EXHIBIT 10.1


PARTICIPATION
AND LOAN AND SECURITY AGREEMENT


dated as of November __,
2003


by and between


K-SEA OPERATING PARTNERSHIP L.P.,


as borrower,


and


KEYBANK N.A.,


for itself as Lender, and as
administrative agent for Lenders


and


THE CIT GROUP/EQUIPMENT FINANCING, INC.,


for itself as Lender,  and as collateral agent for Lenders


 

















TABLE OF CONTENTS


	
  ARTICLE I    DEFINITIONS

  
	
   

  	
   

  
	
  Section 1.01

  	
  Defined Terms

  
	
   

  	
   

  
	
  Section 1.02

  	
  Terms Generally

  
	
   

  	
   

  
	
  Section 1.03

  	
  Accounting Terms; GAAP

  
	
   

  	
   

  
	
  ARTICLE II    THE LOANS

  
	
   

  	
   

  
	
  Section 2.01

  	
  Commitments

  
	
   

  	
   

  
	
  Section 2.02

  	
  Loans

  
	
   

  	
   

  
	
  Section 2.03

  	
  Payments

  
	
   

  	
   

  
	
  Section 2.04

  	
  Requests for Loans

  
	
   

  	
   

  
	
  Section 2.05

  	
  Settlement and Funding of Loans

  
	
   

  	
   

  
	
  Section 2.06

  	
  Non-Receipt of Funds

  
	
   

  	
   

  
	
  Section 2.07

  	
  Termination and Reduction of Commitments

  
	
   

  	
   

  
	
  Section 2.08

  	
  Repayment of Loans; Evidence of Debt

  
	
   

  	
   

  
	
  Section 2.09

  	
  Prepayment of Loans

  
	
   

  	
   

  
	
  Section 2.10

  	
  Fees

  
	
   

  	
   

  
	
  Section 2.11

  	
  Increased Costs

  
	
   

  	
   

  
	
  Section 2.12

  	
  Break Funding Payments

  
	
   

  	
   

  
	
  Section 2.13

  	
  Taxes

  
	
   

  	
   

  
	
  Section 2.14

  	
  Payments Generally; Pro Rata Treatment;
  Sharing of Set-offs

  
	
   

  	
   

  
	
  Section 2.15

  	
  Letters of Credit

  
	
   

  	
   

  
	
  Section 2.16

  	
  Mitigation Obligations; Replacement of
  Lenders

  
	
   

  	
   

  
	
  Section 2.17

  	
  Term-Loans

  
	
   

  	
   

  
	
  ARTICLE III    GRANT OF SECURITY INTEREST

  
	
   

  	
   

  
	
  Section 3.03

  	
  Orderly Liquidation Value

  
	
   

  	
   

  
	
  ARTICLE IV    REPRESENTATIONS AND WARRANTIES

  
	
   

  	
   

  
	
  Section 4.01

  	
  Organization

  
	
   

  	
   

  
	
  Section 4.02

  	
  Power and Authority

  
	
   

  	
   

  
	
  Section 4.03

  	
  Governmental Approvals; No Conflicts

  
	
   

  	
   

  
	
  Section 4.04

  	
  Financial Condition; No Material Adverse
  Change

  



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  Section 4.05

  	
  Litigation

  
	
   

  	
   

  
	
  Section 4.06

  	
  Environmental Condition

  
	
   

  	
   

  
	
  Section 4.07

  	
  Compliance with Laws and Agreements

  
	
   

  	
   

  
	
  Section 4.08

  	
  Investment and Holding Company Status

  
	
   

  	
   

  
	
  Section 4.09

  	
  Taxes

  
	
   

  	
   

  
	
  Section 4.10

  	
  ERISA

  
	
   

  	
   

  
	
  Section 4.11

  	
  Disclosure

  
	
   

  	
   

  
	
  Section 4.12

  	
  No Other Name

  
	
   

  	
   

  
	
  Section 4.13

  	
  Title

  
	
   

  	
   

  
	
  Section 4.14

  	
  Lenders’ Security Interest

  
	
   

  	
   

  
	
  Section 4.15

  	
  Citizenship

  
	
   

  	
   

  
	
  ARTICLE V    CONDITIONS

  
	
   

  	
   

  
	
  Section 5.01

  	
  Effective Date

  
	
   

  	
   

  
	
  Section 5.02

  	
  Subsequent Loans

  
	
   

  	
   

  
	
  Section 5.03

  	
  Facility B and Facility C Loans

  
	
   

  	
   

  
	
  ARTICLE VI    AFFIRMATIVE COVENANTS

  
	
   

  	
   

  
	
  Section 6.01

  	
  Financial Statements and Other Information

  
	
   

  	
   

  
	
  Section 6.02

  	
  Vessel Appraisals

  
	
   

  	
   

  
	
  Section 6.03

  	
  Fees and Expenses

  
	
   

  	
   

  
	
  Section 6.04

  	
  Notices of Material Events

  
	
   

  	
   

  
	
  Section 6.05

  	
  Existence; Conduct of Business

  
	
   

  	
   

  
	
  Section 6.06

  	
  Insurance

  
	
   

  	
   

  
	
  Section 6.07

  	
  Taxes; Use

  
	
   

  	
   

  
	
  Section 6.08

  	
  Maintenance of Properties; Use and
  Operation of Vessels

  
	
   

  	
   

  
	
  Section 6.09

  	
  Books and Records; Inspection Rights

  
	
   

  	
   

  
	
  Section 6.10

  	
  Use of Proceeds

  
	
   

  	
   

  
	
  Section 6.11

  	
  U.S. Person

  
	
   

  	
   

  
	
  Section 6.12

  	
  Documentation

  
	
   

  	
   

  
	
  Section 6.13

  	
  Further Assurances

  



 


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  Section 6.14

  	
  Borrower’s Title; Lenders’ Security
  Interest; Personal Property

  
	
   

  	
   

  
	
  Section 6.15

  	
  Indemnification

  
	
   

  	
   

  
	
  Section 6.16

  	
  Performance of Contracts

  
	
   

  	
   

  
	
  Section 6.17

  	
  Environmental Compliance

  
	
   

  	
   

  
	
  Section 6.18

  	
  Subsidiary Guaranties

  
	
   

  	
   

  
	
  ARTICLE VII    NEGATIVE COVENANTS

  
	
   

  	
   

  
	
  Section 7.01

  	
  Fixed Charge Coverage

  
	
   

  	
   

  
	
  Section 7.02

  	
  Total Funded Debt to EBITDA

  
	
   

  	
   

  
	
  Section 7.03

  	
  Leverage Ratio

  
	
   

  	
   

  
	
  Section 7.04

  	
  Adjustments to Measurements

  
	
   

  	
   

  
	
  Section 7.05

  	
  Minimum Tangible Net Worth

  
	
   

  	
   

  
	
  Section 7.06

  	
  No Liens

  
	
   

  	
   

  
	
  Section 7.07

  	
  No Changes in Borrower

  
	
   

  	
   

  
	
  Section 7.08

  	
   

  
	
   

  	
   

  
	
  Section 7.09

  	
  Fundamental Changes

  
	
   

  	
   

  
	
  Section 7.10

  	
  Transactions with Affiliates

  
	
   

  	
   

  
	
  Section 7.11

  	
  Restrictive Agreements

  
	
   

  	
   

  
	
  ARTICLE VIII    EVENTS OF DEFAULT AND REMEDIES

  
	
   

  	
   

  
	
  Section 8.01

  	
  Events of Default

  
	
   

  	
   

  
	
  Section 8.02

  	
  Remedies

  
	
   

  	
   

  
	
  Section 8.03

  	
  Lenders’ Cure of Third Party Agreement
  Default

  
	
   

  	
   

  
	
  ARTICLE IX    THE AGENTS

  
	
   

  	
   

  
	
  Section 9.01

  	
  Appointment, Powers and Immunities

  
	
   

  	
   

  
	
  Section 9.02

  	
  Reliance by Agents

  
	
   

  	
   

  
	
  Section 9.03

  	
  Events of Defaults

  
	
   

  	
   

  
	
  Section 9.04

  	
  Rights as a Lender

  
	
   

  	
   

  
	
  Section 9.05

  	
  Indemnification

  
	
   

  	
   

  
	
  Section 9.06

  	
  Non-Reliance on Agents and Other Lenders

  
	
   

  	
   

  
	
  Section 9.07

  	
  Failure to Act

  



 


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  Section 9.08

  	
  Resignation or Removal of an Agent

  
	
   

  	
   

  
	
  Section 9.09

  	
  Consents under Loan Documents

  
	
   

  	
   

  
	
  Section 9.10

  	
  Action Upon Instructions

  
	
   

  	
   

  
	
  ARTICLE X    MISCELLANEOUS

  
	
   

  	
   

  
	
  Section 10.01

  	
  Notices

  
	
   

  	
   

  
	
  Section 10.02

  	
  Term and Termination

  
	
   

  	
   

  
	
  Section 10.03

  	
  [Reserved.]

  
	
   

  	
   

  
	
  Section 10.04

  	
  Termination Indemnity Deposit

  
	
   

  	
   

  
	
  Section 10.05

  	
  K-Sea as Agent for Borrower

  
	
   

  	
   

  
	
  Section 10.06

  	
  Discharge of Borrower

  
	
   

  	
   

  
	
  Section 10.07

  	
  Joint and Several

  
	
   

  	
   

  
	
  Section 10.08

  	
  Waivers; Amendments

  
	
   

  	
   

  
	
  Section
  10.09

  	
  Expenses; Indemnity; Damage Waiver

  
	
   

  	
   

  
	
  Section 10.10

  	
  Successors and Assigns

  
	
   

  	
   

  
	
  Section 10.11

  	
  Survival

  
	
   

  	
   

  
	
  Section 10.12

  	
  Counterparts; Integration; Effectiveness

  
	
   

  	
   

  
	
  Section 10.13

  	
  Severability

  
	
   

  	
   

  
	
  Section 10.14

  	
  Right of Set-off

  
	
   

  	
   

  
	
  Section 10.15

  	
  Governing Law; Jurisdiction; Consent to
  Service of Process

  
	
   

  	
   

  
	
  Section 10.16

  	
  WAIVER OF JURY TRIAL

  
	
   

  	
   

  
	
  Section 10.17

  	
  Headings

  
	
   

  	
   

  
	
  Section 10.18

  	
  Confidentiality

  
	
   

  	
   

  
	
  Section 10.19

  	
  Interest Rate Limitation

  
	
   

  	
   

  
	
  Section 10.20

  	
  Further Assurances

  



 


	
  SCHEDULES:

  	
   

  	
   

  
	
  Schedule I

  	
  —

  	
  Pool
  Vessels

  
	
  Schedule 2.01

  	
  —

  	
  Commitments

  
	
  Schedule 3.02

  	
  —

  	
  Tug-Barge Units

  
	
  Schedule 3.14

  	
  —

  	
  Charters

  
	
  Schedule 4.06

  	
  —

  	
  Environmental Compliance

  



 


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  EXHIBITS :

  	
   

  	
   

  
	
  Exhibit A

  	
  —

  	
  Form
  of Revolving Loan Note

  
	
  Exhibit B

  	
  —

  	
  Form
  of Facility D Note

  
	
  Exhibit C

  	
  —

  	
  Form
  of Term Loan Note

  
	
  Exhibit D

  	
  —

  	
  Form
  of Assignment and Acceptance

  
	
  Exhibit E

  	
  —

  	
  Form
  of Opinion of Borrower’s Counsel

  
	
  Exhibit F-1

  	
  —

  	
  Form
  of Letter of Credit

  
	
  Exhibit F-2

  	
  —

  	
  Form
  of Documentary Letter of Credit

  
	
  Exhibit G

  	
  —

  	
  Form
  of Loan Request (Revolving Loan)

  
	
  Exhibit H

  	
  —

  	
  Form
  of Request (Letter of Credit)

  
	
  Exhibit I

  	
  —

  	
  Form
  of Subsidiary Guaranty

  



 


 


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THIS PARTICIPATION AND LOAN AND
SECURITY AGREEMENT
(this “Agreement”), dated as of
November __, 2003, among K-SEA OPERATING
PARTNERSHIP  L.P., a
Delaware limited partnership (“Borrower”);
KEYBANK N.A., a national banking
association (“KeyBank”), for
itself as Lender, and as administrative agent for Lenders (in such capacity, “Administrative Agent”); and THE CIT GROUP/EQUIPMENT FINANCING, INC., a
Delaware corporation (“CIT”), for
itself as Lender, and as collateral agent for Lenders (in such capacity, “Collateral Agent”).


RECITALS


WHEREAS, Borrower desires to obtain loan
facilities in the aggregate amount of Forty-Seven Million Dollars
($47,000,000.00) in order to provide working capital for its operations and
cash to enable Borrower to acquire vessels from time to time and for other
permitted corporate purposes of Borrower; and


WHEREAS, Lenders have agreed to provide Borrower
with three (3) loan facilities:  (a) a
working capital facility in the amount of Ten Million Dollars
($10,000,000.00)(with a Four Million Dollar ($4,000,000.00) sublimit for
documentary letters of credit), (b) a revolving vessel acquisition facility in
the maximum amount of Thirty Million Dollars ($30,000,000.00), and (c) a swing
line facility, and KeyBank has also itself agreed to provide a fourth facility,
a standby letter of credit facility with a limit of Seven Million Dollars
($7,000,000.00), all four of which facilities (each, a “Facility” and together, the “Facilities”) shall be equally secured
by all the Collateral (as hereinafter defined) and otherwise subject to the
terms and conditions of this Agreement.


The parties hereto agree as follows:


ARTICLE I



DEFINITIONS


Section
1.01  Defined Terms  As used in
this Agreement, the following terms have the meanings specified below:


“Acquired Vessel”
means a vessel acquired, retrofitted, rebuilt or upgraded with a Facility B
Loan, or initially with a Facility C Loan and converted into a Facility B Loan
as provided herein.  All Acquired
Vessels must be owned at all times by Borrower or a Guarantor.


“Administrative
Agent” means KeyBank N.A., in its capacity as administrative
agent for Lenders hereunder.


“Affiliate”
means, with respect to a specified Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by or
is under common Control with the Person specified, provided, however,
that with respect to Borrower and K-Sea, this term shall not be deemed to
describe any Person who is not either Borrower, K-Sea or a direct or indirect
subsidiary of K-Sea.

















 


“Anniversary Date”
means the date occurring one (1) year from the Effective Date and the same date
in every year thereafter.


“Annual Maintenance Fee” shall be $15,000.00 per annum.


“Applicable Law”
means all applicable provisions of all (a) constitutions, statutes, ordinances,
rules, regulations and orders of all governmental and/or quasi-governmental
bodies, (b) Government Approvals, and (c) order, judgments and decrees of all
courts and arbitrators.


“Applicable
Percentage” means, with respect to any Lender, the percentage of
the total Commitments represented by such Lender’s Commitment.  If the Commitments have terminated or
expired, the Applicable Percentages shall be determined based upon the total
Revolving Loans represented by such Lender’s Revolving Loans.  Facility D is provided solely by KeyBank and
shall be excluded from the calculation of Applicable Percentage.


“Appraisal”
means any appraisal, either physical or desktop or both, as determined by an
appraiser, of the Pool Vessels or any Acquired Vessel, conducted from time to
time by or at the request of Lenders pursuant to the terms of this Agreement
and shall also include the appraisal of the Pool Vessels performed by Lenders
prior to the date hereof, or at Lenders’ direction, by an appraiser appointed
by Lenders and paid for by Borrower.


“Appraiser”
means any one of L&R Midland, Marcon International, Inc., Merrill Marine
Services, Inc., or any other Person agreed to by Borrower and Collateral Agent.


“Assignment and
Acceptance” means an assignment and acceptance entered into by
any Lender and an assignee (with the consent of any party whose consent is
required by Section 10.10 hereof), and accepted by Administrative Agent,
in the form of Exhibit D or
any other form approved by Administrative Agent.


“Assignments”
means, collectively, the Earnings Assignment and the Assignment of Insurances.


“Assignment of Insurances” means the first priority assignment of
insurances respecting the Pool Vessels granted by Borrower in favor of
Collateral Agent in form and substance satisfactory to Collateral Agent.


“Availability
Period” means the period from and including the Effective Date
to, but excluding, the earlier of the Termination Date and the date of
termination of the Commitments.


“Base Rate”
means, for any day, a rate per annum equal to the greater of (a) the KeyBank
Prime Rate, or (b) one-half of one percent in excess of the Federal Funds
Effective Rate.  Any change in the Base
Rate due to a change in the Prime Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
KeyBank N.A. Prime Rate or the Federal Funds Effective Rate, respectively.


“Board”
means the Board of Governors of the Federal Reserve System of the United States
of America.


 


2

















 


“Borrower”
means K-Sea Operating Partnership L.P., a Delaware limited partnership.


“Borrowing Base”
means 66 2/3% of the Orderly Liquidation Value of the Pool Vessels.


“Business Day”
means any day that is not a Saturday, Sunday or other day on which commercial
banks in New York City are authorized or required by law to remain closed;
provided, that when used in connection with a Loan that bears interest
at a rate per annum equal to the LIBOR Rate (including any notice in respect
thereof), the term “Business Day”
shall also exclude any day on which banks are not open for dealings in dollar
deposits in the London InterBank Market (“LIBOR
Business Day”).


“Capital Expenditures” means any expenditure or liability that
is properly charged to a capital account or otherwise capitalized on Borrower’s
consolidated balance sheet in accordance with GAAP.


“Capital Lease
Obligations” of any Person means 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.


“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.  The addition of independent
directors (and the subsequent replacement of such independent directors) to the
board of K-Sea upon and following its public offering shall not constitute a
“Change in Control” for this purpose.


“Change in Law”
means (a) the adoption of any law, rule or regulation after the date of
this Agreement, (b) any change in any law, rule or regulation or in the
interpretation or application thereof by any Governmental Authority after the
date of this Agreement, including, without limitation, any change in any
statutory, regulatory or institutional reserve requirement, including, but not
limited to, the Statutory Reserve Rate, or (c) compliance by any Lender
(or, for purposes of Section 2.11(b) hereof, by any lending office of such
Lender or by such Lender’s holding company, if any) with any request,
guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.


 


3

















 


“Classification Society” means the
American Bureau of Shipping or such other classification society acceptable to
Lenders.


“Code”
means the Internal Revenue Code of 1986, as amended from time to time.


“Collateral”
means the collateral described in this Agreement, including, but not limited
to, Article III hereof, the Assignments and the Mortgage, including, without
limitation, the Vessels, and the Proceeds thereof, all insurance with respect
to the Vessels, any and all charters of the Vessels by Borrower and all Hire
and other amounts payable from time to time thereunder and the Proceeds thereof,
all future charters of the Vessels by Borrower, including all Hire payments and
Proceeds of the foregoing and all amounts payable hereunder as more
specifically described herein and in the Assignments and the Mortgage.


“Collateral Agent”
means The CIT Group/Equipment Financing, Inc., in its capacity as collateral
agent for Lenders hereunder.


“Commitment”
means, with respect to each Lender, the commitment of such Lender to make Loans
hereunder, expressed as an amount representing fifty percent (50%) of the
maximum aggregate amount of such Lender’s Revolving Credit Exposure hereunder,
as such commitment may be (a) reduced from time to time pursuant to
Section 2.09 hereof, and (b) reduced or increased from time to time
pursuant to assignments by or to such Lender pursuant to Section 10.10
hereof.  The initial amount of each
Lender’s Commitment is set forth (x) on Schedule 2.01 or (y) in
the Assignment and Acceptance pursuant to which such Lender shall have assumed
its Commitment, as applicable.  In
addition and with respect only to KeyBank, Commitment means one hundred percent
(100%) of the credit exposure under Facility D.


“Control”
means 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
ability to exercise voting power, by contract or otherwise.  “Controlling”
and “Controlled” have
meanings correlative thereto.


“Credit Party”
means each of Borrower, each Guarantor and each of their respective
Subsidiaries.


“Current Maturities” means principal maturing or coming due on
Indebtedness during the next succeeding period of twelve (12) calendar months
or any portion of Indebtedness that would in accordance with GAAP be classified
as a current liability of such Person.


“Default”
means any event or condition which constitutes an Event of Default or which
upon notice, lapse of time or both would, unless cured or waived, become an
Event of Default.


“Distributions” means, with respect to any Person (i)
cash distributions or any other distributions on, or in respect of, any
ownership interest or any membership or partnership interest of such Person,
and (ii) any and all funds, cash or other payments made in respect of the
redemption, repurchase or acquisition of such interest.


“Dollars”
or “$” refers to lawful
money of the United States of America.


 


4

















 


“Earnings
Assignment” means the general assignment for security interest
purposes of all charters, charter hire, freights and earnings with respect to
the Pool Vessels and any Acquired Vessel granted by Borrower in favor of
Lenders, in form and substance satisfactory to Lenders and their counsel.


“EBITDA”
means, with respect to any fiscal period of K-Sea and its consolidated Affiliates,
including, without limitation, Borrower or any Guarantor, on a consolidated
basis, the sum of:


(1)           the
net income (or net loss) of Borrower (determined in accordance with GAAP) for
such fiscal period, without giving effect to pre-tax gains or losses on the
sale of assets or to any other extraordinary pre-tax gains or losses; plus:


(2)           to
the extent that any of the items referred to in any of clauses (i) through
(iii) below were deducted or added in calculating such net income:


(i)            Interest
Expense of Borrower for such fiscal period;


(ii)           federal
and state income tax expenses of Borrower for such fiscal period;


(iii)          the
amount of all depreciation and amortization for such fiscal period.


“Effective Date”
means the date on which the conditions specified in Section 5.01 hereof
are satisfied (or waived in accordance with Section 10.08 hereof).


“Environmental
Action” means any administrative, regulatory or judicial action,
suit, demand, demand letter, claim, notice of non-compliance or violation,
notice of liability or potential liability, investigation, proceeding, consent
order or consent agreement arising under any Environmental Law or Environmental
Permit relating to Hazardous Materials or arising from alleged injury or threat
of injury to health, safety or the environment in connection with or arising
from exposure to or the actual or potential release of Hazardous Materials,
including (a) by any Governmental Authority for enforcement, cleanup,
removal, response, remedial or other actions or damages, and (b) by any
Governmental Authority or any third party for damages, contribution,
indemnification, cost recovery, compensation or injunctive relief.


“Environmental
Event” means (i) an environmental event that has occurred
or any environmental condition that is discovered in, on, beneath, from or
involving any of the Vessels (including the presence, emission or release of
Hazardous Materials or the violation of any applicable Environmental Law) for
which a remediation or reporting could reasonably be required under applicable
Environmental Law, or (ii) notification received by Borrower, any
Guarantor or any charterer of a Vessel that such charterer, Guarantor,
Borrower, or any Vessel is the subject of an Environmental Action relating to
such Vessel that could reasonably be expected to result in any ordered
remediation or corrective action or other material liability under applicable
Environmental Law.


“Environmental
Law” means any and all applicable international, foreign,
federal, state, regional and local Laws (as well as obligations, duties and
requirements relating thereto under common law) relating to:  (a) emissions, discharges, spills,
releases or threatened releases of 


 


5

















 


pollutants, contaminants,
Hazardous Materials, materials containing Hazardous Materials, or hazardous or
toxic materials or wastes into ambient air, surface water (including, without
limitation, all inland and ocean waters), groundwater, watercourses, publicly
or privately-owned treatment works, drains, sewer systems, wetlands, septic
systems or onto land; (b) the use, treatment, storage, disposal, handling,
manufacturing, transportation, or shipment of Hazardous Materials, materials
containing Hazardous Materials or hazardous and/or toxic wastes, materials,
products or by-products (or of equipment or apparatus containing Hazardous
Materials); or (c) pollution or the protection of human health, safety or
the environment from exposure to or injury or damage caused by Hazardous Materials.  Without limitation, “Environmental Law” includes CERCLA and OPA
90 and IMO 13(g) (when and if the latter comes into effect).


“Environmental
Liability” means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation,
fines, penalties or indemnities), of Borrower or any Subsidiary directly or
indirectly resulting from or based upon (a) violation of any Environmental
Law, (b) the generation, use, handling, transportation, storage, treatment
or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the release or threatened release of any Hazardous
Materials into the environment or (e) any contract, agreement or other
consensual arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.


“Environmental
Permit” means any permit, approval, identification number,
license or other authorization required under any Environmental Law.


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


“ERISA Affiliate”
means any trade or business (whether or not incorporated) that, together with
Borrower, is treated as a single employer under Section 414(b) or (c) of
the Code or, solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.


“ERISA Event”
means (a) any “reportable event”, as defined in Section 4043 of ERISA
or the regulations issued thereunder with respect to a Plan (other than an
event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an “accumulated funding deficiency” (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum
funding standard with respect to any Plan; (d) the incurrence by Borrower
or any of its ERISA Affiliates of any liability under Title IV of ERISA
with respect to the termination of any Plan; (e) the receipt by Borrower
or any ERISA Affiliate from the PBGC or a plan administrator of any notice
relating to an intention to terminate any Plan or Plans or to appoint a trustee
to administer any Plan; (f) the incurrence by Borrower or any of its ERISA
Affiliates of any liability with respect to the withdrawal or partial
withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by
Borrower or any ERISA Affiliate of any notice, or the receipt by any
Multiemployer Plan from Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.


 


6

















 


“Event of Default”
has the meaning assigned to such term in Article VIII hereof.


“Event of Loss”
means, with respect to any Vessel, the actual or constructive loss or the
disappearance of such Vessel or the loss of 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 or any other Person,
whether or not acting under color of Governmental Authority.


“Excluded Taxes”
means, with respect to Administrative Agent, Collateral Agent, any Lender or
any other recipient of any payment to be made by or on account of any
obligation of Borrower hereunder, (a) income or franchise taxes imposed on
(or measured by) its net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which
its principal office is located or, in the case of any Lender, in which its
applicable lending office is located, (b) any branch profits taxes imposed
by the United States of America or any similar tax imposed by any other jurisdiction
in which Administrative Agent, such Lender or such other recipient is located,
and (c) in the case of a Foreign Lender (other than an assignee pursuant
to a request by Borrower under Section 2.16(b) hereof), any withholding
tax that is imposed on amounts payable to such Foreign Lender at the time such
Foreign Lender becomes a party to this Agreement or is attributable to such
Foreign Lender’s failure or inability to comply with Section 2.13(d)
hereof, except to the extent that such Foreign Lender’s assignor (if any) was
entitled, at the time of assignment, to receive additional amounts from
Borrower with respect to such withholding tax pursuant to Section 2.13(a)
hereof.


“Facility A”
means the working capital facility in the aggregate amount outstanding at any
time not to exceed Ten Million Dollars ($10,000,000.00) with a sublimit for
documentary letters of credit in the amount of Four Million Dollars
($4,000,000.00) as described in Section 2.02(b) hereof.


“Facility B”
means the revolving vessel acquisition facility in the maximum amount of Thirty
Million Dollars ($30,000,000.00) as described in Section 2.02(c) hereof.


“Facility C”
means the swing line facility as described in Section 2.02(d) hereof.


“Facility D”
means the standby letters of credit facility made available by KeyBank in the
maximum amount at any time of Seven Million Dollars ($7,000,000.00) as
described in Section 2.02(e) hereof.


“Facility A Loan”
has the meaning assigned to such term in Section 2.02(b) hereof.


“Facility B Loan”
has the meaning assigned to such term in Section 2.02(c) hereof.


“Facility C
Availability” means KeyBank’s Commitments under Facility A and
Facility B less KeyBank’s Applicable Percentage of the outstanding amounts of
Facility A Loans, Facility B Loans and Facility C Loans.


“Facility C Loan”
has the meaning assigned to such term in Section 2.02(d) hereof.


 


7

















 


“Facility D Note”
means the secured promissory note of Borrower, substantially in the form of Exhibit B attached hereto, evidencing
each Loan made by the L/C Issuer to Borrower under Facility D, as described in
Section 2.02(e) hereof.


“Federal Funds
Effective Rate” means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for
such transactions received by Administrative Agent from three Federal funds
brokers of recognized standing selected by it.


“Financial
Officer” means the chief financial officer, principal accounting
officer, treasurer or controller of Borrower.


“Financial
Statements” means the balance sheet and statement of income and
cash flows of K-Sea and its consolidated Affiliates (including, without
limitation, Borrower and all Guarantors), on a consolidated basis, as required
from time to time to be provided by Borrower under this Agreement.


“Fixed Charge
Coverage Ratio” means, for any period, the ratio of EBITDA less
Maintenance CAPEX divided by Fixed Charges for such period.


“Fixed Charges”
means the sum, for any period for K-Sea and its consolidated Affiliates,
including, without limitation, Borrower and any Guarantor, on a consolidated
basis, of the following:  (i) Interest
Expense, plus (ii) the current portion of minimum rents under operating leases,
plus (iii) Current Maturities.  For the
quarters ended March 31, 2003, June 30, 2003, September 30, 2003, and for the
period from October 1, 2003, through the Closing Date of this Agreement,
Interest Expense shall exclude all interest incurred prior to such Closing Date
related to debt obligations repaid from IPO proceeds and not refunded with any
Facility provided by Lenders pursuant to this Agreement.


“Foreign Lender”
means any Lender that is organized under the laws of a jurisdiction other than
the United States of America, any State thereof or the District of Columbia.


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


“Government
Approval” means an authorization, consent, non-action, approval,
license or exemption of, registration or filing with, or report to, any
governmental or quasi-governmental department, agency, body or other unit.


“Governmental
Authority” means the government of the United States of America,
any other nation or any political subdivision thereof, whether state or local,
and any agency, authority, instrumentality, regulatory body, court, central
bank or other entity exercising executive, legislative, judicial, taxing,
regulatory or administrative powers or functions of or pertaining to
government.


 


8

















 


“Guarantee” of or by any Person (the “guarantor”)
means any obligation, contingent or otherwise, of the guarantor guaranteeing or
having the economic effect of guaranteeing any Indebtedness or other obligation
of any other Person (the “primary obligor”) in any manner, whether
directly or indirectly, and including any obligation of the guarantor, direct
or indirect, (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
thereof, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness or other obligation of the
payment thereof, (c) to maintain working capital, equity capital or any
other financial statement condition or liquidity of the primary obligor so as
to enable the primary obligor to pay such Indebtedness or other obligation, or
(d) as an account party in respect of any letter of credit or letter of
guaranty issued to support such Indebtedness or obligation; provided,
that the term Guarantee shall not include any endorsement for collection or
deposit in the ordinary course of business.


“Guarantors”
means, collectively, K-Sea and any Subsidiary Guarantor from time to time, and
each, a “Guarantor.”


“Hazardous
Materials” means (a) hazardous materials, hazardous wastes,
and hazardous substances as those or similar terms are defined under any
Environmental Laws, including, but not limited to, the following:  the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801 et seq.,
as amended from time to time, the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq.,
as amended from time to time, CERCLA, the Clean Water Act, 33 U.S.C.
Section 1251 et seq., as
amended from time to time, the Clean Air Act, 42 U.S.C. Section 7401 et seq., as amended from time to time,
and/or the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., as amended from time to time, OPA
90; (b) petroleum and petroleum products, including crude oil and any
fractions thereof; (c) natural gas, synthetic gas, and any mixtures
thereof; (d) asbestos and/or any material which contains any hydrated
mineral silicate, including, but not limited to, chrysolite, amosite,
crocidolite, tremolite, anthophylite and/or actinolite, whether friable or
non-friable; (e) polychlorinated biphenyls (“PCBs”), or PCB-containing materials or fluids; (f) radon;
(g) any other hazardous radioactive, toxic or noxious substance, material,
pollutant, or solid, liquid or gaseous waste; and (h) any hazardous
substance that, whether by its nature or its use, is subject to regulation
under any Environmental Law or with respect to which any international,
federal, state or local Environmental Law or governmental agency requires
environmental investigation, monitoring or remediation.


“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 or commodity price hedging arrangement.


“Hire”
means all charter hire under any and all charters entered into by or on behalf
of Borrower of any Vessel from time to time, together with additional hire,
supplemental hire, requisition hire, freights and any other amounts paid to or
for the account of Borrower on account of the use or employment of such Vessel.


“Indebtedness”
of any Person means, without duplication, (a) all obligations of such
Person for borrowed money or with respect to deposits or advances of any kind,
(b) all 


 


9

















 


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
Taxes” means Taxes other than Excluded Taxes.


“Interest Expense”
means, for any period, the sum, for K-Sea and its consolidated Affiliates,
including, without limitation, Borrower or any Guarantor, on a consolidated
basis, of the following:  (a) all
interest in respect of Indebtedness (including the interest component of any
payments in respect of Capital Lease Obligations) accrued or capitalized during
such period (whether or not actually paid during such period) plus (b) the net
amount payable (or minus the net amount receivable) under Hedging Agreements
relating to interest during such period (whether or not actually paid or
received during such period).


“Interest Payment
Date” means, with respect to any Loan, the last day of each
calendar month, provided, that if any Interest Payment Date would end on
a day other than a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless, in the case of a Facility A Loan, a
Facility B Loan and a Facility C Loan only, such next succeeding Business Day
would fall in the next calendar month, in which case such Interest Period shall
end on the next preceding Business Day. 
For purposes hereof, the date of a Loan initially shall be the date on
which such Loan is made.


“Interest Period”
means (a) with respect to any Facility A or Facility B Loan, the period
commencing on the first day of the calendar month of such Loan and ending on
the last day in the calendar month of such Loan; and (b) with respect to
any Facility C Loan, the period commencing on the date of such Loan and ending
on the last day in the calendar month of such Loan; provided, that if
any Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the
case of a Facility B Loan and a Facility C Loan only, such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day.  For purposes hereof, the date of a Loan initially shall be the
date on which such Loan is made.


“Interest Rate”
means the Base Rate or the LIBOR Rate, as applicable, as set forth in Section
2.02(g) hereof.


 


10

















 


“KeyBank”
means KeyBank N.A.


“K-Sea”
means K-Sea Transportation Partners L.P.


“L/C Issuer”
means KeyBank.


“L/C Limit”
has the meaning assigned to such term in Section 2.02(e) hereof.


“Lender Affiliate”
means, (a) with respect to any Lender, (i) an Affiliate of such
Lender that is in the business of making and/or buying loans of the type described
herein, or (ii) any entity (whether a corporation, partnership, trust or
otherwise) that is engaged in making, purchasing, holding or otherwise
investing in bank loans and similar extensions of credit in the ordinary course
of its business and is administered or managed by any Lender or an Affiliate of
such Lender, and (b) with respect to any Lender that is a fund which
invests in bank loans and similar extensions of credit, any other fund that
invests in bank loans and similar extensions of credit and is managed by the
same investment advisor as such Lender or by an Affiliate of such investment
advisor.


“Lenders”
means CIT and KeyBank, each of their successors and any other Person that shall
have become a party hereto pursuant to an Assignment and Acceptance, other than
any such Person that ceases to be a party hereto pursuant to an Assignment and
Acceptance.


“Letter of Credit”
has the meaning assigned to such term in Section 2.02(b) or Section
2.02(e) hereof.


“Letter of Credit
Fee” has the meaning assigned to such term in
Section 2.10(b) hereof.


“Letter of Credit
Obligations” means all outstanding obligations incurred by the
L/C Issuer at the request of Borrower, whether direct or indirect, contingent
or otherwise, due or not due, in connection with the issuance of a
reimbursement agreement or guaranty by Administrative Agent or purchase of a
participation with respect to any letter of credit issued under Facility A or
Facility D.  The amount of such Letter
of Credit Obligations shall equal the maximum amount which may be payable by
the L/C Issuer thereupon or pursuant thereto.


“Leverage Ratio”
shall be calculated by dividing total liabilities (excluding deferred taxes)
less Subordinated Indebtedness by Tangible Net Worth.


“LIBOR”
means a rate of interest determined by Administrative Agent equal to: (a) the
offered rate for deposits in United States Dollars for  a one-month period which appears on Telerate
Page 3750 as of 11:00 a.m., London time, as of the last Business Day
of the month preceding the first day of each LIBOR Period, which shall be the
first day of each month (unless such date is not a Business Day, in which event
the next succeeding Business Day will be used); divided by (b) a number equal
to 1.0 minus the aggregate (but without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect on the day which is two
(2) Business Days prior to the beginning of such LIBOR Period (including basic,
supplemental, marginal and emergency reserves under any regulations of the
Board or other Governmental Authority having jurisdiction with respect thereto,
as now and from time to time in effect) for Eurocurrency funding (currently
referred to as “Eurocurrency liabilities” in Regulation D of such 


 


11

















 


Board which are required
to be maintained by a member bank of the Federal Reserve System.  If such interest rates shall cease to be
available from Telerate News Service, the LIBOR Rate shall be determined from
such financial reporting service or other information as shall be mutually
acceptable to Administrative Agent and Borrower.  In the event that such rate is not available at such time for any
reason, then the “LIBOR Rate” with respect to any Facility A or Facility
B Loan for such Interest Period shall be the rate at which dollar deposits of
$5,000,000.00 and for a maturity comparable to such Interest Period are offered
by [the principal London office of
Administrative Agent] in immediately available funds in the London
InterBank Market at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period.


“LIBOR Breakage”
has the meaning assigned to such term in Section 2.12 hereof.


“LIBOR Rate”
means LIBOR plus the Margin.


“Lien”
means, with respect to any asset, any interest in property securing an
obligation owed to, or a claim by, any person other than the owner of the
property, whether such interest shall be based on common law, maritime law,
statute, contract or conveyance and including, but not limited to, the security
interest lien arising from any pledge, mortgage, chattel mortgage, charge,
encumbrance, conditional sale or trust receipt, or from a charter, consignment
or bailment for security purposes and any tax lien, mechanic’s lien,
materialman’s lien, workman’s lien, repairman’s lien, any financing statement
or other similar charge or encumbrance.


“Loan Accounts” means one or more loan accounts
maintained by Administrative Agent for Borrower in the ordinary course of
business, and each, a “Loan Account.”


“Loan Documents”
means, collectively, this Agreement, the Notes, the Mortgage, the Parent
Guaranty, any Subsidiary Guaranty, the Assignments and all consents given with
respect to any of the foregoing.


“Loan Request”
means a request by Borrower for a Loan in accordance with Section 2.04
hereof.


“Loans”
means any loans made by Lenders to Borrower pursuant to this Agreement,
including, but not limited to, the Facility A Loans, Facility B Loans, Facility
C Loans, Letter of Credit Obligations and the Term Loans.


“Long-Term Debt”
means the aggregate (as of the date of calculation) of all those component
parts of the Indebtedness which fall due on or for which payment of any amount
is due more than one (1) year after the respective dates of the agreements
providing for such component parts of the Indebtedness.


“Long-Term Leases” means, as of any date with respect to any
Person, all 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, of such Person outstanding the term of
which ends more than one (1) year from the date of calculation.  “Rent”
for this purpose shall include only the capital portion of rent for all Capital
Lease Obligations and the entire rent payable for all operating leases.


 


12

















 


“Maintenance
CAPEX” means Capital Expenditures for any period minus the
corresponding increase in Long-Term Debt and/or Long-Term Leases for the same
period.


“Margin”
means two hundred and fifty (250) basis points.


“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 and its consolidated Affiliates,
including, without limitation, Borrower and any Guarantor, 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 Administrative Agent,
Collateral Agent and Lenders under this Agreement, or (e) the validity or
enforceability of this Agreement.


“Material
Indebtedness” means Indebtedness (other than the Loans), or
obligations in respect of one or more Hedging Agreements, of any one or more of
K-Sea, Borrower and its Subsidiaries in an aggregate principal amount exceeding
$500,000.00.  For purposes of
determining Material Indebtedness, the “principal amount” of the obligations of
K-Sea, Borrower or any Subsidiary in respect of any Hedging Agreement at any
time shall be the maximum aggregate amount (giving effect to any netting
agreements) that K-Sea, Borrower or such Subsidiary would be required to
pay if such Hedging Agreement were terminated at such time.


“Maturity Date”
has the meaning assigned to such term in Section 2.03(c) hereof.


“Maximum Amount”
means, with respect to Facility A, Ten Million Dollars ($10,000,000.00); with
respect to Facility B, Thirty Million Dollars ($30,000,000.00); with respect to
Facility D, Seven Million Dollars ($7,000,000.00); and, with respect to
Facilities A, B and C in the aggregate, Forty Million Dollars ($40,000,000.00).


“Minimum Loan”
means, with respect to any Facility A Loan, Facility B Loan or Facility C Loan,
Two Hundred Thousand Dollars ($200,000.00).


“Mortgage”
means the Mortgage, dated the date hereof, granted by Borrower to Lenders over
the whole of the Pool Vessels, as the same may be amended, modified or
supplemented from time to time and from which Vessels may be added or released
from time to time.


“Multiemployer
Plan” means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.


“Non-Qualified
Pool Vessel” means any Pool Vessel that is (i) a vessel required
to be phased out at any time by OPA 90, (ii) not qualified or documented with
endorsement for the United States coastwise trade, or (iii) a vessel which is
part of an incomplete two-vessel operating unit (comprised of a specific
tug-barge combination).


“Notes”
means, collectively, the Revolving Loan Notes, the Facility D Notes and the
Term Loan Notes, and each, a “Note.”


 


13

















 


“Obligations”
means the Loans and Letters of Credit and any and all other indebtedness, liabilities,
advances, loans and obligations of every kind, nature and description owing by
Borrower to Lenders, including principal, interest, charges, fees and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, arising under this Agreement, whether now existing or hereafter
arising, whether arising before, during or after the initial or any renewal
term of this Agreement, as set forth in Section 10.02 hereof, or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended by
assignment, merger with any other entity, participations or interests of
Lenders in the obligations of Borrower to others, assumption, operation of law,
subrogation or otherwise and shall also include all amounts chargeable to
Borrower under this Agreement or in connection with any of the foregoing and
shall mean all loans, advances, debts, liabilities and obligations, for the
performance of covenants, tasks or duties or for payment of monetary amounts
(whether or not such performance is then required or contingent, or such
amounts are liquidated or determinable) owing by any Credit Party to
Administrative Agent, Collateral Agent or any Lender, and all covenants and
duties regarding such amounts, of any kind or nature, present or future,
whether or not evidenced by any note, agreement or other instrument, arising
under this Agreement or any of the other Loan Documents.  This term includes all principal, interest
(including all interest which accrues after the commencement of any case or
proceeding in bankruptcy after the insolvency of, or for the reorganization of
any Credit Party, whether or not allowed in such proceeding), fees, charges,
expenses, attorneys’ fees and any other sum chargeable to any Credit Party
under this Agreement or any of the other Loan Documents.


“OPA”
means the Oil Pollution Act of 1990, P.L. 101-380, 104 Stat. 484 et seq., as amended from time to time.


“Orderly
Liquidation Value”  means,
with respect to any Vessel, the net proceeds anticipated at a sale other than a
forced sale upon foreclosure, as determined by Lenders or by independent
appraisers appointed by Lenders at the expense of Borrower.


“Organizational
Documents” means, as the case may be, the articles of
incorporation, by-laws, partnership agreement, articles of organization or
other instrument creating or governing the operations, rights and obligations
of the owners of an enterprise.


“Other Taxes”
means any and all present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies arising from any payment
made hereunder or from the execution, delivery or enforcement of, or otherwise
with respect to, this Agreement.


“Parent Guaranty”
means that certain guaranty, dated the date hereof, executed by K-Sea in favor
of Lenders in form and substance acceptable to Lenders in their sole
discretion.


“PBGC”
means the Pension Benefit Guaranty Corporation referred to and defined in ERISA
and any successor entity performing similar functions.


“Permitted Liens”
means:


 


14

















 


(a)           Liens imposed by law for taxes or
under ERISA in respect of contingent liabilities thereunder that are not yet
due; and


(b)           carriers’,
warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens
imposed by law, including, but not limited to, liens for current wages of the
crew of any Vessel, including the master of such Vessel, for current wages of
stevedores when employed directly by such vessel or for general average or
salvage, including contract salvage or liens, arising in the ordinary course of
business and securing obligations that are not overdue by more than thirty (30)
days and in each such case such liens are subordinate to the Lien of the
Mortgage;


provided, that the term
“Permitted Liens” shall not include any Lien securing Indebtedness; and, provided,
further, that the aggregate amount of Permitted Liens outstanding on all
Pool Vessels at any one time shall not exceed $500,000.00.


“Person”
means any natural person, corporation, limited liability company, trust, joint
venture, association, company, partnership, Governmental Authority or other
entity.


“Plan”
means any employee pension benefit plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 of the Code
or Section 302 of ERISA, and in respect of which Borrower or any ERISA
Affiliate is (or, if such plan were terminated, would under Section 4069
of ERISA be deemed to be) an “employer” as defined in Section 3(5) of
ERISA.


“Pool Vessels”
means those vessels identified on Schedule I hereto, together with any
vessels hereafter added to the Pool Vessels pursuant to Section 3.02 or
Section 3.03 hereof.


“Proceeds
shall have the meaning assigned to it in the UCC and, in any event, shall
include, but not be limited to, (i) any and all proceeds of any insurance,
indemnity or warranty payable to Lenders, from time to time with respect to the
Vessels or other Collateral; (ii) any and all payments (in any form
whatsoever) made or due and payable from time to time in connection with any
sale, requisition, confiscation, condemnation, seizure or forfeiture of all and
any part of the Vessels by any governmental body, authority, bureau or agency
of any other Person (whether or not acting under color of governmental body); and
(iii) accounts arising out of, any charter or chattel paper evidencing,
any lease, contract for use or lease of, any and all other rents, hire or
profits or other amounts from time to time paid or payable to Lenders in
connection with, the Vessels.


“Prohibited
Jurisdiction” means any country or jurisdiction, from time to
time, (a) that is subject of a prohibition order (or any similar order or
directive), sanctions or restrictions promulgated or administered by the Office
of Foreign Assets Control of the United States Treasury Department, or
(b) in which, or for which, any Lender, which is a Lender on the Effective
Date, is otherwise prohibited or restricted, under laws, regulations, sanctions
or restrictions applicable to it or its business, from extending credit,
transferring property or assets, engaging in or facilitating trade or other
economic activity, or otherwise doing business.


 


15

















 


“Prohibited
Person” means any Person appearing on the Specially Designated
Nationals List compiled and disseminated by the Office of Foreign Assets
Control of the United States Treasury Department, as the same may be amended
from time to time.


“Qualified Pool
Vessels” means Pool Vessels that are documented, coastwise eligible
tugs, AT/Bs and double-hulled barges and are acceptable in age, construction,
condition and trade employment to both Administrative Agent and Collateral
Agent.


“Register”
has the meaning assigned to such term in Section 10.10(c) hereof.


“Related Parties”
means, with respect to any specified Person, such Person’s Affiliates and the
respective directors, officers, employees, agents and advisors of such Person
and such Person’s Affiliates.


“Required Lenders”
means, at any time, Lenders having Revolving Credit Exposures and unused
Commitments representing more than forty-nine percent (49%) of the sum of the
total Revolving Credit Exposure and unused Commitments at such time, exclusive
of any Letter of Credit under Facility D.


“Revolving Credit
Exposure” means, with respect to any Lender at any time, the sum
of the outstanding principal amount of such Lender’s Revolving Loans under
Facilities A (including documentary letters of credit), B and C at such time.


“Revolving Loan”
means a Loan made pursuant to Section 2.02(b), (c) or (d) hereof, but
shall not include any Term Loan.


“Revolving Loan
Note” means the secured promissory note of Borrower,
substantially in the form of Exhibit A
attached hereto, evidencing each Revolving Loan made by Lenders to Borrower under
Facilities A, B or C, as described in Section 2.02 hereof.


“Secured
Nonrecourse Obligations” means (i) secured obligations of
Borrower taken on a consolidated basis where recourse of the payee of such
obligations is expressly limited to an assigned lease or loan receivable and
the property related thereto, (ii) debt of Single Transaction
Subsidiaries, or (iii) liabilities of Borrower taken on a consolidated
basis to any manufacturer of leased equipment where such liabilities are
payable solely out of revenues derived from the leasing or sale of such
equipment; excluding, however, nonrecourse obligations incurred in
connection with leveraged lease transactions as determined in accordance with
GAAP.


“Settlement Date”
has the meaning assigned to such term in Section 2.05 hereof.


“Single
Transaction Subsidiary” means any Subsidiary whose assets
consist solely of financing 
transactions and the proceeds thereof with one or more obligors where
the obligations of such Subsidiary are not guaranteed by Borrower or any other
Subsidiary and for which neither Borrower nor such other Subsidiary is liable.


“Statutory
Reserve Rate” means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental 


 


16

















 


reserves) expressed as a
decimal established by the Board to which Administrative Agent is subject with
respect to the LIBOR Rate, for eurocurrency funding (currently referred to as
“Eurocurrency Liabilities” in Regulation D of the Board).  Such reserve percentages shall include those
imposed pursuant to such Regulation D. 
Loans that bear interest at a rate per annum equal to the LIBOR Rate
shall be deemed to constitute eurocurrency funding and to be subject to such
reserve requirements without benefit of or credit for proration, exemptions or
offsets that may be available from time to time to any Lender under such
Regulation D or any comparable regulation.  The Statutory Reserve Rate shall be adjusted automatically on and
as of the effective date of any change in any reserve percentage.


“Subordinated
Indebtedness” means all Indebtedness which is subordinated to
the Obligations by its terms or pursuant to a subordination agreement, in each
case, reasonably acceptable to Lenders.


“Subsidiary”
means, with respect to any Person (the “Parent”)
at any date, any other Person the accounts of which would be consolidated with
those of the Parent in the Parent’s consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other Person (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests are, as of such date, owned, Controlled or held
by the Parent, or (b) the financial statements of which shall be (or
should be) consolidated with the financial statements of such Person in
accordance with GAAP.


“Subsidiary
Guarantor” means any Subsidiary that executes and delivers a
Subsidiary Guaranty.


“Subsidiary
Guaranty” means any guaranty executed by any Subsidiary of
Borrower in favor of Lenders pursuant to Section 6.18 hereof.


“Tangible Net
Worth” means the excess of total assets over total liabilities,
total assets and total liabilities each to be determined in accordance with
GAAP consistent with those applied in the preparation of the Financial
Statements referred to in Section 6.01 hereof, excluding, however, from
the determination of total assets all assets which would be classified as
intangible assets under GAAP, including, without limitation, goodwill,
licenses, patents, trademarks, trade names, copyrights and franchises.  Tangible Net Worth shall include
Subordinated Indebtedness.


“Taxes”
means any and all present or future taxes, levies, imposts, duties, deductions,
charges or withholdings imposed by any Governmental Authority.


“Term Loan”
has the meaning assigned to such term in Section 2.17 hereof.


“Term Loan Note”
has the meaning assigned to such term in Section 2.17 hereof.


“Term Loan Option”
means the option afforded Borrower as set forth in Section 2.17 hereof to
convert a Loan under Facility B to a Term Loan.


 


17

















 


“Termination Date”
means November __, 2006.


“Title XI
Guaranties” means United States government guaranties of debt
instruments issued to fund the acquisition of one or more vessels, which
guaranties are secured by preferred mortgages over the whole of such financed
vessels, as provided in 46 U.S.C. Appendix Section 1271 et seq. and the regulations promulgated by
the Secretary of Transportation thereunder.


“Transactions”
means the execution, delivery and performance by Borrower and Guarantors of
this Agreement and the other Loan Documents, the making of Loans and the use of
the Proceeds thereof.


“UCC”
means the Uniform Commercial Code as the same may, from time to time, be
enacted and in effect in the State of New York; provided, that to the
extent that the UCC is used to define any term herein or in any Loan Document
and such term is defined differently  in
different Articles or Divisions of the UCC, the definition of such term
contained in Article or Division 9 shall govern; provided, further,
that in the event that, by reason or mandatory provisions of law, any or all of
the attachment, perfection or priority of, or remedies with respect to
Administrative Agent’s or any Lender’s Lien on any Collateral is governed by
the Uniform Commercial Code as enacted and in effect in a jurisdiction other
than the State of New York, the term “UCC” shall mean the Uniform Commercial Code
as enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority or
remedies and for purposes of definitions related to such provisions.


“Unused
Commitment Fee Rate” means twenty-five (25) basis points.


“Unused Line Fee”
means an amount determined quarterly by multiplying the Unused Commitment Fee
Rate by the difference between (x) the total Commitment of all Lenders under
Facilities A, B and C and (y) the average daily principal balance outstanding
under Facilities A, B and C and any Term Loans.


“Vessels” means, collectively, the Pool Vessels
and the Acquired Vessels.


“Withdrawal
Liability” means liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.


Section
1.02  Terms Generally.  The
definitions of terms herein shall apply equally to the singular and plural
forms of the terms defined.  Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms.  The words
“include”, “includes” and “including” shall be deemed to be followed by the
phrase “without limitation”.  The word
“will” shall be construed to have the same meaning and effect as the word
“shall”.  Unless the context requires
otherwise (a) any definition of or reference to any agreement, instrument
or other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements
or modifications set forth herein), (b) any reference herein to any Person
shall be construed to include such Person’s successors and assigns,
(c) the words “herein”, “hereof” and “hereunder”, and words of similar
import, shall be construed to refer to this Agreement in its entirety and not
to any particular 


18

















 


provision hereof,
(d) all references herein to Articles, Sections, Exhibits and
Schedules shall be construed to refer to Articles and Sections of, and
Exhibits, Schedules and Annexes to, this Agreement, and (e) the words
“asset” and “property” shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.


Section 1.03  Accounting Terms; GAAP.  Except as
otherwise expressly provided herein, all terms of an accounting or financial
nature shall be construed in accordance with GAAP, as in effect from time to
time; provided, that, if Borrower notifies Administrative Agent that
Borrower requests an amendment to any provision hereof to eliminate the effect
of any change occurring after the date hereof in GAAP or in the application
thereof on the operation of such provision (or if Administrative Agent notifies
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have
been withdrawn or such provision amended in accordance herewith.


ARTICLE II



THE LOANS


Section
2.01  Commitments.  Subject to
the terms and conditions set forth herein, each Lender agrees to make Revolving
Loans to Borrower from time to time during the Availability Period in an
aggregate principal amount that will not result in such Lender’s Revolving
Credit  Exposure exceeding such Lender’s Commitment.  Within the foregoing limits and subject to
the terms and conditions set forth herein, Borrower may borrow, prepay and
reborrow Revolving Loans.


Section
2.02  Loans.


(a)           Each Revolving Loan shall be made by
Lenders ratably in accordance with their respective Commitments; provided,
however, that, subject to the provisions of Section 2.02(d) hereof,
KeyBank is the sole Lender which shall make a Loan under Facility C.  The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its obligations
hereunder; provided, that the Commitments of Lenders are several and no
Lender shall be responsible for any other Lender’s failure to make any Loan as
required.


(b)           Facility A. Subject to the
terms and conditions contained herein and until the Termination Date, Lenders
shall make loans to Borrower on a revolving basis in amounts requested by
Borrower from time to time (the “Facility A
Loans” and each, a “Facility A
Loan”) in an aggregate amount outstanding at any time not to exceed
the lesser of $10,000,000.00 or the amount permitted by paragraph (f) of this
Section 2.02.  In addition, each
Facility A Loan shall be in an aggregate amount that is an integral multiple of
$100,000.00, and no such Facility A Loan shall be less than the Minimum Loan.  Facility A Loans may, upon request of
Lenders, be evidenced by a Revolving Loan Note in the form attached hereto as Exhibit A.  Subject to availability, at Borrower’s request, L/C Issuer will
issue documentary 


 


19

















 


letters of credit (each,
a “Letter of Credit”) up to an
aggregate dollar amount outstanding at any one time of Four Million Dollars
($4,000,000.00) under Facility A; provided, however, the amount
of outstanding Loans and the face amount of outstanding Letters of Credit shall
not at any time exceed the Maximum Amount. 
Each drawdown under any such Letter of Credit shall constitute a Loan
under Facility C from the date of such drawdown to the first day of the next
succeeding calendar month, at which time such Facility C Loan shall be refunded
under Facility A and each Lender shall fund its respective Applicable
Percentage of such Facility A Loan.


(c)           Facility B.  Subject to the terms and conditions
contained herein and until the Termination Date, Lenders shall make loans to
Borrower under Facility B on a revolving basis in amounts requested by Borrower
from time to time (the “Facility B Loans”
and each, a “Facility B Loan”) in
an aggregate amount outstanding at any time not to exceed the lesser of
$30,000,000.00 or the amount permitted by paragraph (f) of this Section
2.02.  In addition, each Facility B Loan
shall be in an aggregate amount that is an integral multiple of $500,000.00,
and no such Facility B Loan shall be less than the Minimum Loan.  Availability under Facility B shall be
reduced by the amount outstanding of the sum of any Term Loans.  Facility B Loans may, upon request of
Lenders, be evidenced by a Revolving Loan Note in the form attached hereto as Exhibit A.


(d)           Facility C.  KeyBank will make loans under Facility C
(the “Facility C Loans” and each,
a “Facility C Loan”) to ease loan
administration of any Facility A Loan or Facility B Loan made other than on the
first day of a LIBOR Interest Period. 
Each Facility C Loan shall be in an aggregate amount that is an integral
multiple of $100,000.00, and no such Facility C Loan shall be less than the
Minimum Amount.  Interest and principal
on each Facility C Loan will be payable from the proceeds of a Facility A Loan
or a Facility B Loan in full on the last Business Day of the month in which such
Facility C Loan is made, unless or to the extent such Facility C Loan is
prepaid in accordance with Section 2.09 hereof by such date.  If an Event of Default shall occur, CIT
shall purchase from KeyBank a percentage of the then outstanding Facility C Loans
equal to its Applicable Percentage in regard to Facility A or Facility B
Loans.  Availability under Facility C
will be equal to the aggregate Facility C Availability under Facility A and
Facility B and cannot be used to increase availability.  Any Facility C Loan may, upon request of
KeyBank, be evidenced by a Revolving Loan Note in the form attached hereto as Exhibit A.


(e)           Facility D.  Subject to the terms and conditions of this
Agreement, the L/C Issuer agrees to incur, from time to time prior to the
Termination Date, upon the request of Borrower and for Borrower’s account,
Letter of Credit Obligations by causing one or more letters of credit to be
issued or renewed, as the case may be, for Borrower’s account (the “Letters of Credit” and each, a “Letter of Credit”).  The aggregate amount of all such Letter of
Credit Obligations shall not at any time exceed the lesser of (i) Seven Million
Dollars ($7,000,000.00) (the “L/C Limit”),
or the amount permitted by paragraph (f) of this Section 2.02.  Subject to Section 2.02(i) hereof, no such
Letter of Credit shall have an expiry date which is more than one (1) year
following the date of issuance thereof. 
Any Letter of Credit Obligation may, upon request of the L/C Issuer, be
evidenced by a Facility D Note in the form attached hereto as Exhibit B.


 


20

















 


(f)            The aggregate principal amount of
all Loans and Letters of Credit outstanding under all Facilities shall at no
time exceed the lesser of $47,000,000.00 or 66 2/3% of the Borrowing Base.  Lenders shall have no obligation to make any
Loan or issue any Letter of Credit which, when added to then outstanding Loans
and Letters of Credit, would exceed the Maximum Amount of any Facility or for
all Facilities.


(g)           Interest Rate.  (i) Each Facility A Loan shall accrue
interest at the LIBOR Rate; (ii) each Facility B Loan under shall accrue
interest at the LIBOR Rate; and (iii) each Facility C Loan under shall accrue
interest at the Base Rate.


(h)           Conditions.  The making of any Loan hereunder at any time
by Lenders is subject to compliance in full by Borrower with all of the terms
and provisions of this Agreement and the other Loan Documents, each as at any
time amended, and to the further condition that, at the time of the proposed
making of any Loan, there shall have been no material adverse change in the
financial condition or business of Borrower, and that no Event of Default, and
no event which with the lapse of time or the notice and lapse of time specified
for the purpose of constituting such an Event of Default, has occurred and is
continuing at the time of such proposed Loan. 
No Loan will be made or Letter of Credit issued unless the conditions
set forth in Article V hereof have been fulfilled.  The foregoing shall have no effect on the
extension of Letters of Credit issued under Facility D pursuant to a renewal
clause set forth therein.


(i)            Notwithstanding any other provision
of this Agreement, Borrower shall not be entitled to request, or to elect to
convert or continue, any Loan if the Interest Period requested with respect
thereto would end after the Termination Date, and Borrower shall not be
entitled to request any Letter of Credit or any renewal thereof which would
expire after the Termination Date or provides for drawdown after the
Termination Date.


Section
2.03  Payments.  (a) Interest
on the unpaid principal balance of each Revolving Loan shall be payable by
Borrower from the date hereof at the per annum Interest Rate set forth in
Section 2.02(g) hereof.  During the
continuance of any Event of Default or upon termination or non-renewal hereof,
interest on all unpaid Obligations shall accrue at a rate equal to two percent
(2%) per annum in excess of the applicable Interest Rate (the rate so
determined, the “Late Charge Rate”)
otherwise payable until such time as all Obligations are indefeasibly paid in
full (notwithstanding entry of any judgment against Borrower or the exercise of
any other right or remedy by Lenders), and all such interest shall be payable
on demand.  In no event shall charges
constituting interest exceed the rate permitted under any Applicable Law or
regulation, and if any provision of this Agreement is in contravention of any
such law or regulation, such provision shall be deemed amended to conform
thereto.  The reimbursement obligations
of Borrower to the L/C Issuer shall bear interest at the Late Charge Rate from
the date of payment for which reimbursement is required to the date of
reimbursement.  Reimbursement by
Borrower to the L/C Issuer shall be effective on receipt by the L/C Issuer of
immediately available funds at its designated account.


(b)           Interest shall be payable monthly in
arrears on the daily unpaid principal balance of the Loans then outstanding,
and shall be due and payable on the Interest Payment Dates during the term of
this Agreement; provided, that (i) interest accrued pursuant to
paragraph (a) of this Section shall be payable on demand,
(ii) in the event of any repayment or 


 


21

















 


prepayment of any Loan,
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment, (iii) in the event of any
voluntary or involuntary prepayment of any Facility A Loan or Facility B Loan prior
to the end of the Interest Period therefor, accrued interest on such Facility A
Loan or Facility B Loan shall be payable on the effective date of such
prepayment, together with LIBOR Breakage, and (iv) all accrued interest
shall be payable upon termination of the Commitments, except with respect to
any interest accrued under any Term Loan, which shall be paid in accordance
with the Term Note reflecting such Term Loan. 
Lenders are authorized to, and at their sole election may, charge to the
Loan Accounts on behalf of Borrower and cause to be paid all interest, fees,
expenses and charges other than principal due and owing by Borrower under this
Agreement, if and to the extent Borrower fails to promptly pay any such amounts
as and when due, even if such charges would cause the balance of the Loan
Accounts to exceed the Maximum Amount. 
Interest due under any Facility on each Interest Payment Date shall be
debited to Borrower’s account under Facility A.


(c)           Principal shall be due and payable on
(i) the Termination Date for all Facility A Loans then outstanding, (ii) within
eighteen (18) months from the date of any Facility B Loan made for the purpose
of acquiring one or more vessels (except in the case of Term Loans, which shall
be paid in accordance with the Term Note reflecting such Term Loan), (iii)
within the earlier of (x) twelve months from the date of a Facility B Loan and
(y) redelivery of a vessel, in the case of any Facility B Loan made for the
purpose of retrofitting, upgrading or rebuilding of a vessel (except in the
case of Term Loans, which shall be paid in accordance with the Term Note
reflecting such Term Loan), (iv) in the case of a Facility C Loan, the last day
of the month in which such Facility C Loan is made; provided, however,
that such Facility C Loan may be refunded with the proceeds of a Facility A
Loan or Facility B Loan in accordance with the terms hereof, and (v) as to any
Term Loan, the final installment payment date thereof (each of the above being
a “Maturity Date”); provided,
however, that no Loan shall extend beyond the Termination Date, except
for any Term Loan as provided herein and in the Term Note reflecting such Term
Loan.


(d)           All computations of interest, fees
and other charges shall be calculated on a per annum basis based on a year of
360 days computed on the basis of the average daily unpaid balance of principal
outstanding during the preceding monthly period, in each case for the actual
number of days occurring in the period for which such interest and fees are
payable.


(e)           On the Maturity Date of a Facility C
Loan, such Facility C Loan shall be refunded with the proceeds of a Facility A
Loan or Facility B Loan unless a Default or Event of Default shall be then
continuing.


Section 2.04  Requests for Loans.  To request a
Loan, Borrower shall notify Administrative Agent of such request by telephone
(a) in the case of a Facility A Loan or Facility B Loan, not later than 11:30
a.m., New York City time, three (3) Business Days before the date of the
proposed Facility A Loan or Facility B Loan, or (b) in the case of any Letter
of Credit Obligation, not later than 11:30 a.m., New York City time, three
(3) Business Days before the issuance date of the proposed Letter of
Credit.  Each such telephonic Loan
Request shall specify whether it is a Facility A Loan, a Facility B Loan or a
Letter of Credit Obligation, be irrevocable and shall be confirmed promptly by
hand delivery or telecopy to Administrative Agent of the 


 


22

















 


appropriate written Loan
Request in the form attached hereto as Exhibit G
or H and signed by
Borrower.  Each such telephonic and
written Loan Request shall specify the following information in compliance with
Section 2.02 hereof:


(i)            the aggregate amount of the
requested Loan;


(ii)           the date of such Loan, which shall be
a Business Day;


(iii)          whether such Loan is to be a Facility
A Loan, a Facility B Loan or a Letter of Credit Obligation under Facility A or
a Letter Credit Obligation under Facility D;


(iv)          in the case of a Letter of Credit
Obligation, the Loan Request shall be accompanied by (a) in the case of a
Letter of Credit under Facility D, (x) to the extent not previously delivered
to Administrative Agent, copies of all agreements between Borrower and the
Letter of Credit beneficiary pertaining to the issuance of such standby Letters
of Credit and (y) a copy of the form of a documentary letter of credit which is
attached hereto as Exhibit F-2,
and (b) in the case of a Letter of Credit under Facility A, a copy of the form
of a standby letter of credit which is attached hereto as Exhibit F-1; and


(v)           the location and number of Borrower’s
account to which funds are to be disbursed, which shall comply with the
requirements of Section 2.05 hereof.


On
or before the Settlement Date, Administrative Agent shall advise each Lender of
the details of the Loan Request and of the amount of such Lender’s Revolving
Loan to be made as part of the requested Loan. 
In the event a Facility A Loan or Facility B Loan is to be made on any
day other than the first day of a LIBOR Interest Period, the Loan Request shall
be deemed a request for a Facility C Loan to be refunded by a Facility A Loan
or Facility B Loan.  Notwithstanding
anything contained herein to the contrary, Letter of Credit applications by
Borrower and approvals by the L/C Issuer may be made and transmitted pursuant
to electronic codes and security measures mutually agreed upon and established
by and among Borrower, Administrative Agent and the L/C Issuer.


Section 2.05  Settlement and Funding of Loans.  (a)
Administrative Agent will make such Loan available to Borrower by promptly
crediting the amounts, in like funds, to an account of Borrower maintained with
Administrative Agent in New York City and designated by Borrower in the applicable
Loan Request; and (b) each Lender shall transfer its Applicable Percentage of
each Loan on the monthly settlement date, as agreed by Lenders (“the Settlement Date”), by wire transfer of
immediately available funds by 2:00 p.m., New York City time, to the
account of Administrative Agent.


Section 2.06  Non-Receipt of Funds.  Unless
Administrative Agent shall have received notice from a Lender prior to the
proposed date of any Loan that such Lender will not make available to
Administrative Agent such Lender’s share of such Loan, Administrative Agent may
assume that such Lender has made or, on the Settlement Date, will make such
share available in accordance with Section 2.05 hereof and may, in
reliance upon such assumption, make available to Borrower a corresponding
amount.  In such event, if any Lender
has not in fact made its share 


 


23

















 


of the applicable Loan
available to Administrative Agent by the Settlement Date, then the applicable
Lender and Borrower severally agree to pay to Administrative Agent forthwith on
demand such corresponding amount with interest thereon, for each day from and
including the date such amount is made available to Borrower to but excluding
the date of payment to Administrative Agent, at (i) in the case of such
Lender, the Federal Funds Effective Rate, or (ii) in the case of Borrower,
the Base Rate.  If such Lender pays such
amount to Administrative Agent, then such amount shall constitute such Lender’s
share of such Loan.


Section 2.07  Termination and Reduction of Commitments.


(a)           Unless previously terminated, the
Commitments shall terminate on the Termination Date.


(b)           Borrower may at any time terminate
this Agreement with respect to all Facility A Loans and Facility B Loans; provided,
that Borrower shall prepay all Revolving Loans in accordance with Section 2.09
hereof and replace all outstanding documentary letters of credit and pay to
Lenders a fee equal to $800,000.00 during the first year (on or before the
first Anniversary Date of the Effective Date), $400,000.00 thereafter through
the second Anniversary Date of the Effective Date, and $200,000.00 thereafter
through the third Anniversary Date of the Effective Date; and, provided,
further, that prepayment of Loans or other Obligations made under this
Agreement from the proceeds of additional equity offerings will not constitute
termination of this Agreement or of any Facility but will restore the
availability under Facility A and Facility B by the amount of such prepayments.


(c)           Borrower shall notify Administrative
Agent of any election to terminate the Commitments under paragraph (b) of
this Section at least three (3) Business Days prior to the effective date
of such termination or reduction, specifying such election and the effective
date thereof.  Promptly following
receipt of any notice, Administrative Agent shall advise Lenders of the
contents thereof.  Each notice delivered
by Borrower pursuant to this Section shall be irrevocable; provided,
that a notice of termination of the Commitments delivered by Borrower may state
that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by Borrower (by notice to
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied.  Any
termination or reduction of the Commitments shall be permanent.  Each reduction of the Commitments shall be
made ratably among Lenders in accordance with their respective Commitments.


Section 2.08  Repayment of Loans; Evidence of Debt.


(a)           Borrower hereby unconditionally
promises to pay to Administrative Agent for account of each Lender the then
unpaid principal amount of each Revolving Loan on the Maturity Date thereof.


(b)           Each Lender may maintain in accordance
with its usual practice an account or accounts evidencing the indebtedness of
Borrower to such Lender resulting from any Loan made by such Lender, including
the amounts of principal and interest payable and paid to such Lender from time
to time hereunder.


 


24

















 


(c)           Administrative Agent shall maintain
accounts in which it shall record (i) the amount of each Loan made
hereunder and the applicable Interest Rate thereof, (ii) the amount of any
principal or interest due and payable or to become due and payable from
Borrower to each Lender hereunder, and (iii) the amount of any sum
received by Administrative Agent hereunder for the account of Lenders and each
Lender’s share thereof.  Lenders may
from time to time request that Administrative Agent provide Lenders with a copy
of such records.


(d)           The entries made in the accounts
maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and
amounts of the obligations recorded therein; provided, that the failure
of any Lender or Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of Borrower to repay the
Loans and other Obligations in accordance with the terms of this Agreement.


(e)           Any one or more Lenders may request
that any Loan made by it or them be evidenced by a Note.  In such event, Borrower shall execute and
deliver to such Lender or Lenders a Note payable to the order of such Lender (or,
if requested by such Lender, to such Lender and its registered assigns) in form
and substance acceptable such Lender. 
Thereafter, the Loans evidenced by such Notes and interest thereon shall
at all times (including after assignment pursuant to Section 10.10 hereof)
be represented by one or more Notes in such form payable to the order of the
payee named therein.  Administrative
Agent may enter Loans and repayment made on any Note; provided, however,
that failure to do so shall not affect Borrower’s obligations to repay all
Loans made.


Section 2.09  Prepayment of Loans.


(a)           Except in the case of any Term Loan,
which shall be subject to the provisions thereof, Borrower shall have the right
at any time and from time to time to prepay any Facility A Loan, Facility B
Loan or Facility C Loan in whole or in part, subject to prior notice in
accordance with paragraph (b) of this Section.


(b)           Borrower shall notify Administrative
Agent by telephone (confirmed by telecopy) of any prepayment hereunder
(i) in the case of prepayment of any Facility A Loan or Facility B Loan,
not later than 11:30 a.m., New York City time, three (3) Business
Days before the date of prepayment, or (ii) in the case of prepayment of a
Facility C Loan not later than 11:30 a.m., New York City time, one
(1) Business Day before the date of prepayment.  Each such notice shall be irrevocable and shall specify the
prepayment date and the principal amount of each Loan or portion thereof to be
prepaid.  Promptly following receipt of
any such notice relating to a Facility A, Facility B, or Facility C Loan,
Administrative Agent shall advise Lenders of the contents thereof.  Each partial prepayment of any Facility A,
Facility B or Facility C Loan shall be in an amount that would be permitted in
the case of such Facility A, Facility B or Facility C Loan, as provided in
Section 2.02(b), (c) or (d) respectively. 
Each prepayment of a Facility A, Facility B or Facility C Loan shall be
applied (i) in the absence of a Default, as Borrower directs, or (ii) if a
Default has occurred and is continuing, as set forth in Section 2.14(b)
hereof.  Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.03
hereof and LIBOR Breakage, if any.


Section
2.10  Fees.


 


25

















 


(a)           Borrower agrees to pay to
Administrative Agent for account of each Lender on a pro rata basis, the Unused
Line Fee, which shall accrue at the Unused Commitment Fee Rate on the average
daily amount of the unused Commitments of each Lender for each of Facility A
and Facility B during the period from and including the Effective Date to but
excluding the date on which such Commitment terminates.  Accrued Unused Line Fees shall be payable in
arrears on the last day of March, June, September and December of
each year and on the date on which the Commitments terminate, commencing on the
first such date to occur after the date hereof.  All Unused Line Fees shall be computed on the basis of a year of
360 days and shall be payable for the actual number of days elapsed (including
the first day but excluding the last day).


(b)           Borrower agrees to pay to the L/C
Issuer as compensation for Letter of Credit Obligations incurred under
Section 2.02(e) hereof, on the date of the issuance, extension or renewal
of any Letter of Credit, a fee (the “Letter
of Credit Fee”) equal to one percent (1.00%) per annum multiplied by
the maximum amount available to be drawn under the applicable Letter of Credit,
including any Letter of Credit extending more than twelve (12) months by its
own terms or by operation of any renewal or evergreen provision.  In addition, Borrower shall pay to L/C
Issuer, on demand, such fees (including all per annum fees), charges and
expenses of such L/C Issuer in respect of the issuance, negotiation,
acceptance, amendment, transfer and payment of Letter of Credit Obligations
incurred under Section 2.02(b) hereof or otherwise payable pursuant to the
application and related documentation under which such Letter of Credit is
issued.  Notwithstanding the foregoing,
any fees owed by Borrower pursuant to this Section 2.10(b) may be debited to
the Facility C account and refunded on the next Settlement Date with the
proceeds of a Facility A Loan.


(c)           Borrower agrees to pay to
Administrative Agent and Collateral Agent, for its own account, commitment
fees, appraisal fees and agency fees payable in the amounts and at the times
agreed upon among Borrower, Administrative Agent and Collateral Agent.


(d)           Borrower agrees to pay to
Administrative Agent for account of each Lender on a pro rata basis, the Annual
Maintenance Fee.


(e)           All fees payable hereunder shall be
paid on the dates due, in immediately available funds, to Administrative Agent
for distribution to Lenders.  Fees paid
to Lenders shall not be refundable under any circumstances.


Section 2.11  Increased Costs.


(a)           If any Change in Law shall:


(i)            impose, modify or deem applicable
any reserve, special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, any Lender (except any such
reserve requirement reflected in the LIBOR Rate); or


(ii)           impose on any Lender or the London
InterBank Market any other condition affecting this Agreement or any Loans made
by such Lender;


 


26

















 


and the result of any of
the foregoing shall be to increase the cost to such Lender of making or
maintaining any Loan (or of maintaining its obligation to make any such Loan)
or to reduce the amount of any sum received or receivable by such Lender
hereunder (whether of principal, interest or otherwise), then Borrower will pay
to such Lender such additional amount or amounts as will compensate such Lender
for such additional costs incurred or reduction suffered.


(b)           If any Lender determines that any
Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender’s capital or on the capital of such
Lender’s holding company, if any, as a consequence of this Agreement or the
Loans made or Commitments held by, such Lender, to a level below that which
such Lender or such Lender’s holding company could have achieved but for such
Change in Law (taking into consideration such Lender’s policies and the
policies of such Lender’s holding company with respect to capital adequacy),
then from time to time Borrower will pay to such Lender such additional amount
or amounts as will compensate such Lender or such Lender’s holding company for
any such reduction suffered.


(c)           A certificate of any Lender calculating
and setting forth the amount or amounts necessary to compensate such Lender or
its holding company, as the case may be, as specified in paragraph (a) or
(b) of this Section shall be delivered to Borrower and shall be conclusive
absent manifest error.  Borrower shall
pay such Lender the amount shown as due on any such certificate within 10 days
after receipt thereof.


(d)           Failure or delay on the part of any
Lender to demand compensation pursuant to this Section shall not
constitute a waiver of such Lender’s right to demand such compensation; provided,
that Borrower shall not be required to compensate a Lender pursuant to this
Section for any increased costs or reductions incurred more than nine
months prior to the date that such Lender notifies Borrower of the Change in
Law giving rise to such increased costs or reductions and of such Lender’s
intention to claim compensation therefor; provided, further,
that, if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the nine-month period referred to above shall be extended to
include the period of retroactive effect thereof.


Section 2.12  Break Funding Payments.  In the event
of (a) the payment of any principal of any Facility A Loan, Facility B
Loan (including any Term Loan) other than on the last day of an Interest Period
applicable thereto (including as a result of an Event of Default), (b) the
failure to borrow, convert, continue or prepay any Revolving Loan on the date
specified in any notice delivered pursuant hereto (regardless of whether such
notice is permitted to be revocable under Section 2.09(b) hereof and is
revoked in accordance herewith), or (c) the assignment of any Loan other
than on the last day of the Interest Period applicable thereto as a result of a
request by Borrower pursuant to Section 2.16(b) hereof, then, in any such
event, Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event.  In the case
of a Facility A Loan, Facility B Loan or Term Loan, the loss to any Lender
attributable to any such event shall be deemed to include an amount determined
by such Lender to be equal to the excess, if any, of (i) the amount of
interest that such Lender would pay for a deposit equal to the principal amount
of such Loan for the period from the date of such payment, conversion, failure
or assignment to the last day of the then current Interest Period for such
Facility A Loan, Facility B Loan (including any Term Loan (or, in the case of a
failure to borrow, convert or continue, the 


 


27

















 


duration of the Interest
Period that would have resulted from such Facility A Loan, Facility B Loan or
Term Loan, conversion or continuation) if the interest rate payable on such
deposit were equal to the LIBOR Rate for such Interest Period, over
(ii) the amount of interest that such Lender would earn on such principal
amount for such period if such Lender were to invest such principal amount for
such period at the interest rate that would be bid by such Lender (or an
Affiliate of such Lender) for dollar deposits from other banks in the LIBOR
Rate market at the commencement of such period (“LIBOR Breakage”).  A
certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section shall be delivered to
Borrower and shall be conclusive absent manifest error.  Borrower shall pay such Lender the amount
shown as due on any such certificate within 10 days after receipt thereof, or
allow such Lender to advance against Facility A accordingly, provided
availability exists.


Section
2.13  Taxes. 
Any and all payments by or on account of any Obligation of Borrower
hereunder shall be made free and clear of and without deduction for any
Indemnified Taxes or Other Taxes; provided, that if Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments,
then (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section) Administrative Agent, Collateral Agent, each
Lender or L/C Issuer (as the case may be) receives an amount equal to the sum
it would have received had no such deductions been made, (ii) Borrower
shall make such deductions, and (iii) Borrower shall pay the full amount
deducted to the relevant Governmental Authority in accordance with Applicable
Law.


(a)           In addition, Borrower shall pay any
Other Taxes to the relevant Governmental Authority in accordance with Applicable
Law.


(b)           Borrower shall indemnify
Administrative Agent, Collateral Agent, the L/C Issuer and each Lender, within
10 days after written demand therefor, for the full amount of any Indemnified
Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section) paid by
Administrative Agent, Collateral Agent, L/C Issuer or such Lender, as the case
may be, and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority.  A certificate as to the
amount of such payment or liability, together with copies of available documentation
reflecting the imposition and amount of such Indemnified Taxes or Other Taxes
delivered to Borrower by a Lender, Collateral Agent, the L/C Issuer or by
Administrative Agent on its own behalf or on behalf of a Lender, shall be
conclusive absent manifest error.


(c)           As soon as practicable after any
payment of Indemnified Taxes or Other Taxes by Borrower to a Governmental
Authority, Borrower shall deliver to Administrative Agent the original or a
certified copy of a receipt issued by such Governmental Authority evidencing
such payment, a copy of the return reporting such payment or other evidence of
such payment reasonably satisfactory to Administrative Agent.


(d)           Any Foreign Lender that is entitled
to an exemption from or reduction of withholding tax under the law of the
jurisdiction in which Borrower is located, or any treaty to 


 


28

















 


which such jurisdiction
is a party, with respect to payments under this Agreement shall deliver to
Borrower (with a copy to Administrative Agent), at the time or times prescribed
by Applicable Law or reasonably requested by Borrower, such properly completed
and executed documentation prescribed by Applicable Law as will permit such
payments to be made without withholding or at a reduced rate.


Section 2.14  Payments Generally; Pro Rata Treatment; Sharing of
Set-offs.


(a)           Borrower shall make each payment
required to be made by it hereunder (whether of principal, interest or fees, or
under Section 2.11, 2.12 or 2.13 hereof, or otherwise) prior to 12:00
noon, New York City time, on the date when due, in immediately available
funds, without set-off or counterclaim, or shall allow Administrative Agent to
advance against Facility A for all such payments, provided availability exists.  Any amounts received after such time on any
date may, in the discretion of Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon.  All such payments
shall be made to Administrative Agent at its offices at 575 Fifth Avenue, 18th
Floor, New York, New York 10017, except that payments pursuant to
Sections 2.11, 2.12, 2.13 and 10.09 hereof shall be made directly to the
Persons entitled thereto. 
Administrative Agent shall distribute any such payments received by it
for account of any other Person to the appropriate recipient promptly following
receipt thereof.  If any payment
hereunder shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the
period of such extension.  All payments
hereunder shall be made in Dollars.


(b)           (i)            Payments
Received by Administrative Agent.  So long
as (x) no Default with respect to any payments due hereunder or under any of
the Obligations or (y) Event of Default shall have occurred and be continuing,
each payment made by Borrower received by the Administrative Agent pursuant to
paragraph (a) of this Section shall be applied, first, to any
costs, expenses, fees or other amounts due under this Agreement or under the
other Loan Documents not constituting principal and interest due under the
Loans, second, to late charges due pursuant to Section 2.03 hereof,
third, to interest due on the unpaid principal balance of each Loan, fourth,
to the payment in full of principal and all other Obligations which are then
due and payable.  If at any time
insufficient funds are received by and available to Administrative Agent to pay
fully all amounts of principal, interest and fees then due on any Revolving
Loans, such funds shall be applied, first, to pay interest and fees then
due hereunder, ratably among the parties entitled thereto in accordance with
the amounts of interest and fees then due to such parties, second, to
pay principal then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of principal then due to such parties, and third,
all remaining amounts, if any, shall be applied as provided in the first
sentence of this Section 2.14(b)(i).


(ii)           Casualty Payments.  So long as no (x) Default with respect to
any payments due hereunder or under any of the Obligations or (y) Event of
Default shall have occurred and be continuing, any amounts received by
Collateral Agent or any Lender as a result of an Event of Loss with respect to
any Pool Vessel or any Acquired Vessel that is not a Pool Vessel (including,
without limitation, any payment of prepayment amounts under Section 2.09
hereof or insurance or condemnation proceeds) shall be retained by Lenders as
cash collateral to the extent the aggregate Orderly 


 


29

















 


Liquidation Value of the
remaining Pool Vessels is less than $71,000,000.00, until such time as Borrower
pledges another Qualified Pool Vessel or Qualified Pool Vessels to increase the
aggregate Orderly Liquidation Value of the Pool Vessels to not less than
$71,000,000.00, at which time such amounts shall be applied, first, to
the payment of any amounts outstanding under Facility C and thereafter held by
Lenders for application against other Revolving Loans at the end of any then
current interest period or periods, second, to the payment in full of
all the Obligations which are then due and payable, and, third, the
balance, if any, after payment of the foregoing amounts, shall be paid by
Lenders to Borrower.


(iii)          Other Amounts.  So long as no (x) Default with respect to
any payments due hereunder or under any of the Obligations or (y) Event of
Default shall have occurred and be continuing, all Proceeds from time to time
received by Collateral Agent or any Lender shall be applied, first, to
any costs, expenses, fees or other amounts due under this Agreement and the
other Loan Documents not constituting principal and interest due under the
Loans, second, to the payment in full of all the other Obligations which
are then due and payable, third, if provision as to the application of
such amounts is made in this Agreement or any other Loan Document, Collateral
Agent or any Lender shall, in its sole discretion, either apply such payment to
the purpose for which it was made or pay it to Borrower, which shall so apply
it and, fourth, if due to Borrower, Collateral Agent or such Lender shall
pay such amounts to Borrower.


(iv)          Application After Default but before
Event of Default.  All payments received
and amounts realized by Lenders after a Default shall have occurred and be
continuing, but prior to the occurrence of an Event of Default or any
acceleration of any Loan or Note, all Proceeds or other amounts received in
repayment of the Collateral shall be held by Lenders as part of the Collateral
until such time as no Defaults or Events of Default shall be continuing
hereunder (at which time such funds shall be paid to Borrower) or until such
funds are applied pursuant to Section 8.02 hereof.  Collateral Agent or any Lender shall apply
the cash proceeds of Collateral actually received by Lenders from any sale,
lease, foreclosure or other disposition of the Collateral to payment pro rata of the Obligations, in whole or
in part (including reasonable attorneys’ fees and legal expenses incurred by
Lenders with respect thereto or otherwise chargeable to Borrower).  Lenders shall apply all such receipts
ratably against Obligations under Facilities A, B, C and D.  Borrower shall remain jointly and severally
liable to Lenders for the payment of any deficiency together with interest at
the highest rate provided for herein and all costs and expenses of collection
or enforcement, including reasonable attorneys’ fees and legal expenses.


(v)           Application After Event of
Default.  After an Event of Default
shall have occurred and be continuing and after Lenders have either, (i) as
assignee from Borrower of any charter of any of the Vessels, declared such
charter to be in default or terminated in accordance with the terms thereof, or
(ii) declared all amounts outstanding hereunder to be due and payable pursuant
to Section 8.02 hereof, or done both (i) and (ii), all payments received
and amounts realized by any Lender, as well as all payments or amounts then
held by Lenders as part of the Collateral, shall be applied against the
Obligations in such order and such manner as the Lenders, in their sole
discretion, may 


 


30

















 


determine and as
otherwise provided in the other Loan Documents and the documents evidencing the
other Obligations, and the balance, if any, shall be paid by Lenders to
Borrower.


(c)           If any Lender shall, by exercising
any right of set-off or counterclaim or otherwise, obtain payment in respect of
any principal of or interest on any of its Revolving Loans resulting in such
Lender receiving payment of a greater proportion of the aggregate amount of its
Revolving Loans and accrued interest thereon than the proportion received by
any other Lender, then the Lender receiving such greater proportion shall
purchase (for cash at face value) participations in the Revolving Loans of
other Lenders to the extent necessary so that the benefit of all such payments
shall be shared by Lenders ratably in accordance with the aggregate amount of
principal of and accrued interest on their respective Revolving Loans; provided,
that (i) if any such participations are purchased and all or any portion
of the payment giving rise thereto is recovered, such participations shall be
rescinded and the purchase price restored to the extent of such recovery,
without interest, and (ii) the provisions of this paragraph shall not be
construed to apply to any payment made by Borrower pursuant to and in
accordance with the express terms of this Agreement or any payment obtained by
any Lender as consideration for the assignment of or sale of a participation in
any of its Loans to any assignee or participant, other than to Borrower or any
Subsidiary or Affiliate thereof (as to which the provisions of this paragraph
shall apply).  Borrower consents to the
foregoing and agrees, to the extent it may effectively do so under Applicable
Law, that any Lender acquiring a participation pursuant to the foregoing
arrangements may exercise against Borrower rights of set-off and counterclaim
with respect to such participation as fully as if such Lender were a direct
creditor of Borrower in the amount of such participation.


(d)           Unless Administrative Agent shall
have received notice from Borrower prior to the date on which any payment is
due to Administrative Agent for the account of Lenders hereunder that Borrower
will not make such payment, Administrative Agent may assume that Borrower has
made such payment on such date in accordance herewith and may, in reliance upon
such assumption, distribute to Lenders the amount due.  In such event, if Borrower has not in fact
made such payment, then each Lender severally agrees to repay to Administrative
Agent forthwith on demand the amount so distributed to such Lender with
interest thereon, for each day from and including the date such amount is
distributed to it to but excluding the date of payment to Administrative Agent,
at the Federal Funds Effective Rate.


(e)           If any Lender shall fail to make any
payment required to be made by it pursuant to Section 2.05 or 2.14(d)
hereof, then Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by
Administrative Agent for account of such Lender to satisfy such Lender’s
obligations under such Sections until all such unsatisfied obligations are
fully paid.


Section 2.15  Letters of Credit.


(a)           Obligation Absolute.  The obligation of Borrower to reimburse
Administrative Agent and the L/C Issuer for payments made with respect to any
Letter of Credit Obligation shall be absolute, unconditional and irrevocable,
without necessity of presentment, demand, protest or other formalities, and the
obligations of the Borrower to make payments to 


 


31

















 


Administrative Agent with
respect to Letters of Credit shall be unconditional and irrevocable.  Such obligations of Borrower shall be paid
strictly in accordance with the terms hereof under all circumstances including
the following circumstances:


(i)            any lack of validity or
enforceability of any Letter of Credit or this Agreement or the other Loan
Documents or any other agreement;


(ii)           the existence of any claim, set-off,
defense or other right which Borrower or any of its Affiliates, the L/C Issuer
or any Lender may at any time have against a beneficiary or any transferee of
any Letter of Credit (or any Persons or entities for whom any such transferee
may be acting), Administrative Agent, any Lender, the L/C Issuer or any other
Person, whether in connection with this Agreement, the Letter of Credit, the
transactions contemplated herein or therein or any unrelated transaction (including
any underlying transaction between Borrower or any of its Affiliates and the
beneficiary for which the Letter of Credit was procured);


(iii)          any draft, demand, certificate or any
other document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;


(iv)          payment by L/C Issuer under any Letter
of Credit or guaranty thereof against presentation of a demand, draft or
certificate or other document which does not comply with the terms of such
Letter of Credit or such guaranty;


(v)           any other circumstance or happening
whatsoever, which is similar to any of the foregoing; or


(vi)          the fact that a Default or an Event of
Default shall have occurred and be continuing.


(b)           Risk.  As among Administrative Agent, the L/C
Issuer and Borrower, Borrower assumes all risks of the acts and omissions of,
or misuse of any Letter of Credit by beneficiaries of any Letter of Credit.  In furtherance and not in limitation of the
foregoing, to the fullest extent permitted by law none of Administrative Agent
or the L/C Issuer shall be responsible: 
(A) for the form, validity, sufficiency, accuracy, genuineness or legal
effect of any document issued by any party in connection with the application
for and issuance of any Letter of Credit, even if it should in fact prove to be
in any or all respects invalid, insufficient, inaccurate, fraudulent or forged;
(B) for the validity or sufficiency of any instrument transferring or assigning
or purporting to transfer or assign any Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove
to be invalid or ineffective for any reason; (C) for failure of the beneficiary
of any Letter of Credit to comply fully with conditions required in order to
demand payment under such Letter of Credit; provided, that, in the case
of any payment by Administrative Agent under any Letter of Credit,
Administrative Agent shall be liable to the extent such payment was made solely
as a result of its gross negligence or willful misconduct (as finally
determined by a court of competent jurisdiction) in determining that the demand
for payment under such Letter of Credit complies on its face with any applicable
requirements for a demand for payment under such Letter of Credit; (D) for 


 


32

















 


errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they be in cipher; (E) for
errors in interpretation of technical terms; (F) for any loss or delay in the
transmission or otherwise of any document required in order to make a payment
under any Letter of Credit or guaranty thereof or of the proceeds thereof; (G)
for the credit of the proceeds of any drawing under any Letter of Credit; and
(H) for any consequences arising from causes beyond the control of
Administrative Agent or the L/C Issuer. None of the above shall affect, impair,
or prevent the vesting of any of Administrative Agent’s or the L/C Issuer’s
rights or powers hereunder or under this Agreement.


(c)           Nothing contained herein shall be
deemed to limit or to expand any waivers, covenants or indemnities made by
Borrower in favor of any L/C Issuer in any letter of credit application,
reimbursement agreement or similar document, instrument or agreement between
Borrower and such L/C Issuer.


Section
2.16  Mitigation Obligations; Replacement of Lenders.


(a)           If any Lender requests compensation
under Section 2.11 hereof, or if Borrower is required to pay any
additional amount to any Lender or any Governmental Authority for account of
any Lender pursuant to Section 2.13 hereof, then such Lender shall use
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder
to another of its offices, branches or Affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.11 or 2.13 hereof, as the case may
be, in the future, and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender.  Borrower hereby agrees to pay
all reasonable costs and expenses incurred by any Lender in connection with any
such designation or assignment.


(b)           If any Lender requests compensation
under Section 2.11 hereof, or if Borrower is required to pay any
additional amount to any Lender or any Governmental Authority for account of
any Lender pursuant to Section 2.13 hereof, or if any Lender defaults in
its obligation to fund Loans hereunder, then Borrower may, at its sole expense
and effort, upon notice to such Lender and Administrative Agent, require such
Lender to assign and delegate, without recourse (in accordance with and subject
to the restrictions contained in Section 10.10 hereof), all its interests,
rights and obligations under this Agreement to an assignee that shall assume
such obligations (which assignee may be another Lender, if a Lender accepts
such assignment); provided, that (i) Borrower shall have received
the prior written consent of Administrative Agent, which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of
an amount equal to the outstanding principal of its Loans, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or Borrower (in the case of all other amounts), and (iii) in the
case of any such assignment resulting from a claim for compensation under
Section 2.11 hereof or payments required to be made pursuant to
Section 2.13 hereof, such assignment will result in a reduction in such
compensation or payments.  A Lender
shall not be required to make any such assignment and delegation if, prior
thereto, as a result of a waiver by such Lender or otherwise, the circumstances
entitling Borrower to require such assignment and delegation cease to apply.


 


33

















 


Section
2.17  Term-Loans.  Prior to the Termination Date and only in
the absence of a Default or an Event of Default, Borrower shall have the option
(the “Term Loan Option”) to
convert any Facility B Loan to a term loan (“Term
Loan”) on the final Interest Payment Date with respect to such
Facility B Loan.  Borrower shall pay to
Lenders a fee of one percent (1%) based on the amount of any and all Facility B
Loans for which the Term Out option is exercised.  Each Term Loan shall be repaid in 60 equal consecutive monthly
principal payments, plus interest, calculated on the basis of 10-year
amortization, with all remaining principal and interest to be due on the
sixtieth (60th) and final Installment Payment Date; provided, that no
Term Loan may extend beyond the useful economic life for the Borrower’s trade
of the Vessels identified to such Term Loan as determined by an Appraiser.  Unless Lenders may otherwise agree and
except as provided in the next sentence, interest on any termed-out Facility B
Loan shall accrue at the LIBOR Rate. 
Lenders will make a fixed-rate option available for any Term Loan upon
request of Borrower, such rate shall be based on Lenders’ sole judgment of the
then-current market conditions and financial performance of Borrower and
Guarantors; provided, however, that Borrower will also be
permitted to swap Lenders’ existing variable rate to a fixed rate with another
lending institution.  All documentation
reflecting such Term Loan must be satisfactory to Lenders and their counsel and
all fees, including legal fees and expenses, and expenses attendant thereon
shall be paid by Borrower.  No Term Loan
Option shall be available for any Facility B Loan or aggregation of Facility B
Loans of less than $500,000.00.  Each
Term Loan shall continue to be secured by all Collateral, provided,
that, if after the Termination Date there are Term Loans outstanding and no
Default or Event of Default is continuing, Lenders shall release Pool Vessels
from the Lien of the Mortgage and their Proceeds from the Lien of the
Assignments, commencing first with Non-Qualified Vessels, until, in the sole
discretion of the Collateral Agent, the Term Loan to Collateral ratio of the
Vessels identified to each Term Loan is not greater than 2:3.  Borrower shall execute and deliver to
Collateral Agent any and all additional documentation, including, without
limitation, notes in the form of Exhibit C
hereto (the “Term Loan Notes” and
each, a “Term Loan Note”),
mortgages, amendments, assignments and other documentation as Collateral Agent
may request to reflect such Term Loan, at Borrower’s expense, including,
without limitation, attorneys’ fees. 
With respect to any Acquired Vessel not tendered as a Pool Vessel, a
Term Loan may be secured by a mortgage on that vessel identified to such Term
Loan; provided, that no Vessel identified to a Term Loan may be a Pool
Vessel.


ARTICLE III



GRANT OF SECURITY INTEREST


Section 3.01  To secure the payment and performance in full of all
Obligations, Borrower hereby grants to Lenders a continuing security interest
in and Lien upon, and a right of set-off against, and Borrower hereby assigns
and pledges to Lenders, all of the Collateral owned by it or a Subsidiary
Guarantor or in which such party has an interest.


Collateral means:


(i)            each
of the Pool Vessels identified in Schedule I and any Acquired Vessel
hereafter financed through Facility B or Facility C, together with all of its
machinery, anchors, cables, chains, rigging, tackle, fittings, tools, pumps,
pumping equipment, gear, apparel, 


 


34

















 


furniture, appliances,
equipment, spare and replacement parts and all other appurtenances thereunto appertaining
or belonging, whether now owned or hereafter acquired by its respective owner
and whether on board or not, and also any and all additions, improvements and
replacements made in or to such Pool Vessels and Acquired Vessels or any part
thereof or in or to any equipment and appurtenances thereunder appertaining or
belonging and any and all the charter hire, subcharter hire, freights,
subfreights, earnings, charters (including, without limitation, any rights of
termination thereof), to the extent set forth in the Earnings Assignment,
insurance proceeds and all other Proceeds paid or payable to Borrower on
account of the use or employment of any Vessel, being secured by the Mortgage
or any other mortgage to be executed and delivered by Borrower in favor of
Lenders (each, a “Mortgage”); and


(ii)           all
records, computer tapes, discs, and other data however stored, ledger sheets,
correspondence, invoices, delivery receipts, documents and instruments related
to any of the foregoing.


It is understood and agreed that all of the Collateral
which Lenders or any of them may at any time acquire from Borrower or from any
other source in connection with the Obligations of Borrower to Lenders, shall
constitute Collateral for each and every Obligation, without apportionment or
designation as to particular Obligations, and that all Obligations howsoever
and whensoever incurred, shall be secured by all Collateral howsoever and
whensoever acquired, and Lenders shall have the right, in its sole discretion,
to determine the order in which Lenders’ rights in or remedies against any
Collateral are to be exercised and which type of Collateral and which portions
of Collateral are to be proceeded against and the order of application of
proceeds of Collateral as against particular Obligations.


Section 3.02  On reasonable notice from Borrower, Lenders will
permit the substitution of a Pool Vessel with another vessel, provided,
that such substitute vessel is subject to an Appraisal and that the Orderly
Liquidation Value of the Pool Vessels after such substitution remains equal to
or greater than $71,000,000.00 and that such vessel can be used in Borrower’s
business as currently constituted.  Each
substitute vessel shall be first made subject to the Mortgage and the
Assignments.  The costs of any such
substitution, including, without limitation, counsel fees, will be for
Borrower’s account, payable on demand. 
No Pool Vessel or Acquired Vessel shall be valued as a constituent part
of an integrated tug/barge unit unless all components of such unit are subject,
or upon acceptance by Lenders would be subject, to the Mortgage.


Section 3.03  Orderly Liquidation Value.  Based on any
Appraisal of the Pool Vessels, the aggregate Orderly Liquidation Value of the
Pool Vessels must be equal to or greater than $71,000,000.00 throughout the
term of this Agreement, provided, that in no event shall more than
fifteen percent (15%) of the aggregate Orderly Liquidation Value of the Pool
Vessels be attributable to Non-Qualified Pool Vessels.  In the event any Appraisal done at any time
indicates that the aggregate Orderly Liquidation Value of the Pool Vessels is
less than $71,000,000.00, Borrower shall pledge additional vessels acceptable
to Lender, and the Proceeds thereof, until the aggregate Orderly Liquidation
Value of the Pool Vessels is equal to at least $71,000,000.00.  Provided that no Default or Event of Default
is continuing, in the event that any Appraisal done at any time indicates that
the aggregate Orderly Liquidation Value of the Vessels exceeds $71,000,000.00,
then, provided there is no existing Event of Default, at Borrower’s 


 


35

















 


written request and at
Borrower’s expense, Lenders agree to release Pool Vessels, commencing with
Non-Qualified Pool Vessels, from the pool of assets, provided, that the
aggregate Orderly Liquidation Value of the Pool Vessels may not be reduced to
less than $71,000,000.00. 
Notwithstanding the foregoing, the value of any vessel acquired,
retrofitted, rebuilt or upgraded with any Facility B Loan shall not be included
for purposes of determining the aggregate Orderly Liquidation Value of the Pool
Vessels as collateral while such vessel is under construction but may be
included upon completion of work and redelivery to Borrower.


ARTICLE IV



REPRESENTATIONS AND WARRANTIES


Borrower hereby represents and warrants to Lenders the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions of the making of any Loans by Lenders to Borrower:


Section
4.01  Organization.  Each of
Borrower, K-Sea and any Subsidiary Guarantor is a limited partnership duly
organized, validly existing and in good standing under the laws of Delaware,
and has the necessary right, power and authority to own its respective assets
and to transact the business in which it is engaged, and is duly qualified to
do business in each jurisdiction where such qualification is legally required
and in each jurisdiction where the failure to qualify would affect the
enforceability of the Loan Documents or otherwise adversely affect the
Collateral or Borrower’s or K-Sea’s ability to perform its respective
obligations under any of the Loan Documents. 
In furtherance and not in limitation of the foregoing, Borrower shall
furnish to Administrative Agent and Lenders a certificate of good standing from
its respective jurisdiction of formation.


Section 4.02  Power and Authority.  Borrower has
full power, authority and legal right to execute and deliver this Agreement,
any Notes, the Mortgage, the Assignments and any other Loan Documents executed
and delivered from time to time by Borrower, and to perform its obligations
hereunder and thereunder, to borrow hereunder and to grant the security
interests created by this Agreement and the Mortgage.  This Agreement has been duly executed and delivered by Borrower
and constitutes a legal, valid and binding obligation of Borrower, enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors’ rights generally
and subject to general principles of equity, regardless of whether considered
in a proceeding in equity or at law.


Section 4.03  Governmental Approvals; No Conflicts.  The
transactions contemplated by this Agreement and the Loan Documents (a) do not
require any consent or approval of, registration or filing with, or any other
action by, any Governmental Authority, except such as have been obtained or
made and are in full force and effect, (b) do not require the consent of any
other Person (including, without limitation, any stockholder, trustee or holder
of Indebtedness), (c) will not violate any Applicable Law or regulation or the
charter, by-laws or other organizational documents of Borrower or any of its
Subsidiaries or any order of any Governmental Authority, (d) will not violate
or result in a default under any indenture, agreement or other instrument
binding upon Borrower or any of its Subsidiaries or its assets, or give rise to
a right thereunder to require any payment to be made by Borrower or any of its 


 


36

















 


Subsidiaries, and (e)
will not result in the creation or imposition of any Lien on any asset of
Borrower or any of its Subsidiaries.


Section 4.04  Financial Condition; No Material Adverse Change.  (a) Borrower
was formed on July 14, 2003, and has conducted no business other than the
acquisition, ownership and chartering of its vessels, including the Pool
Vessels.


(b)           Borrower has heretofore furnished to
Lenders Financial Statements (i) as of and for the fiscal year ended
June 30, 2003, reported on by PriceWaterhouseCoopers, independent public
accountants, and (ii) as of and for the succeeding fiscal quarter ended
September 30, 2003, certified by the applicable Financial Officer, which
Financial Statements present fairly, in all material respects the financial
position and results of operations and cash flows as of such dates and for such
periods in accordance with GAAP, consistently applied, subject to year-end
audit adjustments and the absence of footnotes in the case of Financial
Statements referred to in clause (b)(ii) above.


Section
4.05  Litigation.  There are no
actions, suits, investigations or proceedings by or before any arbitrator or
Governmental Authority pending against or, to the knowledge of Borrower,
threatened against or affecting Borrower or any of its Subsidiaries or any of
the Collateral (i) which, if adversely determined, could reasonably be
expected, individually or in the aggregate, to result in a Material Adverse
Effect, or (ii) that involve this Agreement or the transactions contemplated
hereby.


Section 4.06  Environmental Condition.  Except as
identified on Schedule 4.06 hereto, none of Borrower’s nor any of its
Subsidiaries’ properties or assets has ever been designated or identified in
any manner pursuant to any Environmental Law (including, without limitation,
OPA) as a Hazardous Waste disposal site, or a candidate for closure pursuant to
any Environmental Law, which designation or identification could reasonably be
expected to have a material adverse effect on Borrower’s or its Subsidiaries’
business or on any of the Collateral. 
No Lien arising under any Environmental Law has attached to any revenues
or to any of the Pool Vessels or any real or personal property owned by
Borrower or any of its Subsidiaries. 
Neither Borrower nor any of its Subsidiaries has received a summons,
citation, notice, or directive from the United States Environmental Protection
Agency, the United States Coast Guard or any other federal or state
governmental agency regarding any action or omission by Borrower or any of its
Subsidiaries resulting in the releasing, or otherwise exposing of Hazardous
Waste into the environment, which notice could reasonably be expected to have a
material adverse effect on Borrower’s or its Subsidiaries’ business or on any
of the Collateral.  Borrower and its
Subsidiaries (a) are in compliance (in all material respects) with all
Environmental Laws, including, but not limited to, all statutes, regulations,
ordinances and other legal requirements pertaining to the production, storage,
handling, treatment, release, transportation or disposal of any Hazardous
Waste, and (b) will obtain, maintain and/or comply with any permit, license or
other approval required under any Environmental Law.


Section 4.07  Compliance with Laws and Agreements.  Each of
Borrower and its Subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate, 


 


37

















 


could not reasonably be
expected to result in a Material Adverse Effect.  No Default has occurred and is continuing.


Section 4.08  Investment and Holding Company Status.  Neither
Borrower nor any of its Subsidiaries is (a) an “investment company” as defined
in, or subject to regulation under, the Investment Company Act of 1940, or (b)
a “holding company” as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.


Section
4.09  Taxes. 
Each of Borrower and its Subsidiaries has timely filed or caused to be
filed all Tax returns and reports required to have been filed and has paid or
caused to be paid all Taxes required to have been paid by it, except (a) Taxes
that are being contested in good faith by appropriate proceedings and for which
Borrower or such Subsidiary, as applicable, has set aside on its books adequate
reserves, or (b) to the extent that the failure to do so could not reasonably
be expected to result in a Material Adverse Effect.  The charges, accruals and reserves on the books of Borrower in
respect of Taxes for all open years, and for the current fiscal year, make
adequate provision for all unpaid Tax liabilities for such periods.


Section
4.10  ERISA. 
No ERISA Event has occurred or is reasonably expected to occur that,
when taken together with all other such ERISA Events for which liability is
reasonably expected to occur, could reasonably be expected to result in a
Material Adverse Effect.  The present
value of all accumulated benefit obligations under each Plan (based on the
assumptions used for purposes of Statement of Financial Accounting Standards
No. 87) did not, as of the date of the most recent Financial Statements
reflecting such amounts, exceed the fair market value of the assets of such
Plan.


Section
4.11  Disclosure.  None of the
reports, Financial Statements, certificates or other information furnished by
or on behalf of Borrower to Administrative Agent or any Lender in connection
with the negotiation of this Agreement or the other Loan Documents or delivered
hereunder or thereunder (as modified or supplemented by other information so
furnished) contains any material misstatement of fact or omits to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
that, with respect to projected financial information, Borrower represents only
that such information was prepared in good faith based upon assumptions
believed to be reasonable at the time. 
There is no fact known to Borrower that could have a Material Adverse
Effect that has not been disclosed herein or in a report, financial statement,
exhibit, schedule, disclosure letter or other writing furnished to Lenders for
use in connection with the transactions contemplated hereby.


Section
4.12  No Other Name.  Borrower has
not changed its name nor has done business in any name other than that set
forth in the introductory paragraph of this Agreement.


Section
4.13  Title. 
Borrower has and at all times will defend and continue to have good and
marketable title to all of the Collateral, free and clear of all Liens,
security interests, claims or encumbrances of any kind whatsoever subject only
to Permitted Liens and the Vessels are documented in the name of Borrower with
the United States Coast Guard National Vessel Documentation Center in Falling
Waters, West Virginia.


 


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Section 4.14  Lenders’ Security Interest.  On the
Effective Date, Lenders shall have a legal, valid and continuing first
preferred ship mortgage (as amended, supplemented or otherwise modified from
time to time) over the whole of, and a perfected first lien on and security
interest in, the Pool Vessels, and Lenders shall have a perfected first lien on
and security interest in the Collateral subject only to Permitted Liens and all
taxes, fees and other charges in connection therewith shall have been duly
paid.  There are no charters in effect
on any Pool Vessels other than the charters identified on Schedule 4.14
hereto.


Section
4.15  Citizenship.  Borrower is
a citizen of the United States as defined in section 2 of the Shipping Act,
1916, as amended, duly qualified to engage in the coastwise trade and in
foreign commerce of the United States, and shall remain such a citizen while
any Loan remains outstanding and during the life of the Mortgage.


ARTICLE V



CONDITIONS


Section
5.01  Effective Date.  The
obligations of Lenders to make the Loans hereunder shall not become effective
until the date on which each of the following conditions is satisfied (or
waived in accordance with Section 10.08 hereof):


(a)           Administrative Agent (or its
counsel) shall have received (i) from each party hereto either
(x) a counterpart of this Agreement signed on behalf of such party or
(y) written evidence satisfactory to Administrative Agent (which may
include telecopy transmission of a signed signature page of this
Agreement) that such party has signed a counterpart of this Agreement, and
(ii) executed counterparts of each of the Loan Documents executed by each party
thereto.


(b)           Each partner in Borrower shall have
effectively subordinated to the rights and Lien of Lenders, all loans and
advances made to Borrower by such partner, and Liens held by such partner
against Borrower’s assets.  The Mortgage
and other Loan Documents, agreements and instruments executed or delivered in
connection herewith shall be in form and substance satisfactory to Lenders and
their counsel and shall have been duly executed and delivered to Lenders by the
parties thereto and acknowledgments and consents (if any) to assignments, in
form and substance satisfactory to Lenders, from any charterer of or any party
to a contract of affreightment relating to the Pool Vessels shall have been
duly authorized and executed by the Borrower and delivered to Lenders.


(c)           Collateral Agent shall have received
evidence satisfactory to it that the Pool Vessels are insured in accordance
with the provisions of this Agreement, the Mortgage and the Assignment of
Insurances.


(d)           All filings, including all applicable
UCC-1 filings pursuant to the UCC, recordings and other actions deemed
necessary or desirable by Lenders in order to establish, protect, preserve and
perfect both (i) the Mortgage as a preferred mortgage over the whole of
each of the Pool Vessels therein pledged in favor of Lenders, and
(ii) Collateral Agent’s Lien on behalf of Lenders on and security interest
in all other Collateral as a valid perfected first and only 


 


39

















 


security interest
subject, in the case of the Pool Vessels, only to Permitted Liens, shall have
been duly effected, including, without limitation, the filing of financing
statements and the filing and recordation of the Mortgage and all other actions
required to perfect Lenders’ security interest in the Collateral, all in form
and substance satisfactory to Lenders, and all fees, taxes and other charges
relating to such filings and recordings shall have been paid by Borrower.


(e)           (i) The representations and
warranties contained in this Agreement, the Mortgage, and in all of the other
agreements, documents and instruments executed and delivered to Lenders in
connection herewith shall be true and correct in all material respects on and
as of the date of the making of each Loan with the same effect as if made on
and as of such date; (ii) no Default or Event of Default shall be in
existence on the date of the making of each Loan or shall occur as a result of
each Loan; (iii) no event of default shall have occurred and be continuing
on the date on which the Loan is made under any charter of any of the Pool
Vessels; and (iv) the acceptance by Borrower of each Loan shall constitute a
representation by Borrower that the statements contained in clauses (i),
(ii) and (iii) above are true and correct on the date on which such Loan is
made.


(f)            Collateral Agent and Lenders shall
have (i) received an Appraisal of all Pool Vessels, provided, that
Lenders may defer a physical appraisal and accept a desktop appraisal pending
confirmation of a physical appraisal subsequent to closing, and
(ii) received and found to be satisfactory abstracts of title, or
documents of similar effect as to the Pool Vessels confirming that such Pool
Vessels are owned by Borrower free of all recorded Liens (except the Permitted
Liens) as of the date of such Loan. 
Additionally, Lenders shall have received satisfactory evidence that the
Pool Vessels are operationally suitable for the trades in which such Pool
Vessels are expected to be engaged and can be operated by Borrower and/or a Subsidiary
Guarantor in their intended trades without impediment.


(g)           There will have been a successful
initial public offering of K-Sea Transportation Partners L.P. with a minimum
gross proceeds of $70,000,000.00.


(h)           Borrower and its Subsidiaries shall
have retired all debt other than (i) any Obligations incurred under Facility A
or Facility B, and (ii) any obligations secured by Title XI Guaranties.


(i)            Lenders shall have received
assurances acceptable to Lenders that the transfer to Borrower of all Pool Vessels
pursuant to the contemplated restructuring does not constitute a fraudulent
conveyance under Applicable Law and that Borrower is in compliance with all
government regulations, including those relating to the ownership and operation
of vessels in the United States coastwise trade.


(j)            No Event of Loss shall have occurred
with respect to any of the Pool Vessels.


(k)           All legal matters with respect to and
all legal documents (including, but not limited to, the Loan Documents)
executed in connection with the transactions contemplated by this Agreement
shall be satisfactory to counsel for Lenders.


 


40

















 


(l)            Administrative Agent shall have
received a favorable written opinion (addressed to Administrative Agent and
Lenders and dated the Effective Date) of counsel to Borrower, substantially in
the form of Exhibit E, and
covering such other matters relating to Borrower, this Agreement or the other
Loan Documents as Required Lenders shall reasonably request.


(m)          Administrative Agent shall have
received such documents and certificates as Administrative Agent or its counsel
may reasonably request relating to the organization, existence and good
standing of Borrower, the authorization of the Transactions and any other legal
matters relating to Borrower, this Agreement or the Loan Documents, all in form
and substance satisfactory to Administrative Agent and its counsel.


(n)           Lenders shall have received all fees
and other amounts due and payable hereunder and under any separate fee letters
on or prior to the Effective Date, including, to the extent invoiced,
reimbursement or payment of all out-of-pocket expenses required to be
reimbursed or paid by Borrower hereunder.


Administrative Agent (acting
itself or through its counsel) shall notify Borrower and Lenders of the
Effective Date, and such notice shall be conclusive and binding.  Notwithstanding the foregoing, the
obligations of Lenders to make Loans shall not become effective unless each of
the foregoing conditions is satisfied (or waived pursuant to Section 10.08
hereof) at or prior to 3:00 p.m., New York City time, on November 30,
2003 (and, in the event such conditions are not so satisfied or waived, the
Commitments shall terminate at such time).


Section 5.02  Subsequent Loans.  The
obligation of Lenders to make subsequent Loans to Borrower hereunder shall not
become effective until after the date on which conditions in
Section 5.01(b), (e), (j), (m) and (n) hereof are satisfied (or waived in
accordance with Section 10.08 hereof).


Notwithstanding the foregoing, the obligations of
Lenders to make Loans shall not become effective unless each of the foregoing
conditions is satisfied (or waived pursuant to Section 10.08 hereof) at or
prior to 3:00 p.m., New York City time, on the date of any such
Loan.  Each Loan shall be deemed to
constitute a representation and warranty by Borrower on the date thereof as to
the matters specified in Article IV hereof.


Section 5.03  Facility B and Facility C Loans.  The
obligation of Lenders to make Facility B or Facility C Loans to Borrower shall
not become effective until the date on which each of the following conditions
is satisfied (or waived in accordance with Section 10.08 hereof):


(a)           Each of the conditions set forth in
Section 5.01 or Section 5.02, as applicable, is satisfied (or waived
in accordance with Section 10.08 hereof).


(b)           In the case of a Facility B Loan
requested by Borrower to acquire a vessel or vessels in a single transaction
for an amount greater than Ten Million Dollars and less than Twenty Million
Dollars ($20,000,000.00), Borrower shall provide a written analysis, certified
by its Financial Officer, confirming pro
forma covenant compliance, with
supporting calculations and financial information.  In the case of a Facility B Loan request equal to or greater than
Twenty Million Dollars ($20,000,000.00), Borrower or K-Sea must provide a
complete package 


 


41

















 


of historical and
projected financials, asset appraisals, management’s plan for integrating the
acquisition, and any other reasonable information requested by and acceptable
to Lenders; provided, however, that Facility B and Facility
C Loans above Twenty Million Dollars ($20,000,000.00) are at the sole
discretion of Lenders and require Borrower to provide written analysis,
certified by Borrower’s and K-Sea’s Financial Officers, confirming pro forma covenant compliance and provide
additional financial information as stated above.  Lenders reserve the right of refusal to fund for any vessel
acquisition that does not meet the foregoing requirements or for which
sufficient information was not provided.


(c)           Each vessel Borrower proposes to
acquire with a Facility B or Facility C Loan shall be subject to an Appraisal; provided,
however, that, at Borrower’s request, Collateral Agent, in its sole
discretion, may provisionally accept a desk appraisal and permit Borrower to
defer a physical Appraisal until a subsequently scheduled drydocking if one is
scheduled within the six (6) month period following the date of acquisition of
such vessel.


(d)           Subject to Section 3.03 hereof, each
vessel Borrower proposes to acquire or rebuild, retrofit, upgrade or improve
with a Facility B or Facility C Loan, including any vessel owned by Borrower
and not previously included as a Pool Vessel, shall, and in the case of a
vessel to be rebuilt, retrofitted, upgraded or improved with such loan shall
prior to commencement of any financed work, be made subject to a preferred
mortgage and assignments of insurances and proceeds securing not only the
Facility B and/or a Facility C Loan with which it was acquired but all
other Loans and Obligations under Facility A, Facility B, Facility C
and Facility D equally with all other Collateral.


(e)           Each vessel Borrower proposes to
acquire with a Facility B or Facility C Loan shall meet, and any vessel
retrofitted, rebuilt or upgraded with a Facility B or Facility C Loan
(including an Acquired Vessel) will be required on redelivery to Borrower to
meet, the documentation and construction standards of a Pool Vessel, except
with respect to any Acquired Vessel which is a vessel under construction and
subject to a post construction financing commitment from the United States
Maritime Administration; provided, however, that Lenders shall
have no obligation to make any Loans to finance the retrofitting, rebuilding or
upgrading of any vessel in which Lenders do not have a security interest or
mortgage acceptable to Lenders prior to the commencement of any such work as
provided in Section 5.03(d) hereof.


(f)            Collateral Agent shall have received
evidence satisfactory to it that the vessel Borrower proposes to acquire with a
Facility B or Facility C Loan is insured in accordance with provisions of this
Agreement, the Mortgage and the Assignment of Insurances.


ARTICLE VI



AFFIRMATIVE COVENANTS


Until the Commitments have expired or been terminated
and the principal of and interest on each Loan and all fees payable hereunder
shall have been paid in full, Borrower covenants and agrees with Lenders that:


 


42

















 


Section
6.01  Financial Statements and Other Information.


(a)           Borrower shall deliver to Lenders, at
Borrower’s sole expense:  (i) as
soon as available but no later than forty-five (45) days after the end of
each fiscal quarter, the unaudited consolidated Financial Statements of K-Sea
for such interim fiscal period, certified by the Financial Officer of K-Sea,
and (ii) as soon as available but no later than ninety (90) days
after the end of each fiscal year, the audited consolidated Financial
Statements of K-Sea for such fiscal year, certified by independent certified
public accountants acceptable to Lenders. 
All of the foregoing shall be in such form and together with such
information with respect to the business of Borrower, as Lenders may in each
case request as reasonably calculated by Lenders to enable them to confirm and
prove elements of the Financial Statements. 
Borrower shall keep and maintain its books and records in accordance with
GAAP, consistently applied.


(b)           Concurrently with any delivery of
Financial Statements under clause (a) above, Borrower shall deliver to
Lenders a certificate of a Financial Officer of K-Sea (i) certifying as to
whether a Default has occurred since the delivery of the previous such
certificate or to the date hereof and, if such a Default has occurred,
specifying the details thereof and any action taken or proposed to be taken
with respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Sections 7.01, 7.02, 7.03 and 7.05 (hereof),
and (iii) stating whether any change in GAAP or in the application thereof
has occurred since the date of the audited Financial Statements referred to in
Section 4.04 or Section 6.01 hereof, as applicable, has had a
material adverse effect on the Financial Statements accompanying such
certificate and, if so, the estimated dollar amount thereof.


(c)           Promptly after the same become
publicly available, Borrower shall make available (including through electronic
availability) to Lenders copies of all periodic and other reports, proxy
statements and other materials filed by Borrower or any Subsidiary with the
Securities and Exchange Commission, or any Governmental Authority succeeding to
any or all of the functions of said Commission, or with any national securities
exchange, as the case may be; and


(d)           Promptly following any request
therefor, Borrower shall deliver to Lenders such other information regarding
the operations, business affairs and financial condition of K-Sea or any
Subsidiary, or compliance with the terms of this Agreement, as Administrative
Agent or any Lender may reasonably request.


Section 6.02  Vessel Appraisals.  Lenders may
conduct, and Borrower shall cooperate in the conduct of, a physical Appraisal
of any or all of the Pool Vessels and Acquired Vessels at Borrower’s expense,
over every eighteen (18) month period of this Agreement in the absence of an
Event of Default and at any time during the continuance of an Event of Default.  The first eighteen-month period will begin
on the Effective Date; provided, however, that Borrower will
allow access to any appraiser sent by Lenders to attend and appraise any Vessel
in drydock at any time on reasonable notice. 
Each fiscal year, Borrower shall provide Collateral Agent with a drydock
schedule and location of drydock.


Section 6.03  Fees and Expenses.  Borrower
shall pay, on Lenders’ demand and delivery to Borrower of invoices therefor,
all actual out-of-pocket costs, expenses, filing fees and taxes 


 


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payable in connection
with the negotiation, preparation, execution, delivery, recording,
administration, collection, liquidation, enforcement and defense of the
Obligations, Lenders’ rights in the Collateral, this Agreement and all other
existing and future agreements or documents contemplated herein or related
hereto, including any amendments, waivers, supplements or consents which may
hereafter be made or entered into in respect hereof, or in any way involving
claims or defense asserted by Lenders or claims or defenses against Lenders
asserted by Borrower or any guarantor, including, without limitation, the
Guarantors, or any third party directly or indirectly arising out of or related
to the relationship between Borrower and Lenders, including, but not limited
to, the following, whether incurred before, during or after the initial or any
renewal term or after the commencement of any case with respect to Borrower
under the United States Bankruptcy Code or any similar statute: (a) all costs
and expenses of filing or recording (including the UCC financing statement and
any Mortgage filing taxes and fees, abstract fees relating to the Vessels,
documentary taxes, intangibles taxes, etc., if applicable); (b) all insurance
premiums, appraisal fees, fees incurred in connection with any environmental
report, audit or survey and search fees; (c) all fees as then in effect
relating to the wire transfer of loan proceeds and other funds and fees then in
effect for returned checks and credit reports; (d) with respect to periodic
field examinations of the Collateral and Borrower’s operations, a per diem
charge at the rate of $1,000.00 per person per day for Lenders’ examiners in
the field and office in excess of three (3) days per visit; and (e) the costs,
fees and disbursements of outside counsel to Lenders, including, but not
limited to, such fees and disbursements incurred as a result of litigation
between the parties hereto, any third party and in any appeals arising
therefrom.  Any of the foregoing amounts
that are paid by Lenders shall, until reimbursed by or on behalf of Borrower,
constitute Obligations of Borrower secured by the Collateral.


Section 6.04  Notices of Material Events.  Borrower
will furnish to Administrative Agent and each Lender prompt written notice of
the following:


(a)           the occurrence of any Default or
Event of Default;


(b)           the filing, commencement or written
threat of any action, suit or proceeding by or before any arbitrator or Governmental
Authority against Borrower or any other Person or affecting Borrower or any
Affiliate thereof that, if adversely determined, could reasonably be expected
to result in a Material Adverse Effect;


(c)           the occurrence of any ERISA Event
that could reasonably be expected to result in a Material Adverse Effect; and


(d)           any other development that results
in, or could reasonably be expected to result in, a Material Adverse Effect.


Each notice delivered under
this Section shall be accompanied by a statement of a Financial Officer or
other executive officer of Borrower setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.


 


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Section 6.05  Existence; Conduct of Business.  Borrower
will, and will cause each of its Subsidiaries to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business.


Section
6.06  Insurance.  With respect
to the Collateral and other assets, Borrower shall maintain insurance at all
times, with financially sound and reputable insurers that are reasonably
acceptable to Collateral Agent.  With
respect to insurance on all Collateral, all such insurance policies shall be in
such form, substance, amounts and coverage as may be satisfactory to Collateral
Agent and Lenders and shall provide for thirty (30) days’ prior written notice
to Collateral Agent and Lenders of any reduction or cancellation of coverage on
account of default in the payment of any premium and shall provide Lenders with
the opportunity to cure nonpayment. 
Borrower hereby irrevocably appoints Collateral Agent with full right of
delegation by Collateral Agent as attorney-in-fact for Borrower and each of
them to obtain, at Borrower’s expense, any such insurance should Borrower fail
to do so and, after an Event of Default, to adjust or settle any claim or other
matter under or arising pursuant to such insurance or to amend or cancel such
insurance.  Borrower shall deliver to
Collateral Agent and Lenders evidence of such insurance and a lender’s loss
payable endorsement satisfactory to Collateral Agent and Lenders as to all
existing and future insurance policies with respect to the Collateral.  Borrower shall deliver to Collateral Agent,
in kind, all instruments representing proceeds of insurance received by
Borrower.  Except as otherwise specifically
provided in the Mortgage as to any Pool Vessel or Acquired Vessel, Collateral
Agent may apply any insurance proceeds received at any time to the cost of
repairs to or replacement of any portion of the Collateral and/or, at
Administrative Agent’s option, to payment of or as security for any of the
Obligations, whether or not due, in any order or manner as Collateral Agent may
determine.  Borrower will insure each
Pool Vessel and Acquired Vessel in accordance with Section 1.18 of the
Mortgage.  Nothing in this Agreement
shall be construed to limit or restrict the provisions of Section 1.18 of
the Mortgage, but shall be in addition thereto.


Section
6.07  Taxes; Use.  Borrower
agrees that it will, and will cause each of its Subsidiaries to, pay and
discharge all taxes, assessments, licensing obligations and governmental
charges or levies imposed on the income, profits, sale, business or properties
of Borrower and its Subsidiaries prior to the date upon which penalties attach
for non-payment thereof, and promptly discharge any liens, encumbrances or
other claims which may be levied or claimed against any of the Collateral, provided,
that (i) any such tax, assessment, charge or levy need not be paid if the
payment thereof is being contested in good faith and by appropriate
proceedings, (ii) for which adequate book reserves, determined in accordance
with GAAP, shall be set aside, and (iii) the failure to make payment pending
such contest could not reasonably be expected to result in a Material Adverse
Effect, and provided, further, that if any such tax, assessment,
charge or levy lawfully imposed shall remain unpaid after the date upon which a
Lien on any Collateral arises or may be imposed as a result of such
non-payment, or if any Lien is claimed for any other reason against any of the
Collateral, which if foreclosed would in Lenders’ opinion adversely affect the
value of Lenders’ security interest in any of the Collateral, Lenders may pay
and discharge such taxes, assessments, charges, levies and Liens, and the
amount so paid by Lenders shall be payable on demand and if not paid promptly,
will be charged to the appropriate Loan Account and shall be secured by the
Collateral.  Borrower will, and will
cause each of its Subsidiaries, to comply with all laws and all acts, rules,
regulations and orders of any legislative, 


 


45

















 


administrative or
judicial body or official, applicable to the Collateral or to the operation of
the business of Borrower.


Section 6.08  Maintenance of Properties; Use and Operation of
Vessels. 
Borrower will, and will cause each of its Subsidiaries to, keep and
maintain all property material to the conduct of its business in good working
order and condition, ordinary wear and tear excepted.  Borrower shall require at all times that any charterer or
operator of any of the Vessels shall use its due diligence to operate,
maintain, repair, insure, man and supply the Vessels or any of them in a
careful and proper manner, comply in all material respects with and conform to
all governmental laws, rules and regulations and insurance restrictions
relating thereto, and operate any such Vessels with competent and duly
qualified personnel.  Borrower shall
ensure that none of the Vessels is traded, located, operated or used, directly
or indirectly, in a Prohibited Jurisdiction or by a Prohibited Person, and no
charterer nor any subcharterer or shipper shall be a Prohibited Person or
organized in a Prohibited Jurisdiction.


Section 6.09  Books and Records; Inspection Rights.  Borrower
will, and will cause each of its Subsidiaries to, keep proper books of record
and account in which full, true and correct entries in accordance with GAAP are
made of all dealings and transactions in relation to its business and activities.  Borrower will, and will cause each of its
Subsidiaries to, permit any representatives designated by Administrative Agent
or any Lender, upon reasonable prior notice, to visit and inspect its
properties, including, without limitation, the Collateral, to examine and make
extracts from its books and records, and to discuss its affairs, finances and
condition with its officers and independent accountants, all at such reasonable
times and as often as reasonably requested. 
Borrower shall provide to Collateral Agent advance notice of all surveys
and regulatory inspections in order that Lenders may observe and
participate.  All records, computer
tapes, discs and other data storage devices, ledger sheets, correspondence,
invoices, delivery receipts, documents and instruments relating to the
Collateral shall also constitute Collateral and, unless and until delivered to
Lenders, shall be kept by Borrower, without cost to Lenders, in appropriate
containers and in safe places, and if Lenders should so request, shall bear
suitable legends identifying them as being under any Lender’s dominion and
control.  Lenders shall at all
reasonable times have full access to and the right to audit any and all of
Borrower’s books, computer tapes, discs and other data storage devices and
records, including, but not limited to, books and records pertaining to the
Collateral and including all files and correspondence with creditors and
customers, and to confirm and verify the value and collectibility of the
Collateral and to do whatever else Lenders reasonably may deem necessary to
protect its interests.


Section
6.10  Use of Proceeds.  The proceeds
of the Facility A Loans can be used for any purpose in the ordinary course of
business, including minimum quarterly distributions to partners in K-Sea.  The proceeds of the Facility B Loans will be
used exclusively for (1) acquisition of specific vessels from unaffiliated
third parties, or, if from an Affiliate, an acquisition which is made on terms
equivalent to an arm’s-length basis, or (2) financing other rebuilding,
retrofitting, upgrading or capital improvements on Pool Vessels or acquisition
of Acquired Vessels.  Borrower shall not
invest, lend or otherwise distribute the proceeds of any Loan made under this
Agreement in or to any Person other than Borrower, K-Sea or any Subsidiary
Guarantor, except as set forth in the first sentence of this Section 6.10.


 


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Section
6.11  U.S. Person.  Borrower
covenants and agrees that at all times until the Lien of the Mortgage shall be
discharged and there are no Loans outstanding hereunder, it will be a limited
partnership organized under the laws of Delaware or another state within the
United States.


Section
6.12  Documentation.  Borrower
will comply with and satisfy all provisions of the laws and regulations of the
United States now or hereafter from time to time in effect in order that the
Pool Vessels and Acquired Vessels shall continue to be documented vessels
pursuant to the laws of the United States as vessels of the United States under
the United States flag with such endorsements as shall qualify the Pool Vessels
and Acquired Vessels for participation in the coastwise trade (except for the
Lemon Creek and the Casablanca which are qualified for registry trade only) and
such other trades and services to which they may be dedicated from time to
time.


Section 6.13  Further Assurances.  Borrower
will, promptly at any time and from time to time, at its sole expense, execute
and deliver, and cause its Subsidiaries to execute and deliver, to Lenders such
further instruments and documents, and take such further action, as Lenders may
from time to time request in order to further carry out the intent and purpose
of the Loan Documents and to establish and protect the rights, interests and
remedies created, or intended to be created, in favor of Lenders hereby and
thereby, including, without limitation, the execution, delivery, recordation
and filing of financing statements and continuation statements.  Borrower hereby authorizes Lenders, in such
jurisdictions where such action is authorized by law, to effect any such
recordation or filing of financing statements and continuation statements
without the signature of Borrower thereon and to file as valid financing
statements in the applicable financing statement records, photocopies hereof
and of any other financing statement executed in connection herewith.  Lenders agree to provide Borrower with
copies of UCC filings, but shall have no liability for failure to do so and
such failure shall not serve as a defense to the performance by any party of
its obligations under the Loan Documents.


Section 6.14  Borrower’s Title; Lenders’ Security Interest; Personal
Property. 
Borrower shall warrant and defend its good and marketable title in and
to the Vessels, and Lenders’ perfected first priority security interest in the
Collateral, against all claims and demands whatsoever.  Borrower agrees that the Vessels shall be,
and at all times and remain, separately identifiable personal property.  Borrower shall, at its sole expense, take
such action (including the obtaining and recording of waivers) as may be
necessary to prevent any Person from acquiring any right to or interest in the
Vessels by virtue of the Vessels being deemed to be real property or a part of
real property or a part of other personal property, and if at any time any
Person shall claim any such right or interest, Borrower shall, at its expense,
cause such claim to be waived in writing or otherwise eliminated by bonding or
substitution of security to Lenders’ satisfaction within thirty (30) days after
such claim shall have first become known to Borrower.


Section 6.15  Indemnification.  Without
limiting the generality of any other provision hereof, Borrower shall
indemnify, protect, save and keep harmless each Lender from and against any
reduction in the amount payable out of the Collateral to such Lender with
respect to the Obligations, or any other loss, cost or expense (including
reasonable legal fees) incurred by such Lender, as the result of any breach of
the provisions of this Article VI.


 


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Section 6.16  Performance of Contracts.  Borrower
will duly observe and perform in all material respects all covenants and
obligations to be performed by it under any charter or any other contract for
use of the Vessels or any of them and will promptly take any and all action as
may be reasonably necessary to enforce its rights under any such charter or
contract or to secure the performance by such charterer or operator of such
party’s obligations under any such charter or contract.  Borrower shall not amend, terminate or
otherwise modify the terms of any such charter or contract without the prior
written consent of Lenders, which shall not be unreasonably withheld or
delayed, but to which reasonable conditions may be attached; provided, however,
Lenders shall have no obligation to consent to any termination or to any
amendment or modification, if in Lenders’ judgment such amendment or
modification would materially increase Lenders’ risks in the transaction,
reduce its returns or otherwise disadvantage Lenders.


Section 6.17  Environmental Compliance.  (a) Borrower
shall, and it shall require that any and all subcharterers, managers,
employees, contractors, subcontractors, agents, representatives, Affiliates,
consultants, occupants and any and all other Persons, (i) comply in all
material respects with all applicable Environmental Laws, (ii) use,
employ, process, emit, generate, store, handle, transport, dispose of and/or
arrange for the disposal of any and all Hazardous Materials in, on, or,
directly or indirectly, related to or in connection with any of the Vessels or
any portion thereof in a manner consistent with prudent industry practice and
in compliance in all material respects with all applicable Environmental Laws,
and in a manner which does not pose a significant risk to human health, safety
(including occupational health and safety) or the environment, and (iii) obtain,
maintain, and have on board each of the Vessels any required Certificate of
Financial Responsibility; (b) Borrower shall, and it shall require that any
charterer of any of the Vessels or any of them or any other Person that may
have custody of any of the Vessels shall, upon the occurrence or discovery of
an Environmental Event with respect to such Vessel, promptly carry out, using
Borrower’s or such other Person’s own funds or proceeds of insurance with
respect thereto, such actions as may be necessary to remediate or cure such
Environmental Event in compliance in all material respects with all Applicable
Laws, to comply in all material respects with all applicable Environmental Laws
and to alleviate any significant risk to human health or the environment if the
same arises from a condition on or in respect of the Vessel, whether existing
prior to or during the term of this Agreement or the term of any such the
charter.  Once Borrower or such other
Person commences such actions, Borrower shall, and shall cause such other
Person to, thereafter diligently and expeditiously proceed to comply in all
material respects in a timely manner with all Environmental Laws and to
eliminate any significant risk to human health or the environment arising from
such Environmental Event and shall, at the request of Lenders, give periodic
progress reports to Lenders on its compliance efforts and actions.  Nothing contained herein will relieve or
discharge or in any way affect the obligation of Borrower to cure promptly any
violations of Applicable Law or to pay and discharge any Liens against any of
the Vessels.


Section 6.18  Subsidiary Guaranties.  Upon the
formation of any Subsidiary of Borrower that owns, operates or has on charter,
or receives any Hire, on or with respect to any Pool Vessel or any Acquired
Vessel from time to time, Borrower shall cause each such Subsidiary to provide
a Subsidiary Guaranty to Lenders substantially in the form attached hereto as Exhibit I.  In the event any Subsidiary of Borrower is an entity other than a
corporation, the form of Subsidiary Guaranty shall be modified to reflect the
nature of such entity.


 


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Section
6.19  Cleanup Requirement.  Borrower
will cause the aggregate outstanding amount of Facility A Loans (other than
letters of credit) to be reduced to zero for a period of at least fifteen (15)
days during each twelve month period commencing on the Effective Date.


ARTICLE VII



NEGATIVE COVENANTS


Until the Commitments have expired or terminated and
the principal of and interest on each Loan and all fees payable hereunder have
been paid in full Borrower covenants and agrees with Lenders that:


Section 7.01  Fixed Charge Coverage.  The Fixed
Charge Coverage Ratio will not be less than 3.00 to 1.00, tested quarterly
based on the previous four fiscal quarters commencing with a retrospective
measurement from December 31, 2003.


Section 7.02  Total Funded Debt to EBITDA.  The ratio of
total funded debt to EBITDA will not at any time be greater than 3.25 to 1.00,
tested for the period of the previous four fiscal quarters.


Section
7.03  Leverage Ratio.  The Leverage
Ratio will not exceed 2.00 to 1.00, tested quarterly.


Section 7.04  Adjustments to Measurements.  With respect
to the foregoing Sections 7.01, 7.02, and 7.03 hereof, covenant performance
shall be measured from the Effective Date with respect to Borrower and, for any
prior period constituting part of a measurement period, with respect to the
performance of K-Sea Transportation, LLC, and consolidated subsidiaries; provided,
however, that from Interest Expense, there shall be excluded all
interest incurred prior to the Effective Date related to debt obligations
discharged from IPO proceeds and not refunded with any Facility provided by
Lenders pursuant to this Agreement.


Section 7.05  Minimum Tangible Net Worth.  Borrower
shall, at all times, maintain a minimum consolidated Tangible Net Worth of
$85,000,000.00.


Section
7.06  No Liens.  Borrower will not and will not permit any
charterer of the Vessels or any of them to create, assume or suffer to exist
any Lien of any kind upon the Collateral except for Liens in favor of Lenders
and Permitted Liens.


Section 7.07  No Changes in Borrower.  Borrower
shall not (a) materially change its business; (b) change the form of
organization of its business; or (c) without thirty (30) days’ prior written
notice to Lenders, change its name or jurisdiction or organization.


Section 7.08  No Disposition of Assets.  Without the
prior written consent of Lenders which shall not be unreasonably withheld,
Borrower shall not directly or indirectly sell, lease (except any charter of a
Pool Vessel or an Acquired Vessel permitted under the Mortgage), transfer,
assign, abandon, exchange or otherwise relinquish possession or dispose of any
part of the Collateral or any material portion of its other assets (other than
Collateral or other assets that 


 


49

















 


are obsolete or worn out,
or equipment disposed of, if worn out, and replaced with equipment of the same
or better quality and value, in the ordinary course of business).


Section 7.09  Fundamental Changes.


(a)           Borrower will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell,
transfer, lease or otherwise dispose of (in one transaction or in a series of
transactions) all or substantially all of its assets, or all or
substantially all of the stock of any of its Subsidiaries (in each case,
whether now owned or hereafter acquired), or liquidate or dissolve, except
that, if at the time thereof and immediately after giving effect thereto no
Default shall have occurred and be continuing; provided (i) any
Person may merge into Borrower in a transaction in which Borrower is the
surviving corporation, (ii) any Person may merge into  any Subsidiary in a transaction in which the
surviving entity is a Subsidiary, (iii) any Subsidiary may sell, transfer,
lease or otherwise dispose of its assets to Borrower or to another Subsidiary,
and (iv) any Subsidiary may liquidate or dissolve if Borrower determines
in good faith that such liquidation or dissolution is in the best interests of
Borrower and is not materially disadvantageous to Lenders.


(b)           Borrower will not, and will not
permit any of its Subsidiaries to, engage to any material extent in any
business other than businesses of the type conducted by Borrower, or related to
its Subsidiaries on the date of execution of this Agreement.


Section 7.10  Transactions with Affiliates.  Borrower
will not, and will not permit any of its Subsidiaries to, sell, lease or
otherwise transfer any property or assets to, or purchase, lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) in the ordinary
course of business at prices and on terms and conditions not less favorable to
Borrower or such Subsidiary than could be obtained on an arm’s-length basis
from unrelated third parties, (b) transactions between or among Borrower
and its Subsidiaries not involving any other Affiliate and (c)  any
transaction permitted by Section 7.09 hereof; provided, that the
foregoing provisions of this Section 7.10 shall not prohibit any such
Person from declaring or paying any lawful Distributions so long as, after
giving effect thereto, no Default shall have occurred and be continuing.  No funds provided by Lenders to Borrower
hereunder shall be employed for purposes other than corporate purposes of
Borrower and for use in Borrower’s business.


Section 7.11  Restrictive Agreements.  Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, enter into, incur or permit to exist any agreement or other
arrangement that prohibits, restricts or imposes any condition upon
(a) the ability of Borrower or any Subsidiary to create, incur or permit
to exist any Lien upon any of its property or assets, which restriction (or
condition) is more restrictive, in substance, than the restrictions in
Section 7.06 hereof, or (b) the ability of any Subsidiary to pay
Distributions or other distributions with respect to any shares of its capital
stock or to make or repay loans or advances to Borrower or any other Subsidiary
or to guaranty Indebtedness of Borrower or any other Subsidiary; provided,
that (i) the foregoing shall not apply to restrictions and conditions
imposed by law or by this Agreement, (ii) the foregoing shall not apply to
restrictions and conditions existing on the date hereof (but shall apply to any
extension or renewal of, or any amendment or modification 


 


50

















 


expanding the scope of,
any such restriction or condition), (iii) the foregoing shall not apply to
customary restrictions and conditions contained in agreements relating to the
sale of a Subsidiary pending such sale, provided, that such restrictions
and conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder, (iv) clause (a) of the foregoing shall not apply
to restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the property or assets securing such Indebtedness and (v) clause (a)
of the foregoing shall not apply to customary provisions in leases and other
contracts restricting the assignment thereof.


ARTICLE VIII



EVENTS OF DEFAULT AND REMEDIES


Section 8.01  Events of Default.  If any of
the following events (“Events of Default”)
shall occur:


(a)           Borrower shall fail to pay any
principal of or interest on any Loan or any fee or any other amount payable
under this Agreement, when and as the same shall become due and payable, and
such failure shall continue unremedied for a period of two (2) Business Days;


(b)           any representation or warranty made
or deemed made by or on behalf of Borrower or any Subsidiary (i) in this
Agreement or any amendment or modification hereof, shall prove to have been
incorrect when made or incorrect in any material respect when deemed made or
(ii) in any report, certificate, financial statement or other document
furnished pursuant to or in connection with this Agreement or any amendment or
modification thereof, shall prove to have been incorrect in any material
respect when made or deemed made;


(c)           Borrower shall fail to observe or
perform any covenant, condition or agreement contained in Sections 6.04,
6.05, 6.06, 6.07, 6.08, 6.10, 6.11, 6.12, 6.14, 7.01, 7.02, 7.03 or 7.10
hereof;


(d)           Borrower shall fail to observe or
perform any covenant, condition or agreement contained in this Agreement (other
than those specified in clause (a) or (c) of this Section 8.01), and
such failure shall continue unremedied for a period of thirty (30) days after
notice thereof from Administrative Agent (given at the request of any Lender)
to Borrower;


(e)           any Credit Party shall fail to make
any payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness, when and as the same shall become due and
payable and after any applicable grace and/or notice period;


(f)            any event or condition occurs that
results in any Material Indebtedness becoming due prior to its scheduled
maturity or that enables or permits (after giving effect to any applicable
grace period and/or notice period) the holder or holders of any Material
Indebtedness or any trustee or agent on its or their behalf to cause any
Material Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity; provided,
that this clause (f) shall not apply to secured Indebtedness that becomes
due as a result of the voluntary sale, transfer or total loss of the property
or assets securing such Indebtedness or, with respect to any Title XI debt, the
debtholders and the United States have


 


51

















 


 waived such event or condition prior to the
commencement by Lenders of any foreclosure actions or non-judicial remedies;


(g)           an involuntary proceeding shall be
commenced or an involuntary petition shall be filed seeking
(i) liquidation, reorganization or other relief in respect of any Credit
Party or its debts, or of a substantial part of its assets, under any Federal,
state or foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for any Credit Party
or for a substantial part of its assets, and, in any such case, such proceeding
or petition shall continue undismissed for sixty (60) days or an order or
decree approving or ordering any of the foregoing shall be entered;


(h)           any Credit Party shall
(i) voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect,
(ii) consent to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or petition described in clause (g) of this
Section 8.01, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
Borrower or any Subsidiary or for a substantial part of its assets,
(iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of effecting
any of the foregoing;


(i)            any Credit Party shall become
unable, admit in writing or fail generally to pay its debts as they become due;


(j)            one or more judgments (excluding
only the covered amounts of insured claims, exclusive of deductibles and excess
liability beyond coverage limits and provided that underwriters have not raised
defenses to coverage) for the payment of money in an aggregate amount in excess
of $500,000.00 shall be rendered against any Credit Party or any combination
thereof and the same shall remain undischarged for a period of thirty (30)
consecutive days during which execution shall not be effectively stayed, or any
action shall be legally taken by a judgment creditor to attach or levy upon any
assets of such Credit Party to enforce any such judgment and either (i)
enforcement procedings shall have been commenced by any creditor upon any such
judgment or order, or (ii) there shall be a period of ten (10) consecutive days
after entry thereof during which a stay of enforcement of any such judgment or
order, by reason of a pending appeal, or otherwise, shall not be in effect; provided,
however, that any such judgment or order shall not give rise to an Event
of Default under this subsection (j) if and for so long as and to the extent of
(A) the amount of such judgment or order is covered by a valid and binding
policy of insurance between the defendant and the insurer covering full payment
thereof, and (B) such insurer has been notified, and has not disputed the claim
for payment, of the amount of such judgment or order;


(k)           an ERISA Event shall have occurred
that, in the opinion of Required Lenders, when taken together with all other
ERISA Events that have occurred, could reasonably be expected to result in a
Material Adverse Effect;


 


52

















 


(l)            a Change in Control shall have
occurred;


(m)          Borrower, K-Sea or any Subsidiary
Guarantor is dissolved or otherwise fails to maintain its existence in good
standing, or the usual business of Borrower ceases or is suspended;


(n)           except for specific matters disclosed
in writing to Lenders prior to the date hereof, any indictment or threatened
indictment, occurring after the date hereof, of Borrower under any criminal
statute, including OPA or any similar Environmental Law, or commencement or
threatened commencement of criminal or civil proceedings against Borrower,
pursuant to which statute or proceedings the penalties or remedies sought or
available include forfeiture of any of the property of Borrower.  For issues relating to OPA or similar
Environmental Law, Lenders agrees that an Event of Default shall not be deemed
to have occurred prior to the date on which Borrower receives notice thereof
from Lenders;


(o)           a Mortgage Event of Default shall
have occurred and be continuing under and as defined in the Mortgage;


(p)           the receipt by Lenders of their first
notice of an oil spill or discharge or a hazardous discharge or an
Environmental Action from a source other than Borrower, where Lenders do not
receive notice (which may be given in oral form, provided, that same is
followed with all due dispatch by written notice given by certified mail,
return receipt requested) of such hazardous discharge or environmental
complaint from Borrower within two (2) Business Days of the time Lenders first
receives said notice from a source other than Borrower, or action by any
federal, state, or local agency to foreclose a lien upon any or all of the
assets, equipment, property, leaseholds or other facilities of Borrower
(including, but not limited to, the Vessels or the other Collateral) by reason
of the occurrence of a hazardous discharge or environmental complaint;


(q)           breach by Borrower under, or lapse
of, any entry or policy of insurance from time to time in effect with respect
to the Vessels;


(r)            [intentionally omitted];


(s)           any change in the collective
bargaining agreement with Borrower, its Subsidiaries or K-Sea occurs that is
likely to have a Material Adverse Effect;


(t)            breach by K-Sea of the Parent
Guaranty;


(u)           breach by any Subsidiary of Borrower
of its Subsidiary Guaranty;


(v)           [intentionally omitted]; or


(w)          a change occurs in the nature or
conduct of Borrower’s business or any Applicable Law affecting vessels or
Environmental Law occurs which is likely to have a Material Adverse Effect on
the Collateral or Borrower’s ability to perform its obligations hereunder.


 


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(x)            Any Organizational Document of
Borrower or any Guarantor shall be amended, revoked or rescinded in any
material way without the prior written consent of Lenders.


Section
8.02  Remedies.  (a) Upon the
occurrence of an Event of Default, and at any time thereafter, Lenders shall
have all rights and remedies provided in this Agreement, any other agreements
among Borrower and Administrative Agent and Lenders, the UCC or other
Applicable Law, all of which rights and remedies may be exercised without
notice to Borrower, all such notices being hereby waived, except such notice as
is expressly provided for hereunder or is not waivable under Applicable
Law.  All rights and remedies of Lenders
are cumulative and not exclusive and are enforceable, in Lenders’ discretion,
alternatively, successively, or concurrently on any one or more occasions and
in any order the Required Lenders may determine.


(b) Without limiting the foregoing, Administrative
Agent on behalf of the Required Lenders may accelerate the payment of all
Obligations and demand immediate payment thereof to Lenders and Collateral
Agent on behalf of Required Lenders may: (a) with or without judicial process
or the aid or assistance of others, enter upon any premises on or in which any
of the Collateral may be located and take possession of the Collateral, pursue
any or all of any Lenders’ rights against any of the Vessels pursuant to the
Mortgage, (b) require Borrower, at Borrower’s expense, to assemble and make
available to Lenders any part or all of the Collateral at any place and time
designated by Lenders, (c) collect, foreclose, receive, appropriate, set-off
and realize upon any and all Collateral, (d) extend the time of payment of,
compromise or settle for cash, credit, return of merchandise, and upon any
terms or conditions, any and all accounts or other Collateral which includes a
monetary obligation and discharge or release the account debtor or other
obligor, without affecting any of the Obligations, (e) sell, lease, transfer,
assign, deliver or otherwise dispose of any and all Collateral (including,
without limitation, entering into contracts with respect thereto, by public or
private sales at any exchange, broker’s board, any office of Lenders or
elsewhere) at such prices or terms as Lenders may deem reasonable, for cash,
upon credit or for future delivery, with Lenders having the right to purchase
the whole or any part of the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption of Borrower, which
right or equity of redemption is hereby expressly waived and released by
Borrower.  If any of the Collateral is
sold or leased by Lenders upon credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment therefore is
finally collected by Lenders.  If notice
of disposition of Collateral is required by law, seven (7) days’ prior notice
by Administrative Agent to Borrower designating the time and place of any
public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable
notice thereof and Borrower waives any other notice.  In the event Administrative Agent on behalf of Lenders institutes
an action to recover any Collateral or seeks recovery of any Collateral by way
of prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.


Section 8.03  Lenders’ Cure of Third Party Agreement Default.  Any Lender
may, at its option, cure any default by Borrower under any agreement with a
third party or pay or bond on appeal any judgment entered against Borrower,
discharge taxes, Liens, security interests or other encumbrances at any time
levied on or existing with respect to the Collateral and pay any amount, incur
any expense or perform any act which, in such Lender’s sole judgment, is
necessary or appropriate to preserve, protect, insure, maintain, or realize
upon the Collateral. 


 


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Lenders may charge
Borrower’s Loan Account for any amounts so expended, such amounts to be
repayable by Borrower on demand. 
Lenders shall be under no obligation to effect such cure, payment,
bonding or discharge, and shall not, by doing so, be deemed to have assumed any
obligation or liability of Borrower.


ARTICLE IX



THE AGENTS


Section
9.01 
Appointment,
Powers and Immunities.  Each Lender hereby irrevocably
appoints and authorizes The CIT Group/Equipment Financing, Inc., to act as its
Collateral Agent and KeyBank N.A. to act as its Administrative Agent hereunder
and under the other Loan Documents with such powers as are specifically
delegated to the Agents by the terms of this Agreement and of the other Loan
Documents, together with such other powers as are reasonably incidental
thereto.  Each Agent (which term as used
in this sentence and in Section 9.05 and the first sentence of
Section 9.06 hereof shall include reference to the Affiliates and each
Agent and each Agent’s Affiliates’ officers, directors, employees and
agents):  (a) shall have no duties or
responsibilities except those expressly set forth in this Agreement and in the
other Loan Documents, and shall not by reason of this Agreement or any other
Loan Document be a trustee for any Lender; (b) shall not be responsible to
Lenders for any recitals, statements, representations or warranties contained
in this Agreement or in any other Loan Document, or in any certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement or any other Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement,
any loan certificate or any other Loan Document or any other document referred
to or provided for herein or therein or for any failure by Borrower or any
other Person to perform any of its obligations hereunder or thereunder; (c)
shall not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Loan Document; and (d) shall not be
responsible for any action taken or omitted to be taken by it hereunder or
under any other Loan Document or under any other document or instrument
referred to or provided for herein or therein or in connection herewith or
therewith, except for its own gross negligence or willful misconduct.  Each Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it in good faith.


Section
9.02 
Reliance
by Agents.  Each Agent shall be entitled to rely upon
any certification, notice or other communication (including, without
limitation, any thereof by telephone, telecopy, telex, telegram or cable)
believed by it to be genuine and correct and to have been signed or sent by or
on behalf of the proper Person or Persons, and upon advice and statements of
legal counsel, independent accountants and other experts selected by the
Agents.  As to any matters not expressly
provided for by this Agreement or any other Loan Document, each Agent shall in
all cases be fully protected in acting, or in refraining from acting, hereunder
or thereunder in accordance with instructions given by Required Lenders or all
of Lenders as is required in such circumstance, and such instructions of such
Lenders and any action taken or failure to act pursuant thereto shall be
binding on all of Lenders.


Section
9.03 
Events
of Defaults.  The Agents shall not be deemed to have
knowledge or notice of the occurrence of an Event of Default (other than the
non-payment of principal of or 


 


55

















 


interest on the Loans)
unless the Agents have received notice from a Lender or Borrower specifying
such Event of Default and stating that such notice is a “Notice of Default”.  In the event that an Agent receives such a
notice of the occurrence of an Event of Default, such Agent shall give prompt
notice thereof to Lenders (and shall give each Lender prompt notice of each
such non-payment).  Collateral Agent
shall (subject to Section 9.10 hereof) take such action with respect to
such Event of Default as shall be directed by Required Lenders, provided,
that, unless and until Collateral Agent shall have received such directions,
Collateral Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Event of  Default as it shall deem advisable in the
best interest of Lenders except to the extent that this Agreement expressly
requires that such action be taken, or not be taken, only with the consent or
upon the authorization of Required Lenders or all of Lenders.


Section
9.04 
Rights
as a Lender.  With respect to the Commitments and the
Loans made by CIT and KeyBank (and any successor acting as Collateral Agent or
Administrative Agent, respectively) in their capacity as Lenders hereunder
shall have the same rights and powers hereunder as any other Lender and may
exercise the same as though it were not acting as an Agent, and the term
“Lender” or “Lenders” shall, unless the context otherwise indicates, include
the Agents in their individual capacities. 
The CIT Group/Equipment Financing, Inc. (and any successor acting as
Collateral Agent), and KeyBank N.A. (and any successor acting as Administrative
Agent) and their Affiliates may (without having to account therefor to any
Lender) accept deposits from, lend money to, make investments in and generally
engage in any kind of loan, trust or other business with Borrower (and any of
its subsidiaries or Affiliates) as if it were not acting as an Agent, and The
CIT Group/Equipment Financing, Inc., and KeyBank N.A. and their Affiliates may
accept fees and other consideration from Borrower for services in connection
with this Agreement or otherwise without having to account for the same to
Lenders.


Section
9.05 
Indemnification. 
Lenders agree to indemnify each Agent (to the extent not reimbursed
under Section 10.09 hereof, but without limiting the obligations of
Borrower under said Section 10.09) ratably in accordance with their
respective Loans, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever that may be imposed on, incurred by or asserted
against such Agent (including by any Lender) arising out of or by reason of any
investigation in or in any way relating to or arising out of this Agreement or
any other Loan Document or any other documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses that Borrower is
obligated to pay under Section 8.02 hereof but excluding, unless a default
under the Mortgage has occurred and is continuing, normal administrative costs
and expenses incident to the performance of its agency duties hereunder) or the
enforcement of any of the terms hereof or thereof or of any such other
documents, provided, that no Lender shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified.


Section
9.06 
Non-Reliance
on Agents and Other Lenders.  Each Lender
agrees that it has, independently and without reliance on any Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of Borrower and decision to enter
into this Agreement and that it will, independently and without reliance upon
any Agent or any other Lender, and based on such documents and information as
it 


 


56

















 


shall deem appropriate at
the time, continue to make its own analysis and decisions in taking or not
taking action under this Agreement.  The
Agents shall not be required to keep themselves informed as to the performance
or observance by Borrower of this Agreement or any of the other Loan Documents
or any other document referred to or provided for herein or therein or to
inspect the properties or books of Borrower. 
Except for notices, reports and other documents and information
expressly required to be furnished to Lenders by an Agent hereunder, no Agent
shall have any duty or responsibility to provide any Lender with any credit or
other information concerning the affairs, financial condition or business of
Borrower that may come into the possession of such Agent or any of its
Affiliates.


Section
9.07 
Failure
to Act.  Except for action expressly required of an
Agent hereunder and under the other Loan Documents, the Agents shall in all
cases be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further assurances to its satisfaction from Lenders of
their indemnification obligations under Section 10.09 hereof against any
and all liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.


Section
9.08 
Resignation
or Removal of an Agent.  Subject to the appointment
and acceptance of a successor Administrative Agent or Collateral Agent as
provided below, each Administrative or Collateral Agent may resign at any time
by giving notice thereof to Lenders and Borrower, and each Administrative or Collateral
Agent may be removed at any time with or without cause by Required
Lenders.  Upon any such resignation or
removal, Required Lenders shall have the right to appoint a successor
Administrative or Collateral Agent.  If
no successor Administrative or Collateral Agent shall have been so appointed by
Required Lenders and shall have accepted such appointment within thirty (30)
days after the retiring Administrative or Collateral Agent’s giving of notice
of resignation or Required Lenders’ removal of the retiring Administrative or
Collateral Agent, then the retiring Administrative or Collateral Agent may, on
behalf of Lenders, appoint a successor Administrative or Collateral Agent.  Upon the acceptance of any appointment as an
Administrative or Collateral Agent hereunder by a successor Administrative or
Collateral Agent, such successor Administrative or Collateral Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative or Collateral Agent, and the retiring
Administrative or Collateral Agent shall be discharged from its duties and
obligations hereunder.  After any
retiring Administrative or Collateral Agent’s resignation or removal hereunder
as an Administrative or Collateral Agent, the provisions of this
Article IX shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as an
Administrative or Collateral Agent.


Section
9.09 
Consents
under Loan Documents.  Subject to Section 9.10 hereof, neither
Administrative Agent nor Collateral Agent may, without the prior consent of
Required Lenders, consent to any modification, supplement, waiver, amendment or
take any other action under any of the Loan Documents, provided, that
without the prior consent of each Lender, neither Administrative Agent nor
Collateral Agent shall (except as provided herein or in the Loan Documents)
release any collateral or otherwise terminate any Lien under any Loan Document
providing for collateral security, or agree to additional obligations being
secured by such collateral security (unless the Lien for such additional
obligations shall be junior to the Lien in favor of the other obligations
secured by such Loan Document), except that no such consent shall be required,
and Collateral Agent is hereby authorized, to release any Lien covering
property 


 


57

















 


which is the subject of a
disposition of property permitted hereunder or to which Required Lenders have
consented.


Section
9.10 
Action
Upon Instructions.  (a) 
If, in the opinion of the institution acting as Administrative Agent
hereunder any document required to be executed pursuant to the terms hereof
affects any right, duty, immunity or indemnity with respect to it under this
Agreement, Administrative Agent may in its discretion decline to execute such
document.


(b)           Upon the written instructions at any
time and from time to time of Required Lenders, Administrative Agent shall take
such of the following actions as may be specified in such instructions:  (i) exercise such election or option, or
make such decision or determination, or give such notice, consent, waiver or
approval or exercise such right, remedy or power or take such other action
hereunder or under any other Loan Document or in respect of any part or all of
the Collateral as shall be specified in such instructions; (ii) take such
action with respect to, or to preserve or protect, the Collateral (including
the discharge of Liens) as shall be specified in such instructions and as are
consistent with this Agreement; and (iii) take such other action in respect of
the subject matter of this Agreement as is consistent with the terms hereof and
the other Loan Documents.


(c)           If any Event of Default shall have
occurred and be continuing, on request of Required Lenders, Administrative
Agent shall exercise such remedies under Section 8.02 hereof as shall be
specified in such request. 
Administrative Agent agrees to provide to Lenders, concurrently with
such action by Administrative Agent, notice of such action by Administrative
Agent, provided, that the failure to give any such notice to such
Lenders shall not affect the validity of such action.


ARTICLE X



MISCELLANEOUS


Section
10.01 
Notices. 
Except in the case of notices and other communications expressly
permitted to be given by telephone, all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows:


(a)           if to Borrower, to
it at:


K-Sea Transportation
Partnership L.P.

3245 Richmond Terrace

Staten Island, NY  10303

Attention:  Chief Financial Officer


Telecopier:  (718) 720-4358


with
copies to:


Baker Botts, L.L.P.


One Shell Plaza


910 Louisiana


 


58

















 


Houston, TX  77002


Attention:  Sean Wheeler, Esq.


Telecopier:  (713) 229-5868


and:


Holland & Knight, LLP


195 Broadway


New York, NY  10007


Attention:  Christopher G.
Kelly, Esq.


Telecopier:  (212) 385-9010Telecopier:  (713) 229-5868


and:


Jeffries Capital Partners


520 Madison Ave.


New York, NY  10022


Attention:  Brian Friedman


Telecopier:  (212) 284-1717


(b)           if to Administrative Agent (including
in its capacity as a Lender), to:


KeyBank N.A.

575 Fifth Ave. 

18th Floor

New York, NY  10017

Attention:  _______________


Telecopier:  (212) _________


(c)           if to Collateral Agent (including in
its capacity as a Lender), to:


The CIT Group/Equipment
Financing, Inc.


1540 W. Fountainhead Parkway


Tempe, AZ  85282 

Attention:  _______________


Telecopier:  (480) _________


(d)           if to any other Lender, to it at its
address (or telecopy number) set forth in the Register.


Any party hereto may change
its address or telecopy number for notices and other communications hereunder
by notice to the other parties hereto. 
All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have been
given on the date of receipt.


Section
10.02  Term
and Termination.  The initial term of this Agreement shall be
from the date hereof until the third Anniversary Date.  Notwithstanding the foregoing,
Administrative Agent at the request of Required Lenders may terminate this
Agreement immediately upon the 


 


59

















 


occurrence of an Event of
Default.  All Obligations shall become
due and payable as of any termination hereunder and, pending a final
accounting, Lenders may withhold any balances in Borrower’s account (unless
supplied with an indemnity satisfactory to such Lender) to cover all of
Borrower’s Obligations, whether absolute or contingent.  All of Lenders’ rights, Liens and security
interests shall continue after any termination until all Obligations have been
paid and satisfied in full.


Section
10.03 
[Reserved.]


Section
10.04 
Termination
Indemnity Deposit.  Upon termination of this Agreement by
Borrower, as permitted herein, in addition to payment of all Obligations which
are not contingent, Borrower shall deposit such amount of cash collateral as
Lenders determine is necessary to secure such Lender from loss, cost, damage or
expense, including reasonable attorneys’ fees, in connection with any open
remittance items or other payments provisionally credited to the Obligations
and/or to which such Lender has not yet received final and indefeasible
payment.


Section
10.05 
K-Sea
as Agent for Borrower.  K-Sea shall be deemed the
agent of Borrower in any matter arising under this Agreement and Lenders shall be
entitled to rely on the actions and communication, or lack thereof, of K-Sea as
being the actions or communications or lack thereof of each and every Borrower
with respect to this Agreement.


Section
10.06 
Discharge
of Borrower.  No termination of this Agreement shall
relieve or discharge Borrower of its Obligations, grants of Collateral, duties
and covenants hereunder or otherwise until such time as all Obligations to
Lenders have been indefeasibly paid and satisfied in full, including, without
limitation, the continuation and survival in full force and effect of all
security interests and Liens of Lenders in and upon all then existing and
thereafter-arising or acquired Collateral and all warranties and waivers of
Borrower.


Section
10.07 
Joint
and Several.  Borrower agrees that its liabilities
hereunder are joint and several, absolute and unconditional, without regard to
the liability of any other party.


Section 10.08  Waivers; Amendments.


(a)           No failure or delay by Administrative
Agent or any Lender in exercising any right or power hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power.  The rights and
remedies of Administrative Agent and Lenders hereunder are cumulative and are
not exclusive of any rights or remedies that they would otherwise have.  No waiver of any provision of this Agreement
or consent to any departure by Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this
Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.  Without limiting the generality of the
foregoing, the making of a Loan shall not be construed as a waiver of any
Default or Event of Default, regardless of whether Administrative Agent,
Collateral Agent or any Lender may have had notice or knowledge of such Default
at the time.


 


60

















 


(b)           Neither this Agreement nor any
provision hereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by Borrower and Required
Lenders or by Borrower and Administrative Agent with the consent of Required
Lenders; provided, that no such agreement shall (i) increase the
Commitment of any Lender without the written consent of such Lender,
(ii) reduce the principal amount outstanding of any Loan or reduce the
rate of interest thereon, or reduce any fees payable hereunder, without the
written consent of each Lender affected thereby, (iii) postpone the
scheduled date of payment of the principal amount of any Loan, or any interest
thereon, or any fees payable hereunder, or reduce the amount of, waive or
excuse any such payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected thereby, (iv) change
Section 2.14(b) or (c) in a manner that would alter the pro rata sharing
of payments required thereby without the written consent of each Lender, or
(v) change any of the provisions of this Section or the definition of
“Required Lenders” or any other
provision hereof specifying the number or percentage of Lenders required to
waive, amend or modify any rights hereunder or make any determination or grant
any consent hereunder, without the written consent of each Lender; and, provided,
further, that no such agreement shall amend, modify or otherwise affect
the rights or duties of Administrative Agent hereunder without the prior
written consent of Administrative Agent.


Section 10.09  Expenses; Indemnity; Damage Waiver.


(a)           Borrower shall pay (i) all
reasonable out-of-pocket expenses incurred by Administrative Agent and
Collateral Agent and the respective Affiliates, including the reasonable fees,
charges and disbursements of counsel for Administrative Agent and Collateral
Agent, in connection with any initial syndication of the credit facilities
provided for herein, the preparation and administration of this Agreement and
the other Loan Documents or any amendments, modifications or waivers of the
provisions hereof (whether or not the transactions contemplated hereby or
thereby shall be consummated), and (ii) all out-of-pocket expenses
incurred by Administrative Agent, Collateral Agent or any Lender, including the
fees, charges and disbursements of any counsel for Administrative Agent,
Collateral Agent or any Lender (acting under common counsel), in connection
with the enforcement or protection of its rights in connection with this
Agreement, including its rights under this Section, or in connection with the
Loans made hereunder, including in connection with any workout, restructuring
or negotiations in respect thereof.


(b)           Borrower shall indemnify
Administrative Agent, Collateral Agent, L/C Lender and each Lender, and each
Related Party of any of the foregoing Persons (each such Person being called an
“Indemnitee”) against, and hold
each Indemnitee harmless from, any and all losses, claims, damages, liabilities
and related expenses, including the fees, charges and disbursements of any
counsel for any Indemnitee (but excluding Taxes, it being understood and agreed
that Section 2.13 hereof sets forth Borrower’s indemnity obligations with
respect to Taxes), incurred by or asserted against any Indemnitee arising out
of, in connection with, or as a result of (i) the execution or delivery of
this Agreement or any agreement or instrument contemplated hereby, the
performance by the parties hereto of their respective obligations hereunder or
the consummation of this Agreement or any other transactions contemplated
hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) the
failure of Administrative Agent or the L/C Issuer seeking indemnification or of
any L/C Issuer to honor a demand for 


 


61

















 


payment under any Letter
of Credit or guaranty thereof as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government
or Governmental Authority, in each case other than to the extent solely as a
result of the gross negligence or willful misconduct of Administrative Agent or
the L/C Issuer (as finally determined by a court of competent jurisdiction),
(iv) any actual or alleged presence or release of Hazardous Materials on or
from any property owned or operated by Borrower or any of its Subsidiaries, or
any Environmental Liability related in any way to Borrower or any of its
Subsidiaries, or (v) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is
a party thereto; provided, that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the
gross negligence or willful misconduct of such Indemnitee.


(c)           To the extent that Borrower fails to
pay any amount required to be paid by it to Administrative Agent under
paragraph (a) or (b) of this Section, each Lender severally agrees to pay
to Administrative Agent and Collateral Agent such Lender’s Applicable
Percentage (determined as of the time that the applicable unreimbursed expense
or indemnity payment is sought) of such unpaid amount; provided,
that the unreimbursed expense or indemnified loss, claim, damage, liability or
related expense, as the case may be, was incurred by or asserted against
Administrative Agent in its capacity as such.


(d)           To the extent permitted by Applicable
Law, Borrower shall not assert, and hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement or any agreement or
instrument contemplated hereby, the Transactions, any Loan, any Letter of
Credit or the use of the proceeds thereof.


(e)           All amounts due under this
Section shall be payable promptly after written demand therefor.


(f)            The indemnitees herein in this
Section10.09 set forth are in addition to the obligations of Borrower to pay
indemnification on account of Taxes and Other Taxes, as provided in Section
2.13 hereof.


Section 10.10  Successors and Assigns.


(a)           The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby, except that Borrower may
not assign or otherwise transfer any of its rights or obligations hereunder
without the prior written consent of each Lender (and any attempted assignment
or transfer by Borrower without such consent shall be null and void).  Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby and, to the
extent expressly contemplated hereby, the Related Parties of each of
Administrative Agent, Collateral Agent and Lenders) any legal or equitable
right, remedy or claim under or by reason of this Agreement.


 


62

















 


(b)           Any Lender may assign to one or more
assignees all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at the time owing
to it); provided, that (i) except in the case of an assignment to a
Lender or a Lender Affiliate, each of Borrower and Administrative Agent must
give its prior written consent to such assignment (which consent shall not be
unreasonably withheld), (ii) except in the case of an assignment to a
Lender or a Lender Affiliate or an assignment of the entire remaining amount of
the assigning Lender’s Commitment, the amount of the Commitment of the
assigning Lender subject to each such assignment (determined as of the date the
Assignment and Acceptance with respect to such assignment is delivered to
Administrative Agent) shall not be less than $1,000,000.00 and the amount
of the assigning Lender’s Commitment shall not be less than $1,000,000.00 after
the effectiveness of such assignments, unless each of Borrower and
Administrative Agent otherwise consent, (iii) each partial assignment
shall be made as an assignment of a proportionate part of all the assigning
Lender’s rights and obligations under this Agreement, and (iv) the parties
to each assignment shall execute and deliver to Administrative Agent an
Assignment and Acceptance, together with a processing and recordation fee of
$3,500.00; provided, further, that any consent of Borrower
otherwise required under this paragraph shall not be required if an Event of
Default has occurred and is continuing. 
Upon acceptance and recording pursuant to paragraph (d) of this
Section, from and after the effective date specified in each Assignment and
Acceptance, the assignee thereunder shall be a party hereto and, to the extent
of the interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of the assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of
Sections 2.11, 2.12, 2.13 and 10.09 hereof), provided, however,
no assignee shall be entitled to receive any greater payment under Section
2.11, 2.13 or 10.09(b) hereof than the assigning Lender would have been
entitled to receive with respect to the interest assigned to such assignee,
unless the assignment to such assignee is made with Borrower’s prior written
consent, in which Borrower expressly waives such limitation.  Any assignment or transfer by a Lender of
rights or obligations under this Agreement that does not comply with this
paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.


(c)           Administrative Agent, acting for this
purpose as an agent of Borrower, shall maintain at one of its offices in The
City of New York a copy of each Assignment and Acceptance delivered to it
and a register for the recordation of the names and addresses of Lenders, and
the Commitment of, and principal amount of the Loans owing to, each Lender
pursuant to the terms hereof from time to time (the “Register”).  The
entries in the Register shall be conclusive, and Borrower, Administrative Agent
and Lenders may treat each Person whose name is recorded in the Register
pursuant to the terms hereof as a Lender hereunder for all purposes of this
Agreement, notwithstanding notice to the contrary.


(d)           Upon its receipt of a duly completed
Assignment and Acceptance executed by an assigning Lender and an assignee, the
processing and recordation fee referred to in paragraph (b) of this
Section and any written consent to such assignment required by
paragraph (b) of this Section, Administrative Agent shall accept such
Assignment and 


 


63

















 


Acceptance and record the
information contained therein in the Register. 
No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.


(e)           Any Lender may, without the consent
of Borrower or Administrative Agent, sell participations to one or more banks
or other entities (a “Participant”)
in all or a portion of such Lender’s rights and obligations under this
Agreement (including all or a portion of its Commitment and the Loans owing to
it); provided, that (i) such Lender’s obligations under this
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, and (iii) Borrower, Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement.  Any agreement or instrument pursuant to
which a Lender sells such a participation shall provide that such Lender shall
retain the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided,
that such agreement or instrument may provide that such Lender will not,
without the consent of the Participant, agree to any amendment, modification or
waiver described in the first proviso to Section 10.08(b) hereof that
affects such Participant.  Subject to
paragraph (f) of this Section, Borrower agrees that each Participant shall
be entitled to the benefits of Sections 2.11, 2.12 and 2.13 hereof to the
same extent as if it were a Lender and had acquired its interest by assignment
pursuant to paragraph (b) of this Section.


(f)            A Participant shall not be entitled
to receive any greater payment under Section 2.11 or 2.13 hereof than the
applicable Lender would have been entitled to receive with respect to the
participation sold to such Participant, unless the sale of the participation to
such Participant is made with Borrower’s prior written consent, in which
Borrower expressly waives such limitation. 
A Participant that would be a Foreign Lender if it were a Lender shall
not be entitled to the benefits of Section 2.13 unless Borrower is
notified of the participation sold to such Participant and such Participant
agrees, for the benefit of Borrower, to comply with Section 2.13(d) as
though it were a Lender.  So long as a
Participant agrees, such Participant shall be bound by Section 2.16 as if
it were a Lender in each case thereunder.


(g)           Any Lender may at any time pledge or
assign a security interest in all or any portion of its rights under this
Agreement to secure obligations of such Lender, including any such pledge or
assignment to a Federal Reserve Bank, and this Section shall not apply to
any such pledge or assignment of a security interest; provided, that no
such pledge or assignment of a security interest shall release a Lender from
any of its obligations hereunder or substitute any such assignee for such
Lender as a party hereto.


Section
10.11 
Survival. 
All covenants, agreements, representations and warranties made by
Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the making of any Loans, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that Administrative Agent or any Lender may have had notice or knowledge of any
Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as the
principal of or any accrued interest on 


 


64

















 


any Loan or any fee or
any other amount payable under this Agreement is outstanding and unpaid and so
long as the Commitments have not expired or terminated.  The provisions of Sections 2.11, 2.12,
2.13 and 10.09 and Article IX hereof shall survive and remain in full
force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination
of the Commitments or the termination of this Agreement or any provision
hereof.


Section
10.12 
Counterparts;
Integration; Effectiveness.  This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract.  This Agreement and any separate letter
agreements with respect to fees payable to Administrative Agent constitute the
entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof. 
Except as provided in Section 5.01 hereof, this Agreement shall
become effective when it shall have been executed by Administrative Agent and
when Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. 
Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed counterpart
of this Agreement.


Section
10.13 
Severability. 
Any provision of this Agreement held to be invalid, illegal or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability
without affecting the validity, legality and enforceability of the remaining
provisions hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.


Section
10.14 
Right
of Set-off.  If an Event of Default shall have occurred
and be continuing, each Lender 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 such Lender to or for the
credit or the account of Borrower against any of and all the obligations of
Borrower now or hereafter existing under this Agreement held by such Lender,
irrespective of whether or not such Lender shall have made any demand under
this Agreement and although such obligations may be unmatured.  The rights of each Lender under this
Section are in addition to other rights and remedies (including other
rights of set-off) which such Lender may have.


Section 10.15  Governing Law; Jurisdiction; Consent to
Service of Process.


(a)           This Agreement shall be construed in
accordance with and governed by the law of the State of New York.


(b)           Borrower hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in
New York County and of the United States District Court of the Southern
District of New York, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement, or for
recognition or enforcement of any judgment, and each of the 


 


65

















 


parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State
or, to the extent permitted by law, in such Federal court.  Each of the parties hereto agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.  Nothing in this
Agreement shall affect any right that Administrative Agent or any Lender may
otherwise have to bring any action or proceeding relating to this Agreement
against Borrower or its properties in the courts of any jurisdiction.


(c)           Borrower hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement in
any court referred to in paragraph (b) of this Section.  Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.


(d)           Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices
in Section 10.01 hereof.  Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.


Section
10.16 
WAIVER
OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). 
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.


Section
10.17 
Headings. 
Article and Section headings and the Table of Contents used
herein are for convenience of reference only, are not part of this Agreement
and shall not affect the construction of, or be taken into consideration in
interpreting, this Agreement.


Section
10.18 
Confidentiality. 
Each of Administrative Agent, Collateral Agent and Lenders agrees to
maintain the confidentiality of the Information (as defined below), except that
Information may be disclosed (a) to its and its Affiliates’ directors,
officers, employees and agents, including accountants, legal counsel and other
advisors (it being understood that the Persons to whom such disclosure is made
will be informed of the confidential nature of such Information and instructed
to keep such Information confidential), (b) to the extent requested by any
regulatory authority, (c) to the extent 
required by Applicable Laws or regulations or by any subpoena or similar
legal process, (d) to any other party to this Agreement, (e) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or the enforcement of rights hereunder,
(f) subject to an agreement containing 


 


66

















 


provisions substantially
the same as those of this Section, to any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations
under this Agreement (provided, that, in the case of an assignee or
Participant, or prospective assignee or Participant, which is a competitor of
Borrower, the prior written consent of Borrower shall be required, which
consent shall not be unreasonably withheld, prior to disclosing the Information
thereto), (g) with the consent of Borrower or (h) to the extent such
Information (i) becomes publicly available other than as a result of a
breach of this Section or (ii) becomes available to Administrative
Agent, Collateral Agent or any Lender on a nonconfidential basis from a source
other than Borrower.  For the purposes
of this Section, “Information”
means all information received from Borrower relating to Borrower or its
business, other than any such information that is available to Administrative
Agent, Collateral Agent or any Lender on a nonconfidential basis prior to
disclosure by Borrower; provided, that, in the case of information
received from Borrower after the date hereof, such information is clearly
identified at the time of delivery as confidential.  Any Person required to maintain the confidentiality of Information
as provided in this Section shall be considered to have complied with its
obligation to do so if such Person has exercised the same degree of care to
maintain the confidentiality of such Information as such Person would accord to
its own confidential information.


Section
10.19 
Interest
Rate Limitation.  Notwithstanding anything herein to the
contrary, if at any time the Interest Rate applicable to any Loan, together
with all fees, charges and other amounts which are treated as interest on such
Loan under Applicable Law (collectively the “Charges”),
shall exceed the maximum lawful rate (the “Maximum
Rate”), if any, which may be contracted for, charged, taken,
received or reserved by the Lender holding such Loan in accordance with
Applicable Law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would
have been payable in respect of such Loan but were not payable as a result of
the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated
amount, together with interest thereon at the Federal Funds Effective Rate to
the date of repayment, shall have been received by such Lender.


Section
10.20 
Further
Assurances.  At the request of Lenders, at any time and
from time to time, at Borrower’s sole expense, Borrower shall execute and
deliver or cause to be executed and delivered to Lenders, such agreements,
documents and instruments, including waivers, consents and subordination
agreements from mortgagees or other holders of security interests or Liens,
landlords or bailees, and do or cause to be done such further acts as Lenders,
in its reasonable discretion, deems necessary or desirable to create, preserve,
perfect or validate any security interest of Lenders or the priority thereof in
the Collateral and otherwise to effectuate the provisions and purposes of this
Agreement.  Borrower hereby authorizes
Lenders to file financing statements or amendments against Borrower in favor of
Lenders with respect to the Collateral, without Borrower’s signature, and to
file as financing statements any carbon, photographic or other reproductions of
this Agreement or any financing statements, signed by Borrower.  Borrower hereby ratifies and confirms any
financing statements heretofore filed by Lenders with respect to the
Collateral.


[Signature page follows]


 


67

















 


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


 


	
   

  	
  K-SEA
  OPERATING PARTNERSHIP

  L.P., as Borrower

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  [General Partner]

  	
   

  
	
   

  	
  Name:  John J. Nicola

  	
   

  
	
   

  	
  Title:  Chief Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KEYBANK
  N.A., for itself as Lender, and as

  Administrative Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE CIT
  GROUP/EQUIPMENT

  FINANCING, INC., for itself as Lender, and

  as Collateral Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 


68

















 


SCHEDULE I


 


	
  VESSEL

  	
   

  	
  OFFICIAL NO.

  	
   

  	
  OLV

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DOUBLE-HULL BARGES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 151

  	
   

  	
  641082

  	
   

  	
  $

  	
  10,240,000

  	
   

  
	
  DBL152

  	
   

  	
  644380

  	
   

  	
  9,728,000

  	
   

  
	
  CASABLANCA

  	
   

  	
  901203

  	
   

  	
  2,816,000

  	
   

  
	
  LEMON CREEK

  	
   

  	
  901206

  	
   

  	
  3,920,000

  	
   

  
	
  DBL 70

  	
   

  	
  540401

  	
   

  	
  2,856,000

  	
   

  
	
  DBL 32

  	
   

  	
  1087118

  	
   

  	
  2,304,000

  	
   

  
	
  DBL 2202

  	
   

  	
  287892

  	
   

  	
  336,000

  	
   

  
	
  SUBTOTAL

  	
   

  	
   

  	
   

  	
  32,200,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SINGLE-HULL BARGES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  KTC 155

  	
   

  	
  556673

  	
   

  	
  720,000

  	
   

  
	
  KTC 90

  	
   

  	
  507945

  	
   

  	
  540,000

  	
   

  
	
  KTC 96

  	
   

  	
  523233

  	
   

  	
  536,000

  	
   

  
	
  RTC 81

  	
   

  	
  643281

  	
   

  	
  2,050,000

  	
   

  
	
  KTC 71

  	
   

  	
  563364

  	
   

  	
  1,656,000

  	
   

  
	
  KTC 60

  	
   

  	
  630272

  	
   

  	
  1,440,000

  	
   

  
	
  DBL 3201

  	
   

  	
  512882

  	
   

  	
  420,000

  	
   

  
	
  SUBTOTAL

  	
   

  	
   

  	
   

  	
  7,362,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TUGS

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  REBEL

  	
   

  	
  570047

  	
   

  	
  3,760,000

  	
   

  
	
  YANKEE

  	
   

  	
  571215

  	
   

  	
  3,900,000

  	
   

  
	
  VOLUNTEER

  	
   

  	
  653464

  	
   

  	
  2,160,000

  	
   

  
	
  IRISH SEA

  	
   

  	
  520685

  	
   

  	
  2,380,000

  	
   

  
	
  VIKING

  	
   

  	
  541711

  	
   

  	
  2,000,000

  	
   

  
	
  BEAUFORT SEA

  	
   

  	
  536836

  	
   

  	
  1,920,000

  	
   

  
	
  TASMAN SEA

  	
   

  	
  578207

  	
   

  	
  1,760,000

  	
   

  
	
  ADRIATIC SEA

  	
   

  	
  590232

  	
   

  	
  3,200,000

  	
   

  
	
  CORAL SEA

  	
   

  	
  550670

  	
   

  	
  1,400,000

  	
   

  
	
  KARA SEA

  	
   

  	
  556625

  	
   

  	
  1,400,000

  	
   

  
	
  JAVA SEA

  	
   

  	
  636105

  	
   

  	
  2,000,000

  	
   

  
	
  BALTIC SEA

  	
   

  	
  551908

  	
   

  	
  1,200,000

  	
   

  
	
  BERING SEA

  	
   

  	
  569665

  	
   

  	
  1,140,000

  	
   

  
	
  MARYLAND

  	
   

  	
  287444

  	
   

  	
  530,000

  	
   

  
	
  FALCON

  	
   

  	
  598501

  	
   

  	
  760,000

  	
   

  
	
  ODIN

  	
   

  	
  647313

  	
   

  	
  760,000

  	
   

  
	
  TAURUS

  	
   

  	
  602379

  	
   

  	
  860,000

  	
   

  
	
  SUBTOTAL

  	
   

  	
   

  	
   

  	
  $

  	
  31,130,000

  	
   

  



 


 


Schedule I


Page 1

















 


	
  VESSEL

  	
   

  	
  OFFICIAL NO.

  	
   

  	
  OLV

  	
   

  
	
  *DBL 105

  	
   

  	
  653463

  	
   

  	
  500,000

  	
   

  



 


 


Schedule I


Page 2


 












 








Schedule 2.01


Commitments


 


	
  Bank

  	
   

  	
  Facility

  	
   

  	
  Commitment

  	
   

  
	
  KeyBank N.A.

  	
   

  	
  Facility A

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
   

  	
   

  	
  Facility B

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
   

  	
   

  	
  Facility C

  	
   

  	
  $

  	
  20,000,000

  	
   

  
	
   

  	
   

  	
  Facility D

  	
   

  	
  $

  	
  7,000,000

  	
   

  
	
  Total

  	
   

  	
   

  	
   

  	
  $

  	
  27,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The CIT Group/Equipment
  Financing, Inc.

  	
   

  	
  Facility A

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
   

  	
   

  	
  Facility B

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
   

  	
   

  	
  Facility C

  	
   

  	
  $

  	
  0

  	
  *

  
	
   

  	
   

  	
  Facility D

  	
   

  	
  $

  	
  0

  	
   

  
	
  Total

  	
   

  	
   

  	
   

  	
  $

  	
  20,000,000

  	
   

  
	
  AGGREGATE TOTAL
  COMMITMENTS

  	
   

  	
   

  	
   

  	
  $

  	
  47,000,000

  	
   

  



 












* Subject to settlement purchase obligations by each
Lender according to its Applicable Percentage as provided in
Section 2.02(d) hereof.


 


Schedule 2.01


Page 1


 

















 


 


Schedule 4.14


Charters


1.             Bareboat Charter dated
             ,
2003, between the Borrower and K-Sea Transportation Inc., covering the
following vessels:


 


Schedule 3.14


Page 1

















 


Schedule 4.06


Environmental Compliance


 


Schedule 4.06


Page 1


 

















 


EXHIBIT A


[FORM OF]


REVOLVING LOAN NOTE


FOR VALUE RECEIVED, the undersigned K-SEA OPERATING PARTNERSHIP L.P. (“Debtor”) promises to pay to the order of KEYBANK N.A. (“KeyBank”) as administrative agent (in such capacity “Administrative Agent”), on behalf of itself
and The CIT Equipment Financing, Inc.
(“CIT”), as lenders (“Lenders”), at such address and by such
method as Administrative Agent may designate, in lawful money of the United
States of America, the lesser of: 
(i) _________________________UNITED STATES DOLLARS
($_______________), or (ii) the aggregate unpaid principal amount of all
Facility [__] Loans made by Lender to the Debtor pursuant to the Loan Agreement
(defined below) and that are indicated by entry on Schedule A attached
hereto and made a part hereof as provided herein, together with interest in
like money on the principal sum remaining unpaid from time to time from the
date of this Note until due and payable (whether as stated, by acceleration or
otherwise) at a rate per annum equal to the Interest Rate in accordance with
the provisions of the Loan Agreement, interest to be paid by the Debtor to
Lender on the last day of each calendar month; provided, that if any
such day is other than a Business Day, interest shall be paid by Debtor to
Lender on the next preceding Business Day, through the Maturity Date.  Principal shall be paid on the Maturity
Date; provided, that the Note shall bear interest from the date thereof
on the unpaid principal amount thereof at the Interest Rate at all times while
any amounts are outstanding under the Note. 
Each such installment shall be applied first to the payment of any
unpaid interest on the principal sum and then to payment of principal.  Interest shall be calculated on the basis of
actual number of days elapsed in a 360-day year.  Any amount not paid when due under this Note shall bear late
charges thereon, calculated at the Late Charge Rate, from the due date thereof
until such amount shall be paid in full. 
Any payment received after the due date thereof shall be applied first
to the payment of unpaid late charges, second to the payment of any unpaid
interest on said principal, and third to the payment of principal.


This Note is the Note referred to in the Participation
and Loan and Security Agreement, dated as of November __, 2003, among the
Debtor, KeyBank, as Lender and Administrative Agent,  and The CIT Group/Equipment Financing, Inc., as Lender and
Collateral Agent (herein, as the same may from time to time be amended,
supplemented or otherwise modified, called the “Loan Agreement”), is secured as provided in the Loan
Agreement, and is subject to prepayment only as provided therein, and the
holder hereof is entitled to the benefits thereof.  No failure or delay by Administrative Agent in the entry of
amounts on Schedule A hereto shall affect or abridge Debtor’s obligation to pay
such amounts to Lenders.


All terms defined in the Loan Agreement shall have the
same meaning when used in this Note, unless the context shall otherwise
require.


The Debtor hereby waives presentment, demand for
payment, notice of dishonor, and any and all other notices or demands in
connection with the delivery, acceptance, performance, default or enforcement
of this Note and hereby consents to any extensions of time, renewals, 


EXHIBIT A


Page 1


 

















 


releases of any party to this Note, waivers or
modifications that may be granted or consented to by the holder of this Note.


Upon the occurrence of any one or more of the Events
of Default specified in the Loan Agreement, the amounts then remaining unpaid
on this Note, together with any interest accrued, may be declared to be (or,
with respect to certain Events of Default, automatically shall become)
immediately due and payable as provided therein.


In the event that any holder shall institute any
action for the enforcement or the collection of this Note, there shall be
immediately due and payable, in addition to the unpaid balance hereof, all late
charges and all costs and expenses of such action, including attorneys’ fees.  The Debtor, Lenders, Collateral Agent and
Administrative Agent, in any litigation relating to or in connection with this
Note in which they shall be adverse parties, waive trial by jury, and the
Debtor hereby waives the right to interpose any set-off, counterclaim or defense
of any nature or description whatsoever.


The Debtor agrees that its liabilities hereunder are
absolute and unconditional without regard to the liability of any other party
and that no delay on the part of the holder hereof in exercising any power or
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any power or right hereunder preclude other or further
exercise thereof or the exercise of any other power or right.  Notwithstanding the fact that the payee of
this Note is the Administrative Agent, Debtor agrees that this Note represents
the Obligations of Debtor to Lenders.


If at any time this transaction would be usurious
under applicable law, then regardless of any provision contained in the Loan
Agreement, in this Note or in any other agreement made in connection with this
transaction, it is agreed that (a) the total of all consideration which
constitutes interest under applicable law that is contracted for, charged or
received upon the Loan Agreement, this Note or any such other agreement shall
under no circumstances exceed the maximum rate of interest authorized by
applicable law, if any, and any excess shall be credited to the Debtor, and
(b) if Lenders elect to accelerate the maturity of, or if Lenders permit the
Debtor to prepay the indebtedness described in this Note, any amounts which
because of such action would constitute interest may never include more than
the maximum rate of interest authorized by applicable law and any excess
interest, if any, provided for in the Loan Agreement, in this Note or
otherwise, shall be credited to the Debtor automatically as of the date of
acceleration or prepayment.


THIS NOTE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO DEBTS AND OBLIGATIONS INCURRED AND TO BE PAID SOLELY IN SUCH
JURISDICTION.


EXHIBIT A


Page 2


 


 

















 


	
  Dated:  November    ,
  2003

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  K-SEA
  OPERATING PARTNERSHIP

  L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  John J.
  Nicola

  
	
   

  	
   

  	
   

  	
  Title:    Chief
  Financial Officer

  



 


EXHIBIT A


Page 3


 


 

















 


SCHEDULE A


(Attached to and forming
part of the Secured Promissory Note, dated __________, 200_, executed by K-Sea
Operating Partnership L.P. and payable to KeyBank N.A., as Administrative Agent
on behalf of itself and The CIT Group/Equipment Financing, Inc.)


	
  Amount of 

  Loan

  	
   

  	
  Date of 

  Loan

  	
   

  	
  Date of
  Repayment of Interest Due

  	
   

  	
  Amount of 

  Repayment

  	
   

  	
  Notation
  Made by (Signature)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


SCHEDULE A


Page 1

















 


 


EXHIBIT B


[FORM OF]


FACILITY D DEMAND NOTE


FOR VALUE RECEIVED, the undersigned K-SEA OPERATING PARTNERSHIP L.P. (“Debtor”) promises to pay ON DEMAND to the
order of KEYBANK N.A. (“KeyBank”), at such address and by such
method as KeyBank may designate, in lawful money of the United States of
America, the lesser of: (i) SEVEN MILLION UNITED STATES DOLLARS
($7,000,000.00), or (ii) the aggregate amount of all drawdowns made under
any Letter of Credit issued for the account of Borrower under Facility D
established by Lenders for the benefit of the Debtor pursuant to the Loan
Agreement (defined below) and that are indicated from time to time by entry on
Schedule A attached hereto and made a part hereof as provided herein,
together with interest in like money on the principal sum remaining unpaid from
time to time from the date of this Note until paid at a rate per annum equal to
the Late Charge Rate in accordance with the provisions of the Loan Agreement,
interest to be paid by the Debtor to KeyBank also ON DEMAND; provided,
that if any such day is other than a Business Day, interest shall be paid by
Debtor to KeyBank on the next succeeding Business Day; provided, that
this Note shall bear interest from the date thereof on the unpaid principal
amount thereof at the Late Charge Rate at all times while any amounts are
outstanding under this Note.  Each such
installment shall be applied first to the payment of any unpaid interest on the
principal sum and then to payment of principal.  Interest shall be calculated on the basis of actual number of
days elapsed in a 360-day year.


This Note is the Facility D Note referred to in the
Participation and Loan and Security Agreement, dated as of November __, 2003,
among the Debtor, KeyBank, as Lender and Administrative Agent,  and The CIT Group/Equipment Financing, Inc.,
as Lender and Collateral Agent (herein, as the same may from time to time be
amended, supplemented or otherwise modified, called the “Loan Agreement”), is secured as provided in
the Loan Agreement, and the holder hereof is entitled to the benefits
thereof.  No failure or delay by KeyBank
in the entry of amounts on Schedule A hereto shall affect or abridge Debtor’s
obligation to pay such amounts to KeyBank ON DEMAND.


All terms defined in the Loan Agreement shall have the
same meaning when used in this Note, unless the context shall otherwise
require.


The Debtor hereby waives presentment, demand for
payment, notice of dishonor, and any and all other notices or demands in
connection with the delivery, acceptance, performance, default or enforcement
of this Note and hereby consents to any extensions of time, renewals, releases
of any party to this Note, waivers or modifications that may be granted or
consented to by the holder of this Note.


In the event that any holder shall institute any
action for the enforcement or the collection of this Note, there shall be
immediately due and payable, in addition to the unpaid balance hereof, all late
charges and all costs and expenses of such action, including attorneys’
fees.  The 


 


EXHIBIT B

Page 1

















 


 


Debtor and KeyBank, in any litigation relating to or
in connection with this Note in which they shall be adverse parties, waive
trial by jury, and the Debtor hereby waives the right to interpose any set-off,
counterclaim or defense of any nature or description whatsoever.


The Debtor agrees that its liabilities hereunder are
absolute and unconditional without regard to the liability of any other party
and that no delay on the part of the holder hereof in exercising any power or
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any power or right hereunder preclude other or further
exercise thereof or the exercise of any other power or right.


If at any time this transaction would be usurious
under applicable law, then regardless of any provision contained in the Loan
Agreement, in this Note or in any other agreement made in connection with this
transaction, it is agreed that the total of all consideration which constitutes
interest under applicable law that is contracted for, charged or received upon
the Loan Agreement, this Note or any such other agreement shall under no
circumstances exceed the maximum rate of interest authorized by applicable law,
if any, and any excess shall be credited to the Debtor.


THIS NOTE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO DEBTS AND OBLIGATIONS INCURRED AND TO BE PAID SOLELY IN SUCH
JURISDICTION.


	
  Dated:  November    ,
  2003

  	
   

  	
   

  
	
   

  	
   

  	
  K-SEA
  OPERATING PARTNERSHIP

  L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  John J.
  Nicola

  
	
   

  	
   

  	
   

  	
  Title:    Chief
  Financial Officer

  



 


EXHIBIT B

Page 2

















 


SCHEDULE A


(Attached to and forming
part of the Secured Promissory Note, dated __________, 200_, executed by K-Sea
Operating Partnership L.P. and payable to KeyBank N.A.)


	
  Amount of 

  Drawdown

  	
   

  	
  Date of 

  Drawdown

  	
   

  	
  Date of
  Repayment of Interest Due

  	
   

  	
  Amount of 

  Repayment

  	
   

  	
  Notation
  Made by (Signature)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


SCHEDULE A

Page 1

















 


EXHIBIT C


[FORM OF]


TERM LOAN NOTE


FOR VALUE RECEIVED, K-SEA
OPERATING PARTNERSHIP L.P. (“Debtor”)
promises to pay to the order of KEYBANK N.A.
(“KeyBank”), as administrative
agent (in such capacity, “Administrative
Agent”), on behalf of itself and The
CIT Group/Equipment Financing, Inc. (“CIT”), as lenders (“Lenders”),
at such address as Administrative Agent may designate, in lawful money of the
United States, the principal sum of ___________________ DOLLARS ($____________)
in sixty (60) monthly equal installments of $__________ each, together with
interest in like money on the principal sum remaining unpaid from time to time
from the date of this Note until due and payable (whether as stated, by
acceleration or otherwise) at a rate per annum equal to the Interest Rate in
accordance with the provisions of the Loan Agreement, as hereinafter defined,
commencing on _______, 20__, with the amount of the entire remaining principal
balance then outstanding, together with interest accrued on the unpaid
principal until payment in full of this Note due on the last installment
payment, _________, 20__.  Each such
installment shall be applied first to the payment of any unpaid interest on the
principal sum and then to payment of principal, if any principal is then
due.  Interest shall be calculated on
the basis of actual number of days elapsed in a 360-day year.  Any amount not paid when due under this Note
shall bear late charges thereon, calculated at the Late Charge Rate, from the
due date thereof until such amount shall be paid in full.  Any payment received after the maturity of
any installment shall be applied first to the payment of unpaid late charges,
second to the payment of any unpaid interest, and third to the payment of
principal.


This Note is a Term Loan Note referred to in that
certain Participation and Loan and Security Agreement, dated as of November __,
2003, among Debtor, as borrower, CIT, as Lender and Collateral Agent and
KeyBank N.A., as Lender and Administrative Agent (herein, as the same may from
time to time be amended, supplemented or otherwise modified, called the “Loan Agreement”), is secured as provided in
the Loan Agreement, and is subject to prepayment only as provided herein, and
the holder hereof is entitled to the benefits thereof.


[Prepayment provision]


Terms defined in the Loan Agreement shall have the
same meaning when used in this Note, unless the context shall otherwise
require.


Debtor hereby waives presentment, demand for payment,
notice of dishonor, and any and all other notices or demands in connection with
the delivery, acceptance, performance, default or enforcement of this Note and
hereby consents to any extensions of time, renewals, releases of any party to
this Note, waivers or modifications that may be granted or consented to by the
holder of this Note.


Upon the occurrence of any one or more of the Events
of Default specified in the Loan Agreement, the amounts then remaining unpaid
on this Note, together with any interest 


EXHIBIT C

Page 1

















 


accrued, may be declared
to be (or, with respect to certain Events of Default, automatically shall
become) immediately due and payable as provided therein.


In the event that any holder shall institute any
action for the enforcement or the collection of this Note, there shall be
immediately due and payable, in addition to the unpaid balance hereof, all late
charges and all costs and expenses of such action, including attorneys’
fees.  Debtor, Lenders, Collateral Agent
and Administrative Agent, in any litigation relating to or in connection with
this Note in which they shall be adverse parties, waive trial by jury, and Debtor
hereby waives the right to interpose any set-off, counterclaim or defense
(except for the defense of payment made) of any nature or description
whatsoever.


Debtor agrees that its liabilities hereunder are
absolute and unconditional without regard to the liability of any other party
and that no delay on the part of the holder hereof in exercising any power or
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any power or right hereunder preclude other or further
exercise thereof or the exercise of any other power or right.  Notwithstanding the fact that the payee of
this Note is the Administrative Agent, Debtor agrees that this Note represents
the Obligations of Debtor to Lenders.


If at any time this transaction would be deemed
usurious under applicable law, then regardless of any provision contained in
the Loan Agreement, in this Note or in any other agreement made in connection
with this transaction, it is agreed that (a) the total of all
consideration which constitutes interest under applicable law that is
contracted for, charged or received upon the Loan Agreement, this Note or any
such other agreement shall under no circumstances exceed the maximum rate of
interest authorized by applicable law, if any, and any excess shall be credited
to the Debtor and (b) if [Lenders elect to accelerate the maturity of, or
if Lenders permit Debtor to prepay any Indebtedness described in this Note, any
amounts which because of such action would constitute interest may never include
more than the maximum rate of interest authorized by applicable law and any
excess interest, if any, provided for in the Loan Agreement, in this Note or
otherwise, shall be credited to Debtor automatically as of the date of
acceleration or prepayment.


THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.


	
  Dated:               ,
  20  

  	
   

  	
   

  
	
   

  	
   

  	
  K-SEA
  OPERATING PARTNERSHIP

  L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  John J.
  Nicola

  
	
   

  	
   

  	
   

  	
  Title:    Chief
  Financial Officer

  



 


EXHIBIT C

Page 2

















 


EXHIBIT D


[FORM OF]


ASSIGNMENT AND ACCEPTANCE


Reference is made to the Participation and Loan and
Security Agreement, dated as of 
November __, 2003 (as amended and in effect on the date hereof, the “Agreement”), among K-Sea Operating
Partnership L.P., KeyBank N.A., for itself as Lender and as Administrative
Agent for Lenders, and The CIT Group/Equipment Financing, Inc., for itself as
Lender and as Collateral Agent for Lenders. 
Terms defined in the Agreement are used herein with the same meanings.


The Assignor named below hereby sells and assigns,
without recourse, to the Assignee named below, and the Assignee hereby
purchases and assumes, without recourse, from the Assignor, effective as of the
Assignment Date set forth on the reverse hereof, the interests set forth below
(the “Assigned Interest”) in the
Assignor’s rights and obligations under the Agreement, including, without
limitation, the interests set forth below in the Commitment of the Assignor on
the Assignment Date and Loans owing to the Assignor which are outstanding on
the Assignment Date, excluding accrued interest and fees to and excluding the
Assignment Date.  The Assignee hereby
acknowledges receipt of a copy of the Agreement.  From and after the Assignment Date (i) the Assignee shall be
a party to and be bound by the provisions of the Agreement and, to the extent
of the Assigned Interest, have the rights and obligations of a Lender
thereunder, and (ii) the Assignor shall, to the extent of the Assigned
Interest, relinquish its rights and be released from its obligations under the
Agreement.


If the Assignee is a Foreign Lender, this Assignment
and Acceptance is being delivered to Administrative Agent together with any
documentation required to be delivered by the Assignee pursuant to
Section 2.13(d) of the Agreement, duly completed and executed by the
Assignee.  The [Assignee/Assignor] shall
pay the fee payable to Administrative Agent pursuant to Section 10.10(b)
of the Agreement.


This Assignment and Acceptance shall be governed by
and construed in accordance with the law of the State of New York.


EXHIBIT D

Page 1

















 


Date of Assingment


 


Legal Name of Assignor:


 


Legal Name of Assignee:


 


Assignee’s Address for Notices:


 


Effective Date of Assignment

(“Assignment Date”)(1):


 


	
  Facility

  	
   

  	
  Principal
  Amount Assigned

  (and identifying information

  as to individual Loans)

  	
   

  	
  Percentage
  Assigned of

  Facility/Commitment (set

  forth, to at least 8 decimals, as

  a percentage of the Facility

  and the aggregate

  Commitments of all Lenders

  thereunder

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Commitment
  Assigned:

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
  %

  
							



 


Facility A:


 


Facility B:


 


The terms set forth above and on the reverse side
hereof are hereby agreed to:


 


	
  [Name of Assignor], as
  Assignor

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
	
   

  
	
  [Name of Assignee], as
  Assignee

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  



 












(1)           Must be at least five Business Days
after execution hereof by all required parties.


 


EXHIBIT D

Page 2

















 


The undersigned hereby consent to the within
assignment:(2)


 


	
  K-Sea Operating
  Partnership L.P.

  	
  KeyBank N.A.,

  
	
   

  	
  as Administrative Agent,

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Name:

  	
  Name:

  
	
  Title:

  	
  Title:

  
						



 












(2)           Consents to be included to the extent
required by Section 10.10(b) of the Loan Agreement.


 


EXHIBIT D

Page 3

















 


EXHIBIT E


[FORM OF]


OPINION OF BORROWER’S
COUNSEL


 


EXHIBIT E

Page 1

















EXHIBIT F-1


[FORM OF]


LETTER OF CREDIT


 


EXHIBIT F-1

Page 1

















 


EXHIBIT F-2


[FORM OF]


DOCUMENTARY LETTER OF CREDIT


 


EXHIBIT F-2

Page 1

















 


EXHIBIT G


[FORM OF]


LOAN REQUEST


(REVOLVING LOAN)


 


KeyBank N.A., as
Administrative Agent


575 Fifth Avenue,
18th Floor


New York, New York 
10017


Re:                               Participation and Loan and Security
Agreement, dated as of November __, 2003 (the “Loan Agreement”) by and among K-Sea Operating Partnership L.P.
(“Borrower”), The CIT
Group/Equipment Financing, Inc. (“CIT”),
for itself as Lender, and as collateral agent for Lenders (in such capacity “Collateral Agent”) and KeyBank, N.A. (“KeyBank”), for itself as Lender, and as
administrative agent for Lenders (in such capacity “Administrative Agent”)


Ladies and Gentlemen:


This Loan Request is delivered to you pursuant to
Section 2.04 of the Loan Agreement. 
Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Loan Agreement.


Borrower hereby irrevocably requests that a [Facility
A Loan/Facility B Loan] in the principal amount of $____________ (the “Loan”) on ________, 200_ (the “Loan Date”), which is a Business Day.  [For Facility A Loans or Facility B Loans
requested for a date other than the first day of a LIBOR Interest Period add —
Borrower requests that Lenders make such Loan under Facility C from the Loan
Date to [the first Business Day of the next succeeding calendar month], at
which time Borrower irrevocably requests and directs Lenders to refund the
Facility C Loan with the proceeds of a Facility A Loan/Facility B Loan.]


This Loan will not cause the amounts outstanding under
Facility [__] to exceed the Maximum Amount.


Borrower hereby certifies that no Default or Event of
Default has occurred and is continuing. 
Borrower represents and warrants that as of the Loan Date, all
statements set forth in Article IV of the Loan Agreement are true and correct
in all material respects.  Borrower
agrees that if prior to the Loan Date any matter certified to herein by it will
not be true and correct at such time as if then made, it will immediately so
notify Lenders and the Loan will not be made on the Loan Date unless Lenders
otherwise agree.


 


EXHIBIT G

Page 1

















Please wire
transfer the proceeds of the Loan to the account of the following person at the
financial institution indicated below:


	
  Amount to
  be

  Transferred

  	
   

  	
  Person to be Paid

  	
   

  	
  Account No.

  	
   

  	
  Name,
  Address, etc.

  of Transferee

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


Borrower has caused this
Loan Request to be executed and delivered, and the certification and warranties
contained herein to be made, by its duly authorized officer this
      date of
               ,
200  .


	
   

  	
  K-SEA
  OPERATING PARTNERSHIP L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


EXHIBIT G

Page 2

















 


EXHIBIT H


[FORM OF]


REQUEST


(LETTER OF CREDIT)


KeyBank N.A.


575 Fifth Avenue,
18th Floor


New York, New York 
10017


Re:                               Participation and Loan and Security
Agreement, dated as of November __, 2003 (the “Loan Agreement”) by and among K-Sea Operating Partnership L.P.
(“Borrower”), The CIT
Group/Equipment Financing, Inc. (“CIT”),
for itself as Lender, and as collateral agent for Lenders (in such capacity “Collateral Agent”) and KeyBank, N.A. (“KeyBank”), for itself as Lender, and as
administrative agent for Lenders (in such capacity “Administrative Agent”)


Ladies and Gentlemen:


This Loan Request is delivered to you pursuant to
Section 2.04 of the Loan Agreement. 
Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Loan Agreement.


Borrower hereby irrevocably requests that a Letter of
Credit be issued in the face amount of $____________ (the “Letter of Credit”) on ________, 200_ (the “Letter of Credit Issuance Date”), which is
a Business Day.  We request that the
expiration date of the Letter of Credit be ______________, 200__, subject to an
evergreen clause providing for successive one year renewals, not extending, in
any event, beyond November __, 2006. 
Attached hereto as Exhibit A is Form of Letter of Credit.


The issuance of the requested Letter of Credit will
not cause the Letter of Credit Obligations to exceed the Maximum Amount.  Accompanying this notice is a duly executed
and properly completed Letter of Credit Agreement in the form required by
Administrative Agent, together with the payment of any fees due and payable
pursuant to Section 2.10 of the Loan Agreement.


Borrower hereby certifies that no Default or Event of
Default has occurred and is continuing. 
Borrower represents and warrants that as of the Letter of Credit
Issuance Date, all statements set forth in Article IV of the Loan Agreement are
true and correct in all material respects. 
Borrower agrees that if prior to the Letter of Credit Issuance Date any
matter certified to herein by it will not be true and correct at such time as
if then made, it will immediately so notify L/C Issuer and the Letter of Credit
will not be issued on the Letter of Credit Issuance Date unless L/C Issuer
otherwise agrees.


EXHIBIT H

Page 1

















 


Borrower has
caused this Request to be executed and delivered, and the certification and
warranties contained herein to be made, by its duly authorized officer this
       date of
                  ,
200   .


 


	
   

  	
  K-SEA
  OPERATING PARTNERSHIP L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


EXHIBIT H

Page 2

















 


EXHIBIT I


[FORM OF]


SUBSIDIARY GUARANTY


THIS GUARANTY is made as of the ____ day of November,
2003, by _______________________,
a _________________ with an office and principal place of business at
_____________________________________________ (the “Guarantor”), to THE CIT
GROUP/EQUIPMENT FINANCING, INC. (“CIT”),
a Delaware corporation with an office at 1540 W. Fountainhead Parkway, Tempe,
Arizona 85252 and KEYBANK N.A. (“KeyBank”), a national banking association
with an office at 575 Fifth Ave., New York, NY 10017 (“KeyBank” and, together with “CIT,” the “Lenders” and each, a “Lender”).


W I T N E S S E T H:


WHEREAS, K-SEA OPERATING PARTNERSHIP L.P. (“Borrower”), as borrower, and CIT and
KeyBank, as lenders, are parties to a Participation and Loan and Security
Agreement, dated as of November __, 2003, a copy of which is annexed hereto as
Annex I and made a part hereof (said Participation and Loan and Security
Agreement, as the same may be amended, supplemented or otherwise modified from
time to time, being herein called “Loan
Agreement”), pursuant to which the Lenders have agreed to make loans
(the “Loans”) to the Borrower in
order to provide funds for working capital to support Borrower’s operations and
to enable Borrower to acquire vessels from time to time and to provide for
standby letters of credit (“Letters of Credit”)
for the account of Borrower in an aggregate amount for all such facilities not
to exceed $47,000,000.00 pursuant to the terms of the Loan Agreement; and


WHEREAS, each Loan and Letter of Credit may be
evidenced by a secured promissory note (the “Note”)
dated the date of such Loan and in the forms annexed as Exhibits A and B
to the Loan Agreement, payable in accordance with the provisions of
Section 2.03 of the Loan Agreement, including provisions therein set forth
for payment of interest at rates set forth in the Loan Agreement, all Notes and
Letter of Credit Obligations in the aggregate principal amount not to exceed
$47,000,000.00 (Forty Seven Million and No Hundredths United States Dollars) or
any lesser amount determined pursuant to provisions of the Loan Agreement from
time to time; and


WHEREAS, it is a condition precedent under the
Loan Agreement, inter alia, that
the Guarantor deliver to Lenders a guaranty in favor of Lenders with respect to
the faithful performance by the Borrower of the Loan Agreement and due and punctual
payment of all amounts payable from time to time by the Borrower to Lenders
under the terms of the Loan Agreement, any Notes, and the other Loan Documents
(as defined in the Loan Agreement); and


WHEREAS, the Guarantor is a Subsidiary (as
defined in the Loan Agreement) of the Borrower and has determined that it is in
the corporate interests of the Guarantor that this Guaranty be given.


EXHIBIT I

Page 1

















 


NOW, THEREFORE, in consideration of the premises, and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, and to induce Lenders to enter into the Loan Agreement and
other Loan Documents, the Guarantor agrees as follows:


1.             All capitalized terms defined in or by reference to the
Loan Agreement shall have the meaning therein in the Loan Agreement provided


2.             The Guarantor hereby absolutely, irrevocably and
unconditionally jointly and severally guaranties to Lenders, their successors
and assigns, as primary obligor and not merely as surety, the due and faithful payment
and performance by the Borrower of all the terms, covenants and conditions of
the Loan Agreement, any Notes, and the other Loan Documents, as the same may
hereafter with the consent of Lenders be amended and supplemented.  Without prejudice to the generality of the
foregoing, the following are hereby guaranteed by the Guarantor:


(i)            the prompt payment when due (whether
at the stated maturity or by acceleration or otherwise) of all sums,
indebtedness, obligations and liabilities of the Borrower to Lenders, whether
now existing or hereafter incurred, arising out of or in connection with any
Note or the Loan Agreement, including the Obligations set forth therein;


(ii)           any and all expenses which may be
paid or incurred by Lenders in collecting any or all of the obligations and/or
in enforcing any of its rights hereunder; and


(iii)          the due and punctual performance and
observance, strictly in accordance with the terms of the Loan Agreement, of
each of the terms, conditions, covenants, agreements and indemnities of the
Borrower under the Loan Agreement.


3.             If Borrower defaults in the payment of any or all sums
when due to Lenders, the Guarantor as primary obligor shall forthwith pay to
Lenders or their order the full amount due and payable (by acceleration or
otherwise) in the manner required of the Borrower by the Loan Agreement.  All such payments shall be made without
deductions, withholdings, or set-off, and shall be final and free from any
claims or counterclaim of any Guarantor or Borrower against Lenders.


4.             The obligations of the Guarantor under this Guaranty
shall be continuing, absolute and unconditional under any and all circumstances
and shall be paid by the Guarantor regardless of (a) validity, regularity,
legality or enforceability of the Loan Agreement, any Notes, any of the
Obligations or any collateral security or other guaranty therefor at any time
or from time to time held by Lenders; (b) any defense, offset or
counterclaim which may at any time be available to or be asserted by Borrower
or any Guarantor against Lenders; or (c) any other event or circumstance
whatsoever which may constitute, or might be construed to constitute, an
equitable or legal discharge or a surety or a guarantor, it being the purpose
and intent of the Guarantor that this Guaranty and the Guarantor’s obligations
hereunder shall remain in full force and effect and be binding upon the
Guarantor and its successors until the obligations shall have been satisfied by
payment in full.


EXHIBIT I

Page 2

















 


5.             The Guarantor waives diligence, presentment, protest,
demand for payment and/or notice of default or nonpayment to or upon Borrower
or any Guarantor with respect to the Obligations.  The Guarantor waives any right to require any Lender to marshal
assets in favor of Borrower or Guarantor or any other Person.


6.             The Guarantor consents that, without the necessity of
any reservation of rights against it and without notice to or further assent by
it (a) the obligations and liabilities of the Borrower and any other party
or parties for or upon any of the Obligations, or any collateral security or
guaranty therefor or right of off-set with respect thereto, may, from time to
time in whole or in part, be rescinded, renewed, extended, settled,
surrendered, modified, accelerated, subordinated, waived, compromised,
supplemented, terminated, sold, exchanged or released by Lenders; (b) any
and all collateral security at any time held by Lenders for payment of the
Obligations may be sold, exchanged or released, all without notice to or further
assent by the Guarantor, who will remain bound hereunder, notwithstanding any
such rescission, renewal, extension, settlement, surrender, modification,
acceleration, subordination, waiver, compromise, supplement, termination, sale
or exchange or release; and (c) the covenants and agreements of Borrower
contained in the Loan Agreement may at any time be amended, modified,
supplemented or terminated in whole or in part; all as Lenders may deem
advisable from time to time without impairing, abridging, releasing or
affecting the obligations of the Guarantor hereunder.


7.             No change in the name, capital stock, or constitution of
Borrower shall in any way affect the liability of the Guarantor under this
Guaranty, and all the indebtedness owed by Borrower pursuant to the terms of
the Loan Agreement and any Notes, shall be guarantied by this Guaranty
notwithstanding that the incurring of such indebtedness shall be in excess of
the power of Borrower or shall be in any way irregular, defective, or informal.


8.             The Guarantor shall not be entitled to prorate its
obligations herein set forth or to be subrogated to any of the rights of either
Lender against any other guarantor or Borrower or any collateral security held
by Lenders for the payment of the obligations until the elapse of one year and
one day following the payment in full of all amounts owing by the Borrower to
Lenders and the absence as of such anniversary plus one day of any assertion by
any person of a right to reversal or setting aside of any such payment or part
thereof.  The Guarantor expressly waives
any and all rights of subrogation, reimbursement, indemnity, exoneration,
contribution and any other claim which it may now or hereafter have against
Borrower or any other Person directly or contingently liable for the
obligations guarantied hereunder, or against or with respect to the Borrower’s
property (including, without limitation, property collateralizing the
Obligations), arising from the existence or performance of this Guaranty.


9.             All rights and remedies of Lenders hereunder and under
the Loan Agreement shall be cumulative and may be exercised singly or
concurrently


10.           The Guarantor hereby irrevocably and
unconditionally waives:  (a) any
and all notice of the acceptance of this Guaranty; (b) any and all notice
of the creation, renewal, extension or accrual of any of the Obligations and
notice of or proof of the reliance by Lenders upon this Guaranty; (c) all
notices which may be required by statute, rule of law or otherwise to preserve
any rights against the Guarantor; (d) any requirement of diligence;
(e) presentment, 


EXHIBIT I

Page 3

















 


demand, protest, notice
of default or non-payment; and (f) any and all defenses to payment
hereunder, except the defense of payment already made.


11.           The Guarantor hereby waives and
relinquishes any duty on the part of Lenders (should any such duty exist) to
disclose to the Guarantor any matter, fact or thing related to the business,
operations or condition (financial or otherwise) of Borrower or its Affiliates
or subsidiaries or their properties, whether now known or hereafter known by
Lenders during the life of this Guaranty.


12.           When making any demand hereunder
against the Guarantor, Lenders may, but shall be under no obligation to, make a
similar demand on any other guarantor, and any failure by Lenders to make such
demand or to collect any payments from any such other guarantor or any release
of such other guarantor shall not relieve such Guarantor of its obligations and
liabilities hereunder, and shall not impair or affect the rights and remedies,
express or implied, or as a matter of law, of Lenders against the
Guarantor.  For the purposes hereof
“demand” shall include the commencement and continuance of any legal proceedings.


13.           The Guarantor agrees to pay all expenses
in connection with the execution and delivery of this Guaranty and its
enforcement, including without limitation the payment of any stamp or similar
duties, reasonable attorney fees, and other costs of collection.


14.           This Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the Obligations is rescinded or must be restored or
returned by Lenders upon the insolvency, bankruptcy, liquidation or
reorganization of Borrower, or otherwise, all as though payment had not been
made.


15.           Neither Lender shall have any duty to
protect, secure, perfect or insure any collateral security at any time securing
the payment of the Obligations.  This is
a guaranty of performance and payment and not merely of collection.  The Guarantor hereby waives any requirement
that Lenders make any demand, commence suit or exercise any other right or
remedy under the Loan Agreement prior to enforcing its rights against the
Guarantor hereunder.


The Obligations, and each
of them, shall conclusively be deemed to have been created, contracted or
incurred in reliance upon this Guaranty, and all dealings between Borrower or
the Guarantor and Lenders shall likewise be conclusively presumed to have been
had or consummated in reliance upon this Guaranty.  The Guarantor acknowledges receipt of a copy of the Loan
Agreement and the Loan Documents therein described.


16.           No Changes in Guarantor.  The Guarantor covenants and agrees that from
and after the date hereof and so long as any of the Obligations remain
outstanding, it will not (a) enter into any transaction of merger or
consolidation unless it is the surviving corporation and after giving effect to
such merger or consolidation its tangible net worth equals or exceeds that
which existed prior to such merger or consolidation; or (b) liquidate or
dissolve; or (c) sell or otherwise dispose of all or any substantial part
of its assets; or (d) without limiting the generality of clause (c), sell,
transfer or otherwise dispose of any interest in Borrower held by it as of the
date hereof; or (e) without thirty (30) days’ prior written notice to
Lenders, change its name or chief executive office.


EXHIBIT I

Page 4

















17.           The
Guarantor hereby represents, warrants and covenants that:


(a)           the Guarantor is duly incorporated,
organized, existing, and in good standing under and by virtue of the laws of
the State of ___________;


(b)           the Guarantor will maintain its
corporate existence and good standing under the laws of the State of _________
until the principal, interest or any other sums payable by Borrower to Lenders
under the Loan Agreement or any other document or instrument the execution of
which is provided for in the Loan Agreement and the other Loan Documents have
been fully and indefeasibly paid by Borrower;


(c)           the Guarantor has the necessary power
and authority to give this Guaranty and to perform and observe the obligations
contained herein and that this Guaranty has been validly authorized by the
appropriate corporate action of the Guarantor and constitutes a legal, valid,
and binding obligation of the Guarantor enforceable in accordance with its
terms;


(d)           the giving of this Guaranty and the
observance of its terms does not contravene any law, regulation, or similar
enactment binding on the Guarantor, nor does the giving of this Guaranty and
the observance of its terms contravene any existing mortgage, contract, or
agreement binding on the Guarantor or any of its assets;


(e)           The Guarantor is not in default under
any agreement or guaranty to which it is a party or by which it may be bound;


(f)            The obligations of the Guarantor
under this Guaranty are unconditional and irrevocable and shall rank pari passu with all other liabilities
of the Guarantor for borrowed money or for obligations that have become the
direct obligations of the Guarantor; and


(g)           There are no actions, suits or
proceedings before any court, tribunal or governmental body pending or
threatened (i) with respect to any of the transactions contemplated by
this Guaranty or (ii) against or affecting the Guarantor or any of its
assets which would adversely affect Guarantor’s ability to perform
hereunder.  The Guarantor has not been
charged with any violation of or default under any statute, decree, rule,
regulations, writ or order of any court or any administrative order.


18.           No course of prior dealings between
the parties, no usage of the trade, and no parole or extrinsic evidence of any
nature, shall be used or be relevant to supplement or explain or modify any
term used in this Guaranty.  This
Guaranty and all obligations of the Guarantor hereunder shall be binding upon
the successors and assigns of the Guarantor, and shall, together with the
rights and remedies of Lenders hereunder, inure to the benefit of Lenders and
their respective successors and assigns. 
The invalidity, illegality or unenforceability of any provision of this
Guaranty shall not affect the validity, legality or enforceability of any other
provision of this Guaranty.


19.           The Guarantor agrees that this
Guaranty covers all Obligations of Borrower to each Lender, including, but not
limited to, any Obligation, which arises due to the performance or exercise of
rights by a Lender acting in a capacity as administrative agent or collateral
agent or otherwise.


EXHIBIT I

Page 5

















20.           This
Guaranty inures to the benefit of Lenders, their successors and assigns.  The Lenders may assign their respective
rights hereunder to any other Person who becomes a Lender by amendment or
assignment by Lenders, or any other them, of the Loan Agreement or an interest
therein.


THIS WRITING CONTAINS THE
COMPLETE, FINAL AND EXCLUSIVE STATEMENT OF THE TERMS OF THE AGREEMENT BETWEEN
THE GUARANTORS AND LENDERS RELATING TO THIS GUARANTY.


THIS GUARANTY SHALL IN
ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, INCLUDING ALL MATTERS OF VALIDITY, CONSTRUCTION AND
ENFORCEMENT.


THE GUARANTOR HEREBY
IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION, SUIT, OR PROCEEDING
ARISING OUT OF OR IN ANY WAY IN CONNECTION WITH THIS CORPORATE GUARANTY
MAY BE INSTITUTED OR BROUGHT IN THE COURTS OF THE STATE OF NEW YORK, IN
THE COUNTY OF NEW YORK, OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, AS LENDERS MAY ELECT, AND BY EXECUTION AND DELIVERY
OF THIS CORPORATE GUARANTY, THE GUARANTOR HEREBY IRREVOCABLY ACCEPTS AND
SUBMITS TO, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT, AND TO ALL
PROCEEDINGS IN SUCH COURTS.  THE
GUARANTOR IRREVOCABLY CONSENTS TO SERVICE OF ANY SUMMONS AND/OR LEGAL PROCESS
BY REGISTERED OR CERTIFIED UNITED STATES AIR MAIL, POSTAGE PREPAID, TO THE
GUARANTOR AT THE ADDRESS SET FORTH ABOVE, SUCH METHOD OF SERVICE TO CONSTITUTE,
IN EVERY RESPECT, SUFFICIENT AND EFFECTIVE SERVICE OF PROCESS IN ANY SUCH LEGAL
ACTION OR PROCEEDING.  NOTHING IN THIS
GUARANTY SHALL AFFECT THE RIGHT OF LENDERS TO EFFECT SERVICE OF PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR LIMIT THE RIGHT OF LENDERS TO BRING ACTIONS,
SUITS OR PROCEEDINGS IN THE COURTS OF ANY OTHER JURISDICTION.  THE GUARANTOR FURTHER AGREES THAT FINAL
JUDGMENT AGAINST IT IN ANY SUCH LEGAL ACTION, SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION WITHIN OR OUTSIDE
THE UNITED STATES OF AMERICA, BY SUIT ON THE JUDGMENT, A CERTIFIED OR
EXEMPLIFIED COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND THE
AMOUNT OF THE LIABILITY.


BY ITS SIGNATURE WRITTEN
BELOW, THE GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
GUARANTY, THE LOAN DOCUMENTS OR THE TRANSACTION CONTEMPLATED HEREBY OR THEREBY.


*   *   *


EXHIBIT I

Page 6

















 


IN WITNESS
WHEREOF the Guarantor has caused this Guaranty to be executed by their duly
authorized officers as of the day and year first above written.


 


	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Accepted:

  
	
   

  	
   

  
	
   

  	
  THE CIT
  GROUP/EQUIPMENT

  FINANCING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KEYBANK
  N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


EXHIBIT I

Page 7

















ANNEX I



PARTICIPATION AND LOAN AND SECURITY AGREEMENT

DATED AS OF NOVEMBER __, 2003


 


[to
be attached to each Original Guaranty]


 


ANNEX I

Page 1