Document:

Exhibit
10.1

AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENT

dated as of August 14, 2007

by and among

K-SEA OPERATING PARTNERSHIP L.P.,

as Borrower,

the Lenders party hereto,

LASALLE BANK NATIONAL ASSOCIATION

and

CITIBANK, N.A.,

as Co-Syndication Agents,

CITIZENS BANK OF PENNSYLVANIA

and

HSBC BANK USA NATIONAL ASSOCIATION,

as Co-Documentation Agents,

and

KEYBANK NATIONAL ASSOCIATION,

as Administrative Agent and
Collateral Trustee for the Lenders

TABLE
OF CONTENTS

	
  

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE I DEFINITIONS

  	
  1

  
	
   

  	
   

  
	
  Section 1.01

  	
  Defined Terms

  	
  1

  
	
  Section 1.02

  	
  Terms Generally

  	
  30

  
	
  Section 1.03

  	
  Accounting Terms; GAAP

  	
  30

  
	
   

  	
   

  
	
  ARTICLE II THE LOANS

  	
  31

  
	
   

  	
   

  
	
  Section 2.01

  	
  Commitments

  	
  31

  
	
  Section 2.02

  	
  Loans

  	
  31

  
	
  Section 2.03

  	
  Interest

  	
  33

  
	
  Section 2.04

  	
  Requests for Loans

  	
  34

  
	
  Section 2.05

  	
  Funding of Loans

  	
  35

  
	
  Section 2.06

  	
  Termination and Reduction of Commitments

  	
  35

  
	
  Section 2.07

  	
  Repayment of Loans; Evidence of Debt

  	
  36

  
	
  Section 2.08

  	
  Prepayment of Loans

  	
  37

  
	
  Section 2.09

  	
  Fees

  	
  40

  
	
  Section 2.10

  	
  Increased Costs; Illegality

  	
  41

  
	
  Section 2.11

  	
  Break Funding Payments

  	
  43

  
	
  Section 2.12

  	
  Taxes

  	
  43

  
	
  Section 2.13

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

  	
  44

  
	
  Section 2.14

  	
  Letters of Credit

  	
  47

  
	
  Section 2.15

  	
  Cash Collateral Account

  	
  51

  
	
  Section 2.16

  	
  Mitigation Obligations; Replacement of Lenders

  	
  52

  
	
  Section 2.17

  	
  Increase of Commitments

  	
  52

  
	
   

  	
   

  
	
  ARTICLE III GRANT OF SECURITY INTEREST

  	
  54

  
	
   

  	
   

  
	
  Section 3.01

  	
  Grant of Security Interest

  	
  54

  
	
  Section 3.02

  	
  Substitution of Pool Vessel

  	
  55

  
	
  Section 3.03

  	
  Fair Market Value

  	
  55

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV REPRESENTATIONS AND WARRANTIES

  	
  56

  
	
   

  	
   

  
	
  Section 4.01

  	
  Organization

  	
  56

  
	
  Section 4.02

  	
  Power and Authority

  	
  56

  
	
  Section 4.03

  	
  Governmental Approvals; No Conflicts

  	
  57

  
	
  Section 4.04

  	
  Financial Condition; No Material Adverse Change

  	
  57

  
	
  Section 4.05

  	
  Litigation

  	
  57

  
	
  Section 4.06

  	
  Environmental Condition

  	
  58

  
	
  Section 4.07

  	
  Compliance with Laws and Agreements

  	
  58

  
	
  Section 4.08

  	
  Investment Company Status

  	
  58

  

 

 

	
  

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 4.09

  	
  Taxes

  	
  58

  
	
  Section 4.10

  	
  ERISA

  	
  59

  
	
  Section 4.11

  	
  Disclosure

  	
  59

  
	
  Section 4.12

  	
  No Other Name

  	
  59

  
	
  Section 4.13

  	
  Title

  	
  59

  
	
  Section 4.14

  	
  Lenders’ Security Interest

  	
  60

  
	
  Section 4.15

  	
  Citizenship

  	
  60

  
	
  Section 4.16

  	
  Vessels

  	
  60

  
	
  Section 4.17

  	
  Government Consents for Conduct of Business

  	
  61

  
	
  Section 4.18

  	
  Federal Reserve Regulations

  	
  61

  
	
  Section 4.19

  	
  The Smith /Sirius Acquisition

  	
  61

  
	
  Section 4.20

  	
  Phase Two Transactions

  	
  62

  
	
   

  	
   

  
	
  ARTICLE V CONDITIONS

  	
  63

  
	
   

  	
   

  
	
  Section 5.01

  	
  Effective Date

  	
  63

  
	
  Section 5.02

  	
  Each Loan and Letter of Credit

  	
  73

  
	
   

  	
   

  
	
  ARTICLE VI AFFIRMATIVE COVENANTS

  	
  73

  
	
   

  	
   

  
	
  Section 6.01

  	
  Financial Statements and Other Information

  	
  74

  
	
  Section 6.02

  	
  Pool Vessel Appraisals

  	
  75

  
	
  Section 6.03

  	
  Fees and Expenses

  	
  75

  
	
  Section 6.04

  	
  Notices of Material Events

  	
  76

  
	
  Section 6.05

  	
  Existence; Conduct of Business

  	
  76

  
	
  Section 6.06

  	
  Insurance

  	
  76

  
	
  Section 6.07

  	
  Taxes; Use

  	
  77

  
	
  Section 6.08

  	
  Maintenance of Properties; Use and Operation of Pool
  Vessels

  	
  77

  
	
  Section 6.09

  	
  Books and Records; Inspection Rights

  	
  78

  
	
  Section 6.10

  	
  Use of Proceeds

  	
  78

  
	
  Section 6.11

  	
  U.S. Person

  	
  79

  
	
  Section 6.12

  	
  Documentation

  	
  79

  
	
  Section 6.13

  	
  Further Assurances

  	
  79

  
	
  Section 6.14

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

  	
  80

  
	
  Section 6.15

  	
  Indemnification

  	
  80

  
	
  Section 6.16

  	
  Performance of Contracts

  	
  80

  
	
  Section 6.17

  	
  Environmental Compliance

  	
  81

  
	
  Section 6.18

  	
  Subsidiary Guaranties

  	
  81

  
	
  Section 6.19

  	
  Relating to the Vessels

  	
  82

  
	
  Section 6.20

  	
  Working Capital Clean-Down

  	
  82

  
	
  Section 6.21

  	
  Qualified Equity Issuance

  	
  82

  
	
  Section 6.22

  	
  Phase Two Transaction

  	
  82

  

 ii
 

 

	
  

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE VII NEGATIVE COVENANTS

  	
  83

  
	
   

  	
   

  
	
  Section 7.01

  	
  Fixed Charge Coverage Ratio

  	
  83

  
	
  Section 7.02

  	
  First Lien Funded Debt to EBITDA Ratio

  	
  83

  
	
  Section 7.03

  	
  Total Funded Debt to EBITDA Ratio

  	
  84

  
	
  Section 7.04

  	
  Asset Coverage Ratio

  	
  84

  
	
  Section 7.05

  	
  No Liens

  	
  84

  
	
  Section 7.06

  	
  No Changes in Borrower

  	
  85

  
	
  Section 7.07

  	
  No Disposition of Assets

  	
  85

  
	
  Section 7.08

  	
  Fundamental Changes

  	
  86

  
	
  Section 7.09

  	
  Transactions with Affiliates

  	
  86

  
	
  Section 7.10

  	
  Restrictive Agreements

  	
  87

  
	
  Section 7.11

  	
  Limitations on Advances and Distributions

  	
  87

  
	
  Section 7.12

  	
  Limitations on Other Indebtedness

  	
  87

  
	
  Section 7.13

  	
  Limitation on Investments, Loans, Advances,
  Guarantees and Acquisitions

  	
  88

  
	
  Section 7.14

  	
  Limitations on Negative Pledge

  	
  89

  
	
  Section 7.15

  	
  Acquisitions

  	
  89

  
	
  Section 7.16

  	
  Partnerships, Joint Ventures

  	
  90

  
	
  Section 7.17

  	
  Capital Expenditures

  	
  90

  
	
  Section 7.18

  	
  Prepayments of Indebtedness

  	
  90

  
	
   

  	
   

  
	
  ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES

  	
  90

  
	
   

  	
   

  
	
  Section 8.01

  	
  Events of Default

  	
  90

  
	
  Section 8.02

  	
  Remedies

  	
  93

  
	
  Section 8.03

  	
  Lenders’ Cure of Third Party Agreement Default

  	
  94

  
	
   

  	
   

  
	
  ARTICLE IX THE AGENTS

  	
  94

  
	
   

  	
   

  
	
  Section 9.01

  	
  Authorization and Action

  	
  94

  
	
  Section 9.02

  	
  Agent’s Reliance, Etc.

  	
  95

  
	
  Section 9.03

  	
  KeyBank and Affiliates

  	
  96

  
	
  Section 9.04

  	
  Lender Credit Decision

  	
  96

  
	
  Section 9.05

  	
  Indemnification

  	
  96

  
	
  Section 9.06

  	
  Successor Administrative Agents

  	
  97

  
	
  Section 9.07

  	
  Events of Default

  	
  98

  
	
  Section 9.08

  	
  Payments

  	
  98

  
	
  Section 9.09

  	
  Administrative Agent May File Proofs of Claim

  	
  99

  
	
  Section 9.10

  	
  Agents

  	
  99

  
	
   

  	
   

  
	
  ARTICLE X MISCELLANEOUS

  	
  100

  
	
   

  	
   

  
	
  Section 10.01

  	
  Notices

  	
  100

  
	
  Section 10.02

  	
  Term and Termination

  	
  101

  

 

 iii
 

 

	
  

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 10.03

  	
  K-Sea as Agent for Borrower

  	
  102

  
	
  Section 10.04

  	
  Discharge of Borrower

  	
  102

  
	
  Section 10.05

  	
  Waivers; Amendments

  	
  102

  
	
  Section 10.06

  	
  Expenses; Indemnity; Damage Waiver

  	
  103

  
	
  Section 10.07

  	
  Successors and Assigns

  	
  104

  
	
  Section 10.08

  	
  Survival

  	
  106

  
	
  Section 10.09

  	
  Counterparts; Integration; Effectiveness

  	
  107

  
	
  Section 10.10

  	
  Severability

  	
  107

  
	
  Section 10.11

  	
  Right of Set-off

  	
  107

  
	
  Section 10.12

  	
  Governing Law; Jurisdiction; Consent to Service of
  Process

  	
  108

  
	
  Section 10.13

  	
  WAIVER OF JURY TRIAL

  	
  108

  
	
  Section 10.14

  	
  Headings

  	
  109

  
	
  Section 10.15

  	
  Confidentiality

  	
  109

  
	
  Section 10.16

  	
  Interest Rate Limitation

  	
  109

  
	
  Section 10.17

  	
  Further Assurances

  	
  110

  
	
  Section 10.18

  	
  Judgment Currency

  	
  110

  
	
  Section 10.19

  	
  USA Patriot Act Notice

  	
  110

  

 

 iv

	
  EXHIBITS

  
	
   

  
	
  Exhibit A-1

  	
  -

  	
  Form of Tranche A Note

  
	
  Exhibit A-2

  	
  -

  	
  Form of Tranche B Note

  
	
  Exhibit B

  	
  -

  	
  Form of Assignment and Acceptance

  
	
  Exhibit C-1

  	
  -

  	
  Form of Opinion of Thompson Coburn L.L.P.

  
	
  Exhibit C-2

  	
  -

  	
  Form of Opinion of Holland & Knight LLP

  
	
  Exhibit C-3

  	
  -

  	
  Form of Opinion of Carlsmith Ball LLP

  
	
  Exhibit C-4

  	
  -

  	
  Form of Opinion of Baker Botts LLP

  
	
  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

  
	
  Exhibit I

  	
  -

  	
  Principal Terms of Bridge Loan Intercreditor
  Agreement

  
	
   

  
	
  SCHEDULES

  
	
   

  
	
  Schedule 1.01A

  	
  -

  	
  Pool Vessels

  
	
  Schedule 1.01B

  	
  -

  	
  Additional Pool Vessels

  
	
  Schedule 1.01C

  	
   

  	
  Phase Two Pool Vessels

  
	
  Schedule 2.01

  	
  -

  	
  Commitments

  
	
  Schedule 4.06

  	
  -

  	
  Environmental Compliance

  
	
  Schedule 4.14

  	
  -

  	
  Charters

  
	
  Schedule 5.01

  	
  -

  	
  Indebtedness to be Repaid

  
	
  Schedule 7.05

  	
  -

  	
  Existing Liens

  
	
  Schedule 7.12

  	
  -

  	
  Existing Indebtedness

  
	
  Schedule 7.13

  	
  -

  	
  Existing Investments

  

 

AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENT

AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”), dated as of August 14, 2007,
among K-SEA OPERATING PARTNERSHIP  L.P., a Delaware limited partnership (“Borrower”), the Lenders party hereto (the “Lenders”), LASALLE BANK, NATIONAL
ASSOCIATION and CITIBANK, N.A.,
as co-syndication agents, CITIZENS BANK OF
PENNSYLVANIA and HSBC BANK USA NATIONAL
ASSOCIATION, as co-documentation agents, 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, the Lenders and the Administrative Agent are parties to a Loan and
Security Agreement dated as of March 24, 2005 (as heretofore amended,
supplemented or otherwise modified, the “Original Loan Agreement”),
pursuant to which the Lenders thereunder agreed to make loans and otherwise
extend credit to or for the account of Borrower on the terms and conditions set
forth therein,

WHEREAS,
Borrower desires to amend the Original Loan Agreement in certain respects, and

WHEREAS,
the Administrative Agent and the Lenders have agreed to amend and restate the
Original Loan Agreement on the terms and conditions hereinafter set forth.

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

ARTICLE I

DEFINITIONS

Section
1.01                            Defined
Terms.

As used in this
Agreement, the following terms have the meanings specified below:

“Additional Pool Vessels” means, collectively, those vessels identified on Schedule 1.01B hereto.

“Adjusted LIBOR Rate” means, with
respect to any LIBOR Loan for any Interest Period, an interest rate per annum
equal to (a) LIBOR for such Interest Period multiplied by (b) the
Statutory Reserve Rate.

“Adjustment Date” has the meaning
set forth in Section 7.02 hereof.

“Administrative Agent” means KeyBank
National Association, a national banking association, in its capacity as
administrative agent for Lenders hereunder, and any Person appointed successor
administrative agent pursuant to Section 9.06.

“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.

“Agreement” has the meaning set
forth in the preamble hereto.

“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

  	
   

  
	
  3.50:1.00

  	
   

  	
   

  	
   

  	
  0.250

  	
  %

  	
  1.500

  	
  %

  	
  0.300

  	
  %

  
	
  3.00:1.00

  	
   

  	
  3.50:1.00

  	
   

  	
  0.000

  	
  %

  	
  1.250

  	
  %

  	
  0.200

  	
  %

  
	
  2.50:1.00

  	
   

  	
  3.00:1.00

  	
   

  	
  0.000

  	
  %

  	
  1.100

  	
  %

  	
  0.200

  	
  %

  
	
  2.00:1.00

  	
   

  	
  2.50:1.00

  	
   

  	
  0.000

  	
  %

  	
  0.850

  	
  %

  	
  0.150

  	
  %

  
	
   

  	
   

  	
  2.00:1.00

  	
   

  	
  0.000

  	
  %

  	
  0.700

  	
  %

  	
  0.150

  	
  %

  

 

 2
 

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
3.50:1.00  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) on any date on which
interest on the Bridge Loan shall be determined pursuant to Section 2.02(c) of
the Bridge Loan Agreement, “Applicable Margin”
shall mean (A) with respect to Base Rate Loans, 0.250%, (B) with respect to
LIBOR Loans, 2.00% and (C) with respect to the Commitment Fees, 0.400%.

“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 Fair Market 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 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.

 3
 

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

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

“Availability Period” means the Tranche
A Availability Period or the Tranche B Availability Period, as the case may be.

“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.

“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.

“Borrower Mortgage” means the First
Preferred Fleet Mortgage, dated March 24, 2005, granted by Borrower to the
Collateral Trustee over the whole of the Borrower Pool Vessels, as heretofore
amended and supplemented and as it may be further amended, modified or
supplemented from time to time and from which Borrower Pool Vessels may be
added or released from time to time.

“Borrower Pool Vessels” means those
vessels identified as owned by Borrower on Schedule 1.01A.

“Borrowing Base” means 80% of the Fair
Market Value of the Pool Vessels.

“Bridge Loan” means the loan made to
Borrower by the lenders party to the Bridge Loan Agreement, and any extensions,
renewals or replacements of such Indebtedness that do not increase the
outstanding principal amount thereof.

“Bridge Loan Agreement” means the
Bridge Loan Agreement dated as of the Effective Date among Borrower, the
lenders party thereto and KBCM Bridge LLC, as administrative agent, as amended,
restated, supplemented or otherwise modified from time to time.

“Bridge Loan Intercreditor Agreement”
means the Intercreditor Agreement between KBCM Bridge LLC, as administrative
agent for the lenders from time to time party to the Bridge Loan Agreement and
the Administrative Agent, relating to the Permitted Bridge Loan Liens, if any,
which shall contain provisions subordinating the Permitted Bridge Loan Liens to
the Liens securing the Obligations substantially identical to those set forth
on Exhibit I hereto, as such

 4
 

Intercreditor
Agreement may be amended, restated, supplemented or otherwise modified from
time to time.

“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.

“Capital Stock” means, as to any Person, all shares,
interest, partnership interests, limited liability company membership
interests, participations, rights in or other equivalents (however designated)
of such Person’s equity (however designated) and any rights, warrants or
options exchangeable for or convertible into such shares, interests,
participations, rights or other equity.

“Cash Collateral” has the meaning
set forth in Section 2.15 hereof.

“Cash Collateral Account” has the
meaning set forth in Section 2.15 hereof.

“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 

 5
 

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
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 2.10(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.

“Charges” has the meaning set forth in
Section 10.16 hereof.

“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 or any Subsidiary
Guarantor 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
or any Subsidiary Guarantor, 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, and any Person appointed as a successor collateral trustee pursuant
to Article IX.

“Commitment” means, with respect to any
Lender on any date, the Tranche A Commitment, if any, and Tranche B Commitment,
if any, of such Lender on such date.

“Commitment Fees” has the meaning
set forth in Section 2.09(b).

“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 the
Excluded Subsidiaries.

 6
 

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

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

“Diving” means Uaukewai Diving,
Salvage and Fishing, Inc., a Hawaii corporation and a wholly-owned Subsidiary
of Smith Maritime.

“Diving Mortgage” means the
Preferred Ship Mortgage granted by Diving to the Collateral Trustee over the
whole of the Diving Pool Vessel, as the same may be amended, modified or
supplemented from time to time.

“Diving Pool Vessel” means the
vessel identified as owned by Diving (before giving effect to the Phase Two
Transactions) on Schedule 1.01C.

“Documentary Letter of Credit” shall
have the meaning set forth in Section 2.02(e) 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 or
any Subsidiary Guarantor 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;

 7
 

(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 10.05 hereof).

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

“Environmental Event” means (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).

 8
 

“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.

“Equity
Issuance” means the issuance of any Capital Stock by K-Sea or
the receipt of any capital contribution by Borrower.

“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

 9
 

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.

“Excluded Subsidiaries” means,
collectively, Inversiones Kara Sea Srl., K-Sea Canada Holdings, K-Sea Canada
Corp. and Marine Logistics, Inc.

“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 net income by the United States of America, or by the jurisdiction under
the laws of which such recipient is organized or in which its principal office
is located or, in the case of any Lender, in which its applicable lending
office is located, (b) any branch profits taxes imposed by the United
States of America or any similar tax imposed by any other jurisdiction in which
Administrative Agent, such Lender or such other recipient is located, and
(c) in the case of a Foreign Lender (other than an assignee pursuant to a
request by Borrower under Section 2.16(b) hereof), any withholding tax
that is imposed on amounts payable to such Foreign Lender at the time such
Foreign Lender becomes a party to this Agreement or is attributable to such
Foreign Lender’s failure or inability to comply with Section 2.12(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 2.12(a)
hereof.

“Existing Letters of Credit” means,
collectively, (i) 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 and
(ii) the Irrevocably Standby Letter of Credit No. S311366 dated May 15,
2006 issued by KeyBank in favor of SCV Partners, as beneficiary, in the
aggregate amount of $42,868.75.

“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, individually, the
Tranche A Facility or the Tranche B Facility, as the case may be, and
collectively, the Tranche A Facility and the Tranche B Facility.

 10
 

“Fair Market Value” means, with
respect to any Pool Vessel, the fair market value of such Pool Vessel as reasonably
determined by the Administrative Agent or by independent appraisers appointed
by the Administrative Agent at the expense of Borrower.

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

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

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

“First
Lien Funded Debt” means, as of any date, the aggregate
principal amount of Total Funded Debt outstanding at such date that consists
of, without duplication, (i) the Revolving Credit Exposure and (ii)
Indebtedness which ranks pari  passu to the Indebtedness under the Loan Documents and is
secured by a Lien (other than any Second-Priority Lien).

“First Lien Funded Debt to EBITDA Ratio”
means, at any date of
determination, the ratio of First Lien 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; provided that, for any such determination, EBITDA shall be
adjusted (i) to include, for the relevant four fiscal quarter period, pro forma
EBITDA in an amount reasonably acceptable
to the Administrative Agent respecting any vessel or business acquisition for
which debt is incurred and included in First Lien Funded Debt and (ii) to exclude, for the relevant four
fiscal quarter period, pro forma EBITDA in an amount reasonably acceptable to
the Administrative Agent respecting any vessel or business disposition.

“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; provided that, for any such
determination, EBITDA shall be adjusted to include, for the relevant four
fiscal quarter period, pro forma EBITDA in an amount reasonably acceptable to
the Administrative Agent respecting any vessel or business acquisition for
which debt service is incurred and included in Fixed Charges.

“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

 11
 

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.

“Fronting Fee” has the meaning set
forth in Section 2.09(d) hereof.

“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.”

“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,

 12
 

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 or any Subsidiary
Guarantor 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 or such Subsidiary Guarantor on account of the use
or employment of such Pool Vessel.

“Honor Date” has the meaning set
forth in Section 2.14(d) hereof.

“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.

“Indemnitee” has the meaning set
forth in Section 10.06(b) hereof.

“Information” has the meaning set
forth in Section 10.15 hereof.

“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

 13
 

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.

“Interisland” means Hawaiian
Interisland Towing, Inc., a Hawaii corporation and a wholly-owned subsidiary of
Smith Maritime.

“Interisland I Mortgage” means the
Preferred Fleet Mortgage granted by Interisland to the Collateral Trustee over
the whole of the K-Sea LLC Phase Two Pool Vessels, as the same may be amended,
modified or supplemented from time to time.

“Interisland II Mortgage” means the
Preferred Fleet Mortgage granted by Interisland to the Collateral Trustee over
the whole of the K-Sea Hawaii Phase Two Pool Vessels, as the same may be
amended, modified or supplemented from time to time.

“Interisland III Mortgage” means the
Preferred Fleet Mortgage granted by Interisland to the Collateral Trustee over
the whole of the Smith Maritime Phase Two Pool Vessels owned by Interisland, as
the same may be amended, modified or supplemented from time to time.

 14
 

“Interisland Pool Vessels” means
those vessels identified as owned by Interisland (before giving effect to the
Phase Two Transactions) on Schedule 1.01C.

“Judgment Currency” has the meaning
set forth in Section 10.18 hereof.

“KeyBank” means KeyBank National
Association.

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

“K-Sea Hawaii” means K-Sea Hawaii
Inc., a Delaware corporation and a wholly-owned Subsidiary of K-Sea
Transportation, Inc.

“K-Sea Hawaii Mortgage Assumption”
means the Mortgage Assumption by K-Sea Hawaii, the Collateral Trustee and
Interisland with respect to the Interisland II Mortgage and the K-Sea Hawaii
Phase Two Pool Vessels.

“K-Sea Hawaii Phase Two Pool Vessels”
means those vessels identified as owned by K-Sea Hawaii (after giving effect to
the consummation of the Phase Two Transactions) on Schedule
1.01C.

“K-Sea Hawaii Pool Vessels” means
those vessels identified as owned by K-Sea Hawaii on Schedule
1.01A.

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

“K-Sea LLC Mortgage” means the First
Preferred Fleet Mortgage, dated October 18, 2005, granted by K-Sea LLC to the
Collateral Trustee over the whole of the K-Sea LLC Pool Vessels, as heretofore
amended and supplemented and as it may be further amended, modified or
supplemented from time to time and from which K-Sea LLC Pool Vessels may be
added or released from time to time.

“K-Sea LLC Mortgage Assumption”
means the Mortgage Assumption by K-Sea LLC, the Collateral Trustee and
Interisland with respect to the Interisland I Mortgage and the K-Sea LLC Phase
Two Pool Vessels.

“K-Sea LLC Phase Two Pool Vessels”
means the vessels identified as owned by K-Sea LLC (after giving effect to the
consummation of the Phase Two Transactions) on Schedule
1.01C.

“K-Sea LLC Pool Vessels” means those
vessels identified as owned by K-Sea LLC on Schedule
1.01A.

“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

 15
 

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

“Lenders” means, collectively, the Tranche A Lenders
and the Tranche B Lenders.

“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 Tranche A 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 Tranche A
Lender’s Tranche A Applicable Percentage at such time

“Letter of Credit Documentation” has
the meaning set forth in Section 2.14(a) hereof.

“Letter of Credit Fee” has the
meaning set forth in Section 2.09(c) hereof.

“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 the Reuters Page LIBOR01 (or such other page as may replace
LIBOR01 on the Reuters Monitor Money Rates Service for the purpose of
displaying such rates or such other service as may be nominated by the British
Bankers Association, for the purpose of displaying London interbank offered
rates for U.S. dollar deposits) 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 Reuters Page LIBOR01 (or such other replacement
page), 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

 16
 

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

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

“Loan Documents” means, collectively,
this Agreement, the Notes, the Borrower Mortgage, the K-Sea LLC Mortgage, the
Interisland I Mortgage, the Interisland II Mortgage, the Interisland III
Mortgage, the Tow Boat Mortgage, the Diving Mortgage, the Smith/Diving Mortgage
Assumption, the Smith/Interisland Mortgage Assumption, the Smith/Tow Boat
Mortgage Assumption, the K-Sea Hawaii Mortgage Assumption, the Parent Guaranty,
each Subsidiary Guaranty, the Assignments and all consents given with respect
to any of the foregoing.

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

“Loans” means, collectively, the Tranche
A Loans and the Tranche B Loans.

“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

 17
 

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 (i)
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 and (ii) the Bridge Loan
and any other Indebtedness from time to time outstanding under the Bridge Loan
Agreement.  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 Tranche A
Maturity Date or the Tranche B Maturity Date, as the case may be.

“Maximum Rate” has the meaning set
forth in Section 10.16 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, collectively, (i) the
Borrower Mortgage, (ii) the K-Sea LLC Mortgage, (iii) the Interisland I
Mortgage, (iv) the Interisland II Mortgage, (v) the Interisland III Mortgage,
(vi) the Tow Boat Mortgage and (vii) the Diving Mortgage, as the Interisland I
Mortgage, the Interisland II Mortgage, the Interisland III Mortgage, the Tow
Boat Mortgage and the Diving Mortgage shall be assumed in connection with the
Phase Two Transactions and as each may be amended, modified or supplemented
from time to time and from which Pool Vessels may be added or released from
time to time.

“Mortgage Assumptions” means,
collectively, K-Sea Hawaii Mortgage Assumption, the K-Sea LLC Mortgage
Assumption, the Smith/Interisland Mortgage Assumption, the Smith/Tow Boat
Mortgage Assumption and the Smith/Diving Mortgage Assumption.

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

“Negative Pledge” has the meaning
set forth in Section 7.14 hereof.

“Net Proceeds” means, with respect
to:

(a)                                  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

 18
 

therefrom
only (without duplication) the sum of: (i) 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,
(ii) the amount of taxes paid or payable in connection with or as a result of
such transaction and (iii) 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;
and

(b)                                 with respect to any Prepayment/Reduction
Event, the aggregate amount of  cash
received from time to time (whether as initial consideration or through
payment or disposition of deferred consideration) in respect of such Prepayment/Reduction Event, including (i) any cash
received in respect of any non-cash proceeds, but only as and when
received, (ii) in the case of a casualty, insurance proceeds and (iii) in the
case of a condemnation or similar event, condemnation awards and similar
payments, after deducting therefrom only (without duplication) the sum of (A)
all 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
paid by Borrower or any Subsidiary Guarantor to third parties in connection
with such Prepayment/Reduction Event, (B) in the case of a sale, transfer,
lease or other disposition of an asset (including pursuant to a sale and
leaseback transaction), the amount of any Indebtedness secured by a Lien
on such asset that, by the terms of such transaction, is repaid upon such
disposition and (C) the amount of all
taxes paid (or reasonably estimated to be payable) by Borrower and the
Subsidiary Guarantors, and the amount of any reserves established by Borrower
and the Subsidiary Guarantors to fund contingent liabilities reasonably
estimated to be payable, in each case during the year that such event occurred
or the next succeeding year and that are directly attributable to such event
(as determined reasonably and in good faith by a Financial Officer of Borrower),
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 Facilities as described in Section 2.07(f)
hereof.

“Obligation Currency” has the
meaning set forth in Section 10.18 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

 19
 

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 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 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.

“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 as of March 24, 2005, executed by K-Sea in favor of Lenders, as
amended, restated, supplemented or otherwise modified from time to time.

“Participant” has the meaning set
forth in Section 10.07(e) hereof.

“Patriot Act” has the meaning set
forth in Section 10.19 hereof.

“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

 20
 

immediately after giving effect thereto no Default
shall have occurred and be continuing, (ii) 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 Bridge Loan Liens” means
Liens on (i) the Pool Vessels that are subordinated to the Liens in favor of
the Collateral Trustee pursuant to the terms of the Bridge Loan Intercreditor
Agreement and (ii) other vessels of Borrower and its subsidiaries, in each
case  securing (x) the Bridge Loan and
(y) any extensions, renewals or replacements of the Tranche B Loans that do not
increase the outstanding principal amount thereof.

“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;

(c)                                  Liens
arising out of bareboat charters of Pool Vessels to K-Sea Transportation Inc.
or any other Subsidiary Guarantor covering the Pool Vessels described on Schedule 4.14; and

(d)                                 Liens
arising out of time charters, voyage charters or contracts of affreightment
with unrelated third parties in respect of a Pool Vessel;

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 $5,000,000.

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

“Phase Two Pool Vessels” means,
collectively, those vessels identified on Schedule 1.01C
hereto.

“Phase Two Transactions” means,
collectively, (i) the conversion effective as of the Effective Date of each of
Interisland, Tow Boat and Diving from a Hawaii corporation into a Hawaii
limited liability company, (ii) the capital contribution, effective as of the
Effective Date, by Interisland of the K-Sea LLC Phase Two Pool Vessels to K-Sea
LLC, (iii) the capital contribution, effective as of the Effective Date, by
Interisland of the K-Sea Hawaii Phase Two Pool Vessels to K-Sea Hawaii, (iv)
the capital contribution, effective as of the Effective Date, by

 21

Interisland of the
Smith Maritime Phase Two Pool Vessels owned by Interisland to Smith Maritime,
(v) the capital contribution, effective as of the Effective Date, by Tow Boat
of the Tow Boat Pool Vessels to Smith Maritime, (vi) the capital contribution, effective
as of the Effective Date, by Diving of the Diving Pool Vessel to Smith
Maritime, (vii) the filing (complete except for evidence from each
relevant Governmental Authority of the conversion of Interisland from a Hawaii
corporation into a Hawaii limited liability company) for registration of each
of the K-Sea LLC Phase Two Pool Vessels in the name of K-Sea LLC,
(viii) the filing (complete except for evidence from each relevant
Governmental Authority of the conversion of Interisland from a Hawaii corporation
into a Hawaii limited liability company) for registration of each of the K-Sea
Hawaii Phase Two Pool Vessels in the name of K-Sea Hawaii, (ix) the filing
(complete except for evidence from each relevant Governmental Authority of the
conversion of each of Interisland, Tow Boat and Diving from Hawaii corporations
into Hawaii limited liability companies) for registration of each of the Smith
Maritime Phase Two Pool Vessels in the name of Smith Maritime (x) the
assumption by K-Sea LLC, effective on the date evidence of such conversion has
been received by the Credit Parties from each relevant Governmental Authority,
of the obligations and liabilities of Interisland under the Interisland I
Mortgage pursuant to the terms of the K-Sea LLC Mortgage Assumption, (xi) the
assumption by K-Sea Hawaii, effective on the date evidence of such conversion
has been received by the Credit Parties from each relevant Governmental
Authority, of the obligations and liabilities of Interisland under the
Interisland II Mortgage pursuant to the K-Sea Hawaii Mortgage Assumption, (xii)
the assumption by Smith Maritime, effective on the date evidence of such
conversion has been received by the Credit Parties from each relevant
Governmental Authority, of the obligations and liabilities of (A) Interisland
under the Interisland III Mortgage pursuant to the Smith/Interisland Mortgage
Assumption, (B) Tow Boat under the Tow Boat Mortgage pursuant to the Smith/Tow
Boat Mortgage Assumption and (C) Diving under the Diving Mortgage pursuant to the
Smith/Diving Mortgage Assumption and (xiii) the filing with the United
States Coast Guard National Vessel Documentation Center in Falling Waters, West
Virginia, on the date evidence of such conversion has been received by the
Credit Parties from each relevant Governmental Authority, of each of the K-Sea
LLC Mortgage Assumption, the K-Sea Hawaii Mortgage Assumption, the
Smith/Interisland Mortgage Assumption, the Smith/Tow Boat Mortgage Assumption
and the Smith/Diving Mortgage Assumption.

“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, collectively,
those vessels identified on Schedule 1.01A
hereto as of the Effective Date after giving effect to the Phase Two Transactions,
together with any vessels hereafter added to the Pool Vessels pursuant to
Section 3.02 or Section 3.03 hereof.

“Prepayment/Reduction
Event” means:

(a)           the disposition of any
or all of the fixed assets of Borrower or any Subsidiary Guarantor not included
in the Collateral whether by sale, lease, transfer or otherwise 

 22
 

(but excluding
damage, destruction, loss or condemnation); provided, however,
prior to the occurrence of an Event of Default, none of the following shall be
deemed to be a “Prepayment/Reduction Event”:
(i) any sale, lease, transfer or other disposition of (A) inventory in the
ordinary course of business; (B) obsolete or worn out equipment; (C)
traded-in equipment, (D) assets by Borrower to a Subsidiary Guarantor or by a
Subsidiary Guarantor to Borrower or another Subsidiary Guarantor; or (E)
transfers permitted under Section 7.07 or Section 7.08 hereof; and (ii)
charters or other employment contracts of vessels not otherwise prohibited
hereby;

(b)           any casualty or other
insured damage to, or any taking under power of eminent domain or by
condemnation or similar proceeding of, any property or asset of Borrower or any
Subsidiary Guarantor not included in the Collateral and not encumbered by a
ship mortgage, other than casualties, insured damage or takings resulting in
aggregate Net Proceeds not exceeding $1,000,000 during any fiscal year;

(c)           any Equity Issuance
(including, without limitation, the Qualified Equity Issuance); and

(d)           the incurrence by any
Borrower or any of the Subsidiaries of any Indebtedness other than Indebtedness
described in clause (i), (ii), (iii), (v), (vi) or (vii) of Section 7.12
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 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.

 23
 

“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 2.17 hereof.

“Qualified
Equity Issuance” means an underwritten public offering of
Capital Stock of K-Sea that generates Net Proceeds in cash to K-Sea of not less
than $150,000,000, which proceeds will be contributed to Borrower on terms and
conditions reasonably satisfactory to the Administrative Agent to be applied to
the repayment in full of the Bridge Loan and the Tranche B Loans.

“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 second Anniversary Date, “Qualified
Pool Vessels” may also include single-hulled barges having a
Fair Market Value not in excess of five percent (5%) of the aggregate Fair
Market 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 fifty-one percent (51%) (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.

“Revolving Credit Exposure” means, with respect to any Lender at any
time, the sum as of such time of (i) such Lender’s Tranche A Credit Exposure
plus  (ii) such Lender’s Tranche B 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.

 24
 

“Second-Priority
Lien” means (i) the Permitted Bridge Loan Liens on the Pool
Vessels that are subordinated to the Liens in favor of the Collateral Trustee
pursuant to the terms of the Bridge Loan Intercreditor Agreement and (ii) other
Liens (other than Liens securing the Obligations) that are subordinated to the
Liens securing the Obligations pursuant to, and otherwise subject to the terms
of, any other intercreditor agreement.

“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.

“Sirius
Acquisition Agreement” means the Agreement and Plan of Merger
dated as of June 25, 2007 among K-Sea LLC, 

K-Sea, Sirius Maritime, LLC, RCD Maritime Enterprises, LLC, a Washington
limited liability company, Smith Maritime, LLC, a Washington limited liability
company, WS Maritime Pacific, LLC, a Washington limited liability company, and
the other Persons party thereto, as amended prior to the Effective Date.

“Sirius
Maritime, LLC” means Sirius Maritime, LLC, a Washington limited
liability company.

“Sirius
Seller” means, collectively, RCD Maritime Enterprises, LLC, a
Washington limited liability company, Smith Maritime, LLC, a Washington limited
liability company, WS Maritime Pacific, LLC, a Washington limited liability
company.

“Smith
Acquisition Agreement” means the Agreement and Plan of Merger
dated as of June 25, 2007 among Smith Maritime, K-Sea, Smith Maritime, Ltd., a
Hawaii corporation, Go Big Chartering, LLC, a Washington limited liability
company, Gordon L.K. Smith, individually and as trustee for The Gordon L.K.
Smith Trust, Barbara Smith, as trustee for the Barbara Smith SML Trust and
235LX, LLC, a Washington limited liability company, as amended prior to the
Effective Date.

“Smith/Diving
Mortgage Assumption” means the Mortgage Assumption by Smith
Maritime, the Collateral Trustee and Diving with respect to the Diving Mortgage
and the Diving Pool Vessel.

“Smith/Interisland
Mortgage Assumption” means the Mortgage Assumption by Smith
Maritime, the Collateral Trustee and Interisland with respect to the
Interisland III Mortgage and the Smith Maritime Phase Two Pool Vessels owned by
Interisland.

“Smith
Maritime” means Smith Maritime LLC, a Delaware limited liability
company, formerly known as “K-Sea Acquisition 1 LLC” and a wholly-owned
Subsidiary of Borrower.

“Smith/Sirius
Acquisition” means, collectively, (i) the merger of Smith
Maritime, Ltd., a Hawaii corporation and Go Big Chartering, LLC, a Washington
limited liability company, into 

 25
 

Smith Maritime,
with Smith Maritime being the surviving entity of such mergers, pursuant to the
terms of the Smith Acquisition Agreement and (ii) the merger of Sirius
Maritime, LLC into K-Sea LLC, with K-Sea LLC being the surviving entity of such
merger, pursuant to the terms of the Sirius Acquisition Agreement, and related
transactions.

“Smith/Sirius
Acquisition Documents” means the Smith/Sirius Acquisition
Agreement and the instruments, agreements and documents executed and delivered
in connection therewith.

“Smith/Sirius
Acquisition Transactions” means, collectively, (i) the
Smith/Sirius Acquisition, (ii) the payment of approximately $49,750,000 to the
Sirius Seller, (iii) the payment by K-Sea LLC of approximately $117,700,000 to
the Smith Seller, (iv) the assumption and/or repayment of certain Smith Seller
or Sirius Seller Indebtedness and the issuance to the Smith/Sirius Sellers by
K-Sea of 250,000 units and (v) the contribution by the Sirius/Smith Seller
and/or certain of their Affiliates and/certain Subsidiaries of Borrower of
certain vessels to K-Sea LLC, Smith Maritime or K-Sea Hawaii.

“Smith
Maritime Phase Two Pool Vessels” means those vessels identified
as owned by Smith Maritime (after giving effect to the consummation of the
Phase Two Transactions) on Schedule 1.01C.

“Smith
Maritime Pool Vessels” means those vessels identified as owned
by Smith Maritime on Schedule 1.01A.

“Smith/Sirius
Acquisition Agreement” means, collectively, the Sirius
Acquisition Agreement and the Smith Acquisition Agreement.

“Smith
Seller” means, collectively, Gordon L.K. Smith, individually and
as trustee for The Gordon L.K. Smith Trust, Barbara Smith, as trustee for the
Barbara Smith SML Trust and 235LX, LLC, a Washington limited liability company.

“Smith/Sirius
Seller” means, collectively, the Sirius Seller and the Smith
Seller.

“Smith/Tow
Boat Mortgage Assumption” means the Mortgage Assumption by Smith
Maritime, the Collateral Trustee and Tow Boat with respect to the Tow Boat
Mortgage and the Tow Boat Pool Vessels.

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

“Statutory Reserve Rate” means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which 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 

 26
 

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 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
the Excluded Subsidiaries.

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

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

“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 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; provided that, for any
such determination, EBITDA shall be adjusted (i) to include, for the relevant
four fiscal quarter period, pro forma EBITDA in an amount reasonably
acceptable to the Administrative Agent respecting
any vessel or business acquisition for which debt is incurred and included in
Total Funded Debt and (ii) to exclude,
for the relevant four fiscal quarter period, pro forma EBITDA in an amount
reasonably acceptable to the Administrative Agent respecting any vessel or
business disposition.

“Tow Boat” means Tow Boat Services
& Management, Inc., a Hawaii corporation and a wholly-owned subsidiary of
Smith Maritime.

 27
 

“Tow Boat Mortgage” means the
Preferred Fleet Mortgage granted by Tow Boat to the Collateral Trustee over the
whole of the Tow Boat Pool Vessels, as the same may be amended, modified or
supplemented from time to time.

“Tow Boat Pool Vessels” means the vessels
identified as owned by Tow Boat (before giving effect to the Phase Two
Transactions) on Schedule 1.01C.

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

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

“Tranche A
Commitment”
means, with respect to each Tranche A Lender, the commitment of such Tranche A
Lender to make Tranche A Loans hereunder, expressed as an amount representing
one hundred percent (100%) of the maximum aggregate amount of such Tranche A
Lender’s Tranche A Credit Exposure hereunder, as such commitment may be
(a) reduced from time to time pursuant to Section 2.06 hereof, (b)
increased from time to time pursuant to Section 2.17 hereof and
(c) reduced or increased from time to time pursuant to assignments by or
to such Tranche A Lender pursuant to Section 10.07 hereof.  The initial amount of each Tranche A Lender’s
Tranche A Commitment is set forth (x) on Schedule 2.01
or (y) in the Assignment and Acceptance pursuant to which such Tranche A
Lender shall have assumed its Tranche A Commitment, as applicable.

“Tranche A
Commitment Fee” has the meaning set forth in Section 2.09(a).

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

“Tranche A
Facility” means
the revolving facility in the aggregate amount outstanding at any time not to
exceed the Tranche A 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.

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

“Tranche A
Loans” has the
meaning assigned to such term in Section 2.02(c) 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 2.14 hereof.

 28
 

“Tranche A
Maturity Date”
means August 14, 2014.

“Tranche A
Maximum Amount”
means, with respect to the Tranche A Facility, One Hundred Seventy-five Million
Dollars ($175,000,000.00), as such amount may be increased in the aggregate in
accordance with Section 2.17 hereof or decreased in the aggregate in accordance
with Section 2.06.

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

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

“Tranche B
Commitment”
means, with respect to each Tranche B Lender, the commitment of such Tranche B
Lender to make Tranche B Loans hereunder, expressed as an amount representing
one hundred percent (100%) of the maximum aggregate amount of such Tranche B
Lender’s Tranche B Credit Exposure hereunder, as such commitment may be
(a) reduced from time to time pursuant to Section 2.06 or 2.08
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 Tranche B 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 Tranche B Commitment, as applicable.

“Tranche B
Commitment Fee” has the meaning set forth in Section 2.09(b).

“Tranche B Credit Exposure” means, with respect to any Tranche B Lender
at any time, the outstanding principal balance of such Tranche B Lender’s
Tranche B Loans.

“Tranche B
Facility” means
the revolving facility in the aggregate amount outstanding at any time not to
exceed $45,000,000, as described in Section 2.02(d) hereof.

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

“Tranche B
Loans” has the
meaning assigned to such term in Section 2.02(d) hereof.

“Tranche B
Maturity Date”
means August 12, 2008.

“Tranche B
Maximum Amount”
means, with respect to the Tranche B Facility, Forty-five Million Dollars
($45,000,000.00), as such amount may be decreased in the aggregate in accordance
with Section 2.06 or 2.08 hereof.

 29
 

“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.

“Unreimbursed
Amount” has the meaning set forth in Section 2.14(e) hereof.

“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 

 30
 

provision hereof to
eliminate the effect of any change occurring after the date hereof in GAAP or
in the application thereof on the operation of such provision (or if 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.

(a)           Subject
to the terms and conditions set forth herein, each Tranche A Lender agrees to
make Tranche A Loans to Borrower from time to time during the Tranche A
Availability Period in an aggregate principal amount that will not result in
such Tranche A Lender’s Tranche A Credit Exposure exceeding such Tranche A
Lender’s Tranche A Commitment.

(b)           Subject
to the terms and conditions set forth herein, each Tranche B Lender agrees to
make Tranche B Loans to Borrower from time to time during the Tranche B
Availability Period in an aggregate principal amount that will not result in
such Tranche B Lender’s Tranche B Credit Exposure exceeding such Tranche B
Lender’s Tranche B Commitment.

(c)           Within
the foregoing limits and subject to the terms and conditions set forth herein,
Borrower may borrow, prepay and reborrow Loans.

(d)           This
Agreement shall be deemed to be a continuation of and an amendment and
restatement of the terms of the Original Loan Agreement and the loans and other
obligations outstanding under the Original Loan Agreement on the Effective
Date.

Section
2.02         Loans.

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

(b)           Each
Tranche B Loan shall be made by the Tranche B Lenders ratably in accordance
with their respective Tranche B Commitments. 
The failure of any Tranche B Lender to make any Tranche B Loan required
to be made by it shall not relieve any other Tranche B Lender of its
obligations hereunder; provided that the Tranche B Commitments of
Tranche B 

 31
 

Lenders are several and no Tranche B Lender
shall be responsible for any other Tranche B Lender’s failure to make any Tranche
B Loan as required.

(c)           Subject
to the terms and conditions contained herein and until the Tranche A Maturity
Date, the Tranche A Lenders shall make loans to Borrower on a revolving basis
in amounts requested by Borrower from time to time (the “Tranche A Loans” and each, a “Tranche 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.

(d)           Subject
to the terms and conditions contained herein and until the Tranche B Maturity
Date, the Tranche B Lenders shall make loans to Borrower on a revolving basis
in amounts requested by Borrower from time to time (the “Tranche B Loans” and each, a “Tranche B 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.

(e)           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”),
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 Tranche A Lenders would not exceed the
Letter of Credit Sublimit and (ii) the Tranche A Credit Exposure of all Tranche
A Lenders would not exceed the aggregate Tranche A Commitments of all Tranche A
Lenders.

(f)            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 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.

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

 32
 

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.

(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 2.04 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.

 33
 

(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         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:

(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)          whether
such Loan is to be a Tranche A Loan or a Tranche B Loan;

 34
 

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

(vi)          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
2.05         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 2.05(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.

Section
2.06         Termination
and Reduction of Commitments.

(a)           Unless
previously terminated, the Tranche A Commitments shall terminate on the Tranche
A Maturity Date.

(b)           Unless
previously terminated, the Tranche B Commitments shall terminate on the Tranche
B Maturity Date.

 35
 

(c)           Borrower
may at any time terminate, or from time to time reduce, the Tranche A
Commitments, provided that Borrower shall not terminate or reduce the
Tranche A Commitments if, after giving effect to any concurrent prepayment of
the Tranche A Loans in accordance with Section 2.08, the sum of the
Tranche A Credit Exposures would exceed the total Tranche A Commitments.

(d)           Borrower
may at any time terminate, or from time to time reduce, the Tranche B
Commitments, provided that Borrower shall not terminate or reduce the
Tranche B Commitments if, after giving effect to any concurrent prepayment of
the Tranche B Loans in accordance with Section 2.08, the sum of the
Tranche B Credit Exposures would exceed the total Tranche B Commitments.

(e)           Each
reduction of the Commitments hereunder shall be in an amount that is an
integral multiple of $1,000,000 and not less than $5,000,000.

(f)            Each
reduction of any 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 any of the Commitments under
Section 2.06(c) or Section 2.06(d) 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
relevant Lenders of the contents thereof. 
Each notice delivered by Borrower pursuant to this Section 2.06 shall be
irrevocable, provided that a notice of termination of any 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
2.07         Repayment
of Loans; Evidence of Debt.

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

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

(c)           Each
Lender shall maintain in accordance with its usual practice an account or
accounts evidencing the debt of 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.

(d)           The
Administrative Agent shall maintain accounts in which it shall record (i) the
amount of each Loan made hereunder, whether such Loan is a Tranche A Loan or a
Tranche B Loan, 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 

 36
 

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.

(e)           The
entries made in the accounts maintained pursuant to Section 2.07(c) or 2.07(d)
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 Borrower
to repay the Loans and other Obligations in accordance with the terms of this
Agreement.

(f)            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-1,
in the case of Tranche A Loans, and by a Note in the form attached hereto as Exhibit A-2, in the case of Tranche B
Loans.  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-1 or A-2,
as the case may be, 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.

(g)           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
2.08         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 Tranche A Credit Exposure of all Tranche A Lenders as of
such date exceeds the aggregate Tranche A Commitments, then in such event
Borrower shall immediately prepay the Tranche A Loans by an amount necessary to
eliminate any such excess (or if the Tranche A Loans have been paid in full and
the Letter of Credit Exposure of all Tranche A 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 Tranche B Credit Exposure of all Tranche B Lenders as of
such date exceeds the aggregate Tranche B Commitments, then in such event
Borrower shall immediately prepay the Tranche B Loans by an amount necessary to
eliminate any such excess.

(d)           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 

 37
 

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).

(e)           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 2.08(f)), Borrower shall prepay first
the then outstanding Tranche B Loans until the Tranche B Loans shall have been
paid in full (and the Tranche B
Commitments shall be reduced in the amount of such prepayment), and second
the then outstanding Tranche A Loans, in an amount equal to the lesser of (i)
one-hundred percent (100%) of such Net Proceeds and (ii) the Fair Market 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 (A) the Tranche B Commitments
shall have been terminated and the Bridge Loan and the Tranche B Loans shall
have been paid in full and (B) no Event of Default shall exist, no prepayment
of the then outstanding Loans will be required under this Section 2.08(e) with
respect to Net Proceeds from Asset Dispositions, not exceeding $5,000,000 in
any Fiscal Year, to the extent that such Net Proceeds 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, Borrower shall prepay the then outstanding
Loans (to be applied as set forth above) in an amount equal to (x) all Net
Proceeds from Asset Dispositions received in any Fiscal Year in excess of
$5,000,000, 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).

(f)            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 2.08(e), Borrower shall prepay first
the then outstanding Tranche B Loans until the Tranche B Loans shall have been
paid in full (and the Tranche B
Commitments shall be reduced in the amount of such prepayment), and second
the then outstanding Tranche A Loans in an amount equal to the lesser of (i)
one-hundred percent (100%) of such Net Proceeds and (ii) the Fair Market Value
of the Pool Vessel which is the subject of such Extraordinary Receipt (provided
that after the occurrence of an Event of Default, Borrower shall prepay the
then outstanding Loans (to be applied as set forth above) in an amount equal to
one-hundred percent (100%) of such Net Proceeds).

(g)           In the event and on each occasion that any
Net Proceeds are received by or on behalf of Borrower or any Subsidiary
Guarantor in respect of any Prepayment/Reduction Event (other than (x)
Net Proceeds from any Asset Disposition, the disposition of which shall be
governed by the terms of Section 2.08(e) and (y) Extraordinary Receipts the
disposition of which shall be governed by the terms of Section 2.08(f)), then, immediately after such Net Proceeds
are received and in any event within five (5) Business Days thereof, Borrower
shall prepay (provided that the Bridge Loans shall have been paid in
full) the Tranche B Loans (and the Tranche B Commitments shall be reduced in
the amount of such prepayment) in an amount equal to such Net Proceeds; provided, however, with respect to Net
Proceeds received in respect of a

 38
 

Prepayment/Reduction Event described in clause (b) of the definition
thereof (other than Extraordinary Receipts the disposition of which shall be
governed by Section 2.08(e)), so long as no Event of Default shall exist, no
prepayment of the then outstanding Tranche B Loans will be required under this
Section 2.08(g) with respect to such Net Proceeds, to the extent that such Net
Proceeds are reinvested (or are committed, pursuant to a binding written
commitment, to be reinvested) in new or used vessels (or such other property or
assets the subject of such casualty or other insured damage) within twelve (12)
months after receipt thereof; provided, further, however,
Borrower shall prepay the then outstanding Tranche B Loans in an amount equal
to all such 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).

(h)           In the
event of any partial reduction or termination of the Tranche A Commitments, then
(i) at or prior to the date of such reduction or termination, the
Administrative Agent shall notify Borrower and the Tranche A Lenders of the sum
of the Tranche A Credit Exposures after giving effect thereto and (ii) if such
sum would exceed the total Tranche A Commitments after giving effect to such
reduction or termination, then Borrower shall, on the date of such reduction or
termination, prepay the Tranche A Loans in an amount sufficient to eliminate
such excess; provided  that if on the
date of such a reduction of the Tranche A Commitments, the aggregate Tranche A
Credit Exposure of all of the Tranche A Lenders exceeds the aggregate Tranche A
Commitments of all of the Tranche A Lenders after giving effect to such
reduction and, if the Tranche A Loans have been paid in full and the Letter of
Credit Exposure of all Tranche A 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 Tranche Lenders.

(i)            In the
event of any partial reduction or termination of the Tranche B Commitments,
then (i) at or prior to the date of such reduction or termination, the
Administrative Agent shall notify Borrower and the Tranche B Lenders of the sum
of the Tranche B Credit Exposures after giving effect thereto and (ii) if such
sum would exceed the total Tranche B Commitments after giving effect to such
reduction or termination, then Borrower shall, on the date of such reduction or
termination, prepay the Tranche B Loans in an amount sufficient to eliminate
such excess.

(j)            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 any of the Commitments as contemplated by Section 2.06(c), then such
notice of prepayment may be revoked if such notice of termination is revoked in
accordance with Section 2.06(c). 
Promptly following receipt of any such notice relating to a Loan, the
Administrative Agent shall advise the relevant Lenders of the contents
thereof.  Each partial 

 39
 

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.

(k)           The
provisions of Section 2.07(g) shall apply to any prepayment made under this
Section 2.08.

Section
2.09         Fees.

(a)           Borrower
shall pay to the Administrative Agent, for the account of the Tranche A Lenders
in accordance with each Tranche A Lender’s Tranche A Applicable Percentage, a
commitment fee (the “Tranche A Commitment
Fee”), during the period from the Effective Date through the
Tranche A Maturity Date at a rate per annum equal to the Commitment Fee Margin
on the average daily amount of the unused Tranche A Commitments of such Tranche
A Lender.  The Tranche A 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 Tranche A Commitments (to
the extent of such reduction) and on the Tranche A Maturity Date.

(b)           Borrower
shall pay to the Administrative Agent, for the account of the Tranche B Lenders
in accordance with each Tranche B Lender’s Tranche B Applicable Percentage, a
commitment fee (the “Tranche B Commitment
Fee”; and together with the Tranche A Commitment Fee, the “Commitment Fees”), during the period
from the Effective Date through the Tranche B Maturity Date at a rate per annum
equal to the Commitment Fee Margin on the average daily amount of the unused
Tranche B Commitments of such Tranche B Lender. 
The Tranche B 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 Tranche B Commitments (to the extent of such reduction) and on
the Tranche B Maturity Date.

(c)            Borrower
shall pay to the Administrative Agent, for the account of the Tranche A Lenders
in accordance with each Tranche A Lender’s Tranche A 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 Tranche A 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.

(d)           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 

 40
 

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 Tranche A Commitments
shall expire upon which no Letters of Credit remain outstanding.

(e)           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 July 13, 2007
between K-Sea and KeyBank and as may otherwise be separately agreed upon
between Borrower and such Person.

(f)            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).

Section
2.10         Increased
Costs; Illegality.

(a)           If any
Change in Law shall:

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

 41
 

(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 Section 2.10(a) or 2.10(b) 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 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 2.10(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 2.10(e), a notice to Borrower by any Lender shall be
effective as to each LIBOR Loan

 42

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
2.11         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 2.04 (regardless of whether such notice may
be revoked under Section 2.06(f) 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 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 2.11 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
2.12         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
Credit 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 

 43
 

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.

(d)           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.

(e)           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
2.13         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 2.10, 2.11, 2.12 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 2.10,
2.11, 2.12 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 

 44
 

Section 2.13(a) 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 2.13(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 2.08 hereof or insurance or condemnation proceeds) shall be
retained by the Lenders as cash collateral to the extent the aggregate Fair
Market Value of the remaining Pool Vessels is less than the greater of (A) $90,000,000.00
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 or a
Subsidiary Guarantor shall have granted a Lien on one or more Qualified Pool
Vessels to increase the aggregate Fair Market Value of the Pool Vessels to not
less than the greater of (A) $90,000,000.00 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 the Tranche B Loans at the end of any then current Interest
Period or Periods, second, for application against the Tranche A Loans
at the end of any then current Interest Period or Periods, third, to the
payment in full of all the Obligations which are then due and payable, and, fourth,
the balance, if any, after payment of the foregoing amounts, shall be paid by
the Lenders to Borrower (subject to the terms of the Bridge Loan Intercreditor
Agreement).

(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 

 45
 

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 Facilities.  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 the Lenders
have declared all amounts outstanding hereunder to be due and payable
pursuant to Section 8.02 hereof, all payments received and amounts
realized by any Lender (including, without limitation, as assignee from
Borrower or any Subsidiary Guarantor of any charter of any of the Pool
Vessels), as well as all payments or amounts then held by the Lenders as part
of the Collateral, shall be applied against the Obligations in such order and
such manner as the Lenders, in their sole discretion, may determine and as
otherwise provided in the other Loan Documents and the documents evidencing the
other Obligations, and the balance, if any, shall be paid by 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 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.

 46
 

(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 2.05, 2.13(d) or 2.14 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.

Section
2.14         Letters
of Credit.

(a)           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 Tranche A
Maturity Date, provided that immediately after the issuance of each
Letter of Credit (i) the Letter of Credit Exposure of all Tranche A Lenders
would not exceed the Letter of Credit Sublimit, (ii) the aggregate Tranche A
Credit Exposure of all Tranche A Lenders would not exceed the aggregate Tranche
A Commitments of all Tranche A Lenders and (iii) 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, 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
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 

 47
 

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 Borrower, the Administrative
Agent shall promptly notify each Tranche A 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 Tranche A 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 Borrower and in support of
obligations, contingent or otherwise, of 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 Tranche A Maturity Date or (B) contain “evergreen”
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 Tranche A 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 Tranche A 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 Tranche A Lender, and each Tranche A 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 Tranche A Lender’s Tranche A 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
Tranche A 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 Tranche A Lender’s Tranche A 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 Tranche A Lender of the L/C Issuer’s
receipt of a drawing request under any Letter of Credit, stating the amount of
such Tranche A Lender’s Tranche A 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 

 48
 

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 Tranche
A Lender hereunder.  In determining
whether to pay under any Letter of Credit, the L/C Issuer shall have no
obligation to any Tranche A 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 Tranche A 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 Tranche A Lender of such
failure, the amount of the unreimbursed drawing (the “Unreimbursed Amount”), and such Tranche
A Lender’s Tranche A 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 Tranche A 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 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 Tranche A Commitments of the Tranche A 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 Tranche A Lender shall
promptly and unconditionally pay to the Administrative Agent, for the account
of the L/C Issuer, the amount of such Tranche A Lender’s Tranche A Applicable
Percentage of such Unreimbursed Amount in Dollars in immediately available
funds on the Business Day the L/C Issuer so notifies such Tranche A Lender if
such notice is given prior to 12:00 Noon or, if such notice is given after
12:00 Noon, such Tranche A 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 Tranche A Lender shall not make such Tranche A Lender’s
Tranche A Applicable Percentage of any Reimbursement Obligations available to
the L/C Issuer when due in accordance with Section 2.14(e), such Tranche A
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 Tranche A Lenders
under this Section 2.14(f) are several and not joint or joint and several, and
the failure of any Tranche A Lender to make available to the L/C Issuer its
Tranche A Applicable Percentage of any Reimbursement Obligations when due in
accordance 

 49
 

with Section 2.14(e) shall not relieve any
other Tranche A Lender of its obligation hereunder to make its Tranche A
Applicable Percentage of such Reimbursement Obligations so available when so
due, but no Tranche A Lender shall be responsible for the failure of any other
Tranche A Lender to make such other Tranche A Lender’s Tranche A 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
Tranche A Lender pursuant to Section 2.14(e), the L/C Issuer shall promptly pay
to such Tranche A Lender an amount equal to such Tranche A Lender’s Tranche A
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 Tranche A Lender any portion thereof, each such
Tranche A Lender shall forthwith pay over to the L/C Issuer an amount equal to
such Tranche A Lender’s Tranche A Applicable Percentage of the amount which
must be so returned by the L/C/Issuer.

(h)           Each
Tranche A 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 Tranche A Lender’s Tranche A Applicable
Percentage of the amount of such costs and expenses provided, however,
that no Tranche A Lender shall be liable for the payment of any portion of such
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 Tranche A Lender that are subsequently recovered
from Borrower in an amount equal to such Tranche A Lender’s Tranche A Applicable
Percentage thereof.

(i)            The
obligation of Borrower to reimburse the L/C Issuer pursuant to this Section
2.14, and the obligation of each Tranche A Lender to make available to the L/C
Issuer the amounts set forth in this Section 2.14 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 

 50
 

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 Tranche A 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.

Section
2.15         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 Tranche A 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 

 51
 

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
2.16         Mitigation
Obligations; Replacement of Lenders.

(a)           If any
Lender requests compensation under Section 2.10 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 2.12 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 2.10 or 2.12
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 2.10 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 2.12 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 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 2.10
hereof or payments required to be made pursuant to Section 2.12 hereof,
such assignment will result in a reduction in such compensation or
payments.  A Lender shall not be required
to make any such assignment and delegation if, prior thereto, as a result of a
waiver by such Lender or otherwise, the circumstances entitling Borrower to
require such assignment and delegation cease to apply.

Section
2.17         Increase
of Commitments.

(a)           Provided
that (i) the Bridge Loan shall have repaid in full, (ii) the Tranche B Loans
shall have been paid in full and the Tranche B Commitments shall have been
terminated and (iii) no Default or Event of Default has occurred and is
continuing, Borrower may, at any time and from time to time after the Effective
Date, provide a written request to the Administrative Agent to increase the
Tranche A Commitments by up to an aggregate maximum 

 52
 

amount of Seventy-five Million Dollars
($75,000,000.00).  Subject to the terms
hereof, Borrower may request to obtain such increase in the Tranche A
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) Tranche A 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 Tranche A 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 the Tranche A 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 Tranche A Commitments in
accordance with the terms hereof and which elects to become a party to this
Agreement and obtain a Tranche 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 Tranche A Lender
hereunder, whereupon such bank, financial institution or other entity shall become
a Tranche 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 Tranche A 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 Tranche A Commitments pursuant to Section 2.17(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 Borrower elects to do so and subject to the
conditions specified in Section 5.02, Borrower shall reborrow Tranche A Loans
from the Tranche A Lenders in proportion to their respective Tranche A
Commitments after giving effect to such increase, until such time as all
outstanding Tranche A Loans are held by the Tranche A Lenders in such
proportion.  Effective upon such
increase, the amount of the participations held by each Tranche A Lender in
each Letter of Credit then outstanding shall be adjusted such that, after
giving effective to such adjustments, the Tranche A Lenders shall hold
participations in each such Letter of Credit in the proportion its respective
Tranche A Commitment bears to the aggregate Tranche A Commitments of all of the
Tranche A 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.

 53
 

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, each of Borrower,
K-Sea  LLC, Interisland, Tow Boat and
Diving 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 each of Borrower, K-Sea 
LLC, Interisland, Tow Boat and Diving 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, 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 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 or any Subsidiary
Guarantor 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
or any Subsidiary Guarantor in favor of the Collateral Trustee or the 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 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.

 54
 

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 Fair Market Value of the Pool
Vessels after such substitution remains equal to or greater than the greater of
(i) $90,000,000.00 and (ii) an Fair Market 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         Fair
Market Value.

(a)           Based on
the most recently completed Appraisal of the Pool Vessels delivered to the
Administrative Agent, the aggregate Fair Market Value of the Pool Vessels shall
at all times be not less than the greater of (i) $90,000,000.00 and (ii) a Fair
Market 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 second anniversary of
the Effective Date shall more than five percent (5%) of the aggregate Fair
Market 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 Fair Market Value of
the Pool Vessels is less than the greater of (i) $90,000,000.00 and (ii) a Fair
Market 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 Fair Market Value of the Pool Vessels is equal to the
greater of (i) $90,000,000.00 and (ii) a Fair Market 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 Fair Market Value
of the Pool Vessels exceeds the greater of (i) $90,000,000.00, and (ii) a Fair
Market Value such that an Asset Coverage Ratio of not less than 1.25 to 1.00 is
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 (i) (A) the Bridge Loan shall have been paid
in full and (B) the Tranche B Loans shall have been paid in full and the
Tranche B Commitments terminated and (ii) both before and after giving effect
to such release, (A) no Default or Event of Default shall have occurred and be
continuing or result therefrom, (B) the aggregate Fair Market Value of the Pool
Vessels shall be not less than the greater of (I) $90,000,000.00 and (II) a
Fair Market Value such that the Asset 

 55
 

Coverage Ratio shall not be less than 1.25 to
1.00, and (C) 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 prior to any such release 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 Fair Market Value of the Pool Vessels
as collateral while such vessel is under construction but may be included upon
completion of work and redelivery to Borrower.

ARTICLE IV

REPRESENTATIONS
AND WARRANTIES

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

Section
4.01         Organization.

Each of Borrower and
K-Sea is a limited partnership duly organized, validly existing and in good
standing under the laws of Delaware. 
Each of K-Sea LLC and Smith Maritime is a limited liability company duly
organized, validly existing and in good standing under the laws of
Delaware.  K-Sea Hawaii is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware.  As of the Effective Date
(without giving effect to the Phase Two Transaction), each of Interisland, Tow
Boat and Diving is a corporation duly organized, validly existing and in good
standing under the laws of Hawaii.  Upon
the consummation of the Phase Two Transactions, each of Interisland, Tow Boat
and Diving will be a limited liability company duly organized, validly existing
and in good standing under the laws of Hawaii. 
Each of Borrower, K-Sea and each Subsidiary Guarantor 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, the Mortgage to which it is a party, the
Mortgage Assumption to which it is a party, the Assignments to which it is a
party 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 and the Mortgage to which it is a party or which it shall
have assumed pursuant to the Mortgage Assumption to which it is a party.  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 

 56
 

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, or such that will be timely obtained or made in
connection with the Phase Two Transactions and will, at the time of consummation
of the Phase Two Transactions, be in full force and effect, (b) do not
require the consent of any other Person (including, without limitation, any
partner, 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 Trustee 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
has heretofore furnished to the Administrative Agent and the Lenders Financial
Statements (i) as of and for the year ended June 30, 2006, reported
on by PricewaterhouseCoopers LLP, independent public accountants, and
(ii) as of and for the succeeding fiscal quarters ended September 30,
2006, December 31, 2006 and March 31, 2007 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.

(b)           Since
June 30, 2006, there has been no material adverse change in the business,
assets, operations or condition, financial or otherwise, of K-Sea and its
consolidated Affiliates (including, without limitation, Borrower and the
Subsidiary Guarantors) taken as a whole.

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 

 57
 

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 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
Company Status.

Neither Borrower nor any
of its Subsidiaries is an “investment company” as defined in, or subject
to regulation under, the Investment Company Act of 1940.

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.

 58
 

Section
4.10         ERISA.

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

Section
4.11         Disclosure.

None of the reports,
Financial Statements, certificates or other information furnished by or on
behalf of Borrower to 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 (i) Permitted Liens and (ii) in the event such Liens are
granted to secure the Bridge Loan pursuant to the terms of the Bridge Loan
Agreement, Permitted Bridge Loan Liens. 
The Borrower Pool Vessels are documented in the name of Borrower with
the United States Coast Guard National Vessel Documentation Center in Falling
Waters, West Virginia.  The K-Sea LLC
Pool Vessels are (or, upon consummation of the Phase Two Transactions, will be)
documented in the name of K-Sea LLC with the United States Coast Guard National
Vessel Documentation Center in Falling Waters, West Virginia.  Upon consummation of the Phase Two
Transactions, the Smith Maritime Vessels will be documented in the name of
Smith Maritime with the United States Coast Guard National Vessel Documentation
Center in Falling Waters, West Virginia. 
Upon consummation of the Phase Two Transactions, the K-Sea Hawaii Pool
Vessels will be documented in the name of K-Sea Hawaii with the United States
Coast Guard National Vessel Documentation Center in 

 59
 

Falling Waters, West
Virginia.  The Interisland Pool Vessels
are documented in the name of Interisland with the United States Coast Guard
National Vessel Documentation Center in Falling Waters, West Virginia.  The Tow Boat Pool Vessels are documented in
the name of Tow Boat with the United States Coast Guard National Vessel
Documentation Center in Falling Waters, West Virginia.  The Diving Pool Vessel is documented in the
name of Diving 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.

Section
4.15         Citizenship.

Borrower
and each Subsidiary Guarantor is a citizen of the United States of America as
defined in Chapter 505 of Title 46, United States Code, duly qualified to
engage in the coastwise trade and in foreign commerce of the United States of
America, 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 1.01A is a complete
and accurate list, as of the Effective Date, of all Pool Vessels, showing
(after giving effect to the Phase Two Transactions) with respect to each such
Pool Vessel the following:  (i) the name
of each Pool Vessel and (ii) the name of the Registered Owner of such Pool
Vessel.  Set forth on Schedule 1.01C is a complete and accurate
list, as of the Effective Date, of all Phase Two Pool Vessels, showing with
respect to each such Phase Two Pool Vessel the following:  (i) the name of such Phase Two Pool Vessel
and (ii) the name of (A) the Registered Owner of such Phase Two Pool Vessel
(prior to giving effect to the Phase Two Transactions) and (B) the Registered
Owner of such Phase Two Vessel after giving effect to the Phase Two
Transactions.

(b)           Each such
Pool Vessel identified on Schedule 1.01A
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, 

 60
 

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(g)(iii)(G) or 5.01(f)(iv)(F)
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 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.

Section
4.19         The
Smith /Sirius Acquisition.

Borrower has heretofore
delivered to the Administrative Agent true, correct and complete copies of the
Smith/Sirius Acquisition Documents. 
Borrower has, on the Effective Date, consummated the Smith/Sirius
Acquisition in all material respects pursuant to the Smith /Sirius Acquisition
Documents, and the Smith/Sirius Acquisition Documents set forth the entire 

 61
 

agreement among the
parties thereto with respect to the subject matter thereof.  No party to any of the Smith/Sirius
Acquisition Documents has waived the fulfillment of any material condition
precedent set forth therein to the consummation of the Smith/Sirius
Acquisition, no party has failed to perform any of its material obligations
thereunder or under any instrument or document executed and delivered in
connection therewith, and nothing has come to the attention of Borrower that
would cause it to believe that any of the representations or warranties of
Smith/Sirius Seller contained in the Smith/Sirius Acquisition Documents was
false or misleading in any material respect when made or when reaffirmed on the
Effective Date.  No consent or approval,
authorization or declaration of any governmental authority, bureau or agency,
is or will be required in connection with the Smith/Sirius Acquisition
Transactions, except for consents that have been obtained prior to the
Effective Date.  Neither the execution
and delivery of the Smith/Sirius Acquisition Documents, nor the performance of
Borrower’s obligations thereunder, will violate any provision of law or will
conflict with or result in a breach of, or create (with or without the giving
of notice or lapse of time, or both) a default under, any material agreement to
which Borrower is a party or by which it is bound or any of its assets is
affected.  Borrower or a Subsidiary of
Borrower has acquired by virtue of the consummation of the Smith/Sirius
Acquisition Transactions and now has good and marketable title to the assets
and properties of the “Subject Companies” (as defined in the Smith Acquisition
Agreement), including, without limitation, the “Vessels” (as defined in the
Smith Acquisition Agreement) and K-Sea LLC has acquired by virtue of the
consummation of Smith/Sirius Acquisition Transactions and now has good and
marketable title to assets and properties of Sirius Maritime, LLC, including,
without limitation, the “Vessels” (as defined in the Sirius Acquisition
Agreement), except, in each case (i) for Permitted Liens, (ii) for the
Liens in favor of Bank of America, N.A. described on Schedule
7.05 and (iii) for the Liens created and granted by the Loan
Documents.

Section
4.20         Phase
Two Transactions.

After giving effect to
the consummation of the Phase Two Transactions:

(a)           K-Sea LLC
will be the sole owner of the K-Sea LLC Phase Two Pool Vessels, free and clear
of all Liens, security interests, claims or encumbrances of any kind
whatsoever, subject only to (i) Permitted Liens, (ii) the Liens of the
Interisland I Mortgage (as assumed by K-Sea LLC) and (iii) in the event such
Liens are granted to secure the Bridge Loan pursuant to the terms of the Bridge
Loan Agreement, Permitted Bridge Loan Liens. 
The K-Sea LLC Phase Two Pool Vessels will be documented in the name of
K-Sea LLC with the United States Coast Guard National Vessel Documentation
Center in Falling Waters, West Virginia. 
K-Sea LLC will have assumed all of the obligations and liabilities of
Interisland under the Interisland I Mortgage pursuant to the K-Sea LLC Mortgage
Assumption and the Interisland I Mortgage will constitute a legal, valid and
binding obligation of K-Sea LLC, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors’ rights generally and subject to general
principals of equity, regardless of whether considered in proceedings in equity
or at law.

(b)           K-Sea
Hawaii will be the sole owner of the K-Sea Hawaii Phase Two Pool Vessels, free
and clear of all Liens, security interests, claims or encumbrances of any kind
whatsoever, subject only to (i) Permitted Liens, (ii) the Liens of the
Interisland II Mortgage (as 

 62
 

assumed by K-Sea Hawaii) and (iii) in the
event such Liens are granted to secure the Bridge Loan pursuant to the terms of
the Bridge Loan Agreement, Permitted Bridge Loan Liens.  The K-Sea Hawaii Phase Two Pool Vessels will
be documented in the name of K-Sea Hawaii with the United States Coast Guard
National Vessel Documentation Center in Falling Waters, West Virginia.  K-Sea Hawaii will have assumed all of the
obligations and liabilities of Interisland under the Interisland II Mortgage
pursuant to the K-Sea Hawaii Mortgage Assumption and the Interisland II
Mortgage will constitute a legal, valid and binding obligation of K-Sea Hawaii,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors’
rights generally and subject to general principals of equity, regardless of
whether considered in proceedings in equity or at law.

(c)           Smith
Maritime will be the sole owner of the Smith Maritime Phase Two Pool Vessels,
free and clear of all Liens, security interests, claims or encumbrances of any
kind whatsoever, subject only to (i) Permitted Liens, (ii) the Liens of the
Interisland III Mortgage, the Tow Boat Mortgage and the Diving Mortgage (in
each case as assumed by Smith Maritime) and (iii) in the event such Liens are
granted to secure the Bridge Loan pursuant to the terms of the Bridge Loan
Agreement, Permitted Bridge Loan Liens. 
The Smith Maritime Phase Two Pool Vessels will be documented in the name
of Smith Maritime with the United States Coast Guard National Vessel
Documentation Center in Falling Waters, West Virginia.  Smith Maritime will have assumed all of the
obligations and liabilities of (i) Interisland under the Interisland III
Mortgage, (ii) Tow Boat under the Tow Boat Mortgage and (iii) Diving under the
Diving Mortgage, and each of the Interisland III Mortgage, the Tow Boat
Mortgage and the Diving Mortgage will constitute a legal, valid and binding
obligation of Smith Maritime, enforceable in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors’ rights generally and subject to general principals of
equity, regardless of whether considered in proceedings in equity or at law.

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 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, limited liability company 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

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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
(i) a counterpart of this Agreement signed on behalf of such party or
(ii) 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 Borrower.

(d)           The
Administrative Agent shall have received a Parent Guaranty Reaffirmation and a
Subsidiary Guaranty Reaffirmation, each in form and substance satisfactory to
the Administrative Agent and signed on behalf of each Guarantor party thereto.

(e)           The
Administrative Agent shall have received a Subsidiary Guaranty signed on behalf
of each of Smith Maritime, K-Sea Hawaii, Interisland, Tow Boat and Diving.

(f)            The
Administrative Agent shall have received (i) a Supplement and Amendment No. 4
to the Borrower Mortgage in form and substance satisfactory to the
Administrative Agent duly signed on behalf of Borrower, (ii) a Supplement and
Amendment No. 3 to the K-Sea LLC Mortgage in form and substance satisfactory to
the Administrative Agent duly signed on behalf of K-Sea LLC, (iii) the
Interisland I Mortgage, the Interisland II Mortgage and the Interisland III
Mortgage, each in form and substance satisfactory to the Administrative Agent
duly signed on behalf of Interisland, (iv) the Tow Boat Mortgage in form and
substance satisfactory to the Administrative Agent duly signed on behalf of Tow
Boat, and (v) the Diving Mortgage in form and substance satisfactory to the
Administrative Agent duly signed on behalf of Diving.

(g)           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 and under the Borrower Mortgage, the K-Sea LLC
Mortgage, the Interisland I Mortgage, the Interisland II Mortgage, the
Interisland III Mortgage, the Tow Boat Mortgage, the Diving Mortgage, the
Mortgage Assumptions and the other Loan Documents, covering the Collateral;

(ii)           evidence
of the completion of all other recordings and filings of or with respect to the
Lien created hereby and by the Borrower Mortgage, the K-Sea LLC Mortgage, the
Interisland I Mortgage, the Interisland II Mortgage, the Interisland III
Mortgage, the Tow Boat Mortgage, the Diving Mortgage and the other Loan
Documents 

 64
 

that the Administrative Agent may deem necessary or desirable in order
to perfect and protect the Liens created by such Loan Documents;

(iii)          with
respect to each Additional Pool Vessel, the following:

(A)          (I) the
Supplement and Amendment No. 4 to the Borrower Mortgage described in Section
5.01(e) above, which shall cover each Additional Pool Vessel owned by Borrower
and (II) the Supplement and Amendment No. 3 to the K-Sea LLC Mortgage described
in Section 5.01(e) above, which shall cover each Additional Pool Vessel owned
by K-Sea LLC and, in connection therewith, such Additional 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 Supplement and Amendment No. 4 to the
Borrower Mortgage and Supplement and Amendment No. 3 to the K-Sea LLC Mortgage
shall have been duly filed for recording with the United States Coast Guard,
and each of such Supplement and Amendment No. 4 to the Borrower Mortgage and
Supplement and Amendment No. 3 to the K-Sea LLC Mortgage shall constitute a preferred
ship mortgage on such Additional Pool Vessel;

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

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

(E)           authorizations
to inspect class records of such Additional Pool Vessel 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 (1) a certificate of ownership and encumbrance
issued by the United States Coast Guard or (2) an abstract of title issued by
the United States Coast Guard, in either case, showing such Credit Party to be
the sole owner of such Additional Pool Vessel free and clear of all Liens of
record except (x) the Mortgage covering such Additional Pool 

 65
 

Vessel in favor of
the Collateral Trustee for the benefit of the Lenders, and (y) the Permitted
Liens;

(G)           for each
Additional 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
Additional Pool Vessel, confirming that such Additional 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;

(H)          a copy of
the current certificate of inspection issued by the United States Coast Guard
for such Additional 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 Additional 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 Additional 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
Additional 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 Additional Pool Vessel, and claims thereunder, will not be
affected by nonpayment of premiums on any other insurances;

(iv)          with
respect to each Phase Two Pool Vessel, the following:

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

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

(C)           an
assignment covering the insurances of such Phase Two Pool Vessel, in form and
substance satisfactory to the Administrative Agent, duly executed the Credit
Party that is the owner of such Phase Two Pool Vessel on the Effective Date;

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

(E)           a true
and complete copy of either (1) a certificate of ownership and encumbrance
issued by the United States Coast Guard or (2) an abstract of title issued by
the United States Coast Guard, in either case, showing the Credit Party that is
the owner of such Phase Two Pool Vessel on the Effective Date to be the sole
owner of such Phase Two Pool Vessel free and clear of all Liens of record
except (x) the Mortgage covering such Phase Two Pool Vessel in favor of the
Collateral Trustee for the benefit of the Lenders, and (y) the Permitted Liens;

(F)           for each
such Phase Two 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 Phase
Two Pool Vessel, confirming that such Phase Two 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;

(G)           a copy of
the current certificate of inspection issued by the United States Coast Guard
for such Phase Two Pool Vessel, if available, and reflecting no outstanding
recommendations;

(H)          (1)           written advice from
B&P International Insurance Brokerage LLC, insurance brokers, of the
placement of the insurances covering such Phase Two 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 Phase Two 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 Phase
Two 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 Phase Two Pool Vessel, and claims thereunder, will not be
affected by nonpayment of premiums on any other insurances;

(I)            (I)            the K-Sea Hawaii
Mortgage Assumption duly executed by K-Sea Hawaii, which shall cover each K-Sea
Hawaii Phase Two Pool Vessel, (II) the K-Sea LLC Mortgage Assumption duly
executed by K-Sea LLC, which shall cover each K-Sea LLC Phase Two Pool Vessel,
(III) the Smith/Diving Mortgage Assumption duly executed by Smith Maritime,
which shall cover each Diving Pool Vessel, (IV) the Smith/Interisland Mortgage
Assumption, duly executed by Smith Maritime, which shall cover each of the
Smith Maritime Phase Two Pool Vessels owned by Interisland and (V) the 

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Smith/Tow Boat
Mortgage Assumption duly executed by Smith Maritime, which shall cover each Tow
Boat Pool Vessel;

(J)            an
assignment covering the earnings and requisition compensation, if any, of such
Phase Two Pool Vessel, in form and substance satisfactory to the Administrative
Agent, duly executed by the Credit Party that will be the owner of such Phase
Two Pool Vessel upon the consummation of the Phase Two Transactions, 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;

(K)          an
assignment covering the insurances of such Phase Two Pool Vessel, in form and
substance satisfactory to the Administrative Agent, duly executed by the Credit
Party that will be the owner of such Phase Two Pool Vessel upon the
consummation of the Phase Two Transactions;

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

(M)         authorizations
to inspect class records of such Phase Two Pool Vessel by the Credit Party that
will be the owner of such Phase Two Pool Vessel upon the consummation of the
Phase Two Transactions, in such form and such number of counterparts as may be
reasonably requested by the Administrative Agent, duly executed by such Credit
Party; and

(v)           with
respect to not less than  fifteen
(15)  of the Pool Vessels (other
than the Additional Pool Vessels and the Smith Maritime Pool Vessels), a true
and complete copy of either (A) a certificate of ownership and encumbrance
issued by the United States Coast Guard or (B) an abstract of title issued by
the United States Coast Guard, in either case, showing the Credit Party that is
the owner of such Pool Vessel 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.

(h)           The
Administrative Agent shall have received a certificate, dated the Effective
Date and signed by a Financial Officer of Borrower,

(i)            confirming
that (1) the Smith/Sirius Acquisition Transactions has been consummated, (2)
the Smith/Sirius Acquisition has been consummated in accordance with the terms
and conditions of the applicable Smith/Sirius Acquisition Documents, all of
which shall be in form and substance reasonably satisfactory to the
Administrative Agent, and (3) the total consideration paid in connection with
the Smith/Sirius Acquisition was not more than the $195,651,458.40 in cash and
assumption of Indebtedness, plus delivery of 250,000 units in K-Sea to the Smith/Sirius
Seller, 

 68
 

subject to adjustment pursuant to the terms of the Smith/Sirius
Acquisition Documents; and

(ii)           attaching
a true, complete and correct copy of each of the following (each of which shall
be in form and substance reasonably satisfactory to the Administrative Agent):
(1) each Smith/Sirius Acquisition Document and (2) any information the
Administrative Agent may reasonably require regarding the assets and
liabilities of Borrower, K-Sea LLC, Smith Maritime, K-Sea Hawaii, Diving,
Interisland and Tow Boat after giving effect to the consummation of the
Smith/Sirius Acquisition.

(i)            The
Administrative Agent shall have received favorable written opinions (each
addressed to the Lenders, the Administrative Agent and the Collateral Trustee
and dated the Effective Date) from Thompson Coburn L.L.P., Holland & Knight
LLP, Carlsmith Ball LLP and Baker Botts LLP, on behalf of the Credit Parties,
substantially in the form of Exhibits C-1, C-2, C-3
and C-4, respectively, covering
such matters relating to the Credit Parties, the Loan Documents, the
Smith/Sirius Acquisition or the Phase Two Transactions as the Administrative
Agent shall reasonably request.  Borrower
hereby requests such counsel to deliver such opinions.

(j)            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.

(k)           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.

(l)            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
Borrower to the foregoing effect.

(m)          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.

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(n)           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.

(o)           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.

(p)           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.

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

(r)            The
Administrative Agent shall have received and accepted a desktop or visual
Appraisal of all Additional Pool Vessels, Interisland Pool Vessels, Tow Boat
Pool Vessels and the Diving Pool Vessel, which shall be in form and substance
satisfactory to the Administrative Agent, and which shall demonstrate that the
Fair Market Value of the Pool Vessels as of the Effective Date is not less than
the greater of (i) $274,000,000.00 and (ii) a Fair Market Value such that the
Asset Coverage Ratio shall not be less than 1.25 to 1.00.

(s)           The
Administrative Agent shall have received satisfactory evidence that the
Additional Pool Vessels, the Interisland Pool Vessels, Tow Boat Pool Vessels
and the Diving Pool Vessel are operationally suitable for the trades in which
the Additional Pool Vessels, Interisland Pool Vessels, Tow Boat Pool Vessels
and the Diving Pool Vessel are expected to be engaged and can be operated by
Borrower, K-Sea LLC, Interisland, Tow Boat, Diving, Smith Maritime and/or K-Sea
Hawaii in their intended trades without impediment.

(t)            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, condition (financial or otherwise) or material agreements of
Borrower and its Subsidiaries, (B) the business, assets, operations, condition
(financial or otherwise) or material agreements of the “Subject Companies” (as
defined in the Smith Acquisition Agreement), Sirius Maritime, LLC or the
Smith/Sirius Seller since December 31, 2006, (C) the ability of any Credit
Party to perform any of its obligations under any Loan Document, (D) the rights
of or benefits available to the Administrative Agent or any Lender under any
Loan Document or (E) the ability of any party to 

 70
 

the Smith/Sirius Acquisition Documents to
perform any of its obligations under the Smith/Sirius Acquisition Documents or
any instrument, document or agreement evidencing the Phase Two Transactions and
(ii) with the current status of, and the terms of any settlement or other
resolution of, any litigation or other proceedings brought against Borrower or
any Subsidiary.

(u)           The
Lenders shall have completed a due diligence investigation of Smith/Sirius
Seller, the “Subject Companies” (as defined in the Smith Acquisition
Agreement), Sirius Maritime, LLC, Interisland, Tow Boat and Diving, in scope,
and with results, satisfactory to the Lenders; the “Subject Companies”, Sirius
Maritime, LLC, Interisland, Tow Boat and Diving 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 the “Subject Companies”, Sirius Maritime, LLC,
Interisland, Tow Boat and Diving and their respective properties as the
Administrative Agent shall have reasonably requested.

(v)           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 (i) Borrower and its
Subsidiaries, (ii) the “Subject Companies” (as defined in the Smith Acquisition
Agreement), (iii) Sirius Maritime, LLC or (iv) Interisland, Tow Boat or Diving
has occurred since December 31, 2006.

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

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

(y)           All
material approvals and consents of all Persons required to be obtained in
connection with the consummation of the Smith/Sirius Acquisition Transactions
and the Phase Two Transactions shall have been obtained and shall be in full
force and effect, and all required notices have been given and all required
waiting periods shall have expired, and the Administrative Agent shall have
received a certificate, in all respects reasonably satisfactory to the
Administrative Agent, of an officer of Borrower to the foregoing effect.

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(z)            The
Administrative Agent shall have received copies of such environmental studies,
surveys and reports, in form and substance satisfactory to the Administrative
Agent, as the Administrative Agent may reasonably require, with respect to the
real property owned or leased by the “Subject Companies” (as defined in the
Smith Acquisition Agreement), Sirius Maritime, LLC, Interisland, Tow Boat or
Diving.

(aa)         The
Administrative Agent shall have received and be reasonably satisfied with (i)
the audited balance sheet of Smith/Sirius Sellers as at December 31, 2004,
December 31, 2005 and December 31, 2006 and the audited results of operations,
cash flows and stockholders’ equity of the Smith/Sirius Sellers for the fiscal
years ending on December 31, 2005 and December 31, 2006, in each case prepared
in accordance with GAAP consistently applied and certified by
PricewaterhouseCoopers LLP, (ii) the financial statements of Smith/Sirius
Sellers as at and for the fiscal quarter ending on June 30, 2007 and the then
elapsed portion of the fiscal year, setting forth in each case in comparative
form the figures for the corresponding fiscal quarter end, and period or
periods, of the previous fiscal year, (iii) biographical information in form
and substance satisfactory to the Administrative Agent with respect to such
officers of the “Subject Companies” (as defined in the Smith Acquisition
Agreement), Sirius Maritime, LLC and the Smith/Sirius Sellers as the
Administrative Agent may reasonably request, together with a summary of the
anticipated roles of such officers after the consummation of the Smith/Sirius
Acquisition and (iv) the audited consolidated Financial Statements (with an
unqualified opinion) of Borrower and K-Sea as at and for the fiscal year ending
June 30, 2006, prepared and certified by PricewaterhouseCoopers LLP.

(bb)         The
Administrative Agent and the Lenders shall have received and be satisfied with
consolidated and consolidating pro forma balance sheets of Borrower and its
Subsidiaries as of the Effective Date, after giving effect to the Transactions,
the Smith/Sirius Acquisition Transactions (including all debt and equity
issuances in connection therewith) and the Phase Two Transactions.

(cc)         The
Administrative Agent shall have received a certificate of a Financial Officer
of K-Sea setting forth reasonably detailed calculations demonstrating pro forma
compliance with Sections 7.01, 7.02, 7.03 and 7.04 hereof as of the
Effective Date, after giving effect to the Transactions and the consummation of
the Smith/Sirius Acquisition Transactions (including all debt and equity
issuances in connection therewith) and the Phase Two Transactions.

(dd)         The
Administrative Agent shall have a certificate from a Financial Officer of K-Sea
demonstrating in reasonable detail that as of the Effective Date, after giving
effect to the Transactions and the consummation of the Smith/Sirius Acquisition
Transactions (including all debt and equity issuances in connection therewith)
and the Phase Two Transactions, pro forma EBITDA is not less than $95,000,000.

(ee)         Borrower
shall have received proceeds in an amount of not more than $60,000,000 from the
incurrence of the Bridge Loan.

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(ff)           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.

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 or prior to August 31, 2007
(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 2.14(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.

(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 2.04 or a Credit Request meeting the requirements of
Section 2.14.

(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 

 73
 

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 without a going
concern qualification) 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 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) and (iii) stating whether any change in GAAP
or in the application thereof has occurred since the date of the audited
Financial Statements referred to in Section 4.04 or Section 6.01
hereof, as applicable, has materially and adversely effected the Financial
Statements accompanying such certificate and, if so, the estimated dollar
amount thereof.

(c)           Promptly
after the same become publicly available, Borrower shall make available (which
shall include through electronic availability by filing with the Securities and
Exchange Commission) to the Administrative Agent and the Lenders copies of all
financial statements required to be prepared and delivered in accordance with
Section 6.01(a) and other 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

 74
 

(d)           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 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, 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.

 75
 

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; provided that, after the consummation of the
Phase Two Transactions, Borrower may dissolve Diving, Interisland, Tow Boat and
Marine Logistics, Inc. (as each such Subsidiary shall have been converted to a
limited liability company).

Section
6.06         Insurance.

(a)           With
respect to the Collateral and other assets, Borrower shall maintain, and cause
each Subsidiary Guarantor to 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 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 

 76
 

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
or any Subsidiary Guarantor 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 or any Subsidiary Guarantor.  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, and cause each
Subsidiary Guarantor to 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.

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 

 77
 

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.

(a)           The
proceeds of the Tranche A Loans can be used for any purpose in the ordinary
course of business, including distributions to K-Sea for the purpose of making
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 Borrower or any Subsidiary Guarantor.

(b)           The
proceeds of the Tranche B Loans shall be used to finance, in part, the
Smith/Sirius Acquisition.

 78
 

(c)           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 Borrower,
K-Sea or any Subsidiary Guarantor, except as set forth in Section 6.10(a)
and 6.10(b).

Section
6.11         U.S.
Person.

(a)           Borrower
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.

(b)           Each of
K-Sea LLC and Smith Maritime shall at all times until the Lien of the Mortgage
shall be discharged and there are no Loans outstanding hereunder be a limited
liability company organized under the laws of Delaware or another state within
the United States.

(c)           Each of
K-Sea Hawaii and K-Sea Transportation Inc. shall at all times until the Lien of
the Mortgage shall be discharged and there are no Loans outstanding hereunder
be a corporation organized under the laws of Delaware or another state within
the United States.

(d)           Each of
Interisland, Tow Boat and Diving shall at all times until the Interisland I
Mortgage, the Interisland II Mortgage, the Interisland III Mortgage, the Tow
Boat Mortgage and the Diving Mortgage have been assumed by K-Sea LLC, K-Sea
Hawaii and Smith Maritime, respectively, pursuant to the Mortgage Assumptions
be a corporation or limited liability company organized under the laws of
Hawaii or another state within the United States.

Section
6.12         Documentation.

Borrower will, and will cause each Subsidiary
Guarantor to, 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 

 79
 

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 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, and will cause each Subsidiary
Guarantor to, 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.  If an Event of Default shall have occurred
and be continuing, Borrower shall not, and shall not permit any Subsidiary
Guarantor to, 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 

 80
 

modification would
materially increase the Lenders’ risks in the transaction, reduce its returns
or otherwise disadvantage the Lenders.

Section
6.17         Environmental
Compliance.

Borrower (a) 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; and (b) 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.

Section
6.18         Subsidiary
Guaranties.

Upon the formation or acquisition of any Subsidiary of
Borrower (other than an Excluded Subsidiary), 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.

 81
 

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, and shall cause each Subsidiary Guarantor to, 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 clause (vi) of Section 2.04 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.

Section
6.21         Qualified
Equity Issuance.

K-Sea shall commence,
within 15 days after the Effective Date, the Qualified Equity Issuance.

Section
6.22         Phase
Two Transaction.

(a)           Borrower
shall cause the Phase Two Transactions to be consummated on or before the tenth
(10th) day
following the Effective Date and upon such consummation, the Administrative
Agent shall receive:

(i)            promptly
after becoming available from the United States Coast Guard National Vessel
Documentation Center in Falling Waters, West Virginia and in any event within
two (2) Business Days thereafter, with respect to each Phase Two Pool Vessel,
in form and substance satisfactory to the Administrative Agent, and in
sufficient copies, a true and complete copy of either (1) a certificate of
ownership and encumbrance issued by the United States Coast Guard or (2) an
abstract of title issued by the United States Coast Guard, in either case,
showing (A) K-Sea LLC to be the owner of the K-Sea LLC Phase Two Pool Vessels,
(B) Smith Maritime to be the owner of the Smith Maritime 

 82
 

Pool Vessels and (C) K-Sea Hawaii to be the owner of the K-Sea Hawaii
Phase Two Pool Vessels, in each case free and clear of all Liens of record
except (x) the Mortgage covering such Phase Two Pool Vessel in favor of the
Collateral Trustee for the benefit of the Lenders (as assumed by K-Sea LLC,
Smith Maritime or K-Sea Hawaii, as the case may be), and (y) the Permitted
Liens; and

(ii)           a
certificate, signed by a Financial Officer of Borrower, attaching a true,
complete and correct copy of each of the instruments, documents and agreements evidencing
the Phase Two Transactions (each of which shall be in form and substance
reasonably satisfactory to the Administrative Agent.

(b)           In the
event that the Phase Two Transactions shall not have been consummated by the
seventh (7th) day
following the Effective Date, Borrower shall cause to be delivered to the
Administrative Agent: (i) 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, duly executed by each of Diving, Interisland and Tow Boat
in connection with the Earnings Assignments delivered by such Credit Parties,
(ii) authorizations to inspect class records of the Phase Two Pool Vessels by
each of Diving, Interisland and Tow Boat, in such form and such number of
counterparts as may be reasonably requested by the Administrative Agent, duly
executed by each such Credit Party and (iii) such other notices and
authorizations in connection with the Earnings Assignment and the Assignments
of Insurances delivered by Diving, Interisland and Tow Boat, each in such form
and in such number of counterparts as may be reasonably requested by the
Administrative Agent, duly executed by each of Diving, Interisland and Tow
Boat.

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 1.85 to 1.00.

Section
7.02         First
Lien Funded Debt to EBITDA Ratio.

Until the first date
after the Effective Date on which (i) the Tranche B Commitments shall have been
terminated and the Bridge Loan and the Tranche B Loans shall have been paid in
full and (ii) K-Sea and its consolidated Affiliates (including, without
limitation, Borrower and the Guarantors) shall not have outstanding (A) any
Indebtedness secured by a Second-Priority Lien or (B) any Subordinated
Indebtedness (the first date the events set forth in both clauses (i) and (ii)
herein have occurred being called, the “Adjustment Date”),
Borrower shall not permit 

 83
 

the First Lien
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 December 31, 2007

  	
   

  	
  4.25
  to 1.00

  	
   

  
	
  January 1, 2008 and
  thereafter

  	
   

  	
  4.00 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 to be greater than 4.75 to 1.00; provided
that from and after the Adjustment Date, 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

  	
   

  
	
  Adjustment Date
  to and including June 30, 2009

  	
   

  	
  4.00
  to 1.00

  	
   

  
	
  July 1, 2009 and
  thereafter

  	
   

  	
  3.75 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.

(a)           Borrower
shall not and shall 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 (i) the Collateral except for (A) Liens in favor of the
Administrative Agent and the Collateral Trustee, (B) Permitted Liens and (C) in
the event such Liens are granted to secure the Bridge Loan pursuant to the
terms of the Bridge Loan Agreement, Permitted Bridge Loan Liens or (ii) any of
Borrower’s or any Subsidiary Guarantor’s accounts receivable except for (A)
Liens in favor of the Administrative Agent and the Collateral Trustee, (B)
Permitted Liens and Liens of the type described in the definition of “Permitted Liens” in respect of all
vessels owned by Borrower or any direct or indirect Subsidiary of Borrower, (C)
any Lien on any property or asset of Borrower or any Subsidiary Guarantor
existing on the Effective Date and set forth on Schedule 7.05, provided that (1) such Lien shall not
apply to any other property or asset of Borrower or any Subsidiary Guarantor
and (2) such Lien shall secure only those obligations which it secures on the
Effective Date and any extensions, renewals and replacements thereof that do
not increase the outstanding principal amount thereof, (D) Permitted Bridge
Loan Liens and any Second-Priority Lien securing Indebtedness permitted by
Section 7.12(a) the proceeds of which are used to repay in whole or in part the
Bridge Loan and the Tranche B Loans, and (E) Liens on charters, charter hire,
freights or earnings with respect to any vessel (other than a Pool Vessel)
granted in connection with the granting of a preferred mortgage on any such
vessel after the Effective Date.

 84

(b)           Prior to
the repayment in full of the Bridge Loan and the repayment in full of the
Tranche B Loans and the termination of the Tranche B Commitments, Borrower
shall not and shall not permit any Subsidiary Guarantor or any charterer of any
vessels or any of them to create, assume or suffer to exist any Lien of any
kind upon any of Borrower’s or any Subsidiary Guarantor’s property or assets
(including, without limitation, accounts receivable and any vessel not included
as a Pool Vessel) except for:

(i)            Liens
in favor of the Administrative Agent and the Collateral Trustee;

(ii)           Permitted
Liens and Liens of the type described in the definition of “Permitted Liens” in respect of all
vessels owned by Borrower or any direct or indirect Subsidiary of Borrower;

(iii)          Liens
on fixed or capital assets acquired, constructed or improved by Borrower or any
Subsidiary Guarantor, provided that (A) such Liens secure Indebtedness
permitted by clause (vi) of Section 7.12(a), (B) such Liens and the
Indebtedness secured thereby are incurred prior to or within 90 days after such
acquisition or the completion of such construction or improvement, (C) the
Indebtedness secured thereby does not exceed the cost of acquiring,
constructing or improving such fixed or capital assets and (D) such Lien shall
not apply to any other property or asset of Borrower or any Subsidiary
Guarantor;

(iv)          any
Lien on any property or asset of Borrower or any Subsidiary Guarantor existing
on the Effective Date and set forth on Schedule
7.05, provided that (A) such Lien shall not apply to any
other property or asset of Borrower or any Subsidiary Guarantor and (B) such
Lien shall secure only those obligations which it secures on the Effective Date
and any extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof; and

(v)           Permitted
Bridge Loan Liens and any Second-Priority Lien securing Indebtedness permitted
by Section 7.12(a) the proceeds of which are used to repay in whole or in part
the Bridge Loan and the Tranche B Loans.

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, and shall not permit
any Subsidiary Guarantor to, 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 (i)
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, (ii) sales, leases, transfers,

 85
 

assignments, abandonments,
exchanges, relinquishments of possession or dispossessions of Collateral or
other assets having an aggregate value not to exceed $1,000,000 during the term
hereof), (iii) the Phase Two Transactions and (iv) after the consummation of the Phase Two Transactions, in connection
with the dissolution by Borrower of Diving, Interisland, Tow Boat and Marine
Logistics, Inc. (as each such Subsidiary shall have been converted to a limited
liability company)).

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, (iv) any Subsidiary Guarantor (including, without
limitation, after the consummation of
the Phase Two Transactions, Diving, Interisland, Tow Boat and Marine Logistics,
Inc. (as each such Subsidiary shall have been converted to a limited liability
company)) 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 Lenders and (v) the Credit Parties may
consummate the Phase Two Transaction.

(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 (c)  any transaction permitted by
Section 7.08 hereof and (d) the Phase Two Transactions; 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.

 86
 

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 this Section 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 this Section
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 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 loans or advances to any Affiliate or
related Persons of Borrower, except K-Sea, any Excluded Subsidiary and any
Subsidiary Guarantor; provided that, (i) except for the loan described
in clause (ii) of this proviso, the aggregate outstanding amount of all such loans
and advances to the Excluded Subsidiaries shall not exceed $2,000,000 at any
one time and (ii) Borrower may make a loan to K-Sea Canada Corp. in a principal
amount not to exceed $13,100,000.

Section
7.12         Limitations
on Other Indebtedness.

(a)           Prior to
the repayment in full of the Bridge Loan and the repayment in full of the
Tranche B Loans and the termination of the Tranche B Commitments, Borrower
shall not, and will not permit any Subsidiary to, create, incur, assume or
permit to exist any Indebtedness, except:

(i)            Indebtedness
under the Loan Documents;

(ii)           Indebtedness
under the Bridge Loan Agreement, including any extensions, renewals or
replacements of any such Indebtedness that do not increase the

 87
 

outstanding principal amount thereof and are
otherwise on terms and conditions reasonably acceptable to the Administrative
Agent;

(iii)          Indebtedness
constituting an extension, renewal or replacement of the Tranche B Loans that
does not increase the outstanding principal amount thereof and is otherwise on
terms and conditions reasonably acceptable to the Administrative Agent;

(iv)          Subordinated
Indebtedness the proceeds of which are used to repay the Bridge Loan or the
Tranche B Loans;

(v)           Indebtedness
existing on the Effective Date and set forth on Schedule 7.12, including any extensions, renewals or
replacements of any such Indebtedness that do not increase the outstanding
principal amount thereof;

(vi)          Indebtedness
incurred to finance the acquisition, construction or improvement of any fixed
or capital assets, including Capital Lease Obligations, and any Indebtedness
assumed in connection with the acquisition of any such assets or secured by a
Lien on any such assets prior to the acquisition thereof (and not created in
contemplation of such acquisition), and extensions, renewals and replacements
of any such Indebtedness that do not increase the outstanding principal amount
thereof, provided that (i) such Indebtedness is incurred prior to or
within 90 days after such acquisition or the completion of such construction or
improvement, (ii) such Indebtedness does not exceed the cost of acquiring,
constructing or improving such assets, (iii) both before and after giving
effect to the incurrence of such Indebtedness, no Default shall have occurred
and be continuing and (iv) the aggregate principal amount of Indebtedness
permitted by this clause (d) shall not exceed $10,000,000 at any time
outstanding; and

(vii)         Indebtedness
of a Subsidiary to any other Subsidiary and of any Subsidiary to Borrower.

(b)           Prior to
the repayment in full of the Bridge Loan and the repayment in full of the
Tranche B Loans and the termination of the Tranche B Commitments, Borrower
shall not, and it will not permit any Subsidiary to, (i) issue any preferred
equity securities (other than issuances of preferred equity securities the Net
Proceeds from which shall be used to repay the Bridge Loan or the Tranche B
Loans) or (ii) be or become liable in respect of any obligation (contingent or
otherwise) to purchase, redeem, retire, acquire or make any other payment in
respect of any shares of equity securities of Borrower or any Subsidiary or any
option, warrant or other right to acquire any such shares of equity securities.

Section
7.13         Limitation
on Investments, Loans, Advances, Guarantees and Acquisitions.

Prior to the
repayment in full of the Bridge Loan and the repayment in full of the Tranche B
Loans and the termination of the Tranche B Commitments, Borrower shall not, and shall not permit any
of the Subsidiaries to, purchase, hold or acquire (including pursuant to any
merger) any Capital Stock, evidences of Indebtedness or other securities
(including any option, warrant or other right to acquire any of the foregoing)
of, make or permit to exist any loans or advances

 88
 

to, Guarantee any obligations 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, or purchase, hold or acquire any “derivative” (other than a Hedging
Agreement entered in to with any Lender (or any Affiliate thereof) as a
counterparty permitted hereby), except:

(a)           as
permitted by Sections 7.15 and 7.16;

(b)           investments
existing on the Effective Date and set forth on Schedule 7.13;

(c)           investments
made by Borrower in the Capital Stock of its Subsidiaries and investments made
by a Subsidiary in the Capital Stock of any other Subsidiary; and

(d)           Indebtedness
permitted to be incurred pursuant to Section 7.12.

Section
7.14         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
7.15         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 7.16 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.

 89
 

Section
7.16         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.

Section
7.17         Capital
Expenditures.

Borrower shall not make or become obligated to make,
and shall not permit any of its Subsidiaries to make or become obligated to
make, Capital Expenditures in respect of any fiscal year in an amount greater
than $75,000,000 in the aggregate.

Section
7.18         Prepayments
of Indebtedness.

Borrower shall not, and shall not permit any
Subsidiary to, prepay or obligate itself to prepay any Indebtedness, except (i)
Indebtedness under the Loan Documents, (ii) Indebtedness under the Bridge Loan
Agreement and (iii) refinancing on terms equal or more favorable to Borrower of
Indebtedness set forth on Schedule 7.12.

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, 7.10 or 7.18 hereof;

 90
 

(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;

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

 91
 

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 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)          except in
connection with the Phase Two Transactions, Borrower, K-Sea or any Subsidiary
Guarantor is dissolved or otherwise fails to maintain its existence in good
standing, or the usual business of Borrower ceases or is suspended;

(n)           except
for specific matters disclosed in writing to 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;

 92
 

(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
shall have granted any security interest in any of the outstanding Collateral
under this Agreement to any Person other than (i) a Lender, the Administrative
Agent or the Collateral Trustee and (ii) KBCM Bridge LLC as administrative
agent and collateral trustee under the Bridge Loan Agreement;

(v)           except in
connection with the Phase Two Transactions, 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;

(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 Chapter 505 of Title
46, United States Code; 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

 93
 

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 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 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

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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, 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 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.

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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 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 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 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, 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 Borrower under Section
10.06, to the extent that the Administrative Agent is not promptly reimbursed
for such costs and expenses by Borrower.

(b)           Each
Lender severally agrees to indemnify the L/C Issuer (to the extent not promptly
reimbursed by 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

 96
 

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, 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 Borrower under Section 10.06, to the extent
that the L/C Issuer is not promptly reimbursed for such costs and expenses by
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 2.05, 2.13(d) or 2.14, 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 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

 97
 

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.

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

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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 either 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 2.09 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 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 2.09
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”, “documentation agent” or
any similar

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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:

(a)           if to
Borrower, to it at:

K-Sea Transportation
Partnership L.P.

One Tower Center
Boulevard

17th Floor

East Brunswick,
New Jersey  08816

Attention:  Chief Financial Officer

Telecopier:  (732) 565-3699

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

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(b)           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.

38th Floor

New York, New
York  10017

Attention:  Steven B. Vitale

Telecopier: 
(917) 368-2310

and

Emmet, Marvin
& Martin, LLP

120 Broadway

New York, New York
10271

Attention:  Richard S. Talesnick, Esq.

Telecopier:  (212) 238-3100

(c)           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 remaining term of this Agreement shall be  from the date hereof until the seventh
Anniversary Date, with respect to the Tranche A Facility; and the term of this
Agreement shall be from the date hereof until the date that is 364 days after
the date hereof, with respect to the Tranche B Facility.  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.

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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 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 2.13(b) or

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2.13(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 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 2.12 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

 103
 

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, 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 2.12 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

 104
 

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
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 2.10, 2.11, 2.12 and 10.06 hereof), provided, however,
no assignee shall be entitled to receive any greater payment under
Section 2.10, 2.12 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.

 105
 

(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 2.10, 2.11 and 2.12 hereof to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section.

(f)            A
Participant shall not be entitled to receive any greater payment under
Section 2.10 or 2.12 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 2.12
unless Borrower is notified of the participation sold to such Participant and
such Participant agrees, for the benefit of Borrower, to comply with
Section 2.12(d) as though it were a Lender.  So long as a Participant agrees, such
Participant shall be bound by Section 2.16 as if it were a Lender in each
case thereunder.

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

Section 10.08       Survival.

All covenants, agreements, representations and
warranties made by Borrower herein and

 106
 

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 2.10, 2.11, 2.12 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.  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

 107
 

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.

(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

 108
 

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 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,

 109
 

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 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

 110
 

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 pages follow.]

 111

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:   Director

  

 

K-Sea Amended and
Restated Loan and Security Agreement Signature Page

 

	
   

  	
   

  	
  LASALLE BANK NATIONAL ASSOCIATION,

  as Co-Syndication Agent and Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ Robert W. Hart

  	
   

  
	
   

  	
   

  	
  Name: Robert W. Hart

  
	
   

  	
   

  	
  Title:   Senior Vice President

  

 

 

	
  

  	
   

  	
  CITIBANK, N.A., as
  Co-Syndication Agent and

  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ Charles J. Margiotti

  	
   

  
	
   

  	
   

  	
  Name: Charles J. Margiotti

  
	
   

  	
   

  	
  Title:   Vice President

  

 

 

	
  

  	
   

  	
  CITIZENS BANK OF PENNSYLVANIA, as

  Co-Documentation Agent and Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ Devon Starks

  	
   

  
	
   

  	
   

  	
  Name: Devon Starks

  
	
   

  	
   

  	
  Title:   Senior Vice President

  

 

 

	
  

  	
   

  	
  HSBC BANK USA NATIONAL

  ASSOCIATION, as Co-Documentation Agent

  and Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ Paulette P. Laurenzi

  	
   

  
	
   

  	
   

  	
  Name: Paulette P. Laurenzi

  
	
   

  	
   

  	
  Title:   Senior Vice President

  

 

 

	
  

  	
   

  	
  WACHOVIA BANK, NATIONAL

  ASSOCIATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ Stephen Karp

  	
   

  
	
   

  	
   

  	
  Name: Stephen Karp

  
	
   

  	
   

  	
  Title:   Vice President

  

 

SCHEDULE
1.01A

Pool
Vessels

	
  VESSEL NAME

  	
   

  	
  OFFICIAL NO.

  	
   

  	
  REGISTERED OWNER

  
	
  Double Hull Barges

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 151

  	
   

  	
  641082

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 70

  	
   

  	
  540401

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 31

  	
   

  	
  1079242

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 32

  	
   

  	
  1087118

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 17

  	
   

  	
  1065655

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 18

  	
   

  	
  1065657

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 19

  	
   

  	
  1065658

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 53

  	
   

  	
  500121

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  DBL 134

  	
   

  	
  699977

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Casablanca

  	
   

  	
  901203

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Pacific

  	
   

  	
  996165

  	
   

  	
  K-Sea Transportation LLC

  
	
  Puget Sounder

  	
   

  	
  981972

  	
   

  	
  K-Sea Transportation LLC

  
	
  Sasanoa

  	
   

  	
  1110781

  	
   

  	
  K-Sea Transportation LLC

  
	
  Leo

  	
   

  	
  1136725

  	
   

  	
  K-Sea Transportation LLC

  
	
  Rigel

  	
   

  	
  991836

  	
   

  	
  K-Sea Transportation LLC

  
	
  Na-Kao

  	
   

  	
  1174391

  	
   

  	
  Smith Maritime LLC

  
	
  Noa

  	
   

  	
  1121896

  	
   

  	
  Smith Maritime LLC

  
	
  Nale

  	
   

  	
  1190335

  	
   

  	
  Smith Maritime LLC

  
	
  Ne’ena

  	
   

  	
  1163049

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Single Hull Barges

  	
   

  	
   

  	
   

  	
   

  
	
  KTC 80

  	
   

  	
  643281

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  KTC 71

  	
   

  	
  563364

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  KTC 60

  	
   

  	
  630272

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  KTC 50

  	
   

  	
  555901

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  KTC 55

  	
   

  	
  544437

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Noho Hele

  	
   

  	
  649722

  	
   

  	
  K-Sea Transportation LLC

  
	
  SCT 280

  	
   

  	
  587804

  	
   

  	
  K-Sea Transportation LLC

  

 

 1
 

 

	
  SCT 282

  	
   

  	
  596502

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tugs

  	
   

  	
   

  	
   

  	
   

  
	
  Rebel

  	
   

  	
  570047

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Yankee

  	
   

  	
  571215

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Viking

  	
   

  	
  541711

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Coral Sea

  	
   

  	
  550670

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Baltic Sea

  	
   

  	
  551908

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Bering Sea

  	
   

  	
  569665

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Maryland

  	
   

  	
  287444

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Houma

  	
   

  	
  528526

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Odin

  	
   

  	
  647313

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Taurus

  	
   

  	
  602379

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Falcon

  	
   

  	
  598501

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Banda Sea

  	
   

  	
  504169

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Davis Sea

  	
   

  	
  651977

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Norwegian Sea

  	
   

  	
  574955

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Sargasso Sea

  	
   

  	
  547618

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Timor Sea

  	
   

  	
  283906

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Barents Sea

  	
   

  	
  570419

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Caspian Sea

  	
   

  	
  640953

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Inland Sea

  	
   

  	
  1104151

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Labrador Sea

  	
   

  	
  1125307

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Nathan E. Stewart

  	
   

  	
  1120997

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Pacific Eagle

  	
   

  	
  500126

  	
   

  	
  K-Sea Transportation LLC

  
	
  Tiger

  	
   

  	
  502116

  	
   

  	
  K-Sea Transportation LLC

  
	
  Pacific Pride

  	
   

  	
  583851

  	
   

  	
  K-Sea Transportation LLC

  
	
  Pacific Challenger

  	
   

  	
  571631

  	
   

  	
  K-Sea Transportation LLC

  
	
  Pacific Freedom

  	
   

  	
  521494

  	
   

  	
  K-Sea Transportation LLC

  
	
  Pacific Raven

  	
   

  	
  529686

  	
   

  	
  K-Sea Transportation LLC

  
	
  Paragon

  	
   

  	
  596518

  	
   

  	
  K-Sea Transportation LLC

  
	
  Pacific Patriot

  	
   

  	
  627416

  	
   

  	
  K-Sea Transportation LLC

  

 

 2
 

 

	
  Sea Hawk

  	
   

  	
  589839

  	
   

  	
  K-Sea Transportation LLC

  
	
  Pacific Avenger

  	
   

  	
  586202

  	
   

  	
  K-Sea Transportation LLC

  
	
  John Brix

  	
   

  	
  293323

  	
   

  	
  K-Sea Transportation LLC

  
	
  Pacific Wolf

  	
   

  	
  567630

  	
   

  	
  K-Sea Transportation LLC

  
	
  Altair

  	
   

  	
  640948

  	
   

  	
  K-Sea Transportation LLC

  
	
  Na Hoku

  	
   

  	
  636961

  	
   

  	
  K-Sea Transportation LLC

  
	
  Nakoa

  	
   

  	
  572263

  	
   

  	
  K-Sea Transportation LLC

  
	
  Nokea

  	
   

  	
  567629

  	
   

  	
  K-Sea Transportation LLC

  
	
  Jimmy Smith

  	
   

  	
  576980

  	
   

  	
  Smith Maritime LLC

  
	
  Nalani

  	
   

  	
  640639

  	
   

  	
  Smith Maritime LLC

  
	
  Namahoe

  	
   

  	
  1048324

  	
   

  	
  Smith Maritime LLC

  
	
  Niolo

  	
   

  	
  653612

  	
   

  	
  Smith Maritime LLC

  
	
  Nakolo

  	
   

  	
  557330

  	
   

  	
  Smith Maritime LLC

  
	
  Nohea

  	
   

  	
  652801

  	
   

  	
  Smith Maritime LLC

  
	
  Noke

  	
   

  	
  1189830

  	
   

  	
  Smith Maritime LLC

  
	
  Naupaka

  	
   

  	
  661812

  	
   

  	
  K-Sea Hawaii Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other

  	
   

  	
   

  	
   

  	
   

  
	
  Nunui

  	
   

  	
  590234

  	
   

  	
  Smith Maritime LLC

  
	
  Nohi

  	
   

  	
  664805

  	
   

  	
  Smith Maritime LLC

  

 

 3

SCHEDULE
1.01B

Additional
Pool Vessels

	
  VESSEL NAME

  	
   

  	
  OFFICIAL NO.

  	
   

  	
  REGISTERED OWNER

  
	
  Double Hull Barges

  	
   

  	
   

  	
   

  	
   

  
	
  Rigel

  	
   

  	
  991836

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Single Hull Barges

  	
   

  	
   

  	
   

  	
   

  
	
  SCT 280

  	
   

  	
  587804

  	
   

  	
  K-Sea Transportation LLC

  
	
  SCT 282

  	
   

  	
  596502

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tugs

  	
   

  	
   

  	
   

  	
   

  
	
  Barents Sea

  	
   

  	
  570419

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Caspian Sea

  	
   

  	
  640953

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Inland Sea

  	
   

  	
  1104151

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Labrador Sea

  	
   

  	
  1125307

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Nathan E. Stewart

  	
   

  	
  1120997

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
  Altair

  	
   

  	
  640948

  	
   

  	
  K-Sea Transportation LLC

  

 

 1

SCHEDULE
1.01C

Phase Two
Pool Vessels

	
  VESSEL 

  NAME

  	
   

  	
  OFFICIAL 

  NO.

  	
   

  	
  REGISTERED OWNER

  	
   

  	
  POST PHASE TWO 

  REGISTERED OWNER

  
	
  Double Hull Barges

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Leo

  	
   

  	
  1136725

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  K-Sea Transportation LLC

  
	
  Na-Kao

  	
   

  	
  1174391

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
  Noa

  	
   

  	
  1121896

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
  Nale

  	
   

  	
  1190335

  	
   

  	
  Tow Boat Services & Management, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
  Ne’ena

  	
   

  	
  1163049

  	
   

  	
  Tow Boat Services & Management, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Single Hull Barges

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Noho Hele

  	
   

  	
  649722

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tugs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Jimmy Smith

  	
   

  	
  576980

  	
   

  	
  Tow Boat Services & Management, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
  Na Hoku

  	
   

  	
  636961

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  K-Sea Transportation LLC

  
	
  Nakoa

  	
   

  	
  572263

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  K-Sea Transportation LLC

  
	
  Nokea

  	
   

  	
  567629

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  K-Sea Transportation LLC

  
	
  Nalani

  	
   

  	
  640639

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
  Namahoe

  	
   

  	
  1048324

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
  Niolo

  	
   

  	
  653612

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
  Naupaka

  	
   

  	
  661812

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  K-Sea Hawaii Inc.

  
	
  Nakolo

  	
   

  	
  557330

  	
   

  	
  Tow Boat Services & Management, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
  Nohea

  	
   

  	
  652801

  	
   

  	
  Tow Boat Services & Management, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
  Noke

  	
   

  	
  1189830

  	
   

  	
  Uaukewai Diving, Salvage and Fishing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nohi

  	
   

  	
  664805

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
  Nunui

  	
   

  	
  590234

  	
   

  	
  Tow Boat Services & Management, Inc.

  	
   

  	
  Smith Maritime LLC

  

 

 1

SCHEDULE
2.01

Commitments

	
  Lender

  	
   

  	
  Tranche A Commitment

  	
   

  	
  Tranche B Commitment

  	
   

  
	
  KeyBank National
  Association

  	
   

  	
  $

  	
  37,500,000.00

  	
   

  	
  $

  	
  20,000,000.00

  	
   

  
	
  LaSalle Bank National
  Association

  	
   

  	
  $

  	
  32,500,000.00

  	
   

  	
  $

  	
  15,000,000.00

  	
   

  
	
  Citibank, N.A.

  	
   

  	
  $

  	
  32,500,000.00

  	
   

  	
  $

  	
  10,000,000.00

  	
   

  
	
  Citizens Bank of
  Pennsylvania

  	
   

  	
  $

  	
  25,000,000.00

  	
   

  	
  -0-

  	
   

  
	
  HSBC Bank USA National
  Association

  	
   

  	
  $

  	
  25,000,000.00

  	
   

  	
  -0-

  	
   

  
	
  Wachovia Bank, National
  Association

  	
   

  	
  $

  	
  22,500,000.00

  	
   

  	
  -0-

  	
   

  
	
  Aggregate Commitments

  	
   

  	
  $

  	
  175,000,000.00

  	
   

  	
  $

  	
  45,000,000.00Exhibit 10.2

BRIDGE
LOAN AGREEMENT

dated as of August 14, 2007

by and among

K-SEA OPERATING PARTNERSHIP L.P.,

as Borrower,

the Lenders party hereto,

KBCM BRIDGE, LLC,

as Administrative Agent

and

KEYBANK NATIONAL ASSOCIATION,

as Collateral Trustee

TABLE OF
CONTENTS

	
  

  	
   

  	
  Page

  
	
  ARTICLE I DEFINITIONS

  	
  1

  
	
   

  	
   

  
	
  Section 1.01

  	
  Defined Terms

  	
  1

  
	
  Section 1.02

  	
  Terms Generally

  	
  25

  
	
  Section 1.03

  	
  Accounting Terms; GAAP

  	
  25

  
	
   

  	
   

  
	
  ARTICLE II THE LOANS

  	
  25

  
	
   

  	
   

  
	
  Section 2.01

  	
  Loans

  	
  25

  
	
  Section 2.02

  	
  Interest

  	
  26

  
	
  Section 2.03

  	
  Requests for Loans

  	
  27

  
	
  Section 2.04

  	
  Funding of Loans

  	
  28

  
	
  Section 2.05

  	
  Termination and Reduction of Commitments

  	
  28

  
	
  Section 2.06

  	
  Repayment of Loans; Evidence of Debt

  	
  29

  
	
  Section 2.07

  	
  Prepayment of Loans

  	
  30

  
	
  Section 2.08

  	
  Fees

  	
  31

  
	
  Section 2.09

  	
  Increased Costs; Illegality

  	
  31

  
	
  Section 2.10

  	
  Break Funding Payments

  	
  33

  
	
  Section 2.11

  	
  Taxes

  	
  33

  
	
  Section 2.12

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

  	
  34

  
	
  Section 2.13

  	
  Mitigation Obligations; Replacement of Lenders

  	
  36

  
	
   

  	
   

  	
   

  
	
  ARTICLE III REPRESENTATIONS AND WARRANTIES

  	
  37

  
	
   

  	
   

  
	
  Section 3.01

  	
  Organization

  	
  37

  
	
  Section 3.02

  	
  Power and Authority

  	
  37

  
	
  Section 3.03

  	
  Governmental Approvals; No Conflicts

  	
  37

  
	
  Section 3.04

  	
  Financial Condition; No Material Adverse Change

  	
  38

  
	
  Section 3.05

  	
  Litigation

  	
  38

  
	
  Section 3.06

  	
  Environmental Condition

  	
  38

  
	
  Section 3.07

  	
  Compliance with Laws and Agreements

  	
  39

  
	
  Section 3.08

  	
  Investment Company Status

  	
  39

  
	
  Section 3.09

  	
  Taxes

  	
  39

  
	
  Section 3.10

  	
  ERISA

  	
  39

  
	
  Section 3.11

  	
  Disclosure

  	
  40

  
	
  Section 3.12

  	
  No Other Name

  	
  40

  
	
  Section 3.13

  	
  Government Consents for Conduct of Business

  	
  40

  
	
  Section 3.14

  	
  Federal Reserve Regulations

  	
  40

  
	
  Section 3.15

  	
  The Smith/Sirius Acquisition

  	
  41

  
	
  Section 3.16

  	
  Relating to the Collateral

  	
  41

  
	
  Section 3.17

  	
  Phase Two Transactions

  	
  42

  
				

 

 i
 

 

	
  ARTICLE IV CONDITIONS

  	
  43

  
	
   

  	
   

  
	
  ARTICLE V AFFIRMATIVE COVENANTS

  	
  48

  
	
   

  	
   

  
	
  Section 5.01

  	
  Financial Statements and Other Information

  	
  48

  
	
  Section 5.02

  	
  Fees and Expenses

  	
  49

  
	
  Section 5.03

  	
  Notices of Material Events

  	
  49

  
	
  Section 5.04

  	
  Existence; Conduct of Business

  	
  50

  
	
  Section 5.05

  	
  Insurance

  	
  50

  
	
  Section 5.06

  	
  Taxes; Use

  	
  51

  
	
  Section 5.07

  	
  Maintenance of Properties; Use and Operation of Pool
  Vessels

  	
  51

  
	
  Section 5.08

  	
  Books and Records; Inspection Rights

  	
  52

  
	
  Section 5.09

  	
  Use of Proceeds

  	
  52

  
	
  Section 5.10

  	
  U.S. Person

  	
  53

  
	
  Section 5.11

  	
  Documentation

  	
  53

  
	
  Section 5.12

  	
  Further Assurances

  	
  53

  
	
  Section 5.13

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

  	
  53

  
	
  Section 5.14

  	
  Indemnification

  	
  54

  
	
  Section 5.15

  	
  Performance of Contracts

  	
  54

  
	
  Section 5.16

  	
  Environmental Compliance

  	
  54

  
	
  Section 5.17

  	
  Subsidiary Guaranties

  	
  55

  
	
  Section 5.18

  	
  Qualified Equity Issuance

  	
  55

  
	
  Section 5.19

  	
  Collateral

  	
  55

  
	
  Section 5.20

  	
  Fair Market Value

  	
  56

  
	
  Section 5.21

  	
  Substitution of Pool Vessels

  	
  56

  
	
  Section 5.22

  	
  Phase Two Transaction

  	
  57

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI NEGATIVE COVENANTS

  	
  57

  
	
   

  	
   

  
	
  Section 6.01

  	
  Fixed Charge Coverage Ratio

  	
  57

  
	
  Section 6.02

  	
  First Lien Funded Debt to EBITDA Ratio

  	
  57

  
	
  Section 6.03

  	
  Total Funded Debt to EBITDA Ratio

  	
  58

  
	
  Section 6.04

  	
  Asset Coverage Ratio

  	
  58

  
	
  Section 6.05

  	
  No Liens

  	
  58

  
	
  Section 6.06

  	
  No Changes in Borrower

  	
  59

  
	
  Section 6.07

  	
  No Disposition of Assets

  	
  59

  
	
  Section 6.08

  	
  Fundamental Changes

  	
  59

  
	
  Section 6.09

  	
  Transactions with Affiliates

  	
  60

  
	
  Section 6.10

  	
  Restrictive Agreements

  	
  60

  
	
  Section 6.11

  	
  Limitations on Advances and Distributions

  	
  61

  
	
  Section 6.12

  	
  Limitations on Other Indebtedness

  	
  61

  
	
  Section 6.13

  	
  Limitation on Investments, Loans, Advances,
  Guarantees and Acquisitions

  	
  62

  
	
  Section 6.14

  	
  Limitations on Negative Pledge

  	
  62

  
	
  Section 6.15

  	
  Acquisitions

  	
  63

  

 

 ii
 

 

	
  Section 6.16

  	
  Partnerships, Joint Ventures

  	
  63

  
	
  Section 6.17

  	
  Capital Expenditures

  	
  63

  
	
  Section 6.18

  	
  Prepayments of Indebtedness

  	
  63

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII EVENTS OF DEFAULT AND REMEDIES

  	
  64

  
	
   

  	
   

  
	
  Section 7.01

  	
  Events of Default

  	
  64

  
	
  Section 7.02

  	
  Remedies

  	
  67

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII THE AGENTS

  	
  67

  
	
   

  	
   

  
	
  Section 8.01

  	
  Authorization and Action

  	
  67

  
	
  Section 8.02

  	
  Agent’s Reliance, Etc.

  	
  68

  
	
  Section 8.03

  	
  KBCM and Affiliates

  	
  69

  
	
  Section 8.04

  	
  Lender Credit Decision

  	
  69

  
	
  Section 8.05

  	
  Indemnification

  	
  69

  
	
  Section 8.06

  	
  Successor Administrative Agents

  	
  70

  
	
  Section 8.07

  	
  Events of Default

  	
  71

  
	
  Section 8.08

  	
  Payments

  	
  71

  
	
  Section 8.09

  	
  Administrative Agent May File Proofs of Claim

  	
  71

  
	
  Section 8.10

  	
  Agents

  	
  72

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX MISCELLANEOUS

  	
  72

  
	
   

  	
   

  
	
  Section 9.01

  	
  Notices

  	
  72

  
	
  Section 9.02

  	
  Term and Termination

  	
  74

  
	
  Section 9.03

  	
  K-Sea as Agent for Borrower

  	
  74

  
	
  Section 9.04

  	
  Discharge of Borrower

  	
  75

  
	
  Section 9.05

  	
  Waivers; Amendments

  	
  75

  
	
  Section 9.06

  	
  Expenses; Indemnity; Damage Waiver

  	
  76

  
	
  Section 9.07

  	
  Successors and Assigns

  	
  77

  
	
  Section 9.08

  	
  Survival

  	
  79

  
	
  Section 9.09

  	
  Counterparts; Integration; Effectiveness

  	
  80

  
	
  Section 9.10

  	
  Severability

  	
  80

  
	
  Section 9.11

  	
  Right of Set-off

  	
  80

  
	
  Section 9.12

  	
  Governing Law; Jurisdiction; Consent to Service of
  Process

  	
  80

  
	
  Section 9.13

  	
  WAIVER OF JURY TRIAL

  	
  81

  
	
  Section 9.14

  	
  Headings

  	
  81

  
	
  Section 9.15

  	
  Confidentiality

  	
  81

  
	
  Section 9.16

  	
  Interest Rate Limitation

  	
  82

  
	
  Section 9.17

  	
  Further Assurances

  	
  82

  
	
  Section 9.18

  	
  USA Patriot Act Notice

  	
  83

  

 

 iii

	
  EXHIBITS

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  -

  	
   

  	
  Form of Note

  
	
  Exhibit B

  	
   

  	
  -

  	
   

  	
  Form of Assignment and Acceptance

  
	
  Exhibit C-1

  	
   

  	
  -

  	
   

  	
  Form of Opinion of Thompson Coburn L.L.P.

  
	
  Exhibit C-2

  	
   

  	
  -

  	
   

  	
  Form of Opinion of Holland & Knight LLP

  
	
  Exhibit C-3

  	
   

  	
  -

  	
   

  	
  Form of Opinion of Carlsmith Ball LLP

  
	
  Exhibit C-4

  	
   

  	
  -

  	
   

  	
  Form of Opinion of Baker Botts LLP

  
	
  Exhibit D

  	
   

  	
  -

  	
   

  	
  Grant of Security Interest

  
	
  Exhibit E

  	
   

  	
  -

  	
   

  	
  Form of Loan Request

  
	
  Exhibit F

  	
   

  	
  -

  	
   

  	
  Form of Subsidiary Guaranty

  
	
  Exhibit G

  	
   

  	
  -

  	
   

  	
  Principal Terms of Intercreditor Agreement

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULES

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule 1.01A

  	
   

  	
  -

  	
   

  	
  Pool Vessels

  
	
  Schedule 1.01B

  	
   

  	
  -

  	
   

  	
  Phase Two Pool Vessels

  
	
  Schedule 2.01

  	
   

  	
  -

  	
   

  	
  Commitments

  
	
  Schedule 3.06

  	
   

  	
  -

  	
   

  	
  Environmental Compliance

  
	
  Schedule 3.16

  	
   

  	
  -

  	
   

  	
  Charters

  
	
  Schedule 6.05

  	
   

  	
  -

  	
   

  	
  Existing Liens

  
	
  Schedule 6.12

  	
   

  	
  -

  	
   

  	
  Existing Indebtedness

  
	
  Schedule 6.13

  	
   

  	
  -

  	
   

  	
  Existing Investments

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

BRIDGE
LOAN AGREEMENT

BRIDGE
LOAN AGREEMENT (this “Agreement”),
dated as of August 14, 2007, among K-SEA
OPERATING PARTNERSHIP  L.P.,
a Delaware limited partnership (“Borrower”),
the Lenders party hereto (the “Lenders”), KBCM BRIDGE, LLC (“KBCM”), as administrative agent for the
Lenders (in such capacity, the “Administrative
Agent”) and KEYBANK NATIONAL
ASSOCIATION as collateral trustee for the Lenders (in such capacity,
the “Collateral Trustee”).

RECITALS

WHEREAS,
Borrower has requested the Lenders to extend credit to Borrower and the Lenders
are willing to do so on the terms and conditions hereinafter set forth.

Accordingly, for good and valuable consideration, 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 equal to (a) LIBOR for such
Interest Period multiplied by (b) the Statutory Reserve Rate.

“Administrative Agent” means KBCM
Bridge, LLC, in its capacity as administrative agent for Lenders hereunder, and
any Person appointed successor administrative agent pursuant to Section 8.06.

“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.

“Agreement”
has the meaning set forth in the preamble hereto.

“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 (i) with respect to Base Rate Loans, 0.25% and
(ii) with respect to LIBOR Loans, 1.50%.

“Applicable Percentage” means, with
respect to any Lender as of any date, the percentage of the aggregate
outstanding principal amount of all Loans on such date represented by the
aggregate outstanding principal amount of the Lender’s Loan on such date.

“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 Fair Market Value of all Pool Vessels that are part of the
Collateral divided by the aggregate Revolving Loan Obligations.

“Asset
Disposition” means the disposition of any or all of the fixed
assets of 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 6.07, (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 9.07 hereof),
and accepted by Administrative Agent, in the form of Exhibit B or any other form approved by Administrative
Agent.

“Assignment of Insurances” means
the assignment of insurances respecting the Pool Vessels granted by Borrower or
any Subsidiary Guarantor in favor of the Collateral Trustee, in form and
substance satisfactory to Administrative Agent.

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

 2
 

“Availability Period” means the period
from and including the Effective Date to, but excluding, the date that is 45
days after the Effective Date.

“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.

“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.

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

“Borrower
Pool Vessels” means those vessels identified as owned by
Borrower on Schedule 1.01A.

“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.

“Capital
Stock” means,
as to any Person, all shares, interest, partnership interests, limited
liability company membership interests, participations, rights in or other
equivalents (however designated) of such Person’s equity (however designated)
and any rights, warrants or options exchangeable for or convertible into such
shares, interests, participations, rights or other equity.

 3
 

“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
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 2.09(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.

“Charges”
has the meaning set forth in Section 9.16 hereof.

“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, (i) each of the
Pool Vessels, 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 or any
Subsidiary Guarantor 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

 4
 

Borrower or any Subsidiary Guarantor in favor of the Collateral Trustee
or the Lenders (each, a “Mortgage”);
(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; the collateral described in the Assignments
and the Mortgage; and all amounts payable hereunder as more specifically
described herein and in the Assignments and the Mortgage.

“Collateral
Trigger Date” means the earlier to occur of (i) the date that is
sixty (60) days after the Effective Date and (ii) the occurrence of an Event of
Default.

“Collateral
Trigger Event” means the failure of Borrower to repay the
Obligations in full on or before the Collateral Trigger Date.

“Collateral
Trustee” means KeyBank in its capacity as collateral trustee for
Lenders hereunder, and any Person appointed as a successor collateral trustee
pursuant to Article VIII.

“Commitment” means, with respect to each
Lender, the commitment of such Lender to make a Loan hereunder, as set forth on
Schedule 2.01 hereof.

“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 the
Excluded Subsidiaries.

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

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

“Diving”
means Uaukewai Diving, Salvage and Fishing, Inc., a Hawaii corporation and a
wholly-owned Subsidiary of Smith Maritime.

“Diving
Pool Vessel” means the vessel identified as owned by Diving
(before giving effect to the Phase Two Transactions) on Schedule
1.01B.

“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 or any Subsidiary
Guarantor in favor of the Collateral Trustee, in form and substance
satisfactory to the Administrative Agent.

 5
 

“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 Article IV hereof are satisfied (or waived in accordance
with Section 9.05 hereof).

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

“Environmental Event” means (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

 6
 

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.

“Equity Issuance”
means the issuance of any Capital Stock by K-Sea or the receipt of any capital
contribution by Borrower.

“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

 7
 

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 VII 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.

“Excluded
Subsidiaries” means, collectively, Inversiones Kara Sea Srl.,
K-Sea Canada Holdings, K-Sea Canada Corp. and Marine Logistics, Inc.

“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 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 2.13(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 2.11(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 2.11(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

 8
 

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 $60,000,000.00
bridge term loan facility, as described in this Agreement.

“Fair
Market Value” means, with respect to any Pool Vessel, the fair
market value of such Pool Vessel as reasonably determined by the Administrative
Agent or by independent appraisers appointed by the Administrative Agent at the
expense of Borrower.

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

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

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

“First Lien
Funded Debt” means, as of any date, the aggregate
principal amount of Total Funded Debt outstanding at such date that consists
of, without duplication, (i) the Revolving Loan Obligations and (ii)
Indebtedness which ranks pari  passu to the Indebtedness under the Revolving Loan Documents
and is secured by a Lien (other than any Second-Priority Lien).

“First
Lien Funded Debt to EBITDA Ratio” means, at any date of determination, the ratio of
First Lien 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; provided that,
for any such determination, EBITDA shall be adjusted (i) to include, for the
relevant four fiscal quarter period, pro forma EBITDA in an amount
reasonably acceptable to the
Administrative Agent respecting any vessel or business acquisition for which
debt is incurred and included in First Lien Funded Debt and (ii) to exclude, for the relevant four fiscal quarter period, pro
forma EBITDA in an amount reasonably acceptable to the Administrative Agent
respecting any vessel or business disposition.

“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; provided that, for any such determination,

 9
 

EBITDA shall be adjusted to include, for the
relevant four fiscal quarter period, pro forma EBITDA in an amount reasonably
acceptable to the Administrative Agent respecting any vessel or business
acquisition for which debt service is incurred and included in Fixed Charges.

“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.”

“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

 10
 

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 or any Subsidiary
Guarantor 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 or such Subsidiary Guarantor 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.

“Indemnitee”
has the meaning set forth in Section 9.06(b) hereof.

“Information”
has the meaning set forth in Section 9.15 hereof.

 11
 

“Interisland”
means Hawaiian Interisland Towing, Inc., a Hawaii corporation and a
wholly-owned subsidiary of Smith Maritime.

“Interisland
Pool Vessels” means those vessels identified as owned by
Interisland (before giving effect to the Phase Two Transactions) on Schedule 1.01B.

“Intercreditor
Agreement” means the Intercreditor Agreement between KeyBank, as
administrative agent for the lenders from time to time party to the Revolving
Loan Agreement and the Administrative Agent, relating to the Permitted Bridge
Loan Liens, if any, which shall contain provisions subordinating the Permitted
Bridge Loan Liens to the Liens securing the obligations of Borrower and the
Guarantors under the Revolving Loan Agreement substantially identical to those
set forth on Exhibit G hereto, as such
Intercreditor Agreement may be amended, restated, supplemented or otherwise
modified from time to time.

“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.  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 or
three 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 2.02 hereof.

“KeyBank” means KeyBank National
Association.

 12
 

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

“K-Sea
Hawaii” means K-Sea Hawaii Inc., a Delaware corporation and a
wholly-owned Subsidiary of K-Sea Transportation, Inc.

“K-Sea
Hawaii Mortgage” means the Preferred Mortgage, dated on or about
the Collateral Trigger Date, granted by K-Sea Hawaii to the Collateral Trustee
over the whole of the K-Sea Hawaii Pool Vessels, as the same may be amended,
modified or supplemented from time to time.

“K-Sea
Hawaii Pool Vessels” means those vessels identified as owned by
K-Sea Hawaii on Schedule 1.01A.

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

“K-Sea LLC
Mortgage” means the Preferred Fleet Mortgage, dated on or about
the Collateral Trigger Date, granted by K-Sea LLC to the Collateral Trustee
over the whole of the K-Sea LLC Pool Vessels, as the same may be amended,
modified or supplemented from time to time and from which K-Sea LLC Pool
Vessels may be added or released from time to time.

“K-Sea LLC
Pool Vessels” means those vessels identified as owned by K-Sea
LLC on Schedule 1.01A.

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

“Lenders” means 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.

“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 the Reuters Page LIBOR01 (or such other page as may replace
LIBOR01 on the Reuters Monitor Money Rates Service for the purpose of
displaying such rates or such other service as may be nominated by the British
Bankers Association, for the purpose of displaying London interbank offered
rates for U.S. dollar deposits) 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 Reuters Page LIBOR01 (or such other replacement
page), the LIBO Rate shall be the rate per annum (rounded,

 13
 

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

“Loan Accounts”  means one or more loan accounts
maintained by 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 Parent Guaranty and each Subsidiary Guaranty,
and upon the occurrence of the Collateral Trigger Date, the Mortgage, 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 2.03 hereof.

“Loans” has the meaning assigned to such
term in Section 2.01(a) 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

 14
 

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 (i)
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 and (ii) the Revolving
Loan Agreement Obligations.  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 November 12, 2007.

“Maximum
Rate” has the meaning set forth in Section 9.16 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, collectively, (i) the
Borrower Mortgage, (ii) the K-Sea LLC Mortgage, (iii) the Smith Maritime
Mortgage and (iv) the K-Sea Hawaii Mortgage, as each may be amended, modified
or supplemented from time to time and from which Pool Vessels may be added or
released from time to time.

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

“Negative
Pledge” has the meaning set forth in Section 6.14 hereof.

“Net
Proceeds” means, with respect to:

(a)           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) the sum of:
(i) reasonable and customary brokerage

 15
 

commissions,
investment banking fees, underwriting fees and discounts, legal fees,
accounting fees, finder’s fees and other similar out-of-pocket costs, (ii) the
amount of taxes paid or payable in connection with or as a result of such
transaction and (iii) 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; and

(b)           with respect to any Prepayment/Reduction Event, the aggregate amount of
cash received from time to time (whether as initial consideration or
through payment or disposition of deferred consideration) in respect of such Prepayment/Reduction
Event, including (i) any cash received in respect of any non-cash
proceeds, but only as and when received, (ii) in the case of a casualty,
insurance proceeds and (iii) in the case of a condemnation or similar event,
condemnation awards and similar payments, after deducting therefrom only
(without duplication) the sum of (A) all 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 paid by Borrower or
any Subsidiary Guarantor to third parties in connection with such
Prepayment/Reduction Event, (B) in the case of a sale, transfer, lease or other
disposition of an asset (including pursuant to a sale and leaseback
transaction), the amount of any Indebtedness secured by a Lien on such
asset that, by the terms of such transaction, is repaid upon such disposition and (C) the amount of all taxes paid (or
reasonably estimated to be payable) by Borrower and the Subsidiary Guarantors,
and the amount of any reserves established by Borrower and the Subsidiary
Guarantors to fund contingent liabilities reasonably estimated to be payable,
in each case during the year that such event occurred or the next succeeding
year and that are directly attributable to such event (as determined reasonably
and in good faith by a Financial Officer of Borrower), 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 2.06(e)
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, 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 primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of

 16
 

any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding), of Borrower or
any other Credit Party to the Administrative Agent, the Lenders, or that are
otherwise payable to the Administrative Agent, the Lenders, 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.

“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 as of the Effective Date, executed by K-Sea in favor of
Lenders, as amended, restated, supplemented or otherwise modified from time to
time.

“Participant”
has the meaning set forth in Section 9.07(e) hereof.

“Patriot
Act” has the meaning set forth in Section 9.18 hereof.

“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) 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
5.17 with respect to such Person.

 17
 

“Permitted
Bridge Loan Liens” means Liens on (i) the Pool Vessels that are
subordinated to the Liens in favor of KeyBank as collateral trustee under the
Revolving Loan Agreement pursuant to the terms of the Intercreditor Agreement
and (ii) other vessels of Borrower and its subsidiaries, in each case securing
the Loans.

“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;

(c)           Liens arising out of
bareboat charters of Pool Vessels to K-Sea Transportation Inc. or any other
Subsidiary Guarantor covering the Pool Vessels described on Schedule 3.16; and

(d)           Liens arising out of
time charters, voyage charters or contracts of affreightment with unrelated
third parties in respect of a Pool Vessel;

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 $5,000,000.

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

“Phase Two
Pool Vessels” means, collectively, those vessels identified on Schedule 1.01B hereto.

“Phase Two
Transactions” means, collectively, (i) the conversion effective
as of the Effective Date of each of Interisland, Tow Boat and Diving from a
Hawaii corporation into a Hawaii limited liability company, (ii) the capital
contribution, effective as of the Effective Date, by each of Interisland, Tow
Boat and Diving of the Phase Two Pool Vessels to K-Sea LLC, K-Sea Hawaii and
Smith Maritime, (iii) the filing (complete except for evidence from each
relevant Governmental Authority of the conversion of each of Interisland, Tow
Boat and Diving from Hawaii corporations into Hawaii limited liability
companies) for registration of each of the Phase Two Pool Vessels in the name
of K-Sea LLC, K-Sea Hawaii or Smith Maritime, as the case may be, (iv) the
assumption, effective on the date evidence of such conversion has been received
by the Credit Parties from each relevant Governmental Authority, by K-Sea LLC,
K-Sea Hawaii and Smith Maritime of the obligations and liabilities of Interisland,
Tow Boat and Diving under the preferred fleet mortgages and preferred ship
mortgage granted by Interisland, Tow Boat and

 18
 

Diving over the
Phase Two Pool Vessels in favor of KeyBank as collateral trustee for the
lenders under the Revolving Loan Documents and (v) the filing with the United
States Coast Guard National Vessel Documentation Center in Falling Waters, West
Virginia, on the date evidence of such conversion has been received by the
Credit Parties from each relevant Governmental Authority, of each of the
mortgage assumptions by K-Sea LLC, K-Sea Hawaii and Smith Maritime with respect
to the preferred fleet mortgages and preferred ship mortgage granted by
Interisland, Tow Boat and Diving over the Phase Two Pool Vessels in favor of
KeyBank as collateral trustee for the lenders under the Revolving Loan
Documents.

“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, collectively,
those vessels identified on Schedule 1.01A
hereto as of the Effective Date, together with any vessels hereafter added to
the Pool Vessels pursuant to Section 5.20 or Section 5.21 hereof.

“Prepayment/Reduction
Event” means:

(a)           the disposition of any
or all of the fixed assets of Borrower or any Subsidiary Guarantor not 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, none of the following shall be
deemed to be a “Prepayment/Reduction Event”:
(i) any sale, lease, transfer or other disposition of (A) inventory in the
ordinary course of business; (B) obsolete or worn out equipment; (C)
traded-in equipment, (D) assets by Borrower to a Subsidiary Guarantor or by a
Subsidiary Guarantor to Borrower or another Subsidiary Guarantor; or (E)
transfers permitted under Section 6.07 or Section 6.08 hereof; and (ii)
charters or other employment contracts of vessels not otherwise prohibited
hereby;

(b)           any casualty or other
insured damage to, or any taking under power of eminent domain or by
condemnation or similar proceeding of, any property or asset of Borrower or any
Subsidiary Guarantor not included in the Collateral and not encumbered by a
ship mortgage, other than casualties, insured damage or takings resulting in
aggregate Net Proceeds not exceeding $1,000,000 during any fiscal year;

(c)           any Equity Issuance
(including, without limitation, the Qualified Equity Issuance); and

(d)           the incurrence by any
Borrower or any of the Subsidiaries of any Indebtedness other than Indebtedness
described in clause (i), (ii), (iii), (iv), (v), (vi) or (vii) of Section
6.12(a) hereof.

“Prime
Rate” means
the rate of interest per annum publicly announced from time to time by KeyBank
as its prime commercial lending rate; each change in the Prime Rate being
effective

 19
 

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 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 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.

“Qualified
Equity Issuance” means an underwritten public offering of
Capital Stock of K-Sea that generates Net Proceeds in cash to K-Sea of not less
than $150,000,000, which proceeds will be contributed to Borrower on terms and
conditions reasonably satisfactory to the Administrative Agent to be applied to
the repayment in full of the Loans and the Tranche B Loans.

“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 second Anniversary Date, “Qualified
Pool Vessels” may also include single-hulled barges having a
Fair Market Value not in excess of five percent (5%) of the aggregate Fair
Market Value of all Pool Vessels.

“Register” has the meaning assigned to
such term in Section 9.07(c) hereof.

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

 20
 

“Required Lenders” means, at any time,
Lenders having Loans representing a percentage equal to or greater than
fifty-one percent (51%) (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
aggregate outstanding principal amount of all Loans at such time.

“Revolving
Loan Agreement” means the Amended and Restated Loan and Security
Agreement dated as of the Effective Date among Borrower, the lenders party
thereto and KeyBank, as administrative agent and collateral trustee for such
lenders, as amended, restated, supplemented or otherwise modified from time to
time.

“Revolving
Loan Documents” means the Revolving Loan Agreement and the
instruments, documents and agreement executed and delivered in connection
therewith, as each may be amended, restated, supplemented or otherwise modified
from time to time.

“Revolving
Loan Obligations” means the “Obligations”, as defined in the
Revolving Loan Agreement.

“Revolving
Loans” means the loans made to Borrower by the lenders party to
the Revolving Loan Agreement (including, without limitation, any such loans
made after giving effect to any increase in the commitments of any such lenders
in accordance with the terms of the Revolving Loan Agreement), and any
extensions, renewals or replacements of such Indebtedness.

“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.

“Second-Priority
Lien” means (i) the Permitted Bridge Loan Liens on the Pool
Vessels that are subordinated to the Liens in favor of KeyBank as collateral
trustee under the Revolving Loan Documents pursuant to the terms of the
Intercreditor Agreement and (ii) other Liens (other than Liens securing the
Revolving Loan Obligations) that are subordinated to the Liens securing the
Revolving Loan Obligations pursuant to, and otherwise subject to the terms of,
any other intercreditor agreement.

“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.

“Sirius
Acquisition Agreement” means the Agreement and Plan of Merger
dated as of June 25, 2007 among K-Sea LLC, K-Sea, Sirius Maritime, LLC, RCD
Maritime Enterprises, LLC,

 21

a Washington
limited liability company, Smith Maritime, LLC, a Washington limited liability
company, WS Maritime Pacific, LLC, a Washington limited liability company, and
the other Persons party thereto, as amended prior to the Effective Date.

“Sirius
Maritime, LLC” means Sirius Maritime, LLC, a Washington limited
liability company.

“Sirius
Seller” means, collectively, RCD Maritime Enterprises, LLC, a
Washington limited liability company, Smith Maritime, LLC, a Washington limited
liability company, WS Maritime Pacific, LLC, a Washington limited liability
company.

“Smith
Acquisition Agreement” means the Agreement and Plan of Merger
dated as of June 25, 2007 among Smith Maritime, K-Sea, Smith Maritime, Ltd., a
Hawaii corporation, Go Big Chartering, LLC, a Washington limited liability
company, Gordon L.K. Smith, individually and as trustee for The Gordon L.K.
Smith Trust, Barbara Smith, as trustee for the Barbara Smith SML Trust and
235LX, LLC, a Washington limited liability company, as amended prior to the Effective
Date.

“Smith
Maritime” means Smith Maritime LLC, a Delaware limited liability
company, formerly known as “K-Sea Acquisition1 LLC” and a wholly-owned
Subsidiary of Borrower.

“Smith/Sirius
Acquisition” means, collectively, (i) the merger of Smith Maritime,
Ltd., a Hawaii corporation and Go Big Chartering, LLC, a Washington limited
liability company, into Smith Maritime, with Smith Maritime being the surviving
entity of such mergers, pursuant to the terms of the Smith Acquisition
Agreement and (ii) the merger of Sirius Maritime, LLC into K-Sea LLC, with
K-Sea LLC being the surviving entity of such merger, pursuant to the terms of
the Sirius Acquisition Agreement, and related transactions.

“Smith/Sirius
Acquisition Documents” means the Smith/Sirius Acquisition
Agreement and the instruments, agreements and documents executed and delivered
in connection therewith.

“Smith/Sirius
Acquisition Transactions” means, collectively, (i) the
Smith/Sirius Acquisition, (ii) the payment of approximately $49,750,000 to the
Sirius Seller, (iii) the payment by K-Sea LLC of approximately $117,700,000 to
the Smith Seller, (iv) the assumption and/or repayment of certain Smith Seller
or Sirius Seller Indebtedness and the issuance to the Smith/Sirius Sellers by
K-Sea of 250,000 units and (v) the contribution by the Sirius/Smith Seller
and/or certain of their Affiliates and/certain Subsidiaries of Borrower of
certain vessels to K-Sea LLC, Smith Maritime or K-Sea Hawaii.

“Smith
Maritime Mortgage” means the Preferred Fleet Mortgage, dated on
or about the Collateral Trigger Date, granted by Smith Maritime to the
Collateral Trustee over the whole of the Smith Maritime Pool Vessels, as the
same may be amended, modified or supplemented from time to time and from which
Smith Maritime Pool Vessels may be added or released from time to time.

“Smith
Maritime Pool Vessels” means those vessels identified as owned
by Smith Maritime on Schedule 1.01A.

 22
 

“Smith/Sirius
Acquisition Agreement” means, collectively, the Sirius
Acquisition Agreement and the Smith Acquisition Agreement.

“Smith
Seller” means, collectively, Gordon L.K. Smith, individually and
as trustee for The Gordon L.K. Smith Trust, Barbara Smith, as trustee for the
Barbara Smith SML Trust and 235LX, LLC, a Washington limited liability company.

“Smith/Sirius
Seller” means, collectively, the Sirius Seller and the Smith
Seller.

“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 Revolving Loan Obligations by its
terms or pursuant to a subordination agreement, in each case, reasonably
acceptable to the KeyBank as administrative agent for the lenders under the
Revolving Loan Agreement.

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

“Subsidiary Guarantor” means any
Subsidiary that executes and delivers a Subsidiary Guaranty; provided, however,
“Subsidiary Guarantor” shall exclude
the Excluded Subsidiaries.

“Subsidiary Guaranty” means any guaranty
executed by any Subsidiary of Borrower in favor of Lenders pursuant to
Section 5.17 hereof.

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

“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

 23
 

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
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; provided that, for any
such determination, EBITDA shall be adjusted (i) to include, for the relevant
four fiscal quarter period, pro forma EBITDA in an amount reasonably acceptable
to the Administrative Agent respecting
any vessel or business acquisition for which debt is incurred and included in
Total Funded Debt and (ii) to exclude,
for the relevant four fiscal quarter period, pro forma EBITDA in an amount
reasonably acceptable to the Administrative Agent respecting any vessel or
business disposition.

“Tow Boat” means Tow Boat Services
& Management, Inc., a Hawaii corporation and a wholly-owned subsidiary of
Smith Maritime.

“Tow Boat Pool Vessels” means the
vessels identified as owned by Tow Boat (before giving effect to the
Phase Two Transactions) on Schedule 1.01B.

“Tranche B
Loans” has the
meaning assigned to such term in the Revolving Loan Agreement.

“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.

 24
 

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 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               Loans.

(a)           Subject to the terms and conditions hereof, each Lender severally
agrees to make a Loan (each, a “
Loan” and collectively, the “Loans”) to
Borrower during the Availability Period in a principal amount not in excess of
such Lender’s Commitment.  Loans which
are prepaid or repaid, in whole or in part, may not be reborrowed.

(b)           The Loans 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

 25
 

Lenders are several and no Lender shall be
responsible for any other Lender’s failure to make any Loan as required.

Section 2.02               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, 6% 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, 6% 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 2.02 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)            The Loans 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, all as provided in this
Section 2.02.  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.

(g)           To make an election
pursuant to this Section 2.02, Borrower shall notify the Administrative Agent
of such election by telephone by the time that a Loan Request would be required
under Section 2.03 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

 26
 

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 2.03               Requests for
Loans.

To request the Loans,
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 E
and signed by Borrower.  Each
such telephonic and written Loan Request shall specify the following
information in compliance with Section 2.02 hereof:

(i)            the aggregate amount
of the requested Loan;

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

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

 27
 

(iv)          the location and number
of Borrower’s account to which funds are to be disbursed, which shall comply
with the requirements of Section 2.04 hereof.

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 2.04               Funding of Loans.

(a)           Each Lender shall make
the 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 2.04(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.

Section 2.05               Termination and
Reduction of Commitments.

(a)           Unless previously
terminated, the Commitments shall terminate on the date that is forty-five (45)
days after the Effective Date.

(b)           Borrower may, at any
time prior to the making of the Loans, terminate or reduce, the Commitments.

(c)           Each reduction of the
Commitments hereunder shall be in an amount that is an integral multiple of
$1,000,000 and not less than $5,000,000.

 28
 

(d)           Each reduction of any
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 any of the Commitments under Section 2.05(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 2.05 shall be irrevocable. 
Any termination or reduction of the Commitments hereunder shall be
permanent.

Section 2.06               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 the Loans on the Maturity Date.

(b)           Each Lender shall
maintain in accordance with its usual practice an account or accounts
evidencing the debt of Borrower to such Lender resulting from the 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 Section 2.06(b) 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 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 9.07 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.

 29
 

(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 2.07               Prepayment of
Loans.

(a)           Borrower shall have the
right at any time and from time to time to prepay the Loans in whole or in
part, subject to the requirements of this Agreement, including, without
limitation, Section 2.10.

(b)           In the event and on each occasion that any Net Proceeds are received by
or on behalf of Borrower or any Subsidiary Guarantor in respect of any
Prepayment/Reduction Event (other than (x) Net Proceeds from any Asset
Disposition, the disposition of which shall be governed by the terms of Section
2.07(c) and (y) Extraordinary Receipts the disposition of which shall be
governed by the terms of Section 2.07(d)),
then, immediately after such Net Proceeds are received and in any event within
five (5) Business Days thereof, Borrower shall prepay the Loans in an amount
equal to such Net Proceeds, and, upon the repayment in full of the Loans and
other Obligations outstanding hereunder, Borrower shall apply such Net Proceeds
to the repayment of the amounts outstanding under the Revolving Loan Agreement
in accordance with the terms thereof.

(c)           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 2.07(d)), Borrower shall, provided
that the Revolving Loan Obligations shall have been paid in full, prepay the
then outstanding Loans in an amount equal to one-hundred percent (100%) of such
Net Proceeds and (ii) the Fair Market 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 2.07(c) with respect to
Net Proceeds from Asset Dispositions, not exceeding $5,000,000 in any Fiscal
Year, to the extent that such Net Proceeds 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, 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 $5,000,000, 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).

(d)           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 2.07(c), Borrower, provided that the
Revolving Loan Obligations shall have been paid in full, 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 Fair Market Value of the Pool
Vessel which is the subject of such Extraordinary Receipts (provided

 30
 

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).

(e)           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.  Promptly
following receipt of any such notice relating to a Loan, the Administrative
Agent shall advise the relevant 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.  Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.02.

Section 2.08               Fees.

(a)           Borrower shall pay to
each Lender and the Administrative Agent fees and other amounts payable in the
amounts and at the times as may otherwise be separately agreed upon between
Borrower and such Person.

(b)           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).

Section 2.09               Increased Costs;
Illegality.

(a)           If any Change in Law
shall:

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

(ii)           impose on any Lender,
the Administrative Agent or the Collateral Trustee or the London interbank
market any other condition affecting this Agreement, any LIBOR Loans made by
Lender, the Administrative Agent or the Collateral Trustee 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.

 31
 

(b)           If any Lender, the
Administrative Agent or the Collateral Trustee 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
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 or the
Collateral Trustee 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 or the Collateral Trustee 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 Section 2.09(a) or
2.09(b) shall be delivered to Borrower and shall be conclusive absent
manifest error.  Borrower shall pay such
Lender, the Administrative Agent or the Collateral Trustee, 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 or the Collateral Trustee 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 or the
Collateral Trustee 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 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

 32
 

(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 2.09(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 2.09(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 2.10               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 2.02 or 2.03, 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 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 2.10 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 2.11               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
receives an amount equal to the sum it would have received had no such
deductions

 33
 

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 Credit Party shall
indemnify the Administrative Agent, the Collateral Trustee 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 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 or by the
Administrative Agent on its own behalf or on behalf of a Lender, shall be
conclusive absent manifest error.

(d)           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.

(e)           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 2.12               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 2.09,
2.10, 2.11 or 9.06 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 800
Superior Avenue, 2nd Floor, Cleveland, Ohio 44114, Attn. KBCM
Bridge, LLC c/o Jason Maiher, except that payments pursuant to
Sections 2.09, 2.10, 2.11 and 9.06 hereof shall be made directly to the
Persons entitled thereto.  The
Administrative Agent shall distribute any such

 34
 

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)           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
Section 2.12(a) 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 2.02(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 2.12(b).

(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, its Loan resulting in such Lender
receiving payment of a greater proportion of the aggregate amount of its Loan
and accrued interest thereon than the proportion received by any other Lender,
then the Lender receiving such greater proportion shall purchase (for cash at
face value) participations in the Loans of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by the
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 Loan to any assignee or
participant, other than to 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 or the Collateral Trustee
hereunder that Borrower will not

 35
 

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 2.04 or 2.12(e) 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.

Section 2.13               Mitigation
Obligations; Replacement of Lenders.

(a)           If any Lender requests
compensation under Section 2.09 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 2.11 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 2.09 or 2.11 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 2.09 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 2.11 hereof, or if any Lender defaults
in its obligation to fund its Loan 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 9.07 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, which
consent shall not unreasonably be withheld, (ii) such Lender shall have
received payment of an amount equal to the outstanding principal of its Loan,
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 2.09 hereof or payments required to be made
pursuant to Section 2.11 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

 36
 

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.

ARTICLE III

REPRESENTATIONS
AND WARRANTIES

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

Section 3.01               Organization.

Each of Borrower and
K-Sea is a limited partnership duly organized, validly existing and in good
standing under the laws of Delaware. 
Each of K-Sea LLC and Smith Maritime is a limited liability company duly
organized, validly existing and in good standing under the laws of Delaware.  K-Sea Hawaii is a corporation duly organized,
validly existing and in good standing under the laws of Delaware.  As of the Effective Date (without giving
effect to the Phase Two Transaction), each of Interisland, Tow Boat and Diving
is a corporation duly organized, validly existing and in good standing under
the laws of Hawaii.  Upon the
consummation of the Phase Two Transactions, each of Interisland, Tow Boat and
Diving will be a limited liability company duly organized, validly existing and
in good standing under the laws of Hawaii. 
Each of Borrower, K-Sea and each Subsidiary Guarantor 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 3.02               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, the 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 will have full power,
authority and legal right to grant the security interest to be created by this
Agreement and the Mortgage at the time of such creation.  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 3.03               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

 37
 

Governmental Authority,
except such as have been obtained or made and are in full force and effect, or
such that will be timely obtained or made in connection with the Phase Two
Transactions and will, at the time of consummation of the Phase Two
Transactions, be in full force and effect, (b) do not require the consent
of any other Person (including, without limitation, any partner, stockholder,
trustee or holder of Indebtedness) which has not been obtained prior to the
Effective Date, (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 Trustee to be granted hereby or
pursuant to any other Loan Document in the event of the occurrence of the
Collateral Trigger Event, will not result in the creation or imposition of any
Lien on any asset of Borrower or any other Credit Party.

Section 3.04               Financial
Condition; No Material Adverse Change.

(a)           Borrower has heretofore
furnished to the Administrative Agent and the Lenders Financial Statements
(i) as of and for the year ended June 30, 2006, reported on by
PricewaterhouseCoopers LLP, independent public accountants, and (ii) as of
and for the succeeding fiscal quarters ended September 30, 2006, December
31, 2006 and March 31, 2007 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.

(b)           Since June 30, 2006,
there has been no material adverse change in the business, assets, operations
or condition, financial or otherwise, of K-Sea and its consolidated Affiliates
(including, without limitation, Borrower and the Subsidiary Guarantors) taken
as a whole.

Section 3.05               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 3.06               Environmental
Condition.

Except as identified on Schedule 3.06 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 90) as a Hazardous Waste disposal site, or a candidate for closure pursuant
to any Environmental Law, which designation

 38
 

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 3.07               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 3.08               Investment
Company Status.

Neither Borrower nor any
of its Subsidiaries is an “investment company” as defined in, or subject
to regulation under, the Investment Company Act of 1940.

Section 3.09               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 3.10               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.

 39
 

Section 3.11               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 3.12               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 3.13               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 3.14               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

 40
 

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.

Section 3.15               The Smith/Sirius
Acquisition.

Borrower has heretofore
delivered to the Administrative Agent true, correct and complete copies of the
Smith/Sirius Acquisition Documents. 
Borrower has, on the Effective Date, consummated the Smith/Sirius
Acquisition in all material respects pursuant to the Smith /Sirius Acquisition
Documents, and the Smith/Sirius Acquisition Documents set forth the entire
agreement among the parties thereto with respect to the subject matter
thereof.  No party to any of the
Smith/Sirius Acquisition Documents has waived the fulfillment of any material
condition precedent set forth therein to the consummation of the Smith/Sirius
Acquisition, no party has failed to perform any of its material obligations
thereunder or under any instrument or document executed and delivered in connection
therewith, and nothing has come to the attention of Borrower that would cause
it to believe that any of the representations or warranties of Smith/Sirius
Seller contained in the Smith/Sirius Acquisition Documents was false or
misleading in any material respect when made or when reaffirmed on the
Effective Date.  No consent or approval,
authorization or declaration of any governmental authority, bureau or agency,
is or will be required in connection with the Smith/Sirius Acquisition
Transactions, except for consents that have been obtained prior to the
Effective Date.  Neither the execution
and delivery of the Smith/Sirius Acquisition Documents, nor the performance of
Borrower’s obligations thereunder, will violate any provision of law or will
conflict with or result in a breach of, or create (with or without the giving
of notice or lapse of time, or both) a default under, any material agreement to
which Borrower is a party or by which it is bound or any of its assets is
affected.  Borrower or a Subsidiary of
Borrower has acquired by virtue of the consummation of the Smith/Sirius
Acquisition Transactions and now has good and marketable title to the assets
and properties of the “Subject Companies” (as defined in the Smith Acquisition
Agreement), including, without limitation, the “Vessels” (as defined in the
Smith Acquisition Purchase Agreement) and K-Sea LLC (or a Subsidiary thereof)
has acquired by virtue of the consummation of Smith/Sirius Acquisition
Transactions and now has good and marketable title to assets and properties of
Sirius Maritime, LLC, including, without limitation, the “Vessels” (as defined
in the Sirius Acquisition Agreement), except, in each case (i) for
Permitted Liens, (ii) for Liens in favor of Bank of America, N.A. described on Schedule 6.05 and (iii) for the Liens created and granted by
the Revolving Loan Documents.

Section 3.16               Relating to the
Collateral.

(a)           On the Collateral
Trigger Date, the Collateral Trustee shall have a legal, valid and continuing
preferred ship mortgage (as amended, supplemented or otherwise modified from
time to time) over the whole of, and a perfected lien on and security interest
in, the Pool Vessels, and the Administrative Agent shall have a perfected lien
on and security interest in the remaining Collateral subject only to
(i) Permitted Liens and (ii) Liens in favor of the KeyBank as collateral
trustee for the benefit of the lenders party to the Revolving Loan Agreement,
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 3.16.

 41
 

(b)           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 (i) Permitted Liens and (ii) Liens in favor of KeyBank as
collateral trustee for the lenders party to the Revolving Loan Agreement.

(c)           The Borrower Pool
Vessels are documented in the name of Borrower with the United States Coast
Guard National Vessel Documentation Center in Falling Waters, West
Virginia.  The K-Sea LLC Pool Vessels are
(or, upon consummation of the Phase Two Transactions, will be) documented in
the name of K-Sea LLC with the United States Coast Guard National Vessel
Documentation Center in Falling Waters, West Virginia.  Upon consummation of the Phase Two
Transactions, the Smith Maritime Vessels will be documented in the name of
Smith Maritime with the United States Coast Guard National Vessel Documentation
Center in Falling Waters, West Virginia. 
Upon consummation of the Phase Two Transactions, the K-Sea Hawaii Pool
Vessels will be documented in the name of K-Sea Hawaii with the United States
Coast Guard National Vessel Documentation Center in Falling Waters, West
Virginia.  The Interisland Pool Vessels
are documented in the name of Interisland with the United States Coast Guard
National Vessel Documentation Center in Falling Waters, West Virginia.  The Tow Boat Pool Vessels are documented in
the name of Tow Boat with the United States Coast Guard National Vessel
Documentation Center in Falling Waters, West Virginia.  The Diving Pool Vessel is documented in the
name of Diving with the United States Coast Guard National Vessel Documentation
Center in Falling Waters, West Virginia.

(d)           Borrower and each Subsidiary Guarantor is a citizen of the United
States of America as defined in Chapter 505 of Title 46, United States Code,
duly qualified to engage in the coastwise trade and in foreign commerce of the
United States of America, and shall remain such a citizen while any Loans
remains outstanding and during the life of the Mortgage.

Section
3.17         Phase
Two Transactions.

After giving effect to
the consummation of the Phase Two Transactions:

(a)           K-Sea LLC will be the
sole owner of the K-Sea LLC Pool Vessels, free and clear of all Liens, security
interests, claims or encumbrances of any kind whatsoever, subject only to (i)
Permitted Liens and (ii) Liens created and granted by the Revolving Loan
Documents.

(b)           K-Sea Hawaii will be
the sole owner of the K-Sea Hawaii Pool Vessels, free and clear of all Liens,
security interests, claims or encumbrances of any kind whatsoever, subject only
to (i) Permitted Liens and (ii) Liens created and granted by the Revolving Loan
Documents.

(c)           Smith Maritime will be
the sole owner of the Smith Maritime Pool Vessels, free and clear of all Liens,
security interests, claims or encumbrances of any kind whatsoever, subject only
to (i) Permitted Liens and (ii) Liens created and granted by the Revolving Loan
Documents.

 42

ARTICLE IV

CONDITIONS

The obligations of the
Lenders to make the Loans hereunder shall not become effective until the date
on which each of the following conditions is satisfied (or waived in accordance
with Section 9.05 hereof):

(a)           The Administrative Agent shall have
received a certificate from the secretary of 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, limited
liability company 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 (i) a counterpart of
this Agreement signed on behalf of such party or (ii) 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
Borrower.

(d)           The Administrative Agent shall have
received the Parent Guaranty and a Subsidiary Guaranty, each in form and
substance satisfactory to the Administrative Agent and signed on behalf of each
Guarantor party thereto.

(e)           The Administrative Agent shall have
received a certificate, dated the Effective Date and signed by a Financial
Officer of Borrower,

(i)            confirming that (1) the Smith/Sirius
Acquisition Transactions has been consummated, (2) the Smith/Sirius Acquisition
has been consummated in accordance with the terms and conditions of the
applicable Smith/Sirius Acquisition Documents, all of which shall be in form
and substance reasonably satisfactory to the Administrative Agent, and (3) the
total consideration paid in connection with the Smith/Sirius Acquisition was
not more than the $195,651,458.40 in cash and assumption of Indebtedness, plus
delivery of 250,000 units in K-Sea to the Smith/Sirius Seller, subject to
adjustment pursuant to the terms of the Smith/Sirius Acquisition Documents; and

(ii)           attaching a true, complete and
correct copy of each of the following (each of which shall be in form and
substance reasonably satisfactory to the Administrative Agent): (1) each
Smith/Sirius Acquisition Document and (2) any information the 

 43
 

Administrative Agent may reasonably require regarding
the assets and liabilities of Borrower, K-Sea LLC, Smith Maritime, K-Sea
Hawaii, Diving, Interisland and Tow Boat after giving effect to the
consummation of the Smith/Sirius Acquisition.

(f)            The conditions to the effectiveness
of the Revolving Loan Agreement shall have been satisfied in all material
respects.

(g)           The Administrative Agent shall have
received favorable written opinions (each addressed to the Lenders, the
Administrative Agent and the Collateral Trustee and dated the Effective Date)
from Thompson Coburn L.L.P., Holland & Knight LLP, Carlsmith Ball LLP and
Baker Botts LLP, on behalf of the Credit Parties, substantially in the form of Exhibits C-1, C-2, C-3 and C-4, respectively, covering such
matters relating to the Credit Parties, the Loan Documents, the Smith/Sirius
Acquisition or the Phase Two Transactions as the Administrative Agent shall
reasonably request.  Borrower hereby
requests such counsel to deliver such opinions.

(h)           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.

(i)            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 Liens in favor of KeyBank as
collateral trustee for the lenders under the Revolving Loan Agreement) 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 and Liens in favor of KeyBank as collateral trustee
for the lenders under the Revolving Loan Documents.

(j)            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 Borrower to the
foregoing effect.

(k)           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.

 44
 

(l)            At
the time of and immediately after giving effect to such Loan or issuance, no
Default shall have occurred and be continuing.

(m)          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 (k) and (l) of this Article IV.

(n)           The
Administrative Agent shall have received a Loan Request meeting the
requirements of Section 2.03.

(o)           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.

(p)           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.

(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, condition (financial or otherwise) or material agreements of
Borrower and its Subsidiaries, (B) the business, assets, operations, condition
(financial or otherwise) or material agreements of the “Subject Companies” (as
defined in the Smith Acquisition Agreement), Sirius Maritime, LLC or the
Smith/Sirius Seller since December 31, 2006, (C) the ability of any Credit
Party to perform any of its obligations under any Loan Document, (D) the rights
of or benefits available to the Administrative Agent or any Lender under any
Loan Document or (E) the ability of any party to the Smith/Sirius Acquisition Documents
to perform any of its obligations under the Smith/Sirius Acquisition Documents
or any instrument, document or agreement evidencing the Phase Two Transactions
and (ii) with the current status of, and the terms of any settlement or
other resolution of, any litigation or other proceedings brought against
Borrower or any Subsidiary.

(r)            The
Lenders shall have completed a due diligence investigation of Smith/Sirius
Seller, the “Subject Companies” (as defined in the Smith Acquisition
Agreement), Sirius Maritime, LLC, Interisland, Tow Boat and Diving, in scope,
and with results, satisfactory to the Lenders; the “Subject Companies”, Sirius
Maritime, LLC, Interisland, Tow Boat and Diving 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 the “Subject Companies”,

 45
 

Sirius Maritime, LLC, Interisland, Tow Boat and Diving and their
respective properties as the Administrative Agent shall have reasonably
requested.

(s)           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 (i) Borrower and its
Subsidiaries, (ii) the “Subject Companies” (as defined in the Smith Acquisition
Agreement), (iii) Sirius Maritime, LLC or (iv) Interisland, Tow Boat or Diving
has occurred since December 31, 2006.

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

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

(v)           All
material approvals and consents of all Persons required to be obtained in
connection with the consummation of the Smith/Sirius Acquisition Transactions
and the Phase Two Transactions shall have been obtained and shall be in full
force and effect, and all required notices have been given and all required
waiting periods shall have expired, and the Administrative Agent shall have
received a certificate, in all respects reasonably satisfactory to the Administrative
Agent, of an officer of Borrower to the foregoing effect.

(w)          The
Administrative Agent shall have received copies of such environmental studies,
surveys and reports, in form and substance satisfactory to the Administrative
Agent, as the Administrative Agent may reasonably require, with respect to the
real property owned or leased by the “Subject Companies” (as defined in the
Smith Acquisition Agreement), Sirius Maritime, LLC, Interisland, Tow Boat or
Diving.

(x)            The
Administrative Agent shall have received and be reasonably satisfied with (i)
the audited balance sheet of Smith/Sirius Sellers as at December 31, 2004,
December 31, 2005 and December 31, 2006 and the audited results of operations,
cash flows and stockholders’ equity of the Smith/Sirius Sellers for the fiscal
years ending on December 31, 2005 and December 31, 2006, in each case prepared
in accordance with GAAP consistently applied and certified by
PricewaterhouseCoopers LLP, (ii) the financial statements of Smith/Sirius
Sellers as at and for the fiscal quarter ending on June 30, 2007 and the then
elapsed portion of the fiscal year, setting forth in each case in comparative
form the figures for the corresponding fiscal quarter end, and period or
periods, of the previous fiscal 

 46
 

year, (iii) biographical information in form and substance
satisfactory to the Administrative Agent with respect to such officers of the “Subject
Companies” (as defined in the Smith Acquisition Purchase Agreement), Sirius
Maritime, LLC and the Smith/Sirius Sellers as the Administrative Agent may
reasonably request, together with a summary of the anticipated roles of such
officers after the consummation of the Smith/Sirius Acquisition and (iv) the
audited consolidated Financial Statements (with an unqualified opinion) of Borrower
and K-Sea as at and for the fiscal year ending June 30, 2006, prepared and
certified by PricewaterhouseCoopers LLP.

(y)           The
Administrative Agent shall have received and be satisfied with consolidated and
consolidating pro forma balance sheets of Borrower and its Subsidiaries as of
the Effective Date, after giving effect to the Transactions, the Smith/Sirius
Acquisition Transactions (including all debt and equity issuances in connection
therewith) and the Phase Two Transactions.

(z)            The
Administrative Agent shall have received a certificate of a Financial Officer
of K-Sea setting forth reasonably detailed calculations demonstrating pro forma
compliance with Sections 5.20(a), 6.01, 6.02, 6.03 and 6.04 hereof as of
the Effective Date, after giving effect to the Transactions and the
consummation of the Smith/Sirius Acquisition Transactions (including all debt
and equity issuances in connection therewith) and the Phase Two Transactions.

(aa)         The
Administrative Agent shall have a certificate from a Financial Officer of K-Sea
demonstrating in reasonable detail that as of the Effective Date, after giving
effect to the Transactions and the consummation of the Smith/Sirius Acquisition
Transactions (including all debt and equity issuances in connection therewith)
and the Phase Two Transactions, pro forma EBITDA is not less than $95,000,000.

(bb)         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.

The Administrative Agent
(acting itself or through its counsel) shall notify Borrower, the Lenders of
the Effective Date, and such notice shall be conclusive and binding.  Notwithstanding the foregoing, the
obligations of Lenders to make Loans shall not become effective unless each of
the foregoing conditions is satisfied (or waived pursuant to Section 9.06
hereof) at or prior to 3:00 p.m., New York City time, on or prior to August
31, 2007 (and, in the event such conditions are not so satisfied or waived, the
Commitments shall terminate at such time).

 47
 

ARTICLE V

AFFIRMATIVE
COVENANTS

Until the principal of and
interest on each Loan 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 5.01               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 without a going
concern qualification) 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 detailed
calculations demonstrating compliance with Sections 5.20(a), 6.01, 6.02,
6.03 and 6.04 and (iii) stating whether any change in GAAP or in the
application thereof has occurred since the date of the audited Financial
Statements referred to in Section 3.04 or Section 5.01 hereof, as
applicable, has materially and adversely effected the Financial Statements
accompanying such certificate and, if so, the estimated dollar amount thereof.

(c)           Promptly
after the same become publicly available, Borrower shall make available (which
shall include through electronic availability by filing with the Securities and
Exchange Commission) to the Administrative Agent and the Lenders copies of all
financial statements required to be prepared and delivered in accordance with
Section 5.01(a) and other 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

 48
 

(d)           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 5.02               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, if any, 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, 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 any 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.

Section 5.03               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;

 49
 

(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 5.04               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; provided
that, after the consummation of the Phase Two Transactions, Borrower may
dissolve Diving, Interisland, Tow Boat and Marine Logistics, Inc. (as each such
Subsidiary shall have been converted to a limited liability company).

Section 5.05               Insurance.

(a)           With
respect to the Collateral and other assets, Borrower shall maintain, and cause
each Subsidiary Guarantor to 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 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)           From
and after the occurrence of the Collateral Trigger Event, 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, effective as of the Collateral Trigger Date,
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 or any Subsidiary Guarantor 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 upon the
occurrence of the Collateral Trigger Event. 
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.  Upon the
occurrence of the Collateral Trigger Event, Borrower shall deliver to the
Administrative Agent, in kind, all instruments representing proceeds of
insurance received by Borrower or any Subsidiary

 50
 

Guarantor.  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 after the occurrence
of the Collateral Trigger Event 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.  Upon the occurrence of the Collateral Trigger
Event, Borrower will insure, and cause each Subsidiary Guarantor to 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.

(c)           The
obligations of Borrower under this Section 5.05 are subject to the prior rights
of the administrative agent and collateral trustee under the Revolving Loan
Documents.

Section 5.06               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 any security interest that
may be granted in favor of the Lenders 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.  Borrower will, and will cause each of its
Subsidiaries, to comply with all laws and all acts, rules, regulations and
orders of any legislative, administrative or judicial body or official,
applicable to the Collateral or to the operation of the business of Borrower.

Section 5.07               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 

 51
 

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 5.08               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 5.09               Use
of Proceeds.

(a)           The
proceeds of the Loans shall be used to finance, in part, the Smith/Sirius
Acquisition.

(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 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 Borrower, K-Sea or any Subsidiary Guarantor, except
as set forth in Section 5.09(a).

 52
 

Section 5.10               U.S.
Person.

(a)           Borrower 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.

(b)           Each
of K-Sea LLC and Smith Maritime shall at all times until the Lien of the
Mortgage shall be discharged and there are no Loans outstanding hereunder be a
limited liability company organized under the laws of Delaware or another state
within the United States.

(c)           Each
of K-Sea Hawaii and K-Sea Transportation Inc. shall at all times until the Lien
of the Mortgage shall be discharged and there are no Loans outstanding
hereunder be a corporation organized under the laws of Delaware or another
state within the United States.

Section 5.11               Documentation.

Borrower will, and will
cause each Subsidiary Guarantor to, 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 5.12               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.

Section 5.13               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, upon
the granting thereof, the Administrative Agent’s and the Collateral Trustee’s
perfected security interest in the Collateral, against all claims and demands
whatsoever (except those liens or claims securing obligations under the
Revolving Loan Documents).  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 

 53
 

Agent’s satisfaction
within thirty (30) days after such claim shall have first become known to
Borrower.

Section
5.14               Indemnification.

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

Section 5.15               Performance
of Contracts.

Borrower will, and will
cause each Subsidiary Guarantor to, 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.  If an Event of Default shall
have occurred and be continuing, Borrower shall not, and shall not permit any
Subsidiary Guarantor to, 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 5.16               Environmental
Compliance.

Borrower (a) 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; and (b) 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 

 54
 

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.

Section 5.17               Subsidiary
Guaranties.

Upon the formation or
acquisition of any Subsidiary of Borrower (other than an Excluded Subsidiary),
Borrower shall cause each such Subsidiary to provide a Subsidiary Guaranty to
the Administrative Agent substantially in the form attached hereto as Exhibit F.  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 5.18               Qualified
Equity Issuance.

K-Sea shall commence,
within 15 days after the Effective Date, the Qualified Equity Issuance.

Section 5.19               Collateral.

(a)           In
the event of the occurrence of the Collateral Trigger Event, each of Borrower,
K-Sea LLC, Smith Maritime and K-Sea Hawaii shall, to secure the payment and
performance in full of all Obligations, grant (and shall be deemed to have
granted upon the occurrence of the Collateral Trigger Event pursuant to this
Section 5.19 and Exhibit D) 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 each of
Borrower, K-Sea LLC, Smith Maritime and K-Sea Hawaii (or any other Subsidiary
Guarantor) shall assign and pledge (and shall be deemed to have assigned and
pledged upon the occurrence of the Collateral Trigger Event pursuant to this
Section 5.19 and Exhibit D) 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)           Borrower
shall, promptly at any time and from time to time, at its sole expense, execute
and deliver, and cause K-Sea LLC, Smith Maritime and K-Sea Hawaii (or any other
Subsidiary Guarantor) to execute and deliver, to the Administrative Agent such
instruments and documents, and take such action, as the Administrative Agent
may from time to time request in order to further carry out the intent and
purpose of this Section 5.19 and Exhibit D
and to establish and protect the rights, interests and remedies created, or
intended to be created, in favor of the Collateral Trustee, the Administrative
Agent and the Lenders hereby and by the Mortgage, the Assignments and the other
Loan Documents to be executed and delivered pursuant to

 55
 

Exhibit D,
including, without limitation, the execution, delivery, recordation and filing
of the Mortgage, 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 Uniform Commercial Code 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.

(c)           Upon
the occurrence of the Collateral Trigger Event, without any further action by
any of the parties hereto, this Agreement shall be deemed to be amended and supplemented
to include the agreements, representations and warranties, covenants and other
terms and provisions set forth in Exhibit D,
each of which shall be deemed to be incorporated herein by reference.

(d)           The
liens, mortgages and security interests granted hereby on the Collateral to be
effective  upon the occurrence of the
Collateral Trigger Event shall be subject and subordinate to the liens,
mortgages and security interests securing the Revolving Loan Documents pursuant
to the terms of the Intercreditor Agreement.

Section 5.20               Fair Market Value.

(a)           Borrower
shall cause the aggregate Fair Market Value of the Pool Vessels (based on the
most recently completed Appraisal of the Pool Vessels delivered to the
Administrative Agent) at all times to be not less than $274,000,000.

(b)           In
the event any Appraisal delivered to the Administrative Agent performed at any
time after the Effective Date demonstrates that the aggregate Fair Market Value
of the Pool Vessels is less $274,000,000, Borrower shall promptly, and in any
event within 10 Business Days, pledge to KeyBank as administrative agent and
collateral trustee under the Revolving Loan Documents (and, upon the occurrence
of the Collateral Trigger Event, pledge to the Collateral Trustee, subject to
such prior pledge securing the Revolving Loan Obligations pursuant to the
Intercreditor Agreement) additional vessels acceptable to the Administrative
Agent, and the Proceeds thereof, so that, after giving effect to such pledge of
additional vessels, the aggregate Fair Market Value of the Pool Vessels is not
less than $274,000,000.

Section 5.21               Substitution of Pool
Vessels.

Borrower may, on reasonable prior notice to the
Administrative Agent and the Lenders, substitute a Pool Vessel with another
vessel reasonably satisfactory to the Administrative Agent, provided
that after giving effect to such substitution, the aggregate Fair Market Value
of the Pool Vessels is not less than $274,000,000.  If such substitution shall occur after the
occurrence of the Collateral Trigger Event, 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, 

 56
 

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 5.22         Phase
Two Transaction.

Borrower shall cause the Phase Two Transactions to be
consummated on or before the tenth (10th) day following the Effective Date and
upon such consummation, the Administrative Agent shall receive:

(a)           promptly
after becoming available from the United States Coast Guard National Vessel
Documentation Center in Falling Waters, West Virginia and in any event within
two (2) Business Days thereafter, with respect to each Phase Two Pool Vessel,
in form and substance satisfactory to the Administrative Agent, and in
sufficient copies, a true and complete copy of either (1) a certificate of
ownership and encumbrance issued by the United States Coast Guard or (2) an
abstract of title issued by the United States Coast Guard, in either case,
showing (i) K-Sea LLC to be the owner of the K-Sea LLC Phase Two Pool Vessels,
(ii) Smith Maritime to be the owner of the Smith Maritime Pool Vessels and
(iii) K-Sea Hawaii to be the owner of the K-Sea Hawaii Phase Two Pool Vessels,
in each case free and clear of all Liens of record except (x) the Liens created
and granted by the Revolving Loan Documents and (y) the Permitted Liens; and

(b)           a
certificate, signed by a Financial Officer of Borrower, attaching a true,
complete and correct copy of each of the instruments, documents and agreements
evidencing the Phase Two Transactions (each of which shall be in form and
substance reasonably satisfactory to the Administrative Agent.

ARTICLE VI

NEGATIVE
COVENANTS

Until
the principal of and interest on each Loan 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 6.01               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 1.85 to 1.00.

Section 6.02               First
Lien Funded Debt to EBITDA Ratio.

Borrower shall not permit
the First Lien 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:

 57
 

 

	
  Period

  	
   

  	
  Ratio

  
	
   

  	
   

  	
   

  
	
  Effective Date
  to December 31, 2007

  	
   

  	
  4.25 to 1.00

  
	
  January 1, 2008
  and thereafter

  	
   

  	
  4.00 to 1.00

  

 

Section 6.03               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 30, 2007

  	
   

  	
  4.75 to 1.00

  
	
  December 31,
  2007 to and including June 30, 2009

  	
   

  	
  4.00 to 1.00

  
	
  July 1, 2009 and
  thereafter

  	
   

  	
  3.75 to 1.00

  

Section 6.04               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 6.05               No
Liens.

(a)           Borrower
shall not and shall 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 (i) Liens in favor of KeyBank as
collateral trustee for the lenders under the Revolving Loan Agreement, (ii)
Permitted Liens and (iii) in the event such Liens are granted to secured the
Loans pursuant to Section 5.19, Permitted Bridge Loan Liens.

(b)           Borrower
shall not and shall not permit any Subsidiary Guarantor or any charterer of any
vessels or any of them to create, assume or suffer to exist any Lien of any
kind upon any of Borrower’s or any Subsidiary Guarantor’s property or assets
(including, without limitation, accounts receivable and any vessel not included
as a Pool Vessel) except for:

(i)            Liens in favor of the Administrative
Agent and the Collateral Trustee;

(ii)           Permitted Liens and Liens of the type
described in the definition of “Permitted
Liens” in respect of all vessels owned by Borrower or any direct
or indirect Subsidiary of Borrower;

(iii)          Liens on fixed or capital assets
acquired, constructed or improved by Borrower or any Subsidiary Guarantor,
provided that (A) such Liens secure Indebtedness permitted by clause (vi) of
Section 6.12(a), (B) such Liens and the Indebtedness secured thereby are
incurred prior to or within 90 days after such 

 58
 

acquisition or
the completion of such construction or improvement, (C) the Indebtedness
secured thereby does not exceed the cost of acquiring, constructing or
improving such fixed or capital assets and (D) such Lien shall not apply to any
other property or asset of Borrower or any Subsidiary Guarantor;

(iv)          any Lien on any property or asset of
Borrower or any Subsidiary Guarantor existing on the Effective Date and set
forth on Schedule 6.05, provided that (A) such Lien shall not
apply to any other property or asset of Borrower or any Subsidiary Guarantor
and (B) such Lien shall secure only those obligations which it secures on the
Effective Date and any extensions, renewals and replacements thereof that do not
increase the outstanding principal amount thereof; and

(v)           Liens securing the Revolving Loan
Obligations.

Section 6.06               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 6.07               No
Disposition of Assets.

Without the prior written
consent of Lenders (which shall not be unreasonably withheld), Borrower shall
not, and shall not permit any Subsidiary Guarantor to, 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 (i) 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,
(ii) sales, leases, transfers, assignments, abandonments, exchanges,
relinquishments of possession or dispossessions of Collateral or other assets
having an aggregate value not to exceed $1,000,000 during the term hereof),
(iii) the Phase Two Transactions and (iv) after the consummation of the Phase Two Transactions, in connection
with the dissolution by Borrower of Diving, Interisland, Tow Boat and Marine
Logistics, Inc. (as each such Subsidiary shall have been converted to a limited
liability company)).

Section 6.08               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 

 59
 

Guarantor may sell, transfer, lease or otherwise dispose of its assets
to Borrower or to another Subsidiary Guarantor, (iv) any Subsidiary
Guarantor (including, without limitation,
after the consummation of the Phase Two Transactions, Diving, Interisland, Tow
Boat and Marine Logistics, Inc. (as each such Subsidiary shall have been
converted to a limited liability company)) 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 Lenders
and (v) the Credit Parties may consummate the Phase Two Transactions.

(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 6.09               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, (c)  any transaction permitted by
Section 6.08 hereof and (d) the Phase Two Transactions; provided
that the foregoing provisions of this Section 6.09 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, including, without limitation, the Smith/Sirius Acquisition, and for
use in Borrower’s business.

Section 6.10               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 6.05
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 this Section 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 

 60
 

such Indebtedness
and (v) clause (a) of this Section shall not apply to customary provisions
in leases and other contracts restricting the assignment thereof.

Section 6.11               Limitations
on Advances and Distributions.

Borrower shall not make distributions to any limited
or general partner of 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 loans
or advances to any Affiliate or related Persons of Borrower, except K-Sea, any
Excluded Subsidiary and any Subsidiary Guarantor; provided that, (i)
except for the loan described in clause (ii) of this proviso, the aggregate
outstanding amount of all such loans and advances to the Excluded Subsidiaries
shall not exceed $2,000,000 at any one time and (ii) Borrower may make a loan
to K-Sea Canada Corp. in a principal amount not to exceed $13,100,000.

Section 6.12               Limitations
on Other Indebtedness.

(a)           Borrower
shall not, and will not permit any Subsidiary to, create, incur, assume or
permit to exist any Indebtedness, except:

(i)            Indebtedness
under the Loan Documents;

(ii)           Indebtedness
under the Revolving Loan Documents, including any extensions, renewals or
replacements of any such Indebtedness;

(iii)          Indebtedness
constituting an extension, renewal or replacement of the Tranche B Loans that
does not increase the outstanding principal amount thereof and is otherwise on
terms and conditions reasonably acceptable to the Administrative Agent;

(iv)          Subordinated
Indebtedness the proceeds of which are used to repay the Loans or the Tranche B
Loans;

(v)           Indebtedness
existing on the Effective Date and set forth on Schedule 6.12, including any extensions, renewals or
replacements of any such Indebtedness that do not increase the outstanding
principal amount thereof;

(vi)          Indebtedness
incurred to finance the acquisition, construction or improvement of any fixed
or capital assets, including Capital Lease Obligations, and any Indebtedness
assumed in connection with the acquisition of any such assets or secured by a
Lien on any such assets prior to the acquisition thereof (and not created in
contemplation of such acquisition), and extensions, renewals and replacements
of any such Indebtedness that do not increase the outstanding principal amount
thereof, provided that (A) such Indebtedness is incurred prior to or
within 90 days after such acquisition or the completion of such construction or
improvement, (B) such Indebtedness does not exceed the cost of acquiring,
constructing or improving such assets, (C) both before and after giving effect
to the incurrence of such Indebtedness, no Default shall have occurred and be
continuing and (D) the aggregate principal 

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amount of Indebtedness permitted by this clause (vi) shall not exceed
$10,000,000 at any time outstanding; and

(vii)         Indebtedness
of a Subsidiary to any other Subsidiary and of any Subsidiary to Borrower.

(b)           Prior
to the repayment in full of the Loans, Borrower shall not, and it will not
permit any Subsidiary to, (i) issue any preferred equity securities (other than
issuances of preferred equity securities the Net Proceeds from which shall be
used to repay the Loans or (ii) be or become liable in respect of any
obligation (contingent or otherwise) to purchase, redeem, retire, acquire or
make any other payment in respect of any shares of equity securities of
Borrower or any Subsidiary or any option, warrant or other right to acquire any
such shares of equity securities.

Section 6.13               Limitation
on Investments, Loans, Advances, Guarantees and Acquisitions.

Borrower shall not, and
shall not permit any of the Subsidiaries to, purchase, hold or acquire
(including pursuant to any merger) any Capital Stock, evidences of Indebtedness
or other securities (including any option, warrant or other right to acquire
any of the foregoing) of, make or permit to exist any loans or advances to,
Guarantee any obligations 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, or purchase, hold or
acquire any “derivative” (other than a Hedging Agreement entered in to with any
Lender (or any Affiliate thereof) as a counterparty permitted hereby), except:

(a)           as
permitted by Sections 6.15 and 6.16;

(b)           investments
existing on the Effective Date and set forth on Schedule 6.13;

(c)           investments
made by Borrower in the Capital Stock of its Subsidiaries and investments made
by a Subsidiary in the Capital Stock of any other Subsidiary or K-Sea; and

(d)           Indebtedness
permitted to be incurred pursuant to Section 6.12.

Section 6.14               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 

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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 6.15               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 6.16
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 5.20(a), 6.01, 6.02, 6.03 and 6.04 after giving
effect to such Permitted Acquisition for the period from the date of such
Permitted Acquisition to the Maturity Date.

Section 6.16               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.

Section 6.17               Capital
Expenditures.

Borrower shall not make
or become obligated to make, and shall not permit any of its Subsidiaries to
make or become obligated to make, Capital Expenditures in respect of any fiscal
year in an amount greater than $75,000,000 in the aggregate.

Section 6.18               Prepayments
of Indebtedness.

Borrower shall not, and
shall not permit any Subsidiary to, prepay or obligate itself to prepay any
Indebtedness, except (i) Indebtedness under the Loan Documents and (ii)
Indebtedness under the Revolving Loan Documents.

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ARTICLE VII

EVENTS OF
DEFAULT AND REMEDIES

Section 7.01               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 Section 5.03, 5.04, 5.05(a), 5.07, 5.09,
5.10, 5.11, 5.13, 5.20, 6.01, 6.02, 6.03, 6.04, 6.10 or  6.18 or in Paragraph 1, 2(a), or 2(b) of Exhibit D;

(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 7.01), 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;

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

 64
 

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 7.01, (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 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)          except in connection with the Phase Two Transactions,
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;

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(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)           in the event of the occurrence of the Collateral Trigger
Event, 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 shall have granted any security interest in any
of the outstanding Collateral under this Agreement to any Person other than a
Lender, the Administrative Agent, the Collateral Trustee or KeyBank as
administrative agent and collateral trustee under the Revolving Loan Documents;

(v)           except in connection with the Phase Two Transactions, 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 

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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;

(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 Chapter 505 of Title 46, United States Code;
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 7.02               Remedies.

Upon the occurrence of an Event of Default, or at any
time thereafter during the continuance thereof, the Administrative Agent shall
at the request, or may with the consent, of the Required Lenders, 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; provided, however, in the case of an Event of
Default specified in Section 7.01(g) or 7.01(h), (i) the obligation of each
Lender to make Loans shall automatically be terminated and (ii) 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 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
7.02, 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 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.  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.

ARTICLE
VIII

THE
AGENTS

Section 8.01               Authorization
and Action.

(a)           Each Lender hereby appoints KBCM as Administrative Agent
and KeyBank as “Collateral Trustee” under the Mortgage and authorizes KBCM to
take such action as agent and authorizes KeyBank as “Collateral Trustee” on
KBCM’s behalf and to exercise such

 67
 

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.  KBCM
hereby accepts its appointment as Administrative Agent and KeyBank hereby
accepts its appointment as Collateral Trustee. 
The Administrative Agent and KeyBank 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, 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 8.02               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 9.07;
(b) may consult with legal counsel (including counsel for any Credit 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 

 68
 

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 8.03               KBCM
and Affiliates.

With respect to its
Commitment, the Loans made by it and the Note issued to it, KBCM 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 KBCM in its
individual capacity.  KBCM 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 Borrower or
its Affiliates, for services in connection with this Agreement, the other Loan
Documents or otherwise, all as if KBCM were not the Administrative Agent and
without any duty to account therefor to the Lenders.

Section 8.04               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
3.04 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 8.05               Indemnification.

(a)           Each Lender severally agrees to indemnify the
Administrative Agent and the Collateral Trustee (to the extent not promptly
reimbursed by 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 Administrative Agent or the Collateral Trustee 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 or the Collateral Trustee under any of the Loan Documents;
provided, however, 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 or the Collateral Trustee’s gross negligence or willful
misconduct.  Without limitation of the
foregoing, each Lender agrees to reimburse the Administrative Agent and the
Collateral Trustee promptly upon demand for its ratable share of any costs and
expenses (including, without limitation, fees and expenses of counsel) payable
by Borrower under Section 9.06, to the extent that the Administrative Agent and
the Collateral Trustee are not promptly reimbursed for such costs and expenses
by Borrower.

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(b)           For purposes of Section 8.05(a), the Lenders’ respective
ratable shares of any amount shall be determined, at any time, according to the
sum of the aggregate principal amount of the Loans outstanding at such time and
owing to the Lenders.  In the event that
any Lender shall have failed at any time to make available to the Administrative
Agent any amounts payable by such Lender under Sections 2.04 or 2.12(e), for
purposes of this Section 8.05 the amount of such non-payment shall be deducted
from such aggregate principal amount. 
The failure of any Lender to reimburse the Administrative Agent or the
Collateral Trustee promptly upon demand for its ratable share of any amount
required to be paid by the Lenders to the Administrative Agent as provided
herein shall not relieve any other Lender of its obligation hereunder to
reimburse the Administrative Agent or the Collateral Trustee 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 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 obligations of each Lender contained in this Section 8.05 shall
survive the payment in full of principal, interest and all other amounts
payable hereunder and under the other Loan Documents.

Section 8.06               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 VIII 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.  The Collateral Trustee
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
Administrative Agent.  Upon any such
resignation or removal, the successor Administrative Agent shall appoint a 

 70
 

successor
Collateral Trustee.

Anything contained in this Section 8.06 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 8.07               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 8.01(b) hereof) take such action
with respect to such Default as shall be directed by the Required Lenders.

Section 8.08               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 8.09               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
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:

 71
 

(i)            to file and prove a claim for the whole amount of the principal
and interest owing and unpaid in respect of the Facility 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 2.09 and
9.06)  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 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
2.09 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 8.10               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”, “documentation 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 KBCM 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 8.03.

ARTICLE
IX

MISCELLANEOUS

Section 9.01               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 

 72
 

shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as
follows:

(a)           if to Borrower, to it at:

K-Sea Transportation
Partnership L.P.

One Tower Center
Boulevard

17th Floor

East Brunswick, New Jersey
08816

Attention:  Chief Financial Officer

Telecopier: 
(732) 565-3699

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

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

KBCM Bridge, LLC

800 Superior Avenue, 2nd Floor

Cleveland, Ohio 44114

Attention: KBCM Bridge,
LLC c/o Jason Maiher

Telecopier: 
(216) 443-3838

 73
 

with copies to:

KeyBank National
Association

575 Fifth Ave.

38th Floor

New York, New York  10017

Attention:  Steven B. Vitale

Telecopier:  (917) 368-2310

and

Emmet, Marvin &
Martin, LLP

120 Broadway

New York, New York 10271

Attention:  Richard S. Talesnick, Esq.

Telecopier: 
(212) 238-3100

(c)           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 9.02                 Term
and Termination.

The
initial term of this Agreement shall be from the date hereof until the date
that is 90 days after the date hereof. 
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 9.03                 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 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.

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Section 9.04                 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 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 9.05               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
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 2.12(b) or 2.12(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 

 75
 

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 hereunder without the prior written consent
of the Administrative Agent.

Section 9.06                 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 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 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 2.11 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 other than to the extent solely as a result
of the gross negligence or willful misconduct of the Administrative Agent (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.

 76
 

(c)           To the extent that Borrower fails to pay any amount required
to be paid by it to the Administrative Agent, the Collateral Trustee under
paragraph (a) or (b) of this Section, each Lender severally agrees to pay to
the Administrative Agent or the Collateral Trustee, 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 or the Collateral Trustee, in its capacity as such.

(d)           To the extent permitted by Applicable Law, Borrower shall
not assert, and hereby waives, any claim against any Indemnitee, on any theory
of liability, for special, indirect, consequential or punitive damages (as
opposed to direct or actual damages) arising out of, in connection with, or as
a result of, this Agreement or any agreement or instrument contemplated hereby,
the Transactions, any Loan 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 9.06 set forth are
in addition to the obligations of Borrower to pay indemnification on account of
Taxes and Other Taxes, as provided in Section 2.11 hereof.

Section 9.07               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 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

 77
 

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
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 2.09, 2.10, 2.11 and 9.06 hereof), provided, however,
no assignee shall be entitled to receive any greater payment under Section 2.09,
2.11 or 9.06(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 

 78
 

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 9.05(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 2.09, 2.10 and 2.11 hereof to the same extent as if
it were a Lender and had acquired its interest by assignment pursuant to
paragraph (b) of this Section.

(f)            A Participant shall not be entitled to receive any
greater payment under Section 2.09 or 2.11 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 2.11 unless Borrower is notified of the
participation sold to such Participant and such Participant agrees, for the
benefit of Borrower, to comply with Section 2.11(d) as though it were a
Lender.  So long as a Participant agrees,
such Participant shall be bound by Section 2.13 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 9.08                  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 2.09, 2.10, 2.11 and 9.06 and Article VIII 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.

 79
 

Section 9.09                 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 Article IV 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.  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 9.10                 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 9.11                 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 9.12                 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 

 80
 

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.

(d)           Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01
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 9.13                 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 9.14                 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 9.15                 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 

 81
 

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 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 9.16                 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 9.17                 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, 

 82
 

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 9.18               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 pages follow.]

 83

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

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  KBCM BRIDGE, LLC,
  for itself as Lender,

  and as Administrative Agent  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Laurie Muller-Girard

  	
   

  
	
   

  	
   

  	
  Name:  

  	
  Laurie Muller-Girard

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
						

 

 

	
   

  	
   

  	
  KEYBANK NATIONAL ASSOCIATION, solely 

  in its capacity as Collateral Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Joseph Markey

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Joseph Markey

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Director

  	
   

  
						

 

EXHIBIT D

Grant of
Security Interest

1.                                       Grant of Security Interest.

(a)                                  Each of Borrower,
K-Sea LLC, Smith Maritime and K-Sea Hawaii, to secure the payment and
performance in full of all Obligations, hereby grants to the Collateral Trustee
for the ratable benefit of the Lenders, effective as of the Collateral Trigger
Date, a continuing security interest in and Lien upon, and a right of set-off
against, and each of Borrower, K-Sea LLC, Smith Maritime and K-Sea Hawaii
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. 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 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.

(b)                                 The
grants made in this Paragraph 1 are subject and subordinated to the
corresponding grants made to secure the Revolving Loan Obligations on the terms
set forth in the Intercreditor Agreement.

2.                                       Collateral Trigger Event Deliveries.

Not later than five (5)
Business Days after the Collateral Trigger Date, Borrower shall satisfy each of
the follow:

(a)                                  The
Administrative Agent shall receive: (i) the Borrower Mortgage substantially in
the form of the “Borrower Mortgage”, as amended and supplemented, delivered by
Borrower pursuant to the Revolving Loan Agreement and otherwise in form and
substance satisfactory to the Administrative Agent, duly signed on behalf of
Borrower, (ii) the K-Sea LLC Mortgage substantially in the form of the “K-Sea
LLC Mortgage”, as amended and supplemented, delivered by K-Sea LLC pursuant to
the Revolving Loan Agreement and otherwise in form and substance satisfactory
to the Administrative Agent, duly signed on behalf of K-Sea LLC, (iii) the
Smith Maritime Mortgage substantially in the form of the “Smith Maritime
Mortgage” delivered by Smith Maritime pursuant to the Revolving Loan Agreement and
otherwise in form and substance satisfactory to the Administrative Agent, duly
signed on behalf of Smith Maritime, and (iv) the K-Sea Hawaii Mortgage
substantially in the form of the “K-Sea Hawaii Mortgage” delivered by K-Sea
Hawaii pursuant to the Revolving Loan 

Agreement and
otherwise in form and substance satisfactory to the Administrative Agent, duly
signed on behalf of K-Sea Hawaii.

(b)                                 The
Administrative Agent shall receive the following, each 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 Liens and security interests created hereunder
and under the Borrower Mortgage, the K-Sea LLC Mortgage, the Smith Maritime
Mortgage, the K-Sea Hawaii Mortgage and the other Loan Documents, covering the
Collateral;

(ii)                                  evidence
of the completion of all other recordings and filings of or with respect to the
Lien created hereby and by the Borrower Mortgage, the K-Sea LLC Mortgage, the
Smith Maritime Mortgage, the K-Sea Hawaii Mortgage and the other Loan Documents
that the Administrative Agent may deem necessary or desirable in order to
perfect and protect the Liens created by such Loan Documents;

(iii)                               with
respect to each Pool Vessel, the following (and each instrument shall be
subordinate to the corresponding instrument granted to secure the Revolving
Loan Obligations on the terms set forth in the Intercreditor Agreement):

(A) (I) the Borrower
Mortgage described in paragraph 2(a) above, which shall cover each Pool Vessel
owned by Borrower, (II) the K-Sea LLC Mortgage described in paragraph 2(a)
above, which shall cover each Pool Vessel owned by K-Sea LLC, (III) the Smith
Maritime Mortgage described in paragraph 2(a) above, which shall cover each
Pool Vessel owned by Smith Maritime and (IV) the K-Sea Hawaii Mortgage
described in paragraph 2(a) above, which shall cover each Pool Vessel owned by
K-Sea Hawaii, 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, each Mortgage shall have been duly filed for
recording with the United States Coast Guard, and each of such 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, substantially similar to the assignments covering earnings and
requisition compensation of such Pool Vessel delivered by Borrower, K-Sea LLC,
Smith Maritime and K-Sea Hawaii pursuant to the Revolving Loan Agreement and
otherwise 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;

 2
 

(C)                                an
assignment covering the insurances of such Pool Vessel, substantially similar
to the assignments covering the insurances of such Pool Vessel delivered by
Borrower, K-Sea LLC, Smith Maritime and K-Sea Hawaii pursuant to the Revolving
Loan Agreement and otherwise 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 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 (1) a certificate of ownership and encumbrance
issued by the United States Coast Guard or (2) an abstract of title issued by
the United States Coast Guard, in either case, showing 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 KeyBank as
collateral trustee for the benefit of the lenders party to the Revolving Loan
Agreement, (y) the Mortgage covering such Pool Vessel in favor of the
Collateral Trustee for the benefit of the Lenders and (z) 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 date of the
Collateral Trigger Event, certified by an officer of Borrower as true and
correct;

(H)                               a
copy of the current certificate of inspection issued by the United States Coast
Guard for such 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 KeyBank as administrative agent and collateral trustee
for the lenders party to the Revolving Loan Agreement and 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, 

 3
 

whereunder the insurances of such Pool Vessel, and
claims thereunder, will not be affected by nonpayment of premiums on any other
insurances; and

(c)                                  The
Administrative Agent shall have received satisfactory evidence that the Pool
Vessels are operationally suitable for the trades in which the Pool Vessels are
expected to be engaged and can be operated by Borrower, K-Sea LLC, Smith
Maritime and/or K-Sea Hawaii in their intended trades without impediment.

(d)                                 The
Administrative Agent and Collateral Trustee and KeyBank as administrative agent
and collateral trustee for the lenders under the Revolving Loan Agreement shall
have entered into the Intercreditor Agreement.

3.                                       Additional Representations.

Borrower shall represent and warrant to the
Administrative Agent, the Lenders and the Collateral Trustee that, as of the
Collateral Trigger Date:

(a)                                  Vessels.

(i)                                     Set
forth on Schedule 1.01A is a complete and
accurate list, as of the Collateral Trigger Date, of all Pool Vessels, showing
as of the date of the Collateral Trigger Event with respect to each such Pool
Vessels the following:  (i) the name of
each Pool Vessel and (ii) the name of the Registered Owner of the Pool Vessels.

(ii)                                  Each
such Pool Vessel identified on Schedule 1.01A
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).

(iii)                               The
information listed on each certificate of the American Bureau of Shipping
required to be delivered pursuant to paragraph 2(b)(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.

 4
 

4.                                       Additional Covenants.

Upon the occurrence of the Collateral Trigger Event,
and until the principal and interest on each Loan 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:

(a)                                  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 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.

(b)                                 Relating
to the Vessels.

(i)                                     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.

(ii)                                  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.

(iii)                               Borrower
shall, and shall cause each Subsidiary Guarantor to, 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.

5.                                       Certain Other Provisions.  

(a)                                  Prepayments.

(i)                                     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 

 5
 

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, subject to the terms of the Intercreditor Agreement.

(ii)                                  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 the Loans or the Notes, 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 7.02 of the Agreement.  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).  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.

(b)                                 Application
of Charter Proceeds.  After an Event
of Default shall have occurred and be continuing and after the Lenders have
declared all amounts outstanding hereunder to be due and payable pursuant to
Section 7.02 of the Agreement, all payments received and amounts realized
by any Lender (including, without limitation, as assignees from Borrower or any
Subsidiary Guarantor of any charter of any Pool Vessel), as well as all
payments or amounts then held by the Lenders as part of the Collateral, shall
be applied against the Obligations in such order and such manner as the
Lenders, in their sole discretion, may determine and as otherwise provided in the
other Loan Documents and the documents evidencing the other Obligations, and
the balance, if any, shall be paid by the Lenders to Borrower.

(c)                                  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 perform any act which, in such Lender’s sole
judgment, is necessary or appropriate to preserve,

 6
 

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.

 7

SCHEDULE
1.01A

Pool
Vessels

	
  VESSEL NAME

  	
   

  	
  OFFICIAL NO.

  	
   

  	
  REGISTERED OWNER

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Double Hull Barges

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 151

  	
   

  	
  641082

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 70

  	
   

  	
  540401

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 31

  	
   

  	
  1079242

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 32

  	
   

  	
  1087118

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 17

  	
   

  	
  1065655

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 18

  	
   

  	
  1065657

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 19

  	
   

  	
  1065658

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 53

  	
   

  	
  500121

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DBL 134

  	
   

  	
  699977

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Casablanca

  	
   

  	
  901203

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pacific

  	
   

  	
  996165

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Puget Sounder

  	
   

  	
  981972

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sasanoa

  	
   

  	
  1110781

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Leo

  	
   

  	
  1136725

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Rigel

  	
   

  	
  991836

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Na-Kao

  	
   

  	
  1174391

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Noa

  	
   

  	
  1121896

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nale

  	
   

  	
  1190335

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ne’ena

  	
   

  	
  1163049

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Single Hull Barges

  	
   

  	
   

  	
   

  	
   

  
	
  KTC 80

  	
   

  	
  643281

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  KTC 71

  	
   

  	
  563364

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  KTC 60

  	
   

  	
  630272

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  KTC 50

  	
   

  	
  555901

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  KTC 55

  	
   

  	
  544437

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Noho Hele

  	
   

  	
  649722

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SCT 280

  	
   

  	
  587804

  	
   

  	
  K-Sea Transportation LLC

  

 

 1
 

 

	
  SCT 282

  	
   

  	
  596502

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tugs

  	
   

  	
   

  	
   

  	
   

  
	
  Rebel

  	
   

  	
  570047

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Yankee

  	
   

  	
  571215

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Viking

  	
   

  	
  541711

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Coral Sea

  	
   

  	
  550670

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Baltic Sea

  	
   

  	
  551908

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bering Sea

  	
   

  	
  569665

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Maryland

  	
   

  	
  287444

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Houma

  	
   

  	
  528526

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Odin

  	
   

  	
  647313

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Taurus

  	
   

  	
  602379

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Falcon

  	
   

  	
  598501

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Banda Sea

  	
   

  	
  504169

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Davis Sea

  	
   

  	
  651977

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Norwegian Sea

  	
   

  	
  574955

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sargasso Sea

  	
   

  	
  547618

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Timor Sea

  	
   

  	
  283906

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Barents Sea

  	
   

  	
  570419

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Caspian Sea

  	
   

  	
  640953

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Inland Sea

  	
   

  	
  1104151

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Labrador Sea

  	
   

  	
  1125307

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nathan E. Stewart

  	
   

  	
  1120997

  	
   

  	
  K-Sea Operating Partnership L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pacific Eagle

  	
   

  	
  500126

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tiger

  	
   

  	
  502116

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pacific Pride

  	
   

  	
  583851

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pacific Challenger

  	
   

  	
  571631

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pacific Freedom

  	
   

  	
  521494

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pacific Raven

  	
   

  	
  529686

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Paragon

  	
   

  	
  596518

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pacific Patriot

  	
   

  	
  627416

  	
   

  	
  K-Sea Transportation LLC

  

 

 2
 

 

	
  Sea Hawk

  	
   

  	
  589839

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pacific Avenger

  	
   

  	
  586202

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  John Brix

  	
   

  	
  293323

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pacific Wolf

  	
   

  	
  567630

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Altair

  	
   

  	
  640948

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Na Hoku

  	
   

  	
  636961

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nakoa

  	
   

  	
  572263

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nokea

  	
   

  	
  567629

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Jimmy Smith

  	
   

  	
  576980

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nalani

  	
   

  	
  640639

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Namahoe

  	
   

  	
  1048324

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Niolo

  	
   

  	
  653612

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nakolo

  	
   

  	
  557330

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nohea

  	
   

  	
  652801

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Noke

  	
   

  	
  1189830

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Naupaka

  	
   

  	
  661812

  	
   

  	
  K-Sea Hawaii Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nunui

  	
   

  	
  590234

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nohi

  	
   

  	
  664805

  	
   

  	
  Smith Maritime LLC

  

 

 3

SCHEDULE
1.01B

Phase Two
Pool Vessels

	
  VESSEL 

  NAME

  	
   

  	
  OFFICIAL 

  NO.

  	
   

  	
  REGISTERED OWNER

  	
   

  	
  POST PHASE TWO

  REGISTERED OWNER

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Double Hull Barges

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Leo

  	
   

  	
  1136725

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Na-Kao

  	
   

  	
  1174391

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Noa

  	
   

  	
  1121896

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nale

  	
   

  	
  1190335

  	
   

  	
  Tow Boat Services & Management, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ne’ena

  	
   

  	
  1163049

  	
   

  	
  Tow Boat Services & Management, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Single Hull Barges

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Noho Hele

  	
   

  	
  649722

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tugs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Jimmy Smith

  	
   

  	
  576980

  	
   

  	
  Tow Boat Services & Management, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Na Hoku

  	
   

  	
  636961

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nakoa

  	
   

  	
  572263

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nokea

  	
   

  	
  567629

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  K-Sea Transportation LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nalani

  	
   

  	
  640639

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Namahoe

  	
   

  	
  1048324

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Niolo

  	
   

  	
  653612

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Naupaka

  	
   

  	
  661812

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  K-Sea Hawaii Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nakolo

  	
   

  	
  557330

  	
   

  	
  Tow Boat Services & Management, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nohea

  	
   

  	
  652801

  	
   

  	
  Tow Boat Services & Management, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Noke

  	
   

  	
  1189830

  	
   

  	
  Uaukewai Diving, Salvage and Fishing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nohi

  	
   

  	
  664805

  	
   

  	
  Hawaiian Interisland Towing, Inc.

  	
   

  	
  Smith Maritime LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nunui

  	
   

  	
  590234

  	
   

  	
  Tow Boat Services & Management, Inc.

  	
   

  	
  Smith Maritime LLC

  

 

 1

SCHEDULE
2.01

Commitments

	
  Lender

  	
   

  	
  Commitment

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  KBCM Bridge, LLC

  	
   

  	
  $

  	
  60,000,000.00

  	
   

  
	
  Aggregate
  Commitments

  	
   

  	
  $

  	
  60,000,000.00

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00128-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00128-of-00352.parquet"}]]