Exhibit
10.7


 


K-SEA TRANSPORTATION PARTNERS L.P.


 


LONG-TERM INCENTIVE PLAN


 


1.                                      Purpose
of the Plan.


 


The
K-Sea Transportation Partners L.P. Long-Term Incentive Plan (the “Plan”) is
intended to promote the interests of K-Sea Transportation Partners L.P., a Delaware
limited partnership (the “Partnership”), by providing to employees and
directors of K-Sea General Partner GP LLC, a Delaware limited liability company
(the “Company”), and its Affiliates who perform services for the Partnership,
incentive compensation awards for superior performance that are based on
Units.  The Plan is also contemplated to
enhance the ability of the Company and its Affiliates to attract and retain the
services of individuals who are essential for the growth and profitability of
the Partnership and to encourage them to devote their best efforts to the
business of the Partnership, thereby advancing the interests of the
Partnership.


 


2.                                      Definitions.


 


As
used in the Plan, the following terms shall have the meanings set forth below:


 


“Affiliate”
means, with respect to any Person, any other Person that directly or indirectly
through one or more intermediaries controls, is controlled by or is under
common control with, the Person in question. 
As used herein, the term “control” means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, by
contract or otherwise.


 


“Award”
means an Option or Phantom Unit granted under the Plan, and shall include any
DER granted with respect to a Phantom Unit.


 


“Award
Agreement” means the agreement entered into between the Partnership and the
Participant evidencing the terms and conditions of the Award.


 


“Board”
means the Board of Directors of the Company.


 


“Cash-Out
Value” means the amount determined in Clause (i) or (ii), whichever is
applicable, as follows: (i) the per Unit price offered to equityholders of the
Partnership in any merger or consolidation or (iii) in the event of a
reorganization, the Fair Market Value per Unit determined by the Committee as
of the date determined by the Committee to be the date of cancellation and
surrender of an Award.  In the event
that the consideration offered to equityholders of the Partnership in any transaction
described in this definition consists of anything other than cash, the
Committee shall determine the fair cash equivalent of the portion of the
consideration offered which is other than cash.


 


“Change
in Control” shall be deemed to have occurred upon the occurrence of one or more
of the following events: (i) any sale, lease, exchange or other transfer (in
one or a series of related transactions) of all or substantially all of the
assets of the Partnership or K-Sea Operating Partnership L.P. to any Person or
its Affiliates, other than the Partnership, the


 


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Company or any of their Affiliates or (ii) any merger,
reorganization, consolidation or other transaction pursuant to which more than
50% of the combined voting power of the equity interests in the Partnership or
K-Sea Operating Partnership L.P. ceases to be owned by Persons who own such
interests, respectively, as of the date of the initial public offering of
Units.


 


“Committee”
means the Compensation Committee of the Board or such other committee of the
Board appointed by the Board to administer the Plan.


 


“DER”
means a right, granted in tandem with a Phantom Unit, to receive an amount in
cash equal to, and at the same time as, the cash distributions made by the
Partnership with respect to a Unit during the period such Phantom Unit is
outstanding.


 


“Director”
means a member of the Board or the board of directors or managers of an
Affiliate who is not an Employee.


 


“Employee”
means any employee of the Company or an Affiliate, including, without
limitation, K-Sea Transportation Inc., a Delaware corporation, in each case as
determined by the Committee. 
Notwithstanding the foregoing, the term “Employee” shall not include any
individual covered by a collective bargaining or comparable agreement between
representatives of such employees and the Partnership, the Company or any
Affiliate of the Partnership or the Company.


 


“Exchange
Act” means the Securities Exchange Act of 1934, as amended.


 


“Fair
Market Value” means the closing sales price of a Unit on the date of
determination (or, if there is no trading in the Units on such date, the
closing sales price on the last date the Units were traded) as reported in The
Wall Street Journal (or other reporting service approved by the Committee). In
the event Units are not publicly traded at the time a determination of Fair
Market Value is required to be made hereunder, the determination of Fair Market
Value shall be made in good faith by the Committee.


 


“Option”
means an option to purchase Units granted under the Plan.


 


“Participant”
means any Employee or Director granted an Award under the Plan.


 


“Partnership
Agreement” means the First Amended and Restated Agreement of Limited
Partnership of the Partnership.


 


“Person”
means an individual or a corporation, limited liability company, partnership,
joint venture, trust, unincorporated organization, association, governmental
agency or political subdivision thereof or other entity.


 


“Phantom
Unit” means a phantom (notional) unit granted under the Plan which upon vesting
entitles the Participant to receive a Unit or an amount of cash equal to the
Fair Market Value of a Unit, whichever is determined by the Committee.


 


“Plan”
means this K-Sea Transportation Partners L.P. Long-Term Incentive Plan, as
amended from time to time.


 


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“Restricted
Period” means the period established by the Committee with respect to an Award
during which the Award remains subject to forfeiture (i.e., it is not vested) and
is not exercisable by or payable to the Participant.


 


“Rule
16b-3” means Rule 16b-3 promulgated by the SEC under the Exchange Act, or any
successor rule or regulation thereto as in effect from time to time.


 


“SEC”
means the Securities and Exchange Commission, or any successor thereto.


 


“Unit”
means a Common Unit of the Partnership.


 


3.                                      Administration.


 


The
Plan shall be administered by the Committee. A majority of the Committee shall
constitute a quorum, and the acts of the members of the Committee who are
present at any meeting thereof at which a quorum is present, or acts
unanimously approved by the members of the Committee in writing, shall be the
acts of the Committee. Subject to the following and any applicable law, the
Committee, in its sole discretion, may delegate any or all of its powers and
duties under the Plan, including the power to grant Awards under the Plan, to
the Chief Executive Officer of the Company (provided that the Chief Executive
Officer is a member of the Board), subject to such limitations on such
delegated powers and duties as the Committee may impose, if any. Upon any such
delegation all references in the Plan to the “Committee,” other than in
Section 7, shall be deemed to include the Chief Executive Officer; provided,
however, that such delegation shall not limit the Chief Executive Officer’s
right to receive Awards under the Plan. Notwithstanding the foregoing, the
Chief Executive Officer may not grant Awards to, or take any action with
respect to any Award previously granted to, himself, a person who is an officer
subject to Rule 16b-3 or who is a member of the Board.  Subject to the terms of the Plan and
applicable law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Awards to be granted to a Participant; (iii) determine the number of Units to
be covered by Awards; (iv) determine the terms and conditions of any Award; (v)
determine whether, to what extent, and under what circumstances Awards may be
settled, exercised, canceled, or forfeited; (vi) interpret and administer the
Plan and any instrument or agreement relating to an Award made under the Plan;
(vii) establish, amend, suspend, or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper administration
of the Plan; and (viii) make any other determination and take any other action
that the Committee deems necessary or desirable for the administration of the
Plan. Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive, and binding upon all
Persons, including the Company, the Partnership, any Affiliate, any
Participant, and any beneficiary of any Award.


 


4.                                      Units.


 


(a)                                  Units
Available.  Subject to adjustment as
provided in Section 4(c), the number of Units with respect to which
Options and Phantom Units may be granted under the 


 


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Plan is 440,000. 
If any Option or Phantom Unit is forfeited or otherwise terminates or is
canceled without the delivery of Units, then the Units covered by such Award,
to the extent of such forfeiture, termination or cancellation, shall again be
Units with respect to which an Option or Phantom Unit, as the case may be, may
be granted.


 


(b)                                 Sources
of Units Deliverable Under Awards. 
Any Units delivered pursuant to an Award shall consist, in whole or in
part, of Units acquired in the open market, from any Affiliate, or from the
Partnership, or any combination of the foregoing, as determined by the
Committee in its discretion.


 


(c)                                  Adjustments.  In the event that the Committee determines
that any distribution (whether in the form of cash, Units, other securities, or
other property), recapitalization, split, reverse split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Units or other securities of the Partnership, issuance of warrants or other
rights to purchase Units or other securities of the Partnership, or other
similar transaction or event affects the Units such that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it may deem
equitable, adjust any or all of (i) the number and type of Units (or other
securities or property) with respect to which Awards may be granted, (ii) the
number and type of Units (or other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award or, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding Award; provided that the number of Units subject to
any Award shall always be a whole number.


 


(d)                                 Cash-Out
of Awards.  In the event that the
Partnership is reorganized, merged or consolidated with another entity, the
Committee may, in its sole discretion, (i) require the mandatory surrender
to the Partnership by selected holders of Options of some or all of the
outstanding Options held by such holder (irrespective of whether such Options
are then exercisable under the provisions of the Plan) as of a date (before or
after the reorganization, merger or consolidation) specified by the Committee,
in which event the Committee shall thereupon cancel such Options and pay to
each holder thereof an amount of cash per Unit equal to the excess, if any, of
the Cash-Out Value of the Units subject to such Option over the exercise price(s)
under such Options for such Units or (ii) require the mandatory surrender to
the Partnership by selected holders of Phantom Units of some or all of the
outstanding Phantom Units held by such holder (irrespective of whether such
Phantom Units are vested under the provisions of the Plan) as of a date (before
or after the reorganization, merger or consolidation) specified by the
Committee, in which event the Committee shall thereupon cancel such Phantom
Units and pay to each holder an amount of cash per Phantom Unit equal to the
Cash-Out Value of the Units.


 


5.                                      Eligibility.


 


Any
Employee who performs services for the benefit of the Partnership as determined
by the Committee, or any Director shall be eligible to be designated a
Participant and receive an Award under the Plan.


 


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6.                                      Awards.


 


(a)                                  Options.  The Committee shall have the authority to
determine the Employees and Directors to whom Options shall be granted, the
number of Units to be covered by each Option, the purchase price therefor, the
Restricted Period and the conditions and limitations applicable to the exercise
of the Option, including the following terms and conditions and such additional
terms and conditions, as the Committee shall determine, that are not
inconsistent with the provisions of the Plan.


 


(i)                                     Exercise
Price.  The purchase price
per Unit purchasable under an Option shall be determined by the Committee at
the time the Option is granted and may not be less than its Fair Market Value
as of the date of grant.


 


(ii)                                  Time and
Method of Exercise.  The
Committee shall determine the Restricted Period with respect to an Option,
which may include, without limitation, accelerated vesting upon the achievement
of specified performance goals, and the method or methods by which payment of
the exercise price with respect thereto be made or deemed to have been made,
which may include, without limitation: (a) cash, (b) check acceptable to the
Company, (c) a “cashless-broker” exercise through procedures approved by the
Company or (d) any combination thereof, having a Fair Market Value on the
exercise date equal to the relevant exercise price.


 


(iii)                               Forfeiture.  Except as otherwise provided in the terms of
the Option grant, upon termination of a Participant’s employment with the
Company and its Affiliates or membership on the Board, whichever is applicable,
for any reason during the applicable Restricted Period, all Options shall be
forfeited by the Participant (or any transferee) unless otherwise provided in a
written employment agreement between the Participant and the Company or its
Affiliates. The Committee may, in its discretion, waive in whole or in part
such forfeiture with respect to a Participant’s Options.


 


(b)                                 Phantom
Units.  The Committee shall have the
authority to determine the Employees and Directors to whom Phantom Units shall
be granted, the number of Phantom Units to be granted to each such Participant,
the Restricted Period, the conditions under which the Phantom Units may become
vested or forfeited, which may include, without limitation, the accelerated
vesting upon the achievement of specified performance goals, and such other
terms and conditions as the Committee may establish with respect to such Awards
including whether DERs are granted with respect to such Phantom Units.


 


(i)                                     DERs.  Phantom Units granted under the Plan may
include a tandem DER grant.


 


(ii)                                  Forfeiture.  Except as otherwise provided in the terms of
the Phantom Units grant, upon termination of a Participant’s employment with
the Company and its Affiliates or membership on the Board, whichever is
applicable, for any reason during the applicable Restricted Period, all Phantom
Units shall be


 


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forfeited by the
Participant (or any transferee) unless otherwise provided in a written
employment agreement between the Participant and the Company or its Affiliates.
The Committee may, in its discretion, waive in whole or in part such forfeiture
with respect to a Participant’s Phantom Units.


 


(iii)                               Lapse of
Restrictions.  Unless a
different payment time is specified in the Award agreement, the Participant
shall be entitled to receive from the Company one Unit or cash equal to the
Fair Market Value of a Unit, as determined by the Committee, in its discretion,
upon or as soon as reasonably practical following the vesting of each Phantom
Unit.


 


(c)                                  General.


 


(i)                                     Awards May
Be Granted Separately or Together. 
Awards may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution for any other Award
granted under the Plan or any award granted under any other plan of the Company
or any Affiliate. Awards granted in addition to or in tandem with other Awards
or awards granted under any other plan of the Company or any Affiliate may be
granted either at the same time as or at a different time from the grant of
such other Awards or awards.


 


(ii)                                  Limits on
Transfer of Awards.  Unless
otherwise provided in the Award agreement, each Option shall be exercisable
only by the Participant during the Participant’s lifetime, or by the person to
whom the Participant’s right shall pass by will or the law of descent and
distribution.  Unless otherwise provided
in the Award agreement, no Award and no right under any such Award may be
assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant and any such purported assignment, alienation,
pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable
against the Company and any Affiliate.


 


(iii)                               Term of
Awards. The term of each Award shall be for such period as may be
determined by the Committee.


 


(iv)                              Unit
Certificates. All certificates for Units or other securities of the
Partnership delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the Plan or the rules, regulations, and
other requirements of the SEC, any stock exchange upon which such Units or
other securities are then listed, and any applicable federal or state
laws.  The Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions.


 


(v)                                 Consideration
for Grants.  Awards may be
granted for such consideration, including services, as the Committee
determines.


 


(vi)                              Delivery of
Units or other Securities and Payment by Participant of Consideration.  Notwithstanding anything in the Plan or any
grant agreement to 


 


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the contrary,
delivery of Units pursuant to the exercise or vesting of an Award may be
deferred for any period during which, in the good faith determination of the
Committee, the Company is not reasonably able to obtain Units to deliver
pursuant to such Award without violating the rules or regulations of any
applicable law or securities exchange. No Units or other securities shall be
delivered pursuant to any Award until payment in full of any amount required to
be paid pursuant to the Plan or the applicable Award Agreement (including,
without limitation, any exercise price or tax withholding) is received by the
Company.  Such payment may be made by
such method or methods and in such form or forms as the Committee shall
determine, including, without limitation, cash, other Awards, withholding of
Units, cashless-broker exercises with simultaneous sale, or any combination
thereof; provided that the combined value, as determined by the Committee, of
all cash and cash equivalents and the Fair Market Value of any such Units or
other property so tendered to the Company, as of the date of such tender, is at
least equal to the full amount required to be paid to the Company pursuant to
the Plan or the applicable Award agreement.


 


(vii)                           Change in
Control.  Subject to
additional or contrary provisions in the Award agreement, upon a Change in
Control or such period prior thereto as may be established by the Committee,
all Awards shall automatically vest and become payable or exercisable, as the
case may be, in full. In this regard, all Restricted Periods shall terminate
and all performance criteria, if any, shall be deemed to have been achieved at
the maximum level. To the extent an Option is not exercised upon a Change in
Control, the Committee may, in its discretion, cancel such Award without
payment or provide for a replacement grant with respect to such Award on such
terms as it deems appropriate.


 


7.                                      Amendment
and Termination.


 


Except
to the extent prohibited by applicable law:


 


(a)                                  Amendments
to the Plan.  Except as required by
the rules of the principal securities exchange on which the Units are traded
and subject to Section 7(b) below, the Board or the Committee may amend,
alter, suspend, discontinue, or terminate the Plan in any manner, including
increasing the number of Units available for Awards under the Plan, without the
consent of any partner, Participant, other holder or beneficiary of an Award,
or other Person.


 


(b)                                 Amendments
to Awards.  Subject to Section 7(a),
the Committee may waive any conditions or rights under, amend any terms of, or
alter any Award theretofore granted, provided no change, other than pursuant to
Section 7(c), in any Award shall materially reduce the benefit to a
Participant without the consent of such Participant.


 


(c)                                  Adjustment
of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events.  The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4(c) of the Plan) affecting
the Partnership or the financial statements of the Partnership, or of changes
in applicable laws,


 


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regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan.


 


8.                                      General
Provisions.


 


(a)                                  No
Rights to Award.  No Person shall
have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Participants. The terms and
conditions of Awards need not be the same with respect to each recipient.


 


(b)                                 Withholding.  The Company, its Affiliate or its designated
third party administrator shall have the right to deduct applicable taxes from
any Award payment and withhold, at the time of delivery or vesting of cash or Units
under this Plan, an appropriate amount of cash or number of Units or a
combination thereof for payment of taxes or other amounts required by law or to
take such other action as may be necessary in the opinion of the Company or its
Affiliate to satisfy all obligations for withholding of such taxes.  The Committee may also permit withholding to
be satisfied by the transfer to the Company or its Affiliate of Units
theretofore owned by the holder of the Award with respect to which withholding
is required.  If Units are used to
satisfy tax withholding, such Units shall be valued based on the Fair Market
Value when the tax withholding is required to be made.


 


(c)                                  No
Right to Employment.  The grant of
an Award shall not be construed as giving a Participant the right to be
retained in the employ of the Company or any Affiliate or to remain on the
Board, as applicable. Further, the Company or an Affiliate may at any time
dismiss a Participant from employment.


 


(d)                                 Governing
Law.  The validity, construction,
and effect of the Plan and any rules and regulations relating to the Plan shall
be determined in accordance with the laws of the State of Delaware without
regard to its conflict of laws principles.


 


(e)                                  Severability.  If any provision of the Plan or any Award becomes
invalid, illegal, or unenforceable in any jurisdiction or as to any Person or
Award, or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be deemed amended to conform
to the applicable laws, or if it cannot be construed or deemed amended without
materially altering the intent of the Plan or the Award, such provision shall
be stricken as to such jurisdiction, person or Award and the remainder of the
Plan and any such Award shall remain in full force and effect.


 


(f)                                    Other
Laws.  Notwithstanding anything in
the Plan or any Award agreement to the contrary, the Committee may refuse to
issue or transfer any Units or other consideration under an Award if, in its
sole discretion, it determines that the issuance or transfer of such Units or
such other consideration might violate any applicable law or regulation, the
rules of the principal securities exchange on which the Units are then traded.


 


(g)                                 No
Trust or Fund Created.  Neither the
Plan nor any Award shall create or be construed to create a trust or separate
fund of any kind or a fiduciary relationship between the Company or any
participating Affiliate and a Participant or any other Person. To the extent
that any Person acquires a right to receive payments from the Company or any
participating Affiliate 


 


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pursuant to an Award, such right shall be no greater
than the right of any general unsecured creditor of the Company or any
participating Affiliate.


 


(h)                                 No
Fractional Units.  No fractional
Units shall be issued or delivered pursuant to the Plan or any Award, and the
Committee shall determine whether cash, other securities, or other property
shall be paid or transferred in lieu of any fractional Units or whether such
fractional Units or any rights thereto shall be canceled, terminated, or
otherwise eliminated.


 


(i)                                     Headings.  Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.


 


(j)                                     Facility
of Payment. Any amounts payable hereunder to any individual under legal
disability or who, in the judgment of the Committee, is unable to properly
manage his financial affairs, may be paid to the legal representative of such
person, or may be applied for the benefit of such person in any manner that the
Committee may select, and the Company and its Affiliates shall be relieved of
any further liability for payment of such amounts.


 


(k)                                  Gender
and Number.  Words in the masculine
gender shall include the feminine gender, the plural shall include the singular
and the singular shall include the plural.


 


9.                                      Term
of the Plan.


 


The
Plan shall be effective on the date of its approval by the Board and shall
continue until the date terminated by the Board or the date Units are no longer
available for the payment of Awards under the Plan, whichever occurs first.
However, unless otherwise expressly provided in the Plan or in an applicable
Award Agreement, any Award granted prior to such termination, and the authority
of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award or to waive any conditions or rights under such Award,
shall extend beyond such termination date.


 


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