Document:

Exhibit 10.5

 

 

Contract No. MA-13781

 

RESTATED SECURITY AGREEMENT

 

 

                THIS RESTATED SECURITY
AGREEMENT, dated as of and effective as of December ___, 2003 (this “Security
Agreement”), among K-SEA TRANSPORTATION PARTNERS L.P., a Delaware limited
partnership (“K-Sea LP” or “Parent Company”), K-SEA OPERATING PARTNERSHIP L.P.,
a Delaware limited partnership (“K-Sea OLP” or “Shipowner”), and the UNITED
STATES OF AMERICA (the “United States”), represented by the Secretary of
Transportation, acting by and through the Maritime Administrator (the
“Secretary”), pursuant to Title XI of the Act.

 

 

RECITALS

 

                WHEREAS:

 

                A.            K-Sea Transportation LLC, a Delaware
limited liability company (“K-Sea LLC”), and EW Holding Corp., a New York
corporation (“EW Holding”), are parties to that certain Security Agreement,
Contract No. MA-13781, dated June 7, 2002, as amended by Security Agreement
Amendment No. 1 dated June 27, 2003 and Security Agreement Amendment No. 2
dated June 27, 2003 by and among K-Sea LLC, EW Holding and the Secretary (the
“Original Security Agreement”);

 

                B.            As set forth in the Recitals to the
Original Security Agreement, K-Sea LLC and EW Holding have previously
authorized the issuance of obligations 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 principal amount of Forty Million
Four Hundred Forty-One Thousand United States Dollars ($40,441,000) (generally
referred to as the “Title XI Financing”) 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 Hull No. 422, to be
known as DBL 102 (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 December __, 2003
(the “Contribution Agreement”) by and 

 

 

among K-Sea LLC,
EW Holding, K-Sea Acquisition Corp., a Delaware corporation (“K-Sea
Acquisition”), and K-Sea Transportation Corp., a New York corporation (“K-Sea
Transportation”), and collectively with K-Sea LLC, EW Holding, and K-Sea
Acquisition, the “Original K-Sea Entities”), 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”), by assumption, merger and operation of law K-Sea LP and
K-Sea OLP simultaneously herewith have succeeded to substantially all of the
interests and obligations of the Original K-Sea Entities including, without
limitation, the Obligations, the documents and instruments referenced in the
Secretary’s action dated December __, 2003 by the Secretary with respect to the
MLP Transaction (the “Secretary’s Consent”), and the Vessels;

 

D.            Simultaneously
with the closing of the MLP Transaction and the execution of this Security
Agreement, each of the Delivered Vessels is being transferred to K-Sea OLP and
documented in the name of K-Sea OLP under the laws of the United States,
subject to the Mortgage;

 

                E.             Simultaneously with the closing of
the MLP Transaction and the execution of this Security Agreement, K-Sea LP and
K-Sea OLP are entering into the Restated Title XI Reserve Fund and Financial
Agreement with the United States with respect to the Title XI Financing;

 

                F.             The Secretary, K-Sea LP and K-Sea
OLP wish to amend and restate the Original Security Agreement in order to
reflect the transactions described above and to obtain the consent of the
United States, acting by and through the Secretary (as required by the terms of
Article VIII of the Original Security Agreement), to such transactions; and

 

                G.            The parties hereto desire to amend and restate the
Original Security Agreement in its entirety.

 

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 Original Security Agreement.  Pursuant to Section 8.01(b) of the Original
Security Agreement, K-Sea LP and K-Sea OLP, jointly and severally, hereby
expressly assume all of the respective former, present 

 

 

2

 

and future obligations, duties, right, title and
interest of K-Sea LLC and EW Holding in and to the Original Security Agreement,
as amended and restated hereby, together with all documents and instruments
evidencing any such obligations, duties, right, title and interest thereto, and
K-Sea LP and K-Sea OLP expressly agree, jointly and severally, specifically to
perform all of the respective agreements and obligations of K-Sea LLC and EW
Holding under the Original Security Agreement as amended and restated hereby.  For the avoidance of doubt, pursuant to
Section 8.01(b) of the Original Security Agreement, K-Sea LP and K-Sea OLP
expressly assume (i) the payment of the principal of (and premium, if
any) and interest on the Outstanding Obligations in accordance with the terms
of the Obligations, (ii) the payment of the principal of and interest on the
Secretary’s Note and (iii) the performance of the agreements of K-Sea LLC and
EW Holding in the Indenture, the Original Security Agreement as amended and
restated hereby, the Mortgage and any related document.

 

                SECTION 2.  Secretary’s Consent.  The United States, acting through the
Secretary, (i) having by the Secretary’s Consent acknowledged, consented and
agreed to the MLP Transaction, (ii) having by the Secretary’s Consent acknowledged,
consented and agreed that K-Sea LP and K-Sea OLP and their direct and indirect
subsidiaries, together with each of the Original K-Sea Entities, may enter into
such documents, agreements or instruments that are reasonably related to the
MLP Transaction, and (iii) having granted all consents necessary to be obtained
under the Title XI Financing, including without limitation, the Secretary’s
consent as required under Article VIII of the Original Security Agreement,
hereby (a) releases each of K-Sea LLC and EW Holding from the Original Security
Agreement, and (b) agrees that from and after the date hereof the Original
Security Agreement shall be superseded in all respects by this Security
Agreement.

 

 

ARTICLE II.         Amendments and Restatement

 

                The Original
Security Agreement hereby is amended and restated in its entirety as follows:

 

                SECTION 1.  Concerning these Special and General
Provisions.  This Security Agreement
shall consist of two parts: the Special Provisions and the General Provisions
attached hereto as Exhibit 1 of this Security Agreement and incorporated herein
by reference.  In the event of any
conflict, or inconsistency between the Special Provisions of this Security
Agreement and Exhibit 1, the Special Provisions shall control.

 

SECTION 2.  Rules of
Interpretation and Definitions.

 

3

 

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

(b)           All references to the Security Agreement contained in any
documents delivered under or pursuant to the Original Security Agreement,
including without limitation Schedule X to the Original Security Agreement,
shall be construed as references to the Original Security Agreement as amended
and restated by the terms of this Security Agreement, as it may be further
amended from time to time.

                (c)
          All references in the General Provisions to
“Shipowner” and “Shipowner’s” shall be deemed to mean K-Sea LP and K-Sea OLP,
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 3.  Additions, Deletions and Amendments to
the General Provisions.  The
following additions, deletions and amendments are hereby made to the General
Provisions of this Security Agreement:

 

(a)           Concerning Section 2.01.  Section 2.01(a)(2) is hereby amended and restated as follows:

“(2)  the Shipowner had and has
legal power and authority to enter into and carry out the terms of the Amended
Guarantee Commitment, the Obligations, the Indenture, the Security Agreement,
the Secretary’s Note, the Assumption of Mortgage, Security Agreement and
Secretary’s Note (OLP DBL 101), the Assumption of Mortgage, Security Agreement
and Secretary’s Note (OLP DBL 81, DBL 82), the Mortgage, the Additional
Mortgage, the Financial Agreement, the Depository Agreement, the Termination of
Depository Agreement (Segregated Account) and the Acknowledgement regarding
Bareboat Charters (the “Documents”).”

 

A new Section 2.01(a)(6) is
hereby added, the text of which shall read as follows:

“(6)  except for liens created in
accordance with the terms of the Revolving Credit Facility and such liens relating to the vessels
listed therein together with 

 

4

 

insurances, freights,
hires and other proceeds of such vessels, there exists no current lien or
encumbrance on the cash flow of K-Sea LP and the Shipowner for the benefit of
CIT or any other Person, and such liens do not conflict with the Security.”

 

A new Section 2.01(d) is hereby
added, the text of which shall read as follows:

“(d)  Partnership Covenants.  [Each Partnership hereby covenants that, so
long as any Outstanding Obligations remain or any principal or interest remains
due under the Secretary’s Note:

 

(1)           If an event of dissolution occurs to
either Partnership, such Partnership shall promptly reconstitute itself as a
limited partnership;

 

(2)           No modifications or amendments to
each Partnership’s partnership agreement shall be made without the Secretary’s
prior written consent;

 

(3)           No change of the name or location of
either Partnership shall be made without the Secretary’s prior written consent;

 

(4)           Except as approved by the Secretary’s
Consent, no merger of either Partnership or sale or disposition of assets or
either Partnership inconsistent with the Documents shall be made without the
Secretary’s prior written consent; and

 

(5)           No election to terminate or to
dissolve either Partnership shall be made without the Secretary’s prior written
consent.]”

 

(b)           Concerning Section 2.02.  Section 2.02(a) is hereby amended and restated as follows:

“(a)  Title to
and Possession of the Vessels.  On
each Delivery Date for a Vessel, the Shipowner represents and warrants that as
of such Delivery Date, it 

 

5

 

or
its predecessor in interest lawfully owns such Vessel free from any liens,
encumbrances, security interests, charges, or rights in  rem
(subject only to (1) the equity of the Shipyard under the Construction
Contract, if any, (2) liens on any undelivered Vessel which the Shipyard is
obligated to discharge under the Construction Contract, (3) any security
interest subordinated to the Secretary’s security interest permitted under the
Special Provisions hereof, (4) the Secretary’s rights hereunder, and (5) the
liens permitted by paragraph (d)(3) of this Section). The Shipowner shall, for
the Secretary’s benefit, warrant and defend the title to, and possession of,
each Vessel and every part thereof against the claims and demands of all
Persons whomsoever.”

Section 2.02(d)(1) is hereby
amended by deleting the first sentence therein and adding to the end of the
second sentence: “and the Shipyard lien, if any, for the remaining unpaid
balance of the contract price for such Vessel.”

(c)           Concerning Section 2.03(a)(2).  Section 2.03(a)(2) is hereby amended by
replacing “five (5%)” with “two and one-half (2.5%)”.

(d)           Concerning Section 2.05.  In
connection with Section 2.05(b)(3) and the last paragraph of Section 2.05(e),
the maximum amount of self-insurance permitted to the Shipowner under the last
paragraph thereof shall be Two Hundred Fifty Thousand United States
Dollars ($250,000) per
accident, and in connection with clause (ii) of the initial paragraph of
Section 2.05(c), the Secretary shall permit payment of losses up to the amount
of Two Hundred Fifty Thousand United States Dollars ($250,000) to be made directly to the Shipowner
under the circumstances therein.

Section 2.05(c) is hereby
amended by adding the words “either K-Sea LP’s or” after the words “Secretary
shall have assumed” in the introductory paragraph thereof.

Section 2.05(c)(1)(C) is hereby
amended by adding the words “either K-Sea LP’s or” after the words “Secretary
shall have assumed”.

Section 2.05(c)(3)(C) is hereby
amended by adding the words “either K-Sea LP’s or” after the words “Secretary
shall have assumed”.

Section 2.05(e)(2)(A) is hereby
amended by adding the words “either K-Sea LP’s or” after the words “Secretary
shall have assumed” in the second paragraph thereof.

 

6

 

 

(e)           Concerning Section 2.07.  Section 2.07(b) is hereby amended and restated as follows:

“(b)         The
Shipowner shall promptly pay all amounts it receives by reason of such
requisition, seizure, forfeiture, termination or total loss (“Loss Event”) to
the Secretary if such Loss Event occurs to a Vessel that has been delivered.”

Section 2.07(c)(3) is hereby
amended by adding the words “either K-Sea LP’s or” after the words “Secretary
shall have assumed”.

                (f)            Concerning Section 2.08.  The notice in Section 2.08(c) shall read as
follows with respect to each Vessel:

 

“NOTICE OF MORTGAGE”

“This Vessel is owned by K-SEA OPERATING PARTNERSHIP L.P., a Delaware limited
partnership (the “Shipowner”), and is covered by a First Preferred Fleet
Mortgage in favor of the United States of America, under authority of Chapter
313, Title 46 of the United States Code. 
Under the terms of said Fleet Mortgage neither the Shipowner, any charterer,
the master or agent of this Vessel nor any other person has any right, power or
authority to create, incur or permit to be placed or imposed upon this Vessel
any lien whatsoever other than statutory liens incident to current operations
that are subordinate to said Fleet Mortgage.”

(g)           Concerning Section 2.12.  Section 2.12(a) is hereby amended and restated as follows:

“(a) If K-Sea LP or the Shipowner is organized as a
general partnership, limited partnership, limited liability company or joint
venture, then for so long as there is Outstanding Obligations or indebtedness
under the Secretary’s Note, the partnership agreement, operating agreement,
limited liability agreement, joint venture agreement (or any agreement
constituting such an entity) shall not be amended, modified or voluntarily
terminated without the Secretary’s prior written consent, except that such
partnership agreement, operating agreement, limited liability agreement, joint
venture agreement (or any agreement constituting such an entity) may be amended
or modified without the Secretary’s consent as set forth in the 

 

 

7

 

Secretary’s
Consent or in relation to any addition or removal of a limited partnership of
K-Sea LP or the Shipowner.”

(h)           Concerning
Section 2.13.  Section 2.13 is
hereby amended and restated as follows:

 

“Partners
of Limited Partnerships.  All
existing and future partnership agreements of K-Sea LP or the Shipowner shall
provide that each partner thereof (each being a “Partner”), upon becoming a
Partner, shall agree: (1) that any amounts owed by K-Sea LP or the Shipowner to
a Partner with respect to its interest (as that or the equivalent term is used
in K-Sea LP’s or the Shipowner’s limited partnership agreement) (the “Distributions”)
shall be subordinated to K-Sea LP’s or the Shipowner’s payment of the
Secretary’s Note and debts under the Security Agreement, provided that such
Distributions may be paid to the extent K-Sea LP or the Shipowner is permitted
to pay dividends under the Financial Agreement; (2) that in the event of
default by K-Sea LP or the Shipowner under the Security Agreement, the Partner
shall be subordinated in its rights to receive any Distribution or to be paid
any sums whatsoever by K-Sea LP or the Shipowner until the Secretary has made a
full recovery of any and all amounts owed under the Secretary’s Note and the
Security Agreement.”

(i)            Concerning Section 2.14.  Section 2.14 is hereby deleted.

(j)            Concerning Section 4.01.  Section 4.01(d) is hereby amended by adding the words “either
K-Sea LP’s or” after the words “Secretary assumes”.

(k)           Concerning Section 5.02.  The Secretary has determined that a deposit of six (6) months’
interest on the principal amount deposited in the Escrow Fund is not required.

(l)            Concerning Section 5.03.  Section 5.03(d) is hereby amended by adding the words “either
K-Sea LP’s or” after the words “Secretary assumes”.

Section 5.03(g) is hereby
amended by adding the words “either K-Sea LP’s or” after the words “Secretary
shall have paid the Guarantees or shall have assumed” in the introductory
clause and clause (3) thereof.

(m)          Concerning
Section 6.01.  Section 6.01(a) is
hereby amended by adding at the end thereof the following additional provision:

“Notwithstanding any provisions
of this Section 6.01(a) or any other provisions of this Security Agreement to
the contrary, in the event of any Payment Default in the payment 

 

8

 

of any interest or principal with respect to any Obligations of any
Series, such Payment Default shall constitute a Default as to all Series for
all purposes under this Security Agreement, following which the Secretary may
exercise the Secretary’s rights, remedies and privileges as to all Obligations
of all such Series.”

Section 6.01(b) is hereby
amended by replacing the words “The following shall constitute” with the words
“Each of the following events, if continued for the greater period of ninety
(90) days after the occurrence of such event or the time specified therein,
shall constitute” in the first clause thereof.

Section 6.01(b) is hereby
amended by adding the words “either K-Sea LP’s or” after the words “Secretary
shall have assumed” in the last clause thereof.

Section 6.01(b)(7) is hereby
amended by adding at the end thereof the following additional provision:

“or any payment
default by either the Shipowner or K-Sea LP under any of either’s credit or
loan arrangements with other lenders;”

 

Section 6.01(b)(9) is hereby
deleted in its entirety.

(n)           Concerning Section 6.02.  Section 6.02 is hereby amended by adding the words “either K-Se
LP’s or” after the words “Secretary shall have assumed”.

Section 6.02 is hereby amended
by adding at the end thereof the following additional provision:

“Notwithstanding any provisions
of this Section 6.02 or any other provisions of this Security Agreement to the
contrary, in the event the Secretary shall have (i) been obligated to pay the
Guarantees with respect to the Obligations of any Series, (ii) assumed either
K-Sea LP’s or the Shipowner’s rights and duties under the Indenture as to the
Obligations of any Series, or (iii) assumed either K-Sea LP’s or the
Shipowner’s rights and duties under the Obligations of any Series, the
Secretary may declare the principal on the Secretary’s Note as to the
Obligations of any and all Series and accrued interest thereon to be
immediately due and owing and payable.”

 

9

 

(o)           Concerning Section 6.03.  Sections 6.03(a), (b) and (c) are hereby amended by adding the
words “either K-Sea LP’s or” after the words “Secretary shall not have
assumed”.

Section 6.03(g) is hereby
amended by adding the words “either K-Sea LP’s or” after the words “Secretary
shall have assumed”.

(p)           Concerning Section 6.04.  Sections 6.04(a) is hereby amended by adding the words “either
K-Sea LP’s or” after the words “or the assumption by the Secretary of”.

Section 6.04(b)’s introductory
clause is hereby amended by adding the words “either K-Sea LP’s or” after the
words “the Secretary’s assumption of”.

(q)           Concerning Section 6.06(c).  Section 6.06(c) is hereby amended by adding
the words “either K-Sea LP or” after the words “assumption by the Secretary of
the rights and duties of”.

(r)            Concerning Section 8.01.  Section 8.01(a) is
hereby amended by adding the words “either K-Sea LP or” before the words “the
Shipowner with and into” and before the words “the Shipowner of all or
substantially”.

Section 8.01(b) is hereby
amended by adding the words “K-Sea LP and” before the words “the Shipowner in
the Indenture”.

Section 8.01(d) is hereby
deleted in its entirety.

(s)           Concerning Section 8.02.  Section 8.02 is hereby amended by adding the following Section
8.02(b):

“(b) Notwithstanding
anything to the contrary herein, limited partners of K-Sea LP or the Shipowner
may transfer their limited partner interests pursuant to the terms of their
respective partnership agreement to any Person.”

(t)            Concerning Section 9.01.  Subject to Section 9.01 of this Security Agreement, any notice,
request, demand, direction, consent, waiver, approval or other communication,
when given to a party hereto, shall be addressed to:

 

	
  Secretary as:

  	
   

  	
  SECRETARY OF TRANSPORTATION

  
	
   

  	
   

  	
  c/o Maritime Administrator

  
	
   

  	
   

  	
  U.S. Department of Transportation

  
	
   

  	
   

  	
  400 Seventh Street, S.W.

  
	
   

  	
   

  	
  Washington, D.C. 20590

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

10

 

 

	
   

  	
   

  	
   

  
	
  Shipowner as:

  	
   

  	
  K-SEA OPERATING PARTNERSHIP L.P.

  
	
   

  	
   

  	
  Attn: Chief Financial Officer

  
	
   

  	
   

  	
  3245 Richmond Terrace

  
	
   

  	
   

  	
  Staten Island, NY 10303

  

 

	
  Parent Company as:

  	
   

  	
  K-SEA TRANSPORTATION PARTNERS L.P.

  
	
   

  	
   

  	
  Attn: Chief Financial Officer

  
	
   

  	
   

  	
  3245 Richmond Terrace

  
	
   

  	
   

  	
  Staten Island, NY 10303

  

 

	
  Indenture Trustee as:

  	
   

  	
  JPMORGAN CHASE BANK

  
	
   

  	
   

  	
  450 West 33rd Street, 15th Floor

  
	
   

  	
   

  	
  New York, New York 10001

  
	
   

  	
   

  	
  Attention: Institutional Trust Services

  

 

 

                SECTION 4.  Counterparts.  The Security Agreement may be executed in
any number of counterparts.  All such
counterparts shall be deemed to be originals, and shall together constitute but
one and the same instrument.

 

SECTION 5.  GOVERNING LAW.  THIS
SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE FEDERAL LAWS OF THE UNITED
STATES OF AMERICA, BUT IF THEY ARE INAPPLICABLE THEN IN ACCORDANCE WITH 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).

 

[signatures on next page]

 

11

 

IN
WITNESS WHEREOF,
this Restated Security Agreement has been executed by the parties hereto as of
the day and year first above written.

 

	
  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:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  

 

 

 

	
  K-SEA OPERATING PARTNERSHIP L.P., by its general

  
	
  partner K-Sea OLP GP, LLC

  
	
   

  
	
  BY:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  

 

 

	
  UNITED STATES OF AMERICA,

  
	
  Secretary of Transportation

  
	
  Maritime Administrator

  
	
   

  
	
  BY:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Secretary

  
	
   

  	
   

  	
  Title: Maritime Administration

  
	
   

  	
   

  	
   

  

 

 

 

 

 

12

 

 

 

EXHIBITS TO THE RESTATED SECURITY AGREEMENT

 

	
  Exhibit 1

  	
   

  	
  —

  	
   

  	
  General Provisions
  Incorporated into the Restated 
  Security Agreement by Reference

  
	
  Schedule X

  	
   

  	
  —

  	
   

  	
  Schedule of Definitions

  
	
  Exhibit 2

  	
   

  	
  —

  	
   

  	
  Form of Assumption of
  Secretary’s Note

  
	
  Exhibit 3.1

  	
   

  	
  —

  	
   

  	
  Form of Assumption of
  Mortgage, Security Agreement and Secretary’s Note

  
	
  Exhibit 3.2

  	
   

  	
  —

  	
   

  	
  Form of Restated First
  Preferred Fleet Mortgage

  
	
  Exhibit 3.3

  	
   

  	
  —

  	
   

  	
  Form of Additional Mortgage

  
	
  Exhibit 4

  	
   

  	
  —

  	
   

  	
  Form of Restated Financial
  Agreement

  
	
  Exhibit 5

  	
   

  	
  —

  	
   

  	
  Form of Consent of Shipyard

  
	
  Exhibit 6

  	
   

  	
  —

  	
   

  	
  Copy of Construction Contract
  and Amendment No. 1

  
	
  Exhibit 7

  	
   

  	
  —

  	
   

  	
  Form of Assumption of
  Construction Contract

  
	
  Exhibit 8

  	
   

  	
  —

  	
   

  	
  Form of Assumption of
  Depository Agreement

  
	
  Exhibit 9

  	
   

  	
  —

  	
   

  	
  Form of Termination of
  Depository Agreement (Segregated Account)

  
	
  Exhibit 10

  	
   

  	
  —

  	
   

  	
  Form of Acknowledgement
  regarding Bareboat Charters

  

 

 

13

 

 

TABLE A

The aggregate Actual Cost of the
Vessels as of the date hereof as determined by the Secretary, namely, (i) the
amounts paid by or for the account of K-Sea LP and the Shipowner as of the date
hereof for the Construction of the Vessels, plus (ii) the amount which K-Sea LP
and the Shipowner was on said date obligated under the Construction Contract or
otherwise to pay from time to time thereafter for the Construction of the
Vessels less the Depreciation of the Vessels as of the date hereof as
determined by the Secretary is [_______________________] United States Dollars
($[__________]), both calculated and itemized for each Vessel as follows:

DBL 101 (O.N. 1119760)

 

	
   

  	
   

  	
  Amount

  Paid

  	
   

  	
  Amount

  Obligated

  To Be Paid

  	
   

  	
  Total

  	
   

  
	
  Contract Price

  	
   

  	
  —

  	
   

  	
  [10,372,912]

  	
   

  	
  [10,372,912]

  	
   

  
	
  Changes and Extras

  	
   

  	
  —

  	
   

  	
  [250,000]

  	
   

  	
  [250,000]

  	
   

  
	
  Owner Furnished Items

  	
   

  	
  —

  	
   

  	
  [167,340]

  	
   

  	
  [167,340]

  	
   

  
	
  Engineering & Inspection

  	
   

  	
  —

  	
   

  	
  [87,500]

  	
   

  	
  [87,500]

  	
   

  
	
  Net Interest During Construction

  	
   

  	
  —

  	
   

  	
  [873,024]

  	
   

  	
  [873,024]

  	
   

  
	
  Estimated Escalation

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Estimated Guarantee Fee

  	
   

  	
  —

  	
   

  	
  [712,759]

  	
   

  	
  [712,759]

  	
   

  
	
  Total Actual Cost

  	
   

  	
  —

  	
   

  	
  [12,463,535]

  	
   

  	
  [12,463,535]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

14

 

 DBL 81 (O.N. 1132231)

	
   

  	
   

  	
  Amount Paid

  	
   

  	
  Amount

  Obligated

  To Be Paid

  	
   

  	
  Total

  	
   

  
	
  Contract Price

  	
   

  	
  —

  	
   

  	
  [8,901,463]

  	
   

  	
  [8,901,463]

  	
   

  
	
  Changes and Extras

  	
   

  	
  —

  	
   

  	
  [250,000]

  	
   

  	
  [250,000]

  	
   

  
	
  Owner Furnished Items

  	
   

  	
  —

  	
   

  	
  [167,340]

  	
   

  	
  [167,340]

  	
   

  
	
  Engineering & Inspection

  	
   

  	
  —

  	
   

  	
  [87,500]

  	
   

  	
  [87,500]

  	
   

  
	
  Net Interest During Construction

  	
   

  	
  —

  	
   

  	
  [988,940]

  	
   

  	
  [988,940]

  	
   

  
	
  Estimated Escalation

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Estimated Guarantee Fee

  	
   

  	
  —

  	
   

  	
  [612,989]

  	
   

  	
  [612,989]

  	
   

  
	
  Total Actual Cost

  	
   

  	
  —

  	
   

  	
  [11,008,232]

  	
   

  	
  [11,008,232]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

 

 

 

 

 

15

 

 

DBL 82 (O.N. 1137538)

 

	
   

  	
   

  	
  Amount

  Paid

  	
   

  	
  Amount

  Obligated

  To Be Paid

  	
   

  	
  Total

  	
   

  
	
  Contract Price

  	
   

  	
  —

  	
   

  	
  [8,696,712]

  	
   

  	
  [8,696,712]

  	
   

  
	
  Changes and Extras

  	
   

  	
  —

  	
   

  	
  [250,000]

  	
   

  	
  [250,000]

  	
   

  
	
  Owner Furnished Items

  	
   

  	
  —

  	
   

  	
  [171,524]

  	
   

  	
  [171,524]

  	
   

  
	
  Engineering & Inspection

  	
   

  	
  —

  	
   

  	
  [87,500]

  	
   

  	
  [87,500]

  	
   

  
	
  Net Interest During Construction

  	
   

  	
  —

  	
   

  	
  [934,282]

  	
   

  	
  [934,282]

  	
   

  
	
  Estimated Escalation

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Estimated Guarantee Fee

  	
   

  	
  —

  	
   

  	
  [575,943]

  	
   

  	
  [575,943]

  	
   

  
	
  Total Actual Cost

  	
   

  	
  —

  	
   

  	
  [10,715,961]

  	
   

  	
  [10,715,961]

  	
   

  

 

 

 

 

16

 

 

 

Hull No. 422 (DBL 102)

	
   

  	
   

  	
  Amount

  Paid

  	
   

  	
  Amount

  Obligated

  To Be Paid

  	
   

  	
  Total

  	
   

  
	
  Contract Price

  	
   

  	
  —

  	
   

  	
  [10,168,161]

  	
   

  	
  [10,168,161]

  	
   

  
	
  Changes and Extras

  	
   

  	
  —

  	
   

  	
  [250,000]

  	
   

  	
  [250,000]

  	
   

  
	
  Owner Furnished Items

  	
   

  	
  —

  	
   

  	
  [171,524]

  	
   

  	
  [171,524]

  	
   

  
	
  Engineering & Inspection

  	
   

  	
  —

  	
   

  	
  [87,500]

  	
   

  	
  [87,500]

  	
   

  
	
  Net Interest During Construction

  	
   

  	
  —

  	
   

  	
  [731,573]

  	
   

  	
  [731,573]

  	
   

  
	
  Estimated Escalation

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Estimated Guarantee Fee

  	
   

  	
  —

  	
   

  	
  [624,130]

  	
   

  	
  [624,130]

  	
   

  
	
  Total Actual Cost

  	
   

  	
  —

  	
   

  	
  [12,032,888]

  	
   

  	
  [12,032,888]

  	
   

  

 

 

17Exhibit 10.6

 

 

I.A.17

 

Contract No.
MA-13784

 

RESTATED
TITLE XI RESERVE FUND

AND FINANCIAL AGREEMENT

 

THIS RESTATED TITLE XI RESERVE FUND AND FINANCIAL AGREEMENT, dated as
of and effective as of December       , 2003
(this “Financial Agreement”), among K-SEA TRANSPORTATION PARTNERS L.P., a
Delaware limited partnership (“K-Sea LP”), K-SEA OPERATING PARTNERSHIP L.P., a
Delaware limited partnership (“K-Sea OLP”, and collectively with K-Sea LP, the
“Partnerships” and each a “Partnership”), and the UNITED STATES OF AMERICA (the
“United States”), represented by the Secretary of Transportation, acting by and
through the Maritime Administrator (the “Secretary”), pursuant to Title XI of
the Act.

 

RECITALS

 

1.             K-Sea
Transportation LLC, a Delaware limited liability company (“K-Sea LLC”), EW
Holding Corp., a New York corporation (“EW Holding”), K-Sea Transportation
Corp., a New York corporation (“K-Sea Transportation”), and K-Sea Acquisition
Corp., a Delaware corporation (“K-Sea Acquisition”, and collectively with K-Sea
LLC, EW Holding and K-Sea Transportation, the “Original K-Sea Entities”), are
parties to that certain Title XI Reserve Fund and Financial Agreement, Contract
No. MA-13784, dated June 7, 2002, as amended by Amendment  No. 1 to Title XI Reserve Fund and Financial
Agreement dated June 27, 2003, by and among the Original K-Sea Entities
and the Secretary (as so amended by such Amendment No. 1, the “Original
Financial Agreement”).

 

2.             K-Sea LLC and EW
Holding have previously authorized the issuance of obligations 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
principal amount of Forty Million Four Hundred Forty-One Thousand United States
Dollars ($40,441,000) 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 Hull No.
422, to be known as DBL 102 (the “Vessels” and each, a “Vessel”).

 

 

3.             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 and Assumption Agreement dated as
of December     , 2003 (the “Contribution Agreement”)
by and among K-Sea Investors L.P., a Delaware limited partnership, the Original
K-Sea Entities and the Partnerships and the performance of the terms set forth
in the Contribution Agreement (collectively, the “MLP Transaction”), by
assumption, merger and operation of law K-Sea LP and K-Sea OLP simultaneously
herewith have succeeded to substantially all of the interests and obligations
of the Original K-Sea Entities including, without limitation, the Obligations,
the documents and instruments referenced in the Secretary’s action dated
December     , 2003 by the Secretary with respect to
the MLP Transaction (the “Secretary’s Consent”), and the Vessels.

 

4.             The parties hereto
desire to amend and restate the Original Financial Agreement in its entirety.

 

NOW,
THEREFORE, in consideration of the premises and 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:

 

I.              Assumption and Consent

 

1.             Assumption
of Original Financial Agreement

 

The Partnerships, jointly and severally,
hereby expressly assume all of the respective former, present and future
obligations, duties, right, title and interest of the Original K-Sea Entities
in and to the Original Financial Agreement, as amended and restated hereby,
together with all documents and instruments evidencing any such obligations,
duties, right, title and interest thereto, and the Partnerships expressly
agree, jointly and severally, specifically to perform all of the respective
agreements and obligations of the Original K-Sea Entities under the Original
Financial Agreement as amended and restated hereby.

 

2.             Secretary’s
Consent

 

The United States, acting through the
Secretary, (i) having by the Secretary’s Consent acknowledged, consented and
agreed to the MLP Transaction, (ii) having by the Secretary’s Consent
acknowledged, consented and agreed that the Partnerships and their direct and
indirect subsidiaries, together with each of the

 

2

 

Original K-Sea Entities, may
enter into such documents, agreements or instruments that are reasonably
related to the MLP Transaction, and (iii) having granted all consents necessary
to be obtained under the Title XI Financing, including without limitation, its
consent as required under Section 8(a)(7) of the Original Financial
Agreement, hereby (a) releases each of the Original K-Sea Entities from the
Original Financial Agreement, and (b) agrees that from and after the date
hereof the Original Financial Agreement shall be superseded in all respects by
this Financial Agreement.

 

II.            Amendments and Restatement.

 

The Original Financial Agreement is hereby
amended and restated in its entirety as follows:

 

SECTION 1.  (a) Granting
Clause.    Each Partnership hereby
sells, grants, conveys, mortgages, assigns, transfers, pledges, confirms and
sets over to the Secretary a continuing security interest in all of such
Partnership’s right, title and interest in and to (1) the Title XI Reserve
Fund, and (2) all sums, moneys, securities, and proceeds thereof currently on
deposit, or hereafter deposited, in the Title XI Reserve Fund.

 

(b)  Rules of Interpretation
and Definitions.  For all purposes
of this Financial Agreement, unless otherwise expressly provided or unless the
context otherwise requires, the capitalized terms used herein shall have the
meaning specified in Schedule X to the Security Agreement, Contract No.
MA-13781, dated June 7, 2002 by and among K-Sea LLC, EW Holding and the
Secretary, as amended by Security Agreement Amendment No. 1 dated as of
June 27, 2003, and Security Agreement Amendment No. 2 dated as of
June 27, 2003, and as further assumed, amended and restated by the
Restated Security Agreement dated as of the date hereof (the “Security
Agreement”),

 

SECTION 2.  Title XI Reserve
Fund.  (a)  The Secretary has established a Deposit Fund with the U.S.
Department of Treasury pursuant to Section 1109 of the Act and in
accordance with the terms and conditions of the Depository Agreement (herein
called the “Title XI Reserve Fund”).

 

(b)(1)  Within one hundred and
five (105) days after the end of each fiscal year of K-Sea LP (each, a “Fiscal
Year”), K-Sea LP shall compute the consolidated net income of K-Sea LP, K-Sea
OLP and their respective consolidated subsidiaries (the “Consolidated Group”)
attributable to the operation of the Vessels (“Title XI Reserve Fund Net
Income”).  This computation requires the
multiplication

 

3

 

of the Consolidated Group’s
Adjusted Net Income After Taxes by a fraction with a numerator composed of the
total original capitalized cost of the Vessels (prorated if any such Vessel has
been operated for a period of less than a full year) and a denominator composed
of the total original capitalized cost of the Consolidated Group’s fixed
assets.  “Adjusted Net Income After
Taxes”, for the purposes hereof, shall mean consolidated net income after taxes
computed in accordance with generally accepted accounting principles, adjusted
as follows:

 

(A)          The depreciation
expense applicable to the accounting year shall be added back;

 

(B)           There shall be
subtracted an amount equal to the required major maintenance (shipyard)
expenditures actually paid by the Consolidated Group during the year, to the
extent such expenditures have not already been expensed by the Consolidated
Group for financial reporting purposes;

 

(C)           There shall be
subtracted an amount equal to the principal amount of debt required to be paid
or redeemed, and actually paid or redeemed by the Consolidated Group during the
year; and the principal amount of Obligations Retired or Paid, prepaid or
redeemed, in excess of the required Redemptions or payments which may be used
by the Consolidated Group as a credit against future required Redemptions or
other required payments with respect to the Obligations, but excluding payments
from the Title XI Reserve Fund and the Title XI Escrow Fund.

 

(2)           Promptly after the
computation of the Title XI Reserve Fund Net Income by the Consolidated Group:

 

(A)          For each Vessel owned
by the Consolidated Group, then from the Title XI Reserve Fund Net Income for
such Vessel there shall be deducted, annually, an amount (pro rated for a
period of less than a full Fiscal Year) which is ten percent (10%) of the
Consolidated Group’s aggregate original equity investment in such Vessel, as
specified in Attachment A;

 

(B)           The Partnerships
shall, unless otherwise approved by the Secretary in writing, transmit to the
Secretary for the Secretary’s prompt deposit into the Title XI Reserve Fund an
amount equal to fifty percent (50%) of the balance of the Title XI Reserve Fund
Net Income remaining after the above deductions;

 

(C)           Irrespective of the
Partnerships’ deposit requirements for the Title XI Reserve Fund, the
Partnerships shall not be required to make any deposits

 

4

 

in the Title XI Reserve Fund if
(i) the Obligations and the related Secretary’s Note with respect to the
Vessels shall have been satisfied and discharged and if the Partnerships shall
have paid or caused to be paid all other sums secured under the Security
Agreement or the Mortgage, (ii) all of the Guarantees on the Outstanding
Obligations shall have been terminated pursuant to the Security Agreement, or
(iii) the amount (including any securities at current market value) in the
Title XI Reserve Fund is equal to, or in excess of fifty percent (50%) of the principal
amount of the Outstanding Obligations of each Series;

 

(D)          The Partnerships
shall deliver to the Secretary at the time of each deposit for the Title XI
Reserve Fund pursuant to Section 2(b)(2)(B), and any deposits required
under the Security Agreement, a statement of an independent certified public
accountant (who may be the regular auditors for either of the Partnerships)
stating that such deposit has been computed in accordance with
Section 2(b)(2)(B), (and the Security Agreement, if applicable) and
showing the pertinent calculations;

 

(E)           In addition, the
Partnerships shall deliver to the Secretary, within one hundred and five (105)
days after the end of each Fiscal Year of the Partnerships, a statement by such
certified public accountant stating (i) the total amount of all deposits which
were required to be so deposited into the Title XI Reserve Fund for such Fiscal
Year (and showing the pertinent calculations), or (ii) that no such deposit was
required to be made for such Fiscal Year (and showing the pertinent
calculations) and that at the end of such Fiscal Year no adjustments pursuant
to Section 2(b)(2)(F) were required to be made (and, if such adjustments
were required to be made, stating the reasons therefor);

 

(F)           The computation of
all deposits required by this Section 2 shall be made on the basis of
information available to the Partnerships at the time of each such
deposit.  Each such deposit shall be
subject to adjustments from time to time in the event and to the extent that
the same would be required or permitted by mistakes or omissions, additional
information becoming available to the Partnerships, or judicial or
administrative determinations made subsequent to the making of such deposits.

 

(3)           Notwithstanding the
foregoing, the Partnerships shall not be required to make any deposits into the
Title XI Reserve Fund if the income of the Vessels (which would cause such
deposit under Section 2(b)(2) above) is earned during the Partnerships’
Fiscal Year at the end of which the Partnerships are in compliance with the
financial requirements indicated in Section 8(b)(i), (ii) and (iii)
hereof.

 

5

 

SECTION 3.  Withdrawals from the Title XI Reserve
Fund.  (a)  From time to time, moneys in the Title XI Reserve Fund shall be
subject to withdrawal by delivery by K-Sea LP to the Secretary of a Request for
Payment (specifying the Person or Persons to be paid and the amount of such
payment) executed by K-Sea LP, together with an Officer’s Certificate of K-Sea
LP stating the reasons and purpose for the withdrawal.

 

(b)           If the Secretary
approves the Request, the Secretary shall promptly withdraw the moneys from the
applicable Deposit Fund and make payment in accordance with the terms of the
Request.

 

(c)           Withdrawals of
Additional Deposits (as defined in Section 6 below) shall be made in
accordance with the terms of Section 6 below.

 

SECTION 4.
 Termination
of the Title XI Reserve Fund.

 

(a)           The Title XI Reserve
Fund shall terminate at such time as the Secretary’s Note shall have been
satisfied and discharged and the Partnerships shall have paid or caused to be
paid all sums secured under the Security Agreement and the Mortgage.

 

(b)           Upon the termination
of the Title XI Reserve Fund, pursuant to Section 4(a), the moneys
remaining in the Title XI Reserve Fund shall be subject to withdrawal and
payment into the general funds of K-Sea LP.

 

(c)           Upon payment by the
Secretary to the Indenture Trustee of the Guarantees pursuant to the Indenture,
the Title XI Reserve Fund shall be terminated and the balance remaining in the
Title XI Reserve Fund shall be paid to the Secretary and the Partnerships as
determined by the Secretary.

 

(d)           Any withdrawal from
the Title XI Reserve Fund pursuant to this Section 4 shall not effect a discharge
of or diminish any obligations of the Partnerships under the Security
Agreement, Mortgage or any other agreement as the case may be except to the
extent that the amount withdrawn is applied to payments required to be made by
the Partnerships under the Security Agreement, Mortgage or any other agreement.

 

SECTION 5.  Eligible Investments; Form of Deposits.  (a) 
Moneys in the Title XI Reserve Fund shall be invested by the Secretary
in direct obligations of  the United
States or any agency of the United States (“Eligible Investments”).

 

6

 

(b)           In any case where
either Partnership is required to deposit or redeposit sums into the Title XI
Reserve Fund, such Partnership shall make the required deposit in cash.

 

(c)           Cash held in the
Title XI Reserve Fund will be held by the U.S. Department of Treasury pursuant
to the terms and conditions of the Depository Agreement.

 

SECTION 6.  Additional Availability of Funds.  (a) 
On the date hereof and, unless otherwise provided in this
Section 6, throughout the duration of the term of the Obligations, the
Partnerships shall cause to be issued and maintained in favor of the Secretary
funds in the aggregate sum of Eight Million Dollars ($8,000,000) (the
“Additional Availability of Funds”), in the form of one or more Letters of
Credit and/or additional cash deposits to the Title XI Reserve Fund (such
additional cash deposits defined as “Additional Deposits”).  All Letters of Credit delivered from time to
time to the Secretary in partial or full satisfaction of this Section 6(a)
shall meet the requirements of Section 6(a)(5) below.  The Partnerships agree that the Additional
Availability of Funds in the form of Letters of Credit and/or the Additional
Deposits shall not be in lieu of any other deposits, in whole or in part, that
the Partnerships are required to make into the Title XI Reserve Fund in
accordance with the terms hereof or any other document providing security for
the Title XI Financing.  The
Partnerships shall have thirty (30) days after receiving written notice from
the Secretary of any inadequacy of the Additional Availability of Funds to
provide additional Letters of Credit and/or Additional Deposits to maintain an
aggregate sum of Eight Million Dollars ($8,000,000).  To the extent that at any time the Additional Availability of
Funds, including the Letters of Credit, Additional Deposits, other deposits and
any accrued earnings thereon, but excluding Obligations Deposits made in
accordance with Section 6(b) below, exceeds Eight Million Dollars
($8,000,000), the Secretary shall approve any Request by K-Sea LP to withdraw
from Additional Deposits an amount equal to or less than such excess
amount.  The following provisions also
shall apply to the Additional Availability of Funds:

 

(1)           The cash amounts of
the Additional Deposits shall at all times be maintained at a minimum of One
Million Five Hundred Eighteen Thousand Eight Hundred Seventy-Five Dollars
($1,518,875), which amount is on deposit currently in the Title XI Reserve
Fund.  At the sole discretion of the
Partnerships, from time-to-time the cash amount of the Additional Deposits may
be increased with a corresponding decrease in the drawable amount of the
Letters of Credit, but at all times the Additional Deposits shall not be less
than One Million Five Hundred Eighteen Thousand Eight Hundred Seventy-Five
Dollars ($1,518,875);

 

7

 

(2)           The Additional
Deposits are subject to a first security interest in favor of the Secretary in
accordance with the terms hereof;

 

(3)           The Secretary agrees
that the Secretary shall not draw on any Letter of Credit or withdraw any
Additional Deposits unless (i) there shall have occurred and be continuing a
Payment Default or (ii) the circumstances set forth in the next following
sentence occur.  Within not less than
thirty (30) days prior to the expiration of any Letter of Credit, unless an
outstanding Letter of Credit is replaced by Additional Deposits or a new Letter
of Credit meeting the requirements hereof for Additional Availability of Funds,
the Secretary shall be entitled to draw down such expiring Letter of Credit and
deposit the proceeds thereof in the Title XI Reserve Fund as Additional
Deposits.  The Secretary shall agree to
any increase or decrease in the amount of the Letter of Credit, if and when
K-Sea LP makes such Request, to the extent that the Partnerships shall have
otherwise satisfied the requirements hereunder with respect to the Additional
Availability of Funds.  Except as
specifically otherwise set forth in this Section 6(a)(3), any amounts
drawn under a Letter of Credit or withdrawn from Additional Deposits shall be
applied by the Secretary in accordance with the terms of Section 6.05 of
the Security Agreement;

 

(4)           The Partnerships
agree that if, for whatever reason, the aggregate Additional Availability of
Funds is less than Two Million Dollars ($2,000,000), then the Partnerships
shall refinance the Outstanding Obligations; and

 

(5)           Any Letter of Credit
delivered to the Secretary under this Section 6 shall (i) be issued in
accordance with the terms of the International Standby Practices (ISP 98) issued by the International Chamber of Commerce, as the same
may be amended from time-to-time, and (ii) be issued by KeyBank or another bank
or financial institution reasonably satisfactory to the Secretary.  In addition to the criteria described in the
preceding sentence, all Letters of Credit shall be satisfactory in form and
substance to the Secretary.

 

(b)           In addition to the
Additional Availability of Funds, on the first Business Day of each month the
Partnerships agree to make a deposit (the “Obligations Deposit”) to the Title
XI Reserve Fund in the amount of one-sixth (1/6) of the amount of the next
semi-annual payment of principal and interest due respecting the
Obligations.  The Partnerships shall be
entitled to request, and the Secretary shall give its written consent to, the
timely withdrawal of the Obligations Deposit to make the next due payment of
principal of, and interest on, the Obligations to assure timely semi-annual
payments of the Obligations without

 

8

 

reducing the Additional
Availability of Funds below Eight Million Dollars ($8,000,000).

 

SECTION 7.
 Additional
Mortgage.  (a)  K-Sea OLP agrees to and shall execute the
Additional Mortgage (as defined in Attachment A) in favor of the Secretary as
collateral to secure the obligations of the Partnerships hereunder and under
the other Documents.  The Partnerships
and the Secretary agree that:

 

(1)           The Additional
Mortgage, as originally executed, shall cover the Additional Vessels (as
defined in Attachment A) with an aggregate Orderly Liquidation Value equal to
or exceeding Ten Million Dollars ($10,000,000);

 

(2)           The Additional
Mortgage may be supplemented from time to time, and the Secretary shall provide
its consent as mortgagee when requested, to replace, remove or otherwise change
any Additional Vessel covered under the Additional Mortgage with a different
vessel or vessels that satisfy the requirements of Additional Vessel as set
forth in the definition of Additional Vessel in Attachment A herein, provided,
that, the aggregate Orderly Liquidation Value of the Additional Vessels
under the Additional Mortgage, as supplemented, equals or exceeds Ten Million
Dollars ($10,000,000); and

 

(3)           The Additional
Mortgage shall terminate upon the fifth anniversary of its execution date if,
at the time of such fifth anniversary, there is no breach of any covenants
under Section 8 herein and there is no Default under the Security
Agreement that is continuing.

 

SECTION 8.  Financial Requirements of the
Partnerships.  (a)  Primary Covenants.  K-Sea OLP shall not be restricted from
making distributions to K-Sea LP. 
Subject to the provisions of Section 8(b), K-Sea LP may, at any
time, make any distribution of the Consolidated Group’s Available Cash (as
defined in Attachment A), provided, that, upon the event of any
of (i) through (iv) below, no distributions of Available Cash shall be permitted
unless the Secretary provides its written consent for such distributions of
Available Cash:

 

(i)            The occurrence of
an event that with time or notice would become a  Payment Default;

 

(ii)           The occurrence and
continuance of a Security Default (if not cured within the period of time
permissible for such Security Default as set forth in the Security Agreement);

 

9

 

(iii)          Either Partnership
becomes insolvent or  bankrupt, or has
dissolved or shall, by a court of competent jurisdiction, be adjudged a
bankrupt, or files a petition of reorganization under the United States
Bankruptcy Code, or such petition be filed by creditors and the same shall be
approved by a court of competent jurisdiction; or

 

(iv)          If K-Sea LP, during
any calendar year, will have incurred indebtedness exceeding Five Million
Dollars ($5,000,000) for the purposes of making distributions.

 

K-Sea LP shall not without the Secretary’s prior written consent:

 

(1)           Except as set forth
in the Secretary’s Consent, enter or permit any member of the Consolidated
Group to enter into any service, management or operating agreement for the
operation of the Vessels (excluding husbanding type agreements), or appoint or
designate a managing or operating agent for the operation of the Vessels
(excluding husbanding agents) unless approved by the Secretary;

 

(2)           Except as set forth
in the Secretary’s Consent and except as permitted in subsection 8(a)(6)
below:  (A) sell, mortgage, transfer,
lease or demise charter, or permit any member of the Consolidated Group to
sell, mortgage, transfer, lease or demise charter, any Vessel or any assets
related to the Security or the Increased Security to any non Related Party, or
(B) sell, mortgage, transfer, lease or demise charter, or permit any member of
the Consolidated Group to sell, mortgage, transfer, lease or demise charter,
any Vessel or any assets  related to the Security or the Increased
Security to a Related Party, unless in either case such transaction is (i) at a
fair market value as determined by an independent appraiser acceptable to the
Secretary, and (ii) a total cash transaction or, in the case of demise charter
or lease, the charter payments are cash payments; provided, however, that this
subsection 8(a)(2) shall not apply to any sale, lease or disposition of
any asset (excluding any Vessel) in the ordinary course of business if such
asset has a fair market value of less than $1,000,000;

 

(3)           Enter or permit any
member of the Consolidated Group to enter into any agreement for both (A) sale
and (B) leaseback of the same assets so sold unless the proceeds from such sale
are at least equal to the fair market value of the property sold;

 

(4)           Guarantee or permit
any member of the Consolidated Group to guarantee, or otherwise become liable
for the obligations of any Person (other than

 

10

 

its direct or indirectly wholly
owned subsidiaries), except in respect of any undertakings as to the fees and
expenses of the Indenture Trustee, except endorsement for deposit of checks and
other negotiable instruments acquired in the ordinary course of business and
except as otherwise permitted in Section 8(b);

 

(5)           Directly or
indirectly embark or permit any member of the Consolidated Group to embark on
any new enterprise or business activity not directly connected with the
business of waterborne transportation or other activity in which any member of
the Consolidated Group are actively engaged;

 

(6)           Except as set forth
in the Secretary’s Consent, enter or permit any member of the Consolidated
Group to enter into any merger or consolidation or convey, sell, demise
charter, or otherwise transfer, or dispose of any portion of its properties or
assets (any and all of which acts are encompassed within the words “sale” or
“sold” as used herein), provided that, any member of the Consolidated
Group shall not be deemed to have sold such properties or assets if (A) the Net
Book Value (defined as the original book value of an asset less depreciation
calculated on a straight line basis over its useful life) of the aggregate of
all the assets sold by the Consolidated Group during any period of twelve (12)
consecutive calendar months does not exceed ten percent (10%) of the total Net
Book Value of all of the Consolidated Group’s assets (the assets which are the
basis for the calculation of the ten percent (10%) of the Net Book Value are
those indicated on the most recent audited annual financial statement required
to be submitted pursuant to Section 9 hereof prior to the date of the
sale); and (B) the Consolidated Group retains the proceeds of the sale of such
assets for use in accordance with the Consolidated Group’s regular business
activities.  Notwithstanding any other
provision of this subsection, the Consolidated Group may not consummate any
such sale without the Secretary’s prior written consent if the Consolidated
Group has not, prior to the time of such sale, submitted to the Secretary the
financial statement described in clause (A) of this subsection, and any attempt
to consummate a sale absent such approval shall be null and void ab initio.  Notwithstanding any other provision of this
Financial Agreement, the Consolidated Group may demise charter its vessels
other than the Vessels so long as such demise charters (a) have terms and
conditions, including charter rates, consistent with the market for such
charters, (b) are for periods of less than five years, and (c) are each with a
citizen of the United States as such is defined in 46 CFR 221-3.  In addition, the Consolidated Group may not
have more than fifty percent (50%) of the vessels in its fleet operate pursuant
to demise charters; and

 

(b)           Supplemental
Covenants.  Unless, (i) on the last
day of the most recent Fiscal Year quarter for which financial statements are
provided in compliance with

 

11

 

Section 9 hereof, the
Consolidated Group’s Fixed Charge Coverage Ratio (as defined in Attachment A
hereto) is at least 3.0 : 1.0 (ii) after giving effect to such transaction or
transactions, the Consolidated Group’s Long Term Debt does not exceed the
Consolidated Group’s Net Worth, and (iii) after giving effect to such
transaction or transactions, the Consolidated Group’s Net Worth is at least the
amount specified in Attachment A hereto, except as approved in the Secretary’s
Consent, the Partnerships shall not, without the Secretary’s prior written
consent:

 

(1)           Withdraw any
capital;

 

(2)           Redeem any
partnership interest or convert any of the same into debt;

 

(3)           Except as permitted
by Section 8(a), make any distribution respecting any partnership
interest;

 

(4)           Make any loan or
advance (except advances to cover current expenses of any member of the
Consolidated Group), either directly or indirectly, to (x) any partner or
shareholder of any member of the Consolidated Group, or (y) any director,
officer, or employee of the Consolidated Group or any Related Party or (z) to
any Related Party;

 

(5)           Make any investments
in the securities of any Related Party;

 

(6)           Prepay in whole or
in part any indebtedness to (x) any partner or shareholder of any member of the
Consolidated Group, or (y) any director, officer or employee of the
Consolidated Group or any Related Party or (z) to any Related Party;

 

(7)           Increase any direct
employee compensation (as hereinafter defined) paid to any employee in excess
of One Hundred Thousand United States Dollars ($100,000) per annum; nor
increase any direct employee compensation which is already in excess of One
Hundred Thousand United States Dollars ($100,000) per annum; nor initially
employ or re-employ any person at a direct employee compensation rate in excess
of One Hundred Thousand United States Dollars ($100,000) per annum; provided,
however, that beginning with January 1, 2000, the One Hundred Thousand
United States Dollars ($100,000) limit may be increased annually based on the
previous year’s closing CPI-U (Consumer Price Index for All Urban Consumers
published by the Bureau of Labor Statistics). For the purpose of this section the
term “direct employee compensation” is the total amount of any wage, salary,
bonus, commission, or other form of direct payment to any employee from all
companies with guarantees under Title XI of the Act as reported to the

 

12

 

Internal Revenue Service for
any Fiscal Year; provided, however, that direct employee
compensation shall not include any dividend or distribution by any member of
the Consolidated Group to its partners or shareholders generally;

 

(8)           Acquire any fixed
assets other than those required for the maintenance of the Consolidated
Group’s existing assets, including the normal maintenance and operation of any
vessel or vessels owned or chartered by the Consolidated Group;

 

(9)           Either enter into or
become liable (directly or indirectly) under charters and leases (having a term
of six months or more) for the payment of charter hire and rent on all such
charters and leases which have annual payments aggregating in excess of Five
Hundred Thousand United States Dollars ($500,000);

 

(10)         Pay any indebtedness
subordinated to the Obligations or to any other Title XI obligations;

 

(11)         Create, assume,
incur, or in any manner become liable for any indebtedness, except current
liabilities, short term loans or revolving credit lines, incurred or assumed in
the ordinary course of the waterborne transportation business of the
Consolidated Group including, without limitation, the Participation and Loan
and Security Agreement  dated
December       , 2003 (the “Revolving Credit
Facility”) by and among K-Sea OLP, KeyBank and CIT; provided, however, that notwithstanding the foregoing, the
Consolidated Group may incur new long-term indebtedness not guaranteed by the
Secretary pursuant to Title XI (“Non-Title XI Long-Term Debt”), provided such
new Non-Title XI Long-Term Debt does not cause the total Long Term Debt to Net
Worth ratio of the Consolidated Group to exceed 1:1 and does not cause the
Consolidated Group to fail to comply with any of the financial tests under
Section 8(b)(i) through (iii);

 

(12)         Make any investment,
whether by acquisition of stock or indebtedness, or by loan, advance, transfer
of property, capital contribution, guarantee of indebtedness or otherwise, in
any Person, other than obligations of the United States, bank deposits or
investments in securities of the character permitted for moneys in the Title XI
Reserve Fund;

 

(13)         Create, assume,
permit or suffer to exist or continue any mortgage, lien, charge or encumbrance
upon, or pledge of, or subject to the prior payment of any indebtedness, any of
its property or assets, real or personal, tangible or intangible, whether now
owned or hereafter acquired, or own or acquire, or agree to acquire, title to
any property of any kind subject to or upon a chattel mortgage or conditional
sales agreement or other title retention agreement, except (i) loans,

 

13

 

mortgages and indebtedness
guaranteed by the Secretary under Title XI of the Act or related to the
construction of a vessel approved for Title XI by the Secretary, (ii) liens
incurred in the ordinary course of the waterborne transportation business of
the Consolidated Group, and (iii) mortgages, liens, charges, encumbrances or
pledges granted to secure the Revolving Credit Facility and any new Non-Title
XI Long-Term Debt permitted pursuant to Section 8(b)(11) above, provided,
however, that no such mortgages, liens, charges, encumbrances or pledges shall
encumber the Secretary’s Increased Security.

 

SECTION 9.  Reporting Requirements.  (a) 
K-Sea LP shall furnish to the Secretary, in duplicate, (1) within one
hundred and five (105) days after the end of each Fiscal Year, commencing with
the first Fiscal Year ending after the date of the date hereof, the Audited
Financial Statements of the Consolidated 
Group including cash flow statement, balance sheet and income statement
for such Fiscal Year along with a completed M.A. Form 172 or such other form
approved by the Secretary, and (2) within ninety (90) days after the expiration
of each quarterly period of the Consolidated 
Group’s Fiscal Year commencing with the first such quarterly period
ending after the date hereof, the Consolidated 
Group’s quarterly financial statements including cash flow statement, balance
sheet and income statement for such quarterly period together with a completed
M.A. Form 172 or such other form approved by the Secretary for such quarterly
period together with an Officer’s Certificate of K-Sea LP certifying as to the
accuracy of such quarterly statements. 
During any period when either Partnership is in bankruptcy, K-Sea LP
shall furnish to the Secretary, within thirty (30) days after the first of each
month commencing with the first such monthly period ending after the date of such
Partnership’s bankruptcy, the Consolidated Group’s monthly financial statements
including cash flow statement, balance sheet and income statement for such
monthly period, together with a completed M.A. Form 172 or such other form
approved by the Secretary for such monthly period along with an Officer’s
Certificate of K-Sea LP certifying as to the accuracy of such monthly financial
statement.

 

(b)           Together with the
Audited Financial Statements and quarterly financial statements delivered in
accordance with the terms of Section 9(a), K-Sea LP shall furnish to the
Secretary, an Officer’s Certificate dated as of the same date stating (x)
whether or not the Partnerships are in default in the performance of or in
default in the compliance with any covenant, agreement or condition contained
herein or in the Mortgage or the Security Agreement and if so, specifying each
such default and stating the nature thereof and (y) confirming that the
Partnerships are in compliance with the financial covenants of Section 8(b)
hereof and, if not, stating the nature of the non-compliance and showing the
pertinent calculations.

 

14

 

(c)           K-Sea LP shall
furnish to the Secretary, within ninety (90) days after a change in the
distribution of the Consolidated Group’s Available Cash (as defined in
Attachment A), a written notice of such change, which may be in the form of a
copy of an 8-K filing with the U.S. Securities and Exchange Commission that
relates to such change, together with an Officer’s Certificate of K-Sea LP
certifying as to the accuracy of such change.

 

SECTION 10.  Qualifying Financial Requirements of the
Partnership and Collateral Assurance.         Immediately
after the consummation of the MLP Transaction, the Consolidated  Group shall meet the requirements with
respect to Fixed Charge Coverage Ratio , Net Worth and Long Term Debt as set
forth in Section 8(b)(i), (ii) and (iii) above.  If at any time the Partnerships are not in compliance with the
requirements with respect to Fixed Charge Coverage Ratio, Net Worth and Long
Term Debt as set forth in Section 8(b)(i), (ii) and (iii) above based on
the Consolidated  Group’s Audited
Financial Statements, at the Partnerships’ expense, the Secretary may conduct
an annual inspection of the Vessels during the period of such
non-compliance.  Any inspection shall be
on reasonable notice to the Partnerships and shall not interfere with the
operation of any Vessel.

 

SECTION 11.  Fund in Lieu of Title XI Reserve Fund. In the event any Vessel is subject to a capital
construction fund established by the Partnerships, as provided in
Section 607 of the Act, whether interim or permanent (herein called the
“Capital Construction Fund”), at any time when deposits would otherwise be
required to be made into the Title XI Reserve Fund in accordance with the terms
of Section 2 hereof, and the Partnerships elect to deposit such funds into
the Capital Construction Fund, then the Partnerships shall enter into an
agreement satisfactory in form and substance to the Secretary to the effect
that (a) the Capital Construction Fund and all assets so deposited therein
shall be and constitute security to the United States in lieu of the Title XI
Reserve Fund as described in Section 2 hereof, and the deposit requirements
of Section 2 of this Financial Agreement shall be deemed satisfied by
deposits of equal amounts in the Capital Construction Fund and (b) the
Partnerships and the Secretary may execute such further agreements or documents
and take such other actions as may be deemed necessary by the Secretary to
perfect the pledge of the security of the Capital Construction Fund.

 

SECTION 12.  Notices.      Except as otherwise provided in this Financial Agreement,
notices, requests, directions, instructions, waivers, approvals or other
communication may be made or delivered in person or by registered or certified

 

15

 

mail, postage prepaid,
addressed to the party as provided below, or to such other address as such
party may hereafter specify in a written notice to the other parties named
herein, and all notices or other communications shall be in writing so
addressed and shall be effective upon receipt by the addressee thereof:

 

	
  The Secretary as:

  	
   

  	
  SECRETARY OF TRANSPORTATION

  
	
   

  	
   

  	
  c/o Maritime Administrator

  
	
   

  	
   

  	
  Maritime Administration

  
	
   

  	
   

  	
  400 Seventh Street, S.W.

  
	
   

  	
   

  	
  Washington, D.C. 20590

  
	
   

  	
   

  	
   

  
	
  The Partnerships as:

  	
   

  	
  K-Sea Transportation Partners L.P.

  
	
   

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
  3245 Richmond Terrace

  
	
   

  	
   

  	
  Staten Island, NY  10303

  
	
   

  	
   

  	
  Attn:  Chief Financial Officer

  

 

SECTION 13.  Amendments and Supplements.             No agreement shall be effective to
amend, supplement, or discharge in whole or in part this Financial Agreement
unless such agreement is in writing signed by the parties hereto.  Any amendments, additions, deletions,
substitutions or other changes not made in accordance with this provision shall
be invalid and of no effect.

 

SECTION 14.  Counterparts.             This Financial Agreement may be executed in any number
of counterparts.  All such counterparts
shall be deemed to be originals, and shall together constitute but one and the
same instrument.

 

SECTION 15.  GOVERNING LAW.  THIS FINANCIAL AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
FEDERAL LAWS OF THE UNITED STATES OF AMERICA, BUT IF THEY ARE INAPPLICABLE,
THEN IN ACCORDANCE WITH THE LAWS OF THE DISTRICT OF COLUMBIA.

 

[signatures
on next page]

 

16

 

IN WITNESS WHEREOF,
this Restated Title XI Reserve Fund and Financial Agreement has been executed
by the parties hereto as of the day and year first above written.

 

	
   

  	
  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:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  K-SEA OPERATING PARTNERSHIP 
  L.P.,

  
	
   

  	
  by its general partner K-Sea OLP GP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Attest:

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  UNITED STATES OF AMERICA

  
	
   

  	
  SECRETARY OF TRANSPORTATION

  
	
   

  	
   

  
	
   

  	
  MARITIME ADMINISTRATOR

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Attest:

  	
   

  	
  Assistant Secretary

  	
   

  
	
   

  	
   

  	
  Maritime Administration

  	
   

  

 

17

 

ATTACHMENT
A TO

RESTATED
TITLE XI RESERVE FUND

AND
FINANCIAL AGREEMENT

(Contract
No. MA - 13784)

 

1.               This Financial Agreement shall apply to
the following Vessels: (a) DBL 101, O.N. 1119760, (b) DBL 81, O.N. 1132231, (c)
DBL 82, O.N. 1137538, and (d) Hull No. 422, to be known as DBL 102.

 

2.               The Partnerships’ aggregate original
equity investment for use in Section 2 for:

 

(a)  DBL 101, O.N. 1119760 is
One Million Five Hundred Fifty-Eight Thousand Five Hundred Thirty-Five United
States Dollars ($1,558,535);

 

(b)  DBL 81, O.N. 1132231 is One
Million Three Hundred Seventy-Six Thousand Two Hundred Thirty-Two United States
Dollars ($1,376,232);

 

(c)  DBL 82, O.N. 1137538 is One
Million Three Hundred Thirty-Nine Thousand Nine Hundred Sixty-One United States
Dollars ($1,339,961); and

 

(d) Hull Number 422 (to be known as DBL 102) is One Million Five Hundred
and Four Thousand Eight Hundred Eighty-Eight United States Dollars
($1,504,888).

 

3.               Definitions

 

“Additional Mortgage” means the first preferred fleet mortgage covering
the  Additional Vessels, Contract No.
MA-[        ], granted by K-Sea OLP to
the Secretary, as originally executed, amended, modified or supplemented.

 

“Additional Vessel” means any of, and “Additional Vessels” means all
of, the vessels, at any point in time, owned by K-Sea OLP, excluding the
Vessels, that are subject to the Additional Mortgage; such Additional Vessels
may be replaced, removed or otherwise changed from time to time in accordance
with the Additional Mortgage and Section 7 of this Financial Agreement.

 

“Available Cash” as used in Section 8(a) means as follows: with respect to
any Quarter ending prior to the Liquidation Date: (a) the sum of (i) all cash
and cash equivalents of the Partnership Group on hand at the end of such
Quarter, and (ii) all additional cash and cash equivalents of the Partnership
Group on hand on the date of determination of Available Cash with respect to
such Quarter

 

18

 

resulting from Working Capital Borrowings made subsequent to the end of
such Quarter, less (b) the amount of any cash reserves that are necessary or
appropriate in the reasonable discretion of the General Partner to (i) provide
for the proper conduct of the business of the Partnership Group (including
reserves for future capital expenditures and for anticipated future credit
needs of the Partnership Group) subsequent to such Quarter, (ii) comply with
applicable law or any loan agreement, security agreement, mortgage, debt
instrument or other agreement or obligation to which any Group Member is a
party or by which it is bound or its assets are subject and (iii) provide funds
for distributions under Section 6.4 or 6.5 of the K-Sea Partnership
Agreement in respect of any one or more of the next four Quarters; provided,
however, that the General Partner may not establish cash reserves pursuant to
(iii) above if the effect of such reserves would be that the Partnership is
unable to distribute the Minimum Quarterly Distribution on all Common Units,
plus any Cumulative Common Unit Arrearage on all Common Units, with respect to
such Quarter; and, provided further, that disbursements made by a Group Member
or cash reserves established, increased or reduced after the end of such
Quarter but on or before the date of determination of Available Cash with
respect to such Quarter shall be deemed to have been made established,
increased or reduced, for purposes of determining Available Cash, within such
Quarter if the General Partner so determines.

 

“Common Unit” means any class or series of
equity interest in K-Sea LP representing a fractional part of the interest of
all limited partners and their assignees, and having the rights and obligations
specified with respect to Common Units in the K-Sea LP Partnership Agreement.

 

“Cumulative Unit Arrearage” means, with
respect to any Common Unit, whenever issued, and as of the end of any Quarter,
the excess, if any, of (a) the sum resulting from adding together with Common
Unit Arrearage as to a Common Unit sold in the initial public offering of
Common Units for each of the Quarters within the subordination period ending on
or before the last day of such Quarter over (b) the sum of any distributions
theretofore made pursuant to Section 6.4(a)(ii) of the K-Sea LP
Partnership Agreement, and the second sentence of Section 6.5 of the K-Sea
LP Partnership Agreement, with respect to a Common Unit sold in the initial
public offering of Common Units (including any distributions to be made in
respect of the last of such Quarters).

 

“EBITDA” means net income before income taxes
plus interest expense plus depreciation and amortization expense, all as shown
on the Consolidated

 

19

 

Group’s most recent financial statements
provided in compliance with Section 9 hereof.

 

“Fixed Charge Coverage Ratio” as used in
Section 8(b) means a fraction whereby the numerator is EBITDA less
shipyard expenditures for the previous 12 months; and the denominator comprises
regularly scheduled payments of Long Term Debt and interest thereon plus the
current portion of minimum rental payments under operating leases, for the
previous 12 months.  For all periods
prior to the MLP Closing Date which may be included in the calculation of this
ratio, all amounts used in the numerator and denominator shall be, those of the
Original K-Sea Entities on a consolidated basis, except that payments of Long
Term Debt and interest thereon shall exclude all amounts related to debt
obligations which were repaid with proceeds from the initial public offering of
limited partner interests in K-Sea LP.

 

“General Partner” means K-Sea General Partner
L.P., a Delaware limited partnership, and its successors and permitted assigns
as general partner of K-Sea LP.

 

“Group Member” means a member of the
Partnership Group.

 

“K-Sea LP Partnership Agreement” means the
Amended and Restated Agreement of Limited Partnership of K-Sea LP, as amended,
supplemented or restated, from time to time.

 

“Liquidation Date” means (a) in the case of
an event giving rise to the dissolution of K-Sea LP of the type described in
clauses (a) and (b) of the first sentence of Section 12.2 of the K-Sea LP
Partnership Agreement, the date on which the applicable time period during
which the holders of outstanding units have the right to elect to reconstitute
K-Sea LP and continue its business has expired without such an election being
made, and (b) in the case of any other event giving rise to the dissolution of
K-Sea LP, the date on which such event occurs.

 

“Minimum Quarterly Distribution” means $0.50
per unit per Quarter (or with respect to the period commencing on the MLP
Closing Date and ending on December 31, 2003, it means the product of
$0.50 multiplied by a fraction of which the numerator is the number of days in
such period and of which the denominator is 92), subject to adjustment in
accordance with Section 6.6 and 6.9 of the K-Sea LP Partnership Agreement.

 

“MLP Closing Date” means the first date on
which Common Units are sold by K-Sea LP in connection with the MLP Transaction.

 

20

 

“Orderly Liquidation Value” means, with respect to any Vessel,
the net proceeds anticipated at a sale other than a forced sale upon
foreclosure.

 

“Partnership Group” means K-Sea LP, K-Sea OLP
and any direct or indirect subsidiary of any such entity, treated as a single
consolidated entity.

 

“Quarter” means, unless the context requires
otherwise, a fiscal quarter, or, with respect to the first fiscal-quarter after
the MLP Closing Date, the portion of such fiscal quarter after the MLP Closing
Date, of K-Sea LP.

 

“Working Capital Borrowings” means borrowings
used solely for working capital purposes or to pay distributions to K-Sea LP’s
partners made pursuant to a credit facility or other arrangement to the extent
all such borrowings are required to be reduced to a relatively small amount each
year (or for the year in which the initial offering and sale of Common Units to
the public is consummated, the 12-month period beginning on the MLP Closing
Date) for an economically meaningful period of time.

 

4.               The Consolidated Group’s initial Net Worth
for use in Section 8(b) is $110,000,000.00 as of the date hereof and in
each succeeding Fiscal Year shall be at least ninety percent (90%) of the
Consolidated Group’s Net Worth as of the last day of the immediately preceding
Fiscal Year, as set forth in the Audited Financial Statements of the
Consolidated Group.  The Consolidated
Group’s Net Worth for purposes of Section 8(b) hereof shall not be lower
than $90,000,000.00.

 

21

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