facts and transactions, which in the opinion of the Owner affect the financial results in, the performance of, or transactions or operations under, this Agreement. The Owner reserves the right to require that all or any of such statements, reports and memoranda shall be certified by independent certified public accountants acceptable to the Owner. Specific reporting requirements subsequently prescribed will be subject to the approval of the Bureau of the Budget pursuant to the Federal Reports Act of 1942.

(b) The Owner is hereby authorized to examine and audit the books, records and accounts of all persons referred to above in this Clause whenever it may deem it necessary or desirable, including an analysis of the surplus and all supporting accounts. The Charterer agrees to allow any and all auditors, inspectors, attorneys, and other employees, designated by the Owner, full, free and complete access at all reasonable times, to the Vessel when in port or undergoing repairs, and to all books, records, papers, memoranda or other documents of the Charterer wherever located or of any holding company, subsidiary company or affiliated company of the Charterer pertaining to any activities relating in any way to the Vessel(s), and further agrees to permit the making of photostatic or other copies of any such books, records, papers, memoranda or other documents and to furnish without charge adequate office space and other facilities reasonably required by such auditors, attorneys, or inspectors in the performance of their duties. The Charterer further agrees to establish and maintain from time to time such checks upon or systems of control of expenditures or revenues in connection with the operation of the Vessel(s) as the Owner may request.

(c) Upon the wilful failure or wilful refusal of any person described in this Clause to comply with the above provisions of this Clause, the Owner shall have the right to rescind this Agreement, and upon such rescission, the Owner shall be relieved of all further liability under this Agreement.

CLAUSE 38. Definitions. The terms "net voyage profit," "fair and reasonable overhead expenses," and "capital necessarily employed" as used herein with respect to the operations of the Vessel(s) and services incident thereto are hereby defined for the purpose of this Agreement only, as follows:

(a) "Net voyage profit" shall be determined by deducting from gross income, as hereinafter defined, such direct vessel operating expenses, terminal and other auxiliary operating expenses, overhead expenses, interest expense, amortization of deferred charges, depreciation on property utilized in the operation of the Vessel(s), and all other charges which are customarily made in accordance with sound accounting practice in determining net profits before provision for federal income taxes, all as the Owner may deem fair and reasonable, provided, that in instances where the Charterer engages in

other activities in addition to the operation of the Vessel(s) covered by this Agreement, such charges, other than those directly and exclusively allocable to the operation of the Vessel(s) shall be prorated between these activities on such basis as the Owner may determine to be fair and reasonable.

"Gross income" shall include such items as revenue earned from the carriage of cargo, passengers, and mail, terminal and other auxiliary operations and miscellaneous profits and losses, such as those arising from pooling agreements, advance and prepaid beyond items, bar and slop chest, and such other transactions as the Owner may determine are properly included. "Gross income" shall include also interest earned, dividends received, and other non-operating income, as well as all accruals, if any, to the Charterer as an operating-differential subsidy. If the Charterer engages in any other activities in addition to the operation of the Vessel(s), the revenues and miscellaneous income, other than those exclusively applicable to the operation of the Vessel(s), shall be prorated between these activities on such basis as the Owner may determine to be fair and reasonable.

Income consisting of capital gains and expenses consisting of capital losses shall in no event be included in the computation of "Net Voyage Profit," as above defined.

Income from and expenses attributable to assets, other than the Vessel(s), excluded in the computation of "Capital Necessarily Employed," as hereinafter defined, shall not be included in the computation of "Net Voyage Profit," as above defined.

In determining "Net Voyage Profit," as above defined, all profits of persons performing services or supplying facilities to the Charterer which are required to be included in the earnings of the Charterer under Section 803 of the Act shall be taken into account.

(b) "Fair and reasonable overhead expenses" shall include those expenses actually and necessarily incurred in the conduct of the business of operating the Vessel(s), such as salaries of officers; wages of employees; legal and accounting fees and expenses; rent, heat, light, and power; communication expenses; office supplies, stationery, and printing; membership dues and subscriptions; entertaining and solicitation; traveling expenses; insurance and bond premiums; postage; maintenance of office equipment; and miscellaneous administrative and general expenses, all as the Owner may determine to be fair and reasonable and properly included, provided, that there shall be deducted from the total of such expenses, agency fees, commissions, brokerage, and such other miscellaneous earnings as the Owner may determine to be properly deductible.

"Fair and reasonable overhead expenses" shall include also freight, passenger, and other expenses incident to advertising the Vessel(s) and the route served; taxes, other than Federal income taxes; and management

and operating commissions, but only if and in the cases where the express written consent of the Owner has been given the Charterer to employ any other person or concern as the managing or operating agent of the Charterer; all as the Owner may determine to be fair and reasonable and properly included.

If the Charterer engages in other activities in addition to the operation of the Vessel(s), the "Fair and Reasonable Overhead Expenses" other than those directly and exclusively allocable to the Operation of the Vessel(s) shall be prorated between such activities on such basis as the Owner may determine to be fair and reasonable.

(c) Except in instances where the Charterer is granted an operating-differential subsidy (which is covered by the last paragraph of this subsection (c)), "Capital necessarily employed" shall be determined upon the basis of the net worth reported by the Charterer in its balance sheet as of the close of the month preceding the date of delivery of the first vessel under this Agreement (or in the last previous balance sheet deemed by the Owner to fairly present the financial position of the Charterer, but adjusted to take into account subsequent changes in net worth and such other changes as the Owner may deem essential to a proper determination of "Capital Employed" as at the end of such month), and as at each succeeding December 31st during the effective period of the Agreement, adjusted as hereinafter provided. For the purpose of this determination, net worth, as stated in the balance sheet of the Charterer, shall be deemed to include capital stock, surplus and such subdivisions thereof as capital surplus, earned surplus, and accounts of like nature. Net worth, as thus stated, shall be adjusted in such manner as the Owner may determine to be fair and reasonable, including the elimination of appreciation, adequate statement of the liabilities, and such other adjustments as are consistent with sound accounting principles. In the computation of "Capital Necessarily Employed," good will, intangibles not actually purchased and paid for, and stock held in treasury shall be excluded.

Property and other assets utilized in the operation of the Vessel(s) shall be valued at cost, including betterments and reconditioning costs, to the present owner or to any former owner at any time affiliated or assoclated directly or indirectly with the present owner, whichever is the lower, less depreciation; provided, that the cost of acquisition of assets acquired in exchange for capital share or other securities of the Charterer from other than holding, subsidiary, affiliated, or associated companies, shall not be in excess of the fair value of such property at the date of acquisition.

Additional capital, in the form of cash or tangible property paid in during the charter period, shall be included in the computation of "Capital Necessarily Employed" from the date paid in. Conversely, any withdrawals of capital shall be deducted from the date

withdrawn; provided, however,

no

that capital shall be withdrawn and no share capital shall be converted into debt without the prior written approval of the Owner. Earnings and capital gains (or losses) for any accounting period subsequent to the last day of the month preceding the month during which delivery of the first Vessel is made hereunder to the Charterer by the Owner shall not be included in the computation of the "Capital Necessarily Employed" for the year or other accounting period in which realized (or sustained). Dividends paid out of earnings that have not been included in "Capital Employed" shall not be deducted from "Capital Employed."

If the Charterer engages in other activities in addition to the operation of the Vessel(s), the Owner shall determine the proper allocation of capital as between such activities. The amount so allocated to the operation of the Vessel(s) shall be deemed to be the "Capital Necessarily Employed."

In the event the Charterer is granted an operating-differential subsidy, "Capital Necessarily Employed" in the business of the Vessel(s) chartered hereunder shall be determined upon the bases provided by the United States Maritime Commission with respect to subsidized vessels in its General Order No. 71 as adopted by its successors, the Federal Maritime Board and Maritime Administration, and amended from time to time, excepting inapplicable provisions of that Order (such as those relating to (1) ship equities, (2) deposits in the Special Reserve Fund, (3) deposits in the Capital Reserve Fund, and (4) progress payments on vessels under construction) as determined by the Owner.

F. Termination-Miscellaneous. CLAUSE 39. Events of default. The following shall constitute events of default under this Agreement:

(a) The failure of the Charterer to pay the charter hire on each Vessel as and when the same shall be due under the terms of this Agreement.

(b) The failure of the Charterer to operate each Vessel as required by Clause E, Part I, or the operation of the Vessel(s) on some other route without the prior written approval of the Owner.

(c) Any material misrepresentation by the Charterer in connection with this Agreement whether before or after execution hereof and whether made in an application, report or otherwise, or any wilful failure by the Charterer to disclose information necessary to cause any material representation by it not to be misleading.

(d) The occurrence of any event causing the Charterer to be ineligible for charter of the Owner's vessels.

(e) A voluntary sale by the Charterer of this Agreement or any interest therein, or any assignment, transfer, agreement or any other arrangement whereby the maintenance, management or operation of the above described service, route, or Vessel(s) shall

pass out of the direct control of the Charterer without the consent of the Owner.

(f) The filing of a petition in bankruptcy by the Charterer or the entry of an order, upon petition against the Charterer, adjudicating the Charterer a bankrupt, or the making of a general assignment for the benefit of creditors, or the Charterer losing its charter by forfeiture or otherwise, or the appointment of a receiver or receivers of any kind whatsoever, whether appointed or not in Admiralty, Bankruptcy, Common Law or Equity proceedings, and whether temporary or permanent, for the property of the Charterer, or the filing of a petition by the Charterer for reorganization under the Bankruptcy Act, or the filing of such a petition by creditors and the same approved by the court, or the approval of the court of a reorganization of the Charterer under said Act, whether proposed by a creditor, a stockholder or any other person whomsoever.

(g) Any breach by the Charterer of its obligations under this Agreement (including but without limitation, the obligation to maintain a Performance Bond as required by Clause 3) or any agreement executed in connection therewith (including but not limited to any operating-differential subsidy agreement with respect to the Vessel), or any ship mortgage given to or construction agreement made with the United States.

(h) Failure by the Charterer to comply with any applicable provision of the Merchant Marine Act, 1936, as amended, or of any law relating to the operation of the Vessel(s).

(1) Failure by any subsidiary company, holding company, affiliate company or associate company of the Charterer, or failure by any person performing services or supplying facilities to the Charterer subject to the provisions of Section 803 of the Act, to conform to the provisions of this Agreement.

CLAUSE 40. Termination upon default. (a) The Owner may terminate this Agreement in whole or in part without notice to the Charterer in case any event of default specified in paragraphs (a), (b), (c), (d), (e) or (f) of the preceding Clause 39 shall occur, or if any other default specified in paragraphs (g), (h) or (1) of said Clause shall occur and shall continue for a period of 30 days after notice thereof has been mailed or telegraphed by the Owner to the Charterer.

(b) Upon termination, the Owner may, at its option, retake the Vessel(s), wherever the same may be found, whether upon the high seas or in any port, harbor, or other place, without prior demand and without legal process and for that purpose may enter upon any dock, pier, or other premises where the Vessel(s) may be and may take possession thereof, or may require the Charterer to redeliver such Vessel(s) in accordance with terms of this Agreement immediately upon the receipt of a notice demanding such redelivery.

(c) The rights conferred upon the Owner by this Clause are cumulative and in addition to any rights which it may have at law or in equity or by virtue of the terms of the Agreement.

CLAUSE 41. Termination of business. Upon termination of this Agreement, the Charterer shall turn over to the Owner, at such time and at such place as the Owner may direct, each Vessel and all property of whatsoever nature which the Owner may theretofore have delivered to the Charterer or to which the Owner is entitled under the terms of this Agreement, and the Charterer shall at its own expense make to the owner such accounting as the Owner may require of all matters arising out of the operation of the Vessel(s) and this Agreement, and shall adjust, settle, and liquidate such accounts, provided, however, that the Owner may collect directly all freight moneys or other debts remaining unpaid and apply any moneys collected on any unpaid balance due from the Charterer to the Owner. All expenses of such collection shall be for the account of the Charterer.

CLAUSE 42. Cancellation or modification by mutual consent. This Agreement may be terminated, modified, or amended at any time by mutual consent.

CLAUSE 43. Warranty against contingent fees. The Charterer warrants that no person or agency has been employed or retained to solicit or secure this Agreement upon an agreement or understanding for a commission, percentage, brokerage, or contingent fee, excepting bona fide employees or bona fide established commercial agencies maintained by the Charterer for the purpose of securing business. For breach or violation of this warranty, the Owner shall have the right to annul this contract without liability or in its discretion to require the Charterer to pay, in addition to the charter hire, the full amount of such commission, percentage, brokerage, or contingent fee.

The

CLAUSE 44. Renegotiation. This Agreement shall be deemed to contain all the provisions required by Section 104 of the Renegotiation Act of 1951, as amended and extended. Contractor (which term as used in this sentence in the Bareboat Charter Agreement, means the Bareboat Charterer, and, as used in this sentence in related sub-contracts shall mean the party contracting to perform the work or furnish the materials required under such sub-contract) shall, in compliance with said Section 104, insert the provisions of this Clause in each sub-contract and purchase order made or issued in carrying out this Agreement.

CLAUSE 46. Officers and crew. The Charterer agrees, with respect to the Vessel(s) that during the period of this Agreement: (a) Insofar as is practicable, officers' living quarters shall be kept separate and apart from those furnished for members of the crew; the Charterer shall comply with all rules and regulations promulgated by the appropriate agencies of the United States.

(b) Licensed officers and unlicensed members of the crew shall be entitled to make complaints or recommendations to the Owner, providing they file such complaint or recommendation directly with the Owner or with their immediate superior officer, who shall be required to forward such complaint or recommendation with his remarks to the Owner, or with the authorized representative of the respective collective bargaining agencies.

(c) Licensed officers who are members of the United States Naval Reserve shall wear on their uniforms such special distinguishing insignia as may be approved by the Secretary of the Navy; officers being those men serving under licenses issued by the United States Coast Guard or its successor.

(d) The uniform stripes, decoration, or other insignia shall be of gold braid or woven gold or silver material, to be worn by officers, and no member of the ship's crew other than licensed officers shall be allowed to wear any uniform with such officer's identifying insignia.

(e) No discrimination shall be practiced against licensed officers who are otherwise qualified, because of their failure to qualify as members of the United States Naval Reserve.

(f) The Charterer shall comply with all laws governing the citizenship of licensed officers and crews, including Section 302 of the Act.

CLAUSE 47. Nondiscrimination in employment. In connection with the performance of work under this Agreement, the Charterer agrees not to discriminate against any employee or applicant for employment because of race, religion, color, or national origin. The aforesaid provision shall include, but not be limited to, the following: Employment, upgrading, demotion, or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. The Charterer agrees to post hereafter in conspicuous places, available for employees and applicants for employment, notices to be provided by the Owner setting forth the provisions of the nondiscrimination clause.

The Charterer further agrees to insert the foregoing provisions in all sub-contracts hereunder, except sub-contracts for standard commercial supplies or raw materials.

CLAUSE 48. Notices. Unless otherwise provided in this Agreement or mutually agreed

upon, all payments, notices and communications from the Owner to the Charterer, pursuant to the terms of or in connection with this Agreement, shall be made or addressed to the Charterer at the address provided herein, and all payments, notices and communications from the Charterer to the Owner, pursuant to the terms of or in connection with this Agreement, shall be made or addressed to the Owner at its offices in Washington, District of Columbia.

CLAUSE 49. Headnotes. The use of headnotes at the beginning of the clauses of this Agreement is for the purpose of description only and shall not be construed as limiting or in any other manner affecting the substance of the clauses themselves.

(c) The charterer's books, records, and accounts, required to be kept and maintained under Clause 37 (1), Part II, of Form No. 705 charter, shall be retained by the charterer for a period of three (3) years after a release or final settlement is completed between the Maritime Administration and the charterer.

(Sec. 705, 49 Stat. 2009, as amended, 46 U. S. C. 1195) [G. O. 79, 21 F. R. 7937, Oct. 17, 1956] § 221.14 Charges for processing applications for the approval required by sections 9 and 37, Shipping Act, 1916, as amended, or by Maritime Administration contracts covering foreign-flag vessels under the contractual control of the Maritime Administration.

(a) An application for approval pursuant to sections 9 and/or 37, Shipping Act, 1916, as amended, shall be accompanied by a fee in the sum set forth below:

(1) Construction for, sale and/or delivery to, an alien, and/or transfer to foreign registry:

(5) Sale or transfer of stock in a

Per vessel

corporation organized under the laws of the United States, or of any State, Territory, District, or Possession thereof, and which owns any vessel, shipyard, drydock, or shipbuilding or ship-repairing plant or facilities, if by such sale or transfer the controlling interest or a majority of the voting power of said corporation is vested in, or for the benefit of, any person not a citizen of the United States-- $25.00 (6) Departure of a vessel from the

United States if built in the
United States and never
cleared for a foreign port, and
if no transfer to foreign own-
ership or registry involved____

25.00

(c) Application for modification of any approval granted by paragraphs (a) and (b) of this section, the user charge will be the same as if it were an original approval.

(d) All fees set forth in this section will be retained to recover the cost of processing the applications.

(e) Applications for the approvals required pursuant to the above statutes or contracts as set forth in this section should be filed with the Foreign Transfer Branch, Office of Ship Operations, Maritime Administration, Washington, D.C., 20235, on forms which may be obtained from said Branch.

[G.O. 94, Rev., 30 F.R. 7490, June 8, 1965] § 221.15 Fee for processing applications for approval of surrender of marine documents of vessels under sec. 30, subsection O(a), Merchant Marine Act, 1920, as amended.

An application for approval of the surrender of the marine documents of a vessel shall be accompanied by the sum of $15.00, which sum will be retained to recover the cost of processing the application. Such application should be made to the Foreign Transfer Branch,

Office of Ship Operations, Maritime Administration, Washington, D.C., 20235, on forms which may be obtained from said Branch.

[G.O. 94, 27 F.R. 1169, Feb. 8, 1962]

§ 221.16 Fee for processing applications to transfer vessels, subject to mortgage outstanding in favor of the United States of America.

to

(a) Application for permission transfer title to a vessel, subject to a mortgage in favor of the United States of America pursuant to the provisions of the 1936 Act and related Acts, or special legislation, and to have the mortgage assumed by a new mortgagor, may be made by the mortgagor joined by the proposed transferee, to the Secretary, Maritime Administration, Washington, D.C., 20235.

(b) Fee: Such application shall be accompanied by the sum of $400, which sum will be retained to recover the cost of processing the application. [G.O. 94, 27 F.R. 1169, Feb. 8, 1962]

APPROVAL OF TRUSTEES UNDER PUBLIC
LAW 89-346

The purpose of §§ 221.21-221.30 is to provide for the approval and disapproval by the Secretary of Commerce of banks and trust companies as trustees under Public Law 89-346 (amending secs. 9 and 37 of the Shipping Act, 1916, and subsec. 0 of the Ship Mortgage Act, 1920, and providing a procedure for assuring the validity of certain bonds, notes and other evidence of indebtedness, including the issuance, transfer and assignment thereof, and the validity and preferred status of certain mortgages of vessels). The functions of the Secretary of Commerce under Public Law 89-346 have been delegated to the Maritime Administrator pursuant to § 3.03 of Department Order 117 (Revised) (27 F.R. 3637, April 27, 1962).

[G.O. 107, 31 F.R. 4408, Mar. 15, 1966] § 221.22 Definitions.

As used in §§ 221.21 to 221.30, including the forms referred to in § 221.30, the term "vessel" means a vessel the transfer of which to a person not a citizen of the United States is prohibited by sections 9 or 37 of the Shipping Act, 1916, as amended, and for the purpose of section 9 also means a vessel under construction for documentation under the laws of the United States and owned in whole or in