under Chapter 537 and prior to any payment of the Guarantee), the Mortgagee shall notify the Holder and the Mortgagor of such determination, and, the Mortgagee shall waive such Default. (d) The Mortgagee, 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. (e) The Mortgagee shall notify the Mortgagor and the Holder in writing of any determinations made under Subsections (a), (b), and (c) of this Section, and the Mortgagee shall waive the consequences of any such Default, and annul any declaration under Section 5.02 of this Mortgage, 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 Mortgagee shall have assumed the Mortgagor's rights and duties under the Note Purchase Agreement and the Note and made any payments in default under Chapter 537.

SECTION 5.04. Application of Proceeds. (a) The proceeds (from sale or otherwise) of the whole or any part of the Vessel and the other Collateral and use thereof by the Mortgagee under any of the foregoing powers, (b) the proceeds of any judgment collected by the Mortgagee for any Default hereunder, (c) the proceeds of any insurance and of any claim for damages to the whole or any part of the Vessel and the other Collateral received by the Mortgagee while exercising any such power, and (d) all other amounts received by the Mortgagee, including amounts which are required by Sections 3.03 and 3.10 hereof shall be applied by the Mortgagee in the following order:

(1) To the payment of all advances and all reasonable charges by the Mortgagee pursuant to this Mortgage, the Agreement, the Administrator’s Note or any other Transaction Document, including the expenses of any sale, counsel fees, the expenses of any taking of possession of any Vessel, costs and expenses of collection, and any other expenses or advances made or incurred by the Mortgagee in the protection and preservation of the Vessels or of its rights or in the pursuance of its remedies hereunder and to the payment of any damages sustained by the Mortgagee from the Default or Defaults of the Mortgagor; any debt owed by the Mortgagor to the Mortgagee which this Mortgage, the Administrator’s Note, the Agreement or any other Transaction Document states is entitled to be paid prior to the Administrator’s Note, and any payment due under this Mortgage, the Agreement or any of the other Transaction Documents, and at the option of the Mortgagee, to provide a fund adequate in the opinion of the Mortgagee to furnish suitable indemnity against liens claiming priority over this Mortgage; (2) To the payment of Late Charges payable under Paragraphs 11 and 16 of the Note; (3) To the payment of premiums payable under Paragraphs 14 and 15 of the Note; (4) To the payment of the whole amount of interest then due and unpaid upon the Administrator’s Note; provided, however, that such application of funds shall not cure or be deemed to cure a Default;

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