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                                                                    EXHIBIT 10.5

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                                                           Contract No. MA-13781

                               SECURITY AGREEMENT

                      Relating to United States Government
                      Guaranteed Ship Financing Obligations


                                     between

                          K-SEA TRANSPORTATION LLC and
                                EW HOLDING CORP.,
                                   Shipowners


                                       and


                          THE UNITED STATES OF AMERICA

                               Dated: June 7, 2002

--------------------------------------------------------------------------------

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                                                           Contract No. MA-13781

                               SECURITY AGREEMENT
                               SPECIAL PROVISIONS

     THIS SECURITY AGREEMENT, dated June 7, 2002 (the "Security Agreement"),
among K-SEA TRANSPORTATION LLC, a Delaware limited liability company ("K-Sea"),
and EW HOLDING CORP., a New York corporation ("EW Holding" and with K-Sea
collectively, the "Shipowners" and each a "Shipowner") and THE UNITED STATES OF
AMERICA (the "United States"), represented by the Secretary of Transportation,
acting by and through the Maritime Administrator (the "Secretary"), pursuant to
Title XI of the Act.

                                    RECITALS

     A.   K-Sea has entered into the Construction Contract dated March 23, 2001
with Bollinger Gretna, LLC, a Louisiana limited liability company (the
"Shipyard" or "Builder") for the Construction of four vessels, identified as
Builder's Hull No. 416, to be named DBL-101 (the "EW Vessel"), and Builder's
Hulls Nos. 417, 421 and 422, to be named DBL-81, DBL-82 and DBL-102,
respectively, (the "K-Sea Vessels" and each a "K-Sea Vessel"; when used
collectively with the EW Vessel, the "Vessels"; when used singularly, the
"Vessel") to be built in accordance with the Construction Contract. With all
required consents and approvals, (i) K-Sea granted a security interest in the
Construction Contract to The CIT Group/Equipment Financing, Inc. ("CIT")
pursuant to a construction contract assignment dated July 27, 2001 (the "CIT
Assignment"), (ii) K-Sea assigned its right, title and interest in (but not its
obligations under) the Construction Contract with respect to Builder's Hull No.
416 only to Investment Property Exchange Services, Inc. ("IPX") (A) subject to
an exchange agreement No. EX-12-2284 dated October 11, 2001 between EW Holding
and IPX (the "Exchange Agreement") and (B) subordinate to the CIT Assignment,
(iii) pursuant to an assignment executed and delivered prior to or on the
Closing Date whereby K-Sea assigned its obligations under the Construction
Contract with respect to Builder's Hull No. 416 to EW Holding; (iv) prior to the
date hereof EW Holding has assigned all its right, title and interest to and in
(but not its obligations under) the Exchange Agreement to the Secretary, and (v)
prior to or on the Closing Date, IPX has assigned its right, title and interest
in the Construction Contract with respect to Builder's Hull No. 416 to the
Secretary, subject to the CIT Assignment.

     B.   On the date hereof, the Secretary entered into, and the Shipowners
accepted a Commitment to Guarantee Obligations, Contract No. MA-13779, whereby
the United States has committed itself to guarantee the payment in full of all
the unpaid interest on, and the unpaid principal balance of, Obligations (as
defined herein) in the aggregate principal amount equal to

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eighty-seven and one half percent (87.5%) of the Actual Cost of each of the
Vessels on the Closing Date, which amounts are set out in Table A.

     C.   The Shipowners have entered into the Bond Purchase Agreement providing
for the sale and delivery, on the Closing Date, of obligations in the aggregate
principal amount of Forty Million Four Hundred Forty-One Thousand United States
Dollars (US $40,441,000) consisting of K-Sea Series 2002-1 in the principal
amount of Ten Million Nine Hundred Five Thousand Dollars ($10,905,000) with
respect to the EW Vessel (Builder's Hull No. 416), K-Sea Series 2002-2 in the
principal amount of Nine Million Six Hundred Thirty-Two Thousand Dollars
($9,632,000) with respect to the K-Sea Vessel identified as Builder's Hull No.
417, K-Sea Series 2002-3 in the principal amount of Nine Million Three Hundred
Seventy-Six Thousand Dollars ($9,376,000) with respect to the K-Sea Vessel
identified as Builder's Hull No. 421, and K-Sea Series 2002-4 in the principal
amount of Ten Million Five Hundred Twenty-Eight Thousand Dollars ($10,528,000)
with respect to the K-Sea Vessel designated as Builder's Hull No. 422,
respectively" (collectively, the "Obligations") having the maturity dates and
interest rates set forth in the Bond Purchase Agreement, the Indenture and the
Obligations.

     D.   On the date hereof, the Shipowners and JPMorgan Chase Bank (the
"Indenture Trustee"), executed and delivered the Trust Indenture (the
"Indenture") pursuant to which the Shipowners will issue the Obligations.

     E.   On the date hereof, the Secretary and the Indenture Trustee executed
the Authorization Agreement, Contract No. MA-13780, which authorizes the
Indenture Trustee to endorse, execute, and authenticate the Secretary's
Guarantee on each of the Obligations.

     F.   As security for the due and timely payment of the Secretary's Note,
issued this day by the Shipowners, and for the Secretary's issuance of the
Guarantees, the Shipowners have executed and delivered the Security Agreement,
Contract No. MA-13781, and the Shipowners, along with K-Sea Transportation Corp.
and K-Sea Acquisition Corp. have executed and delivered the Financial Agreement,
Contract No. MA-13784, granting the Secretary a security interest in, among
other things, the Construction Contract that is subordinate and subject to the
CIT Assignment. On the Delivery Date of the EW Vessel, EW Holding will execute
and deliver the Ship Mortgage, Contract No. MA-13782, granting the Secretary a
security interest in, among other things, the EW Vessel and certain other
property, tangible and intangible, which EW Holding then has or thereafter will
acquire, and all the proceeds thereof, and CIT will execute and deliver the CIT
Delivery Release discharging all of its interest under the CIT Assignment and
the Increased Security with respect to the EW Vessel. On the Delivery Date of
the first of the K-Sea Vessels

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to be delivered, K-Sea will execute and deliver the Fleet Mortgage, Contract No.
MA-13783, granting the Secretary a security interest in, among other things,
such K-Sea Vessel and certain other property, tangible and intangible, which
K-Sea then has or thereafter will acquire, and all proceeds thereof, and on the
delivery of each of the other K-Sea Vessels, K-Sea shall execute and deliver a
supplement to the Fleet Mortgage adding such newly-delivered K-Sea Vessel as an
additional Vessel pursuant to the terms thereof, and granting the Secretary a
security interest in, among other things, such K-Sea Vessel and certain other
property, tangible and intangible, which K-Sea then has or thereafter will
acquire, and all proceeds thereof. Also on each of the Delivery Dates of the
K-Sea Vessels, CIT will execute and deliver a CIT Delivery Release discharging
all of its interest under the CIT Assignment and in the Increased Security with
respect to the delivered K-Sea Vessel.

     G.   As further security to the Secretary and in consideration of the
Secretary's agreeing to issue the Guarantees, the Shipyard has executed on this
date the Consent of Shipyard to the assignment of the Construction Contract to
the Secretary, and CIT has executed the CIT Consent to the assignment of a
subordinate security interest in the Construction Contract to the Secretary.

     H.   In order to implement certain aspects of the transactions contemplated
by the Security Agreement and the Financial Agreement, the Secretary and the
Shipowners have entered into the Depository Agreement, Contract No. MA-13785, on
the date hereof.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and of other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and in order to provide security to
the Secretary for the Secretary's Note provided for herein, the parties hereto
hereby agree as follows:

     1.   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.

     2.   RULES OF INTERPRETATION AND DEFINITIONS.

     For all purposes of this Security Agreement, unless otherwise expressly
provided or unless the context otherwise requires, the terms defined in Schedule
X to this Security Agreement or by reference therein to other

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instruments shall have the respective meanings stated in said Schedule X or such
other instruments.

     All references in the General Provisions to "Shipowner" and "Shipowner's"
in the singular shall be deemed to mean "Shipowners" and "Shipowners'",
respectively, in the plural for both K-Sea and EW Holding, except to the extent
such usage relates to either Mortgage or any Vessel individually, then
"Shipowner" or "Shipowner's" shall be deemed to mean, respectively, EW Holding
if in relation to the Ship Mortgage or EW Vessel and K-Sea if in relation to the
Fleet Mortgage, or any K-Sea Vessel.

     All references in the General Provisions to "Mortgage" in the singular
shall be deemed to mean "Mortgages" in the plural. Notwithstanding anything to
the contrary, (i) all references in Sections 2.01(a)(2), 2.04(b), 2.04(c) and
2.10 of the General Provisions to "Mortgage" shall be deemed to mean "Ship
Mortgage with respect to EW Holding and Fleet Mortgage with respect to K-Sea",
and (ii) all references in Sections 2.02(d)(1), 2.02(d)(3), 2.04(e), 2.08(a),
2.09, 11.03 and 11.04 of the General Provisions to "Mortgage" shall be deemed to
mean "Ship Mortgage with respect to the EW Vessel and Fleet Mortgage with
respect to the K-Sea Vessels".

     3.   ADDITIONS, DELETIONS AND AMENDMENTS TO THE GENERAL POSITIONS.

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

     (a)  CONCERNING SECTION 1.03(a)(9). Section 1.03(a)(9) is hereby amended by
replacing the words "on the date hereof, covering each Vessel" with "on each
Delivery Date covering the Vessel delivered on such Delivery Date".

     (b)  CONCERNING SECTION 2.02. Sections 2.02(a) and (b)(1) are hereby
amended and restated as follows:

               "(a) TITLE TO AND POSSESSION OF THE VESSELS. On each
          Delivery Date for a Vessel, the respective Shipowner taking
          delivery of such Vessel represents and warrants that as of
          that date, it lawfully owns such delivered 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

                                       -4-
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          to discharge under the Construction Contract, (3) any
          security interest 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 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) Except for the Bareboat Charters, the
          applicable Shipowner 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)."

     Section 2.02(d)(1) is hereby amended by deleting the first sentence therein
and adding to the end of the second sentence: "and the Shipyard lien, if any,
for the remaining unpaid balance of the contract price for such Vessel."

     (c)  CONCERNING SECTION 2.03(a)(2). Section 2.03(a)(2) is hereby amended by
replacing "five (5%)" with "two and one-half (2.5%)".

     (d)  CONCERNING SECTION 2.05. In connection with Sections 2.05(b)(3) and
the last paragraph of Section 2.05(e), the maximum amount of self-insurance
permitted to the Shipowners under the last paragraph thereof shall be Two
Hundred Fifty Thousand United States Dollars ($250,000) per accident, and 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 Two Hundred Fifty
Thousand United States Dollars ($250,000) to be made directly to the Shipowners
under the circumstances therein. In connection with Section 2.05(c)(2), the last
word is hereby deleted and shall be replaced by the following: "all of the
foregoing Section 2.05(c)(2) shall be subject to the prior security interest of
CIT under the CIT Assignment, if any; and".

     Section 2.05(c) is hereby amended by adding the words "either of" after the
words "Secretary shall have assumed" in the introductory paragraph thereof.

     Section 2.05(c)(1)(C) is hereby amended by adding the words "either of"
after the words "Secretary shall have assumed".

                                       -5-
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     Section 2.05(c)(3)(C) is hereby amended by adding the words "either of"
after the words "Secretary shall have assumed".

     Section 2.05(e)(2)(A) is hereby amended by adding the words "either of"
after the words "Secretary shall have assumed" in the second paragraph thereof.

     (e)  CONCERNING SECTION 2.07. Section 2.07(b) is hereby amended and
restated as follows:

               "(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 if
          such Loss Event occurs to a Vessel that has been delivered,
          otherwise to CIT pursuant to its prior security interest
          under the CIT Assignment, if any."

     Section 2.07(c)(3) is hereby amended by adding the words "either of" after
the words "Secretary shall have assumed".

     (f)  CONCERNING SECTION 2.08. The notice in Section 2.08(c) shall read as
follows with respect to the EW Vessel covered by the Ship Mortgage:

                              "NOTICE OF MORTGAGE"

               "This Vessel is owned by EW Holding Corp., a New York
          corporation (the "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 whatsoever other than statutory
          liens incident to current operations that are subordinate to
          the Ship Mortgage."

and shall read as follows with respect to each of the K-Sea Vessels covered by
the Fleet Mortgage:

                              "NOTICE OF MORTGAGE"

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               "This Vessel is owned by K-Sea Transportation LLC, a
          Delaware limited liability company (the "Shipowner"), and is
          covered by a First Preferred Fleet 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
          Fleet 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 whatsoever other
          than statutory liens incident to current operations that are
          subordinate to the Fleet Mortgage."

     (g)  CONCERNING SECTION 2.14. Section 2.14 is hereby deleted.

     (h)  CONCERNING SECTION 4.01. Section 4.01(d) is hereby amended by adding
the words "either of" after the words "Secretary assumes".

     (i)  CONCERNING SECTION 5.02. The Secretary has determined that a deposit
of six (6) months' interest on the principal amount deposited in the Escrow Fund
is not required.

     (j)  CONCERNING SECTION 5.03. Section 5.03(d) is hereby amended by adding
the words "either of" after the words "Secretary assumes".

     Section 5.03(g) is hereby amended by adding the words "either of" after the
words "Secretary shall have paid the Guarantees or shall have assumed" in the
introductory clause and clause (3) thereof.

     (k)  CONCERNING SECTION 6.01. Section 6.01(a) is amended by adding at the
end thereof the following additional provision:

          "Notwithstanding any provisions of this Section 6.01(a) or
     any other provisions of this Agreement to the contrary, in the
     event of any Payment Default in the payment of any interest or
     principal with respect to any Obligations of any Series, such
     Payment Default shall constitute a Default as to all Series for
     all purposes under this Security Agreement, following which the
     Secretary may exercise the Secretary's rights, remedies and
     privileges as to all Obligations of all such Series."

     Section 6.01(b) is hereby amended by adding the words "either of" after the
words "Secretary shall have assumed" in the last clause thereof.

                                       -7-
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     Section 6.01(b) is hereby further amended by replacing the words "the
Shipowner" with "either Shipowner" throughout thereof.

     Section 6.01(b)(7) is hereby amended by adding after the words "owned by"
with "either Shipowner or by any Related Party" and deleting the words "the
Shipowner".

     (l)  CONCERNING SECTION 6.02. Section 6.02 is hereby amended by adding at
the end thereof the following additional provision:

          "Notwithstanding any provisions of this Section 6.02 or any
     other provisions of this Security Agreement to the contrary, in
     the event the Secretary shall have (i) been obligated to pay the
     Guarantees with respect to the Obligations of any Series, (ii)
     assumed either Shipowner's rights and duties under the Indenture
     as to the Obligations of any Series, or (iii) assumed either
     Shipowner's rights and duties under the Obligations of any
     Series, the Secretary may declare the principal on the
     Secretary's Note as to the Obligations of any and all Series and
     accrued interest thereon to be immediately due and owing and
     payable."

     (m)  CONCERNING SECTION 6.03. Sections 6.03(a), (b) and (c) are hereby
amended by adding the words "either of" after the words "Secretary shall not
have assumed".

     Section 6.03(g) is hereby amended by adding the words "either of" after the
words "Secretary shall have assumed".

     (n)  CONCERNING SECTION 6.04. Sections 6.04(a) is hereby amended by adding
the words "either of" after the words "or the assumption by the Secretary of".

     Section 6.04(b)'s introductory clause is hereby amended by adding the words
"either of" after the words "the Secretary's assumption of".

     (o)  CONCERNING SECTION 6.06(c). Section 6.06(c) is hereby amended by
adding the words "either of" after the words "assumption by the Secretary of".

     (p)  CONCERNING SECTION 8.01. Section 8.01(a) is hereby amended by deleting
the words "the Shipowner" in each of the two places such term appears and
inserting in lieu thereof the words "either Shipowner." Section 8.02(b) is
amended by deleting the initial word "Any", and in lieu thereof adding the words
"If as the result of any lawful merger or consolidation of either Shipowner
permitted under paragraph (a) of this Section, such Shipowner is

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not the surviving entity, the Person which as the result of such merger or
consolidation is such Shipowner's" and is further amended by deleting the words
"the Shipowner" and inserting in lieu thereof the words "such Shipowner".
Section 8.02(d) is hereby deleted in its entirety.

     (q)  CONCERNING SECTION 9.01. 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:

     Secretary as:                 SECRETARY OF TRANSPORTATION
                                   c/o Maritime Administrator
                                   U.S. Department of Transportation
                                   400 Seventh Street, S.W.
                                   Washington, D.C. 20590

     Shipowners as:                K-SEA TRANSPORTATION LLC, and
                                   EW HOLDING CORP.
                                   Attn: Chief Financial Officer
                                   3245 Richmond Terrace
                                   Staten Island, NY 10303

     Indenture Trustee as:         JPMORGAN CHASE BANK
                                   450 West 33rd Street, 15th Floor
                                   New York, New York 10001
                                   Attention: Institutional Trust Services

     4.   GOVERNING LAW. This Security Agreement and the rights and obligations
of the parties hereto shall be governed by and construed in accordance with the
laws of the United States of America, to the extent applicable, and otherwise in
accordance with the laws of the State of New York without regard to its conflict
of laws provisions (other than Section 5-1401 of the New York General
Obligations Law).

                            [SIGNATURES ON NEXT PAGE]

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

                                       K-SEA TRANSPORTATION LLC
                                       as Shipowner
(SEAL)

                                       BY:  /s/ John J. Nicola
                                          ---------------------
                                          Name: John J. Nicola
                                          Title: Chief Financial Officer
ATTEST:


   /s/ [illegible]
--------------------------


                                       EW HOLDING CORP.
                                       as Shipowner
(SEAL)

                                       BY:  /s/ John J. Nicola
                                          ---------------------
                                          Name: John J. Nicola
                                          Title: Chief Financial Officer
ATTEST:


   /s/ [illegible]
--------------------------


                                       UNITED STATES OF AMERICA
                                       SECRETARY OF TRANSPORTATION

                                       Maritime Administrator


   /s/ Sarah Washington                BY:  /s/ Joel C. Richard
----------------------------              -----------------------
Attest                                    Title: Secretary
                                          Maritime Administration

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EXHIBITS TO THE SECURITY AGREEMENT

Exhibit 1 -- General Provisions Incorporated into the Security Agreement
             by Reference
Schedule X -- Schedule of Definitions
Exhibit 2 -- Form of Secretary's Note
Exhibit 3 -- Form of First Preferred Ship Mortgage
             and First Preferred Fleet Mortgage
Exhibit 4 -- Form of Financial Agreement
Exhibit 5 -- Form of Consent of Shipyard
Exhibit 6 - Copy of Construction Contract and Amendment No. 1 and copy of the
            Assignment to Construction Contract
Exhibit 7 - Form of Depository Agreement

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EXHIBIT 1 TO SECURITY AGREEMENT                                      Document 10
                                                              GENERAL PROVISIONS

                                TABLE OF CONTENTS

                                    ARTICLE I
              DEFINITIONS; OFFICER'S CERTIFICATES; GRANTING CLAUSE

<Table>
<Caption>
                                                                                                           PAGE
                                                                                                           ----
<S>                                                                                                          <C>
SECTION 1.01.    Definitions..................................................................................1
SECTION 1.02.    Officer's Certificates.......................................................................1
SECTION 1.03.    Granting Clause..............................................................................1

                                   ARTICLE II
                   SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS

SECTION 2.01.    Shipowner's Representations, Agreements, Organization and Existence
                      (a) General Representations.............................................................3
                      (b) Shipowner's United States Citizenship...............................................3
                      (c) Taxes...............................................................................3
SECTION 2.02.    Covenants Concerning the Vessel.
                      (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, etc................................................5
                      (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 Contract 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 Shipowner's Agreements by the Secretary......................................14
SECTION 2.11.    Uniform Commercial Code Filings; Further Assurances.........................................15
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 Bond.................................................15
</Table>

                                        i
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<Table>
<S>                                                                                                          <C>
                                   ARTICLE III
                              THE SECRETARY'S NOTE

SECTION 3.01.    Secretary's Note............................................................................16
SECTION 3.02.    Termination of the Guarantee................................................................16
SECTION 3.03.    Execution of Additional Secretary's Note....................................................16

                                   ARTICLE IV
                           MONEYS DUE WITH RESPECT TO
                           CONSTRUCTION OF THE VESSELS

SECTION 4.01.    Moneys Due with Respect to Construction of the Vessels......................................17

                                    ARTICLE V
                          ACTUAL COST; THE ESCROW FUND

SECTION 5.01.    Actual Cost Determinations..................................................................18
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..........................................................................23
SECTION 6.04.    Remedies After Default......................................................................23
SECTION 6.05.    Application of Proceeds.....................................................................25
SECTION 6.06.    General Powers of the Secretary.............................................................26

                                   ARTICLE VII
                        AMENDMENTS AND SUPPLEMENTS TO THE
                 SECURITY AGREEMENT, MORTGAGE AND LOAN AGREEMENT

SECTION 7.01.    Amendments and Supplements to the Security Agreement and the Mortgage.......................26
SECTION 7.02.    Amendments and Supplements to the Loan Agreement............................................26
</Table>

                                       ii
<Page>

<Table>
<S>                                                                                                          <C>
                                  ARTICLE VIII
                          CONSOLIDATION, MERGER OR SALE

SECTION 8.01.    Consolidation, Merger, or Sale..............................................................27
SECTION 8.02.    Transfer of a General Partner's or a Joint Venturer's Interest..............................27

                                   ARTICLE IX
                                     NOTICES
SECTION 9.01.    Notices.....................................................................................28
SECTION 9.02.    Waivers of Notice...........................................................................28
SECTION 9.03.    Shipowner's  Name or Address Change.........................................................28

                                    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......................................................................29
SECTION 11.02.   Execution in Counterparts...................................................................29
SECTION 11.03.   Shipowner's Rights in Absence of Default....................................................29
SECTION 11.04.   Surrender of Vessels' Documents.............................................................29
SECTION 11.05.   Applicable Regulations......................................................................29
SECTION 11.06.   Table of Contents, Titles and Headings......................................................29
</Table>

                                       iii
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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
Construction of a Vessel under its related Construction Contract), together with
all other contracts, whether now in existence or hereafter entered into,
relating to the Construction of each Vessel. Said right, title and interest in
and to the Construction Contracts, 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 Shipowner acknowledges
and agrees that the Moneys Due with Respect to the Construction of the Vessels
will be paid directly to the Secretary for application in accordance with this
Security Agreement and the Indenture.

            (3) Each Vessel and 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, securities and
proceeds thereof currently on deposit or hereafter deposited in the Title XI
Reserve Fund.

            (5) The Escrow Fund and all moneys, securities and proceeds thereof
currently on

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deposit or hereafter deposited in said Fund.

            (6) All moneys, securities 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 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 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 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 thereunder; and (3) if there is no existing Default, the Shipowner
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 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
                    SHIPOWNER REPRESENTATIONS AND AGREEMENTS

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

                                        2
<Page>

     SECTION 2.01.  SHIPOWNER REPRESENTATIONS, AGREEMENTS, ORGANIZATION AND
EXISTENCE. (a) GENERAL REPRESENTATIONS. The Shipowner 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 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 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;

            (2) the Shipowner 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 and constitutes, in accordance with its respective
terms, legal, valid and binding instruments enforceable against the Shipowner,
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 of all the terms and provisions of the Documents
will not violate any provisions of the formation documents of the Shipowner 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 is bound or any order of any court or administrative agency
entered into in any proceedings to which the Shipowner 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 or
any of its property which could prevent or jeopardize the performance by the
Shipowner of its obligations under the Documents;

     (b)  SHIPOWNER'S UNITED STATES CITIZENSHIP. The Shipowner 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 proposes to operate the Vessels and in the event the Shipowner
shall cease to be such a citizen, the Shipowner shall notify the Secretary
immediately of such fact.

     (c)  TAXES. The Shipowner 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
represents and warrants that it

                                        3
<Page>

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 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
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
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 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 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 shall pay and discharge,
or cause to be paid and discharged, on or before the same shall become
delinquent, all taxes, assessments, government charges, fines and penalties
lawfully imposed upon each Vessel, unless the same are being contested in good
faith.

     (d)  LIENS. (1) As a condition precedent to each payment by the Shipowner
under the Construction Contract, the Shipowner 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 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.

            (2) After the Delivery Date of each Vessel, the Shipowner 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

            (3) Neither the Shipowner, 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.

                                        4
<Page>

     (e)  COMPLIANCE WITH APPLICABLE LAWS. The Shipowner 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 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; PROVIDED
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 shall not have had a reasonable time to repair the same;

            (2) On the Delivery Date of each Vessel, the Shipowner 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 shall annually
(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; PROVIDED 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 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 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 shall deliver

                                        5
<Page>

to the Secretary annually an Officer's Certificate stating the condition and
maintenance of each Vessel; PROVIDED 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 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 and the Shipyard of all their respective
obligations thereunder and the Shipowner 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; PROVIDED 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 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 shall have:

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

                                        6
<Page>

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

     (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 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 shall, without cost to the Secretary or, with respect to war risk
builder's 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 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 forms 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

                                        7
<Page>

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 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, 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 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 unless there is an
existing Default, or if the Secretary shall have assumed the Shipowner 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) covered by the policies, or (to the
extent that, as stated in an Officer's 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 therefor
and (after all known damage with respect to the particular loss shall have been
repaired, except to the extent the Shipowner, 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 Officer's
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; or (B) if there is an existing
Default, in accordance with a Request of Shipowner, 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) covered by the policies and hold any
balance until the same may be paid or applied under clauses

                                        8
<Page>

(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 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 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;

            (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 shall forthwith deposit with the Secretary any
insurance moneys which the Shipowner 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 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,
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, 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; 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 shall forthwith deposit with the Secretary any insurance
moneys which the Shipowner 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 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 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, be applied as provided in Section 6.05;
PROVIDED THAT, notwithstanding the foregoing clauses (A), (B) and (C) of this
subsection, the Shipowner 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

                                        9
<Page>

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.

     (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, 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 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 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 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 stating that such
insurance is not required.

     Such policies may provide that (1) if the Shipowner 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
shall have incurred the loss, damage or expense in question, any such loss shall
be paid to the Shipowner in reimbursement if there is no existing Default of
which the underwriter has written notice from the Shipowner 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 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 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, 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

                                       10
<Page>

writing) insurance companies, underwriters' association or underwriting funds
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 and approved by the Secretary.

     (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. If
(1) the Shipowner 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 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 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 Officer's 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,

                                       11
<Page>

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 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; PROVIDED 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; PROVIDED
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

                                       12
<Page>

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.

     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 CONTRACT
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;

                                       13
<Page>

            (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.

     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 master's 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 SHIPOWNER'S 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

                                       14
<Page>

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 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

                                       15
<Page>

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
for 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 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

                                       16
<Page>

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.

                                   ARTICLE IV
                           MONEYS DUE WITH RESPECT TO
                           CONSTRUCTION OF THE VESSELS

     SECTION 4.01.  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
Secretary to be deposited in the Title XI Reserve Fund with the Depository.

     (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.

                                       17
<Page>

                                    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 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 full 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)

                                       18
<Page>

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.

            (2) No payment or reimbursement under this Section shall be made (A)
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-l/2%
of the Actual Cost of the related Vessel is made; (B) to the Shipowner which
would have the effect of reducing the total amounts paid by the Shipowner
pursuant to clause (A) of this subsection; or (C) 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;
PROVIDED, 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.

                                       19
<Page>

     (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. 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 Fund,"
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

                                       20
<Page>

"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 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

                                       21
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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 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.

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     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.

     (b)  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 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 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 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 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.

     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 Shipowner's 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

                                       23
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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;

            (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

                                       24
<Page>

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.

     (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;

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<Page>

            (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.

     (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

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<Page>

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; PROVIDED 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 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; PROVIDED 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 PARTNER'S 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 their obligations thereunder and under
this Security Agreement or the Mortgage; PROVIDED THAT, (i) the Secretary shall
have given its prior written consent

                                       27
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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 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.

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<Page>

                                   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,
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 HEADINGS. 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 SECURITY AGREEMENT

                         SECURITY AGREEMENT 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 or Vessels as set forth in
Table A of the Security Agreement as determined and re-determined by the
Secretary pursuant to the Security Agreement and the Act.

     "Actual Knowledge" or "actual knowledge" means actual knowledge of a
Responsible Officer of a Person, or when so indicated, actual knowledge only of
a certain Responsible Officer of a Person.

     "Assignment to Construction Contract" means an assignment by K-Sea of all
K-Sea's obligations under the Construction Contract with respect to the EW
Vessel to EW Holding, dated on or prior to the Closing Date, executed by K-Sea,
with all required consents and approvals of the Shipyard having been granted or
obtained.

     "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-13780, dated as of the Closing Date, between the Secretary and the Indenture
Trustee, whereby the Secretary authorizes the Guarantee of the United States to
be endorsed on each of the Obligations, as the same is originally executed, or
as amended, modified or supplemented in accordance with the applicable
provisions thereof.

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

     "Bareboat Charter" means each of and "Bareboat Charters" mean all of the
bareboat charters entered into between K-Sea or EW Holding and the Charterer
with respect to any Vessel.

     "Bond Purchase Agreement" means the agreement for the purchase of
Obligations executed by the Shipowners and the purchaser named therein, as
originally executed or as modified or supplemented in accordance with the
applicable provisions thereof.

<Page>

     "Builder" means Bollinger Gretna, LLC, a Louisiana limited liability
company.

     "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.

     "CIT" means The CIT Group/Equipment Financing, Inc., a Delaware
corporation, and shall also include any successors and assigns.

     "CIT Assignment" means the Construction Contract Assignment dated July 27,
2001 by K-Sea in favor of CIT, as originally executed, amended, modified or
supplemented.

     "CIT Consent" means each and every document or instrument evidencing the
consent of CIT to the assignment of the Construction Contract to the Secretary
under the Security Agreement as originally executed, or as amended, modified or
supplemented.

     "CIT Delivery Release" means each or any, and "CIT Delivery Releases" means
every release made by CIT on or before a Delivery Date of its right, title or
interest to the Construction Contract discharging CIT's interest to the CIT
Assignment and the Increased Security with respect to the Vessel delivered on
such Delivery Date, as originally executed, or as amended, modified or
supplemented.

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

     "Charterer" means K-Sea Transportation Corp., a New York corporation.

     "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 Shipowners.

     "Commitment to Guarantee Obligations" has the same meaning as the term
Guarantee Commitment.

     "Consent of Shipyard" means each and "Consents of Shipyards" means every
document or instrument evidencing the consent of the Shipyard to the assignment

                                        2
<Page>

of the Construction Contract to the Secretary under the Security Agreement as
originally executed, or as amended, modified or supplemented.

     "Construction" means construction of a Vessel or the Vessels, including
designing, inspecting, outfitting and equipping thereof.

     "Construction Contract" means the vessel construction agreement dated March
23, 2001 relating to the Construction of the Vessels between K-Sea and the
Shipyard as originally executed or as amended, modified or supplemented pursuant
to the applicable provision thereof.

     "Default" when used in the Security Agreement has the meaning attributed to
it in Article VI of Exhibit 1 hereof.

     "Delivery Date" means the date on which a Vessel or Vessels were delivered
to and accepted by any Shipowner.

     "Deposit Fund" means the account held in the name of the Secretary at the
U.S. Department of Treasury pursuant to Section 1109 of the Act and in
accordance with the terms of the Depository Agreement.

     "Depository" means the U.S. Department of Treasury.

     "Depository Agreement" means the Depository Agreement, Contract No.
MA-13785, dated as of the Closing Date among the Shipowners and the Secretary,
as originally executed or as amended, modified or supplemented in accordance
with the applicable provisions thereof.

     "Depreciated Actual Cost" means, with respect to any Vessel the depreciated
actual cost of a Vessel, as set forth in Table A of the Security Agreement or as
subsequently redetermined by the Secretary pursuant to the Security Agreement
and the Act.

     "Dollar", "Dollars", "U.S. Dollars", "U.S.D." or "$" means the lawful
currency of the United States of America.

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

     "Escrow Fund" means the account held by the Secretary, established under
Section 1108 of the Act and administered pursuant to Article V of the Security
Agreement.

     "EW Holding" means EW Holding Corp., a New York corporation, and shall also
include its successors and assigns.

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     "EW Vessel" means the 100,000-barrel tank barge built for EW Holding by the
Shipyard and identified as Builder's Hull No. 416, to be known as DBL-101
completed in accordance with the Construction Contract.

     "Exchange Agreement" means an Exchange Agreement No. EX-12-2284 dated
October 11, 2001 between EW Holding and IPX, as originally executed, amended,
modified or supplemented.

     "Exchange Agreement Assignment" means the EW Holding Security Assignment of
Exchange Agreement dated as of June 7, 2002 by EW Holding in favor of the
Secretary, as originally executed, amended, modified or supplemented.

     "Financial Agreement" means the Title XI Reserve Fund and Financial
Agreement, Contract No. MA-13784, executed by the Shipowners, the Charterer,
K-Sea Acquisition Corp. and the Secretary, as originally executed or as amended,
modified or supplemented.

     "Financial Asset" means the meaning given by Article 8-102(a)(9) of the
UCC.

     "Fleet Mortgage" means the first preferred fleet mortgage on the K-Sea
Vessels, Contract No. MA-13783, by K-Sea to the Secretary, as originally
executed, amended, modified or supplemented.

     "General Provisions" mean the General Provisions Incorporated Into the
Security Agreement.

     "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.

     "Guarantee Commitment" means the Commitment to Guarantee Obligations,
Contract No. MA-13779, dated as of June 7, 2002 executed by the Secretary and
accepted by the Shipowners with respect to the Guarantees, as originally
executed or as amended, modified or supplemented in accordance with the
applicable provisions thereof.

     "Increased Security" means the Secretary's Note, the Security Agreement,
the Mortgages, Vessels, Bareboat Charters, the Security, the Escrow Fund, the
IPX Security Assignment, Exchange Agreement Assignment, the Title XI Reserve
Fund, and any other security agreement between the Secretary and the Shipowners
relating to any other vessel or vessels financed under the Act and the Policies
of Insurance and the proceeds of the foregoing.

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     "Indenture" means the Trust Indenture dated as of the Closing Date among
the Shipowners and the Indenture Trustee, as the same is originally executed or
as amended, modified or supplemented in accordance with the applicable
provisions thereof.

     "Indenture Default" has the meaning specified in Article VI of Exhibit 1 to
the Indenture.

     "Indenture Trustee" means JPMorgan Chase Bank, and any successor trustee
permitted under the Indenture.

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

     "IPX" means Investment Property Exchange Services, Inc., a California
corporation, and shall also include any successors and assigns.

     "IPX Assignment" means the Partial Assignment of Rights Under Vessel
Construction Agreement dated October 11, 2001 by K-Sea of K-Sea's right, title
and interest to and in (but not its obligation thereunder) to IPX, as originally
executed, amended, modified or supplemented.

     "IPX Security Assignment" means the IPX Security Assignment dated as of
June 7, 2002 by IPX in favor of the Secretary, as originally executed, amended,
modified or supplemented.

     "K-Sea" means K-Sea Transportation LLC, a Delaware limited liability
company, and shall also include any successors and assigns.

     "K-Sea Acquisition Corp." means K-Sea Acquisition Corp., a Delaware
corporation, and shall also include any successors and assigns.

     "K-Sea Transportation Corp." means K-Sea Transportation Corp., a New York
corporation, and shall include any successors and assigns.

     "K-Sea Vessel" means each or any, and "K-Sea Vessels" means every, vessel
built or to be built by the Shipyard identified as Builder's Hulls Nos. 417, 421
or 422 to be known as DBL-81, DBL-82 and DBL-102 respectively, and, completed in
accordance with the Construction Contract.

     "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.

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     "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.

     "Moneys Due with Respect to the Construction of the Vessels" has the
meaning specified in Section 1.03 of the Security Agreement.

     "Mortgage" means any of, and "Mortgages" means all of, the Ship Mortgage
and the Fleet Mortgage.

     "Mortgage Supplement" means any supplement to the Fleet Mortgage, as
originally executed, amended, modified or supplemented.

     "Mortgagee" means the Secretary, as mortgagee under a Mortgage.

     "Mortgagor" means any Shipowner as mortgagor under its respective 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 or from any Related
Party (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
Shipowners bearing a Guarantee, that is authenticated and delivered under the
Authorization Agreement and the Indenture, which consist of four Series
identified as "K-Sea Series 2002-1", "K-Sea Series 2002-2", "K-Sea Series
2002-3", and "K-Sea Series 2002-4", provided, however, that when used in the
text of any Obligation itself, "Obligation" and "Obligations" shall mean the
Obligations of that Series only, and not the obligations of any other Series.

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

     "Offering Circular" means the offering circular relating to the issuance
and sale of the Obligations consisting of four (4) Series.

     "Officer's Certificate" means a certificate conforming to Section 1.02 of
Exhibit 1 to the Security Agreement and signed by a Responsible Officer of the
Person giving such Officer's Certificate.

     "Opinion of Counsel" means an opinion of counsel conforming to Section 1.02
of the Security Agreement.

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     "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.

     "Paying Agent" means any bank or trust company meeting the qualifications
in Section 7.02(a) of Exhibit 1 to the Indenture and appointed by the Shipowners
under Section 4.02 of Exhibit 1 to the Indenture to pay the principal of (and
premium, if any) or interest on the Obligations on behalf of the Shipowners.

     "Payment Default" has the meaning specified in Section 6.01 of Exhibit 1 to
the Security Agreement.

     "Person" or "Persons" means any individual, corporation, partnership, joint
venture, association, limited liability company, joint-stock company, trust,
unincorporated organization, or 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 Vessels, including all
endorsements and riders to any thereto, including but not limited to all
insurance required under Section 2.05 of the Security Agreement.

     "Proportionate Part," means 100 percent of the Outstanding Obligations of
the Series issued with respect to the Vessel to which the respective section
refers.

     "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.

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     "Responsible Officer" means (i) in the case of any business entity, the
chairman of the board of directors, the president, any vice president, the
secretary or assistant secretary, the treasurer or assistant treasurer, member
or partner, (ii) 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 vice president, the secretary, the treasurer, any trust
officer, any executive or senior or second or assistant vice president, or any
other officer or assistant officer customarily performing functions similar to
those performed by the persons who at the time shall be such officers, or to
whom any corporate trust matter is referred because of his knowledge of and
familiarity with the particular subject, (iii) 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, and (iv) when used with respect to the Indenture Trustee, any
officer within the Corporate Trust Office including any vice president, managing
director, assistant vice president, secretary, assistant secretary or assistant
treasurer or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge and familiarity with the
particular subject.

     "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 delivered to the Indenture Trustee for cancellation;
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 to pay such Obligations; PROVIDED, THAT the foregoing definition is
subject to the provisions of Section 6.08 of Exhibit 1 to the Indenture.

     "Rights Under the Construction and Related Contracts" shall have the
meaning specified in Section 1.03 of the Security Agreement.

     "Secretary" means the Secretary of Transportation or any officials duly
authorized to perform the duties and functions of the Secretary of
Transportation under Title XI of the Act.

     "Secretary's Note" means a promissory note or promissory notes issued and
delivered by the Shipowners to the Secretary substantially in the form of
Exhibit 2 of the Security Agreement, including any promissory note issued in
substitution for, or any endorsement or supplement thereof.

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     "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.

     "Security" has the meaning specified in Section 1.03 of the Security
Agreement.

     "Security Agreement" means the security agreement, Contract No. MA-13781,
dated as of the Closing Date, executed by the Shipowners and the Secretary as
security for the Guarantees, and consisting of the special provisions, the
general provisions, this Schedule X as originally executed or as amended,
modified or supplemented in accordance with the applicable provisions thereof.

     "Security Default" has the meaning specified in Section 6.01 of Exhibit 1
to the Security Agreement.

     "Series" means each of the four (4) series of Obligations subject to
Guarantees, including each of K-Sea Series 2002-1, K-Sea Series 2002-2, K-Sea
Series 2002-3 and K-Sea Series 2002-4.

     "Ship Mortgage" means the first preferred ship mortgage on the EW Vessel,
Contract No. MA-13782, by EW Holding to the Secretary, as originally executed,
amended, modified or supplemented.

     "Shipowner" means any of, and "Shipowners" means both of, the K-Sea and EW
Holding.

     "Shipyard" means Bollinger Gretna LLC, a Louisiana limited liability
company.

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

     "Successor" means a Person formed by or surviving a consolidation or merger
with any 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 New
York.

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     "United States" means the United States of America.

     "Vessel" means any of, and "Vessels" means all of, the EW Vessel and the
K-Sea Vessels, as completed in accordance with the Construction Contract,
together with related appurtenances, additions, improvements and replacements
which are further identified in the Mortgages.

     "Working Capital" shall mean the excess of current assets over current
liabilities, both determined in accordance with generally accepted accounting
principles and adjusted as follows:

            (1) In determining current assets, there shall also be deducted: (A)
     Any securities, obligations or evidence of indebtedness of a Related Party
     or of any stockholder, director, officer or employee (or any member of his
     family) of the Company or of such Related Party, except advances to agents
     required for the normal current operation of the Company vessels and
     current receivables arising out of the ordinary course of business and not
     outstanding for more than 60 days; and (B) An amount equal to any excess of
     unterminated voyage revenue over unterminated voyage expenses;

            (2) In determining current liabilities, there shall be deducted any
     excess of unterminated voyage expenses over unterminated voyage revenue;
     and

            (3) In determining current liabilities, there shall be added one
     half of all annual charter hire and other lease obligations (having a term
     of more than six months) due and payable within the succeeding fiscal year,
     other than charter hire and such other lease obligations already included
     and reported as a current liability on Company's balance sheet.

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