Exhibit 10.3


 


K-SEA
OPERATING PARTNERSHIP, L.P.


 


 


LOAN AGREEMENT


 


 


Dated as of March 17,
2005


 





















 


TABLE OF
CONTENTS


 


	
  SECTION 1  DEFINITIONS

  	
   

  
	
   

  	
  1.1

  	
  Defined
  Terms

  	
   

  
	
   

  	
  1.2

  	
  Use of Defined Terms

  	
   

  
	
   

  	
  1.3

  	
  Accounting Terms

  	
   

  
	
   

  	
  1.4

  	
  Computation of Time
  Periods

  	
   

  
	
   

  	
  1.5

  	
  Additional
  Rules of Usage for Principal Documents

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2  AMOUNT AND TERMS OF LOAN

  	
   

  
	
   

  	
  2.1

  	
  Loan
  Commitment

  	
   

  
	
   

  	
  2.2

  	
  The Notes

  	
   

  
	
   

  	
  2.3

  	
  Notice of Borrowing

  	
   

  
	
   

  	
  2.4

  	
  Late Charges;
  Default Interest

  	
   

  
	
   

  	
  2.5

  	
  Computation of Interest

  	
   

  
	
   

  	
  2.6

  	
  Voluntary Prepayments

  	
   

  
	
   

  	
  2.7

  	
  Use
  of Proceeds

  	
   

  
	
   

  	
  2.8

  	
  Mandatory Prepayment

  	
   

  
	
   

  	
  2.9

  	
  Compensation

  	
   

  
	
   

  	
  2.10

  	
  [Intentionally Omitted.]

  	
   

  
	
   

  	
  2.11

  	
  Illegality

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3  CONDITIONS

  	
   

  
	
   

  	
  3.1

  	
  Conditions of Loans

  	
   

  
	
   

  	
  3.2

  	
  Additional
  Conditions to Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
   

  	
  4.1

  	
  Organization and
  Qualification

  	
   

  
	
   

  	
  4.2

  	
  Corporate Power
  and Authorization

  	
   

  
	
   

  	
  4.3

  	
  No Legal Bar on Company

  	
   

  
	
   

  	
  4.4

  	
  No Material Litigation

  	
   

  
	
   

  	
  4.5

  	
  [Reserved]

  	
   

  
	
   

  	
  4.6

  	
  Ownership of
  Properties, Liens

  	
   

  
	
   

  	
  4.7

  	
  No
  Default

  	
   

  
	
   

  	
  4.8

  	
  Taxes

  	
   

  
	
   

  	
  4.9

  	
  Financial Condition

  	
   

  
	
   

  	
  4.10

  	
  Franchises, Licenses,
  Etc

  	
   

  
	
   

  	
  4.11

  	
  Subsidiaries

  	
   

  
	
   

  	
  4.12

  	
  ERISA

  	
   

  
	
   

  	
  4.13

  	
  Disclaimer

  	
   

  
	
   

  	
  4.14

  	
  Ownership/Title

  	
   

  
	
   

  	
  4.15

  	
  Name and Offices

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5  AFFIRMATIVE COVENANTS

  	
   

  
	
   

  	
  5.1

  	
  Financial Statements

  	
   

  
	
   

  	
  5.2

  	
  Taxes

  	
   

  
	
   

  	
  5.3

  	
  Change
  in Corporate Structure or Location

  	
   

  
	
   

  	
  5.4

  	
  Insurance

  	
   

  
	
   

  	
  5.5

  	
  Citizenship

  	
   

  
	
   

  	
  5.6

  	
  Notice of Default;
  Litigation

  	
   

  
	
   

  	
  5.7

  	
  Payment of Obligations

  	
   

  



 


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  5.8

  	
  Maintenance
  of Existence and Properties

  	
   

  
	
   

  	
  5.9

  	
  Officer’s Certificates

  	
   

  
	
   

  	
  5.10

  	
  Other
  Acts

  	
   

  
	
   

  	
  5.11

  	
  No Change of Control

  	
   

  
	
   

  	
  5.12

  	
  Waivers

  	
   

  
	
   

  	
  5.13

  	
  Extensions; Releases

  	
   

  
	
   

  	
  5.14

  	
  First
  Priority

  	
   

  
	
   

  	
  5.15

  	
  Solvent

  	
   

  
	
   

  	
  5.16

  	
  Execution
  of Uniform Commercial Code Financing Statements

  	
   

  
	
   

  	
  5.17

  	
  Assignments

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 6  NEGATIVE COVENANTS

  	
   

  
	
   

  	
  6.1

  	
  Prohibition
  on Assignment by the Company

  	
   

  
	
   

  	
  6.2

  	
  Limitations on
  Fundamental Changes

  	
   

  
	
   

  	
  6.3

  	
  Limitations on Lien
  Filings

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 7  EVENTS OF DEFAULT

  	
   

  
	
   

  	
   

  
	
  SECTION 8  MISCELLANEOUS

  	
   

  
	
   

  	
  8.1

  	
  Waiver of Default

  	
   

  
	
   

  	
  8.2

  	
  Amendment

  	
   

  
	
   

  	
  8.3

  	
  Reimbursement of Lender

  	
   

  
	
   

  	
  8.4

  	
  Notices

  	
   

  
	
   

  	
  8.5

  	
  No Waiver;
  Cumulative Remedies

  	
   

  
	
   

  	
  8.6

  	
  Survival of Agreements

  	
   

  
	
   

  	
  8.7

  	
  Successors and Assigns

  	
   

  
	
   

  	
  8.8

  	
  Counterparts

  	
   

  
	
   

  	
  8.9

  	
  Holiday Payments

  	
   

  
	
   

  	
  8.10

  	
  Construction;
  Arbitration

  	
   

  
	
   

  	
  8.11

  	
  Contracts
  of Affreightment and Charters

  	
   

  
	
   

  	
  8.12

  	
  Swap Agreements

  	
   

  
	
   

  	
  8.12

  	
  General Indemnity

  	
   

  



 


ii





















 


List of Exhibits


 


	
  Exhibit A

  	
   

  	
  -

  	
   

  	
  form of Note

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  -

  	
   

  	
  form of Guaranty Agreement

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  -

  	
   

  	
  form of Borrowing Certificate

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit D

  	
   

  	
  -

  	
   

  	
  form of Preferred Mortgage

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit E

  	
   

  	
  -

  	
   

  	
  form of Insurances Assignment

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit F

  	
   

  	
  -

  	
   

  	
  form of Collateral Assignment of
  Lease/Charter, etc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit G

  	
   

  	
  -

  	
   

  	
  form of Purchase Agreement Assignment

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit H

  	
   

  	
  -

  	
   

  	
  form of General Assignment of Freights

  



 





















 


LOAN AGREEMENT, dated as of March 17,
2005 (as amended, modified, supplemented, restated and/or replaced from time to
time, this “Agreement”), between K-SEA OPERATING PARTNERSHIP, L.P., a Delaware
limited partnership (the “Company”), and FIRST UNION COMMERCIAL
CORPORATION, a North Carolina corporation (the “Lender”).


 


WITNESSETH:


 


WHEREAS, the Company desires
to borrow from the Lender an aggregate principal sum of up to Eleven Million
Dollars ($11,000,000.00) for the purposes hereinafter described; and


 


WHEREAS, the Lender is willing
to make loans to the Company not to exceed such amount referenced in the prior
paragraph in the aggregate and for such purposes on the terms and conditions of
this Agreement;


 


NOW, THEREFORE, in
consideration of the premises and the mutual covenants herein contained it is
hereby agreed by and between the parties hereto as follows:


 


SECTION 1  



DEFINITIONS


 


1.1                                 Defined Terms.


 


As used herein the following
terms shall have the following meanings, unless the context otherwise requires:


 


“ABR” shall mean, for any day, a rate per annum
equal to the greater of (a) the Prime Lending Rate in effect on such day,
and (b) the Federal Funds Effective Rate in effect on such day plus
one-half of one percent (0.5%).  For
purposes hereof:  “Prime Lending Rate”
shall mean the rate announced by the Lender from time to time as its prime
lending rate as in effect from time to time. 
The Prime Lending Rate is a reference rate and is one of several
interest rate bases used by the Lender and does not necessarily represent the
lowest or most favorable rate offered by the Lender actually charged to any
customer.  The Lender may make commercial
loans or other loans at rates of interest at, above or below the Prime Lending
Rate.  The Prime Lending Rate shall
change automatically and without notice from time to time as and when the prime
lending rate of the Lender changes.  “Federal
Funds Effective Rate” shall mean, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members or the Federal
Reserve System arranged by Federal funds brokers, as published for such day
(or, if such day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day on
such transactions received by Wachovia Bank, National Association, from three (3) Federal
funds brokers of recognized standing selected by it.  Any change in the ABR due to a change in the
Prime Lending Rate or the Federal Funds Effective Rate shall be effective as of
the opening of business on the effective day of such change in the Prime
Lending Rate or the Federal Funds Effective Rate, respectively.


 


“Actual/360 Computation”
shall have the meaning set forth in Section 2.5 hereof.


 


“Affiliate” shall mean,
as to any Person another Person that, directly or indirectly, Controls, is
Controlled by or is under common Control with such first Person; provided,
however, that with respect to


 





















 


the
Company and K-Sea Transportation Partners, L.P., a Delaware limited
partnership, the term “Affiliate” shall not be deemed to describe any Person
who is not any of the following:  the Company,
K-Sea Transportation Partners, L.P., or any direct or indirect Subsidiary of
K-Sea Transportation Partners, L.P.; and “Affiliated” shall have a concurrent
meaning.


 


“Agreement” shall have
the meaning set forth in the first paragraph hereof.


 


“Applicable Interest Rate”
shall, subject to and as modified by Section 2.9 hereof, for any Interest
Period hereunder mean an interest rate per annum equal to the Interest Rate;
provided however, that the Applicable Interest Rate shall be the Default Rate
if an Event of Default shall have occurred and be continuing for so long as
such Event of Default is continuing.


 


“Assignments” shall
mean the General Assignment of Freights, each Collateral Assignment, each
Purchase Agreement Assignment and each Insurance Assignment.


 


“Borrowing Certificate”
shall have the meaning set forth in Section 3.1(c) hereof.


 


“Builder” shall mean,
with regard to each Vessel, the entity which is primarily responsible for the
building and fabrication or conversion of such Vessel.


 


“Business Day” shall have
the meaning set forth in the Note.


 


“Change of Control”
shall mean (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by
any Person or group (within the meaning of the Securities Exchange Act of 1934
and the rules of the Securities and Exchange Commission thereunder as in
effect on the date hereof), of ownership interests representing more than 50%
of the general partnership interest in K-Sea Transportation Partners, L.P. or
more than 50% of the aggregate ordinary voting power represented by the issued
and outstanding ownership interests of the Company or K-Sea Transportation
Inc., or


 


(b) for the period of twelve (12) consecutive
calendar months, a majority of the board of the Company or K-Sea Transportation
Partners, L.P. shall no longer be composed of individuals (i) who were
members of said board on the first day of such period, (ii) whose election
or nomination to said board was approved by individuals referred to in clause (i) above
constituting at the time of such election or nomination at least a majority of
said board, or (iii) whose election or nomination to said board was
approved by individuals referred to in clauses (i) and (ii) above
constituting at the time of such election or nomination at least a majority of
said board.  The addition of independent directors (and the subsequent replacement of
such independent directors) to the board of K-Sea Transportation Partners, L.P.
shall not constitute a “Change of Control” for this purpose.


 


“Citizenship Regulations”
shall have the meaning set forth in Section 4.1 hereof.


 


“Citizenship Requirements”
shall mean, collectively, the Shipping Act, the Documentation of Vessels Act,
the Commercial Instruments and Maritime Liens Act and the Citizenship
Regulations.


 


“Code” shall have the
meaning set forth in Section 4.11 hereof


 


“Collateral” shall
refer collectively to (a) the Vessels and (b) the Assignments, the
Mortgages and all property assigned pursuant to the Assignments and the
Mortgages or to the procedures referred to therein.


 


2





















 


“Collateral Assignment”
shall mean the agreement substantially in the form of Exhibit F
hereto whereby the Company assigns to the Lender a charter party or lease
respecting the applicable Vessel and the other property described therein.


 


“Commercial Instruments and
Maritime Liens Act” shall have the meaning set forth in Section 4.1
hereof.


 


“Commitment” shall have
the meaning set forth in Section 2.1 hereof.


 


“Commitment Expiration Date”
shall have the meaning set forth in Section 2.1 hereof.


 


“Company” shall have
the meaning set forth in the first paragraph hereof.


 


“Control” shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise, and “Controlling” and
“Controlled” shall have meanings correlative thereto.


 


“Damages” shall have
the meaning set forth in Section 8.13 hereof.


 


“Default Rate” as
applicable to any obligation payable hereunder (including under the applicable
Note) shall mean the lesser of (a) the then applicable Interest Rate plus
three percent (3%) and (b) the maximum rate of interest payable under
applicable law.


 


“Documentation of Vessels
Act” shall have the meaning set forth in Section 4.1 hereof.


 


“ERISA” shall have the
meaning set forth in Section 4.11 hereof.


 


“Event of Default”
shall have the meaning set forth in Section 7 hereof.


 


“Fair Market Value” shall mean with respect any asset, the
amount, which in any event, shall not be less than zero (0), that would be paid
in cash in an arms-length transaction between an informed and willing purchaser
and an informed and willing seller, neither of whom is under any compulsion to
purchase or sell, respectively, such asset.


 


“FDIC” shall mean the
Federal Deposit Insurance Corporation, a corporation organized under and by
virtue of the laws of the United States.


 


“GAAP” shall mean
generally accepted accounting principles in the United States as in effect from
time to time.


 


“General Assignment of
Freights” shall mean the applicable agreement substantially in the form of Exhibit H
hereto whereby the Company assigns to the Lender all freights, hires and
earnings deriving from each Vessel and all other property therein described.


 


“Guarantee Agreement”
shall mean an agreement substantially in the form of Exhibit B
hereto, wherein each Guarantor guarantees to the Lender the payment of all amounts
due and the performance of all other obligations of the Company to the Lender under
any of the Principal Documents.


 


“Guarantor” shall mean each
of (a) K-Sea Transportation Partners, L.P., a Delaware limited
partnership, (b) K-Sea Transportation Inc., a Delaware corporation, and (c) each
other Person that shall


 


3





















 


from
time to time execute and deliver a Guarantee Agreement pursuant to the term of
the Principal Documents.


 


“Holder” shall have the
meaning set forth in Section 8.7 hereof.


 


“Index Rate” shall have
the meaning given such term in the applicable Note.


 


“Insurance Assignment”
shall mean the applicable agreement substantially in the form of Exhibit E
hereto whereby the Company assigns to the Lender all insurance on the
applicable Vessel and all other property therein described.


 


“Interest Period” shall
mean the period commencing on the date of borrowing or the last day of the
prior Interest Period and ending one (1) month thereafter; provided
that:


 


(1)                                  any Interest Period
which would otherwise end on a day which is not a Business Day shall be
extended to the next succeeding Business Day unless such Business Day falls in
another calendar month, in which case such Interest Period shall end on the
preceding Business Day;


 


(2)                                  any Interest Period
which begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business Day of a calendar
month; and


 


(3)                                  any Interest Period
which would otherwise end after the Maturity Date shall end on the Maturity
Date.


 


“Interest Rate” shall
have the meaning given such term in the applicable Note.


 


“Lender” shall have the
meaning set forth in the first paragraph hereof.


 


“Loan” shall have the
meaning given such term in Section 2.1 hereof.


 


“Loss Events” shall
mean the actual, constructive, compromised or arranged total loss of any Vessel
or the seizure, requisitioning of title or forfeiture of any Vessel.  For purposes of this definition, a
constructive, compromised or arranged total loss shall be deemed to have occurred
only when such constructive, compromised or arranged total loss has been agreed
to by the Company’s insurance underwriters or adjusters.


 


“Material Adverse Change” means a material
adverse change in (a) the business, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of K-Sea
Transportation Partners, L.P. and its consolidated Subsidiaries, taken as a
whole, (b) the Company’s or any Guarantor’s ability to perform its
obligations under the Principal Documents, or (c) the rights and remedies
of the Lender hereunder.


 


“Maturity Date” shall
mean, for each Loan, the maturity date therefor set forth in the applicable
Note.


 


“Maximum Aggregate Amount”
shall have the meaning set forth in Section 2.1 hereof.


 


“Monthly Payment Dates”
shall refer to the last day in each Interest Period.


 


“Monthly Periods” shall
refer to the respective Interest Periods hereunder.


 


4





















 


“Mortgage” shall be the
reference, collectively, to a first preferred mortgage substantially in the
form of Exhibit D annexed to this Agreement upon the applicable
Vessel and to an Optional Application for Filing on Department of
Transportation U.S. Coast Guard Form CG-5542 upon the applicable Vessel,
which shall secure the Company’s obligations under this Agreement.


 


“Note” shall have the
meaning set forth in Section 2.2 hereof.


 


“Notice of Insurances
Assignment” shall mean the applicable notice of insurances assignment
substantially in the form as provided in Exhibit E hereto whereby (a) the
Company notifies the applicable insurance provider of the Company’s assignment
of insurance benefits to the Lender and (b) the insurance provider
acknowledges the same.


 


“Obligations” shall
have the meaning set forth in Section 8.7 hereof.


 


“Payment Date” shall
mean, for each Loan, the payment dates therefor set forth in the applicable
Note.


 


“Person” shall mean an
individual, partnership, corporation (including a business trust) joint stock
company, trust, limited liability company, unincorporated association, joint
venture or other entity, or a government or a political subdivision or agency
thereof.


 


“Principal Documents”
shall mean this Agreement, the Notes, the Mortgages, the Guarantee Agreement, the
Assignments, the Notices of Insurance Assignment and all related certificates,
instruments, documents and agreements, but does not include Swap Agreements.


 


“Prohibited Transfer”
shall have the meaning set forth in Section 6.1 hereof.


 


“Purchase Agreement” shall mean (i) that
certain Vessel Construction Agreement dated as of August 31, 2004 between
the Company and Bollinger Marine Fabricators, L.L.C., as amended, modified or
supplemented from time to time, and (ii) each other purchase agreement or
vessel construction agreement entered into by the Company and any Builder or
other seller with respect to a Vessel to be financed hereunder.


 


“Purchase Agreement
Assignment” shall mean the applicable agreement substantially in the form
of Exhibit G hereto whereby the Company assigns to the Lender all
of its rights, but none of its obligations under the applicable Purchase Agreement.


 


“Reportable Event”
shall have the meaning set forth in Section 4043 of ERISA.


 


“Shipping Act” shall
have the meaning set forth in Section 4.1 hereof.


 


“Subsidiary” shall mean,
respecting any Person, any corporation or limited liability company organized
and existing under the laws of any jurisdiction, a majority of the outstanding interests
or shares (except for directors’ qualifying shares, if any) of any class of
which are owned directly or indirectly by the such Person.


 


“Swap Agreements” means
any swap agreements (as
defined in 11 U.S.C. § 101, as in effect from time to time) between
the Company and the Lender or any Affiliate of Lender executed in connection
with or related to the Principal Documents.


 


5





















 


“Swap Obligations”
means all obligations under
any Swap Agreements.


 


“Vessel” shall mean
each of (a) that certain 100,000 barrel tank barge constructed or to be
constructed by Bollinger Marine Fabricators, L.L.C., as Builder, as Hull No. 490
for the Company, and to be documented under the laws of the United States as DBL 103,
and (b) each other vessel that is acceptable to the Lender in its sole
discretion to be acquired by, or constructed for, the Company using the
proceeds of Loans made by the Lender to the Company in accordance with the
provisions of this Agreement and the other Principal Documents.           Notwithstanding various references in the Agreement and the other
Principal Documents to multiple Vessels, the parties hereto acknowledge and
agree that as of the date of the Agreement, the only Vessel currently
contemplated to be financed under the Agreement and the other Principal
Documents is that certain 100,000 barrel
tank barge constructed or to be constructed by Bollinger Marine Fabricators,
L.L.C., as Builder, as Hull No. 490 for the Company, and to be documented
under the laws of the United States as DBL 103, and that the financing of any
additional Vessels under this Agreement and the other Principal Documents may
or will require certain amendments, modifications, supplements and other
additional terms and provisions, but only if such amendments, modifications,
supplements and other additional terms are agreeable to each of the Lender and
the Company, in their sole discretion.


 


1.2                                 Use of Defined Terms.


 


All terms defined in this
Agreement shall, unless the context otherwise requires or unless a different
definition is therein provided, have their defined meanings when used in any
Principal Document or any certificate, report or other document made or
delivered pursuant to this Agreement.


 


1.3                                 Accounting Terms.


 


All accounting terms not
specifically defined herein shall be construed in accordance with GAAP.


 


1.4                                 Computation of Time Periods.


 


Except as otherwise expressly
prohibited, in each Principal Document in the computation of periods of time
from a specified date to a later specified date, the word “from” means “from
and including” and the words “to” and “until” each means “to but excluding.”


 


1.5                                 Additional Rules of Usage for Principal
Documents.


 


The following rules of usage shall also apply
to each Principal Document (and each appendix, schedule, exhibit and annex to
the foregoing) unless otherwise required by the context or unless otherwise
defined therein:


 


(a)                                  Except as otherwise expressly provided, any
definitions set forth herein or in any other document shall be equally
applicable to the singular and plural forms of the terms defined.


 


(b)                                 Except as otherwise expressly provided,
references in any document to articles, sections, paragraphs, clauses, annexes,
appendices, schedules or exhibits are references to articles, sections,
paragraphs, clauses, annexes, appendices, schedules or exhibits in or to such
document.


 


6





















 


(c)                                  The headings, subheadings and table of
contents used in any document are solely for convenience of reference and shall
not constitute a part of any such document nor shall they affect the meaning,
construction or affect of any provision thereof.


 


(d)                                 References to any Person shall include such
Person, its successors, permitted assigns and permitted transferees.


 


(e)                                  Except as otherwise expressly provided,
reference to any agreement means such agreement as amended, modified, extended,
supplemented, restated and/or replaced from time to time in accordance with the
applicable provisions thereof.


 


(f)                                    Except as otherwise expressly provided,
references to any law includes any amendment or modification to such law and
any rules or regulations issued thereunder or any law enacted in
substitution or replacement therefor.


 


(g)                                 When used in any document, words such as “hereunder”,
“hereto”, “hereof” and “herein” and other words of like import shall, unless
the context clearly indicates to the contrary, refer to the whole of the
applicable document and not to any particular article, section, subsection,
paragraph or clause thereof.


 


(h)                                 References to “including” means including without
limiting the generality of any description preceding such term and for purposes
hereof the rule of ejusdem generis shall not be applicable to limit a
general statement, followed by or referable to an enumeration of specific
matters, to matters similar to those specifically mentioned.


 


(i)                                     Each of the parties to the Principal
Documents and their counsel have reviewed and revised, or requested revisions
to, the Principal Documents, and the usual rule of construction that any
ambiguities are to be resolved against the drafting party shall be inapplicable
in the construction and interpretation of the Principal Documents and any
amendments or exhibits thereto.


 


(j)                                     Capitalized terms used in any Principal
Documents which are not defined in this Agreement but are defined in another
Principal Document shall have the meaning so ascribed to such term in the
applicable Principal Document.


 


SECTION 2  



AMOUNT AND TERMS OF LOAN


 


2.1                                 Loan Commitment.


 


The Lender shall make one or more Loans to the
Company, from time to time, up to a maximum aggregate amount of Eleven Million Dollars ($11,000,000.00) (the
“Maximum Aggregate Amount” or the “Commitment”) solely for the purchase of the
Vessels and certain progress payments thereto. 
On the date of the advance of any Loan with respect to any Vessel, the
Company authorizes the Lender to disburse proceeds, as appropriate, directly to
(a) the applicable Builder or other seller of the Vessel, (b) any
prior lien holder upon the applicable Vessel or the applicable Purchase Agreement
or (c) the Company to return deposits made by the Company under the applicable
Purchase Agreement.  Each Loan shall be secured on a
cross-collateralized basis by all of the Collateral.  In the aggregate, the Loans may not exceed
the Commitment, and if the Company requests aggregate Loan amounts in excess of
the Commitment, the


 


7





















 


Lender
shall have no obligation for such excess amount.  The Lender’s commitment to lend shall
terminate upon the earliest to occur of (such date being the “Commitment
Expiration Date”): (i) as to all Vessels, (A) an Event of Default, or
(B) when the Maximum Aggregate Amount has been loaned, or (C) a
Material Adverse Change, or (D) on November 30, 2005, and (ii) as
to any particular Vessel, (A) Loans respecting such Vessel equal the
actual purchase price or construction costs payable to the Builder or other
seller of the Vessel under the applicable Purchase Agreement or otherwise have
been advanced, or (B) when the applicable Vessel has been delivered to the
Company under the applicable Purchase Agreement.


 


2.2                                 The Notes.


 


The Loans with respect to any particular Vessel
shall be evidenced by a single promissory note in substantially the same form
attached hereto as Exhibit A (each such promissory note, as executed by
Debtor and any extensions, renewals, modifications or novations thereof, the “Note”).  The
applicable Note shall be for a principal amount equal to the lesser of (x) the aggregate
amount of Loans so to be made respecting the Vessel to which such Note relates and
(y) the actual amount of the Loans made or advanced respecting such Vessel and
shall (a) be dated the date of the initial Loan respecting such Vessel made
hereunder, (b) be payable in eighty-four (84) consecutive monthly
installments of principal in an amount set forth in the applicable Note and (c) bear
interest on the unpaid principal amount thereof from time to time outstanding
(whether before, at or following the stated maturity or by acceleration) at a
rate per annum equal to the Applicable Interest Rate, but in no event in excess
of the maximum rate permitted by law.  Prior
to the Commitment Expiration Date, interest only shall be payable.  The first principal installment shall be
payable on the date designated therefor in the applicable Note, further
principal installments shall be payable on the corresponding day of each
successive Interest Period thereafter and the remaining, outstanding principal
balance shall be payable on the Maturity Date. 
Interest accrued on the Note shall likewise be payable on the last day
of each Interest Period hereunder, and upon payment or prepayment in full of
the unpaid principal amount thereof. 
Notwithstanding any other provision hereof, unless maturing earlier than
as expressly provided hereunder all principal remaining unpaid under the Note
shall mature and be paid in full on the Maturity Date.


 


2.3                                 Notice of Borrowing.


 


The Company shall, unless the
Lender shall elect to waive the requirement of this Section 2.3, give the Lender
at least five (5) Business Day’s prior written notice of its intention to
borrow pursuant to the Commitment on a date designated in such notice.


 


2.4                                 Late Charges; Default Interest.


 


Time is of the essence in the
payment and performance of the obligations evidenced by the Notes.  In the event that any Payments (as defined in
the applicable Note) are not paid in full within ten (10) days of the
date when due, an administrative and late charge equal to the lesser of (a) five
percent (5%) on (and in addition to) the amount due on such Payment Date
(as defined in the applicable Note) and (b) the maximum charges allowable
under applicable law shall be paid with respect to each such Payment not paid
in full within ten (10) days of the date when due by the Company to Lender
on demand.  In the event that any other
payment obligation of the Company under the Principal Documents is not paid on
the due date therefor, the Company shall pay overdue interest on any such
delinquent payment or other obligation due hereunder (whether by reason of
acceleration or otherwise) from the due date thereof through the date of
payment thereof at a rate of interest equal to the Default Rate.


 


8





















 


2.5                                 Computation of Interest.


 


Interest and fees, if any, shall be computed on the
basis of actual days elapsed and a 360-day year for the actual number of days
in the applicable period (“Actual/360 Computation”).  The Actual/360 Computation determines the
annual effective yield by taking the stated (nominal) rate for a year’s period
and then dividing said rate by 360 to determine the daily periodic rate to be
applied for each day in the applicable period.


 


2.6                                 Voluntary Prepayments.


 


The Company may prepay any
Note, in whole and not in part, upon not less than thirty (30) days’ prior
written notice to the Lender, specifying the date and the amount of the
prepayment and upon payment of accrued interest on the amount prepaid to and
including the date of prepayment, and any such prepayment shall be made
together with all accrued interest and other charges owed on such Note or
hereunder and with any prepayment penalty, premium or charge provided for in
such Note.


 


2.7                                 Use of Proceeds.


 


The Company shall use the
proceeds of the Loans hereunder to pay for, or to reimburse working capital
funds of the Company expended for the purchase price of, the Vessels.


 


2.8                                 Mandatory Prepayment.


 


Should any Vessel become
subject to a Loss Event and provided there has not occurred any Event of
Default or event or occurrence which with the giving of notice, the passage of
time or both could become an Event of Default, the Company shall cause the
outstanding entire principal balance and interest and other charges due under
the applicable Note to be paid on the earlier of (x) 180 days after such Loss
Event occurs (or on such earlier date that Lender, in its reasonable judgment,
determines that such Loss Event is not covered by insurance) and (y) the date
on which insurance proceeds relating to such Loss Event are received.


 


2.9                                 Compensation.


 


The Company shall pay to the
Lender, upon the request of the Lender, such amount or amounts as shall be
sufficient (in the reasonable opinion of the Lender and based upon computations
delivered to the Company) to compensate it for any loss, cost or expense,
including, without limitation, any prepayment or breakage charges as set forth
in the Note and any applicable hedge documentation, which the Lender may incur
as a result of (a) any change in the Applicable Interest Rate from the rate
based upon the Interest Rate to the Default Rate or (b) any mandatory
prepayment made pursuant to the provisions of Section 2.8 hereof.


 


2.10                        [Intentionally Omitted.]


 


2.11                           Illegality.


 


Notwithstanding any other provision of this
Agreement, if due to the introduction of or any change in or in the
interpretation of any law or regulation it is unlawful, or any central bank or
other governmental authority asserts that it is unlawful, for the Lender to
perform its obligations hereunder to make or maintain any Loan hereunder that
is based on the Index Rate, then Lender shall notify the Company of such
introduction, change or assertion and(i) each such Loan based on the Index
Rate will automatically, at the earlier of the end of the Interest Period for
such Loan or the date required by law,


 


9





















 


convert into a Loan based on the ABR, and (ii) the
obligation of the Lender to make, convert or continue Loans based on the Index
Rate shall be suspended until the Lender shall notify the Company that Lender
has determined that the circumstances causing such suspension no longer exist.


 


SECTION 3



CONDITIONS


 


3.1                                 Conditions of Loans.


 


The obligation of the Lender
to make each Loan to be made by it hereunder shall, in addition to any
condition elsewhere in this Agreement set forth, be subject to the fulfillment
of the following conditions precedent on or prior to the date of such Loan
(each document referred to hereafter being in form and substance satisfactory
to Lender and its counsel):


 


(a)                                  Legal Opinion.  There shall have been delivered to the Lender
a legal opinion of counsel for the Company, who shall be acceptable to the
Lender, in form and substance reasonably acceptable to the Lender and dated the
date of the initial Loan respecting the Vessel to which such Loan relates.


 


(b)                                 Corporate Proceedings
of the Company.


 


(i)                                     There shall have been
delivered to the Lender a copy, certified by the Secretary
of the Company on or prior to the date of the initial Loan respecting a particular
Vessel, of the Company’s (A) certificate of limited partnership, which
shall also be certified as of a recent date by
the Secretary of State of the State of Delaware, (B) limited partnership
agreement, (C) resolutions of the general partner of the Company
authorizing, among other things, the borrowings herein provided for and the
execution, delivery and performance of this Agreement, the applicable Note, the
applicable Mortgage, and the applicable Assignments and (D) the incumbency
of each person signing any document hereunder on behalf of the Company.


 


(ii)                                  There shall have been
delivered to the Lender a copy, certified by the Secretary of each Guarantor on
the date of the applicable Loan, of such Guarantor’s (A) articles of
incorporation, certificate of limited partnership or similar documentation
concerning due formation, in each case certified as of a recent date by the
Secretary of State of the state whose laws govern the formation of such Person,
(B) bylaws, limited partnership agreement or similar document, (C) resolutions
of its board of directors or its general partner authorizing, among other
things, the Guarantee Agreement with respect to the borrowings herein provided
and (D) the incumbency of each person signing any document hereunder on behalf
of Guarantor.


 


(iii)                               Lender shall have
received good standing certificates of the Company and each Guarantor from the
Secretary of State of the state whose laws govern the formation of such Person
and evidence of qualification to do business from the Secretary of State in
which such Person has its principal place of business.


 


(c)                                  Borrowing Certificate.  There shall have been delivered to the Lender
a borrowing certificate, dated the date of the applicable Loan, substantially
in the form of Exhibit C annexed to this Agreement (a “Borrowing
Certificate”), executed by a duly authorized officer on


 


10





















 


behalf of the Company, and the
statements therein contained shall be true and correct.  In addition, the Company shall provide, as applicable to
any Loan, (A) evidence of the actual purchase price of, or construction
costs respecting, the Vessel or portion thereof, and/or, as applicable,
evidence satisfactory to the Lender that the Builder is then entitled to any
progress payments under the terms and conditions of the applicable Purchase
Agreement, (B) in connection with retiring debts currently secured by the
Vessel or the applicable Purchase Agreement, evidence of the amount of such
debts outstanding or (C) in connection with the return of any deposits
made by the Company under the applicable Purchase Agreement, evidence of the
amount of such deposit.


 


(d)                                 The Notes.  The applicable Note respecting a particular
Vessel shall have been executed and delivered by the Company to the
Lender.  Lender acknowledges that under the Purchase Agreement regarding a particular
Vessel, the Builder may retain title to and possession of the Vessel while it
undergoes the completion work, and upon the completion of such work and upon
the final payment to the Builder contemplated under such Purchase Agreement
with the proceeds of the final Loan made under the Principal Documents with
respect to such Vessel (subject to the conditions precedent in Section 3.2
of this Agreement), the Company will take final delivery of the Vessel,
whereupon, and as a condition to such final Loan respecting such Vessel, the
Company shall cause such Vessel to be documented
as a vessel of the United States with a coastwise endorsement in the name of
the Company and shall cause the applicable Mortgage to be duly executed and
delivered to the Lender upon such Vessel, shall cause such Mortgage to be duly filed
for recording, and shall cause such Mortgage to constitute a first preferred
mortgage upon such Vessel.


 


(e)                                  The Purchase Agreement Assignments.  In the case of a newly constructed Vessel
with respect to which delivery has not yet occurred, the applicable Purchase
Agreement Assignment(s) shall have been duly executed and delivered to the Lender
by the Company covering the Collateral respectively therein described (and, to
the extent provided in any Purchase Agreement respecting such Vessel, the
Company shall deliver or cause to be delivered to Lender, evidence of insurance
regarding such Vessel during construction naming Lender as loss payee).  A financing statement with respect to such
Collateral shall have been filed in each jurisdiction reasonably requested by
the Lender.


 


(f)                                    [Reserved].


 


(g)                                 Consents, Approvals,
Etc.  There shall have been delivered to the Lender
a copy of each consent, if any, required to be obtained by the Company or any
Subsidiary in connection with this Agreement and the transactions contemplated
hereby, including, without limitation, those required to be obtained from
creditors, governmental agencies, stockholders and Persons who are parties to
agreements with the Company or stockholders.


 


(h)                                 Proceeds.  There shall be delivered to the Lender
evidence satisfactory to the Lender as to the disposition of the proceeds of
the applicable Loan in accordance with Section 2.7 hereof and with the
applicable Note.


 


(i)                                     Legal Matters.  All legal matters incident to the
transactions contemplated by this Agreement shall be satisfactory to the Lender
and its counsel.


 


(j)                                     Guarantee Agreement.  A Guarantee Agreement shall have been
executed and delivered to the Lender by each Guarantor.


 


11





















 


(k)                                  [Reserved].


 


(l)                                     Liens.  There shall be delivered to the Lender
evidence satisfactory to the Lender that (except for liens in favor of or
arising through the Builder which shall be extinguished upon the final delivery
of the applicable Vessel) there are no recorded liens against the applicable
Vessel (or that due provision, in the Lender’s sole judgment, has been made for
the discharge of any liens of record against the applicable Vessel).


 


(m)                               Material Adverse Change.  There shall have occurred no Material Adverse
Change.


 


3.2                                 Additional Conditions to Loans.


 


In addition to the conditions precedent set forth in
Section 3.1 hereof, the obligation of the Lender to make any Loan to be
made by it hereunder on the date of the initial Loan respecting any Vessel that
is not a new building Vessel or on the date of the final Loan respecting the
completion and final delivery to the Company of any new building Vessel with
respect to which prior Loans have been advanced shall be subject to the
fulfillment of the following conditions precedent on or prior to the date of
such Loan (each document referred to hereafter being in form and substance
satisfactory to Lender and its counsel):


 


(a)                                  Legal Opinion.  There shall have been delivered to the Lender
a legal opinion of counsel for the Company regarding the creation and
perfection of the liens in favor of the Lender on the Collateral under the
applicable Mortgage and other Principal Documents, which counsel shall be
acceptable to the Lender, and which legal opinion shall be in form and
substance reasonably acceptable to the Lender; provided no opinion need by
given respecting whether any Collateral secures any Swap Obligations under any
Swap Agreement not then in effect..


 


(b)                                 Certificate of
Documentation; Mortgage.  The applicable
Vessel shall have been documented as a vessel of the United States with a
coastwise endorsement in the name of the Company and the applicable Mortgage
shall have been duly executed and delivered to the Lender upon the applicable
Vessel, shall have been duly filed for recording, and shall constitute a first
preferred mortgage upon the applicable Vessel.


 


(c)                                  The Assignments.  The applicable Assignments shall have been
duly executed and delivered to the Lender by the Company covering the
Collateral respectively therein described. 
A financing statement with respect thereto shall have been filed in each
jurisdiction reasonably requested by the Lender.  The Lender shall have been furnished with
evidence satisfactory to it (including, without limitation, a copy of the
applicable insurance policy if requested by Lender) that all coverages and
arrangements required by the terms of the applicable Mortgage with respect to
insurances on the applicable Vessel have been duly effected, with
acknowledgments of the applicable Insurance Assignment from insuring parties
and with such opinions from marine insurance brokers regarding such coverages
and arrangements as are provided for in the applicable Mortgage.


 


(d)                                 Class.  There shall have been delivered to the Lender
an interim certificate of the American Bureau of Shipping dated not more than
ten (10) days prior to the date of such initial or final Loan, as
applicable, respecting a particular Vessel showing the applicable Vessel to be
entitled to the highest classification and rating for vessels of the same age
and type in said America Bureau of Shipping and with no recommendations.


 


12





















 


(e)                                  Liens.  There shall be delivered to the Lender
evidence satisfactory to the Lender that (except for the applicable Mortgage
and liens in favor of or arising through the Builder which shall be
extinguished upon the final delivery of the applicable Vessel) there are no
recorded liens against the applicable Vessel (or that due provision, in the
Lender’s sole judgment, has been made for the discharge of any liens of record
against the applicable Vessel).


 


SECTION 4



REPRESENTATIONS AND WARRANTIES


 


To induce the Lender to
enter into this Agreement and to make the Loans to be made by it hereunder, the
Company as of the date hereof and as of the date of the funding of each Loan
hereunder represents and warrants to the Lender that:


 


4.1                                 Organization and Qualification.


 


The Company is a limited partnership
duly organized, validly existing and in good standing as such under the laws of
the State of Delaware, and the Company is duly qualified and in good standing
in each jurisdiction wherein the conduct of its business or the ownership of
its properly requires such qualification. 
The Company is a citizen of the United States within the meaning of 46 U.S.C.
Sections 802, et. seq. (as amended from time to time, the “Shipping Act”),
46 U.S.C. Sections 12101, et. seq. (as amended from time to
time, the “Documentation of Vessels Act”), 46 U.S.C.
Sections 31301, et. seq. (as amended from time to time, the “Commercial
Instruments and Maritime Liens Act”) and 46 CFR Part 67 (as
amended from time to time, the “Citizenship Regulations”).


 


4.2                                 Corporate Power and Authorization.


 


The Company has full power,
under law, and under its organic documents, to make, deliver and perform this
Agreement, the Notes, each of the other Principal Documents and any Swap
Agreements to which it is a party, to borrow hereunder and create the
collateral security interests for which the Principal Documents provide, and
has taken all necessary action to authorize the borrowings under this Agreement
on the terms and conditions hereof and the execution, delivery and performance
by the Company of this Agreement, the Notes, and the other Principal Documents and
any Swap Agreements to which it is a party. 
No consent of any other Person or entity (including any general or
limited partners in the Company) and no consent, license, approval or
authorization, or registration or declaration with, any governmental authority,
bureau or agency (including, without limitation, the Maritime Administration) is
required in connection with the execution, delivery, performance, validity or
enforceability of the Principal Documents and any Swap Agreements to which it
is a party, except the consent of the general partner of the Company to the
transactions contemplated hereby such as have been obtained and are in full
force and effect (or will be obtained prior to the extension of credit
hereunder), and a true copy of each thereof has heretofore been delivered to
the Lender.  The execution, delivery and performance by the
Company of the Principal Documents and any
Swap Agreements to which it is a party and compliance by the Company
with the terms hereof and thereof are not in contravention of, and will not
result in a breach of, any of the terms of the Company’s organic documents or
any loan agreements or indentures of the Company, or any other contract,
agreement or instrument to which the Company is a party or under which it is
bound.


 


13





















 


4.3                                 No Legal Bar on Company.


 


The execution, delivery and
performance of the Principal Documents and any Swap Agreements to which the
Company is a party, will not violate any provision of any existing law or
regulation, or order or decree of any court, governmental authority, bureau or
agency, or the organic documents of the Company, or of any mortgage, indenture,
security agreement, contract, undertaking or other agreement to which the
Company is a party or which purports to be binding upon it or any of its
property or assets, and will not result in the creation or imposition of, or
perfection of any right to create or impose, any lien, charge or encumbrance
on, or security interest in, any of its properties or assets pursuant to the
provisions of any such mortgage, indenture, security agreement, contract,
undertaking or other agreement.


 


4.4                                 No Material Litigation.


 


No litigation, arbitration
proceeding or administrative proceeding of or before any governmental body or
arbitration tribunal, other than routine litigation and proceedings incidental
to its business and covered by insurance, which, if adversely determined, would
materially and adversely affect the Company, is presently pending, nor, to the
knowledge of the Company, is any such litigation or proceeding presently threatened
in writing against the Company, any Guarantor or any of the property, if any,
thereof.


 


4.5                               [Reserved].


 


4.6                                 Ownership of Properties, Liens.


 


The Company has good title to
its properties and assets, real and personal.


 


4.7                                 No Default.


 


The Company is not nor is any
Guarantor in default in the payment or performance of any of its obligations
for borrowed money, or in the performance of any material obligation under any
contract, agreement, mortgage or other undertaking to which it is a party
which, if uncorrected, would result in a Material Adverse Change, and no event
specified in Section 7 hereof has occurred and is continuing, whether or
not any requirement for notice or lapse of time, or both, or any other
condition has been satisfied.


 


4.8                                 Taxes.


 


The Company and each Guarantor
has filed or caused to be filed all tax returns required to be filed and has
paid all taxes shown to be due and payable on said returns or on any
assessments made against it, and no tax liens of any kind have been filed and
no claims are being asserted with respect to such taxes.


 


4.9                                 Financial Condition.


 


(a)                                  The audited consolidated financial statements
of K-Sea Transportation Partners, L.P. dated as of June 30, 2004, as filed
with the Securities and Exchange Commission on September 27, 2004, (i) were
prepared in accordance with GAAP consistently applied throughout the period
covered thereby, except as otherwise expressly noted therein; (ii) fairly
present the financial condition of K-Sea Transportation Partners, L.P. and its
consolidated Subsidiaries (including the Company) as of the date thereof and
their results of operations for the period covered thereby in accordance with
GAAP consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein;


 


14





















 


and (iii) show all
material indebtedness and other liabilities, direct or contingent, of K-Sea
Transportation Partners, L.P. and its consolidated Subsidiaries (including the
Company) as of the date thereof, including liabilities for taxes and material
commitments.


 


(b)                                 The unaudited consolidated financial
statements of K-Sea Transportation Partners, L.P. and its consolidated Subsidiaries
(including the Company) dated as of December 31, 2004, as filed with the
Securities and Exchange Commission on February 10, 2005, and the related
consolidated statements of income or operations, partners’ capital and cash
flows for the fiscal quarter ended on that date (i) were prepared in
accordance with GAAP consistently applied throughout the period covered
thereby, except as otherwise expressly noted therein, and (ii) fairly
present the financial condition of K-Sea Transportation Partners, L.P. and its consolidated
Subsidiaries (including the Company) as of the date thereof and their results
of operations for the period covered thereby , subject in the case of clauses (i) and
(ii), to normal year-end audit adjustments.


 


(c)                                  The Company has not
entered into any material contractual commitment or contingent liability which
is not reflected in the aforesaid financial statements or has not otherwise
been heretofore disclosed to the Lender in writing.


 


(d)                                 There has been no Material Adverse Change since
the respective dates of the financial statements referenced in Sections 4.9(a) and
(b); and such financial statements do not fail to disclose any facts which
might result in a Material Adverse Change respecting the financial condition of
K-Sea Transportation Partners, L.P. and its consolidated Subsidiaries.


 


4.10                           Franchises, Licenses, Etc.


 


The Company is possessed of
all necessary franchises, certificates, licenses, permits and approvals,
required to enable it to engage in the business of operating vessels such as
the Vessels in the manner in which its operations are currently conducted, and
the Company is not in default under any term or condition contained in any such
franchise, certificate, license, permit or approval.  The Company and its Subsidiaries have
complied with all requirements of law relating to the business as conducted by
any of them and with all applicable rules and regulations promulgated by
Marad, the Federal Maritime Commission, the United States Coast Guard, and any
other governmental authority having jurisdiction over the Company and its
Subsidiaries.


 


4.11                           Subsidiaries.


 


The Company is not the legal
or beneficial owner of any shares in, or other indicia of ownership of, any
Person, firm, corporation or business entity, except K-Sea Transportation, Inc.
and Inversiones Kara Sea Srl, a Venezuelan company.


 


4.12                           ERISA.


 


Each employee benefit plan, as
defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974 (“ERISA”), maintained by the Company or by any of its
Affiliates complies with all applicable requirements of ERISA and of the
Internal Revenue Code of 1954 (“Code”), as amended, and with all
applicable rulings and regulations issued under the provisions of ERISA and the
Code.  No Reportable Event within the
meaning of Section 4043 of ERISA has occurred and is outstanding with
regard to any employee benefit plan of the Company or of any of its
Affiliates.  Neither the Company nor any
of its Affiliates has incurred, in connection with any employee benefit plan to
which any of them contributes, any material liability to the Pension Benefit Guarantee
Corporation established under ERISA.


 


15





















 


4.13                           Disclaimer.


 


The Company recognizes that
the Lender acts solely as a Lender and has no responsibility for, nor makes any
representations or warranties as to, the Vessels, their merchantability or
fitness for use or for any purpose, their design, condition, capacity,
desirability, workmanship, assembly or conformity with requirements of law or
regulation, all of which are the responsibility of the Company.


 


4.14                           Ownership/Title.


 


The Company owns the applicable Collateral or the
Company will purchase and/or acquire rights in the Collateral concurrently when
the Loans are made under the Principal Documents; provided, the Company
will not own or acquire rights in any new building Vessel described in Section 3.2
prior to the date of delivery of the applicable Vessel to the Company under the
applicable Purchase Agreement.  The
Company authorizes the Lender to disburse Loan proceeds directly to the Builder
or other seller of the Collateral.  The
Collateral is free and clear of all liens, security interests, and claims
except those in favor of, or arising through, the Builder, those previously
reported in writing to the Lender, and those granted to the Lender hereunder or
expressly permitted herein.  The Company
has (or will have concurrently when the final Loan is made under the Principal
Documents with respect to a particular Vessel) good and marketable title to such
Vessel and any additional Collateral relating thereto and will warrant and
defend same against all claims.  The
Company has provided (or, if not yet entered into, will provide promptly upon
the entering into thereof) the Lender with true and correct copies of all
agreements constituting part of the Collateral (including, without limitation,
all charter agreements and leases, in each case of greater than one year’s
duration, with respect to the applicable Vessel).


 


4.15                           Name and Offices.


 


The
Company’s exact legal name as it appears on its charter or other organic
documents, including as to punctuation and capitalization, is “K-Sea Operating
Partnership, L.P.” and its jurisdiction of organization for purposes of Article 9
of the Uniform Commercial Code is Delaware. 
The principal place of business and chief executive office of the
Company is 3245 Richmond Terrace, Staten Island, NY 10303.


 


SECTION 5



AFFIRMATIVE COVENANTS


 


The Company covenants that
from and after the date of this Agreement and so long as any amount remains
unpaid under any of the Notes, it will, and if the Company shall have any
Subsidiary it will cause such Subsidiary to:


 


5.1                                 Financial Statements.


 


Deliver to the Lender the following, in form and
detail satisfactory to the Lender, which delivery shall be considered to have
taken place when filed with the Securities and Exchange Commission:


 


(a)                                  as soon as available, but in any event within
one hundred and twenty (120) days after the end of each fiscal year of K-Sea
Transportation Partners, L.P., a consolidated balance sheet of K-Sea Transportation
Partners, L.P. and its consolidated Subsidiaries (including the Company) as at
the end of such fiscal year, and the related consolidated statements of income
or operations, partners’ capital and cash flows for such fiscal year, setting
forth in each case in comparative form the figures for the previous fiscal
year, all in reasonable detail and prepared in


 


16





















 


accordance with GAAP, audited and accompanied by a
report and opinion of an independent certified public accountant of nationally
recognized standing reasonably acceptable to the Lender, which report and
opinion shall be prepared in accordance with generally accepted auditing
standards and shall not be subject to any “going concern” or like qualification
or exception or any qualification or exception as to the scope of such audit;


 


(b)                                 as soon as available, but in any event within
forty-five (45) days after the end of each of the first three fiscal quarters
of each fiscal year of K-Sea Transportation Partners, L.P., a consolidated
balance sheet of K-Sea Transportation Partners, L.P. and its consolidated
Subsidiaries (including the Company) as at the end of such fiscal quarter, and
the related consolidated statements of income or operations, partners’ capital
and cash flows for such fiscal quarter and for the portion of K-Sea
Transportation Partners, L.P.’s fiscal year then ended, setting forth in each
case in comparative form the figures for the corresponding fiscal quarter of
the previous fiscal year and the corresponding portion of the previous fiscal
year, all in reasonable detail and certified by the Chief Financial Officer of K-Sea
Transportation Partners, L.P. as fairly presenting the financial condition,
results of operations, shareholders equity and cash flows of K-Sea
Transportation Partners, L.P. and its consolidated Subsidiaries in accordance
with GAAP, subject only to normal year-end audit adjustments and the absence of
footnotes; and


 


(c)                                  from time to time such
further information regarding the business, affairs and financial condition of
the Company and any of its Subsidiaries and any Guarantors (including
projections of profits, losses and cash flow for the period during which the
loans hereunder are scheduled to be outstanding) as the Lender may request.


 


5.2                                 Taxes.


 


Pay and discharge, and cause
each Subsidiary to pay and discharge, any taxes, assessments and governmental
charges or levies that may be imposed upon the Company and each Subsidiary or
upon its, or their, income or profits or upon any of its, or their, property
prior to the date on which penalties attach thereto and all lawful claims
which, if unpaid might become a lien or charge upon its, or their, property.


 


5.3                                 Change in Corporate
Structure or Location.


 


Provide the Lender with thirty (30) days’ prior
written notice if the Company (a) alters its existence as a limited partnership
or, in one transaction or a series of transactions, merges into or consolidates
with any other entity, or sells all or substantially all of its assets, (b) changes
its state of formation or (c) changes its registered name.  As a result of any of the foregoing, the
Company will file any amendments to any previously filed Uniform Commercial
Code financing statements as the Lender may require.


 


5.4                                 Insurance.


 


Maintain insurance with
responsible companies in such amounts and against such risks as is usually
carried by owners of similar businesses and properties in the same general
areas in which it operates and as shall be reasonably satisfactory to the
Lender, and with respect to the Vessels, comply with the requirements of the
Mortgages and the Insurance Assignments concerning insurance.


 


5.5                                 Citizenship.


 


Be a citizen of the United
States in full satisfaction of the Citizen Requirements, including without
limitation being a citizen for operation of the Vessels in the trades in which
the Vessels are from time to time operated.


 


17





















 


5.6                                 Notice of Default; Litigation.


 


Promptly give notice in
writing to the Lender of (a) the occurrence of any Event of Default under
this Agreement or the occurrence of any event which with the giving of notice
or the lapse of time, or both, would constitute an Event of Default under this
Agreement, (b) the occurrence of any litigation or arbitration proceedings
affecting the Company or any Guarantor wherein the uninsured amounts involved
exceed in the aggregate One Million Dollars ($1,000,000), unless such amounts are reasonably likely
to be covered by insurance, and without limiting the foregoing, the occurrence
of any litigation or arbitration proceedings affecting the Company or any
Guarantor wherein the amounts involved exceed Ten Million Dollars
($10,000,000), regardless whether such amounts are reasonably likely to be covered
by insurance, and (c) any formal
dispute between the Company and any governmental regulatory body or any other
party which could or might, if determined adversely to the Company, result in a
Material Adverse Change.


 


5.7                                 Payment of Obligations.


 


Pay and discharge when due all
of its respective obligations for borrowed money and pay when due all other
obligations and liabilities except where the same may be contested in good
faith and will maintain, in accordance with GAAP, appropriate reserves for the
accrual of any of the same.


 


5.8                                 Maintenance of Existence and Properties.


 


Maintain its existence as a
limited partnership, and all rights and franchises including, without
limitation, its franchises, licenses, certificates, permits and approvals to
carry on the operation of the Vessels and maintain and cause each Subsidiary to
maintain, its properties in good working order and condition.  The Company will continue to engage in
business of the same general type as now conducted by it.


 


5.9                                 Officer’s Certificates.


 


Furnish the Lender prior to or
concurrently with the delivery of the financial information set forth in Section 5.1
of this Agreement, a Compliance Certificate of the chief financial officer of K-Sea Transportation Partners, L.P., in form, scope and content satisfactory to the
Lender, demonstrating compliance by K-Sea Transportation Partners, L.P. with Sections 5 and 6 of this Agreement, and
stating that no Event of Default (as defined in Section 7 of this
Agreement) and no event which with the giving of notice or lapse of time or
both would constitute such an Event of Default exists under this Agreement, or
if such an event exists, specifying the nature thereof.


 


5.10                           Other Acts.


 


Execute and deliver, or cause
to be executed and delivered, to the Lender all further documents and perform
all other acts and things which the Lender deems reasonably necessary or
appropriate to protect or perfect any security interests in any property
securing payment of any Loans hereunder to the Lender.


 


5.11                           No Change of Control.


 


Ensure that no Change of
Control shall occur.


 


18





















 


5.12                           Waivers.


 


Waive presentment, demand, protest, notice of
dishonor, notice of default, demand for payment, notice of intention to
accelerate, and notice of acceleration of maturity.  The Company further covenants that neither
the Company nor any Subsidiary (if any) asserts or will assert against the
Lender as a defense (legal or equitable), as a set-off, as a counterclaim, or
otherwise, any claims which the Company or any Subsidiary (if any) may have
against any seller or lessor that provided personal property or services
relating to any part of the Collateral. 
To the extent permitted by law, and except as otherwise expressly
provided in any Principal Document, upon the occurrence and during the
continuance of an Event of Default, the Company and any Subsidiary (if any)
waives any and all rights to notice or to hearing prior to Lender’s taking
immediate possession or control of any Collateral, and to any bond or security
which might be required by applicable law prior to the exercise on any
Collateral.


 


5.13                           Extensions; Releases.


 


Acknowledge (without further documentation) that the
Lender may extend or renew any of the Company’s obligations pursuant to the
Principal Documents and grant any releases, compromises or indulgences with
respect to any security for such obligations, or with respect to any party
liable for such obligations, all without notice to or consent of the Company
and without affecting the liability of any Principal Document or the
enforceability of any Principal Document.


 


5.14                           First Priority.


 


At all times (but with respect to insurances, to the
extent permitted by applicable law), cause the Lender’s security interest in
the Collateral to be a valid, perfected first priority security interest in the
Collateral, except for Permitted Liens (as such are identified in the
Mortgages).


 


5.15                           Solvent.


 


Maintain fair saleable value of each such entity’s
assets in excess of its liabilities and meet its debts as they mature and
maintain such solvent conditions as long as the Principal Documents are in
effect.


 


5.16                           Execution of Uniform Commercial Code Financing Statements.


 


Authorizes the Lender at the expense of the Company
to file financing statements with respect to the Collateral without the
signature of the Company in such form and in such filing offices as the Lender reasonably
determines appropriate to perfect the security interests of the Lender under
the applicable Principal Documents.  A
carbon, photographic or other reproduction of the applicable Principal Document
shall be sufficient as a financing statement for filing in any
jurisdiction.  For purposes of such
financing statement, the Company, as applicable, shall be deemed to be the
debtor, and the Lender shall be deemed to be the secured party.  The address of the Company is as set forth in
Section 8.4 hereof or as the Company may otherwise notify the Lender in
accordance with Section 8.4.


 


5.17                           Assignments.


 


Collaterally assign to Lender pursuant to (x) a General
Assignment of Freights covering all freights, hires and earnings respecting the
applicable Vessel and (y) a Collateral Assignment of each lease, charter or
other agreement or arrangement for the use of any Vessel which is, in each
case, for a duration of more than one (1) year.


 


19










 













 


SECTION 6



NEGATIVE COVENANTS


 


The Company covenants and
agrees that from and after the date of the initial Loan under this Agreement
and so long as any amount remains unpaid on account of the Notes, it will not (nor
will it permit K-Sea Transportation Partners, L.P. to do any of the following) without
the prior written consent of the Lender:


 


6.1                                 Prohibition on Assignment by the Company.


 


Sell, lease, transfer or otherwise dispose of,
whether or not in a taxable transaction, (a) all or a substantial portion
of the assets of the Company (or K-Sea Transportation Partners, L.P., as the
case may be), or (b) an operation, line of business, division, or
subsidiary that represents more than a substantial portion of either the total
assets or consolidated revenues of the Company (or K-Sea Transportation
Partners, L.P., as the case may be), with substantial portion meaning, in
either case, greater than thirty-five percent (35%) (in any case, a “Prohibited Transfer”), nor enter into any
agreement contemplating such a Prohibited Transfer.  A Prohibited Transfer shall also be deemed to
have occurred, without limitation, upon (a)  any failure of compliance
with Sections 5.11 or 6.2 hereof or (b) the issuance of additional
stock, membership interest, partnership interest, any other similar interest or
securities convertible into additional stock, membership interest, partnership
interest or any other similar interest or the occurrence of any other
transaction, if the issuance or occurrence results or could result in a Change
of Control.


 


6.2                                 Limitations on Fundamental Changes.


 


Change its limited partnership
existence, dissolve, reorganize, restructure or liquidate, or consolidate with,
or merge into, any other Person, or permit any other Person to merge into or
consolidate with it, or acquire all or any part of the assets or capital stock,
membership interest or any other similar interest of or with respect to any
other Person, if such acquisition is analogous in either purpose or effect to a
consolidation or merger.


 


6.3                                 Limitations on Lien Filings.


 


File or permit to be filed any
financing statement under the Uniform Commercial Code or file or permit to be
filed any other document with any filing registry, governmental office or quasi-governmental
office in respect of any Collateral which this Agreement contemplates are or
will be pledged to the Lender, except in favor of the Lender.


 


SECTION 7



EVENTS OF DEFAULT


 


Upon the occurrence of any
of the following events of default (each being herein sometimes called an “Event
of Default”):


 


(a)                                  (i) Except as
provided in clause (ii) of this Section 7(a), failure to pay any
installment of principal of the Note when due, or any interest on the Note when
due, and in each case such failure shall continue for two (2) Business
Days, or any expenses of the Lender within ten (10) Business Days after
the due date set forth in a written notice thereof, or (ii) failure to pay
any principal of or interest on the Note due on the Maturity Date;


 


20





















 


(b)                                 If any material representation,
warranty or other statement made by the Company or Guarantor in any Principal
Document or in any certificate, financial or other statement furnished at any
time under or in connection therewith shall prove to have been untrue in any
material respect on the date as of which made;


 


(c)                                  Default by the Company
in the observance or performance of any of the obligations, covenants and
agreements contained in Sections 2.8, 5.4, 5.11, 5.12, 5.13 or 5.14 or Section 6
of this Agreement;


 


(d)                                 Except as set forth in Section 7(c),
default by the Company in the observance or performance of any other
obligation, covenant or agreement contained in any Principal Document, and the
continuance of the same for ten (10) Business Days after receipt by the
Company of notice of such default from the Lender;


 


(e)                                  A “Default” (as defined
in any Mortgage) shall have occurred and be continuing;


 


(f)                                    Except as set forth in
Sections 7(b), 7(c), 7(d), or 7(g), any party (other than the Lender or
any Affiliate of Lender) to any Principal Document shall breach any obligation
of such party thereunder and such breach shall continue for 30 days after the
Company shall have knowledge of such breach or any material representation or
warranty made by any such party therein shall prove to be untrue in any
material respect at the time made;


 


(g)                                 Any Guarantor shall
default in the performance of any of its obligations under its Guarantee
Agreement;


 


(h)                                 If there shall occur
and be continuing any default by the Company or any Guarantor (or any of their
respective Affiliates in the case of clause (i) of this Section 7(h))
regarding (i) any other obligation, credit agreement, conditional sales
contract, lease, interest rate swap agreement (including any Swap Agreement) or
other agreement, document or instrument with or in favor of the Lender or any
of its Affiliates or (ii) any other material obligation, credit agreement,
conditional sales contract, lease or other agreement, document or instrument
with or in favor of any Person other than the Lender or any of its Affiliates, provided, in each of the foregoing clauses (i) and
(ii), the Lender or the relevant Affiliate of the Lender or other Person shall
have accelerated such relevant obligations;


 


(i)                                     The Company, any Guarantor
or any Subsidiary thereof shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts generally,
or shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against the Company, any Guarantor or any
Subsidiary thereof seeking to adjudicate it bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief; or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property; or the Company,
any Guarantor or any Subsidiary thereof shall take any corporate or other
action to authorize any of the actions set forth in this Section (i);


 


(j)                                     The termination of any
defined benefit plan, described in Section 414(j) or Section 414(k) of
the Code, that is maintained by the Company or by any Guarantor, or to which
the Company or any Guarantor contributes, the present value of the benefits of
which that may be


 


21





















 


guaranteeable under
Title IV of ERISA exceeds the amount of plan assets allocable to such
benefits;


 


(k)                                  There occurs any
Material Adverse Change; or


 


(l)                                     Any Purchase Agreement
is terminated or the Vessel to be acquired by the Company thereunder is not
delivered and accepted by the Company on or prior to the Commitment Expiration Date;


 


then, and in any such event, the Lender may declare the
Commitment terminated at once and the Notes to be forthwith due and payable,
whereupon the Commitment shall be terminated and the principal amount of the
Notes, together with accrued interest thereon, shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived, anything contained herein or in any Note
to the contrary notwithstanding, provided, however, that if any
Event of Default of the type specified in clause (i) above shall
occur then such termination of the Commitment and acceleration of the Notes
shall occur automatically upon the happening of such event without the
necessity of any such declaration.


 


SECTION 8



MISCELLANEOUS


 


8.1                                 Waiver of Default.


 


The Lender may, but only by
written notice to the Company, at any time and from time to time, waive any
default in the performance or observance of any condition, covenant or other
term hereof or any event of default which shall have occurred hereunder and its
consequences.  Any such waiver shall be
for such period and subject to such conditions as shall be specified in any
such notice.  In the case of any such
waiver, the Company and the Lender shall be restored to their former position
and rights hereunder and under any Notes issued hereunder, respectively, and
any default or any event of default so waived shall be deemed to be cured and
not continuing; but no such waiver shall extend to any subsequent or other
event of default, or impair any right consequent thereon.


 


8.2                                 Amendment.


 


The Agreement may be amended
or supplemented, but only by a writing executed on behalf of the party to be
charged by an officer thereof thereunto duly authorized.


 


8.3                                 Reimbursement of Lender.


 


The Company hereby agrees to
reimburse the Lender for all reasonable, documented fees, costs and expenses,
including without limitation all outside counsel fees and disbursements,
recording fees, and recording and stamp taxes, incurred by the Lender in
connection with the preparation and the enforcement of, and collection of
amounts due under, any of the Principal Documents and any documents or
proceedings contemplated thereby.


 


8.4                                 Notices.


 


All notices, requests and
demands to or upon the respective parties hereto shall be in writing and shall
be deemed to have been given or made when personally delivered or when sent by
facsimile


 


22





















 


transmission,
or if deposited in the mails during regular business hours, postage prepaid,
via registered mail, on the third (3rd) Business Day thereafter or if earlier,
on the date actually received, addressed as follows or to such other address as
may be hereafter designated in writing by the respective parties hereto:


 


	
  The Company:

  	
   

  	
  if by United States Postal Service or facsimile
  transmission:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  K-Sea Operating
  Partnership, L.P.

  
	
   

  	
   

  	
  3245 Richmond Terrace

  
	
   

  	
   

  	
  Staten Island, NY 10303

  
	
   

  	
   

  	
  Attention:  John Nicola, C.F.O.

  
	
   

  	
   

  	
  Facsimile No.: (718) 815-4650

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  if by overnight delivery service:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  K-Sea Operating
  Partnership, L.P.

  
	
   

  	
   

  	
  3245 Richmond Terrace

  
	
   

  	
   

  	
  Staten Island, NY 10303

  
	
   

  	
   

  	
  Attention:  John Nicola, C.F.O.

  
	
   

  	
   

  	
   

  
	
  The Lender:

  	
   

  	
  if by United States Postal Service or facsimile
  transmission:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  First Union Commercial Corporation

  
	
   

  	
   

  	
  One Wachovia Center

  
	
   

  	
   

  	
  Mail Code NC0738

  
	
   

  	
   

  	
  Charlotte, North Carolina 28288-0738

  
	
   

  	
   

  	
  Attention: Linda H. Minter

  
	
   

  	
   

  	
  Facsimile No.: (704) 383-1572

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  if by overnight delivery service:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  First Union Commercial Corporation

  
	
   

  	
   

  	
  301 South College Street, 18th Floor

  
	
   

  	
   

  	
  Charlotte, North Carolina 28202

  
	
   

  	
   

  	
  Attention: Linda H. Minter

  



 


except in cases where it is expressly herein provided
that such notice, request or demand is not effective until received by the
party to whom it is addressed.


 


8.5                                 No Waiver; Cumulative Remedies.


 


No failure to exercise and no
delay in exercising, on the part of the Lender, any right, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.  The rights and remedies
provided for herein are cumulative and not in derogation of any rights or
remedies provided by law.  No illegality
on the part of any provision of this Agreement shall extend to or affect the
enforceability of any other provision.


 


8.6                                 Survival of Agreements.


 


All agreements,
representations and warranties made herein shall survive the delivery of the
Notes and the making of the Loans hereunder and thereunder.


 


23





















 


8.7                                 Successors and Assigns.


 


This Agreement shall be
binding upon and inure to the benefit of the Company and the Lender, and their
respective successors and assigns, except that the Company may not assign or
otherwise transfer its rights and obligations hereunder whether as the result
of operation of law or otherwise, without the written consent of the
Lender.  Lender may from time to time, with
written notice to the Company sell, assign, transfer, participate, pledge or
otherwise dispose of all or any part of the Notes or other obligations
hereunder and/or this Agreement and/or its interest in the collateral therefor
and/or any or all of the other Principal Documents (hereafter the “Obligations”).  In such event each and every immediate and
successive purchaser, assignee, transferee, participant, pledgee or holder of
all or any part of the Obligations (each a “Holder”) shall have the
right to enforce this Agreement and the other such Principal Documents, by
legal action or otherwise, for its own benefit as fully as if such Holder were
herein by name specifically given such rights. 
The Company agrees that the rights of any such Holder hereunder or with
respect to the related Obligations shall not be subject to any defense, set off
or counterclaim except those that the Company may assert or claim against the
Lender, and that any such Holder shall have all of the Lender’s rights and
obligations hereunder so purchased, assigned or transferred.  The Lender shall have an unimpaired right to
enforce this Agreement for its benefit with respect to that portion of the
Obligations the Lender has not sold, assigned, transferred, participated,
pledged, or otherwise disposed of.


 


8.8                                 Counterparts.


 


This Agreement may be executed
in any number of separate counterparts each of which shall be an original and
all of said counterparts taken together shall be deemed to constitute one and
the same agreement.


 


8.9                                 Holiday Payments.


 


If any payment to be made by
the Company hereunder shall become due on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time shall be included in computing any interest in respect of
such payment.


 


8.10                           Construction; Arbitration.


 


(a)                                  THIS AGREEMENT, THE
OTHER PRINCIPAL DOCUMENTS AND THE LEGAL RELATIONS OF THE COMPANY AND THE LENDER
HEREUNDER AND THEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
REGARDING THE CHOICE OF LAW.  THE COMPANY
AND THE LENDER HEREBY CONSENT AND SUBMIT TO THE JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK AND THE FEDERAL DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING
OUT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER AND UNDER THE OTHER PRINCIPAL
DOCUMENTS, AND EXPRESSLY WAIVE ANY OBJECTIONS THAT EITHER OF THEM MAY HAVE
TO THE VENUE OF SUCH COURTS.  THE COMPANY
AND THE LENDER HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION
BROUGHT ON OR WITH RESPECT TO THIS AGREEMENT AND/OR THE OTHER PRINCIPAL
DOCUMENTS.


 


(b)                                 Notwithstanding the
foregoing provisions of Section 8.10(a), upon demand of any party hereto,
whether made before or after institution of any judicial proceeding, any claim
or controversy arising out of or relating to the Principal Documents between
parties hereto (a “Dispute”) shall be


 


24





















 


resolved
by binding arbitration conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the “Arbitration Rules”) of the
American Arbitration Association (the “AAA”) and the Federal Arbitration
Act.  The number of arbitrators shall be
three.  Each party shall nominate an
arbitrator, who shall be neutral, independent, and disinterested, and the two
so chosen shall appoint the third arbitrator, who shall be neutral, independent
and disinterested and who shall act as the chairperson.  If the arbitrators selected by the parties
are unable or fail to agree upon the third arbitrator, then the third
arbitrator shall be selected by the AAA. 
The place of the arbitration shall be New York, New York, provided
however, that hearings may be held elsewhere for the convenience of the parties
or to obtain evidence or testimony from any person, including without
limitation, the testimony, documentary evidence, or deposition of any
non-party.  Disputes may include, without
limitation, tort claims, counterclaims, a dispute as to whether a matter is
subject to arbitration, claims brought as class actions, or claims arising from
documents executed in the future.  The
arbitrators are not empowered and shall not have the authority to award damages
such as punitive, exemplary, or statutory damages in addition to compensatory
damages, and each party  hereby
irrevocably waives any right to recover such damages with respect to any
Dispute hereunder.  The award shall be in
writing, signed by a majority of the arbitrators, and shall set for the in
detail the reasons for the disposition of any claim.  A judgment upon the award may be entered in
any court having jurisdiction. Except as may be required by law, no party or
arbitrator may disclose the existence, content, or results of any arbitration
hereunder without prior written consent of the parties.  Notwithstanding the foregoing, this
arbitration provision does not apply to Disputes under or related to Swap
Agreements.


 


8.11                           Contracts of Affreightment and Charters.


 


Notwithstanding any contract of affreightment or
charter regarding any Vessel, the Company shall remain fully responsible for
all its obligations pursuant to the Principal Documents.


 


8.12                           Swap Agreements.


 


All Swap Agreements are independent agreements
governed by the written provisions of said Swap Agreements, which will remain
in full force and effect, unaffected by any repayment, prepayment,
acceleration, reduction, increase or change in the terms of any Principal
Document, except as otherwise expressly provided in said written Swap
Agreements, and any payoff statement from Lender relating to the Loan shall not
apply to said Swap Agreements unless expressly referred to in such payoff
statement.


 


8.13                           General Indemnity.


 


The Company shall protect, indemnify and save
harmless on an after-tax basis Lender from and against all losses, liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable attorneys’ fees and expenses)
(collectively, “Damages”) imposed upon, incurred by or asserted against
Lender or any Affiliate of Lender on account of (i) the Principal
Documents, the Swap Obligations, or any failure or alleged failure of the
Company or any Guarantor to comply with any of the terms or representations of
this Agreement, any other Principal Document, any agreement or document
evidencing the Swap Obligations, or the breach of any provisions thereof; (ii) any
claim of loss or damage to the Collateral or any injury or claim of injury to,
or death of, any person or property that may be occasioned by any cause
whatsoever pertaining to the Collateral or the use, ownership or operation
thereof, (iii) any failure or alleged failure of the Company to comply
with any law, rule or regulation applicable to the Collateral or the use, ownership
or operation of the Collateral (including, without limitation, the failure to
pay any taxes, fees or other charges), (iv) any Damages whatsoever by
reason of any alleged action, obligation or undertaking of Lender relating in
any way to or any matter contemplated by the Principal Documents, or the Swap Agreements,
or (v) any claim for brokerage fees or such other commissions relating to
the Collateral; provided that such indemnity shall be


 


25





















 


effective only to the
extent of any Damages that may be sustained by Lender, or any Affiliate of
Lender, as applicable, in excess of any net proceeds received by it from any
insurance of the Company (other than self-insurance) with respect to such
Damages.  Nothing contained herein shall
require the Company to indemnify Lender or any Affiliate of Lender for any
Damages resulting from such Person’s gross negligence or its willful
misconduct.  The indemnity provided for
herein shall survive payment of the Obligations and the Swap Obligations and
shall extend to each Affiliate of Lender and the officers, directors, employees
and duly authorized agents of Lender and each Affiliate of Lender.  In the event Lender incurs any Damages
arising out of or in any way relating to the transaction contemplated by the
Loan Documents (including any of the matters referred to in this section), the
amounts of such Damages shall be added to the Obligations, shall bear interest,
to the extent permitted by law, at the interest rate borne by the Obligations
from the date incurred until paid and shall be payable on demand.


 


[The remainder of this page is
intentionally left blank.]


 


26





















 


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


 


	
   

  	
  K-SEA OPERATING PARTNERSHIP, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  K-Sea OLP GP, LLC, its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John J. Nicola

  	
   

  
	
   

  	
  Name:

  	
  John Nicola

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FIRST UNION COMMERCIAL CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  



 





















 


Exhibit A


 


PROMISSORY
NOTE


 


Floating
Rate


 


                    ,
200   


 


DEBTOR:


 


K-Sea Operating Partnership,
L.P.


3245 Richmond Terrace


Staten Island, NY 10303


 


SECURED
PARTY:


 


First
Union Commercial Corporation


One
Wachovia Center


Mail
Code NC0738


Charlotte,
North Carolina 28288-0738


 


PAYMENT. For
value received, Debtor promises to pay to the order of Secured Party, in lawful
money of the United States of America, at its office indicated above or
wherever else Secured Party may specify, (i) the lesser of (x) $                      ,
and (y) the aggregate amount of principal advanced hereunder, (which amount,
together with all other advances made by Secured Party under the Loan Agreement
(defined below) shall not exceed in the aggregate the sum of                         
AND     /100 DOLLARS ($                      )
without the prior written consent of Secured Party), (ii) interest on the
unpaid principal balance at the rate and on the terms provided in this
promissory note (including all renewals, extensions or modifications hereof,
the “Note” and the amounts becoming due hereunder, being the “Loan” or “Loans”)
and (iii) all other amounts coming due hereunder and under the Loan
Agreement (as defined below).  The
principal amount has been or may be advanced to Debtor as provided herein and
as provided in the Loan Agreement in connection with the purchase of the Vessel
(as defined in the Loan Agreement) more particularly described as that certain                           constructed [or to be constructed]
by [                            ], as 
Builder, as Hull No.       [for the Company], and documented under the laws of the
United States as                          , Official Number                          , or for progress payments thereon under
the terms of the Purchase Agreement (as defined in the Loan Agreement), any and
all parts and accessories that become or are intended to become a part of the Vessel
and which are financed by Secured Party, to retire any debts secured by the Vessel,
and to fund the return of some or all of Debtor’s deposits paid under the
Purchase Agreement.  This Note is the “Note”, and the obligations of
the undersigned hereunder are “Obligations” secured by the “Collateral”, as
such terms are defined or referred to in the Loan Agreement between the
undersigned and Secured Party dated as of March     ,
2005 (as amended, modified, supplemented, restated and/or replaced from time to
time, the “Loan Agreement”).  Capitalized
terms used herein but not otherwise defined herein shall have the meanings set
forth therefor in the Loan Agreement. 
The Loan Agreement is hereby incorporated herein by reference.


 


INTEREST RATE.  Interest
shall accrue on the outstanding principal balance of this Note from the
date hereof at a variable rate of interest,
adjusted monthly, equal to the Index Rate (as hereinafter defined) plus one and
five one hundredths percent (1.05%) per annum (the “Interest Rate”), provided
that the Interest Rate shall be the Default Rate if an Event of Default has
occurred and is continuing.  The “Index
Rate”


 


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for
the calculation of interest payable with any Payment shall be the rate per
annum for U.S. dollar deposits for a thirty (30) day maturity as reported on
Telerate page 3750 as of 11:00 a.m. London time, on the second
Business Day before the first day of such Interest Period (or if not so
reported, then as determined by the Secured Party from another recognized
source or interbank quotation).  “Business
Day” means any day other than (i) Saturday, Sunday or other day on which
commercial banks are authorized or obligated to close under the laws of the
United States, New York or North Carolina and (ii) a day on which dealings
in the United States dollar deposits are not carried on in the London
inter-bank eurodollar market.


 


LIBOR INDEMNIFICATION.  The Debtor shall indemnify Secured Party
against Secured Party’s loss or expense as a consequence of (a) the Debtor’s
failure to make any payment when due under this Note, (b) any payment,
prepayment or conversion of any loan on a day other than the last day of the
Interest Period, or (c) any failure to make a borrowing or conversion
after giving notice thereof (“Indemnified Loss or Expense”).  The amount of such Indemnified Loss or
Expense shall be determined by Secured Party based upon the assumption that
Lender funded 100% of that portion of the loan in the London interbank market.]


 


DEFAULT RATE.  In addition to all other rights contained in
this Note, if an Event of Default occurs and as long as an Event of Default
continues, all outstanding Obligations shall bear interest at the Default Rate.  The Default Rate shall also apply from
acceleration until the Obligations or any judgment thereon is paid in full.


 


INTEREST COMPUTATION.  Interest shall be computed on
the basis of actual days elapsed and a 360-day year for the actual number
of days in the applicable period (“Actual/360 Computation”).  The Actual/360 Computation determines the
annual effective yield by taking the stated (nominal) rate for a year’s period
and then dividing said rate by 360 to determine the daily periodic rate to be
applied for each day in the applicable period.


 


REPAYMENT TERMS. Accrued interest on a Loan shall be payable in arrears on the first day
of the month immediately succeeding the date of the advance of such Loan and on
the first day of each month thereafter and on the Maturity Date (each such date
a “Payment Date”); provided that any Payment Date that would otherwise end on a
day which is not a Business Day shall be extended to the next succeeding
Business Day.  Interest only shall be
payable through the Commitment Expiration Date, and thereafter, the principal
amount of the Loans shall be due and payable in (i) eighty-four (84) consecutive monthly principal
payments of principal in the amount of $                   ,
plus accrued interest and (ii) an additional amount due with the eighty-fourth
(84th) payment equal to the remaining outstanding balance of the Loan, $                          ,
or if larger, the entire remaining principal balance outstanding as shown on
the records of the Secured Party, plus any other amounts due hereunder or under
the Principal Documents.  The foregoing
is based on the assumption that the full principal of $                                
has been advanced prior to the Commitment Expiration Date.  All principal and accrued interest shall be
due and payable eighty-four (84) months after the Commitment Expiration Date
(the “Maturity Date”).


 


PREPAYMENT.  The entire unpaid principal balance of this
Note may be prepaid in full (but not in part) on any scheduled Payment Date
hereunder upon thirty (30) days’ prior written notice to the Secured
Party.  Such a prepayment may be
exercised to the extent the following conditions are met: (a) if such prepayment occurs after the date hereof
and on or prior to the first anniversary date hereof, on the date
designated for such prepayment of the Note, the Secured Party shall have
received an additional amount equal to five percent (5.0%) of the then outstanding
principal balance on the Note as shown on the records of the Secured Party for
such date (before taking into account any payments of principal paid on such
date) in good, immediately available funds; (b) if such prepayment occurs after
the first anniversary date hereof and on or prior to the second
anniversary date hereof, on the date designated for such prepayment


 


A-2





















 


of
the Note, the Secured Party shall have received an additional amount equal to four
percent (4.00%) of the then outstanding principal balance on the Note as shown
on the records of the Secured Party for such date (before taking into account
any payments of principal paid on such date) in good, immediately available
funds; (c) if such prepayment occurs after the second anniversary date
hereof and on or prior to the fifth anniversary date hereof, the
Secured Party shall have received an additional amount equal to three percent
(3.0%) of the then outstanding principal balance on the Note as shown on the
records of the Secured Party for such date (before taking into account any
payments of principal paid on such date) in good, immediately available funds; (d) if
such prepayment occurs after the fifth anniversary date hereof or at any
time to the extent such prepayment is the result of a Loss Event, no prepayment
premium shall be due; and (e) on the date designated for any such
prepayment of the Note, the Secured Party shall have received all principal and
interest payable with respect to the Note and any other amount due and payable
or accrued, under the Note, the Loan Agreement or any other Principal Document,
including, without limitation, any prepayment or breakage charges as set forth
in any applicable hedge documentation. 
Except as set forth in this paragraph, this Note may not be prepaid.


 


SWAP AGREEMENTS.  All Swap Agreements are independent
agreements governed by the written provisions thereof, which will remain in
full force and effect, unaffected by any repayment, prepayment, acceleration,
reduction, increase or change in the terms of this Note, except as otherwise
provided in such Swap Agreements, and any payoff statement from Secured Party
relating to this Note shall not apply to any Swap Agreement unless expressly
referred to in such payoff statement.


 


APPLICATION OF PAYMENTS.  All amounts received
hereunder or in respect of this Note or the Obligations shall be applied first,
to accrued late charges and any other costs or expenses due and owing hereunder
or under the terms of the Loan Agreement; second, to accrued interest; and
third, to unpaid principal.  If an Event of Default occurs, monies may be
applied to the Obligations and Debtor’s obligations under any Swap Agreement in
any manner or order deemed appropriate by Secured Party.


 


If
any payment received by Secured Party under this Note or other Principal
Documents is rescinded, avoided or for any reason returned by Secured Party
because of any adverse claim or threatened action, the returned payment shall
remain payable as an obligation of all persons liable under this Note or other Principal
Documents as though such payment had not been made.


 


LATE CHARGE. Should
Debtor fail to pay any payment under this Note or any other sum required to be
paid Secured Party within fifteen (15) days after the due date thereof, Debtor
shall pay a late payment charge equal to four percent (4%) of the delinquent
payment, (but not in excess of such rate as may be permitted by applicable
law), which shall be in addition to any Default Rate interest.  Acceptance by Secured Party of any late
payment without an accompanying late charge shall not be deemed a waiver of
Secured Party’s right to collect such late charge or to collect a late charge
for any subsequent late payment received.


 


ATTORNEYS’ FEES AND OTHER COLLECTION COSTS.  Debtor
shall pay all of Secured Party’s or any Secured Party’s Affiliate’s reasonable documented
expenses incurred to enforce or collect any of the Obligations, including,
without limitation, reasonable arbitration fees and expenses and the fees and
expenses of outside paralegals, attorneys and experts, whether incurred without
the commencement of a suit, in any trial, arbitration, or administrative
proceeding, or in any appellate or bankruptcy proceeding.


 


USURY.  Regardless of any other provision of this
Note or other Principal Documents, if for any reason the effective interest
should exceed the maximum lawful interest, the effective interest shall be
deemed reduced to, and shall be, such maximum lawful interest, and (i) the
amount which would be excessive interest shall be deemed applied to the
reduction of the principal balance of this Note and not to the payment of
interest, and (ii) if the loan evidenced by this Note has been or is
thereby paid in full, the


 


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excess
shall be returned to the party paying same, such application to the principal
balance of this Note or the refunding of excess to be a complete settlement and
acquittance thereof.


 


DEFAULT.  If an Event of Default occurs under this Note
or any of the Principal Documents, Secured Party may at any time thereafter,
take the following actions:  (i) foreclose
its security interest or lien against the Collateral without notice except as
otherwise expressly provided in any Principal Document; (ii) accelerate
the maturity of this Note and all other Obligations, and all of the Obligations
shall be immediately due and payable; and (iii) exercise any rights and
remedies as provided under the Note and other Principal Documents, or as
provided by law or equity, and such remedies may be exercised cumulatively.


 


WAIVERS.  Debtor waives presentment, protest, notice of
dishonor, demand for payment, notice of intention to accelerate maturity,
notice of acceleration of maturity, notice of sale and all other notices of any
kind except as otherwise expressly provided in any Principal Document.  Further, Debtor agrees that Secured Party may
extend or renew this Note or make a novation of the loan evidenced by this Note
for any period and grant any releases, compromises or indulgences with respect
to any Collateral securing this Note, or with respect to any other person
liable under this Note or other Principal Documents, all without notice to or
consent of Debtor or any person who may be liable under this Note or other Principal
Documents and without affecting the liability of Debtor or any person who may
be liable under this Note or other Principal Documents.


 


SECURITY AGREEMENT.  The Collateral is held by
Secured Party as security for this Note and the payment and performance of any
obligations of the Debtor hereunder or under the other Principal Documents.  The provisions of this Note are subject to
the Loan Agreement and the other Principal Documents.  Reference is hereby made to the Loan
Agreement and the other Principal Documents for a complete statement of the
rights of the holder of, and the nature and extent of the security for, this
Note.


 


GOVERNING LAW.  This Note shall be governed by and construed
in accordance with the internal laws of the State of New York, including all
matters of construction, validity and performance, without regard to its
conflicts of laws doctrine.


 


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


 


 


	
   

  	
  MAKER:

  
	
   

  	
   

  
	
   

  	
  K-SEA OPERATING PARTNERSHIP, L.P.

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John Nicola

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  ATTEST/WITNESS:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
						



 


A-5





















 


Exhibit B


 


UNCONDITIONAL GUARANTY


 


                        ,
200   


 


K-Sea Operating Partnership,
L.P.


3245 Richmond Terrace


Staten Island, NY 10303


Attention:
 John Nicola, C.F.O.


 


(Individually and collectively “Debtor”)


 


[GUARANTOR]


[ADDRESS]


 


(Individually and collectively “Guarantor”)


 


First
Union Commercial Corporation


One
Wachovia Center


Mail
Code NC0738


Charlotte,
North Carolina  28288-0738


Attention:  Linda
Minter


(Hereinafter referred to as “Lender”)


 


To induce Lender to make, extend or renew loans,
advances, credit, or other financial accommodations to or for the benefit of
Debtor, which are and
will be to the direct interest and advantage of the Guarantor, and in consideration of loans, advances, credit,
or other financial accommodations made, extended or renewed to or for the
benefit of Debtor, which are and will be to the direct interest and
advantage of the Guarantor, Guarantor
hereby absolutely, irrevocably and unconditionally guarantees to Lender and any
Affiliate of Lender (each, a “Lender Affiliate”), and any of Lender’s or Lender
Affiliate’s successors or assigns the timely payment and performance of all
liabilities and obligations of Debtor to Lender and any Lender Affiliate,
including, but not limited to, all obligations under the Loan Agreement (as
defined below) and any other Principal Documents (as defined below), and
all obligations of Debtor to Lender or any Lender Affiliate under any Swap Agreement,
however and whenever incurred or evidenced,
whether primary, secondary, direct, indirect, absolute, contingent, due or to
become due, now existing or hereafter contracted or acquired, and all
modifications, extensions and renewals thereof, (collectively, the “Guaranteed
Obligations”).  This Guaranty is a “Guarantee
Agreement”, as such term is defined or referred to in the Loan Agreement
between the Debtor and the Lender dated as of March __, 2005 (as amended,
modified, supplemented, restated and/or replaced from time to time, the “Loan
Agreement”).  Capitalized terms used
herein but not otherwise defined herein shall have the meanings set forth
therefor in the Loan Agreement.


 


Guarantor further covenants and agrees:


 


GUARANTOR’S LIABILITY.  This Guaranty is a continuing and
unconditional guaranty of payment and performance and not of collection.  The parties to this Guaranty are jointly and
severally obligated hereunder.  This
Guaranty does not impose any obligation on Lender to extend or continue to
extend credit or otherwise deal with Debtor at any subsequent time.  This Guaranty shall continue to be effective
or be reinstated, as the case may be, if at any time any payment of the
Guaranteed Obligations is rescinded, avoided or for any other reason must be
returned by Lender, and the returned payment shall remain payable as part of
the Guaranteed Obligations, all as though such payment had not been made.


 


B-1





















 


Except to the extent the provisions of this Guaranty
give Lender additional rights, this Guaranty shall not be deemed to supersede
or replace any other guaranties given to Lender or any Lender Affiliate by
Guarantor; and the obligations guaranteed hereby shall be in addition to any
other obligations guaranteed by Guarantor pursuant to any other agreement of
guaranty given to Lender or any Lender Affiliate and other guaranties of the
Guaranteed Obligations.


 


TERMINATION OF GUARANTY.  Guarantor may terminate this Guaranty only by
written notice, delivered personally to or received by certified or registered
United States Mail by Lender at the address for notices provided herein.  Such termination shall be effective only with
respect to Guaranteed Obligations arising more than 15 days after the date such
written notice is received by Lender.  Such
termination shall not be effective with respect to Guaranteed Obligations (including any subsequent extensions,
modifications or compromises of the Guaranteed Obligations) then existing, or
Guaranteed Obligations arising subsequent to receipt by Lender of said notice
if such Guaranteed Obligations are a result of Lender’s obligation to make
advances pursuant to a commitment, or are based on Debtor’s obligations
to make payments pursuant to any Swap Agreement, entered into prior to expiration of the 15 day notice period, or are a
result of advances which are necessary for Lender to protect its Collateral or
otherwise preserve its interests. 
Termination of this Guaranty by any single Guarantor will not affect the
existing and continuing obligations of any other Guarantor hereunder.


 


CONSENT TO MODIFICATIONS.  Guarantor consents and agrees that Lender (and, with respect to Swap Obligations, any
Lender Affiliate) may from time to time, in
its sole discretion, without affecting, impairing, lessening or releasing the
obligations of Guarantor hereunder:  (a) extend
or modify the time, manner, place or terms of payment or performance and/or
otherwise change or modify the credit terms of the Guaranteed Obligations; (b) increase,
renew, or enter into a novation of the Guaranteed Obligations; (c) waive
or consent to the departure from terms of the Guaranteed Obligations; (d) permit
any change in the business or other dealings and relations of Debtor or any
other guarantor with Lender or any Lender Affiliate; (e) proceed against,
exchange, release, realize upon, or otherwise deal with in any manner any
collateral that is or may be held by Lender or any Lender Affiliate in
connection with the Guaranteed Obligations or any liabilities or obligations of
Guarantor; and (f) proceed against, settle, release, or compromise with
Debtor, any insurance carrier, or any other person or entity liable as to any
part of the Guaranteed Obligations, and/or subordinate the payment of any part
of the Guaranteed Obligations to the payment of any other obligations, which
may at any time be due or owing to Lender or any Lender Affiliate; all in such
manner and upon such terms as Lender may deem appropriate, and without notice
to or further consent from Guarantor.  No
invalidity, irregularity, discharge or unenforceability of, or action or
omission by Lender or any Lender Affiliate relating to any part of the
Guaranteed Obligations or any security therefor shall affect or impair this
Guaranty.


 


WAIVERS AND ACKNOWLEDGMENTS.  Guarantor waives and releases the following
rights, demands, and defenses Guarantor may have with respect to Lender (and, with respect to Swap Obligations, any
Lender Affiliate) and collection of the
Guaranteed Obligations:  (a) promptness
and diligence in collection of any of the Guaranteed Obligations from Debtor or
any other person liable thereon, and in foreclosure of any security interest
and sale of any property serving as collateral for the Guaranteed Obligations; (b) any
law or statute that requires that Lender (and, with respect to Swap
Obligations, any Lender Affiliate) make
demand upon, assert claims against, or collect from Debtor or other persons or
entities, foreclose any security interest, sell collateral, exhaust any
remedies, or take any other action against Debtor or other persons or entities
prior to making demand upon, collecting from or taking action against Guarantor
with respect to the Guaranteed Obligations, including any such rights Guarantor
might otherwise have had under Va. Code
§§ 49-25 and 49-26, et seq., N.C.G.S. §§ 26-7,
et seq., Tenn. Code Ann. § 47-12-101, O.C.G.A. § 10-7-24
and any successor statute and any other applicable law; (c) any law or
statute that requires that Debtor or any other person be joined in, notified of
or made part of any action against Guarantor; (d) that Lender or any Lender Affiliate preserve, insure or perfect any security interest
in collateral or sell or dispose of collateral in a particular manner or at a
particular time, provided that Lender’s obligation to dispose of Collateral in
a commercially reasonable manner or, with respect to any Vessel, as expressly
provided in the applicable Mortgage, is not waived


 


B-2





















 


hereby; (e) notice of extensions, modifications,
renewals, or novations of the Guaranteed Obligations, of any new transactions
or other relationships between Lender, any Lender Affiliate, Debtor and/or any
other Guarantor, and of changes in the financial condition of, ownership of, or
business structure of Debtor or any other Guarantor; (f) presentment,
protest, notice of dishonor, notice of default, demand for payment, notice of
intention to accelerate maturity, notice of acceleration of maturity, notice of
sale, and all other notices of any kind whatsoever to which Guarantor may be entitled; (g) the right to assert against Lender or
any Lender Affiliate any defense (legal or
equitable), set-off, counterclaim, or claim that Guarantor may have at any time
against Debtor or any other party liable to Lender or any Lender
Affiliate; (h) all defenses relating
to invalidity, insufficiency, unenforceability, enforcement, release or
impairment of Lender’s or any Lender Affiliate’s lien on any Collateral, of the Principal Documents, or of any other
guaranties held by Lender; (i) any right to which Guarantor is or
may become entitled to be subrogated to Lender’s or any Lender Affiliate’s
rights against Debtor or to seek contribution, reimbursement, indemnification,
payment or the like, or participation in any claim, right or remedy of Lender
or any Lender Affiliate against Debtor or any security which Lender or any
Lender  Affiliate now has or hereafter
acquires, until such time as the Guaranteed Obligations have been fully satisfied
beyond the expiration of any applicable preference period; (j) any claim or defense that acceleration of
maturity of the Guaranteed Obligations is stayed against Guarantor because of
the stay of assertion or of acceleration of claims against any other person or
entity for any reason including the bankruptcy or insolvency of that person or
entity; and (k) the right to marshalling of Debtor’s assets or the benefit of any exemption claimed by
Guarantor.  Guarantor acknowledges and
represents that Guarantor has relied upon Guarantor’s own due diligence in
making an independent appraisal of Debtor, Debtor’s business affairs and
financial condition, and any Collateral; Guarantor will continue to be
responsible for making an independent appraisal of such matters; and Guarantor
has not relied upon Lender or any Lender Affiliate for information regarding Debtor or any Collateral.


 


FINANCIAL CONDITION.  Guarantor warrants, represents and covenants
to Lender and any Lender Affiliate
that on and after the date hereof:  (a) the fair saleable value of Guarantor’s
assets exceeds its liabilities, Guarantor is meeting its current liabilities as
they mature, and Guarantor is and shall remain solvent; (b) all financial
statements of K-Sea Transportation Partners, L.P. and its consolidated
Subsidiaries furnished to Lender are correct and accurately reflect the
financial condition of K-Sea Transportation Partners, L.P. and its consolidated
Subsidiaries as of the respective dates thereof; (c) since the date of
such financial statements, there has not occurred a Material Adverse Change; (d) there
are not now pending any court or administrative proceedings or undischarged
judgments against Guarantor, no federal or state tax liens have been filed or
threatened in writing against Guarantor, and Guarantor is not in default or
claimed default under any agreement; and (e) at such reasonable times as
Lender requests, Guarantor will furnish Lender or any Lender Affiliate with such other financial information respecting
Guarantor as Lender or any Lender Affiliate may reasonably request.


 


INTEREST AND APPLICATION OF
PAYMENTS.  Regardless of any other provision
of this Guaranty or other Principal Documents, if for any reason the effective
interest on any of the Guaranteed Obligations should exceed the maximum lawful
interest, the effective interest shall be deemed reduced to and shall be such
maximum lawful interest, and any sums of interest which have been collected in
excess of such maximum lawful interest shall be applied as a credit against the
unpaid principal balance of the Guaranteed Obligations.  Monies received from any source by Lender or any Lender Affiliate for application toward payment of the Guaranteed
Obligations may be applied to such Guaranteed Obligations in any manner or
order deemed appropriate by Lender and any Lender Affiliate.


 


DEFAULT.  A default (“Default”) under this Guaranty
shall exist upon the occurrence and during the continuance of an Event of
Default under the Loan Agreement.


 


If a Default occurs, the
Guaranteed Obligations shall be due immediately and payable without notice,
other than Guaranteed Obligations under any Swap Agreements, which shall be due
in accordance with and governed by the provisions of said Swap Agreements, and,
Lender and any Lender Affiliate may


 


B-3





















 


exercise any rights and
remedies as provided in this Guaranty and other Principal Documents, or as
provided at law or equity.  Guarantor
shall pay interest on the Guaranteed Obligations from such Default at the
highest rate of interest charged on any of the Guaranteed Obligations.


 


ATTORNEYS’ FEES AND OTHER COSTS
OF COLLECTION.  Guarantor shall
pay all of Lender’s and any
Lender Affiliate’s reasonable documented expenses
incurred to enforce or collect any of the Guaranteed Obligations, including,
without limitation, reasonable arbitration, outside paralegals’, outside attorneys’
and experts’ fees and expenses, whether incurred without the commencement of a
suit, in any suit, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.


 


MISCELLANEOUS.  Assignment.  This Guaranty and other Principal Documents
shall inure to the benefit of and be binding upon the parties and their
respective heirs, legal representatives, successors and assigns.  Lender’s interests in and rights under this
Guaranty and other Principal Documents are freely assignable, in whole or in
part, by Lender in accordance with the terms of Section 8.7 of the Loan
Agreement.  Any assignment shall not
release Guarantor from the Guaranteed Obligations.  Organization;
Powers.  Guarantor (i) is a corporation, general
partnership, limited partnership, limited liability company or other legal
entity (as indicated below), duly organized, validly existing and in good standing
under the laws of its state of organization, and is authorized to do business
in each other jurisdiction wherein its ownership of property or conduct of
business legally requires such authorization, (ii) has the power and
authority to own its properties and assets and to carry on its business as now
being conducted and as now contemplated; and (iii) has the power and
authority to execute, deliver and perform, and by all necessary action has
authorized the execution, delivery and performance of, all of its obligations
under this Guaranty and any other Principal Document to which it is a
party.  Applicable Law; Conflict Between Documents.  This
Guaranty shall be governed by and construed under the laws of the State of New
York, without regard to that state’s conflict of laws principles.  Jurisdiction.  Guarantor irrevocably agrees to non-exclusive
personal jurisdiction in the State of New York. 
Severability.  If any provision of this Guaranty or of the
other Principal Documents shall be prohibited or invalid under applicable law,
such provision shall be ineffective but only to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Guaranty or other Principal Documents.  Plural; Captions.  All references in the Principal Documents to
debtor, guarantor, person, document or other nouns of reference mean both the
singular and plural form, as the case may be, and the term “Person” shall mean
any individual person or entity.  The captions
contained in the Principal Documents are inserted for convenience only and
shall not affect the meaning or interpretation of the Principal Documents.  Binding Contract.  Guarantor by execution of and Lender by
acceptance of this Guaranty agree that each party is bound to all terms and
provisions of this Guaranty.  Amendments, Waivers and Remedies.  No waivers, amendments or modifications of
this Guaranty and other Principal Documents shall be valid unless in writing
and signed by the Person against whom enforcement is sought.  No waiver by Lender or any Lender
Affiliate of any Default shall operate as a
waiver of any other Default or the same Default on a future occasion.  Neither the failure nor any delay on the part
of Lender or any Lender Affiliate in
exercising any right, power, or privilege granted pursuant to this Guaranty and
other Principal Documents shall operate as a waiver thereof, nor shall a single
or partial exercise thereof preclude any other or further exercise or the
exercise of any other right, power or privilege.  All remedies available to Lender or
any Lender Affiliate with respect to this
Guaranty and other Principal Documents and remedies available at law or in
equity shall be cumulative and may be pursued concurrently or successively.  Partnerships.  If Guarantor is a partnership, the
obligations, liabilities and agreements on the part of Guarantor shall remain
in full force and effect and fully applicable notwithstanding any changes in
the individuals comprising the partnership. 
The term “Guarantor” includes any altered or successive partnerships,
and predecessor partnership(s) and the general partners shall not be released
from any obligations or liabilities hereunder. 
LIMITATION ON LIABILITY; WAIVER OF PUNITIVE
DAMAGES. EACH OF THE PARTIES HERETO, INCLUDING LENDER BY ACCEPTANCE
HEREOF, AGREES THAT IN ANY JUDICIAL, MEDIATION OR ARBITRATION PROCEEDING OR ANY
CLAIM OR CONTROVERSY BETWEEN OR AMONG THEM THAT MAY ARISE OUT OF OR BE IN
ANY WAY CONNECTED


 


B-4





















 


WITH
THIS AGREEMENT, THE PRINCIPAL DOCUMENTS OR ANY OTHER AGREEMENT OR DOCUMENT
BETWEEN OR AMONG THEM OR THE OBLIGATIONS EVIDENCED HEREBY OR RELATED HERETO, IN
NO EVENT SHALL ANY PARTY HAVE A REMEDY OF, OR BE LIABLE TO THE OTHER FOR, (1) INDIRECT,
SPECIAL OR CONSEQUENTIAL DAMAGES OR (2) PUNITIVE OR EXEMPLARY
DAMAGES.   EACH OF THE PARTIES HEREBY
EXPRESSLY WAIVES ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY DAMAGES THEY MAY HAVE
OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY SUCH PROCEEDING,
CLAIM OR CONTROVERSY, WHETHER THE SAME IS RESOLVED BY ARBITRATION, MEDIATION,
JUDICIALLY OR OTHERWISE.  FINAL AGREEMENT.  This
Guaranty and the other Principal Documents represent the final agreement
between the parties and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties.  There are no unwritten oral agreements
between the parties.


 


FINANCIAL AND OTHER INFORMATION.  Guarantor shall deliver to Lender such
information as Lender may reasonably request from time to time, including
without limitation, financial statements and information pertaining to
Guarantor’s financial condition.  Such
information shall be true, complete, and accurate, and shall be considered
delivered to Lender when filed with the Securities and Exchange Commission.


 


NEGATIVE COVENANTS.  Guarantor agrees
that from the date hereof and until final payment in full of the Guaranteed
Obligations, unless Lender shall otherwise consent in writing, Guarantor will
not:   Default on Other Contracts or Obligations.  Default on any material contract with or
obligation when due to a third party or default in the performance of any
obligation to a third party incurred for money borrowed; provided, in
each case, such other person shall have taken remedial action under such
contract or accelerated such obligation. 
Government Intervention.  Permit the assertion or making of any
seizure, vesting or intervention by or under authority of any governmental entity, as a result of which the management of Guarantor or any
guarantor is displaced of its authority in the conduct of its respective
business or such business is curtailed or materially impaired.  Judgment Entered.  Permit the entry of any monetary judgment or
the assessment against, the filing of any tax lien against, or the issuance of
any writ of garnishment or attachment against any property of or debts due
unless such judgment or assessment is being contested in good faith by
Guarantor.  Retire or
Repurchase Capital Stock. 
Retire or otherwise acquire any of its capital stock.


 


ARBITRATION.  Upon demand of any party hereto, whether made
before or after institution of any judicial proceeding, any claim or
controversy arising out of or relating to the Principal Documents between
parties hereto (a “Dispute”) shall be resolved by binding arbitration conducted
under and governed by the Commercial Financial Disputes Arbitration Rules (the
“Arbitration Rules”) of the American Arbitration Association (the “AAA”) and
the Federal Arbitration Act.  The number
of arbitrators shall be three.  Each
party shall nominate an arbitrator, who shall be neutral, independent, and
disinterested, and the two so chosen shall appoint the third arbitrator, who
shall be neutral, independent and disinterested and who shall act as the
chairperson.  If the arbitrators selected
by the parties are unable or fail to agree upon the third arbitrator, then the
third arbitrator shall be selected by the AAA. 
The place of the arbitration shall be New York, New York, provided
however, that hearings may be held elsewhere for the convenience of the parties
or to obtain evidence or testimony from any person, including without
limitation, the testimony, documentary evidence, or deposition of any
non-party.  Disputes
may include, without limitation, tort claims, counterclaims, a dispute as to
whether a matter is subject to arbitration, claims brought as class actions, or
claims arising from documents executed in the future.  The arbitrators are not empowered and shall
not have the authority to award damages such as punitive, exemplary, or
statutory damages in addition to compensatory damages, and each party hereby
irrevocably waives any right to recover such damages with respect to any
Dispute hereunder.  The award shall be in
writing, signed by a majority of the arbitrators, and shall set for the in
detail the reasons for the disposition of any claim.  A judgment upon the award may be
entered in any court having jurisdiction.  Except as may be


 


B-5





















 


required by law, no party or arbitrator may disclose the
existence, content, or results of any arbitration hereunder without prior
written consent of the parties.  Notwithstanding the foregoing, this
arbitration provision does not apply to disputes under or related to Swap Agreements.  Special Rules.  All arbitration hearings shall be conducted
in the city named in the address of Lender first stated above.  A hearing shall begin within 90 days of
demand for arbitration and all hearings shall conclude within 120 days of
demand for arbitration.  These time
limitations may not be extended unless a party shows cause for extension and
then for no more than a total of 60 days. 
The expedited procedures set forth in Rule 51 et seq. of the
Arbitration Rules shall be applicable to claims of less than
$1,000,000.00.  Arbitrators shall be
licensed attorneys selected from the Commercial Financial Dispute Arbitration
Panel of the AAA.  The parties do not
waive applicable Federal or state substantive law except as provided
herein.  Preservation
and Limitation of Remedies. 
Notwithstanding the preceding binding arbitration provisions, the
parties agree to preserve, without diminution, certain remedies that any party
may exercise before or after an arbitration proceeding is brought.  The parties shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute
the following remedies, as applicable: (i) all rights to foreclose against
any real or personal property or other security by exercising a power of sale
or under applicable law by judicial foreclosure including a proceeding to
confirm the sale; (ii) all rights of self-help including peaceful
occupation of real property and collection of rents, set-off, and peaceful possession
of personal property; (iii) obtaining provisional or ancillary remedies
including injunctive relief, sequestration, garnishment, attachment,
appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv) when
applicable, a judgment by confession of judgment.  Any claim or controversy with regard to any
party’s entitlement to such remedies is a Dispute.  Waiver of Jury Trial.  THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO
BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE
TO JURY TRIAL WITH REGARD TO A DISPUTE AS TO WHICH BINDING ARBITRATION HAS BEEN
DEMANDED.


 


NOTICES.  All notices, requests and demands to or upon
the Guarantor shall be in writing and shall be deemed to have been given or
made when personally delivered or when sent by facsimile transmission, or if
deposited in the mails during regular business hours, postage prepaid, via
registered mail, on the third (3rd) Business Day thereafter or if earlier, on
the date actually received, addressed as follows or to such other address as
may be hereafter designated in writing by Guarantor:


 


	
   

  	
  if by United States Postal Service or facsimile
  transmission:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  3245 Richmond Terrace

  
	
   

  	
  Staten Island, NY 10303

  
	
   

  	
  Attention:
  John Nicola, C.F.O.

  
	
   

  	
  Facsimile No.: (718) 815-4650

  
	
   

  	
   

  
	
   

  	
  if by overnight delivery service:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  3245 Richmond Terrace

  
	
   

  	
  Staten Island, NY 10303

  
	
   

  	
  Attention:
  John Nicola, C.F.O.

  



 


except in cases where it is expressly herein provided
that such notice, request or demand is not effective until received by the
party to whom it is addressed.


 


B-6





















 


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


 


	
   

  	
  [                                                                ]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  



 


B-7





















 


Exhibit C


 


BORROWING CERTIFICATE


 


Pursuant to the Loan Agreement
dated as of March     , 2005 between K-SEA OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership (the “Company”) and
FIRST UNION COMMERCIAL CORPORATION, a North Carolina corporation, the
undersigned certifies as follows:


 


1.                                       The representations and
warranties set forth in Section 4 of said Loan Agreement are true and
correct as of the date hereof.


 


2.                                       No Event of Default (as
defined in Section 7 of said Loan Agreement) and no event, which with
notice or lapse of time, or both, would constitute such an Event of Default has
occurred and is continuing on the date hereof.


 


3.                                       All of the conditions
with respect to the Loan requested by the Company and being made to the Company
today pursuant to the Loan Agreement have been fulfilled.


 


4.                                       All capitalized terms used herein without
definition are used herein with the meanings ascribed to them in said Loan
Agreement.


 


 


	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  K-SEA OPERATING PARTNERSHIP, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  K-Sea OLP GP, LLC, its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John Nicola

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  



 


C-1










 













 


Exhibit D


 


K-SEA
OPERATING PARTNERSHIP, L.P.


 


TO


 


FIRST UNION
COMMERCIAL CORPORATION


 


FIRST
PREFERRED MORTGAGE


 


Dated as of                    ,
2005


 


“                         ”


 


Official Number                


 


Mortgagor: K-Sea Operating Partnership, L.P.


Mortgagor’s Interest: 100%


Mortgagee: First Union Commercial Corporation


Mortgagee’s Interest: 100%


Amount of Mortgage: $11,000,000


 


D-1





















 


FIRST PREFERRED MORTGAGE made
and dated as of                         
    , 200_ (this “Mortgage”) by K-SEA OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership (herein, the “Shipowner”)
whose address is 3245 Richmond
Terrace, Staten Island, NY 10303, Attention: John Nicola, to FIRST UNION COMMERCIAL CORPORATION, a North
Carolina corporation  (herein, together
with any successor thereto, called the “Mortgagee”), whose address is
One Wachovia Center, Mail Code NC0738, Charlotte, North Carolina 28288-0738,
Attention: Linda H. Minter.


 


WITNESSETH:


 


WHEREAS, the Shipowner is the
sole owner of the whole of the Vessel hereinafter named and described; and


 


WHEREAS, the Shipowner, on the
one hand, and the Mortgagee, on the other hand, are parties to a Loan
Agreement, dated as of March    , 2005 (as amended, modified, supplemented,
restated and/or replaced from time to time, the “Loan Agreement”), a
copy of the form of which is attached hereto as Exhibit 1 and
hereby made a part hereof; and


 


WHEREAS, under the Loan
Agreement the Mortgagee has, upon the fulfillment of certain conditions, agreed
to make loans (each, a “Loan”) to the Company at any time after the date
hereof to and including the Commitment Expiration Date in the aggregate
principal amount of up to Eleven Million Dollars ($11,000,000.00), each such Loan
to be in a principal amount as evidenced by a separate promissory note of the
Shipowner described at Subsection 2.2 of the Loan Agreement (each such
promissory note being herein referred to as a “Note” and collectively,
as the “Notes”); and


 


WHEREAS, the principal amount
of the Loans outstanding on the date hereof is $                          ;
and


 


WHEREAS, the Mortgagee
requires as a condition of making and continuing each such Loan that the
Shipowner execute this First Preferred Mortgage and the Shipowner has duly
authorized the execution and delivery of this First Preferred Mortgage under
and pursuant to the 46 U.S.C. § 31301, et. seq., as at any
time amended; and


 


NOW, THEREFORE, in
consideration of the premises and of the mutual covenants of the parties and of
other valuable consideration, receipt whereof is hereby acknowledged, and in
order to secure the due payment of the principal of all the Notes and interest
thereon and the due performance of the other payment and performance covenants,
obligations and agreements in all the Notes, the Loan Agreement and the other
Principal Documents (as such term is defined in the Loan Agreement), all in
accordance with their respective terms, and any Swap Obligations, and all other
sums and obligations that may be secured by this Mortgage, (such sums and other
obligations (including any Swap Obligations) being sometimes hereinafter
referred to as the “Secured Obligations”), the Shipowner has granted,
conveyed, mortgaged, pledged, confirmed, assigned, transferred, and does hereby
assign, transfer and set over unto the Mortgagee, the whole of the vessel
described as follows:


 


That certain double-hulled
tank barge vessel named “                       ”,
Official Number                        ,
of approximately                        
gross and                        
net register tons, built in 2005 at                        ,
duly documented in the name of the Shipowner under the laws of the United
States, having her Hailing Port at                        
and her Port of Record at the National Vessel Documentation Center together
with all her engines, boilers, machinery, masts, boats, anchors, cables,
chains, rigging, tackle, apparel, furniture, fittings, capstans, outfit, tools,
pumps, pumping and other equipment, and all other appurtenances thereto,
whether on board or not, and also any and all additions, improvements and


 


D-2





















 


replacements
hereafter made in or to said vessel or said appurtenances (said vessel,
together with all the foregoing, being herein called the “Vessel”).


 


TO HAVE AND TO HOLD all and
singular the above-mortgaged and described property unto the Mortgagee and its
successors and assigns to its and their own use, benefit and behalf forever;


 


PROVIDED, HOWEVER, AND these
presents are upon the condition that if the Shipowner, its successors or
assigns, shall pay or cause to be paid to the Mortgagee said indebtedness by
paying or causing to be paid the Notes in accordance with their terms, and
shall keep, perform and observe or cause to be kept, performed and observed all
and singular the terms, covenants and agreements in the Notes, the Loan
Agreement, this Mortgage and the other Principal Documents expressed or implied
to be kept, performed or observed by or on the part of the Shipowner, then this
Mortgage and the estate and rights hereby granted shall cease, terminate and be
void, otherwise to remain in full force and effect.


 


IT IS HEREBY COVENANTED,
DECLARED AND AGREED that the Vessel is to be held subject to the further
covenants, conditions, provisions, terms and uses hereinafter set forth.


 


ARTICLE I


 


Representations,
Warranties and Agreements of Shipowner


 


The Shipowner hereby
represents, warrants and agrees as follows:


 


(1)                                  Organization and
Existence of Shipowner.


 


The Shipowner was duly
organized and is now validly existing as a limited partnership under the laws
of the State of Delaware.  So long as
this Mortgage remains in force, the Shipowner will maintain such existence and
continue to be a valid and existing limited partnership under such laws; will
comply with all provisions of the laws of said State and of the United States,
failure to observe which would constitute grounds for the cancellation of its
charter or the termination of its right to transact business; and will pay all
taxes, assessments, governmental and other charges, fines and penalties
lawfully imposed on it or the Vessel, unless and to the extent only that such
are being contested in good faith and by appropriate proceedings which do not
impair the lien of this Mortgage.


 


(2)                                  United States
Citizenship of Shipowner.


 


The Shipowner is and shall
remain at all times a citizen of the United States (including without
limitation for operation in the trades in which the Vessel is operated from time
to time) within the meaning of “citizen” in accordance with 46 U.S.C.
Sections 802, et. seq. (as amended from time to time, the “Shipping Act”),
46 U.S.C. Sections 12101, et. seq. (as amended from time to time, the
“Documentation of Vessels Act”), 46 U.S.C. Sections 31301, et.
seq. (as amended from time to time, the “Commercial Instruments and Maritime
Liens Act”) and 46 CFR Part 67. 
In the event the Shipowner shall cease to remain such a citizen, it
shall notify the Mortgagee thereof as soon as it obtains knowledge of such
fact.


 


(3)                                  Authorization of
Mortgage and other Principal Documents.


 


The execution and delivery
of this Mortgage and the other Principal Documents to which the Shipowner is a
party have been duly authorized by the Shipowner, have been taken in good faith
and without any intent to hinder, delay or defraud any existing or future
creditor of the Shipowner or any


 


D-3





















 


lienor of the Vessel, and
are not in contravention of any indenture or undertaking to which the Shipowner
is a party or by which the Shipowner is bound, and the Principal Documents to
which the Shipowner is a party are and will be valid and enforceable
obligations of the Shipowner in accordance with their respective terms.


 


(4)                                  Payment of Notes and
Observance of Other Obligations under the Principal Documents.


 


The Shipowner shall duly and
punctually cause the Secured Obligations to be paid and performed in accordance
with their terms.  The Shipowner shall
duly and punctually perform, observe and comply with each and every one of the
agreements, terms and conditions, expressed or implied, herein or in any of the
documents providing for the Secured Obligations to be observed, performed or
complied with by it.


 


(5)                                  Compliance with Commercial
Investments and Maritime Liens Act.


 


The Shipowner shall comply
with and satisfy all of the provisions of 46 United States Code
Chapter 313, as amended, necessary to establish and to maintain this
Mortgage as a preferred mortgage thereunder upon the Vessel.


 


(6)                                  Further Assurances.


 


The Shipowner shall from
time to time execute and deliver such further instruments and take such other
action as may be reasonably necessary or desirable to more effectually subject
the Vessel to the lien of this Mortgage.


 


(7)                                  Title to and Possession
of Vessel.


 


The Shipowner lawfully owns
and is lawfully possessed of the Vessel free from any security interest, lien,
charge or encumbrance whatsoever or any commitment to make the Vessel available
for charter or sale or use by any government authority or other party other
than Permitted Liens, and the Shipowner shall warrant and defend the title and
such possession thereto and to every part thereof for the benefit of the
Mortgagee against the claims and demands of all persons whomsoever.  As used herein, the term “Permitted Liens”
shall mean preferred mortgage liens in favor of the Mortgagee or Wachovia Bank,
National Association, and:


 


(i)                                     liens for wages of the
master (to the extent provided by Public Law 90-293) and crew
(collectively, “Crew’s Wages”) and salvage (including contract salvage)
which shall not have become due and payable for ten days after termination of a
voyage or which shall then be contested by the Shipowner in good faith by
appropriate proceedings diligently prosecuted, so long as such proceedings do
not involve a significant risk of a sale, forfeiture or loss of the Vessel;


 


(ii)                                  liens for Crew’s Wages,
salvage (including contract salvage) and general average which are either
unclaimed or covered by insurance which complies with the requirements of Article I,
Section (18) hereof;


 


(iii)                               liens incident to
current operations (except for Crew’s Wages, salvage and general average) and
not more than 60 days past due;


 


(iv)                              the rights of the
United States in the event the use of the Vessel is taken or requisitioned by
any United States government or governmental body as contemplated by Article I,
Section (20) hereof; and


 


D-4





















 


(v)                                 liens arising in
connection with any repairs, modifications, alterations or additions permitted
under Article I, Section (12) hereof.


 


provided, further, that the liens described by the
foregoing subparagraphs (i) through (v) shall, unless they would
in any event be entitled as such to priority over this Mortgage under the
applicable provisions of Public Law 100-710, codified at
46 U.S.C. Chap. 313, be deemed “Permitted Liens” only to the extent
they are liens subordinate to the lien of the Mortgage.


 


(8)                                  Documentation of Vessel.


 


The Vessel is and shall remain
documented under the laws of the United States.


 


(9)                                  Compliance with
Applicable Laws, etc.


 


The Vessel meets, and at all
times shall meet, all requirements of applicable laws, treaties and conventions
applicable to the Vessel, and any rules and regulations thereunder
(including, without limitation, all applicable laws, rules and regulations
administered by the United States Coast Guard, the Bureau of Customs, the
Treasury Department, the Federal Communications Commission, the Public Health
Service, the Department of Health, Education and Welfare and their successors),
and shall have on board, as, if and when required thereby, valid certificates
showing compliance therewith.


 


(10)                            Operation of the Vessel.


 


The Shipowner shall not (1) cause
or permit the Vessel to be operated in any manner materially contrary to law or
any applicable rules or regulations of any governmental authority, or (2) remove
or attempt to remove the Vessel beyond the territorial limits of the United
States, international waters in the Caribbean Sea and the Gulf of Mexico, or
the territorial limits of countries in the Caribbean with whom the United
States maintains diplomatic relations; provided, at all times the Vessel
shall be covered by insurance conforming to the legal requirements of Article I,
Section 18 hereof.


 


(11)                            Condition and Maintenance of the Vessel.


 


The Vessel meets all requirements of the United
States Coast Guard relating to the inspection of vessels similar to the Vessel and
the Shipowner will cause the Vessel to be kept in such condition as would
entitle it to the highest classification and rating for vessels of the same age
and type in the American Bureau of Shipping.


 


The Shipowner shall at all
times (1) at its own cost and expense maintain and preserve the Vessel in
good running order and repair, so that the Vessel shall be, insofar as due
diligence can make her so, tight, staunch, strong and well and sufficiently
tackled, appareled, furnished, equipped, and in every respect seaworthy and in
good operating condition, and in any event in at least as good order and
condition, ordinary wear and tear excepted, as at the date of this Mortgage, (2) keep
the Vessel in such condition as will entitled her to retain the highest
classification and rating for vessels of the same age and type in the American
Bureau of Shipping, and on the occasion of each annual survey by the American
Bureau of Shipping the Shipowner will promptly send to the Mortgagee a copy of
the confirmation of class of said Vessel for the ensuing year.


 


D-5





















 


(12)                            Material Changes in Vessel.


 


The Shipowner shall not make
or permit to be made any material change in the structure, type or speed of the
Vessel or in her rig, unless it shall have received the Mortgagee’s prior
written consent thereto.


 


(13)                            Transfer or Charter of the Vessel.


 


The Shipowner will not sell,
mortgage, transfer or demise or time charter the Vessel without the written
consent of the Mortgagee first had and obtained, except that such prior written
consent shall not be required for any time charter of the Vessel for a time
period of one (1) year or less (excluding any exercisable optional
renewals).  Any such written consent to
any one sale, mortgage, transfer or charter shall not be construed to be a
waiver of this provision in respect to any subsequent proposed sale, mortgage,
transfer or charter.  Any such sale,
mortgage, transfer or charter of the Vessel shall be subject to the provisions
of this Mortgage and the lien it creates. 
The Shipowner will not charter the Vessel to, or permit the Vessel to
serve under any contract of affreightment with, a person included within the
definition of “designated foreign country” or “national” of a “designated
foreign country” in the Foreign Assets Control Regulations or Cuban Assets
Control Regulations of the United States Treasury Department, 31 C.F.R.,
Chapter V, as amended, within the meaning of said Regulations or of any
regulation, interpretation or ruling issued thereunder.


 


(14)                            Taxes and Governmental Charges.


 


The Shipowner shall pay and
discharge, or cause to be paid and discharged, when due and payable from time
to time, all taxes, assessments, governmental charges, fines and penalties
lawfully imposed upon the Vessel or any income therefrom, unless and to the
extent only that the same are being contested in good faith and by appropriate
proceedings which do not impair the lien of this Mortgage.


 


(15)                            Liens.


 


Neither the Shipowner, any
charterer, the Master of the Vessel nor any other person has or shall have any
right, power or authority, without the prior written consent of the Mortgagee,
to create, incur or permit to be placed or imposed upon the Vessel any lien
whatsoever, other than Permitted Liens.


 


(16)                            Notice of Mortgage.


 


A properly certified copy of
this Mortgage, and of any assignment of this Mortgage, shall be carried with
the Vessel’s documents, and shall be exhibited on demand to any person having
business with such Vessel or to any representative of the Mortgagee.


 


A Notice, reading
substantially as follows, printed in plain type shall (together with a notice
of any assignment of this Mortgage) be placed and kept in a conspicuous
location on the Vessel:


 


“NOTICE OF MORTGAGE”


 


“This Vessel is covered by a
First Preferred Mortgage in favor of FIRST UNION COMMERCIAL CORPORATION, a
North Carolina corporation, Mortgagee, under authority of 46 U.S.C.
Chapter 313 as amended.  Under the
terms of said Mortgage, neither the Shipowner, any charterer, the master of
this Vessel nor any other person has any right, power or authority to create,
incur or permit to be placed or imposed upon this Vessel any lien whatsoever
other than preferred
mortgage liens in favor of said Mortgagee or Wachovia Bank, National
Association and:


 


D-6





















 


(i)                                     liens for wages of the
master (to the extent provided by Public Law 90-293) and crew
(collectively, “Crew’s Wages”) and salvage (including contract salvage)
which shall not have become due and payable for ten days after termination of a
voyage or which shall then be contested by the Shipowner in good faith by
appropriate proceedings diligently prosecuted, so long as such proceedings do
not in the opinion of said Mortgagee involve a significant risk of a sale,
forfeiture or loss of this Vessel;


 


(ii)                                  liens for Crew’s Wages,
salvage (including contract salvage) and general average which are either
unclaimed or covered by insurance which complies with the requirements of Article I,
Section (18) of said Mortgage;


 


(iii)                               liens incident to
current operations (except for Crew’s Wages, salvage and general average) and
not more than 60 days past due;


 


(iv)                              the rights of the
United States in the event the use of the Vessel is taken or requisitioned by
any United States government or governmental body as contemplated by Article I,
Section (20) of said Mortgage; and


 


(v)                                 liens arising in
connection with any repairs, modifications, alterations or additions permitted
under Article I, Section (12) of said Mortgage.


 


provided, further, that the liens described by the
foregoing subparagraphs (i) through (v) shall, unless they would
in any event be entitled as such to priority over said Mortgage under
46 U.S.C. Chap. 313, be deemed “Permitted Liens” only to the extent
they are liens subordinate to the lien of said Mortgage.”


 


The Shipowner shall have a
reasonable time after the recordation of this Mortgage to comply with the
provisions of this Section.


 


(17)                            Detention, etc.


 


(a)                                  If a libel shall be filed against the Vessel
or if the Vessel be levied upon or taken into custody, or detained by any
proceeding in any court or tribunal or by any government or other authority,
the Shipowner shall, within fifteen (15) days thereafter, cause the Vessel to
be released.


 


(b)                                 In the event of any
such libel, levy, taking or detention, the Shipowner shall forthwith give
notice of such libel, levy, taking or detention by telefax, confirmed by
letter, to the Mortgagee.


 


(18)                            Insurance.


 


(a)                                  The Shipowner, at its own expense so long as
this Mortgage, or any of the Notes (or any portion thereof), is outstanding,
will keep the Vessel fully insured against all such risks (excluding war risks)
in such form (including, without limitation, the form of the loss payable
clause and the designation of named assured) and with such underwriters as are
reasonably satisfactory to the Mortgagee from time to time, in an amount of
dollars (in money of the United States which is legal tender for the payment of
public and private debts) as shall be reasonably approved by the Mortgagee but
which in any event shall as to hull and marine risks be equal to the full
amount of outstanding principal, accrued interest and other amounts that may
reasonably be estimated by the Mortgagee as the maximum amount which may be
outstanding and/or


 


D-7





















 


become
due upon the Note related to the Vessel during the time period involved,
provided, however, that in no event shall the amount of any policy be such as
shall result in the Shipowner being a coinsurer upon any policy.


 


(b)                                 Until otherwise required or permitted by the
Mortgagee, such insurance shall be as hereinafter specified, that is to say:


 


Such
insurance shall extend to the hull, tackle, apparel, fittings, equipment,
furniture, engines, boilers, machinery and appurtenances of the Vessel, and
shall be effected with responsible underwriters in good standing reasonably approved
by the Mortgagee under the latest (at the time of issue of the policies in
question) forms of American Institute of Marine Underwriters or Taylor Hull
policies (and/or under such other forms of policies as the Mortgagee may reasonably
approve in writing) insuring such Vessel against the usual risks covered by
such forms, including loss or damage by fire, perils of the sea, and other
marine risks and disasters and with the customary Inchmaree Clause and Four-fourths
Running Down Clause.  The policy value in
all such insurance shall not exceed the amount insured thereby.  The Vessel, while laid up, in lieu of the
foregoing insurance, may be insured to the same amount under customary port
risk policies reasonably satisfactory to the Mortgagee.  The Shipowner, at its own expense, will also
keep the Vessel fully covered by a liability insurance policy covering
protection and indemnity risks issued by a protection and indemnity club in
good standing reasonably approved by the Mortgagee, or fully covered by
protection and indemnity clauses including collision liability attached to the
full marine insurance policies provided for above, in form reasonably satisfactory
to the Mortgagee, and in any event providing for coverage of at least $                                      
against any one accident or occurrence.  In
addition to and without limitation of the foregoing, the Shipowner, at its own
expense, will also maintain liability insurance for pollution and environmental
damage coverage issued by marine insurance companies in good standing approved
by the Mortgagee, or fully covered by protection and indemnity clauses including
pollution and environmental damage liability in form satisfactory to the
Mortgagee, and in any event providing for coverage of the maximum amount
available from a member of the International Group of Protection and Indemnity
Clubs (such maximum amount being as of the date hereof $1,000,000,000 against
any one accident or occurrence) or such coverage from other insurance companies
in a minimum amount of at least $1,000,000,000 against any one accident or
occurrence, to the extent such coverage is generally available in the market.  Such protection and indemnity insurance shall
also extend to and protect the Mortgagee, and shall include a “misdirected
arrow” clause reasonably satisfactory to Mortgagee, in each case to the extent
available under club rules.


 


(c)                                  All insurance shall be
taken out in the names of the Shipowner and the Mortgagee as assureds for
account of themselves and the policies or certificates shall provide that there
shall be no recourse against the Mortgagee for payment of premiums, calls,
assessments, advances or commissions, and shall also provide for at least
thirty (30) days’ prior notice to the Mortgagee in event of cancellation
or reduction in coverage (as distinguished from expiration or
termination).  All policies shall be
endorsed to provide that there shall be no recourse against the Mortgagee for
payment of premiums, calls, assessments or commissions.  Upon the request of the Mortgagee and, so
long as no Default shall have occurred and be then continuing, at the sole cost
and expense of the Mortgagee, Shipowner shall obtain mortgagee’s interest
insurance in an amount and subject to such terms as are acceptable to
Mortgagee.  All policies shall provide
for a waiver of subrogation against the Shipowner’s affiliated or related
companies, unless the


 


D-8





















 


Mortgagee shall be satisfied
as to the insurance coverage in effect as to all Affiliates of the Shipowner.


 


(d)                                 All hull insurance
policies or certificates shall provide that losses thereunder shall be payable
to the Mortgagee for distribution by it as interest may appear.  Nevertheless, the policies or certificates
may provide that unless and until the underwriters or the marine insurance
broker effecting such coverage shall have been otherwise instructed by notice
in writing from the Mortgagee that an Event of Default has occurred and is
continuing under the terms of the Loan Agreement:


 


(i)                                     any loss under any
insurance on the Vessel with respect to protection and indemnity risks may be paid
directly to the person to whom any liability covered by such insurance has been
incurred or to the Shipowner to reimburse it for any loss, damage or expense
incurred by it and covered by such insurance provided that the underwriters
shall have first received evidence that the liability insured against has been
discharged, and


 


(ii)                                  in the case of any loss
(other than a loss covered by (i) above in this Paragraph (d) or
by Paragraph (e) of this Section 18) the underwriters may pay
direct for the repair, liability or other charges involved, or, if the
Shipowner shall have first fully repaired the damage and paid the cost thereof
or discharged the liability or paid such other charges, may pay the Shipowner
as reimbursement therefor, PROVIDED, HOWEVER, that the underwriter shall have
first received evidence that such damage has been fully repaired and the cost
thereof paid or the liability discharged and the charges paid; and PROVIDED,
FURTHER, that if such damage involves a loss in excess of [                                           ] DOLLARS ($                       ),
the underwriters shall not make such payment without first obtaining the
written consent thereto of the Mortgagee. 
Any loss which is paid to the Mortgagee but which might have been paid,
in accordance with the provisions of this Paragraph (d), direct to the
Shipowner, shall be paid, but only if no Default (or no event which, with the
giving of notice or the passage of time, or both, could become a Default) has
occurred and is then continuing under the Mortgage, by the Mortgagee to, or as
directed by, the Shipowner.  All payments
received by the Mortgagee under this Paragraph (d) shall, so long as
a Default shall have occurred and be continuing under the Mortgage, be
available to be applied by the Mortgagee as provided in Section 4 of Article II
hereof.


 


Unless
otherwise required by the Mortgagee, policies will contain provisions in the
forms of Exhibit 2 or Exhibit 3 hereto as may be
appropriate for the policies involved, such provisions being intended to
effectuate the provisions of this Section 18.


 


(e)                                  In the event of a Loss
Event respecting the Vessel, all amounts payable therefor shall be paid to the
Mortgagee and shall be applied, first to the payment of the expenses of the
Mortgagee in collecting such payments, and second, as provided in Section 4
of Article II hereof.


 


(f)                                    The originals of
policies, cover notes, binders and certificates, and all endorsements and
riders amendatory thereof, shall be delivered to the Mortgagee for approval, as
herein required, and custody; provided, custody of such originals may be by
Shipowner’s broker if the latter shall have delivered a letter reasonably
satisfactory to the Mortgagee respecting such originals.


 


(g)                                 The Shipowner, at all
times so long as the Mortgage is outstanding, will keep the aforesaid insurance
valid and renew it when necessary; and the Shipowner will pay the premiums


 


D-9





















 


and costs thereof when and as
the same become due and payable.  If the
Shipowner shall at any time fail to obtain and keep in effect any of the
insurance herein required, the Mortgagee may, but is not obliged to, procure
such insurance and pay any unpaid premiums, and the cost and expenses thereof,
with interest at the rate specified in any of the Notes as determined by the
Mortgagee to be applicable to overdue principal from the date of such
expenditures until paid, shall be at once repayable by the Shipowner to the
Mortgagee and shall be secured by this Mortgage.


 


(h)                                 The Shipowner will not
do any act nor voluntarily suffer or permit any act to be done whereby any
insurance covering the Vessel shall or may be suspended, impaired or defeated;
and will not suffer or permit the Vessel to engage in any employment not permitted
under the policies of insurance at the time in effect thereon, without first
covering the Vessel to the amount herein provided for by insurance for such
employment.


 


(i)                                     [Reserved].


 


(j)                                     In the event that any
claim or lien is asserted against the Vessel for a loss, damage or expense
which is covered by insurance, and it is necessary for the Shipowner to obtain
a bond or supply other security to prevent arrest of the Vessel or to release
the Vessel from arrest on account of such claim or lien, the Mortgagee, on
request of the Shipowner, may, in the sole discretion of the Mortgagee, and
upon notice to the Shipowner, assign to any person, firm or corporation
executing a surety or guarantee bond or other agreement to save or release the
Vessel from such arrest, all right, title and interest of the Mortgagee in and
to said insurance covering said loss, damage or expense, as collateral security
to indemnify against liability under said bond or other agreement.


 


(k)                                  In connection with its
requiring, permitting or approving any insurance under this Section (including
the form and amount thereof and the insurer), the Mortgagee shall be furnished
with, and may rely upon, a certificate or opinion (stating, in effect, that
said insurance complies in all respects with the applicable requirements of
this Section) of the firm of marine insurance brokers (who may be marine
insurance brokers for the Shipowner) selected by the Shipowner and reasonably approved
by the Mortgagee.


 


(l)                                     The Shipowner will
furnish to the Mortgagee (i) concurrently with the delivery of this
Mortgage, an insurance certificate or copies of cover notes and protection and
indemnity entry evidence, as applicable, with respect to the insurance carried
and maintained on the Vessel evidencing that such insurance complies in all
respects with the applicable requirements of this Section, and (ii) annually
thereafter (no later than prior to the expiration thereof) an insurance
certificate or copies of cover notes and protection and indemnity entry
evidence, as applicable, evidencing that such insurance complies in all
respects with the applicable requirements of this Section.  The Shipowner will cause its marine insurance
brokers to agree to advise the Mortgagee promptly of any default in the payment
of any premium as herein required (whether for new insurance or for insurance
replacing, renewing or extending existing insurance) and of any other act or
omission on the part of the Shipowner of which they have knowledge and which
might invalidate or render unenforceable, or cause the lapse or prevent the
renewal or extension of, in whole or in part, any insurance on the Vessel.  The Shipowner will furnish or cause to be
furnished to the Mortgagee from time to time upon request, detailed information
with respect to any of the insurances carried and maintained on the Vessel.


 


D-10





















 


(19)                            Vessel Inspection.


 


The Shipowner shall afford
the Mortgagee at all reasonable times access to the Vessel, and its papers for
the purpose of inspecting same; provided, that absent the continuation of an
Event of Default, the Mortgagee shall use reasonable efforts to arrange such
inspections so as not to interfere with the Vessel’s normal operations and
shall provide the Shipowner with no less than five (5) days’ notice of
such inspection.  The Shipowner shall
give the Mortgagee as much advance notice as possible of the time and place of
any Coast Guard inspection or American Bureau of Shipping (or other
classification society) Survey, so that the Mortgagee may if it so desires have
a representative present, but there shall be no obligation on the Mortgagee to
be present.


 


(20)                            Requisition of the Vessel.


 


In the event of requisition
of title to or use of the Vessel, the Shipowner shall (1) forthwith notify
the Mortgagee in writing of such requisition, (2) in the event it receives
any payments on account of such requisition of title, promptly pay to the
Mortgagee such payments for distribution by the Mortgagee as provided in Article II,
Paragraph (4) hereof.


 


(21)                            Compliance.


 


Promptly upon learning of
any default in the performance of or compliance with any covenant, agreement or
condition herein contained, the Shipowner shall notify the Mortgagee of such
default.


 


(22)                            Loan Agreement; Business Operations.


 


So long as this Mortgage
remains outstanding, the Shipowner will comply with the provisions of the Loan
Agreement applicable to it, and will not engage in any business or operations
other than the types in which it is presently engaged, without the prior
written consent of Mortgagee.


 


(23)                            Performance of Shipowner’s Agreements by
Mortgagee.


 


If the Shipowner shall fail
to perform any of its agreements in this Mortgage (other than with respect to
the payment of the Notes), the Mortgagee may, in its discretion, at any time
during the continuance of a Default, perform such agreements on the Shipowner’s
behalf.  All money advanced and expenses
incurred by the Mortgagee in connection therewith shall be secured under this
Mortgage and shall be repaid (together with interest at the rate specified
pursuant to the Loan Agreement as determined by the Mortgagee to be applicable
to overdue principal until paid, which shall also be so secured) by the
Shipowner upon demand.


 


(24)                            Contracts of Affreightment and Charters.


 


Notwithstanding any contract
of affreightment or charter regarding the Vessel, the Shipowner shall remain
fully responsible for all of its obligations pursuant to the Loan Agreement,
this Mortgage and the other Principal Documents (as such term is defined in the
Loan Agreement).


 


D-11





















 


ARTICLE II


 


Events of
Default and Remedies


 


(1)                                  What Constitutes “Default”.


 


Each of the following events
shall constitute a “Default”:


 


(a)                                  (i) Except as provided in clause (ii) of
this paragraph (a), failure to pay any installment of principal of the Note
when due, or any interest on the Note when due, and in each case such failure
shall continue for two (2) Business Days, or any expenses of the Lender
within ten (10) Business Days after the due date set forth in a written
notice thereof, or (ii) failure to pay any principal of or interest on the
Note due on the Maturity Date;


 


(b)                                 default by the
Shipowner in the due and punctual observance and performance of any provision
in the following sections of Article I: Section 1, 2, 5, 8, 10, 12,
13, 14, 17 and 18 (a) or (b);


 


(c)                                  default by the
Shipowner in the due and punctual observance and performance of any other
covenant, condition or agreement by it to be performed and observed contained
in this Mortgage and continuance of such default for thirty (30) days after the
earlier of (x) actual or constructive knowledge by Shipowner of such Default or
(y) written notice thereof shall have been given to Shipowner by Mortgagee;


 


(d)                                 there shall occur and
shall not have been remedied any “Event of Default” as set forth in Section 7
of the Loan Agreement.


 


(2)                                  Declaration of
Principal.


 


Upon the occurrence of a
Default the Mortgagee may, in addition to any remedy it may have under the Loan
Agreement or at law or otherwise, by notice to the Shipowner, declare the
principal of the Notes, and interest accrued thereon to be immediately due and
payable, without presentment, demand, protest, or other notice of any kind, all
of which are hereby expressly waived, provided that if such Default
results from an Event of Default specified in clause (i) of Section 7
of the Loan Agreement, then forthwith upon the occurrence of such an Event of
Default or Default the Commitment shall be terminated and the principal of the
Notes and interest thereon shall immediately become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything herein or in any of the Notes or Loan Agreement
contained to the contrary notwithstanding.


 


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


 


(3)                                  Remedies Upon Default;
Sale.


 


(a)                                  Upon the occurrence and during the
continuance of a Default the Mortgagee shall have the right (in addition to any
right or remedy it may have under any of the Notes, the Loan Agreement, the
other Principal Documents or any other instrument contemplated by any thereof)
to:


 


(1)                                  Exercise all the rights
and remedies in foreclosure and otherwise given to mortgagees by 46 U.S.C.
Chapter 313, as amended;


 


D-12





















 


(2)                                  Bring suit at law, in
equity or in admiralty to recover judgment for any and all amounts due under
the Notes, collect the same out of any and all property of the Shipowner,
whether or not the same is subject to the lien of this Mortgage, and in
connection therewith obtain a decree or decrees ordering the sale of the Vessel
in accordance with the following subdivision (5);


 


(3)                                  Have a receiver of the
Vessel appointed as a matter of right in any suit under this Section (and
such receiver may have the rights of the Mortgagee under the following
subdivisions (4) and (5));


 


(4)                                  Take the Vessel without
legal process wherever the same may be (and the Shipowner or other person in
possession shall forthwith surrender possession of the Vessel to the Mortgagee
upon demand) and hold, lay up, lease, charter, operate, or otherwise use the
Vessel for such time and upon such terms as it may reasonably deem to be for
its best advantage, accounting only for the net profits, if any, arising from
such use of the Vessel and charging against all receipts from the use thereof
or from the sale thereof by court proceedings or pursuant to the following
subdivision (5), all reasonable charges and expenses in connection with
such use of the Vessel;


 


(5)                                  Without being
responsible for loss or damage, sell the Vessel, free from any claim of the
Shipowner, by public sale, by sealed bids or otherwise, held at such time and
places and in such manner as the Mortgagee may deem advisable, after first
publishing notice of the time and place of any such sale for ten (10) consecutive
days (or in ten (10) consecutive issues) in a newspaper of general
circulation published in the City of New York, and mailing a copy of such
notice (or a similar notice), by air or otherwise, to the Shipowner at its last
known address, such publication to commence and such notice to be made at least
ten (10) days prior to the date fixed for such sale; provided that any
such sale may be adjourned from time to time without further publication or
notice (other than announcement at the time and place appointed for such sale
or adjourned sale).  It shall not be
necessary to bring the Vessel to the place appointed for any such sale or
adjourned sale.  The Mortgagee may
purchase at such sale and in case any such sale shall be made to the Mortgagee,
the Mortgagee may credit the amount due and unpaid on the Notes against the
purchase price (after deduction of the Mortgagee’s and any receiver’s charges
and expenses and of any advances by the Mortgagee pursuant to this Mortgage).


 


(b)                                 The Shipowner hereby
irrevocably appoints the Mortgagee and its assigns the true and lawful attorney
of the Shipowner, in its name and stead, to make all necessary transfers of the
Vessel in connection with any sale pursuant to the foregoing subsection (a),
and for that purpose to execute all necessary instruments of assignment and
transfer, the Shipowner hereby ratifying and confirming all that its said
attorneys shall lawfully do by virtue hereof. 
Nevertheless, the Shipowner shall, if so requested by the Mortgagee in
writing, ratify and confirm such sale by executing and delivering to the
purchaser or purchasers such proper bills of sale, conveyances, instruments of
transfer, transfer applications to government bodies, or releases as may be
designated in such request.


 


(c)                                  The Mortgagee is hereby
appointed attorney-in-fact of the Shipowner, upon the occurrence and during the
continuance of a Default, in the name of the Shipowner, to demand, collect,
receive, compromise and sue for, so far as may be permitted by law, all
freights, hire, earnings, issues, revenues, income and profits of the Vessel
and all amounts due from


 


D-13





















 


underwriters under any
insurance thereon as payment of losses or as return premiums or otherwise,
salvage awards and recoveries in general average or otherwise, and all other
sums due or to become due at the time of the happening of any Default in
respect of the Vessel, or in respect of any insurance thereon from any person
whomsoever, and to make, give and execute in the name of the Shipowner
acquittances, receipts, releases or other discharges for the same, whether
under seal or otherwise, and to endorse and accept in the name of the Shipowner
all checks, notes, drafts, warrants, agreements and all other instruments in
writing with respect to the foregoing.


 


(d)                                 Whenever any right to
enter and take possession of the Vessel accrues to the Mortgagee, it may
require the Shipowner to deliver, and the Shipowner shall on demand, at its own
cost and expense, deliver to the Mortgagee the Vessel as demanded.  If any legal proceedings shall be taken to
enforce any right under this Mortgage, the Mortgagee shall be entitled as a
matter of right to the appointment of a receiver of the Vessel and the
freights, hire, earnings, issues, revenues, income and profits due or to become
due and arising from the operation thereof.


 


(e)                                  A sale of the Vessel
made in pursuance of this Mortgage, whether under the power of sale hereby
granted or any judicial proceedings, shall operate to divest all right, title
and interest of any nature whatsoever of the Shipowner therein and thereto, and
shall bar the Shipowner, its successors and assigns, and all persons claiming
by, through or under them.  No purchaser
shall be bound to inquire whether notice has been given, or whether any Default
has occurred, or as to the propriety of the sale, or as to the application of
the proceeds thereof.


 


(f)                                    Each and every power
and remedy herein given to the Mortgagee shall be cumulative and shall be in
addition to every other power and remedy herein or now or hereafter existing at
law, in equity, in admiralty, or by statute, and each and every power and
remedy whether herein given or otherwise existing may be exercised from time to
time and as often and in such order as may be deemed expedient by the Mortgagee,
and the exercise or the beginning of the exercise of any power or remedy shall
not be construed to be a waiver of the right to exercise at the same time or
thereafter any other power or remedy.


 


(g)                                 No delay or omission to
exercise any right or remedy shall impair any such right or remedy or shall be
deemed to be a waiver of any Default, nor shall any single or partial exercise
of any right or remedy hereunder preclude any other or further exercise thereof
or the exercise of any other right or remedy, nor shall the acceptance by the
Mortgagee of any security or of any payment of or on account of any part of any
Note maturing after any Default of or any payment on account of any past
Default be construed to be a waiver of any right to take advantage of any future
Default not completely cured thereby.


 


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


 


(i)                                     No recovery of any
judgment by the Mortgagee, and no levy of execution upon any such judgment,
shall affect or impair the lien of this Mortgage or any rights or remedies of
the Mortgagee.  Shipowner acknowledges
that the Vessel may from time to time be found outside a jurisdiction wherein
enforcement of the remedies provided hereunder may, in the opinion of the
Mortgagee, be advantageously sought and that enforcement of such remedies is an
essential element of the bargain between Shipowner and the Mortgagee.  Shipowner therefore agrees upon the happening
of a Default to move the Vessel to the nearest United States port which lies
within the jurisdiction of a United States District Court having the power to
enforce this Mortgage in a


 


D-14





















 


suit in rem in admiralty and
further that such agreement of the Shipowner may be specifically enforced by
the Mortgagee.


 


(4)                                  Application of Proceeds.


 


(1) After a Default
shall have occurred and be continuing and the Mortgagee shall exercise any
right or remedy under any Principal Document, the proceeds of the sale of the
Vessel and the net earnings from any lease, charter or other use of the Vessel
by the Mortgagee under any of the foregoing powers, (2) the proceeds of
any judgment collected by the Mortgagee for any Default hereunder, (3) the
proceeds of any insurance or any claim for damages on account of the Vessel
received by the Mortgagee while exercising any such power, and (4) all
other amounts received under this Mortgage by the Mortgagee shall be applied by
the Mortgagee as follows:


 


FIRST.  To the payment of all advances by the
Mortgagee pursuant to this Mortgage and all reasonable charges and expenses of
the Mortgagee (including, without limitation, the expense of any sale or
retaking, attorney’s fees and expenses, court costs and other expenses or
advances made or incurred by the Mortgagee in the protection of its rights or
the pursuance of its remedies hereunder); and to provide adequate indemnity to
the Mortgagee against liens claiming priority over or equality with this
Mortgage;


 


SECOND.  To the payment of the whole amount then due
and unpaid upon the Notes on a ratable basis and in case such remaining moneys
are insufficient to pay said whole amount then due and unpaid, first to the
payment of all interest (including, to the extent legally enforceable, interest
on any overdue installments of principal and interest as provided in the Notes)
on the Notes on a ratable basis, then to the payment of the due and unpaid
principal of the Notes on a ratable basis and then to any other amounts due and
unpaid regarding the Notes on a ratable basis;


 


THIRD.  Any remaining moneys shall be paid to the
Shipowner, subject to the claims of any persons who may lawfully be entitled
thereto.


 


(5)                                  General Powers of
Mortgagee.


 


(a)                                  In the event the Vessel shall be arrested or
detained by a marshal or other officer of any court of law, equity or admiralty
jurisdiction in any country or nation of the world or by any government or
other authority and shall not be released from arrest or detention within
fifteen (15) days from the date of arrest or detention, the Shipowner hereby
authorizes the Mortgagee, in the name of the Shipowner, to apply for and
receive possession of and to take possession of such Vessel with all the rights
and powers that the Shipowner might have, possess and exercise in any such
event.  This authorization is irrevocable
and may be exercised not only by the Mortgagee but also by an appointee of the
Mortgage; with full power of substitution, to the same extent as if the same
appointee had been named herein.


 


(b)                                 If a Default shall have
occurred and be continuing, the Shipowner also authorizes the Mortgagee or its
appointee to appear in the name of the Shipowner in any court of any country or
nation of the world where a suit is pending against such Vessel because of or
on account of any alleged lien against such Vessel from which said Vessel has
not been released.


 


(c)                                  All reasonable expenses
incurred pursuant to subsections (a) and (b) of this Section shall
constitute a debt due from the Shipowner to the Mortgagee and shall be secured
by


 


D-15





















 


the lien of this Mortgage, but
the Mortgagee shall not be obligated to take the action authorized by subsections (a) and
(b) of this Section.


 


ARTICLE III


 


Discharge
of Mortgage


 


If the Shipowner, its
successors or assigns, shall pay or cause to be paid to the Mortgagee the
Secured Obligations by paying the Notes in accordance with the terms thereof
and shall keep, perform and observe all and singular the terms, covenants and
agreements in the Loan Agreement, in this Mortgage and in the other Principal
Documents, expressed or implied to be kept, performed or observed by or on the
part of the Shipowner, the Mortgagee, upon the written request of and at the
expense of the Shipowner, shall execute and deliver to the Shipowner a duly
executed instrument satisfying and discharging this Mortgage.


 


ARTICLE IV


 


Miscellaneous


 


(1)                                  Rights of Shipowner in
Absence of Default.


 


So long as there is no Default, the Shipowner (1) shall
be suffered and permitted to retain actual possession and use of the Vessel and
(2) shall have the right, from time to time, in its discretion, and
without the consent of or release by the Mortgagee, to dispose of, free from
the lien hereof, any and all engines, boilers, machinery, masts, boats,
anchors, cables, chains, rigging, tackle, apparel, furniture, capstans, outfit,
tools, pumps, pumping and other equipment, and all other appurtenances thereto,
and also any and all additions, improvements and replacements in or to the
Vessel or said appurtenances, upon replacing the same with items which are in
good operating condition, of substantially equal or greater value and utility
as the items replaced and free and clear of all liens and encumbrances (other
than those in favor of the Mortgagee pursuant to the Principal Documents).


 


(2)                                  Successors and Assigns.


 


This Mortgage shall be
binding upon and inure to the benefit of the Shipowner and the Mortgagee and
their respective successors and assigns.


 


(3)                                  No Waiver of Preferred
Status.


 


No provision of this
Mortgage shall be deemed to be a stipulation that the Mortgagee waives the
preferred status hereof given by Title 46 United States Code
Chapter 313, and any provision of this Mortgage which would otherwise
constitute such a stipulation shall to such extent be of no force or effect.


 


(4)                                  Requisition; Execution
of Documents.


 


In the event that the title
to the Vessel is requisitioned or taken over by the United States, or by any
department or agency thereof, or in the event that only the possession and use
of the Vessel is requisitioned but the Vessel is thereafter lost by a risk
assumed by the United States, or for which the United States may be
responsible, the Shipowner agrees to execute such “pay-orders” or other
documents as may be necessary to authorize the United States, it officers and
agents, to pay the amount of just or


 


D-16





















 


agreed compensation for
the Vessel or for the loss of the Vessel to the Mortgagee for distribution to
the Shipowner and the Mortgagee as their interest may appear.


 


(5)                                  Notices and Other
Communications.


 


All notices and other
communications under this Mortgage shall be in writing, shall be effective upon
receipt, and shall be delivered or mailed and addressed as follows:


 


	
  The Shipowner:

  	
  if by United States Postal Service:

  
	
   

  	
   

  
	
   

  	
  K-Sea Operating
  Partnership, L.P.

  
	
   

  	
  3245 Richmond Terrace

  
	
   

  	
  Staten Island, NY 10303

  
	
   

  	
  Attention:
  John Nicola, C.F.O.

  
	
   

  	
  Facsimile No.: (718) 815-4650

  
	
   

  	
   

  
	
   

  	
  if by overnight delivery service:

  
	
   

  	
   

  
	
   

  	
  K-Sea Operating
  Partnership, L.P.

  
	
   

  	
  3245 Richmond Terrace

  
	
   

  	
  Staten Island, NY 10303

  
	
   

  	
  Attention:
  John Nicola, C.F.O.

  
	
   

  	
   

  
	
  The Mortgagee:

  	
  if by United States Postal Service:

  
	
   

  	
   

  
	
   

  	
  First Union Commercial Corporation

  
	
   

  	
  One Wachovia Center

  
	
   

  	
  Mail Code NC0738

  
	
   

  	
  Charlotte, North Carolina 28288-0738

  
	
   

  	
  Attention: Linda H. Minter

  
	
   

  	
  Facsimile No.: (704) 383-1572

  
	
   

  	
   

  
	
   

  	
  if by overnight delivery service:

  
	
   

  	
   

  
	
   

  	
  First Union Commercial Corporation

  
	
   

  	
  301 South College Street, 18th Floor

  
	
   

  	
  Charlotte, North Carolina 28202

  
	
   

  	
  Attention: Linda H. Minter

  



 


or addressed to either party (or its successor
hereunder) at such other address as such party (or successor) shall hereinafter
furnish to the other party (or successor) in writing.


 


(6)                                  Execution in
Counterparts.


 


This Mortgage may be
executed in any number of counterparts. 
Each such counterpart shall be deemed to be an original and all such
counterparts shall together constitute one and the same instrument.


 


(7)                                  Titles and Headings.


 


The Titles of the Articles
and the headings of the Sections are not a part of this Mortgage and shall not
be deemed to affect the meaning of or construction of any of its provisions.


 


D-17





















 


(8)                                  Illegality.


 


If this Mortgage or any
provision of this Mortgage or the application thereof to any person or
circumstance shall be invalid or unenforceable to any extent, the remainder of
this Mortgage and the application of such provision to other persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.


 


(9)                                  Information for
Recording of Mortgage.


 


For the purpose of
Title 46, United States Code, Section 31321(b)(3) enacted
effective January 1, 1989 as part of Public Law 100-7 10 and for the
purpose of this Preferred Mortgage and the filing and recordation hereof as
required and permitted by Public Law 100-710 and without derogating
from any other term of this Preferred Mortgage, the amount that is secured by
this Preferred Mortgage, exclusive of interest, expenses or fees, is Eleven
Million Dollars ($11,000,000.00).  There
is no separate discharge amount.


 


(10)                            Swap Agreements.


 


The Shipowner expressly acknowledges and agrees that
all Swap Obligations constitute “Secured Obligations” secured by the Vessel and
the other Collateral securing such Secured Obligations.  Notwithstanding the foregoing, the Shipowner
acknowledges and agrees that all Swap Agreements are independent agreements
governed by the written provisions of said Swap Agreements, which will remain
in full force and effect, unaffected by any repayment, prepayment,
acceleration, reduction, increase or change in the terms of any Principal
Document, except as otherwise expressly provided in said written Swap
Agreements, and any payoff statement from Mortgagee relating to the Loan shall
not apply to said Swap Agreements unless expressly referred to in such payoff
statement.


 


[The remainder of this page is
intentionally left blank.]


 


D-18





















 


IN WITNESS WHEREOF, this
instrument has been executed and delivered 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:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John Nicola

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  



 


D-19





















 


	
  STATE OF

  	
  )

  
	
   

  	
  )

  
	
  COUNTY OF 

  	
  )

  



 


On the           
day of                                    ,
before me personally came                                          ,
to me known, who, being by me duly sworn, did depose and say that he resides at
                                                            
that he is the Chief Financial Officer of K-Sea OLP GP, LLC, the limited
liability company, which is the general partner in K-Sea Operating Partnership,
L.P., the Delaware limited partnership described in the foregoing instrument and
said general partner executed the above instrument on behalf of said limited
partnership pursuant to authority granted to said general partner in the
Amended and Restated Agreement of Limited Partnership creating said limited
partnership; and that he signed his name thereto pursuant to authority granted
to him by all the members of said limited liability company.


 


 


	
   

  	
   

  	
   

  
	
   

  	
  Notary Public

  



 


D-20





















 


Exhibit 1 to Mortgage


 


[Attach
copy of Loan Agreement]


 


D-21





















 


Exhibit 2 to Mortgage


 


Form of
Loss Payable Clause, etc.


for P&I
coverage


(                  )


 


It is noted that by an
assignment in writing dated as of                              ,
200_, the Shipowner assigned absolutely to FIRST UNION COMMERCIAL CORPORATION,
a North Carolina corporation (hereinafter called the “Mortgagee”) this
policy and all benefits thereof including all claims of whatsoever nature
thereunder.


 


All losses shall be payable to
the Mortgagee, for distribution by it to itself or to the Shipowner as interest
may appear.


 


Nevertheless, unless otherwise
required by the Mortgagee by notice to the underwriters, although the following
insurance is payable to the Mortgagee, any loss with respect to any protection
and indemnity risks covered hereby may be paid directly to the Shipowner to
reimburse it for any loss, damage or expense incurred by it and covered by such
insurance or directly to the person to whom any liability covered by such
insurance has been incurred.


 


The Mortgagee shall have no
obligation or liability under this policy by reason of or arising out of the
above-mentioned assignment or the First Preferred Mortgage dated as of                             ,
200_ or otherwise or any performance thereof, but the Mortgagee may perform any
of the obligations or duties of the Shipowner hereunder (but any such performance
shall not release the Shipowner therefrom), nor shall the Mortgagee be
obligated to make any payment, or to make any inquiry as to the sufficiency of
any payment received by any of them, or to present or file any claim or to take
any other action to collect or enforce any claim or right hereunder.


 


The Mortgagee is hereby
covered as an additional assured, but there shall be no recourse against the
Mortgagee, even though named as assured, for payment of premiums, calls or
assessments or any other payments.  The
underwriters will notify the Mortgagee promptly of any lapse of insurance by
expiration, failure to renew or otherwise and of any default in payment of
premium and of any other act or omission of Shipowner known to underwriters
which might invalidate or render unenforceable in whole or in part any
insurance on the Vessel.  Underwriters
will advise the Mortgagee by telefax at least fifteen (15) business days prior
to expiration date if any coverage has not been renewed or replaced with new
coverage which complies with Article I, Section 18 of the First
Preferred Mortgage dated as of                             ,
200    from the Shipowner to the Mortgagee.  Coverage will not lapse, expire, terminate or
be canceled for any reason whatsoever without at least thirty (30) days prior
written or telefaxed notice to the Mortgagee.


 


D-22





















 


Exhibit 3
to Mortgage


 


Form of
Loss Payable Clause, etc.


for all
coverages except P&I


(                  )


 


It is noted that by an
assignment in writing dated as of                                     ,
200_, the Shipowner assigned absolutely to FIRST UNION COMMERCIAL CORPORATION,
a North Carolina corporation (hereinafter called the “Mortgagee”) this
policy and all benefits thereof including all claims of whatsoever nature
thereunder.


 


All losses, including (i) claims
under the collision clause notwithstanding any provision therein to the
contrary, and (ii) claims hereunder payable in respect of an actual or
constructive total loss or a requisition shall be payable to the Mortgagee, for
distribution by it to itself or to the Shipowner as interest may appear, but no
such arrangement or compromise shall be effected without the prior written
consent of the Mortgagee.


 


Subject to the foregoing,
unless otherwise required by the Mortgagee by notice to the underwriters,
although the following insurance is payable to the Mortgagee, (i) any loss
with respect to any protection and indemnity risks covered hereby may be paid
directly to the Shipowner to reimburse it for any loss, damage or expense
incurred by it and covered by such insurance or directly - to the person to
whom any liability covered by such insurance has been incurred, and (ii) in
the case of any loss under any insurance with respect to the Vessel involving
any damage to the Vessel, the underwriters may pay directly for the repair,
salvage or other charges involved or, if the Shipowner shall have first fully
repaired the damage and paid the cost thereof or discharged the liability or
paid all of the salvage or other charges, then the underwriters may pay the
Shipowner as reimbursement therefor; provided that if such loss, damage,
expense or claim involves a loss in excess of [$                       ],
the underwriters shall not make such payment without first obtaining the
written instruction of the Mortgagee.


 


The Mortgagee shall have no
obligation or liability under this policy by reason of or arising out of the
above-mentioned assignment or the First Preferred Mortgage dated as of                            ,
200    from the Shipowner to the Mortgagee or any performance
thereof but the Mortgagee may perform any of the obligations or duties of the
Shipowner hereunder (but any such performance shall not release the Shipowner therefrom),
nor shall the Mortgagee be obligated to make any payment, or to make any
inquiry as to the sufficiency of any payment received by any of them, or to
present or file any claim or to take any other action to collect or enforce any
claim or right hereunder.


 


The Mortgagee is hereby
covered as an additional assured, but there shall be no recourse against the
Mortgagee, even though named as assured, for payment of premiums, calls or
assessments or any other payments.  The underwriters
will notify the Mortgagee promptly of any lapse of insurance by expiration,
failure to renew or otherwise and of any default in payment of premium and of
any other act or omission of Shipowner known to underwriters which might
invalidate or render unenforceable in whole or in part any insurance on the
Vessel.  Underwriters will advise the
Mortgagee by telefax at least fifteen (15) business days prior to expiration
date if any coverage has not been renewed or replaced with new coverage which
complies with Article I, Section 18 of the First Preferred Mortgage
dated as of                           ,
200    from the Shipowner to the Mortgagee.  Coverage will not lapse, expire, terminate or
be canceled for any reason whatsoever without at least thirty (30) days prior
written or telefaxed notice to the Mortgagee.


 


D-23










 













Exhibit E


 


ASSIGNMENT OF INSURANCES, ETC.


 


The undersigned, being a limited partnership organized
and existing under the laws of the State of Delaware (hereinafter called the “Assignor”),
as of                                            ,
200    hereby agrees as follows:


 


1.             The Assignor, in
consideration of Ten Dollars ($10.00), lawful money of the United States, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, has and hereby does give, grant, bargain, sell, convey,
warrant, remise, release, assign, transfer, mortgage, hypothecate, deposit,
pledge, confirm and set over unto FIRST UNION COMMERCIAL CORPORATION, a North
Carolina corporation (hereinafter called the “Assignee”), and unto the
Assignee’s successors and assigns, to its and its successors’ and assigns’ own
proper use and benefit, and, as collateral security for its indebtedness to the
Assignee and its other payment and performance obligations to the Assignee now
or hereafter existing pursuant to the Principal Documents and any Swap
Obligations, does hereby grant the Assignee a security interest in, all the
Assignor’s right, title and interest in and to (i) all moneys and claims
for moneys due and to become due to the Assignor and all claims for damages in
respect of the actual or constructive total loss of, or physical damage to, or
requisition of use of or title to, the vessel                     ,
Official Number                      ,
owned by it (the “Vessel”), (ii) all insurance on and in respect of
the Vessel, including, without limitation, rights under entries in protection
and indemnity clubs or associations or the like, (iii) all the right,
title and interest of Assignor in, and all claims and rights of Assignor under
or pursuant to all contracts for the construction (subject to the terms of the
Assignment of Purchase Contract dated as of             ,
200   given by the Assignor to the Assignee), reconstruction,
purchase, repair, or maintenance of the Vessel, and (iv) any proceeds of
any of the foregoing.  As used in the
preceding sentence, the term “insurance” includes (i) all insurances in
respect of the Vessel whether now or hereafter to be effected, and all renewals
of or replacements for the same, (ii) all claims, returns of premium and
other monies and claims for monies due and to become due under said insurance
or in respect of said insurance, and (iii) all other rights of the
Assignor under or in respect of said insurance.


 


2.             The Assignor covenants
that, whenever requested by the Assignee, it will have all proceeds of the
foregoing paid over to the Assignee promptly and that the Assignor will,
whenever requested by the Assignee, send letters (in form and substance
reasonably satisfactory to the Assignee) by facsimile, by a nationally recognized
overnight delivery service and/or by certified mail to each of the Assignor’s
agents and representatives into whose hands or control may come any such
proceeds hereby assigned, informing each such addressee of this Assignment and
instructing such addressee to remit promptly to the Assignee all such proceeds
which may come into the addressee’s hands or control and to continue to make
such remittances until such time as the addressee may receive written notice or
instructions to the contrary direct from the Assignee.  The Assignor further covenants that each such
addressee will acknowledge directly to the Assignee receipt of the Assignor’s
facsimiles and letters of notification and instructions.


 


The Assignor hereby covenants and agrees whether or not
Assignee has made a request therefor to procure that notice of this Assignment
shall be duly given to all underwriters in the form annexed hereto or in such
other form as Assignee shall approve and that where the consent of any
underwriter is required pursuant to any of the insurances assigned hereby that
it shall be obtained and evidence thereof shall be given to the Assignee, or,
in the alternative, that in the case of protection and indemnity coverage the
Assignor shall obtain a letter of undertaking by the underwriters duly noting
the interest of the Assignee and that there shall be duly endorsed upon all
slips, cover notes, policies, certificates of entry or other instruments issued
or to be issued in connection with the insurances assigned hereby such clauses
as


 


E-1





















 


to loss payees as the
Assignee may reasonably require or approve. 
In all cases, unless otherwise agreed in writing by the Assignee, such
slips, cover notes, notices, certificates of entry or other instruments shall
provide that there will be no recourse against the Assignee for payment or
premiums, calls or assessments.


 


3.             It is expressly agreed
that anything herein contained to the contrary notwithstanding, the Assignee
shall have no obligation or liability under any such insurance policies,
contracts or other documents by reason of or arising out of this instrument of
assignment nor shall the Assignee be required or obligated in any manner to
perform or fulfill any obligations of the Assignor under or pursuant to any
thereof or to make any payment or to make any inquiry as to the nature or
sufficiency of any payment received by it or to present or file any claim, or
to take any other action to collect or enforce the payment of any amounts which
may have been assigned to it or to which it may be entitled to hereunder at any
time or times.


 


4.             Assignor does hereby
constitute the Assignee, its successors and assigns, the Assignor’s true and
lawful attorney, irrevocably, with full power (in the name of the Assignor or
otherwise) to ask, require, demand, receive, compound and give acquittance for
any and all moneys, claims, property and rights hereby assigned, to endorse any
checks or other instruments or orders in connection therewith, to file any
claims or to take any action or institute any proceedings which to the Assignee
may seem to be necessary or advisable in the premises, and to send (in Assignor’s
name or otherwise) the notices and instructions contemplated by
paragraph 2 hereof.


 


5.             The powers and
authority granted to the Assignee herein have been given for a valuable
consideration and are hereby declared to be irrevocable.


 


6.             Assignor agrees that at
any time and from time to time, upon the written request of the Assignee, the
Assignor will promptly and duly execute and deliver any and all such further
instruments and documents as the Assignee reasonably may deem desirable in
obtaining the full benefits of this Assignment and of the rights and powers
herein granted.


 


7.             Assignor does hereby
warrant and represent that it has not assigned or pledged, and hereby covenants
that, without the prior written consent thereto of the Assignee, so long as
this instrument of assignment shall remain in effect, it will not assign or
pledge the whole or any part of the right, title and interest hereby assigned
to anyone other than the Assignee, its successors or assigns, and it will not
take or omit to take any action, the taking or omission of which might result
in an alteration or impairment of said rights or this Assignment.


 


8.             Assignor represents and
warrants that its chief executive office and the place where it is located for
all purposes under the Uniform Commercial Code is that set after its name below
and that it will promptly notify the Assignee of any change.


 


9.             This agreement shall be
governed by the law of the State of New York and may not be amended or changed
except by an instrument in writing.  The
Assignee shall, in addition to the rights hereby conferred, be entitled to all
the rights of a creditor under the Uniform Commercial Code of the State of New
York.


 


10.           Assignor agrees that
the Assignee may file any financing statements or papers of similar purpose or
effect relating to this Assignment and may execute any such financing statements
or papers in Assignor’s name.


 


E-2





















 


11.           This agreement is
delivered pursuant to a certain Loan Agreement dated as of March ___, 2005
between Assignor and Assignee (as amended, modified, supplemented, restated
and/or replaced from time to time, the “Loan Agreement”).  Capitalized terms used herein but not
otherwise defined herein shall have the meanings set forth therefor in the Loan
Agreement.  Nothing herein shall be
deemed to grant or extend to any Assignor the right to charter the Vessel,
which matter is governed by the Loan Agreement and the Mortgage (regarding the
Vessel) therein referred to.  This
agreement secures the Loan Agreement and the other instruments and documents
which the Loan Agreement contemplates it shall secure.


 


12.           Assignor covenants and
warrants that it will defend Assignee’s rights hereunder at Assignor’s expense
against the claims or demands of all third parties whomsoever.


 


13.           All communications and
notices provided for or permitted hereunder shall be in writing and shall be
sent postage prepaid, by a nationally recognized overnight delivery service, or
cabled, and confirmed by letter with postage prepaid or by nationally
recognized overnight delivery service, to Assignor at its address set forth
below and Assignee at its address set forth from time to time for the receipt
of notices under the Loan Agreement.


 


14.           Assignee may further
assign its rights hereunder on notice to Assignor in accordance with the terms
of Section 8.7 of the Loan Agreement.


 


E-3





















 


IN
WITNESS WHEREOF, the Assignor has caused this Assignment to be duly executed 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:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John Nicola

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  3245
  Richmond Terrace

  
	
   

  	
  Staten
  Island, NY 10303

  



 


E-4





















 


NOTICE OF INSURANCES ASSIGNMENT


 


 


TO:         [ADD NAME OF
INSURANCE PROVIDER]


 


TAKE NOTICE:


 


As of                               
         , 200  ,


 


(a)           that by an Assignment
of Insurances, etc. dated as of                               
      , 200  , made by us to FIRST
UNION COMMERCIAL CORPORATION, a North Carolina corporation (the “Assignee”),
a copy of which is attached hereto, we have assigned to the Assignee as from
the date hereof, inter  alia, all our right, title and interest
in, to and under all policies and contracts of insurances and our rights under
all entries in any Protection and Indemnity Association or Club and War Risk
insurance which are from time to time taken out by us in respect of the vessel                      ,
Official Number                       
(the “Vessel”) and her earnings and all the benefits thereof including
all claims of whatsoever nature (all of which together are hereinafter called
the “Insurances”).


 


(b)           that you are hereby
irrevocably authorized and instructed to pay as from the date hereof all
payments under,


 


(i)            all Insurances, except
entries in Protection and Indemnity Associations in lieu of such entries,
relating to the Vessel in accordance with the loss payable clause in Exhibit 3
to the First Preferred Mortgage dated as of                              
         , 200   made by
us to Assignee, a copy of which is annexed hereto;


 


(ii)           all entries in
Protection and Indemnity Associations or Clubs or insurances affected in lieu
of such entries in accordance with the loss payable clause in Exhibit 2
to the First Preferred Mortgage dated as of                           
      , 200   made by us to Assignee, a
copy of which is annexed hereto;


 


(c)           that you are hereby
instructed to endorse the assignment, notice of which is given to you herein,
on all policies or entries relating to the Vessel.


 


E-5





















 


The undersigned has caused this Notice of Insurances
Assignment to be duly executed and delivered 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:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John Nicola

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  



 


 


	
  We
  hereby acknowledge receipt of the foregoing Notice of Assignment and agree to
  act in accordance with the terms thereof:

  	
   

  
	
   

  	
   

  
	
  [ADD NAME OF INSURANCE PROVIDER]

  	
   

  
	
   

  	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
						



 


E-6





















 


[Attach Assignment of  Insurances, Loss Payable Clause, etc. for
P&I Coverage


(Exhibit 2 to Ship Mortgage)


and


Loss Payable Clause, etc. for all
Coverages except P&I


(Exhibit 3 to Ship
Mortgage)]


 


E-7





















 


Exhibit F


 


[Form of Collateral Assignment]


 


COLLATERAL ASSIGNMENT OF [LEASE / CHARTER ETC.]


 


[Please
note that this document is to be conformed to the type of agreement being
collaterally assigned.]


 


THIS COLLATERAL ASSIGNMENT
OF [LEASE / CHARTER ETC.] (“Assignment”)
is made as of                   
    , 20      by K-SEA OPERATING
PARTNERSHIP, L.P. (“Debtor”), a Delaware limited partnership, having its principal
place of business at 3245 Richmond Terrace, Staten Island, NY 10303, for the
benefit of FIRST UNION COMMERCIAL CORPORATION (“Secured Party”), a North
Carolina corporation, having its principal place of business at One Wachovia
Center, Mail Code NC0738, Charlotte, North Carolina 28288-0738.


 


RECITALS


 


A.            Secured Party has entered into that certain
Loan Agreement (as amended, modified or supplemented from time to time, the “Loan
Agreement”) dated as of March      , 2005 with
Debtor with respect to certain vessels as described in the Loan Agreement (the “Vessels”).


 


B.            Debtor desires to permit the use of the
Vessels pursuant to that certain [                           
(“Lease Agreement”)] dated as of             
     , 20      between Debtor
and [                        
(“Lessee)] a copy of which is attached hereto as Exhibit A.


 


C.            To induce Secured Party to permit the use of
the Vessels by Lessee pursuant to the Lease Agreement and in order to secure
the obligations to be paid and performed by Debtor under the Loan Agreement and
any Swap Obligations, Debtor desires to grant a first priority security
interest in and assign its rights under the Lease Agreement and each schedule thereto
and the proceeds thereof to Secured Party.


 


NOW,
THEREFORE, based on the foregoing and the mutual promises made herein and other
good and valuable consideration the receipt and adequacy of which is
acknowledged by the parties hereto, such parties agree as follows:


 


1.             Grant of Security Interest. 
Debtor does hereby grant to Secured Party a first priority security
interest in and assigns to Secured Party all of its right, title and interest
in and to the Lease Agreement and all proceeds arising or due under the Lease
Agreement and each schedule thereto. 
Secured Party accepts such assignment, and, notwithstanding anything
herein to the contrary, the parties specifically acknowledge and agree that
Secured Party is not, and shall not be deemed to be, assuming any obligations
under or in connection with the Lease Agreement.  Until Secured Party shall have provided
Debtor and Lessee with a notice of default by Debtor under the Loan Agreement,
Debtor shall be entitled to act as “Lessor” under the Lease Agreement and
receive all proceeds thereunder; provided, however, any rent or
other proceeds collected thereunder more than thirty (30) days prior to the due
date thereof shall be deemed to have been collected on behalf of Secured Party,
shall be segregated from other funds of Debtor and shall be held in trust for
the benefit of Secured Party; provided, further, upon notice to
Debtor and Lessee of a default (the “Default Notice Date”) by Debtor under the
Loan Agreement, all amounts due under the Lease Agreement shall be remitted to
Secured Party at:


 


F-1





















 


FIRST UNION COMMERCIAL CORPORATION (“Secured Party”),
a North Carolina corporation, having its principal place of business at One
Wachovia Center, Mail Code NC0738, Charlotte, North Carolina  28288-0738.


 


First Union Commercial Corporation


One Wachovia Center, Mail Code NC0738,


Charlotte,
North Carolina  28288-0738


 


From
and after the Default Notice Date, Secured Party shall be entitled to exercise
all rights and remedies available to “Lessor” under the Lease Agreement and any
amounts received by Debtor under the Lease Agreement shall be deemed to have
been collected on behalf of Secured Party, shall be segregated from other funds
of Debtor and shall be held in trust for the benefit of Secured Party.


 


2.             Representation of Debtor.  Debtor
covenants and represents that: (i) the Lease Agreement is a permitted
pursuant to the terms of the Loan Agreement; (ii) it has full right and
title to assign to Secured Party the Lease Agreement and each schedule thereto
and the rents and profits due or to become due thereunder; (iii) no grant
of a security interest or prior assignment of any interest in the Lease
Agreement or any schedule thereto or proceeds thereof has been made; (iv) without
the prior written consent of Secured Party, Debtor will not cancel, surrender
or terminate the Lease Agreement or any schedule thereto or change, alter
or modify the same or waive any provision thereof or allow premature
termination thereof or execute any other assignment with respect thereto; (v) the
Lease Agreement and each schedule thereto is subject and subordinate to
the Mortgage including, without limitation, Secured Party’s right to
repossession; and (vi) the Lease Agreement attached hereto constitutes all
of all of the documents executed or delivered to or by Debtor in connection
with the Lease Agreement or the use of the Vessels by Lessee, and such
documents constitute the entire agreement of the parties with respect to the
transaction evidenced thereby.  Debtor
represents, warrants and covenants that its principal place of business, chief
executive office and place of maintenance of its books and records with respect
to the Vessels and the Lease Agreement and each schedule thereto is as set
forth above, and it will not change such address without providing Secured
Party at least thirty (30) days prior written notice specifying the Debtor’s
new address.


 


3.             Liens.  Except as permitted by the
Loan Agreement or any other Principal Document, Debtor shall not permit or
cause to exist any liens, claims or encumbrances on the Vessels (other than the
Lease Agreement) or on the Lease Agreement (except for this Assignment) or any schedule thereto,
except those liens, claims and encumbrances arising by, through or under
Secured Party, and Debtor agrees to take any and all action required, necessary
or prudent in the reasonable opinion of the Secured Party to perfect and
maintain the perfection of the first priority securities interest granted to
Secured Party hereby.


 


4.             Successors and Assigns.  The
provisions of this Assignment shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.


 


5.             Governing Law.  This
Assignment shall be governed by, and construed in accordance with, the laws of
the State of New York.


 


6.             Counterparts.  This
Assignment may be executed in any number of counterparts, each of which when so
executed shall be binding on all parties hereto notwithstanding that all
parties are not signatories to the same counterpart.


 


F-2





















 


7.             Further Assurance.  The
parties hereto agree to take such further actions and to execute such documents
or agreements (including any assignments of purchase orders and bills of sale)
as may be reasonably requested by either party to carry out the agreements and
assignment set forth herein.


 


8.             Survival.  The representations,
warranties and agreements set forth herein shall survive the execution and
delivery of this Agreement.


 


[The remainder of this page is intentionally
left blank.]


 


F-3





















 


IN WITNESS WHEREOF, this
Assignment has been duly executed as of the date first above written.


 


	
   

  	
  DEBTOR:

  
	
   

  	
   

  	
   

  
	
   

  	
  K-SEA
  OPERATING PARTNERSHIP, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  K-Sea OLP GP, LLC, its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John Nicola

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SECURED
  PARTY:

  
	
   

  	
   

  	
   

  
	
   

  	
  FIRST
  UNION COMMERCIAL CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  



 


F-4





















 


Exhibit G


 


PURCHASE AGREEMENT ASSIGNMENT


 


THIS
PURCHASE AGREEMENT ASSIGNMENT (this “Assignment”) dated as of                             
          , 200  
among K-Sea Operating Partnership, L.P. (the “Assignor”), First Union
Commercial Corporation (together with its successors and assigns, the “Assignee”)
and                                  
(the “Builder”).  Capitalized
terms used herein without definition will have the same meaning as in the
Purchase Agreement.


 


Assignor
and Builder are parties to the [Vessel Construction
Agreement] dated as of                             ,
200   (the “Purchase
Agreement”), providing, among other things, for the sale by Builder to
Assignor of the Vessel.


 


Assignor
wishes to assign certain rights and interests under the Purchase Agreement to
Assignee on the following terms and conditions to secure certain indebtedness
and Assignee is willing to accept such assignment as herein set forth.


 


It
is agreed as follows:


 


1.             For all purposes of this Assignment, the
following terms will have the following meanings:


 


Vessel —                                                                .


 


Delivery Date
— the date on which the Vessel is scheduled to be delivered by Builder to
Assignor pursuant to and subject to the terms and conditions of the Purchase
Agreement and this Assignment.


 


Loan Agreement
— Loan Agreement dated as of March         ,
2005 between Assignee and Assignor.


 


2.             Assignor does hereby represent and warrant
that (a) it has furnished to Assignee a true and complete copy of the
Purchase Agreement as it relates to all of Builder’s warranties or related
obligations or any right in the Purchase Agreement assigned to Assignee
hereunder and (b) the Purchase Agreement is in full force and effect and
Assignor is not in material default thereunder.


 


3.             Subject to the provisions of paragraph 4
below, Assignor does hereby sell, assign, transfer and set over unto Assignee
in accordance with the terms of the Loan Agreement all of Assignor’s right,
title and interest in and to the Purchase Agreement and Assignee hereby accepts
such assignment, including, without limitation, in such assignment:


 


(a)           the right upon valid tender to purchase the
Vessel pursuant to the Purchase Agreement subject to the terms and conditions
thereof and the right to take title to the Vessel and to be named the “Buyer”
in the bill of sale for the Vessel;


 


(b)           the right to accept delivery or to appoint an
agent to accept delivery of the Vessel;


 


(c)           all claims for damages arising as a result of
any default, except default of Assignor, under the Purchase Agreement;


 


G-1





















 


(d)           all warranty and indemnity provisions
contained in the Purchase Agreement, and all claims arising thereunder; and


 


(e)           any and all rights of Assignor to compel
performance of the terms of the Purchase Agreement.


 


4.             Notwithstanding the foregoing, so long as no “Event
of Default” (as such term is defined in the Loan Agreement) or event which with
the giving of notice or passage of time or both would result in an “Event of
Default” (as such term is defined in the Loan Agreement), has occurred and is
continuing, Assignee hereby appoints Assignor as its agent and Assignor hereby
accepts such appointment, to the exclusion of Assignee, (a) to exercise in
Assignor’s name powers of Buyer under the Purchase Agreement, including without
limitation any warranties thereunder, and (b) to accept delivery of the
Vessel on the Delivery Date.


 


5.             Effective upon receipt by Builder of written
notice from Assignee that an Event of Default has occurred and is continuing
under the Loan Agreement, and thereafter until Builder shall have received
written notice from Assignee that such Default has been cured or waived: (i) at
Assignee’s option, the authorization given in paragraph 4 hereof to enforce
such rights and claims shall henceforth cease to be effective and Assignee and
its successors and assigns shall, to the exclusion of Assignor, be entitled to
assert and enforce such rights and claims as substitute party plaintiff or
otherwise, and Assignor shall, at the request of Assignee or its successors or
assigns and at Assignor’s expense, cooperate with and take such action as
reasonably necessary to enable Assignee and its successors and assigns to
enforce such rights and claims, and (ii) Assignor will be deemed to have
irrevocably constituted Assignee and its successors and assigns Assignor’s true
and lawful attorney (it being acknowledged that such appointment is coupled
with an interest, namely Assignee’s rights acquired and to be acquired
hereunder) with full power (in the name of Assignor or otherwise) to ask,
require, demand, receive, settle, compromise, compound and give acquittance for
any and all monies and claims for monies due and to become due under, or
arising out of the Purchase Agreement, and for such period as Assignee may
exercise rights with respect thereto under this clause (ii), to endorse any
checks or other instruments or orders in connection therewith and to file any
claims or take any action or institute (or, if previously commenced, assume
control of) any proceedings and to obtain any recovery in connection therewith
which Assignee may deem to be necessary or advisable.


 


6.             For all purposes of this Assignment, Builder
will not be deemed to have knowledge of or need recognize the occurrence,
continuance or the discontinuance of any Event of Default under the Loan
Agreement unless and until Builder receives from Assignee written notice
thereof, addressed to Builder at                                                                      .  Until such notice has been given, Builder
will be entitled to deal solely and exclusively with Assignor.  Thereafter, until Assignee has provided
Builder written notice that any such events no longer continue, Builder will be
entitled to deal solely and exclusively with Assignee.  Builder may act with acquittance and
conclusively rely on any such notice.


 


7.             It is expressly agreed that, anything herein
contained to the contrary notwithstanding: 
(a) prior to the Delivery Date, Assignor will perform its obligations
to be performed by it on or before such delivery, (b) Assignor will at all
times remain liable to Builder under the Purchase Agreement to perform all
obligations of “Buyer” thereunder to the same extent as if this Assignment had
not been executed, (c) the exercise by Assignee of any of the assigned
rights will not release Assignor from any of its obligations to Builder under
the Purchase Agreement, except to the extent that such exercise constitutes
performance of such obligations, and (d) Builder acknowledges and agrees
that except for modifications of the Purchase Agreement which do not increase
or decrease the price of the Vessel, extend the contract delivery dates or
could not reasonably be expected to materially affect the fair market value of
the Vessel,


 


G-2





















 


the Assignor may amend, modify or waive any
provision of the Purchase Agreement without Assignee’s prior written consent.


 


8.             Notwithstanding anything contained in this
Assignment to the contrary (but without in any way releasing Assignor from any
of its obligations under the Purchase Agreement), Assignee confirms for the
benefit of Builder that in exercising any rights under the Purchase Agreement,
or in making any claim with respect to the Vessel or other things (including,
without limitation, material, training and services) delivered or to be
delivered pursuant to the Purchase Agreement, the terms and conditions of the
Purchase Agreement, will apply to and be binding on Assignee to the same extent
as if Assignee had been the original “Buyer” thereunder.  Assignee further agrees, expressly for the
benefit of Builder, upon the written request of Builder, Assignee will promptly
execute and deliver such further assurances and documents and take such further
action as Builder may reasonably request in order to obtain the full benefits
of Assignee’s agreements in this paragraph.


 


9.             Nothing contained herein will subject Builder
to any liability to which it would not otherwise be subject under the Purchase
Agreement or modify in any respect the contract rights of Builder thereunder,
or require Builder to divest itself of title to or possession of the Vessel or
other things until delivery thereof and payment therefor as provided therein.


 


10.           Builder hereby consents to the assignment by
Assignor to Assignee contained herein.


 


11.           This Assignment may be executed by the
parties in separate counterparts, each of which when so executed and delivered
will be an original, but all such counterparts will together constitute but one
and the same instrument.


 


12.           This Assignment will be governed by, and
construed in accordance with, the laws of New York, including all matters of
construction, validity and performance.


 


[Signature Pages Follow]


 


G-3





















 


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


 


 


	
   

  	
  K-SEA
  OPERATING PARTNERSHIP, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  K-Sea OLP GP, LLC, its General Partner

  
	
   

  	
  Assignor

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John Nicola

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FIRST
  UNION COMMERCIAL CORPORATION,

  
	
   

  	
  Assignee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ,

  
	
   

  	
  Builder

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					



 


G-4





















 


Exhibit H


 


[form of General Assignment of Freights]


 


ASSIGNMENT OF CHARTER PARTIES,

CHARTER HIRE AND EARNINGS


 


The undersigned, K-SEA
OPERATING PARTNERSHIP L.P., a Delaware limited partnership
(hereinafter called the “Assignor”),
in consideration of One Dollar ($1) lawful money of the United States of
America and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, has assigned, transferred and set over and by
this instrument does assign, transfer and set over, unto FIRST UNION COMMERCIAL CORPORATION, a North
Carolina corporation (the “Assignee”),
and unto the Assignee’s successors and assigns, to its and its successors’ and
assigns’ own proper use and benefit, and, as collateral security for the
Obligations of Assignor to the Assignee pursuant to the terms and conditions of
that certain Loan Agreement, dated as of March          ,
2005 (as from time to time the same may be amended, supplemented or otherwise
modified, the “Loan Agreement”),
between Assignor and Assignee and the other Principal Documents, and does
hereby grant the Assignee a security interest in all of Assignor’s right, title
and interest in and to: (i) any and all charter parties, whether bareboat
or demise, time or voyage charters, contracts of affreightment or other
contracts for the use or employment of vessels, transportation of cargo or
passengers respecting the Assignor’s United States-flag vessel(s) identified on
Schedule I hereto now or hereafter acquired (the “Vessels”), and all charter hire, rentals
and other sums due and to become due thereunder or in connection therewith,
including, without limitation, all rights and claims of Assignor as “Owner”,
now or hereafter existing, under any insurance, indemnities, warranties and
guaranties provided for or arising out of or in connection with any charter of
any of the Vessels, for any damages arising out of or for breach or default
under or in connection with any charter, to all other amounts from time to time
paid or payable under or in connection with any charter, and to terminate any
charter and to exercise or enforce any and all covenants, remedies, powers and
privileges thereunder and, all accounts and contract rights and all freights,
hire and other monies earned and to be earned, due or to become due, or paid or
payable to, or for the account of, the Assignor, of whatsoever nature arising
out of or as a result of the ownership and operation by the Assignor or any of
its agents of the Vessels, (ii) all monies and claims for monies due and
to become due to the Assignor and all claims for damages arising out of the
breach of any and all present and future bareboat, demise, time and voyage
charter parties, bills of lading, contracts and other engagements of
affreightment or for the carriage or transportation of cargo, mail and/or
passengers, and operations of every kind whatsoever of the Vessels and in and
to any and all claims and causes of action for money, loss or damages that may
accrue or belong to the Assignor, its respective successors or assigns, arising
out of or in any way connected with the present or future use, operation or
management of the Vessels or arising or in any way connected with any and all
present and future requisitions, charter parties, bills of lading, contracts
and other engagements of affreightment or for the carriage or transportation of
cargo, mail and/or passengers, and other operations of the Vessels, (iii) all
monies and claims for monies due and to become due to the Assignor, and all
claims for damages in respect of the actual or constructive total loss of or
requisition of use of or title to any Vessels, and (iv) any proceeds of
any of the foregoing (any and all such amounts, hereinafter called “Earnings”).


 


Capitalized terms used herein and not otherwise
defined herein shall have the meanings specified in the Loan Agreement.


 


The Assignor does hereby constitute the Assignee,
its successors and assigns, the Assignor’s true and lawful attorney irrevocably,
upon the occurrence and during the continuance of an Event of Default
irrevocably, with full power (in the name of the Assignor or otherwise) to ask,
require, demand, receive


 


H-1





















 


compound and give acquittance for any and all
monies, claims due or to become due, property and rights hereby assigned, to
endorse any checks or other instruments or orders in connection therewith and
to file any claims or to take any action or institute any proceedings which the
Assignee may deem to be necessary or advisable in the premises.


 


Unless and until an Event of Default shall have
occurred and be continuing, all sums payable to the Assignor and assigned to
Assignee hereunder, may be paid to Assignor.


 


Upon the occurrence and during the continuance of an
Event of Default, Assignee may require, and Assignor shall cause, all Earnings
to be paid over to the Assignee’s Account No.                                               , Wachovia Bank, National Association, Charlotte,
North Carolina, ABA                                                , or as otherwise from time to time directed
in writing by the Assignee (the account so determined, the “Designated Account”).


 


Upon the occurrence and during the continuance of an
Event of Default, all monies collected or received by the Assignee pursuant to
this Assignment shall be applied as provided in the Loan Agreement.


 


The Assignor covenants that, upon demand by Assignee
following the occurrence and during the continuance of an Event of Default, it
will cause all the Earnings hereby assigned to be paid over to the Assignee and
send letters to the agents and representatives of the Assignor into whose hands
or control may come any Earnings, informing each such addressee of this
Assignment and instructing such addressee to remit promptly to the Assignee all
Earnings hereby assigned which may come into addressee’s hands or control and
to continue to make such remittances until such time as the addressee may
receive written notice or instructions to the contrary directly from the
Assignee. The Assignor further covenants that each such addressee will
acknowledge directly to the Assignee receipt of the Assignor’s letter of
notification and instructions.


 


It is expressly agreed that anything herein
contained to the contrary notwithstanding, the Assignee shall have no
obligation or liability under any charter or any contract of affreightment by
reason of or arising out of this instrument of assignment nor shall the
Assignee be required or obligated in any manner to perform or fulfill any
obligations of the Assignor under or pursuant to any charter or any contract of
affreightment or to make any payment or to make any inquiry as to the nature or
sufficiency of any payment received by it or to present or file any claim, or
to take any other action to collect or enforce the payment of any amounts which
may have been assigned to it or to which it may be entitled hereunder at any
time or times.


 


The Assignor shall procure that all charter parties,
contracts of affreightment, or any such contract of employment of the Vessels
shall specify that, upon the occurrence of an Event of Default, Assignor shall
have the right to demand that payment be made directly to the Assignee, for
credit against the Obligations. Except as permitted under the Loan Agreement
and the Mortgage on the Vessels, Assignor shall not enter into any charter
parties, contracts or contracts of affreightment for use or employment of the
Vessels without the prior written consent of Assignee regardless of whether an
Event of Default shall have occurred.


 


The Assignor shall procure that it or any other
person in possession of any Vessel promptly notify the Assignee in writing of
the commencement and termination of any period during which such Vessel may be
requisitioned.


 


The Assignor hereby further covenants and undertakes
that it will furnish promptly or procure that any other person in possession of
any Vessel will promptly furnish the Assignee with all such


 


H-2





















 


information as it may from time to time
request regarding the employment, position and engagements of such Vessel.


 


The powers and authority granted to the Assignee in
this Assignment have been given for a valuable consideration and are hereby
declared to be irrevocable.


 


Each and every right, power and remedy herein given
to the Assignee shall be cumulative and shall be in addition to every other
right, power and remedy of the Assignee now or hereafter existing at law, in
equity or by statute, and each and every right, power and remedy, whether
herein given or otherwise existing, may be exercised from time to time, in
whole or in part, and as often and in such order as may be deemed expedient by
the Assignee, and the exercise or the beginning of the exercise of any right,
power or remedy shall not be construed to be a waiver of the right to exercise
at the same time or thereafter any other right, power or remedy. To the fullest
extent permitted under applicable laws, no delay or omission by the Assignee in
the exercise of any right or power in the pursuance of any remedy accruing upon
any breach or default by the Assignor shall impair any such right, power or
remedy or be construed to be a waiver of any such right, power or remedy or to
be an acquiescence therein; nor shall the acceptance by the Assignee of any
security or of any payment of or on account of any of the amounts due from the
Assignor to Assignee and maturing after any breach or default or of any payment
on account of any past breach or default be construed to be a waiver of any
right to take advantage of any future breach or default or of any past breach
or default not completely cured thereby.


 


If any provision of this Assignment shall at any
time for any reason be declared invalid, void or otherwise inoperative by a
court of competent jurisdiction, such declaration or decision shall not affect
the validity of any other provision or provisions of this Assignment, or the
validity of this Assignment as a whole. In the event that it should transpire
that by reason of any law or regulation in force or to become in force, or by
reason of a ruling of any court whatsoever, or by any other reason whatsoever,
the assignment herein contained is either wholly or partly defective, the
Assignor hereby undertakes to furnish the Assignee with an alternative
assignment or alternative security and/or to do all such other acts as, in the
sole opinion of the Assignee, shall be required in order to ensure and give
effect to the full intent of this Assignment. Nothing herein shall be construed
to transfer to Assignee the right to own or operate any Vessel in violation of
such Vessel’s certificate of documentation or trade endorsement; provided,
however, that in the exercise of its remedies hereunder and under the Mortgage,
Assignee shall not be prohibited from repossessing any Vessel and chartering
such Vessel under provisions of U.S. law which permit Assignee to own vessels
with appropriate certificates of documentation and trade endorsements.


 


It is declared and agreed that the security created
by this Assignment shall be held by the Assignee as a continuing security for
the payment of all Obligations of Assignor from time to time which may be or
become payable by the Assignor under the Loan Agreement or any other Principal
Document now existing or hereafter arising and that the security so created
shall not be satisfied by an intermediate payment or satisfaction of any part
of the amount hereby secured and that the security so created shall be in
addition to and shall not in any way be prejudiced or affected by any
collateral or other security now or hereafter held by the Assignee for all or
any part of the monies hereby secured.


 


The Assignor agrees that at any time and from time
to time, upon the written request of the Assignee, the Assignor will promptly
and duly execute and deliver any and all such further instruments and documents
as the Assignee may deem desirable in obtaining the full benefits of this
Assignment and of the rights and powers herein granted including without
limitation certain Notices of Assignment, provided, however, that no Notice of
Assignment directing payment to the Assignee shall be sent unless and until an
Event of Default shall have occurred and be continuing.


 


H-3





















 


If the Assignor shall pay to Assignee and discharge
all Obligations due and to become due under the Loan Agreement, and all the
other Principal Documents all in accordance with the applicable provisions thereof,
all the right, title and interests herein assigned shall revert to the
Assignor, and this Assignment shall terminate.


 


The Assignor does hereby warrant and represent that
it has not assigned, pledged or in any way created or suffered to be created any
security interest in the whole or any part of the right, title and interest in
the Earnings or other Collateral hereby assigned other than to the Assignee.
The Assignor hereby covenants that, without the prior written consent thereto
of the Assignee, so long as this instrument of assignment shall remain in
effect, it will not assign or pledge the whole or any part of the right, title
and interest hereby assigned to anyone other than the Assignee, its successors
or assigns, it will not take or omit to take any actions, the taking or
omission of which might result in an alteration or impairment of the said
rights of this Assignment, and it will not default or consent to any default
under any charter or other contract for or requiring use or possession of any
Vessel.


 


The Assignor represents and warrants that its
principal place of business and the location at which it keeps and will keep
its records concerning the Loan Agreement and the transactions contemplated
thereby, including records relating to this Assignment, any charter or contract
of affreightment for or operations of the Vessels is 3245 Richmond Terrace,
Staten Island, New York 10303-0003. The Assignor agrees that it will
notify the Assignee of any change in the location of such office and of the opening
of any other place of business by or on behalf of the Assignor.


 


All notices or other communications which are
required to be made to the Assignee hereunder shall be made by facsimile
transmission, confirmed by postage prepaid letter to:


 


First Union Commercial
Corporation


One Wachovia Center


Mail Code NC0738


Charlotte, North Carolina 28288-0738


Attention: Linda H. Minter


Facsimile No.: (704) 383-1572


 


or at such other address as may have been furnished
in writing by the Assignee. Any consents, waivers, approvals or other actions
to be given or taken by the Assignee hereunder shall be effective if contained
in a writing signed by the Assignee or such other person or persons as the
Assignee may from time to time appoint, and forwarded to the Assignor at its
address as provided in the Loan Agreement.


 


All notices or other communications which are
required to be made to the Assignor hereunder shall be made by facsimile
transmission, confirmed by postage prepaid letter to:


 


K-SEA OPERATING PARTNERSHIP L.P.


 


3245 Richmond Terrace

Staten Island, New York 10303

Attention: Chief Financial Officer

Telecopier No.: (718) 720-4358


 


or at such other address as may have been furnished
in writing by the Assignor. Any consents, waivers, approvals or other actions
to be given or taken by the Assignor hereunder shall be effective if contained
in


 


H-4





















 


a writing signed by the Assignor or such other
person or persons as the Assignor may from time to time appoint, and forwarded to
the Assignee at its address as provided in the Loan Agreement.


 


The Assignor hereby appoints the Assignee its
attorney-in-fact to execute and file any financing statements, continuation
statements or papers of similar purpose or effect in connection with any filing
or recording of this Assignment.


 


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


 


BY ITS SIGNATURE BELOW WRITTEN THE ASSIGNOR HEREBY
IRREVOCABLY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS ASSIGNMENT OF CHARTER PARTIES,
CHARTER HIRE AND EARNINGS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.


 


Upon demand of any party hereto, whether made before or
after institution of any judicial proceeding, any claim or controversy arising
out of or relating to the this agreement or the other Principal Documents
between parties hereto (a “Dispute”) shall be resolved by binding
arbitration conducted under and governed by the Commercial Financial Disputes
Arbitration Rules (the “Arbitration Rules”) of the American
Arbitration Association (the “AAA”) and the Federal Arbitration
Act.  The number of arbitrators shall be
three.  Each party shall nominate an
arbitrator, who shall be neutral, independent, and disinterested, and the two
so chosen shall appoint the third arbitrator, who shall be neutral, independent
and disinterested and who shall act as the chairperson.  If the arbitrators selected by the parties
are unable or fail to agree upon the third arbitrator, then the third
arbitrator shall be selected by the AAA. 
The place of the arbitration shall be New York, New York, provided
however, that hearings may be held elsewhere for the convenience of the parties
or to obtain evidence or testimony from any person, including without
limitation, the testimony, documentary evidence, or deposition of any
non-party.  Disputes may include, without
limitation, tort claims, counterclaims, a dispute as to whether a matter is
subject to arbitration, claims brought as class actions, or claims arising from
documents executed in the future.  The
arbitrators are not empowered and shall not have the authority to award damages
such as punitive, exemplary, or statutory damages in addition to compensatory
damages, and each party hereby irrevocably waives any right to recover such
damages with respect to any Dispute hereunder. 
The award shall be in writing, signed by a majority of the arbitrators,
and shall set for the in detail the reasons for the disposition of any
claim.  A judgment upon the award may be
entered in any court having jurisdiction. 
Except as may be required by law, no party or arbitrator may disclose
the existence, content, or results of any arbitration hereunder without prior
written consent of the parties. 
Notwithstanding the foregoing, this arbitration provision does not apply
to Disputes under or related to Swap Agreements.


 


[Signature page follows]


 


H-5





















 


IN WITNESS WHEREOF, the Assignor has caused this
Assignment to be duly executed this                day
of                            ,
2005.


 


 


	
   

  	
  K-SEA
  OPERATING PARTNERSHIP L.P.,

  
	
   

  	
  by
  its general partner K-Sea OLP GP, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BY:

  	
   

  	
   

  
	
   

  	
   

  	
  Nam
  : John J. Nicola

  
	
   

  	
   

  	
  Title:    Chief
  Financial Officer

  



 


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ACKNOWLEDGMENT


 


	
  STATE
  OF NEW YORK

  	
  )

  
	
   

  	
  ) SS.

  
	
  COUNTY
  OF NEW YORK

  	
  )

  



 


On this            
day of                       ,
200  , before me personally appeared John J. Nicola, to me known, who
being by me duly sworn, deposes and says that he is Chief Financial Officer of
K-Sea OLP GP, LLC, the limited liability company described in and which
executed the foregoing instrument; and that he signed his name thereto pursuant
to authority granted to him by all the members of the said limited liability
company.


 


 


	
   

  	
   

  
	
   

  	
   

  	
  Notary
  Public

  



 


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SCHEDULE I


 


[Description of Vessel(s)]


 


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