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EXHIBIT 10.21.1  


LOAN AGREEMENT  


Dated as of 


May
28, 2004 


Among 


K-SEA
OPERATING PARTNERSHIP L.P. 


(as
the Borrower) 


AND 


CITIZENS
LEASING CORPORATION 


(as
the Lender) 








  



 
 

TABLE OF CONTENTS    
    



	SECTION 1.    DEFINITIONS	 	1
	 	
 §1.1	
 	

Defined Terms	
 	

1
	 	
 §1.2	
 	

Other Definitional and Interpretive Provisions	
 	

9
	

SECTION 2.    THE TERM LOAN	
 	

10
	 	
 §2.1	
 	

Advances; Purposes	
 	

10
	 	
 §2.2	
 	

Notes; Repayment of Principal and Interest	
 	

11
	 	
 §2.3	
 	

Prepayments	
 	

11
	 	
 §2.4	
 	

Payments Generally	
 	

12
	 	
 §2.5	
 	

Increased Costs and Reduced Return	
 	

12
	 	
 §2.6	
 	

Payments Free and Clear of Taxes	
 	

13
	 	
 §2.7	
 	

Mitigation Obligations	
 	

14
	

SECTION 3.    REPRESENTATIONS AND WARRANTIES	
 	

15
	 	
 §3.1	
 	

Legal Existence and Good Standing, Etc.	
 	

15
	 	
 §3.2	
 	

Limited Partnership Power; Consents; Absence of Conflict with Other Agreements Etc	
 	

15
	 	
 §3.3	
 	

Title to Properties	
 	

15
	 	
 §3.4	
 	

Financial Statements	
 	

15
	 	
 §3.5	
 	

No Material Changes Etc.	
 	

16
	 	
 §3.6	
 	

Franchises, Patents, Copyrights, Licenses, Etc.	
 	

16
	 	
 §3.7	
 	

Litigation	
 	

16
	 	
 §3.8	
 	

No Materially Adverse Contracts, Etc.	
 	

16
	 	
 §3.9	
 	

Compliance with Other Instruments, Laws, Etc.	
 	

16
	 	
 §3.10	
 	

Tax Status	
 	

16
	 	
 §3.11	
 	

No Default	
 	

17
	 	
 §3.12	
 	

Absence of Liens	
 	

17
	 	
 §3.13	
 	

Use of Proceeds	
 	

17
	 	
 §3.14	
 	

Pension Plans	
 	

17
	 	
 §3.15	
 	

Holding Company and Investment Company	
 	

17
	 	
 §3.16	
 	

Disclosure	
 	

17
	 	
 §3.17	
 	

Charters	
 	

17
	 	
 §3.18	
 	

First Lien	
 	

18
	 	
 §3.19	
 	

Environmental Matters	
 	

18
	 	
 §3.20	
 	

Solvency	
 	

19
	 	 	 	 	 






i







 

	 	
 §3.21	
 	

Survival of Representations and Warranties, Etc.	
 	

19
	

SECTION 4.    CONDITIONS OF FUNDING THE FIRST ADVANCE	
 	

20
	 	
 §4.1	
 	

Execution and Delivery	
 	

20
	 	
 §4.2	
 	

Westport Charter	
 	

20
	 	
 §4.3	
 	

Representations and Warranties	
 	

20
	 	
 §4.4	
 	

Performance; No Default	
 	

20
	 	
 §4.5	
 	

Officer's Certificate	
 	

20
	 	
 §4.6	
 	

Certified Copies of Charter Documents	
 	

21
	 	
 §4.7	
 	

Proof of Partnership or General Partner Action	
 	

21
	 	
 §4.8	
 	

Incumbency Certificate	
 	

21
	 	
 §4.9	
 	

No Material Adverse Change	
 	

21
	 	
 §4.10	
 	

Delivery of Notice of Borrowing	
 	

21
	 	
 §4.11	
 	

Original Vessel Documents	
 	

21
	 	
 §4.12	
 	

Recordation of Ship Mortgage	
 	

21
	 	
 §4.13	
 	

Opinion of Counsel	
 	

21
	 	
 §4.14	
 	

Proceedings and Documents	
 	

21
	 	
 §4.15	
 	

Appraisal	
 	

21
	 	
 §4.16	
 	

Recorded Lien Searches	
 	

21
	 	
 §4.17	
 	

Financing Statements	
 	

22
	 	
 §4.18	
 	

Evidence of Insurance	
 	

22
	 	
 §4.19	
 	

Delivery of Invoices	
 	

22
	

SECTION 5.    CONDITIONS OF SECOND ADVANCE OF LOAN	
 	

22
	 	
 §5.1	
 	

Delivery of Notice of Borrowing	
 	

22
	 	
 §5.2	
 	

Execution and Delivery of Note	
 	

22
	 	
 §5.3	
 	

Rio Energy Charter	
 	

22
	 	
 §5.4	
 	

Representations and Warranties	
 	

22
	 	
 §5.5	
 	

Performance; No Default	
 	

22
	 	
 §5.6	
 	

Original Vessel Documents	
 	

22
	 	
 §5.7	
 	

Recordation of Ship Mortgage	
 	

23
	 	
 §5.8	
 	

Opinion of Counsel	
 	

23
	 	
 §5.9	
 	

Proceedings and Documents	
 	

23
	 	
 §5.10	
 	

Appraisal	
 	

23
	 	
 §5.11	
 	

Recorded Lien Searches	
 	

23
	 	
 §5.12	
 	

Financing Statements	
 	

23
	 	 	 	 	 




ii







 

	 	
 §5.13	
 	

No Material Adverse Change	
 	

23
	 	
 §5.14	
 	

Evidence of Insurance	
 	

23
	 	
 §5.15	
 	

Delivery of Invoices	
 	

23
	 	
 §5.16	
 	

Officer's Certificate	
 	

23
	

SECTION 6.    AFFIRMATIVE COVENANTS	
 	

23
	 	
 §6.1	
 	

Punctual Payment	
 	

23
	 	
 §6.2	
 	

Maintenance of Offices	
 	

24
	 	
 §6.3	
 	

Records and Accounts	
 	

24
	 	
 §6.4	
 	

Financial Statements, Certificates, and Other Information	
 	

24
	 	
 §6.5	
 	

[Intentionally omitted	
 	

25
	 	
 §6.6	
 	

Business and Limited Partnership Existence	
 	

25
	 	
 §6.7	
 	

Payment of Taxes	
 	

25
	 	
 §6.8	
 	

Inspection of Properties and Books	
 	

25
	 	
 §6.9	
 	

Licenses and Permits	
 	

25
	 	
 §6.10	
 	

Pension Plans	
 	

25
	 	
 §6.11	
 	

Environmental and Safety Matters	
 	

26
	 	
 §6.12	
 	

Indemnities, Etc.	
 	

27
	 	
 §6.13	
 	

Performance of Charters	
 	

29
	 	
 §6.14	
 	

Notice of Default, Charters, Etc	
 	

29
	 	
 §6.15	
 	

Notice of Material Claims and Litigation	
 	

29
	 	
 §6.16	
 	

No Disposition of Collateral	
 	

29
	 	
 §6.17	
 	

Borrower's Title; Lender's Security Interest	
 	

29
	 	
 §6.18	
 	

Compliance with Laws and Regulations	
 	

29
	 	
 §6.19	
 	

Further Assurances	
 	

29
	 	
 §6.20	
 	

Casualty Occurrence	
 	

30
	

SECTION 7.    NEGATIVE COVENANTS; FINANCIAL COVENANTS	
 	

30
	 	
 §7.1	
 	

Transactions with Affiliates	
 	

30
	 	
 §7.2	
 	

Amendment of Rio Energy Charter or Westport Charter	
 	

30
	 	
 §7.3	
 	

Terminate Pension Plan	
 	

30
	 	
 §7.4	
 	

ERISA	
 	

30
	 	
 §7.5	
 	

Minimum Tangible Net Worth	
 	

30
	 	
 §7.6	
 	

Fixed Charge Coverage	
 	

30
	 	
 §7.7	
 	

Maximum Funded Debt to EBITDA	
 	

31
	 	
 §7.8	
 	

Net Worth Leverage Ratio	
 	

31
	 	 	 	 	 






iii







 

	

SECTION 8.    EVENTS OF DEFAULT; ACCELERATION	
 	

31
	 	
 §8.1	
 	

Events of Default	
 	

31
	 	
 §8.2	
 	

Remedies	
 	

32
	

SECTION 9.    EXPENSES	
 	

33
	

SECTION 10.    SURVIVAL OF COVENANTS	
 	

33
	

SECTION 11.    CONFIDENTIALITY	
 	

34
	

SECTION 12.    SUCCESSORS AND ASSIGNS; PARTICIPATIONS	
 	

34
	 	
 §12.1	
 	

Successors and Assigns	
 	

34
	 	
 §12.2	
 	

Assignments	
 	

34
	 	
 §12.3	
 	

Participations	
 	

36
	 	
 §12.4	
 	

Disclosures	
 	

36
	 	
 §12.5	
 	

Federal Reserve Bank	
 	

36
	 	
 §12.6	
 	

Register; Notes	
 	

36
	

SECTION 13.    NOTICES	
 	

37
	

SECTION 14.    ENTIRE AGREEMENT	
 	

38
	

SECTION 15.    CONSENTS, AMENDMENTS, WAIVERS, ETC.	
 	

38
	

SECTION 16.    SEVERABILITY	
 	

38
	

SECTION 17.    SUBMISSION TO JURISDICTION; WAIVER	
 	

38
	

SECTION 18.    WAIVER OF JURY TRIAL	
 	

39
	

SECTION 19.    MISCELLANEOUS	
 	

39
	

SCHEDULE	
 	

 
	Schedule 1    Description of the Vessels	 	 
	Schedule 2    Liens	 	 





iv









  



	EXHIBITS
 
	 	 

	

Exhibit A-1	
 	

Form of Term Note 1
	Exhibit A-2	 	Form of Term Note 2
	Exhibit B	 	Form of Notice of Borrowing
	Exhibit C	 	Form of Ship Mortgage
	Exhibit D	 	Form of Assignment and Acceptance
	Exhibit E	 	Form of Security Agreement
	Exhibit F	 	Form of Compliance Certificate




v








  



 
 

LOAN AGREEMENT    
    



        This LOAN AGREEMENT (this "Agreement"), is made as of May 28, 2004, by and between K-SEA OPERATING PARTNERSHIP L.P., a Delaware limited partnership (the
"Borrower"), and CITIZENS LEASING CORPORATION, a Rhode Island corporation, (the "Lender"). 


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


SECTION 1.    DEFINITIONS  



        §1.1    Defined Terms.    As used in this Agreement the
following terms shall have the meanings assigned to them below: 


        "Advance" means an advance pursuant to §2.1. 


        "Advance Date" means the date fixed for the making of an Advance in a Notice of Borrowing. 


        "Advance Termination Date" means November 5, 2004. 



        "Affiliate" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under
direct or indirect common control with, such Person and, if such Person is an individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust
whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used herein, the term "control"
(including the correlative meanings of the terms "controlling", "controlled by" and "under common control with") when used with respect to any Person, means the direct or indirect
beneficial ownership of more than twenty percent (20%) of the outstanding voting securities or voting equity of such Person, or the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of a Person, whether through the ownership of voting securities or by contract or otherwise. 


        "Agreement"—see preamble. 


        "Authorized Officer" means any person holding the title of Chairman, President, Vice President, Chief Financial Officer or Treasurer (or
other officer performing the functions thereof). 


        "Borrower"—see preamble. 


        "Business Day" means any day on which banks in Rhode Island and New York are open for the conduct of normal banking business. 


        "Capital Expenditures" means any expenditure or liability that is properly charged to a capital account or otherwise capitalized on a
balance sheet in accordance with GAAP. 


        "Capital Lease Obligations" means, with respect to any Person, 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. 


        "Charters" means the Westport Charter and the Rio Energy Charter. 


        "Coast Guard" means the United States Coast Guard, which is currently part of the United States Department of Homeland Security. 



        "Code" shall mean the Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder, as amended from time to time. 


1







 



        "Collateral" means the Vessels, charter hire, freights and earnings, fees and all other amounts due or which become due and payable to the
Borrower arising out of the Vessels, and all insurance proceeds payable with respect to the Vessels, all of the Borrower's rights under the Rio Energy Charter and the Westport Charter to the extent
assigned under the Security Agreement, and all other property, interests and rights now or at any time hereafter described, referred to in or covered by the Security Documents. 


        "Compliance Certificate"—see §6.4(f). 


        "Controlled Group" means all trades or businesses (whether or not incorporated) under common control that, together with the Borrower, are
treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001(a)(14) of ERISA. 



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


        "Default(s)" means the occurrence of any event or condition which, after the giving of notice and/or the lapse of time (if provided for in  §8), would become an
Event of Default. 


        "Default Rate" means an interest rate of 12% per annum or, if lower, the Highest Lawful Rate. 



        "Dollars" and the sign "$" means dollars or such coin or currency of the United States of
America as at the time of payment shall be legal funds for the payment of public and private debts in the United States of America. 


        "EBITDA" means, with respect to any fiscal period, the sum of: 




        (i)    net
income (or net loss) (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: 


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



        (i)    Interest
Expense for such fiscal period; 


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


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






        "Eligible Assignee" means any bank, insurance company or other financial institution or finance company having a net worth in excess of
$50,000,000. 


        "Environmental Laws" means any and all federal, state, local and foreign laws, statutes, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to fines, orders, injunctions, penalties, damages, contribution, cost recovery compensation,
losses or injuries resulting from the Release or threatened Release of Hazardous Materials or to the generation, storage, transportation, or disposal of Hazardous Materials, in any manner applicable
to the Borrower or any of its properties, including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. §9601 et.
seq.), the Hazardous Material Transportation Act (49 U.S.C. §1801 et. seq.), the Solid Waste Disposal Act (42 U.S.C.
§6901 et. seq.), the Federal Water Pollution Control Act (33 U.S.C. §1251 et.
seq.), the Clean Air Act (42 U.S.C. §7401 et. seq.), the Toxic Substances Control Act (15 U.S.C. §2601  et. seq.), the
Occupational Safety and Health Act (29 U.S.C. §651 et. seq.) and the
Emergency Planning and Community Right-to-Know Act (42 U.S.C. §11001 et. seq.), each as amended or supplemented, and any analogous future or
present local, state and federal or foreign statutes and rules and regulations promulgated pursuant thereto, each as in effect on the date of determination. 


2







 



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



        "Event of Default" means any of the events specified in §8,  provided that there has been satisfied any requirement in
connection with such event for the giving of notice or the lapse of time, or both. 


        "Event of Loss" means, with respect to any Vessel, the actual or constructive loss of such Vessel or the use thereof, due to theft,
destruction, damage beyond repair or damage from any reason whatsoever, to
an extent which makes repair uneconomical, or rendition thereof unfit for normal use, or the condemnation, confiscation or seizure of, or requisition of title to or use of, such Vessel by any
Governmental Authority (other than the United States pursuant to a requisition for hire) or any other person, whether or not acting under color of Governmental Authority. 


        "Excluded Tax" means, with respect to the Lender, any of the following Taxes: 




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


        (ii)   any
Tax imposed on or payable by a Lender by any Governmental Authority or other taxing authority in any jurisdiction if the jurisdictional basis for such Tax exists as
a result of any activities, transactions or other connection of such Lender (or any of its Affiliates) in or with such jurisdiction that is unrelated to the Lender's Loan to the Borrower pursuant to
the Loan Documents; 


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



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


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


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





        "Existing Revolver" means the transactions contemplated by the Participation and Loan and Security Agreement dated as of January 14, 2004
by and between the Borrower, KeyBank N.A. and The CIT Group/Equipment Financing, Inc., as the same may be amended, modified or supplemented from time to time. 


        "Financing Statements" means Uniform Commercial Code financing statements naming the Borrower as debtor and the Lender as secured party
and filed or to be filed in the office of the Secretary of State of Delaware and/or such other locations as may be required from time to time under applicable law to perfect a security interest in
certain of the Collateral. 


        "First Advance Vessels" shall have the meanings set forth in the preamble to  §4. 


        "Fixed Charges" means the sum, for any period, of the following: (i) Interest Expense, plus (ii) the current portion of
minimum rents under operating leases, plus (iii) Current Maturities. For the quarters 


3







 



ended
March 31, 2004, June 30, 2003, September 30, 2003, and December 31, 2003, Interest Expense shall exclude all interest incurred prior to January 14, 2004
related to debt obligations repaid from initial public offering proceeds for K-Sea Transportation and not refunded with any loan provided by the lenders under the Existing Revolver. 


        "Funded Debt" means, as of any date of determination, all Indebtedness for borrowed money, including the current portion thereof, and
obligations in respect of letters of credit, revolving line of credit borrowings and under guarantees of Indebtedness of any other Person. 



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


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


        "Hazardous Materials" means (a) any oil, petroleum or petroleum derived substance, any drilling fluids, produced waters and other wastes
associated with the exploration, development or production of crude oil, any flammable substances or explosives, any radioactive materials, any hazardous wastes or substances, any toxic wastes or
substances or any other materials or pollutants which (i) pose a hazard to any property of the Borrower or to Persons on or about such property or (ii) cause such property to be in violation of any
Environmental Laws, (b) asbestos in any form which is or could become friable, urea formaldehyde foam insulation, electrical equipment which contains any oil or electric fluid containing levels of
polychlorinated biphenyls in excess of fifty parts per million; (c) any chemical, material or substance defined as or included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous waste," restricted hazardous waste," or "toxic
substances" or words of similar import under any applicable local, state or federal law or under the rules and regulations adopted or publications promulgated pursuant thereto, including Environmental
Laws, and (d) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority having jurisdiction over the Borrower, or any of its
properties, including the Vessels. 


        "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection
agreement (excluding fuel surcharge) or other interest or currency exchange rate of commodity price hedging agreement. 



        "Highest Lawful Rate" means the maximum lawful rate of interest (or, if the context requires, an amount calculated at such rate) that the
Lender is allowed to contract for, charge, take, reserve or receive under applicable Law. 


        "Indebtedness" means, with respect to any Person, 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 


4







 



nonrecourse
obligations and (y) nonrecourse obligations incurred in connection with leveraged lease transactions as determined in accordance with GAAP. 


        "Indemnified Party"—see §6.11(d). 



        "Indemnified Tax" means any Tax (other than an Excluded Tax) imposed on or with respect to (i) the execution, delivery, recording,
registration, notarization or other formalization, performance, or enforcement of the Loan or the Notes or any of the other Loan Documents or (ii) any payment pursuant to the Loan Documents. 


        "Initial Lender" means Citizens Leasing Corporation, a Rhode Island corporation. 


        "Interest Expense" for any period, the sum 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 Rate" shall mean the LIBOR Loan Rate set forth in the relevant Note. 


        "K-Sea Transportation" means K-Sea Transportation Partners L.P., a Delaware limited partnership, and owner of a 99.99% limited partner
interest in the Borrower. 


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


        "Lender(s)"—see the preamble. 


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


        "Loan" means, as at any date, the aggregate outstanding principal amount of all Advances. 


        "Loan Documents"—collectively, this Agreement, the Notes, the Security Agreement, the Financing Statements, the Ship
Mortgages, and any other instruments or agreements executed and
delivered by the parties in connection with the transactions contemplated by this Agreement, in each case as the same may be amended, supplemented, restated, replaced or otherwise modified from time
to time. 


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


5







 



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


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


        "Materially Adverse Effect" means any act, omission, event or undertaking which would, singly or in the aggregate, have a materially
adverse effect upon (a) the business, assets, properties, liabilities, condition (financial or otherwise), results of operations, or business prospects of the Borrower, (b) upon the respective ability
of the Borrower to perform any obligations under this Agreement or under any other Loan Document to which it is a party, or (c) the legality, validity, binding effect, enforceability or admissibility
into evidence of any Loan Document or the ability of the Lender to enforce any rights or remedies under or in connection with any Loan Document; in any case, whether resulting from any single act,
omission, situation, status, event, or undertaking, together with other such acts, omissions, situations, statuses, events, or undertakings, and in each case as determined by the Lender in its sole
discretion; provided, any restriction on remedies imposed by law by reason of the Lender failing to be a citizen of the United States, as defined in Section 2 of the Shipping Act, 1916, as amended,
shall not be deemed to be a Materially Adverse Effect. 


        "Note(s)"—see §2.2(a). 


        "Notice of Borrowing"—see §2.1. 



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


        "Officer's Certificate" means a certificate signed on behalf of the Borrower by an Authorized Officer of the Borrower. 


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


        "Participant"—see §12.3. 


        "Permitted Lien" means (a) Liens granted to the Lender pursuant to the Loan Documents; and (b): 



        (i)    Liens
for current crew's wages, including wages of the master to the extent provided in Public Law 90-293, for general average or salvage (including contract salvage) or
for wages of stevedores employed directly by the Borrower, the operator, agent or master of the Vessels which in each case (A) are unclaimed or (B) shall not have been due and payable for longer than
ten (10) days after termination of a voyage; 



6







 

        (ii)    Liens
for repairs or incident to current operations of the Vessels (other than those referred to in clause (i)), but only to the extent in each case that such liens are
based on claims not yet delinquent, are subordinate to the liens of the respective Ship Mortgages and do not involve a significant risk of a sale, forfeiture, hindrance to operation or loss of the
Vessels; 


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


        (iv)    Liens
for amounts being contested by the Borrower in good faith by appropriate procedures, diligently prosecuted or appealed which do not involve a significant risk of
a sale, forfeiture, hindrance to operation or loss of the Vessels; 



        (v)    Liens
for charges that, in the opinion of the Borrower or as indicated by the written admission of liability therefor by an insurance company, are covered by insurance; 


        (vi)    Liens
arising from the taking or requisition for use of the Vessels by the government or any governmental body of the United States of America to the extent that the
creation or incurrence of such lien shall have been beyond the control of the Borrower during such requisition, provided that all such liens referred to in this clause (vi) shall be removed and
discharged within thirty (30) days after such requisition shall have terminated; 


        (vii)    Liens
that may exist in favor of Westport or Rio Energy by reason of the respective Charter; and 


        (viii)    Liens
respecting the conversion of DBL 105 and DBL 155 to double hulled vessels not more than 60 days past due and for each such vessel amounting to no more than 5%
of the conversion cost. 




        "Person" means a natural person, a partnership, a corporation, a limited liability company, a limited partnership, a limited liability
partnership, a joint venture, a trust, an unincorporated organization, or a government or any agency or political subdivision thereof. 


        "Plan" means at any time, an employee pension or other benefit plan that is subject to Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and is either (i) maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group, or (ii)
maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which the Borrower or any member of the Controlled Group
is then making or accruing an obligation to make contributions or has within the preceding five Plan years made contributions. 


        "Prepayment Premium" means an additional amount to be paid in connection with any prepayment made pursuant to  §2.3(a), §2.3(b) or §8.2, (i) if such prepayment occurs prior to
November 28, 2004, in an amount equal to three percent (3%) of the prepaid principal thereof, or (ii) (a) three percent (3%) of the prepaid principal in excess of $10,000,000 thereof if the prepayment
occurs on or after November 28, 2004 but prior to May 28, 2005; (f) two percent (2%) of the prepaid principal in excess of $10,000,000 thereof if the prepayment occurs on or after May 28, 2005 but
prior to May 28, 2006; (g) one percent (1%) of the prepaid principal thereof in excess of $10,000,000 if the prepayment occurs on or after May 28, 2006. 


        "Proceeds" shall have the meaning assigned to it under the UCC and, in any event, shall include, but not be limited to, the following at
any time whatsoever arising or receivable: (a) whatever is received upon the collection, exchange, sale or other disposition of any Collateral, and any property into which any of the Collateral is
converted, whether cash or non-cash proceeds, (b) any and all proceeds of any insurance, indemnity, warranty or guarantee payable to the Borrower from time to time with respect to any of the
Collateral, (c) any and all payments (in any form whatsoever) made or 


7







 



due
and payable to the Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of any of the Collateral by any Governmental Authority (or any
Person acting under color of governmental authority), and (d) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. 



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


        "Rio Energy" means Rio Energy International, Inc., a Texas corporation. 



        "Rio Energy Charter" means the Time Charter Party Agreement dated on or before the second Advance Date between Rio Energy, as charterer,
and the Borrower, as owner, as the same may be amended, supplemented, restated, replaced or otherwise modified from time to time (subject to  §7.2). 


        "Second Advance Vessel" shall have the meaning set forth in the preamble to  §5. 


        "Security Agreement" means the Security Agreement, dated as of the date hereof, substantially in the form of  Exhibit E pursuant to which the Borrower has granted to
the Lender, a security interest in certain assets of the Borrower relating to the Vessels
as security for the Obligations, as such agreement may be amended, supplemented, restated, replaced or otherwise modified from time to time. 


        "Security Documents" means the Security Agreement and the Ship Mortgages. 


        "Ship Mortgage(s)" means the three First Preferred Ship Mortgages each dated as of an Advance Date and substantially in the form of  Exhibit C, each granted by the
Borrower in favor of the Lender with respect to each Vessel, as such mortgages may be amended, supplemented,
restated, replaced or otherwise modified from time to time. 


        "Subordinated Indebtedness" means Indebtedness of the Borrower that is subordinated to the Obligations on terms, and pursuant to a
subordination agreement, that are satisfactory to the Lender (following prior notice to and review by the Lender), in its reasonable discretion exercised from time to time. 


        "Subsidiary" means, as to any Person, (a) any corporation of which more than fifty percent (50%) of the outstanding stock having ordinary
voting power to elect a majority of its board of directors (or other governing body), regardless of the existence at the time of a right of the holders of any class or classes (however designated) of
securities of such corporation to exercise such voting power by reason of the happening of any contingency, or any partnership of which more than fifty percent (50%) of the outstanding partnership
interests is, at the time, owned by such Person, or by one or more Subsidiaries of such Person, or by such Person and one or more Subsidiaries of such Person, and (b) any other entity which is
controlled or capable of being controlled by such Person, or by one or more Subsidiaries of such Person, or by such Person and one or more Subsidiaries of such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower or a Subsidiary or Subsidiaries of such Subsidiary or Subsidiaries. 



        "Tangible Net Worth" means the excess of total assets over total liabilities, total assets and total liabilities each to be determined in
accordance with GAAP consistent with those applied in the preparation of the financial statements referred to in §6.4 hereof, excluding,
however, from the determination of total assets (a) all assets which would be classified as intangible assets under GAAP, including, without limitation, goodwill, licenses, patents, trademarks, trade
names, copyrights and franchises and (b) all assets financed by secured nonrecourse obligations. Tangible Net Worth shall include Subordinated Indebtedness. 


8







 



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


        "UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York. 



        "Vessel(s)" means each of the two double hull barges and one tugboat, as more particularly described in  Schedule 1 hereto. 


        "Westport" means Westport Petroleum, Inc., a California corporation. 


        "Westport Charter" means the Time Charter Party Agreement dated as of May 10, 2004, between Westport, as charterer, and the Borrower, as
owner, as the same may be amended, supplemented, restated, replaced or otherwise modified from time to time (subject to §7.2). 



 §1.2    Other Definitional and Interpretive Provisions. 




        (a)   All
terms in this Agreement, the Exhibits and Schedules hereto shall have the same defined meanings when used in any other Loan Documents, unless the context shall
require otherwise. 


        (b)   Except
as otherwise expressly provided herein, all accounting terms not specifically defined or specified herein shall have the meanings generally attributed to such
terms under GAAP, including applicable statements and interpretations issued by the Financial Accounting Standards Board and bulletins, opinions, interpretations and statements issued by the American
Institute of Certified Public Accountants or its committees. All accounting terms used in §§7.5,  7.6, 7.7 and 7.8 shall, unless otherwise indicated,
apply to K-Sea Transportation and its Subsidiaries on a consolidated basis. 


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


        (d)   The
words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular
provisions of this Agreement. 


        (e)   The
preamble hereto is part of this Agreement. Titles of Sections in this Agreement are for convenience only, do not constitute part of this Agreement and neither limit
nor amplify the provisions of this Agreement, and all references in this Agreement to Sections, Subsections, paragraphs, clauses, subclasses, Schedules or Exhibits shall refer to the corresponding
Section, Subsection, paragraph clause, subclause, Schedule or Exhibit attached to this Agreement, unless specific reference is made to the articles, sections or other subdivisions or divisions of such
Schedule or Exhibit to or in another document or instrument. 


        (f)    Subject
at all times to §7.2, each definition of a document in this Agreement shall include such document as
amended, modified, supplemented, restated, renewed or extended from time to time. 


        (g)   Except
where specifically restricted, reference to a party in a Loan Document includes that party and its successors and assigns permitted hereunder or under such Loan
Document. 


9







 



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


        (i)    Any
list in this Agreement of one or more items preceded by the words "include or "including" shall not be deemed limited to the stated items but shall be deemed without
limitation. 


SECTION 2.    THE TERM LOAN.  


        §2.1    Advances; Purposes.    


        (a)   Subject
to the terms and conditions set forth herein, and in reliance upon the representations and warranties contained herein, during the period from the date hereof
through and including the Advance Termination Date, the Lender shall advance a term loan to the Borrower by funding no more than two Advances, the principal amount of which, in aggregate shall not
exceed $20,000,000.00 (the "Loan"). To request advances of the Loan upon the completion of the construction of improvements to the Vessel, the Borrower shall deliver to the Lender, not less than three
Business Days before each requested funding date, a written notice of borrowing in substantially in the form of Exhibit B attached hereto, with
the appropriate insertions and additions therein (the "Notice of Borrowing") specifying (A) the proposed Advance Date (which shall be on or before the Advance Termination Date), and
(B) the amount of such Advance, which shall be, (i) with respect to the first Advance, $10,899,200.00 and (ii) with respect to the second Advance, an amount up to $9,100,800.00. 



        (b)   The
proceeds of the Loan shall be used by the Borrower to refinance the costs of constructing improvements to the Vessels. 


        (c)   The
Notice of Borrowing when given shall be irrevocable. Unless the Lender determines that any of the applicable conditions set forth in  §4, with respect to the first Advance, and §5, with respect to the second
Advance, have not then been satisfied, the Lender will make such Advance to the order of the Borrower prior to the Lender's close of business on each Advance Date by (i) credit in immediately
available funds to the Borrower's account maintained with the Lender or (ii) by wire transfer pursuant to the Borrower's instruction. 


10









   
        §2.2    Notes; Repayment of Principal and Interest.    


        (a)    The
obligations of the Borrower to repay the Loan and to pay interest thereon from and after an Advance Date, and other sums which may become payable with respect
thereto shall be evidenced with respect to each Advance by a separate promissory note of the Borrower, (i) with respect to the first Advance, substantially in the form of  Exhibit A-1, and
(ii) with respect to the second Advance substantially in the form of  Exhibit A-2 (each a "Note", and collectively, the "Notes"), appropriately completed in accordance with the provisions of
this Agreement and dated
as of each respective Advance Date. If not earlier prepaid pursuant to the scheduled installment payments set forth in the Notes or pursuant to
§2.3, the entire remaining principal amount of the Loan shall become immediately due and payable on the date which occurs 84 months after
each respective Advance Date, as set forth in each Note, without presentment, demand or further notice of any kind, together with all accrued interest and other amounts then owing by the Borrower to
the Lender hereunder and under the other Loan Documents. The principal balance of either of the Notes may be prepaid pursuant to §2.3,  provided that no amount of the Loan that is so prepaid shall
be available for reborrowing. Partial prepayments of either of the Notes shall be applied
to installment payments, in the inverse order of maturity. 


        (b)    After
the first anniversary of the date of each respective Note, the Borrower may request that the rate of interest payable under the respective Note be converted to a
fixed rate. If accepted by the Borrower, such fixed rate shall be set for the remainder of the term of the Loan respecting the Advance evidenced by such Note and shall be offered by the Lender, as
determined by the Lender, based on the closest whole-year interest rate swaps reported in the Federal Reserve H-15 Report of the day prior to fixing the rate, plus 300 basis points. 


        (c)    Notwithstanding
the foregoing, after the occurrence and during the continuance of an Event of Default that continues for thirty (30) days, the Borrower shall pay to the
Lender interest at the Default Rate on the principal of the Loan, and on any other amounts payable by the Borrower under this Agreement or the other Loan Documents (including interest to the extent
permitted by law) that is not paid on the due date thereof. In addition, if any payment set forth in the Notes or hereunder shall not be made within ten (10) days of the due date, the Borrower shall
pay as an administrative and late charge an amount equal to 5% of the amount of any such overdue payment. All late charges and interest provided for in this
§2.2(c) shall be payable on demand. The payment or acceptance of the rate provided by this
§2.2(c) or any such late charge shall not constitute a waiver of any Default or Event of Default or an amendment to this Agreement or
otherwise prejudice or limit any rights or remedies of the Lender. 



        (d)    In
no event shall the amount of interest due or payable under the Loan, the Notes or any of the other Loan Documents, exceed the Highest Lawful Rate, and in the event
any such excess is paid by the Borrower or received by the Lender, then such excess sum shall be deemed to be inadvertently paid or received and shall be credited as a payment of principal, unless the
Borrower shall notify the Lender that the Borrower elects to have such excess returned to it forthwith. It is the express intent hereof that the Borrower not pay and the Lender not receive, directly
or indirectly, in any manner whatsoever, interest in excess of that which may be lawfully paid by the Borrower under applicable Law. 



        §2.3    Prepayments.    


        (a)    Voluntary Prepayments.    The Borrower shall have the right to prepay the Loan in whole or in part, together
with accrued interest, provided that such prepayment shall be accompanied by payment of the applicable Prepayment Premium, and  provided further that the
Borrower shall give the Lender notice of its intent to prepay the Loan or a portion thereof not later than 2:00 p.m. on the
date that is three Business Days prior to the date of prepayment (which prepayment date must be a date upon which a principal installment payment is due under the Note), which notice shall be
irrevocable; once 


11







 



given,
the principal amount of the Loan designated in the Borrower's notice shall become due and payable on the prepayment date specified therein. 


        (b)    Mandatory Prepayments.    The Borrower shall be required to prepay the principal balance of the respective Note
relating to a Vessel, together with all accrued interest and any other amounts then owing and constituting Obligations (including the applicable Prepayment Premium), (i) without derogating in any way
from §6.16, in an amount equal to 100% of the net proceeds received by the Borrower from the sale or other transfer of legal, equitable or
beneficial title of such Vessel or (ii) in an amount sufficient to prepay in whole the Note relating to such Vessel on a date that is not earlier than the date the insurance proceeds are received by
the Borrower upon the occurrence of an Event of Loss with respect to such Vessel; provided that, (A) if the Borrower receives proceeds as a result of any of the events described in clauses (i) and
(ii) with respect to DBL 105 only (and not the Volunteer Tug), the Borrower shall be required to prepay only an amount equal to 81% of the then outstanding principal balance of the first Advance Note,
and (B) if the Borrower receives proceeds as a result of any of the events described in clauses (i) and (ii) with respect to the Volunteer Tug only (and not DBL 105), the Borrower shall be required to
prepay only an amount equal to 19% of the then outstanding principal balance of the first Advance Note.. 


        §2.4    Payments Generally.    


        (a)    All
payments hereunder shall be made in Dollars and in immediately available funds and shall be made prior to 2:00 p.m. on the date of payment to the principal office of
the Lender or such other
office as the Lender shall designate in writing. Payments received after 2:00 p.m. shall be deemed to be payments made prior to 2:00 p.m. on the next succeeding Business Day. Interest on the Loan and
fees due and payable hereunder and under the Notes or any of the other Loan Documents shall be computed on the basis of the actual number of days elapsed over twelve (12) thirty (30) day months,
including the first day but excluding the last day of the relevant period. Any payment which falls due on a day which is not a Business Day shall be rescheduled to the next succeeding Business Day and
interest and fees shall continue to accrue to such rescheduled Business Day. The Borrower hereby irrevocably authorizes the Lender to charge any and all of the Borrower's accounts with the Lender for
the amount of each such payment (the Lender agreeing to give notice to the Borrower contemporaneously thereof), with the Borrower remaining liable for any deficiency. 


        (b)    The
Borrower agrees to pay principal, interest, fees and all other amounts due hereunder or under the Notes or under any other Loan Document without setoff, recoupment
or counterclaim. All amounts received by the Lender for application to the Obligations (whether voluntary or mandatory payments or prepayments, proceeds from liquidation of Collateral, or otherwise)
shall be applied by the Lender in the following order of priority: (i) to the payment of any fees then due and payable, (ii) to the payments of all other amounts not otherwise referred
to in this §2.4 then due and payable hereunder or under the other Loan Documents (including any reasonable costs and expenses incurred by
the Lender as a result of a Default or an Event of Default), (iii) to the payment of interest then due and payable on the Loan, and (iv) to the payment of principal then due and payable
on the Loan. No application of payments will cure any Event of Default or prevent acceleration, or continued acceleration, of amounts payable under the Loan Documents or prevent the exercise, or
continued exercise, of rights and remedies of the Lender hereunder, under any of the other Loan Documents or under applicable Law. 


        §2.5    Increased Costs and Reduced Return.    The
Borrower agrees that if any Governmental Authority enacts or promulgates after the date hereof any Law, or any request, guideline or directive (whether or not having the force of law and whether or
not failure to comply therewith would be unlawful) or any change in the interpretation or administration of any existing Law by any Governmental Authority charged with the administration thereof,
which shall either (a) impose, affect, modify or deem applicable any reserve, special deposit, capital maintenance or similar requirement 


12







 



against
the Loan, or (b) impose on the Lender any other condition regarding the Loan, this Agreement, or the Notes, or (c) result in any requirement regarding capital adequacy (including any
risk-based capital guidelines) affecting the Lender being imposed or modified or deemed applicable to the Lender and the result of any event referred to in clause (a), (b) or (c) above shall be to
increase the cost to the Lender of making, funding or maintaining the Loan or to reduce the amount of any sum receivable by the Lender or the Lender's rate of return on capital with respect to the
Loan to a level below that which the Lender could have achieved but for such imposition, modification or deemed applicability (taking into consideration the Lender's policies with respect to capital
adequacy) by an amount deemed by the Lender (in the exercise of its reasonable discretion) to be material, then, upon demand by the Lender in writing, the Borrower shall pay to the Lender, within ten
(10) Business Days after receipt of the Lender's written demand and the statement described in the following sentence, additional amounts which shall be sufficient to compensate the Lender for such
increased cost or reduced rate of return, provided that the Borrower shall have no obligation to pay any such amount (x) to the extent that such increased cost or reduction in rate of return on
capital is a result of any one or more of the following: (1) the Lender's transfer of its interest in the Loan and the Notes to another lending office, (2) circumstances applicable to the Lender but
not of general application to other similar lenders, (3) a downgrade in the credit rating accorded the Lender (or an Affiliate of the Lender) by any credit rating agency, or (4) the Lender's
unreasonably treating the Loan less favorably than other similarly situated loans in the Lender's loan portfolio, or (y) except after an Event of Default shall have occurred, in the case of any Person
that becomes a Lender after the date hereof, to the extent that the amount of the increased cost or reduction in rate of return on capital exceeds the amount of the increased cost or reduction in rate
of return on capital that would have been suffered by the Initial Lender if the Initial Lender owned such Person's interest in the Loan. In the absence of manifest error, a statement setting forth the
basis for requesting such compensation and the method for, and reasonable calculations for, determining the amount thereof, submitted by the Lender to the Borrower, shall be final, conclusive and
binding on all parties for all purposes. 


        §2.6    Payments Free and Clear of Taxes.    


        (a)    Except
as provided in the following sentence, payments of principal, interest, fees and other amounts under this Agreement, the Notes or any other Loan Document or
otherwise paid or payable to the Lender (as used in this §2.6, "Payments") shall be made free and clear of, and without deduction by reason
of, Indemnified Taxes, all of which shall be paid by the Borrower for its own account not later than the date when due. If the Borrower is required by law or regulation to deduct or withhold any Taxes
from any Payment, it shall: (i) make such deduction or withholding; (ii) pay the amount so deducted or withheld to the appropriate taxing authority not later than the date when due;
(iii) deliver to the Lender, promptly and in any event within 15 days after the date on which such Taxes become due, original tax receipts (if reasonably obtainable) or other evidence
satisfactory to the Lender of the payment when due of the full amount of such Taxes; and (iv) pay to the Lender forthwith upon
request from time to time, such additional amounts as may be necessary so the Lender receives, free and clear of all Taxes (other than Excluded Taxes), the full amount of such Payment stated to be due
under this Agreement, the Notes or any other Loan Document as if no such deduction or withholding had been made. 


        (b)    The
Borrower agrees to indemnify the Lender for the full amount of Indemnified Taxes paid by the Lender and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto within ten Business Days after receipt of the Lender's written demand therefore (which written demand shall include or be accompanied by (x) a
description in reasonable detail of the Indemnified Tax involved and the calculation of the amount of indemnity demanded and (y) a copy of each written communication which the Lender received
from any Governmental Authority or other taxing authority with respect to such Indemnified Tax. 


13







 



        (c)    If
the Borrower pays any Indemnified Tax to any Governmental Authority or other taxing authority, or pays any amount to the Lender pursuant to
§§2.6(a)(iv) or 2.6(b) with respect to any Tax: 



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


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




        (d)    Notwithstanding
any provision to the contrary in the Loan Documents, the Borrower shall have no obligation to pay, or to indemnify the Lender for, any Tax pursuant to
this §2.6 to the extent that such Tax has been taken into account in the calculation of any amount paid or payable by the Borrower to the
Lender pursuant to §2.5 or §9. 


        (e)    The
Borrower's deduction or withholding from any Payment any withholding tax that is an Excluded Tax and the Borrower's payment of such Payment reduced by such
withholding tax in accordance with this §2.6 shall not be a Default or an Event of Default. 


        (f)    If
the Lender receives a written claim from any Governmental Authority or other taxing authority for any Indemnified Tax, the Lender shall send a copy of such written
claim to the Borrower promptly
after receipt thereof. If requested by the Borrower and the Borrower acknowledges, in writing, that such Tax is an Indemnified Tax, the Lender shall contest (or permit the Borrower to contest) such
claim in accordance with applicable Law (including appealing any adverse determination) and shall not concede, settle, compromise or discontinue such contest without the Borrower's prior written
consent (which shall not be unreasonably withheld) , and the Borrower shall pay the reasonable expenses incurred by the Lender in connection with such contest. 


        §2.7    Mitigation Obligations    If the Lender requests
compensation under §2.5 hereof or if the Borrower is required to pay any additional amount to any Lender (or to any Governmental Authority
for account of any Lender) pursuant to 2.6 hereof or if a change in Law after the date hereof gives rise to a reasonable expectation that such a request
or requirement would (but for §2.7) occur, then (if reasonably practicable) the Lender shall use reasonable efforts to designate a different
lending office for funding or booking the Loan or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to §2.5 or §2.6 hereof, as the case
may be, in the future, and (ii) would not subject the Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower agrees to pay the
reasonable costs and expenses incurred by the Lender in connection with any such designation or assignment. 



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


14







 



SECTION 3.    REPRESENTATIONS AND WARRANTIES  


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


        §3.1    Legal Existence and Good Standing, Etc.    



        (a)    The
Borrower is a limited partnership validly formed and existing under the laws of the State of Delaware and has all requisite limited partnership or other power to own
the Vessels, its other property and conduct its business substantially as presently conducted by it and as proposed to be conducted by it. 


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


        (c)    The
Borrower is qualified to do business and is in good standing in all jurisdictions in which a failure to be so qualified and in good standing might have a Materially
Adverse Effect. 


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



        (a)    are
within the Borrower's powers as a limited partnership, and have been duly authorized by all necessary limited partnership action of the Borrower and its general
partner; 


        (b)    do
not require any approval or consent of, or filing with, any Governmental Authority bearing on the validity of such instruments and borrowings which is required by any
Law and are not in contravention of Law or the terms of the Borrower's partnership agreement or other organizational document, or any amendment of any thereof; 


        (c)    will
not violate or result in any breach or contravention of or the creation of any Lien under (except in favor of the Lender) any indenture, agreement, lease,
instrument or undertaking to which the Borrower is a party or by which it or any of its properties are bound; and 


        (d)    are
and will be valid and legally binding obligations of the Borrower, enforceable in accordance with their respective terms, except as such enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting generally the enforcement of creditors' rights, and except to the extent that the availability of
equitable remedies with respect to such obligations may be subject to the discretion of the court before which any proceedings for such remedies may be brought. 




        §3.3    Title to Properties.    K-Sea Transportation and
its Subsidiaries own all of their assets reflected in the balance sheet of K-Sea Transportation and its Subsidiaries as at February 29, 2004, or acquired since that date, subject, in the case of the
Vessels, to no Liens of record on the collateral except those set forth in Schedule 2. The Borrower has good and marketable title to all items of
Collateral pledged by it, free and clear of any Liens, except Permitted Liens. On each Advance Date and thereafter, all Vessels shall be properly documented in the name of the Borrower. 



        §3.4    Financial Statements.    The Borrower, has
furnished to the Lender a copy of K-Sea Transportation's and its Subsidiaries balance sheets as at February 29, 2004 and statements of income and changes in financial position unaudited for the seven
(7) months then ended. All such financial statements have been prepared in accordance with GAAP and fairly present the financial condition and the results of operations of K-Sea Transportation
and its Subsidiaries taken as a whole as at the close of business on the date thereof. There are no liabilities, contingent or otherwise, of the Borrower involving material amounts, known to the
officers of the Borrower and not disclosed in said financial 


15







 



statements
and the related notes thereto or not reflected in the financial statements most recently delivered in connection with
§§6.4(a) or (b). 



        §3.5    No Material Changes Etc.    No material adverse
changes have occurred in the financial condition or business of K-Sea Transportation and its Subsidiaries taken as a whole as shown on or reflected in the balance sheets or other financial statements
delivered on or before the date hereof in the balance sheets or other financial statements most recently delivered in connection with
§§6.4(a) or (b). 


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


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


        §3.8    No Materially Adverse Contracts, Etc.    The
Borrower is not subject to any charter, limited partnership or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of its officers has or is reasonably
expected in the future to have a Materially Adverse Effect. The Borrower is not a party to any contract or agreement which in the judgment of its officers
has or is reasonably expected to have any Materially Adverse Effect, except as otherwise reflected in adequate reserves. 



        §3.9    Compliance with Other Instruments, Laws,
Etc.    The Borrower is not in violation of any provision of its charter documents or its partnership agreement or any agreement, lease or other instrument by which
it or any of its properties may be bound, or any Law, decree, order, judgment, statute, license, rule or regulation, in a manner which could reasonably be expected to result in the imposition of
substantial penalties or otherwise have a Materially Adversely Effect. There are no past or present events, conditions, circumstances, activities, practices, incidents, actions or plans known to the
Borrower which reasonably could be expected to interfere with or prevent continued compliance, or which reasonably could be expected to give rise to any common law or statutory liability, under,
relating to or in connection with any Environmental Law or otherwise form the basis of any claim, action, proceeding, hearing or investigation under applicable Law based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant,
contaminant, or Hazardous Material or waste with respect to the Borrower or its business which could reasonably be expected to have a Materially Adverse Effect. 



        §3.10    Tax Status.    The Borrower has filed all
material federal and state income and all other material tax returns, reports and declarations which the Borrower is required by any applicable Law of any jurisdiction to which it is subject or has
obtained an extension for filing such returns, reports and declarations which is still in effect; has paid all taxes and other governmental assessments and charges shown or determined to be due on
such returns, reports and declarations, except those being contested in good faith by appropriate proceedings diligently pursued; and has set aside on its books provisions reasonably adequate for the
payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no material unpaid taxes claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Borrower know of no basis for any such claim. 


16







 



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



        §3.12    Absence of Liens.    At the time of the making of
each Advance hereunder, there will be no financing statement, security agreement or ship mortgage in effect which purports to cover, create, perfect or give notice of any present or possible future
Lien on the Vessel being financed with such Advance or rights thereunder, or any other Liens thereon or on any of the other Collateral, except for Permitted Liens or except for Liens with respect to
the Existing Revolver, for which an appropriate release or discharge will be filed contemporaneously with the making of such Advance. 



        §3.13    Use of Proceeds.    The proceeds of the Loan
shall be used to repay the principal portion of indebtedness incurred by the Borrower to finance the construction of the improvements to the Vessels. No portion of the Loan is to be used for the
purpose of purchasing or carrying any "margin security" or "margin stock" in contravention of Regulations U or X of the Board of Governors of the Federal Reserve System, and the Borrower is not
engaged in the business of extending credit to others for such purpose. 



        §3.14    Pension Plans.    Neither the Borrower nor any
other member of any Controlled Group that includes the Borrower maintains or pays contributions to, or is required to pay contributions to, any Plan. 


        The
Lender (i) represents and warrants to the Borrower that none of the funds to be used by the Lender to make or maintain the Loan or to acquire or hold the Notes are or will be
"assets" (as defined in the regulations to Section 406 of ERISA) of an "employee benefit plan" (as defined in Section 3(3) of ERISA) or of a "plan" (as defined in Section 4975(e)(1) of the Code), and
(ii) covenants that (notwithstanding anything herein or in any other Loan Document to the contrary) the Lender will not sell, transfer, assign, or grant a participation in, any part of its interest in
the Loan, this Agreement or the Notes to any other Person unless such Person (A) makes (1) a representation and warranty that is equivalent to the representation and warranty contained in
clause (i) and (2) the covenant contained in this clause (ii), and (B) agrees to be bound by all of the provisions hereof and of all the other Loan Documents applicable to the Lender. 


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


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


        §3.17    Charters.    


        (a)    On
or before the second Advance Date, the Rio Energy Charter shall have been duly authorized, executed and delivered by the Borrower and (to the knowledge of the
Borrower without any independent verification) Rio Energy and constitutes a valid and binding obligation of the Borrower and (to the knowledge of the Borrower without any independent verification) Rio
Energy, enforceable in accordance with its terms. All material consents, licenses, approvals or authorizations of, exemptions by, and registrations or declarations with, any Governmental Authority
required to be obtained, effected or given in connection with the execution, delivery and performance of the Rio Energy Charter by the Borrower and (to the knowledge of the Borrower without any
independent verification) Rio Energy shall have been duly obtained, effected or given and are in full force and 


17







 



effect.
Neither the Borrower nor (to the Borrower's knowledge without independent verification) Rio Energy shall be in default in the performance or observance of any material covenant, term or
condition contained in the Rio Energy Charter on the second Advance Date. The Borrower shall have fully performed all its obligations under the Rio Energy Charter that can be performed to the second
Advance Date and to the best of the Borrower's knowledge no defense, offset, counterclaim or claim has been asserted or alleged against the Borrower with respect to the Rio Energy Charter. 


        (b)    The
Westport Charter has been duly authorized, executed and delivered by the Borrower and (to the knowledge of the Borrower without any independent verification)
Westport and constitutes a valid and binding obligation of the Borrower and (to the knowledge of the Borrower without any independent verification) Westport, enforceable in accordance with its terms.
All material consents, licenses, approvals or authorizations of, exemptions by, and registrations or declarations with, any Governmental Authority required to be obtained, effected or given in
connection with the execution, delivery and performance of the Westport Charter by the Borrower and (to the knowledge of the Borrower without any independent verification) Westport have been duly
obtained, effected or given and are in full force and effect. Neither the Borrower nor (to the Borrower's knowledge without independent verification) Westport is in default in the performance or
observance of any material covenant, term or condition contained in the Westport Charter. The Borrower has fully performed all of its obligations under the Westport Charter that can be performed to
date and to the best of the Borrower's knowledge no defense, offset, counterclaim or claim has been asserted or alleged against the Borrower with respect to the Westport Charter. 


        §3.18    First Lien.    


        (a)    Upon
filing the Financing Statements and an amendment to terminate the security interest in the Vessels under the Existing Revolver, with the Delaware Secretary of
State, the Security Agreement will create a legal, valid and perfected first lien on and first priority security interest in all of the Collateral (other than Collateral that is not perfected by such
means) described therein (and any Proceeds thereof), as security for the Obligations, free and clear of all other Liens whatsoever except Permitted Liens. No security agreement, financing statement,
equivalent security or lien instrument or continuation statement covering all or any part of the Collateral, which has been signed by the Borrower or which the Borrower has authorized any other Person
to sign or file or record, is on file or of record with any public office, except such as may have been filed by or on behalf of the Borrower in
favor of the lenders under the Existing Revolver pursuant to the Loan Documents, which shall be terminated contemporaneously with the filing of the Financing Statements referenced above. 


        (b)    Upon
execution and filing for recording thereof and of mortgage discharges respecting mortgages granted in connection with the Existing Revolver with the Coast Guard,
each Ship Mortgage creates legal, valid and perfected first liens on and first priority security interests in favor of the Lender with respect to all Collateral described therein as security for the
Obligations, free and clear of all other Liens whatsoever other than Permitted Liens. No mortgage, pledge, security agreement, financing statement, equivalent security or lien instrument or
continuation statement covering all or any part of the Collateral, which has been signed by the Borrower or any predecessor-in-interest of the Borrower or which the Borrower has authorized any other
Person to sign or file or record, is on file or of record with the Coast Guard or with any other public office. 


        §3.19    Environmental Matters.    



        (a)    The
Borrower and each of its Subsidiaries has obtained all material permits, licenses and other authorizations which are required under all Environmental Laws, except to
the extent failure to have any such permit, license or authorization would not have a Materially Adverse Effect. The Borrower and each of its Subsidiaries is in compliance in all material respects
with the terms and conditions of all such permits, licenses and authorizations, and are also in compliance in all material respects with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, 


18







 



obligations,
schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to comply would not have a Materially Adverse Effect on their business, financial condition or operations taken as a whole. 


        (b)    No
notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no premium has been assessed and no
investigation or review is pending or, to the knowledge of the Borrower without any independent verification, threatened by any governmental or other entity with respect to any alleged failure by the
Borrower or any of its Subsidiaries to have any permit, license or authorization required in connection with the conduct of its business or with respect to any Environmental Laws, including
Environmental Laws relating to the generation, treatment, storage, recycling, transportation, disposal or release of any Hazardous Materials. 


        (c)    Except
as set forth in the "Legal Proceedings" section on page 29 of K-Sea Transportation's most recent Form 10-Q filed with the Securities and Exchange Commission, no
material oral or written notification of a release of a Hazardous Material has been filed by or on behalf of the Borrower or any of its Subsidiaries and no property now or previously owned, leased or
used by the Borrower or any of
its Subsidiaries is listed or, to the Borrower's knowledge without any independent verification, proposed for listing on the National Priorities List under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or on any similar state list of sites requiring investigation or clean-up. 


        (d)    There
are no Liens or encumbrances arising under or pursuant to any Environmental Laws on any of the real property or properties owned, leased or used by the Borrower or
any of its Subsidiaries other than Liens, if any, that do not (i) materially detract from the value of the property or (ii) materially impair the use thereof in the operation of the business of the
Borrower or any of its Subsidiaries or (iii) have a Materially Adverse Effect on the ability of the Borrower or any of its Subsidiaries taken as a whole to perform its obligations under the Loan
Documents, and no governmental actions have been taken or, to the knowledge of the Borrower without any independent verification, are in process which might reasonably be expected to subject any of
such properties to such Liens or encumbrances or, as a result of which the Borrower or any of its Subsidiaries would be required to place any notice or restriction relating to the presence of
Hazardous Materials at any property owned by it in any deed to such property. 


        (e)    Neither
the Borrower nor any of its Subsidiaries, nor, to the knowledge of the Borrower without any independent verification, any previous owner, tenant, occupant or
user of any property owned, leased or used by the Borrower or any of its Subsidiaries has (i) engaged in or permitted any operations or activities upon or any use or occupancy of such property, or any
portion thereof, for the purpose of or in any way involving the handling, manufacture, treatment, storage, use, generation, release, discharge, refining, dumping or disposal of any Hazardous Materials
on, under, in or about such property, except in compliance in all material respects with all Environmental Laws, or (ii) transported any Hazardous Materials to, from or across such property except in
compliance in all material respects with all Environmental Laws; nor to the best knowledge of the Borrower have any Hazardous Materials migrated from the properties upon, about or beneath such
property, nor, to the best knowledge of the Borrower, are any Hazardous Materials presently constructed, deposited, stored or otherwise located on, under, in or about such property except in
compliance in all material respects with all Environmental Laws. 


        §3.20    Solvency.    The Borrower, after giving effect to
the Loan, is solvent. 


        §3.21    Survival of Representations and Warranties,
Etc.    All statements contained in any certificate, financial statement or other instrument delivered by or on behalf of the Borrower pursuant to or in connection
with this Agreement or any of the Loan Documents (including any such representation or 


19







 



warranty
made or in connection with any amendment thereto) shall constitute representations and warranties made under this Agreement. All representations and warranties made under this Agreement shall
be deemed to be made at and as of the date hereof and as of the date of the making of each Advance of the Loan. All representations and warranties made under this Agreement shall survive, and not be
waived by, the execution and delivery of this Agreement or any other Loan Document, any investigation or inquiry by the Lender, or by making the Loan under this Agreement. 


SECTION 4. CONDITIONS OF FUNDING THE FIRST ADVANCE.


        The
obligation of the Lender to fund the first Advance of the Loan shall be subject to the prior satisfaction of the following conditions precedent (in each case, as applicable, as to
the Volunteer tug and the DBL 105, each as further described on Schedule 1, (collectively referred to as the "First Advance Vessels") being financed by
such Advance). The request by the Borrower for such Advance shall be deemed a certification by the Borrower that the conditions precedent set forth in this !4 have been satisfied: 



        §4.1    Execution and Delivery.    All of the Loan
Documents (other than the Ship Mortgage relating to the DBL 155 as further described on Schedule 1) shall have been executed and delivered by the
Borrower to the Lender. The Borrower shall have executed and delivered a Note for such first Advance in accordance with §2.1. 


        §4.2    Westport Charter.    The Westport Charter (a)
shall have been executed and delivered by the parties thereto, (b) shall be satisfactory to the Lender in form and substance in its reasonable discretion, and (c) shall be in full force and effect in
accordance with its terms. 


        §4.3    Representations and Warranties.    The
representations and warranties contained in !3 shall have been true and correct at and as of the date on which made and shall also be true and correct at and as of the Advance Date with the same
effect as if made at and as of such date. 


        §4.4    Performance; No Default.    The Borrower shall
have performed and complied with all terms and conditions of the Loan Documents required to be performed or complied with by it prior to or at the time of the Advance Date, and at the time of the
Advance Date, there shall exist no Default
or Event of Default, nor shall any Default or Event of Default exist or occur after giving effect to the funding of the first Advance of the Loan. 


        §4.5    Officer's Certificate.    The Borrower shall have
delivered to the Lender an Officer's Certificate certifying that the conditions precedent set forth in §§4.3 and 4.4 are
satisfied at and as of the Advance Date. 


20









           §4.6    Certified Copies of Charter Documents.    The Lender shall have received
from the Borrower, copies, certified by a duly authorized officer to be true and complete as of the Advance Date, of its partnership agreement, or other organizational document, all as in effect on
such date. 


        §4.7    Proof of Partnership or General Partner Action.    The Lender shall have
received from the Borrower copies, certified by an Authorized Officer to be true and complete as of the first Advance Date, of the records of all partnership actions taken to authorize: (a) its
execution and delivery of the Loan Documents (b) its performance of all of its agreements and obligations under each of such documents, and (c) the borrowings and other transactions contemplated by
this Agreement. 


        §4.8    Incumbency Certificate.    The Lender shall have received from the
Borrower an incumbency certificate, dated as of the first Advance Date and signed by an Authorized Officer, giving the name and bearing a specimen signature of each individual who shall be authorized:
(i) to sign the Loan Documents, in its name and on its behalf, (ii) to make application for the Loan, and (iii) to give notices and to take other action on its behalf under this Agreement. 


        §4.9    No Material Adverse Change.    No event or change shall have occurred,
in
the sole judgment of the Lender, that has caused or evidences a Materially Adverse Effect. 



        §4.10    Delivery of Notice of Borrowing.    A Notice of Borrowing for such
Advance shall have been made by the Borrower in accordance with §2.1. 


        §4.11    Original Vessel Documents.    All conditions to the obligation of any
party to complete the refinancing of the First Advance Vessels and related transactions, (without waiver of any thereof except with the prior consent of the Lender), shall have been fulfilled, and all
requisite actions by any party, including the execution, delivery and filing for recording of the Ship Mortgages respecting the First Advance Vessels and otherwise as appropriate of the Original
Vessel Documents and all other necessary documentation, shall have taken place, such that the refinancing of the First Advance Vessels and such related transactions shall be consummated immediately
upon disbursement of the Loan in accordance with the terms hereof. 


        §4.12    Recordation of Ship Mortgage.    The Lender shall have received
satisfactory evidence that the Ship Mortgage for each of the First Advance Vessels has been duly filed for recording with the
U.S. Coast Guard National Vessel Documentation Center and to create and perfect a first preferred ship mortgage Lien on all of the Collateral described therein in favor of the Lender. 


        §4.13    Opinion of Counsel.    The Lender shall have received on the first
Advance Date from Holland & Knight LLP, counsel for the Borrower, a favorable opinion addressed to the Lender and dated such first Advance Date, in form and substance satisfactory to the Lender and
its counsel. 


        §4.14    Proceedings and Documents.    All proceedings in connection with the
transactions contemplated by this Agreement and all documents incident thereto shall be reasonably satisfactory in substance and in form to the Lender and its counsel, and the Lender and such counsel
shall have received all information and such counterpart originals or certified or other copies of such documents as the Lender or such counsel may reasonably request. 


        §4.15    Appraisal.    The Borrower shall, at its expense, have delivered to the
Lender an on-site appraisal of each of the First Advance Vessels, performed by an independent appraiser who is satisfactory to the Lender and which such appraisal shall be satisfactory to the Lender
in its absolute discretion. 


        §4.16    Recorded Lien Searches.    The Lender shall have received: (a) UCC
search
reports with respect to the records of the (i) Delaware Secretary of State office, (ii) New York Secretary of State office, and (iii) Richmond County office, and copies of executed Form UCC-3
Financing Statement 


21







 



Amendments
for all financing statements on record against the Borrower and that otherwise would cover any of the Collateral, together with evidence of the filing thereof, and (b) a U.S. Coast Guard
Abstract of Title verifying that there are no outstanding ship mortgages recorded with the Coast Guard covering each of the First Advance Vessels or any other assets or rights associated therewith
(other than a ship mortgage for which a valid and recordable release shall have been executed and delivered by the mortgagee thereof and filed with the Coast Guard). 


        §4.17    Financing Statements.    The Lender shall have received satisfactory
evidence that the Financing Statements have been duly filed with the office of the Secretary of State of Delaware and any other filing locations required hereunder to create and perfect a first
priority Lien on all of the Collateral relating to the First Advance Vessels being financed in favor of the Lender. 


        §4.18    Evidence of Insurance.    The Lender shall have received certificates
of
insurance covering the First Advance Vessels demonstrating compliance with the insurance requirements of this Agreement and the other Loan Documents. 



        §4.19    Delivery of Invoices.    The Lender shall have received copies of all
vessel improvement invoices and evidence of payment thereof with respect to the First Advance Vessels. 


SECTION 5.    CONDITIONS OF SECOND ADVANCE OF LOAN  


        The second advance of the Loan shall be subject to the further conditions precedent set forth below (in each case as to the DBL 155) (the "Second Advance Vessel")
being financed by such second Advance). The request by the Borrower for such Advance shall be deemed a certification by the Borrower that the conditions precedent set forth in this §5 have
been satisfied. 


        §5.1    Delivery of Notice of Borrowing.    A Notice of Borrowing for such
Advance
shall have been made by the Borrower in accordance with §2.1. 


        §5.2    Execution and Delivery of Note.    The Borrower shall have executed and
delivered a Note for such second Advance in accordance with §2.1. 


        §5.3    Rio Energy Charter.    The Rio Energy Charter (a) shall have been
executed
and delivered by the parties thereto, (b) shall be satisfactory to the Lender in form and substance, in its reasonable discretion, and (c) shall be in full force and effect in accordance with its
terms. 


        §5.4    Representations and Warranties.    Each of the representations and
warranties contained herein and in the other Loan Documents shall be true, correct and complete in all material respects on and as of the second Advance Date to the same extent as though made on and
as of that date. 


        §5.5    Performance; No Default.    The Borrower shall have performed and
complied
with all terms and conditions of the Loan Documents required to be performed and complied with by it on or before the second Advance Date and on such Advance Date there shall exist no Default or Event
of Default, nor shall the making of the second Advance by the Lender result in a Default or Event of Default. 



        §5.6    Original Vessel Documents.    All conditions to the obligation of any
party to complete the refinancing of the Second Advance Vessel and related transactions, (without waiver of any thereof except with the prior consent of the Lender), shall have been fulfilled, and all
requisite actions by any party, including the execution, delivery and filing for recording of the Ship Mortgage respecting the Second Advance Vessel and otherwise as appropriate of the Original Vessel
Documents and all other necessary documentation, shall have taken place, such that the refinancing of the Second Advance Vessel and such related transactions shall be consummated immediately upon
disbursement of the Loan in accordance with the terms hereof. 


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        §5.7    Recordation of Ship Mortgage.    The Lender shall have received
satisfactory evidence that the Ship Mortgage for the Second Advance Vessel has been duly filed for recording with the U.S. Coast Guard National Vessel Documentation Center and to create and perfect a
first preferred ship mortgage Lien on all of the Collateral described therein in favor of the Lender. 



        §5.8    Opinion of Counsel.    The Lender shall have received on the second
Advance Date from Holland & Knight LLP, counsel for the Borrower, a favorable opinion addressed to the Lender and dated such second Advance Date, in form and substance satisfactory to the Lender and
its counsel. 


        §5.9    Proceedings and Documents.    All proceedings in connection with the
transactions contemplated by this Agreement and all documents incident thereto shall be reasonably satisfactory in substance and in form to the Lender and its counsel, and the Lender and such counsel
shall have received all information and such counterpart originals or certified or other copies of such documents as the Lender or such counsel may reasonably request. 


        §5.10    Appraisal.    The Borrower shall, at its expense, have delivered to the
Lender an on-site appraisal of the Second Advance Vessel, performed by an independent appraiser who is satisfactory to the Lender and which such appraisal shall be satisfactory to the Lender in its
absolute discretion. 


        §5.11    Recorded Lien Searches.    The Lender shall have received: (a) UCC
search
reports with respect to the records of the (i) Delaware Secretary of State office, (ii) New York Secretary of State office and (iii) Richmond county clerk's office, and copies of executed Form UCC-3
Financing Statement Amendments for all financing statements on record against the Borrower and that otherwise would cover any of the Collateral, together with evidence of the filing thereof, and (b) a
U.S. Coast Guard Abstract of Title verifying that there are no outstanding ship mortgages or other Liens recorded with the Coast Guard covering the Second Advance Vessel or any other assets or rights
associated therewith (other than a ship mortgage for which a valid and recordable release shall have been executed and delivered by the Mortgagee thereof and filed with the Coast Guard). 



        §5.12    Financing Statements.    The Lender shall have received satisfactory
evidence that the Financing Statements have been duly filed with the office of the Secretary of State of Delaware and any other filing locations required hereunder to create and perfect a first
priority Lien on all of the Collateral relating to the Second Advance Vessel being financed in favor of the Lender. 


        §5.13    No Material Adverse Change.    No event or change shall have occurred,
in
the sole judgment of the Lender, that has caused or evidences a Materially Adverse Effect. 



        §5.14    Evidence of Insurance.    The Lender shall have received certificates
of
insurance covering the Second Advance Vessel demonstrating compliance with the insurance requirements of this Agreement and the other Loan Documents. 


        §5.15    Delivery of Invoices.    The Lender shall have received copies of all
vessel improvement invoices and evidence of payment thereof with respect to the Second Advance Vessel. 



        §5.16    Officer's Certificate.    The Borrower shall have delivered to the
Lender
an Officer's Certificate certifying that the conditions precedent set forth in §§4.3 and  4.4 are satisfied at and as of the second Advance Date.



SECTION 6.    AFFIRMATIVE COVENANTS.  


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



        §6.1    Punctual Payment.    The Borrower shall duly and punctually pay or cause
to be paid the installment payments of principal and interest on the Loan, and any other amounts at any time owing 


23







 



hereunder
or under the Notes or other Loan Documents, all in accordance with the terms of this Agreement, the Notes, and the other Loan Documents. 



        §6.2    Maintenance of Offices.    The Borrower shall maintain a place of
business
at the location specified in §13, or at such other place in the United States of America as it
shall designate upon written notice, addressed as provided in §13, to the Lender where notices, presentations and demands to or upon the
Borrower in respect of the Loan Documents may be given or made. 


        §6.3    Records and Accounts.    The Borrower shall keep true records and books
of
account in which full, true and correct entries shall be made in accordance with GAAP and maintain adequate accounts and reserves for all Taxes, all depreciation, depletion, obsolescence and
amortization of their properties, all contingencies, and all other reserves. 


        §6.4    Financial Statements, Certificates, and Other Information.    The
Borrower
shall deliver to the Lender: 



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


        (b)    As
soon as practicable and, in any event, within 60 days after the end of each of the first three quarters during each fiscal year of the Borrower, an unaudited
consolidated balance sheet of K-Sea Transportation and its Subsidiaries as at the end of such quarter, and consolidated statement of income, cash flow and members' equity, each for the portion of the
fiscal year then ended, each in reasonable detail and prepared in accordance with GAAP (subject to year-end adjustments), certified to the Lender by the chief financial officer or other financial
officer of such entity; 


        (c)    Promptly
upon receipt thereof, copies of all management letters and other reports of substance which are submitted to the Borrower by its independent accountants in
connection with any annual or interim audit of the books of the Borrower made by such accountants; 


        (d)    As
soon as practicable and, in any event, within 10 days after the issuance thereof, copies of such other financial statements and reports as the Borrower shall send to
their partners, members or stockholders, and copies of all regular and periodic reports which the Borrower may be required to file with the Securities and Exchange Commission or any similar or
corresponding governmental commission, department or agency substituted therefore, or any similar or corresponding governmental commission, department, board, bureau, or agency, federal or state; 


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


        (f)    Concurrently
with the delivery of each financial statement pursuant to paragraphs (a) and (b) of this
§6.4, a compliance certificate substantially in the form of Exhibit F (the "Compliance
Certificate"); and 


        (g)    Simultaneously
with the delivery of the financial statements referred to in clauses (a) and (b) of this
§6.4, a copy of the certification signed by the principal executive officer and the principal financial officer of K-Sea Transportation
(each a "Certifying Officer") as required by Rule 13A-14 under the Securities Exchange Act of 1934 and a copy of the internal controls disclosure
statement by such Certifying Officer as required by Rule 13A-15 under the Securities 



24







 




Exchange
Act of 1934, each as included in K-Sea Transportation's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, for the applicable fiscal period. 




        Notwithstanding
the forgoing, the Lender agrees to obtain the financial information required above in §6.4(a), (b), (c), and  (d) via public filings made by K-Sea
Transportation with the Securities and Exchange Commission by the Borrower, so long as such information is
available via such public filings. 


        §6.5    [Intentionally omitted.]    



        §6.6    Business and Limited Partnership Existence.    The Borrower shall (a)
keep
in full force and effect its limited partnership existence and all rights, licenses, leases and franchises reasonably necessary to the conduct of its business, and (b) comply with (i) the applicable
Laws wherever its business is conducted to the extent non-compliance could reasonably be expected to have a Materially Adverse Effect, (ii) the provisions of its partnership agreement, or other
organizational document, and (iii) all agreements, and instruments by which it or any of its properties may be bound and all applicable decrees, orders and judgments to the extent non-compliance could
reasonably be expected to have a Materially Adverse Effect. 


        §6.7    Payment of Taxes.    The Borrower shall pay when due all lawful Taxes
imposed upon it or upon its income or profit or upon any property, real, personal or mixed, belonging to it, provided that the Borrower shall not be
required to pay any such Tax if the validity thereof is being contested in good faith by appropriate proceedings and if the Borrower shall have set aside on its books reasonable reserves with respect
to such Tax. 


        §6.8    Inspection of Properties and Books.    So long as any of the Notes are
outstanding the Lender or its designated agent or representatives shall have the right to visit and inspect for any
purpose the Collateral, including the Vessels, to examine the books of account of the Borrower and any other documents required of the Borrower hereunder or otherwise reasonably related to the
transactions contemplated hereunder (and to make copies thereof and extracts therefrom), and to discuss the affairs, finances and accounts of the Borrower with, and to be advised as to the same by,
its officers, all at such reasonable times and intervals as the Lender may reasonably request. The costs of any such examination shall be for the account of the Lender,  provided that following the
occurrence and during the continuation of any Default, all such reasonable costs shall be charged to the Borrower.
 


        §6.9    Licenses and Permits.    If at any time while any of the Notes are
outstanding, any authorization, consent, approval, permit or license from any Governmental Authority shall become necessary or required in order that the Borrower may fulfill any of its obligations
hereunder, the Borrower shall promptly take or cause to be taken all steps reasonably necessary to obtain such authorization, consent, approval, permit or license and furnish the Lender with evidence
thereof. 


        §6.10    Pension Plans.    With respect to any period of time during which the
Borrower or any other member of a Controlled Group that includes the Borrower maintains or is required to pay contributions to a Plan Borrower shall: 



        (a)    Fund,
or cause the Plan sponsor or adopting employer to fund, such Plan as required by the provisions of Section 302 of ERISA and Section 412 of the Code except where
failure to do so would not result in a material liability to the Borrower and make, or cause the Plan sponsor or adopting employer to make, all material contributions to such Plan required pursuant to
any applicable collective bargaining agreement; 


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



25







 




        (c)    Furnish
promptly to the Lender a copy of all Forms 5500, Forms 5500-C and/or Forms 5500-R relating to such Plan, together with all attachments thereto, including any
actuarial statement relating to such Plan required to be submitted under Section 103(d) of ERISA; 



        (d)    Furnish
the Lender with copies of any request for waiver from the funding standards or extension of the amortization periods required by Section 303 and 304 of ERISA or
Section 412 of the Code with respect to any Plan no later than the date on which the request is submitted to the Department of Labor or the Internal Revenue Service, as the case may be; 


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


        (f)    With
respect to any Plan, promptly notify the Lender upon the occurrence of any "reportable event" as defined in Section 4043(c) of ERISA, other than a "reportable
event" for which the provision for 30-day notice to the Pension Benefit Guaranty Corporation has been waived by regulation. 




        §6.11    Environmental and Safety Matters.    The Borrower shall: 



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


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


        (c)    Except
for Hazardous Materials that the Borrower uses, transports or stores or that a lessee or charterer of the Borrower uses, stores or transports in the ordinary
course of its business and in compliance with all applicable Laws and in accordance with the terms of any applicable lease or charter documents, keep all of its properties or assets free of Hazardous
Materials. The Borrower shall comply with and use commercially reasonable efforts to ensure compliance by all tenants and subtenants with all Environmental Laws and all Laws relating to occupational
safety or health and shall obtain and comply with, and use commercially reasonable efforts to ensure that all tenants and subtenants obtain and comply with, any and all approvals, registrations or
permits required thereunder. The Borrower shall conduct and complete all investigations, studies, sampling and testing, and all remedial, removal, and other action necessary to clean up and remove all
Hazardous Materials, on, from or affecting any of its properties or assets as required by all applicable material Laws, except as such laws, ordinances, rules, regulations, orders or directives may be
contested by the Borrower in good faith by appropriate proceedings and for which adequate reserves have been established in conformity with GAAP. 



        (d)    Defend,
indemnify, and hold harmless the Lender and its directors, officers, employees, affiliates, representatives and agents (each an "Indemnified Party") from and
against any and all penalties, fines, liabilities, damages, costs, or expenses of whatever kind or nature asserted against such Indemnified Party (unless resulting from the gross negligence or willful
misconduct of an Indemnified Party or occurring after the Lender shall have become a mortgagee in-possession subsequent to an Event of Default), arising out of, or in any way related to: (a) the
Release or 



26







 




threatened
Release of any Hazardous Materials on, at or from any property at any time owned, operated or occupied by the Borrower; (b) any personal injury (including wrongful death) or property damage
(real or personal) arising out of or related to such Hazardous Materials; (c) any lawsuit brought or threatened, settlement reached, or government order relating to such Hazardous Materials, and/or
(d) any violation of Laws which are based upon or in any way related to such Hazardous Materials or to any environmental matter, including reasonable attorney and consultant fees, investigation and
laboratory fees, court costs, and litigation expenses actually incurred. 


 §6.12    Indemnities, Etc. 


        (a)    The
Borrower shall indemnify and hold the Indemnified Parties harmless from and against any and all claims, damages, losses, liabilities, costs, and expenses (including
reasonable legal fees) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including in connection with any
investigation, litigation, or proceeding or preparation of defense in connection therewith) the ownership, operation or other use (whether authorized or not) of the Vessels, the Loan Documents, any of
the transactions contemplated herein or the actual or proposed use of the proceeds of the Loan, except to the extent that such claim, damage, loss, liability, cost, or expense (i) is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's or such Lender's (as a mortgagee-in-possession) gross negligence or willful misconduct or
(ii) is a tax, levy, impost, duty, assessment, fee or other charge imposed by any Governmental Authority or other taxing authority or a fine, penalty, interest charge or other additional charge with
respect thereto (it being agreed that §2.6 sets forth the Borrower's obligations with respect to such liabilities, costs and expenses), or
(iii) is an ordinary and usual operating, administrative or overhead expense of any Lender and is not caused directly by an Event of Default. In the case of an investigation, litigation or other
proceeding to which the indemnity in this §6.12 applies, such indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by the Borrower, its directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise is a party thereto and whether or not
the transactions contemplated hereby are consummated. In respect of any litigation commenced with respect to this §6.12, (i) the Borrower
shall be entitled to control and direct its defense if an Event of Default shall not have occurred and be continuing and (ii) the Borrower shall be entitled to participate with the Lender in the
Borrower's defense if no Event of Default shall have occurred and be continuing hereunder provided that the Borrower, prior to commencing its defense or participating in any defense of such litigation
pursuant to the foregoing clauses (i) and (ii), confirms and acknowledges, in writing, its indemnification
obligation with respect to such claim under this §6.12. Notwithstanding the foregoing, the Borrower shall not be required to indemnify any
Indemnified Party for any settlement reached without the prior consent of the Borrower (which consent shall not be unreasonably withheld) or for any judgment entered into against an Indemnified Party
if the Borrower shall have not been afforded an opportunity to participate, at its expense, in the defense of the claim. The Borrower agrees not to assert any claim against the Lender, any of its
affiliates, or any of its respective directors, officers, employees, attorneys, agents, and advisers, on any theory of liability, for special, indirect, consequential, or punitive damages arising out
of or otherwise relating to the Loan Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loan, other than fraud or intentional misconduct. 


        (b)    Without
prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this
§6.12 shall survive the payment in full of the Loan and all other amounts payable under this Agreement. 



27









           §6.13    Performance of Charters.    The
Borrower shall perform and comply in all
material respects with all of its obligations under the Charters and all other agreements to which it is a party or by which it is bound relating to the Collateral, and shall use reasonable efforts to
cause each other party thereto to so perform and comply. 


        §6.14    Notice of Default, Charters, Etc.    The Borrower shall promptly upon
becoming aware thereof give written notice to the Lender of: (a) the occurrence of any Default or Event of Default, (b) any litigation or proceeding affecting the Borrower or any of its
properties or assets of which, if adversely determined, might have a Materially Adverse Effect, (c) any dispute between the Borrower and any Governmental Authority that might materially
interfere with its normal business operations, and (d) any material default by any party under the Rio Energy Charter or the Westport Charter. 



        §6.15    Notice of Material Claims and Litigation.    The Borrower shall
promptly
notify the Lender of the commencement of any claims, actions, suits, proceedings or investigations of any kind pending or threatened against the Borrower before any Governmental Authority in an amount
in excess of $100,000, if relating to one or all of the Vessels, or which, if adversely determined, would have a Materially Adverse Effect. 


        §6.16    No Disposition of Collateral.    The Borrower shall obtain the prior
written consent of the Lender (which may be granted or denied in the Lender's sole discretion), prior to the sale, conveyance, transfer, exchange, lease, or on a bareboat basis charter or disposition
by the Borrower of all or any part of the Collateral or the Borrower's otherwise relinquishing possession of any of the Collateral. 


        §6.17    Borrower's Title; Lender's Security Interest.    (a) The Borrower shall
warrant and defend its good and marketable title to the Collateral and the Lender's perfected first priority security interest in the Collateral, against all claims and demands whatsoever. (b) The
Borrower shall, at its expense, take such action (including the obtaining and recording of waivers) as may be necessary to prevent any third party from acquiring any right to or interest in the
Collateral, and if at any time any Person shall claim any such right or interest, the Borrower shall, at its expense, cause such claim to be waived in writing or otherwise eliminated to the Lender's
satisfaction within 30 days after such claim shall have first become known to the Borrower. 


        §6.18    Compliance with Laws and Regulations.    The Borrower shall comply with
all laws, regulations, directives and orders of any and all local, state, federal and other governmental agencies
and authorities having jurisdiction over it or its property, non-compliance with which could reasonably be expected to cause a Materially Adverse Effect. 



        §6.19    Further Assurances.    The Borrower shall promptly, at any time and
from
time to time, at its sole expense, execute and deliver to the Lender such further instruments and documents, (including the execution of a replacement promissory note due to loss or destruction of a
Note, and take such further action, as the Lender may from time to time reasonably request in order to carry out to the Lender's satisfaction of the transactions contemplated by this Agreement and to
establish and protect the rights, interests and remedies created, or intended to be created, in favor of the Lender, hereby and under the other Loan Documents, including the execution, delivery,
recordation and filing of financing statements and continuation statements. The Borrower hereby authorizes the Lender, in such jurisdictions where such action is authorized by law, to effect any such
recordation or filing of financing statements without the signature of the Borrower thereon and to file as valid financing statements in the applicable financing statement records, any financing
statement executed in connection herewith. The Borrower will pay, or reimburse the Lender for, any and all reasonable fees, costs and expenses of whatever kind or nature incurred in connection with
the creation, preservation and protection of the Lender's security interest in the Collateral, including all fees and taxes in connection with the recording or filing of instruments and documents in
public offices, payments or discharges of Taxes or Liens upon or in respect of the Collateral, premiums for insurance required to be obtained pursuant to the Loan Documents with respect to the
Collateral and all other reasonable fees, costs and expenses in 


29







 



connection
with protecting, maintaining or preserving the Collateral and the Lender's interests therein, whether through judicial proceedings or otherwise, or in connection with defending or
prosecuting any actions, suits or proceedings arising out of or related to the Collateral; and all such reasonable amounts that are paid by the Lender shall, until reimbursed by the Borrower,
constitute Obligations of the Borrower secured by the Collateral. 



        §6.20    Casualty Occurrence.    In the event of any material (involving damages
to any party thereto in excess of $250,000) casualty with respect to any Collateral or Vessel, the Borrower shall give the Lender written notice of such casualty promptly after discovering or
receiving notice of the casualty, which notice shall identify the affected Collateral or other Vessel. The Borrower shall, within a reasonable period of time, remedy or repair such casualty to bring
the Collateral into conformity with the provisions of this Agreement unless such casualty shall constitute an Event of Loss and the provisions of  §2.3(b) apply. 



SECTION 7.    NEGATIVE COVENANTS; FINANCIAL COVENANTS.  


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


        §7.1    Transactions with Affiliates.    Except as otherwise provided herein,
enter into or consummate any transaction with any Affiliate of the Borrower unless such transaction is: 



        (a)   entered
into in the ordinary course of business of the Borrower and pursuant to the reasonable requirements of the Borrower's business; and 


        (b)   is
upon terms no more or less favorable to the Borrower than would be the case if such transaction were an arm's-length transaction effected with a Person other than an
Affiliate. 




        §7.2    Amendment of Rio Energy Charter or Westport Charter.    Enter into any
amendment or supplement to the Rio Energy Charter or the Westport Charter, or grant to any other party a waiver of its obligations thereunder or agree (temporarily or permanently) to forbear against
exercising available remedies as a consequence thereof which would result in a Materially Adverse Effect, without the prior written consent of the Lender. 


        §7.3    Terminate Pension Plan.    Terminate, withdraw from, or permit the
termination of any Plan unless the asset value of such Plan is then at least equal to the value of the benefits guaranteed by the Pension Benefit Guaranty Corporation if such termination could
reasonably be expected to have a Materially Adverse Effect. 


        §7.4    ERISA.    Permit any Plan maintained by it to (a) engage in any
"prohibited transaction" (as defined in Section 4975 of the Code) which could reasonably be expected to result in material liability for excise taxes or fiduciary liability under Section 406 of ERISA,
(b) incur any material "accumulated funding deficiency" (as defined in Section 302 of ERISA) whether or not waived, or (c) terminate any Plan in a manner that could reasonably be expected to result in
the imposition of a lien or encumbrance on the assets of the Borrower or any of its Subsidiaries pursuant to Section 4068 of ERISA if the material liability described in clause (a) or the accumulated
funding deficiency described in clause (b) or the lien or encumbrance described in clause (c) could reasonably be expected to have a Materially Adverse Effect. 


        §7.5    Minimum Tangible Net Worth.    As of the last day of each fiscal quarter,

commencing with the quarter ending June 30, 2004, permit Tangible Net Worth to be less than $85,000,000. 


        §7.6    Fixed Charge Coverage.    As of the last day of each fiscal quarter,
commencing with the quarter ending June 30, 2004, permit the ratio of (a) EBITDA, less Maintenance CAPEX, for the four consecutive quarters ended on such date, to (b) Fixed
Charges for the four consecutive quarters ended on such date, to be less than 3.00 to 1. 


30







 



        §7.7    Maximum Funded Debt to EBITDA.    As of the last day of each fiscal
quarter, commencing with the quarter ending June 30, 2004, permit the ratio of (a) Funded Debt, for the four consecutive quarters ended on such date, to (b) EBITDA, less any earnings
attributable to assets financed by secured nonrecourse obligations, for the four consecutive quarters ended on such date, to exceed 3.25 to 1. 


        §7.8    Net Worth Leverage Ratio.    As of the end of each fiscal year, permit
the
ratio of (a) total liabilities (excluding deferred taxes), less Subordinated Indebtedness, to (b) Tangible Net Worth, to be greater than 2.00 to 1. 



SECTION 8.    EVENTS OF DEFAULT; ACCELERATION.  


        §8.1    Events of Default.    The occurrence of any one or more of the following
events or conditions shall constitute an "Event of Default" hereunder regardless of the reason for such event and whether it shall be voluntary or involuntary or within or without the control of the
Borrower or be effected by operation of or pursuant to any Law: 



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


        (b)   If
the Borrower shall default in the performance of or compliance with any term contained in §§6.6, 6.10(a),
6.10(b), or 6.16; 6.17(a) or §§7.2, 7.3, 7.4, 7.6, 7.7
or 7.8; or 


        (c)   If
the Borrower shall default in the performance or compliance with any term contained in §§6.9, 6.14,
6.17(b), or 7.5, and such default shall continue for more than thirty (30) days; or 


        (d)   if
the Borrower shall default in the performance of or compliance with any term contained herein, or in the performance of or compliance with any other term contained in
any of the other Loan Documents (other than those referred to in the foregoing paragraphs (a), (b) and (c)), and such default shall not have been remedied within thirty (30) days after written notice
thereof shall have been given to the Borrower by the Lender; or 


        (e)   if
any representation, warranty or certification made in writing by or on behalf of the Borrower herein or in connection with any of the transactions contemplated hereby
shall prove to have been false or incorrect in any material respect on the date as of which made; or 


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


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


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


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



31







 




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


        (k)   if
any of the Security Documents shall for any reason cease to be in full force and effect or any Security Document or the Lien purported to be granted thereby shall
become adjudged by a competent court to be invalid or unenforceable against a party thereto other than the Lender; or 


        (l)    if
the Borrower shall (i) default (as principal or guarantor or other surety) in the payment of any principal of, premium, if any, or interest on any Indebtedness to the
Lender (or its affiliates) or any other Indebtedness in excess of $500,000, in any single amount or in aggregate, in original principal amount in respect of borrowed money or credit received, or (ii)
shall default in the performance of or compliance with any other term, covenant, provision or obligation contained in any agreement or instrument evidencing or securing such Indebtedness and the
holder or holders of such Indebtedness shall have accelerated the maturity thereof or commenced the exercise of any other remedies in respect of such default; or 


        (m)  if
any "Mortgage Event of Default" as defined in any Ship Mortgage or any Event of Default (as defined in the Security Agreement) shall occur; or 


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



        (o)   if
20% or more of the then outstanding partnership interests of the Borrower shall be acquired by any Person, entity or group who are not such owners or affiliates
thereof on the date of execution of this Agreement. 


        (p)   if
the Borrower shall fail to deliver evidence of payment of (i) any outstanding "holdback" amount (x) with respect to the First Advance Vessels, by August 15, 2004, and
(y) with respect to the Second Advance Vessel, by the date which is ninety (90) days after the date of the Second Advance, and (ii) all of the other invoices for work completed on the First Advance
Vessels, no later than ten (10) Business Days from the date hereof. 




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



        (i)    the
unpaid principal amount of the Loan together with accrued interest and any applicable Prepayment Premium, and all other Obligations shall become immediately due and
payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived; and 


        (ii)   the
Lender may exercise any and all rights the Lender has under this Agreement, the Loan Documents, or any other documents or agreements executed in connection
herewith, or at law or in equity, and proceed to protect and enforce the Lender's rights by any action at law, in equity or other appropriate proceeding, whether for the specific performance of any
covenant or agreement contained in this Agreement or any other Loan Document, including the obtaining of the ex-parte appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of the Lender, including the exercise of remedies against the Collateral under the Security
Documents. 


        (iii)  Right of Set-off; Adjustments.    (i) During the continuance of any Event of Default, the Lender (and each of
its Affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing by the 



32







 




Lender
(or any of its affiliates) to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the
Notes, irrespective of whether the Lender shall have made any demand under this Agreement or the Notes and although such obligations may be unmatured. The Lender agrees promptly to notify the Borrower
after any such set-off and application made by the Lender; provided, however, that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of the Lender under this §8.2(c) are in addition to other rights and remedies (including other rights of
set-off) that the Lender may have. 


        (iv)  Other Remedies.    Unless and except to the extent expressly provided for to the contrary herein, the rights
of the Lender specified herein shall be in addition to, and not in limitation of, the Lender's rights under any statute or rule of law or equity, or under any other provision of any of the Loan
Documents, or under the provisions of any other document, instrument or other writing executed by the Borrower or any third party in favor of the Lender, all of which may be exercised successively or
concurrently. 


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



        (b)   Notwithstanding
anything to the contrary contained in clause (a) above, the Lender shall not exercise any of the remedies set forth in clause (a) or any other remedies
available under applicable Law if the exercise of such remedies shall invalidate the qualification of any of the Vessels to operate in the coastwise trade. 




SECTION 9.    EXPENSES.  


        The Borrower will pay on demand all reasonable out-of-pocket expenses of the Lender (including reasonable fees of outside counsel) in connection with: the
negotiation, preparation, execution, and delivery of this Agreement, the other Loan Documents or other documents executed in connection therewith; any advice or analysis from outside counsel,
accountants or other professionals retained by the Lender from time to time in connection with this Agreement or the transactions contemplated hereby; any amendment, waiver, or consent from time to
time related thereto; and the Lender's exercise, preservation or enforcement of any of its rights, remedies or options hereunder or thereunder after the occurrence and during the continuation of an
Event of Default, including in all such cases the reasonable fees of outside legal counsel and any local counsel, accounting, consulting, brokerage or other similar professional fees or expenses, and
any reasonable fees or expenses associated with any travel or other costs relating to any appraisals conducted in connection with the Obligations or any Collateral therefore after the date of this
Agreement; and the amount of all such expenses shall, until paid, bear interest at the Interest Rate applicable to principal hereunder (including any default rate). After the occurrence and during the
continuance of an Event of Default, the Borrower shall pay the reasonable costs of any field audit examinations that the Lender in its discretion may conduct and shall also pay all reasonable
out-of-pocket expenses of the Lender in connection with the exercise, preservation or enforcement of any of its rights, remedies or options under any of the Security Documents. 


SECTION 10.    SURVIVAL OF COVENANTS.  



        All covenants, agreements, representations and warranties made herein and in any certificates or other papers delivered by or on behalf of the Borrower pursuant
hereto are material and shall be 


33







 



deemed
to have been relied upon by the Lender, notwithstanding any investigation heretofore or hereafter made by them, and shall survive the making of the Loan, as herein contemplated, and shall
continue in full force and effect so long as the Loan or other amounts due under the Loan Documents and the Notes remain outstanding and unpaid. All statements contained in any certificate or other
paper delivered to the Lender at any time by or on behalf of the Borrower pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by
the Borrower hereunder. 


SECTION 11.    CONFIDENTIALITY.  


        The Lender agrees to take and to cause its Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all
information provided to the Lender by the Borrower, under this Agreement or any other Loan Document, and neither the Lender nor any of its Affiliates shall use any such information other than in
connection with or in enforcement of this Agreement and the other Loan Documents, except to the extent such information (i) was or becomes generally available to the public other than as a result of
disclosure by the Lender or (ii) was or becomes available on a non-confidential basis from a source other than the Borrower, provided that the Lender
may disclose such information (A) at the request or pursuant to any requirement of any governmental authority to which the Lender is subject or in connection with an examination of the Lender by any
such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable law; (D) to the extent required in connection with any
litigation or proceeding to which the Lender, or its respective affiliates, may be party; (E) to the extent the Lender is required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (F) to the Lender's independent auditors and other professional advisors; (G) to any Eligible Assignee or participant (including prospective institutions that may become assignees
or participants pursuant to §12), provided that such Person agrees in writing to keep such
information confidential to the same extent required of the Lender hereunder; (H) as to the Lender or its Affiliate, as expressly permitted under the terms of any other document or agreement regarding
confidentiality to which the Borrower is a party or is deemed a party with the Lender or such Affiliate; and (I) to its Affiliates. 


SECTION 12.    SUCCESSORS AND ASSIGNS; PARTICIPATIONS.  



        §12.1    Successors and Assigns.    Whenever in this Agreement any of the
parties
hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrower or the Lender
shall bind and inure to the benefit of their respective successors and assigns. Notwithstanding the foregoing, the Borrower shall not be entitled to assign any of its rights or obligations hereunder. 


        §12.2    Assignments.    



        (a)    The
Lender may, at its expense (unless such assignment is initiated by the Borrower) assign to one or more Eligible Assignees (but not to exceed five Lenders hereunder
at any one time) all or a portion (not less than $3,000,000) of its interests, rights and obligations under this Agreement and the other Loan Documents, including all or a portion of the Loan at the
time made by or owing to it, provided (i) that the parties to each such assignment shall execute and deliver to the Lender an Assignment and Acceptance
in the form set forth as Exhibit D (an "Assignment and Acceptance"). Upon acceptance and recording pursuant to  §12.6, from and after the
effective date specified in each Assignment and Acceptance (which effective date shall be at least five Business
Days after the execution thereof), (A) the Eligible Assignee shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the same rights and obligations as the Lender
under this Agreement, and (B) the Lender shall be released from any obligations under this Agreement with respect to the interests assigned, provided
that in the case of an Assignment and Acceptance covering all or the remaining portion of the Lender's rights and obligations under this Agreement, the Lender shall 


34







 



continue
to be entitled to the benefits of §2.5 and §2.6, as well as to any fees
or amounts accrued for its account hereunder and not yet paid. An Eligible Assignee shall be entitled to sell participations in its interests, rights and obligations under this Agreement and the other
Loan Documents, as provided in §12.3, and shall be entitled to grant assignments thereof pursuant to an Assignment and Acceptance and
otherwise in accordance with this §12. 



        (b)   By
executing and delivering an Assignment and Acceptance, the Lender and Eligible Assignee shall be deemed to confirm to and agree with each other and the other parties
hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, the Lender makes
no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document
furnished pursuant hereto, (ii) the Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by
the Borrower of any of its obligations under this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto, (iii) such Eligible Assignee confirms that it has
received a copy of this Agreement and the other Loan Documents, together with copies of the most recent financial statements delivered pursuant to  §6.4 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance, (iv) such Eligible Assignee shall independently and without reliance upon the Lender or any other Eligible Assignee or Participant and based on such documents and
information as it shall deem appropriate at the time, continue to make its own credit decisions under this Agreement, and (v) such Eligible Assignee agrees that it shall perform in accordance with
their terms all the obligations which by the terms of this Agreement are required to be performed by it as an Eligible Assignee. 


        (c)   If,
pursuant to this §12.2, any interest in this Agreement is assigned to any Eligible Assignee which is not
incorporated or organized under the laws of the United States or a state thereof, the Lender shall cause such Eligible Assignee to agree that, on or prior to the effective date specified in the
Assignment and Acceptance, it will deliver to the Borrower (i) two valid, duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8EC1 or applicable successor form, as the
case may be, certifying in each case that such Eligible Assignee is entitled to receive payments made under this Agreement and the Notes without deduction or withholding of any United States federal
income taxes, and (ii) a valid, duly completed Internal Revenue Service Form W-8BEN or W-9 or applicable successor form, as the case may be, to establish an exemption from United States backup
withholding tax. The Eligible Assignee which delivers to the Borrower a Form W-8BEN or W-8EC1 and Form W-8BEN or W-9 pursuant to the preceding sentence further undertakes to deliver to the Borrower
two copies of the Form W-8BEN or W-8EC1 and Form W-8BEN or W-9, or applicable successor forms, or other manner of certification, as the case may be, on or before the date that any such form expires or
becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from withholding tax or after the occurrence of any event requiring a change in the most recent
form previously delivered by it to the Borrower, and such extensions or renewals thereof as may reasonably be requested by the Borrower, certifying in the case of a Form W-8BEN or W-8EC1 that such
Eligible Assignee is entitled to receive payments made under this Agreement and the Notes without deduction or withholding of any United States federal income taxes, unless any change in treaty, law
or regulation or official interpretation thereof has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent
such Eligible Assignee from duly completing and delivering any such form with respect to it and such Eligible Assignee advises the Borrower that it is not capable of 



35







 




receiving
payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8BEN or W-9, establishing an exemption from United States backup withholding
tax. 




        §12.3    Participations.    The Lender and the Eligible Assignee may, at their
respective expense, sell to one or more Persons (each, a "Participant") participations in all or a portion (not less than $1,000,000) of its interests, rights and obligations under this Agreement and
the other Loan Documents (including all or a portion of any Commitments and the Loans owing to it), provided that
(i) the Lender or such Eligible Assignee shall remain solely responsible for the performance of its obligations under this Agreement, (ii) the Participant shall be entitled to the benefit of the cost
protection provisions and indemnities contained in §§2.5 and 6.12, but shall not
be entitled to receive any greater payment thereunder than the selling Lender or Eligible Assignee would have been entitled to receive with respect to the interest so sold if such interest had not
been sold, and (iii) the Borrower, the Lender (in the case of a sale of any participation interest by an Eligible Assignee), and any Eligible Assignee shall continue to deal solely and directly with
the Lender or Eligible Assignee in connection with its rights and obligations under this Agreement. A Participant shall not be entitled to require the Lender to take or omit to take any action
hereunder except in connection with any of the following: (i) or any amendment that subjects the Lender to any additional obligations; (ii) a reduction of the principal of or interest on the Notes, or
of any fees payable hereunder; (iii) a postponement of any date fixed for any payment in respect of principal of or interest on the Notes or any fees payable hereunder; (iv) the release of any
Collateral from the Lien of the Loan Documents. 


        §12.4    Disclosures.    The Lender and any Eligible Assignee may, in connection
with any proposed assignment (by such Lender) or participation (by the Lender or the Eligible Assignee) pursuant to this §12, disclose to
the proposed Eligible Assignee or Participant any information in its possession relating to the Borrower, provided that prior to any such disclosure,
each such Eligible Assignee or Participant or proposed Eligible Assignee or Participant shall execute an agreement whereby such Eligible Assignee or Participant shall agree (subject to customary
exceptions) to preserve the confidentiality of any confidential information relating to any the Borrower received from such Participant. 


        §12.5    Federal Reserve Bank.    The Lender, Eligible Assignee and Participants
may at any time pledge or assign all or any portion of their rights under this Agreement to a Federal Reserve Bank. 



        §12.6    Register; Notes.    


        (a)    The
Initial Lender agrees to act as agent for the Borrower (the "Registration Agent") and in that capacity to establish and shall maintain at its address referred to in  §13 a register (the "Lender
Register") in which it shall record the name and address of each Lender hereunder and the principal amount of
the Loan owing to each Lender from time to time. The entries in the Lender Register shall be final and binding for all purposes, absent manifest error, and the Borrower shall treat each Person whose
name is recorded in the Lender Register as a Lender for all purposes of the Loan Documents. 



        (b)    Upon
receipt of a completed Assignment and Acceptance executed by an assigning Lender and an Eligible Assignee, together with the Note or Notes subject to such
assignment, the Registration Agent shall record the relevant information contained in the Assignment and Acceptance in the Lender Register, and the Borrower (i) shall execute and deliver to the
Assignee in exchange for the surrendered Note or Notes a new Note made payable to the Assignee in an amount equal to the principal amount of the Loan acquired by the Assignee, and (ii) if the
assigning Lender assigned less than its entire interest in the Loan, execute and deliver to the assigning Lender a new Note made payable to the assigning Lender in an amount equal to the principal
amount of the Loan retained by the assigning Lender. The sum of the principal amounts of the new Notes shall be equal to the aggregate outstanding principal amount of the surrendered Note or Notes.
The new Note or Notes shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the surrendered Note or Notes. 


36







 



        (c)    The
Registration Agent may transfer its obligations under this §12.6 to an Eligible Assignee in connection
with the assignment of all (but not less than all) of the Registration Agent's interest in the Loan in accordance with §12.2, in which event
the Assignment and Acceptance shall be amended or supplemented to effect such transfer of obligations as Registration Agent. 


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


SECTION 13.    NOTICES.  


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



	If to the Lender:	 	Citizens Leasing Corporation

One Citizens Plaza

Mail Stop: RCE-150

Providence, RI 02903
	 	 	Attention:	 	Team Leader

Direct Originations
	 	 	FAX:	 	(401) 459-3171
	

With a copy to:	
 	

Citizens Leasing Corporation

One Citizens Plaza
	 	 	Mail Stop:	 	RCE-150
	 	 	Providence, RI 02903
	 	 	Attention:	 	David T. Miele, Esq.
	 	 	FAX:	 	(401) 459-3171
	

With a copy to:	
 	

Day, Berry and Howard LLP

260 Franklin Street

Boston, Massachusetts 02110-3179
	 	 	Attention:	 	William A. Hunter, Esq.

Louise A. Laudano, Esq.
	 	 	FAX:	 	(617) 345-4745
	

If to the Borrower:	
 	

K-Sea Operating Partnership L.P.

3245 Richmond Terrace

Staten Island, New York 10303
	 	 	Attention:	 	Chief Financial Officer
	 	 	Telephone:	 	(718) 720-7207
	 	 	Fax:	 	(718) 720-4358
	 	 	Email:	 	jnicola@k-sea.com
	

With a copy to:	
 	

Holland & Knight LLP

195 Broadway

New York, New York 10007
	 	 	Attention:	 	Christopher G. Kelly, Esq.
	 	 	Phone:	 	212-513-3200
	 	 	Fax:	 	212-385-9010
	 	 	Email:	 	ckelly@hklaw.com





37







 

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


SECTION 14.    ENTIRE AGREEMENT.  


        This Agreement and any other documents executed in connection herewith express the entire understanding of the parties with respect to the transactions
contemplated hereby. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally or in writing, except as provided in  §15. 


SECTION 15.    CONSENTS, AMENDMENTS, WAIVERS, ETC.  


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



SECTION 16.    SEVERABILITY.  


        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 in any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction. 


SECTION 17.    SUBMISSION TO JURISDICTION; WAIVER.  


        EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY: 



        (a)   SUBMITS
FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION
AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN MANHATTAN AND COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE DISTRICT OF MASSACHUSETTS AND THE SOUTHERN DISTRICT OF NEW YORK AND APPELLATE COURTS FROM ANY THEREOF. 


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


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


        (d)   WAIVES
ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING THE LENDER TO EXERCISE ANY REMEDIES SET FORTH HEREIN OR IN ANY OF THE OTHER LOAN
DOCUMENTS; AND 



38







 




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




SECTION 18.    WAIVER OF JURY TRIAL.  


        THE BORROWER AND THE LENDER HEREBY INTENTIONALLY AND VOLUNTARILY WAIVE ANY RIGHT WHICH EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN CONNECTION WITH ANY MATTER
DIRECTLY OR INDIRECTLY RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND
THAT RELATE TO THE SUBJECT MATTER OF THE TRANSACTIONS DESCRIBED IN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, INCLUDING, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. THE BORROWER AND THE LENDER EACH ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN
ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. THE BORROWER ACKNOWLEDGES THAT NEITHER THE LENDER NOR ANY PERSON ACTING ON BEHALF OF
THE LENDER HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWER FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR
HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 


SECTION 19.    MISCELLANEOUS.  


        THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN TITLE 14 OF ARTICLE 5 OF THE GENERAL OBLIGATIONS LAW). The rights and remedies herein
expressed are cumulative and not exclusive of any other rights which the Lender would otherwise have. Any instruments required by any of the provisions hereof to be in the form annexed hereto as an
exhibit shall be substantially in such form with such changes therefrom, if any, as
may be approved by the Lender. This Agreement or any amendment may be executed in separate counterparts, each of which when so executed and delivered shall be an original, but all of which together
shall constitute one instrument. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is
sought. 


39









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



	 	 	K-SEA OPERATING PARTNERSHIP L.P.
	

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

 	
 	

By:	

/s/  JOHN J. NICOLA      
 Name: John J. Nicola

Title: Senior Vice President
	

 	
 	
CITIZENS LEASING CORPORATION
	

 	
 	

By:	

/s/  JOHN M. YOUNG      
 Name: John M. Young

Title: Senior Vice President




40









 
 

SCHEDULE 1
  
    DESCRIPTION OF VESSELS    
    


(1)
Barge

Name: DBL 105

Official Number: 653463

Gross Tonnage: 11,438 GRT

Net Tonnage: 11,438 NRT 


(2)
Tug

Name: Volunteer

Official Number: 653464

Gross Tonnage: 272 GRT

Net Tonnage: 185 NRT 


(3)
Barge

Name: DBL 155

Official Number: 556673

Gross Tonnage: 8,666 GT ITC

Net Tonnage: 7,553 NT ITC 









 
 

SCHEDULE 2
  
    LIENS
  
    Liens relating to the Existing Revolver.    
    











QuickLinks



TABLE OF CONTENTS


LOAN AGREEMENT


SCHEDULE 1 DESCRIPTION OF VESSELS


SCHEDULE 2 LIENS Liens relating to the Existing Revolver.