Document:

Exhibit 10.35

                                                                     Document 3

                                                                TRUST INDENTURE

                                           Relating to United States Government
                                          Guaranteed Ship Financing Obligations

<PAGE>

                                                                     EXPORT.102

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

                                TRUST INDENTURE

                Relating to United States Government Guaranteed
                       Export Ship Financing Obligations

                                    Between

                       PERFORADORA CENTRAL, S.A. de C.V.

                                                 Shipowner

                                      AND

                          BANK ONE TRUST COMPANY, N.A.

                                           Indenture Trustee

                          Dated as of November 5, 1998

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

<PAGE>

                                TRUST INDENTURE

                                    Between

                       PERFORADORA CENTRAL, S.A. de C.V.

                                              Shipowner

                                      AND

                          BANK ONE TRUST COMPANY, N.A.

                                            Indenture Trustee

                          Dated as of November 5, 1998

    TABLE OF CONTENTS TO SPECIAL PROVISIONS OF THE INDENTURE 1/
    -------------------------------------------------------- -

Parties......................................................................1

Recitals.....................................................................1

ARTICLE FIRST        Incorporation of General Provisions.....................2

ARTICLE SECOND       Bonds...................................................2

ARTICLE THIRD        Certain Redemptions.....................................2

                (a)  Mandatory Sinking Fund Redemptions......................2
                (b)  Optional Redemptions of Bonds at Premium................3
                (c)  Redemption at Premium on Termination of
                     Construction Contract...................................3
                (d)  Payment in U.S. Currency................................3
                (e)  Redemption Premium......................................4

ARTICLE FOURTH  Definitions..................................................4

<PAGE>
ARTICLE FIFTH   Additions, Deletions and Amendments to
                Exhibit 1....................................................4

                (a)  Concerning Section 2.12.................................4
                (b)  Concerning Section 3.05.................................4
                (c)  Concerning Payment of the Obligations...................4
                (d)  Concerning Home Office Payment..........................5
                (e)  Concerning Notices......................................5
                (f)  Applicable Law..........................................6
                (g)  Jurisdiction and Consent to Suit........................6

ARTICLE SIXTH   Representations..............................................7

                          EXHIBITS TO TRUST INDENTURE
                          ---------------------------
SCHEDULE A      Schedule of Definitions to Trust Indenture

EXHIBIT 1       General Provisions of the Indenture Incorporated
                by Reference

EXHIBIT 2       Form of Bond, Guarantee and Trustee's
                Authentication Certificate

EXHIBIT 3       Authorization Agreement

EXHIBIT 4       Form of Secretary Supplemental Indenture

<PAGE>
                                TRUST INDENTURE

                               Special Provisions

      THIS TRUST INDENTURE, dated as of November 5, 1998 (said Trust Indenture,
as the same may be amended, modified or supplemented from time to time as
permitted hereunder, herein called the "Indenture"), between (i) PERFORADORA
CENTRAL, S.A. de C.V., a Mexican corporation (herein called the "Shipowner"),
and (ii) Bank One Trust Company, N.A., a national banking association (said
Bank, any successor or assign hereunder, herein called the "Indenture
Trustee").

                                   Recitals:

      A  The Shipowner is a party to a Construction Contract, as amended,
signed with TDI-Halter, Inc., a Texas corporation (the "Shipyard"). Subsequent
to the execution of the Construction Contract, Shipyard merged into TDI-Halter,
Limited Partnership (the "Merged Shipyard"). The Construction Contract provides
for the construction by the Merged Shipyard of one Le Tourneau design Super
116C Jack-up Drilling Unit (the "Vessel");

      B  To aid in financing the construction of the Vessel, the Shipowner
has entered into a bond purchase agreement (the "Bond Purchase Agreement") with
the purchaser named therein, providing for the sale and delivery of no more
than $70,528,000 aggregate principal amount of bonds designated, "United States
Government Guaranteed Export Ship Financing Bonds, 1998 Series" (the
"Obligations" or the "Bonds") having the maturity date and interest rate set
forth therein;

      C  It is intended that pursuant to the terms of the Authorization
Agreement, Contract MA-13449, the Secretary on behalf of the United States,
will authorize the Indenture Trustee, under the terms of Title XI of the Act,
to cause the guarantee of the payment of unpaid principal and interest on the
Obligations according to the terms of the Guarantee to be imprinted on the
Obligations issued and to authenticate and deliver said Obligations on the
Closing Date;

      D  Pursuant to Section 1104A(b)(5) of the Act, the Secretary has
determined that the interest to be borne by the Obligations (exclusive of
charges for the guarantee fee and investigation and service charges, if any) at
the rate specified in the form thereof set forth in Exhibit 2 hereto is
reasonable;

      NOW THEREFORE, in consideration of the premises, of the mutual covenants
herein contained, of the purchase of the Obligations by the Holders thereof,
and of other good and valuable consideration, the receipt and adequacy of which
the parties

<PAGE>
hereby acknowledge, and for the equal and proportionate benefit of all the
present and future Holders of the Obligations, the parties hereto agree as
follows:

                                 ARTICLE FIRST

                Incorporation of General Provisions

      This Indenture shall consist of two parts: the Special Provisions and the
General Provisions attached hereto as Exhibit 1, made a part of this Indenture
and incorporated herein by reference.

                                 ARTICLE SECOND

                                   The Bonds

      (a)  The Bonds issued hereunder shall be designated "United States
Government Guaranteed Export Ship Financing Bonds, 1998 Series," and shall be
in the form of Exhibit 2 to this Indenture; and the aggregate principal amount
of Bonds which may be issued under this Indenture shall not exceed $70,528,000
except as provided in Sections 2.09, 2.10, 2.12 and 3.10(b) of Exhibit 1
hereto.

      (b)  The Bonds shall be in the denominations of United States $1,000 or
any integral multiple thereof.

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

      (d)  The Indenture Trustee shall at all time have its Corporate Trust
Office in New Orleans, State of Louisiana.

                                 ARTICLE THIRD

                              Certain Redemptions

      (a)  Mandatory Sinking Fund Redemptions. The Bonds are subject to
redemption at a redemption price equal to 100% of the principal amount thereof,
together with interest accrued thereon to the applicable sinking fund
Redemption Date, through the operation of a mandatory sinking fund providing
for the redemption of Obligations, commencing on the date which is six months
after the earlier of July 15, 1999 or the Delivery Date of the Vessel (the
"Transition Date") and semi-annually thereafter to and including the twelfth
anniversary of the Transition Date, of $2,939,000 principal amount of
Obligations (or such lesser principal amount of Obligations as shall

                                       2
<PAGE>
then be Outstanding) plus interest accrued thereon to the Redemption Date. The
Shipowner shall notify the Indenture Trustee of the date which constitutes the
Transition Date as soon as such date is known to the Shipowner. Notwithstanding
the foregoing provisions of this subsection (a), if the principal amount of
Outstanding Bonds shall be reduced by reason of any redemption pursuant to
Sections 3.04 or 3.05 of Exhibit 1 to this Indenture, the principal amount of
Bonds to be redeemed pursuant to this subsection (a) on each subsequent
mandatory sinking fund Redemption Date for such Bonds shall be reduced by an
amount equal to the principal amount of such Bonds retired by reason of such
redemption pursuant to Sections 3.04 or 3.05 of Exhibit 1 hereto divided by the
number of mandatory sinking fund Redemption Dates (including the Stated
Maturity of such Bonds) scheduled thereafter (subject to such increase as shall
be necessary so that the total principal amount of Bonds to be redeemed on any
such sinking fund redemption date shall be an integral multiple of $1,000;
provided, however, that the entire unpaid principal amount of the Outstanding
Bonds shall be paid not later than the twelfth anniversary of the Transition
Date. The Shipowner shall, in accordance with Section 3.02(d) of Exhibit 1
hereto, promptly after each redemption pursuant to said Section 3.04, furnish
to the Secretary, the Indenture Trustee and each Holder of an Obligation a
revised table of sinking fund payments reflecting the reductions made pursuant
to this subsection (a) as a result of such redemption.

      (b)  Optional Redemptions of Bonds at Premium. At its option, the
Shipowner may redeem the Bonds, in whole or in part, at any time or from time
to time, at a redemption price, equal to 100% of the principal amount being
redeemed plus interest accrued thereon to the date fixed for redemption and the
Redemption Premium. If the Shipowner shall elect to make any such optional
redemption, the Shipowner shall, at least 40 days but not more than 60 days
prior to the date fixed for redemption, deliver to the Indenture Trustee a
Request stating that the Shipowner intends to exercise its rights as above set
forth to make such optional redemption and specifying the Redemption Date, and
the principal amount of Bonds which the Shipowner intends to redeem on such
date.

      (c)  Redemption at Premium on Termination of Construction Contract.
Notwithstanding the provisions of Sections 3.02(b) and 3.05(iii), upon receipt
by the Indenture Trustee of written instructions from the Secretary and the
Shipowner stating that the principal amount of Obligations specified in such
instructions are required to be redeemed on the date specified therein, by
reason of termination of any contract for the construction of the Vessel, the
Obligations will be subject to redemption, in whole or in part, at a price
equivalent to par plus accrued interest and the Redemption Premium, upon at
least thirty (30) but not exceeding sixty (60) days' prior notice to the
holders.

      (d)  Payment in U.S. Currency. Any redemption or payment required or
permitted to be made hereunder or with respect to any Obligation shall be made
in United States currency.

                                       3
<PAGE>
      (e)  Redemption Premium. The Secretary's Guarantees with respect to the
Obligations shall not include payment of the Redemption Premium.

                                 ARTICLE FOURTH

                                  Definitions

      For all purposes of this Indenture, unless otherwise expressly provided
or unless the context otherwise requires:

      (1)  All references herein to Articles, Sections or other subdivisions,
unless otherwise specified, refer to the corresponding Articles, Sections and
other subdivisions of this Indenture;

      (2)  The Terms "hereof," "herein," "hereby," "hereto,"
"hereunder" and "herewith" refer to this Indenture;

      (3)  The terms used herein and defined in Schedule A to this Indenture
shall have the respective meanings stated in said Schedule.

                                 ARTICLE FIFTH

         Additions, Deletions and Amendments to Exhibit 1

      The following additions, deletions and amendments are hereby made to
Exhibit 1 to this Indenture.

      (a)  Concerning Section 2.12. With respect to clause (1) of the proviso
to Section 2.12 of Exhibit 1 to the Indenture, a written agreement of indemnity
which is satisfactory in form and substance to the Secretary, the Shipowner and
the Indenture Trustee executed and delivered by an institutional Holder having
a capital and surplus of at least $25,000,000 shall be considered sufficient
indemnity to the Secretary, the Shipowner and the Indenture Trustee in
connection with the execution, authentication and delivery of any new
Obligation or the making of any payment as contemplated by said Section 2.12.

      (b)  Concerning Section 3.05. Redemptions under Section 3.05(iii) shall
be governed by Article Third (c) of the Special Provisions to this Indenture.

      (c)  Concerning Payment of the Obligations. Notwithstanding anything to
the contrary in Exhibit 1 hereof, the Obligations to be issued hereunder shall
be payable as to principal, premium (if any), and interest, at an office or
agency maintained by the

                                       4
<PAGE>
Shipowner for such purpose at the Corporate Trust Office of the Indenture
Trustee, or at the option of the Shipowner, as to payments of principal,
premium (if any), or interest by check mailed by such Corporate Trust Office to
the addresses of the Obligees as such addresses shall appear in the Obligation
Register, subject in any event to the provisions hereof concerning home office
payment. The Indenture Trustee agrees that within 30 days from the date of any
payment of principal or interest when the same shall become due and payable by
reason of maturity or redemption, a Responsible Officer in the Corporate Trust
Office of the Indenture Trustee shall ascertain to his satisfaction that checks
in payment of such amounts have been mailed by such Corporate Trust Office to
the addresses of the Obligees as provided above, if payment is to be made by
check, or if payment is to be made by wire transfer, or by credit to an account
maintained by the Obligee with the Indenture Trustee, that such funds have been
wired or credited, or if payment is to be made at the Corporate Trust Office,
that funds were held by the Indenture Trustee for such payment on the date the
payment was due. The Indenture Trustee shall have no obligation to determine
whether such checks or payments were received by the Obligees.

      (d)  Concerning Home Office Payment. Notwithstanding any terms of this
Indenture or the Obligations to the contrary, the Shipowner may enter into an
agreement with any Holder of an Obligation providing for payment to such Holder
by certified or official bank check, or at the request of such Holder, by
credit to an account maintained by the Holder with the Indenture Trustee, or by
wire transfer of the principal of and the premium (if any), and interest on
such Obligation or any part thereof at a place other than the place or places
specified in such Obligation as the place for such payment, and for the making
of notation (if any), of such payment on such Obligation by such Holder, or by
an agent of the Shipowner or of the Indenture Trustee without presentation of
such Obligation. The Shipowner will furnish to the Indenture Trustee a copy of
each such agreement. The Indenture Trustee hereby consents to such agreement
contained in Section 7 of the Bond Purchase Agreement dated as of November 5,
1998, between the Shipowner and the purchaser named in Schedule 1 thereto, and
hereby acknowledges receipt of a copy thereof.

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

      The Indenture Trustee as:

           Bank One Trust Company, N.A.
           210 Baronne Street, 3rd Floor
           New Orleans, Louisiana 70112
           Attention:  Corporate Trust Department

                                       5
<PAGE>
      The Shipowner as:

           PERFORADORA CENTRAL, S.A. de C.V.
           Montes Urales 520
           Lomas de Chapultepec
           Mexico 11000, D.F.

      With a copy to:

           Milling, Benson, Woodward, L.L.P.
           909 Poydras Street, Suite 2300
           New Orleans, Louisiana  70112-1010
           Attention:  Neal D. Hobson

      The Secretary as:

           SECRETARY OF TRANSPORTATION
           c/o Maritime Administrator
           Department of Transportation
           400 Seventh Street, SW
           Washington, D.C. 20590

      (f)  Applicable Law. This Indenture and each Obligation shall be
construed, enforced, and governed by the laws of the United States of America,
but to the extent they are inapplicable, then by the laws of the State of
Louisiana of the United States of America without regard to its conflict of
laws provision.

      (g)  Jurisdiction and Consent to Suit. Any proceeding to enforce this
Agreement may be brought in the Federal courts of the United States of America
located in the State of Louisiana of the United States of America. The
Shipowner and the Trustee hereby irrevocably waive any present or future
objection to such venue, and for each of itself and in respect of any of their
respective properties hereby irrevocably consents and submits unconditionally
to the exclusive jurisdiction of those courts. The Shipowner further
irrevocably waives any claim that any such court is not a convenient forum for
any such proceeding. The Shipowner agrees that any service of process, writ,
judgment or other notice of legal process shall be deemed and held in every
respect to be effectively served upon it in connection with proceedings in the
State of Louisiana, if delivered to Milling, Benson, Woodward, L.L.P., 909
Poydras Street, Suite 2300, New Orleans, Louisiana 70112-1010, Attention: Neal
D. Hobson, which it irrevocably designates and appoints as its authorized agent
for the service of process in the State and Federal courts in the State of
Louisiana. Nothing herein shall affect the right of the

                                       6
<PAGE>
Trustee to serve process in any other manner permitted by applicable law. The
Shipowner further agrees that final judgment against it in any such action or
proceeding arising out of or relating to this Indenture shall be conclusive and
may be enforced in any other jurisdiction within or outside the United States
of America by suit on the judgment, a certified or exemplified copy of which
shall be conclusive evidence of that fact and of the judgment.

                                 ARTICLE SIXTH

                                Representations

      Each of the Shipowner and the Indenture Trustee represent that it has
duly authorized, executed and delivered this Indenture and that the Indenture
constitutes the legal, valid, and binding obligations of each of them,
enforceable against each of them in accordance with the terms hereof and of the
Obligations.

                                       7
<PAGE>
      IN WITNESS WHEREOF, this Trust Indenture has been duly executed by the
parties hereto as of the day and year first above written.

                               PERFORADORA CENTRAL, S.A. de C.V.
                                               Shipowner

/s/ JAVIER ALVAREZ MORPHY      By: /s/ PATRICIO ALVAREZ MORPHY
-------------------------          -------------------------------
Javier Alvarez Morphy              Patricio Alvarez Morphy
                                   President

                               BANK ONE TRUST COMPANY, N.A.
                                               Indenture Trustee

(SEAL)

/s/ ALTHENTIA FRANKLIN         By: /s/ TIMOTHY C. BRENNAN
-------------------------          -------------------------------

                                       8
<PAGE>

DISTRICT OF COLUMBIA      )
                          )    ss:
CITY OF WASHINGTON        )

      On this 5th day of November, 1998, before me personally appeared
Patricio Alvarez Morphy to me known, who being by me duly sworn, did depose and
say that he is the President of Perforadora Central, S.A. de C.V., a Mexican
corporation, the company described in and that executed the instrument hereto
annexed, and who acknowledged to me that he did sign the foregoing instrument
for and on behalf of the company by authority of the Board of Directors of said
company, and that the same is the free act and deed of said company, and the
free act and deed of him personally and as such officer.

      In testimony whereof, I have hereunto set my hand and seal this 5th day
of November, 1998.

                               /s/ BRIDGET WALKER
                               ---------------------------------------------_
                               NOTARY PUBLIC

(Notarial Stamp and Seal)

                                       9
<PAGE>

DISTRICT OF COLUMBIA      )
                          )    ss:
CITY OF WASHINGTON        )

      Be it known this 5th day of November, 1998, personally appeared before me
Timothy Brennan, who after being duly sworn, deposed and said that he is a
Trust Officer of Bank One Trust Company, N.A., the banking association which is
described in and executed the within instrument, and that he signed the within
instrument by order of the Board of Directors of the said banking association
and acknowledged the within instrument to be the free act and deed of the said
banking association.

      In testimony whereof, I have hereunto set my hand and seal this 5th day of
November, 1998.

                               /s/ BRIDGET WALKER
                               -----------------------------
                               NOTARY PUBLIC

(Notarial Stamp and Seal)

                                      10

<PAGE>

                                                                     DOCUMENT 5

                                           GENERAL PROVISIONS INCORPORATED INTO
                                               THE TRUST INDENTURE BY REFERENCE
                                                                      EXHIBIT 1
                                                                             TO
                                                                TRUST INDENTURE

                                                                     EXPORT.115

<PAGE>

                                   EXHIBIT I
                      GENERAL PROVISIONS OF THE INDENTURE
                           INCORPORATED BY REFERENCE

                               TABLE OF CONTENTS
                                       TO
                                   EXHIBIT 1*
<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                         ----
<S>                                                                                                      <C>
ARTICLE I.    DEFINITIONS; OFFICER'S CERTIFICATE AND OPINIONS OF COUNSEL...............................    1
                Section 1.01.  Definitions.............................................................    1
                Section 1.02. Officer's Certificate and Opinions of  Counsel...........................    1

ARTICLE II.   THE OBLIGATIONS..........................................................................    2
                Section 2.01.  Designation of Obligations..............................................    2
                Section 2.02.  Issue, Form, Principal Amount, Maturity, Interest, Place of Payment,
                     Denominations and Redemption of Obligations.......................................    2
                Section 2.03.  Issuance of Obligations of Initial Series...............................    2
                Section 2.04.  Additional Obligations; Obligations of Additional Series................    2
                Section 2.05.  Legends on Obligations..................................................    3
                Section 2.06.  Dates of Obligations; Interest Rights...................................    3
                Section 2.07.Execution of Obligations..................................................    3
                Section 2.08.  Authentication of Obligations and Guarantees............................    3
                Section 2.09.Temporary Obligations.....................................................    3
                Section 2.10.  Registration, Transfer and Exchange.....................................    4
                Section 2.11.  Who Treated as Owners...................................................    4
                Section 2.12.  Lost, Stolen, Destroyed or Mutilated Obligations........................    4
                Section 2.13.Reacquired Obligations, Cancellation and Disposition of Obligations.......    5

ARTICLE III.REDEMPTION OF OBLIGATIONS..................................................................    5
                Section 3.01.  Redemptions Suspended During Default....................................    5
                Section 3.02.  (a) Redemptions with Premium............................................    5
                               (b) Redemptions without Premium.........................................    5
                               (c) Sinking Fund Redemptions............................................    6
                               (d) Adjustment of Redemption Payments...................................    6
                Section 3.03.  Terminal Mandatory Redemption...........................................    6
                Section 3.04.  Redemptions to Comply with Provisions of Section 1104A(b)(2) of the Act.    6
                Section 3.05.  Redemption After Total Loss, Requisition of Title XI, Seizure or
                               Forfeiture of Vessel or Termination of Certain Contracts................    6
                Section 3.06.  Redemption After Assumption by the Secretary............................    6
                Section 3.07.  Determination of Obligations to be Redeemed.............................    7
                Section 3.08.  Notices of Redemption...................................................    7
                Section 3.09.  Deposit of Redemption Moneys............................................    7
                Section 3.10.  Payment of Redemption Price.............................................    7
                Section 3.11.  Payment of Obligations..................................................    8

ARTICLE IV.  CASH HELD BY INDENTURE TRUSTEE OR PAYING AGENTS...........................................    8
                Section 4.01.  Generally...............................................................    8
                Section 4.02.  Paying Agents Other Than Indenture Trustee..............................    9
                Section 4.03.  Unclaimed Amounts.......................................................    9
                Section 4.04.  Application of Funds....................................................    9

ARTICLE V   REPRESENTATIONS AND AGREEMENTS OF SHIPOWNER................................................    9
                Section 5.01.  Authorization, Execution and Delivery  of Indenture.....................    9
</TABLE>

                                       i
<PAGE>
<TABLE>
<S>                                                                                                      <C>
                Section 5.02   Payment and Procedure for Payment of Obligations........................   10
                Section 5.03   Offices or Agencies of Shipowner........................................   10

ARTICLE VI.INDENTURE DEFAULTS AND REMEDIES.............................................................   10
                Section 6.01.  What Constitutes "Indenture Defaults"...................................   10
                Section 6.02.  Demand for Payment of Guarantees........................................   10
                Section 6.03.  Appointment of Indenture Trustee and Holders of Outstanding
                               Obligations as Attorneys-in-Fact........................................   11
                Section 6.04.  Termination and Payment of the Guarantees...............................   11
                Section 6.05.  Rights of Indenture Trustee After Indenture Default.....................   11
                Section 6.06.  (a) Obligees' Right to Direct Indenture Trustee After Indenture Default.   11
                               (b) Limitations on Obligees Right to Sue................................   11
                               (c) Unconditional Right of Obligees to Sue for Principal (and Premium,
                                   if any) and Interest................................................   13
                Section 6.07.  Undertaking for Costs...................................................   13
                Section 6.08.  Recision of Payments....................................................   13
                Section 6.09.  Assumption of Obligations of Secretary..................................   14

ARTICLE VII.  THE INDENTURE TRUSTEE....................................................................   14
                Section 7.01.  Acceptance of Trusts....................................................   14
                Section 7.02.  Eligibility of Indenture Trustee........................................   14
                Section 7.03.  Rights and Duties of Indenture Trustee..................................   14
                Section 7.04.  Compensation, Expenses and Indemnification of Indenture Trustee.........   16
                Section 7.05.  Resignation and Removal of Indenture Trustee............................   17
                Section 7.06.  Appointment of Successor Indenture Trustee..............................   17
                Section 7.07.  Effect of Appointment of Successor Indenture Trustee....................   17
                Section 7.08.  Merger, Consolidation and Sale of Indenture Trustee.....................   17

ARTICLE VIII. CONSOLIDATION, MERGER AND SALE BY SHIPOWNER..............................................   18
                Section 8.01.  Consolidation, Merger or Sale by Shipowner..............................   18
                Section 8.02.  Sale of Vessel by the Secretary.........................................   18

ARTICLE IX.   ACTS OF OBLIGEES.........................................................................   19
                Section 9.01.  Acts of Obligees........................................................   19

ARTICLE X. SUPPLEMENTAL INDENTURES.....................................................................   19
                Section 10.01.  Permissible Without Action by Obligees.................................   19
                Section 10.02.  Protection of Indenture Trustee........................................   20
                Section 10.03.  Reference in Obligations to Supplemental Indenture.....................   20
                Section 10.04.  Waivers and Supplemental Indentures with Consent of Obligees...........   20
                Section 10.05.  Consent of Secretary...................................................   20
                Section 10.06.  Continued Validity of the Guarantees...................................   21

ARTICLE XI.   PERFORMANCE OF OBLIGATIONS TO SECRETARY..................................................   21
                Section 11.01.  Performance of Obligations to Secretary................................   21

ARTICLE XII.  SATISFACTION AND DISCHARGE OF INDENTURE..................................................   21
                Section 12.01.  Satisfaction and Discharge of Indenture................................   21

ARTICLE XIII. Miscellaneous............................................................................   21
                Section 13.01.  Notices and Demands....................................................   21
                Section 13.02.  Waivers of Notice......................................................   21
                Section 13.03.  Benefit of Indenture...................................................   21
                Section 13.04.  Execution of Counterparts..............................................   22
                Section 13.05.  Table of Contents; Titles and Headings.................................   22
                Section 13.06.  Integration with Special Provisions of the Indenture...................   22
                Section 13.07.  Immunity of Incorporators, Stockholders, Officers and Directors........   22
</TABLE>

                                       ii
<PAGE>
<TABLE>
<S>                                                                                                      <C>
                Section 13.08.  Payment in U.S. Currency...............................................   22
                Section 13.09.  Shipowner not Immune...................................................   23
</TABLE>

                                      iii

<PAGE>
                                   EXHIBIT I
                      GENERAL PROVISIONS OF THE INDENTURE
                           INCORPORATED BY REFERENCE

                                   ARTICLE I
                      DEFINITIONS; OFFICER'S CERTIFICATES
                            AND OPINIONS OF COUNSEL

      SECTION 1.01. Definitions. For all purposes of this Indenture, the terms
used herein shall have the meanings specified in the Special Provisions hereof,
including without limitation Schedule A to this Indenture.

      SECTION 1.02. Officers Certificates and Opinions of Counsel. (a) Each
Officer's Certificate or Opinion of Counsel with respect to compliance with a
covenant or condition provided for herein (or waiver thereof) shall include:

            (1) A statement that the Person or Persons making such certificate
      or rendering such opinion has or have read such covenant or condition;

            (2) A brief statement as to the nature and scope of the examination
      or investigation upon which the statements or opinions contained in such
      certificate or opinion are based;

            (3) A statement that, in the opinion of such Person or Persons, he
      or they have made or caused to be made such examination or investigation
      as is necessary to enable him or them to express an informed opinion as
      to whether or not such covenant or condition has been complied with (or
      compliance therewith has been waived); and

            (4) A statement as to whether or not, in the opinion of such Person
      or Persons, such condition or covenant has been complied with (or such
      compliance has been waived).

      (b) An Opinion of Counsel may be based (insofar as it relates to factual
matters, information with respect to which is in the possession of any Person)
upon a certificate or opinion of or representations in writing signed by an
officer or officers of such Person or by such Person, as the case may be, and
may be based upon an Opinion of Counsel signed by another counsel.

      An Opinion of Counsel may state that said opinion is subject to the
execution and delivery of designated instruments if copies of such instruments
in form approved by such counsel are delivered to the Indenture Trustee prior
to or concurrently with the delivery of said opinion.

      (c) A certificate or opinion of a Person or Persons other than counsel
may be based, insofar as it relates to legal matters, upon an Opinion of
Counsel, unless the Person or Persons signing such certificate or opinion knew
that such Opinion of Counsel was erroneous or, in the exercise of reasonable
care, should have known that the same was erroneous.

      (d) If the Indenture requires or permits the execution of any document by
officers, counsel or other Persons, such document may be executed in
counterparts by different officers, counsel or other Persons, all of which
shall form one instrument.

      (e) If the signer of any document is required to be approved by the
Indenture Trustee, the acceptance of such document by the Indenture Trustee
shall be sufficient and conclusive evidence of such approval.

      (f) The fact that the delivery of any document is a condition precedent
to any action required or permitted hereby shall not preclude the withdrawal,
revocation, rescission, modification or amendment of such document at any time
prior to such action, and in the event of any such withdrawal, revocation or
rescission, such document shall be disregarded for all purposes of this
Indenture.
<PAGE>
                                   ARTICLE II
                                THE OBLIGATIONS

      SECTION 2.01. Designation of Obligations. The Obligations of each series
shall be designated as stated in the Special Provisions hereof or in the
Supplemental Indenture establishing such series.

      SECTION 2.02. Issue, Form, Principal Amount, Maturity, Interest, Place of
Payment, Denominations and Redemption of Obligations. (a) Upon or after the
execution ant delivery of this Indenture the aggregate principal amount of
Obligations of the series and Stated Maturity or Maturities permitted by the
Special Provisions hereof may be executed by the Shipowner, authenticated by
the Indenture Trustee, and delivered as provided herein.

      (b) The Obligations of each series and Stated Maturity to be issued
hereunder, the Guarantees of the United States to be endorsed thereon and the
Indenture Trustee authentication certificates to be endorsed thereon shall, in
the case of the initial series of Obligations, be in the form or forms forth in
Exhibit 2 to the Special Provisions hereof or, in the case of Obligations of
any additional series, in the form or forms set forth in the Supplemental
Indenture establishing such series, and said Obligations shall:

            (1) be limited to the respective principal amounts stated in the
      Special Provisions hereof or in the Supplemental Indenture establishing
      such series;

            (2) bear interest from the date specified in Section 2.06 at the
      rate or rates per annum stated in such Obligations;

            (3) mature in the amount or amounts and at the time or time stated
      therein;

            (4) be payable as to principal (and any premium thereon if premium
      in case of redemption prior to Stated Maturity is provided for therein),
      in any coin or currency of the United States which at the time of payment
      is legal tender for public and private debts, at an office or agency
      maintained from time to time by the Shipowner for such purpose as
      provided in Section 5.03 at the place or places stated in the Special
      Provisions hereof and payable as to interest as aforesaid or, at the
      option of the Shipowner, by check mailed by such office or agency to the
      addresses of the Obligees as such addresses shall appear in the
      Obligation Register;

            (5) be issued in the denominations provided in the Special
      Provisions hereof or in the Supplemental Indenture establishing such
      series; and

            (6) be subject to redemption to the extent and as provided in
      Article III.

      (c) If the Maturity of any Obligation or an interest Payment Date for any
Obligation shall be a day other than a Business Day, then such payment may be
made on the next succeeding Business Day, with the same force and effect as if
made on the nominal date for such payment, and no interest shall accrue thereon
for the period after said nominal date (whether or not such next succeeding
Business Day occurs in a succeeding month).

      SECTION 2.03. Issuance of Obligations of Initial Series. At any time and
from time to time after the execution and delivery of this Indenture, the
Shipowner may deliver to the Indenture Trustee Obligations of the initial
series issuable under this Indenture duly executed by the Shipowner as
hereinafter provided, accompanied by a Request of the Shipowner, and thereupon
the Indenture Trustee shall authenticate such Obligations, after endorsing
thereon and authenticating the Guarantees of the United States in accordance
with the Authorization Agreement, and shall deliver such Obligations and
Guarantees in accordance with such Request. Each such Request shall specify the
principal amounts, interest rates and Stated Maturities of the Obligations to
be authenticated and the names and addresses of the Persons in whose name the
Obligations are to be registered.

      SECTION 2.04. Additional Obligations; Obligations of Additional Series.
At any time or from time to time, the Shipowner may, with the approval of the
Secretary, issue additional Obligations of any series and Stated Maturity
theretofore issued or of one or more additional series for the purpose of
aiding in financing or refinancing

                                       2
<PAGE>
the construction, reconstruction, or reconditioning of one or more of the
Vessels or to refund Obligations issued for such principal, and, which shall
(i) be in such principal amount, and (in the case of Obligations of any
additional series) mature on such dates, bear interest at such rate or rates,
be in such form or forms and have such other terms and provisions, as shall be
set forth in a Supplemental Indenture providing for the issue thereof and (ii)
be guaranteed by the United States under Title XI of the Act pursuant to a
supplement to the Authorization Agreement.

      SECTION 2.05. Legends on Obligations. Any Obligation may have imprinted
or stamped thereon any legend, consistent herewith, which is prescribed by the
Shipowner and approved by the Indenture Trustee, and, except for endorsements
permitted by the second paragraph of Section 2.10(c), by the Secretary.

      SECTION 2.06. Dates of Obligations; Interest Rights. Each Obligation of
any series shall be dated the date of its authentication and except as
otherwise provided in this Section, shall bear interest from the Interest
Payment Date for Obligations of such series next preceding the date of such
Obligation to which interest on the Obligations of such series has been paid,
unless (i) the date of such Obligation is the date to which interest on the
Obligations of such series has been paid, in which case from the date of such
Obligation, or (ii) no interest has been paid on the Obligations of such series
since the original issue date (as defined below) of such Obligation, in which
case from such original issue date. The term "original issue date" of an
Obligation shall mean (a) in the case of an Obligation issued on original
issue, the date of such Obligation, or (b) in the case of an Obligation not
issued on original issue, the date of the Obligation (or portion thereof)
issued on original issue for which such Obligation was issued (directly or
indirectly) on registration of transfer, exchange or substitution.

      SECTION 2.07. Execution of Obligations. The Obligations shall from time
to time be executed on behalf of the Shipowner by a Responsible Officer thereof
(whose signature may be a facsimile), and its corporate seal (which may be a
facsimile) shall be affixed thereto or imprinted thereon and attested by its
secretary, an assistant secretary or an assistant trust officer (whose
signature may be a facsimile).

      If any officer of the Shipowner whose signature (facsimile or otherwise)
appears on any Obligation shall cease to be such officer before such Obligation
shall have been authenticated by the Indenture Trustee or delivered, such
Obligation nevertheless may be authenticated, issued and delivered with the
same force and effect as though the person or persons whose signature or
signatures (facsimile or otherwise) appear on such Obligation had not ceased to
be such officer or officers of the Shipowner.

      SECTION 2.08. Authentication of Obligations and Guarantees. No Obligation
or the Guarantee of the United States thereon shall be valid unless such
Obligation shall bear thereon an authentication certificate, manually executed
by the Indenture Trustee in accordance with the terms and conditions of the
Authorization Agreement, substantially in the form or forms referred to in
Section 2.02(b). Such authentication certificate, so executed, on any
Obligation shall be conclusive evidence, and the only competent evidence, that
such Obligation and such Guarantee have been duly executed, authenticated and
delivered hereunder.

      SECTION 2.09. Temporary Obligations. There may be issued from time to
time in lieu of (or in exchange for) any definitive Obligation or Obligations
one or more temporary Obligations of like series and Stated Maturity, with a
Guarantee of the United States endorsed thereon and authenticated by the
Indenture Trustee, substantially of the same tenor as the definitive
Obligations in lieu of (or in exchange for) which they are issued, with or
without the specification of any Redemption Price or Prices. Such temporary
Obligation or Obligations may be in such authorized denomination or
denominations as shall be stated in a Request of the Shipowner delivered to the
Indenture Trustee prior to the authentication thereof, which Request shall
specify the aggregate principal amounts and the series and Stated Maturities of
such temporary Obligations.

      If definitive Obligations are not ready for delivery, the Holder of any
temporary Obligation may, at the Corporate Trust Office, with the consent of
the Shipowner, exchange the same for a temporary Obligation or Obligations of
like series, tenor, interest accrual date and Stated Maturity of authorized
denominations for the same aggregate principal amount upon the surrender for
cancellation of such temporary Obligation or Obligations.

      When definitive Obligations are ready for delivery, the Holder of any
temporary Obligation may, at the Corporate Trust Office, exchange the same
without charge for a definitive Obligation or Obligations of like series,

                                       3
<PAGE>
tenor, interest accrual date and Stated Maturity of authorized denominations
for the same aggregate principal amount.

      SECTION 2.10. Registration, Transfer and Exchange. (a) The Shipowner
shall cause the Indenture Trustee to keep an Obligation Register for the
registration of ownership, transfers and exchanges of Obligations, at the
Corporate Trust Office.

      (b) Any Obligation may be transferred at the Corporate Trust Office, by
surrender of such Obligation for cancellation, accompanied by an instrument of
transfer in form satisfactory to the Shipowner and the Indenture Trustee, duly
executed by the registered Obligee or his duly authorized attorney, and
thereupon the Shipowner shall execute, and the Indenture Trustee shall
authenticate and deliver in the name of the transferee or transferees, a new
Obligation or Obligations, and the Guarantee or Guarantees of the United States
thereon, in authorized denominations of like series, tenor, interest accrual
date and Stated Maturity and for the same aggregate principal amount.

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

      If any Obligation surrendered for transfer or exchange has been selected
for redemption in whole or in part, there may be endorsed on any Obligation or
Obligations issued therefor an appropriate notation of such fact.

      (d) Any Obligation shall be exchangeable for a like principal amount of
Obligations of the same series, tenor, interest accrual date and Stated
Maturity but of different authorized denominations. Obligations to be exchanged
shall be surrendered at the Corporate Trust Office, and the Shipowner shall
execute, and the Indenture Trustee shall authenticate and deliver in exchange
therefor, the Obligation or Obligations, and the Guarantee or Guarantees of the
United States thereon, requested by the Obligee in accordance with this
paragraph (d).

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

      SECTION 2.11. Who Treated as Owners. The Shipowner, the Indenture
Trustee, the Secretary, and any office or agency for the payment of principal
of (and premium, if any) or interest on the Obligations may deem and treat the
Person in whose name any Obligation is registered in the Obligation Register as
the absolute owner of such Obligation for all purposes, and neither the
Shipowner, the Indenture Trustee, the Secretary, nor any such office or agency
shall be affected by any notice to the contrary, whether such Obligation shall
be past due or not. All payments of or on account of principal (and premium, if
any) or interest, or pursuant to the Guarantee endorsed on such Obligation, to
such registered Obligee shall be valid and effectual to satisfy and discharge
the liability of the Shipowner and the Secretary to the extent of the sum or
sums so paid, except as otherwise provided in Section 6.08.

      SECTION 2.12. Lost, Stolen, Destroyed or Mutilated Obligations. Upon
receipt by the Shipowner and the Indenture Trustee of evidence satisfactory to
them of the loss, theft, destruction or mutilation of any Outstanding
Obligation and the ownership thereof, the Shipowner may execute, and upon
request of the Shipowner, the Indenture Trustee shall, but subject to all
limitations imposed by the Authorization Agreement and only to the extent
authorized thereby, authenticate and deliver, a new Obligation, and the
Guarantee of the United States thereon, of like series, tenor, interest accrual
date, principal amount and Stated Maturity (which may bear such notation as may
be required by the Indenture Trustee or by usage or by the rules of any stock
exchange upon which the Obligations are then listed and which shall bear a
serial number different from the serial number of the lost, stolen, destroyed
or mutilated Obligation) in lieu of such lost, stolen, destroyed or mutilated
Obligation and, similarly, upon receipt by the Shipowner and the Indenture
Trustee of evidence satisfactory to them of the loss, theft, destruction or
mutilation of any Obligation which has or is about to become due and payable,
the Indenture Trustee may deem the applicant with respect thereto to be the
owner of said Obligation for the purpose of receiving

                                       4
<PAGE>
payment on account thereof of principal (and premium, if any) upon maturity or
interest or the payment of the Guarantee thereof; provided that, as conditions
precedent to the execution, authentication and delivery of any new Obligation
in place of said Obligation or to any payment contemplated by this Section, (1)
the Shipowner, the Indenture Trustee and the Secretary shall receive indemnity
satisfactory to the Shipowner, the Indenture Trustee and the Secretary, (2) the
Shipowner shall be reimbursed for all reasonable expenses (including any fees
or expenses of the Indenture Trustee) incident thereto, and (3) said Obligation
shall (unless the same shall have been lost, stolen or destroyed) be
surrendered.

      Obligations issued pursuant to this Section and the Guarantees endorsed
thereon shall constitute original contractual obligations of the Shipowner and
the United States. respectively, whether or not the lost, stolen or destroyed
Obligations be at any time enforceable by anyone, and shall be equally and
proportionately entitled to the benefits of this Indenture with all other
Outstanding Obligations issued hereunder.

      The provisions of this Section 2.12 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of lost, stolen, destroyed or mutilated Obligations.

      SECTION 2.13. Reacquired Obligations; Cancellation and Disposition of
Obligations. In the event the Shipowner shall reacquire any Obligations
(whether by purchase or otherwise, such Obligations shall forthwith be
delivered to the Indenture Trustee for cancellation. Except as provided in
Section 3.10(b), all Obligations surrendered for the purpose of payment,
redemption, transfer, exchange, or substitution, or (if permitted in the
Special Provisions hereof or the Supplemental Indenture establishing any
additional series of Obligations) in discharge in whole or in part of any
sinking fund payment shall, if surrendered to the Shipowner or any Paying
Agent, be delivered to the Indenture Trustee for cancellation, or, if
surrendered to the Indenture Trustee, shall be canceled by it. No Obligation
shall be authenticated in lieu of or in exchange for any Obligation cancelled
as provided in this Section, except as may be expressly permitted by this
Indenture. Obligations cancelled by the Indenture Trustee shall be delivered or
disposed of as directed by a Request of the Shipowner.

                                  ARTICLE III
                           REDEMPTION OF OBLIGATIONS

      SECTION 3.01. Redemptions Suspended During Default. Notwithstanding the
following provisions of this Article III, neither the Shipowner nor the
Indenture Trustee shall redeem any Obligations, except pursuant to Section 3.04
or 3.06 during the continuance of any Indenture Default or event which with the
lapse of time could constitute a Payment Default, except that, where the
mailing of notice of redemption of any Obligations shall have theretofore been
made, the Indenture Trustee shall redeem or cause to be redeemed such
Obligations if it shall have received a sum sufficient for such redemption.
Except as aforesaid, any moneys received by the Indenture Trustee for the
redemption of Obligations which may not be applied to the redemption thereof
shall be held as security for the payment of all the Obligations, and, (i) in
case such Indenture Default or such event shall no longer be continuing, such
moneys shall thereafter be applied to the redemption of Obligations in
accordance with the applicable provisions of the Obligations and of this
Article III, (ii) in the event the Secretary shall have assumed the Obligations
pursuant to Section 6.09 or shall have been required to pay the Guarantees,
such moneys shall be paid over by the Indenture Trustee to the Secretary or
(iii) if no Obligation shall be Outstanding, other than by payment of the
Guarantees, such moneys shall be paid to the Shipowner.

      SECTION 3.02. (a) Redemptions with Premium). If the Obligations of any
series and Stated Maturity or the Special Provisions hereof or the Supplemental
Indenture establishing such series shall so provide, such Obligations shall be
subject to redemption at a premium in the amounts, at the price or prices, at
the time or times and subject to the conditions specified therein.

      (b) Redemption Without Premium. The Obligations of each series shall be
subject to redemption without premium in the amounts, at the time or times and
subject to the conditions specified in Sections 3.03, 3.04, 3.05, and 3.06. If
the Obligations of any series and Stated Maturity or the Special Provisions
hereof or the Supplemental Indenture establishing such series shall so provide,
such Obligations shall also be subject to redemption without premium in the
amounts, at the time or times and subject to the conditions specified therein
or as provided in subsection (c) of this Section 3.02.

                                       5
<PAGE>
      (c) Sinking Fund Redemptions. If the Obligations of any series and Stated
Maturity or the Special Provisions hereof or the Supplemental Indenture
establishing such series shall so provide, such Obligations shall be subject to
(i) mandatory redemption through the operation of a sinking fund or similar
fund, in such amounts, at such times and subject to such credits ( if any) as
may be specified therein, and (ii) redemption at the option of the Shipowner,
in connection with the operation of any such fund, in such additional amounts
and subject to such conditions as may be specified therein.

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

      SECTION 3.03. Terminal Mandatory Redemption. The Shipowner shall redeem,
at the principal amount thereof and interest accrued thereon, all the
Obligations that shall be Outstanding on the date determined in accordance with
Section 1104A(b)(3) of the Act and specified in the Special Provisions hereof
so that the final maturity of such Obligations shall not exceed the period
specified in said Section.

      SECTION 3.04. Redemptions to Comply with Provisions of Section
1104A(b)(2) of the Act. Upon receipt by the Indenture Trustee of a written
instruction signed by the Secretary and a Responsible Officer of the Shipowner
stating that upon receipt of funds paid to the Indenture Trustee by the
Shipowner or the Secretary on behalf of the Shipowner such funds (i) shall be
applied in the manner specified in such instruction to redeem the principal
amount of Obligations specified in such instruction and (ii) are to be so
applied in order that the principal amount of Obligations that will be
Outstanding after such redemption will not exceed the principal amount thereof
eligible for guarantee by the United States under Section 1104A(b)(2) of the
Act, the Indenture Trustee shall promptly give notice as provided in Section
3.08 of the redemption of such Obligations on a date which is 45 days from the
date of receipt by the Indenture Trustee of such instruction; and the Indenture
Trustee shall, on such date, redeem such Obligations at the principal amount
thereof and interest accrued thereon to such date. The Shipowner agrees to
notify the Indenture Trustee of the redemption at least 10 days prior to
receipt by the Indenture Trustee of such written instruction.

      SECTION 3.05. Redemption after Total Loss, Requisition of Title, Seizure
or Forfeiture of a Vessel or Termination of Certain Contracts. Upon receipt by
the Indenture Trustee of written instructions from the Secretary and the
Shipowner stating that the principal amount of Obligations specified in such
instructions are required to be redeemed on the date specified therein ( which
shall be not less than 40 nor more than 60 days from the receipt of such
instructions by the Indenture Trustee) by reason of (i) an actual,
constructive, agreed or compromised total loss of a Vessel, (ii) requisition of
title to, or seizure or forfeiture of a Vessel or (iii) termination of any
contract for the construction, reconstruction or reconditioning of a Vessel,
the Indenture Trustee shall promptly give notice as provided in Section 3.08 of
the redemption on such date of such principal amount of Obligations and the
Indenture Trustee shall, on such date, redeem such principal amount of
Obligations together with interest accrued thereon to such Redemption Date.

      SECTION 3.06. Redemption after assumption by the Secretary. Upon receipt
by the Indenture Trustee of written instructions from the Secretary stating
that the principal amount of Obligations specified in such instructions are
required to be redeemed on the date specified therein (which shall be not less
than 30 nor more than 60 days from the receipt of such instructions by the
Indenture Trustee) at the option of the Secretary at any time after the
Secretary's assumption of the Obligations pursuant to Section 6.09, the
Indenture Trustee shall promptly give notice as provided in Section 3.08 of the
redemption on the Redemption Date of the principal amount of Obligations
specified in such instructions and the Indenture Trustee shall, on such
Redemption Date,

                                       6
<PAGE>
redeem such Obligations together with interest accrued thereon to such
Redemption Date; provided however, that the Secretary shall redeem at the
principal amount thereof and interest accrued thereon the Proportionate Part of
the Outstanding Obligations relating to such Vessel or Vessels which have been
sold pursuant to Section 8.02 to a purchaser or purchasers who have not assumed
such Obligations by notice to the Indenture Trustee in accordance with this
Section 3.06 within 30 days of the non-assumption of the Obligations by such
purchaser. The principal amount of the Proportionate Part of the Outstanding
Obligations shall be determined by the Secretary.

      SECTION 3.07. Determination of Obligations to be Redeemed. (a) If less
than all the Obligations are to be redeemed pursuant to Section 3.04 or 3.05,
the Indenture Trustee shall elect Obligations of each series and Stated
Maturity for redemption in proportion to the respective principal amounts of
Obligations of such series and Stated Maturity then Outstanding, except as
otherwise provided in the Special Provisions or in the Supplemental Indenture
with respect to any series, making adjustment so that the principal amount of
any Obligation to be redeemed shall be $1,000 or an integral multiple thereof.

      (b) If less than all the Obligations of any series or Stated Maturity are
to be redeemed under any of the provisions contained or referred to in this
Article III, the Indenture Trustee shall elect, in such manner as it shall deem
appropriate and fair, the Obligations of such series or Stated Maturity to be
redeemed, and the Indenture Trustee shall, according to such method as it shall
in its reasonable discretion deem appropriate, make adjustments so that the
principal amount of any Obligation to be redeemed shall be $1,000 or an
integral multiple thereof.

      (c) Notwithstanding the provisions of the Section 3.07(b), if less than
all the Bonds are to be optionally redeemed under any of the provisions
contained or referred to in Article Third hereof or Article III of the Special
Provisions of this Indenture, the Indenture Trustee shall select for redemption
Bonds of the Stated Maturity or Stated Maturities and (ii) if less than all the
Bonds of a particular Stated Maturity are to be redeemed under any provisions
contained or referred to in Article Third of the Special Provisions of this
Indenture or Article III hereof, the Indenture Trustee shall select the
particular Bonds and/or portions ($1,000 or any integral multiple thereof) of
Bonds to be redeemed on the Redemption Date by allocating the principal amount
to be redeemed among the Holders of Bonds of such Stated Maturity in proportion
to the respective principal amount of Bonds of such Stated Maturity registered
in their respective names.

      SECTION 3.08. Notices of Redemption. (a) In case of any redemption of
Obligations, whether mandatory or optional, a notice of redemption (indicating
(1) the Redemption Date, (2) the redemption Price, (3) if a part only of such
Obligations is to be redeemed, the numbers or other identification of the
Obligations and the principal amount thereof to be redeemed, in whole or in
part, (4) the place of payment upon redemption and (5) that interest shall
cease to accrue after the Redemption Date (but only if the Indenture Trustee or
any Paying Agent shall have received the required moneys) shall be given, by or
on behalf of the Shipowner, by mailing a copy of such notice, by first class
mail, postage prepaid, at least 30 days but not more than 60 days prior to the
Redemption Date, to each Holder of an Outstanding Obligation to be redeemed in
whole or in part at his last address appearing upon the Obligation Register.

      (b) Any notice of optional redemption of Obligations shall state that the
redemption is subject to the receipt of the redemption moneys by the Indenture
Trustee or any Paying Agent. Such notice shall be of no effect unless prior to
the opening of business on the Redemption Date the Indenture Trustee or such
Paying Agent shall receive an amount in cash sufficient for such redemption
(after taking into account any amounts then held by the Indenture Trustee or
such Paying Agent and available for such redemption)

      SECTION 3.09. Deposit of Redemption Moneys. Prior to the opening of
business on any Redemption Date, the Shipowner shall, except as contemplated by
Section 3.08(b), deposit or cause to be deposited with the Indenture Trustee or
(except in the case of redemptions pursuant to Section 3.04, 3.05, or 3.06 )
with any Paying Agent an amount sufficient for such redemption (after taking
into account any amounts then held by the Indenture Trustee or such Paying
Agent and available for such redemption) with irrevocable directions to it to
so apply the same.

      SECTION 3.10. Payments of Redemption Price. (a) If notice of redemption
shall have been given as provided above, the Obligations or portions thereof
specified in such notice shall, except as contemplated by Section 3.08(b),
become due and payable on the Redemption Date and at the place of payment and
the Redemption

                                       7
<PAGE>
Price stated in such notice, and on and after said Redemption
Date (unless the Shipowner shall default in the payment of such Redemption
Price) interest on the Obligations or portions thereof so called for redemption
shall cease to accrue. Upon presentation and surrender of such Obligations in
accordance with such notice, such Obligations or the specified portions thereof
shall be paid and redeemed at the applicable Redemption Price.

      (b) Upon presentation of any Obligation redeemed in part only, the
Shipowner shall execute and the Indenture Trustee shall authenticate and
deliver to or on the order of the Holder thereof, at the expense of the
Shipowner, a new Obligation or Obligations of like series and Stated Maturity
of authorized denominations, having endorsed thereon a Guarantee or Guarantees
executed by the Secretary, in principal amount equal to the unredeemed portion
of the Obligation so presented, or, at the option of such Holder, there may be
noted thereon by the Indenture Trustee or, at its direction, by any Paying
Agent the payment of the portion of the principal amount of such Obligation so
called for redemption.

      SECTION 3.11. Payments of Obligations. (a) The Obligations to be issued
hereunder shall be payable as to principal, premium, if any, and interest, at
an office or agency maintained by the Shipowner for such purpose at the
Corporate Trust Office of the Indenture Trustee, or, at the option of the
Shipowner, as to payments of principal, premium, if any, or interest by check
mailed by such Corporate Trust Office to the addresses of the Obligees as such
addresses shall appear in the Obligation Register, subject in any event to the
provisions hereof concerning home office payment. The Indenture Trustee agrees
that within 30 days from the date of any payment of principal or interest when
the same shall become due and payable by reason of maturity or redemption, a
Responsible Officer in the Corporate Trust Office of the Indenture Trustee
shall ascertain to his satisfaction that checks in payment of such amounts have
been mailed by such Corporate Trust Office to the addresses of the Obligees as
provided above, if payment is to be made by check or, if payment is to be made
by wire transfer or by credit to an account maintained by the Obligee with the
Indenture Trustee, that such funds have been wired or credited or, if payment
is to be made at the Corporate Trust Office, that funds were held by the
Indenture Trustee for such payment on the date the payment was due. The
Indenture Trustee shall have no obligation to determine whether such checks or
payments were received by the Obligees.

      (b) Notwithstanding any terms of this Indenture or the Obligations to the
contrary, the Shipowner may enter into an agreement with any Holder of an
Obligation providing for payment to such Holder by certified or official bank
check or, at the request of such Holder, by credit to an account maintained by
the Holder with the Indenture Trustee or by wire transfer of the principal of
and the premium, if any, and interest on such Obligation or any part thereof at
a place other than the place or places specified in such Obligation as the
place for such payment, and for the making of notation, if any, of such payment
on such Obligation by such Holder or by an agent of the Shipowner or of the
Indenture Trustee without presentation of such Obligation. The Shipowner will
furnish to the Indenture Trustee a copy of each such agreement. The Indenture
Trustee hereby consents to such agreement contained in Section 7 of the Bond
Purchase Agreement dated as of the Closing Date, between the Shipowner and the
Purchasers named in Schedule 1 thereto and hereby acknowledges receipt of a
copy thereof.

                                   ARTICLE IV
                CASH HELD BY INDENTURE TRUSTEE OR PAYING AGENTS

      SECTION 4.01. Generally. (a) All cash held by the Indenture Trustee or
any Paying Agent under this Indenture shall be held as a special deposit in
trust for the purposes for which held (subject to Section 4.03).

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

            (1) need not be segregated;

            (2) shall not be invested; and

            (3) shall not bear interest except to the extent the Indenture
      Trustee or such Paying Agent allows interest on similar deposits or
      except as the Shipowner and the Indenture Trustee (or such Paying Agent)
      may agree.

                                       8
<PAGE>
      SECTION 4.02. Paying Agents Other Than Indenture Trustee. (a) The
Shipowner will cause any Paying Agent (other than the Indenture Trustee) which
it may appoint by a writing delivered to such Paying Agent, with copies to the
Indenture Trustee and the Secretary, to execute and deliver to the Indenture
Trustee an instrument in which such agent shall agree with the Indenture
Trustee that, subject to paragraph (b) of this Section and Section 4.03:

            (1) it will hold in trust all sums held by it as such agent for the
      payment of the principal of (and premium, if any) or interest on
      Obligations for the benefit of the Holders of such Obligations, or for
      the benefit of the Indenture Trustee;

            (2) it will forthwith give the Indenture Trustee written notice
            addressed to a Responsible Officer in the Corporate Trust Office of
            the Indenture Trustee signed by a Responsible Officer of the Paying
            Agent of (A) any payment by the Shipowner of the principal of (and
            premium, if any) or interest on Obligations, specifying the amount
            paid, segregated as to principal (premium, if any) and interest,
            and identifying each Obligation on which any payment was made by
            number, date, series, Stated Maturity and the name of the Obligee,
            and/or (B) any failure of the Shipowner to make any such payment
            when the same shall be due and payable; and

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

      (b) The Shipowner may at anytime cause to be paid to the Indenture
Trustee all sums held in trust by any Paying Agent pursuant to this Section,
such sums to be held by the Indenture Trustee upon the same trusts.

      SECTION 4.03. Unclaimed Amounts. Any moneys received by the Indenture
Trustee or a Paying Agent, for the payment of Obligations or Guarantees and
remaining unclaimed by the Holders thereof for 6 years after the date of the
Maturity of said Obligations or the date of payment by the Secretary of the
Guarantees shall, upon delivery to the Indenture Trustee of a Request by the
Shipowner, be paid to the Shipowner; provided that, not less than 30 days prior
to such payment, the Shipowner shall publish notice thereof to the Obligees at
least once in the Authorized Newspapers, unless the Indenture Trustee, in its
discretion, waives the publication of such notice. In such event, such Holders
shall thereafter be entitled to look only to the Shipowner (and the settlor or
settlors of any trust for which the Shipowner is trustee, to the extent paid
over to it or them) for the payment thereof, and the Indenture Trustee or such
Paying Agent, as the case may be, shall thereupon be relieved from all
responsibility to such Holders therefor. No such Request, publication or
payment shall be construed to extend any statutory period of limitations which
would have been applicable in the absence of such Request, publication or
payment.

      SECTION 4.04. Application of Funds. If at any time the Indenture Trustee
shall hold funds (other than any amounts received by the Indenture Trustee
pursuant to Section 7.04), the application, distribution or payment of which is
not governed by Request or written instruction of the Shipowner delivered
pursuant to any provision of the Indenture, the Indenture Trustee shall give
written notice thereof to the Shipowner, who shall promptly thereafter deliver
to the Indenture Trustee a Request or written instruction bearing the written
consent of the Secretary and directing the application, distribution or payment
to be made of such funds.

                                   ARTICLE V
                  REPRESENTATIONS AND AGREEMENTS OF SHIPOWNER

      The Shipowner hereby represents and agrees, so long as Obligations are
Outstanding, as follows:

      SECTION 5.01. Authorization, Execution and Delivery of Indenture. The
Shipowner has duly authorized the execution and delivery of this Indenture.

                                       9
<PAGE>
      SECTION 5.02. Payment and Procedure for Payment of Obligations. The
Shipowner will duly and punctually pay the principal of (and premium, if any)
and interest on the Obligations according to the terms thereof and of this
Indenture. The Shipowner will deposit with the Indenture Trustee or (subject to
Section 3.09) a Paying Agent prior to the opening of business on each date
fixed for each such payment an amount sufficient for such payment (after taking
into account any amounts then held by the Indenture Trustee or such Paying
Agent and available for such payment) with irrevocable directions to it to so
apply the same; provided that payments of interest may be made as provided in
Section 2.02(b) (4) and provided further that except with the consent of the
Secretary the Shipowner shall not deposit any such amount more than thirty days
prior to the date of the payment for which such amount is deposited.

      SECTION 5.03. Offices or Agencies of Shipowner. The Shipowner shall (1)
at all times cause one or more offices or agencies to be maintained within the
United States where Obligations may be presented for payment, registration of
transfer and exchange, and where demands to or upon the Shipowner with respect
thereto may be served, and (2) from time to time give written notice to the
Indenture Trustee and to the Secretary of the location of such offices or
agencies. The Corporate Trust Office shall be deemed to be such an office or
agency for such purposes until the Shipowner shall give the Indenture Trustee
and the Secretary written notice to the contrary.

      Any such office or agency for payment of the Obligations (other than the
Corporate Trust Office) shall be a Paying Agent appointed in accordance with
Section 4.02.

                                   ARTICLE VI
                        INDENTURE DEFAULTS AND REMEDIES

      SECTION 6.01. What Constitutes Indenture Defaults. Each of the following
events shall constitute an "Indenture Default":

      (a) Default in the payment of the whole or any part of the interest on
any of the Outstanding Obligations when the same shall become due and payable
or default in the payment of the whole or any part of the principal of any of
the Outstanding Obligations when the same shall become due and payable, whether
by reason of Maturity, redemption, acceleration or otherwise, or any default
referred to in Section 6.08. and continuation of any such default for a period
of 30 days (herein called a "Payment Default"); and

      (b) The giving of a Secretary's Notice to the Indenture Trustee.

The Indenture Trustee shall give to the Obligees, the Secretary and the
Shipowner prompt notice in writing of any default in payment referred to in
clause (a) of this Section 6.01 (unless such default shall have been remedied
prior to the giving of such notice), and of the occurrence of any Indenture
Default which shall be continuing; provided that the Indenture Trustee shall
have no duty to give any such notice unless and until a Responsible Officer of
the Indenture Trustee, who is a Responsible Officer in its Corporate Trust
Office, has actual knowledge of such default or Indenture Default. Any such
notice of an Indenture Default to the Obligees (i) shall specify the nature of
such Indenture Default, (ii) shall state that, by reason thereof, the Indenture
Trustee is entitled under the Indenture to demand payment by the Secretary of
the Guarantees, (iii) shall set forth the provisions of Section 6.04(b)(3) and
(5), and (iv) shall advise the Obligees of the provisions of Section 6.02.

      SECTION 6.02. Demand for Payment of Guarantees. (a) If an Indenture
Default shall have occurred and be continuing, the Indenture Trustee shall not
later than 60 day from the date of such Indenture Default demand payment by the
Secretary of the unpaid interest to the date of such payment on, and the unpaid
balance of the principal of, all Outstanding Obligations, whereupon the entire
unpaid principal amount of the Outstanding Obligations and all unpaid interest
thereon shall become due and payable on the first to occur of the date which is
30 days from the date of such demand or the date on which the Secretary pays
the Guarantees; provided, that, in the case of a demand made as a result of a
Payment Default, if, prior to the expiration of 30 days from the date of such
demand and prior to any payment of the Guarantees by the Secretary, the
Secretary shall find, and give written notice to the Shipowner and the
Indenture Trustee to the effect that, there was no Payment Default or that such
Payment Default was remedied prior to such demand, such demand and the
consequences thereof shall be rescinded and annulled and the Guarantees shall
remain in full force and effect. The Indenture Trustee shall give to each
Obligee and to the Shipowner prompt written notice of any demand made by the
Indenture Trustee pursuant to this paragraph (a), any such notice to Obligees
to be given as provided in Section 6.04(c).

                                      10
<PAGE>
      (b) If the Indenture Trustee shall not have made the demand referred to
in Section 6.02(a) on or before the 30th day following an Indenture Default
which shall have occurred and be continuing and if the Holders of all
Outstanding Obligations shall not have theretofore elected to terminate the
Guarantees as provided in Section 6.04(a) (2), any Holder of an Outstanding
Obligation, by an Act of Obligees delivered to the Secretary (with copies
thereof to the Indenture Trustee and the Shipowner), may, in place of the
Indenture Trustee and on behalf of all Holders of Outstanding Obligations, make
such demand. subject to all the provisions of, ant with the effect provided in,
Section 6.02(a); provided, however, that the right of each Holder under this
paragraph ( b ) shall be without prejudice to the rights and duties of the
Indenture Trustee under Section 6.02(a) .

      SECTION 6.03. Appointment of Indenture Trustee and Holders of Outstanding
Obligations as Attorneys-in-Fact. Each Holder of an Outstanding Obligation by
the purchaser and acceptance of its Obligation, irrevocably appoints the
Indenture Trustee and each other Holder of an Outstanding Obligation its agent
and attorney-in-fact for the purpose of making the demand provided for in
Section 6.02 and (in the case of the Indenture Trustee) of receiving and
distributing any payment or payments by the Secretary made pursuant to any such
demand; provided that no action or failure to act by the Indenture Trustee
shall affect the rights of any Holder of an Outstanding Obligation to take my
action whatsoever permitted by law and not in violation of the terms of the
Obligations or of the Indenture.

      SECTION 6.04. Termination and Payment of the Guarantees. (a) Except as
otherwise provided in Section 6.08, the Guarantee with respect to any
Obligation shall terminate in case, and only in case, one or more of the
following events shall occur:

            (1) Such Obligation shall have been Retired or Paid;

            (2)  The  Holders  of all  Outstanding  Obligations  shall  have
      elected, by Act of Obligees delivered                          to
      the Secretary, to terminate the Guarantees;

            (3) Such  Guarantee  shall have been paid in full in cash by the
      Secretary; or

            (4) The Indenture Trustee and each Obligee shall have failed to
      demand payment of such Guarantee as provided herein or in such Guarantee
      or in the Act.

      (b) Subject to the provisions of Section 6.08, when the Secretary shall
pay the Guarantees in full in cash to the Indenture Trustee:

            (1) The Indenture Trustee shall hold the entire amount thereof in
      trust for the sole purpose of providing for the payments specified in
      subparagraph (5) below;

            (2) No Obligation or Obligations shall thereafter be issued;

            (3) The Obligations (A) shall represent only the right to receive
            the payments from the Indenture Trustee specified in subparagraph
            (5) below and, in the event the Indenture Trustee makes payment to
            the Shipowner pursuant to Section 4.03, from the Shipowner, (B)
            shall otherwise no longer constitute or represent an obligation of
            the Shipowner, and (C) shall not be entitled to any other rights or
            benefits under this Indenture;

            (4) The Indenture Trustee shall forthwith give written notice to
            the Shipowner and to each of the Obligees, stating that it has
            received payment of the Guarantees in full in cash from the
            Secretary and that the same is available for distribution to the
            Obligees in the manner specified in subparagraph (5) below (and the
            Indenture Trustee shall give like notice to the Holders of the
            Obligations at least annually thereafter for a period of 6 years or
            until all Obligations shall have been cancelled, whichever is
            earlier); and

            (5) Upon the surrender for cancellation of any Obligation, the
            Indenture Trustee shall forthwith pay to the Holder of such
            Obligation in cash an amount (less the amount, if any, required to

                                      11
<PAGE>
            be withheld in respect of transfer or other taxes on payment to
            such Holder) equal to the unpaid principal amount of such
            Obligation and the unpaid interest accrued thereon to the date on
            which the Secretary shall have paid the Guarantees in full in cash
            to the Indenture Trustee; provided that, for the purposes of this
            subparagraph (5), the Indenture Trustee (A) may deem any Person as
            the owner of an Obligation in accordance with Section 2.11 and (B)
            shall not be required to make any payment in violation of
            applicable law.

      (c) Each notice to Obligees required by this Section shall be given by
the Indenture Trustee by first class mail, postage prepaid, to the address of
each Obligee appearing upon the Obligation Register.

      (d) If the Secretary shall not have paid the Guarantees in full in cash
to the Indenture Trustee within 30 days after any demand therefor pursuant to
Section 6.02 (whether or not because the Secretary makes either of the findings
referred to in the provision of Section 6.02(a)), the Indenture Trustee shall
give prompt written notice of such nonpayment to each Obligee and the
Shipowner. If the Indenture Trustee shall have received notice of either of
such findings, such notice to each Obligee shall so state.

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

      (a) the right (in its name, as the trustee of an express trust, or as
agent and attorney-in-fact for each Holder of the Obligations as a class) to
take all action to enforce its rights and remedies (including the institution
and prosecution of all judicial and other proceedings and the filings of proofs
of claim and debt in connection therewith), and to enforce all existing rights
of the Holders of the Obligations as a class; and

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

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

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

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

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

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

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

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

                                      12
<PAGE>
            (1) the Indenture Trustee shall have been directed to institute
            such proceeding by the Holders of at least 25% in aggregate
            principal amount of the Obligations then Outstanding;

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

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

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

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

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

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

      SECTION 6.08. Rescission of Payments. Notwithstanding any other provision
of this Indenture, or of the Obligations, in the event that any payment to or
on behalf of an Obligee of the principal of or interest due under any
Obligation, or any portion of any such payment, shall at any time be repaid by
such Obligee in compliance with an order (whether or not final) of a court of
competent jurisdiction pursuant to any provision of the Bankruptcy Act (Title
II of the United States Code) or any Federal Law replacing or superseding such
Act, or applicable state law, and regardless of whether there has been any
previous Indenture Default and any payment pursuant thereto, or whether such
Obligation shall theretofore have been acquired by the Shipowner or cancelled,
or whether an instrument satisfying and discharging this Indenture shall have
been executed and delivered, (1) such Obligation shall not be deemed to have
been Retired or Paid and shall be deemed to be Outstanding, (2) the return of
such payment in whole or in part (but not the mere possibility that any such
payment or portion thereof may be so required to be returned, nor any prior
demand, suit or proceeding for such return) in compliance with the order of
such court shall constitute a default in payment of such Obligation within the
meaning of Section 6.01(a), which default shall be deemed to have occurred on
the date of such repayment and which default, if continued for 30 days, will
constitute a Payment Default, (3) the Guarantee of such Obligation and (to the
extent necessary to enforce such Obligation and Guarantee) this Indenture shall
be in full force and effect, and (4) the Person required to return such payment
or portion thereof shall be deemed for all purposes to be a Holder of such
Obligation and entitled to enforce such Obligation and Guarantee to the extent
of such repayment and, if there shall not be any Indenture Trustee hereunder
then in office, such Person shall also be entitled to exercise on his own

                                      13
<PAGE>
behalf all the rights of the Indenture Trustee hereunder necessary for such
enforcement; provided however, that in the event the Guarantee of any
Obligation shall have terminated for reasons set forth in paragraphs (2) or (4)
of Section 6.04(a) of this Indenture prior to the aforesaid date of repayment
the provisions of this Section shall not apply to such Obligation.

      SECTION 6.09. Assumption of Obligations by Secretary. Notwithstanding
anything contained herein, (i) in the event the Shipowner shall fail to make
any payment of principal or interest due on the Obligations on an Interest
Payment Date and such failure to pay shall continue for a period of 25 days or
(ii) in the event of a default under a mortgage, loan agreement, or other
security agreement between the Secretary, the Shipowner and any other parties,
the Secretary shall have the right to and may, in his sole discretion, (a) by
giving to the Indenture Trustee at any time pursuant to clause (ii) above or,
if pursuant to clause (i) above, on or after the 25th day of said 25 day period
of such default (but prior to the receipt by the Secretary of any demand for
payment of the Guarantees pursuant to Section 6.02) a Secretary's Supplemental
Indenture in the form of Exhibit 4 attached hereto, which Exhibit is
incorporated herein by reference, assume the rights and obligations of the
Shipowner under this Indenture and all Outstanding Obligations as provided in
said Secretary's Supplemental Indenture; and (b) if applicable, make any
payment of principal or interest which is due under the Obligations. By the
execution of this Indenture by the Indenture Trustee and the Shipowner it is
agreed hereunder that a Secretary's Supplemental Indenture shall be effective
and binding upon the Indenture Trustee and the Shipowner and their respective
successors or assigns without further act or deed of either as of the date
executed and given to the Indenture Trustee by the Secretary as contemplated by
this Section, and each of them for itself, its successors and assigns hereby
irrevocably appoints the Secretary its true and lawful attorney-in-fact to
execute and deliver said Secretary's Supplemental Indenture Upon any such
assumption by the Secretary, the Secretary shall succeed to and be substituted
for and may exercise every right and power of the Shipowner under this
Indenture and the Obligations with the same force and effect as if the
Secretary has been named as the Shipowner herein and therein. Upon any such
assumption by the Secretary, the Indenture Trustee, upon request of the
Secretary, shall promptly notify the holders of the Outstanding Obligations of
such assumption. The Secretary may exercise its rights under this Section 6.09
as often as it deems appropriate in its sole discretion.

                                  ARTICLE VII
                             THE INDENTURE TRUSTEE

      SECTION 7.01. Acceptance of Trusts. The Indenture Trustee hereby accepts
the trusts of this Indenture.

      SECTION 7.02. Eligibility of Indenture Trustee. (a) The Indenture Trustee
shall at all times be a bank or trust company physically located in the United
States of America which (1) is organized as a corporation and doing business
under the laws of the United States or any state thereof, (2) is authorized
under such laws to exercise corporate trust powers, (3) is subject to
supervision or examination by federal or state authority, and shall not have
become incapable of acting or have been adjudged a bankrupt or an insolvent nor
have had a receiver appointed for itself or for any of its property, nor have
had a public officer take charge or control of it or its property or affairs
for the purpose of rehabilitation, conservation or liquidation.

      (b) Should the Indenture Trustee at any time cease to be eligible,
pursuant to this Section 7.02, to act as trustee, it shall promptly notify the
Obligees, the Shipowner and the Secretary of such fact; and should the
Shipowner obtain knowledge of such ineligibility, it shall promptly advise the
Indenture Trustee, the Secretary, and the Obligees of such fact. Any such
notice (i) shall set forth all the relevant facts known to the Indenture
Trustee or the Shipowner, as the case may be, (ii) if to the Secretary or the
Shipowner, shall be registered or certified mail, postage prepaid, and (iii) if
to Obligees, shall be sent to each Obligee by first class mail, postage prepaid
at his address as it appears on the Obligation Register, or at such other
address as such Obligee may have furnished to the Indenture Trustee for such
purpose.

      SECTION 7.03. Rights and Duties of Indenture Trustee. (a) The Indenture
Trustee shall not be responsible for the correctness of the Recitals in the
Special Provisions hereof or in the Obligations (except the Indenture Trustees
authentication certificate thereon), all of which Recitals are statements made
solely by the Shipowner.

                                      14
<PAGE>
      (b) The Indenture Trustee shall not be responsible for the validity,
execution by other parties thereto, or sufficiency of this Indenture, the
Authorization Agreement, the Obligations or the Guarantees.

      (c) During the continuance of any Indenture Default (except for an
Indenture Default resulting from those defaults in payment or Payment Defaults
referred to in paragraph (r) of this Section, concerning which the Indenture
Trustee has not received the notice referred to in said paragraph (r) and the
information relating to items (1) through (5) of said paragraph (r)), the
Indenture Trustee shall exercise such of the rights and powers vested in it by
Article VI, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.

      (d) Except during the continuance of any Indenture Default (other than an
Indenture Default referred to in the parenthetical expression set forth in
paragraph (c) of this Section), the Indenture Trustee undertakes to perform
such duties and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into this
Indenture against the Indenture Trustee.

      (e) No provision of this Indenture shall relieve the Indenture Trustee
from liability for its own negligent action, its own negligent failure to act,
or its own willful misconduct; provided that:

            (1) Except during the continuance of an Indenture Default (other
      than an Indenture Default referred to in the parenthetical expression set
      forth in paragraph (c) of this Section), (A) the duties of the Indenture
      Trustee shall be limited as provided in paragraph (d) of this Section,
      and (B) in the absence of bad faith on the part of the Indenture Trustee,
      the Indenture Trustee may conclusively rely upon certificates or opinions
      conforming to the requirements of this Indenture as to the truth of the
      statements and the correctness of the opinions expressed thereon;

            (2) The Indenture Trustee shall not be liable for my error of
      judgment made in good faith by a responsible Officer or Officers of the
      Indenture Trustee unless it shall be proved that the Indenture Trustee
      was negligent in ascertaining the pertinent facts; and

            (3) The Indenture Trustee shall not be liable with respect to any
      action taken or omitted to be taken by it in good faith in accordance
      with an Act of Obligees relating to the time, method ant place of
      conducting any proceeding for any remedy available to the Indenture
      Trustee, or exercising any trust or power conferred upon the Indenture
      Trustee under this Indenture.

      (f) Subject to paragraph (i) of this Section, the Indenture Trustee shall
be under a duty to examine certificates and opinions required by this Indenture
to be furnished to it to determine whether or not they conform to the
requirements hereof.

      (g) Subject to paragraph (c) of this Section, the Indenture Trustee may
rely and shall be protected in acting upon any resolution, certificate,
opinion, notice, request, consent, order, appraisal, report, bond, or other
paper or document believed by it to be genuine, to have been signed by the
proper party or parties and to be in conformity with the provisions of this
Indenture.

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

      (i) The Indenture Trustee may consult with counsel satisfactory to the
Indenture Trustee (who may be counsel to the Shipowner) and an Opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
accordance with such Opinion of Counsel.

      (j) Subject to paragraph (c) of this Section, the Indenture Trustee shall
not be under any responsibility for the approval or selection of any expert for
any of the purposes expressed herein; provided that the Indenture

                                      15
<PAGE>
Trustee shall exercise reasonable care with respect to the approval or
selection of independent experts whom it approves or selects to furnish
opinions or certificates to the Indenture Trustee pursuant to this Indenture.

      (k) Whenever it is provided that the Indenture Trustee shall take any
section, including the giving of any notice or the making of any demand, or
refrain from taking any action upon the happening or continuation of a
specified event (including an Indenture Default) or upon the fulfillment of any
condition or upon the Request of the Shipowner or of Obligees or upon receipt
of any notice, including a Secretary's Notice, the Indenture Trustee (1) shall,
subject to paragraph (c) of this Section, have no liability for failure to take
such action or for failure to refrain from taking such action unless and until
a Responsible Officer of the Indenture Trustee, who is a Responsible Officer in
the Corporate Trust Office, has actual knowledge of such event or continuation
thereof or the fulfillment of such conditions or shall have received such
Request, and (2) in taking or refraining from taking such action, shall have
full power to give any and all notices and to do any and all acts and things
incidental to such action.

      (l) Subject to paragraph (c) of this Section, the Indenture Trustee shall
not be under any obligation to exercise any of the trusts or powers hereof at
the request, order or direction of any Obligees or the Secretary, unless such
Obligees or the Secretary shall have offered to the Indenture Trustee security
or indemnity satisfactory to it against the costs, expenses and liabilities to
be incurred thereby.

      (m) The Indenture Trustee, in its individual or any other capacity, may
become the owner or pledgee of Obligations with the same rights it would have
if it were not Indenture Trustee.

      (n) Notwithstanding any other provision of this Indenture, the Indenture
Trustee shall not take any action contrary to the terms of the Authorization
Agreement, and any such purported action or any attempt to take such action
shall be void and of no effect, and, except as provided in Section 7.06(b),
shall not enter into any amendment to the Authorization Agreement except as
expressly authorized by a Supplemental Indenture entered into pursuant to
Article X.

      (o) No provision of this Indenture shall require the Indenture Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.

      (p) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Indenture Trustee shall be subject to the provisions of this
Section.

      (q) Upon the execution and delivery of an instrument satisfying and
discharging this Indenture as provided in Section 12.01 hereof, all duties and
obligations of the Indenture Trustee hereunder (except with respect to the
application of funds for the payment of Obligations then held by the Indenture
Trustee) shall cease and shall not thereafter be revived, whether or not the
Indenture shall thereafter be in full force and effect as provided in Section
6.08.

      (r) Notwithstanding any other provisions of this Indenture or the
Authorization Agreement, the Indenture Trustee shall have no duty or obligation
to exercise any of its rights or powers hereunder with respect to a default in
payment or Payment Default by reason of a repayment referred to in Section 6.08
unless and until it shall have received notice of such default and information
concerning (1) the date thereof, (2) the Obligation to which such repayment
relates, (3) the Person making such repayment and the Holder of such
Obligation, (4) the amounts of such repayment attributable to principal,
premium and interest on such Obligation, and (5) the Interest Payment Date or
other date on which the Obligee received the moneys to which the court order
mentioned in Section 6.08 relates.

      SECTION 7.04. Compensation, Expenses and Indemnification of Indenture
Trustee. The Shipowner shall (1) pay reasonable compensation to the Indenture
Trustee and reimburse it for its reasonable expenses and disbursements
(including counsel fees and expenses) and (2) indemnify the Indenture Trustee
for, and hold it harmless against, any loss, liability or expense which it may
incur or suffer without negligence or bad faith in

                                      16
<PAGE>
acting under this Indenture or the Authorization Agreement. The compensation of
the Indenture Trustee shall not be limited to the compensation provided by law
for a trustee acting under an express trust.

      SECTION 7.05. Resignation and Removal of Indenture Trustee. (a) The
Indenture Trustee may resign at any time by giving written notice to the
Shipowner. Within 10 days thereafter, the resigning Indenture Trustee shall
give notice of such resignation to the Obligees in the manner provided in
Section 6.04(C). If the resigning Indenture Trustee fails to do so within such
10-day period, within the next succeeding 10 days the Shipowner shall give such
notice in the same manner.

      (b) The Indenture Trustee may at any time be removed by:

            (1) written notice to the Indenture Trustee and the Shipowner by
      the Holders of a majority in principal amount of the Outstanding
      Obligations; or

            (2) written notice to the Indenture Trustee by the Shipowner or the
      Secretary that the Indenture Trustee has ceased to be eligible under
      Section 7.02(a).

      (c) Any resignation or removal of the Indenture Trustee shall be
effective only upon appointment of a successor Indenture Trustee approved by
the Secretary and the acceptance of such appointment by such successor
Indenture Trustee.

      SECTION 7.06. Appointment of Successor Indenture Trustee. (a) If the
Indenture Trustee or the Shipowner shall have given notice of ineligibility of
the Indenture Trustee pursuant to Section 7.02(b), or if any notice of
resignation or of removal shall have been given pursuant to Section 7.05, then
a successor Indenture Trustee may be appointed by the Shipowner; provided that,
if such successor Indenture Trustee is not so appointed (or has not accepted
such appointment) within 15 calendar days after the giving of any such notice,
such appointment may be made (i) by the Secretary or (ii) by a court of
competent jurisdiction upon the application of the Secretary, the Shipowner,
the retiring Indenture Trustee or any Person who then is, and has been, the
Holder of an Outstanding Obligation for at least 6 months.

      (b) No successor Indenture Trustee shall be appointed without the prior
written consent of the Secretary and until such successor Indenture Trustee
shall enter into an amendment to the Authorization Agreement as set forth in
the first sentence of Section 4.04 thereof.

      (c) If a successor Indenture Trustee is appointed, approved by the
Secretary and accepts such appointment, and the Shipowner shall have knowledge
thereof, the Shipowner shall give notice to the Obligees of such appointment in
the manner provided in Section 6.04(c). The failure of the Shipowner to give
such notice shall not affect the validity of any such appointment.

      SECTION 7.07. Effect of Appointment of Successor Indenture Trustee. Upon
appointment and acceptance as Indenture Trustee, each successor Indenture
Trustee shall forthwith, without further act or deed, succeed to as the rights
and duties of its predecessor in trust under this Indenture and the
Authorization Agreement. Such predecessor shall promptly deliver to such
successor Indenture Trustee all sums held hereunder, together with all records
and other documents necessary or appropriate in connection with the performance
of the duties of the successor Indenture Trustee under this Indenture. Upon the
written request of the successor Indenture Trustee or the Shipowner and upon
payment of all amounts due to such predecessor under this Indenture, such
predecessor shall transfer, assign and confirm to the successor Indenture
Trustee all its rights under this Indenture by executing and delivering from
time to time to the successor Indenture Trustee such further instruments and by
taking such other action as may reasonably be deemed by such successor
Indenture Trustee or the Shipowner to be necessary or appropriate in connection
therewith.

      SECTION 7.08. Merger, Consolidation and Sale of Indenture Trustee. In the
event of any merger (including for the purposes of this Section, the conversion
of a state bank into a national banking association or vice versa) or
consolidation of the Indenture Trustee into any other Person or in the event of
the sale of all or substantially all the Indenture Trustee's corporate trust
business, the Person resulting from such merger (including any such conversion)
or consolidation, or the transferee in the case of any such sale, shall
forthwith notify the

                                      17
<PAGE>
Shipowner and, subject to Section 7.02(a) and 7.06(b), shall be the Indenture
Trustee under this Indenture and the Authorization Agreement without further
act or deed.

      Obligations and Guarantees authenticated after any such merger,
consolidation or sale may be authenticated by the successor Indenture Trustee
either in its own name or in the name of any predecessor which shall have been
the Indenture Trustee.

                                  ARTICLE VIII
                  CONSOLIDATION, MERCER OR SALE BY SHIPOWNER

      SECTION 8.01. Consolidation, Merger or Sale by Shipowner. Nothing in this
Indenture shall prevent any lawful consolidation or merger of the Shipowner
with or into any other Person, or any sale of a Vessel or Vessels to any other
Person lawfully, entitled to acquire and operate such Vessel or Vessels or any
sale by the Shipowner of all or substantially all of its assets to any other
Person; provided that, except where the Shipowner shall be the Person surviving
a merger or consolidation, the Person formed by or surviving such consolidation
or merger, or to which the sale of such Vessel or Vessels shall be made, shall,
by Supplemental Indenture, expressly assume the payment of the principal of and
interest (and premium, if any) on the Proportionate Part of the Obligations
relating to such Vessel or Vessels in accordance with the terms of the
Obligations and of the Indenture and shall expressly assume the performance of
the agreements of the Shipowner in the Indenture; provided further, that to the
extent said Proportionate Part of the Obligations is not so assumed, the
Shipowner shall redeem or cause to be redeemed the principal amount of the
Proportionate Part of such Obligations as is required by the Secretary, such
redemption to be in accordance with the terms of the Obligations and of the
Indenture. When a Person so assumes this Indenture and such Proportionate Part
of the Outstanding Obligations, the Supplemental Indenture shall discharge and
release the Shipowner from any and all obligations thereunder relating to such
Proportionate Part of the Outstanding Obligations. In the event of such an
assumption by a Person to whom a Vessel or Vessels have been sold (a) such
Person shall succeed to, and be substituted for, and may exercise every right
and power of the original Shipowner with the same effect as if such successor
Shipowner had been named as the Shipowner herein and (b) such Proportionate
Part of the Outstanding Obligations shall be surrendered to the Indenture
Trustee for appropriate notation or for the issuance of new Obligations in
exchange for such Proportionate Part of the Outstanding Obligations in the name
of the successor Shipowner, as required by the Secretary. The principal amount
of the Proportionate Part of the Outstanding Obligations shall be determined by
the Secretary.

      SECTION 8.02. Sale of the Vessel or Vessels by the Secretary. Nothing
contained in this Indenture shall prevent the sale of a Vessel or Vessels to
any other Person or Persons by the Secretary, by a court of law or by the
Shipowner following, in connection with or in lieu of a foreclosure or similar
action. Following any such sale (1) the Person to whom such Vessel or Vessels
have been sold may by Supplemental Indenture expressly assume the payment of
and interest (and premium, if any) on the Proportionate Part of the Outstanding
Obligations relating to such Vessel or Vessels in accordance with the terms of
the Obligations and the Indenture and shall expressly assume the performance of
the Shipowner in the Indenture; and (2) in the event such Person does not so
assume, the Secretary shall redeem the Proportionate Part of the Outstanding
Obligations relating to such Vessel or Vessels without premium pursuant to
Section 3.06 hereof; provided that the Secretary sell all or permit the sale of
a Vessel or Vessels to the original Shipowner or to any affiliate of the of the
Shipowner only if (i) the Secretary has not redeemed such Obligations prior to
such sale, and (ii) such purchaser assumes such Proportionate Part of the
Outstanding Obligations as contemplated by the preceding clause (1). When a
Person so assumes this Indenture and such Proportionate Part of the Outstanding
Obligations, the Supplemental Indenture shall discharge and release the
Secretary from any and all obligations thereunder in the Secretary's capacity
as Shipowner relating to such Proportionate Part of the Outstanding
Obligations. In the event of such an assumption by a Person to whom a Vessel or
Vessels have been sold (a) such Person shall succeed to, and be substituted
for, and may exercise every right and power of the original Shipowner with the
same effect as if such successor Shipowner had been named as the Shipowner
herein and (b) such Proportionate Part of the Outstanding Obligations shall be
surrendered to the Indenture Trustee for appropriate notation or for the
issuance of new Obligations in exchange for such Proportionate Part of the
Outstanding Obligations in the name of the successor Shipowner, as required by
the Secretary. Any such sale or the execution of a Supplemental Indenture by
any successor Shipowner shall not discharge or in any manner affect the
obligation of the United States to pay the Guarantees pursuant to the terms
thereof. The principal amount of the Proportionate Part of the Outstanding
Obligations shall be determined by the Secretary.

                                      18
<PAGE>
                                   ARTICLE IX
                                ACTS OF OBLIGEES

      SECTION 9.01. Acts of Obligees. (a) Any request, demand authorization,
direction, notice, consent, waiver or other action required or permitted by
this Indenture to be given or taken by Obligees may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Obligees in person or by an agent or attorney duly appointed in writing.
Except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Indenture
Trustee and, where it is hereby expressly required, to the Shipowner and the
Secretary. Such instrument or instruments (and the action embodied therein ant
evidenced thereby) are herein sometimes referred to as the "Act of Obligees'
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent or attorney shall be
sufficient for any purpose of this Indenture and (subject to Section 7.03)
conclusive in favor of the Indenture Trustee and the Shipowner, if made in the
manner provided in paragraph (b) of this Section.

      (b) The fact and date of the execution by any Person of any instrument or
writing referred to in paragraph (a) of this Section may be proved by the
affidavit of a witness of such execution or by the certificate or
acknowledgment of any notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such
instrument or writing acknowledged to him the execution thereof. Where such
execution is by an officer of a corporation or a member of a partnership, on
behalf of such corporation or partnership, such affidavit or certificate shall
also constitute sufficient proof of his authority. The fact and date of the
execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which the Indenture
Trustee (or, if such instrument or writing is addressed to the Secretary, the
Secretary) deems sufficient.

      (c) The  ownership of  Obligations  shall be proved by the  Obligation
Register.

      (d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Obligation shall bind every future
Holder of the same Obligation and the Holder of every Obligation issued upon
the transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done or suffered to be done by the Indenture Trustee, any Paying Agent
or the Shipowner in reliance thereon, whether or not notation of such action is
made upon such Obligation.

                                   ARTICLE X
                            SUPPLEMENTAL INDENTURES

      SECTION 10.01. Permissible without Action by Obligees. The Shipowner, the
Indenture Trustee, or, where applicable, the Secretary, from time to time and
at any time, may, without the consent of or notice to any of the Obligees,
subject to Sections 10.02 and 10.05, enter into an indenture or other
instrument supplemental hereto and which thereafter shall form a part hereof,
for any one or more of the following purposes:

            (1) to add to the covenants of the Shipowner, whether applicable to
      one or more series of Obligations;

            (2) to evidence the succession pursuant to Article VIII of another
      corporation or entity to the Shipowner or any assumption of all or a part
      of the Obligations pursuant to Article VIII;

            (3) to eliminate any right reserved to or conferred upon the
      Shipowner;

            (4) to make such provisions for the purpose of curing any ambiguity
      or correcting or supplementing any provisions in this Indenture as the
      Shipowner or the Secretary may deem necessary or desirable, provided such
      provisions are not inconsistent with this Indenture and shall not
      adversely affect the interests of the Obligees;

                                      19
<PAGE>
            (5) to provide for the issuance of additional Obligations of any
      series and Stated Maturity theretofore issued under this Indenture or to
      set forth the terms and provisions of any one or more additional series
      of Obligations in accordance with Section 2.04; or

            (6) to evidence the assumption pursuant to Section 6.09 by the
      Secretary of the Shipowner's obligations under this Indenture and the
      Outstanding Obligations.

      SECTION 10.02. Protection of Indenture Trustee. Upon receipt of a Request
of the Shipowner that the Indenture Trustee execute any Supplemental Indenture
and upon receipt of any Act of Obligees required pursuant to Section 10.04 and
the consent of the Secretary required pursuant to Section 10.05, the Indenture
Trustee shall enter into such Supplemental Indenture; provided that the
Indenture Trustee shall not be obligated to enter into any Supplemental
Indenture which the Indenture Trustee believes adversely affects the Indenture
Trustee's own rights, duties or immunities under this Indenture.

      SECTION 10.03. Reference in Obligations to Supplemental Indentures.
Obligations authenticated and delivered after the execution and delivery of any
Supplemental Indenture may, with the consent and approval of the Shipowner and
the Indenture Trustee, contain a text modified to conform to such Supplemental
Indenture or have imprinted or stamped thereon a legend with respect to such
Supplemental Indenture, but no such modification or legend shall be necessary
to make such Supplemental Indenture effective.

      SECTION 10.04. Waivers and Supplemental Indentures with Consent of
Obligees. With the consent of the Holders of not less than 60% in principal
amount of the Outstanding Obligations of each series affected thereby, by Act
of Obligees delivered to the Shipowner and the Indenture Trustee, (x)
compliance by the Shipowner with any of the terms of the Indenture may be
waived or (y) the Shipowner and the Indenture Trustee may enter into any
Supplemental Indenture for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of the Obligations issued
under this Indenture; provided that no such waiver or Supplemental Indenture
shall:

      (a) Without the consent of all Obligees affected thereby (1) change the
Stated Maturity or reduce the principal of any Obligation, (2) extend the time
of payment of, or reduce the rate of, interest thereon, (3) change the due date
of or reduce the amount of any mandatory sinking fund payment, (4) reduce any
premium payable upon the redemption of any Obligation, or (5) change the coin
or currency in which any Obligation or the interest thereon is payable; or

      (b) Without the consent of all Obligees (l) terminate or modify any of
the Guarantees or the obligations of the Secretary thereunder, (2) reduce the
amount of any of the Guarantees, (3) eliminate, modify or condition the duties
of the Indenture Trustee to demand payment of the Guarantees or otherwise to
comply with the provisions of Sections 6.02 and 6.04, (4) eliminate or reduce
any of the eligibility requirements for the Indenture Trustee stated in Section
7.02, or (5) reduce the percentage in principal amount of the Outstanding
Obligations of any series, the consent of whose Holders is required for any
such Supplemental Indenture, or required for any waiver provided herein or to
modify any of the provisions of this Section except to increase any such
percentage or to provide that certain other provisions of this Indenture cannot
be modified or waived without the consent of all Obligees affected thereby.

      It shall not be necessary for any Act of Obligees under this Section to
approve the particular form of any proposed Supplemental Indenture, but it
shall be sufficient if such Act shall approve the substance thereof. Promptly
after the execution of any Supplemental Indenture pursuant to this Section, the
Shipowner shall give notice thereof to the Obligees by first class mail,
postage prepaid. Any failure of the Shipowner to give such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such Supplemental Indenture.

      SECTION 10.05. Consent of Secretary. Subject to the provisions of Section
11.01, no waiver pursuant to Section 10.04 shall be effective, and neither the
Shipowner nor the Indenture Trustee shall enter into any Supplemental
Indenture, without the prior written consent of the Secretary thereto, and any
purported action or attempt to take such action forbidden to be taken by this
Section shall be void and of no effect.

                                      20
<PAGE>
      SECTION 10.06. Continued Validity of the Guarantees. Notwithstanding
anything herein to the contrary, this Indenture, the Guarantees and the
Authorization Agreement shall each remain in full force and effect
notwithstanding the assumption by the Secretary of the Obligations pursuant to
the Secretary's Supplemental Indenture entered into pursuant to Section 6.09,
and pursuant to Section 1103(e) of the Act, the validity of the Guarantee of
any Obligation shall be unaffected, and such Guarantee and all
responsibilities, requirements and consents relating to the Secretary under the
terms and provisions of this Indenture shall remain in full force and effect
notwithstanding any such assumption by the Secretary as aforesaid.

                                   ARTICLE XI
                    PERFORMANCE OF OBLIGATIONS TO SECRETARY

      SECTION 11.01. Performance of Obligations to Secretary. Notwithstanding
any other provisions of this Indenture to the contrary, each of the provisions
hereof which requires or permits action by the Secretary, the consent, approval
or authorization of the Secretary, the furnishing of any document, paper or
information to the Secretary, or the performance of any other obligation to the
Secretary, shall not be effective and the Sections containing such provisions
shall be read as though there were no such requirements or permissions, after
termination of the Guarantees pursuant to Section 6.04(a).

                                  ARTICLE XII
                    SATISFACTION AND DISCHARGE OF INDENTURE

      SECTION 12.01. Satisfaction and Discharge of Indenture. Whenever all
Outstanding Obligations authenticated and delivered hereunder shall have been
Retired or Paid the Indenture Trustee shall forthwith deliver to the Shipowner
and the Secretary a duly executed instrument, in form submitted to it by the
Shipowner and reasonably satisfactory to the Indenture Trustee, satisfying and
discharging this Indenture and, at the time such form of instrument is
submitted to the Indenture Trustee the Shipowner shall deliver to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating that
all conditions precedent herein provided relating to the satisfaction and
discharge of this Indenture have been complied with. Notwithstanding the
satisfaction and discharge of this Indenture, the Obligations of the Shipowner
to the Indenture Trustee under Section 7.04 shall survive.

                                  ARTICLE XIII
                                 MISCELLANEOUS

      SECTION 13.01. Notices, Communications, and Demands. Except as otherwise
specifically provided herein or in the Act, any notice, request, demand or
direction upon, or other communication to, the Indenture Trustee, the Shipowner
or the Secretary shall be deemed to have been sufficiently given or made by
being mailed, registered or certified mail, postage prepaid, addressed to the
Indenture Trustee, the Shipowner or the Secretary at their respective addresses
appearing in the Special Provisions of this Indenture or at such other address
as any of them may advise the others in writing from time to time. Except as
otherwise specifically provided herein or in the Act, any notice, request,
demand or direction upon, or other communication to, the Obligees shall be
deemed to have been sufficiently given or made by being mailed, registered or
certified mail, postage prepaid, to the address of each Obligee last appearing
on the Obligation Register. All notices, communications, and demands under this
Indenture shall be in writing in the English language (or accompanied by an
accurate English translation upon which the Trustee shall have the right to
rely for all purposes under this indenture).

      SECTION 13.02. Waivers of Notice. In any case where notice by mail or
otherwise is provided herein, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be deemed the equivalent of such notice. Waivers of notice
shall be filed with the Indenture Trustee, but such filing shall not be a
condition precedent to the validity of any action taken thereon in reliance
upon any such waiver.

      SECTION 13.03. Benefit of Indenture. This Indenture is for the sole
benefit of the Shipowner, the Indenture Trustee, the Holders from time to time
of the Outstanding Obligations and (until the obligations to the Secretary
shall have terminated as provided in Article XI) the Secretary.

                                      21
<PAGE>
      SECTION 13.04. Execution of Counterparts. This Indenture may be executed
in any number of counterparts, each in the English language. All such
counterparts shall be deemed to be original and shall together constitute but
one and the same instrument.

      SECTION 13.05. Table of Contents; Titles and Headings. Any table of
contents, the titles of the Articles and the headings of the Sections are not a
part of this Indenture and shall not be deemed to affect the meaning or
construction of any of its provisions.

      SECTION 13.06. Integration with Special Provisions of the Indenture. In
the event of any conflict between the provisions of the Special Provisions of
the Indenture and of this Exhibit 1 thereto, the provisions of the Special
Provisions shall govern and the provisions of this Exhibit 1 to the Indenture
shall be deemed to be amended accordingly.

      SECTION 13.07. Immunity of Incorporators, Stockholders, Officers and
Directors. No recourse shall be had for the payment of the principal of, or the
premium, if any, or interest on any Obligation. or for any claim based thereon
or otherwise in respect thereof or of the indebtedness represented thereby, or
upon any obligation, covenant or agreement of this Indenture, against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Shipowner or of any successor corporation, either directly or
through the Shipowner or any successor corporation, whether by virtue of any
constitutional provision, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly agreed and understood
that this Indenture and the Obligations are solely corporate obligations, and
that no personal liability whatsoever shall attach to, or be incurred by, any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Shipowner or of any successor corporation, either directly or
through the Shipowner or any successor corporation, because of the incurring of
the indebtedness hereby authorized or under, or by reason of, any of the
obligations, covenants, promises or agreements contained in this Indenture or
in any of the Obligations or to be implied herefrom or therefrom, and that all
liability, if any, of that character against every such incorporator,
stockholder, officer and director is, by the acceptance of the Obligations and
as a condition of, and as part of the consideration for, the execution of this
Indenture and the issue of the Obligations, expressly waived and released.

      SECTION 13.08. Payments in U.S. Currency. This is an international loan
transaction in which the specification of United States dollars is of the
essence, and such currency shall be the currency of account in all events. The
respective payment obligations of the Shipowner and the Trustee hereunder shall
not be discharged by an amount paid in another currency, whether pursuant to a
judgment or otherwise, to the extent that the amount so paid on prompt
conversion of such currency under normal banking procedures does not yield
after deduction of any and all fees, taxes or any other charges imposed on the
payment, the amount of United States dollars then due. In the event that any
payment by the Shipowner or the Trustee, whether pursuant to a judgment or
otherwise, upon conversion and transfer, does not result in the payment of such
amount of United States dollars at the place such amount is due, each shall be
entitled to demand immediate payment of, and shall have a separate cause of
action against the other for, the additional amount necessary to yield the
amount then due. In the event either the Shipowner or the Trustee, upon the
conversion of such judgment into dollars, shall receive (as a result of
currency exchange rate fluctuations) an amount greater than that to which it
was entitled, the defaulting party shall be entitled to immediate reimbursement
of the excess amount.

                                      22
<PAGE>
      SECTION 13.09. Shipowners not Immune. The Shipowner represents and
warrants that it is subject to civil and commercial law with respect to its
obligations under this Agreement, that the making and performance of this
Agreement constitutes private and commercial acts rather than governmental or
public acts and that neither the Shipowner nor any of its properties or
revenues has any right of immunity on the grounds of Sovereignty or otherwise
from suit, court jurisdiction, attachment prior to judgment, attachment in aid
of execution of a judgment, set-off, execution of a judgment or from any other
legal process with respect to its obligations under this Agreement. To the
extent that the Shipowner may hereafter be entitled, in any jurisdiction in
which judicial proceedings may at any time be commenced with respect to this
Agreement to claim for itself or its revenues or assets any such immunity, and
to the extent that in any such jurisdiction there may be attributed to the
Shipowner such an immunity (whether or not claimed), the Shipowner hereby
irrevocably agrees not to claim and hereby irrevocably waives such immunity.
The foregoing waiver of immunity shall have effect under the United States
Sovereign Immunities Act of 1976.

                                      23

<PAGE>

                                                                     Document 4

                                                        SCHEDULE OF DEFINITIONS

                                                                  SCHEDULE A to

                                                                Trust Indenture

                                                                     EXPORT.114

<PAGE>

                   Schedule of Definitions to Trust Indenture

         "Act" means the Merchant Marine Act, 1936, as amended, and in effect on
the date of execution of the Trust Indenture.

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

         "Actual Cost" means the actual cost of a Vessel or Vessels as
determined and re-determined by the Secretary pursuant to Sections 1101(f) and
1104A(b)(2) of the Act.

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

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

         "Authorization Agreement" means the Authorization Agreement, Contract
No. MA-13449, dated the date of the Indenture, between the Secretary and the
Indenture Trustee, whereby the Secretary authorizes the Guarantee of the United
States of America to be endorsed on each of the Obligations, as the same is
originally executed, or as modified, amended or supplemented in accordance with
the applicable provisions thereof.

         "Authorized Newspapers" means The Wall Street Journal (all editions),
The Journal of Commerce, and a newspaper of general circulation printed in the
English language, customarily published on each Business Day, whether or not
published on Saturdays, Sundays or legal holidays and of general circulation in
New Orleans, Louisiana. Whenever successive weekly publications in the
Authorized Newspapers are required under any agreement, such publications may be
made (unless otherwise expressly provided under any agreement or other document)
on the same or different days of the week and in the same or in different
Authorized Newspapers. If, because of the temporary or permanent suspension of
the publication or general circulation of any newspaper or for any other reason,
it is impossible or impractical to publish any notice required under any
agreement or other document in the manner therein provided, then such
publication in lieu thereof as shall be made with the approval, in the case of
notice under the Authorization Agreement or Security Agreement, of the
Secretary, or, in the case of notice under the Indenture, of the Indenture
Trustee, shall constitute a sufficient publication of such notice.

<PAGE>

         "Average Life" means the amount of time it is expected to take, absent
any optional or extraordinary redemptions, for 50% of the then Outstanding
principal of the Bonds to be paid.

         "Bond Purchase Agreement" means that certain agreement for the purchase
of Bonds to be executed by the Shipowner and the purchasers named therein, as
originally executed or as modified or supplemented in accordance with the
applicable provisions thereof.

         "Bonds" and "Bond" have the same meaning as Obligations and Obligation
as defined herein.

         "Business Day" means a day which is not a Saturday, Sunday or a bank
holiday under the laws of the United States of America or the State of
Louisiana.

         "Closing Date" means the date on which the Bonds are issued and sold
pursuant to the terms of the Bond Purchase Agreement.

         "Construction Contract" means the construction contract, relating to
the construction of the Vessel, dated April 22, 1997, as amended, between the
Shipowner and TDI-Halter, Inc., a Texas corporation; subsequent to the execution
of the construction contract, TDI-Halter, Inc. merged into TDI-Halter, Limited
Partnership, a Louisiana limited partnership (the "Merged Shipyard"), which has
assumed the construction contract by operation of law.

         "Corporate Trust Office" means the principal office of the Indenture
Trustee at which at any time its corporate trust business shall be administered,
which office at the date of execution of the Indenture is located at 210 Baronne
Street, 3rd Floor, New Orleans, Louisiana 70112.

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

         "Depreciated Actual Cost" means the depreciated actual cost of the
Vessel as determined and re-determined by the Secretary pursuant to Sections
1101(g) and 1104A(b)(2) of the Act.

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

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

                                       2

<PAGE>

         "Indenture" means the Trust Indenture dated as of November 5, 1998,
between the Shipowner and the Indenture Trustee, as the same is originally
executed, or as modified, amended or supplemented in accordance with the
applicable provisions thereof.

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

         "Indenture Trustee" means Bank One Trust Company, N.A., a national
banking association, and any successor trustee permitted under the Indenture.

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

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

         "Merged Shipyard" means TDI-Halter, Limited Partnership, a Louisiana
partnership with Maritime Holdings, Inc., a Louisiana corporation as sole
general partner, and TDI-Halter L.L.C., as sole limited partner.

         "Mortgage" means the ship mortgage with first priority on the Vessel,
Contract No. MA-13451, by the Shipowner to the Secretary, as originally
executed, modified, amended or supplemented.

         "Obligation" means each, and "Obligations" means every, obligation of
the Shipowner bearing a Guarantee and authenticated and delivered pursuant to
the Indenture and the Authorization Agreement.

         "Obligation Register" has the meaning specified in Section 2.10 of
Exhibit 1 to the Indenture.

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

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

         "Opinion of Counsel" means an opinion of counsel conforming to Section
1.02 of Exhibit 1 to the Indenture.

                                       3

<PAGE>

         "Outstanding", when used with reference to the Obligations, shall mean
all Obligations theretofore issued under the Indenture, except:

                  (1)  Obligations Retired or Paid; and

                  (2)  Obligations in lieu of which other Obligations
                       have been issued under the Indenture.

For the purposes of Articles VI and X of Exhibit 1 to the Indenture, and, also,
in determining whether the Holders of a stated percentage of the principal
amount of Outstanding Obligations have taken any Act of Obligees required or
permitted by the Indenture, Obligations owned by the Shipowner or by any
Affiliate of the Shipowner (excluding (a) Obligations held by an Affiliate of
the Shipowner when such Affiliate is acting in a fiduciary capacity if it is
established to the satisfaction of the Indenture Trustee that neither the
Shipowner nor another Affiliate has a beneficial interest therein and (b)
Obligations pledged in good faith by the Shipowner or by any Affiliate of the
Shipowner, if the pledgee (i) is not an Affiliate of the pledgor and (ii)
established to the satisfaction of the Indenture Trustee that it has the right
to vote such Obligations) shall be disregarded and deemed not to be Outstanding;
provided that, for the purpose of determining whether the Indenture Trustee
shall be protected in relying on any such Act of Obligees, only Obligations
which the Indenture Trustee has actual knowledge are so owned shall be so
disregarded and deemed not to be Outstanding. Obligations which are not
Outstanding shall not be entitled to any rights or benefits provided in the
Indenture.

         "Paying Agent" means any bank or trust company having the
qualifications set forth in clauses (1), (3), (4) and (5) of Section 7.02(a) of
Exhibit 1 to the Indenture, which shall be appointed by the Shipowner in
accordance with Section 4.02 of Exhibit 1 to the Indenture to pay the principal
of (and premium, if any) or interest on the Obligations on behalf of the
Shipowner.

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

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

         "Place of Payment" means the place at which an Obligation is to be
redeemed pursuant to Article III of Exhibit 1 to the Indenture.

         "Principal Office", when used with respect to the Shipowner, means the
office of the Shipowner at which, at any particular time, its corporate business
shall be

                                       4

<PAGE>

principally administered, which office at the date of execution of the
Indenture is located at Montes Urales 520, Lomas de Chapultepec, 11,000, D.F.
Mexico.

         "Proportionate Part" means, with respect to Outstanding Obligations,
the portion of Outstanding Obligations, as of the date of any calculation, which
bears the same proportion to the entire amount of Outstanding Obligations as (x)
the Depreciated Actual Cost of the Vessel in respect of which such calculation
is made as of such date bears to (y) the Depreciated Actual Cost of all the
Vessels as of such date, all as determined by the Secretary.

         "Redemption Date" means, with respect to any Obligation, a date fixed
for the redemption of such Obligation by or pursuant to Article Third of the
Special Provisions of the Indenture or Article III of Exhibit 1 to the
Indenture.

         "Redemption Premium" means an amount, as of any Redemption Date, as
calculated by the Shipowner, equal to the amount by which (a) the sum of the
amounts representing the present value of each remaining payment of principal
and interest on the Obligations to be redeemed that would be required absent
such redemption, determined by discounting (on the basis of a 360-day year
consisting of twelve 30-day months) each such amount using an interest factor
equal to the rate of interest borne by such Obligations is less than (b) the sum
of the amounts representing the present value of each remaining payment of
principal and interest on the Obligations to be redeemed that would be required
absent such redemption, determined by discounting (on a basis on a 360-day year
consisting of twelve 30-day months) each such amount using an interest factor
equal to the yield on the U.S. Treasury securities due in the year corresponding
to the then remaining Average Life of such Obligations being redeemed as set
forth on Telerate Screen page 500 (or some other appropriate Telerate Screen
page) at approximately 11:00 a.m. (New York time) two Business Days before the
Redemption Date.

         "Redemption Price" means, with respect to any Obligation, the price at
which an Obligation is to be redeemed pursuant to Article Third of the Special
Provisions of the Indenture or Article III of Exhibit 1 to the Indenture.

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

         "Responsible Officer" means (i) in the case of the Shipowner, the
chairman of the board of directors, the president, any vice president, the
secretary or the treasurer, (ii) in the case of any business entity, the
chairman of the board of directors, the president, any executive or senior vice
president, the secretary, the treasurer, member or partner, (iii) in the case of
any commercial bank, the chairman or vice-chairman of the executive committee of
the board of directors or trustees, the president, any executive or

                                       5

<PAGE>

senior vice president, the secretary, the treasurer, any trust officer, and
(iv) with respect to the signing or authentication of Obligations and Guarantees
by the Indenture Trustee, any person specifically authorized by the Indenture
Trustee to sign or authenticate Obligations.

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

                  (1)   such Obligations shall have been paid in full;

                  (2)   such Obligations shall have been cancelled by the
                        Indenture Trustee or shall have been delivered to the
                        Indenture Trustee for cancellation; or

                  (3    such Obligations shall have become due and payable at
                        Maturity and funds sufficient for the payment of such
                        Obligations (including interest to the date of
                        Maturity, or, in the case of a payment after
                        Maturity, to the date of payment, together with any
                        premium thereon) and available for such payment
                        (whether as a result of payment pursuant to the
                        Guarantees or otherwise) shall be held by the
                        Indenture Trustee or any Paying Agent pursuant to
                        Section 4.02 of Exhibit 1 to the Indenture (or shall
                        have been so held and shall thereafter have been paid
                        to the Shipowner pursuant to Section 4.03 of 1 to the
                        Indenture) in trust for the purpose or with
                        irrevocable directions to it to so apply the same;
                        provided that the foregoing definition is subject to
                        the provisions of Section 6.08 of Exhibit 1 to the
                        Indenture.

         "Secretary" means the Secretary of Transportation or any official or
body from time to time duly authorized to perform the duties and functions of
the Secretary of Transportation under Title XI of the Act (including the
Maritime Administrator, the Acting Maritime Administrator, and, to the extent so
authorized, the Deputy Maritime Administrator and other officials of the
Maritime Administration).

         "Secretary's Notice" means a notice from the Secretary to the Indenture
Trustee to the effect that (a) a default, within the meaning of Section 1105(b)
of the Act, has occurred under a mortgage, loan agreement, or other security
agreement that has been entered into between the Secretary, the Shipowner and
any other parties in order to protect the interests of the United States of
America in connection with the Guarantees, (b) such notice is given for the
purposes of Section 6.01(b) of Exhibit 1 to the Indenture in order to protect
the security interests of the United States of America under such mortgage, loan
agreement or other security agreement and (c) the Guarantees will

                                       6

<PAGE>

terminate upon the expiration of 60 days from the date of such notice if the
Indenture Trustee and each Obligee shall have failed to demand payment of the
Guarantees as provided in the Indenture, in the Guarantees or in the Act. Such
notice shall be given (i) in writing, by registered mail, return receipt
requested, deposited in the United States mails on the date of such notice and
addressed to a Responsible Officer in the Corporate Trust Office of the
Indenture Trustee in accordance with the Special Provisions of the Indenture,
(ii) by collect telegram or telex, telecopy or similar means of transmission
dispatched on such date and addressed to the Responsible Officer in the
Corporate Trust Office of the Indenture Trustee, as aforesaid, and (iii) by
collect telephone call made on such date to a Responsible Officer in the
Corporate Trust Office of the Indenture Trustee. A Secretary's Notice shall not
be deemed to have been given unless it shall have been given in accordance with
all the provisions of this definition, and the date of any Secretary's Notice
shall be deemed to be the date on which it is so given.

         "Secretary's Supplemental Indenture" means a Supplemental Indenture
evidencing the succession pursuant to Section 6.09 of Exhibit 1 to the Indenture
of the Secretary to the Shipowner and the assumption by the Secretary of the
obligations of the Shipowner under the Indenture.

         "Secretary of Defense" means the head of the U.S. Department of
Defense.

         "Security Agreement" means the Security Agreement, Contract No.
MA-13450, dated as of the Closing Date, consisting of the special provisions,
the general provisions and Schedule X, as originally executed by the Shipowner
as security for the Secretary, or as modified, amended or supplemented.

         "Shipowner" means Perforadora Central, S.A. de C.V., a Mexican
corporation and subject to the provisions of Sections 6.09, 8.01 and 8.02 of
Exhibit 1 to the Indenture, shall also include its successors and assigns.

         "Shipyard" means TDI-Halter, Inc., a Texas corporation, subsequent to
execution of the Construction Contract, Shipyard merged into Merged Shipyard.

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

         "Supplemental Indenture" shall mean any indenture supplement to the
Indenture entered into pursuant to Article X thereof.

         "Title XI" means Title XI of the Act.

         "United States" means the United States of America.

                                       7

<PAGE>

         "Vessel" shall mean one LeTourneau designed Super 116C Jack-Up Drilling
Unit, hull number 21, constructed in accordance with the Construction Contract
dated April 22, 1997, as amended, including all work and material heretofore or
hereafter performed upon or installed or placed upon such vessel, together with
related appurtenances, additions, improvements and replacements.

<PAGE>

                                                                 Document No. 6

                                         Forms of Bond, Guarantee and Trustee's
                                                     Authentication Certificate

                                                                      Exhibit 2
                                                                             to
                                                                Trust Indenture

<PAGE>
                                   EXHIBIT 2

                     Forms of Bond, Guarantee and Trustee's
                           Authentication Certificate

S P E C I M E N B O N D
--------------- -------

$ ____________                                                       No. _____

                      UNITED STATES GOVERNMENT GUARANTEED
                    EXPORT SHIP FINANCING BOND, 1998 SERIES

                            5.63% Sinking Fund Bond

                                   Issued by
                       PERFORADORA CENTRAL, S.A. de C.V.

         Principal and interest guaranteed under Title XI of the Merchant
Marine Act, 1936, as amended.

         Perforadora Central, S.A. de C.V., a Mexican corporation (herein
called the "Shipowner"), FOR VALUE RECEIVED, promises to pay to
_________________________________ or registered assigns, the principal sum of
________________________ AND NO/100 DOLLARS ($________.00) on the twelfth
anniversary of the Transition Date, as hereinafter defined, and to pay interest
on April 1, 1999, on the Transition Date and semi-annually thereafter, on the
unpaid principal amount of this Bond at the rate of 5.63% per annum (calculated
on the basis of a 360-day year of twelve 30-day months) from the interest
payment date referred to above next preceding the date of this Bond to which
interest on the Bonds has been paid (unless the date hereof is the date to
which interest on the Bonds has been paid, in which case from the date of this
Bond), or, if no interest has been paid on the Bonds since the original issue
date (as defined in the Indenture hereinafter mentioned) of this Bond, from
such original issue date, until payment of said principal sum has been made or
duly provided for, and at the same rate per annum on any overdue principal. The
term "Transition Date" shall mean the earlier of July 15, 1999 or the date on
which the Shipowner's Vessel, hereinafter referred to, is delivered to and
accepted by the Shipowner.

         The principal of and the interest on this Bond, as well as any premium
hereon in case of certain redemptions hereof prior to maturity, are payable to
the registered owner hereof at the Corporate Trust Office of the Indenture
Trustee hereinafter referred

<PAGE>
to, Bank One Trust Company, N.A., 210 Baronne Street, 3rd Floor, New Orleans,
Louisiana 70112 or at the offices or agencies which may be maintained from time
by the Shipowner for such purposes in any coin or currency of the United States
of America which at the time of payment is legal tender for the payment of
public and private debts therein; provided, that interest may be paid at the
option of the Shipowner by check, payable in United States dollars, mailed to
the address of the registered owner hereof as such address shall appear on the
Obligation Register of said Indenture Trustee, and provided further, that the
Shipowner and the registered owner hereof may enter into other arrangements as
to payment in accordance with the Special Provisions of the Indenture.

         This Bond is one of an issue of bonds of the Shipowner of $70,528,000
aggregate principal amount of sinking fund bonds, designated as its "United
States Government Guaranteed Export Ship Financing Bonds, 1998 Series", all
issued under a Trust Indenture dated November 5, 1998 (said Trust Indenture, as
the same may be amended, modified or supplemented from time to time as
permitted thereunder, herein called the "Indenture"), between the Shipowner and
Bank One Trust Company, N.A., a national banking association in the United
States, as Indenture Trustee (said Indenture Trustee, and its successor as
defined in the Indenture, herein called the "Indenture Trustee") to aid in
financing the cost of the construction by the Shipowner of the Vessel (as
defined in the Indenture). Reference is hereby made to the Indenture for a
definition of certain terms used herein and a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Shipowner and the Indenture Trustee and the rights and limitations of rights of
the Holders of the Bonds.

         In accordance with the terms of an Authorization Agreement dated as of
November 5, 1998 herein the "Authorization Agreement"), between the United
States of America, represented by the Secretary of Transportation, acting by
and through the Maritime Administrator (herein called the "Secretary") and the
Indenture Trustee and by endorsement of the guarantee of the United States of
America (herein collectively called the "Guarantees") on each of the Bonds and
the authentication and delivery of the Guarantees by the Indenture Trustee, all
pursuant to Title XI of the Merchant Marine Act, 1936, as amended and in effect
(herein called the "Act"), the Bonds are guaranteed by the United States of
America as provided in the Authorization Agreement and in the Guarantees
endorsed thereon. Reference is hereby made to the Authorization Agreement for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Secretary and the Indenture Trustee and the rights
and limitations of rights of the Holders of the Bonds.

         Section 1103(d) of Title XI of the Act provides that:

                  "The full faith and credit of the United States is pledged to
                  the payment of all guarantees made under this title with

                                       2
<PAGE>
                  respect to both principal and interest, including interest,
                  as may be provided for in the guarantee, accruing between the
                  date of default under a guaranteed obligation and the payment
                  in full of the guarantee."

         If an Indenture Default (defined in Section 6.01 of Exhibit 1 to the
Indenture as a Payment Default or the giving of a Secretary's Notice) shall
have occurred and be continuing, the Indenture Trustee, as provided in the
Indenture shall, not later than 60 days from the date of such Indenture
Default, demand payment by the Secretary of the Guarantees, whereupon the
entire unpaid principal amount of the Outstanding Bonds and all unpaid interest
thereon shall become due and payable in United States currency on the first to
occur of the date which is 30 days from the date of such demand or the date on
which the Secretary pays the Guarantees. If no demand for payment of the
Guarantees shall have been made by the Indenture Trustee on or before the 30th
day following an Indenture Default, the Holder of any Outstanding Bond may, in
the manner provided in the Indenture, make such demand in place of the
Indenture Trustee. In the event of an Indenture Default of which the Secretary
has actual knowledge, the Secretary, as provided in the Authorization
Agreement, will publish notice in the authorized newspapers, which shall
include "The Wall Street Journal" (all editions) and "The Journal of Commerce",
of the occurrence of such Indenture Default within 30 days from the date of
such Indenture Default unless demand for payment under the Guarantees shall
previously have been made by the Indenture Trustee, but any failure to publish
such notice or any defect therein shall not affect in any way any rights of the
Indenture Trustee or any holder of a Bond in respect of such Indenture Default.

         Within 30 days from the date of any demand for payment of the
Guarantees, the Secretary shall pay to the Indenture Trustee, as agent and
attorney-in-fact for the Holders of the Outstanding Bonds (including this
Bond), all the unpaid interest to the date of such payment on, and the unpaid
balance of the principal of such Bonds in full, in United States currency;
provided that, in the case of a demand made as a result of a Payment Default,
the Secretary shall not be required to make any such payment if within such
30-day period (and prior to any payment of the Guarantees by the Secretary) the
Secretary finds either that there was no Payment Default or that such Payment
Default was remedied prior to the demand for payment of the Guarantees, in
which event the Guarantees shall continue in full force and effect.

         The Holder of this Bond, by the purchase and acceptance hereof, hereby
irrevocably appoints the Indenture Trustee and each other Holder of any
Outstanding Bond as agent and attorney-in-fact for the purpose of making any
demand for payment of the Guarantees and (in the case of the Indenture Trustee)
of receiving and distributing such payment; provided that no action or failure
to act by the Indenture

                                       3
<PAGE>
Trustee shall affect the right of the Holder of this Bond to take any action
whatsoever permitted by law and not in violation of the terms of this Bond or
of the Indenture.

         In the event of (a) a default, continued for 25 days, in the payment
of the principal of or interest on the Bonds (including this Bond) when due or
(b) any default under the security agreement, the mortgage or any related
agreement between the Secretary and the Shipowner, the Secretary shall have the
right to and may, in its discretion by written notice given to the Indenture
Trustee on or after said 25-day period or after such default but prior to
receipt by the Secretary of a demand in accordance with the Indenture for
payment under the Guarantees, assume all of the rights and obligations of the
Shipowner under the Indenture and the Bonds and, if such default relates to the
payment of the principal of and interest on the Bonds, make all payments then
in default under the Bonds.

         Any amount payable by the Secretary under the Guarantees shall not be
subject to any claim or defense of the United States of America, the Secretary,
or others, whether by way of counter-claim, set-off, reduction or otherwise.
Further, the Holder of this Bond shall have no right, title or interest in any
collateral or security given by the Shipowner to the Secretary.

         After payment of the Guarantees by the Secretary to the Indenture
Trustee, this Bond (1) if it has not then been surrendered for cancellation or
cancelled, shall represent only the right to receive payment in cash of an
amount (less the amount, if any, required to be withheld in respect of transfer
or other taxes on payments to the Holder of this Bond) equal to the unpaid
principal amount hereof and the unpaid interest accrued hereon to the date on
which the Secretary shall have paid the Guarantees in full in cash to the
Indenture Trustee, (2) shall otherwise no longer constitute or represent an
obligation of the Shipowner, and (3) shall not be entitled to any other rights
or benefits provided in the Indenture, subject to Section 6.08 of the
Indenture.

         The Bonds (including this Bond) may be redeemed upon the terms and
conditions provided in the Indenture, in whole or in part, at the option of the
Shipowner, at any time or from time to time upon at least 30 and not more than
60 days' prior notice given as provided in the Indenture, at a redemption price
equal to 100% of the principal amount thereof, together with interest accrued
thereon to the date fixed for redemption and the applicable Redemption Premium,
as hereinafter defined.

         The Bonds (including this Bond) are also subject to redemption, upon
the terms and conditions provided in the Indenture, in whole or in part, at
100% of the principal amount thereof, plus interest accrued thereon to the date
of redemption plus the Redemption Premium defined below, upon at least 30 and
not more than 60 days prior notice in the event of termination of the contract
relating to the construction of the Vessel.

                                       4
<PAGE>
         For purposes hereof, the Redemption Premium payable by the Shipowner
shall be an amount equal to, as of such Redemption Date, the amount by which
(a) the sum of the amounts representing the present value of each remaining
payment of principal and interest on the Bonds to be redeemed that would be
required absent such redemption, determined by discounting (on the basis of a
360-day year consisting of twelve 30-day months) each such amount using an
interest factor equal to the rate of interest borne by such Bonds is less than
(b) the sum of the amounts representing the present value of each remaining
payment of principal and interest on the Bonds to be redeemed that would be
required absent such redemption, determined by discounting (on a basis of a
360-day year consisting of twelve 30-day months) each such amount using an
interest factor equal to the yield on the U.S. Treasury securities due in the
year corresponding to the then remaining average life of such Bonds being
redeemed as set forth on Telerate Screen page 500 (or some other appropriate
Telerate Screen page) at approximately 11:00 a.m. (New York time) two Business
Days before the Redemption Date. Notwithstanding the foregoing, Bonds redeemed
pursuant to the immediately following three (3) paragraphs shall be redeemed
without premium.

         The Bonds (including this Bond) are also subject to redemption without
premium, upon the terms and conditions provided in the Indenture and upon like
notice, through the operation of a mandatory sinking fund providing for the
redemption of Bonds commencing six (6) months after the Transition Date and
continuing semi-annually thereafter for twenty-three (23) principal payment
dates of $2,939,000 each plus interest accrued thereon to such date and on the
twelfth anniversary of the Transition Date, the entire unpaid principal amount
of the Outstanding Bonds shall be paid in full, together with all interest
accrued thereon to such date, provided that, notwithstanding the foregoing
provisions of this paragraph, that in case the principal amount of Outstanding
Bonds shall be reduced by reason of any redemption described in the next
succeeding paragraph, the principal amount of Bonds to be redeemed through the
operation of the mandatory sinking fund on each subsequent mandatory sinking
fund redemption date shall be subject to reduction as provided in the
Indenture.

         The Bonds (including this Bond) are also subject to redemption without
premium, upon the terms and conditions provided in the Indenture, in whole or
in part, at 100% of the principal amount thereof plus interest accrued thereon
to the date of redemption, upon at least 30 and not more than 60 days prior
notice (a) in the event that Bonds must be redeemed so that the principal
amount of all Obligations Outstanding after such redemption will not exceed 75%
of the depreciated actual cost or actual cost, as the case may be, of the
Vessel, as determined by the Secretary, (b) in the event of an actual,
constructive, agreed or compromised total loss of, or requisition of title to,
or seizure or forfeiture of, the Vessel, or (c) in the event that, after an
assumption by the Secretary of the Bonds, a purchaser of the Vessel from the
Secretary does not assume all

                                       5
<PAGE>
the rights and obligations of the Shipowner under the Indenture relating to
such Vessel or Vessels.

         The Bonds (including this Bond) may also be redeemed without premium
upon the terms and conditions provided in the Indenture, in whole or in part,
at the option of the Secretary, at any time following an assumption of the
Bonds and the Indenture by the Secretary and prior to any sale of the Vessel to
a purchaser which does not assume the Shipowner's rights and obligations under
the Bonds and the Indenture, upon at least 30 and not more than 60 days' prior
notice given as provided in the Indenture, at a Redemption Price equal to 100%
of the principal amount to be redeemed plus interest accrued to the date fixed
for redemption.

         Any optional redemption shall be subject to the receipt of the
redemption moneys by the Indenture Trustee or any Paying Agent. Bonds called
for redemption shall (unless the Shipowner shall default in the payment of such
Bonds at the applicable redemption price plus accrued interest) cease to bear
interest on and after the date fixed for redemption.

         As provided in the Indenture and to the extent permitted thereby,
compliance by the Shipowner with any of the terms of the Indenture may be
waived, and the Indenture and the rights and obligations of the Shipowner and
the rights of the Holders of the Bonds (including this Bond) thereunder may be
modified, at any time with the prior consent of the Secretary and, except as
otherwise expressly provided in the Indenture, the consent of the Holders of at
least 60% in principal amount of the Outstanding Bonds affected thereby in the
manner and subject to the limitations set forth in the Indenture; provided that
no such waiver or modification shall (1) without the consent of the Holder of
each Bond affected thereby: (a) change the Stated Maturity or reduce the
principal amount of any Bond, (b) extend the time of payment of, or reduce the
rate of, interest thereon, (c) change the due date of or reduce the amount of
any sinking fund payment, (d) reduce any premium payable upon the redemption
thereof, or (e) change the coin or currency in which any Bond or the interest
thereon is payable; or (2) without the consent of all Holders of Bonds: (v)
terminate or modify any of the Guarantees or the obligations of the United
States of America thereunder, (w) reduce the amount of any of the Guarantees,
(x) eliminate, modify or condition the duties of the Indenture Trustee to
demand payment of the Guarantees, (y) eliminate or reduce the eligibility
requirements of the Indenture Trustee, or (z) reduce the percentage of
principal amount of Bonds the consent of whose Holders is required for any such
modification or waiver.

         The Indenture provides that the Bonds (including this Bond) shall no
longer be entitled to any benefit provided therein if the Bonds shall have
become due and payable at Maturity (whether by redemption or otherwise) and
funds sufficient for the payment thereof (including interest to the date fixed
for such payment, together with any

                                       6
<PAGE>
premium thereon) and available for such payment (1) shall be held by the
Indenture Trustee or any Paying Agent, or (2) shall have been so held and shall
thereafter have been paid to the Shipowner after having been unclaimed for 6
years after the date of maturity thereof (whether by redemption or otherwise)
or the date of payment of the Guarantees, except for the right, if any, of the
Holder to receive payment from the Shipowner of any amounts paid to the
Shipowner as provided in (2) above with respect to this Bond, all subject,
however, to the provisions of Section 6.08 of Exhibit 1 to the Indenture.

         This Bond is transferable by the registered Holder or by his duly
authorized attorney, at the Corporate Trust Office of the Indenture Trustee,
upon surrender or cancellation of this Bond, accompanied by an instrument of
transfer in form satisfactory to the Shipowner and the Indenture Trustee, duly
executed by the registered Holder hereof or his attorney duly authorized in
writing, and thereupon a new, fully registered Bond or Bonds of like series and
maturity for the same aggregate principal amount will be issued to the
transferee in exchange therefor, each in the principal amount $1,000 or any
integral multiple thereof subject to the provisions of the Indenture. The
Indenture provides that the Shipowner shall not be required to make transfers
or exchanges of (1) Bonds for a period of 15 days immediately prior to an
interest payment date or (2) Bonds after demand for payment of the Guarantees
and prior to payment thereof or rescission of such demand as provided in
Section 6.02(a) of Exhibit 1 to the Indenture or (3) any Bond which has been
selected for redemption in whole or in part.

         The Shipowner, the Secretary, the Indenture Trustee and any office or
agency for the payment of Bonds may deem and treat the person in whose name
this Bond is registered as the absolute owner thereof for all purposes, and
neither the Shipowner, the Secretary, the Indenture Trustee, nor any such
office or agency shall be affected by any notice to the contrary, whether this
Bond shall be past due or not.

         No recourse shall be had for the payment of principal of, or the
interest or premium (if any) on, this Bond, or for any claim based hereon or on
the Indenture, against any incorporator or any past, present or future
subscriber to the capital stock, stockholder, officer or director of the
Shipowner or of any successor corporation, as such, either directly or through
the Shipowner or any such successor corporation, under any constitution,
statute or rule of law or by the enforcement of any assessment, or otherwise,
all such liability being expressly waived and released by the acceptance of
this Bond and by the terms of the Indenture.

         Neither this Bond nor the Guarantee endorsed hereon shall be valid or
become obligatory for any purpose until the Indenture Trustee shall have fully
signed the authentication certificate endorsed hereon.

                                       7
<PAGE>
         IN WITNESS WHEREOF, the Shipowner has caused this Bond to be duly
executed by the manual or facsimile signatures of its duly authorized officers.

Dated as of ____________,                   PERFORADORA CENTRAL, S.A. de C.V.

                                                     BY:
                                                        -----------------------
                                                        Patricio Alvarez Morphy
                                                        President

Attest:

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

                   GUARANTEE OF THE UNITED STATES OF AMERICA

         The United States of America, represented by the Secretary of
Transportation, acting by and through the Maritime Administrator, pursuant to
Title XI of the Merchant Marine Act, 1936, as amended, hereby guarantees to the
holder of the Obligation annexed hereto, upon demand of the holder or his
agent, payment of the unpaid interest on, and the unpaid balance of the
principal of, such Obligation, including interest accruing between the date of
default under such Obligation and the payment in full of the Obligations under
this Guarantee in currency of the United States of America. The full faith and
credit of the United States of America is pledged to the payment of this
Guarantee. The validity of this Guarantee is incontestable in the hands of any
holder of such Obligation. Payment of this Guarantee will be made in accordance
with the provisions of such Obligation.

                                                   UNITED STATES OF AMERICA
                                                   SECRETARY OF TRANSPORTATION

(SEAL OF THE DEPARTMENT
      OF TRANSPORTATION)

                                                   BY:______________________
                                                       Maritime Administrator

                                       8
<PAGE>

                      TRUSTEE'S AUTHENTICATION CERTIFICATE

         This is one of the Obligations described in the Indenture and the
foregoing Guarantee is one of the Guarantees described in the Authorization
Agreement.

                                                BANK ONE TRUST COMPANY, N.A.
                                                      Indenture Trustee

                                                BY:
                                                   ----------------------------
                                                       Authorized Officer

                                       9
<PAGE>

                        PAYMENTS ON ACCOUNT OF PRINCIPAL

<TABLE>
<CAPTION>

                           Amount of                      Balance of                        Authorized
Payment Date               Principal Paid                 Principal Unpaid                  Signature
------------               --------------                 ----------------                  ---------
<S>                        <C>                            <C>                               <C>
</TABLE>

                                      10

<PAGE>

                                                                     Document 8

                                             SECRETARY'S SUPPLEMENTAL INDENTURE

                                                                      Exhibit 4
                                                                             to
                                                                Trust Indenture

<PAGE>
                                                                     EXPORT.104

                       SECRETARY'S SUPPLEMENTAL INDENTURE

         THIS SUPPLEMENTAL INDENTURE, dated ____________ (hereinafter called the
"Supplement"), to Trust Indenture dated as of November 5, 1998, (the
"Indenture"), between Perforadora Central, S.A. de C.V. (hereinafter called the
"Shipowner") and Bank One Trust Company, N.A., a national banking association of
the United States, as Indenture Trustee (hereinafter called the "Indenture
Trustee") and the UNITED STATES OF AMERICA, represented by the Secretary of
Transportation, acting by and through the Maritime Administrator (hereinafter
called the "Secretary").

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

         WHEREAS, (a) As of November 5, 1998, the Shipowner and the Indenture
Trustee entered into that certain Trust Indenture pursuant to which the
Shipowner issued $70,528,000 principal amount of its United States Government
Guaranteed Export Ship Financing Bonds, 1998 Series (hereinafter called the
"Obligations"); and

         (b) Subject to the terms of the Indenture, the Secretary is empowered
under certain circumstances to assume all obligations and liabilities of the
Shipowner under the Indenture and the Obligations; and

         (c) Article VI of Exhibit 1 to the Indenture provides that the
Secretary may, under certain circumstances, execute this Supplement for such
purpose; and

         (d) Article X of Exhibit 1 to the Indenture provides that the Indenture
Trustee and the Shipowner may execute this Supplement without the consent of or
notice to the holders of the Obligations.

         NOW, THEREFORE, in consideration of the premises and the mutual and
dependent covenants, promises and agreements hereinafter set forth, the parties
agree as follows:

                                    ARTICLE I

                         REPRESENTATIONS AND WARRANTIES

         SECTION 1.01. The Secretary hereby represents and warrants that
pursuant to the terms of Section 6.09 of the Indenture it is authorized to
execute and deliver this Supplement and that the Secretary has duly authorized,
executed and delivered this Supplement.

<PAGE>

         SECTION 1.02. The Secretary hereby represents and warrants on behalf of
the Shipowner that it has duly authorized the Secretary to execute and deliver
this Supplement on its behalf.

         SECTION 1.03. The Secretary hereby represents and warrants on behalf of
the Indenture Trustee that it has duly authorized the Secretary to execute and
deliver this Supplement on its behalf.

                                   ARTICLE II

                            ASSIGNMENT AND ASSUMPTION

         SECTION 2.01. The Secretary hereby assumes payment of the principal of
and interest (and premium, if any) on the Obligations in accordance with the
terms of the Obligations and of the Indenture and hereby assumes all liability
to perform and observe all the covenants, agreements and conditions of the
Indenture and the Obligations which, by the terms thereof, are to be performed
by the Shipowner; provided, however, that the Secretary assumes no liabilities
or obligations of the Shipowner under the Indenture or the Obligations which
accrued or arose prior to the date hereof or under the provisions of section
7.04 of Exhibit 1 of the Indenture.

         SECTION 2.02. The Indenture Trustee hereby releases and discharges the
Shipowner from any obligations and liability under the Indenture; except that
nothing herein shall be construed as releasing the Shipowner from its
obligations, liabilities and amounts owed pursuant to Section 7.04 of Exhibit 1
of the Indenture, as amended through the date hereof, any Secretary's Note,
Security Agreement, Mortgage or related loan agreement between the Shipowner and
the Secretary.

         SECTION 2.03. The Indenture and the terms thereof are hereby amended in
all respects to conform with the provisions of this Supplement and all
provisions of such Indenture inconsistent with the provisions hereof shall be
read and interpreted so as to conform to the provisions hereof.

                                   ARTICLE III

                               CERTAIN DEFINITIONS

         SECTION 3.01. Except with respect to section 7.04 of Exhibit 1 to the
Indenture, wherever reference is made in the Indenture or in the Obligations to
the "Shipowner", such reference shall hereafter be deemed to refer to the
Secretary.

         SECTION 3.02. Except as otherwise expressly provided herein, all terms
which are defined in the Indenture, including Schedule A thereto, when used
herein

                                       2

<PAGE>

shall have the meanings specified in the Indenture, unless the context
otherwise requires.

                                   ARTICLE IV

                                     GENERAL

         SECTION 4.01. This Supplement shall be construed in connection with and
as part of the Indenture.

         SECTION 4.02. The Indenture, as amended and supplemented by this
Supplement, is in all respects confirmed and shall, as so amended and
supplemented, remain in full force and effect.

         IN WITNESS WHEREOF, this Supplement has been duly executed and
delivered as of the day and year first above written.

                                     PERFORADORA CENTRAL, S.A. de C.V.
                                                                 as Shipowner

Attest:                              By:
                                         -------------------------------------
                                         Secretary
                                         Maritime Administration
                                         As Attorney-In-Fact for

-----------------------------------      -------------------------------------
Assistant Secretary                                                  Shipowner
Maritime Administration

                                     BANK ONE TRUST COMPANY, N.A.
                                                             Indenture Trustee

                                     By:
                                         -------------------------------------
                                         Secretary
                                         Maritime Administration
                                         As Attorney-In-Fact for
Attest:

-----------------------------------      -------------------------------------
Assistant Secretary                      Indenture Trustee
Maritime Administration

                                       3

<PAGE>

                                     UNITED STATES OF AMERICA SECRETARY
                                     OF TRANSPORTATION

Attest:                              By:  Maritime Administration

-----------------------------------      -------------------------------------
Assistant Secretary                      Secretary
Maritime Administration                  Maritime Administration

                                       4Exhibit 10.36

APPENDIX III TO GUARANTEE COMMITMENT                                Document 9
                                                         Contract No. MA-13450

                               SECURITY AGREEMENT

                               SPECIAL PROVISIONS

         THIS SECURITY AGREEMENT, dated November 5, 1998 (the "Security
Agreement"), between Perforadora Central, S.A. de C.V., a Mexican corporation
(the "Shipowner") and THE UNITED STATES OF AMERICA (the "United States"),
represented by the Secretary of Transportation, acting by and through the
Maritime Administrator (the "Secretary"), pursuant to Title XI of the Act.

                                    RECITALS:

         A. The Shipowner has entered into the Construction Contract with
TDI-Halter, Inc., (the "Shipyard") for the Construction of the Vessel (the
"Vessel"); subsequently thereto the Shipyard merged into TDI-Halter Limited
Partnership, a Louisiana limited partnership (the "Merged Shipyard"). Maritime
Holdings, Inc., a Louisiana corporation is the sole general partner of Merged
Shipyard; TDI-Halter, LLC, a Louisiana limited liability company is the sole
limited partner of Merged Shipyard and Merged Shipyard has assumed by operation
of law all of the obligations, rights, liabilities, subcontracts, supply
contracts, license agreements, supplies, material and equipment association with
and related to the Construction Contract; and

         B. On the date hereof, the Secretary entered into, and the Shipowner
accepted a Commitment to Guarantee Obligations, Contract No. MA-13448, whereby
the United States has committed itself to guarantee the payment in full of all
the unpaid interest on, and the unpaid principal balance of, Obligations (as
defined herein) in the aggregate principal amount equal to 75% of the
Depreciated Actual Cost or the Actual Cost of the Vessel, as the case may be, on
the Closing Date, which amounts are set out in Table A.

         C. The Shipowner has entered into the Bond Purchase Agreement providing
for the sale and delivery, on the Closing Date, of obligations in the aggregate
principal amount of $70,528,000.00 to be designated "United States Government
Guaranteed Export Ship Financing Obligations, 1998 Series" (the "Obligations")
having the maturity date and interest rate set forth in the Bond Purchase
Agreement, the Indenture and the Obligations.

         D. On the date hereof, the Shipowner and Bank One Trust Company N.A., a
national banking corporation, as Indenture Trustee, executed and delivered the
Trust Indenture (the "Indenture") pursuant to which the Shipowner will issue the
Obligations.

<PAGE>

         E. On the date hereof, the Secretary and the Indenture Trustee executed
the Authorization Agreement, Contract No. MA-13449 which authorizes the
Indenture Trustee to endorse, execute, and authenticate the Secretary's
Guarantee on each of the Obligations.

         F. As security for the due and timely payment of the Secretary's Note,
issued this day by the Shipowner, and for the Secretary's issuance of the
Guarantees, the Shipowner has executed and delivered this Security Agreement,
Contract No. MA-13450 , and the Financial Agreement, Contract No. MA-13452
granting the Secretary a security interest in, among other things, the
Construction Contract, the Vessels and certain other property, tangible and
intangible, which the Shipowner now has or hereafter will acquire, and all of
the proceeds thereof. The Shipowner has agreed, on the Delivery Date of the
Vessel, to document the Vessel under the laws of Panama, and to grant to the
Secretary a mortgage with first priority Contract No. MA-13451, pursuant to the
laws of Panama, and that such mortgage shall be enforceable under the laws of
Panama and Mexico.

         G. As further security to the Secretary and in consideration of the
Secretary's agreeing to issue the Guarantees, the Merged Shipyard has executed
on this date the Consent of Merged Shipyard to the assignment of the
Construction Contract pursuant to the Security Agreement and LeTourneau, Inc.
has executed on this date a Consent of and Grant of Rights by LeTourneau, Inc.
pursuant to the assignment of the Construction Contract to the Secretary as set
forth in Shipowner's assignment of the Security Agreement, and has also granted,
directly to the Secretary and to Shipowner certain rights in and to the License
Agreement and Kit Construction Agreement..

         H. In order to implement certain aspects of the transactions
contemplated by the Security Agreement and the Financial Agreement, the
Secretary, the Shipowner and Bank One Trust Company N.A., a national banking
corporation (the "Depository") have entered into the Depository Agreement,
Contract No. MA-13453, on the date hereof.

         I. In order to guarantee the performance of the Construction Contract
and in lieu of providing a Surety Bond during the Vessel's construction period,
Merged Shipyard has agreed to provide the guarantee of its parent company,
Halter Marine Group, Inc. Halter Marine Group, Inc. has agreed to execute and
has executed in favor of the Secretary and Shipowner a Guarantee Agreement, No.
MA-13455, dated as of the Closing Date, guaranteeing the full performance of
every obligation of the Shipyard and the Merged Shipyard under the Construction
Contract.

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

1. Concerning these Special and General Provisions. This Security Agreement
shall consist of two parts: the Special Provisions and the General Provisions
attached hereto as Exhibit 1 of the Security Agreement incorporated herein by
reference. In the event of any conflict, or inconsistency

                                       2

<PAGE>

between the Special Provisions of this Security Agreement and Exhibit 1, these
Special Provisions shall control.

2. Documentation of Vessels - On the Delivery Date of the Vessel, the Vessel
shall be documented under and the Mortgage shall be recorded under the laws of
Panama. The Mortgage shall be recorded pursuant to the laws of Mexico.

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

         (a)   Concerning Section 2.05

                  (1) In connection with the Section 2.05(b)(3) and the last
paragraph of Section 2.05(e) the maximum amount of self-insurance permitted to
the Shipowner under the last paragraph thereof shall be $1,000,000.00 on an
annual aggregate basis after application of the $200,000.00 per accident
deductible; and

                  (2) In connection with clause (ii) of the initial paragraph of
Section 2.05(c), the Secretary shall permit payment of losses up to the amount
of $100,000.00 to be made directly to the Shipowner under the circumstances
specified therein.

         (b) Concerning Section 9.01. Subject to Section 9.01 of the Security
Agreement, any notice, request, demand, direction, consent, waiver, approval or
other communication, when given to a party hereto, shall be addressed to:

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

         Shipowner as:              Perforadora Central, S.A.de C.V.
                                    c/o Milling Benson Woodward, L.L.P.
                                    Attention: Neal D. Hobson
                                    909 Poydras St., Suite 2300
                                    New Orleans, LA 70112

         Indenture Trustee as:      Bank One Trust Company N.A.
                                    210 Baronne Street, 3rd Floor
                                    New Orleans, LA 70112
                                    Attention: Corporate Trust Department

                                       3

<PAGE>

         (c) Governing Law. Pursuant to section 1-105 of the Uniform Commercial
Code of the State of Louisiana in the United States of America (the "UCC"), the
parties hereto agree that the UCC shall govern their respective rights and
duties as they relate to the validity and enforceability of the security
interests granted under this Security Agreement. In all other respects this
Security Agreement and the rights and obligations of the parties hereto shall be
construed, enforced, and governed by the laws of the United States of America,
but to the extent they are inapplicable, then by the laws of the State of
Louisiana of the United States of America without regard to its conflict of laws
provision.

         (d) Jurisdiction and Consent to Suit. Any proceeding to enforce this
Security Agreement may be brought in the Federal courts of the United States of
America located in the State of Mississippi (prior to delivery and documentation
of the Vessel) (the Delivery Date) and of Louisiana (after the Delivery Date) of
the United States of America. The Shipowner and the Secretary hereby irrevocably
waive any present or future objection to such venue, and for each of itself and
in respect of any of their respective properties hereby irrevocably consents and
submits unconditionally to the non-exclusive jurisdiction of those courts. The
Shipowner further irrevocably waives any claim that any such court is not a
convenient forum for any such proceeding. The Shipowner agrees that any service
of process, writ, judgment or other notice of legal process shall be deemed and
held in every respect to be effectively served upon it in connection with
proceedings in the State of Mississippi or Louisiana, if delivered to Milling
Benson Woodward, L.L.P., Attention: Neal D. Hobson, 909 Poydras St., Suite 2300,
New Orleans, LA 70ll2, which it irrevocably designates and appoints as its
authorized agent for the service of process in the State and Federal courts in
the State of Mississippi or Louisiana. Nothing herein shall affect the right of
the Secretary to serve process in any other manner permitted by applicable law.
The Shipowner further agrees that final judgment against it in any such action
or proceeding arising out of or relating to this Security Agreement shall be
conclusive and may be enforced in any other jurisdiction within or outside the
United States of America by suit on the judgment, a certified or exemplified
copy of which shall be conclusive evidence of that fact and of the judgment.

         (e) Section 1.03 of the Security Agreement is modified by adding
thereto, after Section 1.03(a)(7), the following:

                  (7-A) All right, title and interest of the Shipowner in and to
                  the proceeds of the LeTourneau License Agreement and the
                  LeTourneau Kit Construction Agreement which have been or may
                  be assigned to Shipowner by Merged Shipyard as well as any and
                  all rights which the Shipowner has received, or may receive to
                  utilize the design rights and license rights as granted by
                  LeTourneau, Inc. and as limited or conditioned by the License
                  Agreement and/or the Kit Construction Agreement.

                                       4

<PAGE>

                  (7-B) Any and all charters, drilling contracts and/or other
                  contracts in respect of the Vessel, whether executed with
                  Pemex (Petroleos Mexicanos) or any other company or agency.

                  (7-C) The Shipowner's rights under the Guarantee Agreement.
                  and modifying Section 1.03(a)(8) to read as follows:

                  All proceeds of the collateral described in paragraphs 1
                  through 7-C of this section.

         (f)      Section 1.03(9) of the Security Agreement  is modified to
provide:

                  (9) the Mortgage to be executed and delivered by the Shipowner
                  to the Secretary, as Mortgagee, on the Delivery Date covering
                  the Vessel.

                  (10) the Guarantee Agreement.

         (g)      In Section 2.08 of the Security Agreement the Notice of
Mortgage is modified and shall read as follows:

                               NOTICE OF MORTGAGE

                  "This Vessel is owned by Perforadora Central, S.A. de C.V., a
                  Mexican corporation ("Shipowner") and is covered by a First
                  Mortgage with first priority in favor of the United States of
                  America under authority of the Republic of Panama. Under the
                  terms of said Mortgage, neither the Shipowner, any charterer,
                  the master or agent of this Vessel, nor any other person has
                  any right, power or authority to create, incur or permit to be
                  placed upon this Vessel any lien other than statutory liens
                  incident to current operations that are subordinate to the
                  Mortgage."

         (h) Section 2.14 of the Security Agreement shall be amended by adding
the following paragraph at the end of Section 2.14:

                  In lieu of providing the Secretary surety bonds during the
                  Vessel's construction period, Halter Marine Group, Inc. the
                  parent of TDI-Halter, Limited Partnership (the "Merged
                  Shipyard") shall execute in favor of the Secretary a guarantee
                  agreement, Contract No. MA-13455, dated the Closing Date
                  ("Guaranty Agreement") guaranteeing

                                       5

<PAGE>

                  the full performance of every obligation of the Shipyard and
                  Merged Shipyard under the Construction Contract.

         (i)      The following new Section 2.15 shall be added to the Security
 Agreement:

                  SECTION 2.15 Mortgagee Rights Political Risk Insurance. The
                  Shipowner shall, at least ten days prior to delivery of the
                  Vessel, establish and maintain mortgagee rights political risk
                  insurance covering the full amount of the Secretary's Note,
                  payable in the event that the Secretary is for any reason
                  unable to remove the Vessel to a jurisdiction of its choosing
                  within 180 days of default under this Security Agreement and
                  also covering confiscation, expropriation, nationalization and
                  deprivation, all in form and substance satisfactory to the
                  Secretary, the terms of which shall be established by the
                  Secretary. The initial policy period shall be for a duration
                  of not less than three years with required renewals. The
                  Shipowner shall maintain such insurancee so long as the Vessel
                  shall remain in Mexico, or in any other country, where the
                  Secretary determines that such mortgagee rights political risk
                  insurance is required. Shipowner shall renew the policy for
                  successive periods of at least three years each.

         (j)      (1) The Shipowner's failure to establish or continuously
                  maintain such mortgagee rights political risk insurance
                  thereafter or the failure to promptly move the Vessel to a
                  jurisdiction designated by the Secretary after notice of
                  refusal of underwriters to renew or extend such insurance
                  shall constitute a security default for purposes of Section
                  6.01(b)(8) of the Security Agreement.

                  (2) The Shipowner agrees that it will not move the Vessel to
                  Mexico or any other country where the Secretary determines the
                  need for insurance described in Section (i) above unless it
                  has obtained such insurance.

         (k)      The following new Section 2.16 shall be added to the Security
 Agreement:

                           Section 2.16 Concerning the Assignment by Shipowner
                           of the Proceeds of any Charter Agreement, Drilling
                           Contract or Other Contract in Respect of the Vessel.
                           The Shipowner shall, promptly upon being awarded any
                           contract for the charter of the Vessel or Drilling
                           Contract or other contract or award in respect

                                       6

<PAGE>

                           of the Vessel, notify the Secretary of such award and
                           of the relevant details thereof; promptly upon
                           execution of any such contract Shipyard shall execute
                           and deliver to the Secretary an assignment of the
                           proceeds of such contract as additional security
                           pursuant to this Security Agreement substantially in
                           the form of Exhibit 10 hereto, shall deliver notice
                           of such assignment to the other party to the contract
                           and, if requested by Secretary, furnish to the
                           Secretary, in form reasonably required by the
                           Secretary, an opinion of counsel approved by the
                           Secretary, that such assignment is valid, fully
                           perfected, and enforceableaccording to its terms
                           with priority over any other claims and assignments.

                           The Shipowner's failure to assign to the Secretary
                           the proceeds of any charter, drilling contract or
                           other contract in respect of the Vessel promptly
                           after the execution thereof shall constitute a
                           security default for purposes of Section 6.01(b)(8)
                           of the Security Agreement.

         (l)      Concerning Section 5.02 Escrow Fund Deposits. Notwithstanding
                  that the Obligations are or may be issued before the delivery
                  of the Vessel, Shipowner shall not be required to deposit into
                  the Escrow Fund on the Closing Date an amount equal to six
                  months interest at the rate borne by the Obligations.

         (m)      Concerning  Section  2.04(b). The present section 2.04(b)
                  shall be replaced by the following:

                  executed and delivered to the Secretary the Mortgage with
                  First Priority, pursuant to the Laws of Panama substantially
                  in the form of Exhibit 3 hereto. Shipowner shall further cause
                  to be provided to Secretary an opinion of Panamanian and
                  Mexican admiralty counsel concerning the validity and priority
                  of the Mortgage in form and substance satisfactory to the
                  Secretary.

         (n)      Concerning Section 5.03(a) - Escrow Fund Withdrawals. Any
                  amounts paid from the escrow fund for work performed before
                  the Delivery Date shall be accompanied by a Certified Public
                  Accountant certification satisfactory to Secretary, or other
                  evidence satisfactory to Secretary, as to: i) the amount of
                  Actual Cost paid and ii) that each

                                       7

<PAGE>

                  item in these amounts is properly included in the cost of
                  construction of the vessel. The request for final disbursement
                  from the escrow fund shall be accompanied by a Certified
                  Public Accountant certification satisfactory to Secretary as
                  to: i) the amount of Actual cost paid, and ii) that each item
                  in these amounts is properly included in the cost of
                  construction of the Vessel. Shipowner agrees that it shall pay
                  any amounts which may become due to the Merged Shipyard
                  pursuant to the Construction Contract, and/or which may become
                  due for owner furnished equipment using its own general funds.
                  Notwithstanding any other provision of this Security Agreement
                  to the contrary, Shipowner agrees that the Secretary has no
                  obligations to release any money from the escrow fund unless
                  request for reimbursement is based on a percentage of
                  completion of the vessel as certified by the Shipowner and
                  agreed to by the Secretary. Payments from the Escrow Fund may
                  be paid directly by the Secretary to the Merged Shipyard if
                  the Secretary has concluded, in his sole discretion, that the
                  requested payment is for an amount that reflects an actual
                  increase in the percentage completion of the Vessel.

         (o)      Section 2.17 - Customs Duties shall be added to the
                  General Provisions as follows:

                  Section 2.17 - Customs Duties. Prior to moving the Vessel into
                  the territorial waters of Mexico or any other foreign country,
                  the Shipowner shall provide the Secretary with evidence, which
                  must satisfy the Secretary, that (i) the Vessel will not be
                  subject to customs duties, import taxes or other similar
                  charges or (ii) that such charges have been postponed in a
                  manner that will not harm the interests of the Secretary.
                  Failure of the Shipowner to comply with the provisions of this
                  paragraph shall constitute a default under Section 6.01(b)(8)
                  of the Security Agreement.

                                       8

<PAGE>

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

                                         PERFORADORA CENTRAL, S.A.DE C.V.

(The Company has no Seal)

Attest:                                  BY: /s/ PATRICIO ALVAREZ MORPHY
                                             --------------------------------
/s/ JORGE VILLALPANDO BORREGO                   Patricio Morphy, President
-----------------------------
Jorge Villalpando Borrego
Vice President and Assistant
Secretary

                                         UNITED STATES OF AMERICA
(SEAL)                                   SECRETARY OF TRANSPORTATION
                                         MARITIME ADMINISTRATOR
Attest:

/s/ PATRICIA E. BYRNE                    BY: /s/ JOEL C. RICHARD
---------------------------                  ----------------------------------
Assistant Secretary                           Secretary, Maritime Administrator
Maritime Administration

<PAGE>

                                     TABLE A

         The estimated Actual Cost of the Vessel as of the date hereof as
determined by the Secretary, namely, (i) the amounts paid by or for the account
of the Shipowner as of the date hereof for the Construction of the Vessel, plus
(ii) the amount which the Shipowner was on said date obligated under the
Construction Contract or otherwise to pay from time to time thereafter for the
Construction of the Vessel less the Depreciation of the Vessel as of the date
hereof as determined by the Secretary is $94,037,974, both calculated and
itemized for the Vessel as follows:

                                                   AMOUNT
                                     AMOUNT       OBLIGATED
                                      PAID        TO BE PAID         TOTAL
                                      ----        ----------         -----

Contract Price                       $-0-      $62,500,000.00   $62,500,000.00

Changes and Extras                   $-0-      $ 5,000,000.00   $ 5,000,000.00

Owner Furnished Items                $-0-      $19,602,919.00   $19,602,919.00

Design, Engineering & Inspection     $-0-      $   720,000.00   $   720,000.00

Net Interest During Construction     $-0-      $ 3,884,449.00   $ 3,884,449.00

Estimated Escalation                 $-0-      $         0.00   $         0.00

Estimated Guarantee Fee              $-0-      $ 2,330,606.00   $ 2,330,606.00

Total Estimated Actual Cost          $-0-      $94,037,974.00   $94,037,974.00

<PAGE>

                                  ATTACHMENT A
                                  ------------
                  TITLE XI RESERVE FUND AND FINANCIAL AGREEMENT
                  ---------------------------------------------
                            (Contract No. MA - 13452)

1. This Financial Agreement shall apply to the following Vessel: One LeTourneau
   designed Super 116C Mobil Jack-Up Drilling Unit.

2. The Company's Net Worth for use in Section 8(b) is $43,575,031.00.

<PAGE>

EXHIBIT 1 TO SECURITY AGREEMENT                                     Document 10
                                                             GENERAL PROVISIONS

                                TABLE OF CONTENTS

                                    ARTICLE I
              DEFINITIONS; OFFICER'S CERTIFICATES; GRANTING CLAUSE

<TABLE>
<CAPTION>

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

                                   ARTICLE II
                   SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS

SECTION 2.01. Shipowner's Representations, Agreements, Organization and Existence
(a) General Representations.........................................................................     2
                                    (b) Taxes.......................................................     3
SECTION 2.02.              (a) Title to and Possession of the Vessels...............................     3
                                    (b) Sale, Mortgage, Transfer or Charter of the Vessels..........     4
                                    (c) Taxes and Governmental Charges..............................     4
                                    (d) Liens.......................................................     4
                                    (e) Requisitions by the United States ..........................     5
                                    (f) Compliance with Applicable Laws.............................     5
                                    (g) Vessels'Operation ..........................................     5
                                    (h) Vessels' Condition and Maintenance..........................     5
                                    (i)  Material Changes in the Vessels............................     6
                                    (j)  Documentation of the Vessels...............................     6
SECTION 2.03.     Maintenance of Construction Contract..............................................     6
SECTION 2.04.     Delivery Requirements.............................................................     7
SECTION 2.05.     Insurance.........................................................................     7
SECTION 2.06.     Inspection of the Vessels; Examination of Shipowner's Records.....................    13
SECTION 2.07.     Requisition of Title, Termination of Construction Contract or
                           Total Loss of a Vessel...................................................    14
SECTION 2.08.     Notice of Mortgage................................................................    15
SECTION 2.09.     Compliance with Mortgage Laws.....................................................    15
SECTION 2.10.     Performance of Shipowner's Agreements by the Secretary............................    15
SECTION 2.11.     Perfection of Security Interests; Further Assurances..............................    15
SECTION 2.12.     Modification of Formation Agreements..............................................    16
SECTION 2.13.     Members of Limited Liability Companies ...........................................    16
SECTION 2.14.     Concerning the Performance and Payment Bonds......................................    16

                                   ARTICLE III
                              THE SECRETARY'S NOTE

SECTION 3.01.     Secretary's Note..................................................................    17
SECTION 3.02.     Termination of the Guarantees.....................................................    17
SECTION 3.03.     Execution of Additional Secretary's Note .........................................    17
</TABLE>

<PAGE>

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

<TABLE>
<CAPTION>

<S>               <C>                                                                                  <C>
SECTION 4.01.     Construction Fund.................................................................    18
SECTION 4.02.     Moneys Due with Respect to Construction of the Vessels............................    18

                                    ARTICLE V
                          ACTUAL COST; THE ESCROW FUND

SECTION 5.01.     Actual Cost Determinations........................................................    18
SECTION 5.02.     Escrow Fund Deposits..............................................................    19
SECTION 5.03.     Escrow Fund Withdrawals...........................................................    19
SECTION 5.04.     Investment and Liquidation of the Escrow Fund.....................................    21
SECTION 5.05.     Income on the Escrow Fund.........................................................    22
SECTION 5.06.     Termination Date of the Escrow Fund...............................................    22

                                   ARTICLE VI
                              DEFAULTS AND REMEDIES

SECTION 6.01.     What Constitutes "Defaults"; Continuance of Defaults..............................    22
SECTION 6.02.     Acceleration of Maturity of the Secretary's Note..................................    24
SECTION 6.03.     Waivers of Default................................................................    24
SECTION 6.04.     Remedies After Default............................................................    25
SECTION 6.05.     Application of Proceeds...........................................................    27
SECTION 6.06.     General Powers of the Secretary...................................................    27

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

SECTION 7.01.     Amendments and Supplements to the Security Agreement
                           and the Mortgage.........................................................    28
SECTION 7.02.     Amendments and Supplements to the Indenture.......................................    28

                                  ARTICLE VIII
                          CONSOLIDATION, MERGER OR SALE

SECTION 8.01.     Consolidation, Merger, or Sale....................................................    28
SECTION 8.02.     Transfer of a General Partner's or a Joint Venturer's Interest....................    29
</TABLE>

                                   ARTICLE IX
                                     NOTICES

                                       ii

<PAGE>

<TABLE>
<CAPTION>

<S>               <C>                                                                                  <C>
SECTION 9.01.     Notices and Communications........................................................          29
SECTION 9.02.     Waivers of Notice.................................................................          29
SECTION 9.03.     Shipowner's  Name or Address Change...............................................          30

                                    ARTICLE X
                DISCHARGE OF SECURITY AGREEMENT AND THE MORTGAGE

SECTION 10.01.    Discharge of Security Agreement and the Mortgage..................................          30

                                   ARTICLE XI
                                  MISCELLANEOUS

SECTION 11.01.    Successors and Assigns............................................................          30
SECTION 11.02.    Execution in Counterparts.........................................................          30
SECTION 11.03.    Shipowner's Rights in Absence of Default..........................................          30
SECTION 11.04.    Surrender of Vessels' Documents...................................................          31
SECTION 11.05.    Table of Contents, Titles and Headings............................................          31
SECTION 11.06.    Payments in U.S. Currency.........................................................          31
SECTION 11.07.    Immunity..........................................................................          31
</TABLE>

                                       iii

<PAGE>

                                    ARTICLE I
              DEFINITIONS; OFFICER'S CERTIFICATES; GRANTING CLAUSE

         SECTION 1.01. Definitions. All capitalized terms used, but not defined
herein, shall have the meaning ascribed in Schedule X.

         SECTION 1.02. Officer's Certificates. To satisfy a covenant or
condition provided for in this Security Agreement, the Responsible Officer of
the Person making such Officer's Certificate shall certify that the officer (a)
has read such covenant or condition; (b) has made or caused to be made such
examination or investigation as is necessary to enable the Officer to express an
informed opinion with respect to such covenant or condition; and (c) believes to
the best of the Officer's his knowledge that such condition or covenant has been
met. An Officer's Certificate shall set forth the pertinent supporting
information and shall be subject to the Secretary's review of its adequacy and
accuracy.

         SECTION 1.03. Granting Clause. (a) In order to create a present
security interest in the Secretary, the Shipowner does hereby grant, sell,
convey, assign, transfer, mortgage, pledge, set over and confirm unto the
Secretary continuing security interests in all of the right, title and interest
of the Shipowner in and to all of the following, whether now owned or existing
or hereafter arising or acquired:

                  (1) Each Construction Contract (insofar as it relates to the
Construction of a Vessel under its related Construction Contract), together with
all other contracts, whether now in existence or hereafter entered into,
relating to the Construction of each Vessel. Said right, title and interest in
and to the Construction Contracts, and the other contracts conveyed to the
Secretary by this subsection are hereinafter referred to collectively as the
"Rights Under the Construction and Related Contracts."

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

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

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

                  (5) The Construction Fund and all moneys, instruments,
negotiable documents,

<PAGE>

chattel paper and proceeds, etc.

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

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

                  (8) All proceeds of the collateral described in paragraphs (1)
through (7) of this section.

         The Secretary shall have, upon execution and delivery thereof, as
further security, certain right, title and interest in and to the following:

                  (9) The Mortgage, to be executed and delivered by the
Shipowner to the Secretary, as mortgagee, on the date hereof, covering each
Vessel.

         (b) The right, title and interest of the Secretary pursuant to Section
1.03(a) is herein, collectively, called the "Security." The Secretary shall hold
the Security as collateral security for all of the obligations and liabilities
of the Shipowner under the Secretary's Note and as collateral security for and
with respect to the Guarantees whether now made or hereafter entered into.

         (c) Notwithstanding paragraphs (a) and (b) of this Section, (1) the
Shipowner shall remain liable to perform its obligations under each Construction
Contract and the above-mentioned other contracts; (2) the Secretary shall not,
by virtue of this Security Agreement, have any obligations under any of the
documents referred to in clause (1) or be required to make any payment owing by
the Shipowner thereunder; and (3) if there is no existing Default, the Shipowner
shall (subject to the rights of the Secretary hereunder) be entitled to exercise
all of its rights under each of the documents referred to in this section and
shall be entitled to receive all of the benefits accruing to it thereunder as if
paragraphs (a) and (b) of this section.

         (d) The Shipowner hereby agrees with the Secretary that the Security is
to be held by the Secretary subject to the further agreements and conditions set
forth herein.

                                   ARTICLE II
                   SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS

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

         SECTION 2.01. Shipowner's Representations, Agreements, Organization and
Existence. (a) General Representations. The Shipowner hereby represents and
warrants that the following are true

                                       2

<PAGE>

statements as of the date hereof and further warrants that they shall remain
true thereafter:

                  (1) The Shipowner is duly organized, validly existing and in
good standing under the laws of the jurisdiction designated in the initial
paragraph of the Special Provisions hereof and shall maintain such existence.
The Shipowner has not failed to qualify to do business in any jurisdiction in
which its business or properties require such qualification, and had and has
full legal right, power and authority to own its own properties and assets and
conduct its business as it is presently conducted;

                  (2) the Shipowner had and has legal power and authority to
enter into and carry out the terms of the Guarantee Commitment, the Construction
Contract, Bond Purchase Agreement, Obligations, Indenture, Security Agreement,
Secretary's Note, Mortgage, Financial Agreement, and Depository Agreement (the
"Documents");

                  (3) each of the Documents has been duly authorized, executed
and delivered by the Shipowner and constitutes, in accordance with its
respective terms, legal, valid and binding instruments enforceable against the
Shipowner, except to the extent limited by applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws of general application
relating to or affecting the enforcement of creditors rights as from time to
time in effect;

                  (4) the consummation of the transactions contemplated by and
compliance by the Shipowner of all the terms and provisions of the Documents
will not violate any provisions of the formation documents of the Shipowner and
will not result in a breach of the terms and provisions of, or constitute a
default under any other agreement or undertaking by the Shipowner or by which
the Shipowner is bound or any order of any court or administrative agency
entered into in any proceedings to which the Shipowner is or has been a party;
and

                  (5) there is no litigation, proceeding or investigation
pending or, to the best of the Shipowner's knowledge, threatened, involving the
Shipowner or any of its property which could prevent or jeopardize the
performance by the Shipowner of its obligations under the Documents;

         (b) Taxes. The Shipowner has paid or caused to be paid all taxes
assessed against it, unless the same are being contested in good faith or an
authorized extension of time has been granted.

         SECTION 2.02. (a) Title to and Possession of the Vessels. On the date
of this Security Agreement, the Shipowner represents and warrants that it
lawfully owns each Vessel free from any liens, encumbrances, security interests,
charges, or rights in rem (subject only to (1) the equity of the Shipyard under
the Construction Contract, if any, (2) liens on any undelivered Vessel which the
Shipyard is obligated to discharge under the Construction Contract, (3) any
security interest subordinated to the Secretary's security interest permitted
under the Special Provisions hereof, (4) the Secretary's rights hereunder and
(5) the liens permitted by paragraph (d)(3) of this section. The Shipowner
shall, for the Secretary's benefit, warrant and defend the title to, and
possession of, each Vessel and every part thereof against the claims and demands
of all Persons whomsoever.

                                       3

<PAGE>

         (b) Sale, Mortgage, Transfer or Charter of the Vessels. (1) The
Shipowner shall not, without the Secretary's prior written consent, sell,
mortgage, demise charter or transfer any Vessel to any Person (or charter the
Vessel to a Related Party under any form of charter).

                  (2) The Shipowner hereby covenants that: (A) it will not enter
into any time charter of the Vessels in excess of six months unless the time
charter contains the following provision, "This time charter is subject to each
of the rights and remedies of the Secretary of Transportation has been assigned
to the Secretary under a Security Agreement and Mortgage, each executed by the
Shipowner in favor of the Secretary with respect to the Vessels being
chartered." and (B) it shall, within 10 calendar days of entering into any time
charter in excess of six months, transmit a copy of the time charter to the
Secretary.

                  (3) In no event may the Shipowner transfer the Vessel to any
country designated by the Secretary of Defense as a country whose interests are
hostile to the interests of the United States.

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

         (d) Liens. (1) As a condition precedent to each payment by the
Shipowner under the Construction Contract, the Shipowner shall require an
Officer's Certificate from the Shipyard stating that once the Shipyard receives
said payment, there will be no liens or rights in rem against the respective
Vessel. At the Delivery Date of each Vessel, the Shipowner and the Shipyard
shall provide an Officer's Certificate stating that there are no liens or rights
in rem against the respective Vessel except for the Mortgage.

                  (2) After the Delivery Date of each Vessel, the Shipowner
shall satisfy, or cause to be satisfied, within 30 days of its knowledge
thereof, any lien or encumbrance or right in rem which shall be filed against
such Vessel unless the same is being contested in good faith; and

                  (3) Neither the Shipowner, any charterer, the master of any
Vessel, nor any other Person has or shall have any right, power or authority,
without the Secretary's prior written consent, to create, incur or permit to be
placed or imposed on any Vessel any lien, encumbrance, security interest,
charge, or rights in rem, and statutory liens incident to current operations
unless such statutory liens are subordinate to the Mortgage.

         (e) Requisitions by the United States. Should the United States of
America, or any agency or instrumentality thereof, take or requisition title or
use of any Vessel, or seek to take or requisition title or use of any Vessel,
the Shipowner agrees to comply promptly with said request, taking, or
requisition, without the interposition of any defense whatsoever, saving only
(i) its right to dispute at

                                       4

<PAGE>

a subsequent time, the amount of compensation to be paid by the United States
or (ii) the prior taking or requisition of title or use by another governmental
body. The parties agree to be bound by the rights, duties, procedures, and
remedies specified in section 902 of the Act (46 App. U.S.C. 1242).

         (f) Compliance with Applicable Laws. The Shipowner shall at all times
be incompliance with all applicable laws. Each Vessel (1) shall be designed to
meet, and on the Delivery Date thereof and at all times thereafter shall be
documented in a country which is party to the International Convention for
Safety of Life at Sea, or other treaty, convention or international agreement
governing vessel inspection to which the United States is a signatory and shall
comply with all requirements of applicable laws, rules, and regulations of its
country of documentation, all applicable treaties, conventions, international
agreements to which that country is a signatory and the laws, rules and
regulations of the ports it serves; and (2) shall have on board valid
certificates showing compliance therewith. The foregoing shall not apply if: (A)
the Vessel is in Government Use; (B) there has been an actual or constructive
total loss or an agreed or compromised total loss of such Vessel; or (C) there
has been any other loss with respect to such Vessel and the Shipowner shall not
have had a reasonable time to repair the same.

         (g) Operation of the Vessels. Except when the Vessel has been in
Government Use, the Shipowner shall not (1) cause or permit the Vessels to be
operated in any manner contrary to applicable law, rule, or regulation of its
country of documentation, all applicable treaties, conventions, or international
agreements to which that country is a signatory and the laws, rules, and
regulations of the ports it serves, (2) abandon such Vessels in any port unless
there has been an actual or constructive total loss or an agreed or compromised
total loss of any of the Vessels.

         (h) Condition and Maintenance of the Vessels. (1) Each Vessel shall be
constructed, maintained and operated so as to meet, at all times, the highest
classification, certification, rating and inspection standards for Vessels of
the same age and type as may be imposed by the Classification Society. The
foregoing shall not apply (i) if the Vessel has been under Government Use, (ii)
in the event of an actual or constructive total loss or an agreed or compromised
total loss of such Vessel; or (ii) there has been any other loss with respect to
such Vessel and the Shipowner shall not have had a reasonable time to repair the
same;

         (2) On the Delivery Date of each Vessel, the Shipowner shall furnish to
the Secretary an Interim Class Certificate issued for each such Vessel by the
Classification Society and promptly after the Delivery Date of each Vessel,
furnish to the Secretary a Certificate of Class with respect to such Vessel
issued by the Classification Society. Subsequently, the Shipowner shall annually
(A) furnish to the Secretary a Certificate of Confirmation of Class issued by
the Classification Society showing that the above-mentioned classification and
rating have been retained for each Vessel and (B) furnish to the Secretary
copies of all Classification Society reports, including periodic and damage
surveys for each Vessel; provided that, the foregoing shall not apply if the
Vessel is in Government Use and the governmental body does not permit
classification and rating of the Vessel.

         (3) Notwithstanding Section 2.02(h)(2), if the Vessel is a barge which
is not classed, then the

                                       5

<PAGE>

Shipowner shall, at all times, at its own cost and expense maintain and preserve
each Vessel, so far as may be practicable, in at least as good order and
condition, ordinary wear and tear excepted, as at the Delivery Date of such
Vessel, and shall perform or cause to be performed at least once every five
years and at any other time reasonably required by the Secretary, a survey and
inspection of the Vessels by an independent marine surveyor approved by the
Secretary; and provided that, no such surveys will be required within the last
three years prior to the final Stated Maturity of the Obligations. The Shipowner
shall furnish two copies of the report of such independent marine surveyor to
the Secretary within 15 days of such survey and inspection. The Shipowner shall
deliver to the Secretary annually an Officer's Certificate stating the condition
and maintenance of each Vessel; provided further, that none of this Section
shall apply when the Vessel is in Government Use.

         (i) Material Changes in the Vessels. After the Delivery Date of any of
Vessel, the Shipowner shall not make, or permit to be made, any material change
in the structure, means of propulsion, type or speed of such Vessel or in its
rig, unless it shall have received the Secretary's prior written consent
thereto.

         (j) Documentation of the Vessels. Upon the Delivery Date and
thereafter, each Vessel shall be and shall remain documented under the laws of
the country specified in the Special Provisions.

         SECTION 2.03. Maintenance of Construction Contract. (a) The
Construction Contract shall be maintained in full force and effect insofar as it
relates to the due performance by the Shipowner and the Shipyard of all their
respective obligations thereunder and the Shipowner shall not, without the
Secretary's prior written consent, amend, modify, assign or terminate the
Construction Contract or consent to any change in the Construction Contract
which releases the Shipyard from its obligations to comply with the provisions
of the Construction Contract or any applicable laws, treaties, conventions,
rules and regulations; provided that, the Secretary's prior written consent
shall not be necessary, but prompt written notice to the Secretary shall be
given for (1) any mandatory or regulatory change to the Construction Contract as
a result of any requirements of any governmental agency, or (2) any
non-mandatory changes that the Shipyard and the Shipowner desire to make which
do not, in the aggregate, exceed five (5%) percent of the total Construction
Contract price of the Vessels, and which do not cause the total Construction
Contract price to be increased by an individual change by more than one (1%)
percent or the delivery and completion date of the Vessels to be extended by
more than ten (10) days. Notwithstanding the foregoing, no change shall be made
in the general dimensions and/or characteristics of the Vessels which changes
the capacity of the Vessels to perform as originally intended by the
Construction Contract without the Secretary's prior written consent. The
Secretary will nonetheless retain its authority to review work done under a
change order to ascertain whether the work should be included in Actual Cost and
whether the price charged is fair and reasonable. No withdrawals may be made
from the Escrow Fund for work that is determined no to be includable in Actual
Cost.

         (b) Notwithstanding anything to the contrary contained in the
Construction Contract or herein, no changes to the payment milestones and
disbursement schedules shall be made without the

                                       6

<PAGE>

Secretary's prior written consent, except to the extent reasonably required to
reflect the change orders under paragraph (a) of this section.

         SECTION 2.04. Delivery Requirements. At or prior to the Delivery Date,
the Shipowner shall have:

         (a) documented the Vessel under the laws of the country specified in
the Special Provisions.

         (b) executed and delivered to the Secretary the Mortgage (or, if
appropriate, a mortgage supplement) in the form of Exhibit 3 hereof;

         (c) recorded the Mortgage (or, if appropriate, a mortgage supplement)
in the appropriate foreign registry, specified in the Special Provisions and in
the National Vessel Documentation Center of the United States Coast Guard;

         (d) delivered to the Secretary an Officer's Certificate (1) from the
Shipowner and the Shipyard certifying that the Vessel is free of any claim,
lien, charge, mortgage, or other encumbrance of any character except as
permitted under Section 2.02(d); (2) certifying that there has not occurred and
is not then continuing any event which constitutes (or after any period of time
or any notice, or both, would constitute) a default under the Security
Agreement; (3) that the marine insurance as required under Section 2.05 will be
in full force and effect at the time of Vessel delivery; (4) certifying that the
Vessel was constructed substantially in accordance with the plans and
specifications of the Construction Contract; (5) certifying that there have been
no unusual occurrences (or a full description of such occurrences, if any) which
would adversely affect the condition of the delivered Vessel.

         (e) delivered to the Secretary (1) an opinion of counsel substantially
in the form of Exhibit A to the form of Mortgage; and (2) a certificate of
delivery and acceptance from the Shipowner and the Shipyard to the Secretary
with respect to the delivered Vessel;

         SECTION 2.05. Insurance. (a) Prior to the Delivery Date of each Vessel,
the Shipowner shall, without cost to the Secretary or, with respect to war risk
builder's risk insurance mentioned below, without cost to the Shipyard, cause
each Vessel to be insured as provided in the Construction Contract and as
contemplated by the Consent of Shipyard; provided that, the insurance required
by this section shall be approved by the Secretary.

         (b) Upon the Delivery Date of each Vessel and at all times thereafter,
the Shipowner shall, without cost to the Secretary, keep such Vessel insured as
indicated below and with such additional insurance as may be specified by the
Secretary in an amount in U.S. dollars equal to 110% of the unpaid principal
amount of the Proportionate Part of the Secretary's Note, or such greater sum,
up to and including the full commercial value of such Vessel as may be required
by the Secretary. The Shipowner shall provide 30 days prior written notice to
the Secretary of all insurance renewals.

                                       7

<PAGE>

                  (1) Marine and war risk hull insurance under the latest (at
the time of issue of the policies in question) forms of American Institute of
Marine Underwriters' policies approved by the Secretary and/or policies issued
by or for the Maritime Administration (or under such other forms of policies as
the Secretary may approve in writing) insuring such Vessel against the usual
risks covered by such forms (including, at the Shipowner's option, such amounts
of increased value and other forms of "total loss only" insurance as are
permitted by said hull insurance policies); and

                  (2) While any Vessel is laid up, at the Shipowner's option and
in lieu of the above-mentioned marine and war risk hull insurance or marine and
war risk hull and increased value insurance, port risk insurance under the
latest (at the time of issue of the policies in question) forms of American
Institute of Marine Underwriters' policies approved by the Secretary and/or
policies issued by or for the Maritime Administration (or under such other forms
of policies as the Secretary may approve in writing) insuring such Vessel
against the usual risks covered by such forms.

                  (3) Notwithstanding the foregoing, the Shipowner, with the
Secretary's prior written consent, shall have the right to self-insure up to the
amount specified in the Special Provisions hereof for any loss resulting from
any one accident or occurrence (other than an actual or constructive total loss
of any Vessel).

         (c) All policies of insurance under this section shall provide, so long
as this Security Agreement has not been discharged, that payment of all losses
shall be made payable to the Secretary for distribution by him to himself, the
Shipowner and (in the case of the insurance required by paragraph (a) of this
section) the Shipyard, except that (i) under the policies required by paragraph
(b) of this section and (ii) as provided in paragraph (e) of this section,
payment of all losses up to the amount specified in the Special Provisions
hereof by all insurance underwriters with respect to any one accident,
occurrence or event may be made directly to the Shipowner unless there is an
existing Default, or if the Secretary shall have assumed the Shipowner's rights
and duties under the Indenture and the Obligations and made any payments in
default under the terms of Section 6.09 of the Indenture, in which event payment
of all losses shall be made payable to the Secretary as aforesaid.

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

                  (1) In the event that insurance becomes payable under said
policies on account of an accident, occurrence or event not resulting in an
actual or constructive total loss or an agreed or compromised total loss of any
Vessel, the Secretary shall (A) if there is no existing Default and if none of
the events described in Section 2.07 has occurred, in accordance with a
Shipowner's Request, pay, or consent that the underwriters pay, direct for
repairs, liabilities, salvage claims or other charges and expenses (including
sue and labor charges due or paid by the Shipowner) covered by the policies, or
(to the extent that, as stated in an Officer's Certificate delivered to the
Secretary, accompanied by written confirmation by the underwriter or a surveyor
or adjuster, the damage shall have been repaired and the cost thereof paid of
such liabilities, salvage claims, or other charges and expenses discharged or
paid) reimburse, or consent that the underwriters reimburse, the Shipowner

                                       8

<PAGE>

therefor and (after all known damage with respect to the particular loss shall
have been repaired, except to the extent the Shipowner, with the Secretary's
written consent, deems the said repair inadvisable, and all known costs,
liabilities, salvage claims, charges and expenses, covered by the policies, with
respect to such loss shall have been discharged or paid, as stated in an
Officer's Certificate delivered to the Secretary, accompanied by written
confirmation by the underwriters or a surveyor or adjuster) pay, or consent that
the underwriters pay, any balance to the Shipowner; or (B) if there is an
existing Default, in accordance with a Request of Shipowner, pay, or consent
that the underwriters pay, direct for the Shipowner's proportion of such
repairs, liabilities, salvage claims or other charges and expenses (including
sue and labor charges due or paid by the Shipowner) covered by the policies and
hold any balance until the same may be paid or applied under Sections
2.05(c)(1)(A), 2.05(c)(1)(C) or 2.05(c)(1)(D), whichever is applicable; or (C)
if the Guarantees shall have terminated pursuant to Section 3.02(c) or if the
Secretary shall have assumed the Shipowner's rights and duties under the
Indenture and the Obligations and made any payments in default under the terms
of Section 6.09 of the Indenture and none of the events described in Section
2.07 has occurred, apply the insurance as provided in Section 6.05; or (D) if
the Guarantees shall have terminated pursuant to Section 3.02(b) or (d), pay the
insurance to the Shipowner;

                  (2) In the event of an accident, occurrence or event resulting
in an actual or constructive total loss of any Vessel prior to the Delivery Date
of such Vessel, the Shipowner shall forthwith deposit with the Secretary any
insurance moneys which the Shipowner receives on account thereof under policies
of insurance required by paragraph (a) of this section, and any such insurance
moneys shall be held by the Secretary for 10 days (or such lesser or further
time as the Shipowner and the Secretary may agree upon). Upon the expiration of
said period of time, (A) if there is no existing Default and if the Shipowner,
the Shipyard and the Secretary shall have elected not to construct such Vessel
under the Construction Contract, then said insurance moneys shall be applied, to
the extent necessary and required pursuant to Section 2.07; or (B) if there is
no existing Default and if the Shipowner, the Shipyard and the Secretary shall
not have made the election contemplated by clause A of this subsection, then
said insurance moneys (together with the Shipowner's funds to the extent, if
any, required by the Secretary for deposit on account of interest under clause
(ii) below) shall be deposited in the Escrow Fund, in such amount and to the
extent available, so that the moneys in the Escrow Fund after such deposit shall
equal to (i) the principal amount of the Proportionate Part of the Outstanding
Obligations relating to such Vessel at the time of such deposit and (ii) such
interest on said deposit, if any, as may be required by the Secretary (said
moneys to be subject to withdrawal in the same manner as moneys originally
deposited in said Escrow Fund); and the balance, if any, of such insurance
moneys held by the Secretary shall be paid to the Shipowner; and

                  (3) In the event of an accident, occurrence or event resulting
in an actual or constructive total loss or an agreed or compromised total loss
of any Vessel, whether prior to or after the Delivery Date of such Vessel, and
the insurance moneys have not been applied as provided in paragraph (c)(2) of
this section, the Shipowner shall forthwith deposit with the Secretary any
insurance moneys which the Shipowner receives on account thereof under policies
of insurance required by this Section, and any such insurance moneys received by
the Secretary, whether from the Shipowner or otherwise, or held by the Secretary
pursuant to paragraph (c)(2) of this section, shall

                                       9

<PAGE>

(A) if there is no existing Default, be applied, to the extent necessary,
pursuant to Section 2.07; (B) if there is an existing Security Default, be held
until the same may be applied under Sections 2.05(c)(3)(A), 2.05(c)(3)(C) or
2.05(c)(3)(D), whichever is applicable; (C) if the guarantees shall have
terminated pursuant to Section 3.02(c) or if the Secretary shall have assumed
the Shipowner's rights and duties under the Indenture and the Obligations and
made any payments in default under the terms of Section 6.09 of the Indenture,
be applied as provided in Section 6.05; provided that, notwithstanding the
foregoing Sections 2.05(c)(3)(A), 2.05(c)(3)(B), and 2.05(c)(3) (C), the
Shipowner shall not be required to so deposit with the Secretary insurance
moneys in an amount which, together with funds otherwise available for the
redemption of Obligations is in excess of that required for the redemption of
the Proportionate Part of the Outstanding Obligations pursuant to Section 3.05
of the Indenture and for the payment to the Secretary of a Proportionate Part of
all other sums that may be secured by this Security Agreement and the Mortgage;
or (D) if the Guarantees shall have terminated pursuant to Section 3.02(b) or
3.02(d), be paid to the Shipowner.

         (d) In the event of an accident, occurrence or event resulting in a
constructive total loss of any Vessel, the Secretary shall have the right (with
the prior written consent of the Shipowner, unless there is an existing Default,
and at any time prior to the Delivery Date of such Vessel also with the prior
written consent of the Shipyard) to claim for a constructive total loss of such
Vessel. If (1) such claim is accepted by all underwriters under all policies
then in force as to such Vessel under which payment is due for total loss and
(2) payment in full is made in cash under such policies to the Secretary, then
the Secretary shall have the right to abandon such Vessel to the underwriters of
such policies, free from lien of this Security Agreement and the Mortgage.

         (e) Commencing on the Delivery Date of each Vessel, the Shipowner
shall, without cost to the Secretary, keep each such Vessel insured against
marine and war risk protection and indemnity risks and liabilities by policies
of insurance approved by the Secretary as to form and amount; provided that, (1)
the Shipowner shall, as soon as possible before such Delivery Date, present any
such policy to the Secretary (who shall promptly approve or disapprove the
same), (2) any approval of a policy under this subsection shall be effective
until the end of the policy period or until 60 days after the Secretary shall
notify the Shipowner of a desired change in the form and/or amount thereof,
whichever shall first occur, and (3) war protection and indemnity insurance
shall be required unless the Secretary gives written notice to the Shipowner
stating that such insurance is not required.

         Such policies may provide that (1) if the Shipowner shall not have
incurred the loss, damage, or expense in question, any loss under such insurance
may be paid directly to the Person to whom any liability covered by such
policies has been incurred (whether or not a Default then exists), and (2) if
the Shipowner shall have incurred the loss, damage or expense in question, any
such loss shall be paid to the Shipowner in reimbursement if there is no
existing Default of which the underwriter has written notice from the Shipowner
or the Secretary, or, if there is such an existing Default, to the Secretary to
be held and applied as follows: (A) applied as provided in Section 6.05 in the
event the Guarantees shall have terminated pursuant to Section 3.02(c) or if the
Secretary shall have assumed the Shipowner's rights and duties under the
Indenture and the Obligations and made any payments in default under the terms
of Section 6.09 of the Indenture, or (B) to the extent not theretofore applied

                                       10

<PAGE>

pursuant to Section 6.05, paid forthwith to the Shipowner upon its Request in
the event there is no existing Default of the Guarantees shall have terminated
pursuant to Section 3.02(b) or (d) at the date of delivery of such Request;
provided that, irrespective of the foregoing, with the Secretary's prior written
consent, the Shipowner shall have the right to self-insure in an amount up to
the limit specified in the Special Provisions hereof with respect to each
accident, occurrence or event, except that, with respect to cargo or property
carried, the Shipowner, with the Secretary's prior written consent, shall have
the right to self-insure in an amount up to the limit specified in the Special
Provisions hereof with respect to each cargo or property carried.

         (f) All insurance required under this Section shall be placed and kept
with the United States Government or with American and/or British (and/or other
foreign, if permitted by the Secretary in writing) insurance companies,
underwriters' association or underwriting funds approved by the Secretary. All
insurance required under this section shall be arranged through marine insurance
brokers and/or underwriting agents as chosen by the Shipowner and approved by
the Secretary.

         (g) The Secretary shall not have the right to enter into an agreement
or compromise providing for an agreed or compromised total loss of any Vessel
without prior written consent of (i) the Shipyard (prior to the Delivery Date of
such Vessel) and (ii) (unless there is an existing Default) the Shipowner. If
(1) the Shipowner shall have given prior consent thereto or (2) there is an
existing Default, the Secretary shall have the right in his discretion, and with
the prior written consent of the Shipyard prior to the Delivery Date of such
Vessel, to enter into an agreement or compromise providing for an agreed or
compromised total loss of such Vessel; provided that, if the aggregate amount
payable to the Shipowner and/or the Secretary under such agreement or
compromise, together with funds held by the Secretary and available for the
redemption of Obligations, is not sufficient to redeem or pay the Proportionate
Part of the Outstanding Obligations pursuant to Section 2.07, the Secretary
shall not enter into such agreement or compromise without the Shipowner's prior
written consent.

         (h) During the continuance of (1) a taking or requisition of the use of
any Vessel by any government or governmental body, or (2) a charter, with the
Secretary's prior written consent, of the use of any Vessel by the United States
Government or by any governmental body of the United States, or by any other
government or governmental body, the provisions of this Section shall be deemed
to have been complied with in all respects if such government or governmental
body shall have agreed to reimburse, in a manner approved by the Secretary in
writing, the Shipowner for loss or damage covered by the insurance required
hereunder or resulting from the risks under paragraphs (a), (b) and (e) or if
the Shipowner shall be entitled to just compensation therefor. In addition, the
provisions of this Section shall be deemed to have been complied with in all
respects during any period after (A) title to any Vessel shall have been taken
or requisitioned by any government or governmental body or (B) there shall have
been an actual or constructive total loss or an agreed or compromised total loss
of any Vessel. In the event of any taking, requisition, charter or loss
contemplated by this paragraph, the Shipowner shall promptly furnish to the
Secretary an Officer's Certificate stating that such taking, requisition,
charter or loss has occurred and, if there shall have been a taking, requisition
or charter of the use of any Vessel, that the government or governmental

                                       11

<PAGE>

body in question has agreed to reimburse the Shipowner, in a manner approved by
the Secretary, for loss or damage resulting from the risks under paragraphs
(a), (b) and (e) of section or that the Shipowner is entitled to just
compensation therefor.

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

         (j) The Shipowner shall not, without the Secretary's prior written
consent, (1) do any act, nor voluntarily suffer or permit any act to be done,
whereby any insurance required by this Section shall or may be suspended,
impaired or defeated or (2) suffer or permit any Vessel to engage in any voyage
or to carry any cargo not permitted under the policies of insurance then in
effect without first covering such Vessel with insurance satisfactory in all
respects for such voyage or the carriage of such cargo; provided that, this
paragraph shall be subject to the requirements of any military authority of the
United States and shall not apply in the case of such Vessel if and so long as
the title or use of such Vessel shall have been taken, requisitioned or
chartered by any government or governmental body as contemplated by Section
2.07.

         (k) In the event that any claim or lien is asserted against any Vessel
for loss, damage or expense which is covered by insurance hereunder and it is
necessary for the Shipowner to obtain a bond or supply other security to prevent
arrest of such Vessel or to release such Vessel from arrest on account of said
claim or lien, the Secretary, on the Shipowner's Request, may, at the
Secretary's sole option, assign to any Person executing a surety or guaranty
bond or other agreement to save or release such Vessel from such arrest, all
right, title and interest of the Secretary in and to said insurance covering
such loss, damage or expense as collateral security to indemnify against
liability under said bond or other agreement.

         (l) Except as the Secretary shall otherwise direct by notice in writing
to the Shipowner, the Shipowner shall deliver to the Secretary the original
policies evidencing insurance maintained under this Section; provided that, if
any such original policy shall have been delivered previously to the Secretary
or to a mortgagee by the Shipowner under another ship mortgage of the Shipowner,
the Shipowner shall deliver a duplicate or pro forma copy of such policy to the
Secretary. The Secretary or any agent thereof (who may also be an agent of the
issuer) shall at all times hold the policies delivered as aforesaid; provided
that, if one or more of said policies are held by an agent of the Secretary, the
Shipowner shall, upon the Secretary's request, deliver a duplicate or pro forma
copy thereof to the Secretary, and provided further, that if the Shipowner shall
deliver to the Secretary a Request (1) stating that delivery of such policy to
the insurer is necessary in connection with the

                                       12

<PAGE>

 collection, enforcement or settlement of any claim thereunder (including claims
for return premiums and any other amounts payable by the insurer) and (2)
setting forth the name and address of the Person to whom such policy is to be
delivered or mailed for such purpose, and if the Secretary approves such
Request, the Secretary shall, at the Shipowner's expense, deliver or mail (by
registered or certified mail, postage prepaid) such policy in accordance with
such Request, accompanied by a written direction to the recipient to redeliver
such policy directly to the Secretary or an agent thereof when it has served the
purpose for which so delivered. The Shipowner agrees that, in case it shall at
any time so cause the delivery or mailing of any policy to any Person as
aforesaid, the Shipowner will cause such policy to be promptly redelivered to
the Secretary or an agent thereof as aforesaid. The Secretary shall have no duty
to see to the redelivery of such policy, but shall have the duty to request the
redelivery thereof at intervals of 60 days thereafter.

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

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

         SECTION 2.06. Inspection of the Vessels; Examination of Shipowner's
Records. The Shipowner will: (a) afford the Secretary, upon reasonable notice,
access to the Vessels, their cargoes and papers for the purpose of inspecting
the same; (b) maintain records of all amounts paid or obligated to be paid by or
for the account of the Shipowner for each Vessel's Construction; and (c) at
reasonable times permit the Secretary, upon request, to make reasonable,
material and pertinent examination and audit of books, records and accounts
maintained by the Shipowner, and to take information therefrom and make
transcripts or copies thereof.

         SECTION 2.07. Requisition of Title, Termination of Construction
Contract or Total Loss of a Vessel. In the event of requisition of title to or
seizure or forfeiture of such Vessel, termination of the Construction Contract
relating to such Vessel, or the occurrence of the circumstances referred to in
Section 2.05(c)(3), then all of the following shall apply:

         (a) The Shipowner shall promptly give written notice thereof to the
 Secretary.

         (b) The Shipowner shall promptly pay all amounts it receives by reason
of such requisition, seizure, forfeiture, termination or total loss ("Loss
Event") to the Secretary.

         (c) After the Secretary has received sufficient funds to retire a
Proportionate Part of the Outstanding Obligations affected by the Loss Event:

                   (1) if there is no existing Default, (A) the Secretary and
the Shipowner shall give notice to the Indenture Trustee of a redemption of
Proportionate Part of the Outstanding Obligations pursuant to Section 3.05 of
the Indenture, (B) such amount, if any, held by the Secretary, shall be paid by
the Secretary to the Indenture Trustee not earlier than 10 days prior to, nor
later than the

                                       13

<PAGE>

opening of business on, the Redemption Date required by Section 3.05 of the
Indenture, (C) the remainder shall next be applied by the Secretary for the
payment of a Proportionate Part of all other sums that may be secured hereby,
and (D) the balance shall be paid to the Shipowner including any interest
earned on the proceeds which are in excess of the amount required to redeem
the Obligations;

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

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

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

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

         SECTION 2.08. Notice of Mortgage. (a) A properly certified copy of the
Mortgage shall be carried on board each self-propelled Vessel with that Vessel's
documents and shall be exhibited on demand to any Person having business with
such Vessel or to any Secretary's representative.

         (b) A notice printed in plain type of such size that the paragraph of
reading matter shall cover a space not less than six inches wide by nine inches
high, and framed, shall be placed and kept prominently exhibited in the chart
room and in the master's cabin of a self-propelled Vessel.

         (c) The notice referred to in paragraph (b) of this section shall read
 as follows:

                            "NOTICE OF FLEET MORTGAGE

         This Vessel is owned by (Name of Shipowner) , a (Jurisdiction)
         ("Shipowner"), and is covered by a First Preferred Fleet Mortgage in
         favor of the United States of America, under authority of (Name of
         country and legal citation). Under the terms of said Mortgage neither
         the Shipowner, any charterer, the master or agent of this Vessel nor
         any other person has any right, power or authority to create, incur or
         permit to be placed or imposed upon this Vessel any lien other than
         statutory liens incident to current operations that are subordinate to
         the Mortgage."

                                       14

<PAGE>

         SECTION 2.09. Compliance with Mortgage Laws. The Shipowner shall comply
with and satisfy all of the provisions of the pertinent mortgage laws of the
country in which the Vessel is documented and Chapter 313 in order to establish
and thereafter maintain the Mortgage thereunder as a preferred mortgage upon
each Vessel.

         SECTION 2.10. Performance of Shipowner's Agreements by the Secretary.
If the Shipowner shall fail to perform any of its agreements hereunder or under
the Mortgage, the Secretary may, in its discretion, at any time during the
continuance of an event which by itself, with the passage of time, or the giving
of notice, would constitute a Default, perform all acts and make all necessary
expenditures to remedy such failure. Notwithstanding the foregoing, the
Secretary shall not be obligated to (and shall not be liable for the failure to)
perform such acts and make such expenditures. All funds advanced and expenses
and damages incurred by the Secretary relating to such compliance shall
constitute a debt due from the Shipowner to the Secretary and shall be secured
hereunder and under the Mortgage prior to the Secretary's Note and shall be
repaid by the Shipowner upon demand, together with interest at the rate that
would have been paid by the Department of Treasury on the expended funds plus
1%.

         SECTION 2.11. Perfection of Security Interests; Further Assurances. The
Shipowner shall (i) furnish evidence satisfactory to the Secretary that all
financing statements under the UCC, and all filings or recordings required by
the laws of the country where the Shipowner is located, shall have been filed
against the Shipowner and the Shipbuilder in all offices in which it may be
necessary, or advisable in the opinion of the Secretary, to perfect its security
interest, and (ii) from time to time execute and deliver such further
instruments and take such action as may reasonably be required more effectively
to subject the Security to the lien of the Security Agreement and the Mortgage
as contemplated thereby, including but not limited to legal opinions from an
independent counsel for the Shipowner to the effect that all UCC Financing
Statements, or other filings and recordings with respect to the country where
the Shipowner is located, have been filed to perfect the Secretary's interests
in the Security as valid and enforceable first priority perfected security
agreements. With respect to Security that constitutes accounts or general
intangibles for money due or to become due, the Shipowner shall perfect the
Secretary's Security by giving written notice to the account debtor(s) of the
Secretary's security interest in such accounts and general intangibles.

         SECTION 2.12. Modification of Formation Agreements. (a) If the
Shipowner is organized as a general partnership, limited partnership, limited
liability company or joint venture, then for so long as there is Outstanding any
indebtedness to the United States of America pursuant to the Act, the
partnership agreement, operating agreement, limited liability agreement, joint
venture agreement (or any agreement constituting such an entity) shall not be
amended, modified or voluntarily terminated without the Secretary's prior
written consent.

         (b) In the event where any action by the Shipowner, any member of the
Shipowner or the management of the Shipowner results or would result in
dissolution of the Shipowner pursuant to its limited liability company agreement
or governing law, each member of the Shipowner shall

                                       15

<PAGE>

forthwith take all steps necessary to reform and reestablish the Shipowner.

         SECTION 2.13. Members of Limited Liability Companies. All existing and
future members of a Shipowner which is a limited liability company (each being a
"Member"), upon becoming a Member, shall forthwith enter into an agreement with
the Secretary, in form and substance satisfactory to the Secretary, whereby each
Member agrees: (1) that any amounts owed by the Shipowner to a Member with
respect to its interest (as that or the equivalent term is used in the
Shipowner's limited liability company agreement) (the "Distributions") shall be
subordinated to the Shipowner's payment of the Secretary's Note and debts under
the Security Agreement, provided that such Distributions may be paid to the
extent the Shipowner is permitted to pay dividends under the Financial
Agreement; (2) that in the event of default by the Shipowner under the Security
Agreement, the Member shall be subordinated in its rights to receive any
Distribution or to be paid any sums whatsoever by the Shipowner until the
Secretary has made a full recovery of any and all amounts owed under the
Secretary's Note and the Security Agreement.

         SECTION 2.14. Concerning the Performance and Payment Bonds. During the
Construction, the Shipowner shall cause to be maintained Performance Bonds and
Payment Bonds naming the Shipowner and the Secretary as co-obligees (the "Surety
Bonds") in form and substance satisfactory to the Secretary, to be obtained by
the Shipyard in the amount of the Construction Contract, issued by such surety
company or companies as shall be satisfactory to the Secretary (the "Surety").
In the event that the price for the work to be performed under the Construction
Contract is increased, then the Surety Bonds shall be increased simultaneously
in a corresponding amount. The Shipowner hereby agrees that the Secretary shall
be the sole loss payee under the Surety Bonds and the Surety shall pay such
amounts directly to the Secretary for distribution to the co-obligees as their
interests may appear. The Shipowner hereby agrees that its interest as a
co-obligee under each of the Surety Bonds is and shall be, upon the occurrence
of a Default under the Security Agreement, fully subject and subordinate to the
rights and interests of the Secretary therein. In the event of a default under
the Security Agreement, which default results in a payment under any of the
Surety Bonds, then the Surety Bonds proceeds shall be distributed by the
Secretary in accordance with the provisions of Section 6.05 hereof. The
Shipowner hereby irrevocably appoints the Secretary, the true and lawful
attorney of the Shipowner, in its name and stead, to execute all consents,
approvals, settlements and agreements on behalf of the Shipowner with respect to
any rights related to the Surety Bonds.

                                   ARTICLE III
                              THE SECRETARY'S NOTE

         SECTION 3.01. Secretary's Note. On this date, the Shipowner has duly
executed and delivered and the Secretary has accepted the Secretary's Note
payable in an amount equal to the principal amount of the Obligations.

         SECTION 3.02. Termination of the Guarantees. Except as provided in
Section 6.08 of the Indenture, the Guarantee with respect to a particular
Obligation, shall terminate only when, one or

                                       16

<PAGE>

more of the following events shall occur:

         (a) Such Obligation shall have been Retired or Paid;

         (b) The Obligees of all the Obligations then Outstanding shall have
elected to terminate the Guarantees, and the Secretary has been so notified by
the Indenture Trustee or all Obligees in writing; provided that, such
termination shall not prejudice any rights accruing hereunder prior to such
termination;

         (c) Such Guarantee shall have been paid in full in cash by the
 Secretary; or

         (d) The Indenture Trustee and each Obligee shall have failed to demand
payment of such Guarantee as provided in the Indenture, Guarantee, or the Act.

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

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

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

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

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

         SECTION 4.02. Moneys Due with Respect to Construction of the Vessels.
(a) In the event

                                       17

<PAGE>

that the Shipowner shall receive any moneys from any Person in connection with
the Construction of any Vessel, the Shipowner shall give written notice thereof
to the Secretary and shall promptly pay the same over to the Depository to be
held in the Title XI Reserve Fund.

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

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

         (d) In the event the Secretary assumes the Shipowner's rights and
duties under Section 6.09 of the Indenture or pays the Guarantees, the
Depository shall promptly pay all moneys including all Moneys Due with Respect
to Construction of the Vessels to the Secretary, who will apply it in accordance
with Section 6.05.

                                    ARTICLE V
                          ACTUAL COST; THE ESCROW FUND

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

         (b) The Secretary agrees to: (1) make a final determination of the
Actual Cost of each Vessel, limited to amounts paid by or for the account of the
Shipowner on account of the items set forth in Table A hereof and, to the extent
approved by the Secretary, any other items or any increase in the amounts of
such items, such determination to be made as of the time of payment by or for
the account of the Shipowner of the full amount of said Actual Cost of such
Vessel, excluding any amounts which are not to become due and payable, and (2)
promptly give written notice to the Shipowner, of the results of said final
determination; provided that, the Shipowner shall have requested such
determination not less than 60 days in advance and shall have furnished to the
Secretary not less than 30 days in advance of such determination along with a
Shipowner's Officer's Certificate and a statement by an independent certified
(or, with the Secretary's prior written consent, an independent) public
accountant or firm of accountants of the total amounts paid or obligated to be
paid by or for the account of the Shipowner for the Construction of such Vessel,
together with a breakdown of such totals according to the items for which paid
or obligated to be paid.

         SECTION 5.02. Escrow Fund Deposits. At the time of the sale of the
Obligations, the Shipowner shall deposit with the Secretary in the Escrow Fund
all of the proceeds of that sale unless the Shipowner is entitled to withdraw
funds under Section 5.03. If the Obligations are issued before the delivery of
all of the Vessels, then the Shipowner shall also deposit into the Escrow Fund
on the Closing Date an amount equal to six months interest at the rate borne by
the Obligations.

         SECTION 5.03. Escrow Fund Withdrawals. (a) The Secretary shall within a
reasonable

                                       18

<PAGE>

time after written Request from the Shipowner, disburse from the Escrow Fund
directly to the Indenture Trustee, any Paying Agent for such Obligations, the
Shipyard, or any other Person entitled thereto, any amount which the Shipowner
is obligated to pay or to the Shipowner for any amounts it has paid on account
of the items and amounts or any other items set forth in Table A annexed hereto
or subsequently approved by the Secretary), provided that, the Secretary is
satisfied with the accuracy and completeness of the information contained in
the following submissions:

                  (1) A Responsible Officer of the Shipowner shall deliver an
Officer's Certificate, in form and substance satisfactory to the Secretary,
stating that (A) there is neither a Default under the Construction Contract nor
the Security Agreement; (B) there have been no occurrences which have or would
adversely and materially affect the condition of the Vessel, its hull or any of
its component parts; (C) the amounts of the Request is in accordance with the
Construction Contract including the approved disbursement schedule and each item
in these amounts is properly included in the Secretary's approved estimate of
Actual Cost; (D) with respect to the Request, once the Contractor is paid there
will be no liens or encumbrances on the applicable Vessel, its hull or component
parts for which the withdrawal is being requested except for those already
approved by the Secretary; and (E) if the Vessel has already been Delivered, it
is in class and is being maintained in the highest and best condition. The
Shipowner shall also attach an Officer's Certificate of the Shipyard, in form
and substance satisfactory to the Secretary, stating that there are no liens or
encumbrances as provided in clause (D) of this subsection and attaching the
invoices and receipts supporting each proposed withdrawal to the satisfaction of
the Secretary.

                  (2) No payment or reimbursement under this section shall be
made (A) to any Person until the Construction Fund, if any, has been exhausted,
(B) to any Person until the total amount paid by or for the account of the
Shipowner from sources other than the proceeds of such Obligations equals at
least 12-l/2% of the Actual Cost of the related Vessel is made; (C) to the
Shipowner which would have the effect of reducing the total amounts paid by the
Shipowner pursuant to clause (B) of this subsection; or (D) to any Person on
account of items, amounts or increases representing changes and extras or owner
furnished equipment, if any, set forth in Table A annexed hereto, unless such
items, amounts and increases shall have been previously approved by the
Secretary; provided, however, that when the amount guaranteed by the Secretary
equals 75% or less of the Actual Cost, then after the initial 12 1/2% of Actual
Cost has been paid by or on behalf of the Shipowner for such Vessel and up to 37
1/2% of Actual Cost has been withdrawn from the Escrow Fund for such Vessel, the
Shipowner shall pay the remaining Shipowner's equity of at least 12 1/2% (as
determined by the Secretary) before additional monies can be withdrawn from the
Escrow Fund relating to such Vessel.

         (b) The excess, as determined by the Secretary, of any amount on
deposit in the Escrow Fund which represents interest on the principal amount
deposited, over and above the amount of interest due on the next Interest
Payment Date on the principal amount, as determined by the Secretary, remaining
on deposit on such Interest Payment Date, may, unless there is an existing
Default, be disbursed by the Secretary upon the Shipowner's Request made not
more than 10 Business Days prior to such Interest Payment Date or made within at
least 60 days after such Interest Payment Date.

                                       19

<PAGE>

         (c) The Secretary shall not be required to make any disbursement
pursuant to this section except out of the cash available in the Escrow Fund. If
sufficient cash is not available to make the requested disbursement, additional
cash shall be provided by the maturity or sale of securities in accordance with
instructions pursuant to Section 5.04. If any sale or payment on maturity shall
result in a loss in the principal amount of the Escrow Fund invested in
securities so sold or matured, the requested disbursement from the Escrow Fund
shall be reduced by an amount equal to such loss, and the Shipowner shall, no
later than the time for such disbursement, pay to the Indenture Trustee, any
Paying Agent, the Shipyard, or any other Person entitled thereto, the balance of
the requested disbursement from the Shipowner's funds other than the proceeds of
such Obligations.

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

If the Secretary shall have assumed the Shipowner's rights and duties under the
Indenture and the Obligations, and made any payments in default under the terms
of Section 6.09 of the Indenture, or the Guarantees shall become payable by the
Secretary as to the Obligations, all amounts in the Escrow Fund at the time such
Guarantees become payable (including realized income which has not yet been paid
to the Shipowner), shall be paid to the Secretary and be credited against any
amounts due or to become due to the Secretary from the Shipowner with respect to
all Obligations guaranteed by the Secretary to which this Security Agreement
relates. To the extent payment of the Escrow Fund to the Secretary is not
required, said amounts or any balance thereof, shall be paid to the Shipowner.

         (e) At any time the Secretary shall have determined that there has
been, for any reason, a disbursement from the Escrow Fund contrary to this
section, the Secretary shall give written notice to the Shipowner of the amount
improperly disbursed, the amount to be deposited or redeposited into the Escrow
Fund on account thereof, and the reasons for such determination. The Shipowner
shall thereafter promptly deposit or redeposit, as appropriate, such amount
(with interest, if any) required by the Secretary into the Escrow Fund.

         (f) Notwithstanding any other provision of this section, the Shipowner
shall not seek or receive reimbursement for any amount paid to the Shipyard or
any Person by the Secretary.

         (g) In the event that one of the events described in Section 2.07 has
occurred with respect to one or more of the Vessels or the Secretary shall have
paid the Guarantees or shall have assumed the Shipowner's rights and duties
under Section 6.09 of the Indenture, the Secretary may direct that moneys
remaining on deposit in the Escrow Fund may be withdrawn in whole or in part for
one of the following purposes: (1) application as provided in Section 3.05 of
the Indenture (but in no event shall any such disbursement for such purpose be
in an amount greater than the related Proportionate

                                       20

<PAGE>

Part of the Outstanding Obligations); (2) payment to the Shipowner, or its
order, in the event all Outstanding Obligations are Retired or Paid, other than
by payment of the Guarantees; or (3) application as provided in Section 6.05,
if the Secretary shall have paid the Guarantees or shall have assumed the
Shipowner's rights and duties under the Indenture and the Obligations.

         (h) Any amounts remaining in the Escrow Fund on the Termination Date of
the Escrow Fund which are in excess of 87 1/2% or 75% of Actual Cost, as the
case may be, shall be applied pursuant to Section 3.04 of the Indenture to
retire a Proportionate Part of the Outstanding Obligations.

         SECTION 5.04. Investment and Liquidation of the Escrow Fund. The
Secretary may invest the Escrow Fund in obligations of the United States with
such maturities that the Escrow Fund will be available as required for the
purposes hereof. The Secretary shall deposit the Escrow Fund into an account
with the Treasury Department and, upon agreement with the Shipowner, shall
deliver to the Treasury Department instructions for the investment, reinvestment
and liquidation of the Escrow Fund. The Secretary shall have no liability to the
Shipowner for acting in accordance with such instructions.

         SECTION 5.05. Income on the Escrow Fund. Except as provided in Section
5.03, any income realized on the Escrow Fund shall, unless there is an existing
Default, be paid to the Shipowner upon receipt by the Secretary of such income.
For the purpose of this section, the term "income realized on the Escrow Fund,"
shall mean with respect to the Escrow Fund (1) the excess of the cash received
from the sale of securities over their cost (less any losses from sale not
already paid pursuant to Section 5.03(c)) and (2) cash received from the payment
of principal and interest on securities.

         SECTION 5.06. Termination Date of the Escrow Fund. The Escrow Fund will
terminate 90 days after the Delivery Date of the last Vessel covered by this
Security Agreement (herein called the "Termination Date of the Escrow Fund"). In
the event that on such date the payment by or for the account of the Shipowner
of the full amount of the aggregate Actual Cost of all of the Vessels set forth
in Table A hereof has not been made or the amounts with respect to such Actual
Cost are not then due and payable, then the Shipowner and the Secretary by
written agreement shall extend the Termination Date of the Escrow Fund for such
period as shall be determined by the Shipowner and the Secretary as sufficient
to allow for such contingencies. If the Secretary shall have earlier made a
final determination of the aggregate Actual Cost of all of the Vessels in
accordance with Section 5.01, the Termination Date of the Escrow Fund shall be
deemed to be the date of such final determination; provided that, if as a result
of such final determination, a redemption of Obligations is required pursuant to
Section 3.04 of the Indenture, the Termination Date shall be the date specified
as the Redemption Date in the notice of redemption given pursuant to Section
3.08 of the Indenture.

                                   ARTICLE VI
                              DEFAULTS AND REMEDIES

         SECTION 6.01. What Constitutes "Defaults;" Continuance of Defaults.
Each of the

                                       21

<PAGE>

following events shall constitute a "Default" within the meaning of
Section 6.01:

         (a) A default in the payment of the whole or any part of the interest
on any of the Outstanding Obligations when the same shall become due and
payable; or default in the payment of the whole or any part of the principal of
any of the Outstanding Obligations when the same shall become due and payable,
whether by reason of Maturity, redemption, acceleration, or otherwise, or any
default referred to in Section 6.08 of the Indenture; and continuation of such
default for a period of 30 days shall constitute and is herein called a "Payment
Default." Any corresponding default with respect to the interest on, or the
principal of, the Secretary's Note is also deemed to be a Payment Default;

         (b) The following shall constitute and each is herein called a
"Security Default:"

                  (1) Default by the Shipowner in the due and punctual
observance and performance of any provision in Sections 2.02(b) and (j), 2.03,
2.04, 2.09, 2.11, 2.12, 2.14, 8.01 and 8.02;

                  (2) Default by the Shipowner continued after written notice
specifying such failure by certified or registered mail to the Shipowner from
the Secretary in the due and punctual observance and performance of any
provision in Sections 2.02(a), (d), (f), (g) and (h), 2.05 (except (g) and (k)
thereof), 2.07 and 2.13.

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

                  (4) The Shipowner shall become insolvent or bankrupt or shall
cease paying or providing for the payment of its debts generally, or the
Shipowner shall be dissolved or shall, by a court of competent jurisdiction, be
adjudged a bankrupt, or shall make a general assignment for the benefit of its
creditors, or shall lose its charter by forfeiture or otherwise; or a petition
for reorganization of the Shipowner under the applicable bankruptcy laws shall
be filed by the Shipowner, or such petition be filed by creditors and the same
shall be approved by such a court of competent jurisdiction; or a reorganization
of the Shipowner under said bankruptcy laws shall be approved by a court,
whether proposed by a creditor, a stockholder or any other Person whomsoever; or
a receiver or receivers of any kind whatsoever, whether appointed in admiralty,
bankruptcy, common law or equity proceedings, shall be appointed, by a decree of
a court of competent jurisdiction, or any other governmental body with respect
to any Vessel, or all or substantially all of the Shipowner's property, and such
decree shall have continued unstayed, on appeal or otherwise, and in effect for
a period of 60 days;

                  (5) Any default in the due and punctual observance and
performance of any provision in the Financial Agreement or the Construction
Contract;

                  (6) Any representation or warranty made relating to the
execution and delivery of this Security Agreement, the Mortgage, the Guarantee
Commitment or the Financial Agreement, or in any certificate required to be
furnished pursuant thereto, shall prove to be incorrect in any material

                                       22

<PAGE>

respect;

                  (7) Any event constituting a Default under any security
agreement or preferred mortgage under Chapter 313, relating to any other vessel
or vessels owned by the Shipowner and financed under the Act;

                  (8) Any additional Security Default prescribed in the Special
 Provisions hereof; and

                  (9) Any event constituting a default under any bareboat or
time charter or contract of affreightment of the Vessel.

         At any time following the occurrence of a Security Default, the
Secretary may give the Indenture Trustee a Secretary's Notice with respect to
such Security Default, after which the Indenture Trustee and the Obligees shall
have the right to make demand for payment of the Guarantees in accordance with
the Indenture and the Authorization Agreement, unless the Secretary shall have
assumed the Shipowner's rights and duties under the Indenture and the
Obligations, and made any payments in default under Section 6.09 of the
Indenture.

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

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

         (b) If the Secretary shall not have assumed the Shipowner's rights and
duties under the Indenture and the Obligations, and made any payments in default
under the terms of Section 6.09 of the Indenture, and if the Secretary shall
have determined prior to payment of the Guarantees that a Payment Default has
been remedied after the expiration of the aforesaid 30-day period, but prior to
the date of demand by the Indenture Trustee or an Obligee for payment under the
Guarantees, upon a Request by the Shipowner, the Secretary shall waive such
Default.

         (c) If the Secretary shall have determined prior to the expiration of
the period required for

                                       23

<PAGE>

payment of the Guarantees that a Payment Default had not occurred or has been
subsequently remedied by the Shipowner (and if the Secretary shall not have
assumed the Shipowner's rights and duties under the Indenture and the
Obligations, and made any payments in default under the terms of Section 6.09
of the Indenture and prior to any payment of Guarantees), the Secretary shall
notify the Indenture Trustee and the Shipowner of such determination, and, the
Secretary shall waive such Default.

         (d) The Secretary, in its sole discretion, may waive any Security
Default or any event which by itself, or with the passage of time or the giving
of notice, or both, would give rise to a Security Default; provided that, such
Default is waived prior to the Secretary giving to the Indenture Trustee the
Secretary's Notice.

         (e) The Secretary shall notify the Shipowner and the Indenture Trustee
in writing of any determinations made under paragraphs (a), (b) and (c) of this
section, and the Secretary shall waive the consequences of any such Default, and
annul any declaration under Section 6.02, and the consequences thereof.

         (f) No waiver under this Section shall extend to or affect any
subsequent or other Default, nor impair any rights or remedies consequent
thereon.

         (g) No waiver under this Section shall be deemed to have occurred
because the Secretary shall have assumed the Shipowner's rights and duties under
the Indenture and the Obligations, and made any payments in default under the
terms of Section 6.09 of the Indenture.

         SECTION 6.04. Remedies After Default. (a) In the event of a Default,
and before and after the payment of the Guarantees or the assumption by the
Secretary of the Shipowner's rights and duties under the Indenture and the
Obligations, and the making of any payments in default under the terms of
Section 6.09 of the Indenture, the Secretary shall have the right to take the
Vessels without legal process wherever the same may be (and the Shipowner or
other Person in possession shall forthwith surrender possession of the Vessels
to the Secretary upon demand) and hold, lay up, lease, charter, operate, or
otherwise use the Vessels for such time and upon such terms as the Secretary may
reasonably deem to be in the Secretary's best interest, accounting only for the
net profits, if any, arising from the use of the Vessels, and charging against
all receipts from the use of the Vessels, all reasonable charges and expenses
relating to such Vessel's use.

         (b) Upon either (i) payment of the Guarantees or (ii) the Secretary's
assumption of the Shipowner's rights and duties under the Indenture and the
Obligations, and the making of any payments in default under Section 6.09 of the
Indenture, the Secretary shall have the right to:

                  (1) Exercise all the rights and remedies in foreclosure and
otherwise given to mortgagees the laws of the United States, the country of
documentation of the Vessel, or such other country in which the Vessel may be
located at the time of the foreclosure;

                  (2) Bring suit at law, in equity or in admiralty to recover
judgment for any and all

                                       24

<PAGE>

amounts due under the Secretary's Note, this Security Agreement and the
Mortgage, collect the same out of any and all of Shipowner's property, whether
or not the same is subject to the lien of the Mortgage, and in connection
therewith, obtain a decree ordering the sale of any Vessel in accordance with
paragraph (b)(4) of this section;

                  (3) Have a receiver of the Vessels appointed as a matter of
right in any suit under this Section (and any such receiver may have the rights
of the Secretary under paragraph (b)(4) of this section;

                  (4) Sell any Vessel, free from any claim of the Shipowner, by
a public extrajudicial sale, held at such time and place and in such manner as
the Secretary may reasonably deem advisable, after twice publishing notice of
the time and place of such sale prior to the proposed sale in the Authorized
Newspapers to the Shipowner. Such publication and mailing is to be made at least
10 Business Days prior to the date fixed for such sale; provided that, such sale
may be adjourned from time to time without further publication or notice (other
than announcement at the time and place appointed for such sale or adjourned
sale). It shall not be necessary to bring any such Vessel to the place appointed
for such sale or adjourned sale;

                  (5) Accept a conveyance of title to, and to take without legal
process (and the Shipowner or other Person in possession shall forthwith
surrender possession to the Secretary), the whole or any part of any Vessel and
the Security wherever the same may be, and to take possession of and to hold the
same;

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

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

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

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

                                       25

<PAGE>

         (d) No remedy shall be exclusive of any other remedy, and each and
every remedy shall be cumulative and in addition to any other remedy.

         (e) No delay or omission to exercise any right or remedy shall impair
any such right or remedy or shall be deemed to be a waiver of any Default.

         (f) The exercise of any right or remedy shall not constitute an
 election of remedies by the Secretary.

         (g) If the Secretary discontinues any proceeding, the rights and
remedies of the Secretary and of the Shipowner shall be as though no such
proceeding had been taken.

         SECTION 6.05. Application of Proceeds. (a) The proceeds (from sale or
otherwise) of the whole or any part of the Increased Security and use thereof by
the Secretary under any of the foregoing powers, (b) the proceeds of any
judgment collected by the Secretary for any default hereunder, (c) the proceeds
of any insurance and of any claim for damages to the whole or any part of the
Increased Security received by the Secretary while exercising any such power,
and (d) all other amounts received by the Secretary, including amounts which are
required by Sections 2.05 and 2.07 shall be applied by the Secretary as follows:

                  (1) to the payment of all advances and all reasonable charges
and expenses of the Secretary pursuant to this Security Agreement;

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

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

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

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

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

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

                                       26

<PAGE>

possess and exercise in any such event. This authorization is irrevocable.

         (b) The Shipowner irrevocably authorizes the Secretary or its appointee
(with full power of substitution) to appear in the name of the Shipowner in any
court of any country or nation of the world where a suit is pending against the
whole or any part of the Increased Security because of or on account of any
alleged lien or claim against the whole or any part of the Increased Security,
from which the whole or said part of the Increased Security has not been
released.

         (c) The following shall constitute a debt due from the Shipowner to the
Secretary, and shall be repaid by the Shipowner upon demand: all reasonable
expenses incurred pursuant to paragraphs (a) or (b) of this Section and all
reasonable expenses incurred incident to the exercise by the Secretary of any
remedies pursuant to Section 6.04(b) or the assumption by the Secretary of the
rights and duties of the Shipowner under the Indenture and the Obligations, and
the making of any payments in default under the terms of Section 6.09 of the
Indenture (including, but not limited to, fees paid to the Indenture Trustee for
expenses incident to said assumption of the Indenture by the Secretary),
together with interest at the rate that would have been paid by the Department
of Treasury on the expended fund plus 1%. The Secretary shall not be obligated
to (nor be liable for his failure to) take any action provided for in paragraphs
(a) and (b) of this section.

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

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

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

                                  ARTICLE VIII
                          CONSOLIDATION, MERGER OR SALE

         SECTION 8.01. Consolidation, Merger or Sale. (a) Nothing in this
Security Agreement or the Mortgage shall prevent any lawful consolidation or
merger of the Shipowner with or into any other Person, or any sale of a Vessel
or Vessels to any other Person lawfully entitled to acquire and operate such
Vessel or Vessels, or any sale by the Shipowner of all or substantially all of
its assets to any other Person; provided that, the Secretary shall have given
its prior written consent to such succession, merger, consolidation or sale.

                                       27

<PAGE>

         (b) Any Successor shall (by indenture supplemental to the Indenture,
and by instrument amending or supplementing this Security Agreement, and the
Mortgage, as may be necessary), expressly assume the payment of the principal of
(and premium, if any) and interest on the Outstanding Obligations in accordance
with the terms of the Obligations, shall execute and deliver to the Secretary,
an endorsement to the Secretary's Note in form satisfactory to the Secretary,
shall expressly assume the payment of the principal of and interest on the
Secretary's Note, and shall expressly assume the performance of the agreements
of the Shipowner in the Indenture, this Security Agreement, the Mortgage and any
related document.

         (c) Upon the assumption of the documents listed in paragraph (b) of
this section, the Secretary shall consent to the surrender of each Vessel's
documents pursuant to the laws of the Vessel's place of documentation provided
that, concurrently with such surrender, such Vessel shall be redocumented under
the laws of the Vessel's place of documentation.

         (d) In the event of any sale of less than all the Vessels, the
Secretary shall determine if there will remain adequate security for the
Guarantees after discharge of any such Vessel or Vessels from the Security
Agreement and Mortgage, and (1) the Shipowner shall redeem, together with any
premium and/or accrued interest thereof, the Proportionate Part of the
Outstanding Obligations relating to such Vessel or Vessels in accordance with
the provisions of Article Third of the Indenture, or (2) the Person to which
such sale shall have been made (the "Transferee"), shall assume the documents
listed in paragraph (b) of this section. Upon any such assumption, the
Transferee shall succeed to and be substituted for the Shipowner with the same
force and effect as if it had been named in the Indenture, the Obligations, this
Security Agreement and the Mortgage (and such other documents) to the extent the
same relate to such Proportionate Part of the Outstanding Obligations and to
such Vessel or Vessels.

         SECTION 8.02. Transfer of a General Partner's or a Joint Venturer's
Interest. If the Shipowner is organized as a partnership or a joint venture, a
general partner or a joint venturer may lawfully transfer its respective
interests under the terms of the partnership or joint venture agreement to any
Person and may be released from all of their obligations thereunder and under
this Security Agreement or the Mortgage; provided that, (i) the Secretary shall
have given its prior written consent to the proposed transaction and (ii) the
transferee shall assume in full all of the existing obligations which the
transferring general partner or joint venturer has under the applicable
partnership or joint venture agreement, this Security Agreement, the Mortgage
and any related document.

                                   ARTICLE IX
                                     NOTICES

         SECTION 9.01. Notices and Communications. Except as otherwise provided
in this Security Agreement or by the Act, all notices, requests, demands,
directions, consents, waivers, approvals or other communications shall be in
writing in the English language (or accompanied by an accurate English
translation upon which the Secretary shall have the right to rely for all
purposes under this Agreement and shall be made or delivered in person or by
registered or certified mail,

                                       28

<PAGE>

postage prepaid, addressed to the party at the address of such party specified
in the Special Provisions hereof, or at such other address as such party shall
advise each other party by written notice, and shall be effective upon receipt
by the addressee thereof.

         SECTION 9.02. Waivers of Notice. In any case where notice by
publication, mail or otherwise is provided for by this Security Agreement, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be deemed the equivalent
of such notice.

         SECTION 9.03. Shipowner's Name or Address Change. The Shipowner shall
not change its name or its address without first providing written notice to the
Secretary of the new name and/or the change in address.

                                    ARTICLE X
                DISCHARGE OF SECURITY AGREEMENT AND THE MORTGAGE

         SECTION 10.01. Discharge of Security Agreement and the Mortgage. (a) If
the Obligations and the related Secretary's Note shall have been satisfied and
discharged, and if the Shipowner shall pay or cause to be paid all other sums
that may have become secured under this Security Agreement and the Mortgage,
then this Security Agreement, the Mortgage and the liens, estate and rights and
interests hereby and thereby granted, shall cease, determine, and become null
and void, and the Secretary, on the Shipowner's Request and at the Shipowner's
cost and expense, shall forthwith cause satisfaction and discharge and duly
acknowledge such satisfaction and discharge of this Security Agreement and the
Mortgage to be entered upon its and other appropriate records, and shall execute
and deliver to the Shipowner such instruments as may be necessary, and forthwith
the estate, right, title and interest of the Secretary in and to the Security,
the Increased Security, and any other securities, cash, and any other property
held by it under this Security Agreement and the Mortgage, shall thereupon
cease, determine and become null and void, and the Secretary shall transfer,
deliver and pay the same to the Shipowner.

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

                                   ARTICLE XI
                                  MISCELLANEOUS

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

                                       29

<PAGE>

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

         SECTION 11.03. Shipowner's Rights in Absence of Default. Except during
the existence of a Default), the Shipowner (1) shall be permitted to retain
actual possession and use of the Vessel, and (2) shall have the right, from time
to time, in its discretion and without the consent of or release by the
Secretary, to dispose of, free from the lien hereof and of the Mortgage, any and
all engines, machinery, masts, boats, anchors, cables, chains, rigging, tackle,
apparel, furniture, capstans, outfit, tools, pumps, pumping and other equipment,
and all other appurtenances to the Vessels, and also any and all additions,
improvements and replacements in or to the Vessels or said appurtenances, after
first or simultaneously replacing the same with items of at least substantially
equal value.

         SECTION 11.04. Surrender of Vessels' Documents. The Secretary shall
consent to the surrender of each Vessel's documents in connection with any
redocumentation of such Vessel required on account of alterations to such Vessel
which are not prohibited by this Security Agreement and by the Mortgage.

         SECTION 11.05. Table of Contents, Titles and Headings. The table of
contents, and titles of the Articles and the headings of the Sections are not a
part of this Security Agreement and shall not be deemed to affect the meaning or
construction of any of its provisions.

         SECTION 11.06. Payments in U.S. Currency. This is an international loan
transaction in which the specification of United States currency is of the
essence, and such currency shall be the currency of account in all events. The
respective payment obligations of the Shipowner and the Secretary hereunder
shall not be discharged by an amount paid in another currency, whether pursuant
to a judgment or otherwise, to the extent that the amount so paid on prompt
conversion to such currency under normal banking procedures does not yield after
deduction of any and all fees, taxes or any other charges imposed on the payment
of such amount of United States dollars then due. In the event that any payment
by the Shipowner or the Secretary, whether pursuant to a judgment or otherwise,
upon conversion and transfer, does not result in the payment of such amount of
United States currency at the place such amount is due, each shall be entitled
to demand immediate payment of, and shall have a separate cause of action
against the other for, the additional amount necessary to yield the amount then
due. In the event either the Shipowner or the Secretary, upon the conversion of
such judgment into currency, shall receive (as a result of currency exchange
rate fluctuations) an amount greater than that to which it was entitled, the
defaulting party shall be entitled to immediate reimbursement of the excess
amount.

         SECTION 11.07. Immunity. The Shipowner represents and warrants that it
is subject to civil and commercial law with respect to its obligations under
this Agreement, that the making and performance of this Agreement constitutes
private and commercial acts rather than governmental or public acts and that
neither the Shipowner nor any of its properties or revenues has any right of

                                       30

<PAGE>

immunity on the grounds of Sovereignty or otherwise from suit, court
jurisdiction, attachment prior to judgment, attachment in aid of execution of a
judgment, set-off, execution of a judgment or from any other legal process with
respect to its obligations under this Agreement. To the extent that the
Shipowner may hereafter be entitled, in any jurisdiction in which judicial
proceedings may at any time be commenced with respect to this Agreement to claim
for itself or its revenues or assets any such immunity, and to the extent that
in any such jurisdiction there may be attributed to the Shipowner such an
immunity (whether or not claimed), the Shipowner hereby irrevocably agrees not
to claim and hereby irrevocably waives such immunity. The foregoing waiver of
immunity shall have effect under the United States Sovereign Immunities Act of
1976.

                                       31

<PAGE>

SCHEDULE X TO SECURITY AGREEMENT                                   Document 11

                             SCHEDULE OF DEFINITIONS

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

"ACTUAL COST" means the actual cost of a Vessel, as set forth in Table A of the
Security Agreement or as subsequently redetermined by the Secretary pursuant to
the Security Agreement and the Act.

"AUDITED FINANCIAL STATEMENTS" mean the annual audit of the Shipowner's accounts
made in accordance with generally accepted accounting standards under the laws
of Mexico by independent certified public accountants, certified or licensed by
the appropriate regulatory authority of Mexico, who may be the Shipowner's
regular auditors, reconciled in the generally accepted accounting standards of
the United States, expressed in United States dollars.

"AUTHORIZATION AGREEMENT" means the Authorization Agreement, Contract No.
MA-13449, between the Secretary and the Indenture Trustee, whereby the Secretary
authorizes the Guarantee of the United States to be endorsed on the Obligations,
as the same is originally executed, or as modified, amended or supplemented
therein.

"AUTHORIZED NEWSPAPERS" means the Journal of Commerce or if it ceases to exist,
then in such other newspaper as the Secretary may designate and a newspaper
printed in English approved by the Secretary and of general circulation in
Houston, Texas.

"BOND PURCHASE AGREEMENT" means the agreement for the purchase of the
Obligations, executed by the Shipowner and the purchaser named therein, as
originally executed, modified or supplemented.

"BUSINESS DAY" means a day which is not a Saturday, Sunday or a bank holiday
under the laws of the United States or of the States of Mississippi or Louisiana
or the laws of Mexico.

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

"CLASSIFICATION SOCIETY" means the American Bureau of Shipping or as specified
in the Special Provisions of the Security Agreement, either a member of the
International Association of Classification Societies ("IACS") that has been ISO
9000 series registered or an IACS member that meets the requirements of the
International Maritime Organization, is qualified under a Quality Systems
Certificate Scheme and recognized by the United States Coast Guard and the
Secretary as meeting acceptable standards.

<PAGE>

"CLOSING DATE" or "CLOSING" means the date when the Security Agreement is
executed and delivered by the Shipowner.

"COMMITMENT TO GUARANTEE OBLIGATIONS" has the same meaning as the term Guarantee
Commitment.

"CONSENT OF AND GRANT OF RIGHTS BY LETOURNEAU, INC." means the consent of
LeTourneau, Inc., a Texas corporation, which has provided certain essential
elements of the Vessel, evidencing the consent by such corporation to the
assignment of the Construction Contract and the assignment by LeTourneau of the
License Agreement and the Kit Construction Agreement, as set forth in the
granting clause of the Security Agreement, and in the Consent of and Grant of
Rights by LeTourneau, Inc.

"CONSENT OF SHIPYARD" means each, and "Consents of Shipyards" means every,
document evidencing such Shipyard's consent to the assignment of a Construction
Contract to the Secretary under the Security Agreement as originally executed,
modified, amended or supplemented.

"CONSTRUCTION" means construction of the Vessels, including designing,
inspecting, outfitting and equipping thereof.

"CONSTRUCTION CONTRACT" means the Construction Contract dated April 22, 1997, as
amended, relating to the construction of the Vessel between the Shipowner and
TDI-Halter, Inc., a Texas corporation (the "Shipyard"); subsequently the
Shipyard merged with TDI-Halter Limited Partnership, a Louisiana limited
partnership (the "Merged Shipyard"), which assumed the rights and obligations of
the Construction Contract by operations of law, as amended by Amendment No. 1,
and as modified, amended or supplemented thereafter.

"CONSTRUCTION FUND" has the meaning specified in Article IV of the Security
Agreement.

"CORPORATE TRUST OFFICE" means the principal office of the Indenture Trustee at
which, at any time, its corporate trust business is administered, which office
is currently located at Bank One Trust Company N.A., 210 Baronne St., 3rd Floor,
New Orleans, LA 70112, Attention: Corporate Trust Department.

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

"DELIVERY DATE" means the date on which a Vessel is delivered to and accepted by
the Shipowner.

                                       2

<PAGE>

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

"DEPOSITORY AGREEMENT" shall mean the Depository Agreement, Contract No.
MA-13453 among the Shipowner, the Secretary and the Depository, as originally
executed or as modified or supplemented in accordance with the applicable
provisions thereof.

"DEPRECIATED ACTUAL COST" means the depreciated actual cost of a Vessel, as set
forth in Table A of the Security Agreement or as subsequently redetermined by
the Secretary pursuant to the Security Agreement and the Act.

"ELIGIBLE INVESTMENT" has the meaning given by Section 5 of the Financial
Agreement.

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

"FINANCIAL AGREEMENT" means the Title XI Reserve Fund and Financial Agreement,
Contract No. MA-13452, executed by the Shipowner and the Secretary, as
originally executed or as modified, amended or supplemented.

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

"GOVERNMENT USE" means the use of a Vessel or requisition of its title required
by a governmental body of the United States of America.

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

"GUARANTEE COMMITMENT" means the Commitment to Guarantee Obligations, Contract
No. MA-13448, dated as of November 5, 1998, executed by the Secretary and
accepted by the Shipowner relating to the Guarantees, as originally executed or
as modified, amended or supplemented.

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

                                       3

<PAGE>

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

"INDENTURE DEFAULT" has the meaning specified in Article VI of the Indenture.

"INDENTURE TRUSTEE" means Bank One Trust Company N.A., a national banking
corporation.

"INTEREST PAYMENT DATE" means with respect to any Obligation, the date when any
installment of interest on such Obligation is due and payable.

"LONG TERM DEBT" means, as of any date, the total notes, bonds, debentures,
equipment obligations and other evidence of indebtedness that would be included
in long term debt in accordance with generally accepted accounting principles.
There shall also be included any guarantee or other liability for the debt of
any other Person, not otherwise included on the balance sheet.

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

"MERGED SHIPYARD" means the merged shipyard identified in Recital A to the
Security Agreement.

"MONEYS DUE WITH RESPECT TO CONSTRUCTION OF THE VESSELS" has the meaning
specified in Section 1.03 of the Security Agreement.

"MORTGAGE" means the mortgage with first priority on the Vessel (or the first
preferred ship mortgage on the Vessel, as the case may be), Contract No.
MA-13451, by the Shipowner to the Secretary, as originally executed, modified,
amended or supplemented.

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

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

"NET WORTH" means, as of any date, the total of paid-in capital stock, paid-in
surplus, earned surplus and appropriated surplus, and all other amounts that
would be included in net worth in accordance with generally accepted accounting
principles, but exclusive of (1) any receivables from any stockholder, director,
Officer or employee of the Company or from any Related Party (other than current
receivables arising out of the ordinary course of

                                        4

<PAGE>

business and not outstanding for more than 60 days) and (2) any increment
resulting from the reappraisal of assets.

"OBLIGATION" means each, and "OBLIGATIONS" means every, obligation of the
Shipowner bearing a Guarantee that is authenticated and delivered under the
Authorization Agreement and Indenture.

"OBLIGATION REGISTER" has the meaning specified in Section 2.07 of the
Indenture.

"OBLIGEE" means each, and "OBLIGEES" means every, Holder of an Obligation.

OFFERING CIRCULAR" means the offering circular relating to the issuance and sale
of each Obligation.

"OFFICER'S CERTIFICATE" means a certificate conforming to Section 1.02 of the
Security Agreement or the Indenture as the context may require.

"OUTSTANDING" when used with reference to the Obligations, shall mean all
Obligations theretofore issued under the Indenture, except: (1) Obligations
Retired or Paid; and (2) Obligations in lieu of which other Obligations have
been issued under the Indenture. Obligations which are not Outstanding shall not
be entitled to any rights or benefits provided in the Indenture. For the
purposes of Articles VI and X of the Indenture, and also in determining whether
the Holders of a stated percentage of the principal amount of Outstanding
Obligations have made an Act of Obligees required or permitted by the Indenture,
Obligations owned by the Shipowner or by any Affiliate of the Shipowner shall be
disregarded and deemed not to be Outstanding; provided that, for the purpose of
determining whether the Indenture Trustee shall be protected in relying on any
such Act of Obligees, only Obligations which the Indenture Trustee has actual
knowledge are so owned shall be so disregarded and deemed not to be Outstanding.

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

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

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

                                       5

<PAGE>

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

"PROPORTIONATE PART" means with respect to the item in question, the portion of
the item in question, as of the date of any calculation, which bears the same
proportion to the entire amount of the item in question as: (x) the Depreciated
Actual Cost of the Vessel as of the date of such calculation bears to (y) the
Depreciated Actual Cost of all the Vessels as of such date (excluding the
Depreciated Actual Cost of any Vessel upon which its Obligations have been
redeemed pursuant to Section 3.06 of the Indenture), all as determined by the
Secretary.

"REDEMPTION DATE" means a date fixed for the redemption of an Obligation by the
Indenture.

"RELATED PARTY" means one that can exercise control or significant influence
over the management and/or operating policies of another Person, to the extent
that one of the Persons may be prevented from fully pursuing its own separate
interests. Related parties consist of all affiliates of an enterprise, including
(1) its management and their immediate families, (2) its principal owners and
their immediate families, (3) its investments accounted for by the equity
method, (4) beneficial employee trusts that are managed by the management of the
enterprise, and (5) any Person that may, or does, deal with the enterprise and
has ownership of, control over, or can significantly influence the management or
operating policies of another Person to the extent that an arm's-length
transaction may not be achieved.

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

"RESPONSIBLE OFFICER" means (1) in the case of Shipowner, the chairman of the
board of directors, the president, any vice president, the secretary or the
treasurer, (2) in the case of any business entity, the chairman of the board of
directors, the president, any executive or senior vice president, the secretary,
the treasurer, member or partner, (3) in the case of any commercial bank, the
chairman or vice-chairman of the executive committee of the board of directors
or trustees, the president, any executive or senior vice president, the
secretary, the treasurer, any trust officer, and (4) with respect to the signing
or authentication of Obligations and Guarantees by the Indenture Trustee, any
person specifically authorized by the Indenture Trustee to sign or authenticate
Obligations.

                                       6

<PAGE>

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

"RIGHTS UNDER THE CONSTRUCTION CONTRACTS AND RELATED CONTRACTS" shall have the
meaning specified in Section 1.03 of the Security Agreement.

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

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

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

"SECRETARY OF DEFENSE" means the Secretary of Defense of the United States of
America.

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

"SECURITIES ACCOUNT" has the meaning given by Article 8-501 of the UCC.

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

"SECURITY AGREEMENT" means the security agreement, Contract No. MA-13450, dated
as of the Closing Date, consisting of the special provisions, the general
provisions and this schedule X, executed by the Shipowner as security for the
Secretary, as originally executed or as modified, amended or supplemented.

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

                                       7

<PAGE>

"SHIPOWNER" means Perforadora Central, S.A. de C.V., a Mexican corporation, and
shall include its successors and assigns.

"SHIPYARD" means the Shipyard identified in Recital A to the Guarantee
Commitment.

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

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

"SUPPLEMENTAL INDENTURE" shall mean any indenture supplemental to the Indenture
entered into pursuant to Article X of the Indenture.

"TITLE XI" means Title XI of the Act.

"TITLE XI RESERVE FUND" has the meaning specified in the Financial Agreement.

"TITLE XI RESERVE FUND AND FINANCIAL AGREEMENT" means the Financial Agreement.

"UCC" means the Uniform Commercial Code as enacted in the State of Louisiana.

"VESSEL" means one LeTourneau design Super 116C Jack-up Mobile Drilling Unit,
Hull No. 21, constructed in accordance with the Construction Contract, as
amended, including all work and material heretofore or hereafter performed upon
or installed or placed upon such Vessel, together with related appurtenances,
additions, improvements and replacements.

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

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

                                       8

<PAGE>

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

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

<PAGE>

EXHIBIT 2 TO SECURITY AGREEMENT                                     Document 12

                   PROMISSORY NOTE TO UNITED STATES OF AMERICA

         Perforadora Central, S.A. de C.V. (the "Shipowner"), for value
received, promises to pay to THE UNITED STATES OF AMERICA (the "United States"),
represented by the Secretary of Transportation, acting by and through the
Maritime Administrator (the "Secretary"), at the office of the Maritime
Administration, Department of Transportation, Washington, D.C., in lawful money
of the United States of America, the aggregate principal amount of Seventy
Million Five Hundred Twenty-Eight Thousand and No/100 ($70,528,000.00) United
States Dollars on or before the twelfth anniversary of the Transition Date as
defined below, payable semiannually commencing six months after said Transition
Date together with interest thereon from the date hereof at the rate of 5.63%
per annum (calculated on the basis of a 360-day year of twelve 30-day months),
to be paid on April 1, 1999, on the earlier of July 15, 1999 or the delivery
date of the Vessel (the "Transition Date") and thereafter on each semiannual
anniversary of the Transition Date until such principal sum has been paid. This
Secretary's Note ("Secretary's Note") is subject to mandatory prepayment on the
same terms and conditions as the Obligations.

         This Secretary's Note is given (1) in consideration of the Secretary's
issuance, pursuant to the provisions of Title XI of the Merchant Marine Act,
1936, as amended, of Guarantees of payment of the unpaid interest on and the
unpaid balance of the principal amount of the Shipowner's United States
Government Guaranteed Export Ship Financing Obligations (the "Obligations")
issued by the Shipowner on the date hereof in order to finance a portion of the
cost of construction of the Vessel, and (2) to secure the Shipowner's payment to
the Secretary of any amount that the Secretary may be required to pay to the
Holders of the Obligations under said Guarantees.

         This Secretary's Note is issued pursuant to the provisions of the
Security Agreement, Contract No. MA-13450, dated November 5, 1998, between the
Shipowner and the Secretary. The Security Agreement contemplates that on the
Delivery Date, a ship mortgage with first priority (Contract No. MA-13451) on
the Vessel will be executed and delivered by the Shipowner, as mortgagor, to the
Secretary, as mortgagee, covering the Shipowner's interest in the Vessel (the
"Mortgage"). The definitions used in, and the provisions of, the Security
Agreement and the Mortgage are incorporated herein by reference.

         This Secretary's Note has been negotiated and received by the
Secretary, is secured by the Security Agreement and will be, on the Delivery
Date, secured by the Mortgage, and is subject to all the terms of the Security
Agreement and the Mortgage, to the same extent as if said documents were set out
herein in full.

<PAGE>

         To the extent that any of the Obligations are Outstanding and until the
Guarantees on each of the Obligations have been terminated pursuant to the
provisions of Section 3.02(a), (b) or (d) of the Security Agreement, the
principal of and the interest on this Secretary's Note shall remain outstanding
and unpaid. Payments on the Outstanding Obligations shall be deemed a payment of
principal and interest on this Secretary's Note when paid in the following
manner:

               (1) by payment of interest on such Obligations in accordance with
               the provisions thereof and of the Indenture;

               (2) by any redemption of such Obligations in accordance with the
               provisions thereof and of the Indenture;

               (3) when such Obligations have been Retired or Paid, other than
               by payment of the Guarantees;

If such payment is made with moneys advanced or loaned to the Shipowner by the
Secretary, such payment on the Obligations shall not, as to such amount,
constitute payment of principal or interest on this Secretary's Note and the
same shall not in any way be discharged as to such amount. In the event that the
Secretary assumes the Shipowner's rights and duties under the Indenture and the
Obligations and makes any payments, such payments shall not, as to such amounts,
constitute payment of principal and interest on this Secretary's Note and the
same shall not in any way discharge such amounts until such time as this
Secretary's Note is paid in full or otherwise discharged in an appropriate
proceeding in a court of competent jurisdiction as established by the final
order of a court of last resort or the final order of an inferior court which is
not appealed.

         The unpaid balance of the principal of this Secretary's Note and the
interest hereon may be declared or may become immediately due and payable by
declaration of the Secretary at any time after the Secretary (i) is required to
pay the Guarantees pursuant to the terms of the Indenture and the Authorization
Agreement or (ii) assumes pursuant to the terms of the Indenture, the
Shipowner's rights and duties under the Indenture and the Obligations.
Thereupon, the unpaid balance of the principal of and the interest on this
Secretary's Note shall become due and payable, together with interest thereon at
the Obligation rate plus one percent.

         This Secretary's Note hereby adopts and incorporates by reference as if
fully set forth herein paragraph (3) (d) of the Special Provisions of the
Security Agreement, entitled "Jurisdiction and Consent to Suit," and also hereby
adopts and incorporates, in the same manner, Sections 11.06 and 11.07 of the
General Provisions of the Security Agreement, respectively entitled "Payments in
U.S. Currency" and "Immunity."

                                       2

<PAGE>

         IN WITNESS THEREOF, the Shipowner has caused this Secretary's Note to
be signed on this 5th day of November, 1998.

                                        PERFORADORA CENTRAL, S.A. DE C.V.
(The Company has
   no seal)
                                        By: /s/ PATRICIO ALVAREZ MORPHY
                                           ----------------------------------
                                           Patricio Alvarez Morphy, President

Attest:

BY: /s/ JAVIER ALVAREZ MORPHY
   --------------------------------
             Secretary

                                       3

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00036-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00036-of-00352.parquet"}]]