The Oil Pollution Act of 1990 (“OPA 90”) affects all vessel owners shipping oil or hazardous material to, from, or within the U.S. The law phases out the use of tankers having single hulls, effectively imposes on vessel owners and operators unlimited liability in the event of a catastrophic oil spill and establishes the Oil Spill Liability Trust fund. OPA 90 requires that tankers over 5,000 gross tons calling at U.S. ports have double hulls if contracted after June 30, 1990, or delivered after January 1, 1994. Furthermore, it calls for the elimination of all single hull vessels by the year 2010 on a phase-out schedule that is based on size and age, unless the tankers are retrofitted with double hulls. The law permits existing single hull tankers to operate until the year 2015 if they discharge at deep water ports, such as the Louisiana Offshore Oil Port (‘‘LOOP’’), or lighter more than 60 miles offshore. The International Maritime Organization (‘‘IMO’’) has adopted regulations that require tankers of 5,000 dwt and over, contracted after July 6, 1993, to have double hull, mid-deck or equivalent design. The regulations also require the phase out of non-double hull tankers by 2017 or when a vessel reaches 25 year of age, whichever is the earlier date, with most of the non double hulled tonnage phased out by 2007. Existing single hull tankers will be phased out unless they are retrofitted with double hull, mid-deck or equivalent design or undergo an extensive condition assessment scheme no later than 30 years after delivery. Another IMO regulation mandates that existing single hull crude oil tankers larger than 20,000 dwt and product tankers over 30,000 dwt without segregated ballast tanks (‘‘SBT’’) must convert to SBT operations using at least 30% of their wing tanks, or cargo tank bottom area, for this purpose by the age of 25 or be hydrostatically-balance loaded in the wing tanks to provide equivalent oil outflow abatement in the event of casualty. The U.S. has not adopted these IMO regulations, as the IMO regulations recognize, in addition to double hull, other designs as well as contain different phase out dates for existing single hull tankers which are in conflict with provisions of OPA 90. As a result, some vessels which are eligible to trade internationally will be unable to carry cargo to or from the United States, except to LOOP or if lightered, and some vessels which may trade in the U.S. will be unable to trade elsewhere.

     Following the sinking in late 2002 of the PRESTIGE, a 26 year old single hulled tanker, off the coast of Spain, various European governments have initiated actions designed to accelerate the phase out of single hulled vessels and have banned single hull tankers from carrying heavy fuel, tar, asphaltic bitumen and heavy crude oil through their waters. A recent post-PRESTIGE European Union proposal would accelerate the phase out of single hull tankers prior to the timetables set by IMO as follows: (1) Category 1 ships which are single hull crude oil tankers above 20,000 dwt and product carriers above 30,000 dwt, which do not have segregated ballast tanks, which are 23 years old or by 2005, whichever comes first; (2) Category 2 ships, which are similar to Category 1 ships, but which have segregated ballast tanks, which are 28 years old or by 2010, whichever comes first; and (3) Category 3 ships which are smaller than Category 1 or 2 ships, which are 28 years old or by 2015, whichever comes first. Even without further actions by governments, we believe that many customers will avoid single hulled vessels to the extent double hulled vessels are available, thereby continually widening the gap in earnings ability and vessel values which exists between the vessels and economically will accelerate the phase out of single hulled vessels. Even though our single hull vessels may be adversely affected, we believe the benefits to the double hull portion of our fleet from stricter regulation and customer requirements more than offset any detriments to our single hulled vessels.

     The Company believes that these laws and regulations benefit owners such as the Company which have modern fleets, by eliminating older vessels as competitors through accelerated scrapping of tankers, thereby reducing the supply of vessels that would otherwise exist.

     In the U.S., liability for an oil spill is governed not only by OPA 90, but also by the laws, rules and regulations established by every coastal and inland waterway state. Federal law does not preempt such state laws and provides that claims made by state governments and other affected parties are not subject to limitation of liability if the oil spill results from gross negligence, willful misconduct or violation of any federal operating or safety standard. One result of OPA 90 has been a greater prominence for independent owners with a reputation for high quality of technical management and well maintained physical assets. Another effect of the law has been to increase the relative costs for liability insurance for vessel owners trading to the U.S. While OMI maintains insurance at levels it believes prudent, claims from a catastrophic spill could exceed the insurance coverage available, in which event there could be a material adverse effect on OMI.

     We believe that compliance with applicable environmental and pollution laws and regulations has not had and is not expected to have a material adverse effect upon its competitive position; however the financial position, value

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