Document:

EX-10.12

	
Appendix II to Guarantee Commitment Document 
5.01

Contract MA-13550

TRUST INDENTURE

SPECIAL PROVISIONS

        THIS TRUST
INDENTURE, dated December __, 1999 (the “Indenture” or the
“Agreement”), between (i) ENSCO OFFSHORE COMPANY, a Delaware
corporation (the “Shipowner”), and (ii) BANKERS TRUST COMPANY, a New
York banking corporation (the “Indenture Trustee”). 

RECITALS:

WHEREAS, pursuant to the understandings set forth in the
Security Agreement, the Shipowner has authorized the issuance of certain
Obligations pursuant to this Indenture in an aggregate principal amount not to
exceed $194,855,000 to finance the cost of construction of the Vessel; and 

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

A. To aid in financing the construction of the Vessel, the
Shipowner has duly executed this Indenture, has duly authorized the issuance
hereunder of the Obligations and has entered, or will enter, into (i) on the
date hereof, a floating interest rate term loan facility agreement (the
“Credit Agreement”) providing for a loan of up to the aggregate
principal amount of One Hundred Ninety Four Million Eight Hundred Fifty-Five
Thousand United States Dollars (US$194,855,000) with Govco Incorporated (the
“Primary Lender”) and Citibank, N.A. (the “Alternate
Lender”) (the Primary Lender and the Alternate Lender, collectively the
“Lenders”) to be evidenced by one or more promissory notes (the
“Note”) duly issued by the Shipowner pursuant to Section 2.03 of
Exhibit 1 of this Indenture, designated “United States Government Ship
Financing Note, 1999 Series,” having the maturity date and interest rate
set forth therein, and, (ii) on or before the Bond Closing Date, one or more
bond purchase agreements (each a “Bond Purchase Agreement”) with the
purchasers named therein, providing for the sale and delivery of up to the
aggregate principal amount of One Hundred Ninety Four Million Eight Hundred
Fifty-Five Thousand United States Dollars (US$194,855,000) bonds (the
“Bonds”) duly issued by the Shipowner pursuant to Section 2.03 of
Exhibit 1 of this Indenture, designated “United States Government
Guaranteed Ship Financing Bonds, 7500 Series”, having the maturity date and
interest rate set forth therein; if a Note has been issued by the Shipowner, on
or before the Mandatory Note Redemption Date, the Shipowner shall redeem the
Note with proceeds of Bonds to be issued on such Redemption Date. The Note and
the Bonds issued (as the case may be) shall be known as the
“Obligations”. In no event shall the aggregate outstanding principal
amount of the Obligations exceed 87 1/2% of the Actual Cost as of the Delivery
Date of the Vessel or the Depreciated Actual Cost after the Delivery Date of the
Vessel; 

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

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, and they  shall be  treated  as one  instrument.  In the  event of a
conflict, the terms of the Special Provisions shall prevail.

ARTICLE SECOND

        The Obligations. 

        (a)(1) The Note
or Bonds issued hereunder from time to time shall be designated “United
States Government Guaranteed Ship Financing Note, 1999 Series,” or
“United States Government Guaranteed Ship Financing Bonds, 7500
Series” and shall be in the forms of Exhibits 2-A and 2-B to this
Indenture; and the aggregate principal amount of Obligations which may be issued
and outstanding under this Indenture shall not exceed One Hundred Ninety Four
Million Eight Hundred Fifty-Five Thousand United States Dollars
(US$194,855,000); and each shall mature and bear interest and have such other
terms and provisions as set forth therein. 

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

        (b) Limits on
Guarantees. The Guarantees extend only to principal and interest owed under the
Note and Bonds and only to the extent specified therein. The United States does
not guarantee the payment of any other indebtedness of the Shipowner to the
Holders or any other Person no matter how the indebtedness arises or whether it
is in any way related to the borrowings of the principal amount which is the
subject of any Note or Bond, including, but not limited to fees and expenses
arising under the Credit Agreement, “Indemnified Amounts” as defined
therein, Liquidation Fees, Breakage Fees, Make Whole Premium, “Taxes”
or “Other Taxes” as defined in the Credit Agreement or in this Trust
Indenture, default interest under Section 4.02(b) of the Credit Agreement,
interest for any “Post-Maturity Period” in excess of the
“Guaranteed Interest” (as such terms are defined in the Credit
Agreement), or any other charges, costs or expenses owed to any Person by the
Shipowner and not constituting principal or interest owed under the Note or
Bonds. 

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

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

ARTICLE THIRD

CERTAIN REDEMPTIONS

        (a) If any Note
has been issued hereunder, on or before the Stated Maturity of such Note, the
Shipowner may redeem any or all of such Note by issuing on the Redemption Date
of such Note, Bonds in a principal amount equal to the outstanding principal
amount of and interest accrued on the Note to be so redeemed. All proceeds of
Bonds issued pursuant to this paragraph (a), shall be applied by the Shipowner
to pay in full the outstanding principal and interest of the outstanding Note to
be redeemed on the Redemption Date. Notwithstanding any contrary provision of
Section 3.09 and 3.10 of Exhibit 1 hereto, proceeds of Bonds issued pursuant to
this paragraph (a) may be paid on the Redemption Date to any such account as the
Holder may designate in writing to the Indenture Trustee and the Shipowner,
whether or not such account is maintained with the Indenture Trustee, and
delivery to such Holder by the Shipowner of an amount sufficient to repay such
Holder’s Note in full shall constitute conclusive evidence of such payment
for all purposes under this Indenture. 

        (b) Mandatory
Redemption of Obligations. (1) The Obligations are subject to repayment, upon
the terms and conditions provided in this Indenture, through the operation of a
mandatory repayment schedule providing for the repayment in consecutive
semi-annual installments of a principal amount as indicated in each such
Obligation, commencing on the date which is the earlier of (A) six (6) months
after delivery of the Vessel and (B) December 31, 2001 (the “Initial
Payment Date”), and semi-annually thereafter commencing with the date that
is six months following the Initial Payment Date (each a “Payment
Date”) to and including, for the Note, the Stated Maturity, and for the
Bonds, the date that is no later than fifteen (15) years following the Delivery
Date, at one hundred percent (100%) of the principal amount thereof plus
interest accrued thereon to such date; provided, however, that notwithstanding
the foregoing provisions of this paragraph, in case the principal amount of the
Note shall be reduced by reason of any prepayment or redemption described in
paragraph (c) of this Article Third, the principal amount of the Obligations to
be repaid through the operation of the mandatory repayment schedule on each
subsequent scheduled mandatory redemption date shall be subject to reduction as
provided in this Indenture. In the event the Note has been issued hereunder
which is being redeemed through the issuance of Bonds, (i) the first regularly
scheduled principal installment under the Bonds shall be due on the first
Payment Date which falls after the first date of issue of the Bonds; (ii) the
remaining principal payments shall be payable according to the schedule
incorporated into the Bonds and (iii) the last Payment Date for each Bond shall
be no later than 15 years from the Delivery Date of the Vessel. 

        (2) The Note
issued hereunder is also subject to mandatory redemption at a redemption price
equal to one hundred percent (100%) of the principal amount thereof, together
with interest accrued thereon to the date of redemption, on the Stated Maturity
of such Note or, if earlier, the applicable “Mandatory Note Redemption
Date” which shall be the tenth (10th) Business Day after receipt by the
Shipowner from the Indenture Trustee of the notice specified in the paragraph
(b)(3) below of this Article Third, provided that the Secretary may, in his or
her discretion, waive in writing the requirement to make such payment on such
Mandatory Note Redemption Date. Redemption of the Note on the Mandatory Note
Redemption Date shall be subject also to the payment of any Liquidation Fees or
Breakage Fees. On the Mandatory Note Redemption Date, the Shipowner may redeem
the Note using the proceeds of Bonds issued on such Mandatory Note Redemption
Date in accordance with the provisions of paragraph (b) of Article Third hereof. 

        (3) So long as
any Note shall be outstanding, the Indenture Trustee shall determine the
Benchmark Rate on each Business Day and shall notify the Shipowner, the
Secretary and each Holder in writing if the applicable Benchmark Rate equals or
exceeds the Trigger Rate. 

        (c) Optional
Obligation Redemptions. (1) At its option, the Shipowner may redeem the Note
from time to time, in whole or in part, at a redemption price equal to one
hundred percent (100%) of the principal amount thereof, together with interest
thereon to such redemption date, and any Liquidation Fees and Breakage Fees in
such amounts as set forth in a written notice by the Agent to the Secretary, the
Shipowner and the Indenture Trustee. Any partial redemption of the Note pursuant
to Section 8.01 of Exhibit 1 to this Indenture shall be subject to payment of
any Liquidation Fees or Breakage Fees. 

        (2) At its
option, the Shipowner may redeem the Bonds, in whole or in part, on any Payment
Date, at a redemption price equal to one hundred percent (100%) of the principal
amount being redeemed, together with interest accrued thereon to such date,
together with the Make Whole Premium specified in such Bonds. No Make Whole
Premium shall be owed in connection with any mandatory redemptions of the Bonds,
any redemptions of the Bonds at the option of the Secretary, or any other
redemption of the Bonds pursuant to any provisions of this Indenture not set
forth in this paragraph. 

        (3) The right to
make any such optional redemption of Obligations shall not be cumulative. If the
Shipowner shall elect to make any such optional redemption, the Shipowner shall,
at least five (5) Business Days in the case of the Note, and fifteen (15) days
in the case of the Bonds, but not more than sixty (60) days, prior to such
Redemption Date, deliver to the Indenture Trustee a Request stating that the
Shipowner intends to exercise its right as set forth in this paragraph (c)(3) to
make such optional redemption and specifying the principal amount of Obligations
which the Shipowner intends to redeem on such Redemption Date. 

ARTICLE FOURTH

                ADDITIONS, DELETIONS AND AMENDMENTS TO EXHIBIT 1

        (a) Concerning
Payment of the Obligations. Notwithstanding anything to the contrary in Exhibit
1 hereto, the Obligations to be issued hereunder shall be payable as to
principal, premium (if any), and interest, at an office or agency maintained by
the Shipowner for such purpose at the Corporate Trust Office of the Indenture
Trustee, or at the option of the Shipowner, as to payments of principal, premium
(if any), or interest by 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) Concerning
Selection of Bonds to be Redeemed. Notwithstanding the provisions of Section
3.07 of Exhibit 1 to this Indenture, (i) if less than all the Obligations are to
be optionally redeemed under any of the provisions contained or referred to in
Article Third hereof or Article III of said Exhibit 1, the Indenture Trustee
shall select, pursuant to written instructions of the Shipowner, the portions
($1,000 or any integral multiple thereof) of the Obligations to be redeemed on
the Redemption Date by allocating the principal amount to be redeemed among the
Holders of the Obligations in proportion to the respective principal amount of
the Obligations registered in their respective names. 

        (c) 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 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. 

        (d) Concerning
Section 7.02. The amount “$25,000,000” in Section 7.02 of Exhibit 1
hereto is hereby deleted, and there is substituted therefor the amount
“$100,000,000.” 

        (e) Concerning
 Section 7.03.  A new Section  7.03(r) is hereby  added to
Exhibit 1 and reads as follows:

	 	

“The
Indenture Trustee may execute any of the trusts or powers hereunder or perform
any
duties hereunder either directly or by or through agents, attorneys,
custodians
or nominees appointed with due care.”
	 

	
        (f) Concerning
Section 7.04. The words starting with “(2) indemnify” in the first
sentence of Section 7.04 of Exhibit 1 are hereby deleted and replaced with the
following: 

	 

	 	
“indemnify
the Indenture Trustee and its agents, attorneys, custodians or nominees for,

and hold each of them harmless against, any loss, liability or expense which any of
them

may incur or suffer without negligence or bad faith in acting under this
Indenture

or the Authorization Agreement.”

	 
	
ARTICLE FIFTH

MISCELLANEOUS

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

	The Indenture Trustee as:
	      Bankers Trust Company

      Corporate Trust and Agency Services

      Four Albany Street

      New York, New York 10006

      Attention: Project Finance Group
	The Agent:
	      Citicorp North America, Inc.

      Attn: Structured Trade Finance

      399 Park Avenue

      New York, New York 10043
	The Shipowner as:
	      ENSCO Offshore Company

      2700 Fountain Place

      1445 Ross Avenue

      Dallas, Texas, 75202

      Attention: Corporate Secretary
	The Secretary as:
	      SECRETARY OF TRANSPORTATION

      c/o Maritime Administrator

      U.S. Department of Transportation

      400 Seventh Street, SW

      Washington, D.C. 20590
	
        (b) Governing
Law. This Indenture and each Obligation shall be construed, enforced, and
governed by the federal laws of the United States of America, but to the extent
they are inapplicable, then by the laws of the State of New York of the United
States of America without regard to its conflict of laws provisions (other than
Section 5-1401 of the New York General Obligations Law). 

        (c) Jurisdiction
and Consent to Suit. Any proceeding to enforce this Indenture may be brought in
the United States Federal district court for the Southern District of New York.
Each of the Shipowner and the Indenture Trustee hereby irrevocably waives any
present or future objection to such venue, and for each of itself and in respect
of any of its property hereby irrevocably consents and submits unconditionally
to the non-exclusive jurisdiction of such court. Each of the Shipowner and the
Indenture Trustee 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 by a party
in connection with this Indenture shall be deemed and held in every respect to
be effectively served upon it in connection with such proceedings in such court,
if delivered to CT Corporation, presently located at 111 Eighth Avenue, New
York, New York 10011, United States of America, which it irrevocably designates
and appoints as its authorized agent for the service of process by a party in
connection with this Agreement in the United States Federal district court for
the Southern District of New York. 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. 

        (d) Execution of Counterparts.  This Indenture may be  executed  in any
number of counterparts. All such counterparts shall  be deemed  t  be originals,
and shall constitute but one and the same instrument.

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

			ENSCO OFSHORE COMPANY, Shipowner
	 	
     	 	
     	 	
	Attest:

          
               	  	BY:             
               
         

      Name:
      Title:

      BANKERS TRUST COMPANY, solely in its

      capacity as Indenture Trustee
	 	
     	 	
     	 	

	Attest:

          
               	  	BY:             
               
         

      Name:
      Title:

	

	

	

Schedule A to the Indenture

Document 5.03

                  Schedule of Definitions

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

"Advance"  shall  mean  the funding under the Credit Agreement of any portion of
the Note.

"Advance Date" means, in relation to any Advance, the
Business Day on which the applicable Lender shall have initially funded the
outstanding principal amount thereof.

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

"Agent" means Citicorp North America, Inc., a Delaware corporation, as Agent for
the Primary Lender under the Credit Agreement,  and any successor Primary Lender Agent
under the Credit Agreement.

"Alternate Lender" means Citibank, N.A., a national
banking association, as Alternate Lender under the Credit Agreement, and any
successor Alternate Lender.

"Applicable Interest Rate" (i) with respect to the
Bonds, means the fixed rate of interest per annum as provided in such Bonds and
(ii) with respect to the Note, has the following meaning:

	 

	
	 	(a) with respect to any portion of the Note that is funded by
         the Primary Lender through its issuance of commercial paper notes and
         so long as the Primary Lender is the holder of the indebtedness related
         to such funded portion, the sum of (i) the Primary Lender's weighted
         average cost (defined below) related to the issuance of commercial
         paper notes and other short-term borrowings or the sale of
         participation interests (collectively, "Commercial Paper"),
         which in each case have been allocated by the Primary Lender to the
         Note, which rate includes related issuance costs incurred by the
         Primary Lender plus (ii) 0.15% per annum, as calculated by the
         Indenture Trustee for each Interest Period based on the weighted
         average cost of Commercial Paper specified in a written notice sent by
         the Agent to the Indenture Trustee, the Shipowner and the Secretary at
         least five (5) Business Days prior to each Interest Payment Date on
         which the interest so calculated is payable. The Applicable Interest
         Rate shall, based on such notice, be specified in a written notice sent
         by the Indenture Trustee to the Shipowner, the Agent and the Secretary
         at least four (4) Business Days prior to each Interest Payment Date on
         which the interest so calculated is payable. For purposes of the
         foregoing, the Primary Lender's "weighted average cost" of
         Commercial Paper shall consist of (i) the actual interest or discount
         paid to purchasers of Commercial Paper, (ii) the costs associated with
         the issuance of the Commercial Paper and (iii) other borrowings the
         Primary Lender may incur, including the amount to fund small or odd
         dollar amounts that are not easily accommodated in the commercial paper
         market; and
	 
	 	(b) with respect to any portion of the Note that is funded by
         the Alternate Lender or to the extent that a portion of the Note held
         by the Primary Lender is assigned to the Alternate Lender or to any
         other assignee, then, from and after the applicable Advance Date or the
         effective date of such assignment, as the case may be, a rate per annum
         equal to LIBOR plus 0.15%; provided, however, that, if the Indenture
         Trustee shall have received notice from the Alternate Lender or
         assignee that such Alternate Lender or assignee shall have determined,
         prior to the commencement of any Interest Period that: (A) Dollar
         deposits of sufficient amount and maturity for funding an Advance are
         not available to such Lender in the London interbank market in the
         ordinary course of business; or (B) by reason of circumstances
         affecting the relevant market, adequate and fair means do not exist for
         ascertaining the rate of interest to be applicable to the Note; or (C)
         the relevant rate of interest referred to in the definition of LIBOR
         which is to be used to determine the rate of interest for the Note does
         not cover the funding cost to such Lender of funding or maintaining the
         Note; or (D) the Lender is unable to establish LIBOR for the relevant
         Interest Period; then, in any such event, the Indenture Trustee shall
         give notice to the Shipowner and the Secretary of such condition and
         interest shall, effective as of the date of such notice and so long as
         such condition shall exist, accrue during each applicable Interest
         Period at the Federal Funds Rate plus 0.15%; provided, further, however
         that if, in the applicable Lender's reasonable judgment, it becomes
         unlawful at any time for such Lender to make or maintain fundings under
         the Note based upon LIBOR, the Lender shall so notify the Indenture
         Trustee and the Secretary, who shall give notice to the Shipowner of
         such determination and, effective, as of the date of such notice and so
         long as such condition shall exist, interest shall thereafter accrue
         during each applicable Interest Period at the Federal Funds Rate plus
         0.15%.
	 

	
"Authorization Agreement" means the Authorization
Agreement, Contract No. MA-13551, between the Secretary and the Indenture
Trustee, whereby the Secretary authorizes the Guarantee of the United States to
be endorsed on each of the Obligations, as the same is originally executed, or
as modified, amended or supplemented therein.

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

"Benchmark Rate" means, as of any date of determination:

     (i) either (a) if and so long as the
Note is funded by the Primary Lender through its issuance of commercial paper
notes, then the Fed AA Composite Rate calculated by the Federal Reserve Bank for
commercial paper with a designated maturity of thirty (30) days as reported on
Telerate Access Service (page 120 or the relevant page at the date of
determination) or, if such data cease to be available, any publicly available
sources of similar market data representing an average rate of AA-rated
commercial paper with comparable maturities, as selected by the Indenture
Trustee at approximately 10:00 a.m. (New York City time) on the date of
determination, or (b) if the Note has been funded by the Alternate Lender, then
the higher of (i) the Applicable Interest Rate most recently quoted by the Agent
or (ii) the rate of interest per annum determined by the Indenture Trustee to be
equal to the arithmetic mean of the offered rates, if any, for deposits in
Dollars having a maturity of six months commencing on the second succeeding
Business Day and appearing on Telerate Page 3750 or any equivalent successor to
the relevant page as of approximately 10:00 a.m. (New York City time) on the
date of determination, or, if no such offered rates appear on such Telerate Page
3750, then the rate per annum determined by the Indenture Trustee to be equal to
the arithmetic mean of the rates notified to the Indenture Trustee as the rates
which five selected money center banks were offering to prime banks in the
London Interbank Market at or about 11:00 a.m. (London time) on the date of such
determination for deposits in Dollars for a six-month period to commence on the
second succeeding Business Day; and

     (ii) an interest rate per annum
determined by the Indenture Trustee as equivalent to the yield of most recently
issued United States Treasury securities having maturities of ten (10) years,
respectively, as determined by reference to the yields as indicated by Telerate
Access Service (page 8003 or the relevant page at the date of determination
indicating such yields) or, if such data cease to be available, any publicly
available sources of similar market data selected by the Indenture Trustee at
approximately 10:00 a.m. (New York City time) on the date of determination.

"Bond" means any Bond issued pursuant to the applicable
Bond Purchase Agreement in the form attached as an exhibit to the Indenture.

"Bond Closing Date" means any date on which the
purchaser to be named in the Bond Purchase Agreement shall acquire Bonds in
accordance with the terms thereof.

"Bond Purchase Agreement" means the agreement for the
purchase of the Bonds, executed by the Shipowner and the purchasers named
therein, as originally executed, modified or supplemented.

Breakage Fees" means, with respect to any prepayment of the
Note to the extent that (i) the Note (or the portion so prepaid) is being
"Breakage Fees" means, with respect to any prepayment of the Note to
the extent that (i) the Note (or the portion so prepaid) is being funded by the
Alternate Lender and (ii) such prepayment is other than on an Interest Payment
Date, such amounts as such Alternate Lender has specified by written notice to
the Indenture Trustee and the Shipowner as the amount necessary (in the
reasonable judgment of the Alternate Lender) to compensate such Alternate Lender
for any loss, expense or liability (including, without limitation, any loss,
expense or liability incurred by reason of the liquidation or redeployment of
deposits from third parties or in connection with obtaining funds to maintain
any funding under the Note) which such Alternate Lender reasonably determines is
attributable to such prepayment.

"Business Day" means a day which is not a Saturday,
Sunday or a bank holiday under the laws of the United States or the State of New
York; provided, that with respect to any determination of LIBOR or matters
relating thereto a Business Day means any such day described above on which
dealings in Dollar deposits are carried on in the London interbank market and on
which commercial banks in London are open for domestic and foreign exchange
business.

"Commercial Paper" shall have the meaning set forth in
the definition of Applicable Interest Rate.

"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 Four Albany Street, New York,
New York 10006.

"CP Fixed Period" means, for any Advance or portion
thereof funded through the Primary Lender's issuance of Commercial Paper, (i) a
period of days commencing on the Advance Date for such Advance or portion
thereof and ending any number of days thereafter not exceeding one hundred
eighty (180) days as shall be selected by the Agent, and (ii) thereafter a
period of days commencing on the last day of the prior CP Fixed Period and
ending any number of days thereafter not exceeding one hundred eighty (180) days
as shall be selected by the Agent; provided that:

     (i) any CP Fixed Period which would
otherwise end on a date which is not a Business Day shall end on the next
succeeding Business Day;

     (ii) any CP Fixed Period which
commences before an Interest Payment Date and would otherwise end on a date
later than such Interest Payment Date must end no later than such Interest
Payment Date;

     (iii) in the event the Primary
Lender assigns its interest in an Advance or any portion thereof to the
Alternate Lender during the CP Fixed Period relating thereto, then the Agent
shall immediately notify the Indenture Trustee and the Secretary of such fact
and such CP Fixed Period shall end on the date on which the Primary Lender shall
so assign such Advance or portion thereof; and

     (iv) if the Indenture Trustee has
notified the Shipowner, the Secretary and the Agent pursuant to the Indenture
that the applicable Benchmark Rate is equal to or greater than the Trigger Rate,
all outstanding CP Fixed Periods shall immediately terminate on the next
succeeding Business Day and all CP Fixed Periods thereafter occurring shall be a
period of one (1) Business Day.

"Credit Agreement" means that certain agreement
providing for a floating rate term loan facility to be executed by the
Shipowner, as Borrower, Govco Incorporated, as Primary Lender, Citibank, N.A.,
as Alternate Lender, the Facility Agent and the Agent, as originally executed or
as modified or supplemented in accordance with the applicable provisions
thereof.

"Eurodollar Reserve Percentage" means with respect to
any Interest Period the reserve percentage applicable to Citibank, N.A. during
such period under regulations issued from time to time by the Board of Governors
of the Federal Reserve System (or any successor) (or if more than one such
percentage shall be so applicable, the daily average of such percentages for
those days in such period during which such reserve shall be so applicable) for
determining the maximum reserve requirement (including, without limitation, any
emergency, supplemental or marginal reserve requirement) for Citibank, N.A. in
respect of liabilities or assets consisting of or including Eurocurrency
Liabilities as that term is used in Regulation D of the Board of Governors of
the Federal Reserve System as in effect from time to time, and as the same has
been specified by written notice given from the Agent to the Shipowner, the
Indenture Trustee and the Secretary.

"Facility Agent" means Citibank International plc, as
Facility Agent under the Credit Agreement, and any successor Facility Agent
under the Credit Agreement.

"Federal Funds Rate" means, for any period, a
fluctuating interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for such day for such transactions received by Citibank, N.A. from
three Federal funds brokers of recognized standing selected by it as specified
by written notice from the Agent to the Shipowner, the Indenture Trustee and the
Secretary delivered on each Monday (or if such day is not a Business Day, on the
next succeeding Business Day) for the preceding calendar week.

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

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

Indenture" means the Trust Indenture dated as of the Closing
Date between the Shipowner and the Indenture Trustee, as originally
"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 Bankers Trust Company, a New
York banking corporation, and any successor trustee under the Indenture.

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

"Interest Period" means, with respect to any Advance or portion
thereof, (i) the period commencing on the Advance Date relating thereto and
extending up to, but not including, the next Interest Payment Date; and (ii)
thereafter, the period commencing on each Interest Payment Date and extending up
to, but not including, the next Interest Payment Date; provided, that, in the
event the Primary Lender assigns its interest to the Alternate Lender in an
Advance or any portion thereof on a date other than an Interest Payment Date,
then, upon written notice from the Agent to the Indenture Trustee of such event,
(i) such Interest Period shall end on the date on which the Primary Lender shall
so assign such Advance or such portion thereof and (ii) a new Interest Period
with respect to such Advance or such shall commence on such date and shall end
on the next Interest Payment Date.

"LIBOR" means, in relation to any
Interest Period, an interest rate per annum equal to (i) the rate of interest
per annum (rounded upward, if necessary, to the nearest 1/16 of 1%) quoted by
the principal London office of Citibank, N. A., at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest Period
for the offering to leading banks in the London interbank market of U.S. Dollar
deposits for a period and in an amount comparable to such Interest Period and
the principal amount upon which interest is to be paid during such Interest
Period; divided by (ii) one hundred percent (100%) minus the Eurodollar Reserve
Percentage, as specified by the Agent in a written notice to the Shipowner, the
Indenture Trustee and the Secretary given not later than one Business Day prior
to such Interest Period (or, if such Interest Period commences as a result of an
assignment from the Primary Lender to the Alternate Lender, given not later than
the second Business Day of such Interest Period).

"Liquidation Fee" means an amount determined by the
Agent and notified to the Indenture Trustee in writing as the amount owed under
the Credit Agreement in connection with any prepayment of an Advance or portion
thereof funded by the Primary Lender on any date other than the last day of a CP
Fixed Period or in connection with any termination of a CP Fixed Period prior to
its originally scheduled duration pursuant to clause (iv) or (v) of the proviso
contained in the definition thereof, which amount shall be equal to (x) the
amount of yield that the Primary Lender is required to pay to holders of its
Commercial Paper during the Liquidation Period on an amount of commercial paper
having an aggregate issue price equal to the amount of the Shipowner's
prepayment or the outstanding principal amount of the Note previously allocated
to the CP Fixed Period whose duration has been shortened less (y) the amount of
the estimated investment earnings, as determined by the Agent and specified by
written notice to the Indenture Trustee, on such prepayment amount or such
outstanding principal amount during the Liquidation Period.

"Liquidation Period" means the period (i) commencing on
the date on which a prepayment is made or a CP Fixed Period has been terminated
prior to its scheduled duration pursuant to clause (iii) or (iv) of the proviso
contained in the definition thereof and (ii) continuing to the earliest date on
which the Primary Lender's total amount of Commercial Paper related to the
funding of the related Note can be reduced (without prepayment thereof) by an
amount equal to the amount of the Shipowner's prepayment or to the outstanding
principal amount of the Note previously allocated to the CP Fixed Period whose
duration has been shortened, as applicable.

"Make Whole Premium" means, with respect to Bonds of the
same series, the amount which the Indenture Trustee determines as of the second
Business Day prior to such Redemption Date is equal to the excess, if any, of
the sum of the respective Payment Values (as defined below) of each Prospective
Payment (as defined below). "Redemption" means, with respect to the
redemption of Bonds, the repayment or prepayment of Bonds, as applicable.

"Mandatory Note Redemption Date" shall have the meaning
set forth in Article Third, paragraph (b)(2) of the Indenture.

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

"Mortgage" means the first preferred ship mortgage on
the Vessel, Contract No. MA-13554, by the Shipowner to the Secretary, as
originally executed, modified, amended or supplemented.

"Note" means the Note issued by the Shipowner pursuant
to the Credit Agreement in the form attached as an exhibit to the Indenture..

"Obligation" means each and every obligation of the
Shipowner bearing a Guarantee, including any Note or Bond, and authenticated and
delivered pursuant to the Indenture and the Authorization Agreement.

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

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

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

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

"Outstanding" when used with reference to the
Obligations, shall mean all Obligations theretofore issued under the Indenture,
except: (1) Obligations Retired or Paid; and (2) Obligations in lieu of which
other Obligations have been issued under the Indenture. Obligations which are
not Outstanding shall not be entitled 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 Sections 7.02(a) of the Indenture and appointed by the
Shipowner under Section 4.02 of the Indenture to pay the principal of (and
premium if any) or interest on the Obligations on behalf of the Shipowner.

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

"Payment Value" of each Prospective Payment (as defined
below) shall be determined by discounting such Prospective Payment at the
Reinvestment Rate for the period from the Payment Date on which such Prospective
Payment was scheduled to be paid to the applicable Redemption Date.
"Prospective Payment" means, with respect to any Bonds: (i) each
scheduled interest payment on each scheduled principal amount to be prepaid; and
(ii) the scheduled principal amount to be prepaid.

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

"Primary  Lender" means Govco  Incorporated, a Delaware corporation,  as Primary
Lender under the Credit  Agreement,  and any successor Primary Lender.

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

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

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

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

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

"Responsible Officer" means (1) in the case of any
business entity, the chairman of the board of directors, the president, any
executive or senior vice president, the secretary, the treasurer, member or
partner, (2) in the case of any commercial bank, the chairman or vice-chairman
of the executive committee of the board of directors or trustees, the president,
any executive or senior vice president, the secretary, the treasurer, any trust
officer, and (3) with respect to the Indenture Trustee, any Vice President, any
Assistant Vice President, any Managing Director, any Assistant Secretary, any
Assistant Treasurer, any Senior Trust Officer, any Assistant Trust Officer, any
Trust Officer or any other officer associated with the corporate trust
department of the Indenture Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.

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

"Secretary" means the Secretary of Transportation.

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

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

"Security Agreement" means the security agreement,
Contract No. MA-13552, dated as of the Closing Date, consisting of the special
provisions, the general provisions and Schedule X thereto, executed by the
Shipowner as security for the Secretary, as originally executed or as modified,
amended or supplemented.

"Shipowner" means ENSCO Offshore Company, a Delaware
corporation, and shall include its successors and assigns.

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

"Title XI" means Title XI of the Act.

"Trigger Rate" means, with respect to the Benchmark Rate
referred to in clause (i) of the definition thereof, 10.25% and, with respect to
the Benchmark Rate referred to in clause (ii) of the definition thereof, 9.5%.

"Weighted Average Life to Final Maturity" means the
number of years (rounded up to the nearest one-twelfth of a year) obtained by
dividing: (i) the then Remaining Dollar Years (as defined above) by (ii) the
total amount of the then remaining aggregate unpaid principal amount of such
Bonds (including Bonds issued subsequent to the Closing Date) (without giving
effect to such Redemption).

"Vessel" means  the  vessel,  to  be  named  ENSCO  7500,
and financed with the Obligations.

	

	

	Exhibit 1 to Indenture

Document 5.02

GENERAL PROVISIONS
	TABLE OF CONTENTS
 
	ARTICLE I

DEFINITIONS; OFFICER'S CERTIFICATE AND OPINIONS OF COUNSEL

			Page
	SECTION 1.01	 	Definitions	 	1	 
	SECTION 1.02	 	Officer's Certificate and Opinions of Counsel	 	1	 

	ARTICLE II

THE OBLIGATIONS

			 
	SECTION 2.01	 	Issuance of Obligations of Initial Series	 	1	 
	SECTION 2.02	 	Additional Obligations; Obligations of Additional Series	 	2	 
	SECTION 2.03	 	Legends on Obligations	 	2	 
	SECTION 2.04	 	Dates of Obligations	 	2	 
	SECTION 2.05	 	Execution of Obligations	 	2	 
	SECTION 2.06	 	Authentication of Obligations and Guarantees	 	3	 
	SECTION 2.07	 	Registration, Transfer and Exchange	 	3	 
	SECTION 2.08	 	Who Treated as Owners	 	3	 
	SECTION 2.09	 	Lost, Stolen, Destroyed or Mutilated Obligations	 	4	 
	SECTION 2.10	 	Reacquired Obligations;
Cancellation and Disposition of Obligations	 	2	 

	ARTICLE III

REDEMPTION OF OBLIGATIONS

			 
	SECTION 3.01	 	Redemptions Suspended During Default	 	5	 
	SECTION 3.02	 	Redemptions Without Premium	 	 	 
	 	 	(a)  Mandatory Sinking Fund Redemptions	 	5	 
	 	 	(b)  Credit Against Mandatory
Sinking Fund Redemptions	 	5	 
	 	 	(c)  Optional Sinking Fund Redemptions	 	5	 
	 	 	(d)  Mandatory Redemptions Without Premium	 	6	 
	 	 	(e)  Adjustment of Redemptions of Obligations at Premium	 	6	 
	SECTION 3.03	 	Optional Redempitons of Obligations at Premium	 	6	 
	SECTION 3.04	 	Redemptions to Comply with Section
1104A(b)(2) of the Act	 	7	 
	SECTION 3.05	 	Redemption After Total Loss, Requisition of Title, Seizure or

      Forfeiture of Vessel or Termination of Certain Contracts	 	7	 
	SECTION 3.06	 	Redemption After Assumption by the Secretary	 	7	 
	SECTION 3.07	 	Determination of Obligations to be Redeemed	 	7	 
	SECTION 3.08	 	Notices of Redemption	 	7	 
	SECTION 3.09	 	Deposit of Redemption Moneys	 	8	 
	SECTION 3.10	 	Payment of Redemption Price	 	8	 

	ARTICLE IV

CASH HELD BY THE INDENTURE TRUSTEE OR PAYING AGENTS

			 
	SECTION 4.01	 	Generally	 	8	 
	SECTION 4.02	 	Paying Agents	 	9	 
	SECTION 4.03	 	Unclaimed Amounts	 	9	 
	SECTION 4.04	 	Application of Funds	 	10	 

	ARTICLE V

SHIPOWNER'S REPRESENATIONS AND AGREEMENTS

			 
	SECTION 5.01	 	Authorization, Execution and Delivery of Indenture	 	10	 
	SECTION 5.02	 	Payment	 	10	 
	SECTION 5.03	 	Offices or Agencies of Shipowner	 	10	 

	ARTICLE VI

INDENTURE DEFAULTS AND REMEDIES

			 
	SECTION 6.01	 	What Constitutes "Indenture Defaults"	 	10	 
	SECTION 6.02	 	Demand for Payment of Guarantees	 	11	 
	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	 	13	 
	SECTION 6.06	 	Obligees' Right to Direct Indenture Default	 	13	 
	SECTION 6.07	 	Attorney's Fees and Costs	 	13	 
	SECTION 6.08	 	Recision of Payments	 	14	 
	SECTION 6.09	 	Assumption of Obligations by Secretary	 	14	 

	ARTICLE VII

THE INDENTURE TRUSTEE

			 
	SECTION 7.01	 	Acceptance of Trusts	 	15	 
	SECTION 7.02	 	Eligibility of Indenture Trustee	 	15	 
	SECTION 7.03	 	Compensation, Expenses and Indemnification of
Indenture Trustee	 	15	 
	SECTION 7.04	 	Compensation, Expenses and Indemnification
of Indenture Trustee	 	17	 
	SECTION 7.05	 	Resignation and Removal of Indenture Trustee	 	17	 
	SECTION 7.06	 	Appointment of Successor Indenture Trustee	 	18	 
	SECTION 7.07	 	Effect of Appointment of Successor Indenture Trustee	 	18	 
	SECTION 7.08	 	Merger, Consolidation or Sale of Indenture Trustees	 	19	 

	ARTICLE VIII

CONSOLIDATION OR MERGER OF SHIPOWNER OR SALE OF VESSEL

			 
	SECTION 8.01	 	Consolidation or Merger of Shipowner or Sale of Vessel	 	19	 

	ARTICLE IX

ACTS OF OBLIGEES

			 
	SECTION 9.01	 	Acts of Obligees	 	20	 

	ARTICLE X

SUPPLEMENTAL INDENTURES

			 
	SECTION 10.01	 	Permissable Without Action by Obligees	 	20	 
	SECTION 10.02	 	Protection of Indenture Trustee	 	21	 
	SECTION 10.03	 	Reference in Obligations to Supplemental Indentures	 	21	 
	SECTION 10.04	 	Waivers and Supplemental Indentures with Consent of Obligees
	 	21	 
	SECTION 10.05	 	Consent of Secretary	 	22	 
	SECTION 10.06	 	Continued Validity of the Guarantees	 	22	 

	ARTICLE XI

PERFORMANCE OF OBLIGATIONS TO SECRETARY

			 
	SECTION 11.01	 	Performance of Obligations to Secretary	 	22	 

	ARTICLE XII

SATISFACTION AND DISCHARGE OF INDENTURE

			 
	SECTION 12.01	 	Satisfaction and Discharge of Indenture	 	22	 

	ARTICLE XIII

MISCELLANEOUS

			 
	SECTION 13.01	 	Notices and Demands	 	23	 
	SECTION 13.02	 	Waivers of Notice	 	23	 
	SECTION 13.03	 	Benefit of Indenture	 	23	 
	SECTION 13.04	 	Execution of Counterparts	 	23	 
	SECTION 13.05	 	Table of Contents; Titles and Headings	 	23	 
	SECTION 13.06	 	Immunity of Incorporators, Stockholders.
Limited Partners, Members,
      Officers and Directors	 	23	 

	 
	

                         ARTICLE I

            DEFINITIONS; OFFICER'S CERTIFICATES

                  AND OPINIONS OF COUNSEL

     SECTION  1.01.  Definitions.  For   the   purposes  of this  Indenture,
capitalized  terms  shall  have  the  meanings  specified  in  Schedule A to the
Indenture unless otherwise expressly provided.

     SECTION 1.02. Officer's Certificate
and Opinions of Counsel. The Responsible Officer of the Person executing an
Officer's Certificate with respect to a covenant or condition provided for in
this Indenture shall certify that the officer (a) has read such covenant or
condition; (b) has made or caused to be made such independent examination or
investigation as is necessary to enable him to express an informed opinion with
respect to such covenant or condition; and (c) believes to the best of his
knowledge that such condition or covenant has been met. A lawyer issuing an
Opinion of Counsel shall include the same representations, except that insofar
as it relates to factual matters, if it is in the lawyer's professional opinion
that reliance upon a certificate or an Opinion of Counsel is appropriate, the
lawyer may so rely upon such certificate or opinion. Each Officer's Certificate
and Opinion of Counsel shall set forth the pertinent supporting information and
shall be subject to the Secretary's review of its adequacy and accuracy.

ARTICLE II

THE OBLIGATIONS

     SECTION 2.01. Issuance of
Obligations of Initial Series. (a) 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, 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.

     (b) The initial series of
Obligations shall set forth their respective principal amounts (in the
denominations provided in the Special Provisions), interest rates per annum, and
Stated Maturities, and shall be payable as to principal and interest and
premium, if any, in any legal coin or currency of the United States and shall be
subject to redemption as provided in Article III.

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

     (d) 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 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.

     (e) If the Maturity of any
Obligation or an Interest Payment Date for any Obligation shall be a day other
than a Business Day, then such payment may be made on the next succeeding
Business Day, with the same force and effect as if made on the nominal date for
such payment, and no interest shall accrue thereon for the period after said
nominal date.

     SECTION 2.02. Additional
Obligations; Obligations of Additional Series. At any 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,
which shall be for the purpose of aiding in financing or refinancing the
construction, reconstruction or reconditioning of one or more of the Vessels and
shall be (i) in such principal amount, and 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) guaranteed by the United States under the Act pursuant to
a supplement to the Authorization Agreement.

     SECTION 2.03. 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 approved by the Secretary.

     SECTION  2.04.  Dates of  Obligations.
Each  Obligation  of any  series shall be dated the date of its  authentication
by the Indenture Trustee.

     SECTION 2.05. 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), if any, shall be
imprinted thereon and attested by its secretary, assistant secretary or
assistant trust officer (whose signature may be a facsimile). If a Shipowner's
officer, whose signature appears on any Obligation, shall cease to be such an
officer before such Obligation shall have been authenticated by the Indenture
Trustee, the Obligation nevertheless may be delivered with the same force and
effect as though the person had not ceased to be a Shipowner's officer.

     SECTION 2.06. 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, executed by the Indenture Trustee in accordance with
the terms and conditions of the Authorization Agreement. A duly executed
authentication certificate shall be conclusive evidence, and the only competent
evidence, that such Obligation and such Guarantee have been duly executed,
authenticated and delivered hereunder.

     SECTION  2.07.  Registration, Transfer and Exchange. (a) The  Indenture
Trustee shall keep an Obligation  Register at the Corporate Trust Office for the
registration of ownership, transfers and exchanges of Obligations.

     (b) A registered Obligee may
transfer an Obligation, 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
Obligee or its duly authorized attorney, and thereupon the Shipowner shall
execute, and the Indenture Trustee shall authenticate and deliver in the name of
the transferee, a new Obligation, and the Guarantee 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
selection of Obligations to be redeemed, (2) Obligations after demand for
payment of the Guarantees and prior to the payment thereof or rescission of such
demand pursuant to Section 6.02(a), or (3) any Obligation which has been
selected for redemption in whole or in part. 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 issued therefor an appropriate notation of
such fact.

     (d) Any Obligation may be exchanged
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.

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

     SECTION 2.08. Who Treated as Owners.
The Shipowner, the Indenture Trustee, the Secretary, and any Paying Agent for
the payment of principal of (and premium, if any) or interest on the Obligations
may deem 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 Paying Agent
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, 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 2.09. 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 (ALost Obligation@), the
Shipowner may execute, and upon request of the Shipowner, the Indenture Trustee
shall authenticate and deliver, a new replacement Obligation, with 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 and which shall bear a serial number different
from that of the Lost Obligation) and in the event such Lost Obligation 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 any payments due on account thereof; provided that (1) the Shipowner,
the Indenture Trustee and the Secretary shall receive an 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) a mutilated Obligation shall
be surrendered. Once the Indenture Trustee has issued a replacement Obligation,
the Lost Obligation shall not be enforceable. The provisions of this Section are
exclusive and shall preclude (to the extent lawful) all other rights and
remedies with respect to the replacement or payment of Lost Obligations.

     SECTION 2.10. 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
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 and shall be cancelled 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 Sections 3.04 or 3.05, during the continuance of any
Indenture 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 in trust by the Indenture Trustee and
applied in the following manner: (1) 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, (2) 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 (3) if no Obligation shall be Outstanding, and the
Secretary shall not have been required to pay the Guarantees, such moneys shall
be paid to the Shipowner.

     SECTION 3.02.  Redemptions  Without  Premium.  (a)  Mandatory  Sinking Fund
Redemptions.  The  Obligations  are subject to redemption at a Redemption  Price
equal to 100% of the principal  amount thereof,  together with interest  accrued
thereon to the  Redemption  Date,  through the operation of a mandatory  sinking
fund providing for semi-annual redemption commencing and continuing on the dates
and in the principal amounts specified in the Obligations, plus interest accrued
thereon to the applicable sinking fund Redemption Date; provided,  however, that
in the event of any special  redemption  pursuant to Sections 3.04, 3.05 or 3.06
below,  the principal  amount of Obligations  to be redeemed on each  subsequent
mandatory  sinking fund  Redemption  Date shall be reduced by an amount equal to
the  principal  amount of the  Obligations  retired  by  reason of such  special
redemption  divided by the number of  mandatory  sinking fund  Redemption  Dates
(including the Stated Maturity of the Obligations) scheduled thereafter.

     (b) Credit Against Mandatory Sinking
Fund Redemptions. In lieu of making all or any part of any such mandatory
sinking fund redemption of the Obligations, the Shipowner may, at its option,
receive 100% credit for Obligations that have been (1) redeemed by the Shipowner
pursuant to the optional redemption provision provided in subsection (c) below,
or (2) purchased or acquired by the Shipowner (other than by redemption) and
delivered to the Indenture Trustee for cancellation pursuant to Section 2.10
above. These Obligations shall be credited by the Indenture Trustee only under
the following conditions: at least 40 days but not more than 60 days prior to
the due date for such mandatory sinking fund redemption, the Shipowner delivers
a Request to the Indenture Trustee, (i) specifying the principal amount of
Obligations to be credited, (ii) certifying that none of the Obligations have
previously been made the basis of any credit and that the Shipowner is not
restricted by contract from seeking the requested credit, and (iii) presenting
the uncancelled Obligations to be credited

     (c) Optional Sinking Fund
Redemptions. At its option, the Shipowner may redeem on any mandatory sinking
fund Redemption Date, at a redemption price equal to 100% of the principal
amount thereof, an additional principal amount of Obligations up to the
principal amount of the Obligations required to be redeemed under subsection (a)
above on such date, and before any reduction pursuant to the proviso of that
subsection. The right to make any such optional sinking fund redemption shall
not be cumulative. If the Shipowner shall elect to make any such optional
sinking fund redemption, the Shipowner shall, at least 40 days but not more than
60 days prior to such mandatory sinking fund Redemption Date, deliver to the
Indenture Trustee a Request stating that the Shipowner intends to exercise its
right as set forth in this subsection to make such optional sinking fund
redemption and specifying the additional principal amount of Obligations which
the Shipowner intends to redeem on such mandatory sinking fund Redemption Date.

     (d) Mandatory Redemptions Without
Premium. The Obligations of each series shall be subject to redemption without
premium when redemption is required by the conditions specified in Sections
3.02, 3.04, 3.05 and 3.06.

     (e) Adjustments of Redemption
Payments. If there is an adjustment in mandatory redemption payments as a result
of redemptions under this Section or any other provision of the Indenture, 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, submit to the Secretary for his review of such recomputation to
ascertain compliance with the provisions of this 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.
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. Optional Redemptions
of Obligations at Premium. At its option, the Shipowner may redeem the
Obligations, in whole or in part, at any time, at the redemption prices
specified in the Obligations, together with the interest accrued thereon;
provided that, no such redemption shall be made prior to the date specified in
the Special Provisions, directly or indirectly with the proceeds of, or in
anticipation of, borrowing by or for the account of the Shipowner if such
borrowing has an effective interest cost (calculated in accordance with
generally accepted financial practice) of less than the rate of interest borne
by the Obligations. The Shipowner may redeem such Obligations on a date at least
40 days but not more than 60 days from the Indenture Trustee's receipt of the
Request to make such an optional redemption and specifying the Redemption Date
and the principal amount of Obligations which the Shipowner intends to redeem.
If this Request proposes a redemption prior to the date specified in the Special
Provisions, the Shipowner shall include with the Request an Officer's
Certificate stating that the redemption complies with the proviso relating to
early redemptions.

     SECTION 3.04. Redemptions to Comply
with Section 1104A(b)(2) of the Act. The Shipowner and the Secretary may Request
a Redemption Date, at least 40 days but not more than 60 days from the Indenture
Trustee's receipt of the Request, for the redemption of certain Obligations
because the principal amount of the Outstanding Obligations are in excess of the
amount eligible for guarantee by the United States under Section 1104A(b)(2) of
the Act. Upon receipt, the Indenture Trustee shall promptly give notice to the
Holders of the Redemption Date as provided in Section 3.08 and on that date
shall redeem the principal amount of Obligations specified in the instruction
together with the interest accrued thereon.

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

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

     SECTION 3.07. Determination of
Obligations to be Redeemed. If less than all the Obligations are to be redeemed
pursuant to Sections 3.03, 3.04 or 3.05, the Indenture Trustee shall select the
particular Obligations to be redeemed by multiplying the total principal amount
to be redeemed by a fraction, the numerator of which is the amount each Holder
of an Outstanding Obligation is owed and the denominator is the total principal
amount of the Outstanding Obligations, making adjustment so that the principal
amount of any Obligation to be redeemed shall be $1,000 or an integral multiple
thereof.

     SECTION 3.08. Notices of Redemption.
(a) In case of any redemption of Obligations, whether mandatory or optional, the
Indenture Trustee shall send a notice of redemption indicating (1) the
Redemption Date, (2) the Redemption Price, (3) if only a part of such
Obligations is to be redeemed, the numbers or other identification of the
Obligations and the principal amount thereof to be redeemed, (4) the place of
payment upon redemption and (5) that interest shall cease to accrue after the
Redemption Date if the Indenture Trustee or any Paying Agent shall have in fact
received the required moneys. A copy of the notice shall be mailed by first
class mail, postage prepaid, at least 30 days prior to the Redemption Date, to
each Holder of an Outstanding Obligation that is to be redeemed in whole or in
part, at the last address appearing upon the Obligation Register.

     SECTION 3.09. Deposit of Redemption
Moneys. Prior to the opening of business on any Redemption Date, the Shipowner
shall cause to be deposited with the Indenture Trustee or with any Paying Agent
an amount sufficient for such redemption with irrevocable directions to it to so
apply the same. Failure to so deposit the amounts with the Indenture Trustee or
the Paying Agent shall render any notice to redeem of no effect.

     SECTION 3.10. Payment 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 become due and
payable on the Redemption Date and at the place of payment and the Redemption
Price stated in such notice, and on and after said Redemption Date (unless the
Shipowner shall default in payment of the Redemption price or shall decide to
cancel the notice of optional redemption) 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 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 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.

ARTICLE IV

CASH HELD BY INDENTURE TRUSTEE OR PAYING AGENTS

     SECTION 4.01. Generally. (a) To the
extent required by the Obligations, cash received by the Indenture Trustee or a
Paying Agent shall be promptly paid to the Holders of the Outstanding
Obligations and all other cash shall be held by the Indenture Trustee or a
Paying Agent as a special deposit in trust for application in accordance with
this Indenture.

     (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 Shipowner and the Indenture Trustee or Paying
Agent may agree.

     SECTION 4.02.  Paying  Agents. (a) A Paying Agent  appointed in writing
by  the  Shipowner  shall  enter  into  a  contract  with the Indenture Trustee,

agreeing that the Paying Agent will:

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

     (2) forthwith give written notice to
a Responsible Officer in the Corporate Trust Office 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 (B) any failure of the Shipowner to
make any such payment when the same shall be due and payable; and

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

     (b) The Shipowner may at any time
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.
Subject to applicable law, including State escheat laws, 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 shall be paid to the Shipowner upon its
delivery of a Request to the Indenture Trustee, unless the Secretary has
previously paid the Guarantees, in which case it shall be paid only upon a
request of the Secretary. In such event, such Holders shall thereafter be
entitled to look only to the Person that received the unclaimed amounts 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. No such
Request or payment shall be construed to extend any statutory period of
limitations which would have been applicable in the absence of such Request or
payment.

     SECTION 4.04. Application of Funds.
If at any time the Indenture Trustee shall hold funds under Section 4.03, the
application, distribution or payment of which is not governed by a Request of
the Shipowner or the Secretary delivered pursuant to any provision of the
Indenture, the Indenture Trustee shall give written notice, in the absence of an
Indenture Default, thereof to the Shipowner or to the Secretary if the an
Indenture Default exists or the Secretary has paid the Guarantees. The Shipowner
or the Secretary, as applicable, shall promptly thereafter deliver to the
Indenture Trustee a Request.

ARTICLE V

SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS

     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.

     SECTION 5.02.  Payment.  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.

     SECTION 5.03. Offices or Agencies of
Shipowner. The Shipowner shall at all times maintain an office in the location
within the United States specified in Article Second of the Special Provisions.
Obligations and demands to or upon the Shipowner may be presented for payment,
registration of transfer and exchange at this office. The Corporate Trust Office
and a Paying Agent shall also be deemed offices for such purpose.

ARTICLE VI

INDENTURE DEFAULTS AND REMEDIES

     SECTION 6.01. What Constitutes
"Indenture Defaults." (a) Each of the following events shall
constitute an "Indenture Default": (1) Default in the payment of the
whole or any part of the principal or interest on 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 (2) The giving of a
Secretary's Notice to the Indenture Trustee.

     (b) The Indenture Trustee shall give
to the Obligees, the Secretary and the Shipowner prompt notice in writing of any
Indenture Default (unless such default shall have been remedied prior to the
giving of such notice); provided that, the Indenture Trustee shall have no duty
to give any such notice until a Responsible Officer of the Corporate Trust
Office, has actual knowledge of such Indenture Default. The notice of an
Indenture Default to the Obligees shall (1) specify the nature of such Indenture
Default, (2) state that, by reason thereof, the Indenture Trustee is entitled
under the Indenture to demand payment by the Secretary of the Guarantees, (3)
set forth the provisions of Section 6.04(b)(3) and (5), and (4) 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, no later than 60 days 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 no later than 30 days from the date of such demand; 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 Indenture Default shall be of no legal effect or
consequence. In each such case, 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 13.01.

     (b) If the Indenture Trustee shall
not have made the demand referred to in paragraph (a) of this Section 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,
and with the effect provided in, paragraph (a) of this Section.

     SECTION 6.03. Appointment of
Indenture Trustee and Holders of Outstanding Obligations as Attorneys-in-Fact.
Each Holder of an Outstanding Obligation by the purchase 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.

     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 only terminate in case of the
occurrence of one or more of the following events:

(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, (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 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.

     (c) 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 any of the findings or takes the action referred to in the
proviso 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 any of these findings or actions, such
notice to each Obligee shall so state.

     SECTION 6.05. Rights of Indenture
Trustee After Indenture Default. Unless the Guarantees have terminated as
provided herein, the Indenture Trustee's sole right shall be to demand and
receive payment of the Guarantees from the Secretary and to take all action, on
behalf of itself and each Holder, to enforce its rights against the Secretary
under the Guarantees, including but not limited to the institution and
prosecution of all judicial and other proceedings. If the Guarantees have
terminated under Section 6.04(a)(4) without payment by the Secretary, the
Indenture Trustee shall have the right on behalf of itself and each Holder to
take all action to enforce its rights directly against the Shipowner (but not
the Secretary), including but not limited to the institution and prosecution of
all judicial and other proceedings.

     SECTION 6.06. Obligees' Right to
Direct Indenture Trustee After Indenture Default. (a) 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: (1) to exercise or to refrain from exercising any right
or to enforce any remedy granted to it by this Indenture; and (2) to direct the
time, method and place of the exercise of any such right or the enforcement of
any such remedy; provided that, subject to Section 7.03, the Indenture Trustee
shall have the right not to take any such action if it shall determine in good
faith that the action would involve it in personal liability, would subject it
to expenses against which it has not been offered adequate security and
indemnity, or would be unjustly prejudicial to the Obligees not parties to such
direction; and provided further that, notwithstanding any other provision of
this Indenture to the contrary, the Indenture Trustee shall be obligated to
demand payment of the Guarantees as provided in Section 6.02(a) unless the
Holders of all the Outstanding Obligations shall have directed him not to make
demand.

     (b) Nothing in paragraph (a) shall
affect the right of any Obligee to institute any judicial or other proceeding,
if the Indenture Trustee declines to do so, against the Secretary while the
Guarantees are in effect or against the Shipowner or the Indenture Trustee if
the guarantees have terminated under Section 6.04(a)(4); provided, however, that
such action does not seek to obtain priority or preference over any other
Obligees or to enforce any right under this Indenture, except for the equal and
ratable benefit of all the Obligees.

     SECTION 6.07. Attorneys' Fees and
Costs. In any proceeding for the enforcement of any right or remedy under this
Indenture, or in any proceeding against the Indenture Trustee for any action
taken or omitted by it as Indenture Trustee, the court may in its discretion
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant, having due regard to the merits and good faith of the claims or
defense made by such party litigant. The provisions of this Section shall not
apply to any proceeding instituted by the Indenture Trustee or any proceeding
instituted by any Obligee against the Secretary or the Shipowner for the payment
of the principal of (and premium, if any) and interest on the 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 a final
order of a court of competent jurisdiction pursuant to any provision of the
Bankruptcy Code or any Federal Law replacing or superseding such Code, 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 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 behalf all the rights of the
Indenture Trustee hereunder necessary for such enforcement; provided that, in
the event the Guarantee of any Obligation shall have terminated for reasons set
forth in Section 6.04(a)(2) or (4) 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. (a) Notwithstanding anything to the contrary contained
herein, in the absence of a demand under Section 6.02 hereof and upon the
occurrence of a default in the payment of any principal or interest due under
the Obligations which has continued for 25 days or more or upon the Secretary's
giving a Secretary's notice under this Indenture, the Secretary may, in its sole
discretion, prior to receipt by the Secretary of demand for payment of the
Guarantees in accordance with this Indenture, assume the rights and obligations
of the Shipowner under this Indenture and the Obligations by (i) giving to the
Shipowner and Indenture Trustee a signed notice stating that it has assumed the
Obligations and the Indenture and (ii) making any payment of principal or
interest which is due under the Obligations.

     (b) The Indenture Trustee and the
Shipowner hereby agree that, upon the Indenture Trustee's receipt of the notice
and payments referred to in paragraph (a)(i) and (ii) of this section, the
Secretary's assumption shall, as of the date of the Secretary's execution of the
notice, be effective and binding upon the Indenture Trustee and the Shipowner
and their respective successors or assigns without further act or deed. Upon an
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 Obligation with the same force and effect as if the Secretary has been
named as the Shipowner herein and therein. The Secretary may exercise its rights
under this section 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 with
corporate trust powers or trust company which (1) is organized and doing
business under the laws of the United States, any state or territory thereof,
(2) has a combined capital and surplus (as set forth in its most recent
published report of condition) of at least $25,000,000, and (3) 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, 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 all
the relevant facts.

     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 Trustee's authentication certificate thereon),
all of which Recitals are statements made solely by the Shipowner.

     (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) The Indenture Trustee shall
exercise such of the rights and powers vested in it by this Indenture, 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, the Indenture Trustee shall 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, 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 therein; and

     (2) 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 and
place of conducting any proceeding for any remedy available to the Indenture
Trustee.

     (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) Subject to paragraph (c) of this
Section, 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 in acting or refraining from acting
hereunder in reliance upon an Officer's Certificate as to the existence or
nonexistence of any fact.

     (i) Subject to paragraph (c) of this
Section, the Indenture Trustee may consult with counsel satisfactory to the
Indenture Trustee, 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) Whenever it is provided that the
Indenture Trustee shall take any action, 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 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 until 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.

     (k) 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.

     (l) 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.

     (m) 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.

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

     (o) 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.

     (p) 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.

     (q) Notwithstanding any other
provision of this Indenture or the Authorization Agreement, the Indenture
Trustee shall have no duty to exercise any of its rights or powers hereunder
with respect to a 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, (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 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 13.01. 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

     SECTION 7.06. Appointment of
Successor Indenture Trustee. (a) 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 (1) by the Secretary or (2) 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 provided therein.

     (c) If a successor Indenture Trustee
is appointed, approved by the Secretary and accepts such appointment, the
Shipowner shall give notice to the Obligees of such appointment in the manner
provided in Section 13.01. 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. Each successor Indenture Trustee shall
forthwith, without further act or deed, succeed to all the rights and duties of
its predecessor in trust under this Indenture and the Authorization Agreement.
Upon the written request of the successor Indenture Trustee or the Shipowner and
upon payment by the Shipowner of all amounts due to such predecessor under this
Indenture, 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 and shall transfer, assign and
confirm to the successor Indenture Trustee all its rights under this Indenture
in such manner as deemed by such successor Indenture Trustee or the Shipowner to
be necessary or appropriate in connection therewith.

     SECTION 7.08. Merger, Consolidation
or 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 or consolidation, or the transferee in the case of any such sale, shall
forthwith notify the 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.

                        ARTICLE VIII

CONSOLIDATION OR MERGER OF SHIPOWNER OR SALE OF VESSEL

     SECTION 8.01. Consolidation or
Merger of Shipowner or Sale of Vessel. (a) 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 by the Shipowner, the Secretary or a court
of law to any other Person lawfully entitled to acquire and operate such Vessel
or any sale by the Shipowner, the Secretary, or a court of law 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, either
(1) the Person formed by or surviving such consolidation or merger, or the
Person to which the sale of such Vessel shall be made, shall expressly assume,
by Supplemental Indenture, the payment of the principal of and interest (and
premium, if any) on the Proportionate Part of the Outstanding Obligations, as
determined by the Secretary, relating to such Vessel and expressly assume the
Shipowner's duties under the Indenture, or (2) to the extent that the Secretary
determines that the Outstanding Obligations and the duties under the Indenture
are not so assumed, the Shipowner shall redeem the principal amount of those
unassumed Obligations in accordance with the terms of the Obligations and of the
Indenture.

     (b) 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 has been sold (1) 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
(2) 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.

ARTICLE IX

ACTS OF OBLIGEES

     SECTION 9.01. Acts of Obligees. (a)
Except as herein otherwise expressly provided, an Act of Obligees shall become
effective when it is delivered to the Indenture Trustee and, where it is
expressly required, to the Shipowner and the Secretary. Proof of execution of
any instrument appointing an agent or attorney to execute an Act of Obligees
made in the manner of subsection (b) below shall be sufficient for any purpose
of this Indenture.

     (b) The fact and date of the
execution by any Person of any instrument 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, stating that the individual
signing such instrument acknowledged to him the execution thereof. The fact and
date of the execution of any such instrument, 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 is addressed to the Secretary, the Secretary)
deems sufficient.

     (c) Any Act of Obligees taken by the
Holder of any Obligation shall bind every future Holder of any of the
Obligations 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, may at any time, 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;

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

     (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;

     (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.

     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 in the manner provided in Section 13.01. 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, and any purported action or attempt to take such action forbidden to
be taken by this Section shall be null and void ab initio and of no legal
effect.

     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 Section 6.09, and pursuant to Section 1103(e) of the Act, the
validity of the Guarantee of any Obligation shall be unaffected.

                         ARTICLE XI

          PERFORMANCE OF OBLIGATIONS TO SECRETARY

     SECTION 11.01. Performance of
Obligations to Secretary. Notwithstanding any provisions of this Indenture to
the contrary, upon termination of the Guarantees pursuant to Section 6.04(a),
each of the provisions of the Indenture which refers to the rights and duties of
the Secretary shall not be effective and the Sections containing such provisions
shall be read as though there were no such rights or duties.

                        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
Secretary, 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 and Demands.
Any 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. Any communication to,
the Obligees shall be deemed to have been sufficiently given or made by being
mailed, in the same manner, to the address of each Obligee last appearing on the
Obligation Register.

     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. 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 and (until the obligations to the Secretary shall have terminated as
provided in Article XI) the Secretary.

     SECTION  13.04.  Execution  of
Counterparts.  This  Indenture  may  be executed in  any  number of counterparts.  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. Immunity of
Incorporators, Stockholders, Limited Partners, Members, Officers and Directors.
No recourse shall be had for any payment regarding any Obligation, or upon any
provision of this Indenture, against any past, present or future incorporator,
stockholder, limited partner, member, officer or director of the Shipowner or of
any successor company, either directly or indirectly. It is expressly agreed
that this Indenture and the Obligations are solely the obligations of the
Shipowner.

	
EXHIBIT 2

Forms of Floating Rate Note, Guarantee and Trustee's

Authentication Certificate

S P E C I M E N   N O T E

$194,855,000.00

No. 8

UNITED STATES GOVERNMENT GUARANTEED

SHIP FINANCING NOTE, 1999 SERIES

Floating Rate Note

Issued by

ENSCO OFFSHORE COMPANY

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

        ENSCO OFFSHORE
COMPANY, a Delaware corporation (herein called the “Shipowner”), FOR
VALUE RECEIVED, promises to pay to Citibank International plc, as Facility Agent
for the Lenders under the Credit Agreement referred to below at the corporate
offices of Bankers Trust Company, a New York banking corporation, in its
capacity as Indenture Trustee, at Four Albany Street, New York, New York 10006,
or at such other address of the Indenture Trustee or any Paying Agent as the
Indenture Trustee may direct from time to time in writing, the principal sum of
One Hundred Ninety-Four Million Eight Hundred Fifty-Five Thousand
Dollars($194,855,000) on the earlier of (i) June 30, 2002 or (ii) the first
Payment Date which occurs eighteen months or more after the Delivery Date, and
to pay interest, semiannually on _______ and ________ of each year, commencing
on _______, 2000, on the unpaid principal amount of this Note at the Applicable
Interest Rate as defined in the Indenture, until payment of said principal sum
has been made, and at the same rate per annum on any overdue principal. 

        The principal of
and the interest on this Note are payable in immediately available funds to the
registered Holder hereof at the address specified above 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 the Shipowner and the
registered owner may enter into other arrangements as to payment in accordance
with the Special Provisions of the Indenture. 

        Any repayment of
principal hereon and the interest rate and Interest Period applicable thereto
shall be recorded on the books and records of the Indenture Trustee, and the
Indenture Trustee shall send in writing such information on each payment to the
Holder, who shall endorse such information on Exhibit A to this Note prior to
any negotiation hereof. The Shipowner agrees that, in any demand for payment
pursuant to the provisions of the Indenture, the entries endorsed on Exhibit A
to this Note and recorded on the books and records of the Indenture Trustee
shall be prima facie evidence of the unpaid principal balance of this Note. 

        This Note is
designated as the “United States Government Guaranteed Ship Financing Note,
1999 Series”, issued under a Trust Indenture dated as of this date (said
Trust Indenture, as the same may be amended, modified or supplemented from time
to time as permitted thereunder, herein called the “Indenture”), among
the Shipowner and Bankers Trust Company, a New York banking corporation, 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 Vessel (as defined in the Indenture). Reference is hereby made
to the Indenture for a definition of all capitalized terms used herein and not
otherwise defined 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 Holder of this Note. 

        In accordance
with the terms of an Authorization Agreement dated as of this date (herein as in
effect, 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 called the “Guarantee”) on this Note and the
authentication and delivery of the Guarantee by the Indenture Trustee, all
pursuant to Title XI of the Merchant Marine Act, 1936, as amended and in effect
on this date (herein called the “Act”), this Note is guaranteed by the
United States of America as provided in the Authorization Agreement and in the
Guarantee endorsed hereon. 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 Holder of this Note. 

        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 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 promptly,
but not later than sixty (60) days from the date of such Indenture Default,
demand payment by the Secretary of the Guarantee, whereupon the entire unpaid
principal amount of this Note then Outstanding and all unpaid interest thereon
shall become due and payable in United States currency on the first to occur of
the date which is thirty (30) days from the date of such demand or the date on
which the Secretary pays the Guarantee. If no demand for payment of the
Guarantee shall have been made by the Indenture Trustee on or before the
thirtieth (30th) day following an Indenture Default, the Holder of this Note
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 thirty (30)
days from the date of such Indenture Default unless demand for payment under the
Guarantee 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 this Note in respect of
such Indenture Default. 

        Within thirty
(30) days from the date of any demand for payment of the Guarantee, the
Secretary shall pay to the Indenture Trustee, as agent and attorney-in-fact for
the Holder of this Note, all of the unpaid interest to the date of such payment
on, and the unpaid balance of the principal of, this Note in full, in United
States currency in cash; 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 thirty (30) day period (and prior to any payment of the
Guarantee 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 Guarantee, in which event the Guarantee shall continue in full
force and effect. 

        The Holder of
this Note by the purchase and acceptance hereof, hereby irrevocably appoints the
Indenture Trustee as agent and attorney-in-fact for the purpose of making any
demand for payment of the Guarantee 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 Trustee shall affect the right of the Holder of this
Note to take any action whatsoever permitted by law and not in violation of the
terms of this Note or of the Indenture. 

        In the event of
(a) a default, continuing for twenty-five (25) days, in the payment of the
principal of or interest on this Note when due or (b) any default under the
Security Agreements, the Mortgages or any related agreement between the
Secretary and the Shipowner or between the Secretary and any 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 twenty-five (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 Guarantee, assume all of the
rights and obligations of the Shipowner under the Indenture and the Note and, if
such default relates to the payment of the principal of and interest on the
Note, make all payments then in default under the Note. 

        Any amount
payable by the Secretary under the Guarantee 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 Note shall have no right, title or interest in any collateral or security
given by the Shipowner or any other person to the Secretary. 

        After payment of
the Guarantee by the Secretary to the Indenture Trustee, this Note (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 Note) equal to the unpaid principal amount hereof and the unpaid
interest accrued hereon to the date on which the Secretary shall have paid the
Guarantee 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. 

        This Note may be
prepaid or 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 five (5) Business Days’ and not more than sixty (60)
days’ prior notice given as provided in the Indenture. 

        This Note is
also subject to repayment, upon the terms and conditions provided in the
Indenture and upon like notice, through the operation of a mandatory repayment
schedule providing for the repayment on _____ and _______ of each year (each, a
“Payment Date”), commencing on ________, 20__, and on each Payment
Date thereafter to and including June 30, 2002, at one hundred percent (100%) of
the principal amount thereof plus interest accrued thereon to such date, of a
principal amount equal to the applicable semiannual installments indicated below
and, on the earlier of (i) June 30, 2002 and (ii) the first Payment Date which
occurs eighteen months or more after the Delivery Date, the entire unpaid
principal amount of this Note shall be paid in full, together with all interest
accrued thereon to such date, provided, however, that notwithstanding the
foregoing provisions of this paragraph, that in case the principal amount of
this Note shall be reduced by reason of any prepayment or redemption described
in the second next succeeding paragraph, the principal amount of this Note to be
repaid through the operation of the mandatory repayment schedule on each
subsequent redemption date shall be subject to reduction as provided in the
Indenture. 

        As used in the
foregoing paragraph, the applicable semi-annual principal installment due on any
Payment Date listed below shall be the installment set forth opposite such
Payment Date. 

	Payment Date	Installment Amount Due
	,2000	 	$6,495,167	 
	,2000	 	$6,495,167	 
	,2001	 	$       
        	 
	, 2001	 	$       
        	 

	

        This Note is
also subject to redemption, upon the terms and conditions provided in the
Indenture, in whole or in part, at one hundred percent (100%) of the principal
amount thereof plus interest accrued thereon to the date of redemption, upon at
least thirty (30) and not more than sixty (60) days’ prior notice: (a) in
the event that Note must be redeemed so that the principal amount of all
Obligations Outstanding after such redemption will not exceed eighty-seven and
one-half percent (87.5%) of the depreciated actual cost or actual cost, as the
case may be, of the Vessel financed by this Note, 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, such
Vessel, (c) in the event that, after an assumption by the Secretary of this
Note, a purchaser of such Vessel from the Secretary does not assume all the
rights and obligations of the Shipowner under the Indenture relating to such
Vessel or (d) in the event of a termination of a contract relating to the
construction of the Vessel. 

        This Note is
also subject to redemption in full, upon the terms and conditions provided in
the Indenture, at one hundred percent (100%) of the principal amount thereof
plus interest accrued thereon to the date of redemption, in the event and to the
extent that, as required or permitted under the Indenture, the Mandatory Note
Redemption Date has occurred or the Note is paid and satisfied with the proceeds
from the issuance of Bonds. 

        This Note may
also be redeemed upon the terms and conditions provided in the Indenture, in
whole or in part, at the option of the Secretary, on any Interest Payment Date
following an assumption of this Note and the Indenture by the Secretary and
prior to any sale of the Vessel financed by this Note to a purchaser which
assumes the Shipowner’s rights and obligations under this Note and the
Indenture, upon at least thirty (30) and not more than sixty (60) days’
prior notice given as provided in the Indenture, at a Redemption Price equal to
one hundred percent (100%) of the principal amount to be redeemed plus interest
accrued to the date fixed for redemption. 

        Any optional
prepayment or redemption shall be subject to the receipt of the prepayment or
redemption monies by the Indenture Trustee or any Paying Agent in accordance
with the terms of the Indenture. Any amount of this Note called for prepayment
or redemption shall (unless the Shipowner shall default in the payment of such
amount at the applicable prepayment or redemption price plus accrued interest)
cease to bear interest on and after the date fixed for prepayment or 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 Holder of this
Note 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 Holder of at least sixty percent (60%) in principal amount of
this Note in the manner and subject to the limitations set forth in the
Indenture; provided that no such waiver or modification shall, without the
consent of the Holder of this Note: (a) change the Stated Maturity or reduce the
principal amount of this Note, (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 scheduled payment, (d) reduce any premium payable upon the redemption
thereof, (e) change the coin or currency in which any Obligation or the interest
thereon is payable, (f) terminate or modify any of the Guarantee or the
obligations of the United States of America thereunder, (g) reduce the amount of
any of the Guarantee, (h) eliminate, modify or condition the duties of the
Indenture Trustee to demand payment of the Guarantee, (i) eliminate or reduce
the eligibility requirements of the Indenture Trustee, or (j) reduce the
percentage of principal amount of Obligations the consent of whose Holder is
required for any such modification or waiver. 

        The Indenture
provides that this Note shall no longer be entitled to any benefit provided
therein if the Note shall have become due and payable at Maturity (whether by
repayment, prepayment, redemption or otherwise) and funds sufficient for the
payment thereof (including interest to the date fixed for such payment, together
with any 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
six (6) years after the date of maturity thereof (whether by redemption or
otherwise) or the date of payment of the Guarantee, 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 Note, all subject,
however, to the provisions of Section 6.08 of Exhibit 1 to the Indenture. 

        This Note is
transferable (to the extent permitted under
Section
11.03 of
the Credit Agreement) 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 Note, 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 Note or Notes 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 of One Thousand Dollars ($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 this Note (1) for a period of fifteen (15) days immediately prior
to an interest payment date or (2) after demand for payment of the Guarantee 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) if all or any portion thereof has
been selected for repayment, prepayment or redemption in whole or in part,
except, in the case of a partial repayment, prepayment or redemption, as to the
unredeemed portion being repaid, prepaid or redeemed in part. 

        The Shipowner,
the Secretary, the Indenture Trustee and any office or agency for the payment of
Notes may deem and treat the person in whose name this Note 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 Note 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 Note, or for any claim based hereon or on the Indenture, against
any incorporator or any past, present or future subscriber to the capital stock,
stock-holder, 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 Note and by the terms of the
Indenture; provided that nothing in this paragraph shall be deemed a waiver of
any claim against any such incorporator, subscriber, stockholder, officer or
director for fraud, misrepresentation, misappropriation of funds or willful
misconduct on the part of such person. 

        The Guarantee of
the United States extends only to the principal and interest owed under this
Note and only to the extent specified herein. The United States does not
guarantee the payment of any other indebtedness of the Shipowner to the Holder
or any other Person, no matter how the indebtedness arises or whether it is in
any way related to the borrowings of the principal amount which is the subject
of this Note, including, but not limited to, premium, the fees and expenses
arising under that certain Credit Agreement dated as of this date by and among
the Shipowner, Govco Incorporated as Primary Lender, Citibank, N.A., as
Alternate Lender, Citicorp International plc, as Facility Agent and Citicorp
North America, Inc., as Primary Lender Agent, the “Indemnified
Amounts” as defined therein, commissions, Liquidation Fees, Breakage Fees,
compensation under Section 4.04 of the Credit Agreement, “Taxes” or
“Other Taxes” as defined in the Credit Agreement, default interest
under Section 4.02(b) of the Credit Agreement and in the Indenture, interest for
any “Post-Maturity Period” in excess of the “Guaranteed
Interest” (as such terms are defined in the Credit Agreement), or any other
charges, costs or expenses owed to any Person by the Shipowner under the Credit
Agreement and not constituting principal or interest owed under this Note. 

        This Note may
not be amended or modified in any respect without the prior written consent of
the Secretary. 

        Neither this
Note 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. 

        IN WITNESS
WHEREOF, the Shipowner has caused this Note to be duly executed by the manual or
facsimile signatures of its duly authorized officers under its corporate seal or
facsimile thereof. 

Dated as of December 15, 1999.

		 
	 	ENSCO OFFSHORE COMPANY
 

 
	 	     
             
              

	 	BY:     
             
              

	 	Title     
             
              

	(SEAL)	     
             
              

	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 Obligee of the
Obligation annexed hereto,  upon demand of the Obligee 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 this Guarantee. 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 Obligee 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
	 
	 
	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. 

	            
           
              
     
	Indenture Trustee
	 
	 
	        BY:            
              
    
	        Authorized Officer

PAYMENTS ON ACCOUNT OF PRINCIPAL

	 
Interest
Period	Applicable
Interest
    Rate    	 
Payment
    Date    	 
Amount of
Principal Paid	 
Amount of
Interest Owned	 Amount of
Interest Paid	 Balance of
Principal UnpaidEX-10.13

	

Appendix III to Guarantee Commitment 

Document 7.01

Contract No. MA-13552

SECURITY AGREEMENT

SPECIAL PROVISIONS

     THIS SECURITY AGREEMENT, dated
December __, 1999 (the "Security Agreement"), between ENSCO OFFSHORE
COMPANY, a Delaware 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 Friede Goldman Offshore Texas, Limited
Partnership (formerly known as TDI Halter, L.P.) (the "Shipyard") for the Construction of the Vessel.

     B. On the date hereof, the Secretary
entered into, and the Shipowner accepted a Commitment to Guarantee Obligations,
Contract No. MA-13550, 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 87.5% of the Depreciated Actual Cost or the Actual Cost of the
Vessel, as the case may be, on the Closing Date, which amounts are set out in
Table A.

     C. To aid in financing the purchase
of the Vessel, the Shipowner has duly executed the Indenture, has duly
authorized the issuance thereunder of the Obligations and has entered, or will
enter, into (i) on the date hereof, a floating interest rate term loan facility
agreement (the "Credit Agreement") providing for a loan of up to the
aggregate principal amount of One Hundred Ninety Four Million Seven Hundred
Thirty Six Thousand United States Dollars (US$194,855,000) with Govco
Incorporated (the "Primary Lender") and Citibank, N.A. (the
"Alternate Lender") (the Primary Lender and the Alternate Lender,
collectively the "Lenders") to be evidenced by one or more promissory
notes (the "Note") duly issued by the Shipowner pursuant to Section
2.01 of Exhibit 1 of the Indenture, designated "United States Government
Ship Financing Note, 1999 Series," having the maturity date and interest
rate set forth therein, and, (ii) on or before the Bond Closing Date, the bond
purchase agreement (the "Bond Purchase Agreement") with the purchasers
named therein, providing for the sale and delivery of up to the aggregate
principal amount of One Hundred Ninety Four Million Eight Hundred Fifty-Five
Thousand United States Dollars (US$194,855,000) bonds (the "Bonds")
duly issued by the Shipowner pursuant to Section 2.01 of Exhibit 1 of the
Indenture, designated "United States Government Guaranteed Ship Financing
Bonds, 7500 Series" having the maturity date and interest rate set forth
therein. The Note and the Bonds issued (as the case may be) shall be known as
the "Obligations".

     D. On the date hereof, the Secretary
and the Indenture Trustee executed the Authorization Agreement, Contract No.
MA-13551, which authorizes the Indenture Trustee to endorse, execute, and
authenticate the Secretary's Guarantee on each of the Obligations.

     E. As security for the due and
timely payment of the Secretary's Note, issued this day by the Shipowner, and
for the Secretary's issuance of the Guarantees, the Shipowner has executed and
delivered the Security Agreement, Contract No. MA-13552, and the Financial
Agreement, Contract No. MA-13553, granting the Secretary a security interest in,
among other things, the Construction Contract and certain other property,
tangible and intangible, which the Shipowner now has or hereafter will acquire,
and all of the proceeds thereof and on the Delivery Date the Shipowner will
execute and deliver the Mortgage, Contract No.13554 creating a preferred ship
mortgage on the Vessel.

     F. As further security to the
Secretary and in consideration of the Secretary's agreeing to issue the
Guarantees, the Shipowner has granted the Secretary a security interest in the
Construction Contract and will assign to the Secretary all of the Shipowner's
security interests in the Vessel, its hull, component parts, machinery, and
equipment during the construction period and has caused the Shipyard to have
executed on this date the Consent of Shipyard to the assignment of the
Construction Contract to the Secretary.

     G. In order to implement certain
aspects of the transactions contemplated by the Security Agreement and the
Financial Agreement, the Secretary, the Shipowner and Chase Bank of Texas,
National Association, a national banking association (the
"Depository") have entered into the Depository Agreement, Contract No.
MA-13555, on the date hereof.

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

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

     2. The following additions,
deletions and amendments are hereby made to the Security Agreement:

     (a) Each reference in Exhibit 1 to
the Security Agreement to the terms "Vessels", "each
Vessel", "any Vessel" or "such Vessel" shall be amended
to read "the Vessel".

     (b) Each reference in Exhibit 1 to
the Security Agreement to the term "Proportionate Part" is hereby
deleted.

     (c) Concerning Section 1.03(a).
Section 1.03(a) is hereby amended and restated as follows:

     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) The Construction Contract
(insofar as it relates to the Construction of the Vessel), together with all
other contracts, whether now in existence or hereafter entered into, relating to
the Construction of the Vessel. Said right, title and interest in and to the
Construction Contract, and the other contracts conveyed to the Secretary by this
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 the Vessel regardless of the legal theory by
which moneys are recovered. Said right, title and interest in and to the moneys,
cash, bonds, claims, and securities conveyed by this subsection are herein
referred to collectively as the "Moneys Due with Respect to the
Construction of the Vessel." Subject to the provisions of this Security
Agreement, the Secretary acknowledges and agrees that the Moneys Due with
Respect to the Construction of the Vessel will be paid directly to the
Depository for application in accordance with this Security Agreement and the
Indenture.

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

     (4) The Drilling Contract, and all
of the Shipowner's rights to receive moneys which may from time to time become
due to the Shipowner thereunder.

     (5) The Halter Guaranty, and all of
the Shipowner's rights to receive moneys which may from time to time become due
to the Shipowner thereunder.

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

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

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

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

     (10) The Shipyard Security
Agreement, and all right, title and interest of the Shipowner therein.

     (11) All proceeds of the  collateral
described in  paragraphs  (1) through
(10) 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:

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

     (d) Concerning Section 2.01(a).
Section 2.01(a) is hereby amended and restated as follows:

     (1) The Shipowner is duly organized,
validly existing and in good standing under the laws of the jurisdiction
designated in the initial paragraph of the Special Provisions hereof and shall
maintain such existence. The Shipowner has not failed to qualify to do business
in any jurisdiction in the United States in which its business or properties
require such qualification, except where such failure to qualify would not have
a material adverse effect on the business or financial condition of the
Shipowner or its ability to perform its obligations hereunder, 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;

     (e) Concerning Section 2.01(a)(4).
Section 2.01(a)(4) is hereby amended and restated as follows:

     (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, except where such breach
would not have a material adverse effect on the business or financial condition
of the Shipowner or its ability to perform its obligations hereunder, 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

     (f) Concerning Section 2.02(b)(1).
Section 2.02(b)(1) is deleted and the following substituted in lieu thereof:

(b) Sale, Mortgage, Transfer or Charter of the Vessel.

     (1) The Shipowner shall not, without
the prior written consent of the Secretary, sell, mortgage, demise charter or
transfer the Vessel, except the foregoing shall not apply to (i) Government
Uses, (ii) mergers or consolidations permitted by Article VIII or the Financial
Agreement, (iii) the Drilling Contract, or (iv) any subsequent drilling contract
or contracts, or charters that are not demise or bareboat charters.

     (g) Concerning Section 2.02(b)(2).
Section 2.02(b)(2) is hereby deleted.

     (h) Concerning Section 2.02(d)(1).
Section 2.02(d)(1) is hereby amended and restated as follows:

     (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 in respect of the work, services or materials represented
by such payment. At the Delivery Date of the Vessel, the Shipowner and the
Shipyard shall provide an Officer's Certificate stating that there are no liens
or rights in rem against the Vessel except for the Mortgage.

     (i) Concerning Section 2.02(d)(3).
Section 2.02(d)(3) is hereby deleted and the following substituted in lieu
thereof:

     (3) Except for Permitted Liens
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 the
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.

     (j) Concerning Section 2.02(e).
Section 2.02(e) is hereby amended and restated as follows:

     (e) Compliance with Applicable Laws.
The Shipowner shall at all times be in compliance with all applicable U.S. laws,
except where the non-compliance therewith would not materially and adversely
affect the Secretary's security interests hereunder. In addition, the Vessel (1)
shall be designed to meet, and on the Delivery Date thereof and at all times
thereafter shall meet all requirements of applicable laws, treaties and
conventions, and of applicable rules and regulations thereunder, and (2) shall
have on board valid certificates showing compliance therewith; provided that the
foregoing shall not apply if (A) the Vessel is in Government Use; (B) there has
been an actual or constructive total loss or an agreed or compromised total loss
of such Vessel; or (C) there has been any other loss with respect to such Vessel
and the Shipowner shall not have had a reasonable time to repair the same.

     (k) Concerning Section 2.02(f).
Section 2.02(f) is deleted and the following substituted in lieu thereof:

     (f) Operation of the Vessel. The
Shipowner shall not (unless otherwise required by any military authority of the
United States and except during a Government Use (1) cause or permit the Vessel
to be operated in any manner contrary to law or to any lawful rules or
regulations of the Maritime Administration, or (2) unless there has been an
actual or constructive total loss or an agreed or compromised total loss of the
Vessel, abandon the Vessel in any foreign port.

     (l) Concerning Section 2.02(h).
Section 2.02(h) is deleted and the following substituted in lieu thereof:

     (i) Material Changes in the Vessel.
After the Delivery Date of the Vessel, the Shipowner shall not make, or permit
to be made, any material change in the general dimensions or characteristics of
the Vessel which changes the capacity of the Vessel to perform as originally
intended by the Construction Contract, unless the Shipowner shall have received
the Secretary's prior written consent thereto.

     (m) Concerning Section 2.03(a).
Section 2.03(a) is hereby amended as follows:

     (a) The Construction Contract shall
be maintained in full force and effect insofar as it relates to the due
performance by the Shipowner and the Shipyard of all their respective
obligations thereunder and the Shipowner shall not, without the Secretary's
prior written consent, amend, modify, assign or terminate the Construction
Contract or consent to any change in the Construction Contract which releases
the Shipyard from its obligations to comply with the provisions of the
Construction Contract or any applicable laws, treaties, conventions, rules and
regulations; provided that, the Secretary's prior written consent shall not be
necessary, but prompt written notice to the Secretary shall be given for (1) any
mandatory or regulatory change to the Construction Contract as a result of any
requirements of any governmental agency, or (2) any non-mandatory changes that
Shipyard and Shipowner desire to make which do not exceed, with respect to any
item of the Vessel's construction, two (2%) percent of the Actual Cost and which
do not, in the aggregate, cause the Actual Cost to be increased more than five
(5%) percent or the delivery and completion date of the Vessel to be extended
more than fifteen (15) days. Notwithstanding the foregoing, no change shall be
made in the general dimensions and/or characteristics of the Vessel which
changes the capacity of the Vessel 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 Advances may be made for
work that is not determined to be includable in Actual Cost.

     (n) Concerning Section 2.03. A new
subsection (c) is hereby added to Section 2.03 and reads as follows:

     "(c) Notwithstanding anything
herein contained to the contrary, the Shipowner shall have the exclusive right
following and during the continuation of any default by the Shipyard under the
Construction Contract to negotiate with the Shipyard with respect to the
resolution of such default or to otherwise enforce whatever remedies may be
available to the Shipowner, either at law or in equity, arising out of or in
connection with such default, for a period of thirty (30) days and thereafter
for so long as the Shipowner continues to diligently prosecute (or demonstrate
its good faith intent to diligently prosecute) the enforcement of such remedies
so as to reasonably protect the interests of the Shipowner and the Secretary;
provided that the Shipowner shall give prompt written notice to the Secretary of
any such default and of the resolution thereof; and provided further that the
Shipowner may not amend, terminate or modify the Construction Contract except in
a manner as provided in Section 2.03(a)."

     (o) Concerning Section 2.05(a).
Section 2.05(a) is hereby amended and restated as follows:

     (a) Prior to the Delivery Date of
the Vessel, the Shipowner shall, without cost to the Secretary or, shall insure
that the Shipyard has procured insurance for the Vessel 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.

     (p) Concerning Section 2.05. (1) In
connection with Section 2.05(a) and clause (ii) of the initial paragraph of
Section 2.05(c), the Secretary shall permit payment of losses up to the amount
of $1,000,000 to be made directly to the Shipowner under the circumstances
specified therein; and (2) In connection with Sections 2.05(b)(3) and the last
paragraph of Section 2.05(e) the maximum amount of self-insurance permitted to
the Shipowner under the last paragraph thereof shall be $1,000,000 on an annual
aggregate basis after application of the $250,000 per accident deductible.

     (q) Concerning Section 2.05(e). In
connection with Section 2.05(e), as evidence of insurance maintained under
Section 2.05, the Shipowner may submit a cover note or certificate of insurance
setting forth the terms of the policy.

     (r) Concerning Section 2.11.
Notwithstanding the provisions of Section 2.11, in the absence of a Default, the
Shipowner shall not be required to give written notice to any customer hiring
the Vessel of the Secretary's security interest in the proceeds or revenues from
such drilling contract. The Secretary shall not give such notice to any customer
hiring the Vessel unless there exists a Default. These provisions do not apply
to any UCC statement filed in the United States.

     (s) Concerning Section 2.14. Section
2.14 is hereby amended by adding a sentence to the end thereof that reads as
follows:

     "Notwithstanding the foregoing,
the Shipowner shall not be required to cause to be procured or maintained a
Surety Bond for so long as the Halter Guaranty remains in full force and effect
and the rights thereunder have been assigned by the Shipowner to the
Secretary."

     (t) Concerning Section 4.02(a).
Section 4.02(a) is hereby amended as follows:

     (a) In the event that (i) a payment
is otherwise required under the terms of the Financial Agreement to be made into
the Title XI Reserve Fund, and (ii) the Shipowner shall receive any moneys from
any Person in connection with the Construction of the Vessel other than the
proceeds of insurance that may be paid directly to the Shipowner pursuant to
Section 2.05(a) of this Security Agreement, 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.

     (u) Concerning Section 5.03(a)(1).
Section 5.03(a)(1) is hereby amended as follows:

     (1) 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 amount 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 without recommendations
affecting class. 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.

     (v) Concerning Section 6.01. Section
6.01 of Exhibit 1 hereto is hereby amended by adding the following events which
shall constitute a "Security Default":

     Failure of the Shipowner to repay
the Note by issuance of the Bonds within eighteen (18) months of the Delivery
Date, unless such period is otherwise extended by the Secretary.

     (w) Concerning Section 6.01(b)(2).
Section 6.01(b)(2) is hereby amended as follows:

     (2) Default by the Shipowner
continued after five (5) business days following written notice specifying such
failure by certified or registered mail to the Shipowner from the Secretary in
the due and punctual observance and performance of any provision in Sections
2.02(a), (d), (e), (f), and (g), 2.05 (except (g) and (k) thereof), 2.07, and
2.13.

     (x) Concerning Section 6.01(b)(5).
Section 6.01(b)(5) is hereby amended as follows:

(5) Any default by the  Shipowner  in the due and punctual  observance  and

performance of any provision in the

Financial Agreement or the Construction Contract;

     (y) 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:

ENSCO OFFSHORE COMPANY

2700 Fountain Place

1445 Ross Avenue

Dallas, Texas, 75202

Attention: Chief Financial Officer

Indenture Trustee as:

BANKERS TRUST COMPANY

Corporate Trust and Agency Services

Four Albany Street

New York, New York 10006

Attention:       Project Finance Group

     (z) Governing Law. This Security
Agreement and the rights and obligations of the parties hereto shall be governed
by and construed in accordance with maritime laws of the United States and, to
the extent such laws are not applicable, in accordance with the internal laws of
the State of Texas.

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

	 

	Attest:

               
          		SHIPOWNER:
ENSCO OFFSHORE COMPANY

BY:               
             
              
   

NAME:        
              
              
   
TITLE:       
              
           
         
	 	
     	 	
     	 	
	 	
     	 	
     	 	
	 	
     	 	
     	 	
		 	UNITED STATES OF AMERICA

SECRETARY OF TRANSPORTATION

MARITIME ADMINISTRATOR
	 	
     	 	
     	 	
	Attest:          
               	  	BY:              
               
         

      Secretary
      Maritime Administration
	 	
     	 	
     	 	

	
Exhibit 1--General Provisions Incorporated into the Security Agreement by Reference

Schedule X -- Schedule of Definitions

Exhibit 2 -- Form of Secretary's Note

Exhibit 3 -- Form of First Preferred Fleet Mortgage

Exhibit 4 -- Form of Financial Agreement

Exhibit 5 -- Form of Consent of Shipyard

Exhibit 6 -- Form of Construction Contract

Exhibit 7 -- Form of Depository Agreement
	 

	TABLE A

	 

	
     The 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 $222,556,179,
both calculated and itemized for the Vessel as follows:

		 
Amount
Paid	Amount
Obligated
To be Paid	 
 
Total
	 
	Contract Price	 	 	 	$  68,700,000	 	 	 
	Changes and Extras	 	 	 	$  23,672,700	 	 	 
	Owner Furnished Items	 	 	 	$100,926,240	 	 	 
	Engineering and Inspection	 	 	 	$  12,000,000	 	 	 
	Interest and Commitment Fees	 	 	 	$  11,600,000	 	 	 
	Estimated Escalation	 	 	 	 	 	 	 
	Estimated Guarantee Fee	 	 	 	$    5,792,817	 	 	 
	Total Actual Cost	 	 	 	$222,691,757	 	 	 

	

Schedule X to the Security Agreement

Document 7.03

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 the Vessel, as
set forth in Table A of the Security Agreement or as subsequently redetermined
by the Secretary pursuant to the Security Agreement and the Act.

"Audited Financial Statements" mean the annual audit of
the Guarantor's accounts in accordance with generally accepted auditing
standards by independent certified public accountants or independent licensed
public accountants, certified or licensed by a regulatory authority of a state
or other political subdivision of the United States, who may be the Guarantor's
regular auditors.

"Authorization Agreement" means the Authorization
Agreement, Contract No. MA-13551 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 Wall Street Journal
and The Journal of Commerce or if either ceases to exist, then in such other
newspapers as the Secretary may designate.

"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 the State of New
York.

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

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

"Closing Date" or "Closing" means the date
when the Security Agreement is executed and delivered by the Shipowner.

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

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

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

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

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

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

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

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

"Depository Agreement" shall mean the Depository
Agreement, Contract No. MA-13555 among the Shipowner, the Secretary and the
Depository, as originally executed or as modified or supplemented in accordance
with the applicable provisions thereof.

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

"Drilling  Contract" means the Drilling  Contract dated
June 24, 1998 between the Shipowner and Burlington  Resources Oil and Gas Company,
as amended and supplemented from time to time.

"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-13553,  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 the Vessel or
requisition of its title required by a government or governmental body of the
United States of America.

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

"Guarantee Commitment" means the Commitment to Guarantee
Obligations, Contract No. MA-13550, dated as of December __, 1999, executed by
the Secretary and accepted by the Shipowner relating to the Guarantees, as
originally executed or as modified, amended or supplemented.

"Halter  Guaranty"  means the Guaranty of Friede  Goldman  Halter,  Inc.  (formerly  known as Halter Marine Group,  Inc.) in favor of the

Shipowner in respect of performance by the Shipyard under the Construction Contract.

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

"Indenture" means the Trust Indenture dated 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 Bankers Trust Company, a New
York corporation, and any successor trustee under the Indenture.

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

"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.

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

"Mortgage" means the first preferred ship mortgage on
the Vessel, Contract No. MA-13554, by the Shipowner to the Secretary, as
originally executed, modified, amended or supplemented.

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

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

"Net Worth" means, as of any date, the total of paid-in
capital stock, paid-in surplus, earned surplus and appropriated surplus, and all
other amounts that would be included in net worth in accordance with generally
accepted accounting principles, but exclusive of (1) any receivables from any
stockholder, director, Officer or employee of the Company or from any Related
Party (other than current receivables arising out of the ordinary course of
business and not outstanding for more than 60 days) and (2) any increment
resulting from the reappraisal of assets.

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

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

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

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

"Outstanding" when used with reference to the
Obligations, shall mean all Obligations theretofore issued under the Indenture,
except: (1) Obligations Retired or Paid; and (2) Obligations in lieu of which
other Obligations have been issued under the Indenture.

"Paying Agent" means any bank or trust company meeting
the qualifications in Section 7.02(a) of 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.

"Permitted Liens" means

(1) liens for Taxes not at the time delinquent or thereafter
         payable without penalty or being contested in good faith, provided
         provision is made to the extent required by generally accepted
         accounting principles for the eventual payment thereof in the event it
         is found that such are payable by the Shipowner,

(2) liens of carriers, warehousemen, mechanics, materialmen
         and landlords incurred in the ordinary course of business for sums not
         overdue or being contested in good faith, provided provision is made to
         the extent required by generally accepted accounting principles for the
         eventual payment thereof in the event it is found that such sums are
         payable by the Shipowner;

(3) maritime liens

     (A) arising in the ordinary
         course of business by operation of law payable consistent with past
         practice, and in any event no more than thirty (30) days past due, or
         that are being contested in good faith by appropriate proceedings and
         for which reserves have been made to the reasonable satisfaction of the
         Secretary or

     (B) arising in connection with
salvage and general average; or

     (C) arising in connection with crew
wages claimed but not paid;

(4) liens incurred in the ordinary course of business in
         connection with workmen's compensation, unemployment insurance or other
         forms of governmental insurance or benefits, or to secure performance
         of tenders and statutory obligations entered into in the ordinary
         course of business or to secure obligations on surety or appeal bonds
         in the ordinary course of business; and

(5) the lien of the Mortgage.

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

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

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

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

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

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

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

"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-13552, 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.

"Shipowner" means ENSCO Offshore Company, a Delaware
corporation, and shall include its successors and assigns.

"Shipyard" means Friede Goldman Offshore Texas, Limited
Partnership, formerly known as TDI-Halter, L.P., a Louisiana limited
partnership.

"Shipyard Security Agreement" means the security
agreement by the Shipyard in favor of the Shipowner in respect of the Vessel
under construction at the Shipyard.

"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.

"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
Texas.

"Vessel" means the semi-submersible drilling unit to be
named ENSCO 7500, and financed with the Obligations.

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

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

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

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

	

	

	Exhibit 1 to the Security Agreement

Document 7.02

GENERAL PROVISIONS
	TABLE OF CONTENTS
 
	ARTICLE I

DEFINITIONS; OFFICER'S CERTIFICATES; GRANTING CLAUSE

			Page
	SECTION 1.01	 	Definitions	 	1	 
	SECTION 1.02	 	Officer's Certificate	 	1	 
	SECTION 1.03	 	Granting Clause	 	1	 

	ARTICLE II

SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS

			 
	SECTION 2.01	 	Shipowner's Representations, Agreements,
Organization and Existence	 	 	 
	 	 	     (b)  Shipowner's United
States Citizenship	 	3	 
	 	 	     (c)  Taxes	 	3	 
	SECTION 2.02	 	Covenants Concerning the Vessels	 	 	 
	 	 	     (a)  Title to and
Possession of the Vessels	 	4	 
	 	 	     (b)  Sale,
Mortgage, Transfer or Charter of Vessels	 	4	 
	 	 	     (c)  
Taxes and Governmental Charges	 	4	 
	 	 	     (d)  
Liens	 	4	 
	 	 	     (e)
  Compliance with Applicable Laws	 	5	 
	 	 	     (f)
  Vessels' Operation	 	5	 
	 	 	     (g)
  Vessels' Condition and Maintenance	 	5	 
	 	 	     (h)
  Material Changes in the Vessels	 	6	 
	 	 	     (i)
  Documentation of the Vessels	 	6	 
	SECTION 2.03	 	Maintenance of Construction Contract	 	6	 
	SECTION 2.04	 	Delivery Requirements	 	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	 	13	 
	SECTION 2.08	 	Notice of Mortgate	 	14	 
	SECTION 2.09	 	Compliance with 46 U.S.C. Chapter 313	 	15	 
	SECTION 2.10	 	Performance of Shipowner's Agreements
by the Secretary	 	15	 
	SECTION 2.11	 	Uniform Commerical Code Filings; Further
Assurances	 	15	 
	SECTION 2.12	 	Modification of Formation Agreements
	 	15	 
	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	 

	ARTICLE IV

CONSTRUCTION FUND; MONEYS DUE WITH RESPECT TO

CONSTRUCTION OF THE VESSELS

			 
	SECTION 4.01	 	Construction Fund	 	17	 
	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	 	21	 
	SECTION 5.06	 	Termination Date of the Escrow Fund	 	21	 

	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	 	23	 
	SECTION 6.03	 	Waivers of Default
	 	23	 
	SECTION 6.04	 	Remedies After Default	 	24	 
	SECTION 6.05	 	Application of Proceeds	 	26	 
	SECTION 6.06	 	General Powers of the Secretary	 	27	 

	ARTICLE VII

AMENDMENTS AND SUPPLEMENTS TO THE

SECURITY AGREEMENT, MORTGATE AND INDENTURE

			 
	SECTION 7.01	 	Amendments and Supplements to the Security
Agreement
and the Mortgage	 	27	 
	SECTION 7.02	 	Amendments and Supplements to the Indenture
	 	27	 

	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	 	28	 

	ARTICLE IX

NOTICES

			 
	SECTION 9.01	 	Notices	 	29	 
	SECTION 9.02	 	Waivers of Notice	 	29	 
	SECTION 9.03	 	Shipowner's Name or Address Change	 	29	 

	ARTICLE X

DISCHARGE OF SECURITY AGREEMENT AND THE MORTGAGE

			 
	SECTION 10.01	 	Discharge of Security Agreeent and the Mortgage	 	29	 

	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	 	30	 
	SECTION 11.05	 	Applicable Regulations	 	30	 
	SECTION 11.06	 	Table of Contents, Titles and Headings	 	30	 

	

ARTICLE I

DEFINITIONS; OFFICER’S CERTIFICATES;
GRANTING CLAUSE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE II
SHIPOWNER’S REPRESENTATIONS
AND AGREEMENTS

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

        SECTION 2.01.  Shipowner's  Representations,  Agreements,  Organization  and  Existence.  (a)  General  Representations.  The
Shipowner  hereby  represents and warrants that the following are true statements as of the date hereof and further  warrants that they
shall remain true thereafter:

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

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

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

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

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

        (b)
Shipowner’s United States Citizenship.
The Shipowner is a citizen of the United States within the meaning of Section 2
of the Shipping Act, 1916, as amended, and shall remain such a citizen for
operation in the trades in which the Shipowner proposes to operate the Vessels
and in the event the Shipowner shall cease to be such a citizen, the Shipowner
shall notify the Secretary immediately of such fact. 

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

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

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

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

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

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

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

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

        (e)
Compliance with Applicable Laws. The
Shipowner shall at all times be in compliance with all applicable U.S. laws. In
addition, each Vessel (1) shall be designed to meet, and on the Delivery Date
thereof and at all times thereafter shall meet all requirements of applicable
laws, treaties and conventions, and of applicable rules and regulations
thereunder, and (2) shall have on board valid certificates showing compliance
therewith; provided that the foregoing shall
not apply if (A) the Vessel is in Government Use; (B) there has been an actual
or constructive total loss or an agreed or compromised total loss of such
Vessel; or (C) there has been any other loss with respect to such Vessel and the
Shipowner shall not have had a reasonable time to repair the same. 

        (f)
Vessels’ Operation. Except when the
Vessel is in Government Use, the Shipowner shall not (1) cause or permit the
Vessels to be operated in any manner contrary to law or to any lawful rules or
regulations of the Maritime Administration, (2) remove or attempt to remove the
Vessels beyond the limits of the United States without the Secretary’s
prior written consent except on voyages with the intention of returning to the
United States, or (3) abandon such Vessels in any foreign port unless there has
been an actual or constructive total loss or an agreed or compromised total loss
of any of the Vessels. 

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

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

        (3)
Notwithstanding Section 2.02(g)(2), if the Vessel is a barge which is not
classed, then the Shipowner shall, at all times, at its own cost and expense
maintain and preserve each Vessel, so far as may be practicable, in at least as
good order and condition, ordinary wear and tear excepted, as at the Delivery
Date of such Vessel, and shall perform or cause to be performed at least once
every five years and at any other time reasonably required by the Secretary, a
survey and inspection of the Vessels by an independent marine surveyor approved
by the Secretary; and provided that, no such
surveys will be required within the last three years prior to the final Stated
Maturity of the Obligations. The Shipowner shall furnish two copies of the
report of such independent marine surveyor to the Secretary within 15 days of
such survey and inspection. The Shipowner shall deliver to the Secretary
annually an Officer’s Certificate stating the condition and maintenance of
each Vessel; provided
further, that none of this Section shall
apply when the Vessel is in Government Use. 

        (h)
Material Changes in the Vessels. After the
Delivery Date of any undelivered Vessel or the Closing Date of any already
delivered Vessel, the Shipowner shall not make, or permit to be made, any
material change in the structure, means of propulsion, type or speed of such
Vessel or in its rig, without the Secretary’s prior written consent. 

        (i)  Documentation
of the Vessels.  Upon the Delivery Date and thereafter,  each Vessel shall be and shall remain  documented
under the laws of the United States of America. 

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

        (b)
Notwithstanding anything to the contrary contained in the Construction Contract
or herein, no changes to the payment milestones and disbursement schedules shall
be made without the Secretary’s prior written consent, except to the extent
reasonably required to reflect the change orders under paragraph (a) of this
Section. 

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

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

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

        (c) recorded the Mortgage (or, if  appropriate,  a mortgage  supplement) in the National  Vessel  Documentation  Center of the
United States Coast Guard, or its successor; 

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

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

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

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

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

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

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

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

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

        (1) In the event
that insurance becomes payable under said policies on account of an accident,
occurrence or event not resulting in an actual or constructive total loss or an
agreed or compromised total loss of any Vessel, the Secretary shall (A) if there
is no existing Default and if none of the events described in Section 2.07 has
occurred, in accordance with a Shipowner’s Request, pay, or consent that
the underwriters pay, direct for repairs, liabilities, salvage claims or other
charges and expenses (including sue and labor charges due or paid by the
Shipowner) covered by the policies, or (to the extent that, as stated in an
Officer’s Certificate delivered to the Secretary, accompanied by written
confirmation by the underwriter or a surveyor or adjuster, the damage shall have
been repaired and the cost thereof paid of such liabilities, salvage claims, or
other charges and expenses discharged or paid) reimburse, or consent that the
underwriters reimburse, the Shipowner therefor and (after all known damage with
respect to the particular loss shall have been repaired, except to the extent
the Shipowner, with the Secretary’s written consent, deems the said repair
inadvisable, and all known costs, liabilities, salvage claims, charges and
expenses, covered by the policies, with respect to such loss shall have been
discharged or paid, as stated in an Officer’s Certificate delivered to the
Secretary, accompanied by written confirmation by the underwriters or a surveyor
or adjuster) pay, or consent that the underwriters pay, any balance to the
Shipowner; or (B) if there is an existing Default, in accordance with a Request
of Shipowner, pay, or consent that the underwriters pay, direct for the
Shipowner’s proportion of such repairs, liabilities, salvage claims or
other charges and expenses (including sue and labor charges due or paid by the
Shipowner) covered by the policies and hold any balance until the same may be
paid or applied under clauses A, C or D of this subsection, whichever is
applicable; or (C) if the Guarantees shall have terminated pursuant to Section
3.02(c) or if the Secretary shall have assumed the Shipowner’s rights and
duties under the Indenture and the Obligations and made any payments in default
under the terms of Section 6.09 of the Indenture and none of the events
described in Section 2.07 has occurred, apply the insurance as provided in
Section 6.05; or (D) if the Guarantees shall have terminated pursuant to Section
3.02(b) or (d), pay the insurance to the Shipowner; 

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

        (3) In the event
of an accident, occurrence or event resulting in an actual or constructive total
loss or an agreed or compromised total loss of any Vessel, whether prior to or
after the Delivery Date of such Vessel, and the insurance moneys have not been
applied as provided in paragraph (c)(2) of this Section, the Shipowner shall
forthwith deposit with the Secretary any insurance moneys which the Shipowner
receives on account thereof under policies of insurance required by this
Section, and any such insurance moneys received by the Secretary, whether from
the Shipowner or otherwise, or held by the Secretary pursuant to paragraph
(c)(2) of this Section, shall (A) if there is no existing Default, be applied,
to the extent necessary, pursuant to Section 2.07; (B) if there is an existing
Security Default, be held until the same may be applied under clauses (A), (C),
or (D) of this subsection, whichever is applicable; (C) if the guarantees shall
have terminated pursuant to Section 3.02(c) or if the Secretary shall have
assumed the Shipowner’s rights and duties under the Indenture and the
Obligations and made any payments in default under the terms of Section 6.09 of
the Indenture, be applied as provided in Section 6.05;
provided
that, notwithstanding the foregoing clauses
(A), (B) and (C) of this subsection, the Shipowner shall not be required to so
deposit with the Secretary insurance moneys in an amount which, together with
funds otherwise available for the redemption of Obligations is in excess of that
required for the redemption of the Proportionate Part of the Outstanding
Obligations pursuant to Section 3.05 of the Indenture and for the payment to the
Secretary of a Proportionate Part of all other sums that may be secured by this
Security Agreement and the Mortgage; or (D) if the Guarantees shall have
terminated pursuant to Section 3.02(b) or 3.02(d), be paid to the Shipowner. 

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

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

        Such policies
may provide that (1) if the Shipowner shall not have incurred the loss, damage,
or expense in question, any loss under such insurance may be paid directly to
the Person to whom any liability covered by such policies has been incurred
(whether or not a Default then exists), and (2) if the Shipowner shall have
incurred the loss, damage or expense in question, any such loss shall be paid to
the Shipowner in reimbursement if there is no existing Default of which the
underwriter has written notice from the Shipowner or the Secretary, or, if there
is such an existing Default, to the Secretary to be held and applied as follows:
(A) applied as provided in Section 6.05 in the event the Guarantees shall have
terminated pursuant to Section 3.02(c) or if the Secretary shall have assumed
the Shipowner’s rights and duties under the Indenture and the Obligations
and made any payments in default under the terms of Section 6.09 of the
Indenture, or (B) to the extent not theretofore applied pursuant to Section
6.05, paid forthwith to the Shipowner upon its Request in the event there is no
existing Default or the Guarantees shall have terminated pursuant to Section
3.02(b) or (d) at the date of delivery of such Request; provided
that, irrespective of the foregoing, with the
Secretary’s prior written consent, the Shipowner shall have the right to
self-insure in an amount up to the limit specified in the Special Provisions
hereof with respect to each accident, occurrence or event, except that, with
respect to cargo or property carried, the Shipowner, with the Secretary’s
prior written consent, shall have the right to self-insure in an amount up to
the limit specified in the Special Provisions hereof with respect to each cargo
or property carried. 

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

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

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

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

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

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

        (l) Except as
the Secretary shall otherwise direct by notice in writing to the Shipowner, the
Shipowner shall deliver to the Secretary the original policies evidencing
insurance maintained under this Section; provided
that, if any such original policy shall have been
delivered previously to the Secretary or to a mortgagee by the Shipowner under
another ship mortgage of the Shipowner, the Shipowner shall deliver a duplicate
or pro forma copy of such policy to the Secretary. The Secretary or any agent
thereof (who may also be an agent of the issuer) shall at all times hold the
policies delivered as aforesaid; provided
that, if one or more of said policies are held by an
agent of the Secretary, the Shipowner shall, upon the Secretary’s request,
deliver a duplicate or pro forma copy thereof to the Secretary, and
provided further, that if the Shipowner shall
deliver to the Secretary a Request (1) stating that delivery of such policy to
the insurer is necessary in connection with the collection, enforcement or
settlement of any claim thereunder (including claims for return premiums and any
other amounts payable by the insurer) and (2) setting forth the name and address
of the Person to whom such policy is to be delivered or mailed for such purpose,
and if the Secretary approves such Request, the Secretary shall, at the
Shipowner’s expense, deliver or mail (by registered or certified mail,
postage prepaid) such policy in accordance with such Request, accompanied by a
written direction to the recipient to redeliver such policy directly to the
Secretary or an agent thereof when it has served the purpose for which so
delivered. The Shipowner agrees that, in case it shall at any time so cause the
delivery or mailing of any policy to any Person as aforesaid, the Shipowner will
cause such policy to be promptly redelivered to the Secretary or an agent
thereof as aforesaid. The Secretary shall have no duty to see to the redelivery
of such policy, but shall have the duty to request the redelivery thereof at
intervals of 60 days thereafter. 

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

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

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

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

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

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

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

        (1) if there is
no existing Default, (A) the Secretary and the Shipowner shall give notice to
the Indenture Trustee of a redemption of Proportionate Part of the Outstanding
Obligations pursuant to Section 3.05 of the Indenture, (B) such amount, if any,
held by the Secretary, shall be paid by the Secretary to the Indenture Trustee
not earlier than 10 days prior to, nor later than the opening of business on,
the Redemption Date required by Section 3.05 of the Indenture, (C) the remainder
shall next be applied by the Secretary for the payment of a Proportionate Part
of all other sums that may be secured hereby, and (D) the balance shall be paid
to the Shipowner including any interest earned on the proceeds which are in
excess of the amount required to redeem the Obligations; 

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

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

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

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

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

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

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

“NOTICE OF FLEET MORTGAGE”

	
This
Vessel is owned by(Insert name of Shipowner), a (Insert jurisdiction)
corporation (“Shipowner”), and is covered by
a First Preferred Ship Mortgage in favor of the United States of America, under
authority of Chapter 313, Title 46 of the United States Code. Under the terms of
said Mortgage neither the Shipowner, any charterer, the master or agent of this
Vessel nor any other person has any right, power or authority to create, incur
or permit to be placed or imposed upon this Vessel any lien other than statutory
liens incident to current operations that are subordinate to the Mortgage.”

	 

	

        SECTION 2.09.
Compliance with 46 U.S.C. Chapter 313.
The Shipowner shall comply with and satisfy all of the provisions of Chapter
313, in order to establish and thereafter to maintain the Mortgage as a
preferred mortgage upon each Vessel. 

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

        SECTION
2.11. Uniform Commercial Code Filings; Further
Assurances. The Shipowner shall (a) furnish evidence
satisfactory to the Secretary that financing statements under the UCC shall have
been filed against the Shipowner and/or the Shipyard in all offices in which it
may be necessary or advisable in the opinion of the Secretary to perfect the
Secretary’s security interests, and (b) from time to time execute and
deliver such further instruments and take such action as may reasonably be
required to more effectively subject the Security to the lien of this Security
Agreement and the Mortgage as contemplated thereby, including but not limited
to, legal opinions from an independent counsel for the Shipowner to the effect
that all UCC Financing Statements have been filed to perfect the
Secretary’s interests in the Security as valid and enforceable first
priority perfected security interests. 

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

        (b) In the event
where any action by the Shipowner, any member of the Shipowner or the management
of the Shipowner results or would result in dissolution of the Shipowner
pursuant to its limited liability company agreement or governing law, each
member of the Shipowner shall forthwith take all steps necessary to reform and
reestablish the Shipowner. 

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

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

ARTICLE III
THE SECRETARY’S NOTE

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

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

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

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

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

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

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

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

ARTICLE IV
CONSTRUCTION FUND; MONEYS DUE WITH
RESPECT TO

CONSTRUCTION OF THE VESSELS

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

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

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

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

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

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

ARTICLE V
ACTUAL COST; THE ESCROW FUND

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

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

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

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

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

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

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

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

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

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

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

        (g) In the event
that one of the events described in Section 2.07 has occurred with respect to
one or more of the Vessels or the Secretary shall have paid the Guarantees or
shall have assumed the Shipowner’s rights and duties under Section 6.09 of
the Indenture, the Secretary may direct that moneys remaining on deposit in the
Escrow Fund may be withdrawn in whole or in part for one of the following
purposes: (1) application as provided in Section 3.05 of the Indenture (but in
no event shall any such disbursement for such purpose be in an amount greater
than the related Proportionate Part of the Outstanding Obligations); (2) payment
to the Shipowner, or its order, in the event all Outstanding Obligations are
Retired or Paid, other than by payment of the Guarantees; or (3) application as
provided in Section 6.05, if the Secretary shall have paid the Guarantees or
shall have assumed the Shipowner’s rights and duties under the Indenture
and the Obligations. 

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

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

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

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

ARTICLE VI
DEFAULTS AND REMEDIES

        SECTION  6.01.  What  Constitutes  "Defaults;"  Continuance  of Defaults.  Each of the  following  events  shall  constitute a
"Default" within the meaning of Section 6.01:

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

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

        (1) Default by
the Shipowner in the due and punctual observance and performance of any
provision in Sections 2.01(b), 2.02(b) and (i), 2.03, 2.04, 2.09, 2.11, 2.12,
2.14, 8.01 and 8.02; 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

        (1) Exercise all the rights and remedies in foreclosure and otherwise
given to mortgagees by Chapter 313;

        (2) Bring suit
at law, in equity or in admiralty to recover judgment for any and all amounts
due under the Secretary’s Note, this Security Agreement and the Mortgage,
collect the same out of any and all of Shipowner’s property, whether or not
the same is subject to the lien of the Mortgage, and in connection therewith,
obtain a decree ordering the sale of any Vessel in accordance with paragraph
(b)(4) of this Section; 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE VII
AMENDMENTS AND SUPPLEMENTS TO

THE SECURITY AGREEMENT, MORTGAGE AND INDENTURE

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

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

ARTICLE VIII
CONSOLIDATION, MERGER OR SALE

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

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

        (c) Upon the
assumption of the documents listed in paragraph (b) of this Section, the
Secretary shall consent to the surrender of each Vessel’s documents
pursuant to 46 U.S.C. 12110(c)(3), as amended;
provided
that, concurrently with such surrender, such
Vessel shall be redocumented under the laws of the United States. 

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

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

ARTICLE IX

NOTICES

        SECTION
9.01. Notices. Except as otherwise
provided in this Security Agreement or by the Act, all notices, requests,
demands, directions, consents, waivers, approvals or other communications may be
made or delivered in person or by registered or certified mail, postage prepaid,
addressed to the party at the address of such party specified in the Special
Provisions hereof, or at such other address as such party shall advise each
other party by written notice, and shall be effective upon receipt by the
addressee thereof. 

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

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

ARTICLE X
DISCHARGE OF SECURITY AGREEMENT AND
THE MORTGAGE

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

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

ARTICLE XI

MISCELLANEOUS

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

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

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

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

        SECTION 11.05.
Applicable  Regulations.  Only the provisions of the regulations issued under Title XI
of the Act as in effect
on the date hereof (46 C.F.R. 298) shall control the Security Agreement provisions.

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

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