Vessel Construction Agreement

EXHIBIT 10.7


EXECUTION VERSION


VESSEL CONSTRUCTION AGREEMENT


Between


BOLLINGER GRETNA, L.L.C.,
as Builder


and


K-SEA TRANSPORTATION L.L.C.,
as Buyer


Hull 416


Hull 417


Hull 421


Hull 422


March 23, 2001


TABLE OF CONTENTS


PAGE ARTICLE 1. SCOPE OF WORK .......................................................1 ARTICLE 2. PRICE AND PAYMENT; PERFORMANCE BOND .................................3 ARTICLE 3. DELIVERY AND ACCEPTANCE .............................................9 ARTICLE 4. CHANGES AND EXTRAS ..................................................11 ARTICLE 5. BUYER'S RIGHT OF CANCELLATION .......................................12 ARTICLE 6. RISK OF LOSS AND INSURANCE ..........................................12 ARTICLE 7. INDEMNIFICATION .....................................................17 ARTICLE 8. PATENT, COPYRIGHT AND TRADE SECRET INDEMNITY ........................18 ARTICLE 9. PLAN APPROVAL, INSPECTION, ACCESS AND TEST ..........................21 ARTICLE 10. FORCE MAJEURE ......................................................22 ARTICLE 11. DAMAGES FOR DELAY; EARLY DELIVERY BONUS ............................23 ARTICLE 12. CONSEQUENTIAL DAMAGES ..............................................23 ARTICLE 13. WARRANTY ...........................................................24 ARTICLE 14. LIENS AND ENCUMBRANCES .............................................26 ARTICLE 15. BUYER-FURNISHED EQUIPMENT AND INFORMATION ..........................27 ARTICLE 16. TAXES AND UNEMPLOYMENT CONTRIBUTIONS ...............................29 ARTICLE 17. USE OF PLANS AND SPECIFICATIONS ....................................29 ARTICLE 18. DEFAULT ............................................................30 ARTICLE 19. ASSIGNMENT .........................................................31 ARTICLE 20. SUBCONTRACTORS .....................................................32 ARTICLE 21. NOTICES ............................................................32 ARTICLE 22. GENERAL CONDITIONS .................................................33 ARTICLE 23. REPRESENTATIONS AND WARRANTIES .....................................35 EXHIBIT A FORM OF PROTOCOL OF DELIVERY AND ACCEPTANCE EXHIBIT 1 SPECIFICATIONS


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VESSEL CONSTRUCTION AGREEMENT


THIS AGREEMENT entered into this 23rd day of March, 2001, by and between Bollinger Gretna, L.L.C., a Louisiana Limited Liability Company with the current mailing address of 4640 Peters Road, Harvey, 1A 70058 (hereinafter referred to as "Bollinger"), and K-Sea Transportation L.L.C., a Delaware Limited Liability Company, with the current mailing address of 3245 Richmond Terrace, Staten Island, N.Y. 10303 (hereinafter referred to as "Buyer").


W I T N E S S E T H


That Bollinger and Buyer, for the consideration hereinafter set out, agree as follows:


ARTICLE I. SCOPE OF WORK


A. For and in consideration of the amounts to be paid to Bollinger by Buyer as hereinafter set forth, and subject to the terms and conditions contained herein, Bollinger agrees to design, build, outfit, install Buyer-furnished equipment as stated in the Specifications and deliver to Buyer afloat at Bollinger's yard in Harvey, Louisiana or at any mutually agreeable location (hereinafter referred to as "Shipyard"), one 100,000 barrel tank barge, being Bollinger's Hull No. 416, one 80,000 barrel tank barge, being Bollinger's Hull No. 417, one 80,000 barrel tank barge, being Bollinger's Hull No. 421, and one 100,000 barrel tank barge, being Bollinger's Hull No. 422 (hereinafter referred to collectively as a "Vessel", whether one or more, provided that the term "Vessel" shall mean any and all vessels provided for in this Agreement), and in accordance with the following documents which have been concurrently identified by the parties hereto and attached hereto as Exhibit 1 and made a part hereof as if fully set forth herein:


1) Specifications dated March 23, 2001 ("Specifications");


2) Drawings as referred to in (1);


Provided that Bollinger's total undertaking hereunder, being (i) the engineering design of each Vessel, the (ii) construction of each Vessel according to detail design plans and technical documents prepared by Bollinger and approved by Buyer in accordance with Article 9, (iii) the installation of any Buyer-furnished equipment as stated in the Specifications, and including (iv) any changes in the design or construction of each Vessel, shall be hereinafter referred to and is hereby defined as the "work".


Bollinger shall prepare soundly conceived and engineered detail design plans and documents, developed under the supervision of experienced naval architects


and marine engineers, and incorporating good shipbuilding practice, to develop the design of each Vessel for guidance of Bollinger's material procurement, fabrication and installation, and for prior review by the Buyer. Detail design plan means a drawing showing sufficient detail that: i) parts, except fasteners, gaskets and related hardware ("Parts"), are shown either individually or in typical configuration or referenced to another drawing; ii) Parts are located, oriented and sized by dimensions, shape offsets, intersection into or dimensioned offset from, or alignment with another located Part, as necessary for construction. Double line cargo and vapor piping drawings will be provided. All other piping will be field routed using schematics; iii) details are shown or identified by reference to another submitted document, such as shipyard standard structural or piping details; iv) background arrangement, adjacent structure or equipment are shown to illustrate design rationale, connections, support, clearances as necessary for construction; v) all material is identified, either on the drawing or by a submitted bill of material, and specifies industry specification for common material, or manufacturer and part number for equipment or special material, and critical additional requirements or specifications are given or referenced, as necessary for procurement and construction; vi) all welding, assembly or other joining arrangements for structure, steel outfitting, piping and machinery are indicated or referenced; and vii) special production processes such as coatings, galvanizing or machining are identified. Section (ii) of this paragraph does not apply to Parts inside cabinets or equipment, or to individual cables or piping in a wireway or pipeway, or to field-routed piping or tubing below a specified size. Bollinger shall prepare the technical documents specifying the hydrostatic, capacity and stability characteristics of the Vessel, in accordance with good shipbuilding technical documents practices.


All equipment, structure, and/or piping of each Vessel is to be fabricated/installed in accordance with the Specifications, Buyer-approved detail design plans and documents and drawings to be supplied by Buyer respecting Buyer-furnished equipment. Buyer-requested changes in dimensions, locations, construction or materials made following the execution of this Agreement and not in accordance with the Specifications, will be for Buyer's account in accordance with Article 4 of this Agreement. Changes agreed upon by Buyer and Bollinger which do not require changes to existing work, will be accepted at no additional charge if the scope of the changes does not result in additional costs to Bollinger.


The construction by Bollinger shall be in conformity with applicable requirements of United States laws, rules and regulations applicable to coastwise and foreign trade vessels of the United States which pertain to the Vessel, and of the American Bureau of Shipping ("ABS") and the other regulatory bodies as listed in the Specifications; provided, however, that Bollinger makes no representation concerning the suitability of Buyer-furnished equipment for and Buyer's right to engage in coastwise trade. Subject to the provisions of Article 4 hereof, if any enforced changes in United States laws, rules, and regulations or in the regulatory


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bodies' rules are published subsequent to the date of this Agreement, and become effective prior to the Delivery Date of each Vessel, whereby the cost of outfitting the Vessel is increased and/or the time required for completion is extended, Buyer shall authorize and pay for, as a change under this Agreement, such alterations, additional work items, outfit and/or equipment or additional time as may be required to meet the enforced changes.


B. All general language or requirements contained in the Specifications and all other requirements inconsistent or in conflict with the provisions of this Agreement are superseded by this Agreement, it being the intent of the parties that provisions of this Agreement shall prevail. If there is a conflict or inconsistency between the Drawings and Specifications, the Specifications shall control.


C. In any and all events, Bollinger shall exercise reasonable efforts to cooperate with Buyer, at Buyer's expense, to facilitate the mating of the Vessel and its companion tug by means of the JAK-Coupling System and the testing of such System if and only if, any work which is to be performed on the companion tugs with respect to the JAK-Coupling System is performed by a contractor other than Bollinger.


D. On or before September 30, 2001, by written notice to Bollinger, Buyer may cancel its obligation to purchase either Bollinger Hull No. 421, or Bollinger Hull No. 422, or both, without penalty of any kind. This right of Buyer to cancel is separate and distinct from Buyer's right to cancel contained in Article 5, INFRA.


ARTICLE 2. PRICE AND PAYMENT; PERFORMANCE BOND


A. In consideration of Bollinger's obligations hereunder, Buyer agrees to pay to Bollinger the sums of (w) Ten Million Three Hundred Seventy-two Thousand Nine Hundred Twelve and no/100 ($10,372,912.00) U.S. Dollars for Hull No. 416, (x) Eight Million Nine Hundred One Thousand Four Hundred Sixty-three and no/100 ($8,901,463.00) U.S. Dollars for Hull No. 417, (y) Eight Million Six Hundred Ninety-six Thousand Seven Hundred Twelve and no/100 ($8,696,712.00) U.S. Dollars for Hull No. 421, and (z) Ten Million One Hundred Sixty-eight Thousand One Hundred Sixty-one and 00/100 ($10,168,161.00) U.S. Dollars for Hull No. 422, at par without discount or exchange (hereinafter each such sum severally referred to as the "Agreement Price" for each Vessel), for full and complete performance of the work covered by this Agreement, subject to the provisions of this Agreement, as follows:


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PROGRESS PAYMENT SCHEDULE AMOUNT DUE FOR HULL
NO. 416
------------------------------------------------------------------------------------------

5% upon execution of this Agreement $ 518,600.00
------------------------------------------------------------------------------------------
13% upon start of fabrication $ 1,348,500.00
------------------------------------------------------------------------------------------
13.5% upon keel laying (adjoining of first two bottom modules) $ 1,400,300.00
------------------------------------------------------------------------------------------
12% upon erection of midship bottom & bulkhead modules $ 1,244,700.00
------------------------------------------------------------------------------------------
10% upon erection of midship side modules $ 1,037,300.00
------------------------------------------------------------------------------------------
15% upon erection of midship decks $ 1,555,900.00
------------------------------------------------------------------------------------------
10% upon erection of forward and aft rake $ 1,037,300.00
------------------------------------------------------------------------------------------
10% upon launching of hull $ 1,037,300.00
------------------------------------------------------------------------------------------
10% upon delivery and acceptance $ 1,037,300.00
------------------------------------------------------------------------------------------
1.5% on the 60th day after delivery and acceptance(1) $ 155,712.00
------------------------------------------------------------------------------------------
TOTAL AGREEMENT PRICE $ 10,372,912.00
------------------------------------------------------------------------------------------


- ---------- (1) Subject to and in accordance with the terms of this Article 2.


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------------------------------------------------------------------------------------------
PROGRESS PAYMENT SCHEDULE AMOUNT DUE FOR HULL
NO. 417
------------------------------------------------------------------------------------------

5% upon start of fabrication $ 445,100.00
------------------------------------------------------------------------------------------
13% upon keel laying (adjoining of first two bottom modules) $ 1,157,200.00
------------------------------------------------------------------------------------------
13.5% upon erection of midship bottom and bulkhead modules $ 1,201,700.00
------------------------------------------------------------------------------------------
15% upon erection of midship side modules $ 1,335,200.00
------------------------------------------------------------------------------------------
15% upon erection of midship decks $ 1,335,200.00
------------------------------------------------------------------------------------------
15% upon erection of forward and aft rake $ 1,335,200.00
------------------------------------------------------------------------------------------
12% upon launching of hull $ 1,068,200.00
------------------------------------------------------------------------------------------
10% upon delivery and acceptance $ 890,100.00
------------------------------------------------------------------------------------------
1.5% on the 60th day after delivery and acceptance(2) $ 133,563.00
------------------------------------------------------------------------------------------
TOTAL AGREEMENT PRICE $ 8,901,463.00
------------------------------------------------------------------------------------------


- ---------- (2) Subject to and in accordance with the terms of this Article 2.


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------------------------------------------------------------------------------------------
PROGRESS PAYMENT SCHEDULE AMOUNT DUE FOR HULL
NO. 421
------------------------------------------------------------------------------------------

5% upon start of fabrication $ 434,800.00
------------------------------------------------------------------------------------------
13% upon keel laying (adjoining of first two bottom modules) $ 1,130,600.00
------------------------------------------------------------------------------------------
13.5% upon erection of midship bottom and bulkhead modules $ 1,174,100.00
------------------------------------------------------------------------------------------
15% upon erection of midship side modules $ 1,304,500.00
------------------------------------------------------------------------------------------
15% upon erection of midship decks $ 1,304,500.00
------------------------------------------------------------------------------------------
15% upon erection of forward and aft rake $ 1,304,500.00
------------------------------------------------------------------------------------------
12% upon launching of hull $ 1,043,600.00
------------------------------------------------------------------------------------------
10% upon delivery and acceptance $ 869,700.00
------------------------------------------------------------------------------------------
1.5% on the 60th day after delivery and acceptance(3) $ 130,412.00
------------------------------------------------------------------------------------------
TOTAL AGREEMENT PRICE $ 8,696,712.00
------------------------------------------------------------------------------------------


- ---------- (3) Subject to and in accordance with the terms of this Article 2.


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------------------------------------------------------------------------------------------
PROGRESS PAYMENT SCHEDULE AMOUNT DUE FOR HULL
NO. 422
------------------------------------------------------------------------------------------

5% upon start of fabrication $ 508,400.00
------------------------------------------------------------------------------------------
13% upon keel laying (adjoining of first two bottom modules) $ 1,321,900.00
------------------------------------------------------------------------------------------
13.5% upon erection of midship bottom and bulkhead modules $ 1,372,700.00
------------------------------------------------------------------------------------------
15% upon erection of midship side modules $ 1,525,200.00
------------------------------------------------------------------------------------------
15% upon erection of midship decks $ 1,525,200.00
------------------------------------------------------------------------------------------
15% upon erection of forward and aft rake $ 1,525,200.00
------------------------------------------------------------------------------------------
12% upon launching of hull $ 1,220,200.00
------------------------------------------------------------------------------------------
10% upon delivery and acceptance $ 1,016,800.00
------------------------------------------------------------------------------------------
1.5% on the 60th day after delivery and acceptance(4) $ 152,561.00
------------------------------------------------------------------------------------------
TOTAL AGREEMENT PRICE $ 10,168,161.00
------------------------------------------------------------------------------------------


B. Upon delivery and acceptance of each Vessel, as evidenced by a Protocol of Delivery and Acceptance as described in Article 3B hereof, Buyer shall pay to Bollinger a sum equal to (x) the balance of 98.5% the Agreement Price of the delivered Vessel which remains due after crediting the payments theretofore made on said Vessel, together with (y) any increase or decrease in the Agreement Price for such Vessel that may be due for changes and extras to the appropriate Vessel as defined in Article 4 hereunder. The remainder of the Agreement Price of each Vessel, equal to 1.5% (the "Hold-back") of the Agreement Price for such Vessel, shall be paid by Buyer (without interest) to Bollinger on the 60th day (the "Hold-back Period") after the day on which such Vessel is delivered to and accepted by Buyer.


- ---------- (4) Subject to and in accordance with the terms of this Article 2.


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Notwithstanding the foregoing, and notwithstanding the terms of Article 13E, in the event during the Hold-back Period the Vessel needs repairs that are covered by Bollinger's Warranties as set forth in Article 13 hereof, or a claim is asserted against the Vessel for which Buyer is not responsible in accordance with Article 14 hereof, all or part of the Hold-back amount may be used by Buyer to pay for such repairs or to pay such claim. Buyer is entitled to cause such repairs to be made in a facility other than that owned by Bollinger.


C. Except for increases due to changes, extra work, change orders or as otherwise provided hereunder, at no time shall the total billing for each Vessel exceed the Agreement Price stated above.


D. Bollinger shall deliver statements to Buyer for all payments due Bollinger hereunder. Such statements shall specify the work completed, and shall state that all work for which payment is requested has been completed in accordance with the terms of this Agreement. Any payments which are not paid to Bollinger within thirty (30) days after the same shall become due shall bear interest at the rate of 1 1/2% per month from date of invoice until paid., except those payments for amounts due upon delivery and acceptance and upon expiration of the Hold-back Period shall become due upon such delivery and acceptance or expiration, as the case may be, and interest at the rate of 1 1/2% shall accrue from such dates until paid.


E. In the event that Buyer disputes the amount of an invoice or statement or any portion thereof, Buyer shall notify Bollinger in writing of the dispute within ten (10) calendar days following receipt of the invoice or statement, such notice to set out the specific reasons why the invoice or any portion thereof is being disputed. Buyer shall pay the disputed invoice or statement or the disputed portion so long as the amount of the Agreement Price for such Vessel, including any adjustments, that would remain unpaid after payment of the disputed amount exceeds the sum of all amounts in dispute. In any event, notwithstanding any such dispute, Buyer shall pay when due the undisputed portion of each and every invoice or statement.


If any payment of any undisputed amount shall not be made within thirty (30) days after the due date as herein provided, Bollinger may, in its sole discretion, suspend or reschedule progress of the work (such right being in addition to any other right granted hereunder by operation of law). In the event of delay in payment of any undisputed amount when due as herein provided, Bollinger shall not be obligated to reschedule progress of the work, but may pursue any and all other remedies granted hereunder or by operation of law, provided that Buyer be given fifteen (15) days prior written notice by Bollinger before Buyer is considered to be in default.


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F. Bollinger agrees to obtain and deliver to Buyer, in exchange for the first payment made by Buyer hereunder and upon receipt of a construction financing commitment letter, a performance bond (collectively, the "Performance Bond") in favor of Buyer or its assignee or financier, as the case may be, in a form satisfactory to Buyer and its financier. Buyer shall promptly reimburse Bollinger for all costs incurred in obtaining the Performance Bond under this Agreement. The Performance Bond shall at no time be less than an amount to provide for completion of the work in accordance with the terms of this Agreement, as modified by any changes and by delivery. The Performance Bond shall be issued by a first class bank, insurance company, or other financial institution satisfactory to the Buyer. Together with such Performance Bond, Bollinger shall cause to be delivered to Buyer evidence of the due authorization thereof by the issuing entity and the authority of the person executing the same.


ARTICLE 3. DELIVERY AND ACCEPTANCE


A. Upon completion, the Vessel shall be given dock trials as per the Specifications, the said trials to be of sufficient duration to assure Buyer of the satisfactory performance of such Vessel and of all of the various systems and operations installed therein, including satisfactory workmanship, proper working order, alignment of moving parts, suitability for intended purpose and compliance with applicable laws, rules and regulations of the United States respecting the Vessels engaged in the coastwise trade, Specifications and other requirements of this Agreement. Adequate crew, properly qualified and credentialed, and sufficient amounts of fuel, water, and lube oil will be supplied by Bollinger, at its expense, in order to properly complete the testing of the Vessel and all equipment on board during dock trials.


B. Hull No. 416, after required trials and contemporaneously with payment in full (except for the Hold-back as stated in Article 2 above), shall be delivered to Buyer afloat at Shipyard free and clear of all liens and encumbrances, except those created by Buyer, sixteen (16) months after the execution of this Agreement, or on such later date or dates as may be required by reason of agreed or enforced changes in the Vessel or by reason of specified delays resulting from force majeure, as that term is defined herein.


Hull No. 417, after required trials and contemporaneously with payment in full (except for the Hold-back as stated in Article 2 above), shall be delivered to Buyer afloat at Shipyard free and clear of all liens and encumbrances, except those created by Buyer, twenty-two (22) months after the execution of this Agreement, or on such later date or dates as may be required by reason of agreed or enforced changes in the Vessel or by reason of specified delays resulting from force majeure, as that term is defined herein.


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Subject to Article 1D hereof, Hull No. 421, after required trials and ...