or the NVDC, as applicable, and the filing of the UCC-1 financing statement with the Secretary of State of Delaware.

 

(i) Ownership of Vessel; Perfection of Mortgage, Etc. As of the Funding Date, the Borrower shall have good record title to the Vessel, free and clear of all Liens, other than Permitted Maritime Liens. Upon the filing and recording of the First Preferred Mortgage with the Office of the Maritime Administrator, Republic of the Marshall Islands, the Lender will have a duly recorded, first preferred mortgage lien over the whole of the Vessel.

 

G) Principal Place of Business; Tradenames. The Borrower’s principal place of business and chief executive office is at 302 Knights Run Avenue, Suite 1200, Tampa, Florida 33602. The Borrower does not conduct business under any trade, assumed or fictitious names.

 

(k) Margin Stock; Investment Company Status. None of the proceeds from the Loan will be used, directly or indirectly, by the Borrower for the purpose of purchasing or carrying, or for the purpose of reducing or retiring any indebtedness that was originally incurred to purchase or carry, any “margin stock” within the meaning of Regulation U (the “Margin Stock”), or for any other purpose that might make the transactions contemplated herein a “purpose credit” within the meaning of said Regulation U, or cause this Agreement to violate any other regulation of the Board of Governors of the Federal Reserve System or the Securities Exchange Act of 1934, as amended, or any rules or regulations promulgated under any of such statutes. The Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, or an “investment adviser” within the meaning of the Investment Advisers Act of 1904.

 

(l) BRISA. No accumulated funding deficiency (as defined in section 302 ofERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan). No liability to the PBGC has been or is expected by the Borrower or any BRISA Affiliate to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Borrower, any Subsidiary or any BRISA Affiliate which is or would be materially adverse to the business, condition (financial or otherwise) or operations of the Borrower and its Subsidiaries taken as a whole. Neither the Borrower or any BRISA Affiliate has incurred or presently expects to incur any withdrawal liability under Title N of BRISA with respect to any Multiemployer Plan which is or would reasonably be expected to have a Material Adverse Effect. The execution and delivery of this Agreement and the other Loan Documents and the Loan hereunder will be exempt from, or did not and will not involve any transaction which is subject to the prohibitions of, section 406 of BRISA and did not and will not involve any transaction in connection with which a penalty could be imposed under section 502(i) of BRISA or a tax could be imposed pursuant to section 4975 of the Code. As of the Funding Date, the Borrower is not and will not be (1) an employee benefit plan subject to Title I of BRISA, (2) a plan or account subject to Section 4975 of the Code; (3) an entity deemed to hold “plan assets” of any such plans or accounts for purposes ofERISA or the Code; or (4) a “governmental plan” within the meaning of BRISA.

 

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(m) Solvency. The Borrower is Solvent and, after giving effect to the transactions contemplated hereby and by the other Loan Documents, the Borrower will not become insolvent as a result thereof. The Borrower believes that it is now and will be able to pay its debts as they become due, and has and will have sufficient capital to carry on its business.

 

(n) Existing Charters, Etc. As of the Funding Date, the Vessel shall not be subject to any charter or other agreement regarding the use or employment thereof, other than a charter permitted pursuant to Section 7.0l{o) hereof.

 

(o) Sanctions, Etc. Neither the Borrower nor, to the Borrower’s knowledge, any Related Party is an individual or entity that is, or is owned or controlled by an individual or entity that is, (i) an “enemy” or an “ally of an enemy” within the meaning of Section 2 of the Trading with the Enemy Act or any enabling legislation or executive order relating thereto, (ii) currently the subject or target of, or a blocked Person under, any Sanctions or engages in any dealings or transactions with any such blocked Person, (iii) included on OFAC’s List of Specially Designated Nationals, or any similar list enforced by any other relevant sanctions authority applicable to the Borrower, or (iv) located, organized or resident in a Designated Jurisdiction, (b) the Borrower has not been charged with, or convicted of bribery or any other anti-corruption related activity under any Anti-Corruption Law or any other anti-corruption related activity in a U.S. or any non-U.S. country or jurisdiction, and (c) to the knowledge of senior management the Borrower is not in material violation of any applicable Anti-Terrorism Laws or Sanctions, and the Borrower has established and maintained procedures and controls which it reasonably believes are adequate to ensure compliance by the Borrower in all material respects with all applicable Anti-Corruption Laws, Anti-Terrorism Laws and Sanctions.

 

(p) Environmental Matters. The Borrower and all of its properties and facilities presently comply and, to the Borrower’s knowledge, have complied at all times and in all respects with all Environmental Laws except where failure to comply could not reasonably be expected to result in a Material Adverse Effect.

 

(q) Employee Relations. The Borrower is not the subject of (a) any material strike, work slowdown or stoppage, union organizing drive or other similar activity or (b) any material action, suit, investigation or other proceeding involving alleged employment discrimination, unfair termination, employee safety or similar matters that in either case would reasonably be expected to have a Material Adverse Effect nor, to the best knowledge of the Borrower, is any such event imminent or likely to occur except those which, individually or in aggregate, could not reasonably be expected to have a Material Adverse Effect.

 

(r) Disclosure. Neither this Agreement nor any other document, certificate or statement furnished to the Lender by or on behalf of the Borrower in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, taken as a whole as of the date thereof, not misleading; provided, that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time and information available to it at such time, it being understood that the Borrower is under no obligation to update such projections or underlying information.

 

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ARTICLE VII

 

COVENANTS OF BORROWER

 

SECTION 7.01. Affirmative Covenants. Until all the Borrower’s Obligations hereunder and under each of the other Loan Documents have been paid or otherwise satisfied in full, the Borrower hereby agrees that:

 

(a) Financial Information. The Borrower shall maintain a system of accounts established and administered in accordance with GAAP. The Borrower shall furnish the Lender such financial information concerning (i) the Borrower, including, but not limited to: (x) as soon as available and in any event within one hundred twenty (120) days after the end of each fiscal year of the Borrower, the balance sheet, statement of income and cash flows of the Borrower as of the end of such fiscal year, setting forth in each case in comparative form the corresponding figures from the preceding year, certified by the chief financial officer of the Borrower, and (y) as soon as available and in any event within forty-five (45) days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, the balance sheet, statement of income and cash flows of the Borrower for such quarterly period, all in reasonable detail and certified by the chief financial officer of the Borrower, (ii) the Vessel and/or (iii) the Borrower’s use and operation of the Vessel, in each case as the Lender reasonably deems necessary. The Borrower warrants that all such information and representations furnished by the Borrower to the Lender shall be accurate and correct in all material respects.

 

(b) Existence. Except as otherwise permitted pursuant to Section 7.02(d) hereof, the Borrower shall continue to maintain its existence in good standing and qualifications to do business where required.

 

(c) Notices. The Borrower shall deliver to the Lender promptly after a Responsible Officer obtains knowledge of any Event of Default or Default, a certificate of a Responsible Officer describing such event in reasonable detail, with a statement of the Borrower’s proposed action with respect thereto. In addition, the Borrower shall, from time to time, provide the Lender with such other information as the Lender may reasonably request with respect to the Vessel, the condition or maintenance thereof, of all damage, if any, thereto and of all repairs made in connection therewith. The Borrower shall give the Lender immediate notice and copies of all tax notices (other than customary periodic notices received in conjunction with the normal administration of the Borrower’s tax reporting process), reports or inquiries, claims of Liens (other than Permitted Maritime Liens), and of any damage, loss, seizure, attachment or judicial process which may affect the use, maintenance, operation, possession or ownership of the Vessel.

 

(d) [Intentionally Omitted].

 

(e) Use of Proceeds. The Borrower shall use the proceeds from the Loan solely for the purposes specified in the Recitals, and for no other purposes.

 

(f) Payment of Taxes. The Borrower shall pay and discharge, or cause to be paid and discharged, prior to becoming delinquent all Taxes as shown on any Federal or state tax returns or on any assessment received by it, except such Taxes and other governmental charges as are currently being contested in good faith and by appropriate legal proceedings being diligently pursued and for which adequate reserves therefor have been established on the Borrower’s books and records as required under GAAP and for so long as none of its assets (including the Vessel) have been attached or arrested.

 

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(g) Compliance with Laws Generally. The Borrower shall comply with the requirements of all Applicable Laws of any Governmental Authority (including, without limitation, the Office of the Maritime Administrator of the Republic of the Marshall Islands and, to the extent applicable, the United States Coast Guard) having jurisdiction over it or the Vessel (including, but not limited to, the Anti-Corruption Laws, Anti-Terrorism Laws and, to the extent applicable, the ISM Code and ISPS Code) and all rules and regulations promulgated pursuant thereto), except where failure to comply could reasonably be expected to have a Material Adverse Effect.

 

(h) Litigation. The Borrower shall promptly inform the Lender of any pending or threatened litigation involving it, where the amount claimed exceeds $100,000 or of any other event, condition or occurrence which could reasonably be expected to have a Material Adverse Effect.

 

(i) Financial Responsibility. The Borrower shall comply with and satisfy all of the provisions of any Applicable Law, regulation, proclamation or order concerning financial responsibility for liabilities imposed on it or the Vessel with respect to pollution, including, without limitation, the International Convention of Maritime Pollution of 1973, the International Convention for the Safety of Life at Sea of 1974, the U.S. Water Pollution Act, as amended by the Water Pollution Control Act Amendment of 1972, the U.S. Oil Pollution Act of 1990, as the same may be amended from time to time, and will maintain all certificates or other evidence of financial responsibility as may be required by any such law, regulation, proclamation or order with respect to the trade in which the Vessel from time to time engages or the cargoes carried by it.

 

G) Insolvency. The Borrower shall provide the Lender with written notice of the commencement of proceedings by or against it, under the applicable bankruptcy laws or other insolvency laws (as now or hereafter in effect), involving it as a debtor.

 

(k) Request for Information. The Borrower shall (i) keep and maintain accurate books and records, (ii) make entries on its books and records in form reasonably satisfactory to the Lender disclosing the Lender’s security interest in and lien on the Vessel and her Insurances, (iii) furnish to the Lender promptly upon reasonable request such information, reports, contracts, invoices (showing names, addresses and amount owing) and other data relating to all charters or other agreements entered into with respect to the employment of the Vessel and to all payments by the charterers or operators thereunder, as applicable.

 

(1) Bonding and Compliance with BRISA. The Borrower shall maintain at all times such bonding as is required by BRISA. As soon as practicable and in any event within thirty (30) days after it knows or has reason to know that, with respect to any Plan or Multiemployer Plan, a “reportable event” has occurred, it shall deliver to the Lender a certificate signed by its chief financial officer setting forth the details of such “reportable event”.

 

(m) Environmental. The Borrower covenants that it will keep and maintain the Vessel in compliance in all material respects with all applicable Environmental Laws, except where failure to do so could not reasonably be expected to have a Material Adverse Effect. The Borrower hereby agrees to indemnify, defend and hold harmless the Lender and its Related Parties from and against any and all liabilities arising out of, relating to or resulting from the Borrower’s breach of this covenant, and in the event of any disposal, discharge or release of any Hazardous Materials from the Vessel that results in the imposition of Class II civil penalties or higher, or upon the initiation of any proceeding, investigation or inquiry by any Governmental Authority alleging a violation of any Environmental Laws as a result of such disposal, discharge or release from the Vessel that could result in the imposition of such penalties, the Borrower shall notify the Lender in writing within ten (10) days of having knowledge thereof. As used herein, the term “Hazardous Materials” means Oil, other hazardous materials, hazardous wastes, hazardous materials, or any other pollutants, contaminants, chemicals, wastes, materials, compounds, constituents or substances, defined under, subject to regulation under, or which can give rise to liability or obligations under, any Environmental Laws, including polychlorinated biphenyls (“PCBs”); and the term “Oil” has the meaning assigned to it in the Oil Pollution Act of 1990, 33 U.S.C. §2701, et or any substance or compound containing PCBs, asbestos or any asbestos-containing materials in any form or condition, lead- based paint, urea formaldehyde, pesticides, radon or any other, radioactive materials including any source, special nuclear or by-product material, petroleum, petroleum products, petroleum-derived substances, crude oil or any fraction thereof, or any mold, microbial or fungal contamination that could pose a risk to human health or the Environment.

 

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(n) Insurances. At all times during the term hereof, the Borrower shall insure and keep the Vessel insured in accordance with the requirements of the First Preferred Mortgage.

 

(o) Additional Vessel Covenants. With respect to the Vessel, the Borrower hereby covenants and agrees:

 

(i) to only use the Vessel in the territorial waters of nations which recognize the rights of vessels registered under Marshall Islands and U.S. flag and only in locations where the Vessel’s operating specifications allow it to operate safely and within its technical capacities and certification and within the limits of its insurance coverages;

 

(ii) to provide to the Lender forthwith copies of all material notices and information received by it in relation to the Vessel and her Insurances and operations, unless such notices or information state they have been provided directly to the Lender;

 

(iii) to cause the Vessel at all times to comply with any of the Oil Majors crew matrix requirements to the extent that the Vessel is subject to a time charter with such Oil Major;

 

(iv) to promptly notify the Lender if at any time the Vessel is rejected by any Oil Major and thereafter, within forty-five (45) days thereof, to restore the Vessel’s Acceptability provided that the Vessel’s trading patterns and the relevant Oil Major’s risks permit a re-inspection (if required);

 

(v) to ensure that at all times after January 31, 2022, the Vessel has Acceptability from at least one (1) Oil Major;

 

(vi) to assign and provide that any Requisition Compensation is applied in accordance with Section 6 of the First Preferred Mortgage as if received on the basis of a sale of a Vessel;

 

(viii) unless and until the Vessel if reflagged under the laws of the United States of America pursuant to Section 7.0l(v) hereof, to keep the Vessel duly registered under the laws and flag of the Marshall Islands and to do or suffer to be done nothing whereby such registration may be forfeited or canceled;

 

(ix) to keep and to cause the Vessel to be kept free and clear of all Liens other than Liens granted in favor of the Lender and other Permitted Maritime Liens, and not to pledge, charge, assign or otherwise encumber (in favor of any Person other than the Lender) the Earnings or Insurances of the Vessel, or to suffer the creation of any such pledge, charge, assignment or encumbrance as aforesaid to or in favor of any Person other than the Lender;

 

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(x) without the prior written consent of the Lender, not to sell the Vessel (unless the Lender shall have received or concurrently receives payment in full of all sums then outstanding as provided for in Section 3.03(b) of this Agreement, in which case no consent shall be required);

 

(xi) to comply with and satisfy all the requisites and formalities established by the laws of the Republic of the Marshall Island (and ifreflagged under the laws of the United States, the United States) to establish and maintain the First Preferred Mortgage as a legal, valid, binding and enforceable first preferred mortgage lien upon the whole of the Vessel and to furnish to the Lender from time to time such proofs as the Lender may reasonably request so that it may be satisfied with respect to the compliance by the Borrower with the provisions of this subsection;

 

(xii) neither the Borrower nor any permitted charterer will make any material structural changes to the Vessel (each, a “Material Structural Modification”) other than for any Mandatory Equipment (as defined below) or as otherwise required by any Governmental Authority having jurisdiction over the Vessel or the Approved Classification Society, without the prior written consent of the Lender (which consent shall not be unreasonably withheld, conditioned or delayed). Any structural change made to the Vessel shall be deemed a Material Structural Modification if such change would: (1) convert the intended use of the Vessel from a use authorized in this Section; (2) impair the seaworthiness of the Vessel or invalidate any Certificate of Registry/Documentation, Load Line Certificate, or class certification issued with respect to the Vessel; or (3) diminish the fair market value, utility and remaining useful life of the Vessel below the fair market value, utility or remaining useful life thereof immediately prior to such change. The Borrower may make any other alterations (including non-material structural changes), subtractions, upgrades and improvements (“Permitted Modifications”); provided that any such Permitted Modification does not diminish the value, utility or remaining useful life of the Vessel and does not give rise to any Lien on the Vessel (other than Permitted Maritime Liens). Permitted Modifications and Material Structural Modifications are jointly referred to as “Modifications”. The Borrower shall make all Modifications required by any Applicable Law or required by any Governmental Authority or the Approved Classification Society. All Modifications shall be made at the sole cost and expense of the Borrower. Each such Modification shall be deemed to be a part of the Vessel. The Borrower, at its sole cost and expense, shall procure and install any items of machinery or equipment required by any Applicable Law, any Governmental Authority having jurisdiction over the Vessel or the Approved Classification Society (“Mandatory Equipment”);

 

(xiii) not to cause or permit the Vessel to be operated (x) in any manner contrary to Applicable Law, treaty or convention, or any rule or regulation duly issued thereunder as to which failure to comply could reasonably be expected to have a Material Adverse Effect, or (y) in violation of the terms of any policies of insurance procured by the Borrower pursuant to the First Preferred Mortgage, not to abandon the Vessel in a foreign port, not to change the Approved Managers of the Vessel without the Lender’s consent and delivery to the Lender of all appropriate endorsements to the Borrower’s Insurances evidencing that all such Insurances continue to remain in full force and effect notwithstanding such change of manager(s), not to engage in any unlawful trade or carry any cargo that will expose the Vessel to penalty, confiscation, forfeiture or capture, and not to do, or suffer or permit to be done, anything which could disqualify its registration under Marshall Islands (or if and when reflagged in the United States, United States) law. The Borrower shall at all times operate the Vessel as a responsible and prudent carrier in accordance with industry standards and in the same manner that the Borrower operates other vessels of comparable type that are owned or chartered in by it. The Borrower warrants that the Vessel will be used solely in the conduct of the Borrower’s business, and will at all times (other than when the Vessel is in drydock, is out of service undergoing repairs or is bareboat chartered to a third party to the extent permitted pursuant to Section 7.0l{o)(ix) below) be and remain in the Borrower’s exclusive possession and control. The Borrower warrants that it will exercise due diligence to transport in the Vessel only lawful and suitable cargoes, subject to any and all limitations, conditions and restrictions set forth herein, in the Vessel’s Certificate of Registry and/or Load Line Certificate and contained in any policy, contract or certificate of insurance procured pursuant to the First Preferred Mortgage;

 

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(xiv) the Borrower shall not charter the Vessel on a bareboat basis, to any Person, without the prior written consent of the Lender. Notwithstanding the foregoing, the Borrower may from time to time enter into time charters of the Vessel to both Affiliates of the Borrower and to non-Affiliates in the ordinary course of its business; provided. however. that (i) any such charter shall contain a provision placing the charterer thereof on notice of the First Preferred Mortgage and subordinating any and all rights of such charterer to the rights of the Lender hereunder and thereunder; (ii) the term of any such charter, including options, shall not extend beyond maturity date of the Loan; and (iii) for any time charter having a duration (including options) of greater than one year, the Borrower shall execute and deliver to the Lender an assignment thereof, substantially in the form attached hereto as Exhibit C, collaterally assigning to the Lender all of its rights, title and interests therein, along with a copy of the Consent and Agreement to be provided by the time charterer in connection therewith;

 

(xv ) if a libel shall be filed against the Vessel, or if the Vessel shall be seized, arrested, levied upon and taken into custody or detained in any proceeding in any court or tribunal or by any government or under color of authority, the Borrower shall forthwith give notice to the Lender of such arrest and taking or detention and (except in connection with any taking or requisition of the title or use of the Vessel by any Governmental Authority) cause the Vessel to be released therefrom within thirty (30) days from the date of such seizure, arrest or detainment, or within such lesser time as may be necessary to avoid prejudice to the interests of the Lender with respect to the Vessel. Without limiting the Borrower’s obligations under Section 9.15 of this Agreement, the Borrower hereby agrees to indemnify, defend and hold harmless, the Lender and the Vessel from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, judgments, costs and expenses, including Attorneys’ Fees, of whatsoever kind and nature, imposed on, incurred by or claimed against the Lender or the Vessel, in any way relating to or arising out of the assertion of a Lien against the Vessel, including, without limitation, a Permitted Maritime Lien;

 

(xvi) at all times and without cost or expense to the Lender, to maintain, service and preserve the Vessel, its parts and equipment, so as to keep them in every respect suitable for their intended uses and in good operating condition and repair, consistent with prudent industry practice for vessels of the same type and age, and used in the same trade, as the Vessel but in no event less than the extent to which the Borrower maintains other similar vessels and equipment in the prudent management of its assets and properties, and in all events in as good a condition as existed on the Funding Date, normal wear and tear from proper use alone excepted (except during such times when the Vessel or any of her equipment is out of service undergoing repairs in order to maintain the Vessel’s and such equipment’s compliance with the foregoing requirements). The Borrower shall at all times keep the Vessel in such condition that she complies with all Applicable Laws, treaties, conventions, rules, regulations and class certifications to which she is currently subject (except at such time when the Vessel is out of service undergoing repairs) and keep on board the Vessel, when required thereby, valid certificates showing compliance therewith. Records regarding the use, operation, maintenance and repair of the Vessel shall be maintained by the Borrower throughout the term of the Loan consistent with prudent industry practice, the requirements of policies of insurance covering the Vessel, and Applicable Laws. To the extent applicable, the Borrower shall comply or procure compliance with the ISM Code and the ISPS Code, and shall furnish to the Lender on demand true and complete copies of the Vessel’s Document of Compliance, Safety Management Certificate and such other ISM Code documentation as the Lender may reasonably request in writing;

 

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(xvii) at all times and without cost or expense to the Lender to maintain the classification status of the Vessel issued by the American Bureau of Shipping or other Approved Classification Society to which the Vessel may from time to time be subject. Upon the Lender’s request but not more than once during any six (6) month period (unless an Event of Default exists), the Borrower shall furnish the Lender hard copies of, or provide the Lender remote online access to copies of, all documents issued by the Republic of the Marshall Islands (and if and when reflagged under the laws of the United States, the United States Coast Guard), all Load Line Certificates, if applicable, and all certificates issued by the Approved Classification Society promptly upon issuance. All class certificates and all maintenance histories of the Vessel shall be made available to the Lender electronically within such reasonable period following the Lender’s request therefor;

 

(xviii) the Borrower has advised the Lender that the Vessel shall participate in the USCG Underwater Inspection In Lieu of Dry Docking (UWILD) program and, as such, the Borrower, at its own cost and expense, shall drydock the Vessel every five (5) years for a special survey in accordance with the UWILD program;

 

(xix) to furnish the Lender promptly upon the Lender’s written request, copies of all time charters and contracts of affreightment with respect to the Vessel having a duration (including all options) of twelve (12) months or more and the full details as to the parties, times of delivery and the like pertaining thereto; and

 

(xx) except as otherwise permitted pursuant to Section 7.0l{v) hereof, not to transfer or change, or permit to be transferred or changed, the flag of the Vessel without the prior written consent of the Lender, and any such written consent to any one transfer or change of flag shall not be construed to be a waiver of this provision with respect to any subsequent proposed transfer or change of flag.

 

(p) Inspections; Logs and Records. At all times, upon not less than forty-eight (48) hours prior notice but not more than once during any fiscal year of the Borrower (unless an Event of Default exists), the Borrower shall afford the Lender and its authorized representatives full and complete access to the Vessel for the purpose of appraising and inspecting the same and inspecting her papers and, at the request of the Lender, the Borrower shall deliver for inspection copies of any and all contracts and documents relating to the operation and employment of the Vessel, whether on board or not. Unless an Event of Default has occurred and is continuing, the Lender shall use reasonable efforts to ensure that the operation of the Vessel is not adversely affected and that the Vessel’s schedule is not disrupted, as a result of such inspections. However, if, upon such inspection, the Lender discovers that the Vessel is in a condition of disrepair, and such condition is confirmed by an independent, certified marine surveyor selected and agreed upon by the Lender and the Borrower, Lender shall have the right to call for the repair and, if necessary, drydocking of the Vessel within a commercially reasonable period not to exceed ninety (90) days thereafter at the Borrower’s sole cost and expense and to the satisfaction of the Lender.

 

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(q) Notice of Mortgage. The Borrower shall place a certified copy of the First Preferred Mortgage, together with notice thereof, on board the Vessel and, within thirty (30) days of the date hereof, shall furnish the Lender a copy of the Master’s signed receipt therefor, in form and substance satisfactory to the Lender.

 

(r) Other Additional Information. The Borrower shall provide the Lender such information and documentation as may reasonably be requested by the Lender from time to time for purposes of compliance by the Lender with Applicable Laws (including. without limitation, the Patriot Act and other “know your customer” and anti-money laundering rules and regulations), and any policy or procedure implemented by the Lender to comply therewith.

 

(s) Anti-Corruption Laws, Anti-Terrorism Laws, etc. The Borrower shall conduct its business in compliance in all material respects with all applicable Anti-Corruption Laws, Anti-Terrorism Laws and Sanctions, as amended, and the regulations thereunder, and will maintain in effect and enforce procedures, policies and controls which it reasonably believes are adequate to ensure compliance by the Borrower with all applicable Anti-Corruption Laws, Anti-Terrorism Laws and Sanctions.

 

(t) Financial Covenants.

 

(i) The Borrower shall cause the Guarantor and its Subsidiaries, on a consolidated basis, to maintain at all times a Total Leverage Ratio for the four (4) quarters most recently ended of not more than the following:

 

5.0 to 1.0 at any time during the fiscal year 2019;

4.25 to 1.0 at any time during the fiscal year 2020;

3.75 to 1.0 at any time during the fiscal year 2021; and

3.25 to 1.0 at any time during all fiscal years thereafter.

 

(ii) The Borrower shall cause the Guarantor and its Subsidiaries, on a consolidated basis, to maintain at all times for the four (4) quarters most recently ended a Fixed Charge Coverage Ratio of not less than 1.2 to 1.00.

 

(u) Optional Retlagging. The Borrower may elect to have the Vessel removed from Marshall Islands flag and retlagged in the United States, upon giving the Lender at least sixty (60) days prior written notice thereof. In such event, the Lender will cooperate with the Borrower to release its mortgage on the Vessel so as to allow the Vessel to be deleted from Marshall Islands registry and registered and retlagged under U.S. law, provided that, contemporaneously therewith, the Borrower executes and/or delivers to the Lender:

 

(i) a new first preferred ship mortgage over the whole of the Vessel, substantially in the form attached hereto as Exhibit D and in appropriate form for filing with NVDC;

 

(ii) copies of all limited liability company actions taken to authorize its execution and delivery of such new mortgage and all other documents to be executed and delivered in connection therewith;

 

(iii) an opm1on of the Borrower’s counsel as to the Borrower’s due authorization, execution and delivery of such documents and the perfection of the Lender’s mortgage on the Vessel; and

 

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(iv) the Borrower shall have reimbursed the Lender for all fees, costs and expenses incurred by the Lender in consenting to the Borrower’s request to have the Vessel reflagged in the United States of America.

 

(v) Earnings. In the absence of an Event of Default, the Borrower shall cause all Earnings of the Vessel to be payable to OSG Ship Management Inc., to be held by it in trust on behalf of the Borrower, and used to pay all operating costs of the Vessel, all sums as and when due and payable by the Borrower to the Lender hereunder and under each of the other Loan Documents and for such other purposes as the Borrower shall decide. Following the occurrence and during the continuance of an Event of Default, all such Earnings shall be payable to the Lender as provided for the Assignment of Earnings.

 

SECTION 7.02. Negative Covenants. Until all of Borrower’s Obligations hereunder and under each of the other Loan Documents have been satisfied in full, the Borrower agrees that without the prior written consent of the Lender:

 

(a) Indebtedness. It shall not create, incur or assume or suffer to exist any Indebtedness other than (i) trade payables incurred in the ordinary course of business, including, without limitation, payables in respect of bunkers and drydocking and under service agreements relating to the Vessel, (ii) Indebtedness incurred under the Loan Documents, (iii) Indebtedness incurred in the ordinary course of its business not to exceed $250,000 in the aggregate at any one time outstanding;

 

(b) Liens. It shall not create, incur, assume or suffer to exist any Lien or other encumbrance upon the Vessel (other than Permitted Maritime Liens) or the other Collateral.

 

(c) State of Formation; Place of Business. It shall not change its state of formation or the location of its principal place of business from that set forth in Section 9.02, without giving the Lender at least twenty (20) days’ prior written notice thereof and setting forth in detail the new jurisdiction of formation or complete address of such new place of business (as the case may be). In furtherance thereof, it shall file, and hereby authorizes the Lender to file on its behalf, Uniform Commercial Code financing statements, amendments or continuation statements, in form and substance satisfactory to the Lender, in such jurisdiction or jurisdictions as the Lender shall request upon demand by the Lender.

 

(d) Assignments. It shall not assign to any Person (other than the Lender) any of the Earnings, Insurances or Requisition Compensation of the Vessel.

 

(e) Maintain Single Purpose Entity Status.

 

(i) It shall not engage in any business other than as contemplated hereunder and under the other Loan Documents or any activity other than as contemplated by, or otherwise necessary to perform its obligations under, this Agreement and the other Loan Documents;

 

(ii) It shall not acquire or own any material assets other than (A) the property related to the Borrower’s ownership and operation of the Vessel, and (B) that needed to maintain the Borrower’s existence or operations in order to comply with, or as otherwise permitted by, the Loan Documents;

 

(iii) It shall not merge with or into, or consolidate with, any Person other than the Guarantor, or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure;

 

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(iv) It shall not amend, modify, terminate or fail to comply with the provisions of its organizational documents, as same may be further amended or supplemented, if such amendment, modification, termination or failure to comply would adversely affect its status as a single purpose entity or its ability to perform its obligations hereunder, or under the Note and the other Loan Documents;

 

(v) It shall not own any Subsidiary nor make any Investment in any Person other than Affiliates of the Borrower;

 

(vi) It shall not pledge, grant a security interest in or transfer any of its assets to any other Person;

 

(vii) It shall not declare or make any Restricted Payments to any Person other than to Affiliates of the Borrower;

 

(viii) It shall not fail to maintain its records, books of account separate and apart from those of its Affiliates or any other Person;

 

(ix) It shall not enter into any contract or agreement with any of its Affiliates or any other Person, except for those agreements which otherwise are incurred in the ordinary course of business upon terms and conditions that would be available on an arms-length basis;

 

(x) It shall not seek its dissolution or winding up in whole or in part;

 

(xi) It shall not maintain its assets in such a manner that it will be costly or difficult to segregate, ascertain or identify its individual assets from those of any of its Affiliates;

 

(xii) It shall not hold itself out to be responsible for the debts of another Person or pay another Person’s liabilities out of its own funds;

 

(xiii) It shall not make any loans or advances to any third party;

 

(xiv) It shall not fail to prepare and file its own tax returns, if such tax returns are required to be filed under Applicable Law;

 

(xv) It shall not fail either to hold itself out to the public as a legal Person separate and distinct from any other Person or to conduct its business solely in its own name, in order not to mislead others as to the identity with which such other party is transacting business, or to suggest that it is responsible for the debts of any third party; or

 

(xvi) It shall not fail to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations.

 

(f) Financing Statements. It shall not file any amendments, corrective statements, or termination statements concerning the Collateral without the prior written consent of the Lender.

 

(g) Sanctions. It shall not directly or knowingly indirectly use or permit the proceeds of the Loan to be used (a) in connection with any investment in, or any transaction or dealings with, any Person that, at the time of such funding, is the subject of Sanctions in a manner that will result in a violation of Sanctions, or (b) in any other manner in violation of Sanctions.

 

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(h) Anti-Corruption Laws; Anti-Terrorism Laws. It shall not directly, or knowingly indirectly, use the proceeds of the Loan for any purpose which would breach any Anti-Corruption Laws or any Anti-Terrorism Laws.

 

ARTICLE VIII

 

EVENTS OF DEFAULT; REMEDIES

 

SECTION 8.01. Events of Default; Acceleration, etc. Time is of the essence under this Agreement and the Borrower shall be deemed to be in default of its obligations hereunder upon the occurrence of any of the following events (each, an “Event of Default”):

 

(a) the Borrower fails (i) to make any principal and interest payment as and when due under the Note, or (ii) to pay when due any other sum otherwise payable hereunder or under any other Loan Document, which failure continues unremedied for a period of five (5) days thereafter; or

 

(b) the Borrower sells (other than in connection with the Borrower’s satisfaction of its obligations under Section 3.03(b) hereof), or mortgages or encumbers (other than for Permitted Maritime Liens) the Vessel, or if any Lien (other than a Permitted Maritime Lien) is filed against or otherwise attaches to the Vessel, which has not been released, bonded or otherwise secured as provided in Section 7.0l(o)(x) hereof; or

 

(c) any representation or warranty made by the Borrower hereunder or by the Borrower or the Guarantor in any of the other Loan Documents shall prove to have been materially false or misleading when made; or

 

(d) (1) the Borrower fails to comply with any of the provisions of Section 7.0l(b), W, the first sentence of ill, m), {Q)(ill and (o)(xv) or Section 7.02, or (2) the Borrower fails to comply with any of the provisions of Section 7.0l(i) or (o)(iii) and such failure continues unremedied for a period of fifteen (15) days following the earlier of the date that a Responsible Officer of the Borrower or the Guarantor has knowledge thereof or the date that the Lender provides notice of such failure to the Borrower; or

 

(e) the Borrower breaches any of the other agreements or covenants contained herein (and not otherwise addressed in this Section 8.01) and such breach continues unremedied for a period of thirty (30) days following the earlier of the date that a Responsible Officer of the Borrower is obligated to report such breach to the Lender under Section 7.0l(c) hereof or the date that the Lender provides notice of such breach to the Borrower; or

 

(f) any notice shall have been issued by the Republic of the Marshall Islands (or if applicable the United States Coast Guard Registry) to the effect that the Vessel is subject to deletion from registration/documentation or the Certificate of Registry/Documentation for the Vessel or the endorsement noted thereon is subject to revocation or cancellation, for any reason whatsoever and such matter is not remedied or such notice is not revoked within ten (10) Business Days of the Borrower’s receipt thereof; or

 

(g) for any reason, the First Preferred Mortgage ceases to be a duly recorded, first preferred mortgage over the whole of the Vessel other than in connection with a reflagging of the Vessel pursuant to Section 7.0l(v) hereof and in which case a new First Preferred Mortgage shall be executed by the Borrower and delivered to the Lender in accordance with Section 7.0l(v)(i) hereof; or

 

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(h) should this Agreement, the Note, the Guaranty or any of the other Loan Documents at any time after their execution and delivery, for any reason (other than satisfaction in full of all Obligations) cease to be valid and binding on, or enforceable against, the Borrower or the Guarantor (as the case may be), or the Borrower or the Guarantor shall so state in writing or bring an action to limit its obligations or liabilities thereunder; or this Agreement, the Note, the Guaranty or any of the other Loan Documents shall, at any time after their execution and delivery, for any reason (other than pursuant to the terms thereof) cease to create a valid security interest in the Collateral purported to be covered thereby or such security interest shall for any reason (other than pursuant to the terms hereof) cease to be a perfected first preferred mortgage lien and/or first priority security interest, subject only to Permitted Maritime Liens; or

 

(i) an event of default shall have occurred and be continuing under the First Preferred Mortgage or any other Loan Document and such breach continues unremedied for a period of thirty (30) days following the earlier of the date that a Responsible Officer of the Borrower or the Guarantor has knowledge of such breach or the date that the Lender provides notice of such breach to the Borrower; or

 

G) should the Borrower cease to qualify as a “Foreign Maritime Entity” under the laws of the Republic of the Marshall Islands (or if the Vessel has been reflagged in the United States, a Section 2 Citizen) and such failure, if curable, remains uncured for a period of ten (10) days thereafter; or

 

(k) should the Borrower or the Guarantor (i) make an assignment for the benefit of its creditors, (ii) fail to generally pay its debts as they become due, (iii) commence a voluntary case under any applicable bankruptcy, insolvency or other similar law, (iv) file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future statute, laws or regulation relating to creditors’ rights, (v) have entered against it a decree or order for relief in an involuntary case under any applicable bankruptcy, insolvency or other similar law and such decree or order remains unstayed or is not vacated within thirty (30) days thereafter, (vi) file an answer admitting or not contesting the material allegations of a petition filed against it in any such involuntary proceeding, (vii) seek or consent to or acquiesce in the entry of an order for relief or the appointment of, or the taking possession by, any trustee, receiver, assignee, custodian, sequestrator or liquidator of it or all or any substantial part of its properties; or

 

(l) should the Vessel be seized or levied upon under any legal or governmental process and the Borrower shall fail either to cause the release of the Vessel from such seizure or levy within thirty (30) days or within such lesser time as may be necessary to avoid prejudice to the Lender’s interest therein, or to pay to the Lender an amount equal to the outstanding principal balance of the Loan, plus all accrued but unpaid interest due thereon, and all other sums then due hereunder; or

 

(m) should the Borrower or any Affiliate of the Borrower fail to make any payment of principal of, premium, if any, and/or interest on, or rent or hire due under, any charter, lease, credit or other debt instrument to which the Borrower or any such Affiliate and the Lender or any of the Lender’s Affiliates are parties beyond any grace period provided with respect thereto, where the amount remaining unpaid in the case of the Borrower exceeds $25,000 and in the case of an Affiliate of the Borrower exceeds $100,000; or

 

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(n) should the Borrower or the Guarantor fail to make any payment of principal of, premium, if any, and/or interest on, any third party Indebtedness or fail to make any payment of rent or hire due under any charter or lease or otherwise fail to perform or observe any other agreement or any term or condition contained in any agreement relating to any third party Indebtedness, lease or charter beyond any grace period provided with respect thereto (and for which the Borrower or Guarantor has not set aside adequate reserves on its balance sheet to make such payment) and the effect of such default or failure is (x) to permit or cause, or to permit the holder or holders of such third party Indebtedness (or a trustee on behalf of such holder or holders) to cause, such third party Indebtedness to become due (or to be purchased by the Borrower or the Guarantor) prior to any stated maturity date, or (y) in the case of a lease or charter, to permit or cause the lessor or owner under such lease or charter to terminate such lease or charter, in each case where the amount of such third party Indebtedness or the payments remaining due under such lease or charter exceeds in the case of the Borrower $25,000 and in the case of the Guarantor $25,000,000; or

 

(o) should the Borrower or the Guarantor fail to pay for more than sixty (60) days after it is due or during such period to vacate, obtain a stay pending appeal or post bond against, any final, non-appealable judgment entered against it by any court having jurisdiction over it or its property for the payment of money aggregating, in the case of the Borrower in excess of$25,000 and in the case of the Guarantor in excess of $25,000,000, over the amount covered by insurance then in effect (so long as the insurer thereof has not denied liability for the payment thereof); or

 

(p) should there occur a Change in Control;

 

then, and in each such event, the Lender may (A) by notice to the Borrower, declare the Note, all interest accrued thereon and all other amounts (including, but not limited to, any Prepayment Fee) payable thereunder and hereunder to be forthwith due and payable in full, whereupon the Note, all such interest and all such other amounts shall become immediately due and payable in full, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of the entry of an order for relief with respect to the Borrower under the Bankruptcy Code or under any similar Federal or state statute or regulation, the Note, all accrued interest thereon and all other amounts due thereunder and hereunder shall automatically become due and payable in full, without in each instance having given the Borrower any notice whatsoever; (B) setoff against and debit any account maintained by the Borrower with the Lender for any sums due the Lender hereunder or under the Note; (C) immediately proceed against the Vessel under the First Preferred Mortgage; or (D) exercise all other rights and remedies available under any of the Loan Documents or any Applicable Law.

 

The rights and remedies of the Lender hereunder and under any documents or instruments executed pursuant hereto are cumulative, and recourse to one or more rights or remedies shall not constitute a waiver of the others or an election of remedies. It is mutually agreed that commercial reasonableness and good faith require the giving of no more than ten (10) Business Days’ prior written notice of the time and place of any public sale of any Collateral or of the time after which any private sale or any other intended disposition thereof is to be made, and at any such public or private sale, subject to limitations of law, the Lender, its agents and/or nominees, may purchase the Collateral. If the net proceeds of any disposition of Collateral exceed the amount then due and owing, whether by acceleration, at maturity or otherwise, or on demand, such excess will be remitted to the Borrower or whomsoever shall be legally entitled thereto. The Borrower shall remain liable for any deficiency remaining after disposition of all Collateral.

 

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If the Borrower fails to perform or comply with any of its obligations contained herein, the Lender shall have the right, but shall not be obligated, to effect such performance or compliance and the Borrower hereby promises to reimburse the Lender upon demand for such sums so expended, together with interest thereon at the Default Rate for the actual number of days elapsed from date of payment by the Lender to the date on which the Lender receives payment thereof from the Borrower. Failure of the Borrower to pay and promptly discharge the aforesaid debts and obligations shall constitute a separate Event of Default under this Agreement, but the payment of the same by the Lender shall not cure or constitute a waiver of such Event of Default. Upon the occurrence of an Event of Default, all payments received by the Lender from or on behalf of the Borrower shall be applied by the Lender to any installment(s) due and payable under the Note as the Lender, in its sole discretion, may determine, without notice to or consent of Borrower, the Borrower hereby expressly waives (to the extent permitted by law) all rights to make or manifest any binding instruction upon the Lender as to application of such payments other than as herein provided. Acceptance by the Lender of partial payment(s) or partial performance by the Borrower or by any other third party shall not be construed as a waiver of any Event of Default, nor shall the same affect or in any way impair the rights and remedies of the Lender hereunder.

 

SECTION 8.02. Additional Rights. The Borrower hereby irrevocably appoints the Lender as its attorney-in-fact (which power shall be deemed irrevocable and coupled with an interest) to, following the occurrence and during the continuance of an Event of Default, execute, endorse and deliver any deed, conveyance, assignment or other instrument in writing as may be required to vest in the Lender any right, title or power which, by the terms hereof, are expressed to be conveyed to or conferred upon the Lender, including any documents and checks or drafts relating to or received in payment for any loss or damage under the policies of insurance required by the provisions of Section 7.0l(n) hereof, but only to the extent that the same relates to the Collateral.

 

ARTICLE IX

 

MISCELLANEOUS

 

SECTION 9.01. Amendments, etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be in writing and signed by the Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

SECTION 9.02. Notices, etc. All demands, notices, and other communications under this Agreement shall be in writing and shall personally be delivered or deposited with a reputable commercial courier or express delivery service, or with the United States Postal Service, first class postage prepaid or by facsimile or email transmission, confirmed by letter, addressed as follows:

 

To the Borrower:

 

Overseas Gulf Coast LLC

302 Knights Run Avenue

Suite 1200

Tampa, Florida 33602

Attention: Richard Trueblood

Facsimile: (813) 221-2769

Email: [email protected]

 

and

 

Attention: Susan Allan

Telephone: (813) 209-0620

Facsimile: (813) 221-2769

Email: [email protected]

 

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With copy to:

 

Gunster

600 Brickell Avenue

Suite 3500

Miami, Florida 33131

Attention: Joshua Jacobson, Esq.

Telephone: (305) 376-6032

Facsimile: (305) 376-6010

Email: [email protected]

 

To the Lender:

 

Banc of America Leasing & Capital, LLC

2059 Northlake Parkway- 3 North

Tucker, Georgia 30084

Attention: Operations Manager

Facsimile: (804) 266-1355

 

With a copy to:

 

Patrick K. Cameron, Esquire

Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

100 Light Street

Baltimore, Maryland 21202

Facsimile: (410) 547-0699

 

or to such other address as shall be designated by such party in a written notice to the other. All such notices and communications shall, when mailed, be sent by overnight courier or by first class registered mail, postage prepaid, return receipt requested and be effective three (3) Business Days after being deposited in the U.S. mails addressed as aforesaid. All such notices and other communications sent by facsimile or email transmission shall be effective when sent if on a Business Day at the recipient’s office and not later than 3:00 p.m. at the recipient’s office, provided that in the case of notices and other communications sent by facsimile transmission when (i) an appropriate answerback has been received by the sending party, and (ii) such facsimile is confirmed by mailing to the receiving party, at its address given above, a copy of such facsimile transmission postage prepaid by first class mail (air mail, if international). All other forms of written notice or other communication shall be effective only upon personal delivery.

 

SECTION 9.03. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS RULES FOR CONFLICTS OF LAW (OTHER THAN SECTIONS 5-1401 AND 15-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).

 

SECTION 9.04. Service of Process and Consent to Jurisdiction; Waiver of Venue. Each of the parties hereby irrevocably submits to the non-exclusive jurisdiction of the federal and state courts located in the New York County, in any action brought against it under this Agreement, the Note or any other Loan Document and agrees that a summons and complaint commencing any action or proceeding in such court shall be properly served if delivered personally or by registered mail to the Borrower or the Lender at its address set forth in Section 9.02 above, or otherwise served under the laws of the State of New York, and the Borrower and the Lender hereby waive any objection to venue and jurisdiction which it may now or hereafter have. Each party shall promptly notify the other of any change in its address. Nothing herein shall affect the right of the Lender to serve process in any other matter prescribed by law or the right of the Lender to bring legal proceedings in any other competent jurisdiction.

 

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SECTION 9.05. No Remedy Exclusive. Each and every right, power and remedy given to the Lender in this Agreement, the Note, the First Preferred Mortgage, and the other Loan Documents shall be cumulative and in addition to every other right, power and remedy herein or therein given now or hereafter existing at law, in equity, in admiralty, by statute or otherwise. Each and every right, power and remedy whether given therein or otherwise existing may be exercised from time to time as often and in such order as may be determined by the Lender, and neither the failure or delay in exercising any power or right nor the exercise or partial exercise of any right, power or remedy shall be construed to be a waiver of or acquiescence in any default therein; nor shall the acceptance of any security or of any payment of or on account of any loan, promissory note, advance, obligation, expense, interest or fees maturing after an Event of Default or of any payment on account of any past default shall be construed to be a waiver of any right to take advantage of any future default or of any past default not completely cured thereby.

 

SECTION 9.06. Payment of Costs. Whether or not the transactions contemplated herein shall be consummated, the Borrower hereby agrees to pay (a) all reasonable and documented out-of-pocket costs and expenses incurred by the Lender (including reasonable counsel fees and expenses) in connection with the preparation, execution and delivery of this Agreement and the other Loan Documents or any amendment to or modification of, or any waiver or consent under, the Loan Documents, or in connection with any of the transactions contemplated hereby or thereby, (b)subject to Section 7.0l(p), all reasonable and documented costs and expenses incurred by the Lender for appraisals, inspections and surveys of the Vessel (including any appraisals, inspections and/or surveys conducted prior to the date of this Agreement), and (c) all losses, reasonable costs and reasonable expenses (including, but not limited to, reasonable Attorneys’ Fees and expenses) in connection with (i) the preservation of any rights of the Lender under, or legal advice in respect of, the rights or responsibilities of the Lender under this Agreement and the other Loan Documents or (ii) the enforcement of any of the Loan Documents. The Borrower further agrees to indemnify and hold the Lender harmless from and against any documentary taxes, assessments or charges made by any Governmental Authority by reason of the execution, delivery, filing or recordation of this Agreement or any of the other Loan Documents.

 

SECTION 9.07. Further Assurances. The Borrower further agrees to execute such other and further assurances and documents as in the opinion of the Lender are reasonably required to carry out the terms of this Agreement or of any of the other Loan Documents.

 

SECTION 9.08. Counterparts. This Agreement may be executed in counterparts, each of which when so executed shall be deemed an original but all such counterparts shall together constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopier or facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Agreement.

 

SECTION 9.09. Headings. The titles of the Articles and the Section headings of this Agreement are for convenience only and shall not affect the construction of this Agreement.

 

SECTION 9.10. Severability. If any term or provision of this Agreement or of any of the other Loan Documents shall be determined to be invalid or unenforceable for any reason, such determination shall not adversely affect any other term or provision of this Agreement or such other Loan Document which shall remain in full force and effect and the effect of such determination shall be limited to the territory or the jurisdiction in which made.

 

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SECTION 9.11. Survival. The Borrower’s agreements, representations, warranties and conditions contained in this Agreement and made pursuant to the provisions hereof shall survive the execution and delivery of this Agreement until the Note and all interest accrued thereon shall have been indefeasibly paid in full in accordance with the terms thereof, and any and all other moneys, payments, obligations and liabilities which the Borrower shall have made, incurred or become liable for pursuant to the terms of this Agreement or any of the other Loan Documents shall have been indefeasibly paid in full or otherwise satisfied. All statements made by the Borrower and contained in any certificate or other instrument delivered pursuant to the provisions of this Agreement shall constitute representations and warranties by the Borrower under this Agreement.

 

SECTION9.12. WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THEY MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT OR (B) THE OTHER LOAN DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY EACH OF THE PARTIES HERETO, AND THE PARTIES HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE PARTIES FURTHER REPRESENT THAT THEY HAVE BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIYER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF THEIR OWN FREE WILL, AND THEY HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

 

SECTION 9.13. Assignment; Participations. The Lender may assign any of its rights and obligations hereunder or under any of the other Loan Documents; provided that unless an Event of Default has occurred and is continuing, any such assignment shall require the Borrower’s prior written consent (such consent not to be unreasonably withheld, delayed or conditioned). The Lender may also grant or sell participation interests in this Agreement and the other Loan Documents and all sums payable hereunder and thereunder (each, a “Participation”) so long as each of the following conditions is satisfied with respect to such Participation: (i) in the absence of an Event of Default, the proposed participant is not a Competitor of the Borrower or any Affiliate thereof; (ii) no participant shall have direct recourse against the Borrower or any Affiliate of the Borrower but only through the Lender; (iii) the Borrower shall continue to deal solely and exclusively with the Lender in connection with the Lender’s rights and obligations under this Agreement; and (iv) any agreement or instrument pursuant to which the Lender sells such a Participation shall provide that any action to be taken to enforce the terms of this Agreement or to amend, modify or waive any provisions thereof shall require the consent of not less than a majority of the parties holding an interest this Agreement and all sums payable thereunder; provided, however, that such agreement or instrument may provide that, without the consent of each participant, the Lender may not agree to: (A) postpone any date fixed by this Agreement or any other Loan Document for any payment (excluding mandatory prepayments) of principal of, premium, if any, and/or interest on the Note, or any other amounts due by the Borrower or the Guarantor under this Agreement or any other Loan Document, (B) reduce the amount of any scheduled principal and/or interest payment due hereunder or under the Note or any fees or other amounts payable by the Borrower or the Guarantor to the Lender under any of the Loan Documents; provided, however, that only the consent of a majority of the participants shall be necessary to amend the definition of “Default Rate”, (C) release the Guarantor of any of its payment or performance obligations under its Guaranty, (D) release, subordinate or substitute any collateral given to secure the Borrower’s obligations under this Agreement or any other Loan Document, or (E) amend, waive or modify the provisions of this Section 9.13.

 

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SECTION 9.14. Patriot Act. The Lender hereby notifies the Borrower that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies the Obligors, which information includes the name, address and tax identification numbers of the Obligors and other information that will allow the Lender to identify the Obligors in accordance with the Patriot Act. The Borrower shall, promptly following a request by the Lender, provide all documentation and other information that the Lender requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act.

 

SECTION 9.15. Indemnity. The Borrower hereby agrees to indemnify and hold harmless each of the Indemnified Parties, on an after tax basis, from and against any and all liabilities, causes of action, claims, suits, penalties, damages, losses, costs or expenses (including Attorneys’ Fees), obligations, demands and judgments (collectively, a “Liability”) arising out of or in any way related to: (a) a breach by the Borrower of any of its obligations under the Loan Documents or in connection with the Lender’s enforcement of any of the terms thereof, (b) the breach by the Borrower or the Guarantor of any representation or warranty made by it in any of the Loan Documents, (c) the Borrower’s use, employment, operation and/or chartering of the Vessel, or (d) the Borrower’s failure to comply fully with any Applicable Law(s) or regulatory requirements; provided, that the foregoing indemnity shall not apply to the extent any Liability arises solely from the gross negligence or willful misconduct of such Indemnified Party or any of its Related Parties or results from a breach by such Indemnified Party or any of its Related Parties of its obligations under any Loan Document. The indemnity contained in this Section shall survive the termination of this Agreement, prepayment of any amounts due hereunder or under the other Loan Documents and assignment of any rights hereunder. The Borrower, at its own cost and expense, may participate in the defense (if applicable) of any Liability.

 

SECTION 9.16. Confidentiality. The Lender agrees to keep confidential all financial statements, reports and other non-public provided to it by the Borrower pursuant to this Agreement or otherwise; provided that nothing herein shall prevent the Lender from disclosing any such information (i) to any Affiliates or Subsidiaries of the Lender with a need to know in connection with the Loan Documents (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential), (ii) to any actual or prospective assignee or participant which has been informed of the confidential nature of such information and has signed and delivered to the Borrower a confidentiality and non-disclosure agreement in form and substance satisfactory to the Borrower agreeing in writing to treat such information as confidential in accordance with the terms of the Loan Documents; provided that no such information shall knowingly be provided by the Lender to any Competitor of the Borrower or any Affiliate of any such Competitor, (iii) to the Lender’s employees, directors, agents, attorneys, accountants, auditors and other professional advisors or those of any of its Affiliates or Subsidiaries with a need to know in connection with the Loan Documents (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential), (iv) upon the request or demand of any Governmental Authority after providing notice to the Borrower of any such request provided that the giving of such notice is not prohibited by such Governmental Authority or Applicable Law, (v) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any requirement of law, in each case after providing notice to the Borrower of such request, provided that the giving of such notice is not prohibited by such court or other Governmental Authority or Applicable Law, (vi) if requested or required to do so in connection with any litigation or similar proceeding after providing notice to the Borrower of any such request provided that the giving of such notice is not prohibited by order of court or Applicable Law, (vii) that has been publicly disclosed by the Borrower or the Guarantor, (viii) in connection with the exercise of any remedy under this Agreement or the Loan Documents, (ix) upon request, to bank examiners (or any other regulatory authority having jurisdiction over the Lender), or (x) if the disclosure of such information has been authorized by the Borrower in a separate writing.

 

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SECTION 9.17. Acknowledgment Regarding Any Supported OFCs. To the extent that the Loan Documents provide support, through a guarantee or otherwise, for any swap contract or any other agreement or instrument that is a QFC (such support, “OFC Credit Support”, and each such QFC, a “Supported OFC”), the parties acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws of the State of Maryland and/or of the United States or any other state of the United States):

 

(a) In the event a Covered Entity that is party to a Supported QFC (each, a “Covered £fil!y”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Financing Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Financing Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.

 

(b) As used in this Section 9.17, the following terms have the following meanings:

 

BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.

 

Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).

 

Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.

 

OFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).”

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to·be duly executed as of the day and year first above written.

 

 

[Loan and Security Agreement]

 

 
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the gay and year first above written.

 

 

 
 

 

Exhibit A

Form of Assignment of Earnings

 

 
 

 

 

 

GENERAL ASSIGNMENT OF EARNINGS

 

given by

 

OVERSEAS GULF COAST LLC,

Assignor

 

in favor of

 

BANC OF AMERICA LEASING & CAPITAL, LLC,

Assignee

 

 

 

____________, 2019

 

 
 

 

GENERAL ASSIGNMENT OF EARNINGS

 

THIS GENERAL ASSIGNMENT OF EARNINGS (this “Assignment”), dated as of _________ 2019, is given by OVERSEAS GULF COAST LLC, a Delaware limited liability company with an office at 302 Knights Run Avenue, Suite 1200, Tampa, Florida 33602 (“Assignor”), in favor of BANC OF AMERICA LEASING & CAPITAL, LLC, a Delaware limited liability company, with an office at 2059 Northlake Parkway, 3 North, Tucker, Georgia 30084 (together with its participants, successors and assigns, “Assignee”).

 

WITNESSETH THAT:

 

WHEREAS:

 

A. Assignor is the sole, absolute and unencumbered owner of the 50,000 DWT Marshall Islands flagged product/chemical tanker named “OVERSEAS GULF COAST”, Official No.

(the “Vessel”).

 

B. Pursuant to that certain Loan and Security Agreement dated as of August_, 2019 (as the same may be amended, amended and restated, supplemented, extended, replaced or otherwise modified from time to time, the “Loan Agreement”), by and between Assignor, as borrower, and Assignee, as lender, Assignee made available to Assignor a term loan in the original principal amount of $25,000,000 (the “Loan”), the proceeds of which were used to finance in part Assignor’s purchase of the Vessel and to pay certain costs incident thereto. Assignor’s obligation to repay the Loan, with interest, is evidenced by Assignor’ promissory note dated 2019 in the original principal amount of $25,000,000 and made payable to the order of Assignee (as the same may be amended, amended and restated, supplemented, extended, replaced or otherwise modified from time to time, the “Note”).

 

C. As security for Assignor’s obligations to Assignee, Assignor granted Assignee, among other things, a first preferred mortgage (the “Mortgage”) over the whole of the Vessel.

 

D. This Assignment is given to evidence the grant by Assignor to Assignee of a first priority security interest in and lien on all Earnings (as hereinafter defined) of the Vessel.

 

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

 

1. Defined Terms. Unless otherwise defined herein, terms defined in the Loan Agreement shall have the same meanings when used herein.

 

2. Grant of Security. As inducement to Assignee to make the Loan available to Assignor and as security for (i) repayment of the Obligations (as defined in the Loan Agreement), and (ii) performance and observance by Assignor of the terms and conditions contained in the Loan Agreement and the other Loan Documents, Assignor does hereby grant, sell, convey, assign, transfer and set over unto Assignee, its successors and assigns, and does hereby grant Assignee, its successors and assigns, a continuing, first priority security interest in and to (i) all earnings generated by it from its use and operation of the Vessel, including, but not limited to, all moneys and claims for moneys due and to become due thereto, whether as charter hire, freights, subfreights, passage moneys, or otherwise, under, and all claims for damages arising out of any breach of (or payment for variation or termination), any charter, contract of affreightment or other contract for the use or employment of the Vessel and operations of every kind whatsoever of the Vessel, (ii) all remuneration for salvage and towage services, demurrage and detention moneys and any other earnings whatsoever due or to become due to Assignor arising from the use or employment of the Vessel, (iii) all moneys or other compensation payable by reason of requisition for title or for hire or other compulsory acquisition of the Vessel, (iv) all monies or other compensation payable as a result of any and all claims for damages in respect of any actual or constructive total loss of the Vessel, and (v) all proceeds of all of the foregoing (herein, called “Earnings”).

 

 
 

 

3. Payments Due Under Charters. Assignor hereby covenants and agrees that, upon the occurrence and during the continuance of an Event of Default, (a) it will have all Earnings hereby assigned paid over directly to Assignee, (b) it will procure that notice of this Assignment in substantially the form of Exhibit 1 attached hereto and a letter of instructions shall be duly given to each Person who becomes party to any charter, contract of affreightment or other contract entered into with Assignor in respect of the Vessel or to any Person who may receive any Earnings hereby assigned, and (c) it will instruct such Person to acknowledge directly to Assignee receipt of Assignor’s notification and instructions.

 

4. Performance under Charters; No Duty of Inquiry. Assignor hereby undertakes that, notwithstanding the assignment contained herein, it shall punctually perform all its obligations under all such charters, contracts of affreightment and other contracts pertaining to the use and/or employment of the Vessel to which it is a party. It is hereby expressly agreed that, anything contained herein to the contrary notwithstanding, Assignor shall remain liable under all such charters, contracts of affreightment and other contracts pertaining to the Vessel to perform the obligations assumed by it thereunder, and Assignee shall have no obligation or liability under any such charter, contract of affreightment or contract by reason of or arising out of the assignment contained herein, nor shall Assignee be required to assume or be obligated in any manner to perform or fulfill any obligation of Assignor under or pursuant to any such charter, contract of affreightment or contract or to make any payment or make any inquiry as to the nature or sufficiency of any payment received by Assignee, or, unless and until indemnified to its satisfaction, to present or file any claim or to take any other action to collect or enforce the payment of any amounts which may have been assigned to it or to which it may be entitled hereunder or pursuant hereto at any time or times.

 

5. Requisition. Assignor shall promptly notify Assignee in writing of the commencement and termination of any period during which the Vessel may be requisitioned.

 

6. Employment of Vessel. Assignor hereby further covenants and agrees to promptly furnish Assignee upon Assignee’s reasonable request such information regarding the employment, position and engagements of the Vessel.

 

7. Negative Pledge. Assignor does hereby warrant and represent that it has not assigned or pledged, and hereby covenants that it will not assign or pledge so long as this Assignment shall remain in effect, any of its right, title or interest in the whole or any part of the Earnings hereby assigned to anyone other than Assignee, and it will not take or omit to take any action, the taking or omission of which might result in an alteration or impairment of the rights hereby assigned or any of the rights created in this Assignment; and Assignor does hereby irrevocably appoint and constitute Assignee as Assignor’s true and lawful attorney-in-fact with full power (in the name of Assignor or otherwise) should an Event of Default have occurred and be continuing to ask, require, demand, receive, compound and give acquittance for any and all Earnings assigned hereby, to endorse any checks or other instruments or orders in connection therewith, to file any claims or take any action or institute any proceedings which Assignee may deem to be necessary or advisable in the premises and to file any and all Uniform Commercial Code financing statements or renewals thereof in connection with this Assignment without the signature of Assignor which Assignee may deem to be necessary or advisable in order to perfect or maintain the security interest granted hereby.

 

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8. Application of Proceeds. All moneys collected or received by Assignee from time to time following the occurrence and during the continuance of an Event of Default shall be dealt with as provided for in the Loan Agreement. After the indefeasible payment in full of all Obligations (as defined in the Loan Agreement), all moneys received by Assignee from Assignor in excess thereof shall be paid promptly to Assignor or whomsoever else shall be legally entitled thereto.

 

9. Further Assurances. Assignor agrees, that at any time and from time to time, upon the written request of Assignee, Assignor will promptly and duly execute and deliver any and all such further instruments and documents as Assignee may reasonably deem desirable in obtaining the full benefits of this Assignment and of the rights and powers herein granted.

 

10. Remedies Cumulative and Not Exclusive; No Waiver. Each and every right, power and remedy herein given to Assignee shall be cumulative and shall be in addition to every other right, power and remedy of Assignee now or hereafter existing at law, in admiralty, in equity or by statute, and each and every right, power and remedy, whether herein given or otherwise existing, may be exercised from time to time, in whole or in part, and as often and in such order as may be deemed expedient by Assignee, and the exercise or the beginning of the exercise of any right, power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. No delay or omission by Assignee in the exercise of any right or power or in the pursuance of any remedy accruing upon any breach or default by Assignor or any guarantor shall impair any such right, power or remedy or to be construed to be a waiver of any such right, power or remedy or to be an acquiescence therein; nor shall the acceptance by Assignee of any security or of any payment of or on account of any of the amounts due from Assignor or any other Obligor to Assignee and maturing after any breach or default or of any payment on account of any past breach or default be construed to be a waiver of any right to take advantage of any future breach or default or of any past breach or default not completely cured thereby.

 

11. Invalidity. If any provision of this Assignment shall at any time for any reason be declared invalid, void or otherwise inoperative by a court of competent jurisdiction, such declaration or decision shall not affect the validity of any other provision or provisions of this Assignment, or the validity of this Assignment as a whole. In the event that it should transpire that by reason of any law, rule or regulation, or by reason of a ruling of any court, or by any other reason whatsoever, the assignment herein contained is either wholly or partly defective, Assignor hereby undertakes to furnish Assignee with an alternative assignment of the Earnings and/or to do all such other acts relative to the Earnings as, in the sole opinion of Assignee, shall be required in order to ensure and give effect to the full intent of this Assignment. The powers and authorities granted to Assignee, its successors or assigns, herein have been given for valuable consideration and are hereby declared to be irrevocable and complied with an interest.

 

12. Continuing Security. It is declared and agreed that the security created by this Assignment shall be held by Assignee as a continuing security for the prompt payment of all Obligations (as defined in the Loan Agreement) and that the security so created shall not be satisfied by an intermediate payment or satisfaction of any part of the amount hereby secured and that the security so created shall be in addition to and shall not in any way be prejudiced or affected by any collateral or other security now or hereafter held by Assignee for all or any part of the moneys hereby secured.

 

13. Waiver; Amendment. None of the terms and conditions of this Assignment may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by Assignee and Assignor.

 

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14. Termination. This Assignment shall terminate (other than provisions hereof providing for indemnities, reimbursement obligations and similar contingent obligations) and all of the right, title and interest herein assigned shall revert to Assignor upon the payment in full in cash of all Obligations (as defined in the Loan Agreement) (other than contingent indemnification obligations for which no claim has been made) and the termination of the Loan Agreement and all commitments to extend credit thereunder.

 

15. WAIVER OF JURY TRIAL. ASSIGNOR, AND BY ITS ACCEPTANCE HEREOF, ASSIGNEE, HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO OR ANY BENEFICIARY HEREOF ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS ASSIGNMENT, THE LOAN AGREEMENT, OR ANY OTHER DOCUMENTS THEREIN DESCRIBED, ANY AMENDMENTS THERETO, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

16. Notices. All notices and other communications provided for hereunder shall be in writing and mailed, facsimile transmitted or delivered as follows:

 

  To Assignor: Overseas Gulf Coast LLC
    302 Knights Run Avenue
    Suite 1200
    Tampa, Florida 33602
    Attention: Richard Trueblood
    Telephone: (813)__________
    Facsimile: (813) 221-2769
     
  To Assignee: Banc of America Leasing & Capital, LLC
    2059 Northlake Parkway
    3 North
    Tucker, Georgia 30084
    Attention: Operations Manager
    Telephone: (_)________
    Facsimile: (804) 266-1355
     
  with copy to: Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
    100 Light Street
    Baltimore, Maryland 21202
    Attention: Patrick K. Cameron, Esq.
    Telephone: (410) 862-1140
    Facsimile: (410) 547-0699

 

or to such other address as shall be designated by such party in a written notice to the other party. All such notices and communications shall, when mailed, be sent by first class registered mail, postage prepaid, return receipt requested and be effective three (3) Business Days after being deposited in the U.S. mails addressed as aforesaid. All notices sent by facsimile transmission shall be effective when sent if on a Business Day at the recipient’s office and not later than 11:00 a.m. at the recipient’s office, provided that (i) an appropriate answerback has been received by the sending party and (ii) such facsimile is confirmed by mailing to the receiving party, at its address given above, a copy of such facsimile transmission postage prepaid by first class mail (air mail, if international). All other forms of written notice or other communication shall be effective only upon receipt.