That

(2) Charterer to insure vessel. the charterer shall carry in the chartered vessels, at its own expense, policies of insurance covering all marine and port risks, protection and indemnity risks, and all other hazards and liabilities, in such amounts, in such form, and in such insurance companies as the Administration shall require and approve, adequate to cover all insurable damage claims against and losses sustained by the chartered vessels arising during the life of the charterer: Provided, That in accordance with existing law, some or all of such insurance risks may be underwritten by the Administration itself as in its discretion it may determine.

(3) Charterer to maintain and repair vessel. That the charterer shall at its own expense keep the chartered vessel in good state of repair and in efficient operating condition and shall at its own expense make any and all repairs as may be required by the Administration.

(4) Administration inspection of vessel. That the Administration shall have the right to inspect the vessel at any and all times to ascertain its condition.

(5) Books and accounts of charterer; Administration examination and audit. That the charterer shall keep its books and accounts relating to the vessel in such form as the Administration may prescribe, shall file such financial statements as the Administration may require, and shall permit the Administration to examine and audit its books, records and accounts.

(6) Emergency termination of charter. That whenever the President shall proclaim that the security of the national defense makes it advisable, or during any national emergency declared by proclamation of the President, the Administration may terminate the charter without cost to the United States, upon such notice to the charterer as the President shall determine.

(7) Bond of charterer. That, for each vessel chartered under section 5 of the act, the charterer shall deposit with the Administration a bond, in such amount as the Administration shall require but not less than $25,000, to be approved by the Administration both as to form and sufficiency of the sureties, conditioned upon the true and faithful performance of all and singular the covenants and agreements of the charterer contained in the charter, including, but not limited to, the charterer's obligation to pay charter hire and damages, and indemnity against

liens on the chartered vessel. The charterer may, in lieu of furnishing such bond, pledge United States Government securities in the face value of the required amount under an agreement satisfactory in form and substance to the Administration.

(8) Financial limitations. That the charterer agrees that (i) no capital shall be withdrawn, (ii) no share capital shall be redeemed or converted into debt, (iii) no dividend shall be paid, (iv) no loan or advance (except advances to cover current expenses of the charterer) shall be made, either directly or indirectly, to any stockholder, director, officer, or employee of the charterer or to any related company (as defined in § 299.1 (q)), (v) no investment shall be made in the securities of any related company (as defined in § 299.1 (q)), (vi) no indebtedness to any stockholder, director, officer, or employee of the charterer or to any related company (as defined in § 299.1 (q)), which was classified as long-term or noncurrent in the balance sheet submitted with the application (or amendment thereto) to charter the vessel, shall be repaid in whole or in part, and (vii) no salary at a rate in excess of $25,000.00 per annum shall be paid, if, after such transaction, the amount of working capital or the amount of net worth thereby would be reduced below the minima prescribed in paragraph (a) of this section.

(h) Operating - differential subsidy. The Administration may, if in its discretion financial aid is deemed necessary, enter into a contract with any citizen of the United States chartering a vessel under the provisions of the act for payment to such charterer of an operatingdifferential subsidy upon the same terms and conditions and subject to the same limitations and restrictions, where applicable, as are provided in the Merchant Marine Act, 1936, as amended, with respect to payments of such subsidies to operators of privately owned vessels.

(1) Application where request is made for an operating-differential subsidy. Where the applicant requests financial aid in the operation of a vessel chartered under the act, pursuant to paragraph (h) of this section, the application provided for in paragraph (a) of this section shall be accompanied by an application for an operating-differential subsidy in substantially the form prescribed in § 251.11 of this chapter (the Administration's General Order No. 13).

(1) If the application to charter is conditioned upon the granting of financial aid pursuant to paragraph (h) of this section, such application to charter shall be considered for the purpose of § 299.2 as having been filed as of the date of approval by the Administration of the application for financial aid.

(2) If the application for financial aid is disapproved by the Administration, the Secretary will promptly advise the applicant. Unless the applicant notifies the Secretary within 15 days that the application for charter is withdrawn, it will be considered as an application to charter without financial aid and for the purpose of § 299.2 shall be considered as filed as of date of disapproval of the application for financial aid.

(j) Sub-chartering. Vessels chartered from the Administration may be subchartered only with the prior written consent of the Administration.

(k) Preliminary determination and payment of "additional charter hire." (1) On or before November 30, 1946 and on or before the end of each succeeding calendar month, every charterer under a bareboat charter agreement Shipsalesdemise 303 shall pay over to the Administration ninety percent (90%) of the amount then indicated to be due the Administration on account of additional charter hire under that agreement and under Warshipdemiseout 203 (if the charterer chartered vessels from the War Shipping Administration under that form of agreement) for the period ending two calendar months prior to that date, after deducting, with respect to such payments made subsequent to November 30, 1946, the amount of any previous payments made on account of additional charter hire for the period and under the agreement involved, Provided, That for the period from January 1, 1951, to June 30, 1951, such payment shall be made on or before August 31, 1951, and that, for each succeeding quarter-annual period (i. e., September 30, December 31, March 31, and June 30), such payments shall be made within sixty (60) days after the close of each such period. Such payments shall be deemed to be preliminary and subject to adjustment upon the completion of audit by the Administration covering the period involved, and neither the tender thereof by the charterer, nor its acceptance by the Administration, shall prejudice the rights of either under the applicable bareboat charter agreement or

otherwise. The amounts of such payments shall be calculated in accordance with the applicable provisions of the respective agreements, particularly Clause (H)-"Special Provisions" of Part I and Clauses 13-"Additional Charter Hire" and 23-"Definitions" of Part II of Shipsalesdemise 303, and Clauses 13-"Additional Charter Hire" and 23-"Definitions" of Part II of Warshipdemiseout 203, and in accordance with the regulations in this subpart. In instances where audited financial and operating statements have not been prepared by the charterer from its records or by its public accountants, tentative calculations should be prepared for this purpose.

(2) Every such remittance to the Administration on account of "additional charter hire" shall be accompanied by a separate statement in quadruplicate, reflecting the charterer's calculation of "capital necessarily employed", "net voyage profit", and "fair and reasonable overhead expenses" on which the amount of such "additional charter hire" under each agreement is based. This statement shall be certified by a duly authorized officer of the charterer to the following effect:

This statement correctly sets forth, to the best of my knowledge and belief, the "capital necessarily employed" in the business and "net voyage profit" of the chartered vessels, and the amount of "additional charter hire" due the Maritime Administration for the above stated period, pursuant to the provisions of the bareboat charter agreement Warshipdemiseout 203/Shipsalesdemise 303 (delete inapplicable reference) dated

and in accordance with the rules and regulations prescribed in General Order 60 of the Administration, based on the records of the undersigned charterer at this date.

Name of Charterer

Title Date

(3) In instances where the charterer engages in other activities in addition to the operation of vessels under Shipsalesdemise 303, the statements reflecting the charterer's calculation of "capital necessarily employed", "net voyage profit" and "fair and reasonable overhead expenses" shall reflect the distribution of such capital, profit, and expenses, as between (1) operations under Shipsalesdemise 303, (ii) operations (if any) under Warshipdemiseout 203, and (iii) other operations,

together with a complete explanation of the manner in which such distribution was made.

(4) The statements for the period ended September 30, 1946 (required to be submitted on or before November 30, 1946) shall include also (1) the balance sheet of the charterer as of the close of the month preceding the date of delivery of the first vessel under Shipsalesdemise 303, (2) the balance sheet of the charterer as of the close of the month preceding the date of delivery of the first vessel under Warshipdemiseout 203 (if the charterer chartered vessels from the Maritime Commission or Administration under that form of agreement), and (3) the income sheet of the charterer for the fiscal period ended September 30, 1946. (If such fiscal period commenced subsequent to the month during which delivery of the first vessel under the agreement involved was made, the charterer shall submit also its income sheet for the preceding fiscal period.) Thereafter, the statements reflecting the preliminary determination of additional charter hire shall be accompanied by the income sheet of the charterer reflecting its cumulative operating results for the fiscal period ending two calendar months prior to the date when such statements are required to be submitted (e. g., statements required to be submitted on or before December 31, 1946 should be accompanied by an income sheet for the fiscal period ending October 31, 1946). The balance sheets and income sheets herein required shall be certified in the manner prescribed in § 299.8 (b).

(5) If in any instance a statement reflecting the preliminary determination of additional charter hire shall indicate that ninety percent (90%) of the cumulative total of such additional charter hire for the expired portion of the periods involved (which periods under Shipsalesdemise 303 shall end December 31, 1946, at the end of any subsequent calendar year, and at the termination of the agreement; and under Warshipdemiseout 203 shall end only upon redelivery of all vessels under the agreement) is less than the total of the payments theretofore made to the Administration on account of additional charter hire for such period, the charter may apply to the Administration for refund of such overpayment and, if such application is found

to be in order, the amount of the overpayment will be refunded by the Administration.

(6) The application should be made on a public voucher (form 1034-Revised), in quintuplicate, supported by three copies of the statement reflecting the preliminary determination of additional charter hire for the period involved and prepared to read substantially as follows: Claim for refund of excess of preliminary payments made to the Maritime Administration, on account of additional charter hire, over ninety percent (90%) of the amount of such additional charter hire indicated to be due the Commission for the period ended____. under bare

boat charter agreement Warshipdemiseout 203/Shipsalesdemise 303 (delete inapplicable reference), dated___.

as per attached statement which by this reference is incorporated in this claim for refund. Payment by the Maritime Administration of all or any part of the amounts claimed herein will not be construed as an approval of the correctness of the amounts stated to be due the claimant nor as a waiver of any of the rights or remedies of either party under the terms of the said agreement or otherwise.

(7) Upon application of the Charterer the Administration may extend for a period of not to exceed thirty (30) days in any instance the time limit prescribed in this paragraph for the preliminary determination and payment of additional charter hire.

(8) In instances where income sheets covering operations under a Bareboat Charter Agreement Shipsalesdemise 303 and addenda thereto from the commencement of an accounting period show cumulative net voyage losses, it will not be necessary for the charterer to submit statements reflecting its calculation of "capital necessarily employed" unless income sheets covering a previous portion of such period reflected net voyage profits with respect to which the charterer made preliminary payment on account of additional charter hire and seeks a refund thereof: Provided, however, That in any event the charterer shall continue to submit income sheets reflecting its cumulative operating results in the manner and at the times required by this paragraph.1 [G.O. 60, Rev., 22 F.R. 11103, Dec. 31, 1957, as amended at 33 F.R. 2944, Feb. 14, 1968]

1 The books, records and accounts referred to in this section shall be retained two years after a final release or settlement agreement is completed between the Maritime Administration and the charterer.

RESERVES

§ 299.35 Regulations with respect to reserves to be taken into account in the determination of "Net Voyage Profit" under SHIPSALESDEMISE 303 Bareboat Charter Agreement and Addenda thereto.

By the "Reserves Addendum", insofar as Charterers who have executed such addendum are concerned, subparagraph 1 of paragraph (a) of Clause 28 of Part II of Shipsalesdemise 303 Bareboat Charter Agreement was amended to provide, among other things, that, notwithstanding the provisions of United States Maritime Commission General Order No. 22 (Part 282 of this chapter), such reserves as may be specifically authorized by the Owner shall be taken into account in the determination of "Net Voyage Profit" thereunder or the expenses to provide for which such reserves are so authorized shall be distributed over the period of use thereunder of the vessels involved commencing with the first voyage terminating after December 31, 1946, in such manner as will accomplish the same result as though such reserves were established, all pursuant to regulations prescribed by the Owner (referred to in this section as the Administration). To implement that provision of the aforesaid "Reserves Addendum", the following regulations are prescribed:

(a) Subject to the conditions provided in this section, upon application of the Charterer, supported by adequate data based on past experience, the inclusion in vessel operating expenses applicable to all voyages terminating after December 31, 1946, of such charges as the Administration determines to be fair and reasonable will be permitted to provide reserves for:

(1) Vessel repair expenses (including voyage and annual or periodic special survey repair expenses as well as expenses of repairs incident to redelivery of vessels).

(2) Vessel redelivery expenses (excepting such expenses specifically excluded in the determination of additional charter hire by the provisions of the first paragraph of Article V of the Foreign Trade Addendum, or otherwise, and excepting also any overhead expenses of the Charterer) incurred during the period from the time of paying off the crew or completion of discharge of cargo or ballast on the last voyage, or from the

date of availability of the vessel for redelivery pursuant to the terms of the bareboat charter agreement, whichever later occurs, to the time of redelivery of the vessel to the Administration, such as (1) wages of crew, (ii) food and stores consumed, (iii) fuel consumed, (iv) basic charter hire, (v) insurance premiums, (vi) port charges, (vii) cleaning, watching, maintenance expenses, shore labor, and miscellaneous expenses incident to redelivery, and (viii) expenses incident to stripping the ship if required and expenses incident to transporting the ship from port of return in the United States upon its last voyage to port of redelivery, and

(3) Reserves for P. & I. insurance deductible average losses.

(b) The reserves for vessel repair expenses and for vessel redelivery expenses shall be adjusted (1) as at December 31, 1948, with respect to vessels redelivered to the Administration on or before that date, (2) as at the end of each succeeding calendar year with respect to vessels redelivered to the Administration during such year, and (3) at the time of final accounting under the bareboat charter agreement with respect to vessels redelivered to the Administration during the period following the end of the last preceding calendar year. Such adjustment shall be accomplished by distributing separately the balances in such reserves applicable to each individual vesssel redelivered to the Administration during each such period in such manner as will have the effect of spreading the actual expenses applicable to each such vessel over the accounting periods involved (with respect to which a separate determination of additional charter hire is required to be made) on the basis of the relation that the number of vessel days of such vessel in each such period bears to the total of such vessel days commencing with the beginning of the first voyage of such vessel terminating after December 31, 1946, and ending with the date of its redelivery to the Administration.

(c) The reserves for P. & I. insurance deductible average losses shall be adjusted at the time of final accounting under the bareboat charter agreement, by distributing separately the balances in such reserves applicable to each individual vessel in such manner as will have the effect of spreading the actual expenses applicable to each individual

vessel over the accounting periods involved (with respect to which a separate determination of additional charter hire is required to be made) on the basis of the relation that the number of vessel days of such vessel in each such period bears to the total of such vessel days commencing with the beginning of the first voyage of such vessel terminating after December 31, 1946, and ending with the

date of its redelivery to the Administration,

(d) If in any instance either of the reserves specifically authorized in paragraph (a) of this section is not established, or, if established, the amount thereof is not adequate to cover the actual expenses properly chargeable thereto, such expenses, or the excess thereof over the amount of the reserve established to provide therefor, as the case may be, applicable to each individual vessel involved, shall be distributed over the period of use of such vessel under the bareboat charter agreement, commencing with the first voyage terminating after December 31, 1946, in such manner as will accomplish the same result as though adequate reserves were established to provide for such expenses as herein provided.

(e) In the determination of "Net Voyage Profit" under the bareboat charter agreement, there shall not be taken into account (1) any charge resulting from the creation of reserves applicable to voyages terminated prior to January 1, 1947, (2) any charge resulting from the creation of reserves to cover expenses other than those specifically provided for in paragraph (a) of this section, (3) any charge to the period ended December 31, 1946 resulting from the spreading of expenses incurred on voyages terminated thereafter, or (4) any charge resulting from the spreading of expenses other than those with respect to which the creation of reserves is specifically provided for in paragraph (a) of this section.

(f) The establishment of the rules and regulations prescribed in this section is without prejudice to the right of the Administration to determine upon the employment of other bases for allocation of the expenses involved in any instance where, in the judgment of the Administration, the results produced by the application of the regulations prescribed

herein are not fair and reasonable and in accordance with sound accounting practice.

(Sec. 5, 60 Stat. 43, as amended; 50 U. 8. C. App. 1738)

§ 299.36 Regulations with respect to reserves to be taken into account in the determination of "Net Voyage Profit" under SHIPSALESDEMISE Form No. 303 (Military Sea Transportation Service).

Bareboat Charter Agreements.1 Clause 27 of Part II of Form No. 303 Shipsalesdemise (Military Sea Transportation Service) bareboat charter agreement (referred to in this section as the "Agreement") provides, among other things, that notwithstanding the provisions of United States Maritime Commission General Order No. 22, as adopted by its successor, the Federal Maritime Board/Maritime Administration, and amended from time to time (Part 282 of this chapter), such reserves as may be specifically authorized by the Owner shall be taken into account in the determination of "Net Voyage Profit" thereunder or the expenses to provide for which such reserves are so authorized shall be distributed over the period of use thereunder of the vessels involved, in such manner as will accomplish the same result as though such reserves were established, all pursuant to regulations prescribed by the Owner. To implement that provision of the aforesaid agreement, the following regulations are prescribed:

(a) Subject to the conditions provided in this section, upon application of the Charterer, supported by adequate data based on past experience, the inclusion in vessel operating expenses applicable to all voyages terminating after June 30, 1950, of such charges as the Maritime Administration determines to be fair and reasonable will be permitted to provide reserves for:

(1) Vessel repair expenses (including voyage and annual or periodic special survey repair expenses as well as expenses of repairs incident to redelivery of vessels).

(2) Vessel redelivery expenses (excepting expenses for which the Charterer

1 This form of charter is the same as that prescribed by § 299.180 of this chapter except for modifications adapting it for the Military Sea Transportation Service. Copies of this charter will be furnished by the Maritime Administration upon request.