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Exhibit 4.1.2  

I.A.4 

 
 

SUPPLEMENTAL INDENTURE NO. 1    
    

        THIS SUPPLEMENTAL INDENTURE NO. 1, dated as of January    , 2004 (this "Supplement"), among JPMORGAN CHASE BANK, a New York banking corporation (the
"Indenture Trustee"), EW HOLDING CORP., a New York corporation ("EW Holding"), K-SEA TRANSITION4 CORP., a Texas corporation ("Transition4"), K-SEA LP4, L.P., a Texas limited
partnership ("LP#4"), K-SEA TRANSPORTATION LLC, a Delaware limited liability company ("K-Sea LLC"), K-Sea LP1, L.P., a Texas limited partnership ("LP#1"),
K-SEA LP2, L.P., a Texas limited partnership ("LP#2"), K-SEA TRANSPORTATION PARTNERS L.P., a Delaware limited partnership ("K-Sea LP"), and K-SEA
OPERATING PARTNERSHIP L.P., a Delaware limited partnership ("K-Sea OLP"). 

 
 

RECITALS    
    

 WHEREAS:  

        A.    K-Sea
LLC, EW Holding and the Indenture Trustee are the original parties to that certain Trust Indenture, dated as of June 7, 2002 (the "Indenture"); 

        B.    As
set forth in the Recital to the Indenture, K-Sea LLC and EW Holding have previously authorized the issuance of, and have issued, ship financing bonds
designated "United States Government Guaranteed Ship Financing Obligations, K-Sea Series 2002-1, 2002-2, 2002-3 and 2002-4" (the
"Obligations") in an aggregate original principal amount of Forty Million Four Hundred Forty-One Thousand United States Dollars ($40,441,000) (generally referred to herein as the "Title XI
Financing"), guaranteed by the United States of America (the "United States"), represented by the Secretary of Transportation, acting by and through the Maritime Administrator (the "Secretary"), to
finance a portion of the cost of construction of DBL 101 (O.N. 1119760), DBL 81 (O.N. 1132231), DBL 82 (O.N. 1137538), and DBL 102 (O.N. 1146491), (collectively, the "Vessels" and each, a "Vessel"); 

        C.    With
the Secretary's consent and in connection with the initial public offering of common units representing limited partner interests in K-Sea LP on the date
hereof and all transactions and agreements contemplated or incidental thereto, including the execution of the Contribution, Conveyance and Assumption Agreement dated as of the date hereof (the
"Contribution Agreement") by and among, inter alia, K-Sea LLC, EW Holding, K-Sea Investors L.P., a Delaware limited partnership, K-Sea LP and K-Sea OLP
and the performance of the terms and transactions set forth in the Contribution Agreement (collectively, the "MLP Transaction"), the following mergers have occurred as of the date hereof: 

          (i)  EW
Holding has merged into Transition 4; Transition 4 has entered into a merger with LP#4 (with both entities surviving and all obligations, liabilities and assets
relating to the Title XI Financing having been allocated to and vested into LP#4); and LP#4 has merged into K-Sea OLP; and 

         (ii)  K-Sea
LLC has merged into LP#1; LP#1 has entered into a merger with LP#2 (with both entities surviving and all obligations, liabilities and assets relating
to the Title XI Financing having been allocated to and vested into LP#2); and LP#2 has merged into K-Sea OLP. 

        D.    By
assumption, merger and operation of law each of Transition 4 and LP#4, successively, and each of LP#1 and LP#2, successively, simultaneously herewith has succeeded to
substantially all of the interests and obligations of EW Holding and K-Sea LLC, respectively, including, without limitation the Obligations, the Indenture, the Secretary's Note, the
Security Agreement, the Mortgage and the other documents and instruments related thereto and the Vessels, respectively; 

 

        E.    By
assumption contained herein in the case of K-Sea LP, and by assumption, merger and operation of law in the case of K-Sea OLP, K-Sea
LP and K-Sea OLP simultaneously herewith have succeeded to substantially all of the interests and obligations of EW Holding, Transition 4, LP#4, K-Sea LLC, LP#1, and LP#2
including, without limitation, the Obligations, the Indenture, the Secretary's Note, the Security Agreement, the Mortgage, and all other documents and instruments related thereto and the Vessels, and
EW Holding, Transition 4, LP#4, LP#1 and LP#2 are released in accordance with the terms of Article II, Section I(a) hereof; 

        F.     In
accordance with the terms of Section 10.01 of the Indenture, the parties hereto wish to effect the execution and delivery of this Supplement and the surrender
and cancellation of the Obligations in exchange for Obligations under which K-Sea LP and K-Sea OLP, jointly and severally, are obligors. Such Obligations are designated "United
States Government Ship Financing Obligations, K-Sea Series 2002-1, 2002-2, 2002-3 and 2002-4"; 

        G.    Subject
to the terms hereof, each of Transition 4, LP#4, LP#1, LP#2, successively, and finally K-Sea LP and K-Sea OLP, jointly and severally, is
willing to assume all obligations and liabilities of K-Sea LLC and EW Holding under the original Indenture and the Obligations; 

        H.    Section 8.01
of Exhibit 1 to the Indenture permits the merger of the Shipowner (as defined therein) into another entity, and Section 10.01(2) of
Exhibit 1 to the Indenture provides that the Shipowner (as defined therein) and the Indenture Trustee may, without the consent of or notice to any of the Obligees, enter into a supplement to
the Indenture to evidence the succession of another entity to the Obligations of the Shipowner (as defined therein) under the Indenture, provided that such supplement to the Indenture does not
adversely affect the interests of the Obligees; 

        I.     Pursuant
to said Section 10.01(2), the Shipowner (as defined in the Indenture) and the Indenture Trustee desire to enter into this Supplement for the purpose of
supplementing and carrying out the terms of Section 8.01 of Exhibit 1 to the Indenture; 

        J.     The
Secretary has consented pursuant to Section 10.05 of the Indenture; and 

        K.    All
requirements of law and of the Indenture and of the governing instruments of each of K-Sea LLC, EW Holding, Transition4, LP#4, K-Sea LLC,
LP#1, LP#2, K-Sea LP and K-Sea OLP have been fully complied with, and all other acts and things necessary to make this Supplement a valid, binding and legal instrument have
been done and performed. 

        NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and of other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 

ARTICLE I.    Assumption and Consent

        SECTION 1.    Assumption of Indenture.    In accordance with the terms of Sections 8.01 and
10.02 of the Indenture, and as described above, each, of successively (x) Transition4 and LP#4, (y) LP#1 and LP#2, and then (z) K-Sea LP and K-Sea OLP,
jointly and severally, has assumed and does hereby expressly assume, and hereby does expressly agree to perform, all of the respective former, present and future obligations, duties, right, title and
interest of K-Sea LLC and EW Holding, in and to the Indenture, as amended and supplemented hereby, and the Obligations, together with all documents and instruments evidencing any such
obligations, duties, right, title and interest thereto. Pursuant to Section 8.01(a)(1) of the Indenture, each of K-Sea LP and K-Sea OLP has assumed and does expressly
assumes, and agrees to perform, all of the obligations of K-Sea LLC and EW Holding with respect to, the payment of the principal and interest (and premium, if any) of the Outstanding
Obligations, relating to the Vessels. For the further avoidance of doubt, each of K-Sea LP and K-Sea OLP represents that each of Transition4, LP#4, LP#1 and LP#2 has
successively assumed the obligations of K-Sea LLC and EW Holding, respectively, in and to the Indenture and the Obligations. 

2

 

        SECTION 2.    Secretary's Consent.    The United States, acting through the Secretary,
(i) by its consent and agreement below, consents and agrees to the assumptions described in Section 1 above, the execution and delivery of this Supplement as required under
Section 10.05 of the Indenture, and agrees to execute and deliver a release of each of K-Sea LLC, EW Holding, Transition4, LP#4, LP#1 and LP#2 from the Indenture immediately after
consummation of all the mergers described herein, such release to be substantially in the form attached hereto as Exhibit 1 and shall be effective as set forth in Article II,
Section 1(a), and (ii) agrees that from and after the date hereof the Indenture shall be supplemented in all respects by this Supplement. 

ARTICLE II.    Cancellation and Reissuance of Obligations

        SECTION 1.    Discharge, Release, Surrender and Cancellation of Obligations.    

        (a)   In
accordance with the terms of Section 8.01(b) of the Indenture but effective only upon the execution and delivery by the Secretary of a release substantially in
the form of Exhibit 1, the Indenture Trustee and the Secretary hereto expressly discharge and release EW Holding, Transition4, LP#4, K-Sea LLC, LP#1 and LP#2 from any and all
obligations relating to the Indenture and the Obligations. Upon delivery of the release by the Secretary substantially in the form of Exhibit 1, the release contained therein of each of EW
Holding, Transition 4, LP#4, K-Sea LLC, LP#1 and LP#2 shall be effective as of the effective time of the relevant merger. 

        (b)   Concurrently
with the issuance and delivery of the Obligations pursuant to Section 2 below, the Indenture Trustee shall cancel the Obligations issued by
K-Sea LLC and EW Holding and currently held by the Indenture Trustee for the benefit of the Obligees. The parties hereto agree that the Obligations executed by K-Sea LLC and EW
Holding as exchanged into the Obligations executed by K-Sea LP and K-Sea OLP constitute the same indebtedness and that at no time is, or will, a principal amount of Obligations
in excess of $40,441,000 be outstanding. 

        SECTION 2.    Issuance of Obligations.    

        (a)   In
accordance with Section 8.01 of the Indenture, concurrently with the execution and delivery of this Supplement each of K-Sea LP and
K-Sea OLP, jointly and severally, shall, in exchange for the existing Obligations executed by K-Sea LLC and EW Holding, execute and issue Obligations of the same Series, in the
same principal amounts and payable to the same Person(s) as the surrendered Obligations. In accordance with Article I of the Authorization Agreement, the Indenture Trustee shall
(1) cause the Guarantees of the Secretary, the facsimile signature of the Maritime Administrator or the Acting Maritime Administrator, and the facsimile seal of the U.S. Department of
Transportation to be imprinted upon each of the Obligations issued in exchange for the Obligations in accordance with the terms hereof and Article II and Article III of the Indenture,
and (2) authenticate and deliver such Obligations in the names of K-Sea LP and K-Sea OLP, jointly and severally, in exchange for the Obligations surrendered and
cancelled. 

ARTICLE III.    Amendments

        The
Indenture is hereby amended as follows: 

        SECTION 1.    Rules of Interpretation and Definitions.    

        (a)   For
all purposes of this Supplement and the Indenture as supplemented hereby, unless otherwise expressly provided or unless the context otherwise requires, the terms
used herein and defined in Schedule A to this Supplement or by reference therein to other instruments shall have the respective meanings stated in said Schedule A or such other
instruments. 

        (b)   All
references to the Indenture contained in any documents delivered under or pursuant to the Indenture, including without limitation Schedule A to the Indenture,
shall be construed as 

3

 

references
to the Indenture as supplemented and amended by the terms of this Supplement, as it may be further amended, modified or supplemented from time to time. 

        (c)   All
references in the General Provisions to the Indenture to "Shipowner", "Shipowner's", "EW Holding" or "K-Sea" shall be deemed to mean K-Sea LP
and K-Sea OLP, jointly and severally, as joint and several successors in interest by assumption, merger and operation of law to EW Holding, Transition4, LP#4, K-Sea LLC, LP#1,
and LP#2, provided, however, where the context refers to the Shipowner solely in its capacity as
shipowner of any Vessel, such reference shall be deemed to mean and refer to K-Sea OLP alone. 

        SECTION 2.    Representations and Warranties.    K-Sea LP and K-Sea
OLP make the representations and warranties made by K-Sea LLC and EW Holding set forth in the Indenture. 

        SECTION 3.    Additions, Deletions and Amendments to the General Provisions of the
Indenture.    

        The
following additions, deletions and amendments are hereby made to Exhibit 1 to the Indenture: 

        (a)    Concerning Notices.    Subject to the provisions of Section 13.01 of Exhibit 1 to the Indenture,
any notice, request, demand, direction, consent, waiver, approval or other communication to be given to a party hereto or the Secretary shall be deemed to have been sufficiently given or made when
addressed to: 

        The
Indenture Trustee as: 

JPMorgan
Chase Bank

4 New York Plaza, 15th Floor

New York, New York 10004

Attention: Institutional Trust Services 

        Each
of EW Holding, Transition4, LP#4, K-Sea LLC, LP#1 and LP#2 as: 

c/o
K-Sea Transportation Partners L.P.

Attn.: Chief Financial Officer

3245 Richmond Terrace

Staten Island, NY 10303 

        Each
of K-Sea LP and K-Sea OLP as: 

c/o
K-Sea Transportation Partners L.P.

Attn.: Chief Financial Officer

3245 Richmond Terrace

Staten Island, NY 10303 

        The
Secretary as: 

SECRETARY
OF TRANSPORTATION

c/o Maritime Administrator

Department of Transportation

400 Seventh Street, SW

Washington, D.C. 20590 

        (b)    Concerning Schedule A.    Schedule A to the Indenture is hereby amended by deleting it in its
entirety and substituting the attached Schedule A therefor. 

ARTICLE IV.    Miscellaneous

        SECTION 1.    Rules of Interpretation and Definitions.    For all purposes of this Supplement,
unless otherwise expressly provided or unless the context otherwise requires, all references herein to Articles, 

4

 

Sections
or other subdivisions, unless otherwise specified, refer to the corresponding Articles, Sections and other subdivisions of the Indenture. Unless otherwise expressly provided herein, all
capitalized terms used herein shall have the meaning specified thereto in the attached Schedule A. 

        SECTION 2.    Concerning Parties.    K-Sea LP and K-Sea OLP are hereby
made parties to the Indenture for all purposes of the obligations, duties, right, title and interest set forth therein with the same effect as if K-Sea LP and K-Sea OLP had
been named therein. 

        SECTION 3.    Continuation in Effect.    Except as added, deleted or amended by this
Supplement, all of the provisions of the Indenture shall otherwise remain in full force and effect. 

        SECTION 4.    GOVERNING LAW.    THIS SUPPLEMENT AND EACH OBLIGATION SHALL BE CONSTRUED,
ENFORCED, AND GOVERNED BY THE LAWS OF THE UNITED STATES OF AMERICA, BUT TO THE EXTENT THEY ARE INAPPLICABLE, THEN BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS CONFLICT OF LAWS PROVISIONS
(OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). 

        SECTION 5.    Execution of Counterparts.    This Supplement may be executed in any number of
counterparts. All such counterparts shall be deemed to be originals, and shall constitute but one and the same instrument. 

        SECTION 6.    Trustee Not Responsible.    The Indenture Trustee shall not be responsible in
any manner whatsoever for or in respect of the validity or sufficiency of this Supplement or for or in respect of the recitals contained herein, all of which are made solely by K-Sea LP
and K-Sea OLP. 

[signatures on next page]

5

  

        IN WITNESS WHEREOF, this Supplemental Indenture No. 1 has been executed by the parties hereto as of the day and year first above
written. 

	[Seal]	 	EW HOLDING CORP.,
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	BY:	 	 	 	 
	
	 	 	 	

	Attest:	 	 	 	Name:	 	John J. Nicola
	 	 	 	 	Title:	 	Chief Financial Officer
	 	 	 	 	 	 	 
	[Seal]	 	K-SEA TRANSITION4 CORP.,
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	BY:	 	 	 	 
	
	 	 	 	

	Attest:	 	 	 	Name:	 	John J. Nicola
	 	 	 	 	Title:	 	Vice President
	 	 	 	 	 	 	 
	[Seal]	 	K-SEA LP4, L.P.,

by its general partner, K-Sea GP4, LLC,
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	BY:	 	 	 	 
	
	 	 	 	

	Attest:	 	 	 	Name:	 	John J. Nicola
	 	 	 	 	Title:	 	Manager
	 	 	 	 	 	 	 
	[Seal]	 	K-SEA TRANSPORTATION LLC
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	BY:	 	 	 	 
	
	 	 	 	

	Attest:	 	 	 	Name:	 	John J. Nicola
	 	 	 	 	Title:	 	Chief Financial Officer
	 	 	 	 	 	 	 
	[Seal]	 	K-SEA LP1, L.P.,

by its general partner, K-Sea GP1, LLC,
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	BY:	 	 	 	 
	
	 	 	 	

	Attest:	 	 	 	Name:	 	John J. Nicola
	 	 	 	 	Title:	 	Manager
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 

6

 

	[Seal]	 	K-SEA LP2, L.P.,

by its general partner, K-Sea GP2, LLC,
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	BY:	 	 	 	 
	
	 	 	 	

	Attest:	 	 	 	Name:	 	John J. Nicola
	 	 	 	 	Title:	 	Manager
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	[Seal]	 	K-SEA TRANSPORTATION PARTNERS

L.P., by its general partner K-Sea General

Partner L.P., by its general partner K-Sea

General Partner GP LLC
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	BY:	 	 	 	 
	
	 	 	 	

	Attest:	 	 	 	Name:	 	John J. Nicola
	 	 	 	 	Title:	 	Chief Financial Officer
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	[Seal]	 	K-SEA OPERATING PARTNERSHIP L.P.,

by its general partner K-Sea OLP GP, LLC
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	BY:	 	 	 	 
	
	 	 	 	

	Attest:	 	 	 	Name:	 	John J. Nicola
	 	 	 	 	Title:	 	Chief Financial Officer
	 	 	 	 	 	 	 
	[Seal]	 	JPMORGAN CHASE BANK,

as Indenture Trustee
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	BY:	 	 	 	 
	
	 	 	 	

	Attest:	 	 	 	Name:	 	 
	 	 	 	 	Title:	 	 

	CONSENTED AND AGREED TO BY:	 	 
	 	 	 	 	 	 	 
	UNITED STATES OF AMERICA,

Secretary of Transportation

Maritime Administrator	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	By:	 	 	 	 	 	 
	 	 	
	 	 
	 	 	Title:	 	Secretary	 	 
	 	 	 	 	Maritime Administration	 	
 Attest:

7

 

	STATE OF NEW YORK	 	)	 	 
	 	 	)	 	ss:
	COUNTY OF NEW YORK	 	)	 	 

        On
this            day of January, 2004 before me, Sophia Bryan, a Notary Public in and for the State and County of New York, personally appeared John J. Nicola duly known to me to
be 

          (i)  Chief
Financial Officer of EW Holding Corp., 

         (ii)  Vice-President
of K-Sea Transition4 Corp., 

        (iii)  a
Manager of K-Sea LP4, L.P., 

        (iv)  Chief
Financial Officer of K-Sea Transportation LLC, 

         (v)  a
Manager of K-Sea GP1, LLC which is general partner of K-Sea LP1, L.P., 

        (vi)  a
Manager of K-Sea GP2, LLC which is general partner of K-Sea LP2, L.P., 

       (vii)  Chief
Financial Officer of K-Sea General Partner GP LLC which is general partner of K-Sea General Partner L.P., which is, in turn, general
partner of K-Sea Transportation Partners L.P., and 

      (viii)  Chief
Financial Officer of K-Sea OLP GP, LLC which is general partner of K-Sea Operating Partnership L.P. 

each
an entity described in and that executed the instrument hereto annexed, and acknowledged the same to be his/her act as said officer or manager. 

	 	 	 
	 	 	 
	 	 	
 NOTARY PUBLIC

My Commission Expires:
	 	 	 
	(NOTARIAL SEAL)	 	 

8

 

	STATE OF NEW YORK	 	)	 	 
	 	 	)	 	ss:
	COUNTY OF NEW YORK	 	)	 	 

        On
this            day of January, 2004 before me,
                        , a Notary Public in and for the State and County of New York, personally
appeared                        duly known to me
to be                        of JPMorgan Chase Bank, a banking corporation, the entity described in and that executed the
instrument hereto annexed, and acknowledged the same to be his/her act as said
officer. 

	 	 	 
	 	 	 
	 	 	
 NOTARY PUBLIC

My Commission Expires:
	 	 	 
	(NOTARIAL SEAL)	 	 

9

 
EXHIBIT 1  

 
 

Secretary's Release    
    

        The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator (the "Secretary") hereby discharges
and releases each of, and makes effective (as of the effective time of the relevant merger) the release contained in Article II, Section 2 of Supplemental Indenture No. 1 dated as
of the date hereof, from all of its respective obligations, duties, right, title and interest in the Indenture, the Obligations, and all other documents and agreements relating to the Obligations, the
following entities: 

EW
Holding Corp.

K-Sea Transition4 Corp.

K-Sea LP4, L.P.

K-Sea Transportation LLC

K-Sea LP1, L.P.

K-Sea LP2, L.P. 

	 	 	 	 	 
	 	 	 	 	 
	 	 	United States of America,

Secretary of Transportation,

Maritime Administrator
	 	 	 	 	 
	 	 	 	 	 
	 	 	By:	 	 
	 	 	 	 	

	 	 	Title:	 	Secretary

Maritime Administration
	 	 	 	 	 
	Dated as of January     , 2004	 	 	 	 

10

 
SCHEDULE A 

11

QuickLinks

SUPPLEMENTAL INDENTURE NO. 1

RECITALS

Secretary's ReleaseExhibit 10.1

 

 

PARTICIPATION AND LOAN AND

SECURITY AGREEMENT

 

dated as of December    ,
2003

 

by and between

 

K-SEA OPERATING PARTNERSHIP L.P.,

as borrower,

 

and

 

KEYBANK N.A.,

for itself as Lender, and as administrative
agent for Lenders

 

and

 

THE CIT GROUP/EQUIPMENT FINANCING, INC.,

for itself as Lender,  and as collateral agent for Lenders

 

 

	
  ARTICLE I                                                 DEFINITIONS

  	
   

  
	
  Section 1.01

  	
  Defined Terms

  	
   

  
	
  Section 1.02

  	
  Terms Generally

  	
   

  
	
  Section 1.03

  	
  Accounting Terms; GAAP

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II                                             THE LOANS

  	
   

  
	
  Section 2.01

  	
  Commitments

  	
   

  
	
  Section 2.02

  	
  Loans

  	
   

  
	
  Section 2.03

  	
  Payments

  	
   

  
	
  Section 2.04

  	
  Requests for Loans

  	
   

  
	
  Section 2.05

  	
  Settlement and Funding of Loans

  	
   

  
	
  Section 2.06

  	
  Non-Receipt of Funds

  	
   

  
	
  Section 2.07

  	
  Termination and Reduction of Commitments

  	
   

  
	
  Section 2.08

  	
  Repayment of Loans; Evidence of Debt

  	
   

  
	
  Section 2.09

  	
  Prepayment of Loans

  	
   

  
	
  Section 2.10

  	
  Fees

  	
   

  
	
  Section 2.11

  	
  Increased Costs

  	
   

  
	
  Section 2.12

  	
  Break Funding Payments

  	
   

  
	
  Section 2.13

  	
  Taxes

  	
   

  
	
  Section 2.14

  	
  Payments Generally; Pro Rata Treatment; Sharing
  of Set-offs

  	
   

  
	
  Section 2.15

  	
  Letters of Credit

  	
   

  
	
  Section 2.16

  	
  Mitigation Obligations; Replacement of
  Lenders

  	
   

  
	
  Section 2.17

  	
  Term-Loans

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III
                                          GRANT OF SECURITY INTEREST

  	
   

  
	
  Section 3.03

  	
  Orderly Liquidation Value

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV
                                          REPRESENTATIONS AND WARRANTIES

  	
   

  
	
  Section 4.01

  	
  Organization

  	
   

  
	
  Section 4.02

  	
  Power and Authority

  	
   

  
	
  Section 4.03

  	
  Governmental Approvals; No Conflicts

  	
   

  
	
  Section 4.04

  	
  Financial Condition; No Material Adverse
  Change

  	
   

  
	
  Section 4.05

  	
  Litigation

  	
   

  
	
  Section 4.06

  	
  Environmental Condition

  	
   

  
	
  Section 4.07

  	
  Compliance with Laws and Agreements

  	
   

  
	
  Section 4.08

  	
  Investment and Holding Company Status

  	
   

  
	
  Section 4.09

  	
  Taxes

  	
   

  
	
  Section 4.10

  	
  ERISA

  	
   

  
	
  Section 4.11

  	
  Disclosure

  	
   

  
	
  Section 4.12

  	
  No Other Name

  	
   

  
	
  Section 4.13

  	
  Title

  	
   

  
	
  Section 4.14

  	
  Lenders’ Security Interest

  	
   

  
	
  Section 4.15

  	
  Citizenship

  	
   

  

 

i

 

	
  ARTICLE V
                                              CONDITIONS

  	
   

  
	
  Section 5.01

  	
  Effective Date

  	
   

  
	
  Section 5.02

  	
  Subsequent Loans

  	
   

  
	
  Section 5.03

  	
  Facility B and Facility C Loans

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI
                                          AFFIRMATIVE COVENANTS

  	
   

  
	
  Section 6.01

  	
  Financial Statements and Other Information

  	
   

  
	
  Section 6.02

  	
  Vessel Appraisals

  	
   

  
	
  Section 6.03

  	
  Fees and Expenses

  	
   

  
	
  Section 6.04

  	
  Notices of Material Events

  	
   

  
	
  Section 6.05

  	
  Existence; Conduct of Business

  	
   

  
	
  Section 6.06

  	
  Insurance

  	
   

  
	
  Section 6.07

  	
  Taxes; Use

  	
   

  
	
  Section 6.08

  	
  Maintenance of Properties; Use and
  Operation of Vessels

  	
   

  
	
  Section 6.09

  	
  Books and Records; Inspection Rights

  	
   

  
	
  Section 6.10

  	
  Use of Proceeds

  	
   

  
	
  Section 6.11

  	
  U.S. Person

  	
   

  
	
  Section 6.12

  	
  Documentation

  	
   

  
	
  Section 6.13

  	
  Further Assurances

  	
   

  
	
  Section 6.14

  	
  Borrower’s Title; Lenders’ Security
  Interest; Personal Property

  	
   

  
	
  Section 6.15

  	
  Indemnification

  	
   

  
	
  Section 6.16

  	
  Performance of Contracts

  	
   

  
	
  Section 6.17

  	
  Environmental Compliance

  	
   

  
	
  Section 6.18

  	
  Subsidiary Guaranties

  	
   

  
	
  Section 6.19

  	
  Cleanup Requirement

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII
                                      NEGATIVE COVENANTS

  	
   

  
	
  Section 7.01

  	
  Fixed Charge Coverage

  	
   

  
	
  Section 7.02

  	
  Total Funded Debt to EBITDA

  	
   

  
	
  Section 7.03

  	
  Leverage Ratio

  	
   

  
	
  Section 7.04

  	
  Adjustments to Measurements

  	
   

  
	
  Section 7.05

  	
  Minimum Tangible Net Worth

  	
   

  
	
  Section 7.06

  	
  No Liens

  	
   

  
	
  Section 7.07

  	
  No Changes in Borrower

  	
   

  
	
  Section 7.08

  	
  50

  	
   

  
	
  Section 7.09

  	
  Fundamental Changes

  	
   

  
	
  Section 7.10

  	
  Transactions with Affiliates

  	
   

  
	
  Section 7.11

  	
  Restrictive Agreements

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII
                                  EVENTS OF DEFAULT AND REMEDIES

  	
   

  
	
  Section 8.01

  	
  Events of Default

  	
   

  
	
  Section 8.02

  	
  Remedies

  	
   

  
	
  Section 8.03

  	
  Lenders’ Cure of Third Party Agreement
  Default

  	
   

  

 

ii

 

	
  ARTICLE IX
                                         THE AGENTS

  	
   

  
	
  Section 9.01

  	
  Appointment, Powers and Immunities

  	
   

  
	
  Section 9.02

  	
  Reliance by Agents

  	
   

  
	
  Section 9.03

  	
  Events of Defaults

  	
   

  
	
  Section 9.04

  	
  Rights as a Lender

  	
   

  
	
  Section 9.05

  	
  Indemnification

  	
   

  
	
  Section 9.06

  	
  Non-Reliance on Agents and Other Lenders

  	
   

  
	
  Section 9.07

  	
  Failure to Act

  	
   

  
	
  Section 9.08

  	
  Resignation or Removal of an Agent

  	
   

  
	
  Section 9.09

  	
  Consents under Loan Documents

  	
   

  
	
  Section 9.10

  	
  Action Upon Instructions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE X
                                             MISCELLANEOUS

  	
   

  
	
  Section 10.01

  	
  Notices

  	
   

  
	
  Section 10.02

  	
  Term and Termination

  	
   

  
	
  Section 10.03

  	
  [Reserved.]

  	
   

  
	
  Section 10.04

  	
  Termination Indemnity Deposit

  	
   

  
	
  Section 10.05

  	
  K-Sea as Agent for Borrower

  	
   

  
	
  Section 10.06

  	
  Discharge of Borrower

  	
   

  
	
  Section 10.07

  	
  Joint and Several

  	
   

  
	
  Section 10.08

  	
  Waivers; Amendments

  	
   

  
	
  Section 10.09

  	
  Expenses; Indemnity; Damage Waiver

  	
   

  
	
  Section 10.10

  	
  Successors and Assigns

  	
   

  
	
  Section 10.11

  	
  Survival

  	
   

  
	
  Section 10.12

  	
  Counterparts; Integration; Effectiveness

  	
   

  
	
  Section 10.13

  	
  Severability

  	
   

  
	
  Section 10.14

  	
  Right of Set-off

  	
   

  
	
  Section 10.15

  	
  Governing Law; Jurisdiction; Consent to
  Service of Process

  	
   

  
	
  Section 10.16

  	
  WAIVER OF JURY TRIAL

  	
   

  
	
  Section 10.17

  	
  Headings

  	
   

  
	
  Section 10.18

  	
  Confidentiality

  	
   

  
	
  Section 10.19

  	
  Interest Rate Limitation

  	
   

  
	
  Section 10.20

  	
  Further Assurances

  	
   

  
	
   

  	
   

  	
   

  
	 
	
  SCHEDULES:

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
  Schedule I

  	
  —

  	
  Pool Vessels

  
	 
	
  Schedule 2.01

  	
  —

  	
  Commitments

  
	 
	
  Schedule 3.02

  	
  —

  	
  Tug-Barge
  Units

  
	 
	
  Schedule 4.06

  	
  —

  	
  Environmental Compliance

  
	 
	
  Schedule 4.14

  	
  —

  	
  Charters

  
	 
	
   

  	
   

  	
   

  
	 
	
  EXHIBITS:

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
  Exhibit A

  	
  —

  	
  Form of Revolving
  Loan Note

  
						

 

iii

 

	
  Exhibit B

  	
  —

  	
  Form of Facility
  D Note

  
	
  Exhibit C

  	
  —

  	
  Form of Term Loan
  Note

  
	
  Exhibit D

  	
  —

  	
  Form of
  Assignment and Acceptance

  
	
  Exhibit E

  	
  —

  	
  Form of Opinion
  of Borrower’s Counsel

  
	
  Exhibit F-1

  	
  —

  	
  Form of Letter of Credit

  
	
  Exhibit F-2

  	
  —

  	
  Form of Documentary Letter of Credit

  
	
  Exhibit G

  	
  —

  	
  Form of Loan
  Request (Revolving Loan)

  
	
  Exhibit H

  	
  —

  	
  Form of Request
  (Letter of Credit)

  
	
  Exhibit I

  	
  —

  	
  Form of
  Subsidiary Guaranty

  
	
  Exhibit J

  	
  —

  	
  Special
  Provisions Applicable to Letters of Credit

  

 

iv

 

THIS
PARTICIPATION AND LOAN AND SECURITY AGREEMENT (this “Agreement”), dated as of
December   , 2003, among K-SEA
OPERATING PARTNERSHIP  L.P.,
a Delaware limited partnership (“Borrower”);
KEYBANK N.A., a national banking
association (“KeyBank”), for
itself as Lender, and as administrative agent for Lenders (in such capacity, “Administrative Agent”); and THE CIT GROUP/EQUIPMENT FINANCING, INC., a
Delaware corporation (“CIT”), for
itself as Lender, and as collateral agent for Lenders (in such capacity, “Collateral Agent”).

 

RECITALS

 

WHEREAS,
Borrower desires to obtain loan facilities in the aggregate amount of
Forty-Seven Million Dollars ($47,000,000.00) in order to provide working
capital for its operations and cash to enable Borrower to acquire vessels from
time to time and for other permitted corporate purposes of Borrower; and

 

WHEREAS,
Lenders have agreed to provide Borrower with three (3) loan facilities:  (a) a working capital facility in the
amount of Ten Million Dollars ($10,000,000.00)(with a Four Million Dollar
($4,000,000.00) sublimit for documentary letters of credit), (b) a
revolving vessel acquisition facility in the maximum amount of Thirty Million
Dollars ($30,000,000.00), and (c) a swing line facility, and KeyBank has
also itself agreed to provide a fourth facility, a standby letter of credit
facility with a limit of Seven Million Dollars ($7,000,000.00), all four of
which facilities (each, a “Facility”
and together, the “Facilities”)
shall be equally secured by all the Collateral (as hereinafter defined) and
otherwise subject to the terms and conditions of this Agreement.

 

The parties hereto
agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.01  Defined Terms.  As used in this Agreement, the following
terms have the meanings specified below:

 

“Acquired Vessel” means a vessel
acquired, retrofitted, rebuilt or upgraded with a Facility B Loan, or initially
with a Facility C Loan and converted into a Facility B Loan as provided
herein.  All Acquired Vessels must be
owned at all times by Borrower or a Guarantor.

 

“Administrative Agent” means KeyBank
N.A., in its capacity as administrative agent for Lenders hereunder.

 

“Affiliate” means, with respect to a
specified Person, another Person that directly, or indirectly through one or
more intermediaries, Controls or is Controlled by or is under common Control
with the Person specified, provided, however, that with respect
to Borrower and K-Sea, this term shall not be deemed to describe any Person who
is not either Borrower, K-Sea or a direct or indirect subsidiary of K-Sea.

 

 

“Anniversary Date” means the date
occurring one (1) year from the Effective Date and the same date in every year
thereafter.

 

“Annual
Maintenance Fee” shall be $15,000.00 per annum.

 

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

 

“Applicable Percentage” means, with
respect to any Lender, the percentage of the total Commitments represented by
such Lender’s Commitment.  If the
Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the total Revolving Loans represented by such Lender’s
Revolving Loans.  Facility D is provided
solely by KeyBank and shall be excluded from the calculation of Applicable
Percentage.

 

“Appraisal” means any appraisal, either
physical or desktop or both, as determined by an appraiser, of the Pool Vessels
or any Acquired Vessel, conducted from time to time by or at the request of
Lenders pursuant to the terms of this Agreement and shall also include the
appraisal of the Pool Vessels performed by Lenders prior to the date hereof, or
at Lenders’ direction, by an appraiser appointed by Lenders and paid for by
Borrower.

 

“Appraiser” means any one of L&R
Midland, Marcon International, Inc., Merrill Marine Services, Inc., or any
other Person agreed to by Borrower and Collateral Agent.

 

“Assignment and Acceptance” means an
assignment and acceptance entered into by any Lender and an assignee (with the
consent of any party whose consent is required by Section 10.10 hereof),
and accepted by Administrative Agent, in the form of Exhibit D or any other form approved by Administrative
Agent.

 

“Assignments” means, collectively, the
Earnings Assignment and the Assignment of Insurances.

 

“Assignment
of Insurances” means the first priority assignment of
insurances respecting the Pool Vessels granted by Borrower in favor of
Collateral Agent in form and substance satisfactory to Collateral Agent.

 

“Availability Period” means the period
from and including the Effective Date to, but excluding, the earlier of the
Termination Date and the date of termination of the Commitments.

 

“Base Rate” means, for any day, a rate
per annum equal to the greater of (a) the KeyBank Prime Rate, or
(b) one-half of one percent in excess of the Federal Funds Effective
Rate.  Any change in the Base Rate due
to a change in the Prime Rate or the Federal Funds Effective Rate shall be
effective from and including the effective date of such change in the KeyBank
N.A. Prime Rate or the Federal Funds Effective Rate, respectively.

 

“Board” means the Board of Governors of
the Federal Reserve System of the United States of America.

 

2

 

“Borrower” means K-Sea Operating
Partnership L.P., a Delaware limited partnership.

 

“Borrowing Base” means 66 2/3% of the
Orderly Liquidation Value of the Pool Vessels.

 

“Business Day” means any day that is not
a Saturday, Sunday or other day on which commercial banks in New York City are
authorized or required by law to remain closed; provided, that when used
in connection with a Loan that bears interest at a rate per annum equal to the
LIBOR Rate (including any notice in respect thereof), the term “Business Day” shall also exclude any day on
which banks are not open for dealings in dollar deposits in the London
InterBank Market (“LIBOR Business Day”).

 

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

 

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

 

“Change in Control” means (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by
any Person or group (within the meaning of the Securities Exchange Act of 1934
and the rules of the Securities and Exchange Commission thereunder as in effect
on the date hereof), of ownership interests representing more than 50% of the
general partnership interest in K-Sea or more than 50% of the aggregate
ordinary voting power represented by the issued and outstanding ownership
interests of Borrower or any Subsidiary Guarantor, or (b) for the period
of twelve (12) consecutive calendar months, a majority of the board of Borrower
or any Guarantor shall no longer be composed of individuals (i) who were
members of said board on the first day of such period, (ii) whose election
or nomination to said board was approved by individuals referred to in clause
(i) above constituting at the time of such election or nomination at least a
majority of said board, or (iii) whose election or nomination to said
board was approved by individuals referred to in clauses (i) and (ii) above
constituting at the time of such election or nomination at least a majority of
said board.  The addition of independent
directors (and the subsequent replacement of such independent directors) to the
board of K-Sea upon and following its public offering shall not constitute a
“Change in Control” for this purpose.

 

“Change in Law” means (a) the
adoption of any law, rule or regulation after the date of this Agreement,
(b) any change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this
Agreement, including, without limitation, any change in any statutory,
regulatory or institutional reserve requirement, including, but not limited to,
the Statutory Reserve Rate, or (c) compliance by any Lender (or, for
purposes of Section 2.11(b) hereof, by any lending office of such Lender
or by such Lender’s holding company, if any) with any request, guideline or
directive (whether or not having the force of law) of any Governmental
Authority made or issued after the date of this Agreement.

 

3

 

“Classification Society” means the
American Bureau of Shipping or such other classification society acceptable to
Lenders.

 

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

 

“Collateral” means the collateral
described in this Agreement, including, but not limited to, Article III
hereof, the Assignments and the Mortgage, including, without limitation, the
Vessels, and the Proceeds thereof, all insurance with respect to the Vessels,
any and all charters of the Vessels by Borrower and all Hire and other amounts
payable from time to time thereunder and the Proceeds thereof, all future
charters of the Vessels by Borrower, including all Hire payments and Proceeds
of the foregoing and all amounts payable hereunder as more specifically
described herein and in the Assignments and the Mortgage.

 

“Collateral Agent” means The CIT
Group/Equipment Financing, Inc., in its capacity as collateral agent for
Lenders hereunder.

 

“Commitment” means, with respect to each
Lender, the commitment of such Lender to make Loans hereunder, expressed as an
amount representing fifty percent (50%) of the maximum aggregate amount of such
Lender’s Revolving Credit Exposure hereunder, as such commitment may be (a) reduced
from time to time pursuant to Section 2.09 hereof, and (b) reduced or
increased from time to time pursuant to assignments by or to such Lender
pursuant to Section 10.10 hereof. 
The initial amount of each Lender’s Commitment is set forth (x) on Schedule 2.01
or (y) in the Assignment and Acceptance pursuant to which such Lender
shall have assumed its Commitment, as applicable.  In addition and with respect only to KeyBank, Commitment means
one hundred percent (100%) of the credit exposure under Facility D.

 

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

 

“Credit Party” means each of Borrower,
each Guarantor and each of their respective Subsidiaries.

 

“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” means any event or condition
which constitutes an Event of Default or which upon notice, lapse of time or
both would, unless cured or waived, become an Event of Default.

 

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

 

“Documentary Letter of Credit”, as
defined in Section 2.02(b) hereof.

 

4

 

“Dollars” or “$” refers to lawful money of the United
States of America.

 

“Earnings Assignment” means the general
assignment for security interest purposes of all charters, charter hire,
freights and earnings with respect to the Pool Vessels and any Acquired Vessel
granted by Borrower in favor of Lenders, in form and substance satisfactory to
Lenders and their counsel.

 

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

 

(1)                                  the
net income (or net loss) of Borrower (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:

 

(2)                                  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 of Borrower for such fiscal period;

 

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

 

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

 

“Effective Date” means the date on which
the conditions specified in Section 5.01 hereof are satisfied (or waived
in accordance with Section 10.08 hereof).

 

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

 

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

 

5

 

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

 

“Environmental Liability” means any
liability, contingent or otherwise (including any liability for damages, costs
of environmental remediation, fines, penalties or indemnities), of Borrower or
any Subsidiary directly or indirectly resulting from or based upon
(a) violation of any Environmental Law, (b) the generation, use,
handling, transportation, storage, treatment or disposal of any Hazardous Materials,
(c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or
(e) any contract, agreement or other consensual arrangement pursuant to
which liability is assumed or imposed with respect to any of the foregoing.

 

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

 

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

 

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

 

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

 

6

 

any notice, or the receipt by any Multiemployer Plan from Borrower or
any ERISA Affiliate of any notice, concerning the imposition of Withdrawal
Liability or a determination that a Multiemployer Plan is, or is expected to
be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

 

“Event of Default” has the meaning
assigned to such term in Article VIII hereof.

 

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

 

“Excluded Taxes” means, with respect to
Administrative Agent, Collateral Agent, any Lender or any other recipient of
any payment to be made by or on account of any obligation of Borrower
hereunder, (a) income or franchise taxes imposed on (or measured by) its
net income by the United States of America, or by the jurisdiction under the
laws of which such recipient is organized or in which its principal office is
located or, in the case of any Lender, in which its applicable lending office
is located, (b) any branch profits taxes imposed by the United States of
America or any similar tax imposed by any other jurisdiction in which Administrative
Agent, such Lender or such other recipient is located, and (c) in the case
of a Foreign Lender (other than an assignee pursuant to a request by Borrower
under Section 2.16(b) hereof), any withholding tax that is imposed on
amounts payable to such Foreign Lender at the time such Foreign Lender becomes
a party to this Agreement or is attributable to such Foreign Lender’s failure
or inability to comply with Section 2.13(d) hereof, except to the extent
that such Foreign Lender’s assignor (if any) was entitled, at the time of
assignment, to receive additional amounts from Borrower with respect to such
withholding tax pursuant to Section 2.13(a) hereof.

 

“Facility A” means the working capital
facility in the aggregate amount outstanding at any time not to exceed Ten
Million Dollars ($10,000,000.00) with a sublimit for Documentary Letters of
Credit in the amount of Four Million Dollars ($4,000,000.00) as described in
Section 2.02(b) hereof.

 

“Facility B” means the revolving vessel
acquisition facility in the maximum amount of Thirty Million Dollars
($30,000,000.00) as described in Section 2.02(c) hereof.

 

“Facility C” means the swing line
facility as described in Section 2.02(d) hereof.

 

“Facility D” means the Standby Letters
of Credit facility made available by KeyBank in the maximum amount at any time
of Seven Million Dollars ($7,000,000.00) as described in Section 2.02(e)
hereof.

 

“Facility A Loan” has the meaning
assigned to such term in Section 2.02(b) hereof and includes, without
limitation, all amounts debited to reimburse the L/C Issuer for drawdowns
against a Documentary Letter of Credit and related expenses provided at the
request of Borrower pursuant to Section 2.02(b) hereof.

 

“Facility B Loan” has the meaning
assigned to such term in Section 2.02(c) hereof.

 

7

 

“Facility C Availability” means
KeyBank’s Commitments under Facility A and Facility B less KeyBank’s Applicable
Percentage of the outstanding amounts of Facility A Loans, Facility B Loans and
Facility C Loans.

 

“Facility C Loan” has the meaning
assigned to such term in Section 2.02(d) hereof.

 

“Facility D Note” means the secured
promissory note of Borrower, substantially in the form of Exhibit B attached hereto, evidencing
each Loan made by the L/C Issuer to Borrower under Facility D, as described in
Section 2.02(e) hereof.

 

“Federal Funds Effective Rate” means,
for any day, the weighted average (rounded upwards, if necessary, to the next
1/100 of 1%) of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as published
on the next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
such day for such transactions received by Administrative Agent from three
Federal funds brokers of recognized standing selected by it.

 

“Financial Officer” means the chief financial
officer, principal accounting officer, treasurer or controller of Borrower.

 

“Financial Statements” means the balance
sheet and statement of income and cash flows of K-Sea and its consolidated
Affiliates (including, without limitation, Borrower and all Guarantors), on a
consolidated basis, as required from time to time to be provided by Borrower
under this Agreement.

 

“Fixed Charge Coverage Ratio” means, for
any period, the ratio of EBITDA less Maintenance CAPEX divided by Fixed Charges
for such period.

 

“Fixed Charges” means the sum, for any
period for K-Sea and its consolidated Affiliates, including, without
limitation, Borrower and any Guarantor, on a consolidated basis, of the
following:  (i) Interest Expense,
plus (ii) the current portion of minimum rents under operating leases,
plus (iii) Current Maturities.  For
the quarters ended March 31, 2003, June 30, 2003, September 30,
2003, and for the period from October 1, 2003, through the Closing Date of
this Agreement, Interest Expense shall exclude all interest incurred prior to
such Closing Date related to debt obligations repaid from IPO proceeds and not
refunded with any Facility provided by Lenders pursuant to this Agreement.

 

“Foreign Lender” means any Lender that
is organized under the laws of a jurisdiction other than the United States of
America, any State thereof or the District of Columbia.

 

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

 

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

 

8

 

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

 

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

 

“Guarantors” means, collectively, K-Sea
and any Subsidiary Guarantor from time to time, and each, a “Guarantor.”

 

“Hazardous Materials” means (a) hazardous
materials, hazardous wastes, and hazardous substances as those or similar terms
are defined under any Environmental Laws, including, but not limited to, the
following:  the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq., as amended from time to time, the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., as amended from time to time,
CERCLA, the Clean Water Act, 33 U.S.C. Section 1251 et seq., as amended from time to time, the
Clean Air Act, 42 U.S.C. Section 7401 et
seq., as amended from time to time, and/or the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et
seq., as amended from time to time, OPA 90; (b) petroleum and
petroleum products, including crude oil and any fractions thereof;
(c) natural gas, synthetic gas, and any mixtures thereof;
(d) asbestos and/or any material which contains any hydrated mineral
silicate, including, but not limited to, chrysolite, amosite, crocidolite,
tremolite, anthophylite and/or actinolite, whether friable or non-friable;
(e) polychlorinated biphenyls (“PCBs”),
or PCB-containing materials or fluids; (f) radon; (g) any other
hazardous radioactive, toxic or noxious substance, material, pollutant, or
solid, liquid or gaseous waste; and (h) any hazardous substance that,
whether by its nature or its use, is subject to regulation under any
Environmental Law or with respect to which any international, federal, state or
local Environmental Law or governmental agency requires environmental
investigation, monitoring or remediation.

 

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

 

9

 

“Hire” means all charter hire under any
and all charters entered into by or on behalf of Borrower of any Vessel from
time to time, together with additional hire, supplemental hire, requisition
hire, freights and any other amounts paid to or for the account of Borrower on
account of the use or employment of such Vessel.

 

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

 

“Indemnified Taxes” means Taxes other
than Excluded Taxes.

 

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

 

“Interest Payment Date” means, with
respect to any Loan, the last day of each calendar month, provided, that
if any Interest Payment Date would end on a day other than a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless,
in the case of a Facility A Loan, a Facility B Loan and a Facility C Loan only,
such next succeeding Business Day would fall in the next calendar month, in
which case such Interest Period shall end on the next preceding Business
Day.  For purposes hereof, the date of a
Loan initially shall be the date on which such Loan is made.

 

“Interest Period” means (a) with
respect to any Facility A or Facility B Loan, the period commencing on the
first day of the calendar month of such Loan and ending on the last day in the
calendar month of such Loan; and (b) with respect to any Facility C Loan,
the period commencing on the date of such Loan and ending on the last day in
the calendar month of such Loan; provided, that if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless, in the case of a

 

10

 

Facility B Loan and a Facility C Loan only, such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day.  For purposes hereof, the date of a Loan initially shall be the
date on which such Loan is made.

 

“Interest Rate” means the Base Rate or
the LIBOR Rate, as applicable, as set forth in Section 2.02(g) hereof.

 

“KeyBank” means KeyBank N.A.

 

“K-Sea” means K-Sea Transportation
Partners L.P.

 

“L/C Issuer” means KeyBank.

 

“L/C Limit” has the meaning assigned to
such term in Section 2.02(e) hereof.

 

“Lender Affiliate” means, (a) with
respect to any Lender, (i) an Affiliate of such Lender that is in the
business of making and/or buying loans of the type described herein, or
(ii) any entity (whether a corporation, partnership, trust or otherwise)
that is engaged in making, purchasing, holding or otherwise investing in bank
loans and similar extensions of credit in the ordinary course of its business
and is administered or managed by any Lender or an Affiliate of such Lender,
and (b) with respect to any Lender that is a fund which invests in bank
loans and similar extensions of credit, any other fund that invests in bank
loans and similar extensions of credit and is managed by the same investment
advisor as such Lender or by an Affiliate of such investment advisor.

 

“Lenders” means CIT and KeyBank, each of
their successors and any other Person that shall have become a party hereto
pursuant to an Assignment and Acceptance, other than any such Person that
ceases to be a party hereto pursuant to an Assignment and Acceptance.

 

“Letter of Credit” means either a
Documentary Letter of Credit or a Standby Letter of Credit.

 

“Letter of Credit Fee” has the meaning
assigned to such term in Section 2.10(b) hereof.

 

“Letter of Credit Obligations” means all
outstanding obligations incurred by the L/C Issuer at the request of Borrower,
whether direct or indirect, contingent or otherwise, due or not due, in
connection with the issuance of a reimbursement agreement or guaranty by
Administrative Agent or purchase of a participation with respect to any Letter
of Credit issued under Facility A or Facility D.  The amount of such Letter of Credit Obligations shall equal the
maximum amount which may be payable by the L/C Issuer thereupon or pursuant
thereto.

 

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

 

“LIBOR” means a rate of interest
determined by Administrative Agent equal to: (a) the offered rate for
deposits in United States Dollars for a one-month period which appears on
Telerate Page 3750 as of 11:00 a.m., London time, as of the last
Business Day of the month

 

11

 

preceding the first day of each LIBOR Period, which shall be the first
day of each month (unless such date is not a Business Day, in which event the
next succeeding Business Day will be used); divided by (b) a number equal
to 1.0 minus the aggregate (but without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect on the day which is two
(2) Business Days prior to the beginning of such LIBOR Period (including basic,
supplemental, marginal and emergency reserves under any regulations of the
Board or other Governmental Authority having jurisdiction with respect thereto,
as now and from time to time in effect) for Eurocurrency funding (currently
referred to as “Eurocurrency liabilities” in Regulation D of such Board which
are required to be maintained by a member bank of the Federal Reserve
System.  If such interest rates shall
cease to be available from Telerate News Service, the LIBOR Rate shall be
determined from such financial reporting service or other information as shall
be mutually acceptable to Administrative Agent and Borrower.  In the event that such rate is not available
at such time for any reason, then the “LIBOR Rate” with respect to any Facility
A or Facility B Loan for such Interest Period shall be the rate at which dollar
deposits of $5,000,000.00 and for a maturity comparable to such Interest Period
are offered to the Agent by prime banks in any Eurodollar market reasonably
selected by the Agent, determined as of 11:00 a.m., London time (or as
soon thereafter as practicable), two Banking Days prior to the beginning of the
relevant Interest Period.

 

“LIBOR Breakage” has the meaning
assigned to such term in Section 2.12 hereof.

 

“LIBOR Rate” means LIBOR plus the
Margin.

 

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

 

“Loan
Accounts” means one or more loan accounts maintained by
Administrative Agent for Borrower in the ordinary course of business, and each,
a “Loan Account.”

 

“Loan Documents” means, collectively,
this Agreement, the Notes, the Mortgage, the Parent Guaranty, any Subsidiary
Guaranty, the Assignments and all consents given with respect to any of the
foregoing.

 

“Loan Request” means a request by
Borrower for a Loan in accordance with Section 2.04 hereof.

 

“Loans” means any loans made by Lenders
to Borrower pursuant to this Agreement, including, but not limited to, the
Facility A Loans, Facility B Loans, Facility C Loans, Letter of Credit Obligations
and the Term Loans.

 

“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

 

12

 

due more than one (1) year after the respective dates of the agreements
providing for such component parts of the Indebtedness.

 

“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.

 

“Margin” means two hundred and fifty
(250) basis points.

 

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

 

“Material Indebtedness” means
Indebtedness (other than the Loans), or obligations in respect of one or more
Hedging Agreements, of any one or more of K-Sea, Borrower and its Subsidiaries
in an aggregate principal amount exceeding $500,000.00.  For purposes of determining Material Indebtedness,
the “principal amount” of the obligations of K-Sea, Borrower or any Subsidiary
in respect of any Hedging Agreement at any time shall be the maximum aggregate
amount (giving effect to any netting agreements) that K-Sea, Borrower or such
Subsidiary would be required to pay if such Hedging Agreement were terminated
at such time.

 

“Maturity Date” has the meaning assigned
to such term in Section 2.03(c) hereof.

 

“Maximum Amount” means, with respect to
Facility A, Ten Million Dollars ($10,000,000.00); with respect to Facility B,
Thirty Million Dollars ($30,000,000.00); with respect to Facility D, Seven
Million Dollars ($7,000,000.00); and, with respect to Facilities A, B and C in
the aggregate, Forty Million Dollars ($40,000,000.00).

 

“Minimum Loan” means, with respect to
any Facility A Loan, Facility B Loan or Facility C Loan, Two Hundred Thousand
Dollars ($200,000.00).

 

“Mortgage” means the Mortgage, dated the
date hereof, granted by Borrower to Lenders over the whole of the Pool Vessels,
as the same may be amended, modified or supplemented from time to time and from
which Vessels may be added or released from time to time.

 

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

 

13

 

“Non-Qualified Pool Vessel” means any
Pool Vessel that is (i) a vessel required to be phased out at any time by
OPA 90, (ii) not qualified or documented with endorsement for the United
States coastwise trade, or (iii) a vessel which is part of an incomplete
two-vessel operating unit (comprised of a specific tug-barge combination).

 

“Notes” means, collectively, the
Revolving Loan Notes, the Facility D Notes and the Term Loan Notes, and each, a
“Note.”

 

“Obligations” means the Loans and
Letters of Credit and any and all other indebtedness, liabilities, advances,
loans and obligations of every kind, nature and description owing by Borrower
to Lenders, including principal, interest, charges, fees and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
arising under this Agreement, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal term of this
Agreement, as set forth in Section 10.02 hereof, or after the commencement
of any case with respect to Borrower under the United States Bankruptcy Code or
any similar statute, whether direct or indirect, absolute or contingent, joint
or several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, original, renewed or extended by assignment, merger with
any other entity, participations or interests of Lenders in the obligations of
Borrower to others, assumption, operation of law, subrogation or otherwise and
shall also include all amounts chargeable to Borrower under this Agreement or
in connection with any of the foregoing and shall mean all loans, advances,
debts, liabilities and obligations, for the performance of covenants, tasks or
duties or for payment of monetary amounts (whether or not such performance is
then required or contingent, or such amounts are liquidated or determinable)
owing by any Credit Party to Administrative Agent, Collateral Agent or any
Lender, and all covenants and duties regarding such amounts, of any kind or
nature, present or future, whether or not evidenced by any note, agreement or
other instrument, arising under this Agreement or any of the other Loan
Documents.  This term includes all
principal, interest (including all interest which accrues after the
commencement of any case or proceeding in bankruptcy after the insolvency of,
or for the reorganization of any Credit Party, whether or not allowed in such
proceeding), fees, charges, expenses, attorneys’ fees and any other sum
chargeable to any Credit Party under this Agreement or any of the other Loan
Documents.

 

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

 

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

 

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

 

“Other Taxes” means any and all present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies arising from any payment made hereunder or from the
execution, delivery or enforcement of, or otherwise with respect to, this
Agreement.

 

14

 

“Parent Guaranty” means that certain
guaranty, dated the date hereof, executed by K-Sea in favor of Lenders in form
and substance acceptable to Lenders in their sole discretion.

 

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

 

“Permitted Liens” means:

 

(a)                                  Liens
imposed by law for taxes or under ERISA in respect of contingent liabilities
thereunder that are not yet due; and

 

(b)                                 carriers’,
warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens
imposed by law, including, but not limited to, liens for current wages of the
crew of any Vessel, including the master of such Vessel, for current wages of
stevedores when employed directly by such vessel or for general average or
salvage, including contract salvage or liens, arising in the ordinary course of
business and securing obligations that are not overdue by more than thirty (30)
days and in each such case such liens are subordinate to the Lien of the
Mortgage;

 

provided,
that the term “Permitted Liens” shall not include any Lien securing
Indebtedness; and, provided, further, that the aggregate amount
of Permitted Liens outstanding on all Pool Vessels at any one time shall not
exceed $500,000.00.

 

“Person” means any natural person,
corporation, limited liability company, trust, joint venture, association,
company, partnership, Governmental Authority or other entity.

 

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

 

“Pool Vessels” means those vessels
identified on Schedule I hereto, together with any vessels hereafter added
to the Pool Vessels pursuant to Section 3.02 or Section 3.03 hereof.

 

“Proceeds shall have the meaning
assigned to it in the UCC and, in any event, shall include, but not be limited
to, (i) any and all proceeds of any insurance, indemnity or warranty
payable to Lenders, from time to time with respect to the Vessels or other
Collateral; (ii) any and all payments (in any form whatsoever) made or due
and payable from time to time in connection with any sale, requisition,
confiscation, condemnation, seizure or forfeiture of all and any part of the
Vessels by any governmental body, authority, bureau or agency of any other
Person (whether or not acting under color of governmental body); and
(iii) accounts arising out of, any charter or chattel paper evidencing,
any lease, contract for use or lease of, any and all other rents, hire or
profits or other amounts from time to time paid or payable to Lenders in connection
with, the Vessels.

 

“Prohibited Jurisdiction” means any
country or jurisdiction, from time to time, (a) that is subject of a
prohibition order (or any similar order or directive), sanctions or
restrictions

 

15

 

promulgated or administered by the Office of Foreign Assets Control of
the United States Treasury Department, or (b) in which, or for which, any
Lender, which is a Lender on the Effective Date, is otherwise prohibited or
restricted, under laws, regulations, sanctions or restrictions applicable to it
or its business, from extending credit, transferring property or assets,
engaging in or facilitating trade or other economic activity, or otherwise
doing business.

 

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

 

“Qualified Pool Vessels” means Pool
Vessels that are documented, coastwise eligible tugs, AT/Bs and double-hulled
barges and are acceptable in age, construction, condition and trade employment
to both Administrative Agent and Collateral Agent.

 

“Register” has the meaning assigned to
such term in Section 10.10(c) hereof.

 

“Related Parties” means, with respect to
any specified Person, such Person’s Affiliates and the respective directors,
officers, employees, agents and advisors of such Person and such Person’s
Affiliates.

 

“Required Lenders” means, at any time, Lenders
having Revolving Credit Exposures and unused Commitments representing more than
forty-nine percent (49%) of the sum of the total Revolving Credit Exposure and
unused Commitments at such time, exclusive of any Standby Letter of Credit
under Facility D.

 

“Revolving Credit Exposure” means, with
respect to any Lender at any time, the sum of the outstanding principal amount
of such Lender’s Revolving Loans under Facilities A (including Documentary
Letters of Credit), B and C at such time.

 

“Revolving Loan” means a Loan made
pursuant to Section 2.02(b), (c) or (d) hereof, but shall not include any
Term Loan.

 

“Revolving Loan Note” means the secured
promissory note of Borrower, substantially in the form of Exhibit A attached hereto, evidencing
each Revolving Loan made by Lenders to Borrower under Facilities A, B or C, as
described in Section 2.02 hereof.

 

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

 

“Settlement Date” has the meaning
assigned to such term in Section 2.05 hereof.

 

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

 

16

 

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

 

“Standby Letter of Credit”, as defined
in Section 2.02(e) hereof.

 

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

 

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

 

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

 

“Subsidiary Guarantor” means any
Subsidiary that executes and delivers a Subsidiary Guaranty.

 

“Subsidiary Guaranty” means any guaranty
executed by any Subsidiary of Borrower in favor of Lenders pursuant to
Section 6.18 hereof.

 

“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 Section 6.01
hereof, excluding, however, from the determination of total assets all assets
which would be classified as intangible assets under GAAP, including, without
limitation, goodwill, licenses, patents, trademarks, trade names, copyrights
and franchises.  Tangible Net Worth
shall include Subordinated Indebtedness.

 

“Taxes” means any and all present or
future taxes, levies, imposts, duties, deductions, charges or withholdings
imposed by any Governmental Authority.

 

17

 

“Term Loan” has the meaning assigned to
such term in Section 2.17 hereof.

 

“Term Loan Note” has the meaning
assigned to such term in Section 2.17 hereof.

 

“Term Loan Option” means the option
afforded Borrower as set forth in Section 2.17 hereof to convert a Loan
under Facility B to a Term Loan.

 

“Termination Date” means
December   , 2006.

 

“Title XI Guaranties” means United
States government guaranties of debt instruments issued to fund the acquisition
of one or more vessels, which guaranties are secured by preferred mortgages
over the whole of such financed vessels, as provided in 46 U.S.C. Appendix
Section 1271 et seq. and the
regulations promulgated by the Secretary of Transportation thereunder.

 

“Transactions” means the execution,
delivery and performance by Borrower and Guarantors of this Agreement and the
other Loan Documents, the making of Loans and the use of the Proceeds thereof.

 

“UCC” means the Uniform Commercial Code
as the same may, from time to time, be enacted and in effect in the State of
New York; provided, that to the extent that the UCC is used to define
any term herein or in any Loan Document and such term is defined
differently  in different Articles or
Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern; provided, further, that in the event
that, by reason or mandatory provisions of law, any or all of the attachment,
perfection or priority of, or remedies with respect to Administrative Agent’s
or any Lender’s Lien on any Collateral is governed by the Uniform Commercial
Code as enacted and in effect in a jurisdiction other than the State of New
York, the term “UCC” shall mean the Uniform Commercial Code as enacted and in
effect in such other jurisdiction solely for purposes of the provisions thereof
relating to such attachment, perfection, priority or remedies and for purposes
of definitions related to such provisions.

 

“Unused Commitment Fee Rate” means
twenty-five (25) basis points.

 

“Unused Line Fee” means an amount
determined quarterly by multiplying the Unused Commitment Fee Rate by the
difference between (x) the total Commitment of all Lenders under
Facilities A, B and C and (y) the average daily principal balance
outstanding under Facilities A, B and C and any Term Loans.

 

“Vessels”
means, collectively, the Pool Vessels and the Acquired Vessels.

 

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

 

Section 1.02  Terms Generally.  The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined.  Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter
forms.  The words “include”, “includes”
and “including” shall be deemed to be followed by the phrase “without
limitation”.

 

18

 

The word “will” shall be construed to have the same
meaning and effect as the word “shall”. 
Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth
herein), (b) any reference herein to any Person shall be construed to
include such Person’s successors and assigns, (c) the words “herein”,
“hereof” and “hereunder”, and words of similar import, shall be construed to
refer to this Agreement in its entirety and not to any particular provision
hereof, (d) all references herein to Articles, Sections, Exhibits and
Schedules shall be construed to refer to Articles and Sections of, and
Exhibits, Schedules and Annexes to, this Agreement, and (e) the words
“asset” and “property” shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.

 

Section 1.03  Accounting Terms; GAAP.  Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time; provided, that, if
Borrower notifies Administrative Agent that Borrower requests an amendment to
any provision hereof to eliminate the effect of any change occurring after the
date hereof in GAAP or in the application thereof on the operation of such
provision (or if Administrative Agent notifies Borrower that the Required
Lenders request an amendment to any provision hereof for such purpose),
regardless of whether any such notice is given before or after such change in
GAAP or in the application thereof, then such provision shall be interpreted on
the basis of GAAP as in effect and applied immediately before such change shall
have become effective until such notice shall have been withdrawn or such
provision amended in accordance herewith.

 

ARTICLE II

 

THE LOANS

 

Section 2.01  Commitments.  Subject to the terms and conditions set
forth herein, each Lender agrees to make Revolving Loans to Borrower from time
to time during the Availability Period in an aggregate principal amount that
will not result in such Lender’s Revolving Credit  Exposure exceeding
such Lender’s Commitment.  Within the
foregoing limits and subject to the terms and conditions set forth herein,
Borrower may borrow, prepay and reborrow Revolving Loans.

 

Section
2.02  Loans.

 

(a)                                  Each
Revolving Loan shall be made by Lenders ratably in accordance with their
respective Commitments; provided, however, that, subject to the
provisions of Section 2.02(d) hereof, KeyBank is the sole Lender which
shall make a Loan under Facility C.  The
failure of any Lender to make any Loan required to be made by it shall not
relieve any other Lender of its obligations hereunder; provided, that
the Commitments of Lenders are several and no Lender shall be responsible for
any other Lender’s failure to make any Loan as required.

 

19

 

(b)                                 Facility
A. Subject to the terms and conditions contained herein and until the
Termination Date, Lenders shall make loans to Borrower on a revolving basis in
amounts requested by Borrower from time to time (the “Facility A Loans” and each, a “Facility A Loan”) in an aggregate amount
outstanding at any time not to exceed the lesser of $10,000,000.00 or the
amount permitted by paragraph (f) of this Section 2.02.  In addition, each Facility A Loan shall be in
an aggregate amount that is an integral multiple of $100,000.00, and no such
Facility A Loan shall be less than the Minimum Loan.  Facility A Loans may, upon request of Lenders, be evidenced by a
Revolving Loan Note in the form attached hereto as Exhibit A. 
Subject to availability, at Borrower’s request, L/C Issuer will issue
documentary letters of credit (each, a “Documentary
Letter of Credit”) up to an aggregate dollar amount outstanding at
any one time of Four Million Dollars ($4,000,000.00) under Facility A, and any
such drawdowns made under such Documentary Letters of Credit shall be funded by
Facility A Loans at the time of such drawdown; provided, however,
the amount of outstanding Loans and the face amount of outstanding Documentary
Letters of Credit shall not at any time exceed the Maximum Amount.  Each drawdown and any expense payable by
Borrower in accordance with Exhibit J
hereto under any such Documentary Letter of Credit shall constitute a Loan
under Facility C from the date of such drawdown to the first day of the next
succeeding calendar month, at which time such Facility C Loan shall be refunded
under Facility A and each Lender shall fund its respective Applicable
Percentage of such Facility A Loan. 
Borrower shall deliver to L/C Issuer a completed and executed
application form together with such other documents in the forms then required
by L/C Issuer prior to the issuance of any Documentary Letter of Credit.  In the event of any inconsistency between
L/C Issuer’s required forms and this Agreement, the Mortgages and the
Assignments, the provisions of this Agreement, the Mortgages and the
Assignments shall prevail.  In addition,
the special provisions of Exhibit J
shall apply to any and all Documentary Letters of Credit.

 

(c)                                  Facility
B.  Subject to the terms and
conditions contained herein and until the Termination Date, Lenders shall make
loans to Borrower under Facility B on a revolving basis in amounts requested by
Borrower from time to time (the “Facility B
Loans” and each, a “Facility B
Loan”) in an aggregate amount outstanding at any time not to exceed
the lesser of $30,000,000.00 or the amount permitted by paragraph (f) of this
Section 2.02.  In addition, each
Facility B Loan shall be in an aggregate amount that is an integral multiple of
$500,000.00, and no such Facility B Loan shall be less than the Minimum
Loan.  Availability under Facility B
shall be reduced by the amount outstanding of the sum of any Term Loans.  Facility B Loans may, upon request of
Lenders, be evidenced by a Revolving Loan Note in the form attached hereto as Exhibit A.

 

(d)                                 Facility
C.  KeyBank will make loans under
Facility C (the “Facility C Loans”
and each, a “Facility C Loan”) to
ease loan administration of any Facility A Loan or Facility B Loan made other
than on the first day of a LIBOR Interest Period.  Each Facility C Loan shall be in an aggregate amount that is an
integral multiple of $100,000.00, and no such Facility C Loan shall be less
than the Minimum Amount.  Interest and
principal on each Facility C Loan will be payable from the proceeds of a
Facility A Loan or a Facility B Loan in full on the last Business Day of the
month in which such Facility C Loan is made, unless or to the extent such
Facility C Loan is prepaid in accordance with Section 2.09 hereof by such
date.  If an Event of Default shall
occur, CIT shall purchase from KeyBank a percentage of the then outstanding
Facility C Loans equal to its Applicable Percentage in regard to Facility A or
Facility B Loans.

 

20

 

Availability under Facility C will be equal to the
aggregate Facility C Availability under Facility A and Facility B and cannot be
used to increase availability.  Any
Facility C Loan may, upon request of KeyBank, be evidenced by a Revolving Loan
Note in the form attached hereto as Exhibit A.

 

(e)                                  Facility
D.  Subject to the terms and
conditions of this Agreement, the L/C Issuer agrees to incur, from time to time
prior to the Termination Date, upon the request of Borrower and for Borrower’s
account, Letter of Credit Obligations by causing one or more standby letters of
credit to be issued or renewed, as the case may be, for Borrower’s account (the
“Standby  Letters of Credit” and each, a “Standby Letter of Credit”).  The aggregate amount of all such Letter of
Credit Obligations shall not at any time exceed the lesser of (i) Seven
Million Dollars ($7,000,000.00) (the “L/C
Limit”), or the amount permitted by paragraph (f) of this
Section 2.02.  Subject to
Section 2.02(i) hereof, no such Standby Letter of Credit shall have an
expiry date which is more than one (1) year following the date of issuance
thereof.  Any Letter of Credit
Obligation may, upon request of the L/C Issuer, be evidenced by a Facility D
Note in the form attached hereto as Exhibit B.  Borrower shall deliver to L/C Issuer a
completed and executed application form together with subcharter documents in
the forms then required by L/C Issuer prior to the issuance of any Standby
Letter of Credit.  In the event of any
inconsistency between L/C Issuer’s required forms and this Agreement, the
Mortgages and the Assignments, the provisions of this Agreement, the Mortgages
and the Assignments shall prevail.  In
addition, the special provisions of Exhibit J
shall apply to any Standby Letters of Credit and any extensions or reversals
thereof.

 

(f)                                    The
aggregate principal amount of all Loans and Letters of Credit outstanding under
all Facilities shall at no time exceed the lesser of $47,000,000.00 or 66 2/3%
of the Borrowing Base.  Lenders shall
have no obligation to make any Loan or issue any Letter of Credit which, when
added to then outstanding Loans and Letters of Credit, would exceed the Maximum
Amount of any Facility or for all Facilities.

 

(g)                                 Interest
Rate.  (i) Each Facility A Loan
shall accrue interest at the LIBOR Rate; (ii) each Facility B Loan under
shall accrue interest at the LIBOR Rate; and (iii) each Facility C Loan
under shall accrue interest at the Base Rate.

 

(h)                                 Conditions.  The making of any Loan hereunder at any time
by Lenders is subject to compliance in full by Borrower with all of the terms
and provisions of this Agreement and the other Loan Documents, each as at any
time amended, and to the further condition that, at the time of the proposed
making of any Loan, there shall have been no material adverse change in the
financial condition or business of Borrower, and that no Event of Default, and
no event which with the lapse of time or the notice and lapse of time specified
for the purpose of constituting such an Event of Default, has occurred and is
continuing at the time of such proposed Loan. 
No Loan will be made or Letter of Credit issued unless the conditions
set forth in Article V hereof have been fulfilled.  The foregoing shall have no effect on the
extension of any Standby Letter of Credit issued under Facility D pursuant to a
renewal clause set forth therein.

 

(i)                                     Notwithstanding
any other provision of this Agreement, Borrower shall not be entitled to
request, or to elect to convert or continue, any Loan if the Interest Period

 

21

 

requested with respect thereto would end after the
Termination Date, and Borrower shall not be entitled to request any Letter of
Credit or any renewal thereof which would expire after the Termination Date or
provides for drawdown after the Termination Date.

 

Section 2.03  Payments.  (a) Interest on the unpaid principal balance
of each Revolving Loan shall be payable by Borrower from the date hereof at the
per annum Interest Rate set forth in Section 2.02(g) hereof.  During the continuance of any Event of
Default or upon termination or non-renewal hereof, interest on all unpaid
Obligations shall accrue at a rate equal to two percent (2%) per annum in
excess of the applicable Interest Rate (the rate so determined, the “Late Charge Rate”) otherwise payable until
such time as all Obligations are indefeasibly paid in full (notwithstanding
entry of any judgment against Borrower or the exercise of any other right or
remedy by Lenders), and all such interest shall be payable on demand.  In no event shall charges constituting
interest exceed the rate permitted under any Applicable Law or regulation, and
if any provision of this Agreement is in contravention of any such law or
regulation, such provision shall be deemed amended to conform thereto.  The reimbursement obligations of Borrower to
the L/C Issuer shall bear interest at the Late Charge Rate from the date of
payment for which reimbursement is required to the date of reimbursement.  Reimbursement by Borrower to the L/C Issuer
shall be effective on receipt by the L/C Issuer of immediately available funds
at its designated account.

 

(b)                                 Interest
shall be payable monthly in arrears on the daily unpaid principal balance of
the Loans then outstanding, and shall be due and payable on the Interest
Payment Dates during the term of this Agreement; provided, that
(i) interest accrued pursuant to paragraph (a) of this Section shall
be payable on demand, (ii) in the event of any repayment or prepayment of
any Loan, accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment, (iii) in the event of
any voluntary or involuntary prepayment of any Facility A Loan or Facility B
Loan prior to the end of the Interest Period therefor, accrued interest on such
Facility A Loan or Facility B Loan shall be payable on the effective date of
such prepayment, together with LIBOR Breakage, and (iv) all accrued
interest shall be payable upon termination of the Commitments, except with
respect to any interest accrued under any Term Loan, which shall be paid in
accordance with the Term Note reflecting such Term Loan.  Lenders are authorized to, and at their sole
election may, charge to the Loan Accounts on behalf of Borrower and cause to be
paid all interest, fees, expenses and charges other than principal due and
owing by Borrower under this Agreement, if and to the extent Borrower fails to
promptly pay any such amounts as and when due, even if such charges would cause
the balance of the Loan Accounts to exceed the Maximum Amount.  Interest due under any Facility on each
Interest Payment Date shall be debited to Borrower’s account under Facility A.

 

(c)                                  Principal
shall be due and payable on (i) the Termination Date for all Facility A
Loans then outstanding, (ii) within eighteen (18) months from the date of
any Facility B Loan made for the purpose of acquiring one or more vessels
(except in the case of Term Loans, which shall be paid in accordance with the
Term Note reflecting such Term Loan), (iii) within the earlier of
(x) twelve months from the date of a Facility B Loan and
(y) redelivery of a vessel, in the case of any Facility B Loan made for
the purpose of retrofitting, upgrading or rebuilding of a vessel (except in the
case of Term Loans, which shall be paid in accordance with the Term Note
reflecting such Term Loan), (iv) in the case of a Facility C Loan, the
last day of

 

22

 

the month in which such Facility C Loan is made; provided,
however, that such Facility C Loan may be refunded with the proceeds of
a Facility A Loan or Facility B Loan in accordance with the terms hereof, and
(v) as to any Term Loan, the final installment payment date thereof (each
of the above being a “Maturity Date”);
provided, however, that no Loan shall extend beyond the
Termination Date, except for any Term Loan as provided herein and in the Term
Note reflecting such Term Loan.

 

(d)                                 All
computations of interest, fees and other charges shall be calculated on a per
annum basis based on a year of 360 days computed on the basis of the average
daily unpaid balance of principal outstanding during the preceding monthly
period, in each case for the actual number of days occurring in the period for
which such interest and fees are payable.

 

(e)                                  On
the Maturity Date of a Facility C Loan, such Facility C Loan shall be refunded
with the proceeds of a Facility A Loan or Facility B Loan unless a Default or
Event of Default shall be then continuing.

 

Section 2.04  Requests for Loans.  To request a Loan, Borrower shall notify
Administrative Agent of such request by telephone (a) in the case of a
Facility A Loan or Facility B Loan, not later than 11:30 a.m., New York
City time, three (3) Business Days before the date of the proposed Facility A
Loan or Facility B Loan, or (b) in the case of any Documentary Letter of
Credit Obligation, not later than 11:30 a.m., New York City time, three
(3) Business Days before the issuance date of the proposed Documentary Letter
of Credit.  Each such telephonic Loan
Request shall specify whether it is a Facility A Loan, a Facility B Loan or a
Letter of Credit Obligation, be irrevocable and shall be confirmed promptly by
hand delivery or telecopy to Administrative Agent of the appropriate written
Loan Request in the form attached hereto as Exhibit G
or H and signed by
Borrower.  Each such telephonic and
written Loan Request shall specify the following information in compliance with
Section 2.02 hereof:

 

(i)                                     the
aggregate amount of the requested Loan;

 

(ii)                                  the
date of such Loan, which shall be a Business Day;

 

(iii)                               whether such Loan is to
be a Facility A Loan, a Facility B Loan or a Letter of Credit Obligation under
Facility A or a Letter Credit Obligation under Facility D;

 

(iv)                              in
the case of a Letter of Credit Obligation, the Loan Request shall be
accompanied by (a) in the case of a Standby Letter of Credit under
Facility D, (x) to the extent not previously delivered to Administrative
Agent, copies of all agreements between Borrower and the Standby Letter of
Credit beneficiary pertaining to the issuance of such standby Letters of Credit
and (y) a copy of the form of a Standby Letter of Credit which is attached
hereto as Exhibit F-2, and
(b) in the case of a Documentary Letter of Credit under Facility A, a copy
of the form of a documentary letter of credit which is attached hereto as Exhibit F-1; and

 

(v)                                 the
location and number of Borrower’s account to which funds are to be disbursed,
which shall comply with the requirements of Section 2.05 hereof.

 

23

 

On or before
the Settlement Date, Administrative Agent shall advise each Lender of the
details of the Loan Request and of the amount of such Lender’s Revolving Loan
to be made as part of the requested Loan. 
In the event a Facility A Loan or Facility B Loan is to be made on any
day other than the first day of a LIBOR Interest Period, the Loan Request shall
be deemed a request for a Facility C Loan to be refunded by a Facility A Loan
or Facility B Loan.  Notwithstanding
anything contained herein to the contrary, Documentary Letter of Credit
applications by Borrower and approvals by the L/C Issuer may be made and
transmitted pursuant to electronic codes and security measures mutually agreed
upon and established by and among Borrower, Administrative Agent and the L/C
Issuer.

 

Section 2.05  Settlement and Funding of
Loans.  (a) Administrative
Agent will make such Loan available to Borrower by promptly crediting the
amounts, in like funds, to an account of Borrower maintained with
Administrative Agent in New York City and designated by Borrower in the
applicable Loan Request; and (b) each Lender shall transfer its Applicable
Percentage of each Loan on the monthly settlement date, as agreed by Lenders
(“the Settlement Date”), by wire
transfer of immediately available funds by 2:00 p.m., New York City time,
to the account of Administrative Agent.

 

Section 2.06  Non-Receipt of Funds.  Unless Administrative Agent shall have
received notice from a Lender prior to the proposed date of any Loan that such
Lender will not make available to Administrative Agent such Lender’s share of
such Loan, Administrative Agent may assume that such Lender has made or, on the
Settlement Date, will make such share available in accordance with
Section 2.05 hereof and may, in reliance upon such assumption, make
available to Borrower a corresponding amount. 
In such event, if any Lender has not in fact made its share of the
applicable Loan available to Administrative Agent by the Settlement Date, then
the applicable Lender and Borrower severally agree to pay to Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to Borrower
to but excluding the date of payment to Administrative Agent, at (i) in
the case of such Lender, the Federal Funds Effective Rate, or (ii) in the
case of Borrower, the Base Rate.  If
such Lender pays such amount to Administrative Agent, then such amount shall constitute
such Lender’s share of such Loan.

 

Section
2.07  Termination
and Reduction of Commitments.

 

(a)                                  Unless
previously terminated, the Commitments shall terminate on the Termination Date.

 

(b)                                 Borrower
may at any time terminate this Agreement with respect to all Facility A Loans
and Facility B Loans; provided, that Borrower shall prepay all Revolving
Loans in accordance with Section 2.09 hereof and replace all outstanding
Letters of Credit and pay to Lenders a fee equal to $800,000.00 during the
first year (on or before the first Anniversary Date of the Effective Date),
$400,000.00 thereafter through the second Anniversary Date of the Effective
Date, and $200,000.00 thereafter through the third Anniversary Date of the
Effective Date; and, provided, further, that prepayment of Loans
or other Obligations made under this Agreement from the proceeds of additional
equity offerings will not constitute termination of this Agreement or of any
Facility but will restore the availability under Facility A and Facility B by
the amount of such prepayments.

 

24

 

(c)                                  Borrower
shall notify Administrative Agent of any election to terminate the Commitments
under paragraph (b) of this Section at least three (3) Business Days prior
to the effective date of such termination or reduction, specifying such
election and the effective date thereof. 
Promptly following receipt of any notice, Administrative Agent shall
advise Lenders of the contents thereof. 
Each notice delivered by Borrower pursuant to this Section shall be
irrevocable; provided, that a notice of termination of the Commitments
delivered by Borrower may state that such notice is conditioned upon the
effectiveness of other credit facilities, in which case such notice may be
revoked by Borrower (by notice to Administrative Agent on or prior to the
specified effective date) if such condition is not satisfied.  Any termination or reduction of the
Commitments shall be permanent.  Each
reduction of the Commitments shall be made ratably among Lenders in accordance
with their respective Commitments.

 

Section
2.08  Repayment
of Loans; Evidence of Debt.

 

(a)                                  Borrower
hereby unconditionally promises to pay to Administrative Agent for account of
each Lender the then unpaid principal amount of each Revolving Loan on the
Maturity Date thereof.

 

(b)                                 Each
Lender may maintain in accordance with its usual practice an account or
accounts evidencing the indebtedness of Borrower to such Lender resulting from
any Loan made by such Lender, including the amounts of principal and interest
payable and paid to such Lender from time to time hereunder.

 

(c)                                  Administrative
Agent shall maintain accounts in which it shall record (i) the amount of
each Loan made hereunder and the applicable Interest Rate thereof,
(ii) the amount of any principal or interest due and payable or to become
due and payable from Borrower to each Lender hereunder, and (iii) the
amount of any sum received by Administrative Agent hereunder for the account of
Lenders and each Lender’s share thereof. 
Lenders may from time to time request that Administrative Agent provide
Lenders with a copy of such records.

 

(d)                                 The
entries made in the accounts maintained pursuant to paragraph (b) or (c) of
this Section shall be prima facie
evidence of the existence and amounts of the obligations recorded therein; provided,
that the failure of any Lender or Administrative Agent to maintain such
accounts or any error therein shall not in any manner affect the obligation of
Borrower to repay the Loans and other Obligations in accordance with the terms
of this Agreement.

 

(e)                                  Any
one or more Lenders may request that any Loan made by it or them be evidenced
by a Note.  In such event, Borrower
shall execute and deliver to such Lender or Lenders a Note payable to the order
of such Lender (or, if requested by such Lender, to such Lender and its
registered assigns) in form and substance acceptable such Lender.  Thereafter, the Loans evidenced by such
Notes and interest thereon shall at all times (including after assignment
pursuant to Section 10.10 hereof) be represented by one or more Notes in
such form payable to the order of the payee named therein.  Administrative Agent may enter Loans and
repayment made on any Note; provided, however, that failure to do
so shall not affect Borrower’s obligations to repay all Loans made.

 

25

 

Section
2.09  Prepayment
of Loans.

 

(a)                                  Except
in the case of any Term Loan, which shall be subject to the provisions thereof,
Borrower shall have the right at any time and from time to time to prepay any
Facility A Loan, Facility B Loan or Facility C Loan in whole or in part,
subject to prior notice in accordance with paragraph (b) of this Section.

 

(b)                                 Borrower
shall notify Administrative Agent by telephone (confirmed by telecopy) of any
prepayment hereunder (i) in the case of prepayment of any Facility A Loan
or Facility B Loan, not later than 11:30 a.m., New York City time, three
(3) Business Days before the date of prepayment, or (ii) in the case of
prepayment of a Facility C Loan not later than 11:30 a.m., New York City
time, one (1) Business Day before the date of prepayment.  Each such notice shall be irrevocable and
shall specify the prepayment date and the principal amount of each Loan or
portion thereof to be prepaid.  Promptly
following receipt of any such notice relating to a Facility A, Facility B, or
Facility C Loan, Administrative Agent shall advise Lenders of the contents
thereof.  Each partial prepayment of any
Facility A, Facility B or Facility C Loan shall be in an amount that would be
permitted in the case of such Facility A, Facility B or Facility C Loan, as
provided in Section 2.02(b), (c) or (d) respectively.  Each prepayment of a Facility A, Facility B
or Facility C Loan shall be applied (i) in the absence of a Default, as
Borrower directs, or (ii) if a Default has occurred and is continuing, as
set forth in Section 2.14(b) hereof. 
Prepayments shall be accompanied by accrued interest to the extent
required by Section 2.03 hereof and LIBOR Breakage, if any.

 

Section
2.10  Fees.

 

(a)                                  Borrower
agrees to pay to Administrative Agent for account of each Lender on a pro rata
basis, the Unused Line Fee, which shall accrue at the Unused Commitment Fee
Rate on the average daily amount of the unused Commitments of each Lender for
each of Facility A and Facility B during the period from and including the
Effective Date to but excluding the date on which such Commitment
terminates.  Accrued Unused Line Fees
shall be payable in arrears on the last day of March, June, September and
December of each year and on the date on which the Commitments terminate,
commencing on the first such date to occur after the date hereof.  All Unused Line Fees shall be computed on
the basis of a year of 360 days and shall be payable for the actual number of
days elapsed (including the first day but excluding the last day).

 

(b)                                 Borrower
agrees to pay to the L/C Issuer on the date hereof an origination fee in the
amount of $70,000.00 for making Facility D available.  As additional compensation, Borrower shall pay to L/C Issuer on
the date of the issuance and each subsequent date of extension or renewal of
any Standby Letter of Credit, a fee (the “Standby
Letter of Credit Fee”) equal to one and one-half percent (1.50%) per
annum multiplied by the maximum amount available to be drawn under such Standby
Letter of Credit, including any Standby Letter of Credit extending more than
twelve (12) months by its own terms or by operation of any renewal or evergreen
provision.  In addition, Borrower shall
pay to L/C Issuer, on demand, such fees (including all per annum fees), charges
and expenses of such L/C Issuer in respect of the issuance, negotiation,
acceptance, amendment, transfer and payment of Documentary Letter of Credit
Obligations incurred under Section 2.02(b) hereof or otherwise payable
pursuant to the

 

26

 

application and related documentation under which such
Documentary Letter of Credit is issued. 
Notwithstanding the foregoing, any fees owed by Borrower pursuant to
this Section 2.10(b) may be debited to the Facility C account and refunded
on the next Settlement Date with the proceeds of a Facility A Loan.

 

(c)                                  Borrower
agrees to pay to Administrative Agent and Collateral Agent, for its own
account, commitment fees, appraisal fees and agency fees payable in the amounts
and at the times agreed upon among Borrower, Administrative Agent and
Collateral Agent.

 

(d)                                 Borrower
agrees to pay to Administrative Agent for account of each Lender on a pro rata
basis, the Annual Maintenance Fee.

 

(e)                                  All
fees payable hereunder shall be paid on the dates due, in immediately available
funds, to Administrative Agent for distribution to Lenders.  Fees paid to Lenders shall not be refundable
under any circumstances.

 

Section
2.11  Increased
Costs.

 

(a)                                  If
any Change in Law shall:

 

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

 

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

 

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

 

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

 

(c)                                  A
certificate of any Lender calculating and setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as

 

27

 

specified in paragraph (a) or (b) of this
Section shall be delivered to Borrower and shall be conclusive absent
manifest error.  Borrower shall pay such
Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.

 

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

 

Section 2.12  Break Funding Payments.  In the event of (a) the payment of any
principal of any Facility A Loan, Facility B Loan (including any Term Loan)
other than on the last day of an Interest Period applicable thereto (including
as a result of an Event of Default), (b) the failure to borrow, convert,
continue or prepay any Revolving Loan on the date specified in any notice
delivered pursuant hereto (regardless of whether such notice is permitted to be
revocable under Section 2.09(b) hereof and is revoked in accordance
herewith), or (c) the assignment of any Loan other than on the last day of
the Interest Period applicable thereto as a result of a request by Borrower
pursuant to Section 2.16(b) hereof, then, in any such event, Borrower
shall compensate each Lender for the loss, cost and expense attributable to
such event.  In the case of a Facility A
Loan, Facility B Loan or Term Loan, the loss to any Lender attributable to any
such event shall be deemed to include an amount determined by such Lender to be
equal to the excess, if any, of (i) the amount of interest that such
Lender would pay for a deposit equal to the principal amount of such Loan for
the period from the date of such payment, conversion, failure or assignment to
the last day of the then current Interest Period for such Facility A Loan,
Facility B Loan (including any Term Loan (or, in the case of a failure to
borrow, convert or continue, the duration of the Interest Period that would
have resulted from such Facility A Loan, Facility B Loan or Term Loan,
conversion or continuation) if the interest rate payable on such deposit were
equal to the LIBOR Rate for such Interest Period, over (ii) the amount of
interest that such Lender would earn on such principal amount for such period if
such Lender were to invest such principal amount for such period at the
interest rate that would be bid by such Lender (or an Affiliate of such Lender)
for dollar deposits from other banks in the LIBOR Rate market at the
commencement of such period (“LIBOR Breakage”).  A certificate of any Lender setting forth
any amount or amounts that such Lender is entitled to receive pursuant to this
Section shall be delivered to Borrower and shall be conclusive absent
manifest error.  Borrower shall pay such
Lender the amount shown as due on any such certificate within 10 days after
receipt thereof, or allow such Lender to advance against Facility A
accordingly, provided availability exists.

 

Section 2.13  Taxes.  Any and all payments by or on account of any
Obligation of Borrower hereunder shall be made free and clear of and without
deduction for any Indemnified Taxes or Other Taxes; provided, that if
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section) Administrative Agent, Collateral
Agent, each Lender

 

28

 

or L/C Issuer (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made,
(ii) Borrower shall make such deductions, and (iii) Borrower shall
pay the full amount deducted to the relevant Governmental Authority in
accordance with Applicable Law.

 

(a)                                  In
addition, Borrower shall pay any Other Taxes to the relevant Governmental
Authority in accordance with Applicable Law.

 

(b)                                 Borrower
shall indemnify Administrative Agent, Collateral Agent, the L/C Issuer and each
Lender, within 10 days after written demand therefor, for the full amount of
any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this
Section) paid by Administrative Agent, Collateral Agent, L/C Issuer or such
Lender, as the case may be, and any penalties, interest and reasonable expenses
arising therefrom or with respect thereto, whether or not such Indemnified
Taxes or Other Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority.  A
certificate as to the amount of such payment or liability, together with copies
of available documentation reflecting the imposition and amount of such
Indemnified Taxes or Other Taxes delivered to Borrower by a Lender, Collateral
Agent, the L/C Issuer or by Administrative Agent on its own behalf or on behalf
of a Lender, shall be conclusive absent manifest error.

 

(c)                                  As
soon as practicable after any payment of Indemnified Taxes or Other Taxes by
Borrower to a Governmental Authority, Borrower shall deliver to Administrative
Agent the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to Administrative
Agent.

 

(d)                                 Any
Foreign Lender that is entitled to an exemption from or reduction of
withholding tax under the law of the jurisdiction in which Borrower is located,
or any treaty to which such jurisdiction is a party, with respect to payments
under this Agreement shall deliver to Borrower (with a copy to Administrative
Agent), at the time or times prescribed by Applicable Law or reasonably
requested by Borrower, such properly completed and executed documentation
prescribed by Applicable Law as will permit such payments to be made without
withholding or at a reduced rate.

 

Section
2.14  Payments
Generally; Pro Rata Treatment; Sharing of Set-offs.

 

(a)                                  Borrower
shall make each payment required to be made by it hereunder (whether of
principal, interest or fees, or under Section 2.11, 2.12 or 2.13 hereof,
or otherwise) prior to 12:00 noon, New York City time, on the date when due, in
immediately available funds, without set-off or counterclaim, or shall allow
Administrative Agent to advance against Facility A for all such payments,
provided availability exists.  Any
amounts received after such time on any date may, in the discretion of
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon.  All such payments shall be made to
Administrative Agent at its offices at 575 Fifth Avenue, 18th Floor,
New York, New York 10017, except that payments pursuant to Sections 2.11,
2.12, 2.13 and 10.09 hereof shall be made directly to the Persons entitled
thereto.  Administrative Agent shall
distribute any

 

29

 

such payments received by it for account of any other
Person to the appropriate recipient promptly following receipt thereof.  If any payment hereunder shall be due on a
day that is not a Business Day, the date for payment shall be extended to the
next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such
extension.  All payments hereunder shall
be made in Dollars.

 

(b)                                 (i)                                     Payments
Received by Administrative Agent.  So
long as (x) no Default with respect to any payments due hereunder or under
any of the Obligations or (y) Event of Default shall have occurred and be
continuing, each payment made by Borrower received by the Administrative Agent
pursuant to paragraph (a) of this Section shall be applied, first,
to any costs, expenses, fees or other amounts due under this Agreement or under
the other Loan Documents not constituting principal and interest due under the
Loans, second, to late charges due pursuant to Section 2.03 hereof,
third, to interest due on the unpaid principal balance of each Loan, fourth,
to the payment in full of principal and all other Obligations which are then
due and payable.  If at any time
insufficient funds are received by and available to Administrative Agent to pay
fully all amounts of principal, interest and fees then due on any Revolving
Loans, such funds shall be applied, first, to pay interest and fees then
due hereunder, ratably among the parties entitled thereto in accordance with
the amounts of interest and fees then due to such parties, second, to
pay principal then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of principal then due to such parties, and third,
all remaining amounts, if any, shall be applied as provided in the first
sentence of this Section 2.14(b)(i).

 

(ii)                                  Casualty
Payments.  So long as no
(x) Default with respect to any payments due hereunder or under any of the
Obligations or (y) Event of Default shall have occurred and be continuing,
any amounts received by Collateral Agent or any Lender as a result of an Event
of Loss with respect to any Pool Vessel or any Acquired Vessel that is not a
Pool Vessel (including, without limitation, any payment of prepayment amounts
under Section 2.09 hereof or insurance or condemnation proceeds) shall be
retained by Lenders as cash collateral to the extent the aggregate Orderly
Liquidation Value of the remaining Pool Vessels is less than $71,000,000.00,
until such time as Borrower pledges another Qualified Pool Vessel or Qualified
Pool Vessels to increase the aggregate Orderly Liquidation Value of the Pool
Vessels to not less than $71,000,000.00, at which time such amounts shall be
applied, first, to the payment of any amounts outstanding under Facility
C and thereafter held by Lenders for application against other Revolving Loans
at the end of any then current interest period or periods, second, to
the payment in full of all the Obligations which are then due and payable, and,
third, the balance, if any, after payment of the foregoing amounts,
shall be paid by Lenders to Borrower.

 

(iii)                               Other Amounts.  So long as no (x) Default with respect
to any payments due hereunder or under any of the Obligations or (y) Event
of Default shall have occurred and be continuing, all Proceeds from time to time
received by Collateral Agent or any Lender shall be applied, first, to
any costs, expenses, fees or other amounts due under this Agreement and the
other Loan Documents not constituting principal and interest due under the
Loans, second, to the payment in full of all the other Obligations which
are then due and payable, third, if provision as to the application of
such amounts is made in this Agreement or any other Loan Document, Collateral
Agent or any Lender

 

30

 

shall, in its sole discretion, either apply such payment to the purpose
for which it was made or pay it to Borrower, which shall so apply it and, fourth,
if due to Borrower, Collateral Agent or such Lender shall pay such amounts to
Borrower.

 

(iv)                              Application
After Default but before Event of Default. 
All payments received and amounts realized by Lenders after a Default
shall have occurred and be continuing, but prior to the occurrence of an Event
of Default or any acceleration of any Loan or Note, all Proceeds or other
amounts received in repayment of the Collateral shall be held by Lenders as
part of the Collateral until such time as no Defaults or Events of Default
shall be continuing hereunder (at which time such funds shall be paid to
Borrower) or until such funds are applied pursuant to Section 8.02
hereof.  Collateral Agent or any Lender
shall apply the cash proceeds of Collateral actually received by Lenders from
any sale, lease, foreclosure or other disposition of the Collateral to payment pro rata of the Obligations, in whole or
in part (including reasonable attorneys’ fees and legal expenses incurred by
Lenders with respect thereto or otherwise chargeable to Borrower).  Lenders shall apply all such receipts
ratably against Obligations under Facilities A, B, C and D.  Borrower shall remain jointly and severally
liable to Lenders for the payment of any deficiency together with interest at
the highest rate provided for herein and all costs and expenses of collection
or enforcement, including reasonable attorneys’ fees and legal expenses.

 

(v)                                 Application
After Event of Default.  After an Event
of Default shall have occurred and be continuing and after Lenders have either,
(i) as assignee from Borrower of any charter of any of the Vessels,
declared such charter to be in default or terminated in accordance with the
terms thereof, or (ii) declared all amounts outstanding hereunder to be
due and payable pursuant to Section 8.02 hereof, or done both (i) and
(ii), all payments received and amounts realized by any Lender, as well as all
payments or amounts then held by Lenders as part of the Collateral, shall be
applied against the Obligations in such order and such manner as the Lenders,
in their sole discretion, may determine and as otherwise provided in the other
Loan Documents and the documents evidencing the other Obligations, and the
balance, if any, shall be paid by Lenders to Borrower.

 

(c)                                  If
any Lender shall, by exercising any right of set-off or counterclaim or
otherwise, obtain payment in respect of any principal of or interest on any of
its Revolving Loans resulting in such Lender receiving payment of a greater
proportion of the aggregate amount of its Revolving Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Revolving Loans of other Lenders to the extent necessary
so that the benefit of all such payments shall be shared by Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Revolving Loans; provided, that (i) if any such
participations are purchased and all or any portion of the payment giving rise
thereto is recovered, such participations shall be rescinded and the purchase
price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to
any payment made by Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by any Lender as consideration
for the assignment of or sale of a participation in any of its Loans to any
assignee or participant, other than to Borrower

 

31

 

or any Subsidiary or Affiliate thereof (as to which
the provisions of this paragraph shall apply). 
Borrower consents to the foregoing and agrees, to the extent it may
effectively do so under Applicable Law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of Borrower in the amount of
such participation.

 

(d)                                 Unless
Administrative Agent shall have received notice from Borrower prior to the date
on which any payment is due to Administrative Agent for the account of Lenders
hereunder that Borrower will not make such payment, Administrative Agent may
assume that Borrower has made such payment on such date in accordance herewith and
may, in reliance upon such assumption, distribute to Lenders the amount
due.  In such event, if Borrower has not
in fact made such payment, then each Lender severally agrees to repay to
Administrative Agent forthwith on demand the amount so distributed to such
Lender with interest thereon, for each day from and including the date such
amount is distributed to it to but excluding the date of payment to
Administrative Agent, at the Federal Funds Effective Rate.

 

(e)                                  If
any Lender shall fail to make any payment required to be made by it pursuant to
Section 2.05 or 2.14(d) hereof, then Administrative Agent may, in its
discretion (notwithstanding any contrary provision hereof), apply any amounts
thereafter received by Administrative Agent for account of such Lender to
satisfy such Lender’s obligations under such Sections until all such
unsatisfied obligations are fully paid.

 

Section
2.15  Letters
of Credit.

 

(a)                                  Obligation
Absolute.  The obligation of Borrower to
reimburse Administrative Agent and the L/C Issuer for payments made with
respect to any Letter of Credit Obligation shall be absolute, unconditional and
irrevocable, without necessity of presentment, demand, protest or other
formalities, and the obligations of the Borrower to make payments to Administrative
Agent with respect to Letters of Credit shall be unconditional and
irrevocable.  Such obligations of
Borrower shall be paid strictly in accordance with the terms hereof under all
circumstances including the following circumstances:

 

(i)                                     any
lack of validity or enforceability of any Letter of Credit or this Agreement or
the other Loan Documents or any other agreement;

 

(ii)                                  the
existence of any claim, set-off, defense or other right which Borrower or any
of its Affiliates, the L/C Issuer or any Lender may at any time have against a
beneficiary or any transferee of any Letter of Credit (or any Persons or
entities for whom any such transferee may be acting), Administrative Agent, any
Lender, the L/C Issuer or any other Person, whether in connection with this
Agreement, the Letter of Credit, the transactions contemplated herein or
therein or any unrelated transaction (including any underlying transaction
between Borrower or any of its Affiliates and the beneficiary for which the
Letter of Credit was procured);

 

32

 

(iii)                               any draft, demand,
certificate or any other document presented under any Letter of Credit proving
to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect;

 

(iv)                              payment
by L/C Issuer under any Letter of Credit or guaranty thereof against
presentation of a demand, draft or certificate or other document which does not
comply with the terms of such Letter of Credit or such guaranty;

 

(v)                                 any
other circumstance or happening whatsoever, which is similar to any of the
foregoing; or

 

(vi)                              the
fact that a Default or an Event of Default shall have occurred and be
continuing.

 

(b)                                 Risk.  As among Administrative Agent, the L/C Issuer
and Borrower, Borrower assumes all risks of the acts and omissions of, or
misuse of any Letter of Credit by beneficiaries of any Letter of Credit.  In furtherance and not in limitation of the
foregoing, to the fullest extent permitted by law none of Administrative Agent
or the L/C Issuer shall be responsible: 
(A) for the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document issued by any party in connection with the
application for and issuance of any Letter of Credit, even if it should in fact
prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (B) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
(C) for failure of the beneficiary of any Letter of Credit to comply fully
with conditions required in order to demand payment under such Letter of
Credit; provided, that, in the case of any payment by Administrative
Agent under any Letter of Credit, Administrative Agent shall be liable to the
extent such payment was made solely as a result of its gross negligence or
willful misconduct (as finally determined by a court of competent jurisdiction)
in determining that the demand for payment under such Letter of Credit complies
on its face with any applicable requirements for a demand for payment under
such Letter of Credit; (D) for errors, omissions, interruptions or delays
in transmission or delivery of any messages, by mail, cable, telegraph, telex
or otherwise, whether or not they be in cipher; (E) for errors in
interpretation of technical terms; (F) for any loss or delay in the
transmission or otherwise of any document required in order to make a payment
under any Letter of Credit or guaranty thereof or of the proceeds thereof;
(G) for the credit of the proceeds of any drawing under any Letter of
Credit; and (H) for any consequences arising from causes beyond the
control of Administrative Agent or the L/C Issuer. None of the above shall
affect, impair, or prevent the vesting of any of Administrative Agent’s or the
L/C Issuer’s rights or powers hereunder or under this Agreement.

 

(c)                                  Nothing
contained herein shall be deemed to limit or to expand any waivers, covenants
or indemnities made by Borrower in favor of any L/C Issuer in any letter of
credit application, reimbursement agreement or similar document, instrument or
agreement between Borrower and such L/C Issuer.

 

33

 

Section
2.16  Mitigation
Obligations; Replacement of Lenders.

 

(a)                                  If
any Lender requests compensation under Section 2.11 hereof, or if Borrower
is required to pay any additional amount to any Lender or any Governmental
Authority for account of any Lender pursuant to Section 2.13 hereof, then
such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or Affiliates, if, in
the judgment of such Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 2.11 or 2.13
hereof, as the case may be, in the future, and (ii) would not subject such
Lender to any unreimbursed cost or expense and would not otherwise be
disadvantageous to such Lender. 
Borrower hereby agrees to pay all reasonable costs and expenses incurred
by any Lender in connection with any such designation or assignment.

 

(b)                                 If
any Lender requests compensation under Section 2.11 hereof, or if Borrower
is required to pay any additional amount to any Lender or any Governmental
Authority for account of any Lender pursuant to Section 2.13 hereof, or if
any Lender defaults in its obligation to fund Loans hereunder, then Borrower
may, at its sole expense and effort, upon notice to such Lender and
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 10.10 hereof), all its interests, rights and obligations under
this Agreement to an assignee that shall assume such obligations (which
assignee may be another Lender, if a Lender accepts such assignment); provided,
that (i) Borrower shall have received the prior written consent of
Administrative Agent, which consent shall not unreasonably be withheld,
(ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans, accrued interest thereon, accrued fees and
all other amounts payable to it hereunder, from the assignee (to the extent of
such outstanding principal and accrued interest and fees) or Borrower (in the
case of all other amounts), and (iii) in the case of any such assignment
resulting from a claim for compensation under Section 2.11 hereof or
payments required to be made pursuant to Section 2.13 hereof, such
assignment will result in a reduction in such compensation or payments.  A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling Borrower to require such
assignment and delegation cease to apply.

 

Section 2.17  Term-Loans.  Prior to the Termination Date and only in
the absence of a Default or an Event of Default, Borrower shall have the option
(the “Term Loan Option”) to
convert any Facility B Loan to a term loan (“Term
Loan”) on the final Interest Payment Date with respect to such
Facility B Loan.  Borrower shall pay to
Lenders a fee of one percent (1%) based on the amount of any and all Facility B
Loans for which the Term Out option is exercised.  Each Term Loan shall be repaid in 60 equal consecutive monthly
principal payments, plus interest, calculated on the basis of 10-year
amortization, with all remaining principal and interest to be due on the
sixtieth (60th) and final Installment Payment Date; provided, that no
Term Loan may extend beyond the useful economic life for the Borrower’s trade
of the Vessels identified to such Term Loan as determined by an Appraiser.  Unless Lenders may otherwise agree and
except as provided in the next sentence, interest on any termed-out Facility B
Loan shall accrue at the LIBOR Rate. 
Lenders will make a fixed-rate option available for any Term Loan upon
request of Borrower, such rate shall be based on Lenders’ sole judgment of the
then-current market conditions and financial performance of Borrower and
Guarantors; provided, however,

 

34

 

that Borrower will also be permitted to swap Lenders’
existing variable rate to a fixed rate with another lending institution.  All documentation reflecting such Term Loan
must be satisfactory to Lenders and their counsel and all fees, including legal
fees and expenses, and expenses attendant thereon shall be paid by
Borrower.  No Term Loan Option shall be
available for any Facility B Loan or aggregation of Facility B Loans of less
than $500,000.00.  Each Term Loan shall
continue to be secured by all Collateral, provided, that, if after the
Termination Date there are Term Loans outstanding and no Default or Event of
Default is continuing, Lenders shall release Pool Vessels from the Lien of the
Mortgage and their Proceeds from the Lien of the Assignments, commencing first
with Non-Qualified Vessels, until, in the sole discretion of the Collateral
Agent, the Term Loan to Collateral ratio of the Vessels identified to each Term
Loan is not greater than 2:3.  Borrower
shall execute and deliver to Collateral Agent any and all additional
documentation, including, without limitation, notes in the form of Exhibit C hereto (the “Term Loan Notes” and each, a “Term Loan Note”), mortgages, amendments,
assignments and other documentation as Collateral Agent may request to reflect
such Term Loan, at Borrower’s expense, including, without limitation,
attorneys’ fees.  With respect to any
Acquired Vessel not tendered as a Pool Vessel, a Term Loan may be secured by a
mortgage on that vessel identified to such Term Loan; provided, that no
Vessel identified to a Term Loan may be a Pool Vessel.

 

ARTICLE III

 

GRANT OF SECURITY INTEREST

 

Section 3.01  To secure the payment and
performance in full of all Obligations, Borrower hereby grants to Lenders a
continuing security interest in and Lien upon, and a right of set-off against,
and Borrower hereby assigns and pledges to Lenders, all of the Collateral owned
by it or a Subsidiary Guarantor or in which such party has an interest.

 

Collateral means:

 

(i)                                     each
of the Pool Vessels identified in Schedule I and any Acquired Vessel
hereafter financed through Facility B or Facility C, together with all of its
machinery, anchors, cables, chains, rigging, tackle, fittings, tools, pumps,
pumping equipment, gear, apparel, furniture, appliances, equipment, spare and
replacement parts and all other appurtenances thereunto appertaining or
belonging, whether now owned or hereafter acquired by its respective owner and
whether on board or not, and also any and all additions, improvements and
replacements made in or to such Pool Vessels and Acquired Vessels or any part
thereof or in or to any equipment and appurtenances thereunder appertaining or
belonging and any and all the charter hire, subcharter hire, freights,
subfreights, earnings, charters (including, without limitation, any rights of
termination thereof), to the extent set forth in the Earnings Assignment,
insurance proceeds and all other Proceeds paid or payable to Borrower on
account of the use or employment of any Vessel, being secured by the Mortgage
or any other mortgage to be executed and delivered by Borrower in favor of
Lenders (each, a “Mortgage”); and

 

(ii)                                  all
records, computer tapes, discs, and other data however stored, ledger sheets,
correspondence, invoices, delivery receipts, documents and instruments related
to any of the foregoing.

 

35

 

It is understood
and agreed that all of the Collateral which Lenders or any of them may at any time
acquire from Borrower or from any other source in connection with the
Obligations of Borrower to Lenders, shall constitute Collateral for each and
every Obligation, without apportionment or designation as to particular
Obligations, and that all Obligations howsoever and whensoever incurred, shall
be secured by all Collateral howsoever and whensoever acquired, and Lenders
shall have the right, in its sole discretion, to determine the order in which
Lenders’ rights in or remedies against any Collateral are to be exercised and
which type of Collateral and which portions of Collateral are to be proceeded
against and the order of application of proceeds of Collateral as against
particular Obligations.

 

Section 3.02  On reasonable notice from
Borrower, Lenders will permit the substitution of a Pool Vessel with another
vessel, provided, that such substitute vessel is subject to an Appraisal
and that the Orderly Liquidation Value of the Pool Vessels after such
substitution remains equal to or greater than $71,000,000.00 and that such
vessel can be used in Borrower’s business as currently constituted.  Each substitute vessel shall be first made
subject to the Mortgage and the Assignments. 
The costs of any such substitution, including, without limitation,
counsel fees, will be for Borrower’s account, payable on demand.  No Pool Vessel or Acquired Vessel shall be
valued as a constituent part of an integrated tug/barge unit unless all
components of such unit are subject, or upon acceptance by Lenders would be
subject, to the Mortgage.

 

Section 3.03  Orderly Liquidation Value.  Based on any Appraisal of the Pool Vessels,
the aggregate Orderly Liquidation Value of the Pool Vessels must be equal to or
greater than $71,000,000.00 throughout the term of this Agreement, provided,
that in no event shall more than fifteen percent (15%) of the aggregate Orderly
Liquidation Value of the Pool Vessels be attributable to Non-Qualified Pool
Vessels.  In the event any Appraisal
done at any time indicates that the aggregate Orderly Liquidation Value of the
Pool Vessels is less than $71,000,000.00, Borrower shall pledge additional
vessels acceptable to Lender, and the Proceeds thereof, until the aggregate
Orderly Liquidation Value of the Pool Vessels is equal to at least
$71,000,000.00.  Provided that no
Default or Event of Default is continuing, in the event that any Appraisal done
at any time indicates that the aggregate Orderly Liquidation Value of the
Vessels exceeds $71,000,000.00, then, provided there is no existing Event of
Default, at Borrower’s written request and at Borrower’s expense, Lenders agree
to release Pool Vessels, commencing with Non-Qualified Pool Vessels, from the
pool of assets, provided, that the aggregate Orderly Liquidation Value
of the Pool Vessels may not be reduced to less than $71,000,000.00.  Notwithstanding the foregoing, the value of
any vessel acquired, retrofitted, rebuilt or upgraded with any Facility B Loan
shall not be included for purposes of determining the aggregate Orderly
Liquidation Value of the Pool Vessels as collateral while such vessel is under
construction but may be included upon completion of work and redelivery to
Borrower.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

 

Borrower hereby
represents and warrants to Lenders the following, the truth and accuracy of
which, and compliance with which, shall be continuing conditions of the making
of any Loans by Lenders to Borrower:

 

36

 

Section 4.01  Organization.  Each of Borrower, K-Sea and any Subsidiary
Guarantor is a limited partnership duly organized, validly existing and in good
standing under the laws of Delaware, and has the necessary right, power and
authority to own its respective assets and to transact the business in which it
is engaged, and is duly qualified to do business in each jurisdiction where
such qualification is legally required and in each jurisdiction where the
failure to qualify would affect the enforceability of the Loan Documents or
otherwise adversely affect the Collateral or Borrower’s or K-Sea’s ability to
perform its respective obligations under any of the Loan Documents.  In furtherance and not in limitation of the
foregoing, Borrower shall furnish to Administrative Agent and Lenders a
certificate of good standing from its respective jurisdiction of formation.

 

Section 4.02  Power and Authority.  Borrower has full power, authority and legal
right to execute and deliver this Agreement, any Notes, the Mortgage, the
Assignments and any other Loan Documents executed and delivered from time to
time by Borrower, and to perform its obligations hereunder and thereunder, to
borrow hereunder and to grant the security interests created by this Agreement
and the Mortgage.  This Agreement has
been duly executed and delivered by Borrower and constitutes a legal, valid and
binding obligation of Borrower, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors’ rights generally and subject to general principles
of equity, regardless of whether considered in a proceeding in equity or at
law.

 

Section 4.03  Governmental Approvals; No
Conflicts.  The transactions
contemplated by this Agreement and the Loan Documents (a) do not require
any consent or approval of, registration or filing with, or any other action
by, any Governmental Authority, except such as have been obtained or made and
are in full force and effect, (b) do not require the consent of any other
Person (including, without limitation, any stockholder, trustee or holder of
Indebtedness), (c) will not violate any Applicable Law or regulation or
the charter, by-laws or other organizational documents of Borrower or any of
its Subsidiaries or any order of any Governmental Authority, (d) will not
violate or result in a default under any indenture, agreement or other
instrument binding upon Borrower or any of its Subsidiaries or its assets, or
give rise to a right thereunder to require any payment to be made by Borrower
or any of its Subsidiaries, and (e) will not result in the creation or
imposition of any Lien on any asset of Borrower or any of its Subsidiaries.

 

Section 4.04  Financial Condition; No
Material Adverse Change.  (a)
Borrower was formed on July 14, 2003, and has conducted no business other
than the acquisition, ownership and chartering of its vessels, including the
Pool Vessels.

 

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

 

37

 

Section 4.05  Litigation.  There are no actions, suits, investigations
or proceedings by or before any arbitrator or Governmental Authority pending
against or, to the knowledge of Borrower, threatened against or affecting
Borrower or any of its Subsidiaries or any of the Collateral (i) which, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect, or (ii) that involve
this Agreement or the transactions contemplated hereby.

 

Section 4.06  Environmental Condition.  Except as identified on Schedule 4.06
hereto, none of Borrower’s nor any of its Subsidiaries’ properties or assets
has ever been designated or identified in any manner pursuant to any
Environmental Law (including, without limitation, OPA) as a Hazardous Waste
disposal site, or a candidate for closure pursuant to any Environmental Law,
which designation or identification could reasonably be expected to have a
material adverse effect on Borrower’s or its Subsidiaries’ business or on any
of the Collateral.  No Lien arising
under any Environmental Law has attached to any revenues or to any of the Pool
Vessels or any real or personal property owned by Borrower or any of its Subsidiaries.  Neither Borrower nor any of its Subsidiaries
has received a summons, citation, notice, or directive from the United States
Environmental Protection Agency, the United States Coast Guard or any other federal
or state governmental agency regarding any action or omission by Borrower or
any of its Subsidiaries resulting in the releasing, or otherwise exposing of
Hazardous Waste into the environment, which notice could reasonably be expected
to have a material adverse effect on Borrower’s or its Subsidiaries’ business
or on any of the Collateral.  Borrower
and its Subsidiaries (a) are in compliance (in all material respects) with
all Environmental Laws, including, but not limited to, all statutes, regulations,
ordinances and other legal requirements pertaining to the production, storage,
handling, treatment, release, transportation or disposal of any Hazardous
Waste, and (b) will obtain, maintain and/or comply with any permit,
license or other approval required under any Environmental Law.

 

Section 4.07  Compliance with Laws and
Agreements.  Each of Borrower and
its Subsidiaries is in compliance with all laws, regulations and orders of any
Governmental Authority applicable to it or its property and all indentures,
agreements and other instruments binding upon it or its property, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.  No Default has occurred and is continuing.

 

Section 4.08  Investment and Holding Company
Status.  Neither Borrower nor any of
its Subsidiaries is (a) an “investment company” as defined in, or subject
to regulation under, the Investment Company Act of 1940, or (b) a “holding
company” as defined in, or subject to regulation under, the Public Utility
Holding Company Act of 1935.

 

Section 4.09  Taxes.  Each of Borrower and its Subsidiaries has
timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves, or (b) to the
extent that the failure to do so could not reasonably be expected to result in
a Material Adverse Effect.  The charges,
accruals and reserves on the books of Borrower in respect of Taxes for all open
years, and for the current fiscal year, make adequate provision for all unpaid
Tax liabilities for such periods.

 

38

 

Section 4.10  ERISA.  No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events
for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect.  The present value of all accumulated benefit obligations under
each Plan (based on the assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the date of the most recent
Financial Statements reflecting such amounts, exceed the fair market value of
the assets of such Plan.

 

Section 4.11  Disclosure.  None of the reports, Financial Statements,
certificates or other information furnished by or on behalf of Borrower to
Administrative Agent or any Lender in connection with the negotiation of this
Agreement or the other Loan Documents or delivered hereunder or thereunder (as
modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, that, with respect to projected
financial information, Borrower represents only that such information was
prepared in good faith based upon assumptions believed to be reasonable at the
time.  There is no fact known to
Borrower that could have a Material Adverse Effect that has not been disclosed
herein or in a report, financial statement, exhibit, schedule, disclosure
letter or other writing furnished to Lenders for use in connection with the
transactions contemplated hereby.

 

Section 4.12  No Other Name.  Borrower has not changed its name nor has
done business in any name other than that set forth in the introductory
paragraph of this Agreement.

 

Section 4.13  Title.  Borrower has and at all times will defend
and continue to have good and marketable title to all of the Collateral, free
and clear of all Liens, security interests, claims or encumbrances of any kind
whatsoever subject only to Permitted Liens and the Vessels are documented in
the name of Borrower with the United States Coast Guard National Vessel
Documentation Center in Falling Waters, West Virginia.

 

Section 4.14  Lenders’ Security Interest.  On the Effective Date, Lenders shall have a
legal, valid and continuing first preferred ship mortgage (as amended,
supplemented or otherwise modified from time to time) over the whole of, and a
perfected first lien on and security interest in, the Pool Vessels, and Lenders
shall have a perfected first lien on and security interest in the Collateral
subject only to Permitted Liens and all taxes, fees and other charges in
connection therewith shall have been duly paid.  There are no charters in effect on any Pool Vessels other than
the charters identified on Schedule 4.14 hereto.

 

Section 4.15  Citizenship.  Borrower is a citizen of the United States
as defined in section 2 of the Shipping Act, 1916, as amended, duly qualified
to engage in the coastwise trade and in foreign commerce of the United States,
and shall remain such a citizen while any Loan remains outstanding and during
the life of the Mortgage.

 

39

 

ARTICLE V

 

CONDITIONS

 

Section 5.01  Effective Date.  The obligations of Lenders to make the Loans
hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with
Section 10.08 hereof):

 

(a)                                  Administrative
Agent (or its counsel) shall have received (i) from each party hereto
either (x) a counterpart of this Agreement signed on behalf of such party
or (y) written evidence satisfactory to Administrative Agent (which may
include telecopy transmission of a signed signature page of this
Agreement) that such party has signed a counterpart of this Agreement, and
(ii) executed counterparts of each of the Loan Documents executed by each
party thereto.

 

(b)                                 Each
partner in Borrower shall have effectively subordinated to the rights and Lien
of Lenders, all loans and advances made to Borrower by such partner, and Liens
held by such partner against Borrower’s assets.  The Mortgage and other Loan Documents, agreements and instruments
executed or delivered in connection herewith shall be in form and substance
satisfactory to Lenders and their counsel and shall have been duly executed and
delivered to Lenders by the parties thereto and acknowledgments and consents
(if any) to assignments, in form and substance satisfactory to Lenders, from
any charterer of or any party to a contract of affreightment relating to the
Pool Vessels shall have been duly authorized and executed by the Borrower and
delivered to Lenders.

 

(c)                                  Collateral
Agent shall have received evidence satisfactory to it that the Pool Vessels are
insured in accordance with the provisions of this Agreement, the Mortgage and
the Assignment of Insurances.

 

(d)                                 All
filings, including all applicable UCC-1 filings pursuant to the UCC, recordings
and other actions deemed necessary or desirable by Lenders in order to
establish, protect, preserve and perfect both (i) the Mortgage as a
preferred mortgage over the whole of each of the Pool Vessels therein pledged
in favor of Lenders, and (ii) Collateral Agent’s Lien on behalf of Lenders
on and security interest in all other Collateral as a valid perfected first and
only security interest subject, in the case of the Pool Vessels, only to
Permitted Liens, shall have been duly effected, including, without limitation,
the filing of financing statements and the filing and recordation of the
Mortgage and all other actions required to perfect Lenders’ security interest
in the Collateral, all in form and substance satisfactory to Lenders, and all
fees, taxes and other charges relating to such filings and recordings shall
have been paid by Borrower.

 

(e)                                  (i) The
representations and warranties contained in this Agreement, the Mortgage, and
in all of the other agreements, documents and instruments executed and
delivered to Lenders in connection herewith shall be true and correct in all
material respects on and as of the date of the making of each Loan with the
same effect as if made on and as of such date; (ii) no Default or Event of
Default shall be in existence on the date of the making of each Loan or shall
occur as a result of each Loan; (iii) no event of default shall have
occurred and be continuing on the date on which the Loan is made under any
charter of any of the Pool Vessels;

 

40

 

and (iv) the acceptance by Borrower of each Loan
shall constitute a representation by Borrower that the statements contained in
clauses (i), (ii) and (iii) above are true and correct on the date on which
such Loan is made.

 

(f)                                    Collateral
Agent and Lenders shall have (i) received an Appraisal of all Pool
Vessels, provided, that Lenders may defer a physical appraisal and
accept a desktop appraisal pending confirmation of a physical appraisal
subsequent to closing, and (ii) received and found to be satisfactory
abstracts of title, or documents of similar effect as to the Pool Vessels
confirming that such Pool Vessels are owned by Borrower free of all recorded
Liens (except the Permitted Liens) as of the date of such Loan.  Additionally, Lenders shall have received
satisfactory evidence that the Pool Vessels are operationally suitable for the
trades in which such Pool Vessels are expected to be engaged and can be
operated by Borrower and/or a Subsidiary Guarantor in their intended trades
without impediment.

 

(g)                                 There
will have been a successful initial public offering of K-Sea Transportation
Partners L.P. with a minimum gross proceeds of $70,000,000.00.

 

(h)                                 Borrower
and its Subsidiaries shall have retired all debt other than (i) any
Obligations incurred under Facility A or Facility B, and (ii) any
obligations secured by Title XI Guaranties.

 

(i)                                     Lenders
shall have received assurances acceptable to Lenders that the transfer to
Borrower of all Pool Vessels pursuant to the contemplated restructuring does
not constitute a fraudulent conveyance under Applicable Law and that Borrower
is in compliance with all government regulations, including those relating to
the ownership and operation of vessels in the United States coastwise trade.

 

(j)                                     No
Event of Loss shall have occurred with respect to any of the Pool Vessels.

 

(k)                                  All
legal matters with respect to and all legal documents (including, but not
limited to, the Loan Documents) executed in connection with the transactions
contemplated by this Agreement shall be satisfactory to counsel for Lenders.

 

(l)                                     Administrative
Agent shall have received a favorable written opinion (addressed to
Administrative Agent and Lenders and dated the Effective Date) of counsel to
Borrower, substantially in the form of Exhibit E,
and covering such other matters relating to Borrower, this Agreement or the
other Loan Documents as Required Lenders shall reasonably request.

 

(m)                               Administrative
Agent shall have received such documents and certificates as Administrative
Agent or its counsel may reasonably request relating to the organization,
existence and good standing of Borrower, the authorization of the Transactions
and any other legal matters relating to Borrower, this Agreement or the Loan
Documents, all in form and substance satisfactory to Administrative Agent and
its counsel.

 

(n)                                 Lenders
shall have received all fees and other amounts due and payable hereunder and
under any separate fee letters on or prior to the Effective Date, including, to
the

 

41

 

extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by Borrower hereunder.

 

Administrative Agent (acting
itself or through its counsel) shall notify Borrower and Lenders of the
Effective Date, and such notice shall be conclusive and binding.  Notwithstanding the foregoing, the
obligations of Lenders to make Loans shall not become effective unless each of
the foregoing conditions is satisfied (or waived pursuant to Section 10.08
hereof) at or prior to 3:00 p.m., New York City time, on November 30,
2003 (and, in the event such conditions are not so satisfied or waived, the
Commitments shall terminate at such time).

 

Section 5.02  Subsequent Loans.  The obligation of Lenders to make subsequent
Loans to Borrower hereunder shall not become effective until after the date on
which conditions in Section 5.01(b), (e), (j), (m) and (n) hereof are
satisfied (or waived in accordance with Section 10.08 hereof).

 

Notwithstanding
the foregoing, the obligations of Lenders to make Loans shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 10.08 hereof) at or prior to 3:00 p.m., New York
City time, on the date of any such Loan. 
Each Loan shall be deemed to constitute a representation and warranty by
Borrower on the date thereof as to the matters specified in Article IV
hereof.

 

Section 5.03  Facility B and Facility C
Loans.  The obligation of Lenders to
make Facility B or Facility C Loans to Borrower shall not become effective
until the date on which each of the following conditions is satisfied (or
waived in accordance with Section 10.08 hereof):

 

(a)                                  Each
of the conditions set forth in Section 5.01 or Section 5.02, as
applicable, is satisfied (or waived in accordance with Section 10.08
hereof).

 

(b)                                 In
the case of a Facility B Loan requested by Borrower to acquire a vessel or
vessels in a single transaction for an amount greater than Ten Million Dollars
and less than Twenty Million Dollars ($20,000,000.00), Borrower shall provide a
written analysis, certified by its Financial Officer, confirming pro  forma
covenant compliance, with supporting calculations and financial
information.  In the case of a Facility
B Loan request equal to or greater than Twenty Million Dollars
($20,000,000.00), Borrower or K-Sea must provide a complete package of
historical and projected financials, asset appraisals, management’s plan for
integrating the acquisition, and any other reasonable information requested by and
acceptable to Lenders; provided, however, that Facility B and
Facility C Loans above Twenty Million Dollars ($20,000,000.00) are at the sole
discretion of Lenders and require Borrower to provide written analysis,
certified by Borrower’s and K-Sea’s Financial Officers, confirming pro forma covenant compliance and provide
additional financial information as stated above.  Lenders reserve the right of refusal to fund for any vessel
acquisition that does not meet the foregoing requirements or for which sufficient
information was not provided.

 

(c)                                  Each
vessel Borrower proposes to acquire with a Facility B or Facility C Loan shall
be subject to an Appraisal; provided, however, that, at
Borrower’s request, Collateral Agent, in its sole discretion, may provisionally
accept a desk appraisal and permit Borrower to

 

42

 

defer a physical Appraisal until a subsequently
scheduled drydocking if one is scheduled within the six (6) month period
following the date of acquisition of such vessel.

 

(d)                                 Subject
to Section 3.03 hereof, each vessel Borrower proposes to acquire or
rebuild, retrofit, upgrade or improve with a Facility B or Facility C Loan,
including any vessel owned by Borrower and not previously included as a Pool Vessel,
shall, and in the case of a vessel to be rebuilt, retrofitted, upgraded or
improved with such loan shall prior to commencement of any financed work, be
made subject to a preferred mortgage and assignments of insurances and proceeds
securing not only the Facility B and/or a Facility C Loan with which it was
acquired but all other Loans and Obligations under Facility A, Facility B,
Facility C and Facility D equally with all other Collateral.

 

(e)                                  Each
vessel Borrower proposes to acquire with a Facility B or Facility C Loan shall
meet, and any vessel retrofitted, rebuilt or upgraded with a Facility B or
Facility C Loan (including an Acquired Vessel) will be required on redelivery
to Borrower to meet, the documentation and construction standards of a Pool Vessel,
except with respect to any Acquired Vessel which is a vessel under construction
and subject to a post construction financing commitment from the United States
Maritime Administration; provided, however, that Lenders shall
have no obligation to make any Loans to finance the retrofitting, rebuilding or
upgrading of any vessel in which Lenders do not have a security interest or
mortgage acceptable to Lenders prior to the commencement of any such work as
provided in Section 5.03(d) hereof.

 

(f)                                    Collateral
Agent shall have received evidence satisfactory to it that the vessel Borrower
proposes to acquire with a Facility B or Facility C Loan is insured in
accordance with provisions of this Agreement, the Mortgage and the Assignment
of Insurances.

 

ARTICLE VI

 

AFFIRMATIVE COVENANTS

 

Until the
Commitments have expired or been terminated and the principal of and interest
on each Loan and all fees payable hereunder shall have been paid in full,
Borrower covenants and agrees with Lenders that:

 

Section
6.01  Financial
Statements and Other Information.

 

(a)                                  Borrower
shall deliver to Lenders, at Borrower’s sole expense:  (i) as soon as available but no later than forty-five (45)
days after the end of each fiscal quarter, the unaudited consolidated Financial
Statements of K-Sea for such interim fiscal period, certified by the Financial
Officer of K-Sea, and (ii) as soon as available but no later than ninety
(90) days after the end of each fiscal year, the audited consolidated Financial
Statements of K-Sea for such fiscal year, certified by independent certified
public accountants acceptable to Lenders. 
All of the foregoing shall be in such form and together with such
information with respect to the business of Borrower, as Lenders may in each
case request as reasonably calculated by Lenders to enable them to confirm and
prove elements of the Financial Statements. 
Borrower shall keep and maintain its books and records in accordance
with GAAP, consistently applied.

 

43

 

(b)                                 Concurrently
with any delivery of Financial Statements under clause (a) above, Borrower
shall deliver to Lenders a certificate of a Financial Officer of K-Sea
(i) certifying as to whether a Default has occurred since the delivery of
the previous such certificate or to the date hereof and, if such a Default has
occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto, (ii) setting forth reasonably detailed
calculations demonstrating compliance with Sections 7.01, 7.02, 7.03 and
7.05 (hereof), and (iii) stating whether any change in GAAP or in the
application thereof has occurred since the date of the audited Financial
Statements referred to in Section 4.04 or Section 6.01 hereof, as applicable,
has had a material adverse effect on the Financial Statements accompanying such
certificate and, if so, the estimated dollar amount thereof.

 

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

 

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

 

Section 6.02  Vessel Appraisals.  Lenders may conduct, and Borrower shall
cooperate in the conduct of, a physical Appraisal of any or all of the Pool
Vessels and Acquired Vessels at Borrower’s expense, over every eighteen (18)
month period of this Agreement in the absence of an Event of Default and at any
time during the continuance of an Event of Default.  The first eighteen-month period will begin on the Effective Date;
provided, however, that Borrower will allow access to any
appraiser sent by Lenders to attend and appraise any Vessel in drydock at any
time on reasonable notice.  Each fiscal
year, Borrower shall provide Collateral Agent with a drydock schedule and
location of drydock.

 

Section 6.03  Fees and Expenses.  Borrower shall pay, on Lenders’ demand and
delivery to Borrower of invoices therefor, all actual out-of-pocket costs,
expenses, filing fees and taxes payable in connection with the negotiation,
preparation, execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Lenders’ rights in the
Collateral, this Agreement and all other existing and future agreements or
documents contemplated herein or related hereto, including any amendments,
waivers, supplements or consents which may hereafter be made or entered into in
respect hereof, or in any way involving claims or defense asserted by Lenders
or claims or defenses against Lenders asserted by Borrower or any guarantor,
including, without limitation, the Guarantors, or any third party directly or
indirectly arising out of or related to the relationship between Borrower and
Lenders, including, but not limited to, the following, whether incurred before,
during or after the initial or any renewal term or after the commencement of
any case with respect to Borrower under the United States Bankruptcy Code or
any similar statute: (a) all costs and expenses of filing or recording
(including the UCC financing statement and any Mortgage filing taxes and fees,
abstract fees relating to the Vessels, documentary taxes, intangibles taxes,
etc., if

 

44

 

applicable); (b) all insurance premiums,
appraisal fees, fees incurred in connection with any environmental report,
audit or survey and search fees; (c) all fees as then in effect relating
to the wire transfer of loan proceeds and other funds and fees then in effect
for returned checks and credit reports; (d) with respect to periodic field
examinations of the Collateral and Borrower’s operations, a per diem charge at
the rate of $1,000.00 per person per day for Lenders’ examiners in the field
and office in excess of three (3) days per visit; and (e) the costs, fees
and disbursements of outside counsel to Lenders, including, but not limited to,
such fees and disbursements incurred as a result of litigation between the
parties hereto, any third party and in any appeals arising therefrom.  Any of the foregoing amounts that are paid
by Lenders shall, until reimbursed by or on behalf of Borrower, constitute
Obligations of Borrower secured by the Collateral.

 

Section 6.04  Notices of Material Events.  Borrower will furnish to Administrative Agent
and each Lender prompt written notice of the following:

 

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

 

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

 

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

 

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

 

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

 

Section 6.05  Existence; Conduct of Business.  Borrower will, and will cause each of its
Subsidiaries to, do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its legal existence and the rights, licenses,
permits, privileges and franchises material to the conduct of its business.

 

Section 6.06  Insurance.  With respect to the Collateral and other
assets, Borrower shall maintain insurance at all times, with financially sound
and reputable insurers that are reasonably acceptable to Collateral Agent.  With respect to insurance on all Collateral,
all such insurance policies shall be in such form, substance, amounts and
coverage as may be satisfactory to Collateral Agent and Lenders and shall
provide for thirty (30) days’ prior written notice to Collateral Agent and
Lenders of any reduction or cancellation of coverage on account of default in
the payment of any premium and shall provide Lenders with the opportunity to
cure nonpayment.  Borrower hereby
irrevocably appoints Collateral Agent with full right of delegation by
Collateral Agent as attorney-in-fact for Borrower and each of them to obtain,
at Borrower’s expense, any such insurance should Borrower fail to do so and,
after an Event of

 

45

 

Default, to adjust or settle any claim or other matter
under or arising pursuant to such insurance or to amend or cancel such
insurance.  Borrower shall deliver to
Collateral Agent and Lenders evidence of such insurance and a lender’s loss
payable endorsement satisfactory to Collateral Agent and Lenders as to all
existing and future insurance policies with respect to the Collateral.  Borrower shall deliver to Collateral Agent,
in kind, all instruments representing proceeds of insurance received by
Borrower.  Except as otherwise
specifically provided in the Mortgage as to any Pool Vessel or Acquired Vessel,
Collateral Agent may apply any insurance proceeds received at any time to the
cost of repairs to or replacement of any portion of the Collateral and/or, at
Administrative Agent’s option, to payment of or as security for any of the
Obligations, whether or not due, in any order or manner as Collateral Agent may
determine.  Borrower will insure each
Pool Vessel and Acquired Vessel in accordance with Section 1.18 of the
Mortgage.  Nothing in this Agreement shall
be construed to limit or restrict the provisions of Section 1.18 of the
Mortgage, but shall be in addition thereto.

 

Section 6.07  Taxes; Use.  Borrower agrees that it will, and will cause
each of its Subsidiaries to, pay and discharge all taxes, assessments,
licensing obligations and governmental charges or levies imposed on the income,
profits, sale, business or properties of Borrower and its Subsidiaries prior to
the date upon which penalties attach for non-payment thereof, and promptly
discharge any liens, encumbrances or other claims which may be levied or
claimed against any of the Collateral, provided, that (i) any such
tax, assessment, charge or levy need not be paid if the payment thereof is
being contested in good faith and by appropriate proceedings, (ii) for
which adequate book reserves, determined in accordance with GAAP, shall be set
aside, and (iii) the failure to make payment pending such contest could
not reasonably be expected to result in a Material Adverse Effect, and provided,
further, that if any such tax, assessment, charge or levy lawfully
imposed shall remain unpaid after the date upon which a Lien on any Collateral
arises or may be imposed as a result of such non-payment, or if any Lien is
claimed for any other reason against any of the Collateral, which if foreclosed
would in Lenders’ opinion adversely affect the value of Lenders’ security
interest in any of the Collateral, Lenders may pay and discharge such taxes,
assessments, charges, levies and Liens, and the amount so paid by Lenders shall
be payable on demand and if not paid promptly, will be charged to the
appropriate Loan Account and shall be secured by the Collateral.  Borrower will, and will cause each of its
Subsidiaries, to comply with all laws and all acts, rules, regulations and
orders of any legislative, administrative or judicial body or official,
applicable to the Collateral or to the operation of the business of Borrower.

 

Section 6.08  Maintenance of Properties; Use
and Operation of Vessels.  Borrower
will, and will cause each of its Subsidiaries to, keep and maintain all
property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted. 
Borrower shall require at all times that any charterer or operator of
any of the Vessels shall use its due diligence to operate, maintain, repair,
insure, man and supply the Vessels or any of them in a careful and proper
manner, comply in all material respects with and conform to all governmental
laws, rules and regulations and insurance restrictions relating thereto, and
operate any such Vessels with competent and duly qualified personnel.  Borrower shall ensure that none of the
Vessels is traded, located, operated or used, directly or indirectly, in a
Prohibited Jurisdiction or by a Prohibited Person, and no charterer nor any
subcharterer or shipper shall be a Prohibited Person or organized in a
Prohibited Jurisdiction.

 

46

 

Section 6.09  Books and Records; Inspection
Rights.  Borrower will, and will
cause each of its Subsidiaries to, keep proper books of record and account in
which full, true and correct entries in accordance with GAAP are made of all
dealings and transactions in relation to its business and activities.  Borrower will, and will cause each of its
Subsidiaries to, permit any representatives designated by Administrative Agent
or any Lender, upon reasonable prior notice, to visit and inspect its
properties, including, without limitation, the Collateral, to examine and make
extracts from its books and records, and to discuss its affairs, finances and
condition with its officers and independent accountants, all at such reasonable
times and as often as reasonably requested. 
Borrower shall provide to Collateral Agent advance notice of all surveys
and regulatory inspections in order that Lenders may observe and
participate.  All records, computer
tapes, discs and other data storage devices, ledger sheets, correspondence,
invoices, delivery receipts, documents and instruments relating to the
Collateral shall also constitute Collateral and, unless and until delivered to
Lenders, shall be kept by Borrower, without cost to Lenders, in appropriate
containers and in safe places, and if Lenders should so request, shall bear
suitable legends identifying them as being under any Lender’s dominion and
control.  Lenders shall at all
reasonable times have full access to and the right to audit any and all of
Borrower’s books, computer tapes, discs and other data storage devices and
records, including, but not limited to, books and records pertaining to the
Collateral and including all files and correspondence with creditors and
customers, and to confirm and verify the value and collectibility of the
Collateral and to do whatever else Lenders reasonably may deem necessary to
protect its interests.

 

Section 6.10  Use of Proceeds.  The proceeds of the Facility A Loans can be
used for any purpose in the ordinary course of business, including minimum
quarterly distributions to partners in K-Sea. 
The proceeds of the Facility B Loans will be used exclusively for
(1) acquisition of specific vessels from unaffiliated third parties, or,
if from an Affiliate, an acquisition which is made on terms equivalent to an
arm’s-length basis, or (2) financing other rebuilding, retrofitting,
upgrading or capital improvements on Pool Vessels or acquisition of Acquired
Vessels.  Borrower shall not invest,
lend or otherwise distribute the proceeds of any Loan made under this Agreement
in or to any Person other than Borrower, K-Sea or any Subsidiary Guarantor,
except as set forth in the first sentence of this Section 6.10.

 

Section 6.11  U.S. Person.  Borrower covenants and agrees that at all
times until the Lien of the Mortgage shall be discharged and there are no Loans
outstanding hereunder, it will be a limited partnership organized under the
laws of Delaware or another state within the United States.

 

Section 6.12  Documentation.  Borrower will comply with and satisfy all
provisions of the laws and regulations of the United States now or hereafter
from time to time in effect in order that the Pool Vessels and Acquired Vessels
shall continue to be documented vessels pursuant to the laws of the United
States as vessels of the United States under the United States flag with such
endorsements as shall qualify the Pool Vessels and Acquired Vessels for
participation in the coastwise trade (except for the Lemon Creek and the
Casablanca which are qualified for registry trade only) and such other trades
and services to which they may be dedicated from time to time.

 

Section 6.13  Further Assurances.  Borrower will, promptly at any time and from
time to time, at its sole expense, execute and deliver, and cause its
Subsidiaries to execute and deliver, to Lenders such further instruments and
documents, and take such further action, as Lenders may

 

47

 

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

 

Section 6.14  Borrower’s Title; Lenders’
Security Interest; Personal Property. 
Borrower shall warrant and defend its good and marketable title in and
to the Vessels, and Lenders’ perfected first priority security interest in the
Collateral, against all claims and demands whatsoever.  Borrower agrees that the Vessels shall be,
and at all times and remain, separately identifiable personal property.  Borrower shall, at its sole expense, take
such action (including the obtaining and recording of waivers) as may be
necessary to prevent any Person from acquiring any right to or interest in the
Vessels by virtue of the Vessels being deemed to be real property or a part of
real property or a part of other personal property, and if at any time any
Person shall claim any such right or interest, Borrower shall, at its expense,
cause such claim to be waived in writing or otherwise eliminated by bonding or
substitution of security to Lenders’ satisfaction within thirty (30) days after
such claim shall have first become known to Borrower.

 

Section 6.15  Indemnification.  Without limiting the generality of any other
provision hereof, Borrower shall indemnify, protect, save and keep harmless
each Lender from and against any reduction in the amount payable out of the
Collateral to such Lender with respect to the Obligations, or any other loss,
cost or expense (including reasonable legal fees) incurred by such Lender, as
the result of any breach of the provisions of this Article VI.

 

Section 6.16  Performance of Contracts.  Borrower will duly observe and perform in
all material respects all covenants and obligations to be performed by it under
any charter or any other contract for use of the Vessels or any of them and
will promptly take any and all action as may be reasonably necessary to enforce
its rights under any such charter or contract or to secure the performance by
such charterer or operator of such party’s obligations under any such charter
or contract.  Borrower shall not amend,
terminate or otherwise modify the terms of any such charter or contract without
the prior written consent of Lenders, which shall not be unreasonably withheld
or delayed, but to which reasonable conditions may be attached; provided,
however, Lenders shall have no obligation to consent to any termination
or to any amendment or modification, if in Lenders’ judgment such amendment or
modification would materially increase Lenders’ risks in the transaction,
reduce its returns or otherwise disadvantage Lenders.

 

Section 6.17  Environmental Compliance.  (a) Borrower shall, and it shall require
that any and all subcharterers, managers, employees, contractors,
subcontractors, agents, representatives, Affiliates, consultants, occupants and
any and all other Persons, (i) comply in all material respects with all
applicable Environmental Laws, (ii) use, employ, process, emit, generate,
store, handle, transport, dispose of and/or arrange for the disposal of any and
all

 

48

 

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

 

Section 6.18  Subsidiary Guaranties.  Upon the formation of any Subsidiary of
Borrower that owns, operates or has on charter, or receives any Hire, on or
with respect to any Pool Vessel or any Acquired Vessel from time to time,
Borrower shall cause each such Subsidiary to provide a Subsidiary Guaranty to
Lenders substantially in the form attached hereto as Exhibit I.  In the
event any Subsidiary of Borrower is an entity other than a corporation, the
form of Subsidiary Guaranty shall be modified to reflect the nature of such
entity.

 

Section 6.19  Cleanup Requirement.  Borrower will cause the aggregate
outstanding amount of Facility A Loans (other than letters of credit) to be
reduced to zero for a period of at least fifteen (15) days during each twelve
month period commencing on the Effective Date.

 

ARTICLE VII

 

NEGATIVE COVENANTS

 

Until the
Commitments have expired or terminated and the principal of and interest on
each Loan and all fees payable hereunder have been paid in full Borrower
covenants and agrees with Lenders that:

 

Section 7.01  Fixed Charge Coverage.  The Fixed Charge Coverage Ratio will not be
less than 3.00 to 1.00, tested quarterly based on the previous four fiscal quarters
commencing with a retrospective measurement from December 31, 2003.

 

49

 

Section 7.02  Total Funded Debt to EBITDA.  The ratio of total funded debt to EBITDA
will not at any time be greater than 3.25 to 1.00, tested for the period of the
previous four fiscal quarters.

 

Section 7.03  Leverage Ratio.  The Leverage Ratio will not exceed 2.00 to
1.00, tested quarterly.

 

Section 7.04  Adjustments to Measurements.  With respect to the foregoing
Sections 7.01, 7.02, and 7.03 hereof, covenant performance shall be
measured from the Effective Date with respect to Borrower and, for any prior
period constituting part of a measurement period, with respect to the
performance of K-Sea Transportation, LLC, and consolidated subsidiaries; provided,
however, that from Interest Expense, there shall be excluded all
interest incurred prior to the Effective Date related to debt obligations
discharged from IPO proceeds and not refunded with any Facility provided by
Lenders pursuant to this Agreement.

 

Section 7.05  Minimum Tangible Net Worth.  Borrower shall, at all times, maintain a
minimum consolidated Tangible Net Worth of $85,000,000.00.

 

Section 7.06  No Liens.  Borrower will not and will not permit any
charterer of the Vessels or any of them to create, assume or suffer to exist
any Lien of any kind upon the Collateral except for Liens in favor of Lenders
and Permitted Liens.

 

Section 7.07  No Changes in Borrower.  Borrower shall not (a) materially
change its business; (b) change the form of organization of its business;
or (c) without thirty (30) days’ prior written notice to Lenders, change
its name or jurisdiction or organization.

 

Section 7.08  No Disposition of Assets.  Without the prior written consent of Lenders
which shall not be unreasonably withheld, Borrower shall not directly or
indirectly sell, lease (except any charter of a Pool Vessel or an Acquired
Vessel permitted under the Mortgage), transfer, assign, abandon, exchange or
otherwise relinquish possession or dispose of any part of the Collateral or any
material portion of its other assets (other than Collateral or other assets
that are obsolete or worn out, or equipment disposed of, if worn out, and
replaced with equipment of the same or better quality and value, in the
ordinary course of business).

 

Section
7.09  Fundamental
Changes.

 

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

 

50

 

or dissolution is in the best interests of Borrower
and is not materially disadvantageous to Lenders.

 

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

 

Section 7.10  Transactions with Affiliates.  Borrower will not, and will not permit any
of its Subsidiaries to, sell, lease or otherwise transfer any property or
assets to, or purchase, lease or otherwise acquire any property or assets from,
or otherwise engage in any other transactions with, any of its Affiliates,
except (a) in the ordinary course of business at prices and on terms and
conditions not less favorable to Borrower or such Subsidiary than could be
obtained on an arm’s-length basis from unrelated third parties,
(b) transactions between or among Borrower and its Subsidiaries not
involving any other Affiliate and (c)  any transaction permitted by
Section 7.09 hereof; provided, that the foregoing provisions of
this Section 7.10 shall not prohibit any such Person from declaring or
paying any lawful Distributions so long as, after giving effect thereto, no
Default shall have occurred and be continuing. 
No funds provided by Lenders to Borrower hereunder shall be employed for
purposes other than corporate purposes of Borrower and for use in Borrower’s
business.

 

Section 7.11  Restrictive Agreements.  Borrower will not, and will not permit any
of its Subsidiaries to, directly or indirectly, enter into, incur or permit to
exist any agreement or other arrangement that prohibits, restricts or imposes
any condition upon (a) the ability of Borrower or any Subsidiary to
create, incur or permit to exist any Lien upon any of its property or assets,
which restriction (or condition) is more restrictive, in substance, than the
restrictions in Section 7.06 hereof, or (b) the ability of any
Subsidiary to pay Distributions or other distributions with respect to any
shares of its capital stock or to make or repay loans or advances to Borrower
or any other Subsidiary or to guaranty Indebtedness of Borrower or any other
Subsidiary; provided, that (i) the foregoing shall not apply to
restrictions and conditions imposed by law or by this Agreement, (ii) the
foregoing shall not apply to restrictions and conditions existing on the date
hereof (but shall apply to any extension or renewal of, or any amendment or
modification expanding the scope of, any such restriction or condition),
(iii) the foregoing shall not apply to customary restrictions and
conditions contained in agreements relating to the sale of a Subsidiary pending
such sale, provided, that such restrictions and conditions apply only to
the Subsidiary that is to be sold and such sale is permitted hereunder,
(iv) clause (a) of the foregoing shall not apply to restrictions or
conditions imposed by any agreement relating to secured Indebtedness permitted
by this Agreement if such restrictions or conditions apply only to the property
or assets securing such Indebtedness and (v) clause (a) of the foregoing
shall not apply to customary provisions in leases and other contracts
restricting the assignment thereof.

 

Section 7.12  The Borrower shall not make
distributions to any limited or general partner of the Borrower during the
continuance of an Event of Default if, following the occurrence of such Event
of Default, Lenders send a notice to Borrower asserting or confirming such
Event of Default (regardless of whether any notice shall have been required to
create such Event of Default in any case).

 

51

 

ARTICLE VIII

 

EVENTS OF DEFAULT AND REMEDIES

 

Section 8.01  Events of Default.  If any of the following events (“Events of Default”) shall occur:

 

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

 

(b)                                 any
representation or warranty made or deemed made by or on behalf of Borrower or
any Subsidiary (i) in this Agreement or any amendment or modification
hereof, shall prove to have been incorrect when made or incorrect in any
material respect when deemed made or (ii) in any report, certificate,
financial statement or other document furnished pursuant to or in connection
with this Agreement or any amendment or modification thereof, shall prove to
have been incorrect in any material respect when made or deemed made;

 

(c)                                  Borrower
shall fail to observe or perform any covenant, condition or agreement contained
in Sections 6.04, 6.05, 6.06, 6.07, 6.08, 6.10, 6.11, 6.12, 6.14, 7.01,
7.02, 7.03 or 7.10 hereof;

 

(d)                                 Borrower
shall fail to observe or perform any covenant, condition or agreement contained
in this Agreement (other than those specified in clause (a) or (c) of this
Section 8.01), and such failure shall continue unremedied for a period of
thirty (30) days after notice thereof from Administrative Agent (given at the
request of any Lender) to Borrower;

 

(e)                                  any
Credit Party shall fail to make any payment (whether of principal or interest
and regardless of amount) in respect of any Material Indebtedness, when and as
the same shall become due and payable and after any applicable grace and/or
notice period;

 

(f)                                    any
event or condition occurs that results in any Material Indebtedness becoming
due prior to its scheduled maturity or that enables or permits (after giving
effect to any applicable grace period and/or notice period) the holder or
holders of any Material Indebtedness or any trustee or agent on its or their
behalf to cause any Material Indebtedness to become due, or to require the
prepayment, repurchase, redemption or defeasance thereof, prior to its
scheduled maturity; provided, that this clause (f) shall not apply to secured
Indebtedness that becomes due as a result of the voluntary sale, transfer or
total loss of the property or assets securing such Indebtedness or, with
respect to any Title XI debt, the United States has waived such event or
condition prior to the commencement by Lenders of any foreclosure actions or
non-judicial remedies;

 

(g)                                 an
involuntary proceeding shall be commenced or an involuntary petition shall be
filed seeking (i) liquidation, reorganization or other relief in respect
of any Credit Party or its debts, or of a substantial part of its assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or similar
law now or hereafter in effect or (ii) the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for any
Credit Party or for a substantial part of its assets, and, in any such case,
such proceeding or petition shall

 

52

 

continue undismissed for sixty (60) days or an order
or decree approving or ordering any of the foregoing shall be entered;

 

(h)                                 any
Credit Party shall (i) voluntarily commence any proceeding or file any
petition seeking liquidation, reorganization or other relief under any Federal,
state or foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition
described in clause (g) of this Section 8.01, (iii) apply for or
consent to the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for Borrower or any Subsidiary or for a
substantial part of its assets, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors or
(vi) take any action for the purpose of effecting any of the foregoing;

 

(i)                                     any
Credit Party shall become unable, admit in writing or fail generally to pay its
debts as they become due;

 

(j)                                     one
or more judgments (excluding only the covered amounts of insured claims,
exclusive of deductibles and excess liability beyond coverage limits and
provided that underwriters have not raised defenses to coverage) for the
payment of money in an aggregate amount in excess of $500,000.00 shall be
rendered against any Credit Party or any combination thereof and the same shall
remain undischarged for a period of thirty (30) consecutive days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to attach or levy upon any assets of such Credit Party
to enforce any such judgment and either (i) enforcement procedings shall
have been commenced by any creditor upon any such judgment or order, or
(ii) there shall be a period of ten (10) consecutive days after entry
thereof during which a stay of enforcement of any such judgment or order, by
reason of a pending appeal, or otherwise, shall not be in effect; provided,
however, that any such judgment or order shall not give rise to an Event
of Default under this subsection (j) if and for so long as and to the extent of
(A) the amount of such judgment or order is covered by a valid and binding
policy of insurance between the defendant and the insurer covering full payment
thereof, and (B) such insurer has been notified, and has not disputed the
claim for payment, of the amount of such judgment or order;

 

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

 

(l)                                     a
Change in Control shall have occurred;

 

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

 

(n)                                 except
for specific matters disclosed in writing to Lenders prior to the date hereof,
any indictment or threatened indictment, occurring after the date hereof, of
Borrower under any criminal statute, including OPA or any similar Environmental
Law, or commencement

 

53

 

or threatened commencement of criminal or civil
proceedings against Borrower, pursuant to which statute or proceedings the
penalties or remedies sought or available include forfeiture of any of the
property of Borrower.  For issues
relating to OPA or similar Environmental Law, Lenders agrees that an Event of
Default shall not be deemed to have occurred prior to the date on which
Borrower receives notice thereof from Lenders;

 

(o)                                 a
Mortgage Event of Default shall have occurred and be continuing under and as
defined in the Mortgage;

 

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

 

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

 

(r)                                    [intentionally
omitted];

 

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

 

(t)                                    breach
by K-Sea of the Parent Guaranty;

 

(u)                                 breach
by any Subsidiary of Borrower of its Subsidiary Guaranty;

 

(v)                                 [intentionally
omitted]; or

 

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

 

(x)                                   Any
Organizational Document of Borrower or any Guarantor shall be amended, revoked
or rescinded in any material way without the prior written consent of Lenders.

 

Section 8.02  Remedies .  (a) Upon the occurrence of an Event of
Default, and at any time thereafter, Lenders shall have all rights and remedies
provided in this Agreement, any other agreements among Borrower and
Administrative Agent and Lenders, the UCC or other Applicable Law, all of which
rights and remedies may be exercised without notice to Borrower, all such
notices being hereby waived, except such notice as is expressly provided for
hereunder or is not waivable under Applicable Law.  All rights and remedies of Lenders are cumulative and

 

54

 

not exclusive and are enforceable, in Lenders’
discretion, alternatively, successively, or concurrently on any one or more
occasions and in any order the Required Lenders may determine.

 

(b)                                 Without
limiting the foregoing, Administrative Agent on behalf of the Required Lenders
may accelerate the payment of all Obligations and demand immediate payment
thereof to Lenders and Collateral Agent on behalf of Required Lenders may:  (a) with or without judicial process or
the aid or assistance of others, enter upon any premises on or in which any of
the Collateral may be located and take possession of the Collateral, pursue any
or all of any Lenders’ rights against any of the Vessels pursuant to the
Mortgage, (b) require Borrower, at Borrower’s expense, to assemble and
make available to Lenders any part or all of the Collateral at any place and
time designated by Lenders, (c) collect, foreclose, receive, appropriate,
set-off and realize upon any and all Collateral, (d) extend the time of
payment of, compromise or settle for cash, credit, return of merchandise, and
upon any terms or conditions, any and all accounts or other Collateral which
includes a monetary obligation and discharge or release the account debtor or
other obligor, without affecting any of the Obligations, (e) sell, lease,
transfer, assign, deliver or otherwise dispose of any and all Collateral
(including, without limitation, entering into contracts with respect thereto,
by public or private sales at any exchange, broker’s board, any office of
Lenders or elsewhere) at such prices or terms as Lenders may deem reasonable,
for cash, upon credit or for future delivery, with Lenders having the right to
purchase the whole or any part of the Collateral at any such public sale, all
of the foregoing being free from any right or equity of redemption of Borrower,
which right or equity of redemption is hereby expressly waived and released by
Borrower.  If any of the Collateral is
sold or leased by Lenders upon credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment therefore is
finally collected by Lenders.  If notice
of disposition of Collateral is required by law, seven (7) days’ prior notice
by Administrative Agent to Borrower designating the time and place of any
public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable
notice thereof and Borrower waives any other notice.  In the event Administrative Agent on behalf of Lenders institutes
an action to recover any Collateral or seeks recovery of any Collateral by way
of prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.

 

Section 8.03  Lenders’ Cure of
Third Party Agreement Default.  Any
Lender may, at its option, cure any default by Borrower under any agreement
with a third party or pay or bond on appeal any judgment entered against
Borrower, discharge taxes, Liens, security interests or other encumbrances at
any time levied on or existing with respect to the Collateral and pay any
amount, incur any expense or perform any act which, in such Lender’s sole
judgment, is necessary or appropriate to preserve, protect, insure, maintain,
or realize upon the Collateral.  Lenders
may charge Borrower’s Loan Account for any amounts so expended, such amounts to
be repayable by Borrower on demand. 
Lenders shall be under no obligation to effect such cure, payment,
bonding or discharge, and shall not, by doing so, be deemed to have assumed any
obligation or liability of Borrower.

 

55

 

ARTICLE IX

 

THE AGENTS

 

Section 9.01  Appointment, Powers
and Immunities.  Each Lender hereby
irrevocably appoints and authorizes The CIT Group/Equipment Financing, Inc., to
act as its Collateral Agent and KeyBank N.A. to act as its Administrative Agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Agents by the terms of this Agreement and of the
other Loan Documents, together with such other powers as are reasonably
incidental thereto.  Each Agent (which
term as used in this sentence and in Section 9.05 and the first sentence
of Section 9.06 hereof shall include reference to the Affiliates and each
Agent and each Agent’s Affiliates’ officers, directors, employees and
agents):  (a) shall have no duties
or responsibilities except those expressly set forth in this Agreement and in
the other Loan Documents, and shall not by reason of this Agreement or any other
Loan Document be a trustee for any Lender; (b) shall not be responsible to
Lenders for any recitals, statements, representations or warranties contained
in this Agreement or in any other Loan Document, or in any certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement or any other Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement,
any loan certificate or any other Loan Document or any other document referred
to or provided for herein or therein or for any failure by Borrower or any
other Person to perform any of its obligations hereunder or thereunder;
(c) shall not be required to initiate or conduct any litigation or
collection proceedings hereunder or under any other Loan Document; and
(d) shall not be responsible for any action taken or omitted to be taken
by it hereunder or under any other Loan Document or under any other document or
instrument referred to or provided for herein or therein or in connection
herewith or therewith, except for its own gross negligence or willful
misconduct.  Each Agent may employ
agents and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good
faith.

 

Section 9.02  Reliance by Agents.  Each Agent shall be entitled to rely upon
any certification, notice or other communication (including, without
limitation, any thereof by telephone, telecopy, telex, telegram or cable)
believed by it to be genuine and correct and to have been signed or sent by or
on behalf of the proper Person or Persons, and upon advice and statements of
legal counsel, independent accountants and other experts selected by the
Agents.  As to any matters not expressly
provided for by this Agreement or any other Loan Document, each Agent shall in
all cases be fully protected in acting, or in refraining from acting, hereunder
or thereunder in accordance with instructions given by Required Lenders or all
of Lenders as is required in such circumstance, and such instructions of such
Lenders and any action taken or failure to act pursuant thereto shall be
binding on all of Lenders.

 

Section 9.03  Events of Defaults.  The Agents shall not be deemed to have
knowledge or notice of the occurrence of an Event of Default (other than the
non-payment of principal of or interest on the Loans) unless the Agents have
received notice from a Lender or Borrower specifying such Event of Default and
stating that such notice is a “Notice of
Default”.  In the event that
an Agent receives such a notice of the occurrence of an Event of Default, such
Agent shall give prompt notice thereof to Lenders (and shall give each Lender
prompt notice of each such non-payment). 
Collateral Agent shall (subject to Section 9.10 hereof) take such
action with

 

56

 

respect to such Event of Default as shall be directed
by Required Lenders, provided, that, unless and until Collateral Agent
shall have received such directions, Collateral Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Event of  Default as it
shall deem advisable in the best interest of Lenders except to the extent that
this Agreement expressly requires that such action be taken, or not be taken,
only with the consent or upon the authorization of Required Lenders or all of
Lenders.

 

Section 9.04  Rights as a Lender.  With respect to the Commitments and the
Loans made by CIT and KeyBank (and any successor acting as Collateral Agent or
Administrative Agent, respectively) in their capacity as Lenders hereunder
shall have the same rights and powers hereunder as any other Lender and may
exercise the same as though it were not acting as an Agent, and the term
“Lender” or “Lenders” shall, unless the context otherwise indicates, include
the Agents in their individual capacities. 
The CIT Group/Equipment Financing, Inc. (and any successor acting as
Collateral Agent), and KeyBank N.A. (and any successor acting as Administrative
Agent) and their Affiliates may (without having to account therefor to any
Lender) accept deposits from, lend money to, make investments in and generally
engage in any kind of loan, trust or other business with Borrower (and any of
its subsidiaries or Affiliates) as if it were not acting as an Agent, and The
CIT Group/Equipment Financing, Inc., and KeyBank N.A. and their Affiliates may
accept fees and other consideration from Borrower for services in connection
with this Agreement or otherwise without having to account for the same to
Lenders.

 

Section 9.05  Indemnification.  Lenders agree to indemnify each Agent (to
the extent not reimbursed under Section 10.09 hereof, but without limiting
the obligations of Borrower under said Section 10.09) ratably in accordance
with their respective Loans, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against such Agent (including by any Lender) arising out of or by
reason of any investigation in or in any way relating to or arising out of this
Agreement or any other Loan Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or
thereby (including, without limitation, the costs and expenses that Borrower is
obligated to pay under Section 8.02 hereof but excluding, unless a default
under the Mortgage has occurred and is continuing, normal administrative costs
and expenses incident to the performance of its agency duties hereunder) or the
enforcement of any of the terms hereof or thereof or of any such other
documents, provided, that no Lender shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified.

 

Section 9.06  Non-Reliance on
Agents and Other Lenders.  Each
Lender agrees that it has, independently and without reliance on any Agent or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of Borrower and decision to enter
into this Agreement and that it will, independently and without reliance upon
any Agent or any other Lender, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement.  The Agents shall not be required to keep
themselves informed as to the performance or observance by Borrower of this
Agreement or any of the other Loan Documents or any other document referred to
or provided for herein or therein or to inspect the properties or books of
Borrower.  Except for notices, reports
and other documents and

 

57

 

information expressly required to be furnished to
Lenders by an Agent hereunder, no Agent shall have any duty or responsibility
to provide any Lender with any credit or other information concerning the
affairs, financial condition or business of Borrower that may come into the
possession of such Agent or any of its Affiliates.

 

Section 9.07  Failure to Act.  Except for action expressly required of an
Agent hereunder and under the other Loan Documents, the Agents shall in all
cases be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further assurances to its satisfaction from Lenders of
their indemnification obligations under Section 10.09 hereof against any
and all liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.

 

Section 9.08  Resignation or
Removal of an Agent.  Subject to the
appointment and acceptance of a successor Administrative Agent or Collateral
Agent as provided below, each Administrative or Collateral Agent may resign at
any time by giving notice thereof to Lenders and Borrower, and each
Administrative or Collateral Agent may be removed at any time with or without
cause by Required Lenders.  Upon any such
resignation or removal, Required Lenders shall have the right to appoint a
successor Administrative or Collateral Agent. 
If no successor Administrative or Collateral Agent shall have been so
appointed by Required Lenders and shall have accepted such appointment within
thirty (30) days after the retiring Administrative or Collateral Agent’s giving
of notice of resignation or Required Lenders’ removal of the retiring
Administrative or Collateral Agent, then the retiring Administrative or
Collateral Agent may, on behalf of Lenders, appoint a successor Administrative
or Collateral Agent.  Upon the
acceptance of any appointment as an Administrative or Collateral Agent
hereunder by a successor Administrative or Collateral Agent, such successor
Administrative or Collateral Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative or Collateral Agent, and the retiring Administrative or
Collateral Agent shall be discharged from its duties and obligations
hereunder.  After any retiring
Administrative or Collateral Agent’s resignation or removal hereunder as an
Administrative or Collateral Agent, the provisions of this Article IX
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as an Administrative or
Collateral Agent.

 

Section 9.09  Consents under Loan
Documents.  Subject to
Section 9.10 hereof, neither Administrative Agent nor Collateral Agent
may, without the prior consent of Required Lenders, consent to any
modification, supplement, waiver, amendment or take any other action under any
of the Loan Documents, provided, that without the prior consent of each
Lender, neither Administrative Agent nor Collateral Agent shall (except as
provided herein or in the Loan Documents) release any collateral or otherwise
terminate any Lien under any Loan Document providing for collateral security,
or agree to additional obligations being secured by such collateral security
(unless the Lien for such additional obligations shall be junior to the Lien in
favor of the other obligations secured by such Loan Document), except that no
such consent shall be required, and Collateral Agent is hereby authorized, to
release any Lien covering property which is the subject of a disposition of
property permitted hereunder or to which Required Lenders have consented.

 

Section 9.10  Action Upon
Instructions.  (a) If, in the
opinion of the institution acting as Administrative Agent hereunder any
document required to be executed pursuant to the terms

 

58

 

hereof affects any right, duty, immunity or indemnity
with respect to it under this Agreement, Administrative Agent may in its
discretion decline to execute such document.

 

(b)                                 Upon
the written instructions at any time and from time to time of Required Lenders,
Administrative Agent shall take such of the following actions as may be
specified in such instructions: 
(i) exercise such election or option, or make such decision or
determination, or give such notice, consent, waiver or approval or exercise
such right, remedy or power or take such other action hereunder or under any
other Loan Document or in respect of any part or all of the Collateral as shall
be specified in such instructions; (ii) take such action with respect to,
or to preserve or protect, the Collateral (including the discharge of Liens) as
shall be specified in such instructions and as are consistent with this
Agreement; and (iii) take such other action in respect of the subject
matter of this Agreement as is consistent with the terms hereof and the other
Loan Documents.

 

(c)                                  If
any Event of Default shall have occurred and be continuing, on request of
Required Lenders, Administrative Agent shall exercise such remedies under
Section 8.02 hereof as shall be specified in such request.  Administrative Agent agrees to provide to
Lenders, concurrently with such action by Administrative Agent, notice of such
action by Administrative Agent, provided, that the failure to give any
such notice to such Lenders shall not affect the validity of such action.

 

ARTICLE X

 

MISCELLANEOUS

 

Section 10.01  Notices.  Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:

 

(a)                                  if
to Borrower, to it at:

 

K-Sea
Transportation Partnership L.P.

3245 Richmond Terrace

Staten Island, NY  10303

Attention:  Chief Financial Officer

Telecopier:  (718) 720-4358

 

with copies to:

 

Baker Botts,
L.L.P.

One Shell Plaza

910 Louisiana

Houston, TX  77002

Attention:  Sean Wheeler, Esq.

Telecopier:  (713) 229-5868

 

and:

 

59

 

Holland &
Knight, LLP

195 Broadway

New York, NY  10007

Attention:  Christopher G. Kelly, Esq.

Telecopier:  (212) 385-9010

 

and:

 

Jeffries
Capital Partners

520 Madison Ave.

New York, NY  10022

Attention:  Brian Friedman

Telecopier:  (212) 284-1717

 

(b)                                 if
to Administrative Agent (including in its capacity as a Lender), to:

 

KeyBank N.A.

575 Fifth Ave.

18th Floor

New York, NY  10017

Attention:  Katherine Braun

Telecopier:  (917) 368-2308

 

(c)                                  if
to Collateral Agent (including in its capacity as a Lender), to:

 

The CIT
Group/Equipment Financing, Inc.

1540 W. Fountainhead Parkway

Tempe, AZ  85282

Attention:  Doug MacDonald

Telecopier:  (480) 858-1438

 

(d)                                 if
to any other Lender, to it at its address (or telecopy number) set forth in the
Register.

 

Any party hereto may change its
address or telecopy number for notices and other communications hereunder by
notice to the other parties hereto.  All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.

 

Section 10.02  Term and
Termination.  The initial term of
this Agreement shall be from the date hereof until the third Anniversary
Date.  Notwithstanding the foregoing,
Administrative Agent at the request of Required Lenders may terminate this
Agreement immediately upon the occurrence of an Event of Default.  All Obligations shall become due and payable
as of any termination hereunder and, pending a final accounting, Lenders may
withhold any balances in Borrower’s account (unless supplied with an indemnity
satisfactory to such Lender) to cover all of Borrower’s Obligations, whether
absolute or contingent.  All of Lenders’
rights, Liens and security interests shall continue after any termination until
all Obligations have been paid and satisfied in full.

 

60

 

Section
10.03  [Reserved.]

 

Section 10.04  Termination
Indemnity Deposit.  Upon termination
of this Agreement by Borrower, as permitted herein, in addition to payment of
all Obligations which are not contingent, Borrower shall deposit such amount of
cash collateral as Lenders determine is necessary to secure such Lender from
loss, cost, damage or expense, including reasonable attorneys’ fees, in
connection with any open remittance items or other payments provisionally
credited to the Obligations and/or to which such Lender has not yet received
final and indefeasible payment.

 

Section 10.05  K-Sea as Agent for
Borrower.  K-Sea shall be deemed the
agent of Borrower in any matter arising under this Agreement and Lenders shall
be entitled to rely on the actions and communication, or lack thereof, of K-Sea
as being the actions or communications or lack thereof of each and every
Borrower with respect to this Agreement.

 

Section 10.06  Discharge of Borrower.  No termination of this Agreement shall
relieve or discharge Borrower of its Obligations, grants of Collateral, duties
and covenants hereunder or otherwise until such time as all Obligations to
Lenders have been indefeasibly paid and satisfied in full, including, without
limitation, the continuation and survival in full force and effect of all
security interests and Liens of Lenders in and upon all then existing and
thereafter-arising or acquired Collateral and all warranties and waivers of
Borrower.

 

Section 10.07  Joint and Several.  Borrower agrees that its liabilities
hereunder are joint and several, absolute and unconditional, without regard to
the liability of any other party.

 

Section
10.08  Waivers;
Amendments.

 

(a)                                  No
failure or delay by Administrative Agent or any Lender in exercising any right
or power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power.  The rights and remedies of Administrative
Agent and Lenders hereunder are cumulative and are not exclusive of any rights
or remedies that they would otherwise have. 
No waiver of any provision of this Agreement or consent to any departure
by Borrower therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) of this Section, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.  Without limiting the generality
of the foregoing, the making of a Loan shall not be construed as a waiver of
any Default or Event of Default, regardless of whether Administrative Agent,
Collateral Agent or any Lender may have had notice or knowledge of such Default
at the time.

 

(b)                                 Neither
this Agreement nor any provision hereof may be waived, amended or modified
except pursuant to an agreement or agreements in writing entered into by
Borrower and Required Lenders or by Borrower and Administrative Agent with the
consent of Required Lenders; provided, that no such agreement shall (i) increase
the Commitment of any Lender without the written consent of such Lender,
(ii) reduce the principal amount outstanding of any Loan or reduce the
rate of interest thereon, or reduce any fees payable hereunder, without the

 

61

 

written consent of each Lender affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of
any Loan, or any interest thereon, or any fees payable hereunder, or reduce the
amount of, waive or excuse any such payment, or postpone the scheduled date of
expiration of any Commitment, without the written consent of each Lender
affected thereby, (iv) change Section 2.14(b) or (c) in a manner that
would alter the pro rata sharing of payments required thereby without the
written consent of each Lender, or (v) change any of the provisions of
this Section or the definition of “Required
Lenders” or any other provision hereof specifying the number or
percentage of Lenders required to waive, amend or modify any rights hereunder
or make any determination or grant any consent hereunder, without the written
consent of each Lender; and, provided, further, that no such
agreement shall amend, modify or otherwise affect the rights or duties of
Administrative Agent hereunder without the prior written consent of
Administrative Agent.

 

Section
10.09  Expenses;
Indemnity; Damage Waiver.

 

(a)                                  Borrower
shall pay (i) all reasonable out-of-pocket expenses incurred by
Administrative Agent and Collateral Agent and the respective Affiliates,
including the reasonable fees, charges and disbursements of counsel for
Administrative Agent and Collateral Agent, in connection with any initial
syndication of the credit facilities provided for herein, the preparation and
administration of this Agreement and the other Loan Documents or any
amendments, modifications or waivers of the provisions hereof (whether or not
the transactions contemplated hereby or thereby shall be consummated), and
(ii) all out-of-pocket expenses incurred by Administrative Agent,
Collateral Agent or any Lender, including the fees, charges and disbursements
of any counsel for Administrative Agent, Collateral Agent or any Lender (acting
under common counsel), in connection with the enforcement or protection of its
rights in connection with this Agreement, including its rights under this
Section, or in connection with the Loans made hereunder, including in
connection with any workout, restructuring or negotiations in respect thereof.

 

(b)                                 Borrower
shall indemnify Administrative Agent, Collateral Agent, L/C Lender and each
Lender, and each Related Party of any of the foregoing Persons (each such
Person being called an “Indemnitee”)
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the fees, charges and
disbursements of any counsel for any Indemnitee (but excluding Taxes, it being
understood and agreed that Section 2.13 hereof sets forth Borrower’s
indemnity obligations with respect to Taxes), incurred by or asserted against
any Indemnitee arising out of, in connection with, or as a result of
(i) the execution or delivery of this Agreement or any agreement or
instrument contemplated hereby, the performance by the parties hereto of their
respective obligations hereunder or the consummation of this Agreement or any
other transactions contemplated hereby, (ii) any Loan or the use of the
proceeds therefrom, (iii) the failure of Administrative Agent or the L/C
Issuer seeking indemnification or of any L/C Issuer to honor a demand for
payment under any Letter of Credit or guaranty thereof as a result of any act
or omission, whether rightful or wrongful, of any present or future de jure or
de facto government or Governmental Authority, in each case other than to the
extent solely as a result of the gross negligence or willful misconduct of
Administrative Agent or the L/C Issuer (as finally determined by a court of
competent jurisdiction), (iv) any actual or alleged presence or release of
Hazardous Materials on or from any property owned or operated by Borrower or
any of its

 

62

 

Subsidiaries, or any Environmental Liability related
in any way to Borrower or any of its Subsidiaries, or (v) any actual or
prospective claim, litigation, investigation or proceeding relating to any of
the foregoing, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee is a party thereto; provided, that
such indemnity shall not, as to any Indemnitee, be available to the extent that
such losses, claims, damages, liabilities or related expenses are determined by
a court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Indemnitee.

 

(c)                                  To
the extent that Borrower fails to pay any amount required to be paid by it to
Administrative Agent under paragraph (a) or (b) of this Section, each Lender
severally agrees to pay to Administrative Agent and Collateral Agent such
Lender’s Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided,
that the unreimbursed expense or indemnified loss, claim, damage, liability or
related expense, as the case may be, was incurred by or asserted against
Administrative Agent in its capacity as such.

 

(d)                                 To
the extent permitted by Applicable Law, Borrower shall not assert, and hereby
waives, any claim against any Indemnitee, on any theory of liability, for special,
indirect, consequential or punitive damages (as opposed to direct or actual
damages) arising out of, in connection with, or as a result of, this Agreement
or any agreement or instrument contemplated hereby, the Transactions, any Loan,
any Letter of Credit or the use of the proceeds thereof.

 

(e)                                  All
amounts due under this Section shall be payable promptly after written
demand therefor.

 

(f)                                    The
indemnitees herein in this Section10.09 set forth are in addition to the
obligations of Borrower to pay indemnification on account of Taxes and Other
Taxes, as provided in Section 2.13 hereof.

 

Section
10.10  Successors
and Assigns.

 

(a)                                  The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns permitted
hereby, except that Borrower may not assign or otherwise transfer any of its
rights or obligations hereunder without the prior written consent of each
Lender (and any attempted assignment or transfer by Borrower without such
consent shall be null and void). 
Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby and, to the extent expressly contemplated
hereby, the Related Parties of each of Administrative Agent, Collateral Agent
and Lenders) any legal or equitable right, remedy or claim under or by reason
of this Agreement.

 

(b)                                 Any
Lender may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it); provided, that (i) except
in the case of an assignment to a Lender or a Lender Affiliate, each of
Borrower and Administrative Agent must give its prior written consent to such
assignment (which consent shall not be unreasonably withheld), (ii) except
in the case of an assignment to a Lender or a Lender Affiliate or an assignment
of the

 

63

 

entire remaining amount of the assigning Lender’s
Commitment, the amount of the Commitment of the assigning Lender subject to
each such assignment (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to Administrative Agent) shall not
be less than $1,000,000.00 and the amount of the assigning Lender’s Commitment
shall not be less than $1,000,000.00 after the effectiveness of such
assignments, unless each of Borrower and Administrative Agent otherwise
consent, (iii) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender’s rights and obligations under
this Agreement, and (iv) the parties to each assignment shall execute and
deliver to Administrative Agent an Assignment and Acceptance, together with a
processing and recordation fee of $3,500.00; provided, further,
that any consent of Borrower otherwise required under this paragraph shall not
be required if an Event of Default has occurred and is continuing.  Upon acceptance and recording pursuant to
paragraph (d) of this Section, from and after the effective date specified in
each Assignment and Acceptance, the assignee thereunder shall be a party hereto
and, to the extent of the interest assigned by such Assignment and Acceptance,
have the rights and obligations of a Lender under this Agreement, and the
assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of the assigning
Lender’s rights and obligations under this Agreement, such Lender shall cease
to be a party hereto but shall continue to be entitled to the benefits of
Sections 2.11, 2.12, 2.13 and 10.09 hereof), provided, however,
no assignee shall be entitled to receive any greater payment under
Section 2.11, 2.13 or 10.09(b) hereof than the assigning Lender would have
been entitled to receive with respect to the interest assigned to such
assignee, unless the assignment to such assignee is made with Borrower’s prior
written consent, in which Borrower expressly waives such limitation.  Any assignment or transfer by a Lender of
rights or obligations under this Agreement that does not comply with this
paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.

 

(c)                                  Administrative
Agent, acting for this purpose as an agent of Borrower, shall maintain at one
of its offices in The City of New York a copy of each Assignment and Acceptance
delivered to it and a register for the recordation of the names and addresses
of Lenders, and the Commitment of, and principal amount of the Loans owing to,
each Lender pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be conclusive, and Borrower,
Administrative Agent and Lenders may treat each Person whose name is recorded
in the Register pursuant to the terms hereof as a Lender hereunder for all
purposes of this Agreement, notwithstanding notice to the contrary.

 

(d)                                 Upon
its receipt of a duly completed Assignment and Acceptance executed by an
assigning Lender and an assignee, the processing and recordation fee referred
to in paragraph (b) of this Section and any written consent to such
assignment required by paragraph (b) of this Section, Administrative Agent
shall accept such Assignment and Acceptance and record the information contained
therein in the Register.  No assignment
shall be effective for purposes of this Agreement unless it has been recorded
in the Register as provided in this paragraph.

 

(e)                                  Any
Lender may, without the consent of Borrower or Administrative Agent, sell
participations to one or more banks or other entities (a “Participant”) in all or a

 

64

 

portion of such Lender’s rights and obligations under
this Agreement (including all or a portion of its Commitment and the Loans
owing to it); provided, that (i) such Lender’s obligations under
this Agreement shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, and (iii) Borrower, Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement.  Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided,
that such agreement or instrument may provide that such Lender will not, without
the consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 10.08(b) hereof that affects
such Participant.  Subject to paragraph
(f) of this Section, Borrower agrees that each Participant shall be entitled to
the benefits of Sections 2.11, 2.12 and 2.13 hereof to the same extent as
if it were a Lender and had acquired its interest by assignment pursuant to
paragraph (b) of this Section.

 

(f)                                    A
Participant shall not be entitled to receive any greater payment under
Section 2.11 or 2.13 hereof than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with Borrower’s
prior written consent, in which Borrower expressly waives such limitation.  A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.13
unless Borrower is notified of the participation sold to such Participant and
such Participant agrees, for the benefit of Borrower, to comply with
Section 2.13(d) as though it were a Lender.  So long as a Participant agrees, such Participant shall be bound
by Section 2.16 as if it were a Lender in each case thereunder.

 

(g)                                 Any
Lender may at any time pledge or assign a security interest in all or any
portion of its rights under this Agreement to secure obligations of such
Lender, including any such pledge or assignment to a Federal Reserve Bank, and
this Section shall not apply to any such pledge or assignment of a
security interest; provided, that no such pledge or assignment of a
security interest shall release a Lender from any of its obligations hereunder
or substitute any such assignee for such Lender as a party hereto.

 

Section 10.11  Survival.  All covenants, agreements, representations
and warranties made by Borrower herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any
Loans, regardless of any investigation made by any such other party or on its
behalf and notwithstanding that Administrative Agent or any Lender may have had
notice or knowledge of any Default or incorrect representation or warranty at
the time any credit is extended hereunder, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
fee or any other amount payable under this Agreement is outstanding and unpaid
and so long as the Commitments have not expired or terminated.  The provisions of Sections 2.11, 2.12,
2.13 and 10.09 and Article IX hereof shall survive and remain in full
force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination
of the Commitments or the termination of this Agreement or any provision
hereof.

 

65

 

Section 10.12  Counterparts; Integration;
Effectiveness.  This Agreement may
be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract.  This Agreement and any separate letter agreements with respect to
fees payable to Administrative Agent constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and all
previous agreements and understandings, oral or written, relating to the
subject matter hereof.  Except as
provided in Section 5.01 hereof, this Agreement shall become effective
when it shall have been executed by Administrative Agent and when
Administrative Agent shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. 
Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.

 

Section 10.13  Severability.  Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.

 

Section 10.14  Right of Set-off.  If an Event of Default shall have occurred
and be continuing, each Lender 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 such Lender to or for the
credit or the account of Borrower against any of and all the obligations of
Borrower now or hereafter existing under this Agreement held by such Lender,
irrespective of whether or not such Lender shall have made any demand under
this Agreement and although such obligations may be unmatured.  The rights of each Lender under this
Section are in addition to other rights and remedies (including other
rights of set-off) which such Lender may have.

 

Section
10.15  Governing
Law; Jurisdiction; Consent to Service of Process.

 

(a)                                  This
Agreement shall be construed in accordance with and governed by the law of the
State of New York.

 

(b)                                 Borrower
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of the Supreme Court of the State of New York
sitting in New York County and of the United States District Court of the
Southern District of New York, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State
or, to the extent permitted by law, in such Federal court.  Each of the parties hereto agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.  Nothing in this
Agreement shall affect any right that Administrative Agent or any Lender may
otherwise have to bring any

 

66

 

action or proceeding relating to this Agreement
against Borrower or its properties in the courts of any jurisdiction.

 

(c)                                  Borrower
hereby irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection which it may now or hereafter have
to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement in any court referred to in paragraph (b) of this
Section.  Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.

 

(d)                                 Each
party to this Agreement irrevocably consents to service of process in the
manner provided for notices in Section 10.01 hereof.  Nothing in this Agreement will affect the
right of any party to this Agreement to serve process in any other manner
permitted by law.

 

Section 10.16  WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). 
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

Section 10.17  Headings.  Article and Section headings and
the Table of Contents used herein are for convenience of reference only, are
not part of this Agreement and shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.

 

Section 10.18  Confidentiality.  Each of Administrative Agent, Collateral
Agent and Lenders agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (a) to its and
its Affiliates’ directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority,
(c) to the extent  required by
Applicable Laws or regulations or by any subpoena or similar legal process,
(d) to any other party to this Agreement, (e) in connection with the
exercise of any remedies hereunder or any suit, action or proceeding relating
to this Agreement or the enforcement of rights hereunder, (f) subject to
an agreement containing provisions substantially the same as those of this
Section, to any assignee of or Participant in, or any prospective assignee of
or Participant in, any of its rights or obligations under this Agreement (provided,
that, in the case of an assignee or Participant, or prospective assignee or
Participant, which is a competitor of Borrower, the prior written consent of
Borrower shall be required, which consent shall not be unreasonably withheld,
prior to disclosing the Information thereto), (g) with the consent of
Borrower or (h) to the extent such Information (i) becomes

 

67

 

publicly available other than as a result of a breach
of this Section or (ii) becomes available to Administrative Agent,
Collateral Agent or any Lender on a nonconfidential basis from a source other
than Borrower.  For the purposes of this
Section, “Information” means all
information received from Borrower relating to Borrower or its business, other
than any such information that is available to Administrative Agent, Collateral
Agent or any Lender on a nonconfidential basis prior to disclosure by Borrower;
provided, that, in the case of information received from Borrower after
the date hereof, such information is clearly identified at the time of delivery
as confidential.  Any Person required to
maintain the confidentiality of Information as provided in this
Section shall be considered to have complied with its obligation to do so
if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.

 

Section 10.19  Interest Rate Limitation.  Notwithstanding anything herein to the
contrary, if at any time the Interest Rate applicable to any Loan, together
with all fees, charges and other amounts which are treated as interest on such
Loan under Applicable Law (collectively the “Charges”),
shall exceed the maximum lawful rate (the “Maximum
Rate”), if any, which may be contracted for, charged, taken,
received or reserved by the Lender holding such Loan in accordance with
Applicable Law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would
have been payable in respect of such Loan but were not payable as a result of
the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated
amount, together with interest thereon at the Federal Funds Effective Rate to
the date of repayment, shall have been received by such Lender.

 

Section 10.20  Further Assurances.  At the request of Lenders, at any time and
from time to time, at Borrower’s sole expense, Borrower shall execute and
deliver or cause to be executed and delivered to Lenders, such agreements,
documents and instruments, including waivers, consents and subordination
agreements from mortgagees or other holders of security interests or Liens,
landlords or bailees, and do or cause to be done such further acts as Lenders,
in its reasonable discretion, deems necessary or desirable to create, preserve,
perfect or validate any security interest of Lenders or the priority thereof in
the Collateral and otherwise to effectuate the provisions and purposes of this
Agreement.  Borrower hereby authorizes
Lenders to file financing statements or amendments against Borrower in favor of
Lenders with respect to the Collateral, without Borrower’s signature, and to
file as financing statements any carbon, photographic or other reproductions of
this Agreement or any financing statements, signed by Borrower.  Borrower hereby ratifies and confirms any
financing statements heretofore filed by Lenders with respect to the
Collateral.

 

[Signature page follows]

 

68

 

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

 

	
   

  	
  K-SEA OPERATING PARTNERSHIP

  L.P., by its general partner K-Sea OLP

  GP, LLC, as Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John J. Nicola

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  KEYBANK N.A., for itself as Lender, and as

  Administrative Agent

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Steven B. Vitale

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  THE CIT GROUP/EQUIPMENT

  FINANCING, INC., for itself as Lender, and

  as Collateral Agent

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Carl E. Myrick

  
	
   

  	
  Title:

  	
  Executive Vice President

  
							

 

69

 

SCHEDULE I

 

	
  VESSEL

  	
   

  	
  OFFICIAL
  NO.

  	
   

  	
  OLV

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DOUBLE-HULL BARGES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 151

  	
   

  	
  641082

  	
   

  	
  $

  	
  10,240,000

  	
   

  
	
  DBL 152

  	
   

  	
  644380

  	
   

  	
  9,728,000

  	
   

  
	
  CASABLANCA

  	
   

  	
  901203

  	
   

  	
  2,816,000

  	
   

  
	
  LEMON CREEK

  	
   

  	
  901206

  	
   

  	
  3,920,000

  	
   

  
	
  DBL 70

  	
   

  	
  540401

  	
   

  	
  2,856,000

  	
   

  
	
  DBL 32

  	
   

  	
  1087118

  	
   

  	
  2,304,000

  	
   

  
	
  DBL 2202

  	
   

  	
  287892

  	
   

  	
  336,000

  	
   

  
	
  SUBTOTAL

  	
   

  	
   

  	
   

  	
  32,200,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SINGLE-HULL BARGES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  KTC 155

  	
   

  	
  556673

  	
   

  	
  720,000

  	
   

  
	
  KTC 90

  	
   

  	
  507495

  	
   

  	
  540,000

  	
   

  
	
  KTC 96

  	
   

  	
  523233

  	
   

  	
  536,000

  	
   

  
	
  RTC 81

  	
   

  	
  643281

  	
   

  	
  2,050,000

  	
   

  
	
  KTC 71

  	
   

  	
  563364

  	
   

  	
  1,656,000

  	
   

  
	
  KTC 60

  	
   

  	
  630272

  	
   

  	
  1,440,000

  	
   

  
	
  DBL 3201

  	
   

  	
  512882

  	
   

  	
  420,000

  	
   

  
	
  SUBTOTAL

  	
   

  	
   

  	
   

  	
  7,362,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TUGS

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  REBEL

  	
   

  	
  570047

  	
   

  	
  3,760,000

  	
   

  
	
  YANKEE

  	
   

  	
  571215

  	
   

  	
  3,900,000

  	
   

  
	
  VOLUNTEER

  	
   

  	
  653464

  	
   

  	
  2,160,000

  	
   

  
	
  IRISH SEA

  	
   

  	
  520685

  	
   

  	
  2,380,000

  	
   

  
	
  VIKING

  	
   

  	
  541711

  	
   

  	
  2,000,000

  	
   

  
	
  BEAUFORT SEA

  	
   

  	
  536836

  	
   

  	
  1,920,000

  	
   

  
	
  TASMAN SEA

  	
   

  	
  578207

  	
   

  	
  1,760,000

  	
   

  
	
  ADRIATIC SEA

  	
   

  	
  590232

  	
   

  	
  3,200,000

  	
   

  
	
  CORAL SEA

  	
   

  	
  550670

  	
   

  	
  1,400,000

  	
   

  
	
  KARA SEA

  	
   

  	
  556625

  	
   

  	
  1,400,000

  	
   

  
	
  JAVA SEA

  	
   

  	
  636105

  	
   

  	
  2,000,000

  	
   

  
	
  BALTIC SEA

  	
   

  	
  551908

  	
   

  	
  1,200,000

  	
   

  
	
  BERING SEA

  	
   

  	
  569665

  	
   

  	
  1,140,000

  	
   

  
	
  MARYLAND

  	
   

  	
  287444

  	
   

  	
  530,000

  	
   

  
	
  FALCON

  	
   

  	
  598501

  	
   

  	
  760,000

  	
   

  
	
  ODIN

  	
   

  	
  647313

  	
   

  	
  760,000

  	
   

  
	
  TAURUS

  	
   

  	
  602379

  	
   

  	
  860,000

  	
   

  
	
  SUBTOTAL

  	
   

  	
   

  	
   

  	
  $

  	
  31,130,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 105

  	
   

  	
  653463

  	
   

  	
  $

  	
  500,000

  	
   

  

 

SCHEDULE I

 

1

 

SCHEDULE 2.01

 

Commitments

 

	
  Bank

  	
   

  	
  Facility

  	
   

  	
  Commitment

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  KeyBank N.A.

  	
   

  	
  Facility A

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
   

  	
   

  	
  Facility B

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
   

  	
   

  	
  Facility C

  	
   

  	
  $

  	
  20,000,000

  	
   

  
	
   

  	
   

  	
  Facility D

  	
   

  	
  $

  	
  7,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
   

  	
   

  	
  $

  	
  27,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The CIT Group/Equipment Financing, Inc.

  	
   

  	
  Facility A

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
   

  	
   

  	
  Facility B

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
   

  	
   

  	
  Facility C

  	
   

  	
  $

  	
  0

  	
  * 

  
	
   

  	
   

  	
  Facility D

  	
   

  	
  $

  	
  0

  	
   

  
	
  Total

  	
   

  	
   

  	
   

  	
  $

  	
  20,000,000

  	
   

  
	
  AGGREGATE TOTAL COMMITMENTS

  	
   

  	
   

  	
   

  	
  $

  	
  47,000,000

  	
   

  

 

Subject to settlement purchase
obligations by each Lender according to its Applicable Percentage as provided
in Section 2.02(d) hereof.

 

SCHEDULE 2.01

 

1

 

SCHEDULE 4.14

 

Charters

 

1.                                       Bareboat
Charter, dated December      , 2003, between the
Borrower and K-Sea Transportation Inc., covering the following vessels:

DBL 32,
Official No. 1087118

TAURUS,
Official No. 602379

KARA SEA,
Official No. 556625

FALCON,
Official No. 598501

ODIN, Official
No. 647313

 

2.                                       Bareboat
Charter Agreement, dated March 1, 1999, between Borrower (as assignee of EW
Holding Corp.) and Clear Water of New York, Inc., covering the following
vessel:

 

CASABLANCA,
Official No. 901203

 

SCHEDULE 4.14

 

1

 

SCHEDULE 4.06

 

Environmental Compliance

 

SCHEDULE
4.06

 

2

 

EXHIBIT A

 

[FORM OF]

 

REVOLVING LOAN NOTE

 

FOR VALUE
RECEIVED, the undersigned K-SEA OPERATING
PARTNERSHIP L.P. (“Debtor”)
promises to pay to the order of KEYBANK N.A.
(“KeyBank”) as administrative
agent (in such capacity “Administrative Agent”),
on behalf of itself and The CIT Equipment
Financing, Inc. (“CIT”),
as lenders (“Lenders”), at such
address and by such method as Administrative Agent may designate, in lawful
money of the United States of America, the lesser of: 
(i)                                        UNITED
STATES DOLLARS
($                 ),
or (ii) the aggregate unpaid principal amount of all Facility
[    ] Loans made by Lender to the Debtor pursuant to the
Loan Agreement (defined below) and that are indicated by entry on
Schedule A attached hereto and made a part hereof as provided herein,
together with interest in like money on the principal sum remaining unpaid from
time to time from the date of this Note until due and payable (whether as
stated, by acceleration or otherwise) at a rate per annum equal to the Interest
Rate in accordance with the provisions of the Loan Agreement, interest to be
paid by the Debtor to Lender on the last day of each calendar month; provided,
that if any such day is other than a Business Day, interest shall be paid by
Debtor to Lender on the next preceding Business Day, through the Maturity
Date.  Principal shall be paid on the
Maturity Date; provided, that the Note shall bear interest from the date
thereof on the unpaid principal amount thereof at the Interest Rate at all
times while any amounts are outstanding under the Note.  Each such installment shall be applied first
to the payment of any unpaid interest on the principal sum and then to payment
of principal.  Interest shall be
calculated on the basis of actual number of days elapsed in a 360-day
year.  Any amount not paid when due
under this Note shall bear late charges thereon, calculated at the Late Charge
Rate, from the due date thereof until such amount shall be paid in full.  Any payment received after the due date
thereof shall be applied first to the payment of unpaid late charges, second to
the payment of any unpaid interest on said principal, and third to the payment
of principal.

 

This Note is the
Note referred to in the Participation and Loan and Security Agreement, dated as
of December    , 2003, among the Debtor, KeyBank, as Lender
and Administrative Agent,  and The CIT
Group/Equipment Financing, Inc., as Lender and Collateral Agent (herein, as the
same may from time to time be amended, supplemented or otherwise modified,
called the “Loan Agreement”), is
secured as provided in the Loan Agreement, and is subject to prepayment only as
provided therein, and the holder hereof is entitled to the benefits
thereof.  No failure or delay by
Administrative Agent in the entry of amounts on Schedule A hereto shall
affect or abridge Debtor’s obligation to pay such amounts to Lenders.

 

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

 

The Debtor hereby
waives presentment, demand for payment, notice of dishonor, and any and all
other notices or demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note and hereby consents to any
extensions of time, renewals,

 

EXHIBIT A

 

1

 

releases
of any party to this Note, waivers or modifications that may be granted or
consented to by the holder of this Note.

 

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

 

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

 

The Debtor agrees
that its liabilities hereunder are absolute and unconditional without regard to
the liability of any other party and that no delay on the part of the holder
hereof in exercising any power or right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any power or right
hereunder preclude other or further exercise thereof or the exercise of any other
power or right.  Notwithstanding the
fact that the payee of this Note is the Administrative Agent, Debtor agrees
that this Note represents the Obligations of Debtor to Lenders.

 

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

 

THIS
NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO DEBTS AND OBLIGATIONS INCURRED
AND TO BE PAID SOLELY IN SUCH JURISDICTION.

 

2

 

Dated:  December    , 2003

 

	
   

  	
  K-SEA OPERATING PARTNERSHIP

  L.P., by its general partner K-Sea OLP

  GP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

3

 

SCHEDULE A

 

(Attached to and forming part
of the Revolving Loan Note, dated       ,
200   , executed by K-Sea Operating Partnership L.P. and payable
to KeyBank N.A., as Administrative Agent on behalf of itself and The CIT
Group/Equipment Financing, Inc.)

 

	
  Amount of

  Loan

  	
   

  	
  Date of

  Loan

  	
   

  	
  Date of
  Repayment of

  Interest Due

  	
   

  	
  Amount of

  Repayment

  	
   

  	
  Notation
  Made by

  (Signature)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

SCHEDULE A

 

1

 

EXHIBIT B

 

[FORM OF]

 

FACILITY D DEMAND NOTE

 

FOR VALUE
RECEIVED, the undersigned K-SEA OPERATING
PARTNERSHIP L.P. (“Debtor”)
promises to pay ON DEMAND to the order of KEYBANK
N.A. (“KeyBank”), at
such address and by such method as KeyBank may designate, in lawful money of
the United States of America, the lesser of: (i) SEVEN MILLION UNITED
STATES DOLLARS ($7,000,000.00), or (ii) the aggregate amount of all
drawdowns made under any Standby Letter of Credit issued for the account of
Borrower under Facility D established by Lenders for the benefit of the Debtor
pursuant to the Loan Agreement (defined below) and that are indicated from time
to time by entry on Schedule A attached hereto and made a part hereof as
provided herein, together with interest in like money on the principal sum
remaining unpaid from time to time from the date of this Note until paid at a
rate per annum equal to the Late Charge Rate in accordance with the provisions
of the Loan Agreement, interest to be paid by the Debtor to KeyBank also ON
DEMAND; provided, that if any such day is other than a Business Day,
interest shall be paid by Debtor to KeyBank on the next succeeding Business
Day; provided, that this Note shall bear interest from the date thereof
on the unpaid principal amount thereof at the Late Charge Rate at all times
while any amounts are outstanding under this Note.  Each such installment shall be applied first to the payment of
any unpaid interest on the principal sum and then to payment of principal.  Interest shall be calculated on the basis of
actual number of days elapsed in a 360-day year.

 

This Note is the
Facility D Note referred to in the Participation and Loan and Security
Agreement, dated as of December __, 2003, among the Debtor, KeyBank,
as Lender and Administrative Agent,  and
The CIT Group/Equipment Financing, Inc., as Lender and Collateral Agent
(herein, as the same may from time to time be amended, supplemented or
otherwise modified, called the “Loan
Agreement”), is secured as provided in the Loan Agreement, and the
holder hereof is entitled to the benefits thereof.  No failure or delay by KeyBank in the entry of amounts on
Schedule A hereto shall affect or abridge Debtor’s obligation to pay such
amounts to KeyBank ON DEMAND.

 

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

 

The Debtor hereby
waives presentment, demand for payment, notice of dishonor, and any and all
other notices or demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note and hereby consents to any
extensions of time, renewals, releases of any party to this Note, waivers or
modifications that may be granted or consented to by the holder of this Note.

 

In the event that
any holder shall institute any action for the enforcement or the collection of
this Note, there shall be immediately due and payable, in addition to the
unpaid balance hereof, all late charges and all costs and expenses of such
action, including attorneys’ fees.  The
Debtor and KeyBank, in any litigation relating to or in connection with this
Note in which they

 

EXHIBIT B

 

1

 

shall
be adverse parties, waive trial by jury, and the Debtor hereby waives the right
to interpose any set-off, counterclaim or defense of any nature or description
whatsoever.

 

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

 

If at any time
this transaction would be usurious under applicable law, then regardless of any
provision contained in the Loan Agreement, in this Note or in any other
agreement made in connection with this transaction, it is agreed that the total
of all consideration which constitutes interest under applicable law that is
contracted for, charged or received upon the Loan Agreement, this Note or any
such other agreement shall under no circumstances exceed the maximum rate of
interest authorized by applicable law, if any, and any excess shall be credited
to the Debtor.

 

THIS
NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO DEBTS AND OBLIGATIONS INCURRED
AND TO BE PAID SOLELY IN SUCH JURISDICTION.

 

Dated:  December    , 2003

 

	
   

  	
  K-SEA OPERATING PARTNERSHIP

  L.P., by its general partner K-Sea OLP

  GP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

2

 

SCHEDULE A

 

(Attached to and forming part
of the Facility D Demand Note, dated
              ,
200   , executed by K-Sea Operating Partnership L.P. and payable
to KeyBank N.A.)

 

	
  Amount of

  Drawdown

  	
   

  	
  Date of

  Drawdown

  	
   

  	
  Date of
  Repayment of

  Interest Due

  	
   

  	
  Amount of

  Repayment

  	
   

  	
  Notation
  Made by

  (Signature)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

3

 

EXHIBIT C

 

[FORM OF]

 

TERM LOAN NOTE

 

FOR VALUE
RECEIVED, K-SEA OPERATING PARTNERSHIP L.P.
(“Debtor”) promises to pay to the
order of KEYBANK N.A. (“KeyBank”), as administrative agent (in such
capacity, “Administrative Agent”),
on behalf of itself and The CIT
Group/Equipment Financing, Inc. (“CIT”),
as lenders (“Lenders”), at such
address as Administrative Agent may designate, in lawful money of the United
States, the principal sum of
                         DOLLARS
($              )
in sixty (60) monthly equal installments of
$              
each, together with interest in like money on the principal sum remaining
unpaid from time to time from the date of this Note until due and payable
(whether as stated, by acceleration or otherwise) at a rate per annum equal to
the Interest Rate in accordance with the provisions of the Loan Agreement, as
hereinafter defined, commencing on
            ,
20   , with the amount of the entire remaining principal balance
then outstanding, together with interest accrued on the unpaid principal until
payment in full of this Note due on the last installment payment,
                ,
20    . Each such installment shall be applied first to the
payment of any unpaid interest on the principal sum and then to payment of
principal, if any principal is then due. 
Interest shall be calculated on the basis of actual number of days
elapsed in a 360-day year.  Any amount
not paid when due under this Note shall bear late charges thereon, calculated
at the Late Charge Rate, from the due date thereof until such amount shall be
paid in full.  Any payment received
after the maturity of any installment shall be applied first to the payment of
unpaid late charges, second to the payment of any unpaid interest, and third to
the payment of principal.

 

This Note is a
Term Loan Note referred to in that certain Participation and Loan and Security
Agreement, dated as of December    , 2003, among Debtor, as
borrower, CIT, as Lender and Collateral Agent and KeyBank N.A., as Lender and
Administrative Agent (herein, as the same may from time to time be amended,
supplemented or otherwise modified, called the “Loan Agreement”), is secured as provided in the Loan
Agreement, and is subject to prepayment only as provided herein, and the holder
hereof is entitled to the benefits thereof.

 

[Prepayment
provision]

 

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

 

Debtor hereby
waives presentment, demand for payment, notice of dishonor, and any and all
other notices or demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note and hereby consents to any
extensions of time, renewals, releases of any party to this Note, waivers or
modifications that may be granted or consented to by the holder of this Note.

 

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

 

EXHIBIT C

 

1

 

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

 

Debtor agrees that
its liabilities hereunder are absolute and unconditional without regard to the
liability of any other party and that no delay on the part of the holder hereof
in exercising any power or right hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any power or right hereunder
preclude other or further exercise thereof or the exercise of any other power
or right.  Notwithstanding the fact that
the payee of this Note is the Administrative Agent, Debtor agrees that this
Note represents the Obligations of Debtor to Lenders.

 

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

 

THIS NOTE SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.

 

Dated: 
                ,
20    

 

	
   

  	
  K-SEA OPERATING PARTNERSHIP

  L.P., by its general partner K-Sea OLP

  GP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

2

 

EXHIBIT D

 

[FORM OF]

 

ASSIGNMENT AND ACCEPTANCE

 

Reference is made
to the Participation and Loan and Security Agreement, dated as of  December    , 2003 (as
amended and in effect on the date hereof, the “Agreement”), among K-Sea Operating Partnership L.P., KeyBank
N.A., for itself as Lender and as Administrative Agent for Lenders, and The CIT
Group/Equipment Financing, Inc., for itself as Lender and as Collateral Agent
for Lenders. Terms defined in the Agreement are used herein with the same
meanings.

 

The Assignor named
below hereby sells and assigns, without recourse, to the Assignee named below,
and the Assignee hereby purchases and assumes, without recourse, from the
Assignor, effective as of the Assignment Date set forth on the reverse hereof,
the interests set forth below (the “Assigned
Interest”) in the Assignor’s rights and obligations under the
Agreement, including, without limitation, the interests set forth below in the
Commitment of the Assignor on the Assignment Date and Loans owing to the
Assignor which are outstanding on the Assignment Date, excluding accrued
interest and fees to and excluding the Assignment Date.  The Assignee hereby acknowledges receipt of
a copy of the Agreement.  From and after
the Assignment Date (i) the Assignee shall be a party to and be bound by
the provisions of the Agreement and, to the extent of the Assigned Interest,
have the rights and obligations of a Lender thereunder, and (ii) the
Assignor shall, to the extent of the Assigned Interest, relinquish its rights
and be released from its obligations under the Agreement.

 

If the Assignee is
a Foreign Lender, this Assignment and Acceptance is being delivered to
Administrative Agent together with any documentation required to be delivered
by the Assignee pursuant to Section 2.13(d) of the Agreement, duly
completed and executed by the Assignee. 
The [Assignee/Assignor] shall pay the fee payable to Administrative
Agent pursuant to Section 10.10(b) of the Agreement.

 

This Assignment
and Acceptance shall be governed by and construed in accordance with the law of
the State of New York.

 

Date of Assignment:

 

Legal Name of Assignor:

 

Legal Name of Assignee:

 

Assignee’s Address for Notices:

 

EXHIBIT D

 

1

 

Effective Date of Assignment

(“Assignment Date”)(1):

 

	
  Facility

  	
   

  	
  Principal
  Amount Assigned

  (and identifying information

  as to individual Loans)

  	
   

  	
  Percentage
  Assigned of Facility/Commitment (set forth, to at least 8 decimals, as a
  percentage of the Facility and the aggregate Commitments of all Lenders
  thereunder

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Commitment Assigned:

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
  %

  
							

 

 

Facility A:

 

Facility B:

 

The terms set
forth above and on the reverse side hereof are hereby agreed to:

 

	
   

  	
  [NAME OF ASSIGNOR], as Assignor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  [NAME OF ASSIGNEE], as Assignee

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

(1) Must be at least five
Business Days after execution hereof by all required parties.

 

2

 

The undersigned hereby consent
to the within assignment:(2)

 

	
  K-SEA OPERATING PARTNERSHIP

  L.P., by its general partner K-Sea OLP

  GP, LLC

  	
  KEYBANK N.A., as
  Administrative Agent,

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
  By:

  	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
						

 

(2) Consents to be included to
the extent required by Section 10.10(b) of the Loan Agreement

 

3

 

EXHIBIT E

 

[FORM OF]

 

OPINION OF BORROWER’S COUNSEL

 

EXHIBIT E

 

1

 

EXHIBIT F-1

 

[FORM OF]

 

STANDBY LETTER OF CREDIT

 

	
   

  	
   

  	
  Date:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Beneficiary:

  	
   

  	
  Applicant:

  
	
  MEDRAD

  	
   

  	
  K-SEA
  OPERATING PARTNERSHIP L.P.

  
	
  INSERT
  ADDRESS

  	
   

  	
  INSERT
  ADDRESS

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Amount:  USD7,000,000.00

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Expiry:  ONE YEAR FROM ISSUANCE

  

 

Gentlemen,

 

By order of and for account of
K-Sea Operating Partnership L.P., we hereby establish our Irrevocable Standby
Letter of Credit No. SXXXXXX for an aggregate amount not exceeding Seven
Million and 00/100 United States Dollars available to you upon presentation of
the by your draft(s) at sight drawn on 44114-1306 accompanied by the following
document(s):

 

1.                                       The
original Letter of Credit and amendments, if any, for endorsement.

 

2.                                       Beneficiary’s
statement signed by one of its officials reading:

 

“We hereby certify that K-Sea
Operating Partnership L.P. is in default under that certain Guarantee
Agreement, dated           ,
by and between MARAD and K-Sea Operating Partnership L.P. and we demand payment
in the amount of USD             
which represents
USD             in
principal and
USD             in
interest.  Payment should be remitted
via Fedwire in accordance with the following instructions:
                                       .”

 

It is a condition of this
Letter of Credit that the validity shall automatically be extended, without
amendment, for additional periods of one year from the present and each future
expiration date, unless we notify you in writing, by registered mail/return
receipt requested, or courier at least 30 days prior to the then current expiry
date that we elect not to renew this credit for such additional period of time.

 

Upon receipt of such notice,
you may draw hereunder up to the full amount then available by presentation of
your sight draft drawn on us accompanied by the original letter of credit and
all amendments thereto.

 

We hereby engage with you that
drafts drawn under and in compliance with the terms of this Credit will be duly
honored on due presentation and delivery of documents as specified to

 

EXHIBIT F-1

 

1

 

KeyBank National Association,
Standby Letter of Credit Processing and Service Center, Mail Code:
OH-01-51-0435), 4910 Tiedemen Rd., Cleveland, Ohio 44144-2338 on or before
                        .
or any automatically extended expiration date.

 

Except as otherwise provided
herein, this Letter of Credit shall be governed by and construed in accordance
with International Standby Practices, Publication No. 590 of the International
Chamber of Commerce (“ISP98”).  As to matters
not covered by ISP98 and to the extent not inconsistent with ISP98 or made
inapplicable by this Letter of Credit, this Letter of Credit shall be governed
by the laws of the State of Ohio, including the Uniform Commercial Code as in
effect in the State of Ohio.

 

 

	
   

  	
   

  	
   

  	
   

  
	
  Authorized Signature

  	
  Authorized Signature

  

 

2

 

EXHIBIT F-2

 

[FORM OF]

 

DOCUMENTARY LETTER OF CREDIT

 

EXHIBIT F-2

 

1

 

EXHIBIT G

 

[FORM OF]

 

LOAN REQUEST

 

(REVOLVING LOAN)

 

KeyBank N.A., as
Administrative Agent

575 Fifth Avenue, 18th Floor

New York, New York  10017

 

Re:                               Participation
and Loan and Security Agreement, dated as of
December     , 2003 (the “Loan Agreement”) by and among K-Sea Operating Partnership L.P.
(“Borrower”), The CIT
Group/Equipment Financing, Inc. (“CIT”),
for itself as Lender, and as collateral agent for Lenders (in such capacity “Collateral Agent”) and KeyBank, N.A. (“KeyBank”), for itself as Lender, and as
administrative agent for Lenders (in such capacity “Administrative Agent”)

 

Ladies and Gentlemen:

 

This Loan Request
is delivered to you pursuant to Section 2.04 of the Loan Agreement.  Capitalized terms used but not defined
herein shall have the meanings ascribed to such terms in the Loan Agreement.

 

Borrower hereby
irrevocably requests that a [Facility A Loan/Facility B Loan] in the principal
amount of
$                       
(the “Loan”) on
             ,
200   (the “Loan Date”),
which is a Business Day.  The purpose of
such Loan [if Facility B Loan] is
                   .
[For Facility A Loans or Facility B Loans requested for a date other than the
first day of a LIBOR Interest Period, add: 
Borrower requests that Lenders make such Loan under Facility C from the
Loan Date to [the first Business Day of the next succeeding calendar month], at
which time Borrower irrevocably requests and directs Lenders to refund the
Facility C Loan with the proceeds of a Facility A Loan/Facility B Loan.]

 

This Loan will not
cause the amounts outstanding under Facility [   ] to exceed the
Maximum Amount.

 

Borrower hereby
certifies that no Default or Event of Default has occurred and is
continuing.  Borrower represents and
warrants that as of the Loan Date, all statements set forth in Article IV
of the Loan Agreement are true and correct in all material respects.  Borrower agrees that if prior to the Loan
Date any matter certified to herein by it will not be true and correct at such
time as if then made, it will immediately so notify Lenders and the Loan will
not be made on the Loan Date unless Lenders otherwise agree.

 

Please wire
transfer the proceeds of the Loan to the account of the following person at the
financial institution indicated below:

 

EXHIBIT G

 

1

 

	
  Amount to be

  Transferred

  	
   

  	
  Person to be Paid

  	
   

  	
  Account No.

  	
   

  	
  Name, Address, etc.

  of Transferee

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

Borrower has caused this Loan Request to be executed
and delivered, and the certification and warranties contained herein to be
made, by its duly authorized officer this       
date of
            ,
200     .

 

	
   

  	
  K-SEA OPERATING PARTNERSHIP

  L.P., by its general partner K-Sea OLP

  GP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

2

 

EXHIBIT H

 

[FORM OF]

 

REQUEST

 

(DOCUMENTARY LETTER OF CREDIT)

 

KeyBank N.A.

575 Fifth Avenue, 18th Floor

New York, New York  10017

 

Re:                               Participation
and Loan and Security Agreement, dated as of December    ,
2003 (the “Loan Agreement”), by
and among K-Sea Operating Partnership L.P. (“Borrower”),
The CIT Group/Equipment Financing, Inc. (“CIT”),
for itself as Lender, and as collateral agent for Lenders (in such capacity “Collateral Agent”) and KeyBank, N.A. (“KeyBank”), for itself as Lender, and as
administrative agent for Lenders (in such capacity “Administrative Agent”)

 

Ladies and Gentlemen:

 

This Loan Request
is delivered to you pursuant to Section 2.04 of the Loan Agreement.
Capitalized terms used but not defined herein shall have the meanings ascribed
to such terms in the Loan Agreement.

 

Borrower hereby
irrevocably requests that a Letter of Credit be issued in the face amount of
$                  
(the “Letter of Credit”) on
            ,
200   (the “Letter of Credit
Issuance Date”), which is a Business Day.  We request that the expiration date of the Letter of Credit be
                      ,
200     [For Standby Letters of Credit only, add:  subject to an evergreen clause providing for
successive one year renewals, not extending, in any event, beyond
December    , 2006.] 
Attached hereto as Exhibit A is a form of the Letter of Credit.

 

The issuance of
the requested Letter of Credit will not cause the Letter of Credit Obligations
to exceed the Maximum Amount. 
Accompanying this notice is a duly executed and properly completed
Letter of Credit Agreement in the form required by Administrative Agent,
together with the payment of any fees due and payable pursuant to
Section 2.10 of the Loan Agreement.

 

Borrower hereby
certifies that no Default or Event of Default has occurred and is continuing.  Borrower represents and warrants that as of
the Letter of Credit Issuance Date, all statements set forth in Article IV
of the Loan Agreement are true and correct in all material respects.  Borrower agrees that if prior to the Letter
of Credit Issuance Date any matter certified to herein by it will not be true
and correct at such time as if then made, it will immediately so notify L/C
Issuer and the Letter of Credit will not be issued on the Letter of Credit
Issuance Date unless L/C Issuer otherwise agrees.

 

EXHIBIT H

 

1

 

Borrower has caused this Request to be executed and
delivered, and the certification and warranties contained herein to be made, by
its duly authorized officer this        date of
                   ,
200    .

 

	
   

  	
  K-SEA OPERATING PARTNERSHIP

  L.P., by its general partner K-Sea OLP

  GP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

2

 

EXHIBIT I

[

FORM OF]

 

SUBSIDIARY GUARANTY

 

THIS
GUARANTY is made as of the
        day of December, 2003, by                                         ,
a
                                     
with an office and principal place of business at
                                                                                                 
(the “Guarantor”), to THE CIT GROUP/EQUIPMENT FINANCING, INC. (“CIT”), a Delaware corporation with an
office at 1540 W. Fountainhead Parkway, Tempe, Arizona 85252 and KEYBANK N.A. (“KeyBank”), a national banking association with an office at
575 Fifth Ave., New York, NY 10017 (“KeyBank”
and, together with “CIT,” the “Lenders” and each, a “Lender”).

 

W I T N E S S E T H:

 

WHEREAS,
K-SEA OPERATING PARTNERSHIP L.P. (“Borrower”),
as borrower, and CIT and KeyBank, as lenders, are parties to a Participation
and Loan and Security Agreement, dated as of December    ,
2003, a copy of which is annexed hereto as Annex I and made a part hereof (said
Participation and Loan and Security Agreement, as the same may be amended,
supplemented or otherwise modified from time to time, being herein called “Loan Agreement”), pursuant to which the
Lenders have agreed to make loans (the “Loans”)
to the Borrower in order to provide funds for working capital to support
Borrower’s operations and to enable Borrower to acquire vessels from time to
time and to provide for documentary letters of credit and standby letters of
credit (“Letters of Credit”) for
the account of Borrower in an aggregate amount for all such facilities not to
exceed $47,000,000.00 pursuant to the terms of the Loan Agreement; and

 

WHEREAS,
each Loan and the reimbursement obligations of each Letter of Credit may be
evidenced by a secured promissory note (the “Note”)
dated the date of such Loan and in the forms annexed as Exhibits A and B
to the Loan Agreement, payable in accordance with the provisions of
Section 2.03 of the Loan Agreement, including provisions therein set forth
for payment of interest at rates set forth in the Loan Agreement, all Notes and
Letter of Credit Obligations in the aggregate principal amount not to exceed
$47,000,000.00 (Forty-Seven Million and No Hundredths United States Dollars) or
any lesser amount determined pursuant to provisions of the Loan Agreement from
time to time; and

 

WHEREAS,
it is a condition precedent under the Loan Agreement, inter alia, that the Guarantor deliver to
Lenders a guaranty in favor of Lenders with respect to the faithful performance
by the Borrower of the Loan Agreement and due and punctual payment of all
amounts payable from time to time by the Borrower to Lenders under the terms of
the Loan Agreement, any Notes, and the other Loan Documents (as defined in the
Loan Agreement); and

 

WHEREAS,
the Guarantor is a Subsidiary (as defined in the Loan Agreement) of the
Borrower and has determined that it is in the corporate interests of the
Guarantor that this Guaranty be given.

 

EXHIBIT I

 

1

 

NOW,
THEREFORE, in consideration of the premises, and other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, and to induce Lenders to enter into the Loan Agreement and other
Loan Documents, the Guarantor agrees as follows:

 

1.                                       All
capitalized terms defined in or by reference to the Loan Agreement shall have
the meaning therein in the Loan Agreement provided.

 

2.                                       The
Guarantor hereby absolutely, irrevocably and unconditionally jointly and
severally guaranties to Lenders, their successors and assigns, as primary
obligor and not merely as surety, the due and faithful payment and performance
by the Borrower of all the terms, covenants and conditions of the Loan
Agreement, any Notes, and the other Loan Documents, as the same may hereafter
with the consent of Lenders be amended and supplemented.  Without prejudice to the generality of the
foregoing, the following are hereby guaranteed by the Guarantor:

 

(i)                                     the
prompt payment when due (whether at the stated maturity or by acceleration or
otherwise) of all sums, indebtedness, obligations and liabilities of the
Borrower to Lenders, whether now existing or hereafter incurred, arising out of
or in connection with any Note or the Loan Agreement, including the Obligations
set forth therein;

 

(ii)                                  any
and all expenses which may be paid or incurred by Lenders in collecting any or
all of the obligations and/or in enforcing any of its rights hereunder; and

 

(iii)                               the due and punctual
performance and observance, strictly in accordance with the terms of the Loan
Agreement, of each of the terms, conditions, covenants, agreements and
indemnities of the Borrower under the Loan Agreement.

 

3.                                       If
Borrower defaults in the payment of any or all sums when due to Lenders, the
Guarantor as primary obligor shall forthwith pay to Lenders or their order the
full amount due and payable (by acceleration or otherwise) in the manner
required of the Borrower by the Loan Agreement.  All such payments shall be made without deductions, withholdings,
or set-off, and shall be final and free from any claims or counterclaim of any
Guarantor or Borrower against Lenders.

 

4.                                       The
obligations of the Guarantor under this Guaranty shall be continuing, absolute
and unconditional under any and all circumstances and shall be paid by the
Guarantor regardless of (a) validity, regularity, legality or
enforceability of the Loan Agreement, any Notes, any of the Obligations or any
collateral security or other guaranty therefor at any time or from time to time
held by Lenders; (b) any defense, offset or counterclaim which may at any
time be available to or be asserted by Borrower or any Guarantor against
Lenders; or (c) any other event or circumstance whatsoever which may
constitute, or might be construed to constitute, an equitable or legal
discharge or a surety or a guarantor, it being the purpose and intent of the
Guarantor that this Guaranty and the Guarantor’s obligations hereunder shall
remain in full force and effect and be binding upon the Guarantor and its
successors until the obligations shall have been satisfied by payment in full.

 

2

 

5.                                       The
Guarantor waives diligence, presentment, protest, demand for payment and/or
notice of default or nonpayment to or upon Borrower or any Guarantor with
respect to the Obligations.  The
Guarantor waives any right to require any Lender to marshal assets in favor of
Borrower or Guarantor or any other Person.

 

6.                                       The
Guarantor consents that, without the necessity of any reservation of rights
against it and without notice to or further assent by it (a) the
obligations and liabilities of the Borrower and any other party or parties for
or upon any of the Obligations, or any collateral security or guaranty therefor
or right of off-set with respect thereto, may, from time to time in whole or in
part, be rescinded, renewed, extended, settled, surrendered, modified,
accelerated, subordinated, waived, compromised, supplemented, terminated, sold,
exchanged or released by Lenders; (b) any and all collateral security at
any time held by Lenders for payment of the Obligations may be sold, exchanged
or released, all without notice to or further assent by the Guarantor, who will
remain bound hereunder, notwithstanding any such rescission, renewal,
extension, settlement, surrender, modification, acceleration, subordination,
waiver, compromise, supplement, termination, sale or exchange or release; and
(c) the covenants and agreements of Borrower contained in the Loan
Agreement may at any time be amended, modified, supplemented or terminated in
whole or in part; all as Lenders may deem advisable from time to time without
impairing, abridging, releasing or affecting the obligations of the Guarantor
hereunder.

 

7.                                       No
change in the name, capital stock, or constitution of Borrower shall in any way
affect the liability of the Guarantor under this Guaranty, and all the
indebtedness owed by Borrower pursuant to the terms of the Loan Agreement and
any Notes, shall be guarantied by this Guaranty notwithstanding that the
incurring of such indebtedness shall be in excess of the power of Borrower or
shall be in any way irregular, defective, or informal.

 

8.                                       The
Guarantor shall not be entitled to prorate its obligations herein set forth or
to be subrogated to any of the rights of either Lender against any other
guarantor or Borrower or any collateral security held by Lenders for the
payment of the obligations until the elapse of one year and one day following
the payment in full of all amounts owing by the Borrower to Lenders and the
absence as of such anniversary plus one day of any assertion by any person of a
right to reversal or setting aside of any such payment or part thereof.  The Guarantor expressly waives any and all
rights of subrogation, reimbursement, indemnity, exoneration, contribution and
any other claim which it may now or hereafter have against Borrower or any
other Person directly or contingently liable for the obligations guarantied
hereunder, or against or with respect to the Borrower’s property (including,
without limitation, property collateralizing the Obligations), arising from the
existence or performance of this Guaranty.

 

9.                                       All
rights and remedies of Lenders hereunder and under the Loan Agreement shall be
cumulative and may be exercised singly or concurrently.

 

10.                                 The
Guarantor hereby irrevocably and unconditionally waives:  (a) any and all notice of the
acceptance of this Guaranty; (b) any and all notice of the creation,
renewal, extension or accrual of any of the Obligations and notice of or proof
of the reliance by Lenders upon this Guaranty; (c) all notices which may
be required by statute, rule of law or otherwise to preserve any rights against
the Guarantor; (d) any requirement of diligence; (e) presentment,

 

3

 

demand, protest, notice of default or non-payment; and
(f) any and all defenses to payment hereunder, except the defense of
payment already made.

 

11.                                 The
Guarantor hereby waives and relinquishes any duty on the part of Lenders
(should any such duty exist) to disclose to the Guarantor any matter, fact or
thing related to the business, operations or condition (financial or otherwise)
of Borrower or its Affiliates or subsidiaries or their properties, whether now
known or hereafter known by Lenders during the life of this Guaranty.

 

12.                                 When
making any demand hereunder against the Guarantor, Lenders may, but shall be
under no obligation to, make a similar demand on any other guarantor, and any
failure by Lenders to make such demand or to collect any payments from any such
other guarantor or any release of such other guarantor shall not relieve such
Guarantor of its obligations and liabilities hereunder, and shall not impair or
affect the rights and remedies, express or implied, or as a matter of law, of
Lenders against the Guarantor.  For the
purposes hereof “demand” shall include the commencement and continuance of any
legal proceedings.

 

13.                                 The
Guarantor agrees to pay all expenses in connection with the execution and
delivery of this Guaranty and its enforcement, including without limitation the
payment of any stamp or similar duties, reasonable attorney fees, and other
costs of collection.

 

14.                                 This
Guaranty shall continue to be effective or be reinstated, as the case may be,
if at any time payment, or any part thereof, of any of the Obligations is
rescinded or must be restored or returned by Lenders upon the insolvency,
bankruptcy, liquidation or reorganization of Borrower, or otherwise, all as
though payment had not been made.

 

15.                                 Neither
Lender shall have any duty to protect, secure, perfect or insure any collateral
security at any time securing the payment of the Obligations.  This is a guaranty of performance and
payment and not merely of collection. 
The Guarantor hereby waives any requirement that Lenders make any
demand, commence suit or exercise any other right or remedy under the Loan
Agreement prior to enforcing its rights against the Guarantor hereunder.

 

The Obligations, and each of them, shall conclusively be deemed to have
been created, contracted or incurred in reliance upon this Guaranty, and all
dealings between Borrower or the Guarantor and Lenders shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Guaranty.  The Guarantor acknowledges
receipt of a copy of the Loan Agreement and the Loan Documents therein
described.

 

16.                                 No
Changes in Guarantor.  The Guarantor
covenants and agrees that from and after the date hereof and so long as any of
the Obligations remain outstanding, it will not (a) enter into any
transaction of merger or consolidation unless it is the surviving corporation
and after giving effect to such merger or consolidation its tangible net worth
equals or exceeds that which existed prior to such merger or consolidation; or
(b) liquidate or dissolve; or (c) sell or otherwise dispose of all or
any substantial part of its assets; or (d) without limiting the generality
of clause (c), sell, transfer or otherwise dispose of any interest in Borrower
held by it as of the date hereof; or (e) without thirty (30) days’ prior
written notice to Lenders, change its name or chief executive office.

 

4

 

17.                                 The
Guarantor hereby represents, warrants and covenants that:

 

(a)                                  the
Guarantor is duly incorporated, organized, existing, and in good standing under
and by virtue of the laws of the State of
                    
;

 

(b)                                 the
Guarantor will maintain its corporate existence and good standing under the
laws of the State of
                
until the principal, interest or any other sums payable by Borrower to Lenders
under the Loan Agreement or any other document or instrument the execution of
which is provided for in the Loan Agreement and the other Loan Documents have
been fully and indefeasibly paid by Borrower;

 

(c)                                  the
Guarantor has the necessary power and authority to give this Guaranty and to
perform and observe the obligations contained herein and that this Guaranty has
been validly authorized by the appropriate corporate action of the Guarantor
and constitutes a legal, valid, and binding obligation of the Guarantor
enforceable in accordance with its terms;

 

(d)                                 the
giving of this Guaranty and the observance of its terms does not contravene any
law, regulation, or similar enactment binding on the Guarantor, nor does the
giving of this Guaranty and the observance of its terms contravene any existing
mortgage, contract, or agreement binding on the Guarantor or any of its assets;

 

(e)                                  The
Guarantor is not in default under any agreement or guaranty to which it is a
party or by which it may be bound;

 

(f)                                    The
obligations of the Guarantor under this Guaranty are unconditional and
irrevocable and shall rank pari passu
with all other liabilities of the Guarantor for borrowed money or for
obligations that have become the direct obligations of the Guarantor; and

 

(g)                                 There
are no actions, suits or proceedings before any court, tribunal or governmental
body pending or threatened (i) with respect to any of the transactions
contemplated by this Guaranty or (ii) against or affecting the Guarantor
or any of its assets which would adversely affect Guarantor’s ability to
perform hereunder.  The Guarantor has
not been charged with any violation of or default under any statute, decree,
rule, regulations, writ or order of any court or any administrative order.

 

18.                                 No
course of prior dealings between the parties, no usage of the trade, and no
parole or extrinsic evidence of any nature, shall be used or be relevant to
supplement or explain or modify any term used in this Guaranty.  This Guaranty and all obligations of the
Guarantor hereunder shall be binding upon the successors and assigns of the
Guarantor, and shall, together with the rights and remedies of Lenders
hereunder, inure to the benefit of Lenders and their respective successors and
assigns.  The invalidity, illegality or
unenforceability of any provision of this Guaranty shall not affect the
validity, legality or enforceability of any other provision of this Guaranty.

 

19.                                 The
Guarantor agrees that this Guaranty covers all Obligations of Borrower to each
Lender, including, but not limited to, any Obligation, which arises due to the
performance or exercise of rights by a Lender acting in a capacity as
administrative agent or collateral agent or otherwise.

 

5

 

20.                                 This
Guaranty inures to the benefit of Lenders, their successors and assigns.  The Lenders may assign their respective
rights hereunder to any other Person who becomes a Lender by amendment or
assignment by Lenders, or any other them, of the Loan Agreement or an interest
therein.

 

THIS WRITING CONTAINS THE COMPLETE, FINAL AND EXCLUSIVE STATEMENT OF
THE TERMS OF THE AGREEMENT BETWEEN THE GUARANTORS AND LENDERS RELATING TO THIS
GUARANTY.

 

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

 

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

 

BY ITS SIGNATURE WRITTEN BELOW, THE GUARANTOR HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS GUARANTY, THE LOAN DOCUMENTS OR THE TRANSACTION
CONTEMPLATED HEREBY OR THEREBY.

 

*  
*   *

 

6

 

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

 

	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  Accepted:

  
	
   

  	
   

  	
   

  
	
   

  	
  THE CIT GROUP/EQUIPMENT

  FINANCING, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KEYBANK N.A.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

7

 

ANNEX I

 

PARTICIPATION AND LOAN AND SECURITY AGREEMENT

DATED AS OF DECEMBER    , 2003

 

[to be attached to each Original Guaranty]

 

ANNEX I

 

1

 

EXHIBIT J

 

SPECIAL PROVISIONS APPLICABLE TO

LETTERS OF CREDIT

 

Section 1.                                          Definitions.  The following definitions shall apply
herein:

 

“Agreement” means the Participation and
Loan and Security Agreement, dated as of December    ,
2003.

 

“Documents” mean any paper, whether
negotiable or non-negotiable, including, but not limited to, all shipping
documents, warehouse receipts, documents of title (whether or not assigned to
you), policies or certificates of insurance, and other documents, security,
invoices and certificates accompanying or relating to drafts drawn under the
Letter of Credit and Property shipped, stored, or otherwise disposed of in
connection with the Letter of Credit.

 

“Drafts” means any documentary draft
drawn under and conditioned upon presentation of documents required by the Letter
of Credit, including, but not limited to, such drafts accepted by the L/C
Issuer.

 

“L/C Liabilities” is defined in
Section 8 below.

 

“Letter of Credit” means a Letter of
Credit described in a Documentary Letter of Credit Application to be issued
under Facility A and/or Facility C or a Standby Letter of Credit Application to
be issued under Facility D, in either case by the L/C Issuer in accordance with
the instructions received by the L/C Issuer, the terms of which are made a part
hereof and approved by Borrower, as amended from time to time.

 

“Letter of Credit Application” means any
request submitted by Borrower to the L/C Issuer (in written or electronic form)
for the issuance of a Documentary Letter of Credit or a Standby Letter of
Credit.

 

“Property” includes goods, merchandise,
choses in action, and any and all other forms of property, whether real,
personal or mixed and any right or interest therein; Property in L/C Issuer’s
possession shall include Property in possession of anyone for L/C Issuer in any
manner whatsoever.

 

“Reimbursement Obligations” means
Borrower’s obligation to reimburse the L/C Issuer for all payments made by L/C
Issuer with respect to any draft on any Letter of Credit and to pay all other
liabilities arising under the Agreement.

 

“Requests” means any written or oral
instruction that the L/C Issuer honor Borrower’s order to issue, amend or pay
the Letter of Credit for Borrower’s account and risk upon a request
communicated to the L/C Issuer by telephone, telegraph, telex, facsimile
transmission or other electronic means.

 

EXHIBIT J

 

1

 

“Uniform Customs” means the Uniform
Customs and Practice for Documentary Credits adopted by the International
Chamber of Commerce in force at the time of issuance of the Letter of Credit,
as the same may be thereafter amended or replaced.

 

Definitions set
forth in the Agreement shall apply to this Exhibit J.

 

Section 2.                                          Letter
of Credit Payment Terms.  The L/C
Issuer may accept or pay any draft presented to L/C Issuer, regardless of when
drawn and whether or not negotiated, if such draft, the other required
documents, and any transmittal advice are dated on or before the expiration
date of the Letter of Credit, which expiration date shall be expressly stated
in the Letter of Credit and not extended in reference to any action or inaction
in any other agreement; provided, however, that no Standby Letter
of Credit shall have an expiration date which is more than one (1) year
following the date of issuance thereof. 
Except as instruction may be given by Borrower in writing expressly to
the contrary with regard to, and prior to, the issuance of the Letter of
Credit, L/C Issuer may honor, as complying with the terms of the Letter of
Credit, any instrument or other documents otherwise in order signed or issued
by an administrator, executor, trustee in bankruptcy, debtor in possession
assignee for the benefit of creditors, liquidator, receiver, conservator, or
other legal representative of the party authorized under the Letter of Credit
to draw or issue such instruments or other documents.  Borrower hereby irrevocably authorizes KeyBank to debit
Borrower’s account under Facility A or Facility C (where appropriate) in United
States Dollars:  (A) as to drafts
payable in United States Dollars drawn or to be drawn under any Documentary
Letter of Credit, the amount paid or payable thereon, or (B) as to any
Documentary Letter of Credit payable in currency other than United States
Dollars, the equivalent of the amount paid in United States Dollars at L/C
Issuer’s selling rate of exchange in the currency in which such draft is drawn,
(C) any and all other expenses or charges incurred by L/C Issuer in
issuing or effecting payment of the Letter of Credit, for perfecting or maintaining,
and insuring the Property, and for enforcing L/C Issuer’s rights and remedies
under the Agreement, and (D) for any Documentary Letter of Credit, such
commission, issuance and negotiation fees at such rate as L/C Issuer may
determine from time to time.  In the
event Borrower has no capacity under Facility A or Facility C and without prior
notice or demand, L/C Issuer is authorized to charge any deposit account
maintained by Borrower with KeyBank, L/C Issuer or any other KeyCorp affiliate
for the amount of such draft and all Borrower’s other reimbursement obligations
hereunder.  Drafts drawn against any
Standby Letter of Credit will be funded by debits to Facility D and constitute
Loans evidenced by the Facility D Note.

 

Section 3.                                          Requests.  Requests shall be made by those persons
purportedly authorized by Borrower.  L/C
Issuer shall not be obligated to identify or confirm such persons beyond the
use of the authorized name or code identification if any is established by L/C
Issuer or unless Borrower provide to L/C Issuer from time to time a written
list of all Borrower’s authorized representatives.  All requests will be confirmed by L/C Issuer in writing by
sending Borrower a copy of the documents authorized or requested by
Borrower.  Borrower will promptly report
all discrepancies in such documents upon Borrower’s receipt of such
confirmation.  L/C Issuer may, but shall
not be obligated to, assign a unique code number or word and require such code
to be used by Borrower and, thereafter, all further requests shall refer to
such code.  L/C Issuer shall not be
liable for any loss which Borrower may incur as a result of L/C Issuer’s
compliance with any request in accordance with these provisions even if
unauthorized, provided that L/C Issuer acted in good faith  and exercised reasonable care.

 

2

 

Section 4.                                          Modification
of Any Letter of Credit.  These
provisions shall be binding upon Borrower with regard to the Letter of Credit
if increased in amount or otherwise amended, to drafts, documents and Property
covered thereby, and to any action taken by L/C Issuer and any of L/C Issuer’s
correspondents in accordance with such extension, increase or other
modification.

 

Section 5.                                          Uniform
Customs.  Except as otherwise
expressly stated in any Letter of Credit, Borrower agrees (A) that L/C
Issuer and any of L/C Issuer’s correspondents may receive and accept as a “Bill
of Lading” under any Letter of Credit any document issued or purportedly issued
by or on behalf of any carrier which acknowledges receipt of Property, whatever
the specific provisions of such document; and (B) that L/C Issuer and any
of L/C Issuer’s correspondents may accept documents of any character which
purportedly comply with the current Uniform Customs, or which comply with the
laws or regulations in force in the customs and usages of the place of
negotiation.  In addition, any Standby
Letter of Credit shall be governed by and construed in accordance with International
Standby Practices, Publication No. 590 of the International Chamber of
Commerce (“ISP98”).  As to matters not
covered by ISP98 and to the extent not inconsistent with ISP98, such Standby
Letter of Credit shall be governed by the laws of the State of New York,
including the Uniform Commercial Code as in effect in the State of New York.

 

Section 6.                                          Shipment
of Property.  With respect to any
Property covered by any Documentary Letter of Credit, Borrower agrees to
procure promptly all necessary import and export licenses or other licenses, to
comply with all foreign and domestic governmental regulations, to furnish such
certificates in that respect that L/C Issuer may require, to keep the Property
adequately covered by insurance satisfactory to L/C Issuer, and to assign the
policies or certificates of insurance to L/C Issuer or to make the loss or
adjustment, if any, payable to L/C Issuer at L/C Issuer’s option.

 

Section 7.                                          Limited
Liability.  Neither L/C Issuer, any
Lender, Administrative Agent, Collateral Agent, nor L/C Issuer’s correspondent
shall be responsible:  (A) for the
existence, character, quality, quantity, condition, or delivery of the Property
purporting to be represented by documents; (B) for any difference in
character, quality, quantity, or condition of the Property from that expressed
in documents; (C) for the validity, sufficiency, or genuineness of
documents, event if such documents should in fact prove to be invalid,
insufficient, fraudulent or forged; (D) for time, place, manner or order
in which shipment of Property is made; (E) for partial or incomplete
shipment of Property or failure or omission to ship any Property referred to in
the Letter of Credit; (F) for the character, adequacy, validity, value or
genuineness of any insurance; (G) for any deviation from instructions,
delay, default or fraud by the shipper or anyone else in connection with the
Property; (H) for the solvency, responsibility or relationship to the
Property of any party issuing any documents in connection with the Property;
(I) for delay in arrival or failure to arrive of either the Property or
any of the documents relating thereto; (J) for any breach of contract
between the shippers or vendors and Borrower; (K) for failure of any draft
to bear any reference or adequate reference to the Letter of Credit, or failure
of any documents to accompany any draft at the reverse side of the Letter of
Credit or to surrender or take up the Letter of Credit or to send forward
document apart from drafts as required by the Letter of Credit; (L) for
errors; omissions, interruptions or delays in transmission or delivery of any
messages or documents by mail, cable, telegraph, wireless or otherwise; for any
errors in

 

3

 

translation
or interpretation of terms; or (M) for any other consequences arising from
causes beyond L/C Issuer’s control, including, but not limited to, any action
or omission by, or any law, regulation or restriction of, any de factor or de
jure domestic or foreign government or agency.

 

Section 8.                                          Warranties;
Indemnity.  Borrower represents,
warrants, covenants and confirms that Borrower understands the general nature
and operation of a letter of credit and Borrower’s obligations, rights and
remedies under each Letter of Credit, including, without limitation:  (A) Borrower’s obligations to reimburse
L/C Issuer for all payments to the beneficiary, its successors or assigns,
(B) conditions under which payment under the Letter of Credit must be made
by L/C Issuer, (C) that L/C Issuer has no responsibility or liability in
connection with any underlying contract or other transaction between Borrower
and the beneficiary of the Letter of Credit, and (D) that L/C Issuer is
not acting as an agent or in any fiduciary capacity for or on behalf of
Borrower or the beneficiary, except as otherwise stated herein.  All Borrower’s representations, warranties
and indemnities set forth herein shall survive L/C Issuer’s issuance of the
Letter of Credit and any payment thereunder and shall continue until all
Borrower’s obligations hereunder are paid in full.  Borrower hereby releases L/C Issuer, Lenders, Administrative
Agent and Collateral Agent from and agree indemnify and hold harmless the L/C
Issuer, and their officers, agents, and employees for any and all costs,
liabilities and expenses (including reasonable attorney fees) incurred by L/C
Issuer and arising out of or in any way relating to (1) any underlying
investments, transaction, and/or contracts between any one of Borrower and the
beneficiary under the Letter of Credit or any of its agents, and (2) any
proper payment in accordance with the terms of the Letter of Credit, any
refusal to pay or honor the Letter of Credit, or any other action or omission
by L/C Issuer, or L/C Issuer’s correspondents or agents including, but limited
to, L/C Issuer’s indemnity (as well as any and all cost expenses and
liabilities associated with such indemnity) in favor of a third party carrier
which may be necessary to cause such carrier to release and deliver merchandise
(described as part of the Letter of Credit) without the presentation of any
original bill of lading or the other original documents missing or otherwise
presently unavailable.  It is understood
that Borrower will not be obligated to indemnify L/C Issuer for gross
negligence or willful misconduct.

 

Section 9.                                          Additional
Collateral.  In addition to the
Collateral described in the Agreement, as additional Collateral for all
Borrower’s obligations and other liabilities to the L/C Issuer under any
Documentary Letter of Credit, whether now existing or hereafter arising,
whether joint, several independent or otherwise, and whether absolute or
contingent or due or to become due (herein, collectively, “L/C Liabilities”),
Borrower hereby assigns, pledges and grants to L/C Issuer a security interest
in, and the right of possession and disposal of:  (A) All documents and all Property shipped, stored or
otherwise disposed of in connection with such Letter of Credit, whether or not
released to Borrower on trust receipts or otherwise, (B) All Borrower’s
right and causes of action against all parties arising from or in connection
with the contract of sale or purchase of the property covered by such Letter of
Credit, and all guarantees, agreements or other undertakings (including those
in effect between Borrower and any account party named in the Letter of
Credit), credits, policies of insurance or other assurances in connection
therewith, and (C) All proceeds of the foregoing.  On demand by L/C Issuer, Borrower will
deliver, as security for Borrower’s L/C Liabilities, additional collateral
security satisfactory to L/C Issuer or will make such payment as L/C Issuer may
require in immediately available funds. 
Also, Borrower will execute, deliver, and file all further instruments
as may be reasonably required to carry out the purposes of the Agreement.

 

4

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