**Exhibit10.16**

 

**LOAN AGREEMENT**

** **

Dated as ofJune 28, 2005 AmongK-SEA OPERATING PARTNERSHIP L.P. (as the Borrower)ANDCITIZENS ASSET FINANCE, a d/b/a of Citizens Leasing Corporation (as the Lender)

 

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**TABLE OFCONTENTS**

 
| SECTION 1. | DEFINITIONS                                                                                |   |
|-----------------|--------------------------------------------------------------------------------------------|--------|
| §1.1       | Defined Terms                                                                              |   |
| §1.2       | Other Definitional and Interpretive  Provisions                                            |   |
| SECTION 2. | THE TERM LOAN                                                                              |   |
| §2.1       | Advances; Purposes                                                                         |   |
| §2.2       | Note; Repayment of Principal and  Interest                                                 |   |
| §2.3       | Prepayments                                                                                |   |
| §2.4       | Payments Generally                                                                         |   |
| §2.5       | Increased Costs and Reduced Return                                                         |   |
| §2.6       | Payments Free and Clear of Taxes                                                           |   |
| §2.7       | Mitigation Obligations                                                                     |   |
| SECTION 3. | REPRESENTATIONS AND WARRANTIES                                                             |   |
| §3.1       | Legal Existence and Good Standing, Etc.                                                    |   |
| §3.2       | Limited Partnership Power; Consents;  Absence of Conflict with Other Agreements Etc.  |   |
| §3.3       | Title to Properties                                                                        |   |
| §3.4       | Financial Statements                                                                       |   |
| §3.5       | No Material Changes Etc.                                                                   |   |
| §3.6       | Franchises, Patents, Copyrights,  Licenses, Etc.                                           |   |
| §3.7       | Litigation                                                                                 |   |
| §3.8       | No Materially Adverse Contracts,  Etc.                                                     |   |
| §3.9       | Compliance with Other Instruments,  Laws, Etc.                                             |   |
| §3.10      | Tax Status                                                                                 |   |
| §3.11      | No Default                                                                                 |   |
| §3.12      | Absence of Liens                                                                           |   |
| **§3.13**  | **Use of Proceeds**                                                                        |   |
| §3.14      | Pension Plans                                                                              |   |
| §3.15      | Holding Company and Investment  Company                                                    |   |
| §3.16      | Disclosure                                                                                 |   |
| §3.17      | [Intentionally Omitted                                                                     |   |
| §3.18      | First Lien                                                                                 |   |

 

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| §3.19      | Environmental Matters                                      |   |
|-----------------|------------------------------------------------------------|--------|
| §3.20      | Solvency                                                   |   |
| §3.21      | Survival of Representations and  Warranties, Etc.          |   |
| SECTION 4. | CONDITIONS OF FUNDING THE FIRST  ADVANCE                   |   |
| §4.1       | Execution and Delivery                                     |   |
| §4.2       | Representations and Warranties                             |   |
| §4.3       | Performance; No Default                                    |   |
| §4.4       | Certified Copies of Charter  Documents                     |   |
| §4.5       | Proof of Partnership or General  Partner Action            |   |
| §4.6       | Incumbency Certificate                                     |   |
| §4.7       | No Material Adverse Effect                                 |   |
| §4.8       | Delivery of Notice of Borrowing                            |   |
| §4.9       | Opinion of Counsel                                         |   |
| §4.10      | Proceedings and Documents                                  |   |
| §4.11      | Recorded Lien Searches                                     |   |
| §4.12      | Financing Statements                                       |   |
| §4.13      | Evidence of Insurance                                      |   |
| §4.14      | Delivery of Invoices                                       |   |
| §4.15      | Licenses, Permits and Consent                              |   |
| §4.16      | Construction Contract                                      |   |
| §4.18      | Lien Waivers                                               |   |
| SECTION 5. | CONDITIONS OF INTERIM ADVANCES                             |   |
| SECTION 6. | CONDITIONS OF FINAL ADVANCES OF THE  LOAN                  |   |
| §6.1       | Vessel Documentation                                       |   |
| SECTION 7. | AFFIRMATIVE COVENANTS                                      |   |
| §7.1       | Punctual Payment                                           |   |
| §7.2       | Maintenance of Offices                                     |   |
| §7.3       | Records and Accounts                                       |   |
| §7.4       | Financial Statements, Certificates,  and Other Information |   |
| §7.5       | [Intentionally omitted                                     |   |
| §7.6       | Business and Limited Partnership  Existence                |   |

 

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| §7.7        | Payment of Taxes                                              |   |
|------------------|---------------------------------------------------------------|--------|
| §7.8        | Inspection of Properties and Books                            |   |
| §7.9        | Licenses and Permits                                          |   |
| §7.10       | Pension Plans                                                 |   |
| §7.11       | Environmental and Safety Matters                              |   |
| §7.12       | Indemnities, Etc.                                             |   |
| §7.13       | Performance of Contracts                                      |   |
| §7.14       | Notice of Default                                             |   |
| §7.15       | Notice of Material Claims and  Litigation                     |   |
| §7.16       | No Disposition of Collateral                                  |   |
| §7.17       | Borrower’s Title; Lender’s Security  Interest       |   |
| §7.18       | Compliance with Laws and  Regulations                         |   |
| §7.19       | Further Assurances                                            |   |
| §7.20       | Casualty Occurrence                                           |   |
| SECTION 8.  | NEGATIVE COVENANTS;  FINANCIAL COVENANTS                      |   |
| §8.1        | Transactions with  Affiliates                                 |   |
| §8.2        | Terminate Pension  Plan                                       |   |
| §8.3        | ERISA                                                         |   |
| §8.4        | Incorporation of  Financial Covenants Under Existing Revolver |   |
| SECTION 9.  | EVENTS OF DEFAULT;  ACCELERATION                              |   |
| §9.1        | Events of Default                                             |   |
| §9.2        | Remedies                                                      |   |
| SECTION 10. | EXPENSES                                                      |   |
| SECTION 11. | SURVIVAL OF  COVENANTS                                        |   |
| SECTION 12. | CONFIDENTIALITY                                               |   |
| SECTION 13. | SUCCESSORS AND  ASSIGNS; PARTICIPATIONS                       |   |
| §13.1       | Successors and  Assigns                                       |   |
| §13.2       | Assignments                                                   |   |
| §13.3       | Participations                                                |   |
| §13.4       | Disclosures                                                   |   |
| §13.5       | Federal Reserve  Bank                                         |   |

 

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| §13.6         | Register; Note                              |   |
|--------------------|---------------------------------------------|--------|
| SECTION 14.   | NOTICES                                     |   |
| SECTION 15.   | ENTIRE AGREEMENT                            |   |
| SECTION 16.   | CONSENTS,  AMENDMENTS, WAIVERS, ETC.        |   |
| SECTION 17.   | SEVERABILITY                                |   |
| SECTION 18.   | SUBMISSION TO  JURISDICTION; WAIVER         |   |
| SECTION 19.   | WAIVER OF JURY TRIAL                        |   |
| SECTION 20.   | MISCELLANEOUS                               |   |
|               |                                        |   |
| **SCHEDULES**      |                                        |   |
| Schedule 1    | Description of the Vessels                  |   |
|               |                                        |   |
| **EXHIBITS**       |                                        |
| **Exhibit A** | **Form of  Term Note**                 |
| **Exhibit B** | **Form of  Notice of Borrowing**       |
| **Exhibit C** | **Form of  Ship Mortgage**             |
| **Exhibit D** | **Form of Assignment  and Acceptance** |
| **Exhibit E** | **Form of  Security Agreement**        |
| **Exhibit F** | **Form of  Lien Certificate**          |
| **Exhibit G** | **Assignment of  Project Documents**        |
| **Exhibit H** | **Contractor’s  Consent**              |

 

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**LOAN AGREEMENT**

** **

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

 

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

 

**SECTION 1.****                            DEFINITIONS**

 

**§1.1****        DefinedTerms.** As used in this Agreement the following terms shall have themeanings assigned to them below:

 

“Advance” means an advance pursuant to §2.1.

 

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

 

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

 

“Affiliate” means, as to any Person, any otherPerson which, directly or indirectly, is in control of, is controlled by, or isunder direct or indirect common control with, such Person and, if such Personis an individual, any member of the immediate family (including parents, spouseand children) of such individual and any trust whose principal beneficiary issuch individual or one or more members of such immediate family and any Personwho is controlled by any such member or trust. As used herein, the term “control” (including the correlative meaningsof the terms “controlling”, “controlled by” and “under common control with”)when used with respect to any Person, means the direct or indirect beneficialownership of more than twenty percent (20%) of the outstanding votingsecurities or voting equity of such Person, or the possession, directly orindirectly, of the power to direct or cause the direction of the management orpolicies of a Person, whether through the ownership of voting securities or bycontract or otherwise.

 

“Agreement” - see preamble.

 

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

 

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

 

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

 

“Borrower” - see preamble.

 

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

 

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

 

“CBPA” means Citizens Bank of Pennsylvania.

 

“Change in Control” means (a) theacquisition of ownership, directly or indirectly, beneficially or of record, byany Person or group (within the meaning of the Securities Exchange Act of 1934and the rules of the Securities and Exchange Commission thereunder as ineffect 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 aggregateordinary voting power represented by the issued and outstanding ownershipinterests of Borrower or any Subsidiary Guarantor, or (b) for the periodof twelve (12) consecutive calendar months, a majority of the board of Borroweror any Guarantor shall no longer be composed of individuals (i) who weremembers of said board on the first day of such period, (ii) whose electionor nomination to said board was approved by individuals referred to in clause (i) aboveconstituting at the time of such election or nomination at least a majority ofsaid board, or (iii) whose election or nomination to said board wasapproved by individuals referred to in clauses (i) and (ii) aboveconstituting at the time of such election or nomination at least a majority ofsaid board.

 

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

 

“Code” shall mean the Internal Revenue Code of1986, and the rules and regulations promulgated thereunder, as amendedfrom time to time.

 

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

 

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

 

“Controlled Group” means all trades orbusinesses (whether or not incorporated) under common control that, togetherwith the Borrower, are treated as a single employer under Section 414(b) or414(c) of the Code or Section 4001(a)(14) of ERISA.

 

“DBL 28” means a 28,000 barrel inland tankbarge being constructed for the Borrower by Bollinger pursuant to the VesselConstruction Agreement.

 

“DBL 29” means a 28,000 barrel inland tankbarge being constructed for the Borrower by Bollinger pursuant to the VesselConstruction Agreement.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Event of Default” means any of the eventsspecified in §9, *provided* thatthere has been satisfied any requirement in connection with such event for thegiving of notice or the lapse of time, or both.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Financial Covenants” – see § 8.4(a).

 

“Financing Statements” means Uniform CommercialCode financing statements naming the Borrower as debtor and the Lender as securedparty and filed or to be filed in the office of the Secretary of State ofDelaware and/or such other locations as may be required from time to time underapplicable law to perfect a security interest in certain of the Collateral.

 

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

 

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

 

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

 

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similar import under any applicable local, state orfederal law or under the rules and regulations adopted or publicationspromulgated pursuant thereto, including Environmental Laws, and (d) anyother chemical, material or substance, exposure to which is prohibited, limitedor regulated by any Governmental Authority having jurisdiction over theBorrower, or any of its properties, including the Vessels.

 

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

 

“Indebtedness” means, with respect to anyPerson, without duplication, (a) all obligations of such Person forborrowed money or with respect to deposits or advances of any kind, (b) allobligations of such Person evidenced by bonds, debentures, notes or similarinstruments, (c) all obligations of such Person upon which interestcharges are customarily paid, (d) all obligations of such Person underconditional sale or other title retention agreements relating to propertyacquired by such Person, (e) all obligations of such Person in respect ofthe deferred purchase price of property or services (excluding current accountspayable incurred in the ordinary course of business), (f) all Indebtednessof others secured by (or for which the holder of such Indebtedness has anexisting right, contingent or otherwise, to be secured by) any Lien on propertyowned or acquired by such Person, whether or not the Indebtedness securedthereby has been assumed, (g) all guarantees by such Person ofIndebtedness of others, (h) all Capital Lease Obligations of such Person, (i) alloperating lease obligations of such Person, (j) all obligations, contingent orotherwise, of such Person as an account party in respect of letters of creditand letters of guaranty, and (k) all obligations, contingent or otherwise, ofsuch Person in respect of bankers’ acceptances; provided, however, that “Indebtedness”shall not include (x) secured nonrecourse obligations and (y) nonrecourseobligations incurred in connection with leveraged lease transactions asdetermined in accordance with GAAP.

 

“Indemnified Party” - see §7.11(d).

 

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

 

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

 

“K-Sea Transportation” means K-SeaTransportation Partners L.P., a Delaware limited partnership, and owner of a99.99% limited partner interest in the Borrower.

 

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

 

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“Lender(s)” – see the preamble.

 

“Lender Register” as defined in §13.6.

 

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

 

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

 

“Lien Certificates” – see §4.18.

 

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

 

“Loan Documents” - collectively, thisAgreement, the Note, the Security Agreement, the Financing Statements, the ShipMortgages, the Assignment of Project Documents, and any other instruments oragreements executed and delivered by the parties in connection with thetransactions contemplated by this Agreement, in each case as the same may beamended, supplemented, restated, replaced or otherwise modified from time totime.

 

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

 

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

 

“Note” - see §2.2(a).

 

“Notice of Borrowing” – see §2.1.

 

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

 

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

 

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

 

“Participant” – see §13.3.

 

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

 

(i)            Liens forcurrent crew’s wages, including wages of the master to the extent provided inPublic Law 90-293, for general average or salvage (including contract salvage)or for wages of stevedores employed directly by the Borrower, the operator,agent or master of the Vessels which in each case (A) are unclaimed or (B) shallnot have been due and payable for longer than ten (10) days aftertermination of a voyage;

 

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

 

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

 

(iv)          Liens foramounts being contested by the Borrower in good faith by appropriateprocedures, diligently prosecuted or appealed which do not involve a significantrisk of a sale, forfeiture, hindrance to operation or loss of the Vessels;

 

(v)           Liens forcharges that, in the opinion of the Borrower or as indicated by the writtenadmission of liability therefor by an insurance company, are covered byinsurance;

 

(vi)          Liensarising from the taking or requisition for use of the Vessels by the governmentor any governmental body of the United States of America to the extent that thecreation or incurrence of such lien shall have been beyond the control of theBorrower during such requisition, provided that all such liens referred to inthis clause (vi) shall be removed and discharged within thirty (30) daysafter such requisition shall have terminated; and

 

(vii)         priorto the delivery date of DBL 28 and DBL 29, respectively, liens arising as amatter of law or in accordance with the terms of the Vessel ConstructionContract in favor of, or through Bollinger.

 

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

 

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

 

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

 

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at any time after the date that is twelve (12) monthsafter the first of the month following Advance Termination Date withoutincurring any Prepayment Premium.

 

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

 

“Registration Agent” as defined in §13.6.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Vessel Construction Agreement” means theVessel Construction Agreement dated February 21, 2005 (including allassociated plans, specifications and related documents) between Bollinger andthe Borrower with respect to the construction by Bollinger of DBL 28 and DBL29.

 

**§1.2****        OtherDefinitional and Interpretive Provisions**.

 

(a)           Allterms in this Agreement, the Exhibits and Schedules hereto shall have the samedefined meanings when used in any other Loan Documents, unless the contextshall require otherwise.

 

(b)           Exceptas otherwise expressly provided herein, all accounting terms not specificallydefined or specified herein shall have the meanings generally attributed tosuch terms under GAAP, including applicable statements and interpretationsissued by the Financial Accounting Standards Board and bulletins, opinions,interpretations and statements issued by the American Institute of CertifiedPublic Accountants or its committees.

 

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

 

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(d)           Thewords “hereof,” “herein” and “hereunder” and words of similar import when usedin this Agreement shall refer to this Agreement as a whole and not to anyparticular provisions of this Agreement.

 

(e)           Thepreamble hereto is part of this Agreement. Titles of Sections in this Agreement are for convenience only, do notconstitute part of this Agreement and neither limit nor amplify the provisionsof this Agreement, and all references in this Agreement to Sections,Subsections, paragraphs, clauses, subclasses, Schedules or Exhibits shall referto the corresponding Section, Subsection, paragraph clause, subclause, Schedule orExhibit attached to this Agreement, unless specific reference is made tothe articles, sections or other subdivisions or divisions of such Schedule orExhibit to or in another document or instrument.

 

(f)            Eachdefinition of a document in this Agreement shall include such document asamended, modified, supplemented, restated, renewed or extended from time totime.

 

(g)           Exceptwhere specifically restricted, reference to a party in a Loan Document includesthat party and its successors and assigns permitted hereunder or under suchLoan Document.

 

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

 

(i)            Anylist in this Agreement of one or more items preceded by the words “include or “including”shall not be deemed limited to the stated items but shall be deemed withoutlimitation.

 

**SECTION 2.****                            THETERM LOAN.**

 

**§2.1****        Advances;Purposes.**

 

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

 

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

 

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

 

**§2.2****        Note;Repayment of Principal and Interest.**

 

(a)           Theobligations of the Borrower to repay the Loan, to pay interest thereon from andafter the Advance Termination Date, and all other sums which may become payablewith respect thereto, shall be evidenced with respect to the Loan by thisAgreement and by a promissory note of the Borrower substantially in the form ofExhibit A (the “Note”), appropriately completed in accordance withthe provisions of this Agreement and dated as of****theAdvance Termination Date.  The principalamount of the Loan that is outstanding on the Advance Termination Date shall berepaid in 84 consecutive monthly installments, the first such installmentbecoming due and payable on the date that is one month after the AdvanceTermination Date.  If not earlier prepaidpursuant to §2.3, the entire remaining principal amount of the Loanshall become immediately due and payable on the date which occurs85 months after the Advance Termination Date, as set forth in the Note,without presentment, demand or further notice of any kind, together with allaccrued interest and other amounts then owing by the Borrower to the Lenderhereunder and under the other Loan Documents. The principal balance of the Notemay be prepaid pursuant to §2.3, *provided*thatno amount of the Loan that is so prepaid shall be available for reborrowing.Partial prepayments of the Note shall be applied to installment payments in theinverse order of maturity.

 

(b)           Priorto the Advance Termination Date, the obligations of the Borrower to repay theLoan, to pay interest thereon, and all other sums which may become payable withrespect thereto, shall be evidenced by this Agreement.  Prior to the Advance Termination Date, theoutstanding principal amount of the Loan shall bear interest at the LIBOR Rateplus 160 basis points (1.6%).  Interestprior to the Advance Termination Date shall be due and payable monthly inarrears, on the first day of each month, commencing on the date that is thefirst day of the month immediately following the date of the initial Advancehereunder, for the period commencing on the first day of the immediatelypreceding month (or commencing on the date of the initial Advance with respectto the first interest payment) and ending on and including the last day of suchmonth.

 

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

 

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

 

(e)           TheBorrower shall pay to the Lender interest at the Default Rate on the principalof the Loan, and on any other amounts payable by the Borrower under thisAgreement or the other Loan Documents (including interest to the extentpermitted by law) that is not paid on the due date thereof, calculated from theday following such due date.  Inaddition, if any payment set forth in the Note or hereunder shall not be madewithin ten (10) days of the due date, the Borrower shall pay as anadministrative and late charge an amount equal to 5% of the amount of any suchoverdue payment.  All interest providedfor in this §2.2(e) shall be payable on demand.  The payment or acceptance of the rate providedby this §2.2(e) or any such late charge shall not constitute awaiver of any Default or Event of Default or an amendment to this Agreement orotherwise prejudice or limit any rights or remedies of the Lender.

 

(f)            Inno event shall the amount of interest due or payable under the Loan, the Noteor any of the other Loan Documents, exceed the Highest Lawful Rate, and in theevent any such excess is paid by the Borrower or received by the Lender, thensuch excess sum shall be deemed to be inadvertently paid or received and shallbe credited as a payment of principal, unless the Borrower shall notify theLender that the Borrower elects to have such excess returned to itforthwith.  It is the express intenthereof that the Borrower not pay and the Lender not receive, directly orindirectly, in any manner whatsoever, interest in excess of that which may belawfully paid by the Borrower under applicable Law.

 

(g)           Thebooks and records of the Lender shall, absent demonstrable error, be conclusiveas to the outstanding amount of the Loan, all interest accrued thereon and allother amounts owed by the Borrower hereunder.

 

**§2.3****        Prepayments.**

 

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

 

(b)           MandatoryPrepayments.  The Borrower shall berequired to prepay the principal balance of the Note, subject to thelimitations set forth below in the “provided” clause, 

 

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

 

**§2.4****        PaymentsGenerally.**

 

(a)           Allpayments hereunder shall be made in Dollars and in immediately available fundsand shall be made prior to 2:00 p.m. on the date of payment to theprincipal office of the Lender or such other office as the Lender shalldesignate in writing.  Payments receivedafter 2:00 p.m. shall be deemed to be payments made prior to 2:00 p.m.on the next succeeding Business Day. Interest on the Loan and fees due and payable hereunder and under theNote or any of the other Loan Documents shall be computed on the basis of theactual number of days elapsed over twelve (12) thirty (30) day months,including the first day but excluding the last day of the relevant period.  Any payment which falls due on a day which isnot a Business Day shall be rescheduled to the next succeeding Business Day andinterest and fees shall continue to accrue to such rescheduled BusinessDay.  The Borrower hereby irrevocablyauthorizes the Lender to charge any and all of the Borrower’s accounts with theLender for the amount of each such payment (the Lender agreeing to give noticeto the Borrower contemporaneously thereof), with the Borrower remaining liablefor any deficiency.

 

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

 

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

 

**§2.5****        IncreasedCosts and Reduced Return.**  TheBorrower agrees that if any Governmental Authority enacts or promulgates afterthe date hereof any****Law, or anyrequest, guideline or directive (whether or not having the force of law andwhether or not failure to comply therewith would be unlawful) or any change inthe interpretation or administration of any existing Law by any GovernmentalAuthority charged with the administration thereof, which shall either (a) impose,affect, modify or deem applicable any reserve, special deposit, capitalmaintenance or similar requirement against the Loan, or (b) impose on theLender any other condition regarding the Loan, this Agreement, or the Note, or (c) resultin any requirement regarding capital adequacy (including any risk-based capitalguidelines) affecting the Lender being imposed or modified or deemed applicableto the Lender and the result of any event referred to in clause (a), (b) or(c) above shall be to increase the cost to the Lender of making, fundingor maintaining the Loan or to reduce the amount of any sum receivable by theLender or the Lender’s rate of return on capital with respect to the Loan to alevel below that which the Lender could have achieved but for such imposition,modification or deemed applicability (taking into consideration the Lender’spolicies with respect to capital adequacy) by an amount deemed by the Lender(in the exercise of its reasonable discretion) to be material, then, upondemand by the Lender in writing, the Borrower shall pay to the Lender, withinten (10) Business Days after receipt of the Lender’s written demand andthe statement described in the following sentence, additional amounts whichshall be sufficient to compensate the Lender for such increased cost or reducedrate of return, provided that the Borrower shall have no obligation to pay anysuch amount (x) to the extent that such increased cost or reduction in rate ofreturn on capital is a result of any one or more of the following: (1) theLender’s transfer of its interest in the Loan and the Note to another lendingoffice, (2) circumstances applicable to the Lender but not of generalapplication to other similar lenders, (3) a downgrade in the credit ratingaccorded the Lender (or an Affiliate of the Lender) by any credit ratingagency, or (4) the Lender’s unreasonably treating the Loan less favorablythan other similarly situated loans in the Lender’s loan portfolio, or (y)except after an Event of Default shall have occurred, in the case of any Personthat becomes a Lender after the date hereof, to the extent that the amount ofthe increased cost or reduction in rate of return on capital exceeds the amountof the increased cost or reduction in rate of return on capital that would havebeen suffered by the Initial Lender if the Initial Lender owned such Person’sinterest in the Loan.  In the absence ofmanifest error, a statement setting forth the basis for requesting suchcompensation and the method for, and reasonable calculations for, determiningthe amount thereof, submitted by the Lender to the Borrower, shall be final,conclusive and binding on all parties for all purposes.

 

**§2.6****        PaymentsFree and Clear of Taxes.**

 

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

 

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clear of, and withoutdeduction by reason of, Indemnified Taxes, all of which shall be paid by theBorrower for its own account not later than the date when due.  If the Borrower is required by law orregulation to deduct or withhold any Taxes from any Payment, it shall: (i) makesuch deduction or withholding; (ii) pay the amount so deducted or withheldto the appropriate taxing authority not later than the date when due; (iii) deliverto the Lender, promptly and in any event within 15 days after the date on whichsuch Taxes become due, original tax receipts (if reasonably obtainable) orother evidence satisfactory to the Lender of the payment when due of the fullamount of such Taxes; and (iv) pay to the Lender forthwith upon requestfrom time to time, such additional amounts as may be necessary so the Lenderreceives, free and clear of all Taxes (other than Excluded Taxes), the fullamount of such Payment stated to be due under this Agreement, the Note or anyother Loan Document as if no such deduction or withholding had been made.

 

(b)           TheBorrower agrees to indemnify the Lender for the full amount of IndemnifiedTaxes paid by the Lender and any liability (including penalties, interest andexpenses) arising therefrom or with respect thereto within ten Business Daysafter receipt of the Lender’s written demand therefore (which written demandshall include or be accompanied by (x) a description in reasonable detail ofthe Indemnified Tax involved and the calculation of the amount of indemnitydemanded and (y) a copy of each written communication which the Lender receivedfrom any Governmental Authority or other taxing authority with respect to suchIndemnified Tax.

 

(c)           Ifthe Borrower pays any Indemnified Tax to any Governmental Authority or othertaxing authority, or pays any amount to the Lender pursuant to §§2.6(a)(iv) or2.6(b) with respect to any Tax:

 

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

 

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

 

(d)           Notwithstandingany provision to the contrary in the Loan Documents, the Borrower shall have noobligation to pay, or to indemnify the Lender for, any Tax pursuant to this §2.6to the extent that such Tax has been taken into account in the calculation ofany amount paid or payable by the Borrower to the Lender pursuant to §2.5or §10.

 

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

 

(f)            Ifthe Lender receives a written claim from any Governmental Authority or othertaxing authority for any Indemnified Tax, the Lender shall send a copy of suchwritten 

 

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claim to the Borrower promptlyafter receipt thereof.  If requested bythe Borrower and the Borrower acknowledges, in writing, that such Tax is anIndemnified Tax, the Lender shall contest (or permit the Borrower to contest)such claim in accordance with applicable Law (including appealing any adversedetermination) and shall not concede, settle, compromise or discontinue suchcontest without the Borrower’s prior written consent (which shall not beunreasonably withheld), and the Borrower shall pay the reasonable expensesincurred by the Lender in connection with such contest.

 

**§2.7****        MitigationObligations**  If the Lenderrequests compensation under §2.5 hereof or if the Borrower is requiredto pay any additional amount to any Lender (or to any Governmental Authorityfor account of any Lender) pursuant to §2.6 hereof or if a change in Lawafter the date hereof gives rise to a reasonable expectation that such arequest or requirement would (but for §2.7) occur, then (if reasonablypracticable) the Lender shall use reasonable efforts to designate a differentlending office for funding or booking the Loan or to assign its rights andobligations hereunder to another of its offices, branches or Affiliates, ifsuch designation or assignment (i) would eliminate or reduce amountspayable pursuant to §2.5 or §2.6 hereof, as the case may be, inthe future, and (ii) would not subject the Lender to any unreimbursed costor expense and would not otherwise be disadvantageous to such Lender.  The Borrower agrees to pay the reasonablecosts and expenses incurred by the Lender in connection with any suchdesignation or assignment.

 

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

 

**SECTION 3.****                            REPRESENTATIONSAND WARRANTIES**

 

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

 

**§3.1****        LegalExistence and Good Standing, Etc**.

 

(a)           TheBorrower is a limited partnership validly formed and existing under the laws ofthe State of Delaware and has all requisite limited partnership or other powerto own 

 

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

 

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

 

(c)           TheBorrower is qualified to do business and is in good standing in alljurisdictions in which a failure to be so qualified and in good standing mighthave a Materially Adverse Effect.

 

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

 

(a)           arewithin the Borrower’s powers as a limited partnership, and have been duly authorizedby all necessary limited partnership action of the Borrower and its generalpartner;

 

(b)           donot require any approval or consent of, or filing with, any GovernmentalAuthority bearing on the validity of such instruments and borrowings which isrequired by any Law and are not in contravention of Law or the terms of theBorrower’s partnership agreement or other organizational document, or anyamendment of any thereof;

 

(c)           willnot violate or result in any breach or contravention of or the creation of anyLien under (except in favor of the Lender) any indenture, agreement, lease,instrument or undertaking to which the Borrower is a party or by which it orany of its properties are bound; and

 

(d)           areand will be valid and legally binding obligations of the Borrower, enforceablein accordance with their respective terms, except as such enforcement may belimited by bankruptcy, insolvency, reorganization, moratorium or similar lawsrelating to or affecting generally the enforcement of creditors’ rights, andexcept to the extent that the availability of equitable remedies with respectto such obligations may be subject to the discretion of the court before whichany proceedings for such remedies may be brought.

 

**§3.3****        Titleto Properties.**  K-SeaTransportation and its Subsidiaries own all of their assets reflected in thebalance sheet of K-Sea Transportation and its Subsidiaries as at June 30,2004, or acquired since that date, subject, in the case of the Vessels, to noLiens of record on the Collateral except the relevant Mortgage on the DBL 78 atthe National Vessel Documentation Center. The Borrower has good and marketable title to all items of Collateralpledged by it, free and clear of any Liens, except Permitted Liens.  On each Advance Date and thereafter, DBL 78shall be properly documented as a vessel of the United States in the name ofthe Borrower, and on the respective delivery date thereof and thereafter, DBL28 and DBL 29 shall be properly documented as a vessel of the United States inthe name of the Borrower.

 

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**§3.4****        FinancialStatements.**  The Borrower hasfurnished to the Lender a copy of K-Sea Transportation’s and its Subsidiariesbalance sheets as at March 31, 2005 and statements of income and changesin financial position unaudited for the nine (9) months then ended.  All such financial statements have beenprepared in accordance with GAAP and fairly present the financial condition andthe results of operations of K-Sea Transportation and its Subsidiaries taken asa whole as at the close of business on the date thereof.  There are no liabilities, contingent orotherwise, of the Borrower involving material amounts, known to the officers ofthe Borrower and not disclosed in said financial statements and the relatednotes thereto or not reflected in the financial statements most recentlydelivered in connection with §§7.4(a) or (b).

 

**§3.5****        NoMaterial Changes Etc**.  Nomaterial adverse changes have occurred in the financial condition or businessof K-Sea Transportation and its Subsidiaries taken as a whole as shown on orreflected in the balance sheets or other financial statements delivered on orbefore the date hereof or in the balance sheets or other financial statementsmost recently delivered in connection with §§7.4(a) or (b).

 

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

 

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

 

**§3.8****        NoMaterially Adverse Contracts, Etc.** The Borrower is not subject to any charter, limited partnership or otherlegal restriction, or any judgment, decree, order, rule or regulationwhich in the judgment of its officers has or is reasonably expected in thefuture to have a Materially Adverse Effect. The Borrower is not a party to any contract or agreement which in thejudgment of its officers has or is reasonably expected to have any MateriallyAdverse Effect, except as otherwise reflected in adequate reserves.

 

**§3.9****        Compliancewith Other Instruments, Laws, Etc.** The Borrower is not in violation ofany provision of its charter documents or its partnership agreement or anyagreement, lease or other instrument by which it or any of its properties maybe bound, or any Law, decree, order, judgment, statute, license, rule orregulation, in a manner which could reasonably be expected to result in theimposition of substantial penalties or otherwise have a Materially AdverselyEffect.  There are no past or presentevents, conditions, circumstances, activities, practices, incidents, actions orplans known to the Borrower which reasonably could be expected to interferewith or prevent continued compliance, or which reasonably could be expected togive rise to any common law or statutory liability, under, relating to or inconnection with any Environmental Law or otherwise form the basis of any claim,action, proceeding, hearing or investigation under applicable Law based on orrelated to the manufacture, 

 

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

 

**§3.10****      TaxStatus.**  The Borrower has filedall material federal and state income and all other material tax returns,reports and declarations which the Borrower is required by any applicable Lawof any jurisdiction to which it is subject or has obtained an extension forfiling such returns, reports and declarations which is still in effect; haspaid all taxes and other governmental assessments and charges shown ordetermined to be due on such returns, reports and declarations, except thosebeing contested in good faith by appropriate proceedings diligently pursued;and has set aside on its books provisions reasonably adequate for the paymentof all material taxes for periods subsequent to the periods to which suchreturns, reports or declarations apply. There are no material unpaid taxesclaimed to be due by the taxing authority of any jurisdiction, and the officersof the Borrower know of no basis for any such claim.

 

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

 

**§3.12****      Absenceof Liens.** At the time of the making of each Advance hereunder, therewill be no financing statement, security agreement or ship mortgage granted oragreed to by the Borrower in effect which purports to cover, create, perfect orgive notice of any present or possible future Lien on the Vessel being financedwith such Advance or rights thereunder, or any other Liens thereon or on any ofthe other Collateral, except for Permitted Liens and Liens in favor of theLender.

 

**§3.13****      Useof Proceeds. **The proceeds of theLoan shall be used as specified in §2.1(b).  No portion of the Loan is to be used for thepurpose of purchasing or carrying any “margin security” or “margin stock” incontravention of Regulations U or X of the Board of Governors of the FederalReserve System, and the Borrower is not engaged in the business of extendingcredit to others for such purpose.

 

**§3.14****      PensionPlans.**  Neither the Borrower norany other member of any Controlled Group that includes the Borrower maintainsor pays contributions to, or is required to pay contributions to, any Plan.

 

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

 

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

 

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

 

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

 

**§3.17****      [IntentionallyOmitted]**

 

**§3.18****      FirstLien.**

 

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

 

(b)           Uponexecution and filing for recording thereof with the Coast Guard, each ShipMortgage will create legal, valid and perfected first liens on and first prioritysecurity interests in favor of the Lender with respect to all Collateraldescribed therein as security for the Obligations, free and clear of all otherLiens whatsoever other than Permitted Liens. No mortgage, pledge, security agreement, financing statement, equivalentsecurity or lien instrument or continuation statement covering all or any partof the Collateral, which has been signed by the Borrower or anypredecessor-in-interest of the Borrower or which the Borrower has authorizedany other Person to sign or file or record, is on file or of record with theCoast Guard or with any other public office except in favor of the Lender.

 

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**§3.19****      EnvironmentalMatters.**

 

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

 

(b)           Nonotice, notification, demand, request for information, citation, summons ororder has been issued, no complaint has been filed, no premium has beenassessed and no investigation or review is pending or, to the knowledge of theBorrower without any independent verification, threatened by any governmentalor other entity with respect to any alleged failure by the Borrower or any ofits Subsidiaries to have any permit, license or authorization required inconnection with the conduct of its business or with respect to anyEnvironmental Laws, including Environmental Laws relating to the generation,treatment, storage, recycling, transportation, disposal or release of anyHazardous Materials.

 

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

 

(d)           Thereare no Liens or encumbrances arising under or pursuant to any EnvironmentalLaws on any of the real property or properties owned, leased or used by theBorrower or any of its Subsidiaries other than Liens, if any, that do not (i) materiallydetract from the value of the property or (ii) materially impair the usethereof in the operation of the business of the Borrower or any of itsSubsidiaries or (iii) have a Materially Adverse Effect on the ability ofthe Borrower or any of its Subsidiaries taken as a whole to perform itsobligations under the Loan Documents, and no governmental actions have beentaken or, to the knowledge of the Borrower without any independentverification, are in process which might reasonably be expected to subject anyof such properties to such Liens or encumbrances or, as a result of which theBorrower or any of its Subsidiaries would be required to place any notice orrestriction relating to the presence of Hazardous Materials at any propertyowned by it in any deed to such property.

 

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(e)           Neitherthe Borrower nor any of its Subsidiaries, nor, to the knowledge of the Borrowerwithout any independent verification, any previous owner, tenant, occupant oruser of any property owned, leased or used by the Borrower or any of itsSubsidiaries has (i) engaged in or permitted any operations or activitiesupon or any use or occupancy of such property, or any portion thereof, for thepurpose of or in any way involving the handling, manufacture, treatment,storage, use, generation, release, discharge, refining, dumping or disposal ofany Hazardous Materials on, under, in or about such property, except incompliance in all material respects with all Environmental Laws, or (ii) transportedany Hazardous Materials to, from or across such property except in compliancein all material respects with all Environmental Laws; nor to the best knowledgeof the Borrower have any Hazardous Materials migrated from the properties upon,about or beneath such property, nor, to the best knowledge of the Borrower, areany Hazardous Materials presently constructed, deposited, stored or otherwiselocated on, under, in or about such property except in compliance in allmaterial respects with all Environmental Laws.

 

**§3.20****      Solvency.**  The Borrower, after giving effect to theLoan, is solvent.

 

**§3.21****      Survivalof Representations and Warranties, Etc.** All statements contained in anycertificate, financial statement or other instrument delivered by or on behalfof the Borrower pursuant to or in connection with this Agreement or any of theLoan Documents (including any such representation or warranty made or inconnection with any amendment thereto) shall constitute representations andwarranties made under this Agreement. All representations and warranties made under this Agreement shall bedeemed to be made at and as of the date hereof and as of the date of the makingof each Advance of the Loan.  All representationsand warranties made under this Agreement shall survive, and not be waived by,the execution and delivery of this Agreement or any other Loan Document, anyinvestigation or inquiry by the Lender, or by making the Loan under thisAgreement.

 

**SECTION 4.****                            CONDITIONSOF FUNDING THE FIRST ADVANCE.**

 

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

 

**§4.1****        Executionand Delivery.**  All of the LoanDocuments (other than the Ship Mortgages) shall have been executed anddelivered by the Borrower to the Lender.

 

**§4.2****        Representationsand Warranties.**  Therepresentations and warranties contained in §3 shall have been true andcorrect at and as of the date on which made and shall also be true and correctat and as of the Advance Date with the same effect as if made at and as of suchdate.

 

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

 

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

 

**§4.4****        CertifiedCopies of Charter Documents.**  TheLender shall have received from the Borrower, copies, certified by anAuthorized Officer to be true and complete as of the Advance Date, of itspartnership agreement, or other organizational document, all as in effect onsuch date.

 

**§4.5****        Proofof Partnership or General Partner Action.**  The Lender shall have received from theBorrower copies, certified by an Authorized Officer to be true and complete asof the first Advance Date, of the records of all partnership actions taken toauthorize: (a) its execution and delivery of the Loan Documents (b) itsperformance of all of its agreements and obligations under each of suchdocuments, and (c) the borrowings and other transactions contemplated bythis Agreement.

 

**§4.6****        IncumbencyCertificate. **The Lender shallhave received from the Borrower an incumbency certificate, dated as of thefirst Advance Date and signed by an Authorized Officer, giving the name and bearinga specimen signature of each individual who shall be authorized: (i) tosign the Loan Documents, in its name and on its behalf, (ii) to makeapplication for the Loan, and (iii) to give notices and to take otheraction on its behalf under this Agreement.

 

**§4.7****        NoMaterial Adverse Effect**.  Noevent or change shall have occurred, in the sole judgment of the Lender thathas caused or evidences a Material Adverse Effect.

 

**§4.8****        Deliveryof Notice of Borrowing.**   ANotice of Borrowing (including the Authorization/Acceptance Certificateappended thereto) for such Advance shall have been duly completed by theBorrower and submitted to the Lender in accordance with §2.1.

 

**§4.9****        Opinionof Counsel.**  The Lender shallhave received on the first Advance Date from Holland & Knight LLP,counsel for the Borrower, a favorable opinion addressed to the Lender and datedsuch first Advance Date, in form and substance satisfactory to the Lender andits counsel.

 

**§4.10****      Proceedingsand Documents.**  All proceedingsin connection with the transactions contemplated by this Agreement and alldocuments incident thereto shall be reasonably satisfactory in substance and inform to the Lender and its counsel, and the Lender and such counsel shall havereceived all information and such counterpart originals or certified or othercopies of such documents as the Lender or such counsel may reasonably request.

 

**§4.11****      RecordedLien Searches.**  The Lender shallhave received: (a) UCC search reports with respect to the records of the (i) DelawareSecretary of State office, (ii) New York Secretary of State office, and (iii) RichmondCounty office, and copies of executed Form UCC-3 Financing StatementAmendments for all financing statements on record against the Borrower and thatotherwise would cover any of the Collateral, together with evidence of thefiling thereof, and (b) a U.S. Coast Guard Abstract of Title verifyingthat there are no outstanding ship 

 

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mortgages recorded withthe Coast Guard covering any of the Collateral or any other assets or rightsassociated therewith.

 

**§4.12****      FinancingStatements.**  The Lender shallhave received satisfactory evidence that the Financing Statements have beenduly filed with the office of the Secretary of State of Delaware and any otherfiling locations required hereunder to create and perfect a first priority Lienon all of the Collateral to the extent the Borrower has rights in theCollateral as of such date.

 

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

 

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

 

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

 

**§4.16****      ConstructionContract**.  The Borrower shallhave furnished in form and substance satisfactory to the Lender an executedcopy of the Vessel Construction Agreement for DBL 28 and DBL 29.

 

**§4.17****      [IntentionallyOmitted]**.

 

**§4.18****      LienWaivers*.*** The Borrower shall have obtained and attached to each application for anAdvance, including the Advance to cover final payment to Bollinger under theVessel Construction Agreement, executed lien certificates substantially in theform of Exhibit F hereto (“Lien Certificates”), together withacknowledgments of payments of all sums due and releases of laborer’s, mechanic’sand materialmen’s liens, satisfactory to the Lender, from Bollinger respectingit and any subcontractors and any other party having lien rights, whichacknowledgments of payment and releases of liens shall cover all work, labor,equipment, materials done, supplied, performed, or furnished prior to suchapplication for an Advance.

 

**SECTION 5.****                            CONDITIONSOF INTERIM ADVANCES**

 

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

 

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Borrower that the applicable conditions precedent setforth in this Section 5 have been satisfied or will be satisfied on suchAdvance Date.

 

**SECTION 6.****                            CONDITIONSOF FINAL ADVANCES OF THE LOAN**

 

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

 

**§6.1****        VesselDocumentation**.  The Lender shallhave received or verified all of the following with respect to the applicableVessel:

 

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

 

(b)           Evidencesatisfactory to the Lender that all work on the Vessel requiring inspection byany Governmental Authority has been duly inspected and approved by suchauthority, and that all parties performing work have been paid, or will bepaid, for such work;

 

(c)           Intentionallyomitted;

 

(d)           Ifrequested by Agent, a desktop appraisal of recent date, prepared and certifiedby a qualified marine appraiser certifying the fair market value of the Vesselas completed;

 

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

 

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

 

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

 

(h)           Evidencethat the Borrower has obtained all insurance and protection and indemnitycoverages as are required under the Ship Mortgage with respect to the Vessel;

 

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(i)            Anopinion letter of counsel to the Borrower with respect to the due execution anddelivery of the Ship Mortgage with respect to the Vessel and the first lienpriority of such mortgage; and

 

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

 

**SECTION 7.****                            AFFIRMATIVECOVENANTS.**

 

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

 

**§7.1****        PunctualPayment.**  The Borrower shall dulyand punctually pay or cause to be paid the installment payments of principaland interest on the Loan, and any other amounts at any time owing hereunder orunder the Note or other Loan Documents, all in accordance with the terms ofthis Agreement, the Note, and the other Loan Documents.

 

**§7.2****        Maintenanceof Offices.**  The Borrower shallmaintain a place of business at the location specified in §13, or atsuch other place in the United States of America as it shall designate uponwritten notice, addressed as provided in §13, to the Lender wherenotices, presentations and demands to or upon the Borrower in respect of theLoan Documents may be given or made.

 

**§7.3****        Recordsand Accounts.**  The Borrower shallkeep true records and books of account in which full, true and correct entriesshall be made in accordance with GAAP and maintain adequate accounts andreserves for all Taxes, all depreciation, depletion, obsolescence and amortizationof their properties, all contingencies, and all other reserves.

 

**§7.4****        FinancialStatements, Certificates, and Other Information.**  If requested by Lender, the Borrower shalldeliver to the Lender:

 

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

 

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

 

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

 

(c)           Promptlyupon receipt thereof, copies of all management letters and other reports ofsubstance which are submitted to the Borrower by its independent accountants inconnection with any annual or interim audit of the books of the Borrower madeby such accountants;

 

(d)           Assoon as practicable and, in any event, within 10 days after the issuancethereof, copies of such other financial statements and reports as the Borrowershall send to its partners, members or stockholders, and copies of all regularand periodic reports which the Borrower may be required to file with theSecurities and Exchange Commission or any similar or corresponding governmentalcommission, department or agency substituted therefore, or any similar orcorresponding governmental commission, department, board, bureau, or agency,federal or state;

 

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

 

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

 

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

 

**§7.5****        [Intentionallyomitted.]**

 

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

 

**§7.7****        Paymentof Taxes.**  The Borrower shall paywhen due all lawful Taxes imposed upon it or upon its income or profit or uponany property, real, personal or mixed, belonging to 

 

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

 

**§7.8****        Inspectionof Properties and Books.**   Solong as the Note is outstanding the Lender or its designated agent orrepresentatives shall have the right to visit and inspect for any purpose theCollateral, including the Vessels, to examine the books of account of theBorrower and any other documents required of the Borrower hereunder orotherwise reasonably related to the transactions contemplated hereunder (and tomake copies thereof and extracts therefrom), and to discuss the affairs, financesand accounts of the Borrower with, and to be advised as to the same by, itsofficers, all at such reasonable times and intervals as the Lender mayreasonably request.  The costs of anysuch examination shall be for the account of the Lender, *provided*that following the occurrence and during the continuation of any Default, allsuch reasonable costs shall be charged to the Borrower.

 

**§7.9****        Licensesand Permits.**  If at any timewhile the Note is outstanding, any authorization, consent, approval, permit orlicense from any Governmental Authority shall become necessary or required inorder that the Borrower may fulfill any of its obligations hereunder, theBorrower shall promptly take or cause to be taken all steps reasonablynecessary to obtain such authorization, consent, approval, permit or licenseand furnish the Lender with evidence thereof.

 

**§7.10****      PensionPlans.**  With respect to anyperiod of time during which the Borrower or any other member of a ControlledGroup that includes the Borrower maintains or is required to pay contributionsto a Plan Borrower shall:

 

(a)           Fund,or cause the Plan sponsor or adopting employer to fund, such Plan as requiredby the provisions of Section 302 of ERISA and Section 412 of the Codeexcept where failure to do so would not result in a material liability to theBorrower and make, or cause the Plan sponsor or adopting employer to make, allmaterial contributions to such Plan required pursuant to any applicablecollective bargaining agreement;

 

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

 

(c)           Furnishpromptly to the Lender a copy of all Forms 5500, Forms 5500-C and/or Forms 5500-Rrelating to such Plan, together with all attachments thereto, including anyactuarial statement relating to such Plan required to be submitted under Section 103(d) ofERISA;

 

(d)           Furnishthe Lender with copies of any request for waiver from the funding standards orextension of the amortization periods required by Section 303 and 304 of ERISAor 

 

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Section 412 of theCode with respect to any Plan no later than the date on which the request issubmitted to the Department of Labor or the Internal Revenue Service, as thecase may be;

 

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

 

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

 

**§7.11****      Environmentaland Safety Matters.**  The Borrowershall:

 

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

 

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

 

(c)           Exceptfor Hazardous Materials that the Borrower uses, transports or stores or that alessee or charterer of the Borrower uses, stores or transports in the ordinarycourse of its business and in compliance with all applicable Laws and inaccordance with the terms of any applicable lease or charter documents, keepall of its properties or assets free of Hazardous Materials.  The Borrower shall comply with and usecommercially reasonable efforts to ensure compliance by all tenants andsubtenants with all Environmental Laws and all Laws relating to occupationalsafety or health and shall obtain and comply with, and use commerciallyreasonable efforts to ensure that all tenants and subtenants obtain and complywith, any and all approvals, registrations or permits required thereunder.  The Borrower shall conduct and complete allinvestigations, studies, sampling and testing, and all remedial, removal, andother action necessary to clean up and remove all Hazardous Materials, on, fromor affecting any of its properties or assets as required by all applicablematerial Laws, except as such laws, ordinances, rules, regulations, orders ordirectives may be contested by the Borrower in good faith by appropriateproceedings and for which adequate reserves have been established in conformitywith GAAP.

 

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

 

**§7.12****      Indemnities,Etc**.

 

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

 

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under this §7.12.  Notwithstanding the foregoing, the Borrowershall not be required to indemnify any Indemnified Party for any settlementreached without the prior consent of the Borrower (which consent shall not beunreasonably withheld) or for any judgment entered into against an IndemnifiedParty if the Borrower shall have not been afforded an opportunity toparticipate, at its expense, in the defense of the claim.  The Borrower agrees not to assert any claimagainst the Lender, any of its affiliates, or any of its respective directors,officers, employees, attorneys, agents, and advisers, on any theory ofliability, for special, indirect, consequential, or punitive damages arisingout of or otherwise relating to the Loan Documents, any of the transactions contemplatedherein or the actual or proposed use of the proceeds of the Loan, other thanfraud or intentional misconduct.

 

(b)           Withoutprejudice to the survival of any other agreement of the Borrower hereunder, theagreements and obligations of the Borrower contained in this §7.12 shallsurvive the payment in full of the Loan and all other amounts payable underthis Agreement.

 

**§7.13****      Performanceof Contracts.**  The Borrower shallperform and comply in all material respects with all of its obligations underany contracts and all other agreements to which it is a party or by which it isbound relating to the Collateral, and shall use reasonable efforts to causeeach other party thereto to so perform and comply.

 

**§7.14****      Noticeof Default.**  The Borrower shallpromptly upon becoming aware thereof give written notice to the Lender of: (a) theoccurrence of any Default or Event of Default, (b) any litigation orproceeding affecting the Borrower or any of its properties or assets of which,if adversely determined, might have a Materially Adverse Effect, and (c) anydispute between the Borrower and any Governmental Authority that mightmaterially interfere with its normal business operations.

 

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

 

**§7.16****      NoDisposition of Collateral.**  TheBorrower shall obtain the prior written consent of the Lender (which may begranted or denied in the Lender’s sole discretion), prior to the sale,conveyance, transfer, exchange, lease, or on a bareboat basis charter ordisposition by the Borrower of all or any part of the Collateral or theBorrower’s otherwise relinquishing possession of any of the Collateral.

 

**§7.17****      Borrower’sTitle; Lender’s Security Interest.**

 

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

 

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

 

**§7.18****      Compliancewith Laws and Regulations.**  TheBorrower shall comply with all laws, regulations, directives and orders of anyand all local, state, federal and other governmental agencies and authoritieshaving jurisdiction over it or its property, non-compliance with which couldreasonably be expected to cause a Materially Adverse Effect.

 

**§7.19****      Further Assurances.**  The Borrower shall promptly, at any time andfrom time to time, at its sole expense, execute and deliver to the Lender suchfurther instruments and documents, (including the execution of a replacementpromissory note due to loss or destruction of the Note), and take such furtheraction, as the Lender may from time to time reasonably request in order tocarry out to the Lender’s satisfaction of the transactions contemplated by thisAgreement and to establish and protect the rights, interests and remediescreated, or intended to be created, in favor of the Lender, hereby and underthe other Loan Documents, including the execution, delivery, recordation andfiling of financing statements and continuation statements.  The Borrower hereby authorizes the Lender, insuch jurisdictions where such action is authorized by law, to effect any suchrecordation or filing of financing statements without the signature of theBorrower thereon and to file as valid financing statements in the applicablefinancing statement records, any financing statement executed in connectionherewith.  The Borrower will pay, orreimburse the Lender for, any and all reasonable fees, costs and expenses ofwhatever kind or nature incurred in connection with the creation, preservationand protection of the Lender’s security interest in the Collateral, includingall fees and taxes in connection with the recording or filing of instruments anddocuments in public offices, payments or discharges of Taxes or Liens upon orin respect of the Collateral, premiums for insurance required to be obtainedpursuant to the Loan Documents with respect to the Collateral and all otherreasonable fees, costs and expenses in connection with protecting, maintainingor preserving the Collateral and the Lender’s interests therein, whetherthrough judicial proceedings or otherwise, or in connection with defending orprosecuting any actions, suits or proceedings arising out of or related to theCollateral; and all such reasonable amounts that are paid by the Lender shall,until reimbursed by the Borrower, constitute Obligations of the Borrowersecured by the Collateral.

 

**§7.20****      CasualtyOccurrence.**  In the event of anymaterial (involving damages to any party thereto in excess of $500,000)casualty with respect to any Collateral or Vessel, the Borrower shall give theLender written notice of such casualty promptly after discovering or receivingnotice of the casualty, which notice shall identify the affected Collateral orother Vessel.  The Borrower shall, withina reasonable period of time, remedy or repair such casualty to bring theCollateral into conformity with the provisions of this Agreement unless suchcasualty shall constitute an Event of Loss and the provisions of §2.3(b) apply.

 

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**SECTION 8.****                            NEGATIVE COVENANTS; FINANCIAL COVENANTS.**

 

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

 

**§8.1****                        Transactionswith Affiliates.**  Except asotherwise provided herein, enter into or consummate any transaction with anyAffiliate of the Borrower unless such transaction is:

 

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

 

(b)                                 isupon terms no more or less favorable to the Borrower than would be the case ifsuch transaction were an arm’s-length transaction effected with a Person otherthan an Affiliate.

 

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

 

**§8.3****                        ERISA.**  Permit any Plan maintained by it to (a) engagein any “prohibited transaction” (as defined in Section 4975 of the Code)which could reasonably be expected to result in material liability for excisetaxes or fiduciary liability under Section 406 of ERISA, (b) incurany material “accumulated funding deficiency” (as defined in Section 302of ERISA) whether or not waived, or (c) terminate any Plan in a mannerthat could reasonably be expected to result in the imposition of a lien orencumbrance on the assets of the Borrower or any of its Subsidiaries pursuantto Section 4068 of ERISA if the material liability described in clause (a) orthe accumulated funding deficiency described in clause (b) or the lien orencumbrance described in clause (c) could reasonably be expected to have aMaterially Adverse Effect.

 

**§8.4****                        Incorporationof Financial Covenants Under Existing Revolver**.  Until the Obligations payable under the LoanDocuments shall have been paid in full, Borrower covenants and agrees with theLender that:

 

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

 

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

 

(c)                                  TheBorrower agrees to provide the Lender with a copy of all Financial Covenantcompliance certificates prepared by the Borrower and delivered to the RevolvingLenders in connection with the Financial Covenants at the same time and on thesame frequency 

 

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

 

(d)                                 Iffor any reason CBPA (or an Affiliate thereof) ceases to be a party to theExisting Revolver, the Financial Covenants that are in effect under theExisting Revolver on the last day that CBPA is a party thereto shall surviveand continue to be financial covenants of the Borrower under this Agreement asif set forth in this Agreement in full.

 

**SECTION 9.****                            EVENTS OF DEFAULT; ACCELERATION.**

 

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

 

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

 

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

 

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

 

(d)                                 ifthe Borrower shall default in the performance of or compliance with any termcontained herein, or in the performance of or compliance with any other termcontained in any of the other Loan Documents (other than those referred to inthe foregoing paragraphs (a), (b) and (c)), and such default shall nothave been remedied within thirty (30) days after written notice thereof shallhave been given to the Borrower by the Lender; or

 

(e)                                  ifany representation, warranty or certification made in writing by or on behalfof the Borrower herein or in connection with any of the transactionscontemplated hereby shall prove to have been false or incorrect in any materialrespect on the date as of which made; or

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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(p)                                 if for any reason the Vessel Construction Agreement shall beterminated prior to completion of DBL 28 and DBL 29, or if the Borrower shalldefault under the Vessel Construction Agreement and Bollinger shall havedemanded arbitration thereunder.

 

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

 

(i)                                     theunpaid principal amount of the Loan together with accrued interest and anyapplicable Prepayment Premium, and all other Obligations shall becomeimmediately due and payable without presentment, demand, protest or furthernotice of any kind, all of which are hereby expressly waived; and

 

(ii)                                  theLender may exercise any and all rights the Lender has under this Agreement, theLoan Documents, or any other documents or agreements executed in connectionherewith, or at law or in equity, and proceed to protect and enforce the Lender’srights by any action at law, in equity or other appropriate proceeding, whetherfor the specific performance of any covenant or agreement contained in thisAgreement or any other Loan Document, including the obtaining of the ex-parteappointment of a receiver, and, if such amount shall have become due, bydeclaration or otherwise, proceed to enforce the payment thereof or any otherlegal or equitable right of the Lender, including the exercise of remediesagainst the Collateral under the Security Documents.

 

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

 

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

 

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

 

(b)                                 Notwithstandinganything to the contrary contained in clause (a) above, the Lendershall not exercise any of the remedies set forth in clause (a) or anyother remedies available under applicable Law if the exercise of such remediesshall invalidate the qualification of any of the Vessels to operate in thecoastwise trade.

 

**SECTION 10.****                     EXPENSES.**

 

The Borrower will pay on demand all reasonableout-of-pocket expenses of the Lender (including reasonable fees of outsidecounsel) in connection with: the negotiation, preparation, execution, anddelivery of this Agreement, the other Loan Documents or other documentsexecuted in connection therewith; any advice or analysis from outside counsel,accountants or other professionals retained by the Lender from time to time inconnection with this Agreement or the transactions contemplated hereby; anyamendment, waiver, or consent from time to time related thereto; and the Lender’sexercise, preservation or enforcement of any of its rights, remedies or optionshereunder or thereunder after the occurrence and during the continuation of anEvent of Default, including in all such cases the reasonable fees of outsidelegal counsel and any local counsel, accounting, consulting, brokerage or othersimilar professional fees or expenses, and any reasonable fees or expensesassociated with any travel or other costs relating to any appraisals conductedin connection with the Obligations or any Collateral therefore after the dateof this Agreement; and the amount of all such expenses shall, until paid, bearinterest at the interest rate applicable to principal hereunder (including anydefault rate).****After the occurrence and duringthe continuance of an Event of Default, the Borrower shall pay the reasonablecosts of any field audit examinations that the Lender in its discretion mayconduct and shall also pay all reasonable out-of-pocket expenses of the Lenderin connection with the exercise, preservation or enforcement of any of itsrights, remedies or options under any of the Security Documents.

 

**SECTION 11.****                     SURVIVAL OF COVENANTS.**

 

All covenants, agreements, representations andwarranties made herein and in any certificates or other papers delivered by oron behalf of the Borrower pursuant hereto are material and shall be deemed tohave been relied upon by the Lender, notwithstanding any investigationheretofore or hereafter made by them, and shall survive the making of the Loan,as herein contemplated, and shall continue in full force and effect so long as theLoan or other amounts due under the Loan Documents and the Note remainoutstanding and unpaid.  All statementscontained in any certificate or other paper delivered to the Lender at any timeby or 

 

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onbehalf of the Borrower pursuant hereto or in connection with the transactionscontemplated hereby shall constitute representations and warranties by theBorrower hereunder.

 

**SECTION 12.****                     CONFIDENTIALITY.**

 

The Lender agrees to take and to cause its Affiliatesto take normal and reasonable precautions and exercise due care to maintain theconfidentiality of all information provided to the Lender by the Borrower,under this Agreement or any other Loan Document, and neither the Lender nor anyof its Affiliates shall use any such information other than in connection withor in enforcement of this Agreement and the other Loan Documents, except to theextent such information (i) was or becomes generally available to thepublic other than as a result of disclosure by the Lender or (ii) was orbecomes available on a non-confidential basis from a source other than theBorrower, *provided* that the Lender may disclosesuch information (A) at the request or pursuant to any requirement of anygovernmental authority to which the Lender is subject or in connection with anexamination of the Lender by any such authority; (B) pursuant to subpoenaor other court process; (C) when required to do so in accordance with theprovisions of any applicable law; (D) to the extent required in connectionwith any litigation or proceeding to which the Lender, or its respectiveaffiliates, may be party; (E) to the extent the Lender is required inconnection with the exercise of any remedy hereunder or under any other LoanDocument; (F) to the Lender’s independent auditors and other professionaladvisors; (G) to any Eligible Assignee or participant (includingprospective institutions that may become assignees or participants pursuant to§13), *provided* that such Person agreesin writing to keep such information confidential to the same extent required ofthe Lender hereunder; (H) as to the Lender or its Affiliate, as expresslypermitted under the terms of any other document or agreement regardingconfidentiality to which the Borrower is a party or is deemed a party with theLender or such Affiliate; and (I) to its Affiliates.

 

**SECTION 13.****                     SUCCESSORS AND ASSIGNS; PARTICIPATIONS.**

 

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

 

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**§13.2****                 Assignments.**

 

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

 

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

 

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(c)                                  If,pursuant to this §13.2, any interest in this Agreement is assigned toany Eligible Assignee which is not incorporated or organized under the laws ofthe United States or a state thereof, the Lender shall cause such EligibleAssignee to agree that, on or prior to the effective date specified in theAssignment and Acceptance, it will deliver to the Borrower (i) two valid,duly completed copies of United States Internal Revenue Service Form W-8BENor W-8EC1 or applicable successor form, as the case may be, certifying in eachcase that such Eligible Assignee is entitled to receive payments made underthis Agreement and the Note without deduction or withholding of any UnitedStates federal income taxes, and (ii) a valid, duly completed InternalRevenue Service Form W-8BEN or W-9 or applicable successor form, as thecase may be, to establish an exemption from United States backup withholdingtax.  The Eligible Assignee whichdelivers to the Borrower a Form W-8BEN or W-8EC1 and Form W-8BEN or W-9pursuant to the preceding sentence further undertakes to deliver to theBorrower two copies of the Form W-8BEN or W-8EC1 and Form W-8BEN or W-9,or applicable successor forms, or other manner of certification, as the casemay be, on or before the date that any such form expires or becomes obsolete orotherwise is required to be resubmitted as a condition to obtaining anexemption from withholding tax or after the occurrence of any event requiring achange in the most recent form previously delivered by it to the Borrower, andsuch extensions or renewals thereof as may reasonably be requested by theBorrower, certifying in the case of a Form W-8BEN or W-8EC1 that suchEligible Assignee is entitled to receive payments made under this Agreement andthe Note without deduction or withholding of any United States federal incometaxes, unless any change in treaty, law or regulation or officialinterpretation thereof has occurred prior to the date on which any suchdelivery would otherwise be required which renders all such forms inapplicableor which would prevent such Eligible Assignee from duly completing anddelivering any such form with respect to it and such Eligible Assignee advisesthe Borrower that it is not capable of receiving payments without any deductionor withholding of United States federal income tax, and in the case of a Form W-8BENor W-9, establishing an exemption from United States backup withholding tax.

 

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

 

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paymentin respect of principal of or interest on the Note or any fees payablehereunder; (iv) the release of any Collateral from the Lien of the LoanDocuments.

 

**§13.4****                ****Disclosures****. **The Lender and any Eligible Assignee may,in connection with any proposed assignment (by such Lender) or participation(by the Lender or the Eligible Assignee) pursuant to this §13, discloseto the proposed Eligible Assignee or Participant any information in itspossession relating to the Borrower, *provided*thatprior to any such disclosure, each such Eligible Assignee or Participant orproposed Eligible Assignee or Participant shall execute an agreement wherebysuch Eligible Assignee or Participant shall agree (subject to customaryexceptions) to preserve the confidentiality of any confidential informationrelating to any the Borrower received from such Participant.

 

**§13.5****                ****Federal Reserve Bank****.**  The Lender, Eligible Assignee andParticipants may at any time pledge or assign all or any portion of theirrights under this Agreement to a Federal Reserve Bank.

 

**§13.6****                 Register;Note.**

 

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

 

(b)                                 Uponreceipt of a completed Assignment and Acceptance executed by an assigningLender and an Eligible Assignee, together with the Note or Note subject to suchassignment, the Registration Agent shall record the relevant informationcontained in the Assignment and Acceptance in the Lender Register, and theBorrower (i) shall execute and deliver to the Assignee in exchange for thesurrendered Note or Note a new Note made payable to the Assignee in an amountequal to the principal amount of the Loan acquired by the Assignee, and (ii) ifthe assigning Lender assigned less than its entire interest in the Loan,execute and deliver to the assigning Lender a new Note made payable to theassigning Lender in an amount equal to the principal amount of the Loanretained by the assigning Lender.  Thesum of the principal amounts of the new Note shall be equal to the aggregateoutstanding principal amount of the surrendered Note or Note.  The new Note or Note shall be dated theeffective date of such Assignment and Acceptance and shall otherwise be insubstantially the form of the surrendered Note or Note.

 

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

 

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

 

**SECTION 14.****                     NOTICES.**

 

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

 
| If to the Lender:   |   | Citizens Asset Finance,  a d/b/a of Citizens Leasing Corporation |
|---------------------|--------|------------------------------------------------------------------|
|                |   | One Citizens Plaza                                               |
|                |   | Mail Stop: RCE-150                                               |
|                |   | Providence, RI 02903                                             |
|                |   | Attention:                                                       | Team Leader |
|                |   |                                                             | Direct Originations |
|                |   | FAX:                                                             | (401) 459-3171 |
|                |   |                                                             |
| With a copy to:     |   | Citizens Asset Finance,  a d/b/a of Citizens Leasing Corporation |
|                |   | One Citizens Plaza                                               |
|                |   | Mail Stop: RCE-150                                               |
|                |   | Providence, RI 02903                                             |
|                |   | Attention:                                                       | David T. Miele, Esq. |
|                |   | FAX:                                                             | (401) 459-3171 |
|                |   |                                                             |
| With a copy to:     |   | Day, Berry and Howard  LLP                                       |
|                |   | 260 Franklin Street                                              |
|                |   | Boston, Massachusetts  02110-3179                                |
|                |   | Attention:                                                       | William A. Hunter, Esq. |
|                |   |                                                             | Britta L. Hyllengren, Esq. |
|                |   | FAX:                                                             | (617) 345-4745 |
|                |   |                                                             |
| If to the Borrower: |   | K-Sea Operating  Partnership L.P.                                |
|                |   | 3245 Richmond Terrace                                            |
|                |   | Staten Island, New York  10303                                   |
|                |   | Attention: Chief  Financial Officer                              |
|                |   | Telephone: (718) 720-7207                                        |
|                |   | Fax: (718) 720-4358                                              |
|                |   | Email:  jnicola@k-sea.com                                        |

 

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| With a copy to: |   | Holland &  Knight LLP              |
|-----------------|--------|---------------------------------------------|
|            |   | 195 Broadway                                |
|            |   | New York, New York  10007                   |
|            |   | Attention: Christopher  G. Kelly, Esq. |
|            |   | Phone: 212-513-3200                         |
|            |   | Fax: 212-385-9010                           |
|            |   | Email: ckelly@hklaw.com                     |

 

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

 

**SECTION 15.****                     ENTIRE AGREEMENT.**

 

This Agreement and any other documents executed inconnection herewith express the entire understanding of the parties withrespect to the transactions contemplated hereby.  Neither this Agreement nor any term hereofmay be changed, waived, discharged or terminated orally or in writing, exceptas provided in §16.

 

**SECTION 16.****                     CONSENTS, AMENDMENTS, WAIVERS, ETC.**

 

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

 

**SECTION 17.****                     SEVERABILITY.**

 

Any provision of this Agreement which is prohibited orunenforceable in any jurisdiction shall, as to such jurisdiction, beineffective to the extent of such prohibition or unenforceability withoutinvalidating the remaining provisions hereof, and any such prohibition or unenforceabilityin any jurisdiction shall not invalidate or render unenforceable such provisionin any other jurisdiction.

 

**SECTION 18.****                     SUBMISSION TO JURISDICTION; WAIVER.**

 

EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLYAND UNCONDITIONALLY:

 

(a)                                  SUBMITSFOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING DIRECTLYOR INDIRECTLY TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITIONAND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVEGENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED INMANHATTAN AND COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, THE COURTS OF THEUNITED STATES OF AMERICA FOR THE

 

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DISTRICTOF MASSACHUSETTS AND THE SOUTHERN DISTRICT OF NEW YORK AND APPELLATE COURTSFROM ANY THEREOF.

 

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

 

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

 

(d)                                 WAIVESANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING THELENDER TO EXERCISE ANY REMEDIES SET FORTH HEREIN OR IN ANY OF THE OTHER LOANDOCUMENTS; AND

 

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

 

**SECTION 19.****                     WAIVER OF JURY TRIAL.**

 

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

 

46

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ENTERING INTO THISAGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATEDFUTURE DEALINGS.  THE BORROWERACKNOWLEDGES THAT NEITHER THE LENDER NOR ANY PERSON ACTING ON BEHALF OF THELENDER HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BYJURY OR IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  THE BORROWER FURTHER ACKNOWLEDGES THAT IT HASBEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNINGOF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGALCOUNSEL, SELECTED OF ITS OWN FREE WILL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIEDEITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENTAMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR THEOTHER LOAN DOCUMENTS.  IN THE EVENT OFLITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BYTHE COURT.

 

**SECTION 20.****                     MISCELLANEOUS.**

 

THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY,AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, UNITEDSTATES OF AMERICA, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY ANDPERFORMANCE, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW (OTHER THANTITLE 14 OF ARTICLE 5 OF THE GENERAL OBLIGATIONS LAW).  The rights and remedies herein expressed arecumulative and not exclusive of any other rights which the Lender wouldotherwise have.  Any instruments requiredby any of the provisions hereof to be in the form annexed hereto as an exhibitshall be substantially in such form with such changes therefrom, if any, as maybe approved by the Lender.  ThisAgreement or any amendment may be executed in separate counterparts, each ofwhich when so executed and delivered shall be an original, but all of whichtogether shall constitute one instrument. In making proof of this Agreement, it shall not be necessary to produceor account for more than one such counterpart signed by the party against whomenforcement is sought.

 

47

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

 
| ** ** | **K-SEA  OPERATING PARTNERSHIP L.P.**                                  |
|------------|------------------------------------------------------------------------|
|       |                                                                   |
| ** ** | **By:**                                                                | **K-Sea  OLP GP, LLC, its General Partner** |
|       |                                                                   |
|       |                                                                   |
|       | By:                                                                    | /s/ John J.  Nicola |
|       | Name: John J. Nicola                                                   |
|       | Title: Chief Financial  Officer                                        |
|       |                                                                   |
|       |                                                                   |
| ** ** | **CITIZENS  ASSET FINANCE, A D/B/A OF   CITIZENS LEASING CORPORATION** |
|       |                                                                   |
|       |                                                                   |
|       | By:                                                                    | /s/ John M.  Young |
|       | Name: John M. Young                                                    |
|       | Title: Senior Vice  President                                          |

 

*Signature page to Loan Agreement*

 

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SCHEDULE 1

 

DESCRIPTION OF VESSELS

 

 

(1) BargeName:  DBL 28

Hull No. 496

 

(2) BargeName:  DBL 29

Hull No. 497

 

(3) BargeName:  DBL 78

Official Number: 1102126 

 

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**Exhibit A**

 

Barge DBL 28

Official No.                     

Barge DBL 29

Official No.                     

Barge DBL 78

Official No.                     

 

**TERM NOTE**

 
| $**[                               ]** |   | New York, New York                                                                                                                                            |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                              |   |                          ,  2006 |

 

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

 

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

 

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

 

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

 

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

 

This Note is the Note referred to in, evidencesborrowings under and has been issued by the Borrower in accordance with theterms of, the Loan Agreement.  The Lenderand any holder hereof shall be bound by and entitled to the benefits of theLoan Agreement and may enforce the agreements of the Borrower containedtherein, and any holder may exercise the respective remedies provided forthereby or otherwise available in respect thereof, all in accordance with 

 

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the terms thereof. Allcapitalized terms used in this Note and not otherwise defined herein shall havethe same meanings herein as in the Loan Agreement.

 

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

 

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

 

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

 

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

 

All of the provisions of this Note shall be bindingupon and inure to the benefit of the Borrower and the Lender and theirrespective successors and assigns.

 

This Note is in registered form.  The Person whose name is recorded as theowner of the Note in the Lender Register maintained by the Registration Agentshall be treated as the owner of this Note for all purposes of the LoanDocuments.  This Note may be transferredonly in accordance with the provisions of Sections 13.2 and 13.6 of theLoan Agreement.

 

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

 

[Thisspace intentionally left blank]

 

2

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INWITNESS WHEREOF, the Borrower has caused this Note to be executed by its dulyauthorized undersigned officer as of the date first written above.

 

 
|       |       | **K-SEA OPERATING PARTNERSHIP L.P.** |
|------------|------------|--------------------------------------|
|       |       |                                 |
|       |       |                                 |
| ** ** | ** ** | **By:**                              | **K-Sea OLP GP, LLC, its General Partner** |
|       |       |                                 |
|       |       |                                 |
|       |       | By:                                  |   |
|       |       |                                 | Name: | John J. Nicola |
|       |       |                                 | Title: | Chief Financial Officer |
|            |            |                                      |  |  |  |

 

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**Exhibit A**Defined Terms forTerm Note with LIBOR Pricing

 

For purposes ofthe Term Note to which this Exhibit A is attached, the following termsshall have the following meanings:

 

“LIBORLoan Rate” means a rate per annum equal to the LIBOR Rate plus 175 basispoints.

 

“LIBORRate” means relative to any one-month interest period, the offered rate fordelivery in two London Banking Days (as defined below) of deposits of U.S.Dollars which the British Bankers Association fixes as its LIBOR rate as of11:00 a.m. London time on the day on which such interest period commences,and for a period approximately equal to such interest period.  If the first day of any such interest periodis not a day which is both a (i) Business Day, and (ii) a day onwhich US dollar deposits are transacted in London interbank market (a “LondonBanking Day”), the LIBOR Rate shall be determined in reference to the nextpreceding day which is both a Business Day and a London Banking Day.  If for any reason the LIBOR Rate isunavailable and/or the Lender is unable to determine the LIBOR Rate for anysuch interest period, the LIBOR Rate shall be deemed to be equal to the FederalFunds Rate plus 175 basis points.

 

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**Exhibit B**

 

FORM OFNOTICE OF BORROWING(§2.1)

 

To:                              CitizensAsset Finance, a d/b/a of

Citizens Leasing Corporation

One Citizens Plaza, Mail Stop RCE-150

Providence, Rhode Island 02903

 

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

 

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

 
| **Advance   Date(1)** | ** ** | **Amount** | ** ** |
|-----------------------|------------|------------|------------|
|                  |       | $          | 11,557,100 |   |
|                       |            |            |            |  |

 

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

 

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

 

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

 
| $10,000,000    | ** ** | **[EMI wire transfer restrictions to come]**                                                              |
|----------------|------------|-----------------------------------------------------------------------------------------------------------|
|           | ** ** | ** **                                                                                                |
| $1,557,100 to: |       | JP Morgan Chase Bank   ABA #021000021   A/C Name – K-Sea Transportation, Inc. 

A/C # 530389509 |

 

 

Dated the      day of             ,2005.
|       | **K-SEA OPERATING PARTNERSHIP L.P.**                |
|------------|-----------------------------------------------------|
|       |                                                |
| ** ** | **By: K-Sea OLP GP, LLC, its General Partner** |
|       |                                                |
|       |                                                |
|       | By:                                                 |   |
|       |                                                | Name: John J. Nicola |
|       |                                                | Title: Chief Financial Officer |

 

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**Exhibit C**

 

**[VesselName]**

 

**FIRSTPREFERRED SHIP MORTGAGE**

 

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

 

WHEREAS:

 

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

 

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

 

(c)                                  Termsused herein and not otherwise defined herein are used as defined in, or byreference in, the Loan Agreement.

 

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

 

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NOW, THEREFORE, in consideration of the premises andfor other good and valuable consideration, the receipt and adequacy whereof isduly acknowledged, and in order to secure the payment and performance of (i) allObligations, undertakings and liabilities of Mortgagor, now existing orhereafter incurred, under, arising out of, or in connection with the LoanAgreement and the other Loan Documents; (ii) the unpaid principal amountof, and accrued interest on, the Note; (iii) all obligations, undertakingsand liabilities of Mortgagor now existing or hereafter incurred, under, arisingout of or in connection with this Mortgage; and (iv) any and all other presentand future indebtedness, obligations, undertakings and liabilities of any kindwhatsoever of Mortgagor to Mortgagee in connection with the Loan Agreement andthe other Loan Documents or from time to time reduced and thereafter increased,and to secure the performance of all the covenants and conditions hereincontained (all the foregoing included within the meaning of Obligations, asdefined in the Loan Agreement), the Mortgagor by these presents does grant,bargain, sell, convey, transfer, mortgage, set over and confirm unto theMortgagee all of the following described property:

 

The whole of thecertain vessel called:  

 
| Name:  **[                                  ]** | Official Number:  **[                                  ]** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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

 

TO HAVE AND TO HOLD the Vessel unto the Mortgageeforever:

 

PROVIDED ALWAYS, and the condition of these presentsis such, that if the Mortgagor and its successors and assigns shall pay, orcause to be paid, to the Mortgagee the Obligations aforesaid, as and when thesame shall become due and payable by maturity or otherwise, and shall pay anyand all advances hereafter made or expended by the Mortgagee to the Mortgagorfor the maintenance, repairs, preservation or insurance of the Vessel or anypart thereof and shall keep, perform and observe all the covenants and promisesin these presents expressed or implied to be kept, performed and observed by oron the part of the Mortgagor, then this Mortgage and the estate and rightshereby granted shall cease, determine and be void; otherwise to remain in fullforce and effect.

 

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

 

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**ARTICLE IREPRESENTATIONS, WARRANTIESAND COVENANTS OF MORTGAGOR**

** **

THE MORTGAGOR HEREBY COVENANTS AND AGREES THAT:

 

Section 1.1   Citizenship; Title.  Mortgagor is and shall continue to be acitizen of the United States as defined in Section 2 of the Shipping Act of1916, as amended, entitled to own and operate the Vessel under its Certificateof Documentation, which Mortgagor shall maintain in full force and effect, andis duly qualified to engage in the coastwise trade.  The Mortgagor lawfully owns and is lawfullypossessed of the Vessel, and covenants and warrants that the same is free fromany mortgage, security interest, Lien, charge or encumbrance whatsoever otherthan Permitted Liens, and that the Mortgagor will warrant and defend the titleand possession thereto and every part thereof for the benefit of the Mortgageeagainst the claims and demands of all persons whomsoever.

 

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

 

Section 1.3   Liens. Neither the Mortgagor, any charterer, the master of the Vessel nor anyother person has or shall have any right, power or authority to create, incuror permit to be placed or imposed or continued upon the Vessel, its freights,profits or hires, any Lien, security interest, encumbrances or chargewhatsoever other than Permitted Liens. Mortgagor agrees to hold a certified copy of this Mortgage insafekeeping with the Vessel’s papers with the Vessel’s Certificate ofDocumentation and at the principal office of Mortgagor and on demand to exhibitthe same to any person having business with such Vessel, or to anyrepresentative of Mortgagee.  Mortgagorshall also place and cause to be displayed in a prominent place and in adurable manner with the Vessel’s Certificate of Documentation a notice printedin plain type of such size that the paragraph of reading matter shall cover aspace not less than six inches wide by nine inches high, reading as follows:

 

NOTICEOF MORTGAGE

 

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

 

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

 

Such notice shall be amended at the sole cost andexpense of Mortgagor, upon request of Mortgagee, to reflect the identity of anysuccessor Mortgagee.

 

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

 

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

 

Section 1.6   Maintenance of Vessel.  At all times, at the Mortgagor’s own cost andexpense, the Mortgagor will maintain and preserve the Vessel in as goodcondition, working order and repair as on the date of this Mortgage, so thatthe Vessel shall be tight, staunch, strong and well and sufficiently tackled,appareled, furnished, equipped and in every respect seaworthy and in good orderand operating condition, ordinary wear and tear excepted.  The Mortgagor will comply with and cause theVessel to comply with all applicable United States Coast Guardregulations.  The Mortgagor shall causethe Vessel to be drydocked, cleaned and painted whenever required by goodcommercial marine maintenance practice and the requirements of any insurancepolicy or entries respecting the Vessel. All maintenance and repairs will be made in a good and workmanlikemanner by persons of appropriate skill and experience whose work will notadversely affect the service life or marketability of the Vessel.  All repairs, parts, mechanisms, devices,replacements, improvements, changes, additions and alterations to the Vesselshall immediately and without further act, become part of such Vessel andsubject to this Mortgage.  The Mortgagorshall promptly furnish to the Mortgagee copies of each damage survey withrespect to damage to the Vessel where the survey does not specifically quantifythe cost of total damages or where the survey states total damage in excess of$500,000.00.  Mortgagor shall affordMortgagee or their authorized representatives reasonableaccess to the Vessel for the purpose of inspecting the same, her cargoes andship’s papers.

 

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

 

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

 

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

 

Section 1.10   Sale or Other Disposition of Vessel.

 

(a) The Mortgagor will not sell, mortgage, nor transfer the title to the Vesselwithout the written consent of the Mortgagee first having been obtained, exceptwhere accompanied by a simultaneous prepayment of the Obligations made inaccordance with §2.3(b) of the Loan Agreement.  Any such sale, mortgage, or transfer, or anycharter of the Vessel shall be subject to the provisions of this Mortgage andto the lien it creates.  The Mortgagorwill not charter the Vessel to, or permit any Vessel to serve under anycontract of affreightment with, a person included within the definition ofdesignated foreign country or a national of a designated foreign country in theforeign Assets Control Regulations or Cuban Assets Control Regulations of theUnited States Treasury Department, 31 C.F.R. Chapter V, as amended, within themeaning of said regulations or of any regulation, interpretation or rulingissued thereunder.

 

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

 

Section 1.11   Insurance.

 

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

 

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maintainedinsurance with financially sound and reputable underwriters and throughresponsible brokers, all in good standing and satisfactory to the Mortgagee,fully and adequately protecting the Vessel and the Mortgagee’s interest thereinin at least such amounts and against such risks as are usually insured againstin the same general area as that in which the Mortgagor is located and bycompanies engaged in the same or similar businesses, and in any case, in suchamounts as the Lender shall require, against all marine perils and disastersand all hazards, risks and liabilities in any wise arising out of theownership, operation or maintenance of said Vessel, including insurance asfollows:

 

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

 

(ii)                                  Inthe event of (A) the actual or constructive loss of the Vessel, (B) anyevent referred to in Section 1.12 hereof with respect to the Vessel, or (C) anycasualty, accident or damage to the Vessel in excess of $500,000.00, the Mortgagorwill give written notice thereof (containing full particulars), within threebusiness days of the occurrence thereof, to the Mortgagee.

 

(b) Protection and Indemnity Insurance. Protection and indemnity insurance maintained with financially sound andreputable insurers or protection and indemnity associations and policies ofprotection and indemnity war risk insurance protecting the interests ofMortgagor, and Mortgagee, against liability for property damage to thirdpersons (including liability to any governmental authority or other person withrespect to pollution liability) and personal injury or death to any personarising out of the maintenance, use, operation and ownership of the Vessel,cargo damage or loss, contractual liability and wreck removal, tower’sliability, crew liability, collision liability and pollution liability in suchamounts as are usually carried by persons engaged in the same or similarbusinesses; *provided*, however, that in no eventshall the amount of such insurance per person and per occurrence (subject tosuch deductible, reasonably acceptable to the Mortgagee) be less than thecustomary amount of cover available on the market from time to time withrespect to vessels of the same type, age and trade as the Vessel.  Such liability insurance shall name each ofthe Mortgagor, Mortgagee, and other interested persons as insureds (or in thecase of the Mortgagee as co-insureds), as their respective interests mayappear, but the proceeds of such policies shall be payable to the Personactually suffering the loss in respect of which such proceeds are payable; *provided*, however, that if Mortgagee shall have firstnotified the underwriters or brokers that a Mortgage Event of Default hereunderhas occurred then all such proceeds otherwise payable to the Mortgagor shall bethereafter payable to Mortgagee for distribution to itself and others as theirinterests may appear as hereinafter set forth.

 

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

 

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

 

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

 

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

 

(g) Continuation of Insurance Coverages.

 

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

 

(ii)                                  Inthe event the Mortgagor fails to procure any of the insurance hereinabovementioned, or fails to perform any of the covenants and agreements containedherein, the Mortgagee may, but shall be under no duty to, procure suchinsurance or coverage as Mortgagee may reasonably deem advisable in thepremises.  The Mortgagor shall reimbursethe Mortgagee on demand, with interest at the Default Rate for any and allexpenditures which the Mortgagee may from time to time make, lay out or expendin providing protection in respect of insurance.  Such obligation of the Mortgagor to reimbursethe Mortgagee, together with interest as provided above, shall be an additionalindebtedness due from the Mortgagor, secured by this Mortgage, and shall bepayable by the Mortgagor on demand.  TheMortgagee, though privileged so to do, shall be under 

 

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noobligation to the Mortgagor or to any other person to make any suchexpenditures, nor shall the making thereof relieve the Mortgagor of any Defaultin that respect.

 

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

 

(i) Insurance Proceeds, Partial Loss. The proceeds of any such insurance recoveries shall be applied in theevent that insurance becomes payable under said policies on account of anaccident, occurrence or event not resulting in an actual or constructive totalloss or agreed or compromised total loss of the Vessel, (i) all amounts upto $500,000.00 may be paid to Mortgagor for the purpose of repairing any damagewhich may have resulted from the accident, occurrence or event so long as noMortgage Event of Default has occurred, or (ii) with respect to amounts of$500,000.00 or greater or with respect to any amount if a Mortgage Event ofDefault has occurred, the Mortgagee may, in its discretion, if a writtenrequest therefor shall have been made by the Mortgagor, apply the proceeds ofinsurance to pay for repairs, liabilities, salvage or other charges andexpenses (including labor charges due or paid by the Mortgagor), covered by thepolicies, or to the extent that the Mortgagor shall have repaired the damageand paid the cost thereof or discharged or paid such liabilities, salvageclaims or other charges and expenses (such fact having been certified to in acertificate of an officer of the Mortgagor (an “Officer’s Certificate”)delivered to the Mortgagee, accompanied by written confirmation by theunderwriter, a surveyor, an adjuster or a marine insurance broker), apply theproceeds of insurance to reimburse, or consent that the underwriters reimburse,the Mortgagor therefor, and (after all known damage with respect to theparticular loss shall have been repaired, except to the extent the Mortgagorand the Mortgagee agree that said repair is inadvisable and all known costs,liabilities, salvage claims, charges and expenses covered by the policies withrespect to such loss shall have been discharged or paid, such fact having beencertified to by an Officer’s Certificate delivered to the Mortgagee, accompaniedby a written confirmation by the underwriter, a surveyor, an adjuster or amarine insurance broker), pay, or consent that the underwriters pay, anybalance of the proceeds of insurance to the Mortgagee for application to theObligations as provided in §2.3(b) of the Loan Agreement, and the excess,if any, paid to the Mortgagor.

 

(j)  Constructive Total Loss.  In the event of an accident, occurrence orevent resulting in a constructive total loss of the Vessel, the Mortgagor shallhave the right to claim a constructive total loss of such Vessel and if both (i) suchclaim is accepted by all underwriters under all policies then in force as tosuch Vessel under which payment is due for total loss and (ii) payment infull is made in cash under such policies and applied to repay all outstandingObligations in accordance with Section 2.3(b) of the Loan Agreement,then the Mortgagor shall have the right at its election, to abandon such Vesselto the underwriters under such policies, free from the lien of this Mortgage.

 

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

 

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

 

(m)  Additional Provisions.  All insurance required under this Section 1.11shall, unless otherwise first agreed in writing by the Mortgagee, provide that (i) thereshall be no recourse against the Mortgagee for the payment of premiums,supplemental or back calls or commissions, (ii) at least thirty (30) days’(fourteen days with respect to matters covered in the protection and indemnitycoverage and seven (7) days in the case of war risk) prior written noticeof any cancellation, reduction in amount or change in coverage or othermaterial change of such insurance shall be given to the Lender by the insuranceunderwriters, (iii) no insurance shall be excess over other coverage butshall be primary insurance and shall not require any contribution from anyexcess insurance on the Vessel which may be carried by Mortgagee withoutinterferring with the Mortgagor’s insurance coverage, and (iv) theinsurers agree to advise Mortgagee promptly in writing of any default in thepayment of any premium and of any other act or omission of which such insurerhas knowledge which might invalidate or render unenforceable, in whole or inpart, any such policy.  The policiesshall provide for severability of interest as through separate policies wereissued to each additional insured except with respect to the limits ofliability.

 

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

 

Section 1.12   Requisition.

 

(a) Title.  In the event that thetitle or ownership of the Vessel shall be requisitioned, purchased or taken byany government of any country or any present or future law, proclamation,decree, order or otherwise, the lien of this Mortgage shall be deemed to haveattached to the claim for compensation and the Mortgagor agrees that it willturn over to the Mortgagee, immediately upon receipt, the compensation,purchase price, reimbursement or award for such requisition, purchase or othertaking of such title or ownership and all of the foregoing shall be payable tothe Mortgagee, who shall be entitled to receive the same and shall apply it asprovided 

 

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inSection 2.3(b) of the Loan Agreement. In the event of any such requisition, purchase or taking, the Mortgagorshall promptly execute and deliver to the Mortgagee such documents, if any, andshall promptly do and perform such acts, if any as in the reasonable opinion ofthe Mortgagee may be necessary or useful to facilitate or expedite thecollection by the Mortgagee of such compensation, purchase price, reimbursementor award.

 

(b) Requisition of Use.  In the eventthat any government of any country or any department, agency or representativethereof shall not take over the title or ownership of the Vessel but shallrequisition, charter or in any manner take over the use of such Vessel pursuantto any present or future law, proclamation, decree, order or otherwise andshall, as a result of such requisitioning, chartering or taking of the use ofthe Vessel, pay or become liable to pay sums by reason of the loss of or injuryto or depreciation of the Vessel, and, if a Mortgage Event of Default shallhave occurred and be continuing, any such sum is hereby made payable to theMortgagee, who shall be entitled to receive the same and shall apply it asprovided in the Loan Agreement.  In theevent of any such requisitioning, chartering or taking of the use of theVessel, the Mortgagor shall promptly execute and deliver to the Mortgagee suchdocuments, if any, and shall promptly do and perform such acts, if any, as inthe reasonable opinion of the Mortgagee may be necessary or useful tofacilitate or expedite the collection by the Mortgagee of such claims arisingout of the requisitioning, chartering or taking of the use of the Vessel asprovided hereinabove.

 

**ARTICLE IIDEFAULT; REMEDIES UPON DEFAULT**

** **

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

 

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

 

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

 

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

 

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

 

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

 

(f) Dissolution of the Mortgagor.

 

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

 

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

 

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

 

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

 

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

 

(e) Sale.  Sell the Vessel upon suchterms and conditions as it may specify, at public or private sale, by sealedbids or otherwise, on such terms and conditions as the Mortgagee deems best,free of any claim, commitment or encumbrance, regardless of the nature thereof,in favor of the Mortgagor and except as provided by law, in favor of any otherperson.  If a public sale is to be used,the Mortgagee shall first give advance notice of ten (10) consecutive dayspublished in any newspaper authorized to publish legal notices of that kind inthe port of documentation and the places of sale of such Vessel and shall sendnotice of each such sale at least fourteen (14) days prior to the date fixedfor such sale to the Mortgagor pursuant to §14 of the LoanAgreement.  In the event that the Vesselshall be offered for sale by private sale, no newspaper publication of noticeshall be required nor notice of adjournment of sale.  Sale may be held at such place and at suchtime as the Mortgagee by notice may have specified, or may be adjourned by theMortgagee from time to time by announcement at the time and place appointed forsuch sale or for such adjourned sale, and, without further notice orpublication, the Mortgagee may make any such sale at the time and place towhich the same shall be so adjourned; and any sale may be conducted withoutbringing the Vessel to the place designated for such sale and in such manner asthe Mortgagee deems, and the Mortgagee may become the purchaser at any publicsale, and shall have the right to credit on the purchase price any and all sumsof money due to the 

 

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

 

(f) Finality of Sale.  A sale of theVessel made pursuant to this Mortgage, whether under the power of sale herebygranted or any judicial proceedings, shall operate to divest all right, titleand interest of any nature whatsoever of the Mortgagor therein and thereto, andshall bar the Mortgagor, its successors and assigns, and all persons claimingby, through or under them.  No purchasershall be bound to inquire whether notice has been given or whether any Defaulthas occurred, or as to the propriety of the sale, or as to application of theproceeds thereof.  In case of any suchsale, any purchaser who is the holder of this Mortgage shall be entitled, forthe purpose of making settlement or payment for the Vessel, to apply thebalance due under this Mortgage or a part thereof as part or allof the purchase price to the extent of the amount remaining due andunpaid.  At any such sale, the holder ofthis Mortgage may bid for and purchase the Vessel and upon compliance with theterms of sale may hold, retain and dispose of the Vessel without furtheraccountability.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(c) Additional Rights.  The Mortgagorcovenants and agrees that in addition to any and all other rights, powers andremedies elsewhere in this Mortgage granted to and conferred upon theMortgagee, and including in any suit to enforce any of its rights, powers orremedies, if a Mortgage Event of Default shall have occurred and shall not havebeen waived by the Mortgagee, the Mortgagee shall be entitled as a matter ofright and not as a matter of discretion, but subject to Section 2.2(h) ofthis Article 2 (i) to the appointment of a receiver or receivers ofthe Vessel and collection of the freights, hire, earnings, issues, revenues,income and profits due or to become due arising from any operation of theVessel, and any receiver or receivers so appointed shall have full right andpower to use and operate the Vessel, and (ii) to a decree ordering anddirecting the sale and disposal of the Vessel, and the Mortgagee may become thepurchaser at such sale and shall have the right to credit on the purchase priceany and all sums of money due under the Note or otherwise due to the Mortgageepursuant to the terms of the Loan Agreement or under any other instrumentevidencing any Obligations.  TheMortgagee shall not be required to have the Vessel marshaled (upon any sale ofthe Vessel pursuant to this Mortgage or otherwise) or be required to realize onany other collateral prior to realization on the Vessel.

 

**ARTICLE IIIGENERAL POWERS OF MORTGAGEES**

** **

Section 3.1   Arrest or Detention of Vessel.  In the event that an Event of Default shallhave occurred hereunder and the Vessel shall be arrested or detained by aMarshal or other officer of any court of law, equity or admiralty jurisdictionin any country or nation of the world 

 

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

 

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

 

**ARTICLE IVINDEMNITY**

** **

The Mortgagor assumes liability for, and agrees toindemnify and hold the Mortgagee harmless from, all claims, costs, expenses(including reasonable legal fees and expenses), damages and liabilities arisingfrom or pertaining to this Mortgage or the ownership, use, possession oroperation of the Vessel; provided that the Mortgagor shall have noobligation for indemnified liabilities arising from the gross negligence orwillful misconduct of Mortgagee or arising from the acts or omissions of theMortgagee as mortgagee-in-possession. The agreements and indemnities contained in this Article shallsurvive the maturity or earlier discharge of this Mortgage and payment in fullof the Note.

 

**ARTICLE VMORTGAGOR’S USE AND POSSESSION**

** **

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

 

**ARTICLE VI**

**MISCELLANEOUS**

** **

Section 6.1   Counterparts.  This Mortgage may be executed simultaneouslyin any number of counterparts and all such counterparts executed and deliveredeach as an original shall 

 

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constitutebut one and the same instrument.  Theinvalidity of any provision of this Mortgage shall not affect the remainder,which shall in such event be construed as if the invalid provisions had notbeen inserted.

 

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

 

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

 

Section 6.4   Nature ofAgreements Hereunder.  Theagreements, terms, conditions, rights, remedies and indemnities provided hereinare in addition to, not in limitation of, and shall not be limited by, each ofthe agreements, terms, conditions, rights, remedies and indemnities containedin the Loan Agreement.

 

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

 

Section 6.6   Construction.  Any provision of this Mortgage which isprohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,be ineffective to the extent of such prohibition or unenforceability withoutinvalidating the remaining provisions hereof, any such prohibition orunenforceability shall not invalidate or render unenforceable such provision inany other jurisdiction to the extent permitted by law, Mortgagor hereby waivesany provision of law which renders any provision hereof prohibited orunenforceable in any respect.  To theextent that this Mortgage is not governed by the federal maritime law andfederal statutes and regulations, this Mortgage shall be construed inaccordance with the laws of the State of New York.

 

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

 

Section 6.8   This Mortgage and any provisions hereof maynot be modified, amended, waived, extended, changed, discharged or terminatedorally, or by any act or failure to act on the part of the Mortgagor or theMortgagee, but only by an agreement in writing signed by the party against whomthe enforcement of any modification, amendment, waiver, extension, change,discharge or termination is sought.

 

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

 

**ARTICLE VIITOTAL AMOUNT OF THIS MORTGAGE**

** **

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

 

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IN WITNESSWHEREOF, the Mortgagor has executed this Mortgage as of the      day of **[                ]**,2005. 

 
|   | **K-SEA OPERATING PARTNERSHIP L.P.** |
|--------|--------------------------------------|
|   | ** **                           |
|   | ** **                           |
|   | **By:**                              | **K-Sea OLP GP, LLC, its General Partner** |
|   | ** **                           | ** ** |
|   | ** **                           | ** ** |
|   | ** **                           | By: | ** ** | ** ** |
|   | ** **                           | ** ** | Name: John J. Nicola |
|   | ** **                           | ** ** | Title: Chief Financial Officer |

 

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| STATE OF NEW  YORK       |   |
|--------------------------|--------|
| COUNTY OF  RICHMOND, ss. |   |

 

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

 

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

 

 
|   |                    |
|--------|-------------------------|
|   | Notary  Public          |
|   | My  Commission Expires: |

 

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**Exhibit D**

 

**ASSIGNMENT AND ACCEPTANCE**

 

                           ,20  

 

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

 

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

 

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

 

2.                                       TheAssignor (i) represents that as of the date hereof, the outstanding principalamount of the Loan (without giving effect to assignments thereof which have notyet become effective) is $              ;(ii) makes no representation or warranty and assumes no responsibility withrespect to any statements, warranties or representations made in or inconnection with the Loan Agreement or the other Loan Documents or theexecution, legality, validity, enforceability, genuineness, sufficiency orvalue of the Loan Agreement or the other Loan Documents or any other instrumentor document furnished pursuant thereto, other than that it is the legal andbeneficial owner of the interest being assigned by it hereunder and that suchinterest is free and clear of any adverse claim created by, through or underthe Assignor; and (iii) makes no representation or warranty and assumes noresponsibility with respect to the financial condition of the Borrower or theperformance of any of its obligations under the Loan Agreement, any of the LoanDocuments or any other instrument or document furnished pursuant hereto orthereto.

 

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

 

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

 

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

 

5.                                       Fromand after the Effective Date, (i) the Assignee shall be a party to the LoanAgreement and the other Loan Documents, to the extent provided in thisAssignment and Acceptance, have the rights and obligations of a Lenderthereunder and shall be bound by the provisions thereof and (ii) the Assignorshall, to the extent provided in this Assignment and Acceptance, relinquish itsrights and be released from its obligations under the Loan Agreement and theother Loan Documents.

 

6.                                       TheAssignor agrees to give written notice of this Assignment and Acceptance to theRegistration Agent, each other Lender and the Borrower, which written noticeshall include the address, payment instructions and related information withrespect to the Assignee.

 

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

 

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IN WITNESSWHEREOF, the Assignor and Assignee have caused this Assignment and Acceptanceto be executed and delivered as of the date first above written.

 
|   | [NAME OF  ASSIGNOR] |
|--------|---------------------|
|   |                |
|   |                |
|   | By:                 |   |   |
|   |                | Name: |
|   |                | Title: |
|   |                |
|   |                |
|   | [NAME  OF ASSIGNEE] |
|   |                |
|   |                |
|   | By:                 |   |   |
|   |                | Name: |
|   |                | Title: |
|        |                     |  |  |  |

 

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**Exhibit E**

 

**SECURITYAGREEMENT**

 

K-SEA OPERATING PARTNERSHIP L.P.,

 

 

as the Borrower

 

 

to

 

 

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

as the Lender

 

Dated as of June    , 2005

 

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**SECURITY AGREEMENT**

 

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

 

(i)                                     Pursuantto the terms and conditions of a Loan Agreement dated as of the date hereof,between the Borrower and the Lender (as the same may be amended, supplemented,or modified from time to time, the “Loan Agreement”), the Lender has, atBorrower’s request, agreed to make loan advances to the Borrower in theaggregate principal amount of up to $17,000,000 (the “Loan”), the entireproceeds of which shall be used by the Borrower to finance the construction oftwo United States flag vessels, and to finance the acquisition by the Borrowerof a third United States flag vessel, which are described on ScheduleAhereto (the “Vessels”).  The obligationsof the Borrower with respect to the Loan are evidenced by the Loan Agreementand by a term promissory note (the “Note”), to be dated as of the AdvanceTermination Date (as defined in the Loan Agreement), and are secured by theSecurity Documents (as defined in the Loan Agreement).

 

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

 

(iii)                               TheBorrower wishes to grant security interests in favor of the Lender as hereinprovided.

 

NOW, THEREFORE, inconsideration of the foregoing recitals, the promises contained herein and forother good and valuable consideration, the receipt and sufficiency of which arehereby acknowledged, the parties hereto agree as follows:

 

**1.****                                      DEFINITIONS. **All capitalized terms used herein withoutdefinitions shall have the respective meanings provided therefore in the LoanAgreement.  The term “State”, as usedherein, means the State of New York.  Allterms defined in the Uniform Commercial Code of the State and used herein shallhave the same definitions herein as specified therein.  However, if a term is defined in Article 9 ofthe Uniform Commercial Code of the State differently than in another Article ofthe Uniform Commercial Code of the State, the term has the meaning specified inArticle 9*.*

 

**2.****                                      GRANTOF SECURITY INTEREST. **(a)  The Borrower hereby grants to the Lender, tosecure the payment and performance in full of all of the Obligations, asecurity interest in and pledges and assigns to the Lender all of the Borrower’srights, title and interest, as collateral security, in and to (i) the Vessels,(ii) amounts due under any and all charter agreements, whether bareboat ordemise, time or voyage charters, contracts of affreightment or other contractsfor the use or employment of the Vessels, including the transportation of cargoor passengers, (iii) all

 

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charter hires, fees, and all other amounts due andpayable to the Borrower arising out of the Vessels, (iv) all policies andcontracts of insurance (which expression includes all entries of the Vessels inone or more protection and indemnity or risks associations) which are or havebeen from time to time taken out or entered into by Borrower in respect of theVessels or their earnings, including, but not limited to insurances on and withrespect to all freight, charter hire, and passage monies, remuneration forsalvage and towage services, general average contributions, demurrage anddetention monies and any other proceeds whatsoever relating to Vesselinsurances, whether now, previously, or hereafter effected, and all renewals ofor replacements for the same, all claims and returns of premiums and othermonies and claims for monies due and to become due under said insurances or inrespect of said insurances, and all other rights of the Borrower under or inrespect of said insurances, (v) the Vessel Construction Agreement datedFebruary 21, 2005 between the Borrower and Bollinger Marine Fabricators,L.L.C., including any payment or performance bonds or refunds thereunderrelating to DBL 28 or DBL 29 and all insurances and other amounts due toBorrower thereunder, (vi) all other property, interests and rights now or atany time hereafter relating to the Vessels, wherever located; in all of theforegoing cases, whether now owned or in existence or hereafter acquired orarising, and all proceeds and products thereof including, but not limited to,(A) whatever is received upon the collection, exchange, sale or otherdisposition of any Collateral and any property unto which any of the Collateralis converted, whether cash or non-cash proceeds, (B) any and all proceeds ofany insurance, indemnity, warranty or guarantee payable to the Borrower fromtime to time with respect to the Collateral, (C) any and all payments (in anyform whatsoever) made or due and payable to the Borrower from time to time inconnection with any requisition, confiscation, condemnation, seizure orforfeiture of any of the Collateral by any Governmental Authority (or anyPerson acting under order of governmental authority), and (D) any and all otheramounts from time to time paid or payable under or in connection with any ofthe Collateral (all of the same being hereinafter called the “Collateral”).

 

(b)                                 theBorrower agrees to give a notice of assignment of insurances in the formattached hereto as ExhibitA and that insurance loss payableclauses shall be in the form of ExhibitB.

 

**3.****                                      AUTHORIZATIONTO FILE FINANCING STATEMENTS. **TheBorrower hereby irrevocably authorizes the Lender at any time and from time totime to file in any Uniform Commercial Code jurisdiction any initial financingstatements and amendments thereto that (a) indicate the Collateral (i) as allassets of the Borrower or words of similar effect relating to the Vessels,regardless of whether any particular asset comprised in the Collateral fallswithin the scope of Article 9 of the Uniform Commercial Code of the State orsuch jurisdiction, or (ii) as being of an equal or lesser scope or with greaterdetail, and (b) contain any other information required by part 5**of Article 9 of the Uniform Commercial Code of the Statefor the sufficiency or filing office acceptance of any financing statement oramendment, including whether the Borrower is an organization, the type oforganization and any organization identification number issued to theBorrower.  The Borrower agrees to furnishany such information to the Lender promptly upon request.

 

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**3.1****                               OTHERACTIONS.  **The Borrower furtheragrees to take any action reasonably requested by the Lender to ensure theattachment, perfection and first priority of, and the ability of the Lender toenforce, the Lender’s security interest in any and all of the Collateralincluding, without limitation, (a) executing, delivering and, whereappropriate, filing financing statements and amendments relating thereto underthe Uniform Commercial Code, to the extent, if any, that the Borrower’ssignature thereon is required therefor, (b) causing the Lender’s name to benoted as secured party on any certificate of title for a titled good if suchnotation is a condition to attachment, perfection or priority of, or ability ofthe Lender to enforce, the Lender’s security interest in such Collateral, (c)complying with any provision of any statute, regulation or treaty of the UnitedStates as to any Collateral if compliance with such provision is a condition toattachment, perfection or priority of, or ability of the Lender to enforce, theLender’s security interest in such Collateral, (d) obtaining governmental andother third party consents and approvals, including without limitation anyconsent of any licensor, lessor, charterer, lessee or other person obligatedrespecting the Collateral, and (e) taking all actions required by any earlierversions of the Uniform Commercial Code or by other law, as applicable in anyrelevant Uniform Commercial Code jurisdiction, or by other law as applicable inany foreign jurisdiction.

 

**4.****                                      RELATIONTO OTHER SECURITY DOCUMENTS. **Theprovisions of this Agreement supplement the provisions of the Ship Mortgage(s)and the Assignment of Project Documents granted, and to be granted, by theBorrower to the Lender and securing the payment or performance of any of theObligations. Nothing contained in any Ship Mortgage or the Assignment ofProject Documents shall derogate from any of the rights or remedies of theLender hereunder.

 

**5.****                                      REPRESENTATIONSAND WARRANTIES CONCERNING BORROWER’S LEGAL STATUS. **The Borrower has previously delivered tothe Lender a certificate signed by the Borrower and entitled “PerfectionCertificate” (the “Perfection Certificate”). The Borrower represents and warrants to the Lender as follows: (a) theBorrower’s exact legal name is that indicated on the Perfection Certificate andon the signature page hereof, (b) the Borrower is an organization of the type,and is organized in the jurisdiction, set forth in the Perfection Certificate,(c) the Perfection Certificate accurately sets forth the Borrower’sorganizational identification number or accurately states that the Borrower hasnone, (d) the Perfection Certificate accurately sets forth the Borrower’s placeof business or, if more than one, its chief executive office as well as theBorrower’s mailing address if different and (e) all other information set forthon the Perfection Certificate pertaining to the Borrower is accurate andcomplete.

 

**6.****                                      COVENANTSCONCERNING BORROWER’S LEGAL STATUS.** The Borrower covenants with the Lender as follows: (a) without providingat least 30 days prior written notice to the Lender, the Borrower will notchange its name; its place of business or, if more than one, its chief executiveoffice; or its mailing address or organizational identification number if ithas one, (b) if the Borrower does not have an organizational identificationnumber and later obtains one, the Borrower shall forthwith notify the Lender ofsuch organizational identification number,

 

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

 

**7.****                                      REPRESENTATIONSAND WARRANTIES CONCERNING COLLATERAL, ETC.  **The Borrower warrants to the Lender allrepresentations and warranties in §3 of the Loan Agreement as if all suchrepresentations and warranties were set out in full herein.  The Borrower further represents and warrantsto the Lender as follows: (a) the Borrower has good and marketable title to allitems of the Collateral (but only as of the date hereof, to the extent it has “rightsin the Collateral” as such term is used in the UCC) pledged by it, free andclear of any Liens, except Permitted Liens, (b) none of the Collateralconstitutes, or is the proceeds of, “farm products” as defined in **§**9-102(a)(34) of the Uniform Commercial Code of the Stateand (c) all other information set forth on the Perfection Certificatepertaining to the Collateral is accurate and complete.

 

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

 

**9.****                                      INSURANCE.**

 

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

 

4

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**10.****                               COLLATERALPROTECTION EXPENSES; PRESERVATION OF COLLATERAL.**

 

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

 

**10.2****                        LENDER’SOBLIGATIONS AND DUTIES. **Anythingherein to the contrary notwithstanding, the Borrower shall remain liable undereach contract or agreement comprised in the Collateral to be observed or performedby the Borrower thereunder.  The Lendershall not have any obligation or liability under any such contract or agreementby reason of or arising out of this Agreement or the receipt by the Lender ofany payment relating to any of the Collateral, nor shall the Lender beobligated in any manner to perform any of the obligations of the Borrower underor pursuant to any such contract or agreement, to make inquiry as to the natureor sufficiency of any payment received by the Lender in respect of the Collateralor as to the sufficiency of any performance by any party under any suchcontract or agreement, to present or file any claim, to take any action toenforce any performance or to collect the payment of any amounts which may havebeen assigned to the Lender or to which the Lender may be entitled at any timeor times.  The Lender’s sole duty withrespect to the custody, safekeeping and physical preservation of the Collateralin its possession, under **§**9-207 of theUniform Commercial Code of the State or otherwise, shall be to deal with suchCollateral in the same manner as the Lender deals with similar property for itsown account.

 

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

 

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

 

**12.****                               POWEROF ATTORNEY.**

 

**12.1****                        APPOINTMENTAND POWERS OF LENDER. **The Borrowerhereby irrevocably constitutes and appoints the Lender and any officer or agentthereof, with full power of substitution, as its true and lawfulattorney-in-fact with full irrevocable power and authority in the place andstead of the Borrower or in the Lender’s own name, for the purpose of carryingout the terms of this Agreement, to take any and all appropriate action and toexecute any and all documents and instruments that may be necessary ordesirable to accomplish the purposes of this Agreement and, without limitingthe generality of the foregoing, hereby gives said attorneys the power andright, on behalf of the Borrower, without notice to or assent by the Borrower,to do the following:

 

(a)                                  uponthe occurrence and during the continuance of an Event of Default, generally tosell, transfer, pledge, make any agreement with respect to or otherwise dealwith any of the Collateral in such manner as is consistent with the UniformCommercial Code of the State and any other applicable law, and as fully andcompletely as though the Lender were the absolute owner thereof for allpurposes, and to do at the Borrower’s expense, at any time, or from time totime, all acts and things which the Lender deems necessary or advisable toprotect, preserve or realize upon the Collateral and the Lender’s securityinterest therein, in order to effect the intent of this Agreement, all as fullyand effectively as the Borrower might do, including, without limitation, theexecution, delivery and recording, in connection with any sale or otherdisposition of any Collateral, of the endorsements, assignments or otherinstruments of conveyance or transfer with respect to such Collateral; and

 

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

 

**12.2****                        RATIFICATIONBY BORROWER. **To the extent permittedby law, the Borrower hereby ratifies all that said attorneys shall lawfully door cause to be done by virtue hereof. This power of attorney is a power coupledwith an interest and shall be irrevocable.

 

**12.3****                        NODUTY ON LENDER.**  The powers conferredon the Lender hereunder are solely to protect its interests in the Collateraland shall not impose any duty upon it to exercise any such powers.  The Lender shall be accountable only for theamounts that it actually receives as a result of the exercise of such powersand neither it nor any of its officers, directors, employees or agents shall beresponsible to the Borrower for any act or failure to act, except for theLender’s own gross negligence or willful misconduct.

 

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

 

**14.****                               STANDARDSFOR EXERCISING REMEDIES. **To theextent that applicable law imposes duties on the Lender to exercise remedies ina commercially reasonable manner, the Borrower acknowledges and agrees that itis not commercially unreasonable for the Lender (a) to fail to incur expensesreasonably deemed significant by the Lender to prepare the Collateral fordisposition or otherwise to complete raw material or work in process intofinished goods or other finished products for disposition, (b) to fail toobtain third-party consents for access to Collateral to be disposed of, or toobtain or, if not required by other law, to fail to obtain governmental orthird party consents for the collection or disposition of Collateral to becollected or disposed of, (c) to fail to exercise collection remedies againstaccount debtors or other persons obligated on Collateral or to remove liens orencumbrances on or any adverse claims against Collateral, (d) to exercisecollection remedies against account debtors and other persons obligated onCollateral directly or through the use of collection agencies and othercollection specialists, (e) to advertise dispositions of Collateral throughpublications or media of general circulation, whether or not the Collateral isof a specialized nature, (f) to contact other persons, whether or not in thesame business as the Borrower, for expressions of interest in acquiring all orany portion of the Collateral, (g) to hire one or more professional auctioneersto assist in the disposition of Collateral, whether or not the Collateral is ofa specialized nature, (h) to dispose of Collateral by utilizing Internet sitesthat provide for the auction of assets of the types included in the Collateralor that have the reasonable capability of doing so, or that match buyers andsellers of assets, (i) to dispose of assets in wholesale rather than retailmarkets, (j) to disclaim disposition warranties, or (k) to the extent deemedappropriate by the Lender, to obtain the services of brokers, investment

 

7

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bankers, consultants and other professionals to assistthe Lender in the collection or disposition of any of the Collateral.  The Borrower acknowledges that the purpose ofthis **§**14 is to provide nonexhaustiveindications of what actions or omissions by the Lender would not becommercially unreasonable in the Lender’s exercise of remedies against theCollateral and that other actions or omissions by the Lender shall not bedeemed commercially unreasonable solely on account of not being indicated inthis §14.  Without limitation upon theforegoing, nothing contained in this §14 shall be construed to grant any rightsto the Borrower or to impose any duties on the Lender that would not have beengranted or imposed by this Agreement or by applicable law in the absence ofthis §14.

 

**15.****                               NOWAIVER BY LENDER, ETC. **The****Lender shall not be deemed to have waived any of its rightsupon or under the Obligations or the Collateral unless such waiver shall be inwriting and signed by the Lender.  Nodelay or omission on the part of the Lender in exercising any right shalloperate as a waiver of such right or any other right.  A waiver on any one occasion shall not beconstrued as a bar to or waiver of any right on any future occasion.  All rights and remedies of the Lender withrespect to the Obligations or the Collateral, whether evidenced hereby or byany other instrument or papers, shall be cumulative and may be exercisedsingularly, alternatively, successively or concurrently at such time or at suchtimes as the Lender deems expedient.

 

**16.****                               SURETYSHIPWAIVERS BY BORROWER. **The Borrowerwaives demand, notice, protest, notice of acceptance of this Agreement, noticeof loans made, credit extended, Collateral received or delivered or other actiontaken in reliance hereon and all other demands and notices of anydescription.  With respect to both theObligations and the Collateral, the Borrower assents to any extension orpostponement of the time of payment or any other indulgence, to any substitution,exchange or release of or failure to perfect any security interest in anyCollateral, to the addition or release of any party or person primarily orsecondarily liable, to the acceptance of partial payment thereon and thesettlement, compromising or adjusting of any thereof, all in such manner and atsuch time or times as the Lender may deem advisable.  The Lender shall have no duty as to thecollection or protection of the Collateral or any income thereon, nor as to thepreservation of rights against prior parties, nor as to the preservation of anyrights pertaining thereto beyond the safe custody thereof as set forth in **§**10.  The Borrowerfurther waives any and all other suretyship defenses.

 

**17.****                               MARSHALLING. **The Lender shall not be required to marshalany present or future collateral security (including but not limited to thisAgreement and the Collateral) for, or other assurances of payment of, theObligations or any of them or to resort to such collateral security or otherassurances of payment in any particular order, and all of its rights hereunderand in respect of such collateral security and other assurances of paymentshall be cumulative and in addition to all other rights, however existing orarising. To the extent that it lawfully may, the Borrower hereby agrees that itwill not invoke any law relating to the marshalling of collateral which mightcause delay in or impede the enforcement of the Lender’s rights under thisAgreement or under any other instrument creating or evidencing any of theObligations or under which any of the Obligations is outstanding or by whichany of the Obligations is secured or

 

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

 

**18.****                               PROCEEDSOF DISPOSITIONS; EXPENSES. **TheBorrower shall pay to the Lender on demand amounts equal to any and allexpenses, including, without limitation, reasonable attorneys’ fees and disbursements,incurred or paid by the Lender in protecting, preserving or enforcing theLender’s rights under or in respect of any of the Obligations or any of theCollateral. After deducting all of said expenses, the residue of any proceedsof collection or sale of the Obligations or Collateral shall, to the extentactually received in cash, be applied to the payment of the Obligations in suchorder or preference as the Lender may determine, proper allowance and provisionbeing made for any Obligations not then due. Upon the final payment and satisfaction in full of all of theObligations and after making any payments required by **§**9-608(a)(1)(C)or 9-615(a)(3) of the Uniform Commercial Code of the State, any excess shall bereturned to the Borrower, and the Borrower shall remain liable for anydeficiency in the payment of the Obligations.

 

**19.****                               OVERDUEAMOUNTS. **Until paid, all amounts dueand payable by the Borrower hereunder shall be a debt secured by the Collateraland shall bear, whether before or after judgment, interest at Default Ratepursuant to §2.2(e) of the Loan Agreement.

 

**20.****                               GOVERNINGLAW. **THIS AGREEMENT SHALL IN ALLRESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THESTATE OF NEW YORK, UNITED STATES OF AMERICA, INCLUDING ALL MATTERS OFCONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT REFERENCE TO PRINCIPLES OFCONFLICTS OF LAW (OTHER THAN TITLE 14 OF ARTICLE 5 OF THE GENERAL OBLIGATIONSLAW).

 

**21.****                               INDEMNIFICATION.**  Without limiting any of its indemnificationobligation under the other Loan Documents, the Borrower hereby agrees toindemnify and hold the Lender harmless from and against any and all claims,demands, liabilities, losses, causes of action, judgments, costs, and expenses(including reasonable attorneys’ fees, court costs and investigation expenses)to which the Lender may become exposed, or which the Lender may incur, byreason of any act or omission of the Borrower under any charter or otheragreement comprising Collateral or by the Lender exercising any of its rightsunder this Agreement, *provided* thatthis indemnity does not extend to liability incurred by the Lender solelythrough its gross negligence or willful misconduct or acts and omissions as amortgagee-in-possession.  The provisionsof this Section 21 shall remain operative and in full force and effectregardless of the termination of this Agreement or any other Loan Document, theconsummation of the transactions contemplated hereby or thereby, the repaymentof any of the Obligations, the validity or unenforceability of any term orprovision of this Agreement or any other Loan Document or any investigationmade by or on behalf of the Lender.

 

**22.****                               MISCELLANEOUS. **The headings of each section of thisAgreement are for convenience only and shall not define or limit the provisionsthereof.  This Agreement and all rightsand obligations hereunder shall be binding upon the Borrower and its respective

 

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successors and assigns, and shall inure to the benefitof the Lender and its successors and assigns. If any term of this Agreement shall be held to be invalid, illegal orunenforceable, the validity of all other terms hereof shall in no way beaffected thereby, and this Agreement shall be construed and be enforceable asif such invalid, illegal or unenforceable term had not been included herein. Ifat any time there is any inconsistency between the terms of this Agreement andany other Security Document, the terms of such other Security Document shallgovern.  The Borrower acknowledgesreceipt of a copy of this Agreement

 

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

 

 
|                                                                          | **K-SEA OPERATING PARTNERSHIP L.P.** |
|-------------------------------------------------------------------------------|--------------------------------------|
| ** **                                                                    | ** **                           |
| ** **                                                                    | **By:**                              | **K-Sea OLP GP, LLC, its General Partner** |
| ** **                                                                    | ** **                           |
| ** **                                                                    | ** **                           |
| ** **                                                                    | By:                                  | ** ** | ** ** |
| ** **                                                                    | ** **                           | Name: | John J. Nicola |
| ** **                                                                    | ** **                           | Title: | Chief Financial Officer |
| ** **                                                                    |
| Accepted:                                                                     |
| ** **                                                                    |
| **CITIZENS**** ASSET FINANCE, A D/B/A OF  CITIZENS LEASING CORPORATION** |
| ** **                                                                    |
| ** **                                                                    |
| By:                                                                           |                                 |   |
|                                                                          | Name:                                | John M. Young |
|                                                                          | Title:                               | Senior Vice President |
|                                                                               |                                      |  |  |  |  |  |  |  |

 

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**Schedule A**

 
| Barge DBL 28 | Hull No. 496          |
|--------------|-----------------------|
|         |                  |
| Barge DBL 29 | Hull No. 497          |
|         |                  |
| Barge DBL 78 | Official No.  1102126 |

 

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**PERFECTION CERTIFICATE**

 

(U.C.C. Financing Statements)

 

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

 

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

 

Source:  U.C.C. **§**9-503(a).

 

**2.****                                      OTHERIDENTIFYING FACTORS.**

 
| (a)    |   | The  following is the mailing address of the Borrower: | 3245  Richmond Terrace   |
|--------|--------|--------------------------------------------------------|--------------------------|
|   |   |                                                   | Staten  Island, New York |
|   |   |                                                   | 10303-0003               |

 

Source:  U.C.C. §****9-516(b)(5)(A).

 

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

 

| **Address** | ** ** | **County** | ** ** | **State** | ** ** |
|-------------|------------|------------|------------|-----------|------------|
| N/A         |       |       |       |      |       |

 

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

 

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

 

Source:  U.C.C. §****9-516(b)(5)(C).

 

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

 

Source:  U.C.C. §****9-516(b)(5)(C).

 

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

 
| Source: U.C.C. §** **9-5l6(b)(5)(C). |   | Del ID: 3698236 |
|------------------------------------------------|--------|-----------------|

 

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**3.****                                      OTHERNAMES, ETC.**

 

(a)                                  Thefollowing is a list of all other names (including trade names or similarappellations) used by the Borrower, or any other business or organization towhich the Borrower became the successor by merger, consolidation, acquisition,change in form, nature or jurisdiction of organization or otherwise, now or atany time during the past five years:

 

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

 

(b)                                 Attachedhereto as Schedule 3 is the information required in §2 for any otherbusiness or organization to which the Borrower became the successor by merger,consolidation, acquisition, change in form, nature or jurisdiction oforganization or otherwise, now or at any time during the past fiveyears:     N/A

 

Source:  U.C.C. **§**9-316; formerU.C.C. **§**9-402(7) (second and thirdsentences).

 

**4.****                                      OTHERCURRENT LOCATIONS.**

 

(a)                                  Thefollowing are all other locations in the United States of America in which theBorrower maintains any books or records relating to any of the Collateralconsisting of accounts, instruments, chattel paper, general intangibles ormobile goods:

 

| **Address**    | ** ** | **County** | ** ** | **State** | ** ** |
|----------------|------------|------------|------------|-----------|------------|
| Same as Item 2 |       |       |       |      |       |

 

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

 

(b)                                 Thefollowing are all other places of business of the Borrower in the United Statesof America:

 

| **Address** | ** ** | **County** | ** ** | **State** | ** ** |
|-------------|------------|------------|------------|-----------|------------|
| N/A         |       |       |       |      |       |

 

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

 

**5.****                                      PRIORLOCATIONS.**

 

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

 

| **Address** | ** ** | **County** | ** ** | **State** | ** ** |
|-------------|------------|------------|------------|-----------|------------|
| N/A         |       |       |       |      |       |

 

2

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

 

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

 

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

 

**7.****                                      UNUSUALTRANSACTIONS. **Except for thosepurchases, acquisitions and other transactions described on Schedule 3or on Schedule 7 attached hereto, all of the Collateral has beenoriginated by the Borrower in the ordinary course of the Borrower’s business orconsists of goods which have been acquired by the Borrower in the ordinarycourse from a person in the business of selling goods of that kind.          N/A

 

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

 

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IN WITNESS WHEREOF, theundersigned has signed this Certificate on **[                      ]**,2005.

 

 
| ** ** | **K-SEA OPERATING PARTNERSHIP L.P.** |
|------------|--------------------------------------|
| ** ** | ** **                           |
| ** ** | **By:**                              | **K-SEA OLP GP, LLC  its General Partner** |
| ** ** | ** **                           | ** ** |
| ** ** | ** **                           | ** ** |
| ** ** | ** **                           | By: | ** ** | ** ** |
| ** ** | ** **                           | ** ** | Name: | John J. Nicola |
| ** ** | ** **                           | ** ** | Title: | Chief Financial Officer |
|            |                                      |  |  |  |  |

 

4

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**Exhibit A**

 

**Notice of Assignment of Insurance**

 

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

 

 

Dated:  **[                         ]**,2005

 
|   | K-SEA  OPERATING PARTNERSHIP L.P.,  by its general partner K-Sea OLP GP, LLC,  as Owner |
|--------|-----------------------------------------------------------------------------------------|
|   |                                                                                    |
|   |                                                                                    |
|   | By:                                                                                     |   |
|   |                                                                                    | Name: John J. Nicola |
|   |                                                                                    | Title: Chief Financial Officer |
|        |                                                                                         |  |  |

 

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**Exhibit B**

 

**LOSS PAYABLE CLAUSES**

 

Hull and Machinery

 

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

 

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

 

Protection and Indemnity

 

Loss, if any,payable to Citizens AssetFinance, a d/b/a of Citizens Leasing Corporation (the “Mortgagee”), fordistribution by the Mortgagee first to itself and then to K-Sea OperatingPartnership L.P., a Delaware limited partnership, as owner (the “Owner”), astheir respective interests may appear, or order, except that, unless and untilthe Underwriters have been otherwise instructed by notice in writing from theMortgagee, any loss may be paid directly to the person to whom the liabilitycovered by this insurance has been incurred, or to the Owner to reimburse itfor any loss, damage or expenses incurred by it and covered by this insurance, providedthe Underwriters shall have first received evidence that the liability insuredagainst has been discharged.

 

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**Exhibit F**

 

**K-SEA OPERATING PARTNERSHIP L.P.**

 

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

 

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

 

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

 

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

 

All of therepresentations and warranties made by the Borrower in §3 of the Loan Agreementwere true and correct when made and are true and correct at and as of the datehereof with the same effect as if made herein.

 

The activities ofthe Borrower during the period covered by the Financial Statements have beenreviewed by the Chief Financial Officer or by employees or agents under his orher immediate supervision.  Based on suchreview, to the best knowledge and belief of the Chief Financial Officer, and asof the date of this Certificate, no Default or Event of Default has occurred.

 

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WITNESS my hand this         day of                      ,20   .

 
| ** ** | **K-SEA OPERATING PARTNERSHIP L.P.**          |
|------------|-----------------------------------------------|
| ** ** |                                          |
| ** ** | **By:K-Sea OLP GP, LLC, its General Partner** |
| ** ** | ** **                                    |
| ** ** | ** **                                    |
| ** ** | By:                                           | ** ** | ** ** |
| ** ** | ** **                                    | Name: John J. Nicola |
| ** ** | ** **                                    | Title: Chief Financial  Officer |

 

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**Exhibit F**

 

LIENCERTIFICATE

 
| RE:                           | K-Sea Operating  Partnership L.P.                                         |
|-------------------------------|---------------------------------------------------------------------------|
|                          |                                                                      |
| NAME OF  PROJECT:             | DBL 28, DBL  29 (the “Vessels,” and each, a “Vessel”) |
|                          |                                                                      |
| NAME OF  OWNER’S LENDER: | Citizens  Asset Finance, a d/b/a of Citizens Leasing Corporation          |

 

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

 

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

 
|   | BOLLINGER  MARINE FABRICATORS, L.L.C.                                                                                                                      |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                       |
|   |                                                                                                                                                       |
|   | By:                                                                                                                                                        |   |
|   |                                                                                                                                                       | Name: |
|   |                                                                                                                                                       | Title: |
|   |                                                                                                                                                       |
|   |                                                                                                                                                       |
|   | Date:                     ,  20    |

 

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**Exhibit G**

 

**ASSIGNMENT OF PROJECT DOCUMENTS**

 

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

 

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

 

WHEREAS, asevidence of the indebtedness incurred under the Loan, Borrower has executed anddelivered to Lender the Loan Agreement and will, on the Advance TerminationDate (as defined in the Loan Agreement), execute and deliver to Lender acertain promissory note, payable to Lender in the aggregate principal faceamount of $18,000,000 (the “Note”), payment of which is secured by a SecurityAgreement of even date herewith (the “Security Agreement”) from Borrowercovering the property described in the Security Agreement as well as certainother security; and

 

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

 

NOW, THEREFORE, inconsideration of the recitals set forth above and incorporated herein, and forother good and valuable consideration, the receipt and sufficiency of which arehereby acknowledged, Borrower hereby covenants and agrees as follows:

 

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

 

(i)                                     thatcertain Agreement, dated as of February 21, 2005, between Borrower andBollinger Marine Fabricators, L.L.C., a Louisiana limited liability company(the “Contractor”), relating to the construction of the Vessels (hereinaftertogether with any and all extensions, modifications, amendments and renewalsthereof, referred to as the “Construction Contract”);

 

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

 

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(iii)                               allguarantees, warranties and other undertakings, whether written, oral orstatutory, covering the quality or performance of the work or the quality ofthe materials required by the Construction Contract, contracts and subcontracts(including, but in no way limited to, any and all payment and performance bondsrelating to the work under the Construction Contract), together with any claimswhich may be asserted thereunder;

 

(iv)                              allplans, specifications, drawings, surveys, renderings and models prepared forthe construction of the Vessels in existence from time to time, together withall revisions and modifications thereof and all sketches and notes relatedthereto.

 

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

 

This Assignment ismade for the purpose of securing:  (a)the full and prompt payment when due, whether by acceleration or otherwise,with such interest as may accrue thereon, either before or after maturitythereof, of all amounts due under the Loan Agreement and (when executed) theNote; (b) the full and prompt payment and performance of any and allobligations of Borrower to Lender hereunder and under the Loan Agreement, theSecurity Agreement, and any other agreements, documents or instruments now orhereafter evidencing, securing or otherwise relating to the indebtedness evidencedby the Loan Agreement or Note (the Note, the Loan Agreement, the SecurityAgreement and said other agreements, documents or instruments, together withall renewals, amendments, extensions, consolidations and modifications thereof,are hereinafter collectively referred to as the “Loan Documents” andindividually referred to as a “Loan Document”); and (c) any and all otherindebtedness under the Loan Documents, however incurred, which may now orhereafter be due and owing from Borrower, to Lender, now existing or hereaftercoming into existence, however and whenever incurred or evidenced, whetherexpressed or implied, direct or indirect, absolute or contingent, or due or tobecome due, and all renewals, modifications, consolidations and extensions thereof.

 

2.                                       Borrowerhereby covenants and agrees:

 

A.                                   Tofaithfully abide by, perform and discharge each and every obligation, covenant,condition and agreement of the Project Documents to be performed by Borrowerand to enforce performance by each other party thereto of each and everyobligation, covenant, condition and agreement to be performed by such otherparty.

 

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

 

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

 

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D.                                    Thatan Event of Default by Borrower under this Assignment shall constitute adefault under all of the Loan Documents.

 

E.                                      Thatupon the occurrence of any Event of Default, Lender may at its option, with orwithout notice or demand of any kind (except as may be provided herein or inany of the Loan Documents), and without waiving such Event of Default, exerciseany or all of the following rights and remedies:  (1) declare any part or all of theindebtedness evidenced or secured hereby or by the Loan Documents to beimmediately due and payable in accordance with the terms of the Loan Agreement,whereupon the same shall become immediately due and payable; (2) exercise anyand all rights and remedies provided for hereunder or under the Loan Documentsas well as such remedies as may be available at law or in equity; and (3) cureany such Event of Default in such manner and to such extent as Lender may deemnecessary to protect the security hereof, including specifically, without limitation,the right (but not the obligation) to appear in and defend any action orproceeding purporting to affect the security hereof or the rights or powers ofLender, and also the right (but not the obligation) to perform and dischargeeach and every obligation, covenant, condition and agreement of Borrower underthe Project Documents, and, in exercising any such powers, to pay necessarycosts and expenses, employ counsel and incur and pay attorneys’ fees andexpenses.  Lender shall not be obligatedto perform or discharge, nor does it undertake to perform or discharge, anyobligation, duty or liability of Borrower under any of the Project Documents,or by reason of this Assignment, it being agreed that Lender shall be treatedas agreeing to perform or discharge such obligation, duty or liability if (butonly if) Lender shall, by written notice sent to the other contracting partyto, or grantor or licensor of, such Project Document, expressly so elect.

 

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

 

G.                                     Thatthe Contractor, upon receipt of written notice from Lender of the occurrence ofany Event of Default and Lender’s election to exercise its rights under thisAssignment, shall be and is hereby irrevocably directed and authorized byBorrower to recognize and accept Lender, as “owner” under the ConstructionContract, or as holder of such other Project Document, as the case may be, forany and all purposes as fully as it would recognize and accept Borrower and theperformance of Borrower thereunder, and to perform such Project Document forthe benefit of Lender in accordance with the terms and conditions thereof,without any obligation to determine whether or not any such Event of Defaulthas in fact occurred.

 

H.                                    Thatfurther, and without limitation of the foregoing remedies, upon the occurrenceof any Event of Default, Lender shall have the rights and remedies of a securedparty under the Uniform Commercial Code as in effect in the State of New Yorkfrom time to time with respect to each and every Project Document in which asecurity

 

3

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interestmay be obtained, in addition to the rights and remedies otherwise provided forby law or in equity or in any of the Loan Documents.

 

I.                                         Exceptas expressly provided by law, that in the exercise of the powers herein grantedto Lender, no liability shall be asserted or enforced against Lender, all suchliability being hereby expressly waived and released by Borrower.  Borrower hereby agrees to indemnify and holdLender free and harmless from and against any and all claims, demands,liability, expense, cost, loss or damage (including all costs, expenses andattorneys’ fees incurred in the defense thereof) which may be asserted against,imposed on or incurred by Lender by reason of any act or omission of Borrowerunder any of the Project Documents or by reason of this Assignment or theexercise of Lender’s rights and remedies under this Assignment or under any ofthe Project Documents or by reason of any alleged obligation or undertaking ofLender to perform or discharge any obligation, duty or liability of Borrowerunder any of the Project Documents, *provided* thatnothing herein shall be construed to obligate Borrower to indemnify and holdLender free and harmless from and against any claim, demand, liability,expense, cost, loss or damage asserted against, imposed on or incurred byLender by reason of Lender’s willful misconduct or gross negligence.  Should Lender incur any such liability,expense, cost, loss or demands, for which it is to be indemnified by Borroweras aforesaid, the amount thereof shall be secured by this Assignment, theSecurity Agreement and the other Loan Documents (whether or not such amount,when aggregated with other sums secured by the Security Agreement and the otherLoan Documents, exceeds the aggregate principal face amount due under the LoanAgreement or the Note), shall bear interest at the default rate specified inthe Loan Agreement from the date incurred until paid, and shall be due andpayable immediately upon demand by Lender.

 

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

 

3.                                       Borrowerfurther hereby covenants, represents and warrants to Lender that(i) Borrower has not previously assigned, sold, pledged, transferred,mortgaged, hypothecated or otherwise encumbered the Project Documents or any ofthem, or its right, title and interest therein, (ii) Borrower shall not assign,sell, pledge, transfer, mortgage, hypothecate or otherwise encumber itsinterests in the Project Documents or any of them, (iii) Borrower has notperformed, and will not perform, any act which might prevent Borrower fromperforming its undertakings hereunder or which might prevent Lender fromoperating under or enforcing any of the terms and conditions hereof or whichwould limit Lender in such operation or enforcement, (iv) Borrower is not indefault under the Project Documents, or any of them, and to the best knowledgeof Borrower, no other party to the respective Project Documents is in defaultthereunder except as disclosed in writing to Lender, (v) except as provided inthe Loan Agreement, no material amendments to any of the Project Documents willbe made without the prior written consent of Lender, and (vi) upon execution ofany of the Project Documents, (and upon the subsequent execution of anymaterial amendments to any of the Project Documents)Borrower will deliver acopy of such Project Document (or the original at Lender’s

 

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request) to Lender and will require such of theparties thereto as Lender may designate to execute and deliver to Lender aconsent to this Assignment.

 

4.                                       Allnotices, demands, elections or requests provided for or permitted to be givenpursuant to this Assignment shall be in writing and shall be deemed to have beensufficiently given when delivered or mailed in the manner set forth in the LoanAgreement.

 

5.                                       Anyprovision in the Loan Agreement that pertains to this Assignment shall bedeemed to be incorporated herein as if such provision were fully set forth in thisAssignment.  In the event of any conflictbetween the terms of this Assignment and the terms of the Loan Agreement, theterms of the Loan Agreement shall prevail. A provision in this Assignment shall not be deemed to be inconsistentwith the Loan Agreement by reason of fact that no provision in the LoanAgreement covers such provision in this Assignment.

 

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

 

7.                                       ThisAssignment constitutes the granting by Borrower to Lender of a securityinterest, under the Uniform Commercial Code as enacted in the State of New Yorkfrom time to time, in the right, title and interest of Borrower in, to andunder each and every Project Document in which a security interest may beobtained.  Borrower agrees to execute anddeliver to Lender, at any time or times during which this Assignment shall bein effect, such further instruments as Lender may deem necessary to makeeffective this Assignment and the security interest created hereby.  To evidence such security interest, at the requestof Lender, Borrower shall, in a form satisfactory to Lender, join with Lenderin executing one or more financing statements or other notices of securityinterest, and any continuation thereof, and shall pay the cost for filingthereof.

 

8.                                       Theexercise of any rights or remedies under this Assignment shall not be deemed tocure or waive any Event of Default, or waive, modify or affect any notice ofdefault under any of the Loan Documents, or invalidate any act done pursuant tosuch notice.  The rights and remedies ofLender herein provided shall be in addition to and not in substitution for therights and remedies vested in Lender in any of the Loan Documents or at law orin equity, all of which rights and remedies are specifically reserved byLender.  The remedies herein provided orotherwise available to Lender shall be cumulative and may be exercisedconcurrently.  The failure to exerciseany of the remedies herein provided shall not constitute a waiver thereof, norshall use of any of the remedies herein provided prevent the subsequent orconcurrent resort to any other remedy or remedies.

 

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9.                                       ThisAssignment shall be interpreted, construed and enforced according to laws ofthe State of New York.

 

10.                                 Itis expressly intended, understood and agreed that this Assignment and the LoanDocuments are made and entered into for the sole protection and benefit ofBorrower and Lender, and their respective legal representatives, successors andassigns (but in the case of assigns of Borrower, only if and to the extent thatLender has consented in writing to Borrower’s assignment of its rights orobligations hereunder or thereunder to such assigns); that no other person orpersons shall have any right at any time to act hereon or rights to theproceeds of the Loan; that such proceeds of the Loan do not constitute a trustfund for the benefit of any third party; that no third party shall under anycircumstances be entitled to any equitable lien on any such undisbursedproceeds of the Loan at any time; and that Lender shall have a lien upon andright to direct application of any such undisbursed proceeds of the Loan asprovided in the Loan Documents.

 

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

 

12.                                 Borrowerand Lender intend and believe that each provision in this Assignment comportswith all applicable local, state or federal laws and judicial decisions.  However, if any provision or provisions, orif any portion of any provision or provisions, in this Assignment is found by acourt of law to be in violation of any applicable local, state or federalordinance, statute, law, administrative or judicial decision or public policy,and if such court should declare such portion, provision or provisions of thisAssignment to be illegal, invalid, unlawful, void or unenforceable as written,then it is the intent of Borrower and Lender that such portion, provision orprovisions shall be given force to the fullest possible extent that they arelegal, valid and enforceable, that the remainder of this Assignment shall be construedas if such illegal, invalid, unlawful, void or unenforceable portion, provisionor provisions were not contained therein and that the rights, obligations andinterests of Borrower and Lender under the remainder of this Assignment shallcontinue in full force and effect.

 

13.                                 Capitalizedterms used but not defined herein shall have the meanings set forth in the LoanAgreement.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESSWHEREOF, Borrower has executed this Assignment, as of the day, month and yearfirst above written.

 

 
|   | K-SEA  OPERATING PARTNERSHIP L.P.                 |
|--------|---------------------------------------------------|
|   |                                              |
|   | By:  K-Sea OLP GP, LLC, its  General Partner |
|   |                                              |
|   |                                              |
|   |                                              | By: |   |   |
|   |                                              | Name: |
|   |                                              | Title: |
|        |                                                   |  |  |  |  |

 

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**Exhibit H**

 

**CONTRACTOR’SCONSENT**

 

1.                                       Theundersigned BOLLINGER MARINE FABRICATORS, L.L.C., a Louisiana Limited LiabilityCompany (“Contractor”), understands that CITIZENS ASSET FINANCE, a d/b/a ofCitizens Leasing Corporation, a Rhode Island corporation (“Lender”), will bemaking a loan (the “Loan”) to K-SEA OPERATING PARTNERSHIP L.P., a Delawarelimited partnership (“Owner”), to finance a portion of the costs of theconstruction of two vessels (the “Vessels”), pursuant to that certain LoanAgreement of even date herewith (the “Loan Agreement”), between Lender andOwner. The Loan will be secured by, among other things, that certain SecurityAgreement of even date herewith, from Owner to Lender (the “Security Agreement”).  The construction of the Vessels is to beperformed by Contractor pursuant to that certain Agreement dated as of February21, 2005 (the “Construction Contract”), between Contractor and Owner. Tofurther secure the Loan and the obligations of Owner to Lender under the LoanAgreement, Owner has assigned all of its right, title and interest in and tothe Construction Contract to Lender, pursuant to that certain Assignment ofProject Documents of even date herewith (the “Assignment”).

 

2.                                       Contractoracknowledges receipt of the Assignment, consents to the Assignment, and agreesto act in accordance with the terms thereof, provided, however, that Contractorshall not be obligated to Lender for the performance or payment of any of theobligations of Borrower under the Loan Agreement, Security Agreement or theAssignment.

 

3.                                       IfOwner fails to perform any obligation under the Construction Contract, andContractor deems such failure a default under the Construction Contract,Contractor shall give written notice thereof to Lender and give Lender 30 daysfrom Lender’s receipt of Contractor’s notice of default to cure such default, *provided* that Contractor’s failure to give such notice shallnot create any liability to Lender or affect Contractor’s rights under theConstruction Contract.

 

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

 

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Executed as of                                   ,2005.

 
|   | BOLLINGER  MARINE FABRICATORS, L.L.C. |
|--------|---------------------------------------|
|   |                                  |
|   |                                  |
|   | By:                                   |   |   |
|   |                                  | Name: |
|   |                                  | Title: |

 

 

*[Contractor’s Consent]*

 

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