Document:

Exhibit 10.2

 

AMENDMENT NO. 2

TO

LOAN AND SECURITY AGREEMENT

 

AMENDMENT
NO. 2 (this “Amendment”),
dated as of November 29, 2005, by and among K-SEA
OPERATING PARTNERSHIP L.P. (the “Borrower”),
the several financial institutions party hereto (the “Lenders”),
KEYBANK NATIONAL ASSOCIATION, as
Administrative Agent for the Lenders (in such capacity, the “Administrative Agent”) and as
collateral trustee for the Lenders, and LASALLE BANK, NATIONAL
ASSOCIATION, as syndication agent.

 

RECITALS

 

A.                                   Borrower, the Lenders and the Administrative Agent
are parties to a Loan and Security Agreement, dated as of March 24, 2005
(as it may be amended, restated, supplemented or otherwise modified from time
to time, the “Loan Agreement”).  Unless otherwise defined herein, all capitalized
terms used herein or in the Acknowledgement and Consent annexed hereto shall
have the meanings ascribed to them in the Loan Agreement.

 

B.                                     Borrower has advised the Administrative Agent and
the Lenders that it desires to amend the Loan Agreement in certain respects,
to, among other things, increase the aggregate Commitments of the Lenders.

 

C.                                     Each of the Lenders desires to increase its
respective Commitment in accordance with the terms hereof and Borrower desires
to accept such increased Commitments.

 

D.                                    The Administrative Agent has advised Borrower that
the Lenders are willing to agree to its requests to amend the Loan Agreement on
the terms and subject to the conditions set forth in this Amendment.

 

Accordingly,
in consideration of the foregoing, the parties hereto hereby agree as follows:

 

1.                                       CHANGE IN COMMITMENTS; ADDITIONAL LENDER.

 

(a)                                  Commitments.  From and after the Amendment No. 2
Effective Date, the Commitment of each Lender shall be the amount set forth
opposite such Lender’s name on Schedule 2.01 to the Loan Agreement (as
amended hereby and attached hereto as Exhibit D) under the caption “Commitment”
as such amount may be increased or reduced pursuant to the terms of the Loan
Agreement, and such amount (if changed) shall supersede and be deemed to amend
the amount of such Lender’s Commitment as set forth on Schedule 2.01 to
the Loan Agreement as in effect on the Amendment No. 1 Effective Date.

 

(b)                                 Adjustment of Outstanding Loans.  If any Loans are outstanding under the Loan
Agreement on the Amendment No. 2 Effective Date, the Lenders shall on the Amendment
No. 2 Effective Date, at the direction of the Administrative Agent, make
appropriate adjustments among themselves in order to insure that the amount
(and type) of the Loans outstanding to Borrower from each Lender under the Loan
Agreement (as of the Amendment No. 2 Effective Date) are proportionate to
the aggregate amount of all of the Commitments, after giving effect to the
increase in the Maximum Amount and increase in the amount of the

 

 

Commitments of each of
the Lenders.  Borrower agrees and consents
to the terms of this Section 1(b).

 

2.                                       AMENDMENTS TO LOAN AGREEMENT.

 

(a)                                  Additional Definitions.  Section 1.01 of the Loan Agreement is
hereby amended by adding the following new definitions in the appropriate
alphabetical order:

 

“Amendment No. 2 Pool
Vessels” means those vessels owned by Borrower identified on Exhibit B to Amendment No. 2.

 

“Amendment No. 2”
means Amendment No. 2 to Loan and Security Agreement, dated as of November 29,
2005, among Borrower, the Lenders party thereto and the Administrative Agent.

 

“Amendment No. 2
Effective Date” means November 29, 2005.

 

(b)                                 Amendments to Definitions.

 

(i)                                     Loan Documents.  Section 1.01 of the Loan Agreement is
hereby amended by deleting the definition of “Loan Documents” in its entirety and
substituting the following therefor:

 

“Loan Documents”
means, collectively, this Agreement, Amendment No. 1, Amendment No. 2,
the Notes, the Mortgage, the Sea Coast Mortgage, the Parent Guaranty, each
Subsidiary Guaranty, the Assignments and all consents given with respect to any
of the foregoing.

 

(ii)                                  Maximum
Amount.  Section 1.01 of the Loan Agreement is
hereby amended by deleting the definition of “Maximum Amount” in its entirety and
substituting the following therefor:

 

“Maximum Amount”
means, with respect to the Facility, One Hundred Fifty-five Million Dollars ($155,000,000.00),
as such amount may be increased in the aggregate in accordance with Section 2.18
hereof or decreased in the aggregate in accordance with Section 2.07.

 

(iii)                               Mortgage.  Section 1.01
of the Loan Agreement is hereby amended by deleting the definition of “Mortgage”
in its entirety and substituting the following therefor:

 

“Mortgage”
means, collectively, (i) the First Preferred Fleet Mortgage, dated March 24,
2005, originally granted by Borrower to the Collateral Trustee over the whole
of the Pool Vessels (other than the Additional Pool Vessels and the Amendment No. 2
Pool Vessels), as such Mortgage is amended and supplemented on the Amendment No. 1
Effective Date and the Amendment No. 2 Effective Date and (ii) the
Sea Coast Mortgage, as such Mortgage is amended and supplemented on the
Amendment No. 2 Effective Date, as each may be amended, modified or
supplemented from time to time and from which Pool Vessels may be added or
released from time to time

 

2

 

(iv)                              Pool Vessels.  Section 1.01
of the Loan Agreement is hereby amended by deleting the definition of  “Pool
Vessels” in its entirety and substituting the following
therefor:

 

“Pool Vessels”
means, collectively, (i) those vessels identified on Schedule 1.01
hereto as of the Effective Date, (ii) the Additional Pool Vessels, (iii) the
Amendment No. 2 Pool Vessels and (iv) the Sea Coast Pool Vessels, in
each case together with any vessels hereafter added to the Pool Vessels
pursuant to Section 3.02 or Section 3.03 hereof.

 

(c)                                  Evidence of Debt.  Section 2.08(e) of the Loan
Agreement is hereby deleted its entirety and the following substituted therefor:

 

(e)                                  The
Loans made by any Lender may, upon request of such Lender, be evidenced by a
Note in the form attached to Amendment No. 2 as Exhibit A.  In such
event, Borrower shall execute and deliver to such Lender a Note payable to the
order of such Lender (or, if requested by such Lender, to such Lender and its
registered assigns) substantially in the form as attached to Amendment No. 2
as Exhibit A and otherwise in form and substance acceptable such
Lender.  Thereafter, the Loans evidenced
by such Note and interest thereon shall at all times (including after
assignment pursuant to Section 10.07 hereof) be represented by one or more
Notes in such form payable to the order of the payee named therein.  Each such Lender may enter Loans and repayment
made on any Note; provided, however, that failure to do so shall
not affect Borrower’s obligations to repay all Loans made.

 

(d)                                 Increase of Commitments.  Section 2.18(a) of the Loan
Agreement is hereby amended by deleting the first sentence thereof in its
entirety and substituting the following therefor:

 

Provided
that no Default or Event of Default has occurred and is continuing, Borrower
may, at any time and from time to time, provide a written request to the
Administrative Agent to increase the Commitments of the Facility by up to an
aggregate maximum amount of Fifteen Million Dollars ($15,000,000.00).

 

(e)                                  Lenders’ Security Interest.  Section 4.14 of the Loan Agreement is
hereby deleted in its entirety and the following substituted therefor:

 

Section 4.14                            Lenders’ Security Interest. 
As of the Amendment No. 2 Effective Date, the Collateral
Trustee shall have a legal, valid and continuing first preferred ship mortgage
(as amended, supplemented or otherwise modified from time to time) over the whole
of, and a perfected first lien on and security interest in, the Pool Vessels,
and the Administrative Agent shall have a perfected first lien on and security
interest in the remaining Collateral subject only to Permitted Liens and all
taxes, fees and other charges in connection therewith shall have been duly
paid.  There are no demise charters in
effect on any Pool Vessels other than the charters identified on Schedule 4.14.

 

(f)                                    Vessels.  Section 4.16(a) of the Loan
Agreement is hereby deleted in its entirety and the following substituted
therefor:

 

3

 

(a)                                  Set
forth on Schedule 1.01 (attached to Amendment No. 2 as Exhibit C)
is a complete and accurate list, as of the Amendment No. 2 Effective Date,
of all Pool Vessels, showing as of the Amendment No. 2 Effective Date with
respect to each such Pool Vessels the following:  (i) the name of each Pool Vessel and (ii) the
name of the Registered Owner of the Pool Vessels.

 

(g)                                 Notes.  Exhibit A
to the Loan Agreement is hereby deleted in its entirety and Exhibit A to
this Amendment substituted therefor.

 

(h)                                 Pool Vessels.  Schedule 1.01 to the Loan Agreement is
hereby deleted in its entirety and Exhibit C
to this Amendment substituted therefor.

 

(i)                                     Commitments.  Schedule 2.01 to the Loan Agreement is
hereby deleted in its entirety and Exhibit D
to this Amendment substituted therefor.

 

(j)                                     General.

 

(i)                                     Loan Agreement.  All
references to “this Agreement” in the Loan Agreement and to “the Loan Agreement”
in the other Loan Documents shall be deemed to refer to the Loan Agreement as
amended hereby.

 

(ii)                                  Notes.  All references
to a “Note” or the “Notes” in the Loan Agreement or the other Loan Documents
shall be deemed to refer to the replacement Notes issued pursuant hereto.

 

3.                                       CONDITIONS TO EFFECTIVENESS.  This Amendment shall be effective upon the
satisfaction of each of the following conditions:

 

(a)                                  The
Administrative Agent shall have received a certificate from the secretary of Borrower
(i) attaching a true and complete copy of the resolutions of its Managing
Person and of all documents evidencing all necessary partnership action (in
form and substance satisfactory to the Administrative Agent) taken by it to
authorize the Loan Documents to which it is a party and the transactions
contemplated thereby, (ii) certifying that since the Amendment No. 1
Effective Date there has been no amendment, modification or other change to any
of its Organizational Documents, (iii) setting forth the incumbency of its
officer or officers or other analogous counterpart who may sign the Loan
Documents, including therein a signature specimen of such officer or officers
and (iv) attaching a certificate of good standing of the Secretary of
State of the jurisdiction of its formation and of each other jurisdiction in
which it is qualified to do business.

 

(b)                                 The
Administrative Agent (or its counsel) shall have received from each party
hereto either (x) a counterpart of this Amendment signed on behalf of such
party or (y) written evidence satisfactory to the Administrative Agent
(which may include telecopy transmission of a signed signature page of
this Amendment) that such party has signed a counterpart of this Amendment.

 

(c)                                  The Administrative Agent shall have received a
Note for each Lender requesting the same duly signed on behalf of Borrower.

 

4

 

(d)                                 The
Administrative Agent shall have received a counterpart of the acknowledgement
and consent annexed hereto duly executed by the K-Sea, K-Sea Transportation Inc.
and Sea Coast LLC.

 

(e)                                  The
Administrative Agent shall have received an Amendment and Supplement No. 2
to the Mortgage in form and substance satisfactory to the Administrative Agent
duly signed on behalf of Borrower.

 

(f)                                    The
Administrative Agent shall have received an Amendment to the Sea Coast Mortgage
in form and substance satisfactory to the Administrative duly signed on behalf
of Sea Coast LLC.

 

(g)                                 The
Administrative Agent shall have received the following, each dated the Amendment
No. 2 Effective Date (unless otherwise specified), in form and substance
satisfactory to the Administrative Agent, and in sufficient copies:

 

(i)                                     UCC
Financing Statement Amendments under the Uniform Commercial Code for all
jurisdictions that the Administrative Agent may deem necessary or desirable in
order to perfect and protect the first and only priority Liens and security
interests created under the Loan Agreement, the Mortgage and the other Loan
Documents, covering the Collateral;

 

(ii)                                  evidence
of the completion of all other recordings and filings of or with respect to the
Lien created by the Loan Agreement and the other Loan Documents that the
Administrative Agent may deem necessary or desirable in order to perfect and
protect the Liens created by such Loan Documents;

 

(iii)                               with
respect to each Amendment No. 2 Pool Vessel described in Exhibit B
hereto, the following:

 

(A)                              the Amendment
and Supplement No. 2 to the Mortgage described in Section 3(e) above,
which shall cover such Amendment No. 2 Pool Vessel and, in connection
therewith, such Amendment No. 2 Pool Vessel shall have been duly
documented in the name of Borrower under the laws of the United States, such Amendment
and Supplement No. 2 to the Mortgage shall have been duly filed for
recording with the United States Coast Guard, and such Amendment and Supplement
No. 2 to the Mortgage shall constitute a preferred ship mortgage on such Amendment
No. 2 Pool Vessel;

 

(B)                                an
assignment covering the earnings and requisition compensation, if any, of such Amendment
No. 2 Pool Vessel, in form and substance satisfactory to the
Administrative Agent, duly executed by Borrower and, in connection therewith, Borrower
shall have executed and delivered to the Administrative Agent notices of
assignment and authorizations to collect insurance claims and to collect
general average contributions, in such form and in such number of counterparts
as may be reasonably requested by the Administrative Agent;

 

(C)                                an
assignment covering the insurances of such Amendment No. 2 Pool Vessel, in
form and substance satisfactory to the Administrative Agent, duly executed by Borrower;

 

5

 

(D)                               copies
of cover notes and certificates of entry evidencing the insurance covered by
such Amendment No. 2 Pool Vessel;

 

(E)                                 authorizations
to inspect class records of such Amendment No. 2 Pool Vessel by Borrower,
in such form and such number of counterparts as may be reasonably requested by
the Administrative Agent, duly executed by Borrower;

 

(F)                                 a
true and complete copy of either (1) a certificate of ownership and
encumbrance issued by the United States Coast Guard or (2) an abstract of
title issued by the United States Coast Guard, in either case, showing Borrower
to be the sole owner of such Amendment No. 2 Pool Vessel free and clear of
all Liens of record except (x) the Mortgage covering such Amendment No. 2
Pool Vessel in favor of the Collateral Trustee for the benefit of the Lenders,
and (y) the Permitted Liens;

 

(G)                                for
each Amendment No. 2 Pool Vessel to the extent it is required to be
maintained in class in order to operate in the service in which it is
operating, the original current confirmation certificate of American Bureau of
Shipping for such Amendment No. 2 Pool Vessel, confirming that such Amendment
No. 2 Pool Vessel is in such class without material recommendation,
together with an American Bureau of Shipping SafeNet database printout dated
not more than twenty (20) days prior to the Amendment No. 2 Effective
Date, certified by an officer of Borrower as true and correct;

 

(H)                               a
copy of the current certificate of inspection issued by the United States Coast
Guard for such Amendment No. 2 Pool Vessel, if available, and reflecting
no outstanding recommendations; and

 

(I)                                    (1)                                  written
advice from B&P International Insurance Brokerage LLC, insurance brokers,
of the placement of the insurances covering such Amendment No. 2 Pool
Vessel; (2) written confirmation from such brokers, that they have
received no notice of the assignment (except from the Administrative Agent) of
the insurances or any claim covering such Amendment No. 2 Pool Vessel; (3) an
opinion of such brokers to the effect that such insurance complies with the
applicable provisions of the Loan Agreement and of the Mortgage covering such Amendment
No. 2 Pool Vessel, where applicable; and (4) an agreement by such
brokers, in form and substance satisfactory to the Administrative Agent,
whereunder the insurances of such Amendment No. 2 Pool Vessel, and claims
thereunder, will not be affected by nonpayment of premiums on any other
insurances;

 

(h)                                 The
Administrative Agent shall have received and accepted a desktop or visual
Appraisal of all Amendment No. 2 Pool Vessels, which shall be in form and
substance satisfactory to the Administrative Agent, and which shall demonstrate
that the Orderly Liquidation Value of the Pool Vessels (including the
Additional Pool Vessels,  the Sea Coast
Pool Vessels and the Amendment No. 2 Pool Vessels) as of the Amendment No. 2
Effective Date is not less than $193,750,000.00.

 

(i)                                     The
Administrative Agent shall have received satisfactory evidence that the Amendment
No. 2 Pool Vessels are operationally suitable for the trades in which the Amendment
No. 2 Pool Vessels are expected to be engaged and can be operated by Borrower
in their intended trades without impediment.

 

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

 

6

 

(k)                                  The
Administrative Agent shall be reasonably satisfied that there is no litigation
or administrative proceeding, or regulatory development, that could reasonably
be expected to have a material adverse effect on (i) the business, assets,
operations, condition (financial or otherwise) or material agreements of Borrower
and its Subsidiaries, (ii) the ability of any Credit Party to perform any
of its obligations under any Loan Document or (iii) the rights of or
benefits available to the Administrative Agent, the Collateral Trustee or any
Lender under any Loan Document.

 

(l)                                     The
Lenders shall be reasonably satisfied that no material adverse change in the
business, assets, operations, properties, condition (financial or otherwise),
liabilities (including contingent liabilities) or material agreements of Borrower
and its Subsidiaries has occurred since December 31, 2004.

 

(m)                               There
shall be no injunction, writ, preliminary restraining order or other order of
any nature issued by any Governmental Authority in any respect affecting the
transactions provided for in this Amendment or the Loan Documents and no action
or proceeding by or before any Governmental Authority shall have been commenced
and be pending or, to the knowledge of Borrower, threatened, seeking to prevent
or delay the transactions contemplated by this Amendment, the Loan Documents or
challenging any other terms and provisions hereof or thereof or seeking any
damages in connection herewith or therewith, and the Administrative Agent shall
have received a certificate, in all respects reasonably satisfactory to the
Administrative Agent, of a Financial Officer of Borrower to the foregoing
effect.

 

(n)                                 All
indebtedness of Borrower to the United States of America secured by Liens on
the Amendment No. 2 Pool Vessels shall have been unconditionally paid in
full and all Liens securing such indebtedness shall have been released or
terminated, and all other obligations, if any, with respect thereto shall have
been duly and finally extinguished.

 

(o)                                 The
Administrative Agent shall have received a certificate, dated the Amendment No. 2
Effective Date and signed by a Financial Officer of Borrower, setting forth
reasonably detailed calculations demonstrating compliance with Sections 7.01.
7.02, 7.03 and 7.04 on a pro forma basis as of the Amendment No. 2
Effective Date, immediately after giving effect to the transactions
contemplated by this Amendment.

 

(p)                                 The
Administrative Agent shall have received a favorable written opinion (addressed
to the Lenders, the Administrative Agent and the Collateral Trustee and dated
the Amendment No. 2 Effective Date) from Holland & Knight LLP, on
behalf of the Credit Parties, in form and substance satisfactory to the
Administrative Agent covering such matters relating to the Credit Parties or
the Loan Documents as the Administrative Agent shall reasonably request.  Borrower hereby requests such counsel to
deliver such opinions.

 

(q)                                 The
representations and warranties contained in the Loan Agreement shall be true
and correct in all material respects, except
to the extent such representations and warranties relate to an earlier date
and, after giving effect to the amendments set forth in Section 2 hereof,
no Default or Event of Default shall exist.

 

(r)                                    The
Administrative Agent shall have received all fees and other amounts due and
payable on or prior to the Amendment No. 2 Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by Borrower hereunder.

 

7

 

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

 

(t)                                    Borrower
shall have paid the reasonable fees and disbursements of counsel to the
Administrative Agent and the Lenders in connection with this Amendment.

 

The
Administrative Agent shall notify Borrower and the Lenders of the Amendment No. 2
Effective Date, and such notice shall be conclusive and binding.

 

4.                                       REPRESENTATIONS AND WARRANTIES.  Borrower hereby represents and warrants to
the Administrative Agent and the Lenders that:

 

(a)                                  The
representations and warranties set forth in the Loan Documents are true and
correct in all material respects as of the date hereof and with the same effect
as though made on and as of the date hereof, except (i) to the extent such representations and warranties
relate to an earlier date and (ii) as disclosed in K-Sea Transportation
Partners L.P.’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 16, 2005.

 

(b)                                 No
Default or Event of Default and no event or condition which, with the giving of
notice or lapse of time or both, would constitute such a Default or Event of
Default, now exists or would exist.

 

(c)                                  (i) 
The execution, delivery and performance by Borrower of this Amendment is within
its organizational powers and have been duly authorized by all necessary action
(corporate or otherwise) on the part of Borrower, (ii) this Amendment is
the legal, valid and binding obligation of Borrower, enforceable against
Borrower in accordance with its terms, and (iii) neither this Amendment
nor the execution, delivery and performance by Borrower hereof: (A) contravenes
the terms of Borrower’s organization documents, (B) conflicts with or
results in any breach or contravention of, or the creation of any Lien under,
any document evidencing any contractual obligation to which Borrower is a party
or any order, injunction, writ or decree to which Borrower or its property is
subject, or (C) violates any requirement of law

 

5.                                       EFFECT; NO WAIVER.

 

(a)                                  Borrower
hereby (i) reaffirms and admits the validity and enforceability of the
Loan Documents and all of its obligations thereunder and (ii) agrees and
admits that it has no existing defenses to or offsets against any such
obligation. Except as specifically set forth herein, the Loan Agreement and the
other Loan Documents shall remain in full force and effect in accordance with
their terms and are hereby ratified and confirmed.  The execution, delivery and effectiveness of
this Amendment shall not operate as a waiver of any existing or future Default
or Event of Default, whether known or unknown or any right, power or remedy of
the Administrative Agent or the Lenders under the Loan Agreement, nor
constitute a waiver of any provision of the Loan Agreement, except as
specifically set forth herein.

 

(b)                                 Borrower
hereby (i) reaffirms all of its agreements and obligations under the Loan Documents,
(ii) reaffirms that all Obligations of Borrower under or in connection
with the Loan Agreement as amended hereby are “Obligations”
as that term is defined in the Loan Documents and (iii) reaffirms that all
such Obligations continue to be secured by the Loan Documents, which remain in
full force and effect and are hereby ratified and confirmed.

 

8

 

6.                                       MISCELLANEOUS.

 

(a)                                  Borrower
will cause all Amendment No. 2 Pool Vessels to be subjected to a Lien securing
the Obligations and will take, such actions as shall be necessary or reasonably
requested by the Administrative Agent to grant and perfect such Liens,
including, without limitation, executing any and all further documents,
financing statements, agreements and instruments, and taking all such further
actions (including the filing and recording of preferred ship mortgages,
financing statements, and any other
instrument or agreement of assignment that the Administrative Agent may
reasonably request with the United States Coast Guard), that may be
required under any applicable law, or which the Administrative Agent or the
Required Lenders may reasonably request, to effectuate the transactions
contemplated hereby or to grant, preserve, protect or perfect the Liens created
or intended to be created by the Loan Documents or the validity or priority of
any such Lien, all at the expense of Borrower.

 

(b)                                 Borrower
shall pay the Administrative Agent upon demand for all reasonable expenses,
including reasonable attorneys’ fees and expenses of the Administrative Agent,
incurred by the Administrative Agent in connection with the preparation,
negotiation and execution of this Amendment.

 

(c)                                  THIS
AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS, BUT INCLUDING SECTIONS 5-1401
AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK) AND
DECISIONS OF THE STATE OF NEW YORK.

 

(d)                                 This
Amendment shall be binding upon Borrower, the Administrative Agent and the
Lenders and their respective successors and assigns, and shall inure to the
benefit of Borrower, the Administrative Agent and the Lenders and the
respective successors and assigns of the Administrative Agent and the Lenders.

 

(e)                                  This
Amendment may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute one and the same instrument.

 

[Signature pages follow.]

 

9

 

AS
EVIDENCE of the agreement by the parties hereto to the terms and conditions
herein contained, each such party has caused this Amendment to be executed on
its behalf.

 

	
   

  	
  K-SEA OPERATING PARTNERSHIP

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

  GP, LLC, as Borrower

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John J. Nicola

  	
   

  
	
   

  	
  Name:
  John J. Nicola

  
	
   

  	
  Title: Chief
  Financial Officer

  

 

K-SEA OPERATING
PARTNERSHIP AMENDMENT NO. 2 SIGNATURE PAGE

 

 

	
   

  	
  KEYBANK NATIONAL

  ASSOCIATION, for itself as Lender, and

  as Administrative Agent and as Collateral

  Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven B. Vitale

  	
   

  
	
   

  	
  Name: Steven B.
  Vitale

  
	
   

  	
  Title: Senior
  Vice President

  

 

 

	
   

  	
  LASALLE
  BANK NATIONAL

  ASSOCIATION, as Syndication Agent and

  Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kathleen L. Ross

  	
   

  
	
   

  	
  Name: Kathleen
  L. Ross

  
	
   

  	
  Title: Senior
  Vice President

  

 

 

	
   

  	
  CITIZENS BANK OF PENNSYLVANIA

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Devon Starks

  	
   

  
	
   

  	
  Name: Devon
  Starks

  
	
   

  	
  Title: Senior
  Vice President

  

 

 

	
   

  	
  WACHOVIA
  BANK, NATIONAL

  ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen Karp

  	
   

  
	
   

  	
  Name: Stephen
  Karp

  
	
   

  	
  Title: Vice
  President

  

 

 

ACKNOWLEDGEMENT AND CONSENT

 

Each of the undersigned
Guarantors hereby (1) consents to the execution and delivery by Borrower
of the foregoing Amendment No. 2; (2) agrees that the definition of “Obligations”
(and any other term referring to the indebtedness, liabilities and obligations
of Borrower to the Administrative Agent or any of the Lenders) in the Parent
Guaranty or its Subsidiary Guaranty, as the case may be, and the other Loan
Documents shall include the Indebtedness of Borrower under the foregoing Amendment
No. 2; (3) agrees that the definition of “Loan Agreement” in the Parent
Guaranty or its Subsidiary Guaranty, as the case may be, and the other Loan
Documents to which it is a party is hereby amended to mean the Loan Agreement
as amended by the foregoing Amendment No. 2; (4) reaffirms its
continuing liability under the Parent Guaranty or its Subsidiary Guaranty, as
the case may be (as modified hereby); (5) reaffirms all of its agreements
and obligations under the Loan Documents to which it is a party; (6) reaffirms
that all Obligations of Borrower under or in connection with the Loan Agreement
as amended by the foregoing Amendment No. 2 are “Obligations”
as that term is defined in the Parent Guaranty or its Subsidiary Guaranty, as
the case may be; (7) reaffirms that all such Obligations continue to be
secured by the Loan Documents to which it is a party, which remain in full
force and effect and are hereby ratified and confirmed; and (8) confirms
and agrees that it is a Guarantor and that the Parent Guaranty or its
Subsidiary Guaranty, as the case may be, and the other Loan Documents to which
it is a party are, and shall continue to be, in full force and effect in
accordance with their respective terms.

 

	
   

  	
  K-SEA TRANSPORTATION PARTNERS

  L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/
  John J. Nicola

  	
   

  
	
   

  	
   

  	
  Name:
  John J. Nicola

  
	
   

  	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  K-SEA TRANSPORTATION INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/
  John J. Nicola

  	
   

  
	
   

  	
   

  	
  Name:
  John J. Nicola

  
	
   

  	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  SEA COAST TRANSPORTATION LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/
  John J. Nicola

  	
   

  
	
   

  	
   

  	
  Name:
  John J. Nicola

  
	
   

  	
   

  	
  Title:
  Chief Financial Officer

  
								

 

 

EXHIBIT A

TO

AMENDMENT NO. 2 TO LOAN AGREEMENT

 

FORM OF NOTE

 

	
  $                  

  	
  November 29, 2005

  
	
  New York, New York

  

 

FOR VALUE RECEIVED, the undersigned, K-SEA OPERATING PARTNERSHIP L.P., a Delaware limited
partnership (“Borrower”), hereby promises to pay
to the order of                                                   
(the “Lender”)                   
DOLLARS ($                  )
or if less, the unpaid principal amount of the Loans made by the Lender to
Borrower, in the amounts and at the times set forth in the Loan and Security
Agreement, dated as of March 24, 2005 (as amended by Amendment No. 1
to Loan and Security Agreement dated as of October 18, 2005 and Amendment No. 2
to Loan and Security Agreement dated as of the date hereof and as the same may
be further amended, supplemented or otherwise modified from time to time, the “Loan Agreement”), among Borrower, the Lenders party thereto,
and KeyBank National Association, as Administrative Agent and Collateral
Trustee, and to pay interest from the date hereof on the principal balance of
such Loans from time to time outstanding at the rate or rates and at the times
set forth in the Loan Agreement, in each case at the office of the
Administrative Agent located at 127 Public Square, Cleveland, Ohio 44114, Attn.
KCIB Loan Services, or at such other place as the Administrative Agent may
specify from time to time, in lawful money of the United States of America in
immediately available funds.  Terms
defined in the Loan Agreement are used herein with the same meanings.

 

The Loans evidenced by this Note are
prepayable in the amounts, and under the circumstances, and their respective
maturities are subject to acceleration upon the terms, set forth in the Loan
Agreement.  This Note is subject to, and
should be construed in accordance with, the provisions of the Loan Agreement
and is entitled to the benefits and security set forth in the Loan Documents.

 

The Lender is hereby authorized to record on the schedule annexed
hereto, and any continuation sheets which the Lender may attach hereto, (a) the
date of each Loan made by the Lender, (b) whether such Loan is a Base Rate
Loan or a LIBOR Loan and amount thereof, (c) the interest rate (without
regard to the Applicable Margin) and Interest Period applicable to each LIBOR
Loan and (d) the date and amount of each conversion of, and each payment
or prepayment of the principal of, any such Loan.  The entries made in such schedule shall
be prima facie evidence of the existence and amounts of the obligations
recorded therein, provided that the failure to so record or any error therein
shall not in any manner affect the obligation of Borrower to repay the Loans in
accordance with the terms of the Loan Agreement.

 

This Note shall be
deemed to be in complete substitution for and replacement of, and not a
repayment of the Note dated October 18, 2005 made by Borrower payable to
order of the Lender (the “Prior Note”) and all interest accrued and unpaid under
such Prior Note shall be deemed evidenced by this Note and payable hereunder
from and after the date of accrual thereof. 
The execution and delivery of this Note shall not be construed (i) to
have constituted repayment of any amount of principal or interest on the Prior
Note, or (ii) to release, cancel, terminate or otherwise impair all or any
part of any lien or security interest granted to the Lenders party to the Loan
Agreement or their agents as collateral security for the Prior Note.

 

Except as specifically otherwise provided in
the Loan Agreement, Borrower hereby waives presentment, demand, notice of
dishonor, protest, notice of protest and all other demands, protests and
notices in connection with the execution, delivery, performance, collection and
enforcement of this Note.

 

 

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

 

	
   

  	
  K-SEA OPERATING PARTNERSHIP L.P.,

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

  as Borrower

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John J. Nicola

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
					

 

2

 

SCHEDULE TO NOTE

 

	
  Date

  	
   

  	
  Type of Loan

  	
   

  	
  Amount

  of Loan

  	
   

  	
  Amount of

  principal converted,

  paid or

  prepaid

  	
   

  	
  Interest rate

  on LIBOR

  Loans

  	
   

  	
  Interest Period

  for LIBOR

  Loans

  	
   

  	
  Notation

  made by

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

EXHIBIT B

TO

AMENDMENT NO. 2 TO LOAN AGREEMENT

 

AMENDMENT NO. 2 POOL VESSELS

 

	
  Vessel Name

  	
   

  	
  Official No.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  DBL 81

  	
   

  	
  1132231

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  DBL 82

  	
   

  	
  1137538

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  DBL 101

  	
   

  	
  1119760

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  DBL 102

  	
   

  	
  1146491

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  DBL 134

  	
   

  	
  699977

  	
   

  

 

 

EXHIBIT C

TO

AMENDMENT NO. 2 TO LOAN AGREEMENT

 

SCHEDULE 1.01

 

Pool Vessels

 

	
  VESSEL NAME

  	
   

  	
  OFFICIAL
  NO.

  	
   

  	
  REGISTERED OWNER

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Double Hull Barges

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 151

  	
   

  	
  641082

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 152

  	
   

  	
  644380

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 155

  	
   

  	
  556673

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 152

  	
   

  	
  644380

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 155

  	
   

  	
  556673

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 140

  	
   

  	
  1090503

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 70

  	
   

  	
  540401

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 31

  	
   

  	
  1079242

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 32

  	
   

  	
  1087118

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 17

  	
   

  	
  1065655

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 18

  	
   

  	
  1065657

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 19

  	
   

  	
  1065658

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 53

  	
   

  	
  500121

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 81

  	
   

  	
  1132231

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 82

  	
   

  	
  1137538

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 101

  	
   

  	
  1119760

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 102

  	
   

  	
  1146491

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 134

  	
   

  	
  699977

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Pacific

  	
   

  	
  996165

  	
   

  	
  Sea Coast Transportation LLC

  
	
  Puget Sounder

  	
   

  	
  981972

  	
   

  	
  Sea Coast Transportation LLC

  
	
  Sasanoa

  	
   

  	
  1110781

  	
   

  	
  Sea Coast Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Single Hull Barges

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  KTC 80

  	
   

  	
  643281

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  KTC 71

  	
   

  	
  563364

  	
   

  	
  K-Sea Operating Partnership L.P.

  

 

 

	
  KTC 60

  	
   

  	
  630272

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  KTC 50

  	
   

  	
  555901

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  KTC 55

  	
   

  	
  544437

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tugs

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Rebel

  	
   

  	
  570047

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Yankee

  	
   

  	
  571215

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Irish Sea

  	
   

  	
  520685

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Viking

  	
   

  	
  541711

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Lincoln Sea

  	
   

  	
  1084513

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Beaufort Sea

  	
   

  	
  536836

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Tasman Sea

  	
   

  	
  578207

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Adriatic Sea

  	
   

  	
  590232

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Coral Sea

  	
   

  	
  550670

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Java Sea

  	
   

  	
  636105

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Baltic Sea

  	
   

  	
  551908

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Bering Sea

  	
   

  	
  569665

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Casablanca

  	
   

  	
  901203

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Maryland

  	
   

  	
  287444

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Houma

  	
   

  	
  528526

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Odin

  	
   

  	
  647313

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Taurus

  	
   

  	
  602379

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Falcon

  	
   

  	
  598501

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Banda Sea

  	
   

  	
  504169

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Davis Sea

  	
   

  	
  651977

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Norwegian Sea

  	
   

  	
  574955

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Sargasso Sea

  	
   

  	
  547618

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Timor Sea

  	
   

  	
  283906

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Pacific Eagle

  	
   

  	
  500126

  	
   

  	
  Sea Coast Transportation LLC

  
	
  Tiger

  	
   

  	
  502116

  	
   

  	
  Sea Coast Transportation LLC

  
	
  Pacific Pride

  	
   

  	
  583851

  	
   

  	
  Sea Coast Transportation LLC

  
	
  Pacific Challenger

  	
   

  	
  571631

  	
   

  	
  Sea Coast Transportation LLC

  
	
  Pacific Freedom

  	
   

  	
  521494

  	
   

  	
  Sea Coast Transportation LLC

  
	
  Pacific Raven

  	
   

  	
  529686

  	
   

  	
  Sea Coast Transportation LLC

  

 

 

	
  Paragon

  	
   

  	
  596518

  	
   

  	
  Sea Coast Transportation LLC

  
	
  Pacific Patriot

  	
   

  	
  627416

  	
   

  	
  Sea Coast Transportation LLC

  
	
  Sea Hawk

  	
   

  	
  589839

  	
   

  	
  Sea Coast Transportation LLC

  
	
  Pacific Avenger

  	
   

  	
  586202

  	
   

  	
  Sea Coast Transportation LLC

  
	
  John Brix

  	
   

  	
  293323

  	
   

  	
  Sea Coast Transportation LLC

  
	
  Pacific Wolf

  	
   

  	
  567630

  	
   

  	
  Sea Coast Transportation LLC

  

 

 

EXHIBIT D

TO

AMENDMENT NO. 2 TO LOAN AGREEMENT

 

SCHEDULE 2.01

 

Amendment No. 2 Effective
Date Commitments

 

	
  Lender

  	
   

  	
  Commitment

  	
   

  
	
  KeyBank National
  Association

  	
   

  	
  $

  	
  50,000,000.00

  	
   

  
	
  LaSalle Bank National
  Association

  	
   

  	
  $

  	
  40,000,000.00

  	
   

  
	
  Citizens Bank of
  Pennsylvania

  	
   

  	
  $

  	
  37,000,000.00

  	
   

  
	
  Wachovia Bank, National
  Association

  	
   

  	
  $

  	
  28,000,000.00

  	
   

  
	
  Aggregate Commitments

  	
   

  	
  $

  	
  155,000,000.00Exhibit 10.3

LOAN AGREEMENT

 

Dated as of

December 19, 2005 

Among

K-SEA CANADA CORP. 

(as the Borrower)

AND

CITIZENS LEASING CORPORATION, 

d/b/a CITIZENS ASSET FINANCE

(as the Lender)

 

 

TABLE OF CONTENTS

 

	
  SECTION 1.

  	
   

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §1.1

  	
   

  	
  Defined Terms.

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §1.2

  	
   

  	
  Other Definitional and
  Interpretive Provisions.

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.

  	
   

  	
  THE TERM LOAN.

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §2.1

  	
   

  	
  Loan; Purposes

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §2.2

  	
   

  	
  Note; Repayment of Principal and
  Interest

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §2.3

  	
   

  	
  Prepayments

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §2.4

  	
   

  	
  Payments Generally

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §2.5

  	
   

  	
  Increased Costs and Reduced
  Return

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §2.6

  	
   

  	
  Payments Free and Clear of Taxes

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §2.7

  	
   

  	
  Mitigation Obligations

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.

  	
   

  	
  REPRESENTATIONS AND WARRANTIES

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.1

  	
   

  	
  Legal Existence and Good Standing,
  Etc.

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.2

  	
   

  	
  Corporate Power; Consents;
  Absence of Conflict with Other Agreements Etc

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.3

  	
   

  	
  Title to Properties

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.4

  	
   

  	
  Financial Statements

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.5

  	
   

  	
  No Material Changes Etc.

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.6

  	
   

  	
  Franchises, Patents, Copyrights,
  Licenses, Etc.

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.7

  	
   

  	
  Litigation

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.8

  	
   

  	
  No Materially Adverse Contracts,
  Etc.

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.9

  	
   

  	
  Compliance with Other
  Instruments, Laws, Etc.

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.10

  	
   

  	
  Tax Status

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.11

  	
   

  	
  No Default

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.12

  	
   

  	
  Absence of Liens

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.13

  	
   

  	
  Use of Proceeds

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.14

  	
   

  	
  Pension Plans

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.15

  	
   

  	
  [Intentionally Omitted].

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.16

  	
   

  	
  Disclosure

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.17

  	
   

  	
  [Intentionally Omitted].

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.18

  	
   

  	
  First Lien

  	
  21

  

 

i

 

	
   

  	
  §3.19

  	
   

  	
  Environmental Matters

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.20

  	
   

  	
  Solvency

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §3.21

  	
   

  	
  Survival of Representations and
  Warranties, Etc

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.

  	
   

  	
  CONDITIONS OF FUNDING THE LOAN

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.1

  	
   

  	
  Execution and Delivery

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.2

  	
   

  	
  Representations and Warranties

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.3

  	
   

  	
  Performance; No Default

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.4

  	
   

  	
  Officer’s Certificate

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.5

  	
   

  	
  Certified Copies of Charter
  Documents

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.6

  	
   

  	
  Proof of Corporate Action

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.7

  	
   

  	
  Incumbency Certificate

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.8

  	
   

  	
  No Material Adverse Effect

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.9

  	
   

  	
  [Intentionally Omitted].

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.10

  	
   

  	
  Original Vessel Documents

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.11

  	
   

  	
  Recordation of U.S. Mortgage

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.12

  	
   

  	
  [Intentionally Omitted].

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.13

  	
   

  	
  Opinion of Counsel

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.14

  	
   

  	
  Proceedings and Documents

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.15

  	
   

  	
  [Intentionally Omitted].

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.16

  	
   

  	
  Recorded Lien Searches

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.17

  	
   

  	
  Financing Statements

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.18

  	
   

  	
  Evidence of Insurance

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.19

  	
   

  	
  Intentionally Omitted

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.20

  	
   

  	
  Guaranty

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §4.21

  	
   

  	
  Canadian Filings – Statutory
  Mortgages

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.

  	
   

  	
  AFFIRMATIVE COVENANTS

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.1

  	
   

  	
  Punctual Payment

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.2

  	
   

  	
  Maintenance of Offices

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.3

  	
   

  	
  Records and Accounts

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.4

  	
   

  	
  K-Sea Transportation Financial
  Statements, Certificates, and Other Information

  	
  26

  

 

ii

 

	
   

  	
  §5.5

  	
   

  	
  Borrower Financial Statements

  	
  27

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.6

  	
   

  	
  Business and Corporate Existence

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.7

  	
   

  	
  Payment of Taxes

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.8

  	
   

  	
  Inspection of Properties and
  Books

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.9

  	
   

  	
  Licenses and Permits

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.10

  	
   

  	
  Pension Plans

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.11

  	
   

  	
  Environmental and Safety Matters

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.12

  	
   

  	
  Indemnities, Etc

  	
  30

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.13

  	
   

  	
  Performance of Contracts

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.14

  	
   

  	
  Notice of Default

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.15

  	
   

  	
  Notice of Material Claims and
  Litigation

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.16

  	
   

  	
  No Disposition of Collateral

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.17

  	
   

  	
  Borrower’s Title; Lender’s
  Security Interest

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.18

  	
   

  	
  Compliance with Laws and
  Regulations

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.19

  	
   

  	
  Further Assurances

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §5.20

  	
   

  	
  Casualty Occurrence

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 6.

  	
   

  	
  NEGATIVE COVENANTS; FINANCIAL
  COVENANTS

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §6.1

  	
   

  	
  Transactions with Affiliates

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §6.2

  	
   

  	
  Terminate Pension Plan

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §6.3

  	
   

  	
  [Intentionally Omitted].

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §6.4

  	
   

  	
  Certain Agreements Regarding
  Financial Covenants Under Existing Revolver

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 7.

  	
   

  	
  EVENTS OF DEFAULT; ACCELERATION

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §7.1

  	
   

  	
  Events of Default

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §7.2

  	
   

  	
  Remedies

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 8.

  	
   

  	
  EXPENSES

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 9.

  	
   

  	
  SURVIVAL OF COVENANTS

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 10.

  	
   

  	
  CONFIDENTIALITY

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 11.

  	
   

  	
  SUCCESSORS AND ASSIGNS;
  PARTICIPATIONS

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §11.1

  	
   

  	
  Successors and Assigns.

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §11.2

  	
   

  	
  Assignments

  	
  38

  

 

iii

 

	
   

  	
  §11.3

  	
   

  	
  Participations

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §11.4

  	
   

  	
  Disclosures

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §11.5

  	
   

  	
  Federal Reserve Bank

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  §11.6

  	
   

  	
  Register; Note

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 12.

  	
   

  	
  NOTICES

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 13.

  	
   

  	
  ENTIRE AGREEMENT

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 14.

  	
   

  	
  CONSENTS, AMENDMENTS, WAIVERS, ETC

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 15.

  	
   

  	
  SEVERABILITY

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 16.

  	
   

  	
  SUBMISSION TO JURISDICTION; WAIVER

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 17.

  	
   

  	
  WAIVER OF JURY TRIAL

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 18.

  	
   

  	
  MISCELLANEOUS

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 19.

  	
   

  	
  JUDGMENT CURRENCY INDEMNITY

  	
  45

  

 

	
  SCHEDULES

  
	
  Schedule 1

  	
   

  	
  Description of
  the Vessels

  
	
  Schedule 2

  	
   

  	
  Liens

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  
	
  Exhibit A

  	
   

  	
  Form of
  Term Note

  
	
  Exhibit B

  	
   

  	
  [Intentionally
  Omitted]

  
	
  Exhibit C-1

  	
   

  	
  Form of
  Canadian Ship Mortgage

  
	
  Exhibit C-2

  	
   

  	
  Form of
  U.S. Ship Mortgage

  
	
  Exhibit D

  	
   

  	
  Form of
  Assignment and Acceptance

  
	
  Exhibit E-1

  	
   

  	
  Form of
  Canadian Security Agreement

  
	
  Exhibit E-2

  	
   

  	
  Form of
  U.S. Security Agreement

  
	
  Exhibit F

  	
   

  	
  Form of
  Guaranty

  

 

iv

 

 

LOAN AGREEMENT

 

This LOAN
AGREEMENT (this “Agreement”), is made as of December 19, 2005, by and
between K-SEA CANADA CORP., a Nova Scotia unlimited liability company (the “Borrower”),
and CITIZENS LEASING CORPORATION, d/b/a CITIZENS ASSET FINANCE,
a Rhode Island corporation, (the “Lender”).

 

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

 

SECTION 1.                            DEFINITIONS

 

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

 

“340” means a 75,000 barrel tank barge named
the “340” owned by Sea Coast with official number 657024.

 

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

 

“Agreement” - see preamble.

 

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

 

“Borrower” see preamble.

 

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

“Canada Shipping Act” means the Canada Shipping
Act, R.S.C. 1985, c. S-9.

 

“Canadian Coast Guard” means the Canadian Coast
Guard, which is Canada’s civilian marine organization.

 

“Canadian Dollars” and the sign “CAD $” means
dollars or such coin or currency of Canada as at the time of payment shall be
legal funds for the payment of public and private debts in Canada.

 

“Canadian Maritime Law” means the law defined
as Canadian Maritime Law in the Federal Courts Act as such law has been altered
by such Act or any other Act of the Canadian Parliament.

 

 

“Canadian Mortgage” means the Mortgage
Agreement Collateral to Statutory Mortgage dated as of the date hereof and the Statutory
Mortgages (Form 7), registered at the Ports of St. John’s,
Newfoundland and Hamilton, Ontario on December 19, 2005, both substantially
in the form of Exhibit C-1, granted by the Borrower in favor of the
Lender with respect to the MCS Barge and the WJM Tug as such mortgage may be
amended, supplemented, restated, replaced or otherwise modified from time to
time.

 

“Canadian Security Agreement” means the Security
Agreement, dated as of the date hereof, substantially in the form of Exhibit E-1
pursuant to which the Borrower has granted to the Lender, a security interest
in certain rights and assets of the Borrower in the Collateral..

 

“Canadian Vessels” means the MCS Barge and the
WJM Tug.

 

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

 

“CBPA” means Citizens Bank of Pennsylvania.

 

“CFG” means Citizens Financial Group.

 

“Change in Control” means (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by
any Person or group (within the meaning of the Securities Exchange Act of 1934
and the rules of the Securities and Exchange Commission thereunder as in
effect on the date hereof), of ownership interests representing more than 50%
of the general partnership interest in K-Sea Transportation or more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
ownership interests of the Borrower, K-Sea Operating or Sea Coast or any
Subsidiary Guarantor, or (b) for the period of twelve (12) consecutive
calendar months, a majority of the board of Borrower or any Guarantor shall no
longer be composed of individuals (i) who were members of said board on
the first day of such period, (ii) whose election or nomination to said
board was approved by individuals referred to in clause (i) above constituting
at the time of such election or nomination at least a majority of said board,
or (iii) whose election or nomination to said board was approved by
individuals referred to in clauses (i) and (ii) above constituting at
the time of such election or nomination at least a majority of said board.

 

“Closing Date” means the date on which the Loan
is advanced to the Borrower pursuant to the terms hereof.

 

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

 

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

 

2

 

“Collateral” means the Vessels, charter hire,
freights and earnings, fees and all other amounts due or which become due and
payable to the Borrower or Sea Coast arising out of the Vessels; all insurance
proceeds payable to the Borrower or Sea Coast with respect to the Vessels; and
all other property, interests and rights now or at any time hereafter
described, referred to in or covered by the Security Documents.

 

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

 

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

 

“Currency of Obligation” means the currency in
which an amount due hereunder is payable.

 

“Currency of Payment” means the currency into
which any Currency of Obligation is converted.

 

“Default(s)” means the occurrence of any event
or condition which, after the giving of notice and/or the lapse of time (if
provided for in §7), would become an Event of Default.

 

“Default Rate” means an interest rate of 300 basis
points per annum over the relevant interest rate in effect in accordance with Section 2.2(b) and
(c) or, if lower, the Highest Lawful Rate.

 

“Eligible Assignee” means any bank, insurance
company or other financial institution or finance company having a net worth in
excess of Fifty Million U.S. Dollars ($50,000,000).

 

“Environmental Laws” means any and all United
States and Canadian federal, state, municipal, provincial, local and foreign
laws, statutes of the United States and Canada, ordinances, rules, judgments,
orders, decrees, directives (whether or not having the force of law) or any
governmental authority or any environmental agency, as well as permits,
concessions, grants, franchises, licenses, agreements or other governmental
restrictions imposing liability or standards of conduct, regulating or relating
to fines, orders, injunctions, penalties, damages, contribution, cost recovery
compensation, losses or injuries resulting from the Release or threatened
Release of Hazardous Materials or to the generation, storage, transportation,
or disposal of Hazardous Materials, in any manner applicable to the Borrower or
any of its properties, including the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. §9601 Qt seq.), the Hazardous
Material Transportation Act (49 U.S.C. §1801 Qt seq.), the Solid Waste Disposal
Act (42 U.S.C. §6901 et seq.), the Federal Water Pollution Control Act
(33 U.S.C. §1251 et seq.), the Clean Air Act (42 U.S.C. §7401 et.
seq.), the Toxic Substances Control Act (15 U.S.C. §2601 et. seq.),
the Occupational Safety and Health Act (29 U.S.C. §651 et. seq.) and the
Emergency Planning and Community Right-to-Know Act (42 U.S.C. §11001 et.
seq.), each as amended or supplemented, and any analogous future or present
local, municipal, state, provincial and federal or foreign statutes of the
United States and Canada

 

3

 

and rules and regulations promulgated pursuant
thereto, each as in effect on the date of determination.

 

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

 

“Event of Default” means any of the events
specified in §7, provided that
there has been satisfied any requirement in connection with such event for the
giving of notice or the lapse of time, or both.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(vi)                              any
United States or Canadian federal Tax imposed on, or required to be withheld
from or with respect to payments of, gross or net income (including, with
respect to

 

4

 

United States federal
Tax, any Tax imposed by Section 881, 884, 1441, 1442, or 3406 of the
Code).

 

“Existing Revolver” means the transactions
contemplated by the Loan and Security Agreement dated as of March 24, 2005,
as amended by Amendments No. 1 and 2, by and between the K-Sea Operating,
KeyBank National Association, LaSalle Bank National Association and CBPA, as
the same may be further amended, modified or supplemented from time to time.

 

“Federal Courts Act” means the Federal Courts
Act, R.S.C. 1985, c. F-7.

 

“Financial Covenants” means the financial
covenants of K-Sea Operating as currently set forth in Sections 7.01 — 7.04
of the Existing Revolver.

 

“Financing Statements” means (i) with
respect to Guarantors, when in reference to the United States, Uniform Commercial
Code financing statements naming the Guarantors as debtor and the Lender as
secured party and filed or to be filed in the office of the Secretary of State
of Delaware and/or such other locations as may be required from time to time
under applicable law to perfect a security interest in certain of the
Collateral to which the applicable Guarantor has rights, and (ii) with
respect to the Borrower, the PPSA financing statements filed in the
jurisdiction of the head office of the Borrower and, if applicable, each
province or territory where collateral which is not an intangible or moveable
goods are located, naming the Borrower as debtor and Lender as secured party,
and filed or to be filed in the PPR and in such other locations as may be
required from time to time under applicable law to perfect a security interest
in the Collateral to which the Borrower has rights.

 

“Foreign Exchange Agreement” means the
Agreement Regarding Foreign Exchange Transactions dated December 19, 2005,
entered into between the Lender and CFG for the benefit of the Borrower
respecting this Agreement or in respect of the Loan, the Note or other Loan
Documents.

 

“Foreign Exchange Obligations” means all
indebtedness, obligations and liabilities of the Lender to CFG under the
Foreign Exchange Agreement.

 

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

 

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

 

“Guarantors” means K-Sea Operating, K-Sea
Transportation, and Sea Coast.

 

“Guaranty” means the Guaranty Agreement in the
form of Exhibit F, dated as of the date hereof, between the
Guarantors and the Lender, as amended, supplemented, restated, replaced or
otherwise modified from time to time.

 

5

 

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

 

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

 

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

 

“Income Tax Act” means the Income Tax Act,
R.S.C. 1985, c.1 (5th Supp.)

 

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

 

“Indemnified Party” - see §5.11(d).

 

6

 

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

 

“Initial Lender” means Citizens Leasing
Corporation, d/b/a CITIZENS ASSET FINANCE,
a Rhode Island corporation.

 

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

 

“K-Sea Transportation” means K-Sea
Transportation Partners L.P., a Delaware limited partnership.

 

“Law” means any law (including common law),
constitution, statute, treaty, convention, regulation, rule, by-law (including
zoning by-laws), treaty, code, ordinance, and all applicable official
directives, order, injunction, writ, judgment, exemption, approval, license,
guideline, policy, decree or award of any Governmental Authority (whether or
not having the force of law).

 

“Lender(s)” – see the preamble.

 

“Lender Register” as defined in §11.6.

 

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

 

“Loan” — see §2.1.

 

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

 

7

 

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

 

“MCS Barge” means the 85,000 barrel cap double
hull tank barge named the “McCleary’s Spirit” with official number 822797.

 

“Note” - see §2.2(a).

 

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

 

“Officer’s Certificate” means a certificate
signed on behalf of the Borrower or any Guarantor by an Authorized Officer of
the Borrower or the Guarantor, as applicable.

 

“Original Vessel Documents” means the U.S.
Coast Guard Certificates of Documentation and the American Bureau of Shipping
Classification Certificates for the 340 and the
Certificate of Registry issued by the registrar at the Registry for the Port of
Hamilton, Ontario for the MCS Barge and the Registry for the Port of
St. John’s, Newfoundland for the WJM Tug.

 

“Participant” – see §11.3.

 

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

 

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

 

(ii)                                  With
respect to the United States, liens for repairs or incident to current
operations of the Vessels (other than those referred to in clause (i)), but
only to the extent in each

 

8

 

case that such liens are based on (x) claims not yet
delinquent, (y) in the case of liens incident to current operations, are
incurred in the ordinary course of business and do not exceed Two Hundred Fifty
Thousand U.S. Dollars ($250,000) in the aggregate, and (z) do not involve a
significant risk of a sale, forfeiture, hindrance to operation or loss of the
Vessels and with respect to Canada, Canadian common law possessory liens of
ship repairers to the extent of the repair work done by the repairer to the
extent that such liens are given priority over registered mortgagees under
applicable law;

 

(iii)                               Liens for amounts
(including Taxes) that are not delinquent or that are due and unpaid for not
more than sixty (60) days after such amounts shall become due that do not
involve a significant risk of a sale, forfeiture, hindrance to operation or
loss of the Vessels and unremitted source deductions to which the Crown has
priority pursuant to the Income Tax Act;

 

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

 

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

 

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

 

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

 

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

 

“Port of Registry” means, in the case of the
MCS Barge, Hamilton, Ontario, and in the case of the WJM Tug, St. John’s,
Newfoundland and Labrador.

 

“PPR” means, as applicable, the Personal
Property Registry in Nova Scotia and the Personal Property Registry in
Newfoundland.

 

9

 

“PPSA” means the Personal Property Security Act
(Nova Scotia), S.N.S. 1995-96, c.13 as in effect from time to time in the
Province of Nova Scotia or such other jurisdiction where any of the Collateral
is located in Canada, except the province of Quebec.

 

“Prepayment Premium” means an additional amount
to be paid in connection with any prepayment made pursuant to §2.3(a), §2.3(b) (other
than relating to a prepayment arising as a result of an Event of Loss) or §7.2,
(a) if such prepayment occurs prior to December 19, 2006, an amount
equal to three percent (3%) of the prepaid principal thereof, (b) if such
prepayment occurs on or after December 19, 2006, but prior to December 19,
2007, an amount equal to two percent (2%) of the prepaid principal thereof, and
(c) if such prepayment occurs on or after December 19, 2007, an
amount equal to 1% of the prepaid principal thereof, provided
that the Borrower shall be entitled to prepay (in a one-time prepayment) the
principal amount of the Loan in an amount of up to Fifteen Million One Hundred
Forty-Seven Thousand Six Hundred Canadian Dollars (CAD $15,147,600.00), at any
time after the date which occurs twelve (12) months after the Closing Date,
without incurring any Prepayment Premium (other than amounts due by Borrower to
Lender for costs incurred by Lender as Foreign Exchange Obligations).

 

“Proceeds” shall have the meaning assigned to
it under the UCC or PPSA, as applicable, and, in any event, shall include, but
not be limited to, the following at any time whatsoever arising or receivable: (a) whatever
is received upon the collection, exchange, sale or other disposition of any
Collateral, and any property into which any of the Collateral is converted,
whether cash or non-cash proceeds, (b) any and all proceeds of any
insurance, indemnity, warranty or guarantee payable to the Borrower or Sea Coast
from time to time with respect to any of the Collateral, (c) any and all
payments (in any form whatsoever) made or due and payable to the Borrower or
Sea Coast from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of any of the Collateral by any
Governmental Authority (or any Person acting under color of governmental
authority), and (d) any and all other amounts from time to time paid or
payable under or in connection with any of the Collateral.

 

“Registration Agent” as defined in §11.6.

 

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

 

“Revolving Lenders” means those lenders that,
at any time of determination, are parties to the Existing Revolver.

 

“Sea Coast” means Sea Coast Transportation LLC,
a Delaware limited liability company and a wholly owned Subsidiary of K-Sea
Operating.

 

“Security Agreements” means the Canadian
Security Agreement and the U.S. Security Agreement.

 

“Security Documents” means the Security
Agreements and the Ship Mortgages.

 

10

 

“Ship Mortgages” means collectively the
Canadian Mortgage and the U.S. Mortgage.

 

“Statutory Mortgages” means the first Statutory
Mortgages (Form 7) naming the Borrower as mortgagor and the Lender as
mortgagee and filed with the Registrar of Shipping at the Ports of
St. John’s, Newfoundland and Hamilton, Ontario on or about the date
hereof, both substantially in the form of Exhibit C-1, granted by
the Borrower in favor of the Lender with respect to the MCS Barge and the WJM
Tug.

 

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

 

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

 

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

 

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

 

“U.S. Mortgage” means the First Preferred Ship
Mortgage dated as of the date hereof substantially in the form of Exhibit C-2,
granted by Sea Coast in favor of the Lender pursuant to the Guaranty with
respect to the 340 Barge as such mortgage may be amended, supplemented,
restated, replaced or otherwise modified from time to time.

 

“U.S. Security Agreement” means the Security
Agreement, dated as of the date hereof, substantially in the form of Exhibit E-2
pursuant to which Sea Coast has granted to the Lender, a security interest in
certain rights and assets of K-Sea Operating relating to the 340 Barge as
security for the Borrower’s Obligations and the obligations created under the
Guaranty.

 

11

 

“Vessel(s)” means, collectively, the MCS Barge,
the WJM Tug and the 340, and individually, any one of them, as more
particularly described in Schedule 1 hereto.

 

“WJM Tug” means a twin screw tug named the “William
J. Moore” with the official number 343910.

 

§1.2                        Other
Definitional and Interpretive Provisions.

 

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

 

(b)                                 Except
as otherwise expressly provided herein, all accounting terms not specifically
defined or specified herein shall have the meanings generally attributed to
such terms under GAAP, including applicable statements and interpretations
issued by the Financial Accounting Standards Board and bulletins, opinions,
interpretations and statements issued by the American Institute of Certified
Public Accountants or its committees.

 

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

 

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

 

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

 

(f)                                    Each
definition of a document in this Agreement shall include such document as
amended, modified, supplemented, restated, renewed or extended from time to
time.

 

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

 

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

 

12

 

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

 

SECTION 2.                            THE
TERM LOAN.

 

§2.1                        Loan;
Purposes. Subject to the terms and conditions set forth herein, and in
reliance upon the representations and warranties contained herein, on the date
hereof, the Lender shall advance a term loan to the Borrower in the principal
amount of Fifteen Million One Hundred Forty-Seven Thousand Six Hundred Canadian Dollars (CAD $15,147,600.00) (the “Loan”) in a
single disbursement of immediately available funds to the Borrower by wire
transfer pursuant to the Borrower’s instruction.  The proceeds of the Loan shall be used by the
Borrower to refinance the costs of purchasing the Canadian Vessels.

 

§2.2                        Note;
Repayment of Principal and Interest.

 

(a)                                  The
obligations of the Borrower to repay the Loan, to pay interest thereon, and all
other sums which may become payable with respect thereto, shall be evidenced
with respect to the Loan by this Agreement and by a promissory note of the
Borrower substantially in the form of Exhibit A (the “Note”),
appropriately completed in accordance with the provisions of this Agreement and
dated as of the date hereof.  If not earlier prepaid pursuant to §2.3,
the entire remaining principal amount of the Loan shall become immediately due
and payable on the date which occurs 84 months after the date hereof (the “Maturity
Date”), as set forth in the Note, without presentment, demand or further notice
of any kind, together with all accrued interest and other amounts then owing by
the Borrower to the Lender hereunder and under the other Loan Documents and
including any amounts then owed by Lender to CFG as Foreign Exchange
Obligations. The principal balance of the Note may be prepaid pursuant to §2.3,
provided that no amount of the Loan that
is so prepaid shall be available for reborrowing. Partial prepayments of the
Note shall be applied to installment payments in the inverse order of
maturity.  The outstanding principal
amount of the Loan shall bear interest at the rate, and such interest shall be
payable on the dates, as provided in the Note.

 

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

 

(c)                                  In
no event shall the amount of interest due or payable under the Loan, the Note
or any of the other Loan Documents, exceed the Highest Lawful Rate, and in the
event any such excess is paid by the Borrower or received by the Lender, then
such excess sum shall be deemed to be inadvertently paid or received and shall
be credited as a payment of principal,

 

13

 

unless the
Borrower shall notify the Lender that the Borrower elects to have such excess
returned to it forthwith.  It is the
express intent hereof that the Borrower not pay and the Lender not receive,
directly or indirectly, in any manner whatsoever, interest in excess of that
which may be lawfully paid by the Borrower under applicable Law.

 

(d)                                 The
books and records of the Lender shall, absent demonstrable error, be conclusive
as to the outstanding amount of the Loan, all interest accrued thereon and all
other amounts owed by the Borrower hereunder.

 

§2.3                        Prepayments.

 

(a)                                  Voluntary
Prepayments.  The Borrower shall have
the right to prepay the Loan in whole or in part, together with accrued
interest, provided that such prepayment shall be
accompanied by (i) payment of the applicable Prepayment Premium and (ii) payment
to Lender of any applicable Foreign Exchange Obligations incurred by Lender,
and provided further that the Borrower shall
give the Lender notice of its intent to prepay the Loan or a portion thereof
not later than 2:00 p.m. on the date that is three (3) Business Days
prior to the date of prepayment (which prepayment date must be a date upon
which a principal installment payment is due under the Note).  Such notice shall be irrevocable; once given,
the principal amount of the Loan designated in the Borrower’s notice shall
become due and payable on the prepayment date specified therein.

 

(b)                                 Mandatory
Prepayments.  The Borrower shall be
required to irrevocably offer to repay the principal balance of the Note,
subject to the limitations set forth below in the “provided” clause,
together with all accrued interest and any other amounts then owing and
constituting Obligations (including the applicable Prepayment Premium if any and
any applicable Foreign Exchange Obligations incurred by the Lender) and the
failure to make such offer shall be deemed to be an Event of Default under the
Loan Agreement, (i) without derogating in any way from §5.16, in an amount
equal to 100% of the net proceeds received by the Borrower, or Sea-Coast, as
applicable, from the sale or other transfer of legal, equitable or beneficial
title of one or more Vessels or shares of the Canadian Vessels or (ii) in
an amount equal to 100% of the proceeds of an Event of Loss sufficient to
prepay in whole the Note on a date that is not earlier than the date the
insurance proceeds are received by the Borrower, or Sea Coast, as applicable,
upon the occurrence of an Event of Loss with respect to any Vessel, provided that (A) if the Borrower receives proceeds as
a result of any of the events described in clauses (i) and (ii) with
respect to the MCS Barge only (and not the WJM Tug or the 340), the Borrower
shall be required to prepay only an amount equal to 70% of
the then outstanding principal balance of the Loan, (B) if the Borrower
receives proceeds as a result of any of the events described in clauses (i) and
(ii) with respect to the WJM Tug only (and not the MCS Barge or the 340), the
Borrower shall be required to prepay only an amount equal to 14% of the then outstanding principal balance of the Loan, (C) if
Sea Coast receives proceeds as a result of any of the events described in
clauses (i) and (ii) with respect to the 340, the Borrower shall be
required to prepay only an amount equal to 16% of the then outstanding
principal balance of the Loan.

 

(c)                                  Foreign
Exchange Gain.  If as a result of any
voluntary or mandatory prepayment of the Loan as contemplated in this §2.3, the
Lender incurs no Foreign Exchange

 

14

 

Obligations, but
instead is entitled to a gain under the Foreign Exchange Agreement, the net
amount of such gain (after all then-current obligations of the Borrower to the
Lender have been paid) shall be remitted to the Borrower.

 

§2.4                        Payments
Generally.

 

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

 

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

 

§2.5                        Increased
Costs and Reduced Return. The Borrower agrees that if any Governmental
Authority enacts or promulgates after the date hereof any Law,
or any request, guideline or directive (whether or not having the force of law
and whether or not failure to comply therewith would be unlawful) or any change
in the interpretation or administration of any existing Law by any Governmental
Authority charged with the administration thereof, which shall either (a) impose,
affect, modify or deem applicable any reserve, special deposit, capital
maintenance or similar requirement against the Loan, or (b) impose on the
Lender any other condition regarding the Loan, this Agreement, or the Note, or (c) result
in any requirement regarding capital adequacy (including any risk-based capital
guidelines) affecting the Lender being imposed or modified or deemed applicable
to the Lender and the result of any event referred to in clause (a), (b) or
(c) above shall be to increase the cost to the Lender of making, funding
or maintaining the Loan or to reduce the amount of any sum receivable by the
Lender or

 

15

 

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

 

§2.6                        Payments
Free and Clear of Taxes.

 

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

 

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

 

16

 

received from any
Governmental Authority or other taxing authority with respect to such
Indemnified Tax.

 

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

 

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

 

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

 

(d)                                 Notwithstanding
any provision to the contrary in the Loan Documents, the Borrower shall have no
obligation to pay, or to indemnify the Lender for, any Tax pursuant to this §2.6
to the extent that such Tax has been taken into account in the calculation of
any amount paid or payable by the Borrower to the Lender pursuant to §2.5
or §8.

 

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

 

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

 

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

 

17

 

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

 

SECTION 3.                            REPRESENTATIONS
AND WARRANTIES

 

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

 

§3.1                        Legal
Existence and Good Standing, Etc.

 

(a)                                  The
Borrower is an unlimited liability company validly formed and existing under
the laws of Nova Scotia and has all requisite unlimited liability or other
power to own the MCS Barge and the WJM Tug, its other property and conduct its
business substantially as presently conducted by it and as proposed to be
conducted by it.

 

(b)                                 The
Borrower (i) maintains its chief executive office at 3245 Richmond
Terrace, Staten, Island, New York 10103, at which place its principal books and
records are kept and (ii) its principal place of business at Suite 900,
Purdy’s Wharf Tower One, 1959 Upper Water Street, P.O. Box 997, Halifax,
NS, Canada B3J 2X2.

 

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

 

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

 

(a)                                  are
within the Borrower’s powers as an unlimited liability company, and have been
duly authorized by all necessary corporate action of the Borrower;

 

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

 

18

 

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

 

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

 

§3.3                        Title
to Properties. K-Sea Transportation and its Subsidiaries own all of
their assets reflected in the balance sheet of K-Sea Transportation and its
Subsidiaries as at September 30, 2005, or acquired since that date,
subject, in the case of the Vessels, to no Liens of record on the collateral
except those set forth in Schedule 2.  Each of the Borrower and Sea Coast
has good and marketable title to all items of Collateral pledged by it, free
and clear of any Liens, except Permitted Liens. 
On the Closing Date and thereafter, the WJM Tug shall be properly
documented as a vessel of Canada in the name of the Borrower, and the MCS Barge
shall be properly documented as a vessel of Canada in the name of the Borrower.

 

§3.4                        Financial
Statements. The Borrower has furnished to the Lender a copy of K-Sea
Transportation’s and its Subsidiaries balance sheets as at September 30,
2005 and statements of income and changes in financial position unaudited for
the three (3) months then ended. 
All such financial statements have been prepared in accordance with GAAP
and fairly present the financial condition and the results of operations of
K-Sea Transportation and its Subsidiaries taken as a whole as at the close of
business on the date thereof.  There are
no liabilities, contingent or otherwise, of the Borrower involving material
amounts, known to the officers of the Borrower and not disclosed in said
financial statements and the related notes thereto or not reflected in the
financial statements most recently delivered in connection with §§5.4(a) or
(b).

 

§3.5                        No
Material Changes Etc. No material adverse changes have occurred
in the financial condition or business of (i) K-Sea Transportation and its
Subsidiaries taken as a whole; or (ii) the Borrower as shown on or
reflected in their respective balance sheets or other financial statements
delivered on or before the date hereof or in the balance sheets or other
financial statements most recently delivered in connection with §§5.4(a) or
(b).

 

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

 

§3.7                        Litigation.
There are no actions, suits, proceedings or investigations of any kind pending
or, to the best knowledge of the Borrower and K-Sea Transportation and its
Subsidiaries, threatened against the Borrower or K-Sea Transportation and its Subsidiaries
before any court, tribunal or administrative agency or board which, if
adversely determined, might

 

19

 

reasonably be
expected to, either in any case or in the aggregate have a Material Adverse Effect
or result in any liability not adequately covered by insurance.

 

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

 

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

 

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

 

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

 

§3.12                 Absence
of Liens. At the time of the making of the Loan hereunder, there will
be no financing statement, security agreement or ship mortgage granted or
agreed to by the Borrower or the Guarantors in effect which purports to cover,
create, perfect or give notice of any present or possible future Lien on the Canadian
Vessels being financed with the Loan or the 340 or rights thereunder, or any
other Liens thereon or on any of the other Collateral, except for Permitted
Liens and Liens in favor of the Lender.

 

20

 

§3.13                 [Intentionally
Omitted].

 

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

 

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

§3.15                 [Intentionally
Omitted].

 

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

 

§3.17                 [Intentionally
Omitted].

 

§3.18                 First
Lien.

 

(a)                                  Upon
filing (i) the Financing Statements with the Delaware Secretary of State,
with respect to the U.S. Security Agreement and (ii) the Financing
Statements with the PPR in Nova Scotia and such other locations in which the
Collateral is located, the Security Agreements will create legal, valid and
perfected first liens on and first priority security interest in all of the
Collateral (to the extent a lien is perfectable by filing with the Delaware
Secretary of State and the applicable PPR respecting any
item of Collateral) described therein (and any Proceeds thereof), as security
for the Obligations, free and clear of all other Liens whatsoever except
Permitted Liens.  No security agreement,
financing statement, equivalent security or lien instrument or continuation
statement covering all or any part of the Collateral, which has been signed by
the Borrower or Sea Coast or which the Borrower or Sea Coast has authorized any
other Person to sign or file or record, is on file or of record with any public
office except in favor of the Lender.

 

(b)                                 Upon
execution and filing for recording thereof with the Coast Guard, with respect
to the U.S. Mortgage, and under the applicable Ports of Registry in Canada with
respect to the Canadian Mortgage, each Ship Mortgage will create legal, valid
and perfected first

 

21

 

liens on and first
priority security interests in favor of the Lender with respect to all
Collateral described therein as security for the Obligations, free and clear of
all other Liens whatsoever other than Permitted Liens.  No mortgage, pledge, security agreement,
financing statement, equivalent security or lien instrument or continuation
statement covering all or any part of the Collateral, which has been signed by
the Borrower or Sea Coast or any predecessor-in-interest of the Borrower or Sea
Coast or which the Borrower or Sea Coast have authorized any other Person to
sign or file or record, is on file or of record with the Coast Guard or the
applicable Canadian Port of Registry or with any
other public office except in favor of the Lender.

 

§3.19                 Environmental
Matters.

 

(a)                                  The
Borrower and each of its Affiliates have obtained all material permits,
licenses and other authorizations which are required under all Environmental
Laws, except to the extent failure to have any such permit, license or
authorization would not have a Material Adverse Effect.  The Borrower and each of its Affiliates are in
compliance in all material respects with the terms and conditions of all such
permits, licenses and authorizations, and are also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any applicable Environmental Law or in any regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to comply
would not have a Material Adverse Effect on their business, financial condition
or operations taken as a whole.

 

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

 

(c)                                  Except
as set forth in the “Legal Proceedings” section of K-Sea Transportation’s
most recent Form 10-Q filed with the Securities and Exchange Commission, and
except as set forth in K-Sea Transportation’s 8-K filed with such Commission on
November 22, 2005, no material oral or written notification of a release
of a Hazardous Material has been filed by or on behalf of K-Sea Transportation or
any of its Affiliates and no property now or previously owned, leased or used
by K-Sea Transportation or any of its Affiliates is listed or, to the Borrower’s
knowledge without any independent verification, proposed for listing on the
National Priorities List under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or on any similar state
list of sites requiring investigation or clean-up.

 

(d)                                 There
are no Liens or encumbrances arising under or pursuant to any Environmental
Laws on any of the real property or properties owned, leased or used by the
Borrower or any of its Affiliates other than Liens, if any, that do not (i) materially
detract from the value of the property or (ii) materially impair the use
thereof in the operation of the business

 

22

 

of the Borrower or any of
its Affiliates or (iii) have a Material Adverse Effect on the ability of
the Borrower or any of its Affiliates taken as a whole to perform its
obligations under the Loan Documents, and no governmental actions have been
taken or, to the knowledge of the Borrower without any independent
verification, are in process which might reasonably be expected to subject any
of such properties to such Liens or encumbrances or, as a result of which the
Borrower or any of its Affiliates would be required to place any notice or
restriction relating to the presence of Hazardous Materials at any property
owned by it in any deed to such property.

 

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

 

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

 

§3.21                 Survival
of Representations and Warranties, Etc. All statements contained in any
certificate, financial statement or other instrument delivered by or on behalf
of the Borrower pursuant to or in connection with this Agreement or any of the
Loan Documents (including any such representation or warranty made or in
connection with any amendment thereto) shall constitute representations and
warranties made under this Agreement. 
All representations and warranties made under this Agreement shall be
deemed to be made at and as of the date hereof and as of the date of the making
of the Loan.  All representations and
warranties made under this Agreement shall survive, and not be waived by, the
execution and delivery of this Agreement or any other Loan Document, any
investigation or inquiry by the Lender, or by making the Loan under this
Agreement.

 

SECTION 4.                            CONDITIONS
OF FUNDING THE LOAN.

 

The obligation of the Lender to fund the Loan shall be
subject to the prior satisfaction of the following conditions precedent.  The request by the Borrower for the Loan shall
be deemed a certification by the Borrower that the conditions precedent set
forth in this §4 have been satisfied or will be satisfied on the Closing
Date:

 

§4.1                        Execution
and Delivery. (i)  All of the Loan Documents shall have been
executed and delivered by the Borrower and the Guarantors, as applicable, to
the Lender.  The Borrower shall have
executed and delivered the Note in accordance with §2.1.

 

23

 

(ii)                                  The
Guaranty shall have been executed and delivered by the Guarantors to the
Lender.

 

(iii)                               The
U.S. Ship Mortgage and the U.S. Security Agreement shall have been executed and
delivered by Sea Coast to the Lender.

 

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

 

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

 

§4.4                        Officer’s
Certificate. The Borrower and the Guarantors shall have delivered to
the Lender an Officer’s Certificate certifying that the conditions precedent
set forth in §§4.2, 4.3 and 4.8 are satisfied at and as of
the Closing Date.

 

§4.5                        Certified
Copies of Charter Documents. The 
Lender shall have received from each of the Borrower and the Guarantors,
copies, certified by an Authorized Officer to be true and complete as of the Closing
Date, of their incorporation documents, or other organizational documents, all
as in effect on such date.

 

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

 

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

 

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

 

§4.9                        [Intentionally
Omitted].

 

§4.10                 Original
Vessel Documents. The Lender shall have received copies of the Original
Vessel Documentation for each of the Vessels.

 

24

 

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

 

§4.12                 [Intentionally
Omitted].

 

§4.13                 Opinion
of Counsel. The Lender shall have received on the Closing Date from (i) Holland &
Knight LLP, counsel for the Borrower, a favorable opinion addressed to the
Lender as to, among other things, enforceability of the Loan Documents, with
the exception of the Canadian Mortgage and the Canadian Security Agreement, (ii) Stewart
McKelvey Stirling Scales, Canadian Counsel to the Borrower, a favorable opinion
addressed to the Lender, as to incorporation, due authorization, execution and
delivery, with respect to all Loan Documents, and enforceability, with respect
to all of the Loan Documents that are governed by the laws of Canada or any of
its political subdivisions, filing and priority of the Canadian Mortgage with
respect to the Canadian Vessels and conflicts of laws for those Loan Documents
executed by the Borrower and governed by laws other than those of Canada or any
of its political subdivisions.  Each
opinion shall be dated the Closing Date, and be in form and substance
satisfactory to the Lender and its counsel.

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

 

§4.15                 [Intentionally
Omitted].

 

§4.16                 Recorded
Lien Searches. The  Lender shall
have received: (a) UCC search reports with respect to the records of the (i) Delaware
Secretary of State office, (ii) New York Secretary of State office, and (iii) Richmond
County office, and copies of executed Form UCC-3 Financing Statement
Amendments for all financing statements on record against the Borrower and Sea
Coast and that otherwise would cover any of the Collateral, together with
evidence of the filing thereof, (b) a U.S. Coast Guard Abstract of Title
verifying that there are no outstanding ship mortgages recorded with the Coast
Guard covering the 340 or any of the Collateral or any other assets or rights
associated therewith and (c) (i) Canadian search reports with respect
to the records of the PPR in Nova Scotia or such other location where any of
the Collateral is located in Canada and copies of executed financing discharge
statements, if applicable, and (ii) a search at the Port of Registry of each
Canadian Vessel verifying that there are no outstanding ship mortgages recorded
with the registry covering such Canadian Vessel or any other assets or rights
associated therewith.

 

§4.17                 Financing
Statements. The Lender shall have received satisfactory evidence that
the Financing Statements have been duly filed with (i) the office of the
Secretary of State of Delaware and (ii) the PPR of Nova Scotia and the PPR
of Newfoundland or such other location

 

25

 

where any of the
Collateral is located in Canada and (iii) any other filing locations
required hereunder to create and perfect a first priority Lien on all of the
Collateral relating to the Vessels.

 

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

 

§4.19                 Intentionally
Omitted.

 

§4.20                 Guaranty.
The Guaranty (a) shall have been executed and delivered by the Guarantors,
(b) shall be satisfactory to the Lender in form and substance, in its
absolute discretion, and (c) shall be in full force and effect in
accordance with its respective terms.

 

§4.21                 Canadian
Filings – Statutory Mortgages. The Lender shall have received
satisfactory evidence that the Statutory Mortgages have been duly filed with
the applicable Registrar of Shipping and any other filing locations required
hereunder to create and perfect a first priority Lien on all of the Collateral
relating to the Canadian Vessels being financed in favor of the Lender.

 

SECTION 5.                            AFFIRMATIVE
COVENANTS.

 

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

 

§5.1                        Punctual
Payment. The Borrower shall duly and punctually pay or cause to be paid
the installment payments of principal and interest on the Loan, and any other
amounts at any time owing hereunder or under the Note or other Loan Documents,
all in accordance with the terms of this Agreement, the Note, and the other
Loan Documents.

 

§5.2                        Maintenance
of Offices. The Borrower shall maintain a place of business at the
location specified in §3.1(b)(ii), or at such other place in Canada as it shall designate upon written notice, addressed as
provided in §12, to the Lender. 
The Borrower will not change the location of such place of business, or
either Port of Registry, without the prior written consent of Lender.

 

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

 

§5.4                        K-Sea
Transportation Financial Statements, Certificates, and Other Information.
If requested by Lender, the Borrower shall deliver to the Lender:

 

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

 

26

 

a report and
opinion of the K-Sea Transportation’s independent accountants, which report and
opinion shall have been prepared in accordance with GAAP;

 

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

 

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

 

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

 

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

 

(f)                                    Simultaneously with the delivery of the
financial statements referred to in clauses (a) and (b) of this §5.4,
a copy of the certification signed by the principal executive officer and the
principal financial officer of K-Sea Transportation (each a “Certifying
Officer”) as required by Rule 13A-14 under the Securities Exchange Act
of 1934 and a copy of the internal controls disclosure statement by such
Certifying Officer as required by Rule 13A-15 under the Securities
Exchange Act of 1934, each as included in K-Sea Transportation’s Annual Report
on Form 10-K or Quarterly Report on Form 10-Q, for the applicable
fiscal period.

 

Notwithstanding
the forgoing, the Lender agrees to obtain the financial information required
above in §§5.4(a), (b), (c), and (d) via
public filings made by K-Sea Transportation with the Securities and Exchange
Commission, so long as such information is available via such public filings.

 

§5.5                        Borrower
Financial Statements. Borrower shall deliver to Lender as soon as
practicable and, in any event, within 120 days after the end of each
fiscal year, unaudited, management-prepared consolidated balance sheets of the Borrower
and its Subsidiaries as at the end of such fiscal year, and consolidated profit
and loss statements of the Borrower and its Subsidiaries for the fiscal year
then ended, each in reasonable detail, prepared in accordance with GAAP
(subject to year end adjustments), certified by the chief financial officer or
other financial officer of such entity and otherwise in a form acceptable to
the Lender.

 

27

 

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

 

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

 

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

 

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

 

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

 

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

 

(b)                                 Furnish
promptly to the Lender a copy of any notice of termination of such Plan
required to be sent to the Pension Benefit Guaranty Corporation and a copy of
any notice, report or demand sent or received by or with respect to such Plan
pursuant to Sections

 

28

 

4041, 4041A, 4042, 4043,
4062, 4063, 4065, 4066 or 4068 of ERISA or under subtitle E of Title IV of
ERISA;

 

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

 

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

 

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

 

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

 

§5.11                 Environmental
and Safety Matters. The Borrower shall:

 

(a)                                  Promptly
report to the Lender upon becoming aware thereof (a) the Release of any Hazardous
Material from any vessel or storage equipment owned or operated by the Borrower
or any of its Affiliates (including the Vessels) if the discharge thereof
reasonably could be expected to have a Material Adverse Effect and (b) the
initiation of any action, suit, proceeding, investigation or regulatory action
against the Borrower or any of its Affiliates or in connection with any such vessel
or storage equipment relating to any Release of Hazardous Materials if such
could reasonably be expected to have a Material Adverse Effect.

 

(b)                                 Promptly
deliver to the Lender copies of (a) all reports (other than routine
reports regularly submitted in the ordinary course of business) submitted to
any Governmental Authority by the Borrower or any of its Affiliates in
connection with either the Release of Hazardous Materials from any vessel or
storage equipment owned or operated by the Borrower or any of its Affiliates or
any other environmental matter relating to such vessel or storage equipment,
and (b) all reports, notices, and correspondence transmitted to the
Borrower or any of its Affiliates by any Governmental Authority in connection
with either the Release of any Hazardous Materials at or near any such vessel
or storage equipment or any other environmental matter relating to such vessel
or storage equipment, in each case if such Release of Hazardous Materials could
reasonably be expected to have a Material Adverse Effect.

 

(c)                                  Except
for Hazardous Materials that the Borrower and any of its Affiliates uses,
transports or stores or that a lessee or charterer of the Borrower and any of
its Affiliates uses, stores or transports in the ordinary course of its
business and in compliance with all applicable Laws and in accordance with the
terms of any applicable lease or charter documents, keep all of its properties
or assets free of Hazardous Materials. 
The Borrower or any of its

 

29

 

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

 

(d)                                 Defend,
indemnify, and hold harmless the Lender and its directors, officers, employees,
affiliates, representatives and agents (each an “Indemnified Party”) from and
against any and all penalties, fines, liabilities, damages, costs, or expenses
of whatever kind or nature asserted against such Indemnified Party (unless
resulting from the gross negligence or willful misconduct of an Indemnified
Party or occurring after the Lender shall have become a mortgagee in-possession
subsequent to an Event of Default), arising out of, or in any way related to: (a) the
Release or threatened Release of any Hazardous Materials on, at or from any
property at any time owned, operated or occupied by the Borrower; (b) any
personal injury (including wrongful death) or property damage (real or
personal) arising out of or related to such Hazardous Materials; (c) any
lawsuit brought or threatened, settlement reached, or government order relating
to such Hazardous Materials, and/or (d) any violation of Laws which are
based upon or in any way related to such Hazardous Materials or to any
environmental matter, including reasonable attorney and consultant fees,
investigation and laboratory fees, court costs, and litigation expenses
actually incurred.

 

§5.12                 Indemnities,
Etc.

 

(a)                                  The
Borrower shall indemnify and hold the Indemnified Parties harmless from and
against any and all claims, damages, losses, liabilities, costs, and expenses
(including reasonable legal fees) that may be incurred by or asserted or
awarded against any Indemnified Party, in each case arising out of or in
connection with or by reason of (including in connection with any
investigation, litigation, or proceeding or preparation of defense in
connection therewith) the ownership, operation or other use (whether authorized
or not) of the Vessels, the Loan Documents, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the Loan,
except to the extent that such claim, damage, loss, liability, cost, or  expense (i) is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party’s or such Lender’s (as a mortgagee-in-possession)
gross negligence or willful misconduct or (ii) is a tax, levy, impost,
duty, assessment, fee or other charge imposed by any Governmental Authority or
other taxing authority or a fine, penalty, interest charge or other additional
charge with respect thereto (it being agreed that §2.6 sets forth the Borrower’s
obligations with respect to such liabilities, costs and expenses), or (iii) is
an ordinary and usual operating, administrative or overhead expense of any
Lender and is not caused directly by an Event of Default.  In the case of an investigation, litigation
or other proceeding to which the indemnity in this §5.12 applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by the Borrower, its

 

30

 

directors,
shareholders or creditors or an Indemnified Party or any other Person or any
Indemnified Party is otherwise is a party thereto and whether or not the
transactions contemplated hereby are consummated.  In respect of any litigation commenced with respect
to this §5.12, (i) the Borrower shall be entitled to control and
direct its defense if an Event of Default shall not have occurred and be
continuing and (ii) the Borrower shall be entitled to participate with the
Lender in the Borrower’s defense if no Event of Default shall have occurred and
be continuing hereunder provided that the Borrower, prior to commencing its
defense or participating in any defense of such litigation pursuant to the
foregoing clauses (i) and (ii), confirms and acknowledges, in writing, its
indemnification obligation with respect to such claim under this §5.12.  Notwithstanding the foregoing, the Borrower
shall not be required to indemnify any Indemnified Party for any settlement
reached without the prior consent of the Borrower (which consent shall not be
unreasonably withheld) or for any judgment entered into against an Indemnified
Party if the Borrower shall have not been afforded an opportunity to
participate, at its expense, in the defense of the claim.  The Borrower agrees not to assert any claim
against the Lender, any of its affiliates, or any of its respective directors,
officers, employees, attorneys, agents, and advisers, on any theory of
liability, for special, indirect, consequential, or punitive damages arising out
of or otherwise relating to the Loan Documents, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the Loan,
other than fraud or intentional misconduct.

 

(b)                                 Without
prejudice to the survival of any other agreement of the Borrower hereunder, the
agreements and obligations of the Borrower contained in this §5.12 shall
survive the payment in full of the Loan and all other amounts payable under
this Agreement.

 

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

 

§5.14                 Notice
of Default. The Borrower shall promptly upon becoming aware thereof
give written notice to the Lender of: (a) the occurrence of any Default or
Event of Default, (b) any litigation or proceeding affecting the Borrower
or any of its properties or assets of which, if adversely determined, might
have a Material Adverse Effect, and (c) any dispute between the Borrower
and any Governmental Authority that might materially interfere with its normal
business operations.

 

§5.15                 Notice
of Material Claims and Litigation. The Borrower shall promptly notify
the Lender of the commencement of any claims, actions, suits, proceedings or
investigations of any kind pending or threatened against the Borrower or any of
its Affiliates before any Governmental Authority in an amount in excess of the
equivalent in Canadian Dollars of Five Hundred Thousand U.S. Dollars ($500,000),
if relating to one or all of the Vessels, or which, if adversely determined,
would have a Material Adverse Effect.

 

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

 

31

 

the Borrower of
all or any part of the Collateral or the Borrower’s otherwise relinquishing
possession of any of the Collateral.

 

§5.17                 Borrower’s
Title; Lender’s Security Interest.

 

(a)                                  The
Borrower shall warrant and defend its good and marketable title to the
Collateral (to the extent the Borrower has rights in such items of Collateral) and
the Lender’s perfected first priority security interest in the Collateral (to
the extent the Borrower has rights in such items of Collateral), against all
claims and demands whatsoever.

 

(b)                                 The
Borrower shall, at its expense, take such action (including the obtaining and
recording of waivers) as may be necessary to prevent any third party from
acquiring any right to or interest in the Collateral other than Permitted Liens
(to the extent the Borrower has rights in such items of Collateral), and if at
any time any Person shall claim any such right or interest, the Borrower shall,
at its expense, cause such claim to be waived in writing or otherwise
eliminated to the Lender’s satisfaction within 30 days after such claim shall
have first become known to the Borrower.

 

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

 

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

 

32

 

§5.20                 Casualty
Occurrence. In the event of any material (involving damages to any
party thereto in excess of the equivalent in Canadian Dollars of Five Hundred
Thousand U.S. Dollars ($500,000)) casualty with respect to any Collateral or
Vessel, (a) the Borrower shall give the Lender written notice of such
casualty promptly after discovering or receiving notice of the casualty, which
notice shall identify the affected Collateral or other Vessel and (b) the
Borrower shall, within a reasonable period of time, remedy or repair such
casualty to bring the Collateral into conformity with the provisions of this
Agreement unless such casualty shall constitute an Event of Loss and the
provisions of §2.3(b) apply.

 

SECTION 6.                            NEGATIVE
COVENANTS; FINANCIAL COVENANTS.

 

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

 

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

 

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

 

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

 

§6.2                        Terminate
Pension Plan. Terminate, withdraw from, or permit the termination of
any Plan unless the asset value of such Plan is then at least equal to the
value of the benefits guaranteed.

 

§6.3                        [Intentionally
Omitted].

 

§6.4                        Certain
Agreements Regarding Financial Covenants Under Existing Revolver. Until
the Obligations payable under the Loan Documents shall have been paid in full,
Borrower covenants and agrees with the Lender that:

 

(a)                                  Except
as provided in §6.4(c) below, any amendment or modification of the
Financial Covenants by the Revolving Lenders after the date hereof will be
binding upon the Lender and applicable with respect to §7.1(l), as so amended
or modified.

 

(b)                                 The
Borrower agrees to provide the Lender with a copy of all Financial Covenant
compliance certificates prepared by K-Sea Operating and delivered to the
Revolving Lenders in connection with the Financial Covenants at the same time
and on the same frequency as required to be delivered to Revolving Lenders
under the Existing Revolver, provided that
if at any time Financial Covenant compliance certificates are no longer
provided by K-Sea Operating to the Revolving Lenders, the Borrower will cause
K-Sea Operating to provide similar Financial Covenant compliance certificates
to the Lender on not less than a quarterly basis.

 

(c)                                  If
for any reason CBPA (or an Affiliate thereof) ceases to be a party to the
Existing Revolver, the Financial Covenants that are in effect under the
Existing Revolver on the

 

33

 

last day that CBPA is a party thereto shall survive
and continue to be the “Financial Covenants” referred to in §7.1(l).

 

SECTION 7.                            EVENTS
OF DEFAULT; ACCELERATION.

 

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

 

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

 

(b)                                 If
the Borrower shall default in the performance of or compliance with any term
contained in §§5.6, 5.10(a), 5.10(b), or 5.16; 5.17(a) or
§§6.2, or 6.4; or

 

(c)                                  If
the Borrower shall default in the performance or compliance with any term
contained in §§5.9, 5.14, 5.17(b) or 5.20(a),
and such default shall continue for more than thirty (30) days; or

 

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

 

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

 

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

 

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

 

34

 

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

 

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

 

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

 

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

 

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

 

(m)                               if
K-Sea Operating shall default under any of its covenants set forth in Sections 7.01,
7.02, 7.03, and 7.04 of the Existing Revolver; or

 

(n)                                 if
any “Mortgage Event of Default” as defined in any Ship Mortgage or any Event of
Default (as defined in the Security Agreements) shall occur; or

 

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

 

(p)                                 if
a Change in Control shall have occurred; or

 

(q)                                 if
the Guarantors shall default in the performance of or compliance with any term
contained in Section 3 of the Guaranty, and such default shall have not
been remedied within 10 business days after written notice thereof.

 

§7.2                        Remedies.
(a)  Upon the occurrence of an Event of Default described in §§7.1(f),
(g) or (h), immediately and automatically, and upon the
occurrence of any other Event of Default, and at any time thereafter while such
Event of Default is continuing, at the option of the Lender and upon the Lender’s
declaration:

 

35

 

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

 

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

 

(iii)                               Right of Set-off; Adjustments.   During the continuance of any Event of
Default, the Lender (and each of its Affiliates) is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by the
Lender (or any of its affiliates) to or for the credit or the account of the
Borrower against any and all of the obligations of the Borrower now or
hereafter existing under this Agreement and the Note, irrespective of whether
the Lender shall have made any demand under this Agreement or the Note and
although such obligations may be unmatured. 
The Lender agrees promptly to notify the Borrower after any such set-off
and application made by the Lender; provided, however,
that the failure to give such notice shall not affect the validity of such
set-off and application.  The rights of
the Lender under this §7.2 are in addition to other rights and remedies
(including other rights of set-off) that the Lender may have.

 

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

 

(v)                                 Cash Collection System.  In addition to any other right of the Lender
hereunder and under applicable Law, effective upon demand by the Lender at any
time and from time to time that an Event of Default exists, all payments that
the Borrower receives as a result of its ownership and operation of the Canadian
Vessels shall be deposited in a deposit account to be opened and maintained
either at an Affiliate of the Lender or at another depository institution that
is satisfactory to the Lender.  At such
time, the Borrower shall execute and deliver to the Lender all instruments and agreements
that the Lender may request to create and perfect a valid security interest in
such account under applicable law, including a control or blocked account
agreement with respect thereto, as additional collateral security for the
Obligations.  The Borrower expressly
authorizes the Lender hereunder to apply all such funds deposited in such

 

36

 

account to the
obligations as they come due hereunder and under the other Loan Documents in
the manner set forth in §2.4(b).

 

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

 

SECTION 8.                            EXPENSES.

 

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

 

SECTION 9.                            SURVIVAL
OF COVENANTS.

 

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

 

SECTION 10.                     CONFIDENTIALITY.

 

The Lender agrees to take and to cause its Affiliates
to take normal and reasonable precautions and exercise due care to maintain the
confidentiality of all information provided to

 

37

 

the Lender by the Borrower, under this Agreement or
any other Loan Document, and neither the Lender nor any of its Affiliates shall
use any such information other than in connection with or in enforcement of
this Agreement and the other Loan Documents, except to the extent such
information (i) was or becomes generally available to the public other
than as a result of disclosure by the Lender or (ii) was or becomes
available on a non-confidential basis from a source other than the Borrower, provided that the Lender may disclose such information (A) at
the request or pursuant to any requirement of any governmental authority to
which the Lender is subject or in connection with an examination of the Lender
by any such authority; (B) pursuant to subpoena or other court process; (C) when
required to do so in accordance with the provisions of any applicable law; (D) to
the extent required in connection with any litigation or proceeding to which
the Lender, or its respective affiliates, may be party; (E) to the extent
the Lender is required in connection with the exercise of any remedy hereunder
or under any other Loan Document; (F) to the Lender’s independent auditors
and other professional advisors; (G) to any Eligible Assignee or
participant (including prospective institutions that may become assignees or
participants pursuant to §11), provided that
such Person agrees in writing to keep such information confidential to the same
extent required of the Lender hereunder; (H) as to the Lender or its
Affiliate, as expressly permitted under the terms of any other document or
agreement regarding confidentiality to which the Borrower is a party or is
deemed a party with the Lender or such Affiliate; and (I) to its Affiliates.

 

SECTION 11.                     SUCCESSORS
AND ASSIGNS; PARTICIPATIONS.

 

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

 

§11.2                 Assignments.

 

(a)                                  The
Lender may, at its expense (unless such assignment is initiated by the
Borrower) assign to one or more Eligible Assignees (but not to exceed five
Lenders hereunder at any one time) all or a portion (not less than the equivalent
in Canadian Dollars of Three Million U.S. Dollars ($3,000,000) of its
interests, rights and obligations under this Agreement and the other Loan
Documents, including all or a portion of the Loan at the time made by or owing
to it, provided (i) that the parties to
each such assignment shall execute and deliver to the Lender an Assignment and
Acceptance in the form set forth as Exhibit D (an “Assignment and
Acceptance”).  Upon acceptance and
recording pursuant to §11.6, from and after the effective date specified
in each Assignment and Acceptance (which effective date shall be at least five
Business Days after the execution thereof), (A) the Eligible Assignee
shall be a party hereto and, to the extent provided in such Assignment and
Acceptance, have the same rights and obligations as the Lender under this
Agreement, and (B) the Lender shall be released from any obligations under
this Agreement with respect to the interests assigned, provided
that in the case of an Assignment and Acceptance covering all or the remaining
portion of the Lender’s rights and obligations under this Agreement, the Lender
shall continue to be entitled to the benefits of §2.5 and §2.6,
as well as to any fees or amounts accrued for its account hereunder and not yet
paid.  An Eligible Assignee shall be
entitled to sell participations in its interests, rights and obligations

 

38

 

under this
Agreement and the other Loan Documents, as provided in §11.3, and shall
be entitled to grant assignments thereof pursuant to an Assignment and
Acceptance and otherwise in accordance with this §11.

 

(b)                                 By
executing and delivering an Assignment and Acceptance, the Lender and Eligible
Assignee shall be deemed to confirm to and agree with each other and the other
parties hereto as follows:  (i) other
than the representation and warranty that it is the legal and beneficial owner
of the interest being assigned thereby free and clear of any adverse claim, the
Lender makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any other
Loan Document or any other instrument or document furnished pursuant hereto, (ii) the
Lender makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrower or the performance or
observance by the Borrower of any of its obligations under this Agreement, any
other Loan Document or any other instrument or document furnished pursuant
hereto, (iii) such Eligible Assignee confirms that it has received a copy
of this Agreement and the other Loan Documents, together with copies of the
most recent financial statements delivered pursuant to §5.4 and such
other documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance, (iv) such
Eligible Assignee shall independently and without reliance upon the Lender or
any other Eligible Assignee or Participant and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions under this Agreement, and (v) such Eligible Assignee
agrees that it shall perform in accordance with their terms all the obligations
which by the terms of this Agreement are required to be performed by it as an
Eligible Assignee.

 

(c)                                  If,
pursuant to this §11.2, any interest in this Agreement is assigned to
any Eligible Assignee which is not incorporated or organized under the laws of
the United States or a state thereof or Canada or a province thereof, the
Lender shall cause such Eligible Assignee to agree that, on or prior to the
effective date specified in the Assignment and Acceptance, it will deliver to
the Borrower (i) two valid, duly completed copies of United States Internal
Revenue Service Form W-8BEN or W-8EC1 or applicable successor form, as the
case may be, certifying in each case that such Eligible Assignee is entitled to
receive payments made under this Agreement and the Note without deduction or
withholding of any United States federal income taxes, and (ii) a valid,
duly completed Internal Revenue Service Form W-8BEN or W-9 or applicable
successor form, as the case may be, to establish an exemption from United
States backup withholding tax.  The
Eligible Assignee which delivers to the Borrower a Form W-8BEN or W-8EC1
and Form W-8BEN or W-9 pursuant to the preceding sentence further
undertakes to deliver to the Borrower two copies of the Form W-8BEN or W-8EC1
and Form W-8BEN or W-9, or applicable successor forms, or other manner of
certification, as the case may be, on or before the date that any such form
expires or becomes obsolete or otherwise is required to be resubmitted as a
condition to obtaining an exemption from withholding tax or after the
occurrence of any event requiring a change in the most recent form previously
delivered by it to the Borrower, and such extensions or renewals thereof as may
reasonably be requested by the Borrower, certifying in the case of a Form W-8BEN
or W-8EC1 that such Eligible Assignee is entitled to receive payments made
under this Agreement and the Note without deduction or withholding of any
United States federal income taxes, unless any change in treaty, law or

 

39

 

regulation or official
interpretation thereof has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Eligible Assignee from duly completing and
delivering any such form with respect to it and such Eligible Assignee advises
the Borrower that it is not capable of receiving payments without any deduction
or withholding of United States federal income tax, and in the case of a Form W-8BEN
or W-9, establishing an exemption from United States backup withholding tax.

 

§11.3                 Participations.
The Lender and the Eligible Assignee may, at their respective expense, sell to
one or more Persons (each, a “Participant”) participations in all or a portion
(not less than the Canadian equivalent of Three Million U.S. Dollars ($3,000,000)
of its interests, rights and obligations under this Agreement and the other
Loan Documents (including all or a portion of any Commitments and the Loans
owing to it), provided that (i) the Lender
or such Eligible Assignee shall remain solely responsible for the performance
of its obligations under this Agreement, (ii) the Participant shall be
entitled to the benefit of the cost protection provisions and indemnities
contained in §§2.5 and 5.12, but shall not be entitled to receive
any greater payment thereunder than the selling Lender or Eligible Assignee
would have been entitled to receive with respect to the interest so sold if
such interest had not been sold, and (iii) the Borrower, the Lender (in
the case of a sale of any participation interest by an Eligible Assignee), and
any Eligible Assignee shall continue to deal solely and directly with the
Lender or Eligible Assignee in connection with its rights and obligations under
this Agreement.  A Participant shall not
be entitled to require the Lender to take or omit to take any action hereunder
except in connection with any of the following: 
(i) or any amendment that subjects the Lender to any additional
obligations; (ii) a reduction of the principal of or interest on the Note,
or of any fees payable hereunder; (iii) a postponement of any date fixed
for any payment in respect of principal of or interest on the Note or any fees
payable hereunder; (iv) the release of any Collateral from the Lien of the
Loan Documents.

 

§11.4                 Disclosures.  The Lender and any
Eligible Assignee may, in connection with any proposed assignment (by such
Lender) or participation (by the Lender or the Eligible Assignee) pursuant to
this §11, disclose to the proposed Eligible Assignee or Participant any
information in its possession relating to the Borrower, provided that
prior to any such disclosure, each such Eligible Assignee or Participant or
proposed Eligible Assignee or Participant shall execute an agreement whereby
such Eligible Assignee or Participant shall agree (subject to customary
exceptions) to preserve the confidentiality of any confidential information
relating to any the Borrower received from such Participant.

 

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

 

§11.6                 Register;
Note.

 

(a)                                  The
Initial Lender agrees to act as agent for the Borrower (the “Registration Agent”)
and in that capacity to establish and shall maintain at its address referred to
in §12 a register (the “Lender Register”) in which it shall record the
name and address of each Lender hereunder and the principal amount of the Loan
owing to each Lender from time to time. 
The entries in the Lender Register shall be final and binding for all
purposes, absent manifest

 

40

 

error, and the
Borrower shall treat each Person whose name is recorded in the Lender Register
as a Lender for all purposes of the Loan Documents.

 

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

 

(c)                                  The
Registration Agent may transfer its obligations under this §11.6 to an
Eligible Assignee in connection with the assignment of all (but not less than
all) of the Registration Agent’s interest in the Loan in accordance with §11.2,
in which event the Assignment and Acceptance shall be amended or supplemented
to effect such transfer of obligations as Registration Agent.

 

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

 

SECTION 12.                     NOTICES.

 

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

 

	
  If to the Lender:

  	
   

  	
  Citizens Leasing
  Corporation, d/b/a CITIZENS ASSET

  FINANCE

  	
   

  
	
   

  	
   

  	
  189 Canal Street

  	
   

  
	
   

  	
   

  	
  Mail Stop: REC-150

  	
   

  
	
   

  	
   

  	
  Providence, RI 02903

  	
   

  
	
   

  	
   

  	
  Attention:

  	
  Team Leader

  	
   

  
	
   

  	
   

  	
   

  	
  Direct Originations

  	
   

  
	
   

  	
   

  	
  FAX:

  	
  (401) 459-3171

  	
   

  

 

41

 

	
  With a copy to:

  	
   

  	
  Citizens Leasing
  Corporation, d/b/a CITIZENS ASSET

  FINANCE

  	
   

  
	
   

  	
   

  	
  189 Canal Street

  	
   

  
	
   

  	
   

  	
  Mail Stop: REC-150

  	
   

  
	
   

  	
   

  	
  Providence, RI 02903

  	
   

  
	
   

  	
   

  	
  Attention:

  	
  David T. Miele, Esq.

  	
   

  
	
   

  	
   

  	
  FAX:

  	
  (401) 459-3171

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Day, Berry and Howard
  LLP

  	
   

  
	
   

  	
   

  	
  260 Franklin Street

  	
   

  
	
   

  	
   

  	
  Boston, Massachusetts
  02110-3179

  	
   

  
	
   

  	
   

  	
  Attention:

  	
  William A. Hunter, Esq.

  	
   

  
	
   

  	
   

  	
  FAX:

  	
  (617) 345-4745

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Goodman and Carr LLP

  	
   

  
	
   

  	
   

  	
  2300-200 King Street
  West

  	
   

  
	
   

  	
   

  	
  Toronto, ON MSH 3W5

  	
   

  
	
   

  	
   

  	
  FAX:

  	
  (416) 595-0567

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  If to the Borrower:

  	
   

  	
  K-Sea Canada Corp.

  	
   

  
	
   

  	
   

  	
  3245 Richmond Terrace

  	
   

  
	
   

  	
   

  	
  Staten Island, New York
  10303

  	
   

  
	
   

  	
   

  	
  Attention: Chief
  Financial Officer

  	
   

  
	
   

  	
   

  	
  Telephone:

  	
  (718) 720-7207

  	
   

  
	
   

  	
   

  	
  Email:

  	
  jnicola@k-sea.com

  	
   

  
	
   

  	
   

  	
  FAX:

  	
  (718) 720-4358

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Holland &
  Knight LLP

  	
   

  
	
   

  	
   

  	
  195 Broadway

  	
   

  
	
   

  	
   

  	
  New York, New York
  10007

  	
   

  
	
   

  	
   

  	
  Attention: Christopher
  G. Kelly, Esq.

  	
   

  
	
   

  	
   

  	
  Phone:

  	
  (212) 513-3200

  	
   

  
	
   

  	
   

  	
  Email:

  	
  ckelly@hklaw.com

  	
   

  
	
   

  	
   

  	
  FAX

  	
  (212) 385-9010

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  With a copy to

  	
   

  	
   

  	
   

  
	
  Canadian Counsel:

  	
   

  	
  Stewart McKelvey
  Stirling Scales

  	
   

  
	
   

  	
   

  	
  Suite 601, Blue
  Cross Centre

  	
   

  
	
   

  	
   

  	
  644 Main Street, P.O. Box
  28051

  	
   

  
	
   

  	
   

  	
  Moncton, New Brunswick
  E1C 9N4

  	
   

  
	
   

  	
   

  	
  Canada

  	
   

  
	
   

  	
   

  	
  Attention: Christopher
  J. Stewart, Esq.

  	
   

  
	
   

  	
   

  	
  Phone:

  	
  (506) 850-7906

  	
   

  
	
   

  	
   

  	
  FAX:

  	
  (506) 858-8454

  	
   

  

 

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

 

42

 

SECTION 13.                     ENTIRE
AGREEMENT.

 

This Agreement and any other documents executed in
connection herewith express the entire understanding of the parties with
respect to the transactions contemplated hereby.  Neither this Agreement nor any term hereof
may be changed, waived, discharged or terminated orally or in writing, except
as provided in §14.

 

SECTION 14.                     CONSENTS,
AMENDMENTS, WAIVERS, ETC.

 

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

 

SECTION 15.                     SEVERABILITY.

 

Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

 

SECTION 16.                     SUBMISSION TO
JURISDICTION; WAIVER.

 

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

 

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

 

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

 

(c)                                  WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND AGREES THAT ALL SUCH
SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY
MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY
SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS SET
FORTH IN §13 OR AT

 

43

 

SUCH OTHER ADDRESS OF
WHICH THE LENDER SHALL HAVE BEEN NOTIFIED PURSUANT THERETO AND THAT SERVICE SO
MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR
THREE BUSINESS DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO THEIR RESPECTIVE
ADDRESS AS SET FORTH IN §12;

 

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

 

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

 

SECTION 17.                     WAIVER OF
JURY TRIAL.

 

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

 

44

 

SECTION 18.                     MISCELLANEOUS.

 

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

 

SECTION 19.                     JUDGMENT
CURRENCY INDEMNITY.

 

If for the
purpose of obtaining judgment in any court or enforcing any such judgment it is
necessary to translate any amount due hereunder from the Currency of Obligation
into the Currency of Payment, the rate of exchange used shall be that at which
in accordance with normal banking procedures the Lender could purchase the
Currency of Obligation in the spot market with the Currency of Payment on the
Business Day preceding that on which judgment is given or order made (even
though such rate of exchange may include a premium over any official or any
other rate of exchange).  The obligation
of the Borrower in respect of any amount due from it under this Agreement or
any instrument included in the Security Documents shall, notwithstanding any
judgment or order for a liquidated sum or sums in respect of amounts due under
this Agreement or under any judgment or order in any other currency or
otherwise, be discharged only to the extent that on the Business Day following
receipt by the Lender of any payment in the Currency of Payment the Lender is
able (in accordance with normal banking procedures) to purchase the Currency of
Obligation with the Currency of Payment. 
If the amount of the Currency of Obligation which the Lender is able to
purchase with the Currency of Payment is less than the sum originally due under
this Agreement and notwithstanding any judgment or order, the Borrower, will
indemnify the Lender in the amount originally due for the shortfall.  The certificate of Lender as to the amount of
any such shortfall (which shall be deemed to constitute a loss suffered by it
without any proof of actual loss being required) shall, save for manifest
error, be conclusive and binding on the Borrower.

 

45

 

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

 

	
   

  	
  K-SEA
  CANADA CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  John J. Nicola

  	
   

  
	
   

  	
   

  	
  Name: John J.
  Nicola

  
	
   

  	
   

  	
  Title: Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CITIZENS
  LEASING CORPORATION,

  d/b/a CITIZENS ASSET FINANCE  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  John M. Young

  	
   

  
	
   

  	
   

  	
  Name: John M.
  Young 

  
	
   

  	
   

  	
  Title: Senior
  Vice President

  
					

 

Signature page to

Loan Agreement

 

 

SCHEDULE 1

 

DESCRIPTION OF VESSELS

	
  (1) MCS Barge

  Name: McCleary’s Spirit

  Official Number: 822797

  
	
   

  
	
   

  
	
  2) WJM Tug

  Name: William J. Moore 

  Official Number: 343910

  
	
   

  
	
   

  
	
  (3) 340 Barge

  Name:340

  Official Number: 657024

  

 

 

 

SCHEDULE 2

LIENS

NONE

 

 

EXHIBIT A

 

	
  Barge: McCleary’s Spirit

  
	
  Official No. 822797

  
	
  Tug: William J. Moore

  
	
  Official No. 343910

  

 

TERM NOTE

 

	
  CAD $15,147,600.00

  	
  New York, New York

  December 19, 2005

  

 

FOR VALUE RECEIVED, the
undersigned, K-SEA CANADA CORP., a Nova Scotia unlimited liability company (the
“Borrower”), hereby absolutely and unconditionally promises to pay in lawful
money of Canada to CITIZENS LEASING CORPORATION, d/b/a CITIZENS
ASSET FINANCE, a Rhode Island corporation (the “Lender”), at 189 Canal
Street, Providence, Rhode Island 02903, or at such other place as Lender may
from time to time designate in writing, the principal amount of Fifteen Million
One Hundred Forty-Seven Thousand Six Hundred Canadian Dollars (CAD
$15,147,600.00), together with interest thereon from the date hereof per annum,
as follows:

 

(a)                                  The
term of this Note is eighty-four (84) months commencing on the date hereof;

 

(b)                                 The
outstanding principal amount hereunder shall bear interest payable at a fixed
rate of 6.59%.  Interest shall be due and
payable monthly in arrears, on the first day of each month, commencing on February 1,
2006, for the period commencing on the first day of the immediately preceding
month (or commencing on the date hereof with respect to the first interest
payment) and ending on and including the last day of such month; and

 

(c)                                  Eighty-four
(84) consecutive monthly payments of principal shall be due and payable on the
first day of each month in the amount set forth as follows: (a) for the
first sixty (60) consecutive months, commencing on February 1, 2006, in an
amount of CAD $136,328.40 and (b) for the remaining twenty-four (24)
consecutive months, commencing February 1, 2011, in an amount of CAD
$215,991.16; and

 

(d)                                 A
final payment consisting of the entire remaining principal balance of this
Note, together with interest thereon in arrears, shall be due and payable on January 1,
2013.

 

This Note is the Note
referred to in, evidences borrowings under and has been issued by the Borrower
in accordance with the terms of, the Loan Agreement.  The Lender and any holder hereof shall be
bound by and entitled to the benefits of the Loan Agreement and may enforce the
agreements of the Borrower contained therein, and any holder may exercise the
respective remedies provided for thereby or otherwise available in respect
thereof, all in accordance with the terms thereof. All capitalized terms used
in this Note and not otherwise defined herein shall have the same meanings
herein as in the Loan Agreement dated December 19, 2005 between the
Borrower and the Lender, as the same may be amended, modified, supplemented or
restated form time to time (the “Loan Agreement”).

 

The Borrower has the right
under certain circumstances and the obligation under certain other circumstances
to prepay in whole or part the principal of this Note, together with accrued 

 

 

interest thereon, on the
terms and conditions specified in Section 2.3 of the Loan Agreement,
provided that such prepayment shall be accompanied by payment of the applicable
Prepayment Premium, if any.

 

If any one or more of the
Events of Default shall occur, the entire unpaid principal amount of this Note
and all unpaid interest accrued hereunder may become or be declared due and
payable in the manner and with the effect provided in Section 7.2 of the
Loan Agreement. After the occurrence and during the continuance of an Event of
Default, the principal balance evidenced hereby shall bear interest at the
Default Rate as provided in the Loan Agreement and certain other late charges
may apply, all as provided in the Loan Agreement.

 

The Borrower hereby waives
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery acceptance, performance, default or enforcement of
this Note (except as otherwise specifically provided in the Loan Agreement),
assents to any extension of postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of collateral, and to the
addition or release of any other party or person primarily or secondarily
liable.

 

This Note is secured by
mortgage liens on and security interests in certain assets of the Borrower
pursuant to the terms of the Security Documents and is guaranteed by the
Guarantors pursuant to a Guaranty dated as of the date hereof.

 

All of the provisions of
this Note shall be binding upon and inure to the benefit of the Borrower and
the Lender and their respective successors and assigns.

 

This Note is in registered
form.  The Person whose name is recorded
as the owner of the Note in the Lender Register maintained by the Registration
Agent shall be treated as the owner of this Note for all purposes of the Loan
Documents.  This Note may be transferred
only in accordance with the provisions of Sections 11.2 and 11.6 of the
Loan Agreement.

 

THIS NOTE SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, UNITED STATES OF AMERICA, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT REFERENCE TO PRINCIPLES OF
CONFLICTS OF LAW (OTHER THAN TITLE 14 OF ARTICLE 5 OF THE GENERAL
OBLIGATIONS LAW).

 

 [This space intentionally left
blank]

 

2

 

IN WITNESS WHEREOF, the Borrower has caused this
Note to be executed by its duly authorized undersigned officer as of the date
first written above.

 

	
   

  	
   

  	
  K-SEA
  CANADA CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  

 

 

EXHIBIT B

 

[Intentionally
Omitted]

 

 

EXHIBIT C-1

 

MCS BARGE

WJM TUG

 

MORTGAGE AGREEMENT COLLATERAL TO
STATUTORY MORTGAGES

 

THIS MORTGAGE AGREEMENT
COLLATERAL TO STATUTORY MORTGAGES (this “Mortgage Agreement”)
made at
                 ,
Canada, as of the           
day of December, 2005, by and between K-SEA CANADA CORP., an unlimited
liability company incorporated under the laws of the Province of Nova Scotia,
with an address at 3245 Richmond Terrace, Staten Island, New York 10303 (the “Mortgagor”), and CITIZENS LEASING CORPORATION D/B/A CITIZENS
ASSET FINANCE (the “Mortgagee”), a
Rhode Island corporation organized and existing under the laws of the State of
Rhode Island with an office at 189 Canal Street, Providence, Rhode Island,
02903.

 

WHEREAS:

 

(a)                                  The
Mortgagor is the legal and beneficial owner of all sixty-four (64) shares of
and in the motor vessel McCleary’s Spirit, Official No. 822797, and whose
Port of Registry is Hamilton, Ontario, Canada and the sole legal and beneficial
owner of all sixty-four (64) shares of and in the motor vessel William J.
Moore, Official No. 343910 and whose Port of Registry is St. John’s,
Newfoundland, Canada;

 

(b)                                 Pursuant
to the terms and conditions of a Loan Agreement dated as of December 19,
2005, between the Mortgagor and the Mortgagee (as the same may be amended,
supplemented, or modified from time to time, (the “Loan Agreement”),
the Mortgagee has, at Mortgagor’s request, agreed to make a loan to the
Mortgagor in the aggregate principal amount of up to Canadian Fifteen Million
One Hundred Forty-Seven Thousand Six Hundred Dollars (CAD$15,147,600.00) (the “Loan”).  The principal
amount of $15,147,600.00 has been advanced to the Mortgagor on or before the
date hereof.  The entire proceeds of the
Loan shall be used by the Mortgagor to refinance indebtedness initially
incurred in connection with the acquisition of two Canadian vessels.  The obligations of the Mortgagor with respect
to the Loan are evidenced by the Loan Agreement and by a term promissory note
(the “Note”) (as defined in the Loan
Agreement), dated as of the date hereof, and are secured by the Canadian
Mortgage (as defined in the Loan Agreement) and the other Security Documents
(as defined in the Loan Agreement).  The
form of the Loan Agreement is attached hereto as Exhibit 1
(together with the form of the Note attached thereto) and is hereby made a part
hereof as though set forth fully herein;

 

(c)                                  Terms
used herein and not otherwise defined herein are used as defined in, or by
reference in, the Loan Agreement.

 

To secure, among other
things, the payment of principal, fees and other amounts from time to time due
to the Mortgagee, and the payment of all other sums that hereafter may be
secured by the Canadian Mortgage and the other Loan Documents in accordance
with the terms 

 

 

hereof, and to secure the
performance and observance of, and compliance with, all of the agreements,
covenants and conditions of the Canadian Mortgage, the Mortgagor has duly
authorized the execution of two first priority statutory ships’ mortgages, the
first dated the 19th day of December, 2005, and registered at the Registry of
Shipping for the Port of Hamilton, Ontario, Canada, and the second dated the
19th day of December, 2005, and registered at the Registry of Shipping for the
Port of St. John’s Newfoundland, Canada (together the “Statutory
Mortgages”), and the execution of this collateral Mortgage
Agreement, and the other Loan Documents. 
A copy of the Statutory Mortgages and the security agreement are
attached hereto in Schedule ”A”;

 

NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt and adequacy whereof is duly
acknowledged, and in order to secure the payment and performance of (i) all
Obligations, undertakings and liabilities of Mortgagor, now existing or
hereafter incurred, under, arising out of, or in connection with the Loan Agreement
and the other Loan Documents; (ii) the unpaid principal amount of, and
accrued interest on, the Note; (iii) all obligations, undertakings and
liabilities of Mortgagor now existing or hereafter incurred, under, arising out
of or in connection with the Canadian Mortgage; and (iv) any and all other
present and future indebtedness, obligations, undertakings and liabilities of
any kind whatsoever of Mortgagor to Mortgagee in connection with the Loan
Agreement and the other Loan Documents or from time to time reduced and
thereafter increased, and to secure the performance of all the covenants and
conditions herein contained (all the foregoing included within the meaning of
Obligations, as defined in the Loan Agreement), the Mortgagor by these presents
does grant, bargain, sell, convey, transfer, mortgage, assign,  set over and confirm unto the Mortgagee all
of the following described property:

 

(i)                                     All
its right, title, and interest in and to the vessel and all its shares of the
motor vessels called:

 

McCleary’s Spirit   Official Number: 822797

 

William J. Moore      Official Number: 343910

 

together with all its
engines, boilers, machinery, masts, rigging, boats, anchors, chains, cables,
tackle, apparel, furniture, equipment, capstans, fittings, tools, pumps, pumping
equipment, spares, electronics, gear and equipment, boats, rigging, and all
other appurtenances thereunto belonging, and any and all additions,
improvements and replacements hereafter made in, on or to the said vessels or
any part thereof; and in, on or to its equipment and appurtenances aforesaid,
for the operation, business and adventure whether or not now on the vessels and
all additions or substitutions for the same whether or not on board the
vessels, all the foregoing being hereinafter referred to collectively as the “Vessel” and all references to Vessel herein shall mean one
or both of them, as applicable;

 

(ii)                                  All
insurances, including policies and proceeds, on the Vessel and its equipment;

 

(iii)                               all
the Earnings;

 

(iv)                              and
any proceeds of the foregoing,

 

2

 

TO HAVE AND TO HOLD all and singular the Vessel and above
mortgaged and described property whether now owned by the Mortgagor or
hereafter acquired by it unto the Mortgagee subject to the terms and conditions
hereof:

 

PROVIDED ALWAYS, and the condition of these presents is
such, that if the Mortgagor and its successors and assigns shall pay, or cause
to be paid, to the Mortgagee the Obligations aforesaid, as and when the same
shall become due and payable by maturity or otherwise, and shall pay any and
all advances hereafter made or expended by the Mortgagee to the Mortgagor for
the maintenance, repairs, preservation or insurance of the Vessel or any part
thereof and shall keep, perform and observe all the covenants and promises in
these presents expressed or implied to be kept, performed and observed by or on
the part of the Mortgagor, then this Mortgage Agreement and the estate and
rights hereby granted shall cease, determine and be void; otherwise to remain
in full force and effect.

 

The Mortgagor hereby
covenants and agrees that the Vessel and all replacements hereafter made in or
to the same is to be held by the Mortgagee subject to the further covenants,
conditions and uses hereinafter set forth as follows:

 

ARTICLE 1

REPRESENTATIONS, WARRANTIES

AND COVENANTS OF MORTGAGOR

 

THE MORTGAGOR HEREBY
COVENANTS AND AGREES THAT:

 

Section 1.1                                   Citizenship;
Title.  Mortgagor is and shall
continue to be a “Qualified Person” as defined in the Canada Shipping
Act, R.S.C. 1985, c.S-9 (the “Canada Shipping Act”),
as amended, entitled to own and operate the Vessel under its Certificates of
Registry, which Mortgagor shall maintain in full force and effect, and is duly
qualified to engage in the Canadian coastwise trade.  The Mortgagor lawfully owns and is lawfully
possessed of the Vessel, and covenants and warrants that the same is free from
any mortgage, security interest, Lien, charge or encumbrance whatsoever other
than Permitted Liens, and that the Mortgagor will warrant and defend the title
and possession thereto and every part thereof for the benefit of the Mortgagee
against the claims and demands of all persons whomsoever

 

Section 1.2                                   Canada
Shipping Act.  The Mortgagor will, at
its expense and at no cost to the Mortgagee, register and maintain a valid
Certificate of Registry for the Vessel and shall, where applicable, comply with
and satisfy all the provisions of the Canada Shipping Act,
as amended, and the regulations made pursuant thereto, and will cause all
necessary steps to be taken in order to keep the Vessel registered whether
under the Canada Shipping Act, if applicable, or
otherwise, and will do all such other acts and execute all such instruments,
deeds, conveyances, mortgages and assurances as the Mortgagee shall reasonably
require.

 

Section 1.3                                   Covenants
of the Mortgagor. The Mortgagor covenants with the Mortgagee that it will
diligently carry out its obligations pursuant to any charter or other contract
of employment and that it will enforce such contract to the best of its
abilities.

 

3

 

The Mortgagor covenants with
the Mortgagee that it shall comply with all laws and regulations made by
governmental authorities having jurisdiction over the Vessel whenever and
wherever operating the Vessel. The Mortgagor covenants that there are no
Canadian Maritime Law liens presently against the Vessel and that the Vessel
has not been arrested nor is it presently under arrest with respect to any
claims, maritime or statutory, with respect to the Vessel.

 

Section 1.4                                   Liens.  Neither the Mortgagor, any charterer, the
master of the Vessel nor any other person has or shall have any right, power or
authority to create, incur or permit to be placed or imposed or continued upon
the Vessel, its freights, profits or hires, any Lien, security interest,
encumbrances or charge whatsoever other than Permitted Liens.  Mortgagor agrees to hold a certified copy of
this Mortgage Agreement in safekeeping with the Original Vessel Documents and
at the principal office of Mortgagor and on demand to exhibit the same to any
person having business with such Vessel, or to any representative of
Mortgagee.  Mortgagor shall also place
and cause to be displayed in a prominent place and in a durable manner with the
Original Vessel Documents a notice printed in plain type of such size that the
paragraph of reading matter shall cover a space not less than six inches wide
by nine inches high, reading as follows:

 

NOTICE OF MORTGAGE

 

This vessel is owned
by K-Sea Canada Corp. and is covered by a first priority statutory mortgage
under the Canada Shipping Act, as amended, in
favour of Citizens Leasing Corporation d/b/a/ Citizens Asset Finance, as
Mortgagee.  Under the terms of said
Mortgage, neither the owner of this Vessel, nor anyone on the owner’s behalf,
nor the master of this Vessel has any right, power or authority to create,
incur or permit to be imposed upon the Vessel any liens, maritime or otherwise
other than liens for wages of the crew or the master of this Vessel arising
from the current voyage, for wages of stevedores when employed directly by the
Vessel, or for general average or salvage.

 

Such notice shall be amended
at the sole cost and expense of Mortgagor, upon request of Mortgagee, to
reflect the identity of any successor Mortgagee.

 

Section 1.5                                   Removal
of Liens.  The Mortgagor will not,
suffer to be continued any Lien, encumbrance or charge, maritime or otherwise,
on the Vessel other than the Canadian Mortgage and Permitted Liens, and in due
course and in any event within thirty (30) days after the same shall become due
and payable, will pay or caused to be discharged or make adequate provisions
for the satisfaction or discharge of all claims or demands secured by any Lien,
charge or encumbrance (including Permitted Liens) on the Vessel and will cause
such Vessel to be released or discharged from any such Lien, encumbrance or
charge thereon.  After an Event of
Default shall have occurred and be continuing, the Mortgagee may elect to take
such actions as it reasonably deems necessary to pay or cause to be paid,
discharge, settle, compromise or satisfy any such Liens, claims, or
encumbrances.

 

4

 

Section 1.6                                   Libel
or Attachment.  If a libel shall be
filed against the Vessel, or if the Vessel shall be levied upon or taken into
custody, or detained by any proceeding in any court or tribunal, the Mortgagor
will within fifteen (15) days thereafter cause such Vessel to be released, and
any Lien thereon, other than the Canadian Mortgage, to be discharged.  In the event a libel is filed against the
Vessel, or in the event the Vessel is levied upon or taken into custody or
detained by any authority whatsoever, the Mortgagor shall notify the Mortgagee
forthwith by facsimile or telegram, confirmed by overnight letter as provided
in the Loan Agreement.  The Mortgagee
shall take all steps as may be required to advise the insurance brokers and
keep the Vessel insured and to obtain the release or discharge of the Vessel
from such restraint within fifteen (15) days from the date thereof.

 

Section 1.7                                   Maintenance
of Vessel.  At all times, at the
Mortgagor’s own cost and expense, the Mortgagor will maintain and preserve the
Vessel in as good condition, working order and repair as on the date of this
Mortgage Agreement, so that the Vessel shall be tight, staunch, strong and well
and sufficiently tackled, apparelled, furnished, equipped and in every respect
seaworthy and in good order and operating condition, ordinary wear and tear
excepted.  The Mortgagor shall obtain and
maintain valid all Transport Canada, Marine Safety Branch inspections and
certification for the Vessel, its equipment and crew and any other inspections
and certifications that may be required by any law of Canada, including but not
limited to any required Canadian ship safety certificates and, upon request,
shall provide copies of the same to the Mortgagee.  The Mortgagor shall cause the Vessel to be
dry docked, cleaned and painted whenever required by good commercial marine
maintenance practice and the requirements of any insurance policy or entries
respecting the Vessel.  All maintenance
and repairs will be made in a good and workmanlike manner by persons of
appropriate skill and experience whose work will not adversely affect the
service life or marketability of the Vessel. 
All repairs, parts, mechanisms, devices, replacements, improvements,
changes, additions and alterations to the Vessel shall immediately and without
further act, become part of such Vessel and subject to the Canadian
Mortgage.  The Mortgagor shall promptly
furnish to the Mortgagee copies of each damage survey with respect to damage to
the Vessel where the survey does not specifically quantify the cost of total
damages or where the survey states total damage in excess of $500,000.00 per
Vessel.  Mortgagor shall afford Mortgagee
or their authorized representatives reasonable access to the Vessel for the
purpose of inspecting the same, her cargoes and ship’s papers, but inspection in
drydock shall be made only when the Vessel shall be in drydock for other
purposes.  The Mortgagor undertakes to
notify the Mortgagee of each drydocking for the purpose of effecting any major
repair as far in advance as practicable.

 

Section 1.8                                   Changes
in Vessel.  The Mortgagor will not
make, or permit to be made, any material change in the structure or type of the
Vessel or in its rig, unless it shall have received the prior written consent
thereto of the Mortgagee.

 

Section 1.9                                   Governmental
Assessments.  The Mortgagor will pay
and discharge when due and payable from time to time all taxes, assessments,
governmental charges, fines and penalties imposed on the Vessel except those
being contested in good faith by the Mortgagor and for which adequate reserves
have been made.

 

Section 1.10                            Reimbursement.  The Mortgagor will reimburse the Mortgagee
promptly for any and all expenditures which the Mortgagee may elect to make
from time to time to protect 

 

5

 

the security
granted hereunder (in the event of the Mortgagor’s failure to do so), including
payment of taxes, repairs, insurance premiums, the discharge of any lien, libel
or seizure of the Vessel, and expenses, including reasonable attorney’s fees &
legal proceedings of any kind, incurred by the Mortgagee in retaking or selling
the Vessel; and any such payment made by the Mortgagee shall be for the account
of the Mortgagor, and the making thereof by the Mortgagee shall not cure the
Mortgagor’s Default in that regard nor constitute a waiver of any right or
remedy granted to the Mortgagee hereunder, and all sums so expended by the
Mortgagee or any liability incurred by them shall be deemed to be an
indebtedness of the Mortgagor and secured by the Canadian Mortgage, and until
paid shall bear interest at the Default Rate.

 

Section 1.11                            Sale
or Other Disposition of Vessel.

 

(a)                                  The
Mortgagor will not sell, mortgage, or transfer the title to the Vessel nor any
share thereof nor permit possession of the Vessel to come into the hands of any
person by except for the purpose of repairs as required herein (or as otherwise
permitted in the Loan Agreement), without the written consent of the Mortgagee
first having been obtained, except where accompanied by a simultaneous prepayment
of the Obligations made in accordance with §2.3(b) of the Loan
Agreement.  Any such sale, mortgage, or
transfer, or any charter of the Vessel shall be subject to the provisions of
the Canadian Mortgage and to the lien it creates.  The Mortgagor will not charter the Vessel to,
or permit any Vessel to serve under any contract of affreightment with, a
person included within the definition of designated foreign country or a
national of a designated foreign country in the foreign Assets Control
Regulations or Cuban Assets Control Regulations of the United States Treasury
Department, 31 C.F.R. Chapter V, as amended, within the meaning of said
regulations or of any regulation, interpretation or ruling issued thereunder.
If any of the foregoing occurs, then at the option of the Mortgagee, the whole
of the money owing pursuant to this Mortgage Agreement and remaining unpaid
shall become immediately due and payable as if the due date for the payment of
the same had passed.

 

(b)                                 Mortgagor
shall not enter into any bareboat or demise charter respecting the Vessel with
any entity without (i) obtaining the prior written consent of the
Mortgagee, which consent shall not be withheld unreasonably, (ii) providing
Mortgagee a copy thereof and (iii) without first obtaining the written
agreement of such charterer in each case to the collateral assignment by
Mortgagor to Mortgagee of a first priority lien and security interest in the
charter hire and earnings of such charter, such consent to be in form
reasonably acceptable to Mortgagee. 
Mortgagor undertakes and covenants that any such charter shall contain a
provision prohibiting the charterer and any other persons from incurring or
acquiring any lien on any Vessel.

 

Section 1.12                            Insurance.

 

(a)                                  Hull and Machinery Insurance. At the Mortgagor’s own
expense, so long as the Obligations remain in any part outstanding, the
Mortgagor shall maintain or cause to be maintained insurance with financially
sound and reputable underwriters and 

 

6

 

through responsible brokers, all in good standing and
satisfactory to the Mortgagee, fully and adequately protecting the Vessel and
the Mortgagee’s interest therein in at least such amounts and against such
risks as are usually insured against in the same general area as that in which
the Mortgagor is located and by companies engaged in the same or similar
businesses, and in any case, in such amounts as the Lender shall require,
against all marine perils and disasters and all hazards, risks and liabilities
in any way arising out of the ownership, operation or maintenance of said
Vessel, including insurance as follows:

 

(i)                                     Hull
and machinery insurance and if necessary to satisfy the proviso of this
subparagraph, policies of increased value insurance, and war risk hull and
machinery insurance on an agreed value basis on the Vessel against loss,
damage, fire and covering confiscation, expropriation, nationalization, and
seizure (if operating outside U.S. or Canadian coastal waters) and covering
such other perils and in such amounts as are maintained on vessels engaged in
the same or a similar business under blanket fleet policies with respect to
vessels of like size, character and marine activity; provided, however, that,
in no event shall the amount of such insurance, subject to such deductible, if
any, as permitted by Mortgagee, at any time be less than the full commercial
value of the Vessel.

 

(ii)                                  In
the event of (A) the actual or constructive loss of the Vessel, (B) any
event referred to in Section 1.12 hereof with respect to the Vessel, or (C) any
casualty, accident or damage to the Vessel in excess of U.S. $500,000.00 per
Vessel, the Mortgagor will give written notice thereof (containing full
particulars), within three business days of the occurrence thereof, to the
Mortgagee.

 

(b)                                 Protection and Indemnity Insurance.  Protection and indemnity insurance maintained
with financially sound and reputable insurers or protection and indemnity
associations and policies of protection and indemnity war risk insurance
protecting the interests of Mortgagor, and Mortgagee, against liability for
property damage to third persons (including liability to any governmental
authority or other person with respect to pollution liability) and personal
injury or death to any person arising out of the maintenance, use, operation
and ownership of the Vessel, cargo damage or loss, contractual liability and
wreck removal, tower’s liability, crew liability, collision liability and oil
pollution liability in such amounts as are usually carried by persons engaged
in the same or similar businesses; provided, however, that in no event shall
the amount of such insurance per person and per occurrence (subject to such
deductible, reasonably acceptable to the Mortgagee) be less than the customary
amount of cover available on the market from time to time with respect to
vessels of the same type, age and trade as the Vessel.  Such liability insurance shall name each of
the Mortgagor, Mortgagee, and other interested persons as insureds (or in the
case of the Mortgagee as co-insureds), as their respective interests may
appear, but the proceeds of such policies shall be payable to the Person
actually suffering the loss 

 

7

 

in respect of which such proceeds are payable;
provided, however, that if Mortgagee shall have first notified the underwriters
or brokers that a Mortgage Event of Default hereunder has occurred then all
such proceeds otherwise payable to the Mortgagor shall be thereafter payable to
Mortgagee for distribution to itself and others as their interests may appear
as hereinafter set forth. Cause to be effected, if the Vessel is involved in
towing, tower’s liability insurance, in such amount as the Mortgagee may
require, PROVIDED THAT such protection and indemnity insurance (including tower’s
liability insurance) shall be placed with such insurance companies,
under-writers or fund as may be approved by the Mortgagee;

 

(c)                                  Deductibles. Unless a Mortgage Event of Default hereunder
shall have occurred, or is continuing hereunder, Mortgagee consents to (a) a
deductible of U.S. $250,000.00 per hull for Hull and Machinery or Protection
and Indemnity coverages, not to exceed U.S. $250,000.00 per hull for any single
occurrence, subject also to (b) a U.S. $1,000,000.00 annual aggregate
fleet deductible for all of Mortgagor’s vessels applied on a fleet wide basis.

 

(d)                                 Port Risk Insurance. Mortgagor shall maintain or cause to be
maintained when and while the Vessel is laid up, and in lieu of the aforesaid
navigating hull insurance referred to in Section 1.11(a)(i) of this
section, port risk insurance under forms of port risk policies approved by the
Mortgagee.

 

(e)                                  Employers Liability Insurance.  Mortgagor shall maintain or cause to be
maintained employers liability insurance for workers’ rights as may give rise
to employers’ liability.

 

(f)                                    Pollution Insurance. 
Mortgagor shall maintain or cause to be maintained pollution insurance
in amounts adequate to obtain and maintain Federal Certificates of Financial
Responsibility for Pollution Liability, and such additional coverage for the
Vessel in respect of pollution liability as from time to time may be required
by law now or hereafter in effect or customary among owners of similar vessels
engaged in trade in the United States or Canada.

 

(g)                                 Continuation of Insurance Coverages.

 

(i)                                     The
Mortgagor expressly covenants and agrees to keep the policies renewed from time
to time, to keep the same valid at all times for the amounts aforesaid, and to
keep the premiums thereon fully paid at all times.  The Mortgagor shall not do any act nor
voluntarily suffer or permit any act to be done whereby insurance is or may be
suspended, impaired or defeated, and shall not suffer nor permit the Vessel to
engage in any voyage or to carry any cargo not permitted under the policy or
policies of insurance in effect, unless and until the Mortgagor shall first
cover the Vessel to the amount herein provided for by insurance satisfactory to
the Mortgagee for such voyage or for the carriage of such cargo.

 

8

 

(ii)                                  In
the event the Mortgagor fails to procure any of the insurance hereinabove
mentioned, or fails to perform any of the covenants and agreements contained
herein, the Mortgagee may, but shall be under no duty to, procure such
insurance or coverage as Mortgagee may reasonably deem advisable in the
premises.  The Mortgagor shall reimburse
the Mortgagee on demand, with interest at the Default Rate for any and all
expenditures which the Mortgagee may from time to time make, lay out or expend
in providing protection in respect of insurance.  Such obligation of the Mortgagor to reimburse
the Mortgagee, together with interest as provided above, shall be an additional
indebtedness due from the Mortgagor, secured by this Mortgage Agreement, and
shall be payable by the Mortgagor on demand. 
The Mortgagee, though privileged so to do, shall be under no obligation
to the Mortgagor or to any other person to make any such expenditures, nor
shall the making thereof relieve the Mortgagor of any Default in that respect.

 

(h)                                 Mortgagee as Additional Insured and Loss Payee.  All insurance policies covering the Vessel
shall provide, during any period which the Mortgagee holds a mortgage on the
Vessel, that the Mortgagee shall be an additional assured (co-insured in
respect of liability insurance) and loss payee, as applicable, under the
insurances required by this Section 1.11.

 

(i)                                     Insurance Proceeds, Partial Loss.  The proceeds of any such insurance recoveries
shall be applied in the event that insurance becomes payable under said
policies on account of an accident, occurrence or event not resulting in an
actual or constructive total loss or agreed or compromised total loss of the
Vessel, (i) all amounts up to U.S. $500,000.00 per hull may be paid to
Mortgagor for the purpose of repairing any damage which may have resulted from
the accident, occurrence or event so long as no Mortgage Event of Default has
occurred, or (ii) with respect to amounts greater than U.S. $500,000.00
per hull or with respect to any amount if a Mortgage Event of Default has
occurred, the Mortgagee may, in its discretion, if a written request therefor
shall have been made by the Mortgagor, apply the proceeds of insurance to pay
for repairs, liabilities, salvage or other charges and expenses (including
labour charges due or paid by the Mortgagor), covered by the policies, or to
the extent that the Mortgagor shall have repaired the damage and paid the cost
thereof or discharged or paid such liabilities, salvage claims or other charges
and expenses (such fact having been certified to in a certificate of an officer
of the Mortgagor (an “Officer’s Certificate”)
delivered to the Mortgagee, accompanied by written confirmation by the underwriter,
a surveyor, an adjuster or a marine insurance broker), apply the proceeds of
insurance to reimburse, or consent that the underwriters reimburse, the
Mortgagor therefor, and (after all known damage with respect to the particular
loss shall have been repaired, except to the extent the Mortgagor and the
Mortgagee agree that said repair is inadvisable and all known costs,
liabilities, salvage claims, charges and expenses covered by the policies with
respect to such loss shall have been discharged or paid, such fact having been
certified to by an Officer’s Certificate delivered to the Mortgagee,
accompanied by a written confirmation by the

 

9

 

underwriter, a surveyor, an adjuster or a marine
insurance broker), pay, or consent that the underwriters pay, any balance of
the proceeds of insurance to the Mortgagee for application to the Obligations
as provided in §2.3(b) of the Loan Agreement, and the excess, if any, paid
to the Mortgagor.

 

(j)                                     The
Mortgagor shall make all proper proof of loss and take or cause to be taken all
other action necessary or appropriate to effect collection from underwriters of
all insurance required by this Mortgage Agreement and the other Loan Documents.
To that end the Mortgagor shall at the expense of the Mortgagor sign such claim
papers and other documents and take such action and furnish such information as
the Mortgagee may reasonably request including tendering abandonment of the
Vessel to the underwriters.

 

(k)                                  Constructive Total Loss.  In the event of an accident, occurrence or
event resulting in a constructive total loss of the Vessel, the Mortgagor shall
have the right to claim a constructive total loss of such Vessel and if both (i) such
claim is accepted by all underwriters under all policies then in force as to
such Vessel under which payment is due for total loss and (ii) payment in
full is made in cash under such policies and applied to repay all outstanding
Obligations in accordance with Section 2.3(b) of the Loan Agreement,
then the Mortgagor shall have the right at its election, to abandon such Vessel
to the underwriters under such policies, free from the lien of the Canadian
Mortgage.

 

(l)                                     Agreed or Compromised Total Loss.  In the event of an accident, occurrence or
event of damage to the Vessel, the Mortgagor with consent of the Mortgagee,
which shall not be withheld unreasonably, shall have the right in its
discretion to enter into an agreement or compromise with underwriters providing
for an agreed or compromised total loss of such Vessel.

 

(m)                               Carriers; Approvals. 
All insurance required under this Section shall be placed and kept
with Canadian, American, British, or other insurance companies, underwriters’
associations, clubs or underwriting funds approved by the Mortgagee.  Any approval of a policy under this Section 1.11
shall be effective until the end of the policy period or until thirty (30) days
after the Mortgagee shall notify the Mortgagor of a desired change (consistent
with the terms hereof except as set forth in the next following sentence) in
the form and/or amount thereof, whichever shall first occur.  Notwithstanding the foregoing, Mortgagee may
require changes on shorter notice if such changes are necessary or desirable to
comply with requirements of or insure against liabilities created or increased
by any change, modification, amendment in the law (including judicial or
administrative decisions), regulations, rules, policies or practices of the
United States government or the government of any state, territory, or
possession thereof or of any other place where the Vessel may be operating or
whose laws may apply.

 

10

 

(n)                                 Additional Provisions. 
All insurance required under this Section 1.11 shall, unless
otherwise first agreed in writing by the Mortgagee, provide that (i) there
shall be no recourse against the Mortgagee for the payment of premiums,
supplemental or back calls or commissions, (ii) at least thirty (30) days’
(fourteen days with respect to matters covered in the protection and indemnity
coverage and seven (7) days in the case of war risk) prior written notice
of any cancellation, reduction in amount or change in coverage or other
material change of such insurance shall be given to the Lender by the insurance
underwriters, (iii) no insurance shall be excess over other coverage but
shall be primary insurance and shall not require any contribution from any
excess insurance on the Vessel which may be carried by Mortgagee without
interfering with the Mortgagor’s insurance coverage, and (iv) the insurers
agree to advise Mortgagee promptly in writing of any default in the payment of
any premium  and of any other act or
omission of which such insurer has knowledge which might invalidate or render
unenforceable, in whole or in part, any such policy.  The policies shall provide for severability
of interest as through separate policies were issued to each additional insured
except with respect to the limits of liability.

 

(o)                                 Reports.  Prior to the
date hereof and upon renewal or replacement of each policy or entry thereafter,
Mortgagor shall furnish to the Mortgagee a report by a nationally recognized
first-class marine insurance broker acceptable to the Mortgagee, describing in
reasonable detail the insurance then carried and maintained on and with respect
to the Vessel and certifying that such insurance complies with the terms
hereof.  Mortgagor shall obtain for the
benefit of Mortgagee the undertaking of Mortgagor’s insurance agent or broker
to promptly advise the Mortgagee in writing of any act or omission of which
such agent or broker has knowledge which might invalidate or render
unenforceable, in whole or in part, any such policy.

 

(p)                                 The
Mortgagor shall not do or permit to be done any act or omission which would
have the effect of breaching any condition of the insurance or of impairing the
validity of any insurance taken out or maintained pursuant to this Mortgage
Agreement and in particular shall not operate the Vessel in waters contrary to
any trading warranty or beyond any limits as set forth in the insurance
contract or operate the Vessel beyond any limits imposed or in any waters
prohibited by the Marine Safety Branch of Transport Canada or any law of
Canada.

 

Section 1.13                            Requisition.

 

(a)                                  Title.  In the event
that the title or ownership of the Vessel shall be requisitioned, purchased or
taken by any government of any country or any present or future law,
proclamation, decree, order or otherwise, the lien of the Canadian Mortgage
shall be deemed to have attached to the claim for compensation and the
Mortgagor agrees that it will turn over to the Mortgagee, immediately upon
receipt, the compensation, purchase price, reimbursement or award for such
requisition, purchase or other taking of such title or ownership and all of the
foregoing shall be payable to the Mortgagee, who shall be entitled to receive
the 

 

11

 

same and shall apply it as provided in Section 2.3(b) of
the Loan Agreement.  In the event of any
such requisition, purchase or taking, the Mortgagor shall promptly execute and
deliver to the Mortgagee such documents, if any, and shall promptly do and
perform such acts, if any as in the reasonable opinion of the Mortgagee may be
necessary or useful to facilitate or expedite the collection by the Mortgagee
of such compensation, purchase price, reimbursement or award.

 

(b)                                 Requisition of Use. 
In the event that any government of any country or any department,
agency or representative thereof shall not take over the title or ownership of
the Vessel but shall requisition, charter, assign, transfer, or set-over, or in
any manner take over the use of such Vessel pursuant to any present or future
law, proclamation, decree, order or otherwise and shall, as a result of such
requisitioning, chartering, assigning, transferring, or setting-over or taking
of the use of the Vessel, pay or become liable to pay sums by reason of the
loss of or injury to or depreciation of the Vessel, and, if a Mortgage Event of
Default shall have occurred and be continuing, any such sum is hereby made
payable to the Mortgagee, who shall be entitled to receive the same and shall
apply it as provided in the Loan Agreement. 
In the event of any such requisitioning, chartering or taking of the use
of the Vessel, the Mortgagor shall promptly execute and deliver to the
Mortgagee such documents, if any, and shall promptly do and perform such acts,
if any, as in the reasonable opinion of the Mortgagee may be necessary or
useful to facilitate or expedite the collection by the Mortgagee of such claims
arising out of the requisitioning, chartering or taking of the use of the
Vessel as provided hereinabove.

 

ARTICLE 2

DEFAULT; REMEDIES UPON DEFAULT

 

Section 2.1                                   Mortgage
Events of Default.  Mortgagor shall
be in default under this Mortgage Agreement upon the happening of any one or
all of the following events or conditions (each a “Mortgage
Event of Default”):

 

(a)                                  An
Event of Default (as defined in the Loan Agreement); or

 

(b)                                 Failure
by the Mortgagor to observe or perform any covenant or agreement contained in
Sections 1.1, 1.2, 1.7, 1.10(a) or 1.11(a) through (f)(inclusive);

 

(c)                                  Failure
by the Mortgagor to observe or perform any covenant or agreement in this
Mortgage Agreement (other than those referred to in the foregoing paragraph (b) and
such failure shall not have been remedied within thirty (30) days after written
notice thereof shall have been given to the Mortgagor by the Mortgagee);

 

(d)                                 The
breach in any material respect of any warranty, or the falsity of any material
representation or statement made or furnished to the Mortgagee by or on behalf
of the Mortgagor; or

 

12

 

(e)                                  If
Mortgagor or any charterer shall abandon the Vessel or remove or attempt to
remove the Vessel beyond the limits of the United States or Canada except on a
voyage with the intention of returning to the United States or Canada; or

 

(f)                                    the
Mortgagor causes to be done any act or thing which may make void or voidable
the registration of the Vessel or of the Canadian Mortgage or any other
security or if the Vessel ceases to be registered under the Canadian Flag.

 

Section 2.2                                   Remedies.  Upon the occurrence of a Mortgage Event of
Default the Mortgagee may pursue any or all of the following remedies:

 

(a)                                  Demand.  Declare all
obligations secured hereby to be immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived;

 

(b)                                 Remedies.  The
Mortgagee in its discretion may do one or more of the following: exercise all
of the rights, powers and remedies with respect to the Vessel in foreclosure
and otherwise given to the Mortgagee by this Mortgage Agreement and given to
mortgagees by the provisions of the applicable laws of the jurisdiction where
the Vessel is registered or licensed;

 

(c)                                  Enforcement.  Bring
suit at law, in equity or in admiralty, or other proceeding, as appropriate, to
receive judgment for any and all amounts due hereunder, including without
limitation, an action for specific performance of any term contained herein or
for any injunction against a violation of any such term or in aid of any right,
power, or remedy granted herein or therein or by law, in equity, or admiralty
or otherwise and collect the same out of any and all property of the Mortgagor
whether covered by this Mortgage Agreement or otherwise, or initiate and
prosecute such other judicial, extra-judicial, or administrative proceedings as
it may consider appropriate to recover any and all sums due, or declared due,
on the Note, and all other Obligations due, with the right to enforce payment
of said sums against any assets of the Mortgagor, whether they are covered by
this Mortgage Agreement or otherwise;

 

(d)                                 Possession.  Retake
the Vessel with or without legal process wherever the same may be found, and
the Mortgagor or other person in possession forthwith shall upon demand of the
Mortgagee shall surrender to the Mortgagee possession of the Vessel, and, in
its sole discretion to dismiss the master officers or crew of the said Vessel
or any one or more of them and to appoint another master, officers or crew in
their stead.  The Mortgagee may hold,
lay-up, or (if authorized to do so by the Vessel’s certificate of
documentation) lease, charter, operate, or otherwise use the Vessel for such
time and upon such terms as it may deem to be for its best advantage,
accounting for the net profits, if any, arising from such use of the Vessel as
set forth in Section 2.3, below; and if at any time the Mortgagee shall
avail itself of the right herein given it to retake the Vessel and shall retake
it, the Mortgagee shall have the right to dock the Vessel for a reasonable time
at any 

 

13

 

dock, pier or other premises of the Mortgagor without
charge, or to dock it at any other place at the cost and expense of the
Mortgagor;

 

(e)                                  Sale.  Sell the Vessel
upon such terms and conditions as it may specify, at public or private sale, by
sealed bids or otherwise, on such terms and conditions as the Mortgagee deems
best, free of any claim, commitment or encumbrance, regardless of the nature
thereof, in favour of the Mortgagor and except as provided by law, in favour of
any other  person.  If a public sale is to be used, the Mortgagee
shall first give advance notice of ten (10) consecutive days published in
any newspaper authorized to publish legal notices of that kind in the port of
documentation and the places of sale of such Vessel and shall send notice of
each such sale at least fourteen (14) days prior to the date fixed for such
sale to the Mortgagor pursuant to §14 of the Loan Agreement or such other
notice periods, if longer, as may be required by Law.  In the event that the Vessel shall be offered
for sale by private sale, no newspaper publication of notice shall be required
nor notice of adjournment of sale.  Sale
may be held at such place and at such time as the Mortgagee by notice may have
specified, or may be adjourned by the Mortgagee from time to time by
announcement at the time and place appointed for such sale or for such
adjourned sale, and, without further notice or publication, the Mortgagee may
make any such sale at the time and place to which the same shall be so
adjourned; and any sale may be conducted without bringing the Vessel to the
place designated for such sale and in such manner as the Mortgagee deems, and
the Mortgagee may become the purchaser at any public sale, and shall have the
right to credit on the purchase price any and all sums of money due to the
Mortgagee under the Note and the Loan Agreement, or otherwise due to the
Mortgagee hereunder or under the Loan Agreement or any other Loan Document, or
under any other instrument evidencing any Obligations due together with all
legal fees, court costs or other expenses made or incurred by the Mortgagee in
the protection or realization of the Mortgagee’s rights under this Mortgage
Agreement.

 

(f)                                    Finality of Sale.  A
sale of the Vessel made pursuant to this Mortgage Agreement, whether under the
power of sale hereby granted or any judicial proceedings, shall operate to
divest all right, title and interest of any nature whatsoever of the Mortgagor
therein and thereto, and shall bar the Mortgagor, its successors and assigns,
and all persons claiming by, through or under them.  No purchaser shall be bound to inquire
whether notice has been given or whether any Default has occurred, or as to the
propriety of the sale, or as to application of the proceeds thereof.  In case of any such sale, any purchaser who
is the holder of this Mortgage Agreement shall be entitled, for the purpose of
making settlement or payment for the Vessel, to apply the balance due under
this Mortgage Agreement or a part thereof as part or all of the purchase price
to the extent of the amount remaining due and unpaid.  At any such sale, the holder of this Mortgage
Agreement may bid for and purchase the Vessel and upon compliance with the
terms of sale may hold, retain and dispose of the Vessel without further
accountability.

 

14

 

(g)                                 Appointment of Attorney. 
The Mortgagor does hereby irrevocably appoint the Mortgagee, with full
power of substitution, the true and lawful attorney of the Mortgagor, in
Mortgagor’s name and stead

 

(i)                                     to
make all necessary transfers or sales of the Vessel and to execute all
necessary instruments of assignment and transfer, the Mortgagor hereby
ratifying and confirming all that said attorney shall lawfully do by virtue
hereof.  Nevertheless, the  Mortgagor shall, if so requested by the
Mortgagee, ratify and confirm such sale by executing and delivering to the
purchaser of the Vessel such proper bill of sale, conveyance, instrument of
transfer and releases as may be designated in such request and other
instruments as the Mortgagee may consider necessary and appropriate.

 

(ii)                                  in
the event that the Vessel shall be arrested or detained by a sheriff or other
officer of any court or tribunal of any nation or by any government or
governmental authority and shall not be released from arrest or detention
within fifteen (15) days thereafter to apply for, receive and to take
possession of the Vessel with all the rights, powers and remedies that the
Mortgagor may have or exercise;

 

(iii)                               to
appear in any court or tribunal of any nation where any proceeding is pending
against the Vessel from which the Vessel has not been released and to take all
such action as the Mortgagee may determine towards the defence of such
proceedings and the discharge of such lien.

 

The Mortgagee in acting or refraining from acting under the power of
attorney hereby granted shall not incur any liability to the Mortgagor or
otherwise.

 

(h)                                 Coastwise Qualification. 
Notwithstanding anything to the contrary contained in this Section 2.2, the Mortgagee shall not exercise any of
the remedies set forth above in this Section 2.2
or any other remedies available under applicable law if the exercise of such
remedies shall invalidate the qualification of the Vessel to operate in the
Canadian coastwise trade.

 

Section 2.3                                   Disposition
of Proceeds of Sale.  After an Event
of Default shall have occurred and be continuing, the proceeds of any sale of
the Vessel (after paying or deducting in the case of sale under any judicial
proceedings the fees, costs and other charges therein), and the net earnings
from any management, charter or other use of the Vessel by Mortgagee under any
of the powers above specified, and the proceeds of any claim for damages on
account of such Vessel received by the Mortgagee while exercising any such
power, and the proceeds of any insurance on the Vessel concerned (subject to
the provisions of this agreement) shall be applied by Mortgagee as provided in Section 2.4(b) of the Loan Agreement.

 

Section 2.4                                   Powers
and Rights of Mortgagee Upon Occurrence of a Mortgage Event of  Default.

 

(a)                                  Each
and every power and remedy herein specifically given to the Mortgagee or
otherwise in this Mortgage Agreement shall be cumulative and shall be in 

 

15

 

addition to every other power and remedy herein
specifically given or now or hereafter existing at law, in equity, admiralty or
by statute, and each and every power and remedy whether specifically herein
given or otherwise existing may be exercised from time to time and as often and
in such order as may be deemed expedient by the Mortgagee, and the exercise or
the beginning of the exercise of any power or remedy shall not be construed to
be a waiver of the right to exercise at the same time or thereafter any other
power or remedy.  No delay or omission by
the Mortgagee in the exercise of any right or power or in the pursuance of any
remedy occurring upon any Mortgage Event of Default as above defined shall
impair any such right, power or remedy or be construed to be a waiver of any
such event of default or to be any acquiescence therein; nor shall the
acceptance by the Mortgagee of any security or of any payment of or on account
of any installment of the Note maturing after any Mortgage Event of Default or
of any payment on account of any past default be construed to be a waiver of
any right to take advantage of any future Mortgage Event of Default or of any
past Mortgage Event of Default not completely cured thereby.

 

(b)                                 Remedies Cumulative - Notwithstanding anything contained in
this Mortgage Agreement, the security of this Mortgage Agreement may be
realized and the rights enforced by any remedy or in any manner authorized or
permitted by this Mortgage Agreement or by law or equity and no remedy for the
realization of the security hereof shall be exclusive of or dependent upon any
other remedy and all or any remedies may from time to time be exercised
independently or in any combination.

 

(c)                                  Waiver - If the security 
provided under this Mortgage Agreement includes security under s.427 of
the Bank Act, S.C. 1991, c.46, or under any successor provisions thereto (the “Bank Act”), then the Mortgagee shall
not be bound to sell all or any part of the property included in the s.427
security in accordance with the procedure set out in s.428(8) of the Act
but the Mortgagee shall be at liberty to sell all or any part of such property
in such manner as the Mortgagee, in its sole discretion, may decide and the
Mortgagor hereby waives the provisions of s.428(8) and (11) of the Bank
Act regarding the procedure for exercising the power of sale therein provided.

 

(d)                                 Revenues and Proceeds of Vessel.  The Mortgagee is hereby irrevocably appointed
attorney-in-fact of the Mortgagor, upon the happening of any Mortgage Event of
Default, in the name of the Mortgagor to demand, collect, receive, compromise
and sue for, so far as may be permitted by law, all freights, hire, earnings,
issues, revenues, income and profits of the Vessel, and all amounts due from
underwriters under any insurance thereon as payment of losses or as return
premiums or  otherwise, salvage awards
and recoveries, recoveries in general average or otherwise, and all other sums
due or to become due in respect of the Vessel or in respect of any insurance
thereon from any person whomsoever, and to make, give and execute in the name
of the Mortgagor acquittances, receipts, releases or other discharges for the
same, whether under seal or otherwise, and to endorse and accept in the name of
the Mortgagor all checks, notes, drafts, 

 

16

 

warrants, agreements and all other instruments in
writing with respect to the foregoing, the Mortgagor hereby confirming and
ratifying the same

 

(e)                                  Additional Rights. 
The Mortgagor covenants and agrees that in addition to any and all other
rights, powers and remedies elsewhere in this Mortgage Agreement granted to and
conferred upon the Mortgagee, and including in any suit to enforce any of its
rights, powers or remedies, if a Mortgage Event of Default shall have occurred
and shall not have been waived by the Mortgagee, the Mortgagee shall be
entitled as a matter of right and not as a matter of discretion, but subject to
Section 2.2(h) of this Article 2 (i) to the appointment of
a receiver or receivers of the Vessel and to the removal of any receiver or
receiver-manager so appointed and appoint another in his stead and collection
of the freights, hire, earnings, issues, revenues, income and profits due or to
become due arising from any operation of the Vessel, and (ii) to a decree
ordering and directing the sale and disposal of the Vessel, and the Mortgagee
may become the purchaser at such sale and shall have the right to credit on the
purchase price any and all sums of money due under the Note or otherwise due to
the Mortgagee pursuant to the terms of the Loan Agreement or under any other
instrument evidencing any Obligations. 
The Mortgagee shall not be required to have the Vessel marshaled (upon
any sale of the Vessel pursuant to this Mortgage Agreement or otherwise) or be
required to realize on any other collateral prior to realization on the Vessel.

 

(f)                                    Powers of Receiver.

 

(i)                                     To
the extent permitted by law or to such lesser extent as may be permitted by the
terms of his or her appointment, the receiver shall have power:

 

(1)                                  to
carry on or concur in carrying on the part of the business of the Mortgagor
related to he Vessel;

 

(2)                                  to
take possession of the Vessel, to sell or lease or concur in selling or leasing
the Vessel;

 

(3)                                  for
the purpose of the said business, to employ such agents, managers, solicitors,
accountants, contractors, employees and other persons as he or she sees fit;

 

(4)                                  to
repair the Vessel as may be necessary in the event it becomes unserviceable;

 

(5)                                  for
the purposes aforesaid, to raise money on the Vessel and to charge the same by
charges ranking in priority to or pari passu with or in subordination to the
mortgages and charges created by this Mortgage Agreement and at such rate of
interest and on such terms as he or she sees fit.

 

17

 

(ii)                                  Any
receiver or receiver-manager appointed hereunder shall, so far as concerns
responsibility for his or her acts, be deemed the agent of the Mortgagor and
the Mortgagee shall not be in any way responsible for any misconduct or
negligence on the part of any such receiver or receiver-manager.

 

(iii)                               Notwithstanding
the exercise of any remedy by the Mortgagee, or the receipt of any moneys as a
result thereof or otherwise, the Mortgagor will receive credit only for the
actual net amount of moneys received by the Mortgagee (after deducting all
costs, charges and expenses to obtain such moneys) and, without limiting any
other of his or her rights at law, the Mortgagor shall pay any deficiency or
balance that may at any time remain unpaid hereunder after having been given
credit for all moneys received as aforesaid.

 

(g)                                 Mortgagee May Perform - Should the Mortgagor fail to
perform or comply with any of the terms of this Mortgage Agreement resulting in
the occurrence of an Event of Default hereunder, the Mortgagee may, in its
discretion, do all acts and make all expenditures necessary to remedy such
default and the Mortgagor shall promptly reimburse the Mortgagee with interest
at the rate aforesaid for any and all such expenditures. Until the Mortgagor
has reimbursed the Mortgagee for such expenditures, the amount thereof shall be
a debt due from the Mortgagor to the Mortgagee and payment thereof shall be
secured by the Canadian Mortgage and the Loan Documents.  The Mortgagee shall be under no obligation to
the Mortgagor to make any such expenditures nor shall the making thereof
relieve the Mortgagor of any default in that respect.

 

(h)                                 Termination - This Mortgage Agreement shall terminate upon
payment in full of the Loan and all other moneys due hereunder and the
Mortgagee, at the request and expense of the Mortgagor, shall within a
reasonable time execute and deliver to the Mortgagor a proper instrument
acknowledging the satisfaction and termination of the Canadian Mortgage and the
security documents taken hereunder.

 

(i)                                     Default Under Loan Documents - It is understood and agreed
that default by the Mortgagor under any of the Security Documents given by it,
or to be given by it, shall constitute default under each, and every one of the
Loan Documents.

 

(j)                                     Realization and Collateral Security - Notwithstanding
anything else contained in the Security Documents given or to be given by the
Mortgagor, the Security Documents given are additional, concurrent and
collateral security to the other security or securities given, or to be given
in future, by the Mortgagor to the Mortgagee and the Mortgagee shall have
complete discretion in the order in which it may decide to realize or enforce
its security, any rule of law, equity or admiralty to the contrary
notwithstanding.

 

18

 

ARTICLE 3

GENERAL POWERS OF MORTGAGEES

 

Section 3.1                                   Arrest
or Detention of Vessel.  In the event
that an Event of Default shall have occurred hereunder and the Vessel shall be
arrested or detained by a Marshal or other officer of any court of law, equity
or admiralty jurisdiction in any country or nation of the world or by any
government or other Person, the Mortgagor does hereby authorize and empower the
Mortgagee, from the date of arrest or detention, in the name of the Mortgagor,
or its successors or assigns, to apply for and receive possession of and to
take possession of such Vessel with all the rights and powers that the
Mortgagor, or its successors or assigns, might have, possess or exercise in any
such event; and this power of attorney shall be irrevocable and may be
exercised not only by the Mortgagee but also by their appointee or appointees,
with full power of substitution, to the same extent as if the said appointee or
appointees had been named as one of the attorneys above named by express
designation.

 

Section 3.2                                   Appearance.  In the event an Event of Default shall have
occurred hereunder, the Mortgagor also authorizes and empowers the Mortgagee or
its appointees or any of them to appear in the name of the Mortgagor, its
successors or assigns, in any court of any country or nation of the world where
a suit is pending against the Vessel because of or on account of any alleged
lien against such Vessel from which such Vessel has not been released and to
take such proceedings as to them may seem proper towards the defense of such
suit and the discharge of such lien, and all expenditures made or incurred by
them or any of them for the purpose of such defense or discharge shall be a
debt due from the Mortgagor, its successors and assigns, to the Mortgagee, and
shall be secured by the lien of the Canadian Mortgage in like manner and extent
as if the amount and description thereof were written herein.

 

ARTICLE 4

INDEMNITY

 

The Mortgagor assumes
liability for, and agrees to indemnify and hold the Mortgagee harmless from,
all claims, costs, expenses (including reasonable legal fees and expenses),
damages and liabilities arising from or pertaining to the Canadian Mortgage or
the ownership, use, possession or operation of the Vessel; provided
that the Mortgagor shall have no obligation for indemnified liabilities arising
from the gross negligence or willful misconduct of Mortgagee or arising from
the acts or omissions of the Mortgagee as mortgagee-in-possession.  The agreements and indemnities contained in
this Article shall survive the maturity or earlier discharge of the
Canadian Mortgage and payment in full of the Note.

 

ARTICLE 5

MORTGAGOR’S USE AND POSSESSION

 

Until some one or more of
the Mortgage Events of Default hereinbefore described shall happen, the
Mortgagor shall be suffered and permitted to retain exclusive actual possession
and use of the Vessel.

 

19

 

ARTICLE 6

MISCELLANEOUS

 

Section 6.1                                   Counterparts.  This Mortgage Agreement may be executed
simultaneously in any number of counterparts and all such counterparts executed
and delivered each as an original shall 
constitute but one and the same instrument.  The invalidity of any provision of this
Mortgage Agreement shall not affect the remainder, which shall in such event be
construed as if the invalid provisions had not been inserted.

 

Section 6.2                                   Binding
Effect.  All the covenants, promises,
stipulations and agreements of the Mortgagor in the Canadian Mortgage shall
bind the Mortgagor and its successors and shall inure to the benefit of the
Mortgagee and its assigns, whether so expressed or not.  All of the covenants, promises, stipulations
and agreements of the Mortgagee, if any, shall bind the Mortgagee and its
assigns, whether so expressed or not.

 

Section 6.3                                   No
Waiver of Preferred Status.  Nothing
in this Mortgage Agreement shall be construed as a waiver of the priority
status of the Canadian Mortgage by the Mortgagee.  In the event that any provision of this
Mortgage Agreement would, as a matter of law, operate to waive the preferred
status thereof, such provision shall be deemed eliminated therefrom, the same
for all intents and purposes as though such provision had never been inserted
herein.

 

Section 6.4                                   Nature
of Agreements Hereunder.  The
agreements, terms, conditions, rights, remedies and indemnities provided herein
are in addition to, not in limitation of, and shall not be limited by, each of
the agreements, terms, conditions, rights, remedies and indemnities contained
in the Loan Agreement..

 

Section 6.5                                   Construction.  Any provision of this Mortgage Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, any such
prohibition or unenforceability shall not invalidate or render unenforceable
such provision in any other jurisdiction to the extent permitted by law,
Mortgagor hereby waives any provision of law which renders any provision hereof
prohibited or unenforceable in any respect.

 

Section 6.6                                   All
exhibits attached hereto are by this reference incorporated fully herein.  The term “this Mortgage Agreement” shall be
considered to include all such exhibits. The rules of interpretation
specified in §1.2 of the Loan Agreement shall be applicable to this Mortgage
Agreement.

 

Section 6.7                                   This
Mortgage Agreement and any provisions herein may not be modified, amended,
waived, extended, changed, discharged or terminated orally, or by any act or
failure to act on the part of the Mortgagor or the Mortgagee, but only by an
agreement in writing signed by the party against whom the enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.

 

Section 6.8                                   Governing
Law.  To the extent that this
Mortgage Agreement is not governed by the Canadian Maritime Law and federal
statutes and regulations, this Mortgage 

 

20

 

 

Agreement shall be
governed by and interpreted in accordance with the laws of the Province of
Ontario and the federal laws of Canada applicable therein.

 

Section 6.9                                   Notice.  Any notice required pursuant to this
Mortgage Agreement shall, without precluding the parties from adopting any
other method of giving notice, be made in the manner set out in the provisions
of Section 12 of the Loan Agreement, which shall apply as though fully set
forth herein.

 

Section 6.10                            Records.  At any time upon request the Mortgagor
shall satisfy the Mortgagee by production of documents that the master,
officers and crew have no claim for wages beyond the ordinary arrears.At all
times upon request the Mortgagor shall give to the Mortgagee full information
regarding the Vessel, its employment, position and engagements.

 

ARTICLE 7

TOTAL AMOUNT OF THE CANADIAN MORTGAGE

 

For the purposes of the
Canadian Mortgage and for purposes of recording this mortgage, the total amount
is Canadian Fifteen Million One Hundred Forty-Seven Thousand Six Hundred
Dollars (CAD$15,147,600.00), interest thereon, prepayment premium, if any, and
performance of the Mortgage Agreement covenants; and the total discharge amount
is the same as the total amount.

 

21

 

IN WITNESS WHEREOF, the
Mortgagor has executed this Mortgage Agreement as of the        
day of December, 2005. 

 

	
   

  	
  K-SEA CANADA CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: John J. Nicola 

  
	
   

  	
   

  	
  Title: Chief Financial Officer

  

 

 

Exhibit C-2

 

340

 

FIRST PREFERRED SHIP MORTGAGE

 

THIS FIRST PREFERRED SHIP
MORTGAGE (this “Mortgage”) made as of the 19th day of
December, 2005, by and between SEA COAST TRANSPORTATION LLC, a limited
liability company organized and existing under the laws of the State of
Delaware, with an address at 3245 Richmond Terrace, Staten Island, New York
10303 (the “Mortgagor”), and Citizens Leasing Corporation, d/b/a CITIZENS ASSET FINANCE (the “Mortgagee”), a Rhode
Island corporation organized and existing under the laws of the State of Rhode
Island with an office at 189 Canal Street, Providence, Rhode Island,
02903.

 

WHEREAS:

 

(a)                                  The
Mortgagor is the sole owner (100%) of the whole of the vessel 340, Official No. 657024,
4,395 international gross tons (the “Vessel”); duly documented in the name of
the Mortgagor under the laws and flag of the United States of America at the
National Vessel Documentation Center (“NVDC”), having its hailing port at
Seattle, WA;

 

(b)                                 Pursuant
to the terms and conditions of a Loan Agreement dated as of December    ,
2005, between K-SEA CANADA CORP. (“Borrower”) and the Mortgagee (as the
same may be amended, supplemented, or modified from time to time, the “Loan
Agreement”), the Mortgagee has, at Borrower’s request, has made a loan to
the Borrower in the aggregate principal amount of FIFTEEN MILLION ONE HUNDRED
FORTY-SEVEN THOUSAND SIX HUNDRED CANADIAN DOLLARS (CAD $15,147,600.00) (the “Loan”).The
entire proceeds of the Loan shall be used by the Borrower to refinance
indebtedness initially incurred in connection with the acquisition by the
Borrower of the WJM Tug and the MCS Barge.The obligations of the Borrower with
respect to the Loan are evidenced by the Loan Agreement and by a term
promissory note (the “Note”) (as defined in the Loan Agreement), to be
dated as of the Closing Date (as defined in the Loan Agreement), are secured by
this Mortgage and the other Security Documents (as defined in the Loan
Agreement), and are guaranteed by a Guaranty dated as of the date hereof, from
the Mortgagor and the other Guarantors identified therein (the “Other
Guarantors”) to the Mortgagee, as amended, supplemented, restated, replaced
or otherwise modified from time to time (the “Guaranty”).The form of the
Loan Agreement is attached hereto as Exhibit 1 (together with the
form of the Note attached thereto) and the form of the Guaranty is attached
hereto as Exhibit 2 and are hereby made a part hereof as though set
forth fully herein;

 

(c)                                  This
Mortgage of the Vessel is being given by the Mortgagor as collateral security
for (i) the Obligations of the Borrower under the Loan Documents
(including Foreign Exchange Obligations as defined in the Loan Agreement), and (ii) the
obligations of the Mortgagor and the Other Guarantors under the Guaranty; and

 

 

(d)                                 Terms
used herein and not otherwise defined herein are used as defined in, or by
reference in, the Loan Agreement.

 

To secure, among other
things, the payment of principal, fees and other amounts from time to time due
to the Mortgagee, and the payment of all other sums that hereafter may be secured
by this Mortgage and the other Loan Documents in accordance with the terms
hereof, and to secure the performance and observance of, and compliance with,
all of the agreements, covenants and conditions of this Mortgage, the Mortgagor
has duly authorized the execution and delivery of this First Preferred Ship
Mortgage.

 

NOW, THEREFORE, in
consideration of the premises and for other good and valuable consideration,
the receipt and adequacy whereof is duly acknowledged, and in order to secure
the payment and performance of (i) all obligations, undertakings and
liabilities of Mortgagor and the Other Guarantors, now existing or hereafter
incurred, under, arising out of, or in connection with the Guaranty; (ii) all
Obligations, undertakings and liabilities of Borrower, now existing or
hereafter incurred, under, arising out of, or in connection with the Loan
Agreement and the other Loan Documents; (iii) the unpaid principal amount
of, and accrued interest on, the Note; (iv) all obligations, undertakings
and liabilities of Mortgagor now existing or hereafter incurred, under, arising
out of or in connection with this Mortgage; and (v) any and all other
present and future indebtedness, obligations, undertakings and liabilities of
any kind whatsoever of Borrower to Mortgagee in connection with the Loan
Agreement and the other Loan Documents or from time to time reduced and
thereafter increased, and to secure the performance of all the covenants and
conditions herein contained (all the foregoing included within the meaning of
Obligations, as defined in the Loan Agreement), the Mortgagor by these presents
does grant, bargain, sell, convey, transfer, mortgage, set over and confirm
unto the Mortgagee all of the following described property:

 

The whole of the certain
vessel called:

 

	
  Name: 340

  	
   

  	
  Official Number:
  657024

  

 

together with all its
engines, boilers, machinery, masts, rigging, boats, anchors, chains, cables,
tackle, apparel, furniture, equipment, and all other appurtenances thereunto
belonging, and any and all additions, improvements and replacements hereafter
made in, on or to the said vessel or any part thereof; and in, on or to its
equipment and appurtenances aforesaid, all the foregoing being hereinafter
referred to as the “Vessel.”

 

TO HAVE AND TO HOLD the
Vessel unto the Mortgagee forever:

 

PROVIDED ALWAYS, and the
condition of these presents is such, that if the Mortgagor and its successors
and assigns shall pay, or cause to be paid, to the Mortgagee the Obligations
aforesaid, as and when the same shall become due and payable by maturity or
otherwise and shall pay any and all advances hereafter made or expended by the
Mortgagee to the Mortgagor for the maintenance, repairs, preservation or
insurance of the Vessel or any part thereof and the Mortgagor shall keep, perform
and observe all the covenants and promises in these presents expressed or
implied to be kept, performed and observed by or on the part of the Mortgagor,
then

 

2

 

this Mortgage and the
estate and rights hereby granted shall cease, determine and be void; otherwise
to remain in full force and effect.

 

The Mortgagor hereby
covenants and agrees that the Vessel and all replacements hereafter made in or
to the same is to be held by the Mortgagee subject to the further covenants,
conditions and uses hereinafter set forth as follows:

 

ARTICLE 1

REPRESENTATIONS, WARRANTIES

AND COVENANTS OF MORTGAGOR

 

THE MORTGAGOR HEREBY
COVENANTS AND AGREES THAT:

 

Section 1.1                                   Citizenship;
Title.  Mortgagor is and shall continue
to be a citizen of the United States as defined in Section 2 of the
Shipping Act of 1916, as amended, entitled to own and operate the Vessel under
its Certificate of Documentation, which Mortgagor shall maintain in full force
and effect, and is duly qualified to engage in the coastwise trade.The
Mortgagor lawfully owns and is lawfully possessed of the Vessel, and covenants
and warrants that the same is free from any mortgage, security interest, Lien,
charge or encumbrance whatsoever other than Permitted Liens, and that the
Mortgagor will warrant and defend the title and possession thereto and every
part thereof for the benefit of the Mortgagee against the claims and demands of
all persons whomsoever.

 

Section 1.2                                   U.S.
Code, Tit. 46, Ch. 313.  The Mortgagor
will, at its expense and at no cost to the Mortgagee, comply with and satisfy
all the provisions of the U.S. Code, Tit. 46, Ch. 313, as amended, in
order to establish, record and maintain this Mortgage as a First Preferred Ship
Mortgage thereunder upon the Vessel, and will do all such other acts and
execute all such instruments, deeds, conveyances, mortgages and assurances as
the Mortgagee shall reasonably require in order to subject the Vessel to the
lien of this Mortgage as aforesaid.

 

Section 1.3                                   Liens.  Neither the Mortgagor, any charterer, the
master of the Vessel nor any other person has or shall have any right, power or
authority to create, incur or permit to be placed or imposed or continued upon
the Vessel, its freights, profits or hires, any Lien, security interest,
encumbrances or charge whatsoever other than Permitted Liens.Mortgagor agrees
to hold a certified copy of this Mortgage in safekeeping with the Vessel’s
papers with the Vessel’s Certificate of Documentation and at the principal
office of Mortgagor and on demand to exhibit the same to any person having
business with such Vessel, or to any representative of Mortgagee.Mortgagor
shall also place and cause to be displayed in a prominent place and in a
durable manner with the Vessel’s Certificate of Documentation a notice printed
in plain type of such size that the paragraph of reading matter shall cover a
space not less than six inches wide by nine inches high, reading as follows:

 

NOTICE OF MORTGAGE

 

This vessel is
owned by Sea Coast Transportation LLC and is covered by a First Preferred Ship
Mortgage under Chapter 313 of

 

3

 

Title 46 of the
United States Code, as amended, in favor of Citizens Leasing Corporation, d/b/a
CITIZENS ASSET FINANCE, as
Mortgagee.Under the terms of said Mortgage, neither the owner of this Vessel,
nor anyone on the owner’s behalf, nor the master of this Vessel has any right,
power or authority to create, incur or permit to be imposed upon the Vessel any
liens, maritime or otherwise other than liens for wages of the crew or the
master of this Vessel arising from the current voyage, for wages of stevedores
when employed directly by the Vessel, or for general average or salvage.

 

Such notice shall be amended
at the sole cost and expense of Mortgagor, upon request of Mortgagee, to
reflect the identity of any successor Mortgagee.

 

Section 1.4                                   Removal
of Liens.  The Mortgagor will not
suffer to be continued any Lien, encumbrance or charge on the Vessel other than
this Mortgage and Permitted Liens, and in due course and in any event within
thirty (30) days after the same shall become due and payable, will pay or
caused to be discharged or make adequate provisions for the satisfaction or
discharge of all claims or demands secured by any Lien, charge or encumbrance
(including Permitted Liens) on the Vessel and will cause such Vessel to be
released or discharged from any such Lien, encumbrance or charge thereon.After
an Event of Default shall have occurred and be continuing, the Mortgagee may
elect to take such actions as it reasonably deems necessary to pay or cause to
be paid, discharge, settle, compromise or satisfy any such Liens, claims, or
encumbrances.

 

Section 1.5                                   Libel
or Attachment.  If a libel shall be
filed against the Vessel, or if the Vessel shall be levied upon or taken into
custody, or detained by any proceeding in any court or tribunal, the Mortgagor
will within fifteen (15) days thereafter cause such Vessel to be released, and
any Lien thereon, other than this Mortgage, to be discharged.In the event a
libel is filed against the Vessel, or in the event the Vessel is levied upon or
taken into custody or detained by any authority whatsoever, the Mortgagor shall
notify the Mortgagee forthwith by facsimile or telegram, confirmed by overnight
letter as provided in the Loan Agreement.

 

Section 1.6                                   Maintenance
of Vessel.  At all times, at the
Mortgagor’s own cost and expense, the Mortgagor will maintain and preserve the
Vessel in as good condition, working order and repair as on the date of this
Mortgage, so that the Vessel shall be tight, staunch, strong and well and
sufficiently tackled, appareled, furnished, equipped and in every respect
seaworthy and in good order and operating condition, ordinary wear and tear
excepted.The Mortgagor will comply with and cause the Vessel to comply with all
applicable United States Coast Guard regulations.The Mortgagor shall cause the
Vessel to be drydocked, cleaned and painted whenever required by good
commercial marine maintenance practice and the requirements of any insurance
policy or entries respecting the Vessel.All maintenance and repairs will be
made in a good and workmanlike manner by persons of appropriate skill and
experience whose work will not adversely affect the service life or marketability
of the Vessel.All repairs, parts, mechanisms, devices, replacements,
improvements, changes, additions and alterations to the Vessel shall
immediately and without further act, become part of such Vessel and subject to
this Mortgage.The Mortgagor shall promptly furnish to the Mortgagee copies of
each damage

 

4

 

survey with respect to
damage to the Vessel where the survey does not specifically quantify the cost
of total damages or where the survey states total damage in excess of
$500,000.00.Mortgagor shall afford Mortgagee or their authorized
representatives reasonable access to the Vessel for the purpose of inspecting
the same, her cargoes and ship’s papers.

 

Section 1.7                                   Changes
in Vessel.  The Mortgagor will not
make, or permit to be made, any material change in the structure or type of the
Vessel or in its rig, unless it shall have received the prior written consent
thereto of the Mortgagee.

 

Section 1.8                                   Governmental
Assessments.  The Mortgagor will pay
and discharge when due and payable from time to time all taxes, assessments,
governmental charges, fines and penalties imposed on the Vessel except those
being contested in good faith by the Mortgagor and for which adequate reserves
have been made.

 

Section 1.9                                   Reimbursement.  The Mortgagor will reimburse the Mortgagee
promptly for any and all expenditures which the Mortgagee may elect to make
from time to time to protect the security granted hereunder (in the event of
the Mortgagor’s failure to do so), including payment of taxes, repairs,
insurance premiums, the discharge of any lien, libel or seizure of the Vessel,
and expenses, including reasonable attorney’s fees, incurred by the Mortgagee
in retaking or selling the Vessel; and any such payment made by the Mortgagee
shall be for the account of the Mortgagor, and the making thereof by the
Mortgagee shall not cure the Mortgagor’s Default in that regard nor constitute
a waiver of any right or remedy granted to the Mortgagee hereunder, and all
sums so expended by the Mortgagee or any liability incurred by them shall be
deemed to be an indebtedness of the Mortgagor and secured by this Mortgage, and
until paid shall bear interest at the Default Rate.

 

Section 1.10                            Sale
or Other Disposition of Vessel.

 

(a)                                  The
Mortgagor will not sell, mortgage, or transfer the title to the Vessel without
the written consent of the Mortgagee first having been obtained, except where
accompanied by a simultaneous prepayment of the Obligations made in accordance
with §2.3(b) of the Loan Agreement.Any such sale, mortgage, or transfer,
or any charter of the Vessel shall be subject to the provisions of this
Mortgage and to the lien it creates.The Mortgagor will not charter the Vessel
to, or permit any Vessel to serve under any contract of affreightment with, a
person included within the definition of designated foreign country or a
national of a designated foreign country in the foreign Assets Control
Regulations or Cuban Assets Control Regulations of the United States Treasury
Department, 31 C.F.R. Chapter V, as amended, within the meaning of said
regulations or of any regulation, interpretation or ruling issued thereunder.

 

(b)                                 Mortgagor
shall not enter into any bareboat or demise charter respecting the Vessel with
any entity without (i) obtaining the prior written consent of the
Mortgagee, which consent shall not be withheld unreasonably, (ii) providing
Mortgagee a copy thereof and (iii) without first obtaining the written
agreement of such charterer in each case to the collateral assignment by
Mortgagor to Mortgagee of a first priority lien and security interest in the
charter hire and earnings of such charter, such consent to be in form
reasonably acceptable to Mortgagee.Mortgagor undertakes and covenants that any
such charter shall contain a provision 

 

5

 

prohibiting the charterer
and any other persons from incurring or acquiring any lien on any Vessel.

 

Section 1.11                            Insurance.

 

(a)                                  Hull
and Machinery Insurance.  At the
Mortgagor’s own expense, so long as the Obligations remain in any part
outstanding, the Mortgagor shall maintain or cause to be maintained insurance
with financially sound and reputable underwriters and through responsible
brokers, all in good standing and satisfactory to the Mortgagee, fully and
adequately protecting the Vessel and the Mortgagee’s interest therein in at
least such amounts and against such risks as are usually insured against in the
same general area as that in which the Mortgagor is located and by companies
engaged in the same or similar businesses, and in any case, in such amounts as
the Lender shall require, against all marine perils and disasters and all
hazards, risks and liabilities in any wise arising out of the ownership,
operation or maintenance of said Vessel, including insurance as follows:

 

(i)                                     Hull
and machinery insurance and if necessary to satisfy the proviso of this
subparagraph, policies of increased value insurance, and war risk hull and
machinery insurance on an agreed value basis on the Vessel against loss,
damage, fire and covering confiscation, expropriation, nationalization, and
seizure (if operating outside U.S. or Canadian coastal waters) and covering
such other perils and in such amounts as are maintained on vessels engaged in
the same or a similar business under blanket fleet policies with respect to
vessels of like size, character and marine activity; provided, however, that,
in no event shall the amount of such insurance, subject to such deductible, if
any, as permitted by Mortgagee, at any time be less than the full commercial
value of the Vessel.

 

(ii)                                  In
the event of (A) the actual or constructive loss of the Vessel, (B) any
event referred to in Section 1.12 hereof with respect to the Vessel, or (C) any
casualty, accident or damage to the Vessel in excess of $500,000.00, the
Mortgagor will give written notice thereof (containing full particulars),
within three business days of the occurrence thereof, to the Mortgagee.

 

(b)                                 Protection
and Indemnity Insurance.  Protection
and indemnity insurance maintained with financially sound and reputable
insurers or protection and indemnity associations and policies of protection
and indemnity war risk insurance protecting the interests of Mortgagor, and
Mortgagee, against liability for property damage to third persons (including
liability to any governmental authority or other person with respect to
pollution liability) and personal injury or death to any person arising out of
the maintenance, use, operation and ownership of the Vessel, cargo damage or
loss, contractual liability and wreck removal, tower’s liability, crew
liability, collision liability and pollution liability in such amounts as are
usually carried by persons engaged in the same or similar businesses; provided,
however, that in no event shall the amount of such insurance per person and per
occurrence (subject to such deductible, reasonably acceptable to the Mortgagee)
be less than the customary amount of cover available on the market from time to
time with respect to vessels of the same type, age and trade as the
Vessel.  Such liability insurance shall
name each of the Mortgagor, Mortgagee, and other interested persons as insureds
(or in the case of the Mortgagee as co-insureds), as their respective

 

6

 

interests may appear, but
the proceeds of such policies shall be payable to the Person actually suffering
the loss in respect of which such proceeds are payable; provided, however, that
if Mortgagee shall have first notified the underwriters or brokers that a
Mortgage Event of Default hereunder has occurred then all such proceeds
otherwise payable to the Mortgagor shall be thereafter payable to Mortgagee for
distribution to itself and others as their interests may appear as hereinafter set
forth.

 

(c)                                  Deductibles.
 Unless a Mortgage Event of Default
hereunder shall have occurred, or is continuing hereunder, Mortgagee consents
to (a) a deductible of $250,000.00 for Hull and Machinery or Protection
and Indemnity coverages, not to exceed $250,000.00 for any single occurrence,
subject also to (b) a $1,000,000.00 annual aggregate fleet deductible for
all of Mortgagor’s vessels applied on a fleet wide basis.

 

(d)                                 Port
Risk Insurance.  Mortgagor shall
maintain or cause to be maintained when and while the Vessel is laid up, and in
lieu of the aforesaid navigating hull insurance referred to in Section 1.11(a)(i) of
this section, port risk insurance under forms of port risk policies approved by
the Mortgagee.

 

(e)                                  Employers
Liability Insurance.  Mortgagor shall
maintain or cause to be maintained employers liability insurance, including
workmen’s compensation for any state in or from which the Vessel shall operate
and also coverage under the Longshore and Harbor Workers’ Compensation Act, the
Jones Act, and for such other rights of seamen as may give rise to employers’
liability.

 

(f)                                    Pollution
Insurance.  Mortgagor shall maintain
or cause to be maintained pollution insurance in amounts adequate to obtain and
maintain Federal Certificates of Financial Responsibility for Pollution
Liability, and such additional coverage for the Vessel in respect of pollution
liability as from time to time may be required by law now or hereafter in
effect or customary among owners of similar vessels engaged in trade in the
United States.

 

(g)                                 Continuation
of Insurance Coverages.

 

(i)                                     The
Mortgagor expressly covenants and agrees to keep the policies renewed from time
to time, to keep the same valid at all times for the amounts aforesaid, and to
keep the premiums thereon fully paid at all times.  The Mortgagor shall not do any act nor
voluntarily suffer or permit any act to be done whereby insurance is or may be
suspended, impaired or defeated, and shall not suffer nor permit the Vessel to
engage in any voyage or to carry any cargo not permitted under the policy or
policies of insurance in effect, unless and until the Mortgagor shall first
cover the Vessel to the amount herein provided for by insurance satisfactory to
the Mortgagee for such voyage or for the carriage of such cargo.

 

(ii)                                  In
the event the Mortgagor fails to procure any of the insurance hereinabove
mentioned, or fails to perform any of the covenants and agreements contained
herein, the Mortgagee may, but shall be under no duty to, procure such
insurance or coverage as Mortgagee may reasonably deem advisable in the

 

7

 

premises.  The
Mortgagor shall reimburse the Mortgagee on demand, with interest at the Default
Rate for any and all expenditures which the Mortgagee may from time to time
make, lay out or expend in providing protection in respect of insurance.  Such obligation of the Mortgagor to reimburse
the Mortgagee, together with interest as provided above, shall be an additional
indebtedness due from the Mortgagor, secured by this Mortgage, and shall be
payable by the Mortgagor on demand.  The
Mortgagee, though privileged so to do, shall be under no obligation to the
Mortgagor or to any other person to make any such expenditures, nor shall the
making thereof relieve the Mortgagor of any Default in that respect.

 

(h)                                 Mortgagee
as Additional Insured and Loss Payee.  All insurance policies covering the Vessel
shall provide, during any period which the Mortgagee holds a mortgage on the
Vessel, that the Mortgagee shall be an additional assured (co-insured in
respect of liability insurance) and loss payee, as applicable, under to the
insurances required by this Section 1.11.

 

(i)                                     Insurance
Proceeds, Partial Loss.  The proceeds
of any such insurance recoveries shall be applied in the event that insurance
becomes payable under said policies on account of an accident, occurrence or
event not resulting in an actual or constructive total loss or agreed or
compromised total loss of the Vessel, (i) all amounts up to $500,000.00
may be paid to Mortgagor for the purpose of repairing any damage which may have
resulted from the accident, occurrence or event so long as no Mortgage Event of
Default has occurred, or (ii) with respect to amounts of $500,000.00 or
greater or with respect to any amount if a Mortgage Event of Default has
occurred, the Mortgagee may, in its discretion, if a written request therefor
shall have been made by the Mortgagor, apply the proceeds of insurance to pay
for repairs, liabilities, salvage or other charges and expenses (including
labor charges due or paid by the Mortgagor), covered by the policies, or to the
extent that the Mortgagor shall have repaired the damage and paid the cost
thereof or discharged or paid such liabilities, salvage claims or other charges
and expenses (such fact having been certified to in a certificate of an officer
of the Mortgagor (an “Officer’s Certificate”) delivered to the
Mortgagee, accompanied by written confirmation by the underwriter, a surveyor,
an adjuster or a marine insurance broker), apply the proceeds of insurance to
reimburse, or consent that the underwriters reimburse, the Mortgagor therefor,
and (after all known damage with respect to the particular loss shall have been
repaired, except to the extent the Mortgagor and the Mortgagee agree that said
repair is inadvisable and all known costs, liabilities, salvage claims, charges
and expenses covered by the policies with respect to such loss shall have been
discharged or paid, such fact having been certified to by an Officer’s Certificate
delivered to the Mortgagee, accompanied by a written confirmation by the
underwriter, a surveyor, an adjuster or a marine insurance broker), pay, or
consent that the underwriters pay, any balance of the proceeds of insurance to
the Mortgagee for application to the Obligations as provided in §2.3(b) of
the Loan Agreement, and the excess, if any, paid to the Mortgagor.

 

(j)                                     Constructive
Total Loss.  In the event of an
accident, occurrence or event resulting in a constructive total loss of the
Vessel, the Mortgagor shall have the right to claim a constructive total loss
of such Vessel and if both (i) such claim is accepted by all underwriters
under all policies then in force as to such Vessel under which payment is due
for total loss and (ii) payment in full is made in cash under such
policies and applied to repay all outstanding Obligations in accordance with §2.3(b) of
the Loan Agreement, then the Mortgagor shall have

 

8

 

the right at its
election, to abandon such Vessel to the underwriters under such policies, free
from the lien of this Mortgage.

 

(k)                                  Agreed
or Compromised Total Loss.  In the
event of an accident, occurrence or event of damage to the Vessel, the
Mortgagor with consent of the Mortgagee, which shall not be withheld
unreasonably, shall have the right in its discretion to enter into an agreement
or compromise with underwriters providing for an agreed or compromised total
loss of such Vessel.

 

(l)                                     Carriers;
Approvals.  All insurance required
under this Section shall be placed and kept with American, British, or
other insurance companies, underwriters’ associations, clubs or underwriting
funds approved by the Mortgagee.  Any
approval of a policy under this Section 1.11 shall be effective until the
end of the policy period or until thirty (30) days after the Mortgagee shall
notify the Mortgagor of a desired change (consistent with the terms hereof
except as set forth in the next following sentence) in the form and/or amount
thereof, whichever shall first occur. 
Notwithstanding the foregoing, Mortgagee may require changes on shorter
notice if such changes are necessary or desirable to comply with requirements
of or insure against liabilities created or increased by any change,
modification, amendment in the law (including judicial or administrative
decisions), regulations, rules, policies or practices of the United States
government or the government of any state, territory, or possession thereof or
of any other place where the Vessel may be operating or whose laws may apply.

 

(m)                               Additional
Provisions.  All insurance required
under this Section 1.11 shall, unless otherwise first agreed in writing by
the Mortgagee, provide that (i) there shall be no recourse against the
Mortgagee for the payment of premiums, supplemental or back calls or
commissions, (ii) at least thirty (30) days’ (fourteen days with respect
to matters covered in the protection and indemnity coverage and seven (7) days
in the case of war risk) prior written notice of any cancellation, reduction in
amount or change in coverage or other material change of such insurance shall
be given to the Lender by the insurance underwriters, (iii) no insurance
shall be excess over other coverage but shall be primary insurance and shall
not require any contribution from any excess insurance on the Vessel which may
be carried by Mortgagee without interferring with the Mortgagor’s insurance
coverage, and (iv) the insurers agree to advise Mortgagee promptly in
writing of any default in the payment of any premium  and of any other act or omission of which
such insurer has knowledge which might invalidate or render unenforceable, in
whole or in part, any such policy.  The
policies shall provide for severability of interest as through separate
policies were issued to each additional insured except with respect to the
limits of liability.

 

(n)                                 Reports.  Prior to the date hereof and upon renewal or
replacement of each policy or entry thereafter, Mortgagor shall furnish to the
Mortgagee a report by a nationally recognized first-class marine insurance
broker acceptable to the Mortgagee, describing in reasonable detail the
insurance then carried and maintained on and with respect to the Vessel and
certifying that such insurance complies with the terms hereof.  Mortgagor shall obtain for the benefit of
Mortgagee the undertaking of Mortgagor’s insurance agent or broker to promptly
advise the Mortgagee in writing of any act or omission of which such agent or
broker has knowledge which might invalidate or render unenforceable, in whole
or in part, any such policy.

 

9

 

Section 1.12                            Requisition.

 

(a)                                  Title.  In the event that the title or ownership of
the Vessel shall be requisitioned, purchased or taken by any government of any
country or any present or future law, proclamation, decree, order or otherwise,
the lien of this Mortgage shall be deemed to have attached to the claim for
compensation and the Mortgagor agrees that it will turn over to the Mortgagee,
immediately upon receipt, the compensation, purchase price, reimbursement or
award for such requisition, purchase or other taking of such title or ownership
and all of the foregoing shall be payable to the Mortgagee, who shall be
entitled to receive the same and shall apply it as provided in §2.3(b) of
the Loan Agreement.  In the event of any
such requisition, purchase or taking, the Mortgagor shall promptly execute and
deliver to the Mortgagee such documents, if any, and shall promptly do and
perform such acts, if any as in the reasonable opinion of the Mortgagee may be
necessary or useful to facilitate or expedite the collection by the Mortgagee
of such compensation, purchase price, reimbursement or award.

 

(b)                                 Requisition
of Use.  In the event that any
government of any country or any department, agency or representative thereof
shall not take over the title or ownership of the Vessel but shall requisition,
charter or in any manner take over the use of such Vessel pursuant to any
present or future law, proclamation, decree, order or otherwise and shall, as a
result of such requisitioning, chartering or taking of the use of the Vessel,
pay or become liable to pay sums by reason of the loss of or injury to or
depreciation of the Vessel, and, if a Mortgage Event of Default shall have
occurred and be continuing, any such sum is hereby made payable to the
Mortgagee, who shall be entitled to receive the same and shall apply it as
provided in the Loan Agreement.  In the
event of any such requisitioning, chartering or taking of the use of the
Vessel, the Mortgagor shall promptly execute and deliver to the Mortgagee such
documents, if any, and shall promptly do and perform such acts, if any, as in
the reasonable opinion of the Mortgagee may be necessary or useful to
facilitate or expedite the collection by the Mortgagee of such claims arising
out of the requisitioning, chartering or taking of the use of the Vessel as
provided hereinabove.

 

ARTICLE 2

DEFAULT; REMEDIES UPON DEFAULT

 

Section 1.13                            Mortgage
Events of Default. Mortgagor shall be in default hereunder upon the
happening of any one or all of the following events or conditions (each a “Mortgage
Event of Default”):

 

(a)                                  An
Event of Default (as defined in the Loan Agreement); or

 

(b)                                 Failure
by the Mortgagor to observe or perform any covenant or agreement contained in
Sections 1.1, 1.2, 1.7, 1.10(a) or 1.11(a) through (f)(inclusive);

 

(c)                                  Failure
by the Mortgagor to observe or perform any covenant or agreement in this
Mortgage (other than those referred to in the foregoing paragraph (b) and
such failure shall not have been remedied within thirty (30) days after written
notice thereof shall have been given to the Mortgagor by the Mortgagee);

 

10

 

(d)                                 The
breach in any material respect of any warranty, or the falsity of any material
representation or statement made or furnished to the Mortgagee by or on behalf
of the Mortgagor; or

 

(e)                                  If
Mortgagor or any charterer shall abandon the Vessel or the remove or attempt to
remove the Vessel beyond the limits of the United States except on a voyage
with the intention of returning to the United States; or

 

(f)                                    Dissolution
of the Mortgagor.

 

Section 1.14                            Remedies.  Upon the occurrence of a Mortgage Event of
Default the Mortgagee may pursue any or all of the following remedies:

 

(a)                                  Demand.  Declare all Obligations secured hereby to be
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived;

 

(b)                                 Remedies.  Exercise all the rights and remedies in
foreclosure and otherwise given to mortgagees by the provisions of Chapter 313
of Title 46, United States Code, as amended, or other applicable law including
the laws of any other applicable jurisdiction;

 

(c)                                  Enforcement.  Bring suit at law, in equity or in admiralty,
as appropriate, to receive judgment for any and all amounts due hereunder, and
collect the same out of any and all property of the Mortgagor whether covered
by this Mortgage or otherwise, or initiate and prosecute such other judicial,
extra-judicial, or administrative proceedings as it may consider appropriate to
recover any and all sums due, or declared due, on the Note, and all other
Obligations due, with the right to enforce payment of said sums against any assets
of the Mortgagor, whether they are covered by this Mortgage or otherwise;

 

(d)                                 Possession.  Retake the Vessel with or without legal
process wherever the same may be found, and the Mortgagor or other person in
possession forthwith shall upon demand of the Mortgagee shall surrender to the
Mortgagee possession of the Vessel, and, the Mortgagee may hold, lay-up, or (if
authorized to do so by the Vessel’s certificate of documentation) lease,
charter, operate, or otherwise use the Vessel for such time and upon such terms
as it may deem to be for its best advantage, accounting for the net profits, if
any, arising from such use of the Vessel as set forth in Section 2.3
below; and if at any time the Mortgagee shall avail itself of the right herein
given it to retake the Vessel and shall retake it, the Mortgagee shall have the
right to dock the Vessel for a reasonable time at any dock, pier or other
premises of the Mortgagor without charge, or to dock it at any other place at
the cost and expense of the Mortgagor;

 

(e)                                  Sale.  Sell the Vessel upon such terms and
conditions as it may specify, at public or private sale, by sealed bids or
otherwise, on such terms and conditions as the Mortgagee deems best, free of
any claim, commitment or encumbrance, regardless of the nature thereof, in
favor of the Mortgagor and except as provided by law, in favor of any
other  person.  If a public sale is to be used, the Mortgagee
shall first give advance notice of ten (10) consecutive days published in
any newspaper authorized to publish legal notices of that kind in the port of
documentation and the places of sale of such Vessel and shall send notice of
each such sale at least fourteen (14) days prior to the date fixed for such
sale to the Mortgagor pursuant to §12 of

 

11

 

the Loan Agreement.  In the event that the Vessel shall be offered
for sale by private sale, no newspaper publication of notice shall be required
nor notice of adjournment of sale.  Sale
may be held at such place and at such time as the Mortgagee by notice may have
specified, or may be adjourned by the Mortgagee from time to time by
announcement at the time and place appointed for such sale or for such
adjourned sale, and, without further notice or publication, the Mortgagee may
make any such sale at the time and place to which the same shall be so
adjourned; and any sale may be conducted without bringing the Vessel to the
place designated for such sale and in such manner as the Mortgagee deems, and
the Mortgagee may become the purchaser at any public sale, and shall have the
right to credit on the purchase price any and all sums of money due to the
Mortgagee under the Note and the Loan Agreement, or otherwise due to the
Mortgagee hereunder or under the Loan Agreement or any other Loan Document, or
under any other instrument evidencing any Obligations.

 

(f)                                    Finality
of Sale.  A sale of the Vessel made
pursuant to this Mortgage, whether under the power of sale hereby granted or
any judicial proceedings, shall operate to divest all right, title and interest
of any nature whatsoever of the Mortgagor therein and thereto, and shall bar
the Mortgagor, its successors and assigns, and all persons claiming by, through
or under them.  No purchaser shall be
bound to inquire whether notice has been given or whether any Default has
occurred, or as to the propriety of the sale, or as to application of the
proceeds thereof.  In case of any such
sale, any purchaser who is the holder of this Mortgage shall be entitled, for
the purpose of making settlement or payment for the Vessel, to apply the
balance due under this Mortgage or a part thereof as part or all of the
purchase price to the extent of the amount remaining due and unpaid.  At any such sale, the holder of this Mortgage
may bid for and purchase the Vessel and upon compliance with the terms of sale
may hold, retain and dispose of the Vessel without further accountability.

 

(g)                                 Appointment
of Attorney.  The Mortgagor does
hereby irrevocably appoint the Mortgagee the true and lawful attorney of the
Mortgagor, in Mortgagor’s name and stead to make all necessary transfers of the
Vessel and to execute all necessary instruments of assignment and transfer, the
Mortgagor hereby ratifying and confirming all that said attorney shall lawfully
do by virtue hereof.  Nevertheless,
the  Mortgagor shall, if so requested by
the Mortgagee, ratify and confirm such sale by executing and delivering to the
purchaser of the Vessel such proper bill of sale, conveyance, instrument of
transfer and releases as may be designated in such request.

 

(h)                                 Coastwise
Qualification.  Notwithstanding
anything to the contrary contained in this Section 2.2, the
Mortgagee shall not exercise any of the remedies set forth above in this Section 2.2
or any other remedies available under applicable law if the exercise of such
remedies shall invalidate the qualification of the Vessel to operate in the
United States coastwise trade.

 

Section 1.15                            Disposition
of Proceeds of Sale.  After an Event
of Default shall have occurred and be continuing, the proceeds of any sale of
the Vessel (after paying or deducting in the case of sale under any judicial
proceedings the fees, costs and other charges therein), and the net earnings
from any management, charter or other use of the Vessel by Mortgagee under any
of the powers above specified, and the proceeds of any claim for damages on
account of such Vessel received by the Mortgagee while exercising any such
power, and the proceeds of any insurance on the Vessel concerned (subject to
the provisions of this agreement) shall be applied by Mortgagee as provided in
§2.4(b) of the Loan Agreement.

 

12

 

Section 1.16                                Powers
and Rights of Mortgagee Upon Occurrence of a Mortgage Event of  Default.

 

(a)                                  Each
and every power and remedy herein specifically given to the Mortgagee or
otherwise in this Mortgage shall be cumulative and shall be in addition to
every other power and remedy herein specifically given or now or hereafter
existing at law, in equity, admiralty or by statute, and each and every power
and remedy whether specifically herein given or otherwise existing may be
exercised from time to time and as often and in such order as may be deemed
expedient by the Mortgagee, and the exercise or the beginning of the exercise
of any power or remedy shall not be construed to be a waiver of the right to
exercise at the same time or thereafter any other power or remedy.  No delay or omission by the Mortgagee in the
exercise of any right or power or in the pursuance of any remedy occurring upon
any Mortgage Event of Default as above defined shall impair any such right,
power or remedy or be construed to be a waiver of any such event of default or
to be any acquiescence therein; nor shall the acceptance by the Mortgagee of
any security or of any payment of or on account of any installment of the Note
maturing after any Mortgage Event of Default or of any payment on account of
any past default be construed to be a waiver of any right to take advantage of
any future Mortgage Event of Default or of any past Mortgage Event of Default
not completely cured thereby.

 

(b)                                 Revenues
and Proceeds of Vessel.  The
Mortgagee is hereby irrevocably appointed attorney-in-fact of the Mortgagor,
upon the happening of any Mortgage Event of Default, in the name of the
Mortgagor to demand, collect, receive, compromise and sue for, so far as may be
permitted by law, all freights, hire, earnings, issues, revenues, income and
profits of the Vessel, and all amounts due from underwriters under any insurance
thereon as payment of losses or as return premiums or  otherwise, salvage awards and recoveries,
recoveries in general average or otherwise, and all other sums due or to become
due in respect of the Vessel or in respect of any insurance thereon from any
person whomsoever, and to make, give and execute in the name of the Mortgagor
acquittances, receipts, releases or other discharges for the same, whether
under seal or otherwise, and to endorse and accept in the name of the Mortgagor
all checks, notes, drafts, warrants, agreements and all other instruments in
writing with respect to the foregoing, the Mortgagor hereby confirming and
ratifying the same.

 

(c)                                  Additional
Rights.  The Mortgagor covenants and
agrees that in addition to any and all other rights, powers and remedies
elsewhere in this Mortgage granted to and conferred upon the Mortgagee, and
including in any suit to enforce any of its rights, powers or remedies, if a
Mortgage Event of Default shall have occurred and shall not have been waived by
the Mortgagee, the Mortgagee shall be entitled as a matter of right and not as
a matter of discretion, but subject to Section 2.2(h) of this Article 2
(i) to the appointment of a receiver or receivers of the Vessel and
collection of the freights, hire, earnings, issues, revenues, income and
profits due or to become due arising from any operation of the Vessel, and any
receiver or receivers so appointed shall have full right and power to use and
operate the Vessel, and (ii) to a decree ordering and directing the sale
and disposal of the Vessel, and the Mortgagee may become the purchaser at such
sale and shall have the right to credit on the purchase price any and all sums
of money due under the Note or otherwise due to the Mortgagee pursuant to the
terms of the Loan Agreement or under any other instrument evidencing any
Obligations.  The Mortgagee shall not be
required to have the Vessel marshaled (upon any sale of the Vessel pursuant to
this Mortgage or otherwise) or be required to realize on any other collateral
prior to realization on the Vessel.

 

13

 

ARTICLE 3

GENERAL POWERS OF MORTGAGEES

 

Section 1.17                            Arrest
or Detention of Vessel.  In the event
that an Event of Default shall have occurred hereunder and the Vessel shall be
arrested or detained by a Marshal or other officer of any court of law, equity
or admiralty jurisdiction in any country or nation of the world or by any
government or other Person, the Mortgagor does hereby authorize and empower the
Mortgagee, from the date of arrest or detention, in the name of the Mortgagor,
or its successors or assigns, to apply for and receive possession of and to
take possession of such Vessel with all the rights and powers that the
Mortgagor, or its successors or assigns, might have, possess or exercise in any
such event; and this power of attorney shall be irrevocable and may be
exercised not only by the Mortgagee but also by their appointee or appointees,
with full power of substitution, to the same extent as if the said appointee or
appointees had been named as one of the attorneys above named by express
designation.

 

Section 1.18                            Appearance.  In the event a Mortgage Event of Default
shall have occurred hereunder, the Mortgagor also authorizes and empowers the
Mortgagee or its appointees or any of them to appear in the name of the
Mortgagor, its successors or assigns, in any court of any country or nation of
the world where a suit is pending against the Vessel because of or on account
of any alleged lien against such Vessel from which such Vessel has not been
released and to take such proceedings as to them may seem proper towards the
defense of such suit and the discharge of such lien, and all expenditures made
or incurred by them or any of them for the purpose of such defense or discharge
shall be a debt due from the Mortgagor, its successors and assigns, to the
Mortgagee, and shall be secured by the lien of this Mortgage in like manner and
extent as if the amount and description thereof were written herein.

 

ARTICLE 4

INDEMNITY

 

The Mortgagor assumes liability for, and agrees to
indemnify and hold the Mortgagee harmless from, all claims, costs, expenses
(including reasonable legal fees and expenses), damages and liabilities arising
from or pertaining to this Mortgage or the ownership, use, possession or
operation of the Vessel; provided that the Mortgagor shall have no
obligation for indemnified liabilities arising from the gross negligence or
willful misconduct of Mortgagee or arising from the acts or omissions of the
Mortgagee as mortgagee-in-possession. 
The agreements and indemnities contained in this Article shall
survive the maturity or earlier discharge of this Mortgage and payment in full
of the Note.

 

ARTICLE 5

MORTGAGOR’S USE
AND POSSESSION

 

Until some one or more of the Mortgage Events of
Default hereinbefore described shall happen, the Mortgagor shall be suffered
and permitted to retain exclusive actual possession and use of the Vessel.

 

14

 

ARTICLE 6

MISCELLANEOUS

 

Section 6.1                                   Counterparts.  This Mortgage may be executed simultaneously
in any number of counterparts and all such counterparts executed and delivered
each as an original shall  constitute but
one and the same instrument.  The
invalidity of any provision of this Mortgage shall not affect the remainder,
which shall in such event be construed as if the invalid provisions had not
been inserted.

 

Section 6.2                                   Binding Effect.  All the covenants, promises, stipulations and
agreements of the Mortgagor in this Mortgage shall bind the Mortgagor and its
successors and shall inure to the benefit of the Mortgagee and its assigns,
whether so expressed or not.  All of the
covenants, promises, stipulations and agreements of the Mortgagee, if any,
shall bind the Mortgagee and its assigns, whether so expressed or not.

 

Section 6.3                                   No Waiver of
Preferred Status.  Nothing in this
Mortgage shall be construed as a waiver of the preferred status of this
Mortgage by the Mortgagee.  In the event
that any provision of this mortgage would, as a matter of law, operate to waive
the preferred status thereof, such provision shall be deemed eliminated
therefrom, the same for all intents and purposes as though such provision had
never been inserted herein.

 

Section 6.4                                   Nature of Agreements
Hereunder.  The agreements, terms,
conditions, rights, remedies and indemnities provided herein are in addition
to, not in limitation of, and shall not be limited by, each of the agreements,
terms, conditions, rights, remedies and indemnities contained in the Loan
Agreement.

 

Section 6.5                                   Citizenship.  Notwithstanding any other language in this
Mortgage to the contrary, the Mortgagee shall not take any action in violation
of Section 9 of the Shipping Act, 1916, as amended by Public Law 100-710
(46 U.S.C. Chapter 313).  To the extent
any provision of this Mortgage contravenes Section 9 of the Shipping Act,
1916, such provision may be deemed void without affecting the validity and
enforceability of the other provisions of this Mortgage.

 

Section 6.6                                   Construction.  Any provision of this Mortgage which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, any such prohibition or
unenforceability shall not invalidate or render unenforceable such provision in
any other jurisdiction to the extent permitted by law, Mortgagor hereby waives
any provision of law which renders any provision hereof prohibited or unenforceable
in any respect.  To the extent that this
Mortgage is not governed by the federal maritime law and federal statutes and
regulations, this Mortgage shall be construed in accordance with the laws of
the State of New York.

 

Section 6.7                                   All exhibits attached
hereto are by this reference incorporated fully herein.  The term “this Mortgage” shall be considered
to include all such exhibits. The rules of interpretation specified in §1.2
of the Loan Agreement shall be applicable to this Mortgage.

 

15

 

Section 6.8                                   This Mortgage and
any provisions hereof may not be modified, amended, waived, extended, changed,
discharged or terminated orally, or by any act or failure to act on the part of
the Mortgagor or the Mortgagee, but only by an agreement in writing signed by
the party against whom the enforcement of any modification, amendment, waiver,
extension, change, discharge or termination is sought.

 

Section 6.9                                   Consent to Forum.  To the extent applicable, the provisions of Section 16
of the Loan Agreement shall apply as though fully set forth herein.

 

Section 6.10                            Notices.  Except as otherwise specified herein, all
notices and other communications made or required to be given pursuant to this
Mortgage shall be in writing and shall be delivered by hand, sent by facsimile,
sent by overnight express courier service or mailed by first-class mail,
postage prepaid, addressed as follows (or to such other address as any party
may designate by notice to the other parties):

 

	
  If to the Mortgagee:

  	
   

  	
  Citizens Leasing
  Corporation, d/b/a CITIZENS ASSET

  FINANCE

  
	
   

  	
   

  	
  189 Canal Street

  
	
   

  	
   

  	
  Mail Stop: RCE-150

  
	
   

  	
   

  	
  Providence, RI
  02903

  
	
   

  	
   

  	
  Attention:

  	
  Team Leader

  
	
   

  	
   

  	
   

  	
  Direct
  Originations

  
	
   

  	
   

  	
  FAX:

  	
  (401) 459-3171

  
	
   

  	
   

  	
   

  	
   

  
	
  With a copy to :

  	
   

  	
  Citizens Leasing
  Corporation, d/b/a CITIZENS ASSET

  FINANCE

  
	
   

  	
   

  	
  189 Canal Street

  
	
   

  	
   

  	
  Mail Stop: RCE-150

  
	
   

  	
   

  	
  Providence, RI
  02903

  
	
   

  	
   

  	
  Attention:

  	
  David T. Miele, Esq.

  
	
   

  	
   

  	
  FAX:

  	
  (401) 459-3171

  
	
   

  	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Day, Berry &
  Howard LLP

  
	
   

  	
   

  	
  One
  International Place

  
	
   

  	
   

  	
  Boston, MA 02110

  
	
   

  	
   

  	
  Attention:

  	
  William A.
  Hunter, Esq.

  
	
   

  	
   

  	
  FAX:

  	
  (617) 345-4745

  
	
   

  	
   

  	
   

  	
   

  
	
  If to the
  Mortgagor:

  	
   

  	
  Sea Coast
  Transportation LLC

  
	
   

  	
   

  	
  3245 Richmond
  Terrace

  
	
   

  	
   

  	
  Staten Island,
  New York 10303

  
	
   

  	
   

  	
  Attention:

  	
  John J. Nicola

  
	
   

  	
   

  	
  Telephone:

  	
  (718) 720-7207

  
	
   

  	
   

  	
  FAX:

  	
  (718) 720-4358

  
						

 

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

 

16

 

ARTICLE 7

TOTAL AMOUNT OF
THIS MORTGAGE

 

For the purposes of this First Preferred Ship Mortgage
and for purposes of recording this First Preferred Ship Mortgage as required by
Chapter 313 of United States Code, Title 46, Sec. 922(c)), the total amount is
Fifteen Million One Hundred Forty-Seven Thousand Six Hundred Canadian Dollars (CAD
$15,147,600.00), interest thereon, prepayment premium, if any, Foreign Exchange
Obligations, if any, and performance of the Mortgage covenants; and the total
discharge amount is the same as the total amount.

 

[Remainder
of page intentionally left blank]

 

17

 

IN WITNESS WHEREOF, the Mortgagor has executed this
Mortgage as of the 19th day of December, 2005. 

 

	
   

  	
  SEA
  COAST TRANSPORTATION LLC

  
	
   

  
	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  John J. Nicola

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial
  Officer

  
						

 

18

 

STATE
OF NEW YORK

COUNTY
OF RICHMOND, ss.

 

Be it known, that on this
         day of December, 2005,
personally appeared John J. Nicola who being duly sworn deposed and said that
he is Chief Financial Officer of SEA COAST TRANSPORTATION LLC, the limited
liability company which is described in and executed the within instrument at
whose order he signed his name and acknowledged the within instrument to be the
free act and deed of the said limited liability company.

 

In
Witness Whereof, I have hereby set my hand and seal this         
day of December, 2005.

 

 

	
   

  	
   

  
	
   

  	
  Notary Public 

  My Commission Expires:

  

 

19

 

EXHIBIT D

 

ASSIGNMENT AND ACCEPTANCE

               ,
20   

Reference is made to the
Loan Agreement dated as of December    , 2005 (the “Loan
Agreement”), among K-Sea Canada Corp., a Nova Scotia unlimited liability
company (the “Borrower”), and the lenders which are parties thereto (each a “Lender”).  Capitalized terms used but not defined herein
shall have the meanings assigned to such terms in the Loan Agreement.

 

                  
(the “Assignor”) and
                  
(the “Assignee”) agree as follows:

 

1                                          The
Assignor hereby irrevocably sells, assigns and delegates to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, a
      % interest in and to all the Assignor’s
rights and obligations under the Loan Agreement and the other Loan Documents as
of the Effective Date (as defined below) with respect to the Loan (including,
without limitation, such percentage interest in all unpaid interest with
respect to such Loan).

 

2                                          The
Assignor (i) represents that as of the date hereof, the outstanding
principal amount of the Loan (without giving effect to assignments thereof
which have not yet become effective) is
$              ;
(ii) makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with the Loan Agreement or the other Loan Documents or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Loan Agreement or the other Loan Documents or any other instrument
or document furnished pursuant thereto, other than that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim created by, through or under
the Assignor; and (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance of any of its obligations under the Loan Agreement, any of the Loan
Documents or any other instrument or document furnished pursuant hereto or
thereto.

 

3                                          The
Assignee (i) represents and warrants that it is legally authorized to
enter into this Assignment and Acceptance; (ii) confirms that it has
received a copy of the Loan Agreement and the other Loan Documents, together
with copies of the most recent financial statements delivered pursuant to Section 5.4
thereof and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Assignment and
Acceptance; (iii) agrees that it will, independently and without reliance
upon the Assignor or any other person which has become a Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Loan Agreement and the other Loan Documents; (iv) agrees that it will
be bound by the provisions of the Loan Agreement and will perform in

 

20

 

accordance with their
terms all the obligations which by the terms of the Loan Agreement and the
other Loan Documents are required to be performed by it as a Lender; (v) (if
an assignment of Assignor’s entire interest in the Loan) agrees to act as
successor Registration Agent and to perform the duties of the Registration
Agent in accordance with Section 11.6 of the Loan Agreement; (vi) agrees
that it will be bound by the provisions of the Loan Agreement and will perform
in accordance with its terms all the obligations which by the terms of the Loan
Agreement are required to be performed by it as a Lender including, if it is
organized under the laws of a jurisdiction outside the United States, its
obligation to deliver to the Borrower, on or before the Effective Date, the
United States Internal Revenue Service forms specified in Section 11.2(c) of
the Loan Agreement; and (vii) confirms that the Assignee is an “Eligible
Assignee” under the terms of the Loan Agreement.

 

4                                          The
effective date of this Assignment and Acceptance shall be         ,
20    (the “Effective Date”).

 

5                                          From
and after the Effective Date, (i) the Assignee shall be a party to the
Loan Agreement and the other Loan Documents, to the extent provided in this
Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and shall be bound by the provisions thereof and (ii) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Loan
Agreement and the other Loan Documents.

 

6                                          The
Assignor agrees to give written notice of this Assignment and Acceptance to the
Registration Agent, each other Lender and the Borrower, which written notice
shall include the address, payment instructions and related information with
respect to the Assignee.

 

7                                          THIS
ASSIGNMENT AND ACCEPTANCE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF
AMERICA, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE,
WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN TITLE 14 OF ARTICLE 5
OF THE GENERAL OBLIGATIONS LAW).

 

21

 

IN WITNESS WHEREOF, the
Assignor and Assignee have caused this Assignment and Acceptance to be executed
and delivered as of the date first above written.

 

	
   

  	
  [NAME OF
  ASSIGNOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [NAME OF ASSIGNEE]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

22

 

EXHIBIT E-1

 

 

SECURITY AGREEMENT

 

 

K-SEA CANADA CORP.,

 

 

as Debtor

 

 

to

 

 

CITIZENS LEASING CORPORATION, d/b/a

CITIZENS ASSET FINANCE

 

as the Lender

 

 

Dated as of December    , 2005

 

 

 

SECURITY AGREEMENT

 

SECURITY
AGREEMENT, dated as of the         
day of December, 2005 (this “Agreement”) between K-SEA CANADA CORP. an
unlimited liability company incorporated under the laws of the Province of Nova
Scotia (“Debtor”), and CITIZENS LEASING CORPORATION D/B/A CITIZENS ASSET
FINANCE (the “Lender”).

 

(i)                                     Pursuant
to the terms and conditions of a Loan Agreement dated as of the date hereof,
between the Debtor and the Lender (as the same may be amended, supplemented, or
modified from time to time, the “Loan Agreement”), the Lender has, at Debtor’s
request, agreed to make a loan to the Debtor in the aggregate principal amount
of Fifteen Million One Hundred Forty-Seven Thousand Six Hundred Dollars
(CAD$15,147,600.00) (the “Loan”), the entire proceeds of which shall be used by
the Debtor to refinance the acquisition by the Debtor of two Canadian vessels
as more fully described in Schedule A hereto (collectively, the “Vessels”).  The obligations of Debtor with respect to the
Loan are evidenced by the Loan Agreement and by a term promissory note (the “Note”),
to be dated as of the Closing Date (as defined in the Loan Agreement), and are
secured by the Security Documents (as defined in the Loan Agreement).

 

(ii)                                  It
is a condition precedent to the obligation of the Lender to make the Loan to
the Debtor that, among other things, Debtor shall have executed and delivered
this Agreement to the Lender as additional security for the Obligations.

 

(iii)                               The
Debtor wishes to grant security interests in favor of the Lender as herein
provided.

 

NOW,
THEREFORE, in consideration of the foregoing recitals, the promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.                                      DEFINITIONS.  All capitalized terms used herein without
definitions shall have the respective meanings provided therefore in the Loan
Agreement.

 

2.                                      GRANT
OF SECURITY INTEREST.  (a) Debtor
hereby grants to the Lender, to secure the payment and performance in full of
all of the Obligations, a security interest in and pledges and assigns to the
Lender all of Debtor’s rights, title and interest, as collateral security, in
and to (i) the Vessels, (ii) amounts due under any and all charter
agreements, whether bareboat or demise, time or voyage charters, contracts of
affreightment or other contracts for the use or employment of the Vessels,
including the transportation of cargo or passengers, (iii) all charter
hires, fees, and all other amounts due and payable to Debtor arising out of the
Vessels, (iv) all policies and contracts of insurance (which expression
includes all entries of the Vessels in one or more protection and indemnity or
risks associations) which are or have been from time to time taken out or
entered into by Debtor in respect of the Vessels or their earnings, including,
but not limited to insurances on and with respect to all freight, charter hire,
and passage monies, remuneration for salvage and towage services, general
average contributions, demurrage and detention monies and any other proceeds
whatsoever relating to Vessels insurance, whether now, previously, or hereafter
effected, and all renewals of or replacements for the same, all claims and

 

 

returns of premiums and
other monies and claims for monies due and to become due under said insurances
or in respect of said insurance, and all other rights of Debtor under or in
respect of said insurance, (v) all other property, interests and rights
now or at any time hereafter relating to the Vessels, wherever located; in all
of the foregoing cases, whether now owned or in existence or hereafter acquired
or arising, and all proceeds and products thereof including, but not limited
to, (A) whatever is received upon the collection, exchange, sale or other
disposition of any Collateral and any property unto which any of the Collateral
is converted, whether cash or non-cash proceeds, (B) any and all proceeds
of any insurance, indemnity, warranty or guarantee payable to Debtor from time
to time with respect to the Collateral, (C) any and all payments (in any
form whatsoever) made or due and payable to Debtor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any of the Collateral by any Governmental Authority (or any
Person acting under order of governmental authority), and (D) any and all
other amounts from time to time paid or payable under or in connection with any
of the Collateral (all of the same being hereinafter called the “Collateral”).

 

(b)                                 Debtor
agrees to give a notice of assignment of insurances in the form attached hereto
as Exhibit A and that insurance loss payable clauses shall be in
the form of Exhibit B.

 

3.                                      AUTHORIZATION
TO FILE FINANCING STATEMENTS.  Debtor
hereby irrevocably authorizes the Lender at any time and from time to time to
file any financing statements and amendments thereto in any jurisdiction where
Collateral may be or may be deemed to be located.

 

3.1                               OTHER
ACTIONS.   Debtor further agrees to
take any action reasonably requested by the Lender to ensure the attachment,
perfection and first priority of, and the ability of the Lender to enforce, the
Lender’s security interest in any and all of the Collateral including, without
limitation, (a) executing, delivering and, where appropriate, filing
financing statements and amendments relating thereto under the PPSA in the
jurisdiction where the Collateral is or is deemed to be located, to the extent,
if any, that Debtor’s signature thereon is required therefor, (b) causing
the Lender’s name to be noted as secured party on any certificate of title for
a titled good if such notation is a condition to attachment, perfection or
priority of, or ability of the Lender to enforce, the Lender’s security
interest in such Collateral, (c) complying with any Law as to any
Collateral if compliance with such Law is a condition to attachment, perfection
or priority of, or ability of the Lender to enforce, the Lender’s security
interest in such Collateral, (d) obtaining governmental and other third
party consents and approvals, including without limitation any consent of any
licensor, lessor, charterer, lessee or other person obligated respecting the
Collateral, and (e) taking all actions required by other law as applicable
in any foreign jurisdiction.

 

4.                                      RELATION
TO OTHER SECURITY DOCUMENTS.  The
provisions of this Agreement supplement the provisions of the Canadian Mortgage
granted, and to be granted, by the Debtor to the Lender and securing the
payment or performance of any of the Obligations. Nothing contained in the
Canadian Mortgage shall derogate from any of the rights or remedies of the
Lender hereunder.

 

2

 

5.                                      REPRESENTATIONS
AND WARRANTIES CONCERNING DEBTOR’S LEGAL STATUS.  Debtor represents and warrants to the Lender
as follows: (a) Debtor’s exact legal name is as set out on the signature page hereof,
(b) the Debtor is an unlimited liability company incorporated under the
laws of the Province of Nova Scotia, and (c) Schedule “B” hereto
accurately sets forth Debtor’s place of business or, if more than one, its
chief executive office as well as Debtor’s mailing address if different.

 

6.                                      COVENANTS
CONCERNING DEBTOR’S LEGAL STATUS. 
Debtor covenants with the Lender as follows: (a) the Debtor shall
maintain its existence, (b) it will perform its obligations under Section 5.2
of the Loan Agreement; and (c) and the Debtor shall observe and conform to
all valid requirements of applicable Laws relative to the Collateral and the
carrying on by the Debtor of its business.

 

7.                                      REPRESENTATIONS
AND WARRANTIES CONCERNING COLLATERAL, ETC. 
Debtor warrants to the Lender all representations and warranties in §3
of the Loan Agreement as if all such representations and warranties were made
by Debtor and set out in full herein. 
The Debtor further represents and warrants to the Lender as follows: (a) the
Debtor has good and marketable title to all items of the Collateral pledged by
it, free and clear of any Liens, except Permitted Liens, and (b) none of
the Collateral constitutes consumer goods as defined in the PPSA.

 

8.                                      COVENANTS
CONCERNING COLLATERAL, ETC.  The
Debtor further covenants with the Lender as follows: (a) except for the
security interest herein granted and Permitted Liens and except as may be specifically
set forth in any insurances or entries of a Vessel in a protection and
indemnity association, the Borrower shall be the owner of the Collateral
respecting the Vessels free from any lien, security interest or other
encumbrance and, and Debtor shall warrant and defend the same against all
claims and demands of all persons at any time claiming the same or any
interests therein adverse to the Lender, and shall, at its expense, cause such
claim to be waived in writing or otherwise eliminated to the Lender’s
satisfaction within 30 days after such claim shall become due and payable, (b) the
Debtor shall not remove, destroy, lease, sell or otherwise dispose of any of
the Collateral except as permitted under the terms of the Loan Agreement or the
Canadian Mortgage, (c) the Debtor shall not pledge, mortgage or create, or
suffer to exist a security interest in the Collateral in favour of any person
other than the Lender except for Permitted Liens, (d) Debtor will keep the
Collateral in good order and repair and will not use the same in violation of
law or any policy of insurance thereon, (e) Debtor will pay promptly when
due all taxes, assessments, governmental charges and levies upon the Collateral
or incurred in connection with the use or operation of the Collateral incurred
in connection with this Agreement, (f) upon Lender’s request, Debtor will
give the Lender notice and copies of all other leases, charters or other
agreements in the nature thereof entered into from time to time with respect to
the Vessels and having a term of six (6) months or longer, and (g) the
Debtor shall effect such registrations as may be required by the Lender from
time to time to protect the security hereof.

 

9.                                      INSURANCE.

 

The Debtor
will maintain insurance in accordance with the terms of the Canadian Mortgage.

 

3

 

10.                               COLLATERAL
PROTECTION EXPENSES; PRESERVATION OF COLLATERAL.

 

10.1                        EXPENSES
INCURRED BY LENDER.  After the
occurrence of an Event of Default, the Lender may discharge taxes and other
encumbrances at any time levied or placed on any of the Collateral, make
repairs thereto, maintain the Collateral and pay any necessary filing fees or,
if the debtor fails to do so, insurance premiums.  Debtor agrees to reimburse the Lender on
demand for any and all expenditures so made. 
The Lender shall have no obligation to Debtor to make any such
expenditures, nor shall the making thereof relieve Debtor of any default.

 

10.2                        LENDER’S
OBLIGATIONS AND DUTIES.  Anything
herein to the contrary notwithstanding, Debtor shall remain liable under each
contract or agreement comprised in the Collateral to be observed or performed
by Debtor thereunder.  The Lender shall
not have any obligation or liability under any such contract or agreement by
reason of or arising out of this Agreement or the receipt by the Lender of any
payment relating to any of the Collateral, nor shall the Lender be obligated in
any manner to perform any of the obligations of Debtor under or pursuant to any
such contract or agreement, to make inquiry as to the nature or sufficiency of
any payment received by the Lender in respect of the Collateral or as to the
sufficiency of any performance by any party under any such contract or
agreement, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to the Lender or to which the Lender may be entitled at any time or
times.

 

11.                               NOTIFICATION
TO ACCOUNT DEBTORS AND OTHER PERSONS OBLIGATED ON COLLATERAL.  If an Event of Default shall have occurred
and be continuing, Debtor shall at the request of the Lender, notify account
debtors, charterers, and other persons obligated respecting any of the
Collateral of the Lender in any account, charter, chattel paper, general
intangible, instrument or other Collateral and that payment thereof is to be
made directly to the Lender or to any financial institution designated by the
Lender as the Lender’s agent therefor, and the Lender may itself, if an Event
of Default shall have occurred and be continuing, without notice to or demand
upon Debtor, so notify account debtors and other persons obligated on
Collateral.  After the making of such a
request or the giving of any such notification, Debtor shall hold any proceeds
of collection of accounts, charters, chattel paper, general intangibles,
instruments and other Collateral received by Debtor as trustee for the Lender
without commingling the same with other funds of Debtor and shall turn the same
over to the Lender in the identical form received, together with any necessary
endorsements or assignments, provided that as long as an Event of Default has
not occurred and is continuing, the Debtor may collect and use the accounts,
charters, chattel paper, general intangibles, instruments and other Collateral
in the ordinary course of business.  The
Lender shall apply the proceeds of collection of accounts, charters, chattel
paper, general intangibles, instruments and other Collateral received by the
Lender to the Obligations, pursuant to § 2.4(b) of the Loan
Agreement, such proceeds to be immediately entered after final payment in cash
or other immediately available funds of the items giving rise to them.

 

12.                               POWER
OF ATTORNEY.

 

12.1                        APPOINTMENT
AND POWERS OF LENDER.  The Debtor
hereby irrevocably constitutes and appoints the Lender and any officer or agent
thereof, with full power

 

4

 

of substitution, as its
true and lawful attorney with full irrevocable power and authority in the place
and stead of Debtor, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments that may be necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, hereby gives said attorneys the power and right, on behalf of
Debtor, without notice to or assent by Debtor, to do the following:

 

(a)                                  upon
the occurrence and during the continuance of an Event of Default, generally to
sell, transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral in such manner as is consistent with any applicable
law, and as fully and completely as though the Lender were the absolute owner
thereof for all purposes, and to do at Debtor’s expense, at any time, or from
time to time, all acts and things which the Lender deems necessary or advisable
to protect, preserve or realize upon the Collateral and the Lender’s security
interest therein, in order to effect the intent of this Agreement, all as fully
and effectively as Debtor might do, including, without limitation, the
execution, delivery and recording, in connection with any sale or other
disposition of any Collateral, of the endorsements, assignments or other
instruments of conveyance or transfer with respect to such Collateral; and

 

(b)                                 to
the extent that Debtor’s authorization given in §3 is not sufficient, to file
such financing statements with respect hereto, with or without Debtor’s
signature, or a photocopy of this Agreement in substitution for a financing
statement, as the Lender may deem appropriate and to execute in Debtor’s name
such financing statements and amendments thereto and continuation statements
which may require Debtor’s signature.

 

12.2                        RATIFICATION
BY DEBTOR.  To the extent permitted
by law, the Debtor hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.

 

12.3                        NO
DUTY ON LENDER.  The powers conferred
on the Lender hereunder are solely to protect its interests in the Collateral
and shall not impose any duty upon it to exercise any such powers.  The Lender shall be accountable only for the
amounts that it actually receives as a result of the exercise of such powers
and neither it nor any of its officers, directors, employees or agents shall be
responsible to Debtor for any act or failure to act, except for the Lender’s
own gross negligence or willful misconduct.

 

REMEDIES.  If an Event of Default shall have occurred
and be continuing, the Lender may, by instrument in writing declare that the
security hereof has become enforceable and shall have the following rights and
powers: (a) in accordance with applicable law, the Lender shall thereafter
have in any jurisdiction in which enforcement hereof is sought, in addition to
all other rights and remedies, the rights and remedies of a secured party under
the PPSA of any jurisdiction in which the Collateral is located, including,
without limitation, the right to take possession of the Collateral, and for
that purpose the Lender may, so far as Debtor can give authority therefore,
enter upon any premises on which the Collateral may be situated and remove the
same therefrom.  The Lender may in its
discretion require Debtor to assemble all or any part of the Collateral at such
location or locations within the jurisdiction(s) of Debtor’s principal
office(s) or at such other locations as the Lender may reasonably designate, (b) to
preserve and maintain the Collateral, (c) to borrower money in the Debtor’s
name or the Lender’s name or to

 

5

 

advance the Lender’s own
money to the Debtor, in any case upon such terms as the Lender may deem
reasonable and upon the security hereof, (d) to pay or otherwise satisfy
in whole or in party any Liens which, in the Lender’s opinion, rank in priority
to the security hereof, (e) sell, lease or otherwise dispose in any way
whatsoever of all or any part of the Collateral either en bloc or separately at
public auction or by tender or by private agreement and at such time or times
and on such terms and conditions as the Lender in its absolute discretion may
determine and without any notice to or concurrence of the Debtor except as may
be required by Law, and (f) by instrument in writing to appoint any person
or persons the receiver of all or any part of the Collateral and to remove an
receive so appointed and appoint another or other in his stead. Any receiver
appointed as aforesaid shall have the power without legal process: (a) to
take possession of the Collateral or any part thereof wherever the same may be
found, (b) to carry on the business of the Debtor or any part thereof in
the name of the Debtor or of the receiver, and (c) to exercise on behalf
of the Lender all of the rights and remedies herein granted to the Lender, and
without in any way limiting the foregoing the receiver shall have all the
powers of a receiver appointed by a court of competent jurisdiction.  Any receiver shall, so far as concerns
responsibility for his acts, be deemed the agent of the Debtor, and the Lender
shall not be in any way responsible for any misconduct or negligence on the
part of any receiver or any loss resulting therefrom. Notwithstanding anything
contained hereinto the contrary, the Lender agrees not to exercise any remedies
hereunder in such a way as to disqualify the Vessel from the Canadian coastwise
trade.

 

13.                               STANDARDS
FOR EXERCISING REMEDIES.  To the
extent that applicable law imposes duties on the Lender to exercise remedies in
a commercially reasonable manner, Debtor acknowledges and agrees that it is not
commercially unreasonable for the Lender (a) to fail to incur expenses
reasonably deemed significant by the Lender to prepare the Collateral for
disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (b) to fail to
obtain third-party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or
third party consents for the collection or disposition of Collateral to be
collected or disposed of, (c) to fail to exercise collection remedies
against account debtors or other persons obligated on Collateral or to remove
liens or encumbrances on or any adverse claims against Collateral, (d) to
exercise collection remedies against account debtors and other persons
obligated on Collateral directly or through the use of collection agencies and
other collection specialists, (e) to advertise dispositions of Collateral
through publications or media of general circulation, whether or not the
Collateral is of a specialized nature, (f) to contact other persons, whether
or not in the same business as Debtor, for expressions of interest in acquiring
all or any portion of the Collateral, (g) to hire one or more professional
auctioneers to assist in the disposition of Collateral, whether or not the
Collateral is of a specialized nature, (h) to dispose of Collateral by
utilizing Internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capability of doing so,
or that match buyers and sellers of assets, (i) to dispose of assets in
wholesale rather than retail markets, (j) to disclaim disposition warranties,
or (k) to the extent deemed appropriate by the Lender, to obtain the services
of brokers, investment bankers, consultants and other professionals to assist the
Lender in the collection or disposition of any of the Collateral.  Debtor acknowledges that the purpose of this
§14 is to provide nonexhaustive indications of what actions or omissions by the
Lender would not be commercially unreasonable in the Lender’s exercise of
remedies against the Collateral and that other actions or omissions by the
Lender shall not be deemed commercially unreasonable solely on account of not
being

 

6

 

indicated in this
§14.  Without limitation upon the
foregoing, nothing contained in this §14 shall be construed to grant any rights
to Debtor or to impose any duties on the Lender that would not have been
granted or imposed by this Agreement or by applicable law in the absence of
this §14.  Neither the provisions of this
Agreement nor anything done under or pursuant to the rights, remedies and power
conferred upon the Lender and the receiver, whether hereunder or otherwise,
will render the Lender a mortgagee in possession.

 

14.                               NO
WAIVER BY LENDER, ETC.  The Lender
shall not be deemed to have waived any of its rights upon or under the
Obligations or the Collateral unless such waiver shall be in writing and signed
by the Lender.  No delay or omission on
the part of the Lender in exercising any right shall operate as a waiver of
such right or any other right.  A waiver
on any one occasion shall not be construed as a bar to or waiver of any right
on any future occasion.  All rights and
remedies of the Lender with respect to the Obligations or the Collateral,
whether evidenced hereby or by any other instrument or papers, shall be
cumulative and may be exercised singularly, alternatively, successively or
concurrently at such time or at such times as the Lender deems expedient.

 

15.                               MARSHALLING. The Lender shall not be required to
marshal any present or future collateral security (including but not limited to
this Agreement and the Collateral) for, or other assurances of payment of, the
Obligations or any of them or to resort to such collateral security or other
assurances of payment in any particular order, and all of its rights hereunder
and in respect of such collateral security and other assurances of payment
shall be cumulative and in addition to all other rights, however existing or
arising. To the extent that it lawfully may, Debtor hereby agrees that it will
not invoke any law relating to the marshalling of collateral which might cause
delay in or impede the enforcement of the Lender’s rights under this Agreement
or under any other instrument creating or evidencing any of the Obligations or
under which any of the Obligations is outstanding or by which any of the
Obligations is secured or payment thereof is otherwise assured, and, to the
extent that it lawfully may, Debtor hereby irrevocably waives the benefits of
all such laws.

 

16.                               PROCEEDS
OF DISPOSITIONS; EXPENSES.  Debtor
shall pay to the Lender on demand amounts equal to any and all expenses,
including, without limitation, (a) reasonable legal fees and
disbursements, incurred or paid by the Lender in perfecting, protecting,
preserving, inspecting, taking recovering or keeping possession of any of the
Collateral or in any other proceedings taken in enforcing the Lender’s rights
under or in respect of any of the Obligations or any of the Collateral, (b) the
cost of any sale proceedings hereunder, and (c) the costs of any receiver
with respect to, and all expenditures made by the Lender of any receiver in the
course of doing anything hereby permitted to be done by the Lender or such
receiver (including any costs and expenditures relating to compliance with the Bankruptcy and Insolvency Act (Canada)). Without limiting
the generality of the foregoing, such costs shall extend to and include any
legal costs incurred by or on behalf of the Lender on full indemnity
basis.  After deducting all of said
expenses, the residue of any proceeds of collection or sale of the Obligations
or Collateral shall, to the extent actually received in cash, be applied to the
payment of the Obligations in such order or preference as the Lender may
determine, proper allowance and provision being made for any Obligations not
then due.  Upon the final payment and
satisfaction in full of all of the Obligations and after making any payments
required by this

 

7

 

section, any excess shall
be returned to Debtor, and Debtor shall remain liable for any deficiency in the
payment of the Obligations.

 

17.                               OVERDUE
AMOUNTS.  Until paid, all amounts due
and payable by Debtor hereunder shall be a debt secured by the Collateral and
shall bear, whether before or after judgment, interest at Default Rate pursuant
to §2.2(e) of the Loan Agreement.

 

18.                               GOVERNING
LAW.  THIS AGREEMENT SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
PROVINCE OF ONTARIO AND THE FEDERAL LAWS OF CANADA APPLICABLE THEREIN,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW.

 

19.                               INDEMNIFICATION.  Without limiting any of its indemnification
obligation under the other Loan Documents, Debtor hereby agrees to indemnify
and hold the Lender harmless from and against any and all claims, demands,
liabilities, losses, causes of action, judgments, costs, and expenses (including
reasonable legal fees, court costs and investigation expenses) to which the
Lender may become exposed, or which the Lender may incur, by reason of any act
or omission of Debtor under any charter or other agreement comprising
Collateral or by the Lender or receiver exercising any of its rights under this
Agreement, provided that this indemnity does not
extend to liability incurred by the Lender solely through its gross negligence
or willful misconduct or acts and omissions as a mortgagee-in-possession.  The provisions of this Section 19 shall
remain operative and in full force and effect regardless of the termination of
this Agreement or any other Loan Document, the consummation of the transactions
contemplated hereby or thereby, the repayment of any of the Obligations, the
validity or unenforceability of any term or provision of this Agreement or any
other Loan Document or any investigation made by or on behalf of the Lender.

 

20.                               MISCELLANEOUS.  The headings of each section of this
Agreement are for convenience only and shall not define or limit the provisions
thereof.  This Agreement and all rights
and obligations hereunder shall be binding upon Debtor and its respective
successors and assigns, and shall inure to the benefit of the Lender and its
successors and assigns.  If any term of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity of all other terms hereof shall in no way be affected thereby, and
this Agreement shall be construed and be enforceable as if such invalid, illegal
or unenforceable term had not been included herein. If at any time there is any
inconsistency between the terms of this Agreement and any other Security
Document, the terms of such other Security Document shall govern.  Debtor acknowledges receipt of a copy of this
Agreement and a copy of the financing statement(s) registered under the PPSA.

 

21.                               SUBMISSION
TO JURISDICTION; WAIVER.  EACH OF THE
DEBTOR AND THE LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY:

 

(a)                                  SUBMITS
FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING DIRECTLY
OR INDIRECTLY TO THIS AGREEMENT OR FOR RECOGNITION AND ENFORCEMENT OF ANY
JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF

 

8

 

THE PROVINCE OF ONTARIO
AND ALL COURTS COMPETENT TO HEAR APPEALS THEREFROM.

 

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

 

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

 

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

 

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

 

22.                               WAIVER
OF JURY TRIAL.  THE DEBTOR AND THE
LENDER HEREBY INTENTIONALLY AND VOLUNTARILY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE
TO A TRIAL BY JURY IN CONNECTION WITH ANY MATTER DIRECTLY OR INDIRECTLY
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT
AND THAT RELATE TO THE SUBJECT MATTER OF THE TRANSACTIONS DESCRIBED IN THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS, INCLUDING, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS.  THE DEBTOR AND THE LENDER EACH
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS.  THE DEBTOR ACKNOWLEDGES
THAT NEITHER THE LENDER NOR ANY PERSON ACTING ON BEHALF OF THE LENDER HAS MADE
ANY REPRESENTATIONS OF FACT TO

 

9

 

INDUCE THIS WAIVER OF
TRIAL BY JURY OR IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  THE DEBTOR FURTHER ACKNOWLEDGES THAT IT HAS
BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING
OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL, SELECTED OF ITS OWN FREE WILL. 
THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS.  IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY
THE COURT.

 

10

 

IN WITNESS
WHEREOF, intending to be legally bound, Debtor has caused this Agreement to be
duly executed as of the date first above written.

 

	
   

  	
  K-SEA CANADA CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: John J. Nicola

  
	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  
	
  Accepted:

  	
   

  
	
   

  	
  CITIZENS LEASING CORPORATION,

  D/B/A CITIZENS ASSET FINANCE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: John M. Young

  
	
   

  	
   

  	
  Title: Senior Vice President

  
						

 

 

Exhibit E-2

 

 

SECURITY AGREEMENT

 

 

SEA COAST TRANSPORTATION LLC,

 

 

as Debtor 

 

 

to

 

 

Citizens Leasing Corporation, d/b/a

CITIZENS ASSET FINANCE,

 

 

as the Lender

 

 

 

Dated as of December 19, 2005

 

 

SECURITY AGREEMENT

 

SECURITY
AGREEMENT, dated as of December 19, 2005 (this “Agreement”) between SEA
COAST TRANSPORTATION LLC, a Delaware limited liability company (the “Debtor”),
and Citizens Leasing Corporation, d/b/a CITIZENS ASSET FINANCE
(the “Lender”).

 

(i)                                     Pursuant
to the terms and conditions of a Loan Agreement dated as of the date hereof,
between K-SEA CANADA CORP. (the “Borrower”) and the Lender (as the same may be
amended, supplemented, or modified from time to time, the “Loan Agreement”),
the Lender has, at Borrower’s request, agreed to make loan advances to the
Borrower in the aggregate principal amount of FIFTEEN MILLION ONE HUNDRED
FORTY-SEVEN THOUSAND SIX HUNDRED CANADIAN
DOLLARS (CAD $15,147,600.00) (the “Loan”), the entire proceeds of which shall
be used by the Borrower to refinance the acquisition by the Borrower of two
Canadian vessels.  The Obligations of
Borrower with respect to the Loan are evidenced by the Loan Agreement and by a
term promissory note (the “Note”), to be dated as of the Closing Date (as
defined in the Loan Agreement), and are secured by the Security Documents (as
defined in the Loan Agreement).

 

(ii)                                  Pursuant
to the terms of a Guaranty dated as of the date hereof, between the Debtor, the
other Guarantors identified therein, and the Lender (as the same may be
amended, supplemented, or modified from time to time, the “Guaranty”), the
Debtor has guaranteed the Obligations of the Borrower under the Loan Agreement
which Obligations are further secured pursuant to a First Preferred Ship
Mortgage dated the date hereof, between the Debtor and the Lender (as the same
may be amended, supplemented, or modified from time to time, the “340 Mortgage”)
and this Agreement.

 

(iii)                               It
is a condition precedent to the obligation of the Lender to make the Loan to
the Borrower that, among other things, Debtor shall have executed and delivered
this Agreement to the Lender as additional security for the Obligations and for
the obligations of Debtor set forth in the Guaranty.

 

(iv)                              The
Debtor wishes to grant security interests in favor of the Lender as herein
provided.

 

NOW,
THEREFORE, in consideration of the foregoing recitals, the promises contained
herein and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:

 

SECTION 1.                            DEFINITIONS.  All capitalized terms used herein without
definitions shall have the respective meanings provided therefore in the Loan
Agreement.  The term “State”, as used
herein, means the State of New York.  All
terms defined in the Uniform Commercial Code of the State and used herein shall
have the same definitions herein as specified therein.  However, if a term is defined in Article 9
of the Uniform Commercial Code of the State differently than in

 

11

 

another Article of
the Uniform Commercial Code of the State, the term has the meaning specified in
Article 9.

 

SECTION 2.                            GRANT
OF SECURITY INTEREST.  (a) 
Debtor hereby grants to the Lender, to secure the payment and performance in
full of all of the Obligations, a security interest in and pledges and assigns
to the Lender all of Debtor’s rights, title and interest, as collateral
security, in and to (i) the United States flag vessel 340 (the “Vessel”), (ii) amounts
due under any and all charter agreements, whether bareboat or demise, time or
voyage charters, contracts of affreightment or other contracts for the use or
employment of the Vessel, including the transportation of cargo or passengers, (iii) all
charter hires, fees, and all other amounts due and payable to Debtor arising
out of the Vessel, (iv) all policies and contracts of insurance (which
expression includes all entries of the Vessel in one or more protection and
indemnity or risks associations) which are or have been from time to time taken
out or entered into by Debtor in respect of the Vessel or its earnings,
including, but not limited to insurances on and with respect to all freight,
charter hire, and passage monies, remuneration for salvage and towage services,
general average contributions, demurrage and detention monies and any other
proceeds whatsoever relating to Vessel insurance, whether now, previously, or
hereafter effected, and all renewals of or replacements for the same, all
claims and returns of premiums and other monies and claims for monies due and
to become due under said insurances or in respect of said insurance, and all
other rights of Debtor under or in respect of said insurance, (v) all other
property, interests and rights now or at any time hereafter relating to the
Vessel, wherever located, including without limitation any and all deposit
accounts that may at any time be created pursuant to §11 of this Agreement; in
all of the foregoing cases, whether now owned or in existence or hereafter
acquired or arising, and all proceeds and products thereof including, but not
limited to, (A) whatever is received upon the collection, exchange, sale
or other disposition of any Collateral and any property unto which any of the
Collateral is converted, whether cash or non-cash proceeds, (B) any and
all proceeds of any insurance, indemnity, warranty or guarantee payable to
Debtor from time to time with respect to the Collateral, (C) any and all
payments (in any form whatsoever) made or due and payable to Debtor from time
to time in connection with any requisition, confiscation, condemnation, seizure
or forfeiture of any of the Collateral by any Governmental Authority (or any
Person acting under order of governmental authority), and (D) any and all
other amounts from time to time paid or payable under or in connection with any
of the Collateral (all of the same being hereinafter called the “Collateral”).

 

(b)                                 Debtor
agrees to give a notice of assignment of insurances in the form attached hereto
as Exhibit A and that insurance loss payable clauses shall be in
the form of Exhibit B.

 

SECTION 3.                            AUTHORIZATION
TO FILE FINANCING STATEMENTS.  Debtor hereby irrevocably authorizes the Lender at any time and
from time to time to file in any Uniform Commercial Code jurisdiction any
initial financing statements and amendments thereto that (a) indicate the
Collateral (i) as all assets of Debtor or words of similar effect relating
to the Vessel, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the Uniform Commercial
Code of the State or such jurisdiction, or (ii) as

 

2

 

being of an equal or
lesser scope or with greater detail, and (b) contain any other information
required by part 5 of Article 9 of the Uniform
Commercial Code of the State for the sufficiency or filing office acceptance of
any financing statement or amendment, including whether Debtor is an organization,
the type of organization and any organization identification number issued to
the Debtor.  Debtor agrees to furnish any
such information to the Lender promptly upon request.

 

§3.1                        OTHER
ACTIONS.   Debtor further
agrees to take any action reasonably requested by the Lender to ensure the
attachment, perfection and first priority of, and the ability of the Lender to
enforce, the Lender’s security interest in any and all of the Collateral
including, without limitation, (a) executing, delivering and, where appropriate,
filing financing statements and amendments relating thereto under the Uniform
Commercial Code, to the extent, if any, that Debtor’s signature thereon is
required therefor, (b) causing the Lender’s name to be noted as secured
party on any certificate of title for a titled good if such notation is a
condition to attachment, perfection or priority of, or ability of the Lender to
enforce, the Lender’s security interest in such Collateral, (c) complying
with any provision of any statute, regulation or treaty of the United States as
to any Collateral if compliance with such provision is a condition to
attachment, perfection or priority of, or ability of the Lender to enforce, the
Lender’s security interest in such Collateral, (d) obtaining governmental
and other third party consents and approvals, including without limitation any
consent of any licensor, lessor, charterer, lessee or other person obligated
respecting the Collateral, and (e) taking all actions required by any
earlier versions of the Uniform Commercial Code or by other law, as applicable
in any relevant Uniform Commercial Code jurisdiction, or by other law as
applicable in any foreign jurisdiction.

 

SECTION 4.                            RELATION
TO OTHER SECURITY DOCUMENTS.  The
provisions of this Agreement supplement the provisions of the Ship Mortgage
granted, and to be granted, by the Debtor to the Lender and securing the
payment or performance of any of the Obligations. Nothing contained in any Ship
Mortgage shall derogate from any of the rights or remedies of the Lender
hereunder.

 

SECTION 5.                            REPRESENTATIONS
AND WARRANTIES CONCERNING DEBTOR’S LEGAL STATUS.  Debtor has previously delivered to the
Lender a certificate signed by Debtor and entitled “Perfection Certificate”
(the “Perfection Certificate”).  Debtor
represents and warrants to the Lender as follows: (a) Debtor’s exact legal
name is that indicated on the Perfection Certificate and on the signature page hereof,
(b) the Debtor is an organization of the type, and is organized in the
jurisdiction, set forth in the Perfection Certificate, (c) the Perfection
Certificate accurately sets forth Debtor’s organizational identification number
or accurately states that Debtor has none, (d) the Perfection Certificate
accurately sets forth Debtor’s place of business or, if more than one, its
chief executive office as well as Debtor’s mailing address if different and (e) all
other information set forth on the Perfection Certificate pertaining to Debtor
is accurate and complete.

 

SECTION 6.                            COVENANTS
CONCERNING DEBTOR’S LEGAL STATUS. 
Debtor covenants with the Lender as follows: (a) without providing
at least 30 days prior written notice to the Lender, Debtor will not change its
name; its place of business or, if more than one, its

 

3

 

chief executive office;
or its mailing address or organizational identification number if it has one, (b) if
Debtor does not have an organizational identification number and later obtains
one, Debtor shall forthwith notify the Lender of such organizational
identification number, and (c) Debtor will not change its type of
organization, jurisdiction of organization or other legal structure.

 

SECTION 7.                            REPRESENTATIONS
AND WARRANTIES CONCERNING COLLATERAL, ETC. 
Debtor warrants to the Lender all representations and warranties in
§3 of the Loan Agreement as if all such representations and warranties were
made by Debtor and set out in full herein. 
The Debtor further represents and warrants to the Lender as follows: (a) the
Debtor has good and marketable title to all items of the Collateral (but only
as of the date hereof, to the extent it has “rights in the Collateral” as such
term is used in the UCC) pledged by it, free and clear of any Liens, except
Permitted Liens, (b) none of the Collateral constitutes, or is the
proceeds of, “farm products” as defined in § 9-102(a)(34) of the Uniform
Commercial Code of the State and (c) all other information set forth on
the Perfection Certificate pertaining to the Collateral is accurate and
complete.

 

SECTION 8.                            COVENANTS
CONCERNING COLLATERAL, ETC.  The Debtor further covenants with the Lender as follows: (a) except
for the security interest herein granted and Permitted Liens and except as may
be specifically set forth in any insurances or entries of the Vessel in a protection
and indemnity association, the Borrower shall be the owner of the Collateral
respecting the Vessel free from any lien, security interest or other
encumbrance and, and Debtor shall warrant and defend the same against all
claims and demands of all persons at any time claiming the same or any
interests therein adverse to the Lender, and shall, at its expense, cause such
claim to be waived in writing or otherwise eliminated to the Lender’s
satisfaction within 30 days after such claim shall become due and payable, (c) the
Debtor shall not pledge, mortgage or create, or suffer to exist a security
interest in the Collateral in favor of any person other than the Lender except
for Permitted Liens, (d) Debtor
will keep the Collateral in good order and repair and will not use the same in
violation of law or any policy of insurance thereon, (e) Debtor will pay
promptly when due all taxes, assessments, governmental charges and levies upon
the Collateral or incurred in connection with the use or operation of the
Collateral incurred in connection with this Agreement, and (f) upon Lender’s
request, Debtor will give the Lender notice and copies of all other leases,
charters or other agreements in the nature thereof entered into from time to
time with respect to the Vessel and having a term of six (6) months or
longer.

 

SECTION 9.                            INSURANCE.

 

The Debtor will maintain insurance in accordance with
the terms of the U.S. Ship Mortgage.

 

SECTION 10.                     COLLATERAL
PROTECTION EXPENSES; PRESERVATION OF COLLATERAL.

 

§10.1                 EXPENSES
INCURRED BY LENDER.  After the
occurrence of an Event of Default, the Lender may discharge taxes and other
encumbrances at any time levied or placed on

 

4

 

any of the Collateral,
make repairs thereto, maintain the Collateral and pay any necessary filing fees
or, if the debtor fails to do so, insurance premiums.  Debtor agrees to reimburse the Lender on
demand for any and all expenditures so made. 
The Lender shall have no obligation to Debtor to make any such
expenditures, nor shall the making thereof relieve Debtor of any default.

 

§10.2                 LENDER’S
OBLIGATIONS AND DUTIES.  Anything
herein to the contrary notwithstanding, Debtor shall remain liable under each
contract or agreement comprised in the Collateral to be observed or performed
by Debtor thereunder.  The Lender shall
not have any obligation or liability under any such contract or agreement by
reason of or arising out of this Agreement or the receipt by the Lender of any
payment relating to any of the Collateral, nor shall the Lender be obligated in
any manner to perform any of the obligations of Debtor under or pursuant to any
such contract or agreement, to make inquiry as to the nature or sufficiency of
any payment received by the Lender in respect of the Collateral or as to the
sufficiency of any performance by any party under any such contract or
agreement, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to the Lender or to which the Lender may be entitled at any time or
times.  The Lender’s sole duty with
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under § 9-207 of the Uniform Commercial Code of the State
or otherwise, shall be to deal with such Collateral in the same manner as the
Lender deals with similar property for its own account.

 

SECTION 11.                     NOTIFICATION
TO ACCOUNT DEBTORS AND OTHER PERSONS OBLIGATED ON COLLATERAL.  If an Event of Default shall have
occurred and be continuing, Debtor shall, at the request of the Lender, notify
account debtors, charterers, and other persons obligated respecting any of the
Collateral of the Lender in any account, charter, chattel paper, general
intangible, instrument or other Collateral and that payment thereof is to be
made directly to the Lender or to any financial institution designated by the
Lender as the Lender’s agent therefor, and the Lender may itself, if an Event
of Default shall have occurred and be continuing, without notice to or demand
upon Debtor, so notify account debtors and other persons obligated on
Collateral.  After the making of such a
request or the giving of any such notification, Debtor shall hold any proceeds
of collection of accounts, charters, chattel paper, general intangibles,
instruments and other Collateral received by Debtor as trustee for the Lender
without commingling the same with other funds of Debtor and shall turn the same
over to the Lender in the identical form received, together with any necessary
endorsements or assignments.  Without
limiting the foregoing, and in addition to any other right of the Lender
hereunder and under applicable law, effective upon demand by the Lender at any
time and from time to time that an Event of Default shall have occurred and be
continuing, all payments that Debtor receives as a result of its ownership and
operation of the Vessel shall be deposited into a deposit account to be opened
and maintained either at an Affiliate of the Lender or at another depository
institution that is satisfactory to the Lender. 
At such time, the Debtor shall execute and deliver to the Lender all
instruments and agreements that the Lender may request to create and perfect a
valid security interest in such account under applicable law, including a
control or blocked account agreement with respect thereto.  The Lender shall apply the proceeds of
collection of accounts, charters, chattel paper, general intangibles,
instruments and other Collateral received

 

5

 

by the Lender to the
Obligations, pursuant to § 2.4(b) of the Loan Agreement, such
proceeds to be immediately entered after final payment in cash or other
immediately available funds of the items giving rise to them.

 

SECTION 12.                     POWER OF
ATTORNEY.

 

§12.1                 APPOINTMENT
AND POWERS OF LENDER.  The Debtor
hereby irrevocably constitutes and appoints the Lender and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of Debtor or in the Lender’s own name, for the purpose of carrying out
the terms of this Agreement, to take any and all appropriate action and to
execute any and all documents and instruments that may be necessary or
desirable to accomplish the purposes of this Agreement and, without limiting
the generality of the foregoing, hereby gives said attorneys the power and
right, on behalf of Debtor, without notice to or assent by Debtor, to do the
following:

 

(a)                                  upon
the occurrence and during the continuance of an Event of Default, generally to
sell, transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral in such manner as is consistent with the Uniform
Commercial Code of the State and any other applicable law, and as fully and
completely as though the Lender were the absolute owner thereof for all
purposes, and to do at Debtor’s expense, at any time, or from time to time, all
acts and things which the Lender deems necessary or advisable to protect,
preserve or realize upon the Collateral and the Lender’s security interest
therein, in order to effect the intent of this Agreement, all as fully and
effectively as Debtor might do, including, without limitation, the execution,
delivery and recording, in connection with any sale or other disposition of any
Collateral, of the endorsements, assignments or other instruments of conveyance
or transfer with respect to such Collateral; and

 

(b)                                 to
the extent that Debtor’s authorization given in §3 is not sufficient, to file
such financing statements with respect hereto, with or without Debtor’s
signature, or a photocopy of this Agreement in substitution for a financing
statement, as the Lender may deem appropriate and to execute in Debtor’s name
such financing statements and amendments thereto and continuation statements
which may require Debtor’s signature.

 

§12.2                 RATIFICATION
BY DEBTOR.  To the extent permitted
by law, the Debtor hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.

 

§12.3                 NO
DUTY ON LENDER.  The powers conferred
on the Lender hereunder are solely to protect its interests in the Collateral
and shall not impose any duty upon it to exercise any such powers.  The Lender shall be accountable only for the
amounts that it actually receives as a result of the exercise of such powers
and neither it nor any of its officers, directors, employees or agents shall be
responsible to Debtor for any act or failure to act, except for the Lender’s
own gross negligence or willful misconduct.

 

6

 

SECTION 13.                     REMEDIES.  If an Event of Default
shall have occurred and be continuing, the Lender may, without notice to or
demand upon Debtor, declare this Agreement to be in default, and, in accordance
with applicable law, the Lender shall thereafter have in any jurisdiction in
which enforcement hereof is sought, in addition to all other rights and
remedies, the rights and remedies of a secured party under the Uniform
Commercial Code of the State or of any jurisdiction in which the Collateral is
located, including, without limitation, the right to take possession of the
Collateral, and for that purpose the Lender may, so far as Debtor can give
authority therefore, enter upon any premises on which the Collateral may be
situated and remove the same therefrom. 
The Lender may in its discretion require Debtor to assemble all or any
part of the Collateral at such location or locations within the jurisdiction(s)
of Debtor’s principal office(s) or at such other locations as the Lender may
reasonably designate.  Unless the
Collateral are perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, the Lender shall give to Debtor
at least ten (10) Business Days prior written notice of the time and place
of any public sale of the Collateral or of the time after which any private
sale or any other intended disposition is to be made.  The Debtor hereby acknowledges that ten (10) Business
Days prior written notice of such sale or sales shall be reasonable
notice.  In addition, Debtor waives any
and all rights that it may have to a judicial hearing in advance of the
enforcement of any of the Lender’s rights hereunder, including, without
limitation, its right following an Event of Default to take immediate
possession of the Collateral and to exercise its rights with respect
thereto.  Notwithstanding anything
contained hereinto the contrary, the Lender agrees not to exercise any remedies
hereunder in such a way as to disqualify the Vessel from the United States
coastwise trade.

 

SECTION 14.                     STANDARDS FOR
EXERCISING REMEDIES.  To the extent
that applicable law imposes duties on the Lender to exercise remedies in a
commercially reasonable manner, Debtor acknowledges and agrees that it is not
commercially unreasonable for the Lender (a) to fail to incur expenses
reasonably deemed significant by the Lender to prepare the Collateral for
disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (b) to fail to
obtain third-party consents for access to Collateral to be disposed of, or to obtain
or, if not required by other law, to fail to obtain governmental or third party
consents for the collection or disposition of Collateral to be collected or
disposed of, (c) to fail to exercise collection remedies against account
debtors or other persons obligated on Collateral or to remove liens or
encumbrances on or any adverse claims against Collateral, (d) to exercise
collection remedies against account debtors and other persons obligated on
Collateral directly or through the use of collection agencies and other
collection specialists, (e) to advertise dispositions of Collateral
through publications or media of general circulation, whether or not the
Collateral is of a specialized nature, (f) to contact other persons,
whether or not in the same business as Debtor, for expressions of interest in
acquiring all or any portion of the Collateral, (g) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the Collateral is of a specialized nature, (h) to dispose of
Collateral by utilizing Internet sites that provide for the auction of assets
of the types included in the Collateral or that have the reasonable capability
of doing so, or that match buyers and sellers of assets, (i) to dispose of
assets in wholesale rather than retail markets, (j) to disclaim disposition
warranties, or (k) to the extent deemed appropriate by the Lender, to obtain
the

 

7

 

services of brokers,
investment bankers, consultants and other professionals to assist the Lender in
the collection or disposition of any of the Collateral.  Debtor acknowledges that the purpose of this §14 is to provide nonexhaustive indications of what actions
or omissions by the Lender would not be commercially unreasonable in the Lender’s
exercise of remedies against the Collateral and that other actions or omissions
by the Lender shall not be deemed commercially unreasonable solely on account
of not being indicated in this §14. 
Without limitation upon the foregoing, nothing contained in this §14
shall be construed to grant any rights to Debtor or to impose any duties on the
Lender that would not have been granted or imposed by this Agreement or by
applicable law in the absence of this §14.

 

SECTION 15.                     NO WAIVER BY
LENDER, ETC.  The Lender
shall not be deemed to have waived any of its rights upon or under the
Obligations or the Collateral unless such waiver shall be in writing and signed
by the Lender.  No delay or omission on
the part of the Lender in exercising any right shall operate as a waiver of
such right or any other right.  A waiver
on any one occasion shall not be construed as a bar to or waiver of any right
on any future occasion.  All rights and
remedies of the Lender with respect to the Obligations or the Collateral,
whether evidenced hereby or by any other instrument or papers, shall be
cumulative and may be exercised singularly, alternatively, successively or
concurrently at such time or at such times as the Lender deems expedient.

 

SECTION 16.                     SURETYSHIP
WAIVERS BY DEBTOR.  Debtor waives
demand, notice, protest, notice of acceptance of this Agreement, notice of
loans made, credit extended, Collateral received or delivered or other action
taken in reliance hereon and all other demands and notices of any
description.  With respect to both the
Obligations and the Collateral, Debtor assents to any extension or postponement
of the time of payment or any other indulgence, to any substitution, exchange
or release of or failure to perfect any security interest in any Collateral, to
the addition or release of any party or person primarily or secondarily liable,
to the acceptance of partial payment thereon and the settlement, compromising
or adjusting of any thereof, all in such manner and at such time or times as
the Lender may deem advisable.  The
Lender shall have no duty as to the collection or protection of the Collateral
or any income thereon, nor as to the preservation of rights against prior
parties, nor as to the preservation of any rights pertaining thereto beyond the
safe custody thereof as set forth in §10.  Debtor further waives any and all other
suretyship defenses.

 

SECTION 17.                     MARSHALLING.  The Lender shall not be required to
marshal any present or future collateral security (including but not limited to
this Agreement and the Collateral) for, or other assurances of payment of, the
Obligations or any of them or to resort to such collateral security or other
assurances of payment in any particular order, and all of its rights hereunder
and in respect of such collateral security and other assurances of payment
shall be cumulative and in addition to all other rights, however existing or
arising. To the extent that it lawfully may, Debtor hereby agrees that it will
not invoke any law relating to the marshalling of collateral which might cause
delay in or impede the enforcement of the Lender’s rights under this Agreement
or under any other instrument creating or evidencing any of the Obligations or
under which any of the Obligations is outstanding or by which any of the
Obligations is secured

 

8

 

or payment thereof is
otherwise assured, and, to the extent that it lawfully may, Debtor hereby
irrevocably waives the benefits of all such laws.

 

SECTION 18.                     PROCEEDS OF
DISPOSITIONS; EXPENSES.  Debtor shall
pay to the Lender on demand amounts equal to any and all expenses, including,
without limitation, reasonable attorneys’ fees and disbursements, incurred or
paid by the Lender in protecting, preserving or enforcing the Lender’s rights
under or in respect of any of the Obligations or any of the Collateral. After
deducting all of said expenses, the residue of any proceeds of collection or
sale of the Obligations or Collateral shall, to the extent actually received in
cash, be applied to the payment of the Obligations in such order or preference
as the Lender may determine, proper allowance and provision being made for any
Obligations not then due.  Upon the final
payment and satisfaction in full of all of the Obligations and after making any
payments required by § 9-608(a)(1)(C) or
9-615(a)(3) of the Uniform Commercial Code of the State, any excess shall
be returned to Debtor, and Debtor shall remain liable for any deficiency in the
payment of the Obligations.

 

SECTION 19.                     OVERDUE
AMOUNTS.  Until paid, all amounts due
and payable by Debtor hereunder shall be a debt secured by the Collateral and
shall bear, whether before or after judgment, interest at Default Rate pursuant
to §2.2(e) of the Loan Agreement.

 

SECTION 20.                     GOVERNING
LAW.  THIS AGREEMENT SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, UNITED STATES OF AMERICA, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT REFERENCE TO PRINCIPLES OF
CONFLICTS OF LAW (OTHER THAN TITLE 14 OF ARTICLE 5 OF THE GENERAL
OBLIGATIONS LAW).

 

SECTION 21.                     INDEMNIFICATION.  Without limiting any of its indemnification
obligation under the other Loan Documents, Debtor hereby agrees to indemnify
and hold the Lender harmless from and against any and all claims, demands,
liabilities, losses, causes of action, judgments, costs, and expenses
(including reasonable attorneys’ fees, court costs and investigation expenses)
to which the Lender may become exposed, or which the Lender may incur, by
reason of any act or omission of Debtor under any charter or other agreement
comprising Collateral or by the Lender exercising any of its rights under this
Agreement, provided that this indemnity does not
extend to liability incurred by the Lender solely through its gross negligence
or willful misconduct or acts and omissions as a mortgagee-in-possession.  The provisions of this Section 21 shall
remain operative and in full force and effect regardless of the termination of
this Agreement or any other Loan Document, the consummation of the transactions
contemplated hereby or thereby, the repayment of any of the Obligations, the
validity or unenforceability of any term or provision of this Agreement or any
other Loan Document or any investigation made by or on behalf of the Lender.

 

SECTION 22.                     MISCELLANEOUS.  The headings of each section of this
Agreement are for convenience only and shall not define or limit the provisions
thereof.  This Agreement and all rights
and obligations hereunder shall be binding upon Debtor and its respective

 

9

 

successors and assigns,
and shall inure to the benefit of the Lender and its successors and
assigns.  If any term of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity of all
other terms hereof shall in no way be affected thereby, and this Agreement
shall be construed and be enforceable as if such invalid, illegal or
unenforceable term had not been included herein. If at any time there is any
inconsistency between the terms of this Agreement and any other Security
Document, the terms of such other Security Document shall govern.  Debtor acknowledges receipt of a copy of this
Agreement.

 

SECTION 23.                     SUBMISSION TO
JURISDICTION; WAIVER.  EACH OF THE
DEBTOR AND THE LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY:

 

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

 

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

 

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

 

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

 

(i)                                     AGREES
THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT OR OTHERWISE AFFECT THE RIGHT OF
THE OTHER PARTY TO

 

10

 

BRING ANY ACTION OR
PROCEEDING AGAINST THE OTHER PARTY OR ITS PROPERTY IN THE COURTS OF OTHER
JURISDICTIONS.

 

SECTION 24.                     WAIVER OF
JURY TRIAL.  THE DEBTOR AND THE
LENDER HEREBY INTENTIONALLY AND VOLUNTARILY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE
TO A TRIAL BY JURY IN CONNECTION WITH ANY MATTER DIRECTLY OR INDIRECTLY
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT
AND THAT RELATE TO THE SUBJECT MATTER OF THE TRANSACTIONS DESCRIBED IN THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS, INCLUDING, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS.  THE DEBTOR AND THE LENDER EACH
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS.  THE DEBTOR ACKNOWLEDGES
THAT NEITHER THE LENDER NOR ANY PERSON ACTING ON BEHALF OF THE LENDER HAS MADE
ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY
WAY MODIFY OR NULLIFY ITS EFFECT.  THE
DEBTOR FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY
TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS
WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL.  THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT
BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS.  IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.

 

11

 

IN WITNESS
WHEREOF, intending to be legally bound, Debtor has caused this Agreement to be
duly executed as of the date first above written.

 

	
   

  	
  SEA
  COAST TRANSPORTATION LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
  Name:John J. Nicola

  
	
   

  	
   

  	
  Title:Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
  Accepted:

  CITIZENS LEASING CORPORATION,

  D/B/A CITIZENS ASSET FINANCE

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:John M. Young

  	
   

  
	
   

  	
  Title:Senior Vice President

  	
   

  
	
   

  	
   

  

 

 

EXHIBIT F

 

GUARANTY

(Unlimited)

 

GUARANTY,
dated as of December 19, 2005 by K-SEA TRANSPORTATION
PARTNERS L.P., K-SEA OPERATING PARTNERSHIP L.P. and SEA COAST TRANSPORTATION LLC (each a Guarantor and
collectively, the “Guarantor”), in favor of CITIZENS
LEASING CORPORATION, d/b/a CITIZENS ASSET FINANCE,
a Rhode Island corporation having a mailing address of 189 Canal Street, Providence,
Rhode Island, 02903 (the “Lender”).  In
consideration of the Lender’s giving, in its discretion, a loan to K-Sea Canada
Corp. (the “Borrower”), a Nova Scotia unlimited liability company, with its
principal place of business at 3245 Richmond Terrace, Staten Island, New York
10303, pursuant to a Loan Agreement dated as of the date hereof between the
Borrower and the Lender, the Guarantor agrees as follows:

 

1                                          GUARANTY
OF PAYMENT AND PERFORMANCE.  The
Guarantor hereby, jointly and severally, guarantees to the Lender the full and
punctual payment when due (whether at maturity, by acceleration or otherwise),
and the performance, of all liabilities, agreements and other obligations of
the Borrower to the Lender under the Loan Agreement, the Note, and the other
Loan Documents, whether direct or indirect, absolute or contingent, due or to
become due, secured or unsecured, now existing or hereafter arising or acquired
(whether by way of discount, letter of credit, lease, loan, overdraft or
otherwise) (the “Obligations”).  This
Guaranty is an absolute, unconditional and continuing guaranty of the full and
punctual payment and performance of the Obligations and not of their
collectibility only and is in no way conditioned upon any requirement that the
Lender first attempt to collect any of the Obligations from the Borrower or
resort to any security or other means of obtaining their payment.  Should an Event of Default (as defined in the
Loan Agreement) occur and be continuing, the Obligations of the Guarantor hereunder
shall become immediately due and payable to the Lender, without demand or
notice of any nature, all of which are expressly waived by the Guarantor.  Upon such an Event of Default, payments by
the Guarantor hereunder may be required by the Lender on any number of
occasions.

 

2                                          GUARANTOR’S
AGREEMENT TO PAY.  The Guarantor
further agrees, jointly and severally, as the principal obligor and not as a
guarantor only, to pay to the Lender, on demand, all costs and expenses
(including court costs and reasonable legal expenses) incurred or expended by
the Lender in connection with the Obligations, this Guaranty and the
enforcement thereof, together with interest on amounts recoverable under this
Guaranty from the time such amounts become due until payment, at the rate per
annum equal to the Default Rate (as defined in the Loan Agreement), provided
that if such interest exceeds the maximum amount permitted to be paid under
applicable law, then such interest shall be reduced to such maximum permitted
amount.

 

3                                          GUARANTOR’S
COVENANTS.  (a) The Guarantor
represents and warrants that, as of the date hereof the execution and delivery
of this Guaranty does not, and the performance by the Guarantor of his
obligations under this Guaranty will not, violate any provision of law
applicable to the Guarantor, or any agreement, indenture, note or other
instrument which is binding upon the Guarantor.

 

 

(b)                                 The
Guarantor agrees that his obligation to make payment in accordance with the
terms of this Guaranty shall not be impaired, modified, changed, released, or
limited in any manner whatsoever by any impairment, modification, change,
release or limitation of the liability of the Borrower or its estate in
bankruptcy resulting from the operation of any present or future provision of
the Federal Bankruptcy Code or other similar statute, or from the decision of
any court.

 

(c)                                  Until
this Guaranty is terminated as herein provided, the Guarantor agrees that it
will:

 

(i)                                     Keep
its properties adequately insured by financially sound and reputable insurers
to the same extent, in the same amounts and against the same risks as is
customary;

 

(ii)                                  Notify
the Lender promptly of (a) the occurrence of any event which results or
might result in a Material Adverse Effect; and (b) the commencement of any
action, suit or proceeding against the Guarantor or any of its properties in
which the amount claimed exceeds the sum of Five Hundred Thousand U.S. Dollars
($500,000.00) if relating to one or more of the Vessels or which, if adversely
determined, would have a Material Adverse Effect; and

 

(iii)                               Not
sell or otherwise transfer all or a material portion of its properties or
assets for less than fair and adequate consideration.

 

4                                          WAIVERS
BY GUARANTOR; LENDER’S FREEDOM TO ACT. 
The Guarantor agrees that the Obligations will be paid and performed
strictly in accordance with their respective terms regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction affecting
any of such terms or the rights of the Lender with respect thereto.  The Guarantor waives presentment, demand,
protest, notice of acceptance, notice of Obligations incurred and all other
notices of any kind, all defenses which may be available by virtue of any
valuation, stay, moratorium law or other similar law now or hereafter in
effect, any right to require the marshaling of assets of the Borrower, and all
suretyship defenses generally.  Without
limiting the generality of the foregoing, the Guarantor agrees to the provisions
of any instrument evidencing, securing or otherwise executed in connection with
any Obligation and agrees that the obligations of the Guarantor hereunder shall
not be released or discharged, in whole or in part, or otherwise affected by (i) the
failure of the Lender to assert any claim or demand or to enforce any right or
remedy against the Borrower; (ii) any extensions or renewals of any
Obligation; (iii) any rescissions, waivers, amendments or modifications of
any of the terms or provisions of any agreement evidencing, securing or
otherwise executed in connection with any Obligation; (iv) the
substitution or release of any entity primarily or secondarily liable for any
Obligation; (v) the adequacy of any rights the Lender may have against any
collateral or other means of obtaining repayment of the Obligations; (vi) the
impairment of any collateral securing the Obligations, including without
limitation the failure to perfect or preserve any rights the Lender might have
in such collateral or the substitution, exchange, surrender, release, loss or
destruction of any such collateral; or (vii) any other act or omission
which might in any manner or to any extent vary the risk of the Guarantor or
otherwise operate as a release or discharge of the Guarantor, all of which may
be done without notice to the Guarantor.

 

2

 

5                                          UNENFORCEABILITY
OF OBLIGATIONS AGAINST THE BORROWER. 
If for any reason the Borrower has no legal existence or is under no
legal obligation to discharge any of the Obligations, or if any of the
Obligations have become irrecoverable from the Borrower by operation of law or
for any other reason, this Guaranty shall nevertheless be binding on the
Guarantor to the same extent as if the Guarantor at all times had been the
principal obligor on all such Obligations. 
In the event that acceleration of the time for payment of the
Obligations is stayed upon the insolvency, bankruptcy or reorganization of the
Borrower, or for any other reason, all such amounts otherwise subject to
acceleration under the terms of any agreement evidencing, securing or otherwise
executed in connection with any Obligation shall be immediately due and payable
by the Guarantor.

 

6                                          SUBROGATION;
SUBORDINATION.  Until the payment and
performance in full of all Obligations and any and all obligations of the
Borrower to any affiliate of the Lender, the Guarantor shall not exercise any
rights against the Borrower arising as a result of payment by the Guarantor
hereunder, by way of subrogation or otherwise, and will not prove any claim in
competition with the Lender or its affiliates in respect of any payment
hereunder in bankruptcy or insolvency proceedings of any nature; the Guarantor
will not claim any set-off or counterclaim against the Borrower in respect of
any liability of the Guarantor to the Borrower; and the Guarantor waives any
benefit of and any right to participate in any collateral which may be held by
the Lender or any such affiliate.  The
payment of any amounts due with respect to any indebtedness of the Borrower to
the Guarantor, now existing or hereafter arising, is hereby subordinated to the
prior payment in full of the Obligations, provided that so long as no default
in the payment or performance of the Obligations has occurred and is
continuing, or no demand for payment of any of the Obligations has been made
that remains unsatisfied, the Borrower may make, and the Guarantor may demand
and accept, any scheduled payments of principal of and interest on such
subordinated indebtedness in the amounts, at the rates and on the dates
specified in such instruments, securities or other writings as shall evidence
such subordinated indebtedness.  The
Guarantor agrees that after the occurrence of any default in the payment or
performance of the Obligations, the Guarantor will not demand, sue for or
otherwise attempt to collect any such indebtedness of the Borrower to the
Guarantor until the Obligations shall have been paid in full.  If, notwithstanding the foregoing sentence,
the Guarantor shall collect, enforce or receive any amounts in respect of such
indebtedness, such amounts shall be collected, enforced and received by the
Guarantor as trustee for the Lender and be paid over to the Lender on account
of the Obligations without affecting in any manner the liability of the Guarantor
under the other provisions of this Guaranty.

 

7                                          WITHHOLDING
TAX.  All payments and amounts due to
Lender under or in connection with this Guaranty shall be paid to Lender free
and clear of any and all Foreign Taxes (as hereinafter defined).  If any Foreign Taxes must be deducted or
withheld from any amounts payable to Lender, the amount payable shall be
increased to yield to Lender (after payment of all Foreign Taxes) the full
dollar amount projected for payment. 
Whenever Guarantor pays any Foreign Tax on behalf of Lender, Guarantor
will promptly send to Lender such documentary evidence of payment as Lender may
reasonably require.  If Lender is allowed
a credit against its federal income taxes in respect of such Foreign Tax,
Lender will make annual refunds to Guarantor of the amount of such credits
which are actually applied against income taxes for the applicable year.  Lender will make the final determination of
whether and to what extent such credit is allowed.  For the purposes of this paragraph, “Foreign
Taxes” means any and all taxes

 

3

 

levies, imposts, duties,
fees, charges, deductions, withholdings, restrictions or conditions of any
nature imposed by Canada or any of its political subdivisions.

 

8                                          FURTHER
ASSURANCES.  The Guarantor agrees
that it will, from time to time at the request of the Lender, provide to the
Lender such other information relating to the business and affairs of the
Guarantor as the Lender may reasonably request.

 

9                                          TERMINATION;
REINSTATEMENT.  This Guaranty shall
remain in full force and effect until the Lender is given written notice of the
Guarantor’s intention to discontinue this Guaranty, notwithstanding any
intermediate or temporary payment or settlement of the whole or any part of the
Obligations.  No such notice shall be
effective unless received and acknowledged by an officer of the Lender at its
head office or at the branch of the Lender where this Guaranty is given.  No such notice shall affect any rights of the
Lender or of any affiliates hereunder including, without limitation, the rights
set forth in §3 and 5, with respect to Obligations incurred prior
to the receipt of such notice or Obligations incurred pursuant to any contract
or commitment in existence prior to such receipt, and all checks, drafts,
notes, instruments (negotiable or otherwise) and writings made by or for the
account of the Borrower and drawn on the Lender or any of its agents purporting
to be dated on or before the date of receipt of such notice, although presented
to and paid or accepted by the Lender after that date, shall form part of the
Obligations.  This Guaranty shall
continue to be effective or be reinstated, notwithstanding any such notice, if
at any time any payment made or value received with respect to an Obligation is
rescinded or must otherwise be returned by the Lender upon the insolvency,
bankruptcy or reorganization of the Borrower, or otherwise, all as though such
payment had not been made or value received.

 

10                                    SUCCESSORS
AND ASSIGNS.  This Guaranty shall be
binding upon the Guarantor, its successors and assigns, and shall inure to the
benefit of and be enforceable by the Lender and its successors, transferees and
assigns.  Without limiting the generality
of the foregoing sentence, in accordance with the terms set forth in the Loan
Agreement, the Lender may assign or otherwise transfer any agreement or any
note held by it evidencing, securing or otherwise executed in connection with
the Obligations, or sell participations in any interest therein, to any other
person or entity, and such other person or entity shall thereupon become
vested, to the extent set forth in the agreement evidencing such assignment,
transfer or participation, with all the rights in respect thereof granted to
the Lender herein.

 

11                                    AMENDMENTS
AND WAIVERS.  No amendment or waiver
of any provision of this Guaranty nor consent to any departure by the Guarantor
therefrom shall be effective unless the same shall be in writing and signed by
the Lender.  No failure on the part of
the Lender to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right.

 

12                                    NOTICES.  All notices and other communications called
for hereunder shall be made in writing and, unless otherwise specifically
provided herein, shall be deemed to have been duly made or given when delivered
by hand or mailed first class mail postage prepaid or, in the case of
telegraphic or telexed notice, when transmitted, answer back received,
addressed as follows: if to the Guarantor, at 3245 Richmond Terrace, Staten
Island, New York 10303, Attn:

 

4

 

Chief Financial Officer,
and if to the Lender, at 189 Canal Street, Providence, Rhode Island 02903, or
at such address as either party may designate in writing.

 

13                                    GOVERNING
LAW; CONSENT TO JURISDICTION.  EACH
OF THE GUARANTOR AND THE LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY:

 

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

 

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

 

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

 

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

 

AGREES THAT
NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT OR OTHERWISE AFFECT THE RIGHT OF THE
OTHER PARTY TO BRING ANY ACTION OR PROCEEDING AGAINST THE OTHER PARTY OR ITS
PROPERTY IN THE COURTS OF OTHER JURISDICTIONS. 
THIS GUARANTY SHALL BE DEEMED TO BE A CONTRACT EXECUTED UNDER THE LAWS
OF THE STATE OF NEW YORK AND FOR ALL PURPOSES TO BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF SUCH STATE.

 

5

 

14                                    MISCELLANEOUS.  This Guaranty constitutes the entire
agreement of the Guarantor with respect to the matters set forth herein.  The rights and remedies herein provided are
cumulative and not exclusive of any remedies provided by law or any other
agreement, and this Guaranty shall be in addition to any other guaranty of the
Obligations.  The invalidity or
unenforceability of any one or more sections of this Guaranty shall not affect
the validity or enforceability of its remaining provisions.  Captions are for the ease of reference only
and shall not affect the meaning of the relevant provisions.  The meanings of all defined terms used in
this Guaranty shall be equally applicable to the singular and plural forms of
the terms defined.

 

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

 

6

 

IN WITNESS
WHEREOF, the Guarantor has executed and delivered this Guaranty, as of the date
appearing on page one.

 

	
   

  	
  K-SEA TRANSPORTATION
  PARTNERS L.P.,

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Its general partner

  K-Sea General Partner L.P.,

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Its general
  partner

  K-Seal General Partner GP LLC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name: John J.
  Nicola

  
	
   

  	
   

  	
   

  	
  Title: Chief
  Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  K-SEA OPERATING PARTNERSHIP L.P.,

  
	
   

  	
   

  	
  By:

  	
  Its general partner

  K-Sea OLP GP LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name: John J.
  Nicola

  	
   

  
	
   

  	
   

  	
   

  	
  Title: Chief
  Financial Officer

  	
   

  
	
   

  	
  SEACOAST TRANSPORTATION LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: John
  J. Nicola

  	
   

  
	
   

  	
   

  	
  Title: Chief
  Financial Officer

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