GUARANTEE FACILITY AGREEMENT

ARGYLE MARITIME CORP. , CATON MARITIME CORP. , DORCHESTER MARITIME CORP. , LONGWOODS MARITIME CORP. , McHENRY MARITIME CORP. and SUNSWYCK MARITIME CORP. , as Joint and Several Obligors; and

THE ROYAL BANK OF SCOTLAND PLC , as Issuer

INTERPRETATION

Definitions. Subject to Clause 1.5, in this Agreement:

30 April 2007 (or such later date as the Issuer may agree with the Obligors); or

if earlier, the date on which the Commitment is fully cancelled or terminated;

this Agreement;

the Corporate Guarantee;

the Pre-delivery Security Assignments; and

the Fee Letter;

the Intercreditor Agreement; and

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

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

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

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

under a financial lease, a deferred purchase consideration arrangement or any other agreement having the commercial effect of a borrowing or raising of money by the debtor (other than normal trade credit not exceeding 180 days);

under any foreign exchange transaction, any interest or currency swap or any other kind of derivative transaction entered into by the debtor or, if the agreement under which any such transaction is entered into requires netting of mutual liabilities, the liability of the debtor for the net amount; or

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

the rate per annum equal to the offered quotation for deposits in Dollars for a period equal to, or as near as possible equal to, that period which appears on REUTERS BBA Page LIBOR 01 at or about 11.00 a.m. (London time) on the Quotation Date for that period (and, for the purposes of this Agreement, “REUTERS BBA Page LIBOR 01” means the display designated as “REUTERS BBA Page LIBOR 01” on the Reuters Money News Service or such other page as may replace REUTERS BBA Page LIBOR 01 on that service for the purpose of displaying rates comparable to that rate or on such other service as may be nominated by the British Bankers’ Association as the information vendor for the purpose of displaying British Bankers’ Association Interest Settlement Rates for Dollars); or

if no rate is quoted on REUTERS BBA Page LIBOR 01 the rate per annum determined by the Issuer to be the rate at which deposits in Dollars are offered to the Issuer by leading banks in the London Interbank Market at the Issuer’s request at or about 11.00 a.m. (London time) on the Quotation Date for that period for a period equal to that period and for delivery on the first Business Day of it;

Security Interests created by the Finance Documents and Other Pre-delivery Security Assignments;

any Security Interest created in favour of a plaintiff or defendant in any proceedings or arbitration as security for costs and expenses where the relevant Obligor is actively prosecuting or defending such proceedings or arbitration in good faith; and

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

England and Wales;

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

a country in which the company’s central management and control is or has recently been exercised;

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

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

a country the courts of which have jurisdiction to make a winding up, administration or similar order in relation to the company or which would have such jurisdiction if their assistance were requested by the courts of a country referred to in paragraphs (b) or (c) above;

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

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

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

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

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

none of the Obligors nor any Security Party has any future or contingent liability under Clause 14, 15 or 16 or any other provision of this Agreement or another Finance Document;

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

each Guarantee has been returned to the Issuer by the Seller endorsed to the effect that it is cancelled;

in relation to the Guarantee to be issued in respect of Ship A, 28 February 2010;

in relation to the Guarantee to be issued in respect of Ship B, 31 August 2010;

in relation to the Guarantee to be issued in respect of Ship C, 31 January 2011;

in relation to the Guarantee to be issued in respect of Ship D, 31 May 2011;

in relation to the Guarantee to be issued in respect of Ship E, 30 March 2011; and

in relation to the Guarantee to be issued in respect of Ship F, 31 July 2011.

Construction of certain terms. In this Agreement:

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

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

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

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

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

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

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

General Interpretation . In this Agreement:

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

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

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

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

Clauses 1.1 to 1.5 apply unless the contrary intention appears.

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

GUARANTEE FACILITY

Availability of guarantee facility. Subject to the other provisions of this Agreement, the Issuer shall make available to the Obligors a guarantee facility in an amount of $84,000,000 which shall be made available by the following Guarantees:

a Guarantee in an amount not exceeding $14,000,000 as a performance guarantee in favour of the Seller to secure the second, third and fourth instalments of the Contract Price due from the relevant Obligor under the Shipbuilding Contract for Ship A;

a Guarantee in an amount not exceeding $14,000,000 as a performance guarantee in favour of the Seller to secure the second, third and fourth instalments of the Contract Price due from the relevant Obligor under the Shipbuilding Contract for Ship B;

a Guarantee in an amount not exceeding $14,000,000 as a performance guarantee in favour of the Seller to secure the second, third and fourth instalments of the Contract Price due from the relevant Obligor under the Shipbuilding Contract for Ship C;

a Guarantee in an amount not exceeding $14,000,000 as a performance guarantee in favour of the Seller to secure the second, third and fourth instalments of the Contract Price due from the relevant Obligor under the Shipbuilding Contract for Ship D;

a Guarantee in an amount not exceeding $14,000,000 as a performance guarantee in favour of the Seller to secure the second, third and fourth instalments of the Contract Price due from the relevant Obligor under the Shipbuilding Contract for Ship E;

a Guarantee in an amount not exceeding $14,000,000 as a performance guarantee in favour of the Seller to secure the second, third and fourth instalments of the Contract Price due from the relevant Obligor under the Shipbuilding Contract for Ship F.

Request for issue of Guarantees. Subject to the following conditions, an Obligor may make a request for a Guarantee to be issued by ensuring that the Issuer receives a completed Guarantee Issue Request not later than 11 a.m. (London time) 3 Business Days prior to the intended Guarantee Issue Date.

Availability. The conditions referred to in Clause 2.2 are that:

a Guarantee Issue Date has to be a Business Day during the Availability Period;

the maximum amount of a Guarantee shall be $14,000,000 and shall not, when aggregated with the amount of all other issued Guarantees, exceed the Commitment;

the Issuer must receive, together with the Guarantee Issue Request, a final draft of the form of Guarantee which it is being requested to issue on the intended Guarantee Issue Date; and

the form of each Guarantee has to be approved in writing by the Issuer at least 2 Business Days prior to the intended Guarantee Issue Date but it must in any event contain express provisions:

limiting the total amount payable by the Issuer under it to a stated maximum amount in Dollars; and

stating that it shall expire or be reduced to zero not later than the relevant Termination Date.

Cancellation of guarantee facility. The Obligor may cancel the Available Commitment in whole or in part subject to the condition that the Issuer has received from the Obligor at least 7 Business Days’ prior written notice specifying the amount to be cancelled and the date on which the cancellation is to take effect. The Commitment shall be reduced permanently by the amount of the Available Commitment so cancelled.

Change of beneficial ownership of Obligors or the Corporate Guarantor. If without the consent of the Issuer a change occurs after the date of this Agreement in the ultimate beneficial ownership of any shares in any Obligor or the Corporate Guarantor or in the ultimate voting rights attaching to any of those shares from that disclosed to the Issuer pursuant to Schedule 2 Part A 10:

the Obligors shall promptly notify the Issuer upon becoming aware of that event; and

the Issuer shall not be obliged to provide a Guarantee requested in a Guarantee Issue Request and the Issuer may, by not more than 10 days’ notice to the Obligors cancel the Available Commitment and require the Obligors either to procure the cancellation of any issued Guarantees or to provide cash security in respect of such issued Guarantees on the same terms mutatis mutandis as set out in Clause 5.6.

REDUCTION OF GUARANTEES

Reduction of Outstanding Guarantee Amounts. The Outstanding Guarantee Amount of a Guarantee shall not be treated as reduced for the purposes of this Agreement unless and until:

the Issuer has received a written confirmation from the Seller of the amount of such reduction; or

the Issuer has notified the relevant Obligor in writing that (notwithstanding the absence of a written confirmation from the Seller) it is satisfied that its liability under the Guarantee has been irrevocably reduced or discharged; or

the amount of the Guarantee irrevocably and unconditionally reduces in accordance with its terms; or

the expiry date of the Guarantee elapses and the Issuer has notified the relevant Obligor in writing that it is satisfied that no claim or demand has been made, or may thereafter be made, under the Guarantee, such notification not to be unreasonably withheld or delayed.

SETTLEMENT OF GUARANTEES

Notification of Settlement Amounts. The Issuer shall, immediately after receiving a demand from, or after being notified by, the Seller that it is required to make payment under a Guarantee, notify the relevant Obligor that such payment is due and of the Settlement Amount and the Settlement Date.

Relevant Obligor’s settlement obligation. The relevant Obligor shall:

immediately after notification from the Issuer under Clause 4.1, acknowledge to the Issuer that it will reimburse the Settlement Amount; and

pay to the Issuer the Settlement Amount in Dollars on the Settlement Date.

Relevant Obligor’s failure to reimburse. If the relevant Obligor fails to reimburse the Settlement Amount to the Issuer on the Settlement Date pursuant to Clause 4.2, it shall pay to the Issuer interest on the Settlement Amount from the Settlement Date to the date the Issuer is reimbursed by the relevant Obligor at the rate described in Clause 6 such interest to be compounded in accordance with Clause 6.6 and payable on demand.

INDEMNITY OF THE OBLIGORS

Obligors’ undertaking to indemnify. Each Obligor agrees that it shall:

pay to the Issuer upon demand by the Issuer an amount equal to each amount:

demanded from the Issuer under a Guarantee; or

paid by the Issuer to the Seller under Clause 5.8;

indemnify, as a principal and independent debtor, the Issuer on demand against all actions, claims, demands, liabilities, costs, losses, damages and expenses incurred, suffered or sustained or any penalty or other expenditure which may result or which the Issuer may incur, suffer or sustain in connection with or arising out of or in relation to any Guaranteed Obligations and/or the payment under or other performance of a Guarantee (including without limitation any correspondent bank charges).

Guarantee payments. Each Obligor:

irrevocably authorises the Issuer to make any payment demanded from it pursuant to a Guarantee if that demand is made in accordance with its terms;

accepts that any demand for payment made by the Seller pursuant to a Guarantee and which is made in accordance with its terms shall be conclusive evidence that the Issuer was liable to make payment under the Guarantee and any payment which the Issuer makes pursuant to any such demand shall be accepted by the Obligors as binding upon the Obligors; and

acknowledges and agrees that the Issuer shall not in any circumstances whatsoever be liable to the Obligors in respect of any loss or damage suffered by the Obligors by reason of the Issuer making a payment to the Seller in connection with any payment demanded under a Guarantee.

Continuing indemnities. The liabilities and obligations of the Obligors under the indemnities set out in Clause 5.1 shall remain in force as a continuing security until:

the full, prompt and complete performance of all the terms of such indemnities including the proper and valid payment of all amounts that may become due to the Issuer under this Clause 5.3; and

subject to Clause 5.4, an absolute discharge or release of the Obligors signed by the Issuer;

Discharges. Any such discharge or release referred to in Clause 5.3, and any composition or arrangement which the Obligors may effect with the Issuer, shall be deemed to be made subject to the condition that it will be void if any payment or security which the Issuer, may previously have received or may thereafter receive is set aside under any applicable law or proves to have been for any reason invalid.  

No impairment. Without limiting the generality of Clauses 5.3 and 5.4, the Obligors shall neither be discharged from any of their liabilities or obligations under Clause 5.1 by, nor have any claim against the Issuer in respect of:

any misrepresentation or non-disclosure respecting the affairs or condition of the Issuer made to the Obligors by any person; or

the Seller and/or the Issuer releasing or granting any time or any indulgence whatsoever or making any settlement, composition or arrangement with the Obligors, the Seller or any other person; or

the Seller and/or the Issuer asserting or pursuing, failing or neglecting to assert or pursue, or delaying in asserting or pursuing, or waiving, any of their rights or remedies against the Obligors, the Seller or any other person; or

the Seller and/or the Issuer and/or the Obligors, with the consent of the Obligors (or with or without the consent of the Obligors in the case of any variation agreed between the Seller and the Obligors or the person whose obligations are guaranteed thereby), making, whether expressly or by conduct, any variation to any Guaranteed Obligations or a Guarantee; or

the Seller and/or the Issuer and/or the Obligors:

taking, accepting, varying, dealing with, enforcing, abstaining from enforcing, surrendering or releasing any security in relation to the Seller or the Issuer or any Obligor or any other person in such manner as it or they think fit; or

claiming, proving for, accepting or transferring any payment in respect of the obligations and liabilities of any Obligor and/or the Seller relative to any Guaranteed Obligations or under this Agreement in any composition by, or winding up of, any Obligor and/or any third party or abstaining from so claiming, proving, accepting or transferring; or

any assignment or transfer by the Seller of, or any succession to, any of its rights relative to any Guaranteed Obligations or a Guarantee.

Provision of cash collateral security. Forthwith upon, or at any time following the occurrence of an Event of Default which is continuing the Issuer shall be entitled (but not obliged) to demand payment by the Obligors of, and the Obligors forthwith upon such demand shall pay to the Issuer for credit to an account of the Obligors with the Issuer (subject to such Security Interest as the Issuer may reasonably specify or require), such amount as shall be the aggregate of:

any Settlement Amount then due from the Obligors to the Issuer pursuant to Clause 4.2 and not reimbursed; and

the Outstandings.

Application of cash collateral security. Subject always to the overriding provisions of Clause 15, moneys received by the Issuer pursuant to Clause 5.6 shall be applied (as between the Obligors on the one hand and the Issuer on the other) in the following manner:

firstly, in or towards payment of any Settlement Amount then due from the Obligors to the Issuer pursuant to Clause 4.2 and not reimbursed;

secondly, in payment to the Issuer for application from time to time by it (and the Obligors hereby irrevocably authorise the Issuer so to apply any such moneys) in or towards payment of, or reimbursement to the Issuer for, any amount which the Issuer shall or may at any time and from time to time thereafter pay or be or become liable to pay to the Seller under or pursuant to or in connection with a Guarantee (including any amount payable under Clause 5.8); and

thirdly, in or towards payment of all other sums which may be owing to the Issuer under or in connection with a Guarantee.

Negotiation with the Seller. Each Obligor:

irrevocably authorises the Issuer to negotiate with the Seller at any time after the occurrence of any Event of Default which is continuing with a view to arranging for the prepayment by the Issuer, for the account of the Obligors of any Guaranteed Obligations; and

agrees that at any time after the occurrence of any Event of Default which is continuing the Issuer shall be entitled (but not, so far as the Obligors are concerned, bound) to pay to the Seller, in such manner and upon such terms as the Issuer and the Seller shall agree, any Guaranteed Obligations.

DEFAULT INTEREST

Payment of default interest on overdue amounts. The Obligors shall pay interest in accordance with the following provisions of this Clause 6 on any amount payable by the Obligors under any Finance Document which the Issuer does not receive on or before the relevant date, that is:

the date on which the Finance Documents provide that such amount is due for payment; or

if a Finance Document provides that such amount is payable on demand, the date on which the demand is served on the Obligors; or

if such amount has become immediately due and payable under Clause 13.4, the date on which it became immediately due and payable.

Default rate of interest. Interest shall accrue on an overdue amount from (and including) the relevant date until the date of actual payment (as well after as before judgment) at the rate per annum determined by the Issuer to be 1.5 per cent. above, the rate set out in Clause 6.3.

Calculation of default rate of interest. The rate referred to in Clause 6.2 is, in respect of successive periods of any duration (including at call) up to 3 months which the Issuer may select from time to time:

LIBOR; or

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

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

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

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

CONDITIONS PRECEDENT

Documents, fees and no default. The Issuer’s obligation to issue any Guarantee is subject to the following conditions precedent:

that, on or before the service of the first Guarantee Issue Request, the Issuer receives the documents described in Part A of Schedule 2 in form and substance satisfactory to it;

that, on or before a Guarantee Issue Date but prior to the issue of a Guarantee, the Issuer receives the documents described in Part B of Schedule 2 in a form satisfactory to it;

that, on or before each Guarantee Issue Date, the Issuer has received all arrangement and commitment fees payable pursuant to Clause 18.1;

that both at the date of each Guarantee Issue Request and at each Guarantee Issue Date:

no Event of Default or Potential Event of Default has occurred and is continuing or would result from the issue of the Guarantee; and

the representations and warranties in Clause 8.1 and those of the Obligors or any Security Party which are set out in the other Finance Documents would be true and not misleading if repeated on each of those dates with reference to the circumstances then existing;

that the Issuer has received, and found to be acceptable to it, any further opinions, consents, agreements and documents in connection with the Finance Documents which the Issuer may reasonably request by notice to the Obligors prior to the Guarantee Issue Date.

Waivers of conditions precedent. If the Issuer, at its discretion, permits any Guarantee to be issued before certain of the conditions referred to in Clause 7.1 are satisfied, the Obligor shall ensure that those conditions are satisfied within 14 Business days after the Guarantee Issue Date (or such longer period as the Issuer may specify).

REPRESENTATIONS AND WARRANTIES

General. Each Obligor represents and warrants to the Issuer as follows.

Status. It is duly incorporated and validly existing and in good standing under the laws of the Marshall Islands.

Share capital and ownership. It has an authorised share capital of 500 registered and/or bearer shares without par value, all of which shares have been issued, and the legal title and beneficial ownership of all those shares is held, free of any Security Interest or other claim, by Westbrook Holdings Limited.

Corporate power. It has the corporate capacity, and has taken all corporate action and obtained all consents necessary for it:

to execute the Shipbuilding Contract to which it is a party and to purchase and pay for its Ship under that Shipbuilding Contract;

to execute the Finance Documents to which it is a party; and

to make all the payments contemplated by, and to comply with, those Finance Documents.

Consents in force. All the consents referred to in Clause 8.4 remain in force and nothing to the best of the Obligors’ knowledge and belief has occurred which makes any of them liable to revocation.

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

constitute its legal, valid and binding obligations enforceable against it in accordance with their respective terms; and

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

No third party Security Interests. Without limiting the generality of Clause 8.6, at the time of the execution and delivery of each Finance Document:

the relevant Obligor or Obligors which are a party to that Finance Document will have the right to create all the Security Interests which that Finance Document purports to create; and

no third party will to the best of the Obligors’ knowledge and belief have any Security Interest (except for Permitted Security Interests) or any other interest, right or claim over, in or in relation to any asset to which a Security Interest created by a Finance Document, relates.

No conflicts. The execution by that Obligor of each Finance Document to which it is a party and its compliance with each Finance Document to which it is a party will not involve or lead to a contravention of:

any law or regulation in force at the date of this Agreement; or

the constitutional documents of that Obligor; or

any contractual or other obligation or restriction which is binding on that Obligor or any of its assets.

No withholding taxes. No tax is imposed in any jurisdiction in which that Obligor is ordinarily resident for tax by way of withholding or deduction or otherwise on any payment to be made under this Agreement.

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

Information. All information which has been provided in writing by or on behalf of the Obligors or any Security Party to the Issuer in connection with any Finance Document was to the best of the Obligors’ knowledge and belief true and not misleading as at the time it was given; all audited and unaudited accounts which have been so provided satisfied the requirements of Clause 9.6; and there has been no material adverse change in the financial position or state of affairs of the Obligors from that disclosed in the latest of those accounts.

No litigation. No legal or administrative action involving the Obligors has been commenced or taken or, to that Obligor’s knowledge, is likely to be commenced or taken which, in either case, would be likely to have a material adverse effect on the Obligors’ financial position or profitability.

Validity and completeness of Shipbuilding Contracts. Each Shipbuilding Contract constitutes valid, binding and enforceable obligations of the Seller and the relevant Obligor respectively in accordance with its terms subject to any relevant insolvency laws affecting creditors’ rights generally and:

each copy of the Shipbuilding Contracts delivered to the Issuer before the date of this Agreement is a true and complete copy; and

no amendments or additions to the Shipbuilding Contracts have been agreed nor has any Obligor or the Seller waived any of their respective rights under the Shipbuilding Contracts.

No rebates etc. There is no agreement or understanding to allow or pay any rebate, premium, commission, discount or other benefit or payment (howsoever described) to the Obligors, the Seller or a third party in connection with the purchase by the Obligors of the Ships, other than as disclosed to the Issuer in writing on or prior to the date of this Agreement.

Compliance with certain undertakings. At the date of this Agreement, each Obligor is in compliance with Clause 9.12 and (save as disclosed in writing to the Issuer) Clauses 9.3 and 9.8.

Taxes paid. Each Obligor has paid all taxes applicable to, or imposed on or in relation to it or its business.

Conformity of Financial Covenants. The financial covenants set out in Schedule 3 conform to the financial covenants given by the Corporate Guarantor and its subsidiaries under the Bank of America Facilities.

GENERAL UNDERTAKINGS AND FINANCIAL COVENANTS

General. Each Obligor undertakes with the Issuer to comply with the following provisions of this Clause 9 at all times during the Security Period, except as the Issuer may otherwise permit.

No disposal of assets.  

No Obligor will transfer or otherwise dispose of:

its rights under the Shipbuilding Contract to which it is a party, whether by one transaction or a number of transactions, whether related or not save where the Guarantee relating thereto has been cancelled or where that Obligor has provided cash security in relation to such Guarantee on the same terms mutatis mutandis as set out in Clause 5.6; or

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

No Obligor will create or permit to arise any Security Interest (except for Permitted Security Interests) over its rights under the Shipbuilding Contract and the Refund Guarantees to which it is a party.

No other liabilities or obligations to be incurred. No Obligor will incur any liability or obligation except:

liabilities and obligations under the Shipbuilding Contract, the Finance Documents, the Loan Agreement and the Finance Document (as defined in the Loan Agreement) to which it is a party; and

liabilities or obligations incurred in the ordinary course of supervising the construction of, providing supplies for, operating and chartering its Ship (and for the avoidance of doubt the management fees payable by the Obligors to the Approved Managers shall be a permitted expense); and

provided the terms of Clause 10.3(c) are complied with, inter-company Indebtedness from other companies which are in the same ultimate beneficial ownership as the Obligors.

Information provided to be accurate. All financial and other information which is provided in writing by or on behalf of each Obligor under or in connection with any Finance Document will to the best of that Obligor’s knowledge and belief be true and not misleading and will not omit any material fact or consideration which, if disclosed would reasonably be expected to adversely affect the decision of a person considering whether to enter into this Agreement.

Provision of financial statements. Each Obligor will procure that there is sent to the Issuer:

as soon as possible, but in no event later than 120 days after the end of each of the Corporate Guarantor’s financial years, the annual audited accounts of the Corporate Guarantor and its consolidated subsidiaries;

as soon as possible, but in no event later than 30 days after the end of each quarter in each of the Corporate Guarantor’s financial years unaudited accounts of the Corporate Guarantor and its consolidated subsidiaries which are certified as to their correctness by its chief financial officer.

Form of financial statements. All accounts (audited and unaudited) delivered under Clause 9.5 will:

be prepared in accordance with all applicable laws and generally accepted accounting principles of the U.S.A. consistently applied;

give a true and fair view of the financial condition of the relevant Obligor at the date of those accounts and of its profit for the period to which those accounts relate; and

fully disclose or provide for all significant liabilities of the relevant Obligor.

Shareholder and creditor notices. Each Obligor will send the Issuer, at the same time as they are despatched, copies of all communications which are despatched to its shareholders or creditors or any class of them.

Consents. Each Obligor will maintain in force and promptly obtain or renew, and will promptly send certified copies to the Issuer of, all consents required:

for that Obligor to perform its obligations under any Finance Document to which it is a party;

for the validity or enforceability of any Finance Document to which it is a party;

Maintenance of Security Interests. Each Obligor will:

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

without limiting the generality of paragraph (a), at its own cost, promptly register, file, record or enrol any Finance Document with any applicable court or authority, pay any applicable stamp, registration or similar tax in respect of any Finance Document, give any notice or take any other step which, in the reasonable opinion of the Issuer is or has become necessary or desirable for any Finance Document to be valid, enforceable or admissible in evidence or to ensure or protect the priority of any Security Interest which it creates.

Notification of litigation. Each Obligor will provide the Issuer with details of any legal or administrative action involving any Obligor or any Security Party promptly upon becoming aware of the same where such legal or administrative action might, if adversely determined, have a material adverse effect on the ability of that Obligor to perform its obligations under any Finance Document to which it is a party

No amendment to Shipbuilding Contracts. No Obligor will agree to any amendment or supplement to, or waive or fail to enforce, the Shipbuilding Contract to which it is a party or any of its provisions (and for the purposes of this Clause 9.11 an amendment of a Shipbuilding Contract will always be material if alone or with any previous variations it increases the Contract Price thereunder by more than 5%).

Chief Executive Office. Each Obligor will maintain its chief executive office, and keep its corporate documents and records, at Suite 306, Commerce Building, One Chancery Lane, Hamilton, MH12, Bermuda.

Confirmation of no default. Each Obligor will, within 2 Business Days after service by the Issuer of a written request, serve on the Issuer a notice which is signed by the representative director of such Obligor and which:

states that no Event of Default or Potential Event of Default has occurred and is continuing; or

states that no Event of Default or Potential Event of Default has occurred, except for a specified event or matter, of which all material details are given.

Notification of default. Each Obligor will notify the Issuer as soon as it becomes aware of:

the occurrence of an Event of Default or a Potential Event of Default; or

any matter which indicates that an Event of Default or a Potential Event of Default may have occurred and is continuing;

Provision of further information. Each Obligor will, as soon as practicable after receiving the request, provide the Issuer with any additional financial or other information relating:

to it and its Shipbuilding Contract; or

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

Financial Covenants .

the Obligors undertake to comply at all times with the financial covenants set out in Schedule 3;

the Obligors shall provide to the Issuer within 60 days after the end of each financial quarter of the Corporate Guarantor’s financial year a compliance certificate in the form set out in Schedule 4 executed by the chief financial officer of the Corporate Guarantor and confirming that the financial covenants set out in Schedule 3 have been complied with during each financial quarter; and

a formal review of the financial covenants set out in Schedule 3 will be undertaken by the Issuer upon expiry and prepayment of the Bank of America Facilities whichever is earlier.

Dividends. The Obligors shall procure that the Corporate Guarantor does not pay any dividend or make any other form of distribution except where the following conditions are met:

no Event of Default has occurred and is continuing at the time that the proposed dividend or distribution is to be made;

the aggregate amount of all dividends or distributions in respect of any financial year of the Corporate Guarantor shall not exceed 50% of the Consolidated Net Income for such financial year;

prior to the making of the proposed dividend or distribution the Obligors have provided to the Issuer a certificate executed by the chief financial officer of the Corporate Guarantor confirming that the Corporate Guarantor is in compliance with the minimum Consolidated Fixed Charge Coverage Ratio as set out in Schedule 3 for the Measurement Period immediately preceding the date of the proposed dividend or distribution.

CORPORATE UNDERTAKINGS

General. Each Obligor also undertakes with the Issuer to comply with the following provisions of this Clause 10 at all times during the Security Period except as the Issuer may otherwise permit.

Maintenance of status. Each Obligor will maintain its separate corporate existence and remain in good standing under the laws of the Marshall Islands.

Negative undertakings. No Obligor will:

carry on any business other than in relation to the construction, purchase and eventual ownership, chartering and operation of its Ship; or

effect any form of redemption, purchase or return of share capital; or

provide any form of credit or financial assistance to:

a person who is directly or indirectly interested in that Obligor’s share or loan capital; or

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

issue, allot or grant any person a right to any shares in its capital or repurchase or reduce its issued share capital;

acquire any shares or other securities other than US or UK Treasury bills and certificates of deposit issued by major North American or European banks, or enter into any transaction in a derivative; or

enter into any form of amalgamation, merger or de-merger or any form of reconstruction or reorganisation.

PAYMENTS AND CALCULATIONS

Currency and method of payments. All payments to be made by the Obligors to the Issuer under a Finance Document shall be made to the Issuer:

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

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

to the account of the Issuer at American Express Bank Limited, 3 World Financial Centre, 23rd Floor, New York, NY 10285-2300 USA Account No 000261123 for credit to the Issuer reference “TBS : Argyle and Others : Guarantee Facility”, or to such other account with such other bank as the Issuer may from time to time notify to the Obligors.

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

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

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

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

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

Accounts prima facie evidence. If the account maintained under Clause 11.4 shows an amount to be owing by the Obligors or a Security Party to the Issuer, that account shall be prima facie evidence that that amount is owing to the Issuer.

APPLICATION OF RECEIPTS

Normal order of application. Except as any Finance Document may otherwise provide, any sums which are received or recovered by the Issuer under or by virtue of any Finance Document shall be applied:

FIRST: in or towards satisfaction of any amounts then due and payable under the Finance Documents (or any of them) in such order of application and/or such proportions as the Issuer may specify by notice to the Obligors and the Security Parties;

SECONDLY: in retention of an amount equal to any amount not then due and payable under any Finance Document but which the Issuer, by notice to the Obligors and the Security Parties, states in its opinion will or may become due and payable in the future and, upon those amounts becoming due and payable, in or towards satisfaction of them in accordance with the provisions of this Clause; and

THIRDLY: any surplus shall be paid to the Obligors or to any other person appearing to be entitled to it.

Variation of order of application. The Issuer may, by notice to the Obligors and the Security Parties, provide for a different manner of application from that set out in Clause 12.1 either as regards a specified sum or sums or as regards sums in a specified category or categories.

Notice of variation of order of application. The Issuer may give notices under Clause 12.2 from time to time; and such a notice may be stated to apply not only to sums which may be received or recovered in the future, but also to any sum which has been received or recovered on or after the third Business Day before the date on which the notice is served.

Appropriation rights overridden. This Clause 12 and any notice which the Issuer gives under Clause 12.2 shall override any right of appropriation possessed, and any appropriation made, by the Obligors or any Security Party.

EVENTS OF DEFAULT

Events of Default. An Event of Default occurs if:

any Obligor or any Security Party fails to pay when due or (if so payable) on demand any sum payable under a Finance Document (and so that for this purpose (i) sums payable on demand shall be treated as having been paid when due within 3 Business Days of receipt of the demand and (ii) if the failure is caused by a disruption to the payments system referred to in Clause 11.1(b) which disruption is beyond the control of the Obligors, such failure shall not constitute an Event of Default if payment is made within 3 Business days of its due date); or

any breach occurs of Clause 7.2, 9.3, 10.2 or 10.3; or

any breach occurs of Clause 9.16(a); or

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

any representation, warranty or statement made by, or by an officer of, any Obligor or a Security Party in a Finance Document or in a Guarantee Issue Request or any other notice or document relating to a Finance Document is untrue or misleading in any material respect when it is made; or

any of the following occurs in relation to any Financial Indebtedness of a Relevant Person:

any Financial Indebtedness of a Relevant Person is not paid when due or, if so payable, on demand (or in either such case, within any applicable grace period); or

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

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

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

any Security Interest securing any Financial Indebtedness of a Relevant Person becomes enforceable;

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

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

all or substantially all of the assets of a Relevant Person are subject to any form of execution, attachment, arrest, sequestration or distress in respect of a sum of, or sums aggregating, $500,000 or more or the equivalent in another currency and is not discharged within 1 month of the same being levied or sued out; or

any administrative or other receiver is appointed over any substantial part of the assets of a Relevant Person; or

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

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

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

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

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

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

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

in a Pertinent Jurisdiction other than England or Wales or to the jurisdiction of whose courts any part of that Relevant Person’s assets are subject, any event occurs, any proceedings are opened or commenced or any step is taken which, in the opinion of the Issuer is similar to any of the foregoing; or

any Obligor ceases or suspends carrying on its business or a part of its business which, in the opinion of the Issuer, is material in the context of this Agreement; or

it becomes unlawful in any Pertinent Jurisdiction or impossible:

for any Obligor or any Security Party to discharge any liability under a Finance Document or to comply with any other obligation which the Issuer considers material under a Finance Document unless provided that none of the interests of the Issuer is prejudiced in any way during the relevant period, the discharge of that liability or compliance with that obligation or exercise or enforcement of those rights ceases to be unlawful within 30 days; or

for the Issuer to exercise or enforce any right under, or to enforce any Security Interest created by, a Finance Document; or

any official consent necessary to enable any Obligor or any Security Party to comply with any provision which the Issuer considers material of a Finance Document or any of the Shipbuilding Contracts is not granted, expires without being renewed, is revoked or becomes liable to revocation or any condition of such a consent is not fulfilled; or

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

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

an Event of Default (as defined in the Loan Agreement) occurs; or

any other event occurs or any other circumstances arise or develop including, without limitation a change in the financial position, state of affairs or prospects of any Obligor in the light of which the Issuer considers that there is a significant risk that any Obligor is, or will later become, unable to discharge its liabilities under the Finance Documents as they fall due.

Actions following an Event of Default. On, or at any time after, the occurrence of an Event of Default and while the Event of Default is continuing the Issuer may:

serve on the Obligors a notice stating that all obligations of the Issuer to the Obligors under this Agreement are terminated; and/or

serve on the Obligors a notice stating that all other amounts accrued or owing under this Agreement are immediately due and payable or are due and payable on demand; and/or

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

Termination of obligations. On the service of a notice under Clause 13.2(a), all the obligations of the Issuer to the Obligors under this Agreement shall terminate and the amount specified in Clause 5.6 shall become immediately due and payable or, as the case may be, payable on demand.

Acceleration of liabilities. On the service of a notice under Clause 13.2(b), all amounts accrued or owing from the Obligors or any Security Party under this Agreement and every other Finance Document shall become immediately due and payable or, as the case may be, payable on demand.

Multiple notices; action without notice. The Issuer may serve notices under Clauses 13.2(a) and (b) simultaneously or on different dates and it may take any action referred to in Clauses 13.2 if no such notice is served or simultaneously with or at any time after the service of both or either of such notices.

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

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

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

Relevant Persons. In this Clause 13 a “ Relevant Person ” means any Obligor and any Security Party.

Interpretation. In Clause 13.1(f) references to an event of default or a termination event include any event, howsoever described, which is similar to an event of default in a facility agreement or a termination event in a finance lease; and in Clause 13.1(g) “ petition ” includes an application.

FEES AND EXPENSES

Arrangement and commitment fees.  The Obligors shall pay to the Issuer:

on Guarantee Issue Date in respect of each Guarantee an arrangement fee in respect of such Guarantee in the amount specified in the Fee Letter; and

quarterly in arrears during the period from (and including) the first Guarantee Issue Date to the date of cancellation or termination of the last Guarantee and on the last day of that period a commitment fee at the rate specified in the Fee Letter.

Costs of negotiation, preparation etc. The Obligors shall pay to the Issuer on its demand the amount of all expenses incurred by the Issuer in connection with the negotiation, preparation, execution or registration of any Finance Document or any related document or with any transaction contemplated by a Finance Document or a related document.

Costs of variation, amendments, enforcement etc. The Obligors shall pay to the Issuer, on the Issuer’s demand, the amount of all expenses incurred by the Issuer (in the case of paragraphs (a) and (b) such expenses to be reasonably incurred) in connection with:

any amendment or supplement to a Finance Document, or any proposal for such an amendment to be made;

any consent or waiver by the Issuer under or in connection with a Finance Document, or any request for such a consent or waiver;

any step taken by the Issuer with a view to the protection, exercise or enforcement of any right or Security Interest created by a Finance Document or for any similar purpose.

Documentary taxes. The Obligors shall promptly pay any tax payable on or by reference to any Finance Document, and shall, on the Issuer’s demand, fully indemnify the Issuer against any claims, expenses, liabilities and losses resulting from any failure or delay by the Obligors to pay such a tax.

Certification of amounts. A notice which is signed by 2 officers of the Issuer, which states that a specified amount, or aggregate amount, is due to the Issuer under this Clause 14 and which indicates (without necessarily specifying a detailed breakdown) the matters in respect of which the amount, or aggregate amount, is due shall (save in the case of manifest error) be prima facie evidence that the amount, or aggregate amount, is due.

INDEMNITIES

Indemnities regarding issue of Guarantees. Without prejudice to the Obligors’ indemnity contained in Clause 5, the Obligors shall fully indemnify the Issuer on its demand in respect of all claims, expenses, liabilities and losses which are made or brought against or incurred by the Issuer, or which the Issuer reasonably and with due diligence estimates that it will incur, as a result of or in connection with:

a Guarantee not being issued on the date specified in the relevant Guarantee Issue Request for any reason other than a default by the Issuer;

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

the occurrence and/or continuance of an Event of Default or a Potential Event of Default;

Breakage costs. Without limiting its generality, Clause 15.1 covers any claim, expense, liability or loss, including a loss of a prospective profit, incurred by the Issuer in liquidating or employing deposits from third parties acquired or arranged to fund or maintain any overdue amount.

Miscellaneous indemnities. The Obligors shall fully indemnify the Issuer on its demand in respect of all claims, expenses, liabilities and losses which may be made or brought against or incurred by the Issuer, in any country, as a result of or in connection with any action taken, or omitted or neglected to be taken, under or in connection with any Finance Document by the Issuer or by any receiver appointed under a Finance Document other than claims, expenses, liabilities and losses which are shown to have been directly and mainly caused by the dishonesty or wilful misconduct or reckless action with knowledge of the probable consequences of the officers or employees of the Issuer.

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

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

obtaining an order or judgment from any court or other tribunal; or

enforcing any such order or judgment;

Certification of amounts. A notice which is signed by 2 officers of the Issuer, which states that a specified amount, or aggregate amount, is due to the Issuer under this Clause 15 and which indicates (without necessarily specifying a detailed breakdown) the matters in respect of which the amount, or aggregate amount, is due shall (save in the case of manifest error) be prima facie evidence that the amount, or aggregate amount, is due.

NO SET-OFF OR TAX DEDUCTION

No deductions. All amounts due from an Obligor under a Finance Document shall be paid:

without any form of set-off, cross-claim or condition; and

free and clear of any tax deduction except a tax deduction which that Obligor is required by law to make.

Grossing-up for taxes. If an Obligor is required by law to make a tax deduction from any payment:

that Obligor shall notify the Issuer as soon as it becomes aware of the requirement;

that Obligor shall pay the tax deducted to the appropriate taxation authority promptly, and in any event before any fine or penalty arises;

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

Evidence of payment of taxes. Within one month after making any tax deduction, the Obligor concerned shall deliver to the Issuer documentary evidence satisfactory to the Issuer that the tax had been paid to the appropriate taxation authority.

Tax credits. If the Issuer receives for its own account a repayment or obtains relief or credit in respect of tax paid or otherwise payable by it in respect of or calculated by reference to the increased payment made by an Obligor under Clause 16.2, it shall pay to the relevant Obligor a sum equal to the proportion of the repayment, relief or credit which it allocates to the amount due from that Obligor in respect of which that Obligor made the increased payment:

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

nothing in this Clause 16.4 shall oblige the Issuer to arrange its tax affairs in any particular manner, to claim any type of relief, credit, allowance or deduction instead of, or in priority to, another or to make any such claim within any particular time;

nothing in this Clause 16.4 shall oblige the Issuer to make a payment which would leave it in a worse position than it would have been in if the relevant Obligor had not been required to make a tax deduction from a payment; and

any allocation or determination made by the Issuer under or in connection with this Clause 16.4 shall (save in the case of manifest error) be conclusive and binding on the Obligors.

Exclusion of tax on overall net income. In this Clause 16 “ tax deduction ” means any deduction or withholding for or on account of any present or future tax except tax on the Issuer’s overall net income.

ILLEGALITY, ETC

Illegality. This Clause 17 applies if the Issuer notifies the Obligors that it has become, or will with effect from a specified date, become:

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

contrary to, or inconsistent with, any regulation,

Notification and effect of illegality. On the Issuer notifying the Obligors under Clause 17.1:

the Commitment shall be cancelled;

the Obligors shall use their best endeavours to procure the prompt cancellation of the Outstandings and the return of each Guarantee to the Issuer endorsed by the Seller to the effect that it is cancelled; and

by no later than the date specified in the Issuer’s notice under Clause 17.1 as the date on which the notified event would become effective, the Obligors shall pay to the Issuer the amount due under Clause 5.6.

Mitigation . If circumstances arise which would result in a notification under Clause 17.1 then, without in any way limiting the rights of the Issuer under Clause 17.2, the Issuer shall notify the Obligor and shall use reasonable endeavours to transfer its obligations and liabilities under this Agreement and the Guarantees and its rights under this Agreement and the Finance Documents to another office or financial institution not affected by the circumstances but the Issuer shall not be under any obligation to take any such action if, in its opinion, to do so would or might:

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

involve it in any activity which is unlawful or prohibited or any activity that is contrary to, or inconsistent with, any official requirement; or

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

INCREASED COSTS

Increased costs. This Clause 18 applies if the Issuer notifies the Obligors that it considers that as a result of:

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

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

Meaning of “increased costs”. In this Clause 18, “ increased costs ” means:

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

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

an additional or increased cost of funding all or maintaining all or any part of the Outstandings or other unpaid sums or (as the case may require) the proportion of that cost attributable to the Outstandings or other unpaid sums; or

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

Payment of increased costs. The Obligors shall pay to the Issuer, on its demand, the amounts which the Issuer from time to time notifies the Obligors that it has specified to be necessary to compensate it for the increased cost (provided that such demand is accompanied by a certificate from the Issuer confirming the amount of its increased cost and including a calculation thereof).

Notice of cancellation. If the Obligors are not willing to continue to compensate the Issuer for the increased cost under Clause 18.3, the Obligors may give the Issuer not less than 14 days’ notice of its intention to cancel the Commitment and procure the cancellation of the Outstandings.

Cancellation. A notice under Clause 18.4 shall be irrevocable; and on the date specified in its notice of intended cancellation:

the Commitment shall be cancelled;

the Obligors shall procure the cancellation of the Outstandings and the return of each Guarantee to the Issuer endorsed by the Seller to the effect that it is cancelled; and

the Obligors shall pay to the Issuer the amount due under Clause 5.6.

Mitigation . If circumstances arise which would result in a notification under Clause 18.1 then, without in any way limiting the rights of the Issuer under Clause 18.3, the Issuer shall notify the Obligor and shall use reasonable endeavours to transfer its obligations and liabilities under this Agreement and the Guarantees and its rights under this Agreement and the Finance Documents to another office or financial institution not affected by the circumstances but the Issuer shall not be under any obligation to take any such action if, in its opinion, to do so would or might:

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

involve it in any activity which is unlawful or prohibited or any activity that is contrary to, or inconsistent with, any official requirement; or

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

SET-OFF

Application of credit balances. The Issuer may without prior notice following the occurrence of an Event of Default which is continuing:

apply any balance (whether or not then due) which at any time stands to the credit of any account in the name of any Obligors at any office in any country of the Issuer in or towards satisfaction of any sum then due from the Obligors to the Issuer under any of the Finance Documents; and

for that purpose:

break, or alter the maturity of, all or any part of a deposit of any Obligor;

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

enter into any other transaction or make any entry with regard to the credit balance which the Issuer considers appropriate.

Existing rights unaffected. The Issuer shall not be obliged to exercise any of its rights under Clause 19.1;