Document:

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                                                                    EXHIBIT 10.3
                                                                    ------------

                   FORM OF SECURITY AGREEMENT AND ASSIGNMENT
                   -----------------------------------------
                          OF EARNINGS AND INSURANCES
                          --------------------------

          SECURITY AGREEMENT AND ASSIGNMENT OF EARNINGS AND INSURANCES (as
amended, modified or supplemented from time to time, this "Agreement"), dated as
of  August 31, 2000, made by R&B Falcon Corporation (the "Assignor") and
Christiania Bank og Kreditkasse ASA, New York Branch, as Collateral Agent (the
"Collateral Agent"), for the benefit of the Banks, the Issuing Banks, and each
Agent under, and as defined in, the L/C Credit Agreement (as defined below)
(such Banks, Issuing Banks and Agents are hereinafter called the "Secured
Creditors"). Except as otherwise defined herein, capitalized terms used herein
and defined in the L/C Agreement shall be used herein as so defined.

                             W I T N E S S E T H:
                             -------------------

          WHEREAS, the Assignor, the banks from time to time party thereto,
Credit Agricole Indosuez, Credit Lyonnais New York Branch, as Syndication Agent,
and Christiana Bank og Kreditkasse ASA, New York Branch, as Administrative
Agent, have entered into a Letter of Credit and Reimbursement Agreement, dated
as of August 31, 2000 (as modified, supplemented or amended from time to time,
the "L/C Agreement"), providing for the issuance of, and participation in,
Letters of Credit as contemplated therein;

          WHEREAS, the Assignor desires to have Letters of Credit issued for its
account under the L/C Agreement;

          WHEREAS, the Company is the sole owner of (x) the Panama flag offshore
drilling vessels, (i)  J.W. MCLEAN, Official Number 25384-PEXT-3, (ii) J.T.
ANGEL, Official Number 27302-PEXT-3, (iii) RANDOLPH YOST, Official Number 27265-
PEXT-3, and (iv) D.R. STEWART, Official Number 26724-PEXT-3, and (y) the U.S.
flag offshore drilling vessel GEORGE H. GALLOWAY, Official Number 651646,
(collectively, the "Collateral Vessels" and each, a "Collateral Vessel", and, in
each case as such vessel is further defined in the Mortgage covering such
vessel);

          WHEREAS, it is a condition precedent to the issuance of additional
Letters of Credit under the L/C Agreement and to the occurrence of the Effective
Date that the Assignor shall have executed and delivered to the Collateral Agent
this Agreement; and

          WHEREAS, the Assignor desires to execute this Agreement to satisfy the
conditions described in the preceding paragraph;

          NOW, THEREFORE, in consideration of the benefits accruing to the
Assignor, the receipt and sufficiency of which are hereby acknowledged, the
Assignor hereby make the following representations and warranties to the
Collateral Agent and hereby covenant and agree with the Collateral Agent as
follows:
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          SECTION 1.  OBLIGATIONS SECURED; ESTABLISHMENT OF CONCENTRATION
ACCOUNT.

          1.01  This Agreement is made for the benefit of the Secured Creditors
to secure (i) the full and prompt payment when due of (x) all reimbursement
obligations and Unpaid Drawings with respect to the Letters of Credit issued
under the L/C Agreement and (y) all other obligations and indebtedness
(including, without limitation, indemnities, Fees and interest thereon) of the
Assignor to the Secured Creditors, whether now existing or hereafter incurred
under, arising out of or in connection with the L/C Agreement and the other
Credit Documents and the prompt and complete performance and compliance by the
Assignor with all of the terms, conditions and agreements contained in the L/C
Agreement and the other Credit Documents; (ii) any and all sums advanced by the
Collateral Agent in order to preserve the Collateral (as hereinafter defined) or
preserve its security interest in the Collateral; (iii) in the event of any
proceeding for the collection or enforcement of any indebtedness, obligations,
or liabilities of the Assignor referred to in clause (i) above, after an Event
of Default shall have occurred and be continuing, the reasonable expenses of the
Collateral Agent of re-taking, holding, preparing for sale or lease, selling or
otherwise disposing of or realizing on the Collateral, or of any exercise by the
Collateral Agent of its rights hereunder, together with reasonable attorneys'
fees of counsel to the Collateral Agent and court costs; and (iv) all amounts
paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement under Section 11 of this Agreement (all such obligations,
liabilities, sums and expenses referred to in clauses (i) through (iv) above
being collectively referred to as the "Obligations").  It is acknowledged and
agreed that the "Obligations" shall include extensions of credit of the types
described above, whether outstanding on the date of this Agreement or extended
from time to time after the date of this Agreement.

          1.02  The Collateral Agent has established in the name and for the
benefit of the Collateral Agent, as agent for the Secured Creditors, an account
(Account No.: 0062611902, Account Name: R&B Falcon Concentration Account) (the
"Concentration Account") for purposes of this Agreement, which Concentration
Account is maintained at the Collateral Agent's office located at 11 West 42/nd/
Street, 7/th/ Floor, New York, New York 10036. The Concentration Account shall
be under the sole dominion and control of the Collateral Agent, as agent for the
Secured Creditors, and the Collateral Agent shall have the sole right to direct
withdrawals from the Concentration Account and to excercise all rights with
respect to the Earnings Collateral (as defined below) from time to time therein
pursuant to the terms of this Agreement. All Earnings Collateral delivered to or
held by or on behalf of the Collateral Agent pursuant hereto shall be held in
the Concentration Account in accordance with the provisions hereof.

          SECTION 2.  ASSIGNMENT OF EARNINGS.

          2.01  (a) The Assignor, as legal and beneficial owner, hereby pledges,
assigns, transfers and sets over unto the Collateral Agent for the benefit of
the Secured Creditors and their successors and assigns, and hereby grants the
Collateral Agent a continuing possessory lien and first priority security
interest in, all of its right, title and interest in and to the following,
whether
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now existing or hereafter from time to time acquired (all of the following,
collectively, the "Earnings Collateral"): (i) the Earnings (as defined below) of
the Collateral Vessels from any source, (ii) all monies or other compensation
payable by reason of requisition of title or for hire or other compulsory
acquisition of the Collateral Vessels, (iii) the Concentration Account, together
with all of the Assignor's right, title and interest in and to all sums of
property (including cash equivalents and other investments) now or at any time
hereafter on deposit therein, credited thereto or payable thereon, and all
instruments, documents and other writings evidencing the Concentration Account,
and (iv) all proceeds and products of any and all of the foregoing.

          (b)  For the purpose of this Section 2, "Earnings" shall mean:

               (x)  all rent, charterhire and other monies and rights and claims
                    to monies other than the local currency portion necessary to
                    cover direct operating expenses relating to the relevant
                    contract;

               (y)  all of the Assignor's right, title and interest to and in
                    any monies whatsoever payable to the Assignor under any
                    bareboat or time charter, drilling contract, or other
                    contract for the use or employment of any Collateral Vessel
                    (collectively, the "Collateral Vessel Contracts"), and all
                    other rights and benefits whatsoever accruing to the
                    Assignor thereunder, including (but without prejudice to the
                    generality of the foregoing) all claims for damages for any
                    breach by any charterer or other party thereto of any
                    Collateral Vessel Contract; and

               (z)  all freights (if any), passage monies (if any), hire monies
                    (if any), compensation (if any) payable to the Assignor in
                    the event of the requisition of any Collateral Vessel for
                    hire, remuneration for salvage and towage services (if any),
                    demurrage and detention monies (if any), and any other
                    earnings whatsoever due or to become due to the Assignor
                    with respect to any Collateral Vessel.

          2.02 Pursuant to Section 6.10 of the L/C Agreement, the Assignor is
obligated to deposit all of the Earnings of the Company and its Subsidiaries
arising from the operation of the Collateral Vessels into the Concentration
Account.  Subject to the provisions of Section 2.03 of this Agreement, the
Assignor is hereby authorized by the Collateral Agent to direct the disposition
of any and all monies, instruments and other securities deposited in the
Concentration Account (which amount shall include, without limitation, (i) the
accounts receivable included in, or representing proceeds of, the Earnings
Collateral, and (ii) any funds representing payments of such Earnings Collateral
(or part thereof)) for use by the Assignor in a manner permitted by the L/C
Agreement.

          2.03 Upon the occurrence of an Event of Default pursuant to Section
7.05 or Section 7.06 of the L/C Agreement and without any further act or notice,
or upon the giving by the Collateral Agent of a written notice to any Assignor
after the occurrence and during the
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continuance of any other Event of Default, the authorization granted by the
Collateral Agent to the Assignor to direct the disposition of funds deposited in
the Concentration Account as set forth in Section 2.02 shall terminate.

          2.04 Upon the occurrence of an Event of Default, the Assignor hereby
represents, warrants and undertakes that:

          (a)  notice of this Agreement in the form attached hereto as Annex I
               will be promptly delivered to all charterers of the Collateral
               Vessels and any other party that has entered into a Collateral
               Vessel Contract; and

          (b)  it will use its good faith efforts to cause any charterer to
               execute a Consent and Agreement to this Agreement in the form
               attached hereto as Annex II and deliver such Consent and
               Agreement to the Collateral Agent.

          2.05 Upon the occurrence of an Event of Default, the Collateral Agent
shall be entitled to receive all payments of Earnings of the Collateral Vessels
payable to the Assignor and assigned hereby.  Such payment shall be made to the
Concentration Account or to any other account designated by the Collateral Agent
for receipt of such payments and the Assignor shall cause all sums so payable to
the Assignor and assigned hereby to be paid directly into any such account
designated at such time by the Collateral Agent.

          2.06 It is hereby expressly agreed that, anything contained herein to
the contrary notwithstanding, the Assignor shall remain liable under all
charters and contracts pertaining to the Collateral Vessels to perform the
obligations assumed by it thereunder, and the Collateral Agent shall have no
obligation or liability of any nature whatsoever under any such charter or
contract by reason of, or arising out of, this Agreement, nor shall the
Collateral Agent be required to assume or be obligated in any manner to perform
or fulfill any obligation of the Assignor under or pursuant to any such charter
or contract or to make any payment or make any inquiry as to the nature or
sufficiency of any payment received by the Collateral Agent, or, unless and
until indemnified to its satisfaction, to present or file any claim or to take
any other action to collect or enforce the payment of any amounts which may have
been assigned to it or to which it may be entitled hereunder or pursuant hereto
at any time or times.

          2.07 The Assignor shall promptly notify the Collateral Agent in
writing of the commencement and termination of any period during which any of
the Collateral Vessels owned by it is requisitioned.

          2.08 Upon the occurrence of an Event of Default, the Collateral Agent
has the right to give notice of this Agreement to all account debtors.

          2.09 The Collateral Agent shall not be required to make any inquiry
as to the nature or sufficiency of any payment received by the Collateral Agent,
or, unless and until indemnified  to its satisfaction, to present or file any
claim, or to take any other action to collect or enforce the payment of any
amounts which may have been assigned to it or to which it may be entitled
hereunder or pursuant hereto at any time or times.
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          2.10 The Assignor hereby authorizes the Collateral Agent, at the
expense of the Assignor, to execute and file Financing Statements (Form UCC-1 or
equivalent) and amendments thereto as provided in Article 9 of the Uniform
Commercial Code in respect of the Earnings Collateral.

          SECTION 3.  ASSIGNMENT OF INSURANCE.

          3.01 The Assignor, as legal and beneficial owner, hereby sells,
assigns, transfers and sets over unto the Collateral Agent for the benefit of
the Secured Creditors and their successors and assigns, and hereby grants the
Collateral Agent a lien and security interest in, all of its right, title and
interest in and to the following, whether now existing or hereafter from time to
time acquired (all of the following, collectively, the "Insurance Collateral"):
(i) all insurances (including, without limitation, all certificates of entry in
protection and indemnity and war risks associations or clubs) in respect of such
Collateral Vessels, whether heretofore, now or hereafter effected, and all
renewals of or replacements for the same, (ii) except as hereinafter provided,
all claims, returns of premium and other monies and claims for monies due and to
become due under or in respect of said insurances, (iii) all other rights of the
Assignor under or in respect of said insurances and (iv) any proceeds and
products of any and all of the foregoing.

          3.02 It is expressly agreed that anything herein contained to the
contrary notwithstanding, the Assignor shall remain liable under said insurances
to perform all of the obligations assumed by it thereunder and the Collateral
Agent shall have no obligation or liability (including, without limitation, any
obligation or liability with respect to the payment of premiums, calls or
assessments) under said insurances by reason of or arising out of this
instrument of assignment nor shall the Collateral Agent be required or obligated
in any manner to perform or fulfill any obligations of the Assignors under or
pursuant to said insurances or to make any payment or to make any inquiry as to
the nature or sufficiency of any payment received by it or to present or file
any claim, or to take any other action to collect or enforce the payment of any
amounts which or may have been assigned to it or to which it may be entitled
hereunder at any time or times.

          3.03 The Assignor hereby covenants and agrees to deliver notice of
this Assignment, in the form of Annex III hereto, to all underwriters and that
where the consent of any underwriter is required pursuant to any of the
insurances assigned hereby, the Assignor shall use its good faith efforts to
obtain such consent in the form of Annex IV hereto, and evidence thereof shall
be given to the Collateral Agent, and there shall be duly endorsed upon all
slips, cover notes, policies, certificates of entry or other instruments issued
or to be issued in connection with the insurances assigned hereby such clauses
as to additional named assured or loss payees as the Collateral Agent may
reasonably request.  In all cases, unless otherwise agreed in writing by the
Collateral Agent, such slips, cover notes, notices, certificates of entry or
other instruments shall show the Collateral Agent and the Banks as additional
named assured and shall provide that there will be no recourse against the
Collateral Agent for payment of premiums, calls or assessments.
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          3.04 In the event that the Insurance Collateral or any portion
thereof is sold in connection with a sale permitted by the L/C Agreement or is
otherwise released at the direction of the Required Banks (or all the Banks, to
the extent required by Section 10.14 of the L/C Agreement), the Collateral
Agent, at the request and expense of the Assignor, will duly assign, transfer
and deliver to the Assignor (without recourse and without any representation or
warranty) such of the Insurance Collateral (and releases therefor) as is then
being (or has been) so sold or released and as may be in the possession of the
Collateral Agent and has not theretofore been released pursuant to this
Agreement.  At any time that the Assignor desires that the Insurance Collateral
or a portion thereof be released as provided in this Section 3.04, the Assignors
shall deliver to the Collateral Agent a certificate signed by an Authorized
Officer stating that the release of the Insurance Collateral or portion thereof
is permitted pursuant to this Section 3.04.

          3.05 The Assignor hereby authorizes the Collateral Agent, at the
expense of the Assignor, to execute and file Financing Statements (Form UCC-1 or
equivalent) and amendments thereto as provided in Article 9 of the Uniform
Commercial Code in respect of the Insurance Collateral.

          SECTION 4.  EQUIPMENT.

          4.01 The Assignor, as legal and beneficial owner, hereby sells,
assigns, transfers and sets over unto the Collateral Agent for the benefit of
the Secured Creditors and their successors and assigns, and hereby grants the
Collateral Agent a lien and security interest in, all of its right, title and
interest in and to the following, whether now existing or hereafter from time to
time acquired  (all of the following, collectively, the "Equipment Collateral"
and, together with the Earnings Collateral and the Insurance Collateral, the
"Collateral"):  (i) all items of equipment of the Assignor used in connection
with any of the Collateral Vessels, whether currently owned or hereafter
acquired, and whether on board the respective Collateral Vessel or not and (ii)
any proceeds and products of any and all of the foregoing.

          4.02 In the event that the Equipment Collateral or any portion
thereof is sold in connection with a sale permitted by the L/C Agreement or is
otherwise released at the direction of the Required Banks (or all the Banks, to
the extent required by Section 10.14 of the L/C Agreement), the Collateral
Agent, at the request and expense of the Assignor, will duly assign, transfer
and deliver to the Assignor (without recourse and without any representation or
warranty) such of the Insurance Collateral (and releases therefor) as is then
being (or has been) so sold or released and as may be in the possession of the
Collateral Agent and has not theretofore been released pursuant to this
Agreement.  At any time that the Assignor desires that the Equipment Collateral
or a portion thereof be released as provided in this section, the Assignors
shall deliver to the Collateral Agent a certificate signed by an Authorized
Officer stating that the release of the Equipment Collateral or portion thereof
is permitted pursuant to this Section 4.02.

          4.03 The Assignor hereby authorizes the Collateral Agent, at the
expense of the Assignor, to execute and file Financing Statements (Form UCC-1 or
equivalent) and
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amendments thereto as provided in Article 9 of the Uniform Commercial Code in
respect of the Equipment Collateral.

          SECTION 5.  FURTHER ASSURANCES.

          The Assignor will, at any time and from time to time, at their own
expense, promptly execute and deliver all further agreements, instruments and
other documents and take all further action that may be necessary or that the
Collateral Agent may reasonably request in order to perfect and protect the
security interest purported to be created hereby or otherwise to enable the
Collateral Agent to exercise and enforce its rights and remedies hereunder.

          SECTION 6.  TRANSFERS AND OTHER LIENS.

          The Assignor will not, without the written consent of the Collateral
Agent, (i) sell, assign (by operation of law or otherwise) or otherwise dispose
of any interest in the Collateral or (ii) create or suffer to exist any Lien,
security interest or other charge or encumbrance upon or with respect to any
Collateral except for the security interest purported to be created hereby.

          SECTION 7.  ATTORNEY-IN-FACT.

          The Assignor hereby appoints the Collateral Agent as the Assignor's
attorney-in-fact, with full authority only after the occurrence of and during
the continuance of an Event of Default, in the place and stead of the Assignor
and in the name of the Assignor or otherwise, from time to time in the
Collateral Agent's discretion to execute any instrument and to take any other
action which the Collateral Agent may in good faith reasonably deem necessary or
advisable to accomplish the purposes of this Agreement or to facilitate the
assignment or other transfer by the Collateral Agent of any or all of its rights
hereunder, including, without limitation, (i) to receive, endorse and collect
all instruments made payable to the Assignor and representing any interest
payment or other distribution in respect of the Collateral and to give full
discharge for the same and (ii) to execute and deliver any and all instruments
and other documents that the Collateral Agent may request in connection with the
exercise by the Collateral Agent of any or all of its rights hereunder.  Such
appointment of the Collateral Agent as attorney-in-fact is irrevocable and
coupled with an interest.

          SECTION 8.  PERFORMANCE BY THE COLLATERAL AGENT.

          If the Assignor fails to perform any agreement or obligation contained
herein, the Collateral Agent itself may perform or cause performance of such
agreement or obligation, and the reasonable expenses of the Collateral Agent
incurred in connection therewith shall be payable to the Collateral Agent by the
Assignor.

          SECTION 9.  RESPONSIBILITY OF THE COLLATERAL AGENT.

          Other than the exercise of reasonable care to assure the safe custody
of the Collateral while held hereunder, the Collateral Agent shall have no duty
or liability to preserve rights pertaining thereto and shall be relieved of all
responsibility for the Collateral upon
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surrendering it or tendering surrender of it to the Assignor. The Collateral
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which the Collateral Agent accords its own
property. Without limiting the generality of the foregoing, neither the
Collateral Agent nor any of its directors, officers, agents or employees shall
be liable (i) for any failure to invest or reinvest any cash in accordance
herewith in the absence of its or their own gross negligence or willful
misconduct (as determined by a court of competent jurisdiction in a final and
non-appealable decision) or for any losses incurred by reason of investments
made by the Collateral Agent pursuant to Section 2.03 or (ii) for any action
taken or omitted to be taken by the Collateral Agent (x) in good faith in
accordance with the advice of counsel with respect to any question as to the
construction of any provision hereof or any action to be taken by the Collateral
Agent hereunder or (y) in accordance with any instructions or other notice which
the Collateral Agent believes in good faith to be properly given by the
Assignors hereunder. This Section 9 shall have no application to Christiania
Bank og Kreditkasse ASA, New York Branch, except in its capacity as Collateral
Agent.

          SECTION 10. APPLICATION OF PROCEEDS.

          (a)   Subject to the applicability of Section 6.01 of the Mortgages,
all monies collected by the Collateral Agent upon any sale or other disposition
of any Collateral, together with all other monies received by the Collateral
Agent hereunder or under any of the other Security Documents, shall be applied
as follows:

          (i)   first, to the payment of all amounts owing the Collateral Agent
     of the type described in clauses (ii) and (iii) of Section 1.01;

          (ii)  second, to the extent monies remain after the application
     pursuant to the preceding clause (i), an amount equal to the outstanding
     Obligations shall be paid to the Secured Creditors as provided in Section
     10(c), with each Secured Creditor receiving an amount equal to such
     Obligations held by it or, if the proceeds are insufficient to pay in full
     all such Obligations, its Pro Rata Share (as defined below) of the amount
     remaining to be distributed; and

          (iii) third, to the extent monies remain after the application
     pursuant to the preceding clauses (i) and (ii), and following the
     termination of this Agreement pursuant to Section 13, any surplus then
     remaining shall be paid to the Assignors, subject, however, to the rights
     of the holder of any then existing Lien of which the Collateral Agent has
     actual notice (without investigation).

          (b)   For purposes of this Agreement "Pro Rata Share" shall mean, when
calculating a Secured Creditor's portion of any distribution or amount in
respect of any Obligations, the amount (expressed as  a percentage) equal to a
fraction the numerator of which is the then unpaid amount of such Obligations
owing to or held by such Secured Creditor and the denominator of which is the
then outstanding amount of all such Obligations.  For purposes of determining
the amount payable to each Secured Creditor, the Collateral Agent shall be
entitled to request each Secured Creditor to furnish it with written notice of
the amount of Obligations
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then owed to it and shall be entitled to rely upon the amounts stated therein in
making such distributions.

          (c)  All payments required to be made to Secured Creditors hereunder
shall be made to the Collateral Agent for the account of the Secured Creditors.

          (d)  For purposes of applying payments received in accordance with
this Section 10, the Collateral Agent shall be entitled to rely upon (i) the
Administrative Agent under the L/C Agreement and (ii) the Secured Creditors for
a determination (which the Administrative Agent and each Secured Creditor, by
their acceptance of the benefits of this Agreement shall be obligated to provide
upon request of the Collateral Agent) of the outstanding Obligations owed to the
Secured Creditors. Unless it has actual knowledge (including by way of written
notice from a Secured Creditor) to the contrary, the Administrative Agent under
the L/C Agreement, in furnishing information pursuant to the preceding sentence,
and the Collateral Agent, in acting hereunder, shall be entitled to assume that
(x) no obligations other than principal, interest and regularly accruing fees
are owing to any Secured Creditor.

          SECTION 11. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
ASSIGNORS.

          The Assignor hereby warrants and represents that it has not assigned
or pledged, and hereby covenants that, without the prior written consent of the
Collateral Agent thereto, so long as this Agreement shall remain in effect, it
will not assign or pledge the whole or any part of the right, title and interest
hereby assigned to anyone other than the Collateral Agent, its successors or
assigns, and that it will not take or omit to take any action, the taking or
omission of which might result in an alteration or impairment of the Collateral
or this Agreement, or of any of the rights created in the Collateral by this
Agreement.

          SECTION 12. INDEMNITY.

          12.01 (a)  The Assignor agrees to indemnify, reimburse and hold the
Collateral Agent, each Secured Creditor and their respective successors,
assigns, employees, agents and servants (hereinafter in this Section 12.01
referred to individually as "Indemnitee," and collectively as "Indemnitees")
harmless from any and all liabilities, obligations, damages, injuries,
penalties, claims, demands, actions, suits, judgments and any and all costs and
expenses (including reasonable attorneys' fees and expenses) (for the purposes
of this Section 12.01 the foregoing are collectively called "expenses") of
whatsoever kind and nature imposed on, asserted against or incurred by any of
the Indemnitees in any way relating to or arising out of this Agreement, the L/C
Agreement, any other Credit Document or the documents executed in connection
herewith and therewith or in any other way connected with the administration of
the transactions contemplated hereby and thereby or the enforcement of any of
the terms of, or the preservation of any rights under any such Credit Document
or other document, or in any way relating to or arising out of the manufacture,
ownership, ordering, purchase, delivery, control, acceptance, lease, financing,
possession, operation, condition, sale, return or other disposition, or use of
the Collateral (including, without limitation, latent or other defects, whether
or not discoverable), the violation of the laws of any country, state or other
governmental body or unit,
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any tort (including, without limitation, claims arising or imposed under the
doctrine of strict liability, or for or on account of injury to or the death of
any Person (including any Indemnitee), or property damage), or contract claim;
provided that no Indemnitee shall be indemnified pursuant to this Section
12.01(a) for losses, damages or liabilities to the extent caused by the gross
negligence or willful misconduct of such Indemnitee. The Assignor agrees that
upon written notice by any Indemnitee of the assertion of such a liability,
obligation, damage, injury, penalty, claim, demand, action, judgment or suit,
the Assignor shall assume full responsibility for the defense thereof. Each
Indemnitee agrees to use its best efforts to promptly notify the Assignor of any
such assertion of which such Indemnitee has knowledge.

          (b)    Without limiting the application of Section 12.01(a), the
Assignor agrees to pay, or reimburse the Collateral Agent for any and all fees,
costs and expenses of whatever kind or nature incurred in connection with the
creation, preservation or protection of the Collateral Agent's Liens on, and
security interest in, the Collateral, including, without limitation, all fees
and taxes in connection with the recording or filing of instruments and
documents in public offices, payment or discharge of any taxes or Liens upon or
in respect of the Collateral, premiums for insurance with respect to the
Collateral and all other fees, costs and expenses in connection with protecting,
maintaining or preserving the Collateral and the Collateral Agent's interest
therein, whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions, suits or proceedings arising out of or relating to the
Collateral.

          (c)    Without limiting the application of Section 12.01(a) or (b),
the Assignor agrees to pay, indemnify and hold each Indemnitee harmless from and
against any loss, costs, damages and expenses which such Indemnitee may suffer,
expend or incur in consequence of or growing out of any misrepresentation by the
Assignor in this Agreement, the L/C Agreement or any other Credit Document or in
any statement or writing contemplated by or made or delivered pursuant to or in
connection with this Agreement, the L/C Agreement or any other Credit Document.

          (d)    If and to the extent that the obligations of the Assignor under
this Section 12.01 are unenforceable for any reason, the Assignor hereby agrees
to make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.

          12.02  Any amounts paid by any Indemnitee as to which such Indemnitee
has the right to reimbursement shall constitute Obligations secured by the
Collateral.  The indemnity obligations of the Assignor contained in this Section
12 shall continue in full force and effect notwithstanding the full payment of
all of the Obligations under the L/C Agreement and notwithstanding the discharge
thereof.

          SECTION 13.  TERMINATION; RELEASE; PARTIAL RELEASE.

          (a)    On the date on which the L/C Agreement and all Letters of
Credit shall have been terminated, and all Obligations shall have been
irrevocably paid in full, this Agreement shall terminate, and the Collateral
Agent, at the request and expense of the Assignor, will execute and deliver to
the Assignor a proper instrument or instruments acknowledging the
<PAGE>
                                                                         Page 11

satisfaction and termination of this Agreement, and will duly assign, transfer
and deliver to the Assignor (without recourse and without any representation or
warranty) such of the Collateral as may remain in the possession of the
Collateral Agent together with any moneys at the time held by the Collateral
Agent hereunder.

          SECTION 14.  NOTICES, ETC.

          Except as otherwise expressly provided herein, all notices and other
communications provided for hereunder shall be delivered and become effective in
accordance with Section 10.03 of the L/C Agreement.

          SECTION 15.  MISCELLANEOUS.

          15.01  This Agreement shall be binding upon the Assignor and their
successors and assigns (although the Assignor may not assign their rights or
obligations under this Agreement) and shall inure to the benefit of and be
enforceable by the Collateral Agent and its successors and assigns. The headings
in this Agreement are for purposes of reference only and shall not limit or
define the meaning hereof. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF NEW YORK. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
constitute one instrument. This Agreement shall become effective on the date on
which each of the parties shall have executed and delivered (including by way of
facsimile transmission) a copy hereof. In the event that any provision of this
Agreement shall at any time for any reason be declared or decided to be invalid,
void or otherwise inoperative by a court of competent jurisdiction, such
declaration or decision shall not affect the validity of any other provision or
provisions of this Agreement, or the validity of this Agreement as a whole. In
the event that by reason of any law or regulation in force or to become in
force, or by reason of a ruling of any court of competent jurisdiction, or by
any other reason whatsoever, this Agreement is rendered either wholly or partly
defective, the Assignor shall furnish the Collateral Agent with an alternative
assignment or security and do all such other acts as are reasonably required in
order to ensure and give effect to the full intent of this Agreement.

          15.02  It is declared and agreed that the security created by this
Agreement shall be held by the Collateral Agent as a continuing security for the
payment of all monies which may at any time and from time to time be or become
payable by the Assignors under the L/C Agreement and the other Credit Documents
and that the security so created shall not be satisfied by any intermediate
payment or satisfaction of any part of the amount hereby secured and that the
security so created shall be in addition to and shall not in any way be
prejudiced or affected by any collateral or other security now or hereafter held
by the Collateral Agent for all or any part of the moneys hereby secured.

          15.03  Each and every right, power and remedy given herein or in the
L/C Agreement or in the other Credit Documents to the Collateral Agent shall be
cumulative and shall be in addition to every other right, power and remedy of
the Collateral Agent now or hereafter existing at law, in equity or by statute,
and each and every right, power and remedy,
<PAGE>

                                                                         Page 12

whether herein given or otherwise existing, may be exercised from time to time,
in whole or in part, and as often and in such order as may be deemed expedient
by the Collateral Agent, and the exercise or the commencement of the exercise of
any right, power or remedy shall not be construed to be a waiver of the right to
exercise at the same time or thereafter any other right, power or remedy. No
delay or omission by the Collateral Agent in the exercise of any right or power
in the pursuance of any remedy accruing upon any breach or default by the
Assignor shall impair any such right, power or remedy or be construed to be a
waiver of any such right, power or remedy or to be an acquiescence therein; nor
shall the acceptance by the Collateral Agent of any security or of any payment
of or on account of any of the amounts due from the Assignor to the Collateral
Agent and maturing after any breach or default or of any payment on account of
any past breach or default be construed to be a waiver of any right to take
advantage of any future breach or default or of any past breach or default not
completely cured thereby.

          SECTION 16. WAIVER; AMENDMENT.

          None of the terms and conditions of this Agreement may be changed,
waived, modified or varied in any manner whatsoever unless in writing duly
signed by the Assignor and the Collateral Agent (with the consent of either the
Required Banks or, to the extent required by Section 10.14 of the L/C Agreement,
all of the Banks).

          SECTION 17. SECURED CREDITOR ACKNOWLEDGMENT.

          By accepting the benefits of this Agreement, each Secured Creditor
acknowledges and agrees that the rights and obligations of the Collateral Agent
shall be as set forth in Section 9 of the L/C Agreement.

                                   *   *   *
<PAGE>

                                                                         Page 13

          IN WITNESS WHEREOF, the Assignor and the Collateral Agent have caused
this Agreement to be executed by their duly elected officers duly authorized as
of the date first above written.

ADDRESS:                                  R&B FALCON CORPORATION, as Assignor
901 Threadneedle
Suite 200
Houston, Texas 77079                      By__________________________________
Attention: General Counsel                  Title: Executive Vice President
Tel:(713) 496-5000                                 & Chief Financial Officer
Fax:(713) 496-0285

11 West 42nd Street                       CHRISTIANIA BANK og KREDITKASSE ASA,
New York, New York 10036                   NEW YORK BRANCH, as Collateral Agent
Attention: Hans Chr. Kjelsrud
Tel: (212) 827-4814
Fax: (212) 827-4888

                                          By__________________________________
                                           Title: Senior Vice President

                                          By__________________________________
                                           Title: Senior Vice President
<PAGE>

                                                                   ANNEX I
                                                                     to
                                                              Security Agreement
                                                              ------------------
                         FORM OF NOTICE OF ASSIGNMENT
                         ----------------------------

TO:

TAKE NOTICE THAT:

     By the Security Agreement and Assignment of Earnings and Insurances, dated
     as of  August 31, 2000, made by R&B Falcon Corporation and Christiania Bank
     og Kreditkasse ASA, New York Branch, as Collateral Agent (the "Assignee"),
     and relating to the [United States] [Panamanian] flag vessel ________ (the
     "Collateral Vessel"), we have assigned to the Assignee as from the date
     hereof all our right, title and interest in and to any monies whatsoever
     payable to us under that certain contract, dated as of ________ __, ____
     (the "Contract"), between yourselves and the undersigned concerning the
     Collateral Vessel (as the Contract may at any time be amended, modified or
     supplemented from time to time), and all other rights and benefits
     whatsoever accruing to us which arise or may arise from the operation of
     the Collateral Vessel under the Contract including (but without prejudice
     to the generality of the foregoing) all claims for damages for any breach
     of the Contract by you.

DATED THIS ______ day of ____________, ____.

                                    [       ]

                                    By ___________________________
                                     Name:
                                     Title:
<PAGE>

                                                                   ANNEX II
                                                                      to
                                                              Security Agreement
                                                              ------------------
                         FORM OF CONSENT AND AGREEMENT
                         -----------------------------

The undersigned, [       ], a party to the Contract to which the Notice of
Assignment delivered pursuant to the Security Agreement and Assignment of
Earnings and Insurances (the "Security Agreement"), dated as of August 31, 2000,
made by R&B Falcon Corporation and Christiania Bank og Kreditkasse ASA, New York
Branch, as Collateral Agent (the "Assignee"), refers (terms defined in the
Security Agreement are used herein with the same meaning), in exchange for good
and valuable consideration, paid by the Assignee, the receipt of which is hereby
acknowledged, hereby acknowledges notice of and consents and agrees to the
foregoing collateral assignment of earnings described above and to all of the
terms thereof and agrees that: (1) it will make payment directly to the account
advised by the Assignee, of all monies due and to become due from it under the
Contract until receipt of written notice from the Assignee that all obligations
to the Banks secured by the Security Agreement have been paid in full; and (2)
any such payment shall be final and the undersigned will not seek to recover
from the Assignee for any reason whatsoever any monies paid by the undersigned
to the Assignee by virtue of the Security Agreement and this Consent and
Agreement but this shall not prevent the set off or credit against or deduction
from any monies payable to the Assignee by virtue of the Security Agreement of
amounts owing to the undersigned by the Assignor under the Contract.

[       ] confirms and agrees that the Contract is in full force and effect and
is enforceable in accordance with its terms and the Assignor is not in default
thereunder.

This Consent and Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York, without reference to principles of
conflicts of law.

Dated: ___________, ____

                              By_________________________
                                Name:
                                Title:
<PAGE>

                                                                 ANNEX III
                                                                     to
                                                              Security Agreement
                                                              ------------------
                         FORM OF NOTICE OF ASSIGNMENT
                         ----------------------------

          R&B Falcon Corporation (the "Owner"), the owner of the [United States]
[Panamanian] flag offshore drilling rig _____________ (the "Collateral Vessel"),
HEREBY GIVES NOTICE that by a Security Agreement and Assignment of Earnings and
Insurances, dated as of August 31, 2000, and made between the Owner and
Christiania Bank og Kreditkasse ASA, New York Branch, as Collateral Agent (the
"Assignee") for itself and certain other banks, the Owner assigned to the
Assignee all of the Owner's right, title and interest in and to all insurances
and the benefit of all insurances now or hereafter taken out in respect of the
Collateral Vessel, and all other rights and benefits whatsoever accruing to us
which arise or may arise from the insurances.  This Notice of Assignment and the
applicable loss payable clauses in the form of Annex IIIA to the Security
Agreement are to be endorsed on all policies and certificates of entry
evidencing such insurance.

                                      R&B FALCON CORPORATION

                                      By _________________________
                                         Name:
                                         Title:
<PAGE>

                                                                  ANNEX IIIA
                                                                      to
                                                              Security Agreement
                                                              ------------------

                         FORM OF LOSS PAYABLE CLAUSES
                         ----------------------------

I. Hull and Machinery and War Risk
   -------------------------------

Loss, if any, with respect to the  J. T. ANGEL; the D. R. STEWART; the RANDOLPH
YOST; the J.W. MCLEAN; and/or the GEORGE H. GALLOWAY (collectively the
Collateral a Vessels and individually a Collateral Vessel) payable to
Christiania Bank og Kreditkasse ASA, New York Branch, as collateral agent (the
"Collateral Agent") for itself, the Banks and the Agents, as such terms are
defined in that certain Letter of Credit and Reimbursement Agreement, dated as
of August 31, 2000 (as modified, amended or supplemented from time to time, the
"Credit Agreement"), among (i) R&B Falcon Corporation (the "Owner"), (ii) the
financial institutions listed from time to time on Schedule II to the Credit
Agreement, (iii) Credit Agricole Indosuez, (iv) Credit Lyonnais New York Branch,
as Syndication Agent, and (v) Christiania Bank og Kreditkasse ASA, New York
Branch, as Administrative Agent, for distribution by the Collateral Agent to
itself, the Banks, the Agents and the Owner, as their respective interests may
appear, or to their order, except that unless underwriters shall have been
otherwise instructed by notice in writing from the Collateral Agent:

     (i)  any loss with respect to collision liability risks may be paid
          directly to the Owner to reimburse it for any loss, damage or expense
          incurred by it and covered by this insurance or to the person to whom
          any liability covered by this insurance has been incurred, provided
          that in the latter event the underwriter shall have first received
          evidence that the liability insured against has been discharged; and

     (ii) in the case of any loss (other than a loss covered by (i) above or by
          the next following paragraph of this loss payable clause) involving
          any damage to a Vessel, the underwriters may pay directly for the
          repair, salvage or other charges involved or, if the Owner shall have
          first fully repaired the damage or paid the salvage or other charges,
          may pay the Owner as reimbursement therefor; provided, however, that
                                                       --------  -------
          if such damage involves a before deductible loss in excess of Five
          Million United States Dollars (US$5,000,000), the underwriters shall
          not make such payment without first obtaining the written consent
          thereto of the Collateral Agent (which consent shall not be
          unreasonably withheld).

In the event of (i) the actual, constructive, arranged, agreed, or compromised
total loss of a Vessel; (ii) the requisition for title or other compulsory
acquisition or forfeiture of a Collateral Vessel otherwise than by requisition
for hire; (iii) the capture, seizure, arrest, detention or confiscation of a
Collateral Vessel by any government or by persons acting or purporting to act on
behalf of any government unless the Collateral Vessel is released from such
capture, seizure, arrest or detention within ninety (90) days after the
occurrence thereof (any of the foregoing being herein referred to as a "Total
Loss"), all insurance payments therefor shall be paid to the Collateral Agent
for distribution by the Collateral Agent to itself, the Banks, the Agents and
the Owner, as their respective interests may appear, or to their order. A
Collateral Vessel shall not
<PAGE>

                                                                  ANNEX IIIA
                                                                      to
                                                              Security Agreement
                                                              ------------------
                                                                    Page 2

be declared, or agreed to be, a Total Loss without the prior written consent of
the Collateral Agent.

II. Protection and Indemnity
    ------------------------

Payment of any recovery the R&B Falcon Corporation (the "Owner") or any
affiliate of the Owner is entitled to receive out of the funds of the
Association in respect of any liability, costs or expenses incurred by the Owner
or any affiliate of the Owner with respect to the J. T. ANGEL; the D. R.
STEWART; the RANDOLPH YOST; the J.W. MCLEAN; and/or the GEORGE H. GALLOWAY
(collectively the Collateral and Vessels and individually a Collateral Vessel)
shall be made to the Owner or to its order unless and until the Association
receives notice from Christiania Bank og Kreditkasse ASA, New York Branch, as
collateral agent (the "Collateral Agent") that an Event of Default has occurred
under any Mortgage (as such term is defined in that certain Letter of Credit and
Reimbursement Agreement, dated as of August 31, 2000 (as modified, amended or
supplemented from time to time, the "Credit Agreement"), among (i) the Owner,
(ii) the financial institutions listed from time to time on Schedule II to the
Credit Agreement, (iii) Credit Agricole Indosuez, (iv) Credit Lyonnais New York
Branch, as Syndication Agents; and (v) Christiania Bank og Kreditkasse ASA, New
York Branch, as Administrative Agent), in which event all recoveries shall
thereafter be paid to the Collateral Agent, or its order, provided always that
no liability whatsoever shall attach to the Association, its Managers or their
Agents for failure to comply with the later obligation until after the expiry of
two clear business days from the receipt of such notice. The Association shall,
unless it receives from the Collateral Agent notice to the contrary, be at
liberty at the request of the Owner to provide bail or other security to prevent
the arrest or obtain the release of any Vessel without liability to the
Collateral Agent.
<PAGE>

                         FORM OF CONSENT AND AGREEMENT
                         -----------------------------

          The undersigned, [          ], a party to the Contract to which the
Notice of Assignment delivered pursuant to the Security Agreement and Assignment
of Earnings and Insurances (the "Security Agreement"), dated as of August 31,
2000, made by R&B Falcon Corporation to Christiania Bank og Kreditkasse ASA, New
York Branch, as Collateral Agent (the "Assignee") refers (terms defined in the
Security Agreement are used herein with the same meaning), hereby acknowledges
notice of and consents and agrees to the collateral assignment of insurance
described above and to all of the terms thereof and agrees that it will make
payment directly to the account advised by the Assignee, of all monies due and
to become due from it under the Contract until receipt of written notice from
the Assignee that all obligations to the Banks secured by said Security
Agreement have been paid in full.

          This Consent and Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without reference to
principles of conflicts of law.

Dated: ___________, ____

                              [               ]

                              By___________________________________
                                Name:
                                Title:<PAGE>

                                                                    EXHIBIT 10.4
                                                                    ------------

                                    Form Of

                       INDENTURE OF FIRST NAVAL MORTGAGE
                       ---------------------------------

                                    between

                            R&B FALCON CORPORATION

                                   as Owner

                                   - and -

                     CHRISTIANIA BANK OG KREDITKASSE ASA,
                      NEW YORK BRANCH, Collateral Agent,

                                 as Mortgagee

                                 J. W. MCLEAN

       Executed August 31, 2000 to be effective as of September 6, 2000
<PAGE>

                                     INDEX
                                     -----

CLAUSE    SUBJECT MATTER                                                    PAGE
------    --------------                                                    ----

1.   REPRESENTATIONS AND COVENANTS..........................................   3
     -----------------------------

2.   DEFINITIONS AND INTERPRETATION.........................................   5
     ------------------------------

3.   MORTGAGE...............................................................  10
     --------

4.   PAYMENT COVENANTS......................................................  11
     -----------------

5.   PRESERVATION OF SECURITY...............................................  11
     ------------------------

6.   INSURANCE..............................................................  13
     ---------

7.   RIG COVENANTS..........................................................  16
     -------------

8.   PROTECTION OF SECURITY.................................................  20
     ----------------------

9.   ENFORCEABILITY AND MORTGAGEE'S POWERS..................................  21
     -------------------------------------

10.  APPLICATION OF MONEYS..................................................  23
     ---------------------

11.  FURTHER ASSURANCES..................................................... 24
     ------------------

12.  POWER OF ATTORNEY...................................................... 25
     -----------------

13.  INDEMNITIES............................................................ 25
     -----------

14.  EXPENSES............................................................... 26
     --------

15.  COMMUNICATIONS......................................................... 27
     --------------

16.  ASSIGNMENTS............................................................ 27
     -----------

17.  TOTAL AMOUNT, ETC...................................................... 28
     ------------------

18.  WAIVER: AMENDMENT...................................................... 28
     -----------------

19.  MISCELLANEOUS.......................................................... 28
     -------------

20.  JURISDICTION........................................................... 29
     ------------

EXHIBIT 1 - FORM OF CREDIT AGREEMENT
<PAGE>

     THIS INDENTURE OF FIRST NAVAL MORTGAGE  is executed on the 31/st/ day of
August, 2000, to be effective as of the 6/th/ day of September, 2000, between
R&B FALCON CORPORATION, a Delaware corporation with its principal office at 901
Threadneedle, Suite 200, Houston, Texas 77079 (hereinafter called the "Owner")
and CHRISTIANIA BANK OG KREDITKASSE ASA, NEW YORK BRANCH having its office at 11
West 42nd Street, New York, NY 10036, as Collateral Agent for the Banks (as
hereinafter defined) (hereinafter called the "Mortgagee"), on the Panamanian
flag offshore drilling vessel J. W. MCLEAN of 15,453 gross tons, 4,636 net tons
and with a length of 111.86 meters, a breadth of 64.01 meters and a depth of
42.67 meters and Provisional Patent of Navigation No. 25384-PEXT-3 (hereinafter
called the "Rig"), duly registered under the laws and flag of the Republic of
Panama, the detailed description of which is hereinafter more particularly set
forth.

                                  WITNESSETH:

WHEREAS
-------

(A)  The Owner is the sole owner of the whole of the Rig; and

(B)  By a Letter of Credit and Reimbursement Agreement dated as of August 31,
     2000 (as modified, amended or supplemented from time to time, the "Credit
     Agreement") among (i) the Owner, (ii) the financial institutions listed
     from time to time on Schedule II to the Credit Agreement (the "Banks"),
     (iii) Credit Agricole Indosuez; (iv) Credit Lyonnais New York Branch, as
     Syndication Agent (the "Syndication Agent"); and (v) Christiania Bank og
     Kreditkasse ASA, New York Branch, as Administrative Agent (the
     "Administrative Agent" and, together with the Syndication Agent, the
     "Agents") (the form of which Credit Agreement, together with the schedules,
     the form of A Letter of Credit attached thereto as Exhibit A-1 and the form
     of Letter of Credit Request attached thereto as Exhibit A-2 but without the
     remaining exhibits, is attached hereto as Exhibit 1), it was agreed among
     other things that the Banks would make available to the Owner a letter of
     credit facility (the "Facility") under which the maximum aggregate
     principal amount of Letters of Credit (as defined in the Credit Agreement)
     at any one time outstanding shall be Seventy Million United States Dollars
     (US$70,000,000), including (i) an irrevocable single draw standby letter of
     credit in the form of Exhibit A-1 to the Credit Agreement and in the
     maximum principal amount of Fifty Million U.S. Dollars (US$50,000,000)
     issued by Credit Agricole Indosuez as the A Issuing Bank (the "A Issuing
     Bank") for the account of the Owner and for the benefit of Wilmington Trust
     Company (or any trustee, agent or other similar representative for
     Wilmington Trust Company) in support of the Deepwater Frontier Obligations
     (as defined in the Credit Agreement) and (ii) irrevocable standby letters
     of credit in the maximum aggregate principal amount outstanding at any time
     of Twenty Million U.S. Dollars (US$20,000,000) to be issued from time to
     time by Christiania Bank og Kreditkasse ASA, New York Branch, in its
     individual capacity as the B Issuing Bank (the "B Issuing Bank") for the
     account of the Owner or its Subsidiaries and for the benefit of any holders
     of B L/C Supportable Indebtedness (as defined in the Credit Agreement);
     and, as required by Article 1515 Section 3 of the Commercial Code of
     Panama, the dates on which the Owner is obligated to reimburse the A
     Issuing Bank or B Issuing Bank, respectively, the amount of any Unpaid
     Drawing (as defined in the Credit

                                      -1-
<PAGE>

     Agreement) may be determined from the provisions of the Credit Agreement,
     including, without limitation, Sections 1A.03(a) and 1B.04(a); and

(C)  The obligations of the Owner with respect to the Facility are evidenced by
     the Credit Agreement and the other Credit Documents (as defined in the
     Credit Agreement); and

(D)  This Mortgage is made for the benefit of the Mortgagee to secure (i) the
     full and prompt payment by the Owner when due of (x) all reimbursement
     obligations and Unpaid Drawings with respect to any Letter of Credit (as
     defined in the Credit Agreement) issued under the Credit Agreement,
     together with interest thereon as provided in the Credit Agreement and (y)
     all other obligations and indebtedness (including, without limitation,
     indemnities, Fees and interest thereon) of the Owner to the Secured
     Creditors (as hereinafter defined), whether now existing or hereafter
     incurred under, arising out of or in connection with the Credit Agreement
     and the other Credit Documents (or any of them) including, without
     limitation, this Mortgage, and the due performance and compliance by the
     Owner with all of the terms, conditions and agreements contained in the
     Credit Agreement and the other Credit Documents (or any of them),
     including, without limitation, this Mortgage; (ii) any and all sums
     advanced by the Mortgagee, either of the Agents or any of the other Secured
     Creditors in order to preserve the Collateral (as defined in the Credit
     Agreement) or to preserve the Security Interest in the Collateral granted
     by this Mortgage and the other Security Documents (or any of them); (iii)
     in the event of any proceeding for the collection or enforcement of any
     indebtedness, obligations, or liabilities of the Owner referred to in
     clause (i) above, after an Event of Default (as defined in the Credit
     Agreement) shall have occurred and be continuing, the reasonable expenses
     of the Mortgagee of re-taking, holding, preparing for sale or lease,
     selling or otherwise disposing of or realizing on the Collateral,
     including, without limitation, the Rig, or of any exercise by the Mortgagee
     of its rights hereunder or under any other Security Document, together with
     reasonable attorneys' fees of counsel to the Mortgagee and court costs; and
     (iv) all amounts paid by any Indemnitee as to which such Indemnitee has the
     right to reimbursement under Clause 13 of this Mortgage (all such
     obligations, liabilities, sums and expenses referred to in clauses (i)
     through (iv) above being collectively referred to as the "Obligations"). It
     is acknowledged and agreed that the "Obligations" shall include extensions
     of credit of the types described above, whether outstanding on the date of
     this Mortgage or extended from time to time after the date of this
     Mortgage; and

(E)  This Indenture of First Naval Mortgage is entered into by the Owner in
     consideration of the Banks agreeing to make the Facility available to the
     Owner and as a condition thereto and for other good and valuable
     consideration provided by the Banks (the sufficiency of which the Owner
     hereby acknowledges).

NOW, THEREFORE, the appearing parties, each in the name and on behalf of his
respective principal, state that they hereby execute this Indenture of First
Naval Mortgage pursuant to the following representations:

                                      -2-
<PAGE>

1.  REPRESENTATIONS AND COVENANTS
    -----------------------------

1.01 The Owner represents and covenants to the Mortgagee that:

     (a)  The Rig is duly registered in the name of the Owner in the Public
          Registry of the City of Panama, Republic of Panama under Microjacket
          19315, Document 139268 as of August 16, 2000;

     (b)  The Owner, as sole legal and beneficial owner of the Rig, has received
          and presently possesses a Provisional Patent of Navigation for the
          Rig, duly issued by the Republic of Panama under No. 25384-PEXT-3;

     (c)  Neither the whole nor any share in the Rig is subject to any Security
          Interest (as defined herein) (except for Permitted Liens (as defined
          herein) and the lien of this Mortgage);

     (d)  the Owner has not sold or transferred, or agreed to sell or transfer,
          title to the Rig or any share therein;

     (e)  the Owner is a corporation duly organized and validly existing and in
          good standing under the laws of the State of Delaware;

     (f)  the Owner has full power and authority (i) to execute and deliver this
          Mortgage, (ii) to mortgage the Rig as security for the Obligations and
          (iii) to comply with the provisions of, and perform all its
          obligations under, this Mortgage;

     (g)  the Owner has complied with all statutory and other material
          requirements relative to the ownership, registration and operation of
          the Rig;

     (h)  the Owner has taken all necessary action to authorize the execution
          and delivery of this Mortgage and this Mortgage constitutes, the
          legal, valid and binding obligation of the Owner enforceable against
          the Owner in accordance with its terms (except to the extent limited
          by applicable bankruptcy, reorganization, insolvency, moratorium or
          other laws of general application relating to or affecting the
          enforcement of creditors' rights as from time to time in effect and
          general equitable principles) and when preliminarily recorded with the
          Public Registry in Panama or through the Panamanian Consulate in New
          York, New York or Houston, Texas will create a legal, valid and
          enforceable first priority mortgage lien on the Rig subject only to
          the permanent filing of this Mortgage in the Public Registry in Panama
          within six months of the date of the preliminary recorded filing;

     (i)  the entry into and performance by the Owner of this Mortgage does not
          and will not during the Credit Facility Period (as defined herein)
          violate in any respect (i) any law or regulation of any governmental
          or official authority or body, or (ii) any of the constitutive
          documents of the Owner including the Certificate of

                                      -3-
<PAGE>

          Incorporation or By-laws, as amended from time to time, or (iii) any
          material agreement, contract or other undertaking to which the Owner
          is a party or which is binding upon the Owner or any of its assets;

     (j)  all consents, licenses, approvals and authorizations required in
          connection with the entry into, performance, validity and
          enforceability of this Mortgage and the transactions contemplated
          hereby and thereby have been obtained and are in full force and effect
          and will be so maintained during the Credit Facility Period;

     (k)  save for such registrations and filings as are referred to in this
          Mortgage, it is not necessary for the legality, validity,
          enforceability or admissibility in evidence of this Mortgage that it
          or any document relating thereto be registered, filed, recorded or
          enrolled with any court or authority in any relevant jurisdiction or
          that any stamp, registration or similar taxes be paid on or in
          relation to this Mortgage;

     (l)  the Owner is in compliance with all applicable Environmental Laws (as
          defined herein) and all Environmental Approvals (as defined herein)
          relating to the Rig, its operation and management and the business of
          the Owner (as now conducted and as reasonably anticipated to be
          conducted in the future) have been obtained or complied with;

     (m)  no Environmental Claim (as defined herein) has been made or threatened
          against the Owner or otherwise in connection with the Rig;

     (n)  no Environmental Incident (as defined herein) which has resulted, or
          which could reasonably be expected to result, in an Environmental
          Claim in excess of US$200,000 has occurred;

     (o)  a twenty year inspection of the Vessel is required as a condition to
          the issuance of a Permanent Patent of Navigation for the Rig, and the
          Owner shall take all necessary action to have such 20 year inspection
          performed within three (3) months of the date hereof; and

     (p)  The Owner hereby affirms as its representations all of the statements
          contained in the "WHEREAS" clauses of this Mortgage.

1.02 The representations and warranties of the Owner set out in Clause 1.01
     shall survive the execution of this Mortgage and shall be deemed to be
     repeated at the time of the issuance of each Letter of Credit, with respect
     to the facts and circumstances existing at each such time, as if made at
     each such time.

1.03 The Mortgagee represents that the Banks have made the Facility available to
     the Owner, as evidenced by, inter alia, the Credit Agreement, the Security
                                 ----- ----
     Documents (as defined in the Credit Agreement), and the other Credit
     Documents and accepts the Mortgage constituted by this instrument upon the
     Rig as security for the due and prompt payment and performance of the
     Obligations (as defined herein).

                                      -4-
<PAGE>

1.04 Each of the contracting parties declares that it is satisfied with the
     representations and covenants made by the other and accepts them as true;
     and the parties mutually acknowledge their respective legal status as well
     as the authority of the persons representing them respectively in this
     instrument to sign the same on behalf of their respective principals.

 2.  DEFINITIONS AND INTERPRETATION
     ------------------------------

2.01 In this Mortgage unless the context otherwise requires, the following
     expressions shall have the following meanings:

     "A Issuing Bank" shall have the meaning provided in Recital (B) hereto;

     "Administrative Agent" shall have the meaning provided in Recital (B)
     hereto;

     "Agents" shall have the meaning provided in Recital (B) hereto;

     "B Issuing Bank" shall have the meaning provided in Recital (B) hereto;

     "Bank" shall mean each financial institution listed from time to time on
     Schedule II to the Credit Agreement, as well as any person or entity which
     becomes a "Bank" under the Credit Agreement pursuant to Section 10.04 of
     the Credit Agreement (collectively, the "Banks");

     "Base Rate: shall have the same meaning for such term as set forth in the
     Credit Agreement;

     "Collateral" shall have the same meaning for such term as set forth in the
     Credit Agreement;

     "Credit Agreement" shall have the meaning provided in Recital (B) hereto;

     "Credit Documents" shall have the same meaning for such term as set forth
     in the Credit Agreement;

     "Credit Facility Period" shall mean the period commencing on the date
     hereof and ending on the date the Total Commitments have terminated, no
     Letter of Credit remains outstanding and the Unpaid Drawings together with
     interest, Fees and all other obligations  under the Credit Documents are
     paid in full;

     "Default Rate" shall mean the Base Rate in effect from time to time plus
     2%;

     "Environmental Approvals" means all approvals, licenses, permits,
     exemptions or authorization required under applicable Environmental Laws;

                                      -5-
<PAGE>

     "Environmental Claims" means any and all administrative, regulatory or
     judicial actions, suits, demands, demand letters, claims, liens, notices of
     noncompliance or violation, investigations (other than internal reports
     prepared by the Owner or any of its Subsidiaries solely in the ordinary
     course of such person's business and not in response to any third party
     action or request of any kind) or proceedings relating in any way to any
     Environmental Law or any permit issued, or any approval given, under any
     such Environmental Law (hereafter, "Claims"), including, without
     limitation, (a) any and all Claims by governmental or regulatory
     authorities for enforcement, cleanup, removal, response, remedial or other
     actions or damages pursuant to any applicable Environmental Law, and (b)
     any and all Claims by any third party seeking damages, contribution,
     indemnification, cost recovery, compensation or injunctive relief resulting
     from Hazardous Materials arising from alleged injury or threat of injury to
     health, safety or the environment;

     "Environmental Incident" means (i) any release of Hazardous Material from
     the Rig, (ii) any incident in which Hazardous Material is released from a
     vessel other than the Rig and which involves collision between the Rig and
     such other vessel or some other incident of navigation or operation, in
     either case, where the Rig or the Owner are actually or allegedly at fault
     or otherwise liable (in whole or in part) or (iii) any incident in which
     Hazardous Material is released from a vessel other than the Rig and where
     the Rig is actually or potentially liable to be arrested as a result and/or
     where the Owner is actually or allegedly at fault or otherwise liable (and,
     in each such case, "release" shall mean disposing, discharging, injecting,
     spilling, leaking, leaching, dumping, emitting, escaping, emptying,
     seeping, placing and the like, into or upon any land or water or air, or
     otherwise entering into the environment);

     "Environmental Law" means any applicable Federal, state, foreign or local
     statute, law, rule, regulation, ordinance, code, guide, policy or rule of
     common law now or hereafter in effect and in each case, as amended, and any
     judicial or administrative interpretation thereof, including any judicial
     or administrative order, consent decree or judgment, relating to the
     environment, health, safety or Hazardous Materials, including, without
     limitation, the Comprehensive Environmental Response, Compensation and
     Liability Act of 1980, as amended, 42 U.S.C. (S) 9601 et seq.; the Resource
                                                           -- ---
     Conservation and Recovery Act of 1976, as amended, 42 U.S.C. (S) 6901 et
                                                                           --
     seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. (S)
     ---
     1251 et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. (S)
          -- ---
     2601 et seq.; the Clean Air Act, as amended, 42 U.S.C. (S) 7401 et seq.;
          -- ---                                                     -- ---
     the Safe Drinking Water Act, as amended, 42 U.S.C. (S) 201 et seq.; the Oil
                                                                -- ---
     Pollution Act of 1990, as amended, 33 U.S.C. (S) 2701 et seq. and any
                                                           -- ---
     applicable state and local or foreign counterparts or equivalents;

     "Event of Default" shall have the same meaning for such term as set forth
     in the Credit Agreement;

     "Facility" shall have the meaning provided in Recital (B) hereto;

     "Fees" shall have the same meaning for such term as set forth in the Credit
     Agreement;

                                      -6-
<PAGE>

     "Hazardous Material" means (a) any petroleum or petroleum products,
     radioactive materials, asbestos in any form that is or could become
     friable, urea formaldehyde foam insulation, transformers or other equipment
     that contained fluid containing polychlorinated biphenyls, and radon gas;
     (b) any chemicals, materials or substances defined as or included in the
     definition of "hazardous substances," "hazardous waste," "hazardous
     materials," "extremely hazardous waste," "restricted hazardous waste,"
     "toxic substances," "toxic pollutants," "contaminants," or "pollutants," or
     words of similar import, under any applicable Environmental Law; and (c)
     any other chemical, material or substance, exposure to which is prohibited,
     limited or regulated by any governmental authority;

     "Indemnitee" shall have the meaning provided in Section 13.01;

     "Insurances" includes all policies and contracts of insurance (which
     expression includes all entries of the Rig in a protection and indemnity
     association) which are from time to time required by Clause 6 hereof to be
     taken out or entered into in respect of the Rig or otherwise by the Owner
     (whether in the sole name of the Owner or in the joint names of the Owner
     and the Mortgagee) and all benefits thereof (including claims of whatsoever
     nature and return of premiums);

     "Letter of Credit" shall have the same meaning for such term as set forth
     in the Credit Agreement;

     "Major Casualty" means any casualty to the Rig in respect whereof the claim
     or the aggregate of the claims against all insurers, before adjustment for
     any relevant franchise or deductible, exceeds Five Hundred Thousand United
     States Dollars (US$500,000) or the equivalent in any other currency;

     "Mortgage" means this mortgage, as modified, amended or supplemented from
     time to time;

     "Obligations" shall have the meaning provided in Recital (D) hereto;

     "Oil Pollution Act 1990" means the Oil Pollution Act 1990 (33 U.S.C. (S)
     2701 et seq.), as amended;
          -- ---

     "Other Rigs" means, individually or collectively, (i) the jackup offshore
     drilling vessel J. T. ANGEL owned by the Owner and documented under the
     laws and flag of the Republic of Panama with Provisional Patent of
     Navigation Number 27302-PEXT-3 of 5,286 gross registered tons and 1,585 net
     registered tons; (ii) the jackup offshore drilling vessel D. R. STEWART
     owned by the Owner documented under the laws and flag of the Republic of
     Panama with Provisional Patent of Navigation Number 26724-PEXT-3 of 6,634
     gross registered tons and 1,990 net registered tons; (iii) the jackup
     offshore drilling rig RANDOLPH YOST owned by the Owner documented under the
     laws and flag of the Republic of Panama with Provisional  Patent of
     Navigation Number 27265-PEXT-3 of 6,157 gross registered tons and 1,847 net
     registered tons; and (iv) the jackup offshore

                                      -7-
<PAGE>

     drilling vessel GEORGE H. GALLOWAY owned by the Owner documented under the
     laws and flag of the United States of America with Official Number 651646
     of 3,729 gross registered tons and 2,496 net registered tons;

     "Permitted Charters" means (i) drilling and other service contracts entered
     into in the ordinary course of the Owner's business, (ii) charters to
     Subsidiaries of the Owner, and (iii) charters expressly subordinated to the
     lien of this Mortgage on terms satisfactory to the Mortgagee.

     "Permitted Liens" means: (1) liens incident to expenses of current
     operations, other than for master's and crew's wages, incurred in the
     ordinary course of business of the Owner and due and payable for not more
     than thirty (30) days (or being contested in good faith, provided such
     liens in the aggregate are not in excess of Five Million United States
     Dollars (US$5,000,000), or if in excess thereof the Owner has given the
     Mortgagee written notice of the existence of such liens and, upon the
     written request of the Mortgagee, has provided a bond or other security
     satisfactory to the Mortgagee); (2) liens for master's and crew's wages not
     yet due and payable; (3) liens for taxes, assessments, governmental
     charges, fines and penalties not at the time delinquent (unless being
     contested in good faith, provided such liens in the aggregate are not in
     excess of Five Million United States Dollars (US$5,000,000), or if in
     excess thereof the Owner has given the Mortgagee written notice of the
     existence of such liens and, upon the written request of the Mortgagee, has
     provided a bond or other security satisfactory to the Mortgagee); (4) liens
     for general average and salvage (including contract salvage); (5) liens for
     claims covered by valid policies of insurance meeting the requirements of
     Clause 6 hereof (provided a lien shall be deemed covered by insurance to
     the extent insurance in force would cover the amount secured by the lien
     but for any applicable deductible amount approved by the Mortgagee); (6)
     liens arising pursuant to any judgment or to an order of attachment,
     distraint or similar legal process arising in connection with legal
     proceedings, but only for a maximum period of thirty (30) days and only if
     and so long as the execution or other enforcement thereof is stayed; (7)
     any lien for which the Owner has made provision for payment or discharge
     satisfactory to the Mortgagee, as evidenced by the Mortgagee's written
     consent to such lien; (8) any lien in favor of the Banks; provided that
                                                               ---------
     Permitted Liens shall not include any liens described in sub-clauses (1)
     through (7) above unless they: (i) are subordinate to the lien of this
     Mortgage or (ii) constitute a maritime lien which would in any event be
     entitled as such to priority over this Mortgage under the United States
     shipping laws or other applicable laws relating to the Rig's trading
     pattern. Nothing herein shall be deemed a waiver of the priority preferred
     lien status of this Mortgage;

     "Protection and Indemnity Risks" means the usual risks covered by
     protection and indemnity associations of international repute including the
     proportion not recoverable in case of collision under the ordinary running-
     down clause (unless such is recoverable under the relevant hull and
     machinery coverage);

                                      -8-
<PAGE>

     "Requisition Compensation" means all moneys or other compensation payable
     during the Credit Facility Period by reason of requisition for title or
     other compulsory acquisition of the Rig, including requisition for hire;

     "Rig" shall have the meaning provided in the first paragraph of this
     Mortgage and shall include any share or interest in such vessel and shall
     include such vessel's engines, machinery, boats, tackle, outfit, spare
     gear, fuel, consumable or other stores, belongings and appurtenances
     whether on board or ashore and whether now owned or hereafter acquired (but
     excluding therefrom any leased equipment owned by third parties
     unaffiliated with the Owner);

     "Secured Creditors" means the A Issuing Bank, the B Issuing Bank, the
     Banks, the Agents, the Collateral Agent and the Mortgagee;

     "Security Documents" shall have the same meaning for such term as set forth
     in the Credit Agreement;

     "Security Interest" means a mortgage, charge (whether fixed or floating),
     pledge, lien, hypothecation, assignment, trust arrangement, title retention
     or other security interest or arrangement of any kind whatsoever;

     "Syndication Agent" shall have the meaning provided in Recital (B) hereto;

     "Taxes" shall have the same meaning for such term as set forth in the
     Credit Agreement;

     "Total Commitment" shall have the same meaning for such term as set forth
     in the Credit Agreement;

     "Total Loss" means (a) the actual, constructive, arranged, agreed, or
     compromised total loss of the Rig; (b) the requisition for title or other
     compulsory acquisition or forfeiture of the Rig otherwise than by
     requisition for hire; (c) the capture, seizure, arrest, detention or
     confiscation of the Rig by any government or by persons acting or
     purporting to act on behalf of any government unless the Rig is released
     from such capture, seizure, arrest or detention within ninety (90) days
     after the occurrence thereof;

     "United States Dollars" and "US$" means the lawful currency of the United
     States of America;

     "Unpaid Drawing" shall have the same meaning for such term as set forth in
     the Credit Agreement;

     "War Risks" includes the risk of mines and all risks excluded from the
     standard form of English marine policy by the free of capture and seizure
     clause.

                                      -9-
<PAGE>

2.02 Except where otherwise expressly provided or unless the context otherwise
     requires, words and expressions defined in the Credit Agreement shall bear
     the same meanings when used in this Mortgage.

2.03 In this Mortgage:

     (a)  Clause headings are inserted for convenience only and shall not affect
          the construction of this Mortgage and, unless otherwise specified, all
          references to Clauses are to clauses of this Mortgage;

     (b)  unless the context otherwise requires, words denoting the singular
          number shall include the plural and vice versa;

     (c)  references to persons include bodies corporate and unincorporated;

     (d)  references to assets include property, rights and assets of every
          description;

     (e)  references to any document are to be construed as references to such
          document as amended or supplemented from time to time; and

     (f)  references to any enactment include re-enactments, amendments and
          extensions thereof.

 3.  MORTGAGE
     --------

3.01 In order to secure the Obligations the Owner has granted, conveyed and
     mortgaged and does by these presents grant, convey and mortgage unto the
     Mortgagee, its successors and assigns, in accordance with the provisions of
     Chapter V, Title IV of Book Second of the Code of Commerce and pertinent
     provisions of the Civil Code and other legislation of the Republic of
     Panama, the whole of the Rig, the detailed description of which is as
     follows:

          the Panama flag semisubmersible offshore drilling vessel J. W. MCLEAN;
          gross tonnage approximately 15,453; net tonnage approximately 4,636;
          length overall 111.86 meters, breadth 64.01 meters; depth 42.67
          meters; built in 1973 by Bethlehem Steel Corporation in Beaumont,
          Texas; Provisional Patent of Navigation Number 25384-PEXT-3; radio
          call letters HP-8713;

     TO HAVE AND TO HOLD the same unto the Mortgagee, its successors and assigns
     forever, upon the terms herein set forth, to secure the payment and
     performance of the Obligations, including the Unpaid Drawings and interest
     thereon and such additional sums as the Owner may be obligated to pay under
     the agreements, covenants, terms and conditions contained in this Mortgage,
     and to secure the performance and observance of and compliance with all the
     agreements, covenants, terms and conditions contained in the Credit
     Agreement, this Mortgage and the other Credit Documents (or any of them).

                                      -10-
<PAGE>

     PROVIDED ONLY and the condition of these presents is such that if the Owner
     or its successors and assigns shall pay or cause to be paid to the Secured
     Creditors or their respective successors and assigns the Obligations as and
     when the same shall become due and payable in accordance with the terms of
     the Credit Agreement, this Mortgage and the other Credit Documents and
     shall observe and comply with the covenants, terms and conditions contained
     in the Credit Agreement, this Mortgage and the other Credit Documents (or
     any of them), expressed or implied to be performed, observed or complied
     with by and on the part of the Owner or its successors and assigns, then
     these presents and the rights hereunder shall cease, determine and be void
     and, in such event, the Mortgagee agrees to furnish, execute and record, at
     the expense of the Owner, all such documents as the Owner may reasonably
     require to discharge this Mortgage, otherwise to be and remain in full
     force and effect.

     Notwithstanding anything to the contrary herein it is not intended that any
     provision of this Mortgage shall waive the preferred status of this
     Mortgage and that if any provision or part thereof herein shall be
     construed as waiving the preferred status of this Mortgage then such
     provision shall to such extent be void and of no effect.

3.02 The Owner shall remain liable to perform all the obligations assumed by it
     in relation to the Rig and none of the Secured Creditors shall be under any
     obligation of any kind whatsoever in respect thereof or be under any
     liability whatsoever in event of any failure by the Owner to perform its
     obligations in respect thereof.

3.03 This Mortgage, when it shall have been duly executed and signed on behalf
     of the parties, shall be provisionally recorded through the Public Registry
     in Panama or the Panamanian Consulate at New York, New York or Houston,
     Texas and thereafter within six months permanently recorded in the Public
     Registry in Panama.

4.   PAYMENT COVENANTS
     -----------------

4.01 The Owner hereby covenants with the Secured Creditors:

     (a)  to pay, and indemnify the Secured Creditors against, all expenses,
          claims, liabilities, losses, costs, duties, fees, charges or other
          moneys as are stated in this Mortgage to be payable by the Owner to,
          or recoverable from the Owner by, the Secured Creditors (or in respect
          of which the Owner agrees in this Mortgage to indemnify any of the
          Secured Creditors) at the times and in the manner specified in this
          Mortgage;

     (b)  to pay interest on any such expenses, claims, liabilities, losses,
          costs, duties, fees, charges or other moneys referred to in Clause
          4.01(a) from the date on which the relevant expense, claim, liability,
          loss, cost, duty, fee, charge or other money is paid by any Secured
          Creditor (both before and after any relevant judgment) at the Default
          Rate; and

                                      -11-
<PAGE>

     (c)  to pay and perform its obligations which may be or become due or owing
          to any Secured Creditor, as the case may be, under the Credit
          Agreement, this Mortgage and the other Credit Documents (or any of
          them) at the times and in the manner specified herein or therein.

5.   PRESERVATION OF SECURITY
     ------------------------

5.01 It is declared and agreed that:

     (a)  the security created by this Mortgage shall be held by the Mortgagee
          as a continuing security for the performance of the Obligations and
          that the security so created shall not be satisfied by any
          intermediate payment or satisfaction of any part of the Obligations;

     (b)  the security so created shall be in addition to and shall not in any
          way be prejudiced or affected by any of the other Security Documents;

     (c)  the Mortgagee shall not have to wait for the enforcement of any of the
          other Security Documents before enforcing the security created by this
          Mortgage;

     (d)  no failure or delay on the part of the Mortgagee in exercising any
          right, power, privilege or remedy hereunder and no course of dealing
          between Owner and Mortgagee or any of the Secured Creditors shall
          operate as a waiver thereof; nor shall any single or partial exercise
          of any right, power, privilege or remedy hereunder preclude any other
          or further exercise thereof or the exercise of any other right, power
          or privilege hereunder. The rights and remedies herein expressly
          provided are cumulative and not exclusive of any rights or remedies
          which the Mortgagee or any of the Secured Creditors would otherwise
          have. No notice to or demand on the Owner in any case shall entitle
          the Owner to any other or further notice or demand in similar or other
          circumstances or constitute a waiver of the rights of the Mortgagee or
          any of the Secured Creditors to any other or further action in any
          circumstances without notice or demand; and

     (e)  any waiver by the Mortgagee of any terms of this Mortgage or any
          consent given by the Mortgagee under this Mortgage shall only be
          effective if given in writing and then only for the purpose and upon
          the terms for which it is given.

5.02 Any settlement or discharge under this Mortgage between the Mortgagee and
     the Owner shall be conditional upon no security or payment to the Secured
     Parties or any of them by the Owner or any other person being avoided or
     set-aside or ordered to be refunded or reduced by virtue of any provision
     or enactment relating to bankruptcy, insolvency, administration or
     liquidation for the time being in force and, if such condition is not
     satisfied, the Mortgagee shall be entitled to recover from the Owner on
     demand the value of such security or the amount of any such payment as if
     such settlement or discharge had not occurred.

                                      -12-
<PAGE>

5.03 The rights of the Mortgagee under this Mortgage and the security hereby
     constituted shall not be affected by any act, omission, matter or thing
     which, but for this provision, might operate to impair, affect or discharge
     such rights and security, in whole or in part, including without
     limitation, and whether or not known to or discoverable by the Owner, the
     Secured Creditors or any other person:

     (a)  any waiver granted to or composition with the Owner or any other
          person; or

     (b)  the taking, variation, compromise, renewal or release of or refusal or
          neglect to perfect or enforce any rights, remedies or securities
          against the Owner or any other person; or

     (c)  any legal limitation, disability, incapacity or other circumstances
          relating to the Owner or any other person; or

     (d)  any amendment or supplement to the Credit Agreement, any of the other
          Credit Documents or any other document or security; or

     (e)  the dissolution, liquidation, amalgamation, reconstruction or
          reorganization of the Owner or any other person; or

     (f)  the unenforceability, invalidity or frustration of any obligations of
          the or any other person under the Credit Agreement, any of the other
          Credit Documents or any other document or security.

6.   INSURANCE
     ---------

6.01 The Owner covenants with the Mortgagee that throughout the Credit Facility
     Period:

     (a)  The Owner shall, at its own expense, when and so long as any
          Obligation remains outstanding, insure the Rig and keep her insured,
          or cause the Rig to be insured, in lawful money of the United States,
          in such amounts, for such risks (including without limitation, hull
          and machinery/increased value, Protection and Indemnity Risks,
          pollution liability, and War Risks), in such form (including without
          limitation, the form of the loss payable clause and the designation of
          named assureds) and with such first class insurance companies,
          underwriters, funds, mutual insurance associations or clubs, as shall
          be reasonably satisfactory to the Mortgagee. With respect to hull and
          machinery/increased value insurance, including war risk, the Owner
          shall insure the Rig and keep her insured, or cause the Rig to be
          insured, for an amount which is at least the agreed value of the Rig,
          and when such amount is aggregated with the total amount of such
          insurance coverage on the Other Rigs, such aggregate amount shall be
          at least 110% of the aggregate amount of the Total Commitment. Such
          insurance shall cover marine and war risk perils, on hull and
          machinery, with per occurrence deductibles not in excess of Five
          Hundred Thousand United States Dollars (US$500,000) (such deductibles
          not to apply in the case of Total Loss of the Rig), and shall be

                                      -13-
<PAGE>

          maintained in the broadest forms available in the American, British
          and Scandinavian insurance markets or in such other major
          international markets acceptable to the Mortgagee. The Owner shall
          maintain protection and indemnity insurance, including war risk
          protection and indemnity coverage and coverage against pollution
          liability, in an amount not less than One Hundred Million United
          States Dollars (US$100,000,000) (or, with respect to pollution
          liability coverage, such greater amount as may be at least equal from
          time to time to the limitation of liability amount applicable to the
          Rig under the Oil Pollution Act 1990 or other Environmental Laws),
          through underwriters or associations acceptable to the Mortgagee. In
          addition, the Owner shall, at its own expense, furnish to the
          Mortgagee a mortgagee's interest policy providing coverage which, when
          aggregated with the mortgagee's interest insurance furnished to the
          Mortgagee in respect of the Other Rigs, shall be in an amount equal to
          at least 110% of the Total Commitment (or in lieu of such mortgagee's
          interest insurance Owner shall cause the hull and machinery/increased
          value insurance to be endorsed to afford breach of warranty coverage
          for the benefit of the Mortgagee). Such mortgagee's interest insurance
          and any additional insurance policies for the benefit of the Mortgagee
          shall be maintained in the broadest form available in the American,
          British and Scandinavian markets or other major international markets
          acceptable to the Mortgagee through underwriters acceptable to the
          Mortgagee. The Rig shall not operate in or proceed into any area then
          excluded by trading warranties under its marine or war risk policies
          (including protection and indemnity) without satisfying the conditions
          of the relevant policies evidence of which shall be furnished to the
          Mortgagee.

     (b)  The policy or policies of insurance shall be issued by responsible
          underwriters reasonably acceptable to the Mortgagee, shall contain
          conditions, terms, stipulations and insuring covenants satisfactory to
          the Mortgagee, and shall be kept in full force and effect by the Owner
          during the Credit Facility Period. All such policies, binders and
          other interim insurance contracts shall be executed and issued in the
          name of the Owner and shall, to the extent required herein, provide
          that the Mortgagee shall be the loss payee for distribution by it to
          itself, the other Secured Creditors and the Owner as their interests
          may appear. All such insurance shall provide for at least ten days
          prior notice to be given to the Mortgagee by the underwriters or
          association in the event of (i) cancellation, or (ii) failure of the
          Owner to pay any premium or call which would suspend coverage under
          the policy or the payment of a claim thereunder, except for war risk
          coverage, which shall provide at least seven (7) days prior notice to
          the Mortgagee. The Mortgagee and the other Secured Creditors shall be
          named as co-assureds on all such policies and insurance contracts, but
          without liability of the Mortgagee or the other Secured Creditors for
          premiums or calls. Complete certified copies or originals, at the
          option of the Mortgagee, of all such policies, binders and other
          interim insurance contracts shall be delivered to the Mortgagee upon
          the request of the Mortgagee. The Owner shall furnish to the Mortgagee
          annually a detailed report signed by a firm of marine insurance
          brokers satisfactory to the Mortgagee as to the insurance maintained
          in respect of the Rig,

                                      -14-
<PAGE>

          as to their opinion as to the adequacy thereof and as to compliance
          with the provisions of this Clause 6.01.

          Unless otherwise required by the Mortgagee, by notice to the
          underwriters, although the following insurance is payable to the
          Mortgagee, (i) any loss under any insurance on the Rig with respect to
          Protection and Indemnity Risks may be paid directly to the Owner to
          reimburse it for any loss, damage or expense incurred by it and
          covered by such insurance or to the person to whom any liability
          covered by such insurance has been incurred and (ii) in the case of
          any loss (other than a loss covered by (i) above or by the next
          following paragraph of this Clause 6.01(b)) under any insurance with
          respect to the Rig involving any damage to the Rig, the underwriters
          may pay directly for the repair, salvage or other charges involved or,
          if the Owner shall have first fully repaired the damage or paid the
          salvage or other charges, may pay the Owner as reimbursement therefor;
          provided, however, that if such damage involves a before deductible
          --------  -------
          loss in excess of Five Million United States Dollars (US$5,000,000),
          the underwriters shall not make such payment without first obtaining
          the written consent thereto of the Mortgagee (which consent shall not
          be unreasonably withheld). Any loss covered by this paragraph which is
          paid to the Mortgagee but which might have been paid, in accordance
          with the provisions of this paragraph, directly to the Owner or
          others, shall be paid by the Mortgagee to, or as directed by, the
          Owner, and all other payments to the Mortgagee of losses covered by
          this paragraph shall be applied by the Mortgagee in accordance with
          Clause 10.01 without regard to the reference to this Clause 6.01(b).
          Notwithstanding any other provision in this Mortgage, any amounts
          received by the Mortgagee under any Mortgagee's interest policy or
          endorsement shall not be applied towards discharge or satisfaction of
          any of the Obligations.

          In the event of a Total Loss, all insurance payments therefor shall be
          paid to the Mortgagee and shall be applied by the Mortgagee in
          accordance with Clause 10.01 without regard to the reference to this
          Clause 6.01(b). The Owner shall not declare or agree with the
          underwriters that the Rig is a Total Loss without the prior written
          consent of the Mortgagee.

     (c)  The Owner shall comply with and satisfy all of the provisions of any
          applicable law, regulation, proclamation or order concerning financial
          responsibility for liabilities imposed on the Owner or the Rig with
          respect to the carriage of passengers or pollution, and will maintain,
          or cause to be maintained, all certificates or other evidence of
          financial responsibility as may be required by any such law,
          regulation, proclamation or order with respect to the trade in which
          the Rig from time to time is engaged.

     (d)  The Owner shall renew all such insurances as they expire and so as to
          insure that there is no gap in coverage, keep the Mortgagee advised of
          the progress of such renewals, and shall provide evidence of such
          renewal in writing to the Mortgagee as and when each such renewal is
          effected.

                                      -15-
<PAGE>

     (e)  The Owner shall punctually pay all premiums, calls, contributions or
          other sums payable in respect of all such insurances and produce all
          relevant receipts when so required by the Mortgagee.

     (f)  The Owner shall arrange for the execution of such guarantees as may
          from time to time be required by any protection and indemnity or war
          risks association.

     (g)  The Owner shall not employ the Rig or suffer the Rig to be employed
          otherwise than in conformity with the terms of the instruments of
          insurance aforesaid relative to the Rig (including any warranties,
          express or implied, therein) without first obtaining the consent to
          such employment of the insurers and complying with such requirements
          as to extra premium or otherwise as the insurers may prescribe.

7.   RIG COVENANTS
     -------------

7.01 The Owner covenants with the Mortgagee that throughout the Credit Facility
     Period the Owner will:

     (a)  keep the Rig documented in the Owner's name as a Panamanian flag
          vessel and do or allow to be done nothing whereby such documentation
          may be forfeited or imperilled;

     (b)  not without the previous consent in writing of the Mortgagee change
          the name of the Rig or make any modification to the Rig which would
          materially alter the structure, type or performance characteristics of
          the Rig and which would materially reduce the value of the Rig;

     (c)  keep the Rig in a good and efficient state of repair consistent with
          first-class ownership and management practice employed by owners of
          drilling rigs of similar size and type and so as to maintain her
          present class (namely +1A1-Column Stabilized Unit +MV Drilling
          Vessel) at Det Norske Veritas free of recommendations and
          qualifications and change of class, save those approved in writing by
          the Mortgagee and so as to comply with all applicable laws, treaties
          and conventions of the Republic of Panama and other applicable
          jurisdictions, and rules and regulations issued thereunder, and have
          on board as and when required thereby valid certificates showing
          compliance therewith;

     (d)  repair or replace any damaged, worn or lost parts or equipment in such
          manner (both as regards workmanship and quality of materials) as to
          not materially diminish the value of the Rig and not remove any
          material part of the Rig, or item of equipment owned by the Owner or
          its Subsidiaries installed on the Rig, unless (i) the part or item so
          removed is forthwith replaced by a suitable part or item which is in
          the same condition as, or better condition than, the part or item
          removed, is free from any Security Interest (other than Permitted
          Liens) in favor of any person and becomes on installation on the Rig
          the property of the Owner

                                      -16-
<PAGE>

          and subject to the security constituted by this Mortgage or (ii) the
          removal will not materially diminish the value of the Rig;

     (e)  submit the Rig to such periodical or other surveys as may be required
          for classification purposes and if so required to supply to the
          Mortgagee copies of all survey reports issued in respect thereof;

     (f)  permit the Mortgagee by independent surveyors to board the Rig at all
          reasonable times and upon reasonable notice for the purpose of
          inspecting her condition or for the purpose of satisfying themselves
          in regard to proposed or executed repairs and to afford all proper
          facilities for such inspections, provided that unless an Event of
          Default shall have occurred and be continuing, the cost of any such
          inspection shall be for the account of the Mortgagee;

     (g)  promptly pay and discharge all debts, damages and liabilities
          whatsoever which have given or may give rise to maritime or possessory
          liens (other than Permitted Liens) on or claims enforceable against
          the Rig and all tolls, dues, taxes, assessments, governmental charges,
          fines and penalties lawfully charged on or in respect of the Rig and
          all other outgoings whatsoever in respect of the Rig and in the event
          of arrest of the Rig pursuant to legal process, or in the event of her
          detention in exercise or purported exercise of any such lien or claim
          as aforesaid, procure the release of the Rig from such arrest or
          detention forthwith upon receiving notice thereof by providing bail or
          otherwise as the circumstances may require;

     (h)  not employ the Rig or allow her employment in any trade or business
          which is unlawful under the laws of any relevant jurisdiction or in
          carrying illicit or prohibited goods or in any manner whatsoever which
          can reasonably be expected to render her liable to destruction,
          seizure or confiscation and in the event of hostilities in any part of
          the world (whether war be declared or not) not employ the Rig or
          suffer her employment in carrying any contraband goods and not allow
          the Rig to enter or trade to any zone which is declared a war zone by
          any government or by the War Risks insurers of the Rig unless there
          shall have been effected by the Owner (at its expense) such special,
          additional or modified insurance cover as the Mortgagee may reasonably
          require;

     (i)  promptly furnish to the Mortgagee all such information as it may from
          time to time require regarding the Rig, her employment, position and
          engagements, particulars of all towages and salvages and, upon the
          request of the Mortgagee in writing, copies of all charters and other
          contracts for her employment or otherwise howsoever concerning her;

     (j)  notify the Mortgagee forthwith by telecopy thereafter confirmed by
          letter of:

          (i)  any casualty to the Rig which is or is likely to be a Major
               Casualty; and

                                      -17-
<PAGE>

          (ii)  any occurrence in consequence whereof the Rig has become or is,
                by the passing of time or otherwise, likely to become a Total
                Loss; and

          (iii) any requirement or recommendation made by any insurer or
                classification society or by any competent authority which is
                not complied with; and

          (iv)  any arrest of the Rig or the exercise or purported exercise of
                any lien or other Security Interest on the Rig or any
                requisition for title, other compulsory acquisition or
                requisition for hire of the Rig; and

          (v)   any intended dry docking of the Rig, as to which the Owner shall
                give the Mortgagee 30 days prior notice, provided, that in the
                                                         --------
                event of any emergency dry docking of the Rig, the Owner shall
                immediately notify the Mortgagee; and

          (vi)  any intended deactivation or lay-up of the Rig (other than for
                normal periods of inactivity between contracts for the Rig
                during which periods the Rig remains manned) and obtain the
                prior written consent of the Mortgagee;

     (k)  keep proper books of account in respect of the Rig and as and when the
          Mortgagee may so reasonably require make such books available for
          inspection on behalf of the Mortgagee and furnish satisfactory
          evidence that the wages and allotments and the insurance of the master
          and crew are being regularly paid and that all deductions from crew's
          wages in respect of tax and/or social security liability are being
          properly accounted for and that the master has no claim for
          disbursements other than those incurred by him in the ordinary course
          of trading on the voyage then in progress;

     (l)  observe the obligations contained in Section 6 of the Credit Agreement
          which apply to the Rig, and in pursuance thereof such obligations
          shall be incorporated in and deemed to form part of this Mortgage
          mutatis mutandis;

     (m)  not without the previous consent in writing of the Mortgagee (such
          consent not to be unreasonably withheld), put the Rig into the
          possession of any person for the purpose of work being done upon her
          in an amount exceeding or likely to exceed Two Million Five Hundred
          Thousand United States Dollars (US$2,500,000.00) (or the equivalent in
          any other currency) unless (i) such person shall first have given to
          the Mortgagee in terms satisfactory to the Mortgagee a written
          undertaking not to exercise any lien on the Rig for the cost of such
          work or otherwise or (ii) the cost of such work shall be fully covered
          by applicable insurance;

     (n)  comply with and satisfy all the provisions of applicable laws and
          regulations of the Republic of Panama, as at any time amended, in
          order to establish and maintain this Mortgage as a first priority
          naval mortgage thereunder upon the Rig

                                      -18-
<PAGE>

          and upon all renewals, improvements and replacements made in or to the
          same, and promptly to furnish to the Mortgagee from time to time such
          proofs as the Mortgagee may request for its satisfaction with respect
          to the compliance by the Owner with the provisions of this sub-clause,
          including appropriate certificates of the Public Registry of the
          Republic of Panama showing that this Mortgage has been duly registered
          and filed and is a first and absolute lien on the Rig;

     (o)  place, and use due diligence to retain, a properly certified copy of
          this Mortgage on board the Rig with her papers and cause such
          certified copy of this Mortgage to be exhibited to any and all persons
          having business with the Rig which might give rise to any lien thereon
          other than a lien for crew's wages, general average and salvage and to
          any representative of the Mortgagee on demand and to place and keep
          prominently displayed in the chart room and in the master's cabin of
          the Rig a framed printed notice in plain type in English of such size
          that the paragraph of reading matter shall cover a space not less than
          6 inches wide and 9 inches high reading as follows:

                              "NOTICE OF MORTGAGE

               This Rig is subject to an Indenture of First Naval
               Mortgage in favor of CHRISTIANIA BANK OG KREDITKASSE
               ASA, NEW YORK BRANCH, as Collateral Agent for the
               Secured Creditors defined in said Mortgage, in
               conformity with the provisions of Chapter V, Title IV
               of Book Second of the Code of Commerce, and the
               pertinent provisions of the Civil Code and other
               legislation of the Republic of Panama. Under the terms
               of said Mortgage neither the owner, any charterer, the
               master of the Rig nor any other person shall have the
               right, power or authority to create, incur or permit to
               be placed upon the Rig any other lien whatsoever other
               than for current crew's wages and salvage and Permitted
               Liens (as that term is defined in said Mortgage)."

     (p)  comply or procure compliance with all Environmental Laws and
          Environmental Approvals relating to the Rig, its operation or
          management and the business of the Owner from time to time;

     (q)  notify the Mortgagee forthwith upon:

          (i)  any Environmental Claim which could reasonably be expected to
               result in damages in excess of Two Hundred Thousand United States
               Dollars (US$200,000) being made against the Owner, or otherwise
               in connection with the Rig; or

          (ii) any Environmental Incident occurring, and keep the Mortgagee
               advised, in writing on such regular basis and in such detail as
               the Mortgagee shall

                                      -19-
<PAGE>

               require, of the Owner's response to such Environmental Claim or
               Environmental Incident.

     (r)  not sell, charter (other than Permitted Charters), mortgage or
          transfer the Rig without the written consent of the Mortgagee having
          first been obtained, and any such written consent to any one such
          sale, charter, mortgage or transfer shall not be construed to be a
          waiver of this provision with respect to any subsequent proposed sale,
          charter, mortgage or transfer. Any such sale, charter, mortgage or
          transfer shall be subject to the provisions of this Mortgage and the
          lien it creates. The Owner shall not charter the Rig to, or permit the
          Rig to serve under any contract with, a person included within the
          definition of (i) "national" of a "designated foreign country," or
          "specially designated national" of a "designated foreign country," in
          the Foreign Assets Control Regulations or the Cuban Assets Control
          Regulations of the United States Treasury Department, 31 C.F.R. Parts
          500 and 515, in each case as amended, (ii) "Government of Libya",
          "entity of the Government of Libya" or "Libyan entity" in the Libyan
          Sanctions Regulations of the United States Treasury Department, 31
          C.F.R. Part 550, as amended, or (iii) "Government of Iraq", "entity of
          the Government of Iraq" or "Iraqi Government entity" in the Iraqi
          Sanctions Regulations, 31 C.F.R. Part 575, as amended, all within the
          meaning of said Regulations or of any regulations, interpretations or
          rulings issued thereunder, or sail in Cuban waters or enter any Cuban
          port for any purpose or engage in any transaction that violates any
          provision of said Regulations or that violates any provision of the
          Office of Foreign Assets Control Regulations, 31 C.F.R. Parts 500
          through 597, as amended, or Executive Orders 12810, 12831 and/or
          12846; if such transaction or violation would (i) expose the Mortgagee
          to any penalty, sanction or investigation or (ii) jeopardize the lien
          created by this Mortgage or (iii) have a material adverse effect on
          the Owner or the operation of the Rig;

     (s)  shall not cause or permit the Rig to be operated in any manner
          contrary to law (except where the failure to operate in compliance
          with any law would not have a material adverse effect on the Owner,
          the Rig or the lien of this Mortgage), shall not abandon the Rig in a
          foreign port and shall not engage in any unlawful trade or violate any
          law or carry any cargo that shall expose the Rig to forfeiture or
          capture.

8.   PROTECTION OF SECURITY
     ----------------------

8.01 The Mortgagee shall without prejudice to its other rights and powers under
     the Credit Agreement, this Mortgage and the other Credit Documents (or any
     of them) be entitled (but not bound) at any time and as often as may be
     necessary (but unless an Event of Default shall have occurred and be
     continuing with prior written notice to the Owner) to take any such action
     as it may in the reasonable exercise of its discretion think fit for the
     purpose of protecting or maintaining the security created by this Mortgage
     and the other Credit Documents (or any of them) (including, without
     limitation, such action as is referred to in Clause 8.02) and each and
     every expense, liability, or loss (including,

                                      -20-
<PAGE>

      without limitation, reasonable legal fees) so incurred by the Mortgagee in
      or about the protection or maintenance of the said security together with
      interest payable thereon under Clause 4.01 (b) shall be payable to the
      Mortgagee by the Owner on demand.

8.02  Without prejudice to the generality of Clause 8.01:

      (a)  if the Owner does not comply in any material respect with the
           provisions of Clause 6 or any of them the Mortgagee shall be entitled
           (but not bound) to effect or to replace and renew and thereafter to
           maintain the Insurances in such manner it, in its discretion, may
           think fit and to require that all policies, contracts and other
           records relating to the Insurances (including details of any
           correspondence concerning outstanding claims) be forthwith delivered
           to such brokers as the Mortgagee may nominate and, upon the direction
           of the Mortgagee to collect, recover, compromise and give a good
           discharge for all claims then outstanding or thereafter arising under
           the Insurances or any of them and to take over or institute (if
           necessary using the name of the Owner) all such proceedings in
           connection therewith as the Mortgagee in its absolute discretion, may
           think fit and to permit the brokers through whom the collection or
           recovery is effected to charge the usual brokerage therefor;

      (b)  if the Owner does not comply with the provisions of Clause 7.01(d)
           and 7.01(f) or any of them the Mortgagee shall be entitled (but not
           bound) to arrange for the carrying out of such repairs to and/or
           surveys of the Rig as it deems expedient or necessary; and

      (c)  if the Owner does not comply with the provisions of Clause 7.01 (g)
           or any of them, the Mortgagee shall be entitled (but not bound) to
           pay and discharge all such debts, damages and liabilities and all
           such tolls, dues, taxes, assessments, charges, fines, penalties and
           other outgoings as are therein mentioned and/or to take any such
           measures as it deems expedient or necessary for the purpose of
           securing the release of the Rig.

 9.   ENFORCEABILITY AND MORTGAGEE'S POWERS
      -------------------------------------

9.01  Upon the happening of any of the Events of Default specified in the Credit
      Agreement but without the necessity for any court order or declaration in
      any jurisdiction to the effect that an Event of Default has occurred (and
      whether prior to or after any notice referred to in Section 7 of the
      Credit Agreement) the security constituted by this Mortgage shall become
      immediately enforceable and the Mortgagee shall be entitled, as and when
      it may see fit, to put into force and exercise all or any of the powers
      possessed by it as mortgagee of the Rig or otherwise and in particular:

      (a)  to exercise all the rights and remedies in foreclosure and otherwise
           given to mortgagees by the laws of the Republic of Panama or other
           applicable laws;

                                      -21-
<PAGE>

     (b)  to take possession of the Rig whether actually or constructively
          and/or otherwise to take control of the Rig wherever the Rig may be
          and cause the Owner or any other person in possession of the Rig
          forthwith upon demand to surrender the same to the Mortgagee without
          legal process and without liability of the Mortgagee for any losses or
          damages incurred thereby and without having to render accounts to the
          Owner in connection therewith;

     (c)  to require that all policies, contracts, certificates of entry and
          other records relating to the Insurances (including details of and
          correspondence concerning outstanding claims) be forthwith delivered
          to or to the order of the Mortgagee;

     (d)  to collect, recover, compromise and give a good discharge for or
          procure that the Mortgagee collect, recover, compromise and give good
          discharge for any and all moneys or claims for moneys then outstanding
          or thereafter arising under the Insurances or any Requisition
          Compensation and to permit any brokers through whom collection or
          recovery is effected to charge the usual brokerage therefor;

     (e)  to take over or institute (if necessary using the name of the Owner)
          all such proceedings in connection with the Rig, the Insurances, or
          any Requisition Compensation as the Mortgagee in its absolute
          discretion thinks fit and to discharge, compound, release or
          compromise claims against the Owner in respect of the Rig which have
          given or may give rise to any charge or lien or other Security
          Interest on the Rig or which are or may be enforceable by proceedings
          against the Rig;

     (f)  to sell the Rig or any share therein with or without prior notice to
          the Owner free from any claim of or by the Owner of any nature
          whatsoever, and with or without the benefit of any charter or other
          contract for her employment, by public auction or private contract at
          such place and upon such terms (including, without limitation, on
          terms such that payment of some or all of the purchase price be
          deferred) as the Mortgagee in its absolute discretion may determine
          with power to postpone any such sale, without being answerable for any
          loss occasioned by such sale or resulting from postponement thereof,
          and/or itself to purchase the Rig at any such public auction and to
          set off the purchase price against all or any part of the Obligations,
          subject to notice of sale being given by the Mortgagee to the Owner
          and other mortgagees of record, if any, by airmail, postage pre-paid
          and by publication once in a newspaper of general circulation in the
          City of Panama, Republic of Panama, not less than twenty (20) calendar
          days in advance of the sale, to satisfy the requirement of notice of
          sale contained in Article 1527 of the Panama Code of Commerce. Such
          notice shall be necessary only in respect of the initial date of sale;

     (g)  to manage, insure, maintain and repair the Rig and to charter, employ,
          sail or lay up the Rig in such manner, upon such terms and for such
          period as the Mortgagee in its absolute discretion deems expedient and
          for the purposes aforesaid the Mortgagee shall be entitled to do all
          acts and things incidental or conducive

                                      -22-
<PAGE>

           thereto and in particular to enter into such arrangements respecting
           the Rig, and the insurance, management, maintenance, repair,
           classification, chartering and employment of the Rig, in all respects
           as if the Mortgagee were the owner of the Rig and without being
           responsible for any loss thereby incurred;

      (h)  to recover from the Owner on demand any expenses, liabilities or
           losses as may be incurred by the Mortgagee in or about the exercise
           of the power vested in the Mortgagee under Clause 9.01(g);

      (i)  generally, to recover from the Owner on demand each and every
           expense, liability or loss incurred by the Mortgagee in or about or
           incidental to the exercise by it of any of the powers aforesaid.

9.02  The Mortgagee shall not be obliged to make any enquiry as to the nature or
      sufficiency of any payment received by it under this Mortgage or to make
      any claim, take any action or enforce any rights and benefits assigned to
      the Mortgagee by this Mortgage or to which the Mortgagee may at any time
      be entitled hereunder.

9.03  Neither the Mortgagee, any other Secured Creditor, nor their respective
      agents, managers, officers, employees, delegates and advisers shall be
      liable for any expense, claim, liability, loss, cost, damage or expense
      incurred or arising in connection with the exercise or purported exercise
      of any rights, powers and discretions under this Mortgage in the absence
      of gross negligence or wilful misconduct.

9.04  The Mortgagee shall not by reason of the taking possession of the Rig be
      liable to account as mortgagee-in-possession or for anything except actual
      receipts or be liable for any loss or for any default or omission for
      which a mortgagee-in-possession might be liable.

9.05  Upon any sale of the Rig or any share therein by the Mortgagee the
      purchaser shall not be bound to see or enquire whether the power of sale
      of the Mortgagee has arisen in the manner provided in this Mortgage and
      the sale shall be deemed to be within the power of the Mortgagee and the
      receipt of the Mortgagee for the purchase money shall effectively
      discharge the purchaser who shall not be concerned with the manner of
      application of the proceeds of sale or be in any way answerable therefor.

10.   APPLICATION OF MONEYS
      ---------------------

10.01

      (a)  Except as otherwise provided in Clause 6.01(b) hereof, all moneys
           received by the Mortgagee or any other Secured Creditor in connection
           with this Mortgage, including, without limitation, in respect of sale
           of the Rig or any part thereof, in respect of recovery under the
           Insurances, or in respect of Requisition Compensation, shall be
           applied in the following manner:

                                      -23-
<PAGE>

          (i)   first, to the payment of all amounts owing the Mortgagee of the
                type described in sub-clauses (ii) and (iii) of Recital (D);

          (ii)  second, to the extent moneys remain after the application
                pursuant to the preceding sub-clause (i), an amount equal to the
                outstanding Obligations shall be paid to the Secured Creditors
                as provided in Clause 10.01(c), with each Secured Creditor
                receiving an amount equal to such Obligations held by it or, if
                the proceeds are insufficient to pay in full all such
                Obligations, its Pro Rata Share (as defined below) of the amount
                remaining to be distributed; and

          (iii) third, to the extent moneys remain after the application
                pursuant to the preceding sub-clauses (i) and (ii), and
                following the termination of this Mortgage pursuant to Clause
                3.01, any surplus then remaining shall be paid to the Owner,
                subject, however, to the rights of the holder of any then
                existing Lien (as defined in the Credit Agreement) of which the
                Mortgagee has actual notice (without investigation).

     (b)  For purposes of this Mortgage "Pro Rata Share" shall mean, when
          calculating a Secured Creditor's portion of any distribution or amount
          in respect of any Obligations, the amount (expressed as a percentage)
          equal to a fraction the numerator of which is the then unpaid amount
          of such Obligations owing to or held by such Secured Creditor and the
          denominator of which is the then outstanding amount of all
          Obligations. For purposes of determining the amount payable to each
          Secured Creditor, the Mortgagee shall be entitled to request each
          Secured Creditor to furnish it with written notice of the amount of
          Obligations then owed to it and shall be entitled to rely upon the
          amounts stated therein in making such distribution.

     (c)  All payments required to be made to Secured Creditors hereunder shall
          be made to the Administrative Agent under the Credit Agreement for the
          account of the Secured Creditors.

     (d)  For purposes of applying payments received in accordance with this
          Clause 10.01, the Mortgagee  shall be entitled to rely upon (i) the
          Administrative Agent under the Credit Agreement and (ii) the Secured
          Creditors for a determination (which the Administrative Agent and each
          Secured Creditor, by their acceptance of the benefits of this Mortgage
          shall be obligated to provide upon request of the Mortgagee) of the
          outstanding Obligations owed to the Secured Creditors. Unless it has
          actual knowledge (including by way of written notice from a Secured
          Creditor) to the contrary, the Administrative Agent under the Credit
          Agreement, in furnishing information pursuant to the preceding
          sentence, and the Mortgagee, in acting hereunder, shall be entitled to
          assume that no obligations other than principal, interest and
          regularly accruing fees are owing to any Secured Creditor.

                                      -24-
<PAGE>

10.02  It is understood and agreed that the Owner shall remain liable to the
       extent of any deficiency between the amount of the proceeds of the Rig or
       other amounts received hereunder and the aggregate amount of the
       Obligations.

11.    FURTHER ASSURANCES
       ------------------

11.01  The Owner shall execute and do all such assurances, acts and things as
       the Mortgagee in its absolute discretion may require for:

       (a)  perfecting or protecting the security created (or intended to be
            created) by this Mortgage; or

       (b)  preserving or protecting any of the rights of the Mortgagee and the
            other Secured Creditors under this Mortgage; or

       (c)  ensuring that the security constituted by this Mortgage and the
            covenants and obligations of the Owner under this Mortgage shall
            inure to the benefit of any transferee, successor or assignee of the
            Mortgagee; or

       (d)  enforcing the security constituted by this Mortgage on or at any
            time after the same shall have become enforceable; or

       (e)  the exercise of any power, authority or discretion vested in the
            Mortgagee under this Mortgage, in any such case, forthwith upon
            demand by the Mortgagee and at the expense of the Owner.

12.    POWER OF ATTORNEY
       -----------------

12.01  The Owner, by way of security and in order to more fully secure the
       performance of the Obligations under this Mortgage, hereby irrevocably
       appoints the Mortgagee as its attorney for the duration of the Credit
       Facility Period for the purposes of:

       (a)  doing in its name all acts and executing, signing and (if required)
            registering in its name all documents which the Owner itself could
            do, execute, sign or register in relation to the Rig (including
            without limitation, transferring title to the Rig to a third party),
            provided, however, that such power shall not be exercisable by or on
            behalf of the Mortgagee until this Mortgage shall have become
            immediately enforceable pursuant to Clause 9.01; and

       (b)  executing, signing, perfecting, doing and (if required) registering
            every such further assurance document, act or thing as is referred
            to in Clause 11.

12.02  The exercise of such power as is referred to in Clause 12.01(a) by or on
       behalf of the Mortgagee shall not put any person dealing with the
       Mortgagee upon any enquiry as to whether this Mortgage has become
       enforceable nor shall such person be in any way affected by notice that
       this Mortgage has not become enforceable and, in relation to both

                                      -25-
<PAGE>

       Clauses 12.01(a) and 12.01(b), the exercise by the Mortgagee of such
       power shall be conclusive evidence as against third parties of its right
       to exercise the same.

13.    INDEMNITIES
       -----------

13.01  The Owner will indemnify and save harmless each of the Mortgagee, the
       other Secured Creditors and their respective officers, directors,
       employees, attorneys and agents (each an "Indemnitee") from and against
       any and all expenses, claims, liabilities, losses, taxes, costs, duties,
       fees and charges suffered, incurred or made by any Indemnitee in good
       faith:

       (a)  in the exercise or purported exercise of any rights, powers or
            discretions vested in them pursuant to this Mortgage; or

       (b)  in the preservation or enforcement of the rights of the Mortgagee
            under this Mortgage; or

       (c)  on the release of the Rig from the security created by this
            Mortgage,

       and the Indemnitees may retain and pay all sums in respect of the same
       out of money received under the powers conferred by this Mortgage. All
       such amounts recoverable by an Indemnitee shall be recoverable on a full
       indemnity basis.

13.02  Without limiting the foregoing Clause 13.01, the Owner hereby further
       indemnifies and holds harmless each of the Indemnitees from and against
       any and all liabilities, losses, obligations, claims, damages, penalties,
       causes of action, costs and expenses (including, without limitation,
       reasonable attorneys' fees and expenses, consultant fees, investigation
       and laboratory fees) imposed upon or incurred by or asserted against
       them, or any of them, by reason of (a) an actual, alleged or threatened
       Environmental Incident; (b) any personal injury (including wrongful
       death) or property damage (real or personal) or economic damage arising
       out of or related to such Environmental Incident; (c) any Environmental
       Claim brought or threatened, or settlement reached; or (d) any violation
       of laws, orders, regulations, requirements or demands of government
       authorities relating to Hazardous Materials at, or discharged from, the
       Rig.

13.03  If, under any applicable law or regulation, and whether pursuant to a
       judgment being made or registered against the Owner or the liquidation of
       the Owner or for any other reason, any payment under or in connection
       with this Mortgage is made or fails to be satisfied in a currency (the
       "payment currency") other than the currency in which such payment is due
       under or in connection with this Mortgage (the "contractual currency"),
       then to the extent that the amount of such payment actually received by
       the Mortgagee, when converted into the contractual currency at the rate
       of exchange, falls short of the amount due under or in connection with
       this Mortgage, the Owner, as a separate and independent obligation, shall
       indemnify and hold harmless the Mortgagee against the amount of such
       shortfall. For the purposes of this Clause 13.03, "rate of exchange"
       means the rate at which the Mortgagee is able on the date of such payment
       (or, if it is not

                                      -26-
<PAGE>

       practicable for the Mortgagee to purchase the contractual currency with
       the payment currency on the date of such payment, at the rate of exchange
       as soon afterwards as is practicable for the Mortgagee to do so) to
       purchase the contractual currency with the payment currency and shall
       take into account any premium and other costs of exchange with respect
       thereto.

14.    EXPENSES
       --------

14.01  The Owner shall pay to the Mortgagee and any other Secured Creditor on
       demand all costs, fees and expenses, including, but not limited to, legal
       fees and expenses and valuation fees and Taxes thereon incurred by the
       Mortgagee or any other Secured Creditor or for which the Mortgagee or any
       other Secured Creditor may become liable in connection with:

       (a)  the negotiation, preparation and execution of the Credit Agreement,
            this Mortgage and the other Credit Documents (or any of them);
            and/or

       (b)  the preserving or enforcing of, or attempting to preserve or
            enforce, any rights under the Credit Agreement, this Mortgage and
            the other Credit Documents (or any of them).

14.02  The Owner shall pay to the Mortgagee or any other Secured Creditor on all
       costs, fees and expenses (including, but not limited to, legal fees and
       expenses) and Taxes thereon incurred by the Mortgagee or any other
       Secured Creditor in connection with:

       (a)  any variation of, or amendment or supplement to, any of the terms of
            the Credit Agreement, this Mortgage and the other Credit Documents
            (or any of them) requested by the Owner, necessary or advisable
            under applicable law or relating to the syndication of the Facility,
            or initiated during the occurrence and continuation of an Event of
            Default; and/or

       (b)  any consent or waiver required from the Mortgagee in relation to the
            Credit Agreement, this Mortgage and the other Credit Documents (or
            any of them), and in each case, regardless of whether the same is
            actually implemented, completed or granted, as the case may be.

14.03  The Owner shall pay promptly all stamp, documentary and other like duties
       and Taxes to which the Credit Agreement, this Mortgage and the other
       Credit Documents (or any of them) may be subject or give rise and shall
       indemnify the Mortgagee on demand against any and all liabilities with
       respect to or resulting from any delay or omission on the part of the
       Owner to pay any such duties or Taxes.

15.    COMMUNICATIONS
       --------------

15.01  All notices required to be given to the Mortgagee shall be made to the
       following address:

                                      -27-
<PAGE>

               Christiania Bank og Kreditkasse ASA, New York Branch
               11 West 42nd Street
               7th Floor
               New York, New York 10036
               Attention:  Loan Administration
               Telephone: (212) 827-4800
               Telefax:   (212) 827-4888

       with a copy to Robert Friedrich, Esquire, White & Case LLP, 1155 Avenue
       of the Americas, New York, NY 10036, Telecopier No. 212-354-8113 and with
       a copy to Richard L. Lionberger, Esquire, Royston, Rayzor, Vickery &
       Williams, L.L.P., 600 Travis Street, Suite 2200, Houston, Texas 77002,
       Telecopier No. 713-225-9945. All other notices shall be made to the
       addresses provided for in Section 10.03 of the Credit Agreement.

16.    ASSIGNMENTS
       -----------

16.01  This Mortgage shall be binding upon and shall inure to the benefit of the
       Owner, the Mortgagee and the other Secured Creditors and their respective
       transferees, successors and permitted assigns, and references in this
       Mortgage to any of them shall be construed accordingly.

16.02  The Owner may not assign or transfer all or any part of its rights and/or
       obligations under this Mortgage.

16.03  Pursuant to Section 10.04 of the Credit Agreement, each Bank has the
       right to assign or transfer all or any part of its rights and/or
       obligations under the Credit Agreement on the terms therein provided. The
       Mortgagee shall notify the Owner promptly following any such assignment,
       transfer or change.

17.    TOTAL AMOUNT, ETC.
       ------------------

17.01  For the purposes of recording this Mortgage, as required by the
       Panamanian Maritime Law, the total principal amount of the direct or
       contingent obligations that are or may be secured by the Mortgage is
       Seventy Million United States Dollars (US$70,000,000), and, in addition,
       interest, fees, court costs, collection expenses, amounts resulting from
       fluctuation in exchange rates and any additional amounts agreed upon
       which are secured in accordance with Article 1515 of the Code of Commerce
       of the Republic of Panama for which the Owner may become liable in
       connection with the performance of the covenants of the Credit Agreement,
       this Mortgage and any other Credit Document (or any of them). The total
       discharge amount is the same as the total amount.

 18.   WAIVER: AMENDMENT
       -----------------

18.01  None of the terms and conditions of this Mortgage may be changed, waived,
       modified or varied in any manner whatsoever unless in writing duly signed
       by the Owner and the

                                      -28-
<PAGE>

       Mortgagee (with the consent of any Secured Creditor required by Section
       10.14 of the Credit Agreement).

 19.   MISCELLANEOUS
       -------------

19.01  This Mortgage shall be governed by the laws of the Republic of Panama.

19.02  If at any time any one or more of the provisions in this Mortgage is or
       becomes invalid, illegal or unenforceable in any respect under any law or
       regulation, the validity, legality and enforceability of the remaining
       provisions of this Mortgage shall not be in any way affected or impaired
       thereby.

19.03  The Mortgagee, at any time and from time to time, may delegate by power
       of attorney or in any other manner to any person or persons all or any of
       the powers, authorities and discretions which are for the time being
       exercisable by the Mortgagee under this Mortgage in relation to the Rig.
       Any such delegation may be made upon such terms and subject to such
       regulations as the Mortgagee may think fit. The Mortgagee shall not be in
       any way liable or responsible to the Owner for any loss or damage arising
       from any act, default, omission or misconduct on the part of any such
       delegate.

19.04  The appearing parties hereby confer a special power of attorney on (i)
       Benedetti & Benedetti, lawyers of Panama, Republic of Panama, (ii) White
       & Case LLP, and (iii) Royston, Rayzor, Vickery & Williams, L.L.P. and/or
       any lawyers in any such firm authorizing any such firm or any such lawyer
       to take all necessary steps to record this Indenture of First Naval
       Mortgage in the appropriate registries of the Republic of Panama,
       including, without limitation, through the Panamanian Consulate in New
       York, New York or Houston, Texas, and to substitute the power of attorney
       herein granted.

19.05  A certification or determination by the Mortgagee as to any matter
       provided for in this Mortgage shall, in the absence of manifest error, be
       conclusive and binding on the Owner.

19.06  The Mortgagee declares that it accepts the naval mortgage hereby created
       under the terms above set forth.

19.07  This Mortgage may be executed by the parties hereto in separate
       counterparts, each of which when so executed and delivered shall be
       deemed an original, but all such counterparts shall together constitute
       one and the same instrument. Each counterpart may consist of a number of
       copies hereof each signed by less then all, but together signed by all,
       the parties hereto.

 20.   JURISDICTION
       ------------

20.01  The Owner agrees that the Mortgagee shall have the liberty but shall not
       be obliged to take any proceedings in the courts of any country to
       protect or enforce the security constituted by this Mortgage or to
       enforce any provisions of this Mortgage or to enforce the Obligations and
       for the purpose of any proceedings for such enforcement the Owner

                                      -29-
<PAGE>

       hereby submits to the jurisdiction of the courts of any country of the
       choice of the Mortgagee.

20.02  Without prejudice to the generality of Clause 20.01, the Mortgagee shall
       have the right to arrest and take action against the Rig at whatever
       place the Rig shall be found lying and for the purpose of any action
       which the Mortgagee may bring before the courts of such jurisdiction or
       other judicial authority and for the purpose of any action which the
       Mortgagee may bring against the Rig, any writ, notice, judgment or other
       legal process or documents may (without prejudice to any other method of
       service under applicable law) be served upon the master of the Rig (or
       upon anyone acting as the master) and such service shall be deemed good
       service on the Owner for all purposes.

20.03  The Owner agrees that should the Mortgagee bring a legal action or
       proceeding against it or its assets in relation to any matters arising
       out of or in connection with this Mortgage, no immunity from such legal
       action or proceeding (which shall be deemed to include, without
       limitation, suit, attachment prior to judgment, other attachment, the
       obtaining of judgment, execution or other enforcement) shall be claimed
       by or on behalf of the Owner or with respect of its assets, and the Owner
       hereby irrevocably waives any such right of immunity which it or its
       assets now has or may hereafter acquire and the Owner hereby consents
       generally in respect of any legal action or proceedings arising out of or
       in connection with this Mortgage to the giving out of any relief or the
       issue of any process in connection with such action or proceedings
       including, without limitation, the making, enforcement or execution or
       attachment against any property whatsoever of any order or judgment which
       may be made or given in such action or proceedings.

            [The remainder of this page intentionally left blank.]

                                      -30-
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Mortgage on the 31/st/ day of
August, 2000 to be effective as of the 6/th/ day of September, 2000.

                         R&B FALCON CORPORATION

                         By:    ________________________________
                         Name:  ________________________________
                         Title: ________________________________

                          ACKNOWLEDGMENT OF MORTGAGE
                          --------------------------

STATE OF TEXAS      )
                    ) ss:
COUNTY OF HARRIS    )

On this 31/st/ day of August, 2000 before me personally appeared
__________________________, to me known and whose address is 901 Threadneedle,
Suite 200, Houston, Texas 77079; who submitted evidence to me that he is the
_____________________________________ of R&B FALCON CORPORATION, the corporation
described in and which executed the foregoing mortgage; and that he signed his
name thereto pursuant to authority granted to him by the Board of Directors of
said corporation.

                              _________________________
                              Notary Public
<PAGE>

                              CHRISTIANIA BANK OG KREDITKASSE ASA, NEW YORK
                              BRANCH, as Collateral Agent

                              By:    ________________________________
                              Name:  ________________________________
                              Title: ________________________________

                              By:    ________________________________
                              Name:  ________________________________
                              Title: ________________________________

                          ACKNOWLEDGMENT OF MORTGAGE
                          --------------------------

STATE OF NEW YORK   )
                    ) ss:
COUNTY OF NEW YORK  )

On this 31/st/ day of August, 2000, before me personally appeared
_________________________ to me known and whose address is 11 West 42/nd/
Street, New York, NY 10036; and who submitted evidence to me that he/she is
_____________________________ of CHRISTIANIA BANK OG KREDITKASSE ASA, NEW YORK
BRANCH, the corporation described in and which executed the foregoing mortgage;
and that he/she signed his/her name thereto pursuant to authority granted to
him/her by the Board of Directors of said corporation.

                              __________________________
                              Notary Public

                          ACKNOWLEDGMENT OF MORTGAGE
                          --------------------------

STATE OF NEW YORK   )
                    ) ss:
COUNTY OF NEW YORK  )

On this 31/st/ day of August, 2000, before me personally appeared
_________________________ to me known and whose address is 11 West 42/nd/
Street, New York, NY 10036; and who submitted evidence to me that he/she is
______________________________ of CHRISTIANIA BANK OG KREDITKASSE ASA, NEW YORK
BRANCH, the corporation described in and which executed the foregoing mortgage;
and that he/she signed his/her name thereto pursuant to authority granted to
him/her by the Board of Directors of said corporation.

                                    ________________________
                                    Notary Public
<PAGE>

                     EXHIBIT 1 - FORM OF CREDIT AGREEMENT

(Credit Agreement together with the schedules, the form of A Letter of Credit
attached thereto as Exhibit A-1 and the form of Letter of Credit Request
attached thereto as Exhibit A-2 but without the remaining exhibits)

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