Document:

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                                                                  EXHIBIT 10 (w)

                                CREDIT AGREEMENT

                          dated as of October 29, 1999

                                      among

                              ROWAN COMPANIES, INC.
                                  as Shipowner

                               GOVCO INCORPORATED
                                as Primary Lender

                                 CITIBANK, N.A.
                               as Alternate Lender

                           CITIBANK INTERNATIONAL plc,
                                as Facility Agent

                                       and

                          CITICORP NORTH AMERICA, INC.
               as Administrative Agent for the Primary Lender and
               the commercial paper holders of the Primary Lender.

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                                TABLE OF CONTENTS

<TABLE>
<S>        <C>                                                                                         <C>
SECTION 1.  DEFINITIONS AND PRINCIPLES OF CONSTRUCTION...................................................2
   1.01      Defined Terms...............................................................................2
   1.02      Principles of Construction..................................................................2

SECTION 2.  THE CREDIT FACILITY..........................................................................2
   2.01      Amount......................................................................................2
   2.02      Availability................................................................................3
   2.03      Disbursements and Minimum Amount of Utilizations............................................3
   2.04      Relationship of Floating Rate Note and Fixed Rate Note......................................3
   2.05      Trigger Event...............................................................................3

SECTION 3.  DISBURSEMENT REQUIREMENTS....................................................................4
   3.01      Disbursement Procedures.....................................................................4

SECTION 4.  TERMS OF THE CREDIT..........................................................................4
   4.01      Principal Repayment.........................................................................4
   4.02      Interest Payment............................................................................4
   4.03      Prepayment..................................................................................6
   4.04      Recapture...................................................................................7
   4.05      Evidence of Debt............................................................................8
   4.06      Limit of United States Guarantee............................................................8

SECTION 5. CONDITIONS PRECEDENT..........................................................................8
   5.01      Conditions Precedent to Lenders' Obligations Under this Agreement...........................8
   5.02      Conditions Precedent to Each Disbursement..................................................10

SECTION 6. FEES AND EXPENSES............................................................................10
   6.01      Fees.......................................................................................10
   6.02      Taxes......................................................................................10
   6.03      Expenses...................................................................................11
   6.04      Additional or Increased Costs..............................................................12

SECTION 7.  PAYMENTS....................................................................................13
   7.01     Method of Payment...........................................................................13
   7.02      Application of Payments....................................................................14

SECTION 8.  REPRESENTATIONS AND WARRANTIES BY THE SHIPOWNER.............................................14
   8.01      Representations and Warranties of the Shipowner............................................14
   8.02      Agreements of the Shipowner................................................................17
</TABLE>

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<TABLE>
<S>         <C>                                                                                        <C>
SECTION 9.  CANCELLATION, SUSPENSION AND EVENTS OF DEFAULT..............................................18
   9.01      Cancellation...............................................................................18
   9.02      Events of Default..........................................................................18

SECTION 10.  GOVERNING LAW AND JURISDICTION.............................................................19
   10.01     Governing Law..............................................................................19
   10.02     Submission to Jurisdiction.................................................................19
   10.03     Waiver of Security Requirements............................................................20
   10.04     No Limitation..............................................................................20

SECTION 11.  MISCELLANEOUS..............................................................................20
   11.01     Computations...............................................................................20
   11.02     Notices....................................................................................20
   11.03     Disposition of Indebtedness................................................................22
   11.04     Disclaimer.................................................................................22
   11.05     No Waiver; Remedies Cumulative.............................................................22
   11.06     Currency...................................................................................23
   11.07     Severability...............................................................................23
   11.08     Amendment or Waiver........................................................................23
   11.09     Indemnification............................................................................23
   11.10     Benefit of Agreement.......................................................................24
   11.11     Waiver of Jury Trial.......................................................................24
   11.12     Execution in Counterparts..................................................................24
   11.13     Shipowner Documents........................................................................24
   11.14     Entire Agreement...........................................................................25
   11.15     No Proceedings.............................................................................25

SECTION 12.  ARRANGEMENTS AMONG THE AGENTS AND THE LENDERS..............................................25
   12.01     Appointment................................................................................25
   12.02     Rights of Facility Agent...................................................................25
   12.03     Duties.....................................................................................26
   12.04     Limitation on Obligations of Facility Agent................................................26
   12.05     Indemnification by Lenders.................................................................27
   12.06     Limitation on Responsibility...............................................................27
   12.07     No Claims on Employees of Facility Agent...................................................27
   12.08     Banking Business...........................................................................27
   12.09     Resignation or Termination of Facility Agent...............................................28
   12.10     Successor to Facility Agent................................................................28
   12.11     Discharge of Obligations...................................................................28
   12.12     Responsibilities of Lenders................................................................28
   12.13     Agency Division............................................................................29
   12.14     Administrative Agent.......................................................................29
   12.15     Facility Agent Only Agent for the Lenders..................................................29
</TABLE>

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Exhibits

         Exhibit 1         Schedule of Definitions

Annexes

         Annex A           Form of Disbursement Requests

                                      iii

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         THIS CREDIT AGREEMENT, dated as of October 29, 1999 is made by and
among ROWAN COMPANIES, INC., a Delaware corporation (the "Shipowner"), GOVCO
INCORPORATED, a Delaware corporation (the "Primary Lender"), CITIBANK, N.A., a
national banking association (the "Alternate Lender"), CITIBANK INTERNATIONAL
plc, a bank organized and existing under the laws of England, as facility agent
for both the Primary Lender and the Alternate Lender (and their respective
successors and assigns) with respect to the Floating Rate Note, and its
permitted successors and assigns (in such capacity, the "Facility Agent"), and
CITICORP NORTH AMERICA, INC., a Delaware corporation, as administrative agent
for the Primary Lender and the commercial paper holders of the Primary Lender
(and their respective successors and assigns) (in such capacity, together with
its permitted successors and assigns, the "Administrative Agent," and together
with the Facility Agent, the "Agents"). As used herein, the term "Lender" shall
mean either the Primary Lender or the Alternate Lender, as the case may be,
depending on which of the two parties made or will make the relevant
disbursement of funds under this Agreement; provided, however, that if the
Primary Lender assigns its rights under this Agreement to the Alternate Lender,
the term "Lender," as used herein, shall mean only the Alternate Lender. The
term "Lenders," as used herein, shall mean collectively the Primary Lender and
the Alternate Lender.

                                   BACKGROUND

WHEREAS:

         (A) by this Agreement, the Lenders have established a credit facility
(the "Credit Facility") in the amount of $185,398,000, pursuant to which the
Primary Lender may, in its discretion, subject to the terms and conditions
hereof, extend financing to the Shipowner (i) for the manufacture, construction,
fabrication, financing and purchase by the Shipowner of the Vessel; (ii) for the
payment of the related Construction Period Interest; and (iii) for the payment
of the Guarantee Fees; and if the Primary Lender chooses at any time not to
extend, or continue to extend, any such financing, then the Alternate Lender
shall, subject to the terms and conditions hereof, extend the undisbursed
portion of such financing;

         (B) the establishment of the Credit Facility is in reliance upon the
commitment of the United States to guarantee the payment of the unpaid interest
on, and the unpaid balance of the principal of, the Floating Rate Note,
including interest accruing between the date of an Indenture Default under the
Floating Rate Note and the payment in full of the Guarantee;

         (C) a condition to the Lenders' extension of the Credit Facility under
this Agreement is the Facility Agent's timely receipt of Certificates
Authorizing Disbursement and issuance of the Guarantee of the Floating Rate
Note;

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         (D) the Facility Agent will serve as facility agent for the benefit,
and on behalf, of each of the Lenders in connection with the Credit Facility,
this Agreement and the other related documents and the Administrative Agent will
act as an administrative agent for the Primary Lender and the Primary Lender's
commercial paper holders; and

         (E) the Credit Facility may be utilized by the Shipowner in accordance
with the terms and conditions of this Agreement.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:

         SECTION 1.  DEFINITIONS AND PRINCIPLES OF CONSTRUCTION

         1.01 Defined Terms. For the purposes of this Agreement, unless
otherwise defined herein, defined terms shall have the meanings specified in
Exhibit 1 hereto.

         1.02 Principles of Construction.

         (a) The meanings set forth for defined terms in this Agreement shall be
equally applicable to both the singular and plural forms of the terms defined.

         (b) Unless otherwise specified, all references in this Agreement to
Annexes or Exhibits are to Annexes or Exhibits in or to this Agreement.

         (c) The headings of the Sections in this Agreement are included for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Agreement.

         SECTION 2. THE CREDIT FACILITY

         2.01 Amount. The Lenders hereby establish the Credit Facility, upon the
terms and conditions set forth in this Agreement, in favor of the Shipowner in
the maximum amount of $185,398,000 (the "Credit Facility Amount"), to enable the
Shipowner to finance: (i) the manufacture, construction, fabrication, financing
and purchase of the Vessel; (ii) Construction Period Interest; and (iii) the
Guarantee Fees. The Primary Lender intends (but is not obligated) to fund the
Credit Facility through the issuance and sale of Commercial Paper to investors
which is exempt from the registration requirements of the United States
Securities Act of 1933, as amended. The Primary Lender may, at its option, elect
at any time not to fund the Credit Facility or the undisbursed portion thereof,
in which case the Alternate Lender will, subject to the terms and conditions
provided herein, be obligated to fund under the Credit Facility the amount (the
"Available Amount") which is equal to the excess, if any, of the Credit Facility
Amount over the outstanding principal amount evidenced by the Floating Rate
Note, plus the aggregate outstanding principal amount evidenced by Fixed Rate
Notes ("Outstanding Principal").

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         2.02 Availability. Disbursements under the Credit Facility may be made
once a calendar month and up to and including the Final Disbursement Date.
"Final Disbursement Date" shall mean the earliest of (x) April 20, 2002, (y)
upon the request of the Secretary, the date upon which the Trigger Event (as
defined in Section 2.05) shall occur or, (z) the date on which the Available
Amount under the Credit Facility is canceled in accordance with Section 9.01 or
reduced to zero.

         2.03 Disbursements and Minimum Amount of Utilizations. Upon
satisfaction of Sections 3.01, 5.01 and 5.02, disbursements shall be made by
advances from the Primary Lender or the Alternate Lender to the Shipowner
("Disbursements") in accordance with Section 3.01. Notwithstanding anything in
this Agreement to the contrary, the Shipowner may not request a Disbursement
under the Credit Facility for an amount (a) less than the smaller of (i)
$1,000,000 or (ii) the Available Amount or (b) more than the Available Amount.

         2.04 Relationship of Floating Rate Note and Fixed Rate Note.
Disbursements from the Credit Facility shall become the indebtedness of the
Shipowner to the Lenders under the Floating Rate Note. The Shipowner shall
convert indebtedness under the Floating Rate Note to indebtedness under one or
more Fixed Rate Notes no later than the earliest of (i) two years from the
Delivery Date, (ii) April 20, 2004, or (iii) at the request of the Secretary,
within fifteen (15) Business Days from the date upon which the Trigger Event
shall occur. At its option, and from time to time, the Shipowner may convert any
portion, or all, of the indebtedness of the Floating Rate Note to a Fixed Rate
Note or series of Fixed Rate Notes at any time during or after the construction
of the Vessel, so long as the conversion of the Floating Rate Note to the Fixed
Rate Note does not occur later than the earliest of (i) two years after the
Delivery Date, (ii) April 20, 2004 or (iii) at the request of the Secretary,
within fifteen (15) Business Days from the date upon which the Trigger Event
shall occur, and except for the final conversion or in the case of the Trigger
Event, each conversion is in a minimum amount of $50,000,000; and the Shipowner
shall have paid any amount payable under Section 4.04(a)(iv) or any other
provision hereof in connection therewith.

         2.05 Trigger Event. (a) The Shipowner shall, without prior notice or
demand from the Secretary, convert the outstanding indebtedness under the
Floating Rate Note to indebtedness under a fixed rate obligation with a Maturity
date of October 20, 2013 whenever the Treasury constant maturities rate (5-year)
as reported by the Federal Reserve Board in statistical release H.15 (519) (the
"Treasury Rate") equals or exceeds nine percent (9.0%) per annum (the "Trigger
Event"). If a Trigger Event should occur, the Shipowner shall convert the
Floating Rate Note to a fixed rate obligation, at the request of the Secretary,
within fifteen (15) Business Days of the Trigger Event.

         (b) The failure of the Shipowner to convert the Floating Rate Note and
Available Amount to a fixed-rate obligation within fifteen (15) Business Days
pursuant to this Section 2.05, unless subsequently waived in writing by the
Secretary, shall constitute an Indenture Default without further notice to the

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Shipowner or the Lenders being required under the Indenture or this Agreement.

         (c) The Shipowner covenants for the benefit of the Secretary that it
shall arrange for an independent reporting service or bank acceptable to the
Secretary to send the Secretary, the Facility Agent, and the Shipowner a written
interest rate report once a month on the first business day of every month
(until such time as the Floating Rate Note is converted to a fixed rate
obligation). This interest rate report shall specify the Treasury Rate as of the
date of the report.

         SECTION 3. DISBURSEMENT REQUIREMENTS

         3.01 Disbursement Procedures. Upon receipt by the Facility Agent of
each Certificate Authorizing Disbursement at least five (5) Business Days prior
to the proposed disbursement date, the Primary Lender may, and if the Primary
Lender elects not to, the Alternate Lender shall, disburse funds in accordance
with the terms of such Certificate Authorizing Disbursement to the Shipowner, or
the Shipowner's designee, subject to the terms of this Agreement and such
Certificate Authorizing Disbursement; provided that, if the Certificate
Authorizing Disbursement and the request for disbursement referred to therein do
not specify a disbursement date, then the disbursement date shall be the fifth
Business Day (or such earlier or later Business Day as is requested by the
Shipowner and is acceptable to the disbursing Lender) following the Facility
Agent's receipt of such Certificate Authorizing Disbursement. Promptly following
each Disbursement, the Facility Agent shall transmit to the Indenture Trustee a
copy of the Certificate Authorizing Disbursement, a confirmation that the
Disbursement was made, and a copy of Exhibit A to the Floating Rate Note,
updated to reflect such Disbursement and other intervening, related events.

         SECTION 4. TERMS OF THE CREDIT

         4.01 Principal Repayment. The Shipowner shall repay all Outstanding
Principal in twenty-four (24) approximately equal, successive semi-annual
installments, with each such installment to be payable on a Payment Date;
provided that, on the last Payment Date, the Shipowner shall repay in full the
remaining Outstanding Principal.

         4.02 Interest Payment.

         (a) On each Interest Payment Date, the Shipowner shall pay to the
Indenture Trustee, on behalf of the Person(s) entitled thereto, interest on the
Outstanding Principal, calculated at an interest rate per annum equal to the
Applicable Interest Rate therefor, as determined for each successive Interest
Period. The Indenture Trustee shall calculate the Applicable Interest Rate based
on information provided (i) by the Administrative Agent to the Facility Agent if
the Primary Lender is the Lender, or (ii) by the Facility Agent if the Alternate
Lender is the Lender. From time to time, the Administrative Agent or Facility
Agent will confirm CP Rate, LIBOR, Base Rate, and Applicable Interest Rate to
the Indenture Trustee. In the event that the Primary Lender assigns

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the financing of all or any portion of the amount outstanding under the Credit
Facility (whether or not evidenced by a Note) to the Alternate Lender or other
party, the interest rate on such amount shall be determined by the Facility
Agent (and the Facility Agent shall notify the Indenture Trustee thereof)
pursuant to clause (i) of the definition of Applicable Interest Rate for the
period prior to the effective date of such assignment and pursuant to clause
(ii) of such definition for all periods after such date.

         (b) The Shipowner shall pay to the Facility Agent, on behalf of the
Person(s) entitled to any Unpaid Amount, on demand, interest on such Unpaid
Amount (to the extent permitted by applicable law) for each Post Maturity Period
at an interest rate per annum equal to the sum (the "Post Maturity Interest
Rate") of (1) two percent (2%), plus (2) the Post Maturity Applicable Interest
Rate. With respect to any Unpaid Amounts, the "Post Maturity Applicable Interest
Rate" shall mean either (i) LIBOR on the Quotation Date therefor plus three
tenths of one percent (0.30%) per annum, or (ii) for any such Post Maturity
Period LIBOR cannot be determined the rate per annum reasonably determined by
the Person to whom such Unpaid Amount is owed before the last day of such Post
Maturity Period to be that which expresses as a percentage rate per annum the
cost which such Person would incur in funding such Unpaid Amount from whatever
source it reasonably deems appropriate for such Post Maturity Period plus three
tenths of one percent (0.30%) per annum, or (iii) if any such Unpaid Amount is
an Accelerated Repayment, then during the first Post Maturity Period the rate
which would have been applicable to such Unpaid Amount had it not so fallen due.
In the absence of an Indenture Default, any interest which shall have accrued
under this Section 4.02(b) in respect of an Unpaid Amount shall be due and
payable and shall be paid by the Shipowner on demand on such dates as the Person
to whom such Unpaid Amount is owed may specify by written notice to the
Shipowner, or if there is an Indenture Default, any interest which shall have
accrued under this Section 4.02(b) in respect of an Unpaid Amount shall be due
and payable immediately and shall be paid by the Shipowner without demand and
any payment by, or on behalf of, the Shipowner hereunder shall be governed by
Section 7.02 and the provisions of the last paragraph of Section 9.02.

         As used herein, "Unpaid Amount" means all or any part of principal,
accrued interest, fees or other amounts owing to the Lenders under this
Agreement or the Floating Rate Note which is not paid in full when and as due
and payable, whether at Stated Maturity, by acceleration or otherwise, or any
sum due and payable by the Shipowner to the Lenders under any judgment of any
court or arbitral tribunal in connection with this Agreement which is not paid
on the date of such judgment; provided, however, that it is agreed that Unpaid
Amount shall not include any part of the principal and interest on the Floating
Rate Note, except that Unpaid Amount shall include all such amounts thereof as
are not paid by the Shipowner as and when they are due but are paid by the
Shipowner prior to payment thereof by the Secretary. "LIBOR" shall mean, in
relation to any Post Maturity Period (other than the first Post Maturity Period
contemplated by clause (iii) of Section 4.02(b)), the rate of interest per annum
(rounded upward, if necessary, to the nearest 1/16 of 1%)

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last quoted by the principal London office of CITIBANK, N.A., prior to the close
of business at such London office on the Quotation Date for the offering to
leading banks in the London interbank market of U.S. Dollar deposits on an
overnight basis and in an amount comparable to the Unpaid Amount to which LIBOR
is to apply. "Accelerated Repayment" shall mean any part of the principal of the
Floating Rate Note that became due and payable on a day other than its Payment
Date. "Post Maturity Period" shall mean with respect to the period from the date
an Unpaid Amount was due until such amount shall have been paid in full, each
successive period, the first of which shall start on the date such Unpaid Amount
was due (or the date of any such judgment or arbitral award, if earlier) and
each other of which shall start on the last day of the preceding such period,
and the duration of each of which shall be one day, or if LIBOR applies, then
from and including the Quotation Date for such Post Maturity Period to but
excluding the next Quotation Date or such other duration selected by the Person
to whom such Unpaid Amount is due; provided, however, that in the case of any
Accelerated Repayment, the first such Post Maturity Period applicable thereto
shall be of a duration equal to the unexpired portion of its then applicable
Interest Period. "Quotation Date" in relation to any Post Maturity Period means
the day on which quotations would ordinarily be given by CITIBANK, N.A. in the
London interbank market for dollar deposits for delivery on the first day of
that period; provided, however, that if, for any such Post Maturity Period,
quotations would ordinarily be given on more than one date, the Quotation Date
for that period shall be the last of those dates.

         4.03 Prepayment. (a) The Shipowner may from time to time prepay on any
Interest Payment Date all or any part of the Outstanding Principal evidenced by
the Floating Rate Note, provided that: (i) any partial prepayment shall be in a
minimum principal amount of $10,000,000, unless otherwise required by the
Indenture; (ii) the Shipowner shall have given the Facility Agent and the
Indenture Trustee prior written notice of such prepayment (which shall be not
less than 40 nor more than 60 days); (iii) the Shipowner shall have paid in full
all amounts due under this Agreement as of the date of such prepayment,
including, without limitation, interest which has accrued to the date of
prepayment on the amount prepaid and all other amounts payable hereunder
relating to such prepayment; (iv) any amount prepaid hereunder (other than the
Outstanding Principal amount thereof prepaid through the issuance of Fixed Rate
Notes, the Outstanding Principal amount of which is subtracted from the Credit
Facility pursuant to the last sentence of Section 2.01) shall not be considered
part of the Available Amount; and (v) subject to Section 4.03(c), if the Lender
is the Primary Lender, the Shipowner shall pay to the Facility Agent, for the
benefit of the Primary Lender an amount equal to (x) the amount of yield that
the Primary Lender is required to pay to holders of its Commercial Paper during
the Liquidation Period (as defined below) on an amount of Commercial Paper
having an aggregate issue price equal to the amount of the Shipowner's
prepayment less (y) the amount of the estimated investment earnings, as
determined by the Facility Agent, on the prepayment amount during the
Liquidation Period. The "Liquidation Period" means the period from the date on
which a prepayment is made to the earliest date on which the Primary Lender's
total amount of Commercial Paper related to the

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funding of the Disbursements can be reduced (without prepayment thereof) by an
amount equal to the amount of the Shipowner's prepayment. Prepayments shall be
applied to the installments of principal of the Credit Facility in the inverse
order of their maturity, and, in cases where more than one Note is outstanding,
pro rata to each Note.

         (b) Upon delivery to the Shipowner and the Secretary of the instrument
satisfying and discharging the Indenture contemplated by Section 12.01 of the
Exhibit 1 to the Indenture, all of the Shipowner's indebtedness, liabilities and
obligations under this Agreement and the Fee Letter shall become immediately due
and payable without demand upon, or notice to, the Shipowner.

         (c) Notwithstanding any other provision to the contrary herein, the
Shipowner or the Secretary (after the Secretary's assumption of the Floating
Rate Note pursuant to Section 6.09 of Exhibit 1 to the Indenture) may from time
to time prepay all or any part of the principal amount of the Floating Rate Note
without any prepayment penalty or premium in accordance with Article III of
Exhibit 1 to the Indenture.

         (d) Notwithstanding any other provision to the contrary herein, the
Shipowner shall have the right to prepay any portion of the Floating Rate Note
and convert that Obligation to a Fixed Rate Note so long as it first obtains the
Secretary's consent to the interest rate applicable to the Fixed Rate Note and,
except for the final disbursement, such conversion equals or exceeds $50,000,000
principal; and the Shipowner shall have paid any amount payable under Section
4.04(a)(iv) or any other provision hereof in connection therewith.

         4.04 Recapture. (a) Upon the written request of the Facility Agent, the
Shipowner shall pay to the applicable Lender, such amounts as shall be
sufficient (in the reasonable judgment of such Lender) to compensate such Lender
for any loss, expense or liability (including, without limitation, any loss,
expense or liability incurred by reason of the liquidation or redeployment of
deposits from third parties or in connection with obtaining funds to make or
maintain any Disbursement) which such Lender reasonably determines is
attributable to:

         (i) any failure to make scheduled payments on a Payment Date or any
payment due in connection with any Redemption; or

         (ii) any failure by the Shipowner to borrow any advance for which a
Certificate Authorizing Disbursement has been issued; or

         (iii) any revocation of a notice of prepayment given pursuant to
Section 4.03(a); or

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         (iv) subject to the provisions of Section 4.03(c), any prepayment of
the Floating Rate Note (including, without limitation, due to the issuance of
any fixed rate notes) other than on an Interest Payment Date after giving five
Business Days prior written notice to such Lender, the Facility Agent, and the
Indenture Trustee.

         (b) Without prejudice to any other provision hereof (and at the
Shipowner's expense), such Lender shall use such reasonable efforts as it shall
determine in its sole discretion to minimize any loss, expense or liability to
the extent possible.

         4.05 Evidence of Debt. The Shipowner agrees that to evidence further
its obligation to repay all amounts disbursed under the Credit Facility, with
interest accrued thereon, it shall issue and deliver to the Facility Agent, in
accordance with the written instructions of the Facility Agent, the Floating
Rate Note. The Floating Rate Note shall (i) be in the form of Exhibit 2 to the
Indenture; (ii) bear the Secretary's Guarantee, and (iii) be valid and
enforceable as to its principal amount at any time only to the extent of the
aggregate amounts then disbursed and outstanding thereunder, and, as to
interest, only to the extent of the interest accrued thereon at the rate
guaranteed by the Secretary, with any interest in excess thereof being evidenced
by this Agreement.

         4.06 Limit of United States Guarantee. None of the interest, fees, and
expenses arising under Sections 4.03, 4.04 and 6 and none of the Indemnified
Amounts, commissions, Taxes, Other Taxes, Post Maturity Interest Rate, interest
in excess of 10.25% (or such higher rate as may be agreed from time to time by
the Secretary) (the "Cap Rate") under the Floating Rate Note, the costs of
obtaining any interest rate protection, or any other charges, costs, expenses,
or indebtedness owed by the Shipowner under this Agreement to any Person is
guaranteed by the United States. The Guarantee of the United States extends only
to the principal and interest owed under the Obligations and only to the extent
specified therein. The Cap Rate shall not apply to fixed-rate obligations.

         SECTION 5. CONDITIONS PRECEDENT

         5.01 Conditions Precedent to Lenders' Obligations Under this Agreement.
The obligations of the Lenders under this Agreement shall be subject to the
delivery to the Facility Agent of the documents indicated below on or before the
Closing Date:

         (a) This Agreement, the Floating Rate Note and the Fee Letter. This
Agreement and the Fee Letter, each fully executed by the parties thereto in form
and substance satisfactory to the Lenders, which shall be in full force and
effect and the Floating Rate Note shall have been fully executed by the
Shipowner, endorsed by, or on behalf of, the United States, and delivered to the
Facility Agent, and all amounts then payable under the Fee Letter shall have
been paid to the Person entitled thereto.

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         (b) Existence. Evidence in form and substance satisfactory to the
Lenders, that the Shipowner is duly organized, validly existing and in good
standing under the laws of the State of Delaware, with full power, authority and
legal right to own its property and to carry on its business as now conducted.

         (c) Authority. Evidence in form and substance satisfactory to the
Lenders, of the authority of the Shipowner to execute, deliver, perform and
observe the terms and conditions of this Agreement, the Floating Rate Note, the
Fee Letter, and the Indenture and evidence of authority (including specimen
signatures) for each Person who, on behalf of the Shipowner, signed this
Agreement, the Floating Rate Note, the Fee Letter, and the Indenture, or will
otherwise act as representatives of the Shipowner in the operation of the Credit
Facility.

         (d) Governmental and Other Authorizations. Copies, certified as true
copies by a duly authorized officer of the Shipowner, of each consent, license,
authorization or approval of, and exemption by, any Governmental Authority and
any governmental authorities within the United States or elsewhere, which are
necessary or advisable (i) for the execution, delivery, performance and
observance by the Shipowner of this Agreement, the Floating Rate Note, the Fee
Letter, and the Indenture; and (ii) for the validity, binding effect and
enforceability of this Agreement, the Floating Rate Note, the Fee Letter, and
the Indenture, or if none is necessary, a written certification from the
Shipowner that none is necessary.

         (e) Legal Opinions. (1) Opinion of legal counsel for the Shipowner
concerning this Agreement, the Floating Rate Note, the Fee Letter, and the
Indenture; (2) Opinion of the Chief Counsel of the Maritime Administration dated
the Closing Date, signed by or on behalf of such Chief Counsel, addressed to the
Lenders and the Agents to the effect that the Guarantees and the Authorization
Agreement have been or will be duly authorized, executed and delivered by the
United States of America, and constitute legal, valid, and binding obligations
of the United States of America enforceable in accordance with their respective
terms; and (3) Opinion of Mayer, Brown & Platt addressed to the Lenders, the
Agents, and the Indenture Trustee concerning this Agreement, the Fee Letter, the
Indenture and the Floating Rate Note.

         (f) Guarantee Commitment. A copy of the fully executed Guarantee
Commitment, which shall be in full force and effect until completion of the
Closing.

         (g) Authorization Agreement. The fully executed Authorization
Agreement, which shall be in full force and effect.

         (h) Indenture. The fully executed Indenture, which shall be in full
force and effect.

                                       9
<PAGE>   14

         5.02 Conditions Precedent to Each Disbursement. The agreement of the
Primary Lender to fund any Disbursement under this Agreement and any obligations
of the Alternate Lender to fund any Disbursement under this Agreement shall be
subject only to the Facility Agent's receipt of a Certificate Authorizing
Disbursement, upon which each such Lender may conclusively rely.

         SECTION 6. FEES AND EXPENSES

         6.01 Fees. The Shipowner shall pay or cause to be paid to the Person
entitled thereto such fees and other amounts as are set forth in that certain
Fee Letter (as amended, restated or otherwise modified from time to time with
the prior written consent of the Secretary, the "Fee Letter") dated as of
October 29, 1999 between the Shipowner and the Agents, in each case when and as
due.

         6.02 Taxes.

         (a) The Shipowner agrees to pay all amounts owing by it under this
Agreement or the Floating Rate Note free and clear of and without deduction for
any and all present and future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding in the case of
each Lender, taxes imposed on its income, and franchise taxes imposed on it in
lieu of income taxes, by either (i) the jurisdiction under the laws of which
such Lender is organized or any political subdivision thereof, or (ii) the
jurisdiction of such Lender's applicable lending office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings, and liabilities being hereinafter referred to as
"Taxes"). In addition, the Shipowner agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under the Floating Rate
Note or from the execution, delivery, or registration of, or otherwise with
respect to, this Agreement or the Floating Rate Note (hereinafter referred to as
"Other Taxes").

         (b) The Shipowner further agrees:

         (i) that, if the Shipowner is prevented by operation of law from paying
any such Taxes or Other Taxes, or if any such Taxes or Other Taxes are required
to be deducted or withheld, then the fees or expenses required to be paid under
this Agreement shall, on an after-tax basis, be increased by the amount
necessary to yield to the Lenders fees or expenses in the amounts provided for
in this Agreement after the provision for the payment of all such Taxes and
Other Taxes;

         (ii) that the Shipowner shall, at the request of any Lender or any
Agent, execute and deliver to such Lender or Agent, as the case may be, such
further instruments as may be necessary or desirable to effect the payment of
the increased amounts as provided for in subsection (i) above; provided,
however, that the Shipowner may not amend the Floating Rate Note without the
prior written consent of the Secretary;

                                       10
<PAGE>   15

         (iii) that the Shipowner shall hold the Lenders harmless from and
against the full amount of Taxes and Other Taxes (including, without limitation,
any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under
this Section 6.02) and any and all liabilities (including, without limitation,
penalties, interest and expenses) arising from, or with respect to, any Taxes or
Other Taxes (whether or not properly or legally asserted) and whether paid, or
payable, by the Shipowner, the Lenders, or any other Person;

         (iv) that, at the request of any Lender or any Agent, the Shipowner
shall provide such Lender or Agent within the later of thirty (30) calendar days
after such request or thirty (30) calendar days after the payment of such Taxes
or Other Taxes, a copy evidencing the payment of any Taxes or Other Taxes by the
Shipowner; and

         (v) that each payment under this Section 6.02 shall be made within
thirty (30) days from the date the Facility Agent on behalf of the applicable
Lender makes written demand therefor. Each demand for payment by such Lender
under Section 6.02(b)(v) for amounts paid or incurred by the Lenders or itself
shall be accompanied by a certificate (with accompanying documentation
supporting the demand) showing in reasonable detail the basis for the
calculation of the amounts demanded, which certificate, in the absence of
manifest error, shall be conclusive and binding for all purposes.

         Notwithstanding anything to the contrary contained herein, the
agreements in this Section 6.02 shall survive the termination of this Agreement
and the payment of the Floating Rate Note and all other amounts due hereunder.

         6.03 Expenses. The Shipowner agrees, whether or not the transactions
hereby contemplated shall be consummated, to pay, or reimburse the Agents and
the Lenders, respectively, promptly upon demand for the payment of all
reasonable and duly documented costs and expenses arising in connection with the
preparation, printing, execution, delivery, registration, implementation,
modification of or waiver or consent under this Agreement, the Floating Rate
Note or the Indenture, including, without limitation, the reasonable and duly
documented out-of-pocket expenses of the Agents and the Lenders (incurred in
respect of telecommunications, mail or courier service, travel and the like),
and the fees and expenses of counsel for the Agents and the Lenders. The
Shipowner shall also pay all of the costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by or charged to the
Agents or the Lenders in connection with the amendment or enforcement of this
Agreement, the Floating Rate Note or the Indenture or the protection or
preservation of any right or claim of the Agents or the Lenders arising out of
this Agreement, the Floating Rate Note or the Indenture.

                                       11
<PAGE>   16

         6.04 Additional or Increased Costs.

         (a) If, due to either (i) the introduction of or any change in or in
the interpretation of any law or regulation, or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
cost to any Lender of agreeing to make or making, funding or maintaining the
Disbursements or the Credit Facility, then the Shipowner shall from time to
time, upon demand by such Lender, pay to such Lender additional amounts
sufficient to compensate such Lender for such increased cost.

         (b) If any Lender determines that compliance with any law or regulation
or any guideline or request from any central bank or other governmental
authority (whether or not having the force of law) affects or would affect the
amount of capital required to be maintained by such Lender or any corporation
controlling such Lender and that the amount of such capital is increased by or
based upon the existence of such Lender's commitment to lend hereunder and other
commitments of this type, then, upon demand by such Lender, the Shipowner shall
immediately pay to the Facility Agent (for the benefit of such Lender), from
time to time as specified by the Facility Agent (on behalf of such Lender),
additional amounts sufficient to compensate such Lender or such corporation in
the light of such circumstances, to the extent that such Lender reasonably
determines such increase in capital to be allocable to the existence of its
commitment to lend hereunder.

         (c) Each Lender shall take such reasonable steps as it shall determine
to minimize amounts demanded under this Section 6.04; provided that no Lender
shall be obligated to take any actions under this Section 6.04 if such Lender
has determined, that such actions would cause it to incur any material costs or
expenses or would otherwise be disadvantageous to it in any material respect. In
the event that a Lender transfers the booking office of the Credit Facility or
the Floating Rate Note to minimize amounts demanded under this Section 6.04, any
costs and expenses incurred in such transfer shall be paid by the Shipowner on
demand by such Lender.

         (d) Each demand for payment by the Facility Agent (on behalf of any
Lender) under this Section 6.04 shall be accompanied by a certificate showing in
reasonable detail the basis for the calculation of the amounts demanded, which
certificate, in the absence of manifest error, shall be conclusive and binding
for all purposes.

         (e) The Facility Agent on behalf of each Lender shall notify the
Shipowner of any event occurring after the date of this Agreement which entitles
such Lender to compensation pursuant to this Section 6.04, as promptly as
practicable, and in any event within ninety (90) days after it has knowledge of
such event and has determined that a request for compensation hereunder shall be
made. The Shipowner shall not be obligated to reimburse any Lender for any loss
or cost incurred more than ninety (90) days prior to delivery of notice to the
Shipowner by the Lender requesting compensation under this Section 6.04.

                                       12
<PAGE>   17

         SECTION 7.  PAYMENTS

         7.01 Method of Payment.

         (a) (i) All payments to be made by the Shipowner under this Agreement
and the Floating Rate Note shall be made without set-off or counterclaim in
Dollars in immediately available and freely transferable funds no later than
11:00 A.M. (New York City time) on the date on which due. Except as provided in
Section 7.01(a)(ii), all payments to be made by the Shipowner or the Agents
hereunder shall be made to (A) the Primary Lender (for the account of Govco
Incorporated, its successors and assigns), (B) the Alternate Lender (for the
account of Citibank, N.A., its successors and assigns), (C) the Facility Agent
(for the account of Citibank International plc, its successors and assigns), (D)
the Administrative Agent (for the account of Citicorp North America, Inc., its
successors and assigns), or (E) any other Lender (for the account of such
Lender, its successors and assigns), in each case to the Facility Agent (for the
account of Citibank International plc, its successors and assigns) at Citibank,
N.A., 399 Park Avenue, New York, New York 10043, DDA. Account No. 10963054,
Attn: Loans Agency. Upon receipt thereof by the Facility Agent, the Facility
Agent shall forthwith forward such funds to the party entitled thereto pursuant
to the written instructions provided by such party to the Facility Agent in
accordance with Section 11.02.

                  (ii) The Shipowner shall pay the principal and the guaranteed
amount of the Applicable Interest Rate on the Floating Rate Note to the
Indenture Trustee and all other amounts due under this Agreement directly to the
Person entitled thereto, in each case, by wire transfer in same day and
immediately available and freely transferable funds. Wire transfer instructions
shall be provided to the Shipowner. Until further notice, wire instructions for
the Indenture Trustee are as follows: Allfirst Trust Company, National
Association, ABA #052000113, Credit Trust Receipts, A/C #090-02-764, Re: Rowan
Companies. Inc., Attention Donald Hargadon, extension 4224.

         (b) Except as otherwise provided herein, whenever any payment would
otherwise fall due on a day that is not a Business Day, the due date for payment
shall be the immediately succeeding Business Day, and interest and fees shall be
computed in accordance with Section 11.01.

         (c) Whenever a sum is required to be paid to the Facility Agent under
this Agreement for the account of another Person, the Facility Agent shall not
be obligated to make such sum available to such other Person unless and until
the Facility Agent shall have established to its satisfaction that is has
actually received payment of such sum. Notwithstanding the foregoing, unless it
has received actual notice to the contrary, the Facility Agent may (but shall
not be obligated to) assume on the date of any Disbursement or any other payment
required to be made by any Lender hereunder that such Lender has made available
to the Facility Agent such Disbursement or other payment and the Facility Agent
may (but shall not be required to) make available to the Shipowner on such date
a corresponding amount in reliance upon such

                                       13
<PAGE>   18

assumption. Additionally, the Facility Agent may (but shall not be obligated to)
assume on the date of any payment required to be made by the Shipowner hereunder
that the Shipowner has made available to the Facility Agent such payment and the
Facility Agent may (but shall not be required to) make available to the Lenders
on such date a corresponding amount in reliance upon such assumption. If and to
the extent that either (i) the Lender shall not in fact have made such
Disbursement or other payment available to the Facility Agent and the Facility
Agent has made available a corresponding amount to the Shipowner in reliance on
the above-described assumptions or (ii) the Shipowner has not in fact made such
payment and the Facility Agent has made available a corresponding amount to the
Lender in reliance on the above-described assumptions, then, in either such
case, such Lender agrees to repay to the Facility Agent forthwith on demand such
corresponding amount together with an amount sufficient to indemnify the
Facility Agent against any cost or loss it may have suffered or incurred by
reason of its having paid out such sum prior to receipt thereof.

         7.02 Application of Payments. In the absence of an Indenture Default,
the Lenders shall each apply payments received by them under this Agreement and
the Floating Rate Note (whether at Stated Maturity, by reason of acceleration,
prepayment or otherwise), in the following order of priority: (i) interest due
pursuant to Section 4.02(a); (ii) installments of principal due; (iii) interest
due pursuant to Section 4.02(b) other than the amount described in clause (i)
above; (iv) all amounts due under the Fee Letter; and (v) all other amounts due
under this Agreement and not otherwise provided for in this Section 7.02. Upon
the occurrence of an Indenture Default, the Lenders shall each hold any payments
they receive after an Indenture Default from, or on behalf of, the Shipowner
under this Agreement, the Fee Letter and any related agreement (excluding the
Floating Rate Note) and shall promptly deliver such payments to the Secretary if
the Secretary has been required to honor a Guarantee as a result of said
Indenture Default. All such amounts received during an Indenture Default and
delivered to the Secretary in accordance with the preceding sentence shall be
applied first to pay, satisfy and discharge all amounts owed by the Shipowner to
the Secretary under the Secretary's Note and the Mortgage and then to pay,
satisfy and discharge any and all amounts owed to the Lenders or the Agents.

SECTION 8.  REPRESENTATIONS AND WARRANTIES BY THE SHIPOWNER

         8.01 Representations and Warranties of the Shipowner. The Shipowner
represents and warrants to the Agents and the Lenders that, as of the Closing
Date:

         (a) Existence and Authority. The Shipowner is duly organized, validly
existing under the laws of the State of Delaware, is in good standing under the
laws of the State of Delaware, has been duly qualified to do business in, and is
in good standing as a foreign corporation in each jurisdiction in which the
conduct of its business or the ownership of its properties requires it to be so

                                       14
<PAGE>   19

qualified, and has full power, authority and legal right to own its properties
and conduct its business as it is presently now conducted.

         The Shipowner has full power, authority and legal right (i) to execute
and deliver this Agreement, the Floating Rate Note and the Indenture, (ii) to
perform and observe the terms and provisions of each of said documents to be
performed or observed by it, (iii) to consummate the transactions contemplated
thereby and (iv) to own its properties (including, without limitation, the
Vessel owned or to be owned by it) and conduct its business as presently
conducted.

         (b) Government and Other Authorizations. All consents, licenses,
authorizations and approvals of, and exemptions by, any Governmental Authority
and any governmental authorities within the United States or elsewhere and any
other Persons that are necessary or advisable: (i) for the execution, delivery,
performance and observance by the Shipowner of this Agreement, the Floating Rate
Note, and the Indenture; and (ii) for the validity, binding effect and
enforceability of this Agreement, the Floating Rate Note, and the Indenture have
been obtained and are in full force and effect.

         (c) Restrictions. The execution, delivery and performance or observance
by the Shipowner of the terms of, and consummation by the Shipowner of the
transactions contemplated by, this Agreement, the Floating Rate Note, and the
Indenture do not and will not conflict with or result in a breach or violation
of: (i) the charter, by-laws or other organizational documents of the Shipowner;
(ii) any federal or state law of the United States or any other ordinance,
decree, constitutional provision, regulation or other requirement of any
Governmental Authority (including, without limitation, any restriction on
interest that may be paid by the Shipowner); or (iii) any order, writ,
injunction, judgment or decree of any court or other tribunal. Further, the
execution, delivery and performance or observance by the Shipowner of the terms
of, and consummation by the Shipowner of the transactions contemplated by, this
Agreement, the Floating Rate Note, and the Indenture does not and will not
conflict with or result in a breach of any agreement or instrument to which the
Shipowner is a party, or by which it or any of its revenues, properties or
assets may be subject, or result in the creation or imposition of any Lien upon
any of the revenues, properties or assets of the Shipowner pursuant to any such
agreement or instrument. "Lien" shall mean any lien, lease, mortgage, pledge,
hypothecation, preferential arrangement relating to payments, or other
encumbrance or security interest.

         (d) Binding Effect. This Agreement, the Floating Rate Note, and the
Indenture, which have been executed on or before the date hereof, have been duly
executed and delivered by the Shipowner. Each of the Agreement, the Floating
Rate Note, and the Indenture constitutes, and each of the Agreement, the
Floating Rate Note, and the Indenture as it may hereafter be amended will
constitute, a direct, general and unconditional obligation of the Shipowner
which is legal, valid and binding upon the Shipowner and enforceable against the
Shipowner in accordance with its respective terms. All obligations evidenced by
the Floating Rate Note will be entitled to the benefits of the Guarantees and
the Authorization Agreement.

                                       15
<PAGE>   20

         (e) Choice of Law. Under applicable conflict of laws principles, the
choice of law provisions of this Agreement, the Floating Rate Note and the
Indenture are valid, binding and not subject to revocation by the Shipowner. In
any proceedings brought for enforcement of this Agreement, the Indenture or the
Floating Rate Note, the choice of the law of the State of New York as the
governing law of such documents will be recognized and such law will be applied.

         (f) Legal Proceedings. No legal proceedings are pending or, to the best
of the Shipowner's knowledge, threatened before any court or governmental agency
which might: (i) materially and adversely affect the Shipowner's financial
condition, business or operations; (ii) restrain or enjoin or have the effect of
restraining or enjoining the performance or observance of the terms and
conditions of any of this Agreement, the Indenture or the Floating Rate Note; or
(iii) in any other manner question the validity, binding effect or
enforceability of any of the provisions of this Agreement, the Indenture or the
Floating Rate Note.

         (g) Use of the Vessel. The Vessel will be used for lawful purposes.

         (h) Shipowner Financial Statements. The Shipowner Financial Statements
present fairly the financial condition of the Shipowner at the date of such
statements and the results of the operations of the Shipowner for such fiscal
year. The Shipowner Financial Statements have been prepared in accordance with
generally accepted accounting principles in the United States consistently
applied. Except as fully reflected in the Shipowner Financial Statements, there
are no liabilities or obligations with respect to the Shipowner of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether or
not due) for the period to which the Shipowner Financial Statements relate that,
either individually or in the aggregate, would be material to the Shipowner.
Since the date of the most recent audited Shipowner Financial Statements, there
has been no material adverse change in the financial condition, business
prospects or operations of the Shipowner. "Shipowner Financial Statements" shall
mean the financial statements of the Shipowner furnished to the Facility Agent
prior to the date of this Agreement.

         (i) No Taxes. There is no Tax imposed on or in connection with: (i) the
execution, delivery or performance of this Agreement, the Indenture or the
Floating Rate Note; (ii) the enforcement of this Agreement, the Indenture or the
Floating Rate Note; or (iii) on any payment to be made to any Lender under this
Agreement or the Floating Rate Note.

         (j) Laws. None of this Agreement, the Indenture, the Floating Rate
Note, the transactions contemplated thereunder nor any Person party to this
Agreement, the Indenture or the Floating Rate Note is required to qualify under
the Trust Indenture Act or register or qualify under any securities law.

         (k) Defaults. No Event of Default has occurred and is continuing and no
event or circumstance has occurred and is continuing which with the

                                       16
<PAGE>   21

passage of time, the giving of notice or both would constitute an Event of
Default.

         8.02 Agreements of the Shipowner. The Shipowner agrees that until all
amounts owing under this Agreement and the Floating Rate Note have been paid in
full, the Shipowner will, unless the Agents and the Lenders shall have consented
in writing:

          (a) Interest Rate Protection. At all times that (1) a Floating Rate
     Note exists and (2) the Applicable Interest Rate is equal to or greater
     than the Cap Rate less 0.5%, the Shipowner (at its expense) within ten (10)
     Business Days thereafter, shall (A) enter into, and thereafter maintain in
     full force and effect, an amortizing interest rate cap agreement with a
     strike price providing for a cap based on the Applicable Interest Rate not
     in excess of the Cap Rate per annum and otherwise acceptable to the
     Lenders, with a counterparty rated "AA" or better by any of the rating
     agencies that rate the Commercial Paper issued by the Primary Lender or
     such other counterparty reasonably acceptable to the Lenders, covering the
     Floating Rate Note and based on the expected amortization schedule of such
     Note, and (B) execute such documents and instruments as may be necessary,
     or in the opinion of the Facility Agent desirable, to effect the assignment
     of its rights thereunder to the Facility Agent for the benefit of the
     Lenders and, if any payments are made under any Guarantee, the Secretary,
     in every case with such terms as are reasonably acceptable to the Facility
     Agent for the protection of the Lenders. If the Shipowner fails to satisfy
     the requirements of this Section 8.02(a) within the ten (10) Business Days
     set forth above, the Facility Agent may (in its sole discretion) and if the
     Facility Agent so elects, the Shipowner hereby authorizes and directs the
     Facility Agent to, satisfy the requirements of this Section 8.02(a), all at
     the expense of the Shipowner, due on demand.

          (b) Notice of Defaults. Promptly, but in no event later than ten (10)
     days after the occurrence of an Indenture Default or an Event of Default of
     which the Shipowner has knowledge, notify the Facility Agent and the
     Indenture Trustee of any report required by the Shipowner Documents (or any
     other document entered into by the Shipowner in connection therewith), and
     send a copy thereof to the Facility Agent, in each case by facsimile or
     hand delivery.

          (c) Financial Reports. Beginning with the fiscal year in which this
     Agreement is executed and continuing until all amounts owing under this
     Agreement and the Floating Rate Note have been paid in full, the Shipowner
     shall furnish to the Facility Agent (and the Facility Agent, upon receipt
     thereof, shall furnish to each Lender and the Administrative Agent) a copy
     of all financial reports furnished to the Secretary pursuant to the Title
     XI Reserve Fund and Financial Agreement.

          (d) Other Acts. From time to time, do and perform any and all acts and
     execute any and all documents as may be necessary or as reasonably
     requested by the Facility Agent or the Indenture Trustee in order to effect
     the purposes of this Agreement and to protect the interests of the

                                       17
<PAGE>   22

     Lenders in the Floating Rate Note and the interests of the Lenders in the
     Guarantees.

          (e) Use of Proceeds. Use proceeds from each Disbursement solely to
     finance: (i) the manufacture, construction, fabrication, financing and
     purchase of the Vessel; (ii) Construction Period Interest; and (iii) the
     Guarantee Fees. Use the proceeds from the issuance of any Fixed Rate Notes
     to repay amounts owed under the Floating Rate Note or to finance: (i) the
     manufacture, construction, fabrication, financing and purchase of the
     Vessel; (ii) Construction Period Interest; and (iii) the Guarantee Fees.

          (f) Successors. Require that any successor to all or substantially all
     of its business as a result of any merger or consolidation with any other
     entity, dissolution or termination of legal existence, sale, lease,
     transfer or other disposal of any substantial part of its properties or any
     of its properties essential to the conduct of its business or operations,
     as now or hereafter conducted, any change in control, any agreement to do
     any of, or any combination of, the foregoing, to assume all of the
     Shipowner's indebtedness, liabilities and obligations under this Agreement,
     the Indenture and the Floating Rate Note.

         SECTION 9. CANCELLATION, SUSPENSION AND EVENTS OF DEFAULT

         9.01 Cancellation. The Shipowner may cancel at any time all or any part
of the Available Amount of the Credit Facility, provided that (i) thirty (30)
days' prior irrevocable written notice is given to the Agents, the Indenture
Trustee, and the Secretary and (ii) the Shipowner shall have paid to the Lenders
any commitment fees accrued and unpaid under Section 6.01 and all other amounts
due and payable under this Agreement and the Floating Rate Note as of the
proposed date of cancellation. In the absence of an Indenture Default, the
Lenders may not for any reason cancel at any time any part of the Available
Amount of the Credit Facility.

         9.02 Events of Default. Upon the occurrence of any of the following
events or conditions (each, an "Event of Default"):

          (a) any failure by the Shipowner to pay when and as due any amount
     owing under this Agreement, but which is not guaranteed by the Secretary;
     or

          (b) any failure by the Shipowner to comply with its obligations under
     Section 8.02(b) or 8.02(e); or any failure by the Shipowner to perform or
     comply with any of its agreements set forth in this Agreement (exclusive of
     any events specified as an Event of Default in any other subsection of this
     Section 9.02 and exclusive of Section 8.02(a)), which failure, if capable
     of being cured, remains uncured for a period of thirty (30) days after
     written notice thereof has been given to the Shipowner by the Facility
     Agent; or

          (c) the Shipowner shall be unable to pay its debts when and as they
     fall due or shall admit in writing its inability to pay its debts as they

                                       18
<PAGE>   23

     fall due or shall become insolvent; or the Shipowner shall apply for or
     consent to the appointment of any liquidator, receiver, trustee or
     administrator for all or a substantial part of its business, properties,
     assets or revenues; or a liquidator, receiver, trustee or administrator
     shall be appointed for the Shipowner and such appointment shall continue
     undismissed, undischarged or unstayed for a period of thirty (30) days, or
     the Shipowner shall institute (by petition, application, answer, consent or
     otherwise) any bankruptcy, arrangement, readjustment of debt, dissolution,
     liquidation or similar executory or judicial proceeding; or a bankruptcy,
     arrangement, readjustment of debt, dissolution, liquidation or similar
     executory or judicial proceeding shall be instituted against the Shipowner
     and shall remain undismissed, undischarged or unstayed for a period of
     thirty (30) days; or

          (d) an Indenture Default has occurred;

     then, and in any such event, and at any time thereafter, if such event is
     continuing, and if there is no Indenture Default (or if there is an
     Indenture Default, only after the Secretary has received all payments due
     under the Secretary's Note and the Mortgage), any Agent or any Lender (by
     written notice to the Shipowner), shall have the right to institute any
     judicial or other proceedings under this Agreement to recover all amounts
     owing under this Agreement. The Lenders agree that so long as an Indenture
     Default exists, all amounts received during such period from, or on behalf
     of, the Shipowner shall be applied in the manner set forth in Section 7.02.
     Notwithstanding an Event of Default, the Lenders may not terminate the
     Available Amount of the Credit Facility without the Secretary's consent;
     provided, however, that the Shipowner's use of the Available Amount of the
     Credit Facility shall remain subject to the requirements of Sections 2.02,
     3.01, and 5.02. Except as expressly provided above in this Section 9.02,
     presentment, demand, protest and all other notices of any kind are hereby
     expressly waived. Notwithstanding any other provision of this Agreement, if
     Section 9.02(c) is applicable, the Lender may file appropriate claims in
     connection therewith, but shall apply any funds collected as a consequence
     of said filings in accordance with the provisions of Section 7.02 of this
     Agreement.

         SECTION 10. GOVERNING LAW AND JURISDICTION

         10.01 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

         10.02 Submission to Jurisdiction. Each of the Shipowner and the Lenders
hereby irrevocably agrees that any legal suit, action or proceeding arising out
of or relating to this Agreement, or any of the transactions contemplated
hereby, may be instituted by the other parties hereto in the Courts of the State
of New York or the Federal Courts sitting in the Borough of Manhattan, City of
New York, State of New York. Each of the Shipowner and the Lenders hereby
irrevocably waives, to the fullest extent permitted by law,

                                       19
<PAGE>   24

any objection which it may have now or hereafter to the laying of the venue or
any objection based on forum non conveniens, or based on the grounds of
jurisdiction with respect to any such legal suit, action or proceeding and
irrevocably submits generally and unconditionally to the jurisdiction of any
such court in any such suit, action or proceeding. Each of the Shipowner and the
Lenders agrees that a judgment, after exhaustion of all available appeals, in
any such action or proceeding shall be conclusive and binding upon it and may be
enforced in any other jurisdiction by suit upon such judgment, a certified copy
of which shall be conclusive evidence of the judgment. Each of the Shipowner and
the Lenders waives personal service of any summons, complaint, or other process,
which service may be made by such or any other means permitted by New York law.

         10.03 Waiver of Security Requirements. To the extent the Shipowner may,
in any action or proceeding arising out of or relating to this Agreement be
entitled under applicable law to require or claim that the Agents or the Lenders
post security for costs or take similar action, the Shipowner hereby irrevocably
waives and agrees not to claim the benefit of such entitlement.

         10.04 No Limitation. Nothing in this Section 10 shall affect the right
of the Agents or any Lender to serve process in any manner permitted by law or
to commence legal proceedings or otherwise proceed against the Shipowner in any
jurisdiction; provided, however, that except as provided in Section 9.02, in the
event of an Indenture Default, the Agents and the Lenders may not proceed
against the Shipowner without the Secretary's consent unless the Secretary has
received full payment under the Secretary's Note.

         SECTION 11. MISCELLANEOUS

         11.01 Computations. Each determination of an interest rate by the
Administrative Agent or the Facility Agent, or any other Person pursuant to any
provision of this Agreement, the Fee Letter or the Floating Rate Note, in the
absence of error, shall be conclusive and binding on the Shipowner. Each
determination of a fee or other amounts (excluding interest rates) by the
Facility Agent, any Lender, or any other Person pursuant to any provision of
this Agreement, the Fee Letter or the Floating Rate Note, in the absence of
manifest error, shall be conclusive and binding on the Shipowner. All
computations of interest and fees hereunder and under the Floating Rate Note
shall be made on the basis of a year of three hundred sixty-five (365) days and
actual days elapsed; provided, however, that the CP Rate and LIBOR shall be
determined on the basis of a year of 360 days and actual days elapsed. The
Secretary and Indenture Trustee may request supporting documentation for the
information provided by the Facility Agent or the Administrative Agent to the
Indenture Trustee.

         11.02 Notices. Except as otherwise specified, all notices given
hereunder shall be in writing, and shall be given by mail, facsimile, telex or
personal delivery and shall be deemed to be given for the purposes of this
Agreement on the day that such notice is received by the intended recipient
thereof. Unless otherwise specified in a notice delivered in accordance with

                                       20
<PAGE>   25

this Section 11.02, all notices shall be delivered to the parties hereto and to
the Indenture Trustee and the Secretary at their respective addresses indicated
below:

         To the Facility Agent and the Lenders:

         Address:   Citibank International plc, as Facility Agent
                    P.O. Box 242
                    336 Strand
                    London, England WC2R  1HB
         Attention: Loans Agency
         Telephone: 01144171500 4242/1415
         Facsimile: 01144171500 4482/4484

         With a copy to:

                    Citibank, N.A., as the Alternate Lender
                    399 Park Avenue
                    New York, New York 10043
         Attention: Structured Trade Finance
         Facsimile: (212) 793-2330
         Telephone: (212) 559-6787

         With a copy to the Administrative Agent

         To the Administrative Agent

         Address:   Citicorp North America, Inc.
                    399 Park Avenue
                    New York, New York 10043
         Attention: Structured Trade Finance
         Facsimile: (212) 793-2330
         Telephone: (212) 559-6787

         To the Shipowner

         Address:   ROWAN COMPANIES, INC.
                    Suite 5450
                    2800 Post Oak Boulevard
                    Houston, Texas 77056
         Attention: Chief Financial Officer
         Telephone: (713) 960-7686
         Facsimile: (713) 960-7660

                                       21
<PAGE>   26

         To the Secretary

         Address:   SECRETARY OF TRANSPORTATION
                    c/o Maritime Administrator
                    400 Seventh Street, S.W.
                    Washington, D.C.  20590
         Attention: Office of Ship Finance
         Telephone: (202) 366-5744
         Facsimile: (202) 366-7901

         To the Indenture Trustee

         Address:   Allfirst Trust Company, National Association
                    Mail Code 101-591
                    25 South Charles Street
                    Baltimore, Maryland  21201
         Attention: Mr. Donald Hargadon
         Telephone: (410) 244-4224
         Facsimile: (410) 244-4236

         11.03 Disposition of Indebtedness. Once the Shipowner has completely
drawn down on the Credit Facility and the Available Amount is zero, each Lender
may sell, assign, transfer, negotiate, or otherwise dispose of all or any part
of its interest in all or any part of the Shipowner's indebtedness under this
Agreement and the Floating Rate Note to any party (collectively, a "Disposition
of Indebtedness"), and any such party shall enjoy all the rights and privileges
of such Lender under this Agreement and the Floating Rate Note; provided,
however, that each Disposition of Indebtedness to any Person other than a
domestic Affiliate of a Lender shall require the prior written consent of the
Shipowner (which consent shall not be unreasonably withheld or delayed);
provided, further, however, that each Lender may pledge or grant participation
in all or any part of its interest in all or any part of the Shipowner's
indebtedness under this Agreement and the Floating Rate Note to any party at any
time so long as such Lender's commitment to lend the Available Amount under this
Agreement is not affected thereby. The Shipowner shall, at the request of the
Facility Agent, execute and deliver to the Facility Agent or to any party that
the Facility Agent may designate, any such further instruments as may be
necessary or desirable to give full force and effect to a Disposition of
Indebtedness by the applicable Lender.

         11.04 Disclaimer. Neither the Agents nor the Lenders shall be
responsible in any way for the performance of the Construction Contract or any
other Shipowner Document, and no claim against the Shipbuilder or any other
Person with respect to the performance of the Construction Contract will affect
the obligations of the Shipowner under this Agreement or the Floating Rate Note.

         11.05 No Waiver; Remedies Cumulative. No failure or delay on the part
of any Agent or any Lender in exercising any right, power or privilege under
this Agreement, the Floating Rate Note or the Indenture and no course of

                                       22
<PAGE>   27

dealing between or among the Shipowner and any Agent or any Lender shall operate
as a waiver of the rights of the Shipowner and such Lenders against each other
under this Agreement; nor shall any single or partial exercise of any right,
power or privilege hereunder or under the Floating Rate Note or the Indenture
preclude the Shipowner, the Agents, or the Lenders from exercising against each
other any other right, power or privilege hereunder. The rights and remedies
expressly provided herein are cumulative and not exclusive of any rights or
remedies that the Agents or the Lenders would otherwise have. No notice to or
demand on the Shipowner in any case shall entitle the Shipowner to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of any Agent or any Lender under this Agreement to any
other or further action in any circumstances without notice or demand.
Notwithstanding any other provision to the contrary herein, no provision in this
Agreement or any other related agreement preserves any rights in favor of the
parties against the Secretary in the event that either party fails or delays to
exercise any rights, powers, or privileges under this Agreement, the Floating
Rate Note or the Indenture or engages in any particular course of dealing.

         11.06 Currency. All payments of principal, interest, fees or other
amounts due hereunder and under the Floating Rate Note shall be made in Dollars,
regardless of any law, rule, regulation or statute, whether now or hereafter in
existence or in effect in any jurisdiction, which affects or purports to affect
such obligations.

         11.07 Severability. To the extent permitted by applicable law, the
illegality or unenforceability of any provision of this Agreement shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement.

         11.08 Amendment or Waiver. This Agreement may not be changed,
discharged or terminated without the written consent of the parties hereto, and
no provision hereof may be waived without the written consent of the party to be
bound thereby. There may be no change, discharge, termination or claim of waiver
of the terms of this Agreement without the prior written consent of the
Secretary, who is entitled to enforce his rights under this Agreement as an
intended third party beneficiary to this Agreement. The parties hereto
acknowledge, however, that nothing in this Agreement creates in either the
Shipowner or the Lenders any right whatsoever against the Secretary.

         11.09 Indemnification. Without limiting any other rights that any Agent
or any Lender may have hereunder or under applicable law, the Shipowner hereby
agrees to indemnify each of the Agents and the Lenders (each, an "Indemnified
Party") from and against any and all damages, losses, claims, liabilities and
related costs and expenses, including reasonable attorneys' fees and
disbursements (all the foregoing being collectively referred to as "Indemnified
Amounts") awarded against or incurred by such Indemnified Party arising out of
or as a result of this Agreement or the Floating Rate Note excluding, however,
Indemnified Amounts to the extent resulting from gross negligence or willful
misconduct on the part of such Indemnified Party. In the

                                       23
<PAGE>   28

event of an Indenture Default, all amounts received by such Indemnified Party
pursuant to such indemnification after an Indenture Default shall be held and
paid in the manner required by Section 7.02.

         11.10 Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, that the Shipowner may not
assign any of its rights or obligations hereunder without the prior written
consent of the Lenders, and, to the extent set forth in paragraph 11.03 hereof,
the Secretary.

         11.11 Waiver of Jury Trial. Each of the Shipowner and the Lenders
waives its respective rights to a trial by jury of any claim or cause of action
based upon or arising out of or related to this Agreement, any assignment or the
transactions contemplated hereby, in any action, proceeding or other litigation
of any type brought by any party against the other parties, whether with respect
to contract claims, tort claims, or otherwise. Each of the Shipowner and the
Lenders agrees that any such claim or cause of action shall be tried by a court
trial without a jury. Without limiting the foregoing, the parties further agree
that their respective right to a trial by jury is waived by operation of this
section as to any action, counterclaim or other proceeding which seeks, in whole
or in part, to challenge the validity or enforceability of this Agreement, any
assignment or any provision hereof or thereof. This waiver shall apply to any
subsequent amendments, renewals, supplements or modifications to this Agreement
or any assignment.

         11.12 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement. Delivery of an executed counterpart of a signature page to this
Agreement by facsimile shall be effective as delivery of a manually executed
counterpart of this Agreement.

         11.13 Shipowner Documents. Notwithstanding the provisions of this
Agreement, in any conflict between this Agreement and the provisions of the
Shipowner Documents, the Shipowner Documents shall govern the agreement between
the parties hereto, but only with respect to the subject matter thereof.
Notwithstanding the previous sentence, any provision in the Indenture (or any
other agreement the Shipowner has entered into with any other Person) purporting
to release the Shipowner of any indebtedness, liability or obligation shall not
apply to any indebtedness, liability or obligation of the Shipowner hereunder
and no termination of the Indenture (or any other agreement the Shipowner has
entered into with any other Person) shall affect the continued effectiveness of
this Agreement, which shall continue in full force and effect until the Credit
Facility has been terminated and all indebtedness, liabilities and obligations
of the Shipowner have been fully discharged and satisfied, the Floating Rate
Note have been paid, satisfied and discharged in full, and there has elapsed a
year and a day from the last payment received from, or on behalf, of the
Shipowner. However, this Section 11.13 shall have no affect on the relationships
established and the agreements entered into by the parties to the

                                       24
<PAGE>   29

Shipowner Documents (and such other agreements the Shipowner has entered into
with any other Person), in each case to which the Lenders are not parties in
their capacities as the Lenders hereunder.

         11.14 Entire Agreement. This Agreement, the Fee Letter and the Floating
Rate Note contain the entire agreement among the parties hereto regarding the
Credit Facility.

         11.15 No Proceedings. Each of the Shipowner, the Alternate Lender and
the Agents hereby agrees that it will not institute against, or join any other
Person in instituting against, the Primary Lender any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding, or any other
proceeding under any federal or state bankruptcy or similar law, so long as any
Commercial Paper issued by the Primary Lender shall be outstanding or there
shall not have elapsed one year plus one day since the last day on which any
such Commercial Paper shall have been outstanding.

SECTION 12. ARRANGEMENTS AMONG THE AGENTS AND THE LENDERS

         12.01 Appointment. Each Lender hereby appoints the Facility Agent to
act as its agent in connection herewith and in connection with the Floating Rate
Note and the Indenture and authorizes the Facility Agent to exercise such
rights, powers and discretions as are specifically delegated to the Facility
Agent by the terms hereof and thereof, together with all such rights, powers and
discretions as are reasonably incidental thereto. Without limiting the
foregoing, all notices to be delivered to, and approvals to be given by, a
Lender under the disbursement procedures described in Section 3.01 hereof shall
be delivered to and given by the Facility Agent on behalf of such Lender.

         12.02 Rights of Facility Agent. The Lenders and the Facility Agent
agree that the Facility Agent may:

         (i) assume that (a) any representation made by the Shipowner in
connection herewith is true; (b) no event which is or may become an Event of
Default has occurred; (c) the Shipowner is not in breach of or default under its
obligations hereunder; (d) any right, power, authority or discretion vested
herein upon the Lenders or any other person or group of persons has not been
exercised; unless it has, in its capacity as Facility Agent, notice or actual
knowledge to the contrary;

         (ii) engage and pay for the advice or services of any lawyers,
accountants, surveyors or other experts whose advice or services may to it seem
necessary, expedient or desirable and rely upon any advice so obtained;

         (iii) rely as to any matters of fact which might reasonably be expected
to be within the knowledge of the Shipowner upon a certificate signed by or on
behalf of the Shipowner;

         (iv) rely upon any communication or document believed by it to be
genuine;

                                       25
<PAGE>   30

         (v) refrain from exercising any right, power or discretion vested in it
as facility agent hereunder unless and until instructed by a Lender as to
whether or not such right, power or discretion is to be exercised and, if it is
to be exercised, as to the manner in which it should be exercised; and

         (vi) refrain from acting in accordance with any instructions of any
Lender to begin any legal action or proceeding arising out of or in connection
with this Agreement until it shall have received such security as it may require
(whether by way of payment in advance or otherwise) for all costs, claims,
expenses (including legal fees) and liabilities which it will or may expend or
incur in complying with such instructions.

         12.03 Duties. The Facility Agent shall:

         (i)      promptly inform each Lender of the contents of any notice or
                  document received by it from the Shipowner hereunder;

         (ii)     promptly notify each Lender of the occurrence of any Event of
                  Default or any default by the Shipowner in the due performance
                  of or compliance with its obligations under this Agreement of
                  which the Facility Agent has notice from any other party
                  hereto;

         (iii)    save as otherwise provided herein, act as facility agent
                  hereunder in accordance with any instructions given to it by
                  any Lender, which instructions shall be binding on all of the
                  Lenders; and

         (iv)     if so instructed by any Lender, refrain from exercising any
                  right, power or discretion vested in it as facility agent
                  hereunder.

         12.04 Limitation on Obligations of Facility Agent. Notwithstanding
anything to the contrary expressed or implied herein, the Lenders and the
Facility Agent agree that the Facility Agent shall not:

         (i)      be bound to inquire as to:

                  (a)      whether or not any representation made by the
                           Shipowner in connection herewith is true;

                  (b)      the occurrence or otherwise of any event which is or
                           may become an Event of Default;

                  (c)      the performance by the Shipowner of its obligations
                           hereunder; or

                                       26
<PAGE>   31

                  (d)      any breach of or default by the Shipowner or under
                           its obligations hereunder;

         (ii) be bound to account to any Lender for any sum or the profit
element of any sum received by it for its own account;

         (iii) be bound to disclose to any other person any information relating
to the Shipowner or any of its agencies if such disclosure would or might in its
opinion constitute a breach of any law or regulation or be otherwise actionable
at the suit of any person; or

         (iv) be under any obligations other than those for which express
provision is made herein.

         12.05 Indemnification by Lenders. The Alternate Lender shall, from time
to time on demand by the Facility Agent, indemnify the Facility Agent, against
any and all costs, claims, expenses (including legal fees) and liabilities
(collectively, "Liabilities") together with any tax thereon which the Facility
Agent may incur, otherwise than by reason of its own gross negligence or willful
misconduct, in acting in its capacity as facility agent hereunder (including,
without limitation, any Liabilities in anyway relating to or arising out of
certifications made with respect to either (a) the due authorization, execution
or delivery of a Floating Rate Note, or (b) laws and/or regulations of any
Governmental Authority, in each case in connection with any request by the
Facility Agent to the Indenture Trustee or the Secretary for the Secretary to
endorse its guarantee on a Floating Rate Note or for the Indenture Trustee to
authenticate a Floating Rate Note).

         12.06 Limitation on Responsibility. The Facility Agent accepts no
responsibility to the Lenders for the accuracy and/or completeness of any
information supplied by the Shipowner in connection herewith or for the
legality, validity, effectiveness, adequacy or enforceability of this Agreement,
and the Facility Agent shall be under no liability to the Lenders (nor to the
Shipowner, Indenture Trustee or the Secretary with respect to calculations of
the Applicable Interest Rate) as a result of taking or omitting to take any
action in relation to this Agreement, save in the case of its own negligence or
willful misconduct.

         12.07 No Claims on Employees of Facility Agent. Each Lender agrees that
it will not assert or seek to assert against any director, officer or employee
of the Facility Agent any claim that it might have against it in respect of the
matters referred to in Clause 12.06.

         12.08 Banking Business. The Lenders agree that the Facility Agent may
accept deposits from, lend money to and generally engage in any kind of banking
or other business with the Shipowner.

         12.09 Resignation or Termination of Facility Agent.

                                       27
<PAGE>   32

         (i) The Facility Agent may (after consultation with the Shipowner and
the Lenders) resign its appointment hereunder at any time without assigning any
reason therefor by giving not less than thirty (30) days' prior written notice
to that effect to each of the other parties hereto; provided, that no such
resignation shall be effective until a successor for the Facility Agent is
appointed in accordance with the succeeding provisions of this Section 12;

         (ii) The Lenders and the Shipowner may jointly seek the termination of
the appointment of the Facility Agent hereunder at any time by giving not less
than thirty (30) days prior written notice to that effect to the Facility Agent;
provided that no such termination shall be effective until a successor for the
Facility Agent is appointed in accordance with the succeeding provisions of this
Section 12; provided further that any such notice of termination must be signed
by all of the Lenders and the Shipowner; and

         (iii) For the avoidance of doubt, the parties hereto agree that the
provisions of this Section 12.09 shall at no time apply to or restrict the
ability of the Administrative Agent to resign its position of Administrative
Agent.

         12.10 Successor to Facility Agent. If the Facility Agent gives notice
of its resignation pursuant to Section 12.09(i) or receives notice of
termination pursuant to Section 12.09(ii), then any reputable and experienced
bank or other financial institution may be appointed as a successor to the
Facility Agent by the Lenders with the consent of the Secretary and Shipowner
(which consent of the Shipowner shall not be unreasonably withheld or delayed)
during the period of such notice but, if no such successor is so appointed, the
Facility Agent may appoint such a successor itself with the consent of the
Secretary and Shipowner (which consent of the Shipowner shall not be
unreasonably withheld or delayed).

         12.11 Discharge of Obligations. If a successor to the Facility Agent is
appointed under the provisions of Section 12.10, then (i) the retiring Facility
Agent shall be discharged from any further obligation hereunder but shall remain
entitled to the benefits of the provisions of this Section 12 and (ii) its
successor and each of the other parties hereto shall have the same rights and
obligations amongst themselves as they would have had if such successor had been
a party hereto.

         12.12 Responsibilities of Lenders. It is understood and agreed by each
Lender that it is, and will continue to be, solely responsible for making its
own independent appraisal of and investigations into the financial condition,
creditworthiness, condition, affairs, status and nature of the Shipowner, the
Secretary and the United States of America and, accordingly, each Lender
warrants to the Facility Agent that it has not relied and will not hereafter
rely on the Facility Agent:

         (i)      to check or inquire on its behalf into the adequacy, accuracy
                  or completeness of any information provided by

                                       28
<PAGE>   33

                  the Shipowner in connection with this Agreement or the
                  transaction herein contemplated (whether or not such
                  information has been or is hereafter circulated to such Lender
                  by the Facility Agent); or

         (ii)     to assess or keep under review on its behalf the financial
                  condition, creditworthiness, condition, affairs, status or
                  nature of the Shipowner.

         12.13 Agency Division. In acting as Facility Agent for the Lenders, the
Facility Agent's agency division shall be treated as a separate entity from any
other of its divisions or departments and, notwithstanding the foregoing
provisions of this Section 12, in the event that the Facility Agent should act
for the Shipowner in any capacity in relation to any other matter, any
information given by the Shipowner to the Facility Agent in such other capacity
may be treated as confidential by the Facility Agent.

         12.14 Administrative Agent. Each party hereto (other than the
Administrative Agent) acknowledges that the Administrative Agent is a party
hereto only in its capacity as administrative agent of the Primary Lender and
the Primary Lender's commercial paper holders.

         12.15 Facility Agent Only Agent for the Lenders. The Facility Agent is
not authorized to, nor shall it, act as the agent for the Secretary, the
Indenture Trustee, the Shipowner or any of their successors in interest or
assigns in any of the capacities provided for herein.

                                       29
<PAGE>   34

         IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered as of the date first above written.

ROWAN COMPANIES, INC., as the           GOVCO INCORPORATED, as the
Shipowner                               Primary Lender, by Citicorp
                                        North America, Inc., its
                                        attorney-in-fact.
By:      E. E. Thiele
   -----------------------------
         (Signature)                    By:      P.A. Botticelli
                                           -----------------------------
Name:     E. E. Thiele                           (Signature)
     ---------------------------
         (Print)                        Name:    P. A. Botticelli
                                             ---------------------------
Title:   Senior Vice President                   (Print)
      --------------------------
                                        Title:   Vice President
                                              --------------------------
                                                 (Print)

CITIBANK INTERNATIONAL plc,
as Facility Agent                       CITIBANK, N.A., as the Alternate
                                        Lender

By:      P.A. Botticelli
   -----------------------------        By:      Ae Kyong Chung
         (Signature)                       -----------------------------
                                                 (Signature)
Name:    P. A. Botticelli
     ---------------------------        Name:    Ae Kyong Chung
         (Print)                             ---------------------------
                                                 (Print)
Title:   Vice President
      --------------------------        Title:   Vice President
         (Print)                              --------------------------
                                                 (Print)

                                        CITICORP NORTH AMERICA, INC., as
                                        the Administrative Agent

                                        By:      P.A. Botticelli
                                           -----------------------------
                                                 (Signature)

                                        Name:    P. A. Botticelli
                                             ---------------------------
                                                 (Print)

                                        Title:   Vice President
                                              --------------------------
                                                 (Print)

                                       30
<PAGE>   35

EXHIBIT 1 TO
CREDIT AGREEMENT

Schedule of Definitions to Credit Agreement
Dated as of October 29, 1999

         "Accelerated Repayment" shall have the meaning set forth in Section
4.02(b) of the Credit Agreement.

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

         "Administrative Agent" means CITICORP NORTH AMERICA, INC., a Delaware
corporation, as administrative agent for the Primary Lender and the commercial
paper holders of the Primary Lender (and their respective successors and
assigns), and its permitted successors and assigns.

         "Affiliate" or "Affiliated" means any Person directly or indirectly
controlling, controlled by, or under common control with, another Person.

         "Agent" means each of the Administrative Agent and the Facility Agent,
individually, and "Agents" means the Administrative Agent and the Facility
Agent, collectively.

         "Alternate Lender" shall have the meaning set forth in the preamble to
the Credit Agreement.

         "Applicable Interest Rate" shall mean

         (i) with respect to any Disbursement or portion thereof that is funded
by the Primary Lender through its issuance of commercial paper notes and so long
as the Primary Lender is the holder of the indebtedness related to such funded
portion, a rate (the "CP Rate") equal to the sum of (A) the Primary Lender's
weighted average cost (defined below) related to the issuance of commercial
paper notes and other short-term borrowings or the sale of participation
interests (collectively, "Commercial Paper"), which in each case have been
allocated by the Primary Lender to the Credit Facility, which rate includes
related issuance costs incurred by the Primary Lender, plus (B) three-tenths of
one percent (.30%) as calculated by the Administrative Agent for each

<PAGE>   36

Interest Period and specified in a notice sent by the Administrative Agent to
the Facility Agent and by the Facility Agent to the Shipowner and the Indenture
Trustee at least five (5) Business Days prior to each Interest Payment Date on
which the interest so calculated is payable (For purposes of the foregoing, the
Primary Lender's "weighted average cost" of Commercial Paper shall consist of
(I) the actual interest rate paid to purchasers of Commercial Paper, (II) the
costs associated with the issuance of the Commercial Paper and (III) other
borrowings the Primary Lender may incur, including the amount to fund small or
odd dollar amounts that are not easily accommodated in the commercial paper
market); and

         (ii) with respect to any Disbursement funded by the Alternate Lender or
to the extent that a Disbursement held by the Primary Lender is assigned to the
Alternate Lender or to any other assignee, then, from and after the applicable
Disbursement Date or the effective date of such assignment, as the case may be,
a rate per annum equal to LIBOR plus three tenths of one percent (0.30%) per
annum; provided, however, that, if the Alternate Lender shall have determined,
prior to the commencement of any Interest Period that: (A) Dollar deposits of
sufficient amount and maturity for funding a Disbursement are not available to
such Lender in the London interbank market in the ordinary course of business;
or (B) by reason of circumstances affecting the relevant market, adequate and
fair means do not exist for ascertaining the rate of interest to be applicable
to a Disbursement; or (C) the relevant rate of interest referred to in the
definition of LIBOR which is to be used to determine the rate of interest for a
Disbursement does not cover the funding cost to the Lender of making or
maintaining the Disbursement, then the Lender shall so notify the Indenture
Trustee, who shall give notice to the Shipowner of such condition and interest
shall, effective as of the date of such notice and so long as such condition
shall exist, accrue during each applicable Interest Period at the Base Rate;
provided, further, however that if, in the Lender's reasonable judgment, it
becomes unlawful at any time for such Lender to make or maintain Disbursements
based upon LIBOR, the Lender shall so notify the Indenture Trustee, who shall
give notice to the Shipowner of such determination and, effective as of the date
of such notice and so long as such condition shall exist, interest shall
thereafter accrue during each applicable Interest Period at the Base Rate.

         "Authorization Agreement" means the Authorization Agreement, Contract
No. MA-13539, dated the Closing Date, between the Secretary and the Indenture
Trustee, whereby the Secretary authorizes the

                                      -2-
<PAGE>   37

Guarantee of the United States of America to be endorsed on the Floating Rate
Note, as the same is originally executed, or as modified, amended or
supplemented in accordance with the applicable provisions thereof.

         "Available Amount" shall have the meaning set forth in Section 2.01 of
the Credit Agreement.

         "Base Rate" means, for any Interest Period or any other period, a
fluctuating interest rate per annum as shall be in effect from time to time
which rate per annum shall at all times be equal to the higher of:

                  (a) the rate of interest announced publicly by Citibank, N.A.
         in New York, New York, from time to time, as Citibank, N.A.'s base
         rate; or

                  (b) One-half of one percent (0.50%) per annum above the latest
         three-week moving average of secondary market morning offering rates in
         the United States for three-month certificates of deposit of major
         United States money market banks, such three-week moving average being
         determined weekly on each Monday (or, if any such day is not a Business
         Day, on the next succeeding Business Day) for the three-week period
         ending on the previous Friday by Citibank, N.A. on the basis of such
         rates reported by certificate of deposit dealers to and published by
         the Federal Reserve Bank of New York, or, if such publication shall be
         suspended or terminated, on the basis of quotations for such rates
         received by Citibank, N.A. from three New York certificate of deposit
         dealers of recognized standing selected by Citibank, N.A., in either
         case adjusted to the nearest one-fourth of one percent (0.25%) or, if
         there is no nearest one-fourth of one percent, to the next higher
         one-fourth of one percent.

         "Business Day" shall mean any day on which dealings in Dollar deposits
are carried on in the London interbank market and on which commercial banks in
London and New York City are open for domestic and foreign exchange business.

         "Certificate Authorizing Disbursement" shall mean, with respect to a
Disbursement, the United States Certificate Authorizing Disbursement
substantially in the form set forth in Annex A to the Credit Agreement.

         "Closing Date" means October 29, 1999.

                                      -3-
<PAGE>   38

         "Commercial Paper" shall have the meaning set forth in clause (a)(i)of
the definition of Applicable Interest Rate herein.

         "Construction Contract" means that certain Mobile Platform Construction
Agreement (LeTourneau Hull No. 221), dated December 18, 1996, by and between the
Shipowner and the Shipyard, as the same may be amended, modified or supplemented
in accordance with the applicable provisions thereof.

         "Construction Period" shall mean the period from the date hereof to the
Delivery Date.

         "Construction Period Interest" shall mean all interest that accrues on
the Outstanding Principal during the Construction Period.

         "CP Rate" shall have the meaning set forth in clause (a)(i) of the
definition of Applicable Interest Rate herein.

         "Credit Agreement" or "Agreement" shall mean the Credit Agreement,
dated as of the Closing Date, among the Shipowner, the Lenders, and the Agents,
including any Exhibit, Annex, or other attachment thereto, as the same may be
amended, modified or supplemented in accordance with the applicable provisions
thereof.

         "Credit Facility" shall have the meaning set forth in Whereas Clause
(A) of the Credit Agreement.

         "Credit Facility Amount" shall have the meaning set forth in Section
2.01 of the Credit Agreement.

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

         "Depository Agreement" means the Depository Agreement, Contract No.
MA-13445, dated September 29, 1998, between the Shipowner, CITIBANK, N.A., as
Depository, and the Secretary, as the same is originally executed, or amended,
modified or supplemented in accordance with the applicable provisions thereof.

         "Disbursements" shall have the meaning set forth in Section 2.03 of the
Credit Agreement.

                                      -4-
<PAGE>   39

         "Disbursement Date" shall mean, in relation to any Disbursement, the
Business Day on which the Lender shall make such Disbursement.

         "Disposition of Indebtedness" shall have the meaning set forth in
Section 11.03 of the Credit Agreement.

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

         "Event of Default" shall have the meaning set forth in Section 9.02 of
the Credit Agreement.

         "Facility Agent" means CITIBANK INTERNATIONAL plc, a bank organized and
existing under the laws of England, as facility agent for both the Primary
Lender and the Alternate Lender (and their respective successors and assigns),
and its permitted successors and assigns.

         "Fee Letter" shall have the meaning set forth in Section 6.01 of the
Credit Agreement.

         "Final Disbursement Date" shall have the meaning set forth in Section
2.02 of the Credit Agreement.

         "Fixed Rate Note" shall mean the Note substantially identical to the
form of Exhibit 3 to the Indenture, appropriately completed.

         "Floating Rate Note" shall mean the Note substantially identical to the
form of Exhibit 2 to the Indenture, appropriately completed.

         "Governmental Authority" shall mean the government of any country, any
agency, department or other administrative authority or instrumentality thereof,
and any local or other governmental authority within any such country.

         "Guarantee" or "Guarantees" means the guarantee of the Floating Rate
Note by the United States of America pursuant to Title XI of the Act, as
provided in the Authorization Agreement.

         "Guarantee Commitment" means the Commitment to Guarantee Obligations,
Contract No. MA-13538, dated as of the Closing Date, executed by the Secretary
and accepted by the Shipowner with respect to the Guarantees, as originally
executed or as modified, amended or supplemented in accordance with the
applicable provisions thereof.

                                      -5-
<PAGE>   40

         "Guarantee Fees" shall mean the amounts described in the Guarantee
Commitment payable in consideration for the commitment therein described and
payable as provided in such Guarantee Commitment.

         "Holder" means each holder of the Floating Rate Note.

         "Indemnified Amounts" shall have the meaning set forth in Section 11.09
of the Credit Agreement.

         "Indemnified Party" shall have the meaning set forth in Section 11.09
of the Credit Agreement.

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

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

         "Indenture Trustee" means ALLFIRST TRUST COMPANY, NATIONAL ASSOCIATION,
a national banking association, and any successor trustee permitted under the
Indenture.

         "Interest Payment Date" means, with respect to the Floating Rate Note,
the date when any installment of interest on such Note is due and payable, which
are April 20 and October 20 of each year, beginning on April 20, 2000, and the
date of any prepayment of the Floating Rate Note.

         "Interest Period" shall mean, with respect to any Disbursement, (i) the
period commencing on the Disbursement Date and extending up to, but not
including, the next Interest Payment Date; and (ii) thereafter the period
commencing on each Interest Payment Date and extending up to, but not including,
the next Interest Payment Date.

         "Lender" shall have the meaning set forth in the preamble to the Credit
Agreement.

         "Lenders" means collectively the Primary Lender and the Alternate
Lender.

                                      -6-
<PAGE>   41

         "Liabilities" shall have the meaning set forth in Section 12.05 of the
Credit Agreement.

         "LIBOR" (a) in relation to any Interest Period, shall mean the rate of
interest per annum (rounded upward, if necessary, to the nearest 1/16 of 1%)
quoted by the principal London office of CITIBANK, N. A., at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for the offering to leading banks in the London interbank market of U.S.
Dollar deposits for a period and in an amount comparable to such Interest Period
and the principal amount upon which interest is to be paid during such Interest
Period; and (b) in relation to any Post Maturity Period, shall have the meaning
as set forth in Section 4.02(b) of the Credit Agreement.

         "Lien" shall have the meaning set forth in Section 8.01(c) of the
Credit Agreement.

         "Liquidation Period" shall have the meaning set forth in Section
4.03(a) of the Credit Agreement.

         "Maturity" when used with respect to any Obligation, means the date on
which the principal of, or interest on, such Obligation becomes due and payable
as therein provided, whether on a Payment Date, at the Stated Maturity or by
prepayment, repayment, redemption or declaration of acceleration or otherwise.

         "Mortgage" means the first preferred ship mortgage on the Vessel,
Contract No. MA-13541, between the Shipowner and the Secretary, as originally
executed or as modified, amended or supplemented in accordance with the
applicable provisions thereof.

         "Note" shall mean a Floating Rate Note or a Fixed Rate Note.

         "Obligation" or "Obligations" shall mean the Floating Rate Note or
Fixed Rate Note(s) of the Shipowner bearing a Guarantee and authenticated and
delivered pursuant to the Indenture and the Authorization Agreement.

         "Other Taxes" shall have the meaning set forth in Section 6.02(a) of
the Credit Agreement.

         "Outstanding Principal" shall have the meaning set forth in Section
2.01 of the Credit Agreement.

                                      -7-
<PAGE>   42

         "Payment Date" shall mean April 20 and October 20 of each year,
beginning on April 20, 2002.

         "Payment Default" has the meaning specified in Section 6.01(a) of
Exhibit 1 to the Indenture.

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

         "Post Maturity Applicable Interest Rate" shall have the meaning set
forth in Section 4.02(b) of the Credit Agreement.

         "Post Maturity Interest Rate" shall have the meaning set forth in
Section 4.02(b) of the Credit Agreement.

         "Post Maturity Period" shall have the meaning set forth in Section
4.02(b) of the Credit Agreement.

         "Primary Lender" shall have the meaning set forth in the preamble to
the Credit Agreement.

         "Quotation Date" shall have the meaning set forth in Section 4.02(b) of
the Credit Agreement.

         "Redemption" means with respect to the redemption of the Floating Rate
Note, the repayment or prepayment of the Floating Rate Note as applicable.

         "Redemption Date" means, with respect to the Floating Rate Note, a date
fixed for the prepayment, repayment or redemption of such Note by or pursuant to
Section 4 of the Credit Agreement, Article Fourth of the Indenture, or Article
III of Exhibit 1 to the Indenture.

         "Redemption Price" means, with respect to the Floating Rate Note, the
price at which the Floating Rate Note is to be prepaid, repaid, or redeemed
pursuant to Section 4 of the Credit Agreement, Article Fourth of the Indenture,
or Article III of Exhibit 1 to the Indenture.

         "Secretary" means the Secretary of Transportation or any official or
official body from time to time duly authorized to perform the duties and

                                      -8-
<PAGE>   43

functions of the Secretary of Transportation under Title XI of the Act
(including the Maritime Administrator, the Acting Maritime Administrator, and to
the extent so authorized, the Deputy Maritime Administrator and other officials
of the Maritime Administration).

         "Secretary's Note" means a promissory note or promissory notes issued
and delivered by the Shipowner to the Secretary described in Article Third of
the Special Provisions of the Security Agreement and shall also mean any
promissory note issued in substitution for and replacement thereof pursuant to
the Security Agreement.

         "Security Agreement" shall mean that certain security agreement,
Contract No. MA-13540 dated as of the Closing Date, with respect to the Vessel,
executed by the Shipowner and the Secretary relating to the security in respect
to the Guarantees, as originally executed or as modified, amended or
supplemented in accordance with the applicable provisions thereof.

         "Shipowner" means ROWAN COMPANIES, INC., a Delaware corporation, and
for purposes of the Indenture and the Floating Rate Note, subject to the
provisions of Sections 6.09, 8.01 and 8.02 of Exhibit 1 to the Indenture, shall
also include its successors and assigns; provided, however, that for purposes of
the Credit Agreement, the term Shipowner shall also include the Shipowner's
permitted successors and assigns under the Credit Agreement.

         "Shipowner's Documents" means the Security Agreement, the Mortgage, the
Title XI Reserve Fund and Financial Agreement, the Depository Agreement, and the
Secretary's Note.

         "Shipowner Financial Statements" shall have the meaning set forth in
Section 8.01(h) of the Credit Agreement.

         "Shipyard" or "Shipbuilder" means LETOURNEAU, INC., a Texas
corporation.

         "Stated Maturity," when used with respect to the Floating Rate Note,
means the date determinable as set forth in such Note as the final date on which
the principal of such Note is due and payable, which shall include, without
limitation, each of the Payment Dates.

         "Taxes" shall have the meaning set forth in Section 6.02(a) of the
Credit Agreement.

                                      -9-
<PAGE>   44

         "Title XI Reserve Fund and Financial Agreement" means that certain
Title XI Reserve Fund and Financial Agreement, Contract No. MA-13261, dated as
of December 17, 1996, executed by the Shipowner and the Secretary, as amended,
modified or supplemented in accordance with the applicable provisions thereof.

         "United States" means the United States of America.

         "Unpaid Amount" shall have the meaning set forth in Section 4.02(b) of
the Credit Agreement.

         "Vessel" means the Shipowner's self-elevating mobile offshore drilling
unit to be named the GORILLA VII and constructed by LETOURNEAU, INC. in
accordance with the Construction Contract, including all work and material
heretofore or hereafter performed upon or installed in or placed on board such
Vessel, together with related appurtenances, additions, improvements, and
replacements.

                                      -10-
<PAGE>   45

                                                     ANNEX A TO CREDIT AGREEMENT

                              ROWAN COMPANIES, INC.
                                   SUITE 5450
                             2800 POST OAK BOULEVARD
                              HOUSTON, TEXAS 77056

__________, 1999

Secretary of Transportation
c/o Maritime Administrator
Department of Transportation
400 Seventh Street, S.W.
Washington, D.C.  20590

Ladies and Gentlemen:

         We are enclosing herewith our Disbursement Request No. ___ and
Certificate plus the following documents for disbursement from the Credit
Facility that has been established for LeTourneau, Inc., Hull No. 221:

1.       Shipyard's Certificate of No Liens pursuant to Section 2.02(d) of
         Exhibit 1 to the Security Agreement.

2.       Wire transfer instructions for Shipyard, Shipowner, or Lender.

3.       Request for Actual Cost Approval and Reimbursement (___________) with
         Supplemental Schedules Nos. ___ and ___.

4.       Certificate Authorizing Disbursements

The amount requested, U.S. $__________ represents:

Progress Payment No. __ for LeTourneau, Inc. Hull No. 221.

Very truly yours,

ROWAN COMPANIES, INC.

By:
   --------------------------
Title:
      -----------------------

                                      A-1
<PAGE>   46

                              ROWAN COMPANIES, INC.
                           DISBURSEMENT REQUEST NO. __
                                 AND CERTIFICATE
                            TO ACCOMPANY DISBURSEMENT
                            FROM CREDIT FACILITY FOR
                                    HULL 221

                                __________, 1999

Secretary of Transportation
c/o Maritime Administration
Department of Transportation
400 Seventh Street, S.W.
Washington, D.C.  20590

                  ROWAN COMPANIES, INC. (the "Shipowner") hereby requests the
Secretary of Transportation, acting by and through the Maritime Administrator
(the "Secretary") to approve disbursement from the Credit Facility for Hull No.
221 under the Credit Agreement dated October ___, 1999, (the "Agreement"), in
accordance with the accompanying wire transfer instructions. In support of said
request and in order to induce the Secretary to approve said disbursement, the
Shipowner hereby certifies:

                  I. (A) That the Final Disbursement Date of the Credit Facility
has not occurred and that there is no default under the Security Agreement dated
October __, 1999, Contract No. MA-13540 (the "Security Agreement") or the
Construction Contract; (B) there have been no occurrences which have or would
adversely and materially affect the condition of the Vessel, its hull or any of
its component parts; (C) the amounts of the Request 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 Shipyard is paid there
will be no liens or encumbrances on the 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.

                  II. That the requested Disbursement is properly due and
payable to the following payee(s), in the following amount(s) and in respect of
the following items(s):

                                      A-2
<PAGE>   47

                     Payee           Amount                   Item

                --------------    $-----------      ----------------------------

                  III. That all prior Disbursements (if any) from the Credit
Facility have been used for the purposes stated in prior certificates furnished
to the Secretary.

                  IV. That the requested Disbursement is not to be used to pay,
or to reimburse the Shipowner for the payment of, any item(s) or amount(s) paid
or reimbursed from any prior Disbursement(s) from the Credit Facility.

                  V. That the amount (if any) stated in II above to be paid to
the _____________ for the payment of interest, is the amount of interest on the
Obligations equal to the interest payable on ________________, 199___.

                  VI. That the amount(s) (if any) stated in II above to be paid
to the Lenders, Shipyard or other persons entitled thereto, or to the Shipowner
as reimbursement for amounts which it shall have paid or have caused to be paid
to said parties, is (are) properly payable from the Credit Facility because:

                           A. The total amount paid by or for the account of the
                  Shipowner on account of the items, amounts and increases set
                  forth or referred to in Table A of the Security Agreement from
                  sources other than the proceeds of the Obligations equals at
                  least 12-1/2% of the Actual Cost of the Vessel stated in the
                  Security Agreement.(1)

                           B. The amount(s) (if any) stated in II above to be
                  paid to the Shipowner would not have the effect of reducing
                  the total amount paid referred to in A above, below the
                  minimum set forth in A above;

                  All terms used herein shall have the same meaning as they have
in the Security Agreement.

ROWAN COMPANIES, INC.

By:
   ---------------------------
Title:
      ------------------------

----------
(1)      If such Actual Cost has been redetermined by the Secretary, add: "as
         the same was redetermined by the Secretary on _________, 199__."

                                       A-3
<PAGE>   48

                      CERTIFICATE AUTHORIZING DISBURSEMENT

                                       Date ___________________

CITIBANK INTERNATIONAL plc, as Facility Agent
                  Attention:  Gillian Barnfather
GOVCO INCORPORATED, as Primary Lender
CITIBANK, N.A., as Alternate Lender
New York, New York

Subject:                   Credit Agreement dated October __, 1999
                           ROWAN COMPANIES, INC.
                           Certificate Authorizing Disbursement No. ____

Ladies and Gentlemen:

                  In accordance with the terms and conditions of the Security
Agreement between ROWAN COMPANIES, INC., a Delaware corporation (the "Shipowner"
or "Borrower") and the Secretary and with respect to the Shipowner's Request for
Disbursement pursuant to the Credit Agreement ("Agreement"), dated as of October
___, 1999, by and among, the Shipowner, GOVCO INCORPORATED, a Delaware
corporation (the "Primary Lender"), CITIBANK, N.A., a national banking
association (the "Alternate Lender" and, together with the Primary Lender, the
"Lenders"), CITIBANK INTERNATIONAL PLC, a bank organized and existing under the
laws of England (the "Facility Agent"), and CITICORP NORTH AMERICA, INC., a
Delaware corporation (the "Administrative Agent"), we hereby authorize the
Primary Lender or the Alternate Lender, as determined in accordance with Section
2.01 of the Agreement, to make a Disbursement under the Credit Facility in the
amount of U.S. $________ on or after ___________ , 199_, by paying to such
Lender from the proceeds of the Disbursement the Construction Period Interest
payable to such Lender in the amount of U.S. $___________________, and then
paying the balance of the proceeds of the Disbursement to the account of
[identify the Shipowner's, Shipyard's account as it is carried on the books of
the payee bank] at [complete name and address of the payee bank].

                  The defined terms in this Certificate shall have the
respective meanings specified in the Credit Agreement.

(Seal)                                 UNITED STATES OF AMERICA
                                       SECRETARY OF TRANSPORTATION

ATTEST:                                By: Maritime Administration

                                           By:
--------------------------                    -------------------------
Assistant Secretary                           Secretary
Maritime Administration                       Maritime Administration

                                      A-4
<PAGE>   49

                             CERTIFICATE OF NO LIENS

                  LeTourneau, Inc., a Texas corporation (the "Shipyard"), does
hereby certify that, on the date hereof, the Vessel being constructed pursuant
to that certain construction contract dated December 18, 1996, as amended (the
"Construction Contract"), between the Shipyard and ROWAN COMPANIES, INC., a
Delaware corporation (the "Shipowner"), which Vessel is identified as Le
Tourneau Hull No. 221, and its component parts are free of any liens and rights
in rem.

                  IN WITNESS WHEREOF, the Shipyard has caused this Certificate
to be duly executed and delivered this _____ day of ---------------.

                                       LeTourneau, Inc.,
                                       a Texas corporation

                                       By:
                                          --------------------------------------
                                       Name:
                                            ------------------------------------
                                       Title:
                                             -----------------------------------

                                      A-5
<PAGE>   50

               REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT

                                  SUMMARY SHEET

<TABLE>
<S>                        <C>
Shipowner's Name           ROWAN COMPANIES, INC.
Shipowner's Address        Suite 5450
                           2800 Post Oak Boulevard
                           Houston, Texas 77056

Shipyard's Name            LeTourneau, Inc.
Shipyard's Address         P.O. Box 2307-75606, Longview, Texas 75606
Name of Vessel             GORILLA VII                                          Shipyard Hull No. 221
Type of Vessel             Mobile self-contained and elevating drilling platform
                  LOA               LBP                BEAM            DEPTH            SHP

Submittal No.                                                 DATE:
++
Period Covered From: _______________________ to: _____________________ Final Cost Submittal      ++

Date of Last Previous Submittal:
                                --------------------
</TABLE>

                                      A-6
<PAGE>   51

                            INSTRUCTIONS TO SHIPOWNER

Requests for actual cost approvals and remittances must be submitted on this
form and on the supplemental schedules listed below as applicable. Specific
instructions are included on each supplemental schedule.

<TABLE>
<CAPTION>
================================================= ================ ================ ================= ==================

            Remittances to Shipyard                                                                      Cumulative
                                                   Supplemental       Previous        Actual Cost        Actual Cost
                                                   Schedule No.      Cumulative      This Submittal        to Date
                                                                        Total
------------------------------------------------- ---------------- ---------------- ----------------- ------------------
<S>                                               <C>              <C>              <C>               <C>
  Contract Base Cost                                     1

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

  Escalation                                             1
                                                  ---------------- ---------------- ----------------- ------------------

  Changes & Extras                                    2 & 2A
                                                  ---------------- ---------------- ----------------- ------------------

  Other Items                                            3
------------------------------------------------- ---------------- ---------------- ----------------- ------------------

  1. Subtotal-Actual Construction Cost
------------------------------------------------- ---------------- ---------------- ----------------- ------------------

  Owner Furnished Items                                  4
  Design, Engineering and Inspection
  at Owner's Cost

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

  2. Subtotal-Actual Owner's Cost                        5
                                                  ---------------- ---------------- ----------------- ------------------

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

  TOTAL (1&2) ACTUAL CONSTRUCTION
     & OUTFITTING COST:

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

  Less: Items of Foreign Cost                            6
------------------------------------------------- ---------------- ---------------- ----------------- ------------------

  3. Subtotal-Actual Construction and
      Owner's Outfitting Cost
------------------------------------------------- ---------------- ---------------- ----------------- ------------------

  Financing Costs:   Commitment Fees                     7

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

                     Interest Fees
                                                  ---------------- ---------------- ----------------- ------------------

                     Interest Income
------------------------------------------------- ---------------- ---------------- ----------------- ------------------

 4. Subtotal-Financing Costs
------------------------------------------------- ---------------- ---------------- ----------------- ------------------

   TOTAL-ACTUAL COST
------------------------------------------------- ---------------- ---------------- ----------------- ------------------

 5. Source of Payments
------------------------------------------------- ---------------- ---------------- ----------------- ------------------

    Credit Facility
                                                  ---------------- ---------------- ----------------- ------------------

    Shipowner
                                                  ---------------- ---------------- ----------------- ------------------

   General Fund
                                                  ---------------- ---------------- ----------------- ------------------

                        TOTAL
================================================= ================ ================ ================= ==================
      Notes, Comments, Etc.
</TABLE>

                                      A-7
<PAGE>   52

                            CERTIFICATION OF PAYMENT

The undersigned has examined the records of N/A and certifies the above cost
figures and the supplemental schedules to accurately state the actual costs,
both paid and to be paid, of ______ in accordance with generally accepted
accounting practices.

DATE:

                                      A-8
<PAGE>   53

                        U.S. DEPARTMENT OF TRANSPORTATION
                             MARITIME ADMINISTRATION

                                    TITLE XI

               REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT
                           SUPPLEMENTAL SCHEDULE NO. 1

                        CONTRACT BASE COST AND ESCALATION

<TABLE>
<S>                        <C>
Shipowner's Name           ROWAN COMPANIES, INC.
Shipowner's Address        Suite 5450
                           2800 Post Oak Boulevard
                           Houston, Texas 77056

Shipyard's Name            LeTourneau, Inc.
Shipyard's Address         P.O. Box 2307-75606, Longview, Texas 75606
Name of Vessel             GORILLA VII                                          Shipyard Hull No. 221
Type of Vessel             Mobile self-contained and elevating drilling platform
                  LOA               LBP                BEAM            DEPTH            SHP

Submittal No.                                                 DATE
</TABLE>

                            INSTRUCTIONS TO SHIPOWNER

List all remittances made to the shipyard for the construction of the vessel as
shown in the contract specifications. Include escalation, if applicable, as
defined in the contract. Do not include the cost of subsequent amendments to the
contract or changes and extras which are to be listed on Schedules 2 and 2A.

<TABLE>
<S>                        <C>                                <C>                       <C>                       <C>
DATE OF                    NOTES OR COMMENTS                  CONTRACT
PAYMENT                    (IF REQUIRED)                      BASE COST                 ESCALATION                TOTAL
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      A-9
<PAGE>   54

                        U.S. DEPARTMENT OF TRANSPORTATION
                             MARITIME ADMINISTRATION

                                    TITLE XI

               REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT
                           SUPPLEMENTAL SCHEDULE NO. 2

                           INDEX OF CHANGES AND EXTRAS

<TABLE>
<S>                        <C>
Shipowner's Name           ROWAN COMPANIES, INC.
Shipowner's Address        Suite 5450
                           2800 Post Oak Boulevard
                           Houston, Texas 77056

Shipyard's Name            LeTourneau, Inc.
Shipyard's Address         P.O. Box 2307-75606, Longview, Texas 75606
Name of Vessel             GORILLA VII                                          Shipyard Hull No. 221
Type of Vessel             Mobile self-contained and elevating drilling platform
                  LOA               LBP                BEAM            DEPTH            SHP

Submittal No.                                                 DATE
</TABLE>

                            INSTRUCTIONS TO SHIPOWNER

List all changes and extras in numerical order as indicated below. Fill in all
information requested. Show total cost claimed at the end of the list. Attach
Schedule 2A with information requested arranged in the same sequence.

If preferred, the Applicant may request the shipyard to forward this schedule
and Schedule 2A directly to Chief, Division of Cost Estimates and Analysis,
Maritime Administration, Code MAR-722, Room 2122, 400 Seventh Street, S.W.,
Washington, D.C. 20590.

<TABLE>
<S>                        <C>                                <C>                                         <C>
CHANGE NO.                 DESCRIPTION OR IDENTIFICATION      SUBCONTRACTOR (IF APPLIC.)                  COST PER SHIP
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      A-10
<PAGE>   55

                        U.S. DEPARTMENT OF TRANSPORTATION
                             MARITIME ADMINISTRATION

                                    TITLE XI

               REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT
                          SUPPLEMENTAL SCHEDULE NO. 2A

                            CHANGE AND EXTRA DETAILS

<TABLE>
<S>                        <C>
Shipowner's Name           ROWAN COMPANIES, INC.
Shipowner's Address        Suite 5450
                           2800 Post Oak Boulevard
                           Houston, Texas 77056

Shipyard's Name            LeTourneau, Inc.
Shipyard's Address         P.O. Box 2307-75606, Longview, Texas 75606
Name of Vessel             GORILLA VII                                          Shipyard Hull No. 221
Type of Vessel             Mobile self-contained and elevating drilling platform
                  LOA               LBP                BEAM            DEPTH            SHP

Submittal No.                                                 DATE
</TABLE>

                            INSTRUCTIONS TO SHIPOWNER

Enter below the details requested for each change order in the same sequence as
listed in Schedule 2. The scope of work for each change should be briefly
described. Major items of material and/or labor should be set forth
individually-whether added or deleted. Sufficient detail should be included to
justify the cost added or deleted for each change. Include as many changes as
possible on each sheet.

<TABLE>
<S>               <C>                                    <C>          <C>               <C>       <C>                    <C>
                  TITLE OR CHANGE/SCOPE OF
CHANGE            WORK BY PHASES/MATERIAL                             MATERIAL COST                    LABOR             NET COST
 NO.             DESCRIPTION/LABOR DESCRIPTION           UNIT         TOTAL             HOURS     COST      (+)OR(-)     OF CHANGE
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      A-11
<PAGE>   56

                        U.S. DEPARTMENT OF TRANSPORTATION
                             MARITIME ADMINISTRATION

                                    TITLE XI

               REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT
                           SUPPLEMENTAL SCHEDULE NO. 3

                                   OTHER ITEMS

<TABLE>
<S>                        <C>
Shipowner's Name           ROWAN COMPANIES, INC.
Shipowner's Address        Suite 5450
                           2800 Post Oak Boulevard
                           Houston, Texas 77056

Shipyard's Name            LeTourneau, Inc.
Shipyard's Address         P.O. Box 2307-75606, Longview, Texas 75606
Name of Vessel             GORILLA VII                                          Shipyard Hull No.  221
Type of Vessel             Mobile self-contained and elevating drilling platform
                  LOA               LBP                BEAM            DEPTH            SHP

Submittal No.                                                 DATE
</TABLE>

                            INSTRUCTIONS TO SHIPOWNER

List below all items paid directly to the shipyard which qualify as construction
cost, but do not belong in the categories of basic contract cost, changes,
extras, and escalation. Example: insurance, storage of owner furnished items,
performance bond; if such items are not provided for in construction contract.

<TABLE>
<S>                                  <C>                                        <C>
ITEM NO.                             DESCRIPTION                                COST
------------------------------------------------------------------------------------
</TABLE>

                                      A-12
<PAGE>   57

                        U.S. DEPARTMENT OF TRANSPORTATION
                             MARITIME ADMINISTRATION

                                    TITLE XI

               REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT
                           SUPPLEMENTAL SCHEDULE NO. 4

                              OTHER FURNISHED ITEMS

<TABLE>
<S>                        <C>
Shipowner's Name           ROWAN COMPANIES, INC.
Shipowner's Address        Suite 5450
                           2800 Post Oak Boulevard
                           Houston, Texas 77056

Shipyard's Name            LeTourneau, Inc.
Shipyard's Address         P.O. Box 2307-75606, Longview, Texas 75606
Name of Vessel             GORILLA VII                                          Shipyard Hull No.  221
Type of Vessel             Mobile self-contained and elevating drilling platform
                  LOA               LBP                BEAM            DEPTH            SHP

Submittal No.                                                 DATE
</TABLE>

                            INSTRUCTIONS TO SHIPOWNER

List below all furnished materials, equipment and services where the total cost
per invoice exceeds $2,500. At the end of the list include all invoices costing
less than $2,500 in a lump sum opposite the description "Miscellaneous Owner
Items." Description of individual items listed should include quantity, material
specification, model No., horse power, capacity, etc., as applicable to allow
review for reasonability of cost and eligibility as Title XI actual cost.
Invoices containing the above information may be submitted in lieu of filling
this form out provided a summary of all such invoices is provided with each
submittal.

<TABLE>
<S>     <C>                <C>                                <C>                         <C>            <C>         <C>
ITEM                       DESCRIPTION OR                     MANUFACTURE'S NAME VENDOR'S                COST PER
NO.     QUANTITY           IDENTIFICATION                     CITY AND COUNTY             INVOICE NO.                SHIPSET
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      A-13
<PAGE>   58

                        U.S. DEPARTMENT OF TRANSPORTATION
                             MARITIME ADMINISTRATION

                                    TITLE XI

               REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT
                           SUPPLEMENTAL SCHEDULE NO. 5

               DESIGN, INSPECTION AND ENGINEERING AT OWNER'S COST

<TABLE>
<S>                        <C>
Shipowner's Name           ROWAN COMPANIES, INC.
Shipowner's Address        Suite 5450
                           2800 Post Oak Boulevard
                           Houston, Texas 77056

Shipyard's Name            LeTourneau, Inc.
Shipyard's Address         P.O. Box 2307-75606, Longview, Texas 75606
Name of Vessel             GORILLA VII                                          Shipyard Hull No.  221
Type of Vessel             Mobile self-contained and elevating drilling platform
                  LOA               LBP                BEAM            DEPTH            SHP

Submittal No.                                                 DATE
</TABLE>

                            INSTRUCTIONS TO SHIPOWNER

List below expenditures paid by the Applicant for design, inspection and
engineering in sufficient detail to permit review for Title XI eligibility and
reasonability of cost.

<TABLE>
<S>               <C>                                         <C>               <C>               <C>
                  NAMES OF APPLICANT'S EMPLOYEES AND/OR                         INVOICE NO.
ITEM              NAMES OF SUBCONTRACTORS                     NO.               OR
 NO.              NATURE OF WORK PERFORMED                    HOURS             RATE/HOUR         COST
------------------------------------------------------------------------------------------------------
</TABLE>

                                      A-14
<PAGE>   59

                        U.S. DEPARTMENT OF TRANSPORTATION
                             MARITIME ADMINISTRATION

                                    TITLE XI

               REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT
                           SUPPLEMENTAL SCHEDULE NO. 6

                 ITEMS OF FOREIGN MANUFACTURE, GROWTH OR ORIGIN

<TABLE>
<S>                        <C>
Shipowner's Name           ROWAN COMPANIES, INC.
Shipowner's Address        Suite 5450
                           2800 Post Oak Boulevard
                           Houston, Texas 77056

Shipyard's Name            LeTourneau, Inc.
Shipyard's Address         P.O. Box 2307-75606, Longview, Texas 75606
Name of Vessel             GORILLA VII                                          Shipyard Hull No.  221
Type of Vessel             Mobile self-contained and elevating drilling platform
                  LOA               LBP                BEAM            DEPTH            SHP

Submittal No.                                                 DATE
</TABLE>

                            INSTRUCTIONS TO SHIPOWNER

Under Maritime Administration policy all items of foreign manufacture, growth or
origin are ineligible as Title XI actual cost. It is the responsibility of the
Applicant to furnish the information listed below for each such item. This
includes both goods and services. The total cost of the items listed will be
deducted from the total actual cost eligible for Title XI Guarantee unless a
waiver has been requested by letter from Maritime and granted by Maritime by
letter.

<TABLE>
<S>      <C>               <C>                               <C>                                <C>              <C>
ITEM                       DESCRIPTION OR                    VENDOR'S NAME                      VENDOR'S         COST PER
 NO.     QUANTITY          IDENTIFICATION                    CITY AND COUNTRY                   INVOICE NO.      SHIP
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      A-15
<PAGE>   60

                        U.S. DEPARTMENT OF TRANSPORTATION
                             MARITIME ADMINISTRATION

                                    TITLE XI

               REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT
                           SUPPLEMENTAL SCHEDULE NO. 7

                          INTEREST AND COMMITMENT FEES

<TABLE>
<S>                        <C>
Shipowner's Name           ROWAN COMPANIES, INC.
Shipowner's Address        Suite 5450
                           2800 Post Oak Boulevard
                           Houston, Texas 77056

Shipyard's Name            LeTourneau, Inc.
Shipyard's Address         P.O. Box 2307-75606, Longview, Texas 75606
Name of Vessel             GORILLA VII                                          Shipyard Hull No. 221
Type of Vessel             Mobile self-contained and elevating drilling platform
                  LOA               LBP                BEAM            DEPTH            SHP

Submittal No.                                                 DATE
</TABLE>

                            INSTRUCTIONS TO SHIPOWNER

Fill out the information requested below concerning the commitment fees for
which you are requesting reimbursement in the submittal.

<TABLE>
<S>                         <C>                       <C>               <C>                 <C>        <C>    <C>
PERIOD                      CHECK WHICH               PAID              PRINCIPAL           INTEREST   AMOUNT
COVERED                     INT.   FEE                TO                AMOUNT              RATE       PAID
-------------------------------------------------------------------------------------------------------------
</TABLE>

                                      A-16
<PAGE>   61
APPENDIX II TO GUARANTEE COMMITMENT                                   DOCUMENT 4

                                 TRUST INDENTURE

                               SPECIAL PROVISIONS

     THIS TRUST INDENTURE, dated October 29, 1999 (the "Indenture" or the
"Agreement"), is between (i) ROWAN COMPANIES, INC., a Delaware corporation (the
"Shipowner"), and (ii) ALLFIRST TRUST COMPANY, NATIONAL ASSOCIATION, a national
banking association (the "Indenture Trustee").

                                    RECITALS:

     WHEREAS, to aid in financing the construction of the Vessel, the Shipowner
has entered into a credit agreement (the "Credit Agreement") with GOVCO
INCORPORATED a Delaware corporation (the "Primary Lender"), CITIBANK, N.A., a
national banking association (the "Alternate Lender'), CITIBANK INTERNATIONAL
PLC, a bank organized and existing under the laws of England (the "Facility
Agent") and CITICORP NORTH AMERICA, INC., a Delaware corporation (the
"Administrative Agent") providing for the delivery of no more than $185,398,000
principal amount of notes designated "United States Government Guaranteed Ship
Financing Obligations, GORILLA VII Series";

     WHEREAS, the Secretary, on behalf of the United States, has agreed to
Guarantee the payment of the unpaid interest to the date of such payment on, and
the unpaid balance of the principal of, such Obligations under the provisions of
Title XI of the Act, and has authorized the Indenture Trustee to cause the
Guarantees to be imprinted on the Obligations pursuant to the Authorization
Agreement.

     NOW THEREFORE, in consideration of the premises, of the mutual covenants
herein contained, of the purchase of the Obligations by the Holders thereof, and
of other good and valuable consideration, the receipt and adequacy of which the
parties hereby acknowledge, and for the equal and proportionate benefit of all
the present and future Holders of the Obligations, the parties hereto agree as
follows:

                                       1
<PAGE>   62

     1. INCORPORATION OF GENERAL PROVISIONS. This Indenture shall consist of two
parts: the Special Provisions and the General Provisions attached hereto as
Exhibit 1, and they shall be treated as one instrument. In the event of a
conflict, the terms of the Special Provisions shall prevail.

     2. THE OBLIGATIONS.

     (a) The Obligations issued hereunder shall be designated "United States
Government Guaranteed Ship Financing Obligations, GORILLA VII Series," and shall
be in the forms of Exhibits 2 and 3 to this Indenture; and, the aggregate
principal amount of Obligations which may be issued under this Indenture shall
not exceed $185,398,000.

     (b) The denominations of the Obligations shall be in integral multiples of
$1,000.

     (c) The Shipowner shall at all times cause to be maintained in the City of
Baltimore, State of Maryland, an office or agency for the purposes specified in
Section 5.03 of Exhibit 1 to this Indenture.

     (d) The Indenture Trustee shall at all times have its Corporate Trust
Office in the City of Baltimore, State of Maryland.

     3. INTEREST RATE CALCULATION. Upon the terms and subject to the conditions
contained in the Obligations, and based on information received from the
Facility Agent (but only in connection with the Floating Rate Note), the
Indenture Trustee shall calculate the Applicable Interest Rate on the
Obligations in the manner and at the times provided in the Obligations and shall
communicate the same to the Shipowner, the Secretary and any paying agent
identified to it in writing as soon as practicable after each determination. The
Indenture Trustee, based on information received from the Facility Agent (but
only in connection with the Floating Rate Note), shall, upon the request of the
Holder of the Obligations, determine the Applicable Interest Rate then in effect
with respect to the Obligations.

     4. CERTAIN REDEMPTIONS

     (A) SCHEDULED MANDATORY REDEMPTION. The Obligations are subject to
redemption at a Redemption Price equal to 100% of the principal amount thereof,
together with interest accrued thereon to the applicable Redemption Date,
through the operation of scheduled repayment providing for the semi-annual
redemption on

                                       2
<PAGE>   63

April 20 and October 20 of each year, commencing April 20, 2002 of $7,725,000 of
principal amount of Obligations, which amount represents approximately one
twenty-fourth (1/24) of the Original Principal Amount of Obligations, plus
interest accrued thereon to the Redemption Date. There shall be a final
redemption of the remaining outstanding principal of the Floating Rate Note on
the earliest of (i) April 20, 2004, (ii) two (2) years after the Delivery Date,
or (iii) at the request of the Secretary, within fifteen (15) Business Days from
the date upon which the Trigger Event (as hereinafter defined) shall occur, and
a final redemption of the remaining outstanding principal of the Fixed Rate
Notes on October 20, 2013.

         Notwithstanding the foregoing provisions of this subsection (a), if the
principal amount of Outstanding Obligations shall be reduced by reason of any
redemption pursuant to Sections 3.04 or 3.06 of Exhibit 1 to this Indenture, the
principal amount of Obligations to be redeemed pursuant to this subsection (a)
on each subsequent Redemption Date for such Obligations shall be reduced by an
amount equal to the principal amount of such Obligations retired by reason of
such redemption pursuant to Sections 3.04 or 3.06 of Exhibit 1 hereto divided by
the number of Redemption Dates (including the Stated Maturity of such
Obligations) scheduled thereafter to April 20, 2004 in the case of the Floating
Rate Note and October 20, 2013 in the case of Fixed Rate Note(s) (subject to
such increase as shall be necessary so that the total principal amount of
Obligations to be redeemed on any such Redemption Date shall be an integral
multiple of $1,000); provided that, the entire unpaid principal amount of the
Outstanding Obligations shall be paid not later than April 20, 2004 in the case
of the Floating Rate Note and October 20, 2013 in the case of each Fixed Rate
Note. The Shipowner shall, in accordance with Section 3.02(e) of Exhibit 1
hereto, promptly after each redemption pursuant to said Sections 3.04 or 3.06,
furnish to the Secretary, the Indenture Trustee and each Holder a revised table
of scheduled repayments reflecting the reductions made pursuant to this
subsection (a) as a result of such redemption.

     (B) OPTIONAL REDEMPTION OF OBLIGATIONS WITHOUT PREMIUM. At its option, the
Shipowner may without premium,

          (i) prepay on any Interest Payment Date the Floating Rate Note, in
     whole or in part, in a minimum principal amount of $10,000,000, at a
     Redemption Price equal to 100% of the principal amount thereof together
     with interest accrued thereon to the Redemption Date, or

          (ii) redeem or prepay the Floating Rate Note, in whole or in part, on
     a Redemption Date designated by the Shipowner, from the proceeds from the
     issuance of the Fixed Rate Notes.

                                       3
<PAGE>   64

     (C) OPTIONAL REDEMPTIONS OF OBLIGATIONS AT MAKE-WHOLE PREMIUM. At its
option, the Shipowner may prepay on any Interest Payment Date the Fixed Rate
Notes, in whole or in part, in a minimum principal amount of $10,000,000, at a
Redemption Price equal to 100% of the principal amount thereof together with
interest accrued thereon to the Redemption Date plus the Make-Whole Premium, if
any. Prepayments shall be applied pro rata against each Fixed Rate Note and
applied against the scheduled principal payments in the inverse order of
scheduled maturity.

     (D) OPTIONAL REDEMPTIONS. If the Shipowner shall elect to make any such
optional redemptions pursuant to this Article, the Shipowner shall, at least 40
days but not more than 60 days prior to the date fixed for redemption, deliver
to the Indenture Trustee (1) a Request stating that the Shipowner intends to
exercise its rights as above set forth to make such optional redemptions and
specifying the Redemption Date and the principal amount which the Shipowner
intends to redeem on such date, and (2) at least 35 days prior to the date fixed
for redemption in the case of the Fixed Rate Notes, deliver to the Indenture
Trustee an amount equal to the Make Whole Premium estimated by the Indenture
Trustee, based on information received from the Holder or a calculation agent,
to be paid on the Redemption Date. The Indenture Trustee, based on information
received from the Holder or a calculation agent, shall give an estimate of the
Make Whole Premium to the Shipowner within two (2) Business Days of the delivery
of the Shipowner's Request. In the event the amount of the Make Whole Premium
deposited by the Shipowner with the Indenture Trustee pursuant to this section
(and interest, if any, accrued thereon, less any losses incurred on the
investment thereof) is insufficient to pay the amount of the Make Whole Premium,
the Shipowner shall pay the amount of the shortfall to the Indenture Trustee in
immediately available funds upon one (1) day's notice. In the event the amount
of the Make Whole Premium deposited by the Shipowner pursuant to this section
(and interest, if any, accrued thereon, less any losses incurred on the
investment thereof) exceeds the Make Whole Premium, the excess amount shall be
refunded to the Shipowner by the Indenture Trustee in immediately available
funds on the Redemption Date.

     (E) FIXED RATE NOTE INTEREST RATE PROTECTION. (1) The Shipowner shall,
without prior notice or demand from the Secretary, convert the outstanding
indebtedness under the Floating Rate Note to indebtedness under a fixed rate
obligation with a maturity equal to October 20, 2013, whenever: the Treasury
constant maturities rate (5-year) as reported by the Federal Reserve Board in
statistical release H.15 (519) (the "Treasury Rate") equals or exceeds nine
percent (9.0%) per annum (the "Trigger Event"). If the Trigger Event should
occur, the Shipowner shall convert the Floating Rate Note to a

                                       4
<PAGE>   65

fixed-rate obligation, at the request of the Secretary, within fifteen (15)
Business Days from the date of the Trigger Event.

     (2) The failure of the Shipowner to covert the Floating Rate Note to a
fixed-rate obligation, at the request of the Secretary, within fifteen (15)
Business Days, unless subsequently waived in writing by the Secretary, shall
constitute an Indenture Default without further notice to the Shipowner or the
Holders being required under the Indenture.

     5. ADDITIONS, DELETIONS AND AMENDMENTS TO EXHIBIT 1 The following
additions, deletions and amendments are hereby made to Exhibit 1 to this
Indenture.

     (A) CONCERNING IMMEDIATELY AVAILABLE FUNDS. Notwithstanding any provision
in Exhibit 1 to this Indenture to the contrary, all payments are to be made in
immediately available funds.

     (B) CONCERNING MANDATORY SCHEDULED REDEMPTIONS. The terms "sinking fund
payment" and "sinking fund redemption" in Exhibit 1 to this Indenture refer to
the mandatory scheduled redemption.

     (C) INTEREST RATES. Interest at the Applicable Interest Rate shall be due
on each Disbursement at the end of each Interest Period. The Indenture Trustee,
based on information received from the Facility Agent (but only in connection
with the Floating Rate Note), shall determine the Applicable Interest Rate for
each Interest Period.

     (D) CONCERNING DISBURSEMENT NOTATIONS. Upon receipt from the Lender of
documents confirming Disbursements, the Indenture Trustee shall review Exhibit A
of the Floating Rate Note (the "Grid"), and calculate principal and applicable
interest thereon, from time to time. If the Indenture Trustee's calculations are
not consistent with those of the Lender, the calculations of the former shall
prevail. The Indenture Trustee shall promptly thereafter send a copy of the Grid
bearing its calculations to the Holder, who shall endorse the Indenture
Trustee's calculations on the original Exhibit A to the Floating Rate Note, and
send a copy thereof, so noted, to the Indenture Trustee, who, in turn, shall
promptly send a copy thereof to the Secretary.

     (E) CONCERNING SECTION 2.01. Section 2.01(c) and (e) are revised to read as
follows:

                                       5
<PAGE>   66

     (c) The principal and interest and any premium due on the Obligations shall
     be paid by (i) the Indenture Trustee or (ii) a Paying Agent, out of funds
     it receives from the Shipowner, by (x) certified or official bank check
     mailed by first class postage prepaid to the addresses of the Obligees
     appearing on the Obligation Register or (y) at the request of an Obligee,
     received by the Indenture Trustee at least three (3) Business Days prior to
     the date of payment, by wire transfer to a commercial bank in the United
     States or by credit to an account maintained by the Obligee with the
     Indenture Trustee without presentment of the Obligation. Prior to any sale,
     assignment or transfer of such Obligation, the Holder is required to
     present the Obligation to the Indenture Trustee so that a proper notation
     of all principal payments under subparagraph (y) above are made on the
     Obligation.

     (e) If the Maturity of any Obligation or an Interest Payment Date for any
     Obligation shall be a day other than a Business Day, then such payment may
     be made on the next succeeding Business Day, with the same force and effect
     as if made on the Interest Payment Date for such payment; provided,
     however, that interest shall accrue thereon for the period after said
     Interest Payment Date (whether or not such next succeeding Business Day
     occurs in a succeeding month).

     (F) CONCERNING SECTION 2.02. Prior to the earliest of (i) April 20, 2004,
(ii) two (2) years from the Delivery Date, or (iii) at the request of the
Secretary, fifteen (15) Business Days from the date the Trigger Event shall
occur, the Shipowner and the Indenture Trustee may enter into a Supplemental
Indenture, and the Indenture Trustee may enter into a supplement to the
Authorization Agreement, pursuant to Section 2.02 of Exhibit 1 to this
Indenture, to provide for the issuance of fixed rate obligations in the form of
Exhibit 3 hereto for the purpose of repaying the Floating Rate Note and/or
financing an amount equal to the Available Amount (which amount shall be
deposited into the Escrow Fund established by the Security Agreement); provided
however, that the Shipowner and Indenture Trustee have obtained the prior
written consent of the Secretary and further provided, that (a) except for the
final issuance or in the case of the Trigger Event, each issuance of a Fixed
Rate Note must be in a minimum aggregate principal amount of $50,000,000, and
(b) the proceeds from the issuance of Fixed Rate Notes shall be used to pay off,
satisfy and cancel the Floating Rate Note; provided, however, that in the
absence of the Trigger Event during the Construction Period, the Floating Rate
Note need not be paid off in its entirety and need only be reduced by the net
proceeds from the issuance of the Fixed Rate Notes.

                                       6
<PAGE>   67

     (G) CONCERNING SECTION 2.07.

     (i) The first sentence of Section 2.07(c) is revised to read as follows:

(c)  The Shipowner or the Indenture Trustee shall not be required to
         register transfers or make exchanges of (1) Obligations for a period of
         15 days immediately prior to (A) an Interest Payment Date or (B) any
         selection of Obligations to be redeemed, (2) Obligations after demand
         for payment of the Guarantees and prior to the payment thereof or
         rescission of such demand pursuant to Section 6.02(a), or (3) any
         Obligation which has been selected for redemption in whole or in part,
         except as to the unredeemed portion of any Obligation being redeemed in
         part.

         (ii)     Section 2.07(e) is revised to read as follows:

         (e) As a condition precedent to any transfer or exchange of
         Obligations, the Shipowner and the Indenture Trustee may require the
         payment of a sum sufficient to reimburse it for any taxes or other
         governmental charges that may be imposed with respect thereto and a sum
         not exceeding $2.00 for each Obligation delivered upon any such
         transfer or exchange.

     (H) CONCERNING SECTION 2.09. With respect to clause (1) of the proviso to
Section 2.09 of Exhibit 1 to the Indenture, a written agreement of indemnity
which is satisfactory in form and substance to the Secretary, the Shipowner, and
the Indenture Trustee, executed and delivered by an institutional Holder having
a capital and surplus of at least $100,000,000 shall be considered sufficient
indemnity to the Secretary, the Shipowner, and the Indenture Trustee in
connection with the execution, authentication and delivery of any new
Obligations or the making of any payment as contemplated by said Section 2.09.

     (I) CONCERNING PAYMENT OF THE OBLIGATIONS. Notwithstanding anything to the
contrary in Exhibit 1 hereto, the Obligations to be issued hereunder shall be
payable as to principal, premium (if any), and interest, at an office or agency
maintained by the Shipowner for such purpose at the Corporate Trust Office of
the Indenture Trustee, or at the option of the Shipowner, as to payments of
principal, premium (if any), or interest by wire, in immediately available
funds, by such Corporate Trust Office to the Obligees as appear in the
Obligation Register, subject to the Indenture Trustee's receipt, by not later
than 11:00 am on the due date thereof, of funds sufficient for the payment of
principal, premium (if any) or interest by wire or other immediately

                                       7
<PAGE>   68

available funds. The Indenture Trustee shall have no obligation to determine
whether such wires or payments were received by the Obligees.

     (J) CONCERNING SECTION 3.02. Section 3.02(c) and (e) are revised to read as
follows:

         (c) Scheduled Redemptions. If the Obligations of any series and Stated
         Maturity or the Special Provisions hereof or the Supplemental Indenture
         establishing such series shall so provide, such Obligations shall be
         subject to (i) scheduled redemption through the operation of a
         mandatory redemption schedule, in such amounts, at such times and
         subject to such credits (if any) as may be specified therein, and (ii)
         redemption at the option of the Shipowner, in connection with the
         operation of any such mandatory redemption schedule, in such additional
         amounts and subject to such conditions as may be specified therein.

         (e) Adjustments of Redemption Payments. If the Obligations of any
         series and Stated Maturity or the Special Provisions hereof or of the
         Supplemental Indenture establishing such series provide for an
         adjustment in scheduled redemption payments as a result of any
         redemption or cancellation of Obligations, the Shipowner shall
         recompute the remaining scheduled redemption payments pursuant to such
         provisions and shall, at least 60 days prior to the next Interest
         Payment Date which occurs at least 60 days following any such
         redemption or cancellation of Obligations of such series requiring such
         recomputation, submit to the Secretary for his review such
         recomputation to ascertain compliance with the provisions of such
         Obligations or the Special Provisions hereof or such Supplemental
         Indenture, and table of revised mandatory redemption schedule payments
         on the Obligations of such series reflecting the adjustments made
         pursuant to such provisions as a result of such redemption or
         cancellation. Upon advice by the Secretary that he finds such
         recomputation to comply with such provisions, the Shipowner shall
         submit said table to the Indenture Trustee and the Indenture Trustee
         shall promptly send a copy thereof to each Holder of an Obligation of
         such series.

     (K) CONCERNING SECTION 3.04. Section 3.04 is revised to read as follows:

               SECTION 3.04. Redemptions to Comply with Section 1104A(b)(2) of
          the Act. The Shipowner and the Secretary may Request a Redemption
          Date,

                                       8
<PAGE>   69

          at least forty (40) days but not more than sixty (60) days from the
          Indenture Trustee's receipt of the Request, for the redemption of
          certain Obligations because the principal amount of the Outstanding
          Obligations are in excess of the amount eligible for guarantee by the
          United States under Section 1104A(b)(2) of the Act. Upon receipt, the
          Indenture Trustee shall promptly give notice to the Holders of the
          Redemption Date as provided in Section 3.08 and on that date shall
          redeem, out of funds it receives from the Shipowner, the principal
          amount of Obligations specified in the instruction together with the
          interest accrued thereon.

     (L) CONCERNING SECTION 3.05. Section 3.05 is revised to read as follows:

               SECTION 3.05. Redemption after Total Loss, Requisition of Title,
          Seizure or Forfeiture of a Vessel or Termination of Certain Contracts.
          The Shipowner and the Secretary may Request a Redemption Date, at
          least forty (40) days but not more than sixty (60) days from the
          Indenture Trustee's receipt of the Request, for the redemption of
          certain Obligations because of (1) an actual, constructive, agreed or
          compromised total loss of a Vessel, (2) requisition of title to, or
          seizure or forfeiture of a Vessel or (3) termination of a primary
          Construction Contract. Upon receipt, the Indenture Trustee shall
          promptly give notice to the Holders of the Redemption Date as provided
          in Section 3.08 and on that date shall redeem, out of funds it
          receives from the Shipowner, such principal amount of Obligations
          together with the interest accrued thereon.

     (M) CONCERNING SECTION 3.06. Section 3.06 is revised to read as follows:

               SECTION 3.06. Redemption After Assumption by the Secretary. At
          any time after the Secretary has assumed the Obligations under Section
          6.09 of the Indenture, the Secretary may Request a Redemption Date, at
          least forty (40) days but not more than sixty (60) days from the
          Indenture Trustee's receipt of the Request, for the redemption of all
          or part of the Obligations. Upon receipt, the Indenture Trustee shall
          promptly give notice to the Holders of the Redemption Date as provided
          in Section 3.08 and on that date shall redeem, out of funds it
          receives from the Shipowner, such principal amount of Obligations
          together with the interest accrued thereon.

     (N) CONCERNING SECTION 3.07. Notwithstanding the provisions of Section 3.07
of Exhibit 1 to this Indenture, if less than all of the Obligations are to be

                                       9
<PAGE>   70

redeemed under any of the provisions contained or referred to in Article Fourth
hereof (excluding Section 4 (c) or Article III of said Exhibit 1), the Indenture
Trustee shall select such Obligations to be redeemed on the Redemption Date by
allocating the principal amount to be redeemed first between each maturity of
Obligations in proportion to the Outstanding Obligations and second among the
holders of each maturity of Obligations in proportion to the aggregate principal
amount of such maturity of Obligations registered in their respective names;
provided that, the Indenture Trustee may select for redemption portions of the
principal amount of the Obligations of a denomination larger than $1,000; but
the portions of the principal amount of the Obligations so selected shall be
equal to $1,000 or an integral multiple thereof.

     (O) CONCERNING SECTION 3.09. The second sentence of Section 3.09 is revised
to read as follows:

          Failure to so deposit the amounts with the Indenture Trustee or the
     Paying Agent shall render any notice to redeem of no effect, and the
     Indenture Trustee shall so advise the Holders.

     (P) CONCERNING SECTION 4.01. Section 4.01(b) of Exhibit 1 hereto is hereby
amended in its entirety to read as follows:

         "(b) Cash held by the Indenture Trustee or any Paying Agent (other than
the Shipowner) under this Indenture -

               (i) need not be segregated;

               (ii) shall not be invested except as permitted by clause (iv) of
               this Section 4.01(b);

               (iii) shall not bear interest except as the Shipowner and the
               Indenture Trustee (or such Paying Agent) may agree in writing;
               and

               (iv) if the Shipowner shall have deposited or caused to be
               deposited with the Indenture Trustee funds sufficient for the
               payment of the Obligations at their Maturity, including interest
               to the date of Maturity, and the date of Maturity is more than
               one (1) Business Day after the deposit of such funds (or the next
               Business Day if the deposit of such funds is made by 11:00 a.m.
               on the Business Day prior to the date

                                       10
<PAGE>   71

               of Maturity), the Indenture Trustee upon the Request of the
               Shipowner shall invest such funds, as directed by the Shipowner
               in writing, in direct obligations of the United States Government
               maturing at or prior to the date of Maturity of such Obligations
               and having a principal amount equal to not less than the amount
               of the funds so invested. Such investments shall be held in trust
               for the purpose for which the funds so invested were held. After
               the Obligations in respect of which the funds were deposited have
               been paid in full (except as to unclaimed amounts as referred to
               in Section 4.03) any of such funds (including interest received
               in respect of such investments and gain on matured investments
               purchased at a discount) held by the Indenture Trustee in excess
               of amounts to which Holders of such Obligations are entitled
               shall upon the Request of the Shipowner be paid by the Indenture
               Trustee to the Shipowner but only in the absence of an Indenture
               Default hereunder."

     (Q) CONCERNING SECTION 4.02. (i) The appointment of a Paying Agent by the
Shipowner is subject to the prior written consent of the Secretary and Indenture
Trustee, which consent shall not be unreasonably withheld.

     (ii) Section 4.02(a)(3) is revised to read as follows:

              (3) promptly, and in no event later than five (5) days after any
     payment made by it hereunder, give written notice to a Responsible Officer
     in the Corporate Trust Office of all payments of Obligations made by it,
     including and identifying all endorsements of payment made on Obligations
     by it, signed and containing the specified information as provided in
     subparagraph (2) above, and deliver for cancellation to the Indenture
     Trustee all Obligations surrendered to the Paying Agent.

     (R) CONCERNING SECTION 4.03. Section 4.03 is revised to read as follows:

         SECTION 4.03. Unclaimed Amounts. Any moneys received by the Indenture
     Trustee or a Paying Agent, for the payment of Obligations or Guarantees and
     remaining unclaimed by the Holders thereof for six (6) years after the date
     of the Maturity of said Obligations or the date of payment by the Secretary
     of the Guarantees shall, upon delivery to the

                                       11
<PAGE>   72

     Indenture Trustee of a Request by the Shipowner, be paid to the Shipowner
     (unless the Secretary has previously paid the Guarantees, in which case it
     shall be paid only upon a request by the Secretary); provided that, not
     less than thirty (30) days prior to such payment, the Shipowner shall
     publish notice thereof to the Obligees at least once in the Authorized
     Newspapers and provide the Indenture Trustee with a copy thereof. In such
     event, such Holders shall thereafter be entitled to look only to the
     Shipowner (and the settlor or settlors of any trust for which the Shipowner
     is trustee, to the extent paid over to it or them) for the payment thereof,
     and the Indenture Trustee or such Paying Agent, as the case may be, shall
     thereupon be relieved from all responsibility to such Holders therefor. No
     such Request, publication or payment shall be construed to extend any
     statutory period of limitations which would have been applicable in the
     absence of such Request, publication or payment.

     (S) CONCERNING SECTION 5.02. Section 5.02 is revised to read as follows:

         SECTION 5.02. Payment and Procedure for Payment of Obligations. The
     Shipowner shall duly and punctually pay the principal of (and premium, if
     any) and interest on the Obligations according to the terms thereof and of
     this Indenture. The Shipowner shall deposit with the Indenture Trustee or
     (subject to Section 3.09) a Paying Agent no later than 11:00 a.m. in
     Baltimore, Maryland on each date fixed for such payment or as otherwise
     provided by the Special Provisions hereof an amount in immediately
     available funds sufficient for such payment (after taking into account any
     amounts then held by the Indenture Trustee or such Paying Agent and
     available for such payment) with irrevocable directions to it to so apply
     the same;

     (T) CONCERNING SECTION 6.05. Section 6.05 is revised to read as follows:

     SECTION 6.05. Rights of Indenture Trustee after Indenture Default. During
     the continuance of any Indenture Default, the Indenture Trustee shall have
     the right to demand and to receive payment of the Guarantees and shall
     have, with the consent of the Secretary as to matters other than the
     enforcement of the Guarantees (unless all the Guarantees shall have
     terminated as provided herein):

              (a) the right (in its name, as the trustee of an express trust, or
     as agent and attorney-in-fact for each Holder of the Obligations as a

                                       12
<PAGE>   73

     class) to take all action to enforce its rights and remedies (including the
     institution and prosecution of all judicial and other proceedings and the
     filings of proofs of claim and debt in connection therewith), and to
     enforce all existing rights of the Holders of the Obligations as a class;
     and

              (b) all other rights and remedies granted to the Indenture Trustee
     by this Indenture, or the Authorization Agreement, or by law.

          In addition, during the continuance of an Indenture Default and if all
     the Guarantees shall have terminated, except by payment of the Guarantees,
     as provided herein, the Indenture Trustee shall have the right, by written
     notice to the Shipowner, to declare the entire unpaid principal amount of
     the Outstanding Obligations and all unpaid interest to be immediately due
     and payable.

          In the event the Shipowner shall be unable to pay its debts when and
     as they fall due or shall admit in writing its inability to pay its debts
     as they fall due or shall become insolvent; or the Shipowner shall apply
     for or consent to the appointment of any liquidator, receiver, trustee or
     administrator for all or a substantial part of its business, properties,
     assets or revenues; or a liquidator, receiver, trustee or administrator
     shall be appointed for the Shipowner and such appointment shall continue
     undismissed, undischarged or unstayed for a period of thirty (30) days, or
     the Shipowner shall institute (by petition, application, answer, consent or
     otherwise) any bankruptcy, arrangement, readjustment of debt, dissolution,
     liquidation or similar executory or judicial proceeding; or a bankruptcy,
     arrangement, readjustment of debt, dissolution, liquidation or similar
     executory or judicial proceeding shall be instituted against the Shipowner
     and shall remain undismissed, undischarged or unstayed for a period of
     thirty (30) days, the entire unpaid principal amount of the Outstanding
     Obligations and all unpaid interest shall be automatically due and payable.

     (U) CONCERNING SECTION 6.06. Section 6.06 is revised to read as follows:

     SECTION 6.06. (a) Obligees' Right to Direct Indenture Trustee after
     Indenture Default. During the continuance of any Indenture Default, the
     Holders of a majority in principal amount of the Outstanding Obligations
     shall have the right, by an Act of Obligees, to direct the Indenture
     Trustee:

                                       13
<PAGE>   74

               (1) to exercise or to refrain from exercising any right or to
          enforce any remedy granted to it by this Indenture; and

               (2) to direct the time, method and place of the exercise of any
          such right or the enforcement of any such remedy;

     provided that, subject to Section 7.03, the Indenture Trustee shall have
     the right not to take any such action if it shall determine in good faith
     that the action would involve it in personal liability, would subject it to
     expense and liability against which it had not been offered sufficient
     indemnity, or would be unjustly prejudicial to the Obligees not parties to
     such direction.

     Anything in this Section 6.06(a) to the contrary notwithstanding, the
     Indenture Trustee shall be obligated to demand payment of the Guarantees as
     provided in Section 6.02(a) unless the Holders of all Outstanding
     Obligations shall have elected to terminate the Guarantees as provided in
     Section 6.04(a)(2), in which case the Indenture Trustee shall be obligated
     to refrain from making such demand.

     (b) Limitations on Obligees' Right to Sue. No Obligee shall have the right
     to institute any judicial or other proceedings under this Indenture unless:

          (1)  the Indenture Trustee shall have been directed to institute such
               proceeding by the Holders of at least 25% in aggregate principal
               amount of the Obligations then Outstanding;

          (2)  the Indenture Trustee shall have been offered sufficient
               indemnity and security against the costs, expenses and
               liabilities to be incurred by compliance with such direction;

          (3)  the Indenture Trustee shall not have instituted such proceeding
               within sixty (60) days after the receipt of both such direction
               and such offer of security and indemnity;

          (4)  no direction inconsistent with such request shall have been given
               to the Indenture Trustee during such 60-day period by the Holders
               of a majority in principal amount of the Outstanding Obligations;
               and

                                       14
<PAGE>   75

          (5)  the institution and prosecution of such proceeding would not
               result in an impairment of the rights of any other Obligee, it
               being understood and intended that no one or more Obligees shall
               have any right in any manner whatever by virtue of, or by
               availing of, any provision of this Indenture to affect, disturb
               or prejudice the rights of any other Obligees or to obtain or to
               seek to obtain priority or preference over any other Obligees or
               to enforce any right under this Indenture, except in the manner
               herein provided and for the equal and ratable benefit of all the
               Obligees.

               (c) Unconditional Right of Obligees to Sue for Principal (and
          Premium, if any) and Interest. Nothing in paragraph (b) shall (i)
          affect the obligation of the Shipowner to pay the principal of (and
          premium, if any) and interest on the Obligations in accordance with
          their terms or affect the right of any Obligee to institute any
          judicial or other proceeding to enforce the payment of his
          Obligations, or (ii) limit the right of any Obligee to demand payment
          of the Guarantees pursuant to Section 6.02(b) or to institute any
          judicial or other proceeding to enforce the payment of the Guarantee
          of any Obligation of which he is the Holder.

     (V) CONCERNING SECTION 6.07

     SECTION 6.07. Attorneys' Fees and Costs. In any proceeding for the
     enforcement of any right or remedy under this Indenture, or in any
     proceeding against the Indenture Trustee for any action taken or omitted by
     it as Indenture Trustee, the court may in its discretion assess reasonable
     costs, including reasonable attorneys' fees, against any party litigant,
     having due regard to the merits and good faith of the claims or defense
     made by such party litigant. The provisions of this Section shall not apply
     to any proceeding instituted by the Indenture Trustee or any proceeding
     instituted by any Obligee against the Secretary for the payment of the
     principal of (and premium, if any) and interest on the Obligations.

     (W) CONCERNING SECTION 6.09. The following paragraph is added at the end of
Section 6.09:

          In the event that the Obligations are registered in the name of The
     Depository Trust Company ("DTC"), Cede & Co. ("Cede") or another nominee of
     DTC or Cede pursuant to a Letter of Representations ("LOR") which is
     executed among the Shipowner, the Indenture Trustee and DTC, and (i) if the
     Secretary assumes the Obligations pursuant to Section 6.09(a) hereof, or

                                       15
<PAGE>   76

     (ii) if the Secretary instructs the Shipowner and the Indenture Trustee to
     terminate the LOR, the Shipowner and the Indenture Trustee, immediately
     upon receipt of notice of such assumption or upon receipt of notice of such
     termination, shall terminate or cause the termination of the LOR in
     accordance with Section 11 thereof. The Indenture Trustee shall within 30
     days from receipt of either such notice from the Secretary also instruct
     DTC to notify its direct and indirect participants of the need to
     re-register the Obligations in the names of the beneficial owners. Upon
     surrender by DTC of the Obligations issued in its name, the name of Cede or
     another nominee, the Shipowner shall issue at its sole expense, and the
     Indenture Trustee shall authenticate Obligations in the names provided to
     the Indenture Trustee by DTC.

     (X) CONCERNING SECTION 7.03. Section 7.03(h) and (n) are revised to read as
follows:

     (h) In all cases where this Indenture does not make express provision as to
     the evidence on which the Indenture Trustee may act or refrain from acting,
     the Indenture Trustee shall be entitled to receive and shall be protected
     (subject to paragraph (c) of this Section) in acting or refraining from
     acting hereunder in reliance upon an Officer's Certificate as to the
     existence or non-existence of any fact.

     (n) No provision of this Indenture shall require the Indenture Trustee to
     expend or risk its own funds or otherwise incur any financial liability in
     the performance of any of its duties hereunder, or in the exercise of any
     of its rights or powers.

     (Y) CONCERNING SECTION 7.04. Section 7.04 is revised to read as follows:

         SECTION 7.04. Compensation, Expenses and Indemnification of Indenture
     Trustee. The Shipowner shall (1) pay such compensation to the Indenture
     Trustee as they may agree upon in writing from time to time and reimburse
     it for its reasonable expenses and disbursements (including counsel fees
     and expenses), and (2) indemnify the Indenture Trustee for, and hold it
     harmless against, any loss, liability or expense which it may incur or
     suffer without negligence or bad faith in acting under this Indenture or
     the Authorization Agreement. The compensation of the Indenture Trustee
     shall not be limited to the compensation provided by law for a trustee
     acting under an express trust. The obligations of the Shipowner under this
     Section 7.04 shall survive the

                                       16
<PAGE>   77

     termination of the Indenture and resignation or removal of the Indenture
     Trustee.

     (Z) CONCERNING SECTION 7.07. Section 7.07 is revised to read as follows:

         SECTION 7.07. Effect of Appointment of Successor Indenture Trustee.
     Each successor Indenture Trustee shall forthwith, without further act or
     deed, succeed to all the rights and duties of its predecessor in trust
     under this Indenture and the Authorization Agreement. Upon the written
     request of the successor Indenture Trustee or the Shipowner and upon
     payment by the Shipowner of all amounts due to such predecessor Indenture
     Trustee under this Indenture, such predecessor Indenture Trustee shall
     promptly deliver to such successor Indenture Trustee all sums held
     hereunder, together with all records and other documents necessary or
     appropriate in connection with the performance of the duties of the
     successor Indenture Trustee under this Indenture and shall transfer, assign
     and confirm to the successor Indenture Trustee all its rights under this
     Indenture in such manner as deemed by such successor Indenture Trustee or
     the Shipowner to be necessary or appropriate in connection therewith and
     the predecessor Indenture Trustee shall have no liability for any actions
     taken by the successor Indenture Trustee.

     (AA) CONCERNING SECTION 9.01. Section 9.01(a) is revised to read as
follows:

     (a) Except as herein otherwise expressly provided, an Act of Obligees shall
     become effective when it is delivered to the Indenture Trustee and, where
     it is expressly required, to the Shipowner and the Secretary. Proof of
     execution of any instrument appointing an agent or attorney to execute an
     Act of Obligees made in the manner of subsection (b) below shall be
     sufficient and conclusive for any purpose of this Indenture.

     (BB) CONCERNING SECTION 12.01. Section 12.01(a) is revised to read as
follows:

         SECTION 12.01. Satisfaction and Discharge of Indenture. Whenever all
     Outstanding Obligations authenticated and delivered hereunder shall have
     been Retired or Paid the Indenture Trustee shall forthwith deliver to the
     Shipowner and the Secretary a duly executed instrument, in form submitted
     to it by the Shipowner and reasonably satisfactory to the Secretary and the
     Indenture Trustee, satisfying and discharging this

                                       17
<PAGE>   78

     Indenture and, at the time such form of instrument is submitted to the
     Indenture Trustee the Shipowner shall deliver to the Indenture Trustee an
     Officer's Certificate and an Opinion of Counsel each stating that all
     conditions precedent herein provided relating to the satisfaction and
     discharge of this Indenture have been complied with. Notwithstanding the
     satisfaction and discharge of this Indenture, the Obligations of the
     Shipowner to the Indenture Trustee under Section 7.04 shall survive.

     (CC) CONCERNING REGISTERED AND BENEFICIAL OWNERSHIP OF THE OBLIGATIONS;
LEGENDS.

              (i) The Fixed Rate Notes may be issued initially in the form of
     one or more permanent global Notes in definitive, fully registered form
     without interest coupons (each, a "Global Obligation"). Except as provided
     in paragraph (iii) below, owners of beneficial interests in Global
     Obligations ("Obligation Owners") shall not be entitled to receive separate
     certificated Notes ("Definitive Obligation") and shall not be considered
     the holders thereof. Each such Global Obligation shall be deposited with
     The Depository Trust Company (the "DTC") or the Indenture Trustee, as
     custodian for DTC, registered in the name of DTC or a nominee of DTC, and
     duly executed by the Shipowner and authenticated by the Indenture Trustee
     as provided in the Indenture. Each Global Obligation shall bear such legend
     as DTC may require.

              (ii) Members of, or participants in, DTC shall have no rights
     under the Indenture with respect to any Global Obligation held on their
     behalf by DTC or by the Indenture Trustee, as the custodian of DTC, or
     under such Global Obligation, and DTC may be treated by the Shipowner, the
     Indenture Trustee and any agent of the Shipowner or the Indenture Trustee
     as the absolute owner of such Global Obligation for all purposes
     whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
     Shipowner, the Indenture Trustee or any agent of the Shipowner or the
     Indenture Trustee from giving effect to any written certification, proxy or
     other authorization furnished by DTC or impair, as between DTC and its
     members and participants, the operation of customary practices of DTC
     governing the exercise of the rights of an owner of a beneficial interest
     in any Global Obligation.

              (iii) (1) The transfer and exchange of Global Obligations or
     beneficial interests therein shall be effected through DTC or the Indenture
     Trustee, as the custodian for DTC, in accordance with the

                                       18
<PAGE>   79

     Indenture and the procedures of DTC therefor.

                    (2) A Global Obligation shall be exchangeable for Definitive
     Obligations registered in the names of persons owning beneficial interest
     in such Global Obligation only if any of the following events shall have
     occurred: (1) DTC notifies the Shipowner, with a copy to the Indenture
     Trustee, that it is unwilling or unable to continue as depositary for such
     Global Obligation or DTC ceases to be a clearing agency registered under
     the Securities Exchange Act of 1934, as amended, at a time when DTC is
     required to be so registered in order to act as depositary, and a successor
     depositary is not appointed by the Shipowner within 90 days thereafter, (2)
     the Shipowner or the Indenture Trustee elects to terminate DTC's services
     or the book entry system, (3) the Secretary assumes the Obligations, or (4)
     the Secretary instructs the Shipowner and Indenture Trustee to terminate
     the Letter of Representations.

                    (3) Any Global Obligation that is exchangeable for
     Definitive Obligations registered in the name of the owners of beneficial
     interests therein pursuant to this paragraph (iii) shall be surrendered by
     DTC to the Indenture Trustee to be so exchanged, without charge, and the
     Shipowner shall execute and the Indenture Trustee shall authenticate and
     deliver, upon such exchange of such Global Obligation, an equal aggregate
     principal amount of Definitive Obligations of authorized denominations.
     Definitive Obligations issued in exchange for a beneficial interest in a
     Global Obligation pursuant hereto shall be registered in such names and in
     such authorized denominations as DTC, pursuant to instructions from its
     direct or indirect participants or otherwise, shall instruct the Indenture
     Trustee in writing. The Indenture Trustee shall deliver such Definitive
     Obligations to the Obligation Owners in whose names such Obligations are so
     registered in accordance with the instructions of DTC.

                    (4) The registered holder of a Global Obligation may grant
     proxies and otherwise authorize any Obligation Owner, including DTC's
     members and participants and Obligation Owners that may hold interest
     through such members and participants, to take any action which a Holder is
     entitled to take under the Indenture or the Obligations.

                    (5) In the event of the occurrence of any of the events
     specified in paragraph (iii)(2), the Shipowner shall promptly make
     available to the Indenture Trustee a reasonable supply of Definitive
     Obligations.

                                       19
<PAGE>   80

                    (6) Notwithstanding any other provision of the Indenture, a
     Global Obligation may not be transferred except as a whole by DTC for such
     Global Obligation to a nominee of DTC or by a nominee of DTC to DTC or
     another nominee of DTC.

              (iv) At such time as all beneficial interests in a Global
     Obligations have either been exchanged for Definitive Obligations,
     redeemed, repurchased or canceled, such Global Obligation shall be returned
     to the Indenture Trustee for cancellation or retained and canceled by the
     Indenture Trustee.

              (v) The Indenture Trustee shall have no responsibility or
     obligation to any owner of a beneficial interest in a Global Obligation, a
     member of, or a participant in DTC or any other Obligation Owner with
     respect to the accuracy of the records of DTC or its nominee or of any
     participant or member thereof, with respect to any ownership interest in
     the Obligations or with respect to the delivery to any participant, member,
     beneficial owner or other Obligation Owner (other than DTC) of any notice
     (including any notice of redemption) or the payment of any amount or
     delivery of any Obligations (or other security or property) under or with
     respect to such Obligations. All notices and communications to be given to
     the Holders and all payments to be made to Holders in respect to the
     Obligations shall be given or made only to or upon the order of the
     registered Holders (which shall be DTC or its nominee in the case of a
     Global Obligation). The rights of owners of beneficial interests in any
     Global Obligation shall be exercised only through DTC subject to the
     applicable rules and procedures of DTC. The Indenture Trustee may rely and
     shall be fully protected in relying upon information furnished by DTC with
     respect to its members, participants and any beneficial owners.

     6. MISCELLANEOUS.

     (A) CONCERNING NOTICES. Subject to the provisions of Section 13.01 of
Exhibit 1 to this Indenture, any notice, request, demand, direction, consent,
waiver, approval or other communication to be given to a party hereto or the
Secretary, shall be deemed to have been sufficiently given or made when
addressed to:

                                       20
<PAGE>   81

The Indenture Trustee as:           ALLFIRST TRUST COMPANY,
                                    NATIONAL ASSOCIATION
                                    25 South Charles St.
                                    16th Floor
                                    (Mail Code 101-591)
                                    Baltimore, MD  21201

The Shipowner as:                   ROWAN COMPANIES, INC.
                                    Suite 5450
                                    2800 Post Oak Boulevard
                                    Houston, Texas 77056-6196
                                    Attn: Chief Financial Officer

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

     (B) CONCERNING APPLICABLE LAW. This Indenture and each Obligation shall be
governed by the federal laws of the United State of America, but to the extent
that they are inapplicable by the laws of the State of New York.

     (C) EXECUTION OF COUNTERPARTS. This Indenture 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.

                                       21
<PAGE>   82

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

(SEAL)                                            ROWAN COMPANIES, INC.
                                                  Shipowner
ATTEST:

   Mark H. Hay                                    By: E.E. Thiele
---------------------------                          --------------------
                                                     Senior Vice President

                                                   ALLFIRST TRUST COMPANY

                                                   NATIONAL ASSOCIATION

                                                     Indenture Trustee

 ATTEST:

    Donald C. Hargadon                             By: Robert D. Brown
---------------------------------                     --------------------
  Assistant Vice President                             Vice President

                                       22
<PAGE>   83

SCHEDULE A TO THE INDENTURE                                          DOCUMENT 5

                            SCHEDULE OF DEFINITIONS

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

         "Act of Obligees" means any request, demand, authorization, direction,
notice, consent, waiver or other action to be given or taken by the Obligees
and embodied in one or more documents as required by the Indenture.

         "Actual Knowledge" means actual knowledge of a Responsible Officer of
a Person.

         "Administrative Agent" means CITICORP NORTH AMERICA, INC., a Delaware
corporation, as administrative agent for the Primary Lender and the commercial
paper holders of the Primary Lender (and their respective successors and
assigns), and its permitted successors and assigns.

         "Agent" means each of the Administrative Agent and the Facility Agent,
individually, and "Agents" means the Administrative Agent and the Facility
Agent, collectively.

         "Alternate Lender" means CITIBANK, N.A., a national banking
association and its successors and assigns.

         "Applicable Interest Rate" shall mean

         (a)(i) with respect to any Disbursement or portion thereof that is
funded by the Primary Lender through its issuance of commercial paper notes and
so long as the Primary Lender is the holder of the indebtedness related to such
funded portion, a rate (the "CP Rate") equal to the sum of (A) the Primary
Lender's weighted average cost (defined below) related to the issuance of
commercial paper notes and other short-term borrowings or the sale of
participation interests (collectively, "Commercial Paper"), which in each case
have been allocated by the Primary Lender to the Credit Facility, which rate
includes related issuance costs incurred by the Primary Lender, plus (B)
three-tenths of one percent (.30%), as calculated by the Administrative Agent
for each Interest Period and specified in a notice sent by the Administrative
Agent to the Facility Agent and by the Facility

<PAGE>   84

Agent to the Shipowner and the Indenture Trustee at least five (5) Business
Days prior to each Interest Payment Date on which the interest so calculated is
payable (For purposes of the foregoing, the Primary Lender's "weighted average
cost" of Commercial Paper shall consist of (I) the actual interest rate paid to
purchasers of Commercial Paper, (II) the costs associated with the issuance of
the Commercial Paper and (III) other borrowings the Primary Lender may incur,
including the amount to fund small or odd dollar amounts that are not easily
accommodated in the commercial paper market); and

                  (ii) with respect to any Disbursement funded by the Alternate
Lender or to the extent that a Disbursement held by the Primary Lender is
assigned to the Alternate Lender or to any other assignee, then, from and after
the applicable Disbursement Date or the effective date of such assignment, as
the case may be, a rate per annum equal to LIBOR plus three tenths of one
percent (0.30%) per annum; provided, however, that, if the Alternate Lender
shall have determined, prior to the commencement of any Interest Period that:
(A) Dollar deposits of sufficient amount and maturity for funding a
Disbursement are not available to such Lender in the London interbank market in
the ordinary course of business; or (B) by reason of circumstances affecting
the relevant market, adequate and fair means do not exist for ascertaining the
rate of interest to be applicable to a Disbursement; or (C) the relevant rate
of interest referred to in the definition of LIBOR which is to be used to
determine the rate of interest for a Disbursement does not cover the funding
cost to the Lender of making or maintaining the Disbursement, then the Lender
shall so notify the Indenture Trustee, who shall give notice to the Shipowner
of such condition and interest shall, effective as of the date of such notice
and so long as such condition shall exist, accrue during each applicable
Interest Period at the Base Rate; provided, further, however that if, in the
Lender's reasonable judgment, it becomes unlawful at any time for such Lender
to make or maintain Disbursements based upon LIBOR, the Lender shall so notify
the Indenture Trustee, who shall give notice to the Shipowner of such
determination and, effective as of the date of such notice and so long as such
condition shall exist, interest shall thereafter accrue during each applicable
Interest Period at the Base Rate.

         (b) with respect to Obligations which are Fixed Rate Notes, the
interest rate set forth in each such Obligation, which interest rate shall be
as approved by the Secretary as reasonable pursuant to Section 1104A (b)(5) of
the Act.

                                       2
<PAGE>   85

         "Authorization Agreement" means the Authorization Agreement, Contract
No. MA-13539, between the Secretary and the Indenture Trustee, whereby the
Secretary authorizes the Guarantee of the United States to be endorsed on each
of the Obligations, as the same is originally executed, or as modified, amended
or supplemented therein.

         "Authorized Newspapers" means The Wall Street Journal and The Journal
of Commerce or if they cease to exist, then in such other newspapers as the
Secretary may designate.

         "Available Amount" shall have the meaning set forth in Section 2.01 of
the Credit Agreement.

         "Base Rate" means, for any Interest Period or any other period, a
fluctuating interest rate per annum as shall be in effect from time to time
which rate per annum shall at all times be equal to the higher of:

                  (a) the rate of interest announced publicly by Citibank, N.A.
                  in New York, New York, from time to time, as Citibank, N.A.'s
                  base rate; or

                  (b) one-half of one percent (0.50%) per annum above the
                  latest three-week moving average of secondary market morning
                  offering rates in the United States for three-month
                  certificates of deposit of major United States money market
                  banks, such three-week moving average being determined weekly
                  on each Monday (or, if any such day is not a Business Day, on
                  the next succeeding Business Day) for the three-week period
                  ending on the previous Friday by Citibank, N.A. on the basis
                  of such rates reported by certificate of deposit dealers to
                  and published by the Federal Reserve Bank of New York, or, if
                  such publication shall be suspended or terminated, on the
                  basis of quotations for such rates received by Citibank, N.A.
                  from three New York certificate of deposit dealers of
                  recognized standing selected by Citibank, N.A., in either
                  case adjusted to the nearest one-fourth of one percent
                  (0.25%) or, if there is no nearest one-fourth of one percent,
                  to the next higher one-fourth of one percent.

         "Borrower" means the Shipowner.

                                       3
<PAGE>   86

         "Business Day" shall mean any day on which dealings in Dollar deposits
are carried on in the London interbank market and on which commercial banks in
London and New York City are open for domestic and foreign exchange business.

         "Cede" means Cede & Company.

         "Certificate Authorizing Disbursement" shall mean, with respect to a
Disbursement, the United States Certificate Authorizing Disbursement
substantially in the form set forth in Annex A to the Credit Agreement.
"Commercial Paper" shall have the meaning set forth in clause (a)(i)of the
definition of Applicable Interest Rate herein.

         "Construction Contract" means that certain Mobile Platform
Construction Agreement (LeTourneau Hull No. 221), dated December 18, 1996, by
and between the Shipowner and the Shipyard, as the same may be amended,
modified or supplemented in accordance with the applicable provisions thereof.

         "Construction Period" shall mean the period from the date hereof to
the Delivery Date.

         "Construction Period Interest" shall mean all interest that accrues on
the Outstanding Principal during the Construction Period.

          "Corporate Trust Office" means the principal office of the Indenture
Trustee at which, at any time, its corporate trust business is principally
administered, which office is currently located at 25 South Charles Street,
16th Floor, Mail Code 101-591, Baltimore, Maryland 21201.

         "CP Rate" shall have the meaning set forth in clause (a)(i) of the
definition of Applicable Interest Rate herein.

         "Credit Agreement" or "Agreement" shall mean the Credit Agreement,
dated as of the Closing Date, among the Shipowner, the Lenders, and the Agents,
including any Exhibit, Annex, or other attachment thereto, as the same may be
amended, modified or supplemented.

         "Credit Facility" shall have the meaning set forth in Whereas Clause
(A) of the Credit Agreement.

                                       4
<PAGE>   87

         "DTC" means The Depository Trust Company.

         "Definitive Obligation" has the meaning specified in Section 5(cc) of
the Special Provisions of the Indenture.

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

         "Disbursement" shall have the meaning set forth in Section 2.03 of the
Credit Agreement.

         "Disbursement Date" shall mean, in relation to any Disbursement, the
Business Day on which the Lender shall make such Disbursement.

         "Facility Agent" means CITIBANK INTERNATIONAL plc, a bank organized
and existing under the laws of England, as facility agent for both the Primary
Lender and the Alternate Lender (and their respective successors and assigns),
and its permitted successors and assigns.

         "Final Disbursement Date" shall have the meaning set forth in Section
2.02 of the Credit Agreement.

         "Fixed Rate Note" shall mean an Obligation substantially in the form
of Exhibit 3 to the Indenture, appropriately completed.

         "Floating Rate Note" shall mean the Obligation substantially in the
form of Exhibit 2 to the Indenture, appropriately completed.

         "Global Obligation" has the meaning specified in Section 5(cc) of the
Special Provisions of the Indenture.

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

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

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

                                       5
<PAGE>   88

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

         "Indenture Trustee" means ALLFIRST TRUST COMPANY, NATIONAL
ASSOCIATION, a national banking association, and any successor trustee under
the Indenture.

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

         "Interest Period" shall mean, with respect to any Disbursement, (i)
the period commencing on the Disbursement Date and extending up to, but not
including, the next Interest Payment Date; and (ii) thereafter the period
commencing on each Interest Payment Date and extending up to, but not
including, the next Interest Payment Date.

         "Lender" shall mean either the Primary Lender or the Alternate Lender,
as the case may be, depending on which of the two parties made or will make the
relevant disbursement of funds under the Credit Agreement; provided, however,
that if the Primary Lender assigns its rights under the Credit Agreement to the
Alternate Lender, the term "Lender," shall mean only the Alternate Lender,
CITIBANK, N.A., a national banking association, and its successors and assigns.

         "Letter of Representations" means the Letter of Representations
between the Shipowner and the Indenture Trustee and other documentation
necessary or desirable to effectuate the issuance of the Fixed Rate Notes as
Global Obligations.

         "LIBOR" shall mean, in relation to any Interest Period, the rate of
interest per annum (rounded upward, if necessary, to the nearest 1/16 of 1%)
quoted by the principal London office of CITIBANK, N. A., at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period for the offering to leading banks in the London interbank
market of U.S. Dollar deposits for a period and in an amount comparable to such
Interest Period and the principal amount upon which interest is to be paid
during such Interest Period.

         "Make-Whole Premium" means an amount equal to the excess, if any,
between (i) the sum of the respective Payment Values of each Prospective
Payment, over (ii) 100% of the aggregate principal amount being prepaid on the
Redemption Date.

                                       6
<PAGE>   89

         "Make-Whole Premium Determination Date" means the second Business Day
before the applicable Redemption Date.

         "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 or declaration of
acceleration or otherwise.

         "Mortgage" means the first preferred ship mortgage on the Vessel,
Contract No. MA-13541, by the Shipowner to the Secretary, as originally
executed, modified, amended or supplemented.

         "Note" shall mean a Floating Rate Note or a Fixed Rate Note (as the
case may be).

         "Obligation" or "Obligations" shall mean the Floating Rate Note or
Fixed Rate Note(s) of the Shipowner bearing a Guarantee and authenticated and
delivered pursuant to the Indenture and the Authorization Agreement.

         "Obligation Owners" has the meaning specified in Section 5(cc) of the
Special Provisions of the Indenture.

         "Obligation Register" has the meaning specified in Section 2.07 of
Exhibit 1 to the Indenture.

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

         "Officer's Certificate" means a certificate conforming to Section 1.02
of the Indenture.

         "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.

         "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. Obligations which are not Outstanding shall
not be entitled

                                       7
<PAGE>   90

to any rights or benefits provided in the Indenture. For the purposes of
Articles VI and X of the Indenture, and also in determining whether the Holders
of a stated percentage of the principal amount of Outstanding Obligations have
made an Act of Obligees required or permitted by the Indenture, Obligations
owned by the Shipowner or by any Affiliate of the Shipowner shall be
disregarded and deemed not to be Outstanding; provided that, for the purpose of
determining whether the Indenture Trustee shall be protected in relying on any
such Act of Obligees, only Obligations of which the Indenture Trustee has
Actual Knowledge are so owned shall be so disregarded and deemed not to be
Outstanding.

         "Paying Agent" means any bank or trust company meeting the
qualifications in Sections 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
Indenture.

         "Payment Value" of each Prospective Payment shall be determined by
discounting such Prospective Payment at the Reinvestment Rate for the period
from the Payment Date on which such Prospective Payment was scheduled to be
paid to the applicable Redemption Date

         "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.

         "Primary Lender" means GOVCO INCORPORATED, a Delaware corporation, and
its successors and assigns.

         "Prospective Payment" means, with respect to the Fixed Rate Notes: (i)
each scheduled interest payment on each scheduled principal amount to be
prepaid; and (ii) the scheduled principal amount to be prepaid.

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

         "Redemption Price" means the price at which an Obligation is redeemed
under the Indenture.

                                       8
<PAGE>   91

         "Reinvestment Rate" means the yield determined by the Indenture
Trustee, based on information received from the Holder or calculation agent, to
be the yield of the issue of actively traded United States Treasury securities
having a maturity equal to the Weighted Average Life to Final Maturity;
provided, however, that if such Weighted Average Life to Final Maturity is not
equal to the maturity of an actively traded United States Treasury security
(rounded to the nearest one-twelfth of a year), such yield shall be obtained by
linear interpolation from the yields of actively traded United States Treasury
securities having the greater maturity closest to and the lesser maturity
closest to such Weighted Average Life to Final Maturity. The yields shall be
determined by reference to the yields as indicated by Telerate Access Service
(page 8003 or the relevant page at the date of determination indicating such
yields) (or, if such data ceases to be available, any publicly available
sources of similar market data) at approximately 11:00 a.m. (New York City
time) on the Make-Whole Premium Determination Date.

         "Remaining Dollar Years" means the sum of the amounts obtained by
multiplying: (i) the amount of each remaining scheduled payment of principal of
the Fixed Rate Notes (without giving effect to such Redemption) by (ii) the
number of years (rounded to the nearest one-twelfth) which will elapse between
the Redemption Date and the Payment Date for such scheduled principal amount.

         "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 or trust company, the chairman or vice-chairman of
the executive committee of the board of directors or trustees, the president,
any executive or senior vice president, any vice president, the secretary, the
treasurer, or any trust officer, and (3) with respect to the signing or
authentication of Obligations and Guarantees by the Indenture Trustee, any
person specifically authorized by the Indenture Trustee to sign or authenticate
Obligations.

         "Retired or Paid," as applied to Obligations and the indebtedness
evidenced thereby, means that such Obligations shall be deemed to have been so
retired or paid and shall no longer be entitled to any rights or benefits
provided in the Indenture if: (1) such Obligations shall have been paid in
full; (2) such

                                       9
<PAGE>   92

Obligations shall have been canceled by the Indenture Trustee and shall have
been delivered to the Indenture Trustee for cancellation; or (3) such
Obligations shall have become due and payable at Maturity and funds sufficient
for the payment of such Obligations (including interest to the date of
Maturity, or in the case of a payment after Maturity, to the date of payment,
together with any premium thereon) and available for such payment (whether as a
result of payment pursuant to the Guarantees or otherwise) shall be held by the
Indenture Trustee or any Paying Agent in trust for the purpose, or with
irrevocable directions, to apply the same; provided that, the foregoing
definition is subject to Section 6.08 of the Indenture.

         "Secretary" means the Secretary of Transportation.

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

         "Secretary's Supplemental Indenture" means a Supplemental Indenture,
pursuant to Section 6.09 of the Indenture, evidencing the succession of the
Secretary to the Shipowner, and the Secretary's assumption of the Shipowner's
obligations under the Indenture.

         "Security Agreement" means the security agreement, Contract No.
MA-13540, dated as of the Closing Date, consisting of the special provisions,
the general provisions and Schedule X thereto, executed by the Shipowner as
security for the Secretary, as originally executed or as modified, amended or
supplemented.

         "Shipowner" means ROWAN COMPANIES, INC., a Delaware corporation, and
shall include its successors and assigns.

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

         "Title XI" means Title XI of the Act.

         "Vessel" means the Shipowner's self-elevating mobile offshore drilling
unit to be named the GORILLA VII and constructed by LETOURNEAU, INC. in
accordance with the Construction Contract, including all work and material

                                      10
<PAGE>   93

heretofore or hereafter performed upon or installed in or placed on board such
Vessel, together with related appurtenances, additions, improvements, and
replacements.

         "Weighted Average Life to Final Maturity" means the number of years
(rounded up to the nearest one-twelfth of a year) obtained by dividing: (i) the
then Remaining Dollar Years by (ii) the total amount of the then remaining
aggregate unpaid principal amount of such Fixed Rate Notes (without giving
effect to the subject Redemption).

                                      11<PAGE>

                                                                    Exhibit 10.5

                            LAKELAND BANCORP, INC.

                       2000 EQUITY COMPENSATION PROGRAM

          1.  Purposes.  This Equity Compensation Program (the "Program") is
              --------
intended to secure for Lakeland Bancorp, Inc. (the "Corporation"), its direct
and indirect present and future subsidiaries, including without limitation any
entity which the Corporation reasonably expects to become a subsidiary (the
"Subsidiaries"), and its shareholders, the benefits arising from ownership of
the Corporation's common stock ("Common Stock") by those selected directors,
officers and key employees of the Corporation and the Subsidiaries who are most
responsible for future growth.  The Program is designed to help attract and
retain superior individuals for positions of substantial responsibility with the
Corporation and the Subsidiaries and to provide these persons with an additional
incentive to contribute to the success of the Corporation and the Subsidiaries.

          2.  Elements of the Program.  In order to maintain flexibility in the
              -----------------------
award of benefits, the Program is comprised of three parts -- the Incentive
Stock Option Plan ("Incentive Plan"), the Supplemental Stock Option Plan
("Supplemental Plan"), and the Independent Director Plan ("Independent Director
Plan").  Copies of the Incentive Plan, Supplemental Plan, and Independent
Director Plan are attached hereto as Parts I, II, and III, respectively.  Each
such plan is referred to herein as a "Plan" and all such plans are collectively
referred to herein as the "Plans."  The grant of an option under one of the
Plans shall not be construed to prohibit the grant of an option under any of the
other Plans.

          3.  Applicability of General Provisions.  Unless any Plan specifically
              -----------------------------------
indicates to the contrary, all Plans shall be subject to the general provisions
of the Program set forth below under the heading "General Provisions of the
Equity Compensation Program" (the "General Provisions").
<PAGE>

             GENERAL PROVISIONS OF THE EQUITY COMPENSATION PROGRAM

          Article 1.  Administration.  The Program shall be administered by the
                      --------------
Board of Directors of the Corporation (the "Board" or the "Board of Directors")
or any duly created committee appointed by the Board and charged with the
administration of the Program. To the extent required in order to satisfy the
requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), such committee shall consist solely of "Outside Directors" (as
defined herein).  The Board, or any duly appointed committee, when acting to
administer the Program, is referred to as the "Program Administrator".  Any
action of the Program Administrator shall be taken by majority vote at a meeting
or by unanimous written consent of all members without a meeting.  No Program
Administrator or member of the Board of the Corporation shall be liable for any
action or determination made in good faith with respect to the Program or with
respect to any option granted pursuant to the Program.  For purposes of the
Program, the term "Outside Director" shall mean a director who (a) is not a
current employee of the Corporation or the Subsidiaries; (b) is not a former
employee of the Corporation or the Subsidiaries who receives compensation for
prior services (other than benefits under a tax-qualified retirement plan)
during the then current taxable year; (c) has not been an officer of the
Corporation or the Subsidiaries; and (d) does not receive remuneration (which
shall be deemed to include any payment in exchange for goods or services)  from
the Corporation or the Subsidiaries, either directly or indirectly, in any
capacity other than as a director, except as otherwise permitted under Code
Section 162(m) and the regulations thereunder.

          Article 2.  Authority of Program Administrator.  Subject to the other
                      ----------------------------------
provisions of this Program, and with a view to effecting its purpose, the
Program Administrator shall have the authority:  (a) to construe and interpret
the Program; (b) to define the terms used herein; (c) to prescribe, amend and
rescind rules and regulations relating to the Program; (d) to determine the
persons to whom options shall be granted under the Program; (e) to determine the
time or times at which options shall be granted under the Program; (f) to
determine the number of shares subject to any discretionary option under the
Program as well as the option price, and the duration of each option and any
other terms and conditions of options; and (g) to make any other determinations
necessary or advisable for the administration of the Program and to do
everything necessary or appropriate to administer the Program.  All decisions,
determinations and interpretations made by the Program Administrator shall be
binding and conclusive on all participants in the Program and on their legal
representatives, heirs and beneficiaries.

          Article 3.  Maximum Number of Shares Subject to the Program.  The
                      -----------------------------------------------
maximum aggregate number of shares of Common Stock issuable pursuant to the
Program shall be 950,000 shares.  No one person participating in the Program may
receive options for more than 300,000 shares of Common Stock in any calendar
year.  All such shares may be issued under any Plan which is part of the
Program.  If any of the options (including incentive stock options) granted
under the Program expire or terminate for any reason before they have been
exercised in full, the unissued shares subject to those expired or terminated
options shall again be available for purposes of the Program.  Any shares of
Common Stock delivered pursuant to the Program may consist, in whole or in part,
of authorized and unissued shares or treasury shares.

                                      -2-
<PAGE>

          Article 4.  Eligibility and Participation.  All directors, officers
                      -----------------------------
and employees of the Corporation and the Subsidiaries shall be eligible to
participate in the Program.  The term "employee" shall include any person who
has agreed to become an employee.

          Article 5.  Effective Date and Term of Program.  The Program shall
                      ----------------------------------
become effective immediately upon approval of the Program by the Board of
Directors of the Corporation, subject to approval of the Program by the
shareholders of the Corporation within twelve months after the date of approval
of the Program by the Board of Directors.  The Program shall continue in effect
for a term of ten years from the date that the Program is adopted by the Board
of Directors, unless sooner terminated by the Board of Directors of the
Corporation.

          Article 6.  Adjustments.  In the event that the outstanding shares of
                      -----------
Common Stock of the Corporation are hereafter increased, decreased, changed into
or exchanged for a different number or kind of shares or securities through
merger, consolidation, combination, exchange of shares, other reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse stock
split (an "Adjustment Event"), an appropriate and proportionate adjustment shall
be made by the Program Administrator in the maximum number and kind of shares as
to which options may be granted under the Program.  A corresponding adjustment
changing the number or kind of shares allocated to unexercised options which
shall have been granted prior to any such Adjustment Event shall likewise be
made.  Any such adjustment in outstanding options shall be made without change
in the aggregate purchase price applicable to the unexercised portion of the
option but with a corresponding adjustment in the price for each share or other
unit of any security covered by the option.  In making any adjustment pursuant
to this Article 6, any fractional shares shall be disregarded.

          Article 7.  Termination and Amendment of Program and Awards.  No
                      -----------------------------------------------
options shall be granted under the Program after the termination of the Program.
The Program Administrator may at any time amend or revise the terms of the
Program or of any outstanding option issued under the Program, provided,
however, that (a) any shareholder approval required by applicable law or
regulation shall be obtained and (b) no amendment, suspension or termination of
the Program or of any outstanding option shall, without the consent of the
person who has received an option, impair any of that person's rights or
obligations under such option.

          Article 8.  Privileges of Stock Ownership.  Notwithstanding the
                      -----------------------------
exercise of any option granted pursuant to the terms of the Program, no person
shall have any of the rights or privileges of a stockholder of the Corporation
in respect of any shares of stock issuable upon the exercise of his or her
option until certificates representing the shares of Common Stock covered
thereby have been issued and delivered.  No adjustment shall be made for
dividends or any other distributions for which the record date is prior to the
date on which any stock certificate is issued pursuant to the Program.

          Article 9.  Reservation of Shares of Common Stock.  During the term of
                      -------------------------------------
the Program, the Corporation will at all times reserve and keep available such
number of shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Program.

                                      -3-
<PAGE>

          Article 10.  Tax Withholding.  The exercise of any option under the
                       ---------------
Program is subject to the condition that, if at any time the Corporation shall
determine, in its discretion, that the satisfaction of withholding tax or other
withholding liabilities under any state or federal law is necessary or desirable
as a condition of, or in any connection with, such exercise, then, in such
event, the exercise of the option shall not be effective unless such withholding
tax or other withholding liabilities shall have been satisfied in a manner
acceptable to the Corporation.

          Article 11.  Employment; Service as a Director.  Nothing in the
                       ---------------------------------
Program gives to any person any right to continued employment by the Corporation
or the Subsidiaries or to continued service as a director of the Corporation or
the Subsidiaries or limits in any way the right of the Corporation or the
Subsidiaries at any time to terminate or alter the terms of that employment or
service.

          Article 12.  Investment Letter; Lock-Up Agreement; Restrictions on
                       -----------------------------------------------------
Obligation of the Corporation to Issue Securities; Restrictive Legend.  Any
---------------------------------------------------------------------
person acquiring or receiving  Common Stock or other securities of the
Corporation pursuant to the Program, as a condition precedent to receiving the
shares of Common Stock or other securities, may be required by the Program
Administrator to submit a letter to the Corporation (a) stating that the shares
of Common Stock or other securities are being acquired for investment and not
with a view to the distribution thereof and (b) providing other assurances
determined by the Corporation to be necessary or appropriate in order to assure
that the issuance of such shares is exempt from any applicable securities
registration requirements. The Corporation shall not be obligated to sell or
issue any shares of Common Stock or other securities pursuant to the Program
unless, on the date of sale and issuance thereof, the shares of Common Stock or
other securities are either registered under the Securities Act of 1933, as
amended, and all applicable state securities laws, or exempt from registration
thereunder.

          Article 13.  Rights Upon Termination of Employment or Service as a
                       -----------------------------------------------------
Director.  Notwithstanding any other provision of the Program, any benefit
--------
granted to an individual who has agreed to become an employee of the Corporation
or any Subsidiary or to become an employee of any entity which the Corporation
reasonably expects to become a Subsidiary, shall immediately terminate if the
Program Administrator determines, in its sole discretion, that such person will
not become an employee of the Corporation or any Subsidiary.  If a recipient
ceases to be employed by or to provide services as a director to the Corporation
or any Subsidiary, or a corporation or a parent or subsidiary of such
corporation issuing or assuming a stock option in a transaction to which Section
424(a) of the Code applies, for any reason other than death, disability or
retirement (subject to satisfaction of the criteria set forth in the following
sentence), then, unless any other provision of the Program provides for earlier
termination, all options shall terminate immediately in the event the
recipient's employment or services as a director are terminated for cause and in
all other circumstances may be exercised, to the extent exercisable on the date
of termination, until 30 days after the date of termination, provided, however,
that the Program Administrator may, in its discretion, allow such options to be
exercised (to the extent exercisable on the date of termination) at any time
within 90 days after the date of termination.  Notwithstanding the foregoing, in
the event an employee of the Corporation or any Subsidiary retires on or after
attaining the age of 62, and provided such employee has at least five

                                      -4-
<PAGE>

years of continuous service with the Corporation or any Subsidiary at the time
of such retirement, then all options exercisable on the date of retirement as
well as all options that would otherwise vest within one year following the date
of retirement may be exercised until 30 days after the date of retirement or, at
the discretion of the Program Administrator, until 90 days after the date of
retirement.

          Article 14.  Rights Upon Disability.  If a recipient becomes disabled
                       ----------------------
within the meaning of Section 22(e)(3) of the Code while employed by or while
rendering services as a director to the Corporation or any Subsidiary (or a
corporation or a parent or subsidiary of such corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the Code applies),
then, unless any other provision of the Program provides for earlier
termination, all options may be exercised, to the extent exercisable on the date
of termination (or to such greater extent as shall be determined by the Plan
Administrator before or after the date of termination), at any time within one
year after the date of termination due to disability.

          Article 15.  Rights Upon Death.  If a recipient dies while employed by
                       -----------------
or while rendering services as a director to the Corporation or any Subsidiary
(or a corporation or a parent or subsidiary of such corporation issuing or
assuming a stock option in a transaction to which Section 424(a) of the Code
applies), then, unless any other provision of the Program provides for earlier
termination, all options may be exercised by the person or persons to whom the
recipient's rights shall pass by will or by the laws of descent and
distribution, to the extent exercisable on the date of death (or to such greater
extent as shall be determined by the Plan Administrator before or after the date
of termination), at any time within one year after the date of death unless any
other provision of the Program provides for earlier termination.

          Article 16.  Non-Transferability.  Options granted under the Program
                       -------------------
may not be sold, pledged, assigned or transferred in any manner by the recipient
otherwise than by will or by the laws of descent and distribution and shall be
exercisable (a) during the recipient's lifetime only by the recipient and (b)
after the recipient's death only by the recipient's executor, administrator or
personal representative, provided, however that the Program Administrator may
permit the recipient of an option granted pursuant to Part II of the Program to
transfer options to a family member or a trust or partnership created for the
benefit of family members.  In the case of such a transfer, the transferee's
rights and obligations with respect to the applicable options shall be
determined by reference to the recipient and the recipient's rights and
obligations with respect to the applicable options had no transfer been made.
The recipient shall remain obligated pursuant to Articles 10 and 12 hereunder if
required by applicable law.

          Article 17.  Change in Control.  All options granted pursuant to the
                       -----------------
Program shall become fully exercisable upon the occurrence of a Change in
Control Event.  As used in the Program, a "Change in Control Event" shall be
deemed to have occurred if any of the following events occur:

          (a) the consummation of any consolidation or merger of the Corporation
in which the Corporation is not the continuing or surviving corporation or
pursuant to which shares of Common Stock would be converted into cash,
securities or other property,

                                      -5-
<PAGE>

other than a merger of the Corporation in which the holders of the shares of the
Corporation's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger; or

          (b) the consummation of any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Corporation, other than to a subsidiary
or affiliate; or

          (c) an approval by the shareholders of the Corporation of any plan or
proposal for the liquidation or dissolution of the Corporation; or

          (d) any action pursuant to which any person (as such term is defined
in Section 13(d) of the Exchange Act), corporation or other entity (other than
any person who owns more than ten percent (10%) of the outstanding Common Stock
on the date of adoption of this Program by the Board of Directors, the
Corporation or any benefit plan sponsored by the Corporation or any of its
subsidiaries) shall become the "beneficial owner" (as such term is defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of shares of capital
stock entitled to vote generally for the election of directors of the
Corporation ("Voting Securities") representing fifty-one (51%) percent or more
of the combined voting power of the Corporation's then outstanding Voting
Securities (calculated as provided in Rule 13d-3(d) in the case of rights to
acquire any such securities), unless, prior to such person so becoming such
beneficial owner, the Board shall determine that such person so becoming such
beneficial owner shall not constitute a Change in Control; or

          (e) the individuals (A) who, as of the date on which the Program is
first adopted by the Board of Directors, constitute the Board (the "Original
Directors") and (B) who thereafter are elected to the Board and whose election,
or nomination for election, to the Board was approved by a vote of at least two
thirds of the Original Directors then still in office (such Directors being
called "Additional Original Directors") and (C) who thereafter are elected to
the Board and whose election or nomination for election to the Board was
approved by a vote of at least two thirds of the Original Directors and
Additional Original Directors then still in office, cease for any reason to
constitute a majority of the members of the Board.

          Article 18.  Merger or Asset Sale.  For purposes of the Program, a
                       --------------------
merger or consolidation which would constitute a Change in Control Event
pursuant to Article 17 and a sale of assets which would constitute a Change in
Control Event pursuant to Article 17 are hereinafter referred to as "Article 18
Events".   In the event of an Article 18 Event, each outstanding option shall be
assumed or an equivalent benefit shall be substituted by the entity determined
by the Board of Directors of the Corporation to be the successor corporation.
However, in the event that any such successor corporation does not agree in
writing, at least 15 days prior to the anticipated date of consummation of such
Article 18 Event, to assume or so substitute each such option, then each option
not so assumed or substituted shall be deemed to be fully vested and
exercisable.  If an option becomes fully vested and exercisable pursuant to the
terms of this Article 18, the Program Administrator shall notify the holder
thereof in writing or electronically that (a) such holder's option shall be
fully exercisable until immediately prior to the

                                      -6-
<PAGE>

consummation of such Article 18 Event and (b) such holder's option shall
terminate upon the consummation of such Article 18 Event. For purposes of this
Article 18, an option shall be considered assumed if, following consummation of
the applicable Article 18 Event, the option confers the right to purchase or
receive, for each share of Common Stock subject to the option immediately prior
to the consummation of such Article 18 Event, the consideration (whether stock,
cash or other securities or property) received in such Article 18 Event by
holders of Common Stock for each share of Common Stock held on the effective
date of such Article 18 Event (and, if holders of Common Stock are offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares of Common Stock); provided, however, that if
such consideration received in such Article 18 Event is not solely common stock
of such successor, the Program Administrator may, with the consent of such
successor corporation, provide for the consideration to be received in
connection with such option to be solely common stock of such successor equal in
fair market value to the per share consideration received by holders of Common
Stock in the Article 18 Event.

          Article 19.  Method of Exercise.  Any optionee may exercise his or her
                       ------------------
option from time to time by giving written notice thereof to the Corporation at
its principal office together with payment in full for the shares of Common
Stock to be purchased.  The date of such exercise shall be the date on which the
Corporation receives such notice.  Such notice shall state the number of shares
to be purchased.  The purchase price of any shares purchased upon the exercise
of any option granted pursuant to the Program shall be paid in full at the time
of exercise of the option by certified or bank cashier's check payable to the
order of the Corporation or, if permitted by the Program Administrator, by
shares of Common Stock, or by a combination of checks and shares of Common
Stock.  The Program Administrator may, in its sole discretion, permit an
optionee to make "cashless exercise" arrangements, to the extent permitted by
applicable law, and may require optionees to utilize the services of a single
broker selected by the Program Administrator in connection with any cashless
exercise.  No option may be exercised for a fraction of a share of Common Stock.
If any portion of the purchase price is paid in shares of Common Stock, those
shares shall be valued at their then Fair Market Value as determined by the
Program Administrator in accordance with Section 4 of the Incentive Plan.

          Article 20.  Ten-Year Limitations.  Notwithstanding any other
                       --------------------
provision of the Program, (a) no option may be granted pursuant to the Program
more than ten years after the date on which the Program was adopted by the Board
of Directors and (b) any option granted under the Program shall, by its terms,
not be exercisable more than ten years after the date of grant.

          Article 21.  Sunday or Holiday.  In the event that the time for the
                       -----------------
performance of any action or the giving of any notice is called for under the
Program within a period of time which ends or falls on a Sunday or legal
holiday, such period shall be deemed to end or fall on the next day following
such Sunday or legal holiday which is not a Sunday or legal holiday.

          Article 22.  Governing Law.  The Program shall be governed by and
                       -------------
construed in accordance with the laws of the State of New Jersey.

                                      -7-
<PAGE>

          Article 23.   Pooling Transactions.  Notwithstanding anything
                        --------------------
contained in the Program to the contrary, in the event of a Change in Control
which is also intended to constitute a Pooling Transaction (as defined herein),
the Program Administrator shall take such actions, if any, which are
specifically recommended by an independent accounting firm retained by the
Corporation to the extent reasonably necessary in order to assure that the
Pooling Transaction will qualify as such, including but not limited to (a)
deferring the vesting, exercise, payment or settlement with respect to any
benefit granted under the Program, (b) providing that the payment or settlement
in respect of any such benefit be made in the form of cash, shares of common
stock or other assets or securities of a successor or acquirer of the
Corporation, or a combination of the foregoing and (c) providing for the
extension of the term of any such benefit to the extent necessary to accommodate
the foregoing, but not beyond the maximum term permitted for any such benefit.
For purposes of the Program, the term "Pooling Transaction" shall mean an
acquisition of the Corporation in a transaction which is intended to be treated
as a "pooling of interests" under generally accepted accounting principles.

          Article 24.  Covenant Against Competition.  The Program Administrator
                       ----------------------------
shall have the right to condition the award to an employee of the Corporation or
the Subsidiaries of any option under the Program upon the recipient's execution
and delivery to the Corporation of an agreement not to compete with the
Corporation and the Subsidiaries during the recipient's employment and for such
period thereafter as shall be determined by the Program Administrator.  Such
covenant against competition shall be in a form satisfactory to the Program
Administrator.

                                      -8-
<PAGE>

                                    PART I

                          INCENTIVE STOCK OPTION PLAN

          The following provisions shall apply with respect to options granted
by the Program Administrator pursuant to Part I of the Program:

          Section 1.  General.  This Incentive Stock Option Plan ("Incentive
                      -------
Plan") is Part I of the Corporation's Program.  The Corporation intends that
options granted pursuant to the provisions of the Incentive Plan will qualify
and will be identified as "incentive stock options" within the meaning of
Section 422 of the Code.  Unless any provision herein indicates to the contrary,
this Incentive Plan shall be subject to the General Provisions of the Program.

          Section 2.  Terms and Conditions.  The Program Administrator may grant
                      --------------------
incentive stock options to purchase Common Stock to any employee of the
Corporation or its Subsidiaries.  The terms and conditions of options granted
under the Incentive Plan may differ from one another as the Program
Administrator shall, in its discretion, determine, as long as all options
granted under the Incentive Plan satisfy the requirements of the Incentive Plan.

          Section 3.  Duration of Options.  Each option and all rights
                      -------------------
thereunder granted pursuant to the terms of the Incentive Plan shall expire on
the date determined by the Program Administrator, but in no event shall any
option granted under the Incentive Plan expire later than ten years from the
date on which the option is granted.  Notwithstanding the foregoing, any option
granted under the Incentive Plan to any person who owns more than 10% of the
combined voting power of all classes of stock of the Corporation or any
Subsidiary shall expire no later than five years from the date on which the
option is granted.

          Section 4.  Purchase Price.  The option price with respect to any
                      --------------
option granted pursuant to the Incentive Plan shall not be less than the Fair
Market Value of the shares on the date of the grant of the option; except that
the option price with respect to any option granted pursuant to the Incentive
Plan to any person who owns more than 10% of the combined voting power of all
classes of stock of the Corporation shall not be less than 110% of the Fair
Market Value of the shares on the date the option is granted. For purposes of
the Program, the phrase  "Fair Market Value" shall mean the fair market value of
the Common Stock on the date of grant or other relevant date.  If on such date
the Common Stock is listed on a stock exchange or is quoted on the automated
quotation system of NASDAQ, the Fair Market Value shall be the closing sale
price (or if such price is unavailable, the average of the high bid price and
the low asked price) of a share of Common Stock on such date.  If no such
closing sale price or bid and asked prices are available, the Fair Market Value
shall be determined in good faith by the Program Administrator in accordance
with generally accepted valuation principles and such other factors as the
Program Administrator reasonably deems relevant.

          Section 5.  Maximum Amount of Options in Any Calendar Year.  The
                      ----------------------------------------------
aggregate Fair Market Value (determined as of the time the option is granted) of
the Common Stock with respect to which incentive stock options are exercisable
for the first time by any employee during

                                      -9-
<PAGE>

any calendar year (under the terms of the Incentive Plan and all incentive stock
option plans of the Corporation and the Subsidiaries) shall not exceed $100,000.

          Section 6.  Exercise of Options.  Unless otherwise provided by the
                      -------------------
Program Administrator at the time of grant or unless the installment provisions
set forth herein are subsequently accelerated pursuant to the General Provisions
of the Program or otherwise by the Program Administrator with respect to any one
or more previously granted options, incentive stock options may only be
exercised to the following extent during the following periods of time:

                                       Maximum Percentage of
                                       Shares Covered by
                                       Option Which May be
           During                          Purchased
           ------                --------------------------------

    First 12 months after grant                0
    First 24 months after grant                25%
    First 36 months after grant                50%
    First 48 months after grant                75%
    Beyond 48 months after grant              100%

        Section 7.   Failure to Satisfy Applicable Requirements.  In the event
                     ------------------------------------------
that an option is intended to be granted pursuant to the provisions of this
Incentive Plan but fails to satisfy one or more requirements of this Incentive
Plan, such option shall be deemed to have been granted pursuant to the
Supplemental Plan set forth as Part II of the Program, provided that such option
satisfies the requirements of the Supplemental Plan.

                                     -10-
<PAGE>

                                    PART II

                        SUPPLEMENTAL STOCK OPTION PLAN

          The following provisions shall apply with respect to options granted
by the Program Administrator pursuant to Part II of the Program:

          Section 1.  General.  This Supplemental Stock Option Plan
                      -------
("Supplemental Plan") is Part II of the Corporation's Program.  Any option
granted pursuant to this Supplemental Plan shall not be an incentive stock
option as defined in Section 422 of the Code.  Unless any provision herein
indicates to the contrary, this Supplemental Plan shall be subject to the
General Provisions of the Program.

          Section 2.  Terms and Conditions.  The Program Administrator may grant
                      --------------------
supplemental stock options to any person eligible under Article 4 of the General
Provisions.  The terms and conditions of options granted under this Supplemental
Plan may differ from one another as the Program Administrator shall, in its
discretion, determine as long as all options granted under this Supplemental
Plan satisfy the requirements of this Supplemental Plan.

          Section 3.  Duration of Options.  Each option and all rights
                      -------------------
thereunder granted pursuant to the terms of this Supplemental Plan shall expire
on the date determined by the Program Administrator, but in no event shall any
option granted under this Supplemental Plan expire later than ten years from the
date on which the option is granted.

          Section 4.  Purchase Price.  The option price with respect to any
                      --------------
option granted pursuant to this Supplemental Plan shall be determined by the
Program Administrator at the time of grant.

          Section 5.  Exercise of Options.  Unless otherwise provided by the
                      -------------------
Program Administrator at the time of grant or unless the installment provisions
set forth herein are subsequently accelerated pursuant to the General Provisions
of the Program or otherwise by the Program Administrator with respect to any one
or more previously granted options, supplemental stock options may only be
exercised to the following extent during the following periods of time:

                                         Maximum Percentage of
                                          Shares Covered by
                                         Option Which May be
          During                             Purchased
          ------                   -------------------------------

     First 12 months after grant               0
     First 24 months after grant               25%
     First 36 months after grant               50%
     First 48 months after grant               75%
     Beyond 48 months after grant             100%

                                     -11-
<PAGE>

                                   PART III

                           INDEPENDENT DIRECTOR PLAN

          The following provisions shall apply with respect to options granted
by the Program Administrator pursuant to Part III of the Program:

          Section 1.  General.  This Independent Director Plan ("Independent
                      -------
Director Plan") is Part III of the Corporation's Program.  Any option granted
pursuant to this Independent Director Plan shall not be an incentive stock
option as defined in Section 422 of the Code.  Unless any provision herein
indicates to the contrary, this Independent Director Plan shall be subject to
the General Provisions of the Program.

          Section 2.  Definitions.  As used in this Independent Director Plan,
                      -----------
the following definitions shall apply.

          (a) "Employee" shall mean any person employed on a full-time basis by
the Corporation or any present or future Subsidiary of the Corporation.

          (b) "Existing Independent Director" shall mean each member of the
Corporation's Board of Directors on the date the Program is first adopted by
such Board of Directors who did not serve as an Employee during the preceding 12
months.

          (c) "Fair Market Value" shall have the meaning set forth in Section 4
of the Incentive Plan.

          (d) "Independent Director" shall mean any member of the Corporation's
Board of Directors who, on the date such person is to receive a grant of an
Option pursuant to the Independent Director Plan, shall not be an Employee.

          (e) "New Independent Director" shall have the meaning set forth in
Section 4(a) of this Independent Director Plan.

          (f) "Option" shall mean the right, granted pursuant to Section 4 of
this Independent Director Plan, to purchase one or more shares of Common Stock.

          (g) "Subsidiary" shall mean any present or future corporation which
would  be a "subsidiary corporation" as defined in Subsections 424(f) and (g) of
the Code.

          Section 3.  Eligibility.  The only persons eligible to receive Options
                      -----------
under the Independent Director Plan shall be persons who, on the date such
Options are to be granted hereunder, constitute Independent Directors.

          Section 4.  Option Grants.
                      -------------

                                     -12-
<PAGE>

          (a) Automatic Grants to New Independent Directors.  The Corporation
              ---------------------------------------------
shall grant to each Independent Director who first becomes a director of the
Corporation during the term of the Independent Director Plan (a "New Independent
Director") an Option to purchase 25,000 shares of Common Stock on the date of
his first appointment or election as a director of the Corporation.

          (b) Automatic Grants to Existing Independent Directors.  On the date
              --------------------------------------------------
that the Program is first adopted by the Corporation's Board of Directors, the
Corporation shall grant to each Existing Independent Director an Option to
purchase 25,000 shares of Common Stock.

          Section 5.  Option Price.  The exercise price per share of the Common
                      ------------
Stock covered by each Option granted under the Independent Director Plan shall
be the Fair Market Value of a share of the Common Stock on the date the Option
is granted.

          Section 6.  Term of Options.  Subject to the General Provisions of the
                      ---------------
Program, each Option granted pursuant to the Independent Director Plan shall
expire ten years after the date of grant.

          Section 7.  Exercise of Options.  Each Option granted pursuant to the
                      -------------------
Independent Director Plan shall be exercisable as follows:

                                        Maximum Percentage of Shares Covered by
                During                       Option Which May be Purchased
                ------                       -----------------------------

     First 12 months after grant                        20%
     First 24 months after grant                        40%
     First 36 months after grant                        60%
     First 48 months after grant                        80%
     Beyond 48 months after grant                       100%

                                     -13-

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