Document:

Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

dated as of March 24, 2005

 

by and among

 

K-SEA OPERATING PARTNERSHIP L.P.,

as Borrower,

 

the Lenders party hereto,

 

LASALLE BANK NATIONAL ASSOCIATION,

as Syndication Agent

 

and

 

KEYBANK NATIONAL ASSOCIATION,

as Administrative Agent and Collateral Trustee for the
Lenders

 

 

TABLE
OF CONTENTS

 

	
  ARTICLE I DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  1.01

  	
  Defined
  Terms

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 1.02

  	
  Terms Generally

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 1.03

  	
  Accounting Terms; GAAP

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II THE LOANS

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.01

  	
  Commitments

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.02

  	
  Loans

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.03

  	
  Interest

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.04

  	
  [RESERVED]

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.05

  	
  Requests for Loans

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.06

  	
  Funding of Loans

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.07

  	
  Termination and Reduction of Commitments

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.08

  	
  Repayment of Loans; Evidence of Debt

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.09

  	
  Prepayment of Loans

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.10

  	
  Fees

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.11

  	
  Increased Costs; Illegality

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.12

  	
  Break Funding Payments

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.13

  	
  Taxes.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.14

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

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.15

  	
  Letters of Credit

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.16

  	
  Cash Collateral Account

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.17

  	
  Mitigation Obligations; Replacement of
  Lenders

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.18

  	
  Increase of Commitments

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III GRANT OF SECURITY INTEREST

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.01

  	
  Grant of Security Interest

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.02

  	
  Substitution of Pool Vessel

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.03

  	
  Orderly Liquidation Value

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.04

  	
  Negative Pledge

  	
   

  

 

i

 

	
  ARTICLE IV REPRESENTATIONS AND WARRANTIES

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.01

  	
  Organization

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.02

  	
  Power and Authority

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.03

  	
  Governmental Approvals; No Conflicts

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.04

  	
  Financial Condition; No Material Adverse
  Change

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.05

  	
  Litigation

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.06

  	
  Environmental Condition

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.07

  	
  Compliance with Laws and Agreements

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.08

  	
  Investment and Holding Company Status

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.09

  	
  Taxes

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.10

  	
  ERISA

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.11

  	
  Disclosure

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.12

  	
  No Other Name

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.13

  	
  Title

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.14

  	
  Lenders’ Security Interest

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.15

  	
  Citizenship

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.17

  	
  Government Consents for Conduct of Business

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.18

  	
  Federal Reserve Regulations.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V CONDITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.01

  	
  Effective Date.

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.02

  	
  Each Loan and Letter of Credit

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI AFFIRMATIVE COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.01

  	
  Financial Statements and Other Information

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.02

  	
  Pool Vessel Appraisals

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.03

  	
  Fees and Expenses

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.04

  	
  Notices of Material Events

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.05

  	
  Existence; Conduct of Business

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.06

  	
  Insurance

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.07

  	
  Taxes; Use

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.08

  	
  Maintenance of Properties; Use and
  Operation of Pool Vessels

  	
   

  

 

ii

 

	
  Section 6.09

  	
  Books and Records; Inspection Rights

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.10

  	
  Use of Proceeds

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.11

  	
  U.S. Person

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.12

  	
  Documentation

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.13

  	
  Further Assurances

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.14

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

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.15

  	
  Indemnification

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.16

  	
  Performance of Contracts

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.17

  	
  Environmental Compliance

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.18

  	
  Subsidiary Guaranties

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.19

  	
  Relating to the Vessels

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.20

  	
  Working Capital Clean-Down

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII NEGATIVE COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.01

  	
  Fixed Charge Coverage Ratio

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.02

  	
  Total Funded Debt to Tangible
  Capitalization Ratio

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.03

  	
  Total Funded Debt to EBITDA Ratio

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.04

  	
  Asset Coverage Ratio

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.05

  	
  No Liens

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.06

  	
  No Changes in Borrower

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.07

  	
  No Disposition of Assets

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.08

  	
  Fundamental Changes

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.09

  	
  Transactions with Affiliates

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.10

  	
  Restrictive Agreements

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.11

  	
  Limitations on Advances and Distributions

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.12

  	
  Limitations on Other Indebtedness

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.13

  	
  Limitations on Negative Pledge

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.14

  	
  Acquisitions

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.15

  	
  Partnerships, Joint Ventures

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 8.01

  	
  Events of Default

  	
   

  

 

iii

 

	
  Section 8.02

  	
  Remedies

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 8.03

  	
  Lenders’ Cure of Third Party Agreement
  Default

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX THE AGENTS

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.01

  	
  Authorization and Action

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.02

  	
  Agent’s Reliance, Etc

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.03

  	
  KeyBank and Affiliates

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.04

  	
  Lender Credit Decision

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.05

  	
  Indemnification

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.06

  	
  Successor Administrative Agents

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.07

  	
  Events of Default

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.08

  	
  Payments

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.09

  	
  Administrative Agent May File Proofs of
  Claim

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.10

  	
  Agents

  	
   

  
	
   

  	
   

  
	
  ARTICLE X MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.01

  	
  Notices

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.02

  	
  Term
  and Termination

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.03

  	
  K-Sea
  as Agent for Borrower

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.04

  	
  Discharge
  of Borrower

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.05

  	
  Waivers;
  Amendments

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.06

  	
  Expenses;
  Indemnity; Damage Waiver

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.07

  	
  Successors
  and Assigns

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.08

  	
  Survival

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.09

  	
  Counterparts;
  Integration; Effectiveness

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.10

  	
  Severability

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.11

  	
  Right
  of Set-off

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.12

  	
  Governing
  Law; Jurisdiction; Consent to Service of Process

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.13

  	
  WAIVER
  OF JURY TRIAL

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.14

  	
  Headings

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.15

  	
  Confidentiality

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.16

  	
  Interest
  Rate Limitation

  	
   

  

 

iv

 

	
  Section
  10.17

  	
  Further
  Assurances

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.18

  	
  Judgment
  Currency

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.19

  	
  USA
  Patriot Act Notice

  	
   

  

 

	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit
  A

  	
  -

  	
  Form
  of Note

  
	
  Exhibit
  B

  	
  -

  	
  Form
  of Assignment and Acceptance

  
	
  Exhibit
  C

  	
  -

  	
  Form
  of Opinion of Borrower’s Counsel

  
	
  Exhibit
  D

  	
  -

  	
  Form
  of Standby Letter of Credit

  
	
  Exhibit
  E

  	
  -

  	
  Form
  of Application for Documentary Letter of Credit

  
	
  Exhibit
  F

  	
  -

  	
  Form
  of Loan Request 

  
	
  Exhibit
  G

  	
  -

  	
  Form
  of Credit Request

  
	
  Exhibit
  H

  	
  -

  	
  Form
  of Subsidiary Guaranty

  

 

	
  SCHEDULES

  	
   

  	
   

  
	
  Schedule 1.01

  	
  -

  	
  Pool Vessels

  
	
  Schedule 2.01

  	
  -

  	
  Commitments

  
	
  Schedule
  4.06

  	
  -

  	
  Environmental
  Compliance

  
	
  Schedule
  4.14

  	
  -

  	
  Charters

  
	
  Schedule
  5.01

  	
  -

  	
  Existing
  Indebtedness

  

 

v

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”), dated as of March 24, 2005,
among K-SEA OPERATING PARTNERSHIP  L.P., a Delaware limited partnership (“Borrower”), the Lenders party hereto (the “Lenders”), LASALLE BANK NATIONAL
ASSOCIATION, as syndication agent, and KEYBANK NATIONAL ASSOCIATION, a national banking association (“KeyBank”), as administrative agent for the Lenders
(in such capacity, the “Administrative Agent”),
and as collateral trustee for Lenders (in such capacity, the “Collateral Trustee”).

 

RECITALS

 

WHEREAS, Borrower desires to obtain loan
facilities in the initial aggregate amount of Eighty Million Dollars ($80,000,000.00)
in order to refinance certain outstanding obligations of the Borrower and its Affiliates
under current senior credit facilities, finance the ongoing working capital and
capital expenditures of the Borrower and its affiliates, obtain the issuance of
Letters of Credit and for general corporate purposes, including acquisitions,
and

 

WHEREAS, Lenders have agreed to provide
Borrower with a revolving credit facility in the amount up to Eighty Million
Dollars ($80,000,000.00) (with a Twenty Million Dollar ($20,000,000.00)
sublimit for Letters of Credit) (the “Facility”)
that shall be secured by all the Collateral (as hereinafter defined) and
otherwise subject to the terms and conditions of this Agreement.

 

The
parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS

 

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

 

“Adjusted LIBOR Rate”
means, with respect to any LIBOR Loan for any Interest Period, an interest rate
per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a)
LIBOR for such Interest Period multiplied by (b) the Statutory Reserve Rate.

 

“Administrative
Agent” means KeyBank National Association, a national banking
association, in its capacity as administrative agent for Lenders hereunder.

 

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

 

 

“Agent”
means Administrative Agent and/or Collateral Trustee, as the case may be.

 

“Alternative Currency”
means any currency freely transferable into Dollars to the extent that such
currency is approved by the Administrative Agent and the L/C Issuer.

 

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

 

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

 

“Applicable Margin”
means, at all times during the applicable periods set forth below: (a) with
respect to Base Rate Loans, the percentage set forth below under the heading “Base
Rate Margin” and adjacent to such period, (b) with respect to LIBOR Loans, the
percentage set forth below under the heading “LIBOR Margin” and adjacent to
such period and (c) with respect to the Commitment Fees, the percentage set
forth below under the heading “Commitment Fee Margin” and adjacent to such
period:

 

	
  Period

  	
   

  	
  Applicable Margin

  	
   

  
	
  When the Total

  Funded Debt to

  EBITDA Ratio

  is greater than

  or equal to

  	
   

  	
  And less

  than

  	
   

  	
  Base Rate

  Margin

  	
   

  	
  LIBOR

  Margin

  	
   

  	
  Commitment

  Fee Margin

  	
   

  
	
  3.25:1.00

  	
   

  	
   

  	
   

  	
  0.250

  	
  %

  	
  2.000

  	
  %

  	
  0.375

  	
  %

  
	
  2.75:1.00

  	
   

  	
  3.25:1.00

  	
   

  	
  0.000

  	
  %

  	
  1.750

  	
  %

  	
  0.250

  	
  %

  
	
  2.25:1.00

  	
   

  	
  2.75:1.00

  	
   

  	
  0.000

  	
  %

  	
  1.500

  	
  %

  	
  0.225

  	
  %

  
	
  1.75:1.00

  	
   

  	
  2.25:1.00

  	
   

  	
  0.000

  	
  %

  	
  1.250

  	
  %

  	
  0.200

  	
  %

  
	
   

  	
   

  	
  1.75:1.00

  	
   

  	
  0.000

  	
  %

  	
  1.000

  	
  %

  	
  0.175

  	
  %

  

 

Changes in the Applicable Margin resulting from a
change in the Total Funded Debt to EBITDA Ratio shall be based upon the
certificate most recently delivered under Section 6.01(b) and shall become
effective on the first day of the month immediately succeeding the date such
certificate is required to be delivered to the Administrative Agent pursuant to
Section 6.01(b).  Notwithstanding
anything to the contrary in this definition, (i) if Borrower shall fail to
deliver to the Administrative Agent such a certificate on or prior to any date
required by Section 6.01(b), the Total Funded Debt to EBITDA Ratio shall be
deemed to be greater than 3.25:1.00 from and
including such date to the first day of the month immediately succeeding the
date of delivery to the Administrative Agent of such certificate and (ii)
during the period commencing on the Effective Date and ending on the first day
of the month immediately succeeding the date that the certificate to be
delivered under Section 6.01(b) for the fiscal quarter ending June 30, 2005 is to
be delivered to the Administrative Agent, the Applicable Margin shall be 0.000%
for Base Rate Loans, 1.750% for LIBOR Loans and 0.250% with respect to the Commitment
Fees.

 

2

 

“Applicable
Percentage” means, with respect to any Lender, the percentage of
the total Commitments represented by such Lender’s Commitment.

 

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

 

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

 

“Asset Coverage Ratio”
means, as of any date of determination, the ratio of the Orderly Liquidation
Value of all Pool Vessels that are part of the Collateral divided by the aggregate
Revolving Credit Exposure of all Lenders.

 

“Asset Disposition”
means the disposition of any or all of the fixed assets of the Borrower or any
of its Subsidiaries included in the Collateral whether by sale, lease, transfer
or otherwise (but excluding damage, destruction, loss or condemnation); provided,
however, prior to the occurrence of an Event of Default, the term “Asset Disposition” shall not include (a) any sale, lease,
transfer or other disposition of (i) inventory in the ordinary course of
business; (ii) obsolete or worn out equipment; (iii) traded-in equipment, (iv)
assets by Borrower to a Guarantor or by a Guarantor to Borrower or another
Guarantor; or (v) transfers permitted under Section 7.07, (b) sale-leaseback
transactions not otherwise prohibited hereby and (c) charters or other
employment contracts of Pool Vessels not otherwise prohibited hereby.

 

“Assignment and
Acceptance” means an assignment and acceptance entered into by
any Lender and an assignee (with the consent of any party whose consent is
required by Section 10.07 hereof), and accepted by Administrative Agent,
in the form of Exhibit B or
any other form approved by Administrative Agent.

 

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

 

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

 

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

 

“Base Rate”
means, for any day, a rate per annum equal to the greater of (a) the Prime
Rate, or (b) one-half of one percent (0.50%) in excess of the Federal
Funds Effective Rate.  Any change in the
Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the Prime
Rate or the Federal Funds Effective Rate, respectively.

 

3

 

“Base Rate Loan”
means any Loan bearing interest at the Base Rate.

 

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

 

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

 

“Borrowing Base”
means 80% of the Orderly Liquidation Value of the Pool Vessels.

 

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

 

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

 

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

 

“CERCLA”
means the Comprehensive Environmental Response, Compensation and Liability Act,
as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C.
Section 9601 et seq. and as further amended
from time to time.

 

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

 

“Change in Law”
means (a) the adoption of any law, rule or regulation after the date of
this Agreement, (b) any change in any law, rule or regulation or in the
interpretation or 

 

4

 

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

 

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

 

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

 

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

 

“Collateral Trustee”
means KeyBank National Association in its capacity as collateral trustee for
Lenders hereunder.

 

“Commitment”
means, with respect to each Lender, the commitment of such Lender to make Loans
hereunder, expressed as an amount representing one hundred percent (100%) of
the maximum aggregate amount of such Lender’s Revolving Credit Exposure
hereunder, as such commitment may be (a) reduced from time to time
pursuant to Section 2.07 hereof, and (b) reduced or increased from time
to time pursuant to assignments by or to such Lender pursuant to
Section 10.07 hereof.  The initial
amount of each Lender’s Commitment is set forth (x) on Schedule 2.01
or (y) in the Assignment and Acceptance pursuant to which such Lender
shall have assumed its Commitment, as applicable.

 

“Commitment Fee”
has the meaning set forth in Section 2.10.

 

“Commitment Fee Margin”
has the meaning set forth in the definition of “Applicable
Margin”.

 

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

 

“Credit Party”
means each of Borrower, each Guarantor and each of their respective
Subsidiaries; provided, however, “Credit Party” shall exclude
Inversiones Kara Sea Srl.

 

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

 

5

 

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

 

“Documentary
Letter of Credit” shall have the meaning ascribed thereto in
Section 2.02(c) hereof.

 

“Dollar Equivalent”
means, at any date of determination thereof, with respect to an amount of an
Alternative Currency, the amount of Dollars which could be purchased with such
amount of such Alternative Currency at the spot exchange rate therefor as
quoted by the Administrative Agent as of 11:00 a.m. (New York City time) on the
date two Business Days prior to the date of any determination thereof for
purchase on such date (or, in the case of any determination pursuant to Section
10.18, on the date of determination).

 

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

 

“Earnings
Assignment” means the general assignment for security interest
purposes of all charters, charter hire, freights and earnings with respect to
the Pool Vessels granted by Borrower in favor of the Collateral Trustee, in
form and substance satisfactory to the Administrative Agent.

 

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

 

(1)                                  the
net income (or net loss) of Borrower (determined in accordance with GAAP) for
such fiscal period, without giving effect to any extraordinary pre-tax gains or
losses; plus:

 

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

 

(i)                                     Interest
Expense of Borrower for such fiscal period;

 

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

 

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

 

(3)                                  to
the extent added in calculating such net income, gains from sales, exchanges
and other dispositions of assets not in the ordinary course of business.

 

“Effective Date”
means the date on which the conditions specified in Section 5.01 hereof
are satisfied (or waived in accordance with Section 10.06 hereof).

 

6

 

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

 

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

 

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

 

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

 

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

 

7

 

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

 

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

 

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

 

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

 

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

 

“Existing Letters of Credit”
means, collectively, (a) Irrevocable Standby Letter of Credit No. S308212 dated
January 14, 2004 issued by KeyBank in favor of the United States of America,
represented by the Secretary of Transportation, acting by and through the
Maritime Administrator, as beneficiary, in the aggregate amount of $6,485,000
(the “Existing MARAD Letter of Credit”) and
(b) Irrevocable Standby Letter of Credit No. S309764 dated November 3, 2004
issued by KeyBank in favor of New York State Department of Taxation and
Finance, as beneficiary, in the aggregate amount of $2,000.

 

“Excluded Taxes”
means, with respect to the Administrative Agent, the Collateral Trustee, any
Lender or any other recipient of any payment to be made by or on account of any
obligation of Borrower hereunder, (a) income or franchise taxes imposed on
(or measured by) its 

 

8

 

net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which
its principal office is located or, in the case of any Lender, in which its
applicable lending office is located, (b) any branch profits taxes imposed
by the United States of America or any similar tax imposed by any other
jurisdiction in which Administrative Agent, such Lender or such other recipient
is located, and (c) in the case of a Foreign Lender (other than an assignee
pursuant to a request by Borrower under Section 2.17(b) hereof), any
withholding tax that is imposed on amounts payable to such Foreign Lender at
the time such Foreign Lender becomes a party to this Agreement or is
attributable to such Foreign Lender’s failure or inability to comply with
Section 2.13(d) hereof, except to the extent that such Foreign Lender’s
assignor (if any) was entitled, at the time of assignment, to receive
additional amounts from Borrower with respect to such withholding tax pursuant
to Section 2.13(a) hereof.

 

“Extraordinary Receipt”
means any cash received by or paid to or for the account of any Person
consisting of proceeds of casualty type insurance (other than proceeds of
business interruption insurance to the extent such proceeds constitute
compensation for lost earnings), and condemnation awards (and payments in lieu
thereof) and indemnity payments relating to third party claims; provided,
however, that an Extraordinary Receipt shall not include cash receipts
received from proceeds of insurance, condemnation awards (and payments in lieu
thereof) or indemnity payments to the extent that such proceeds, awards or
payments (a) in respect of loss or damage to Pool Vessels, equipment, fixed
assets or real property are applied (or in respect of which expenditures were
previously incurred) to replace or repair the Pool Vessels, equipment, fixed
assets or real property in respect of which such proceeds, awards or payments
were received in accordance with the terms of the Loan Documents, so long as
such application, or commitment to make such application, is made within twelve
(12) months after the occurrence of such damage or loss; or (b) are received by
any Person in respect of any third party claim against such Person and applied
to pay (or to reimburse such Person for its prior payment of) such claim and
the costs and expenses of such Person with respect thereto.

 

“Facility”
means the revolving facility in the aggregate amount outstanding at any time
not to exceed the Maximum Amount with a sublimit for Letters of Credit in the
amount of Twenty Million Dollars ($20,000,000.00) as described in
Section 2.02(c) hereof.

 

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

 

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

 

“Financial
Statements” means the balance sheet and statement of income and
cash flows of K-Sea and its consolidated Affiliates (including, without
limitation, Borrower and all 

 

9

 

Guarantors), on a consolidated basis, as required from
time to time to be provided by Borrower under this Agreement.

 

“Fixed Charge
Coverage Ratio” means, at any date of determination, the ratio
of (a) EBITDA less Maintenance CAPEX divided by (b) Fixed Charges, in each case
for the four fiscal quarter period ending on such date or, if such date is not
the last day of a fiscal quarter, for the immediately preceding four fiscal
quarter period.

 

“Fixed Charges”
means the sum, for any period for K-Sea and its consolidated Affiliates,
including, without limitation, Borrower and any Guarantor, on a consolidated
basis, of the following: 
(i) Interest Expense, plus (ii) the current portion of capital
lease payments, plus (iii) Scheduled Principal Payments, plus (iv) cash
income taxes.

 

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

 

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

 

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

 

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

 

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

 

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

 

10

 

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

 

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

 

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

 

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

 

“Indemnified
Taxes” means Taxes other than Excluded Taxes.

 

11

 

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

 

“Interest Payment
Date” means, (i) with respect to any Base Rate Loan, the last
day of each calendar month, provided, that if any Interest Payment Date
would end on a day other than a Business Day, such Interest Payment Date shall
be extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Payment Date shall end on the next preceding Business Day, and (ii) with
respect to any LIBOR Loan, shall mean the last day of the relevant Interest
Period, provided interest on any LIBOR Loan having an Interest Period of
six (6) months shall be payable three (3) months after the first day of such
Interest Period as well as on the last day of the relevant Interest
Period.  For purposes hereof, the date of
a Loan initially shall be the date on which such Loan is made.

 

“Interest Period”
means with respect to a LIBOR Loan, the period commencing on the date of the
making of such LIBOR Loan and ending on the numerically corresponding day in
the calendar month that is one, two, three or six months thereafter, as
Borrower may elect, provided that (a) if any Interest Period would end
on a day other than a Business Day, such Interest Period shall be extended to the
next succeeding Business Day, unless such next succeeding Business Day would
fall in the next calendar month, in which case such Interest Period shall end
on the next preceding Business Day, (b) any Interest Period that commences on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such Interest
Period) shall end on the last Business Day of the last calendar month of such
Interest Period. For purposes hereof, the date of the making of a LIBOR Loan
initially shall be the date on which such LIBOR Loan is made and thereafter
shall be the effective date of the most recent conversion or continuation of
such LIBOR Loan.

 

“Interest Rate”
means the applicable interest rate as set forth in Section 2.03 hereof.

 

“KeyBank”
means KeyBank National Association.

 

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

 

“L/C Issuer”
means KeyBank.

 

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

 

12

 

similar extensions of credit, any other fund that
invests in bank loans and similar extensions of credit and is managed by the
same investment advisor as such Lender or by an Affiliate of such investment
advisor.

 

“Lenders”
means the Persons listed on Schedule 2.01 and any other Person that shall have
become a party hereto pursuant to an Assignment and Acceptance, other than any
such Person that ceases to be a party hereto pursuant to an Assignment and
Acceptance.

 

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

 

“Letter of Credit Exposure”
means in respect of any Lender at any time, an amount equal to (i) the sum
(without duplication) at such time of (x) the aggregate amount available for
drawing under the outstanding Letters of Credit, (y) the aggregate amount of
unpaid drafts drawn on all Letters of Credit, and (z) the aggregate unpaid
Reimbursement Obligations, multiplied by (ii) such Lender’s Applicable
Percentage at such time

 

“Letter of Credit Sublimit”
means $20,000,000.

 

“LIBOR” means, with respect to the Interest
Period applicable to any LIBOR Loan, a rate of interest per annum, as
determined by the Administrative Agent, equal to the rate for deposits in
Dollars for a period comparable to such Interest Period which appears on
Telerate Page 3750 as of 11:00 a.m., London time, on the day that is two
Business Days prior to the first day of such Interest Period.  If such rate does not appear on Telerate Page
3750, the LIBO Rate shall be the rate per annum (rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point) at which deposits in
Dollars are offered by four major banks in the London interbank market at
approximately 11:00 a.m., London time, on the day that is two Business Days
prior to the first day of such Interest Period to prime banks in the London
interbank market for a period of one month commencing on the first day of such
Interest Period in an amount comparable to the principal amount of such LIBOR
Loan.  The Administrative Agent will
request the principal London office of each such bank to provide a quotation of
its rate.  If at least two such
quotations are provided as requested, the rate for such Interest Period shall
be the arithmetic mean of the quotations. 
If fewer then two quotations are provided as requested, the rate for
such Interest Period shall be the arithmetic mean of the rates quoted by major
banks in New York City, selected by the Administrative Agent, at approximately
11:00 a.m., New York City time, on the date that is two Business Days prior to
the first day of such Interest Period for loans in Dollars to leading European
banks for a period of one month commencing on the first day of such Interest
Period in an amount comparable to such LIBOR Loan.

 

“LIBOR Loan”
means any Loan bearing interest at the LIBOR Rate.

 

“LIBOR Rate”
means the Adjusted LIBOR Rate plus the Applicable Margin.

 

“Lien”
means, with respect to any asset, any interest in property securing an
obligation owed to, or a claim by, any person other than the owner of the
property, whether such interest shall be based on common law, maritime law,
statute, contract or conveyance and including, but not limited to, the security
interest lien arising from any pledge, mortgage, chattel mortgage,

 

13

 

charge, encumbrance, conditional sale or trust
receipt, or from a charter, consignment or bailment for security purposes and
any tax lien, mechanic’s lien, materialman’s lien, workman’s lien, repairman’s
lien, any financing statement or other similar charge or encumbrance.

 

“Loan”
has the meaning assigned to such term in Section 2.02(b) hereof and
includes, without limitation, all amounts debited to reimburse the L/C Issuer
for drawdowns against a Letter of Credit and related expenses provided at the
request of Borrower pursuant to Section 2.15 hereof.

 

“Loan Accounts” means
one or more loan accounts maintained by the Administrative Agent for Borrower
in the ordinary course of business, including, without limitation, any loan
account in respect of the Facility, and each, a “Loan Account.”

 

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

 

“Loan Request”
means a request by Borrower for a Loan in accordance with Section 2.05
hereof.

 

“Maintenance
CAPEX” means all Capital Expenditures made for the purpose of
maintaining (and not increasing) the operating capacity of the Pool Vessels
during the twelve (12) calendar months immediately preceding any date of
determination thereof.

 

“Managing Person”
means, with respect to any Person that is (a) a corporation, its board of
directors, (b) a limited liability company, its board of control, managing
member or members, (c) a limited partnership, its general partner, (d) a
general partnership or a limited liability partnership, its managing partner or
executive committee or (e) any other Person, the managing body thereof or other
Person analogous to the foregoing.

 

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

 

“Material
Indebtedness” means Indebtedness (other than the Loans), or
obligations in respect of one or more Hedging Agreements, of any one or more of
K-Sea, Borrower and its Subsidiaries in an aggregate principal amount exceeding
$100,000.00.  For purposes of determining
Material Indebtedness, the “principal amount” of the obligations of K-Sea,
Borrower or any Subsidiary in respect of any Hedging Agreement at any time
shall be the maximum aggregate amount (giving effect to any netting agreements)
that K-Sea, Borrower or such Subsidiary would be required to pay if such
Hedging Agreement were terminated at such time.

 

“Maturity Date”
means the Termination Date.

 

14

 

“Maximum Amount”
means, with respect to the Facility, Eighty Million Dollars ($80,000,000.00),
as such amount may be increased in the aggregate in accordance with Section 2.18
hereof.

 

“Minimum Loan
Amount” means, with respect to any LIBOR Loan, a minimum amount
of Five Hundred Thousand Dollars ($500,000.00), with additional amounts in
increments of One Hundred Thousand Dollars ($100,000.00) and, with respect to
any Base Rate Loan, a minimum amount of One Hundred Thousand Dollars
($100,000.00) with additional amounts in increments of One Hundred Thousand
Dollars ($100,000.00).

 

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

 

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

 

“Net Proceeds”
means, with respect to any Asset Disposition by any Person, or any
Extraordinary Receipt received by or paid to or for the account of any Person,
the aggregate amount of cash received from time to time (whether as initial
consideration or through payment or disposition of deferred consideration) by
or on behalf of such Person in connection with such transaction after deducting
therefrom only (without duplication) (a) reasonable and customary brokerage
commissions, investment banking fees, underwriting fees and discounts, legal
fees, accounting fees, finder’s fees and other similar out-of-pocket costs, (b)
the amount of taxes paid or payable in connection with or as a result of such transaction
and (c) with respect to any asset, the amount of any Indebtedness secured by a
Lien on such asset that, by the terms of such transaction, is repaid upon such
disposition, in each case to the extent, but only to the extent, that the
amounts so deducted are, at the time of receipt of such cash, actually paid to
a Person that is not an Affiliate of such Person or any Credit Party or any
Affiliate of any Credit Party and are properly attributable to such transaction
or to the asset that is the subject thereof.

 

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

 

“Notes”
means collectively the Notes evidencing Loans under the Facility as described
in Section 2.08 hereof.

 

“Obligations”
means (a) the due and punctual payment of (i) principal of and premium, if any,
and interest (including interest accruing during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding) on the Loans or the Letter of
Credit Exposure, when and as due, whether at maturity, by acceleration, upon
one or more dates set for prepayment or otherwise, (ii) all other monetary
obligations, including fees, commissions, costs, expenses and indemnities,
whether 

 

15

 

primary, secondary, direct, contingent, fixed or
otherwise (including monetary obligations incurred during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding), of the Borrower or any other
Credit Party to the Administrative Agent, the Lenders or the L/C Issuer, or
that are otherwise payable to the Administrative Agent, the Lenders or the L/C
Issuer, under this Agreement and the other Loan Documents and (iii) all
obligations of Borrower, monetary or otherwise, under each Hedging Agreement
entered into with any Lender (or any Affiliate thereof) as a counterparty and
(b) the due and punctual performance of all covenants, agreements, obligations
and liabilities of Borrower or any other Credit Party under or pursuant to this
Agreement and the other Loan Documents. 
This term includes all principal, interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other
similar proceeding, regardless of whether allowed or allowable in such
proceeding), fees, charges, expenses, attorneys’ fees and any other sum
chargeable to any Credit Party under this Agreement or any of the other Loan
Documents.

 

“OPA 90”
means the Oil Pollution Act of 1990, P.L. 101-380, 104 Stat. 484 et seq., as amended from time to time.

 

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

 

“Organizational
Documents” means as to any Person which is (a) a corporation,
the certificate or articles of incorporation and by-laws of such Person, (b) a
limited liability company, the limited liability company agreement or similar
agreement of such Person, (c) a partnership, the partnership agreement or
similar agreement of such Person, or (d) any other form of entity or
organization, the organizational documents analogous to the foregoing.

 

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

 

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

 

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

 

“Permitted
Acquisition” means the purchase, holding or acquisition of
(including pursuant to any merger) any capital stock or other securities
(including any option, warrant or other right to acquire any of the foregoing)
of any other Person, or the purchase or acquisition of (in one transaction or a
series of transactions (including pursuant to any merger)) any assets of any
other Person constituting a business unit, provided that, (i) at the time thereof and immediately after
giving effect thereto no Default shall have occurred and be continuing, (ii)

 

16

 

such Person or business unit, as the case may be, is
in substantially the same business as Borrower and (iii) Borrower shall have
complied with the provisions of Section 6.18 with respect to such Person.

 

“Permitted Liens”
means:

 

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

 

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

 

(c)                                  Liens
arising out of bareboat charters of Pool Vessels to K-Sea Transportation Inc.
covering the Pools Vessels described on Schedule 4.14;

 

provided, that the term “Permitted Liens” shall not
include any Lien securing Indebtedness; and, provided, further,
that the aggregate amount of Permitted Liens outstanding on all Pool Vessels at
any one time shall not exceed $1,500,000.

 

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

 

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

 

“Pool Vessels”
means those vessels identified on Schedule 1.01 hereto, together with any
vessels hereafter added to the Pool Vessels pursuant to Section 3.02 or
Section 3.03 hereof.

 

“Prime Rate”
means the rate of interest per annum publicly announced from time to time by
KeyBank National Association as its prime commercial lending rate; each change
in the Prime Rate being effective from and including the date such change is
publicly announced as being effective. The Prime Rate is not intended to be
lowest rate of interest charged by KeyBank National Association in connection
with extensions of credit to borrowers.

 

“Proceeds
shall have the meaning assigned to it in the UCC and, in any event, shall
include, but not be limited to, (i) any and all proceeds of any insurance,
indemnity or warranty payable to Lenders, from time to time with respect to the
Pool Vessels or other Collateral; (ii) any and all payments (in any form
whatsoever) made or due and payable from time to time in connection with any
sale, requisition, confiscation, condemnation, seizure or forfeiture of all and

 

17

 

any part of the Pool Vessels by any governmental body,
authority, bureau or agency of any other Person (whether or not acting under
color of governmental body); and (iii) accounts arising out of, any
charter or chattel paper evidencing, any lease, contract for use or lease of,
any and all other rents, hire or profits or other amounts from time to time
paid or payable to Lenders in connection with, the Pool Vessels.

 

“Prohibited
Jurisdiction” means any country or jurisdiction, from time to
time, (a) that is subject of a prohibition order (or any similar order or
directive), sanctions or restrictions promulgated or administered by the Office
of Foreign Assets Control of the United States Treasury Department, or
(b) in which, or for which, any Lender, which is a Lender on the Effective
Date, is otherwise prohibited or restricted, under laws, regulations, sanctions
or restrictions applicable to it or its business, from extending credit,
transferring property or assets, engaging in or facilitating trade or other
economic activity, or otherwise doing business.

 

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

 

“Proposed Increased
Commitment” has the meaning assigned to such term in
Section 2.18 hereof.

 

“Qualified Pool
Vessels” means Pool Vessels that are documented, coastwise
eligible tugs, AT/Bs and double-hulled barges and are acceptable in age,
construction, condition and trade employment to the Administrative Agent; provided,
that during the period from the Effective Date to the third Anniversary Date, “Qualified
Pool Vessels” may also include single-hulled barges having an Orderly
Liquidation Value not in excess of five percent (5%) of the aggregate Orderly
Liquidation Value of all Pool Vessels.

 

“Register”
has the meaning assigned to such term in Section 10.07(c) hereof.

 

“Reimbursement Obligation”
means, collectively, the obligation of Borrower to the L/C Issuer with respect
to each Letter of Credit and all documents, instruments and other agreements
related thereto, including the obligation of Borrower to reimburse the L/C
Issuer for amounts drawn under such Letter of Credit.

 

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

 

“Required Lenders”
means, at any time, Lenders having Revolving Credit Exposures and unused
Commitments representing a percentage equal to or greater than sixty-six and
two third percent (66.67%) (or in the case, at any time, that the number of
Lenders equals two or less, then one hundred percent (100%)) of the sum of the
total Revolving Credit Exposure and unused Commitments at such time.

 

18

 

“Revolving Credit
Exposure” means, with respect to any Lender at any time, the sum
as of such time of (i) the outstanding principal balance of such Lender’s
Loans, plus (ii) such Lender’s Letter of Credit
Exposure.

 

“Scheduled Principal
Payments” means, with respect to any Person as of any date, all
scheduled payments of principal on Indebtedness paid by such Person during the
twelve (12) calendar month period immediately preceding such date; provided
that any Indebtedness repaid in full or in part from proceeds of Loans shall be
excluded (entirely, in the case of Indebtedness repaid in full and partially to
the extent of such repayment, in the case of Indebtedness repaid in part) in
the determination of Scheduled Principal Payments.

 

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

 

“Standby Letter
of Credit” shall have the meaning ascribed thereto in
Section 2.02(c) hereof.

 

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

 

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

 

“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

 

19

 

shall be (or should be) consolidated with the
financial statements of such Person in accordance with GAAP.

 

“Subsidiary
Guarantor” means any Subsidiary that executes and delivers a
Subsidiary Guaranty; provided, however, “Subsidiary Guarantor”
shall exclude Inversiones Kara Sea Srl.

 

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

 

“Tangible Capitalization” means, as of
any date, the sum of Tangible Net Worth at such date plus Total Funded Debt at
such date.

 

“Tangible Net
Worth” means the excess of total assets over total liabilities,
total assets and total liabilities each to be determined in accordance with
GAAP consistent with those applied in the preparation of the Financial
Statements referred to in Section 6.01 hereof, excluding, however, from
the determination of total assets all assets which would be classified as
intangible assets under GAAP, including, without limitation, capitalized
organizational costs, goodwill, licenses, patents, trademarks, trade names,
copyrights and franchises.

 

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

 

“Telerate
Page 3750” means the display page so designated on the Dow Jones
Telerate Service (or such other page as may replace that page on that service),
or such other service as may be nominated as the information vendor for
purposes of displaying rates or prices comparable to LIBOR.

 

“Termination Date”
means the fifth anniversary of the Effective Date.

 

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

 

“Total Funded Debt” means, as of
any date, all Indebtedness of K-Sea and its consolidated Affiliates, including,
without limitation, Borrower and any Guarantor, on a consolidated basis, of the
kinds and types (without duplication) described in clauses (a), (b), (c), (d),
(e), (f), (g), (h), (j) (excluding obligations in respect of letters of credit
issued as credit support of obligations for borrowed money of the Borrower or
any Guarantor included in the determination of Total Funded Debt) and (k) of
the definition of Indebtedness.

 

“Total Funded Debt to
EBITDA Ratio” means, at any date of determination, the ratio of
Total Funded Debt divided by EBITDA for the four fiscal quarter period ending
on such date or, if such date is not the last day of a fiscal quarter, for the
immediately preceding four fiscal quarter period.

 

20

 

“Total Funded Debt to
Tangible Capitalization Ratio” means, at any date of
determination, the ratio of Total Funded Debt divided by Tangible
Capitalization.

 

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

 

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

 

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

 

Section 1.02                            Terms
Generally.  The definitions of
terms herein shall apply equally to the singular and plural forms of the terms
defined.  Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms.  The words “include”, “includes”
and “including” shall be deemed to be followed by the phrase “without
limitation”.  The word “will” shall be
construed to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument
or other document as from time to time amended, supplemented or otherwise
modified (subject to any restrictions on such amendments, supplements or
modifications set forth herein), (b) any reference herein to any Person
shall be construed to include such Person’s successors and assigns,
(c) the words “herein”, “hereof” and “hereunder”, and words of similar
import, shall be construed to refer to this Agreement in its entirety and not
to any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles
and Sections of, and Exhibits, Schedules and Annexes to, this Agreement,
and (e) the words “asset” and “property” shall be construed to have the
same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts and contract
rights.

 

Section 1.03                            Accounting
Terms; GAAP.  Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided,
that, if Borrower notifies the Administrative Agent that Borrower requests an
amendment to any provision hereof to eliminate the effect of any change
occurring after the date hereof in GAAP or in the application thereof on the
operation 

 

21

 

of such provision (or if the Administrative Agent
notifies Borrower that the Required Lenders request an amendment to any
provision hereof for such purpose), regardless of whether any such notice is
given before or after such change in GAAP or in the application thereof, then
such provision shall be interpreted on the basis of GAAP as in effect and
applied immediately before such change shall have become effective until such
notice shall have been withdrawn or such provision amended in accordance
herewith.

 

ARTICLE II

THE LOANS

 

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

 

Section
2.02                            Loans.

 

(a)                                  Each Loan shall be made by the Lenders
ratably in accordance with their respective Commitments.  The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its obligations
hereunder; provided, that the Commitments of Lenders are several and no
Lender shall be responsible for any other Lender’s failure to make any Loan as
required.

 

(b)                                 Subject to the terms and conditions contained
herein and until the Termination Date, the Lenders shall make loans to Borrower
on a revolving basis in amounts requested by Borrower from time to time (the “Loans” and each, a “Loan”) in an aggregate amount outstanding
at any time not to exceed the amount permitted by this Section 2.02.  Each Loan shall be in an aggregate principal amount
of not less than the Minimum Loan Amount or an integral multiple of $100,000.00
in excess thereof.

 

(c)                                  Subject to availability, Borrower may request
the L/C Issuer to issue trade, commercial documentary letters of credit (each,
a “Documentary Letter of Credit”) and
standby letters of credit (“Standby Letters of Credit”,
and each, a “Standby Letter of Credit”,
collectively with Documentary Letters of Credit, “Letters of
Credit”), in Dollars or any Alternative Currency, during the period
from the Effective Date to the thirtieth Business Day prior to the Maturity
Date; provided that immediately after giving effect to the issuance of
each Letter of Credit (i) the Letter of Credit Exposure of all Lenders would
not exceed the Letter of Credit Sublimit and (ii) the Revolving Credit Exposure
of all Lenders would not exceed the aggregate Commitments of all Lenders.

 

(d)                                 The sum of the aggregate principal amount of
all Loans and the aggregate Letters of Credit Exposure shall at no time exceed
the lesser of (i) the Maximum Amount and (ii) the Borrowing Base.  The Lenders shall have no obligation to make
any Loan and the L/C Issuer shall have no obligation to issue any Letter of
Credit if, after giving effect to the making of such 

 

22

 

Loan or the issuance of such
Letter of Credit, the Revolving Credit Exposure would exceed the lesser of (i)
the Maximum Amount and (ii) the Borrowing Base.

 

(e)                                  Notwithstanding any other provision of this
Agreement, Borrower shall not be entitled to request, or to elect to convert or
continue, any Loan if the Interest Period requested with respect thereto would
end after the Termination Date, and Borrower shall not be entitled to request
the issuance of any Letter of Credit or any renewal thereof which would expire
after the Termination Date or provides for a drawing thereunder after the
Termination Date.

 

Section
2.03                            Interest.

 

(a)                                  Base Rate Loans shall, in each case, bear interest at the Base Rate
plus the Applicable Margin.

 

(b)                                 LIBOR Loans shall, in each case, bear
interest at the Adjusted LIBOR Rate for the Interest Period in effect for such
LIBOR Loan plus the Applicable Margin.

 

(c)                                  Notwithstanding the foregoing, if an Event of
Default has occurred and is continuing, then, so long as such Event of Default
is continuing, all principal of each Loan and each fee and other amount then
due and  payable by Borrower hereunder
shall bear interest, after as well as before judgment, at a rate per annum
equal to (i) in the case of principal of any Loan, 2% plus the rate otherwise
applicable to such Loan as provided in the preceding paragraphs of this Section
or (ii) in the case of any other amount, 2% plus the Base Rate plus the
Applicable Margin for Base Rate Loans.

 

(d)                                 Accrued interest on each Loan shall be
payable in arrears on each Interest Payment Date for such Loan, provided that
(i) interest accrued pursuant to paragraph (c) of this Section 2.03 shall be
payable on demand, (ii) in the event of any repayment or prepayment of any
Loan, accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment and (iii) in the event of
any conversion of any LIBOR Loan prior to the end of the current Interest
Period therefor, accrued interest on such LIBOR Loan shall be payable on the
effective date of such conversion.

 

(e)                                  All interest hereunder shall be computed on
the basis of a year of 360 days for the actual number of days elapsed
(including the first day but excluding the last day).  The applicable Base Rate, Adjusted LIBOR Rate
or LIBOR shall be determined by the Administrative Agent, and such
determination shall be conclusive absent clearly demonstrable error.

 

(f)                                    Each Loan initially shall be of the type
specified in the applicable Loan Request and, in the case of a LIBOR Loan,
shall have an initial Interest Period as specified in such Loan Request.  Thereafter, Borrower may elect to convert
such Loan to a different type or to continue such Loan and, in the case of a LIBOR
Loan, may elect Interest Periods therefor, all as provided in this Section 2.03.  Borrower may elect different options with
respect to different portions of the affected Loan, in which case each such
portion shall be allocated ratably among the Lenders.

 

23

 

(g)                                 To make an election pursuant to this Section
2.03, Borrower shall notify the Administrative Agent of such election by
telephone by the time that a Loan Request would be required under
Section 2.05 if Borrower were requesting a Loan of the type resulting from
such election to be made on the effective date of such election.  Each such interest rate election made
telephonically shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written interest rate
election in a form approved by the Administrative Agent and signed by Borrower.

 

(h)                                 Each telephonic and written interest rate
election shall specify (i) the Loan to which such interest rate election
applies and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting Loans
(in which case the information to be specified pursuant to clauses (iii) and
(iv) of this paragraph shall be specified for each resulting Loan); (ii) the
effective date of the election made pursuant to such interest rate election,
which shall be a Business Day; (iii) whether the resulting Loan is to be a Base
Rate Loan or a LIBOR Loan; and (iv) if the resulting Loan is a LIBOR Loan, the
Interest Period to be applicable thereto after giving effect to such election,
which shall be a period contemplated by the definition of the term “Interest
Period”.  If any such interest rate
election requests a LIBOR Loan but does not specify an Interest Period, then
Borrower shall be deemed to have selected an Interest Period of one month’s
duration.

 

(i)                                     Promptly following receipt of an interest
rate election, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender’s portion of each resulting Loan.

 

(j)                                     If Borrower fails to deliver a timely
interest rate election with respect to any LIBOR Loan prior to the end of the
Interest Period applicable thereto, then, unless such LIBOR Loan is repaid as
provided herein at the end of such Interest Period, such LIBOR Loan shall be
converted to a Base Rate Loan at the end of such Interest Period.  Notwithstanding any contrary provision hereof,
if an Event of Default has occurred and is continuing and the Administrative
Agent, at the request of the Required Lenders, so notifies Borrower, then, so
long as an Event of Default is continuing, (i) no outstanding Loan may be
converted to or continued as a LIBOR Loan and (ii) unless repaid, each LIBOR
Loan shall be converted to a Base Rate Loan at the end of the Interest Period
applicable thereto.

 

Section 2.04                            [RESERVED.]

 

Section 2.05                            Requests for Loans.  To
request a Loan, Borrower shall notify the Administrative Agent of such request
by telephone (a) in the case of any Base Rate Loan, not later than 11:30 a.m.,
New York City time, on the same day of such proposed Loan, (b) in the case
of any LIBOR Loan, not later than 11:30 a.m., New York City time, three
(3) Business Days before the date of such proposed Loan.  Each such telephonic Loan Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a Loan Request in the form attached hereto as Exhibit F and signed by Borrower.  Each such telephonic and written Loan Request
shall specify the following information in compliance with Section 2.02
hereof:

 

24

 

(i)                                     the
aggregate amount of the requested Loan;

 

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

 

(iii)                               whether
such Loan is to be a Base Rate Loan or a LIBOR Loan;

 

(iv)                              the
location and number of Borrower’s account to which funds are to be disbursed,
which shall comply with the requirements of Section 2.06 hereof; and

 

(v)                                 whether
the proceeds of such Loan shall be used for (x) working capital purposes or (y)
vessel acquisition or capacity expansion purposes.

 

If no election as to the
type of Loan is specified, then the requested Loan shall be a Base Rate
Loan.  If no Interest Period is specified
with respect to any requested LIBOR Loan, then Borrower shall be deemed to have
selected an Interest Period of one month’s duration.  Promptly following receipt of a Loan Request
in accordance with this Section, the Administrative Agent shall advise each
Lender of the details thereof and of the amount of such Lender’s Loan to be
made in connection with such Loan Request.

 

Section 2.06                            Funding
of Loans.

 

(a)                                  Each Lender shall make each Loan to be made
by it hereunder on the proposed date thereof by wire transfer of immediately
available funds by 1:00 p.m., New York City time, to the account of the
Administrative Agent most recently designated by it for such purpose by notice
to the Lenders.  The Administrative Agent
will make such Loans available to Borrower by promptly crediting or otherwise
transferring the amounts so received, in like funds, to an account of Borrower
maintained with the Administrative Agent and designated by Borrower in the
applicable Loan Request.

 

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

 

25

 

Section
2.07                            Termination
and Reduction of Commitments.

 

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

 

(b)                                 Borrower may at any time terminate, or from
time to time reduce, the Commitments, provided that (i) Borrower shall
not terminate or reduce the Commitments if, after giving effect to any
concurrent prepayment of the Loans in accordance with Section 2.09, the
sum of the Revolving Credit Exposures would exceed the total Commitments and
(ii) each such reduction shall be in an amount that is an integral multiple of
$1,000,000 and not less than $5,000,000.

 

(c)                                  Each reduction of the Commitments hereunder
shall be made ratably among the Lenders in accordance with their respective
Commitments.  Borrower shall notify the
Administrative Agent of any election to terminate or reduce the Commitments
under Section 2.07(b) at least three (3) Business Days prior to the effective
date of such termination or reduction, specifying such election and the
effective date thereof.  Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof.  Each
notice delivered by Borrower pursuant to this Section 2.07 shall be
irrevocable, provided that a notice of termination of the Commitments
delivered by Borrower may state that such notice is conditioned upon the
effectiveness of other credit facilities, in which case such notice may be
revoked by Borrower (by notice to the Administrative Agent on or prior to the
specified effective date) if such condition is not satisfied.  Any termination or reduction of the
Commitments hereunder shall be permanent.

 

Section
2.08                            Repayment
of Loans; Evidence of Debt.

 

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

 

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

 

(c)                                  The Administrative Agent shall maintain
accounts in which it shall record (i) the amount of each Loan made hereunder,
whether such Loan is a Base Rate Loan or a LIBOR Loan and the Interest Period
applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from Borrower to each Lender hereunder and
(iii) the amount of any sum received by the Administrative Agent hereunder for
the account of the Lenders and each Lender’s share thereof.

 

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

 

26

 

Borrower to repay the Loans
and other Obligations in accordance with the terms of this Agreement.

 

(e)                                  The Loans made by any Lender may, upon
request of such Lender, be evidenced by a Note in the form attached hereto 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 hereto 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.

 

(f)                                    Together with any repayment of Loans,
Borrower shall advise the Administrative Agent of the amount of such repayment
(if any) to be allocated to Loans the proceeds of which were used for working
capital purposes by Borrower.

 

Section
2.09                            Prepayment
of Loans.

 

(a)                                  Borrower shall have the right at any time and
from time to time to prepay any Loan in whole or in part, subject to the
requirements of this Agreement, including, without limitation, Section 2.11.

 

(b)                                 If as of any date the aggregate Revolving
Credit Exposure of all Lenders as of such date exceeds the aggregate Commitments,
then in such event Borrower shall immediately prepay the Loans by an amount
necessary to eliminate any such excess (or if the Loans have been paid in full
and the Letter of Credit Exposure of all Lenders is greater than zero, deposit
into the Cash Collateral Account an amount equal to 105% of such excess).

 

(c)                                  If as of any date the aggregate Revolving
Credit Exposure of all Lenders as of such date exceeds the Borrowing Base, then
in such event Borrower shall immediately prepay the Loans by an amount
necessary to eliminate any such excess (or if the Loans have been paid in full
and the Letter of Credit Exposure of all Lenders is greater than zero, deposit
into the Cash Collateral Account an amount equal to 105% of such excess).

 

(d)                                 Within fifteen (15) days after receipt by any
Credit Party of Net Proceeds from any Asset Disposition (other than
Extraordinary Receipts the disposition of which shall be governed by the terms
of Section 2.09(e)), Borrower shall prepay the then outstanding Loans in an
amount equal to the lesser of (i) one-hundred percent (100%) of such Net
Proceeds and (ii) the Orderly Liquidation Value of the Pool Vessel which is the
subject of such Asset Disposition (provided that after the occurrence of
an Event of Default, Borrower shall prepay the then outstanding Loans in an
amount equal to one-hundred percent (100%) of such Net Proceeds); provided,
that, so long as no Event of Default shall exist, no prepayment of the then
outstanding Loans will be required under this Section 2.09(d) with respect to
Net Proceeds from Asset Dispositions, not exceeding $3,000,000 in any Fiscal
Year, to the extent that such Net Proceeds 

 

27

 

are reinvested (or are
committed, pursuant to a binding written commitment, to be reinvested) in new
or used vessels within twelve (12) months after receipt thereof; provided
further, however, that Borrower shall prepay the then outstanding
Loans in an amount equal to (x) all Net Proceeds from Asset Dispositions
received in any Fiscal Year in excess of $3,000,000, plus, without duplication,
(y) all Net Proceeds not so reinvested (or committed to be reinvested) within
twelve (12) months after receipt thereof (which amounts shall be repaid not
later than the date that is twelve (12) months after the date of receipt
thereof).

 

(e)                                  Within fifteen (15) days after receipt of Net
Proceeds by any Credit Party from any Extraordinary Receipt received by or paid
to or for the account of any Credit Party and not otherwise included in Section
2.09(d), Borrower shall prepay the then outstanding Loans in an amount equal to
the lesser of (i) one-hundred percent (100%) of such Net Proceeds and (ii) the
Orderly Liquidation Value of the Pool Vessel which is the subject of such Asset
Disposition (provided that after the occurrence of an Event of Default,
Borrower shall prepay the then outstanding Loans in an amount equal to
one-hundred percent (100%) of such Net Proceeds).

 

(f)                                    In the event of any partial reduction or
termination of the Commitments, then (i) at or prior to the date of such
reduction or termination, the Administrative Agent shall notify Borrower and
the Lenders of the sum of the Revolving Credit Exposures after giving effect
thereto and (ii) if such sum would exceed the total Commitments after giving
effect to such reduction or termination, then Borrower shall, on the date of
such reduction or termination, prepay the Loans in an amount sufficient to
eliminate such excess; provided, that if on
the date of such a reduction of the Commitments, the aggregate Revolving Credit
Exposure of all of the Lenders exceeds the aggregate Commitments of all of the
Lenders after giving effect to such reduction and, if the Loans have been paid
in full and the Letter of Credit Exposure of all Lenders is greater than zero,
Borrower shall deposit into the Cash Collateral Account an amount in cash which
would cause the balance on deposit in the Cash Collateral Account to equal the
sum of the Letter of Credit Exposure of all Lenders.

 

(g)                                 Borrower shall notify the Administrative
Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in
the case of prepayment of a LIBOR Loan, not later than 11:00 a.m., New York
City time, three Business Days before the date of prepayment or (ii) in the
case of prepayment of Base Rate Loan, not later than 11:00 a.m., New York City
time, one Business Day before the date of prepayment.  Each such notice shall be irrevocable and
shall specify the prepayment date and the principal amount of each Loan or
portion thereof to be prepaid, provided that, if a notice of prepayment
is given in connection with a conditional notice of termination of the
Commitments as contemplated by Section 2.07(c), then such notice of
prepayment may be revoked if such notice of termination is revoked in
accordance with Section 2.07(c). 
Promptly following receipt of any such notice relating to a Loan, the
Administrative Agent shall advise the Lenders of the contents thereof.  Each partial prepayment of any Loan shall be
in an integral multiple of $100,000 and not less than $500,000.  Each prepayment shall be applied ratably to
the Loans included in such prepayment notice. 
Prepayments shall be accompanied by accrued interest to the extent
required by Section 2.03.

 

(h)                                 The provisions of Section 2.08(f) shall apply
to any prepayment made under this Section 2.09.

 

28

 

Section
2.10                            Fees.

 

(a)                                  Borrower shall pay to the Administrative
Agent, for the account of the Lenders in accordance with each Lender’s
Applicable Percentage, a commitment fee (the “Commitment
Fee”), during the period from the Effective Date through the Termination
Date at a rate per annum equal to the Commitment Fee Margin on the average
daily amount of the unused Commitment of such Lender.  The Commitment Fee shall be payable quarterly
in arrears on the last day of each March, June, September and December,
commencing on the first such day to occur following the Effective Date, on the
date of any reduction in the Commitments (to the extent of such reduction) and
on the Termination Date

 

 (b)                              Borrower shall pay to the Administrative
Agent, for the account of the Lenders in accordance with each Lender’s
Applicable Percentage, commissions (the “Letter of Credit Fees”)
with respect to Letters of Credit for the period from and including the date of
issuance of each Letter of Credit through the expiration date of such Letter of
Credit, at a rate per annum equal to the LIBOR
Margin, in each case on the average daily maximum amount available under any
contingency to be drawn under such Letter of Credit.  The Letter of Credit Fees shall be payable quarterly
in arrears on the last day of each March, June, September and December,
commencing on the first such day to occur following the Effective Date, and on
the date that the Commitments shall expire. 
In addition to the Letter of Credit Fees, Borrower shall pay to the L/C Issuer,
for its own account, the L/C Issuer’s standard fees and charges customarily
charged to customers similar to Borrower with respect to any Letter of Credit.

 

(c)                                  Borrower shall pay to the L/C Issuer, for its
own account, a fronting fee in respect of each Letter of Credit issued by the
L/C Issuer hereunder (the “Fronting Fee”),
computed at the rate of 0.125% per annum on the maximum daily amount available
for drawing under such Letter of Credit. 
Accrued Fronting Fees shall be payable quarterly in arrears on the last
day of each March, June, September and December, commencing on the first such
day to occur following the Effective Date, and on the first day on or after the
date that the Commitments shall expire upon which no Letters of Credit remain
outstanding.

 

(d)                                 Borrower shall pay to each Lender, the
Administrative Agent, the Collateral Trustee and the L/C Issuer, for its own
account, fees and other amounts payable in the amounts and at the times set
forth in the letter agreement dated February 24, 2005 between K-Sea and KeyBank
and as may otherwise be separately agreed upon between the Borrower and such
Person.

 

(e)                                  Fees and other amounts paid shall not be
refundable under any circumstances.  All
fees shall be computed on the basis of a 360-day year for the actual number of
days elapsed (including the first day but excluding the last day).

 

(f)                                    KeyBank agrees to pay Borrower, upon the
Effective Date, a reimbursement of the pro-rata fee paid on the Existing MARAD
Letter of Credit.

 

Section
2.11                            Increased
Costs; Illegality.

 

(a)                                  If any Change in Law shall:

 

29

 

(i)                                     impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, any Lender, the
Administrative Agent, the Collateral Trustee or the L/C Issuer (except any such
reserve requirement reflected in the Adjusted LIBOR Rate); or

 

(ii)                                  impose on any Lender, the Administrative
Agent, the Collateral Trustee or the L/C Issuer or the London interbank market
any other condition affecting this Agreement, any LIBOR Loans made by Lender,
the Administrative Agent, the Collateral Trustee or the L/C Issuer or any
participation therein,

 

and the result of any of the
foregoing shall be to increase the cost to such Person of making or maintaining
any LIBOR Loan hereunder (or of maintaining its obligation to make any such
Loan) or to increase the cost to such Person or to reduce the amount of any sum
received or receivable by such Person hereunder (whether of principal, interest
or otherwise), then Borrower will pay to such Person such additional amount or
amounts as will compensate such Person for such additional costs incurred or
reduction suffered.  Failure to demand
compensation pursuant to this Section shall not constitute a waiver of such
Person’s right to demand such compensation.

 

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

 

(c)                                  A certificate of any Lender, the
Administrative Agent, the Collateral Trustee or the L/C Issuer calculating and
setting forth the amount or amounts necessary to compensate such Person or its
holding company, as the case may be, as specified in paragraph (a) or (b) of
this Section shall be delivered to Borrower and shall be conclusive absent
manifest error.  Borrower shall pay such Lender,
the Administrative Agent, the Collateral Trustee or the L/C Issuer, as the case
may be, the amount shown as due on any such certificate within 10 days after
receipt thereof.

 

(d)                                 Failure or delay on the part of any Lender,
the Administrative Agent, the Collateral Trustee or the L/C Issuer to demand
compensation pursuant to this Section shall not constitute a waiver of
such Person right to demand such compensation; provided, that Borrower
shall not be required to compensate any Lender, the Administrative Agent, the
Collateral Trustee or the L/C Issuer pursuant to this Section for any
increased costs or reductions incurred more than nine months prior to the date
that such Person notifies Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Person’s intention to claim
compensation therefor; provided, further, that, if the Change in
Law giving rise to such increased 

 

30

 

costs or reductions is
retroactive, then the nine-month period referred to above shall be extended to
include the period of retroactive effect thereof.

 

(e)                                  Notwithstanding any other provision of this
Agreement, if, after the date of this Agreement, any Change in Law shall make
it unlawful for any Lender to make or maintain any LIBOR Loan or to give effect
to its obligations as contemplated hereby with respect to any LIBOR Loan, then,
by written notice to Borrower and to the Administrative Agent:

 

(i)                                     such Lender may declare that LIBOR Loans will
not thereafter (for the duration of such unlawfulness) be made by such Lender
hereunder (or be continued for additional Interest Periods and Base Rate Loans
will not thereafter (for such duration) be converted into LIBOR Loans),
whereupon any request for a LIBOR Loan or to convert a Base Rate Loan to a
LIBOR Loan or to continue a LIBOR Loan, as applicable, for an additional Interest
Period shall, as to such Lender only, be deemed a request for a Base Rate Loan
(or a request to continue a Base Rate Loan as such for an additional Interest
Period or to convert a LIBOR Loan into a Base Rate Loan, as applicable), unless
such declaration shall be subsequently withdrawn; and

 

(ii)                                  such Lender may require that all outstanding
LIBOR Loans made by it be converted to Base Rate Loans, in which event all such
LIBOR Loans shall be automatically converted to Base Loans, as of the effective
date of such notice as provided in the last sentence of this paragraph.

 

In the event any Lender
shall exercise its rights under clauses (i) or (ii) of this Section 2.11(e),
all payments and prepayments of principal that would otherwise have been
applied to repay the LIBOR Loans that would have been made by such Lender or
the converted LIBOR Loans of such Lender shall instead be applied to repay the
Base Rate Loans made by such Lender in lieu of, or resulting from the
conversion of, such LIBOR Loans, as applicable. 
For purposes of this Section 2.11(e), a notice to Borrower by any Lender
shall be effective as to each LIBOR Loan made by such Lender, if lawful, on the
last day of the Interest Period currently applicable to such LIBOR Loan; in all
other cases such notice shall be effective on the date of receipt by Borrower.

 

Section 2.12                            Break
Funding Payments.  In the event
of (a) the payment or prepayment (voluntary or otherwise) of any principal of
any LIBOR Loan other than on the last day of an Interest Period applicable
thereto (including as a result of an Event of Default), (b) the conversion of
any LIBOR Loan other than on the last day of the Interest Period applicable
thereto or (c) the failure to borrow, convert, continue or prepay any LIBOR
Loan on the date specified in any Loan Request or other notice delivered
pursuant Section 2.03 or 2.05 (regardless of whether such notice may be revoked
under Section 2.07(c) and is revoked in accordance therewith), then, in
any such event, Borrower shall compensate each Lender for the loss, cost and
expense attributable to such event.  If
such Loan Request or other notice relates to a LIBOR Loan, such loss, cost or
expense to any Lender shall be deemed to include an amount reasonably
determined by such Lender to be the excess, if any, of (i) the amount of
interest that would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBOR Rate that would have been applicable
to such Loan, for the period from the date of such 

 

31

 

event to the last day of the then current Interest
Period therefor (or, in the case of a failure to borrow, convert or continue,
for the period that would have been the Interest Period for such Loan), over
(ii) the amount of interest that would accrue on such principal amount for such
period at the interest rate that such Lender would in good faith bid were it to
bid, at the commencement of such period, for dollar deposits of a comparable
amount and period from other banks in the eurodollar market.  A certificate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this
Section 2.12 shall be delivered to Borrower and shall be conclusive absent
manifest error.  Borrower shall pay such
Lender the amount shown as due on any such certificate within 15 days after
receipt thereof.

 

Section 2.13                            Taxes.

 

(a)                                  Any and all payments by or on account of any
Obligation of any Credit Party hereunder shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes; provided,
that if such Credit Party shall be required to deduct any Indemnified Taxes or
Other Taxes from such payments, then (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the Administrative
Agent, the Collateral Trustee, each Lender or L/C Issuer (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Credit Party shall make such deductions,
and (iii) such Credit Party shall pay the full amount deducted to the
relevant Governmental Authority in accordance with Applicable Law.

 

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

 

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

 

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

 

32

 

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

 

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

 

(a)                                  Each Credit Party shall make each payment
required to be made by it hereunder or under any other Loan Document (whether
of principal, interest or fees, or under Section 2.11, 2.12, 2.13 or 10.06
hereof, or otherwise) prior to 12:00 noon, New York City time, on the date when
due, in immediately available funds, without set-off or counterclaim.  Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon.  All such payments
shall be made to the Administrative Agent at its offices at 127 Public Square,
Cleveland, Ohio 44114, Attn. KCIB Loan Services, except that payments pursuant
to Sections 2.11, 2.12, 2.13 and 10.06 hereof shall be made directly to
the Persons entitled thereto.  The Administrative
Agent shall distribute any such payments received by it for account of any
other Person to the appropriate recipient promptly following receipt
thereof.  If any payment hereunder shall
be due on a day that is not a Business Day, the date for payment shall be
extended to the next succeeding Business Day, and, in the case of any payment
accruing interest, interest thereon shall be payable for the period of such extension.  All payments hereunder shall be made in
Dollars.

 

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

 

(ii)                                  So
long as no (x) Default with respect to any payments due hereunder or under
any of the Obligations or (y) Event of Default shall have occurred and be
continuing, any amounts received by Collateral Trustee, the Administrative
Agent or any Lender as a result of an Event of Loss with respect to any Pool
Vessel (including, without limitation, any payment of prepayment amounts under
Section 2.09 hereof or insurance or condemnation 

 

33

 

proceeds) shall be
retained by the Lenders as cash collateral to the extent the aggregate Orderly
Liquidation Value of the remaining Pool Vessels is less than the greater of (A)
$50,000,000.00 and (B) an amount such that the Asset Coverage Ratio after
giving effect to such Event of Loss is not less than 1.25:1.00, until such time
as Borrower pledges another Qualified Pool Vessel or Qualified Pool Vessels to
increase the aggregate Orderly Liquidation Value of the Pool Vessels to not
less than the greater of (A) $50,000,000.00 and (B) an amount such that the
Asset Coverage Ratio after giving effect to such pledge is not less than 1.25:1.00,
at which time such amounts shall be applied, first, for application
against Loans at the end of any then current Interest Period or Periods, second,
to the payment in full of all the Obligations which are then due and payable,
and, third, the balance, if any, after payment of the foregoing amounts,
shall be paid by the Lenders to Borrower.

 

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

 

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

 

(v)                                 After
an Event of Default shall have occurred and be continuing and after Lenders
have either, (i) as assignee from Borrower of any charter of any of the Pool
Vessels, declared such charter to be in default or terminated in accordance
with the terms thereof, or (ii) declared all amounts outstanding hereunder
to be due and payable pursuant to Section 8.02 hereof, or done both (i)
and (ii), all payments received and amounts realized by any Lender, as well as
all payments or amounts then held by the Lenders as part of the Collateral, 

 

34

 

shall be applied against
the Obligations in such order and such manner as the Lenders, in their sole
discretion, may determine and as otherwise provided in the other Loan Documents
and the documents evidencing the other Obligations, and the balance, if any,
shall be paid by the Lenders to Borrower.

 

(c)                                  If any Lender shall, by exercising any right
of setoff or counterclaim or otherwise, obtain payment in respect of any
principal of, or interest on, any of its Loans resulting in such Lender receiving
payment of a greater proportion of the aggregate amount of its Loans and
accrued interest thereon than the proportion received by any other applicable
Lender, then the applicable Lender receiving such greater proportion shall
purchase (for cash at face value) participations in the Loans of other
applicable Lenders to the extent necessary so that the benefit of all such
payments shall be shared by the applicable Lenders ratably in accordance with
the aggregate amount of principal of, and accrued interest on, their respective
Loans, provided that (i) if any such participations are purchased and
all or any portion of the payment giving rise thereto is recovered, such
participations shall be rescinded and the purchase price restored to the extent
of such recovery, without interest, and (ii) the provisions of this paragraph
shall not be construed to apply to any payment made by Borrower pursuant to and
in accordance with the express terms of this Agreement or any payment obtained
by a Lender as consideration for the assignment of or sale of a participation
in any of its Loans to any assignee or participant, other than to the Borrower
or any Subsidiary or Affiliate thereof (as to which the provisions of this
paragraph shall apply).  Each Credit
Party consents to the foregoing and agrees, to the extent it may effectively do
so under applicable law, that any Lender acquiring a participation pursuant to
the foregoing arrangements may exercise against such Credit Party rights of
setoff and counterclaim with respect to such participation as fully as if such
Lender were a direct creditor of such Credit Party in the amount of such
participation.

 

(d)                                 Unless the Administrative Agent shall have
received notice from a Credit Party prior to the date on which any payment is
due to the Administrative Agent for the account of Lenders, the Administrative
Agent, the L/C Issuer or the Collateral Trustee hereunder that Borrower will
not make such payment, the Administrative Agent may assume that Borrower has
made such payment on such date in accordance herewith and may, in reliance upon
such assumption, distribute to Persons the amount due.  In such event, if Borrower has not in fact
made such payment, then each such Person severally agrees to repay to the Administrative
Agent forthwith on demand the amount so distributed to such Person with
interest thereon, for each day from and including the date such amount is
distributed to it to but excluding the date of payment to the Administrative
Agent, at the greater of the Federal Funds Effective Rate and a rate determined
by the Administrative Agent in accordance with banking industry rules on
interbank compensation.

 

(e)                                  If any Lender shall fail to make any payment
required to be made by it pursuant to Section 2.06, 2.14(d) or 2.15 hereof,
then the Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the Administrative
Agent for account of such Lender to satisfy such Lender’s obligations under
such Sections until all such unsatisfied obligations are fully paid.

 

35

 

Section
2.15                            Letters
of Credit.

 

(a)                                  The Borrower may request the L/C Issuer to
issue letters of credit during the period from the Effective Date to the
thirtieth Business Day prior to the Maturity Date, provided that
immediately after the issuance of each Letter of Credit (i) the Letter of
Credit Exposure of all Lenders would not exceed the Letter of Credit Sublimit
and (ii) the aggregate Revolving Credit Exposure of all Lenders would not
exceed the aggregate Commitments of all Lenders.  To request the issuance of a Letter of
Credit, the Borrower shall notify the Administrative Agent and the L/C Issuer
by the delivery of a Credit Request in the form of Exhibit G,
which shall be sent by facsimile and shall be irrevocable (confirmed promptly,
and in any event within five Business Days, by the delivery to the
Administrative Agent of a Credit Request manually signed by the Borrower), at
least three Business Days prior to the requested date of issuance, specifying
(x) in the case of a Standby Letter of Credit, (A) to the extent not
previously delivered to the Administrative Agent, copies of all agreements
between Borrower and the beneficiary of such Standby Letter of Credit
pertaining to the issuance of such Standby Letter of Credit and (B) a copy
of the form of a Standby Letter of Credit which is attached hereto as Exhibit D, and (y) in the case of
a Documentary Letter of Credit, a copy of the form of the application for a
documentary letter of credit which is attached hereto as Exhibit E and which may be amended by
the L/C Issuer from time to time, and in the case of each Letter of Credit, to
the extent not included in the foregoing:  (I) the beneficiary of such Letter of Credit,
(II) Borrower’s proposal as to the conditions under which a drawing may be made
under such Letter of Credit and the documentation to be required in respect
thereof, (III) the maximum amount to be available under such Letter of Credit,
(IV) the currency such Letter of Credit shall be denominated in (which shall be
Dollars or an Alternative Currency then made available by the Administrative
Agent and the L/C Issuer) and (V) the requested dates of issuance and
expiration.  Such Credit Request shall be
accompanied by such other certificates, documents (including a reimbursement
agreement) and other information as may be required by the L/C Issuer in
accordance with its customary procedures (all of the instruments documents,
certificate, applications and information described in the immediately
preceding two sentences, collectively, the “Letter of
Credit Documentation”). 
Upon receipt of such Credit Request from the Borrower, the
Administrative Agent shall promptly notify each Lender thereof.  Subject to the satisfaction of the terms and
conditions of this Agreement, the L/C Issuer shall issue each requested Letter
of Credit.  In the event of any conflict
between the provisions of this Agreement and any Letter of Credit
Documentation, the provisions of this Agreement shall control.  Each of the Credit Parties hereby
acknowledges and agrees that the Existing Letters of Credit are Letters of
Credit hereunder and the Lenders hereby assume and are jointly and severally
obligated with respect to all Reimbursement Obligations related thereto.  Each of the Existing Letters of Credit shall
be deemed to be a “Letter of Credit”
for all purposes of this Agreement and the other Loan Documents.

 

(b)                                 Each Letter of Credit shall be issued for the
account of the Borrower and in support of obligations, contingent or otherwise,
of the Borrower or any Subsidiary arising in the ordinary course of
business.  Each Documentary Letter of
Credit shall expire no later than 180 days from its date of issuance.  Each Standby Letter of Credit shall either
(A) have an expiration date which shall be not later than the earlier of (x)
364 days after the date of issuance thereof or (y) fifteen (15) Business Days
before the Maturity Date or (B) contain “evergreen” 

 

36

 

provisions under which the
such Standby Letter of Credit shall have an initial expiration date of not more
than one year from issuance, which expiration date shall be deemed extended on
an annual basis for successive periods of not more than one year unless notice
of termination is given by the L/C Issuer, provided, however, no
such Standby Letter of Credit shall have an expiration date extending or be so
extendable beyond the Maturity Date.  Any
renewal, or any extension of any expiry date, of a Letter of Credit shall
constitute the issuance of such Letter of Credit for all purposes of this
Agreement.  In no event shall any Letter
of Credit expire later than fifteen (15) Business Days prior to the Maturity
Date.

 

(c)                                  Immediately upon the issuance of a Letter of
Credit, the L/C Issuer shall be deemed to have sold and transferred to each
Lender, and each Lender shall be deemed to have irrevocably and unconditionally
purchased and received from the L/C Issuer, without recourse or warranty, an
undivided interest and participation, to the extent of such Lender’s Applicable
Percentage thereof, in such Letter of Credit and the obligations of Borrower
with respect thereto and any security therefor and any guaranty pertaining thereto
at any time existing.  Each Lender, with
respect to each Existing Letter of Credit, hereby purchases, without recourse
or warranty, an undivided interest and participation, to the extent of such
Lender’s Applicable Percentage thereof, in each such Existing Letter of Credit
and the obligations of Borrower with respect thereto and any such security
therefor and guaranty pertaining thereto at any time existing.

 

(d)                                 The L/C Issuer shall promptly notify (i) each
Lender of the L/C Issuer’s receipt of a drawing request under any Letter of
Credit, stating the amount of such Lender’s Applicable Percentage of such
drawing request and the date on which such request will be honored (the “Honor Date”) and (ii) the
Administrative Agent and Borrower of the amount of such drawing request and the
Honor Date.  Any failure of the L/C
Issuer to give or any delay in the L/C Issuer’s giving any such notice shall
not release or diminish the obligations of Borrower or any Lender
hereunder.  In determining whether to pay
under any Letter of Credit, the L/C Issuer shall have no obligation to any
Lender or Borrower other than to confirm that any documents required to be
delivered under such Letter of Credit have been delivered and that they appear
to comply on their face with the requirements of such Letter of Credit.  In the absence of gross negligence or willful
misconduct on the part of the L/C Issuer, the L/C Issuer shall have no
liability to any Lender or Borrower for any action taken or omitted to be taken
by it under or in connection with any Letter of Credit, including any such
action negligently taken or negligently omitted to be taken by it.

 

(e)                                  Not later than 11:00 a.m., New York City
time, on the Honor Date with respect to any drawing under any Letter of Credit,
Borrower shall reimburse the L/C Issuer through the Administrative Agent in an
amount equal to the amount of such drawing and in the applicable currency.  If Borrower fails to so reimburse the L/C
Issuer by such time, the Administrative Agent shall promptly notify each Lender
of such failure, the amount of the unreimbursed drawing (the “Unreimbursed Amount”), and such
Lender’s Applicable Percentage thereof.  In
the case of any Letter of Credit denominated in an Alternative Currency, the
Unreimbursed Amount shall be redenominated into Dollars and equal the Dollar
Equivalent thereof, and the Administrative Agent shall so notify the Lenders in
the notice described in the preceding sentence. In such event, Borrower shall
be deemed to have requested a Base Rate Loan to be disbursed on the Honor Date
in an amount equal to the Unreimbursed Amount (or the 

 

37

 

Dollar Equivalent thereof,
if applicable), without regard to the Minimum Loan Amount for the principal
amount of Base Rate Loans, but subject to the amount of the unutilized portion
of the aggregate Commitments of the Lenders and the conditions set forth in
Section 5.02 (other than the delivery of a Loan Request).  Any notice given by the L/C Issuer or the
Administrative Agent pursuant to this Section may be given by telephone if
immediately confirmed in writing; provided that the lack of such an
immediate confirmation shall not affect the conclusiveness or binding effect of
such notice.  Each Lender shall promptly
and unconditionally pay to the Administrative Agent, for the account of the L/C
Issuer, the amount of such Lender’s Applicable Percentage of such Unreimbursed
Amount in Dollars in immediately available funds on the Business Day the L/C Issuer
so notifies such Lender if such notice is given prior to 12:00 Noon or, if such
notice is given after 12:00 Noon, such Lender shall make its Applicable
Percentage of such Unreimbursed Amount available to the L/C Issuer prior to
12:00 Noon on the next succeeding Business Day.

 

(f)                                    If and to the extent any Lender shall not
make such Lender’s Applicable Percentage of any Reimbursement Obligations
available to the L/C Issuer when due in accordance with Section 2.15(e), such
Lender shall pay interest to the L/C Issuer on such unpaid amount for each day
from the date such payment is due until the date such amount is paid in full to
the L/C Issuer at the Federal Funds Effective Rate until (and including) the
third Business Day after the date due and thereafter at the Base Rate.  The obligations of the Lenders under this
Section 2.15(f) are several and not joint or joint and several, and the failure
of any Lender to make available to the L/C Issuer its Applicable Percentage of
any Reimbursement Obligations when due in accordance with Section 2.15(e) shall
not relieve any other Lender of its obligation hereunder to make its Applicable
Percentage of such Reimbursement Obligations so available when so due, but no
Lender shall be responsible for the failure of any other Lender to make such
other Lender’s Applicable Percentage of such Reimbursement Obligations so
available when so due.

 

(g)                                 Whenever the L/C Issuer receives a payment of
a Reimbursement Obligation from or on behalf of Borrower as to which the L/C
Issuer has received any payment from a Lender pursuant to Section 2.15(e), the
L/C Issuer shall promptly pay to such Lender an amount equal to such Lender’s
Applicable Percentage of such payment from or on behalf of Borrower.  If any payment by or on behalf of Borrower
and received by the L/C Issuer with respect to any Letter of Credit is
rescinded or must otherwise be returned by the L/C Issuer for any reason and
the L/C Issuer has paid to any Lender any portion thereof, each such Lender
shall forthwith pay over to the L/C Issuer an amount equal to such Lender’s
Applicable Percentage of the amount which must be so returned by the
L/C/Issuer.

 

(h)                                 Each Lender, upon the demand of the L/C
Issuer, shall reimburse the L/C Issuer, to the extent the L/C Issuer has not
been reimbursed by Borrower after demand therefor, for the reasonable costs and
expenses (including reasonable attorneys’ fees) incurred by the L/C Issuer in
connection with the collection of amounts due under, and the preservation and
enforcement of any rights conferred by, any Letter of Credit or the performance
of the L/C Issuer’s obligations as issuer of the Letters of Credit under this
Agreement in respect thereof, to the extent of such Lender’s Applicable
Percentage of the amount of such costs and expenses provided, however,
that no Lender shall be liable for the payment of any portion of such 

 

38

 

liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements to the extent the same result solely from the gross negligence or
willful misconduct of the L/C Issuer. 
The L/C Issuer shall refund any costs and expenses reimbursed by such
Lender that are subsequently recovered from Borrower in an amount equal to such
Lender’s Applicable Percentage thereof.

 

(i)                                     The obligation of Borrower to reimburse the
L/C Issuer pursuant to this Section 2.15, and the obligation of each Lender to
make available to the L/C Issuer the amounts set forth in this Section 2.15
shall be absolute, unconditional and irrevocable under any and all
circumstances, shall be made without reduction for any set-off, counterclaim or
other deduction of any nature whatsoever, may not be terminated, suspended or
delayed for any reason whatsoever, shall not be subject to any qualification or
exception and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including any of the following
circumstances: (1) any lack of validity or enforceability of this Agreement or
any of the other Loan Documents, (2) the existence of any claim, setoff,
defense or other right which Borrower may have at any time against a
beneficiary named in a Letter of Credit, any transferee of any Letter of Credit
(or any Person for whom any such transferee may be acting), the L/C Issuer, any
Lender or any other Person, whether in connection with this Agreement, any
other Loan Document, any Letter of Credit, the transactions contemplated in the
Loan Documents or any unrelated transactions (including any underlying
transaction between Borrower and the beneficiary named in any such Letter of
Credit), (3) any draft, certificate or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect,
(4) the surrender or impairment of any collateral for the performance or
observance of any of the terms of any of the Loan Documents, (5) the occurrence
of any Default or Event of Default or (6) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of,
or provide a right of setoff against, Borrower’s or such Lender’s obligations
hereunder. The L/C Issuer shall not have any liability or responsibility by
reason of or in connection with the issuance or transfer of any Letter of
Credit or any payment or failure to make any payment thereunder (irrespective
of any of the circumstances referred to in the preceding sentence), or any
error, omission, interruption, loss or delay in transmission or delivery of any
draft, notice or other communication under or relating to any Letter of Credit
(including any document required to make a drawing thereunder), any error in
interpretation of technical terms or any consequence arising from causes beyond
the control of the L/C Issuer. The parties hereto expressly agree that, in the
absence of gross negligence or willful misconduct on the part of the L/C Issuer
(as finally determined by a court of competent jurisdiction), the L/C Issuer
shall be deemed to have exercised care in each such determination.  In furtherance of the foregoing and without
limiting the generality thereof, the parties agree that, with respect to
documents presented which appear on their face to be in substantial compliance
with the terms of a Letter of Credit, the L/C Issuer may, in its sole
discretion, either accept and make payment upon such documents without
responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.

 

39

 

Section 2.16                            Cash
Collateral Account

 

At, or at any time before, the time Borrower shall
be required to make a deposit into the Cash Collateral Account, the
Administrative Agent shall establish and maintain at its offices at 575 Fifth
Avenue, New York, New York, or such other office as the Administrative Agent
shall determine in its discretion, in the name of Borrower but under the sole
dominion and control of the Administrative Agent, a cash collateral account
(the “Cash Collateral Account”).  Borrower may from time to time make one or
more deposits into the Cash Collateral Account and shall from time to time make
such deposits as are required by this Agreement.  Borrower hereby pledges to the Administrative
Agent for the benefit of the Lenders, the Administrative Agent, the L/C Issuer
and the Collateral Trustee, a Lien on and security interest in the Cash
Collateral Account and all sums at any time and from time to time on deposit
therein (the Cash Collateral Account, together with all sums on deposit
therein, being sometimes hereinafter collectively referred to as the “Cash Collateral”), as collateral
security for the prompt payment in full when due, whether at stated maturity,
by acceleration or otherwise, of the Obligations.  Borrower shall, at any time and from time to
time at its expense, promptly execute and deliver to the Administrative Agent
any further instruments and documents, and take any further actions, that may
be necessary or that the Administrative Agent may reasonably request, in order
to perfect and protect any security interest granted or purported to be granted
hereby or to enable the Administrative Agent to exercise and enforce its rights
and remedies hereunder with respect to any Cash Collateral.  Borrower shall not (i) sell or otherwise
dispose of any of the Cash Collateral, or (ii) create or permit to exist any
Lien upon any of the Cash Collateral. 
Borrower hereby authorizes the Administrative Agent, promptly after each
drawing under any Letter of Credit shall become due and payable, to apply any
and all cash on deposit in the Cash Collateral Account towards the
reimbursement of the L/C Issuer for all sums paid in respect of such drawing,
and all other Obligations which shall then be due and owing.

 

Section
2.17                            Mitigation
Obligations; Replacement of Lenders.

 

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

 

(b)                                 If any Lender requests compensation under
Section 2.11 hereof, or if Borrower is required to pay any additional
amount to any Lender or any Governmental Authority for account of any Lender
pursuant to Section 2.13 hereof, or if any Lender defaults in its
obligation to fund Loans hereunder, then Borrower may, at its sole expense and
effort, upon notice to such Lender and the Administrative Agent, require such
Lender to assign and delegate, without recourse (in accordance with and subject
to the restrictions contained in Section 10.07 

 

40

 

hereof), all its interests,
rights and obligations under this Agreement to an assignee that shall assume
such obligations (which assignee may be another Lender, if a Lender accepts
such assignment); provided, that (i) Borrower shall have received
the prior written consent of the Administrative Agent and the L/C Issuer, which
consent shall not unreasonably be withheld, (ii) such Lender shall have
received payment of an amount equal to the outstanding principal of its Loans,
accrued interest thereon, accrued fees and all other amounts payable to it
hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or Borrower (in the case of all other amounts), and
(iii) in the case of any such assignment resulting from a claim for
compensation under Section 2.11 hereof or payments required to be made
pursuant to Section 2.13 hereof, such assignment will result in a
reduction in such compensation or payments. 
A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling Borrower to require such assignment and
delegation cease to apply.

 

Section
2.18                            Increase
of Commitments.

 

(a)                                  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 Twenty
Million Dollars ($20,000,000.00) so that the aggregate Maximum Amount is One
Hundred Million Dollars ($100,000,000).  
Subject to the terms hereof, Borrower may request to obtain such
increase in Commitments (“Proposed Increased
Commitment”) from Lenders or banks, financial institutions or
other entities other than the Lenders. 
Borrower may offer the opportunity to provide all or a portion of the
Proposed Increased Commitment to (i) other Lenders and/or (ii) other banks,
financial institutions or other entities with the consent of the Administrative
Agent and the L/C Issuer (which consents of the Administrative Agent and the
L/C Issuer shall not be unreasonably withheld or delayed).  If offered by Borrower, each Lender shall
have the right, but not the obligation to commit to all or a portion of its pro
rata amount of the Proposed Increased Commitment based on the then existing
allocation of Commitments.  As a
precondition to such Proposed Increased Commitment becoming effective, the Asset
Coverage Ratio covenant shall be met respecting such new Maximum Amount.  Any additional bank, financial institution or
other entity which Borrower selects to offer a portion of the increased
aggregate Commitments in accordance with the terms hereof and which elects to
become a party to this Agreement and obtain a Commitment in an amount so
offered and accepted by it pursuant to this Section shall execute such
instruments, documents and agreements as the Administrative Agent shall
determine to cause such bank, financial institution or other entity to become a
Lender hereunder, whereupon such bank, financial institution or other entity
shall become a Lender for all purposes and to the same extent as if originally
a party hereto and shall be bound by and entitled to the benefits of this
Agreement, provided that the Commitment of any such bank, financial
institution or other entity shall be in an amount of not less than $5,000,000.

 

(b)                                 Upon any increase in the aggregate
Commitments pursuant to Section 2.18(a), within five Business Days, in the case
of any Base Rate Loans then outstanding, and at the end of the then current
Interest Period with respect thereto, in the case of any LIBOR Loans then
outstanding, Borrower shall prepay such Loans in their entirety and, to the
extent the 

 

41

 

Borrower elects to do so and
subject to the conditions specified in Section 5.02, Borrower shall reborrow
Loans from the Lenders in proportion to their respective Commitments after
giving effect to such increase, until such time as all outstanding Loans are
held by the Lenders in such proportion. 
Effective upon such increase, the amount of the participations held by
each Lender in each Letter of Credit then outstanding shall be adjusted such
that, after giving effective to such adjustments, the Lenders shall hold
participations in each such Letter of Credit in the proportion its respective
Commitment bears to the aggregate Commitments of all of the Lenders after
giving effect to such increase.  The
Collateral Trustee and Borrower shall execute and deliver such documents and
instruments deemed reasonably necessary by either of them to maintain the
perfection and priority of the Liens on the Collateral with respect to such
increase in the aggregate Commitments.

 

ARTICLE III

GRANT OF SECURITY INTEREST

 

Section 3.01                            Grant
of Security Interest.

 

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

 

(b)                                 Collateral means:

 

(i)                                     each
of the Pool Vessels identified in Schedule 1.01, together with all of its
machinery, anchors, cables, chains, rigging, tackle, fittings, tools, pumps,
pumping equipment, gear, apparel, furniture, appliances, equipment, spare and
replacement parts and all other appurtenances thereunto appertaining or
belonging, whether now owned or hereafter acquired by its respective owner and
whether on board or not, and also any and all additions, improvements and
replacements made in or to such Pool Vessels or
any part thereof or in or to any equipment and appurtenances thereunder
appertaining or belonging and any and all the charter hire, subcharter hire,
freights, subfreights, earnings, charters (including, without limitation, any
rights of termination thereof), to the extent set forth in the Earnings
Assignment, insurance proceeds and all other Proceeds paid or payable to
Borrower on account of the use or employment of any Pool Vessel, being secured
by the Mortgage or any other mortgage to be executed and delivered by Borrower
in favor of Lenders (each, a “Mortgage”);
and

 

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

 

It is understood and agreed that all of the Collateral
which the Collateral Trustee, the Administrative Agent, the Lenders or any of
them may at any time acquire from Borrower, the 

 

42

 

Subsidiary Guarantors or from any other source in
connection with the Obligations of the Credit Parties to Lenders, shall
constitute Collateral for each and every Obligation, without apportionment or
designation as to particular Obligations, and that all Obligations howsoever
and whensoever incurred, shall be secured by all Collateral howsoever and
whensoever acquired, and the Collateral Trustee, the Administrative Agent and
the Lenders shall have the right, in their sole discretion, to determine the
order in which the Collateral Trustee’s, the Administrative Agent’s and the Lenders’
rights in or remedies against any Collateral are to be exercised and which type
of Collateral and which portions of Collateral are to be proceeded against and
the order of application of proceeds of Collateral as against particular
Obligations.

 

Section 3.02                            Substitution
of Pool Vessel.  On reasonable
notice from Borrower, the Administrative Agent and the Lenders will permit the
substitution of a Pool Vessel with another vessel, provided, that such
substitute vessel is subject to an Appraisal and that the Orderly Liquidation
Value of the Pool Vessels after such substitution remains equal to or greater
than the greater of (i) $50,000,000.00 and (ii) an Orderly Liquidation Value
such that an Asset Coverage Ratio of not less than 1.25 to 1.00 is
maintained.  Each substitute vessel shall
be first made subject to the Mortgage and the Assignments.  The costs of any such substitution, including,
without limitation, counsel fees, will be for Borrower’s account, payable on
demand.  No Pool Vessel shall be valued
as a constituent part of an integrated tug/barge unit unless all components of
such unit are subject, or upon acceptance by Lenders would be subject, to the
Mortgage.

 

Section 3.03                            Orderly
Liquidation Value.

 

(a)                                  Based on the most recently completed
Appraisal of the Pool Vessels delivered to the Administrative Agent, the
aggregate Orderly Liquidation Value of the Pool Vessels shall at all times be
not less than the greater of (i) $50,000,000.00 and (ii) an Orderly Liquidation
Value such that an Asset Coverage Ratio of not less than 1.25 to 1.00 is
maintained, provided, that in no event through the third anniversary of
the Effective Date shall more than five percent (5%) of the aggregate Orderly
Liquidation Value of the Pool Vessels be attributable to Non-Qualified Pool
Vessels and thereafter Non-Qualified Pool Vessels shall not be included in Pool
Vessels.

 

(b)                                 In the event any Appraisal delivered to the
Administrative Agent performed at any time after the Effective Date demonstrates
that the aggregate Orderly Liquidation Value of the Pool Vessels is less than the
greater of (i) $50,000,000.00 and (ii) an Orderly Liquidation Value such that
an Asset Coverage Ratio of not less than 1.25 to 1.00 is maintained, Borrower
shall promptly, and in any event within 10 Business Days, pledge additional
vessels acceptable to the Administrative Agent, and the Proceeds thereof, so
that, after giving effect to such pledge of additional vessels, the aggregate
Orderly Liquidation Value of the Pool Vessels is equal to the greater of (i)
$50,000,000.00 and (ii) an Orderly Liquidation Value such that an Asset
Coverage Ratio of not less than 1.25 to 1.00 is maintained.

 

(c)                                  In the event any Appraisal delivered to the
Administrative Agent performed at any time after the Effective Date
demonstrates that that the aggregate Orderly Liquidation Value of the Pool Vessels
exceeds the greater of (i) $50,000,000.00, and (ii) an Orderly Liquidation
Value such that an Asset Coverage Ratio of not less than 1.25 to 1.00 is 

 

43

 

maintained, Borrower may,
upon the delivery of a written request therefor delivered to the Administrative
Agent, request the consent of the Lenders (which shall not be unreasonably
withheld) to the release by the Collateral Trustee, at Borrower’s expense, of
its Lien on one or more Pool Vessels (and related Assignments) described in
such request, commencing with Non-Qualified Pool Vessels; provided
that both before and after giving effect to such release, (i) no Default or
Event of Default shall have occurred and be continuing or result therefrom,
(ii) the aggregate Orderly Liquidation Value of the Pool Vessels shall be not
less than the greater of (i) $50,000,000.00 and (ii) an Orderly Liquidation
Value such that the Asset Coverage Ratio shall not be less than 1.25 to 1.00,
and (iii) Borrower shall be in compliance with the financial covenants under
Sections 7.01, 7.02, 7.03 and 7.04, and Borrower shall deliver to the
Administrative Agent a certificate in reasonable detail evidencing compliance
by Borrower with the foregoing conditions. 
Notwithstanding the foregoing, the value of any vessel acquired, retrofitted
or rebuilt with any Loan shall not be included for purposes of determining the
aggregate Orderly Liquidation Value of the Pool Vessels as collateral while
such vessel is under construction but may be included upon completion of work
and redelivery to Borrower.

 

Section 3.04                            Negative
Pledge.  Promptly after the
termination of any restrictions prohibiting Borrower from granting a Lien on
its account receivables, including, without limitation, those restrictions in
connection with any obligations secured by Title XI Guaranties, Borrower agrees
that it will execute and deliver a negative pledge on the Borrower’s accounts
receivable arising out of the Collateral. 
At such time and thereafter and at Borrower’s option, Borrower may
secure the Facility with a first perfected security interest on Borrower’s
accounts receivable.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

 

Borrower
hereby represents and warrants to the Administrative Agent, the Lenders and the
Collateral Trustee that:

 

Section 4.01                            Organization.  Each of Borrower, K-Sea and each Subsidiary
Guarantor is a limited partnership duly organized, validly existing and in good
standing under the laws of Delaware, and has the necessary right, power and
authority to own its respective assets and to transact the business in which it
is engaged, and is duly qualified to do business in each jurisdiction where
such qualification is legally required and in each jurisdiction where the
failure to qualify would affect the enforceability of the Loan Documents or
otherwise adversely affect the Collateral or Borrower’s or K-Sea’s or any
Subsidiary Guarantor’s ability to perform its respective obligations under any
of the Loan Documents.

 

Section 4.02                            Power
and Authority.  Each of Borrower,
K-Sea and each Subsidiary Guarantor has full power, authority and legal right
to execute and deliver this Agreement, Mortgage, the Assignments and each other
Loan Document to which it is a party, and to perform its obligations hereunder
and thereunder.  Borrower has full power,
authority and legal right to make and deliver the Notes, to borrow hereunder
and Borrower and each Subsidiary Guarantor has full power, authority and legal
right to grant the security interests created by this Agreement 

 

44

 

and the Mortgage. 
This Agreement and the other Loan Documents have been duly executed and
delivered by the Credit Parties party thereto and each constitutes a legal,
valid and binding obligation of such Credit Party, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors’ rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law.

 

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

 

Section 4.04                            Financial
Condition; No Material Adverse Change.

 

(a)                                  Borrower was formed on July 14, 2003,
and has conducted no business other than the acquisition, ownership and
chartering of its vessels, including the Pool Vessels.

 

(b)                                 Borrower has heretofore furnished to the
Administrative Agent and the Lenders Financial Statements (i) as of and
for the year ended June 30, 2004, reported on by PriceWaterhouseCoopers,
independent public accountants, and (ii) as of and for the succeeding
fiscal quarters ended September 30, 2004 and December 31, 2004 certified
by the applicable Financial Officer, which Financial Statements present fairly,
in all material respects the financial position and results of operations and
cash flows as of such dates and for such periods in accordance with GAAP,
consistently applied, subject to year-end audit adjustments and the absence of
footnotes in the case of Financial Statements referred to in clause (b)(ii)
above.

 

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

 

Section 4.06                            Environmental
Condition.  Except as identified
on Schedule 4.06 hereto, none of Borrower’s nor any of its Subsidiaries’
properties or assets has ever been designated or identified in any manner
pursuant to any Environmental Law (including, without limitation, OPA 

 

45

 

90) as a Hazardous Waste disposal site, or a candidate
for closure pursuant to any Environmental Law, which designation or
identification could reasonably be expected to have a Material Adverse Effect.  No Lien arising under any Environmental Law
has attached to any revenues or to any of the Pool Vessels or any real or
personal property owned by Borrower or any of its Subsidiaries.  Neither Borrower nor any of its Subsidiaries
has received a summons, citation, notice, or directive from the United States
Environmental Protection Agency, the United States Coast Guard or any other
federal or state governmental agency regarding any action or omission by
Borrower or any of its Subsidiaries resulting in the releasing, or otherwise
exposing of Hazardous Waste into the environment, which notice could reasonably
be expected to have a Material Adverse Effect. 
Borrower and its Subsidiaries (a) are in compliance (in all
material respects) with all Environmental Laws, including, but not limited to,
all statutes, regulations, ordinances and other legal requirements pertaining
to the production, storage, handling, treatment, release, transportation or
disposal of any Hazardous Waste, and (b) will obtain, maintain and/or
comply with any permit, license or other approval required under any
Environmental Law.

 

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

 

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

 

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

 

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

 

46

 

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

 

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

 

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

 

Section 4.14                            Lenders’
Security Interest.  As of the
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 hereto.

 

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

 

Section 4.16                            Vessels.

 

(a)                                  Set forth on Schedule 1.01 is a complete and
accurate list, as of the date hereof, of all Pool Vessels, showing as of the
Effective Date with respect to each such Pool Vessels the following:  (i) the name of each Pool Vessel; (ii) the
name of the Registered Owner of the Pool Vessels; (iii) to the extent
applicable, the American Bureau of Shipping certification number; (iv) the date
of the most recent United States Coast Guard inspection and/or ABS Survey; and
(v) to the extent applicable, the next scheduled inspection date.

 

47

 

(b)                                 Each such Pool Vessel identified on Schedule
1.01 is:  (i) to the extent required
in order to operate in the service in which such Pool Vessel is operating,
classified in the highest classification for vessels of the same age and type
in the American Bureau of Shipping required to be maintained in order to
operate in such service and is in class without recommendation (except for
recommendations which, when aggregated with recommendations for all Pool
Vessels, could not reasonably be expected to have a Material Adverse Effect);
(ii) documented under the laws of the United States to permit such Pool
Vessel to operate in the coastwise trade; (iii) covered by hull and machinery
and protection and indemnity insurance in accordance with the requirements of
the Mortgage, if any, covering such Pool Vessel, and otherwise reasonably
satisfactory to the Administrative Agent; and (iv) to the extent
applicable, subject to a valid certificate of inspection issued by the United
States Coast Guard, each such certificate of inspection is in full force and
effect without recommendation (except for recommendations which, when
aggregated with recommendations for all Pool Vessels, could not reasonably be
expected to have a Material Adverse Effect).

 

(c)                                  The information listed on each certificate of
the American Bureau of Shipping required to be delivered pursuant to Section
5.01(e)(iii)(G) hereof with respect
to each Pool Vessel confirming that such Pool Vessel is in such class without
material recommendation, as well as the information listed on each ABS Database
Printout is true, correct and complete, in all material respects, as of the
date hereof.

 

Section 4.17                            Government Consents for Conduct
of Business.  Each Credit Party has, and is in good
standing with respect to, all approvals, permits, licenses, consents,
authorizations, franchises, certificates, and inspections of all Governmental
Authority, that are necessary for a Credit Party to continue to conduct
business and own, use, operate, and maintain its property and assets as
heretofore conducted, owned, used, operated, and maintained which, if not
obtained (whether directly or by lawful and effective assignment) or not
maintained in good standing, could reasonably be expected to have a Material
Adverse Effect.  No such approval,
permit, license, consent, authorization, franchise, or certificate is
conditioned or limited any more so than as is generally the case with respect
to Persons engaged in the same or similar lines of business.  Each such approval, permit, license, consent,
authorization, franchise, or certificate was duly and validly granted or
issued, is in full force and effect, and, as of the Effective Date, neither has
been, nor has been threatened to be, amended, modified, suspended, rescinded,
revoked, forfeited, or assigned. 
Further, as of the Effective Date, no condition(s) exist(s) or event(s)
has (have) occurred that, with the giving of notice or lapse of time or both, could
result in the amendment, modification, suspension, rescission, revocation,
forfeiture, or non-renewal of any such approval, permit, license, consent,
authorization, franchise, or certificate.

 

Section
4.18                            Federal
Reserve Regulations.

 

(a)                                  Neither Borrower nor any of the Subsidiaries
are engaged principally, or as one of their important activities, in the
business of extending credit for the purpose of buying or carrying margin stock
(as defined in Regulation U of the Board as from time to time in effect).

 

(b)                                 No part of the proceeds of any Loan will be
used, whether directly or indirectly, and whether immediately, incidentally or
ultimately, to purchase, acquire or carry any 

 

48

 

Margin
Stock or for any purpose that entails a violation of, or that is inconsistent
with, the provisions of the regulations of the Board, including Regulation T, U
or X.

 

ARTICLE V

CONDITIONS

 

Section 5.01                            Effective
Date.  The obligations of the
Lenders to make the Loans hereunder, and the obligation of the L/C Issuer to
issue Letters of Credit hereunder shall not become effective until the date on
which each of the following conditions is satisfied (or waived in accordance
with Section 10.06 hereof):

 

(a)                                  The Administrative Agent shall have received
a certificate from the secretary of the Borrower and each Guarantor attaching
(i) a true and complete copy of the resolutions of its Managing Person and of
all documents evidencing all necessary partnership or corporate 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) attaching a true and complete copy 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)                                 Administrative Agent (or its counsel) shall
have received from each party hereto either (x) a counterpart of this
Agreement signed on behalf of such party or (y) written evidence
satisfactory to Administrative Agent (which may include telecopy transmission
of a signed signature page of this Agreement) that such party has signed a
counterpart of this Agreement.

 

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

 

(d)                                 The Administrative Agent shall have received
the Parent Guaranty and the Subsidiary Guaranty signed on behalf of each
Guarantor party thereto.

 

(e)                                  The Administrative Agent shall have received
the following, each dated the date of the initial Loan hereunder (unless
otherwise specified), in form and substance satisfactory to the Administrative,
and in sufficient copies:

 

(i)                                     proper Form UCC-1 financing statements 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 hereunder, covering the
Collateral;

 

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

 

49

 

(iii)                               with respect to each Pool Vessel described in
Schedule 1.01, the following:

 

(A)                              a Mortgage covering such Pool Vessel duly
executed by the Credit Party that is the owner of such Pool Vessel and, in
connection therewith, such Pool Vessel shall have been duly documented in the
name of the Credit Party holding title thereto under the laws of the United
States, such Mortgage shall have been duly filed for recording with the United
States Coast Guard, and Mortgage shall constitute a preferred ship mortgage on
such Pool Vessel;

 

(B)                                an assignment covering the earnings and
requisition compensation, if any, of such Pool Vessel, in form and substance
satisfactory to the Administrative Agent, duly executed by the Credit Party
that is the owner of such Pool Vessel and, in connection therewith, such Credit
Party 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
Pool Vessel, in form and substance satisfactory to the Administrative Agent,
duly executed by the Credit Party that is the owner of such Pool Vessel;

 

(D)                               copies of cover notes and certificates of
entry evidencing the insurance covered by such Pool Vessel;

 

(E)                                 authorizations to inspect class records of
such Pool Vessel owned by the Credit Party that is the owner thereof, in such
form and such number of counterparts as may be reasonably requested by the
Administrative Agent, duly executed by such Credit Party;

 

(F)                                 a true and complete copy of either (i) a
certificate of ownership and encumbrance issued by the United States Coast
Guard or (ii) an abstract of title issued by the United States Coast Guard, in
either case, showing such Credit Party to be the sole owner of such Pool Vessel
free and clear of all Liens of record except (x) the Mortgage covering such
Pool Vessel in favor of the Collateral Trustee for the benefit of the Lenders,
and (y) the Permitted Liens;

 

(G)                                for each 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 Pool Vessel, confirming that such 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 Effective Date, certified by an officer of Borrower as true and correct;

 

50

 

(H)                               a copy of the current certificate of
inspection issued by the United States Coast Guard for such 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 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 Pool Vessel;
(3) an opinion of such brokers to the effect that such insurance complies
with the applicable provisions of this Agreement and of the Mortgage covering
such 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 Pool Vessel, and claims thereunder, will not be affected by
nonpayment of premiums on any other insurances.

 

(f)                                    The Administrative Agent shall have received
a favorable written opinion (addressed to the Lenders, the Administrative Agent
and the Collateral Trustee and dated the Effective Date) from Holland &
Knight LLP, on behalf of the Credit Parties, substantially in the form of Exhibit C and covering such other matters relating to the
Credit Parties, the Loan Documents or the Transactions as the Administrative
Agent shall reasonably request. Borrower hereby requests such counsel to
deliver such opinion.

 

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

 

(h)                                 The Administrative Agent shall have received
Uniform Commercial Code, tax and judgment lien search reports with respect to
each applicable public office where Liens are or may be filed disclosing that
there are no Liens of record in such official’s office covering any Collateral
or showing Borrower or any other Credit Party as debtor thereunder (other than
Permitted Liens) and a certificate of an officer of Borrower, dated the
Effective Date, certifying that, upon the making of the Loans there will exist
no Liens on the Collateral other than Permitted Liens.

 

(i)                                     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 Agreement or the other Loan Documents and no action or proceeding by or
before any Governmental Authority has been commenced and is pending or, to the
knowledge of Borrower, threatened, seeking to prevent or delay the transactions
contemplated by the Loan Documents or challenging any other terms and
provisions hereof or thereof or seeking any damages in connection therewith,
and the Administrative Agent shall have received a certificate, in all respects
satisfactory to the Administrative Agent, of an officer of the Borrower to the
foregoing effect.

 

51

 

(j)                                     The Administrative Agent shall have received
a certificate, dated the Effective Date and signed by an officer of Borrower,
confirming compliance with the conditions set forth in paragraphs (a) and (b)
of Section 5.02.

 

(k)                                  Prior to or simultaneously with the making of
the Loans on the Effective Date, Borrower shall have fully repaid all
Indebtedness set forth on Schedule 5.01 hereto and all agreements with respect
thereto shall have been cancelled or terminated, all Liens, if any, securing
the same shall have been terminated, and the Administrative Agent shall have
received satisfactory evidence thereof.

 

(l)                                     The Lenders shall have completed a due
diligence investigation of Borrower and the other Credit Parties in scope, and
with results, satisfactory to the Lenders; Borrower and the other Credit
Parties shall have given the Administrative Agent such access to their
respective books and records as the Administrative Agent may have requested
upon reasonable notice in order to carry out its investigations, appraisals and
analyses, and the Administrative Agent shall have received all additional
financial, business and other information regarding Borrower and the other
Credit Parties and their respective properties as the Administrative Agent
shall have reasonably requested.

 

(m)                               The Administrative Agent shall have received
all fees and other amounts due and payable on or prior to the 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.

 

(n)                                 The Administrative Agent shall have received
evidence satisfactory to it that the insurance required by Section 6.06 is
in effect.

 

(o)                                 The Administrative Agent shall have received
and accepted a desktop or visual Appraisal of all 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 as of the
Effective Date is not less than the greater of (i) $50,000,000.00 and (ii) an
Orderly Liquidation Value such that the Asset Coverage Ratio shall not be less
than 1.25 to 1.00.

 

(p)                                 The Administrative Agent shall have received
satisfactory evidence that the Pool Vessels are operationally suitable for the
trades in which such Pool Vessels are expected to be engaged and can be
operated by Borrower and/or a Subsidiary Guarantor in their intended trades
without impediment.

 

(q)                                 The Lenders shall be reasonably satisfied (i)
that there shall be no litigation or administrative proceeding, or regulatory
development, that would reasonably be expected to have a Material Adverse Effect
on (a) the business, assets, operations, prospects, condition (financial or
otherwise) or material agreements of Borrower and
its Subsidiaries, (b) the ability of any Credit Party to perform any of its
obligations under any Loan Document or (c) the rights of or benefits available
to the Administrative Agent, the Collateral Trustee or any Lender under any
Loan Document and (ii) with the current status of, and the terms of any 

 

52

 

settlement
or other resolution of, any litigation or other proceedings brought against
Borrower or any Subsidiary.

 

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

 

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

 

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

 

(u)                                 The Administrative Agent and the Lenders
shall have reviewed and be satisfied with Borrower’s, K-Sea’s and K-Sea’s predecessor’s
(i) financial statements dated July 1, 2004 and comparable financial statements
for the fiscal year 2003 and (ii) audited financial statements for the years
2001, 2002 and 2003, if applicable.  The Administrative
Agent shall have reviewed and be satisfied with all management letters, reports
and written materials, if any, that are prepared by the independent auditor of
Borrower, K-Sea and K-Sea’s predecessor during the years 2001, 2002, 2003 and
2004 to the Effective Date.

 

(v)                                 KeyBank shall have paid to Borrower a
reimbursement of the pro-rata fee paid on the Existing MARAD Letter of Credit.

 

The Administrative Agent (acting
itself or through its counsel) shall notify Borrower, the Lenders, the L/C
Issuer and the Collateral Trustee of the Effective Date, and such notice shall
be conclusive and binding. 
Notwithstanding the foregoing, the obligations of Lenders to make Loans and
the obligation of the L/C Issuer to issue Letters of Credit shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 10.06 hereof) at or prior to 3:00 p.m., New York
City time, on April 30, 2005 (and, in the event such conditions are not so
satisfied or waived, the Commitments shall terminate at such time).

 

Section 5.02                            Each
Loan and Letter of Credit.  The
obligation of each Lender to make a Loan (other than a Loan made by a Lender
pursuant to Section 2.15(e)), and the obligation of the L/C Issuer to issue a
Letter of Credit (including the initial issuance thereof) or renew a Letter of
Credit and the right of Borrower to request the issuance or renewal of a Letter
of Credit, shall each be subject to the further conditions precedent that on
the date of the making of each Loan, issuance or renewal:

 

(a)                                  The representations and warranties of each
Credit Party set forth in each Loan Document shall be true and correct in all
material respects on and as of the date of such Loan, issuance or renewal,
except to the extent such representations and warranties relate to an earlier
date.

 

53

 

(b)                                 At the time of and immediately after giving
effect to such Loan or issuance, no Default shall have occurred and be
continuing and the aggregate Revolving Credit Exposure of all Lenders shall not
exceed the Borrowing Base.

 

(c)                                  The Administrative Agent shall have received
a Loan Request meeting the requirements of Section 2.05 or a Credit Request
meeting the requirements of Section 2.15.

 

(d)                                 The Administrative Agent shall have received
such other documentation and assurances as shall be reasonably required by it
in connection with the making of such Loan or the issuance or renewal of such
Letter of Credit.

 

The
making of each Loan and the issuance and renewal of each Letter of Credit shall
be deemed to constitute a representation and warranty by Borrower on the date
thereof as to the matters specified in paragraphs (a) and (b) of this Section
5.02.

 

ARTICLE VI

AFFIRMATIVE COVENANTS

 

Until the Commitments have expired or been terminated
and the principal of and interest on each Loan, all Reimbursement Obligations
and all fees and other amounts (other than contingent indemnity obligations)
payable under the Loan Documents shall have been paid in full, Borrower
covenants and agrees with the Lenders that:

 

Section
6.01                            Financial
Statements and Other Information.

 

(a)                                  Borrower shall deliver to the Administrative
Agent and the Lenders, at Borrower’s sole expense:  (i) as soon as available but no later
than forty-five (45) days after the end of each fiscal quarter, the unaudited
consolidated Financial Statements of Borrower and K-Sea for such interim fiscal
period, prepared in accordance with GAAP and certified by the Financial Officer
of Borrower and K-Sea, respectively, (ii) as soon as available after the end of
each fiscal year, annual financial projections of Borrower prepared in
accordance with GAAP by the Financial Officer of Borrower, using monthly data, and
(iii) as soon as available but no later than one hundred twenty (120) days
after the end of each fiscal year or as required under any regulations to which
Borrower or K-Sea is subject, the audited consolidated Financial Statements
(with an unqualified opinion) of Borrower and K-Sea for such fiscal year, prepared
and certified by independent certified public accountants acceptable to
Lenders.  All of the foregoing shall be
in such form and together with such information with respect to the business of
Borrower, as Lenders may in each case request as reasonably calculated by
Lenders to enable them to confirm and prove elements of the Financial
Statements.  Borrower shall keep and
maintain its books and records in accordance with GAAP, consistently applied.

 

(b)                                 Concurrently with any delivery of Financial
Statements under clause (a)(i) above, Borrower shall deliver to Lenders a
certificate of a Financial Officer of K-Sea (i) certifying as to whether a
Default has occurred since the delivery of the previous such certificate or to
the date hereof and, if such a Default has occurred, specifying the details
thereof and any action taken or proposed to be taken with respect thereto,
(ii) setting forth reasonably 

 

54

 

detailed
calculations demonstrating compliance with Sections 7.01, 7.02, 7.03 and
7.04 hereof (which calculations with respect to Section 7.04 shall be based on
the then most recent Appraisals of the Pool Vessels and the aggregate Revolving
Credit Exposure of all Lenders as of the last day of the fiscal quarter covered
by such Financial Statements), (iii) stating whether any change in GAAP or
in the application thereof has occurred since the date of the audited Financial
Statements referred to in Section 4.04 or Section 6.01 hereof, as
applicable, has materially and adversely effected the Financial Statements
accompanying such certificate and, if so, the estimated dollar amount thereof
and (iv) certifying as to whether any default or event of default shall have
occurred under any Title XI Guaranty (or any Indebtedness guaranteed thereby)
and setting forth in reasonable detail calculations demonstrating compliance
with any financial covenants contained in any such Title XI Guaranty or related
Indebtedness.

 

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

 

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

 

Section 6.02                            Pool Vessel Appraisals.  The
Administrative Agent may conduct, and Borrower shall cooperate in the conduct
of, a visual Appraisal of any or all of the Pool Vessels at Borrower’s expense,
over every twelve (12) month period of this Agreement in the absence of an
Event of Default and at any time during the continuance of an Event of
Default.  The first twelve-month period
will begin on the Effective Date; provided, however, that Borrower will
allow access to any Appraiser selected by the Administrative Agent to attend
and appraise any Pool Vessel in drydock at any time
on reasonable notice.  Each fiscal year,
Borrower shall provide the Administrative Agent with a drydock schedule and
location of drydock.  As soon as
available after each Anniversary Date, Borrower shall provide the
Administrative Agent with desktop Appraisals on all Pool Vessels in the
Collateral.

 

Section 6.03                            Fees
and Expenses.  Borrower
shall pay, on demand of the Administrative Agent and delivery to Borrower of
invoices therefor, all actual out-of-pocket costs, expenses, filing fees and
taxes payable in connection with the negotiation, preparation,
execution, delivery, recording, administration, collection, liquidation,
enforcement and defense of the Obligations, the Lenders’ rights in the
Collateral, this Agreement and all other existing and future agreements or
documents contemplated herein or related hereto, including any amendments,
waivers, supplements or consents which may hereafter be made or entered into in
respect hereof, or in any way involving claims or defense asserted by the Lenders
or claims or defenses against the Lenders asserted by Borrower or any
guarantor, including, without limitation, the Guarantors, or any third party
directly or indirectly arising out of or related to the relationship between
Borrower and the Lenders, including, but not limited to, the following, 

 

55

 

whether incurred before, during or after the initial
or any renewal term or after the commencement of any case with respect to
Borrower under the United States Bankruptcy Code or any similar statute:
(a) all costs and expenses of filing or recording (including the UCC
financing statement and any Mortgage filing taxes and fees, abstract fees
relating to the Pool Vessels, documentary taxes, intangibles taxes, etc., if
applicable); (b) all insurance premiums, appraisal fees, fees incurred in
connection with any environmental report, audit or survey and search fees;
(c) all fees as then in effect relating to the wire transfer of loan
proceeds and other funds and fees then in effect for returned checks and credit
reports; (d) with respect to periodic field examinations of the Collateral
and Borrower’s operations, a per diem charge at the rate of $1,000.00 per
person per day for Lenders’ internal examiners in the field and office in
excess of three (3) days per visit; and (e) the reasonable, documented costs,
fees and disbursements of outside counsel to Lenders, including, but not
limited to, such fees and disbursements incurred as a result of litigation
between the parties hereto, any third party and in any appeals arising
therefrom.  Any of the foregoing amounts
that are paid by Lenders shall, until reimbursed by or on behalf of Borrower,
constitute Obligations of Borrower secured by the Collateral.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 6.06                            Insurance.  (a)  With
respect to the Collateral and other assets, Borrower shall maintain insurance
at all times, with financially sound and reputable insurers that are reasonably
acceptable to the Administrative Agent. 
With respect to insurance on all Collateral, all such insurance policies
shall be in such form, substance, amounts and coverage as may be satisfactory
to the Administrative Agent, including, without limitation, insurance on hull
and 

 

56

 

machinery, protection and indemnity, loss or damage to vessels, damage
to property of third parties (including customers), loss or contamination of
cargo, personal injuries to employees or third parties, and pollution and other
related environmental damage.

 

(b)                                 Such insurance shall provide for thirty (30)
days’ prior written notice to the Administrative Agent of any reduction or
cancellation of coverage on account of default in the payment of any premium
and shall provide Lenders with the opportunity to cure nonpayment.  Borrower hereby irrevocably appoints the
Administrative Agent with full right of delegation by the Administrative Agent
as attorney-in-fact for Borrower to obtain, at Borrower’s expense, any such
insurance should Borrower fail to do so and, after an Event of Default, to
adjust or settle any claim or other matter under or arising pursuant to such
insurance or to amend or cancel such insurance. 
Borrower shall deliver to the Administrative Agent evidence of such
insurance and a lender’s loss payable endorsement satisfactory to the
Administrative Agent as to all existing and future insurance policies with
respect to the Collateral.  Borrower
shall deliver to the Administrative Agent, in kind, all instruments
representing proceeds of insurance received by Borrower.  Except as otherwise specifically provided herein
or in the Mortgage as to any Pool Vessel, the Administrative Agent may apply
any insurance proceeds received by the Administrative Agent or the Collateral
Trustee at any time to the cost of repairs to or replacement of any portion of
the Collateral and/or, at the Administrative Agent’s option, to payment of or
as security for any of the Obligations, whether or not due, in any order or
manner as the Administrative Agent may determine.  Borrower will insure each Pool Vessel in
accordance with Section 1.18 of the Mortgage.  Nothing in this Agreement shall be construed
to limit or restrict the provisions of Section 1.18 of the Mortgage, but
shall be in addition thereto.

 

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

 

57

 

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

 

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

 

Section 6.10                            Use
of Proceeds.  The proceeds of the
Loans can be used for any purpose in the ordinary course of business, including
minimum quarterly distributions to partners in K-Sea, acquisition of entities
or specific vessels from unaffiliated third parties, or, if from an Affiliate,
an acquisition which is made on terms equivalent to an arm’s-length basis, or
financing other rebuilding, retrofitting, upgrading or capital improvements on
Pool Vessels or other Vessels owned by the Borrower or any Subsidiary Guarantor,
provided that no part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, to
purchase, acquire or carry any margin stock (as defined under Regulation U of
the Board) or for any purpose that entails a violation of any of the
regulations of the Board, including Regulations T, U and X.  Borrower shall not invest, lend or otherwise
distribute the proceeds of any Loan made under this Agreement in or to any
Person other than 

 

58

 

Borrower, K-Sea or any Subsidiary Guarantor, except as set forth in the
first sentence of this Section 6.10.

 

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

 

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

 

Section 6.13                            Further
Assurances.  Borrower will,
promptly at any time and from time to time, at its sole expense, execute and
deliver, and cause its Subsidiaries to execute and deliver, to the
Administrative Agent such further instruments and documents, and take such
further action, as the Administrative Agent may from time to time request in
order to further carry out the intent and purpose of the Loan Documents and to
establish and protect the rights, interests and remedies created, or intended
to be created, in favor of the Administrative Agent and the Lenders hereby and
thereby, including, without limitation, the execution, delivery, recordation
and filing of financing statements and continuation statements.  Borrower hereby authorizes the Administrative
Agent, in such jurisdictions where such action is authorized by law, to effect
any such recordation or filing of financing statements and continuation statements
without the signature of Borrower thereon and to file as valid financing
statements in the applicable financing statement records, photocopies hereof
and of any other financing statement executed in connection herewith.  The Administrative Agent agrees to provide
Borrower with copies of UCC filings, but shall have no liability for failure to
do so and such failure shall not serve as a defense to the performance by any
party of its obligations under the Loan Documents.

 

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

 

Section 6.15                            Indemnification.  Without limiting the generality of any other
provision hereof, Borrower shall indemnify, protect, save and keep harmless the
Administrative Agent, the 

 

59

 

L/C Issuer, the Collateral Trustee and each Lender from and against any
reduction in the amount payable out of the Collateral to such Person with
respect to the Obligations, or any other loss, cost or expense (including
reasonable legal fees) incurred by such Person, as the result of any breach of
the provisions of this Article VI.

 

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

 

Section 6.17                            Environmental
Compliance.  (a)  Borrower shall, and it shall require that any
and all subcharterers, managers, employees, contractors, subcontractors,
agents, representatives, Affiliates, consultants, occupants and any and all
other Persons, (i) comply in all material respects with all applicable
Environmental Laws, (ii) use, employ, process, emit, generate, store,
handle, transport, dispose of and/or arrange for the disposal of any and all
Hazardous Materials in, on, or, directly or indirectly, related to or in
connection with any of the Pool Vessels or any portion thereof in a manner
consistent with prudent industry practice and in compliance in all material
respects with all applicable Environmental Laws, and in a manner which does not
pose a significant risk to human health, safety (including occupational health
and safety) or the environment, and (iii) obtain, maintain, and have on
board each of the Pool Vessels any required Certificate of Financial
Responsibility; (b) Borrower shall, and it shall require that any
charterer of any of the Pool Vessels or any of them or any other Person that
may have custody of any of the Pool Vessels shall, upon the occurrence or
discovery of an Environmental Event with respect to such Pool Vessel, promptly
carry out, using Borrower’s or such other Person’s own funds or proceeds of
insurance with respect thereto, such actions as may be necessary to remediate
or cure such Environmental Event in compliance in all material respects with
all Applicable Laws, to comply in all material respects with all applicable
Environmental Laws and to alleviate any significant risk to human health or the
environment if the same arises from a condition on or in respect of the Pool
Vessel, whether existing prior to or during the term of this Agreement or the
term of any such the charter.  Once
Borrower or such other Person commences such actions, Borrower shall, and shall
cause such other Person to, thereafter diligently and expeditiously proceed to
comply in all material respects in a timely manner with all Environmental Laws
and to eliminate any significant risk to human health or the environment
arising from such Environmental Event and shall, at the request of the
Administrative Agent, give periodic progress reports to the Administrative
Agent and the Lenders on its compliance efforts and actions.  Nothing contained herein will relieve or
discharge or in any way affect the obligation of Borrower to cure promptly any
violations of Applicable Law or to pay and discharge any Liens against any of
the Pool Vessels.

 

60

 

Section 6.18                            Subsidiary
Guaranties.  Upon the formation or
acquisition of any Subsidiary of Borrower, Borrower shall cause each such
Subsidiary to provide a Subsidiary Guaranty to the Administrative Agent
substantially in the form attached hereto as Exhibit H.  In the event any Subsidiary of Borrower is an
entity other than a corporation, the form of Subsidiary Guaranty shall be
modified to reflect the nature of such entity.

 

Section 6.19                            Relating to the Vessels.

 

(a)                                  Borrower shall maintain and cause each of its
Subsidiaries to maintain, a certified copy of each Mortgage, together with a
notice thereof, aboard each of the Pool Vessels owned by it.

 

(b)                                 Borrower shall maintain and cause each of its
Subsidiaries to maintain the Pool Vessels (which are required to be classed in
order to operate in the service in which they are operating) in the highest
classification required to be maintained in order to operate in such service
for vessels of like age and type by the American Bureau of Shipping or any
other classification society reasonably satisfactory to the Administrative
Agent.

 

(c)                                  Borrower shall permit the Administrative
Agent to have the Pool Vessels surveyed by marine engineers or other surveyors
selected by the Administrative Agent, in its sole discretion, at such times and
with such frequency as the Administrative Agent may reasonably request.  The costs of such surveys and inspections
shall be allocated as follows: (i) so long as no Event of Default has
occurred and is then continuing, the cost of one such survey and inspection
every three years shall be borne by Borrower, and (ii) whenever an Event
of Default exists hereunder, the costs of all surveys (including, without
limitation, Visual Surveys) and inspections shall be borne by Borrower.

 

Section 6.20                            Working Capital Clean-Down. 
Borrower will cause Loans the proceeds of which were used for working
capital purposes (as identified in accordance with Section 2.05(v) hereof) and
not for vessel acquisitions or expansion capacity, to be reduced to zero for
fifteen (15) consecutive days during each twelve (12) month period beginning
with the Effective Date.

 

ARTICLE VII

NEGATIVE COVENANTS

 

Until the Commitments have expired or terminated and
the principal of and interest on each Loan, all Reimbursement Obligations and
all fees and other amounts (other than contingent liability obligations)
payable hereunder have been paid in full Borrower covenants and agrees with
Lenders that:

 

Section 7.01                            Fixed
Charge Coverage Ratio.  Borrower
shall not permit the Fixed Charge Coverage Ratio as of the end of any fiscal
quarter to be less than 2.50 to 1.00.

 

61

 

Section
7.02                            Total
Funded Debt to Tangible Capitalization Ratio.  Borrower shall not permit the
Total Funded Debt to Tangible Capitalization Ratio as of the end of any fiscal
quarter to be greater than 0.60 to 1.00.

 

Section 7.03                            Total
Funded Debt to EBITDA Ratio.  Borrower
shall not permit the Total Funded Debt to EBITDA Ratio at any time during each
period set forth below to be greater than the ratio set forth below with
respect to such period:

 

	
  Period

  	
   

  	
  Ratio

  	
   

  
	
  Effective Date to and including December
  31, 2006

  	
   

  	
  3.75 to 1.00

  	
   

  
	
  January 1, 2007 and thereafter

  	
   

  	
  3.50 to 1.00

  	
   

  

 

Section 7.04                            Asset
Coverage Ratio.  Borrower shall not
permit the Asset Coverage Ratio as of the last day of each fiscal quarter to be
less than 1.25 to 1.00.

 

Section 7.05                            No
Liens.  Borrower will not and
will not permit any Subsidiary Guarantor or any charterer of the Pool Vessels
or any of them to create, assume or suffer to exist any Lien of any kind upon
the Collateral except for Liens in favor of the Administrative Agent and the
Collateral Trustee and Permitted Liens.

 

Section 7.06                            No
Changes in Borrower.  Borrower
shall not (a) materially change its business; (b) change the form of
organization of its business; or (c) without thirty (30) days’ prior
written notice to the Administrative Agent, change its name or jurisdiction or
organization.

 

Section 7.07                            No
Disposition of Assets.  Without
the prior written consent of Lenders (which shall not be unreasonably withheld),
Borrower shall not directly or indirectly sell, lease (other than a charter of
a Pool Vessel permitted under the Mortgage), transfer, assign, abandon,
exchange or otherwise relinquish possession or dispose of any part of the
Collateral or any material portion of its other assets (other than Collateral
or other assets that are obsolete or worn out, or equipment disposed of, if
worn out, and replaced with equipment of the same or better quality and value,
in the ordinary course of business).

 

Section
7.08                            Fundamental
Changes.

 

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

 

62

 

determines
in good faith that such liquidation or dissolution is in the best interests of
Borrower and is not materially disadvantageous to Lenders.

 

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

 

Section 7.09                            Transactions
with Affiliates.  Borrower will
not, and will not permit any of its Subsidiaries to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with,
any of its Affiliates, except (a) in the ordinary course of business at
prices and on terms and conditions not less favorable to Borrower or such
Subsidiary than could be obtained on an arm’s-length basis from unrelated third
parties, (b) transactions between or among Borrower and its Subsidiaries
not involving any other Affiliate and (c)  any transaction permitted by
Section 7.08 hereof; provided, that the foregoing provisions of
this Section 7.09 shall not prohibit any such Person from declaring or
paying any lawful Distributions so long as, after giving effect thereto, no
Default shall have occurred and be continuing. 
No funds provided by Lenders to Borrower hereunder shall be employed for
purposes other than corporate purposes of Borrower and for use in Borrower’s
business.

 

Section 7.10                            Restrictive
Agreements.  Borrower will not,
and will not permit any Subsidiary Guarantor to, directly or indirectly, enter
into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon (a) the ability of
Borrower or any Subsidiary Guarantor to create, incur or permit to exist any
Lien upon any of its property or assets, which restriction (or condition) is
more restrictive, in substance, than the restrictions in Section 7.05
hereof, or (b) the ability of any Subsidiary Guarantor to pay
Distributions or other distributions with respect to any shares of its capital
stock or to make or repay loans or advances to Borrower or any other Subsidiary
or to guaranty Indebtedness of Borrower or any other Subsidiary; provided,
that (i) the foregoing shall not apply to restrictions and conditions
imposed by law or by this Agreement, (ii) the foregoing shall not apply to
restrictions and conditions existing on the date hereof (but shall apply to any
extension or renewal of, or any amendment or modification expanding the scope
of, any such restriction or condition), (iii) the foregoing shall not apply
to customary restrictions and conditions contained in agreements relating to
the sale of a Subsidiary pending such sale, provided, that such
restrictions and conditions apply only to the Subsidiary that is to be sold and
such sale is permitted hereunder, (iv) clause (a) of the foregoing shall
not apply to restrictions or conditions imposed by any agreement relating to
secured Indebtedness permitted by this Agreement if such restrictions or
conditions apply only to the property or assets securing such Indebtedness and
(v) clause (a) of the foregoing shall not apply to customary provisions in
leases and other contracts restricting the assignment thereof.

 

Section 7.11                            Limitations
on Advances and Distributions  Borrower
shall not make distributions to any limited or general partner of the Borrower
during the continuance of an Event of Default if, following the occurrence of
such Event of Default, Lenders send a notice to Borrower asserting or
confirming such Event of Default (regardless of whether any notice shall have
been required to create such Event of Default in any case).  Borrower shall not make any 

 

63

 

loans or advances to any Affiliate or related Persons of Borrower,
except K-Sea and any Subsidiary Guarantor.

 

Section 7.12                            Limitations
on Other Indebtedness.  Borrower
shall not, at any time after the occurrence and during the continuance of an
Event of Default, prepay unscheduled principal or interest on any other
Indebtedness.

 

Section 7.13                            Limitations
on Negative Pledge.  Borrower
shall not suffer to exist in favor of any Person other than Administrative
Agent, the Collateral Trustee and the Lenders any agreement prohibiting
Borrower or any Subsidiary from entering into or suffering to exist any agreement
that prohibits or conditions the creation or assumption of any Lien upon any of
its property or assets except those in favor of such Person (any such
agreement, a “Negative Pledge”).  The forgoing shall not apply to (i) customary
restrictions and conditions contained in agreements relating the sale of a
Subsidiary pending such sale, provided such restrictions and conditions apply
only to the Subsidiary that is to be sold and such sale is permitted hereunder,
(ii) customary restrictions or conditions imposed by any agreement relating to
secured Indebtedness permitted to be incurred hereunder if such restrictions or
conditions apply only to the property or assets securing such Indebtedness or
(iii) customary provisions in leases and other contracts restricting the
assignment thereof.

 

Section 7.14                            Acquisitions.  Borrower shall not, and shall not permit any of its Subsidiaries to,
purchase, hold or acquire (including pursuant to any merger) any capital stock
or other securities (including any option, warrant or other right to acquire
any of the foregoing) of, or make or permit to exist any investment or any
other interest in, any other Person, or purchase or otherwise acquire (in one
transaction or a series of transactions (including pursuant to any merger)) any
assets of any other Person constituting a business unit, except (a) as
permitted by Section 7.15 and (b) Permitted Acquisitions by Borrower or any
Subsidiary; provided that Borrower
shall have delivered to the Administrative Agent and the Lenders not less than
15 Business Days prior to the consummation of any such Permitted Acquisition a
certificate of a Financial Officer of Borrower in form and substance
satisfactory to the Administrative Agent evidencing projected pro forma
compliance with Sections 7.01, 7.02, 7.03 and 7.04 after giving effect to such
Permitted Acquisition for the period from the date of such Permitted
Acquisition to the Maturity Date.

 

Section 7.15                            Partnerships, Joint Ventures.    Borrower shall not, and shall not
permit any of its Subsidiaries to, become a general partner in any general or
limited partnership or joint venture, except with respect to any purchase or
other acquisition of any capital stock or other ownership or profit interest,
warrants, rights, options, obligations or other securities of any Person, any
capital contribution to such Person or any other investment in such Person
which individually or in the aggregate with all such other investments during
the term hereof shall not exceed $20,000,000.

 

64

 

ARTICLE VIII

EVENTS OF DEFAULT AND REMEDIES

 

Section 8.01                            Events
of Default.  Each of the
following events shall constitute “Events of Default”:

 

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

 

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

 

(c)                                  Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Sections 6.04, 6.05, 6.06(a),
6.08, 6.10, 6.11, 6.12, 6.14, 7.01, 7.02, 7.03, 7.04 or 7.09 hereof;

 

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

 

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

 

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

 

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

 

65

 

receiver,
trustee, custodian, sequestrator, conservator or similar official for any
Credit Party or for a substantial part of its assets, and, in any such case,
such proceeding or petition shall continue undismissed for sixty (60) days or
an order or decree approving or ordering any of the foregoing shall be entered;

 

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

 

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

 

(j)                                     one or more judgments (excluding only the
covered amounts of insured claims, exclusive of deductibles and excess
liability beyond coverage limits and provided that underwriters have not raised
defenses to coverage) for the payment of money in an aggregate amount in excess
of $1,000,000.00 shall be rendered against any Credit Party or any combination
thereof and the same shall remain undischarged for a period of thirty (30)
consecutive days during which execution shall not be effectively stayed, or any
action shall be legally taken by a judgment creditor to attach or levy upon any
assets of such Credit Party to enforce any such judgment and either
(i) enforcement proceedings shall have been commenced by any creditor upon
any such judgment or order, or (ii) there shall be a period of ten (10)
consecutive days after entry thereof during which a stay of enforcement of any
such judgment or order, by reason of a pending appeal, or otherwise, shall not
be in effect; provided, however, that any such judgment or order
shall not give rise to an Event of Default under this subsection (j) if and for
so long as and to the extent of (A) the amount of such judgment or order
is covered by a valid and binding policy of insurance between the defendant and
the insurer covering full payment thereof, and (B) such insurer has been
notified, and has not disputed the claim for payment, of the amount of such
judgment or order;

 

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

 

(l)                                     a Change in Control shall have occurred;

 

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

 

66

 

(n)                                 except for specific matters disclosed in
writing to the Lenders prior to the Effective Date, any indictment occurring
after the Effective Date, of Borrower under any criminal statute, including OPA
or any similar Environmental Law, or commencement of criminal proceedings
against Borrower, pursuant to which statute or proceeding the penalties or
remedies sought or available include forfeiture of any of the property of
Borrower and such proceedings shall continue for more than 30 days.  For issues relating to OPA or similar
Environmental Laws, the Lenders agree that an Event of Default shall not bee
deemed to have occurred prior to the date on which Borrower receives notice
thereof from the Administrative Agent;

 

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

 

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

 

(q)                                 a change occurs in the financial condition of
Borrower or K-Sea which is likely to have a Material Adverse Effect on the
Collateral or Borrower’s ability to perform its obligations hereunder;

 

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

 

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

 

(t)                                    any material provision of any Loan Document
after delivery thereof shall for any reason cease to be valid and binding on or
enforceable against any Credit Party which is party to it, or any such Credit
Party shall so state in writing;

 

(u)                                 Borrower grants any security interest in any
of the outstanding Collateral under this Agreement to any Person other than a
Lender, the Administrative Agent or the Collateral Trustee;

 

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

 

(w)                               a proceeding shall have been commenced on
behalf of the United States to effect the forfeiture of any of the Pool Vessels
or any notice shall have been issued on behalf of the United States of the
seizure of any of the Pool Vessels and such forfeiture could reasonably be
expected to have a Material Adverse Effect;

 

67

 

(x)                                   any Credit Party which owns a Pool Vessel
shall lose its status as a citizen of the United States for the purpose of
operating vessels in the coastwise trade in accordance with Section 2 of the
Shipping Act of 1916, as amended; or

 

(y)                                 K-Sea shall at any time fail to maintain its
status as an exempt partnership under section 7704(c) of the Code.

 

Section 8.02                            Remedies.  Upon
the occurrence of an Event of Default, or at any time thereafter during the
continuance thereof, the Administrative Agent (i) shall at the request, or may
with the consent, of the Required Lenders, by notice to Borrower, declare all
of the Commitments of each Lender and of the L/C Issuer to issue Letters of
Credit, to be terminated, whereupon the same shall forthwith terminate, and
(ii) shall at the request, or may with the consent, of the Required Lenders,
(A) by notice to Borrower, declare the Notes, all interest thereon and all
other amounts payable under this Agreement and the other Loan Documents to be
forthwith due and payable, whereupon the Notes, all such interest and all such
other amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by Borrower and (B) by notice to each party required
under the terms of any agreement in support of which a Standby Letter of Credit
is issued, request that all Obligations under such agreement be declared to be
due and payable; provided, however, in the case of an Event of
Default specified in Section 8.01(g) or 8.01(h), (x) the obligation of each
Lender to make Loans and of the L/C Issuer to issue Letters of Credit shall
automatically be terminated and (y) the Notes, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Borrower.

 

In
the event that the Loans, all accrued and unpaid interest thereon and all other
amounts owing under the Loan Documents shall have been declared due and payable
pursuant to the provisions of this Section 8.02, (i) the Administrative Agent
and the Collateral Trustee (A) upon the direction of the Required Lenders,
shall proceed to enforce the rights of the holders of the Notes and the
Reimbursement Obligations by suit in equity, action at law and/or other
appropriate proceedings, whether for payment or the specific performance of any
covenant or agreement contained in the Loan Documents and (B) may exercise any
and all rights and remedies provided to the Administrative Agent or the
Collateral Trustee by the Loan Documents and (ii) Borrower shall deposit in the
Cash Collateral Account Cash Collateral in an amount equal to the Letter of
Credit Exposure.  Except as otherwise
expressly provided in the Loan Documents, Borrower expressly waives presentment,
demand, protest and all other notices of any kind in connection with the Loan
Documents.  Borrower hereby further
expressly waives and covenants not to assert any appraisement, valuation, stay,
extension, redemption or similar laws, now or at any time hereafter in force
which might delay, prevent or otherwise impede the performance or enforcement
of any Loan Document.

 

Section 8.03                            Lenders’
Cure of Third Party Agreement Default. 
The Administrative Agent (at the instruction of the Lenders) or any
Lender may, at its option, cure any default by Borrower under any agreement
with a third party or pay or bond on appeal any judgment entered against
Borrower, discharge taxes, Liens, security interests or other encumbrances at
any time levied on or existing with respect to the Collateral and pay any
amount, incur any expense or 

 

68

 

perform any act which, in such Lender’s sole judgment, is necessary or
appropriate to preserve, protect, insure, maintain, or realize upon the
Collateral.  The Administrative Agent and
the Lenders may charge Borrower’s Loan Account for any amounts so expended,
such amounts to be repayable by Borrower on demand.  Neither the Administrative Agent nor the Lenders
shall be under any obligation to effect such cure, payment, bonding or
discharge, and shall not, by doing so, be deemed to have assumed any obligation
or liability of Borrower.

 

ARTICLE IX

THE AGENTS

 

Section 9.01                            Authorization
and Action.

 

(a)                                  Each Lender hereby appoints the
Administrative Agent as such and as “Collateral Trustee” under the Mortgages
and authorizes it to take such action as agent and as “Collateral Trustee” on
its behalf and to exercise such powers and discretion under this Agreement and
the other Loan Documents (including the Mortgages) as are delegated to it by
the terms hereof and thereof, together with such powers and discretion as are
reasonably incidental thereto.  KeyBank
hereby accepts its appointment as Administrative Agent and as Collateral
Trustee.  The Administrative Agent shall
have no duties or responsibilities except those expressly set forth in this
Agreement and the other Loan Documents and shall not be a fiduciary for any
Lender.

 

(b)                                 As to any matters not expressly provided for
by the Loan Documents (including, without limitation, enforcement or collection
of the Notes), the Administrative Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Required Lenders, and such instructions shall be
binding upon all Lenders and all holders of Notes and any action taken or
failure to act pursuant thereto shall be binding on all the Lenders; provided,
however, that the Administrative Agent shall not be required to take any
action that exposes the Administrative Agent to personal liability or that is
contrary to this Agreement, any other Loan Document or applicable law and
except for action expressly required by the Administrative Agent hereunder or
under the Loan Documents, the Administrative Agent shall in all cases be fully
justified in failing or refusing to act hereunder or thereunder unless it shall
be indemnified to its satisfaction by the Lenders against any and all liability
and expense that may be incurred by it by reason of taking or continuing to
take any such action.

 

Section 9.02                            Agent’s
Reliance, Etc.  Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with the Loan Documents, except for its or their own gross
negligence or willful misconduct. 
Without limitation of the generality of the foregoing, the
Administrative Agent: (a) may treat the payee of any Note as the holder thereof
until the Administrative Agent receives and accepts an Assignment and
Acceptance entered into by the Lender that is the payee of such Note, as
assignor, and an Eligible Assignee, as assignee, as provided in Section 10.07;
(b) may consult with legal counsel (including counsel for any Credit 

 

69

 

Party), independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts; (c) makes no warranty or representation to any Lender and shall not be
responsible to any Lender for recitals, any statements, warranties or
representations (whether written or oral) made in or in connection with the
Loan Documents; (d) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions of
any Loan Document on the part of any Credit Party or to inspect the property
(including the books and records) of any Credit Party; (e) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, any Loan Document or any other instrument or
document furnished pursuant thereto; (f) shall incur no liability under or in
respect of any Loan Document by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telegram, telecopy or telex) believed
by it to be genuine and signed or sent by or on behalf of the proper party or
parties; and (g) may employ agents and attorneys-in-fact and shall not be
answerable for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care.

 

Section 9.03                            KeyBank
and Affiliates.  With respect to
its Commitment, the Loans made by it and the Note issued to it, KeyBank shall
have the same rights and powers under the Loan Documents as any other Lender
and may exercise the same as though it were not the Administrative Agent; and
the term “Lender” or “Lenders” shall, unless otherwise expressly indicated,
include KeyBank in its individual capacity. 
KeyBank and its affiliates may accept deposits from, lend money to, act
as trustee under indentures of, accept investment banking engagements from and
generally engage in any kind of business with, any Credit Party, any of its
Subsidiaries and any Person who may do business with or own securities of any
Credit Party or any such Subsidiary and may accept fees and other consideration
from the Borrower or its Affiliates, for services in connection with this
Agreement, the other Loan Documents or otherwise, all as if KeyBank were not
the Administrative Agent and without any duty to account therefor to the
Lenders.

 

Section 9.04                            Lender
Credit Decision.  Each Lender
acknowledges that it has, independently and without reliance upon the
Administrative Agent or any other Lender and based on the financial statements
referred to in Section 4.04 and such other documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into
this Agreement.  Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.

 

Section 9.05                            Indemnification.

 

(a)                                  Each Lender severally agrees to indemnify the
Administrative Agent (to the extent not promptly reimbursed by the Borrower)
from and against such Lender’s ratable share (determined as provided below) of
any and all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature 

 

70

 

whatsoever that may be
imposed on, incurred by, or asserted against the Administrative Agent in any
way relating to or arising out of any of the Loan Documents or any transaction
contemplated hereby and thereby or any action taken or omitted by the
Administrative Agent under any of the Loan Documents; provided, however,
that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements to the extent resulting from the Administrative Agent’s
gross negligence or willful misconduct. 
Without limitation of the foregoing, each Lender agrees to reimburse the
Administrative Agent promptly upon demand for its ratable share of any costs
and expenses (including, without limitation, fees and expenses of counsel)
payable by the Borrower under Section 10.06, to the extent that the
Administrative Agent is not promptly reimbursed for such costs and expenses by
the Borrower.

 

(b)                                 Each Lender severally agrees to indemnify the
L/C Issuer (to the extent not promptly reimbursed by the Borrower) from and
against such Lender’s ratable share (determined as provided below) of any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever that
may be imposed on, incurred by, or asserted against the L/C Issuer in any way
relating to or arising out of any of the Loan Documents or any action taken or
omitted by the L/C Issuer under any of the Loan Documents; provided, however,
that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the L/C Issuer’s gross negligence or
willful misconduct.  Without limitation
of the foregoing, each Lender agrees to reimburse the L/C Issuer promptly upon
demand for its ratable share of any costs and expenses (including, without
limitation, fees and expenses of counsel) payable by the Borrower under Section
10.06, to the extent that the L/C Issuer is not promptly reimbursed for such
costs and expenses by the Borrower.

 

(c)                                  For purposes of Sections 9.05(a) and 9.05(b),
the Lenders’ respective ratable shares of any amount shall be determined, at
any time, according to the sum of (i) the aggregate principal amount of the
Loan outstanding at such time and owing to the Lenders, (ii) their respective
Applicable Percentage of the aggregate Letter of Credit Exposure outstanding at
such time and (iii) their respective unused Commitments at such time; provided,
that the aggregate principal amount of all unreimbursed drawings under all
Letters of Credit owing to the L/C Issuer shall be considered to be owed to the
Lenders ratably in accordance with their respective Commitments.  In the event that any Lender shall have
failed at any time to make available to the Administrative Agent or the L/C
Issuer any amounts payable by such Lender under Sections 2.06, 2.14(d) or 2.15,
such Lender’s Commitment with shall be considered to be unused for purposes of
this Section 9.05 to the extent of the amount of non-payment.  The failure of any Lender to reimburse the
Administrative Agent or the L/C Issuer, as the case may be, promptly upon
demand for its ratable share of any amount required to be paid by the Lenders
to the Administrative Agent or the L/C Issuer, as the case may be, as provided herein
shall not relieve any other Lender of its obligation hereunder to reimburse the
Administrative Agent or the L/C Issuer, as the case may be, for its ratable
share of such amount, but no Lender shall be responsible for the failure of any
other Lender to reimburse the Administrative Agent or the L/C Issuer, as the
case may be, for such other Lender’s ratable share of such amount.  Without prejudice to the survival of any
other agreements of any Lender hereunder, the agreement and 

 

71

 

obligations of each Lender
contained in this Section 9.05 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the other Loan
Documents.

 

Section 9.06                            Successor
Administrative Agents.  The
Administrative Agent may resign at any time by giving written notice thereof to
the Lenders and Borrower and may be removed at any time with or without cause
by the Required Lenders.  Upon any such
resignation or removal, the Required Lenders shall have the right (subject to
the approval of Borrower, such approval not to be unreasonably withheld or
delayed; provided that Borrower shall have no right of approval if at
the applicable time of the proposed appointment any Event of Default shall have
occurred and be continuing) to appoint a successor Administrative Agent.  If no successor Administrative Agent shall
have been so appointed by the Required Lenders, and shall have accepted such
appointment, within thirty (30) days after the retiring Administrative Agent’s
giving of notice of resignation or the Required Lenders’ removal of the
retiring Administrative Agent, then the retiring Administrative Agent may, on
behalf of the Lenders, appoint a successor Administrative Agent, which shall be
a Lender which is a commercial bank organized under the laws of the United
States or of any State thereof and having a combined capital and surplus of at
least $250,000,000.  Upon the acceptance
of any appointment as Administrative Agent hereunder by a successor
Administrative Agent and upon the execution and filing or recording of such
financing statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Required Lenders may
request, in order to continue the perfection of the Liens granted or purported
to be granted by the Loan Documents, such successor Administrative Agent shall
succeed to and become vested with all the rights, powers, discretion,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from all of its duties and obligations
under this Agreement and the other Loan Documents.  After any retiring Administrative Agent’s
resignation or removal hereunder as Administrative Agent, the provisions of
this Article IX shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Administrative Agent.  Borrower shall not be responsible for any
costs or expenses arising out of the replacement of the Administrative Agent
pursuant to this Section.

 

Anything
contained in this Section 9.06 to the contrary notwithstanding, no Person may
become a successor Administrative Agent or Collateral Trustee under a Mortgage
unless it is a Coastwise Citizen.  The
Administrative Agent (and each successor Administrative Agent upon becoming
Administrative Agent) hereby represents and warrants that it is a Coastwise
Citizen and covenants that it will maintain its status as a Coastwise Citizen.

 

Section 9.07                            Events
of Default.  The Administrative
Agent shall not be deemed to have knowledge of the occurrence of a Default
(other than the non-payment of principal of or interest on Loans) unless the
Administrative Agent has received notice from a Lender or Borrower specifying
such Default and stating that such notice is a “Notice of Default”.  In the event that the Administrative Agent
receives such a notice of the occurrence of a Default, the Administrative Agent
shall give notice thereof to the Lenders (and shall give each Lender notice of
each such non-payment).  The
Administrative Agent shall (subject to Section 9.01(b) hereof) take such action
with respect to such Default as shall be directed by the Required Lenders.

 

72

 

Section 9.08                            Payments.

 

(a)                                  A payment by Borrower to the Administrative
Agent hereunder or any of the other Loan Documents for the account of any
Lender shall constitute a payment to such Lender.  The Administrative Agent agrees promptly to
distribute to each Lender such Lender’s pro rata share of payments received by
the Administrative Agent for the account of the Lenders except as otherwise
expressly provided herein or in any of the other Loan Documents.

 

(b)                                 If in the opinion of the Administrative Agent
the distribution of any amount received by it in such capacity hereunder, under
the Notes or under any of the other Loan Documents might involve it in
liability, it may refrain from making distribution until its right to make
distribution shall have been adjudicated by a court of competent
jurisdiction.  If a court of competent
jurisdiction shall adjudge that any amount received and distributed by the
Administrative Agent is to be repaid, each Person to whom any such distribution
shall have been made shall either repay to the Administrative Agent its
proportionate share of the amount so adjudged to be repaid or shall pay over
the same in such manner and to such Persons as shall be determined by such
court.

 

Section 9.09                            Administrative
Agent May File Proofs of Claim.

 

(a)                                  In case of the pendency of any receivership,
insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial, administrative or like proceeding or any
assignment for the benefit of creditors relative to Borrower or any of its
Subsidiaries, the Administrative Agent (irrespective of whether the principal
of the Facility or any unpaid reimbursement obligation under any outstanding
Letters of Credit shall then be due and payable as herein expressed or by
declaration or otherwise and irrespective of whether the Administrative Agent
shall have made any demand on Borrower) shall be entitled and empowered, by
intervention in such proceeding, under any such assignment or otherwise:

 

(i)                                     to file and prove a claim for the whole
amount of the principal and interest owing and unpaid in respect of the
Facility or any unpaid reimbursement obligation under any outstanding Letters
of Credit and all other Obligations of Borrower that are owing and unpaid and
to file such other documents as may be necessary or advisable in order to have
the claims of the Lenders and the Administrative Agent (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Lenders and the Administrative Agent and their respective agents and counsel
and all other amounts due the Lenders and the Administrative Agent under
Sections 2.10 and 10.06) allowed in
such proceeding or under any such assignment; and

 

(ii)                                  to collect and receive any monies or other
property payable or deliverable on any such claims and to distribute the same.

 

(b)                                 Any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such proceeding or
under any such assignment is hereby authorized by each Lender to make such
payments to the Administrative Agent and, in the event that the 

 

73

 

Administrative Agent shall
consent to the making of such payments directly to the Lenders, nevertheless to
pay to the Administrative Agent any amount due for the reasonable compensation,
expenses, disbursements and advances of the Administrative Agent and its agents
and counsel, and any other amounts due the Administrative Agent under Sections
2.10 and 10.06.

 

(c)                                  Nothing contained herein shall authorize the
Administrative Agent to consent to or accept or adopt on behalf of any Lender
any plan of reorganization, arrangement, adjustment or composition affecting
the Obligations of Borrower owed to such Lender or the rights of any Lender or to
authorize the Administrative Agent to vote in respect of the claim of any
Lender in any such proceeding or under any such assignment.

 

Section
9.10                            Agents.

 

None of the banks or other Persons identified on the
cover page of this Agreement or in the preamble to this Agreement as a “syndication
agent” or any similar title shall have any right, power, obligation, liability,
responsibility or duty to any Person under this Agreement, any of the other
Loan Documents or otherwise, other than KeyBank in its capacity as
Administrative Agent and Collateral Trustee under this Agreement and the other
Loan Documents and each Lender in its capacity as a Lender.  Without limiting the foregoing, none of such
banks or other Persons so identified shall have or be deemed to have any
fiduciary relationship with any other such bank or other Person but such banks
or other Persons shall have the benefit of the provisions of Section 9.03.

 

ARTICLE X

MISCELLANEOUS

 

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

 

(b)                                 if
to Borrower, to it at:

 

K-Sea Transportation Partnership L.P.

3245 Richmond Terrace

Staten Island, New York  10303

Attention:  Chief Financial
Officer

Telecopier: 
(718) 720-4358

 

74

 

with copies to:

 

Baker Botts, L.L.P.

One Shell Plaza

910 Louisiana

Houston, Texas  77002

Attention:  Sean Wheeler, Esq.

Telecopier: 
(713) 229-5868

 

and:

 

Holland & Knight, LLP

195 Broadway

New York, New York  10007

Attention:  Christopher G. Kelly,
Esq.

Telecopier: 
(212) 385-9010

 

and:

 

Jeffries Capital Partners

520 Madison Ave.

New York, New York  10022

Attention:  Brian Friedman

Telecopier: 
(212) 284-1717

 

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

 

KeyBank National Association

127 Public Square

Cleveland, Ohio 44114

Attention: KCIB Loan Services

Telecopier:  (216)
689-5962

 

with copies to:

 

KeyBank National Association

575 Fifth Ave.

18th Floor

New York, New York  10017

Attention:  Steven B. Vitale

Telecopier:  (917) 368-2310

 

and

 

75

 

Emmet, Marvin & Martin, LLP

120 Broadway

New York, New York 10271

Attention:  Richard S. Talesnick,
Esq.

Telecopier: 
(212) 238-3100

 

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

 

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

 

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

 

Section 10.03                     K-Sea
as Agent for Borrower  K-Sea
shall be deemed the agent of Borrower in any matter arising under this
Agreement and the Administrative Agent, the L/C Issuer and the Lenders shall be
entitled to rely on the actions and communication, or lack thereof, of K-Sea as
being the actions or communications or lack thereof of Borrower with respect to
this Agreement.

 

Section 10.04                     Discharge
of Borrower.  No termination of
this Agreement shall relieve or discharge Borrower of its Obligations, grants
of Collateral, duties and covenants hereunder or otherwise until such time as
all Obligations to the Administrative Agent, the L/C Issuer, the Collateral
Trustee or the Lenders have been indefeasibly paid and satisfied in full,
including, without limitation, the continuation and survival in full force and
effect of all security interests and Liens granted in favor of the
Administrative Agent or the Collateral Trustee in and upon all then existing
and thereafter-arising or acquired Collateral and all warranties and waivers of
Borrower.

 

Section
10.05                     Waivers;
Amendments.

 

(a)                                  No failure or delay by Administrative Agent
or any Lender in exercising any right or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other 

 

76

 

right or power.  The rights and remedies of Administrative
Agent and the Lenders hereunder are cumulative and are not exclusive of any
rights or remedies that they would otherwise have.  No waiver of any provision of this Agreement
or consent to any departure by Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. 
Without limiting the generality of the foregoing, the making of a Loan
shall not be construed as a waiver of any Default or Event of Default,
regardless of whether Administrative Agent or any Lender may have had notice or
knowledge of such Default at the time.

 

(b)                                 Neither this Agreement nor any provision
hereof may be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by Borrower and the Required Lenders or by
Borrower and the Administrative Agent with the written consent of the Required
Lenders; provided, that no such agreement shall (i) increase the
Commitment of any Lender without the written consent of such Lender,
(ii) reduce the principal amount outstanding of any Loan or reduce the
rate of interest (except in connection with a waiver of the applicability of
any post-default increase in interest rates) thereon, or reduce any fees
payable hereunder, without the written consent of each Lender affected thereby,
(iii) change the method of computing interest or fees under the Loan
Documents, without the written consent of each Lender affected thereby, (iv) postpone
the scheduled date of payment of the principal amount of any Loan, or any
interest thereon, or any fees payable hereunder, or reduce the amount of, waive
or excuse any such payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected thereby,
(v) change Section 2.14(b) or 2.14(c) in a manner that would alter
the pro rata sharing of payments required thereby without the written consent
of each Lender, (vi) release any Collateral (except incidental amounts at the
discretion of Administrative Agent or as agreed to pursuant to this Agreement),
(vii) release any Guarantor from its Guarantee, or limit its liability in
respect of such Guarantee, without the written consent of each Lender or (viii) change
any of the provisions of this Section or the definition of “Required Lenders” or any other provision
hereof specifying the number or percentage of Lenders required to waive, amend
or modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Lender; and, provided, further,
that no such agreement shall amend, modify or otherwise affect the rights or
duties of the Administrative Agent or the L/C Issuer hereunder without the
prior written consent of the Administrative Agent or the L/C Issuer, as the
case may be.

 

Section
10.06                     Expenses;
Indemnity; Damage Waiver.

 

(a)                                  Borrower shall pay (i) all reasonable itemized
out-of-pocket expenses incurred by the Administrative Agent and the Collateral Trustee
and their respective Affiliates, including, without limitation, the reasonable
fees, charges and disbursements of counsel for the Administrative Agent and the
Collateral Trustee, filing fees, search fees, appraisal fees, recording fees,
field examinations, syndication expenses, travel costs and other fees and
expenses in connection with any initial syndication of the credit facilities
provided for herein, the preparation and administration of this Agreement and
the other Loan Documents or any amendments, modifications or waivers of the
provisions hereof (whether or not the transactions contemplated hereby or
thereby shall be consummated), provided, that Borrower shall receive an 

 

77

 

accounting of such fees, expenses,
charges and disbursements, and (ii) all out-of-pocket expenses incurred by
the Administrative Agent, the Collateral Trustee or any Lender, including the reasonable
fees, charges and disbursements of any counsel for the Administrative Agent, the
Collateral Trustee or any Lender (acting under common counsel), in connection
with the enforcement or protection of its rights in connection with this
Agreement, including its rights under this Section, or in connection with the
Loans made hereunder, including in connection with any workout, restructuring
or negotiations in respect thereof.

 

(b)                                 Borrower shall indemnify the Administrative
Agent, the Collateral Trustee, the L/C Issuer and each Lender, and each Related
Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the fees, charges and disbursements of any counsel
for any Indemnitee (but excluding Taxes, it being understood and agreed that
Section 2.13 hereof sets forth Borrower’s indemnity obligations with
respect to Taxes), incurred by or asserted against any Indemnitee arising out
of, in connection with, or as a result of (i) the execution or delivery of
this Agreement or any agreement or instrument contemplated hereby, the
performance by the parties hereto of their respective obligations hereunder or
the consummation of this Agreement or any other transactions contemplated
hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) the
failure of the Administrative Agent or the L/C Issuer seeking indemnification
or of the L/C Issuer to honor a demand for payment under any Letter of Credit
or guaranty thereof as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
Governmental Authority, in each case other than to the extent solely as a
result of the gross negligence or willful misconduct of the Administrative
Agent or the L/C Issuer (as finally determined by a court of competent jurisdiction),
(iv) any actual or alleged presence or release of Hazardous Materials on
or from any property owned or operated by Borrower or any of its Subsidiaries,
or any Environmental Liability related in any way to Borrower or any of its
Subsidiaries, or (v) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is
a party thereto; provided, that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the
gross negligence or willful misconduct of such Indemnitee.

 

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

 

(d)                                 To the extent permitted by Applicable Law,
Borrower shall not assert, and hereby waives, any claim against any Indemnitee,
on any theory of liability, for special, indirect, 

 

78

 

consequential or punitive
damages (as opposed to direct or actual damages) arising out of, in connection
with, or as a result of, this Agreement or any agreement or instrument
contemplated hereby, the Transactions, any Loan, any Letter of Credit or the
use of the proceeds thereof.

 

(e)                                  All amounts due under this Section shall
be payable promptly after written demand therefor.  All amounts due under paragraph (a)(i) of
this Section that are not paid prior to the Effective Date shall be due and
payable in full on the Effective Date.

 

(f)                                    The indemnitees herein in this Section 10.06
set forth are in addition to the obligations of Borrower to pay indemnification
on account of Taxes and Other Taxes, as provided in Section 2.13 hereof.

 

Section
10.07                     Successors
and Assigns.

 

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

 

(b)                                 Any Lender may assign to one or more
assignees all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at the time owing
to it); provided, that (i) except in the case of an assignment to a
Lender or a Lender Affiliate, each of Borrower and the Administrative Agent
must give its prior written consent to such assignment (which consent shall not
be unreasonably withheld), (ii) except in the case of an assignment to a
Lender or a Lender Affiliate or an assignment of the entire remaining amount of
the assigning Lender’s Commitment, the amount of the Commitment of the
assigning Lender subject to each such assignment (determined as of the date the
Assignment and Acceptance with respect to such assignment is delivered to the Administrative
Agent) shall not be less than $5,000,000.00 and the amount of the assigning
Lender’s Commitment shall not be less than $5,000,000.00 after the
effectiveness of such assignments, unless each of Borrower and the Administrative
Agent otherwise consent, (iii) each partial assignment shall be made as an
assignment of a proportionate part of all the assigning Lender’s rights and
obligations under this Agreement, and (iv) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $3,500.00; provided,
further, that any consent of Borrower otherwise required under this
paragraph shall not be required if an Event of Default has occurred and is
continuing.  Upon acceptance and
recording pursuant to paragraph (d) of this Section, from and after the
effective date specified in each Assignment and Acceptance, the assignee
thereunder shall be a party hereto and, to the extent of the interest assigned
by such Assignment and Acceptance, have the rights and obligations of a Lender
under this Agreement, and the 

 

79

 

assigning Lender thereunder
shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of the assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of
Sections 2.11, 2.12, 2.13 and 10.06 hereof), provided, however,
no assignee shall be entitled to receive any greater payment under
Section 2.11, 2.13 or 10.06(b) hereof than the assigning Lender would have
been entitled to receive with respect to the interest assigned to such
assignee, unless the assignment to such assignee is made with Borrower’s prior
written consent, in which Borrower expressly waives such limitation.  Any assignment or transfer by a Lender of
rights or obligations under this Agreement that does not comply with this
paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.

 

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

 

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

 

(e)                                  Any Lender may, without the consent of
Borrower or the Administrative Agent, sell participations to one or more banks
or other entities (a “Participant”)
in all or a portion of such Lender’s rights and obligations under this
Agreement (including all or a portion of its Commitment and the Loans owing to
it); provided, that (i) such Lender’s obligations under this
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, and (iii) Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement.  Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided,
that such agreement or instrument may provide that such Lender will not,
without the consent of the Participant, agree to any amendment, modification or
waiver described in the first proviso to Section 10.05(b) hereof that
affects such Participant.  Subject to
paragraph (f) of this Section, Borrower agrees that each Participant shall be
entitled to the benefits of Sections 2.11, 2.12 and 2.13 hereof to the
same 

 

80

 

extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section.

 

(f)                                    A Participant shall not be entitled to
receive any greater payment under Section 2.11 or 2.13 hereof than the
applicable Lender would have been entitled to receive with respect to the
participation sold to such Participant, unless the sale of the participation to
such Participant is made with Borrower’s prior written consent, in which
Borrower expressly waives such limitation. 
A Participant that would be a Foreign Lender if it were a Lender shall
not be entitled to the benefits of Section 2.13 unless Borrower is notified
of the participation sold to such Participant and such Participant agrees, for
the benefit of Borrower, to comply with Section 2.13(d) as though it were
a Lender.  So long as a Participant
agrees, such Participant shall be bound by Section 2.17 as if it were a
Lender in each case thereunder.

 

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

 

Section 10.08                     Survival. All covenants, agreements,
representations and warranties made by Borrower herein and in the certificates
or other instruments delivered in connection with or pursuant to this Agreement
shall be considered to have been relied upon by the other parties hereto and
shall survive the execution and delivery of this Agreement and the making of
any Loans, regardless of any investigation made by any such other party or on
its behalf and notwithstanding that the Administrative Agent or any Lender may
have had notice or knowledge of any Default or incorrect representation or
warranty at the time any credit is extended hereunder, and shall continue in
full force and effect as long as the principal of or any accrued interest on
any Loan or any fee or any other amount payable under this Agreement is
outstanding and unpaid and so long as the Commitments have not expired or
terminated.  The provisions of
Sections 2.11, 2.12, 2.13 and 10.06 and Article IX hereof shall
survive and remain in full force and effect regardless of the consummation of
the transactions contemplated hereby, the repayment of the Loans, the
expiration or termination of the Commitments or the termination of this
Agreement or any provision hereof.

 

Section 10.09                     Counterparts;
Integration; Effectiveness.  This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract.  This Agreement and any separate letter
agreements with respect to fees payable to the Administrative Agent or any
Lender constitute the entire contract among the parties relating to the subject
matter hereof and supersede any and all previous agreements and understandings,
oral or written, relating to the subject matter hereof.  Except as provided in Section 5.01
hereof, this Agreement shall become effective when it shall have been executed
by the Administrative Agent and when the Administrative Agent shall have
received counterparts hereof which, when taken together, bear the signatures of
each of the other parties hereto, and thereafter shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.  

 

81

 

Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.

 

Section 10.10                     Severability.  Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.

 

Section 10.11                     Right
of Set-off.  If an Event of
Default shall have occurred and be continuing, each Lender is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Lender to or for the credit or the account of Borrower against any of
and all the obligations of Borrower now or hereafter existing under this
Agreement held by such Lender, irrespective of whether or not such Lender shall
have made any demand under this Agreement and although such obligations may be
unmatured.  The rights of each Lender
under this Section are in addition to other rights and remedies (including
other rights of set-off) which such Lender may have.

 

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

 

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

 

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

 

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

 

82

 

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

 

Section 10.13                     WAIVER
OF JURY TRIAL.  EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

Section 10.14                     Headings.  Article and Section headings and
the Table of Contents used herein are for convenience of reference only, are
not part of this Agreement and shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.

 

Section 10.15                     Confidentiality.  Each of the Administrative Agent, the Collateral
Trustee and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed
(a) to its and its Affiliates’ directors, officers, employees and agents,
including accountants, legal counsel and other advisors (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority,
(c) to the extent  required by
Applicable Laws or regulations or by any subpoena or similar legal process,
(d) to any other party to this Agreement, (e) in connection with the
exercise of any remedies hereunder or any suit, action or proceeding relating
to this Agreement or the enforcement of rights hereunder, (f) subject to
an agreement containing provisions substantially the same as those of this
Section, to any assignee of or Participant in, or any prospective assignee of
or Participant in, any of its rights or obligations under this Agreement (provided,
that, in the case of an assignee or Participant, or prospective assignee or
Participant, which is a competitor of Borrower, the prior written consent of
Borrower shall be required, which consent shall not be unreasonably withheld,
prior to disclosing the Information thereto), (g) with the consent of
Borrower or (h) to the extent such Information (i) becomes publicly
available other than as a result of a breach of this Section or
(ii) becomes available to the Administrative Agent, the Collateral Trustee
or any Lender on a nonconfidential basis from a source other than
Borrower.  For the purposes of this
Section, “Information” means all
information received from Borrower relating to Borrower or its business, other
than any such information that is available to the Administrative Agent, the Collateral
Trustee or any Lender on a nonconfidential basis prior to disclosure by
Borrower; provided, that, in the case of information received from
Borrower after the date hereof, such information is clearly identified at the
time of delivery as confidential.  Any
Person required to maintain the confidentiality of Information as provided in
this Section shall be considered to 

 

83

 

have complied with its obligation to do so if such Person has exercised
the same degree of care to maintain the confidentiality of such Information as
such Person would accord to its own confidential information.

 

Section 10.16                     Interest
Rate Limitation.  Notwithstanding
anything herein to the contrary, if at any time the Interest Rate applicable to
any Loan, together with all fees, charges and other amounts which are treated
as interest on such Loan under Applicable Law (collectively the “Charges”), shall exceed the maximum lawful
rate (the “Maximum Rate”), if any,
which may be contracted for, charged, taken, received or reserved by the Lender
holding such Loan in accordance with Applicable Law, the rate of interest
payable in respect of such Loan hereunder, together with all Charges payable in
respect thereof, shall be limited to the Maximum Rate and, to the extent
lawful, the interest and Charges that would have been payable in respect of
such Loan but were not payable as a result of the operation of this
Section shall be cumulated and the interest and Charges payable to such
Lender in respect of other Loans or periods shall be increased (but not above
the Maximum Rate therefor) until such cumulated amount, together with interest
thereon at the Federal Funds Effective Rate to the date of repayment, shall
have been received by such Lender.

 

Section 10.17                     Further
Assurances.  At the request of the
Administrative Agent or the Lenders, at any time and from time to time, at
Borrower’s sole expense, Borrower shall execute and deliver or cause to be
executed and delivered to the Administrative Agent, such agreements, documents
and instruments, including waivers, consents and subordination agreements from
mortgagees or other holders of security interests or Liens, landlords or bailees,
and do or cause to be done such further acts as the Administrative Agent, in
its reasonable discretion, deems necessary or desirable to create, preserve,
perfect or validate any security interest of the Administrative Agent or the
Collateral Trustee or the priority thereof in the Collateral and otherwise to
effectuate the provisions and purposes of this Agreement.  Borrower hereby authorizes the Administrative
Agent to file financing statements or amendments against Borrower in favor of the
Administrative Agent with respect to the Collateral, without Borrower’s
signature, and to file as financing statements any carbon, photographic or
other reproductions of this Agreement or any financing statements, signed by
Borrower.  Borrower hereby ratifies and
confirms any financing statements heretofore filed by the Administrative Agent
with respect to the Collateral.

 

Section 10.18                     Judgment Currency.     Each
Credit Party’s obligation hereunder and under the other Loan Documents to make
payment in Dollars, or in the case of Letters of Credit, the applicable
Alternative Currency (in each case, the “Obligation
Currency”) shall not be discharged or satisfied by tender or recovery pursuant
to any judgment expressed in or converted into any currency other than the
Obligation Currency, except to the extent that such tender or recovery results
in the effective receipt by the Administrative Agent, the L/C Issuer or the
respective Lender of the full amount of the Obligation Currency expressed to be
payable to the Administrative Agent, the L/C Issuer or such Lender under this
Agreement or the other Loan Documents. 
If for the purpose of obtaining or enforcing judgment against any Credit
Party in any court in any jurisdiction, it becomes necessary to convert into or
from any currency other than the Obligation Currency (such other currency being
hereinafter referred to as the “Judgment
Currency”) an amount due in the Obligation Currency, the conversion shall be 

 

84

 

made
at the Dollar Equivalent.  For purposes
of determining the Dollar Equivalent for this Section 10.18, such amounts shall
include any premium and costs payable in connection with the purchase of the
Obligation Currency.

 

Section 10.19                     USA
Patriot Act Notice.    Each
of the Administrative Agent and each Lender hereby notifies Borrower that,
pursuant to the requirements of the USA Patriot Act (Title III of Pub. L.
107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information
that identifies Borrower, which information includes the name and address of
Borrower and other information that will allow the Administrative Agent and
such Lender to identify Borrower in accordance with the Patriot Act.

 

[Signature page follows]

 

85

 

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

 

	
   

  	
  K-SEA
  OPERATING PARTNERSHIP

  
	
   

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

  
	
   

  	
  GP, LLC, as Borrower

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John J. Nicola

  	
   

  
	
   

  	
  Name:

  	
  John J. Nicola

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  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:

  	
  Vice President

  
							

 

 

K-Sea Loan and Security Agreement Signature Page

 

 

	
   

  	
  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 L. Starks

  	
   

  
	
   

  	
  Name:
  Devon L. Starks

  
	
   

  	
  Title:
  Vice President

  

 

 

EXHIBIT A

FORM OF NOTE

	
  $

  	
   

  	
  March
      , 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 __, 2005 (as the same may be 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.

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

  
				

 

 

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

FORM OF ASSIGNMENT AND ACCEPTANCE

Reference is made to the Loan and Security Agreement,
dated as of March    , 2005 (as amended, restated, supplemented
or otherwise modified from time to time and in effect on the date hereof, the “Loan Agreement”), among K-Sea Operating Partnership L.P., as
Borrower, the Lenders named therein and KeyBank National Association, as
Administrative Agent and Collateral Trustee. Terms defined in the Loan
Agreement are used herein with the same meanings.

The Assignor named below hereby sells and assigns,
without recourse, to the Assignee named below, and the Assignee hereby
purchases and assumes, without recourse, from the Assignor, effective as of the
Assignment Date, the interests set forth below (the “Assigned
Interest”) in the Assignor’s rights and obligations under the Loan
Agreement, including, without limitation, the interests set forth below in [the Commitment of the Assignor on the Assignment Date and the Loans
owing to the Assignor that are outstanding on the Assignment Date](1), but excluding accrued interest and fees to and excluding
the Assignment Date. The Assignee hereby acknowledges receipt of a copy of the
Loan Agreement. From and after the Assignment Date, (a) the Assignee shall be a
party to and be bound by the provisions of the Loan Agreement and, to the
extent of the Assigned Interest, have the rights and obligations of a Lender
under the Loan Documents and (b) the Assignor shall, to the extent of the
Assigned Interest, relinquish its rights and be released from its obligations
under the Loan Documents.

This Assignment and Acceptance is being delivered to
the Administrative Agent, together with (a) if the Assignee is a Foreign
Lender, any documentation required to be delivered by the Assignee pursuant to
Section 2.13(d) of the Loan Agreement, duly completed and executed by the
Assignee, and (b) if the Assignee is not already a Lender under the Loan
Agreement, an administrative questionnaire in the form supplied by the
Administrative Agent, duly completed by the Assignee. The [Assignee/Assignor](2)
shall pay the fee payable to the Administrative Agent pursuant to
Section 10.07(b) of the Loan Agreement.

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

Date of Assignment:

Legal Name of Assignor:

Legal Name of Assignee:

Assignee’s Address for Notices:

Effective Date of 

Assignment (the “Assignment Date”):

[Commitment Assigned:

Delete inapplicable term(s).

Delete inapplicable term(s).

 

 

Principal Amount of Loans Assigned: ](3)

The terms set forth above are hereby agreed
to:

 

	
   

  	
  [Name of
  Assignor], as Assignor

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [Name of
  Assignee], as Assignee

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

Delete inapplicable term(s).

 

4

 

The undersigned hereby consents to the within assignment:(4)

	
  K-SEA
  OPERATING PARTNERSHIP L.P., by its general partner K-Sea OLP GP, LLC, as Borrower

  	
   

  	
  KEYBANK NATIONAL ASSOCIATION,
  as Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name: 

  	
  John J. Nicola

  	
  Name:

  	
   

  
	
  Title: 

  	
  Chief Financial Officer

  	
  Title:

  	
   

  
							

 

 

Consents to be
included to the extent required by Section 10.07(b) of the Loan Agreement.

 

5

 

EXHIBIT
C

H&K
Draft

3/21/05

 

March    , 2005

 

 

To the parties listed in Schedule A hereto

 

Re: March
   , 2005

Loan and
Security Agreement -

K-Sea Operating Partnership, L.P.

Our file: 074733-11

 

Ladies and Gentlemen:

We have acted as
special counsel to K-Sea Operating Partnership, L.P. (the “Borrower”), a
Delaware limited partnership, K-Sea Transportation Partners L.P. (the
“Parent”), a Delaware limited partnership, and K-Sea Transportation Inc. (the
“Subsidiary Guarantor”), a Delaware corporation, in connection with the Loan
and Security Agreement, dated as of March    , 2005 (the “Loan
Agreement”), among the Borrower and KeyBank National Association, as
administrative agent and collateral trustee and Lenders named therein (the
“Lenders”) pursuant to which the Lenders have agreed to provide the Borrower
with loan facilities in the aggregate amount of $80,000,000. Terms used herein
in capitalized form not otherwise defined herein are used with the same
meanings as in the Loan Agreement.

In connection with the
opinions hereinafter set forth, we have examined originals, or copies certified
or otherwise identified to our satisfaction, of the Loan Agreement, the Note,
the Parent Guaranty executed and delivered by the Parent, the Subsidiary
Guaranty executed and delivered the Subsidiary Guarantor, the Earnings
Assignment, the Assignment of Insurances, the Mortgage and the UCC-1 financing
statements, attached hereto as Exhibit A (the “Financing Statements”)
(together, the “Transaction Documents”). We have made such independent inquiry
into the law and the facts as we have deemed necessary or appropriate for the
purposes of this opinion. When in our professional opinion we deemed it
appropriate, we have relied upon affidavits and certificates of corporate and
partnership officers and government officials as to the existence of underlying
facts.

In expressing this opinion, please note that we
are admitted to practice only in the State of New York, and we do not purport
to be experts on the law of any jurisdiction other than the laws of the State
of New York and the Federal laws of the United States. We are not licensed to
practice law in the State of Delaware, and insofar as the laws of the State of
Delaware are

 

 

concerned,
we have relied on Delaware legal materials available to us. In rendering our
opinion as to the valid existence in good standing of the Borrower, the Parent
and the Subsidiary Guarantor, we have relied solely on Certificates of Good
Standing issued by the Secretary of State of the State of Delaware, all of
which have been furnished to you.

This opinion is also
limited in the following respects:

(a) any opinion
concerning the legality, validity and binding effect of any agreement or
instrument with respect to the Borrower, the Parent and the Subsidiary
Guarantor is based on the assumption that such agreement constitutes or will
constitute a legal, valid and binding agreement of the other parties thereto;
(b) with respect to any opinion pertaining to the enforceability of any
Transaction Document or other agreement or instrument, no opinion is expressed
as to the availability of any specific remedy in an action of an equitable
nature that any court, other governmental authority or arbitrator may grant,
impose or render; (c) we have assumed the genuineness of all signatures,
except those of the Borrower, the Parent and the Subsidiary Guarantor, and the
authenticity of all instruments submitted to us as originals and the conformity
with the originals of all instruments submitted to us as copies, facsimiles or
conformed copies; and (d) this opinion is limited, as to the
enforceability of any Transaction Document or other agreement or instrument, by
applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent
conveyance, or other similar laws of general application relating to or
affecting the enforceability of creditors’ rights from time to time in effect.

Based upon and subject to the foregoing, we are
of the opinion that:

1.             Each
of the Borrower and the Parent is a limited partnership duly formed, validly
existing and in good standing under the laws of the State of Delaware; the
Subsidiary Guarantor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of the Borrower,
the Parent and the Subsidiary Guarantor possesses all the requisite authority
and power to execute, deliver and comply with the terms of the Transaction
Documents to which it is a party. The Transaction Documents have been duly
authorized and approved by all necessary action.

2.             The
Borrower has the legal power and authority to own and operate the Pool Vessels
in the respective trades in which they are proposed to be operated.

3.             Each
of the Borrower, the Parent and the Subsidiary Guarantor has full power and
authority under any New York or United States federal shipping or admiralty
statute, law or governmental regulation, to enter into and carry out the terms
of the Transaction Documents to which it is a party.

4.             The execution and delivery of, and
performance of its respective obligations under each of the Transaction
Documents to which each of the Borrower, the Parent and the Subsidiary
Guarantor is a party will not conflict with, or result in a breach of any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of the Borrower, the Parent, or the Subsidiary Guarantor
pursuant to the terms of, any indenture, mortgage, deed of trust, loan
agreement or

 

2

 

other
agreement or instrument known to us to which any is a party or by which any is
bound or to which any of the property or assets of any is subject, nor will
such action result in a violation of the provisions of the Agreement of Limited
Partnership or the Certificate of Incorporation, as the case may be, of the Borrower,
the Parent and the Subsidiary Guarantor or any New York or United States
federal shipping or admiralty statute or any order, rule or regulation of any
court or governmental agency or body of which we have knowledge having
jurisdiction over the Borrower, the Parent and the Subsidiary Guarantor or any
of the respective properties of each.

5.             Each
of the Transaction Documents to which the Borrower, the Parent or the
Subsidiary Guarantor is a party has been duly authorized by the Borrower, the
Parent and the Subsidiary Guarantor, as the case may be, and each of the
Transaction Documents has been duly executed and delivered and constitutes the
legal, valid and binding obligation of the Borrower, the Parent and the
Subsidiary Guarantor, enforceable against the Borrower, the Parent and the
Subsidiary Guarantor, according to its terms.

6.             Each
of the Pool Vessels listed on Schedule 1.01 of the Loan Agreement is duly
documented in the name of the Borrower as owner thereof under the laws and flag
of the United States of America, free of any liens or encumbrances of record
other than the Mortgage and with a coastwise trade endorsement under and
pursuant to the laws of the United States with the National Vessel
Documentation Office of the United States Coast Guard at Falling Waters, West
Virginia (“NVDC”).

7.             The
Mortgage has been filed for recording on the date hereof at the NVDC. Upon its
recording and with effect from the date and time of filing, the Mortgage will
constitute a “preferred mortgage” within the meaning of Section 31301 of
Title 46 of the United States Code and the [Collateral Trustee] will have
a legal, valid and continuing first preferred mortgage, which constitutes a
preferred maritime lien on the Pool Vessels within the meaning of Chapter 313
of Title 46 of the United States Code. All taxes, fees and other charges
in connection with the documentation of the Pool Vessels with vessel documents
endorsed for the coastwise trade and the filing of the Mortgage have been duly
paid. No other filing, recording, re-filing or re-recording or other action is
required to create, perfect and maintain the Mortgage as a “preferred mortgage”
within the meaning of Section 31301 of Title 46 of the United States
Code.

8.             To
the best of our knowledge, after due inquiry, no consent, approval,
authorization, order, registration or qualification of or with, or notice to,
any court or any governmental agency or body, of which we have knowledge, is
required for consummation by each of the Borrower, the Parent and the Subsidiary
Guarantor of the transactions contemplated by the Transaction Documents to
which it respectively is a party, except in connection with the recording of
the Mortgage as described above.

9.             To the best of our knowledge, after
due inquiry, there is no action, suit, proceeding or investigation pending
before any court, administrative agency, arbitrator or governmental body
against any of the Borrower, the Parent or the Subsidiary Guarantor that
concerns the execution, delivery and performance of the Transaction Documents.

 

3

 

10.           Under
the Uniform Commercial Code (“UCC”) of the State of New York, the filing of the
Financing Statements (on Form UCC 1) with the Secretary of State of the State
of Delaware, showing the Administrative Agent as secured party and the Borrower
as debtor, will be sufficient to perfect the security interest in charter hire,
freight and earnings with respect to the Pool Vessels created by the Earnings
Assignments to the extent that a security interest in charter hire, freight and
earnings created thereby may be perfected by means of the filing of financing
statements in the State of Delaware, and the filing of such appropriate
financing statements has been made. No other filing or periodic re-filing or
re-recording of financing statements is currently required under the UCC as in
effect in the State of New York in order to continue the perfection of such
security interest, except that continuation statements must be filed with the
Secretary of State of the State of Delaware within six months prior to the
expiration of the five year period following the date of the filing of the
original financing statements, and subsequent continuation statements must be
filed within six months prior to the expiration of each subsequent five year
period, if any.

We
assume no obligation to supplement this opinion if any applicable law changes
after the date hereof or if we become aware after the date hereof of any facts
that might change the opinions expressed herein.

This
opinion is issued solely for the benefit of the addressees hereof and may not
be relied upon or used for any other purposes by any person or entity without
our prior written consent, except that Emmet, Marvin & Martin may rely on
the opinions contained herein in issuing their legal opinion to the Lenders.

 

	
   

  	
   

  	
  Very truly yours,

  

 

 

 

4

 

SCHEDULE A

 

 

KeyBank National Association

  as Lender, Administrative Agent

  and Collateral Trustee

575 Fifth Avenue, 18th Floor

New York, NY 10017

 

 

 

EXHIBIT D

[Form of Standby Letter of
Credit]

 

 

EXHIBIT E

[Form of Application for
Documentary Letter of Credit]

 

 

EXHIBIT F

FORM OF LOAN
REQUEST

 

                             
, 200

KeyBank National Association,

 as Administrative Agent

127 Public Square

Cleveland, Ohio 44114

Attention: KCIB Loan Services

Ladies and Gentlemen:

Reference is made to the Loan
and Security Agreement, dated as of March    , 2005 (as the same
may be amended, supplemented or otherwise modified from time to time, the “Loan Agreement”), by and among K-SEA OPERATING PARTNERSHIP
L.P., a Delaware limited partnership (“Borrower”), the
Lenders from time to time party thereto and KEYBANK NATIONAL ASSOCIATION, as
Administrative Agent (in such capacity, the “Administrative
Agent”) and Collateral Trustee. Capitalized terms used herein which
are not defined herein are used as defined in the Loan Agreement.

1.             Pursuant to Section 2.05 of the
Loan Agreement, Borrower hereby gives notice of its intention to borrow Loans
in an aggregate principal amount of $                   
on
                           ,
200   (the “Borrowing Date”),
which borrowing shall consist of the following Loans:

	
  Type of Loan (LIBOR Or Base Rate Loan)

  	
   

  	
  Amount

  	
   

  	
  Initial Interest

  Period for LIBOR

  Loans

  	
   

  
	
                  
  Loan

  	
   

  	
  $

  	
   

  	
   

  	
      months

  	
   

  
	
                  
  Loan

  	
   

  	
  $

  	
   

  	
   

  	
      months

  	
   

  
	
                  
  Loan

  	
   

  	
  $

  	
   

  	
   

  	
      months

  	
   

  

 

2.             The location and account to which
funds are to be disbursed is the following:

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

3.             Such Loans shall be used for [working capital]/[vessel acquisition or capacity expansion]
purposes.

4.             Borrower hereby certifies that on
the date hereof and on the Borrowing Date set forth above, and after giving
effect to the Loans requested hereby, (i) no Default has or shall have occurred
and be continuing; (ii) the representations and warranties contained in the
Loan Documents are and shall be true and correct in all material respects,
except to the extent such representations and warranties specifically relate to
an earlier date, in which case such representations and warranties shall have
been true and correct in all material respects on and as of such earlier date
and (iii) the aggregate Revolving Credit Exposure of all Lenders has and shall
not exceed the lesser of the Borrowing Base and the aggregate Commitments of
all Lenders.

IN
WITNESS WHEREOF, Borrower has duly executed this Loan Request as of the date
and year first written above.

	
   

  	
  K-SEA
  OPERATING PARTNERSHIP L.P., by its general partner K-Sea OLP GP, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

2

 

EXHIBIT G

FORM OF CREDIT
REQUEST

 

                             ,
200 

KeyBank National Association,

  as Administrative
Agent

127 Public Square

Cleveland, Ohio 44114

Attention: KCIB Loan Services

Ladies and Gentlemen:

Reference is made to the Loan
and Security Agreement, dated as of March     , 2005 (as
the same may be amended, supplemented or otherwise modified from time to time,
the “Loan Agreement”), by and among K-SEA
OPERATING PARTNERSHIP L.P., a Delaware limited partnership (“Borrower”), the Lenders from time to time party thereto and
KEYBANK NATIONAL ASSOCIATION, as Administrative Agent (in such capacity, the “Administrative Agent”) and Collateral Trustee. Capitalized
terms used herein which are not defined herein are used as defined in the Loan
Agreement.

5.             Pursuant to Section 2.15 of the
Loan Agreement, Borrower hereby gives notice of its request for L/C Issuer to
issue on
                        ,
200   (the “Issuance Date”)
for Borrower’s account a Letter of Credit described below:

(a)           The
beneficiary of such Letter of Credit shall be
                     ;

(b)           The
proposed conditions under which a drawing under such Letter of Credit may be
made are
                 ;

(c)           The
maximum amount available for drawing under such Letter of Credit shall be
                               ;

(d)           Such
Letter of Credit shall be denominated in                                            (5);
and

(e)           The
expiration date of such Letter of Credit shall be                        .

6.             Attached hereto [are (a) to the
extent not previously delivered to the Administrative Agent, copies of all
agreements between Borrower and the beneficiary of such Standby Letter of 

(5)          Dollars or
an Alternative Currency then made available by the Administrative Agent and the
L/C Issuer.

 

 

Credit
pertaining to the issuance of such Standby Letter of Credit and (b) a copy
of the form of a Standby Letter of Credit](6)/[is a copy of the form of the
application for a documentary letter of credit of the L/C Issuer].(7)

7.             Borrower hereby certifies that on the date hereof and on
the Issuance Date set forth above, and after giving effect to the issuance of
the Letter of Credit requested hereby, (i) no Default has or shall have
occurred and be continuing; (ii) the representations and warranties contained
in the Loan Documents are and shall be true and correct in all material
respects, except to the extent such representations and warranties specifically
relate to an earlier date, in which case such representations and warranties
shall have been true and correct in all material respects on and as of such
earlier date and (iii) the Letter of Credit Obligations has not and shall not
exceed the Letter of Credit Sublimit and the aggregate Revolving Credit
Exposure of all Lenders has and shall not exceed the lesser of the Borrowing
Base and the aggregate Commitments of all Lenders.

IN
WITNESS WHEREOF, Borrower has duly executed this Credit Request as of the date
and year first written above.

	
   

  	
  K-SEA
  OPERATING PARTNERSHIP L.P., by its general partner K-Sea OLP GP, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

(6)          If
requested Letter of Credit is a Standby Letter of Credit.

(7)          If
requested Letter of Credit is a Documentary Letter of Credit.

 

2

 

EXHIBIT H

[FORM OF] SUBSIDIARY GUARANTY

THIS GUARANTY is made as of the
          day of
              ,
200  , by
                            ,
a
                       
with an office and principal place of business at
                           
,                              
               
(the “Guarantor”), to KEYBANK NATIONAL
ASSOCIATION, a national
banking association with an office at 575 Fifth Avenue, New York, New York
10017 (“KeyBank”), as administrative agent for the Lenders from time to time party to
the Loan Agreement defined below (in such capacity, the “Beneficiary”).

W I T N E S S E T H:

WHEREAS, K-SEA OPERATING PARTNERSHIP L.P. (“Borrower”), as borrower, is a party to the Loan and
Security Agreement, dated as of March    , 2005 (as the same may
be amended, supplemented or otherwise modified from time to time, being herein
called “Loan  Agreement”), among Borrower, the Lenders party thereto
(the “Lenders”) and the Beneficiary, pursuant to which the Lenders have agreed to make
loans (the “Loans”) to Borrower in order to provide funds for
refinancing certain outstanding obligations of Borrower under its existing
senior credit facilities, to finance the ongoing working capital and capital
expenditures of Borrower, to provide for the issuance of Letters of Credit and
for general corporate purposes;

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

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

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

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

 

 

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

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

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

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

It is understood that while the amount of the Obligations guaranteed
hereby is not limited, if, in any action or proceeding involving any state or
federal bankruptcy, insolvency or other law affecting the rights of creditors
generally, this Guaranty would be held or determined to be void, invalid or
unenforceable on account of the amount of the aggregate liability of the
Guarantor under this Guaranty, then, notwithstanding any other provision of
this Guaranty to the contrary, the aggregate amount of such liability shall,
without any further action of Beneficiary, be automatically limited and reduced
to the highest amount which is valid and enforceable as determined in such
action or proceeding.

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

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

 

2

 

in full force and effect
and be binding upon the Guarantor and its successors until the obligations
shall have been satisfied by payment in full.

5.             The Guarantor further agrees that its guarantee
hereunder constitutes a guarantee of payment when due and not of collection,
and waives any right to require that any resort be had by Beneficiary or any
Lender to any of the security held for payment of the Obligations or to any
balance of any deposit account or credit on the books of Beneficiary or any
Lender in favor of Borrower or any other person.

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

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

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

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

 

3

 

property collateralizing
the Obligations), arising from the existence or performance of this Guaranty.

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

11.           The Guarantor hereby irrevocably and
unconditionally waives: (a) any and all notice of the acceptance of this
Guaranty; (b) any and all notice of the creation, renewal, extension or
accrual of any of the Obligations and notice of or proof of the reliance by Beneficiary
or any Lender upon this Guaranty; (c) all notices which may be required by
statute, rule of law or otherwise to preserve any rights against the Guarantor;
(d) any requirement of diligence; (e) presentment, demand, protest,
notice of default or non-payment; and (f) any and all defenses to payment
hereunder, except the defense of payment already made.

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

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

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

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

16.           The Beneficiary shall not have any
duty to protect, secure, perfect or insure any collateral security at any time
securing the payment of the Obligations. This is a guaranty of performance and
payment and not merely of collection. The Guarantor hereby waives any
requirement that Beneficiary make any demand, commence suit or exercise any
other right or remedy under the Loan Agreement prior to enforcing its rights
against the Guarantor hereunder.

The Obligations, and each
of them, shall conclusively be deemed to have been created, contracted or
incurred in reliance upon this Guaranty, and all dealings between Borrower or
the Guarantor and Beneficiary and the Lenders shall likewise be conclusively
presumed to have been 

 

4

 

had or consummated
in reliance upon this Guaranty. The Guarantor acknowledges receipt of a copy of
the Loan Agreement and the Loan Documents therein described.

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

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

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

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

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

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

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

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

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

 

5

 

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

20.           The Guarantor agrees that this
Guaranty covers all Obligations of Borrower to Beneficiary and the Lenders,
including, but not limited to, any Obligation, which arises due to the
performance or exercise of rights by Beneficiary acting in a capacity as
administrative agent [or collateral trustee] or collateral agent or otherwise.

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

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

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

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

 

6

 

THAT FINAL
JUDGMENT AGAINST IT IN ANY SUCH LEGAL ACTION, SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION WITHIN OR OUTSIDE
THE UNITED STATES OF AMERICA, BY SUIT ON THE JUDGMENT, A CERTIFIED OR
EXEMPLIFIED COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND THE
AMOUNT OF THE LIABILITY.

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

* * *

 

7

 

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

	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Accepted:
  

  
	
   

  	
   

  
	
   

  	
  KEYBANK NATIONAL ASSOCIATION as
  Administrative Agent 

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

K-Sea Subsidiary Guaranty Signature Page

 

 

SCHEDULE 1.01

 

Pool Vessels

 

	
  NO.

  	
   

  	
  VESSEL NAME

  	
   

  	
  OFFICIAL NO.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Double
  Hull Barges

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
   

  	
  DBL
  151

  	
   

  	
  641082

  
	
  2.

  	
   

  	
  DBL
  152

  	
   

  	
  644380

  
	
  3.

  	
   

  	
  DBL
  155

  	
   

  	
  556673

  
	
  4.

  	
   

  	
  DBL
  140

  	
   

  	
  1090503

  
	
  5.

  	
   

  	
  DBL
  70

  	
   

  	
  540401

  
	
  6.

  	
   

  	
  DBL
  31

  	
   

  	
  1079242

  
	
  7.

  	
   

  	
  DBL
  32

  	
   

  	
  1087118

  
	
  8.

  	
   

  	
  DBL
  17

  	
   

  	
  1065655

  
	
  9.

  	
   

  	
  DBL
  18

  	
   

  	
  1065657

  
	
  10.

  	
   

  	
  DBL
  19

  	
   

  	
  1065658

  
	
  11.

  	
   

  	
  DBL
  53

  	
   

  	
  500121

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Single
  Hull Barges

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
   

  	
  KTC
  80

  	
   

  	
  643281

  
	
  13.

  	
   

  	
  KTC
  71

  	
   

  	
  563364

  
	
  14.

  	
   

  	
  KTC
  60

  	
   

  	
  630272

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Tugs

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
   

  	
  Rebel

  	
   

  	
  570047

  
	
  16.

  	
   

  	
  Yankee

  	
   

  	
  571215

  
	
  17.

  	
   

  	
  Irish
  Sea

  	
   

  	
  520685

  
	
  18.

  	
   

  	
  Viking

  	
   

  	
  541711

  
	
  19.

  	
   

  	
  Lincoln
  Sea

  	
   

  	
  1084513

  
	
  20.

  	
   

  	
  Beaufort
  Sea

  	
   

  	
  536836

  
	
  21.

  	
   

  	
  Tasman
  Sea

  	
   

  	
  578207

  
	
  22.

  	
   

  	
  Adriatic
  Sea

  	
   

  	
  590232

  
	
  23.

  	
   

  	
  Coral
  Sea

  	
   

  	
  550670

  
	
  24.

  	
   

  	
  Java
  Sea

  	
   

  	
  636105

  
	
  25.

  	
   

  	
  Baltic
  Sea

  	
   

  	
  551908

  
	
  26.

  	
   

  	
  Bering
  Sea

  	
   

  	
  569665

  

 

1

 

SCHEDULE 2.01

 

Commitments

 

	
  Bank

  	
   

  	
  Commitment

  	
   

  
	
  KeyBank National Association

  	
   

  	
  $

  	
  40,000,000.00

  	
   

  
	
  LaSalle Bank National Association

  	
   

  	
  $

  	
  20,000,000.00

  	
   

  
	
  Citizens Bank of Pennsylvania

  	
   

  	
  $

  	
  20,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Aggregate Commitments

  	
   

  	
  $

  	
  80,000,000.00

  	
   

  

 

 

Schedule 4.06

 

Environmental Compliance

 

None

 

 

Schedule 4.14

 

Charters

 

                Bareboat Charter, dated January
14, 2004, between the Borrower and K-Sea Transportation Inc., covering vessels
including the following vessels:

 

DBL 17, Official No. 1065655

DBL 18, Official No. 1065657

DBL 31, Official No. 1079242

DBL 32, Official No. 1087118

 

 

 

Schedule 5.01

 

Existing Indebtedness

 

                1.      Participation and Loan and Security
Agreement dated as of January 14, 2004, as amended, modified or supplemented,
among the Borrower, The CIT Group/Equipment Financing, Inc. ("CIT")
and KeyBank, N.A. as Lenders.

 

                2.      Loan and Security Agreement, dated as of
January 29, 2004, as amended, modified or supplemented, between the Borrower
and CIT.

 

                3.      Loan Agreement, dated as of May 28, 2004,
as amended, modified or supplemented, between the Borrower and Citizens Leasing
Corporation, a Rhode Island corporation.Exhibit 10.2

 

 

 

LOAN AND SECURITY AGREEMENT

 

dated as of March 24, 2005

 

 

by and between

 

THE CIT GROUP/EQUIPMENT FINANCING, INC.,

as Lender

 

and

 

K-SEA OPERATING PARTNERSHIP L.P.,

as Borrower

 

 

 

 

THIS LOAN AND SECURITY AGREEMENT
(this “Agreement”), dated as of
March 24, 2005, by and between THE CIT
GROUP/EQUIPMENT FINANCING, INC., a Delaware corporation, as lender (“Lender”), and K-SEA OPERATING PARTNERSHIP L.P., a Delaware limited
partnership, as borrower, with a principal place of business at 3245 Richmond
Terrace, Staten Island, New York 10303 (“Borrower”).  In consideration of the mutual agreements
contained herein, the parties hereto agree as follows:

 

RECITALS

 

A.                                   Borrower
desires to borrow and Lender has agreed to lend up to Eleven Million Seven Hundred
Thousand and No Hundredths United States Dollars (US$11,700,000.00) (the “Loan”) to enable Borrower to refinance its
acquisition of the Vessels identified on Schedule I, attached hereto.

 

B.                                     Lender
has agreed to make the Loan to Borrower pursuant to the provisions of this Loan
Agreement.

 

C.                                     Borrower
desires (i) to provide for the issuance by Borrower to Lender of a
promissory note (the “Note”)
evidencing the Loan to be made by Lender to Borrower as herein provided; and
(ii) to provide for the assignment, mortgage and pledge by Borrower to
Lender, among other things, of all Borrower’s right, title and interest in and
to the Vessels, any charters and insurance thereon and all payments and other
amounts received hereunder or thereunder in accordance with the terms hereof,
as security for Borrower’s obligations to Lender.

 

D.                                    Lender
has entered into this Agreement in reliance upon the undertakings of Borrower
and other parties as set forth in this Agreement and in the other Loan
Documents.

 

E.                                      All
things have been done to make the Note, when executed and delivered by Borrower
hereunder, the legal, valid and binding obligation of Borrower.

 

Section 1.                                          Definitions.

 

1.1                                 Defined
Terms.  As used in this Agreement,
the following terms shall have the following defined meanings (such terms to be
equally applicable to both singular and plural forms of the terms defined),
unless the context otherwise requires:

 

“Affiliate” of any
specified Person shall mean any other Person which, directly or indirectly,
Controls, is Controlled by, or is under common Control with, such Person.

 

“Agreement”, “hereof”, “hereto”, “hereunder”
and words of similar import shall mean this Loan and Security Agreement, as the
same may from time to time be amended, modified or supplemented.

 

“Applicable Interest Rate”
shall mean, with respect to the Loan, a fixed rate of 6.25% per annum.

 

 

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

 

“Appraisal” shall
mean any appraisal, either physical or desktop or both as determined by Lender,
of the Vessels or any of them conducted from time to time by or at the request
of Lender pursuant to the terms of this Agreement and shall also include the
appraisal of the Vessels performed on or about the date hereof by Lender, or at
Lender’s direction, by an appraiser appointed by Lender and paid for by
Borrower.

 

“Assignments” shall
mean, collectively, the Earnings Assignments and the Assignments of Insurances.

 

“Assignments of Insurances”
shall mean the first priority assignment of insurances respecting the Vessels
granted by Borrower in favor of Lender.

 

“Borrower” as
defined in the introductory paragraphs of this Agreement.

 

“Business Day”
shall mean a day other than a Saturday, Sunday or legal holiday under the laws
of the State of New York.

 

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

 

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

 

“Change in Law”
shall mean (a) the adoption of any law, rule or regulation after the date
of this Agreement, (b) any change in any law, rule or regulation or in the
interpretation or application thereof by any Governmental Authority after the
date of this Agreement, including, without limitation, any change in any
statutory, regulatory or institutional reserve requirement,

 

2

 

including, but not limited to,
the Statutory Reserve Rate, or (c) compliance by Lender (or, for purposes
of Section 2.8(b) hereof, by any lending office of Lender or by Lender’s
holding company, if any) with any request, guideline or directive (whether or
not having the force of law) of any Governmental Authority made or issued after
the date of this Agreement.

 

“Charter” shall
mean the charter between Borrower and Charterer, dated May 10, 2004, as amended
and supplemented from time to time.

 

“Charterer” shall
mean Westport Petroleum, Inc., and its successors and assigns.

 

“Closing” shall
mean the time when the conditions precedent to closing set forth in Section 3
hereof, the exchange of relevant documents, the Lender’s making of the Loan and
the Borrower’s issuance of the Note have all been completed.

 

“Closing Date”
shall mean the date on which Lender shall actually make the Loan to Borrower
and on which Borrower will issue the Note.

 

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

 

“Collateral” shall
mean the Vessels and the Proceeds thereof, all insurance with respect to the
Vessels, the earnings of the Vessels, including all hire payments, freights and
subfreights due with respect thereto, the charters (including, without
limitation, the Charter), including all hire, additional hire payments and all
supplemental hire payments, Stipulated Casualty Prepayment Amounts (as defined
herein), payments and other amounts payable from time to time thereunder and
the Proceeds thereof, and all future charters or subcharters, including all
hire payments and Proceeds of the foregoing and all amounts payable thereunder,
as more specifically described herein and in the Mortgage and Assignments
granted by Borrower to Lender.

 

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

 

“Default” shall
mean any event that with notice, lapse of time, and/or any further condition,
event of act would constitute an Event of Default.

 

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

 

“Earnings Assignments”
shall mean the first priority assignments of charter hire, freight and earnings
with respect to the Vessels granted by the Borrower in favor of Lender, in form
and substance satisfactory to Lender and its counsel.

 

“Environmental Action”
shall mean any administrative, regulatory or judicial action, suit, demand,
demand letter, claim, notice of non-compliance or violation, notice of
liability or

 

3

 

potential liability,
investigation, proceeding, consent order or consent agreement arising under any
Environmental Law or Environmental Permit relating to Hazardous Materials or
arising from alleged injury or threat of injury to health, safety or the
environment in connection with or arising from exposure to or the actual or
potential release of Hazardous Materials, including (a) by any
Governmental Authority for enforcement, cleanup, removal, response, remedial or
other actions or damages, and (b) by any Governmental Authority or any
third party for damages, contribution, indemnification, cost recovery,
compensation or injunctive relief.

 

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

 

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

 

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

 

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

 

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

 

“ERISA Event” shall
mean (a) any “reportable event”, as defined in Section 4043 of ERISA
or the regulations issued thereunder with respect to a Plan (other than an
event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an “accumulated funding deficiency” (as defined in
Section 412 of the Code or Section 302 of

 

4

 

ERISA), whether or not waived;
(c) the filing pursuant to Section 412(d) of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum
funding standard with respect to any Plan; (d) the incurrence by Borrower
or any of its ERISA Affiliates of any liability under Title IV of ERISA
with respect to the termination of any Plan; (e) the receipt by Borrower
or any ERISA Affiliate from the PBGC or a plan administrator of any notice
relating to an intention to terminate any Plan or Plans or to appoint a trustee
to administer any Plan; (f) the incurrence by Borrower or any of its ERISA
Affiliates of any liability with respect to the withdrawal or partial
withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by
Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer
Plan from Borrower or any ERISA Affiliate of any notice, concerning the
imposition of Withdrawal Liability or a determination that a Multiemployer Plan
is, or is expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA.

 

“Event of Default”
as defined in Section 7 hereof.

 

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

 

“Financial Officer”
shall mean the chief financial officer, principal accounting officer, treasurer
or controller of Borrower or K-Sea.

 

“Financial Statements”
shall mean the balance sheets and statements of income and cash flows of K-Sea
and its consolidated Affiliates, including, without limitation, Borrower, as
required from time to time to be provided to Lender under this Agreement.

 

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

 

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

 

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

 

“Guarantee” of or
by any Person (the “guarantor”)
shall mean any obligation, contingent or otherwise, of the guarantor
guaranteeing or having the economic effect of guaranteeing any Indebtedness or
other obligation of any other Person (the “primary
obligor”) in any manner, whether directly or indirectly, and
including any obligation of the guarantor, direct or indirect, (a) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation or to purchase (or to advance or supply
funds for the

 

5

 

purchase of) any security for
the payment thereof, (b) to purchase or lease property, securities or
services for the purpose of assuring the owner of such Indebtedness or other
obligation of the payment thereof, (c) to maintain working capital, equity
capital or any other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Indebtedness or other
obligation, or (d) as an account party in respect of any letter of credit
or letter of guaranty issued to support such Indebtedness or obligation; provided,
that the term Guarantee shall not include any endorsement for collection or
deposit in the ordinary course of business.

 

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

 

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

 

“Indebtedness” of
any Person shall mean, 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

 

6

 

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

 

“Installment Payment Date”
shall mean, with respect to the Note, each of the thirty-six (36) consecutive
monthly dates, commencing on April     , 2005, on which an
installment of principal and interest is due on the Note.

 

“Interest Period”
shall mean each one-month period which ends on the last day of the calendar
month preceding the next Installment Payment Date; the first Interest Period
shall begin on the Closing Date and end on the last day of the calendar month
preceding the first Installment Payment Date.

 

“K-Sea” shall mean
K-Sea Transportation Partners L.P.

 

“Late Charge Rate”
shall mean a rate per annum equal to eighteen percent (18%).

 

“Lender” as defined
in the introductory paragraphs of this Agreement.

 

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

 

“Loan” shall mean
the loan to be made by Lender pursuant to this Agreement.

 

“Loan Accounts”
shall mean one or more loan accounts maintained by Lender for Borrower in the
ordinary course of business, including, without limitation, any loan account in
respect of the Loan, and each, a “Loan Account.”

 

“Loan Documents”
shall mean, collectively, this Agreement, the Note, the Mortgage, the
Assignments, any other consents given with respect to any of the foregoing, and
any other documents required by counsel to Lender.

 

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

 

“Mortgage” shall
mean the first preferred mortgage to be granted by Borrower and in favor of
Lender in form and substance satisfactory to Lender and its counsel over the
whole of the Vessels to secure the Obligations, as the same may be amended,
modified or supplemented from time to time.

 

7

 

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

 

“Note” shall mean
the promissory note of Borrower, substantially in the form of Exhibit A
attached hereto, evidencing the Loan, as described in Section 2.2 hereof.

 

“Note Term” as
defined in Section 2.2 hereof.

 

“Obligations” shall
mean (i) the aggregate unpaid principal amount of, and accrued interest
on, the Note; and (ii) all other obligations and liabilities of Borrower
now existing or hereafter incurred, arising out of under, or in connection with
this Agreement, the Note, or any of the other Loan Documents.

 

“OPA 90” shall mean
the Oil Pollution Act of 1990, P.L. 101-380, 104 Stat. 484 et seq., as amended from time to time.

 

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

 

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

 

“Participant” shall
mean any assignee or participant who has purchased a participating interest in
the Loan Documents as contemplated by Section 9.16 hereof.

 

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

 

“Permitted Liens”
as to any Vessel shall have the meaning assigned to it in the Mortgage.

 

“Person” shall mean
an individual, partnership, corporation, business trust, joint stock company,
trust, unincorporated association, joint venture, governmental authority, or
other entity of whatever nature.

 

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

 

“Prepayment Premium”
shall mean, except as provided in Sections 2.4(a) and (b), with respect to the
permitted or required prepayment of the Note hereunder, two percent (2%) of the
outstanding principal amount of the Loan after the first(1st) anniversary date
of the Agreement, but before the second(2nd) anniversary date, and one percent
(1%) thereafter.

 

8

 

“Proceeds” shall
have the meaning assigned to it in the UCC and, in any event, shall include,
but not be limited to (i) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Borrower from time to time with
respect to any of the Vessels or other Collateral; (ii) any and all
payments (in any form whatsoever) made or due and payable to Borrower from time
to time in connection with any requisition, confiscation, condemnation, seizure
or forfeiture of all and any part of the Vessels by any governmental body,
authority, bureau or agency of an other Person (whether or not acting under
color of governmental authority); and (iii) accounts arising out of any
charter or chattel paper evidencing, any lease or charter of, any and all other
rents, hire or profits or other amounts from time to time paid or payable in
connection with, any of the Vessels.  In
no event shall the term be construed more narrowly than the meaning set forth
in the Assignments and the Mortgage.

 

“Prohibited Jurisdiction”
shall mean any country or jurisdiction, from time to time, (a) that is
subject of a prohibition order (or any similar order or directive), sanctions
or restrictions promulgated or administered by the Office of Foreign Assets
Control of the United States Treasury Department, or (b) in which, or for
which, Lender is otherwise prohibited or restricted, under laws, regulations,
sanctions or restrictions applicable to it or its business, from extending
credit, transferring property or assets, engaging in or facilitating trade or
other economic activity, or otherwise doing business.

 

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

 

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

 

“Single Transaction Subsidiary”
shall mean any Subsidiary whose assets consist solely of financing transactions
and the proceeds thereof with one or more obligors where the obligations of
such Subsidiary are not guaranteed by Borrower or any other Subsidiary and for
which neither Borrower nor such other Subsidiary is liable.

 

“Storage Agreement”
shall mean that certain Storage and Throughput Agreement, dated February 1,
2003, between KeySpan - Ravenswood Services Corp. and Borrower, as successor in
interest to K-Sea Transportation Corp., for use of the LEMON CREEK.

 

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

 

9

 

“Subsidiary” shall
mean, 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.

 

“UCC” shall mean
the Uniform Commercial Code as from time to time in effect in any applicable
jurisdiction.

 

“Vessel” shall mean
each of the Vessels identified on Schedule I hereto together with
all of its machinery, anchors, cables, chains, rigging, tackle, fittings,
tools, pumps, pumping equipment, gear, apparel, furniture, appliances,
equipment, spare and replacement parts and all other appurtenances thereunto
appertaining or belonging, whether now owned or hereafter acquired by Borrower
and whether on board or not, and also any and all additions, improvements and
replacements made in or to such Vessel or any part thereof or in or to any
equipment and appurtenances thereunder appertaining or belonging.

 

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

 

1.2                                 Accounting
Terms.  All accounting terms not
specifically defined herein shall be construed in accordance with GAAP
consistently applied.

 

Section 2.                                          Amount
and Terms of Loan.

 

2.1                                 Commitment.  Subject to the terms and conditions of this
Agreement, on the Closing Date, Lender agrees to make a single Loan to Borrower
in an aggregate amount not to exceed ELEVEN MILLION SEVEN HUNDRED THOUSAND AND
NO HUNDREDTHS UNITED STATES DOLLARS (US$11,700,000.00).

 

2.2                                 The
Note.  The Loan shall be evidenced by
a Note.  The Note shall (A) be dated
the date on which the Loan is made; (B) be for a term (the “Note Term”) of thirty-six (36) months; (C)
be payable in thirty-six (36) equal consecutive monthly installments of
principal each in the amount of Sixty-Nine Thousand Five Hundred Seventy-Eight
and No Hundredths United States Dollars (US$69,578.00) and interest at the
Applicable Interest Rate, and, in addition thereto, a balloon payment of all
remaining principal outstanding also due on the thirty-sixth (36th) Installment
Payment Date, plus all accrued and unpaid interest; and (D) shall bear
interest from the date thereof on the unpaid principal thereof at the Applicable
Interest Rate at all times during which any amounts are outstanding under the
Note.

 

2.3                                 Late
Charges.  Any amount not paid when
due under the Note shall, to the extent permitted by applicable law, bear late
charges thereon, calculated at the Late Charge Rate, from the due date thereof
until such amount shall be received by Lender in full.

 

10

 

2.4                                 Prepayment.

 

(a)                                  In
the event that any Vessel shall suffer an Event of Loss, the Borrower shall
make a prepayment in the amount equal to (x) the percentage set forth on
Schedule I opposite the name of the relevant Vessel multiplied by (y) the then
outstanding principal amount of the Note, together with accrued interest
thereon and all other amounts owing under or with respect to this Agreement and
the other Loan Documents and the Prepayment Premium, on the earlier of (i) the
next Installment Payment Date immediately following the receipt of insurance
proceeds paid on account of such Event of Loss and (ii) the third (3rd)
monthly Installment Payment Date following the date of an actual total loss or
the date of declaration of a constructive total loss, as the case may be;
provided, however, that if (i) such Event of Loss occurs before the second
(2nd) anniversary date of this Agreement and Borrower has not exercised its
one-time right of prepayment set forth in the second sentence of Section 2.4(b)
hereof, the Prepayment Premium shall not apply to Four Million and No
Hundredths United States Dollars (US$4,000,000.00) of the principal amount
being prepaid pursuant to this Section 2.4(a) and, provided, further, that all
scheduled installments of principal together with accrued interest thereon
shall be paid in accordance with the terms of the Note through the date of
prepayment in accordance with this Section 2.4(a).  Failure by Borrower to make the prepayment
required by this Section 2.4(a) on the date so determined shall constitute an
Event of Default.

 

(b)                                 After
the first (1st) anniversary date of this Agreement and provided, that
no Default or Event of Default shall have occurred and be continuing and,
provided, further, that Borrower shall have provided Lender thirty (30) days’
prior written notice to Lender thereof, Borrower may prepay the Note in whole
or in part on any Installment Payment Date, plus accrued interest thereon and
if the Note is to be paid in full, any other amounts owing on the Note;
provided, that such whole or partial prepayment is made together with a
Prepayment Premium.  Notwithstanding
anything in the foregoing sentence to the contrary, at any time during the Note
Term, upon thirty (30) days’ prior written notice to Lender thereof, Borrower
may make a one-time prepayment not to exceed Four Million and No Hundredths
United States Dollars (US$4,000,000.00) on any Installment Payment Date,
without a Prepayment Premium, which amount shall be deducted from the balloon
principal payment due on the thirty-sixth (36th) Installment Payment
Date.  No prepayment made pursuant to the
foregoing sentence will result in a recalculation of the amount of the
thirty-six (36) regular installments due under the Note (although the portion
thereof credited to principal may increase as a result of such prepayment).

 

(c)                                  In
the event that any annual Appraisal determines an Orderly Liquidation Value of
less than the principal then outstanding on the Loan, then Lender may, at its
sole election, (1) require partial prepayment to restore the Loan to the
Collateral value to 100% (based on the Orderly Liquidation Value), (2) demand
full prepayment of the Loan, (3) require additional Collateral acceptable to
Lender in its sole discretion, or (4) adjust upward the remaining principal
payments to amortize the difference over the remaining life of the Loan.  Borrower shall also pay the Prepayment
Premium on any partial or full prepayment pursuant to this Section 2.4(c).

 

(d)                                 Except
as expressly provided in the foregoing paragraphs (a) and (b) hereof,
Borrower shall not be permitted to make any other prepayments on the Note.

 

11

 

2.5                                 Use
of Proceeds.  All the proceeds of the
Loan shall be applied by Borrower to refinance its acquisition of the Vessels.

 

2.6                                 Application
of Payments.  All amounts received by
Lender with respect to any of the Collateral shall be applied as follows:

 

(a)                                  Note
Payments Received During the Note Term. 
So long as no (x) Default with respect to any payments due
hereunder or under any other Obligation or (y) Event of Default shall have
occurred and be continuing, each payment of an installment under any Note
received by Lender during the Note Term shall be applied first, to any
costs, expenses, fees or other amounts due under this Agreement or under the
other Loan Documents not constituting principal and interest due under the
Note, second, to late charges due under such Note, third, to
interest due under the Note and fourth, to the payment in full of
principal and all other Obligations which are then due and payable.

 

(b)                                 Casualty
Payments.  So long as no
(x) Default with respect to the payments due hereunder or under any other
Obligation or (y) Event of Default shall have occurred and be continuing,
any amounts received by Lender as a result of an Event of Loss with respect to
any Vessel (including, without limitation, any payment of prepayment amounts
under Section 2.4(a) or insurance or condemnation proceeds) shall be
applied first to the prepayment amounts required to be paid by
Section 2.4 hereof, second, to the payment in full of all other
Obligations which are then due and payable, and third, the balance, if
any, after payment of the foregoing amounts shall be paid by Lender to
Borrower.

 

(c)                                  Other
Amounts.  So long as no
(x) Default with respect to any payments due hereunder or under any other
Obligation or (y) Event of Default shall have occurred and be continuing,
all Proceeds from time to time received by Lender shall be applied first,
to any costs, expenses, fees or other amounts due under this Agreement and the
other Loan Documents not constituting principal and interest due under the
Note, second, to late charges due under the Note, third, to
interest due under the Note, fourth, to principal installments due under
the Note, fifth to the payment in full and all other Obligations which
are then due and payable and sixth, if provision as to the application
of such amounts is made in this Agreement or any other Loan Document, Lender
shall, in its sole discretion, either apply such payment to the purpose for
which it was made or pay it to Borrower which shall so apply it, seventh,
if due to Borrower, Lender shall pay such amounts to Borrower.

 

(d)                                 Application
After Default or Event of Default. 
All payments received and amounts realized by Lender after a Default or
Event of Default shall have occurred and be continuing, but prior to any
declaration by Lender that any charter is in default or any acceleration of the
Note which funds would, but for the provisions of the Earnings Assignments be
paid to Borrower, shall be held by Lender as part of the Collateral until such
time as no Defaults or Events of Default shall be continuing hereunder (at
which time such funds shall be paid to Borrower) or until such funds are
applied pursuant to Section 8 hereof.

 

(e)                                  Application
After Declaration.  After an Event of
Default shall have occurred and be continuing and after Lender has either
(x) as assignee from Borrower of any charter of the Vessels, declared such
charter to be in default or terminated in accordance with the

 

12

 

terms thereof, or
(y) declared the Note to be due and payable pursuant to Section 8
hereof, or done both (x) and (y), all payments received and amounts realized by
Lender, as well as all payments or amounts then held by Lender as part of the
Collateral, shall be applied against the Obligations in such order and such
manner as Lender, in its sole discretion, may determine and as otherwise
provided in the other Loan Documents and the documents evidencing the other
Obligations, and the balance, if any, shall be paid by Lender to Borrower.

 

2.7                                 Increased
Costs.

 

(a)                                  If
any Change in Law shall:

 

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

 

(ii)                                  impose
on Lender any other condition affecting this Agreement or the Loan made by
Lender;

 

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

 

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

 

(c)                                  A
certificate of Lender calculating and setting forth the amount or amounts
necessary to compensate Lender or its holding company, as the case may be, as
specified in paragraph (a) or (b) of this Section shall be delivered to
Borrower and shall be conclusive absent manifest error.  Borrower shall pay Lender the amount shown as
due on any such certificate within 10 days after receipt thereof.

 

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

 

13

 

Section 3.                                          Conditions
of Borrowing.

 

3.1                                 Conditions
of the Loan.  Lender shall not be
required to make the Loan hereunder unless on the Closing Date of the Loan:

 

(a)                                  Prior
Loans.  Lender shall have received
payment in full of all other amounts due and payable and all other Obligations
due under (i) that certain Loan and Security Agreement, dated as of January 29,
2004, between Borrower and Lender (as amended from time to time, the “Prior
Term Loan Agreement”), and (ii) that certain Participation and Loan and
Security Agreement, dated January 14, 2004, among Borrower, Lender and KeyBank
N.A. (as amended from time to time, the “Revolver Agreement”).

 

(b)                                 Certificate
of Incumbency of Borrower.  Lender
shall have received a certificate of incumbency of the Borrower, signed by the
Secretary (or other authorized officer) thereof, which certificate shall
certify the names of each of the officers authorized to execute any of the Loan
Documents to which it is a party or any other related document on behalf of
each, together with specimen signatures of such officers, and Lender may
conclusively rely on such certificate until receipt of a further certificate of
an authorized officer of Borrower, as the case may be, canceling or amending
the prior certificate and submitting the signatures of the officers named in
such further certificate.

 

(c)                                  Certificate
of Good Standing.  Lender shall have
received a certificate of good standing for the Borrower issued by the
Secretary of State of Delaware dated within thirty (30) days of the Closing
Date.

 

(d)                                 Resolutions.
 Lender shall have received a certified
copy of all company proceedings of the Borrower evidencing that all action
required to be taken in connection with the authorization, execution, delivery
and performance of this Agreement, the Note, the Mortgage, each Assignment and
the transactions contemplated hereby and thereby has been duly taken.

 

(e)                                  Opinion
of Counsel.  Lender shall have
received the written opinion addressed to it of counsel for Borrower (covering,
among other things, matters contained in Section 4) satisfactory in form
and substance to Lender and its counsel confirming that the requirements of
Section 4.9 hereof have been met.

 

(f)                                    Documents.  Each of the Note, the Mortgage, the
Assignments and the other Loan Documents shall be in form and substance
satisfactory to Lender and its legal counsel and shall have been duly executed
and delivered to Lender by the parties thereto and acknowledgements and
consents to assignments, in form and substance satisfactory to Lender, from
Charterer shall have been duly authorized and executed and delivered to Lender.

 

(g)                                 Discharge
of Any Existing Liens.  Lender shall
be satisfied that the Vessels are then free and clear of all Liens other than
Permitted Liens.

 

(h)                                 Insurance.  Lender shall have received evidence in form
and amount satisfactory to it that the Vessels securing the Loan are insured in
accordance with the provisions of this Agreement and the Mortgage and that
Lender is named loss payee on all such insurances.

 

14

 

(i)                                     Mortgage
and Security Interest.  All filings
including all applicable UCC-1 filings pursuant to the UCC, recordings
and other actions deemed necessary or desirable by Lender in order to
establish, protect, preserve and perfect (i) the Mortgage as first
preferred fleet mortgage on the whole of the Vessels, and (ii) Lender’s
lien on and security interest in all other Collateral related to the Vessels as
a valid perfected first priority security interest shall have been duly
effected, including, without limitation, the filing of financing statements and
the filing and recordation of the Mortgage and all other actions required to
perfect Lender’s security interest in the Collateral, all in form and substance
satisfactory to Lender, and all fees, taxes and other charges relating to such
filings and recordings shall have been paid by Borrower.

 

(j)                                     Representations.  (i)  The representations and
warranties contained in this Agreement, the Mortgage, the Assignments and in
all other Loan Documents and other documents executed and delivered to Lender
in connection herewith shall be true and correct in all respects on and as of
the date of the making of the Loan with the same effect as if made on and as of
such date; (ii) no Default or Event of Default shall be in existence on
the date of the making of the Loan or shall occur as a result of the Loan; and
(iii) no event of default shall have occurred and be continuing under any
charter of any Vessel on the date of the making of the Loan; and (iv) the
acceptance by Borrower of the Loan shall constitute a representation by
Borrower that the statements contained in clauses (i), (ii) and (iii)
above are true and correct at Closing.

 

(k)                                  No
Material Adverse Change.  In the sole
judgment of Lender, there shall have been no material adverse change in the
financial condition, business or operations of K-Sea Transportation, LLC and
its consolidated Subsidiaries portrayed in the June 30, 2003 Financial
Statements, reported on by PriceWaterhouseCoopers.  Lender shall have received unaudited
Financial Statements for the three months ended December 31, 2004, which
statements must confirm the preliminary figures previously presented by
Borrower to Lender.

 

(l)                                     Other
Documents and Information.  Lender
shall have received from the Borrower in form and substance satisfactory to
Lender, such other documents and information as Lender shall reasonably
request.

 

(m)                               Proof
of Ownership.  With respect to each
Vessel, Lender shall have received and found to be satisfactory a Certificate
of Ownership, Abstract of Title or other evidence acceptable to Lender as to
such Vessel confirming that such Vessel is owned by Borrower free of all
recorded Liens as of the Closing Date.

 

(n)                                 Legal
Matters.  All legal matters with
respect to and all legal documents executed in connection with the transactions
contemplated by this Agreement shall be satisfactory to counsel for Lender.

 

(o)                                 Appraisals.  Lender shall have received and found to be
satisfactory or agreed to defer (subject to Section 5.1(b) hereof) the
Appraisal of each Vessel conducted by an appraiser satisfactory to Lender,
which appraiser shall be commissioned by Lender and paid for by Borrower.

 

15

 

(p)                                 Charter
and Contracts.  Lender shall have
received copies of all charters and other contracts for use or employment of
the Vessels, including, without limitation, the Charter and the Storage
Agreement, and confirmed to its satisfaction that all such contracts are in
full force and effect and with no disputes having taken place and on terms
consistent with this Agreement and the other Loan Documents.

 

(q)                                 No
Event of Loss.  No Event of Loss
shall have occurred with respect to any Vessel.

 

Section 4.                                          Representations
and Warranties.  In order to induce
Lender to enter into this Agreement and to make the Loan, Borrower represents
and warrants to Lender that:

 

4.1                                 Organization.  The Borrower is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has not engaged in any other business than the purchase,
mortgaging, ownership, managing, operation and chartering of the Vessels and
has the necessary right, power and authority to own the Vessels and its other
assets and to transact the business in which it is engaged, and is duly
qualified to do business in each jurisdiction where such qualification is
legally required and in each jurisdiction where the failure to qualify would
affect the enforceability of the Loan Documents or otherwise adversely affect
the Collateral or Borrower’s ability to perform its obligations under any of
the Loan Documents.

 

4.2                                 Power
and Authority.  Borrower has full
power, authority and legal right to execute and deliver this Agreement, the
Note, the Mortgage, the Assignments and any other Loan Documents executed and
delivered from time to time by Borrower, and to perform its obligations
hereunder and thereunder, to borrow hereunder and to grant the security
interests created by this Agreement, the Mortgage and the Assignments.

 

4.3                                 Consents
and Permits.  No consent of any other
Person (including any stockholders, trustees or holders of indebtedness), and
no consent, license, approval or authorization of, exemption by, or
registration or declaration with, any governmental body, authority, bureau or
agency is required in connection with the execution, delivery or performance by
Borrower of this Agreement, the Note, the Mortgage or the Assignments.

 

4.4                                 No
Legal Bar.  The execution, delivery
of performance by Borrower of this Agreement, the Note, the Mortgage or the
Assignments do not and will not violate any provision of any applicable law or
regulation or of any judgment, award, order, writ or decree of any court or
governmental instrumentality, will not violate any provision of the limited
partnership agreement or other Organizational Document of the Borrower and will
not violate any provision of or cause a default under any mortgage, indenture,
contract, agreement or other undertaking to which the Borrower is a party or
which purports to be binding upon the Borrower or upon any of its assets, and
will not result in the creation or imposition of any Lien on any of the assets
of any of the Borrower other than the security interests and mortgage intended
to be created hereby and under the Assignments and the Mortgage.

 

4.5                                 No
Defaults.  The Borrower is not in
default, and no event or condition exists which after the giving of notice or
lapse of time or both would constitute an Event of Default,

 

16

 

under this Agreement, the Note,
the Mortgage, any Assignment or under any mortgage, indenture, contract,
agreement, judgment or other undertaking to which the Borrower is a party or
which may be binding upon any of its assets, except for any such default event
or condition which, individually or in the aggregate, would not affect the
Borrower’s ability to perform its obligations under this Agreement, the Note,
the Mortgage, the Assignments, or any such mortgage, indenture, contract,
agreement, judgment or other undertaking.

 

4.6                                 Enforceability.  Each of this Agreement, the Note, the
Mortgage, the Assignments and the other Loan Documents has been duly
authorized, executed and delivered by Borrower, as the case may be, and
constitutes a legal, valid and binding obligation of Borrower, as the case may
be, enforceable in accordance with its respective terms.

 

4.7                                 No
Litigation.  There is no action,
suit, investigation or proceeding (whether or not purportedly on behalf of the
Borrower) pending or threatened against or affecting the Borrower or any of its
assets (a) which involves the Vessels, any Assignment or any of the
transactions contemplated by this Agreement or the other Loan Documents; or
(b) which, if adversely determined, could have a Material Adverse Effect.

 

4.8                                 Title
to Vessels.  On the Closing Date,
Borrower shall have valid and marketable title to the Vessels subject to no
Liens except Permitted Liens.

 

4.9                                 Lender’s
Security Interest.  On the Closing
Date, Lender shall have a legal, valid and continuing first preferred mortgage
and a perfected first (and only) lien on and security interest in the Vessels
and in the Collateral related to the Vessels and all taxes, fees and other
charges in connection therewith shall have been duly paid.  There are no charters or other use agreements
in effect on the Vessels other than the Charter and the Storage Agreement.

 

4.10                           Financial
Condition of Borrower.  (a)  Borrower
was formed on July 14, 2003, and has conducted no business other than the
acquisition, ownership and chartering of its vessels, including the Vessels.

 

(b)                                 Borrower
has heretofore furnished to Lender Financial Statements (i) as of and for
the fiscal year ended June 30, 2004, reported on by
PriceWaterhouseCoopers, independent public accountants, and (ii) as of and
for the succeeding fiscal quarter ended December 31, 2004, certified by the
applicable Financial Officer, which Financial Statements present fairly, in all
material respects the financial position and results of operations and cash
flows as of such dates and for such periods in accordance with GAAP,
consistently applied, subject to year-end audit adjustments and the absence of
footnotes in the case of Financial Statements referred to in
clause (b)(ii) above and there has been no material adverse change in the
financial condition, business or operations of the Borrower since said dates.

 

4.11                           Income
Taxes.  Borrower shall have filed all
Federal, state and local income tax returns that are required to be filed, and
have paid all taxes and all assessments received by it to the extent that such
taxes and assessments have become due, and Borrower does not have any knowledge
of any or actual proposed deficiency or additional assessment in connection
therewith.  The charges, accruals and
reserves on the books of Borrower in respect of Federal,

 

17

 

state and local taxes for all
open years, and for the current fiscal year, make adequate provision for all
unpaid tax liabilities for such periods.

 

4.12                           Principal
Place of Business.  The Borrower
maintains a principal place of business located at 3245 Richmond Terrace,
Staten Island, New York, New York 10303-0003.

 

4.13                           No
Other Name.  During the past five (5)
years, Borrower has not changed its name or conducted business in any other
name than that set forth in the introductory paragraphs of this Agreement.

 

4.14                           Payment
of Taxes.  All sales, use, property
or other taxes, licenses, tolls, inspection or other fees, bonds, permits or
certificates which were or may be required to be paid or obtained in connection
with the acquisition by Borrower of the Vessels will have been, or when due
will be, paid in full or obtained, as the case may be.

 

4.15                           Environmental
Condition.  Except as identified on
Schedule 4.15 hereto, none of Borrower’s nor any of its Subsidiaries’
properties or assets has ever been designated or identified in any manner
pursuant to any Environmental Law (including, without limitation, OPA 90) as a
Hazardous Materials disposal site, or a candidate for closure pursuant to any
Environmental Law, which designation or identification could reasonably be
expected to have a material adverse effect on Borrower’s or its Subsidiaries’
business or on any of the Collateral.  No
Lien arising under any Environmental Law has attached to any revenues or to any
of the Vessels or any real or personal property owned by Borrower or any of its
Subsidiaries.  Neither Borrower nor any
of its Subsidiaries has received a summons, citation, notice, or directive from
the United States Environmental Protection Agency, the United States Coast
Guard or any other federal or state governmental agency regarding any action or
omission by Borrower or any of its Subsidiaries resulting in the releasing, or
otherwise exposing of Hazardous Materials into the environment, which notice
could reasonably be expected to have a material adverse effect on Borrower’s or
its Subsidiaries’ business or on any of the Collateral.  Borrower and its Subsidiaries (a) are in
compliance (in all material respects) with all Environmental Laws, including,
but not limited to, all statutes, regulations, ordinances and other legal
requirements pertaining to the production, storage, handling, treatment,
release, transportation or disposal of any Hazardous Materials, and
(b) will obtain, maintain and/or comply with any permit, license or other
approval required under any Environmental Law.

 

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

 

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

 

18

 

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

 

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

 

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

 

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

 

Section 5.                                          Covenants.

 

5.1                                 Affirmative
Covenants.  The Borrower covenants
and agrees that from and after the date hereof and so long as the Obligations
are outstanding:

 

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

 

19

 

(ii)                                  Concurrently
with any delivery of Financial Statements under clause (a) above, Borrower
shall deliver to Lender a certificate of a Financial Officer of K-Sea
(a) certifying as to whether a Default has occurred since the delivery of
the previous such certificate or to the date hereof and, if such a Default has
occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto and stating whether any change in GAAP or in the
application thereof has occurred since the date of the audited Financial
Statements referred to in Section 4.10 or Section 5.1(a) hereof, as
applicable, has had a material adverse effect on the Financial Statements
accompanying such certificate and, if so, the estimated dollar amount thereof.

 

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

 

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

 

(b)                                 Vessel
Appraisals.  Lender may conduct, and
Borrower shall cooperate in the conduct of, a physical Appraisal of any or all
of the Vessels at Borrower’s expense, over every twelve (12) month period of
this Agreement in the absence of an Event of Default and at any time during the
continuance of an Event of Default.  The
first twelve-month period will begin on the Closing Date; provided, however,
that Borrower will allow access to any appraiser sent by Lender to attend and
appraise any Vessel in drydock at any time on reasonable notice.  Each fiscal year, Borrower shall provide
Lender with a drydock schedule and location of drydock.  In the event Lender consents to defer the
initial Appraisal contemplated in Section 3.1(o) hereof to a date subsequent to
Closing, such deferred Appraisal shall not defer any right of Lender to conduct
a subsequent Appraisal within the first twelve month period.

 

(c)                                  Fees
and Expenses.  Borrower shall pay, on
Lender’s demand and delivery to Borrower of invoices therefor, all actual
out-of-pocket costs, expenses, filing fees and taxes payable in connection with
the negotiation, preparation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender’s
rights in the Collateral, this Agreement and all other existing and future
agreements or documents contemplated herein or related hereto, including any
amendments, waivers, supplements or consents which may hereafter be made or
entered into in respect hereof, or in any way involving claims or defense
asserted by Lender or claims or defenses against Lender asserted by Borrower or
any guarantor or any third party directly or indirectly arising out of or
related to the relationship between Borrower and Lender, including, but not
limited to, the following, whether incurred before, during or after the initial
or any renewal term or after the commencement of any case with respect to
Borrower under the United States Bankruptcy Code or any similar statute:  (a) all costs and expenses of filing or
recording (including the UCC financing statement and any Mortgage filing taxes
and fees, abstract fees relating to the Vessels,

 

20

 

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

 

(d)                                 Notices
of Material Events.  Borrower will
furnish to Lender prompt written notice of the following:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

21

 

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

 

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

 

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

 

(i)                                     Books
and Records; Inspection Rights. 
Borrower will, and will cause each of its Subsidiaries to, keep proper
books of record and account in which full, true and

 

22

 

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

 

(j)                                     Use
of Proceeds.  The proceeds of the
Loan will be used exclusively by Borrower in respect of the vessels owned by
Borrower or its Affiliates.  Borrower shall
not invest, lend or otherwise distribute the proceeds of the Loan made under
this Agreement in or to any Person other than Borrower.

 

(k)                                  U.S.
Person.  Borrower covenants and
agrees that at all times until the Lien of the Mortgage shall be discharged and
no portion of the Loan remains outstanding hereunder, it will be a limited
partnership organized under the laws of Delaware or another state within the
United States.

 

(l)                                     Documentation.  Borrower will comply with and satisfy all
provisions of the laws and regulations of the United States now or hereafter
from time to time in effect in order that the Vessels shall continue to be
documented vessels pursuant to the laws of the United States as vessels of the
United States under the United States flag with such endorsements as shall
qualify the Vessels for participation in the coastwise trade (except the LEMON CREEK) and such other trades and
services to which they may be dedicated from time to time.

 

(m)                               Further
Assurances.  Borrower will, promptly
at any time and from time to time, at its sole expense, execute and deliver,
and cause its Subsidiaries to execute and deliver, to Lender such further
instruments and documents, and take such further action, as Lender may from
time to time request in order to further carry out the intent and purpose of
the Loan Documents and to establish and protect the rights, interests and
remedies created, or intended to be created, in favor of Lender hereby and
thereby, including, without limitation, the execution, delivery, recordation
and filing of financing statements and continuation statements.  Borrower hereby authorizes Lender, in such
jurisdictions where such action is authorized by law, to effect any such
recordation or filing of financing statements and continuation statements
without the signature of Borrower thereon and to file as valid financing
statements in the applicable financing statement records, photocopies hereof
and of any other financing statement executed in

 

23

 

connection herewith.  Lender agrees to provide Borrower with copies
of UCC filings, but shall have no liability for failure to do so and such
failure shall not serve as a defense to the performance by any party of its
obligations under the Loan Documents.

 

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

 

(o)                                 Indemnification.  Without limiting the generality of any other
provision hereof, Borrower shall indemnify, protect, save and keep harmless
Lender from and against any reduction in the amount payable out of the
Collateral to Lender with respect to the Obligations, or any other loss, cost
or expense (including reasonable legal fees) incurred by Lender, as the result
of any breach of the provisions of this Section 5.

 

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

 

(q)                                 Environmental
Compliance.  (a)  Borrower
shall, and it shall require that any and all subcharterers, managers,
employees, contractors, subcontractors, agents, representatives, Affiliates,
consultants, occupants and any and all other Persons, (i) comply in all
material respects with all applicable Environmental Laws, (ii) use,
employ, process, emit, generate, store, handle, transport, dispose of and/or
arrange for the disposal of any and all Hazardous Materials in, on, or,
directly or indirectly, related to or in connection with any of the Vessels or
any portion thereof in a manner consistent with prudent industry practice and
in compliance in all material respects with all applicable Environmental Laws,
and in a manner which does not pose a significant risk to human health, safety
(including occupational health and safety) or the environment, and
(iii) obtain, maintain, and have on board each of the Vessels any required
Certificate of Financial Responsibility; (b) Borrower shall, and it shall
require that any charterer of any of the Vessels or any other Person that may
have custody of any of the Vessels

 

24

 

shall, upon the occurrence or
discovery of an Environmental Event with respect to such Vessel, promptly carry
out, using Borrower’s or such other Person’s own funds or proceeds of insurance
with respect thereto, such actions as may be necessary to remediate or cure
such Environmental Event in compliance in all material respects with all
Applicable Laws, to comply in all material respects with all applicable Environmental
Laws and to alleviate any significant risk to human health or the environment
if the same arises from a condition on or in respect of the Vessel, whether
existing prior to or during the term of this Agreement or the term of any such
the charter.  Once Borrower or such other
Person commences such actions, Borrower shall, and shall cause such other
Person to, thereafter diligently and expeditiously proceed to comply in all
material respects in a timely manner with all Environmental Laws and to eliminate
any significant risk to human health or the environment arising from such
Environmental Event and shall, at the request of Lender, give periodic progress
reports to Lender on its compliance efforts and actions.  Nothing contained herein will relieve or
discharge or in any way affect the obligation of Borrower to cure promptly any
violations of Applicable Law or to pay and discharge any Liens against any of
the Vessels.

 

(r)                                    Receipt
of Funds by Borrower. 
Notwithstanding the Earnings Assignment and the grant to Lender of
priority security interests in and to the Collateral, at any time while the
Note remains unpaid or any other Obligations then due and owing remain
unsatisfied and an Event of Default has occurred and is continuing, should
Borrower receive any amount representing funds due under or with respect to, or
Proceeds of, any of the Collateral, such sums shall be held by Borrower in
trust for Lender, shall be segregated from other funds of Borrower and shall be
immediately paid by Borrower to Lender in the form so received, together with
any necessary endorsement thereon in favor of Lender or its order; provided,
however, that the foregoing shall not modify the requirements of Section 1.18
of the Mortgage.

 

5.2                                 Negative
Covenants.  Until the principal of
and interest on the Loan and all fees payable hereunder have been paid in full
Borrower covenants and agrees with Lender that:

 

(a)                                  No
Liens.  Borrower will not and will
not permit any charterer (including, without limitation, the Charterer) of the
Vessels or any of them to create, assume or suffer to exist any Lien of any
kind upon the Collateral except for Liens in favor of Lender and Permitted
Liens.

 

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

 

(c)                                  No
Disposition of Assets.  Without the
prior written consent of Lender, which shall not be unreasonably withheld,
Borrower shall not directly or indirectly sell, lease (except for the Charter
and the Storage Agreement or as permitted under Section 1.15 of the Mortgage),
transfer, assign, abandon, exchange or otherwise relinquish possession or dispose
of any part of the Collateral or any material portion of its other assets
(other than Collateral or other assets that are obsolete or worn out, or
equipment disposed of, if worn out, and replaced with equipment of the same or
better quality and value, in the ordinary course of business).

 

25

 

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

 

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

 

(e)                                  Transactions
with Affiliates.  Borrower will not,
and will not permit any of its Subsidiaries to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with,
any of its Affiliates, except (a) in the ordinary course of business at
prices and on terms and conditions not less favorable to Borrower or such
Subsidiary than could be obtained on an arm’s-length basis from unrelated third
parties, (b) transactions between or among Borrower and its Subsidiaries
not involving any other Affiliate and (c)  any transaction permitted by
Section 5.2(d) hereof; provided, that the foregoing provisions of
this Section 5.2(e) shall not prohibit any such Person from declaring or
paying any lawful Distributions so long as, after giving effect thereto, no
Default shall have occurred and be continuing.

 

(f)                                    Restrictive
Agreements.  Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, enter into,
incur or permit to exist any agreement or other arrangement that prohibits,
restricts or imposes any condition upon (a) the ability of Borrower or any
Subsidiary to create, incur or permit to exist any Lien upon any of its
property or assets, which restriction (or condition) is more restrictive, in
substance, than the restrictions in Section 5.2(a) hereof, or (b) the
ability of any Subsidiary to pay Distributions or other distributions with
respect to any shares of its capital stock or to make or repay loans or
advances to Borrower or any other Subsidiary or to guaranty Indebtedness of
Borrower or any other Subsidiary; provided, that (i) the foregoing
shall not apply to restrictions and conditions imposed by law or by this
Agreement, (ii) the foregoing shall not apply to restrictions and
conditions existing on the date hereof (but shall apply to any extension or
renewal of, or any amendment or modification expanding the scope of, any such
restriction or condition), (iii) the foregoing shall not apply to
customary restrictions and conditions contained in agreements relating to the
sale of a Subsidiary pending such sale; provided, that such restrictions
and conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder, (iv) clause (a) of the foregoing shall not apply
to restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the

 

26

 

property or assets securing
such Indebtedness and (v) clause (a) of the foregoing shall not apply
to customary provisions in leases and other contracts restricting the
assignment thereof.

 

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

 

Section 6.                                          Security
Interest.

 

6.1                                 Grant
of Security Interest.

 

(a)                                  As
collateral security for the prompt and complete payment and performance when
due of all payments required under the Note and of all the Obligations and in
order to induce Lender to enter into this Agreement and make the Loan in
accordance with the terms hereof and to extend other credit from time to time
to Borrower whether under this Agreement or otherwise, Borrower hereby assigns,
conveys, mortgages, pledges, hypothecates and transfers to Lender a first
priority security interest in all Borrower’s right, title and interest in, to
and under the Vessels and all of Borrower’s right, title and interest in, to
and under all Collateral related to the Vessels.

 

(b)                                 It
is expressly agreed that, anything contained herein to the contrary
notwithstanding, (1) Borrower shall at all times remain liable to observe
and perform all of its duties and obligations under any charters of the Vessels
to the same extent as if this Agreement and the Assignments had not been made,
(2) the exercise by Lender of any of the rights assigned hereunder shall
not release Borrower from any of its duties or obligations under any charter
and (3) Lender shall not have any obligation or liability under any
charter by reason of this Agreement, the Assignments or the receipt by Lender
of any payment or property under any such charter or pursuant hereto, nor shall
Lender be obligated to perform or fulfill any of the duties or obligations of
the “owner” under any charter or to make any payment thereunder, or to make any
inquiry as to the nature or sufficiency of any payment or property received by
it thereunder, or the sufficiency of performance by any Person thereunder, or
to present or file any claim, or to take any action to collect or enforce any
performance or the payment of any amounts or the delivery of any property which
may have been assigned to it or to which it may be entitled at any time or
times.

 

(c)                                  Notwithstanding
the foregoing paragraphs of this Section 6.1, in the event the Vessels under
the Charter are redelivered by the Charterer and no Event of Default or event
which, with the passage of time or the giving of notice, would constitute an
Event of Default, is continuing, then Lender shall release the LEMON CREEK and her Earnings and Insurances
(as defined in the Assignments) from the lien of this Agreement, the Mortgage
and the Assignments.

 

6.2                                 Lender
Appointed as Attorney-in-Fact.

 

(a)                                  Borrower
hereby irrevocably constitutes and appoints Lender and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full and irrevocable power and authority in the place and
stead of Borrower and in the name

 

27

 

of Borrower or in its own name,
upon and after the occurrence of an Event of Default, from time to time in
Lender’s discretion to the maximum extent permitted by applicable law, 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 which
may be necessary or desirable to protect and preserve, and/or exercise its
rights and remedies hereunder and under the Assignments with respect to the
Collateral and, without limiting the generality of the foregoing, hereby gives
Lender the power and right, on behalf of Borrower and without notice to or
assent by Borrower, to do the following: 
to demand, enforce, collect, receive, receipt, and give release for any
monies due or to become due under or arising out of or with respect to, any of
the Collateral, and to endorse all checks and other instruments, and to do and
take all such other actions relating to any of the Collateral, to file any
claims or institute any proceedings with respect to any of the foregoing which
Lender deems necessary or desirable, and to compromise any such demand, claim
or action.  Borrower hereby ratifies all
that said attorney 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.

 

(b)                                 The
powers conferred on Lender hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such
powers.  Lender shall be accountable only
for 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 Borrower for any act or failure to act.

 

Section 7.                                          Events
of Default.  The following events
shall each constitute an event of default (herein called “Event of Default”) under this Agreement:

 

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

 

(b)                                 Any
representation or warranty made by Borrower or Charterer, in this Agreement, or
any other Loan Document, or in any document, certificate or financial or other
statement heretofore, now or hereafter furnished by Borrower or Charterer, in
connection with this Agreement or any other Loan Document shall at any time
prove to be untrue or misleading in any material respect as of the time when
made or when deemed to be made; or

 

(c)                                  Any
failure by Borrower to observe any covenant, condition or agreement contained
in Sections 2.4, 5.1(d), (e), (f), (g), (h), (j), (k), (l) or (n), or
5.2(e)hereof, and such failure shall be continuing; or

 

(d)                                 Borrower
shall fail to observe or perform any other covenant, condition or agreement
contained in this Agreement, or any other Loan Document, and such failure shall
continue unremedied for a period of thirty (30) days after the earlier of
(1) the date on which Borrower obtains knowledge of such failure; or
(2) the date on which notice thereof shall be given by Lender to Borrower;
provided, however, if any failure cannot reasonably be remedied within 30 days
and if such Borrower promptly commences the remedy to such failure following
knowledge or notice, as the case may be, and diligently pursues such remedy and
there is no risk

 

28

 

to the Collateral in the
opinion of Lender, then it shall not be deemed an Event of Default if such
remedy requires in excess of 30 but not more than 90 days; or

 

(e)                                  Borrower,
or any parent, subsidiary or Affiliate of Borrower shall (1) default in
the payment of any obligation to Lender or to any of Lender or its Affiliates,
whether such obligation is for borrowed money, under any lease, under any
guarantee or similar accommodation, or for the deferred purchase price of
property including interest thereon, beyond the period of grace, if any,
provided with respect thereto, or (2) default in the performance or
observance of any other term, condition or agreement contained in any such
obligation (or a trustee on behalf of such holder or holders) to cause such obligation
to become due prior to its stated maturity or to realize upon any collateral
given as security therefor, or (3) default in the payment or performance
or observance of any obligation, term or agreement contained in any instrument
or obligation to any other Person other than Lender or any of its Affiliates in
an original (principal) amount equal to or greater than US$500,000; provided,
that this clause (e)(3) shall not apply to any debt or obligation guarantied by
United States government guaranties of debt instruments issued to fund the
acquisition of one or more vessels, which guaranties are secured by preferred
mortgages over the whole of such financed vessels, as provided in 46 U.S.C.
Appendix Section 1271 et seq. and
the regulations promulgated by the Secretary of Transportation thereunder,
whereby the United States has waived any such default prior to the commencement
by the Lender of any foreclosure actions or non-judicial remedies; or

 

(f)                                    The
institution by Borrower, of proceedings to be adjudicated a bankrupt or
insolvent, or the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the commencement by Borrower of a voluntary
proceeding or case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal, state or foreign bankruptcy,
insolvency or other similar law, or the consent by it to the filing of any such
petition or to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or sequestrator (or other similar
official) of Borrower or of any substantial part of its property, or the making
by it of any assignment for the benefit of creditors or the admission by it of
its inability to pay its debts generally as they become due or its willingness
to be adjudicated a bankrupt or the failure of Borrower generally to pay its
debts as they become due or the taking of appropriate action by Borrower in
furtherance of any of the foregoing; or

 

(g)                                 The
entry of a decree or order for relief by a court having jurisdiction in respect
of Borrower, adjudging Borrower a bankrupt or insolvent, or approving as
properly filed a petition seeking a reorganization, arrangement, adjustment or
composition of or in respect of Borrower in an involuntary proceeding or case
under the Federal bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state or foreign bankruptcy, insolvency or other
similar law, or appointing a receiver, liquidator, assignee, custodian, trustee
or sequestrator (or other similar official) of Borrower, or of any substantial
part of its property, or ordering the winding-up or liquidation of its affairs,
and the continuance of any such decree or order unstayed and in effect for a
period of thirty (30) days; or

 

(h)                                 A
Mortgage Event of Default (as defined in the Mortgage) shall have occurred and
be continuing; or

 

(i)                                     Intentionally
omitted;

 

29

 

(j)                                     Assertion
by any federal, state, or local agency of a Lien upon any or all of the assets,
equipment, property, leaseholds, or other facilities of the Borrower by reason
of the occurrence of a hazardous discharge or environmental complaint unless,
with respect to any Vessel or other Collateral, such Lien is released by substitution
of a bond or other undertaking within five days and, with respect to any other
property, such Lien does not in the opinion of Lender constitute a risk to the
financial condition of Borrower; or

 

(k)                                  Assertion
by any Person of a claim against Borrower and/or its assets, equipment,
property, leaseholds, or other facilities for damages or cleanup costs relating
to a hazardous discharge or an environmental complaint; provided, however, that
such claim shall not constitute a default if, within five (5) Business Days of
the occurrence giving rise to the claim:

 

(1)                                  Borrower
can prove to Lender’s satisfaction that the Borrower has commenced and is
diligently pursuing either:  (i) a
cure or correction of the event which constitutes the basis for the claim, and
continues diligently to pursue such cure or correction to completion or
(ii) proceedings for an injunction, a restraining order or other
appropriate emergency relief preventing such agency or agencies from asserting
such claim, which relief is granted within ten (10) Business Days of the
occurrence giving rise to the claim and the injunction, order or emergent
relief is not thereafter dissolved or reversed on appeal; and

 

(2)                                  In
either of the foregoing events, Borrower shall have posted a bond, letter of
credit or other security satisfactory in form, substance, and amount to both
Lender and, if required by law, the agency or entity asserting the claim to
secure the proper and complete cure or correction of the event which
constitutes the basis for the claim, provided, however, that Borrower may
contest the imposition of any fine, penalty or other obligation imposed by any
governmental agency or office, provided that such contest is conducted by
appropriate proceedings, timely commenced and diligently pursued and that
adequate security is filed or given to ensure that there is no risk to the
Collateral or to Lender’s security interests therein under the Loan Documents
and, provided, further, that all requirements imposed by Lender hereunder are
being met; or

 

(l)                                     Borrower
fails to maintain and preserve the Vessels in good running order and repair, so
that the Vessels are 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; or

 

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

 

(n)                                 A
Change in Control shall have occurred; or

 

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

 

30

 

(p)                                 Except
for specific matters disclosed in writing to Lender prior to the date hereof,
any indictment or threatened indictment, occurring after the date hereof, of
Borrower under any criminal statute, including OPA 90 or any similar
Environmental Law, or commencement or threatened commencement of criminal or
civil proceedings against Borrower, pursuant to which statute or proceedings
the penalties or remedies sought or available include forfeiture of any of the
property of Borrower.  For issues
relating to OPA 90 or similar Environmental Law, Lender agrees that an Event of
Default shall not be deemed to have occurred prior to the date on which
Borrower receives notice thereof from Lender; or

 

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

 

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

 

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

 

(t)                                    A
change occurs in the nature or conduct of Borrower’s business or any Applicable
Law affecting vessels or Environmental Law occurs which is likely to have a Material
Adverse Effect on the Collateral or Borrower’s ability to perform its
obligations hereunder; or

 

(u)                                 Any
Organizational Document of Borrower shall be amended, revoked or rescinded in
any material way without the prior written consent of Lender; or

 

(v)                                 Failure
by Borrower to make any prepayment or provide additional Collateral required by
Section 2.4(c) hereof in the time required by Lender; or

 

(w)                               Failure
by Borrower to make the prepayment required by Section 2.4(a) on the date
determined in accordance therewith.

 

Section 8.                                          Remedies.

 

8.1                                 If
an Event of Default specified in Sections 7(f) or (g) above shall occur,
then, and in any such event, the principal amount of the Note, together with
accrued interest thereon and all other amounts owing under or with respect to
this Agreement and the other Loan Documents shall become immediately due and
payable without any notice or other action by Lender, and if any other Event of
Default shall occur and be continuing, then, and in any such event, Lender may,
by notice of default given to Borrower, declare the Note and all other amounts
owing

 

31

 

thereunder or with respect to
this Agreement to be forthwith due and payable, whereupon the principal amount
of the Note, together with accrued interest thereon and all other amounts owing
thereunder or with respect to this Agreement and the other Loan Documents shall
become immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived.  During the continuance of any Event of
Default hereunder, Lender shall have the right to pursue and enforce any of its
rights and remedies under this Section 8.

 

8.2                                 If
an Event of Default shall occur and be continuing, Lender may exercise in
addition to all other rights and remedies granted to it in this Agreement, any
other Loan Document and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of secured
parties under the UCC or under any other applicable law.  Without limiting the generality of the
foregoing, Borrower agrees that in any such event, Lender may exercise any or
all of Borrower’s rights and Lender, without demand of performance or other
demand, advertisement or notice of any kind (except the notice specified below
of time and place of public or private sale) to or upon Borrower or any other
person (all and each of which demands, advertisements and/or notices are hereby
expressly waived), may forthwith collect, receive, appropriate and realize upon
the Collateral, or any part thereof, and/or may forthwith sell, lease, assign,
give option or options to purchase or otherwise dispose of and deliver the
Collateral (or contract to do so), or any part thereof, in one or more parcels
at public or private sale or sales, at any exchange or broker’s board or at any
of Lender’s offices or elsewhere at such prices as it may deem best, for cash
or any credit or for future delivery without assumption of any credit
risk.  Lender shall have the right upon
any such public sale or sales, and, to the extent permitted by law, upon any
such private sale or sales, to purchase the whole or any part of the Collateral
so sold, free of any right or equity of redemption in Borrower, which right or
equity is hereby expressly released. 
Borrower further agrees, at Lender’s request, to assemble the
Collateral, make it available to Lender at places that Lender shall reasonably
select, whether at Borrower’s premises or elsewhere.  Lender shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale (after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care, safekeeping or otherwise of any or all of the
Collateral or in any way relating to the rights of Lender hereunder, including
attorneys’ fees and legal expense) to the payment in whole or in part of the
obligations, in such order as Lender may elect and only after so applying such
net proceeds and after the payment by Lender of any other amount required by
any provision of law, need Lender account for the surplus, if any, to
Borrower.  To the extent permitted by
applicable law, Borrower waives all claims, damages, and demands against Lender
arising out of the repossession, retention or sale of the Collateral.  Borrower agrees that Lender need not give
more than 10 days’ notice (which notification shall be deemed given when
mailed, postage prepaid, addressed to Borrower at its address set forth in
Section 9.2 hereof) of the time and place of any public sale or of the
time after which a private sale may take place and that such notice is
reasonable notification of such matters. 
Borrower shall be liable for any deficiency if the proceeds of any sale
or disposition of the Collateral are insufficient to pay all amounts to which
Lender is entitled.

 

8.3                                 Borrower
agrees to pay all reasonable costs of Lender, including attorneys’ fees and
disbursements, incurred with respect to the collection of any of the
Obligations and the enforcement of any of Lender’s rights hereunder or under
any other of the Loan Documents.

 

32

 

8.4                                 Borrower
hereby waives presentment, demand, protest or any notice, except as hereinabove
provided in this Section 8 (to the extent permitted by applicable law) of
any kind in connection with this Agreement, any other Loan Document or the
Collateral.

 

Section 9.                                          Miscellaneous.

 

9.1                                 No
Waiver; Cumulative Remedies.  No
failure or delay on the part of Lender in exercising any right, remedy, power
or privilege hereunder or under the Note or any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege.  No right or remedy in this
Agreement or any other Loan Document is intended to be exclusive but each shall
be cumulative and in addition to any other remedy referred to herein or
otherwise available to Lender at law or in equity; and the exercise by Lender
of any one or more of such remedies shall not preclude the simultaneous or
later exercise by Lender of any or all such other remedies.  To the extent permitted by law, Borrower
waives any rights now or hereafter conferred by statute or otherwise which
limit or modify any of Lender’s rights or remedies under this Agreement or any
other Loan Document.

 

9.2                                 Notices.  All notices, invoices, statements, requests
and demands to or upon any party hereto shall be deemed to have been duly given
or made when sent by telecopier with telephonic confirmation, or deposited in
the United States mail, first class postage prepaid, or sent by a nationally recognized
overnight courier service, addressed to such party as follows, or to such other
address as may be hereafter designated in writing by such party to the other
party hereto:

 

	
  BORROWER:

  	
  K-SEA
  OPERATING PARTNERSHIP L.P.

  
	
   

  	
  3245
  Richmond Terrace

  
	
   

  	
  Staten
  Island, New York 10303

  
	
   

  	
  Attention:
  John J. Nicola, Chief Financial Officer

  
	
   

  	
  Facsimile
  No.: (718) 720-4358

  
	
   

  	
   

  
	
  LENDER:

  	
  THE
  CIT GROUP/EQUIPMENT FINANCING, INC.

  
	
   

  	
  1540
  W. Fountainhead Parkway

  
	
   

  	
  Tempe,
  Arizona 85282

  
	
   

  	
  Attention:
  Senior Vice President-Credit

  
	
   

  	
  Facsimile
  No.: (480) 379-3466

  

 

9.3                                 Payment
of Expenses and Taxes; Indemnity; Performance by Lender of Borrower’s
Obligations.

 

(a)                                  Borrower
hereby agrees, whether or not the transactions contemplated by this Agreement
shall be consummated, to pay, indemnify, and hold Lender harmless from and
against any and all other liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, suits, out-of-pocket costs, expenses (including
legal expenses) or disbursements of any kind or nature whatsoever arising out
of or with respect to this Agreement, the other Loan Documents, the Vessels,
the other Collateral or Lender’s interest therein, including, without

 

33

 

limitation, the execution,
delivery, enforcement, performance or administration of this Agreement, the
Note and the other Loan Documents and the manufacture, purchase, ownership,
possession, use, selection, operation or condition of the Vessels, or any part
thereof (the foregoing being referred to as the “indemnified liabilities”); provided, that Borrower
shall not have any obligation hereunder with respect to indemnified liabilities
arising from the gross negligence or wilful misconduct of Lender.

 

(b)                                 If
Borrower fails to perform or comply, or otherwise cause performance or
compliance, with such agreement, the expenses of Lender incurred in connection
with such performance or compliance, together with interest thereon at the rate
provided for in the Note shall be payable by Borrower to Lender on demand and
until such payment shall constitute obligations secured hereby.

 

9.4                                 Intentionally
Omitted.

 

9.5                                 Survival
of Representations and Warranties. 
All representations and warranties made in this Agreement or any of the
other Loan Documents and any certificates delivered pursuant hereto or thereto
shall survive the execution and delivery of this Agreement and the making of
the Loan hereunder, and the agreements contained in Section 9.3 hereof
shall survive payment of the amounts due under the Note.

 

9.6                                 Amendments;
Waivers.  No provision of this
Agreement, the Note, any other Loan Document or any related agreements, may be
amended or modified in any way, nor may noncompliance therewith be waived,
except pursuant to a written instrument executed by Lender and Borrower.  In the case of any waiver, Lender and
Borrower shall be restored to their former position and rights hereunder, under
the Note, any other Loan Document and under any related agreements, and any
Default or Event of Default waived shall be deemed to be cured and not
continuing, but no such waiver shall in any way be, or be construed to be, a
waiver of any other or subsequent Default or Event of Default, or impair any
right consequent thereon.

 

9.7                                 Counterparts.  This Agreement may be executed by the parties
hereto on any number of separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.

 

9.8                                 Headings.  The headings of the Sections and
paragraphs are for convenience only, are not part of this Agreement and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.

 

9.9                                 [intentionally
omitted].

 

9.10                           Authorization
to Date, Complete Blanks and Correct Errors.  Borrower hereby irrevocably authorizes Lender
and Lender’s agents, representatives and employees to date, to complete any
blank spaces contained in, and to correct any typographical errors appearing in
this Agreement, the Note, the Mortgage or in any Loan Documents or other
documents pertaining hereto or thereto.

 

9.11                           SUCCESSORS
OR ASSIGNS.  THIS AGREEMENT SHALL BE
BINDING UPON AND INURE TO THE BENEFIT OF BORROWER AND LENDER AND THEIR

 

34

 

RESPECTIVE SUCCESSORS AND
ASSIGNS, EXCEPT THAT BORROWER MAY NOT ASSIGN OR TRANSFER ITS RIGHTS HEREUNDER
OR ANY INTEREST HEREIN WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER.  LENDER MAY, WITHOUT NOTICE TO OR THE CONSENT OF
BORROWER, SELL, ASSIGN OR TRANSFER TO ONE OR MORE BANKS, LENDERS OR OTHER
PERSONS, INCLUDING ANY AFFILIATES OF LENDER (AN “ASSIGNEE”), ALL OR ANY PART OF, THE OBLIGATIONS, THE LOAN, THE
NOTE OR THE OTHER LOAN DOCUMENTS, AND TO THE EXTENT OF ANY SUCH SALE,
ASSIGNMENT, TRANSFER OR PARTICIPATION (UNLESS OTHERWISE STATED HEREIN), SUCH
ASSIGNEE SHALL HAVE THE SAME RIGHTS AND BENEFITS HEREUNDER AND UNDER THE OTHER
LOAN DOCUMENTS AS IT WOULD HAVE IF IT WERE LENDER; PROVIDED, THAT LENDER SHALL
CONTINUE TO HAVE THE UNIMPAIRED RIGHT TO ENFORCE THE PROVISIONS OF THIS
AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS AS TO SO MUCH OF THE
OBLIGATIONS (AS DEFINED HEREIN) THAT LENDER HAS NOT SOLD, ASSIGNED OR
TRANSFERRED AS DESCRIBED ABOVE.  IN
ADDITION TO THE FOREGOING, LENDER SHALL HAVE THE RIGHT WITHOUT NOTICE TO
BORROWER TO SELL PARTICIPATIONS IN THE LOAN TO ONE OR MORE FINANCIAL
INSTITUTIONS.  IN CONNECTION WITH THE
FOREGOING, LENDER SHALL HAVE THE RIGHT TO DISCLOSE TO ANY SUCH ACTUAL OR
POTENTIAL ASSIGNEE, ALL FINANCIAL RECORDS, INFORMATION, REPORTS, FINANCIAL
STATEMENTS AND DOCUMENTS OBTAINED IN CONNECTION WITH THIS AGREEMENT AND THE
LOAN.

 

9.12                           Merger
Clause.  This Agreement and the other
Loan Documents contains the complete, final and exclusive statement of the
terms of the agreement between Lender and Borrower relating to the transactions
hereby contemplated.

 

9.13                           Construction.
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 shall not
invalidate or render unenforceable such provision in any other
jurisdiction.  To the extent permitted by
law, Borrower hereby waives any provision of law which renders any provision
hereof prohibited or unenforceable in any respect.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK, EXCEPT THAT THE MORTGAGE SHALL BE GOVERNED BY
THE LAWS OF THE UNITED STATES TO THE EXTENT THEREIN PROVIDED.

 

9.14                           JURISDICTION.  BORROWER HEREBY IRREVOCABLY CONSENTS AND
AGREES THAT ANY LEGAL ACTION, SUIT, OR PROCEEDING ARISING OUT OF OR IN ANY WAY
IN CONNECTION WITH THIS AGREEMENT MAY BE INSTITUTED OR BROUGHT IN THE COURTS OF
THE STATE OF NEW YORK, IN THE COUNTY OF NEW YORK, OR THE UNITED STATES COURTS
FOR THE SOUTHERN DISTRICT OF NEW YORK, AS LENDER MAY ELECT, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, BORROWER HEREBY IRREVOCABLY ACCEPTS AND SUBMITS
TO, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,
THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT,

 

35

 

AND TO ALL PROCEEDINGS IN SUCH
COURTS.  BORROWER IRREVOCABLY CONSENTS TO
SERVICE OF ANY SUMMONS AND/OR LEGAL PROCESS BY REGISTERED OR CERTIFIED UNITED
STATES AIR MAIL, POSTAGE PREPAID, TO BORROWER AT THE ADDRESS SET FORTH IN
SECTION 9.2 HEREOF, SUCH METHOD OF SERVICE TO CONSTITUTE, IN EVERY
RESPECT, SUFFICIENT AND EFFECTIVE SERVICE OF PROCESS IN ANY SUCH LEGAL ACTION
OR PROCEEDING.  NOTHING IN THIS AGREEMENT
SHALL AFFECT THE RIGHT TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR LIMIT THE RIGHT OF LENDER TO BRING ACTIONS, SUITS OR PROCEEDINGS IN THE
COURTS OF ANY OTHER JURISDICTION. 
BORROWER FURTHER AGREES THAT FINAL JUDGMENT AGAINST IT IN ANY SUCH LEGAL
ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION, WITHIN OR OUTSIDE THE UNITED STATES OF AMERICA, BY SUIT ON THE
AGREEMENT, A CERTIFIED OR EXEMPLIFIED COPY OF WHICH SHALL BE CONCLUSIVE
EVIDENCE OF THE FACT AND THE AMOUNT OF THE LIABILITY.

 

9.15                           WAIVER
OF TRIAL BY JURY.  BORROWER AND
LENDER IN ANY LITIGATION RELATING TO OR IN CONNECTION WITH THIS AGREEMENT IN
WHICH THEY SHALL BE ADVERSE PARTIES WAIVE TRIAL BY JURY.

 

9.16                           Loan
Participation.

 

(a)                                  If
requested by Lender, Borrower will cooperate with Lender to provide any
prospective Participant with information to enable the prospective Participant
to purchase a participation.

 

(b)                                 Borrower
shall assist Lender to sell assignments or participations and to effect any
such assignment or participation, including the execution and delivery of any
and all agreements, notes and other documents and instruments as shall be
requested and, in connection with the initial syndication of the Note, the
preparation of informational materials for, and the participation of management
in meetings with any potential descriptions of Borrower and its affairs
contained in any selling materials provided by it and all other information
provided by it and included in such materials.

 

(c)                                  Lender
may furnish any information concerning Borrower in the possession of Lender
from time to time to any assignee and Participant (including any prospective
assignee and Participant).

 

[REMAINDER LEFT INTENTIONALLY BLANK]

 

36

 

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.

 

	
   

  	
  THE CIT GROUP/EQUIPMENT

  FINANCING, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carl E. Myrick

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Carl E. Myrick

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  K-SEA OPERATING PARTNERSHIP L.P.

  
	
   

  	
  by its general partner K-Sea OLP GP, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John J. Nicola

  	
   

  
	
   

  	
   

  	
  Name:

  	
  John J. Nicola

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
					

 

37

 

	
  STATE OF NEW
  YORK

  	
  )

  	
   

  
	
   

  	
  )

  	
  ss.:

  
	
  COUNTY OF
  RICHMOND

  	
  )

  	
   

  

 

On this 24th day of March, 2005, before me
personally came John J. Nicola, to me known, who, being by me duly sworn,
did depose and say that he is the Chief Financial Officer of K-SEA OLP GP, LLC, the limited liability
company which is the general partner of K-Sea Operating Partnership L.P., the
party described in the foregoing instrument and said general partner executed
the foregoing instrument on behalf of said limited partnership pursuant to
authority granted to said general partner in the Amended and Restated Agreement
of Limited Partnership creating said limited partnership; and that he signed
his name thereto pursuant to authority granted to him by all the members of
said limited liability company.

 

	
   

  	
  /s/ Patricia Harding

  
	
   

  	
  (Notary Public)

  

 

 

	
  STATE OF
  ARIZONA

  	
  )

  	
   

  
	
   

  	
  )

  	
  ss.:

  
	
  COUNTY OF
  MARICOPA

  	
  )

  	
   

  

 

On this 24th day of March, 2005, before me
personally came Carl E. Myrick, to me known, who, being by me duly sworn, did
depose and say that he is the Senior Vice President of THE CIT GROUP/EQUIPMENT FINANCING, INC.,
the corporation described in and which executed the foregoing instrument; and
that he signed his name thereto pursuant to authority granted to him by the
Board of Directors of said corporation.

 

	
   

  	
  /s/ Brenda Felles

  
	
   

  	
  (Notary Public)

  

 

 

SCHEDULE I

 

	
  Vessel

  	
   

  	
  Official No.

  	
   

  	
  Casualty Value Percentage

  	
   

  
	
  VOLUNTEER

  	
   

  	
  653464

  	
   

  	
  14

  	
  %

  
	
  DBL 105

  	
   

  	
  653463

  	
   

  	
  59

  	
  %

  
	
  LEMON CREEK

  	
   

  	
  901206

  	
   

  	
  27

  	
  %

  

 

1

 

SCHEDULE 4.15

 

Environmental Compliance

 

None

 

1

 

EXHIBIT A

 

PROMISSORY NOTE

 

	
  New York, New York

  US$11,700,000.00

  	
   

  	
  March     , 2005

  

 

FOR VALUE RECEIVED, K-SEA OPERATING
PARTNERSHIP L.P. (“Borrower”),
a Delaware limited partnership, promises to pay to the order of THE CIT GROUP/EQUIPMENT FINANCING, INC. (“Lender”), at such address as Lender may
designate, in lawful money of the United States, the principal sum of ELEVEN
MILLION SEVEN HUNDRED THOUSAND AND NO HUNDREDTHS UNITED STATES DOLLARS
(US$11,700,000.00) together with interest in like money on the principal sum
remaining unpaid from time to time from the date of this Note until due and
payable (whether as stated, by acceleration or otherwise) at the Applicable
Interest Rate determined in accordance with the Loan Agreement (as defined
below), said principal to be paid in thirty-six (36) equal consecutive monthly
installments each in the amount of SIXTY-NINE THOUSAND FIVE HUNDRED
SEVENTY-EIGHT AND NO HUNDREDTHS UNITED STATES DOLLARS (US$69,578.00) each, plus
accrued interest at the Applicable Interest Rate also to be paid on each
Installment Payment Date, commencing April     , 2005, and
a final balloon payment, also due on the thirty-sixth (36th)
Installment Payment Date, of all remaining principal, bearing interest accrued
on the unpaid principal balance to the due date of each installment on the same
day of each month thereafter until payment in full of this Note.  Each such installment shall be applied first
to the payment of any unpaid interest on the principal sum and then to payment
of principal.  Interest shall be
calculated on the basis of actual number of days elapsed in a 360-day
year.  Any amount not paid when due under
this Note shall bear late charges thereon, calculated at the Late Charge Rate,
from the due date thereof until such amount shall be paid in full.  Any payment received after the maturity of
any installment of principal shall be applied first to the payment of unpaid
late charges, second to the payment of any unpaid interest on said principal,
and third to the payment of principal.

 

This Note is the Note referred to in the Loan and Security Agreement,
dated as of March      , 2005, between Borrower and
Lender (herein, as the same may from time to time be amended, supplemented or
otherwise modified, called the “Loan
Agreement”), is secured as provided in the Loan Agreement, and is
subject to prepayment only as provided therein, and the holder hereof is
entitled to the benefits thereof.

 

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

 

Borrower hereby waives presentment, protest, demand for payment,
diligence, notice of dishonor and of nonpayment, and any and all other notices
or demands in connection with delivery, acceptance, performance, default or enforcement
of this Note, and hereby waives and renounces all rights to the benefits of any
statute of limitations and any moratorium, appraisement, exemption and
homestead now provided or which may hereafter be provided by any federal or
state statute, including, without limitation, exemptions provided or which may
hereafter be provided by any federal or state bankruptcy or insolvency laws,
both as to itself and

 

1

 

as to all of its property,
whether real or personal, against the enforcement and collection of the
obligations evidenced by this Note and any and all extensions, renewals and
modifications hereof and hereby consents to any extensions of time, renewals,
releases of any party to this Note, waivers or modifications that may be
granted or consented to by the holder of this Note.

 

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

 

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

 

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

 

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

 

2

 

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK TO THE EXTENT THAT THE TERMS
AND PROVISIONS HEREOF ARE NOT GOVERNED BY CHAPTER 313 OF TITLE 46 OF THE
UNITED STATES CODE.

 

	
   

  	
  K-SEA OPERATING PARTNERSHIP L.P.

  
	
   

  	
  by its
  general partner K-Sea OLP GP, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

3

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