Document:

Exhibit
10.1

Execution Version

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

K-SEA ACQUISITION1, LLC,

K-SEA TRANSPORTATION PARTNERS L.P.,

SMITH MARITIME, LTD.,

GO BIG CHARTERING, LLC,

GORDON L.K. SMITH,

THE GORDON L.K. SMITH TRUST,

BARBARA SMITH SML TRUST,

235LX, LLC

AND

THE OTHER PARTIES SIGNATORY HERETO

DATED AS OF JUNE 25, 2007

 

 

TABLE
OF CONTENTS

	
  ARTICLE I DEFINITIONS

  	
   

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE II THE MERGERS

  	
   

  	
   

  
	
  Section 2.1

  	
   

  	
  The Mergers

  	
   

  	
  12

  
	
  Section 2.2

  	
   

  	
  Effective Time

  	
   

  	
  12

  
	
  Section 2.3

  	
   

  	
  Closing

  	
   

  	
  12

  
	
  Section 2.4

  	
   

  	
  Effects of the Mergers

  	
   

  	
  13

  
	
  Section 2.5

  	
   

  	
  Certificate of Formation; Limited Liability Company
  Agreement

  	
   

  	
  13

  
	
  Section 2.6

  	
   

  	
  Managers

  	
   

  	
  13

  
	
  Section 2.7

  	
   

  	
  Officers

  	
   

  	
  13

  
	
  Section 2.8

  	
   

  	
  Conversion of Equity Interests

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH
  SELLER PARTY

  	
   

  	
   

  
	
  Section 3.1

  	
   

  	
  Corporate Status and Good Standing; Citizenship

  	
   

  	
  14

  
	
  Section 3.2

  	
   

  	
  Authorization

  	
   

  	
  14

  
	
  Section 3.3

  	
   

  	
  Capitalization; Title to Membership Interests

  	
   

  	
  15

  
	
  Section 3.4

  	
   

  	
  Non-Contravention

  	
   

  	
  15

  
	
  Section 3.5

  	
   

  	
  Validity

  	
   

  	
  16

  
	
  Section 3.6

  	
   

  	
  Broker Involvement

  	
   

  	
  16

  
	
  Section 3.7

  	
   

  	
  Litigation

  	
   

  	
  16

  
	
  Section 3.8

  	
   

  	
  Disclosure

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SMITH
  MARITIME, GO BIG, SMITH, THE GORDON TRUST AND 235LX

  	
   

  	
   

  
	
  Section 4.1

  	
   

  	
  Corporate Status and Good Standing; Citizenship

  	
   

  	
  17

  
	
  Section 4.2

  	
   

  	
  Authorization

  	
   

  	
  18

  
	
  Section 4.3

  	
   

  	
  Capitalization; Title to Equity Interests

  	
   

  	
  18

  
	
  Section 4.4

  	
   

  	
  Non-Contravention

  	
   

  	
  19

  
	
  Section 4.5

  	
   

  	
  Validity

  	
   

  	
  20

  
	
  Section 4.6

  	
   

  	
  Broker Involvement

  	
   

  	
  20

  
	
  Section 4.7

  	
   

  	
  Litigation

  	
   

  	
  20

  
	
  Section 4.8

  	
   

  	
  Title to Assets

  	
   

  	
  20

  
	
  Section 4.9

  	
   

  	
  Continuity Prior to the Closing Date

  	
   

  	
  20

  
	
  Section 4.10

  	
   

  	
  Contracts and Commitments

  	
   

  	
  22

  
	
  Section 4.11

  	
   

  	
  Trademarks, Trade Names and Intellectual Property

  	
   

  	
  22

  
	
  Section 4.12

  	
   

  	
  Financial Statements; Budget

  	
   

  	
  23

  
	
  Section 4.13

  	
   

  	
  Bank Relations; Powers of Attorney

  	
   

  	
  24

  
	
  Section 4.14

  	
   

  	
  Condition of Assets; Eligibility for Coastwise Trade

  	
   

  	
  24

  
	
  Section 4.15

  	
   

  	
  Absence of Undisclosed Liabilities

  	
   

  	
  25

  
	
  Section 4.16

  	
   

  	
  Real Estate

  	
   

  	
  26

  
	
  Section 4.17

  	
   

  	
  Accounts Receivable

  	
   

  	
  26

  
	
  Section 4.18

  	
   

  	
  Inventory

  	
   

  	
  26

  
	
  Section 4.19

  	
   

  	
  Employees and Related Matters

  	
   

  	
  26

  
	
  Section 4.20

  	
   

  	
  Employee Benefits

  	
   

  	
  27

  
	
  Section 4.21

  	
   

  	
  Compliance With Law

  	
   

  	
  28

  

 

 2
 

 

	
  Section 4.22

  	
   

  	
  Environmental

  	
   

  	
  29

  
	
  Section 4.23

  	
   

  	
  Insurance

  	
   

  	
  31

  
	
  Section 4.24

  	
   

  	
  Government Licenses and Permits

  	
   

  	
  31

  
	
  Section 4.25

  	
   

  	
  Responsible Carriers Plan

  	
   

  	
  31

  
	
  Section 4.26

  	
   

  	
  Taxes

  	
   

  	
  31

  
	
  Section 4.27

  	
   

  	
  No Material Adverse Change

  	
   

  	
  33

  
	
  Section 4.28

  	
   

  	
  Books and Records

  	
   

  	
  33

  
	
  Section 4.29

  	
   

  	
  Safety Reports

  	
   

  	
  34

  
	
  Section 4.30

  	
   

  	
  Transactions with Certain Persons

  	
   

  	
  34

  
	
  Section 4.31

  	
   

  	
  Closing Date Balance Sheet

  	
   

  	
  34

  
	
  Section 4.32

  	
   

  	
  Disclosure

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER
  AND THE PARTNERSHIP

  	
   

  	
   

  
	
  Section 5.1

  	
   

  	
  Status and Good Standing

  	
   

  	
  35

  
	
  Section 5.2

  	
   

  	
  Authorization

  	
   

  	
  35

  
	
  Section 5.3

  	
   

  	
  Non-Contravention

  	
   

  	
  35

  
	
  Section 5.4

  	
   

  	
  Validity

  	
   

  	
  35

  
	
  Section 5.5

  	
   

  	
  Broker Involvement

  	
   

  	
  36

  
	
  Section 5.6

  	
   

  	
  Buyer’s Review

  	
   

  	
  36

  
	
  Section 5.7

  	
   

  	
  Citizenship

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI COVENANTS

  	
   

  	
   

  
	
  Section 6.1

  	
   

  	
  Other Offers

  	
   

  	
  36

  
	
  Section 6.2

  	
   

  	
  Conduct of Business Pending Closing

  	
   

  	
  36

  
	
  Section 6.3

  	
   

  	
  Access

  	
   

  	
  37

  
	
  Section 6.4

  	
   

  	
  Termination of Guarantees and Settlement of
  Intercompany Amounts

  	
   

  	
  37

  
	
  Section 6.5

  	
   

  	
  Covenant Against Competition

  	
   

  	
  37

  
	
  Section 6.6

  	
   

  	
  Further Assurances

  	
   

  	
  39

  
	
  Section 6.7

  	
   

  	
  Governmental Filings

  	
   

  	
  39

  
	
  Section 6.8

  	
   

  	
  Consents

  	
   

  	
  39

  
	
  Section 6.9

  	
   

  	
  Public Announcements

  	
   

  	
  39

  
	
  Section 6.10

  	
   

  	
  Tax Matters

  	
   

  	
  39

  
	
  Section 6.11

  	
   

  	
  Closing Date Balance Sheet

  	
   

  	
  41

  
	
  Section 6.12

  	
   

  	
  Employees

  	
   

  	
  41

  
	
  Section 6.13

  	
   

  	
  Personal Property

  	
   

  	
  42

  
	
  Section 6.14

  	
   

  	
  Financial Statements

  	
   

  	
  42

  
	
  Section 6.15

  	
   

  	
  Notification

  	
   

  	
  42

  
	
  Section 6.16

  	
   

  	
  Insurance

  	
   

  	
  43

  
	
  Section 6.17

  	
   

  	
  Misdirected Payments

  	
   

  	
  43

  
	
  Section 6.18

  	
   

  	
  Conversion of Smith Subsidiaries

  	
   

  	
  43

  
	
  Section 6.19

  	
   

  	
  Transfer of Shares

  	
   

  	
  43

  
	
  Section 6.20

  	
   

  	
  Hawaii Dislocated Workers Act

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII INDEMNIFICATION

  	
   

  	
   

  
	
  Section 7.1

  	
   

  	
  Seller Parties’ Indemnity Obligations

  	
   

  	
  43

  
	
  Section 7.2

  	
   

  	
  Buyer’s Indemnity Obligations

  	
   

  	
  44

  
	
  Section 7.3

  	
   

  	
  Survival

  	
   

  	
  45

  

 

 3
 

 

	
  Section 7.4

  	
   

  	
  Indemnification Procedures

  	
   

  	
  45

  
	
  Section 7.5

  	
   

  	
  General

  	
   

  	
  47

  
	
  Section 7.6

  	
   

  	
  Exclusivity

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII CONDITIONS TO CLOSING

  	
   

  	
   

  
	
  Section 8.1

  	
   

  	
  Conditions to Obligations of Buyer

  	
   

  	
  47

  
	
  Section 8.2

  	
   

  	
  Conditions to Obligations of Smith Maritime, Go Big
  and the Seller Parties

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX TERMINATION

  	
   

  	
   

  
	
  Section 9.1

  	
   

  	
  Grounds for Termination

  	
   

  	
  51

  
	
  Section 9.2

  	
   

  	
  Effect of Termination

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE X GENERAL PROVISIONS

  	
   

  	
   

  
	
  Section 10.1

  	
   

  	
  Release

  	
   

  	
  52

  
	
  Section 10.2

  	
   

  	
  Arbitration

  	
   

  	
  52

  
	
  Section 10.3

  	
   

  	
  Confidentiality

  	
   

  	
  54

  
	
  Section 10.4

  	
   

  	
  Expenses

  	
   

  	
  55

  
	
  Section 10.5

  	
   

  	
  Entire Agreement

  	
   

  	
  55

  
	
  Section 10.6

  	
   

  	
  No Reliance

  	
   

  	
  56

  
	
  Section 10.7

  	
   

  	
  Waivers and Consents

  	
   

  	
  56

  
	
  Section 10.8

  	
   

  	
  Notices

  	
   

  	
  56

  
	
  Section 10.9

  	
   

  	
  Assignments, Successors and No Third-Party Rights

  	
   

  	
  57

  
	
  Section 10.10

  	
   

  	
  Choice of Law

  	
   

  	
  58

  
	
  Section 10.11

  	
   

  	
  Jurisdiction and Venue

  	
   

  	
  58

  
	
  Section 10.12

  	
   

  	
  Construction; Section Headings; Table of Contents

  	
   

  	
  58

  
	
  Section 10.13

  	
   

  	
  Severability

  	
   

  	
  58

  
	
  Section 10.14

  	
   

  	
  Counterparts

  	
   

  	
  58

  
	
  Section 10.15

  	
   

  	
  Time of Essence

  	
   

  	
  58

  
	
  Section 10.16

  	
   

  	
  Power of Attorney

  	
   

  	
  58

  
						

 

	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Form of Assignment of Membership Interest/Stock
  Power

  
	
  Exhibit B

  	
   

  	
  Form of Employee Release

  
	
   

  	
   

  	
   

  
	
  SCHEDULES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 1.1

  	
   

  	
  Certain Permitted Liens

  
	
  Schedule 2.8

  	
   

  	
  Merger Consideration

  
	
  Schedule 3.2

  	
   

  	
  Authorization

  
	
  Schedule 3.3(a)

  	
   

  	
  Capitalization

  
	
  Schedule 3.3(b)

  	
   

  	
  Capitalization of 235LX

  
	
  Schedule 3.3(c)

  	
   

  	
  Subscriptions, Etc.

  
	
  Schedule 3.4

  	
   

  	
  Non-Contravention

  
	
  Schedule 3.6

  	
   

  	
  Broker Involvement

  
	
  Schedule
  4.1(a)(1)

  	
   

  	
  Smith Maritime Foreign Qualifications

  
	
  Schedule
  4.1(a)(2)

  	
   

  	
  Smith Maritime Partnerships, Etc.

  
	
  Schedule 4.1(b)

  	
   

  	
  Go Big Foreign Qualifications

  

 

 4
 

 

	
  Schedule 4.1(c)

  	
   

  	
  Smith Subsidiary Foreign Qualifications

  
	
  Schedule 4.2

  	
   

  	
  Authorization

  
	
  Schedule 4.3(c)

  	
   

  	
  Subscriptions, Etc.

  
	
  Schedule 4.4

  	
   

  	
  Non-Contravention

  
	
  Schedule 4.6

  	
   

  	
  Broker Involvement

  
	
  Schedule 4.7

  	
   

  	
  Litigation

  
	
  Schedule 4.8

  	
   

  	
  Title to Assets

  
	
  Schedule 4.9

  	
   

  	
  Continuity Prior to Closing Date

  
	
  Schedule 4.10

  	
   

  	
  Contracts and Commitments

  
	
  Schedule 4.11

  	
   

  	
  Trademarks, Trade Names and Intellectual Property

  
	
  Schedule 4.12(a)

  	
   

  	
  Unaudited Financial Statements

  
	
  Schedule 4.12(b)

  	
   

  	
  Audited Annual Financial Statements

  
	
  Schedule 4.12(c)

  	
   

  	
  Unaudited Interim Financial Statements

  
	
  Schedule 4.12(d)

  	
   

  	
  Budget

  
	
  Schedule 4.12(e)

  	
   

  	
  Liabilities

  
	
  Schedule 4.12(f)

  	
   

  	
  Intercompany Transactions

  
	
  Schedule 4.13

  	
   

  	
  Bank Relations

  
	
  Schedule 4.14(a)

  	
   

  	
  Material Assets

  
	
  Schedule
  4.14(b)(1)

  	
   

  	
  Owned Vessels

  
	
  Schedule
  4.14(b)(2)

  	
   

  	
  Bareboat Chartered Vessels

  
	
  Schedule
  4.14(b)(3)

  	
   

  	
  Other Vessels

  
	
  Schedule 4.14(c)

  	
   

  	
  Condition of Vessels

  
	
  Schedule 4.14(d)

  	
   

  	
  Vessel Documentation

  
	
  Schedule 4.14(e)

  	
   

  	
  CG-385 Certificates; Captain of Port Orders

  
	
  Schedule 4.15

  	
   

  	
  Undisclosed Liabilities

  
	
  Schedule 4.16

  	
   

  	
  Real Estate

  
	
  Schedule 4.18

  	
   

  	
  Inventory

  
	
  Schedule 4.19

  	
   

  	
  Employees

  
	
  Schedule 4.20

  	
   

  	
  Employee Benefits

  
	
  Schedule 4.22(a)

  	
   

  	
  Compliance with Environmental Laws

  
	
  Schedule 4.22(b)

  	
   

  	
  Environmental Permits

  
	
  Schedule 4.22(c)

  	
   

  	
  Hazardous Material

  
	
  Schedule 4.22(d)

  	
   

  	
  Notice of Environmental Violations; Remedial Actions

  
	
  Schedule 4.22(e)

  	
   

  	
  Changes in Law

  
	
  Schedule 4.22(f)

  	
   

  	
  Releases; Disposal of Hazardous Materials

  
	
  Schedule 4.22(g)

  	
   

  	
  Storage of Hazardous Materials

  
	
  Schedule 4.22(l)

  	
   

  	
  Remedial Action

  
	
  Schedule 4.22(m)

  	
   

  	
  Other Environmental Matters

  
	
  Schedule 4.23

  	
   

  	
  Insurance

  
	
  Schedule 4.24

  	
   

  	
  Governmental Licenses, Permits and Related Approvals

  
	
  Schedule 4.25

  	
   

  	
  Responsible Carriers Plan

  
	
  Schedule 4.26(b)

  	
   

  	
  Notice of Deficiency or Assessment

  
	
  Schedule 4.26(e)

  	
   

  	
  Federal Tax Basis and Liability

  
	
  Schedule 4.26(g)

  	
   

  	
  Section 1374

  
	
  Schedule 4.29

  	
   

  	
  Safety Reports

  
	
  Schedule 4.30

  	
   

  	
  Transactions with Certain Persons

  

 

 5
 

 

	
  Schedule 6.11

  	
   

  	
  GAAP Exceptions

  
	
  Schedule 6.12(a)

  	
   

  	
  Excepted Employees

  
	
  Schedule 6.13

  	
   

  	
  Personal Property

  

 

 6

AGREEMENT AND PLAN OF
MERGER

This Agreement and Plan of Merger (“Agreement”), dated
as of June 25, 2007, is by and among K-Sea Acquisition1, LLC, a Delaware
limited liability company (“Buyer”), K-Sea Transportation Partners L.P.,
a Delaware limited partnership (the “Partnership”), Smith Maritime, Ltd., a
Hawaii corporation (“Smith Maritime”), Go Big Chartering, LLC, a Washington
limited liability company (“Go Big” and, together with Smith Maritime and its
Subsidiaries (as defined herein), the “Subject Companies”), Gordon L.K. Smith (“Smith”),
individually and as trustee for The Gordon L.K. Smith Trust (the “Gordon Trust”),
Barbara Smith, as trustee for the Barbara Smith SML Trust (the “Barbara Trust”
and, together with Smith and the Gordon Trust, the “Smith Sellers”), and 235LX,
LLC, a Washington limited liability company (“235LX” and, together with the
Smith Sellers, the “Seller Parties”).

RECITALS

WHEREAS,
the Subject Companies are engaged in the maritime transportation of refined
petroleum products and related businesses;

WHEREAS,
the Smith Sellers own 100% of the issued and outstanding shares of capital
stock (the “Smith Capital Stock”) of Smith Maritime;

WHEREAS,
235LX owns all of the issued and outstanding membership interests of Go Big
(the “Go Big Membership Interests” and, together with the Smith Capital Stock,
the “Equity Interests”);

WHEREAS,
Buyer, Smith Maritime, Go Big and the Seller Parties have determined that it is
in their respective best long-term interests to effect a business combination
in which each of Smith Maritime and Go Big will merge with and into Buyer on
the terms and subject to the conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of the premises and
the respective representations, warranties, covenants and agreements stated
herein, the parties agree as follows:

ARTICLE I

DEFINITIONS

Capitalized
terms used in this Agreement have the meanings specified in (a) the preamble,
(b) the recitals, (c) this Article I or (d) elsewhere in this Agreement, as the
case may be:

Accounts
Receivable means all accounts receivable of the Subject
Companies and all other rights of the Subject Companies to payment for goods
sold or leased or for services rendered, including, without limitation, those
which are not evidenced by instruments or chattel paper, whether or not they
have been earned by performance or have been written off or reserved against as
a bad debt or doubtful account in any financial statements, together with all
instruments and all documents of title representing any of the foregoing, all
rights in any merchandise or goods which any of the same represent, and all
rights, title, security and guaranties in favor of the Subject Companies with
respect to any of the foregoing.

 

 7
 

Affiliate,
with respect to any Person, means any Person that directly or indirectly
controls, is controlled by or is under common control with such Persons.

Buyer
Indemnified Party means Buyer and its Affiliates and each of
their respective officers, directors, employees, agents and counsel.

Ceiling
Amount means $20,000,000; provided that the Ceiling Amount
with respect to the Seller Parties’ breaches of representations and warranties
contained in Section 4.22 shall be $25,000,000.

Code
means the Internal Revenue Code of 1986, as amended.

Environmental
Laws means any federal, state, local, foreign or
international Law (including common law), or other legal requirement,
regulating or protecting the public and employee health and safety (including
in the workplace), regulating or protecting the environment and natural
resources or wildlife, prohibiting Releases into any part of the workplace or
the environment, or prohibiting pollution or exposure to Hazardous Materials,
including, but not limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act (“CERCLA”) (42 U.S.C. Sections 9602 et seq.),
the Hazardous Materials Transportation Act (49 U.S.C. Sections 1801 et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.),
the Clean Water Act (33 U.S.C. Sections 1251 et seq.), the Clean Air Act (42
U.S.C. Sections 7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
Sections 7401 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act
(7 U.S.C. Sections 2014 et seq.), the Occupational Safety and Health Act (“OSHA”)
(29 U.S.C. Sections 651 et seq.), and the Oil Pollution Act of 1990 (33 U.S.C.
Sections 2701 et seq.) and the regulations promulgated pursuant thereto.

ERISA
means the Employee Retirement Income Security Act of 1974, as amended.

ERISA
Affiliate means each entity which is or has been treated as a
single employer with Seller Parties for purposes of Section 414 of the Code or
Section 4001(a)(14) of ERISA.

Governmental
Body means any (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature, (b) federal, state,
local, municipal, foreign, or other government, (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal), (d)
multinational governmental organization or body, or (e) body exercising, or
entitled to exercise, any administrative, executive, judicial, legislative,
police, regulatory or taxing authority or power of any nature.

HSR
Act means the Hart-Scott-Rodino Antitrust Improvements Act.

Hazardous
Material means any substance, material or waste which is
regulated pursuant to any Environmental Law, including, without limitation, (a)
petroleum (including crude oil or any fraction thereof) or petroleum products,
polychlorinated biphenyls, asbestos or asbestos-containing materials, lead or
lead-based paints or materials, toxic mold, and (b)  any 

 

 8
 

material or
substance which is defined or regulated as a “hazardous waste,” “hazardous
material,” “hazardous substance,” “extremely hazardous waste,” “restricted
hazardous waste,” “contaminant,” “pollutant,” “toxic waste,” “toxic substance,”
“source material,” “spent nuclear material,” “byproduct material,” “high-level
radioactive waste,” “low-level radioactive waste,” “spent nuclear material” or “radiofrequency”
under any Environmental Law.

Indemnified
Amounts means any and all claims, losses, damages,
liabilities, judgments, fines, penalties, assessments and expenses (including,
without limitation, reasonable attorneys’ fees); provided, however, to the
extent an Indemnified Amount is compensated for by insurance for which the
Indemnified Party is or was loss payee or insured, the Indemnified Amount is
limited to the uninsured portion thereof as follows: (A) any amount which
Indemnifying Party is obligated to pay Indemnified Party under Article VII
shall be reduced by the amount of insurance proceeds actually received by
Indemnified Party (net of any expenses (but excluding: (i) increases in current
or future insurance premiums; (ii) in-house expenses incurred by Indemnified
Party in the ordinary course of business in obtaining such insurance proceeds;
and (iii) interest or other charges for use of funds advanced by Indemnified
Party related to the payment of claims under “pay-to-be-paid” provisions of
protection and indemnity policies, which funds Indemnified Parties shall
advance in the ordinary course) incurred by the Indemnified Party in obtaining
such insurance proceeds) with respect to the loss for which indemnity is sought
(but the Indemnifying Party shall not be entitled to delay payment of any
amounts in anticipation of receipt of insurance proceeds for more than 120 days
after the Indemnified Party’s submission of a claim to an insurance carrier for
payment to the extent such claim remains unpaid), and (B) if at any time after
such payment is made by Indemnifying Party to Indemnified Party hereunder, the
Indemnified Party should receive insurance proceeds with respect to the loss
for which such Indemnified Amount was previously paid hereunder, such party
shall reimburse Indemnifying Party the amount by which payment would have been
reduced had such insurance been received prior to such payment by Indemnifying
Party.  All parties shall take such
commercially reasonable actions to preserve their rights to, and obtain
insurance proceeds available with respect to, any such Indemnified Amount, it
being understood that the Indemnified Party shall submit claims to applicable
insurances.

Laws
means all statutes, treaties, codes, ordinances, decrees, rules, regulations,
municipal bylaws, judicial or arbitral or administrative or ministerial or
departmental or regulatory judgments, orders, decisions, rulings or awards,
policies, certificates, codes, licenses, permits, approvals, guidelines,
voluntary restraints, inspection reports, or any provisions of such laws,
including general principles of common law and equity and the requirements of
all Governmental Bodies, binding or affecting the Person referred to in the
context in which such word is used; and “Law” means any one of them.

Lien
means any lien, pledge, claim, charge, security interest, mortgage, charter,
option, title retention agreement, security interest of any nature, adverse
claim, exception, reservation, easement, right of occupation, any matter
capable of registration against title, option, right of pre-emption, privilege
or other encumbrance, or any contract to create any of the foregoing or other
rights of any third Person of any nature whatsoever, whether recorded, secret,
state, maritime or otherwise.

Loan
Obligations means, collectively:

 

 9
 

(i)
the Business Loan Agreement dated March 23, 2005 between Go Big Chartering, LLC
and Bank of America, N.A., as amended by that certain Amended and Restated
Business Loan Agreement dated March 31, 2005 between Go Big Chartering, LLC and
Bank of America, N.A.; and

(ii)
the loan evidenced by that certain Promissory Note in the principal amount of
$6,000,500.00 dated February 8, 2002 by Hawaiian Interisland Towing, Inc. in
favor of General Electric Capital Corporation as agent for SAGE Capital
Corporation; and

(iii)
that certain Preferred Ship Mortgage dated August 5, 2004 by Hawaiian
Interisland Towing, Inc. on the LEO, O.N. 1136725 in favor of Bank of America,
N.A., recorded at Batch BK 04-80, Document ID No. 493 on the records of the
National Vessel Documentation Center, as amended by that certain Amendment to
Preferred Mortgage dated August 20, 2004 by Hawaiian Interisland Towing, Inc.
on the LEO, O.N. 1136725 in favor of Bank of America, N.A., recorded at Batch
BK 04-93, Document ID No. 170 on the records of the National Vessel
Documentation Center, as further amended by that certain Amendment to Preferred
Mortgage dated June 27, 2006 by Hawaiian Interisland Towing, Inc. on the LEO,
O.N. 1136725 in favor of Bank of America, N.A., amending the above-referenced
Preferred Ship Mortgage dated August 5, 2004, as amended by the above
referenced Amendment to Preferred Mortgage dated August 20, 2004, recorded at Batch
505943, Document ID No. 5668237 on the records of the National Vessel
Documentation Center.

Permitted
Lien means (a) any encumbrance or lien created by this
Agreement, (b) any mechanic’s, carrier’s, workman’s, warehouseman’s,
repairman’s or other like lien arising in the ordinary course of business and
securing obligations not yet due and payable, (c) any encumbrance or lien
for Taxes and other governmental obligations not yet due; (d) any
encumbrance or lien arising under the Loan Obligations; (e) any encumbrance
or lien for crew wages to the extent incurred in the ordinary course of
business and payment of which is not overdue; (f) any encumbrance or lien
for necessaries provided to the Vessels to the extent incurred in the ordinary
course of business and payment for which is not overdue; and (g) any
encumbrance or lien set forth on Schedule 1.1.

Person
means any individual, firm, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization,
government or agency or subdivision thereof or any other entity.

Release
means any spill, effluent, emission, leaking, pumping, pouring, emptying,
escaping, dumping, injection, deposit, disposal, discharge, dispersal,
leaching, abandoning, adding, or migration into the indoor or outdoor
environment, or into or out of any currently or formerly owned, operated, or
leased property, facility or vessel.

Remedial
Action means all actions, including, without limitation, any
capital expenditures required by any Governmental Body or required under or
taken pursuant to any Environmental Law or voluntarily taken to (a) clean up,
remove, treat, contain, assess, monitor or evaluate, or in any other way,
ameliorate or address any Hazardous Material in the indoor or outdoor environment;
(b) prevent the Release or threat of Release, or minimize the further Release
of any Hazardous Material so it does not endanger or threaten to endanger the
public or 

 

 10
 

employee health or
welfare or the indoor or outdoor environment; (c) perform pre-remedial studies
and investigations or post-remedial monitoring and care pertaining to or
relating to a Release or threatened Release of any Hazardous Material; or (d)
bring any party, property, facility or vessel into compliance with any
Environmental Law.

Restricted
Business means the marine transportation of petroleum
products by tank vessels.

Restricted
Trades means the Jones Act coastwise trade of the United
States  (Chapter 551 of Title 46 of the
United States Code), including, without limitation, the noncontiguous domestic
trade of the United States.

Seller
Indemnified Party means each Seller Party and its Affiliates
and each of their respective officers, directors, employees, agents and
counsel.

Smith
Items has the meaning set forth in Section 4.26(a).

Subsidiary
means, with respect to any Person (the “Owner”), any corporation or other
Person of which securities or other interests having the power to elect a
majority of that corporation’s or other Person’s board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person, are held by the Owner or one or
more of its Subsidiaries.

Taxes
means any and all federal, state, local, foreign and other taxes or other
assessments, including, without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, profit share,
license, lease, service, service use, value added, withholding, payroll,
employment, excise, estimated severance, stamp, occupation, premium, property,
windfall profits, or other taxes of any kind whatsoever, together with any
interests, penalties, additions to tax, fines or other additional amounts
imposed thereon or related thereto, and the term “Tax” means any one of
the foregoing Taxes.

Tax
Returns means all returns, declarations, reports, statements
and other documents filed or submitted or required to be filed or submitted in
respect of any and all Taxes.

Threshold
Amount means $1,000,000.

“to
the knowledge of Sellers” and phrases with similar wording, when used in
this Agreement to qualify a representation or warranty in Article IV, means the
knowledge, after reasonable investigation, of the Seller Parties.

Vessels
means Owned Vessels and Bareboat Chartered Vessels as set forth on Schedules
4.14(b)(1) and 4.14(b)(2), respectively (including, without
limitation, the machinery, engines, instruments, necessaries, rigging, anchors,
chains, cables, tackle, apparel, accessories, equipment, radio installation and
navigational equipment, inventory, spare parts and all other appurtenances
routinely carried on board the Vessels in the ordinary course of operation of
such Vessels).

 

 11

ARTICLE II

THE MERGERS

Section 2.1  The Mergers.  At the Effective
Time (as defined below) and upon the terms and subject to the conditions of
this Agreement (a) Smith Maritime shall be merged with and into Buyer (the “Smith
Merger”) in accordance with Section 18-209 of the Delaware Limited Liability
Company Act (the “Delaware Act”) and Section 414-311 of the Hawaii Business
Corporation Act (the “Hawaii Act”), and (b) Go Big shall be merged with and
into Buyer (the “Go Big Merger” and, together with the Smith Merger, the “Mergers”)
in accordance with Section 18-209 of the Delaware Act and Chapter 25.15 of the
Revised Code of Washington (the “Washington Code”).  Following the Smith Merger and the Go Big
Merger, the separate existence of each of Smith Maritime and Go Big,
respectively, shall cease and Buyer shall continue as the surviving entity (the
“Surviving Entity”).

Section 2.2  Effective  Time.  Upon
the terms and subject to the conditions set forth in this Agreement, on the
Closing Date (as defined in Section 2.3): (a) a Certificate of Merger with
respect to the Mergers (the “Certificate of Merger”) shall be duly executed and
delivered to the Secretary of State of the State of Delaware for filing
pursuant to Section 18-209 of the Delaware Act; (b) Articles of Merger (the “Smith
Articles of Merger”) with respect to the Smith Merger shall be duly executed
and delivered to the Director of Commerce and Consumer Affairs of the State of
Hawaii for filing pursuant to Section 414-315 of the Hawaii Act,
(c) Articles of Merger with respect to the Go Big Merger (the “Go Big
Articles of Merger”) shall be duly executed and delivered to the Secretary of
State of the State of Washington for filing pursuant to Section 25.15.405 of
the Washington Code; and (d) the parties shall make such other filings with the
Secretary of State of the States of Delaware, Hawaii and Washington as shall be
necessary to effect the Mergers.  The
Smith Merger shall be become effective at such time as a properly executed copy
of the Certificate of Merger is duly filed with the Secretary of State of the
State of Delaware in accordance with the Delaware Act and a properly executed
copy of the Smith Articles of Merger are filed with the Director of Commerce
and Consumer Affairs of the State of Hawaii in accordance with the Hawaii Act,
or such later time as Buyer and Smith Maritime may agree upon and as may be set
forth in the Certificate of Merger and the Smith Articles of Merger (the time
the Smith Merger becomes effective being referred to herein as the “Smith
Effective Time”).  The Go Big Merger
shall be become effective at such time as a properly executed copy of the
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware in accordance with the Delaware Act and a properly executed copy of
the Go Big Articles of Merger are filed with the Secretary of State of the
State of Washington in accordance with the Washington Code, or such later time
as Buyer and Go Big may agree upon and as may be set forth in the Certificate of
Merger and the Go Big Articles of Merger (the time the Go Big Merger becomes
effective being referred to herein as the “Go Big Effective Time” and, together
with the Smith Effective Time, the “Effective Time”).  The parties hereby agree that the Smith Effective
Time and the Go Big Effective Time shall be identical.

Section 2.3  Closing.  The closing of the
transactions contemplated hereby (the “Closing”) shall take place at the
offices of Bauer Moynihan & Johnson LLP, 2101 Fourth Avenue, Suite 2400,
Seattle, Washington 98121, at 11:00 a.m., Seattle time, on the later of (1)
July 26, 2007 or (2) the date that is three business days following the first
day on which all of the conditions set forth in Article VIII have been
satisfied or waived (other than conditions that by 

 

 12
 

their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those conditions), or at
such other time and place as the parties may agree.  The date on which the Closing is held is referred
to in this Agreement as the “Closing Date.”

Section 2.4  Effects of the Mergers.  The
Mergers shall have the effects set forth in the Delaware Act, the Hawaii Act,
the Washington Code and this Agreement. 
Without limiting the generality of the foregoing and subject thereto, at
the Effective Time, all property, rights, privileges, powers and franchises of
Smith Maritime, Go Big and Buyer shall vest in the Surviving Entity, and all
debts, liabilities and duties of Smith Maritime, Go Big and Buyer shall become
the debts, liabilities and duties of the Surviving Entity.

Section 2.5  Certificate of Formation; Limited Liability Company
Agreement.

(a)           The
Certificate of Formation of Buyer, as in effect immediately prior to the
Effective Time, shall be the Certificate of Formation of the Surviving Entity
until thereafter changed or amended as provided therein or by applicable law.

(b)           The Limited Liability Company Agreement of Buyer as
in effect immediately prior to the Effective Time shall be the Limited
Liability Company Agreement of the Surviving Entity until thereafter changed or
amended as provided therein or by applicable law.

Section 2.6  Managers.  The managers of Buyer
at the Effective Time shall be the initial managers of the Surviving Entity,
each to hold office in accordance with the Certificate of Formation and the
Limited Liability Company Agreement of the Surviving Entity until such director’s
successor is duly elected or appointed and qualified.

Section 2.7  Officers.  The officers of Buyer
at the Effective Time shall be the initial officers of the Surviving Entity,
each to hold office in accordance with the Certificate of Formation and the
Limited Liability Company Agreement of the Surviving Entity until such officer’s
successor is duly elected or appointed and qualified.

Section 2.8  Conversion of Equity Interests.  At
the Effective Time, by virtue of the Mergers and without any action on the part
of Buyer, Smith Maritime, Go Big or any of the Seller Parties:

(a)           the Equity Interests shall be converted
automatically into the right to receive, in the aggregate, an amount in cash
equal to the following (the “Merger Consideration”):

(i)            $117,698,532, less

(ii)           all prepaid revenue of the Subject
Companies as of the Closing Date (as certified in writing by the President of
Smith Maritime), less

(iii)          an amount equal to the difference
between $500,000 and the amount of cash that is expected to be reflected on the
Closing Date Balance Sheet as finally determined pursuant to Section 6.11 (as
certified in writing by the 

 

 13
 

President of
Smith Maritime), provided that no reduction shall be made if the amount of cash
that is expected to be reflected on the Closing Date Balance Sheet is equal to
or greater than $500,000; less

(iv)          all bonuses or other compensation paid
or promised by Smith Maritime to its employees pursuant to Section 6.12(c),
including all employment or other taxes payable by Smith Maritime in connection
with such amounts; and

At the Effective
Time, the Merger Consideration shall be paid by wire transfer to the Seller Parties
in the amounts set forth on Schedule 2.8 to an account or accounts
designated in writing by the Seller Parties. 
If the Closing Date Balance Sheet, as finally determined pursuant to
Section 6.11, would result in a change to the Merger Consideration as
calculated on the Closing Date (due to variances in prepaid revenue or cash on
hand), then, within ten business days after such final determination, the
Merger Consideration shall be so adjusted and Buyer shall pay to the Seller
Parties, or the Seller Parties shall refund to Buyer, the amount in cash of
such adjustment, as the case may be;

(b)           all such Equity Interests shall no longer be
outstanding and shall automatically be cancelled and shall cease to exist, and
the Seller Parties shall cease to have any rights with respect thereto, except
the right to receive the Merger Consideration; and

(c)           the membership interests of Buyer issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for validly issued, fully paid and nonassessable membership interests
in the Surviving Entity.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF EACH SELLER PARTY

Each Seller Party, severally and not jointly,
represents and warrants to Buyer and the Partnership that, as applied solely to
such Seller Party, the following are true, correct and complete as of the date
of this Agreement and will be true, correct and complete as of the Closing
Date:

Section 3.1  Corporate Status and Good Standing; Citizenship.

(a)           235LX
is a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Washington, with full limited liability
company power and authority under its governing documents to own and lease its
properties and to conduct business as the same exists on the date hereof and on
the Closing Date.

(b)           Seller Party is a citizen of the United States
within the meaning of Chapter 505 of Title 46 of the United States Code, for
the purpose of operating the Vessels in the coastwise trade of the United
States.

Section 3.2  Authorization.

 

 14
 

(a)           Seller Party has all requisite power and authority
under its governing documents, and its members or trustees, as applicable, have
taken all necessary action to authorize it, to execute and deliver this
Agreement and the exhibits and schedules hereto, to consummate the transactions
contemplated herein and therein and to take all actions required to be taken by
it pursuant to the provisions hereof and thereof.  A certified copy of resolutions or a
certification, as the case may be, duly adopted by the members or trustees, as
applicable, of Seller Party authorizing and approving the execution and
delivery of this Agreement, including the exhibits and schedules hereto, and
the consummation of the transactions contemplated herein and therein, is
attached as Schedule 3.2, and such resolutions or certification have not
been rescinded, revoked, modified or superseded in any respect.

(b)           Each of this Agreement and the exhibits and
schedules hereto constitutes the valid and binding obligation of Seller Party
(to the extent a party thereto), enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting creditors’ rights generally and to the principles
of equity (whether enforcement is sought in a proceeding in equity or at law).

Section 3.3  Capitalization; Title to Membership Interests.

(a)           Except as set forth on Schedule 3.3(a),
Seller Party owns beneficially and of record all of the Equity Interests set
forth opposite Seller’s name on Schedule 3.3(a), free and clear of all
Liens.  Except as set forth in Schedule
3.3(a), such Equity Interests are not subject to any agreements or
understandings with respect to the voting or transfer of any of the Equity
Interests (except as contemplated by this Agreement and restrictions under
applicable federal and state securities laws). 
Except as set forth on Schedule 3.3(a), Seller Party has full
legal right to sell, assign, convey and transfer its Equity Interests to Buyer
and will, upon delivery of an assignment of such Equity Interests to Buyer
pursuant to the terms hereof, transfer to Buyer title to such Equity Interests,
free and clear of any Liens.

(b)           Schedule 3.3(b) sets forth the authorized
capitalization of 235LX.  Smith owns
beneficially and of record all of the equity interests in 235LX as set forth on
Schedule 3.3(b), in each case free and clear of all Liens.  Except as set forth in Schedule 3.3(b),
such equity interests are not subject to any agreements or understandings with
respect to the voting of such equity interests.

(c)           Except as set forth in Schedule 3.3(c),
there are no outstanding subscriptions, options, convertible securities,
warrants or calls or preemptive rights of any kind issued or granted by, or
binding upon, 235LX to purchase or otherwise acquire or to sell or otherwise
dispose of any security of or equity interest in 235LX.

(d)           Seller Party does not own or control, directly or
indirectly, any interest in any Person (other than the Subject Companies) and
is not a participant in any partnership, joint venture or similar arrangement.

Section 3.4  Non-Contravention.  Except as
set forth in Schedule 3.4, neither the execution and delivery of this
Agreement or any documents executed in connection herewith, nor the
consummation of the transactions contemplated herein or therein, does or shall:

 

 15
 

(a)           violate, conflict with, result in a breach of or
require notice or consent, or decrease the rights of Seller Party or increase
the rights of any third party, under (i) any Law, (ii) the certificate of
formation, limited liability company agreement, board or member resolutions or
other governing documents or instruments of Seller Party or (iii) any provision
of any agreement or instrument to which Seller Party is a party;

(b)           contravene, conflict with, or result in a violation
of, or give any Governmental Body or other Person the right to challenge any of
such transactions or to exercise any remedy or obtain any relief under, any
Law, to which Seller Party, or any of the assets owned or used by Seller Party,
are bound;

(c)           contravene, conflict with, or result in a violation
of any of the terms or requirements of, or give any Governmental Body the right
to revoke, withdraw, suspend, cancel, terminate, or modify, any license,
permit, consent, approval, authorization, qualification, certificate,
registration or order of any Governmental Body that is held by Seller Party or
that otherwise relates to the business of, or any of the assets owned or used
by, Seller Party;

(d)           otherwise require notice to or consent of any
Governmental Body, except for (i) any filing under the HSR Act; (ii) the filing
of articles or certificates of merger with the Secretary of State of the States
of Washington, Hawaii and Delaware; and (iii) any filings required to be
made with and/or approvals to be obtained from the U.S. Coast Guard with
respect to the transfer of the Vessels;

(e)           result in the imposition or creation of any Lien
upon or with respect to the Equity Interests of Seller Party or any assets of
Seller Party; or

(f)            result in the acceleration or mandatory prepayment
of any indebtedness, or any guaranty of Seller Party or afford any holder of
any indebtedness, or any beneficiary of any guaranty the right to require
Seller Party to redeem, purchase or otherwise acquire, reacquire or repay any
indebtedness, or to perform any guaranty.

Section 3.5  Validity.  There is no
investigation, claim, proceeding or litigation of any type pending or, to the
knowledge of Seller Party, threatened to which Seller Party is a party that (i)
questions or involves the validity or enforceability of any of such party’s
obligations under this Agreement or any of the exhibits hereto or (ii) seeks
(or reasonably might be expected to seek) (A) to prevent or delay the
consummation by Seller Party of the transactions contemplated by this Agreement
or (B) damages in connection with any such consummation.

Section 3.6  Broker Involvemen.  Seller Party
has not hired, retained or dealt with any broker or finder in connection with
the transactions contemplated by this Agreement, except as set forth on Schedule
3.6.

Section 3.7  Litigation.  There is no
judgment, order, writ, injunction or decree of any Governmental Body or
arbitral tribunal against or involving Seller Party that may be reasonably
expected to have an adverse effect on any of the Subject Companies, Buyer or
any of their respective subsidiaries.

 

 16
 

Section 3.8  Disclosure.  No
representation or warranty by Seller Party in this Agreement, and in any
schedule or exhibit to this Agreement, or in any certificate or other document
furnished to Buyer by Seller Party at Closing, contains or, as of the Closing
Date, shall contain any untrue statement of a material fact or omits or shall
omit a material fact necessary to make the statements therein not misleading.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SMITH MARITIME, GO BIG, SMITH,

THE GORDON TRUST AND 235LX

Smith Maritime, Go Big, Smith, the Gordon Trust and
235LX, jointly and severally, represent and warrant to Buyer and the
Partnership that the following are true, correct and complete as of the date of
this Agreement and will be true, correct and complete as of the Closing Date:

Section 4.1  Corporate Status and Good Standing; Citizenship.

(a)           Smith
Maritime is a corporation duly organized, validly existing and in good standing
under the laws of the State of Hawaii, with full corporate power and authority
under its governing documents to own and lease its properties and to conduct
business as the same exists on the date hereof and on the Closing Date.  Smith Maritime is duly qualified to do
business as a foreign corporation in the jurisdictions set forth on Schedule
4.1(a)(1).  Smith Maritime is duly
qualified to do business as a foreign corporation in all jurisdictions in which
the nature of its business requires such qualification and the failure to do so
would have an adverse effect on any of the Subject Companies.  Except as set forth on Schedule 4.1(a)(2),
Smith Maritime does not have any Subsidiaries and is not a participant in any
partnership, joint venture or similar arrangement.

(b)           Go
Big is a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Washington, with full limited liability
company power and authority under its governing documents to own and lease its
properties and to conduct business as the same exists on the date hereof and on
the Closing Date.  Go Big is duly
qualified to do business as a foreign limited liability company in the
jurisdictions set forth on Schedule 4.1(b).  Go Big is duly qualified to do business as a
foreign limited liability company in all jurisdictions in which the nature of
its business requires such qualification and the failure to do so would have an
adverse effect on any of the Subject Companies. 
Go Big does not have any Subsidiaries and is not a participant in any
partnership, joint venture or similar arrangement.

(c)           Each Subsidiary of Smith Maritime set forth on Schedule
4.1(c) (each a “Smith Subsidiary”) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Hawaii, with full
corporate power and authority under its governing documents to own and lease
its properties and to conduct business as the same exists on the date
hereof.   As of the Closing Date, each
Smith Subsidiary will be a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Hawaii, with full
limited liability company power and authority under its governing documents to
own and lease its properties and to conduct business as the same exists on the 

 

 17
 

Closing
Date.  Each Smith Subsidiary is duly
qualified to do business as a foreign corporation, and as of the Closing Date
will be duly qualified to do business as a foreign limited liability company,
in the jurisdictions set forth on Schedule 4.1(c).  Each Smith Subsidiary is duly qualified to do
business as a foreign corporation, and as of the Closing Date each Smith
Subsidiary will be duly qualified to do business as a foreign limited liability
company, in all jurisdictions in which the nature of its business requires such
qualification and the failure to do so would have an adverse effect on any of
the Subject Companies.

(d)           Each of the Subject Companies is a citizen of the
United States within the meaning of Chapter 505 of Title 46 of the United
States Code, for the purpose of operating the Vessels in the coastwise trade of
the United States.

Section 4.2  Authorization.

(a)           Each
of Smith Maritime and Go Big has all requisite power and authority under its
governing documents, and the shareholders or members, as applicable, of each of
Smith Maritime and Go Big has taken all necessary action to authorize it, to
execute and deliver this Agreement and the exhibits and schedules hereto, to
consummate the transactions contemplated herein and therein and to take all
actions required to be taken by it pursuant to the provisions hereof and
thereof.  A certified copy of resolutions
duly adopted by the shareholders or members, as applicable, of each of Smith
Maritime and Go Big authorizing and approving the execution and delivery of
this Agreement, including the exhibits and schedules hereto, and the
consummation of the transactions contemplated herein and therein, is attached
as Schedule 4.2, and such resolutions have not been rescinded, revoked,
modified or superseded in any respect.

(b)           Each of this Agreement and the exhibits and
schedules hereto constitutes the valid and binding obligation of Smith Maritime
and Go Big to the extent a party thereto, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting creditors’ rights generally and to the
principles of equity (whether enforcement is sought in a proceeding in equity
or at law).

Section 4.3  Capitalization; Title to Equity Interests.

(a)           The authorized equity securities of Smith Maritime
consist of 2,000,000 shares of common stock, no par value, of which 1,000,000
shares are issued and outstanding (the “Shares”).  The Smith Sellers own, and at the Closing
Smith and the Barbara Trust will own, beneficially and of record all of the
Shares, in each case free and clear of all Liens.  Such Shares are not subject to any agreements
or understandings with respect to the voting or transfer of any of the Shares
(except as contemplated by this Agreement and restrictions under applicable
federal and state securities laws).  The
Shares have been duly authorized and validly issued and are fully paid and
nonassessable.  The Smith Sellers have,
and at Closing Smith and the Barbara Trust will have, full legal right to sell,
assign, convey and transfer the Shares to Buyer and will, upon delivery of a
certificate or certificates representing such Shares to Buyer pursuant to the
terms hereof, transfer to Buyer title to such Shares, free and clear of any
Liens.

(b)           235LX owns beneficially and of record all of the Go
Big Membership Interests, in each case free and clear of all Liens.  Such Go Big Membership Interests are not 

 

 18
 

subject to any
agreements or understandings with respect to the voting or transfer of any of
the Go Big Membership Interests (except as contemplated by this Agreement and
restrictions under applicable federal and state securities laws).  The Go Big Membership Interests are duly
authorized and validly issued and will be fully paid and nonassessable.  235LX has full legal right to sell, assign,
convey and transfer the Go Big Membership Interests, to Buyer and will, upon
delivery of a certificate or certificates representing such Go Big Membership
Interests to Buyer pursuant to the terms hereof, transfer to Buyer title to
such Go Big Membership Interests, free and clear of any Liens.

(c)           Except as set forth in Schedule 4.3(c),
there are no outstanding subscriptions, options, convertible securities,
warrants or calls or preemptive rights of any kind issued or granted by, or
binding upon, any of the Subject Companies to purchase or otherwise acquire or
to sell or otherwise dispose of any security of or equity interest in any of
the Subject Companies.

Section 4.4  Non-Contravention.  Except as
set forth in Schedule 4.4, neither the execution and delivery of this
Agreement or any documents executed in connection herewith, nor the
consummation of the transactions contemplated herein or therein, does or shall:

(a)           violate, conflict with, result in a breach of or
require notice or consent, or decrease the rights of any of the Subject
Companies or increase the rights of any third party, under (i) any Law, (ii)
the certificate of formation, limited liability company agreement, board or
member resolutions or other governing documents or instruments of any of the
Subject Companies or (iii) any provision of any agreement or instrument to
which any of the Subject Companies is a party;

(b)           contravene, conflict with, or result in a violation
of, or give any Governmental Body or other Person the right to challenge any of
such transactions or to exercise any remedy or obtain any relief under, any
Law, to which any of the Subject Companies, or any of the assets owned or used
by any of the Subject Companies, are bound;

(c)           contravene, conflict with, or result in a violation
of any of the terms or requirements of, or give any Governmental Body the right
to revoke, withdraw, suspend, cancel, terminate, or modify, any license,
permit, consent, approval, authorization, qualification, certificate,
registration or order of any Governmental Body that is held by any of the
Subject Companies or that otherwise relates to the business of, or any of the
assets owned or used by, any of the Subject Companies;

(d)           otherwise require notice to or consent of any
Governmental Body, except for (i) any filing under the HSR Act; (ii) the filing
of articles or certificates of merger with the Secretary of State of the States
of Hawaii, Washington and Delaware; and (iii) any filings required to be
made with and/or approvals to be obtained from the U.S. Coast Guard with
respect to the transfer of the Vessels; or

(e)           result in the imposition or creation of any Lien
upon or with respect to the Equity Interests or any assets of any of the
Subject Companies; or

 

 19
 

(f)            result in the acceleration or mandatory prepayment
of any indebtedness, or any guaranty of any of the Subject Companies or afford
any holder of any indebtedness, or any beneficiary of any guaranty the right to
require any of the Subject Companies to redeem, purchase or otherwise acquire,
reacquire or repay any indebtedness, or to perform any guaranty.

Section 4.5  Validity.  There is no
investigation, claim, proceeding or litigation of any type pending or, to the
knowledge of Sellers, threatened to which any of the Subject Companies is a
party that (i) questions or involves the validity or enforceability of the
obligations of any of the Subject Companies under this Agreement or any of the
exhibits hereto or (ii) seeks (or reasonably might be expected to seek) (A) to
prevent or delay the consummation by any of the Subject Companies of the
transactions contemplated by this Agreement or (B) damages in connection
with any such consummation.

Section 4.6  Broker Involvement.  None of the
Subject Companies has hired, retained or dealt with any broker or finder in
connection with the transactions contemplated by this Agreement, except as set
forth on Schedule 4.6.

Section 4.7  Litigation.  Except as set forth
on Schedule 4.7, there is no investigation, claim, proceeding or
litigation of any type pending or, to the knowledge of Sellers, threatened to
which any of the Subject Companies is or may become a party or with respect to
which any of their respective properties or assets could reasonably be expected
to become subject.  To the knowledge of
Sellers, Schedule 4.7 sets forth each judgment, order, writ, injunction
or decree of any Governmental Body or arbitral tribunal against or involving
any of the Subject Companies that is currently in effect.  Except as set forth on Schedule 4.7,
there is no judgment, order, writ, injunction or decree of any Governmental
Body or arbitral tribunal against or involving any of the Subject Companies
that may be reasonably expected to have an adverse effect on any of the Subject
Companies, Buyer or any of their respective subsidiaries.

Section 4.8  Title to Assets.  Except as set
forth on Schedule 4.8, each of the Subject Companies has good and
marketable title to all of its owned assets that are used in its business, free
and clear of any and all Liens other than Permitted Liens.

Section 4.9  Continuity Prior to the Closing Date.  Except
as set forth on Schedule 4.9, from January 1, 2007, to and
including the Closing Date, none of the Subject Companies has conducted its
business other than in the usual and customary manner and in the ordinary
course of business, consistent with historical practice, and there has not
been:

(a)           any change in its authorized capital or in any of
its outstanding capital or any grant, issuance or sale of any derivative
security with respect to its capital;

(b)           any sale, lease, distribution, transfer, mortgage,
pledge or subjection to Lien of assets (other than Permitted Liens), except
sales of inventory and obsolete or surplus equipment in the ordinary and usual
course of business;

(c)           any transaction by any of the Subject Companies not
in the ordinary and usual course of business;

 

 20

(d)           any damage to or destruction, loss or equipment
failure related to any assets owned or used by any of the Subject Companies,
whether or not covered by insurance, requiring or that may be reasonably
expected to require expenditures in excess of $10,000 in order to replace or
return such asset to its condition prior to the happening of such event;

(e)           a modification to the terms of any material
agreement of any of the Subject Companies with its vendors, suppliers or
customers, the early termination or, to the knowledge of the Sellers,
threatened termination of any material contract or relationship of any of the
Subject Companies with any vendor, supplier or customer or the non-renewal or,
to the knowledge of Sellers, threatened non-renewal of any material contract or
relationship of any of the Subject Companies with any vendor, supplier or
customer;

(f)            the negotiation, execution or delivery of any
agreement, commitment or contract having a term exceeding one year or involving
an amount in excess of $100,000;

(g)           the negotiation or execution of any charter
commitments with respect to articulated-tug barge units;

(h)           the negotiation or execution of any vessel
construction agreement;

(i)            any incurrence by any of the Subject Companies of
any indebtedness for borrowed money or guaranty or any commitment to incur any
indebtedness or any guaranty;

(j)            any change in accounting methods or principles or
the application thereof or any change in the Subject Companies’ policies or
practices with respect to items affecting working capital;

(k)           any delay or reduction in capital expenditures or
payment of vendors in contemplation of this Agreement or otherwise not in the
ordinary course of business consistent with past practice, or any failure to
continue to make capital expenditures or pay vendors in the ordinary course of
business consistent with past practice;

(l)            any acceleration of shipments, sales or orders or
other similar action in contemplation of this Agreement or otherwise not in the
ordinary course of business consistent with past practice;

(m)          any acceleration of the collection of Accounts
Receivable in contemplation of this Agreement or otherwise not in the ordinary
course of business consistent with past practice;

(n)           any bonus payments, salary increases, commission
increases or modifications, the execution of any employment agreement,
severance arrangement, or consulting arrangement or Plan (or any amendment
thereto), except as contemplated in Section 6.12(c) or set forth on Schedule
4.9;

(o)           any waiver of any rights that, singly or in the
aggregate, are material to the business of any of the Subject Companies, its
assets or the financial condition or results of operations of the Subject
Companies;

 

 21
 

(p)           any labor strikes or disruptions, union
organizational activities or other similar occurrence; or

(q)           any contract or commitment to do or cause to be
done any of the foregoing.

Section 4.10  Contracts and Commitments.  Schedule
4.10 lists all agreements, commitments, contracts, undertakings or
understandings (A) to which any of the Subject Companies is a party as of the
date of this Agreement or (B) which relate to any of its properties or assets,
including, but not limited to, trademark, trade name or patent license
agreements, software license agreements (other than for off-the-shelf
software), service agreements, leases, charters, contracts of affreightment,
purchase or sale agreements, supply agreements, distribution or distributor
agreements, purchase orders, customer orders and equipment rental agreements that,
in the case of either clause (A) or (B), are either material to the Subject
Companies or involve consideration with a value of $10,000 or more.  Except as set forth in Schedule 4.10,
none of the Subject Companies is in breach of or default under any agreement,
lease, contract or commitment listed or of a type required to be listed on Schedule
4.10 (collectively, the “Contacts”). 
Each Contract is valid, binding and in full force and effect and is an
enforceable agreement of the applicable Subject Company and, to the knowledge
of Sellers, the other parties thereto. 
Except as set forth in Schedule 4.10, to the knowledge of
Sellers, there has not occurred any breach or default under any Contract on the
part of the other parties thereto, and no event has occurred which with the
giving of notice or the lapse of time, or both, would constitute a default
under any Contract.  Except as set forth
in Schedule 4.10, there is no dispute between the parties to any
Contract as to the interpretation thereof or as to whether any party is in
breach or default thereunder, and no party to any Contract has indicated to any
of the Subject Companies its intention to terminate any Contract.  None of the Subject Companies is a party to
any covenant or obligation of any nature limiting the freedom of any of the
Subject Companies to compete in any line of business and binding on Buyer after
the Closing.  Complete and correct copies
of all Contracts listed or referred to in Schedule 4.10 have either been
made available to Buyer or, if not provided because of pending antitrust
matters or confidentiality requirements, shall be provided as soon as
practicable to the extent permitted by the antitrust authorities or the
counterparties to such contracts, as applicable.

Section 4.11  Trademarks, Trade Names and Intellectual Property.  Schedule 4.11
contains an accurate and complete list of (a) all registered United States and
foreign trademarks, servicemarks, trade names, fictitious names, brand names,
business names, designs and logos owned or used by each of the Subject
Companies in connection with its business, and all registrations thereof, (b)
all registered copyrights owned or used by each of the Subject Companies in
connection with its business, and (c) all patents (including all reissues,
divisions, continuations and extensions thereof) and pending patent
applications owned or used by each of the Subject Companies in connection with
its business (collectively, including all rights to any of the foregoing, the “Scheduled
Intellectual Property”).  Each of the
Subject Companies has the right to use all Scheduled Intellectual Property, as
well as all other intellectual property used by such Subject Company in
connection with its business, in the conduct of its business as it is currently
being conducted, and the transactions contemplated by this Agreement will not
have the effect of terminating any such right. 
Except as set forth in 

 

 22
 

Schedule 4.11, there
is no pending or threatened action or claim that would impair any such right.

Section 4.12  Financial Statements; Budget.

(a)           The unaudited financial statements of the Subject
Companies as of and for the three years ended December 31, 2006 and as of and
for the three months ended March 31, 2007 (the “Unaudited Financial Statements”)
present fairly, in all material respects, the financial condition of the
Subject Companies at the respective dates of the balance sheets included
therein and the results of operations, cash flows and shareholders’ or members’
equity of the Subject Companies for the respective periods set forth therein
and have been prepared in accordance with generally accepted accounting
principles in the United States consistently applied (“GAAP”), subject to the
absence of notes and normal recurring year end adjustments (the effect of which
will not, individually or in the aggregate, be materially adverse).  A copy of the Unaudited Financial Statements
is attached hereto as Schedule 4.12(a).

(b)           At the Closing, the audited financial statements of
the Subject Companies as of and for the three years ended December 31, 2006
(including the related notes) (the “Audited Annual Financial Statements”) will
present fairly, in all material respects, the financial condition of the
Subject Companies at the respective dates of the balance sheets included
therein and the results of operations, cash flows and shareholders’ or members’
equity of the Subject Companies for the respective periods set forth therein
and will have been prepared in accordance with GAAP.  When available, a copy of the Audited Annual
Financial Statements shall be attached hereto as Schedule 4.12(b).  As of the Closing Date, the Audited Annual
Financial Statements will be consistent in all material respects with the
corresponding periods in the Unaudited Financial Statements and will be free of
a qualified opinion.  The footnotes to
the Audited Annual Financial Statements will not disclose any fact or
circumstance that could reasonably be expected to lead to or cause such a
material adverse change; provided, however, that (a) changes resulting from
conditions affecting the coastwise maritime petroleum transportation industry
in general and (b) changes in the economy in general shall, in each case,
be excluded from the determination to the extent that they do not have a disproportionate
effect on any of the Subject Companies as compared to other entities engaged in
the coastwise maritime petroleum transportation industry in Hawaii and along
the West Coast.

(c)           At the Closing, the unaudited financial statements
of the Subject Companies as of and for the three months ended March 31, 2007
(including the related notes) (the “Unaudited Interim Financial Statements”
and, together with the Audited Annual Financial Statements, the “Financial
Statements”) will present fairly, in all material respects, the financial
condition of the Subject Companies at the respective dates of the balance
sheets included therein and the results of operations, cash flows and
shareholders’ or members’ equity of the Subject Companies for the respective
periods set forth therein and will have been prepared in accordance with GAAP,
subject to normal recurring year end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse).  When available, a copy of the Unaudited Interim
Financial Statements shall be attached hereto as Schedule 4.12(c).  As of the Closing Date, the Unaudited Interim
Financial Statements will be consistent in all material respects with the
corresponding periods in the Unaudited Financial Statements and will be free of
a qualified opinion.  The footnotes to
the Unaudited Interim Financial Statements will not 

 

 23
 

disclose any
fact or circumstance that could reasonably be expected to lead to or cause such
a material adverse change; provided, however, that (a) changes resulting from
conditions affecting the coastwise maritime petroleum transportation industry
in general and (b) changes in the economy in general shall, in each case,
be excluded from the determination to the extent that they do not have a disproportionate
effect on any of the Subject Companies as compared to other entities engaged in
the coastwise maritime petroleum transportation industry in Hawaii and along
the West Coast.

(d)           The fiscal 2007 budget and capital budget of the
Subject Companies is attached hereto as Schedule 4.12(d).  Such budgets (i) are true and complete copies
of the most recent internal budgets for fiscal 2007 for the Subject Companies,
and (ii) were prepared by management of the Subject Companies in good faith and
on a reasonable basis.

(e)           Schedule 4.12(e) contains a schedule of (i)
any liability of any of the Subject Companies (A) for borrowed money or arising
out of any extension of credit to or for the account of any of the Subject
Companies, or (B) evidenced by notes, bonds, debentures or similar instruments
of any of the Subject Companies and (ii) any liability secured by any Lien upon
any property or other assets of any of the Subject Companies.  Schedule 4.12(e) also contains a
schedule of any liability, contingent or otherwise, of any of the Subject
Companies guaranteeing or otherwise becoming liable for any obligation of any
other Person in any manner, whether directly or indirectly.

(f)            Schedule 4.12(f) reflects all intercompany
transactions between any of the Subject Companies and the Seller Parties or any
Affiliates thereof since December 31, 2003, excluding the transactions
contemplated by Section 6.13.

Section 4.13  Bank Relations; Powers of Attorney.  Schedule
4.13 sets forth: (a) the name of each financial institution in which any of
the Subject Companies has borrowing or investment arrangements, deposit or
checking accounts or safe deposit boxes; (b) the types of those arrangements
and accounts, including, as applicable, names in which accounts or boxes are
held, the account or box numbers and the name of each Person authorized to draw
thereon or have access thereto; and (c) the name of each Person holding a
general or special power of attorney from any of the Subject Companies and a
description of the terms of each such power.

Section 4.14  Condition of Assets; Eligibility for Coastwise Trade.

(a)           Schedule 4.14(a) sets forth a list of all
material assets of each of the Subject Companies other than the Vessels, which
are listed on Schedule 4.14(b). 
All tangible assets of the Subject Companies listed on Schedule
4.14(a) are in good, serviceable condition, subject only to normal
maintenance requirements and normal wear and tear reasonably expected in the
ordinary course of business. There are no material assets (whether or not owned
by the Subject Companies) not listed on Schedule 4.14(a) or Schedule
4.14(b) that are used in or necessary for the operation of the business of
any of the Subject Companies as currently conducted.

(b)           Schedule 4.14(b)(1) sets forth a list of
each vessel (including vessels under construction) owned by each of the Subject
Companies, with an indication (as applicable) 

 

 24
 

of vessel
type, year built, American Bureau of Shipping Classification (including any
recommendations), flag, capacity (and/or horsepower as applicable), associated
Liens (other than Permitted Liens), gross tonnage and OPA 90 phase-out dates
and date of last drydocking (the “Owned Vessels”); Schedule 4.14(b)(2)
sets forth a list of each vessel (including vessels under construction)
bareboat chartered by the Subject Companies, with an indication (as applicable)
of vessel type, year built, American Bureau of Shipping Classification
(including any recommendations), flag, capacity (and/or horsepower as
applicable), associated Liens (other than Permitted Liens), gross tonnage and
OPA 90 phase-out dates and date of last drydocking (the “Bareboat Chartered
Vessels”); Schedule 4.14(b)(3) sets forth a list of each vessel
(including vessels under construction) chartered by the Subject Companies on
other than a bareboat basis, with an indication (as applicable) of the type of
charter, of vessel type, year built, American Bureau of Shipping Classification
(including any recommendations), flag, capacity (and/or horsepower as
applicable), associated Liens (other than Permitted Liens), gross tonnage and
OPA 90 phase-out dates and date of last drydocking.

(c)           Each of the Subject Companies has exercised due
diligence to keep and maintain each of the Vessels seaworthy in all material
respects.  Except as set forth in Schedule
4.14(c), each of the Vessels is equipped with the machinery, engines,
instruments, rigging, anchors, chains, cables, tackle, apparel, accessories,
equipment, radio installation and navigational equipment, inventory, spare
parts and all other appurtenances necessary for the operation of such Vessel in
the ordinary course of business consistent with past practices.  Except as set forth in Schedule 4.14(c),
since the Vessels’ last drydocking, no Vessel has been grounded, stranded or suffered
any other occurrence or casualty that could have caused or actually did cause
any damage to such Vessel.

(d)           Except as set forth in Schedule 4.14(d),
each of the Owned Vessels is duly documented in the name of the respective
Subject Company set forth on Schedule 4.14(d) under the laws and flag of
the United States of America and each Vessel satisfies the requirements for
coastwise documentation, has not been “sold foreign” within the meaning of
Section 12132 of Title 46 of the United States Code and all coastwise licenses,
permits, certificates, registrations, approvals and other authorizations
necessary to operate the Vessels as currently operated are valid and current,
subject to the trading restrictions set forth in Schedule 4.14(d).

(e)           Each Vessel has a valid, current and unextended
U.S. Coast Guard Certificate of Inspection, where applicable, and all other
licenses, permits, certificates, registrations, approvals and other
authorizations (including Certificates of Financial Responsibility (Water
Pollution)) that are required by applicable Law.  Except as set forth in Schedule 4.14(e),
there are no outstanding CG-835 certificates or Captain of the Port orders with
respect to the Vessels or the operation thereof.

Section 4.15  Absence of Undisclosed Liabilities.  Except
as set forth in Schedule 4.15, none of the Subject Companies has
any liability (whether absolute, accrued, contingent, unliquidated or
otherwise, whether due or to become due), other than liabilities (i) reflected
in the Unaudited Financial Statements or in the Financial Statements, (ii)
arising under Contracts described in Schedule 4.10 (Contracts and
Commitments) or contracts entered in the ordinary course of business and
consistent with past practice that are not required to be disclosed 

 

 25
 

therein due to dollar thresholds, (iii)
arising out of matters reflected in Schedule 4.7 (Litigation) or
(iv) trade accounts payable incurred after March 31, 2007 in the ordinary
course of business consistent with past practice, and (v) Permitted Liens.

Section 4.16  Real Estate.

(a)           None
of the Subject Companies currently owns, and none of them has ever owned, any
real property.  Schedule 4.16 sets
forth a list and summary description (including property location, parties and
annual rental payments) of all leases, subleases and other agreements under
which any of the Subject Companies is lessor or lessee of, or uses or occupies
or allows the use or occupancy of, any real property.  All such leases, subleases and other
agreements are valid and subsisting and in full force and effect.

(b)           The real property listed on Schedule 4.16
(i) has full and free access to and from public highways, streets and roads and
there is no proceeding pending or, to the knowledge of Sellers, threatened that
could result in the termination of or material limitations on such access and
(ii) is connected to and serviced by utilities and public services, all of
which are adequate for the use of the real property listed thereon as the
business of the Subject Companies is currently conducted.  None of the Subject Companies has experienced
during the three years preceding the date hereof any material interruption in
the delivery of adequate quantities of any utilities (including, without limitation,
electricity, natural gas, potable water, water for cooling or similar purposes
and fuel oil) or other public services (including, without limitation, sanitary
and industrial sewer service) required in the operation of the business of the
Subject Companies during such period and, to the knowledge of Sellers, no such
material interruption is threatened.

Section 4.17  Accounts  Receivable.  All
Accounts Receivable of the Subject Companies that are reflected in the
Financial Statements and that will be reflected in the Closing Date Balance Sheet
represent sales actually made in the ordinary course of business.  The reserve for doubtful accounts in the
Financial Statements has been, and the reserve for doubtful accounts in the
Closing Date Balance Sheet will be determined based on the formula historically
utilized by the Subject Companies to calculate such reserve and with the prior
accounting and collection practices of the Subject Companies.

Section 4.18  Inventory.  Schedule 4.18
sets forth the location of all inventory (including spare parts) related to the
Vessels that is not aboard such Vessels.

Section 4.19  Employees and Related Matters.  Schedule
4.19 is a complete list of all current employees of each of the Subject
Companies, listing the title or position held, base salary, any commissions or
other cash compensation, including bonuses, paid or payable, and the terms of
any written or oral employment agreement (including a copy of any such written
agreement and a description of any such oral agreement) with any of the Subject
Companies or any Affiliate thereof.  None
of the Subject Companies has any employees covered by a collective bargaining
agreement.  There are no facts or
circumstances that have resulted or could reasonably be expected to result in a
claim for unlawful discrimination against any of the Subject Companies.

 

 26

Section 4.20  Employee Benefits.

(a)           Schedule 4.20 contains a complete list of
each compensation or benefit plan, agreement, program or policy (whether
written or oral, formal or informal) sponsored, maintained or contributed to by
any of the Subject Companies for the benefit of any of its present or former
directors, officers, employees, agents, consultants or other similar
representatives, including, but not limited to, any “employee benefit plan” as
defined in section 3(3) of ERISA, other than employment agreements or
compensation practices described in Sections 4.10(e) and 4.19 above (the
foregoing are hereinafter collectively referred to as “Plans”).  None of the Subject Companies is subject to
any legal, contractual, equitable or other obligation to enter into any new
Plan or to modify or change any existing Plan.

(b)           With respect to each Plan, the Subject Companies
have provided to Buyer a true and correct copy of each of the following, as
applicable:

(i)            the current plan document (including
all amendments adopted since the most recent restatement) and its most recently
prepared summary plan description and all summaries of material modifications
prepared since the most recent summary plan description, and all material
employee communications relating to such plan;

(ii)           annual reports or information
returns, including financial statements, for the last three years;

(iii)          all contracts relating to any plan
with respect to which any Subject Company may have any liability, including,
without limitation, each related trust agreement, insurance contract, service
provider contract, subscription or participation agreement, or investment
management agreement (including all amendments to each such document); and

(iv)          the most recent IRS determination
letter or other opinion letter with respect to the qualified status of such
Plan under Code Section 401(a) or the exempt status of a related trust under
Code Section 501(a) or 501(c)(9).

(c)           Each Plan intended to be qualified under Section
401(a) of the Code is and has been so qualified in form.  Each Plan is and has been maintained and
operated in material compliance with its terms and the provisions of all
applicable laws, rules and regulations, including, without limitation, ERISA
and the Code.  Other than claims for
benefits in the ordinary course, there is no claim pending, or, to the
knowledge of Sellers, threatened, involving any Plan by any Person against such
Plan, fiduciaries or administrators of such Plan, any of the Subject Companies
or the Sellers.  No Plan is subject to
ongoing audit, investigation or other administrative proceeding of the Internal
Revenue Service, the Department of Labor or any other governmental agency, and
no Plan is the subject of any pending application for administrative relief
under any voluntary compliance program of the Internal Revenue Service, the
Department of Labor or any other governmental entity.  There has been no transaction that is
prohibited under Section 4975 of the Code or Section 406 of ERISA and not
exempt under Section 4975 of the Code or Section 408 of ERISA, respectively, in
relation to any Plans.  Each 

 

 27
 

Plan which may
be subject to Section 409A of the Code is either exempt from Section 409A of
the Code under current IRS guidance or has been operated in good faith compliance
with Section 409A of the Code and the IRS guidance issued thereunder.  To the knowledge of Sellers, no Plan is
subject to Section 409A of the Code.

(d)           Neither any of the Subject Companies nor any ERISA
Affiliate has ever sponsored or maintained an “employee pension benefit plan”
subject to Title IV of ERISA or the minimum funding requirements of
Section 412 of the Code.  Neither any of
the Subject Companies nor any ERISA Affiliate has maintained or incurred any
liability with respect to any “multiemployer plan” (as defined in Section 3(37)
of ERISA).  There are no facts that have
resulted or could reasonably be expected to result in a liability (whether or
not asserted as of the date hereof) to the Subject Companies or any ERISA
Affiliate pursuant to Title IV of ERISA.

(e)           No Plan provides medical, surgical,
hospitalization, death or similar benefits (whether or not insured) for
employees or former employees of the Subject Companies or any Affiliate for
periods extending beyond their retirement date or other termination of service
other than coverage mandated by applicable law.

(f)            Except as set forth in Section 6.12(c), the
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement will not (either alone or upon the
occurrence of any subsequent employment-related event) (i) result in any
payment becoming due to any employee, former employee or group of employees or
former employees, of any of the Subject Companies or any of its Affiliates,
(ii) increase any benefits otherwise payable under any Plan, (iii) result in
the acceleration of the time of payment or vesting of any such benefits, (iv)
result in the incurrence or acceleration of any other obligation related to the
Plans or to any employee, former employee or group of employees or former
employees or (v) cause any payments to be nondeductible under Section 280G of
the Code.

(g)           Each of the Subject Companies has the right to, in
any manner, and without the consent of any employee, beneficiary or dependent,
employees’ organization or other Person, terminate, modify or amend any Plan
(or their participation in any such Plan) at any time sponsored, maintained or
contributed to by it, effective as of any date on or after the Closing except
to the extent that any retroactive amendment would be prohibited by Section
204(g) of ERISA.

(h)           All individuals who perform (or have performed
within the last six years) compensatory services for the Subject Companies in
any capacity have been properly classified for purposes of employment and
withholding taxes and eligibility to participate in and coverage under any
Plan.

Section 4.21  Compliance With Law.  None of
the Subject Companies is in violation, in any material respect, of any
provision of any Law applicable to it, including, without limitation, those
governing the registration, ownership and operation of vessels documented to
engage in the coastwise trade of the United States, and none of the Subject
Companies has received notice of any alleged violation of any Law.  Without limiting the generality of the
foregoing, (a) none of the Subject Companies has made any offer, payment,
promise to pay or authorization of the payment of any money, or any offer,
gift, promise to give 

 

 28
 

or authorization of the giving of anything of
value, directly or indirectly, to or for the use or benefit of any official or
employee of any Governmental Body or to or for the use or benefit of any
political party, official or candidate unless such offer, payment, gift,
promise or authorization is not prohibited by the written laws or regulations
of the Governmental Body and (b) each of the Subject Companies is familiar
with and has complied with the United States Foreign Corrupt Practices Act, 15
U.S.C. Sections 78dd-1 and 78dd-2.

Section 4.22  Environmental.

(a)           Except as set forth in Schedule 4.22(a),
each of the Subject Companies has been and is in material compliance with all
Environmental Laws, and the Seller Parties are not aware of any facts,
circumstances, or conditions that would require significant capital
expenditures to maintain compliance in the future.

(b)           Each of the Subject Companies has obtained all
licenses, permits, approvals, consents, certificates, registrations and other
authorizations under Environmental Laws (the “Environmental Permits”) required
for the operation of its business, all of which are listed in Schedule
4.22(b).  Except as set forth in Schedule
4.22(b), each Environmental Permit is valid and in good standing, and any
renewal application required to keep each Environmental Permit in effect has
been timely filed, and none of the Subject Companies is in default or breach of
any Environmental Permit, and no proceeding is pending or, to the knowledge of
Sellers, threatened to revoke, deny, condition or limit the renewal of any
Environmental Permit.

(c)           Except as set forth in Schedule 4.22(c),
none of the Subject Companies has used or expressly permitted to be used,
except in material compliance with all Environmental Laws in effect at the
time, any of its currently or formerly owned or leased properties, facilities
or Vessels to generate, manufacture, process, distribute, use, treat, store,
dispose of, transport or handle any Hazardous Material.

(d)           Except as set forth in Schedule 4.22(d),
none of the Subject Companies has received any notice of or been prosecuted for
an offense alleging, non-compliance with or liability under any Environmental
Law or requesting information with respect to an investigation pursuant to
CERCLA, or any foreign or state counterpart thereto, or any other Environmental
Law.   Except as set forth in Schedule
4.22(d), there are no outstanding orders requiring Remedial Actions with
respect to the businesses or currently or formerly owned or leased properties
of any of the Subject Companies, nor is Seller Party aware of any condition or
circumstance that could reasonably be expected to require Remedial Actions.

(e)           To the knowledge of Sellers and except as disclosed
in Schedule 4.22(e), there are no pending or proposed changes to any
Environmental Law that would render illegal or restrict any service provided by
any of the Subject Companies, or require significant capital expenditures by
the owner or operator of the assets of any of the Subject Companies to achieve
or maintain compliance.

(f)            Except as set forth in Schedule 4.22(f),
and except in compliance with all Environmental Laws, there has been no Release
of any Hazardous Material on, into, under, or from the currently or formerly
owned or leased properties, facilities, Vessels or other assets of 

 

 29
 

any of the
Subject Companies that could reasonably be expected to require Remedial
Actions. All Hazardous Materials used in whole or in part by any of the Subject
Companies or resulting from its business have been disposed of, treated, transported
and stored in compliance with all Environmental Laws.  Schedule 4.22(f) lists the names and
business addresses of the facilities or enterprises used by any of the Subject
Companies for the offsite disposal or treatment of Hazardous Materials during the
preceding five (5) years.

(g)           Except as disclosed in Schedule 4.22(g),
there is not now, and to the knowledge of Sellers,  there has never been, on or in any currently
or formerly owned or leased properties, facilities, Vessels or other assets,
any of the following: (i) any underground storage tanks; (ii) any landfills,
dumps, or surface impoundments; (iii) any Remedial Action; and (iv) any
asbestos-containing materials.

(h)           None of the Subject Companies has received any
notice that it is potentially responsible for a federal, provincial, municipal,
local or other clean-up site or other corrective action under any Environmental
Laws. None of the Subject Companies has received any request for information in
connection with an inquiry from any Governmental Body with respect to its use
of any disposal sites.

(i)            No judicial or administrative proceedings are
pending or, to the knowledge of Sellers, threatened against any of the Subject
Companies alleging the violation of or seeking to impose liability pursuant to
any Environmental Law and there are no investigations pending or, to the
knowledge of Sellers, threatened against any of the Subject Companies under any
Environmental Law.

(j)            Seller Parties have made available to Buyer true
and complete copies of all environmental and health and safety related audits,
evaluations, investigations assessments, studies, sampling or similar reports,
or tests in the custody or control of any of the Subject Companies relating to
any of the Subject Companies or any of their respective currently or formerly
owned or leased properties, facilities, Vessels or other assets.

(k)           Each of the Subject Companies has timely made all
filings and timely submitted all reports required under any Environmental Laws.

(l)            Except as set forth in Schedule 4.22(l), no
Hazardous Material is required to be removed, encapsulated or abated, and no
Remedial Action is otherwise required under any Environmental Laws, with
respect to any currently and to the knowledge of Sellers, formerly owned or
leased property, Vessel, facility or other asset of the Subject Companies.
Except as set forth in Schedule 4.22(l), none of the Subject Companies
has any liability for the exposure of employees or third parties to Hazardous
Materials.

(m)          Except as set forth in Schedule 4.22(m), none
of the Subject Companies is required under any Environmental Laws by virtue of
the transactions set forth herein and contemplated hereby, or as a condition to
the effectiveness of any transactions contemplated hereby, (i) to perform a
site assessment of Hazardous Materials, (ii) to remove or remediate any
Hazardous Materials, (iii) to give notice to or receive approval from any
Governmental Body (other than as necessary to transfer, or to allow Buyer to
operate under, Environmental Permits 

 

 30
 

required under
Environmental Laws), or (iv) to record or deliver to any person or entity
(other than Buyer) any disclosure document or statement pertaining to
environmental matters.

Section 4.23  Insurance.  Schedule 4.23
sets forth a list of all insurance policies of each of the Subject Companies or
relating to its assets or the conduct of its business (collectively, the “Insurance
Policies”).  The Insurance Policies (i)
are valid, outstanding and enforceable, (ii) are issued by insurers that are financially
sound and reputable, (iii) taken together, provide adequate insurance coverage
for the assets and the operation of the business of the Subject Companies, (iv)
are sufficient for compliance with all Laws and Contracts to which the Subject
Companies are a party or by which they are bound, and (v) except as set forth
in Schedule 4.23, do not provide for any retrospective premium
adjustment or other experience-based liability on the part of any of the
Subject Companies.  Each of the Subject
Companies has paid all premiums due, and has otherwise performed all of its
obligations, under each of the Insurance Policies.  None of the Seller Parties or any of the
Subject Companies has received (i) any refusal of coverage or any notice that a
defense will be afforded with a reservation of rights under any of the
Insurance Policies, or (ii) any notice of cancellation or any other indication
that any Insurance Policy is no longer in full force or effect or will not be
renewed or that the issuer of any Insurance Policy is not willing or able to
perform its obligations thereunder.

Section 4.24  Government Licenses and Permits.  Schedule 4.24
sets forth a list of all licenses, permits, consents, authorizations,
qualifications, plans (including vessel response plans) approved by or
submitted to Governmental Bodies and orders of Governmental Bodies required for
the operation or conduct of the business of any of the Subject Companies as
currently conducted or the ownership of any of its assets, all of which are in
full force and effect.

Section 4.25  Responsible Carriers Plan.  Each
of the Subject Companies has adopted an American Waterways Operators
Responsible Carriers Plan, which is attached hereto as Schedule 4.25,
and to the knowledge of Sellers, is in compliance with all Responsible Carrier
Plan requirements.

Section 4.26  Taxes.

(a)           The Seller Parties and the Subject Companies have
caused to be timely filed with appropriate Governmental Bodies all Tax Returns
required to be filed by or with respect to the Subject Companies, the assets
and operations of the Subject Companies and the conduct of the business of the
Subject Companies (together, “Smith Items”), and has paid or caused to be paid
or made provisions for the payment of all Taxes due with respect thereto.

(b)           Except as set forth on Schedule 4.26(b),
none of the Subject Companies has received notice of, and the Seller Parties do
not have any knowledge of, any notice of deficiency or assessment or proposed
deficiency or assessment relating to Taxes with respect to Smith Items from any
Governmental Body, and there are no outstanding agreements or waivers that
extend any statutory period of limitations applicable to any federal, state or
local income or franchise Tax Returns that include Smith Items.  To the knowledge of the Sellers, there are no
threatened audits of, or assessments against, any of the Seller Parties or any
of the Subject Companies with respect to Taxes that may be asserted against any
of the Seller Parties or any of the Subject Companies. Neither any of the
Seller Parties nor any of the Subject Companies is a 

 

 31
 

party to any
action or proceeding by any Governmental Body for the collection or assessment
of Taxes with respect to Smith Items.

(c)           All amounts required in the operation of the
business to be withheld by or with respect to any of the Subject Companies and
paid to Governmental Bodies for Taxes, including income, social security,
unemployment insurance, sales, excise, use and other Taxes, have been collected
or withheld and to the extent required, paid to the proper Governmental
Body.  All deposits applicable law
requires to be made by or with respect to any of the Subject Companies with
respect to employees’ withholding and other employment taxes have been made.

(d)           None of the Seller Parties (or, in the case of a
Seller Party that is a disregarded entity for federal income tax purposes, the
person who is treated as the owner of the Seller Party’s assets for federal
income tax purposes) is a “foreign person” within the meaning of Section 1445(f)(3)
of the Code.

(e)           Except as set forth in Schedule 4.26(e),
none of the assets of any of the Subject Companies is subject to any provision
of applicable law which eliminates or reduces the allowance for federal tax
depreciation or amortization in respect of that asset below the allowance
generally available to an asset of its type.

(f)            None of the Subject Companies is a party to any
Tax sharing agreement.

(g)           (i)          Smith
Maritime is, and at all times during its existence has been, an S corporation
within the meaning of Section 1361(a)(1) of the Code.

(ii)           Each of Hawaiian Interisland Towing,
Inc., Tow Boat Services & Management, Inc., Uaukewai Diving, Salvage and
Fishing, Inc. and Marine Logistics, Inc. (collectively, the “QSUBs”) is, and
since the time of its contribution to Smith Maritime in or prior to 2003 has
been, a qualified subchapter S subsidiary of Smith Maritime within the meaning
of Section 1361(b)(3)(B) of the Code. 
Smith Maritime does not own a direct or indirect interest in any entity
other than the QSUBs.   Schedule
4.26(g) lists the effective date of each S election and of each qualified
subchapter S subsidiary election for each of the QSUBs.  Prior to its contribution to Smith Maritime,
each QSUB was an S corporation within the meaning of Section 1361(a)(1) of the
Code at all times from the date indicated for such QSUB on Schedule 4.26(g).  Seller Parties have not caused or permitted
Smith Maritime or any of the QSUBs (x) to make any election under Treas. Reg.
§301.7701-3 to treat any of the QSUBs or their successors as a corporation for
federal income tax purposes or (y) to take any other action that would prevent
the QSUBs or their successors from being treated as disregarded entities for
federal income tax purposes at all times through the Closing Date.

(iii)          Neither Smith Maritime, Hawaiian
Interisland Towing, Inc. nor Tow Boat Services & Management, Inc. owns any
asset as to which a tax might be imposed under Section 1374 of the Code as a
result of the transactions 

 

 32
 

contemplated
by this Agreement.  Schedule 4.26(g)
identifies (x) the “net unrecognized built-in gain” of each of Uaukewai Diving,
Salvage and Fishing, Inc. and Marine Logistics, Inc. (or of Smith Maritime on
account of its ownership of those entities) for purposes of Section 1374 of the
Code and (y) each asset of Uaukewai Diving, Salvage and Fishing, Inc. or Marine
Logistics, Inc. that might give rise to a “recognized built-in gain” under
Section 1374 in connection with the transactions contemplated by this agreement
and the amounts set forth in Sections 1374(d)(3)(B)(i) and (ii) of the Code
with respect to each such asset.

(iv)          Neither Smith Maritime nor any QSUB
is, or has been, liable for tax under Section 1375 of the Code.

(h)           Each of Go Big and 235LX is, at all times from its
formation has been, and through the Closing Date will be, classified as an
entity whose existence apart from Smith is disregarded for federal income tax
purposes.

(i)            There are no Taxes of any Person other than any of
the Subject Companies for which any of the Subject Companies could be held
liable after the Closing under Treas. Reg. § 1.1361-4(a)(6), Treas. Reg. §
1.1502-6, Treas. Reg. § 301.7701-2(c)(2)(iii) or similar principles.

(j)            In all states imposing a state corporate income
tax in which any of the Subject Companies do business, each of the Subject
Companies is treated for state corporate income tax purposes in a manner
consistent with the treatment of the entity for federal income tax purposes.

(k)           None of the Subject Companies has regularly or
systematically sold tangible assets, such that the transfer of all of the
tangible assets held by each of the Subject Companies in connection with the
Mergers will qualify for a “casual sale” exemption from Hawaii sales and use
tax under Hawaii Administrative Rules Section 18-237-1.

(l)            None of the assets of the Subject Companies will
be located within the taxing jurisdiction of any Alaska local taxing authority
at the Effective Time.

Section 4.27  No Material Adverse Change.  There
has been no material adverse change in the business, prospects, results of
operations, assets or financial condition of any of the Subject Companies since
December 31, 2006, and no event has occurred which could be reasonably expected
to lead to or cause such a material adverse change; provided, however, that (a)
changes resulting from conditions affecting the coastwise maritime petroleum
transportation industry in general and (b) changes in the economy in general
shall, in each case, be excluded from the determination to the extent that they
do not have a disproportionate effect on any of the Subject Companies as
compared to other entities engaged in the coastwise maritime petroleum
transportation industry in Hawaii and along the West Coast.

Section 4.28  Books and Records.  The books of
account, minute books, stock record books, and other records of each of the
Subject Companies, all of which have been made available to Buyer, are complete
and correct and have been maintained in accordance with sound business
practices, in each case from and after January 1, 2004.  Since January 1, 2004, the 

 

 33
 

books, records and accounts of the Subject
Companies have accurately and fairly reflected and currently accurately and
fairly reflect, in reasonable detail and in all material respects, the
transactions and dispositions of the assets of the Subject Companies.  The company books of each of the Subject
Companies contain accurate and complete records of all meetings held of, and
material company action taken by, the owners of each of the Subject Companies
since January 1, 2004, and no meeting of any such members has been held since
January 1, 2004 for which minutes have not been prepared and are not contained
in such minute books.

Section 4.29  Safety Reports.  Schedule
4.29 sets forth a complete listing of all injury reports, workers’
compensation reports and claims, safety citations and reports and OSHA reports
relating to any of the foregoing since January 1, 2004.

Section 4.30  Transactions with Certain Persons.  Except
as set forth on Schedule 4.30 and except for transactions contemplated
by Section 6.13, during the past two years, none of the Subject Companies has,
directly or indirectly, purchased, leased or otherwise acquired any property or
obtained any services from, or sold, leased or otherwise disposed of any
property or furnished any services to, or otherwise dealt with (except with
respect to remuneration for services rendered as a manager, officer or employee
of any of the Subject Companies), in the ordinary course of business or otherwise,
(a) any officer, manager or shareholder of any of the Subject Companies or any
family member of any such person or (b) any Person which, directly or
indirectly, alone or together with others, controls, is controlled by or is
under common control with any of the Subject Companies or any owner
thereof.  Except as set forth on Schedule
4.30, none of the Subject Companies owes any amount to, or has any contract
with or commitment to, any of its members, managers, officers, employees,
families of employees (including relatives by marriage) or consultants (other
than compensation to managers, officers, or employees for current services not
yet due and payable and reimbursement of expenses of employees arising in the
ordinary course of business and on an arms-length basis not in excess of
$10,000 in the aggregate), and none of such Persons owe any amount to any of
the Subject Companies.

Section 4.31  Closing Date Balance Sheet.  The
Closing Date Balance Sheet (as prepared in accordance with Section 6.11 of this
Agreement) will present fairly, in all material respects, the consolidated
financial condition of the Subject Companies as of the Closing Date and
accurately reflects all liabilities or obligations (whether absolute, accrued,
contingent, unliquidated or otherwise) of the Subject Companies as of the
Closing Date other than liabilities under Contracts or contracts entered into
in the ordinary course of business consistent with past practice or arising out
of matters described in Schedule 4.7, in each case to the extent such
liabilities are not required to be reflected in a balance sheet prepared in
accordance with GAAP.

Section 4.32  Disclosure.  No representation
or warranty by Smith Maritime, Go Big or any Seller Party in this Agreement,
and in any schedule or exhibit to this Agreement, or in any certificate or
other document furnished to Buyer by the Subject Companies or the Seller
Parties at Closing, contains or, as of the Closing Date, shall contain any
untrue statement of a material fact or omits or shall omit a material fact
necessary to make the statements therein not misleading.

 

 34

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF BUYER AND THE PARTNERSHIP

Buyer and the Partnership, jointly and severally,
represent and warrant to the Seller Parties as follows:

Section 5.1  Status and Good Standing.  Buyer
is a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Delaware, with full limited liability
company power and authority under its certificate of formation and limited
liability company agreement to own and lease its properties and to conduct
business as the same exists on the date hereof and on the Closing Date.  The Partnership is a limited partnership duly
organized, validly existing and in good standing under the laws of Delaware,
with full partnership power and authority under its certificate and agreement
of limited partnership to conduct its business as the same exists on the date
hereof and on the Closing Date.

Section 5.2  Authorization.  Each of Buyer
and the Partnership has full limited liability company or partnership power and
authority under its certificate of formation and limited liability company
agreement or certificate and agreement of limited partnership, as applicable,
and the managers of Buyer and the general partner of the Partnership have taken
all necessary limited liability company or partnership action, as applicable,
to authorize it, to execute and deliver this Agreement and the exhibits and
schedules hereto, to consummate the transactions contemplated herein or therein
and to take all actions required to be taken by it pursuant to the provisions
hereof or thereof, and each of this Agreement and the exhibits hereto
constitutes the valid and binding obligation of each of Buyer and the
Partnership, enforceable against each such party in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting creditors’ rights generally and to the principles
of equity (whether enforcement is sought in a proceeding in equity or at law).

Section 5.3  Non-Contravention.  Neither the
execution and delivery of this Agreement and the schedules and exhibits hereto,
nor the consummation of the transactions contemplated herein or therein, does
or shall violate, conflict with or result in breach of or require notice or
consent under any Law, the certificate of formation, certificate of limited
partnership, limited liability company agreement or agreement of limited
partnership of Buyer or the Partnership (as the case may be) nor or any
provision of any agreement or instrument to which Buyer or the Partnership is a
party.

Section 5.4  Validity.  There is no
investigation, claim, proceeding or litigation of any type pending or, to the
knowledge of Buyer or the Partnership, threatened to which Buyer or the
Partnership is a party that (i) questions or involves the validity or
enforceability of any of Buyer’s or the Partnership’s obligations under this
Agreement or any of the exhibits hereto or (ii) seeks (or reasonably might be
expected to seek) (A) to prevent or delay the consummation by Buyer or the
Partnership of the transactions contemplated by this Agreement or (B) damages
in connection with any such consummation.

 

 35
 

Section 5.5  Broker
Involvement.  Neither Buyer nor the Partnership has hired,
retained or dealt with any broker or finder in connection with the transactions
contemplated by this Agreement.

Section 5.6  Buyer’s Review.  In connection
with its decision to purchase the Equity Interests, each of Buyer and the
Partnership acknowledges that it is a sophisticated party with such knowledge
and experience in business and financial matters as to be capable of evaluating
the merits and risks of the acquisition. 
Each of Buyer and the Partnership has had an opportunity to review the
records and business of each of the Subject Companies provided to Buyer and the
Partnership and to ask questions and receive answers from the Seller Parties
and each of the Subject Companies regarding each of the Subject Companies.

Section 5.7  Citizenship.  Each of Buyer and
the Partnership is a citizen of the United States within the meaning of Chapter
505 of Title 46 of the United States Code, for the purpose of operating the
Vessels in the coastwise trade of the United States.

ARTICLE VI

COVENANTS

Section 6.1  Other Offers.  From and after
the date hereof and until the Closing, neither the Seller Parties, Smith
Maritime, Go Big nor any of their respective officers, managers, members,
employees, Affiliates, representatives or agents shall, directly or indirectly,
(a) solicit, enter into or conduct discussions relating to, initiate or
encourage any offer or proposal for, or any indication of interest in, (1) a
merger, consolidation, share exchange or other business combination involving
any of the Subject Companies or any Seller Party, (2) the acquisition of an
equity interest in any of the Subject Companies or any Seller Party or (3) a
sale, license or other transfer of all or a material part of the assets of any
of the Subject Companies or any Seller Party (each, a “Transaction”), or (b) engage
in negotiations with or disclose any nonpublic information relating to any of
the Subject Companies, any Seller Party or their respective businesses, or
afford access to the properties, books or records of any of the Subject
Companies or any Seller Party, to any Person with respect to a
Transaction.  Smith Maritime, Go Big and
the Seller Parties shall notify Buyer of any such inquiry or proposal within
three business days after receipt or awareness of the same.

Section 6.2  Conduct of Business Pending Closing.

(a)           Between
the date of this Agreement and the Closing Date, the Subject Companies and the
Seller Parties will, and Seller Parties will cause the Subject Companies to:

(i)            conduct the business of each of the
Subject Companies in the usual and ordinary course thereof, including, without
limitation, the making of proposals, quotations, bids and solicitations, and
the entering into of contracts for the purchase and sale of products and
services;

(ii)           orally advise Buyer and, unless
prohibited by confidentiality requirements or antitrust laws, keep Buyer
advised of any material developments relating to the business of each of the
Subject Companies;

 

 36
 

(iii)          maintain and preserve the business and
assets of each of the Subject Companies in customary repair, order and
condition, reasonable wear and tear excepted;

(iv)          use their reasonable best efforts to
preserve the business organization of each of the Subject Companies intact, to
retain the services of the officers, employees and agents of each of the Subject
Companies and to preserve the relationships and good will of each of the
Subject Companies with their suppliers, customers, landlords, creditors,
employees, agents and others having business dealings with any of the Subject
Companies;

(v)           confer with Buyer concerning matters
of a nature described in Section 4.9;

(vi)          use their reasonable efforts to cause
all of the representations and warranties in Articles III and IV hereof to
continue to be true and correct; and

(vii)         otherwise respond to Buyer’s reasonable
requests concerning the status of the business, operations and finances of any
of the Subject Companies.

(b)           Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, the Seller
Parties will not, and the Seller Parties will cause the Subject Companies not
to, without the prior written consent of Buyer, take any action, or fail to
take any reasonable action within their or its control, as a result of which
any of the changes or events listed in Section 4.9 would reasonably be expected
to occur.

Section 6.3  Access.  Smith Maritime and Go
Big will, and the Seller Parties will cause the Subject Companies to, afford
Buyer’s officers, attorneys, accountants and other representatives reasonable
access during normal business hours to the offices, personnel, plants,
properties, equipment and records of each of the Subject Companies for the
purpose of conducting an investigation thereof. 
Buyer shall not contact clients, charterers, customers or suppliers of
any of the Subject Companies without the prior consent of Gordon L.K. Smith
(which consent shall not be unreasonably withheld or delayed).  Smith Maritime, Go Big and the Seller Parties
will furnish to Buyer such financial and operating data and other information
as Buyer may reasonably request; provided, however, that the confidentiality of
any data or information so acquired shall be maintained by Buyer and its
representatives in accordance with the terms of paragraph 9 of the letter of
intent dated January 25, 2007 between K-Sea Operating Partnership L.P. and the
Seller Parties.

Section 6.4  Termination of Guarantees and Settlement of
Intercompany Amounts.  The Seller Parties shall cause any
intercompany transactions described in Schedule 4.12(f) to be
terminated or settled at or prior to the Closing at no cost to the Subject
Companies or to Buyer.

Section 6.5  Covenant Against Competition.

 

 37
 

(a)           As an essential consideration for the obligations
of Buyer and the Partnership under this Agreement, each Seller Party hereby
agrees and covenants that, except on behalf of the Buyer or its Affiliates, for
a period of three years following the Closing Date:

(i)            neither the Seller Party nor any
Affiliate thereof shall, for whatever reason and with or without cause, either
individually or in partnership or jointly or in conjunction with any Person or
Persons as principal, agent, employee, shareholder (other than holding common
units or shares of other companies listed on a United States stock exchange or
automated quotation system that do not exceed one (1%) percent of the
outstanding shares so listed), owner, investor, partner or in any other manner
whatsoever, directly or indirectly, engage in any manner in the Restricted
Businesses in the Restricted Trades; and

(ii)           neither the Seller Party nor any
Affiliate thereof shall, directly or indirectly, (A) induce or attempt to
induce any customer to cease doing business with Buyer or any of its
Affiliates, (B) interfere with the relationship between any customer and Buyer
or any of its Affiliates or (C) solicit Restricted Business from, or provide
such services to, any of the customers or accounts of Buyer or any of its
Affiliates.

(b)           If Buyer believes that any Seller Party or any
Affiliate of the Seller Party has violated the provisions of this Section 6.5,
Buyer shall have the right to seek relief from any court of competent
jurisdiction against such party.  Each
Seller Party acknowledges that money damages alone shall not adequately
compensate Buyer in the event of a breach of the covenants of this Section
6.5.  Therefore, each Seller Party agrees
that in addition to all remedies available at law, in equity or under this
Agreement, Buyer shall be entitled to injunctive relief for the enforcement of
this covenant.

(c)           Each Seller Party agrees that the covenants in this
Section 6.5 are reasonable with respect to their duration, scope and
geographical area.

(d)           The covenants in this Section 6.5 are severable and
separate, and the unenforceability of any specific covenant in this Section 6.5
is not intended by any party hereto to, and shall not, affect the provisions of
any other covenant in this Section 6.5. 
If any court of competent jurisdiction determines that the scope, time or
territorial restrictions Section 6.5(a) sets forth are unreasonable as applied
to a Seller Party, the parties hereto, including each Seller Party, acknowledge
their mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to
that extent.

(e)           All the covenants in this Section 6.5 are intended
by each party hereto to, and shall, be construed as an agreement independent of
any other provision in this Agreement, and the existence of any claim or cause
of action of any Seller Party against Buyer, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Buyer of any covenant in this Section 6.5. 
It is specifically agreed that the period specified in Section 6.5 shall
be computed in the case of each Seller Party by excluding from that computation
any time during which the Seller Party is in violation of any provision of
Section 6.5.  The covenants contained in
this Section 

 

 38
 

6.5 shall not
be affected by any breach of any other provision hereof by any party hereto.

(f)            Buyer and each Seller Party hereby agree that this
Section 6.5 is a material and substantial part of the transactions contemplated
by this Agreement.

Section 6.6  Further Assurances.  Smith
Maritime, Go Big and each Seller Party shall execute, acknowledge and deliver
or cause to be executed, acknowledged and delivered to the Buyer or its
Affiliates such assignments or other instruments of transfer, assignment and
conveyance, in form and substance reasonably satisfactory to Buyer, as shall be
necessary to vest in Buyer (or its permitted assignees) all of the right, title
and interest in and to the Equity Interests sold to Buyer by the Seller Parties
pursuant to this Agreement, free and clear of all Liens, and any other document
reasonably requested by Buyer in connection with this Agreement.

Section 6.7  Governmental Filings.  As
promptly as practicable after the execution of this Agreement, each party
shall, in cooperation with the other, file any reports or notifications that
may be required to be filed by it under applicable law (including, without
limitation, any filings under the HSR Act).

Section 6.8  Consents.  After the Closing,
each Seller Party shall use its best efforts to obtain any consents or approvals
or assist in any filings required in connection with the transactions
contemplated hereby that are requested by Buyer and that have not been
previously obtained or made.

Section 6.9  Public Announcements.  No party
shall, without the prior approval of the other party, issue, or permit any of
its partners, shareholders, directors, officers, managers, members, employees,
agents or Affiliates to issue, any press release or other public announcement
with respect to this Agreement or the transactions contemplated hereby, except
as may be required by Law or applicable stock exchange regulations.

Section 6.10  Tax Matters.

(a)           The Seller Parties and Buyer agree that the
transactions pursuant to this Agreement shall, for federal income Tax (and
related state income Tax) purposes, be reported as follows:

(i)            As a taxable sale of assets by Smith
Maritime to the Partnership in exchange for the amount allocated to such sale
pursuant to Schedule 2.8, followed by the distribution of such cash sale
proceeds to the Smith Sellers in liquidation of Smith Maritime.

(ii)           As a taxable sale of the Go Big
assets by Smith to the Partnership to the extent attributable to the amount
allocated to such sale pursuant to Schedule 2.8.

 

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(iii)          Each party agrees not to assert, in
connection with any Tax Return, tax audit or similar proceeding, any position
inconsistent with the allocations and determinations described in this Section
6.10(a).

(b)           The Seller Parties will indemnify and hold the
Subject Companies and Buyer harmless from (i) any liability for Taxes with
respect to Smith Items (and any other liability of any of the Seller Parties,
their Affiliates or the Subject Companies for Taxes) for events, and for Tax
periods (or portions thereof) ending, on or before the Closing Date, including
any taxes imposed under Section 1374 of the Code as a result of the
transactions contemplated by this Agreement, and (ii) any liability of any of
the Subject Companies or any other entity for which any of the Subject
Companies could be held liable after the Closing under Treas. Reg. §
1.1361-4(a)(6), Treas. Reg. § 1.1502-6, Treas. Reg. § 301.7701-2(c)(2)(iii) or
similar principles, excepting Taxes described in Section 6.10(c).  For Tax periods ending on or before the
Closing Date, the Seller Parties shall cause to be timely filed with
appropriate Governmental Bodies all Tax Returns required to be filed by or with
respect to the Subject Companies and Smith Items, and shall pay or cause to be
paid or make provisions for the payment of all Taxes due with respect
thereto.  Buyer and the Partnership shall
cooperate with the Seller Parties and provide such information and access to
records and personnel as is reasonably necessary to prepare such returns.

(c)           All transfer, documentary, sales, use, registration,
real estate transfer or gain or similar or related Tax (but not any income or
business or occupation Tax) related to or arising from the transactions
contemplated herein shall be borne by Buyer. 
Seller Parties and Buyer shall cooperate in timely making all Tax
Returns as may be required to comply with the provisions of such Tax laws.  Seller Parties shall cooperate with Buyer in
meeting any filing, documentary or evidentiary requirements necessary to
qualify for any available exemptions for such Taxes.

(d)           Seller Parties shall cause the provisions of any
Tax sharing agreement between Seller Parties and any of their Affiliates (other
than the Subject Companies), on the one hand, and the Subject Companies, on the
other hand, to be terminated on or before the Closing Date, and no further
payments shall be made thereunder.

(e)           As soon as practicable after the Closing Date, the
Seller Parties and Buyer shall jointly prepare IRS Forms 8594 to report (i) the
allocation of the consideration paid pursuant to this Agreement between Smith
Maritime and Go Big, (ii) the allocation of the consideration so paid for Smith
Maritime among the assets of Smith Maritime and (iii) the allocation of the
consideration so paid for Go Big among the assets of Go Big. All such allocations
shall be made in a manner consistent with Section 6.10(a) and on the basis that
(w) the fair market value of the vessels is equal to the amount determined in
an appraisal of the vessels owned or leased by the Smith Entities and Go Big to
be prepared by Marcon International, Inc. (with Buyer to bear the cost of the
appraisal), (x) the fair market value of all tangible assets other than vessels
is equal to their respective tax bases, (y) the fair market value of the
covenants not to compete in Section 6.5 is equal to the amount determined in an
appraisal to be obtained by Buyer at Buyer’s expense and (z) the fair market
value of all other intangible assets is equal to the balance of any allocable
consideration; provided that the total amount 

 

 40
 

allocated to
the covenants not to compete under Section 6.10(e)(y) and other intangible
assets that produce ordinary income to the Seller Parties will not exceed
$100,000.

(f)            Following the conversion of each of the QSUBs to a
limited liability company as contemplated by Section 6.18 hereof, Seller
Parties will not cause or permit Smith Maritime or any of the QSUBs (x) to make
any election under Treas. Reg. §301.7701-3 to treat any of the QSUBs as a
corporation for federal income tax purposes or (y) to take any other action
that would prevent the QSUBs from being treated as disregarded entities for
federal income tax purposes at all times through the Closing Date.

Section 6.11  Closing Date Balance Sheet.  On
the Closing Date, Seller Parties shall deliver to Buyer a balance sheet of the
Subject Companies as of the Closing Date (the “Closing Date Balance Sheet”),
accompanied by a certificate of the President of Smith Maritime and Go Big to
the effect that such statement, except as set forth on Schedule 6.11,
has been prepared in accordance with GAAP. 
Within sixty days following the delivery of the Closing Date Balance
Sheet, Buyer shall notify the Seller Parties if Buyer disagrees with the
Closing Date Balance Sheet.  If Buyer
does not so notify the Seller Parties, Buyer shall be deemed to have accepted
such determination.  If Buyer does so
notify the Seller Parties that Buyer disagrees with such determination, and the
Seller Parties and Buyer are thereafter unable to agree within ten days upon
the Closing Date Balance Sheet, then the Closing Date Balance Sheet shall be
determined by an independent accounting firm selected by the Seller Parties
from a list of three nationally recognized independent accounting firms
provided by Buyer.  The determination by
such accounting firm shall be final and binding on Buyer and the Seller
Parties, and the fees and expenses of such accounting firm shall be borne
equally by the Seller Parties, on the one hand, and Buyer, on the other hand.

Section 6.12  Employees.

(a)           For a period of three years after the Closing, none
of the Seller Parties or their Affiliates shall, directly or indirectly, either
for itself or any other Person, (i) induce or attempt to induce any employee of
Buyer or its Affiliates to leave the employ of Buyer or its Affiliates, (ii) in
any way interfere with the relationship between Buyer or its Affiliates and any
of their respective employees (provided that no party shall be deemed to be
interfering with such relationship if it hires a former employee of the other party
who has been terminated by the other party or has resigned from the employment
of such other party and the provisions of clause (i) hereof have not been
violated by the Seller Parties or their Affiliates), or (iii) employ, or
otherwise engage as an employee, independent contractor or otherwise, any
employee of Buyer or its Affiliates, in each case except for employees set
forth on Schedule 6.12(a).  For
purposes of this Section 6.12, employees of any of the Subject Companies
immediately prior to the Closing shall be deemed to be employees of Buyer and
its Affiliates and not employees of the Seller Parties and their Affiliates.

(b)           Prior to the Closing Date, the Subject Companies
shall terminate participation in each of the Plans and agreements set forth on Schedule
4.20 to the extent requested by Buyer (the “Terminated Plans”), and the
Subject Companies and the Seller Parties shall take all actions reasonably
necessary to ensure that all liabilities arising under the 

 

 41
 

Terminated
Plans are either satisfied prior to the Closing or assumed by the Seller
Parties or another affiliate of the Seller Parties.

(c)           At or prior to Closing, any of the Subject
Companies may, at its option, pay to its employees one-time bonuses or other
compensation.  At Closing, the aggregate
amount of such bonuses or other compensation and employment and other taxes in
connection therewith shall be paid by Buyer to Smith Maritime as a capital
contribution, and the Merger Consideration shall be reduced by such amount as
provided in Section 2.8(a)(iv).  Such
bonuses or other compensation shall be paid only if the receiving employee
executes and delivers a release in the form attached hereto as Exhibit A.

Section 6.13  Personal Property.  Prior to
Closing, the personal property set forth on Schedule 6.13 shall be
transferred from the Subject Companies to Smith or his assigns; provided, that
none of the Subject Companies shall incur any liability in connection with such
transfer.

Section 6.14  Financial Statements.  The
Subject Companies and the Seller Parties shall engage PricewaterhouseCoopers
LLP to conduct a three-year audit of the financial statements of the Subject
Companies and financial reviews under Statement of Auditing Standards No. 100
of the interim unaudited financial statements of the Subject Companies, which
in each case are required to be filed by Buyer or its Affiliates under Rule
3-05 of Regulation S-X of the Securities Exchange Act of 1934, as amended.  Such financial statements shall be free of
any qualifications and shall be substantially consistent with the Unaudited
Financial Statements.  The financial
statements provided for in this Section 6.14 shall, when completed, be attached
as Schedule 4.12(b) and Schedule 4.12(c) to this Agreement, as
applicable, as provided in Section 4.12(b) and Section 4.12(c).

Section 6.15  Notification.  Between the date
of this Agreement and the Closing Date, Smith Maritime, Go Big and the Seller
Parties will promptly notify Buyer in writing if Smith Maritime, Go Big or any
such Seller Party becomes aware of any fact or condition that causes or
constitutes a breach of any of the representations and warranties of Smith
Maritime, Go Big or any Seller Party as of the date of this Agreement, or if
Smith Maritime, Go Big or any such Seller Party becomes aware of the occurrence
after the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a breach of any
such representation or warranty had such representation or warranty been made
as of the time of occurrence or discovery of such fact or condition.  If any such fact or condition would require
any change in the Schedules referred to in Articles III or IV of this Agreement
if such Schedules were dated as of the date of the occurrence or discovery of
any such fact or condition, then Smith Maritime, Go Big and the Seller Parties
will promptly deliver to Buyer a supplement to such Schedules specifying such
change.  During the same period, Smith
Maritime, Go Big and the Seller Parties will promptly notify Buyer of the
occurrence of any breach of any pre-closing covenant of Smith Maritime, Go Big
or the Seller Parties in this Agreement or of the occurrence of any event that
may make the satisfaction of the conditions in Article VIII impossible or
unlikely.  If Buyer elects to proceed
with the Closing after receipt of such written notification, then Buyer shall
be deemed to have waived in full any breach of the representations, warranties or
pre-closing covenants of Smith Maritime, Go Big or the Seller Parties contained
in any such notification (but only to the extent described therein).

 

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Section 6.16  Insurance.  Smith Maritime, Go
Big and the Seller Parties will cooperate with Buyer to arrange for new
insurance coverages for the Subject Companies effective upon and after the
Closing with the cost of such new insurance coverages to be at Buyer’s
expense.  The Seller Parties shall use
their reasonable best efforts to keep the Insurance Policies in full force and
effect from and after the Closing Date with respect to claims occurring prior
to the Closing Date.

Section 6.17  Misdirected Payments.  To the
extent the Seller Parties or any of their respective Affiliates receive
payments from customers of any of the Subject Companies after the Closing with
respect to services rendered by any of the Subject Companies, then the
receiving party shall promptly remit such payments to the Subject Companies.

Section 6.18  Conversion of Smith Subsidiaries.  Prior
to the Closing Date, each Smith Subsidiary shall convert from a corporation
organized under the laws of the State of Hawaii into a limited liability
company duly organized under the laws of the State of Hawaii.

Section 6.19  Transfer of Shares.  Prior to
the Closing Date, the Gordon Trust shall distribute all of the Shares held by
the Gordon Trust to Smith.

Section 6.20  Hawaii Dislocated Workers Act.  Buyer
agrees not to liquidate any Smith Subsidiary for a period of 60 days following
the Closing Date if such liquidation would result in a violation of the Hawaii
Dislocated Workers Act by the Seller Parties.

ARTICLE VII

INDEMNIFICATION

Section 7.1  Seller Parties’ Indemnity Obligations

(a)           Seller Party agrees, severally and not jointly with
any other Seller Party, to indemnify each Buyer Indemnified Party against, and
hold each Buyer Indemnified Party harmless from and against, any Indemnified
Amounts that arise from, are based on or relate or otherwise are attributable
to (1) any error, inaccuracy, breach or misrepresentation in any of the
representations and warranties made by or on behalf of such Seller Party in
Article III of this Agreement, (2) any violation or breach by such Seller Party
of or default by such Seller Party under the terms of this Agreement, and (3)
any claim by any Person for brokerage or finder’s fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by any such Person with such Seller Party (or any Person acting on their
behalf) in connection with any of the transactions contemplated by this
Agreement.  Buyer shall be entitled to
recover its reasonable and necessary attorneys’ fees and litigation expenses
incurred in connection with successful enforcement of its rights under this
Section 7.1(a).

(b)           Smith agrees to indemnify each Buyer Indemnified
Party against, and hold each Buyer Indemnified Party harmless from and against,
any Indemnified Amounts that arise from, are based on or relate or otherwise
are attributable to (1) any error, inaccuracy, breach or misrepresentation in
any of the representations and warranties made by or on behalf of Smith
Maritime, Go Big and the Seller Parties in Article IV of this Agreement
(provided that the representations and warranties shall be read as if no
materiality qualifiers were contained therein), (2) any violation or breach by
Smith Maritime, Go Big or the Seller Parties of or 

 

 43
 

default by
Smith Maritime, Go Big or the Seller Parties under the terms of this Agreement,
(3) any claim by any Person for brokerage or finder’s fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by any such Person with any Seller Party or any of the Subject Companies
(or any Person acting on their behalf) in connection with any of the
transactions contemplated by this Agreement, (4) any claim by any Person under
ERISA or other applicable law relating to an “employee pension benefit plan”
sponsored, maintained or contributed to by an ERISA Affiliate and subject to
Title IV of ERISA or the minimum funding requirements of Code section 412, (5)
any claims related to the improper classification of employees for purposes of
the Fair Labor Standards Act or other applicable law during any period prior to
Closing, or (6) any examination of the Subject Companies by the Hawaii
Department of Taxation relating to the reporting or payment of general excise
taxes prior to the Closing Date.  Buyer
shall be entitled to recover its reasonable and necessary attorneys’ fees and
litigation expenses incurred in connection with successful enforcement of its
rights under this Section 7.1(b). 
Notwithstanding the foregoing, Smith shall not be required to indemnify
or hold harmless the Buyer Indemnified Parties on account of any Indemnified
Amounts arising under Section 7.1(b)(1) (other than with respect to breaches of
representations and warranties contained in Sections 4.1, 4.2, 4.3, 4.6, 4.8,
4.14(d), 4.15, 4.26 and 4.30 as to which the Threshold Amount shall not apply)
unless the aggregate liability of Smith in respect of all Indemnified Amounts
exceeds the Threshold Amount and then only for the amount in excess of the
Threshold Amount.  In no event shall
Smith’s liability to the Buyer Indemnified Parties under Section 7.1(b)(1)
exceed the Ceiling Amount (other than with respect to breaches of
representations and warranties contained in Sections 4.1, 4.2, 4.3, 4.6, 4.8,
4.14(d), 4.15, 4.26 and 4.30 as to which the Ceiling Amount shall not apply).

Section 7.2  Buyer’s Indemnity Obligations.  Buyer
shall indemnify each Seller Indemnified Party against, and hold each Seller
Indemnified Party harmless from and against, any and all Indemnified Amounts
that arise from, are based on or relate or otherwise are attributable to (a)
any error, inaccuracy, breach or misrepresentation in any of the
representations and warranties made by or on behalf of Buyer or the Partnership
in this Agreement, (b) any violation or breach by Buyer or the Partnership of
or default by Buyer or the Partnership under the terms of this Agreement,
except to the extent such Indemnified Amount relates to a matter for which
indemnification would be provided under Sections 7.1(a) or (b), or (c) any
claim by any Person for brokerage or finder’s fees or commissions or similar
payments based on any agreement or understanding alleged to have been made by
any such Person with Buyer or the Partnership (or any Person acting on its
behalf) in connection with any of the transactions contemplated by this
Agreement.  The failure of Buyer to cure,
remediate or otherwise repair any condition or circumstance existing at the
Closing or caused by Seller Party shall not be deemed an “omission” for
purposes hereof.  Seller Party shall be
entitled to recover its reasonable and necessary attorneys’ fees and litigation
expenses incurred in connection with successful enforcement of their rights
under this Section 7.2.  Notwithstanding
the foregoing, Buyer shall not be required to indemnify or hold harmless the
Seller Indemnified Parties on account of any Indemnified Amounts arising under
Section 7.2(a) unless the aggregate liability of Buyer in respect of all
Indemnified Amounts exceeds the Threshold Amount and then only for the amount
in excess of the Threshold Amount.  In no
event shall the Buyer’s aggregate liability to the Seller Indemnified Parties
under this Section 7.2(a) exceed the Ceiling Amount (other than with respect to
breaches of representations and warranties contained in Sections 5.1 and 5.7 as
to which the Ceiling Amount shall not apply).

 

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Section 7.3  Survival.  All the provisions of
this Agreement shall survive the Closing, notwithstanding any investigation at
any time made by or on behalf of any party hereto, provided that the
representations and warranties set forth in this Agreement and in any
certificate delivered in connection herewith with respect to any of those
representations and warranties shall terminate and expire on the third
anniversary of the Closing Date, except (a) the representations and warranties
of Seller Parties set forth in Section 3.1, 3.2, 3.3 and 3.6 shall survive
forever, (b) the representations and warranties of the Seller Parties set
forth in Sections 4.7, 4.19, 4.20, 4.21, 4.22 and 4.26 shall survive until the
expiration of the applicable statutes of limitations (including all periods of
extension and tolling) and (c) the representations and warranties of the Seller
Parties set forth in Sections 4.1, 4.2, 4.3, 4.8, and 4.14(d) shall
survive forever.  After a representation
and warranty has terminated and expired, no indemnification shall or may be
sought pursuant to this Article VII on the basis of that representation and
warranty by any Person who would have been entitled pursuant to this Article
VII to indemnification on the basis of that representation and warranty prior
to its termination and expiration, provided that in the case of each
representation and warranty that shall terminate and expire as provided in this
Section 7.3, no claim presented in writing for indemnification pursuant to this
Article VII on the basis of that representation and warranty prior to its
termination and expiration shall be affected in any way by that termination and
expiration.  The indemnification
obligations under this Article VII or elsewhere in this Agreement shall apply
regardless of whether any suit or action results solely or in part from the
active, passive or concurrent negligence or strict liability of the Indemnified
Party.  The covenants and agreements
entered into pursuant to this Agreement to be performed after the Closing shall
survive the Closing.

Section 7.4  Indemnification Procedures.  All
claims for indemnification under this Agreement shall be asserted and resolved
as follows:

(a)           Promptly after receipt by a Person entitled to
indemnity under Section 7.1 or 7.2 (an “Indemnified Party”) of notice of the
assertion of a claim against an Indemnified Party by a Person that is not a
party to this Agreement (a “Third-Party Claim), such Indemnified Party shall
give notice to the Person obligated to indemnify under such Section (an “Indemnifying
Party”) of the assertion of such Third-Party Claim, provided that the failure
to notify the Indemnifying Party will not relieve the Indemnifying Party of any
liability that it may have to any Indemnified Party, except to the extent that
the Indemnifying Party demonstrates that the defense of such Third-Party Claim
is prejudiced by the Indemnified Party’s failure to give such notice.

If
an Indemnified Party gives notice to the Indemnifying Party pursuant to the
preceding paragraph of the assertion of a Third-Party Claim, the Indemnifying
Party shall be entitled to participate in the defense of such Third-Party Claim
and, to the extent that it wishes (unless (i) the Indemnifying Party is also a
Person against whom the Third-Party Claim is made and the Indemnified Party
determines in good faith that joint representation would be inappropriate or
(ii) the Indemnifying Party fails to provide reasonable assurance to the
Indemnified Party of its financial capacity to defend such Third-Party Claim
and provide indemnification with respect to such Third-Party Claim), to assume
the defense of such Third-Party Claim with counsel reasonably satisfactory to
the Indemnified Party.  After notice from
the Indemnifying Party the Indemnified Party of its election to assume the
defense of such Third-Party Claim, the Indemnifying Party shall not, so long as
it diligently conducts such defense, be 

 

 45
 

liable to the
Indemnified Party under this Article VII for any fees of other counsel or any
other expenses with respect to the defense of such Third-Party Claim, in each
case subsequently incurred by the Indemnified Party in connection with the
defense of such Third-Party Claim, other than reasonable costs of
investigation.  If the Indemnifying Party
assumes the defense of a Third-Party Claim, (i) such assumption will
conclusively establish for purposes of this Agreement that the claims made in
that Third-Party Claim are within the scope of and subject to indemnification,
and (ii) no compromise or settlement of such Third-Party Claims may be effected
by the Indemnifying Party without the Indemnified Party’s consent (which shall
not be unreasonably withheld) unless (A) there is no finding or admission of
any violation of Law or any violation of the rights of any Person; (B) the sole
relief provided is monetary damages that are paid in full by the Indemnifying
Party; and (C) the Indemnified Party shall have no liability with respect to
any compromise or settlement of such Third-Party Claims effected without its
consent.  If notice is given to an
Indemnifying Party of the assertion of any Third-Party Claim and the
Indemnifying Party does not, within twenty days after the Indemnified Party’s
notice is given, give notice to the Indemnified Party of its election to assume
the defense of such Third-Party Claim, the Indemnifying Party will be bound by
any determination made in such Third-Party Claim or any compromise or settlement
effected by the Indemnified Party.

Notwithstanding
the foregoing, if an Indemnified Party determines in good faith that there is a
reasonable probability that a Third-Party Claim may adversely affect it or its
Affiliates other than as a result of monetary damages for which it would be
entitled to indemnification under this Agreement, the Indemnified Party may, by
notice to the Indemnifying Party, assume the exclusive right to defend,
compromise or settle such Third-Party Claim, but the Indemnifying Party will
not be bound by any determination of any Third-Party Claim so defended for the
purposes of this Agreement or any compromise or settlement effected without its
consent (which may not be unreasonably withheld).

Notwithstanding
the provisions of Section 10.10, Seller Party hereby consents to the
nonexclusive jurisdiction of any court in which a proceeding in respect of a
Third-Party Claim is brought against any Buyer Indemnified Party for purposes
of any claim that a Buyer Indemnified Party may have under this Agreement with
respect to such proceeding or the matters alleged therein and agree that
process may be served on Seller Party with respect to such a claim anywhere in
the world.

With
respect to any Third-Party Claim subject to indemnification under this Article
VII: (i) both the Indemnified Party and the Indemnifying Party, as the case may
be, shall keep the other Person fully informed of the status of such
Third-Party Claim and any related proceedings at all stages thereof where such
Person is not represented by its own counsel, and (ii) the parties agree (each
at its own expense) to render to each other such assistance as they may
reasonably require of each other and to cooperate in good faith with each other
in order to ensure the proper and adequate defense of any Third-Party Claim.

With
respect to any Third-Party Claim subject to indemnification under this Article
VII, the parties agree to cooperate in such a manner as to preserve in full (to
the extent possible) the confidentiality of all Confidential Information (as
defined below) and the attorney-client and work-product privileges.  In connection therewith, each party agrees
that: (i) it will use its best efforts, in respect of any Third-Party Claim in
which it has assumed or participated in the 

 

 46
 

defense, to avoid
production of Confidential Information (consistent with applicable law and
rules of procedure), and (ii) all communications between any party hereto and
counsel responsible for or participating in the defense of any Third-Party Claim
shall, to the extent possible, be made so as to preserve any applicable
attorney-client or work-product privilege.

(b)           If any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the “Indemnity Notice”) describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim to
the extent feasible (which estimate shall not be conclusive of the final amount
of such claim) and the basis of the Indemnified Party’s request for
indemnification under this Agreement.  If
the Indemnifying Party does not notify the Indemnified Party within twenty days
from its receipt of the Indemnity Notice that the Indemnifying Party disputes
such claim, the claim specified by the Indemnified Party in the Indemnity
Notice shall be deemed a liability of the Indemnifying Party hereunder.

Section 7.5  General.  The indemnification
provisions in this Article VII shall be enforceable regardless of whether the
liability is based upon past, present or future acts, claims or Laws (including
any past, present or future bulk sales law, Environmental Law, fraudulent
transfer act, occupational safety and health law or product liability,
securities or other Law) and regardless of whether any Person (including the
Person from whom indemnification is sought) alleges or proves the sole,
concurrent, contributory or comparative negligence of the Person seeking
indemnification or the sole or concurrent strict liability imposed upon the
Person seeking indemnification.  The
rights of the parties to indemnification under this Article VII shall not
be limited due to any investigations heretofore or hereafter made by such
parties or their representatives, regardless of negligence in the conduct of
any such investigations.  All
representations, warranties, covenants and agreements made by the parties shall
not be deemed merged into any instruments or agreements delivered in connection
with the Closing or otherwise in connection with the transactions contemplated
hereby.

Section 7.6  Exclusivity.  The
indemnification rights in Section 6.10 and this Article VII shall be the
exclusive remedies of the Indemnified Parties for any Indemnified Amounts
arising out of or resulting from any breach of any of the representations and
warranties in this Agreement (other than any claim for Indemnified Amounts
arising out of or based on fraud or willful misconduct).

ARTICLE VIII

CONDITIONS TO CLOSING

Section 8.1  Conditions to Obligations of Buyer.  
The obligations of Buyer to consummate the transactions contemplated herein are
subject, at the option of Buyer, to satisfaction of the following conditions:

(a)           Compliance.  Smith Maritime, Go Big and the Seller Parties
shall have complied with their covenants and agreements contained herein, and
the representations and warranties contained in Articles III and IV hereof
shall be true and correct on the date hereof and true and correct in all
material respects as of the Closing Date (except those representations 

 

 47
 

and warranties qualified by materiality, which shall be true and
correct in all respects as so qualified).

(b)           Certificate.  Buyer shall have received a certificate,
dated as of the Closing Date, of an executive officer or trustee, as the case
may be, of each of Smith Maritime and Go Big and of each Seller Party
certifying as to the matters specified in Sections 8.1(a) hereof.

(c)           Seller
Parties’ Resolutions/Certifications. 
Each Seller Party shall deliver to Buyer a certification or certified
copy of resolutions, as the case may be, duly adopted by the trustees or
members, as applicable, of such Seller Party and authorizing and approving the
execution and delivery of this Agreement, including the exhibits and schedules
hereto, and the consummation of the transactions contemplated herein.

(d)           Assignment
of Equity Interests.  The
Seller Parties shall each deliver Assignments of Equity Interests assigning to
Buyer all of their rights, title and interests in their respective Equity
Interests in Smith Maritime and Go Big in the form attached as Exhibit A
duly executed by the applicable Seller Party.

(e)           HSR Act.  Any waiting period applicable to the
consummation of the transactions contemplated by this Agreement under the HSR
Act shall have expired or been terminated.

(f)            Delivery of
Financial Statements.  Buyer
shall have received the financial statements required by Section 6.14 at least
thirty business days prior to the Closing Date.

(g)           No Material
Adverse Change.  No material
adverse change in the value of the Equity Interests or in the business or in
the financial condition of any of the Subject Companies shall have occurred
since the date hereof, and no event shall have occurred since the date hereof
which could be expected to lead to or cause such a material adverse change;
provided, however, that (i) changes resulting from conditions affecting the
coastwise maritime petroleum transportation industry in general and
(ii) changes in the economy in general shall, in each case, be excluded
from the determination to the extent that they do not have a disproportionate
effect on any of the Subject Companies as compared to other entities engaged in
the coastwise maritime petroleum transportation industry in Hawaii and along
the West Coast.

(h)           Certified
Abstracts.  The Subject
Companies and the Seller Parties shall deliver certified abstracts of title for
each of the Vessels issued by the U.S. Coast Guard at the National Vessel
Documentation Center dated no earlier than seven days prior to the date of the
Closing (i) showing that one or more of the Subject Companies is the owner of
the Owned Vessels and that such Owned Vessels are free and clear of all Liens
except Permitted Liens and (ii) identifying the owner of the Bareboat Chartered
Vessels and that such Bareboat Chartered Vessels are free and clear of all
Liens except Permitted Liens.

(i)            Confirmation
of Class Certificates.  The
Subject Companies and the Seller Parties shall deliver confirmation of class
certificates for each of the Vessels where 

 

 48
 

applicable (free from recommendations) issued by the American Bureau of
Shipping issued no earlier than seven days prior to the date of the Closing.

(j)            Orders, Etc.  No action, suit or proceeding shall have been
commenced or shall be pending or threatened, and no statute, rule, regulation
or order shall have been enacted, promulgated, issued or deemed applicable to
the transactions contemplated by this Agreement, by any Governmental Body or court
that reasonably may be expected to (i) prohibit Buyer’s ownership or operation
of all or a material portion of the assets of any of the Subject Companies, or
compel Buyer to dispose of or hold separate all or a material portion of the
business or assets of either Buyer or any of the Subject Companies, as a result
of the transactions contemplated by this Agreement or (ii) prohibit
consummation of the transactions contemplated by this Agreement.

(k)           Removal of
Liens.  The Subject Companies
and the Seller Parties shall have caused any and all Liens on the assets of any
of the Subject Companies except Permitted Liens to be released and shall have
provided Buyer with documentary evidence to such effect.

(l)            Resignations.  Each director and officer of each of the
Subject Companies shall deliver a notice of resignation in the form previously
approved by Buyer.

(m)          Employee
Releases.  Each employee to
whom a special bonus has been paid or promised, orally or in writing, shall
deliver to the appropriate Subject Company and Buyer an executed release in
substantially the form attached as Exhibit B hereto.

(n)           Due
Diligence.  Buyer shall have
received surveys of the Vessels from W.H. Paddie & Associates, Inc. and the
condition of such Vessels as reflected in such surveys shall be reasonably
satisfactory to Buyer.

(o)           Simultaneous
Closing of Acquisition of Sirius Maritime, LLC.  The transactions contemplated by that certain
Agreement and Plan of Merger dated as of June 25, 2007, by and among Sea
Transportation LLC, the Partnership, Sirius Maritime, LLC and the other parties
thereto, shall close simultaneously with the closing of the transactions
contemplated by this Agreement.

(p)           Conversion
of Smith Subsidiaries.  Each
Smith Subsidiary shall have converted from a corporation organized under the
laws of the State of Hawaii into a limited liability company duly organized
under the laws of the State of Hawaii.

(q)           Transfer of
Shares.  The Gordon Trust
shall have distributed all of the Shares held by the Gordon Trust to Smith.

(r)            Other Documents.  The Subject Companies and the Seller Parties
shall deliver to Buyer such other documents, instruments and certificates as
may be reasonably requested by Buyer, including, without limitation, the
original company book, minute books and seal (if any) of the appropriate
Subject Company.

(s)           Consents.  All consents and approvals required in
connection with the execution, delivery and performance of this Agreement shall
have been obtained.

 

 49
 

Section 8.2  Conditions to Obligations of Smith Maritime, Go Big and the Seller
Parties.  The obligations of the Smith Maritime, Go Big
and the Seller Parties to consummate the transactions contemplated herein are
subject, at the option of Smith Maritime, Go Big and the Seller Parties, to
satisfaction of the following conditions:

(a)           Compliance.  Buyer shall have complied with its covenants
and agreements contained herein, and the representations and warranties
contained in Article V hereof shall be true and correct on the date hereof and
true and correct in all material respects as of the Closing Date (except those
representations and warranties qualified by materiality, which shall be true
and correct in all respects as so qualified).

(b)           Officer’s Certificate.  The Seller Parties shall have received a
certificate, dated as of the Closing Date, of an executive officer of Buyer
certifying as to the matters specified in Section 8.2(a) hereof.

(c)           Buyer and Partnership
Resolutions.  Buyer and the
Partnership shall deliver to Smith Maritime, Go Big and the Seller Parties a
certified copy of resolutions duly adopted by the board of directors of the
general partner of each of Buyer and the Partnership authorizing and approving
the execution and delivery of this Agreement, including the exhibits and
schedules hereto, and the consummation of the transactions contemplated herein.

(d)           HSR Act.  Any waiting period applicable to the
consummation of the transactions contemplated by this Agreement under the HSR
Act shall have expired or been terminated.

(e)           Orders, Etc.  No action, suit or proceeding shall have been
commenced or shall be pending or threatened, and no statute, rule, regulation
or order shall have been enacted, promulgated, issued or deemed applicable to
the transactions contemplated by this Agreement, by any Governmental Body or
court that reasonably may be expected to prohibit consummation of the
transactions contemplated by this Agreement.

(f)            Simultaneous Closing of
Acquisition of Sirius Maritime, LLC. 
The transactions contemplated by that certain Agreement and Plan of
Merger dated as of June 25, 2007, by and among Sea Coast Transportation LLC,
the Partnership, Sirius Maritime, LLC and the other parties thereto, shall
close simultaneously with the closing of the transactions contemplated by this
Agreement.

(g)           Release of Guarantees.  Each of the Seller Parties shall have been
released from any personal guarantee which may have been entered into by a
Seller Party in connection with the Loan Obligations.

(h)           Other Documents.  Buyer shall deliver to the Seller Parties
such other documents, instruments and certificates as may be reasonably
requested by the Seller Parties.

(i)            Consents.  All consents and approvals required in
connection with the execution, delivery and performance of this Agreement shall
have been obtained.

 

 50

(j)            Merger Consideration.  Buyer shall have delivered the Merger
Consideration pursuant to Section 2.8.

ARTICLE IX

TERMINATION

Section 9.1  Grounds for Termination.  This
Agreement may be terminated at any time prior to the Closing Date:

(a)           By the mutual written agreement of Buyer and the
Seller Parties;

(b)           By Buyer if any of the conditions set forth in
Section 8.1 hereof shall have become incapable of fulfillment and shall not
have been waived by Buyer;

(c)           By the Seller Parties if any of the conditions set
forth in Section 8.2 hereof shall have become incapable of fulfillment and
shall not have been waived by the Seller Parties;

(d)           By either Buyer, on the one hand, or the Seller
Parties, on the other hand, by written notice thereof to the other, if the transactions
contemplated hereby shall not have been consummated on or before October 31,
2007, or such other date, if any, as Buyer and the Seller Parties shall agree
upon in writing; or

(e)           By Buyer, on the one hand, or the Seller Parties,
on the other hand, if the consummation of the transactions contemplated hereby
would violate any nonappealable final order, decree or judgment of any court or
Governmental Body having competent jurisdiction enjoining, restraining or
otherwise preventing, or awarding substantial damages in connection with, or
imposing a material adverse condition upon, the consummation of this Agreement
or the transactions contemplated hereby;

provided, however, that a party
shall not be allowed to exercise any right of termination pursuant to this
Section 9.1 if the event giving rise to such termination right shall be due to
the negligent or willful failure of the party seeking to terminate this
Agreement to perform or observe in any material respect any of the covenants or
agreements set forth herein to be performed or observed by such party.

Section 9.2  Effect of Termination.  The
following provisions shall apply in the event of a termination of this
Agreement:

(a)           Each party’s right of termination pursuant to
Section 9.1 hereof is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of such right of termination will not
be an election of remedies.  If this
Agreement is terminated pursuant to Section 9.1, all obligations of the parties
under this Agreement will terminate except as set forth in Section 9.2(b)
hereof; provided, however, that (i) if this Agreement is terminated by Buyer
because of the breach of this Agreement by Smith Maritime, Go Big or the Seller
Parties or because one or more of the conditions to Buyer’s obligations under
this Agreement is not satisfied as a result of the failure of Smith Maritime,
Go Big or any Seller Party to comply with its obligations under this Agreement,
Buyer’s right to pursue all legal remedies will 

 

 51
 

survive such
termination unimpaired, and (ii) if this Agreement is terminated by the Seller
Parties because of the breach of this Agreement by Buyer or because one or more
of the conditions to the Seller Parties’ obligations under this Agreement is
not satisfied as a result of Buyer’s failure to comply with its obligations
under this Agreement, the Seller Parties’ right to pursue all legal remedies
will survive such termination unimpaired.

(b)           The parties hereto hereby agree that the provisions
of Sections 9.2, 10.3, 10.4, 10.5, 10.9 and 10.10 hereof shall survive any
termination of this Agreement.

ARTICLE X

GENERAL PROVISIONS

Section 10.1  Release.  Subject to the
limitations set forth in the last sentence in this Section 10.1, each Seller
Party, for and on behalf of itself and its controlled Affiliates (the “Releasing
Parties”) hereby unconditionally and irrevocably release and forever discharge,
effective as of and forever after the Closing Date, to the fullest extent
permitted by applicable law, each of the Subject Companies and all past,
present and future Buyer Indemnified Parties (collectively, the “Released
Parties”) from any and all debts, liabilities, obligations, claims, demands,
actions or causes of action, suits, judgments or controversies of any kind
whatsoever (collectively, “Pre-Acquisition Claims”) against any of the Subject
Companies that arise out of or are based on any agreement or understanding or
act or failure to act (including any act or
failure to act that constitutes ordinary or gross negligence or reckless or
willful, wanton misconduct), misrepresentation, omission,
transaction, fact, event or other matter occurring contemporaneously with or
prior to the Closing Date or on account of or arising out of any matter, cause
or event occurring contemporaneously with or prior to the Closing Date (whether
based on any governmental requirement or right of action, at law or in equity
or otherwise, foreseen or unforeseen, matured or unmatured, known or unknown,
accrued or not accrued) (collectively, “Pre-Acquisition Matters”), including
without limitation: (a) claims by a Releasing Party with respect to repayment
of loans or indebtedness; (b) any rights, titles and interests in, to or under
any agreements, arrangements or understandings to which a Releasing Party is a
party; and (c) claims by a Releasing Party with respect to dividends or
violation of preemptive rights.  Each
Releasing Party further agrees not to file or bring any litigation before any
Governmental Authority on the basis of or respecting any Pre-Acquisition Claim
concerning any Pre-Acquisition Matter against any Released Party.  Each Releasing Party (a) acknowledges that
such Releasing Party fully comprehends and understands all the terms of this Section
10.1 and their legal effects and (b) expressly represents and warrants that (i)
such Releasing Party is competent to effect the release made in this Section
10.1 knowingly and voluntarily and without reliance on any statement or
representation of any Released Party or its Representatives and (ii) such
Releasing Party had the opportunity to consult with an attorney of its choice
regarding this Section 10.1.  This
Section 10.1 shall not affect the rights of any Releasing Party under this
Agreement.

Section 10.2  Arbitration.

(a)           Disputes Covered.  Except for matters arising under Section 6.5
and Section 10.3, any dispute, controversy, difference or claim arising out of
or in connection with indemnification of an Buyer Indemnified Party or a Seller
Indemnified Party pursuant to this 

 

 52
 

Agreement, or
the breach, termination or validity thereof, which cannot be amicably resolved
by the parties within thirty days after receipt by a party of written notice
from any other party that such a dispute, controversy, difference or claim
exists, shall be settled by final and binding arbitration.

(b)           Forum.  The forum for the arbitration shall be New
York, New York.

(c)           Law.  The governing law for the arbitration shall
be the law of the State of New York, without reference to its conflicts of laws
provisions.

(d)           Selection.  The arbitration shall be conducted by three
arbitrators, unless the parties are able to agree on a single arbitrator.  In the absence of such agreement within ten
days after the initiation of an arbitration proceeding, Seller Parties shall
select one arbitrator and Buyer shall select one arbitrator, and those two
arbitrators shall then select, within ten days, a third arbitrator.  If those two arbitrators are unable to select
a third arbitrator within such ten-day period, a third arbitrator shall be
appointed by the commercial panel of the American Arbitration Association.  The decision in writing of at least two of
the three arbitrators shall be final and binding upon the parties.  All arbitrators shall be residents of the
United States of America.

(e)           Administration.  The arbitration shall be administered by the
American Arbitration Association.

(f)            Rules.  The rules of arbitration shall be the
Commercial Arbitration Rules of the American Arbitration Association (the “Commercial
Arbitration Rules”), as modified by any other instructions that the parties may
agree upon at the time, except that each party shall have the right to conduct
discovery in any manner and to the extent authorized by the Federal Rules of
Civil Procedure as interpreted by the federal courts in New York.  If there is any conflict between those Rules
and the provisions of this section, the provisions of this section shall
prevail.

(g)           Substantive Law.  The arbitrators shall be bound by and shall
strictly enforce the terms of this Agreement and may not limit, expand or
otherwise modify its terms.  The
arbitrators shall make a good faith effort to apply substantive applicable law,
but an arbitration decision shall not be subject to review because of errors of
law.  The arbitrators shall be bound to
honor claims of privilege or work-product doctrine recognized at law, but the
arbitrators shall have the discretion to determine whether any such claim of
privilege or work product doctrine applies.

(h)           Decision.  The arbitrators’ decision shall provide a
reasoned basis for the resolutions of each dispute and for any award.  The arbitrators shall not have power to award
damages in connection with any dispute in excess of actual compensatory damages
and shall not multiply actual damages or award consequential or punitive
damages or award any other damages that are excluded under the provisions of
Article VII of this Agreement.

(i)            Expenses.  All costs of arbitration and enforcement of
the arbitration award, including reasonable attorneys’ fees and court costs,
costs of expert witnesses, transportation, lodging and meal costs of the
parties and witnesses, costs of transcript 

 

 53
 

preparation
and other reasonable and necessary direct and incidental costs shall be
apportioned by the arbitrator(s) selected pursuant to Section 10.2(d) hereof
with a view to allocating costs to the party that does not prevail in the
arbitration.

(j)            Payment of Arbitration
Award.  The arbitration award
shall be made and shall be payable free of any Tax or any other deduction. The
arbitration award shall include interest, at a rate determined as appropriate
by the arbitrators, as of the date of any breach or other violation of this
Agreement to the date when the arbitration award is paid in full.

(k)           Enforcement.  The parties further agree that the arbitration
award and any judgment thereon, if unsatisfied, may be entered in and shall be
enforceable by the courts of any nation having jurisdiction over the person or
property of the party against whom the arbitration award has been rendered.

(l)            Specific Performance;
Enforcement of Arbitration Award. 
In the event of any breach by a party of the terms of this Agreement
which would cause any nonbreaching party to be irreparably harmed or for which
such nonbreaching party could not be made whole by monetary damages, then in
such circumstances such nonbreaching party, in addition to any other remedy to
which it may be entitled at law or in equity, shall be entitled to compel
specific performance of this Agreement in any action instituted pursuant to
this Section 10.2 and in any action instituted in any court of applicable
jurisdiction to enforce any interim or final arbitration award rendered
pursuant to this Section 10.2.

(m)          Waiver of Jury Trial.  EACH PARTY EXPRESSLY WAIVES ITS RIGHT TO
TRIAL BY JURY IN ANY SUIT OR PROCEEDING RELATING TO OR ARISING FROM THIS
AGREEMENT OR THE MATTERS CONTEMPLATED HEREBY. 
EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER THIS AGREEMENT AND EACH PARTY REPRESENTS THAT IT IS KNOWINGLY AND
VOLUNTARILY WAIVING ITS JURY TRIAL RIGHT AFTER CONSULTATION WITH LEGAL COUNSEL.

Section 10.3  Confidentiality.

(a)           Each Seller Party acknowledges that it has or may
have had in the past, currently has and in the future may have access to
Confidential Information (as defined below) of the Subject Companies, Buyer and
the Partnership.  During the period prior
to Closing, the parties agree to abide by the confidentiality provisions in
paragraph 10 of the letter of intent dated January 25, 2007 between K-Sea
Operating Partnership L.P. and the Seller Parties (and that the Seller Parties
will be bound by such paragraph as if it applied to them mutatis
mutandis).  From and after the
Closing, each Seller Party agrees that it shall keep confidential all such
Confidential Information and, except with the specific prior written consent of
Buyer, shall not disclose such Confidential Information to any person except
(i) the directors, officers, employees, Affiliates, accountants (including
independent certified public accountants), advisors, attorneys, consultants or
other agents (collectively, “Representatives”) of Buyer and (ii) its own
Representatives, provided that those Representatives agree to the
confidentiality provisions of this Section 10.3.  “Confidential Information” means, with
respect to any Person, all trade secrets, know how and other confidential,
nonpublic and/or proprietary information of 

 

 54
 

that Person,
including any such information derived from reports, investigations, research, studies,
work in progress, codes, marketing, sales or service programs, customer lists,
records relating to past service provided to customers, capital expenditure
projects, cost summaries, equipment or production system designs or drawings,
pricing formulae, contract analyses, financial information, projections,
present and future business plans, agreements with vendors, joint venture
agreements, confidential filings with any Governmental Body and all other
confidential, nonpublic concepts, methods, techniques or processes of doing
business, ideas, materials or information prepared or performed for, by or on
behalf of that Person; provided, however, that Confidential Information shall
not include such information as (A) becomes known to the public generally
through no fault of such Seller Party or (B) is required to be disclosed by law
or the order of any Governmental Body under color of law, provided, that prior
to disclosing any information pursuant to this clause (B), such Seller Party
shall, if possible, give prior written notice thereof to Buyer and provide
Buyer with the opportunity to contest that disclosure.

(b)           Because of (i) the difficulty of measuring economic
losses as a result of the breach of the covenants in Section 10.3(a) and (ii)
the immediate and irreparable damage that would be caused to Buyer for which it
would have no other adequate remedy, in the event of a breach or threatened
breach by Seller Parties of the provisions of this Section 10.3 with respect to
any Confidential Information, Buyer shall be entitled to an injunction
restraining the Seller Parties from disclosing, in whole or in part, that
Confidential Information.  Nothing herein
shall be construed as prohibiting Buyer from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.

Section 10.4  Expenses.  Except as otherwise
provided in this Agreement, Buyer and the Seller Parties shall pay their own
respective fees and expenses incurred in connection with the negotiation,
preparation and execution of this Agreement (including the exhibits and
schedules hereto) and the consummation of the transactions contemplated herein
and therein, including all legal, accounting, tax, brokers’ and other advisors’
fees and expenses, it being understood
that such expenses shall be paid on behalf of the Seller Parties by Smith
Maritime at or prior to the Closing. 
Notwithstanding the foregoing, (1) each of Buyer, on the one-hand, and
the Seller Parties, on the other hand, shall pay one-half of the filing fee
under the HSR Act and (2) Buyer shall pay one-half of the cost incurred by the
Subject Companies for obtaining the financial statements contemplated by
Section 6.14, provided that if this Agreement is terminated and any of the
Subject Companies or the Seller Parties engage in activity described in Section
6.1 within two years from the date of this Agreement, then the Seller Parties
shall reimburse Buyer for any and all of such costs; provided further that the
foregoing proviso shall not apply to any merger, consolidation, share exchange
or other business combination among Smith Maritime (including one or more of
Smith Maritime’s wholly owned subsidiaries as of the date of this Agreement)
and Go Big.

Section 10.5  Entire Agreement.  This
Agreement, including all schedules and exhibits hereto, constitutes the entire
agreement of the parties with respect to the subject matter hereof and
constitutes (along with the schedules, exhibits, and other documents delivered
pursuant to this Agreement) a complete and exclusive statement of the terms of
the agreement between the parties with respect to its subject matter and there
are no terms, conditions, representations, warranties, or covenants other than
those contained in this Agreement (along 

 

 55
 

with the schedules, exhibits, and other
documents delivered pursuant to this Agreement).  This Agreement may not be modified, amended
or terminated except by a written instrument specifically referring to this
Agreement signed by all the parties hereto.

Section 10.6  No Reliance.  No promise or
inducement for this Agreement has been made to Buyer except as set forth herein
and in the schedules, exhibits and other documents delivered pursuant to this
Agreement.  This Agreement is executed by
Buyer freely and voluntarily, and without reliance on any statement,
representation, or warranty, whether written or oral, by any Seller Party, or
any of their officers, directors, accountants, attorneys or other agents or
representatives, except as set forth in this Agreement and the schedules,
exhibits and other documents delivered pursuant to this Agreement.

Section 10.7  Waivers and Consents.  All
waivers and consents given hereunder shall be in writing.  No waiver by any party hereto of any breach
or anticipated breach of any provision hereof by any other party shall be
deemed a waiver of any other contemporaneous, preceding or succeeding breach or
anticipated breach, whether or not similar. 
Except as provided in this Agreement, no action taken pursuant to this
Agreement, including any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance
with any representations, warranties, covenants or agreements contained in this
Agreement.

Section 10.8  Notices.  All notices and other
communications hereunder shall be in writing and shall be deemed to have been
received only if and when (a) personally delivered, (b) on the third day after
mailing, by United States mail, first class, postage prepaid or by certified
mail return receipt requested, addressed in each case as follows (or to such
other address as may be specified by like notice) or (c) received by facsimile
at the phone number listed below:

(a)           If to Buyer or the Partnership to:

K-Sea Transportation Partners L.P.

One Tower Center Boulevard, 17th Floor

East Brunswick, New Jersey 08816

Attn:  Timothy J. Casey

Fax:  (732) 565-3696

with a copy to:

Baker Botts L.L.P.

One Shell Plaza

910 Louisiana

Houston, Texas 77002

Attn:  Sean T. Wheeler

Fax:  (713) 229-7868

(b)           If to any of Smith Maritime or Go Big to:

 

 56
 

Smith Maritime, Ltd.

8440 North Mercer Way

Mercer Island, Washington 98404

Attn:  Gordon L.K. Smith

with a copy to:

Bauer Moynihan &
Johnson LLP

2101 Fourth Avenue, Suite 2400

Seattle, Washington 98121

Attn:       Gary M. Haugen

Fax:         (206) 905-3326

(c)           If to Smith or Gordon Trust to:

Gordon L. K. Smith

8440 North Mercer Way

Mercer Island, Washington 98404

with a
copy to:

Bauer Moynihan
& Johnson LLP

2101 Fourth Avenue, Suite 2400

Seattle, Washington 98121

Attn:       Gary M. Haugen

Fax:         (206) 905-3326

(d)           If to Barbara Trust to:

Barbara Smith SML Trust

Barbara Smith, Trustee

1021 Koloa Street

Honolulu, Hawaii 96816

Attn:  Barbara Smith

with a
copy to:

Bauer Moynihan
& Johnson LLP

2101 Fourth Avenue, Suite 2400

Seattle, Washington 98121

Attn:       Gary M. Haugen

Fax:         (206) 905-3326

Section 10.9  Assignments, Successors and No Third-Party Rights.  No
party may assign any of its rights or delegate any of its obligations under
this Agreement without the prior written consent of the other parties, except
that Buyer may assign any of its rights and

 

 57

delegate any of its obligations under this Agreement
to an Affiliate of Buyer and may collaterally assign its rights hereunder to
any financial institution providing financing in connection with the
transactions contemplated by this Agreement; provided that such assignment
shall not relieve Buyer of is obligations under this Agreement.  Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon and inure to the
benefit of the successors and permitted assigns of the parties.  Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy or claim under or with respect
to this Agreement or any provision of this Agreement, except such rights as
shall inure to a successor or permitted assignee pursuant to this
Section 10.8.

Section 10.10  Choice of Law.  This Agreement
shall be governed by the internal laws of the State of New York (without regard
to the choice of law provisions thereof).

Section 10.11  Jurisdiction and Venue.  Without
limiting the provisions of Section 7.5, Smith Maritime, Go Big, the Seller
Parties and Buyer hereby consent to personal jurisdiction in any action brought
with respect to this Agreement and the transactions contemplated hereunder in
any federal or state court in New York City, New York and agree that service of
process may be accomplished pursuant to Section 10.7 above.

Section 10.12  Construction; Section Headings; Table of Contents.  The
language used in this Agreement shall be deemed to be the language the parties
hereto have chosen to express their mutual intent, and no rule of strict
construction will be applied against any party hereto.  The section headings and any table of
contents contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.

Section 10.13  Severability.  Any term or
provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Agreement or affecting the validity
or enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction.  If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.

Section 10.14  Counterparts.  This Agreement
may be executed in any number of counterparts, each of which shall be deemed to
be an original and all of which together shall be deemed to be one and the same
instrument.

Section 10.15  Time of Essence.  With regard to
all dates and time periods set forth or referred to in this Agreement, time is
of the essence.

Section 10.16  Power of Attorney.  Each Seller
Party hereby irrevocably makes, constitutes and appoints Gordon L.K. Smith as
its representative (the “Seller Party Representative”) and its true and lawful
attorney-in-fact, with full power and authority, in the name and on behalf of
each Seller Party, to act on behalf of each of them in the absolute discretion
of the Seller Party Representative with respect to all matters arising out of
or in connection with this Agreement and, in general, to do all things and to
perform all acts, including 

 

 58
 

executing and delivering agreements
(including amendments to this Agreement), certificates, receipts, instructions
or other instruments contemplated by this Agreement or deemed advisable to
effectuate the transactions contemplated by this Agreement.  This power of attorney and all authority
conferred hereby shall be coupled with an interest and irrevocable and shall
not be terminated by any act of any Seller Party or by operation of law,
whether by the bankruptcy, dissolution, liquidation, death, disability or
incapacity of a Seller Party or by the occurrence of any other event or
events.  Each Seller Party hereby
consents to the taking of any and all actions and the making of any decisions
required or permitted to be taken or made by the Seller Party Representative
pursuant to this Section 10.15.  Each
Seller Party agrees that the Seller Party Representative shall have no
obligation or liability to any Person for any act or omission taken or omitted
by the Seller Party Representative in good faith hereunder, and the Seller
Parties shall indemnify and hold the Seller Party Representative harmless from
and against any and all loss, damage, expense or liability (including reasonable
counsel fees and expenses) which the Seller Party Representative may sustain as
a result of any such action or omission by the Seller Party Representative
hereunder.

 

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IN WITNESS WHEREOF, the parties
hereto have executed this Agreement on the date first above written.

	
  

  	
   

  	
   

  	
  K-SEA ACQUISITION1, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ TIMOTHY J. CASEY

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Timothy J. Casey

  
	
   

  	
   

  	
   

  	
  Title:

  	
  President/CEO

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  K-SEA TRANSPORTATION PARTNERS L.P.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  K-Sea General Partner L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  K-Sea General Partner GP LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/ TIMOTHY J. CASEY

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
  Timothy J. Casey

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
  President/CEO

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  SMITH MARITIME, LTD.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By: 

  	
  /s/ GORDON L.K. SMITH

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Gordon L.K. Smith

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  GO BIG CHARTERING, LLC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  235LX, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/ GORDON L.K. SMITH

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
          Gordon
  L.K. Smith

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
          Member

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/ GORDON L.K. SMITH

  
	
   

  	
   

  	
   

  	
  GORDON L.K. SMITH

  

 

 60
 

 

	
  

  	
   

  	
   

  	
  THE GORDON L.K. SMITH TRUST

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By: 

  	
  /s/ GORDON L.K. SMITH

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Gordon L.K. Smith 

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  BARBARA SMITH SML TRUST

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By: 

  	
  /s/ BARBARA SMITH

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Barbara Smith

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  235LX, LLC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By: 

  	
  /s/ GORDON L.K. SMITH

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Gordon L.K. Smith

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Member

  

 

 61Exhibit
10.2

Execution Version

AGREEMENT AND PLAN OF
MERGER

BY AND AMONG

SEA COAST TRANSPORTATION
LLC,

K-SEA TRANSPORTATION
PARTNERS L.P.,

SIRIUS MARITIME, LLC,

RCD MARITIME ENTERPRISES,
LLC,

SMITH MARITIME, LLC,

WS MARITIME PACIFIC, LLC

AND

THE OTHER PARTIES
SIGNATORY HERETO

DATED AS OF JUNE 25, 2007

 

TABLE
OF CONTENTS

 

	
  ARTICLE I DEFINITIONS

  	
   

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE II THE MERGER

  	
   

  	
  12

  
	
  Section 2.1

  	
   

  	
  The Merger

  	
   

  	
  12

  
	
  Section 2.2

  	
   

  	
  Effective Time

  	
   

  	
  12

  
	
  Section 2.3

  	
   

  	
  Closing

  	
   

  	
  12

  
	
  Section 2.4

  	
   

  	
  Effects of the Merger

  	
   

  	
  12

  
	
  Section 2.5

  	
   

  	
  Certificate of Formation; Limited Liability Company
  Agreement

  	
   

  	
  12

  
	
  Section 2.6

  	
   

  	
  Managers

  	
   

  	
  13

  
	
  Section 2.7

  	
   

  	
  Officers

  	
   

  	
  13

  
	
  Section 2.8

  	
   

  	
  Conversion of Membership Interests

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH
  SELLER AND ITS MEMBER

  	
   

  	
  14

  
	
  Section 3.1

  	
   

  	
  Limited Liability Company Status and Good Standing;
  Citizenship

  	
   

  	
  14

  
	
  Section 3.2

  	
   

  	
  Authorization

  	
   

  	
  14

  
	
  Section 3.3

  	
   

  	
  Capitalization; Title to Membership Interests

  	
   

  	
  15

  
	
  Section 3.4

  	
   

  	
  Non-Contravention

  	
   

  	
  15

  
	
  Section 3.5

  	
   

  	
  Validity

  	
   

  	
  16

  
	
  Section 3.6

  	
   

  	
  Broker Involvement

  	
   

  	
  16

  
	
  Section 3.7

  	
   

  	
  Litigation

  	
   

  	
  16

  
	
  Section 3.8

  	
   

  	
  Investment Representations

  	
   

  	
  17

  
	
  Section 3.9

  	
   

  	
  Disclosure

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SIRIUS
  AND THE SELLER PARTIES

  	
   

  	
  18

  
	
  Section 4.1

  	
   

  	
  Limited Liability Company Status and Good Standing;
  Citizenship

  	
   

  	
  19

  
	
  Section 4.2

  	
   

  	
  Authorization

  	
   

  	
  19

  
	
  Section 4.3

  	
   

  	
  Capitalization; Title to Membership Interests

  	
   

  	
  19

  
	
  Section 4.4

  	
   

  	
  Non-Contravention

  	
   

  	
  20

  
	
  Section 4.5

  	
   

  	
  Validity

  	
   

  	
  20

  
	
  Section 4.6

  	
   

  	
  Broker Involvement

  	
   

  	
  20

  
	
  Section 4.7

  	
   

  	
  Litigation

  	
   

  	
  21

  
	
  Section 4.8

  	
   

  	
  Title to Assets

  	
   

  	
  21

  
	
  Section 4.9

  	
   

  	
  Continuity Prior to the Closing Date

  	
   

  	
  21

  
	
  Section 4.10

  	
   

  	
  Contracts and Commitments

  	
   

  	
  22

  
	
  Section 4.11

  	
   

  	
  Trademarks, Trade Names and Intellectual Property

  	
   

  	
  23

  
	
  Section 4.12

  	
   

  	
  Financial Statements; Budget

  	
   

  	
  23

  
	
  Section 4.13

  	
   

  	
  Bank Relations; Powers of Attorney

  	
   

  	
  24

  
	
  Section 4.14

  	
   

  	
  Condition of Assets; Eligibility for Coastwise Trade

  	
   

  	
  25

  
	
  Section 4.15

  	
   

  	
  Absence of Undisclosed Liabilities

  	
   

  	
  26

  
	
  Section 4.16

  	
   

  	
  Real Estate

  	
   

  	
  26

  
	
  Section 4.17

  	
   

  	
  Accounts Receivable

  	
   

  	
  26

  
	
  Section 4.18

  	
   

  	
  Inventory

  	
   

  	
  26

  
	
  Section 4.19

  	
   

  	
  Employees and Related Matters

  	
   

  	
  27

  

 

 2
 

 

	
  Section 4.20

  	
   

  	
  Employee Benefits

  	
   

  	
  27

  
	
  Section 4.21

  	
   

  	
  Compliance With Law

  	
   

  	
  28

  
	
  Section 4.22

  	
   

  	
  Environmental

  	
   

  	
  29

  
	
  Section 4.23

  	
   

  	
  Insurance

  	
   

  	
  31

  
	
  Section 4.24

  	
   

  	
  Government Licenses and Permits

  	
   

  	
  31

  
	
  Section 4.25

  	
   

  	
  Responsible Carriers Plan

  	
   

  	
  31

  
	
  Section 4.26

  	
   

  	
  Taxes

  	
   

  	
  31

  
	
  Section 4.27

  	
   

  	
  No Material Adverse Change

  	
   

  	
  32

  
	
  Section 4.28

  	
   

  	
  Books and Records

  	
   

  	
  33

  
	
  Section 4.29

  	
   

  	
  Safety Reports

  	
   

  	
  33

  
	
  Section 4.30

  	
   

  	
  Transactions with Certain Persons

  	
   

  	
  33

  
	
  Section 4.31

  	
   

  	
  Closing Date Balance Sheet

  	
   

  	
  33

  
	
  Section 4.32

  	
   

  	
  Disclosure

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER
  AND THE PARTNERSHIP

  	
   

  	
  34

  
	
  Section 5.1

  	
   

  	
  Status and Good Standing

  	
   

  	
  34

  
	
  Section 5.2

  	
   

  	
  Authorization

  	
   

  	
  34

  
	
  Section 5.3

  	
   

  	
  Non-Contravention

  	
   

  	
  34

  
	
  Section 5.4

  	
   

  	
  Validity

  	
   

  	
  35

  
	
  Section 5.5

  	
   

  	
  Broker Involvement

  	
   

  	
  35

  
	
  Section 5.6

  	
   

  	
  Valid Issuance

  	
   

  	
  35

  
	
  Section 5.7

  	
   

  	
  Exchange Act Reports

  	
   

  	
  35

  
	
  Section 5.8

  	
   

  	
  Buyer’s Review

  	
   

  	
  35

  
	
  Section 5.9

  	
   

  	
  Citizenship

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI COVENANTS

  	
   

  	
  35

  
	
  Section 6.1

  	
   

  	
  Other Offers

  	
   

  	
  35

  
	
  Section 6.2

  	
   

  	
  Conduct of Business Pending Closing

  	
   

  	
  36

  
	
  Section 6.3

  	
   

  	
  Access

  	
   

  	
  36

  
	
  Section 6.4

  	
   

  	
  Termination of Guarantees and Settlement of
  Intercompany Amounts

  	
   

  	
  37

  
	
  Section 6.5

  	
   

  	
  Covenant Against Competition

  	
   

  	
  37

  
	
  Section 6.6

  	
   

  	
  Further Assurances

  	
   

  	
  38

  
	
  Section 6.7

  	
   

  	
  Governmental Filings

  	
   

  	
  38

  
	
  Section 6.8

  	
   

  	
  Consents

  	
   

  	
  38

  
	
  Section 6.9

  	
   

  	
  Public Announcements

  	
   

  	
  38

  
	
  Section 6.10

  	
   

  	
  Tax Matters

  	
   

  	
  38

  
	
  Section 6.11

  	
   

  	
  Closing Date Balance Sheet

  	
   

  	
  41

  
	
  Section 6.12

  	
   

  	
  Employees

  	
   

  	
  42

  
	
  Section 6.13

  	
   

  	
  Vehicle Purchase Option

  	
   

  	
  42

  
	
  Section 6.14

  	
   

  	
  Financial Statements

  	
   

  	
  42

  
	
  Section 6.15

  	
   

  	
  Notification

  	
   

  	
  43

  
	
  Section 6.16

  	
   

  	
  Insurance

  	
   

  	
  43

  
	
  Section 6.17

  	
   

  	
  Misdirected Payments

  	
   

  	
  43

  
	
  Section 6.18

  	
   

  	
  Restrictions on Transfer; Legends

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII INDEMNIFICATION

  	
   

  	
  45

  
	
  Section 7.1

  	
   

  	
  Seller Parties’ Indemnity Obligations

  	
   

  	
  45

  

 

 3
 

 

	
  Section 7.2

  	
   

  	
  Buyer’s Indemnity Obligations

  	
   

  	
  46

  
	
  Section 7.3

  	
   

  	
  Survival

  	
   

  	
  46

  
	
  Section 7.4

  	
   

  	
  Indemnification Procedures

  	
   

  	
  47

  
	
  Section 7.5

  	
   

  	
  General

  	
   

  	
  49

  
	
  Section 7.6

  	
   

  	
  Exclusivity

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII CONDITIONS TO CLOSING

  	
   

  	
  49

  
	
  Section 8.1

  	
   

  	
  Conditions to Obligations of Buyer

  	
   

  	
  49

  
	
  Section 8.2

  	
   

  	
  Conditions to Obligations of Sirius and the Seller
  Parties

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX TERMINATION

  	
   

  	
  53

  
	
  Section 9.1

  	
   

  	
  Grounds for Termination

  	
   

  	
  53

  
	
  Section 9.2

  	
   

  	
  Effect of Termination

  	
   

  	
  53

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE X GENERAL PROVISIONS

  	
   

  	
  54

  
	
  Section 10.1

  	
   

  	
  Release

  	
   

  	
  54

  
	
  Section 10.2

  	
   

  	
  Arbitration

  	
   

  	
  54

  
	
  Section 10.3

  	
   

  	
  Confidentiality

  	
   

  	
  56

  
	
  Section 10.4

  	
   

  	
  Expenses

  	
   

  	
  57

  
	
  Section 10.5

  	
   

  	
  Entire Agreement

  	
   

  	
  57

  
	
  Section 10.6

  	
   

  	
  No Reliance

  	
   

  	
  58

  
	
  Section 10.7

  	
   

  	
  Waivers and Consents

  	
   

  	
  58

  
	
  Section 10.8

  	
   

  	
  Notices

  	
   

  	
  58

  
	
  Section 10.9

  	
   

  	
  Assignments, Successors and No Third-Party Rights

  	
   

  	
  60

  
	
  Section 10.10

  	
   

  	
  Choice of Law

  	
   

  	
  60

  
	
  Section 10.11

  	
   

  	
  Jurisdiction and Venue

  	
   

  	
  60

  
	
  Section 10.12

  	
   

  	
  Construction; Section Headings; Table of Contents

  	
   

  	
  60

  
	
  Section 10.13

  	
   

  	
  Severability

  	
   

  	
  60

  
	
  Section 10.14

  	
   

  	
  Counterparts

  	
   

  	
  60

  
	
  Section 10.15

  	
   

  	
  Time of Essence

  	
   

  	
  61

  
	
  Section 10.16

  	
   

  	
  Power of Attorney

  	
   

  	
  61

  

 

	
  EXHIBITS

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Form of Employee Release

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  Form of Assignment of Membership Interest

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  Form of Employment Agreement

  	
   

  	
   

  
	
  Exhibit D

  	
   

  	
  Form of Registration Rights Agreement

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULES

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule 1.1

  	
   

  	
  Certain Permitted Liens

  	
   

  	
   

  
	
  Schedule 2.8

  	
   

  	
  Merger Consideration

  	
   

  	
   

  
	
  Schedule 3.2

  	
   

  	
  Authorization

  	
   

  	
   

  
	
  Schedule 3.3(a)

  	
   

  	
  Capitalization

  	
   

  	
   

  
	
  Schedule 3.3(b)

  	
   

  	
  Capitalization of Sellers

  	
   

  	
   

  
	
  Schedule 3.3(c)

  	
   

  	
  Subscriptions, Etc.

  	
   

  	
   

  
	
  Schedule 3.4

  	
   

  	
  Non-Contravention

  	
   

  	
   

  

 

 4
 

 

	
  Schedule 3.6

  	
   

  	
  Broker Involvement

  	
   

  	
   

  
	
  Schedule 3.8

  	
   

  	
  Accredited Investor

  	
   

  	
   

  
	
  Schedule 4.1

  	
   

  	
  Foreign Qualifications

  	
   

  	
   

  
	
  Schedule 4.2

  	
   

  	
  Authorization

  	
   

  	
   

  
	
  Schedule 4.3(a)

  	
   

  	
  Capitalization

  	
   

  	
   

  
	
  Schedule 4.3(b)

  	
   

  	
  Subscriptions, Etc.

  	
   

  	
   

  
	
  Schedule 4.4

  	
   

  	
  Non-Contravention

  	
   

  	
   

  
	
  Schedule 4.6

  	
   

  	
  Broker Involvement

  	
   

  	
   

  
	
  Schedule 4.7

  	
   

  	
  Litigation

  	
   

  	
   

  
	
  Schedule 4.8

  	
   

  	
  Title to Assets

  	
   

  	
   

  
	
  Schedule 4.9

  	
   

  	
  Continuity Prior to Closing Date

  	
   

  	
   

  
	
  Schedule 4.10

  	
   

  	
  Contracts and Commitments

  	
   

  	
   

  
	
  Schedule 4.11

  	
   

  	
  Trademarks, Trade Names and Intellectual Property

  	
   

  	
   

  
	
  Schedule 4.12(a)

  	
   

  	
  Unaudited Financial Statements

  	
   

  	
   

  
	
  Schedule 4.12(b)

  	
   

  	
  Audited Annual Financial Statements

  	
   

  	
   

  
	
  Schedule 4.12(c)

  	
   

  	
  Unaudited Interim Financial Statements

  	
   

  	
   

  
	
  Schedule 4.12(d)

  	
   

  	
  Budget

  	
   

  	
   

  
	
  Schedule 4.12(e)

  	
   

  	
  Liabilities

  	
   

  	
   

  
	
  Schedule 4.12(f)

  	
   

  	
  Intercompany Transactions

  	
   

  	
   

  
	
  Schedule 4.13

  	
   

  	
  Bank Relations

  	
   

  	
   

  
	
  Schedule 4.14(a)

  	
   

  	
  Material Assets

  	
   

  	
   

  
	
  Schedule
  4.14(b)(1)

  	
   

  	
  Owned Vessels

  	
   

  	
   

  
	
  Schedule
  4.14(b)(2)

  	
   

  	
  Bareboat Chartered Vessels

  	
   

  	
   

  
	
  Schedule
  4.14(b)(3)

  	
   

  	
  Other Vessels

  	
   

  	
   

  
	
  Schedule 4.14(c)

  	
   

  	
  Condition of Vessels

  	
   

  	
   

  
	
  Schedule 4.14(d)

  	
   

  	
  Vessel Documentation

  	
   

  	
   

  
	
  Schedule 4.14(e)

  	
   

  	
  CG-385 Certificates; Captain of Port Orders

  	
   

  	
   

  
	
  Schedule 4.15

  	
   

  	
  Undisclosed Liabilities

  	
   

  	
   

  
	
  Schedule 4.16

  	
   

  	
  Real Estate

  	
   

  	
   

  
	
  Schedule 4.18

  	
   

  	
  Inventory

  	
   

  	
   

  
	
  Schedule 4.19

  	
   

  	
  Employees

  	
   

  	
   

  
	
  Schedule 4.20

  	
   

  	
  Employee Benefits

  	
   

  	
   

  
	
  Schedule 4.22(a)

  	
   

  	
  Compliance with Environmental Laws

  	
   

  	
   

  
	
  Schedule 4.22(b)

  	
   

  	
  Environmental Permits

  	
   

  	
   

  
	
  Schedule 4.22(c)

  	
   

  	
  Hazardous Material

  	
   

  	
   

  
	
  Schedule 4.22(d)

  	
   

  	
  Notice of Environmental Violations; Remedial Actions

  	
   

  	
   

  
	
  Schedule 4.22(e)

  	
   

  	
  Changes in Law

  	
   

  	
   

  
	
  Schedule 4.22(f)

  	
   

  	
  Releases; Disposal of Hazardous Materials

  	
   

  	
   

  
	
  Schedule 4.22(g)

  	
   

  	
  Storage of Hazardous Materials

  	
   

  	
   

  
	
  Schedule 4.22(l)

  	
   

  	
  Remedial Action

  	
   

  	
   

  
	
  Schedule 4.22(m)

  	
   

  	
  Other Environmental Matters

  	
   

  	
   

  
	
  Schedule 4.23

  	
   

  	
  Insurance

  	
   

  	
   

  
	
  Schedule 4.24

  	
   

  	
  Governmental Licenses, Permits and Related Approvals

  	
   

  	
   

  
	
  Schedule 4.25

  	
   

  	
  Responsible Carriers Plan

  	
   

  	
   

  
	
  Schedule 4.26(b)

  	
   

  	
  Notice of Deficiency or Assessment

  	
   

  	
   

  
	
  Schedule 4.26(e)

  	
   

  	
  Federal Tax Basis and Liability

  	
   

  	
   

  

 

 5
 

 

	
  Schedule 4.29

  	
   

  	
  Safety Reports

  	
   

  	
   

  
	
  Schedule 4.30

  	
   

  	
  Transactions with Certain Persons

  	
   

  	
   

  
	
  Schedule 6.11

  	
   

  	
  GAAP Exceptions

  	
   

  	
   

  
	
  Schedule 6.12(a)

  	
   

  	
  Excepted Employees

  	
   

  	
   

  
	
  Schedule 6.13

  	
   

  	
  Vehicle Purchase Option

  	
   

  	
   

  

 

 6

 

AGREEMENT AND PLAN OF
MERGER

This Agreement and
Plan of Merger (“Agreement”), dated as of June 25, 2007, is by and among Sea
Coast Transportation LLC, a Delaware limited liability company (“Buyer”), K-Sea
Transportation Partners L.P., a Delaware limited partnership (the “Partnership”),
Sirius Maritime, LLC, a Washington limited liability company (“Sirius”), RCD
Maritime Enterprises, LLC, a Washington limited liability company (“RCD”),
Smith Maritime, LLC, a Washington limited liability company (“Smith LLC”), WS
Maritime Pacific, LLC, a Washington limited liability company (“WS Maritime”
and, together with RCD and Smith LLC, the “Sellers”), Robert C. Dorn, an
individual and sole member of RCD (“Dorn”), Gordon L. K. Smith, an individual
and sole member of Smith LLC (“Smith”), and Wayne A. Sundberg, an individual
and sole member of WS Maritime (“Sundberg” and, together with Dorn and Smith,
the “Members”).

RECITALS

WHEREAS, Sirius is
engaged in the maritime transportation of refined petroleum products and related
businesses;

WHEREAS, Sellers own all
of the issued and outstanding membership interests of Sirius (the “Membership
Interests”); and

WHEREAS, Buyer, Sirius,
Sellers and the Members have determined that it is in their respective best
long-term interests to effect a business combination in which Sirius will merge
with and into Buyer on the terms and subject to the conditions set forth in
this Agreement;

NOW, THEREFORE, in
consideration of the premises and the respective representations, warranties,
covenants and agreements stated herein, the parties agree as follows:

ARTICLE I

DEFINITIONS

Capitalized terms used in
this Agreement have the meanings specified in (a) the preamble, (b) the
recitals, (c) this Article I or (d) elsewhere in this Agreement, as the case
may be:

Accounts
Receivable means all accounts receivable of Sirius and all
other rights of Sirius to payment for goods sold or leased or for services
rendered, including, without limitation, those which are not evidenced by
instruments or chattel paper, whether or not they have been earned by
performance or have been written off or reserved against as a bad debt or
doubtful account in any financial statements, together with all instruments and
all documents of title representing any of the foregoing, all rights in any
merchandise or goods which any of the same represent, and all rights, title,
security and guaranties in favor of Sirius with respect to any of the
foregoing.

Affiliate,
with respect to any Person, means any Person that directly or indirectly
controls, is controlled by or is under common control with such Persons.

 

 7
 

 

ATB Construction
Costs means the excess, if any, of (1) the aggregate of all
financing charges, broker charges and construction costs that are supported by
written documentation and have been paid by Sirius to third-parties on or prior
to the Closing Date in connection with the 185,000 Barrel AT/B Pre-Contract
Work Order dated as of October 24, 2006, by and between Sirius and Bender
Shipbuilding & Repair Co., Inc., over (2) the amount borrowed by Sirius to
make such payments, including, without limitation, amounts borrowed under the
Business Loan Agreement.  The parties
acknowledge and agree that such amounts shall not include any overhead or similar
costs (including personnel expenses) of Sirius.

Business Loan
Agreement means the business loan agreement dated as of
August 5, 2004 between Bank of America, N.A. and Sirius, as amended by
that certain Amended and Restated Business Loan Agreement dated as of June 27,
2006 between Bank of America, N.A. and Sirius.

Buyer Indemnified
Party means Buyer and its Affiliates and each of their
respective officers, directors, employees, agents and counsel.

Ceiling Amount
means $10,000,000; provided that the Ceiling Amount with respect to the Seller
Parties’ breaches of representations and warranties contained in Section 4.22
shall be $20,000,000.

Code
means the Internal Revenue Code of 1986, as amended.

Common Units
means common units representing limited partner interests in the Partnership.

Environmental Laws
means any federal, state, local, foreign or international Law (including common
law), or other legal requirement, regulating or protecting the public and
employee health and safety (including in the workplace), regulating or
protecting the environment and natural resources or wildlife, prohibiting
Releases into any part of the workplace or the environment, or prohibiting
pollution or exposure to Hazardous Materials, including, but not limited to,
the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”)
(42 U.S.C. Sections 9602 et seq.), the Hazardous Materials Transportation Act
(49 U.S.C. Sections 1801 et seq.), the Resource Conservation and Recovery Act
(42 U.S.C. Sections 6901 et seq.), the Clean Water Act (33 U.S.C. Sections 1251
et seq.), the Clean Air Act (42 U.S.C. Sections 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. Sections 7401 et seq.), the Federal
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Sections 2014 et seq.),
the Occupational Safety and Health Act (“OSHA”) (29 U.S.C. Sections 651 et
seq.), and the Oil Pollution Act of 1990 (33 U.S.C. Sections 2701 et seq.) and
the regulations promulgated pursuant thereto.

ERISA
means the Employee Retirement Income Security Act of 1974, as amended.

ERISA Affiliate
means each entity which is or has been treated as a single employer with
Sellers for purposes of Section 414 of the Code or Section 4001(a)(14) of
ERISA.

 

 8
 

 

Governmental Body
means any (a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature, (b) federal, state, local, municipal, foreign, or
other government, (c) governmental or quasi-governmental authority of any
nature (including any governmental agency, branch, department, official, or
entity and any court or other tribunal), (d) multinational governmental
organization or body, or (e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory or taxing
authority or power of any nature.

HSR Act
means the Hart-Scott-Rodino Antitrust Improvements Act.

Hazardous Material
means any substance, material or waste which is regulated pursuant to any
Environmental Law, including, without limitation, (a) petroleum (including
crude oil or any fraction thereof) or petroleum products, polychlorinated
biphenyls, asbestos or asbestos-containing materials, lead or lead-based paints
or materials, toxic mold, and (b)  any
material or substance which is defined or regulated as a “hazardous waste,” “hazardous
material,” “hazardous substance,” “extremely hazardous waste,” “restricted
hazardous waste,” “contaminant,” “pollutant,” “toxic waste,” “toxic substance,”
“source material,” “spent nuclear material,” “byproduct material,” “high-level
radioactive waste,” “low-level radioactive waste,” “spent nuclear material” or “radiofrequency”
under any Environmental Law.

Indemnified
Amounts means any and all claims, losses, damages,
liabilities, judgments, fines, penalties, assessments and expenses (including,
without limitation, reasonable attorneys’ fees); provided, however, to the
extent an Indemnified Amount is compensated for by insurance for which the
Indemnified Party is or was loss payee or insured, the Indemnified Amount is
limited to the uninsured portion thereof as follows: (A) any amount which
Indemnifying Party is obligated to pay Indemnified Party under Article VII
shall be reduced by the amount of insurance proceeds actually received by
Indemnified Party (net of any expenses (but excluding: (i) increases in current
or future insurance premiums; (ii) in-house expenses incurred by Indemnified
Party in the ordinary course of business in obtaining such insurance proceeds;
and (iii) interest or other charges for use of funds advanced by Indemnified
Party related to the payment of claims under “pay-to-be-paid” provisions of
protection and indemnity policies, which funds Indemnified Parties shall
advance in the ordinary course) incurred by the Indemnified Party in obtaining
such insurance proceeds) with respect to the loss for which indemnity is sought
(but the Indemnifying Party shall not be entitled to delay payment of any
amounts in anticipation of receipt of insurance proceeds for more than 120 days
after the Indemnified Party’s submission of a claim to an insurance carrier for
payment to the extent such claim remains unpaid), and (B) if at any time after
such payment is made by Indemnifying Party to Indemnified Party hereunder, the
Indemnified Party should receive insurance proceeds with respect to the loss
for which such Indemnified Amount was previously paid hereunder, such party
shall reimburse Indemnifying Party the amount by which payment would have been
reduced had such insurance been received prior to such payment by Indemnifying
Party.  All parties shall take such commercially
reasonable actions to preserve their rights to, and obtain insurance proceeds
available with respect to, any such Indemnified Amount, it being understood
that the Indemnified Party shall submit claims to applicable insurances.

Laws
means all statutes, treaties, codes, ordinances, decrees, rules, regulations,
municipal bylaws, judicial or arbitral or administrative or ministerial or
departmental or

 

 9
 

 

regulatory judgments,
orders, decisions, rulings or awards, policies, certificates, codes, licenses,
permits, approvals, guidelines, voluntary restraints, inspection reports, or
any provisions of such laws, including general principles of common law and
equity and the requirements of all Governmental Bodies, binding or affecting
the Person referred to in the context in which such word is used; and “Law”
means any one of them.

Lien
means any lien, pledge, claim, charge, security interest, mortgage, charter,
option, title retention agreement, security interest of any nature, adverse
claim, exception, reservation, easement, right of occupation, any matter
capable of registration against title, option, right of pre-emption, privilege
or other encumbrance, or any contract to create any of the foregoing or other
rights of any third Person of any nature whatsoever, whether recorded, secret,
state, maritime or otherwise.

Partnership
Agreement means the Third Amended and Restated Limited
Partnership Agreement of the Partnership, dated as of May 1, 2006, as the
amended and restated from time to time.

Permitted Lien
means (a) any encumbrance or lien created by this Agreement, (b) any
mechanic’s, carrier’s, workman’s, warehouseman’s, repairman’s or other like
lien arising in the ordinary course of business and securing obligations not
yet due and payable, (c) any encumbrance or lien for Taxes and other
governmental obligations not yet due; (d) any encumbrance or lien arising
under the Business Loan Agreement; (e) any encumbrance or lien for crew
wages to the extent incurred in the ordinary course of business and payment of
which is not overdue; (f) any encumbrance or lien for necessaries provided
to the Vessels to the extent incurred in the ordinary course of business and
payment for which is not overdue; and (g) any encumbrance or lien set
forth on Schedule 1.1.

Person
means any individual, firm, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization,
government or agency or subdivision thereof or any other entity.

Release
means any spill, effluent, emission, leaking, pumping, pouring, emptying,
escaping, dumping, injection, deposit, disposal, discharge, dispersal,
leaching, abandoning, adding, or migration into the indoor or outdoor
environment, or into or out of any currently or formerly owned, operated, or leased
property, facility or vessel.

Registration
Statement means the Partnership’s Registration Statement on
Form S-3 (Registration No. 333-142433) filed with the Securities and
Exchange Commission on April 27, 2007.

Remedial Action
means all actions, including, without limitation, any capital expenditures
required by any Governmental Body or required under or taken pursuant to any
Environmental Law or voluntarily taken to (a) clean up, remove, treat, contain,
assess, monitor or evaluate, or in any other way, ameliorate or address any
Hazardous Material in the indoor or outdoor environment; (b) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Material so it does not endanger or threaten to endanger the public or employee
health or welfare or the indoor or outdoor environment; (c) perform
pre-remedial

 

 10
 

 

studies and
investigations or post-remedial monitoring and care pertaining to or relating
to a Release or threatened Release of any Hazardous Material; or (d) bring any
party, property, facility or vessel into compliance with any Environmental Law.

Restricted
Business means the marine transportation of petroleum
products by tank vessels.

Restricted Trades
means the Jones Act coastwise trade of the United States  (Chapter 551 of Title 46 of the United States
Code), including, without limitation, the noncontiguous domestic trade of the
United States.

Seller Indemnified
Party means each Seller Party and its Affiliates and each of
their respective officers, directors, employees, agents and counsel.

Seller Parties
means, collectively, the Sellers and the Members.

Sirius Items
has the meaning set forth in Section 4.26(a).

Taxes
means any and all federal, state, local, foreign and other taxes or other
assessments, including, without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, profit share,
license, lease, service, service use, value added, withholding, payroll,
employment, excise, estimated severance, stamp, occupation, premium, property,
windfall profits, or other taxes of any kind whatsoever, together with any
interests, penalties, additions to tax, fines or other additional amounts
imposed thereon or related thereto, and the term “Tax” means any one of
the foregoing Taxes.

Tax Returns
means all returns, declarations, reports, statements and other documents filed
or submitted or required to be filed or submitted in respect of any and all
Taxes.

Threshold Amount
means $500,000.

“to the knowledge of
Sellers” and phrases with similar wording, when used in this Agreement to
qualify a representation or warranty in Article IV, means the knowledge, after
reasonable investigation, of the Seller Parties.

Vessels
means Owned Vessels and Bareboat Chartered Vessels as set forth on Schedules
4.14(b)(1) and 4.14(b)(2), respectively (including, without
limitation, the machinery, engines, instruments, necessaries, rigging, anchors,
chains, cables, tackle, apparel, accessories, equipment, radio installation and
navigational equipment, inventory, spare parts and all other appurtenances
routinely carried on board the Vessels in the ordinary course of operation of
such Vessels).

 

 11

 

ARTICLE II

THE MERGER

Section 2.1             The
Merger.  At the Effective Time
(as defined below) and upon the terms and subject to the conditions of this
Agreement and in accordance with Section 18-209 of the Delaware Limited
Liability Company Act (the “Delaware Act”) and Chapter 25.15 of the Revised
Code of Washington (the “Washington Code”), Sirius shall be merged with and
into Buyer (the “Merger”).  Following the
Merger, the separate limited liability company existence of Sirius shall cease
and Buyer shall continue as the surviving entity (the “Surviving Entity”).

Section 2.2             Effective
Time.  Upon the terms and subject to the conditions
set forth in this Agreement, on the Closing Date (as defined in Section 2.3):
(a) a Certificate of Merger (the “Certificate of Merger”) shall be duly
executed and delivered to the Secretary of State of the State of Delaware for
filing pursuant to Section 18-209 of the Delaware Act; (b) Articles of
Merger (the “Articles of Merger”) shall be duly executed and delivered to the
Secretary of State of the State of Washington for filing pursuant to Section
25.15.405 of the Washington Code; and (c) the parties shall make such other
filings with the Secretary of State of the States of Delaware and Washington as
shall be necessary to effect the Merger. 
The Merger shall be become effective at such time as a properly executed
copy of the Certificate of Merger is duly filed with the Secretary of State of
the State of Delaware in accordance with the Delaware Act and a properly
executed copy of the Articles of Merger are filed with the Secretary of State
of the State of Washington in accordance with the Washington Code, or such
later time as Buyer and Sirius may agree upon and as may be set forth in the
Certificate of Merger and the Articles of Merger (the time the Merger becomes
effective being referred to herein as the “Effective Time”).

Section 2.3             Closing.  The closing of the transactions contemplated
hereby (the “Closing”) shall take place at the offices of Bauer Moynihan &
Johnson LLP, 2101 Fourth Avenue, Suite 2400, Seattle, Washington 98121, at
11:00 a.m., Seattle time, on the later of (1) July 26, 2007 or (2) the
date that is three business days following the first day on which all of the
conditions set forth in Article VIII have been satisfied or waived (other than
conditions that by their nature are to be satisfied at the Closing, but subject
to the fulfillment or waiver of those conditions), or at such other time and
place as the parties may agree.  The date
on which the Closing is held is referred to in this Agreement as the “Closing
Date.”

Section 2.4             Effects
of the Merger.  The Merger
shall have the effects set forth in the Delaware Act, the Washington Code and
this Agreement.  Without limiting the
generality of the foregoing and subject thereto, at the Effective Time, all
property, rights, privileges, powers and franchises of Sirius and Buyer shall
vest in the Surviving Entity, and all debts, liabilities and duties of Sirius
and Buyer shall become the debts, liabilities and duties of the Surviving
Entity.

Section 2.5             Certificate of Formation; Limited Liability Company Agreement.

(a)           The
Certificate of Formation of Buyer, as in effect immediately prior to the
Effective Time, shall be the Certificate of Formation of the Surviving Entity
until thereafter changed or amended as provided therein or by applicable law.

 

 12
 

 

(b)           The
Limited Liability Company Agreement of Buyer as in effect immediately prior to
the Effective Time shall be the Limited Liability Company Agreement of the
Surviving Entity until thereafter changed or amended as provided therein or by
applicable law.

Section 2.6             Managers.  The managers of Buyer at the Effective Time
shall be the initial managers of the Surviving Entity, each to hold office in
accordance with the Certificate of Formation and the Limited Liability Company
Agreement of the Surviving Entity until such director’s successor is duly
elected or appointed and qualified.

Section 2.7             Officers.  The officers of Buyer at the Effective Time
shall be the initial officers of the Surviving Entity, each to hold office in
accordance with the Certificate of Formation and the Limited Liability Company
Agreement of the Surviving Entity until such officer’s successor is duly
elected or appointed and qualified.

Section 2.8             Conversion
of Membership Interests.  At
the Effective Time, by virtue of the Merger and without any action on the part
of Buyer, Sirius or any of the Seller Parties:

(a)           the
Membership Interests shall be converted automatically into the right to
receive, in the aggregate, the following consideration, which shall be payable
to each of the Sellers as set forth on Schedule 2.8:

(i)            an
amount in cash equal to the following (the “Cash Consideration”):

(1)                                  $49,750,000, plus

(2)                                  ATB Construction
Costs, if any (as certified in writing by the President of Sirius), less

(3)                                  all prepaid revenue
of Sirius as of the Closing Date (as certified in writing by the President of
Sirius), less

(4)                                  an amount equal to
the difference between $500,000 and the amount of cash that is expected to be
reflected on the Closing Date Balance Sheet as finally determined pursuant to
Section 6.11 (as certified in writing by the President of Sirius), provided
that no reduction shall be made if the amount of cash that is expected to be
reflected on the Closing Date Balance Sheet is equal to or greater than
$500,000; less

(5)                                  all bonuses or other
compensation paid or promised by Sirius to its employees pursuant to Section
6.12(c), including all employment or other taxes payable by Sirius in
connection with such amounts; and

 

 13
 

 

(ii)           250,000 Common Units (the “Unit
Consideration” and, together with the Cash Consideration, the “Merger
Consideration”).

At the Effective Time, the Cash Consideration shall be
paid by wire transfer to the Sellers in the amounts set forth on Schedule
2.8 to an account or accounts designated in writing by the Members.  At the Closing, the Partnership shall issue
the Unit Consideration to each Seller as set forth on Schedule 2.8.  If the Closing Date Balance Sheet, as finally
determined pursuant to Section 6.11, would result in a change to the Merger
Consideration as calculated on the Closing Date (due to variances in ATB
Construction Costs, prepaid revenue or cash on hand), then, within ten business
days after such final determination, the Merger Consideration shall be so
adjusted and Buyer shall pay to the Sellers, or the Seller Parties shall refund
to Buyer, the amount in cash of such adjustment, as the case may be;

(b)           all
such Membership Interests shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist, and the Members shall
cease to have any rights with respect thereto, except the right to receive the
Merger Consideration; and

(c)           the
membership interests of Buyer issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for validly issued, fully
paid and nonassessable membership interests in the Surviving Entity.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF EACH SELLER AND ITS MEMBER

Each
Seller and its Member, severally and not jointly, represent and warrant to
Buyer and the Partnership that, as applied solely to such Seller and Member,
the following are true, correct and complete as of the date of this Agreement
and will be true, correct and complete as of the Closing Date (except that WS
Maritime and Sundberg shall not be deemed to have made the representations and
warranties in Section 3.8):

Section 3.1             Limited
Liability Company Status and Good Standing; Citizenship.

(a)           Seller
is a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Washington, with full limited liability
company power and authority under its governing documents to own and lease its
properties and to conduct business as the same exists on the date hereof and on
the Closing Date.

(b)           Each
of Seller and Member is a citizen of the United States within the meaning of
Chapter 505 of Title 46 of the United States Code, for the purpose of operating
the Vessels in the coastwise trade of the United States.

Section 3.2             Authorization.

(a)           Seller
has full limited liability company power and authority under its governing
documents, and the Member has taken all necessary action to authorize it, to
execute and deliver this Agreement and the exhibits and schedules hereto, to
consummate the transactions contemplated herein and therein and to take all
actions required to be taken by it

 

 14
 

 

pursuant to the provisions hereof and
thereof.  A certified copy of resolutions
duly adopted by the members of Seller authorizing and approving the execution
and delivery of this Agreement, including the exhibits and schedules hereto,
and the consummation of the transactions contemplated herein and therein, is
attached as Schedule 3.2, and such resolutions have not been rescinded,
revoked, modified or superseded in any respect.

(b)           Each
of this Agreement and the exhibits and schedules hereto constitutes the valid
and binding obligation of Seller and Member (to the extent a party thereto),
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting
creditors’ rights generally and to the principles of equity (whether
enforcement is sought in a proceeding in equity or at law).

Section 3.3             Capitalization;
Title to Membership Interests.

(a)           Except
as set forth on Schedule 3.3(a), Seller owns beneficially and of record
all of the Membership Interests set forth opposite Seller’s name on Schedule
3.3(a), free and clear of all Liens. 
Except as set forth in Schedule 3.3(a), such Membership Interests
are not subject to any agreements or understandings with respect to the voting
or transfer of any of the Membership Interests (except as contemplated by this
Agreement and restrictions under applicable federal and state securities
laws).  Except as set forth on Schedule
3.3(a), Seller has full legal right to sell, assign, convey and transfer
its Membership Interests to Buyer and will, upon delivery of an assignment of
such Membership Interests to Buyer pursuant to the terms hereof, transfer to
Buyer title to such Membership Interests, free and clear of any Liens.

(b)           Schedule
3.3(b) sets forth the authorized capitalization of Seller.  The Member owns beneficially and of record
all of the equity interests in Seller as set forth on Schedule 3.3(b),
in each case free and clear of all Liens. 
Except as set forth in Schedule 3.3(b), such equity interests are
not subject to any agreements or understandings with respect to the voting of
any of such equity interests.

(c)           Except
as set forth in Schedule 3.3(c), there are no outstanding subscriptions,
options, convertible securities, warrants or calls or preemptive rights of any
kind issued or granted by, or binding upon, Seller to purchase or otherwise
acquire or to sell or otherwise dispose of any security of or equity interest
in Sirius.

(d)           Seller
does not own or control, directly or indirectly, any interest in any Person
(other than Sirius) and is not a participant in any partnership, joint venture
or similar arrangement.

Section 3.4             Non-Contravention.  Except as set forth in Schedule 3.4,
neither the execution and delivery of this Agreement or any documents executed
in connection herewith, nor the consummation of the transactions contemplated
herein or therein, does or shall:

(a)           violate,
conflict with, result in a breach of or require notice or consent, or decrease
the rights of Seller or the Member or increase the rights of any third party,
under (i) any Law, (ii) the certificate of formation, limited liability company
agreement, board or member resolutions or other governing documents or
instruments of Seller or (iii) any provision of any agreement or instrument to
which Seller or Member is a party;

 

 15
 

 

(b)           contravene,
conflict with, or result in a violation of, or give any Governmental Body or
other Person the right to challenge any of such transactions or to exercise any
remedy or obtain any relief under, any Law, to which Seller or the Member, or
any of the assets owned or used by Seller or the Member, are bound;

(c)           contravene,
conflict with, or result in a violation of any of the terms or requirements of,
or give any Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate, or modify, any license, permit, consent, approval, authorization,
qualification, certificate, registration or order of any Governmental Body that
is held by Seller or the Member or that otherwise relates to the business of,
or any of the assets owned or used by, Seller or the Member;

(d)           otherwise
require notice to or consent of any Governmental Body, except for (i) any
filing under the HSR Act; (ii) the filing of articles or certificates of merger
with the Secretary of State of the States of Washington and Delaware; and
(iii) any filings required to be made with and/or approvals to be obtained
from the U.S. Coast Guard with respect to the transfer of the Vessels;

(e)           result
in the imposition or creation of any Lien upon or with respect to the
Membership Interests of Seller or any assets of Seller or the Member; or

(f)            result
in the acceleration or mandatory prepayment of any indebtedness, or any
guaranty of Seller or the Member or afford any holder of any indebtedness, or
any beneficiary of any guaranty the right to require Seller or the Member to
redeem, purchase or otherwise acquire, reacquire or repay any indebtedness, or
to perform any guaranty.

Section 3.5             Validity.  There is no investigation, claim, proceeding
or litigation of any type pending or, to the knowledge of Seller or the Member,
threatened to which Seller or the Member is a party that (i) questions or
involves the validity or enforceability of any of such party’s obligations
under this Agreement or any of the exhibits hereto or (ii) seeks (or reasonably
might be expected to seek) (A) to prevent or delay the consummation by Seller
or the Member of the transactions contemplated by this Agreement or (B) damages
in connection with any such consummation.

Section 3.6             Broker
Involvement.  Neither Seller
nor Member has hired, retained or dealt with any broker or finder in connection
with the transactions contemplated by this Agreement, except as set forth on Schedule
3.6.

Section 3.7             Litigation.  There is no judgment, order, writ, injunction
or decree of any Governmental Body or arbitral tribunal against or involving
Seller or the Member that may be reasonably expected to have an adverse effect
on Sirius, Buyer or any of their respective subsidiaries.

 

 16
 

 

Section 3.8             Investment
Representations.

(a)           Experience; Status.

(i)            Each
of Seller and the Member has substantial experience in analyzing and investing
in companies like the Partnership and is capable of evaluating the merits and
risks of its investment in the Partnership and has the capacity to protect its
own interests. To the extent necessary, each of Seller and the Member has
retained, at its own expense, and relied upon, appropriate professional advice
regarding the investment, tax and legal merits and consequences of an
investment in the Unit Consideration that Seller will receive pursuant to this
Agreement.

(ii)           Each
of Seller and the Member is an Accredited Investor (as such term is used in
Rule 501 under the Securities Act of 1933, as amended, of the United States of
America (the “Securities Act”)) by reason of the criteria specified for Seller
in Schedule 3.8, is able to bear the economic risk of its investment in
the Unit Consideration indefinitely and has sufficient net worth to sustain a
loss of its entire investment in the Partnership without economic hardship if
such loss should occur.

(b)           Access to Information.

(i)            Each
of Seller and the Member has had an opportunity to discuss the Partnership’s
business, management and financial affairs with the members of the Partnership’s
management and has had the opportunity to review the Partnership’s operations
and facilities.  Each of Seller and the
Member has also had an opportunity to ask questions of the officers of the
Partnership, which questions were answered to its satisfaction.  Each of Seller and the Member acknowledges
that it is familiar with the nature of the Partnership’s business.  Each of Seller and the Member has received
and had an opportunity to read the material described in Section 5.7.

(ii)           Neither
Seller nor Member has received representations or warranties from the
Partnership or Buyer, or their employees, affiliates, attorneys, accountants or
agents, except as set forth in this Agreement.

(iii)          Each
of Seller and the Member understands that the ownership of the Unit
Consideration involves numerous risks, including those described under the heading
“Risk Factors” in the Registration Statement and in the Partnership’s other
filings with the Securities and Exchange Commission.

(c)           Investment Purposes; Rule 144.

(i)            Each
of Seller and the Member is acquiring the Unit Consideration solely for investment
for its own account, not as a nominee or agent, and not with the view to, or
for resale in connection with, any distribution thereof.   Each of Seller and the Member understands that
the Unit Consideration has not been

 

 17
 

 

registered under the Securities Act or applicable state securities laws
by reason of a specific exemption from the registration provisions of the
Securities Act and applicable state securities laws, the availability of which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of Seller’s and Member’s representations as expressed
herein.  Each of Seller and the Member
understands that the Partnership and Buyer are relying, in part, upon the
representations and warranties contained in this Section 3.8 for the purpose of
determining whether this transaction meets the requirements for such
exemptions.

(ii)           Each
of Seller and the Member acknowledges and understands that it must bear the
economic risk of its investment in the Unit Consideration for an indefinite
period of time because the Unit Consideration must be held indefinitely unless
subsequently registered under the Securities Act and applicable state
securities laws or unless an exemption from such registration is available. In
addition, the Unit Consideration is subject to the restrictions on transfer in
Section 6.18.

(iii)          Each
of Seller and the Member is aware of the current provisions of Rule 144
promulgated under the Securities Act which permit limited resales of securities
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the existence of a public market for
the securities, the availability of certain current public information about
the issuer of the securities, the resale occurring not less than one year after
a party has purchased from an issuer or its affiliate and paid the full
purchase price for the securities to be sold, the sale being effected through a
“broker’s transaction” or in transactions directly with a “market maker” and
the number of securities being sold during any three month period not exceeding
specified limitations.  Each of Seller
and the Member understands that any transfer agent of the Partnership will be
issued stop transfer instructions with respect to the Unit Consideration unless
such transfer is subsequently registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
is available.

Section 3.9             Disclosure.  No representation or warranty by Seller or
Member in this Agreement, and in any schedule or exhibit to this Agreement, or
in any certificate or other document furnished to Buyer by Seller or Member at
Closing, contains or, as of the Closing Date, shall contain any untrue
statement of a material fact or omits or shall omit a material fact necessary
to make the statements therein not misleading.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SIRIUS AND THE SELLER PARTIES

Sirius
and the Seller Parties, jointly and severally, represent and warrant to Buyer
and the Partnership that the following are true, correct and complete as of the
date of this Agreement and will be true, correct and complete as of the Closing
Date:

 

 18
 

 

Section 4.1             Limited
Liability Company Status and Good Standing; Citizenship.

(a)           Sirius
is a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Washington, with full limited liability
company power and authority under its governing documents to own and lease its
properties and to conduct business as the same exists on the date hereof and on
the Closing Date.  Sirius is duly
qualified to do business as a foreign limited liability company in the
jurisdictions set forth on Schedule 4.1.  Sirius is duly qualified to do business as a
foreign limited liability company in all jurisdictions in which the nature of
its business requires such qualification and the failure to do so would have an
adverse effect on Sirius.

(b)           Sirius
is a citizen of the United States within the meaning of Chapter 505 of Title 46
of the United States Code, for the purpose of operating the Vessels in the
coastwise trade of the United States.

Section 4.2             Authorization.

(a)           Sirius
has full limited liability company power and authority under its governing documents,
and the members of each of Sirius and the Sellers have taken all necessary
action to authorize it, to execute and deliver this Agreement and the exhibits
and schedules hereto, to consummate the transactions contemplated herein and
therein and to take all actions required to be taken by it pursuant to the
provisions hereof and thereof.  A
certified copy of resolutions duly adopted by the members of Sirius authorizing
and approving the execution and delivery of this Agreement, including the
exhibits and schedules hereto, and the consummation of the transactions
contemplated herein and therein, is attached as Schedule 4.2, and such
resolutions have not been rescinded, revoked, modified or superseded in any
respect.

(b)           Each
of this Agreement and the exhibits and schedules hereto constitutes the valid
and binding obligation of Sirius, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting creditors’ rights generally and to the principles
of equity (whether enforcement is sought in a proceeding in equity or at law).

Section 4.3             Capitalization; Title to Membership Interests.

(a)           Sellers
own beneficially and of record all of the Membership Interests.  Except as set forth in Schedule 4.3(a),
such Membership Interests are not subject to any agreements or understandings
with respect to the voting or transfer of any of the Membership Interests
(except as contemplated by this Agreement and restrictions under applicable
federal and state securities laws).  The
Membership Interests have been duly authorized and validly issued and are fully
paid and nonassessable.

(b)           Except
as set forth in Schedule 4.3(b), there are no outstanding subscriptions,
options, convertible securities, warrants or calls or preemptive rights of any
kind issued or granted by, or binding upon, Sirius to purchase or otherwise
acquire or to sell or otherwise dispose of any security of or equity interest
in Sirius.

 

 19
 

 

(c)           Sirius
does not own or control, directly or indirectly, any interest in any Person nor
is Sirius a participant in any partnership, joint venture or similar
arrangement.

Section 4.4             Non-Contravention.  Except as set forth in Schedule 4.4,
neither the execution and delivery of this Agreement or any documents executed
in connection herewith, nor the consummation of the transactions contemplated
herein or therein, does or shall:

(a)           violate,
conflict with, result in a breach of or require notice or consent, or decrease
the rights of Sirius or increase the rights of any third party, under (i) any
Law, (ii) the certificate of formation, limited liability company agreement,
board or member resolutions or other governing documents or instruments of
Sirius or (iii) any provision of any agreement or instrument to which Sirius is
a party;

(b)           contravene,
conflict with, or result in a violation of, or give any Governmental Body or
other Person the right to challenge any of such transactions or to exercise any
remedy or obtain any relief under, any Law, to which Sirius, or any of the
assets owned or used by Sirius, are bound;

(c)           contravene,
conflict with, or result in a violation of any of the terms or requirements of,
or give any Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate, or modify, any license, permit, consent, approval, authorization,
qualification, certificate, registration or order of any Governmental Body that
is held by Sirius or that otherwise relates to the business of, or any of the
assets owned or used by, Sirius;

(d)           otherwise
require notice to or consent of any Governmental Body, except for (i) any
filing under the HSR Act; (ii) the filing of articles or certificates of merger
with the Secretary of State of the States of Washington and Delaware; and
(iii) any filings required to be made with and/or approvals to be obtained
from the U.S. Coast Guard with respect to the transfer of the Vessels;

(e)           result
in the imposition or creation of any Lien upon or with respect to the
Membership Interests or any assets of Sirius; or

(f)            result
in the acceleration or mandatory prepayment of any indebtedness, or any
guaranty of Sirius or afford any holder of any indebtedness, or any beneficiary
of any guaranty the right to require Sirius to redeem, purchase or otherwise
acquire, reacquire or repay any indebtedness, or to perform any guaranty.

Section 4.5             Validity.  There is no investigation, claim, proceeding
or litigation of any type pending or, to the knowledge of Sellers, threatened
to which Sirius or any Seller Party is a party that (i) questions or involves
the validity or enforceability of the obligations of Sirius under this
Agreement or any of the exhibits hereto or (ii) seeks (or reasonably might be
expected to seek) (A) to prevent or delay the consummation by Sirius of the
transactions contemplated by this Agreement or (B) damages in connection with
any such consummation.

Section 4.6             Broker
Involvement.  Sirius has not
hired, retained or dealt with any broker or finder in connection with the
transactions contemplated by this Agreement, except as set forth on Schedule
4.6.

 

 20

 

Section 4.7             Litigation.   Except
as set forth on Schedule 4.7, there is no investigation, claim,
proceeding or litigation of any type pending or, to the knowledge of Sellers,
threatened to which Sirius is or may become a party or with respect to which
any of Sirius’s properties or assets could reasonably be expected to become
subject.  To the knowledge of Sellers, Schedule
4.7 sets forth each judgment, order, writ, injunction or decree of any
Governmental Body or arbitral tribunal against or involving Sirius that is
currently in effect.  Except as set forth
on Schedule 4.7, there is no judgment, order, writ, injunction or decree
of any Governmental Body or arbitral tribunal against or involving Sirius that
may be reasonably expected to have an adverse effect on Sirius, Buyer or any of
their respective subsidiaries.

Section 4.8             Title
to Assets.   Except as set forth on Schedule 4.8, Sirius
has good and marketable title to all of its owned assets that are used in its
business, free and clear of any and all Liens other than Permitted Liens.

Section 4.9             Continuity
Prior to the Closing Date.   Except as set forth on Schedule
4.9, from January 1, 2007, to and including the Closing Date, Sirius
has not conducted its business other than in the usual and customary manner and
in the ordinary course of business, consistent with historical practice, and
there has not been:

(a)           any change in its authorized capital or in any of
its outstanding capital or any grant, issuance or sale of any derivative
security with respect to its capital;

(b)           any sale, lease, distribution, transfer, mortgage,
pledge or subjection to Lien of assets (other than Permitted Liens), except
sales of inventory and obsolete or surplus equipment in the ordinary and usual
course of business;

(c)           any transaction by Sirius not in the ordinary and
usual course of business;

(d)           any damage to or destruction, loss or equipment
failure related to any assets owned or used by Sirius, whether or not covered
by insurance, requiring or that may be reasonably expected to require
expenditures in excess of $10,000 in order to replace or return such asset to
its condition prior to the happening of such event;

(e)           a modification to the terms of any material
agreement of Sirius with its vendors, suppliers or customers, the early termination
or, to the knowledge of the Sellers, threatened termination of any material
contract or relationship of Sirius with any vendor, supplier or customer or the
non-renewal or, to the knowledge of Sellers, threatened non-renewal of any
material contract or relationship of Sirius with any vendor, supplier or
customer;

(f)            the negotiation, execution or delivery of any
agreement, commitment or contract having a term exceeding one year or involving
an amount in excess of $100,000;

(g)           the negotiation or execution of any charter
commitments with respect to articulated-tug barge units;

(h)           the negotiation or execution of any vessel
construction agreement;

 21
 

 

(i)            any incurrence by Sirius of any indebtedness for
borrowed money or guaranty or any commitment to incur any indebtedness or any
guaranty;

(j)            any change in accounting methods or principles or
the application thereof or any change in Sirius’s policies or practices with
respect to items affecting working capital;

(k)           any delay or reduction in capital expenditures or
payment of vendors in contemplation of this Agreement or otherwise not in the
ordinary course of business consistent with past practice, or any failure to
continue to make capital expenditures or pay vendors in the ordinary course of
business consistent with past practice;

(l)            any acceleration of shipments, sales or orders or
other similar action in contemplation of this Agreement or otherwise not in the
ordinary course of business consistent with past practice;

(m)          any acceleration of the collection of Accounts
Receivable in contemplation of this Agreement or otherwise not in the ordinary
course of business consistent with past practice;

(n)           any bonus payments, salary increases, commission
increases or modifications, the execution of any employment agreement,
severance arrangement, or consulting arrangement or Plan (or any amendment
thereto), except as contemplated in Section 6.12(c) or set forth on Schedule
4.9;

(o)           any waiver of any rights that, singly or in the
aggregate, are material to Sirius’s business, its assets or the financial
condition or results of operations of Sirius;

(p)           any labor strikes or disruptions, union
organizational activities or other similar occurrence; or

(q)           any contract or commitment to do or cause to be
done any of the foregoing.

Section 4.10           Contracts
and Commitments.   Schedule 4.10 lists all agreements,
commitments, contracts, undertakings or understandings (A) to which Sirius is a
party as of the date of this Agreement or (B) which relate to any of its
properties or assets, including, but not limited to, trademark, trade name or
patent license agreements, software license agreements (other than for
off-the-shelf software), service agreements, leases, charters, contracts of
affreightment, purchase or sale agreements, supply agreements, distribution or
distributor agreements, purchase orders, customer orders and equipment rental
agreements that, in the case of either clause (A) or (B), are either material
to Sirius or involve consideration with a value of $10,000 or more.  Except as set forth in Schedule 4.10,
Sirius is not in breach of or default under any agreement, lease, contract or
commitment listed or of a type required to be listed on Schedule 4.10
(collectively, the “Contacts”).  Each
Contract is valid, binding and in full force and effect and is an enforceable
agreement of Sirius and, to the knowledge of Sellers, the other parties
thereto.  Except as set forth in Schedule
4.10, to the knowledge of Sellers, there has not occurred any breach or
default under any Contract on the part of the other parties thereto, and no
event has occurred which with the giving of notice or the lapse of time, or
both, would constitute 

 22
 

a default under any Contract.  Except as set forth in Schedule 4.10,
there is no dispute between the parties to any Contract as to the
interpretation thereof or as to whether any party is in breach or default
thereunder, and no party to any Contract has indicated to Sirius its intention
to terminate any Contract.  Sirius is not
a party to any covenant or obligation of any nature limiting the freedom of Sirius
to compete in any line of business and binding on Buyer after the Closing.  Complete and correct copies of all Contracts
listed or referred to in Schedule 4.10 have either been made available
to Buyer or, if not provided because of pending antitrust matters or
confidentiality requirements, shall be provided as soon as practicable to the
extent permitted by the antitrust authorities or the counterparties to such
contracts, as applicable.

Section 4.11           Trademarks,
Trade Names and Intellectual Property.   Schedule 4.11
contains an accurate and complete list of (a) all registered United States and
foreign trademarks, servicemarks, trade names, fictitious names, brand names,
business names, designs and logos owned or used by Sirius in connection with
its business, and all registrations thereof, (b) all registered copyrights
owned or used by Sirius in connection with its business, and (c) all patents
(including all reissues, divisions, continuations and extensions thereof) and
pending patent applications owned or used by Sirius in connection with its
business (collectively, including all rights to any of the foregoing, the “Scheduled
Intellectual Property”).  Sirius has the
right to use all Scheduled Intellectual Property, as well as all other
intellectual property used by Sirius in connection with its business, in the
conduct of its business as it is currently being conducted, and the
transactions contemplated by this Agreement will not have the effect of
terminating any such right.  Except as
set forth in Schedule 4.11, there is no pending or threatened action or
claim that would impair any such right.

Section 4.12           Financial Statements; Budget.

(a)           The unaudited financial statements of Sirius as of
and for the three years ended December 31, 2006 and as of and for the three
months ended March 31, 2007 (the “Unaudited Financial Statements”) present
fairly, in all material respects, the financial condition of Sirius at the
respective dates of the balance sheets included therein and the results of
operations, cash flows and members’ equity of Sirius for the respective periods
set forth therein and have been prepared in accordance with generally accepted
accounting principles in the United States consistently applied (“GAAP”),
subject to the absence of notes and normal recurring year end adjustments (the
effect of which will not, individually or in the aggregate, be materially
adverse).  A copy of the Unaudited
Financial Statements is attached hereto as Schedule 4.12(a).

(b)           At the Closing, the audited financial statements of
Sirius as of and for the three years ended December 31, 2006 (including the
related notes) (the “Audited Annual Financial Statements”) will present fairly,
in all material respects, the financial condition of Sirius at the respective
dates of the balance sheets included therein and the results of operations,
cash flows and members’ equity of Sirius for the respective periods set forth
therein and will have been prepared in accordance with GAAP.  When available, a copy of the Audited Annual
Financial Statements shall be attached hereto as Schedule 4.12(b).  As of the Closing Date, the Audited Annual
Financial Statements will be consistent in all material respects with the
corresponding periods in the Unaudited Financial Statements and will be free of
a qualified opinion.  The footnotes to
the Audited Annual Financial Statements will not disclose any fact or 

 23
 

circumstance
that could reasonably be expected to lead to or cause such a material adverse
change; provided, however, that (a) changes resulting from conditions affecting
the coastwise maritime petroleum transportation industry in general and
(b) changes in the economy in general shall, in each case, be excluded
from the determination to the extent that they do not have a disproportionate
effect on Sirius as compared to other entities engaged in the coastwise
maritime petroleum transportation industry in Hawaii and along the West Coast.

(c)           At the Closing, the unaudited financial statements
of Sirius as of and for the three months ended March 31, 2007 (including the
related notes) (the “Unaudited Interim Financial Statements” and, together with
the Audited Annual Financial Statements, the “Financial Statements”) will
present fairly, in all material respects, the financial condition of Sirius at
the respective dates of the balance sheets included therein and the results of
operations, cash flows and members’ equity of Sirius for the respective periods
set forth therein and have been prepared in accordance with GAAP, subject to
normal recurring year end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse).  When available, a copy of the Unaudited
Interim Financial Statements will be attached hereto as Schedule 4.12(c).  As of the Closing Date, the Unaudited Interim
Financial Statements will be consistent in all material respects with the
corresponding periods in the Unaudited Financial Statements and will be free of
a qualified opinion.  The footnotes to
the Unaudited Interim Financial Statements will not disclose any fact or
circumstance that could reasonably be expected to lead to or cause such a
material adverse change; provided, however, that (a) changes resulting from
conditions affecting the coastwise maritime petroleum transportation industry
in general and (b) changes in the economy in general shall, in each case,
be excluded from the determination to the extent that they do not have a
disproportionate effect on Sirius as compared to other entities engaged in the
coastwise maritime petroleum transportation industry in Hawaii and along the
West Coast.

(d)           Sirius’s fiscal 2007 budget and capital budget is
attached hereto as Schedule 4.12(d). 
Such budgets (i) are true and complete copies of Sirius’s most recent
internal budgets for fiscal 2007 and (ii) were prepared by management of Sirius
in good faith and on a reasonable basis.

(e)           Schedule 4.12(e) contains a schedule of (i)
any liability of Sirius (A) for borrowed money or arising out of any extension
of credit to or for the account of Sirius, or (B) evidenced by notes, bonds,
debentures or similar instruments of Sirius and (ii) any liability secured by
any Lien upon any property or other assets of Sirius.  Schedule 4.12(e) also contains a
schedule of any liability, contingent or otherwise, of Sirius guaranteeing or
otherwise becoming liable for any obligation of any other Person in any manner,
whether directly or indirectly.

(f)            Schedule 4.12(f) reflects all intercompany
transactions between Sirius and the Seller Parties or any Affiliates thereof
since December 31, 2003.

Section 4.13           Bank
Relations; Powers of Attorney.   Schedule 4.13 sets
forth: (a) the name of each financial institution in which Sirius has borrowing
or investment arrangements, deposit or checking accounts or safe deposit boxes;
(b) the types of those arrangements and accounts, including, as applicable, names
in which accounts or boxes are held, the account or 

 24
 

box numbers and the name of each Person
authorized to draw thereon or have access thereto; and (c) the name of each
Person holding a general or special power of attorney from Sirius and a
description of the terms of each such power.

Section 4.14           Condition
of Assets; Eligibility for Coastwise Trade.

(a)           Schedule 4.14(a) sets forth a list of all
material assets of Sirius other than the Vessels, which are listed on Schedule
4.14(b).  All tangible assets of
Sirius listed on Schedule 4.14(a) are in good, serviceable condition,
subject only to normal maintenance requirements and normal wear and tear
reasonably expected in the ordinary course of business. There are no material
assets (whether or not owned by Sirius) not listed on Schedule 4.14(a)
or Schedule 4.14(b) that are used in or necessary for the operation of
the business of Sirius as currently conducted.

(b)           Schedule 4.14(b)(1) sets forth a list of
each vessel (including vessels under construction) owned by Sirius, with an
indication (as applicable) of vessel type, year built, American Bureau of
Shipping Classification (including any recommendations), flag, capacity (and/or
horsepower as applicable), associated Liens (other than Permitted Liens), gross
tonnage and OPA 90 phase-out dates and date of last drydocking (the “Owned
Vessels”); Schedule 4.14(b)(2) sets forth a list of each vessel
(including vessels under construction) bareboat chartered by Sirius, with an
indication (as applicable) of vessel type, year built, American Bureau of
Shipping Classification (including any recommendations), flag, capacity (and/or
horsepower as applicable), associated Liens (other than Permitted Liens), gross
tonnage and OPA 90 phase-out dates and date of last drydocking (the “Bareboat
Chartered Vessels”); Schedule 4.14(b)(3) sets forth a list of each
vessel (including vessels under construction) chartered by Sirius on other than
a bareboat basis, with an indication (as applicable) of the type of charter, of
vessel type, year built, American Bureau of Shipping Classification (including
any recommendations), flag, capacity (and/or horsepower as applicable),
associated Liens (other than Permitted Liens), gross tonnage and OPA 90
phase-out dates and date of last drydocking.

(c)           Sirius has exercised due diligence to keep and
maintain each of the Vessels seaworthy in all material respects.  Except as set forth in Schedule 4.14(c),
each of the Vessels is equipped with the machinery, engines, instruments,
rigging, anchors, chains, cables, tackle, apparel, accessories, equipment,
radio installation and navigational equipment, inventory, spare parts and all
other appurtenances necessary for the operation of such Vessel in the ordinary
course of business consistent with past practices.  Except as set forth in Schedule 4.14(c),
since the Vessels’ last drydocking, no Vessel has been grounded, stranded or
suffered any other occurrence or casualty that could have caused or actually
did cause any damage to such Vessel.

(d)           Each of the Owned Vessels is duly documented in
Sirius’s name under the laws and flag of the United States of America and each
Vessel satisfies the requirements for coastwise documentation, has not been “sold
foreign” within the meaning of Section 12132 of Title 46 of the United States
Code and all coastwise licenses, permits, certificates, registrations,
approvals and other authorizations necessary to operate the Vessels as
currently operated are valid and current, subject to the trading restrictions
set forth in Schedule 4.14(d).

 25
 

(e)           Each Vessel has a valid, current and unextended
U.S. Coast Guard Certificate of Inspection, where applicable, and all other
licenses, permits, certificates, registrations, approvals and other
authorizations (including Certificates of Financial Responsibility (Water
Pollution)) that are required by applicable Law.  Except as set forth in Schedule 4.14(e),
there are no outstanding CG-835 certificates or Captain of the Port orders with
respect to the Vessels or the operation thereof.

Section 4.15           Absence
of Undisclosed Liabilities.   Except as set forth in Schedule 4.15,
Sirius has no liability (whether absolute, accrued, contingent, unliquidated or
otherwise, whether due or to become due), other than liabilities (i) reflected
in the Unaudited Financial Statements or in the Financial Statements, (ii)
arising under Contracts described in Schedule 4.10 (Contracts and
Commitments) or contracts entered in the ordinary course of business and
consistent with past practice that are not required to be disclosed therein due
to dollar thresholds, (iii) arising out of matters reflected in Schedule 4.7
(Litigation) or (iv) trade accounts payable incurred after March 31, 2007
in the ordinary course of business consistent with past practice, and
(v) Permitted Liens.

Section 4.16           Real Estate.

(a)           Sirius does not currently own, and has never owned,
any real property.  Schedule 4.16
sets forth a list and summary description (including property location, parties
and annual rental payments) of all leases, subleases and other agreements under
which Sirius is lessor or lessee of, or uses or occupies or allows the use or
occupancy of, any real property.  All
such leases, subleases and other agreements are valid and subsisting and in
full force and effect.

(b)           The real property listed on Schedule 4.16
(i) has full and free access to and from public highways, streets and roads and
there is no proceeding pending or, to the knowledge of Sellers, threatened that
could result in the termination of or material limitations on such access and
(ii) is connected to and serviced by utilities and public services, all of
which are adequate for the use of the real property listed thereon as the
business of Sirius is currently conducted. 
Sirius has not experienced during the three years preceding the date
hereof any material interruption in the delivery of adequate quantities of any
utilities (including, without limitation, electricity, natural gas, potable
water, water for cooling or similar purposes and fuel oil) or other public
services (including, without limitation, sanitary and industrial sewer service)
required in the operation of the business of Sirius during such period and, to
the knowledge of Sellers, no such material interruption is threatened.

Section 4.17           Accounts
Receivable.   All Accounts
Receivable of Sirius that are reflected in the Financial Statements and that
will be reflected in the Closing Date Balance Sheet represent sales actually
made in the ordinary course of business. 
The reserve for doubtful accounts in the Financial Statements has been,
and the reserve for doubtful accounts in the Closing Date Balance Sheet will be
determined based on the formula historically utilized by Sirius to calculate
such reserve and with Sirius’s prior accounting and collection practices.

Section 4.18           Inventory.   Schedule
4.18 sets forth the location of all inventory (including spare parts)
related to the Vessels that is not aboard such Vessels.

 

 26

 

Section 4.19           Employees
and Related Matters.  Schedule
4.19 is a complete list of all current employees of Sirius, listing the
title or position held, base salary, any commissions or other cash
compensation, including bonuses, paid or payable, and the terms of any written
or oral employment agreement (including a copy of any such written agreement
and a description of any such oral agreement) with Sirius or any Affiliate
thereof.  Sirius has no employees covered
by a collective bargaining agreement. 
There are no facts or circumstances that have resulted or could
reasonably be expected to result in a claim for unlawful discrimination against
Sirius.

Section 4.20           Employee
Benefits

(a)           Schedule 4.20 contains a complete list of
each compensation or benefit plan, agreement, program or policy (whether
written or oral, formal or informal) sponsored, maintained or contributed to by
Sirius for the benefit of any of its present or former directors, officers,
employees, agents, consultants or other similar representatives, including, but
not limited to, any “employee benefit plan” as defined in section 3(3) of
ERISA, other than employment agreements or compensation practices described in
Sections 4.10(e) and 4.19 above (the foregoing are hereinafter collectively
referred to as “Plans”).  Sirius is not
subject to any legal, contractual, equitable or other obligation to enter into
any new Plan or to modify or change any existing Plan.

(b)           With respect to each Plan, Sirius has provided to
Buyer a true and correct copy of each of the following, as applicable:

(i)            the current plan document (including
all amendments adopted since the most recent restatement) and its most recently
prepared summary plan description and all summaries of material modifications
prepared since the most recent summary plan description, and all material
employee communications relating to such plan;

(ii)           annual reports or information
returns, including financial statements, for the last three years;

(iii)          all contracts relating to any plan
with respect to which Sirius may have any liability, including, without
limitation, each related trust agreement, insurance contract, service provider
contract, subscription or participation agreement, or investment management
agreement (including all amendments to each such document); and

(iv)          the most recent IRS determination
letter or other opinion letter with respect to the qualified status of such
Plan under Code Section 401(a) or the exempt status of a related trust under
Code Section 501(a) or 501(c)(9).

(c)           Each Plan intended to be qualified under Section
401(a) of the Code is and has been so qualified in form.  Each Plan is and has been maintained and
operated in material compliance with its terms and the provisions of all
applicable laws, rules and regulations, including, without limitation, ERISA
and the Code.  Other than claims for
benefits in the ordinary course, there is no claim pending, or, to the
knowledge of Sellers, threatened, involving any Plan by any Person against such
Plan, fiduciaries or administrators of such Plan, 

 27
 

Sirius or the Sellers. 
No Plan is subject to ongoing audit, investigation or other
administrative proceeding of the Internal Revenue Service, the Department of
Labor or any other governmental agency, and no Plan is the subject of any
pending application for administrative relief under any voluntary compliance
program of the Internal Revenue Service, the Department of Labor or any other
governmental entity.  There has been no
transaction that is prohibited under Section 4975 of the Code or Section 406 of
ERISA and not exempt under Section 4975 of the Code or Section 408 of ERISA,
respectively, in relation to any Plans. 
Each Plan which may be subject to Section 409A of the Code is either
exempt from Section 409A of the Code under current IRS guidance or has been
operated in good faith compliance with Section 409A of the Code and the IRS
guidance issued thereunder.  To the
knowledge of Sellers, no Plan is subject to Section 409A of the Code.

(d)           Neither Sirius nor any ERISA Affiliate has ever
sponsored or maintained an “employee pension benefit plan” subject to
Title IV of ERISA or the minimum funding requirements of Section 412 of
the Code.  Neither Sirius nor any ERISA
Affiliate has maintained or incurred any liability with respect to any “multiemployer
plan” (as defined in Section 3(37) of ERISA). 
There are no facts that have resulted or could reasonably be expected to
result in a liability (whether or not asserted as of the date hereof) to Sirius
or any ERISA Affiliate pursuant to Title IV of ERISA.

(e)           No Plan provides medical, surgical,
hospitalization, death or similar benefits (whether or not insured) for
employees or former employees of Sirius or any Affiliate for periods extending
beyond their retirement date or other termination of service other than
coverage mandated by applicable law.

(f)            Except as set forth in Section 6.12(c), the
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement will not (either alone or upon the
occurrence of any subsequent employment-related event) (i) result in any
payment becoming due to any employee, former employee or group of employees or
former employees, of Sirius or any of its Affiliates, (ii) increase any
benefits otherwise payable under any Plan, (iii) result in the acceleration of
the time of payment or vesting of any such benefits, (iv) result in the
incurrence or acceleration of any other obligation related to the Plans or to
any employee, former employee or group of employees or former employees or (v)
cause any payments to be nondeductible under Section 280G of the Code.

(g)           Sirius has the right to, in any manner, and without
the consent of any employee, beneficiary or dependent, employees’ organization
or other Person, terminate, modify or amend any Plan (or their participation in
any such Plan) at any time sponsored, maintained or contributed to by Sirius,
effective as of any date on or after the Closing except to the extent that any
retroactive amendment would be prohibited by Section 204(g) of ERISA.

(h)           All individuals who perform (or have performed
within the last six years) compensatory services for Sirius in any capacity
have been properly classified for purposes of employment and withholding taxes
and eligibility to participate in and coverage under any Plan.

Section 4.21           Compliance
With Law.  Sirius is not in
violation, in any material respect, of any provision of any Law applicable to
it, including, without limitation, those 

 28
 

governing the registration, ownership and operation of
vessels documented to engage in the coastwise trade of the United States, and
Sirius has not received notice of any alleged violation of any Law.  Without limiting the generality of the
foregoing, (a) Sirius has not made any offer, payment, promise to pay or
authorization of the payment of any money, or any offer, gift, promise to give
or authorization of the giving of anything of value, directly or indirectly, to
or for the use or benefit of any official or employee of any Governmental Body
or to or for the use or benefit of any political party, official or candidate
unless such offer, payment, gift, promise or authorization is not prohibited by
the written laws or regulations of the Governmental Body and (b) Sirius is
familiar with and has complied with the United States Foreign Corrupt Practices
Act, 15 U.S.C. Sections 78dd-1 and 78dd-2.

Section 4.22           Environmental

(a)           Except as set forth in Schedule 4.22(a),
Sirius has been and is in material compliance with all Environmental Laws, and
the Seller Parties are not aware of any facts, circumstances, or conditions
that would require significant capital expenditures to maintain compliance in
the future.

(b)           Sirius has obtained all licenses, permits,
approvals, consents, certificates, registrations and other authorizations under
Environmental Laws (the “Environmental Permits”) required for the operation of
its business, all of which are listed in Schedule 4.22(b).  Except as set forth in Schedule 4.22(b),
each Environmental Permit is valid and in good standing, and any renewal
application required to keep each Environmental Permit in effect has been
timely filed, and Sirius is not in default or breach of any Environmental
Permit, and no proceeding is pending or, to the knowledge of Sellers,
threatened to revoke, deny, condition or limit the renewal of any Environmental
Permit.

(c)           Except as set forth in Schedule 4.22(c),
Sirius has not used or expressly permitted to be used, except in material
compliance with all Environmental Laws in effect at the time, any of its
currently or formerly owned or leased properties, facilities or Vessels to
generate, manufacture, process, distribute, use, treat, store, dispose of,
transport or handle any Hazardous Material.

(d)           Except as set forth in Schedule 4.22(d),
Sirius has not received any notice of nor been prosecuted for an offense
alleging, non-compliance with or liability under any Environmental Law or
requesting information with respect to an investigation pursuant to CERCLA, or
any foreign or state counterpart thereto, or any other Environmental Law.   Except as set forth in Schedule 4.22(d),
there are no outstanding orders requiring Remedial Actions with respect to the
businesses or currently or formerly owned or leased properties of Sirius, nor
is Seller aware of any condition or circumstance that could reasonably be
expected to require Remedial Actions.

(e)           To the knowledge of Sellers and except as disclosed
in Schedule 4.22(e), there are no pending or proposed changes to any
Environmental Law that would render illegal or restrict any service provided by
Sirius, or require significant capital expenditures by the owner or operator of
the assets of Sirius to achieve or maintain compliance.

 29
 

(f)            Except as set forth in Schedule 4.22(f),
and except in compliance with all Environmental Laws, there has been no Release
of any Hazardous Material on, into, under, or from Sirius’s currently or
formerly owned or leased properties, facilities, Vessels or other assets that
could reasonably be expected to require Remedial Actions. All Hazardous
Materials used in whole or in part by Sirius or resulting from its business
have been disposed of, treated, transported and stored in compliance with all
Environmental Laws.  Schedule 4.22(f)
lists the names and business addresses of the facilities or enterprises used by
Sirius for the offsite disposal or treatment of Hazardous Materials during the
preceding five (5) years.

(g)           Except as disclosed in Schedule 4.22(g),
there is not now, and to the knowledge of Sellers,  there has never been, on or in any currently
or formerly owned or leased properties, facilities, Vessels or other assets,
any of the following: (i) any underground storage tanks; (ii) any landfills,
dumps, or surface impoundments; (iii) any Remedial Action; and (iv) any
asbestos-containing materials.

(h)           Sirius has not received any notice that it is
potentially responsible for a federal, provincial, municipal, local or other
clean-up site or other corrective action under any Environmental Laws. Sirius
has not received any request for information in connection with an inquiry from
any Governmental Body with respect to its use of any disposal sites.

(i)            No judicial or administrative proceedings are
pending or, to the knowledge of Sellers, threatened against Sirius alleging the
violation of or seeking to impose liability pursuant to any Environmental Law
and there are no investigations pending or, to the knowledge of Sellers,
threatened against Sirius under any Environmental Law

(j)            Sellers have made available to Buyer true and
complete copies of all environmental and health and safety related audits,
evaluations, investigations assessments, studies, sampling or similar reports,
or tests in Sirius’ custody or control relating to Sirius or any of its
currently or formerly owned or leased properties, facilities, Vessels or other
assets.

(k)           Sirius has timely made all filings and timely
submitted all reports required under any Environmental Laws.

(l)            Except as set forth in Schedule 4.22(l), no
Hazardous Material is required to be removed, encapsulated or abated, and no
Remedial Action is otherwise required under any Environmental Laws, with
respect to any currently and to the knowledge of Sellers, formerly owned or
leased property, Vessel, facility or other asset of Sirius. Except as set forth
in Schedule 4.22(l), Sirius has no liability for the exposure of employees or
third parties to Hazardous Materials.

(m)          Except as set forth in Schedule 4.22(m),
Sirius is not required under any Environmental Laws by virtue of the
transactions set forth herein and contemplated hereby, or as a condition to the
effectiveness of any transactions contemplated hereby, (i) to perform a site
assessment of Hazardous Materials, (ii) to remove or remediate any Hazardous
Materials, (iii) to give notice to or receive approval from any Governmental
Body (other than as necessary to transfer, or to allow Buyer to operate under, Environmental
Permits required under 

 30
 

Environmental Laws), or (iv) to record or deliver to
any person or entity (other than Buyer) any disclosure document or statement
pertaining to environmental matters.

Section 4.23           Insurance.  Schedule 4.23 sets forth a list of all
insurance policies  of Sirius or relating
to its assets or the conduct of its business (collectively, the “Insurance
Policies”).  The Insurance Policies (i)
are valid, outstanding and enforceable, (ii) are issued by insurers that are
financially sound and reputable, (iii) taken together, provide adequate
insurance coverage for the assets and the operation of the business of Sirius,
(iv) are sufficient for compliance with all Laws and Contracts to which Sirius
is a party or by which it is bound, and (v) except as set forth in Schedule
4.23, do not provide for any retrospective premium adjustment or other
experience-based liability on the part of Sirius.  Sirius has paid all premiums due, and has
otherwise performed all of its obligations, under each of the Insurance
Policies.  None of the Seller Parties or
Sirius has received (i) any refusal of coverage or any notice that a defense
will be afforded with a reservation of rights under any of the Insurance
Policies, or (ii) any notice of cancellation or any other indication that any
Insurance Policy is no longer in full force or effect or will not be renewed or
that the issuer of any Insurance Policy is not willing or able to perform its
obligations thereunder.

Section 4.24           Government
Licenses and Permits.  Schedule 4.24
sets forth a list of all licenses, permits, consents, authorizations,
qualifications, plans (including vessel response plans) approved by or
submitted to Governmental Bodies and orders of Governmental Bodies required for
the operation or conduct of the business of Sirius as currently conducted or
the ownership of any of its assets, all of which are in full force and effect.

Section 4.25           Responsible
Carriers Plan.  Sirius has
adopted an American Waterways Operators Responsible Carriers Plan, which is
attached hereto as Schedule 4.25, and to the knowledge of Sellers, is in
compliance with all Responsible Carrier Plan requirements.

Section 4.26           Taxes.

(a)           Sirius has caused to be timely filed with
appropriate Governmental Bodies all Tax Returns required to be filed by or with
respect to Sirius, the assets and operations of Sirius and the conduct of
Sirius’s business (together, “Sirius Items”), and has paid or caused to be paid
or made provisions for the payment of all Taxes due with respect thereto.

(b)           Except as set forth on Schedule 4.26(b),
Sirius has not received notice of, and the Sellers do not have any knowledge
of, any notice of deficiency or assessment or proposed deficiency or assessment
relating to Taxes with respect to Sirius Items from any Governmental Body, and
there are no outstanding agreements or waivers that extend any statutory period
of limitations applicable to any federal, state or local income or franchise
Tax Returns that include Sirius Items. 
To the knowledge of the Sellers, there are no threatened audits of, or
assessments against, any of the Seller Parties or Sirius with respect to Taxes
that may be asserted against Sirius. Neither any of the Seller Parties nor
Sirius is a party to any action or proceeding by any Governmental Body for the
collection or assessment of Taxes with respect to Sirius Items.

 31
 

(c)           All amounts required in the operation of the
business to be withheld by or with respect to Sirius and paid to Governmental
Bodies for Taxes, including income, social security, unemployment insurance,
sales, excise, use and other Taxes, have been collected or withheld and to the
extent required, paid to the proper Governmental Body.  All deposits applicable law requires to be
made by or with respect to Sirius with respect to employees’ withholding and
other employment taxes have been made.

(d)           None of the Seller Parties is a “foreign person”
within the meaning of Section 1445(f)(3) of the Code.

(e)           Schedule 4.26(e) sets forth (i) the tax
basis of each asset of Sirius, (ii) the depreciation methods, conventions and
history applicable to each asset of Sirius, and (iii) as to each liability of
Sirius that Sellers propose to treat as a “qualified liability” under Treas.
Reg. § 1.707-5(a)(6), information sufficient to establish that the liability is
a “qualified liability.” Except as set forth in Schedule 4.26(e), none
of the assets of Sirius is subject to any provision of applicable law which
eliminates or reduces the allowance for federal tax depreciation or
amortization in respect of that asset below the allowance generally available
to an asset of its type.

(f)            Sirius is not a party to any Tax sharing
agreement.

(g)           Sirius has not elected, and will not elect, to be
treated as a corporation for federal or state Tax purposes.  In all states imposing a state corporate
income tax in which Sirius does business, Sirius is treated for state corporate
income tax purposes in a manner consistent with its treatment for federal
income tax purposes.

(h)           There are no Taxes of any Person other than Sirius
for which Sirius could be held liable after the Closing under Treas. Reg. §
1.1361-4(a)(6), Treas. Reg. § 1.1502-6, Treas. Reg. § 301.7701-2(c)(2)(iii) or
similar principles.

(i)            Sirius has not regularly or systematically sold
tangible assets, such that the transfer of all of the tangible assets held by
Sirius in connection with the Merger will qualify for a “casual sale” exemption
from Hawaii sales and use tax under Hawaii Administrative Rules Section
18-237-1.

(j)            None of the assets of the Sirius will be located
within the taxing jurisdiction of any Alaska local taxing authority at the
Effective Time.

Section 4.27           No
Material Adverse Change. 
There has been no material adverse change in the business, prospects,
results of operations, assets or financial condition of Sirius since December
31, 2006, and no event has occurred which could be reasonably expected to lead
to or cause such a material adverse change; provided, however, that (a) changes
resulting from conditions affecting the coastwise maritime petroleum
transportation industry in general and (b) changes in the economy in
general shall, in each case, be excluded from the determination to the extent
that they do not have a disproportionate effect on Sirius as compared to other
entities engaged in the coastwise maritime petroleum transportation industry in
Hawaii and along the West Coast.

 

 32

 

Section 4.28  Books and
Records.  The books of
account, minute books, stock record books, and other records of Sirius, all of
which have been made available to Buyer, are complete and correct and have been
maintained in accordance with sound business practices, in each case from and
after January 1, 2004.  Sirius has
devised and maintains a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions are executed in accordance
with management’s general or specific authorization, (ii) transactions are
recorded as necessary (a) to permit preparation of financial statements in
conformity with GAAP or any other criteria applicable to such statements and
(b) to maintain accountability for assets, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.  Since January 1, 2004, the
books, records and accounts of Sirius have accurately and fairly reflected and
currently accurately and fairly reflect, in reasonable detail and in all
material respects, the transactions and dispositions of the assets of Sirius.  The company books of Sirius contain accurate
and complete records of all meetings held of, and material company action taken
by, the members of Sirius since January 1, 2004, and no meeting of any such
members has been held since January 1, 2004 for which minutes have not been
prepared and are not contained in such minute books.

Section 4.29  Safety
Reports.  Schedule 4.29
sets forth a complete listing of all injury reports, workers’ compensation
reports and claims, safety citations and reports and OSHA reports relating to
any of the foregoing since January 1, 2004.

Section 4.30  Transactions
with Certain Persons.  Except
as set forth on Schedule 4.30, during the past two years, Sirius has
not, directly or indirectly, purchased, leased or otherwise acquired any
property or obtained any services from, or sold, leased or otherwise disposed
of any property or furnished any services to, or otherwise dealt with (except
with respect to remuneration for services rendered as a manager, officer or
employee of Sirius), in the ordinary course of business or otherwise, (a) any
officer, manager or shareholder of Sirius or any family member of any such
person or (b) any Person which, directly or indirectly, alone or together with
others, controls, is controlled by or is under common control with Sirius or
any member thereof. Except as set forth on Schedule 4.30, Sirius does
not owe any amount to, nor does it have any contract with or commitment to, any
of its members,  managers, officers,
employees, families of employees (including relatives by marriage) or
consultants (other than compensation to managers, officers, or employees for
current services not yet due and payable and reimbursement of expenses of
employees arising in the ordinary course of business and on an arms-length
basis not in excess of $10,000 in the aggregate), and none of such Persons owe
any amount to Sirius.

Section 4.31  Closing
Date Balance Sheet.  The
Closing Date Balance Sheet (as prepared in accordance with Section 6.11 of this
Agreement) will present fairly, in all material respects, the consolidated
financial condition of Sirius as of the Closing Date and accurately reflects
all liabilities or obligations (whether absolute, accrued, contingent,
unliquidated or otherwise) of Sirius as of the Closing Date other than
liabilities under Contracts or contracts entered into in the ordinary course of
business consistent with past practice or arising out of matters described in Schedule
4.7, in each case to the extent such liabilities are not required to be
reflected in a balance sheet prepared in accordance with GAAP.

 33
 

 

Section 4.32  Disclosure.  No representation or warranty by Sirius or
any Seller Party in this Agreement, and in any schedule or exhibit to this
Agreement, or in any certificate or other document furnished to Buyer by Sirius
or the Seller Parties at Closing, contains or, as of the Closing Date, shall
contain any untrue statement of a material fact or omits or shall omit a
material fact necessary to make the statements therein not misleading.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF BUYER AND THE PARTNERSHIP

Buyer and the Partnership, jointly and severally,
represent and warrant to the Seller Parties as follows:

Section 5.1  Status and
Good Standing.  Buyer is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware, with full limited liability company
power and authority under its certificate of formation and limited liability
company agreement to own and lease its properties and to conduct business as
the same exists on the date hereof and on the Closing Date.  Buyer is an indirect, wholly owned subsidiary
of the Partnership and, for federal income tax purposes, is disregarded as an
entity apart from the Partnership.  The
Partnership is a limited partnership duly organized, validly existing and in
good standing under the laws of Delaware, with full partnership power and
authority under its certificate and agreement of limited partnership to conduct
its business as the same exists on the date hereof and on the Closing
Date.  The Partnership is, and will be, a
partnership for federal income tax purposes.

Section 5.2  Authorization.  Each of Buyer and the Partnership has full
limited liability company or partnership power and authority under its
certificate of formation and limited liability company agreement or certificate
and agreement of limited partnership, as applicable, and the managers of Buyer
and the general partner of the Partnership have taken all necessary limited
liability company or partnership action, as applicable, to authorize it, to
execute and deliver this Agreement and the exhibits and schedules hereto, to
consummate the transactions contemplated herein or therein and to take all
actions required to be taken by it pursuant to the provisions hereof or
thereof, and each of this Agreement and the exhibits hereto constitutes the
valid and binding obligation of each of Buyer and the Partnership, enforceable
against each such party in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting creditors’ rights generally and to the principles of equity (whether
enforcement is sought in a proceeding in equity or at law).

Section 5.3  Non-Contravention.  Neither the execution and delivery of this
Agreement and the schedules and exhibits hereto, nor the consummation of the
transactions contemplated herein or therein, does or shall violate, conflict
with or result in breach of or require notice or consent under any Law, the
certificate of formation, certificate of limited partnership, limited liability
company agreement or agreement of limited partnership of Buyer or the
Partnership (as the case may be) nor or any provision of any agreement or
instrument to which Buyer or the Partnership is a party.

 34
 

 

Section 5.4  Validity.  There is no investigation, claim, proceeding
or litigation of any type pending or, to the knowledge of Buyer or the
Partnership, threatened to which Buyer or the Partnership is a party that (i)
questions or involves the validity or enforceability of any of Buyer’s or the
Partnership’s obligations under this Agreement or any of the exhibits hereto or
(ii) seeks (or reasonably might be expected to seek) (A) to prevent or delay
the consummation by Buyer or the Partnership of the transactions contemplated
by this Agreement or (B) damages in connection with any such consummation.

Section 5.5  Broker
Involvement.  Neither Buyer
nor the Partnership has hired, retained or dealt with any broker or finder in
connection with the transactions contemplated by this Agreement.

Section 5.6  Valid
Issuance.  At the Closing
Date, the Unit Consideration and the limited partner interests represented
thereby will be duly and validly authorized by the Partnership Agreement and,
when issued and delivered in accordance with the terms of this Agreement, will
be duly and validly issued, fully paid (to the extent required under the
Partnership Agreement) and non-assessable (except as such nonassessability may
be affected by matters described in the prospectus included in the Registration
Statement under the caption “Our Partnership Agreement—Limited Liability”).

Section 5.7  Exchange
Act Reports. The information concerning the Partnership in the
Partnership’s filings, reports and submissions under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), including, without limitation,
the financial statements included therein, copies of which have been made
available to the Seller Parties, does not contain any untrue statement of a
material fact or omit a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.

Section 5.8  Buyer’s
Review.  In connection with
its decision to purchase the Membership Interests, each of Buyer and the
Partnership acknowledges that it is a sophisticated party with such knowledge
and experience in business and financial matters as to be capable of evaluating
the merits and risks of the acquisition. 
Each of Buyer and the Partnership has had an opportunity to review the
records and business of Sirius provided to Buyer and the Partnership and to ask
questions and receive answers from Sellers and Sirius regarding Sirius.

Section 5.9  Citizenship.  Each of Buyer and the Partnership is a
citizen of the United States within the meaning of Chapter 505 of Title 46 of
the United States Code, for the purpose of operating the Vessels in the
coastwise trade of the United States.

ARTICLE VI

COVENANTS

Section 6.1  Other Offers.
From and after the date hereof and until the Closing, neither the Seller
Parties, Sirius nor any of their respective officers, managers, members,
employees, Affiliates, representatives or agents shall, directly or indirectly,
(a) solicit, enter into or conduct discussions relating to, initiate or
encourage any offer or proposal for, or any indication of interest in, (1) a
merger, consolidation, share exchange or other business combination involving
Sirius or any Seller, (2) the acquisition of an equity interest in Sirius or

 35
 

any Seller or (3) a sale, license or other
transfer of all or a material part of the assets of Sirius or any Seller (each,
a “Transaction”), or (b) engage in negotiations with or disclose any nonpublic
information relating to Sirius, any Seller or their respective businesses, or
afford access to the properties, books or records of Sirius or any Seller, to
any Person with respect to a Transaction. 
Sirius and the Seller Parties shall notify Buyer of any such inquiry or
proposal within three business days after receipt or awareness of the same.

Section 6.2  Conduct of
Business Pending Closing.

(a)           Between the date of this Agreement and the Closing
Date, Sirius and the Seller Parties will, and Seller Parties will cause Sirius
to:

(i)            conduct the business of Sirius in
the usual and ordinary course thereof, including, without limitation, the
making of proposals, quotations, bids and solicitations, and the entering into
of contracts for the purchase and sale of products and services;

(ii)           orally advise Buyer and, unless
prohibited by confidentiality requirements or antitrust laws, keep Buyer
advised of any material developments relating to the business of Sirius;

(iii)          maintain and preserve the business and
assets of Sirius in customary repair, order and condition, reasonable wear and
tear excepted;

(iv)          use their reasonable best efforts to
preserve Sirius’s business organization intact, to retain the services of
Sirius’s officers, employees and agents and to preserve Sirius’s relationships and
good will with its suppliers, customers, landlords, creditors, employees,
agents and others having business dealings with Sirius;

(v)           confer with Buyer concerning matters
of a nature described in Section 4.9;

(vi)          use their reasonable efforts to cause all
of the representations and warranties in Articles III and IV hereof to continue
to be true and correct; and

(vii)         otherwise respond to Buyer’s reasonable
requests concerning the status of the business, operations and finances of
Sirius.

(b)           Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, the Seller
Parties will not, and the Seller Parties will cause Sirius not to, without the
prior written consent of Buyer, take any action, or fail to take any reasonable
action within their or its control, as a result of which any of the changes or
events listed in Section 4.9 would reasonably be expected to occur.

Section 6.3  Access.  Sirius will, and the Seller Parties will
cause Sirius to, afford Buyer’s officers, attorneys, accountants and other
representatives reasonable access during normal business hours to the offices,
personnel, plants, properties, equipment and records of

 36
 

Sirius for the purpose of conducting an
investigation thereof.  Buyer shall not
contact clients, charterers, customers or suppliers of Sirius without the prior
consent of Wayne Sundberg (which consent shall not be unreasonably withheld or
delayed).  Sirius and the Seller Parties
will furnish to Buyer such financial and operating data and other information
as Buyer may reasonably request; provided, however, that the confidentiality of
any data or information so acquired shall be maintained by Buyer and its
representatives in accordance with the terms of paragraph 10 of the letter of
intent dated January 25, 2007 between K-Sea Operating Partnership L.P. and the
Seller Parties.

Section 6.4  Termination
of Guarantees and Settlement of Intercompany Amounts. The Seller
Parties shall cause any intercompany transactions described in Schedule
4.12(f) to be terminated or settled at or prior to the Closing at no cost
to Sirius or to Buyer.

Section 6.5  Covenant
Against Competition.

(a)           As an essential consideration for the obligations
of Buyer and the Partnership under this Agreement, each Seller Party hereby
agrees and covenants that, except on behalf of the Buyer or its Affiliates, for
a period of three years following the Closing Date:

(i)            neither the Seller Party nor any
Affiliate thereof shall, for whatever reason and with or without cause, either
individually or in partnership or jointly or in conjunction with any Person or
Persons as principal, agent, employee, shareholder (other than holding common
units or shares of other companies listed on a United States stock exchange or
automated quotation system that do not exceed one (1%) percent of the
outstanding shares so listed), owner, investor, partner or in any other manner
whatsoever, directly or indirectly, engage in any manner in the Restricted
Businesses in the Restricted Trades; and

(ii)           neither the Seller Party nor any
Affiliate thereof shall, directly or indirectly, (A) induce or attempt to
induce any customer to cease doing business with Buyer or any of its
Affiliates, (B) interfere with the relationship between any customer and Buyer
or any of its Affiliates or (C) solicit Restricted Business from, or provide
such services to, any of the customers or accounts of Buyer or any of its
Affiliates.

(b)           If Buyer believes that any Seller Party or any
Affiliate of the Seller Party has violated the provisions of this Section 6.5,
Buyer shall have the right to seek relief from any court of competent
jurisdiction against such party.  Each
Seller Party acknowledges that money damages alone shall not adequately
compensate Buyer in the event of a breach of the covenants of this Section
6.5.  Therefore, each Seller Party agrees
that in addition to all remedies available at law, in equity or under this
Agreement, Buyer shall be entitled to injunctive relief for the enforcement of
this covenant.

(c)           Each Seller Party agrees that the covenants in this
Section 6.5 are reasonable with respect to their duration, scope and
geographical area.

 37
 

 

(d)           The covenants in this Section 6.5 are severable and
separate, and the unenforceability of any specific covenant in this Section 6.5
is not intended by any party hereto to, and shall not, affect the provisions of
any other covenant in this Section 6.5. 
If any court of competent jurisdiction determines that the scope, time or
territorial restrictions Section 6.5(a) sets forth are unreasonable as applied
to a Seller Party, the parties hereto, including each Seller Party, acknowledge
their mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to
that extent.

(e)           All the covenants in this Section 6.5 are intended
by each party hereto to, and shall, be construed as an agreement independent of
any other provision in this Agreement, and the existence of any claim or cause
of action of any Seller Party against Buyer, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Buyer of any covenant in this Section 6.5. 
It is specifically agreed that the period specified in Section 6.5 shall
be computed in the case of each Seller Party by excluding from that computation
any time during which the Seller Party is in violation of any provision of
Section 6.5.  The covenants contained in
this Section 6.5 shall not be affected by any breach of any other provision
hereof by any party hereto.

(f)            Buyer and each Seller Party hereby agree that this
Section 6.5 is a material and substantial part of the transactions contemplated
by this Agreement.

Section 6.6  Further
Assurances.  Sirius and each
Seller Party shall execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered to the Buyer or its Affiliates such assignments or
other instruments of transfer, assignment and conveyance, in form and substance
reasonably satisfactory to Buyer, as shall be necessary to vest in Buyer (or
its permitted assignees) all of the right, title and interest in and to the
Membership Interests sold to Buyer by the Sellers pursuant to this Agreement,
free and clear of all Liens, and any other document reasonably requested by
Buyer in connection with this Agreement.

Section 6.7  Governmental
Filings.  As promptly as
practicable after the execution of this Agreement, each party shall, in
cooperation with the other, file any reports or notifications that may be
required to be filed by it under applicable law (including, without limitation,
any filings under the HSR Act).

Section 6.8  Consents.  After the Closing, each Seller Party shall
use its best efforts to obtain any consents or approvals or assist in any
filings required in connection with the transactions contemplated hereby that
are requested by Buyer and that have not been previously obtained or made.

Section 6.9  Public
Announcements.  No party
shall, without the prior approval of the other party, issue, or permit any of
its partners, stockholders, directors, officers, managers, members, employees,
agents or Affiliates to issue, any press release or other public announcement
with respect to this Agreement or the transactions contemplated hereby, except
as may be required by Law or applicable stock exchange regulations.

Section 6.10  Tax Matters

 38
 

 

(a)           The Seller Parties and Buyer agree that the
transactions pursuant to this Agreement shall, for federal income Tax (and
related state income Tax) purposes, be reported 
as a merger of Sirius into the Partnership, governed by the “assets-over”
form described in Treas. Reg. § 1.708-1(c)(3)(i), in which

(i)            Sirius is the “terminated”
partnership,

(ii)           Smith LLC is treated as selling a
portion of its one-third interest in Sirius to the Partnership pursuant to
Treas. Reg. § 1.708-1(c)(4) (and Smith LLC and Smith hereby expressly consent
to such application of Treas. Reg. § 1.708-1(c)(4)) immediately prior to the
Closing in exchange for (x) the portion of the Cash Consideration allocated to
Smith LLC in Schedule 2.8 and (y) any other items allocable to Smith LLC
under federal income tax principles, including, without limitation, a portion
of the payments made pursuant to Section 6.12(c) hereof,

(iii)          WS Maritime is treated as selling its
entire one-third interest in Sirius to the Partnership pursuant to Treas. Reg.
§ 1.708-1(c)(4) (and WS Maritime and Sundberg hereby expressly consent to such
application of Treas. Reg. § 1.708-1(c)(4)) immediately prior to the Closing in
exchange for (x) the portion of the Cash Consideration allocated to WS Maritime
in Schedule 2.8 and (y) any other items allocable to WS Maritime under
federal income tax principles, including, without limitation, a portion of the
payments made pursuant to Section 6.12(c) hereof,

(iv)          RCD is treated as selling a portion of
its one-third interest in Sirius to the Partnership pursuant to Treas. Reg. §
1.708-1(c)(4) (and RCD and Dorn hereby expressly consent to such application of
Treas. Reg. § 1.708-1(c)(4)) immediately prior to the Closing in exchange for
(x) the portion of the Cash Consideration allocated to RCD in Schedule 2.8
and (y) any other items allocable to RCD under federal income tax principles,
including, without limitation, a portion of the payments made pursuant to
Section 6.12(c) hereof,

(v)           the determination of the portions of
the one-third interests of each of Smith LLC and RCD that are treated as sold
to the Partnership pursuant to Sections 6.10(a)(ii) and (iv), respectively, are
made based on the ratio of the amount of consideration described in Sections
6.10(a)(ii) and (iv), respectively, to the total Merger Consideration received
by Smith LLC and RCD, respectively, pursuant to Schedule 2.8.

(vi)          the Partnership is treated as
purchasing the interests in Sirius described in Sections 6.10(a)(ii), (iii) and
(iv) (the “Cash Transaction Interests”) immediately prior to the Closing and as
receiving a distribution from Sirius at the Closing of the portion of the
assets and liabilities of Sirius allocable to the Cash Transaction Interests in
liquidation of such interests,

 39
 

 

(vii)         at the Closing, Sirius is treated as
(x) transferring the portion of its assets and liabilities that are not
allocable to the Cash Transaction Interests to the Partnership in exchange for
the Unit Consideration (the “Unit Transaction”) and (y) distributing the Unit
Consideration to Smith LLC and RCD in the amounts specified in Schedule 2.8 in
liquidation of their interests in Sirius other than the Cash Transaction
Interests,

(viii)        the Unit Transaction will be treated as
a tax-free transfer under Section 721, except to the extent any portion of the
allocable assumed liabilities must be treated as the proceeds of a taxable sale
of a portion of the assets of Sirius pursuant to Section 707 of the Code and
the regulations thereunder and

(ix)           references to Smith LLC, WS Maritime
or RCD in this Section 6.10 are treated as references to Smith, Sundberg or
Dorn, respectively to the extent any of Smith LLC, WS Maritime or RCD is a disregarded
entity for federal income tax purposes.

The Buyer, Smith LLC and RCD will consult
with each other and attempt to agree in good faith as to the portion, if any,
of Sirius’s assets that is treated as disposed of in a taxable sale pursuant to
Section 707 of the Code and Section 6.10(a)(viii) of this agreement.  For this purpose, no liability will be
treated as a “qualified liability” under Treas. Reg. § 1.707-5(a)(6) if
Schedule 4.26(e) does not contain sufficient information to confirm the status
of the liability as a “qualified liability”). 
In the event the parties are unable to agree, the determination of the
Buyer will be binding on the parties. 
Each party agrees not to assert, in connection with any Tax Return, tax
audit or similar proceeding, any position inconsistent with the allocations and
determinations described in this Section 6.10(a).

(b)           The Sellers will indemnify and hold Sirius and
Buyer harmless from (i) any liability for Taxes with respect to Sirius Items
(and any other liability of Sirius for Taxes) for events, and for Tax periods
(or portions thereof) ending, on or before the Closing Date, and (ii) any
liability of Sirius or any other entity for which Sirius could be held liable
after the Closing under Treas. Reg. § 1.1361-4(a)(6), Treas. Reg. § 1.1502-6,
Treas. Reg. § 301.7701-2(c)(2)(iii) or similar principles, excepting Taxes
described in Section 6.10(c).  For Tax
periods ending on or before the Closing Date, the Seller Parties and Sirius shall
cause to be timely filed with appropriate Governmental Bodies all Tax Returns
required to be filed by or with respect to Sirius and Sirius Items, and shall
pay or cause to be paid or make provisions for the payment of all Taxes due
with respect thereto.  Buyer and the
Partnership shall cooperate with the Seller Parties and provide such
information and access to records and personnel as is reasonably necessary to
prepare such returns.

(c)           All transfer, documentary, sales, use,
registration, real estate transfer or gain or similar or related Tax (but not
any business and occupation Tax) related to or arising from the transactions
contemplated herein shall be borne by Buyer. 
Sellers and Buyer shall cooperate in timely making all Tax Returns as
may be required to comply with the provisions of such Tax laws.

 

 40

(d)           Members shall cause the provisions of any Tax
sharing agreement between Members and any of their Affiliates (other than
Sirius), on the one hand, and Sirius, on the other hand, to be terminated on or
before the Closing Date, and no further payments shall be made thereunder.

(e)           The Seller Parties, Sirius, the Buyer and the
Partnership shall prepare all Tax Returns (and shall jointly prepare IRS Form
8594, if such form is required as to all or any portion of the transactions
contemplated by this Agreement, as soon as practicable after the Closing Date)
to report the allocation of the Merger Consideration

(i)            in a manner consistent with Section
6.10(a) and

(ii)           among the assets of Sirius in the
manner required by law, on the basis that (w) the fair market value of the
vessels is equal to the amount determined in an appraisal of the vessels owned
or leased by Sirius to be prepared by Marcon International, Inc.  (with Buyer to bear the cost of the
appraisal), (x) the fair market value of all tangible assets other than vessels
is equal to their respective tax bases, (y) the fair market value of the
covenants not to compete in Section 6.5 is equal to the amount determined in an
appraisal to be obtained by Buyer at Buyer’s expense and (z) the fair market
value of all other intangible assets is equal to the balance of any allocable
consideration; provided that the total amount allocated to the covenants not to
compete under Section 6.10(e)(ii)(y) and other intangible assets that produce
ordinary income to the Seller Parties will not exceed $400,000

(f)            A capital account will be established for each
Partnership unit issued as Unit Consideration in an amount equal to the fair
market value of the unit on the Closing Date. 
Differences between the fair market value and the basis of the Sirius
assets allocable to the Contributions shall be taken into account in the manner
required by Section 704(c) of the Code. 
The Buyer will elect the remedial method of Treas. Reg. § 1.704-3(d) as
to all such assets.  All other determinations
regarding the application of Section 704(c), the determination and maintenance
of capital accounts and other tax matters relating to the Contributions and the
assets allocable thereto shall be made in the discretion of the Buyer in a
manner consistent with the Partnership Agreement.  For a period of three years following the
Closing Date, the Buyer will not sell any of vessels owned by Sirius on the
Closing Date.

(g)           If Sirius does not have an election under Section
754 of the Code in effect as of the date hereof, the Seller Parties shall cause
Sirius to make such an election in the first federal income tax return of
Sirius filed after the date hereof (whether or not such return is the final
income tax return of Sirius for the period ending on the Closing Date).

Section 6.11           Closing
Date Balance Sheet.  On the
Closing Date, Sellers shall deliver to Buyer a balance sheet of Sirius as of
the Closing Date (the “Closing Date Balance Sheet”), accompanied by a
certificate of the President of Sirius to the effect that such statement,
except as set forth on Schedule 6.11, has been prepared in accordance
with GAAP.  Within sixty days following
the delivery of the Closing Date Balance Sheet, Buyer shall notify the Seller
Parties if Buyer disagrees with the Closing Date Balance Sheet.  If Buyer does not so notify the 

 41
 

Seller Parties, Buyer shall be deemed to have accepted
such determination.  If Buyer does so
notify the Seller Parties that Buyer disagrees with such determination, and the
Seller Parties and Buyer are thereafter unable to agree within ten days upon
the Closing Date Balance Sheet, then the Closing Date Balance Sheet shall be
determined by an independent accounting firm selected by the Seller Parties
from a list of three nationally recognized independent accounting firms
provided by Buyer.  The determination by
such accounting firm shall be final and binding on Buyer and the Seller
Parties, and the fees and expenses of such accounting firm shall be borne
equally by the Seller Parties, on the one hand, and Buyer, on the other hand.

Section 6.12           Employees.

(a)           For a period of three years after the Closing, none
of the Seller Parties or their Affiliates shall, directly or indirectly, either
for itself or any other Person, (i) induce or attempt to induce any employee of
Buyer or its Affiliates to leave the employ of Buyer or its Affiliates, (ii) in
any way interfere with the relationship between Buyer or its Affiliates and any
of their respective employees (provided that no party shall be deemed to be
interfering with such relationship if it hires a former employee of the other
party who has been terminated by the other party or has resigned from the
employment of such other party and the provisions of clause (i) hereof have not
been violated by the Seller Parties or their Affiliates), or (iii) employ, or
otherwise engage as an employee, independent contractor or otherwise, any
employee of Buyer or its Affiliates, in each case except for employees set
forth on Schedule 6.12(a).  For
purposes of this Section 6.12, employees of Sirius immediately prior to the
Closing shall be deemed to be employees of Buyer and its Affiliates and not
employees of the Seller Parties and their Affiliates.

(b)           Prior to the Closing Date, Sirius shall terminate
participation in each of the Plans and agreements set forth on Schedule 4.20
to the extent requested by Buyer (the “Terminated Plans”), and Sirius and the
Seller Parties shall take all actions reasonably necessary to ensure that all
liabilities arising under the Terminated Plans are either satisfied prior to
the Closing or assumed by the Seller Parties or another affiliate of the Seller
Parties.

(c)           At or prior to Closing, Sirius may, at its option,
pay to its employees one-time bonuses or other compensation in an amount not to
exceed $1,000,000 in the aggregate including all employment and other taxes
payable in connection therewith.  At
Closing, the aggregate amount of such bonuses or other compensation and
employment and other taxes in connection therewith shall be paid by Buyer to
Sirius as a capital contribution, and the Merger Consideration shall be reduced
by such amount as provided in Section 2.8(a)(i)(6).  Such bonuses or other compensation shall be
paid only if the receiving employee executes and delivers a release in substantially
the form attached hereto as Exhibit A.

Section 6.13           Vehicle
Purchase Option.  Immediately
after Closing, each Seller shall have the option to purchase the automobile set
forth opposite such Seller’s name on Schedule 6.13 for the purchase
price set forth therein.  Such option
shall remain in effect for ten business days after the Closing Date.

Section 6.14           Financial
Statements.  Sirius and the
Seller Parties shall engage PricewaterhouseCoopers LLP to conduct a three-year
audit of the financial statements of Sirius 

 42
 

and financial reviews under Statement of Auditing
Standards No. 100 of the interim unaudited financial statements of Sirius,
which in each case are required to be filed by Buyer or its Affiliates under
Rule 3-05 of Regulation S-X of the Exchange Act.  Such financial statements shall be free of
any qualifications and shall be substantially consistent with the Unaudited
Financial Statements.  The financial
statements provided for in this Section 6.14 shall, when completed, be attached
as Schedule 4.12(b) and Schedule 4.12(c) to this Agreement, as
applicable, as provided in Section 4.12(b) and Section 4.12(c).

Section 6.15           Notification.  Between the date of this Agreement and the
Closing Date, Sirius and the Seller Parties will promptly notify Buyer in
writing if Sirius or any such Seller Party becomes aware of any fact or
condition that causes or constitutes a breach of any of the representations and
warranties of Sirius or any Seller Party as of the date of this Agreement, or
if Sirius or any such Seller Party becomes aware of the occurrence after the
date of this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition.  If any such fact or condition would require
any change in the Schedules referred to in Articles III or IV of this Agreement
if such Schedules were dated as of the date of the occurrence or discovery of
any such fact or condition, then Sirius and the Seller Parties will promptly
deliver to Buyer a supplement to such Schedules specifying such change.  During the same period, Sirius and the Seller
Parties will promptly notify Buyer of the occurrence of any breach of any
pre-closing covenant of Sirius or the Seller Parties in this Agreement or of
the occurrence of any event that may make the satisfaction of the conditions in
Article VIII impossible or unlikely.  If
Buyer elects to proceed with the Closing after receipt of such written
notification, then Buyer shall be deemed to have waived in full any breach of
the representations, warranties or pre-closing covenants of Sirius or the
Seller Parties contained in any such notification (but only to the extent
described therein).

Section 6.16           Insurance.  Sirius and the Seller Parties will cooperate
with Buyer to arrange for new insurance coverages for Sirius effective upon and
after the Closing with the cost of such new insurance coverages to be at Buyer’s
expense.  The Seller Parties shall use
their reasonable best efforts to keep the Insurance Policies in full force and
effect from and after the Closing Date with respect to claims occurring prior
to the Closing Date.

Section 6.17           Misdirected
Payments.  To the extent the
Seller Parties or any of their respective Affiliates receive payments from
Sirius’s customers after the Closing with respect to services rendered by
Sirius, then the receiving party shall promptly remit such payments to Sirius.

Section 6.18           Restrictions
on Transfer; Legends.

(a)           A Seller Party shall not transfer (whether by sale,
assignment, pledge or otherwise) any Unit Consideration to any Person unless
such Person is a citizen of the United States within the meaning of Chapter 505
of Title 46 of the United States Code for the purpose of operating vessels in
the coastwise trade of the United States and unless such Person otherwise
complies with this Section 6.18.

 43
 

(b)           Prior to any proposed transfer (whether by sale,
assignment, pledge or otherwise) of the Unit Consideration, the proposed
transferor (the “Transferor”) will give written notice to the Partnership of
its intention to effect such transfer. 
Each such notice shall describe the manner and circumstances of the
proposed transfer in sufficient detail, contain evidence of citizenship of the
proposed transferee and shall be accompanied by a written opinion of legal
counsel who shall be reasonably satisfactory to the Partnership, addressed to
the Partnership, to the effect that (i) the proposed transfer of the securities
in question may be effected without registration under the Securities Act, (ii)
such proposed transfer does not call into question the exemption from
registration under which such Unit Consideration was initially issued by the
Partnership to the Seller Party and (iii) the proposed transferee is a citizen
of the United States within the meaning of Chapter 505 of Title 46 of the
United States Code for the purpose of operating vessels in the coastwise trade
of the United States.  Any such legal
opinion must be reasonably satisfactory to the Partnership and must state that
it may also be relied upon by any applicable transfer agent or stock exchange or
counsel to the Partnership.  The Partnership
may also require a certificate of the Transferor that certifies as to matters
that assist the Partnership in establishing compliance with securities laws as
at the time of the proposed transfer (including, without limitation,
representations relating to the proposed transfer and the transferee of the
type set forth in Section 3.8 hereto).

(c)           Upon compliance with the terms hereof to the
reasonable satisfaction of the Partnership, the Transferor shall be entitled to
transfer such securities in accordance with the terms of the notice delivered
by the Transferor to the Partnership. 
Each certificate evidencing the Unit Consideration so transferred shall
bear an appropriate restrictive legend reasonably deemed necessary by the
Partnership, including any appropriate legend relating to the restrictions and
obligations set forth in this Section 6.18 and in Section 3.8 hereto.

(d)           The Transferor will, prior to any transfer (unless
such transfer is made pursuant to Rule 144 or an effective registration
statement under the Securities Act), cause any transferee of the Unit
Consideration to enter into an agreement with the Partnership that the
transferee will take and hold such securities subject to the provisions and
upon the conditions specified in this Section 6.18 and in Section 3.8 hereto.

(e)           The Partnership may issue stop transfer
instructions to any transfer agent for the Common Units in order to implement
any restriction on transfer contemplated by this Section 6.18 or Section 3.8
hereto.  The certificates representing
the Unit Consideration shall contain the following legend:

THE UNITS REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW.  SUCH UNITS MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE PARTNERSHIP AS TO THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT ANY PROSPECTUS
DELIVERY REQUIREMENTS ARE NOT APPLICABLE. 
THE UNITS WERE ISSUED PURSUANT TO AN 

 44
 

AGREEMENT WHICH INCLUDES ADDITIONAL RESTRICTIONS ON
THEIR TRANSFER AND COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE PARTNERSHIP AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
PARTNERSHIP.

(f)            Without limiting the generality of any other
provision hereof, the provisions of this Section shall be binding on successive
transferees.  The Partnership shall have
no obligation to effect any transfer on its books and records (and no such
attempted transfer shall be effective) unless such transfer is made in
accordance with the terms of this Section 6.18.

(g)           The provisions of subsections (a) - (f) of this
Section 6.18 shall not apply to any transfer effected on the New York Stock
Exchange pursuant to an effective registration statement under the Securities
Act or an exemption from the registration requirements of the Securities Act.

ARTICLE VII

INDEMNIFICATION

Section 7.1             Seller Parties’ Indemnity Obligations

(a)           Seller and its Member agree, severally and not
jointly with any other Seller or Member, to indemnify each Buyer Indemnified
Party against, and hold each Buyer Indemnified Party harmless from and against,
any Indemnified Amounts that arise from, are based on or relate or otherwise
are attributable to (1) any error, inaccuracy, breach or misrepresentation in
any of the representations and warranties made by or on behalf of such Seller
and its Member in Article III of this Agreement, (2) any violation or breach by
such Seller or its Member of or default by such Seller or its Member under the
terms of this Agreement, and (3) any claim by any Person for brokerage or
finder’s fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with such Seller or
its Member (or any Person acting on their behalf) in connection with any of the
transactions contemplated by this Agreement. 
Buyer shall be entitled to recover its reasonable and necessary
attorneys’ fees and litigation expenses incurred in connection with successful
enforcement of its rights under this Section 7.1(a).

(b)           The Seller Parties agree, jointly and severally, to
indemnify each Buyer Indemnified Party against, and hold each Buyer Indemnified
Party harmless from and against, any Indemnified Amounts that arise from, are
based on or relate or otherwise are attributable to (1) any error, inaccuracy,
breach or misrepresentation in any of the representations and warranties made
by or on behalf of Sirius and the Seller Parties in Article IV of this
Agreement (provided that the representations and warranties shall be read as if
no materiality qualifiers were contained therein), (2) any violation or breach
by Sirius or the Seller Parties of or default by Sirius or the Seller Parties
under the terms of this Agreement, (3) any claim by any Person for brokerage or
finder’s fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with any Seller
Party or Sirius (or 

 45
 

any Person acting on their behalf) in connection with
any of the transactions contemplated by this Agreement, (4) any claim by any
Person under ERISA or other applicable law relating to an “employee pension
benefit plan” sponsored, maintained or contributed to by an ERISA Affiliate and
subject to Title IV of ERISA or the minimum funding requirements of Code
section 412, or (5) any claims related to the improper classification of
employees for purposes of the Fair Labor Standards Act or other applicable law
during any period prior to Closing. 
Buyer shall be entitled to recover its reasonable and necessary attorneys’
fees and litigation expenses incurred in connection with successful enforcement
of its rights under this Section 7.1(b). 
Notwithstanding the foregoing, the Seller Parties shall not be required
to indemnify or hold harmless the Buyer Indemnified Parties on account of any
Indemnified Amounts arising under Section 7.1(b)(1) (other than with respect to
breaches of representations and warranties contained in Sections 4.1, 4.2, 4.3,
4.6, 4.8, 4.14(d), 4.15, 4.26 and 4.30 as to which the Threshold Amount shall
not apply) unless the aggregate liability of the Seller Parties in respect of
all Indemnified Amounts exceeds the Threshold Amount and then only for the
amount in excess of the Threshold Amount. 
In no event shall the Seller Parties liability to the Buyer Indemnified
Parties under Section 7.1(b)(1) exceed the Ceiling Amount (other than with
respect to breaches of representations and warranties contained in Sections
4.1, 4.2, 4.3, 4.6, 4.8, 4.14(d), 4.15, 4.26 and 4.30 as to which the Ceiling
Amount shall not apply).

Section 7.2             Buyer’s
Indemnity Obligations.  Buyer
shall indemnify each Seller Indemnified Party against, and hold each Seller
Indemnified Party harmless from and against, any and all Indemnified Amounts
that arise from, are based on or relate or otherwise are attributable to (a) any
error, inaccuracy, breach or misrepresentation in any of the representations
and warranties made by or on behalf of Buyer or the Partnership in this
Agreement, (b) any violation or breach by Buyer or the Partnership of or
default by Buyer or the Partnership under the terms of this Agreement, except
to the extent such Indemnified Amount relates to a matter for which
indemnification would be provided under Sections 7.1(a) or (b), or (c) any
claim by any Person for brokerage or finder’s fees or commissions or similar
payments based on any agreement or understanding alleged to have been made by
any such Person with Buyer or the Partnership (or any Person acting on its
behalf) in connection with any of the transactions contemplated by this
Agreement.  The failure of Buyer to cure,
remediate or otherwise repair any condition or circumstance existing at the
Closing or caused by Seller shall not be deemed an “omission” for purposes
hereof.  Seller shall be entitled to
recover its reasonable and necessary attorneys’ fees and litigation expenses
incurred in connection with successful enforcement of their rights under this
Section 7.2.  Notwithstanding the
foregoing, Buyer shall not be required to indemnify or hold harmless the Seller
Indemnified Parties on account of any Indemnified Amounts arising under Section
7.2(a) unless the aggregate liability of Buyer in respect of all Indemnified
Amounts exceeds the Threshold Amount and then only for the amount in excess of
the Threshold Amount.  In no event shall
the Buyer’s aggregate liability to the Seller Indemnified Parties under this
Section 7.2(a) exceed the Ceiling Amount (other than with respect to breaches
of representations and warranties contained in Sections 5.1 and 5.7 as to which
the Ceiling Amount shall not apply).

Section 7.3             Survival.  All the provisions of this Agreement shall
survive the Closing, notwithstanding any investigation at any time made by or
on behalf of any party hereto, provided that the representations and warranties
set forth in this Agreement and in any certificate delivered in connection
herewith with respect to any of those representations and warranties shall 

 46
 

terminate and expire on the third anniversary of the
Closing Date, except (a) the representations and warranties of each Seller and
its Member set forth in Sections 3.1, 3.2, 3.3, 3.6 and 3.8 shall survive
forever, (b) the representations and warranties of the Seller Parties set
forth in Sections 4.7, 4.19, 4.20, 4.21, 4.22 and 4.26 shall survive until
the expiration of the applicable statutes of limitations (including all periods
of extension and tolling) and (c) the representations and warranties of the
Seller Parties set forth in Sections 4.1, 4.2, 4.3, 4.8, and 4.14(d) shall
survive forever.  After a representation
and warranty has terminated and expired, no indemnification shall or may be
sought pursuant to this Article VII on the basis of that representation and
warranty by any Person who would have been entitled pursuant to this
Article VII to indemnification on the basis of that representation and
warranty prior to its termination and expiration, provided that in the case of
each representation and warranty that shall terminate and expire as provided in
this Section 7.3, no claim presented in writing for indemnification pursuant to
this Article VII on the basis of that representation and warranty prior to its
termination and expiration shall be affected in any way by that termination and
expiration.  The indemnification
obligations under this Article VII or elsewhere in this Agreement shall apply
regardless of whether any suit or action results solely or in part from the
active, passive or concurrent negligence or strict liability of the Indemnified
Party.  The covenants and agreements
entered into pursuant to this Agreement to be performed after the Closing shall
survive the Closing.

Section 7.4             Indemnification
Procedures.  All claims for
indemnification under this Agreement shall be asserted and resolved as follows:

(a)           Promptly after receipt by a Person entitled to
indemnity under Section 7.1 or 7.2 (an “Indemnified Party”) of notice of the
assertion of a claim against an Indemnified Party by a Person that is not a
party to this Agreement (a “Third-Party Claim), such Indemnified Party shall
give notice to the Person obligated to indemnify under such Section (an “Indemnifying
Party”) of the assertion of such Third-Party Claim, provided that the failure
to notify the Indemnifying Party will not relieve the Indemnifying Party of any
liability that it may have to any Indemnified Party, except to the extent that
the Indemnifying Party demonstrates that the defense of such Third-Party Claim
is prejudiced by the Indemnified Party’s failure to give such notice.

If an
Indemnified Party gives notice to the Indemnifying Party pursuant to the preceding
paragraph of the assertion of a Third-Party Claim, the Indemnifying Party shall
be entitled to participate in the defense of such Third-Party Claim and, to the
extent that it wishes (unless (i) the Indemnifying Party is also a Person
against whom the Third-Party Claim is made and the Indemnified Party determines
in good faith that joint representation would be inappropriate or (ii) the
Indemnifying Party fails to provide reasonable assurance to the Indemnified
Party of its financial capacity to defend such Third-Party Claim and provide
indemnification with respect to such Third-Party Claim), to assume the defense
of such Third-Party Claim with counsel reasonably satisfactory to the
Indemnified Party.  After notice from the
Indemnifying Party the Indemnified Party of its election to assume the defense
of such Third-Party Claim, the Indemnifying Party shall not, so long as it
diligently conducts such defense, be liable to the Indemnified Party under this
Article VII for any fees of other counsel or any other expenses with respect to
the defense of such Third-Party Claim, in each case subsequently incurred by
the Indemnified Party in connection with the defense of such Third-Party Claim,

 47
 

other than reasonable costs of investigation.  If the Indemnifying Party assumes the defense
of a Third-Party Claim, (i) such assumption will conclusively establish for
purposes of this Agreement that the claims made in that Third-Party Claim are
within the scope of and subject to indemnification, and (ii) no compromise or
settlement of such Third-Party Claims may be effected by the Indemnifying Party
without the Indemnified Party’s consent (which shall not be unreasonably
withheld) unless (A) there is no finding or admission of any violation of Law
or any violation of the rights of any Person; (B) the sole relief provided is
monetary damages that are paid in full by the Indemnifying Party; and (C) the
Indemnified Party shall have no liability with respect to any compromise or
settlement of such Third-Party Claims effected without its consent.  If notice is given to an Indemnifying Party
of the assertion of any Third-Party Claim and the Indemnifying Party does not,
within twenty days after the Indemnified Party’s notice is given, give notice
to the Indemnified Party of its election to assume the defense of such
Third-Party Claim, the Indemnifying Party will be bound by any determination
made in such Third-Party Claim or any compromise or settlement effected by the
Indemnified Party.

Notwithstanding
the foregoing, if an Indemnified Party determines in good faith that there is a
reasonable probability that a Third-Party Claim may adversely affect it or its
Affiliates other than as a result of monetary damages for which it would be
entitled to indemnification under this Agreement, the Indemnified Party may, by
notice to the Indemnifying Party, assume the exclusive right to defend,
compromise or settle such Third-Party Claim, but the Indemnifying Party will
not be bound by any determination of any Third-Party Claim so defended for the
purposes of this Agreement or any compromise or settlement effected without its
consent (which may not be unreasonably withheld).

Notwithstanding
the provisions of Section 10.10, Seller hereby consents to the nonexclusive
jurisdiction of any court in which a proceeding in respect of a Third-Party
Claim is brought against any Buyer Indemnified Party for purposes of any claim
that a Buyer Indemnified Party may have under this Agreement with respect to
such proceeding or the matters alleged therein and agree that process may be
served on Seller with respect to such a claim anywhere in the world.

With
respect to any Third-Party Claim subject to indemnification under this Article
VII: (i) both the Indemnified Party and the Indemnifying Party, as the case may
be, shall keep the other Person fully informed of the status of such
Third-Party Claim and any related proceedings at all stages thereof where such
Person is not represented by its own counsel, and (ii) the parties agree (each
at its own expense) to render to each other such assistance as they may
reasonably require of each other and to cooperate in good faith with each other
in order to ensure the proper and adequate defense of any Third-Party Claim.

With
respect to any Third-Party Claim subject to indemnification under this Article
VII, the parties agree to cooperate in such a manner as to preserve in full (to
the extent possible) the confidentiality of all Confidential Information (as
defined below) and the attorney-client and work-product privileges.  In connection therewith, each party agrees
that: (i) it will use its best efforts, in respect of any Third-Party Claim in
which it has assumed or participated in the defense, to avoid production of
Confidential Information (consistent with applicable law and rules of
procedure), and (ii) all communications between any party hereto and counsel
responsible for or participating in the defense of any Third-Party Claim shall,
to the extent 

 48
 

possible, be made so as to preserve any applicable
attorney-client or work-product privilege.

(b)           If any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the “Indemnity Notice”) describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim to
the extent feasible (which estimate shall not be conclusive of the final amount
of such claim) and the basis of the Indemnified Party’s request for
indemnification under this Agreement.  If
the Indemnifying Party does not notify the Indemnified Party within twenty days
from its receipt of the Indemnity Notice that the Indemnifying Party disputes
such claim, the claim specified by the Indemnified Party in the Indemnity
Notice shall be deemed a liability of the Indemnifying Party hereunder.

Section 7.5             General.  The indemnification provisions in this
Article VII shall be enforceable regardless of whether the liability is based
upon past, present or future acts, claims or Laws (including any past, present
or future bulk sales law, Environmental Law, fraudulent transfer act,
occupational safety and health law or product liability, securities or other
Law) and regardless of whether any Person (including the Person from whom
indemnification is sought) alleges or proves the sole, concurrent, contributory
or comparative negligence of the Person seeking indemnification or the sole or
concurrent strict liability imposed upon the Person seeking indemnification.  The rights of the parties to indemnification
under this Article VII shall not be limited due to any investigations
heretofore or hereafter made by such parties or their representatives, regardless
of negligence in the conduct of any such investigations.  All representations, warranties, covenants
and agreements made by the parties shall not be deemed merged into any
instruments or agreements delivered in connection with the Closing or otherwise
in connection with the transactions contemplated hereby.

Section 7.6             Exclusivity.  The indemnification rights in Section 6.10
and this Article VII shall be the exclusive remedies of the Indemnified Parties
for any Indemnified Amounts arising out of or resulting from any breach of any
of the representations and warranties in this Agreement (other than any claim
for Indemnified Amounts arising out of or based on fraud or willful
misconduct).

ARTICLE VIII

CONDITIONS TO CLOSING

Section 8.1             Conditions
to Obligations of Buyer.  The
obligations of Buyer to consummate the transactions contemplated herein are
subject, at the option of Buyer, to satisfaction of the following conditions:

(a)           Compliance.  Sirius and the Seller Parties shall have
complied with their covenants and agreements contained herein, and the
representations and warranties contained in Articles III and IV hereof shall be
true and correct on the date hereof and true and correct in all material
respects as of the Closing Date (except those representations and warranties
qualified by materiality, which shall be true and correct in all respects as so
qualified).

 49

 

(b)           Officer’s Certificate. 
Buyer shall have received a certificate, dated as of the Closing Date,
of an executive officer of Sirius and each Seller certifying as to the matters
specified in Sections 8.1(a) hereof.

(c)           Sellers’ Resolutions. 
Each Seller shall deliver to Buyer a certified copy of resolutions duly
adopted by the members of such Seller and authorizing and approving the
execution and delivery of this Agreement, including the exhibits and schedules
hereto, and the consummation of the transactions contemplated herein.

(d)           Assignment of Membership Interests.  The Seller Parties shall each deliver
Assignments of Membership Interests assigning to Buyer all of their rights,
title and interests in their respective Membership Interests in Sirius in the
form attached as Exhibit B duly executed by Sellers.

(e)           HSR Act.  Any waiting
period applicable to the consummation of the transactions contemplated by this
Agreement under the HSR Act shall have expired or been terminated.

(f)            Delivery of Financial Statements.  Buyer shall have received the financial
statements required by Section 6.14 at least thirty business days prior to the
Closing Date.

(g)           No Material Adverse Change. 
No material adverse change in the value of the Membership Interests or
in the business or in the financial condition of Sirius shall have occurred
since the date hereof, and no event shall have occurred since the date hereof
which could be expected to lead to or cause such a material adverse change;
provided, however, that (i) changes resulting from conditions affecting the
coastwise maritime petroleum transportation industry in general and
(ii) changes in the economy in general shall, in each case, be excluded
from the determination to the extent that they do not have a disproportionate
effect on Sirius as compared to other entities engaged in the coastwise
maritime petroleum transportation industry in Hawaii and along the West Coast.

(h)           Certified Abstracts. 
Sirius and the Seller Parties shall deliver certified abstracts of title
for each of the Vessels issued by the U.S. Coast Guard at the National Vessel
Documentation Center dated no earlier than seven days prior to the date of the
Closing (i) showing that Sirius is the owner of the Owned Vessels and that such
Owned Vessels are free and clear of all Liens except Permitted Liens and (ii)
identifying the owner of the Bareboat Chartered Vessels and that such Bareboat
Chartered Vessels are free and clear of all Liens except Permitted Liens.

(i)            Confirmation of Class Certificates.  Sirius and the Seller Parties shall deliver
confirmation of class certificates for each of the Vessels where applicable
(free from recommendations) issued by the American Bureau of Shipping issued no
earlier than seven days prior to the date of the Closing.

(j)            Orders, Etc.  No
action, suit or proceeding shall have been commenced or shall be pending or
threatened, and no statute, rule, regulation or order shall have been enacted,
promulgated, issued or deemed applicable to the transactions contemplated by
this Agreement, by any Governmental Body or court that reasonably may be
expected to (i) prohibit

 

 50
 

 

Buyer’s ownership or operation of all or a
material portion of the assets of Sirius, or compel Buyer to dispose of or hold
separate all or a material portion of Buyer’s or Sirius’s business or assets,
as a result of the transactions contemplated by this Agreement or (ii) prohibit
consummation of the transactions contemplated by this Agreement.

(k)           Removal of Liens. 
Sirius and the Seller Parties shall have caused any and all Liens on the
assets of Sirius except Permitted Liens to be released and shall have provided
Buyer with documentary evidence to such effect.

(l)            Consent of Mortgagee. 
If Sirius is required to redocument any Vessels immediately following
the Closing, Sirius and Bank of America, N.A. shall have executed a mortgagee
consent to such redocumentation on Coast Guard form CG-4593.

(m)          Resignations.  Each
director and officer of Sirius shall deliver a notice of resignation in the
form previously approved by Buyer.

(n)           Employee Releases. 
Each employee to whom a special bonus has been paid or promised, orally
or in writing, shall deliver to Sirius and Buyer an executed release in
substantially the form attached as Exhibit A hereto.

(o)           Employment Agreements. 
Each of Robert C. Dorn, Gordon L.K. Smith and Wayne A. Sundberg shall
execute and deliver an Employment Agreement in substantially the form attached
as Exhibit C hereto.

(p)           Due Diligence.  Buyer
shall have received surveys of the Vessels from W.H. Paddie & Associates,
Inc. and the condition of such Vessels as reflected in such surveys shall be
reasonably satisfactory to Buyer.

(q)           Simultaneous Closing of Acquisition of Smith Maritime Companies.  The transactions contemplated by that certain
Agreement and Plan of Merger dated as of June 25, 2007, by and among K-Sea
Acquisition1 LLC, the Partnership, Smith and the other parties thereto, shall
close simultaneously with the closing of the transactions contemplated by this
Agreement.

(r)            Other Documents.  Sirius
and the Seller Parties shall deliver to Buyer such other documents, instruments
and certificates as may be reasonably requested by Buyer, including, without
limitation, the original company book, minute books and seal (if any) of
Sirius.

(s)           Consents.  All
consents and approvals required in connection with the execution, delivery and
performance of this Agreement shall have been obtained.

Section 8.2             Conditions
to Obligations of Sirius and the Seller Parties.  The obligations of Sirius and the Seller Parties
to consummate the transactions contemplated herein are subject, at the option
of Sirius and the Seller Parties, to satisfaction of the following conditions:

(a)           Compliance.  Buyer shall have complied with its covenants
and

 

 51
 

 

agreements
contained herein, and the representations and warranties contained in Article V
hereof shall be true and correct on the date hereof and true and correct in all
material respects as of the Closing Date (except those representations and
warranties qualified by materiality, which shall be true and correct in all
respects as so qualified).

(b)           Officer’s Certificate.  The Seller Parties shall have received a
certificate, dated as of the Closing Date, of an executive officer of the
general partner of Buyer certifying as to the matters specified in Section
8.2(a) hereof.

(c)           Buyer and Partnership
Resolutions.  Buyer and the
Partnership shall deliver to the Seller Parties a certified copy of resolutions
duly adopted by the board of directors of the general partner of each of Buyer
and the Partnership authorizing and approving the execution and delivery of
this Agreement, including the exhibits and schedules hereto, and the
consummation of the transactions contemplated herein.

(d)           HSR Act.  Any waiting period applicable to the consummation
of the transactions contemplated by this Agreement under the HSR Act shall have
expired or been terminated.

(e)           Orders, Etc.  No action, suit or proceeding shall have been
commenced or shall be pending or threatened, and no statute, rule, regulation
or order shall have been enacted, promulgated, issued or deemed applicable to
the transactions contemplated by this Agreement, by any Governmental Body or
court that reasonably may be expected to prohibit consummation of the
transactions contemplated by this Agreement.

(a)           Employment Agreements. 
Buyer shall execute and deliver an Employment Agreement with respect to
each of Robert C. Dorn, Gordon L.K. Smith and Wayne A. Sundberg in
substantially the form attached as Exhibit C hereto.

(b)           Simultaneous Closing of Acquisition of Smith Maritime Companies.  The transactions contemplated by that certain
Agreement and Plan of Merger dated as of June 25, 2007, by and among K-Sea
Acquisition1 LLC, the Partnership, Smith and the other parties thereto, shall
close simultaneously with the closing of the transactions contemplated by this
Agreement.

(f)            Other Documents.  Buyer shall deliver to the Seller Parties
such other documents, instruments and certificates as may be reasonably
requested by the Seller Parties.

(g)           Consents.  All consents and approvals required in
connection with the execution, delivery and performance of this Agreement shall
have been obtained.

(h)           Merger Consideration.  Buyer shall have delivered the Merger
Consideration pursuant to Section 2.8.

(j)            Registration Rights
Agreement.  The Partnership
shall have executed and delivered a registration rights agreement in
substantially the form attached as Exhibit D hereto.

(j)            Release of Guarantees.  Each of the Seller Parties shall have been
released

 

 52
 

 

from any personal
guarantee which may have been entered into by a Seller Party in connection with
the Business Loan Agreement.

ARTICLE IX

TERMINATION

Section 9.1             Grounds
for Termination.  This
Agreement may be terminated at any time prior to the Closing Date:

(a)           By
the mutual written agreement of Buyer and the Seller Parties;

(b)           By
Buyer if any of the conditions set forth in Section 8.1 hereof shall have
become incapable of fulfillment and shall not have been waived by Buyer;

(c)           By
the Seller Parties if any of the conditions set forth in Section 8.2 hereof
shall have become incapable of fulfillment and shall not have been waived by
the Seller Parties;

(d)           By
either Buyer, on the one hand, or the Seller Parties, on the other hand, by
written notice thereof to the other, if the transactions contemplated hereby
shall not have been consummated on or before October 31, 2007, or such other
date, if any, as Buyer and the Seller Parties shall agree upon in writing; or

(e)           By
Buyer, on the one hand, or the Seller Parties, on the other hand, if the
consummation of the transactions contemplated hereby would violate any
nonappealable final order, decree or judgment of any court or Governmental Body
having competent jurisdiction enjoining, restraining or otherwise preventing,
or awarding substantial damages in connection with, or imposing a material
adverse condition upon, the consummation of this Agreement or the transactions
contemplated hereby;

provided,
however, that a party shall not be allowed to exercise any
right of termination pursuant to this Section 9.1 if the event giving rise to
such termination right shall be due to the negligent or willful failure of the
party seeking to terminate this Agreement to perform or observe in any material
respect any of the covenants or agreements set forth herein to be performed or
observed by such party.

Section 9.2             Effect
of Termination.  The following
provisions shall apply in the event of a termination of this Agreement:

(a)           Each
party’s right of termination pursuant to Section 9.1 hereof is in addition to
any other rights it may have under this Agreement or otherwise, and the
exercise of such right of termination will not be an election of remedies.  If this Agreement is terminated pursuant to
Section 9.1, all obligations of the parties under this Agreement will terminate
except as set forth in Section 9.2(b) hereof; provided, however, that (i) if
this Agreement is terminated by Buyer because of the breach of this Agreement
by Sirius or the Seller Parties or because one or more of the conditions to
Buyer’s obligations under this Agreement is not satisfied as a result of the
failure of Sirius or any Seller Party to comply with its obligations under this
Agreement, Buyer’s right to pursue all legal remedies will survive such termination
unimpaired, and (ii) if

 

 53
 

 

this Agreement is terminated by the Seller
Parties because of the breach of this Agreement by Buyer or because one or more
of the conditions to the Seller Parties’ obligations under this Agreement is
not satisfied as a result of Buyer’s failure to comply with its obligations
under this Agreement, the Seller Parties’ right to pursue all legal remedies
will survive such termination unimpaired.

(b)           The
parties hereto hereby agree that the provisions of Sections 9.2, 10.3, 10.4,
10.5, 10.9 and 10.10 hereof shall survive any termination of this Agreement.

ARTICLE X

GENERAL PROVISIONS

Section 10.1           Release.  Subject to the limitations set forth in the
last sentence in this Section 10.1, each Seller Party, for and on behalf of
itself and its controlled Affiliates (the “Releasing Parties”) hereby
unconditionally and irrevocably release and forever discharge, effective as of
and forever after the Closing Date, to the fullest extent permitted by
applicable law, Sirius and all past, present and future Buyer Indemnified
Parties (collectively, the “Released Parties”) from any and all debts,
liabilities, obligations, claims, demands, actions or causes of action, suits,
judgments or controversies of any kind whatsoever (collectively, “Pre-Acquisition
Claims”) against Sirius that arise out of or are based on any agreement or
understanding or act or failure to act
(including any act or failure to act that constitutes ordinary or gross
negligence or reckless or willful, wanton misconduct), misrepresentation,
omission, transaction, fact, event or other matter occurring contemporaneously
with or prior to the Closing Date or on account of or arising out of any
matter, cause or event occurring contemporaneously with or prior to the Closing
Date (whether based on any governmental requirement or right of action, at law
or in equity or otherwise, foreseen or unforeseen, matured or unmatured, known
or unknown, accrued or not accrued) (collectively, “Pre-Acquisition Matters”),
including without limitation: (a) claims by a Releasing Party with respect to
repayment of loans or indebtedness; (b) any rights, titles and interests in, to
or under any agreements, arrangements or understandings to which a Releasing
Party is a party; and (c) claims by a Releasing Party with respect to dividends
or violation of preemptive rights.  Each
Releasing Party further agrees not to file or bring any litigation before any
Governmental Authority on the basis of or respecting any Pre-Acquisition Claim
concerning any Pre-Acquisition Matter against any Released Party.  Each Releasing Party (a) acknowledges that
such Releasing Party fully comprehends and understands all the terms of this
Section 10.1 and their legal effects and (b) expressly represents and warrants
that (i) such Releasing Party is competent to effect the release made in this
Section 10.1 knowingly and voluntarily and without reliance on any statement or
representation of any Released Party or its Representatives and (ii) such
Releasing Party had the opportunity to consult with an attorney of its choice
regarding this Section 10.1.  This
Section 10.1 shall not affect the rights of any Releasing Party under this
Agreement.

Section 10.2           Arbitration.

(a)           Disputes Covered. 
Except for matters arising under Section 6.5 and Section 10.3, any
dispute, controversy, difference or claim arising out of or in connection with
indemnification of an Buyer Indemnified Party or a Seller Indemnified Party
pursuant to this Agreement, or the breach, termination or validity thereof,
which cannot be amicably resolved by

 

 54
 

 

the parties within thirty days after receipt
by a party of written notice from any other party that such a dispute,
controversy, difference or claim exists, shall be settled by final and binding
arbitration.

(b)           Forum.  The forum for
the arbitration shall be New York, New York.

(c)           Law.  The governing
law for the arbitration shall be the law of the State of New York, without
reference to its conflicts of laws provisions.

(d)           Selection.  The
arbitration shall be conducted by three arbitrators, unless the parties are
able to agree on a single arbitrator.  In
the absence of such agreement within ten days after the initiation of an
arbitration proceeding, Sellers shall select one arbitrator and Buyer shall
select one arbitrator, and those two arbitrators shall then select, within ten
days, a third arbitrator.  If those two
arbitrators are unable to select a third arbitrator within such ten-day period,
a third arbitrator shall be appointed by the commercial panel of the American
Arbitration Association.  The decision in
writing of at least two of the three arbitrators shall be final and binding
upon the parties.  All arbitrators shall
be residents of the United States of America.

(e)           Administration.  The
arbitration shall be administered by the American Arbitration Association.

(f)            Rules.  The rules of
arbitration shall be the Commercial Arbitration Rules of the American
Arbitration Association (the “Commercial Arbitration Rules”), as modified by
any other instructions that the parties may agree upon at the time, except that
each party shall have the right to conduct discovery in any manner and to the
extent authorized by the Federal Rules of Civil Procedure as interpreted by the
federal courts in New York.  If there is
any conflict between those Rules and the provisions of this section, the
provisions of this section shall prevail.

(g)           Substantive Law.  The
arbitrators shall be bound by and shall strictly enforce the terms of this
Agreement and may not limit, expand or otherwise modify its terms.  The arbitrators shall make a good faith
effort to apply substantive applicable law, but an arbitration decision shall
not be subject to review because of errors of law.  The arbitrators shall be bound to honor
claims of privilege or work-product doctrine recognized at law, but the
arbitrators shall have the discretion to determine whether any such claim of
privilege or work product doctrine applies.

(h)           Decision.  The
arbitrators’ decision shall provide a reasoned basis for the resolutions of each
dispute and for any award.  The
arbitrators shall not have power to award damages in connection with any
dispute in excess of actual compensatory damages and shall not multiply actual
damages or award consequential or punitive damages or award any other damages
that are excluded under the provisions of Article VII of this Agreement.

(i)            Expenses.  All costs
of arbitration and enforcement of the arbitration award, including reasonable
attorneys’ fees and court costs, costs of expert witnesses, transportation,
lodging and meal costs of the parties and witnesses, costs of transcript
preparation and other reasonable and necessary direct and incidental costs
shall be apportioned

 

 55
 

 

by the arbitrator(s) selected pursuant to
Section 10.2(d) hereof with a view to allocating costs to the party that does
not prevail in the arbitration.

(j)            Payment of Arbitration Award.  The arbitration award shall be made and shall
be payable free of any Tax or any other deduction. The arbitration award shall
include interest, at a rate determined as appropriate by the arbitrators, as of
the date of any breach or other violation of this Agreement to the date when
the arbitration award is paid in full.

(k)           Enforcement.  The
parties further agree that the arbitration award and any judgment thereon, if
unsatisfied, may be entered in and shall be enforceable by the courts of any
nation having jurisdiction over the person or property of the party against
whom the arbitration award has been rendered.

(l)            Specific Performance; Enforcement of Arbitration Award.  In the event of any breach by a party of the
terms of this Agreement which would cause any nonbreaching party to be
irreparably harmed or for which such nonbreaching party could not be made whole
by monetary damages, then in such circumstances such nonbreaching party, in
addition to any other remedy to which it may be entitled at law or in equity,
shall be entitled to compel specific performance of this Agreement in any
action instituted pursuant to this Section 10.2 and in any action instituted in
any court of applicable jurisdiction to enforce any interim or final
arbitration award rendered pursuant to this Section 10.2.

(m)          Waiver of Jury Trial. 
EACH PARTY EXPRESSLY WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY SUIT OR
PROCEEDING RELATING TO OR ARISING FROM THIS AGREEMENT OR THE MATTERS
CONTEMPLATED HEREBY.  EACH PARTY
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER THIS AGREEMENT
AND EACH PARTY REPRESENTS THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS JURY
TRIAL RIGHT AFTER CONSULTATION WITH LEGAL COUNSEL.

Section 10.3           Confidentiality.

(a)           Each
Seller Party acknowledges that it has or may have had in the past, currently
has and in the future may have access to Confidential Information (as defined
below) of Sirius, Buyer and the Partnership. 
During the period prior to Closing, the parties agree to abide by the
confidentiality provisions in paragraph 10 of the letter of intent dated
January 25, 2007 between K-Sea Operating Partnership L.P. and the Seller
Parties (and that the Seller Parties will be bound by such paragraph as if it
applied to them mutatis mutandis).  From and after the Closing, each Seller Party
agrees that it shall keep confidential all such Confidential Information and,
except with the specific prior written consent of Buyer, shall not disclose
such Confidential Information to any person except (i) the directors, officers,
employees, Affiliates, accountants (including independent certified public
accountants), advisors, attorneys, consultants or other agents (collectively, “Representatives”)
of Buyer and (ii) its own Representatives, provided that those Representatives
agree to the confidentiality provisions of this Section 10.3.  “Confidential Information” means, with
respect to any Person, all trade secrets, know how and other confidential,
nonpublic and/or proprietary information of that Person, including any such
information derived from reports, investigations, research, studies,

 

 56

 

work in progress, codes, marketing, sales or
service programs, customer lists, records relating to past service provided to
customers, capital expenditure projects, cost summaries, equipment or
production system designs or drawings, pricing formulae, contract analyses,
financial information, projections, present and future business plans,
agreements with vendors, joint venture agreements, confidential filings with
any Governmental Body and all other confidential, nonpublic concepts, methods,
techniques or processes of doing business, ideas, materials or information
prepared or performed for, by or on behalf of that Person; provided, however,
that Confidential Information shall not include such information as (A) becomes
known to the public generally through no fault of such Seller Party or (B) is
required to be disclosed by law or the order of any Governmental Body under
color of law, provided, that prior to disclosing any information pursuant to
this clause (B), such Seller Party shall, if possible, give prior written
notice thereof to Buyer and provide Buyer with the opportunity to contest that
disclosure.

(b)           Because
of (i) the difficulty of measuring economic losses as a result of the breach of
the covenants in Section 10.3(a) and (ii) the immediate and irreparable damage
that would be caused to Buyer for which it would have no other adequate remedy,
in the event of a breach or threatened breach by Seller of the provisions of
this Section 10.3 with respect to any Confidential Information, Buyer shall be entitled
to an injunction restraining the Seller Parties from disclosing, in whole or in
part, that Confidential Information. 
Nothing herein shall be construed as prohibiting Buyer from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages.

Section 10.4           Expenses.  Except as otherwise provided in this
Agreement, Buyer and the Seller Parties shall pay their own respective fees and
expenses incurred in connection with the negotiation, preparation and execution
of this Agreement (including the exhibits and schedules hereto) and the
consummation of the transactions contemplated herein and therein, including all
legal, accounting, tax, brokers’ and other advisors’ fees and expenses, it being understood that such expenses
shall be paid on behalf of the Seller Parties by Sirius at or prior to the
Closing.  Notwithstanding the foregoing,
(1) each of Buyer, on the one-hand, and the Seller Parties, on the other hand,
shall pay one-half of the filing fee under the HSR Act and (2) Buyer shall pay
one-half of the cost incurred by Sirius for obtaining the financial statements
contemplated by Section 6.14, provided that if this Agreement is terminated and
Sirius or the Seller Parties engage in activity described in Section 6.1 within
two years from the date of this Agreement, then the Seller Parties shall
reimburse Buyer for any and all of such costs; provided further that the
foregoing proviso shall not apply to any merger, consolidation, share exchange
or other business combination among Sirius, Smith (including one or more of
Smith’s wholly owned subsidiaries as of the date of this Agreement) and Go Big
Chartering, LLC, a Hawaiian limited liability company wholly owned by Gordon
L.K. Smith.

Section 10.5           Entire
Agreement.  This Agreement,
including all schedules and exhibits hereto, constitutes the entire agreement
of the parties with respect to the subject matter hereof and constitutes (along
with the schedules, exhibits, and other documents delivered pursuant to this
Agreement) a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter and there are no terms,
conditions, representations, warranties, or covenants other than those
contained in this Agreement (along with the schedules, exhibits, and other
documents delivered pursuant to this Agreement).  This

 

 57
 

 

Agreement may not be modified,
amended or terminated except by a written instrument specifically referring to
this Agreement signed by all the parties hereto.

Section 10.6           No
Reliance.  No promise or
inducement for this Agreement has been made to Buyer except as set forth herein
and in the schedules, exhibits and other documents delivered pursuant to this
Agreement.  This Agreement is executed by
Buyer freely and voluntarily, and without reliance on any statement,
representation, or warranty, whether written or oral, by any Seller Party, or
any of their officers, directors, accountants, attorneys or other agents or
representatives, except as set forth in this Agreement and the schedules,
exhibits and other documents delivered pursuant to this Agreement.

Section 10.7           Waivers
and Consents.  All waivers and
consents given hereunder shall be in writing. 
No waiver by any party hereto of any breach or anticipated breach of any
provision hereof by any other party shall be deemed a waiver of any other
contemporaneous, preceding or succeeding breach or anticipated breach, whether
or not similar.  Except as provided in
this Agreement, no action taken pursuant to this Agreement, including any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement.

Section 10.8           Notices.  All notices and other communications
hereunder shall be in writing and shall be deemed to have been received only if
and when (a) personally delivered, (b) on the third day after mailing, by
United States mail, first class, postage prepaid or by certified mail return
receipt requested, addressed in each case as follows (or to such other address
as may be specified by like notice) or (c) received by facsimile at the phone
number listed below:

	
  

  	
  (a)

  	
  If to Buyer or
  the Partnership to:

  
	
   

  	
   

  	
   

  
	
   

  	
  K-Sea Transportation Partners L.P.

  
	
   

  	
  One Tower Center Boulevard, 17th Floor

  
	
   

  	
  East Brunswick, New Jersey 08816

  
	
   

  	
  Attn: Timothy J. Casey

  
	
   

  	
  Fax:   (732) 565-3696

  
	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  
	
   

  	
  Baker Botts L.L.P.

  
	
   

  	
  One Shell Plaza

  
	
   

  	
  910 Louisiana

  
	
   

  	
  Houston, Texas 77002

  
	
   

  	
  Attn: Sean T. Wheeler

  
	
   

  	
  Fax:   (713) 229-7868

  
	
   

  	
   

  
	
   

  	
  (b)

  	
  If to Sirius to:

  
	
   

  	
   

  	
   

  
	
   

  	
  Sirius Maritime,
  LLC

  

 

 58
 

 

	
  

  	
  309 S Cloverdale St

  
	
   

  	
  Seattle, Washington 98108

  
	
   

  	
  Attn: President

  
	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  
	
   

  	
  Bauer Moynihan & Johnson LLP

  
	
   

  	
  2101 Fourth Avenue, Suite 2400

  
	
   

  	
  Seattle, Washington 98121

  
	
   

  	
  Attn: Gary
  M. Haugen

  
	
   

  	
  Fax:   (206)
  905-3326

  
	
   

  	
   

  
	
   

  	
  (c)

  	
  If to RCD or
  Dorn to:

  
	
   

  	
   

  	
   

  
	
   

  	
  Robert C. Dorn

  
	
   

  	
  3259 35th Ave SW

  
	
   

  	
  Seattle, Washington 98126

  
	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  
	
   

  	
  Bauer Moynihan & Johnson LLP

  
	
   

  	
  2101 Fourth Avenue, Suite 2400

  
	
   

  	
  Seattle, Washington 98121

  
	
   

  	
  Attn: Gary
  M. Haugen

  
	
   

  	
  Fax:   (206)
  905-3326

  
	
   

  	
   

  
	
   

  	
  (d)

  	
  If to Smith LLC
  or Smith to:

  
	
   

  	
   

  	
   

  
	
   

  	
  Gordon L. K. Smith

  
	
   

  	
  8440 North Mercer Way

  
	
   

  	
  Mercer Island, Washington 98404

  
	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  
	
   

  	
  Bauer Moynihan & Johnson LLP

  
	
   

  	
  2101 Fourth Avenue, Suite 2400

  
	
   

  	
  Seattle, Washington 98121

  
	
   

  	
  Attn: Gary
  M. Haugen

  
	
   

  	
  Fax:   (206)
  905-3326

  
	
   

  	
   

  
	
   

  	
  (e)

  	
  If to WS
  Maritime or Sundberg to:

  
	
   

  	
   

  	
   

  
	
   

  	
  Wayne A. Sundberg

  
	
   

  	
  12014 Via Palazzo Lane

  
	
   

  	
  Cypress, Texas 77429

  
	
   

  	
   

  
	
   

  	
  with a copy to:

  

 

 

 59
 

 

	
  

  	
  Bauer Moynihan & Johnson LLP

  
	
   

  	
  2101 Fourth Avenue, Suite 2400

  
	
   

  	
  Seattle, Washington 98121

  
	
   

  	
  Attn: Gary
  M. Haugen

  
	
   

  	
  Fax:   (206)
  905-3326

  

 

Section 10.9           Assignments, Successors and No Third-Party Rights.  No party may assign any of its rights or
delegate any of its obligations under this Agreement without the prior written
consent of the other parties, except that Buyer may assign any of its rights
and delegate any of its obligations under this Agreement to an Affiliate of
Buyer and may collaterally assign its rights hereunder to any financial
institution providing financing in connection with the transactions
contemplated by this Agreement; provided that such assignment shall not relieve
Buyer of is obligations under this Agreement. 
Subject to the preceding sentence, this Agreement will apply to, be
binding in all respects upon and inure to the benefit of the successors and
permitted assigns of the parties. 
Nothing expressed or referred to in this Agreement will be construed to
give any Person other than the parties to this Agreement any legal or equitable
right, remedy or claim under or with respect to this Agreement or any provision
of this Agreement, except such rights as shall inure to a successor or
permitted assignee pursuant to this Section 10.8.

Section 10.10         Choice
of Law.  This Agreement shall
be governed by the internal laws of the State of New York (without regard to
the choice of law provisions thereof).

Section 10.11         Jurisdiction
and Venue.  Without limiting
the provisions of Section 7.5, the Seller Parties and Buyer hereby consent
to personal jurisdiction in any action brought with respect to this Agreement
and the transactions contemplated hereunder in any federal or state court in
New York City, New York and agree that service of process may be accomplished
pursuant to Section 10.7 above.

Section 10.12         Construction; Section Headings; Table of Contents.  The language used in this Agreement shall be
deemed to be the language the parties hereto have chosen to express their
mutual intent, and no rule of strict construction will be applied against any
party hereto.  The section headings and
any table of contents contained in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this Agreement.

Section 10.13         Severability.  Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.  If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.

Section 10.14         Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.

 

 60
 

 

Section 10.15         Time
of Essence.  With regard to
all dates and time periods set forth or referred to in this Agreement, time is
of the essence.

Section 10.16         Power
of Attorney.  Each Seller
Party hereby irrevocably makes, constitutes and appoints Gordon L.K. Smith as
its representative (the “Seller Party Representative”) and its true and lawful
attorney-in-fact, with full power and authority, in the name and on behalf of
each Seller Party, to act on behalf of each of them in the absolute discretion
of the Seller Party Representative with respect to all matters arising out of
or in connection with this Agreement and, in general, to do all things and to
perform all acts, including executing and delivering agreements (including
amendments to this Agreement), certificates, receipts, instructions or other
instruments contemplated by this Agreement or deemed advisable to effectuate
the transactions contemplated by this Agreement.  This power of attorney and all authority
conferred hereby shall be coupled with an interest and irrevocable and shall
not be terminated by any act of any Seller Party or by operation of law,
whether by the bankruptcy, dissolution, liquidation, death, disability or
incapacity of a Seller Party or by the occurrence of any other event or events.  Each Seller Party hereby consents to the
taking of any and all actions and the making of any decisions required or
permitted to be taken or made by the Seller Party Representative pursuant to
this Section 10.15.  Each Seller Party
agrees that the Seller Party Representative shall have no obligation or
liability to any Person for any act or omission taken or omitted by the Seller
Party Representative in good faith hereunder, and the Seller Parties shall
indemnify and hold the Seller Party Representative harmless from and against
any and all loss, damage, expense or liability (including reasonable counsel
fees and expenses) which the Seller Party Representative may sustain as a
result of any such action or omission by the Seller Party Representative
hereunder.

 

 61
 

 

IN
WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.

	
  

  	
  SEA
  COAST TRANSPORTATION LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ TIMOTHY J. CASEY

  	
   

  
	
   

  	
  Name:

  	
  Timothy J. Casey

  	
   

  
	
   

  	
  Title:

  	
  President/CEO

  	
   

  
	
   

  	
   

  
	
   

  	
  K-SEA
  TRANSPORTATION

  PARTNERS L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  K-Sea General
  Partner L.P.

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  K-Sea General Partner GP LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ TIMOTHY J. CASEY

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Timothy J. Casey

  	
   

  
	
   

  	
   

  	
  Title:

  	
  President/CEO

  	
   

  
	
   

  	
   

  
	
   

  	
  SIRIUS MARITIME, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT C.
  DORN

  	
   

  
	
   

  	
   

  	
  Robert C. Dorn

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
  RCD
  MARITIME ENTERPRISES, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT C.
  DORN

  	
   

  
	
   

  	
   

  	
  Robert C. Dorn

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
  SMITH
  MARITIME, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ GORDON L.K.
  SMITH

  	
   

  
	
   

  	
   

  	
  Gordon L.K.
  Smith

  
	
   

  	
   

  	
  President

  
									

 

 

 62
 

 

	
  

  	
  WS MARITIME PACIFIC, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ WAYNE A. SUNDBERG

  	
   

  
	
   

  	
   

  	
  Wayne A.
  Sundberg

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
  /s/ ROBERT C. DORN

  	
   

  
	
   

  	
  Robert C. Dorn

  
	
   

  	
   

  
	
   

  	
  /s/ GORDON L.K. SMITH

  	
   

  
	
   

  	
  Gordon L. K. Smith

  
	
   

  	
   

  
	
   

  	
  /s/ WAYNE A. SUNDBERG

  	
   

  
	
   

  	
  Wayne A. Sundberg

  
					

 

 

 63

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