Document:

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                                                             EXHIBIT 4(ii)(f)(6)

                                                                    Contract No.
                                                                        MA-13637

                               SECURITY AGREEMENT

                      Relating to United States Government
                      Guaranteed Ship Financing Obligations

                                     Between

                             CAPE COD LIGHT, L.L.C.

                                       And

                          THE UNITED STATES OF AMERICA

                             Dated October 16, 2000

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                               SECURITY AGREEMENT

                               SPECIAL PROVISIONS

         THIS SECURITY AGREEMENT, dated October 16, 2000 (the "Security
Agreement"), is between Cape Cod Light, L.L.C., a Delaware limited liability
company (the "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. Coastal Queen Holdings, L.L.C., predecessor in interest to Delta
Queen Coastal Voyages, L.L.C. (the "Guarantor"), entered into the Construction
Contract, dated May 1, 1999, with Atlantic Marine, Inc., (the "Shipyard") for
the construction of the cv Cape Cod Light (the "Vessel") and subsequently
assigned said contract to the Shipowner.

         B. On the date hereof, the Secretary entered into, and the Shipowner
accepted a Commitment to Guarantee Obligations, Contract No. MA-13635, 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 not to exceed 87.5% of the
Depreciated Actual Cost or the Actual Cost of the Vessel, as the case may be, on
the Closing Date, which amounts are set out in Table A.

         C. The Shipowner has entered into the Bond Purchase Agreement providing
for the issuance of Obligations in the aggregate amount up to $38,500,000 to be
designated "United States Government Guaranteed Ship Financing Bonds, 2000
Series" (the "Obligations") having a maturity date and interest rate set forth
in the Obligation Purchase Agreement and the Obligations.

         D. On the date hereof, the Shipowner and Bank of New York, a New York
banking corporation, as Indenture Trustee, executed and delivered the Trust
Indenture (the "Indenture") pursuant to which the Shipowner will issue the
Obligations.

         E. On the date hereof, the Secretary and the Indenture Trustee will
execute the Authorization Agreement, Contract No. MA-13636, 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 Shipowner, and for the Secretary's issuance of the
Guarantees, the Shipowner has executed and delivered the Security Agreement,
Contract No. MA-13637, and the Financial Agreement, Contract No. MA-13639
granting the Secretary a security interest in, among other things, the
Construction Contract, the Vessel and certain other property, tangible and
intangible, which the Shipowner now has or hereafter will acquire, and all of
the proceeds thereof.

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         G.  As further security to the Secretary and in consideration of the
Secretary's agreeing to issue the Guarantees, (i) the Shipyard has granted the
Secretary a security interest in the Vessel, its hull, component parts,
machinery, and equipment during the construction period and has executed on this
date the Consent of Shipyard to the assignment of the Construction Contract to
the Secretary; (ii) the Guarantor has executed and delivered the Guaranty
Agreement; and (iii) the Parent Company has executed and delivered the Funding
Agreement.

         H.  In order to implement certain aspects of the transactions
contemplated by the Security Agreement and the Financial Agreement, the
Secretary, the Shipowner and The Bank of New York, a New York banking
corporation (the "Depository") have entered into the Depository Agreement,
Contract No. MA-13640, on the date hereof.

         I.  As further security for the due and timely payment of the
Secretary's Note issued this day in conjunction with the Closing, Shipowner will
execute and deliver the Mortgage, Contract No. MA-13638, on the Delivery Date.

         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.  Additions, Deletions and Amendments to Exhibit 1. The following
additions, deletions and amendments are hereby made to the Security Agreement:

         (a) Concerning Section 1.03.

             Section 1.03(a) is amended by deleting it in its entirety and
substituting the following therefor:

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

                           (1) The Construction Contract (insofar as it relates
         to the Construction of the Vessel), together with all other contracts,
         whether now in existence or hereafter entered into, relating to the
         Construction of the Vessel. Said right, title and interest in and to
         the Construction Contract, and the other contracts conveyed to the
         Secretary by this

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         subsection are hereinafter referred to collectively as the "Rights
         Under the Construction and Related Contracts."

                           (2) The Vessel to be constructed under the
         Construction Contract and located at the Shipyard's facility at or near
         8500 Hechscher Drive, Jacksonville, Florida 32226 and being a 300 foot
         Coastal Queen Class passenger vessel (cv Cape Cod Light, Hull No.
         4243), as the same has been or may be modified, amended or supplemented
         from time to time.

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

                           (4) Hull No. 4243 and all inventory, materials,
         machinery, equipment, products, goods, plans, specifications, designs
         and other property (tangible or intangible) of any description
         whatsoever, at any time incorporated, installed or affixed, or to be
         affixed to, or acquired (or otherwise) to be incorporated, installed or
         affixed to, or to be affixed to the Vessel, in each case wherever
         located (each such item whether now owned or hereafter acquired), and
         identifiable proceeds or products thereof; provided, however, that the
         tools, equipment, and implements of the Shipyard used in the
         construction of the Vessel are specifically excluded herefrom.

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

                           (6) All rentals of, replacement and substitutes for,
         and accession, attachment, modifications, additions, or improvements to
         any property described in paragraphs (1) through (5) of this Section.

                           (7) All rights and claims of Shipowner relating to
         any of the property described in paragraphs (1) through (6) of this
         Section.

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

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

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<PAGE>   5

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

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

                           (12) The performance and payment bonds issued by
         Shipyard through Federal Insurance Company guaranteeing Shipyard's
         performance relating to the construction of the Vessel and her sister
         ship, dated July 20, 1999, and all proceeds thereof.

                           (13) The Guaranty Agreement, as the same has been or
         may be amended or supplemented from time to time, and all proceeds
         thereof.

                           (14) The Funding Agreement, as the same has been or
         may be amended or supplemented from time to time, and all proceeds
         thereof.

                           (15) All proceeds of any and all of the property
         described in paragraphs (1) through (14) of this Section, including
         (without limitation) all payments under insurance or in connection with
         any warranty, indemnity, or guarantee, payable by reason of the loss of
         or damage to or otherwise with respect to any of the property described
         in paragraphs (1) through (14) 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:

                           (16) The Mortgage, to be executed and delivered by
         the Shipowner to the Secretary, as mortgagee, on the Delivery Date,
         covering the Vessel."

         (b)      Article II. Notwithstanding any other provision in Article II
of the General Provisions and in the General Provisions as a whole, all
references to ownership and title to the Vessel shall mean after the Delivery
Date.

         (c)      Concerning Section 2.02.

                  (1) Section 2.02(a) is hereby amended by deleting the words
"it lawfully owns" and inserting the word "is" immediately after the word
"Vessel" on the second line and inserting "On or after the Delivery Date," prior
to the words "The Shipowner shall" at the beginning of the sentence on eighth
line thereof.

                  (2) Section 2.02(d)(3) is hereby amended by deleting the words
"current operations" located on the fourth line and inserting in lieu thereof
the words "Vessel operation upon delivery and acceptance of said Vessel by
Shipowner".

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         (d)      Concerning Section 2.04.

                  (1) Section 2.04(d) is hereby amended by inserting the words
"it lawfully owns" on the second line thereof after "certifying that" and prior
to "the Vessel" and by inserting "and that the Vessel" after "the Vessel" and
before "is free of any" on the second line thereof.

                  (2) Section 2.04(e) is hereby amended by deleting the words
"substantially in the form of Exhibit A to the form of the Mortgage" located on
the first line and substituting in lieu thereof the words "in form and substance
satisfactory to the Secretary evidencing (i) the Vessel is free and clear of any
liens and (ii) Secretary has a valid and enforceable first priority mortgage."

         (e)      Concerning Section 2.05.

                  (1) 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 Shipowner under the last paragraph thereof shall be a $500,000 per accident
deductible for hull insurance and a $250,000 per accident deductible for
protection & indemnity insurance; and

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

         (f)      Concerning Section 2.08(c). Section 2.08(c) is hereby amended
by deleting the word "FLEET" located on the second line and substituting in lieu
thereof the word "SHIP".

         (g)      Concerning Section 2.14. Section 2.14 is hereby amended by
deleting the 3rd, 4th and 5th sentences thereof and inserting the following in
lieu thereof:

                  "In the event of (i) a default under the Construction
                  Contract, which default results in a payment under any of the
                  Surety Bonds, and (ii) a Default under the Security Agreement,
                  then the Surety Bonds proceeds shall be distributed by the
                  Secretary in accordance with the provisions of Section 6.05 of
                  Exhibit 1. In the absence of a Security Agreement Default, the
                  Secretary shall determine whether to release the funds to the
                  Shipowner or to deposit the funds in an account controlled by
                  the Secretary (but not necessarily the Title XI Reserve Fund).
                  In the event of any default under a Construction Contract, the
                  Shipowner shall have a right to be consulted in any
                  negotiations, agreements, litigations or settlement of any
                  rights related to the Surety Bonds, unless there also exists a
                  Default under the Security Agreement, in which case the
                  Shipowner shall not enjoy these rights."

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         (h)     Concerning Article V. Notwithstanding any other provision in
Article V of the General Provisions to the contrary, each request for withdrawal
from the Escrow Fund, excluding design, inspection, owner furnished equipment
and interest shall be submitted jointly by the Shipowner and the Shipyard. Any
provision of Article V of the General Provisions which is consistent with these
Special Provisions shall be given effect.

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

         (j)     Concerning Section 6.01.

                 (1)   The following paragraphs are hereby added immediately
after paragraph (9) and prior to the beginning of last paragraph of Section
6.01(b) of Exhibit 1:

                       "(10) Any default under the Funding Agreement or the
                  Guaranty  Agreement shall constitute an additional security
                  default;

                        (11) A breach by either the Shipowner or the Shipyard
                  under the terms of the Construction Contract shall constitute
                  an additional security default under this Section 6.01(b)."

                  (2)   The following paragraph is hereby added to the end of
         Section 6.01 of Exhibit 1:

                        "In the event that a Default shall occur, the Secretary
                  shall be entitled, but not be required, to deliver to the
                  Depository a written notice that the Secretary is thereby
                  exercising exclusive control over the Securities Accounts (as
                  such term is defined in the Depository Agreement) ("Notice of
                  Exclusive Control"). As further provided in the Depository
                  Agreement following the Depository's receipt of and pursuant
                  to said Notice of Exclusive Control, the Secretary and the
                  Shipowner hereby acknowledge and agree that (i) the Secretary
                  shall be entitled, but not be required, to issue to the
                  Depository an instruction, notice or any other type of
                  directive that would constitute an "entitlement order" within
                  the meaning of Section 8-102(a)(8) of the New York Uniform
                  Commercial Code (collectively, an "Entitlement Order")
                  concerning the Securities Accounts and (ii) the Depository
                  shall immediately cease complying with any Request, Request
                  for Payment, instruction, notice or any other type of
                  directive that would constitute an Entitlement Order from the
                  Shipowner. In the event that a Default has been cured or
                  waived as provided in Article VI hereof, the Secretary and the
                  Shipowner hereby acknowledge and agree that the Secretary
                  shall deliver a written notice to the Depository that (i)

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             the Secretary is no longer exercising exclusive control over the
             Securities Accounts and that the Notice of Exclusive Control
             previously delivered is theretofore without effect and (ii) the
             Depository shall thereafter comply with any Request, Request for
             Payment, instruction, notice or any other type of directive that
             would constitute an Entitlement Order from the Shipowner."

         (k) Concerning Section 6.04(b)(4). Section 6.04(b)(4) is hereby amended
by inserting the words "and mailing said notice" between "Authorized Newspapers"
and "to the Shipowner" located on the fourth line.

         (l) Concerning Section 8.01(c). Section 8.01(c) is hereby amended by
deleting the from the third line the number "12110(c)(3)" and substituting the
number "12111(c)(3) in lieu thereof.

         (m) 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

             Shipowner as:            CAPE COD LIGHT, L.L.C.
                                      Robin Street Wharf
                                      1380 Port of New Orleans Place
                                      New Orleans, Louisiana 70130-1890

             Indenture Trustee as:    The Bank of New York
                                      101 Barclay Street
                                      New York, NY 10286
                                      Attention:  Corporate Trust Administration

         (n) Governing Law. This Security Agreement and the rights and
obligations of the parties hereto shall be governed by and construed in
accordance with U.S. maritime laws, to the extent applicable, and otherwise in
accordance with the laws of the State of Louisiana, except that the rights and
obligations of the parties with respect to Sections 1.03(a)(4), (5) and (6)
shall be governed by the laws of the State of New York.

         (o) Execution of Counterparts. This Security Agreement may be executed
in any number of counterparts. All such counterparts shall be deemed to be
originals, and shall constitute but one and the same instrument.

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

SHIPOWNER:                           CAPE COD LIGHT, L.L.C.

                                     By:    DELTA QUEEN COASTAL VOYAGES, L.L.C.,
                                            its Managing Member

                                            By:  THE DELTA QUEEN STEAMBOAT CO.,
                                                 its Managing Member

                                                 By:  /S/ JORDAN B. ALLEN
                                                    ----------------------------
                                                    Its Executive Vice President

ATTEST:

By     /S/ RANDALL L. TALCOTT
   -----------------------------
     Its Vice President

<PAGE>   10

                                                   UNITED STATES OF AMERICA
                                                   SECRETARY OF TRANSPORTATION

                                                   BY:  MARITIME ADMINISTRATOR

                                                   /s/ Joel C. Richard
                                                   -----------------------------
                                                   Secretary

ATTEST:

/s/ SARAH J. WASHINGTON
-----------------------------
Assistant Secretary

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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 Mortgage
Exhibit 4         --       Financial Agreement
Exhibit 5         --       Form of Consent of Shipyard
Exhibit 6         --       Construction Contract
Exhibit 7         --       Depository Agreement
Exhibit 8         --       Guaranty Agreement
Exhibit 9         --       Funding Agreement
Exhibit 10        --       Assignment of Construction Contract
Exhibit 11        --       Shipyard Security Agreement

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                                     TABLE A
                                 Cape Cod Light

         The aggregate Actual Cost of the Vessel as of the date hereof as
determined by the Secretary, namely, (i) the amounts paid by or for the account
of the Shipowner as of the date hereof for the Construction of the Vessel, plus
(ii) the amount which the Shipowner was on said date obligated under the
Construction Contract or otherwise to pay from time to time thereafter for the
Construction of the Vessel less the Depreciation of the Vessel as of the date
hereof as determined by the Secretary is $44,204,526 both calculated and
itemized for the Vessel as follows:

<TABLE>
<CAPTION>

                                                                            Amount
                                                 Amount                    Obligated
                                                  Paid                    To Be Paid                      Total
                                                  ----                    ----------                      -----

<S>                                            <C>                       <C>                          <C>
Contract Price                                                           $30,000,000                  $30,000,000

Changes and Extras                                                         3,500,000                    3,500,000

Owner Furnished Items                                                      4,000,000                    4,000,000

Engineering and Inspection                                                 1,500,000                    1,500,000

Net Interest During Construction                                           2,525,000                    2,525,000

Risk Insurance                                                               190,000                      190,000

Commitment Fee                                                               132,000                      132,000

Guarantee Fee                                                              2,357,526                    2,357,526
                                               ----------                  ---------                    ---------

Total Actual Cost                                                        $44,204,526                  $44,204,526

</TABLE>

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                                                         SCHEDULE OF DEFINITIONS

                                       TO
                               SECURITY AGREEMENT

                             Dated October 16, 2000

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

         "Actual Cost" means the actual cost of the 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.

         "Adjusted Cash Provided from Operating Activities" means the amount
determined by taking `net cash provided from operating activities' from the
statement of cash flows and adding back all interest deducted in determining
such amount.

          "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-13636, between the Secretary and the Indenture Trustee, whereby the
Secretary authorizes the Guarantee of the United States to be endorsed on the
Obligations, as the same is originally executed, or as modified, amended or
supplemented therein.

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

          "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 Louisiana and the
State of New York.

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

         "Classification Society" means the American Bureau of Shipping.

         "Closing Date" or "Closing" means the date when the Obligations are
issued by the Shipowner and authenticated by the Indenture Trustee pursuant to
the Authorization Agreement.

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

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         "Consent of Shipyard" means the document evidencing such Shipyard's
consent to the assignment of a Construction Contract to the Secretary under the
Security Agreement as originally executed, modified, amended or supplemented.

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

         "Construction Contract" means the contract relating to the Construction
of the Vessel between the Shipowner and the Shipyard, as originally executed or
as modified or supplemented pursuant to the applicable provisions thereof.

         "Construction Fund" has the meaning specified in Article IV of the
Security Agreement.

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

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

         "Depository" shall mean the institution designated in the Depository
Agreement or any successor.

         "Depository Agreement" shall mean the Depository Agreement, Contract
No. MA-13640 among the Shipowner, the Secretary and the Depository, as
originally executed or as modified or supplemented in accordance with the
applicable provisions thereof.

         "Depreciated Actual Cost" means the depreciated actual cost of the
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.

         "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.

         "Financial Agreement" means the Title XI Reserve Fund and Financial
Agreement, Contract No. MA-13639, executed by the Shipowner and the Secretary,
as originally executed or as modified, amended or supplemented.

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

         "First Calendar Year of Vessel Operation" means the first calendar year
of operation of the Vessel provided said calendar year commences no sooner than
six months after delivery of the Vessel.

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         "Fourth Calendar Year of Vessel Operation" means the calendar year
subsequent to the Third Calendar Year of Vessel Operation.

         "Funding Agreement" means the funding agreement, Contract No. MA-13642,
between the Parent Company, the Guarantor, the Shipowner and the Sister
Shipowner relating to payment of the Guarantor's operating expenses.

         "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.

         "Guaranty Agreement" means the guaranty, Contract No. MA 13641, issued
by the Guarantor for the Title XI obligations of the Shipowner.

         "Guarantee Commitment" means the Commitment to Guarantee Obligations,
Contract No. MA-13635, dated October 16, 2000 executed by the Secretary and
accepted by the Shipowner relating to the Guarantees, as originally executed or
as modified, amended or supplemented.

         "Guarantor" means Delta Queen Coastal Voyages, L.L.C., a Delaware
limited liability company, and shall include its successors and assigns.

         "Holder" means each, and "Holders" means every, registered holder of an
Obligation.

         "Increased Security" means the Secretary's Note, the Security
Agreement, the Vessel, the Security, the Escrow Fund, the Title XI Reserve Fund,
the Construction Fund, the Parent Guaranty and any other security agreement
between the Secretary and the Shipowner relating to any vessels financed under
the Act, and the Policies of Insurance, and the proceeds of the foregoing.

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

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

         "Indenture Trustee" means the Bank of New York, a New York banking
corporation, and any successor trustee under the Indenture.

         "Long Term Debt" means, as of any date, 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.

<PAGE>   16

         "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.

         "Minimum Cash Flow Ratio" means the ratio of Adjusted Cash Provided
from Operating Activities to Total Debt Service.

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

         "Mortgage" means the first preferred ship mortgage on the Vessel,
Contract No. MA-13638, by the Shipowner to the Secretary, as originally
executed, modified, amended or supplemented.

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

         "Mortgagor" means the Shipowner, as mortgagor under the Mortgage.

         "Net Worth" means, as of any date, the total of paid-in capital stock,
paid-in surplus, earned surplus and appropriated surplus, and all other amounts
that would be included in net worth in accordance with generally accepted
accounting principles, but exclusive of (1) any receivables from any
stockholder, director, Officer or employee of the Company 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 each and every
obligation of the Shipowner bearing a Guarantee that is authenticated and
delivered under the Indenture and the Authorization Agreement.

         "Obligation Purchase Agreement" means each agreement for the purchase
of Obligations, executed by the Shipowner and the purchaser named therein, as
originally executed, modified or supplemented.

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

         "Offering Circular" means each offering circular relating to the
issuance and sale of the Bonds.

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

         "Original Issue Date" means a date on which an Obligation was initially
authenticated by the Indenture Trustee even if the Obligation is subsequently
given a later date by reason of transfer, exchange or substitution.

<PAGE>   17

         "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.

         "Parent Company" means The Delta Queen Steamboat Co., a Delaware
corporation, and its successors and assigns.

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

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

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

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

         "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
arm's-length transaction may not be achieved.

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

         "Responsible Officer" means (1) in the case of any business entity, the
chairman of the board of directors, the president, any executive or senior vice
president, the secretary, the treasurer, member or partner, (2) in the case of
any commercial bank, the chairman or vice-chairman of the executive committee of
the board of directors or trustees, the president, any executive or senior vice
president, the secretary, the treasurer, any trust officer, and (3) with

<PAGE>   18

respect to the signing or authentication of the Obligations and Guarantees by
the Indenture Trustee, any person specifically authorized by the Indenture
Trustee to sign or authenticate the Obligations.

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

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

         "Second Calendar Year of Vessel Operation" means the calendar year
beginning January 1 in the year immediately following the First Calendar Year of
Vessel Operation.

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

         "Secretary's Note" means a promissory note or promissory notes issued
and delivered by the Shipowner 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.

         "Secretary's Notice" means a notice from the Secretary to the Indenture
Trustee, if a Bond 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.

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

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

         "Security Agreement" means the security agreement, Contract No.
MA-13637, dated the Closing Date, consisting of the special provisions, the
general provisions and this schedule X, executed by the Shipowner as security
for the Secretary, as originally executed or as modified, amended or
supplemented.

<PAGE>   19

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

         "Shipowner" means Cape Cod Light, L.L.C., a Delaware limited liability
company, and shall include its successors and assigns.

         "Shipyard" means Atlantic Marine, Inc.

         "Sister Shipowner" means Cape May Light, L.L.C., a Delaware limited
liability company, and shall include its successors and assigns.

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

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

         "Third Calendar Year of Vessel Operation" means the calendar year
subsequent to the Second Calendar Year of Vessel Operation.

         "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.

         "Total Debt Service" means the amount determined for each given year as
follows: (a) any scheduled payments on the Title XI debt (including principal
and interest), plus (b) any scheduled payments (including principal and
interest) on all other third party debt of the Shipowner, minus (c) cash used to
pay such payments from either non-operating sources or operating sources other
than the Shipowner.

         "UCC" means the Uniform Commercial Code as enacted in the State of
Louisiana, except that with respect to the terms "Financial Asset", "Securities
Account" and "Securities Intermediary", "UCC" shall mean the Uniform Commercial
Code as enacted in the State of New York.

         "Vessel" means the cv Cape Cod Light, financed with the Obligations.

         "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's

<PAGE>   20

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 the Company's balance sheet.

<PAGE>   21

                                TABLE OF CONTENTS

                    GENERAL PROVISIONS INCORPORATED INTO THE
                         SECURITY AGREEMENT BY REFERENCE

<TABLE>
<CAPTION>

SECTION                                               HEADING
PAGE
<S>                                                                                                             <C>

ARTICLE I........................................................................................................13
   DEFINITIONS; OFFICER'S CERTIFICATES; GRANTING CLAUSE..........................................................13
      Section 1.01.  Definitions.................................................................................13
      Section 1.02.  Officer's Certificates......................................................................13
      Section 1.03.  Granting Clause.............................................................................13

ARTICLE II.......................................................................................................15
   SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS....................................................................15
      Section 2.01.  Shipowner's Representations, Agreements, Organization and Existence.........................15
                     (a) General Representations.................................................................15
                     (b) Shipowner's United States Citizenship...................................................15
                     (c) Taxes...................................................................................16
      Section 2.02.  Covenants Concerning the Vessels............................................................16
                     (a) Title to and Possession of the Vessels..................................................16
                     (b) Sale, Mortgage, Transfer or Charter of the Vessels......................................16
                     (c) Taxes and Governmental Charges..........................................................16
                     (d) Liens...................................................................................16
                     (e) Compliance with Applicable Laws.........................................................17
                     (f) Vessels' Operation......................................................................17
                     (g) Vessels' Condition and Maintenance......................................................17
                     (h) Material Changes in the Vessels.........................................................18
                     (i) Documentation of the Vessels............................................................18
      Section 2.03.  Maintenance of Construction Contract........................................................18
      Section 2.04.  Delivery Requirements.......................................................................18
      Section 2.05.  Insurance...................................................................................19
      Section 2.06.  Inspection of the Vessels; Examination of Shipowner's Records...............................25
      Section 2.07.  Requisition of Title, Termination of Construction Contract or Total Loss
                     of a Vessel.................................................................................25
      Section 2.08.  Notice of Mortgage..........................................................................26
      Section 2.09.  Compliance with 46 U.S.C. Chapter 313.......................................................26
      Section 2.10.  Performance of Shipowner's Agreements by the Secretary......................................27
      Section 2.11.  Uniform Commercial Code Filings; Further Assurances.........................................27
      Section 2.12.  Modification of Formation Agreements........................................................27
</TABLE>

<PAGE>   22

<TABLE>
<S>                                                                                                              <C>

      Section 2.13.  Members of Limited Liability Companies......................................................27
      Section 2.14.  Concerning the Performance and Payment Bonds................................................28

ARTICLE III......................................................................................................16
   THE SECRETARY'S NOTE..........................................................................................16
      Section 3.01.  Secretary's Note............................................................................28
      Section 3.02.  Termination of the Guarantees...............................................................28
      Section 3.03.  Execution of Additional Secretary's Note....................................................29

ARTICLE IV.......................................................................................................29
   CONSTRUCTION FUND; MONEYS DUE WITH RESPECT TO.................................................................29
      Section 4.01.  Construction Fund...........................................................................29
      Section 4.02.  Moneys Due with Respect to Construction of the Vessels......................................29

ARTICLE V........................................................................................................30
   ACTUAL COST; THE ESCROW FUND..................................................................................30
      Section 5.01.  Actual Cost Determinations..................................................................30
      Section 5.02.  Escrow Fund Deposits........................................................................30
      Section 5.03.  Escrow Fund Withdrawals.....................................................................30
      Section 5.04.  Investment and Liquidation of the Escrow Fund...............................................32
      Section 5.05.  Income on the Escrow Fund...................................................................32
      Section 5.06.  Termination Date of the Escrow Fund.........................................................33

ARTICLE VI.......................................................................................................33
   DEFAULTS AND REMEDIES.........................................................................................33
      Section 6.01.  What Constitutes "Defaults;" Continuance of Defaults........................................33
      Section 6.02.  Acceleration of Maturity of the Secretary's Note............................................35
      Section 6.03.  Waivers of Default..........................................................................35
      Section 6.04.  Remedies After Default......................................................................36
      Section 6.05.  Application of Proceeds.....................................................................37
      Section 6.06.  General Powers of the Secretary.............................................................38

ARTICLE VII......................................................................................................39
   AMENDMENTS AND SUPPLEMENTS TO.................................................................................39
      Section 7.01.  Amendments and Supplements to the Security Agreement and the Mortgage.......................39
      Section 7.02.  Amendments and Supplements to the Indenture.................................................39

ARTICLE VIII.....................................................................................................39
   CONSOLIDATION, MERGER OR SALE.................................................................................39
      Section 8.01.  Consolidation, Merger or Sale...............................................................39
      Section 8.02.  Transfer of a General Partner's or a Joint Venturer's Interest..............................40

</TABLE>

<PAGE>   23

<TABLE>

<S>                                                                                                              <C>
ARTICLE IX.......................................................................................................40
   NOTICES.......................................................................................................40
      Section 9.01.  Notices.....................................................................................40
      Section 9.02.  Waivers of Notice...........................................................................40
      Section 9.03.  Shipowner's Name or Address Change..........................................................40

ARTICLE X........................................................................................................40
   DISCHARGE OF SECURITY AGREEMENT AND THE MORTGAGE..............................................................40
      Section 10.01.  Discharge of Security Agreement and the Mortgage...........................................40

ARTICLE XI.......................................................................................................41
   MISCELLANEOUS.................................................................................................41
      Section 11.01.  Successors and Assigns.....................................................................41
      Section 11.02.  Execution in Counterparts..................................................................41
      Section 11.03.  Shipowner's Rights in Absence of Default...................................................41
      Section 11.04.  Surrender of Vessels' Documents............................................................41
      Section 11.05.  Applicable Regulations.....................................................................41
      Section 11.06.  Table of Contents, Titles and Headings.....................................................41

</TABLE>

<PAGE>   24

                    GENERAL PROVISIONS INCORPORATED INTO THE

                         SECURITY AGREEMENT BY REFERENCE

                                    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. Officer's Certificates. To satisfy a covenant or
condition provided for in this Security Agreement, the Responsible Officer of
the Person making such Officer's 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 Officer's knowledge that such condition or covenant has been
met. An Officer's 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 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 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 with respect to the Construction of
each Vessel regardless of the legal theory by which moneys are recovered. Said
right, title and interest in and to the moneys, cash, bonds, claims, and
securities conveyed by this subsection are herein referred to collectively as
the "Moneys Due with Respect to the Construction of the Vessels." The Secretary
acknowledges and agrees that the Moneys Due with Respect to the Construction of
the Vessels will be paid directly to the Depository for application in
accordance with this Security Agreement and the Indenture.

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

<PAGE>   25

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

                  (5) The Construction Fund and all moneys, instruments,
negotiable documents, chattel paper and proceeds, etc.

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

                  (7) Proceeds of Policies of Insurance relating to each Vessel
and, whether or not insured, any general average claims or loss of hire claims
Shipowner 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.
<PAGE>   26

                                   ARTICLE II
                   SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS

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

         Section 2.01. Shipowner's Representations, Agreements, Organization and
Existence. (a) General Representations. The Shipowner 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, the Bond Purchase Agreement, the Obligations, the Indenture, the
Security Agreement, the Secretary's Note, the Mortgage, the Financial Agreement,
and the 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.

<PAGE>   27

         (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 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 Officer's 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

<PAGE>   28

consent, to create, incur or permit to be placed or imposed on any Vessel any
lien, encumbrance, security interest, charge, or rights in rem, and statutory
liens incident to current operations unless such statutory liens are subordinate
to the Mortgage.

         (e) Compliance with Applicable Laws. The Shipowner 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 my 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

<PAGE>   29

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 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 the Shipyard and the Shipowner desire to make which
do not, in the aggregate, exceed five (5%) percent of the total Construction
Contract price of the Vessels, and which do not cause the total Construction
Contract price to be increased by an individual change by more than one (1%)
percent or the delivery and completion date of the Vessels to be extended by
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

<PAGE>   30

shall have:

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

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

         (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

<PAGE>   31

value and other forms of "total loss only" insurance as are permitted by said
hull insurance policies); and

                  (2) While any Vessel is laid up, at the Shipowner's option and
in lieu of the above-mentioned marine and war risk hull insurance or marine and
war risk hull and increased value insurance, port risk insurance under the
latest (at the time of issue of the policies in question) forms of American
Institute of Marine Underwriters' policies approved by the Secretary and/or
policies issued by or for the Maritime Administration (or under such other 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's rights
and duties under the Indenture and the Obligations and made any payments in
default under the terms of Section 6.09 of the Indenture, in which event payment
of all losses shall be made payable to the Secretary as aforesaid.

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

                  (1) In the event that insurance becomes payable under said
policies on account of an accident, occurrence or event not resulting in an
actual or constructive total loss or an agreed or compromised total loss of any
Vessel, the Secretary shall (A) if there is no existing Default and if none of
the events described in Section 2.07 has occurred, in accordance with a
Shipowner's Request, pay, or consent that the underwriters pay, direct for
repairs, liabilities, salvage claims or other charges and expenses (including
sue and labor charges due or paid by the Shipowner) 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

<PAGE>   32

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 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

<PAGE>   33

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 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

<PAGE>   34

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 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

<PAGE>   35

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

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

<PAGE>   36

delivered or mailed for such purpose, and if the Secretary approves such
Request, the Secretary shall, at the Shipowner's expense, deliver or mail (by
registered or certified mail, postage prepaid) such policy in accordance with
such Request, accompanied by a written direction to the recipient to redeliver
such policy directly to the Secretary or an agent thereof when it has served the
purpose for which so delivered. The Shipowner agrees that, in case it shall at
any time so cause the delivery or mailing of any policy to any Person as
aforesaid, the Shipowner will cause such policy to be promptly redelivered to
the Secretary or an agent thereof as aforesaid. The Secretary shall have no duty
to see to the redelivery of such policy, but shall have the duty to request the
redelivery thereof at intervals of 60 days thereafter.

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

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

         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

<PAGE>   37

paid to the Shipowner including any interest earned on the proceeds which are in
excess of the amount required to redeem the Obligations;

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

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

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

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

         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.

<PAGE>   38

         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 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

<PAGE>   39

Distribution or to be paid any sums whatsoever by the Shipowner until the
Secretary has made a full recovery of any and all amounts owed under the
Secretary's Note and the Security Agreement.

         Section 2.14. Concerning the Performance and Payment Bonds. During the
Construction, the Shipowner shall cause to be maintained Performance Bonds and
Payment Bonds naming the Shipowner and the Secretary as co-obligees (the "Surety
Bonds") in form and substance satisfactory to the Secretary, to be obtained by
the Shipyard in the amount of the Construction Contract, issued by such surety
company or companies as shall be satisfactory to the Secretary (the "Surety").
In the event that the price for the work to be performed under the Construction
Contract is increased, then the Surety Bonds shall be increased simultaneously
in a corresponding amount. The Shipowner hereby agrees that the Secretary shall
be the sole loss payee under the Surety Bonds and the Surety shall pay such
amounts directly to the Secretary 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.

<PAGE>   40

         Section 3.03. Execution of Additional Secretary's Note. (a) In the
event and when each new issue of Obligations is executed, authenticated and
delivered on a date or dates subsequent to the date hereof, as contemplated by,
and pursuant to the Indenture, the Shipowner shall, at the time of the issuance
of such Obligations, execute and deliver to the Secretary an additional
Secretary's Note or, at the Secretary's discretion, an endorsement to the
Secretary's Note in an amount equal to the principal amount of, and at the
interest rate borne by, such issue of Obligations, on the terms stated in the
Secretary's Note.

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

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

         Section 4.01. Construction Fund. (a) The Shipowner has deposited in the
Construction Fund with the Depository the amount, if any, indicated in the
Depository Agreement from the proceeds of the Obligation to be held by the
Depository in a Securities Account in accordance with the terms of the
Depository Agreement. This Securities Account together with any future deposits
and the proceeds from the investment of the amounts on deposit shall be called
the "Construction Fund."

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

         Section 4.02. Moneys Due with Respect to Construction of the Vessels.
(a) In the event that the Shipowner shall receive any moneys from any Person in
connection with the Construction of any Vessel, the Shipowner shall give written
notice thereof to the Secretary and shall promptly pay the same over to the
Depository to be held in the Title XI Reserve Fund.

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

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

         (d) In the event the Secretary assumes the Shipowner's rights and
duties under Section 6.09 of the Indenture or pays the Guarantees, the
Depository shall promptly pay all moneys

<PAGE>   41

including all Moneys Due with Respect to Construction of the Vessels to the
Secretary, who will apply it in accordance with Section 6.05.

                                    ARTICLE V
                          ACTUAL COST; THE ESCROW FUND

         Section 5.01. Actual Cost Determinations. (a) The Actual Cost of each
Vessel (and the aggregate Actual Cost of all of the Vessels), determined as of
the date of this Security Agreement, is as set forth in Table A hereof.

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

<PAGE>   42

of its component parts; (C) the amounts of the Request is in accordance with the
Construction Contract including the approved disbursement schedule and each item
in these amounts is properly included in the Secretary's approved estimate of
Actual Cost; (D) with respect to the Request, once the Contractor is paid there
will be no liens or encumbrances on the applicable Vessel, its hull or component
parts for which the withdrawal is being requested except for those already
approved by the Secretary; and (E) if the Vessel has already been Delivered, it
is in class and is being maintained in the highest and best condition. The
Shipowner shall also attach an Officer's Certificate of the Shipyard, in form
and substance satisfactory to the Secretary, stating that there are no liens or
encumbrances as provided in clause (D) of this subsection and attaching the
invoices and receipts supporting each proposed withdrawal to the satisfaction of
the Secretary.

             (2) No payment or reimbursement under this Section shall be made
(A) to any Person until the Construction Fund, if any, has been exhausted; (B)
to any Person until the total amount paid by or for the account of the Shipowner
from sources other than the proceeds of such Obligations equals at least 12-l/2%
of the Actual Cost of the related Vessel is made; (C) to the Shipowner which
would have the effect of reducing the total amounts paid by the Shipowner
pursuant to clause (B) of this subsection; or (D) to any Person on account of
items, amounts or increases representing changes and extras or owner furnished
equipment, if any, set forth in Table A annexed hereto, unless such items,
amounts and increases shall have been previously approved by the Secretary;
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.

<PAGE>   43

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

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

<PAGE>   44

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 "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

<PAGE>   45

punctual observance and performance of any provision in Sections 2.02(a), (d),
(e), (f), and (g), 2.05 (except (g) and (k) thereof), 2.07, and 2.13.

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

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

<PAGE>   46

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

         Section 6.03. Waivers of Default. (a) If the Secretary shall not have
assumed the Shipowner's rights and duties under the Indenture and the
Obligations, and made any payments in default under the terms of Section 6.09 of
the Indenture, and if the Secretary determines that an event which, with the
passage of time, would become a Payment Default, has been remedied within 30
days after the occurrence of such event, upon a Request by the Shipowner, the
Secretary shall waive the consequences of such event.

         (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.

<PAGE>   47

         (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 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
Newspapers 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

<PAGE>   48

possession of and to hold the same;

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

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

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

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

         (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;

<PAGE>   49

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

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

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

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

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

         Section 6.06. General Powers of the Secretary. (a) In the event any
Vessel shall be arrested or detained by a marshal or other officer of any court
of law, equity or admiralty jurisdiction in any country or nation of the world
or by any government or other authority, and shall not be released from arrest
or detention within 15 days from the date of arrest or detention, the Shipowner
hereby authorizes the Secretary, in the name of the Shipowner, to apply for and
receive possession of and to take possession of such Vessel with all the rights
and powers that the Shipowner might have, possess and exercise in any such
event. This authorization is irrevocable.

         (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.

<PAGE>   50

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

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

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

                                  ARTICLE VIII
                          CONSOLIDATION, MERGER OR SALE

         Section 8.01. Consolidation, Merger or Sale. (a) Nothing in this
Security Agreement or the Mortgage shall prevent any lawful consolidation or
merger of the Shipowner with or into any other Person, or any sale of a Vessel
or Vessels to any other Person lawfully entitled to acquire and operate such
Vessel or Vessels, or any sale by the Shipowner of all or substantially all of
its assets to any other Person; 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. 12110(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

<PAGE>   51

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 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

<PAGE>   52

appropriate records, and shall execute and deliver to the Shipowner such
instruments as may be necessary, and forthwith the estate, right, title and
interest of the Secretary in and to the Security, the Increased Security, and
any other securities, cash, and any other property held by it under this
Security Agreement and the Mortgage, shall thereupon cease, determine and become
null and void, and the Secretary shall transfer, deliver and pay the same to the
Shipowner.

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

                                   ARTICLE XI
                                  MISCELLANEOUS

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

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

         Section 11.03. Shipowner's Rights in Absence of Default. Except during
the existence of a Default, the Shipowner (1) shall be permitted to retain
actual possession and use of the Vessel; and (2) shall have the right, from time
to time, in its discretion and without the consent of or release by the
Secretary, to dispose of, free from the lien hereof and of the Mortgage, any and
all engines, machinery, masts, boats, anchors, cables, chains, rigging, tackle,
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.<PAGE>   1
                                                             EXHIBIT 4(ii)(f)(7)
                                                          Contract No. MA-13639

                              TITLE XI RESERVE FUND
                             AND FINANCIAL AGREEMENT

         THIS TITLE XI RESERVE FUND AND FINANCIAL AGREEMENT (the "Financial
Agreement") dated October 16, 2000 between Cape Cod Light, L.L.C., a Delaware
limited liability company (the "Company"), and THE UNITED STATES OF AMERICA (the
"United States"), represented by the SECRETARY OF TRANSPORTATION, acting by and
through the MARITIME ADMINISTRATOR (the "Secretary").

                                    RECITALS

         Pursuant to the conditions and understandings set forth in the Recitals
to the Security Agreement executed on this date, the Company has authorized the
issuance of obligations designated "United States Government Guaranteed Ship
Financing Bonds, 2000 Series" in an aggregate amount not to exceed $38,500,000
to finance the cost of construction of the cv Cape Cod Light (the "Vessel");

         NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, and of other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereby agree as follows:

         Section 1.

         (a)      Granting Clause. The Company hereby sells, grants, conveys,
mortgages, assigns, transfers, pledges, confirms and sets over to the Secretary
a continuing security interest in all of its right, title and interest in and to
(1) the Title XI Reserve Fund, and (2) all sums, instruments, moneys, negotiable
documents, chattel paper and proceeds thereof currently on deposit, or hereafter
deposited in the Title XI Reserve Fund.

         (b)      Definitions. For all purposes of this Financial Agreement,
unless otherwise expressly provided or unless the context otherwise requires,
the capitalized terms used herein shall have the meaning specified in Schedule X
to the Security Agreement entered into on this date.

         Section 2. Title XI Reserve Fund Deposits.

         (a)      Pursuant to the Depository Agreement, the Company shall
establish with the Depository a depository account (herein called the "Title XI
Reserve Fund").

         (b)(1)   If for any fiscal year the Company shall fail to meet the
financial tests set forth in Section 8(b) hereof including the Proviso; the
Company shall, within 105 days after the end of each fiscal year of the Company,
compute its net income attributable to the operation of the Vessel ("Title XI
Reserve Fund Net Income"). This computation requires the multiplication of

<PAGE>   2

the Company's total net income after taxes by a fraction with a numerator
composed of the total original capitalized cost of the Vessel and a denominator
composed of the total original capitalized cost of all the Company's fixed
assets. The net income after taxes, computed in accordance with generally
accepted accounting principles, shall be adjusted as follows:

                  (A) The depreciation expense applicable to the fiscal year
shall be added back.

                  (B) There shall be subtracted an amount equal to the principal
amount of debt required to be paid or redeemed, and actually paid or redeemed by
the Company during the fiscal year; and the principal amount of Obligations
Retired or Paid, prepaid or redeemed, in excess of the required Redemptions or
payments which may be used by the Company as a credit against future required
Redemptions or other required payments with respect to the Obligations, but
excluding payments from the Title XI Reserve Fund and the Title XI Escrow Fund.

         (2)      Promptly after the computation of the Title XI Reserve Fund
Net Income by the Company:

                  (A) If the Vessel is owned by the Company, then from the Title
XI Reserve Fund Net Income for the Vessel there shall be deducted, annually, an
amount (pro rated for a period of less than a full fiscal year) which is 10% of
the Company's aggregate original equity investment in said Vessel, as specified
in Attachment A.

                  (B) The Company shall, unless otherwise approved by the
Secretary in writing, deposit into the Title XI Reserve Fund an amount equal to
50 percent of the balance of the Title XI Reserve Fund Net income remaining
after the above deduction.

                  (C) Irrespective of the requirements that the Company make
deposits into the Title XI Reserve Fund, the Company shall not be required to
make any deposits into the Title XI Reserve Fund if (i) the Obligations and the
related Secretary's Note with respect to the Vessel shall have been satisfied
and discharged and if the Company shall have paid or caused to be paid all other
sums secured under the Security Agreement and the Mortgage, (ii) all of the
Guarantees on the Outstanding Obligations shall have been terminated pursuant to
the Security Agreement, or (iii) the amount (including any securities at current
market value) in the Title XI Reserve Fund is equal to, or in excess of 50% of
the aggregate principal amount of the Outstanding Obligations;

                  (D) The Company shall deliver to the Secretary (with a copy to
the Depository) at the time of each deposit into the Title XI Reserve Fund
pursuant to Section 2(b)(2)(B), and any deposits required under the Security
Agreement, a statement of an independent certified public accountant (who may be
the regular auditors for the Company) stating that such deposit has been
computed in accordance with Section 2(b)(2)(B), (and the Security Agreement, if
applicable) and showing the pertinent calculations.

                  (E) In addition, the Company shall deliver to the Secretary
(with a copy to the Depository), within 105 days after the end of each fiscal
year of the Company, a statement by

                                       2
<PAGE>   3

such certified public accountant stating (i) the total amount of all deposits
which were required to be so deposited into the Title XI Reserve Fund for such
fiscal year (and showing the pertinent calculations), or (ii) that no such
deposit was required to be made for such fiscal year (and showing the pertinent
calculations) and that at the end of such fiscal year no adjustments pursuant to
Section 2(b)(2)(G) were required to be made (and, if such adjustments were
required to be made, stating the reasons therefor).

                  (F) The computation of all deposits required by this Section 2
shall be made on the basis of information available to the Company at the time
of each such deposit. Each such deposit shall be subject to adjustments from
time to time in the event and to the extent that the same would be required or
permitted by mistakes or omissions, additional information becoming available to
the Company, or judicial or administrative determinations made subsequent to the
making of such deposits.

         Section 3. Withdrawals from the Title XI Reserve Fund.

         (a)      From time to time, moneys in the Title XI Reserve Fund shall
be subject to withdrawal by delivery by the Company to the Secretary of a
Request for Payment (specifying the Person or Persons to be paid and the amount
of such payment) executed by the Company, together with an Officer's Certificate
of the Company stating the reasons and the purpose for the withdrawal.

         (b)      Upon approval by the Secretary of the Request for Payment
evidenced by the countersignature thereon of the Secretary, the Secretary shall
cause the Request for Payment to be delivered to the Depository, which shall
promptly make payment to such Person or Persons in accordance with the terms of
such Request for Payment.

         Section 4. Termination of the Title XI Reserve Fund.

         (a)      The Title XI Reserve Fund shall terminate at such time as the
Secretary's Note shall have been satisfied and discharged and the Company shall
have paid or caused to be paid all sums secured under the Security Agreement or
the Mortgage.

         (b)      Upon the termination of the Title XI Reserve Fund, pursuant to
Section 4(a), the moneys remaining in the Title XI Reserve Fund shall be subject
to withdrawal and payment into the general funds of the Company.

         (c)      Upon payment by the Secretary to the Indenture Trustee of the
Guarantees pursuant to the Indenture, the Title XI Reserve Fund shall, upon
written instructions of the Secretary, be terminated and the balance remaining
in the Title XI Reserve Fund shall be paid to the Secretary and the Company as
determined by the Secretary.

         (d)      Any withdrawal from the Title XI Reserve Fund pursuant to this
Section 4 shall not effect a discharge of or diminish any obligations of the
Company under the Security Agreement, Mortgage or any other agreement as the
case may be except to the extent that the

                                       3
<PAGE>   4

amount withdrawn is applied to payments required to be made by the Company under
the Security Agreement, Mortgage or any other agreement.

         Section 5. Eligible Investments; Form of Deposits.

         (a)      Moneys held in the Title XI Reserve Fund shall, if so directed
by a Request of the Company delivered to the Depository (with a copy to the
Secretary), be invested by the Depository in the following Eligible Investments:

                  (1) time deposits, negotiable certificates of deposit, or
         similar instruments of deposit with a bank or trust company organized
         as a corporation under the laws of the United States or any State
         thereof, or of the District of Columbia, subject to supervision or
         examination by Federal or State authority or authority of the District
         of Columbia, and having a combined capital and surplus of at least
         $3,000,000; provided that, the aggregate of all such time deposits and
         certificates of deposit with any one bank or trust company shall not
         exceed 10% of the combined capital and surplus of such bank or trust
         company;

                  (2) short term commercial paper having either of the two
         highest ratings for short term commercial paper assigned by any two
         nationally recognized organizations regularly engaged in rating the
         investment quality of such commercial paper; and

                  (3) securities (designated by the Company in such Request)
         which at the date of such investment are:

                  (A) direct obligations of, or obligations (other than the
Obligations or Obligations related to the Company) fully guaranteed or insured
by, the United States or any agency of the United States or with the Secretary's
prior written consent and subject to such conditions imposed by him, obligations
or securities fully insured by an instrumentality of the United States;

                  (B) bonds, not in default as to principal or interest of any
county, municipality or state of the United States and having either of the two
highest ratings for bonds assigned by any two nationally recognized
organizations regularly engaged in rating the investment quality of such bonds;

                  (C) bonds, not in default as to principal or interest, of
corporations organized and existing under the laws of the United States or of
the District of Columbia or of any state of the United States and having one of
the three highest ratings for bonds assigned by any two nationally recognized
organizations regularly engaged in rating the investment quality of such bonds;
provided that, no investment under this subsection (5)(a)(3)(C) shall be made in
any obligations of the Company or a Related Party;

                  (D) capital stock, but limited at the time of acquisition to
any amounts in the Title XI Reserve Fund in excess of the principal amount of
Obligations to be redeemed pursuant to the mandatory sinking fund provisions of
the Indenture, during the next succeeding 12 months

                                       4
<PAGE>   5

of (i) corporations organized and existing under the laws of the United States
or the District of Columbia or of any state of the United States if such stock
is currently fully listed and registered upon an exchange registered with the
Securities and Exchange Commission as a national securities exchange and
permitted for investment by a savings bank under the laws of the State of New
York without regard to the provisions therein limiting such investments to a
percentage of the assets or surplus of such savings bank, (ii) banks either
regulated by the Comptroller of the Currency of the United States or subject to
the Banking Law of the State of New York, or (iii) insurance companies licensed
to do business in such state; provided that, no investment under this subsection
shall be made in stock of the Company or a Related Party; provided further that,
any request under this subsection shall be accompanied by an opinion of counsel
satisfactory to the Secretary as to the qualification of such securities under
this clause and provided further, that the Company shall cause to be sold,
within 60 days, or at any time if the Secretary so directs the Company in
writing, any securities which cease to qualify under this subsection.

         (b)      In any case where the Company is required to deposit or
redeposit sums into the Title XI Reserve Fund, the Company shall make the
required deposit in cash or, in lieu thereof, with the Secretary's prior written
approval, may deposit into the Title XI Reserve Fund, negotiable certificates of
deposit, short term commercial paper or securities which are (1) Eligible
Investments (2) owned by the Company and (3) of an equivalent current market
value (based upon the last sales price thereof on the Business Day immediately
preceding such deposit or, if there shall have been no sale thereof on such day,
the average of the last known bid and asked prices). With the Secretary's prior
written approval, the Company may exchange Eligible Investments in the Title XI
Reserve Fund at current market value (determined as above provided) for an
equivalent amount of cash.

         (c)      Cash held in the Title XI Reserve Fund will be held by the
Depository pursuant to the Depository Agreement.

         Section 6. Company's Rights with Respect to Securities Held in the
Title XI Reserve Fund. Unless there is an existing Default under the Security
Agreement, the Company shall have:

         (a)      the right to vote (or direct the vote of) securities held in
the Title XI Reserve Fund as to (1) the sale of all or any part of the assets of
the issuer or obligor thereof, (2) the increase or reduction of the capital of
such issuer or obligor, (3) the liquidation, dissolution, merger or
consolidation of such issuer or obligor, or (4) any purpose which would not then
impair the lien of, or the security interest granted to the Secretary; and

         (b)      the right to exercise (or direct the exercise of) any and all
rights of ownership of such securities, including the right to consent or object
to the extension, modification or renewal of any thereof, the right to consent
or object to any plan or reorganization, or readjustment, and the right to
exercise any right, privilege or option pertaining thereto.

         Section 7. Annual Statement of Company with Respect to the Title XI
Reserve Fund. Within 105 days after the close of each fiscal year of the Company
at the end of which there are

                                       5
<PAGE>   6

funds in the Title XI Reserve Fund (and at such other times as the Secretary may
request in writing), the Company shall submit to the Secretary (with a copy to
the Depository) (a) an opinion of counsel satisfactory to the Secretary as to
the qualification, under Section 5(a)(3)(D), of securities acquired pursuant to
that subparagraph and then held in the Title XI Reserve Fund and (b) a list of
the Eligible Investments held in the Title XI Reserve Fund at the close of said
fiscal year (or at the time of the Secretary's request as aforesaid).

         Section 8. Financial Requirement of the Company.

         (a)      Primary Covenants. The Company shall not without the
Secretary's prior written consent:

         Except as hereinafter provided, make any distribution of earnings,
except as may be permitted by (A) or (B) below:

                  (A) From retained earnings in an amount specified in
         subsection (C) below, provided that, in the fiscal year in which the
         distribution of earnings is made there is no operating loss to the date
         of such payment of such distribution of earnings, and (i) there was no
         operating loss in the immediately preceding three fiscal years, or (ii)
         there was a one-year operating loss during the immediately preceding
         three fiscal years, but (a) such loss was not in the immediately
         preceding fiscal year, and (b) there was positive net income for the
         three year period;

                  (B) If distributions of earnings may not be made under (A)
         above, a distribution can be made in an amount equal to the total
         operating net income for the immediately preceding three fiscal year
         period, provided that, (i) there were no two successive years of
         operating losses, (ii) in the fiscal year in which such distribution is
         made, there is no operating loss to the date of such distribution, and
         (iii) the distribution or earnings made would not exceed an amount
         specified in Section 8(a)(1)(C) below;

                  (C) Distributions of earnings may be made from earnings of
         prior years in an aggregate amount equal to (i) 40 percent of the
         Company's total net income after tax for each of the prior years, less
         any distributions that were made in such years; or (ii) the aggregate
         of the Company's total net income after tax for such prior years,
         provided that, after making such distribution, the Company's Long Term
         Debt does not exceed its Net Worth. In computing net income for the
         purposes of this Section, extraordinary gains, such as gains from the
         sale of assets, shall be excluded.

         (1)      Enter into any service, management or operating agreement for
the operation of the Vessel (excluding husbanding type agreements), or appoint
or designate a managing or operating agent for the operation of the Vessel
(excluding husbanding agents) unless approved by the Secretary;

                                       6
<PAGE>   7

         (2)(A)   Sell, mortgage, transfer, or demise charter the Vessel or any
assets to any non-Related Party except as permitted in subsection 8(a)(6) below,
or (B) sell, mortgage, transfer, or demise charger the Vessel or any assets to a
Related Party, unless such transaction is (i) at a fair market value as
determined by an independent appraiser acceptable to the Secretary, and (ii) a
total cash transaction or, in the case of demise charter, the charter payments
are cash payments.

         (3)      Enter into any agreement for both (A) sale and (B) leaseback
of the same assets so sold unless the proceeds from such sale are at least equal
to the fair market value of the property sold;

         (4)      Guarantee, or otherwise become liable for the obligations of
any Person, except in respect of any undertakings as to the fees and expenses of
the Indenture Trustee, except endorsement for deposit of checks and other
negotiable instruments acquired in the ordinary course of business and except as
otherwise permitted in Section 8(b);

         (5)      Directly or indirectly embark on any new enterprise or
business activity not directly connected with the business of shipping or other
activity in which the Company is actively engaged;

         (6)      Enter into any merger or consolidation or convey, sell, demise
charter, or otherwise transfer, or dispose of any portion of its properties or
assets (any and all of which acts are encompassed within the words "sale" or
"sold" as used herein), provided that, the Company shall not be deemed to have
sold such properties or assets if (A) the Net Book Value (defined as the
original book value of an asset less depreciation calculated on a straight line
basis over its useful life) of the aggregate of all the assets sold by the
Company during any period of 12 consecutive calendar months does not exceed 10%
of the total Net Book Value of all the Company's assets (the assets which are
the basis for the calculation of the 10% of the Net Book Value are those
indicated on the most recent audited annual financial statement required to be
submitted pursuant to Section 9 hereof prior to the date of the sale); (b) the
Company retains the proceeds of the sale of assets for use in accordance with
the Company's regular business activities; and (C) the sale is not otherwise
prohibited by subsection 8(a)(3) above. Notwithstanding any other provision of
this subsection, the Company may not consummate such sale without the
Secretary's prior written consent if the Company has not, prior to the time of
such sale, submitted to the Secretary the financial statement in clause (A) of
this subsection, and any attempt to consummate a sale absent such approval shall
be null and void ab initio.

         (b)      Supplemental Covenants. Commencing with the First Calendar
Year of Vessel Operations and continuing thereafter unless, after giving effect
to such transaction or transactions during any fiscal year: (i) the Company's
debt-to-equity ratio does not exceed 2:1; (ii) upon completion of construction
of the Vessel and the First Calendar Year of Vessel Operation, the Company's
Minimum Cash Flow Ratio is not less than 1.0 to 1.0; and (iii) the Company has a
positive cash balance at all times, the Company shall not, without the
Secretary's prior written consent during any fiscal year of the Company after
completion of construction of the Vessel:

         (1)      Withdraw any capital;

                                       7
<PAGE>   8

         (2)      Redeem any share capital or convert any of the same into debt;

         (3)      Pay any dividend (except dividends payable in capital stock of
the Company);

         (4)      Make any loan or advance (except advances to cover current
expenses of the Company), either directly or indirectly, to any stockholder,
director, officer, or employee of the Company, or to any Related Party;

         (5)      Make any investments in the securities of any Related Party;

         (6)      Prepay in whole or in part any indebtedness to any
stockholder,  director,  officer or employee of the Company, or to any Related
Party;

         (7)      Increase any direct employee compensation (as hereinafter
defined) paid to any employee in excess of $100,000 per annum; nor increase any
direct employee compensation which is already in excess of $100,000 per annum;
nor initially employ or re-employ any person at a direct employee compensation
rate in excess of $100,000 per annum; provided, however, that beginning with
January 1, 2000, the $100,000 limit may be increased annually based on the
previous year's closing CPI-U (Consumer Price Index for All Urban Consumers
published by the Bureau of Labor Statistics). For the purpose of this section
the term "direct employee compensation" is the total amount of any wage, salary,
bonus, commission, or other form of direct payment to any employee from all
companies with guarantees under Title XI of the Act as reported to the Internal
Revenue Service for any fiscal year;

         (8)      Acquire any fixed assets other than those required for the
maintenance of the Company's existing assets, including the normal maintenance
and operation of any vessel or vessels owned or chartered by the Company;

         (9)      Either enter into or become liable (directly or indirectly)
under charters and leases (having a term of six months or more) for the payment
of charter hire and rent on all such charters and leases which have annual
payments aggregating in excess of $3,000,000;

         (10)     Pay any indebtedness subordinated to the Obligations or to any
other Title XI obligations;

         (11)     Create, assume, incur, or in any manner become liable for any
indebtedness, except current liabilities, or short term loans, incurred or
assumed in the ordinary course of business as such business presently exists;

         (12)     Make any investment, whether by acquisition of stock or
indebtedness, or by loan, advance, transfer of property, capital contribution,
guarantee of indebtedness or otherwise, in any Person, other than obligations of
the United States, bank deposits or investments in securities of the character
permitted for moneys in the Title XI Reserve Fund; or

                                       8
<PAGE>   9

         (13)     Create, assume, permit or suffer to exist or continue any
mortgage, lien, charge or encumbrance upon, or pledge of, or subject to the
prior payment of any indebtedness, any of its property or assets, real or
personal, tangible or intangible, whether now owned or hereafter acquired, or
own or acquire, or agree to acquire, title to any property of any kind subject
to or upon a chattel mortgage or conditional sales agreement or other title
retention agreement, except (i) loans, mortgages and indebtedness guaranteed by
the Secretary under Title XI of the Act or related to the construction of a
vessel approved for Title XI by the Secretary and (ii) liens incurred in the
ordinary course of business as such business presently exists.

Notwithstanding the requirements set forth in Section 8(b)(i) above, so long as
the Company is not in Default under the Security Agreement and Guarantor's
guarantee is in full force and effect, the Company will not be required to make
any Title XI Reserve Fund Deposits during the First Calendar Year of Vessel
Operation and the Second Calendar Year of Vessel Operation regardless of its
debt-to-equity ratio and, in the Third Calendar Year of Vessel Operation and the
Fourth Year of Vessel Operation unless its debt-to-equity ratio is in excess of
4.0 to 1.0.

         Notwithstanding the requirements in Section 8(b) above, so long as the
Shipowner is not in Default under the Security Agreement and the Guarantor's
guarantee is in full force and effect, the Shipowner may:

         (1)      Make advances, loans or other distributions to the Sister
Shipowner if the Sister Shipowner issues a guarantee of the Company's debt that
is in form and substance acceptable to the Secretary and said guarantee is in
full force and effect and the Sister Shipowner has not defaulted on its Security
Agreement;

         (2)      Make reimbursement or payments to the Guarantor and/ or Ocean
Development Co. with respect to administrative, operational and/or management
expenses incurred with respect to the Vessel;

         (3)      Make a distribution in form and substance satisfactory to the
Secretary to the Guarantor to be used for equity on an option vessel as provided
for in the shipbuilding contract relating to the Vessel, and the vessel being
constructed by the Sister Shipowner provided the Company has met its cash flow
test for the most recent reporting period, has a debt-to-equity ratio not in
excess of 4.0 to 1.0 until the sixth calendar year of vessel operation, and is
not in default on its Security Agreement; and

         (4)      Make advances to the Guarantor in accordance with the
Guarantor's cash management program provided such program has been approved by
the Secretary and any such advances are evidenced by a receivable from the
Guarantor, which receivable is due and payable to the Company at any time the
Company does not have adequate funds to meet its current obligations including
but limited to current obligations with respect to the Title XI debt.

                                       9
<PAGE>   10

         Section 9.

         (a)      Annual Financial Statements. The Company shall furnish to the
Secretary, in duplicate, (1) within 105 days after the end of each fiscal year
of the Company commencing with the first fiscal year ending after the date of
the Security Agreement, the Company's Audited Financial Statements including
balance sheet and income statement for such fiscal year along with a completed
M.A. Form 172 or such other form approved by the Secretary, and (2) within 90
days after the expiration of each semi-annual period of each fiscal year
commencing with the first such semi-annual period ending after the date of the
Security Agreement, a completed M.A. Form 172 or such other form approved by the
Secretary for such semi-annual period along with an Officer's Certificate
certifying its accuracy.

         (b)      Annual No Default Certificates. Within 105 days after the end
of each fiscal year of the Company, the Company shall furnish to the Secretary,
an Officer's Certificate dated as of the close of such fiscal year stating
whether or not, the Company is in default in the performance of or in default in
the compliance with any covenant, agreement or condition contained herein or in
the Mortgage, Security Agreement or charter relating to the Vessel listed in
Attachment A hereto, and if so, specifying each such default and stating the
nature thereof.

         Section 10. Qualifying Financial Requirements of the Company.

         The Company shall furnish an Officer's Certificate, dated the date
hereof, certifying that the Company has equity at least equal to the difference
between the Vessel's capitalizable cost and the Vessel's Title XI guaranteed
amount, that any other costs related to the Vessel are funded in the manner
established by the Funding Agreement, and that the Guaranty Agreement is in full
force and effect.

         Section 11. Notices. Except as otherwise provided in this Agreement,
notices, requests, directions, instructions, waivers, approvals or other
communication may be made or delivered in person or by registered or certified
mail, postage prepaid, addressed to the party as provided below, or to such
other address as such party may hereafter specify in a written notice to the
other parties named herein, and all notices or other communications shall be in
writing so addressed and shall be effective upon receipt by the addressee
thereof:

         The Secretary as:          SECRETARY OF TRANSPORTATION
                                    c/o Maritime Administrator
                                    Maritime Administration
                                    400 Seventh Street, S.W.
                                    Washington, D.C. 20590

         The Title XI Reserve
         Fund Depository as:        The Bank of New York
                                    101 Barclay Street
                                    New York, NY 10286
                                    Attention: Corporate Trust Administration

                                       10

<PAGE>   11

         The Company as:            Cape Cod Light, L.L.C.
                                    Robin Street Wharf
                                    1380 Port of New Orleans Place
                                    New Orleans, Louisiana 70130-1890

         Section 12. Amendments and Supplements. No agreement shall be effective
to amend, supplement, or discharge in whole or in part this Financial Agreement
unless such agreement is in writing signed by the parties hereto. Any
amendments, additions, deletions, substitutions or other changes no made in
accordance with this provision shall be invalid and of no effect.

         Section 13. Counterparts. This Financial 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 14. Governing Law. This Financial Agreement and the rights and
obligations of the parties hereto shall be governed by and construed in
accordance with U.S. maritime laws, to the extent applicable, and otherwise in
accordance with the laws of the State of New York.

                                       11
<PAGE>   12

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

                                                UNITED STATES OF AMERICA
                                                SECRETARY OF TRANSPORTATION

                                                BY:  MARITIME ADMINISTRATOR

                                                / s / Joel C. Richard
                                                --------------------------------
                                                Secretary

ATTEST:

/ s / Sarah J. Washington
----------------------------------
Assistant Secretary

<PAGE>   13

Shipowner:                  Cape Cod Light, L.L.C.

                            By:      DELTA QUEEN COASTAL VOYAGES, L.L.C.,
                                     its Managing Member

                                     By:      THE DELTA QUEEN STEAMBOAT CO.,
                                              its Managing Member

                                              By:      / S / JORDAN B. ALLEN
                                                 -------------------------------
                                                 Its Executive Vice President

ATTEST:

By       / s / Pam Stringer
   -----------------------------------------
   Its Assistant Secretary

<PAGE>   14

                                  ATTACHMENT A
                  TITLE XI RESERVE FUND AND FINANCIAL AGREEMENT
                             (Contract No. MA-13639)

         1.       This Financial Agreement shall apply to the Cape Cod Light.

         2.       The Company's aggregate original equity investment for use in
Section 2 for the Cape Cod Light is $5,704,526.

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