Exhibit 10.2

Contract No. MA-14031

AMENDED AND RESTATED

2006 SECURITY AGREEMENT

SPECIAL PROVISIONS

THIS SECURITY AGREEMENT (the “Security Agreement”), dated April 25, 2005, by and
between AQ BOAT, LLC, a Delaware limited liability company (the “Assuming
Shipowner”), and THE UNITED STATES OF AMERICA, represented by the Secretary of
Transportation, acting by and through the Maritime Administrator (the
“Secretary,” and with the Assuming Shipowner, the “Parties”).

RECITALS:

WHEREAS, Great AQ Steamboat, L.L.C., successor to Great AQ Steamboat Co. (the
“Original Shipowner”) entered into that certain Trust Indenture, dated
August 24, 1995, as amended and supplemented (the “Original Indenture”), with
The Bank of New York (the “Original Trustee”), pursuant to which it issued
certain obligations in the principal amounts and at the interest rates set forth
therein (the “Obligations”), to finance, in part, the construction of a
paddlewheel passenger vessel, AMERICAN QUEEN, O.N. 1030765 (the “Vessel”);

WHEREAS, payment of the principal of and interest on the Obligations is
guaranteed by the United States under the terms of Title XI of the Merchant
Marine Act, 1936 (the “Guarantee”);

WHEREAS, as security for the due and timely payment of debt service set forth in
the Obligations, the Original Shipowner executed and delivered to the Secretary,
inter alia, a promissory note in the amount of the Obligations (the “Secretary’s
Note”), and in order to secure the due and timely payment of the Secretary’s
Note, the Original Shipowner executed and delivered to the Secretary a First
Preferred Ship Mortgage relating to the Vessel, which named the Secretary as
mortgagee (the “Mortgage”), that certain Security Agreement (the “Original
Shipowner Security Agreement”), that certain Title XI Reserve Fund and Financial
Agreement (the “Original Shipowner Financial Agreement”) and that certain
Depository Agreement (the “Original Shipowner Depository Agreement”);

WHEREAS, the Original Shipowner filed for protection under Chapter 11 of the
Bankruptcy Code on October 22, 2001, and failed to make the debt service payment
due and owing on February 24, 2002;

WHEREAS, an auction of certain vessels owned by the Original Shipowner,
including the Vessel, was conducted with the consent of the Bankruptcy Court on
May 3, 2002, and DNPS Delta Queen Steamboat Company, Inc. (“DQSC”) was the
successful bidder;

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WHEREAS, DQSC designated its subsidiary, American Queen Steamboat, LLC (the
“Second Shipowner”), to hold all the right, title and interest in the Vessel,
and the Second Shipowner agreed to assume the Original Indenture and the
Obligations;

WHEREAS, in connection with the assumption of the Obligations, the Second
Shipowner on May 31, 2002 executed that certain Assumption Agreement and 2002
Supplement to Trust Indenture (the “Second Shipowner Trust Indenture
Assumption”), that certain 2002 Endorsement to the Secretary’s Note, that
certain Assumption and 2002 Supplement to the Mortgage, that certain Security
Agreement (the “Second Shipowner Security Agreement”), that certain Depository
Agreement (the “Second Shipowner Depository Agreement”) and that certain Title
XI Reserve Fund and Financial Agreement (the “Second Shipowner Financial
Agreement,” and collectively with the foregoing agreements and related documents
the “Second Shipowner Transaction Documents”);

WHEREAS, pursuant to that certain Asset Purchase Agreement dated as of April 6,
2006 (the “Asset Purchase Agreement”) by and among DQSC, the Second Shipowner,
Mississippi Queen Steamboat, LLC, Delta Queen Steamboat, LLC (collectively, the
“DQ Companies”) and Ambassadors Cruise Group, LLC (“ACG”), the DQ Companies
agreed to sell certain assets, including the Vessel, to ACG;

WHEREAS, in connection with the Asset Purchase Agreement, the Secretary and the
Second Shipowner executed that certain Termination Agreement dated as of the
date hereof pursuant to which the parties agreed to terminate the Second
Shipowner Transaction Documents;

WHEREAS, Ambassadors has designated its subsidiary, AQ Boat LLC (the “Assuming
Shipowner”), to hold all the right, title and interest in the Vessel, and the
Assuming Shipowner agreed to assume the Original Indenture and the Obligations
under terms satisfactory, in form and substance, to the Secretary;

WHEREAS, on the date hereof the Assuming Shipowner has executed and delivered to
the Secretary that certain Assumption Agreement and 2006 Supplement to Trustee
Indenture (the “Assumption Agreement”), pursuant to which it has assumed the
Obligations and the Original Indenture, that certain 2006 Endorsement to the
Secretary’s Note, that certain 2006 Additional Endorsement to Promissory Note to
The United States, that certain Assumption and 2006 Supplement to the Mortgage,
Contract No. MA-14032 (the “Mortgage Assumption”), that certain Depository
Agreement, Contract No. MA-14034 (the “Depository Agreement”), that certain
Title XI Reserve Fund and Financial Agreement, Contract No. MA-14033 (the
“Financial Agreement”), and this Security Agreement;

WHEREAS, the Assuming Shipowner is not assuming, and shall have no obligations
with respect, to (i) the Original Shipowner Financial Agreement or the Second
Shipowner Financial Agreement, (ii) the Original Shipowner Depository Agreement
or the Second Shipowner Depository Agreement, or (iii) the Original Shipowner
Security Agreement or the Second Shipowner Security Agreement, and such
agreements are being replaced with the Financial Agreement, the Depository
Agreement and this Security Agreement; and

 

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WHEREAS, the Assuming Shipowner wishes to comply with its undertakings set forth
in the Assumption Agreement by executing this Security Agreement.

NOW THEREFORE, in consideration of the premises, the mutual covenants set forth
herein, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Parties agree as follows:

ARTICLE I

CONCERNING THESE SPECIAL AND GENERAL PROVISIONS

This Security Agreement shall consist of two parts: the Special Provisions and
the General Provisions attached hereto as Exhibit 1 of the Security Agreement
and incorporated herein by reference. In the event of any conflict, or
inconsistency between the Special Provisions of this Security Agreement and
Exhibit 1, the Special Provisions shall control.

ARTICLE II

ADDITION, DELETIONS AND AMENDMENTS TO EXHIBIT 1

The following additions, deletions and amendments are hereby made to Exhibit 1
of the Security Agreement:

1. General. Wherever it appears in Exhibit 1 of the Security Agreement, the term
“Shipowner” shall mean the “Assuming Shipowner.”

2. Concerning Subsection 1.03(a). Subsection 1.03(a) is hereby amended by
deleting it in its entirety and substituting the following provision in its
place:

“Granting Clause. (a) In order to create a present security interest in the
Secretary, the Assuming Shipowner does hereby grant, sell, convey, assign,
transfer, mortgage, pledge, set over and confirm unto the Secretary continuing
security interests in all of the right, title and interest of the Assuming
Shipowner in and to all of the following, whether now owned or existing or
hereafter arising or acquired:

(1) All goods, whether equipment or inventory appertaining to or relating to the
Vessel, whether or not on board or ashore and not covered by the Mortgage, and
any charter and charter hire relating to such Vessel;

(2) The Title XI Reserve Fund, all monies, instruments, negotiable documents,
chattel paper, and proceeds thereof currently on deposit or hereafter deposited
in, or credited to, the Title XI Reserve Fund;

(3) All monies, instruments, negotiable documents, chattel paper and proceeds
thereof held by the Depository under the Depository Agreement;

 

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(4) Proceeds of Policies of Insurance relating to the Vessel and, whether or not
insured, any general average claims or loss of hire claims the Assuming
Shipowner may have with respect to the Vessel;

(5) The indemnification of the Assuming Shipowner by Delaware North Park
Services, Inc. pursuant to the Asset Purchase Agreement relating to the Assuming
Shipowner’s receipt of clear title to the Vessel; and

(6) All proceeds of the collateral described in paragraphs (1) through (5) of
this section.

The Secretary shall have, as further security, certain right, title and interest
in and to the following:

(7) The Mortgage, executed and delivered by the Original Shipowner in favor of
the Secretary, as mortgagee, as assumed by the Assuming Shipowner pursuant to
the Mortgage Assumption.

3. Concerning Section 1.03(c). Section l.03(c)(1) is hereby amended by deleting
“each Construction Contract and” and “other” wherever they appear.
Section 1.03(c)(2) is hereby deleted in its entirety.

4. Concerning Article II. The provisions of Article II, insofar as such
provisions are applicable to the Vessel, are hereby amended by deleting the
words “Delivery Date” wherever they appear in any section thereof and by
substituting therefor the words “Closing Date.”

5. Concerning Section 2.01. Section 2.01(a)(2) is hereby amended by deleting the
following: “Guarantee Commitment, the Construction Contract, Bond Purchase
Agreement.”

6. Concerning Section 2.02. Section 2.02(d)(1) is hereby deleted in its
entirety.

7. Concerning Section 2.03. Section 2.03 is hereby deleted in its entirety.

8. Concerning Section 2.04. Section 2.04 is hereby deleted in its entirety.

9. Concerning Section 2.05(a). Section 2.05(a) is hereby deleted in its
entirety.

10. Concerning Section 2.05(b).

(A) Section 2.05(b) is hereby amended by deleting all references to
“Proportionate Part of the” or “Proportionate Part of.”

(B) In connection with Section 2.05(b)(3) and the last paragraph of
Section 2.05(e) the maximum amount of self-insurance permitted to the Shipowner
under the last paragraph thereof shall be $750,000 per occurrence.

 

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11. Concerning Section 2.05(c).

(A) In connection with clause (ii) of the initial paragraph of Section 2.05(c),
the Secretary shall permit payment of losses up to the amount of $250,000 to be
made, directly to the Assuming Shipowner under the circumstances specified
therein.

(B) Section 2.05(c)(2) is hereby deleted in its entirety.

(C) Section 2.05(c)(3) is hereby amended by deleting “Proportionate Part of’ and
“a Proportionate Part of” in the proviso.

12. Concerning Section 2.05(g). Section 2.05(g) is hereby amended by deleting
“the Proportionate Part of” in the proviso.

13. Concerning Section 2.07. Section 2.07(c) is hereby amended by deleting
“termination of the Construction Contract relating to such Vessel,” in the first
paragraph thereof, and by deleting all references to “Proportionate Part of,” “a
Proportionate Part of” and “the Proportionate Part of.”

14. Concerning Section 2.08.

(A) The first sentence of Section 2.08(a) is hereby amended by inserting
immediately after the words “Vessel’s documents” and before the word “and” the
following: “; provided that, if at any time, it is provided by law that a
mortgage may be carried or kept at any place other than aboard such Vessel, then
the certified copy of the Mortgage, any supplement to the Mortgage and any
assignment of the Mortgage shall be carried or kept with such Vessel’s
documents;” and

(B) The notice referred to in Section 2.08(b) and (c) shall read as follows:

“NOTICE OF SHIP MORTGAGE

This Vessel is owned by AQ Boat, LLC, a Delaware limited liability company
(“Shipowner”), and is covered by a First Preferred Ship Mortgage in favor of the
United States of America, under authority of Chapter 313, Title 46 of the United
States Code. Under the terms of said Mortgage neither the Shipowner, any
charterer, the master or agent of this Vessel nor any other person has any
right, power or authority to create, incur or permit to be placed or imposed
upon this Vessel any lien other than statutory liens incident to current
operations that are subordinate to the Mortgage.”

The provisions of this Section shall not apply until a reasonable time after the
recordation of the Mortgage.

15. Concerning Section 2.14. Section 2.14 is hereby deleted in its entirety.

16. Concerning Article IV. Article IV is hereby deleted in its entirety.

17. Concerning Article V. Article V is hereby deleted in its entirety.

 

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18. Concerning Section 6.01.

(A) In connection with Section 6.01(b), add the following Security Defaults:

“(10) Failure of the Assuming Shipowner to cooperate with the Secretary in any
sale of the Vessel in accordance with the restriction set forth in the transfer
of title filed with the U.S. Coast Guard;

(11) Failure of the Assuming Shipowner to pay, when due and payable, the debt
service on the Promissory Note to the United States of America in the amount of
$2,788,509.40, with interest capitalized from the date hereof to August 23,
2003, as amended by the 2006 Endorsement to Promissory Note dated April 24,
2006;

(B) 6.01(b)(5) is hereby amended by deleting “or the Construction Contract.”

(C) Section 6.01(b)(6) is hereby amended by deleting “the Guarantee Commitment.”

19. Concerning Section 8.01. Section 8.01 is hereby amended by deleting all
references to “Proportionate Part of the.”

20. Concerning Schedule X. Schedule A is hereby amended bas follows:

(A) By adding the defined term “Treasury,” which shall mean the Treasury of the
United States, located in the District of Columbia.

(B) By adding the defined term “Deposit Fund,” which shall mean the account held
in the name of the Secretary at the Treasury of the United States pursuant to
Section 1109 of the Act and in accordance with the terms of the Depository
Agreement.

21. Concerning Notices.

(A) Section 9.01 is hereby amended by deleting the words “registered or
certified mail, postage prepaid,” and replacing it with the words “facsimile
transmission or by electronic mail.”

(B) Subject to Section 9.01 of the Security Agreement, any notice, request,
demand, direction, consent, waiver, approval or other communication, when given
to a party hereto, shall be addressed to:

 

  The Secretary as: SECRETARY OF TRANSPORTATION

       c/o Maritime Administrator

       Maritime Administration

       400 Seventh Street, S.W.

       Washington, D.C. 20590

       Attention: Michael Bouril

       Fax: 202-366-7901

       E-mail: michael.bouril@dot.gov

 

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  The Assuming Shipowner as: AQ BOAT, LLC

       c/o Ambassadors Cruise Group LLC

       1071 Camelback Street

       Newport Beach, California 92660

       Attn: Brian R. Schaefgen

       Fax: 949-759-5970

       E-mail: brian.schaefgen@ambassadors.com

 

                              with copy to: Blank Rome LLP

       600 New Hampshire Avenue, NW #1200

       Washington, DC 20037

       Attn: James B. Ellis II

       Fax: 202-944-3068

       E-mail: ellis-j@blankrome.com

22. Governing Law. This Security Agreement and the rights and obligations of the
parties hereto shall be governed by and construed in accordance with U.S.
maritime laws, to the extent applicable, and otherwise in accordance with the
laws of the State of New York.

23. Acknowledgement. The Assuming Shipowner is not assuming, and shall have no
obligations with respect to, the Original Shipowner’s Security Agreement and the
Second Shipowner’s Security Agreement, both of which shall be of no further
force and effect.

[Remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, this Security Agreement has been executed by the parties
hereto as of the day and year first above written.

 

AQ BOAT, LLC By:   /s/ Brian R. Schaefgen   Brian R. Schaefgen   Chief Financial
Officer

 

Attest: By:   /s/ Laura Tuthill   Name:

 

UNITED STATES OF AMERICA
SECRETARY OF TRANSPORTATION MARITIME ADMINISTRATOR By:   /s/ Joel C. Richard  
Joel C. Richard   Secretary   Maritime Administration

 

Attest: /s/ Sarah J. Washington Assistant Secretary Maritime Administration

 

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Exhibit 1 to Security Agreement   

Document 10

GENERAL PROVISIONS

TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS; OFFICER’S CERTIFICATES; GRANTING CLAUSE SECTION 1.01.   
Definitions    1 SECTION 1.02.    Officers Certificates    1 SECTION 1.03.   
Granting Clause    1 ARTICLE II SHIPOWNERS REPRESENTATIONS AND AGREEMENTS
SECTION 2.01.    Shipowner’s Representations, Agreements, Organization and
Existence    2 SECTION 2.02.    Covenants Concerning the Vessels    3   

(a)    Title to and Possession of the Vessels

   3   

(b)    Sale, Mortgage, Transfer or Charter of the Vessels

   4   

(c)    Taxes and Governmental Charges

   4   

(d)    Liens

   4   

(e)    Compliance with Applicable Laws

   4   

(f)     Vessels Operation

   5   

(g)    Vessels Condition and Maintenance

   5   

(h)    Material Changes in the Vessels

   6   

(i)     Documentation of the Vessels

   6 SECTION 2.03.    Maintenance of Construction Contract    6 SECTION 2.04.   
Delivery Requirements    6 SECTION 2.05.    Insurance    7 SECTION 2.06.   
Inspection of the Vessels; Examination of Shipowner’s Records    13 SECTION
2.07.    Requisition of Title, Termination of Construction Contact or Total Loss
of a Vessel    13 SECTION 2.08.    Notice of Mortgage    14 SECTION 2.09.   
Compliance with 46 U.S.C. Chapter 313    14 SECTION 2.10.    Performance of
Shipowners Agreements by the Secretary    14 SECTION 2.11.    Uniform Commercial
Code Filings; Further Assurances    14 SECTION 2.12.    Modification of
Formation Agreements    15 SECTION 2.13.    Members of Limited Liability
Companies    15 SECTION 2.14.    Concerning the Performance and Payment Bonds   
15 ARTICLE III THE SECRETARY’S NOTE SECTION 3.01.    Secretary’s Note    16
SECTION 3.02.    Termination of the Guarantees    16 SECTION 3.03.    Execution
of Additional Secretary’s Note    16

 

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ARTICLE IV CONSTRUCTION FUND; MONEYS DUE WITH RESPECT TO CONSTRUCTION OF THE
VESSELS SECTION 4.01.    Construction Fund    17 SECTION 4.02.    Moneys Due
with Respect to Construction of the Vessels    17 ARTICLE V ACTUAL COST; THE
ESCROW FUND SECTION 5.01.    Actual Cost Determinations    17 SECTION 5.02.   
Escrow Fund Deposits    18 SECTION 5.03.    Escrow Fund Withdrawals    18
SECTION 5.04.    Investment and Liquidation of the Escrow Fund    20 SECTION
5.05.    Income on the Escrow Fund    20 SECTION 5.06.    Termination Date of
the Escrow Fund    20 ARTICLE VI DEFAULTS AND REMEDIES SECTION 6.01.    What
Constitutes “Defaults;” Continuance of Defaults    21 SECTION 6.02.   
Acceleration of Maturity of the Secretary’s Note    22 SECTION 6.03.    Waivers
of Default    22 SECTION 6.04.    Remedies After Default    23 SECTION 6.05.   
Application of Proceeds    25 SECTION 6.06.    General Powers of the Secretary
   25 ARTICLE VII AMENDMENTS AND SUPPLEMENTS TO THE SECURITY AGREEMENT, MORTGAGE
AND INDENTURE SECTION 7.01.    Amendments and Supplements to the Security
Agreement and the Mortgage    26 SECTION 7.02.    Amendments and Supplements to
the Indenture    26 ARTICLE VIII CONSOLIDATION, MERGER OR SALE SECTION 8.01.   
Consolidation, Merger or Sale    26 SECTION 8.02.    Transfer of a General
Partners or a Joint Venturer’s Interest    27 ARTICLE IX NOTICES SECTION 9.01.
   Notices    27 SECTION 9.02.    Waivers of Notice    27 SECTION 9.03.   
Shipowner’s Name or Address Change    28

 

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ARTICLE X DISCHARGE OF SECURITY AGREEMENT AND THE MORTGAGE SECTION 10.01.   
Discharge of Security Agreement and the Mortgage    28 ARTICLE XI MISCELLANEOUS
SECTION 11.01.    Successors and Assigns    28 SECTION 11.02.    Execution in
Counterparts    28 SECTION 11.03.    Shipowner’s Rights in Absence of Default   
28 SECTION 11.04.    Surrender of Vessels’ Documents    29 SECTION 11.05.   
Applicable Regulations    29 SECTION 11.06.    Table of Contents, Titles and
Heading    29

 

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ARTICLE I

DEFINITIONS; OFFICER’S CERTIFICATES; GRANTING CLAUSE

SECTION 1.01. Definitions. All capitalized terms used but, not defined herein,
shall have the meaning ascribed in Schedule X.

SECTION 1.02. Officers Certificates. To satisfy a covenant or condition provided
for in this Security Agreement, the Responsible Officer of the Person making
such Officers Certificate shall certify that the officer (a) has read such
covenant or condition; (b) has made or caused to be made such examination or
investigation as is necessary to enable the Officer to express an informed
opinion with respect to such covenant or condition; and (c) believes to the best
of the Officers knowledge that such condition or covenant has been met. An
Officers Certificate shall set forth the pertinent supporting information and
shall be subject to the Secretary’s review of its adequacy and accuracy.

SECTION 1.03. Granting Clause. (a) In order to create a present security
interest in the Secretary, the Shipowner’s does hereby grant, sell, convey,
assign, transfer, mortgage, pledge, set over and confirm unto the Secretary
continuing security interests in all of the right, title and interest of the
Shipowner’s in and to all of the following, whether now owned or existing or
hereafter arising or acquired:

(1) Each Construction Contract (insofar as it relates to the interest in and to
the Construction Contacts, and the other contracts conveyed to the Secretary by
this subsection are hereinafter referred to collectively as the “Rights Under
the Construction and Related Contracts.”

(2) The Shipowner’s rights to receive all moneys which from time to time may
become due to the Shipowner’s with respect to the Construction of each Vessel
regardless of the legal theory by which moneys are recovered. Said right, title
and interest in and to the moneys, cash, bonds, claims, and securities conveyed
by this subsection are herein referred to collectively as the “Moneys Due with
Respect to the Construction of the Vessels.” The Secretary acknowledges and
agrees that the Moneys Due with Respect to the Construction of the Vessels will
be paid directly to the Depository for application in accordance with this
Security Agreement and the Indenture.

(3) All goods, whether equipment or inventory appertaining to or relating to
each Vessel, whether or not on board or ashore and not covered by the Mortgage,
and any charter hire relating to each Vessel.

(4) The Title XI Reserve Fund and all moneys, instruments, negotiable documents,
chattel paper, and proceeds thereof currently on deposit or hereafter deposited
in the Title XI Reserve Fund.

(5) The Construction Fund and all moneys, instruments, negotiable documents,
chattel paper and proceeds thereof currently on deposit or hereafter deposited
in said Fund.

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(6) All moneys, instruments, negotiable documents, chattel paper and proceeds
thereof held by the Depository under the Depository Agreement.

(7) Proceeds of Policies of Insurance relating to each Vessel and, whether or
not insured, any general average claims or loss of hire claims Shipowner’s may
have with respect to each Vessel.

(8) All proceeds of the collateral described in paragraphs (1) through (7) of
this Section.

The Secretary shall have, upon execution and delivery thereof, as further
security, certain right, title and interest in and to the following:

(9) The Mortgage, to be executed and delivered by the Shipowner’s to the
Secretary, as mortgagee, on the date hereof, covering each Vessel.

(b) The right, title and interest of the Secretary pursuant to Section 1.03(a)
is herein, collectively, called the “Security.” The Secretary shall hold the
Security as collateral security for all of the obligations and liabilities of
the Shipowner’s under the Secretary’s Note and as collateral security for and
with respect to the Guarantees whether now made or hereafter entered into.

(c) Notwithstanding paragraphs (a) and (b) of this Section, (1) the Shipowner’s
shall remain liable to perform its obligations under each Construction Contract
and the above-mentioned other contracts; (2) the Secretary shall not, by virtue
of this Security Agreement, have any obligations under any of the documents
referred to in clause (1) or be required to make any payment owing by the
Shipowner’s thereunder; and (3) if there is no existing Default, the Shipowner’s
shall (subject to the rights of the Secretary hereunder) be entitled to exercise
all of its rights under each of the documents referred to in this Section and
shall be entitled to receive all of the benefits accruing to it thereunder as if
paragraphs (a) and (b) of this Section were not applicable.

(d) The Shipowner’s hereby agrees with the Secretary that the Security is to be
held by the Secretary subject to the further agreements and conditions set forth
herein.

ARTICLE II

SHIPOWNERS REPRESENTATIONS AND AGREEMENTS

The Shipowner’s hereby represents and agrees, so long as this Security Agreement
shall not have been discharged, as follows:

SECTION 2.01. Shipowner’s Representations, Agreements, Organization and
Existence.

(a) General Representations. The Shipowner’s hereby represents and warrants that
the following are true statements as of the date hereof and further warrants
that they shall remain true thereafter:

(1) the Shipowner’s is duly organized, validly existing and in good standing
under the laws of the jurisdiction designated in the initial paragraph of the
Special Provisions hereof and shall maintain such existence. The Shipowner’s has
not failed to qualify to do business in any jurisdiction in the United States in
which its business or properties require such qualification, and had and has
full legal right, power and authority to own its own properties and assets and
conduct its business as it is presently conducted;

 

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(2) the Shipowner’s had and has legal power and authority to enter into and
carry out the terms of the Guarantee Commitment, the Construction Contract, Bond
Purchase Agreement, Obligations, Indenture, Security Agreement, Secretary’s
Note, Mortgage, Financial Agreement, and Depository Agreement (the “Documents”);

(3) each of the Documents has been duly authorized, executed and delivered by
the Shipowner’s and constitutes, in accordance with its respective terms, legal,
valid and binding instruments enforceable against the Shipowner’s, except to the
extent limited by applicable bankruptcy, reorganization, insolvency, moratorium
or similar laws of general application relating to or affecting the enforcement
of creditors rights as from time to time in effect;

(4) the consummation of the transactions contemplated by and compliance by the
Shipowner’s of all the terms and provisions of the Documents will not violate
any provisions of the formation documents of the Shipowner’s and will not result
in a breach of the terms and provisions of, or constitute a default under any
other agreement or undertaking by the Shipowner or by which the Shipowner’s is
bound or any order of any court or administrative agency entered into in any
proceedings to which the Shipowner’s is or has been a party; and

(5) there is no litigation, proceeding or investigation pending or, to the best
of the Shipowner’s knowledge, threatened, involving the Shipowner’s or any of
its property which could prevent or jeopardize the performance by the
Shipowner’s of its obligations under the Documents;

(b) Shipowner’s United States Citizenship. The Shipowner’s is a citizen of the
United States within the meaning of Section 2 of the Shipping Act, 1916, as
amended, and shall remain such a citizen for operation in the trades in which
the Shipowner’s proposes to operate the Vessels and in the event the Shipowner’s
shall cease to be such a citizen, the Shipowner’s shall notify the Secretary
immediately of such fact.

(c) Taxes. The Shipowner’s has paid or caused to be paid all taxes assessed
against it, unless the same are being contested in good faith or an authorized
extension of time has been granted.

SECTION 2.02. Covenants Concerning the Vessels.

(a) Title to and Possession of the Vessels. On the date of this Security
Agreement, the Shipowner’s represents and warrants that it lawfully owns each
Vessel free from any liens, encumbrances, security interests, charges, or rights
in rem (subject only to (1) the equity of the Shipyard under the Construction
Contract, if any, (2) liens on any undelivered Vessel which the Shipyard is
obligated to discharge under the Construction Contract, (3) any security
interest

 

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subordinated to the Secretary’s security interest permitted under the Special
Provisions hereof, (4) the Secretary’s rights hereunder and (5) the liens
permitted by paragraph (d)(3) of this Section). The Shipowner’s shall, for the
Secretary’s benefit, warrant and defend the title to, and possession of, each
Vessel and every part thereof against the claims and demands of all Persons
whomsoever.

(b) Sale, Mortgage, Transfer or Charter of the Vessels.

(1) The Shipowner’s shall not, without the Secretary’s prior written consent,
sell, mortgage, demise charter or transfer any Vessel to any Person (or charter
the Vessel to a Related Party under any form of charter).

(2) The Shipowner’s hereby covenants that: (A) it will not enter into any time
charter of the Vessels in excess of six months unless the time charter contains
the following provision, “This time charter is subject to each of the rights and
remedies of the Secretary of Transportation and has been assigned to the
Secretary under a Security Agreement and Mortgage, each executed by the
Shipowner’s in favor of the Secretary with respect to the Vessels being
chartered.” and (B) it shall, within 10 calendar days of entering into any time
charter in excess of six months, transmit a copy of the time charter to the
Secretary.

(c) Taxes and Governmental Charges. The Shipowner’s shall pay and discharge, or
cause to be paid and discharged, on or before the same shall become delinquent,
all taxes, assessments, government charges, tines and penalties lawfully imposed
upon each Vessel, unless the same are being contested in good faith.

(d) Liens.

(3) As a condition precedent to each payment by the Shipowner’s under the
Construction Contract, the Shipowner’s shall require an Officer’s Certificate
from the Shipyard stating that once the Shipyard receives said payment, there
will be no liens or rights in rem against the respective Vessel. At the Delivery
Date of each Vessel, the Shipowner’s and the Shipyard shall provide an Officers
Certificate stating that there are no liens or rights in rem against the
respective Vessel except for the Mortgage.

(4) After the Delivery Date of each Vessel, the Shipowner’s shall satisfy, or
cause to be satisfied, within 30 days of its knowledge thereof, any lien or
encumbrance or right in rem which shall be filed against such Vessel unless the
same is being contested in good faith; and

(5) Neither the Shipowner’s, any charterer, the master of any Vessel, nor any
other Person has or shall have any right, power or authority, without the
Secretary’s prior written consent, to create, incur or permit to be placed or
imposed on any Vessel any lien, encumbrance, security interest, charge, or
rights in rem, and statutory liens incident to current operations unless such
statutory liens are subordinate to the Mortgage.

(e) Compliance with Applicable Laws. The Shipowner’s shall at all times be in
compliance with all applicable U.S. laws. In addition, each Vessel (1) shall be
designed to meet, and on the Delivery Date thereof and at all times thereafter
shall meet all requirements of

 

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applicable laws, treaties and conventions, and of applicable rules and
regulations thereunder, and (2) shall have on board valid certificates showing
compliance therewith; provided that the foregoing shall not apply if (A) the
Vessel is in Government Use; (B) there has been an actual or constructive total
loss or an agreed or compromised total loss of such Vessel; or (C) there has
been any other loss with respect to such Vessel and the Shipowner shall not have
had a reasonable time to repair the same.

(f) Vessels Operation. Except when the Vessel is in Government Use, the
Shipowner shall not (1) cause or permit the Vessels to be operated in any manner
contrary to law or to any lawful rules or regulations of the Maritime
Administration, (2) remove or attempt to remove the Vessels beyond the limits of
the United States without the Secretary’s prior written consent except on
voyages with the intention of returning to the United States, or (3) abandon
such Vessels in any foreign port unless there has been an actual or constructive
total loss or an agreed or compromised total loss of any of the Vessels.

(g) Vessels Condition and Maintenance.

(1) Each Vessel shall be constructed, maintained and operated so as to meet, at
all times, the highest classification, certification, rating and inspection
standards for Vessels of the same age and type as may be imposed by the
Classification Society; provide that, the foregoing shall not apply if the
Vessel has been (i) under Government Use, (ii) an actual or constructive total
loss or an agreed or compromised total loss of such Vessel, or (iii) any other
loss with respect to such Vessel and the Shipowner’s shall not have had a
reasonable time to repair the same;

(2) On the Delivery Date of each Vessel, the Shipowner’s shall furnish to the
Secretary an interim Class Certificate issued for each such Vessel by the
Classification Society and promptly after the Delivery Date of each Vessel,
furnish to the Secretary a Certificate of Class with respect to such Vessel
issued by the Classification Society. Subsequently, the Shipowner’s shall
animally (A) furnish to the Secretary a Certificate of Confirmation of Class
issued by the Classification Society showing that the above mentioned
classification and rating have been retained for each Vessel and (B) furnish to
the Secretary copies of all Classification Society reports, including periodic
and damage surveys for each Vessel; provide that, the foregoing shall not apply
if the Vessel is in Government Use and the governmental body does not permit
classification and rating of the Vessel.

(3) Notwithstanding Section 2.02(g)(2), if the Vessel is a barge which is not
classed, then the Shipowner’s shall, at all times, at its own cost and expense
maintain and preserve each Vessel, so far as may be practicable, in at least as
good order and condition, ordinary wear and tear excepted, as at the Delivery
Date of such Vessel, and shall perform or cause to be performed at least once
every five years and at any other time reasonably required by the Secretary, a
survey and inspection of the Vessels by an independent marine surveyor approved
by the Secretary; and provided that, no such surveys will be required within the
last three years prior to the final Stated Maturity of the Obligations.

The Shipowner’s shall furnish two copies of the report of such independent
marine surveyor to the Secretary within 15 days of such survey and inspection.
The Shipowner’s shall deliver to the

 

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Secretary annually an Officer’s Certificate stating the condition and
maintenance of each Vessel; provide further, that none of this Section shall
apply when the Vessel is in Government Use.

(h) Material Changes in the Vessels. After the Delivery Date of any undelivered
Vessel or the Closing Date of any already delivered Vessel, the Shipowner’s
shall not make, or permit to be made, any material change in the structure,
means of propulsion, type or speed of such Vessel or in its rig, without the
Secretary’s prior written consent.

(i) Documentation of the Vessels. Upon the Delivery Date and thereafter, each
Vessel shall be and shall remain documented under the laws of the United States
of America.

SECTION 2.03. Maintenance of Construction Contract.

(a) The Construction Contract shall be maintained in full force and effect
insofar as it relates to the due performance by the Shipowner’s and the Shipyard
of all theft respective obligations thereunder and the Shipowner’s shall not,
without the Secretary’s prior written consent, amend, modify, assign or
terminate the Construction Contract or consent to any change in the Construction
Contract which releases the Shipyard from its obligations to comply with the
provisions of the Construction Contract or any applicable laws, treaties,
conventions, rules and regulations; provide that, the Secretary’s prior written
consent shall not be necessary; but prompt written notice to the Secretary shall
be given for (1) any mandatory or regulatory change to the Construction Contract
as a result of any requirements of any governmental agency, or (2) any
non-mandatory changes that Shipyard and Shipowner’s desire to make which do not
exceed, with respect to any item of the Vessel’s construction, one (1%) percent
of the Vessels Contract Price and which do not, in the aggregate, cause the
Vessels Contract Price to be increased more than five (5%) percent or the
delivery and completion date of the Vessel to be extended more than ten
(10) days. Notwithstanding the foregoing, no change shall be made in the general
dimensions and/or characteristics of the Vessels which changes the capacity of
the Vessels to perform as originally intended by the Construction Contract
without the Secretary’s prior written consent. The Secretary will nonetheless
retain its authority to review work done under a change order to ascertain
whether the work should be included in Actual Cost and whether the price charged
is fair and reasonable. No withdrawals may be made from the Escrow Fund for work
that is not determined to be includable in Actual Cost.

(b) Notwithstanding anything to the contrary contained in the Construction
Contract or herein, no changes to the payment milestones and disbursement
schedules shall be made without the Secretary’s prior written consent, except to
the extent reasonably required to reflect the change orders under paragraph
(a) of this Section.

SECTION 2.04. Delivery Requirements. At or prior to the Delivery Date, the
Shipowner’s shall have:

(a) documented the Vessel under the laws of the United States with the United
States Coast Guard;

(b) executed and delivered to the Secretary the Mortgage (or mortgage
supplement) substantially in the form of Exhibit 3 annexed hereto;

 

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(c) recorded the Mortgage (or, if appropriate, a mortgage supplement) in the
National Vessel Documentation Center of the United States Coast Guard, or its
successor;

(d) delivered to the Secretary an Officer’s Certificate (1) from the Shipowner
and the Shipyard certifying that the Vessel is free of any claim, lien, charge,
mortgage, or other encumbrance of any character except as permitted under
Section 2.02(d); (2) certifying that there has not occurred and is not then
continuing any event which constitutes (or after any period of time or any
notice, or both, would constitute) a default under the Security Agreement;
(3) that the marine insurance as required under Section 2.05 will be in full
force and effect at the time of Vessel delivery; (4) certifying that the Vessel
was constructed substantially in accordance with the plans and specifications of
the Construction Contract; (5) certifying that there have been no unusual
occurrences (or a full description of such occurrences, if any) which would
adversely affect the condition of the delivered Vessel.

(e) delivered to the Secretary (1) an opinion of counsel substantially in the
form of Exhibit A to the form of Mortgage; and (2) a certificate of delivery and
acceptance from the Shipowner’s and the Shipyard to the Secretary with respect
to the delivered Vessel;

SECTION 2.05. Insurance.

(a) Prior to the Delivery Date of each Vessel, the Shipowner’s shall, without
cost to the Secretary or, with respect to war risk builders risk insurance
mentioned below, without cost to the Shipyard, cause each Vessel to be insured
as provided in the Construction Contract and as contemplated by the Consent of
Shipyard; provided that, the insurance required by this Section shall be
approved by the Secretary.

(b) Upon the Delivery Date of each Vessel and at all times thereafter, the
Shipowner’s shall, without cost to the Secretary, keep such Vessel insured as
indicated below and with such additional insurance as may be specified by the
Secretary in an amount in U.S. dollars equal to 110% of the unpaid principal
amount of the Proportionate Part of the Secretary’s Note, or such greater sum,
up to and including the full commercial value of such Vessel as may be required
by the Secretary. The Shipowner shall provide 30 days prior written notice to
the Secretary of all insurance renewals.

(1) Marine and war risk hull insurance under the latest (at the time of issue of
the policies in question) forms of American Institute of Marine Underwriters’
policies approved by the Secretary and/or policies issued by or for the Maritime
Administration (or under such other firms of policies as the Secretary may
approve in writing) insuring such Vessel against the usual risks covered by such
forms (including, at the Shipowner’s option, such amounts of increased value and
other forms of “total loss only” insurance as are permitted by said hull
insurance policies); and

(2) While any Vessel is laid up, at the Shipowner’s option and in lieu of the
above-mentioned marine and war risk hull insurance or marine and war risk hull
and increased value insurance, port risk insurance under the latest (at the time
of issue of the policies in question) forms of American Institute of Marine
Underwriters’ policies approved by the Secretary and/or policies issued by or
for the Maritime Administration (or under such other

 

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forms of policies as the Secretary may approve in writing) insuring such Vessel
against the usual risks covered by such forms.

(3) Notwithstanding the foregoing, the Shipowner’s, with the Secretary’s prior
written consent, shall have the right to self-insure up to the amount specified
in the Special Provisions hereof for any loss resulting from any one accident or
occurrence (other than an actual or constructive total loss of any Vessel).

(c) All policies of insurance under this Section shall provide, so long as this
Security Agreement has not been discharged, that payment of all losses shall be
made payable to the Secretary for distribution by him to himself, the
Shipowner’s and (in the case of the insurance required by paragraph (a) of this
Section) the Shipyard, except that (i) as provided in paragraph (e) of this
Section and (ii) under the policies required by paragraph (b) of this Section,
payment of all losses up to the amount specified in the Special Provisions
hereof by all insurance underwriters with respect to any one accident,
occurrence or event may be made directly to the Shipowner’s unless there is an
existing Default, or if the Secretary shall have assumed the Shipowner’s rights
and duties under the Indenture and the Obligations and made any payments in
default under the terms of Section 6.09 of the Indenture, in which event payment
of all losses shall be made payable to the Secretary as aforesaid.

Any such insurance recoveries to which the Secretary shall be so entitled shall
be applied as follows:

(1) In the event that insurance becomes payable under said policies on account
of an accident, occurrence or event not resulting in an actual or constructive
total loss or an agreed or compromised total loss of any Vessel, the Secretary
shall (A) if there is no existing Default and if none of the events described in
Section 2.07 has occurred, in accordance with a Shipowner’s Request, pay, or
consent that the underwriters pay, direct for repairs, liabilities, salvage
claims or other charges and expenses (including sue and labor charges due or
paid by the Shipowner’s) covered by the policies, or (to the extent that, as
stated in an Officers Certificate delivered to the Secretary, accompanied by
written confirmation by the underwriter or a surveyor or adjuster, the damage
shall have been repaired and the cost thereof paid of such liabilities, salvage
claims, or other charges and expenses discharged or paid, reimburse, or consent
that the underwriters reimburse, the Shipowner’s therefor and (after all known
damage with respect to the particular loss shall have been repaired, except to
the extent the Shipowner’s, with the Secretary’s written consent, deems the said
repair inadvisable, and all known costs, liabilities, salvage claims, charges
and expenses, covered by the policies, with respect to such loss shall have been
discharged or paid, as stated in an Officers Certificate delivered to the
Secretary, accompanied by written confirmation by the underwriters or a surveyor
or adjuster) pay, or consent that the underwriters pay, any balance to the
Shipowner’s; or (B) if there is an existing Default, in accordance with a
Request of Shipowner’s, pay, or consent that the underwriters pay, direct for
the Shipowner’s proportion of such repairs, liabilities, salvage claims or other
charges and expenses (including sue and labor charges due or paid by the
Shipowner’s) covered by the policies and hold any balance until the same may be
paid or applied under clauses (A), (C) or (D) of this subsection, whichever is
applicable; or (C) if the Guarantees shall have terminated pursuant to
Section 3.02(c) or if the Secretary shall have assumed the Shipowners rights and
duties under the Indenture and the Obligations and made any payments in default
under the terms

 

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of Section 6.09 of the Indenture and none of the events described in
Section 2.07 has occurred, apply the insurance as provided in Section 6.05; or
(D) if the Guarantees shall have terminated pursuant to Section 3.02(b) or (d),
pay the insurance to the Shipowner’s;

(2) In the event of an accident, occurrence or event resulting in an actual or
constructive total loss of any Vessel prior to the Delivery Date of such Vessel,
the Shipowner’s shall forthwith deposit with the Secretary any insurance moneys
which the Shipowner’s receives on account thereof under policies of insurance
required by paragraph (a) of this Section, and any such insurance moneys shall
be held by the Secretary for 10 days (or such lesser or further time as the
Shipowner’s and the Secretary may agree upon). Upon the expiration of said
period of time, (A) if there is no existing Default and if the Shipowner’s, the
Shipyard and the Secretary shall have elected not to construct such Vessel under
the Construction Contract, then said insurance moneys shall be applied, to the
extent necessary and required pursuant to Section 2.07; or (B) if there is no
existing Default and if the Shipowner’s, the Shipyard and the Secretary shall
not have made the election contemplated by clause (A) of this subsection, then
said insurance moneys (together with the Shipowner’s funds to the extent, if
any, required by the Secretary for deposit on account of interest under clause
(ii) below) shall be deposited in the Escrow Fund, in such amount and to the
extent available, so that the moneys in the Escrow Fund after such deposit shall
be equal to (i) the principal amount of the Proportionate Part of the
Outstanding Obligations relating to such Vessel at the time of such deposit and
(ii) such interest on said deposit, if any, as may be required by the Secretary
(said moneys to be subject to withdrawal in the same manner as moneys originally
deposited in said Escrow Fund); and the balance, if any, of such insurance
moneys held by the Secretary shall be paid to the Shipowner’s; and

(3) In the event of an accident, occurrence or event resulting in an actual or
constructive total loss or an agreed or compromised total loss of any Vessel,
whether prior to or after the Delivery Date of such Vessel, and the insurance
moneys have not been applied as provided in paragraph (c)(2) of this Section,
the Shipowner’s shall forthwith deposit with the Secretary any insurance moneys
which the Shipowner’s receives on account thereof under policies of insurance
required by this Section, and any such insurance moneys received by the
Secretary, whether from the Shipowner’s or otherwise, or held by the Secretary
pursuant to paragraph (c)(2) of this Section, shall (A) if there is no existing
Default, be applied, to the extent necessary, pursuant to Section 2.07; (B) if
there is an existing Security Default, be held until the same may be applied
under clauses (A), (C), or (D) of this subsection, whichever is applicable;
(C) if the guarantees shall have terminated pursuant to Section 3.02(c) or if
the Secretary shall have assumed the Shipowners rights and duties under the
Indenture and the Obligations and made any payments in default under the terms
of Section 6.09 of the Indenture, be applied as provided in Section 6.05;
provide that, notwithstanding the foregoing clauses (A), (B) and (C) of this
subsection, the Shipowner’s shall not be required to so deposit with the
Secretary insurance moneys in an amount which, together with funds otherwise
available for the redemption of Obligations is in excess of that required for
the redemption of the Proportionate Part of the Outstanding Obligations pursuant
to Section 3.05 of the Indenture and for the payment to the Secretary of a
Proportionate Part of all other sums that may be secured by this Security
Agreement and the Mortgage; or (D) if the Guarantees shall have terminated
pursuant to Section 3.02(b) or 3.02(d), be paid to the Shipowner’s.

 

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(d) In the event of an accident, occurrence or event resulting in a constructive
total loss of any Vessel, the Secretary shall have the right (with the prior
written consent of the Shipowner’s, unless there is an existing Default, and at
any time prior to the Delivery Date of such Vessel also with the prior written
consent of the Shipyard) to claim for a constructive total loss of such Vessel.
If (1) such claim is accepted by all underwriters under all policies then in
force as to such Vessel under which payment is due for total loss and
(2) payment in full is made in cash under such policies to the Secretary, then
the Secretary shall have the right to abandon such Vessel to the underwriters of
such policies, free from lien of this Security Agreement and the Mortgage.

(e) Commencing on the Delivery Date of each Vessel, the Shipowner’s shall,
without cost to the Secretary, keep each such Vessel insured against marine and
war risk protection and indemnity risks and liabilities by policies of insurance
approved by the Secretary as to form and amount; provided that, (1) the
Shipowner’s shall, as soon as possible before such Delivery Date, present any
such policy to the Secretary (who shall promptly approve or disapprove the
same), (2) any approval of a policy under this subsection shall be effective
until the end of the policy period or until 60 days after the Secretary shall
notify the Shipowner’s of a desired change in the form and/or amount thereof,
whichever shall first occur, and (3) war protection and indemnity insurance
shall be required unless the Secretary gives written notice to the Shipowner’s
stating that such insurance is not required.

Such policies may provide that (1) if the Shipowner’s shall not have incurred
the loss, damage, or expense in question, any loss under such insurance may be
paid directly to the Person to whom any liability covered by such policies has
been incurred (whether or not a Default then exists), and (2) if the Shipowner’s
shall have incurred the loss, damage or expense in question, any such loss shall
be paid to the Shipowner’s in reimbursement if there is no existing Default of
which the underwriter has written notice from the Shipowner’s or the Secretary,
or, if there is such an existing Default, to the Secretary to be held and
applied as follows: (A) applied as provided in Section 6.05 in the event the
Guarantees shall have terminated pursuant to Section 3.02(c) or if the Secretary
shall have assumed the Shipowner’s rights and duties under the Indenture and the
Obligations and made any payments in default under the terms of Section 6.09 of
the Indenture, or (B) to the extent not theretofore applied pursuant to
Section 6.05, paid forthwith to the Shipowner’s upon its Request in the event
there is no existing Default or the Guarantees shall have terminated pursuant to
Section 3.02(b) or (d) at the date of delivery of such Request; provided that,
irrespective of the foregoing, with the Secretary’s prior written consent, the
Shipowner’s shall have the right to self-insure in an amount up to the limit
specified in the Special Provisions hereof with respect to each accident,
occurrence or event, except that, with respect to cargo or property carried, the
Shipowner’s, with the Secretary’s prior written consent, shall have the right to
self-insure in an amount up to the limit specified in the Special Provisions
hereof with respect to each cargo or property carried.

(f) All insurance required under this Section shall be placed and kept with the
United States Government or with American and/or British (and/or other foreign,
if permitted by the Secretary in writing) insurance companies, underwriters’
association or underwriting finds approved by the Secretary. All insurance
required under this subsection shall be arranged through marine insurance
brokers and/or underwriting agents as chosen by the Shipowner’s and approved by
the Secretary.

 

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(g) The Secretary shall not have the right to enter into an agreement or
compromise providing for an agreed or compromised total loss of any Vessel
without prior written consent of (i) the Shipyard (prior to the Delivery Date of
such Vessel) and (ii) (unless there is an existing Default) the Shipowner’s. If
(1) the Shipowner’s shall have given prior consent thereto or (2) there is an
existing Default, the Secretary shall have the right in his discretion, and with
the prior written consent of the Shipyard prior to the Delivery Date of such
Vessel, to enter into an agreement or compromise providing for an agreed or
compromised total loss of such Vessel; provided that, if the aggregate amount
payable to the Shipowner’s and/or the Secretary under such agreement or
compromise, together with funds held by the Secretary and available for the
redemption of Obligations, is not sufficient to redeem or pay the Proportionate
Part of the Outstanding Obligations pursuant to Section 2.07, the Secretary
shall not enter into such agreement or compromise without the Shipowner’s prior
written consent.

(h) During the continuance of (1) a taking or requisition of the use of any
Vessel by any government or governmental body, or (2) a charter, with the
Secretary’s prior written consent, of the use of any Vessel by the United States
Government or by any governmental body of the United States, or by any other
government or governmental body, the provisions of this Section shall be deemed
to have been complied with in all respects if such government or governmental
body shall have agreed to reimburse, in a manner approved by the Secretary in
writing, the Shipowner’s for loss or damage covered by the insurance required
hereunder or resulting from the risks under paragraphs (a), (b),and (e) of this
Section or if the Shipowner shall be entitled to just compensation therefor. In
addition, the provisions of this Section shall be deemed to have been complied
with in all respects during any period after (A) title to any Vessel shall have
been taken or requisitioned by any government or governmental body or (B) there
shall have been an actual or constructive total loss or an agreed or compromised
total loss of any Vessel. In the event of any taking, requisition, charter or
loss contemplated by this paragraph, the Shipowner shall promptly furnish to the
Secretary an Officers Certificate stating that such taking, requisition, charter
or loss has occurred and, if there shall have been a taking, requisition or
charter of the use of any Vessel, that the government or governmental body in
question has agreed to reimburse the Shipowner, in a manner approved by the
Secretary, for loss or damage resulting from the risks under paragraphs (a),
(b), and (e) of this Section or that the Shipowner is entitled to just
compensation therefor.

(i) All insurance required (A) under paragraph (a) of this Section shall be
taken out in the names of the Shipowner, the United States and the Shipyard as
assureds, and (B) under paragraphs (b) and (c) of this Section shall be taken
out in the names of the Shipowner and the United States as assureds. All
policies for such insurance so taken out shall, unless otherwise consented to by
the Secretary, provide that (1) there shall be no recourse against the United
States for the payment of premiums or commissions, (2) if such policies provide
for the payment of club calls, assessments or advances, there shall be no
recourse against the United States for the payment thereof, and (3) at least 10
days’ prior written notice of any cancellation for the nonpayment of premiums,
commissions, club calls, assessments or advances shall be given to the Secretary
by the insurance underwriters.

(j) The Shipowner shall not, without the Secretary’s prior written consent,
(1) do any act, nor voluntarily suffer or permit any act to be done, whereby any
insurance required by this Section shall or may be suspended, impaired or
defeated or (2) suffer or permit any Vessel to

 

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engage in any voyage or to carry any cargo not permitted under the policies of
insurance then in effect without first covering such Vessel with insurance
satisfactory in all respects for such voyage or the carriage of such cargo;
provide that, this paragraph shall be subject to the requirements of any
military authority of the United States and shall not apply in the case of such
Vessel if and so long as the title or use of such Vessel shall have been taken,
requisitioned or chartered by any government or governmental body as
contemplated by Section 2.07.

(k) In the event that any claim or lien is asserted against any Vessel for loss,
damage or expense which is covered by insurance hereunder and it is necessary
for the Shipowner to obtain a bond or supply other security to prevent arrest of
such Vessel or to release such Vessel from arrest on account of said claim or
lien, the Secretary, on the Shipowner’s Request, may, at the Secretary’s sole
option, assign to any Person executing a surety or guaranty bond or other
agreement to save or release such Vessel from such arrest, all right, title and
interest of the Secretary in and to said insurance covering such loss, damage or
expense as collateral security to indemnify against liability under said bond or
other agreement.

(l) Except as the Secretary shall otherwise direct by notice in writing to the
Shipowner, the Shipowner shall deliver to the Secretary the original policies
evidencing insurance maintained under this Section; provided that, if any such
original policy shall have been delivered previously to the Secretary or to a
mortgagee by the Shipowner under another ship mortgage of the Shipowner, the
Shipowner shall deliver a duplicate or pro forma copy of such policy to the
Secretary. The Secretary or any agent thereof (who may also be an agent of the
issuer) shall at all times hold the policies delivered as aforesaid; provide
that, if one or more of said policies are held by an agent of the Secretary, the
Shipowner shall, upon the Secretary’s request, deliver a duplicate or pro forma
copy thereof to the Secretary, and provided further, that if the Shipowner shall
deliver to the Secretary a Request (1) stating that delivery of such policy to
the insurer is necessary in connection with the collection, enforcement or
settlement of any claim thereunder (including claims for return premiums and any
other amounts payable by the insurer) and (2) setting forth the name and address
of the Person to whom such policy is to be delivered or mailed for such purpose,
and if the Secretary approves such Request, the Secretary shall, at the
Shipowner’s expense, deliver or mail (by registered or certified mail, postage
prepaid) such policy in accordance with such Request, accompanied by a written
direction to the recipient to redeliver such policy directly to the Secretary or
an agent thereof when it has served the purpose for which so delivered. The
Shipowner agrees that, in case it shall at any time so cause the delivery or
mailing of any policy to any Person as aforesaid, the Shipowner will cause such
policy to be promptly redelivered to the Secretary or an agent thereof as
aforesaid. The Secretary shall have no duty to see to the redelivery of such
policy, but shall have the duty to request the redelivery thereof at intervals
of 60 days thereafter.

(m) Nothing in this Section shall limit the insurance coverage which the
Secretary may require under any contract or agreement to which the Secretary and
the Shipowner are parties.

The requirements of this Section are expressly subject to the Special Provisions
of this Security Agreement.

 

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SECTION 2.06. Inspection of the Vessels; Examination of Shipowner’s Records. The
Shipowner will: (a) afford the Secretary, upon reasonable notice, access to the
Vessels, their cargoes and papers for the purpose of inspecting the same;
(b) maintain records of all amounts paid or obligated to be paid by or for the
account of the Shipowner for each Vessel’s Construction; and (c) at reasonable
times permit the Secretary, upon request, to make reasonable, material and
pertinent examination and audit of books, records and accounts maintained by the
Shipowner, and to take information therefrom and make transcripts or copies
thereof.

SECTION 2.07. Requisition of Title, Termination of Construction Contact or Total
Loss of a Vessel. In the event of requisition of title to or seizure or
forfeiture of such Vessel, termination of the Construction Contract relating to
such Vessel, or the occurrence of the circumstances referred to in
Section 2.05(c)(3), then all of the following shall apply:

(a) The Shipowner shall promptly give written notice thereof to the Secretary.

(b) The Shipowner shall promptly pay all amounts it receives by reason of such
requisition, seizure, forfeiture, termination or total loss (“Loss Event’) to
the Secretary.

(c) After the Secretary has received sufficient funds to retire a Proportionate
Part of the Outstanding Obligations affected by the Loss Event:

(1) if there is no existing Default, (A) the Secretary and the Shipowner shall
give notice to the Indenture Trustee of a redemption of Proportionate Part of
the Outstanding Obligations pursuant to Section 3.05 of the Indenture, (B) such
amount, if any, held by the Secretary, shall be paid by the Secretary to the
Indenture Trustee not earlier than 10 days prior to, nor later than the opening
of business on, the Redemption Date required by Section 3.05 of the Indenture,
(C) the remainder shall next be applied by the Secretary for the payment of a
Proportionate Part of all other sums that may be secured hereby, and (D) the
balance shall be paid to the Shipowner including any interest earned on the
proceeds which are in excess of the amount required to redeem the Obligations;

(2) if there is an existing Default and the Guarantees shall not have terminated
pursuant to Section 3.02, such amounts shall be held until the same may be
applied or paid under paragraphs (1), (3), or (4) of this subsection, whichever
is applicable;

(3) if the Guarantees shall have terminated pursuant to Section 3.02(c) or if
the Secretary shall have assumed the Shipowner’s rights and duties under the
Indenture and the Obligations and made any payments in default under the terms
of Section 6.09 of the Indenture, such amounts shall be applied as provided in
Section 6.05; or

(4) if the Guarantees shall have terminated pursuant to Section 3.02(b) or
3.02(d) such amounts shall be paid by the Secretary to the Shipowner.

Provided that, notwithstanding the foregoing, the Shipowner shall not be
required to pay the Secretary any amount which the Secretary agrees is in excess
of the amount needed for redemption of the Proportionate Part of the Outstanding
Obligations affected by the Loss Event.

 

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SECTION 2.08. Notice of Mortgage.

(a) A properly certified copy of the Mortgage shall be carried on board each
self-propelled Vessel with that Vessel’s documents and shall be exhibited on
demand to any Person having business with such Vessel or to any Secretary’s
representative.

(b) A notice printed in plain type of such size that the paragraph of reading
matter shall cover a space not less than six inches wide by nine inches high,
and framed, shall be placed and kept prominently exhibited in the chart room and
in the masters cabin of a self-propelled Vessel.

(c) The notice referred to in paragraph (b) of this Section shall read as
follows:

“NOTICE OF FLEET MORTGAGE

This Vessel is owned by (Insert name of Shipowner), a (Insert jurisdiction)
corporation (“Shipowner”), and is covered by a First Preferred Ship Mortgage in
favor of the United States of America, under authority of Chapter 313, Title 46
of the United States Code. Under the terms of said Mortgage neither the
Shipowner, any charterer, the master or agent of this Vessel nor any other
person has any right, power or authority to create, incur or permit to be placed
or imposed upon this Vessel any lien other than statutory liens incident to
current operations that are subordinate to the Mortgage.”

SECTION 2.09. Compliance with 46 U.S.C. Chapter 313. The Shipowner shall comply
with and satisfy all of the provisions of Chapter 313, in order to establish and
thereafter to maintain the Mortgage as a preferred mortgage upon each Vessel.

SECTION 2.10. Performance of Shipowners Agreements by the Secretary. If the
Shipowner shall fail to perform any of its agreements hereunder or under the
Mortgage, the Secretary may, in its discretion, at any time during the
continuance of an event which by itself, with the passage of time, or the giving
of notice, would constitute a Default, perform all acts and make all necessary
expenditures to remedy such failure. Notwithstanding the foregoing, the
Secretary shall not be obligated to (and shall not be liable for the failure to)
perform such acts and make such expenditures. All funds advanced and expenses
and damages incurred by the Secretary relating to such compliance shall
constitute a debt due from the Shipowner to the Secretary and shall be secured
hereunder and under the Mortgage prior to the Secretary’s Note and shall be
repaid by the Shipowner upon demand, together with interest at the rate that
would have been paid by the Department of Treasury on the expended funds plus
1%.

SECTION 2.11. Uniform Commercial Code Filings; Further Assurances. The Shipowner
shall (a) furnish evidence satisfactory to the Secretary that financing
statements under the UCC shall have been filed against the Shipowner and/or the
Shipyard in all offices in which it may be necessary or advisable in the opinion
of the Secretary to perfect the Secretary’s security interests, and (b) from
time to time execute and deliver such further instruments and take such action
as may reasonably be required to more effectively subject the Security to the
lien of

 

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this Security Agreement and the Mortgage as contemplated thereby, including but
not limited to, legal opinions from an independent counsel for the Shipowner to
the effect that all UCC Financing Statements have been filed to perfect the
Secretary’s interests in the Security as valid and enforceable first priority
perfected security interests.

SECTION 2.12. Modification of Formation Agreements.

(a) If the Shipowner is organized as a general partnership, limited partnership,
limited liability company or joint venture, then for so long as there is
Outstanding any indebtedness to the United States of America pursuant to the
Act, the partnership agreement, operating agreement, limited liability
agreement, joint venture agreement (or any agreement constituting such an
entity) shall not be amended, modified or voluntarily terminated without the
Secretary’s prior written consent.

(b) In the event where any action by the Shipowner, any member of the Shipowner
or the management of the Shipowner results or would result in dissolution of the
Shipowner pursuant to its limited liability company agreement or governing law,
each member of the Shipowner shall forthwith take all steps necessary to reform
and reestablish the Shipowner.

SECTION 2.13. Members of Limited Liability Companies. All existing and future
members of a Shipowner which is a limited liability company (each being a
“Member”), upon becoming a Member, shall forthwith enter into an agreement with
the Secretary, in form and substance satisfactory to the Secretary, whereby each
Member agrees: (1) that any amounts owed by the Shipowner to a Member with
respect to its interest (as that or the equivalent term is used in the
Shipowner’s limited liability company agreement) (the “Distributions”) shall be
subordinated to the Shipowner’s payment of the Secretary’s Note and debts under
the Security Agreement, provided that such Distributions may be paid to the
extent the Shipowner is permitted to pay dividends under the Financial
Agreement; (2) that in the event of default by the Shipowner under the Security
Agreement, the Member shall be subordinated in its rights to receive any
Distribution or to be paid any sums whatsoever by the Shipowner until the
Secretary has made a full recovery of any and all amounts owed under the
Secretary’s Note and the Security Agreement.

SECTION 2.14. Concerning the Performance and Payment Bonds. During the
Construction, the Shipowner shall cause to be maintained Performance Bonds and
Payment Bonds naming the Shipowner and the Secretary as co-obligees (the “Surety
Bonds”) in form and substance satisfactory to the Secretary, to be obtained by
the Shipyard in the amount of the Construction Contract, issued by such surety
company or companies as shall be satisfactory to the Secretary (the “Surety”).
In the event that the price for the work to be performed under the Construction
Contract is increased, then the Surety Bonds shall be increased simultaneously
in a corresponding amount. The Shipowner hereby agrees that the Secretary shall
be the sole loss payee under the Surety Bonds and the Surety shall pay such
amounts directly to the Secretary fur distribution to the co-obligees as their
interests may appear. The Shipowner hereby agrees that its interest as a
co-obligee under each of the Surety Bonds is and shall be, upon the occurrence
of a Default under the Security Agreement, fully subject and subordinate to the
rights and interests of the Secretary therein. In the event of a default under
the Security Agreement, which default results in a payment under any of the
Surety Bonds, then the Surety Bonds proceeds shall be

 

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distributed by the Secretary in accordance with the provisions of Section 6.05
hereof. The Shipowner hereby irrevocably appoints the Secretary, the true and
lawful attorney of the Shipowner, in its name and stead, to execute all
consents, approvals, settlements and agreements on behalf of the Shipowner with
respect to any rights related to the Surety Bonds.

ARTICLE III

THE SECRETARY’S NOTE

SECTION 3.01. Secretary’s Note. On this date, the Shipowner has duly executed
and delivered and the Secretary has accepted the Secretary’s Note payable in an
amount equal to the principal amount of the Obligations.

SECTION 3.02. Termination of the Guarantees. Except as provided in Section 6.08
of the Indenture, the Guarantee with respect to a particular Obligation, shall
terminate only when, one or more of the following events shall occur:

(a) Such Obligation shall have been Retired or Paid;

(b) The Obligees of all the Obligations then Outstanding shall have elected to
terminate the Guarantees, and the Secretary has been so notified by the
Indenture Trustee or all Obligees in writing; provided that, such termination
shall not prejudice any rights accruing hereunder prior to such termination;

(c) Such Guarantee shall have been paid in full in cash by the Secretary; or

(d) The Indenture Trustee and each Obligee shall have failed to demand payment
of such Guarantee as provided in the Indenture, Guarantee, or the Act.

SECTION 3.03. Execution of Additional Secretary’s Note.

(a) In the event and when each new issue of Obligations is executed,
authenticated and delivered on a date or dates subsequent to the date hereof, as
contemplated by, and pursuant to the Indenture, the Shipowner shall, at the time
of the issuance of such Obligations, execute and deliver to the Secretary an
additional Secretary’s Note or, at the Secretary’s discretion, an endorsement to
the Secretary’s Note in an amount equal to the principal amount of, and at the
interest rate borne by, such issue of Obligations, on the terms stated in the
Secretary’s Note.

(b) Each Secretary’s Note or endorsement executed and delivered in accordance
with Section 3.03 shall together with the Secretary’s Note be secured by this
Security Agreement and the Mortgage.

 

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ARTICLE IV

CONSTRUCTION FUND; MONEYS DUE WITH RESPECT TO CONSTRUCTION OF THE VESSELS

SECTION 4.01. Construction Fund.

(a) The Shipowner has deposited in the Construction Fund with the Depository the
amount, if any, indicated in the Depository Agreement from the proceeds of the
Obligation to be held by the Depository in a Securities Account in accordance
with the terms of the Depository Agreement. This Securities Account together
with any future deposits and the proceeds from the investment of the amounts on
deposit shall be called the “Construction Fund.”

(b) The Shipowner may withdraw money from the Construction Fund under the same
procedures and conditions as the Shipowner may withdraw money from the Escrow
Fund under Section 5.03, except that the Shipowner’s Request for withdrawal will
not be subject to Section 5.03(a)(2)(A) or 5.03(h). The administration of the
Construction Fund shall also be subject to the terms and conditions of Sections
5.04 and 5.05.

SECTION 4.02. Moneys Due with Respect to Construction of the Vessels.

(a) In the event that the Shipowner shall receive any moneys from any Person in
connection with the Construction of any Vessel, the Shipowner shall give written
notice thereof to the Secretary and shall promptly pay the same over to the
Depository to be held in the Title XI Reserve Fund.

(b) Upon and after a final determination of Actual Cost in accordance with
Section 5.01, in the absence of a Default, any moneys held by the Depository
which are not to be applied for the redemption of Obligations under Section 3.04
of the Indenture shall be paid to the Shipowner.

(c) In the event there is an existing Default, the money shall be held by the
Depository in accordance with the provisions of the Depository Agreement.

(d) In the event the Secretary assumes the Shipowner’s rights and duties under
Section 6.09 of the Indenture or pays the Guarantees, the Depository shall
promptly pay all moneys including all Moneys Due with Respect to Construction of
the Vessels to the Secretary, who will apply it in accordance with Section 6.05.

ARTICLE V

ACTUAL COST; THE ESCROW FUND

SECTION 5.01. Actual Cost Determinations.

(a) The Actual Cost of each Vessel (and the aggregate Actual Cost of all of the
Vessels), determined as of the date of this Security Agreement, is as set forth
in Table A hereof.

(b) The Secretary agrees to: (1) make a final determination of the Actual Cost
of each Vessel, limited to amounts paid by or for the account of the Shipowner
on account of the items

 

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set forth in Table A hereof and, to the extent approved by the Secretary, any
other items or any increase in the amounts of such items, such determination to
be made as of the time of payment by or for the account of the Shipowner of the
hill amount of said Actual Cost of such Vessel, excluding any amounts which are
not to become due and payable, and (2) promptly give written notice to the
Shipowner, of the results of said final determination; provided that, the
Shipowner shall have requested such determination not less than 60 days in
advance and shall have furnished to the Secretary not less than 30 days in
advance of such determination along with a Shipowner’s Officer’s Certificate and
a statement by an independent certified (or, with the Secretary’s prior written
consent, an independent) public accountant or firm of accountants of the total
amounts paid or obligated to be paid by or for the account of the Shipowner for
the Construction of such Vessel, together with a breakdown of such totals
according to the items for which paid or obligated to be paid.

SECTION 5.02. Escrow Fund Deposits. At the time of the sale of the Obligations,
the Shipowner shall deposit with the Secretary in the Escrow Fund all of the
proceeds of that sale unless the Shipowner is entitled to withdraw funds under
Section 5.03. If the Obligations are issued before the delivery of all of the
Vessels, then the Shipowner shall also deposit into the Escrow Fund on the
Closing Date an amount equal to six months interest at the rate borne by the
Obligations.

SECTION 5.03. Escrow Fund Withdrawals.

(a) The Secretary shall within a reasonable time after written Request from the
Shipowner, disburse from the Escrow Fund directly to the Indenture Trustee, any
Paying Agent for such Obligations, the Shipyard, or any other Person entitled
thereto, any amount which the Shipowner is obligated to pay, or to the Shipowner
for any amounts it has paid, on account of the items and amounts or any other
items set forth in Table A annexed hereto or subsequently approved by the
Secretary, provided that, the Secretary is satisfied with the accuracy and
completeness of the information contained in the following submissions:

(1) A Responsible Officer of the Shipowner shall deliver an Officer’s
Certificate, in form and substance satisfactory to the Secretary, stating that
(A) there is neither a Default under the Construction Contract nor the Security
Agreement; (B) there have been no occurrences which have or would adversely and
materially affect the condition of the Vessel, its hull or any of its component
parts; (C) the amounts of the Request are in accordance with the Construction
Contract including the approved disbursement schedule and each item in these
amounts is properly included in the Secretary’s approved estimate of Actual
Cost; (D) with respect to the Request, once the Contractor is paid there will be
no liens or encumbrances on the applicable Vessel, its hull or component parts
for which the withdrawal is being requested except for those already approved by
the Secretary; and (E) if the Vessel has already been delivered, it is in class
and is being maintained in the highest and best condition. The Shipowner shall
also attach an Officer’s Certificate of the Shipyard, in form and substance
satisfactory to the Secretary, stating that there are no liens or encumbrances
as provided in clause (D) of this subsection and attaching the invoices and
receipts supporting each proposed withdrawal to the satisfaction of the
Secretary.

 

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(2) No payment or reimbursement under this Section shall be made (A) to any
Person until the Construction Fund, if any, has been exhausted, (B) to any
Person until the total amount paid by or for the account of the Shipowner from
sources other than the proceeds of such Obligations equals at least 12-1/2% of
the Actual Cost of the related Vessel is made; (C) to the Shipowner which would
have the effect of reducing the total amounts paid by the Shipowner pursuant to
clause (B) of this subsection; or (D) to any Person on account of items, amounts
or increases representing changes and extras or owner furnished equipment, if
any, set forth in Table A annexed hereto, unless such items, amounts and
increases shall have been previously approved by the Secretary; provide d,
however, that when the amount guaranteed by the Secretary equals 75% or less of
the Actual Cost, then after the initial 12 1/2% of Actual Cost has been paid by
or on behalf of the Shipowner for such Vessel and up to 37 1/2% of Actual Cost
has been withdrawn from the Escrow Fund for such Vessel, the Shipowner shall pay
the remaining Shipowner’s equity of at least 12 1/2% (as determined by the
Secretary) before additional monies can be withdrawn from the Escrow Fund
relating to such Vessel.

(b) The excess, as determined by the Secretary, of any amount on deposit in the
Escrow Fund which represents interest on the principal amount deposited, over
and above the amount of interest due on the next Interest Payment Date on the
principal amount, as determined by the Secretary, remaining on deposit on such
Interest Payment Date, may, unless there is an existing Default, be disbursed by
the Secretary upon the Shipowner’s Request made not more than 10 Business Days
prior to such Interest Payment Date or made within at least 60 days after such
Interest Payment Date.

(c) The Secretary shall not be required to make any disbursement pursuant to
this Section except out of the cash available in the Escrow Fund, If sufficient
cash is not available to make the requested disbursement, additional cash shall
be provided by the maturity or sale of securities in accordance with
instructions pursuant to Section 5.04. If any sale or payment on maturity shall
result in a loss in the principal amount of the Escrow Fund invested in
securities so sold or matured, the requested disbursement from the Escrow Fund
shall be reduced by an amount equal to such loss, and the Shipowner shall, no
later than the time for such disbursement, pay to the Indenture Trustee, any
Paying Agent, the Shipyard, or any other Person entitled thereto, the balance of
the requested disbursement from the Shipowner’s funds other than the proceeds of
such Obligations.

(d) If the Secretary assumes the Shipowner’s rights and duties under the
Indenture and the Obligations, and makes any payments in default under the
Indenture, or the Secretary pays the Guarantees, all amounts in the Escrow Fund
(including realized income which has not yet been paid to the Shipowner), shall
be paid to the Secretary and be credited against any amounts due or to become
due to the Secretary under the Security Agreement and the Secretary’s Note. To
the extent payment of the Escrow Fund to the Secretary is not required, said
amounts or any balance thereof, shall be paid to the Shipowner.

(e) At any time the Secretary shall have determined that there has been, for any
reason, a disbursement from the Escrow Fund contrary to this Section, the
Secretary shall give written notice to the Shipowner of the amount improperly
disbursed, the amount to be deposited or redeposited into the Escrow Fund on
account thereof, and the reasons for such determination.

 

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The Shipowner shall thereafter promptly deposit or redeposit, as appropriate,
such amount (with interest, if any) required by the Secretary into the Escrow
Fund.

(f) Notwithstanding any other provision of this Section, the Shipowner shall not
seek or receive reimbursement for any amount paid to the Shipyard or any Person
by the Secretary.

(g) In the event that one of the events described in Section 2.07 has occurred
with respect to one or more of the Vessels or the Secretary shall have paid the
Guarantees or shall have assumed the Shipowner’s rights and duties under
Section 6.09 of the Indenture, the Secretary may direct that moneys remaining on
deposit in the Escrow Fund may be withdrawn in whole or in part for one of the
following purposes: (1) application as provided in Section 3.05 of the Indenture
(but in no event shall any such disbursement for such purpose be in an amount
greater than the related Proportionate Part of the Outstanding Obligations);
(2) payment to the Shipowner, or its order, in the event all Outstanding
Obligations are Retired or Paid, other than by payment of the Guarantees; or
(3) application as provided in Section 6.05, if the Secretary shall have paid
the Guarantees or shall have assumed the Shipowner’s rights and duties under the
Indenture and the Obligations.

(h) Any amounts remaining in the Escrow Fund on the Termination Date of the
Escrow Fund which are in excess of 87 1/2% or 75% of Actual Cost, as the case
may be, shall be applied pursuant to Section 3.04 of the Indenture to retire a
Proportionate Part of the Outstanding Obligations.

SECTION 5.04. Investment and Liquidation of the Escrow Fund. The Secretary may
invest the Escrow Fund in obligations of the United States with such maturities
that the Escrow Fund will be available as required for the purposes hereof. The
Secretary shall deposit the Escrow Fund into an account with the Treasury
Department and upon agreement with the Shipowner, shall deliver to the Treasury
Department instructions for the investment, reinvestment and liquidation of the
Escrow Fund. The Secretary shall have no liability to the Shipowner for acting
in accordance with such instructions.

SECTION 5.05. Income on the Escrow Fund. Except as provided in Section 5.03, any
income realized on the Escrow Fund shall, unless there is an existing Default,
be paid to the Shipowner upon receipt by the Secretary of such income. For the
purpose of this Section, the term “income realized on the Escrow Rind,” shall
mean with respect to the Escrow Fund (1) the excess of the cash received from
the sale of securities over their cost (less any losses from sale not already
paid pursuant to Section 5.03(c)) and (2) cash received from the payment of
principal and interest on securities.

SECTION 5.06. Termination Date of the Escrow Fund. The Escrow Fund will
terminate 90 days after the Delivery Date of the last Vessel covered by this
Security Agreement (herein called the “Termination Date of the Escrow Fund”). In
the event that on such date the payment by or for the account of the Shipowner
of the full amount of the aggregate Actual Cost of all of the Vessels set forth
in Table A hereof has not been made or the amounts with respect to such Actual
Cost are not then due and payable, then the Shipowner and the Secretary by
written agreement shall extend the Termination Date of the Escrow Fund for such
period as shall be determined by the Shipowner and the Secretary as sufficient
to allow for such contingencies. If

 

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the Secretary shall have earlier made a final determination of the aggregate
Actual Cost of all of the Vessels in accordance with Section 5.01, the
Termination Date of the Escrow Fund shall be deemed to be the date of such final
determination; provided that, if as a result of such final determination, a
redemption of Obligations is required pursuant to Section 3.04 of the Indenture,
the Termination Date shall be the date specified as the Redemption Date in the
notice of redemption given pursuant to Section 3.08 of the Indenture.

ARTICLE VI

DEFAULTS AND REMEDIES

SECTION 6.01. What Constitutes “Defaults;” Continuance of Defaults. Each of the
following events shall constitute a “Default” within the meaning of
Section 6.01:

(a) A default in the payment of the whole or any part of the interest on any of
the Outstanding Obligations when the same shall become due and payable; or
default in the payment of the whole or any part of the principal of any of the
Outstanding Obligations when the same shall become due and payable, whether by
reason of Maturity, redemption, acceleration, or otherwise, or any default
referred to in Section 6.08 of the Indenture; and continuation of such default
for a period of 30 days shall constitute and is herein called a “Payment
Default,” Any corresponding default with respect to the interest on, or the
principal of, the Secretary’s Note is also deemed to be a Payment Default;

(b) The following shall constitute and each is herein called a “Security
Default:”

(1) Default by the Shipowner in the due and punctual observance and performance
of any provision in Sections 2.01(b), 2.02(b) and (i), 2.03, 2.04, 2.09, 2.11,
2.12, 2.14, 8.01 and 8.02;

(2) Default by the Shipowner continued after written notice specifying such
failure by certified or registered mail to the Shipowner from the Secretary in
the due and punctual observance and performance of any provision in Sections
2,02(a), (d), (e), (f) and (g), 2.05 (except (g) and (k) thereof), 2.07, and
2.13.

(3) Default by the Shipowner continued for 30 days after written notice by
certified or registered mail to the Shipowner from the Secretary in the due and
punctual observance of any other agreement in this Security Agreement or in the
Mortgage;

(4) The Shipowner shall become insolvent or bankrupt or shall cease paying or
providing for the payment of its debts generally, or the Shipowner shall be
dissolved or shall, by a court of competent jurisdiction, be adjudged a
bankrupt, or shall make a general assignment for the benefit of its creditors,
or shall lose its charter by forfeiture or otherwise; or a petition for
reorganization of the Shipowner under the Bankruptcy Code shall be filed by the
Shipowner, or such petition be filed by creditors and the same shall be approved
by such a court of competent jurisdiction; or a reorganization of the Shipowner
under said Code shall be approved by a court, whether proposed by a creditor, a
stockholder or any other Person whomsoever; or a receiver or receivers of any
kind whatsoever, whether appointed in admiralty, bankruptcy, common law or
equity proceedings, shall be appointed, by a decree of a court of competent
jurisdiction, with

 

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respect to any Vessel, or all or substantially all of the Shipowner’s property,
and such decree shall have continued unstayed, on appeal or otherwise, and in
effect for a period of 60 days;

(5) Any default in the due and punctual observance and performance of any
provision in the Financial Agreement or the Construction Contract;

(6) Any representation or warranty made relating to the execution and delivery
of this Security Agreement, the Mortgage, the Guarantee Commitment or the
Financial Agreement, or in any certificate required to be furnished pursuant
thereto, shall prove to be incorrect in any material respect;

(7) Any event constituting a Default under any security agreement or preferred
mortgage under Chapter 313, relating to any other vessel or vessels owned by the
Shipowner and financed under the Act;

(8) Any additional Security Default prescribed in the Special Provisions hereof;
and

(9) Any event constituting a default under any bareboat or time charter or
contract of affreightment of the Vessel.

At any time following the occurrence of a Security Default, the Secretary may
give the Indenture Trustee a Secretary’s Notice with respect to such Security
Default, after which the Indenture Trustee and the Obligees shall have the right
to make demand for payment of the Guarantees in accordance with the Indenture
and the Authorization Agreement, unless the Secretary shall have assumed the
Shipowner’s rights and duties under the Indenture and the Obligations, and made
any payments in default under Section 6.09 of the Indenture.

SECTION 6.02. Acceleration of Maturity of the Secretary’s Note. The Secretary
may, by giving written notice to the Shipowner, declare the principal of the
Secretary’s Note and interest accrued thereon to be immediately due and payable,
at any time after (a) the Secretary shall have been obligated to pay the
Guarantees pursuant to the terms of the Indenture and the Authorization
Agreement, or (b) the Secretary shall have assumed the Shipowner’s rights and
duties under the Indenture and the Obligations, and made any payments in default
under the terms of Section 6.09 of the Indenture. Thereupon, the principal of
and interest on the Secretary’s Note shall become immediately due and payable,
together with interest at the same rates specified in the Secretary’s Note.

SECTION 6.03. Waivers of Default.

(a) If the Secretary shall not have assumed the Shipowner’s rights and duties
under the Indenture and the Obligations, and made any payments in default under
the terms of Section 6.09 of the Indenture, and if the Secretary determines that
an event which, with the passage of time, would become a Payment Default, has
been remedied within 30 days after the occurrence of such event, upon a Request
by the Shipowner, the Secretary shall waive the consequences of such event.

 

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(b) If the Secretary shall not have assumed the Shipowners rights and duties
under the Indenture and the Obligations, and made any payments in default under
the terms of Section 6.09 of the Indenture, and if the Secretary shall have
determined prior to payment of the Guarantees that a Payment Default has been
remedied after the expiration of the aforesaid 30-day period, but prior to the
date of demand by the Indenture Trustee or an Obligee for payment under the
Guarantees, upon a Request by the Shipowner, the Secretary shall waive such
Default.

(c) If the Secretary shall have determined prior to the expiration of the period
required for payment of the Guarantees that a Payment Default had not occurred
or has been subsequently remedied by the Shipowner (and if the Secretary shall
not have assumed the Shipowners rights and duties under the Indenture and the
Obligations, and made any payments in default under the terms of Section 6.09 of
the Indenture and prior to any payment of Guarantees), the Secretary shall
notify the Indenture Trustee and the Shipowner of such determination, and, the
Secretary shall waive such Default.

(d) The Secretary, in its sole discretion, may waive any Security Default or any
event which by itself, or with the passage of time or the giving of notice, or
both, would give rise to a Security Default; provided that, such Default is
waived prior to the Secretary giving to the Indenture Trustee the Secretary’s
Notice.

(e) The Secretary shall notify the Shipowner and the Indenture Trustee in
writing of any determinations made under paragraphs (a), (b), and (c) of this
Section, and the Secretary shall waive the consequences of any such Default, and
annul any declaration under Section 6.02, and the consequences thereof.

(f) No waiver under this Section shall extend to or affect any subsequent or
other Default, nor impair any rights or remedies consequent thereon.

(g) No waiver under this Section shall be deemed to have occurred because the
Secretary shall have assumed the Shipowners rights and duties under the
Indenture and the Obligations, and made any payments in default under the terms
of Section 6.09 of the Indenture.

SECTION 6.04. Remedies After Default.

(a) In the event of a Default, and before and after the payment of the
Guarantees or the assumption by the Secretary of the Shipowners rights and
duties under the Indenture and the Obligations, and the making of any payments
in default under the terms of Section 6.09 of the Indenture, the Secretary shall
have the right to take the Vessels without legal process wherever the same may
be (and the Shipowner or other Person in possession shall forthwith surrender
possession of the Vessels to the Secretary upon demand) and hold, lay up, lease,
charter, operate, or otherwise use the Vessels for such time and upon such terms
as the Secretary may reasonably deem to be in the Secretary’s best interest,
accounting only for the net profits, if any, arising from the use of the
Vessels, and charging against all receipts from the use of the Vessels, all
reasonable charges and expenses relating to such Vessel’s use.

(b) Upon either (i) payment of the Guarantees or (ii) the Secretary’s assumption
of the Shipowner’s rights and duties under the Indenture and the Obligations,
and the making of any payments in default under Section 6.09 of the Indenture,
the Secretary shall have the right to:

(1) Exercise all the rights and remedies in foreclosure and otherwise given to
mortgagees by Chapter 313;

 

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(2) Bring suit at law, in equity or in admiralty to recover judgment for any and
all amounts due under the Secretary’s Note, this Security Agreement and the
Mortgage, collect the same out of any and all of Shipowner’s property, whether
or not the same is subject to the lien of the Mortgage, and in connection
therewith, obtain a decree ordering the sale of any Vessel in accordance with
paragraph (b)(4) of this Section;

(3) Have a receiver of the Vessels appointed as a matter of right in any suit
under this Section (and any such receiver may have the rights of the Secretary
under paragraph (b)(4) of this Section);

(4) Sell any Vessel, free from any claim of the Shipowner, by a public
extrajudicial sale, held at such time and place and in such manner as the
Secretary may reasonably deem advisable, after twice publishing notice of the
time and place of such sale prior to the proposed sale in the Authorized
Newspaper to the Shipowner. Such publication and mailing is to be made at least
10 Business Days prior to the date fixed for such sale; provided that, such sale
may be adjourned from time to time without further publication or notice (other
than announcement at the time and place appointed to such sale or adjourned
sale). It shall not be necessary to bring any such Vessel to the place appointed
for such sale or adjourned sale;

(5) Accept a conveyance of title to, and to take without legal process (and the
Shipowner or other Person in possession shall forthwith surrender possession to
the Secretary), the whole or any part of any Vessel and the Security wherever
the same may be, and to take possession of and to hold the same;

(6) In the Secretary’s discretion, take any and all action authorized by
Sections 1105(c), 1105(e) and 1108(b) of the Act and any and all action provided
for, or authorized, or permitted by, or with respect to the Increased Security;

(7) Receive, in the event of an actual or constructive total loss, or an agreed
or compromised total loss, or a requisition of title to or use of any Vessel,
all insurance or other payments therefor to which the Shipowner would otherwise
be entitled, such insurance moneys to be applied by the Secretary in accordance
with Section 6.05; and

(8) Pursue to final collection of all the claims arising under this Security
Agreement and to collect such claims from, the Increased Security.

(c) The Shipowner hereby irrevocably appoints the Secretary the true and lawful
attorney of the Shipowner, in its name and stead, to make all necessary
transfers of the whole or any part of the Increased Security in connection with
a sale, use or other disposition pursuant to Section 6.04(a) or 6.04(b), and for
that purpose to execute all necessary instruments of assignment and transfer.
Nevertheless, the Shipowner shall, if so requested by the Secretary in writing,
ratify and confirm such sale by executing and delivering to any purchaser of the
whole or any part of the Increased Security, such proper bill of sale,
conveyance, instrument of transfer, or release as may be designated in such
request.

 

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(d) No remedy shall be exclusive of any other remedy, and each and every remedy
shall be cumulative and in addition to any other remedy.

(e) No delay or omission to exercise any right or remedy shall impair any such
right or remedy or shall be deemed to be a waiver of any Default.

(f) The exercise of any right or remedy shall not constitute an election of
remedies by the Secretary.

(g) If the Secretary discontinues any proceeding, the rights and remedies of the
Secretary and of the Shipowner shall be as though no such proceeding had been
taken.

SECTION 6.05. Application of Proceeds.

(a) The proceeds (from sale or otherwise) of the whole or any part of the
Increased Security and use thereof by the Secretary under any of the foregoing
powers, (b) the proceeds of any judgment collected by the Secretary for any
default hereunder, (c) the proceeds of any insurance and of any claim for
damages to the whole or any part of the Increased Security received by the
Secretary while exercising any such power, and (d) all other amounts received by
the Secretary, including amounts which are required by Sections 2.05 and 2.07
shall be applied by the Secretary as follows:

(1) to the payment of all advances and all reasonable charges by the Secretary
pursuant to this Security Agreement;

(2) to the payment of the whole amount of the interest then due and unpaid upon
the Secretary’s Note;

(3) to the payment of the whole amount of the principal then due and unpaid upon
the Secretary’s Note;

(4) to the Secretary for application to any other debt of the Shipowner due to
the Secretary under any other financing insured or guaranteed by the Secretary
under to the Act;

(5) to the Indenture Trustee for its reasonable fees and expenses; and

(6) any balance thereof remaining shall be paid to the Shipowner.

SECTION 6.06. General Powers of the Secretary.

(a) In the event any Vessel shall be arrested or detained by a marshal or other
officer of any court of law, equity or admiralty jurisdiction in any country or
nation of the world or by any government or other authority, and shall not be
released from arrest or detention within 15 days from the date of arrest or
detention, the Shipowner hereby authorizes the Secretary, in the name of the
Shipowner, to apply for and receive possession of and to take possession of such
Vessel with all the rights and powers that the Shipowner might have, possess and
exercise in any such event. This authorization is irrevocable.

 

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(b) The Shipowner irrevocably authorizes the Secretary or its appointee (with
full power of substitution) to appear in the name of the Shipowner in any court
of any country or nation of the world where a suit is pending against the whole
or any part of the Increased Security because of or on account of any alleged
lien or claim against the whole or any part of the Increased Security, from
which the whole or said part of the Increased Security has not been released.

(c) The following shall constitute a debt due from the Shipowner to the
Secretary, and shall be repaid by the Shipowner upon demand: all reasonable
expenses incurred pursuant to paragraphs (a) or (b) of this Section and all
reasonable expenses incurred incident to the exercise by the Secretary of any
remedies pursuant to Section 6.04(b) or the assumption by the Secretary of the
rights and duties of the Shipowner under the Indenture and the Obligations, and
the making of any payments in default under the terms of Section 6.09 of the
Indenture (including, but not limited to, fees paid to the Indenture Trustee for
expenses incident to said assumption of the Indenture by the Secretary),
together with interest at the rate that would have been paid by the Department
of Treasury on the expended funds plus 1%. The Secretary shall not be obligated
to (nor be liable for the failure to) take any action provided for in paragraphs
(a) and (b) of this Section.

ARTICLE VII

AMENDMENTS AND SUPPLEMENTS TO THE SECURITY AGREEMENT, MORTGAGE AND INDENTURE

SECTION 7.01. Amendments and Supplements to the Security Agreement and the
Mortgage. This Security Agreement and the Mortgage may not be amended or
supplemented orally, but may be amended or supplemented from time to time only
by an instrument in writing executed by the Shipowner and the Secretary.

SECTION 7.02. Amendments and Supplements to the Indenture. Notwithstanding any
provisions in the Indenture, the Shipowner agrees that no amendments or
supplements will be made to the Indenture without the Secretary’s prior written
consent, and any purported action contrary to this Section shall be null and
void ab initio and of no force and effect.

ARTICLE VIII

CONSOLIDATION, MERGER OR SALE

SECTION 8.01. Consolidation, Merger or Sale.

(a) Nothing in this Security Agreement or the Mortgage shall prevent any lawful
consolidation or merger of the Shipowner with or into any other Person, or any
sale of a Vessel or Vessels to any other Person lawfully entitled to acquire and
operate such Vessel or Vessels, or any sale by the Shipowner of all or
substantially all of its assets to any other Person; provide that, the Secretary
shall have given its prior written consent to such succession, merger,
consolidation or sale.

(b) Any Successor shall (by indenture supplemental to the Indenture, and by
instrument amending or supplementing this Security Agreement, and the Mortgage,
as may be necessary), expressly assume the payment of the principal of (and
premium, if any) and interest

 

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on the Outstanding Obligations in accordance with the terms of the Obligations,
shall execute and deliver to the Secretary, an endorsement to the Secretary’s
Note in form satisfactory to the Secretary, shall expressly assume the payment
of the principal of and interest on the Secretary’s Note, and shall expressly
assume the performance of the agreements of the Shipowner in the Indenture, this
Security Agreement, the Mortgage and any related document.

(c) Upon the assumption of the documents listed in paragraph (b) of this
Section, the Secretary shall consent to the surrender of each Vessel’s documents
pursuant to 46 U.S.C. 12111(c)(3), as amended; provide that, concurrently with
such surrender, such Vessel shall be redocumented under the laws of the United
States.

(d) In the event of any sale of less than all the Vessels, the Secretary shall
determine if there will remain adequate security for the Guarantees after
discharge of any such Vessel or Vessels from the Security Agreement and
Mortgage, and (1) the Shipowner shall redeem, together with any premium and/or
accrued interest thereof, the Proportionate Part of the Outstanding Obligations
relating to such Vessel or Vessels in accordance with the provisions of Article
Third of the Indenture, or (2) the Person to which such sale shall have been
made (the “Transferee”), shall assume the documents listed in paragraph (b) of
this Section. Upon any such assumption, the Transferee shall succeed to and be
substituted for the Shipowner with the same force and effect as if it had been
named in the Indenture, the Obligations, this Security Agreement and the
Mortgage (and such other documents) to the extent the same relate to such
Proportionate Part of the Outstanding Obligations and to such Vessel or Vessels.

SECTION 8.02. Transfer of a General Partners or a Joint Venturer’s Interest.

(a) If the Shipowner is organized as a partnership or a joint venture, a general
partner or a joint venturer may lawfully transfer its respective interests under
the terms of the partnership or joint venture agreement to any Person and may be
released from all of theft obligations thereunder and under this Security
Agreement or the Mortgage; provided that, (i) the Secretary shall have given its
prior written consent to the proposed transaction and (ii) the transferee shall
assume in full all of the existing obligations which the transferring general
partner or joint venturer has under the applicable partnership or joint venture
agreement, this Security Agreement, the Mortgage and any related document.

ARTICLE IX

NOTICES

SECTION 9.01. Notices. Except as otherwise provided in this Security Agreement
or by the Act, all notices, requests, demands, directions, consents, waivers,
approvals or other communications may be made or delivered in person or by
registered or certified mail, postage prepaid, addressed to the party at the
address of such party specified in the Special Provisions hereof, or at such
other address as such party shall advise each other party by written notice, and
shall be effective upon receipt by the addressee thereof.

SECTION 9.02. Waivers of Notice. In any case where notice by publication, mail
or otherwise is provided for by this Security Agreement, such notice may be
waived in writing by

 

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the Person entitled to receive such notice, either before or after the event,
and such waiver shall be deemed the equivalent of such notice.

SECTION 9.03. Shipowner’s Name or Address Change. The Shipowner shall not change
its name or its address without first providing written notice to the Secretary
of the new name and/or the change in address.

ARTICLE X

DISCHARGE OF SECURITY AGREEMENT AND THE MORTGAGE

SECTION 10.01. Discharge of Security Agreement and the Mortgage.

(a) If the Obligations and the related Secretary’s Note shall have been
satisfied and discharged, and if the Shipowner shall pay or cause to be paid all
other sums that may have become secured under this Security Agreement and the
Mortgage, then this Security Agreement, the Mortgage and the liens, estate and
rights and interests hereby and thereby granted, shall cease, determine, and
become null and void, and the Secretary, on the Shipowner’s Request and at the
Shipowner’s cost and expense, shall forthwith cause satisfaction and discharge
and duly acknowledge such satisfaction and discharge of this Security Agreement
and the Mortgage to be entered upon its and other appropriate records, and shall
execute and deliver to the Shipowner such instruments as may be necessary, and
forthwith the estate, right, title and interest of the Secretary in and to the
Security, the Increased Security, and any other securities, cash, and any other
property held by it under this Security Agreement and the Mortgage, shall
thereupon cease, determine and become null and void, and the Secretary shall
transfer, deliver and pay the same to the Shipowner.

(b) If all of the Guarantees on the Outstanding Obligations shall have been
terminated pursuant to Sections 3.02(b) or 3.02(d), the Secretary shall assign
to the Shipowner this Security Agreement, the Mortgage and the liens, estate,
rights and interests hereby and thereby granted.

ARTICLE XI

MISCELLANEOUS

SECTION 11.01. Successors and Assigns. All the covenants, promises, stipulations
and agreements of the Secretary and Shipowner in this Security Agreement shall
bind the Secretary and Shipowner and its respective successors and assigns. This
Security Agreement is for the sole benefit of the Shipowner, the Secretary, and
their respective successors and assigns, and no other Person shall have any
right hereunder.

SECTION 11.02. Execution in Counterparts. This Security Agreement may be
executed in any number of counterparts. All such counterparts shall be deemed to
be originals and shall together constitute but one and the same instrument.

SECTION 11.03. Shipowner’s Rights in Absence of Default. Except during the
existence of a Default, the Shipowner (1) shall be permitted to retain actual
possession and use of the Vessel, and (2) shall have the right, from time to
time, in its discretion and without the consent of or release by the Secretary,
to dispose of, free from the lien hereof and of the Mortgage, any and all
engines, machinery, masts, boats, anchors, cables, chains, rigging, tackle,

 

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apparel, furniture, capstans, outfit, tools, pumps, pumping and other equipment,
and all other appurtenances to the Vessels, and also any and all additions,
improvements and replacements in or to the Vessels or said appurtenances, after
first or simultaneously replacing the same with items of at least substantially
equal value.

SECTION 11.04. Surrender of Vessels’ Documents. The Secretary shall consent to
the surrender of each Vessel’s documents in connection with any redocumentation
of such Vessel required on account of alterations to such Vessel which are not
prohibited by this Security Agreement and by the Mortgage.

SECTION 11.05. Applicable Regulations. Only the provisions of the regulations
issued under Title XI of the Act as in effect on the date hereof (46 C.F.R. 298)
shall control the Security Agreement provisions.

SECTION 11.06. Table of Contents, Titles and Heading. The table of contents, and
titles of the Articles and the headings of the Sections are not a part of this
Security Agreement and shall not be deemed to affect the meaning or construction
of any of its provisions.

 

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Schedule X to the Security Agreement    Document 11

Schedule of Definitions

“Act” means the Merchant Marine Act, 1936, as amended and in effect on the
Closing Date.

“Actual Cost” means the actual cost of a Vessel, as set forth in Table A of the
Security Agreement or as subsequently predetermined by the Secretary pursuant to
the Security Agreement and the Act.

“Audited Financial Statements” mean the annual audit of the Shipowner’s accounts
in accordance with generally accepted auditing standards by independent
certified public accountants or independent licensed public accountants,
certified or licensed by a regulatory authority of a state or other political
subdivision of the United States, who may be the Shipowner’s regular auditors.

“Authorization Agreement” means the Authorization Agreement, Contract No,
MA-13047, between the Secretary and the Indenture Trustee, whereby the Secretary
authorizes the Guarantee of the United States to be endorsed on the Obligations,
as the same is originally executed, or as modified, amended or supplemented
therein.

“Authorized Newspaper” means The Wall Street Journal or if it ceases to exist,
then in such other newspaper as the Secretary may designate.

[Intentionally Omitted]

“Business Day” means a day which is not a Saturday, Sunday or a bank holiday
under the laws of the United States or the State of New York.

“Chapter 313” means the provisions of 46 United States Code Chapter 313, as
amended.

“Classification Society” means the American Bureau of Shipping or as specified
in the Special Provisions of the Security Agreement, either a member of the
International Association of Classification Societies (“IACS”) that has been ISO
9000 series registered or an IACS member that meets the requirements of the
International Maritime Organization, is qualified under a Quality Systems
Certificate Scheme and recognized by the United States Coast Guard and the
Secretary as meeting acceptable standards.

“Closing Date” or “Closing” means the date when the Security Agreement is
executed and delivered by the Shipowner.

“Commitment to Guarantee Obligations” has the same meaning as the term Guarantee
Commitment.

“Construction” means construction of the Vessels, including designing,
inspecting, outfitting and equipping thereof.

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“Construction Contract” means each, and “Construction Contracts” means every,
contract relating to the Construction of the Vessels between the Shipowner and
the Shipyard, as originally executed or as modified or supplemented pursuant to
the applicable provisions thereof.

“Default” when used in the Security Agreement has the meaning attributed to it
in Article VI thereof.

“Delivery Date” means the date on which a Vessel is delivered to and accepted by
the Shipowner.

“Depository” shall mean the Secretary, acting on behalf of the United States of
America.

“Depository Agreement” shall mean the Depository Agreement, Contract No.
MA-13789 among the Shipowner and the Secretary, as originally executed or as
modified or supplemented in accordance with the applicable provisions thereof.

[Intentionally Omitted]

“Eligible Investment” has the meaning given by Section 5 of the Financial
Agreement.

[Intentionally Omitted]

“Financial Agreement” means the Title XI Reserve Fund and Financial Agreement,
Contract No. MA-13788, executed by the Shipowner and the Secretary, as
originally executed or as modified, amended or supplemented.

“Financial Asset” has the meaning given by Article 8-102(a)(9) of the UCC.

“Government Use” means the use of a Vessel or requisition of its title required
by a government or governmental body of the United States of America.

“Guarantee” means each, and the “Guarantees” means every, guarantee of an
Obligation by the United States pursuant to Title XI of the Act, as provided in
the Authorization Agreement.

[Intentionally Omitted]

“Increased Security” means the Secretary’s Note, the Security Agreement, the
Vessels, the Security, the Title XI Reserve Fund, and any other security
agreement between the Secretary and the Shipowner relating to any vessels
financed under the Act, and the Policies of Insurance, and the proceeds of the
foregoing.

“Indenture” means the Trust Indenture dated as of the Closing Date between the
Shipowner and the Indenture Trustee, as originally executed, or as modified,
amended or supplemented.

“Indenture Default” has the meaning specified in Article VI of the Indenture.

“Indenture Trustee” means The Bank of New York and any successor trustee under
the Indenture.

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“Interest Payment Date” means with respect to any Obligation, the date when any
installment of interest on such Obligation is due and payable.

“Long Term Debt” means, as of any date, the total notes, bonds, debentures,
equipment obligations and other evidence of indebtedness that would be included
in long term debt in accordance with generally accepted accounting principles.
There shall also be included any guarantee or other liability for the debt of
any other Person, not otherwise included on the balance sheet. For purposes of
clarification, Long Term Debt shall specifically exclude the current portion
thereof, all in accordance with generally accepted accounting principles.

“Maturity” when used with respect to any Obligation, means the date on which the
principal of such Obligation becomes due and payable as therein provided,
whether at the Stated Maturity or by redemption, declaration of acceleration or
otherwise.

[Intentionally Omitted]

“Mortgage” means the first preferred fleet mortgage on the Vessels (or first
preferred ship mortgage on the Vessel, as the case may be), Contract No.
MA-13049, by the Shipowner to the Secretary, as originally executed, modified,
amended or supplemented.

“Mortgagee” means the Secretary, as mortgagee under the Mortgage.

“Mortgagor” means the Shipowner, as mortgagor under the Mortgage.

“Net Worth” means, as of any date, the total of paid-in capital stock, paid-in
surplus, earned surplus and appropriated surplus, and all other amounts that
would be included in net worth in accordance with generally accepted accounting
principles, but exclusive of (1) any receivables from any stockholder, director,
Officer or employee of the Company (other than current receivables arising out
of the ordinary course of business and not outstanding for more than 60 days)
and (2) any increment resulting from the reappraisal of assets.

“Obligation” means each, and Obligations “means every, obligation of the
Shipowner bearing a Guarantee that is authenticated and delivered under the
Authorization Agreement and Indenture.

“Obligee” means each, and “Obligees” means every, holder of an Obligation.

“Offering Circular” means the offering circular relating to the issuance and
sale of each Obligation.

“Officer’s Certificate” means a certificate conforming to Section 1.02 of the
Security Agreement or the Indenture as the context may require.

“Outstanding” when used with reference to the Obligations, shall mean all
Obligations theretofore issued under the Indenture, except: (1) Obligations
Retired or Paid; and (2) Obligations in lieu of which other Obligations have
been issued under the Indenture.

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“Paying Agent” means any bank or trust company meeting the qualifications in
Section 7.02(a) of the Indenture and appointed by the Shipowner under
Section 4.02 of the Indenture to pay the principal of (and premium, if any) or
interest on the Obligations on behalf of the Shipowner.

“Payment Default” has the meaning specified in Section 6.01 of the Security
Agreement.

“Person” or “Persons” means any individual, corporation, partnership, joint
venture, association, limited liability company, joint-stock company, trust,
unincorporated organization, government, or any agency or political subdivision
thereof.

“Policies of Insurance” and “policies” means all cover notes, binders, policies
of insurance and certificates of entry in a protection and indemnity
association, club or syndicate with respect to the Vessel, (including all
endorsements and riders thereto), including but not limited to all insurance
required under Section 2.05 of the Security Agreement.

[Intentionally Omitted]

“Redemption Date” means a date fixed for the redemption of an Obligation by the
Indenture.

“Related Party” means one that can exercise control or significant influence
over the management and/or operating policies of another Person, to the extent
that one of the Persons may be prevented from fully pursuing its own separate
interests. Related parties consist of all affiliates of an enterprise, including
(1) its management and their immediate families, (2) its principal owners and
their immediate families, (3) its investments accounted for by the equity
method, (4) beneficial employee trusts that are managed by the management of the
enterprise, and (5) any Person that may, or does, deal with the enterprise and
has ownership of, control over, or can significantly influence the management or
operating policies of another Person to the extent that an arms-length
transaction may not be achieved.

“Request” means a written request to a Person for the action therein specified,
signed by a Responsible Officer of the Person making such request.

“Responsible Officer” means (1) in the case of any business entity, the chairman
of the board of directors, the president, any executive or senior vice
president, the secretary, the treasurer, member or partner, (2) in the case of
any commercial bank, the chairman or vice-chairman of the executive committee of
the board of directors or trustees, the president, any executive or senior vice
president, the secretary, the treasurer, any trust officer, and (3) with respect
to the signing or authentication of Obligations and Guarantees by the Indenture
Trustee, any person specifically authorized by the Indenture Trustee to sign or
authenticate Obligations.

“Retired or Paid,” as applied to Obligations and the indebtedness evidenced
thereby, means that such Obligations shall be deemed to have been so retired or
paid and shall no longer be entitled to any rights or benefits provided in the
Indenture if. (1) such Obligations shall have been paid in full; (2) such
Obligations shall have been canceled by the Indenture Trustee; or (3) such
Obligations shall have become due and payable at Maturity and funds sufficient
for the payment of such Obligations (including interest to the date of Maturity,
or in the case of a payment after Maturity, to the date of payment, together
with any premium thereon) and available for such payment and are held by the
Indenture Trustee or any Paying Agent with irrevocable directions,

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to pay such Obligations; provided that, the foregoing definition is subject to
Section 6.08 of the Indenture.

“Secretary” means the Secretary of Transportation or any officials duly
authorized to perform the functions of the Secretary of Transportation under
Title XI of the Act.

“Secretary’s Notice” means a notice from the Secretary to the Indenture Trustee
that a Default, within the meaning of Section 6.01(b) of the Security Agreement
has occurred.

“Securities Account” has the meaning given by Article 8-501 of the UCC.

“Securities Intermediary” has the meaning given by Article 8-102(a)(14) of the
UCC and also means the Depository.

“Security” has the meaning specified in Section 1.03 of the Security Agreement.

“Security Agreement” means the security agreement, Contract No. MA-13787, dated
as of the Closing Date, consisting of the special provisions, the general
provisions and this schedule X, executed by the Shipowner as security for the
Secretary, as originally executed or as modified, amended or supplemented.

“Security Default” has the meaning specified in Section 6.01 of the Security
Agreement.

“Shipowner” means American Queen Steamboat, LLC, a Delaware limited liability
company.

“Shipyard” means each, and “Shipyards” means every, Shipyard identified in
Recital A to the Guarantee Commitment.

“Stated Maturity” means the date determinable as set forth in any Obligation as
the final date on which the principal of such Obligation is due and payable.

“Successor” means a Person formed by or surviving a consolidation or merger with
the Shipowner or to which the Vessels have been sold.

“Title XI” means Title XI of the Act.

“Title XI Reserve Fund” has the meaning specified in the Financial Agreement.

“Title XI Reserve Fund and Financial Agreement” means the Financial Agreement.

“UCC” means the Uniform Commercial Code as enacted in the State of Delaware.

“Vessel” means the AMERICAN QUEEN, Official Number 1030765, financed with the
Obligations.

[Intentionally Omitted]