Exhibit 10.16

 

LOAN AGREEMENT

 

Dated as of

June 28, 2005

Among

K-SEA OPERATING PARTNERSHIP L.P.

(as the Borrower)

AND

CITIZENS ASSET FINANCE,
a d/b/a of Citizens Leasing Corporation

(as the Lender)

 

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TABLE OF CONTENTS

 

SECTION 1.

DEFINITIONS

 

§1.1

Defined Terms

 

§1.2

Other Definitional and Interpretive Provisions

 

SECTION 2.

THE TERM LOAN

 

§2.1

Advances; Purposes

 

§2.2

Note; Repayment of Principal and Interest

 

§2.3

Prepayments

 

§2.4

Payments Generally

 

§2.5

Increased Costs and Reduced Return

 

§2.6

Payments Free and Clear of Taxes

 

§2.7

Mitigation Obligations

 

SECTION 3.

REPRESENTATIONS AND WARRANTIES

 

§3.1

Legal Existence and Good Standing, Etc.

 

§3.2

Limited Partnership Power; Consents; Absence of Conflict with Other Agreements
Etc. 

 

§3.3

Title to Properties

 

§3.4

Financial Statements

 

§3.5

No Material Changes Etc.

 

§3.6

Franchises, Patents, Copyrights, Licenses, Etc.

 

§3.7

Litigation

 

§3.8

No Materially Adverse Contracts, Etc.

 

§3.9

Compliance with Other Instruments, Laws, Etc.

 

§3.10

Tax Status

 

§3.11

No Default

 

§3.12

Absence of Liens

 

§3.13

Use of Proceeds

 

§3.14

Pension Plans

 

§3.15

Holding Company and Investment Company

 

§3.16

Disclosure

 

§3.17

[Intentionally Omitted

 

§3.18

First Lien

 

 

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§3.19

Environmental Matters

 

§3.20

Solvency

 

§3.21

Survival of Representations and Warranties, Etc.

 

SECTION 4.

CONDITIONS OF FUNDING THE FIRST ADVANCE

 

§4.1

Execution and Delivery

 

§4.2

Representations and Warranties

 

§4.3

Performance; No Default

 

§4.4

Certified Copies of Charter Documents

 

§4.5

Proof of Partnership or General Partner Action

 

§4.6

Incumbency Certificate

 

§4.7

No Material Adverse Effect

 

§4.8

Delivery of Notice of Borrowing

 

§4.9

Opinion of Counsel

 

§4.10

Proceedings and Documents

 

§4.11

Recorded Lien Searches

 

§4.12

Financing Statements

 

§4.13

Evidence of Insurance

 

§4.14

Delivery of Invoices

 

§4.15

Licenses, Permits and Consent

 

§4.16

Construction Contract

 

§4.18

Lien Waivers

 

SECTION 5.

CONDITIONS OF INTERIM ADVANCES

 

SECTION 6.

CONDITIONS OF FINAL ADVANCES OF THE LOAN

 

§6.1

Vessel Documentation

 

SECTION 7.

AFFIRMATIVE COVENANTS

 

§7.1

Punctual Payment

 

§7.2

Maintenance of Offices

 

§7.3

Records and Accounts

 

§7.4

Financial Statements, Certificates, and Other Information

 

§7.5

[Intentionally omitted

 

§7.6

Business and Limited Partnership Existence

 

 

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§7.7

Payment of Taxes

 

§7.8

Inspection of Properties and Books

 

§7.9

Licenses and Permits

 

§7.10

Pension Plans

 

§7.11

Environmental and Safety Matters

 

§7.12

Indemnities, Etc.

 

§7.13

Performance of Contracts

 

§7.14

Notice of Default

 

§7.15

Notice of Material Claims and Litigation

 

§7.16

No Disposition of Collateral

 

§7.17

Borrower’s Title; Lender’s Security Interest

 

§7.18

Compliance with Laws and Regulations

 

§7.19

Further Assurances

 

§7.20

Casualty Occurrence

 

SECTION 8. [a05-15939_2ex10d16.htm#On8_033236]

NEGATIVE COVENANTS; FINANCIAL COVENANTS [a05-15939_2ex10d16.htm#On8_033236]

 

§8.1 [a05-15939_2ex10d16.htm#a8_1_033240]

Transactions with Affiliates [a05-15939_2ex10d16.htm#a8_1_033240]

 

§8.2 [a05-15939_2ex10d16.htm#a8_2_033243]

Terminate Pension Plan [a05-15939_2ex10d16.htm#a8_2_033243]

 

§8.3 [a05-15939_2ex10d16.htm#a8_3_033247]

ERISA [a05-15939_2ex10d16.htm#a8_3_033247]

 

§8.4 [a05-15939_2ex10d16.htm#a8_4_033250]

Incorporation of Financial Covenants Under Existing Revolver
[a05-15939_2ex10d16.htm#a8_4_033250]

 

SECTION 9. [a05-15939_2ex10d16.htm#N9_033256]

EVENTS OF DEFAULT; ACCELERATION [a05-15939_2ex10d16.htm#N9_033256]

 

§9.1 [a05-15939_2ex10d16.htm#a9_1_033300]

Events of Default [a05-15939_2ex10d16.htm#a9_1_033300]

 

§9.2 [a05-15939_2ex10d16.htm#a9_2_033307]

Remedies [a05-15939_2ex10d16.htm#a9_2_033307]

 

SECTION 10. [a05-15939_2ex10d16.htm#N10_033314]

EXPENSES [a05-15939_2ex10d16.htm#N10_033314]

 

SECTION 11. [a05-15939_2ex10d16.htm#N11_033321]

SURVIVAL OF COVENANTS [a05-15939_2ex10d16.htm#N11_033321]

 

SECTION 12. [a05-15939_2ex10d16.htm#N12_033325]

CONFIDENTIALITY [a05-15939_2ex10d16.htm#N12_033325]

 

SECTION 13. [a05-15939_2ex10d16.htm#N13_033330]

SUCCESSORS AND ASSIGNS; PARTICIPATIONS [a05-15939_2ex10d16.htm#N13_033330]

 

§13.1 [a05-15939_2ex10d16.htm#a13_1_033335]

Successors and Assigns [a05-15939_2ex10d16.htm#a13_1_033335]

 

§13.2 [a05-15939_2ex10d16.htm#a13_2_033339]

Assignments [a05-15939_2ex10d16.htm#a13_2_033339]

 

§13.3 [a05-15939_2ex10d16.htm#a13_3_033346]

Participations [a05-15939_2ex10d16.htm#a13_3_033346]

 

§13.4 [a05-15939_2ex10d16.htm#a13_4_033353]

Disclosures [a05-15939_2ex10d16.htm#a13_4_033353]

 

§13.5 [a05-15939_2ex10d16.htm#a13_5_033356]

Federal Reserve Bank [a05-15939_2ex10d16.htm#a13_5_033356]

 

 

iii

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§13.6 [a05-15939_2ex10d16.htm#a13_6_033359]

Register; Note [a05-15939_2ex10d16.htm#a13_6_033359]

 

SECTION 14. [a05-15939_2ex10d16.htm#N14_033406]

NOTICES [a05-15939_2ex10d16.htm#N14_033406]

 

SECTION 15. [a05-15939_2ex10d16.htm#N15__033413]

ENTIRE AGREEMENT [a05-15939_2ex10d16.htm#N15__033413]

 

SECTION 16. [a05-15939_2ex10d16.htm#N16_033416]

CONSENTS, AMENDMENTS, WAIVERS, ETC. [a05-15939_2ex10d16.htm#N16_033416]

 

SECTION 17. [a05-15939_2ex10d16.htm#N17_033420]

SEVERABILITY [a05-15939_2ex10d16.htm#N17_033420]

 

SECTION 18. [a05-15939_2ex10d16.htm#N18_033424]

SUBMISSION TO JURISDICTION; WAIVER [a05-15939_2ex10d16.htm#N18_033424]

 

SECTION 19. [a05-15939_2ex10d16.htm#N19_033432]

WAIVER OF JURY TRIAL [a05-15939_2ex10d16.htm#N19_033432]

 

SECTION 20. [a05-15939_2ex10d16.htm#N20_033437]

MISCELLANEOUS [a05-15939_2ex10d16.htm#N20_033437]

 

 

 

 

SCHEDULES

 

 

Schedule 1 [a05-15939_2ex10d16.htm#Schedule1_034001]

Description of the Vessels [a05-15939_2ex10d16.htm#Schedule1_034001]

 

 

 

 

EXHIBITS

 

Exhibit A [a05-15939_2ex10d16.htm#Exhibita_033446]

Form of Term Note [a05-15939_2ex10d16.htm#Exhibita_033446]

Exhibit B [a05-15939_2ex10d16.htm#Exhibitb_033450]

Form of Notice of Borrowing [a05-15939_2ex10d16.htm#Exhibitb_033450]

Exhibit C [a05-15939_2ex10d16.htm#Exhibitc_033453]

Form of Ship Mortgage [a05-15939_2ex10d16.htm#Exhibitc_033453]

Exhibit D [a05-15939_2ex10d16.htm#AssignmentAndAcceptance_033753]

Form of Assignment and Acceptance
[a05-15939_2ex10d16.htm#AssignmentAndAcceptance_033753]

Exhibit E [a05-15939_2ex10d16.htm#SecurityAgreement_033810]

Form of Security Agreement [a05-15939_2ex10d16.htm#SecurityAgreement_033810]

Exhibit F [a05-15939_2ex10d16.htm#LienCertificate_033840]

Form of Lien Certificate [a05-15939_2ex10d16.htm#LienCertificate_033840]

Exhibit G [a05-15939_2ex10d16.htm#AssignmentOfProjectDocuments_033849]

Assignment of Project Documents
[a05-15939_2ex10d16.htm#AssignmentOfProjectDocuments_033849]

Exhibit H [a05-15939_2ex10d16.htm#ContractorsConsent_033925]

Contractor’s Consent [a05-15939_2ex10d16.htm#ContractorsConsent_033925]

 

iv

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LOAN AGREEMENT

 

This LOAN AGREEMENT (this “Agreement”), is made as of June 28, 2005, by and
between K-SEA OPERATING PARTNERSHIP L.P., a Delaware limited partnership (the
“Borrower”), and CITIZENS ASSET FINANCE, a d/b/a of CITIZENS LEASING
CORPORATION, a Rhode Island corporation, (the “Lender”).

 

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

 

SECTION 1.                            DEFINITIONS

 

§1.1        Defined Terms. As used in this Agreement the following terms shall
have the meanings assigned to them below:

 

“Advance” means an advance pursuant to §2.1.

 

“Advance Date” means the date fixed for the making of an Advance in a Notice of
Borrowing.

 

“Advance Termination Date” means June     , 2006 or the date on which the Note
is executed (whichever occurs first).

 

“Affiliate” means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under direct or indirect
common control with, such Person and, if such Person is an individual, any
member of the immediate family (including parents, spouse and children) of such
individual and any trust whose principal beneficiary is such individual or one
or more members of such immediate family and any Person who is controlled by any
such member or trust.  As used herein, the term “control” (including the
correlative meanings of the terms “controlling”, “controlled by” and “under
common control with”) when used with respect to any Person, means the direct or
indirect beneficial ownership of more than twenty percent (20%) of the
outstanding voting securities or voting equity of such Person, or the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities or by contract or otherwise.

 

“Agreement” - see preamble.

 

“Assignment of Project Documents” means the Assignment of Project Documents,
dated as of the date hereof, substantially in the form of Exhibit G (including
the consent of Bollinger in the form appended thereto), pursuant to which the
Borrower has granted to the Lender a security interest in all of the Borrower’s
rights, title and interest under the Vessel Construction Agreement as security
for the Obligations.

 

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“Authorized Officer” means any person holding the title of Chairman, President,
Vice President, Chief Financial Officer or Treasurer (or other officer
performing the functions thereof).

 

“Bollinger” means Bollinger Marine Fabricators, L.L.C., a Louisiana limited
liability company.

 

“Borrower” - see preamble.

 

“Business Day” means any day on which banks in Rhode Island and New York are
open for the conduct of normal banking business.

 

“Capital Lease Obligations” means, with respect to any Person, the obligations
of such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.

 

“CBPA” means Citizens Bank of Pennsylvania.

 

“Change in Control” means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof), of
ownership interests representing more than 50% of the general partnership
interest in K-Sea or more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding ownership interests of Borrower or any
Subsidiary Guarantor, or (b) for the period of twelve (12) consecutive calendar
months, a majority of the board of Borrower or any Guarantor shall no longer be
composed of individuals (i) who were members of said board on the first day of
such period, (ii) whose election or nomination to said board was approved by
individuals referred to in clause (i) above constituting at the time of such
election or nomination at least a majority of said board, or (iii) whose
election or nomination to said board was approved by individuals referred to in
clauses (i) and (ii) above constituting at the time of such election or
nomination at least a majority of said board.

 

“Coast Guard” means the United States Coast Guard, which is currently part of
the United States Department of Homeland Security.

 

“Code” shall mean the Internal Revenue Code of 1986, and the rules and
regulations promulgated thereunder, as amended from time to time.

 

“Collateral” means the Vessels, charter hire, freights and earnings, fees and
all other; amounts due or which become due and payable to the Borrower arising
out of the Vessels; all insurance proceeds payable to the Borrower with respect
to the Vessels; and all other property,

 

2

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interests and rights now or at any time hereafter described, referred to in or
covered by the Security Documents.

 

“Controlled Group” means all trades or businesses (whether or not incorporated)
under common control that, together with the Borrower, are treated as a single
employer under Section 414(b) or 414(c) of the Code or Section 4001(a)(14) of
ERISA.

 

“DBL 28” means a 28,000 barrel inland tank barge being constructed for the
Borrower by Bollinger pursuant to the Vessel Construction Agreement.

 

“DBL 29” means a 28,000 barrel inland tank barge being constructed for the
Borrower by Bollinger pursuant to the Vessel Construction Agreement.

 

“DBL 78” means a 78,000 barrel tank barge that the Borrower intends to acquire
in July, 2005 pursuant to the terms of an Option Agreement dated as of
December 6, 2004 between the Borrower and EMI-PA, Inc.

 

“Default(s)” means the occurrence of any event or condition which, after the
giving of notice and/or the lapse of time (if provided for in §9), would become
an Event of Default.

 

“Default Rate” means an interest rate of 300 basis points per annum over the
relevant interest rate in effect in accordance with Section 2.2(b) and (c) or,
if lower, the Highest Lawful Rate.

 

“Dollars” and the sign “$” means dollars or such coin or currency of the United
States of America as at the time of payment shall be legal funds for the payment
of public and private debts in the United States of America.

 

“Eligible Assignee” means any bank, insurance company or other financial
institution or finance company having a net worth in excess of $50,000,000.

 

“Environmental Laws” means any and all federal, state, local and foreign laws,
statutes, ordinances, rules, judgments, orders, decrees, permits, concessions,
grants, franchises, licenses, agreements or other governmental restrictions
relating to fines, orders, injunctions, penalties, damages, contribution, cost
recovery compensation, losses or injuries resulting from the Release or
threatened Release of Hazardous Materials or to the generation, storage,
transportation, or disposal of Hazardous Materials, in any manner applicable to
the Borrower or any of its properties, including the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. §9601 Qt seq.), the
Hazardous Material Transportation Act (49 U.S.C. §1801 Qt seq.), the Solid Waste
Disposal Act (42 U.S.C. §6901 et seq.), the Federal Water Pollution Control Act
(33 U.S.C. §1251 et seq.), the Clean Air Act (42 U.S.C. §7401 et. seq.), the
Toxic Substances Control Act (15 U.S.C. §2601 et. seq.), the Occupational Safety
and Health Act (29 U.S.C. §651 et. seq.) and the Emergency Planning and
Community Right-to-Know Act (42 U.S.C. §11001 et. seq.), each as amended or
supplemented, and any analogous future or present

 

3

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local, state and federal or foreign statutes and rules and regulations
promulgated pursuant thereto, each as in effect on the date of determination.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time.

 

“Event of Default” means any of the events specified in §9, provided that there
has been satisfied any requirement in connection with such event for the giving
of notice or the lapse of time, or both.

 

“Event of Loss” means, with respect to any Vessel, the actual or constructive
loss of such Vessel or the use thereof, due to theft, destruction, damage beyond
repair or damage from any reason whatsoever, to an extent which makes repair
uneconomical, or rendition thereof unfit for normal use, or the condemnation,
confiscation or seizure of, or requisition of title to or use of, such Vessel by
any Governmental Authority (other than the United States pursuant to a
requisition for hire) or any other person, whether or not acting under color of
Governmental Authority.

 

“Excluded Tax” means, with respect to the Lender, any of the following Taxes:

 

(i)            any Tax imposed on or with respect to, or calculated by reference
to, the gross or net income, capital, capital stock, net worth, assets or
conduct of business of the Lender by any national, state (or equivalent) or
local jurisdiction under the laws of which the Lender is incorporated or
otherwise organized or in which the Lender has an office or other fixed place of
business;

 

(ii)           any Tax imposed on or payable by a Lender by any Governmental
Authority or other taxing authority in any jurisdiction if the jurisdictional
basis for such Tax exists as a result of any activities, transactions or other
connection of such Lender (or any of its Affiliates) in or with such
jurisdiction that is unrelated to the Lender’s Loan to the Borrower pursuant to
the Loan Documents;

 

(iii)          any Tax arising from a transfer, assignment or other disposition
by the Lender of all or any part of its interest in or rights under the Loan or
the Loan Documents unless such transfer, assignment or other disposition occurs
as the result of an Event of Default and while such Event of Default is
continuing;

 

(iv)          any Tax to the extent consisting of a fine, interest, a penalty or
other addition to tax that would not have been required to be paid but for the
failure of the Lender to file any tax return or other tax document, or to pay
any tax, in a procedurally proper and timely matter;

 

(v)           any Tax attributable to gross negligence or willful misconduct of
the Lender or the breach of any agreement of the Lender in the Loan Documents;
and

 

4

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(vi)          any United States federal Tax imposed on, or required to be
withheld from or with respect to payments of, gross or net income (including any
Tax imposed by Section 881, 884, 1441, 1442, or 3406 of the Code).

 

“Existing Revolver” means the transactions contemplated by the Loan and Security
Agreement dated as of March 24, 2005 by and between the Borrower, KeyBank
National Association, LaSalle Bank National Association and CBPA, as the same
may be amended, modified or supplemented from time to time.

 

“Federal Funds Rate” means, for any day, the rate per annum equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day; provided that (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate (rounded
upward, if necessary, to a whole multiple of 1/100 of 1%) charged to K-Sea on
such day on such transactions as determined by the Lender.

 

“Financial Covenants” – see § 8.4(a).

 

“Financing Statements” means Uniform Commercial Code financing statements naming
the Borrower as debtor and the Lender as secured party and filed or to be filed
in the office of the Secretary of State of Delaware and/or such other locations
as may be required from time to time under applicable law to perfect a security
interest in certain of the Collateral.

 

“GAAP” means generally accepted accounting principles in the United States of
America, as may be determined by the Financial Accounting Standards Board.

 

“Governmental Authority” means any government or political subdivision or any
agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.

 

“Hazardous Materials” means (a) any oil, petroleum or petroleum derived
substance, any drilling fluids, produced waters and other wastes associated with
the exploration, development or production of crude oil, any flammable
substances or explosives, any radioactive materials, any hazardous wastes or
substances, any toxic wastes or substances or any other materials or pollutants
which (i) pose a hazard to any property of the Borrower or to Persons on or
about such property or (ii) cause such property to be in violation of any
Environmental Laws, (b) asbestos in any form which is or could become friable,
urea formaldehyde foam insulation, electrical equipment which contains any oil
or electric fluid containing levels of polychlorinated biphenyls in excess of
fifty parts per million; (c) any chemical, material or substance defined as or
included in the definition of “hazardous substances,” “hazardous wastes,”
“hazardous materials,” “extremely hazardous waste,” restricted hazardous waste,”
or “toxic substances” or words of

 

5

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similar import under any applicable local, state or federal law or under the
rules and regulations adopted or publications promulgated pursuant thereto,
including Environmental Laws, and (d) any other chemical, material or substance,
exposure to which is prohibited, limited or regulated by any Governmental
Authority having jurisdiction over the Borrower, or any of its properties,
including the Vessels.

 

“Hedging Agreement” means any interest rate protection agreement, foreign
currency exchange agreement, commodity price protection agreement (excluding
fuel surcharge) or other interest or currency exchange rate of commodity price
hedging agreement.

 

“Indebtedness” means, with respect to any Person, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person,
(i) all operating lease obligations of such Person, (j) all obligations,
contingent or otherwise, of such Person as an account party in respect of
letters of credit and letters of guaranty, and (k) all obligations, contingent
or otherwise, of such Person in respect of bankers’ acceptances; provided,
however, that “Indebtedness” shall not include (x) secured nonrecourse
obligations and (y) nonrecourse obligations incurred in connection with
leveraged lease transactions as determined in accordance with GAAP.

 

“Indemnified Party” - see §7.11(d).

 

“Indemnified Tax” means any Tax (other than an Excluded Tax) imposed on or with
respect to (i) the execution, delivery, recording, registration, notarization or
other formalization, performance, or enforcement of the Loan or the Note or any
of the other Loan Documents or (ii) any payment pursuant to the Loan Documents.

 

“Initial Lender” means Citizens Asset Finance, a d/b/a of Citizens Leasing
Corporation, a Rhode Island corporation.

 

“K-Sea Transportation” means K-Sea Transportation Partners L.P., a Delaware
limited partnership, and owner of a 99.99% limited partner interest in the
Borrower.

 

“Law” means any law (including common law), constitution, statute, treaty,
convention, regulation, rule, ordinance, order, injunction, writ, decree or
award of any Governmental Authority.

 

6

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“Lender(s)” – see the preamble.

 

“Lender Register” as defined in §13.6.

 

“LIBOR Rate” means relative to any one-month interest period, the offered rate
for delivery in two London Banking Days (as defined below) of deposits of U.S.
Dollars which the British Bankers Association fixes as its LIBOR rate as of
11:00 a.m. London time on the day on which the interest period commences, and
for a period approximately equal to such interest period.  If the first day of
any interest period is not a day which is both a (i) Business Day, and (ii) a
day on which US dollar deposits are transacted in the London interbank market (a
“London Banking Day”), the LIBOR Rate shall be determined in reference to the
next preceding day which is both a Business Day and a London Banking Day.  If
for any reason the LIBOR Rate is unavailable and/or the Lender is unable to
determine the LIBOR Rate for any such interest period, the LIBOR Rate shall be
deemed to be equal to the Federal Funds Rate plus 175 basis points.

 

“Lien” means, with respect to any property or asset (or any income or profits
therefrom of any Person) (in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or
otherwise) (a) any mortgage, pledge, hypothecation, assignment, security
interest, encumbrance, lien (statutory or otherwise), levy, execution,
attachment, seizure, garnishment or charge of any kind or description, whether
or not choate, vested, or perfected, thereupon or in respect thereof and shall
include any agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any lease in the nature thereof including any
lease or similar arrangement with a public authority executed in connection with
the issuance of industrial development revenue bonds or pollution control
revenue bonds or other similar bonds, and the filing of, or agreement to file
any ship mortgage, financing statement or other document with the Coast Guard or
under the UCC, or similar law of any jurisdiction, or (b) any other arrangement,
express or implied, under which the same is subordinated, transferred,
sequestered or otherwise identified so as to subject the same to, or make the
same available for, the payment or performance of any liability or obligation in
priority to the payment of the ordinary, unsecured creditors of such Person.

 

“Lien Certificates” – see §4.18.

 

“Loan” means, as at any date, the aggregate outstanding principal amount of all
Advances.

 

“Loan Documents” - collectively, this Agreement, the Note, the Security
Agreement, the Financing Statements, the Ship Mortgages, the Assignment of
Project Documents, and any other instruments or agreements executed and
delivered by the parties in connection with the transactions contemplated by
this Agreement, in each case as the same may be amended, supplemented, restated,
replaced or otherwise modified from time to time.

 

“Material Adverse Effect” means a material adverse effect on (a) the Collateral,
(b) the property, business, operations, financial condition, liabilities or
capitalization of K-Sea

 

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Transportation and its consolidated Affiliates, including, without limitation,
Borrower, taken as a whole, (c) the ability of Borrower to perform any of its
obligations under this Agreement (including the timely payment of all amounts
due hereunder), (d) the rights of or benefits available to the Lender under this
Agreement, or (e) the validity or enforceability of this Agreement.

 

“Note” - see §2.2(a).

 

“Notice of Borrowing” – see §2.1.

 

“Obligations”  means all indebtedness, obligations and liabilities of the
Borrower to the Lender existing on the date of this Agreement or arising
thereafter, direct or indirect, joint or several, absolute or contingent,
matured or unmatured, liquidated or unliquidated, secured or unsecured, in each
case arising by contract, operation of law or otherwise under or in connection
with (i) this Agreement or in respect of the Loan and the Note or the other Loan
Documents, as all of the same may be amended, extended, renewed, replaced,
restated or otherwise modified from time to time, and (ii) any interest rate
agreement, currency swap agreement, interest rate cap agreement, interest rate
collar agreement, interest rate option contract, or any other similar interest
rate protection agreement or arrangement between the Borrower and the Lender or
any Affiliate of the Lender, in each case, respecting this Agreement or in
respect of the Loan and the Note or other Loan Documents.

 

“Officer’s Certificate” means a certificate signed on behalf of the Borrower by
an Authorized Officer of the Borrower.

 

“Original Vessel Documents” means the U.S. Coast Guard Certificates of
Documentation for each of the Vessels and the American Bureau of Shipping
Classification Certificates.

 

“Participant” – see §13.3.

 

“Permitted Lien” means (a) Liens granted to the Lender pursuant to the Loan
Documents; and (b):

 

(i)            Liens for current crew’s wages, including wages of the master to
the extent provided in Public Law 90-293, for general average or salvage
(including contract salvage) or for wages of stevedores employed directly by the
Borrower, the operator, agent or master of the Vessels which in each case
(A) are unclaimed or (B) shall not have been due and payable for longer than ten
(10) days after termination of a voyage;

 

(ii)           Liens for repairs or incident to current operations of the
Vessels (other than those referred to in clause (i)), but only to the extent in
each case that such liens are based on (x) claims not yet delinquent, (y) in the
case of liens incident to current operations, are incurred in the ordinary
course of business and do not exceed $250,000 in the aggregate, and (z) do not
involve a significant risk of a sale, forfeiture, hindrance to operation or loss
of the Vessels;

 

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(iii)          Liens for amounts (including Taxes) that are not delinquent or
that are due and unpaid for not more than sixty (60) days after such amounts
shall become due that do not involve a significant risk of a sale, forfeiture,
hindrance to operation or loss of the Vessels;

 

(iv)          Liens for amounts being contested by the Borrower in good faith by
appropriate procedures, diligently prosecuted or appealed which do not involve a
significant risk of a sale, forfeiture, hindrance to operation or loss of the
Vessels;

 

(v)           Liens for charges that, in the opinion of the Borrower or as
indicated by the written admission of liability therefor by an insurance
company, are covered by insurance;

 

(vi)          Liens arising from the taking or requisition for use of the
Vessels by the government or any governmental body of the United States of
America to the extent that the creation or incurrence of such lien shall have
been beyond the control of the Borrower during such requisition, provided that
all such liens referred to in this clause (vi) shall be removed and discharged
within thirty (30) days after such requisition shall have terminated; and

 

(vii)         prior to the delivery date of DBL 28 and DBL 29, respectively,
liens arising as a matter of law or in accordance with the terms of the Vessel
Construction Contract in favor of, or through Bollinger.

 

“Person” means a natural person, a partnership, a corporation, a limited
liability company, a limited partnership, a limited liability partnership, a
joint venture, a trust, an unincorporated organization, or a government or any
agency or political subdivision thereof.

 

“Plan” means at any time, an employee pension or other benefit plan that is
subject to Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group, or (ii) maintained pursuant to a collective bargaining
agreement or any other arrangement under which more than one employer makes
contributions and to which the Borrower or any member of the Controlled Group is
then making or accruing an obligation to make contributions or has within the
preceding five Plan years made contributions.

 

“Prepayment Premium” means an additional amount to be paid in connection with
any prepayment made pursuant to §2.3(a), §2.3(b) (other than relating to a
prepayment arising as a result of an Event of Loss) or §9.2, (a) if such
prepayment occurs prior to the first anniversary of the Advance Termination
Date, an amount equal to three percent (3%) of the prepaid principal thereof,
(b) if such prepayment occurs on or after the first anniversary of the Advance
Termination Date, but prior to the second anniversary of the Advance Termination
Date, an amount equal to 2% of the prepaid principal thereof, and (c) if such
prepayment occurs on or after the second anniversary of the Advance Termination
Date, an amount equal to 1% of the prepaid principal thereof, provided that the
Borrower shall be entitled to prepay up to an aggregate amount of Ten Million
Dollars ($10,000,000.00) of the principal amount of the Loan

 

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at any time after the date that is twelve (12) months after the first of the
month following Advance Termination Date without incurring any Prepayment
Premium.

 

“Proceeds” shall have the meaning assigned to it under the UCC and, in any
event, shall include, but not be limited to, the following at any time
whatsoever arising or receivable: (a) whatever is received upon the collection,
exchange, sale or other disposition of any Collateral, and any property into
which any of the Collateral is converted, whether cash or non-cash proceeds,
(b) any and all proceeds of any insurance, indemnity, warranty or guarantee
payable to the Borrower from time to time with respect to any of the Collateral,
(c) any and all payments (in any form whatsoever) made or due and payable to the
Borrower from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of any of the Collateral by any Governmental
Authority (or any Person acting under color of governmental authority), and
(d) any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.

 

“Registration Agent” as defined in §13.6.

 

“Release” means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching, or migration in, by, from or
related to any real property (including all buildings, fixtures or other
improvements located thereon) or personal property owned, leased or operated by
the Borrower into the indoor or outdoor environment, including the movement of
any Hazardous Material through air, soil, surface water, groundwater or
property.

 

“Revolving Lenders” means those lenders that, at any time of determination, are
parties to the Existing Revolver.

 

“Security Agreement” means the Security Agreement, dated as of the date hereof,
substantially in the form of Exhibit E pursuant to which the Borrower has
granted to the Lender, a security interest in certain rights and assets of the
Borrower relating to the Vessels as security for the Obligations.

 

“Security Documents” means the Security Agreement, the Ship Mortgages and the
Assignment of Project Documents.

 

“Ship Mortgage(s)” means the three First Preferred Ship Mortgages substantially
in the form of Exhibit C, each granted by the Borrower in favor of the Lender
with respect to each Vessel, as such mortgages may be amended, supplemented,
restated, replaced or otherwise modified from time to time.

 

“Subsidiary” means, as to any Person, (a) any corporation of which more than
fifty percent (50%) of the outstanding stock having ordinary voting power to
elect a majority of its board of directors (or other governing body), regardless
of the existence at the time of a right of the holders of any class or classes
(however designated) of securities of such corporation to exercise such voting
power by reason of the happening of any contingency, or any partnership of which
more than fifty percent (50%) of the outstanding partnership interests is, at
the time,

 

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owned by such Person, or by one or more Subsidiaries of such Person, or by such
Person and one or more Subsidiaries of such Person, and (b) any other entity
which is controlled or capable of being controlled by such Person, or by one or
more Subsidiaries of such Person, or by such Person and one or more Subsidiaries
of such Person.  Unless otherwise qualified, all references to a “Subsidiary” or
to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries
of the Borrower or a Subsidiary or Subsidiaries of such Subsidiary or
Subsidiaries.

 

“Taxes” means, with respect to any Person, any and all present or future taxes,
including any change in the basis of taxation (except a change in the rate of
taxation on the overall net income of such Person, by the jurisdiction, or by
any political subdivision or taxing authority of any such jurisdiction, in which
such Person has its principal office), levies, imposts, duties, fees,
assessments, deductions, withholdings or other charges of whatever nature,
including gross receipts, excise, property, sales, transfer, license, payroll,
social security and franchise taxes now or hereafter imposed or levied by the
United States of America, or any state, local or foreign government or by any
department, agency or other political subdivision or taxing authority thereof
and all interest, penalties, additions to tax or similar liabilities with
respect thereto.  Notwithstanding the foregoing, the definition “Taxes” shall
not include any taxes or other charges as mentioned above on or with respect to
the income of the Lender.

 

“UCC” means the Uniform Commercial Code as in effect from time to time in the
State of New York.

 

“Vessel(s)” means, collectively, DBL 28, DBL 29 and DBL 78, and individually,
any one of them, as more particularly described in Schedule 1 hereto.

 

“Vessel Construction Agreement” means the Vessel Construction Agreement dated
February 21, 2005 (including all associated plans, specifications and related
documents) between Bollinger and the Borrower with respect to the construction
by Bollinger of DBL 28 and DBL 29.

 

§1.2        Other Definitional and Interpretive Provisions.

 

(a)           All terms in this Agreement, the Exhibits and Schedules hereto
shall have the same defined meanings when used in any other Loan Documents,
unless the context shall require otherwise.

 

(b)           Except as otherwise expressly provided herein, all accounting
terms not specifically defined or specified herein shall have the meanings
generally attributed to such terms under GAAP, including applicable statements
and interpretations issued by the Financial Accounting Standards Board and
bulletins, opinions, interpretations and statements issued by the American
Institute of Certified Public Accountants or its committees.

 

(c)           All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural, and the plural shall include the singular.

 

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(d)           The words “hereof,” “herein” and “hereunder” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provisions of this Agreement.

 

(e)           The preamble hereto is part of this Agreement.  Titles of Sections
in this Agreement are for convenience only, do not constitute part of this
Agreement and neither limit nor amplify the provisions of this Agreement, and
all references in this Agreement to Sections, Subsections, paragraphs, clauses,
subclasses, Schedules or Exhibits shall refer to the corresponding Section,
Subsection, paragraph clause, subclause, Schedule or Exhibit attached to this
Agreement, unless specific reference is made to the articles, sections or other
subdivisions or divisions of such Schedule or Exhibit to or in another document
or instrument.

 

(f)            Each definition of a document in this Agreement shall include
such document as amended, modified, supplemented, restated, renewed or extended
from time to time.

 

(g)           Except where specifically restricted, reference to a party in a
Loan Document includes that party and its successors and assigns permitted
hereunder or under such Loan Document.

 

(h)           Unless otherwise specifically stated, whenever a time is referred
to in this Agreement or in any other Loan Document, such time shall be the local
time in Providence, Rhode Island and New York, New York.

 

(i)            Any list in this Agreement of one or more items preceded by the
words “include or “including” shall not be deemed limited to the stated items
but shall be deemed without limitation.

 

SECTION 2.                            THE TERM LOAN.

 

§2.1        Advances; Purposes.

 

(a)           Subject to the terms and conditions set forth herein, and in
reliance upon the representations and warranties contained herein, during the
period from the date hereof through and including the Advance Termination Date,
the Lender shall make advances of the Loan (each, an “Advance,” and
collectively, the “Advances”), the principal amount of which, in aggregate shall
not exceed $18,000,000.00 (the “Loan”).  To request Advances of the Loan, the
Borrower shall deliver to the Lender, not less than three Business Days before
each requested funding date, a written notice of borrowing in substantially the
form of Exhibit B attached hereto, with the appropriate insertions and additions
therein (the “Notice of Borrowing”) specifying, among other things, (A) the
proposed Advance Date (which shall be on or before the Advance Termination
Date), and (B) the amount of such Advance, (which shall not be less than
$250,000.00).

 

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(b)           The proceeds of the Loan shall be used to make advances to the
Borrower from time to time (i) to finance construction period progress payments,
in the case of DBL 28 and DBL 29, and (ii) to finance the purchase by the
Borrower (for up to $10,000,000.00) of DBL 78.

 

(c)           The Notice of Borrowing when given shall be irrevocable. Unless
the Lender determines that any of the applicable conditions set forth in §4, §5
or §6 have not then been satisfied, the Lender will make such Advance to the
order of the Borrower prior to the Lender’s close of business on each Advance
Date by (i) credit in immediately available funds to the Borrower’s account
maintained with the Lender or (ii) by wire transfer pursuant to the Borrower’s
instruction.

 

§2.2        Note; Repayment of Principal and Interest.

 

(a)           The obligations of the Borrower to repay the Loan, to pay interest
thereon from and after the Advance Termination Date, and all other sums which
may become payable with respect thereto, shall be evidenced with respect to the
Loan by this Agreement and by a promissory note of the Borrower substantially in
the form of Exhibit A (the “Note”), appropriately completed in accordance with
the provisions of this Agreement and dated as of the Advance Termination Date. 
The principal amount of the Loan that is outstanding on the Advance Termination
Date shall be repaid in 84 consecutive monthly installments, the first such
installment becoming due and payable on the date that is one month after the
Advance Termination Date.  If not earlier prepaid pursuant to §2.3, the entire
remaining principal amount of the Loan shall become immediately due and payable
on the date which occurs 85 months after the Advance Termination Date, as set
forth in the Note, without presentment, demand or further notice of any kind,
together with all accrued interest and other amounts then owing by the Borrower
to the Lender hereunder and under the other Loan Documents. The principal
balance of the Note may be prepaid pursuant to §2.3, provided that no amount of
the Loan that is so prepaid shall be available for reborrowing. Partial
prepayments of the Note shall be applied to installment payments in the inverse
order of maturity.

 

(b)           Prior to the Advance Termination Date, the obligations of the
Borrower to repay the Loan, to pay interest thereon, and all other sums which
may become payable with respect thereto, shall be evidenced by this Agreement. 
Prior to the Advance Termination Date, the outstanding principal amount of the
Loan shall bear interest at the LIBOR Rate plus 160 basis points (1.6%). 
Interest prior to the Advance Termination Date shall be due and payable monthly
in arrears, on the first day of each month, commencing on the date that is the
first day of the month immediately following the date of the initial Advance
hereunder, for the period commencing on the first day of the immediately
preceding month (or commencing on the date of the initial Advance with respect
to the first interest payment) and ending on and including the last day of such
month.

 

(c)           After the Advance Termination Date, the outstanding principal
amount of the Loan shall bear interest at the rate, and such interest shall be
payable on the dates, as provided in the Note.

 

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(d)           At any time during the term of the Loan after the first
anniversary of the date of the Note, the Borrower may request that the rate of
interest payable under the Note be converted to a fixed rate.  If accepted by
the Borrower, such fixed rate shall be set for the remainder of the term of the
Loan and shall be offered by the Lender, as determined by the Lender, based on
the closest whole-year interest rate swaps reported in the Federal Reserve H-15
Report of the day prior to fixing the rate, plus 200 basis points (2.00%).

 

(e)           The Borrower shall pay to the Lender interest at the Default Rate
on the principal of the Loan, and on any other amounts payable by the Borrower
under this Agreement or the other Loan Documents (including interest to the
extent permitted by law) that is not paid on the due date thereof, calculated
from the day following such due date.  In addition, if any payment set forth in
the Note or hereunder shall not be made within ten (10) days of the due date,
the Borrower shall pay as an administrative and late charge an amount equal to
5% of the amount of any such overdue payment.  All interest provided for in this
§2.2(e) shall be payable on demand.  The payment or acceptance of the rate
provided by this §2.2(e) or any such late charge shall not constitute a waiver
of any Default or Event of Default or an amendment to this Agreement or
otherwise prejudice or limit any rights or remedies of the Lender.

 

(f)            In no event shall the amount of interest due or payable under the
Loan, the Note or any of the other Loan Documents, exceed the Highest Lawful
Rate, and in the event any such excess is paid by the Borrower or received by
the Lender, then such excess sum shall be deemed to be inadvertently paid or
received and shall be credited as a payment of principal, unless the Borrower
shall notify the Lender that the Borrower elects to have such excess returned to
it forthwith.  It is the express intent hereof that the Borrower not pay and the
Lender not receive, directly or indirectly, in any manner whatsoever, interest
in excess of that which may be lawfully paid by the Borrower under applicable
Law.

 

(g)           The books and records of the Lender shall, absent demonstrable
error, be conclusive as to the outstanding amount of the Loan, all interest
accrued thereon and all other amounts owed by the Borrower hereunder.

 

§2.3        Prepayments.

 

(a)           Voluntary Prepayments.  At any time subsequent to the Advance
Termination Date, the Borrower shall have the right to prepay the Loan in whole
or in part, together with accrued interest, provided that such prepayment shall
be accompanied by payment of the applicable Prepayment Premium, and provided
further that the Borrower shall give the Lender notice of its intent to prepay
the Loan or a portion thereof not later than 2:00 p.m. on the date that is three
Business Days prior to the date of prepayment (which prepayment date must be a
date upon which a principal installment payment is due under the Note).  Such
notice shall be irrevocable; once given, the principal amount of the Loan
designated in the Borrower’s notice shall become due and payable on the
prepayment date specified therein.

 

(b)           Mandatory Prepayments.  The Borrower shall be required to prepay
the principal balance of the Note, subject to the limitations set forth below in
the “provided” clause,

 

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together with all accrued interest and any other amounts then owing and
constituting Obligations (including the applicable Prepayment Premium),
(i) without derogating in any way from §7.16, in an amount equal to 100% of the
net proceeds received by the Borrower from the sale or other transfer of legal,
equitable or beneficial title of one or more Vessels or (ii) in an amount equal
to 100% of the proceeds of an Event of Loss sufficient to prepay in whole the
Note on a date that is not earlier than the date the insurance proceeds are
received by the Borrower upon the occurrence of an Event of Loss with respect to
any Vessel, provided that (A) if the Borrower receives proceeds as a result of
any of the events described in clauses (i) and (ii) with respect to DBL 28 only
the Borrower shall be required to prepay only an amount equal to 20.59% of the
then outstanding principal balance of the Loan, (B) if the Borrower receives
proceeds as a result of any of the events described in clauses (i) and (ii) with
respect to the DBL 29 only the Borrower shall be required to prepay only an
amount equal to 20.59% of the then outstanding principal balance of the Loan,
and (C) if the Borrower receives proceeds as a result of any of the events
described in clauses (i) and (ii) with respect to the DBL 78 only, the Borrower
shall be required to prepay only an amount equal to 58.82% of the then
outstanding principal balance of the Loan.

 

§2.4        Payments Generally.

 

(a)           All payments hereunder shall be made in Dollars and in immediately
available funds and shall be made prior to 2:00 p.m. on the date of payment to
the principal office of the Lender or such other office as the Lender shall
designate in writing.  Payments received after 2:00 p.m. shall be deemed to be
payments made prior to 2:00 p.m. on the next succeeding Business Day.  Interest
on the Loan and fees due and payable hereunder and under the Note or any of the
other Loan Documents shall be computed on the basis of the actual number of days
elapsed over twelve (12) thirty (30) day months, including the first day but
excluding the last day of the relevant period.  Any payment which falls due on a
day which is not a Business Day shall be rescheduled to the next succeeding
Business Day and interest and fees shall continue to accrue to such rescheduled
Business Day.  The Borrower hereby irrevocably authorizes the Lender to charge
any and all of the Borrower’s accounts with the Lender for the amount of each
such payment (the Lender agreeing to give notice to the Borrower
contemporaneously thereof), with the Borrower remaining liable for any
deficiency.

 

(b)           The Borrower agrees to pay principal, interest, fees and all other
amounts due hereunder or under the Note or under any other Loan Document without
setoff, recoupment or counterclaim.  All amounts received by the Lender for
application to the Obligations (whether voluntary or mandatory payments or
prepayments, proceeds from liquidation of Collateral, or otherwise) shall be
applied by the Lender in the following order of priority: (i) to the payment of
any fees then due and payable, (ii) to the payments of all other amounts not
otherwise referred to in this §2.4 then due and payable hereunder or under the
other Loan Documents (including any reasonable costs and expenses incurred by
the Lender as a result of a Default or an Event of Default), (iii) to the
payment of interest then due and payable on the Loan, and (iv) to the payment of
principal then due and payable on the Loan, to be applied in the inverse order
of maturity.  No application of payments will cure any Event of Default or
prevent acceleration, or

 

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continued acceleration, of amounts payable under the Loan Documents or prevent
the exercise, or continued exercise, of rights and remedies of the Lender
hereunder, under any of the other Loan Documents or under applicable Law.

 

§2.5        Increased Costs and Reduced Return.  The Borrower agrees that if any
Governmental Authority enacts or promulgates after the date hereof any Law, or
any request, guideline or directive (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) or any change in
the interpretation or administration of any existing Law by any Governmental
Authority charged with the administration thereof, which shall either
(a) impose, affect, modify or deem applicable any reserve, special deposit,
capital maintenance or similar requirement against the Loan, or (b) impose on
the Lender any other condition regarding the Loan, this Agreement, or the Note,
or (c) result in any requirement regarding capital adequacy (including any
risk-based capital guidelines) affecting the Lender being imposed or modified or
deemed applicable to the Lender and the result of any event referred to in
clause (a), (b) or (c) above shall be to increase the cost to the Lender of
making, funding or maintaining the Loan or to reduce the amount of any sum
receivable by the Lender or the Lender’s rate of return on capital with respect
to the Loan to a level below that which the Lender could have achieved but for
such imposition, modification or deemed applicability (taking into consideration
the Lender’s policies with respect to capital adequacy) by an amount deemed by
the Lender (in the exercise of its reasonable discretion) to be material, then,
upon demand by the Lender in writing, the Borrower shall pay to the Lender,
within ten (10) Business Days after receipt of the Lender’s written demand and
the statement described in the following sentence, additional amounts which
shall be sufficient to compensate the Lender for such increased cost or reduced
rate of return, provided that the Borrower shall have no obligation to pay any
such amount (x) to the extent that such increased cost or reduction in rate of
return on capital is a result of any one or more of the following: (1) the
Lender’s transfer of its interest in the Loan and the Note to another lending
office, (2) circumstances applicable to the Lender but not of general
application to other similar lenders, (3) a downgrade in the credit rating
accorded the Lender (or an Affiliate of the Lender) by any credit rating agency,
or (4) the Lender’s unreasonably treating the Loan less favorably than other
similarly situated loans in the Lender’s loan portfolio, or (y) except after an
Event of Default shall have occurred, in the case of any Person that becomes a
Lender after the date hereof, to the extent that the amount of the increased
cost or reduction in rate of return on capital exceeds the amount of the
increased cost or reduction in rate of return on capital that would have been
suffered by the Initial Lender if the Initial Lender owned such Person’s
interest in the Loan.  In the absence of manifest error, a statement setting
forth the basis for requesting such compensation and the method for, and
reasonable calculations for, determining the amount thereof, submitted by the
Lender to the Borrower, shall be final, conclusive and binding on all parties
for all purposes.

 

§2.6        Payments Free and Clear of Taxes.

 

(a)           Except as provided in the following sentence, payments of
principal, interest, fees and other amounts under this Agreement, the Note or
any other Loan Document or otherwise paid or payable to the Lender (as used in
this §2.6, “Payments”) shall be made free and

 

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clear of, and without deduction by reason of, Indemnified Taxes, all of which
shall be paid by the Borrower for its own account not later than the date when
due.  If the Borrower is required by law or regulation to deduct or withhold any
Taxes from any Payment, it shall: (i) make such deduction or withholding;
(ii) pay the amount so deducted or withheld to the appropriate taxing authority
not later than the date when due; (iii) deliver to the Lender, promptly and in
any event within 15 days after the date on which such Taxes become due, original
tax receipts (if reasonably obtainable) or other evidence satisfactory to the
Lender of the payment when due of the full amount of such Taxes; and (iv) pay to
the Lender forthwith upon request from time to time, such additional amounts as
may be necessary so the Lender receives, free and clear of all Taxes (other than
Excluded Taxes), the full amount of such Payment stated to be due under this
Agreement, the Note or any other Loan Document as if no such deduction or
withholding had been made.

 

(b)           The Borrower agrees to indemnify the Lender for the full amount of
Indemnified Taxes paid by the Lender and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto within ten
Business Days after receipt of the Lender’s written demand therefore (which
written demand shall include or be accompanied by (x) a description in
reasonable detail of the Indemnified Tax involved and the calculation of the
amount of indemnity demanded and (y) a copy of each written communication which
the Lender received from any Governmental Authority or other taxing authority
with respect to such Indemnified Tax.

 

(c)           If the Borrower pays any Indemnified Tax to any Governmental
Authority or other taxing authority, or pays any amount to the Lender pursuant
to §§2.6(a)(iv) or 2.6(b) with respect to any Tax:

 

(i)            the Borrower shall be subrogated to the rights of the Lender with
respect to such Tax, and the Lender shall take such action as the Borrower may
reasonably request to enable the Borrower to exercise those rights; and

 

(ii)           to the extent that the Lender receives a refund of such Tax, the
Lender shall pay the amount of such refund to the Borrower within thirty (30)
days after receipt thereof.

 

(d)           Notwithstanding any provision to the contrary in the Loan
Documents, the Borrower shall have no obligation to pay, or to indemnify the
Lender for, any Tax pursuant to this §2.6 to the extent that such Tax has been
taken into account in the calculation of any amount paid or payable by the
Borrower to the Lender pursuant to §2.5 or §10.

 

(e)           The Borrower’s deduction or withholding from any Payment any
withholding tax that is an Excluded Tax and the Borrower’s payment of such
Payment reduced by such withholding tax in accordance with this §2.6 shall not
be a Default or an Event of Default.

 

(f)            If the Lender receives a written claim from any Governmental
Authority or other taxing authority for any Indemnified Tax, the Lender shall
send a copy of such written

 

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claim to the Borrower promptly after receipt thereof.  If requested by the
Borrower and the Borrower acknowledges, in writing, that such Tax is an
Indemnified Tax, the Lender shall contest (or permit the Borrower to contest)
such claim in accordance with applicable Law (including appealing any adverse
determination) and shall not concede, settle, compromise or discontinue such
contest without the Borrower’s prior written consent (which shall not be
unreasonably withheld), and the Borrower shall pay the reasonable expenses
incurred by the Lender in connection with such contest.

 

§2.7        Mitigation Obligations  If the Lender requests compensation under
§2.5 hereof or if the Borrower is required to pay any additional amount to any
Lender (or to any Governmental Authority for account of any Lender) pursuant to
§2.6 hereof or if a change in Law after the date hereof gives rise to a
reasonable expectation that such a request or requirement would (but for §2.7)
occur, then (if reasonably practicable) the Lender shall use reasonable efforts
to designate a different lending office for funding or booking the Loan or to
assign its rights and obligations hereunder to another of its offices, branches
or Affiliates, if such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to §2.5 or §2.6 hereof, as the case may be, in the
future, and (ii) would not subject the Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender.  The Borrower
agrees to pay the reasonable costs and expenses incurred by the Lender in
connection with any such designation or assignment.

 

If the Lender requests compensation under §2.5 hereof, or if the Borrower is
required to pay any additional amount to the Lender (or to any Governmental
Authority for account of the Lender) pursuant to §2.6 hereof, or if a change in
Law after the date hereof gives rise to a reasonable expectation that such a
request or requirement would (but for this §2.7) occur, or if the Lender
defaults in its obligation to fund Advances hereunder, then the Borrower may, at
its sole expense, upon notice to the Lender, prepay the Loan in whole, subject
to the requirements of §2.3(a) hereof other than the requirement to pay the
applicable Prepayment Premium, provided, that the Lender shall have received
payment of an amount equal to the outstanding principal of its Loan, accrued
interest thereon, accrued fees and all other amounts payable to it hereunder,
from the Borrower.  The Borrower shall not be permitted to make any such
prepayment free of an otherwise applicable Prepayment Premium under this §2.7
if, prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to make such prepayment under this
paragraph cease to apply.

 

SECTION 3.                            REPRESENTATIONS AND WARRANTIES

 

To induce the Lender to enter into this Agreement and to make the Loan
hereunder, the Borrower represents and warrants to the Lender that:

 

§3.1        Legal Existence and Good Standing, Etc.

 

(a)           The Borrower is a limited partnership validly formed and existing
under the laws of the State of Delaware and has all requisite limited
partnership or other power to own

 

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the Vessels, its other property and conduct its business substantially as
presently conducted by it and as proposed to be conducted by it.

 

(b)           The Borrower maintains its chief executive office and principal
place of business at 3245 Richmond Terrace, Staten Island, New York 10303, at
which place its principal books and records are kept.

 

(c)           The Borrower is qualified to do business and is in good standing
in all jurisdictions in which a failure to be so qualified and in good standing
might have a Materially Adverse Effect.

 

§3.2        Limited Partnership Power; Consents; Absence of Conflict with Other
Agreements Etc.  The execution, delivery and performance of the Loan Documents
by the Borrower and the borrowings and transactions contemplated thereby:

 

(a)           are within the Borrower’s powers as a limited partnership, and
have been duly authorized by all necessary limited partnership action of the
Borrower and its general partner;

 

(b)           do not require any approval or consent of, or filing with, any
Governmental Authority bearing on the validity of such instruments and
borrowings which is required by any Law and are not in contravention of Law or
the terms of the Borrower’s partnership agreement or other organizational
document, or any amendment of any thereof;

 

(c)           will not violate or result in any breach or contravention of or
the creation of any Lien under (except in favor of the Lender) any indenture,
agreement, lease, instrument or undertaking to which the Borrower is a party or
by which it or any of its properties are bound; and

 

(d)           are and will be valid and legally binding obligations of the
Borrower, enforceable in accordance with their respective terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting generally the enforcement of creditors’
rights, and except to the extent that the availability of equitable remedies
with respect to such obligations may be subject to the discretion of the court
before which any proceedings for such remedies may be brought.

 

§3.3        Title to Properties.  K-Sea Transportation and its Subsidiaries own
all of their assets reflected in the balance sheet of K-Sea Transportation and
its Subsidiaries as at June 30, 2004, or acquired since that date, subject, in
the case of the Vessels, to no Liens of record on the Collateral except the
relevant Mortgage on the DBL 78 at the National Vessel Documentation Center. 
The Borrower has good and marketable title to all items of Collateral pledged by
it, free and clear of any Liens, except Permitted Liens.  On each Advance Date
and thereafter, DBL 78 shall be properly documented as a vessel of the United
States in the name of the Borrower, and on the respective delivery date thereof
and thereafter, DBL 28 and DBL 29 shall be properly documented as a vessel of
the United States in the name of the Borrower.

 

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§3.4        Financial Statements.  The Borrower has furnished to the Lender a
copy of K-Sea Transportation’s and its Subsidiaries balance sheets as at
March 31, 2005 and statements of income and changes in financial position
unaudited for the nine (9) months then ended.  All such financial statements
have been prepared in accordance with GAAP and fairly present the financial
condition and the results of operations of K-Sea Transportation and its
Subsidiaries taken as a whole as at the close of business on the date thereof. 
There are no liabilities, contingent or otherwise, of the Borrower involving
material amounts, known to the officers of the Borrower and not disclosed in
said financial statements and the related notes thereto or not reflected in the
financial statements most recently delivered in connection with §§7.4(a) or (b).

 

§3.5        No Material Changes Etc.  No material adverse changes have occurred
in the financial condition or business of K-Sea Transportation and its
Subsidiaries taken as a whole as shown on or reflected in the balance sheets or
other financial statements delivered on or before the date hereof or in the
balance sheets or other financial statements most recently delivered in
connection with §§7.4(a) or (b).

 

§3.6        Franchises, Patents, Copyrights, Licenses, Etc.  The Borrower
possesses franchises, patents, copyrights, trademarks, trade names, licenses and
permits, and rights in respect of the foregoing adequate for the conduct of its
business as now conducted without any known conflict with any rights of others.

 

§3.7        Litigation.  There are no actions, suits, proceedings or
investigations of any kind pending or, to the best knowledge of the Borrower,
threatened against the Borrower before any court, tribunal or administrative
agency or board which, if adversely determined, might reasonably be expected to,
either in any case or in the aggregate have a Materially Adverse Effect or
result in any liability not adequately covered by insurance.

 

§3.8        No Materially Adverse Contracts, Etc.  The Borrower is not subject
to any charter, limited partnership or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of its officers has or
is reasonably expected in the future to have a Materially Adverse Effect.  The
Borrower is not a party to any contract or agreement which in the judgment of
its officers has or is reasonably expected to have any Materially Adverse
Effect, except as otherwise reflected in adequate reserves.

 

§3.9        Compliance with Other Instruments, Laws, Etc. The Borrower is not in
violation of any provision of its charter documents or its partnership agreement
or any agreement, lease or other instrument by which it or any of its properties
may be bound, or any Law, decree, order, judgment, statute, license, rule or
regulation, in a manner which could reasonably be expected to result in the
imposition of substantial penalties or otherwise have a Materially Adversely
Effect.  There are no past or present events, conditions, circumstances,
activities, practices, incidents, actions or plans known to the Borrower which
reasonably could be expected to interfere with or prevent continued compliance,
or which reasonably could be expected to give rise to any common law or
statutory liability, under, relating to or in connection with any Environmental
Law or otherwise form the basis of any claim, action, proceeding, hearing or
investigation under applicable Law based on or related to the manufacture,

 

20

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processing, distribution, use, treatment, storage, disposal, transport, or
handling, or the emission, discharge, release or threatened release into the
environment, of any pollutant, contaminant, or Hazardous Material or waste with
respect to the Borrower or its business which could reasonably be expected to
have a Materially Adverse Effect.

 

§3.10      Tax Status.  The Borrower has filed all material federal and state
income and all other material tax returns, reports and declarations which the
Borrower is required by any applicable Law of any jurisdiction to which it is
subject or has obtained an extension for filing such returns, reports and
declarations which is still in effect; has paid all taxes and other governmental
assessments and charges shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith by appropriate
proceedings diligently pursued; and has set aside on its books provisions
reasonably adequate for the payment of all material taxes for periods subsequent
to the periods to which such returns, reports or declarations apply. There are
no material unpaid taxes claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Borrower know of no basis for any such
claim.

 

§3.11      No Default.  No Default or Event of Default exists at the delivery of
this Agreement.

 

§3.12      Absence of Liens. At the time of the making of each Advance
hereunder, there will be no financing statement, security agreement or ship
mortgage granted or agreed to by the Borrower in effect which purports to cover,
create, perfect or give notice of any present or possible future Lien on the
Vessel being financed with such Advance or rights thereunder, or any other Liens
thereon or on any of the other Collateral, except for Permitted Liens and Liens
in favor of the Lender.

 

§3.13      Use of Proceeds.  The proceeds of the Loan shall be used as specified
in §2.1(b).  No portion of the Loan is to be used for the purpose of purchasing
or carrying any “margin security” or “margin stock” in contravention of
Regulations U or X of the Board of Governors of the Federal Reserve System, and
the Borrower is not engaged in the business of extending credit to others for
such purpose.

 

§3.14      Pension Plans.  Neither the Borrower nor any other member of any
Controlled Group that includes the Borrower maintains or pays contributions to,
or is required to pay contributions to, any Plan.

 

The Lender (i) represents and warrants to the Borrower that none of the funds to
be used by the Lender to make or maintain the Loan or to acquire or hold the
Note are or will be “assets” (as defined in the regulations to Section 406 of
ERISA) of an “employee benefit plan” (as defined in Section 3(3) of ERISA) or of
a “plan” (as defined in Section 4975(e)(1) of the Code), and (ii) covenants that
(notwithstanding anything herein or in any other Loan Document to the contrary)
the Lender will not sell, transfer, assign, or grant a participation in, any
part of its interest in the Loan, this Agreement or the Note to any other Person
unless such Person (A) makes (1) a representation and warranty that is
equivalent to the representation and warranty contained in clause (i) and
(2) the covenant contained in this clause (ii), and (B) agrees to be

 

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bound by all of the provisions hereof and of all the other Loan Documents
applicable to the Lender.

 

§3.15      Holding Company and Investment Company.  The Borrower is not a
“holding company” or a “subsidiary company” of a “holding company” or an
“affiliate” of a “holding company”, as such terms are defined in the Public
Utility Holding Company Act of 1935; nor is it a “registered investment company”
or an “affiliated company or a “principal underwriter” of a “registered
investment company”, as such terms are defined in the Investment Company Act of
1940, as amended.

 

§3.16      Disclosure.  This Agreement and all certificates and written
statements furnished by or on behalf of the Borrower to the Lender in connection
herewith (all of which shall constitute representations and warranties made by
the Borrower hereunder) do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading.  There is no fact known to the
Borrower which has or is expected to have a Materially Adverse Effect, except as
has been disclosed previously to the Lender in writing.

 

§3.17      [Intentionally Omitted]

 

§3.18      First Lien.

 

(a)           Upon filing the Financing Statements with the Delaware Secretary
of State, the Security Agreement will create a legal, valid and perfected first
lien on and first priority security interest in all of the Collateral (to the
extent a lien is perfectable by filing with the Delaware Secretary of State
respecting any item of Collateral) described therein (and any Proceeds thereof),
as security for the Obligations, free and clear of all other Liens whatsoever
except Permitted Liens.  No security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral, which has been signed by the Borrower or which the Borrower
has authorized any other Person to sign or file or record, is on file or of
record with any public office except in favor of the Lender.

 

(b)           Upon execution and filing for recording thereof with the Coast
Guard, each Ship Mortgage will create legal, valid and perfected first liens on
and first priority security interests in favor of the Lender with respect to all
Collateral described therein as security for the Obligations, free and clear of
all other Liens whatsoever other than Permitted Liens.  No mortgage, pledge,
security agreement, financing statement, equivalent security or lien instrument
or continuation statement covering all or any part of the Collateral, which has
been signed by the Borrower or any predecessor-in-interest of the Borrower or
which the Borrower has authorized any other Person to sign or file or record, is
on file or of record with the Coast Guard or with any other public office except
in favor of the Lender.

 

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§3.19      Environmental Matters.

 

(a)           The Borrower and each of its Subsidiaries has obtained all
material permits, licenses and other authorizations which are required under all
Environmental Laws, except to the extent failure to have any such permit,
license or authorization would not have a Materially Adverse Effect.  The
Borrower and each of its Subsidiaries is in compliance in all material respects
with the terms and conditions of all such permits, licenses and authorizations,
and are also in compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply would not have a Materially Adverse Effect on their business,
financial condition or operations taken as a whole.

 

(b)           No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
premium has been assessed and no investigation or review is pending or, to the
knowledge of the Borrower without any independent verification, threatened by
any governmental or other entity with respect to any alleged failure by the
Borrower or any of its Subsidiaries to have any permit, license or authorization
required in connection with the conduct of its business or with respect to any
Environmental Laws, including Environmental Laws relating to the generation,
treatment, storage, recycling, transportation, disposal or release of any
Hazardous Materials.

 

(c)           Except as set forth in the “Legal Proceedings” section of K-Sea
Transportation’s most recent Form 10-Q filed with the Securities and Exchange
Commission, no material oral or written notification of a release of a Hazardous
Material has been filed by or on behalf of the Borrower or any of its
Subsidiaries and no property now or previously owned, leased or used by the
Borrower or any of its Subsidiaries is listed or, to the Borrower’s knowledge
without any independent verification, proposed for listing on the National
Priorities List under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or on any similar state list of sites
requiring investigation or clean-up.

 

(d)           There are no Liens or encumbrances arising under or pursuant to
any Environmental Laws on any of the real property or properties owned, leased
or used by the Borrower or any of its Subsidiaries other than Liens, if any,
that do not (i) materially detract from the value of the property or
(ii) materially impair the use thereof in the operation of the business of the
Borrower or any of its Subsidiaries or (iii) have a Materially Adverse Effect on
the ability of the Borrower or any of its Subsidiaries taken as a whole to
perform its obligations under the Loan Documents, and no governmental actions
have been taken or, to the knowledge of the Borrower without any independent
verification, are in process which might reasonably be expected to subject any
of such properties to such Liens or encumbrances or, as a result of which the
Borrower or any of its Subsidiaries would be required to place any notice or
restriction relating to the presence of Hazardous Materials at any property
owned by it in any deed to such property.

 

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(e)           Neither the Borrower nor any of its Subsidiaries, nor, to the
knowledge of the Borrower without any independent verification, any previous
owner, tenant, occupant or user of any property owned, leased or used by the
Borrower or any of its Subsidiaries has (i) engaged in or permitted any
operations or activities upon or any use or occupancy of such property, or any
portion thereof, for the purpose of or in any way involving the handling,
manufacture, treatment, storage, use, generation, release, discharge, refining,
dumping or disposal of any Hazardous Materials on, under, in or about such
property, except in compliance in all material respects with all Environmental
Laws, or (ii) transported any Hazardous Materials to, from or across such
property except in compliance in all material respects with all Environmental
Laws; nor to the best knowledge of the Borrower have any Hazardous Materials
migrated from the properties upon, about or beneath such property, nor, to the
best knowledge of the Borrower, are any Hazardous Materials presently
constructed, deposited, stored or otherwise located on, under, in or about such
property except in compliance in all material respects with all Environmental
Laws.

 

§3.20      Solvency.  The Borrower, after giving effect to the Loan, is solvent.

 

§3.21      Survival of Representations and Warranties, Etc. All statements
contained in any certificate, financial statement or other instrument delivered
by or on behalf of the Borrower pursuant to or in connection with this Agreement
or any of the Loan Documents (including any such representation or warranty made
or in connection with any amendment thereto) shall constitute representations
and warranties made under this Agreement.  All representations and warranties
made under this Agreement shall be deemed to be made at and as of the date
hereof and as of the date of the making of each Advance of the Loan.  All
representations and warranties made under this Agreement shall survive, and not
be waived by, the execution and delivery of this Agreement or any other Loan
Document, any investigation or inquiry by the Lender, or by making the Loan
under this Agreement.

 

SECTION 4.                            CONDITIONS OF FUNDING THE FIRST ADVANCE.

 

The obligation of the Lender to fund the first Advance of the Loan shall be
subject to the prior satisfaction of the following conditions precedent.  The
request by the Borrower for such Advance shall be deemed a certification by the
Borrower that the conditions precedent set forth in this §4 have been satisfied
or will be satisfied on such Advance date:

 

§4.1        Execution and Delivery.  All of the Loan Documents (other than the
Ship Mortgages) shall have been executed and delivered by the Borrower to the
Lender.

 

§4.2        Representations and Warranties.  The representations and warranties
contained in §3 shall have been true and correct at and as of the date on which
made and shall also be true and correct at and as of the Advance Date with the
same effect as if made at and as of such date.

 

§4.3        Performance; No Default.  The Borrower shall have performed and
complied with all terms and conditions of the Loan Documents required to be
performed or complied with by it prior to or at the time of the Advance Date,
and at the time of the Advance Date, there shall

 

24

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exist no Default or Event of Default, nor shall any Default or Event of Default
exist or occur after giving effect to the funding of the first Advance of the
Loan.

 

§4.4        Certified Copies of Charter Documents.  The Lender shall have
received from the Borrower, copies, certified by an Authorized Officer to be
true and complete as of the Advance Date, of its partnership agreement, or other
organizational document, all as in effect on such date.

 

§4.5        Proof of Partnership or General Partner Action.  The Lender shall
have received from the Borrower copies, certified by an Authorized Officer to be
true and complete as of the first Advance Date, of the records of all
partnership actions taken to authorize: (a) its execution and delivery of the
Loan Documents (b) its performance of all of its agreements and obligations
under each of such documents, and (c) the borrowings and other transactions
contemplated by this Agreement.

 

§4.6        Incumbency Certificate.  The Lender shall have received from the
Borrower an incumbency certificate, dated as of the first Advance Date and
signed by an Authorized Officer, giving the name and bearing a specimen
signature of each individual who shall be authorized: (i) to sign the Loan
Documents, in its name and on its behalf, (ii) to make application for the Loan,
and (iii) to give notices and to take other action on its behalf under this
Agreement.

 

§4.7        No Material Adverse Effect.  No event or change shall have occurred,
in the sole judgment of the Lender that has caused or evidences a Material
Adverse Effect.

 

§4.8        Delivery of Notice of Borrowing.   A Notice of Borrowing (including
the Authorization/Acceptance Certificate appended thereto) for such Advance
shall have been duly completed by the Borrower and submitted to the Lender in
accordance with §2.1.

 

§4.9        Opinion of Counsel.  The Lender shall have received on the first
Advance Date from Holland & Knight LLP, counsel for the Borrower, a favorable
opinion addressed to the Lender and dated such first Advance Date, in form and
substance satisfactory to the Lender and its counsel.

 

§4.10      Proceedings and Documents.  All proceedings in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in substance and in form to the Lender and its
counsel, and the Lender and such counsel shall have received all information and
such counterpart originals or certified or other copies of such documents as the
Lender or such counsel may reasonably request.

 

§4.11      Recorded Lien Searches.  The Lender shall have received: (a) UCC
search reports with respect to the records of the (i) Delaware Secretary of
State office, (ii) New York Secretary of State office, and (iii) Richmond County
office, and copies of executed Form UCC-3 Financing Statement Amendments for all
financing statements on record against the Borrower and that otherwise would
cover any of the Collateral, together with evidence of the filing thereof, and
(b) a U.S. Coast Guard Abstract of Title verifying that there are no outstanding
ship

 

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mortgages recorded with the Coast Guard covering any of the Collateral or any
other assets or rights associated therewith.

 

§4.12      Financing Statements.  The Lender shall have received satisfactory
evidence that the Financing Statements have been duly filed with the office of
the Secretary of State of Delaware and any other filing locations required
hereunder to create and perfect a first priority Lien on all of the Collateral
to the extent the Borrower has rights in the Collateral as of such date.

 

§4.13      Evidence of Insurance. The Lender shall have received certificates of
insurance covering the DBL 78 demonstrating compliance with the insurance
requirements of the Ship Mortgage covering such vessel and evidence Bollinger
has insurance on DBL 28 and DBL 29 that conforms to the Vessel Construction
Agreement.

 

§4.14      Delivery of Invoices.  The Lender shall have received copies of all
vessel construction invoices and evidence of payment thereof with respect to the
Vessel(s) that are the subject of the Advance.

 

§4.15      Licenses, Permits and Consent.  The Borrower or Bollinger shall have
obtained all licenses, permits and consents (including from Governmental
Authorities) required in connection with the construction of DBL 28 and DBL 29
to the extent appropriately issued as of such date.

 

§4.16      Construction Contract.  The Borrower shall have furnished in form and
substance satisfactory to the Lender an executed copy of the Vessel Construction
Agreement for DBL 28 and DBL 29.

 

§4.17      [Intentionally Omitted].

 

§4.18      Lien Waivers.  The Borrower shall have obtained and attached to each
application for an Advance, including the Advance to cover final payment to
Bollinger under the Vessel Construction Agreement, executed lien certificates
substantially in the form of Exhibit F hereto (“Lien Certificates”), together
with acknowledgments of payments of all sums due and releases of laborer’s,
mechanic’s and materialmen’s liens, satisfactory to the Lender, from Bollinger
respecting it and any subcontractors and any other party having lien rights,
which acknowledgments of payment and releases of liens shall cover all work,
labor, equipment, materials done, supplied, performed, or furnished prior to
such application for an Advance.

 

SECTION 5.                            CONDITIONS OF INTERIM ADVANCES

 

The conditions precedent set forth in §§4.2, 4.3, 4.7, 4.8, 4.10, 4.14, and 4.18
shall be requirements for the first Advance and each subsequent Advance.  The
conditions precedent set forth in §§4.1, 4.4, 4.5, 4.6, 4.9, 4.11, 4.12, 4.13,
4.15 and 4.16 shall be requirements of the first Advance only, provided that
such conditions must remain satisfied throughout the term of the Loan.  The
request by the Borrower for any such Advance shall be deemed a certification by
the

 

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Borrower that the applicable conditions precedent set forth in this Section 5
have been satisfied or will be satisfied on such Advance Date.

 

SECTION 6.                            CONDITIONS OF FINAL ADVANCES OF THE LOAN

 

The Advances to be made to fund the final construction payment to Bollinger with
respect to DBL 28 and DBL 29, and the Advance to be made to the Borrower to
finance the purchase of DBL 78, shall be subject to the additional conditions
precedent set forth below (in each case as to the Vessel that is the subject of
such Advance).  The request by the Borrower for any such Advance shall be deemed
a certification by the Borrower that the conditions precedent set forth in this
Section 6 have been satisfied or will be satisfied on such Advance Date.

 

§6.1        Vessel Documentation.  The Lender shall have received or verified
all of the following with respect to the applicable Vessel:

 

(a)           The Borrower shall have executed and delivered the Note in
accordance with §2.1.

 

(b)           Evidence satisfactory to the Lender that all work on the Vessel
requiring inspection by any Governmental Authority has been duly inspected and
approved by such authority, and that all parties performing work have been paid,
or will be paid, for such work;

 

(c)           Intentionally omitted;

 

(d)           If requested by Agent, a desktop appraisal of recent date,
prepared and certified by a qualified marine appraiser certifying the fair
market value of the Vessel as completed;

 

(e)           Acceptance of the completed Vessel by the Borrower, as reflected
by a completed Protocol of Delivery and Acceptance;

 

(f)            That the Borrower has received a final bill of sale or builder’s
certificate, application for documentation, and such Vessel has been documented
as a United States vessel with the United States Coast Guard and such vessel’s
Certificate of Documentation endorsed for the coastwise trade;

 

(g)           The Borrower shall have executed and filed a Ship Mortgage with
respect to the Vessel, sufficient to grant to the Lender a first priority
preferred ship mortgage on the Vessel with the National Vessel Documentation
Center;

 

(h)           Evidence that the Borrower has obtained all insurance and
protection and indemnity coverages as are required under the Ship Mortgage with
respect to the Vessel;

 

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(i)            An opinion letter of counsel to the Borrower with respect to the
due execution and delivery of the Ship Mortgage with respect to the Vessel and
the first lien priority of such mortgage; and

 

(j)            Evidence satisfactory to the Lender that all licenses have been
obtained by the Borrower and are in full force and effect to operate the Vessel
according to its intended use, and that all advisable American Bureau of
Shipping (ABS) certifications have been obtained.

 

SECTION 7.                            AFFIRMATIVE COVENANTS.

 

The Borrower covenants and agrees that so long as the Loan remains outstanding
and unpaid:

 

§7.1        Punctual Payment.  The Borrower shall duly and punctually pay or
cause to be paid the installment payments of principal and interest on the Loan,
and any other amounts at any time owing hereunder or under the Note or other
Loan Documents, all in accordance with the terms of this Agreement, the Note,
and the other Loan Documents.

 

§7.2        Maintenance of Offices.  The Borrower shall maintain a place of
business at the location specified in §13, or at such other place in the United
States of America as it shall designate upon written notice, addressed as
provided in §13, to the Lender where notices, presentations and demands to or
upon the Borrower in respect of the Loan Documents may be given or made.

 

§7.3        Records and Accounts.  The Borrower shall keep true records and
books of account in which full, true and correct entries shall be made in
accordance with GAAP and maintain adequate accounts and reserves for all Taxes,
all depreciation, depletion, obsolescence and amortization of their properties,
all contingencies, and all other reserves.

 

§7.4        Financial Statements, Certificates, and Other Information.  If
requested by Lender, the Borrower shall deliver to the Lender:

 

(a)           As soon as practicable and, in any event, within (i) 120 days
after the end of each fiscal year, consolidated balance sheets of K-Sea
Transportation and its Subsidiaries as at the end of such fiscal year, and
consolidated statements of income, cash flow and members’ equity, each for the
fiscal year then ended and each setting forth in comparative form the figures
for the previous fiscal year, all in reasonable detail and prepared in
accordance with GAAP, and a report and opinion of the Borrower’s independent
accountants, which report and opinion shall have been prepared in accordance
with GAAP;

 

(b)           As soon as practicable and, in any event, within 60 days after the
end of each of the first three quarters during each fiscal year of the Borrower,
an unaudited consolidated balance sheet of K-Sea Transportation and its
Subsidiaries as at the end of such quarter, and consolidated statement of
income, cash flow and members’ equity, each for the portion of the fiscal year
then ended, each in reasonable detail and prepared in accordance with GAAP
(subject

 

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to year-end adjustments), certified to the Lender by the chief financial officer
or other financial officer of such entity;

 

(c)           Promptly upon receipt thereof, copies of all management letters
and other reports of substance which are submitted to the Borrower by its
independent accountants in connection with any annual or interim audit of the
books of the Borrower made by such accountants;

 

(d)           As soon as practicable and, in any event, within 10 days after the
issuance thereof, copies of such other financial statements and reports as the
Borrower shall send to its partners, members or stockholders, and copies of all
regular and periodic reports which the Borrower may be required to file with the
Securities and Exchange Commission or any similar or corresponding governmental
commission, department or agency substituted therefore, or any similar or
corresponding governmental commission, department, board, bureau, or agency,
federal or state;

 

(e)           With reasonable promptness, such financial information (including
consolidating financial statements) or other data as the Lender reasonably may
request;

 

(f)            Simultaneously with the delivery of the financial statements
referred to in clauses (a) and (b) of this §7.4, a copy of the certification
signed by the principal executive officer and the principal financial officer of
K-Sea Transportation (each a “Certifying Officer”) as required by Rule 13A-14
under the Securities Exchange Act of 1934 and a copy of the internal controls
disclosure statement by such Certifying Officer as required by Rule 13A-15 under
the Securities Exchange Act of 1934, each as included in K-Sea Transportation’s
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, for the applicable
fiscal period.

 

Notwithstanding the forgoing, the Lender agrees to obtain the financial
information required above in §§7.4(a), (b), (c), and (d) via public filings
made by K-Sea Transportation with the Securities and Exchange Commission, so
long as such information is available via such public filings.

 

§7.5        [Intentionally omitted.]

 

§7.6        Business and Limited Partnership Existence.   The Borrower shall
(a) keep in full force and effect its limited partnership existence and all
rights, licenses, leases and franchises reasonably necessary to the conduct of
its business, and (b) comply with (i) the applicable Laws wherever its business
is conducted to the extent non-compliance could reasonably be expected to have a
Materially Adverse Effect, (ii) the provisions of its partnership agreement, or
other organizational document, and (iii) all agreements, and instruments by
which it or any of its properties may be bound and all applicable decrees,
orders and judgments to the extent non-compliance could reasonably be expected
to have a Materially Adverse Effect.

 

§7.7        Payment of Taxes.  The Borrower shall pay when due all lawful Taxes
imposed upon it or upon its income or profit or upon any property, real,
personal or mixed, belonging to

 

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it, provided that the Borrower shall not be required to pay any such Tax if the
validity thereof is being contested in good faith by appropriate proceedings and
if the Borrower shall have set aside on its books reasonable reserves with
respect to such Tax.

 

§7.8        Inspection of Properties and Books.   So long as the Note is
outstanding the Lender or its designated agent or representatives shall have the
right to visit and inspect for any purpose the Collateral, including the
Vessels, to examine the books of account of the Borrower and any other documents
required of the Borrower hereunder or otherwise reasonably related to the
transactions contemplated hereunder (and to make copies thereof and extracts
therefrom), and to discuss the affairs, finances and accounts of the Borrower
with, and to be advised as to the same by, its officers, all at such reasonable
times and intervals as the Lender may reasonably request.  The costs of any such
examination shall be for the account of the Lender, provided that following the
occurrence and during the continuation of any Default, all such reasonable costs
shall be charged to the Borrower.

 

§7.9        Licenses and Permits.  If at any time while the Note is outstanding,
any authorization, consent, approval, permit or license from any Governmental
Authority shall become necessary or required in order that the Borrower may
fulfill any of its obligations hereunder, the Borrower shall promptly take or
cause to be taken all steps reasonably necessary to obtain such authorization,
consent, approval, permit or license and furnish the Lender with evidence
thereof.

 

§7.10      Pension Plans.  With respect to any period of time during which the
Borrower or any other member of a Controlled Group that includes the Borrower
maintains or is required to pay contributions to a Plan Borrower shall:

 

(a)           Fund, or cause the Plan sponsor or adopting employer to fund, such
Plan as required by the provisions of Section 302 of ERISA and Section 412 of
the Code except where failure to do so would not result in a material liability
to the Borrower and make, or cause the Plan sponsor or adopting employer to
make, all material contributions to such Plan required pursuant to any
applicable collective bargaining agreement;

 

(b)           Furnish promptly to the Lender a copy of any notice of termination
of such Plan required to be sent to the Pension Benefit Guaranty Corporation and
a copy of any notice, report or demand sent or received by or with respect to
such Plan pursuant to Sections 4041, 4041A, 4042, 4043, 4062, 4063, 4065, 4066
or 4068 of ERISA or under subtitle E of Title IV of ERISA;

 

(c)           Furnish promptly to the Lender a copy of all Forms 5500, Forms
5500-C and/or Forms 5500-R relating to such Plan, together with all attachments
thereto, including any actuarial statement relating to such Plan required to be
submitted under Section 103(d) of ERISA;

 

(d)           Furnish the Lender with copies of any request for waiver from the
funding standards or extension of the amortization periods required by
Section 303 and 304 of ERISA or

 

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Section 412 of the Code with respect to any Plan no later than the date on which
the request is submitted to the Department of Labor or the Internal Revenue
Service, as the case may be;

 

(e)           Promptly notify the Lender of any “complete withdrawal”, “partial
withdrawal” or “reorganization” with respect to any Plan as such terms are
defined in ERISA; and

 

(f)            With respect to any Plan, promptly notify the Lender upon the
occurrence of any “reportable event” as defined in Section 4043(c) of ERISA,
other than a “reportable event” for which the provision for 30-day notice to the
Pension Benefit Guaranty Corporation has been waived by regulation.

 

§7.11      Environmental and Safety Matters.  The Borrower shall:

 

(a)           Promptly report to the Lender upon becoming aware thereof (a) the
introduction of any Hazardous Material onto any facility owned or operated by
the Borrower if the introduction thereof reasonably could be expected to have a
Materially Adverse Effect and (b) the initiation of any action, suit,
proceeding, investigation or regulatory action against the Borrower or in
connection with any such facility relating to any Release of Hazardous Materials
if such could reasonably be expected to have a Materially Adverse Effect.

 

(b)           Promptly deliver to the Lender copies of (a) all reports (other
than routine reports regularly submitted in the ordinary course of business)
submitted to any Governmental Authority by the Borrower in connection with
either the presence of Hazardous Materials at any facility owned or operated by
the Borrower or any other environmental matter relating to such facility, and
(b) all reports, notices, and correspondence transmitted to the Borrower by any
Governmental Authority in connection with either the presence of any Hazardous
Materials at or near any such facility or any other environmental matter
relating to such facility.

 

(c)           Except for Hazardous Materials that the Borrower uses, transports
or stores or that a lessee or charterer of the Borrower uses, stores or
transports in the ordinary course of its business and in compliance with all
applicable Laws and in accordance with the terms of any applicable lease or
charter documents, keep all of its properties or assets free of Hazardous
Materials.  The Borrower shall comply with and use commercially reasonable
efforts to ensure compliance by all tenants and subtenants with all
Environmental Laws and all Laws relating to occupational safety or health and
shall obtain and comply with, and use commercially reasonable efforts to ensure
that all tenants and subtenants obtain and comply with, any and all approvals,
registrations or permits required thereunder.  The Borrower shall conduct and
complete all investigations, studies, sampling and testing, and all remedial,
removal, and other action necessary to clean up and remove all Hazardous
Materials, on, from or affecting any of its properties or assets as required by
all applicable material Laws, except as such laws, ordinances, rules,
regulations, orders or directives may be contested by the Borrower in good faith
by appropriate proceedings and for which adequate reserves have been established
in conformity with GAAP.

 

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(d)           Defend, indemnify, and hold harmless the Lender and its directors,
officers, employees, affiliates, representatives and agents (each an
“Indemnified Party”) from and against any and all penalties, fines, liabilities,
damages, costs, or expenses of whatever kind or nature asserted against such
Indemnified Party (unless resulting from the gross negligence or willful
misconduct of an Indemnified Party or occurring after the Lender shall have
become a mortgagee in-possession subsequent to an Event of Default), arising out
of, or in any way related to: (a) the Release or threatened Release of any
Hazardous Materials on, at or from any property at any time owned, operated or
occupied by the Borrower; (b) any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to such Hazardous
Materials; (c) any lawsuit brought or threatened, settlement reached, or
government order relating to such Hazardous Materials, and/or (d) any violation
of Laws which are based upon or in any way related to such Hazardous Materials
or to any environmental matter, including reasonable attorney and consultant
fees, investigation and laboratory fees, court costs, and litigation expenses
actually incurred.

 

§7.12      Indemnities, Etc.

 

(a)           The Borrower shall indemnify and hold the Indemnified Parties
harmless from and against any and all claims, damages, losses, liabilities,
costs, and expenses (including reasonable legal fees) that may be incurred by or
asserted or awarded against any Indemnified Party, in each case arising out of
or in connection with or by reason of (including in connection with any
investigation, litigation, or proceeding or preparation of defense in connection
therewith) the ownership, operation or other use (whether authorized or not) of
the Vessels, the Loan Documents, any of the transactions contemplated herein or
the actual or proposed use of the proceeds of the Loan, except to the extent
that such claim, damage, loss, liability, cost, or expense (i) is found in a
final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party’s or such Lender’s (as a
mortgagee-in-possession) gross negligence or willful misconduct or (ii) is a
tax, levy, impost, duty, assessment, fee or other charge imposed by any
Governmental Authority or other taxing authority or a fine, penalty, interest
charge or other additional charge with respect thereto (it being agreed that
§2.6 sets forth the Borrower’s obligations with respect to such liabilities,
costs and expenses), or (iii) is an ordinary and usual operating, administrative
or overhead expense of any Lender and is not caused directly by an Event of
Default.  In the case of an investigation, litigation or other proceeding to
which the indemnity in this §7.12 applies, such indemnity shall be effective
whether or not such investigation, litigation or proceeding is brought by the
Borrower, its directors, shareholders or creditors or an Indemnified Party or
any other Person or any Indemnified Party is otherwise is a party thereto and
whether or not the transactions contemplated hereby are consummated.  In respect
of any litigation commenced with respect to this §7.12, (i) the Borrower shall
be entitled to control and direct its defense if an Event of Default shall not
have occurred and be continuing and (ii) the Borrower shall be entitled to
participate with the Lender in the Borrower’s defense if no Event of Default
shall have occurred and be continuing hereunder provided that the Borrower,
prior to commencing its defense or participating in any defense of such
litigation pursuant to the foregoing clauses (i) and (ii), confirms and
acknowledges, in writing, its indemnification obligation with respect to such
claim

 

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under this §7.12.  Notwithstanding the foregoing, the Borrower shall not be
required to indemnify any Indemnified Party for any settlement reached without
the prior consent of the Borrower (which consent shall not be unreasonably
withheld) or for any judgment entered into against an Indemnified Party if the
Borrower shall have not been afforded an opportunity to participate, at its
expense, in the defense of the claim.  The Borrower agrees not to assert any
claim against the Lender, any of its affiliates, or any of its respective
directors, officers, employees, attorneys, agents, and advisers, on any theory
of liability, for special, indirect, consequential, or punitive damages arising
out of or otherwise relating to the Loan Documents, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the Loan,
other than fraud or intentional misconduct.

 

(b)           Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this §7.12 shall survive the payment in full of the Loan and all other amounts
payable under this Agreement.

 

§7.13      Performance of Contracts.  The Borrower shall perform and comply in
all material respects with all of its obligations under any contracts and all
other agreements to which it is a party or by which it is bound relating to the
Collateral, and shall use reasonable efforts to cause each other party thereto
to so perform and comply.

 

§7.14      Notice of Default.  The Borrower shall promptly upon becoming aware
thereof give written notice to the Lender of: (a) the occurrence of any Default
or Event of Default, (b) any litigation or proceeding affecting the Borrower or
any of its properties or assets of which, if adversely determined, might have a
Materially Adverse Effect, and (c) any dispute between the Borrower and any
Governmental Authority that might materially interfere with its normal business
operations.

 

§7.15      Notice of Material Claims and Litigation.  The Borrower shall
promptly notify the Lender of the commencement of any claims, actions, suits,
proceedings or investigations of any kind pending or threatened against the
Borrower before any Governmental Authority in an amount in excess of $500,000,
if relating to one or all of the Vessels, or which, if adversely determined,
would have a Material Adverse Effect.

 

§7.16      No Disposition of Collateral.  The Borrower shall obtain the prior
written consent of the Lender (which may be granted or denied in the Lender’s
sole discretion), prior to the sale, conveyance, transfer, exchange, lease, or
on a bareboat basis charter or disposition by the Borrower of all or any part of
the Collateral or the Borrower’s otherwise relinquishing possession of any of
the Collateral.

 

§7.17      Borrower’s Title; Lender’s Security Interest.

 

(a) The Borrower shall warrant and defend its good and marketable title to the
Collateral (to the extent the Borrower has rights in such items of Collateral)
and the Lender’s perfected first priority security interest in the Collateral
(to the extent the Borrower has rights in such items of Collateral), against all
claims and demands whatsoever.

 

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(b)           The Borrower shall, at its expense, take such action (including
the obtaining and recording of waivers) as may be necessary to prevent any third
party from acquiring any right to or interest in the Collateral other than
Permitted Liens (to the extent the Borrower has rights in such items of
Collateral), and if at any time any Person shall claim any such right or
interest, the Borrower shall, at its expense, cause such claim to be waived in
writing or otherwise eliminated to the Lender’s satisfaction within 30 days
after such claim shall have first become known to the Borrower.

 

§7.18      Compliance with Laws and Regulations.  The Borrower shall comply with
all laws, regulations, directives and orders of any and all local, state,
federal and other governmental agencies and authorities having jurisdiction over
it or its property, non-compliance with which could reasonably be expected to
cause a Materially Adverse Effect.

 

§7.19      Further Assurances.  The Borrower shall promptly, at any time and
from time to time, at its sole expense, execute and deliver to the Lender such
further instruments and documents, (including the execution of a replacement
promissory note due to loss or destruction of the Note), and take such further
action, as the Lender may from time to time reasonably request in order to carry
out to the Lender’s satisfaction of the transactions contemplated by this
Agreement and to establish and protect the rights, interests and remedies
created, or intended to be created, in favor of the Lender, hereby and under the
other Loan Documents, including the execution, delivery, recordation and filing
of financing statements and continuation statements.  The Borrower hereby
authorizes the Lender, in such jurisdictions where such action is authorized by
law, to effect any such recordation or filing of financing statements without
the signature of the Borrower thereon and to file as valid financing statements
in the applicable financing statement records, any financing statement executed
in connection herewith.  The Borrower will pay, or reimburse the Lender for, any
and all reasonable fees, costs and expenses of whatever kind or nature incurred
in connection with the creation, preservation and protection of the Lender’s
security interest in the Collateral, including all fees and taxes in connection
with the recording or filing of instruments and documents in public offices,
payments or discharges of Taxes or Liens upon or in respect of the Collateral,
premiums for insurance required to be obtained pursuant to the Loan Documents
with respect to the Collateral and all other reasonable fees, costs and expenses
in connection with protecting, maintaining or preserving the Collateral and the
Lender’s interests therein, whether through judicial proceedings or otherwise,
or in connection with defending or prosecuting any actions, suits or proceedings
arising out of or related to the Collateral; and all such reasonable amounts
that are paid by the Lender shall, until reimbursed by the Borrower, constitute
Obligations of the Borrower secured by the Collateral.

 

§7.20      Casualty Occurrence.  In the event of any material (involving damages
to any party thereto in excess of $500,000) casualty with respect to any
Collateral or Vessel, the Borrower shall give the Lender written notice of such
casualty promptly after discovering or receiving notice of the casualty, which
notice shall identify the affected Collateral or other Vessel.  The Borrower
shall, within a reasonable period of time, remedy or repair such casualty to
bring the Collateral into conformity with the provisions of this Agreement
unless such casualty shall constitute an Event of Loss and the provisions of
§2.3(b) apply.

 

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SECTION 8.                            NEGATIVE COVENANTS; FINANCIAL COVENANTS.

 

The Borrower covenants and agrees that so long as the Loan remains outstanding
and unpaid, it shall not:

 

§8.1                        Transactions with Affiliates.  Except as otherwise
provided herein, enter into or consummate any transaction with any Affiliate of
the Borrower unless such transaction is:

 

(a)                                  entered into in the ordinary course of
business of the Borrower and pursuant to the reasonable requirements of the
Borrower’s business; and

 

(b)                                 is upon terms no more or less favorable to
the Borrower than would be the case if such transaction were an arm’s-length
transaction effected with a Person other than an Affiliate.

 

§8.2                        Terminate Pension Plan.  Terminate, withdraw from,
or permit the termination of any Plan unless the asset value of such Plan is
then at least equal to the value of the benefits guaranteed by the Pension
Benefit Guaranty Corporation if such termination could reasonably be expected to
have a Materially Adverse Effect.

 

§8.3                        ERISA.  Permit any Plan maintained by it to
(a) engage in any “prohibited transaction” (as defined in Section 4975 of the
Code) which could reasonably be expected to result in material liability for
excise taxes or fiduciary liability under Section 406 of ERISA, (b) incur any
material “accumulated funding deficiency” (as defined in Section 302 of ERISA)
whether or not waived, or (c) terminate any Plan in a manner that could
reasonably be expected to result in the imposition of a lien or encumbrance on
the assets of the Borrower or any of its Subsidiaries pursuant to Section 4068
of ERISA if the material liability described in clause (a) or the accumulated
funding deficiency described in clause (b) or the lien or encumbrance described
in clause (c) could reasonably be expected to have a Materially Adverse Effect.

 

§8.4                        Incorporation of Financial Covenants Under Existing
Revolver.  Until the Obligations payable under the Loan Documents shall have
been paid in full, Borrower covenants and agrees with the Lender that:

 

(a)                                  The financial covenants of the Borrower as
currently set forth in Section 6.01 of the Existing Revolver (the “Financial
Covenants”) shall be considered to be financial covenants of the Borrower under
this Agreement as if set forth in this Agreement in full.

 

(b)                                 Any amendment or modification of the
Financial Covenants by the Revolving Lenders after the date hereof will be
binding upon the Lender, and applicable to the Borrower hereunder, as so amended
or modified.

 

(c)                                  The Borrower agrees to provide the Lender
with a copy of all Financial Covenant compliance certificates prepared by the
Borrower and delivered to the Revolving Lenders in connection with the Financial
Covenants at the same time and on the same frequency

 

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as required to be delivered to Revolving Lenders under the Existing Revolver,
provided that if at any time Financial Covenant compliance certificates are no
longer provided by the Borrower to the Revolving Lenders, the Borrower will
provide similar Financial Covenant compliance certificates to the Lender on not
less than a quarterly basis.

 

(d)                                 If for any reason CBPA (or an Affiliate
thereof) ceases to be a party to the Existing Revolver, the Financial Covenants
that are in effect under the Existing Revolver on the last day that CBPA is a
party thereto shall survive and continue to be financial covenants of the
Borrower under this Agreement as if set forth in this Agreement in full.

 

SECTION 9.                            EVENTS OF DEFAULT; ACCELERATION.

 

§9.1                        Events of Default.  The occurrence of any one or
more of the following events or conditions shall constitute an “Event of
Default” hereunder regardless of the reason for such event and whether it shall
be voluntary or involuntary or within or without the control of the Borrower or
be effected by operation of or pursuant to any Law:

 

(a)                                  if the Borrower shall fail to make any
payment not more than three (3) Business Days after the due date thereof of any
principal or interest due hereunder or on the Note or other amount provided for
hereunder whether at maturity or at any date fixed for payment or prepayment or
by declaration or otherwise; or

 

(b)                                 If the Borrower shall default in the
performance of or compliance with any term contained in §§7.6, 7.10(a), 7.10(b),
or 7.16; 7.17(a) or §§8.2, 8.3 or 8.4; or

 

(c)                                  If the Borrower shall default in the
performance or compliance with any term contained in §§7.9, 7.14 or 7.17(b), and
such default shall continue for more than thirty (30) days; or

 

(d)                                 if the Borrower shall default in the
performance of or compliance with any term contained herein, or in the
performance of or compliance with any other term contained in any of the other
Loan Documents (other than those referred to in the foregoing paragraphs (a),
(b) and (c)), and such default shall not have been remedied within thirty (30)
days after written notice thereof shall have been given to the Borrower by the
Lender; or

 

(e)                                  if any representation, warranty or
certification made in writing by or on behalf of the Borrower herein or in
connection with any of the transactions contemplated hereby shall prove to have
been false or incorrect in any material respect on the date as of which made; or

 

(f)                                    if the Borrower makes an assignment for
the benefit of creditors, or petitions or applies for the appointment of a
liquidator or receiver or custodian (or similar official) of itself or of any
substantial part of its assets or commences any proceeding or case relating to
it under any bankruptcy, reorganization, arrangements, insolvency, readjustment
of debt, dissolution or liquidation or similar law of any jurisdiction, now or
hereafter in effect; or

 

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(g)                                 if any such petition or application is filed
or any such proceeding or case is commenced against the Borrower and such party
indicates its approval thereof, consent thereto or acquiescence therein or an
order is entered appointing any such liquidator or receiver or custodian (or
similar official), or adjudicating the Borrower bankrupt or insolvent, or
approving a petition in any such proceeding or a decree or order for relief is
entered in respect of the Borrower in an involuntary case under any bankruptcy,
reorganization, arrangements, insolvency, readjustment of debt, dissolution or
liquidation or similar law of any jurisdiction, now or hereafter in effect, and
such order remains in effect for more than sixty (60) days, whether or not
consecutive; or

 

(h)                                 if any order is entered in any proceeding by
or against the Borrower decreeing or permitting its dissolution or split-up or
the winding up of its affairs; or

 

(i)                                     if the Borrower shall generally not pay
its debts as such debts become due, or shall admit in writing its inability to
pay its debt generally; or

 

(j)                                     if there shall remain in force,
undischarged, unsatisfied and unstayed, for more than thirty (30) days, whether
or not consecutive, any final unappealable judgment against the Borrower, which
with other outstanding final unappealable judgments, undischarged, against the
Borrower, exceed in the aggregate $500,000 (other than amounts that are subject
to insurance coverage); or

 

(k)                                  if any of the Security Documents shall for
any reason cease to be in full force and effect or any Security Document or the
Lien purported to be granted thereby shall become adjudged by a competent court
to be invalid or unenforceable; or

 

(l)                                     if the Borrower shall (i) default (as
principal or guarantor or other surety) in the payment of any principal of,
premium, if any, or interest on any Indebtedness to the Lender (or its
affiliates) or under any other Indebtedness owed to any other Person in excess
of $500,000, in any single amount or in aggregate, in respect of borrowed money
or credit received, or (ii) default in the performance of or compliance with any
other term, covenant, provision or obligation contained in any agreement or
instrument evidencing or securing such Indebtedness and, in each case, the
holder or holders of such Indebtedness shall have accelerated the maturity
thereof or commenced the exercise of any other remedies in respect of such
default; or

 

(m)                               if any “Mortgage Event of Default” as defined
in any Ship Mortgage or any Event of Default (as defined in the Security
Agreement) shall occur; or

 

(n)                                 if the Borrower shall terminate its
existence by merger, consolidation, sale of substantially all of its assets,
dissolution or otherwise; or

 

(o)                                 if a Change in Control shall have occurred;
or

 

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(p)                                 if for any reason the Vessel Construction
Agreement shall be terminated prior to completion of DBL 28 and DBL 29, or if
the Borrower shall default under the Vessel Construction Agreement and Bollinger
shall have demanded arbitration thereunder.

 

§9.2                        Remedies.   (a)Upon the occurrence of an Event of
Default described in §§9.1(f), (g) or (h), immediately and automatically, and
upon the occurrence of any other Event of Default, and at any time thereafter
while such Event of Default is continuing, at the option of the Lender and upon
the Lender’s declaration:

 

(i)                                     the unpaid principal amount of the Loan
together with accrued interest and any applicable Prepayment Premium, and all
other Obligations shall become immediately due and payable without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived; and

 

(ii)                                  the Lender may exercise any and all rights
the Lender has under this Agreement, the Loan Documents, or any other documents
or agreements executed in connection herewith, or at law or in equity, and
proceed to protect and enforce the Lender’s rights by any action at law, in
equity or other appropriate proceeding, whether for the specific performance of
any covenant or agreement contained in this Agreement or any other Loan
Document, including the obtaining of the ex-parte appointment of a receiver,
and, if such amount shall have become due, by declaration or otherwise, proceed
to enforce the payment thereof or any other legal or equitable right of the
Lender, including the exercise of remedies against the Collateral under the
Security Documents.

 

(iii)                               Right of Set-off; Adjustments.   During the
continuance of any Event of Default, the Lender (and each of its Affiliates) is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by the Lender (or any of its affiliates) to or for the credit or
the account of the Borrower against any and all of the obligations of the
Borrower now or hereafter existing under this Agreement and the Note,
irrespective of whether the Lender shall have made any demand under this
Agreement or the Note and although such obligations may be unmatured.  The
Lender agrees promptly to notify the Borrower after any such set-off and
application made by the Lender; provided, however, that the failure to give such
notice shall not affect the validity of such set-off and application.  The
rights of the Lender under this §9.2 are in addition to other rights and
remedies (including other rights of set-off) that the Lender may have.

 

(iv)                              Other Remedies.  Unless and except to the
extent expressly provided for to the contrary herein, the rights of the Lender
specified herein shall be in addition to, and not in limitation of, the Lender’s
rights under any statute or rule of law or equity, or under any other provision
of any of the Loan Documents, or under the provisions of any other document,
instrument or other writing executed by the Borrower or any third party in favor
of the Lender, all of which may be exercised successively or concurrently.

 

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(v)                                 Cash Collection System.  In addition to any
other right of the Lender hereunder and under applicable Law, effective upon
demand by the Lender at any time and from time to time that an Event of Default
exists, and all payments that the Borrower receives as a result of its ownership
and operation of the Vessels, to be deposited in a deposit account maintained at
an Affiliate of the Lender. The Borrower expressly authorizes the Lender
hereunder to apply all such funds deposited in such account to the obligations
as they come due hereunder and under the other Loan Documents in the manner set
forth in §2.4(b)

 

(b)                                 Notwithstanding anything to the contrary
contained in clause (a) above, the Lender shall not exercise any of the remedies
set forth in clause (a) or any other remedies available under applicable Law if
the exercise of such remedies shall invalidate the qualification of any of the
Vessels to operate in the coastwise trade.

 

SECTION 10.                     EXPENSES.

 

The Borrower will pay on demand all reasonable out-of-pocket expenses of the
Lender (including reasonable fees of outside counsel) in connection with: the
negotiation, preparation, execution, and delivery of this Agreement, the other
Loan Documents or other documents executed in connection therewith; any advice
or analysis from outside counsel, accountants or other professionals retained by
the Lender from time to time in connection with this Agreement or the
transactions contemplated hereby; any amendment, waiver, or consent from time to
time related thereto; and the Lender’s exercise, preservation or enforcement of
any of its rights, remedies or options hereunder or thereunder after the
occurrence and during the continuation of an Event of Default, including in all
such cases the reasonable fees of outside legal counsel and any local counsel,
accounting, consulting, brokerage or other similar professional fees or
expenses, and any reasonable fees or expenses associated with any travel or
other costs relating to any appraisals conducted in connection with the
Obligations or any Collateral therefore after the date of this Agreement; and
the amount of all such expenses shall, until paid, bear interest at the interest
rate applicable to principal hereunder (including any default rate). After the
occurrence and during the continuance of an Event of Default, the Borrower shall
pay the reasonable costs of any field audit examinations that the Lender in its
discretion may conduct and shall also pay all reasonable out-of-pocket expenses
of the Lender in connection with the exercise, preservation or enforcement of
any of its rights, remedies or options under any of the Security Documents.

 

SECTION 11.                     SURVIVAL OF COVENANTS.

 

All covenants, agreements, representations and warranties made herein and in any
certificates or other papers delivered by or on behalf of the Borrower pursuant
hereto are material and shall be deemed to have been relied upon by the Lender,
notwithstanding any investigation heretofore or hereafter made by them, and
shall survive the making of the Loan, as herein contemplated, and shall continue
in full force and effect so long as the Loan or other amounts due under the Loan
Documents and the Note remain outstanding and unpaid.  All statements contained
in any certificate or other paper delivered to the Lender at any time by or

 

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on behalf of the Borrower pursuant hereto or in connection with the transactions
contemplated hereby shall constitute representations and warranties by the
Borrower hereunder.

 

SECTION 12.                     CONFIDENTIALITY.

 

The Lender agrees to take and to cause its Affiliates to take normal and
reasonable precautions and exercise due care to maintain the confidentiality of
all information provided to the Lender by the Borrower, under this Agreement or
any other Loan Document, and neither the Lender nor any of its Affiliates shall
use any such information other than in connection with or in enforcement of this
Agreement and the other Loan Documents, except to the extent such information
(i) was or becomes generally available to the public other than as a result of
disclosure by the Lender or (ii) was or becomes available on a non-confidential
basis from a source other than the Borrower, provided that the Lender may
disclose such information (A) at the request or pursuant to any requirement of
any governmental authority to which the Lender is subject or in connection with
an examination of the Lender by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable law; (D) to the extent required in connection with
any litigation or proceeding to which the Lender, or its respective affiliates,
may be party; (E) to the extent the Lender is required in connection with the
exercise of any remedy hereunder or under any other Loan Document; (F) to the
Lender’s independent auditors and other professional advisors; (G) to any
Eligible Assignee or participant (including prospective institutions that may
become assignees or participants pursuant to §13), provided that such Person
agrees in writing to keep such information confidential to the same extent
required of the Lender hereunder; (H) as to the Lender or its Affiliate, as
expressly permitted under the terms of any other document or agreement regarding
confidentiality to which the Borrower is a party or is deemed a party with the
Lender or such Affiliate; and (I) to its Affiliates.

 

SECTION 13.                     SUCCESSORS AND ASSIGNS; PARTICIPATIONS.

 

§13.1                 Successors and Assigns.   Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the Borrower or the Lender shall bind and inure to
the benefit of their respective successors and assigns.  Notwithstanding the
foregoing, the Borrower shall not be entitled to assign any of its rights or
obligations hereunder.

 

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§13.2                 Assignments.

 

(a)                                  The Lender may, at its expense (unless such
assignment is initiated by the Borrower) assign to one or more Eligible
Assignees (but not to exceed five Lenders hereunder at any one time) all or a
portion (not less than $3,000,000) of its interests, rights and obligations
under this Agreement and the other Loan Documents, including all or a portion of
the Loan at the time made by or owing to it, provided (i) that the parties to
each such assignment shall execute and deliver to the Lender an Assignment and
Acceptance in the form set forth as Exhibit D (an “Assignment and Acceptance”). 
Upon acceptance and recording pursuant to §13.6, from and after the effective
date specified in each Assignment and Acceptance (which effective date shall be
at least five Business Days after the execution thereof), (A) the Eligible
Assignee shall be a party hereto and, to the extent provided in such Assignment
and Acceptance, have the same rights and obligations as the Lender under this
Agreement, and (B) the Lender shall be released from any obligations under this
Agreement with respect to the interests assigned, provided that in the case of
an Assignment and Acceptance covering all or the remaining portion of the
Lender’s rights and obligations under this Agreement, the Lender shall continue
to be entitled to the benefits of §2.5 and §2.6, as well as to any fees or
amounts accrued for its account hereunder and not yet paid.  An Eligible
Assignee shall be entitled to sell participations in its interests, rights and
obligations under this Agreement and the other Loan Documents, as provided in
§13.3, and shall be entitled to grant assignments thereof pursuant to an
Assignment and Acceptance and otherwise in accordance with this §13.

 

(b)                                 By executing and delivering an Assignment
and Acceptance, the Lender and Eligible Assignee shall be deemed to confirm to
and agree with each other and the other parties hereto as follows:  (i) other
than the representation and warranty that it is the legal and beneficial owner
of the interest being assigned thereby free and clear of any adverse claim, the
Lender makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any other
Loan Document or any other instrument or document furnished pursuant hereto,
(ii) the Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under this
Agreement, any other Loan Document or any other instrument or document furnished
pursuant hereto, (iii) such Eligible Assignee confirms that it has received a
copy of this Agreement and the other Loan Documents, together with copies of the
most recent financial statements delivered pursuant to §7.4 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance, (iv) such
Eligible Assignee shall independently and without reliance upon the Lender or
any other Eligible Assignee or Participant and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions under this Agreement, and (v) such Eligible Assignee agrees
that it shall perform in accordance with their terms all the obligations which
by the terms of this Agreement are required to be performed by it as an Eligible
Assignee.

 

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(c)                                  If, pursuant to this §13.2, any interest in
this Agreement is assigned to any Eligible Assignee which is not incorporated or
organized under the laws of the United States or a state thereof, the Lender
shall cause such Eligible Assignee to agree that, on or prior to the effective
date specified in the Assignment and Acceptance, it will deliver to the Borrower
(i) two valid, duly completed copies of United States Internal Revenue Service
Form W-8BEN or W-8EC1 or applicable successor form, as the case may be,
certifying in each case that such Eligible Assignee is entitled to receive
payments made under this Agreement and the Note without deduction or withholding
of any United States federal income taxes, and (ii) a valid, duly completed
Internal Revenue Service Form W-8BEN or W-9 or applicable successor form, as the
case may be, to establish an exemption from United States backup withholding
tax.  The Eligible Assignee which delivers to the Borrower a Form W-8BEN or
W-8EC1 and Form W-8BEN or W-9 pursuant to the preceding sentence further
undertakes to deliver to the Borrower two copies of the Form W-8BEN or W-8EC1
and Form W-8BEN or W-9, or applicable successor forms, or other manner of
certification, as the case may be, on or before the date that any such form
expires or becomes obsolete or otherwise is required to be resubmitted as a
condition to obtaining an exemption from withholding tax or after the occurrence
of any event requiring a change in the most recent form previously delivered by
it to the Borrower, and such extensions or renewals thereof as may reasonably be
requested by the Borrower, certifying in the case of a Form W-8BEN or W-8EC1
that such Eligible Assignee is entitled to receive payments made under this
Agreement and the Note without deduction or withholding of any United States
federal income taxes, unless any change in treaty, law or regulation or official
interpretation thereof has occurred prior to the date on which any such delivery
would otherwise be required which renders all such forms inapplicable or which
would prevent such Eligible Assignee from duly completing and delivering any
such form with respect to it and such Eligible Assignee advises the Borrower
that it is not capable of receiving payments without any deduction or
withholding of United States federal income tax, and in the case of a
Form W-8BEN or W-9, establishing an exemption from United States backup
withholding tax.

 

§13.3                 Participations.  The Lender and the Eligible Assignee may,
at their respective expense, sell to one or more Persons (each, a “Participant”)
participations in all or a portion (not less than $3,000,000) of its interests,
rights and obligations under this Agreement and the other Loan Documents
(including all or a portion of any Commitments and the Loans owing to it),
provided that (i) the Lender or such Eligible Assignee shall remain solely
responsible for the performance of its obligations under this Agreement,
(ii) the Participant shall be entitled to the benefit of the cost protection
provisions and indemnities contained in §§2.5 and 7.12, but shall not be
entitled to receive any greater payment thereunder than the selling Lender or
Eligible Assignee would have been entitled to receive with respect to the
interest so sold if such interest had not been sold, and (iii) the Borrower, the
Lender (in the case of a sale of any participation interest by an Eligible
Assignee), and any Eligible Assignee shall continue to deal solely and directly
with the Lender or Eligible Assignee in connection with its rights and
obligations under this Agreement.  A Participant shall not be entitled to
require the Lender to take or omit to take any action hereunder except in
connection with any of the following:  (i) or any amendment that subjects the
Lender to any additional obligations; (ii) a reduction of the principal of or
interest on the Note, or of any fees payable hereunder; (iii) a postponement of
any date fixed for any

 

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payment in respect of principal of or interest on the Note or any fees payable
hereunder; (iv) the release of any Collateral from the Lien of the Loan
Documents.

 

§13.4                 Disclosures.  The Lender and any Eligible Assignee may, in
connection with any proposed assignment (by such Lender) or participation (by
the Lender or the Eligible Assignee) pursuant to this §13, disclose to the
proposed Eligible Assignee or Participant any information in its possession
relating to the Borrower, provided that prior to any such disclosure, each such
Eligible Assignee or Participant or proposed Eligible Assignee or Participant
shall execute an agreement whereby such Eligible Assignee or Participant shall
agree (subject to customary exceptions) to preserve the confidentiality of any
confidential information relating to any the Borrower received from such
Participant.

 

§13.5                 Federal Reserve Bank.  The Lender, Eligible Assignee and
Participants may at any time pledge or assign all or any portion of their rights
under this Agreement to a Federal Reserve Bank.

 

§13.6                 Register; Note.

 

(a)                                  The Initial Lender agrees to act as agent
for the Borrower (the “Registration Agent”) and in that capacity to establish
and shall maintain at its address referred to in §14 a register (the “Lender
Register”) in which it shall record the name and address of each Lender
hereunder and the principal amount of the Loan owing to each Lender from time to
time.  The entries in the Lender Register shall be final and binding for all
purposes, absent manifest error, and the Borrower shall treat each Person whose
name is recorded in the Lender Register as a Lender for all purposes of the Loan
Documents.

 

(b)                                 Upon receipt of a completed Assignment and
Acceptance executed by an assigning Lender and an Eligible Assignee, together
with the Note or Note subject to such assignment, the Registration Agent shall
record the relevant information contained in the Assignment and Acceptance in
the Lender Register, and the Borrower (i) shall execute and deliver to the
Assignee in exchange for the surrendered Note or Note a new Note made payable to
the Assignee in an amount equal to the principal amount of the Loan acquired by
the Assignee, and (ii) if the assigning Lender assigned less than its entire
interest in the Loan, execute and deliver to the assigning Lender a new Note
made payable to the assigning Lender in an amount equal to the principal amount
of the Loan retained by the assigning Lender.  The sum of the principal amounts
of the new Note shall be equal to the aggregate outstanding principal amount of
the surrendered Note or Note.  The new Note or Note shall be dated the effective
date of such Assignment and Acceptance and shall otherwise be in substantially
the form of the surrendered Note or Note.

 

(c)                                  The Registration Agent may transfer its
obligations under this §13.6 to an Eligible Assignee in connection with the
assignment of all (but not less than all) of the Registration Agent’s interest
in the Loan in accordance with §13.2, in which event the Assignment and
Acceptance shall be amended or supplemented to effect such transfer of
obligations as Registration Agent.

 

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(d)                                 The Registration Agent agrees to follow the
reasonable requests of the Borrower with respect to the maintenance of the
Lender Register, provided that the Registration Agent shall not be required to
follow any such Borrower request if an Event of Default shall have occurred and
be continuing unless and until such Event of Default shall be cured or otherwise
cease to exist.

 

SECTION 14.                     NOTICES.

 

Except as otherwise specified herein, all notices and other communications made
or required to be given pursuant to this Agreement shall be in writing and shall
be delivered by hand, sent by facsimile, sent by overnight express courier
service or mailed by first-class mail, postage prepaid, addressed as follows (or
to such other address as any party may designate by notice to the other
parties):

 

If to the Lender:

 

Citizens Asset Finance, a d/b/a of Citizens Leasing Corporation

 

 

One Citizens Plaza

 

 

Mail Stop: RCE-150

 

 

Providence, RI 02903

 

 

Attention:

Team Leader

 

 

 

Direct Originations

 

 

FAX:

(401) 459-3171

 

 

 

With a copy to:

 

Citizens Asset Finance, a d/b/a of Citizens Leasing Corporation

 

 

One Citizens Plaza

 

 

Mail Stop: RCE-150

 

 

Providence, RI 02903

 

 

Attention:

David T. Miele, Esq.

 

 

FAX:

(401) 459-3171

 

 

 

With a copy to:

 

Day, Berry and Howard LLP

 

 

260 Franklin Street

 

 

Boston, Massachusetts 02110-3179

 

 

Attention:

William A. Hunter, Esq.

 

 

 

Britta L. Hyllengren, Esq.

 

 

FAX:

(617) 345-4745

 

 

 

If to the Borrower:

 

K-Sea Operating Partnership L.P.

 

 

3245 Richmond Terrace

 

 

Staten Island, New York 10303

 

 

Attention: Chief Financial Officer

 

 

Telephone: (718) 720-7207

 

 

Fax: (718) 720-4358

 

 

Email: jnicola@k-sea.com

 

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With a copy to:

 

Holland & Knight LLP

 

 

195 Broadway

 

 

New York, New York 10007

 

 

Attention: Christopher G. Kelly, Esq.

 

 

Phone: 212-513-3200

 

 

Fax: 212-385-9010

 

 

Email: ckelly@hklaw.com

 

Any notice so addressed and mailed by registered or certified mail shall be
deemed to have been given when mailed.

 

SECTION 15.                     ENTIRE AGREEMENT.

 

This Agreement and any other documents executed in connection herewith express
the entire understanding of the parties with respect to the transactions
contemplated hereby.  Neither this Agreement nor any term hereof may be changed,
waived, discharged or terminated orally or in writing, except as provided in
§16.

 

SECTION 16.                     CONSENTS, AMENDMENTS, WAIVERS, ETC.

 

Any provision of this Agreement or any other Loan Document may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed by
the Borrower and the Lender.

 

SECTION 17.                     SEVERABILITY.

 

Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

 

SECTION 18.                     SUBMISSION TO JURISDICTION; WAIVER.

 

EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY:

 

(a)                                  SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY
LEGAL ACTION OR PROCEEDING RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK LOCATED IN MANHATTAN AND COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE

 

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DISTRICT OF MASSACHUSETTS AND THE SOUTHERN DISTRICT OF NEW YORK AND APPELLATE
COURTS FROM ANY THEREOF.

 

(b)                                 CONSENTS THAT ANY SUCH ACTION OR PROCEEDING
MAY BE BROUGHT IN SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT
OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT FORUM AND
AGREES NOT TO PLEAD OR CLAIM THE SAME;

 

(c)                                  WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT AND AGREES THAT ALL SUCH SERVICE OF PROCESS IN ANY SUCH ACTION
OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO
THE BORROWER AT ITS ADDRESS SET FORTH IN §13 OR AT SUCH OTHER ADDRESS OF WHICH
THE LENDER SHALL HAVE BEEN NOTIFIED PURSUANT THERETO AND THAT SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE
BUSINESS DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO THEIR RESPECTIVE ADDRESS
AS SET FORTH IN §13;

 

(d)                                 WAIVES ANY BOND OR SECURITY WHICH MIGHT BE
REQUIRED BY ANY COURT PRIOR TO ALLOWING THE LENDER TO EXERCISE ANY REMEDIES SET
FORTH HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS; AND

 

(e)                                  AGREES THAT NOTHING HEREIN SHALL AFFECT THE
RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT OR OTHERWISE AFFECT THE RIGHT OF THE OTHER PARTY TO BRING ANY ACTION OR
PROCEEDING AGAINST THE OTHER PARTY OR ITS PROPERTY IN THE COURTS OF OTHER
JURISDICTIONS.

 

SECTION 19.                     WAIVER OF JURY TRIAL.

 

THE BORROWER AND THE LENDER HEREBY INTENTIONALLY AND VOLUNTARILY WAIVE ANY RIGHT
WHICH EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN CONNECTION WITH ANY MATTER
DIRECTLY OR INDIRECTLY RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. 
THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL
DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF
THE TRANSACTIONS DESCRIBED IN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS,
INCLUDING, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS.  THE BORROWER AND THE LENDER EACH ACKNOWLEDGE
THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT EACH HAS ALREADY RELIED ON THE WAIVER IN

 

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ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER
IN THEIR RELATED FUTURE DEALINGS.  THE BORROWER ACKNOWLEDGES THAT NEITHER THE
LENDER NOR ANY PERSON ACTING ON BEHALF OF THE LENDER HAS MADE ANY
REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY
MODIFY OR NULLIFY ITS EFFECT.  THE BORROWER FURTHER ACKNOWLEDGES THAT IT HAS
BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING
OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL,
SELECTED OF ITS OWN FREE WILL.  THIS WAIVER IS IRREVOCABLE, MEANING THAT IT
MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS.  IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

SECTION 20.                     MISCELLANEOUS.

 

THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN TITLE 14 OF ARTICLE 5 OF THE GENERAL
OBLIGATIONS LAW).  The rights and remedies herein expressed are cumulative and
not exclusive of any other rights which the Lender would otherwise have.  Any
instruments required by any of the provisions hereof to be in the form annexed
hereto as an exhibit shall be substantially in such form with such changes
therefrom, if any, as may be approved by the Lender.  This Agreement or any
amendment may be executed in separate counterparts, each of which when so
executed and delivered shall be an original, but all of which together shall
constitute one instrument.  In making proof of this Agreement, it shall not be
necessary to produce or account for more than one such counterpart signed by the
party against whom enforcement is sought.

 

47

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered by their proper and duly authorized officers as of the day and
year first above written.

 

 

K-SEA OPERATING PARTNERSHIP L.P.

 

 

 

By:

K-Sea OLP GP, LLC, its General Partner

 

 

 

 

 

By:

/s/ John J. Nicola

 

Name: John J. Nicola

 

Title: Chief Financial Officer

 

 

 

 

 

CITIZENS ASSET FINANCE, A D/B/A OF
CITIZENS LEASING CORPORATION

 

 

 

 

 

By:

/s/ John M. Young

 

Name: John M. Young

 

Title: Senior Vice President

 

Signature page to
Loan Agreement

 

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SCHEDULE 1

 

DESCRIPTION OF VESSELS

 

 

(1) Barge
Name:  DBL 28

Hull No. 496

 

(2) Barge
Name:  DBL 29

Hull No. 497

 

(3) Barge
Name:  DBL 78

Official Number: 1102126

 

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Exhibit A

 

Barge DBL 28

Official No.                     

Barge DBL 29

Official No.                     

Barge DBL 78

Official No.                     

 

TERM NOTE

 

$[                               ]

 

New York, New York

 

 

                         , 2006

 

FOR VALUE RECEIVED, the undersigned, K-SEA OPERATING PARTNERSHIP L.P., a
Delaware limited partnership (the “Borrower”), hereby absolutely and
unconditionally promises to pay in lawful money of the United States to CITIZENS
ASSET FINANCE, A D/B/A OF CITIZENS LEASING CORPORATION, a Rhode Island
corporation (the “Lender”), at One Citizens Plaza, Providence, Rhode Island
02903, or at such other place as Lender may from time to time designate in
writing, the principal amount of
[                                                                               ]
Dollars ($[                       ]), together with interest thereon from the
date hereof per annum, as follows:

 

(a)                                  The term of this Note is eighty-four (84)
months commencing on the date hereof;

 

(b)                                 The outstanding principal amount hereunder
shall bear interest payable at the LIBOR Loan Rate (as defined on Exhibit A
hereto) unless or until the interest rate shall have been converted to a fixed
rate as provided in Section 2.2(d) of the Loan Agreement dated
[                      ], 2005 between the Borrower and the Lender, as the same
may be amended, modified, supplemented or restated form time to time (the “Loan
Agreement”).  Interest shall be due and payable monthly in arrears, on the first
day of each month, commencing on [                  ], 2006, for the period
commencing on the first day of the immediately preceding month (or commencing on
the date hereof with respect to the first interest payment) and ending on and
including the last day of such month;

 

(c)                                  Eighty-four (84) consecutive monthly
payments of principal, each in the amount of $[                      ], shall be
due and payable on the first day of each month, commencing on
[                        ], 200  ; and

 

(d)                                 A final payment consisting of the entire
remaining principal balance of this Note, together with interest thereon in
arrears, shall be due and payable on [                      ], 2012.

 

This Note is the Note referred to in, evidences borrowings under and has been
issued by the Borrower in accordance with the terms of, the Loan Agreement.  The
Lender and any holder hereof shall be bound by and entitled to the benefits of
the Loan Agreement and may enforce the agreements of the Borrower contained
therein, and any holder may exercise the respective remedies provided for
thereby or otherwise available in respect thereof, all in accordance with

 

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

 

the terms thereof. All capitalized terms used in this Note and not otherwise
defined herein shall have the same meanings herein as in the Loan Agreement.

 

The Borrower has the right under certain circumstances and the obligation under
certain other circumstances to prepay in whole or part the principal of this
Note, together with accrued interest thereon, on the terms and conditions
specified in Section 2.3 of the Loan Agreement, provided that such prepayment
shall be accompanied by payment of the applicable Prepayment Premium, if any.

 

If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Note and all unpaid interest accrued hereunder may
become or be declared due and payable in the manner and with the effect provided
in Section 9.2 of the Loan Agreement. After the occurrence and during the
continuance of an Event of Default, the principal balance evidenced hereby shall
bear interest at the Default Rate as provided in the Loan Agreement and certain
other late charges may apply, all as provided in the Loan Agreement.

 

The Borrower hereby waives presentment, demand, notice, protest and all other
demands and notices in connection with the delivery acceptance, performance,
default or enforcement of this Note (except as otherwise specifically provided
in the Loan Agreement), assents to any extension of postponement of the time of
payment or any other indulgence, to any substitution, exchange or release of
collateral, and to the addition or release of any other party or person
primarily or secondarily liable.

 

This Note is secured by mortgage liens on and security interests in certain
assets of the Borrower pursuant to the terms of the Security Documents.

 

All of the provisions of this Note shall be binding upon and inure to the
benefit of the Borrower and the Lender and their respective successors and
assigns.

 

This Note is in registered form.  The Person whose name is recorded as the owner
of the Note in the Lender Register maintained by the Registration Agent shall be
treated as the owner of this Note for all purposes of the Loan Documents.  This
Note may be transferred only in accordance with the provisions of Sections 13.2
and 13.6 of the Loan Agreement.

 

THIS NOTE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN TITLE 14 OF ARTICLE 5 OF THE GENERAL
OBLIGATIONS LAW).

 

[This space intentionally left blank]

 

2

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

 

IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by its duly
authorized undersigned officer as of the date first written above.

 

 

 

 

K-SEA OPERATING PARTNERSHIP L.P.

 

 

 

 

 

 

 

 

By:

K-Sea OLP GP, LLC, its General Partner

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

John J. Nicola

 

 

 

Title:

Chief Financial Officer

 

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

 

Exhibit A

Defined Terms for
Term Note with LIBOR Pricing

 

For purposes of the Term Note to which this Exhibit A is attached, the following
terms shall have the following meanings:

 

“LIBOR Loan Rate” means a rate per annum equal to the LIBOR Rate plus 175 basis
points.

 

“LIBOR Rate” means relative to any one-month interest period, the offered rate
for delivery in two London Banking Days (as defined below) of deposits of U.S.
Dollars which the British Bankers Association fixes as its LIBOR rate as of
11:00 a.m. London time on the day on which such interest period commences, and
for a period approximately equal to such interest period.  If the first day of
any such interest period is not a day which is both a (i) Business Day, and
(ii) a day on which US dollar deposits are transacted in London interbank market
(a “London Banking Day”), the LIBOR Rate shall be determined in reference to the
next preceding day which is both a Business Day and a London Banking Day.  If
for any reason the LIBOR Rate is unavailable and/or the Lender is unable to
determine the LIBOR Rate for any such interest period, the LIBOR Rate shall be
deemed to be equal to the Federal Funds Rate plus 175 basis points.

 

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Exhibit B

 

FORM OF NOTICE OF BORROWING
(§2.1)

 

To:                              Citizens Asset Finance, a d/b/a of

Citizens Leasing Corporation

One Citizens Plaza, Mail Stop RCE-150

Providence, Rhode Island 02903

 

Reference is hereby made to the Loan Agreement, dated as of [               ],
2005 (as amended, modified or supplemented from time to time, the “Loan
Agreement”) by and among K-Sea Operating Partnership L.P., a Delaware limited
partnership (the “Borrower”), and Citizens Asset Finance, a d/b/a of Citizens
Leasing Corporation, a Rhode Island corporation (the “Lender”).  Capitalized
terms used but not defined herein shall have the respective meanings therefor
set forth in the Loan Agreement.

 

The Borrower hereby confirms its request for an Advance in the following amount
and with the following Advance date:

 

Advance
Date(1)

 

Amount

 

 

 

$

11,557,100

 

 

The Borrower hereby certifies, (a) that the representations and warranties of
the Borrower set forth in § 3 of the Loan Agreement and in the other Loan
Documents were true and correct when made and are true and correct at and as of
the date hereof with the same effect as if made herein; (b) that the Borrower
has performed and complied with all terms and conditions of the Loan Documents
required to be performed and complied with by it on or before the Advance Date
and as of the date hereof; and (c) no Default or Event of Default exists under
the Loan Agreement or any other Loan Document, nor shall the making of the
requested Advance result in a Default or Event of Default.

 

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

(1) At least three (3) Business Days after date hereof or of telephonic notice.

 

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

 

Please distribute by wire transfer the proceeds of the Advance as follows:

 

$10,000,000

 

[EMI wire transfer restrictions to come]

 

 

 

$1,557,100 to:

 

JP Morgan Chase Bank
ABA #021000021
A/C Name – K-Sea Transportation, Inc.

A/C # 530389509

 

 

Dated the       day of             , 2005.

 

K-SEA OPERATING PARTNERSHIP L.P.

 

 

 

By: K-Sea OLP GP, LLC, its General Partner

 

 

 

 

 

By:

 

 

 

Name: John J. Nicola

 

 

Title: Chief Financial Officer

 

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

 

Exhibit C

 

[Vessel Name]

 

FIRST PREFERRED SHIP MORTGAGE

 

THIS FIRST PREFERRED SHIP MORTGAGE (this “Mortgage”) made as of the          day
of                            , 2005, by and between K-SEA OPERATING PARTNERSHIP
L.P., a limited partnership organized and existing under the laws of the State
of Delaware, with an address at 3245 Richmond Terrace, Staten Island, New York,
10303(the “Mortgagor”), and CITIZENS ASSET FINANCE, A D/B/A OF CITIZENS LEASING
CORPORATION (the “Mortgagee”), a Rhode Island corporation organized and existing
under the laws of the State of Rhode Island with an office at One Citizens
Plaza, Providence, Rhode Island, 02903.

 

WHEREAS:

 

(a)                                  The Mortgagor is the sole owner (100%) of
the whole of the vessel [insert name]               , Official
No.                 ,                     domestic gross tons
(                    international gross tons); duly documented in the name of
the Mortgagor under the laws and flag of the United States of America at the
National Vessel Documentation Center (“NVDC”), having its hailing port at New
York, New York;

 

(b)                                 Pursuant to the terms and conditions of a
Loan Agreement dated as of June    , 2005, between the Mortgagor and the
Mortgagee (as the same may be amended, supplemented, or modified from time to
time, the “Loan Agreement”), the Mortgagee has, at Mortgagor’s request, agreed
to make loan advances to the Mortgagor in the aggregate principal amount of up
to $18,000,000 (the “Loan”).  The principal amount of $                  has
been advanced to the Mortgagor on or before the date hereof.  The entire
proceeds of the Loan shall be used by the Mortgagor to finance the construction
of two United States flag vessels, and to finance the acquisition by the
Borrower of a third United States flag vessel, including the Vessel (as defined
below).  The obligations of the Mortgagor with respect to the Loan are evidenced
by the Loan Agreement and by a term promissory note (the “Note”) (as defined in
the Loan Agreement), to be dated as of the Advance Termination Date (as defined
in the Loan Agreement), and are secured by this Mortgage and the other Security
Documents (as defined in the Loan Agreement).  The form of the Loan Agreement is
attached hereto as Exhibit 1 (together with the form of the Note attached
thereto) and is hereby made a part hereof as though set forth fully herein;

 

(c)                                  Terms used herein and not otherwise defined
herein are used as defined in, or by reference in, the Loan Agreement.

 

To secure, among other things, the payment of principal, fees and other amounts
from time to time due to the Mortgagee, and the payment of all other sums that
hereafter may be secured by this Mortgage and the other Loan Documents in
accordance with the terms hereof, and to secure the performance and observance
of, and compliance with, all of the agreements, covenants and conditions of this
Mortgage, the Mortgagor has duly authorized the execution and delivery of this
First Preferred Ship Mortgage.

 

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

 

NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and adequacy whereof is duly acknowledged, and in
order to secure the payment and performance of (i) all Obligations, undertakings
and liabilities of Mortgagor, now existing or hereafter incurred, under, arising
out of, or in connection with the Loan Agreement and the other Loan Documents;
(ii) the unpaid principal amount of, and accrued interest on, the Note;
(iii) all obligations, undertakings and liabilities of Mortgagor now existing or
hereafter incurred, under, arising out of or in connection with this Mortgage;
and (iv) any and all other present and future indebtedness, obligations,
undertakings and liabilities of any kind whatsoever of Mortgagor to Mortgagee in
connection with the Loan Agreement and the other Loan Documents or from time to
time reduced and thereafter increased, and to secure the performance of all the
covenants and conditions herein contained (all the foregoing included within the
meaning of Obligations, as defined in the Loan Agreement), the Mortgagor by
these presents does grant, bargain, sell, convey, transfer, mortgage, set over
and confirm unto the Mortgagee all of the following described property:

 

The whole of the certain vessel called: 

 

Name: [                                  ]

Official Number: [                                  ]

 

together with all its engines, boilers, machinery, masts, rigging, boats,
anchors, chains, cables, tackle, apparel, furniture, equipment, and all other
appurtenances thereunto belonging, and any and all additions, improvements and
replacements hereafter made in, on or to the said vessel or any part thereof;
and in, on or to its equipment and appurtenances aforesaid, all the foregoing
being hereinafter referred to as the “Vessel.”

 

TO HAVE AND TO HOLD the Vessel unto the Mortgagee forever:

 

PROVIDED ALWAYS, and the condition of these presents is such, that if the
Mortgagor and its successors and assigns shall pay, or cause to be paid, to the
Mortgagee the Obligations aforesaid, as and when the same shall become due and
payable by maturity or otherwise, and shall pay any and all advances hereafter
made or expended by the Mortgagee to the Mortgagor for the maintenance, repairs,
preservation or insurance of the Vessel or any part thereof and shall keep,
perform and observe all the covenants and promises in these presents expressed
or implied to be kept, performed and observed by or on the part of the
Mortgagor, then this Mortgage and the estate and rights hereby granted shall
cease, determine and be void; otherwise to remain in full force and effect.

 

The Mortgagor hereby covenants and agrees that the Vessel and all replacements
hereafter made in or to the same is to be held by the Mortgagee subject to the
further covenants, conditions and uses hereinafter set forth as follows:

 

2

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ARTICLE I

REPRESENTATIONS, WARRANTIES
AND COVENANTS OF MORTGAGOR

 

THE MORTGAGOR HEREBY COVENANTS AND AGREES THAT:

 

Section 1.1   Citizenship; Title.  Mortgagor is and shall continue to be a
citizen of the United States as defined in Section 2 of the Shipping Act of
1916, as amended, entitled to own and operate the Vessel under its Certificate
of Documentation, which Mortgagor shall maintain in full force and effect, and
is duly qualified to engage in the coastwise trade.  The Mortgagor lawfully owns
and is lawfully possessed of the Vessel, and covenants and warrants that the
same is free from any mortgage, security interest, Lien, charge or encumbrance
whatsoever other than Permitted Liens, and that the Mortgagor will warrant and
defend the title and possession thereto and every part thereof for the benefit
of the Mortgagee against the claims and demands of all persons whomsoever.

 

Section 1.2   U.S. Code, Tit. 46, Ch. 313.  The Mortgagor will, at its expense
and at no cost to the Mortgagee, comply with and satisfy all the provisions of
the U.S. Code, Tit. 46, Ch. 313, as amended, in order to establish, record and
maintain this Mortgage as a First Preferred Ship Mortgage thereunder upon the
Vessel, and will do all such other acts and execute all such instruments, deeds,
conveyances, mortgages and assurances as the Mortgagee shall reasonably require
in order to subject the Vessel to the lien of this Mortgage as aforesaid.

 

Section 1.3   Liens.  Neither the Mortgagor, any charterer, the master of the
Vessel nor any other person has or shall have any right, power or authority to
create, incur or permit to be placed or imposed or continued upon the Vessel,
its freights, profits or hires, any Lien, security interest, encumbrances or
charge whatsoever other than Permitted Liens.  Mortgagor agrees to hold a
certified copy of this Mortgage in safekeeping with the Vessel’s papers with the
Vessel’s Certificate of Documentation and at the principal office of Mortgagor
and on demand to exhibit the same to any person having business with such
Vessel, or to any representative of Mortgagee.  Mortgagor shall also place and
cause to be displayed in a prominent place and in a durable manner with the
Vessel’s Certificate of Documentation 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, reading as follows:

 

NOTICE OF MORTGAGE

 

This vessel is owned by K-Sea Operating Partnership L.P. and is covered by a
First Preferred Ship Mortgage under Chapter 313 of Title 46 of the United States
Code, as amended, in favor of Citizens Asset Finance, a d/b/a of Citizens
Leasing Corporation, as Mortgagee.  Under the terms of said Mortgage, neither
the owner of this Vessel, nor anyone on the owner’s behalf, nor the master of
this Vessel has any right, power or authority to create, incur or permit to be
imposed upon the Vessel any liens, maritime or otherwise other than liens for
wages of the crew or the master of

 

3

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this Vessel arising from the current voyage, for wages of stevedores when
employed directly by the Vessel, or for general average or salvage.

 

Such notice shall be amended at the sole cost and expense of Mortgagor, upon
request of Mortgagee, to reflect the identity of any successor Mortgagee.

 

Section 1.4   Removal of Liens.  The Mortgagor will not suffer to be continued
any Lien, encumbrance or charge on the Vessel other than this Mortgage and
Permitted Liens, and in due course and in any event within thirty (30) days
after the same shall become due and payable, will pay or caused to be discharged
or make adequate provisions for the satisfaction or discharge of all claims or
demands secured by any Lien, charge or encumbrance (including Permitted Liens)
on the Vessel and will cause such Vessel to be released or discharged from any
such Lien, encumbrance or charge thereon.  After an Event of Default shall have
occurred and be continuing, the Mortgagee may elect to take such actions as it
reasonably deems necessary to pay or cause to be paid, discharge, settle,
compromise or satisfy any such Liens, claims, or encumbrances.

 

Section 1.5   Libel or Attachment.  If a libel shall be filed against the
Vessel, or if the Vessel shall be levied upon or taken into custody, or detained
by any proceeding in any court or tribunal, the Mortgagor will within fifteen
(15) days thereafter cause such Vessel to be released, and any Lien thereon,
other than this Mortgage, to be discharged.  In the event a libel is filed
against the Vessel, or in the event the Vessel is levied upon or taken into
custody or detained by any authority whatsoever, the Mortgagor shall notify the
Mortgagee forthwith by facsimile or telegram, confirmed by overnight letter as
provided in the Loan Agreement.

 

Section 1.6   Maintenance of Vessel.  At all times, at the Mortgagor’s own cost
and expense, the Mortgagor will maintain and preserve the Vessel in as good
condition, working order and repair as on the date of this Mortgage, so that the
Vessel shall be tight, staunch, strong and well and sufficiently tackled,
appareled, furnished, equipped and in every respect seaworthy and in good order
and operating condition, ordinary wear and tear excepted.  The Mortgagor will
comply with and cause the Vessel to comply with all applicable United States
Coast Guard regulations.  The Mortgagor shall cause the Vessel to be drydocked,
cleaned and painted whenever required by good commercial marine maintenance
practice and the requirements of any insurance policy or entries respecting the
Vessel.  All maintenance and repairs will be made in a good and workmanlike
manner by persons of appropriate skill and experience whose work will not
adversely affect the service life or marketability of the Vessel.  All repairs,
parts, mechanisms, devices, replacements, improvements, changes, additions and
alterations to the Vessel shall immediately and without further act, become part
of such Vessel and subject to this Mortgage.  The Mortgagor shall promptly
furnish to the Mortgagee copies of each damage survey with respect to damage to
the Vessel where the survey does not specifically quantify the cost of total
damages or where the survey states total damage in excess of $500,000.00. 
Mortgagor shall afford Mortgagee or their authorized representatives reasonable
access to the Vessel for the purpose of inspecting the same, her cargoes and
ship’s papers.

 

4

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Section 1.7   Changes in Vessel.  The Mortgagor will not make, or permit to be
made, any material change in the structure or type of the Vessel or in its rig,
unless it shall have received the prior written consent thereto of the
Mortgagee.

 

Section 1.8   Governmental Assessments.  The Mortgagor will pay and discharge
when due and payable from time to time all taxes, assessments, governmental
charges, fines and penalties imposed on the Vessel except those being contested
in good faith by the Mortgagor and for which adequate reserves have been made.

 

Section 1.9   Reimbursement.  The Mortgagor will reimburse the Mortgagee
promptly for any and all expenditures which the Mortgagee may elect to make from
time to time to protect the security granted hereunder (in the event of the
Mortgagor’s failure to do so), including payment of taxes, repairs, insurance
premiums, the discharge of any lien, libel or seizure of the Vessel, and
expenses, including reasonable attorney’s fees, incurred by the Mortgagee in
retaking or selling the Vessel; and any such payment made by the Mortgagee shall
be for the account of the Mortgagor, and the making thereof by the Mortgagee
shall not cure the Mortgagor’s Default in that regard nor constitute a waiver of
any right or remedy granted to the Mortgagee hereunder, and all sums so expended
by the Mortgagee or any liability incurred by them shall be deemed to be an
indebtedness of the Mortgagor and secured by this Mortgage, and until paid shall
bear interest at the Default Rate.

 

Section 1.10   Sale or Other Disposition of Vessel.

 

(a)  The Mortgagor will not sell, mortgage, nor transfer the title to the Vessel
without the written consent of the Mortgagee first having been obtained, except
where accompanied by a simultaneous prepayment of the Obligations made in
accordance with §2.3(b) of the Loan Agreement.  Any such sale, mortgage, or
transfer, or any charter of the Vessel shall be subject to the provisions of
this Mortgage and to the lien it creates.  The Mortgagor will not charter the
Vessel to, or permit any Vessel to serve under any contract of affreightment
with, a person included within the definition of designated foreign country or a
national of a designated foreign country in the foreign Assets Control
Regulations or Cuban Assets Control Regulations of the United States Treasury
Department, 31 C.F.R. Chapter V, as amended, within the meaning of said
regulations or of any regulation, interpretation or ruling issued thereunder.

 

(b)  Mortgagor shall not enter into any bareboat or demise charter respecting
the Vessel with any entity without (i) obtaining the prior written consent of
the Mortgagee, which consent shall not be withheld unreasonably, (ii) providing
Mortgagee a copy thereof and (iii) without first obtaining the written agreement
of such charterer in each case to the collateral assignment by Mortgagor to
Mortgagee of a first priority lien and security interest in the charter hire and
earnings of such charter, such consent to be in form reasonably acceptable to
Mortgagee.  Mortgagor undertakes and covenants that any such charter shall
contain a provision prohibiting the charterer and any other persons from
incurring or acquiring any lien on any Vessel.

 

Section 1.11   Insurance.

 

(a)  Hull and Machinery Insurance. At the Mortgagor’s own expense, so long as
the Obligations remain in any part outstanding, the Mortgagor shall maintain or
cause to be

 

5

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maintained insurance with financially sound and reputable underwriters and
through responsible brokers, all in good standing and satisfactory to the
Mortgagee, fully and adequately protecting the Vessel and the Mortgagee’s
interest therein in at least such amounts and against such risks as are usually
insured against in the same general area as that in which the Mortgagor is
located and by companies engaged in the same or similar businesses, and in any
case, in such amounts as the Lender shall require, against all marine perils and
disasters and all hazards, risks and liabilities in any wise arising out of the
ownership, operation or maintenance of said Vessel, including insurance as
follows:

 

(i)                                     Hull and machinery insurance and if
necessary to satisfy the proviso of this subparagraph, policies of increased
value insurance, and war risk hull and machinery insurance on an agreed value
basis on the Vessel against loss, damage, fire and covering confiscation,
expropriation, nationalization, and seizure (if operating outside U.S. or
Canadian coastal waters) and covering such other perils and in such amounts as
are maintained on vessels engaged in the same or a similar business under
blanket fleet policies with respect to vessels of like size, character and
marine activity; provided, however, that, in no event shall the amount of such
insurance, subject to such deductible, if any, as permitted by Mortgagee, at any
time be less than the full commercial value of the Vessel.

 

(ii)                                  In the event of (A) the actual or
constructive loss of the Vessel, (B) any event referred to in Section 1.12
hereof with respect to the Vessel, or (C) any casualty, accident or damage to
the Vessel in excess of $500,000.00, the Mortgagor will give written notice
thereof (containing full particulars), within three business days of the
occurrence thereof, to the Mortgagee.

 

(b)  Protection and Indemnity Insurance.  Protection and indemnity insurance
maintained with financially sound and reputable insurers or protection and
indemnity associations and policies of protection and indemnity war risk
insurance protecting the interests of Mortgagor, and Mortgagee, against
liability for property damage to third persons (including liability to any
governmental authority or other person with respect to pollution liability) and
personal injury or death to any person arising out of the maintenance, use,
operation and ownership of the Vessel, cargo damage or loss, contractual
liability and wreck removal, tower’s liability, crew liability, collision
liability and pollution liability in such amounts as are usually carried by
persons engaged in the same or similar businesses; provided, however, that in no
event shall the amount of such insurance per person and per occurrence (subject
to such deductible, reasonably acceptable to the Mortgagee) be less than the
customary amount of cover available on the market from time to time with respect
to vessels of the same type, age and trade as the Vessel.  Such liability
insurance shall name each of the Mortgagor, Mortgagee, and other interested
persons as insureds (or in the case of the Mortgagee as co-insureds), as their
respective interests may appear, but the proceeds of such policies shall be
payable to the Person actually suffering the loss in respect of which such
proceeds are payable; provided, however, that if Mortgagee shall have first
notified the underwriters or brokers that a Mortgage Event of Default hereunder
has occurred then all such proceeds otherwise payable to the Mortgagor shall be
thereafter payable to Mortgagee for distribution to itself and others as their
interests may appear as hereinafter set forth.

 

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(c)  Deductibles. Unless a Mortgage Event of Default hereunder shall have
occurred, or is continuing hereunder, Mortgagee consents to (a) a deductible of
$250,000.00 for Hull and Machinery or Protection and Indemnity coverages, not to
exceed $250,000.00 for any single occurrence, subject also to (b) a
$1,000,000.00 annual aggregate fleet deductible for all of Mortgagor’s vessels
applied on a fleet wide basis.

 

(d)  Port Risk Insurance. Mortgagor shall maintain or cause to be maintained
when and while the Vessel is laid up, and in lieu of the aforesaid navigating
hull insurance referred to in Section 1.11(a)(i) of this section, port risk
insurance under forms of port risk policies approved by the Mortgagee.

 

(e)  Employers Liability Insurance.  Mortgagor shall maintain or cause to be
maintained employers liability insurance, including workmen’s compensation for
any state in or from which the Vessel shall operate and also coverage under the
Longshore and Harbor Workers’ Compensation Act, the Jones Act, and for such
other rights of seamen as may give rise to employers’ liability.

 

(f)  Pollution Insurance. Mortgagor shall maintain or cause to be maintained
pollution insurance in amounts adequate to obtain and maintain Federal
Certificates of Financial Responsibility for Pollution Liability, and such
additional coverage for the Vessel in respect of pollution liability as from
time to time may be required by law now or hereafter in effect or customary
among owners of similar vessels engaged in trade in the United States.

 

(g)  Continuation of Insurance Coverages.

 

(i)                                     The Mortgagor expressly covenants and
agrees to keep the policies renewed from time to time, to keep the same valid at
all times for the amounts aforesaid, and to keep the premiums thereon fully paid
at all times.  The Mortgagor shall not do any act nor voluntarily suffer or
permit any act to be done whereby insurance is or may be suspended, impaired or
defeated, and shall not suffer nor permit the Vessel to engage in any voyage or
to carry any cargo not permitted under the policy or policies of insurance in
effect, unless and until the Mortgagor shall first cover the Vessel to the
amount herein provided for by insurance satisfactory to the Mortgagee for such
voyage or for the carriage of such cargo.

 

(ii)                                  In the event the Mortgagor fails to
procure any of the insurance hereinabove mentioned, or fails to perform any of
the covenants and agreements contained herein, the Mortgagee may, but shall be
under no duty to, procure such insurance or coverage as Mortgagee may reasonably
deem advisable in the premises.  The Mortgagor shall reimburse the Mortgagee on
demand, with interest at the Default Rate for any and all expenditures which the
Mortgagee may from time to time make, lay out or expend in providing protection
in respect of insurance.  Such obligation of the Mortgagor to reimburse the
Mortgagee, together with interest as provided above, shall be an additional
indebtedness due from the Mortgagor, secured by this Mortgage, and shall be
payable by the Mortgagor on demand.  The Mortgagee, though privileged so to do,
shall be under

 

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no obligation to the Mortgagor or to any other person to make any such
expenditures, nor shall the making thereof relieve the Mortgagor of any Default
in that respect.

 

(h)  Mortgagee as Additional Insured and Loss Payee. All insurance policies
covering the Vessel shall provide, during any period which the Mortgagee holds a
mortgage on the Vessel, that the Mortgagee shall be an additional assured
(co-insured in respect of liability insurance) and loss payee, as applicable,
under to the insurances required by this Section 1.11.

 

(i)  Insurance Proceeds, Partial Loss.  The proceeds of any such insurance
recoveries shall be applied 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 agreed or compromised total loss of the
Vessel, (i) all amounts up to $500,000.00 may be paid to Mortgagor for the
purpose of repairing any damage which may have resulted from the accident,
occurrence or event so long as no Mortgage Event of Default has occurred, or
(ii) with respect to amounts of $500,000.00 or greater or with respect to any
amount if a Mortgage Event of Default has occurred, the Mortgagee may, in its
discretion, if a written request therefor shall have been made by the Mortgagor,
apply the proceeds of insurance to pay for repairs, liabilities, salvage or
other charges and expenses (including labor charges due or paid by the
Mortgagor), covered by the policies, or to the extent that the Mortgagor shall
have repaired the damage and paid the cost thereof or discharged or paid such
liabilities, salvage claims or other charges and expenses (such fact having been
certified to in a certificate of an officer of the Mortgagor (an “Officer’s
Certificate”) delivered to the Mortgagee, accompanied by written confirmation by
the underwriter, a surveyor, an adjuster or a marine insurance broker), apply
the proceeds of insurance to reimburse, or consent that the underwriters
reimburse, the Mortgagor therefor, and (after all known damage with respect to
the particular loss shall have been repaired, except to the extent the Mortgagor
and the Mortgagee agree that said repair is 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, such fact having been
certified to by an Officer’s Certificate delivered to the Mortgagee, accompanied
by a written confirmation by the underwriter, a surveyor, an adjuster or a
marine insurance broker), pay, or consent that the underwriters pay, any balance
of the proceeds of insurance to the Mortgagee for application to the Obligations
as provided in §2.3(b) of the Loan Agreement, and the excess, if any, paid to
the Mortgagor.

 

(j)  Constructive Total Loss.  In the event of an accident, occurrence or event
resulting in a constructive total loss of the Vessel, the Mortgagor shall have
the right to claim a constructive total loss of such Vessel and if both (i) 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 (ii) payment in full
is made in cash under such policies and applied to repay all outstanding
Obligations in accordance with Section 2.3(b) of the Loan Agreement, then the
Mortgagor shall have the right at its election, to abandon such Vessel to the
underwriters under such policies, free from the lien of this Mortgage.

 

(k)  Agreed or Compromised Total Loss.  In the event of an accident, occurrence
or event of damage to the Vessel, the Mortgagor with consent of the Mortgagee,
which shall not be withheld unreasonably, shall have the right in its discretion
to enter into an agreement or compromise with underwriters providing for an
agreed or compromised total loss of such Vessel.

 

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(l)  Carriers; Approvals.  All insurance required under this Section shall be
placed and kept with American, British, or other insurance companies,
underwriters’ associations, clubs or underwriting funds approved by the
Mortgagee.  Any approval of a policy under this Section 1.11 shall be effective
until the end of the policy period or until thirty (30) days after the Mortgagee
shall notify the Mortgagor of a desired change (consistent with the terms hereof
except as set forth in the next following sentence) in the form and/or amount
thereof, whichever shall first occur.  Notwithstanding the foregoing, Mortgagee
may require changes on shorter notice if such changes are necessary or desirable
to comply with requirements of or insure against liabilities created or
increased by any change, modification, amendment in the law (including judicial
or administrative decisions), regulations, rules, policies or practices of the
United States government or the government of any state, territory, or
possession thereof or of any other place where the Vessel may be operating or
whose laws may apply.

 

(m)  Additional Provisions.  All insurance required under this Section 1.11
shall, unless otherwise first agreed in writing by the Mortgagee, provide that
(i) there shall be no recourse against the Mortgagee for the payment of
premiums, supplemental or back calls or commissions, (ii) at least thirty (30)
days’ (fourteen days with respect to matters covered in the protection and
indemnity coverage and seven (7) days in the case of war risk) prior written
notice of any cancellation, reduction in amount or change in coverage or other
material change of such insurance shall be given to the Lender by the insurance
underwriters, (iii) no insurance shall be excess over other coverage but shall
be primary insurance and shall not require any contribution from any excess
insurance on the Vessel which may be carried by Mortgagee without interferring
with the Mortgagor’s insurance coverage, and (iv) the insurers agree to advise
Mortgagee promptly in writing of any default in the payment of any premium and
of any other act or omission of which such insurer has knowledge which might
invalidate or render unenforceable, in whole or in part, any such policy.  The
policies shall provide for severability of interest as through separate policies
were issued to each additional insured except with respect to the limits of
liability.

 

(n)  Reports.  Prior to the date hereof and upon renewal or replacement of each
policy or entry thereafter, Mortgagor shall furnish to the Mortgagee a report by
a nationally recognized first-class marine insurance broker acceptable to the
Mortgagee, describing in reasonable detail the insurance then carried and
maintained on and with respect to the Vessel and certifying that such insurance
complies with the terms hereof.  Mortgagor shall obtain for the benefit of
Mortgagee the undertaking of Mortgagor’s insurance agent or broker to promptly
advise the Mortgagee in writing of any act or omission of which such agent or
broker has knowledge which might invalidate or render unenforceable, in whole or
in part, any such policy.

 

Section 1.12   Requisition.

 

(a)  Title.  In the event that the title or ownership of the Vessel shall be
requisitioned, purchased or taken by any government of any country or any
present or future law, proclamation, decree, order or otherwise, the lien of
this Mortgage shall be deemed to have attached to the claim for compensation and
the Mortgagor agrees that it will turn over to the Mortgagee, immediately upon
receipt, the compensation, purchase price, reimbursement or award for such
requisition, purchase or other taking of such title or ownership and all of the
foregoing shall be payable to the Mortgagee, who shall be entitled to receive
the same and shall apply it as provided

 

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in Section 2.3(b) of the Loan Agreement.  In the event of any such requisition,
purchase or taking, the Mortgagor shall promptly execute and deliver to the
Mortgagee such documents, if any, and shall promptly do and perform such acts,
if any as in the reasonable opinion of the Mortgagee may be necessary or useful
to facilitate or expedite the collection by the Mortgagee of such compensation,
purchase price, reimbursement or award.

 

(b)  Requisition of Use.  In the event that any government of any country or any
department, agency or representative thereof shall not take over the title or
ownership of the Vessel but shall requisition, charter or in any manner take
over the use of such Vessel pursuant to any present or future law, proclamation,
decree, order or otherwise and shall, as a result of such requisitioning,
chartering or taking of the use of the Vessel, pay or become liable to pay sums
by reason of the loss of or injury to or depreciation of the Vessel, and, if a
Mortgage Event of Default shall have occurred and be continuing, any such sum is
hereby made payable to the Mortgagee, who shall be entitled to receive the same
and shall apply it as provided in the Loan Agreement.  In the event of any such
requisitioning, chartering or taking of the use of the Vessel, the Mortgagor
shall promptly execute and deliver to the Mortgagee such documents, if any, and
shall promptly do and perform such acts, if any, as in the reasonable opinion of
the Mortgagee may be necessary or useful to facilitate or expedite the
collection by the Mortgagee of such claims arising out of the requisitioning,
chartering or taking of the use of the Vessel as provided hereinabove.

 

ARTICLE II

DEFAULT; REMEDIES UPON DEFAULT

 

Section 2.1   Mortgage Events of Default. Mortgagor shall be in default
hereunder upon the happening of any one or all of the following events or
conditions (each a “Mortgage Event of Default”):

 

(a)  An Event of Default (as defined in the Loan Agreement); or

 

(b)  Failure by the Mortgagor to observe or perform any covenant or agreement
contained in Sections 1.1, 1.2, 1.7, 1.10(a) or 1.11(a) through (f)(inclusive);

 

(c)  Failure by the Mortgagor to observe or perform any covenant or agreement in
this Mortgage (other than those referred to in the foregoing paragraph (b) and
such failure shall not have been remedied within thirty (30) days after written
notice thereof shall have been given to the Mortgagor by the Mortgagee);

 

(d)  The breach in any material respect of any warranty, or the falsity of any
material representation or statement made or furnished to the Mortgagee by or on
behalf of the Mortgagor; or

 

(e)  If Mortgagor or any charterer shall abandon the Vessel or the remove or
attempt to remove the Vessel beyond the limits of the United States except on a
voyage with the intention of returning to the United States; or

 

(f)  Dissolution of the Mortgagor.

 

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Section 2.2   Remedies.  Upon the occurrence of a Mortgage Event of Default the
Mortgagee may pursue any or all of the following remedies:

 

(a)  Demand.  Declare all obligations secured hereby to be immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived;

 

(b)  Remedies.  Exercise all the rights and remedies in foreclosure and
otherwise given to mortgagees by the provisions of Chapter 313 of Title 46,
United States Code, as amended, or other applicable law including the laws of
any other applicable jurisdiction;

 

(c)  Enforcement.  Bring suit at law, in equity or in admiralty, as appropriate,
to receive judgment for any and all amounts due hereunder, and collect the same
out of any and all property of the Mortgagor whether covered by this Mortgage or
otherwise, or initiate and prosecute such other judicial, extra-judicial, or
administrative proceedings as it may consider appropriate to recover any and all
sums due, or declared due, on the Note, and all other Obligations due, with the
right to enforce payment of said sums against any assets of the Mortgagor,
whether they are covered by this Mortgage or otherwise;

 

(d)  Possession.  Retake the Vessel with or without legal process wherever the
same may be found, and the Mortgagor or other person in possession forthwith
shall upon demand of the Mortgagee shall surrender to the Mortgagee possession
of the Vessel, and, the Mortgagee may hold, lay-up, or (if authorized to do so
by the Vessel’s certificate of documentation) lease, charter, operate, or
otherwise use the Vessel for such time and upon such terms as it may deem to be
for its best advantage, accounting for the net profits, if any, arising from
such use of the Vessel as set forth in Section 2.3, below; and if at any time
the Mortgagee shall avail itself of the right herein given it to retake the
Vessel and shall retake it, the Mortgagee shall have the right to dock the
Vessel for a reasonable time at any dock, pier or other premises of the
Mortgagor without charge, or to dock it at any other place at the cost and
expense of the Mortgagor;

 

(e)  Sale.  Sell the Vessel upon such terms and conditions as it may specify, at
public or private sale, by sealed bids or otherwise, on such terms and
conditions as the Mortgagee deems best, free of any claim, commitment or
encumbrance, regardless of the nature thereof, in favor of the Mortgagor and
except as provided by law, in favor of any other person.  If a public sale is to
be used, the Mortgagee shall first give advance notice of ten (10) consecutive
days published in any newspaper authorized to publish legal notices of that kind
in the port of documentation and the places of sale of such Vessel and shall
send notice of each such sale at least fourteen (14) days prior to the date
fixed for such sale to the Mortgagor pursuant to §14 of the Loan Agreement.  In
the event that the Vessel shall be offered for sale by private sale, no
newspaper publication of notice shall be required nor notice of adjournment of
sale.  Sale may be held at such place and at such time as the Mortgagee by
notice may have specified, or may be adjourned by the Mortgagee from time to
time by announcement at the time and place appointed for such sale or for such
adjourned sale, and, without further notice or publication, the Mortgagee may
make any such sale at the time and place to which the same shall be so
adjourned; and any sale may be conducted without bringing the Vessel to the
place designated for such sale and in such manner as the Mortgagee deems, and
the Mortgagee may become the purchaser at any public sale, and shall have the
right to credit on the purchase price any and all sums of money due to the

 

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Mortgagee under the Note and the Loan Agreement, or otherwise due to the
Mortgagee hereunder or under the Loan Agreement or any other Loan Document, or
under any other instrument evidencing any Obligations.

 

(f)  Finality of Sale.  A sale of the Vessel made pursuant to this Mortgage,
whether under the power of sale hereby granted or any judicial proceedings,
shall operate to divest all right, title and interest of any nature whatsoever
of the Mortgagor therein and thereto, and shall bar the Mortgagor, its
successors and assigns, and all persons claiming by, through or under them.  No
purchaser shall be bound to inquire whether notice has been given or whether any
Default has occurred, or as to the propriety of the sale, or as to application
of the proceeds thereof.  In case of any such sale, any purchaser who is the
holder of this Mortgage shall be entitled, for the purpose of making settlement
or payment for the Vessel, to apply the balance due under this Mortgage or a
part thereof as part or all of the purchase price to the extent of the amount
remaining due and unpaid.  At any such sale, the holder of this Mortgage may bid
for and purchase the Vessel and upon compliance with the terms of sale may hold,
retain and dispose of the Vessel without further accountability.

 

(g)  Appointment of Attorney.  The Mortgagor does hereby irrevocably appoint the
Mortgagee the true and lawful attorney of the Mortgagor, in Mortgagor’s name and
stead to make all necessary transfers of the Vessel and to execute all necessary
instruments of assignment and transfer, the Mortgagor hereby ratifying and
confirming all that said attorney shall lawfully do by virtue hereof. 
Nevertheless, the Mortgagor shall, if so requested by the Mortgagee, ratify and
confirm such sale by executing and delivering to the purchaser of the Vessel
such proper bill of sale, conveyance, instrument of transfer and releases as may
be designated in such request.

 

(h)  Coastwise Qualification.  Notwithstanding anything to the contrary
contained in this Section 2.2, the Mortgagee shall not exercise any of the
remedies set forth above in this Section 2.2 or any other remedies available
under applicable law if the exercise of such remedies shall invalidate the
qualification of the Vessel to operate in the United States coastwise trade.

 

Section 2.3   Disposition of Proceeds of Sale.  After an Event of Default shall
have occurred and be continuing, the proceeds of any sale of the Vessel (after
paying or deducting in the case of sale under any judicial proceedings the fees,
costs and other charges therein), and the net earnings from any management,
charter or other use of the Vessel by Mortgagee under any of the powers above
specified, and the proceeds of any claim for damages on account of such Vessel
received by the Mortgagee while exercising any such power, and the proceeds of
any insurance on the Vessel concerned (subject to the provisions of this
agreement) shall be applied by Mortgagee as provided in Section 2.4(b) of the
Loan Agreement.

 

Section 2.4   Powers and Rights of Mortgagee Upon Occurrence of a Mortgage Event
of Default.

 

(a)  Each and every power and remedy herein specifically given to the Mortgagee
or otherwise in this Mortgage shall be cumulative and shall be in addition to
every other power and remedy herein specifically given or now or hereafter
existing at law, in equity, admiralty or by statute, and each and every power
and remedy whether specifically herein given or otherwise existing may be
exercised from time to time and as often and in such order as may be deemed

 

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expedient by the Mortgagee, and the exercise or the beginning of the exercise of
any power or remedy shall not be construed to be a waiver of the right to
exercise at the same time or thereafter any other power or remedy.  No delay or
omission by the Mortgagee in the exercise of any right or power or in the
pursuance of any remedy occurring upon any Mortgage Event of Default as above
defined shall impair any such right, power or remedy or be construed to be a
waiver of any such event of default or to be any acquiescence therein; nor shall
the acceptance by the Mortgagee of any security or of any payment of or on
account of any installment of the Note maturing after any Mortgage Event of
Default or of any payment on account of any past default be construed to be a
waiver of any right to take advantage of any future Mortgage Event of Default or
of any past Mortgage Event of Default not completely cured thereby.

 

(b)  Revenues and Proceeds of Vessel.  The Mortgagee is hereby irrevocably
appointed attorney-in-fact of the Mortgagor, upon the happening of any Mortgage
Event of Default, in the name of the Mortgagor to demand, collect, receive,
compromise and sue for, so far as may be permitted by law, all freights, hire,
earnings, issues, revenues, income and profits of the Vessel, and all amounts
due from underwriters under any insurance thereon as payment of losses or as
return premiums or otherwise, salvage awards and recoveries, recoveries in
general average or otherwise, and all other sums due or to become due in respect
of the Vessel or in respect of any insurance thereon from any person whomsoever,
and to make, give and execute in the name of the Mortgagor acquittances,
receipts, releases or other discharges for the same, whether under seal or
otherwise, and to endorse and accept in the name of the Mortgagor all checks,
notes, drafts, warrants, agreements and all other instruments in writing with
respect to the foregoing, the Mortgagor hereby confirming and ratifying the
same.

 

(c)  Additional Rights.  The Mortgagor covenants and agrees that in addition to
any and all other rights, powers and remedies elsewhere in this Mortgage granted
to and conferred upon the Mortgagee, and including in any suit to enforce any of
its rights, powers or remedies, if a Mortgage Event of Default shall have
occurred and shall not have been waived by the Mortgagee, the Mortgagee shall be
entitled as a matter of right and not as a matter of discretion, but subject to
Section 2.2(h) of this Article 2 (i) to the appointment of a receiver or
receivers of the Vessel and collection of the freights, hire, earnings, issues,
revenues, income and profits due or to become due arising from any operation of
the Vessel, and any receiver or receivers so appointed shall have full right and
power to use and operate the Vessel, and (ii) to a decree ordering and directing
the sale and disposal of the Vessel, and the Mortgagee may become the purchaser
at such sale and shall have the right to credit on the purchase price any and
all sums of money due under the Note or otherwise due to the Mortgagee pursuant
to the terms of the Loan Agreement or under any other instrument evidencing any
Obligations.  The Mortgagee shall not be required to have the Vessel marshaled
(upon any sale of the Vessel pursuant to this Mortgage or otherwise) or be
required to realize on any other collateral prior to realization on the Vessel.

 

ARTICLE III

GENERAL POWERS OF MORTGAGEES

 

Section 3.1   Arrest or Detention of Vessel.  In the event that an Event of
Default shall have occurred hereunder and the 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

 

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or by any government or other Person, the Mortgagor does hereby authorize and
empower the Mortgagee, from the date of arrest or detention, in the name of the
Mortgagor, or its successors or assigns, to apply for and receive possession of
and to take possession of such Vessel with all the rights and powers that the
Mortgagor, or its successors or assigns, might have, possess or exercise in any
such event; and this power of attorney shall be irrevocable and may be exercised
not only by the Mortgagee but also by their appointee or appointees, with full
power of substitution, to the same extent as if the said appointee or appointees
had been named as one of the attorneys above named by express designation.

 

Section 3.2   Appearance.  In the event an Event of Default shall have occurred
hereunder, the Mortgagor also authorizes and empowers the Mortgagee or its
appointees or any of them to appear in the name of the Mortgagor, its successors
or assigns, in any court of any country or nation of the world where a suit is
pending against the Vessel because of or on account of any alleged lien against
such Vessel from which such Vessel has not been released and to take such
proceedings as to them may seem proper towards the defense of such suit and the
discharge of such lien, and all expenditures made or incurred by them or any of
them for the purpose of such defense or discharge shall be a debt due from the
Mortgagor, its successors and assigns, to the Mortgagee, and shall be secured by
the lien of this Mortgage in like manner and extent as if the amount and
description thereof were written herein.

 

ARTICLE IV

INDEMNITY

 

The Mortgagor assumes liability for, and agrees to indemnify and hold the
Mortgagee harmless from, all claims, costs, expenses (including reasonable legal
fees and expenses), damages and liabilities arising from or pertaining to this
Mortgage or the ownership, use, possession or operation of the Vessel; provided
that the Mortgagor shall have no obligation for indemnified liabilities arising
from the gross negligence or willful misconduct of Mortgagee or arising from the
acts or omissions of the Mortgagee as mortgagee-in-possession.  The agreements
and indemnities contained in this Article shall survive the maturity or earlier
discharge of this Mortgage and payment in full of the Note.

 

ARTICLE V

MORTGAGOR’S USE AND POSSESSION

 

Until some one or more of the Mortgage Events of Default hereinbefore described
shall happen, the Mortgagor shall be suffered and permitted to retain exclusive
actual possession and use of the Vessel.

 

ARTICLE VI

MISCELLANEOUS

 

Section 6.1   Counterparts.  This Mortgage may be executed simultaneously in any
number of counterparts and all such counterparts executed and delivered each as
an original shall

 

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constitute but one and the same instrument.  The invalidity of any provision of
this Mortgage shall not affect the remainder, which shall in such event be
construed as if the invalid provisions had not been inserted.

 

Section 6.2   Binding Effect.  All the covenants, promises, stipulations and
agreements of the Mortgagor in this Mortgage shall bind the Mortgagor and its
successors and shall inure to the benefit of the Mortgagee and its assigns,
whether so expressed or not.  All of the covenants, promises, stipulations and
agreements of the Mortgagee, if any, shall bind the Mortgagee and its assigns,
whether so expressed or not.

 

Section 6.3   No Waiver of Preferred Status.  Nothing in this Mortgage shall be
construed as a waiver of the preferred status of this Mortgage by the
Mortgagee.  In the event that any provision of this mortgage would, as a matter
of law, operate to waive the preferred status thereof, such provision shall be
deemed eliminated therefrom, the same for all intents and purposes as though
such provision had never been inserted herein.

 

Section 6.4   Nature of Agreements Hereunder.  The agreements, terms,
conditions, rights, remedies and indemnities provided herein are in addition to,
not in limitation of, and shall not be limited by, each of the agreements,
terms, conditions, rights, remedies and indemnities contained in the Loan
Agreement.

 

Section 6.5   Citizenship.  Notwithstanding any other language in this Mortgage
to the contrary, the Mortgagee shall not take any action in violation of
Section 9 of the Shipping Act, 1916, as amended by Public Law 100-710 (46 U.S.C.
Chapter 313).  To the extent any provision of this Mortgage contravenes
Section 9 of the Shipping Act, 1916, such provision may be deemed void without
affecting the validity and enforceability of the other provisions of this
Mortgage.

 

Section 6.6   Construction.  Any provision of this Mortgage which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, any such prohibition or
unenforceability shall not invalidate or render unenforceable such provision in
any other jurisdiction to the extent permitted by law, Mortgagor hereby waives
any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.  To the extent that this Mortgage is not governed
by the federal maritime law and federal statutes and regulations, this Mortgage
shall be construed in accordance with the laws of the State of New York.

 

Section 6.7   All exhibits attached hereto are by this reference incorporated
fully herein.  The term “this Mortgage” shall be considered to include all such
exhibits. The rules of interpretation specified in §1.2 of the Loan Agreement
shall be applicable to this Mortgage.

 

Section 6.8   This Mortgage and any provisions hereof may not be modified,
amended, waived, extended, changed, discharged or terminated orally, or by any
act or failure to act on the part of the Mortgagor or the Mortgagee, but only by
an agreement in writing signed by the party against whom the enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.

 

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Section 6.9   Consent to Forum.  The provisions of Section 18 of the Loan
Agreement shall apply as though fully set forth herein.

 

ARTICLE VII

TOTAL AMOUNT OF THIS MORTGAGE

 

For the purposes of this First Preferred Ship Mortgage and for purposes of
recording this First Preferred Ship Mortgage as required by Chapter 313 of
United States Code, Title 46, Sec. 922(c)), the total amount is Eighteen Million
and No/100 Dollars ($18,000,000.00), interest thereon, prepayment premium, if
any, and performance of the Mortgage covenants; and the total discharge amount
is the same as the total amount.

 

16

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IN WITNESS WHEREOF, the Mortgagor has executed this Mortgage as of the       day
of [                ], 2005.

 

 

K-SEA OPERATING PARTNERSHIP L.P.

 

 

 

 

 

By:

K-Sea OLP GP, LLC, its General Partner

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

Name: John J. Nicola

 

 

 

Title: Chief Financial Officer

 

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STATE OF NEW YORK

 

COUNTY OF RICHMOND, ss.

 

 

Be it known, that on this       day of                      , 2005, personally
appeared John J. Nicola who being duly sworn deposed and said that he is Chief
Financial Officer of K-SEA OPERATING PARTNERSHIP L.P., the Limited Partnership
which is described in and executed the within instrument at whose order he
signed his name and acknowledged the within instrument to be the free act and
deed of the said Limited Partnership.

 

In Witness Whereof, I have hereby set my hand and seal this          day of
                     , 2005.

 

 

 

 

 

Notary Public

 

My Commission Expires:

 

18

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Exhibit D

 

ASSIGNMENT AND ACCEPTANCE

 

                           , 20  

 

Reference is made to the Loan Agreement dated as of
[                          ], 2005 (the “Loan Agreement”), among K-Sea Operating
Partnership L.P., a Delaware limited partnership (the “Borrower”), and the
lenders which are parties thereto (each a “Lender”).  Capitalized terms used but
not defined herein shall have the meanings assigned to such terms in the Loan
Agreement.

 

                   (the “Assignor”) and                    (the “Assignee”)
agree as follows:

 

1.                                       The Assignor hereby irrevocably sells,
assigns and delegates to the Assignee, and the Assignee hereby purchases and
assumes from the Assignor, a       % interest in and to all the Assignor’s
rights and obligations under the Loan Agreement and the other Loan Documents as
of the Effective Date (as defined below) with respect to the Loan (including,
without limitation, such percentage interest in all unpaid interest with respect
to such Loan).

 

2.                                       The Assignor (i) represents that as of
the date hereof, the outstanding principal amount of the Loan (without giving
effect to assignments thereof which have not yet become effective) is
$              ; (ii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Agreement or the other Loan Documents or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Loan Agreement or the other Loan Documents or any other instrument
or document furnished pursuant thereto, other than that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim created by, through or under the
Assignor; and (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance of any of its obligations under the Loan Agreement, any of the Loan
Documents or any other instrument or document furnished pursuant hereto or
thereto.

 

3.                                       The Assignee (i) represents and
warrants that it is legally authorized to enter into this Assignment and
Acceptance; (ii) confirms that it has received a copy of the Loan Agreement and
the other Loan Documents, together with copies of the most recent financial
statements delivered pursuant to Section 7.4 thereof and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Acceptance; (iii) agrees that it
will, independently and without reliance upon the Assignor or any other person
which has become a Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Agreement and the other Loan
Documents; (iv) agrees that it will be bound by the provisions of the Loan
Agreement and will perform in accordance with their terms all the obligations
which by the terms of the Loan Agreement and the other Loan Documents are
required to be performed by it as a Lender; (v) (if an assignment of Assignor’s
entire interest in the Loan) agrees to act as successor Registration Agent and
to perform the duties of the Registration Agent in accordance with Section 13.6
of the Loan Agreement; (vi) agrees that it will be bound by the provisions of
the Loan Agreement and will perform in

 

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accordance with its terms all the obligations which by the terms of the Loan
Agreement are required to be performed by it as a Lender including, if it is
organized under the laws of a jurisdiction outside the United States, its
obligation to deliver to the Borrower, on or before the Effective Date, the
United States Internal Revenue Service forms specified in Section 13.2(c) of the
Loan Agreement; and (vii) confirms that the Assignee is an “Eligible Assignee”
under the terms of the Loan Agreement.

 

4.                                       The effective date of this Assignment
and Acceptance shall be               , 20     (the “Effective Date”).

 

5.                                       From and after the Effective Date, (i)
the Assignee shall be a party to the Loan Agreement and the other Loan
Documents, to the extent provided in this Assignment and Acceptance, have the
rights and obligations of a Lender thereunder and shall be bound by the
provisions thereof and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Loan Agreement and the other Loan Documents.

 

6.                                       The Assignor agrees to give written
notice of this Assignment and Acceptance to the Registration Agent, each other
Lender and the Borrower, which written notice shall include the address, payment
instructions and related information with respect to the Assignee.

 

7.                                       THIS ASSIGNMENT AND ACCEPTANCE SHALL IN
ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, UNITED STATES OF AMERICA, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT REFERENCE TO PRINCIPLES OF
CONFLICTS OF LAW (OTHER THAN TITLE 14 OF ARTICLE 5 OF THE GENERAL OBLIGATIONS
LAW).

 

2

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IN WITNESS WHEREOF, the Assignor and Assignee have caused this Assignment and
Acceptance to be executed and delivered as of the date first above written.

 

 

[NAME OF ASSIGNOR]

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

 

 

 

 

[NAME OF ASSIGNEE]

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

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Exhibit E

 

SECURITY AGREEMENT

 

K-SEA OPERATING PARTNERSHIP L.P.,

 

 

as the Borrower

 

 

to

 

 

CITIZENS ASSET FINANCE, A D/B/A OF
CITIZENS LEASING CORPORATION,

as the Lender

 

Dated as of June    , 2005

 

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SECURITY AGREEMENT

 

SECURITY AGREEMENT, dated as of  [                             ], 2005 (this
“Agreement”) between K-SEA OPERATING PARTNERSHIP L.P., a Delaware limited
partnership (the “Borrower”), and CITIZENS ASSET FINANCE, A D/B/A OF CITIZENS
LEASING CORPORATION (the “Lender”).

 

(i)                                     Pursuant to the terms and conditions of
a Loan Agreement dated as of the date hereof, between the Borrower and the
Lender (as the same may be amended, supplemented, or modified from time to time,
the “Loan Agreement”), the Lender has, at Borrower’s request, agreed to make
loan advances to the Borrower in the aggregate principal amount of up to
$17,000,000 (the “Loan”), the entire proceeds of which shall be used by the
Borrower to finance the construction of two United States flag vessels, and to
finance the acquisition by the Borrower of a third United States flag vessel,
which are described on Schedule A hereto (the “Vessels”).  The obligations of
the Borrower with respect to the Loan are evidenced by the Loan Agreement and by
a term promissory note (the “Note”), to be dated as of the Advance Termination
Date (as defined in the Loan Agreement), and are secured by the Security
Documents (as defined in the Loan Agreement).

 

(ii)                                  It is a condition precedent to the
obligation of the Lender to make the Loan to the Borrower that, among other
things, the Borrower shall have executed and delivered this Agreement to the
Lender as additional security for the Obligations.

 

(iii)                               The Borrower wishes to grant security
interests in favor of the Lender as herein provided.

 

NOW, THEREFORE, in consideration of the foregoing recitals, the promises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

1.                                      DEFINITIONS.  All capitalized terms used
herein without definitions shall have the respective meanings provided therefore
in the Loan Agreement.  The term “State”, as used herein, means the State of New
York.  All terms defined in the Uniform Commercial Code of the State and used
herein shall have the same definitions herein as specified therein.  However, if
a term is defined in Article 9 of the Uniform Commercial Code of the State
differently than in another Article of the Uniform Commercial Code of the State,
the term has the meaning specified in Article 9.

 

2.                                      GRANT OF SECURITY INTEREST.  (a)  The
Borrower hereby grants to the Lender, to secure the payment and performance in
full of all of the Obligations, a security interest in and pledges and assigns
to the Lender all of the Borrower’s rights, title and interest, as collateral
security, in and to (i) the Vessels, (ii) amounts due under any and all charter
agreements, whether bareboat or demise, time or voyage charters, contracts of
affreightment or other contracts for the use or employment of the Vessels,
including the transportation of cargo or passengers, (iii) all

 

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charter hires, fees, and all other amounts due and payable to the Borrower
arising out of the Vessels, (iv) all policies and contracts of insurance (which
expression includes all entries of the Vessels in one or more protection and
indemnity or risks associations) which are or have been from time to time taken
out or entered into by Borrower in respect of the Vessels or their earnings,
including, but not limited to insurances on and with respect to all freight,
charter hire, and passage monies, remuneration for salvage and towage services,
general average contributions, demurrage and detention monies and any other
proceeds whatsoever relating to Vessel insurances, whether now, previously, or
hereafter effected, and all renewals of or replacements for the same, all claims
and returns of premiums and other monies and claims for monies due and to become
due under said insurances or in respect of said insurances, and all other rights
of the Borrower under or in respect of said insurances, (v) the Vessel
Construction Agreement dated February 21, 2005 between the Borrower and
Bollinger Marine Fabricators, L.L.C., including any payment or performance bonds
or refunds thereunder relating to DBL 28 or DBL 29 and all insurances and other
amounts due to Borrower thereunder, (vi) all other property, interests and
rights now or at any time hereafter relating to the Vessels, wherever located;
in all of the foregoing cases, whether now owned or in existence or hereafter
acquired or arising, and all proceeds and products thereof including, but not
limited to, (A) whatever is received upon the collection, exchange, sale or
other disposition of any Collateral and any property unto which any of the
Collateral is converted, whether cash or non-cash proceeds, (B) any and all
proceeds of any insurance, indemnity, warranty or guarantee payable to the
Borrower from time to time with respect to the Collateral, (C) any and all
payments (in any form whatsoever) made or due and payable to the Borrower from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of any of the Collateral by any Governmental Authority (or
any Person acting under order of governmental authority), and (D) any and all
other amounts from time to time paid or payable under or in connection with any
of the Collateral (all of the same being hereinafter called the “Collateral”).

 

(b)                                 the Borrower agrees to give a notice of
assignment of insurances in the form attached hereto as Exhibit A and that
insurance loss payable clauses shall be in the form of Exhibit B.

 

3.                                      AUTHORIZATION TO FILE FINANCING
STATEMENTS.  The Borrower hereby irrevocably authorizes the Lender at any time
and from time to time to file in any Uniform Commercial Code jurisdiction any
initial financing statements and amendments thereto that (a) indicate the
Collateral (i) as all assets of the Borrower or words of similar effect relating
to the Vessels, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the Uniform Commercial Code of
the State or such jurisdiction, or (ii) as being of an equal or lesser scope or
with greater detail, and (b) contain any other information required by part 5 of
Article 9 of the Uniform Commercial Code of the State for the sufficiency or
filing office acceptance of any financing statement or amendment, including
whether the Borrower is an organization, the type of organization and any
organization identification number issued to the Borrower.  The Borrower agrees
to furnish any such information to the Lender promptly upon request.

 

2

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3.1                               OTHER ACTIONS.   The Borrower further agrees
to take any action reasonably requested by the Lender to ensure the attachment,
perfection and first priority of, and the ability of the Lender to enforce, the
Lender’s security interest in any and all of the Collateral including, without
limitation, (a) executing, delivering and, where appropriate, filing financing
statements and amendments relating thereto under the Uniform Commercial Code, to
the extent, if any, that the Borrower’s signature thereon is required therefor,
(b) causing the Lender’s name to be noted as secured party on any certificate of
title for a titled good if such notation is a condition to attachment,
perfection or priority of, or ability of the Lender to enforce, the Lender’s
security interest in such Collateral, (c) complying with any provision of any
statute, regulation or treaty of the United States as to any Collateral if
compliance with such provision is a condition to attachment, perfection or
priority of, or ability of the Lender to enforce, the Lender’s security interest
in such Collateral, (d) obtaining governmental and other third party consents
and approvals, including without limitation any consent of any licensor, lessor,
charterer, lessee or other person obligated respecting the Collateral, and (e)
taking all actions required by any earlier versions of the Uniform Commercial
Code or by other law, as applicable in any relevant Uniform Commercial Code
jurisdiction, or by other law as applicable in any foreign jurisdiction.

 

4.                                      RELATION TO OTHER SECURITY DOCUMENTS. 
The provisions of this Agreement supplement the provisions of the Ship
Mortgage(s) and the Assignment of Project Documents granted, and to be granted,
by the Borrower to the Lender and securing the payment or performance of any of
the Obligations. Nothing contained in any Ship Mortgage or the Assignment of
Project Documents shall derogate from any of the rights or remedies of the
Lender hereunder.

 

5.                                      REPRESENTATIONS AND WARRANTIES
CONCERNING BORROWER’S LEGAL STATUS.  The Borrower has previously delivered to
the Lender a certificate signed by the Borrower and entitled “Perfection
Certificate” (the “Perfection Certificate”).  The Borrower represents and
warrants to the Lender as follows: (a) the Borrower’s exact legal name is that
indicated on the Perfection Certificate and on the signature page hereof, (b)
the Borrower is an organization of the type, and is organized in the
jurisdiction, set forth in the Perfection Certificate, (c) the Perfection
Certificate accurately sets forth the Borrower’s organizational identification
number or accurately states that the Borrower has none, (d) the Perfection
Certificate accurately sets forth the Borrower’s place of business or, if more
than one, its chief executive office as well as the Borrower’s mailing address
if different and (e) all other information set forth on the Perfection
Certificate pertaining to the Borrower is accurate and complete.

 

6.                                      COVENANTS CONCERNING BORROWER’S LEGAL
STATUS.  The Borrower covenants with the Lender as follows: (a) without
providing at least 30 days prior written notice to the Lender, the Borrower will
not change its name; its place of business or, if more than one, its chief
executive office; or its mailing address or organizational identification number
if it has one, (b) if the Borrower does not have an organizational
identification number and later obtains one, the Borrower shall forthwith notify
the Lender of such organizational identification number,

 

3

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and (c) the Borrower will not change its type of organization, jurisdiction of
organization or other legal structure.

 

7.                                      REPRESENTATIONS AND WARRANTIES
CONCERNING COLLATERAL, ETC.  The Borrower warrants to the Lender all
representations and warranties in §3 of the Loan Agreement as if all such
representations and warranties were set out in full herein.  The Borrower
further represents and warrants to the Lender as follows: (a) the Borrower has
good and marketable title to all items of the Collateral (but only as of the
date hereof, to the extent it has “rights in the Collateral” as such term is
used in the UCC) pledged by it, free and clear of any Liens, except Permitted
Liens, (b) none of the Collateral constitutes, or is the proceeds of, “farm
products” as defined in § 9-102(a)(34) of the Uniform Commercial Code of the
State and (c) all other information set forth on the Perfection Certificate
pertaining to the Collateral is accurate and complete.

 

8.                                      COVENANTS CONCERNING COLLATERAL, ETC. 
The Borrower further covenants with the Lender as follows: (a) except for the
security interest herein granted and Permitted Liens and except as may be
specifically set forth in any insurances or entries of a Vessel in a protection
and indemnity association, (x) the Borrower shall be the owner of the Collateral
respecting DBL 78 free from any lien, security interest or other encumbrance and
(y) upon the respective delivery dates of each of DBL 28 and DBH 29 to the
Borrower by the builder thereof, the Borrower shall be owner of the Collateral
respecting DBL 28 and DBH 29 respectively free from any lien, security interest
or other encumbrance, in each case, and the Borrower shall warrant and defend
the same against all claims and demands of all persons at any time claiming the
same or any interests therein adverse to the Lender, and shall, at its expense,
cause such claim to be waived in writing or otherwise eliminated to the Lender’s
satisfaction within 30 days after such claim shall become due and payable
(except with respect to DBL 28 and DBL 29 prior to delivery thereof from the
Builder to the Borrower), (c) the Borrower shall not pledge, mortgage or create,
or suffer to exist a security interest in the Collateral in favor of any person
other than the Lender except for Permitted Liens (except with respect to DBL 28
and DBL 29 prior to delivery thereof from the Builder to the Borrower), (d) the
Borrower will keep the Collateral in good order and repair (except with respect
to DBL 28 and DBL 29 prior to delivery thereof from the Builder to the Borrower)
and will not use the same in violation of law or any policy of insurance
thereon, (e) the Borrower will pay promptly when due all taxes, assessments,
governmental charges and levies upon the Collateral or incurred in connection
with the use or operation of the Collateral incurred in connection with this
Agreement, and (f) upon Lender’s request, Borrower will give the Lender notice
and copies of all other leases, charters or other agreements in the nature
thereof entered into from time to time with respect to the Vessels and having a
term of six (6) months or longer.

 

9.                                      INSURANCE.

 

The Borrower will maintain insurance in accordance with the terms of the Ship
Mortgages covering DBL 78 and, upon delivery respectively of DBL 28 and DBL 29,
in accordance with those respective Ship Mortgages.

 

4

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10.                               COLLATERAL PROTECTION EXPENSES; PRESERVATION
OF COLLATERAL.

 

10.1                        EXPENSES INCURRED BY LENDER.  After the occurrence
of an Event of Default, the Lender may discharge taxes and other encumbrances at
any time levied or placed on any of the Collateral, make repairs thereto,
maintain the Collateral and pay any necessary filing fees or, if the debtor
fails to do so, insurance premiums.  The Borrower agrees to reimburse the Lender
on demand for any and all expenditures so made.  The Lender shall have no
obligation to the Borrower to make any such expenditures, nor shall the making
thereof relieve the Borrower of any default.

 

10.2                        LENDER’S OBLIGATIONS AND DUTIES.  Anything herein to
the contrary notwithstanding, the Borrower shall remain liable under each
contract or agreement comprised in the Collateral to be observed or performed by
the Borrower thereunder.  The Lender shall not have any obligation or liability
under any such contract or agreement by reason of or arising out of this
Agreement or the receipt by the Lender of any payment relating to any of the
Collateral, nor shall the Lender be obligated in any manner to perform any of
the obligations of the Borrower under or pursuant to any such contract or
agreement, to make inquiry as to the nature or sufficiency of any payment
received by the Lender in respect of the Collateral or as to the sufficiency of
any performance by any party under any such contract or agreement, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to the Lender or to which
the Lender may be entitled at any time or times.  The Lender’s sole duty with
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under § 9-207 of the Uniform Commercial Code of the State or
otherwise, shall be to deal with such Collateral in the same manner as the
Lender deals with similar property for its own account.

 

11.                               NOTIFICATION TO ACCOUNT DEBTORS AND OTHER
PERSONS OBLIGATED ON COLLATERAL.  If an Event of Default shall have occurred and
be continuing, the Borrower shall, at the request of the Lender, notify account
debtors, charterers, and other persons obligated respecting any of the
Collateral of the Lender in any account, charter, chattel paper, general
intangible, instrument or other Collateral and that payment thereof is to be
made directly to the Lender or to any financial institution designated by the
Lender as the Lender’s agent therefor, and the Lender may itself, if an Event of
Default shall have occurred and be continuing, without notice to or demand upon
the Borrower, so notify account debtors and other persons obligated on
Collateral.  After the making of such a request or the giving of any such
notification, the Borrower shall hold any proceeds of collection of accounts,
charters, chattel paper, general intangibles, instruments and other Collateral
received by the Borrower as trustee for the Lender without commingling the same
with other funds of the Borrower and shall turn the same over to the Lender in
the identical form received, together with any necessary endorsements or
assignments.  The Lender shall apply the proceeds of collection of accounts,
charters, chattel paper, general intangibles, instruments and other Collateral
received by the Lender to the Obligations, pursuant to § 2.4(b) of the Loan
Agreement, such proceeds to be

 

5

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immediately entered after final payment in cash or other immediately available
funds of the items giving rise to them.

 

12.                               POWER OF ATTORNEY.

 

12.1                        APPOINTMENT AND POWERS OF LENDER.  The Borrower
hereby irrevocably constitutes and appoints the Lender and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Borrower or in the Lender’s own name, for the purpose of carrying
out the terms of this Agreement, to take any and all appropriate action and to
execute any and all documents and instruments that may be necessary or desirable
to accomplish the purposes of this Agreement and, without limiting the
generality of the foregoing, hereby gives said attorneys the power and right, on
behalf of the Borrower, without notice to or assent by the Borrower, to do the
following:

 

(a)                                  upon the occurrence and during the
continuance of an Event of Default, generally to sell, transfer, pledge, make
any agreement with respect to or otherwise deal with any of the Collateral in
such manner as is consistent with the Uniform Commercial Code of the State and
any other applicable law, and as fully and completely as though the Lender were
the absolute owner thereof for all purposes, and to do at the Borrower’s
expense, at any time, or from time to time, all acts and things which the Lender
deems necessary or advisable to protect, preserve or realize upon the Collateral
and the Lender’s security interest therein, in order to effect the intent of
this Agreement, all as fully and effectively as the Borrower might do,
including, without limitation, the execution, delivery and recording, in
connection with any sale or other disposition of any Collateral, of the
endorsements, assignments or other instruments of conveyance or transfer with
respect to such Collateral; and

 

(b)                                 to the extent that the Borrower’s
authorization given in §3 is not sufficient, to file such financing statements
with respect hereto, with or without the Borrower’s signature, or a photocopy of
this Agreement in substitution for a financing statement, as the Lender may deem
appropriate and to execute in the Borrower’s name such financing statements and
amendments thereto and continuation statements which may require the Borrower’s
signature.

 

12.2                        RATIFICATION BY BORROWER.  To the extent permitted
by law, the Borrower hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.

 

12.3                        NO DUTY ON LENDER.  The powers conferred on the
Lender hereunder are solely to protect its interests in the Collateral and shall
not impose any duty upon it to exercise any such powers.  The Lender shall be
accountable only for the amounts that it actually receives as a result of the
exercise of such powers and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act, except for the Lender’s own gross negligence or willful misconduct.

 

6

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13.                               REMEDIES.  If an Event of Default shall have
occurred and be continuing, the Lender may, without notice to or demand upon the
Borrower, declare this Agreement to be in default, and, in accordance with
applicable law, the Lender shall thereafter have in any jurisdiction in which
enforcement hereof is sought, in addition to all other rights and remedies, the
rights and remedies of a secured party under the Uniform Commercial Code of the
State or of any jurisdiction in which the Collateral is located, including,
without limitation, the right to take possession of the Collateral, and for that
purpose the Lender may, so far as the Borrower can give authority therefore,
enter upon any premises on which the Collateral may be situated and remove the
same therefrom.  The Lender may in its discretion require the Borrower to
assemble all or any part of the Collateral at such location or locations within
the jurisdiction(s) of the Borrower’s principal office(s) or at such other
locations as the Lender may reasonably designate.  Unless the Collateral are
perishable or threatens to decline speedily in value or is of a type customarily
sold on a recognized market, the Lender shall give to the Borrower at least ten
(10) Business Days prior written notice of the time and place of any public sale
of the Collateral or of the time after which any private sale or any other
intended disposition is to be made.  The Borrower hereby acknowledges that ten
(10) Business Days prior written notice of such sale or sales shall be
reasonable notice.  In addition, the Borrower waives any and all rights that it
may have to a judicial hearing in advance of the enforcement of any of the
Lender’s rights hereunder, including, without limitation, its right following an
Event of Default to take immediate possession of the Collateral and to exercise
its rights with respect thereto.  Notwithstanding anything contained hereinto
the contrary, the Lender agrees not to exercise any remedies hereunder in such a
way as to disqualify the Vessels from the United States coastwise trade.

 

14.                               STANDARDS FOR EXERCISING REMEDIES.  To the
extent that applicable law imposes duties on the Lender to exercise remedies in
a commercially reasonable manner, the Borrower acknowledges and agrees that it
is not commercially unreasonable for the Lender (a) to fail to incur expenses
reasonably deemed significant by the Lender to prepare the Collateral for
disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (b) to fail to obtain
third-party consents for access to Collateral to be disposed of, or to obtain
or, if not required by other law, to fail to obtain governmental or third party
consents for the collection or disposition of Collateral to be collected or
disposed of, (c) to fail to exercise collection remedies against account debtors
or other persons obligated on Collateral or to remove liens or encumbrances on
or any adverse claims against Collateral, (d) to exercise collection remedies
against account debtors and other persons obligated on Collateral directly or
through the use of collection agencies and other collection specialists, (e) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (f) to
contact other persons, whether or not in the same business as the Borrower, for
expressions of interest in acquiring all or any portion of the Collateral, (g)
to hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the Collateral is of a specialized nature, (h) to
dispose of Collateral by utilizing Internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capability of doing so, or that match buyers and sellers of assets, (i) to
dispose of assets in wholesale rather than retail markets, (j) to disclaim
disposition warranties, or (k) to the extent deemed appropriate by the Lender,
to obtain the services of brokers, investment

 

7

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bankers, consultants and other professionals to assist the Lender in the
collection or disposition of any of the Collateral.  The Borrower acknowledges
that the purpose of this §14 is to provide nonexhaustive indications of what
actions or omissions by the Lender would not be commercially unreasonable in the
Lender’s exercise of remedies against the Collateral and that other actions or
omissions by the Lender shall not be deemed commercially unreasonable solely on
account of not being indicated in this §14.  Without limitation upon the
foregoing, nothing contained in this §14 shall be construed to grant any rights
to the Borrower or to impose any duties on the Lender that would not have been
granted or imposed by this Agreement or by applicable law in the absence of this
§14.

 

15.                               NO WAIVER BY LENDER, ETC.  The Lender shall
not be deemed to have waived any of its rights upon or under the Obligations or
the Collateral unless such waiver shall be in writing and signed by the Lender. 
No delay or omission on the part of the Lender in exercising any right shall
operate as a waiver of such right or any other right.  A waiver on any one
occasion shall not be construed as a bar to or waiver of any right on any future
occasion.  All rights and remedies of the Lender with respect to the Obligations
or the Collateral, whether evidenced hereby or by any other instrument or
papers, shall be cumulative and may be exercised singularly, alternatively,
successively or concurrently at such time or at such times as the Lender deems
expedient.

 

16.                               SURETYSHIP WAIVERS BY BORROWER.  The Borrower
waives demand, notice, protest, notice of acceptance of this Agreement, notice
of loans made, credit extended, Collateral received or delivered or other action
taken in reliance hereon and all other demands and notices of any description. 
With respect to both the Obligations and the Collateral, the Borrower assents to
any extension or postponement of the time of payment or any other indulgence, to
any substitution, exchange or release of or failure to perfect any security
interest in any Collateral, to the addition or release of any party or person
primarily or secondarily liable, to the acceptance of partial payment thereon
and the settlement, compromising or adjusting of any thereof, all in such manner
and at such time or times as the Lender may deem advisable.  The Lender shall
have no duty as to the collection or protection of the Collateral or any income
thereon, nor as to the preservation of rights against prior parties, nor as to
the preservation of any rights pertaining thereto beyond the safe custody
thereof as set forth in §10.  The Borrower further waives any and all other
suretyship defenses.

 

17.                               MARSHALLING.  The Lender shall not be required
to marshal any present or future collateral security (including but not limited
to this Agreement and the Collateral) for, or other assurances of payment of,
the Obligations or any of them or to resort to such collateral security or other
assurances of payment in any particular order, and all of its rights hereunder
and in respect of such collateral security and other assurances of payment shall
be cumulative and in addition to all other rights, however existing or arising.
To the extent that it lawfully may, the Borrower hereby agrees that it will not
invoke any law relating to the marshalling of collateral which might cause delay
in or impede the enforcement of the Lender’s rights under this Agreement or
under any other instrument creating or evidencing any of the Obligations or
under which any of the Obligations is outstanding or by which any of the
Obligations is secured or

 

8

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payment thereof is otherwise assured, and, to the extent that it lawfully may,
the Borrower hereby irrevocably waives the benefits of all such laws.

 

18.                               PROCEEDS OF DISPOSITIONS; EXPENSES.  The
Borrower shall pay to the Lender on demand amounts equal to any and all
expenses, including, without limitation, reasonable attorneys’ fees and
disbursements, incurred or paid by the Lender in protecting, preserving or
enforcing the Lender’s rights under or in respect of any of the Obligations or
any of the Collateral. After deducting all of said expenses, the residue of any
proceeds of collection or sale of the Obligations or Collateral shall, to the
extent actually received in cash, be applied to the payment of the Obligations
in such order or preference as the Lender may determine, proper allowance and
provision being made for any Obligations not then due.  Upon the final payment
and satisfaction in full of all of the Obligations and after making any payments
required by § 9-608(a)(1)(C) or 9-615(a)(3) of the Uniform Commercial Code of
the State, any excess shall be returned to the Borrower, and the Borrower shall
remain liable for any deficiency in the payment of the Obligations.

 

19.                               OVERDUE AMOUNTS.  Until paid, all amounts due
and payable by the Borrower hereunder shall be a debt secured by the Collateral
and shall bear, whether before or after judgment, interest at Default Rate
pursuant to §2.2(e) of the Loan Agreement.

 

20.                               GOVERNING LAW.  THIS AGREEMENT SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK, UNITED STATES OF AMERICA, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW
(OTHER THAN TITLE 14 OF ARTICLE 5 OF THE GENERAL OBLIGATIONS LAW).

 

21.                               INDEMNIFICATION.  Without limiting any of its
indemnification obligation under the other Loan Documents, the Borrower hereby
agrees to indemnify and hold the Lender harmless from and against any and all
claims, demands, liabilities, losses, causes of action, judgments, costs, and
expenses (including reasonable attorneys’ fees, court costs and investigation
expenses) to which the Lender may become exposed, or which the Lender may incur,
by reason of any act or omission of the Borrower under any charter or other
agreement comprising Collateral or by the Lender exercising any of its rights
under this Agreement, provided that this indemnity does not extend to liability
incurred by the Lender solely through its gross negligence or willful misconduct
or acts and omissions as a mortgagee-in-possession.  The provisions of this
Section 21 shall remain operative and in full force and effect regardless of the
termination of this Agreement or any other Loan Document, the consummation of
the transactions contemplated hereby or thereby, the repayment of any of the
Obligations, the validity or unenforceability of any term or provision of this
Agreement or any other Loan Document or any investigation made by or on behalf
of the Lender.

 

22.                               MISCELLANEOUS.  The headings of each section
of this Agreement are for convenience only and shall not define or limit the
provisions thereof.  This Agreement and all rights and obligations hereunder
shall be binding upon the Borrower and its respective

 

9

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successors and assigns, and shall inure to the benefit of the Lender and its
successors and assigns.  If any term of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity of all other terms hereof shall
in no way be affected thereby, and this Agreement shall be construed and be
enforceable as if such invalid, illegal or unenforceable term had not been
included herein. If at any time there is any inconsistency between the terms of
this Agreement and any other Security Document, the terms of such other Security
Document shall govern.  The Borrower acknowledges receipt of a copy of this
Agreement

 

10

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IN WITNESS WHEREOF, intending to be legally bound, the Borrower has caused this
Agreement to be duly executed as of the date first above written.

 

 

 

K-SEA OPERATING PARTNERSHIP L.P.

 

 

 

By:

K-Sea OLP GP, LLC, its General Partner

 

 

 

 

 

By:

 

 

 

 

Name:

John J. Nicola

 

 

Title:

Chief Financial Officer

 

Accepted:

 

CITIZENS ASSET FINANCE, A D/B/A OF
CITIZENS LEASING CORPORATION

 

 

By:

 

 

 

Name:

John M. Young

 

Title:

Senior Vice President

 

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

 

Schedule A

 

Barge DBL 28

Hull No. 496

 

 

Barge DBL 29

Hull No. 497

 

 

Barge DBL 78

Official No. 1102126

 

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

 

PERFECTION CERTIFICATE

 

(U.C.C. Financing Statements)

 

The undersigned, the Chief Financial Officer of K-Sea Operating Partnership
L.P., a Delaware limited partnership (the “Borrower”), hereby certifies, with
reference to a certain Security Agreement dated as of
[                          ], 2005 (terms defined in such Security Agreement
having the same meanings herein as specified therein), between the Borrower and
Citizens Asset Finance, a d/b/a of Citizens Leasing Corporation (the “Lender”),
to the Lender as follows:

 

1.                                      NAME.  The exact legal name of the
Borrower as that name appears on its Certificate of Formation is as follows: 
K-Sea Operating Partnership L.P.

 

Source:  U.C.C. § 9-503(a).

 

2.                                      OTHER IDENTIFYING FACTORS.

 

(a)

 

The following is the mailing address of the Borrower:

3245 Richmond Terrace

 

 

 

Staten Island, New York

 

 

 

10303-0003

 

Source:  U.C.C. § 9-516(b)(5)(A).

 

(b)                                 If different from its mailing address, the
Borrower’s place of business or, if more than one, its chief executive office is
located at the following address:

 

Address

 

County

 

State

 

N/A

 

 

 

 

 

 

Source:  U.C.C. §§ 9-301(1), 9-307; former U.C.C. §§ 9-103(3), (4), 9-401(6).

 

(c)                                  The following is the type of organization
of the Borrower: Limited Partnership

 

Source:  U.C.C. § 9-516(b)(5)(C).

 

(d)                                 The following is the jurisdiction of the
Borrower’s organization: Delaware

 

Source:  U.C.C. § 9-516(b)(5)(C).

 

(e)                                  The following is the Borrower’s state
issued organizational identification number [state “None” if the state does not
issue such a number]:

 

Source: U.C.C. § 9-5l6(b)(5)(C).

 

Del ID: 3698236

 

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3.                                      OTHER NAMES, ETC.

 

(a)                                  The following is a list of all other names
(including trade names or similar appellations) used by the Borrower, or any
other business or organization to which the Borrower became the successor by
merger, consolidation, acquisition, change in form, nature or jurisdiction of
organization or otherwise, now or at any time during the past five years:

 

Source:  U.C.C. § 9-507(c); former U.C.C. § 9-402(7) (second and third
sentences).  N/A

 

(b)                                 Attached hereto as Schedule 3 is the
information required in §2 for any other business or organization to which the
Borrower became the successor by merger, consolidation, acquisition, change in
form, nature or jurisdiction of organization or otherwise, now or at any time
during the past five years:     N/A

 

Source:  U.C.C. § 9-316; former U.C.C. § 9-402(7) (second and third sentences).

 

4.                                      OTHER CURRENT LOCATIONS.

 

(a)                                  The following are all other locations in
the United States of America in which the Borrower maintains any books or
records relating to any of the Collateral consisting of accounts, instruments,
chattel paper, general intangibles or mobile goods:

 

Address

 

County

 

State

 

Same as Item 2

 

 

 

 

 

 

Source:  U.C.C. § 9-301(2), (3); former U.C.C, § 9-103(3), (4), 9-401(6).

 

(b)                                 The following are all other places of
business of the Borrower in the United States of America:

 

Address

 

County

 

State

 

N/A

 

 

 

 

 

 

Source:  U.C.C. § 9-301(2), (3); former U.C.C. §§ 9-103(1), 9-401(1) (Third
Alternative).

 

5.                                      PRIOR LOCATIONS.

 

(a)                                  Set forth below is the information required
by § 4(a) or (b) with respect to each location or place of business previously
maintained by the Borrower at any time during the past five years in a state in
which the Borrower has previously maintained a location or place of business at
any time during the past four months:

 

Address

 

County

 

State

 

N/A

 

 

 

 

 

 

2

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

 

Source:  Former U.C.C. §§ 9-103(3)(e), 9-401(3).

 

6.                                      FIXTURES.  Attached hereto as Schedule 6
is the information required by U.C.C. § 9-502(b) or former U.C.C. § 9-402(5) of
each state in which any of the Collateral consisting of fixtures are or are to
be located and the name and address of each real estate recording office where a
mortgage on the real estate on which such fixtures are or are to be located
would be recorded.

 

Source:  U.C.C. §§ 9-502(b), 9-516(b)(3)(D); former U.C.C. §§ 9-401(1),
9-402(5).       N/A

 

7.                                      UNUSUAL TRANSACTIONS.  Except for those
purchases, acquisitions and other transactions described on Schedule 3 or on
Schedule 7 attached hereto, all of the Collateral has been originated by the
Borrower in the ordinary course of the Borrower’s business or consists of goods
which have been acquired by the Borrower in the ordinary course from a person in
the business of selling goods of that kind.          N/A

 

Source:  U.C.C. §§ 9-102(a)(64), 9-203(f), 9-301(2), 9-315(a), 9-316; former
U.C.C. §§ 1-201(9), 9-306(2), 9-402(7) (third sentence); see also former U.C.C.
§ 9-301(l)(c).

 

3

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

 

IN WITNESS WHEREOF, the undersigned has signed this Certificate on
[                      ], 2005.

 

 

 

K-SEA OPERATING PARTNERSHIP L.P.

 

 

 

By:

K-SEA OLP GP, LLC
its General Partner

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

Name:

John J. Nicola

 

 

 

Title:

Chief Financial Officer

 

4

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Exhibit A

 

Notice of Assignment of Insurance

 

The undersigned, K-SEA OPERATING PARTNERSHIP L.P., the Owner of the United
States flag Vessel [                            ], Official Number
[                             ], hereby gives you notice that by a Security
Agreement dated as of [                             ], 2005 (the “Assignment”),
entered into by us with Citizens Asset Finance, a d/b/a of Citizens Leasing
Corporation (hereinafter called the “Assignee”), there has been assigned by us
to the Assignee as Mortgagee all insurances effected and to be effected in
respect thereof including the insurances constituted by the policy whereon this
Notice is endorsed.  The undersigned requests that this Notice of Assignment and
the applicable loss payable clauses in the form hereto attached as Annex I are
to be endorsed on all policies and certificates of entry evidencing such
insurance.

 

 

Dated:  [                         ], 2005

 

 

K-SEA OPERATING PARTNERSHIP L.P.,
by its general partner K-Sea OLP GP, LLC,
as Owner

 

 

 

 

 

By:

 

 

 

Name: John J. Nicola

 

 

Title: Chief Financial Officer

 

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

 

Exhibit B

 

LOSS PAYABLE CLAUSES

 

Hull and Machinery

 

Loss, if any, payable to Citizens Asset Finance, a d/b/a of Citizens Leasing
Corporation (the “Mortgagee”), for distribution by the Mortgagee first to itself
and then to K-Sea Operating Partnership L.P., a Delaware limited partnership, as
owner (the “Owner”), as their respective interests may appear, or order, except
that, unless Underwriters have been otherwise instructed by notice in writing
from the Mortgagee, in the case of any loss involving any damage to the Vessels
or liability of the Vessels, the Underwriters may pay directly for the repair,
salvage, liability or other charges involved or, if the Owner shall have first
fully repaired the damage and paid the cost thereof, or discharged the liability
or paid all of the salvage or other charges, then the Underwriters may pay the
Owner as reimbursement therefor; provided, however, that if such damage involves
a loss in excess of U.S. $250,000 or its equivalent, the Underwriters shall not
make such payment without first obtaining the written consent thereto of the
Mortgagee.

 

In the event of an actual or constructive total loss or a compromised or
arranged total loss of the Vessel or requisition of title, all insurance
payments therefor shall be paid to the Mortgagee, for distribution by it in
accordance with the terms of the applicable ship Mortgage.

 

Protection and Indemnity

 

Loss, if any, payable to Citizens Asset Finance, a d/b/a of Citizens Leasing
Corporation (the “Mortgagee”), for distribution by the Mortgagee first to itself
and then to K-Sea Operating Partnership L.P., a Delaware limited partnership, as
owner (the “Owner”), as their respective interests may appear, or order, except
that, unless and until the Underwriters have been otherwise instructed by notice
in writing from the Mortgagee, any loss may be paid directly to the person to
whom the liability covered by this insurance has been incurred, or to the Owner
to reimburse it for any loss, damage or expenses incurred by it and covered by
this insurance, provided the Underwriters shall have first received evidence
that the liability insured against has been discharged.

 

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

 

Exhibit F

 

K-SEA OPERATING PARTNERSHIP L.P.

 

Compliance Certificate Under Loan Agreement
dated as of [              ], 2005

 

K-SEA OPERATING PARTNERSHIP L.P. (“Borrower”), hereby certifies that:

 

This Certificate is furnished pursuant to §8.4 of the Loan Agreement dated as of
[                    ], 2005 (the “Loan Agreement”) by and among the Borrower
and Citizens Asset Finance, a d/b/a of Citizens Leasing Corporation (the
“Lender”).  Unless otherwise defined herein, the terms used in this Certificate
have the meanings given to them in the Loan Agreement.

 

As required by §8.4 of the Loan Agreement, consolidated financial statements of
K-Sea Transportation Partners L.P. and its Subsidiaries (“K-Sea”) for the period
ended                       , 20    (the “Financial Statements”), prepared in
accordance with GAAP consistently applied, accompany this Certificate.  The
Financial Statements present fairly the consolidated financial position of K-Sea
as at the date thereof and the consolidated results of operations of K-Sea for
the period covered thereby (subject in the case of interim Financial Statements
only to normal recurring year-end adjustments).

 

All of the representations and warranties made by the Borrower in §3 of the Loan
Agreement were true and correct when made and are true and correct at and as of
the date hereof with the same effect as if made herein.

 

The activities of the Borrower during the period covered by the Financial
Statements have been reviewed by the Chief Financial Officer or by employees or
agents under his or her immediate supervision.  Based on such review, to the
best knowledge and belief of the Chief Financial Officer, and as of the date of
this Certificate, no Default or Event of Default has occurred.

 

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

 

WITNESS my hand this         day of                       , 20   .

 

 

K-SEA OPERATING PARTNERSHIP L.P.

 

 

 

By:K-Sea OLP GP, LLC, its General Partner

 

 

 

 

 

By:

 

 

 

 

Name: John J. Nicola

 

 

Title: Chief Financial Officer

 

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

 

Exhibit F

 

LIEN CERTIFICATE

 

RE:

K-Sea Operating Partnership L.P.

 

 

NAME OF PROJECT:

DBL 28, DBL 29 (the “Vessels,” and each, a “Vessel”)

 

 

NAME OF OWNER’S LENDER:

Citizens Asset Finance, a d/b/a of Citizens Leasing Corporation

 

Reference is made to the Loan Agreement (the “Agreement”) dated as of June   ,
2005, between K-Sea Operating Partnership L.P. (“K-Sea”) and Citizens Asset
Finance, a d/b/a of Citizens Leasing Corporation (“CLC”).  Capitalized terms
used but not defined herein shall have the meanings set forth in the Agreement.

 

The undersigned hereby acknowledges to CLC that the undersigned has received
prior payment(s) in the amount of One million five hundred fifty-seven thousand
one hundred and no/100 ($1,557,100.00) Dollars, and does hereby release pro
tanto any mechanic’s lien, laborer and materialmen’s lien, stop notice or
equitable lien, to the extent of such payment and all prior payments received in
respect of each Vessel.  The undersigned hereby certifies that no subcontractors
or any other third party are known by the undersigned to have any Lien rights
with respect to each Vessel, other than those for which we have received
contemporaneous releases.  This release is for the benefit of, and may be relied
upon by CLC.

 

 

BOLLINGER MARINE FABRICATORS, L.L.C.

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

Date:                     , 20   

 

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

 

Exhibit G

 

ASSIGNMENT OF PROJECT DOCUMENTS

 

THIS ASSIGNMENT OF PROJECT DOCUMENTS (this “Assignment”) is made and entered
into as of this      day of          , 2005, by K-SEA OPERATING PARTNERSHIP
L.P., a Delaware limited partnership (“Borrower”), to CITIZENS ASSET FINANCE, a
d/b/a of CITIZENS LEASING CORPORATION, a Rhode Island corporation (“Lender”),
under a certain Loan Agreement dated as of the date hereof (the “Loan
Agreement”) between Borrower and Lender; and

 

WHEREAS, pursuant to the Loan Agreement, Lender has agreed to make a loan to
Borrower in the aggregate principal amount of up to $18,000,000 (the “Loan”), on
the terms and conditions set forth therein, among other things, to finance the
construction of two United States flag vessels (individually, a “Vessel” and
together, the “Vessels”) that are the subject of the Construction Contract (as
defined below); and

 

WHEREAS, as evidence of the indebtedness incurred under the Loan, Borrower has
executed and delivered to Lender the Loan Agreement and will, on the Advance
Termination Date (as defined in the Loan Agreement), execute and deliver to
Lender a certain promissory note, payable to Lender in the aggregate principal
face amount of $18,000,000 (the “Note”), payment of which is secured by a
Security Agreement of even date herewith (the “Security Agreement”) from
Borrower covering the property described in the Security Agreement as well as
certain other security; and

 

WHEREAS, the execution and delivery of this Assignment is a condition precedent
to the performance by Lender of its obligations under the Loan Agreement;

 

NOW, THEREFORE, in consideration of the recitals set forth above and
incorporated herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Borrower hereby covenants and
agrees as follows:

 

1.                                       Borrower hereby grants, transfers and
assigns to Lender,  all right, title and interest of Borrower in, to and under
the following agreements, contracts, guaranties, warranties, plans, licenses,
permits and other items of personal property, whether now or hereafter executed,
granted, received, acquired or issued:

 

(i)                                     that certain Agreement, dated as of
February 21, 2005, between Borrower and Bollinger Marine Fabricators, L.L.C., a
Louisiana limited liability company (the “Contractor”), relating to the
construction of the Vessels (hereinafter together with any and all extensions,
modifications, amendments and renewals thereof, referred to as the “Construction
Contract”);

 

(ii)                                  all contracts and subcontracts, together
with any and all extensions, modifications, amendments and renewals thereof,
which are entered into by Borrower in connection with the performance of the
work or the supply of labor, services or materials required for the construction
of the Vessels.

 

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

 

(iii)                               all guarantees, warranties and other
undertakings, whether written, oral or statutory, covering the quality or
performance of the work or the quality of the materials required by the
Construction Contract, contracts and subcontracts (including, but in no way
limited to, any and all payment and performance bonds relating to the work under
the Construction Contract), together with any claims which may be asserted
thereunder;

 

(iv)                              all plans, specifications, drawings, surveys,
renderings and models prepared for the construction of the Vessels in existence
from time to time, together with all revisions and modifications thereof and all
sketches and notes related thereto.

 

The items referred to in paragraphs (i) through (iv) above are sometimes
hereinafter collectively referred to as the “Project Documents” and individually
referred to as a “Project Document”.

 

This Assignment is made for the purpose of securing:  (a) the full and prompt
payment when due, whether by acceleration or otherwise, with such interest as
may accrue thereon, either before or after maturity thereof, of all amounts due
under the Loan Agreement and (when executed) the Note; (b) the full and prompt
payment and performance of any and all obligations of Borrower to Lender
hereunder and under the Loan Agreement, the Security Agreement, and any other
agreements, documents or instruments now or hereafter evidencing, securing or
otherwise relating to the indebtedness evidenced by the Loan Agreement or Note
(the Note, the Loan Agreement, the Security Agreement and said other agreements,
documents or instruments, together with all renewals, amendments, extensions,
consolidations and modifications thereof, are hereinafter collectively referred
to as the “Loan Documents” and individually referred to as a “Loan Document”);
and (c) any and all other indebtedness under the Loan Documents, however
incurred, which may now or hereafter be due and owing from Borrower, to Lender,
now existing or hereafter coming into existence, however and whenever incurred
or evidenced, whether expressed or implied, direct or indirect, absolute or
contingent, or due or to become due, and all renewals, modifications,
consolidations and extensions thereof.

 

2.                                       Borrower hereby covenants and agrees:

 

A.                                   To faithfully abide by, perform and
discharge each and every obligation, covenant, condition and agreement of the
Project Documents to be performed by Borrower and to enforce performance by each
other party thereto of each and every obligation, covenant, condition and
agreement to be performed by such other party.

 

B.                                     To promptly provide Lender with copies of
any and all notices received or given by Borrower which allege, either directly
or indirectly, that Borrower is in default in the performance of any obligation,
covenant, condition or agreement of the Project Documents to be performed by
Borrower, or that any other party to the Project Documents is in default in the
performance of any obligation, covenant, condition or agreement of the Project
Documents to be performed by such other party.

 

C.                                     That the term “Event of Default”,
whenever used in this Assignment, shall have the same meaning as set forth in
the Loan Agreement.

 

2

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D.                                    That an Event of Default by Borrower under
this Assignment shall constitute a default under all of the Loan Documents.

 

E.                                      That upon the occurrence of any Event of
Default, Lender may at its option, with or without notice or demand of any kind
(except as may be provided herein or in any of the Loan Documents), and without
waiving such Event of Default, exercise any or all of the following rights and
remedies:  (1) declare any part or all of the indebtedness evidenced or secured
hereby or by the Loan Documents to be immediately due and payable in accordance
with the terms of the Loan Agreement, whereupon the same shall become
immediately due and payable; (2) exercise any and all rights and remedies
provided for hereunder or under the Loan Documents as well as such remedies as
may be available at law or in equity; and (3) cure any such Event of Default in
such manner and to such extent as Lender may deem necessary to protect the
security hereof, including specifically, without limitation, the right (but not
the obligation) to appear in and defend any action or proceeding purporting to
affect the security hereof or the rights or powers of Lender, and also the right
(but not the obligation) to perform and discharge each and every obligation,
covenant, condition and agreement of Borrower under the Project Documents, and,
in exercising any such powers, to pay necessary costs and expenses, employ
counsel and incur and pay attorneys’ fees and expenses.  Lender shall not be
obligated to perform or discharge, nor does it undertake to perform or
discharge, any obligation, duty or liability of Borrower under any of the
Project Documents, or by reason of this Assignment, it being agreed that Lender
shall be treated as agreeing to perform or discharge such obligation, duty or
liability if (but only if) Lender shall, by written notice sent to the other
contracting party to, or grantor or licensor of, such Project Document,
expressly so elect.

 

F.                                      That at any time after the occurrence of
any Event of Default, Lender may, at its option, without notice, and without
regard to the adequacy of security for the indebtedness hereby secured, with or
without bringing any action or proceeding, or by a receiver to be appointed by a
court at any time hereafter, exercise or enforce for their own benefit every
right, power and authority under the Project Documents, or any of them, as fully
as Borrower could itself.

 

G.                                     That the Contractor, upon receipt of
written notice from Lender of the occurrence of any Event of Default and
Lender’s election to exercise its rights under this Assignment, shall be and is
hereby irrevocably directed and authorized by Borrower to recognize and accept
Lender, as “owner” under the Construction Contract, or as holder of such other
Project Document, as the case may be, for any and all purposes as fully as it
would recognize and accept Borrower and the performance of Borrower thereunder,
and to perform such Project Document for the benefit of Lender in accordance
with the terms and conditions thereof, without any obligation to determine
whether or not any such Event of Default has in fact occurred.

 

H.                                    That further, and without limitation of
the foregoing remedies, upon the occurrence of any Event of Default, Lender
shall have the rights and remedies of a secured party under the Uniform
Commercial Code as in effect in the State of New York from time to time with
respect to each and every Project Document in which a security

 

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interest may be obtained, in addition to the rights and remedies otherwise
provided for by law or in equity or in any of the Loan Documents.

 

I.                                         Except as expressly provided by law,
that in the exercise of the powers herein granted to Lender, no liability shall
be asserted or enforced against Lender, all such liability being hereby
expressly waived and released by Borrower.  Borrower hereby agrees to indemnify
and hold Lender free and harmless from and against any and all claims, demands,
liability, expense, cost, loss or damage (including all costs, expenses and
attorneys’ fees incurred in the defense thereof) which may be asserted against,
imposed on or incurred by Lender by reason of any act or omission of Borrower
under any of the Project Documents or by reason of this Assignment or the
exercise of Lender’s rights and remedies under this Assignment or under any of
the Project Documents or by reason of any alleged obligation or undertaking of
Lender to perform or discharge any obligation, duty or liability of Borrower
under any of the Project Documents, provided that nothing herein shall be
construed to obligate Borrower to indemnify and hold Lender free and harmless
from and against any claim, demand, liability, expense, cost, loss or damage
asserted against, imposed on or incurred by Lender by reason of Lender’s willful
misconduct or gross negligence.  Should Lender incur any such liability,
expense, cost, loss or demands, for which it is to be indemnified by Borrower as
aforesaid, the amount thereof shall be secured by this Assignment, the Security
Agreement and the other Loan Documents (whether or not such amount, when
aggregated with other sums secured by the Security Agreement and the other Loan
Documents, exceeds the aggregate principal face amount due under the Loan
Agreement or the Note), shall bear interest at the default rate specified in the
Loan Agreement from the date incurred until paid, and shall be due and payable
immediately upon demand by Lender.

 

J.                                        That Lender shall have the right in
accordance with the terms of the Loan Agreement to assign to any subsequent
holder of the Note or the Security Agreement, or to any person acquiring title
to the Vessel(s), the Project Documents and all the right, title, interest,
power and authority of the Borrower in, under and by virtue of the Project
Documents hereby or hereafter assigned.

 

3.                                       Borrower further hereby covenants,
represents and warrants to Lender that (i) Borrower has not previously assigned,
sold, pledged, transferred, mortgaged, hypothecated or otherwise encumbered the
Project Documents or any of them, or its right, title and interest therein, (ii)
Borrower shall not assign, sell, pledge, transfer, mortgage, hypothecate or
otherwise encumber its interests in the Project Documents or any of them, (iii)
Borrower has not performed, and will not perform, any act which might prevent
Borrower from performing its undertakings hereunder or which might prevent
Lender from operating under or enforcing any of the terms and conditions hereof
or which would limit Lender in such operation or enforcement, (iv) Borrower is
not in default under the Project Documents, or any of them, and to the best
knowledge of Borrower, no other party to the respective Project Documents is in
default thereunder except as disclosed in writing to Lender, (v) except as
provided in the Loan Agreement, no material amendments to any of the Project
Documents will be made without the prior written consent of Lender, and (vi)
upon execution of any of the Project Documents, (and upon the subsequent
execution of any material amendments to any of the Project Documents)Borrower
will deliver a copy of such Project Document (or the original at Lender’s

 

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request) to Lender and will require such of the parties thereto as Lender may
designate to execute and deliver to Lender a consent to this Assignment.

 

4.                                       All notices, demands, elections or
requests provided for or permitted to be given pursuant to this Assignment shall
be in writing and shall be deemed to have been sufficiently given when delivered
or mailed in the manner set forth in the Loan Agreement.

 

5.                                       Any provision in the Loan Agreement
that pertains to this Assignment shall be deemed to be incorporated herein as if
such provision were fully set forth in this Assignment.  In the event of any
conflict between the terms of this Assignment and the terms of the Loan
Agreement, the terms of the Loan Agreement shall prevail.  A provision in this
Assignment shall not be deemed to be inconsistent with the Loan Agreement by
reason of fact that no provision in the Loan Agreement covers such provision in
this Assignment.

 

6.                                       Although this Assignment constitutes a
present, current and absolute assignment of the Project Documents, so long as
there shall exist no Event of Default, Borrower shall have the right to exercise
every right, power and authority under the Project Documents, and to perform and
enforce performance of all obligations under the Project Documents.  This
Assignment shall terminate when the indebtedness evidenced by the Loan Agreement
and the Note is paid in full and all obligations, covenants, conditions and
agreements of Borrower contained herein and in the Loan Documents are performed
and discharged, and, in such event, upon the request of Borrower, Lender shall
execute and deliver to Borrower instruments effective to evidence the
termination of the Assignment.

 

7.                                       This Assignment constitutes the
granting by Borrower to Lender of a security interest, under the Uniform
Commercial Code as enacted in the State of New York from time to time, in the
right, title and interest of Borrower in, to and under each and every Project
Document in which a security interest may be obtained.  Borrower agrees to
execute and deliver to Lender, at any time or times during which this Assignment
shall be in effect, such further instruments as Lender may deem necessary to
make effective this Assignment and the security interest created hereby.  To
evidence such security interest, at the request of Lender, Borrower shall, in a
form satisfactory to Lender, join with Lender in executing one or more financing
statements or other notices of security interest, and any continuation thereof,
and shall pay the cost for filing thereof.

 

8.                                       The exercise of any rights or remedies
under this Assignment shall not be deemed to cure or waive any Event of Default,
or waive, modify or affect any notice of default under any of the Loan
Documents, or invalidate any act done pursuant to such notice.  The rights and
remedies of Lender herein provided shall be in addition to and not in
substitution for the rights and remedies vested in Lender in any of the Loan
Documents or at law or in equity, all of which rights and remedies are
specifically reserved by Lender.  The remedies herein provided or otherwise
available to Lender shall be cumulative and may be exercised concurrently.  The
failure to exercise any of the remedies herein provided shall not constitute a
waiver thereof, nor shall use of any of the remedies herein provided prevent the
subsequent or concurrent resort to any other remedy or remedies.

 

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9.                                       This Assignment shall be interpreted,
construed and enforced according to laws of the State of New York.

 

10.                                 It is expressly intended, understood and
agreed that this Assignment and the Loan Documents are made and entered into for
the sole protection and benefit of Borrower and Lender, and their respective
legal representatives, successors and assigns (but in the case of assigns of
Borrower, only if and to the extent that Lender has consented in writing to
Borrower’s assignment of its rights or obligations hereunder or thereunder to
such assigns); that no other person or persons shall have any right at any time
to act hereon or rights to the proceeds of the Loan; that such proceeds of the
Loan do not constitute a trust fund for the benefit of any third party; that no
third party shall under any circumstances be entitled to any equitable lien on
any such undisbursed proceeds of the Loan at any time; and that Lender shall
have a lien upon and right to direct application of any such undisbursed
proceeds of the Loan as provided in the Loan Documents.

 

11.                                 The relationship between Lender and Borrower
is solely that of lender and borrower, and nothing contained herein or in any of
the Loan Documents shall in any manner be construed as making the parties hereto
partners, joint venturers or any other relationship other than lender and
borrower.

 

12.                                 Borrower and Lender intend and believe that
each provision in this Assignment comports with all applicable local, state or
federal laws and judicial decisions.  However, if any provision or provisions,
or if any portion of any provision or provisions, in this Assignment is found by
a court of law to be in violation of any applicable local, state or federal
ordinance, statute, law, administrative or judicial decision or public policy,
and if such court should declare such portion, provision or provisions of this
Assignment to be illegal, invalid, unlawful, void or unenforceable as written,
then it is the intent of Borrower and Lender that such portion, provision or
provisions shall be given force to the fullest possible extent that they are
legal, valid and enforceable, that the remainder of this Assignment shall be
construed as if such illegal, invalid, unlawful, void or unenforceable portion,
provision or provisions were not contained therein and that the rights,
obligations and interests of Borrower and Lender under the remainder of this
Assignment shall continue in full force and effect.

 

13.                                 Capitalized terms used but not defined
herein shall have the meanings set forth in the Loan Agreement.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, Borrower has executed this Assignment, as of the day, month
and year first above written.

 

 

 

K-SEA OPERATING PARTNERSHIP L.P.

 

 

 

By:  K-Sea OLP GP, LLC, its General Partner

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

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Exhibit H

 

CONTRACTOR’S CONSENT

 

1.                                       The undersigned BOLLINGER MARINE
FABRICATORS, L.L.C., a Louisiana Limited Liability Company (“Contractor”),
understands that CITIZENS ASSET FINANCE, a d/b/a of Citizens Leasing
Corporation, a Rhode Island corporation (“Lender”), will be making a loan (the
“Loan”) to K-SEA OPERATING PARTNERSHIP L.P., a Delaware limited partnership
(“Owner”), to finance a portion of the costs of the construction of two vessels
(the “Vessels”), pursuant to that certain Loan Agreement of even date herewith
(the “Loan Agreement”), between Lender and Owner. The Loan will be secured by,
among other things, that certain Security Agreement of even date herewith, from
Owner to Lender (the “Security Agreement”).  The construction of the Vessels is
to be performed by Contractor pursuant to that certain Agreement dated as of
February 21, 2005 (the “Construction Contract”), between Contractor and Owner.
To further secure the Loan and the obligations of Owner to Lender under the Loan
Agreement, Owner has assigned all of its right, title and interest in and to the
Construction Contract to Lender, pursuant to that certain Assignment of Project
Documents of even date herewith (the “Assignment”).

 

2.                                       Contractor acknowledges receipt of the
Assignment, consents to the Assignment, and agrees to act in accordance with the
terms thereof, provided, however, that Contractor shall not be obligated to
Lender for the performance or payment of any of the obligations of Borrower
under the Loan Agreement, Security Agreement or the Assignment.

 

3.                                       If Owner fails to perform any
obligation under the Construction Contract, and Contractor deems such failure a
default under the Construction Contract, Contractor shall give written notice
thereof to Lender and give Lender 30 days from Lender’s receipt of Contractor’s
notice of default to cure such default, provided that Contractor’s failure to
give such notice shall not create any liability to Lender or affect Contractor’s
rights under the Construction Contract.

 

4.                                       Upon receipt by Contractor of written
notice from Lender stating that (a) Owner is in default under the Loan Agreement
or any other agreement, document or instrument evidencing, securing or otherwise
relating to the Loan, and (b) Lender is electing to exercise its rights under
the Assignment to replace Owner as “Owner” under the Construction Contract,
Lender shall succeed to all of the rights of Owner under the Construction
Contract (including Owner’s rights to the Drawings and the Specifications, as
those terms are defined in the Construction Contract) and Contractor shall
continue performance on Lender’s behalf under the Construction Contract in
accordance with the terms thereof, regardless of any default by Owner under the
Construction Contract, provided that Lender pays Contractor for all work, labor,
services and materials rendered by Contractor in accordance with the terms of
the Construction Contract and otherwise complies with all of Owner’s obligations
thereunder.  Prior to such notice of election by Lender, Lender shall not be
deemed by virtue of the Assignment or any action taken thereunder to have
assumed any obligations of Owner under the Construction Contract, nor shall
Lender incur any liability of any kind to Contractor under the Construction
Contract by reason of any breach of such obligations by Owner.  Lender hereby
ratifies and agrees to abide by all acts of Owner taken prior to such notice of
election by Lender.

 

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Executed as of                                    , 2005.

 

 

BOLLINGER MARINE FABRICATORS, L.L.C.

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

 

[Contractor’s Consent]

 

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