Exhibit
4.2




 





 


LOAN AND SECURITY AGREEMENT


 


dated as of January 29, 2004


 


by and between


 


THE
CIT GROUP/EQUIPMENT FINANCING, INC.,


as Lender


 


and


 


K-SEA
OPERATING PARTNERSHIP L.P.,


as Borrower




 





 

















 


THIS LOAN AND
SECURITY AGREEMENT (this “Agreement”), dated as of
January 29, 2004, by and between THE CIT GROUP/EQUIPMENT FINANCING, INC., a
Delaware corporation, as lender (“Lender”), and K-SEA OPERATING PARTNERSHIP L.P.,
a Delaware limited partnership, as borrower, with a principal place of business
at 3245 Richmond Terrace, Staten Island, New York 10303 (“Borrower”).  In consideration of the mutual agreements
contained herein, the parties hereto agree as follows:


 


RECITALS


 


A.            On January 14,
2004, Borrower entered into that certain Participation and Loan and Security
Agreement with Lender and KeyBank N.A. (“KeyBank,” and together with CIT, the “Revolver
Lenders” and each, a “Revolver Lender”), as lenders (the “Revolving
Loan Agreement”) pursuant to which the Revolver Lenders agreed to
provide Borrower with loan facilities and letters of credit (the “Revolver
Loans”) not to exceed in the aggregate Forty Seven Million and No
Hundredths United States Dollars (US$47,000,000.00), which Revolver Loans are
secured by, inter
alia, a first preferred mortgage over the whole of the Vessels
described on Schedule II hereto (the “Pool Vessels”), subject to additions and
substitutions pursuant to the terms of the Revolving Loan Agreement.


 


B.            Borrower now desires
to acquire the United States flag vessels described on Schedule I attached
hereto, currently owned by Wells Fargo Bank Northwest, National Association, as
trustee for the benefit of ICX Corporation (“ICX”) in consideration of
payment by Borrower to ICX of the purchase price of Thirty-Two Million Two
Hundred Fifty-Six Thousand Seven Hundred Seventy and No Hundredths United
States Dollars (US$32,256,770.00).


 


C.            Borrower desires to
borrow and Lender has agreed to lend up to Twenty-Five Million Forty-Eight
Thousand and No Hundredths United States Dollars (US$25,048,000.00) (the “Loan”)
to enable Borrower to purchase the Vessels.


 


D.            Lender has agreed to
make the Loan to Borrower pursuant to the provisions of this Loan Agreement.


 


E.             Borrower desires
(i) to provide for the making of the Loan by Lender to Borrower to enable
Borrower to finance the acquisition of the Vessels, (ii) to provide for
the issuance by Borrower to Lender of a promissory note (the “Note”)
evidencing the Loan to be made by Lender to Borrower as herein provided; and
(iii) to provide for the assignment, mortgage and pledge by Borrower to
Lender, among other things, of all Borrower’s right, title and interest in and
to the Vessels, any charters and insurance thereon and all payments and other
amounts received hereunder or thereunder in accordance with the terms hereof,
as security for Borrower’s obligations to Lender.


 


F.             Lender has entered
into this Agreement in reliance upon the undertakings of Borrower and other
parties as set forth in this Agreement and in the other Loan Documents.


 


G.            All things have been done
to make the Note, when executed and delivered by Borrower hereunder, the legal,
valid and binding obligation of Borrower.


 

















 


[Loan and Security Agreement]


 


Section 1.              Definitions.


 


1.1           Defined Terms.  As used in this Agreement, the following
terms shall have the following defined meanings (such terms to be equally
applicable to both singular and plural forms of the terms defined), unless the
context otherwise requires:


 


“Affiliate” of any specified Person
shall mean any other Person which, directly or indirectly, Controls, is
Controlled by, or is under common Control with, such Person.


 


“Agreement”, “hereof”, “hereto”,
“hereunder”
and words of similar import shall mean this Loan and Security Agreement, as the
same may from time to time be amended, modified or supplemented.


 


“Applicable Interest Rate” shall mean,
with respect to the Loan a floating rate per annum equal to the One Month LIBOR
plus two hundred ninety-five (295) basis points.  In the event that Borrower elects the Fixed Rate Option in accordance
with Section 2.3 hereof, the Applicable Interest Rate shall mean three hundred
twenty-five (325) basis points above the closest whole year remaining term of
the Note for U.S. Treasury Bond “Interest Rate Swaps 15” for the most recent
date as published on the adjustment date, in the H15 report by the Federal
Reserve on their web site:
http: www.federalreserve.gov/releases/H15/update.


 


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


 


“Appraisal” shall mean any appraisal,
either physical or desktop or both as determined by Lender, of the Vessels or
any of them conducted from time to time by or at the request of Lender pursuant
to the terms of this Agreement and shall also include the appraisal of the
Vessels performed on or about the date hereof by Lender, or at Lender’s direction,
by an appraiser appointed by Lender and paid for by Borrower.


 


“Assignments” shall mean, collectively,
the Earnings Assignments and the Assignments of Insurances.


 


“Assignments of Insurances” shall mean
(i) the first priority assignment of insurances respecting the Vessels granted
by Borrower in favor of Lender and (ii) the assignment of insurances regarding
the Pool Vessels, subject and subordinate only to that granted by Borrower to
the Revolver Lenders, both in form and substance satisfactory to Lender and its
counsel.


 


“Borrower” as defined in the
introductory paragraphs of this Agreement.


 


“Business Day” shall mean a day other
than a Saturday, Sunday or legal holiday under the laws of the State of New
York.


 


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


 


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


 


“Change in Control” 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 or more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
ownership interests of Borrower or any Subsidiary, or (b) for the period
of twelve (12) consecutive calendar months, a majority of the board of Borrower
or any Subsidiary shall no longer be composed of individuals (i) who were
members of said board on the first day of such period, (ii) whose election
or nomination to said board was approved by individuals referred to in
clause (i) above constituting at the time of such election or nomination
at least a majority of said board, or (iii) whose election or nomination
to said board was approved by individuals referred to in clauses (i) and
(ii) above constituting at the time of such election or nomination at least a
majority of said board.  The addition of
independent directors (and the subsequent replacement of such independent
directors) to the board of K-Sea upon and following its public offering shall not
constitute a “Change in Control” for this purpose.


 


“Change in Law” shall mean (a) the
adoption of any law, rule or regulation after the date of this Agreement,
(b) any change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this
Agreement, including, without limitation, any change in any statutory,
regulatory or institutional reserve requirement, including, but not limited to,
the Statutory Reserve Rate, or (c) compliance by Lender (or, for purposes
of Section 2.8(b) hereof, by any lending office of Lender or by Lender’s
holding company, if any) with any request, guideline or directive (whether or
not having the force of law) of any Governmental Authority made or issued after
the date of this Agreement.


 


“Charter” shall mean the Consecutive
Voyage Contract between Borrower and Charterer dated January 15, 2004, as
amended and supplemented from time to time.


 


“Charterer” shall mean SeaRiver
Maritime, Inc., and its successors and assigns.


 


“CIT” shall mean The CIT Group/Equipment
Financing, Inc.


 


“Closing” shall mean the time when the
conditions precedent to closing set forth in Section 3 hereof, the exchange of
relevant documents, the Lender’s making of the Loan and the Borrower’s issuance
of the Note have all been completed.


 


“Closing Date” shall mean the date on
which Lender shall actually make the Loan to Borrower and on which Borrower
will issue the Note.


 


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“COA” shall mean the Contract of
Affreightment between Charterer and Borrower, dated as of January 29, 2004, as
amended and supplemented from time to time, with prior written consent of
Lender.


 


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


 


“Collateral” shall mean the Vessels and
the Pool Vessels and the Proceeds thereof, all insurance with respect to the
Vessels and the Pool Vessels, the earnings of the Vessels and the Pool Vessels,
including all hire payments, freights and subfreights due with respect thereto,
the charters (including, without limitation, the Charter), including all hire,
additional hire payments and all supplemental hire payments, Stipulated
Casualty Prepayment Amounts (as defined herein), payments and other amounts payable
from time to time thereunder and the Proceeds thereof, and all future charters
or subcharters, including all hire payments and Proceeds of the foregoing and
all amounts payable thereunder, as more specifically described herein and in
the Mortgage and Assignments granted by Borrower to Lender and in the Revolving
Loan Agreement and in the Revolver Mortgage and Revolver Assignments granted by
Borrower to the Revolver Lenders and pursuant hereto and thereto.


 


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


 


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


 


“Default” shall mean any event that with
notice, lapse of time, and/or any further condition, event of act would
constitute an Event of Default.


 


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


 


“Earnings Assignments” shall mean (i)
the first priority assignments of charter hire, freight and earnings with
respect to the Vessels granted by the Borrower in favor of Lender and (ii) the
assignments of charter hire, freight and earnings with respect to the Pool
Vessels, subject and subordinate only to that granted by Borrower to the
Revolver Lenders, both in form and substance satisfactory to Lender and its
counsel.


 


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


 


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


 


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(2)           to the extent that any
of the items referred to in any of clauses (A) through (C) below are
deducted or added in calculating such net income:


 


A.            interest expense and
interest income of the Borrower and its consolidated Affiliates for such fiscal
period;


 


B.            federal and state
income tax expenses of the Borrower and its consolidated Affiliates for such
fiscal period;


 


C.            the amount of all
depreciation and amortization for such fiscal period.


 


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


 


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


 


“Environmental Law” shall mean any and
all applicable international, foreign, federal, state, regional and local Laws
(as well as obligations, duties and requirements relating thereto under common
law) relating to:  (a) emissions,
discharges, spills, releases or threatened releases of pollutants,
contaminants, Hazardous Materials, materials containing Hazardous Materials, or
hazardous or toxic materials or wastes into ambient air, surface water
(including, without limitation, all inland and ocean waters), groundwater,
watercourses, publicly or privately-owned treatment works, drains, sewer
systems, wetlands, septic systems or onto land; (b) the use, treatment,
storage, disposal, handling, manufacturing, transportation, or shipment of
Hazardous Materials, materials containing Hazardous Materials or hazardous
and/or toxic wastes, materials, products or by-products (or of equipment or
apparatus containing Hazardous Materials); or (c) pollution or the
protection of human health, safety or the environment from exposure to or
injury or damage caused by Hazardous Materials.  Without limitation, “Environmental Law” includes CERCLA and
OPA 90 and IMO 13(g) (when and if the latter comes into effect).


 


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


 


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


 


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


 


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


 


“Event of Default” as defined in
Section 7 hereof.


 


“Event of Loss” shall mean, with respect
to any Vessel or Pool Vessel, the actual or constructive loss or the
disappearance of such Vessel or Pool Vessel or the loss of use thereof, due to
theft, destruction, damage beyond repair or damage from any reason whatsoever,
to an extent which makes repair uneconomical, or rendition thereof unfit for
normal use, or the condemnation, confiscation or seizure of, or requisition of
title to or use of, such Vessel or Pool Vessel by any governmental authority or
any other Person, whether or not acting under color of governmental authority.


 


“Financial Officer” shall mean the chief
financial officer, principal accounting officer, treasurer or controller of
Borrower or K-Sea.


 


“Financial Statements” shall mean the
balance sheets and statements of income and cash flows of K-Sea and its
consolidated Affiliates, including, without limitation, Borrower, as required
from time to time to be provided to Lender under this Agreement.


 


“Fixed Charge Coverage Ratio” shall
mean, for purposes of Section 5.2(a) hereof, with respect to K-Sea and its
consolidated Affiliates, including, without limitation, Borrower, for the


 


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applicable fiscal period, the ratio of EBITDA less Maintenance CAPEX
divided by Fixed Charges for such period.


 


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


 


“Fixed Rate Option” as defined in
Section 2.3 hereof.


 


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


 


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


 


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


 


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


 


“Hazardous Materials” shall mean
(a) hazardous materials, hazardous wastes, and hazardous substances as
those or similar terms are defined under any Environmental Laws, including, but
not limited to, the following:  the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq.,
as amended from time to time, the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq., as amended from time to time,
CERCLA, the


 


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


 


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


 


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


 


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


 


“Interest Period” shall mean each
one-month period which ends on the last day of the calendar month preceding the
next Installment Payment Date; the first Interest Period shall begin


 


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on the Closing Date and end on the last day of the calendar month
preceding the first Installment Payment Date.


 


“Installment Payment Date” shall mean,
with respect to the Note, each of the eighty-three (83) consecutive monthly
dates, commencing on March 10, 2004,  on
which an installment of principal and interest is due on such Note and the
subsequent eighty-fourth (84th) consecutive monthly date on which a final
balloon payment plus accrued interest is due on such Note.


 


“K-Sea” shall mean K-Sea Transportation
Partners L.P.


 


“Late Charge Rate” shall mean a rate per
annum equal to eighteen percent (18%).


 


“Lender” as defined in the introductory
paragraphs of this Agreement.


 


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


 


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


 


“Loan” shall mean the loan to be made by
Lender pursuant to this Agreement.


 


“Loan Accounts” shall mean one or more
loan accounts maintained by Lender for Borrower in the ordinary course of
business, including, without limitation, any loan account in respect of the
Loan, and each, a “Loan Account.”


 


“Loan Documents” shall mean,
collectively, this Agreement, the Note, the Mortgage, the Second Pool Vessel
Mortgage, the Assignments, any other consents given with respect to any of the
foregoing, and any other documents required by counsel to Lender.


 


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


 


“Long-Term Leases” shall mean, as of any
date with respect to any Person, all obligations of such Person to pay rent or
other amounts under any lease of (or other arrangement conveying the right to
use) real or personal property, or a combination thereof, of such Person
outstanding the term of which ends more than one (1) year from the date of
calculation.  “Rent” for this purpose shall
include only the capital portion of rent for all Capital Lease Obligations and
the entire rent payable for all operating leases.


 


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


 


“Material Adverse Effect” shall mean a
material adverse effect on (a) the Collateral, (b) the property,
business, operations, financial condition, liabilities or capitalization of
K-Sea and its consolidated Affiliates, including, without limitation, Borrower,
taken as a whole, (c) the ability of Borrower to perform any of its
obligations under this Agreement (including the timely payment of all amounts
due hereunder), (d) the rights of or benefits available to Lender under
this Agreement, or (e) the validity or enforceability of this Agreement.


 


“Mortgage” shall mean the first
preferred mortgage to be granted by Borrower and in favor of Lender in form and
substance satisfactory to Lender and its counsel over the whole of the Vessels
to secure the Obligations, as the same may be amended, modified or supplemented
from time to time.


 


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


 


“Note” shall mean the promissory note of
Borrower, substantially in the form of Exhibit A attached hereto,
evidencing the Loan, as described in Section 2.2 hereof.


 


“Note Term” as defined in
Section 2.2 hereof.


 


“Obligations” shall mean (i) the
aggregate unpaid principal amount of, and accrued interest on, the Note;
(ii) all other obligations and liabilities of Borrower now existing or
hereafter incurred, arising out of under, or in connection with this Agreement,
the Note, or any of the other Loan Documents and (iii) all Revolving Loan
Obligations.


 


“One Month LIBOR” shall mean, with
respect to each Interest Period, the London InterBank Offered Rate (LIBOR) for
United States dollars for a thirty-day period as reported in the “Money Rates”
section of the Wall Street Journal, on the second Business Day preceding the
first day of the calendar month in which the Interest Period commences.  If such rate does not appear in the Wall
Street Journal, the One Month LIBOR shall be determined from such source as
Lender shall determine.


 


“OPA 90” shall mean the Oil Pollution
Act of 1990, P.L. 101-380, 104 Stat. 484 et seq., as amended from time to time.


 


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


 


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


 


“Participant” shall mean any assignee or
participant who has purchased a participating interest in the Loan Documents as
contemplated by Section 9.16 hereof.


 


10

















 


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


 


“Permitted Liens” as to any Vessel shall
have the meaning assigned to it in the Mortgage.


 


“Person” shall mean an individual,
partnership, corporation, business trust, joint stock company, trust,
unincorporated association, joint venture, governmental authority, or other
entity of whatever nature.


 


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


 


“Pool Collateral” as defined in Section
6.1(c) hereof.


 


“Pool Vessels” as defined in the
Recitals hereto and each a “Pool Vessel.”


 


“Prepayment Premium” shall mean, except
as provided in Sections 2.5(a) and (b), with respect to the permitted or
required prepayment of the Note hereunder, three percent (3%) of the
outstanding principal amount of the Loan after the first (1st)
anniversary date of the Agreement, but before the second (2nd)
anniversary date, two percent (2%) of the outstanding principal amount of the
Loan after the second (2nd) anniversary date of the Agreement, but
before the third (3rd) anniversary date, and one percent (1%)
thereafter.


 


“Proceeds” shall have the meaning
assigned to it in the UCC and, in any event, shall include, but not be limited
to (i) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to Borrower from time to time with respect to any of the
Vessels or other Collateral; (ii) any and all payments (in any form
whatsoever) made or due and payable to Borrower from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
and any part of the Vessels by any governmental body, authority, bureau or
agency of an other Person (whether or not acting under color of governmental
authority); and (iii) accounts arising out of any charter or chattel paper
evidencing, any lease or charter of, any and all other rents, hire or profits
or other amounts from time to time paid or payable in connection with, any of
the Vessels.  In no event shall the term
be construed more narrowly than the meaning set forth in the Assignments and the
Mortgage.


 


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


 


11

















 


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


 


“Revolver Assignments” shall mean the
Assignments, as such term is defined in the Revolving Loan Agreement.


 


“Revolver Lenders” as defined in the
Recitals hereof.


 


“Revolver Loans” as defined in the
Recitals hereof.


 


“Revolver Mortgage” shall mean the
Mortgage, as such term is defined in the Revolving Loan Agreement.


 


“Revolving Loan Agreement” as defined in
the Recitals hereof.


 


“Revolving Loan Default” shall mean the
occurrence and continuance of a “Default” under and as defined in the Revolving
Loan Agreement.


 


“Revolving Loan Event of Default” shall
mean the occurrence and continuance of an “Event of Default” under and as
defined in the Revolving Loan Agreement.


 


“Revolving Loan Obligations” shall mean
the Obligations as such term is defined in the Revolving Loan Agreement.


 


“Second Mortgage” shall mean the
preferred mortgage to be granted by Borrower and in favor of Revolver Lenders
over the whole of the Vessels and related Collateral, as the same may be
amended, modified or supplemented from time to time, subject only to the
mortgage in favor of the Lender and Permitted Liens.


 


“Second Pool Vessel Mortgage” shall mean
the preferred mortgage to be granted by Borrower and in favor of Lender in form
and substance satisfactory to Lender and its counsel over the whole of the Pool
Vessels and related Collateral to secure the Obligations, as the same may be
amended, modified or supplemented from time to time, subject only to the
mortgage in favor of the Revolver Lenders and Permitted Liens (as that term in
defined in the Revolving Loan Agreement).


 


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


 


“Single Transaction Subsidiary” shall
mean any Subsidiary whose assets consist solely of financing  transactions and the proceeds thereof with
one or more obligors where the


 


12

















 


obligations of such Subsidiary are not guaranteed by Borrower or any
other Subsidiary and for which neither Borrower nor such other Subsidiary is
liable.


 


“Statutory Reserve Rate” shall mean a
fraction (expressed as a decimal), the numerator of which is the number one and
the denominator of which is the number one minus the aggregate of the maximum
reserve percentages (including any marginal, special, emergency or supplemental
reserves) expressed as a decimal established by the Board to which Lender, any
successor lender or participant is subject with respect to the One Month LIBOR,
for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in
Regulation D of the Board).  Such
reserve percentages shall include those imposed pursuant to such
Regulation D.  The Loan shall be
deemed to constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
that may be available from time to time to Lender under such Regulation D or
any comparable regulation.  The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.


 


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


 


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


 


“Tangible Net Worth” shall mean the
excess of total assets over total liabilities, total assets and total
liabilities each to be determined in accordance with GAAP consistent with those
applied in the preparation of the Financial Statements referred to in
Section 5.1(a) of this Agreement excluding, however, from
the determination of total assets, all assets which would be classified as
intangible assets under GAAP, including, without limitation, goodwill,
licenses, patents, trademarks, trade names, copyrights, franchises, and
accounts receivables from any Affiliate, employee or stockholder.  Tangible Net Worth shall include
Subordinated Indebtedness.


 


“UCC” shall mean the Uniform Commercial
Code as from time to time in effect in any applicable jurisdiction.


 


“Vessel” shall mean each of the Vessels
identified on Schedule I hereto together with all of its machinery,
anchors, cables, chains, rigging, tackle, fittings, tools, pumps, pumping
equipment, gear, apparel, furniture, appliances, equipment, spare and
replacement parts and all other appurtenances thereunto appertaining or
belonging, whether now owned or hereafter acquired by Borrower and whether on
board or not, and also any and all additions, improvements


 


13

















 


and replacements made in or to such Vessel or any part thereof or in or
to any equipment and appurtenances thereunder appertaining or belonging.


 


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


 


1.2           Accounting Terms.  All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistently applied.


 


Section 2.              Amount
and Terms of Loan.


 


2.1           Commitment.  Subject to the terms and conditions of this
Agreement, on the Closing Date, Lender agrees to make a single Loan to Borrower
in an aggregate amount not to exceed TWENTY-FIVE MILLION FORTY-EIGHT THOUSAND
AND NO HUNDREDTHS UNITED STATES DOLLARS (US$25,048,000.00).


 


2.2           The Note.  The Loan shall be evidenced by a Note.  The Note shall (A) be dated the date on
which the Loan is made; (B) be for a term (the “Note Term”) of eighty-four
months, (C) be payable in eighty-three (83) equal consecutive monthly
installments of principal in the amount of One Hundred Thirty-Nine Thousand One
Hundred Fifty-Five and No Hundredths United States Dollars (US$139,155.00)
each, plus accrued interest, with a balloon payment of all remaining principal
outstanding due on the eighty-fourth (84th) Installment Payment Date,
plus all accrued and unpaid interest; and (D) shall bear interest from the
date thereof on the unpaid principal thereof at the Applicable Interest Rate at
all times during which any amounts are outstanding under the Note.


 


2.3           Fixed Rate Option.  After the first (1st) anniversary
date of this Agreement, Borrower shall have a one time option (with 15 days
prior written notice to Lender) to fix the rate of interest due under the Note
by giving appropriate notice to Lender or its assigns (the “Fixed Rate Option”).


 


2.4           Late Charges.  Any amount not paid when due under the Note
shall, to the extent permitted by applicable law, bear late charges thereon,
calculated at the Late Charge Rate, from the due date thereof until such amount
shall be received by Lender in full.


 


2.5           Prepayment.


 


(a)           In the event that any
Vessel shall suffer an Event of Loss, the Borrower shall make a prepayment in
the amount of the then outstanding principal amount of the Note, together with
accrued interest thereon and all other amounts owing under or with respect to
this Agreement and the other Loan Documents and the Prepayment Premium, on the
earlier of (i) the next Installment Payment Date immediately following the
receipt of insurance proceeds paid on account of such Event of Loss and (ii)
the third (3rd) monthly Installment Payment Date following the date
of an actual total loss or the date of declaration of a constructive total
loss, as the case may be, provided, however, that if (i) such Event of Loss
occurs before the third (3rd) anniversary date of this Agreement,
(ii) Borrower has not exercised the Fixed Rate Option and (iii) Borrower has
not exercised its one-time right of prepayment set forth in the second sentence


 


14

















 


of Section 2.5(b) hereof, the Prepayment Premium shall
not apply to Eight Million and No Hundredths United States Dollars
(US$8,000,000.00) of the principal amount being prepaid pursuant to this
Section 2.5(a) and, provided further, that all scheduled installments of
principal together with accrued interest thereon shall be paid in accordance
with the terms of the Note through the date of prepayment in accordance with
this Section 2.5(a).  Failure by
Borrower to make the prepayment required by this Section 2.5(a) on the date so
determined shall constitute an Event of Default.


 


(b)           After the first (1st)
anniversary date of this Agreement and provided that no Default or Event of
Default shall have occurred and be continuing and, provided further, that
Borrower shall have provided Lender thirty (30) days’ prior written notice to
Lender thereof, Borrower may prepay the Note in whole or in part on any
Installment Payment Date, plus accrued interest thereon and if the Note is to
be paid in full, any other amounts owing on the Note, provided that such whole
or partial prepayment is made together with a Prepayment Premium.  Notwithstanding anything in the foregoing
sentence to the contrary, at anytime before the third (3rd) anniversary date of
this Agreement and so long as the Fixed Rate Option has not been exercised,
upon thirty (30) days’ prior written notice to Lender thereof, Borrower may
make a one-time prepayment not to exceed Eight Million and No Hundredths United
States Dollars (US$8,000,000.00) on any Installment Payment Date, without a
Prepayment Premium, which amount shall be deducted from the balloon principal
payment due on the eighty-fourth (84th) Installment Payment
Date.  No prepayment made pursuant to
the foregoing sentence will result in a recalculation of the amount of the
first eighty-three (83) payments of principal due under the Note.


 


(c)           In the event that any
annual Appraisal determines an Orderly Liquidation Value of less than the
principal then outstanding on the Loan, then Lender may, at its sole election,
(1) require partial prepayment to restore the Loan to the Collateral value to
100% (based on the Orderly Liquidation Value), (2) demand full prepayment of
the Loan, (3) require additional Collateral acceptable to Lender in its sole
discretion, or (4) adjust upward the remaining principal payments to amortize
the difference over the remaining life of the Loan.  Borrower shall also pay the Prepayment Premium on any partial or
full prepayment pursuant to this Section 2.5(c).


 


(d)           Except as expressly provided
in the foregoing paragraphs (a) and (b) hereof, Borrower shall not be
permitted to make any other prepayments on the Note.


 


2.6           Use of Proceeds.  All the proceeds of the Loan shall be
applied by Borrower to acquire the Vessels.


 


2.7           Application of Payments.  All amounts received by Lender with respect
to any of the Collateral shall be applied as follows:


 


(a)           Note Payments
Received During the Note Term.  So
long as no (x) Default with respect to any payments due hereunder or under
any other Obligation or (y) Event of Default shall have occurred and be
continuing, each payment of an installment under any Note received by Lender
during the Note Term shall be applied first, to any costs, expenses,
fees or other amounts due under this Agreement or under the other Loan
Documents


 


15

















 


not constituting principal and interest due under the
Note, second, to late charges due under such Note, third, to
interest due under the Note and fourth, to the payment in full of
principal and all other Obligations which are then due and payable.


 


(b)           Casualty Payments.  So long as no (x) Default with respect
to the payments due hereunder or under any other Obligation or (y) Event
of Default shall have occurred and be continuing, any amounts received by
Lender as a result of an Event of Loss with respect to any Vessel (including,
without limitation, any payment of prepayment amounts under Section 2.5(a)
or insurance or condemnation proceeds) shall be applied first to the
prepayment amounts required to be paid by Section 2.5 hereof, second,
to the payment in full of all other Obligations which are then due and payable,
and third, the balance, if any, after payment of the foregoing amounts
shall be paid by Lender to Borrower.


 


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


 


(d)           Application After
Default or Event of Default.  All
payments received and amounts realized by Lender after a Default or Event of
Default shall have occurred and be continuing, but prior to any declaration by
Lender that any charter is in default or any acceleration of the Note which
funds would, but for the provisions of the Earnings Assignments be paid to
Borrower, shall be held by Lender as part of the Collateral until such time as
no Defaults or Events of Default shall be continuing hereunder (at which time
such funds shall be paid to Borrower) or until such funds are applied pursuant
to Section 8 hereof.


 


(e)           Application After
Declaration.  After an Event of
Default shall have occurred and be continuing and after Lender has either
(x) as assignee from Borrower of any charter of the Vessels, declared such
charter to be in default or terminated in accordance with the terms thereof, or
(y) declared the Note to be due and payable pursuant to Section 8
hereof, or done both (x) and (y), all payments received and amounts realized by
Lender, as well as all payments or amounts then held by Lender as part of the
Collateral, shall be applied against the Obligations in such order and such
manner as Lender, in its sole discretion, may determine and as otherwise
provided in the other Loan Documents and the documents evidencing the other
Obligations, and the balance, if any, shall be paid by Lender to Borrower.


 


2.8           Increased Costs.


 


(a)           If any Change in Law
shall:


 


16

















 


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


 


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


 


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


 


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


 


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


 


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


 


Section 3.              Conditions
of Borrowing.


 


3.1           Conditions of the
Loan.  Lender shall not be required
to make the Loan hereunder unless on the Closing Date of the Loan:


 


(a)           Facility Fee.  Lender shall have received a facility fee in
the amount of Two Hundred Forty-Eight Thousand and No Hundredths United States
Dollars (US$248,000.00), by wire transfer or otherwise, or may be added to the
principal balance of the Loan.


 


17

















 


(b)           Certificate of
Incumbency of Borrower.  Lender
shall have received a certificate of incumbency of the Borrower, signed by the
Secretary (or other authorized officer) thereof, which certificate shall
certify the names of each of the officers authorized to execute any of the Loan
Documents to which it is a party or any other related document on behalf of
each, together with specimen signatures of such officers, and Lender may
conclusively rely on such certificate until receipt of a further certificate of
an authorized officer of Borrower, as the case may be, canceling or amending
the prior certificate and submitting the signatures of the officers named in such
further certificate.


 


(c)           Certificate of Good
Standing.  Lender shall have
received a certificate of good standing for the Borrower issued by the
Secretary of State of Delaware dated within thirty (30) days of the Closing
Date.


 


(d)           Resolutions.  Lender shall have received a certified copy
of all company proceedings of the Borrower evidencing that all action required
to be taken in connection with the authorization, execution, delivery and
performance of this Agreement, the Note, the Mortgage, the Second Pool Vessel
Mortgage, each Assignment and the transactions contemplated hereby and thereby
has been duly taken.


 


(e)           Opinion of Counsel.  Lender shall have received the written
opinion addressed to it of counsel for Borrower (covering, among other things,
matters contained in Section 4) satisfactory in form and substance to
Lender and its counsel confirming that the requirements of Section 4.9
hereof have been met.


 


(f)            Documents.  Each of the Note, the Mortgage, the Second
Pool Vessel Mortgage, the Assignments and the other Loan Documents shall be in
form and substance satisfactory to Lender and its legal counsel and shall have
been duly executed and delivered to Lender by the parties thereto and
acknowledgements and consents to assignments, in form and substance
satisfactory to Lender, from Charterer shall have been duly authorized and
executed and delivered to Lender.


 


(g)           Discharge of Any
Existing Liens.  Lender shall be
satisfied that the Vessels and the Pool Vessels are then free and clear of all
Liens other than Permitted Liens and shall have received written confirmation
from the Charterer that the Vessels have been redelivered pursuant to that
Memorandum of Agreement, dated January 29, 2004 between Borrower and Charterer
free and clear of any Lien created by the Charterer or in favor of the
Charterer.


 


(h)           Insurance.  Lender shall have received evidence in form
and amount satisfactory to it that the Vessels and Pool Vessels securing the
Loan are insured in accordance with the provisions of this Agreement and the
Mortgage and that Lender is named loss payee on all such insurances.


 


(i)            Mortgage and
Security Interest.  All filings
including all applicable UCC-1 filings pursuant to the UCC, recordings and
other actions deemed necessary or desirable by Lender in order to establish,
protect, preserve and perfect (i) the Mortgage as first preferred fleet
mortgage on the whole of the Vessels, (ii) the Second Pool Vessel Mortgage as
preferred


 


18

















 


mortgage on the Pool Vessels subject only to the
mortgage in favor of the Revolver Lenders and Permitted Liens (as that term is
defined in the Revolving Loan Agreement) and (iii) Lender’s lien on and
security interest in all other Collateral related to the Vessels as a valid
perfected first priority security interest 
and in all other Collateral related to the Pool Vessels as a valid
perfected second priority security interest -shall have been duly effected,
including, without limitation, the filing of financing statements and the
filing and recordation of the Mortgage and the Second Pool Vessel Mortgage and
all other actions required to perfect Lender’s security interest in the
Collateral, all in form and substance satisfactory to Lender, and all fees,
taxes and other charges relating to such filings and recordings shall have been
paid by Borrower.


 


(j)            Representations.  (i)  The representations and
warranties contained in this Agreement, the Mortgage, the Second Pool Vessel
Mortgage, the Assignments and in all other Loan Documents and other documents
executed and delivered to Lender in connection herewith shall be true and
correct in all respects on and as of the date of the making of the Loan with
the same effect as if made on and as of such date; (ii) no Default or Event
of Default shall be in existence on the date of the making of the Loan or shall
occur as a result of the Loan; (iii) no Revolving Loan Default or
Revolving Loan Event of Default shall be in existence on the date of the making
of the Loan or shall occur as a result of the Loan, (iv) no event of default
shall have occurred and be continuing under any charter of any Vessel or Pool
Vessel on the date of the making of the Loan; and (v) the acceptance by
Borrower of the Loan shall constitute a representation by Borrower that the
statements contained in clauses (i), (ii), (iii) and (iv) above are true
and correct at Closing.


 


(k)           No Material Adverse
Change.  In the sole judgment of
Lender, there shall have been no material adverse change in the financial
condition, business or operations of K-Sea Transportation, LLC and its
consolidated Subsidiaries portrayed in the June 30, 2003 Financial
Statements, reported on by PriceWaterhouseCoopers.  Lender shall have received unaudited Financial Statements for the
three months ended September 30, 2003, which statements must confirm the
preliminary figures previously presented by Borrower to Lender.


 


(l)            Other Documents and
Information.  Lender shall have
received from the Borrower in form and substance satisfactory to Lender, such
other documents and information as Lender shall reasonably request.


 


(m)          Proof of Ownership.  With respect to each Vessel and Pool Vessel,
Lender shall have received and found to be satisfactory a Certificate of
Ownership, Abstract of Title or other evidence acceptable to Lender as to such
Vessel or Pool Vessel confirming that such Vessel or Pool Vessel is owned by
Borrower free of all recorded Liens as of the Closing Date.


 


(n)           Legal Matters.  All legal matters with respect to and all
legal documents executed in connection with the transactions contemplated by
this Agreement shall be satisfactory to counsel for Lender.


 


(o)           Appraisals.  Lender shall have received and found to be
satisfactory or agreed to defer (subject to Section 5.1(b) hereof) the Appraisal
of each Vessel conducted by an appraiser satisfactory to Lender, which
appraiser shall be commissioned by Lender and paid for by Borrower.


 


19

















 


(p)           Charter and
Contracts.  Lender shall have
received copies of all charters and other contracts for use or employment of
the Vessels, including, without limitation, the Charter and COA and confirmed
to its satisfaction that all such contracts are in full force and effect and
with no disputes having taken place and on terms consistent with this Agreement
and the other Loan Documents.


 


(q)           No Event of Loss.  No Event of Loss shall have occurred with
respect to any Vessel or any Pool Vessel.


 


Section 4.              Representations
and Warranties.  In order to induce
Lender to enter into this Agreement and to make the Loan, Borrower represents
and warrants to Lender that:


 


4.1           Organization.  The Borrower is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has not engaged in any other business than the purchase,
mortgaging, ownership, managing, operation and chartering of the Vessels and
Pool Vessels and has the necessary right, power and authority to own the
Vessels and Pool Vessels and its other assets and to transact the business in
which it is engaged, and is duly qualified to do business in each jurisdiction
where such qualification is legally required and in each jurisdiction where the
failure to qualify would affect the enforceability of the Loan Documents or
otherwise adversely affect the Collateral or Borrower’s ability to perform its
obligations under any of the Loan Documents.


 


4.2           Power and Authority.  Borrower has full power, authority and legal
right to execute and deliver this Agreement, the Note, the Mortgage, the Second
Pool Vessel Mortgage, the Assignments and any other Loan Documents executed and
delivered from time to time by Borrower, and to perform its obligations
hereunder and thereunder, to borrow hereunder and to grant the security interests
created by this Agreement, the Mortgage and the Second Pool Vessel Mortgage.


 


4.3           Consents and Permits.  No consent of any other Person (including
any stockholders, trustees or holders of indebtedness), and no consent,
license, approval or authorization of, exemption by, or registration or
declaration with, any governmental body, authority, bureau or agency is
required in connection with the execution, delivery or performance by Borrower
of this Agreement, the Note, the Mortgage, the Second Pool Vessel Mortgage or
the Assignments.


 


4.4           No Legal Bar.  The execution, delivery of performance by
Borrower of this Agreement, the Note, the Mortgage, the Second Pool Vessel
Mortgage or the Assignments do not and will not violate any provision of any
applicable law or regulation or of any judgment, award, order, writ or decree
of any court or governmental instrumentality, will not violate any provision of
the limited partnership agreement or other Organizational Document of the
Borrower and will not violate any provision of or cause a default under any
mortgage, indenture, contract, agreement or other undertaking to which the
Borrower is a party or which purports to be binding upon the Borrower or upon
any of its assets, and will not result in the creation or imposition of any
Lien on any of the assets of any of the Borrower other than the security
interests and mortgage intended to be created hereby and under the Assignments,
the Mortgage and the Second Pool Vessel Mortgage.


 


20

















 


4.5           No Defaults.  The Borrower is not in default, and no event
or condition exists which after the giving of notice or lapse of time or both
would constitute an Event of Default, under this Agreement, the Note, the
Mortgage, the Second Pool Vessel Mortgage, any Assignment or under any
mortgage, indenture, contract, agreement, judgment or other undertaking to
which the Borrower is a party or which may be binding upon any of its assets,
except for any such default event or condition which, individually or in the
aggregate, would not affect the Borrower’s ability to perform its obligations
under this Agreement, the Note, the Mortgage, the Second Mortgage, the
Assignments, or any such mortgage, indenture, contract, agreement, judgment or
other undertaking.


 


4.6           Enforceability.  Each of this Agreement, the Note, the
Mortgage, the Second Pool Vessel Mortgage, the Assignments and the other Loan
Documents has been duly authorized, executed and delivered by Borrower, as the
case may be, and constitutes a legal, valid and binding obligation of Borrower,
as the case may be, enforceable in accordance with its respective terms.


 


4.7           No Litigation.  There is no action, suit, investigation or
proceeding (whether or not purportedly on behalf of the Borrower) pending or
threatened against or affecting the Borrower or any of its assets
(a) which involves the Vessels or the Pool Vessels, any Assignment or any
of the transactions contemplated by this Agreement or the other Loan Documents;
or (b) which, if adversely determined, could have a Material Adverse
Effect.


 


4.8           Title to Vessels.  On the Closing Date, Borrower shall have
valid and marketable title to the Vessels subject to no Liens except Permitted
Liens.


 


4.9           Lender’s Security
Interest.  On the Closing Date, Lender
shall have (i) a legal, valid and continuing first preferred mortgage and a
perfected first (and, except for the Second Mortgage, only) lien on and
security interest in the Vessels and in the Collateral related to the Vessels
and all taxes, fees and other charges in connection therewith shall have been
duly paid and (ii) a legal, valid and continuing preferred mortgage and a
perfected second (subject only to the lien of the Revolver Lenders) lien on and
security interest in the Pool Vessels and in the Collateral related to the Pool
Vessels and all taxes, fees and other charges in connection therewith shall
have been duly paid.  There are no
charters or other use agreements in effect on the Vessels other than the
Charter and the COA.


 


4.10         Financial Condition of
Borrower.  (a)  Borrower
was formed on July 14, 2003, and has conducted no business other than the
acquisition, ownership and chartering of its vessels, including the Vessels.


 


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


 


21

















 


Statements referred to in clause (b)(ii) above
and there has been no material adverse change in the financial condition,
business or operations of the Borrower since said dates.


 


4.11         Income Taxes.  Borrower shall have filed all Federal, state
and local income tax returns that are required to be filed, and have paid all
taxes and all assessments received by it to the extent that such taxes and
assessments have become due, and Borrower does not have any knowledge of any or
actual proposed deficiency or additional assessment in connection
therewith.  The charges, accruals and
reserves on the books of Borrower in respect of Federal, state and local taxes
for all open years, and for the current fiscal year, make adequate provision
for all unpaid tax liabilities for such periods.


 


4.12         Principal Place of
Business.  The Borrower maintains a
principal place of business located at 3245 Richmond Terrace, Staten Island,
New York, New York 10303-0003.


 


4.13         No Other Name.  During the past five (5) years, Borrower has
not changed its name or conducted business in any other name than that set
forth in the introductory paragraphs of this Agreement.


 


4.14         Payment of Taxes.  All sales, use, property or other taxes,
licenses, tolls, inspection or other fees, bonds, permits or certificates which
were or may be required to be paid or obtained in connection with the
acquisition by Borrower of the Vessels will have been, or when due will be,
paid in full or obtained, as the case may be.


 


4.15         Environmental
Condition.  Except as identified on
Schedule 4.15 hereto, none of Borrower’s nor any of its Subsidiaries’
properties or assets has ever been designated or identified in any manner
pursuant to any Environmental Law (including, without limitation, OPA 90) as a
Hazardous Materials disposal site, or a candidate for closure pursuant to any
Environmental Law, which designation or identification could reasonably be
expected to have a material adverse effect on Borrower’s or its Subsidiaries’
business or on any of the Collateral. 
No Lien arising under any Environmental Law has attached to any revenues
or to any of the Vessels or any real or personal property owned by Borrower or
any of its Subsidiaries.  Neither
Borrower nor any of its Subsidiaries has received a summons, citation, notice,
or directive from the United States Environmental Protection Agency, the United
States Coast Guard or any other federal or state governmental agency regarding
any action or omission by Borrower or any of its Subsidiaries resulting in the
releasing, or otherwise exposing of Hazardous Materials into the environment,
which notice could reasonably be expected to have a material adverse effect on
Borrower’s or its Subsidiaries’ business or on any of the Collateral.  Borrower and its Subsidiaries (a) are
in compliance (in all material respects) with all Environmental Laws,
including, but not limited to, all statutes, regulations, ordinances and other
legal requirements pertaining to the production, storage, handling, treatment,
release, transportation or disposal of any Hazardous Materials, and
(b) will obtain, maintain and/or comply with any permit, license or other
approval required under any Environmental Law.


 


4.16         Compliance with Laws
and Agreements.  Borrower is in
compliance with all laws, regulations and orders of any Governmental Authority
applicable to it or its property and all indentures, agreements and other
instruments binding upon it or its property, except where the


 


22

















 


failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.  No Default has occurred and is continuing.


 


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


 


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


 


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


 


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


 


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


 


Section 5.              Covenants.


 


5.1           Affirmative
Covenants.  The Borrower covenants
and agrees that from and after the date hereof and so long as the Obligations
are outstanding:


 


(a)           Financial Statements
and Other Information. 
(i)  Borrower shall deliver to Lender, at Borrower’s sole
expense:  (a) as soon as available
but no later than forty-five (45) days after the end of each fiscal quarter,
the unaudited consolidated Financial Statements of K-Sea for such interim
fiscal period, certified by the Financial Officer of K-Sea, and (b) as
soon


 


23

















 


as available but no later than ninety (90) days after
the end of each fiscal year, the audited consolidated Financial Statements of
K-Sea for such fiscal year, certified by independent certified public
accountants acceptable to Lender.  All
of the foregoing shall be in such form and together with such information with
respect to the business of Borrower, as Lender may in each case request as
reasonably calculated by Lender to enable it to confirm and prove elements of
the Financial Statements.  Borrower
shall keep and maintain its books and records in accordance with GAAP,
consistently applied.


 


(ii)           Concurrently with any
delivery of Financial Statements under clause (a) above, Borrower shall
deliver to Lender a certificate of a Financial Officer of K-Sea
(a) certifying as to whether a Default has occurred since the delivery of
the previous such certificate or to the date hereof and, if such a Default has
occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto, (b) setting forth reasonably detailed
calculations demonstrating compliance with Sections 5.2(a), (b), (c) and
(e) (hereof), and (c) stating whether any change in GAAP or in the
application thereof has occurred since the date of the audited Financial
Statements referred to in Section 4.10 or Section 5.1(a) hereof, as
applicable, has had a material adverse effect on the Financial Statements
accompanying such certificate and, if so, the estimated dollar amount thereof.


 


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


 


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


 


(b)           Vessel Appraisals.  Lender may conduct, and Borrower shall
cooperate in the conduct of, a physical Appraisal of any or all of the Vessels
at Borrower’s expense, over every twelve (12) month period of this Agreement in
the absence of an Event of Default and at any time during the continuance of an
Event of Default.  The first
twelve-month period will begin on the Closing Date; provided, however,
that Borrower will allow access to any appraiser sent by Lender to attend and
appraise any Vessel in drydock at any time on reasonable notice.  Each fiscal year, Borrower shall provide
Lender with a drydock schedule and location of drydock.  In the event Lender consents to defer the
initial Appraisal contemplated in Section 3.1(o) hereof to a date subsequent to
Closing, such deferred Appraisal shall not defer any right of Lender to conduct
a subsequent Appraisal within the first twelve month period.


 


(c)           Fees and Expenses.  Borrower shall pay, on Lender’s demand and
delivery to Borrower of invoices therefor, all actual out-of-pocket costs,
expenses, filing fees and taxes payable in connection with the negotiation,
preparation, execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Lender’s


 


24

















 


rights in the Collateral, this Agreement and all other
existing and future agreements or documents contemplated herein or related
hereto, including any amendments, waivers, supplements or consents which may
hereafter be made or entered into in respect hereof, or in any way involving
claims or defense asserted by Lender or claims or defenses against Lender
asserted by Borrower or any guarantor or any third party directly or indirectly
arising out of or related to the relationship between Borrower and Lender,
including, but not limited to, the following, whether incurred before, during
or after the initial or any renewal term or after the commencement of any case
with respect to Borrower under the United States Bankruptcy Code or any similar
statute:  (a) all costs and
expenses of filing or recording (including the UCC financing statement and any
Mortgage filing taxes and fees, abstract fees relating to the Vessels,
documentary taxes, intangibles taxes, etc., if applicable); (b) all
insurance premiums, appraisal fees, fees incurred in connection with any environmental
report, audit or survey and search fees; (c) all fees as then in effect
relating to the wire transfer of loan proceeds and other funds and fees then in
effect for returned checks and credit reports; (d) with respect to
periodic field examinations of the Collateral and Borrower’s operations, a per
diem charge at the rate of $1,000.00 per person per day for Lender’s examiners
in the field and office in excess of three (3) days per visit; and (e) the
costs, fees and disbursements of outside counsel to Lender, including, but not
limited to, such fees and disbursements incurred as a result of litigation
between the parties hereto, any third party and in any appeals arising
therefrom.  Any of the foregoing amounts
that are paid by Lender shall, until reimbursed by or on behalf of Borrower,
constitute Obligations of Borrower secured by the Collateral.


 


(d)           Notices of Material
Events.  Borrower will furnish to
Lender prompt written notice of the following:


 


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


 


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


 


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


 


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


 


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


 


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


 


25

















 


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


 


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


 


(h)           Maintenance of
Properties; Use and Operation of Vessels. 
Borrower will, and will cause each of its Subsidiaries to, keep and
maintain all property material to the conduct


 


26

















 


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


 


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


 


(j)            Use
of Proceeds.  The proceeds of the
Loans will be used exclusively for the acquisition by Borrower of the
Vessels.  Borrower shall not invest,
lend or otherwise distribute the proceeds of the Loan made under this Agreement
in or to any Person other than Borrower.


 


(k)           U.S.
Person.  Borrower covenants and
agrees that at all times until the Lien of the Mortgage shall be discharged and
no portion of the Loan remains outstanding hereunder, it will be a limited
partnership organized under the laws of Delaware or another state within the
United States.


 


(l)            Documentation.  Borrower will comply with and satisfy all
provisions of the laws and regulations of the United States now or hereafter
from time to time in effect in order that the Vessels shall continue to be
documented vessels pursuant to the laws of the United States as vessels of the
United States under the United States flag with such endorsements as shall


 


27

















 


qualify the Vessels for participation in the coastwise
trade and such other trades and services to which they may be dedicated from
time to time.


 


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


 


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


 


(o)           Indemnification.  Without limiting the generality of any other
provision hereof, Borrower shall indemnify, protect, save and keep harmless
Lender from and against any reduction in the amount payable out of the
Collateral to Lender with respect to the Obligations, or any other loss, cost
or expense (including reasonable legal fees) incurred by Lender, as the result
of any breach of the provisions of this Section 5.


 


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


 


28

















 


materially increase Lender’s risks in the transaction,
reduce its returns or otherwise disadvantage Lender.


 


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


 


(r)            Receipt
of Funds by Borrower. 
Notwithstanding the Earnings Assignment and the grant to Lender of
priority security interests in and to the Collateral, at any time while the
Note remains unpaid or any other Obligations then due and owing remain
unsatisfied and an Event of Default has occurred and is continuing, should
Borrower receive any amount representing funds due under or with respect to, or
Proceeds of, any of the Collateral, such sums shall be held by Borrower in
trust for Lender, shall be segregated from other funds of Borrower and shall be
immediately paid by Borrower to Lender in the form so received, together with
any necessary endorsement thereon in favor of Lender or its order, provided,
however, that the foregoing shall not modify the requirements of Section 1.18
of the Mortgage or the Second Pool Vessels Mortgage.


 


(s)           Borrower
will provide to Lender copies of all materials as and when provided to
Charterer pursuant to Section 15 of the Charter.


 


5.2           Negative
Covenants.  Until the principal of
and interest on the Loan and all fees payable hereunder have been paid in full
Borrower covenants and agrees with Lender that:


 


29

















 


(a)           Fixed
Charge Coverage.  The Fixed Charge
Coverage Ratio will not be less than 3.00 to 1.00, tested quarterly based on
the previous four fiscal quarters commencing with a retrospective measurement
from March 31, 2004.


 


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


 


(c)           Leverage
Ratio.  The Leverage Ratio will not
exceed 2.00 to 1.00, tested quarterly.


 


(d)           Adjustments
to Measurements.  With respect to
the foregoing Sections 5.2(a), (b) and (c) hereof, covenant performance
shall be measured from the Closing Date with respect to Borrower and, for any
prior period constituting part of a measurement period, with respect to the
performance of K-Sea Transportation, LLC, and consolidated Subsidiaries; provided,
however, that from Interest Expense, there shall be excluded all
interest incurred prior to the Closing Date related to debt obligations
discharged from initial public offering proceeds of K-Sea and not refunded with
any Revolver Loan provided by the Revolver Lenders pursuant to the Revolving
Loan Agreement.


 


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


 


(f)            No
Liens.  Borrower will not and will
not permit any charterer (including, without limitation, the Charterer) of the
Vessels or any of them to create, assume or suffer to exist any Lien of any
kind upon the Collateral except for Liens in favor of Lender and the Revolver
Lenders (subject to Section 6.1(c) hereof) and Permitted Liens.


 


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


 


(h)           No
Disposition of Assets.  Without the
prior written consent of Lender, which shall not be unreasonably withheld,
Borrower shall not directly or indirectly sell, lease (except for the Charter
of a Vessel, the COA or as permitted under Section 1.15 of the Mortgage),
transfer, assign, abandon, exchange or otherwise relinquish possession or
dispose of any part of the Collateral or any material portion of its other
assets (other than Collateral or other assets that are obsolete or worn out, or
equipment disposed of, if worn out, and replaced with equipment of the same or
better quality and value, in the ordinary course of business).


 


(i)            Fundamental
Changes.  (i)  Borrower
will not, and will not permit any Subsidiary to, merge into or consolidate with
any other Person, or permit any other Person to merge into or consolidate with
it, or sell, transfer, lease or otherwise dispose of (in one transaction or in
a series of transactions) all or substantially all of its assets, or all or
substantially all of the stock of any of its Subsidiaries (in each case,
whether now owned or hereafter acquired), or liquidate or dissolve, except
that, if at the time thereof and immediately after giving effect thereto no
Default shall have occurred and be continuing; provided (a) any
Person may merge into Borrower in a transaction in which Borrower is the
surviving corporation, (b) any


 


30

















 


Person may merge into any Subsidiary in a transaction
in which the surviving entity is a Subsidiary, (c) any Subsidiary may
sell, transfer, lease or otherwise dispose of its assets to Borrower or to
another Subsidiary, and (d) any Subsidiary may liquidate or dissolve if Borrower
determines in good faith that such liquidation or dissolution is in the best
interests of Borrower and is not materially disadvantageous to Lender.


 


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


 


(j)            Transactions
with Affiliates.  Borrower will not,
and will not permit any of its Subsidiaries to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with,
any of its Affiliates, except (a) in the ordinary course of business at
prices and on terms and conditions not less favorable to Borrower or such
Subsidiary than could be obtained on an arm’s-length basis from unrelated third
parties, (b) transactions between or among Borrower and its Subsidiaries
not involving any other Affiliate and (c)  any transaction permitted by
Section 5.2(i) hereof; provided, that the foregoing provisions of
this Section 5.2(j) shall not prohibit any such Person from declaring or
paying any lawful Distributions so long as, after giving effect thereto, no Default
shall have occurred and be continuing.


 


(k)           Restrictive
Agreements.  Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, enter into,
incur or permit to exist any agreement or other arrangement that prohibits, restricts
or imposes any condition upon (a) the ability of Borrower or any
Subsidiary to create, incur or permit to exist any Lien upon any of its
property or assets, which restriction (or condition) is more restrictive, in
substance, than the restrictions in Section 5.2(f) hereof, or (b) the
ability of any Subsidiary to pay Distributions or other distributions with
respect to any shares of its capital stock or to make or repay loans or
advances to Borrower or any other Subsidiary or to guaranty Indebtedness of
Borrower or any other Subsidiary; provided, that (i) the foregoing
shall not apply to restrictions and conditions imposed by law or by this
Agreement, (ii) the foregoing shall not apply to restrictions and
conditions existing on the date hereof (but shall apply to any extension or
renewal of, or any amendment or modification expanding the scope of, any such
restriction or condition), (iii) the foregoing shall not apply to
customary restrictions and conditions contained in agreements relating to the
sale of a Subsidiary pending such sale, provided, that such restrictions
and conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder, (iv) clause (a) of the foregoing shall not apply
to restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the property or assets securing such Indebtedness and
(v) clause (a) of the foregoing shall not apply to customary provisions
in leases and other contracts restricting the assignment thereof.


 


(l)            The
Borrower shall not make distributions to any limited or general partner of the
Borrower during the continuance of an Event of Default if, following the
occurrence of such Event of Default, Lender sends a notice to Borrower
asserting or confirming such Event of Default (regardless of whether any notice
shall have been required to create such Event of Default in any case).


 


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(m)          The
Borrower shall not pledge the COA or any interest therein to any Person without
the prior written consent of Lender.


 


Section 6.              Security
Interest.


 


6.1           Grant
of Security Interest.


 


(a)           As
collateral security for the prompt and complete payment and performance when
due of all payments required under the Note and of all the Obligations and in
order to induce Lender to enter into this Agreement and make the Loans in
accordance with the terms hereof and to extend other credit from time to time
to Borrower whether under this Agreement or otherwise, Borrower hereby assigns,
conveys, mortgages, pledges, hypothecates and transfers to Lender a first
priority security interest in all Borrower’s right, title and interest in, to
and under the Vessels and all of Borrower’s right, title and interest in, to
and under all Collateral related to the Vessels, and a second priority security
interest in all Borrower’s right, title and interest in, to and under the Pool
Vessels and all of Borrower’s right, title and interest in, to and under all
Collateral related to the Pool Vessels, provided, however, that
in the event that all amounts due and owing under the Revolving Loan Agreement
are repaid and the Revolving Loan Agreement is terminated, the grant of the
security interest in respect of the Pool Vessels as provided herein shall
thereupon be terminated.


 


(b)           It
is expressly agreed that, anything contained herein to the contrary
notwithstanding, (1) Borrower shall at all times remain liable to observe
and perform all of its duties and obligations under any charters of the Vessels
to the same extent as if this Agreement and the Assignments had not been made,
(2) the exercise by Lender of any of the rights assigned hereunder shall
not release Borrower from any of its duties or obligations under any charter
and (3) Lender shall not have any obligation or liability under any
charter by reason of this Agreement, the Assignments or the receipt by Lender
of any payment or property under any such charter or pursuant hereto, nor shall
Lender be obligated to perform or fulfill any of the duties or obligations of
the “owner” under any charter or to make any payment thereunder, or to make any
inquiry as to the nature or sufficiency of any payment or property received by
it thereunder, or the sufficiency of performance by any Person thereunder, or
to present or file any claim, or to take any action to collect or enforce any
performance or the payment of any amounts or the delivery of any property which
may have been assigned to it or to which it may be entitled at any time or
times.


 


(c)           Upon
or immediately following the Closing, CIT will be the sole Lender and KeyBank
will purchase a 50% participation interest in the Loan.  Thereafter and so long as CIT or KeyBank
retain any direct or indirect legal or beneficial interest in the Loan, the
Loan shall continue to be secured by the Pool Vessels and each of their
earnings, insurances and other Proceeds thereof (collectively, “Pool
Collateral”), but only for the benefit of and to the extent of the
interest of such person retaining such interest.  The benefits of this security in the Pool Collateral shall be
personal to CIT and KeyBank and any successors by merger or reorganization, but
may not be assigned by either CIT or KeyBank to any other Person.  Once the direct or indirect interest of
either Lender or KeyBank is reduced to zero, it may not thereafter be revived
for the benefit of such person and shall thereupon be extinguished as to such
person.


 


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6.2           Lender
Appointed as Attorney-in-Fact.


 


(a)           Borrower
hereby irrevocably constitutes and appoints Lender and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full and irrevocable power and authority in the place and
stead of Borrower and in the name of Borrower or in its own name, upon and
after the occurrence of an Event of Default, from time to time in Lender’s
discretion to the maximum extent permitted by applicable law, for the purpose
of carrying out the terms of this Agreement, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to protect and preserve, and/or exercise its rights and
remedies hereunder and under the Assignments with respect to the Collateral
and, without limiting the generality of the foregoing, hereby gives Lender the
power and right, on behalf of Borrower and without notice to or assent by
Borrower, to do the following:  to
demand, enforce, collect, receive, receipt, and give release for any monies due
or to become due under or arising out of or with respect to, any of the
Collateral, and to endorse all checks and other instruments, and to do and take
all such other actions relating to any of the Collateral, to file any claims or
institute any proceedings with respect to any of the foregoing which Lender
deems necessary or desirable, and to compromise any such demand, claim or
action.  Borrower hereby ratifies all that
said attorney shall lawfully do or cause to be done by virtue hereof.  This power of attorney is a power coupled
with an interest and shall be irrevocable.


 


(b)           The
powers conferred on Lender hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such
powers.  Lender shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers and neither it nor any of its officers, directors, employees or agents
shall be responsible to Borrower for any act or failure to act.


 


Section 7.              Events
of Default.  The following events
shall each constitute an event of default (herein called “Event of Default”) under this
Agreement:


 


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


 


(b)           Any
representation or warranty made by Borrower or Charterer, in this Agreement, or
any other Loan Document, or in any document, certificate or financial or other
statement heretofore, now or hereafter furnished by Borrower or Charterer, in
connection with this Agreement or any other Loan Document shall at any time prove
to be untrue or misleading in any material respect as of the time when made or
when deemed to be made; or


 


(c)           Any
failure by Borrower to observe any covenant, condition or agreement contained
in Sections 2.5, 5.1(d), (e), (f), (g), (h), (j), (k), (l) or (n), or
5.2(a), (b), (c) or (j) hereof, and such failure shall be continuing; or


 


(d)           Borrower
shall fail to observe or perform any other covenant, condition or agreement
contained in this Agreement, or any other Loan Document, and such failure shall


 


33

















 


continue unremedied for a period of thirty (30) days
after the earlier of (1) the date on which Borrower obtains knowledge of
such failure; or (2) the date on which notice thereof shall be given by
Lender to Borrower; provided, however, if any failure cannot reasonably be
remedied within 30 days and if such Borrower promptly commences the remedy to
such failure following knowledge or notice, as the case may be, and diligently
pursues such remedy and there is no risk to the Collateral in the opinion of
Lender, then it shall not be deemed an Event of Default if such remedy requires
in excess of 30 but not more than 90 days; or


 


(e)           a
Revolving Loan Default or Revolving Loan Event of Default shall have occurred
and be continuing; or


 


(f)            Borrower,
or any parent, subsidiary or Affiliate of Borrower shall (1) default in
the payment of any obligation to Lender or to any of Lender or its Affiliates,
whether such obligation is for borrowed money, under any lease, under any
guarantee or similar accommodation, or for the deferred purchase price of
property including interest thereon, beyond the period of grace, if any,
provided with respect thereto, or (2) default in the performance or
observance of any other term, condition or agreement contained in any such
obligation (or a trustee on behalf of such holder or holders) to cause such
obligation to become due prior to its stated maturity or to realize upon any
collateral given as security therefor, or (3) default in the payment or
performance or observance of any obligation, term or agreement contained in any
instrument or obligation to any other Person other than Lender or any of its
Affiliates in an original (principal) amount equal to or greater than $500,000;
or


 


(g)           The
institution by Borrower, of proceedings to be adjudicated a bankrupt or
insolvent, or the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the commencement by Borrower of a voluntary
proceeding or case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal, state or foreign bankruptcy,
insolvency or other similar law, or the consent by it to the filing of any such
petition or to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or sequestrator (or other similar
official) of Borrower or of any substantial part of its property, or the making
by it of any assignment for the benefit of creditors or the admission by it of
its inability to pay its debts generally as they become due or its willingness
to be adjudicated a bankrupt or the failure of Borrower generally to pay its
debts as they become due or the taking of appropriate action by Borrower in
furtherance of any of the foregoing; or


 


(h)           The
entry of a decree or order for relief by a court having jurisdiction in respect
of Borrower, adjudging Borrower a bankrupt or insolvent, or approving as
properly filed a petition seeking a reorganization, arrangement, adjustment or
composition of or in respect of Borrower in an involuntary proceeding or case
under the Federal bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state or foreign bankruptcy, insolvency or other
similar law, or appointing a receiver, liquidator, assignee, custodian, trustee
or sequestrator (or other similar official) of Borrower, or of any substantial
part of its property, or ordering the winding-up or liquidation of its affairs,
and the continuance of any such decree or order unstayed and in effect for a
period of thirty (30) days; or


 


34

















 


(i)            A
Mortgage Event of Default (as defined in the Mortgage or the Second Pool Vessel
Mortgage) shall have occurred and be continuing under the Mortgage or the
Second Pool Vessel Mortgage; or


 


(j)            Intentionally
omitted.


 


(k)           Assertion
by any federal, state, or local agency of a Lien upon any or all of the assets,
equipment, property, leaseholds, or other facilities of the Borrower by reason
of the occurrence of a hazardous discharge or environmental complaint unless,
with respect to any Vessel or other Collateral, such Lien is released by
substitution of a bond or other undertaking within five days and, with respect
to any other property, such Lien does not in the opinion of Lender constitute a
risk to the financial condition of Borrower; or


 


(l)            Assertion
by any Person of a claim against Borrower and/or its assets, equipment,
property, leaseholds, or other facilities for damages or cleanup costs relating
to a hazardous discharge or an environmental complaint; provided, however, that
such claim shall not constitute a default if, within five (5) Business Days of
the occurrence giving rise to the claim:


 


(1)           Borrower can prove to
Lender’s satisfaction that the Borrower has commenced and is diligently
pursuing either:  (i) a cure or
correction of the event which constitutes the basis for the claim, and
continues diligently to pursue such cure or correction to completion or
(ii) proceedings for an injunction, a restraining order or other
appropriate emergency relief preventing such agency or agencies from asserting
such claim, which relief is granted within ten (10) Business Days of the
occurrence giving rise to the claim and the injunction, order or emergent
relief is not thereafter dissolved or reversed on appeal; and


 


(2)           In either of the
foregoing events, Borrower shall have posted a bond, letter of credit or other
security satisfactory in form, substance, and amount to both Lender and, if
required by law, the agency or entity asserting the claim to secure the proper
and complete cure or correction of the event which constitutes the basis for
the claim, provided, however, that Borrower may contest the imposition of any
fine, penalty or other obligation imposed by any governmental agency or office,
provided that such contest is conducted by appropriate proceedings, timely
commenced and diligently pursued and that adequate security is filed or given
to ensure that there is no risk to the Collateral or to Lender’s security
interests therein under the Loan Documents and provided, further, that all
requirements imposed by Lender hereunder are being met; or


 


(m)          Borrower
fails to maintain and preserve the Vessels in good running order and repair, so
that the Vessels are tight, staunch, strong and well and sufficiently tackled,
appareled, furnished, equipped and in every respect seaworthy and in good order
and operating condition, ordinary wear and tear excepted; or


 


35

















 


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


 


(o)           A
Change in Control shall have occurred; or


 


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


 


(q)           Except
for specific matters disclosed in writing to Lender prior to the date hereof,
any indictment or threatened indictment, occurring after the date hereof, of
Borrower under any criminal statute, including OPA 90 or any similar
Environmental Law, or commencement or threatened commencement of criminal or
civil proceedings against Borrower, pursuant to which statute or proceedings
the penalties or remedies sought or available include forfeiture of any of the
property of Borrower.  For issues
relating to OPA 90 or similar Environmental Law, Lender agrees that an Event of
Default shall not be deemed to have occurred prior to the date on which
Borrower receives notice thereof from Lender; or


 


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


 


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


 


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


 


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


 


(v)           Any
Organizational Document of Borrower shall be amended, revoked or rescinded in
any material way without the prior written consent of Lender; or


 


(w)          Failure
by Borrower to make any prepayment or provide additional Collateral required by
Section 2.5(c) hereof in the time required by Lender; or


 


(x)            Failure
by Borrower to make the prepayment required by Section 2.5(a) on the date
determined in accordance therewith.


 


36

















 


Section 8.              Remedies.


 


8.1           If
an Event of Default specified in Sections 7(g) or (h) above shall occur,
then, and in any such event, the principal amount of the Note, together with
accrued interest thereon and all other amounts owing under or with respect to
this Agreement and the other Loan Documents shall become immediately due and
payable without any notice or other action by Lender, and if any other Event of
Default shall occur and be continuing, then, and in any such event, Lender may,
by notice of default given to Borrower, declare the Note and all other amounts
owing thereunder or with respect to this Agreement to be forthwith due and
payable, whereupon the principal amount of the Note, together with accrued
interest thereon and all other amounts owing thereunder or with respect to this
Agreement and the other Loan Documents shall become immediately due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived.  During the
continuance of any Event of Default hereunder, Lender shall have the right to
pursue and enforce any of its rights and remedies under this Section 8.


 


8.2           If
an Event of Default shall occur and be continuing, Lender may exercise in
addition to all other rights and remedies granted to it in this Agreement, any
other Loan Document and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of secured
parties under the UCC or under any other applicable law.  Without limiting the generality of the
foregoing, Borrower agrees that in any such event, Lender may exercise any or
all of Borrower’s rights and Lender, without demand of performance or other
demand, advertisement or notice of any kind (except the notice specified below
of time and place of public or private sale) to or upon Borrower or any other
person (all and each of which demands, advertisements and/or notices are hereby
expressly waived), may forthwith collect, receive, appropriate and realize upon
the Collateral, or any part thereof, and/or may forthwith sell, lease, assign,
give option or options to purchase or otherwise dispose of and deliver the
Collateral (or contract to do so), or any part thereof, in one or more parcels
at public or private sale or sales, at any exchange or broker’s board or at any
of Lender’s offices or elsewhere at such prices as it may deem best, for cash
or any credit or for future delivery without assumption of any credit
risk.  Lender shall have the right upon
any such public sale or sales, and, to the extent permitted by law, upon any
such private sale or sales, to purchase the whole or any part of the Collateral
so sold, free of any right or equity of redemption in Borrower, which right or
equity is hereby expressly released. 
Borrower further agrees, at Lender’s request, to assemble the
Collateral, make it available to Lender at places that Lender shall reasonably
select, whether at Borrower’s premises or elsewhere.  Lender shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale (after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care, safekeeping or otherwise of any or all of the Collateral or in any
way relating to the rights of Lender hereunder, including attorneys’ fees and
legal expense) to the payment in whole or in part of the obligations, in such
order as Lender may elect and only after so applying such net proceeds and
after the payment by Lender of any other amount required by any provision of
law, need Lender account for the surplus, if any, to Borrower.  To the extent permitted by applicable law,
Borrower waives all claims, damages, and demands against Lender arising out of
the repossession, retention or sale of the Collateral.  Borrower agrees that Lender need not give
more than 10 days’ notice (which notification shall be deemed given when
mailed, postage prepaid, addressed to Borrower at its address set forth in
Section 9.2 hereof) of the time and place of any public sale or of the


 


37

















 


time after which a private sale may take place and
that such notice is reasonable notification of such matters.  Borrower shall be liable for any deficiency
if the proceeds of any sale or disposition of the Collateral are insufficient
to pay all amounts to which Lender is entitled.


 


8.3           Borrower
agrees to pay all reasonable costs of Lender, including attorneys’ fees and
disbursements, incurred with respect to the collection of any of the
Obligations and the enforcement of any of Lender’s rights hereunder or under
any other of the Loan Documents.


 


8.4           Borrower
hereby waives presentment, demand, protest or any notice, except as hereinabove
provided in this Section 8 (to the extent permitted by applicable law) of
any kind in connection with this Agreement, any other Loan Document or the
Collateral.


 


Section 9.              Miscellaneous.


 


9.1           No
Waiver; Cumulative Remedies.  No
failure or delay on the part of Lender in exercising any right, remedy, power
or privilege hereunder or under the Note or any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege.  No right or remedy in this
Agreement or any other Loan Document is intended to be exclusive but each shall
be cumulative and in addition to any other remedy referred to herein or
otherwise available to Lender at law or in equity; and the exercise by Lender
of any one or more of such remedies shall not preclude the simultaneous or
later exercise by Lender of any or all such other remedies.  To the extent permitted by law, Borrower
waives any rights now or hereafter conferred by statute or otherwise which
limit or modify any of Lender’s rights or remedies under this Agreement or any
other Loan Document.


 


9.2           Notices.  All notices, invoices, statements, requests
and demands to or upon any party hereto shall be deemed to have been duly given
or made when sent by telecopier with telephonic confirmation, or deposited in
the United States mail, first class postage prepaid, or sent by a nationally
recognized overnight courier service, addressed to such party as follows, or to
such other address as may be hereafter designated in writing by such party to
the other party hereto:


 


	
  BORROWER:

  	
   

  	
  K-SEA
  OPERATING PARTNERSHIP L.P.

  
	
   

  	
   

  	
  3245
  Richmond Terrace

  
	
   

  	
   

  	
  Staten
  Island, New York  10303

  
	
   

  	
   

  	
  Attention:  John Nicola, Chief Financial Officer

  
	
   

  	
   

  	
  Facsimile No.:  (718) 720-4358

  
	
   

  	
   

  	
   

  
	
  LENDER:

  	
   

  	
  THE CIT
  GROUP/EQUIPMENT FINANCING, INC.

  
	
   

  	
   

  	
  1540 W.
  Fountainhead Parkway

  
	
   

  	
   

  	
  Tempe,
  Arizona  85282

  
	
   

  	
   

  	
  Attention:  Doug MacDonald

  
	
   

  	
   

  	
  Facsimile No.:  (480) 858-1438

  



 


9.3           Payment
of Expenses and Taxes; Indemnity; Performance by Lender of Borrower’s
Obligations.


 


38

















 


(a)           Borrower
hereby agrees, whether or not the transactions contemplated by this Agreement
shall be consummated, to pay, indemnify, and hold Lender harmless from and
against any and all other liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, suits, out-of-pocket costs, expenses (including
legal expenses) or disbursements of any kind or nature whatsoever arising out
of or with respect to this Agreement, the other Loan Documents, the Vessels,
the other Collateral or Lender’s interest therein, including, without
limitation, the execution, delivery, enforcement, performance or administration
of this Agreement, the Note and the other Loan Documents and the manufacture,
purchase, ownership, possession, use, selection, operation or condition of the
Vessels, or any part thereof (the foregoing being referred to as the “indemnified
liabilities”), provided, that Borrower shall not have any
obligation hereunder with respect to indemnified liabilities arising from the
gross negligence or wilful misconduct of Lender.


 


(b)           If
Borrower fails to perform or comply, or otherwise cause performance or
compliance, with such agreement, the expenses of Lender incurred in connection
with such performance or compliance, together with interest thereon at the rate
provided for in the Note shall be payable by Borrower to Lender on demand and
until such payment shall constitute obligations secured hereby.


 


9.4           Intentionally
Omitted.


 


9.5           Survival
of Representations and Warranties. 
All representations and warranties made in this Agreement or any of the
other Loan Documents and any certificates delivered pursuant hereto or thereto
shall survive the execution and delivery of this Agreement and the making of
the Loans hereunder, and the agreements contained in Section 9.3 hereof
shall survive payment of the amounts due under the Note.


 


9.6           Amendments;
Waivers.  No provision of this
Agreement, the Note, any other Loan Document or any related agreements, may be
amended or modified in any way, nor may noncompliance therewith be waived,
except pursuant to a written instrument executed by Lender and Borrower.  In the case of any waiver, Lender and Borrower
shall be restored to their former position and rights hereunder, under the
Note, any other Loan Document and under any related agreements, and any Default
or Event of Default waived shall be deemed to be cured and not continuing, but
no such waiver shall in any way be, or be construed to be, a waiver of any
other or subsequent Default or Event of Default, or impair any right consequent
thereon.


 


9.7           Counterparts.  This Agreement may be executed by the
parties hereto on any number of separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.


 


9.8           Headings.  The headings of the Sections and
paragraphs are for convenience only, are not part of this Agreement and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.


 


9.9           [intentionally
omitted].


 


9.10         Authorization
to Date, Complete Blanks and Correct Errors.  Borrower hereby irrevocably authorizes Lender and Lender’s
agents, representatives and employees to date, to


 


39

















 


complete any blank spaces contained in, and to correct
any typographical errors appearing in this Agreement, the Note, the Mortgage or
in any Loan Documents or other documents pertaining hereto or thereto.


 


9.11         SUCCESSORS
OR ASSIGNS.  THIS AGREEMENT SHALL BE
BINDING UPON AND INURE TO THE BENEFIT OF BORROWER AND LENDER AND THEIR
RESPECTIVE SUCCESSORS AND ASSIGNS, EXCEPT THAT BORROWER MAY NOT ASSIGN OR
TRANSFER ITS RIGHTS HEREUNDER OR ANY INTEREST HEREIN WITHOUT THE PRIOR WRITTEN
CONSENT OF LENDER.  LENDER MAY, WITHOUT
NOTICE TO OR THE CONSENT OF BORROWER, SELL, ASSIGN OR TRANSFER TO ONE OR MORE
BANKS, LENDERS OR OTHER PERSONS, INCLUDING ANY AFFILIATES OF LENDER (AN “ASSIGNEE”),
ALL OR ANY PART OF, THE OBLIGATIONS, THE LOAN, THE NOTE OR THE OTHER LOAN
DOCUMENTS, AND TO THE EXTENT OF ANY SUCH SALE, ASSIGNMENT, TRANSFER OR
PARTICIPATION (UNLESS OTHERWISE STATED HEREIN), SUCH ASSIGNEE SHALL HAVE THE
SAME RIGHTS AND BENEFITS HEREUNDER AND UNDER THE OTHER LOAN DOCUMENTS AS IT
WOULD HAVE IF IT WERE LENDER, PROVIDED THAT LENDER SHALL CONTINUE TO HAVE THE
UNIMPAIRED RIGHT TO ENFORCE THE PROVISIONS OF THIS AGREEMENT, THE NOTE AND THE
OTHER LOAN DOCUMENTS AS TO SO MUCH OF THE OBLIGATIONS (AS DEFINED HEREIN) THAT
LENDER HAS NOT SOLD, ASSIGNED OR TRANSFERRED AS DESCRIBED ABOVE.  IN ADDITION TO THE FOREGOING, LENDER SHALL
HAVE THE RIGHT WITHOUT NOTICE TO BORROWER TO SELL PARTICIPATIONS IN THE LOAN TO
ONE OR MORE FINANCIAL INSTITUTIONS.  IN
CONNECTION WITH THE FOREGOING, LENDER SHALL HAVE THE RIGHT TO DISCLOSE TO ANY
SUCH ACTUAL OR POTENTIAL ASSIGNEE, ALL FINANCIAL RECORDS, INFORMATION, REPORTS,
FINANCIAL STATEMENTS AND DOCUMENTS OBTAINED IN CONNECTION WITH THIS AGREEMENT
AND THE LOAN.


 


9.12         Merger
Clause.  This Agreement and the
other Loan Documents contains the complete, final and exclusive statement of
the terms of the agreement between Lender and Borrower relating to the
transactions hereby contemplated.


 


9.13         Construction.
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability shall not
invalidate or render unenforceable such provision in any other
jurisdiction.  To the extent permitted
by law, Borrower hereby waives any provision of law which renders any provision
hereof prohibited or unenforceable in any respect.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, EXCEPT THAT THE MORTGAGE SHALL BE GOVERNED BY THE LAWS OF THE UNITED
STATES TO THE EXTENT THEREIN PROVIDED.


 


9.14         JURISDICTION.  BORROWER HEREBY IRREVOCABLY CONSENTS AND
AGREES THAT ANY LEGAL ACTION, SUIT, OR PROCEEDING ARISING OUT OF OR IN ANY WAY
IN CONNECTION WITH THIS AGREEMENT MAY BE INSTITUTED OR


 


40

















 


BROUGHT IN THE COURTS OF THE STATE OF NEW YORK, IN THE
COUNTY OF NEW YORK, OR THE UNITED STATES COURTS FOR THE SOUTHERN DISTRICT OF
NEW YORK, AS LENDER MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
BORROWER HEREBY IRREVOCABLY ACCEPTS AND SUBMITS TO, FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION
OF ANY SUCH COURT, AND TO ALL PROCEEDINGS IN SUCH COURTS.  BORROWER IRREVOCABLY CONSENTS TO SERVICE OF
ANY SUMMONS AND/OR LEGAL PROCESS BY REGISTERED OR CERTIFIED UNITED STATES AIR
MAIL, POSTAGE PREPAID, TO BORROWER AT THE ADDRESS SET FORTH IN SECTION 9.2
HEREOF, SUCH METHOD OF SERVICE TO CONSTITUTE, IN EVERY RESPECT, SUFFICIENT AND
EFFECTIVE SERVICE OF PROCESS IN ANY SUCH LEGAL ACTION OR PROCEEDING.  NOTHING IN THIS AGREEMENT SHALL AFFECT THE
RIGHT TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR LIMIT THE
RIGHT OF LENDER TO BRING ACTIONS, SUITS OR PROCEEDINGS IN THE COURTS OF ANY
OTHER JURISDICTION.  BORROWER FURTHER
AGREES THAT FINAL JUDGMENT AGAINST IT IN ANY SUCH LEGAL ACTION, SUIT OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION,
WITHIN OR OUTSIDE THE UNITED STATES OF AMERICA, BY SUIT ON THE AGREEMENT, A
CERTIFIED OR EXEMPLIFIED COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT
AND THE AMOUNT OF THE LIABILITY.


 


9.15         WAIVER
OF TRIAL BY JURY.  BORROWER AND
LENDER IN ANY LITIGATION RELATING TO OR IN CONNECTION WITH THIS AGREEMENT IN
WHICH THEY SHALL BE ADVERSE PARTIES WAIVE TRIAL BY JURY.


 


9.16         Loan
Participation.


 


(a)           If
requested by Lender, Borrower will cooperate with Lender to provide any
prospective Participant with information to enable the prospective Participant
to purchase a participation.


 


(b)           Borrower
shall assist Lender to sell assignments or participations and to effect any
such assignment or participation, including the execution and delivery of any
and all agreements, notes and other documents and instruments as shall be
requested and, in connection with the initial syndication of the Note, the
preparation of informational materials for, and the participation of management
in meetings with any potential descriptions of Borrower and its affairs
contained in any selling materials provided by it and all other information
provided by it and included in such materials.


 


(c)           Lender
may furnish any information concerning Borrower in the possession of Lender
from time to time to any assignee and Participant (including any prospective
assignee and Participant).


 


[REMAINDER LEFT INTENTIONALLY BLANK]


 


41

















 


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.


 


	
   

  	
  THE CIT GROUP/EQUIPMENT

  FINANCING, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carl E.
  Myrick 

  
	
   

  	
  Name:

  	
  Carl E.
  Myrick

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  
	
   

  	
  K-SEA OPERATING PARTNERSHIP L.P.

  by its general partner K-Sea OLP GP, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John J.
  Nicola

  
	
   

  	
  Name:

  	
  John J.
  Nicola

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
							



 


42

















 


	
  STATE OF NEW YORK

  	
  )

  	
   

  
	
   

  	
  )

  	
  ss.:

  
	
  COUNTY OF

  	
  )

  	
   

  



 


On
this      day of January, 2004, before me personally
came John J. Nicola, to me known, who, being by me duly sworn, did depose
and say that he is the Chief Financial Officer of K-SEA OLP GP, LLC, the
limited liability company which is the general partner of K-Sea Operating
Partnership L.P., the party described in the foregoing instrument and said
general partner executed the foregoing 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)

  



 

















 


	
  STATE OF ARIZONA

  	
  )

  	
   

  
	
   

  	
  )

  	
  ss.:

  
	
  COUNTY OF MARICOPA

  	
  )

  	
   

  



 


On
this      day of January, 2004, before me personally
came Carl E. Myrick, to me known, who, being by me duly sworn, did depose and
say that he is the Vice President of THE CIT GROUP/EQUIPMENT FINANCING, INC.,
the corporation described in and which executed the foregoing instrument; and
that he signed his name thereto pursuant to authority granted to him by the
Board of Directors of said corporation.


 


	
   

  	
   

  
	
   

  	
  (Notary
  Public)

  



 

















 


SCHEDULE I


 


	
  Vessel

  	
   

  	
  Official No.

  
	
   

  	
   

  	
   

  
	
  LINCOLN SEA
(ex-S/R EVERETT)

  	
   

  	
  1084513

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  DBL 140
(ex-S/R NEW YORK)

  	
   

  	
  1090503

  



 


1

















 


SCHEDULE II


 


POOL VESSELS


as of January 28, 2004, subject to change in
accordance with the Revolving Loan Agreement


 


	
  VESSEL

  	
   

  	
  OFFICIAL NO.

  
	
   

  	
   

  	
   

  
	
  DOUBLE-HULL BARGES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  DBL 151

  	
   

  	
  641082

  
	
  DBL 152

  	
   

  	
  644380

  
	
  CASABLANCA

  	
   

  	
  901203

  
	
  LEMON CREEK

  	
   

  	
  901206

  
	
  DBL 70

  	
   

  	
  540401

  
	
  DBL 32

  	
   

  	
  1087118

  
	
  DBL 2202

  	
   

  	
  287892

  
	
   

  	
   

  	
   

  
	
  SINGLE-HULL BARGES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  KTC 155

  	
   

  	
  556673

  
	
  KTC 90

  	
   

  	
  507495

  
	
  KTC 96

  	
   

  	
  523233

  
	
  RTC 81

  	
   

  	
  643281

  
	
  KTC 71

  	
   

  	
  563364

  
	
  KTC 60

  	
   

  	
  630272

  
	
  DBL 3201

  	
   

  	
  512882

  
	
   

  	
   

  	
   

  
	
  TUGS

  	
   

  	
   

  
	
  REBEL

  	
   

  	
  570047

  
	
  YANKEE

  	
   

  	
  571215

  
	
  VOLUNTEER

  	
   

  	
  653464

  
	
  IRISH SEA

  	
   

  	
  520685

  
	
  VIKING

  	
   

  	
  541711

  
	
  BEAUFORT SEA

  	
   

  	
  536836

  
	
  TASMAN SEA

  	
   

  	
  578207

  
	
  ADRIATIC SEA

  	
   

  	
  590232

  
	
  CORAL SEA

  	
   

  	
  550670

  
	
  KARA SEA

  	
   

  	
  556625

  
	
  JAVA SEA

  	
   

  	
  636105

  
	
  BALTIC SEA

  	
   

  	
  551908

  
	
  BERING SEA

  	
   

  	
  569665

  
	
  MARYLAND

  	
   

  	
  287444

  
	
  FALCON

  	
   

  	
  598501

  
	
  ODIN

  	
   

  	
  647313

  
	
  TAURUS

  	
   

  	
  602379

  
	
  DBL 105

  	
   

  	
  653463

  



 


1

















 


SCHEDULE 4.15


 


Environmental Compliance


 


1

















 


EXHIBIT A


 


PROMISSORY NOTE


 


	
  New York, New York

  	
   

  
	
  $25,048,000.00

  	
  January    ,
  2004

  



 


FOR
VALUE RECEIVED, K-SEA OPERATING PARTNERSHIP L.P. (“Borrower”), a Delaware
limited partnership, promises to pay to the order of THE CIT GROUP/EQUIPMENT FINANCING, INC.
(“Lender”),
at such address as Lender may designate, in lawful money of the United States,
the principal sum of TWENTY-FIVE MILLION FORTY-EIGHT THOUSAND AND NO HUNDREDTHS
UNITED STATES DOLLARS (US$25,048,000.00) together with interest in like money
on the principal sum remaining unpaid from time to time from the date of this
Note until due and payable (whether as stated, by acceleration or otherwise) at
the Applicable Interest Rate determined in accordance with the Loan Agreement
(as defined below), said principal and interest to be paid in eighty-three (83)
consecutive monthly installments of principal in the amount of ONE HUNDRED
THIRTY-NINE THOUSAND ONE HUNDRED FIFTY-FIVE AND NO HUNDREDTHS UNITED STATES
DOLLARS (US$139,155.00) each, plus accrued interest, commencing March 10,
2004, and a final balloon payment, due on the eighty-fourth (84th)
Installment Payment Date, of all remaining principal, bearing interest accrued
on the unpaid principal balance to the due date of each installment on the same
day of each month thereafter until payment in full of this Note.  Each such installment shall be applied first
to the payment of any unpaid interest on the principal sum and then to payment
of principal.  Interest shall be
calculated on the basis of actual number of days elapsed in a 360-day
year.  Any amount not paid when due
under this Note shall bear late charges thereon, calculated at the Late Charge
Rate, from the due date thereof until such amount shall be paid in full.  Any payment received after the maturity of
any installment of principal shall be applied first to the payment of unpaid
late charges, second to the payment of any unpaid interest on said principal,
and third to the payment of principal.


 


This
Note is the Note referred to in the Loan and Security Agreement, dated as of
January    , 2004, between Borrower and Lender (herein, as
the same may from time to time be amended, supplemented or otherwise modified,
called the “Loan Agreement”), is secured as provided in the Loan
Agreement, and is subject to prepayment only as provided therein, and the
holder hereof is entitled to the benefits thereof.


 


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


 


Borrower
hereby waives presentment, protest, demand for payment, diligence, notice of
dishonor and of nonpayment, and any and all other notices or demands in
connection with delivery, acceptance, performance, default or enforcement of
this Note, and hereby waives and renounces all rights to the benefits of any
statute of limitations and any moratorium, appraisement, exemption and
homestead now provided or which may hereafter be provided by any federal or
state statute, including, without limitation, exemptions provided or which may
hereafter be provided by any federal or state bankruptcy or insolvency laws,
both as to itself and


 


1

















 


as to
all of its property, whether real or personal, against the enforcement and
collection of the obligations evidenced by this Note and any and all
extensions, renewals and modifications hereof and hereby consents to any
extensions of time, renewals, releases of any party to this Note, waivers or
modifications that may be granted or consented to by the holder of this Note.


 


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


 


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


 


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


 


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


 


2

















 


THIS
NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK TO THE EXTENT THAT THE TERMS AND PROVISIONS
HEREOF ARE NOT GOVERNED BY CHAPTER 313 OF TITLE 46 OF THE UNITED STATES
CODE.


 


	
   

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

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


3