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As filed with the Securities and Exchange Commission on March 5, 2008

Registration No. 333-

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

K-Sea GP Holdings LP
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

4400
(Primary Standard Industrial
Classification Code Number)

26-2026706
(I.R.S. Employer Identification Number)

Timothy J. Casey
K-Sea GP LLC
One Tower Center Boulevard, 17th Floor
East Brunswick, New Jersey 08816
(732) 565-3818
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Sean T. Wheeler
Baker Botts L.L.P.
910 Louisiana Street
Houston, Texas 77002
(713) 229-1234

David C. Buck
Andrews Kurth LLP
600 Travis Street, Suite 4200
Houston, Texas 77002
(713) 220-4200

Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)(2)	Amount of Registration Fee


Common Units representing limited partner interests	$100,000,000	$3,930

(1): Includes common units issuable upon exercise of the underwriters' option to purchase additional common units.
(2): Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o).

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated March 5, 2008

PROSPECTUS

K-Sea GP Holdings LP

Common Units

Representing Limited Partner Interests

We are offering common units representing limited partner interests, and the selling unitholders identified in this prospectus, including KSP Investors A L.P. and KSP Investors B L.P., are offering common units. This is an initial public offering of our common units. We expect that the initial public offering price of our common units will be between $ and $ per common unit. Upon completion of this offering, we will own 100% of the incentive distribution rights, an approximate 29.9% limited partner interest and all of the 1.5% general partner interest in K-Sea Transportation Partners L.P., or KSP, a publicly traded Delaware limited partnership that provides marine transportation, distribution and logistics services for refined petroleum products in the United States.

Before this offering, there has been no public market for our common units. We intend to apply to list our common units on the New York Stock Exchange under the symbol " ."

Investing in our common units involves risks. Please read "Risk Factors"
beginning on page 20.

These risks include the following:

•: Our cash flow will be entirely dependent upon the ability of KSP to make cash distributions to us. If KSP does not make cash distributions or reduces the levels of cash distributions to us, we may not have sufficient cash to pay distributions at our initial quarterly distribution level or at all.
•: Our unitholders do not elect our general partner or vote in the election of the directors of our general partner. Upon completion of this offering, the owners of our general partner will own a sufficient number of common units to allow it to prevent the removal of our general partner.
•: You will experience immediate and substantial dilution of $ per common unit in the net tangible book value of your common units.
•: KSP's general partner owes fiduciary duties to KSP's unitholders that may conflict with our interests.
•: If we or KSP were to become subject to entity-level taxation for federal or state tax purposes, then our cash available for distribution to you would be substantially reduced.

	Per Common Unit	Total
Initial public offering price	$	$
Underwriting discount	$	$
Proceeds to K-Sea GP Holdings LP (before expenses)	$	$
Proceeds to the selling unitholders(1)	$	$

(1): Expenses associated with this offering, other than underwriting discounts associated by the common units being sold by the selling unitholders, will be paid by us.

The selling unitholders have granted the underwriters a 30-day option to purchase up to an additional common units on the same terms and conditions as set forth above if the underwriters sell more than common units in this offering.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the common units on or about , 2008.

LEHMAN BROTHERS

CITI

, 2008

[ARTWORK]

TABLE OF CONTENTS

Prospectus Summary		1
	K-Sea GP Holdings LP	1
	K-Sea Transportation Partners L.P.	5
	Growth of KSP	5
	KSP's Industry	6
	Business Strategies	6
	Competitive Strengths	6
	KSP's Principal Executive Offices and Internet Address	7
	Formation Transactions and Our Structure and Ownership After This Offering	8
	Our Management and Principal Executive Offices	10
	The Offering	11
	Summary of Conflicts of Interest and Fiduciary Duties	13
	Summary of Risk Factors	13
	Summary Historical and Pro Forma Financial Data	16
	Non-GAAP Financial Measures	18
Risk Factors		20
	Risks Inherent in an Investment in Us	20
	Risks Related to Conflicts of Interest	27
	Risks Related to KSP's Business	31
	Tax Risks to Our Common Unitholders	40
Forward-Looking Statements		44
Use of Proceeds		45
Capitalization		46
Dilution		47
Our Cash Distribution Policy and Restrictions on Distributions		48
	General	48
	Our Initial Distribution Rate	51
	Cash Available for Distribution	53
	Unaudited Pro Forma Consolidated Available Cash	53
	Estimated Cash Available for Distribution	56
	Assumptions and Considerations	58
How We Make Cash Distributions		60
	General	60
	Definition of Available Cash	60
	Units Eligible for Distribution	60
	General Partner Interest	60
	Adjustments to Capital Accounts	60
	Distributions of Cash Upon Liquidation	60
	Our Sources of Distributable Cash	61
Selected Historical And Pro Forma Financial and Operating Data		63
Management's Discussion and Analysis of Financial Condition and Results of Operations		66
	Overview of Our Business	66
	Factors That Significantly Affect Our Results and KSP's Results	68
	Overview of Operations	68
	Definitions	70
	Results of Operations	72
	Six Months Ended December 31, 2007 Compared to Six Months Ended December 31, 2006	73
	Fiscal Year Ended June 30, 2007 Compared to the Fiscal Year Ended June 30, 2006	75

	Fiscal Year Ended June 30, 2006 Compared to the Fiscal Year Ended June 30, 2005	77
	Liquidity and Capital Resources	80
	Inflation	89
	Related Party Transactions	89
	Seasonality	89
	Critical Accounting Policies	89
	New Accounting Pronouncements	91
	Quantitative and Qualitative Disclosures About Market Risk	92
Our Business		93
	General	93
	Our Strategy	93
	Our Interest in KSP	93
	How Our Partnership Agreement Terms Differ from Those of Other Publicly Traded Partnerships	96
	Legal Proceedings	96
Business of K-Sea Transportation Partners L.P.		97
	Growth of KSP	97
	Competitive Strengths	99
	Business Strategies	100
	KSP's Industry	101
	KSP's Customers	105
	KSP's Vessels	106
	Bunkering	110
	Preventative Maintenance	110
	Safety	110
	Ship Management, Crewing and Employees	112
	Classification, Inspection and Certification	112
	Insurance Program	113
	Competition	114
	Regulation	114
	Properties	120
	Legal Proceedings	120
Management		121
	K-Sea GP Holdings LP and K-Sea Transportation Partners L.P.	121
K-Sea Transportation Partners L.P.'s Compensation Discussion and Analysis		128
	Background	128
	Executive Compensation Philosophy	128
	Purpose of KSP's Executive Compensation Program	128
	Role of KSP GP's Compensation Committee	129
	Elements of Compensation	130
	Employment Agreements	130
	Comparator Group	131
	Other Compensation Related Matters	134
	Impact of Tax and Accounting Treatment	134
	KSP Executive Compensation Tables	135
	Director Compensation	138
Security Ownership of Certain Beneficial Owners and Management and Related Securityholder Matters		139
	K-Sea GP Holdings LP	139
	K-Sea Transportation Partners L.P.	140
Selling Unitholders		142

Certain Relationships and Related Transactions		143
	Our Relationship with KSP and its General Partner, KSP GP	143
	Our Relationship with KSP	143
	Indemnification of Our Directors and Officers	143
	Related Party Transactions Involving KSP	143
	Contribution Agreement	144
	Administrative Agreement	144
	Our General Partner's Limited Liability Agreement	144
	Omnibus Agreement and Non-Compete Agreement	145
Conflicts of Interest and Fiduciary Duties		146
	Conflicts of Interest	146
	Fiduciary Duties	148
Description of Our Common Units		152
	Common Units	152
	Transfer Agent and Registrar	152
	Transfer of Common Units	152
	Limited Call Right	153
Comparison of Rights of Holders of KSP's Common Units and Our Common Units		154
Description of Our Partnership Agreement		156
	Organization and Duration	156
	Purpose	156
	Restrictions on Foreign Ownership	157
	Power of Attorney	157
	Capital Contributions	157
	Limited Liability	158
	Limited Voting Rights	158
	Transfer of Ownership Interests in Our General Partner	159
	Issuance of Additional Securities	160
	Amendments to Our Partnership Agreement	160
	Merger, Sale or Other Disposition of Assets	162
	Termination or Dissolution	163
	Liquidation and Distribution of Proceeds	163
	Withdrawal or Removal of the General Partner	163
	Transfer of General Partner Interest	164
	Change of Management Provisions	164
	Limited Call Right	165
	Meetings; Voting	165
	Status as Limited Partner	166
	Non-Citizen Assignees; Redemption	166
	Indemnification	166
	Reimbursement of Expenses	167
	Books and Reports	167
	Right to Inspect Our Books and Records	167
	Registration Rights	167
K-Sea Transportation Partners L.P.'s Cash Distribution Policy		168
	Distributions of Available Cash	168
	Operating Surplus and Capital Surplus	168
	Subordination Period	170
	Distributions of Available Cash From Operating Surplus During the Subordination Period	172
	Distributions of Available Cash From Operating Surplus After the Subordination Period	172
	Incentive Distribution Rights	172

iii

	Percentage Allocations of Available Cash From Operating Surplus	173
	Distributions of Available Cash From Capital Surplus	173
	Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels	174
	Distributions of Cash Upon Liquidation	175
Material Provisions of the Partnership Agreement of K-Sea Transportation Partners L.P.		177
	Purpose	177
	Restrictions on Foreign Ownership	177
	Issuance of Additional Securities	178
	Limited Liability	179
	Voting Rights	180
	Amendment of KSP's Partnership Agreement	182
	Liquidation and Distribution of Proceeds	184
	Withdrawal or Removal of KSP's General Partner	184
	Change of Management Provisions	185
	Limited Call Right	186
	Meetings; Voting	186
	Indemnification	187
	Registration Rights	187
Units Eligible for Future Sale		188
Material Tax Consequences		189
	Partnership Status	189
	Limited Partner Status	191
	Tax Consequences of Unit Ownership	191
	Tax Treatment of Operations	197
	Disposition of Common Units	198
	Tax-Exempt Organizations and Non-United States Investors	201
	Administrative Matters	202
	State, Local, Foreign and Other Tax Considerations	204
Investment in Us by Employee Benefit Plans		205
Underwriting		206
Legal Matters		211
Experts		211
Where You Can Find More Information		211
Index to Financial Statements		F-1
Appendix A Form of Amended and Restated Agreement of Limited Partnership of K-Sea GP Holdings LP
Appendix B Glossary of Selected Terms

Until , 2008 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade our common units, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. Unless otherwise indicated, you should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the historical consolidated financial statements, pro forma consolidated financial statements, the notes to those financial statements, and the other documents to which we refer, for a more complete understanding of this offering. Furthermore, you should carefully read "Summary of Risk Factors" and "Risk Factors" for more information about important risks that you should consider before making a decision to purchase common units in this offering.

Except as otherwise indicated the information presented in this prospectus assumes (1) an initial public offering price of $ per common unit and (2) that the underwriters do not exercise their option to purchase additional common units. All references in this prospectus to "our," "we," "us," and the "Company" refer to K-Sea GP Holdings LP and its wholly owned subsidiaries. All references in this prospectus to "KSP" refer to K-Sea Transportation Partners L.P. and its operating subsidiaries collectively, or to K-Sea Transportation Partners L.P., individually, as the context may require. All references in this prospectus to "KSP GP" refer to K-Sea General Partner GP LLC, the general partner of K-Sea Transportation Partners L.P. All references to our "partnership agreement" refer to the Amended and Restated Agreement of Limited Partnership of K-Sea GP Holdings LP to be adopted contemporaneously with the closing of this offering. We include a glossary of some of the terms used in this prospectus as Appendix B.

K-Sea GP Holdings LP

We are a Delaware limited partnership formed in December 2007, and our cash generating assets consist solely of partnership interests in K-Sea Transportation Partners L.P. (NYSE: KSP). KSP is a publicly traded Delaware limited partnership that provides marine transportation, distribution and logistics services for refined petroleum products in the United States. KSP currently operates a fleet of 73 tank barges, one tanker and 59 tugboats that serves a wide range of customers, including major oil companies, oil traders and refiners. With approximately 4.3 million barrels of capacity, KSP believes it owns and operates the largest coastwise tank barge fleet in the United States.

Upon completion of this offering, we will own:

•: 100% of the incentive distribution rights in KSP, which we hold through our 100% ownership interest in KSP GP;
•: 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP; and
•: all of the 1.5% general partner interest in KSP, which we hold through our 100% ownership interest in KSP GP.

At KSP's current annualized cash distribution rate of $2.96 per common unit, or $0.74 per common unit per quarter, aggregate annual cash distributions to us on all of our interests in KSP will be approximately $15.5 million, representing approximately 35% of the total cash distributed by KSP. Based on KSP's current cash distribution and our expected ownership of KSP, we expect that our initial quarterly cash distribution to our unitholders will be $ per common unit, or $ per common unit on an annualized basis, to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses. Please read "Our Cash Distribution Policy and Restrictions on Distributions."

Our primary business objective is to increase our cash distributions to our unitholders through our oversight of KSP. Please read "—K-Sea Transportation Partners L.P.—Business Strategies."

quarter. The following table illustrates the percentage allocations of distributions among the owners of KSP, including us, at the target distribution levels contained in KSP's partnership agreement.

	Marginal Percentage Interest in Distributions
		General Partner
KSP Quarterly Distribution Per Unit	Limited Partner Units	General Partner Units	Incentive Distribution Rights
up to $0.55	98.5%	1.5%	0%
above $0.55 up to $0.625	85.5%	1.5%	13%
above $0.625 up to $0.75	75.5%	1.5%	23%
above $0.75	50.5%	1.5%	48%

KSP has increased its quarterly cash distribution for the last 11 consecutive quarters, and 13 times since its initial public offering in January 2004, from $0.50 per common unit ($2.00 on an annualized basis) to $0.74 per common unit ($2.96 on an annualized basis), which is the most recently paid distribution. KSP's distribution of $0.74 per limited partner unit for the quarter ended December 31, 2007 entitled us to receive incentive distributions equal to 23% of KSP's total cash distribution in excess of $0.625 per common unit, which, in addition to the distributions we receive in respect of our common units, subordinated units and general partner units, collectively comprises 35% of the cash distributed by KSP in respect of that quarter.

As KSP has increased the quarterly cash distribution paid on its units, the first three target cash distribution levels described above have been exceeded, thereby increasing the amounts paid by KSP to its general partner as the owner of KSP's incentive distribution rights. As a consequence, our cash distributions from KSP that are based on our ownership of the incentive distribution rights have increased more rapidly than distributions to us based on our other ownership of interests in KSP. Any increase in the quarterly cash distributions above $0.75 per unit from KSP would entitle us to receive 48% of such excess and would have the effect of disproportionately increasing the amount of all distributions that we receive from KSP based on our ownership interest in the incentive distribution rights in KSP.

All of our cash flows are generated from the cash distributions we receive with respect to the KSP partnership interests we own. KSP is required by its partnership agreement to distribute, and it has historically distributed within 45 days of the end of each quarter, all of its cash on hand at the end of each quarter, less cash reserves established by its general partner in its sole discretion to provide for the proper conduct of KSP's business or to provide for future distributions. While we, like KSP, are structured as a limited partnership, our capital structure and cash distribution policy differ materially from those of KSP. Most notably, our general partner does not have an economic interest in us and is not entitled to receive any distributions from us and our capital structure does not include incentive distribution rights. Therefore, our distributions are allocated exclusively to our common units, which is our only class of security currently outstanding. Further, unlike KSP, we do not have subordinated units, and as a result, our common units carry no right to arrearages.

The graph below illustrates the historical growth in KSP's quarterly distributions per common unit and the corresponding historical growth in quarterly distributions that would have been made to us, including the general partner interest and the incentive distribution rights:

KSP Distribution Growth

The graph below shows hypothetical cash distributions payable to us with respect to our partnership interests in KSP, including the incentive distribution rights and the general partner interest, across a range of hypothetical annualized distributions made by KSP. This information assumes:

•

KSP has a total of 13,713,450 limited partner units outstanding, consisting of 11,630,950 common units and 2,082,500 subordinated units; and

•

our ownership of:

•: 100% of the incentive distribution rights in KSP;
•: 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP (for a discussion of the conversion of subordinated units to common units, please read "K-Sea Transportation Partners L.P.'s Cash Distribution Policy—Subordination Period"); and
•: all of the 1.5% general partner interest in KSP.

The graph also illustrates the impact to us of KSP raising or lowering its quarterly cash distribution from the most recently paid distribution of $0.74 per common unit ($2.96 on an annualized basis), which was paid on February 14, 2008 with respect to the quarter ended December 31, 2007. This information is presented for illustrative purposes only. This information is not intended to be a prediction of future performance and does not attempt to illustrate the impact of changes in our or KSP's business. The impact to us of changes in KSP's cash distribution levels will vary depending on several factors, including the number of KSP's outstanding limited partner units on the record date for cash distributions and the impact of the incentive distribution rights structure. In addition, the level of

cash distributions we receive may be affected by risks associated with the underlying business of KSP. Please read "Risk Factors."

Hypothetical Annualized Distributions

We will pay to our common unitholders, on a quarterly basis, distributions equal to the cash we receive from KSP, less cash reserves established by our general partner to, among other things:

•: provide for our general, administrative and other expenses, including those we will incur as the result of becoming a publicly traded company;
•: comply with applicable law;
•: comply with any agreement binding upon us or our subsidiaries (exclusive of KSP and its subsidiaries);
•: provide for future distributions to our unitholders;
•: provide for future capital expenditures, debt service and other credit needs as well as any federal, state, provincial or other income tax that may affect us in the future;
•: allow us to pay KSP GP, if desired, an amount sufficient to enable KSP GP to make capital contributions to KSP to maintain its 1.5% general partner interest upon the issuance of partnership securities by KSP; or
•: otherwise provide for the proper conduct of our business, including with respect to the matters described under "Description of Our Partnership Agreement—Purpose."

Based on KSP's current quarterly distribution, the number of our units that will be outstanding and our expected level of expenses and reserves that our board of directors believes prudent to maintain, we expect to make an initial quarterly cash distribution of $ per unit, or $ per unit on an annualized basis. In August 2008, we expect to pay you a distribution equal to the initial quarterly distribution prorated for the period from the closing date of this offering to and including June 30, 2008. However, we cannot assure you that any distributions will be declared or paid. Please read "Our Cash Distribution Policy and Restrictions on Distributions."

If KSP is successful in implementing its business strategies and increasing distributions to its partners, we would expect to increase distributions to our unitholders, although the timing and amount of any such increase in our distributions will not necessarily be comparable to any increase in KSP's distributions. We cannot assure you that any distributions will be declared or paid by KSP. Please read "Our Cash Distribution Policy and Restrictions on Distributions" and "Risk Factors."

K-Sea Transportation Partners L.P.

KSP is a leading provider of marine transportation, distribution and logistics services for refined petroleum products in the U.S. KSP currently operates a fleet of 73 tank barges, one tanker and 59 tugboats that serves a wide range of customers, including major oil companies, oil traders and refiners. With approximately 4.3 million barrels of capacity, KSP believes it owns and operates the largest coastwise tank barge fleet in the United States.

For the fiscal year ended June 30, 2007, KSP's fleet transported approximately 140 million barrels of refined petroleum products for KSP's customers, including BP, Chevron, ConocoPhillips, ExxonMobil and Rio Energy. KSP's five largest customers in fiscal 2007 have been doing business with KSP for approximately 17 years on average. KSP does not assume ownership of any of the products it transports. During fiscal 2007, KSP derived approximately 79% of its revenue from longer-term contracts that are generally for periods of one year or more.

Growth of KSP

In January 2004, KSP went public on the New York Stock Exchange. Under the same management, KSP has continued to grow its business—both in terms of the size and scale of operations and in terms of the geographical and commercial scope of its business. KSP's growth has been prudently managed and accretive to cash flow. Quarterly distributions have increased from $0.50 per common unit for the quarter ended March 31, 2004 (prorated for the number of days between the date of its initial public offering to March 31, 2004) to $0.74 for the quarter ended December 31, 2007, reflecting 13 quarterly distribution increases.

Significant acquisitions since KSP's initial public offering include:

•: In January 2004, KSP purchased a 140,000-barrel barge and a tugboat from a subsidiary of ExxonMobil.
•: In December 2004, KSP acquired 10 tank barges and seven tugboats from Bay Gulf Trading of Norfolk, Virginia, representing a combined total barrel-carrying capacity of 255,000 barrels.
•: In October 2005, KSP acquired 15 tank barges and 15 tugboats through its acquisition of Sea Coast Towing, Inc., thereby increasing its barrel-carrying capacity by 705,000 barrels and providing it with an attractive entry point into the complementary markets of the Pacific Northwest and Alaska.
•: In August 2007, KSP acquired 11 tank barges and 14 tugboats with a combined capacity of 777,000 barrels through its acquisition of Smith Maritime, Ltd. of Honolulu, Hawaii and Go Big Chartering, LLC and Sirius Maritime, LLC of Seattle, Washington, which we refer to as the Smith Maritime Group.

Since January 2004, KSP has also purchased four existing tank barges with a combined capacity of 328,000 barrels in separate transactions, and nine existing tugboats. In October 2007, KSP entered into an agreement with a shipyard to construct a 185,000-barrel articulated tug-barge unit, which is expected to be delivered in the fourth quarter of calendar 2009. KSP has an agreement for a long-term charter for this 185,000-barrel articulated tug-barge unit with a major customer that is expected to commence upon delivery. KSP has a vessel newbuilding program for nine additional tank barges totaling 568,000 barrels of capacity. These tank barges are expected to be delivered periodically between the third quarter of fiscal 2008 and the second quarter of fiscal 2011. KSP has firm commitments with its customers for 368,000 barrels of this capacity and expects to be able to employ the remaining capacity upon its delivery. As a result of its expansion program, KSP's total barrel-carrying capacity, net of vessel sales and retirements, is expected to increase to between 4.6 million and 4.8 million by 2010, roughly double the size of its fleet at its initial public offering and four times its size in 1999.

KSP's Industry

Tank vessels, which include tank barges and tankers, are a critical link in the refined petroleum product distribution chain. Tank vessels transport gasoline, diesel fuel, heating oil, asphalt and other products from refineries and storage facilities to a variety of destinations, including other refineries, distribution terminals, power plants and ships. According to a June 2006 study by the Association of Oil Pipe Lines, 29.9% of all domestic refined petroleum product transportation was by water in 2004, making waterborne transportation the most used mode of transportation for refined petroleum products after pipelines. Many areas along the East Coast and West Coast and in the Hawaiian islands have access to refined petroleum products only by using marine transportation as a link in their distribution chain.

KSP believes the following industry trends create a positive outlook for it:

•: refined petroleum product consumption is rising;
•: OPA 90 requires the phase-out of all single-hulled tank vessels by January 1, 2015;
•: the domestic tank vessel industry is consolidating; and
•: customers are placing greater emphasis on environmental and safety concerns.

Business Strategies

KSP's primary business objective is to increase distributable cash flow per unit by executing the following strategies:

•: expanding its fleet through newbuildings and accretive and strategic acquisitions;
•: maximizing fleet utilization and improving productivity;
•: maintaining safe, low-cost and efficient operations;
•: balancing its fleet deployment between longer-term contracts and shorter-term business in an effort to provide stable cash flows through business cycles, while preserving flexibility to respond to changing market conditions; and
•: attracting and maintaining customers by adhering to high standards of performance, reliability and safety.

Competitive Strengths

KSP's competitive strengths include:

•: a large, versatile fleet that enables KSP to maximize utilization and provide comprehensive customer service;
•: a significant percentage of double-hulled tank vessels in relation to the industry average, which should benefit KSP given the projected decrease in tank vessel capacity due to OPA 90;
•: a reputation for high standards of performance, reliability and safety, which fosters long-term customer relationships with major oil companies, oil traders and refiners;
•: a proven track record of successfully acquiring and integrating vessels and businesses;
•: the financial flexibility to pursue acquisitions and other expansion opportunities through the issuance of additional common units and borrowings under KSP's revolving credit agreement; and
•: a management team with extensive industry experience.

KSP's Principal Executive Offices and Internet Address

KSP's principal executive offices are located at One Tower Center Boulevard, 17th Floor, East Brunswick, New Jersey 08816, and its phone number is (732) 565-3818. KSP's internet address is www.k-sea.com, on which it makes available, free of charge, certain corporate information and reports. Information contained on that website, however, is not incorporated into and is not otherwise a part of this prospectus. KSP also files annual, quarterly and current reports and other information with the Securities and Exchange Commission, which we refer to as the Commission. KSP's Commission filings are available to the public at the Commission's website at www.sec.gov. You may also read and copy any document KSP files at the Commission's public reference room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Commission's public reference room by calling the Commission at 1-800-SEC-0330.

Formation Transactions and Our Structure and Ownership After This Offering

We were formed in December 2007 as a Delaware limited partnership. Our general partner is K-Sea GP LLC. Members of KSP's management and funds controlled by Jefferies Capital Partners, which we refer to as the contributing parties, appointed Brian P. Friedman, James J. Dowling and Timothy J. Casey as the owners of our general partner. Messrs. Friedman, Dowling and Casey, who are also directors of KSP GP, have agreed not to receive any personal economic benefit from their ownership of the general partner, other than reimbursement of out-of-pocket expenses incurred in maintaining such ownership and managing our general partner. In addition, Messrs. Friedman, Dowling and Casey have agreed to transfer to us any value received by such persons, less out-of-pocket expenses, upon the sale of any membership interests or assets of K-Sea GP LLC to a third party, and we will agree to indemnify Messrs. Friedman, Dowling and Casey from taxes, if any, associated with such transfer.

At or prior to the closing of this offering, the following transactions, which we refer to as the formation transactions, will occur:

•: the contributing parties will contribute to us all of the membership interests in KSP GP, which owns all of the 1.5% general partner interest and 100% of the incentive distribution rights in KSP;
•: subsidiaries of EW Transportation LLC, which we refer to as EW LLC, will merge into EW LLC in a taxable liquidation for federal income tax purposes;
•: the contributing parties will contribute to us all of the membership interests in EW LLC, which owns 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units representing an aggregate 29.9% limited partner interest in KSP; and
•: EW LLC will become our wholly owned subsidiary.

As consideration for these contributions and in accordance with the terms of a contribution agreement, we will issue of our common units to the contributing parties and will assume certain liabilities, including tax and environmental liabilities, of EW LLC. The terms of the contribution agreement will be determined by the contributing parties and will not be the result of arm's-length negotiations.

The following chart depicts our and our affiliates' simplified organizational and ownership structure after giving effect to this offering and the formation transactions. Upon completion of this offering (assuming the underwriters do not exercise their option to purchase additional common units):

•: Our general partner, K-Sea GP LLC, will own a non-economic interest in us.
•: We will own a 100% membership interest in KSP GP, which owns all of the 1.5% general partner interest and 100% of the incentive distribution rights in KSP.
•: We will indirectly own 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units representing an aggregate 29.9% limited partner interest in KSP.
•: The contributing parties will own common units, representing a % limited partner interest in us.
•: Our public unitholders will own common units, representing a % limited partner interest in us.

Simplified Organizational Structure of K-Sea GP Holdings LP After This Offering

Our Management and Principal Executive Offices

K-Sea GP LLC, our general partner, will manage our operations and activities, including, among other things, establishing the quarterly cash distribution for our common units and cash reserves it believes are prudent to provide for the proper conduct of our business. We control and manage KSP through our ownership of KSP GP.

We anticipate that our president and chief executive officer and our chief financial officer and up to four of the directors of our general partner also will be officers or directors of KSP GP and will serve in a similar capacity at each entity. One or more of the independent directors of our general partner may also serve as an independent director of KSP GP. For additional information regarding the officers and directors of our general partner and KSP GP, please read "Management."

We and our general partner have no employees. All of our officers and other personnel necessary for our business to function (to the extent not outsourced) will be employed by K-Sea Transportation Inc., a subsidiary of KSP which we refer to as KTI, and we will pay KTI an annual fee for general and administrative services pursuant to an administrative services agreement. This fee will initially be $350,000 per year. The fee will be subject to upward adjustment if a material event occurs that impacts the general and administrative services provided to us, such as acquisitions, entering into new lines of business or changes in laws, regulations or accounting rules. In addition to this fee for general and administrative services provided to us by KTI, we expect to incur direct annual expenses of approximately $1,000,000 per year for recurring costs associated with becoming a separate publicly traded entity, including legal, tax and accounting expenses.

We will reimburse KTI and KSP GP for expenses incurred (1) on our behalf; (2) on behalf of our general partner; or (3) to maintain KSP GP's legal existence and good standing. We will also reimburse our general partner for any additional expenses incurred on our behalf or to maintain its legal existence and good standing.

Our principal executive offices are located at One Tower Center Boulevard, 17th Floor, East Brunswick, New Jersey 08816, and our phone number is (732) 565-3818. Our Internet address will be . We expect to make our periodic reports and other information filed or furnished to the Commission available, free of charge, on our web site. Information on our web site or any other web site is not incorporated by reference into this prospectus and does not constitute part of this prospectus.

The Offering

Common units offered by us	common units.
Common units offered by the selling unitholders	common units; common units if the underwriters exercise their option to purchase additional common units in full.
Common units outstanding after this offering	common units.
Use of proceeds	We expect to receive net proceeds of approximately $ million from the sale of the common units offered by us, after deducting underwriting discounts. We will use the net proceeds from this offering to:
	•	repay approximately $15.5 million of indebtedness, together with accrued interest, of EW LLC;
	•	pay approximately $5.3 million of federal and state income tax liabilities of EW LLC; and
	•	pay approximately $ million of expenses associated with the offering and related formation transactions.
	We will not receive any proceeds from the sale of the common units being sold by the selling unitholders.
	Please read "Use of Proceeds."
Cash distributions	We will pay quarterly distributions at an initial rate of $ per common unit ($ per common unit on an annual basis) to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner. In general, we will distribute all of our available cash each quarter to the holders of our common units. Please read "Our Cash Distribution Policy and Restrictions on Distributions." We do not have subordinated units and our general partner is not entitled to any incentive distributions. Please read "Description of Our Common Units."
	We will pay you a prorated cash distribution for the first quarter that we are a publicly traded partnership. This cash distribution will be paid for the period beginning on the closing date of this offering and ending on the last day of that fiscal quarter. Therefore, we will pay you a cash distribution for the period from the closing date of this offering to and including June 30, 2008. We expect to pay this cash distribution in August 2008. However, we cannot assure you that any distributions will be declared or paid by us.

Limited voting rights		Our general partner will manage and operate us. Unlike the holders of common stock in a corporation, you will have only limited voting rights on matters affecting our business. You will have no right to elect our general partner or its directors on an annual or other continuing basis. Our general partner may not be removed except by a vote of the holders of at least 66²/3% of the outstanding common units, including any units owned by our affiliates, voting together as a single class. Immediately following the completion of this offering, the contributing parties will own a sufficient number of our common units to allow them to block any attempt to remove our general partner. Initially, this will give our current partners the ability to prevent our general partner's involuntary removal. Please read "Description of Our Partnership Agreement—Withdrawal or Removal of the General Partner."
Limited call right		If at any time our affiliates own more than 80% of our outstanding common units, our general partner has the right, but not the obligation, to purchase all of the remaining common units at a price not less than the then-current market price of the common units. At the completion of this offering, the contributing parties will own approximately % of our common units.
Estimated ratio of taxable income to distributions		We estimate that if you own the common units you purchase in this offering through the record date for distributions for the period ending December 31, 2010, you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be less than % of the cash distributed to you with respect to that cumulative period. For example, if you receive an annual distribution of $ per common unit, we estimate that your average allocated federal taxable income per year will be no more than $ per unit. For the basis of this estimate, please read "Material Tax Consequences—Tax Consequences of Unit Ownership—Ratio of Taxable Income to Distributions."
Material tax consequences		For a discussion of other material federal income tax consequences that may be relevant to prospective unitholders who are individual citizens or residents of the United States, please read "Material Tax Consequences."
Agreement to be bound by the partnership agreement		By purchasing a common unit, you will be deemed to have agreed to be bound by all of the terms of our partnership agreement.
Exchange listing		We intend to apply to list our common units on the New York Stock Exchange under the symbol " ."

Summary of Conflicts of Interest and Fiduciary Duties

Conflicts of interest exist and may arise in the future as a result of the relationships among us, KSP and our and its respective general partners and affiliates on the one hand, and us and our limited partners, on the other hand. Like KSP, our general partner is controlled by the contributing parties. Accordingly, the contributing parties have the ability to elect, remove and replace the directors and officers of our general partner and the directors and officers of the general partner of KSP. The directors and officers of our general partner have fiduciary duties to manage our general partner in a manner beneficial to its owners. At the same time, our general partner has a fiduciary duty to manage us in a manner beneficial to us and our unitholders.

Certain of the executive officers and directors of our general partner also serve as executive officers and directors of the general partner of KSP. Consequently, these directors and officers may encounter situations in which their fiduciary obligations to KSP, on the one hand, and us, on the other hand, are in conflict. For a more detailed description of the conflicts of interest involving us and the resolution of these conflicts, please read "Conflicts of Interest and Fiduciary Duties."

Our partnership agreement limits the liability and reduces the fiduciary duties of our general partner to our unitholders. Our partnership agreement also restricts the remedies available to unitholders for actions that might otherwise constitute a breach of our general partner's fiduciary duties owed to unitholders. By purchasing our units, you are treated as having consented to various actions contemplated in the partnership agreement and conflicts of interest that might otherwise constitute a breach of fiduciary or other duties under applicable state law. Please read "Conflicts of Interest and Fiduciary Duties—Fiduciary Duties" for a description of the fiduciary duties imposed on our general partner by Delaware law, the material modifications of these duties contained in our partnership agreement, and certain legal rights and remedies available to unitholders.

Summary of Risk Factors

An investment in our common units involves risks. These risks include, but are not limited to, those described below. For more information about these and other risks, please read "Risk Factors." You should consider carefully these risk factors together with all of the other information included in this prospectus before you invest in our common units.

Risks Inherent in an Investment in Us

•: Our cash flow will be entirely dependent upon the ability of KSP to make cash distributions to us. If KSP does not make cash distributions or reduces the level of cash distributions to us, we may not have sufficient cash to pay distributions at our initial quarterly distribution level or at all.
•: In the future, we may not have sufficient cash to pay our estimated initial quarterly distribution or to increase distributions.
•: A portion of our partnership interests in KSP are subordinated to KSP's common units, which would result in decreased distributions to us if KSP is unable to meet its minimum quarterly distribution.
•: A portion of our partnership interests in KSP are incentive distribution rights, and reduction in KSP's distributions will disproportionately affect the amount of cash distributions to which we are currently entitled.
•: Our unitholders do not elect our general partner or vote in the election of directors of our general partner. Upon completion of this offering, the owner of our general partner will own a sufficient number of common units to allow it to prevent the removal of our general partner.

•: You will experience immediate and substantial dilution of $ per common unit in the net tangible book value of your common units.
•: The control of our general partner may be transferred to a third party who could replace our or KSP's current management team, in either case, without unitholder consent.
•: KSP may issue additional limited partner interests or other equity securities, which may increase the risk that KSP will not have sufficient available cash to maintain or increase its cash distributions to us.

Risks Related to Conflicts of Interest

•: KSP's general partner owes fiduciary duties to KSP's unitholders that may conflict with our interests.
•: Potential conflicts of interest may arise among our general partner, its affiliates and us. Our general partner has limited fiduciary duties to us and our unitholders, which may permit it to favor its own interests to the detriment of us and our unitholders.
•: Our partnership agreement limits our general partner's fiduciary duties to us and contains provisions that reduce the remedies available to unitholders for actions that might otherwise constitute a breach of fiduciary duty by our general partner.
•: Our general partner may mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets without prior approval of our unitholders.

Risks Related to KSP's Business

•: Marine transportation is an inherently risky business.
•: A decline in demand for, and level of consumption of, refined petroleum products could cause demand for tank vessel capacity and charter rates to decline, which would decrease KSP's revenues and profitability.
•: KSP's business would be adversely affected if KSP failed to comply with the Jones Act provisions on coastwise trade, or if those provisions were modified, repealed or waived.
•: Increased competition in the domestic tank vessel industry could result in reduced profitability and loss of market share for KSP.
•: KSP relies on a limited number of customers for a significant portion of its revenues. The loss of any of these customers could adversely affect KSP's business and operating results.
•: Voyage charters may not be available at rates that will allow KSP to operate its vessels profitably.
•: KSP may not be able to renew time charters, consecutive voyage charters, contracts of affreightment and bareboat charters when they expire.
•: KSP must make substantial expenditures to maintain the operating capacity of its fleet, which will reduce its cash available for distribution.

Tax Risks to Our Common Unitholders

•: Our tax treatment depends on both our and KSP's status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat us as a corporation or if we or KSP or both were to

become subject to a material amount of entity-level taxation for federal or state income tax purposes, our cash available for distribution to unitholders would be substantially reduced.

•: If the IRS contests the federal income tax positions taken by us or KSP, the market for our or KSP's common units may be adversely affected, and the costs of any contest will reduce our cash available for distribution to unitholders.
•: You may be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.
•: If EW LLC's corporate subsidiaries are audited, we may owe additional federal and state taxes, which could decrease our cash available for distribution.

Summary Historical and Pro Forma Financial Data

We were formed in December 2007. The ownership interests of KSP GP and EW LLC will be transferred to us in connection with this offering, and there will be no substantive change in the control of these entities as a result of the transaction. Therefore, our historical consolidated financial information as of and for the years ended June 30, 2005, 2006 and 2007, and as of December 31, 2007 and for the six months ended December 31, 2006 and 2007, represents the combined financial information of KSP GP and EW LLC based on their carrying amounts. We refer to these combined entities as K-Sea GP Holdings LP Predecessor.

We have no separate operating activities apart from those conducted by KSP, and our cash flows consist solely of distributions from KSP on the partnership interests, including the incentive distribution rights, that we own. Accordingly, the summary historical financial data set forth in the following table primarily reflect the operating activities and results of operations of KSP. The limited partner interests in KSP not owned by our affiliates are reflected as non-controlling interests on our balance sheet and the non-affiliated partners' share of income from KSP is reflected as non-controlling interests in our results of operations.

The summary historical statements of income and cash flow data for the fiscal years ended June 30, 2005, 2006 and 2007, and the balance sheet data as of June 30, 2006 and 2007, are derived from the audited financial statements of K-Sea GP Holdings LP Predecessor included elsewhere in this prospectus. The summary historical statements of income and cash flow data for the six months ended December 31, 2006 and 2007, and the balance sheet data as of December 31, 2007, are derived from the unaudited financial statements of K-Sea GP Holdings LP Predecessor. The summary historical balance sheet data as of June 30, 2005 and December 31, 2006 have been derived from the historical books and records of K-Sea GP Holdings LP Predecessor.

The summary pro forma financial data presented for the fiscal year ended June 30, 2007 and as of and for the six months ended December 31, 2007 reflect our historical operating results as adjusted to give pro forma effect to the following transactions, as if such transactions had occurred on July 1, 2006 for income statement data and December 31, 2007 for the balance sheet data:

•: the August 2007 acquisition by KSP of the Smith Maritime Group;
•: the sale by KSP of 3,500,000 KSP common units in September 2007;
•: the transactions contemplated by the contribution agreement described in this prospectus under the caption "Certain Relationships and Related Transactions—Contribution Agreement"; and
•: the sale of common units in this offering and application of the net proceeds from this offering, as described in "Use of Proceeds."

We derived the data in the following table from, and it should be read together with and is qualified in its entirety by reference to, the historical financial statements referenced above and our unaudited pro forma financial statements and the accompanying notes included elsewhere in this prospectus. The table should also be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations."

For a description of all of the assumptions used in preparing the unaudited pro forma financial statements, you should read the notes to the unaudited pro forma financial statements. The pro forma financial data should not be considered as indicative of the historical results we would have had or the results that we will have after this offering.

The following table presents two financial measures, net voyage revenue and Adjusted EBITDA, which we use in our business. These financial measures are not calculated or presented in accordance with generally accepted accounting principles, or GAAP. We explain these measures below and reconcile them to their most directly comparable financial measures calculated and presented in accordance with GAAP in "Non-GAAP Financial Measures" below.

			K-Sea GP Holdings LP Predecessor															Pro Forma K-Sea GP Holdings LP
			Year Ended June 30,									Six Months Ended December 31,						Year Ended June 30,	Six Months Ended December 31,
			2005			2006			2007			2006			2007			2007	2007
			(in thousands, except per unit and operating data)
Income Statement Data:
Voyage revenue			$	118,811		$	176,650		$	216,924		$	105,668		$	149,361
Bareboat charter and other revenue				2,587			6,118			9,650			5,273			6,076

Total revenues				121,398			182,768			226,574			110,941			155,437

Voyage expenses				24,220			37,973			45,875			22,046			35,375
Vessel operating expenses				49,550			77,367			96,005			47,761			59,891
General and administrative expenses				11,365			17,473			20,731			10,118			13,902
Depreciation and amortization				21,420			26,810			33,415			15,812			20,765
Net (gain) loss on sale of vessels				(281	)		(313	)		102			(16	)		(300	)

Total operating expenses				106,274			159,310			196,128			95,721			129,633

Operating income				15,124			23,458			30,446			15,220			25,804
Interest expense, net				7,178			11,739			15,598			7,585			11,665
Net loss on reduction of debt(1)				1,359			7,224			359			0			0
Other (income) expense, net				(239	)		(338	)		(301	)		(145	)		(2,301	)

Income before provision for income taxes				6,826			4,833			14,790			7,780			16,440
Provision for income taxes				430			801			1,105			662			765

Income before non-controlling interest				6,396			4,032			13,685			7,118			15,675
Non-controlling interest				4,006			3,276			9,235			4,573			10,308

Net income			$	2,390		$	756		$	4,450		$	2,545		$	5,367
Net income per unit—basic
—diluted
Balance Sheet Data (at period end):
Vessels and equipment, net			$	235,490		$	316,237		$	358,580		$	326,910		$	542,604
Total assets				274,378			383,607			430,498			399,989			692,647
Total debt				125,630			210,008			259,787			229,404			365,467
Partners' capital/members' equity				26,666			14,787			9,889			12,963			7,358
Cash Flow Data:
Net cash provided by (used in):
	Operating activities		$	13,597		$	6,525		$	24,561		$	14,612		$	15,534
	Investing activities			(54,946	)		(105,225	)		(63,579	)		(29,338	)		(212,172	)
	Financing activities			40,780			99,381			39,116			14,522			197,462
Other Financial Data:
Net voyage revenue			$	94,591		$	138,677		$	171,049		$	83,622		$	113,986
Adjusted EBITDA(2)			$	35,424		$	43,382		$	63,803		$	31,177		$	48,870
Capital expenditures(3):
	Maintenance		$	8,024		$	13,753		$	20,337		$	14,546		$	10,171
	Expansion (including vessel and company acquisitions)			39,337			98,073			25,960			8,966			188,998

		Total	$	47,361		$	111,826		$	46,297		$	23,512		$	199,169

Construction of tank vessels			$	16,816		$	20,702		$	33,315		$	14,688		$	22,057

Operating Data:
Number of tank barges (at period end)				44			61			60			61			73
Number of tankers (at period end)				2			2			1			2			1
Number of tugboats (at period end)				25			41			44			44			58
Total barrel-carrying capacity (in thousands at period end)				2,561			3,357			3,464			3,382			4,334
Net utilization(4)				85	%		83	%		85	%		86	%		86	%
Average daily rate(5)			$	8,734		$	9,245		$	10,097		$	9,780		$	11,072

(1): Fiscal 2006 and fiscal 2005 include losses of $7.2 million and $1.4 million, respectively, in connection with the restructuring of KSP's revolving credit facility and repayment of certain term loans, including KSP's Title XI debt in fiscal 2006.

(2): Adjusted EBITDA has been reduced by net losses on reduction of debt of $1.4 million, $7.2 million and $0.4 million for the years ended June 30, 2005, 2006 and 2007, respectively, and by $0.4 million on a pro forma basis for year end June 30, 2007.
(3): KSP defines maintenance capital expenditures as capital expenditures required to maintain, over the long term, the operating capacity of its fleet, and expansion capital expenditures as those capital expenditures that increase, over the long term, the operating capacity of its fleet. Examples of maintenance capital expenditures include costs related to drydocking a vessel, retrofitting an existing vessel or acquiring a new vessel to the extent such expenditures maintain the operating capacity of KSP's fleet. Expenditures made in connection with KSP's tank vessel newbuilding program were considered maintenance capital expenditures as they were made to replace capacity scheduled to phase out under OPA 90; however, because they were non-routine in nature they are included separately in the above table under "Construction of tank vessels." Generally, expenditures for construction of tank vessels in progress are not included as capital expenditures until such vessels are completed. Capital expenditures associated with retrofitting an existing vessel, or acquiring a new vessel, which increase the operating capacity of KSP's fleet over the long term whether through increasing KSP's aggregate barrel-carrying capacity, improving the operational performance of a vessel or otherwise, are classified as expansion capital expenditures. Drydocking expenditures are more extensive in nature than normal routine maintenance and, therefore, are capitalized and amortized over three years. For more information regarding the accounting treatment of drydocking expenditures, please read "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Amortization of Drydocking Expenditures" and the audited consolidated financial information appearing elsewhere in this prospectus.
(4): "Net utilization" is a percentage equal to the total number of days actually worked by a tank vessel or group of tank vessels during a defined period, divided by the number of calendar days in the period multiplied by the total number of tank vessels operating or in drydock during that period.
(5): "Average daily rate" equals the net voyage revenue earned by a tank vessel or group of tank vessels during a defined period, divided by the total number of days actually worked by that tank vessel or group of tank vessels during that period.

Non-GAAP Financial Measures

KSP derives its voyage revenue from time charters, contracts of affreightment and voyage charters, which are described in more detail under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview of Operations." One of the principal distinctions among these types of contracts is whether the vessel operator or the customer pays for voyage expenses, which include fuel, port charges, pilot fees, tank cleaning costs and canal tolls. Some voyage expenses are fixed, and the remainder can be estimated. If KSP, as the vessel operator, pays the voyage expenses, it typically passes these expenses on to its customers by charging higher rates under the contract or rebilling such expenses to them. As a result, although voyage revenue from different types of contracts may vary, the net revenue that remains after subtracting voyage expenses, which KSP calls net voyage revenue, is comparable across the different types of contracts. Therefore, KSP principally uses net voyage revenue, rather than voyage revenue, when comparing performance in different periods.

We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization and non-controlling interests. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and commercial banks, to assess:

•: the financial performance of our assets without regard to financing methods, capital structures or historical cost basis;
•: the ability of our assets to generate cash sufficient to pay interest on its indebtedness and to make distributions to its unitholders;
•: our operating performance and return on invested capital as compared to those of other companies in the marine transportation business, without regard to financing methods and capital structure; and
•: our compliance with certain financial covenants included in its debt agreements.

Adjusted EBITDA should not be considered an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in

accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income and operating income, and these measures may vary among other companies. Therefore, Adjusted EBITDA as presented in this section may not be comparable to similarly titled measures of other companies.

The following table presents a reconciliation of the non-GAAP financial measures of net voyage revenue and Adjusted EBITDA to the most directly comparable GAAP financial measures for each of the periods indicated.

																					Pro Forma
		Year Ended June 30,													Six Months Ended December 31,						Year Ended June 30,	Six Months Ended December 31,
		2003			2004		2005			2006		2007			2006			2007			2007	2007
		(in thousands)
Reconciliation of "Net voyage revenue" to "Voyage revenue"
	Voyage revenue	$	83,942		$	93,899	$	118,811		$	176,650	$	216,924		$	105,668		$	149,361
	Voyage expenses		14,151			16,339		24,220			37,973		45,875			22,046			35,375

Net voyage revenue		$	69,791		$	77,560	$	94,591		$	138,677	$	171,049		$	83,622		$	113,986

Reconciliation of "Adjusted EBITDA" to "Net Income"
Net income		$	4,972		$	672	$	2,390		$	756	$	4,450		$	2,545		$	5,367
	Interest expense, net		16,293			18,758		7,178			11,739		15,598			7,585			11,665
	Depreciation and amortization		8,808			6,917		21,420			26,810		33,415			15,812			20,765
	Provision for income taxes		340			1,768		430			801		1,105			662			765
	Non-controlling interest		—			900		4,006			3,276		9,235			4,573			10,308

Adjusted EBITDA(1)		$	30,413		$	29,015	$	35,424		$	43,382	$	63,803		$	31,177		$	48,870

Reconciliation of "Adjusted EBITDA" to "Net Cash provided by operating activities"
Net cash provided by operating activities		$	13,235		$	7,644	$	13,597		$	6,525	$	24,561		$	14,612		$	15,534
	Payment of drydocking expenditures		7,491			7,011		7,654			12,506		15,357			8,523			9,928
	Interest paid		8,247			5,958		6,584			11,366		15,814			9,555			12,112
	Income taxes paid		2			7		81			416		48			82			26
	(Increase) decrease in operating working capital		1,716			3,177		(433	)		3,154		(5,451	)		(6,390	)		(1,093	)
	Other, net		(278	)		5,218		7,941			9,415		13,474			4,795			12,363

Adjusted EBITDA(1)		$	30,413		$	29,015	$	35,424		$	43,382	$	63,803		$	31,177		$	48,870

(1): Adjusted EBITDA has been reduced by net losses on reduction of debt of $3.2 million, $1.4 million, $7.2 million and $0.4 million for the years ended June 30, 2004, 2005, 2006 and 2007, respectively, and by $0.4 million on a pro forma basis for the year ended June 30, 2007.

RISK FACTORS

You should consider carefully the following risk factors, which we believe include all material risks to our business, together with all of the other information included in this prospectus, in your evaluation of an investment in our common units. Realization of any of the following risks could have a material adverse effect on our business, financial condition, cash flows and results of operations. In that case, we might not be able to pay the initial quarterly distribution on our common units, the trading price of our common units could decline and you could lose all or part of your investment.

Risks Inherent in an Investment in Us

Our cash flow will be entirely dependent upon the ability of KSP to make cash distributions to us. If KSP does not make cash distributions or reduces the level of cash distributions to us, we may not have sufficient cash to pay distributions at our initial quarterly distribution level or at all.

The source of our earnings and cash flow will consist exclusively of cash distributions from KSP for the foreseeable future. The amount of cash that KSP will be able to distribute to its partners, including us, each quarter principally depends upon the amount of cash it generates from its refined petroleum product marine transportation, distribution and logistics services business. For a description of certain factors that can cause fluctuations in the amount of cash that KSP generates from its refined petroleum product marine transportation, distribution and logistics services business, please read "—Risks Related to KSP's Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That Significantly Affect Our Results and KSP's Results." KSP may not have sufficient available cash each quarter to continue paying distributions at their current level or at all. If KSP reduces its per unit distribution, we will have less cash available for distribution to you and would probably be required to reduce our per unit distribution to you. You should also be aware that the amount of cash KSP has available for distribution depends primarily upon KSP's cash flow, including cash flow from financial reserves and working capital borrowings, and is not solely a function of profitability, which will be affected by non-cash items. As a result, KSP may make cash distributions during periods when it records losses and may not make cash distributions during periods when it records profits.

In addition, the timing and amount, if any, of an increase or decrease in distributions by KSP to its unitholders will not necessarily be comparable to the timing and amount of any changes in distributions made by us. Our ability to distribute cash received from KSP to our unitholders is limited by a number of factors, including:

•: interest expense and principal payments on any indebtedness we may incur;
•: restrictions on distributions contained in any future debt agreements;
•: our estimated general and administrative expenses, including expenses we will incur as a result of being a public company, as well as other operating expenses;
•: expenses of KSP GP and KSP;
•: reserves necessary for us to make the necessary capital contributions to maintain our 1.5% general partner interest in KSP, if desired, upon the issuance of additional partnership securities by KSP; and
•: reserves our general partner believes prudent for us to maintain the proper conduct of our business or to provide for future distributions by us.

In addition, prior to making any distributions to our unitholders, we will reimburse our general partner and its affiliates for all direct and indirect expenses incurred by them on our behalf. Our general partner will determine the amount of these reimbursed expenses. In addition, our general

partner and its affiliates may perform other services for us for which we will be charged fees as determined by our general partner. The reimbursement of these expenses, in addition to the other factors listed above, could adversely affect the amount of distributions we make to our unitholders. In the future, we may not be able to pay distributions at or above our estimated initial quarterly distribution of $ per unit, or $ on an annualized basis. The actual amount of cash that is available for distribution to our unitholders will depend on numerous factors, many of which are beyond our control or the control of our general partner.

In the future, we may not have sufficient cash to pay our estimated initial quarterly distribution or to increase distributions.

In order to make our initial quarterly distribution of $ per unit, or $ on an annualized basis, through March 31, 2009, we estimate that we will require available cash of approximately $ million per quarter, or $ million per year, based on the number of our common units outstanding immediately after completion of this offering. Our estimated cash available to pay distributions for the twelve months ending March 31, 2009 is based on our expected ownership of KSP following the completion of this offering. A reduction in the number of KSP units we own or in the amount of cash distributed by KSP per unit or on the incentive distribution rights, or an increase in our expenses, may result in our not being able to pay the expected distribution of $ per unit annually.

Our ability to meet our financial needs may be adversely affected by our cash distribution policy and our lack of operational assets.

Our cash distribution policy, which is consistent with our partnership agreement, requires us to distribute all of our available cash quarterly. Our only cash generating assets are partnership interests in KSP, and we currently do not have, and do not anticipate having, any operations separate from those of KSP. Moreover, as discussed below, a reduction in KSP's distributions will disproportionately affect the amount of cash distributions we receive from KSP because payment on our incentive distribution rights will be reduced. Given that our cash distribution policy is to distribute available cash and not retain it and that our only cash generating assets are partnership interests in KSP, we may not have enough cash to meet our needs if any of the following events occur:

•: an increase in our operating expenses;
•: an increase in general and administrative expenses;
•: an increase in working capital requirements; or
•: an increase in cash needs of KSP or its subsidiaries that reduces KSP's distributions.

A portion of our partnership interests in KSP are subordinated to KSP's common units, which would result in decreased distributions to us if KSP is unable to meet its minimum quarterly distribution.

Following this offering, we will own 2,082,500 subordinated units in KSP. The subordinated units are not entitled to any distributions in a quarter until KSP has paid the minimum quarterly distribution of $0.50 per KSP unit, plus any arrearages in the payment of the minimum quarterly distribution from prior quarters, on all of the outstanding KSP common units. Distributions on the subordinated units are, therefore, more uncertain than distributions on KSP's common units. Furthermore, no distributions may be made on the incentive distribution rights until the minimum quarterly distribution has been paid on all outstanding KSP units. Therefore, distributions with respect to the incentive distribution rights are even more uncertain than distributions on KSP's common units. Neither the subordinated units nor the incentive distribution rights are entitled to any arrearages from prior quarters.

A portion of our partnership interests in KSP are incentive distribution rights, and a reduction in KSP's distributions will disproportionately affect the amount of cash distributions to which we are currently entitled.

Our ownership of the incentive distribution rights in KSP, through our ownership interests in KSP GP, the holder of the incentive distribution rights, entitles us to receive our pro rata share of specified percentages of total cash distributions made by KSP with respect to any particular quarter only in the event that KSP distributes more than $0.55 per unit for such quarter. As a result, the holders of KSP's common units and subordinated units have a priority over the holders of KSP's incentive distribution rights to the extent of cash distributions by KSP up to and including $0.55 per unit for any quarter.

Our ownership of 100% of the incentive distribution rights in KSP entitles us to receive increasing percentages, up to 48%, of all cash distributed by KSP. Because we are not at the maximum target cash distribution level on the incentive distribution rights, future growth in distributions we receive from KSP will result from an increase in the target cash distribution level associated with the incentive distribution rights. Furthermore, a decrease in the amount of distributions by KSP to less than $0.625 per unit per quarter would reduce KSP GP's percentage of the incremental cash distributions above $0.55 per common unit per quarter from 23% to 13%. As a result, any such reduction in quarterly cash distributions from KSP would have the effect of disproportionately reducing the amount of all distributions that we receive from KSP based on our ownership interest in the incentive distribution rights in KSP as compared to cash distributions we receive from KSP with respect to our 1.5% general partner interest in KSP and our KSP units.

If distributions on our common units are not paid with respect to any fiscal quarter, including those at the anticipated initial distribution rate, our unitholders will not be entitled to receive such payments in the future.

Our distributions to our unitholders will not be cumulative. Consequently, if distributions on our common units are not paid with respect to any fiscal quarter, including those at the anticipated initial distribution rate, our unitholders will not be entitled to receive such payments in the future.

Our cash distribution policy limits our ability to grow.

Because we distribute all of our available cash, our growth may not be as fast as businesses that reinvest their available cash to expand ongoing operations. In fact, our growth initially will be completely dependent upon KSP's ability to increase its quarterly distribution per unit because our only cash-generating assets are, and in the future our only cash generating assets are expected to be, partnership interests in KSP. The amount of distributions received by KSP GP is based on KSP's per unit distribution paid on each KSP common unit and subordinated unit. Accordingly, the cash distribution received by KSP GP is derived from two factors: (1) KSP's per unit distribution level and (2) the number of KSP common units and subordinated units outstanding. An increase in either factor (assuming the other factor remains constant or increases) will generally result in an increase in the amount received by us. Please read "K-Sea Transportation Partners L.P.'s Cash Distribution Policy." If we issue additional units or incur debt, the payment of distributions on those additional units or interest on that debt could increase the risk that we will be unable to maintain or increase our per unit distribution level.

Consistent with the terms of its partnership agreement, KSP distributes to its partners its available cash each quarter. In determining the amount of cash available for distribution, KSP creates reserves, which it uses to fund estimated maintenance capital expenditures and growth capital expenditures. Additionally, KSP has relied upon external financing sources, including commercial borrowings and equity issuances, to fund its acquisition capital expenditures. Accordingly, to the extent KSP does not

have sufficient cash reserves or is unable to finance growth externally, its cash distribution policy will significantly impair its ability to grow. In addition, to the extent KSP issues additional units, the payment of distributions on those additional units may increase the risk that KSP will be unable to maintain or increase its per unit distribution level, which in turn may impact the available cash that we have to distribute to our unitholders. The incurrence of additional debt to finance its growth strategy would result in increased interest expense to KSP, which in turn may reduce the available cash that we have to distribute to our unitholders.

While we or KSP may incur debt to pay distributions to our and its unitholders, respectively, a credit facility governing such debt may restrict or limit the distributions we pay to our unitholders.

While we or KSP are permitted by our partnership agreements to incur debt to pay distributions to our unitholders, respectively, our or KSP's payment of principal and interest on any future indebtedness will reduce our cash available for distribution on our unitholders. We anticipate that any credit facility we enter into will limit our ability to pay distributions to our unitholders during an event of default or if an event of default would result from the distributions. In addition, any future levels of indebtedness may adversely affect our ability to obtain additional financing for future operations or capital needs, limit our ability to pursue acquisitions and other business opportunities, or make our results of operations more susceptible to adverse economic or operating conditions.

Furthermore, KSP's debt agreements, including its credit facility, contain covenants limiting its ability to incur indebtedness, grant liens, engage in transactions with affiliates and make distributions to us. They also contain covenants requiring KSP to maintain certain financial ratios. KSP is prohibited from making any distribution to unitholders if such distribution would cause an event of default or otherwise violate a covenant under these agreements. Please read "Our Cash Distribution Policy and Restrictions on Distributions—General" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—KSP's Credit Agreement" for more information about KSP's credit facility.

Our unitholders do not elect our general partner or vote in the election of directors of our general partner. Upon completion of this offering, the owner of our general partner will own a sufficient number of common units to allow it to prevent the removal of our general partner.

Unlike the holders of common stock in a corporation, our unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management's decisions regarding our business. Our unitholders do not have the ability to elect our general partner or the directors of our general partner and will have no right to elect our general partner or the directors of our general partner on an annual or other continuing basis in the future. The board of directors of our general partner, including our independent directors, is chosen by certain officers and directors of KSP GP. Furthermore, if our public unitholders are dissatisfied with the performance of our general partner, they will have little ability to remove our general partner. Our general partner may not be removed except upon the vote of the holders of at least 66²/3% of the outstanding common units. Because the contributing parties own more than 33¹/3% of our outstanding units, our general partner currently cannot be removed without their consent. Please read "Description of Our Partnership Agreement—Withdrawal or Removal of the General Partner."

As a result of these provisions, the price at which our common units will trade may be lower because of the absence or reduction of a takeover premium in the trading price. Please read "Description of Our Partnership Agreement—Meetings; Voting."

KSP's general partner, with our consent, may limit or modify the incentive distributions we are entitled to receive in order to facilitate the growth strategy of KSP. Our general partner's board of directors can give this consent without a vote of our unitholders.

We own KSP's general partner, which owns the incentive distribution rights in KSP that entitle us to receive increasing percentages, up to a maximum of 49.5%, of any cash distributed by KSP above $0.75 per KSP common unit in any quarter. A substantial portion of the cash flows we receive from KSP is provided by these incentive distributions. Our limited liability company agreement provides that our board of directors may consent to the elimination, reduction or modification of the incentive distribution rights without your approval if it determines that the elimination, reduction or modification will not adversely affect our unitholders in any material respect.

You will experience immediate and substantial dilution of $ per common unit in the net tangible book value of your common units.

The assumed initial public offering price of our common units is substantially higher than the pro forma net tangible book value per common unit of the outstanding common units immediately after the offering. If you purchase common units in this offering you will incur immediate and substantial dilution in the pro forma net tangible book value per common unit from the price you pay for the common units. See "Dilution."

Our general partner may cause us to issue additional common units or other equity securities without your approval which would dilute your ownership interests and may increase the risk that we will not have available cash to maintain or increase our per unit distribution level.

Our general partner may cause us to issue an unlimited number of additional common units or other equity securities of equal rank with the common units, without unitholder approval. The issuance of additional common units or other equity securities of equal rank will have the following effects:

•: our unitholders' proportionate ownership interest in us will decrease;
•: the amount of cash available for distribution on each common unit may decrease;
•: the relative voting strength of each previously outstanding common unit may be diminished;
•: the ratio of taxable income to distributions may increase; and
•: the market price of the common units may decline.

Please read "Description of Our Partnership Agreement—Issuance of Additional Securities."

The control of our general partner may be transferred to a third party who could replace our or KSP's current management team, in either case, without unitholder consent.

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of our unitholders. Furthermore, the owners of our general partner, may transfer their ownership interest in our general partner to a third party. The new owners of our general partner would then be in a position to replace the board of directors and officers of our general partner and to control the decisions taken by the board of directors and officers of KSP GP.

If KSP's unitholders remove KSP's general partner, we would lose our general partner interest and incentive distribution rights in KSP and the ability to manage KSP.

We currently manage KSP through KSP GP, KSP's general partner and our wholly owned subsidiary. KSP's partnership agreement, however, gives unitholders of KSP the right to remove the general partner of KSP upon the affirmative vote of holders of 66²/3% of KSP's outstanding units. If KSP GP were removed as general partner of KSP, it would receive cash or common units in exchange

for its 1.5% general partner interest and the incentive distribution rights and would lose its ability to manage KSP. While the common units or cash we would receive are intended under the terms of KSP's partnership agreement to fully compensate us in the event such an exchange is required, the value of these common units or investments we make with the cash over time may not be equivalent to the value of the general partner interest and the incentive distribution rights had we retained them. Please read "Material Provisions of the Partnership Agreement of K-Sea Transportation Partners L.P.—Withdrawal or Removal of KSP's General Partner."

In addition, if KSP GP were removed as general partner of KSP, we would face an increased risk of being deemed an investment company. Please read "—If in the future we cease to manage and control KSP, we may be deemed to be an investment company under the Investment Company Act of 1940."

You may not have limited liability if a court finds that unitholder action constitutes control of our business.

Under Delaware law, you could be held liable for our obligations to the same extent as a general partner if a court determined that the right or the exercise of the right by our unitholders as a group to remove or replace our general partner, to approve some amendments to the partnership agreement or to take other action under our partnership agreement constituted participation in the "control" of our business. Additionally, the limitations on the liability of holders of limited partner interests for the liabilities of a limited partnership have not been clearly established in many jurisdictions.

Furthermore, Section 17-607 of the Delaware Revised Uniform Limited Partnership Act provides that, under some circumstances, a unitholder may be liable to us for the amount of a distribution for a period of three years from the date of the distribution. Please read "Description of Our Partnership Agreement—Limited Liability" for a discussion of the implications of the limitations on liability to a unitholder.

If in the future we cease to manage and control KSP, we may be deemed to be an investment company under the Investment Company Act of 1940.

If we cease to manage and control KSP and are deemed to be an investment company under the Investment Company Act of 1940, we would either have to register as an investment company under the Investment Company Act of 1940, obtain exemptive relief from the Commission or modify our organizational structure or our contractual rights to fall outside the definition of an investment company. Registering as an investment company could, among other things, materially limit our ability to engage in transactions with affiliates, including the purchase and sale of certain securities or other property to or from our affiliates, restrict our ability to borrow funds or engage in other transactions involving leverage and require us to add additional directors who are independent of us and our affiliates, and adversely affect the price of our common units.

Our partnership agreement restricts the rights of unitholders owning 20% or more of our units.

Our unitholders' voting rights are restricted by the provision in our partnership agreement generally providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of the general partner, cannot be voted on any matter. In addition, our partnership agreement contains provisions limiting the ability of our unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting our unitholders' ability to influence the manner or direction of our management. As a result, the price at which our common units will trade may be lower because of the absence or reduction of a takeover premium in the trading price.

KSP may issue additional limited partner interests or other equity securities, which may increase the risk that KSP will not have sufficient available cash to maintain or increase its cash distributions to us.

KSP has wide latitude to issue additional limited partner interests on the terms and conditions established by its general partner and its partnership agreement. We receive cash distributions from KSP on the general partner interests, limited partner interests and incentive distribution rights that we hold. Because a substantial portion of the cash we receive from KSP is attributable to our ownership of the incentive distribution rights, payment of distributions on additional KSP limited partner interests may increase the risk that KSP will be unable to maintain or increase its quarterly cash distribution per unit, which in turn may reduce the amount of incentive distributions we receive and the available cash that we have to distribute to our unitholders.

If KSP's general partner is not fully reimbursed or indemnified for obligations and liabilities it incurs in managing the business and affairs of KSP, its value, and therefore, the value of our common units, could decline.

The general partner of KSP may make expenditures on behalf of KSP for which it will seek reimbursement from KSP. Under Delaware partnership law, the general partner, in its capacity as the general partner of KSP, has unlimited liability for the obligations of KSP, such as its debts and environmental liabilities, except for those contractual obligations of KSP that are expressly made without recourse to the general partner. To the extent KSP GP incurs obligations on behalf of KSP, it is entitled to be reimbursed or indemnified by KSP. If KSP is unable or unwilling to reimburse or indemnify KSP GP, it may not be able to satisfy those liabilities or obligations, which would reduce its cash flows to us.

The price of our common units may be volatile, and a trading market that will provide you with adequate liquidity may not develop.

Prior to this offering there has been no public market for our common units. An active market for our common units may not develop or may not be sustained after this offering. The initial public offering price of our common units will be determined by negotiations between us and the underwriters, based on several factors that we discuss in the "Underwriting" section of this prospectus. This price may not be indicative of the market price for our common units after this initial public offering. The market price of our common units could be subject to significant fluctuations after this offering, and may decline below the initial public offering price. You may be unable to resell your common units at or above the initial public offering price. The following factors could affect our common unit price:

•: KSP's operating and financial performance and prospects;
•: quarterly variations in the rate of growth of our financial indicators, such as distributable cash flow per unit, net income and revenues;
•: changes in revenue or earnings estimates or publication of research reports by analysts;
•: speculation by the press or investment community;
•: sales of our common units by our unitholders;
•: announcements by KSP or its competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, securities offerings or capital commitments;
•: general market conditions; and
•: domestic and international economic, legal and regulatory factors related to KSP's performance.

The equity markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common units. In addition, potential investors may be deterred from investing in our common units for various reasons, including the very limited number of publicly traded entities whose assets consist almost exclusively of partnership interests in a publicly traded partnership. The lack of liquidity may also contribute to significant fluctuations in the market price of our common units and limit the number of investors who are able to buy our common units.

Our common units and KSP's common units may not trade in relation or proportion to one another.

Our common units and KSP's common units may not trade in simple relation or proportion to one another. Instead, while the trading prices of our common units and KSP's common units are likely to follow generally similar broad trends, the trading prices may diverge because, among other things:

•: KSP's cash distributions to its common unitholders have a priority over distributions on its subordinated units and incentive distribution rights;
•: we participate in the distributions on KSP GP's general partner interest and incentive distribution rights in KSP while KSP's common unitholders do not; and
•: we may enter into other businesses separate and apart from KSP or any of its affiliates.

An increase in interest rates may cause the market price of our common units to decline.

Like all equity investments, an investment in our common units is subject to certain risks. As interest rates rise, the ability of investors to obtain higher risk-adjusted rates of return by purchasing government-backed debt securities may cause a corresponding decline in demand for riskier investments generally, including yield-based equity investments such as publicly traded limited partnership interests. Reduced demand for our common units resulting from investors seeking other more favorable investment opportunities may cause the trading price of our common units to decline. As a result, you may lose a portion of your investment in us.

Risks Related to Conflicts of Interest

Our existing organizational structure and the relationships among us, KSP and our respective general partners and affiliated entities, including the owners of our general partner, present the potential for conflicts of interest. Moreover, additional conflicts of interest may arise in the future among us and the entities affiliated with any general partner or similar interests we acquire or among KSP and such entities. For a further discussion of conflicts on interest that may arise, please read "Conflicts of Interest and Fiduciary Duties."

KSP's general partner owes fiduciary duties to KSP's unitholders that may conflict with our interests.

Conflicts of interest exist and may arise in the future as a result of the relationships between us and our affiliates, including KSP GP, KSP's general partner, on one hand, and KSP and its limited partners, on the other hand. The directors and officers of KSP GP have fiduciary duties to manage KSP in a manner beneficial to us, KSP GP's owner. At the same time, KSP GP has a fiduciary duty to manage KSP in a manner beneficial to KSP and its limited partners. The board of directors of KSP GP or its conflicts committee will resolve any such conflict and they have broad latitude to consider the interests of all parties to the conflict. The resolution of these conflicts may not always be in our best interest or that of our unitholders.

For example, conflicts of interest may arise in the following situations:

•: the terms and conditions of any contractual agreements between us and our affiliates, on the one hand, and KSP, on the other hand;
•: the interpretation and enforcement of contractual obligations between us and our affiliates, on the one hand, and KSP, on the other hand;
•: the determination of the amount of cash to be distributed to KSP's partners and the amount of cash to be reserved for the future conduct of KSP's business;
•: the determination of whether KSP should make acquisitions and on what terms;
•: the determination of whether KSP should use cash on hand, borrow or issue equity to raise cash to finance acquisitions or expansion capital projects, repay indebtedness, meet working capital needs, pay distributions or otherwise; and
•: any decision we make in the future to engage in business activities independent of KSP.

Potential conflicts of interest may arise among our general partner, its affiliates and us. Our general partner has limited fiduciary duties to us and our unitholders, which may permit it to favor its own interests to the detriment of us and our unitholders.

Upon completion of this offering, the contributing parties as the owners of our general partner, will own a % limited partner interest in us. Conflicts of interest may arise among our general partner and its affiliates, on the one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our general partner may favor its own interests and the interests of its affiliates over the interests of our unitholders. These conflicts include, among others, the following situations:

•: our general partner is allowed to take into account the interests of parties other than us in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders;
•: our general partner determines whether or not we incur debt and that decision may affect our or KSP's credit ratings;
•: our general partner may limit its liability and will reduce its fiduciary duties under our partnership agreement, while also restricting the remedies available to our unitholders for actions that, without these limitations and reductions, might constitute breaches of fiduciary duty. As a result of purchasing units, our unitholders consent to some actions and conflicts of interest that might otherwise constitute a breach of fiduciary or other duties under applicable state law;
•: our general partner controls the enforcement of obligations owed to us by it and its affiliates;
•: our general partner decides whether to retain separate counsel, accountants or others to perform services for us;
•: our partnership agreement gives our general partner broad discretion in establishing financial reserves for the proper conduct of our business. These reserves also will affect the amount of cash available for distribution;
•: our general partner determines the amount and timing of asset purchases and sales, capital expenditures, borrowings, issuances of additional partnership securities and reserves, each of which can affect the amount of cash that is available to be distributed to our unitholders;
•: our general partner determines which costs incurred by it and its affiliates are reimbursable by us; and

•: our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered on terms that are fair and reasonable to us or entering into additional contractual arrangements with any of these entities on our behalf. Please read "Certain Relationships and Related Transactions—Our Relationship with KSP" and "Conflicts of Interest and Fiduciary Duties—Conflicts of Interest."

The fiduciary duties of our general partner's officers and directors may conflict with those of KSP's general partner.

Our general partner's officers and directors have fiduciary duties to manage our business in a manner beneficial to us and our unitholders and the owners of our general partner, which includes the officers and directors of our general partner. However, a majority of our general partner's directors and all of its officers are also directors or officers of KSP GP, which has fiduciary duties to manage the business of KSP in a manner beneficial to KSP and KSP's unitholders. Consequently, these directors and officers may encounter situations in which their fiduciary obligations to KSP, on the one hand, and us, on the other hand, are in conflict. The resolution of these conflicts may not always be in our best interest or that of our unitholders.

By purchasing our common units, each unitholder automatically agrees to be bound by the provisions of our partnership agreement.

By purchasing our common units, each unitholder automatically agrees to be bound by the provisions in our partnership agreement, including the provisions that substantially reduce the standards to which our general partner would otherwise be held by state fiduciary duty law. This reflects the policy of the Delaware Act, which favors the principle of freedom of contract and the enforceability of partnership agreements. The failure of a limited partner or assignee to sign a partnership agreement does not render the partnership agreement unenforceable against that person. Please read "Conflicts of Interest and Fiduciary Duties" and "Description of Our Partnership Agreement."

If we are presented with certain business opportunities, KSP will have the first right to pursue such opportunities.

Upon completion of this offering, we will become party to an existing omnibus agreement, currently among KSP, its general partner and its affiliates, which governs potential competition in the business of providing marine transportation, distribution and logistics services for refined petroleum products in the United States among KSP and the other parties to the agreement. Pursuant to the terms of the amended omnibus agreement, we will agree, and will cause our controlled affiliates to agree, to certain business opportunity and non-competition arrangements to address potential conflicts that may arise between us and our general partner on one hand, and KSP and its subsidiaries on the other.

Upon completion of this offering, we will enter into a non-compete agreement with KSP. This non-compete agreement will not be effective until we are no longer subject to the existing omnibus agreement described above. Under the non-compete agreement, we will have a right of first refusal with respect to the potential acquisition of certain equity interests. KSP will have a right of first refusal with respect to the potential acquisition of certain assets that relate to the business of providing marine transportation, distribution and logistics services for refined petroleum products in the United States. With respect to any other business opportunities, neither we nor KSP are prohibited from engaging in any business, even if we and KSP would have a conflict of interest with respect to such other business opportunity. For a more detailed description of the terms of the omnibus agreement and the non-compete agreement, please read "Certain Relationships and Related Transactions."

The contributing parties and their affiliates may engage in activities that compete directly with us or KSP.

Pursuant to the omnibus agreement, the contributing parties and their controlled affiliates will agree not to engage, either directly or indirectly, in the business of providing refined petroleum product marine transportation, distribution and logistics services in the United States to the extent such business generates qualifying income for federal income tax purposes. The omnibus agreement will not prohibit the contributing parties or their affiliates, including Jefferies Capital Partners, its affiliates and the funds it or they manage or may manage, from owning assets or engaging in businesses that compete directly or indirectly with us or KSP. Please read "Certain Relationships and Related Transactions—Omnibus Agreement and Non-Compete Agreement."

Our partnership agreement limits our general partner's fiduciary duties to us and contains provisions that reduce the remedies available to unitholders for actions that might otherwise constitute a breach of fiduciary duty by our general partner.

Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement:

•: permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. This entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any limited partner. Examples include the exercise of its limited call right, its voting rights with respect to the units it owns, its registration rights and its determination whether or not to consent to any merger or consolidation of our partnership or amendment to our partnership agreement;
•: provides that our general partner will not have any liability to us or our unitholders for decisions made in its capacity as a general partner so long as it acted in good faith, meaning it believed the decisions were in the best interests of our partnership;
•: generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of our general partner and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be "fair and reasonable" to us and that, in determining whether a transaction or resolution is "fair and reasonable," our general partner may consider the totality of the relationships among the parties involved, including other transactions that may be particularly advantageous or beneficial to us;
•: provides that in resolving conflicts of interest, it will be presumed that in making its decision the general partner acted in good faith, and in any proceeding brought by or on behalf of any limited partner or us, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption; and
•: provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or those other persons acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that such person's conduct was criminal.

In order to become a limited partner of our partnership, our unitholders are required to agree to be bound by the provisions in the partnership agreement, including the provisions discussed above. Please read "Conflicts of Interest and Fiduciary Duties—Fiduciary Duties."

Our general partner has a limited call right that may require unitholders to sell their common units at an undesirable time or price.

If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then-current market price. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its call right. If our general partner exercised its limited call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. For additional information about the call right, please read "Description of Our Partnership Agreement—Limited Call Right."

Our general partner may mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets without prior approval of our unitholders.

Our general partner may mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets without prior approval of our unitholders. If our general partner at any time decided to incur debt and secures its obligations or indebtedness by all or substantially all of our assets, and if our general partner is unable to satisfy such obligations or repay such indebtedness, the lenders could seek to foreclose on our assets. The lenders may also sell all or substantially all of our assets under such foreclosure or other realization upon those encumbrances without prior approval of our unitholders, which would adversely affect the price of our common units.

Risks Related to KSP's Business

Because we are entirely dependent on the distributions we receive from KSP, risks to KSP's operations are also risks to us. We have set forth below risks to KSP's business and operations, the occurrence of which could negatively impact KSP's financial performance and decrease the amount of cash it is able to distribute to us.

Marine transportation is an inherently risky business.

KSP's vessels and their cargoes are at risk of being damaged or lost because of events such as:

•: marine disasters;
•: bad weather;
•: mechanical failures;
•: grounding, fire, explosions and collisions;
•: human error; and
•: war and terrorism.

All of these hazards can result in death or injury to persons, loss of property, environmental damages, delays or rerouting. If one of KSP's vessels were involved in an accident, with the potential risk of environmental contamination, the resulting media coverage could have a material adverse effect on KSP's business, financial condition and results of operations.

EW LLC and its predecessors have been named, together with a large number of other companies, as co-defendants in 39 civil actions by various parties alleging unspecified damages from past exposure to asbestos and second-hand smoke aboard some of the vessels that it contributed to KSP in connection with the initial public offering of KSP's common units. EW LLC and its predecessors have been dismissed from 38 of these lawsuits for an aggregate sum of approximately $47,000 and are pursuing settlement of the other case. EW LLC and KSP may be subject to litigation in the future involving these plaintiffs and others alleging exposure to asbestos due to alleged failure to properly encapsulate friable asbestos or remove friable asbestos on its vessels, as well as for exposure to second-hand smoke and other matters.

A decline in demand for, and level of consumption of, refined petroleum products could cause demand for tank vessel capacity and charter rates to decline, which would decrease KSP's revenues and profitability.

The demand for tank vessel capacity is influenced by the demand for refined petroleum products and other factors including:

•: global and regional economic and political conditions;
•: developments in international trade;
•: changes in seaborne and other transportation patterns, including changes in the distances that cargoes are transported;
•: environmental concerns; and
•: competition from alternative sources of energy, such as natural gas, and alternate transportation methods.

Any of these factors could adversely affect the demand for tank vessel capacity and charter rates. Any decrease in demand for tank vessel capacity or decrease in charter rates could adversely affect KSP's business, financial condition and results of operations.

In addition, KSP operates its tank vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter rates. For example, movements of certain clean oil products, such as motor fuels, generally increase during the summer driving season. In those same regions, movements of black oil products and certain clean oil products, such as heating oil, generally increase during the winter months, while movements of asphalt products generally increase in the spring through fall months. Unseasonably mild winters can result in significantly lower demand for heating oil in the northeastern United States. Meanwhile, KSP's operations along the West Coast and in Alaska historically have been subject to seasonal variations in demand that vary from those exhibited in the East Coast and Gulf Coast regions. In addition, unpredictable weather patterns and variations in oil reserves disrupt vessel scheduling. Seasonality could materially affect KSP's business, financial condition and results of operations in the future.

KSP's business would be adversely affected if KSP failed to comply with the Jones Act provisions on coastwise trade, or if those provisions were modified, repealed or waived.

KSP is subject to the Jones Act and other federal laws that restrict maritime transportation between points in the United States to vessels built and registered in the United States and owned and manned by U.S. citizens. KSP is responsible for monitoring the ownership of its common units and other partnership interests. If KSP does not comply with these restrictions, it would be prohibited from operating its vessels in U.S. coastwise trade, and under certain circumstances it would be deemed to have undertaken an unapproved foreign transfer, resulting in severe penalties, including permanent loss of U.S. coastwise trading rights for its vessels, fines or forfeiture of the vessels. For information about

the Jones Act and other maritime laws, please read "Business of K-Sea Transportation Partners L.P.—Regulation—Coastwise Laws."

In the past, interest groups have lobbied Congress to repeal the Jones Act to facilitate foreign flag competition for trades and cargoes currently reserved for U.S.-flag vessels under the Jones Act and cargo preference laws. We believe that interest groups may continue efforts to modify or repeal the Jones Act and cargo preference laws currently benefiting U.S.-flag vessels. If these efforts are successful, it could result in increased competition, which could reduce KSP's revenues and cash available for distribution.

The Secretary of the Department of Homeland Security is vested with the authority and discretion to waive the coastwise laws to such extent and upon such terms as he may prescribe whenever he deems that such action is necessary in the interest of national defense. In response to the effects of Hurricanes Katrina and Rita, the Secretary of the Department of Homeland Security waived the coastwise laws generally for the transportation of petroleum products from September 1 to September 19, 2005 and from September 26, 2005 to October 24, 2005. In the past, the Secretary of the Department of Homeland Security has waived the coastwise laws generally for the transportation of petroleum released from the Strategic Petroleum Reserve undertaken in response to circumstances arising from major natural disasters. Any waiver of the coastwise laws, whether in response to natural disasters or otherwise, could result in increased competition from foreign tank vessel operators, which could reduce KSP's revenues and cash available for distribution.

KSP may not be able to grow or effectively manage its growth.

A principal focus of KSP's strategy is to continue to grow by expanding its business in all coastal markets in the U.S. and also into other geographic markets. KSP's future growth will depend upon a number of factors, some of which it can control and some of which it cannot. These factors include KSP's ability to:

•: identify businesses engaged in managing, operating or owning vessels for acquisitions or joint ventures;
•: identify vessels for acquisition;
•: consummate acquisitions or joint ventures;
•: integrate any acquired businesses or vessels successfully with its existing operations;
•: hire, train and retain qualified personnel to manage and operate its growing business and fleet;
•: identify new geographic markets;
•: improve its operating and financial systems and controls; and
•: obtain required financing for its existing and new operations.

A deficiency in any of these factors would adversely affect KSP's ability to achieve anticipated levels of cash flows or realize other anticipated benefits. In addition, competition from other buyers could reduce KSP's acquisition opportunities or cause it to pay a higher price than it might otherwise pay.

KSP may be unable to make or realize expected benefits from acquisitions and implementing its growth strategy through acquisitions may harm KSP's business, financial condition and operating results.

KSP's growth strategy is based upon the expansion of its fleet through newbuildings and strategic acquisitions. KSP's ability to grow its fleet depends upon a number of factors, many of which it cannot control. These factors include KSP's ability to:

•: identify vessels or businesses for acquisition from third parties;
•: consummate any such acquisitions;
•: obtain required financing for acquisitions; and
•: integrate any acquired vessels or businesses successfully with its existing operations.

Any acquisition of a vessel or business may not be profitable and may not generate returns sufficient to justify KSP's investment. In addition, KSP's acquisition growth strategy exposes KSP to risks that may harm its business, financial condition and operating results, including the risks that it may:

•: fail to realize anticipated benefits (such as new customer relationships) or increase cash flow;
•: decrease its liquidity by using a significant portion of its available cash or borrowing capacity to finance acquisitions;
•: significantly increase its interest expense and indebtedness if KSP incurs additional debt to finance acquisitions;
•: incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired;
•: incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges; or
•: distract management from its duties and responsibilities as it devotes substantial time and attention to the integration of the acquired businesses or vessels.

Increased competition in the domestic tank vessel industry could result in reduced profitability and loss of market share for KSP.

Contracts for KSP's vessels are generally awarded on a competitive basis, and competition in the markets it serves is intense. The process for obtaining such contracts generally requires a lengthy and time consuming screening and bidding process that may extend for months. The most important factors determining whether a contract will be awarded include:

•: quality, availability and capability of the vessels;
•: ability to meet the customer's schedule;
•: price;
•: environmental, health and safety record;
•: reputation; and
•: experience.

Some of KSP's competitors may have greater financial resources and larger operating staffs than it does. As a result, they may be able to make vessels available more quickly and efficiently, transition to double-hull barges from single-hull barges more rapidly, and withstand the effects of declines in charter

rates for a longer period of time. They may also be better able to weather a downturn in the oil and gas industry. As a result, KSP could lose customers and market share to these competitors.

Increased competition from pipelines could result in reduced profitability.

KSP also faces competition from refined petroleum product pipelines. Long-haul transportation of refined petroleum products is generally less costly by pipeline than by tank vessel. The construction of new pipeline segments to carry petroleum products into KSP's markets, including pipeline segments that connect with existing pipeline systems, and the conversion of existing non-refined petroleum product pipelines, could adversely affect KSP's ability to compete in particular locations.

KSP relies on a limited number of customers for a significant portion of its revenues. The loss of any of these customers could adversely affect KSP's business and operating results.

KSP's customers consist primarily of major oil companies, oil traders and refineries. The portion of KSP's revenues attributable to any single customer changes over time, depending on the level of relevant activity by the customer, KSP's ability to meet the customer's needs and other factors, many of which are beyond its control. Two customers accounted for 19% and 17%, respectively, of KSP's consolidated revenues for fiscal 2007. If KSP was to lose either of these customers or if either of these customers significantly reduced its use of KSP's services, KSP's business and operating results could be adversely affected.

Voyage charters may not be available at rates that will allow KSP to operate its vessels profitably.

During fiscal 2007, KSP derived approximately 21% of its revenue from single voyage charters. Voyage charter rates fluctuate significantly based on tank vessel availability, the demand for refined petroleum products and other factors. Increased dependence on the voyage charter market by KSP could result in a lower utilization of KSP's vessels and decreased profitability. Future voyage charters may not be available at rates that will allow KSP to operate its vessels profitably.

KSP may not be able to renew time charters, consecutive voyage charters, contracts of affreightment and bareboat charters when they expire.

KSP received approximately 79% of its revenue from time charters, consecutive voyage charters, contracts of affreightment and bareboat charters during fiscal 2007. These arrangements, which are generally for periods of one year or more, may not be renewed, or if renewed, may not be renewed at similar rates. If KSP is unable to obtain new charters at rates equivalent to those received under the old charters, its profitability may be adversely affected.

An increase in the price of fuel may adversely affect KSP's business and results of operations.

The cost of fuel for KSP's vessels is a significant component of voyage expenses under its charters and KSP has recently experienced significant increases in the cost of fuel used in its operations. While KSP has been able to pass a portion of these increases on to its customers pursuant to the terms of its charters, there can be no assurances that KSP will be able to pass on any future increases in fuel prices. If fuel prices continue to increase and KSP is not able to pass such increases on to its customers, its business, results of operations, financial condition and ability to make cash distributions may be adversely affected.

KSP must make substantial expenditures to maintain the operating capacity of its fleet, which will reduce its cash available for distribution.

Tank vessels are subject to the requirements of the Oil Pollution Act of 1990, or OPA 90. OPA 90 mandates that all single-hull tank vessels operating in U.S. waters be removed from petroleum and

petroleum product transportation services at various times through January 1, 2015, and provides a schedule for the phase-out of the single-hull vessels based on their age and size. As of December 31, 2007, approximately 74% of the barrel-carrying capacity of KSP's tank vessel fleet was double-hulled in compliance with OPA 90. The remaining 26% will be in compliance with OPA 90 until January 2015. The capacity of certain of KSP's single-hull vessels has already been effectively replaced by double-hull vessels placed into service in the past two years. KSP estimates that the current cost to replace its remaining single hull capacity with newbuildings or by retrofitting certain of KSP's existing vessels ranges from $78.0 million to $80.0 million. This capacity can also be replaced by acquiring existing double-hull tank vessels as opportunities arise. At the time KSP makes these expenditures, the actual cost could be higher due to inflation and other factors.

Marine transportation of refined petroleum products is a capital intensive business, requiring significant investment to maintain an efficient fleet and to stay in regulatory compliance. KSP estimates that, over the next five years, it will spend an average of approximately $21.5 million per year to drydock and maintain KSP's fleet. In addition, KSP will deduct an additional $2.0 million per year from the cash that KSP would otherwise distribute to its unitholders to contribute to the cost of replacing the operating capacity of KSP's single-hull vessels when they phase-out under OPA 90 in January 2015. Periodically, KSP will also make expenditures to acquire or construct additional tank vessel capacity and to upgrade its overall fleet efficiency.

In calculating KSP's available cash from operating surplus each quarter, KSP is required to deduct estimated maintenance capital expenditures, which may result in less cash available for distribution to unitholders, including us, than if actual maintenance capital expenditures were deducted.

Capital expenditures and other costs necessary to operate and maintain a vessel vary depending on the age of the vessel and changes in governmental regulations, safety or other equipment standards.

Capital expenditures and other costs necessary to operate and maintain a vessel increase with the age of the vessel. In addition, changes in governmental regulations, safety or other equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations and customer requirements or competition, may require KSP to make additional expenditures. For example, KSP may be required to make significant expenditures for alterations or the addition of new equipment to satisfy requirements of the U.S. Coast Guard and the American Bureau of Shipping. In addition, KSP may be required to take its vessels out of service for extended periods of time, with corresponding losses of revenues, in order to make such alterations or to add such equipment. In the future, market conditions may not justify these expenditures or enable KSP to operate its older vessels profitably during the remainder of their economic lives.

In order to fund these capital expenditures, KSP will either incur borrowings or raise capital through the sale of debt or equity securities. KSP's ability to access the capital markets for future offerings may be limited by its financial condition at the time as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond its control. KSP's failure to obtain the funds for necessary future capital expenditures would limit its ability to continue to operate some of its vessels and could have a material adverse effect on its business and on its ability to make distributions to unitholders, including us.

KSP's purchase of existing vessels carries risks associated with the quality of those vessels.

KSP's fleet renewal and expansion strategy includes the acquisition of existing vessels as well as the ordering of newbuildings. Unlike newbuildings, existing vessels typically do not carry warranties with respect to their condition. While KSP generally inspects any existing vessel prior to purchase, such an inspection would normally not provide it with as much knowledge of its condition as it would possess if the vessel had been built for KSP and operated by KSP during its life. Repairs and maintenance costs

for existing vessels are difficult to predict and may be more substantial than for vessels KSP has operated since they were built. These costs could decrease KSP's profits and reduce its liquidity.

Decreased utilization of KSP's vessels due to bad weather could have a material adverse effect on KSP's operating results and financial condition.

Unpredictable weather patterns tend to disrupt vessel scheduling and supplies of refined petroleum products and KSP's vessels and its cargoes are at risk of being damaged or lost because of bad weather. In addition, adverse weather conditions can cause delays in the delivery of newbuilds and in transporting cargoes. As a result, bad weather conditions could have a material adverse effect on KSP's operating results and financial condition.

KSP is subject to complex laws and regulations, including environmental regulations, that can adversely affect the cost, manner or feasibility of doing business.

Increasingly stringent federal, state and local laws and regulations governing worker health and safety and the manning, construction and operation of vessels significantly affect KSP's operations. Many aspects of the marine industry are subject to extensive governmental regulation by the U.S. Coast Guard, the Department of Transportation, the Department of Homeland Security, the National Transportation Safety Board and the U.S. Customs and Border Protection (CBP), and to regulation by private industry organizations such as the American Bureau of Shipping. The U.S. Coast Guard and the National Transportation Safety Board set safety standards and are authorized to investigate vessel accidents and recommend improved safety standards. The U.S. Coast Guard is authorized to inspect vessels at will.

KSP's operations are also subject to federal, state, local and international laws and regulations that control the discharge of pollutants into the environment or otherwise relate to environmental protection. Compliance with such laws, regulations and standards may require installation of costly equipment or operational changes. Failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of KSP's operations. Some environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject KSP to liability without regard to whether it was negligent or at fault. Under OPA 90, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the internal and territorial waters, and the 200-mile exclusive economic zone around the United States. Additionally, an oil spill could result in significant liability, including fines, penalties, criminal liability and costs for natural resource damages. The potential for these releases could increase as KSP increases its fleet capacity. Most states bordering on a navigable waterway have enacted legislation providing for potentially unlimited liability for the discharge of pollutants within their waters.

KSP's insurance may not be adequate to cover its losses.

KSP may not be adequately insured to cover losses from its operational risks, which could have a material adverse effect on KSP's operations. For example, a catastrophic oil spill or other disaster could exceed KSP's insurance coverage. In addition, KSP's affiliate, EW LLC, and its predecessors may not have insurance coverage prior to March 1986. If KSP was subject to claims related to that period, including claims from current or former employees, EW LLC may not have insurance to pay the liabilities, if any, that could be imposed on KSP. If KSP had to pay claims solely out of its own funds, it could have a material adverse effect on its financial condition. Furthermore, any claims covered by insurance would be subject to deductibles, and since it is possible that a large number of claims could be brought, the aggregate amount of these deductibles could be material.

KSP may not be able to procure adequate insurance coverage at commercially reasonable rates in the future, and some claims may not be paid. In the past, stricter environmental regulations have led to higher costs for insurance covering environmental damage or pollution, and new regulations could lead to similar increases or even make this type of insurance unavailable. In addition, KSP's insurance may be voidable by the insurers as a result of certain actions by KSP.

Because KSP obtains some of its insurance through protection and indemnity associations, KSP may be subject to calls, or premiums, in amounts based not only on its own claim records but also the claim records of all other members of the protection and indemnity associations through which it receives insurance coverage for tort liability, including pollution-related liability. KSP's payment of these calls could result in significant expenses to it, which could reduce its profits or cause losses. Moreover, the protection and indemnity clubs and other insurance providers reserve the right to make changes in insurance coverage with little or no advance notice.

Terrorist attacks have resulted in increased costs and have disrupted KSP's business. Continued hostilities in the Middle East or other sustained military campaigns may adversely impact KSP's results of operations.

After the terrorist attacks of September 11, 2001, New York Harbor was shut down temporarily, resulting in the suspension of KSP's local operations in the New York City area for four days and the loss of revenue related to these operations. The long-term impact that terrorist attacks and the threat of terrorist attacks may have on the petroleum industry in general, and on KSP in particular, is not known at this time. Uncertainty surrounding continued hostilities in the Middle East or other sustained military campaigns may affect KSP's operations in unpredictable ways, including disruptions of petroleum supplies and markets, and the possibility that infrastructure facilities could be direct targets of, or indirect casualties of, an act of terror.

Changes in the insurance markets attributable to terrorist attacks may make certain types of insurance more difficult for KSP to obtain. Moreover, the insurance that may be available to KSP may be significantly more expensive than its existing insurance coverage. Instability in the financial markets as a result of terrorism or war could also affect KSP's ability to raise capital.

KSP depends upon unionized labor for the provision of KSP's services in certain geographic areas. Any work stoppages or labor disturbances could disrupt our business in those areas.

Certain of KSP's seagoing personnel, comprising 44% of our total workforce, are employed under a contract with a division of the International Longshoreman's Association that expires on June 30, 2008. Any work stoppages or other labor disturbances could have a material adverse effect on KSP's business, financial condition and results of operations.

KSP's employees are covered by federal laws that may subject KSP to job-related claims in addition to those provided by state laws.

Some of KSP's employees are covered by provisions of federal statutory and general maritime law. These laws typically operate to make liability limits established by state workers' compensation laws inapplicable to these employees and to permit these employees and their representatives to pursue actions against employers for job-related injuries in federal courts. Because KSP is not generally protected by the limits imposed by state workers' compensation statutes, KSP may have greater exposure for claims made by these employees.

KSP depends on key personnel for the success of our business.

KSP depends on the services of its senior management team and other key personnel. In particular, KSP's success depends on the continued efforts of Mr. Timothy J. Casey, the President and Chief Executive Officer of KSP GP, and other key employees. The loss of the services of any key

employee could have a material adverse effect on KSP's business, financial condition and results of operations. KSP may not be able to locate or employ on acceptable terms qualified replacements for senior management or key employees if their services were no longer available.

Due to KSP's lack of asset diversification, adverse developments in KSP's marine transportation business would reduce KSP's ability to make distributions to KSP's unitholders.

KSP relies exclusively on the revenues generated from its marine transportation business. Due to KSP's lack of asset diversification, an adverse development in this business would have a significantly greater impact on KSP's business, financial condition and results of operations than if KSP maintained more diverse assets.

Changes in international trade agreements could affect KSP's ability to provide marine transportation services at competitive rates.

Currently, vessel trade or marine transportation between two points within the same country, generally known as cabotage or coastwise trade, is not included in the General Agreement on Trade in Services or the North American Free Trade Agreement. In addition, the Jones Act restricts maritime cargo transportation between U.S. ports to U.S.-flag vessels qualified to engage in U.S. coastwise trade. If maritime services were deemed to include cabotage and included in the General Agreement on Trade in Services, the North American Free Trade Agreement or other multi-national trade agreements, transportation of maritime cargo between U.S. ports could be opened to foreign-flag vessels. Foreign vessels would have lower construction costs and would generally operate at significantly lower costs than KSP does in U.S. markets, which would likely have a material adverse effect on KSP's ability to compete.

Delays or cost overruns in the construction of new vessels or the modification of existing vessels could adversely affect KSP's business. Cash flows from new or retrofitted vessels may not be immediate or as high as expected.

KSP is currently building ten new vessels and completing other smaller projects at an estimated total cost of $175 million. KSP expects to spend approximately $26 million during the remainder of fiscal 2008 on these projects. These projects are subject to the risk of delay or cost overruns caused by the following:

•: unforeseen quality or engineering problems;
•: work stoppages;
•: weather interference;
•: unanticipated cost increases;
•: delays in receipt of necessary equipment; and
•: inability to obtain the requisite permits or approvals.

Significant delays could also have a material adverse effect on expected contract commitments for these vessels and KSP's future revenues and cash flows. KSP will not receive any material increase in revenue or cash flow from new or modified vessels until they are placed in service and customers enter into binding arrangements for the use of the vessels. Furthermore, customer demand for new or modified vessels may not be as high as KSP currently anticipates, and, as a result, KSP's future cash flows may be adversely affected.

Tax Risks to Our Common Unitholders

In addition to reading the following risk factors, prospective unitholders should read "Material Tax Consequences" for a more complete discussion of the expected material federal income tax consequences of owning and disposing of our common units.

Our tax treatment depends on both our and KSP's status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat us as a corporation or if we or KSP or both were to become subject to a material amount of entity-level taxation for federal or state income tax purposes, our cash available for distribution to unitholders would be substantially reduced.

The anticipated after-tax economic benefit of an investment in our common units depends largely on both us and KSP being treated as partnerships for federal income tax purposes. If less than 90% of the gross income of a publicly traded partnership, such as us or KSP, for any taxable year is "qualifying income" from sources such as the transportation or processing of crude oil, natural gas or products thereof, interest, dividends or similar sources, that partnership will be taxable as a corporation under Section 7704 of the Internal Revenue Code for federal income tax purposes for that taxable year and all subsequent years. Either we or KSP or both of us could become taxable as a corporation for federal income tax purposes under Section 7704. The IRS has not provided any ruling to us or KSP on this matter.

If we or KSP or both of us were treated as a corporation for federal income tax purposes, then each of us treated as a corporation would pay federal income tax on our income at the corporate tax rate, which is currently a maximum of 35%, and would likely pay state income tax at varying rates. Distributions would generally be taxed again to unitholders as corporate distributions and no income, gains, losses, deductions or credits of KSP would flow through to our unitholders. Because a tax would be imposed upon us or KSP or both as an entity, cash available for distribution to our unitholders would be substantially reduced. Treatment of us or KSP or both as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to unitholders and thus would likely result in a substantial reduction in the value of the common units.

Current law may change so as to cause us or KSP or both to be treated as a corporation for federal income tax purposes or otherwise subject us or KSP to entity-level taxation. For example, because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Our partnership agreement and the partnership agreement of KSP provide that, if a law is enacted or an existing law is modified or interpreted in a manner that subjects us or KSP, respectively, to taxation as a corporation or otherwise subjects us or KSP, respectively, to entity-level taxation for federal, state, or local income tax purposes, the minimum quarterly distribution amount and the target distribution amounts will be adjusted to reflect the impact of that law on us or KSP, respectively.

The tax treatment of publicly traded partnerships or an investment in our units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.

The present United States federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial interpretation at any time. Any modification to the United States federal income tax laws and interpretations thereof may or may not be applied retroactively and could make it more difficult or impossible to meet the exception for us to be treated as a partnership for United States federal income tax purposes that is not taxable as a corporation (referred to as the "Qualifying Income Exception"), affect or cause us to change our business activities, affect the tax considerations of an investment in us,

change the character or treatment of portions of our income and adversely affect an investment in our common units. For example, in response to certain recent developments, members of Congress are considering substantive changes to the definition of qualifying income under Internal Revenue Code Section 7704(d) and the treatment of certain types of income earned from profits interests in partnerships. It is possible that these efforts could result in changes to the existing United States tax laws that affect publicly traded partnerships, including us. We are unable to predict whether any of these changes, or other proposals will ultimately be enacted. Any such changes could negatively impact the value of an investment in our common units.

If the IRS contests any of the federal income tax positions taken by us or KSP, the market for our or KSP's common units may be adversely affected, and the costs of any contest will reduce our cash available for distribution to unitholders.

The IRS has not provided any ruling with respect to our or KSP's treatment as a partnership for federal income tax purposes or any other matter affecting us. The IRS may adopt positions that differ from our counsel's conclusions expressed in this prospectus or from the positions taken by us or KSP. It may be necessary to resort to administrative or court proceedings to sustain some or all of our counsel's conclusions or the positions taken by us or KSP. A court may not agree with some or all of our counsel's conclusions or the positions taken by us or KSP. Any contest with the IRS may materially and adversely impact the market for our common units or KSP's common units and the prices at which they trade. In addition, the costs of any contest with the IRS will be borne by us or KSP, directly or indirectly reducing our cash available for distribution.

Unitholders may be required to pay taxes on their share of our income even if they do not receive any cash distributions from us.

Because our unitholders will be treated as partners to whom we will allocate taxable income, which could be different in amount from the cash we distribute, our unitholders will be required to pay any federal income taxes and, in some cases, state and local income taxes on their share of our taxable income, even if they receive no cash distributions from us. Unitholders may not receive cash distributions equal to their share of our taxable income or even the tax liability that results from that income.

Tax gain or loss on the disposition of our common units could be different than expected.

If a unitholder sells his common units, that unitholder will recognize gain or loss equal to the difference between the amount realized and the unitholder's tax basis in those common units. Prior distributions in excess of the total net taxable income the unitholder was allocated for a common unit, which decreased the unitholder's tax basis in that common unit, will, in effect, become taxable income to the unitholder if the common unit is sold at a price greater than the unitholder's tax basis in that common unit, even if the price the unitholder receives is less than the unitholder's original cost. A substantial portion of the amount realized, whether or not representing gain, may be ordinary income to unitholders. Should the IRS successfully contest some positions we take, unitholders could recognize more gain on the sale of common units than would be the case under those positions, without the benefit of decreased income in prior years. In addition, if unitholders sell their common units, they may incur a tax liability in excess of the amount of cash they receive from the sale.

Tax-exempt entities and foreign persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.

Investment in common units by tax-exempt entities, such as individual retirement accounts (known as IRAs) and other retirement plans, and non-United States persons, raises issues unique to them. For example, virtually all of our income allocated to organizations exempt from federal income tax,

including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-United States persons will be reduced by withholding taxes at the highest applicable effective tax rate, and non-United States persons will be required to file United States federal income tax returns and pay tax on their share of our taxable income. If you are a tax-exempt entity or a foreign person, you should consult your tax advisor before investing in our common units.

KSP registered as a tax shelter under prior law. This may increase the risk of an IRS audit of KSP or us.

Prior to the enactment of the American Jobs Creation Act of 2004, certain types of entities were required to register with the IRS as "tax shelters," based on a perception that those entities might claim tax benefits that were unwarranted. KSP registered as a tax shelter under such prior law. The American Jobs Creation Act of 2004 repealed the tax shelter registration requirement and replaced it with a regime that requires reporting, and will likely require registration, of certain "reportable transactions." We do not expect that we or KSP will engage in any reportable transactions. Nevertheless, KSP's registration as a tax shelter under prior law, or our or KSP's future participation in a reportable transaction, might increase the likelihood that we will be audited, and any such audit might lead to tax adjustments.

Should our or KSP's tax returns be audited, any adjustments to our tax returns may lead to adjustments to our unitholders' tax returns and may lead to audits of unitholders' tax returns. Our unitholders would be responsible for the consequences of any audits to their tax returns.

We treat each purchaser of common units as having the same tax benefits without regard to the units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.

Because we cannot match transferors and transferees of common units and because of other reasons, we will take depreciation and amortization positions that may not conform to all aspects of the Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to unitholders. It also could affect the timing of these tax benefits or the amount of gain from the sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to unitholders' tax returns. Please read "Material Tax Consequences—Disposition of Common Units—Uniformity of Units" for a further discussion of the effect of the depreciation and amortization positions we will adopt.

Unitholders may be subject to state, local and foreign taxes and return filing requirements as a result of investing in our common units.

In addition to federal income taxes, unitholders will likely be subject to other taxes, such as state and local income taxes, unincorporated business taxes and estate, inheritance, or intangible taxes, that are imposed by the various jurisdictions in which business is done or property is owned by us or KSP. Unitholders will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of the various jurisdictions in which business is done or property is owned by us or KSP, and may be subject to penalties for failure to comply with those requirements. KSP owns property or conducts business in Alaska, Hawaii, New York, New Jersey, Pennsylvania, Washington and Virginia, all of which impose a state income tax. KSP currently conducts certain operations in Puerto Rico, Canada and Venezuela in a manner that we believe does not subject us or our unitholders to direct liability to pay tax or file returns in those countries, but there can be no assurance that KSP will conduct its foreign operations in this manner in the future. Taxes KSP pays with respect to its foreign operations reduce the cash flow available for distribution to us and our unitholders. KSP may do business or own property in other states or foreign countries in the future. It is the responsibility of

unitholders to file all federal, state, local, and foreign tax returns. Our counsel has not rendered an opinion on the state, local or foreign tax consequences of an investment in our common units.

The sale or exchange of 50% or more of our or KSP's capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.

We will be considered to have terminated for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. Likewise, KSP will be considered to have terminated for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in KSP's capital and profits within a twelve-month period. A termination would, among other things, result in the closing of our or KSP's taxable year for all unitholders and could result in a deferral of depreciation deductions allowable in computing our taxable income.

KSP has adopted certain valuation methodologies that may result in a shift of income, gain, loss and deduction between us and the public unitholders of KSP. The IRS may challenge this treatment, which could adversely affect the value of our interests in KSP and our outstanding common units.

When KSP issues additional units or engages in certain other transactions, KSP determines the fair market value of its assets and allocates any unrealized gain or loss attributable to such assets to the capital accounts of KSP's public unitholders and us. KSP's methodology may be viewed as understating or overstating the value of KSP's assets. In that case, there may be a shift of income, gain, loss and deduction between certain KSP public unitholders and us. Moreover, under valuation methods used by KSP prior to 2007, subsequent purchasers of our common units may have had a greater portion of their Internal Revenue Code Section 743(b) adjustment allocated to KSP's intangible assets and a lesser portion allocated to KSP's tangible assets. The IRS may challenge KSP's valuation methods, or our or KSP's allocation of the Section 743(b) adjustment attributable to KSP's tangible and intangible assets, and allocations of income, gain, loss and deduction between us and certain of KSP's public unitholders.

A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of gain on the sale of common units by our unitholders and could have a negative impact on the value of our common units or those of KSP or result in audit adjustments to the tax returns of our unitholders without the benefit of additional deductions.

If EW LLC's corporate subsidiaries are audited, we may owe additional federal and state taxes, which could decrease our cash available for distribution.

In connection with our formation, EW LLC's corporate subsidiaries will merge with and into EW LLC, which will then merge with one of our subsidiaries. In connection with that transaction, the corporate subsidiaries will incur estimated federal and state tax liabilities of approximately $5.3 million, which will be paid out of the proceeds of our initial public offering. If the corporate subsidiaries are audited, then the corporate subsidiaries may owe additional federal and state tax. This additional tax would be the responsibility of EW LLC and therefore, indirectly, a liability of our partnership.

FORWARD-LOOKING STATEMENTS

Statements included in this prospectus and in the documents we incorporate by reference that are not historical facts (including statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) are forward looking statements. In addition, we may from time to time make other oral or written statements that are also forward looking statements. Forward-looking statements may include words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "should" and other words and terms of similar meaning.

Forward looking statements appear in a number of places in this prospectus and include statements with respect to, among other things:

•: KSP's ability to generate sufficient cash from its business to pay the minimum quarterly distribution to its unitholders;
•: our ability to pay distributions to our unitholders;
•: the benefits to be derived from KSP's acquisition of the Smith Maritime Group, including KSP's ability to apply its current business strategies in new geographic markets, platforms for future growth, possible synergies with the rest of its business, the benefits of geographic and seasonal diversity, and possible accretion in its distributable cash flow;
•: KSP's planned capital expenditures and availability of capital resources to fund capital expenditures;
•: KSP's expected cost of complying with the Oil Pollution Act of 1990;
•: KSP's estimated future expenditures for drydocking and maintenance of its tank vessels' operating capacity;
•: KSP's plans for the retirement or retrofitting of tank vessels and the expected delivery, and cost of, newbuild vessels;
•: KSP's integration of recent and proposed acquisitions of tank barges and tugboats, including the timing, effects and benefits thereof;
•: expected decreases in the supply of domestic tank vessels;
•: expected demand in the domestic tank vessel market in general and the demand for KSP's tank vessels in particular;
•: expectations regarding litigation affecting KSP;
•: the likelihood that pipelines will be built that compete with KSP;
•: the effect of new or existing regulations or requirements on KSP's financial position;
•: KSP's future financial condition or results of operations and KSP's future revenues and expenses;
•: KSP's business strategies and other plans and objectives for future operations;
•: KSP's future financial exposure to lawsuits currently pending against, or potential audits of, EW LLC and its predecessors; and
•: any other statements that are not historical facts.

These forward looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events and, therefore, involve a number of risks and uncertainties. We caution that forward looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward looking statements.

Important factors that could cause our actual results of operations or our actual financial condition to differ from our expectations are described under "Risk Factors."

USE OF PROCEEDS

We expect to receive net proceeds of approximately $ million from the sale of the common units offered by us, after deducting underwriting discounts. We will use the net proceeds from this offering to:

•: repay approximately $15.5 million of indebtedness, together with accrued interest, of EW LLC;
•: pay approximately $5.3 million of federal and state income tax liabilities of EW LLC; and
•: pay approximately $ million of expenses associated with the offering and related formation transactions.

We will not receive any proceeds from the sale of the common units being sold by the selling unitholders. Please read "Selling Unitholders."

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2007:

•

on a consolidated historical basis for K-Sea GP Holdings LP Predecessor; and

•

as adjusted to give effect to the following assumptions:

•: the issuance of of our common units to the contributing parties in exchange for (1) 100% of the incentive distribution rights in KSP, (2) 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units and (3) all of the 1.5% general partner interest in KSP; and
•: the sale of common units in this offering and the related use of proceeds.

The historical financial data of K-Sea GP Holdings LP Predecessor presented in the table below is derived from and should be read in conjunction with K-Sea GP Holdings LP Predecessor's historical financial statements, including accompanying notes, included elsewhere in this prospectus.

The historical data in the table are derived from and should be read in conjunction with our historical financial statements, including accompanying notes, included elsewhere in this prospectus. You should also read this table in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."

			As of December 31, 2007
			Actual		As Adjusted
			(in thousands)
Cash and cash equivalents			$	1,751	$

Long-term debt, including current portion:
	KSP revolving facility		$	180,350	$
	KSP term loans and capital lease obligations			169,617	$
	EW LLC demand loan		$	15,500

		Total long-term debt	$	365,467	$

Partners' capital:
		Total partner's capital		7,358

Total capitalization			$	372,825	$

DILUTION

Dilution is the amount by which the offering price paid by purchasers of common units sold in this offering will exceed the net tangible book value per unit after the offering. On a pro forma basis as of December 31, 2007, after giving effect to the offering of our common units at the assumed initial offering price of $ per common unit and the related transactions, the net tangible book value of our assets would have been approximately $ , or $ per common unit. Purchasers of our common units in this offering will experience immediate and substantial dilution in net tangible book value per common unit for financial accounting purposes, as illustrated in the following table.

Assumed initial public offering price per common unit			$
Pro forma net tangible book value per common unit before the offering		$
Increase in net tangible book value per common unit attributable to purchases in the offering

Less: Pro forma net tangible book value per common unit after the offering(1)

	Immediate dilution in pro forma net tangible book value per common unit to new investors(2)		$

(1): Determined by dividing the total number of common units to be outstanding after the offering into our pro forma net tangible book value, after giving effect to the application of the net proceeds of the offering and the related transactions.
(2): If the initial public offering price were to increase or decrease by $1.00 per common unit, immediate dilution in net tangible book value per common unit would increase by $1.00 or decrease by $1.00, respectively.

The following table sets forth the number of common units that we will issue and the total consideration contributed to us by our current owners and their affiliates in respect of their common units and by the purchasers of common units in this offering upon consummation of the transactions contemplated by this prospectus:

	Common Units Purchased			Total Consideration
	Number	Percent		Amount	Percent
Existing Unitholders			%	$		%
New Investors

Total		100.0	%	$	100.0	%

OUR CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

You should read the following discussion of our cash distribution policy in conjunction with the more detailed information regarding the factors and assumptions upon which our cash distribution policy is based in "—Assumptions and Considerations" below. In addition, you should read "Forward-Looking Statements" and "Risk Factors" for information regarding statements that do not relate strictly to historical or current facts and material risks inherent in our and KSP's business.

For additional information regarding our historical and pro forma operating results, you should refer to our audited historical financial statements for the years ended June 30, 2005, 2006 and 2007, our unaudited historical financial statements for the six months ended December 31, 2006 and 2007, and our pro forma financial statements for the six months ended December 31, 2007 and the year ended June 30, 2007, each included elsewhere in this prospectus.

General

Rationale for Our Cash Distribution Policy. Our partnership agreement requires us to distribute all of our available cash quarterly. Under our partnership agreement, available cash is defined to mean generally, for each fiscal quarter, cash generated from our business in excess of the amount of cash reserves established by our general partner to, among other things:

•: provide for our general, administrative and other expenses, including those we will incur as the result of becoming a publicly traded company;
•: comply with applicable law;
•: comply with any agreement binding upon us or our subsidiaries (exclusive of KSP and its subsidiaries);
•: provide for future distributions to our unitholders;
•: provide for future capital expenditures, debt service and other credit needs as well as any federal, state, provincial or other income tax that may affect us in the future;
•: allow us to pay KSP GP, if desired, an amount sufficient to enable KSP GP to make capital contributions to KSP to maintain its 1.5% general partner interest upon the issuance of partnership securities by KSP; or
•: otherwise provide for the proper conduct of our business, including with respect to the matters described under "Description of Our Partnership Agreement—Purpose."

Our partnership agreement will not restrict our ability to borrow to pay distributions. It is important that you understand that our cash flow is generated solely by distributions on our partnership interests in KSP and, therefore, is entirely dependent upon the ability of KSP to make cash distributions to its partners. We currently have no independent operations and do not currently intend to conduct operations separate from those of KSP. Accordingly, we believe we will have relatively low cash requirements for operating expenses and capital investments. Therefore, we believe that our investors are best served by our distributing all of our available cash to our unitholders as described below. Because we are currently not subject to an entity-level federal income tax, we will have more cash to distribute to you than if we were a corporation.

Restrictions and Limitations on Our Ability to Change Our Cash Distribution Policy. There is no guarantee that unitholders will receive quarterly distributions from us or that we will receive quarterly distributions from KSP. Neither we nor KSP have a legal obligation to pay distributions, except as provided in our partnership agreements. Our cash distributions will not be cumulative. Consequently, if we do not pay distributions on our common units with respect to any fiscal quarter at the anticipated

initial quarterly distribution rate, our unitholders will not be entitled to receive that fiscal quarter's payment in the future.

Our distribution policy and KSP's distribution policy are subject to certain restrictions and may be changed at any time. These restrictions include the following:

•: KSP's cash distribution policy is subject to restrictions on distributions under its debt agreements. Specifically, KSP's debt agreements contain certain financial tests and covenants that it must satisfy. These financial tests and covenants are described in this prospectus under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—KSP's Credit Agreement" and "—KSP's Other Terms Loans." If KSP is unable to comply with the restrictions under its debt agreements, KSP would be prohibited from making cash distributions to us, which in turn would prevent us from making cash distributions to you notwithstanding our stated distribution policy.
•: Similar to KSP's cash distribution policy, our distribution policy may be subject to certain restrictions on distributions if we later enter into any future debt agreements. We will not initially have any debt outstanding and, therefore, will not be subject to any debt covenants. We anticipate that any future debt agreements could contain certain financial tests and covenants that we would have to satisfy. If we are unable to satisfy these restrictions under any future debt agreements, we would be prohibited from making a distribution to you notwithstanding our stated distribution policy.
•: KSP GP has authority under KSP's partnership agreement to establish cash reserves for the prudent conduct of KSP's business and for future cash distributions to KSP's unitholders, and the establishment of those reserves could result in a reduction in cash distributions that we would otherwise anticipate receiving from KSP, which in turn could result in a reduction in cash distributions to you from levels we currently anticipate pursuant to our stated distribution policy. Any determination to establish cash reserves made by KSP GP in its reasonable discretion will be binding on KSP's unitholders as well as the holders of its general partner interest and incentive distribution rights.
•: Our general partner's board of directors will have authority under our partnership agreement to establish cash reserves for the prudent conduct of our business and the establishment of those reserves could result in a reduction in cash distributions to you from levels we currently anticipate pursuant to our stated distribution policy.
•: While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including our cash distribution policy contained therein, may be amended by a vote of the holders of a majority of our common units.
•: Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our cash distribution policy and the decision to make any distribution is at the discretion of our general partner, taking into consideration the terms of our partnership agreement.
•: Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, KSP may not make a distribution to us and we may not make a distribution to our unitholders if such distribution would cause KSP's or our liabilities to exceed the fair value of KSP's or our assets, as applicable.
•: We may lack sufficient cash to pay distributions to our unitholders due to increases in general and administrative expenses, working capital requirements and anticipated cash needs of us or KSP and its subsidiaries.

Our Cash Distribution Policy Limits Our Ability to Grow. Because we distribute all of our available cash, our growth may not be as fast as the growth of businesses that reinvest their available cash to expand ongoing operations. In fact, because currently our only cash-generating assets are partnership interests in KSP, our growth initially will be completely dependent upon KSP's ability to increase its quarterly cash distributions per unit. The amount of distributions received by KSP GP is based on KSP's per unit distribution paid on each KSP common unit and subordinated unit. Accordingly, the cash distribution received by KSP GP is derived from two factors: (1) KSP's per unit distribution level and (2) the number of KSP common units and subordinated units outstanding. An increase in either factor (assuming the other factor remains constant or increases) will generally result in an increase in the amount received by us. Please read "K-Sea Transportation Partners L.P.'s Cash Distribution Policy." If we issue additional units or we were to incur debt, the payment of distributions on those additional units or interest on that debt could increase the risk that we will be unable to maintain or increase our cash distribution levels. There are no limitations in our partnership agreement on our ability to incur indebtedness or to issue additional units, including units ranking senior to our common units.

KSP's Ability to Grow is Dependent on its Ability to Access External Growth Capital. Consistent with the terms of its partnership agreement, KSP distributes to its partners its available cash each quarter. In determining the amount of cash available for distribution, KSP sets aside cash reserves, which it uses to fund its capital expenditures. Additionally, KSP has relied upon external financing sources, including commercial borrowings and other debt and issuances of limited partner units, to fund its acquisition and growth capital expenditures. Accordingly, to the extent KSP does not have sufficient cash reserves or is unable to finance growth externally, its ability to grow will likely be impaired. In addition, to the extent KSP issues additional limited partner units and maintains or increases its distribution level per unit, the available cash that we have to distribute to our unitholders will increase. If KSP issues additional limited partner units and is unable to maintain its distribution level, the cash that we have to distribute to our unitholders could decrease. The incurrence of additional debt by KSP to finance its growth strategy would result in increased interest expense to KSP, which in turn may reduce its cash distributions to us and reduce the available cash that we have to distribute to our unitholders.

The Incentive Distribution Rights in KSP that KSP GP Owns May Be Limited or Modified Without Your Consent. We own 100% of the membership interests in KSP GP, which owns 100% of the incentive distribution rights in KSP, which entitle KSP GP to receive increasing percentages (up to a maximum of 48%) of any cash distributed by KSP in excess of $0.75 per KSP limited partner unit in any quarter. The distribution by KSP for the quarter ended December 31, 2007 was $0.74 per KSP limited partner unit. A portion of the cash flow we receive from KSP is provided by these incentive distribution rights. For the twelve months ended December 31, 2007, approximately 10.6% of the pro forma cash that we would have received from KSP would have been attributable to our ownership of the incentive distribution rights.

KSP, like other publicly traded partnerships, will generally only undertake an acquisition or expansion capital project if, after giving effect to related costs and expenses, the transaction would be expected to be accretive in future periods, meaning it would increase cash distributions per unit. Because KSP GP currently participates in the incentive distribution rights, it is harder for an acquisition or capital project to show accretion for the common unitholders of KSP than if the incentive distribution rights received less incremental cash flow. In the future, KSP GP may determine, in certain cases, to propose a reduction to the incentive distribution rights to facilitate a particular acquisition or expansion capital project. Such a reduction may relate to all of the cash flow on the incentive distribution rights or only to the expected cash flow from the transaction and may be either temporary or permanent in nature.

In addition to benefiting the common unitholders of KSP, a reduction in the incentive distribution rights may be in the long-term interests of the holder of the incentive distribution rights because the aggregate amount of cash distributed in respect of the modified incentive distribution rights may

increase as a result of the acquisition or growth project, even if cash is distributed at lower overall sharing ratios.

Our partnership agreement authorizes our general partner to approve any waiver, reduction, limitation or modification to KSP's incentive distribution rights without the consent of our unitholders. Any determination with respect to such modification could include consideration of one or more financial cases based on a number of business, industry, economic, legal, regulatory and other assumptions applicable to the proposed transaction. Although we expect that a reasonable basis will exist for those assumptions, the assumptions will generally involve current estimates of future conditions, which are difficult to predict. Realization of many of the assumptions will be beyond our general partner's control. Moreover, the uncertainty and risk of inaccuracy associated with any financial projection will increase with the length of the forecasted period.

Our Initial Distribution Rate

Our Cash Distribution Policy. Upon the closing of this offering, we expect to pay an initial quarterly distribution of $ per unit, or $ per unit on an annualized basis. This equates to an aggregate cash distribution of approximately $ million per quarter, or approximately $ million per year.

Our ability to make cash distributions at the initial distribution rate will be subject to the factors described above under the caption "—Restrictions and Limitations on Our Cash Distribution Policy." We cannot assure you that any distributions will be declared or paid by us. Please read "Risk Factors—Risks Inherent in an Investment in Us—Our cash flow will be entirely dependent upon the ability of KSP to make cash distributions to us."

We will pay our cash distributions within 55 days after the end of each fiscal quarter to holders of record on or about the first of the month in which the distribution is paid. If the distribution date does not fall on a business day, we will make the distribution on the business day immediately following the indicated distribution date. We will pay you a prorated cash distribution for the first quarter that we are a publicly traded partnership. This prorated cash distribution will be paid for the period beginning on the closing date of this offering and ending on the last day of that fiscal quarter. Any distributions received by us from KSP related to periods prior to the closing of this offering will be distributed to the contributing parties. We expect to pay this cash distribution on or about August 24, 2008.

The following table sets forth an assumed number of outstanding common units upon the closing of this offering and the aggregate cash distributions payable on our outstanding common units during the first four quarters following the closing of this offering at our initial quarterly distribution of $ per unit, or $ per unit on an annualized basis.

			Initial Quarterly Distribution
		Number of Units	One Quarter	Four Quarters
Distributions to public unitholders
Distributions to contributing parties
	Total

Our partnership agreement provides that any determination made by our general partner in its capacity as our general partner, including a determination with respect to establishing cash reserves, must be made in "good faith" and that any such determination will not be the subject of any other standard imposed by our partnership agreement, the Delaware limited partnership statute or any other law, rule or regulation or at equity. Our partnership agreement also provides that, in order for a determination by our general partner to be made in "good faith," our general partner must subjectively believe that the determination is in, or not opposed to, our best interests.

KSP's Cash Distribution Policy. Like us, KSP has adopted a cash distribution policy that requires it to distribute its available cash to its partners on a quarterly basis. Under KSP's partnership agreement, available cash is defined to generally mean, for each fiscal quarter, cash generated from KSP's business in excess of the amount its general partner determines is necessary or appropriate to provide for the conduct of its business, to comply with applicable law, to comply with any of its debt instruments or other agreements or to provide for future distributions to its unitholders for any one or more of the upcoming four quarters. KSP GP's determination of available cash takes into account the possibility of establishing cash reserves in some quarterly periods that it may use to pay cash distributions in other quarterly periods, thereby enabling it to maintain relatively consistent cash distribution levels even if its business experiences fluctuations in its cash from operations due to seasonal and cyclical factors. KSP GP's determination of available cash also allows KSP to maintain reserves to provide funding for its growth opportunities. KSP makes its quarterly distributions from cash generated from its operations, and those distributions have grown over time as its business has grown, primarily as a result of numerous acquisitions and organic expansion projects that have been funded through external financing sources and cash from operations.

In addition, KSP's credit agreement requires that the ratio of KSP's total funded debt to KSP's EBITDA, as defined in the agreement, for the four fiscal quarters most recently ended must not be greater than 4.00 to 1.00 in order for KSP to make distributions to its unitholders in any given quarter. The definition of EBITDA in KSP's credit agreement allows for the addition of estimated EBITDA for vessels either still under construction, or not yet owned for a full year, for which debt has been incurred.

The following table sets forth, for the periods indicated, the amount of quarterly cash distributions KSP paid for each of its partnership interests, including the incentive distribution rights, with respect to the quarter indicated. The actual cash distributions by KSP to its partners occur within 45 days after the end of each quarter. KSP has an established historical record of paying quarterly cash distributions to its partners.

KSP's Cash Distribution History

	KSP's Cash Distribution History(1)
	Distributions on Limited Partner Units										Total Distributions to EW LLC and General Partner
							Distributions on Incentive Distribution Rights
					Distributions on General Partner Interest				Distributions to EW LLC				Distributions to Other Public Unitholders		Total KSP Cash Distributions
	Per Unit		Total		Distributions on General Partner Interest				Distributions to EW LLC				Distributions to Other Public Unitholders		Total KSP Cash Distributions
	(in thousands, except per unit amounts)
2004
Third quarter(2)	$	0.43	$	3,582	$	73		—	$	1,791	$	1,864	$	1,791	$	3,655
Fourth quarter	$	0.525		4,374		89		—		2,187		2,276		2,187		4,463
2005
First quarter	$	0.54	$	4,498	$	92		—	$	2,249	$	2,341	$	2,249	$	4,590
Second quarter	$	0.54		4,498		92		—		2,249		2,341		2,249		4,590
Third quarter	$	0.54		4,498		92		—		2,249		2,341		2,249		4,590
Fourth quarter	$	0.56		4,496		101	$	14		2,332		2,447		2,614		5,061
2006
First quarter	$	0.57	$	5,653	$	115	$	31	$	2,374	$	2,520	$	3,279	$	5,799
Second quarter	$	0.59		5,852		119		62		2,458		2,639		3,394		6,033
Third quarter	$	0.60		5,952		122		77		2,499		2,698		3,453		6,151
Fourth quarter	$	0.62		6,150		126		108		2,582		2,816		3,568		6,384
2007
First quarter	$	0.64	$	6,362	$	130	$	163	$	2,665	$	2,958	$	3,697	$	6,655
Second quarter	$	0.66		6,561		134		225		2,749		3,108		3,812		6,920
Third quarter	$	0.68		6,761		138		287		2,832		3,257		3,929		7,186
Fourth quarter	$	0.70		6,959		142		350		2,915		3,407		4,044		7,451
2008
First quarter	$	0.72	$	9,874	$	146	$	561	$	2,999	$	3,706	$	6,875	$	10,581
Second quarter	$	0.74		10,148		150		646		3,082		3,878		7,066		10,944

(1): Distributions are shown for the quarter with respect to which they were declared. For each of the indicated quarters for which distributions have been made, an identical per unit cash distribution was paid on both the common and subordinated units.
(2): The distribution for the third quarter of fiscal 2004 represents a prorated distribution of $0.50 per common and subordinated unit for the period from January 14, 2004, the closing date of KSP's initial public offering, through March 31, 2004.

Cash Available for Distribution

In the sections that follow, we present in detail the basis for our belief that we will be able to fully fund our initial quarterly distribution of $ per unit. In those sections, we present two tables, including:

•

"Unaudited Pro Forma Available Cash," in which we present the amount of available cash we would have had for the fiscal year ended June 30, 3007 and for the twelve months ended December 31, 2007, giving pro forma effect to:

•: KSP's current quarterly cash distribution of $0.74 per limited partner unit, or $2.96 per unit on an annualized basis;
•: the acquisition in August 2007 of the Smith Maritime Group and the related debt financing and common unit issuance by KSP to pay for this acquisition;
•: this offering and the application of the net proceeds as described under "Use of Proceeds"; and

•

"Estimated Cash Available to Pay Distributions based on KSP's Estimated Minimum EBITDA" in which we present our estimate of the minimum amount of KSP's EBITDA necessary for KSP to pay distributions to its partners, including us, which will enable us to pay the full quarterly distributions at the initial distribution rate on all the outstanding common units for each quarter through March 31, 2009.

Because we own and control KSP's general partner, we reflect our ownership interest in KSP on a consolidated basis, which means that our financial results are combined with those of KSP and its general partner.

Unaudited Pro Forma Consolidated Available Cash

Our pro forma available cash for the year ended June 30, 2007 and the twelve months ended December 31, 2007 would have been more than sufficient to pay the initial quarterly distribution of $ per unit on all units to be outstanding following the completion of this offering.

If we had completed the transactions contemplated in this prospectus on July 1, 2006, pro forma available cash generated during our fiscal year ended June 30, 2007 would have been more than sufficient to pay the full initial distribution amount of $ million on all of our common units.

If we had completed the transactions contemplated in this prospectus on July 1, 2006, pro forma available cash generated during the twelve months ended December 31, 2007 would have been more than sufficient to pay the full initial distribution amount of $ million on all of our common units for the immediately preceding four fiscal quarters.

Our pro forma cash available for distribution includes estimated incremental general and administrative expenses we will incur as a result of being a publicly traded limited partnership, such as costs associated with annual and quarterly reports to unitholders, tax return and Schedule K-1 preparation and distribution, investor relations, registrar and transfer agent fees, director compensation and incremental insurance costs, including director and officer liability and insurance. We expect these incremental general and administrative expenses initially to total approximately $1.35 million per year.

The pro forma financial statements do not reflect this anticipated incremental general and administrative expense.

The unaudited pro forma financial statements, upon which pro forma cash available for distribution is based, do not purport to present our results of operations had the transactions contemplated in this prospectus actually been completed as of the dates indicated. In addition, cash available for distribution is a cash accounting concept, while our unaudited pro forma financial statements have been prepared on an accrual basis. We derived the amounts of pro forma cash available for distribution in the manner described in the table below. As a result, the amount of pro forma cash available for distribution should only be viewed as a general indication of the amount of cash available for distribution that we might have generated had we been formed in earlier periods.

The following table illustrates, on a pro forma basis, for the year ended June 30, 2007, and the twelve months ended December 31, 2007, the amount of available cash that would have been available for distributions to our unitholders, assuming that this offering had been consummated on July 1, 2006. Each of the pro forma adjustments presented below is explained in the footnotes to such adjustments. Because we have no separate operating activities apart from those conducted by KSP, all items in the table used to derive "Pro Forma Available Cash to Pay Distributions to KSP Unitholders" relate to the operations of KSP.

K-Sea GP Holdings LP
Unaudited Pro Forma Available Cash

			Year Ended June 30, 2007			Twelve Months Ended December 31, 2007
			(in thousands)
Pro Forma Operating Income(a)			$	48,334		$	52,525
Plus:
	Depreciation and amortization			45,027			45,191
	Loss on reduction of debt			(359	)		(359	)
	Other (expense) income, net			25			2,887

Pro Forma Adjusted EBITDA(b)			$	93,027		$	100,244
Less:
	Interest expense, net(c)			(20,145	)		(21,048	)
	Estimated maintenance capital expenditures(d)			(20,600	)		(22,500	)

Pro Forma Available Cash to Pay Distributions to KSP unitholders			$	52,282		$	56,696
Less Pro Forma KSP Distributions(e)
	Distributions to KSP's public unitholders other than K-Sea GP Holdings LP		$	28,202		$	28,263
	Distributions to K-Sea GP Holdings LP			15,511			15,511

		Total pro forma KSP distributions		43,713			43,774

Excess of KSP pro forma available cash over pro forma KSP distributions			$	8,569		$	12,922

Pro Forma KSP Cash Distributions Received by K-Sea GP Holdings LP			$	15,511		$	15,511
	Less incremental general and administrative expenses(f)			1,350			1,350

Pro Forma Available Cash of K-Sea GP Holdings LP			$	14,161		$	14,161

Expected Cash Distributions by K-Sea GP Holdings LP(g):
	Expected annual distribution per unit
	Distributions to our public common unitholders
	Distributions to common units held by the contributing parties
Total distributions paid to our unitholders

(a): Includes $17,888 and $11,495 of pro forma operating income for the Smith Maritime Group for the years ended June 30, 2007 and December 31, 2007, respectively.
(b): We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization and non-controlling interest. For more information, please read "Prospectus Summary—Non-GAAP Financial Measures."
(c): Reflects the pro forma adjustment to interest expense as if the repayment of EW LLC's indebtedness with cash proceeds from the sale of our common units in connection with this offering had occurred at the beginning of the period.
(d): KSP defines maintenance capital expenditures as capital expenditures required to maintain, over the long term, the operating capacity of its fleet, and expansion capital expenditures as those capital expenditures that increase, over the long term, the operating capacity of its fleet. Examples of maintenance capital expenditures include costs related to drydocking a vessel, retrofitting an existing vessel or acquiring a new vessel to the extent such expenditures maintain the operating capacity of KSP's fleet. Capital expenditures associated with retrofitting an existing vessel, or acquiring a new vessel, which increase the operating capacity of KSP's fleet over the long term whether through increasing KSP's aggregate barrel-carrying capacity, improving the operational performance of a vessel or otherwise, are classified as expansion capital expenditures. Drydocking expenditures are more extensive in nature than normal routine maintenance and, therefore, are capitalized and amortized over three years.
(e): Reflects KSP distributions paid on February 14, 2008 at a rate of $0.74 per unit, or $2.96 per unit on an annualized basis.
(f): Represents estimated incremental general and administrative expenses associated with being a publicly traded limited partnership, including, among other things, costs associated with annual and quarterly reports to unitholders, tax return and Schedule K-1 preparation and distribution, investor relations, registrar and transfer agent fees, director compensation and incremental insurance costs, including director and officer liability insurance. For information on our administrative services agreement with KTI, a subsidiary of KSP, please read "Certain Relationships and Related Transactions—Administrative Agreement."
(g): The table below sets forth the assumed number of outstanding common units upon the closing of this offering, and the estimated per unit and aggregate distribution amounts payable on such units during the year following the closing of this offering at our initial distribution rate.

		Distributions
	Number of Common Units	Per Unit	Aggregate
Estimated distributions on publicly held common units
Estimated distributions on common units held by the contributing parties
Total

Estimated Minimum Cash Available to Pay Distributions

In order for us to pay our quarterly cash distribution to our common unitholders at our initial distribution rate of $ per unit per quarter, we estimate that KSP's EBITDA for the twelve months ending March 31, 2009 must be at least $91.6 million. We refer to this amount as "KSP's Estimated Minimum EBITDA." We define KSP's EBITDA as earnings before interest, taxes, depreciation and amortization.

KSP's EBITDA should not be considered an alternative to net income, income before income taxes, cash flows from operating activities, or any other measure of financial performance calculated in accordance with GAAP as these items are used to measure operating performance, liquidity or ability to service debt obligations.

Our estimate of $91.6 million for KSP's Estimated Minimum EBITDA for the twelve months ending March 31, 2009 is intended to be an indicator or benchmark of the amount management considers to be the lowest amount of KSP's EBITDA needed to generate sufficient distributions from KSP and available cash to permit us to make cash distributions to our unitholders at our initial quarterly distribution of $ per unit (or $ per unit on an annualized basis). Our estimate of KSP's Estimated Minimum EBITDA should not be viewed as management's projection of actual operating earnings or cash generation of KSP.

We believe that our partnership interests in KSP will generate sufficient cash flow to enable us to pay our initial quarterly distribution of $ per unit on all of our outstanding common units for the four quarters ending March 31, 2009. You should read "—Assumptions and Considerations" and the footnotes to the table below for a discussion of the material assumptions underlying this belief, which reflects our judgment of conditions we expect to exist and the course of action we expect to take. While we believe that these assumptions are reasonable in light of our current expectations regarding future events, the assumptions underlying KSP's Estimated Minimum EBITDA are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those we anticipate. If any of our assumptions are not realized, the actual available cash that we generate could be substantially less than that currently expected and, therefore, could be insufficient to permit us to make distributions on our common units at the initial quarterly distribution, or at any level, in which event the market price of the common units may decline materially.

Consequently, the statement that we believe that we will have sufficient available cash to pay the initial quarterly distribution on our common units for the four consecutive quarters ending March 31, 2009 should not be regarded as a representation by us or the underwriters or any other person that we will declare and make such a distribution.

We have also determined that if KSP's EBITDA for such period is at or above our estimate, KSP would be permitted under its debt agreements to pay sufficient cash distributions to us to enable us to make distributions to our unitholders at the initial distribution rate of $ per unit per quarter.

The accompanying prospective information was prepared in accordance with KSP's and our accounting policies; however, it was not prepared with a view toward compliance with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. In the view of our management, the prospective financial information has been prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management's knowledge and belief, the assumptions on which we base our belief that KSP can generate the estimated minimum EBITDA necessary for us to have sufficient cash available for distribution to pay the initial quarterly distribution to all of our common unitholders. This information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this prospectus are cautioned not to place undue reliance on the prospective financial information.

The prospective financial information included in this prospectus has been prepared by, and is the responsibility of, our management. PricewaterhouseCoopers LLP has neither examined nor compiled the accompanying prospective financial information and accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP reports included in this prospectus relate to our historical information. Such reports do not extend to the prospective financial information and should not be read to do so.

When reading this section, you should keep in mind the risk factors and other cautionary statements under the heading "Risk Factors" in this prospectus. Any of these factors or the other risks discussed in this prospectus could cause our financial condition and consolidated results of operations to vary significantly from those set forth below.

We do not undertake any obligation to release publicly the results of any future revisions we may make to the estimated cash available for distribution or to update our estimate to reflect events or circumstances after the date of this prospectus. Therefore, you are cautioned not to place undue reliance on this information.

K-Sea GP Holdings LP
Estimated Minimum Cash Available to Pay Distributions
based on KSP's Estimated Minimum EBITDA

		Twelve Months Ending March 31, 2009
		(in thousands)
KSP's Estimated Minimum EBITDA		$	91,597
Less:
	Interest expense, net		(22,823	)
	Estimated maintenance capital expenditures(a)		(25,000	)

Estimated Minimum Cash Available to Pay Distributions to All KSP Unitholders		$	43,774

Estimated KSP Distributions(b)
	Distributions to KSP's public unitholders other than K-Sea GP Holdings LP	$	28,263
	Distributions to K-Sea GP Holding LP		15,511

		$	43,774

Estimated Minimum KSP Cash Distributions Received by K-Sea GP Holdings LP		$	15,511
	Less incremental general and administration expenses		1,350

Estimated Minimum Cash Available to Pay Distributions by K-Sea GP Holdings LP		$	14,161

Expected Cash Distributions by K-Sea GP Holdings LP(c)
	Expected annual cash distribution per unit
	Distributions to our public common unitholders
	Distributions to common units held by the contributing parties
	Total distributions paid to our unitholders	$

(a): Represents estimated maintenance capital expenditures to maintain the operating capacity of KSP's fleet.
(b): Reflects KSP cash distributions paid on February 14, 2008 at a rate of $0.74 per unit, or $2.96 per unit on an annualized basis.
(c): The table below sets forth the assumed number of common units we will have outstanding upon the closing of this offering, and the estimated per unit and aggregate distribution amounts payable on such units during the year following the closing of this offering at our initial distribution rate.

		Distributions
	Number of Common Units	Distributions
	Number of Common Units	Per Unit	Aggregate
Estimated distributions on publicly held common units		$	$
Estimated distributions on common units held by the contributing parties

Total		$	$

Assumptions and Considerations

We believe that our partnership interests in KSP, including our incentive distribution rights, will generate sufficient cash flow to enable us to pay our initial quarterly distribution of $ per unit on all

of our outstanding units for the four quarters ending March 31, 2009. Our belief is based on a number of current assumptions that we believe to be reasonable over the next four quarters. While we believe that these assumptions are generally consistent with the actual performance of KSP and are reasonable in light of our current beliefs concerning future events, the assumptions are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those we anticipate. Consequently, the statement that we believe that we will have sufficient available cash to pay the initial quarterly distribution on our units for each quarter through March 31, 2009 should not be regarded as a representation by us or the underwriters or any other person that we will make such a distribution. When reading this section, you should keep in mind the risk factors and other cautionary statements under the heading "Risk Factors" in this prospectus.

We base our Estimated Minimum Cash Available to Pay Distributions on the following significant assumptions:

•: KSP will pay a quarterly cash distribution of $0.74 per KSP limited partner unit for each of the four quarters in the four-quarter period ending March 31, 2009, which quarterly distribution amount reflects the most recently paid cash distribution of $0.74 per KSP limited partner unit for the quarter ended December 31, 2007. As a result, we estimate that the amount of cash distributions that we will receive from KSP will be equal to $15.5 million in the aggregate during this period, including the distributions we will receive on our 1.5% general partner interest.
•: KSP will not issue additional units during the twelve months ending March 31, 2009.
•: KSP will generate total revenues of at least $301.3 million for the twelve months ending March 31, 2009 as compared to $305.9 million for the twelve months ended December 31, 2007 on a pro forma basis to reflect the acquisition of the Smith Maritime Group. This amount reflects the minimum amount of KSP revenue that would be necessary to generate KSP's Estimated Minimum EBITDA, and result in payment by us of our initial quarterly distribution of $ for the four quarters ending March 31, 2009.
•: KSP's allowance for estimated maintenance capital expenditures will not exceed $25.0 million for the twelve months ending March 31, 2009, as compared to $22.5 million for the twelve months ended December 31, 2007 on a pro forma basis to reflect the acquisition of the Smith Maritime Group.
•: Our incremental general and administrative expenses associated with being a publicly traded limited partnership will not exceed $1.35 million for the twelve months ending March 31, 2009.
•: KSP will remain in compliance with the financial covenants in its existing and future debt agreements and its ability to pay distributions to us will not be encumbered.
•: There will not be any new federal, state or local regulation of portions of the shipping industry in which KSP operates, or an interpretation of existing regulations, that will be materially adverse to our or KSP's business.
•: Market, regulatory, insurance and overall economic conditions will not change substantially.
•: There will be no material adverse change in KSP's business, operations, properties or prospects.

HOW WE MAKE CASH DISTRIBUTIONS

Set forth below is a summary of the significant provisions of our partnership agreement that relate to cash distributions.

General

Our partnership agreement requires that, within 55 days after the end of each quarter beginning with the quarter ending June 30, 2008, we distribute all of our available cash to the holders of record of our common units on the applicable record date.

Definition of Available Cash

Available cash is defined in our partnership agreement and generally means, with respect to any calendar quarter, all cash on hand at the date of determination of available cash for the distribution in respect of such quarter less the amount of cash reserves necessary or appropriate, as determined in good faith by our general partner, to:

•: satisfy general, administrative and other expenses and any debt service requirements;
•: permit KSP GP to make capital contributions to KSP to maintain its 1.5% general partner interest upon the issuance of partnership securities by KSP;
•: comply with applicable law or any debt instrument or other agreement;
•: provide funds for distributions to unitholders and our general partner in respect of any one or more of the next four quarters; and
•: otherwise provide for the proper conduct of our business.

Units Eligible for Distribution

As of the closing of this offering, we will have common units outstanding. Each common unit will be allocated a portion of our income, gain, loss, deduction and credit on a pro rata basis, and each unit will be entitled to receive distributions (including upon liquidation) in the same manner as each other unit.

General Partner Interest

Our general partner owns a non-economic, general partner interest in us, which does not entitle it to receive cash distributions. However, our general partner may own common units or other equity securities in us and is entitled to receive cash distributions on any such interests.

Adjustments to Capital Accounts

We will make adjustments to capital accounts upon the issuance of additional units. In doing so, we will allocate any unrealized and, for tax purposes, unrecognized gain or loss resulting from the adjustments to the unitholders and the general partner in the same manner as we allocate gain or loss upon liquidation. In the event that we make positive adjustments to the capital accounts upon the issuance of additional units, we will allocate any later negative adjustments to the capital accounts resulting from the issuance of additional units or upon our liquidation in a manner which results, to the extent possible, in the general partner's capital account balances equaling the amount which they would have been if no earlier positive adjustments to the capital accounts had been made.

Distributions of Cash Upon Liquidation

If we dissolve in accordance with the partnership agreement, we will sell or otherwise dispose of our assets in a process called a liquidation. We will first apply the proceeds of liquidation to the

payment of our creditors in the order of priority provided in the partnership agreement and by law and, thereafter, we will distribute any remaining proceeds to the unitholders and our general partner in accordance with their respective capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of our assets in liquidation.

Our Sources of Distributable Cash

Our only cash-generating assets consist of our partnership interests in KSP. Therefore, our cash flow and resulting ability to make cash distributions will be completely dependent upon the ability of KSP to make cash distributions in respect of those partnership interests. The actual amount of cash that KSP will have available for distribution will primarily depend on the amount of cash it generates from its operations. The actual amount of this cash will fluctuate from quarter to quarter based on certain factors, including:

•: fluctuations in cash flow generated by KSP's operating activities;
•: the level of capital expenditures KSP makes;
•: the availability, if any, and cost of acquisitions;
•: debt service requirements;
•: fluctuations in working capital needs;
•: restrictions on distributions contained in KSP's credit facility and any future debt agreements;
•: KSP's ability to borrow under its revolving credit agreement to make distributions;
•: prevailing economic conditions; and
•: the amount, if any, of cash reserves established by KSP GP in its discretion for the proper conduct of KSP's business.

Our Partnership Interests in KSP

All of our cash flows are generated from the cash distributions we receive with respect to the partnership interests we own in KSP, which upon completion of this offering and the application of the proceeds from this offering to purchase our common units as described in "Use of Proceeds," will initially consist of the following:

•: 100% of the incentive distribution rights in KSP, which we hold through our 100% ownership interest in KSP GP;
•: 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP; and
•: all of the 1.5% general partner interest in KSP, which we hold through our 100% ownership interest in KSP GP.

Distributions by KSP of Available Cash from Operating Surplus

Our right to receive distributions in respect of the common units of KSP that we own is contained in KSP's partnership agreement. KSP's partnership agreement provides that distributions of available cash from operating surplus for any quarter will be made in the following manner:

•: first, 98.5% to all unitholders of KSP, pro rata, and 1.5% to KSP's general partner until KSP distributes for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter;
•: second, 98.5% to the unitholders of KSP, pro rata, and 1.5% to the general partner until KSP distributes for each outstanding unit of KSP an amount equal to any arrearages in payment of the minimum quarterly distribution on the units of KSP for any prior quarters after the closing of this offering;

•: thereafter, in the manner described in "—KSP Incentive Distribution Rights" below.

KSP Incentive Distribution Rights

Our right to receive incentive distributions is contained in KSP's partnership agreement, which provides that if a quarterly cash distribution to KSP's limited partner units exceeds a target of $0.50 per limited partner unit and KSP has distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution of $0.50 per common unit, then KSP will distribute any additional available cash from operating surplus for that quarter among the unitholders and us, in the following manner:

(1): first, 98.5% to all unitholders, and 1.5% to KSP's general partner, until each unitholder has received a total of $0.55 per unit for that quarter (the "first target distribution");
(2): second 85.5% to all unitholders, and 14.5% to KSP's general partner, until each unitholder has received a total of $0.625 per unit for that quarter (the "second target distribution");
(3): third, 75.5% to all unitholders, and 24.5% to KSP's general partner, until each unitholder has received a total of $0.75 per unit for that quarter (the "third target distribution"); and
(4): thereafter, 50.5% to all unitholders and 49.5% to KSP's general partner.

Allocations of Distributions to Our Unitholders and KSP Unitholders

The table set forth below illustrates the percentage allocations among (1) the owners of KSP, other than us, and (2) us as a result of certain assumed quarterly distribution payments per unit made by KSP, including the target distribution levels contained in KSP's partnership agreement. This information assumes:

•

KSP has a total of 13,713,450 limited partner units outstanding, consisting of 11,630,950 common units and 2,082,500 subordinated units; and

•

our ownership of:

•: 100% of the incentive distribution rights in KSP, which we hold through our 100% ownership interest in KSP GP;
•: 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP; and
•: a 1.5% general partner interest in KSP, which we hold through our 100% ownership interest in KSP GP.

The percentage interests shown for us and the other KSP unitholders for the minimum quarterly distribution amount are also applicable to distribution amounts that are less than the minimum quarterly distribution. The amounts presented below are intended to be illustrative of the way in which we are entitled to an increasing share of distributions from KSP as total distributions from KSP increase, and are not intended to represent a prediction of future performance.

Distribution Level	KSP Quarterly Distribution Per Unit		Distributions to Owners of KSP Other Than Us as a Percentage of Total Distributions		Distribution to K-Sea General Partner GP LLC as a Percentage of Total Distributions(1)
Minimum Quarterly Distribution	$	0.50	68.6	%	31.4	%
First Target Distribution	$	0.55	68.6	%	31.4	%
Second Target Distribution	$	0.625	67.4	%	32.6	%
Third Target Distribution	$	0.75	64.4	%	35.6	%
Other Hypothetical Distributions	$	0.875	57.6	%	42.4	%

(1): Includes distributions with respect to our ownership of the 1.5% general partner interest in KSP and our ownership of the incentive distribution rights.

SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA

We were formed in December 2007. The ownership interests of KSP GP and EW LLC will be transferred to us in connection with this offering, and there will be no substantive change in the control of these entities as a result of the transaction. Therefore, our historical consolidated financial information as of and for the years ended June 30, 2005, 2006 and 2007, and as of December 31, 2007 and for the six months ended December 31, 2006 and 2007, represents the combined financial information of KSP GP, the General Partner and EW LLC based on their carrying amounts. We refer to these combined entities as K-Sea GP Holdings LP Predecessor.

We have no separate operating activities apart from those conducted by KSP, and our cash flows consist solely of distributions from KSP on the partnership interests, including the incentive distribution rights, that we own. Accordingly, the selected historical financial data set forth in the following table primarily reflect the operating activities and results of operations of KSP. The limited partner interests in KSP not owned by our affiliates are reflected as non-controlling interest on our balance sheet and the non-affiliated partners' share of income from KSP is reflected as non-controlling interest in our results of operations.

The selected historical statements of income and cash flow data for the fiscal years ended June 30, 2003 and 2004, and the balance sheet data as of June 30, 2003, 2004 and 2005 and December 31, 2006 are derived from the historical books and records of K-Sea GP Holdings LP Predecessor. The selected historical statements of income and cash flow data for the fiscal years ended June 30, 2005, 2006 and 2007 and the balance sheet data as of June 30, 2006 and 2007 are derived from the audited financial statements of K-Sea GP Holdings LP Predecessor included elsewhere in this prospectus. The selected historical statements of income and cash flow data for the six months ended December 31, 2006 and 2007 and the balance sheet data as of December 31, 2006 and 2007 are derived from the unaudited financial statements of K-Sea GP Holdings LP Predecessor included elsewhere in this prospectus.

The selected pro forma financial data presented for the fiscal year ended June 30, 2007 and as of and for the six months ended December 31, 2007 reflects our historical operating results as adjusted to give pro forma effect to the following transactions, as if such transactions had occurred on July 1, 2006 for income statement data and December 31, 2007 for the balance sheet data:

•: the August 2007 acquisition by KSP of the Smith Maritime Group;
•: the sale by KSP of 3,500,000 KSP common units in September 2007;
•: the transactions contemplated by the contribution agreement described in this prospectus under the caption "Certain Relationships and Related Transactions—Contribution Agreement"; and
•: the sale of common units in this offering and application of the net proceeds from this offering, as described in "Use of Proceeds."

The following table presents two financial measures, net voyage revenue and Adjusted EBITDA, which we use in our business. These financial measures are not calculated or presented in accordance

with generally accepted accounting principles, or GAAP. We explain these measures below and reconcile them to their most directly comparable financial measures calculated and presented in accordance with GAAP in "Prospectus Summary—Non-GAAP Financial Measures."

			K-Sea GP Holdings LP Predecessor																					Pro Forma K-Sea GP Holdings LP(8)
			Years Ended June 30,															Six Months Ended December 31,						Year Ended June 30,	Six Months Ended December 31,
			2003			2004			2005			2006			2007			2006			2007			2007	2007
			(in thousands, except per unit and operating data)
Income Statement Data:
Voyage revenue			$	83,942		$	93,899		$	118,811		$	176,650		$	216,924		$	105,668		$	149,361
Bareboat charter and other revenue				3,753			1,900			2,587			6,118			9,650			5,273			6,076

Total revenues				87,695			95,799			121,398			182,768			226,574			110,941			155,437

Voyage expenses				14,151			16,339			24,220			37,973			45,875			22,046			35,375
Vessel operating expenses				36,326			38,937			49,550			77,367			96,005			47,761			59,891
General and administrative expenses				7,047			8,509			11,365			17,473			20,731			10,118			13,902
Depreciation and amortization				16,293			18,758			21,420			26,810			33,415			15,812			20,765
Net (gain) loss on sale of vessels				(275	)		255			(281	)		(313	)		102			(16	)		(300	)

Total operating expenses				73,542			82,798			106,274			159,310			196,128			95,721			129,633

Operating income				14,153			13,001			15,124			23,458			30,446			15,220			25,804
Interest expense, net				8,808			6,917			7,178			11,739			15,598			7,585			11,665
Net loss on reduction of debt(1)				4			3,158			1,359			7,224			359			0			0
Other (income) expense, net				29			(414	)		(239	)		(338	)		(301	)		(145	)		(2,301	)

Income before provision for income taxes				5,312			3,340			6,826			4,833			14,790			7,780			16,440
Provision for income taxes(2)				340			1,768			430			801			1,105			662			765

Income before non-controlling interests				4,972			1,572			6,396			4,032			13,685			7,118			15,675
Non-controlling interests				—			900			4,006			3,276			9,235			4,573			10,308

Net income			$	4,972		$	672		$	2,390		$	756		$	4,450		$	2,545		$	5,367
Net income per unit—basic
—diluted
Balance Sheet Data (at year end):
Vessels and equipment, net				145,520			194,550			235,490			316,237			358,580			326,910			542,604
Total assets				178,328			230,327			274,378			383,607			430,498			399,989			692,647
Total debt				114,003			92,036			125,630			210,008			259,787			229,404			365,467
Partners' capital/members' equity				41,290			31,254			26,666			14,787			9,889			12,963			7,358
Cash Flow Data:
Net cash provided by (used in):
Operating activities			$	13,235		$	7,644		$	13,597		$	6,525		$	24,561		$	14,612		$	15,534
Investing activities				(240	)		(59,045	)		(54,946	)		(105,225	)		(63,579	)		(29,338	)		(212,172	)
Financing activities				(12,984	)		52,086			40,780			99,381			39,116			14,522			197,462
Other Financial Data:
Net voyage revenue(3)			$	69,791		$	77,560		$	94,591		$	138,677		$	171,049		$	83,622		$	113,986
Adjusted EBITDA(3)(4)			$	30,413		$	29,015		$	35,424		$	43,382		$	63,803		$	31,177		$	48,870
Capital expenditures(5):
	Maintenance		$	8,389		$	7,957		$	8,024		$	13,753		$	20,337		$	14,546		$	10,171
	Expansion (including vessel and company acquisitions)			7,814			52,747			39,337			98,073			25,960			8,966			188,998

		Total	$	16,203		$	60,704		$	47,361		$	111,826		$	46,297		$	23,512		$	199,169

Construction of tank vessels			$	18,703		$	16,512		$	16,816		$	20,702		$	33,315		$	14,688		$	22,057

Operating Data:
Number of tank barges (at period end)		35			34			44			61			60			61			73
Number of tankers (at period end)		3			2			2			2			1			2			1
Number of tugboats (at period end)		18			19			25			41			44			44			58
Total barrel-carrying capacity (in thousands at period end)		2,309			2,410			2,561			3,357			3,464			3,382			4,334
Net utilization(6)		87	%		86	%		85	%		83	%		85	%		86	%		86	%
Average daily rate(7)	$	7,468		$	8,095		$	8,734		$	9,245		$	10,097		$	9,780		$	11,072

(1): Fiscal 2005, fiscal 2006 and fiscal 2007 include losses of $1.4 million, $7.2 million and $0.4 million, respectively, in connection with the restructuring of KSP's revolving credit facility and repayment of certain term loans, including KSP's Title XI debt in fiscal 2006. On a pro forma basis, fiscal 2007 includes a $0.4 million loss on the repayment of a term loan of EW LLC. Fiscal 2004 includes a $3.2 million loss on prepayment of certain EW LLC debt using proceeds of KSP's initial public offering.
(2): Fiscal 2004 includes a non cash tax benefit of $17.6 million solely attributable to a reduction in deferred taxes resulting from the change in income tax status of the assets and liabilities constituting the business of EW LLC that were transferred to KSP at the date of the initial public offering.
(3): Please read "Prospectus Summary—Non-GAAP Financial Measures."
(4): Adjusted EBITDA has been reduced by net losses on reduction of debt of $3.2 million, $1.4 million, $7.2 million and $0.4 million, for the years ended June 30, 2004, 2005, 2006 and 2007, respectively, and by $0.4 million on a pro forma basis for the year ended June 30, 2007.
(5): KSP defines maintenance capital expenditures as capital expenditures required to maintain, over the long term, the operating capacity of its fleet, and expansion capital expenditures as those capital expenditures that increase, over the long term, the operating capacity of its fleet. Examples of maintenance capital expenditures include costs related to drydocking a vessel, retrofitting an existing vessel or acquiring a new vessel to the extent such expenditures maintain the operating capacity of our fleet. Expenditures made in connection with our tank vessel newbuilding program were considered maintenance capital expenditures as they were made to replace capacity scheduled to phase out under OPA 90; however, because they were non-routine in nature they are included separately in the above table under "Construction of tank vessels." Generally, expenditures for construction of tank vessels in progress are not included as capital expenditures until such vessels are completed. Capital expenditures associated with retrofitting an existing vessel, or acquiring a new vessel, which increase the operating capacity of KSP's fleet over the long term whether through increasing KSP's aggregate barrel-carrying capacity, improving the operational performance of a vessel or otherwise, are classified as expansion capital expenditures. Drydocking expenditures are more extensive in nature than normal routine maintenance and, therefore, are capitalized and amortized over three years. For more information regarding the accounting treatment of drydocking expenditures, please read "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Amortization of Drydocking Expenditures" appearing elsewhere in this prospectus.
(6): "Net utilization" is a percentage equal to the total number of days actually worked by a tank vessel or group of tank vessels during a defined period, divided by the number of calendar days in the period multiplied by the total number of tank vessels operating or in drydock during that period.
(7): "Average daily rate" equals the net voyage revenue earned by a tank vessel or group of tank vessels during a defined period, divided by the total number of days actually worked by that tank vessel or group of tank vessels during that period.
(8): Please read our unaudited pro forma combined financial statements and related notes elsewhere in this prospectus.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of our historical consolidated financial condition and results of operations and should be read in conjunction with the historical and pro forma combined financial statements of K-Sea GP Holdings LP Predecessor and the unaudited pro forma consolidated financial statements of K-Sea GP Holdings LP included elsewhere in this prospectus. Among other things, the historical and pro forma financial statements include more detailed information regarding the basis of presentation for the following discussion. We have no independent operating activities apart from those conducted by KSP and, accordingly, the overview of our operations primarily reflects the operating activities of KSP. In addition, you should read "Forward-Looking Statements" and "Risk Factors" for information regarding certain risks inherent in our and KSP's business. In the following discussion, "we," "our" and "us" refers to K-Sea GP Holdings LP or its predecessors, and "KSP" refers to K-Sea Transportation Partners L.P. and its consolidated subsidiaries.

Overview of Our Business

General. Our only cash generating assets consist of our partnership interests in KSP, which, upon completion of this offering, will initially consist of the following:

•: 100% of the incentive distribution rights in KSP, which we hold through our 100% ownership interest in KSP GP;
•: 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP; and
•: a 1.5% general partner interest in KSP, which we hold through our 100% ownership interest in KSP GP.

At KSP's current annualized cash distribution rate of $2.96 per common unit, or $0.74 per common unit per quarter, aggregate annual cash distributions to us on all of our interests in KSP would be approximately $15.5 million, representing approximately 35% of the total cash distributed by KSP for the quarter ended December 31, 2007. Based on KSP's current cash distribution and our expected ownership of KSP, we expect that our initial quarterly cash distribution to our unitholders will be $ per common unit, or $ per common unit on an annualized basis, to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses. Please read "Our Cash Distribution Policy and Restrictions on Distributions."

Our primary business objective is to increase our cash distributions to our unitholders through our oversight of KSP. KSP's primary business objective is to increase distributable cash flow per unit by:

•: expanding its fleet through newbuildings and accretive and strategic acquisitions;
•: maximizing fleet utilization and improve productivity;
•: maintaining safe, low-cost and efficient operations;
•: balancing its fleet deployment between longer-term contracts and shorter-term business in an effort to provide stable cash flows through business cycles, while preserving flexibility to respond to changing market conditions; and
•: attracting and maintaining customers by adhering to high standards of performance, reliability and safety.

structured as a limited partnership, our capital structure and cash distribution policy differ materially from those of KSP. Most notably, our general partner does not have an economic interest in us and is not entitled to receive any distributions from us, and our capital structure does not include incentive distribution rights. Therefore, our distributions are allocated exclusively to our common units, which is our only class of security currently outstanding. Further, unlike KSP, we do not have subordinated units, and, as a result, our common units carry no right to arrearages.

Our ownership of 100% of the incentive distribution rights in KSP entitles us to receive increasing percentages of its incremental cash distributed in excess of $0.55 per KSP limited partner unit in any quarter. The following table illustrates the percentage allocations of distributions among the owners of KSP, including us, at the target distribution levels contained in KSP's partnership agreement.

	Marginal Percentage Interest in Distributions
		General Partner
KSP Quarterly Distribution Per Unit	Limited Partner Units	General Partner Units	Incentive Distribution Rights
up to $0.55	98.5%	1.5%	0%
above $0.55 up to $0.625	85.5%	1.5%	13%
above $0.625 up to $0.75	75.5%	1.5%	23%
above $0.75	50.5%	1.5%	48%

KSP has increased its quarterly cash distribution for the last 11 consecutive quarters, and 13 times since its initial public offering in 2004, from $0.50 per common unit ($2.00 on an annualized basis) to $0.74 per common unit ($2.96 on an annualized basis), which is the most recently paid distribution. KSP's distribution of $0.74 per limited partner unit for the quarter ended December 31, 2007 entitled us to receive incentive distributions equal to 23% of KSP's total cash distributions in excess of $0.625 per common unit, which, in addition to the distributions we receive in respect of our common units, subordinated units and general partner units, collectively represented 35% of the cash distributed by KSP in respect of that quarter.

Financial Presentation. We were formed in December 2007. The ownership interests of KSP GP and EW LLC are to be transferred to us in connection with this offering, and there will be no substantive change in the control of these entities as a result of the transaction. Therefore, our historical consolidated financial information as of and for the years ended June 30, 2005, 2006 and 2007, and as of December 31, 2007 and for the six months ended December 31, 2006 and 2007, represents the combined financial information of KSP GP and EW LLC based on their carrying amounts.

We have no separate operating activities apart from those conducted by KSP, and our cash flows currently consist solely of distributions from KSP on the partnership interests, including the incentive distribution rights, that we own. Accordingly, the discussion of our financial position and results of operations in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" primarily reflects the operating activities and results of operations of KSP.

Because our financial statements consolidate the results of KSP, our financial statements are substantially similar to KSP's. The primary differences between our and KSP's financial statements primarily include the following adjustments:

•: Non-controlling interests. Our consolidated balance sheet includes non-controlling interests that reflects the proportion of KSP owned by its partners other than us. Similarly, the ownership interests in KSP held by its partners other than us are reflected in our consolidated income statement as non-controlling interests in income of consolidated subsidiaries. These balance sheet and income statement categories are not reflected on KSP's financial statements.
•: Our capital structure. In addition to incorporating the assets and liabilities of KSP, the partners' capital on our balance sheet represents our partners' capital as opposed to the capital reflected on KSP's balance sheet, which reflects the ownership interests of all of its partners, including its owners other than us.
•: Debt and interest expense. Our long-term debt and interest expense includes financing activities of EW LLC, a predecessor company of KSP.
•: Our general and administrative expenses. We expect to incur $0.4 million of fees to KSP for general and administrative services and approximately $1.0 million of general and administrative expenses that are independent from KSP's operations and are not reflected in KSP's consolidated financial statements or in our pro forma financial statements.

Factors That Significantly Affect Our Results and KSP's Results

Our only cash-generating assets consist of our partnership interests, including the incentive distribution rights, in KSP. Therefore, our cash flow and resulting ability to make distributions to our unitholders will be completely dependent on the ability of KSP to make distributions in respect of those partnership interests. The actual amount of cash that KSP will have available for distribution will primarily depend on the amount of cash it generates from its operations.

In addition, the actual amount of cash that we and KSP will have available for distribution will depend on other factors, some of which are beyond our and its control, including:

•: the level of capital expenditures;
•: the cost of acquisitions, if any;
•: debt service requirements;
•: fluctuations in working capital needs;
•: restrictions on distributions contained in debt agreements;
•: prevailing economic conditions; and
•: the amount of cash reserves established for the proper conduct of our and KSP's business.

For a description of factors that may impact our results and KSP's results, please read "Forward-Looking Statements."

Overview of Operations

As discussed above, after this offering, we will have no independent operating activities apart from those conducted by KSP. Accordingly, the overview of our operations primarily reflects the operating activities of KSP.

refiners. With approximately 4.3 million barrels of capacity, KSP believes it currently operates the largest coastwise tank barge fleet in the United States.

On August 14, 2007, KSP completed the acquisition of all of the equity interests in the Smith Maritime Group. On a combined basis, the operations of these companies included 11 petroleum tank barges and 14 tugboats, aggregating 777,000 barrels of capacity, of which 669,000 barrels, or 86%, are double-hulled. The tank barges added by this acquisition represent a 22% increase in the barrel-carrying capacity of KSP's fleet to approximately 4.3 million barrels. Because the acquisition of the Smith Maritime Group was completed after June 30, 2007, the operations of the Smith Maritime Group are not included in KSP's fiscal 2007 results.

Demand for KSP's services is driven primarily by demand for refined petroleum products in the areas in which KSP operates. KSP generates revenue by charging customers for the transportation and distribution of their products utilizing KSP's tank vessels and tugboats. These services are generally provided under the following four basic types of contractual relationships:

•: time charters, which are contracts to charter a vessel for a fixed period of time, generally one year or more, at a set daily rate;
•: contracts of affreightment, which are contracts to provide transportation services for products over a specific trade route, generally for one or more years, at a negotiated per barrel rate;
•: voyage charters, which are charters for shorter intervals, usually a single round-trip, that are made on either a current market rate or advance contractual basis; and
•: bareboat charters, which are longer-term agreements that allow a customer to operate one of KSP's vessels and utilize its own operating staff without taking ownership of the vessel.

In addition, a variation of a voyage charter is known as a "consecutive voyage charter." Under this arrangement, consecutive voyages are performed for a specified period of time.

The table below illustrates the primary distinctions among these types of contracts:

	Time Charter	Contract of Affreightment	Voyage Charter(1)	Bareboat Charter
Typical contract length	One year or more	One year or more	Single voyage	Two years or more
Rate basis	Daily	Per barrel	Varies	Daily
Voyage expenses(2)	Customer pays	KSP pays	KSP pays	Customer pays
Vessel operating expenses(2)	KSP pays	KSP pays	KSP pays	KSP pays
Idle Time	Customer pays as long as vessel is available for operations	Customer does not pay	Customer does not pay	Customer pays

(1): Under a consecutive voyage charter, the customer pays for idle time.
(2): Please read "—Definitions" below.

For contracts of affreightment and voyage charters, KSP recognizes revenue based upon the relative transit time in each period, with expenses recognized as incurred. Although contracts of affreightment and certain contracts for voyage charters may be effective for a period in excess of one year, KSP recognizes revenue over the transit time of individual voyages, which are generally less than ten days in duration. For time charters and bareboat charters, revenue is recognized ratably over the contract period, with expenses recognized as incurred.

One of the principal distinctions among these types of contracts is whether the vessel operator or the customer pays for voyage expenses, which include fuel, port charges, pilot fees, tank cleaning costs and canal tolls. Some voyage expenses are fixed, and the remainder can be estimated. If KSP, as the vessel operator, pays the voyage expenses, KSP typically passes these expenses on to its customers by

charging higher rates under the contract or re-billing such expenses to them. As a result, although voyage revenue from different types of contracts may vary, the net revenue that remains after subtracting voyage expenses, which KSP calls net voyage revenue, is comparable across the different types of contracts. Therefore, KSP principally uses net voyage revenue, rather than voyage revenue, when comparing performance between different periods. Since net voyage revenue is a non-GAAP measurement, it is reconciled to the nearest GAAP measurement, voyage revenue, under "—Results of Operations" below.

Definitions

In order to understand the discussion of our results of operations, it is important to understand the meaning of the following terms used in the analysis and the factors that influence our and KSP's results of operations:

•: Voyage revenue. Voyage revenue includes revenue from time charters, contracts of affreightment and voyage charters, where KSP, as vessel operator, pays the vessel operating expenses. Voyage revenue is impacted by changes in charter and utilization rates and by the mix of business among the types of contracts described in the preceding sentence.
•: Voyage expenses. Voyage expenses include items such as fuel, port charges, pilot fees, tank cleaning costs and canal tolls, which are unique to a particular voyage. Depending on the form of contract and customer preference, voyage expenses may be paid directly by customers or by KSP. If KSP pays voyage expenses, they are included in KSP's results of operations when they are incurred. Typically when KSP pays voyage expenses, KSP adds them to its freight rates at an approximate cost.
•: Net voyage revenue. Net voyage revenue is equal to voyage revenue less voyage expenses. As explained above, the amount of voyage expenses incurred by KSP for a particular contract depends upon the form of the contract. Therefore, in comparing revenues between reporting periods, KSP uses net voyage revenue to improve the comparability of reported revenues that are generated by the different forms of contracts. Since net voyage revenue is a non-GAAP measurement, it is reconciled to the nearest GAAP measurement, voyage revenue, under "—Results of Operations" below.
•: Bareboat charter and other revenue. Bareboat charter and other revenue includes revenue from bareboat charters and from towing and other miscellaneous services.
•: Vessel operating expenses. The most significant direct vessel operating expenses are wages paid to vessel crews, routine maintenance and repairs and marine insurance. KSP may also incur outside towing expenses during periods of peak demand and in order to maintain its operating capacity while its tugs are drydocked or otherwise out of service for scheduled and unscheduled maintenance.
•: Depreciation and amortization. KSP incurs fixed charges related to the depreciation of the historical cost of KSP's fleet and the amortization of expenditures for drydockings. The aggregate number of drydockings undertaken in a given period, the size of the vessels and the nature of the work performed determine the level of drydocking expenditures. KSP capitalizes expenditures incurred for drydocking and amortize these expenditures over 36 months. KSP also amortizes, over periods ranging from 3 to 20 years, intangible assets in connection with vessel acquisitions.
•: General and administrative expenses. General and administrative expenses generally consist of KSP's employment costs of shoreside staff and the cost of facilities, as well as legal, audit, insurance and other administrative costs for us and KSP.

•: Total tank vessel days. Total tank vessel days is equal to the number of calendar days in the period multiplied by the total number of tank vessels operating or in drydock during that period.
•: Scheduled drydocking days. Scheduled drydocking days are days designated for the inspection and survey of tank vessels, and identification and completion of required refurbishment work, as required by the U.S. Coast Guard and the American Bureau of Shipping to maintain the vessels' qualification to work in the U.S. coastwise trade. Generally, drydockings are required twice every five years and last between 30 and 60 days, based upon the size of the vessel and the type and extent of work required.
•: Net utilization. Net utilization is a primary measure of operating performance in KSP's business. Net utilization is a percentage equal to the total number of days worked by a tank vessel or group of tank vessels during a defined period, divided by total tank vessel days for that tank vessel or group of tank vessels. Net utilization is adversely impacted by scheduled drydocking, scheduled and unscheduled maintenance and idle time not paid for by the customer.
•: Average daily rate. Average daily rate, another key measure of KSP's operating performance, is equal to the net voyage revenue earned by a tank vessel or group of tank vessels during a defined period, divided by the total number of days actually worked by that tank vessel or group of tank vessels during that period. Fluctuations in average daily rates result not only from changes in charter rates charged to KSP's customers, but also from changes in vessel utilization and efficiency, which could result from internal factors, such as newer and more efficient tank vessels, and from external factors such as weather or other delays.
•: Coastwise and local trades. KSP's business is segregated into coastwise trade and local trade. KSP's coastwise trade generally comprises voyages of between 200 and 1,000 miles by vessels with greater than 40,000 barrels of barrel-carrying capacity. These voyages originate from the mid-Atlantic states to points as far north as Canada and as far south as Cape Hatteras, from points within the Gulf Coast region to other points within that region or to the Northeast, to and from points on the West Coast of the United States and Alaska, and to and from points within the Hawaiian islands. KSP also owns two non-Jones Act tank barges that transport petroleum products internationally. KSP's local trade generally comprises voyages by smaller vessels of less than 200 miles. The term U.S. coastwise trade is an industry term used generally for Jones Act purposes, and would include both KSP's coastwise and local trades.

Results of Operations

The following table summarizes our results of operations for the periods presented (dollars in thousands, except average daily rates):

				For the Years Ended June 30,									Six Months Ended December 31,
				2005			2006			2007			2006			2007
Voyage revenue				$	118,811		$	176,650		$	216,924		$	105,668		$	149,361
Bareboat charter and other revenue					2,587			6,118			9,650			5,273			6,076

		Total revenues			121,398			182,768			226,574			110,941			155,437
Voyage expenses					24,220			37,973			45,875			22,046			35,375
Vessel operating expenses					49,550			77,367			96,005			47,761			59,891
			% of voyage and vessel operating expenses to total revenues		60.8	%		63.1	%		62.6	%		62.9	%		61.3	%
General and administrative expenses					11,365			17,473			20,731			10,118			13,902
			% of total revenues		9.4	%		9.6	%		9.1	%		9.1	%		8.9	%
Depreciation and amortization					21,420			26,810			33,415			15,812			20,765
Net (gain) loss on sale of vessels					(281	)		(313	)		102			(16	)		(300	)

		Operating income			15,124			23,458			30,446			15,220			25,804
			% of total revenues		12.5	%		12.8	%		13.4	%		13.7	%		16.6	%
Interest expense, net					7,178			11,739			15,598			7,585			11,665
Net loss on reduction of debt					1,359			7,224			359			—			—
Other (income) expense, net					(239	)		(338	)		(301	)		(145	)		(2,301	)

		Income before provision for income taxes			6,826			4,833			14,790			7,780			16,440
Provision for income taxes					430			801			1,105			662			765

		Income before non-controlling interests		$	6,396		$	4,032		$	13,685		$	7,118		$	15,675
Non-controlling interests					4,006			3,276			9,235			4,573			10,308

		Net Income		$	2,390		$	756		$	4,450		$	2,545		$	5,367

Net voyage revenue by trade
	Coastwise
		Total tank vessel days			6,691			9,430			11,032			5,520			7,277
		Days worked			6,035			8,467			9,954			5,064			6,549
		Scheduled drydocking days			142			403			511			193			322
		Net utilization			90	%		90	%		90	%		92	%		90	%
		Average daily rate		$	11,369		$	11,967		$	12,375		$	11,858		$	13,497
			Total coastwise net voyage revenue(a)	$	68,610		$	101,324		$	123,182		$	60,050		$	88,394
	Local
		Total tank vessel days			6,084			8,537			8,864			4,426			4,763
		Days worked			6,534			6,987			4,795			3,486			3,746
		Scheduled drydocking days			263			317			232			114			39
		Net utilization			79	%		77	%		79	%		79	%		79	%
		Average daily rate		$	5,418		$	5,717		$	6,851		$	6,762		$	6,832
			Total local net voyage revenue(a)	$	25,981		$	37,353		$	47,867		$	23,572		$	25,592
	Tank vessel fleet
		Total tank vessel days			12,775			17,967			19,896			9,946			12,040
		Days worked			10,830			15,001			16,941			8,550			10,295
		Scheduled drydocking days			405			720			743			307			361
		Net utilization			85	%		83	%		85	%		86	%		86	%
		Average daily rate		$	8,734		$	9,245		$	10,097		$	9,780		$	11,072
			Total fleet net voyage revenue(a)	$	94,591		$	138,677		$	171,049		$	83,622		$	113,986

(a): Net voyage revenue is a non-GAAP measure which is defined above under "—Definitions" and reconciled to Voyage revenue, the nearest GAAP measure, under "—Voyage Revenue and Voyage Expenses" in the period-to-period comparisons below.

Six Months Ended December 31, 2007 Compared to Six Months Ended December 31, 2006

Voyage Revenue and Voyage Expenses

KSP's voyage revenue was $149.4 million for the six months ended December 31, 2007, an increase of $43.7 million, or 41%, as compared to voyage revenue of $105.7 million for the six months ended December 31, 2006. Voyage expenses were $35.4 million for the six months ended December 31, 2007, an increase of $13.4 million, or 61%, as compared to voyage expenses of $22.0 million incurred for the six months ended December 31, 2006.

Net Voyage Revenue

KSP's net voyage revenue was $114.0 million for the six months ended December 31, 2007, which exceeded net voyage revenue of $83.6 million for the six months ended December 31, 2006 by $30.4 million, or 36%. In KSP's coastwise trade, net voyage revenue was $88.4 million for the six months ended December 31, 2007, an increase of $28.3 million, or 47%, as compared to $60.1 million in the six months ended December 31, 2006. The acquisition of the Smith Maritime Group in August 2007 resulted in increased coastwise net voyage revenue of $19.0 million. KSP's net voyage revenue increased by an additional $7.5 million due to an increase in the number of working days for (1) the DBL 104, which began operations in April 2007, (2) the DBL 151, which was in the shipyard for an extended stay in the prior fiscal period (3) the DBL 134, which was in shipyard being coupled with the Irish Sea in the prior fiscal period (4) the Columbia, which was purchased and placed in service in September 2007. Net utilization in KSP's coastwise trade was 90% for the six-month period ended December 31, 2007 as compared to 92% for the six month period ended December 31, 2006. Net utilization in KSP's coastwise trade decreased as a result of increased scheduled drydocking days and unscheduled repair days. Average daily rates in KSP's coastwise trade increased 14% to $13,497 for the six months ended December 31, 2007 from $11,858 for the six months ended December 31, 2006.

KSP's net voyage revenue in our local trade for the six months ended December 31, 2007 increased by $2.0 million, or 8%, to $25.6 million from $23.6 million for the six months ended December 31, 2006. KSP's local net voyage revenue increased by $3.9 million during the six months ended December 31, 2007 due to the increased number of work days for the new-build barges DBL 27, DBL 22 and DBL 23, which were delivered in January 2007, June 2007 and September 2007, respectively. Net utilization in KSP's local trade was 79% for the six months ended December 31, 2007 and 2006. Average daily rates in KSP's local trade increased 1% to $6,832 for the six months ended December 31, 2007 from $6,762 for the comparative prior year.

Bareboat Charter and Other Revenue

KSP's bareboat charter and other revenue was $6.1 million for the six months ended December 31, 2007, compared to $5.3 million for the six months ended December 31, 2006. The Smith Maritime Group contributed $2.1 million of other revenue, and $0.3 million was contributed by a small lube oil operation purchased in the fall of 2006. This was partially offset by a $1.8 million decrease in chartering of tank barges to third parties.

Vessel Operating Expenses

KSP's vessel operating expenses were $59.9 million for the six months ended December 31, 2007 compared to $47.8 million for the six months ended December 31, 2006, an increase of $12.1 million. KSP's voyage and vessel operating expenses as a percentage of total revenues decreased to 61.3% for the six months ended December 31, 2007 from 62.9% for the six months ended December 31, 2006. This percentage has decreased as a result of the aggregate impact of the addition of newer, larger double hulled vessels, which produce a greater contribution margin, and our purchase of additional tugboats, which has reduced reliance on more expensive outside tug chartering. KSP's vessel labor and related costs increased $7.8 million as a result of contractual labor rate increases and a higher average number of employees due to the operation of the additional barges described under "—Net voyage

revenue" above. KSP's insurance costs and vessel repairs and supplies increased $4.7 million as a result of the operation of the larger number of vessels.

Depreciation and Amortization

KSP's depreciation and amortization was $20.8 million for the six months ended December 31, 2007, an increase of $5.0 million, or 32%, compared to $15.8 million for the six months ended December 31, 2006. The increase resulted from additional depreciation and drydocking amortization on KSP's newbuild and purchased vessels described above in addition to the acquisition of the Smith Maritime Group.

General and Administrative Expenses

KSP's general and administrative expenses were $13.6 million for the six months ended December 31, 2007, an increase of $3.5 million, as compared to general and administrative expenses of $10.1 million for the six months ended December 31, 2006. As a percentage of total revenues, KSP's general and administrative expenses decreased to 8.9% for the six months ended December 31, 2007 from 9.1% for the six months ended December 31, 2006. The $3.5 million increase is a result of increased personnel costs resulting from the Smith Maritime Group acquisition, additional increased headcount to support growth, and the additional facilities costs of new offices in Philadelphia, Hawaii, and Seattle.

Interest Expense, Net

KSP's net interest expense was $11.2 million for the six months ended December 31, 2007, or $4.5 million higher than the $6.7 million incurred in the six months ended December 31, 2006. The increase resulted from higher average debt balances resulting from increased credit line and term loan borrowings in connection with KSP's acquisitions and newbuild vessels. In addition, $1.1 million of interest expense was incurred for bridge financing in connection with the Smith Maritime Group acquisition.

We also incurred $0.5 million and $0.8 million of interest expense for the six months ended December 31, 2007 and 2006, respectively, relating to term loans of EW LLC.

Provision for Income Taxes

Our interim provisions for income taxes are based on our estimated annual effective tax rate. For the six months ended December 31, 2007, our effective tax rate was 4.7% as compared to a rate of 8.5% for the six months ended December 31, 2006. Our effective tax rate comprises the New York City Unincorporated Business Tax and foreign taxes on our operating partnerships, plus federal, state, local and foreign corporate income taxes on the income of our operating partnership's corporate subsidiaries. Our effective tax rate for the six months ended December 31, 2007 was lower than the comparable prior year period due to a smaller portion of our pre-tax income being attributable to our corporate subsidiaries compared to the six months ended December 31, 2006.

Non-controlling interests

Non-controlling interests increased by $5.7 million for the six months ended December 31, 2007 compared to the prior year, as a result of the increase in KSP's income.

Net Income

Net income was $5.6 million for the six months ended December 31, 2007, an increase of $3.1 million compared to net income of $2.5 million for the six months ended December 31, 2006. This increase resulted primarily from a $10.9 million increase in operating income and a $2.2 million increase in other income (expense), partially offset by a $4.1 million increase in interest expense, $5.7 million in non-controlling interest and a $0.1 million increase in provision for income taxes.

Fiscal Year Ended June 30, 2007 Compared to the Fiscal Year Ended June 30, 2006

Voyage Revenue and Voyage Expenses

KSP's voyage revenue was $216.9 million for the fiscal year ended June 30, 2007, an increase of $40.2 million, or 23%, as compared to voyage revenue of $176.7 million for the fiscal year ended June 30, 2006. KSP's voyage expenses were $45.9 million for the fiscal year ended June 30, 2007, an increase of $7.9 million, or 21%, as compared to voyage expenses of $38.0 million for the fiscal year ended June 30, 2006.

Net Voyage Revenue

KSP's net voyage revenue was $171.0 million for the fiscal year ended June 30, 2007, an increase of $32.3 million, or 23%, as compared to net voyage revenue of $138.7 million for the fiscal year ended June 30, 2006. In KSP's coastwise trade, net voyage revenue was $123.2 million for the fiscal year ended June 30, 2007, an increase of $21.9 million, or 22%, as compared to $101.3 million for the fiscal year ended June 30, 2006. Net utilization in KSP's coastwise trade remained constant at 90% for both the fiscal year ended June 30, 2007 and 2006. KSP's acquisition of Sea Coast Transportation LLC, or Sea Coast, in October 2005 resulted in increased coastwise net voyage revenue of $14.3 million for the fiscal year ended June 30, 2007, as compared to the fiscal year ended June 30, 2006. Increases totaling $7.6 million in KSP's coastwise net voyage revenue resulted from an increase in days worked by the following vessels: (1) the DBL 103, which was placed in service in January 2006, (2) the DBL 104, which was placed in service in April 2007, (3) the McCleary's Spirit, which was purchased in October 2005, and (4) the DBL 53, which commenced operations in June 2006 after being rebuilt. These increases were partially offset by a $1.0 million decrease in KSP's coastwise net voyage revenue resulting from the loss of the DBL 152 in a November 2005 barge incident. Average daily rates in KSP's coastwise net voyage revenue increased 3% to $12,375 for the fiscal year ended June 30, 2007 from $11,967 for the fiscal year ended June 30, 2006, which accounted for approximately $3.5 million of increased net voyage revenue.

Net voyage revenue in KSP's local trade for the fiscal year ended June 30, 2007 increased by $10.5 million, or 28%, to $47.9 million from $37.4 million for the year ended June 30, 2006. KSP's acquisition of Sea Coast in October 2005 resulted in increased local net voyage revenue of $1.8 million for the fiscal year ended June 30, 2007, as compared to the fiscal year ended June 30, 2006. Additionally, KSP's local net voyage revenue increased by $8.6 million for the fiscal year ended June 30, 2007 due to the increased number of work days for the newbuild barges DBL 28, DBL 29, DBL 26, and DBL 27 delivered in March 2006, May 2006, August 2006, and January 2007, respectively. This was partially offset by the retirement of three small tank vessels which decreased KSP's net voyage revenue by $3.4 million. Net utilization in KSP's local trade was 79% for the fiscal year ended June 30, 2007, compared to 77% for the fiscal year ended June 30, 2006. Average daily rates in KSP's local trade increased 20% to $6,851 for the fiscal year ended June 30, 2007 from $5,717 for the fiscal year ended June 30, 2006, reflecting the impact of higher charter rates resulting from strong market conditions, particularly for short-term charters. Increases in KSP's charter rates accounted for approximately $5.1 million of increased net voyage revenue for the fiscal year ended June 30, 2007.

Bareboat Charter and Other Revenue

KSP's bareboat charter and other revenue was $9.7 million for the fiscal year ended June 30, 2007, compared to $6.1 million for the fiscal year ended June 30, 2006. Of this $3.6 million increase, $1.5 million resulted from increased outside chartering of tank barges and $1.9 million was generated by a small lube oil operation purchased in the fall of 2006.

Vessel Operating Expenses

KSP's vessel operating expenses were $96.0 million for the fiscal year ended June 30, 2007, an increase of $18.6 million, or 24%, as compared to $77.4 million for the fiscal year ended June 30, 2006.

KSP's voyage and vessel operating expenses as a percentage of total revenues decreased to 62.6% for the fiscal year ended June 30, 2007 from 63.1% for the fiscal year ended June 30, 2006. KSP's vessel labor and related costs increased $11.4 million as a result of contractual labor rate increases and a higher average number of employees due to the operation of the additional barges described under "—Net Voyage Revenue" above, and additional tugboats purchased in October 2005, November 2006 and April 2007. KSP's insurance costs and vessel repairs and supplies increased $4.0 million as a result of the operation of the larger number of vessels. Additionally, outside towing increased $1.3 million during the fiscal year ended June 30, 2007 due to higher shipyard days of KSP's tugboats.

Depreciation and Amortization

KSP's depreciation and amortization was $33.4 million for the fiscal year ended June 30, 2007, an increase of $6.6 million, or 25%, as compared to $26.8 million for the fiscal year ended June 30, 2006. The increase resulted from additional depreciation and drydocking amortization on KSP's newbuild and purchased vessels described above, plus $0.4 million in increased amortization of certain intangible assets acquired in KSP's acquisition of Sea Coast.

General and Administrative Expenses

KSP's general and administrative expenses were $20.5 million for the fiscal year ended June 30, 2007, an increase of $3.2 million, or 18%, as compared to general and administrative expenses of $17.3 million for the fiscal year ended June 30, 2006. As a percentage of total revenues, KSP's general and administrative expenses decreased to 9.1% for the fiscal year ended June 30, 2007 from 9.6% for the fiscal year ended June 30, 2006. The $3.2 million increase included $1.1 million of increased personnel and facilities costs resulting from KSP's Sea Coast acquisition, and also a $2.2 million increase relating to increased headcount and facilities costs of KSP's new corporate office in Seattle and a small satellite office in Philadelphia to support KSP's growth.

We also incurred $0.2 million of general and administrative expenses for the fiscal years ended June 30, 2007 and 2006 related to EW LLC administration.

Interest Expense, Net

KSP's net interest expense was $14.1 million for the fiscal year ended June 30, 2007, or $4.0 million higher than the $10.1 million incurred in fiscal year ended June 30, 2006. The increase resulted from higher average debt balances resulting from increased credit line and term loan borrowings in connection with KSP's acquisition and vessel newbuilding program, and higher average interest rates.

We also incurred $1.5 million and $1.6 million of interest expense during fiscal 2007 and fiscal 2006, respectively, relating to a demand loan and term loans of EW LLC.

Loss on Reduction of Debt

In November 2005, in connection with KSP's redemption of the Title XI bonds (see "—Liquidity and Capital Resources—Title XI Borrowings" below), KSP made a make-whole payment of $4.0 million. After writing off $2.7 million in unamortized deferred financing costs relating to the Title XI bonds, and after costs and expenses relating to the transaction, KSP recorded a loss on reduction of debt of $6.9 million. KSP recorded an additional $0.3 million of loss on reduction of debt in April 2006 resulting from the write-off of deferred financing costs relating to a downsizing of its revolving credit facility.

We also recognized $0.4 million in loss on reduction of debt during fiscal 2007 resulting from the write-off of deferred financing costs relating to a refinanced EW LLC term loan.

Provision For Income Taxes

For the year ended June 30, 2007, our effective tax rate decreased to 7.5%, compared to 16.6% in fiscal 2006. Our effective tax rate comprises the New York City Unincorporated Business Tax and foreign taxes on our operating partnerships, plus federal, state, local and foreign corporate income taxes on the income of our corporate subsidiaries. Our effective tax rate for the fiscal year ended June 30, 2007 was lower than the comparable prior year period primarily because a smaller percentage of our pre-tax book income related to our corporate subsidiaries.

Non-controlling Interest

Non-controlling interest increased for the year ended June 30, 2007, compared to the prior year, primarily as a result of the increase in KSP's income.

Net Income

Net income was $4.5 million for the fiscal year ended June 30, 2007, an increase of $3.7 million compared to net income of $0.8 million for the fiscal year ended June 30, 2006. This increase resulted primarily from a $6.9 million decrease in the net loss on reduction of debt and a $7.0 million increase in operating income partially offset by a $3.9 million increase in interest expense, a $6.0 million increase in non-controlling interest expense, and a $0.3 million increase in provision for income taxes.

Fiscal Year Ended June 30, 2006 Compared to the Fiscal Year Ended June 30, 2005

Voyage Revenue and Voyage Expenses

KSP's voyage revenue was $176.7 million for the fiscal year ended June 30, 2006, an increase of $57.9 million, or 49%, as compared to voyage revenue of $118.8 million for the fiscal year ended June 30, 2005. KSP's voyage expenses were $38.0 million for the fiscal year ended June 30, 2006, an increase of $13.8 million, or 57%, as compared to voyage expenses of $24.2 million for the fiscal year ended June 30, 2005.

Net Voyage Revenue

KSP's net voyage revenue was $138.7 million for the fiscal year ended June 30, 2006, an increase of $44.1 million, or 47%, as compared to net voyage revenue of $94.6 million for the fiscal year ended June 30, 2005. In KSP's coastwise trade, net voyage revenue was $101.3 million for the fiscal year ended June 30, 2006, an increase of $32.7 million, or 48%, as compared to $68.6 million for the fiscal year ended June 30, 2005. Net utilization in KSP's coastwise trade remained constant at 90% for each fiscal year. KSP's acquisition of Sea Coast in October 2005 resulted in increased coastwise net voyage revenue of $23.0 million in the fiscal year ended June 30, 2006, compared to the fiscal year ended June 30, 2005. Other increases for the fiscal year ended June 30, 2006 included $14.0 million in KSP's coastwise net voyage revenue resulting from an increase in days worked by the following vessels: (1) the DBL 78, which was placed in service in June 2005, (2) the KTC 50, which was placed in service in January 2005, (3) the Spring Creek, which was in shipyard for most of the fiscal 2005 second quarter in preparation for a new time charter which commenced in January 2005, (4) the DBL 103, which was placed in service in January 2006, (5) the McCleary's Spirit, a Canadian-flag vessel which was purchased in October 2005, and (6) the DBL 155, which returned to service in September 2004 after its double-hulling. These increases were partially offset by a $7.2 million decrease in KSP's coastwise net voyage revenue during the fiscal year ended June 30, 2006 resulting from the phase-out of the KTC 90 and KTC 96 in December 2004, and the loss of the DBL 152. KSP's coastwise net voyage revenue also benefited from a 5% increase in average daily rates to $11,967 for the year ended June 30, 2006 from $11,369 for the year ended June 30, 2005, which accounted for approximately $3.6 million of increased net voyage revenue. KSP's coastwise average daily rates were positively impacted by the continuing strong demand for petroleum products and increasing oil prices.

Net voyage revenue in KSP's local trade for the fiscal year ended June 30, 2006 increased by $11.4 million, or 44%, to $37.4 million from $26.0 million for the fiscal year ended June 30, 2005. KSP's acquisition of Sea Coast in October 2005 resulted in increased local net voyage revenue of $5.8 million for the fiscal year ended June 30, 2006. Additionally, KSP's local net voyage revenue increased by $3.0 million during the fiscal year ended June 30, 2006 due to the increased number of work days for vessels acquired in KSP's Norfolk acquisition in December 2004. KSP's newbuild barges DBL 28 and DBL 29, delivered during the third and fourth quarters of fiscal 2006, contributed $0.8 million of KSP's net voyage revenue. Net utilization in KSP's local trade was 77% for the fiscal year ended June 30, 2006, compared to 79% for the fiscal year ended June 30, 2005. Average daily rates in KSP's local trade increased 6% to $5,717 for the fiscal year ended June 30, 2006 from $5,418 for the comparative prior year period, reflecting the impact of higher charter rates resulting from strong market conditions, which accounted for approximately $1.4 million of increased net voyage revenue.

Bareboat Charter and Other Revenue

KSP's bareboat charter and other revenue was $6.1 million for the fiscal year ended June 30, 2006, compared to $2.6 million for the fiscal year ended June 30, 2005. Of this $3.5 million increase, $1.5 million resulted from increased revenue from KSP's water treatment plant in Norfolk, and an additional $1.8 million was generated by outside chartering of tank barges by Sea Coast.

Vessel Operating Expenses

KSP's vessel operating expenses were $77.3 million for the fiscal year ended June 30, 2006, an increase of $28.0 million, or 56%, as compared to $49.3 million for the fiscal year ended June 30, 2005. KSP's voyage and vessel operating expenses as a percentage of total revenues increased to 63.1% for the fiscal year ended June 30, 2006 from 60.6% for the fiscal year ended June 30, 2005, resulting mainly from a higher such percentage for the Sea Coast vessels acquired in October 2005. Four of the Sea Coast barges were chartered in, and KSP pays a charter fee that is included in vessel operating expenses. The charter fee increases the percentage of vessel operating expenses to total revenues; however, there is no associated depreciation or interest expense. KSP's vessel labor and related costs increased as a result of contractual labor rate increases and a higher average number of employees due to the operation of the additional barges described under "—Net Voyage Revenue" above, an additional tugboat purchased in October 2005, and integration of additional vessels purchased in December 2004. KSP's insurance costs and vessel repairs and supplies also increased during the fiscal year ended June 30, 2006 as a result of the operation of the larger number of vessels. KSP's outside towing expense increased by $1.8 million during fiscal 2006 due to the need for additional tugboats to satisfy increased demand for KSP's tank vessels, and to replace certain of KSP's tugboats during coupling and re-powering projects.

Depreciation and Amortization

KSP's depreciation and amortization was $26.8 million for fiscal 2006, an increase of $5.4 million, or 25%, as compared to $21.4 million for the fiscal year ended June 30, 2005. The increase resulted from additional depreciation and drydocking amortization on KSP's newbuild and purchased vessels, plus $0.7 million in amortization of certain intangible assets acquired in KSP's acquisition of Sea Coast.

General and Administrative Expenses

KSP's general and administrative expenses were $17.3 million for the fiscal year ended June 30, 2006, an increase of $6.1 million, or 54%, as compared to KSP's general and administrative expenses of $11.2 million for the fiscal year ended June 30, 2005. As a percentage of total revenues, general and administrative expenses increased to 9.6% for the fiscal year ended June 30, 2006 from 9.4% for the fiscal year ended June 30, 2005. The $6.1 million increase reflected $4.7 million of increased personnel

and facilities costs in support of KSP's growth, including the Norfolk and Sea Coast acquisitions, and $0.3 million in costs related to a cancelled bond offering.

We also incurred $0.2 million of general and administrative expenses for each of fiscal 2007 and fiscal 2006 for EW LLC administration.

Interest Expense, Net

KSP's net interest expense was $10.1 million for the fiscal year ended June 30, 2006, or $4.2 million higher than the fiscal year ended June 30, 2005. The increase resulted from higher average debt balances resulting from increased credit line and term loan borrowings in connection with the Norfolk vessel acquisitions in fiscal 2005, the Sea Coast acquisition in October 2005 and higher average interest rates.

We also incurred $1.6 million and $1.2 million of interest expense during fiscal 2006 and fiscal 2005, respectively, relating to a term loan of EW LLC.

Loss on Reduction of Debt

In connection with its redemption of Title XI bonds, KSP made a make-whole payment of $4.0 million during the fiscal year ended June 30, 2006. After writing off $2.7 million in unamortized deferred financing costs relating to those bonds, and after costs and expenses relating to the transaction, KSP recorded a loss on reduction of debt of $6.9 million. KSP recorded an additional $0.3 million of loss on reduction of debt in April 2006 resulting from the write-off of deferred financing costs relating to a downsizing of its revolving credit facility.

In connection with the refinancing of its revolving credit facility and repayment of certain term loans in March 2005, KSP incurred a $1.4 million loss on reduction of debt. Included in this amount was $1.1 million in deferred financing costs related to the repaid debt that were written off and $0.3 million of prepayment costs.

Provision For Income Taxes

For the fiscal year ended June 30, 2006, our effective tax rate increased to 16.6%, compared to 6.3% in fiscal 2005, owing to an increased amount of non U.S. taxes incurred relative to its operations in Puerto Rico, Venezuela and Canada. Our effective tax rate comprises the New York City Unincorporated Business Tax and foreign taxes on our operating partnerships, plus federal, state, local and foreign corporate income taxes on the income of our corporate subsidiaries.

Non-controlling Interest

Non-controlling interest decreased for fiscal 2006, as compared to fiscal 2005, due to the decrease in KSP's income.

Net Income

Net income was $0.8 million for the fiscal year ended June 30, 2006, a decrease of $1.6 million compared to net income of $2.4 million for the fiscal year ended June 30, 2005. This decrease resulted primarily from the $5.9 million increase in loss on reduction of debt, the $4.6 million increase in interest expense, net, and a $0.4 million increase in provision for income taxes, which were partially offset by the $8.3 million increase in operating income and a $0.7 million decrease in non-controlling interest expense.

Liquidity and Capital Resources

Operating Cash Flows

Net cash provided by operating activities was $15.5 million for the six months ended December 31, 2007, an increase of $0.9 million as compared to $14.6 million for the six months ended December 31, 2006. The increase resulted from $7.6 million of improved operating results, after adjusting for non-cash expenses such as depreciation and amortization, offset by a $5.3 million negative impact from working capital changes and a $1.4 million increase in drydocking expenditures. During the six-month period ended December 31, 2006, KSP's working capital decreased due primarily to an increase in accounts payable and accrued expenses primarily as a result of an increase in operating expenditures for KSP's expanded fleet, and by a decrease in prepaid and other current assets receivable as a result of collection of claims receivable.

Net cash provided by operating activities was $24.6 million during the fiscal year ended June 30, 2007, $6.5 million during the fiscal year ended June 30, 2006 and $13.6 million during the fiscal year ended June 30, 2005. The increase of $18.1 million in fiscal 2007 as compared to fiscal 2006 resulted primarily from $12.3 million of improved operating results, after adjusting for non-cash expenses such as depreciation and amortization and net loss on reduction of debt, and a $8.6 million positive impact from changes in operating working capital, partially offset by increased drydocking payments of $2.9 million. The decrease of $7.1 million in fiscal 2006, compared to fiscal 2005, resulted primarily from a $4.9 million increase in drydocking expenditures and a $3.6 million negative impact from changes in operating working capital, partially offset by the improved operating income of $1.4 million, after adjusting for the aforementioned non-cash expenses. During the fiscal year ended June 30, 2007, KSP's working capital decreased mainly due to increases in accrued expenses and other current liabilities, which resulted from increased payroll, self-insured medical and claim accruals, and decreased prepaid and other current assets, which resulted mainly from the collection of insurance claim receivables. During the fiscal year ended June 30, 2006, working capital increased primarily as a result of increased accounts receivable due to increased revenues, and increased prepaid and other current assets primarily as a result of increases in insurance claims receivable.

Investing Cash Flows

Net cash used in investing activities totaled $212.2 million for the six months ended December 31, 2007, compared to $29.3 million used during the six months ended December 31, 2006. The six months ended December 31, 2007 included the $168.9 million cash portion of the purchase price for the Smith Maritime Group. KSP's vessel acquisitions for the six months ended December 31, 2007 included $13.8 million to acquire two existing barges and two existing tugs; the seller issued a $3.0 million note on one of the barge purchases, which was paid in November 2007. KSP's vessel acquisitions totaled $7.1 million for the six months ended December 31, 2006, which were related to its purchase of three tugboats and the purchase of certain small tank vessels and tugboats. KSP's tank vessel construction in the six months ended December 31, 2007 aggregated $22.1 million and included progress payments on the construction of three 80,000-barrel tank barges, three new 28,000-barrel tank barges, a new 50,000-barrel tank barge and a new 185,000—barrel articulated tug-barge unit. KSP's tank vessel construction of $14.7 million in the comparative prior year period included progress payments on construction of a new 100,000-barrel tank barge, two new 80,000-barrel tank barges and six new 28,000-barrel tank barges. Other capital expenditures, relating primarily to coupling tugboats to KSP's newbuild tank barges, tank renovations of a tank barge and improvements on a newly purchased tug, totaled $6.5 million in the six months ended December 31, 2007. Capital expenditures of $7.9 million in the six months ended December 31, 2006 included coupling tugboats to KSP's newbuild tank barges and the rebuilding of one of KSP's larger tank barges.

Net cash used in investing activities totaled $63.6 million during the fiscal year ended June 30, 2007, $105.2 million during the fiscal year ended June 30, 2006 and $54.9 million during the fiscal year ended June 30, 2005. The primary elements of these activities were acquisitions of vessels and

companies, and construction of new vessels. Vessel acquisitions totaling $16.2 million for the fiscal year ended June 30, 2007 included the purchase of five tugboats and the purchase of certain small tank vessels. In fiscal 2006, KSP spent $76.5 million in cash, net, to acquire Sea Coast in October 2005. Also during fiscal 2006, KSP acquired an 85,000-barrel integrated tug-barge unit for approximately $13.1 million. During fiscal 2005, KSP acquired ten tank barges and seven tugboats from Bay Gulf Trading Company, Ltd. of Norfolk, Virginia and its affiliates. The purchase price of $21.2 million included a water treatment facility in Norfolk. The fiscal 2005 acquisitions included the Norfolk vessels and also the DBL 78, which was acquired in June 2005. Construction expenditures for KSP's tank vessel newbuilding program and rebuilding projects totaled $33.3 million in fiscal 2007, $20.7 million in fiscal 2006 and $16.8 million in fiscal 2005. Other capital expenditures of $14.8 million in fiscal 2007, $9.1 million in fiscal 2006 and $9.0 million in fiscal 2005 related primarily to repowering of, and installation of coupling systems on, certain tugboats used with KSP's newbuild tank barges, and expenditures related to upgrading the vessels acquired by KSP in December 2004. Additionally, in fiscal 2007 KSP completed rebuilding of one of its larger tank vessels. Capital expenditures made in the normal course of business are generally financed by cash from operations and, where necessary, borrowings under KSP's revolving credit agreement.

Financing Cash Flows

Net cash provided by financing activities was $197.5 million for the six months ended December 31, 2007 compared to $14.5 million of net cash provided by financing activities for the six months ended December 31, 2006. The primary financing activities for the six-month period ended December 31, 2007 were $138.3 million in gross proceeds from KSP's issuance of 3.5 million new common units in September 2007 and $105.0 million of borrowings related to KSP's acquisition of the Smith Maritime Group that were repaid with the equity offering proceeds. KSP also increased its credit line borrowings by $83.3 million during the six months ended December 31, 2007 relating to the Smith Maritime Group acquisition and for progress payments on barges under construction. Distributions to the ownership interests of EW LLC and KSP's general partner totaled $6.0 million for the six months ended December 31, 2007. In the six months ended December 31, 2006, the primary financing activities were $11.0 million of borrowings by KSP on term loans to finance the construction of new tank barges, a $14.4 million increase in KSP's credit line borrowings. Distributions to the ownership interests of EW LLC and KSP's general partner totaled $3.5 million for the six months ended December 31, 2006.

Net cash provided by financing activities was $39.1 million during the fiscal year ended June 30, 2007, $99.4 million during the fiscal year ended June 30, 2006 and $40.8 million during the fiscal year ended June 30, 2005. During the fiscal year ended June 30, 2007, KSP increased its credit line borrowings by $43.1 million, increased borrowings on term loans by $14.9 million to finance the construction of new tank barges and repaid term loans of $7.7 million. EW LLC also borrowed $15.5 million under a demand loan and repaid $16.6 million in term loans and subordinated notes. Distributions to the ownership interests of EW LLC and KSP's general partner totaled $9.1 million.

In fiscal 2006, KSP's primary financing activities were $109.4 million in new term loan borrowings and $34.0 million in gross proceeds from the sale of 950,000 common units in October 2005. These proceeds were used in financing the Sea Coast acquisition and the other investing activities described above. Additionally, KSP paid $36.8 million to redeem the principal balance of its Title XI bonds. KSP also amended its revolving credit agreement (see "—KSP's Credit Agreement" below) and increased its credit line borrowings by $6.9 million. EW LLC borrowed $7.0 million in new term loans and repaid $2.0 million in outstanding terms loans. Distributions to ownership interests of EW LLC and KSP's general partner totaled $14.0 million.

As a result of a restructuring of its financial agreement for the Title XI bonds in January 2004, KSP was required to make monthly reserve fund deposits which were used to make semi-annual debt service payments. The principal portion of such deposits, which are reflected as principal payments to Title XI reserve funds, were $0.7 million and $1.6 million for fiscal 2006 and 2005, respectively. When

KSP redeemed the Title XI bonds in November 2005, the balance of the Title XI reserve funds of $2.9 million, which are reflected as proceeds from Title XI reserve funds under Investing Cash Flows above, was returned to KSP. For more information, please read "—KSP's Title XI Borrowings" below.

During fiscal 2005, KSP increased its credit line borrowings and term loans by a net of $36.8 million, primarily to finance vessel acquisitions. EW LLC also repaid $1.6 million of term loans. In March 2005, KSP signed a new five-year $80.0 million credit agreement with a syndicate of banks, which replaced its then-existing $47.0 million credit agreement, which was repaid and terminated. On June 1, 2005, KSP issued and sold 500,000 common units in a private placement for gross proceeds of $16.0 million. Distributions to ownership interests of EW LLC and KSP's general partner totaled $7.4 million.

Oil Pollution Act of 1990. Tank vessels are subject to the requirements of OPA 90. OPA 90 mandates that all single-hull tank vessels operating in U.S. waters be removed from petroleum and petroleum product transportation services at various times through January 1, 2015, and provides a schedule for the phase-out of the single-hull vessels based on their age and size. At December 31, 2007, approximately 74% of the barrel-carrying capacity of KSP's tank vessel fleet was double-hulled in compliance with OPA 90, and the remainder will be in compliance with OPA 90 until January 2015.

Ongoing Capital Expenditures. Marine transportation of refined petroleum products is a capital intensive business, requiring significant investment to maintain an efficient fleet and to stay in regulatory compliance. KSP estimates that, over the next five years, it will spend an average of approximately $20.5 million per year to drydock and maintain its fleet. KSP expects drydocking and maintenance expenditures to approximate $21.5 million in fiscal 2008. In addition, KSP anticipates that it will spend $1.0 million annually for other general capital expenditures. Periodically, KSP also makes expenditures to acquire or construct additional tank vessel capacity and/or to upgrade its overall fleet efficiency.

For a further discussion of maintenance and expansion capital expenditures, please read footnote 5 to the table in "Selected Historical and Pro Forma Financial and Operating Data" included elsewhere in the prospectus.

The following table summarizes KSP's total maintenance capital expenditures, including drydocking expenditures, and expansion capital expenditures for the periods presented (in thousands):

	Years ended June 30,						Six Months Ended December 31,
	2005		2006		2007		2006		2007
Maintenance capital expenditures	$	8,024	$	13,753	$	20,337	$	14,546	$	10,171
Expansion capital expenditures (including vessel and company acquisitions)		39,337		98,073		25,960		8,966		188,998

Total capital expenditures	$	47,361	$	111,826	$	46,297	$	23,512	$	199,169

Construction of tank vessels	$	16,816	$	20,702	$	33,315	$	14,688	$	22,057

In September 2007 and December 2007, KSP took delivery of two 28,000-barrel tank barges, the DBL 23 and DBL 24. In October 2007, KSP entered into an agreement with a shipyard to construct a 185,000-barrel articulated tug-barge unit, which is expected to be delivered in the fourth quarter of calendar 2009 at a cost of $68.0 million to $70.0 million. KSP also has an agreement for a long-term charter for the unit with a major customer that is expected to commence upon delivery. In December 2007, KSP entered into an agreement with a shipyard to construct a 100,000-barrel tank barge. In total,

KSP has agreements with shipyards for the construction of nine additional new tank barges. Deliveries are expected as follows:

Date of Agreement	Vessels	Expected
June 2006	One 28,000-barrel tank barge	3rd Quarter fiscal 2008
August 2006	Two 80,000-barrel tank barges	4th Quarter fiscal 2008—1st Quarter fiscal 2009
December 2006	One 80,000-barrel tank barge	1st Quarter fiscal 2009
June 2007	Four 50,000-barrel tank barges	2nd Quarter fiscal 2010—2nd Quarter fiscal 2011
October 2007	One 185,000-barrel articulated tug barge unit	2nd Quarter fiscal 2010
December 2007	One 100,000-barrel tank barge	2nd Quarter 2010

The above vessels are expected to cost, in the aggregate and after the addition of certain special equipment, approximately $175.0 million, of which $30.2 million has been spent by KSP as of December 31, 2007. KSP expects to spend an additional $26.0 million during fiscal 2008 on these contracts.

Additionally, KSP intends to retire, retrofit or replace 27 (including four chartered-in) single-hull tank vessels by December 2014, which at December 31, 2007 represented approximately 26% of its barrel-carrying capacity. The capacity of certain of these single-hulled vessels has already been effectively replaced by double-hulled vessels placed into service in the past two years. KSP estimates that the current cost to replace the remaining capacity with newbuildings and by retrofitting certain of its existing vessels will range from $78.0 million to $80.0 million. This capacity can also be replaced by acquiring existing double-hulled tank vessels as opportunities arise. KSP evaluates the most cost-effective means to replace this capacity on an ongoing basis.

Liquidity Needs. We have no significant liquidity needs. KSP's primary short-term liquidity needs are to fund general working capital requirements, distributions to unitholders and drydocking expenditures, while its long-term liquidity needs are primarily associated with expansion and other maintenance capital expenditures. KSP's expansion capital expenditures are primarily for the purchase of vessels, while maintenance capital expenditures include drydocking expenditures and the cost of replacing tank vessel operating capacity. KSP's primary sources of funds for its short-term liquidity needs are cash flows from operations and borrowings under its credit agreement, while its long-term sources of funds are cash from operations, long-term bank borrowings and other debt or equity financings.

KSP believes that cash flows from operations and borrowings under its credit agreement, described under "—KSP's Credit Agreement" below, plus its access to the long-term debt and equity markets, will be sufficient to meet its liquidity needs for the next 12 months and for the long-term.

KSP's Credit Agreement. In March 2005, KSP entered into a new five-year $80.0 million revolving credit agreement with a syndicate of banks led by KeyBank National Association. The credit agreement replaced KSP's then-existing $47.0 million revolving credit agreement, which was repaid and terminated. On October 18, 2005, to partially finance the acquisition of Sea Coast, KSP amended its credit agreement to increase the available borrowings to $120.0 million, of which $77.0 million was drawn down to pay the cash portion of the purchase price. On November 29, 2005, to fund the redemption of its Title XI bonds (see "—KSP's Title XI Borrowings" below), KSP further amended the credit agreement to increase the maximum borrowings to $155.0 million. On April 3, 2006, KSP used the net proceeds from the issuance of $80.0 million in new term loans to repay outstanding borrowings under the revolving credit agreement, and further amended it to reduce the available borrowings, to release certain vessels from the collateral pool, and to reduce certain covenant requirements. During

fiscal 2007, KSP further amended the credit agreement to add additional bank participants, increase the available borrowings, amend certain financial covenants and reduce interest rates.

On August 14, 2007, KSP amended and restated the credit agreement to provide for (1) an increase in availability to $175.0 million under a senior secured revolving credit facility, which we refer to as the revolving facility, with an extension of the term to seven years, to August 2014, (2) a $45.0 million 364-day senior secured revolving credit facility, which we refer to as the 364-day facility, (3) amendments to certain financial covenants and (4) a reduction in interest rate margins. Under certain conditions, KSP has the right to increase the revolving facility by up to $75.0 million, to a maximum total facility amount of $250.0 million. On November 7, 2007, KSP partially exercised this right and increased the facility by $25.0 million to $200.0 million. The revolving facility and the 364-day facility are collateralized by a first perfected security interest in vessels having a total fair market value of approximately $275.0 million and certain equipment and machinery related to such vessels. On August 14, 2007, KSP borrowed $67.0 million under the revolving facility and $45.0 million under the 364-day facility to fund a portion of the purchase price of the Smith Maritime Group. The entire 364-day facility and a portion of the revolving facility were repaid on September 26, 2007 with the proceeds from an offering by KSP of its common units. Please read "—KSP's Issuances of Common Units" below. The 364-day facility was terminated on September 26, 2007.

The following table summarizes the rates of interest and commitment fees for the revolving facility under KSP's credit agreement:

Ratio of Total Funded Debt to EBITDA	LIBOR Margin		Base Rate Margin		Commitment Fee
Less than 2.00 : 1.00	0.70	%	0.00	%	0.150	%
Greater than or equal to 2.00 : 1.00 and less than 2.50 : 1.00	0.85	%	0.00	%	0.150	%
Greater than or equal to 2.50 : 1.00 and less than 3.00 : 1.00	1.10	%	0.00	%	0.200	%
Greater than or equal to 3.00 : 1.00 and less than 3.50 : 1.00	1.25	%	0.00	%	0.200	%
Greater than or equal to 3.50 : 1.00	1.50	%	0.25	%	0.300	%

Interest on a base rate loan is payable monthly over the term of the agreement. Interest on a LIBOR-based loan is due, at KSP's election, one, two, three, six or twelve months after such loan is made. Outstanding principal amounts of the revolving facility are due upon termination of the credit agreement.

Loan proceeds under KSP's credit agreement may be used for any purpose in the ordinary course of business, including vessel acquisitions, ongoing working capital needs and distributions. Amounts borrowed and repaid may be re-borrowed. Borrowings made for working capital purposes must be reduced to zero for a period of at least 15 consecutive days once each year.

KSP's credit agreement contains covenants that include, among others:

•

the maintenance of the following financial ratios (all as defined in the credit agreement):

•: EBITDA to fixed charges of at least 1.85 to 1.00;
•: total funded debt to EBITDA of no greater than 4.00 to 1.00;
•: restrictions on creating liens on or disposing of the vessels collateralizing the credit agreement, subject to permitted exceptions;
•: restrictions on merging and selling assets outside the ordinary course of business;
•: prohibitions on making distributions to limited or general partners of ours during the continuance of an event of default; and
•: restrictions on transactions with affiliates and materially changing its business.

KSP's credit agreement contains customary events of default. If a default occurs and is continuing, KSP must repay all amounts outstanding under the agreement.

Interest Rate Swap Agreements

On November 30, 2007, KSP entered into agreements with a financial institution to swap the LIBOR-based, variable rate interest payments on a total of $104.9 million of its credit agreement borrowings for fixed rates, for a term of three years. The fixed rates to be paid by KSP beginning in December 2007 average 4.01%.

KSP's Other Term Loans

On August 14, 2007, in connection with the acquisition of the Smith Maritime Group, KSP entered into a bridge loan facility for up to $60.0 million with an affiliate of KeyBank National Association. The bridge loan facility, while outstanding, bore interest at a rate per annum equal to, at KSP's option, (a) the greater of the prime rate and the federal funds rate plus 0.25% or (b) the 30-day LIBOR plus a margin of 1.50%. Interest was due on a monthly basis. The bridge loan facility was repaid on September 26, 2007 with the proceeds of from an offering by KSP of its common units. Please read "—KSP's Issuances of Common Units" below.

Also on August 14, 2007, in connection with the Smith Maritime Group acquisition, KSP assumed two term loans totaling $23.5 million. The first, in the amount of $19.5 million, bears interest at the same LIBOR-based variable rate as the credit agreement (see table under "—KSP's Credit Agreement" above) and is repayable in equal monthly installments of $147,455 plus interest, until August 2018. The second, in the amount of $4.0 million, bears interest at LIBOR plus 1.0% and is repayable in monthly installments ranging from $59,269 to $81,320 plus interest, until May 2012. The loans are collateralized by three tank barges. KSP also agreed with the related lending institution to assume the two existing interest rate swaps relating to these two loans. The LIBOR-based, variable interest payments on these loans have been swapped for fixed payments at an average rate of 5.44%, plus the applicable margin, over the same terms as the loans. Borrowings outstanding on these term loans were $22.7 million at December 31, 2007.

On April 3, 2006, KSP entered into an agreement with a lending institution to borrow $80.0 million, for which KSP pledged six tugboats and six tank barges as collateral. KSP used the proceeds of these loans to repay indebtedness under its credit agreement. Borrowings are represented by six notes which have been assigned to other lending institutions. These loans bear interest at a rate equal to 30-day LIBOR plus 1.40%, and are repayable in 84 monthly installments with the remaining principal payable at maturity. The agreement contains certain prepayment premiums. Borrowings outstanding on these loans totaled $75.9 million as of June 30, 2007 and $74.0 million as of December 31, 2007. Also on April 3, 2006, KSP entered into an agreement with the lending institution to swap the one-month, LIBOR based, variable interest payments on the $80.0 million of loans for a fixed payment at a rate of 5.2275%, plus the margin, over the same terms as the loans. This swap will result in a fixed interest rate on the Notes of 6.6275% for their seven-year term.

KSP's swap contracts have been designated as cash flow hedges. Therefore, the unrealized gains and losses during fiscal 2007 and 2006 resulting from the change in fair value of the swap contract have been reflected in other comprehensive income. The fair value of the swap contracts of $0.4 million and $1.1 million as of June 30, 2007 and 2006, respectively, is included in other assets in the consolidated balance sheet, and the fair value of these contracts of negative $5.3 million has been included in other liabilities in the consolidated balance sheet as of December 31, 2007.

On December 19, 2005, one of KSP's subsidiaries entered into a seven year Canadian dollar term loan to refinance purchase of an integrated tug-barge unit. The proceeds of $13.0 million were used to repay borrowings under the amended revolving credit agreement which had been used to finance purchase of the unit. The loan bears interest at a fixed rate of 6.59%, is repayable in 84 monthly installments of CDN 136,328 with the remaining principal amount payable at maturity, and is

collateralized by the related tug-barge unit and one other tank barge. Borrowings outstanding on this loan total $13.4 million as of June 30, 2007 and $14.0 million as of December 31, 2007.

In May 2006, KSP entered into an agreement to borrow up to $23.0 million to partially finance construction of two 28,000-barrel and one 100,000-barrel tank barges. The third and final vessel was delivered, and the note termed-out, during the fourth quarter of fiscal 2007. The loan bears interest at 30-day LIBOR plus 1.40%, and is repayable, plus accrued interest, over seven years, with the remaining principal amount payable at maturity. The loan is collateralized by the related tank barges and two other tank vessels. Borrowings outstanding on this loan total $20.3 million at June 30, 2007 and $19.6 million as of December 31, 2007.

In March 2005, KSP entered into an agreement to borrow up to $11.0 million to partially finance construction of a 100,000-barrel tank barge. The loan bears interest at 30-day LIBOR plus 1.05%, and is repayable in monthly principal installments of $65,500 with the remaining principal amount payable at maturity. The loan is collateralized by the related tank barge. Borrowings outstanding on this loan totaled $9.9 million at June 30, 2007 and $9.5 million as of December 31, 2007.

In March 2005, KSP entered into a three-year term loan in the amount of $11.7 million. The loan bears interest at a fixed rate of 6.25% annually, and is repayable in monthly principal installments of $69,578, with the remaining principal amount payable at maturity. The loan is collateralized by three vessels and the proceeds were used to refinance an existing term loan. Borrowings outstanding on this loan total $9.8 million at June 30, 2007 and $9.4 million as of December 31, 2007, and is classified as a long-term liability because KSP intends to refinance it with its credit agreement.

In June 2005, KSP entered into an agreement to borrow up to $18.0 million to finance the purchase of an 80,000-barrel double-hull tank barge and construction of two 28,000-barrel double-hull tank barges. The loan bears interest at 30-day LIBOR plus 1.71%, and is repayable in monthly principal installments of $107,143 with the remaining principal amount payable at maturity. The loan is collateralized by the related tank barges. Borrowings outstanding on this loan were $16.6 million at June 30, 2007 and $16.0 million as of December 31, 2007.

KSP's Title XI Borrowings. On June 7, 2002, to provide financing for four newbuild tank vessels, KSP privately placed $40.4 million of bonds ("Title XI bonds"), which were guaranteed by the Maritime Administration of the U.S. Department of Transportation, or MARAD, pursuant to Title XI of the Merchant Marine Act of 1936. The proceeds of $39.1 million, net of certain closing fees, were deposited in a reserve account with the U.S. Department of the Treasury and used to fund construction of the related vessels. On November 29, 2005, KSP redeemed the outstanding $36.8 million principal balance of bonds, paid $0.8 million of accrued interest, and made a make-whole payment of $4.0 million as required under the trust indenture. KSP funded the redemption using funds from its revolving credit agreement. After writing off $2.7 million in unamortized deferred financing costs, and after costs and expenses relating to the transaction, KSP recorded a loss on reduction of debt of $6.9 million. Retirement of the Title XI bonds improved KSP's borrowing flexibility, and eliminated certain restrictive covenants, collateral requirements, and working capital constraints.

KSP's Restrictive Covenants. The agreements governing KSP's amended credit facility and term loans contain restrictive covenants that, among others, (a) prohibit distributions under defined events of default, (b) restrict investments and sales of assets, and (c) require us to adhere to certain financial covenants, including defined ratios of fixed charge coverage and funded debt to EBITDA (earnings before interest, taxes, depreciation and amortization, as defined).

KSP's Issuances of Common Units. On September 26, 2007, KSP sold 3,500,000 of its common units in a public offering under its shelf registration statement. The net proceeds of $132.7 million from the offering, after payment of underwriting discounts and commissions but before payment of expenses, were used to repay borrowings related to the acquisition of the Smith Maritime Group. KSP also issued

250,000 common units to the sellers of the Smith Maritime Group on August 14, 2007, as part of the purchase price. On October 14, 2005, KSP sold 950,000 of its common units in a public offering under its shelf registration statement. The net proceeds of $33.1 million from the offering, after payment of underwriting discounts and commissions but before payment of expenses, were used to repay borrowings under KSP's amended credit agreement. On October 18, 2005, KSP issued 125,000 units to the seller in connection with its acquisition of Sea Coast. On June 1, 2005, KSP issued and sold 500,000 common units in a private placement for proceeds of $16.0 million, before expenses associated with the offering. A shelf registration statement with respect to the Sea Coast issuance and the June 2005 private placement was declared effective by the Commission in February 2006.

Contractual Obligations and Contingencies. Contractual obligations at June 30, 2007 consisted of the following (in thousands):

Payments Due by Period

	Total		Less than 1 Year		2-3 Years		4-5 Years		After 5 Years
Long-term debt and capital lease obligations(1)	$	259,787	$	18,466	$	18,170	$	114,325	$	108,826
Interest on long-term debt and capital lease obligations(2)		29,729		6,379		10,747		9,186		3,417
Operating lease obligations		7,614		3,093		2,836		717		968
Purchase obligations(3)		84,825		35,304		38,521		11,000		—

	$	381,955	$	63,242	$	70,274	$	135,228	$	113,211

(1): Long-term debt and capital lease obligations includes a demand note for $15,500 of EW LLC.
(2): Interest is only on fixed rate debt. See "—Quantitative and Qualitative Disclosures About Market Risk" for a discussion of interest on variable rate debt.
(3): Capital expenditures relating to shipyard payments for the construction of three new 28,000-barrel double-hull tank barges, three new 80,000-barrel double-hull tank barges and four new 50,000-barrel double-hull tank barges.

Certain executive officers of KSP GP, KSP's general partner, have entered into employment agreements with K-Sea Transportation Inc., KSP's indirect wholly owned corporate subsidiary. Each of these employment agreements had an initial term of one year, which is automatically extended for successive one-year terms unless either party gives 30 days written notice prior to the end of the term that such party desires not to renew the employment agreement. The employment agreements currently provide for annual base salaries aggregating $930,000. In addition, each employee is eligible to receive an annual bonus award based upon consideration of KSP's partnership performance and individual performance. If the employee's employment is terminated without cause or if the employee resigns for good reason, the employee will be entitled to severance in an amount equal to the greater of (a) the product of 1.3125 (1.75 multiplied by .75) multiplied by the employee's base salary at the time of termination or resignation and (b) the product of 1.75 multiplied by the remaining term of the employee's non-competition provisions multiplied by the employee's base salary at the time of termination or resignation.

KSP is a party to various claims and lawsuits in the ordinary course of business for monetary relief arising principally from personal injuries, collision or other casualty and to claims arising under vessel charters. All of these personal injury, collision and casualty claims are fully covered by insurance, subject to deductibles ranging from $25,000 to $100,000. KSP accrues on a current basis for estimated deductibles it expects to pay.

The European Union is currently working toward a new directive for the insurance industry, called "Solvency 2", that is expected to become law within four to five years and require increases in the level of free, or unallocated, reserves required to be maintained by insurance entities, including protection and indemnity clubs that provide coverage for the maritime industry. The West of England Ship Owners Insurance Services Ltd., or WOE, a mutual insurance association based in Luxembourg, provides KSP's protection and indemnity insurance coverage and would be impacted by the new directive. In anticipation of these new regulatory requirements, the WOE has assessed its members an additional capital call which it believes will contribute to achievement of the projected required free reserve increases. KSP's capital call was $1.1 million and was paid in February 2007. A further request for capital may be made in the future; however, the amount of such further assessment, if any, cannot be reasonably estimated at this time. As a shipowner member of the WOE, KSP has an interest in the WOE's free reserves, and therefore have recorded the additional $1.1 million capital call as an investment, at cost, subject to periodic review for impairment. This amount is included in other assets in the June 30, 2007 and December 31, 2007 consolidated balance sheets.

EW Transportation Corp., a subsidiary of EW LLC, a predecessor to KSP, and many other marine transportation companies operating in New York have come under audit with respect to the New York State Petroleum Business Tax, or PBT, which is a tax on vessel fuel consumed while operating in New York State territorial waters. An industry group in which KSP and EW Transportation Corp. participate has come to a final agreement with the New York taxing authority on a calculation methodology for the PBT. Effective January 1, 2007, KSP and the other marine transportation companies began rebilling this tax to customers. For applicable periods prior to 2007, KSP accrued an estimated liability using the agreed methodology, which is currently under final audit by the New York taxing authority. In accordance with the agreements entered into in connection with our initial public offering, any liability resulting from the PBT prior to January 14, 2004 (the effective date of KSP's initial public offering) is a retained liability of EW Transportation Corp. The New York taxing authority has completed an audit of all open periods and has issued a proposed assessment which has been substantially accepted by KSP. The final liability is not materially different from the accruals previously recorded and will be paid during the quarter ended March 31, 2008.

As discussed in note 4 to our audited consolidated financial statements, one of KSP's tank barges struck submerged debris in the U.S. Gulf of Mexico in November 2005, causing significant damage which resulted in the barge eventually capsizing. At the time of the incident, the barge was carrying approximately 120,000 barrels of No. 6 fuel oil, a heavy oil product. In January 2006, submerged oil recovery operations were suspended and a monitoring program, which sought to determine if any recoverable oil could be found on the ocean floor, was begun. In February 2007, the Coast Guard agreed to end the cleanup and response phase, including KSP's obligation to conduct any further monitoring of the area around the spill site.

KSP's insurers responded to the pollution-related costs and environmental damages resulting from the incident, paying approximately $65.0 million less $60,000 in total deductibles, and are pursuing their own financial recovery efforts. In December 2007, a court made a final determination of liability in this case, resulting in a financial recovery by KSP's insurers, and also by KSP. As a result of the ruling, KSP was awarded a reimbursement of certain expenses totaling $2.1 million, which has been included in other expense (income) in the consolidated statement of operations and in prepaid expenses and other assets in the December 31, 2007 consolidated balance sheet. This amount was received in January 2008. KSP's incident response effort is complete. KSP is not aware of any further recovery, cleanup or other costs. However, if any such costs are incurred, they are expected to be paid by the insurers.

been dismissed from 38 of these lawsuits for an aggregate sum of approximately $47,000 and are seeking to settle the other case. KSP may be subject to litigation in the future involving these plaintiffs and others alleging exposure to asbestos due to alleged failure to properly encapsulate friable asbestos or remove friable asbestos on its vessels, as well as for exposure to second-hand smoke and other matters.

Inflation

During the last three years, inflation has had a relatively minor effect on KSP's financial results. KSP's contracts generally contain escalation clauses whereby certain cost increases, including labor and fuel, can be passed through to its customers.

Related Party Transactions

We share KSP's corporate office in East Brunswick, New Jersey. KSP leases its Staten Island office and pier facilities from, and charter certain vessels to, affiliates of an employee. Additionally, KSP utilizes one of these affiliates for tank cleaning services. Please read note 7 to our audited consolidated financial statements included elsewhere in this prospectus.

KSP Investors A L.P., KSP Investors B L.P., KSP Investors C L.P., EW LLC and their controlled affiliates have agreed to indemnify KSP for claims associated with certain retained liabilities. For more information regarding the indemnification obligations and other related party transactions, please read "Certain Relationships and Related Transactions."

Seasonality

KSP operates its tank vessels in markets that exhibit seasonal variations in demand and, as a result, in charter rates. For example, movements of clean oil products, such as motor fuels, generally increase during the summer driving season. In certain regions, movements of black oil products and distillates, such as heating oil, generally increase during the winter months, while movements of asphalt products generally increase in the spring through fall months. Unseasonably cold winters result in significantly higher demand for heating oil in the northeastern United States. Meanwhile, KSP's operations along the West Coast and in Alaska historically have been subject to seasonal variations in demand that vary from those exhibited in the East Coast and Gulf Coast regions. The summer driving season can increase demand for automobile fuel in all of KSP's markets and, accordingly, the demand for its services. A decline in demand for, and level of consumption of, refined petroleum products could cause demand for tank vessel capacity and charter rates to decline, which would decrease KSP's revenues and cash flows. KSP's West Coast operations provide seasonal diversification primarily as a result of service to its Alaskan markets, which experience the greatest demand for petroleum products in the summer months, due to weather conditions. Considering the above, KSP believes seasonal demand for its services is lowest during its third fiscal quarter. KSP does not see any significant seasonality in the Hawaiian market.

Critical Accounting Policies

The accounting treatment of a particular transaction is governed by generally accepted accounting principles, or GAAP, and, in certain circumstances, requires us to make estimates, judgments and assumptions that we believe are reasonable based upon information available. We base our estimates, judgments and assumptions on historical experience and known facts that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. We believe that, of our significant accounting policies discussed in note 2 to our audited consolidated financial statements, the following may involve a higher degree of judgment.

Revenue Recognition

KSP earns revenue under contracts of affreightment, voyage charters, time charters and bareboat charters. For contracts of affreightment and voyage charters, revenue is recognized based upon the relative transit time in each period, with expenses recognized as incurred. Although contracts of affreightment and certain contracts for voyage charters may be effective for a period in excess of one year, revenue is recognized over the transit time of individual voyages, which are generally less than ten days in duration. For time charters and bareboat charters, revenue is recognized ratably over the contract period, with expenses recognized as incurred. Estimated losses on contracts of affreightment and charters are accrued when such losses become evident.

Depreciation

KSP's vessels and equipment are recorded at cost, including capitalized interest where appropriate, and depreciated using the straight-line method over the estimated useful lives of the individual assets as follows: tank vessels—ten to twenty-five years; tugboats—ten to twenty years; and pier and office equipment—five years. For single-hull tank vessels, these useful lives are limited to the remaining period of operation prior to mandatory retirement as required by OPA 90. Also included in vessels are drydocking expenditures that are capitalized and amortized over three years. Major renewals and betterments of assets are capitalized and depreciated over the remaining useful lives of the assets. Maintenance and repairs that do not improve or extend the useful lives of the assets are expensed. To date, KSP's experience confirms that these policies are reasonable, although there may be events or changes in circumstances in the future that indicate the recovery of the carrying amount of a vessel might not be possible. Examples of events or changes in circumstances that could indicate that the recoverability of a vessel's carrying amount should be assessed might include a change in regulations such as OPA 90, or continued operating losses, or projections thereof, associated with a vessel or vessels. If events or changes in circumstances as set forth above indicate that a vessel's carrying amount may not be recoverable, KSP would then be required to estimate the undiscounted future cash flows expected to result from the use of the vessel and its eventual disposition. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the vessel, KSP would recognize an impairment loss to the extent the carrying value exceeds its fair value by appraisal. KSP's assumptions and estimates would include, but not be limited to, the estimated fair market value of the assets and their estimated future cash flows, which are based on additional assumptions such as asset utilization, length of service of the asset and estimated salvage values. Although KSP believes their assumptions and estimates are reasonable, deviations from the assumptions and estimates could produce a materially different result.

Amortization of Drydocking Expenditures

Drydocking expenditures are capitalized and amortized over three years. Drydocking of vessels is required by both the U.S. Coast Guard and by the applicable classification society, which in KSP's case is the American Bureau of Shipping. Such drydocking activities include, but are not limited to, the inspection, refurbishment and replacement of steel, engine components, tailshafts, mooring equipment and other parts of the vessel. Amortization of drydocking expenditures is included in depreciation and amortization expense.

Accounts Receivable

KSP extends credit to its customers in the normal course of business. KSP regularly reviews their accounts, estimate the amount of uncollectible receivables each period, and establish an allowance for uncollectible amounts. The amount of the allowance is based on the age of unpaid amounts, information about the current financial strength of customers, and other relevant information. Estimates of uncollectible amounts are revised each period, and changes are recorded in the period

they become known. Historically, credit risk with respect to KSP's trade receivables has generally been considered minimal because of the financial strength of its customers.

Deferred Income Taxes

We provide deferred taxes for the tax effects of differences between the financial reporting and tax bases of assets and liabilities at enacted tax rates in effect in the jurisdictions where we and KSP operate for the years in which the differences are expected to reverse. A valuation allowance is provided, if necessary, for deferred tax assets that are not expected to be realized.

New Accounting Pronouncements

On June 2, 2005, the FASB issued FASB Statement No. 154, "Accounting Changes and Error Corrections—a replacement of APB No. 20 and FAS No. 3" ("FAS 154"). FAS 154 replaces APB Opinion No. 20, "Accounting Changes" ("APB 20") and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements" and changes the requirements for the accounting for and reporting of a change in accounting principle. FAS 154 applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. We adopted FAS 154 as of July 1, 2006, and such adoption did not have a significant impact on our financial position, results of operations or cash flows.

On February 16, 2006 the FASB issued FASB Statement No. 155, "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140" ("FAS 155"). FAS 155 amends FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" and FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." We adopted FAS 155 as of July 1, 2007, and such adoption had no impact on our financial position, results of operations or cash flows.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes." FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We adopted FIN 48 as of July 1, 2007, and such adoption had no impact on our financial position, results of operations or cash flows.

At the date of the adoption, there were no unrecognized tax benefits and consequently no related interest and penalties. The significant jurisdictions in which we file tax returns and are subject to tax include New York, Venezuela and Puerto Rico. The significant jurisdictions in which our corporate subsidiaries file tax returns and are subject to tax include the United States and Canada. The tax returns filed in the United States and state jurisdictions are subject to examination for the years 2004 through 2007 and in foreign jurisdictions for the years 2005 through 2007. We have adopted a policy to record tax related interest and penalties under interest expense and general and administrative expenses, respectively.

In September 2006, the FASB issued FASB Statement No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. FAS 157 applies under other accounting pronouncements that require or permit fair value measurements.

FAS 157 is effective for fiscal years beginning after November 15, 2007, and we are currently analyzing its impact, if any.

In December 2007, the FASB issued FASB Statement No. 141 (revised 2007), "Business Combinations" ("FAS 141(R)") which replaces FAS No.141, "Business Combinations". FAS 141(R) retains the underlying concepts of FAS 141 in that all business combinations are still required to be accounted for at fair value under the purchase method of accounting, but FAS 141(R) changed the method of applying the purchase method in a number of significant aspects. FAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first fiscal year subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. FAS 141(R) amends FAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of FAS 141(R) would also apply the provisions of FAS 141(R). We are currently analyzing its impact, if any.

In December 2007, the FASB issued FASB Statement No. 160, "Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB 51" ("FAS 160"). FAS 160 amends ARB 51 to establish new standards that will govern the accounting for and reporting of (1) non-controlling interest in partially owned consolidated subsidiaries and (2) the loss of control of subsidiaries. FAS 160 is effective on a prospective basis for all fiscal years, and interim periods within those fiscal years beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which will be applied retrospectively. We are currently analyzing its impact, if any.

Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk is the potential impact of changes in interest rates on our variable rate borrowings. After considering the interest rate swap agreements discussed below, as of December 31, 2007 approximately $229.4 million of our debt, all debt of KSP, bore interest at fixed interest rates ranging from 5.26% to 6.81%. EW LLC's demand loan, borrowings under KSP revolving credit agreement, and certain other KSP debt totaling $136.1 million at December 31, 2007, bore interest at a floating rate based on LIBOR, which subjected us to increases or decreases in interest expense resulting from movements in that rate. Based on our total outstanding floating rate debt as of December 31, 2007, the impact of a 1% change in interest rates would result in a change in interest expense, and a corresponding impact on income before income taxes, of approximately $1.4 million annually.

As of December 31, 2007, KSP had six outstanding interest rate swap agreements that expire over the periods from 2012 to 2018, concurrently with the hedged loans. As of December 31, 2007, the notional amount of the swaps was $200.9 million, KSP was paying a weighted average fixed rate of 5.92%, and KSP was receiving a weighted average variable rate of 6.36%. The primary objective of these contracts is to reduce the aggregate risk of higher interest costs associated with variable rate debt. The interest rate swap contracts KSP holds have been designated as cash flow hedges and, accordingly, gains and losses resulting from changes in the fair value of these contracts are recognized as other comprehensive income. KSP is exposed to credit related losses in the event of non-performance by counterparties to these instruments; however, the counterparties are major financial institutions and KSP considers such risk of loss to be minimal. KSP does not hold or issue derivative financial instruments for trading purposes.

OUR BUSINESS

General

Upon completion of this offering, we will own:

•: 100% of the incentive distribution rights in KSP, which we hold through our 100% ownership interest in KSP GP;
•: 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP; and
•: all of the 1.5% general partner interest in KSP, which we hold through our 100% ownership interest in KSP GP.

Our Strategy

Our primary business objective is to increase our cash distributions to our unitholders through our ownership of KSP. KSP's primary business objective is to increase distributable cash flow per unit by:

•: expanding its fleet through newbuildings and accretive and strategic acquisitions;
•: maximizing fleet utilization and improving productivity;
•: maintaining safe, low-cost and efficient operations;
•: balancing its fleet deployment between longer-term contracts and shorter-term business in an effort to provide stable cash flows through business cycles, while preserving flexibility to respond to changing market conditions; and
•: attracting and maintaining customers by adhering to high standards of performance, reliability and safety.

We may facilitate KSP in the implementation of its business strategy through the use of our capital resources, which could involve capital contributions, loans or other forms of financial support.

Our Interest in KSP

Our ownership of 100% of KSP's incentive distribution rights entitles us to receive the following increasing percentages of cash distributed by KSP:

•: 13% of all incremental cash distributed in a quarter after $0.55 has been distributed in respect of each common unit and subordinated unit of KSP for that quarter;
•: 23% of all incremental cash distributed after $0.625 has been distributed in respect of each common unit and subordinated unit of KSP for that quarter; and
•: the maximum sharing level of 48% of all incremental cash distributed after $0.75 has been distributed in respect of each common unit and subordinated unit of KSP for that quarter.

Since 2004, KSP has increased its quarterly cash distribution for the last 11 consecutive quarters, and 13 times since its initial public offering in 2004, from $0.50 per common unit ($2.00 on an annualized basis) to $0.74 per common unit ($2.96 on an annualized basis), which is the most recently paid distribution. The distribution of $0.74 per limited partner unit paid by KSP for the quarter ended December 31, 2007 entitles us to receive 23% of the cash distribution from KSP in excess of its target

distribution level of $0.625 per common unit, which, in addition to the distributions we receive in respect of our common and subordinated units and general partner units, collectively comprises 35% of the cash distributed by KSP in respect of that quarter.

As KSP has increased the quarterly cash distribution paid on its units, the target cash distribution levels described above have been exceeded, thereby increasing the amounts paid by KSP to its general partner as the owner of KSP's incentive distribution rights. As a consequence, our cash distributions from KSP that are based on our ownership of the incentive distribution rights have increased more rapidly than distributions based on our other ownership of interests in KSP. Any further increases in the quarterly cash distributions above $0.75 per unit from KSP would entitle us to receive 48% of such excess and would have the effect of disproportionately increasing the amount of all distributions that we receive from KSP based on our ownership interest in the incentive distribution rights in KSP.

KSP Distribution Growth

The following graph shows hypothetical cash distributions payable to us with respect to our partnership interests in KSP, including the incentive distribution rights, the general partner interest and the limited partner interests, across a range of hypothetical annualized distributions made by KSP. This information assumes:

•: KSP has a total of 13,713,450 limited partner units outstanding, consisting of 11,630,950 common units and 2,082,500 subordinated units; and

•

our ownership of:

•: 100% of the incentive distribution rights in KSP;
•: 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP; and
•: all of the 1.5% general partner interest in KSP.

The graph also illustrates the impact to us of KSP raising or lowering its quarterly cash distribution from the most recently paid distribution of $0.74 per common unit ($2.96 on an annualized basis), which was paid on February 14, 2008 with respect to the quarter ended December 31, 2007. This information is presented for illustrative purposes only. This information is not intended to be a prediction of future performance and does not attempt to illustrate the impact of changes in our or KSP's business, including changes that may result from changes in interest rates and general economic conditions, or the impact of any acquisition or, expansion projects, divestitures or issuance of additional units or debt.

Hypothetical Annualized Distributions

The impact to us of changes in KSP's cash distribution levels will vary depending on several factors, including the impact of the incentive distribution rights structure. In addition, the level of cash distributions we receive may be affected by risks associated with the underlying business of KSP. Please read "Risk Factors."

If KSP is successful in implementing its business strategies and increasing distributions to its partners, we generally would expect to increase distributions to our unitholders, although the timing and amount of any such increase in our distributions will not necessarily be comparable to any increase in KSP's distributions. We cannot assure you that any distributions will be declared or paid by KSP. Please read "Our Cash Distribution Policy and Restrictions on Distributions" and "Risk Factors."

KSP's cash distributions to us will vary depending on several factors, including KSP's total outstanding partnership interests on the record date for the distribution, the per unit distribution and our relative ownership of KSP's partnership interests.

It is not likely that our common units and KSP's common units will trade in simple relation or proportion to one another. Instead, while the trading prices of our common units and KSP's common

units are likely to follow generally similar broad trends, the trading prices may diverge because, among other things:

•: with respect to KSP's distributions, KSP's common unitholders have a priority over our incentive distribution rights in KSP;
•: we participate in KSP's general partner's distributions and the incentive distribution rights, and KSP's common unitholders do not; and
•: we may enter into other businesses separate from KSP or any of its affiliates.

Please read "Comparison of Rights of Holders of KSP's Common Units and Our Common Units" for a summary comparison of certain features of KSP's common units and our common units.

How Our Partnership Agreement Terms Differ from Those of Other Publicly Traded Partnerships

Although we are organized as a limited partnership, the terms of our partnership agreement differ from those of KSP and many other publicly traded partnerships. For example:

•: Our general partner is not entitled to incentive distributions. Most publicly traded partnerships have incentive distribution rights that entitle the general partner to receive increasing percentages, commonly up to 50%, of the cash distributed in excess of a certain per unit distribution.
•: We do not have subordinated units. Most publicly traded partnerships initially have subordinated units that (1) do not receive distributions in a quarter until all common units receive the minimum quarterly distribution plus arrearages and (2) convert to common units upon meeting certain financial tests.
•: Our general partner is not required to make additional capital contributions to us in connection with additional issuances of units by us because it has no economic interest in us. Most general partners of publicly traded partnerships have a 2% general partner interest and are required to or have the option to make additional capital contributions to the partnership in order to maintain their percentage general partner interest upon issuance of additional partnership interests by the partnership.

You should read the summaries in "Description of Our Common Units" and "Description of Our Partnership Agreement," as well as Appendix A—Form of Agreement of Limited Partnership of K-Sea GP Holdings LP, for a more complete description of the terms of our partnership agreement.

Legal Proceedings

EW LLC and its predecessors have been named, together with a large number of other companies, as co-defendants in 39 civil actions by various parties, including former employees, alleging unspecified damages from past exposure to asbestos and second-hand smoke aboard some of the vessels that it contributed to us in connection with our initial public offering. EW LLC and its predecessors have been dismissed from 38 of these lawsuits for an aggregate sum of approximately $47,000, and are seeking to settle the other case. We may be subject to litigation in the future from these plaintiffs and others alleging exposure to asbestos due to alleged failure to properly encapsulate or remove friable asbestos on our vessels, as well as for exposure to second-hand smoke and other matters. For a related discussion of insurance coverage, please read "Business of K-Sea Transportation Partners L.P.—Insurance Program."

For a discussion of legal proceedings related to KSP, please read "Business of K-Sea Transportation Partners L.P.—Legal Proceedings."

BUSINESS OF K-SEA TRANSPORTATION PARTNERS L.P.

KSP is a leading provider of marine transportation, distribution and logistics services for refined petroleum products in the United States. KSP currently operates a fleet of 73 tank barges, one tanker and 59 tugboats that serves a wide range of customers, including major oil companies, oil traders and refiners. With approximately 4.3 million barrels of capacity, KSP believes it owns and operates the largest coastwise tank barge fleet in the United States.

KSP believes it has a high-quality, well-maintained fleet. Approximately 74% of its current barrel-carrying capacity is double-hulled. Furthermore, KSP will be permitted to continue to operate its single-hull tank vessels until January 1, 2015 in compliance with OPA 90, which mandates the phase-out of all single-hull tank vessels transporting petroleum and petroleum products in U.S. waters. All of KSP's tank vessels except two operate under the U.S. flag, and all but four are qualified to transport cargo between U.S. ports under the Jones Act, the federal statutes that restrict foreign owners from operating in the U.S. maritime transportation industry.

Growth of KSP

KSP's predecessor company, Eklof Marine Corp., was founded in 1959. Following the acquisition of Eklof in April 1999, KSP implemented an expansion plan fuelled by acquisitions and newbuilding programs. In April 1999, KSP owned 24 tank barges, 6 tankers and 8 tugboats with a total barrel-carrying capacity of approximately 1.1 million barrels. From April 1999 through December 2003, KSP acquired 18 tank vessels in 9 separate transactions, increasing the total barrel-carrying capacity of its fleet, net of vessel sales and retirements to approximately 2.3 million barrels. A majority of this capacity increase resulted from KSP's acquisition of vessels from Maritrans, which included 8 tugboats and 10 barges with a combined carrying capacity of nearly one million barrels, located predominately in the Northeast.

Significant acquisitions since KSP's initial public offering include:

•: In January 2004, KSP purchased a 140,000 barrel barge and a tugboat from SeaRiver Maritime, Inc., a subsidiary of ExxonMobil.
•: In December 2004, KSP acquired 10 tank barges and seven tugboats from Bay Gulf Trading of Norfolk, Virginia, representing a combined total barrel-carrying capacity of 255,000 barrels.
•: In October 2005, KSP acquired 15 tank barges and 15 tugboats through its acquisition of Sea Coast Towing, Inc., thereby increasing its barrel-carrying capacity by 705,000 barrels and providing it with an attractive entry point into the complementary markets of the Pacific Northwest and Alaska.

•: In August 2007, KSP acquired 11 tank barges and 14 tugboats with a combined capacity of 777,000 barrels through its acquisition of the Smith Maritime Group.

Since January 2004, KSP has also purchased four existing tank barges with a combined capacity of 328,000 barrels in separate transactions and nine existing tugboats. In October 2007, KSP entered into an agreement with a shipyard to construct a 185,000-barrel articulated tug-barge unit, which is expected to be delivered in the fourth quarter of calendar 2009. The shipyard agreement includes an option to build a second unit of similar design and cost. KSP has an agreement for a long-term charter for a 185,000-barrel articulated tug-barge unit with a major customer that is expected to commence upon delivery. KSP has a vessel newbuilding program for nine additional tank barges totaling 568,000 barrels of capacity. These tank barges are expected to be delivered periodically between the third quarter of fiscal 2008 and the second quarter of fiscal 2011. KSP has firm commitments with its customers for 368,000 barrels of this capacity and expects to be able to employ the remaining capacity upon its delivery. As a result of its expansion program, KSP's total barrel-carrying capacity, net of vessel sales and retirements, is expected to increase to between 4.6 million and 4.8 million by 2010, roughly double the size of its fleet at its initial public offering and four times its size in 1999.

The following table sets forth certain financial and operating data for KSP for the year ended June 30, 2004 as compared to pro forma information for the year ended June 30, 2007.

(Dollars in millions)

		June 30, 2004		Pro Forma June 30, 2007(1)		% Change
*Operating Data*
Number of Barges			34		71	108.8	%
Number of Tankers			2		1	(50.0	)%

Total Fleet			36		72	100	%
Total Carrying Capacity (mm bbls)			2,410		4,240	75.9	%
Number of Tugboats			19		58	205.3	%
*Financial Data*
	Revenues	$	95.8	$	283.5	195.9	%
	Net Voyage Revenue(4)		77.6		216.2	178.6	%
	Net Income(2)		21.2		17.8	(16.0	)%
	EBITDA(3)(4)		29.4		93.7	218.7	%

(1): Pro forma for acquisition of the Smith Maritime Group.
(2): Includes a non cash tax benefit of $17.6 million for fiscal 2004 attributable to a reduction in deferred taxes resulting from the change in income tax status of the assets and liabilities constituting the business of KSP's predecessor that were transferred at the date of KSP's initial public offering.
(3): EBITDA has been reduced by a net loss on reduction of debt of $3.2 million for the year ended June 30, 2004.
(4): The following table presents a reconciliation on the non-GAAP financials measures of net voyage revenue and EBITDA to the most directly comparable GAAP financial measures for each of the periods indicated. For an explanation of EBITDA and Net voyage revenue, please read

"Prospectus Summary—Non-GAAP Financial Measures" (Adjusted EBITDA excludes non-controlling interest).

		Year Ended June 30, 2004			Pro-forma Year Ended June 30, 2007(1)
		(in millions)
Reconciliation of "Net voyage revenue" to "Voyage Revenue"
Voyage revenue		$	93.9		$	267.9
Voyage expenses			16.3			51.7

Net voyage revenue		$	77.6		$	216.2

Reconciliation of "EBITDA" to "Net Income"
Net income		$	21.2		$	17.8
	Interest expense, net		6.4			29.4
	Depreciation and amortization		18.6			45.6
	Provision for income taxes		(16.8	)		0.9

EBITDA		$	29.4		$	93.7

Reconciliation of "EBITDA" to "Net Cash provided by operating activities"
Net cash provided by operating activities		$	10.9
	Payment of drydocking expenditures		7.0
	Interest paid		5.3
	Income taxes paid		—
	(Increase) decrease in operating working capital		2.7
	Other, net		(4.7	)

EBITDA		$	21.20

Competitive Strengths

KSP's competitive strengths include:

•: A large, versatile fleet that enables KSP to maximize utilization and provide comprehensive customer service. KSP has a large and versatile tank vessel fleet of 73 tank barges, one tanker and 59 tugboats. KSP believes that its tank vessel fleet, with over 4.3 million barrels of carrying capacity, is the largest coastwise tank barge fleet in the United States, as measured by barrel-carrying capacity. Many of KSP's tank vessels can be transitioned between clean and black oil products and among geographic locations with relative ease, giving KSP the flexibility and efficiency to allocate the right vessel for the right cargo assignment on a timely basis. This flexibility allows KSP to reduce its waiting time between charter assignments and to provide comprehensive and efficient customer service.
•: A significant percentage of double-hulled tank vessels in relation to the industry average, which should benefit KSP given the projected decrease in tank vessel capacity due to OPA 90. As of December 31, 2007, approximately 74% of KSP's barrel-carrying capacity was double-hulled. Without a meaningful increase in new tank vessel construction or retrofittings of existing tank vessels, KSP believes there will be a decrease in tank vessel supply due to OPA 90.
•: A reputation for high standards of performance, reliability and safety, which fosters long-term customer relationships with major oil companies, oil traders and refiners. KSP has actively developed and maintained relationships with major oil companies, oil traders and refiners. KSP has been doing business with BP, Chevron, ConocoPhillips, ExxonMobil and Rio Energy for 34,

18, 11, 11 and 9 years, respectively. KSP believes its customers place significant importance on its established reputation for high standards of performance, reliability and safety.

•: A proven track record of successfully acquiring and integrating vessels and businesses. From April 30, 1999 through December 31, 2007, KSP acquired 61 tank vessels which increased the total barrel-carrying capacity of KSP's fleet, net of vessel sales and retirements, from approximately 1.1 million barrels to approximately 4.3 million barrels. Over the same period, KSP increased the net utilization of the tank vessels KSP operates from 79% to 86%.
•: The financial flexibility to pursue acquisitions and other expansion opportunities through the issuance of additional common units and borrowings under KSP's revolving credit agreement. As of December 31, 2007, KSP had approximately $19.7 million available for working capital purposes and internal growth and acquisitions under KSP's revolving credit agreement. Under certain conditions, KSP has the right to increase its borrowing capacity under the revolving credit agreement by up to $75 million. KSP believes the borrowings available under its credit agreement and its ability to issue additional debt or equity securities should provide it with financial flexibility to enable it to pursue expansion and acquisition opportunities.
•: A management team with extensive industry experience. Members of KSP's management team have, on average, more than 20 years of experience in the maritime transportation industry. Further, members of KSP's management team have been employed by KSP or one of KSP's predecessors, on average, for approximately 12 years. KSP's management team has a successful track record of achieving internal growth and completing acquisitions. KSP believes its management team's experience and familiarity with its industry and businesses are important assets that will assist it in implementing its business strategies and pursuing its growth strategies.

Business Strategies

KSP's primary business objective is to increase distributable cash flow per unit by executing the following strategies:

•: Expanding its fleet through newbuildings and accretive and strategic acquisitions. KSP has grown successfully in the past through newbuildings and strategic acquisitions. KSP expects to continue this strategy by regularly surveying the marketplace to identify and pursue newbuilding opportunities and acquisitions that expand the services and products KSP offers or KSP's geographic presence. Since KSP's initial public offering in January 2004, KSP has grown its fleet barrel-carrying capacity from 2.3 million barrels to 4.3 million barrels currently, and it has an additional 753,000 barrels of capacity under construction.
•: Maximizing fleet utilization and improving productivity. The interchangeability of KSP's tank vessels and the critical mass of KSP's fleet give KSP the flexibility to allocate the right vessel for the right cargo assignment on a timely basis. KSP intends to continue improving its operational efficiency through the use of new technology and comprehensive training programs for new and existing employees. KSP also intends to minimize down time by emphasizing efficient scheduling and timely completion of planned and preventative maintenance.
•: Maintaining safe, low-cost and efficient operations. KSP believes it is a cost-efficient and reliable tank vessel operator. KSP intends to continue to reduce operating costs through constant evaluation of each vessel's performance and concurrent adjustment of operating and chartering procedures to maximize each vessel's safety and profitability. KSP also intends to continue to minimize costs through an active preventative maintenance program both on-shore and at sea, employing qualified officers and crew and continually training its personnel to ensure safe and reliable vessel operations.

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•: Balancing fleet deployment between longer-term contracts and shorter-term business in an effort to provide stable cash flows through business cycles, while preserving flexibility to respond to changing market conditions. During fiscal 2007, KSP derived approximately 79% of its revenue from time charters, consecutive voyage charters, contracts of affreightment and bareboat charters, all of which are generally for periods of one year or more. KSP derived the remaining 21% of its revenue for fiscal 2007 from single voyage charters, which are generally priced at prevailing market rates. Vessels operating under voyage charters may generate increased profit margins during periods of improved charter rates, while vessels operating on time charters generally provide more predictable cash flow. KSP intends to pursue a strategy of emphasizing longer-term contracts, while preserving operational flexibility to take advantage of changing market conditions.
•: Attracting and maintaining customers by adhering to high standards of performance, reliability and safety. Customers place particular emphasis on efficient operations and strong environmental and safety records. KSP intends to continue building on KSP's reputation for maintaining high standards of performance, reliability and safety, which KSP believes will enable it to attract increasingly selective customers.

KSP's Industry

Introduction

Among the laws governing the domestic tank vessel industry is the one commonly referred to as the Jones Act, the federal statute that restricts foreign competition in the U.S. marine transportation industry. Under the Jones Act, marine transportation of cargo between points in the United States, generally known as U.S. coastwise trade, is limited to U.S.-flag vessels that were built in the United States and are owned, manned and operated by U.S. citizens. All of our tank vessels except two operate under the U.S. flag, and all but four are qualified to transport cargo between U.S. ports under the Jones Act.

OPA 90 mandates, among other things, the phase-out of all single-hull tank vessels transporting petroleum and petroleum products in U.S. waters at varying times by January 1, 2015. The effect of this legislation has been, and is expected to continue to be, the replacement of domestic single-hull tank vessel capacity with newbuildings and retrofitting of existing single-hull tank vessels.

Demand for Domestic Tank Vessel Service

The demand for domestic tank vessels is driven primarily by U.S. demand for refined petroleum products, which can be categorized as either clean oil products or black oil products. Clean oil products include motor gasoline, diesel fuel, heating oil, jet fuel and kerosene. Black oil products, which are what remain after clean oil products have been separated from crude oil, include residual fuel oil in the refining process, asphalt, petrochemical feedstocks and bunker fuel. The demand for clean oil products is impacted by vehicle usage, air travel and prevailing weather conditions, while demand for black oil products varies depending on the type of product transported and other factors, such as oil refinery requirements and turnarounds, asphalt use, the use of residual fuel oil by electric utilities and bunker fuel consumption.

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The Energy Information Administration, or EIA, projects that refined petroleum product consumption in the United States will increase by an average of approximately 1.09% per year from 2006 to 2015. The U.S. demand for refined petroleum products has grown at an average annual rate of 1.06% from 1998 to 2006. In 2006, the East and West Coast regions consumed 6.2 million and 3.2 million barrels of refined petroleum products per day, respectively, or 30.14% and 15.55%, respectively, of the total average daily consumption of refined petroleum products in the United States. The following table shows the average daily demand for refined petroleum products in each region of the United States since 1998:

Average Daily Demand of Refined Petroleum Products

	1998	% of Total		1999	% of Total		2000	% of Total		2001	% of Total
East Coast	5,733	30	%	5,818	30	%	5,868	30	%	5,916	30	%
Midwest	4,820	25	%	4,995	26	%	4,971	25	%	4,913	25	%
Gulf Coast	4,911	26	%	5,217	27	%	5,288	27	%	5,189	26	%
Rockies	585	3	%	629	3	%	655	3	%	639	3	%
West Coast	2,868	15	%	2,861	15	%	2,919	15	%	2,991	15	%

Total	18,917	100	%	19,520	100	%	19,701	100	%	19,648	100	%

	2002	% of Total		2003	% of Total		2004	% of Total		2005	% of Total		200 6	% of Total
East Coast	5,869	30	%	6,253	31	%	6,435	31	%	6,545	31	%	6,206	30	%
Midwest	4,989	25	%	5,034	25	%	5,175	25	%	5,285	25	%	5,214	25	%
Gulf Coast	5,198	26	%	5,041	25	%	5,336	26	%	5,167	25	%	5,315	26	%
Rockies	648	3	%	656	3	%	686	3	%	643	3	%	651	3	%
West Coast	3,057	15	%	3,049	15	%	3,098	15	%	3,162	15	%	3,202	16	%

Total	19,761	100	%	20,033	100	%	20,730	100	%	20,802	100	%	20,588	100	%

Source: EIA, Petroleum Supply Annual 1998-2006.

The demand for clean oil products is impacted by vehicle usage, air travel and prevailing weather conditions, while demand for black oil products varies depending on the type of product transported and other factors, such as oil refinery requirements and turnarounds, asphalt use, the use of residual fuel oil by electric utilities and bunker fuel consumption.

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Transportation of Refined Petroleum Products

Refined petroleum products are transported by pipelines, water carriers, motor carriers and railroads. In 2004, these modes of transportation carried refined petroleum products 528.4 billion ton-miles. The following chart shows the relative contribution by each mode of transportation:

Transportation of Petroleum Products by Mode
(Based on billions of ton-miles, 2004)

Source: Association of Oil Pipe Lines, Pipelines and Water Carriers Continue to Lead All Other Modes of Transport in Ton-Miles Movement of Oil in 2004 (June 2006)

Tank vessels are used frequently to continue the transportation of refined petroleum products along the distribution chain after these products have first been transported by another method of transportation, such as a pipeline. For example, many areas have access to refined petroleum products only by using marine transportation as the last link in their distribution chain. In addition, tank vessel transportation is generally a more cost-effective and energy efficient means of transporting bulk commodities such as refined petroleum products than transportation by rail car or truck. The carrying capacity of a 100,000-barrel tank barge is the equivalent of approximately 162 average-size rail tank cars and approximately 439 average-size tractor trailer tank trucks.

Types of Tank Vessels

The domestic tank vessel fleet consists of tankers, which have internal propulsion systems, and tank barges, which do not have internal propulsion systems and are instead pushed or towed by a tugboat. Tank barges generally move at slower speeds than comparably sized tankers, but are less expensive to build and operate. Although tank barge configuration varies, the bow and stern of most tank barges are square or sloped, with the stern of many tank barges having a notch of varying depth to permit pushing by a tug. While a larger tank vessel may be able to carry more cargo, some voyages require a tank vessel to go through a lock, bridge opening or narrow waterway, which limit the size of vessels that may be used. In addition, some loading and discharge facilities have physical limitations that prevent larger tank vessels from loading or discharging their cargo. Tank barges are often able to navigate the shallower waters of the inland waterway system and the waters along the coast. Tankers, however, are often confined to the deeper waters offshore due to their size.

Tank vessels can be categorized by:

•: Barrel-carrying Capacity—the number of barrels of refined product that it takes to fill a vessel;
•: Gross Tonnage—the total volume capacity of the interior space of a vessel, including non-cargo space, using a convention of 100 cubic feet per gross ton;

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•: Net Tonnage—the volume capacity of a vessel determined by subtracting the engine room, crew quarters, stores and navigation space from the gross tonnage using a convention of 100 cubic feet per net ton;
•: Deadweight Tonnage—the number of long-tons (2,240 pounds) of cargo that a vessel can transport. A deadweight ton is equivalent to approximately 6.5 to 7.5 barrels of capacity, depending on the specific gravity of the cargo. In this prospectus, we have assumed that a deadweight ton is equivalent to 7.0 barrels of capacity;
•: Hull Type—the body or framework of a vessel. Vessels can have more than one hull, which means they have additional compartments between the cargo and the outside of the vessel. Typical vessels are single- or double-hulled; and
•: Cargo—the type of commodity transported.

Tank vessels can also be categorized into the following fleets based on the primary waterway system typically navigated by the vessel:

•

Coastwise Fleet. The term coastwise fleet generally refers to commercial vessels that transport goods in the following areas:

•: along the Atlantic, Gulf and Pacific coasts;
•: between the U.S. mainland and Puerto Rico, Alaska, Hawaii and other U.S. Pacific Islands; and
•: between the Atlantic or Gulf and Pacific coasts by way of the Panama Canal.

•

Inland Waterways Fleet. The term inland waterways fleet generally refers to commercial vessels that transport goods on the navigable internal waterways of the Atlantic, Gulf and Pacific Coasts, and the Mississippi River System. The main arteries of the inland waterways network for the mid-continent are the Mississippi and the Ohio Rivers. The inland waterways fleet consists primarily of tugboats and tank barges, which typically have a shallower depth, and are generally less costly, than many tank barges operating in the coastwise fleet. The vessels comprising the inland waterways fleet are generally not built to standards required for operation in coastal waters.

•

Great Lakes Fleet. The term Great Lakes fleet generally refers to commercial vessels normally navigating the waters among the U.S. Great Lakes ports and connecting waterways.

Tugboats

Tugboats are equipped to push, pull or tow tank barges alongside. The amount of horsepower required to handle a barge depends on a number of factors, including the size of the barge, the amount of product loaded, weather conditions and the waterways navigated. A typical tug is manned by six people: a captain, a mate, an engineer, an assistant engineer and two deckhands. These individuals perform the duties and tasks required to operate the tug, such as standing navigational watches, maintaining and repairing machinery, rigging and line-handling, and painting and other routine maintenance. A standard work schedule for a tugboat crew is 14 days on, 14 days off. While on duty, the crew members generally work two six-hour shifts each day.

Integrated Tug-Barge Units

Tugboats can also be integrated into a barge utilizing a notching system that connects the two vessels. An integrated tug-barge unit, or ITB, has certain advantages over other tug-barge combinations, including higher speed and better maneuverability. In addition, an ITB can operate in certain sea and weather conditions in which conventional tug-barge combinations cannot.

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KSP's Customers

KSP provides marine transportation services primarily to major oil companies, oil traders and refiners in the East, West and Gulf Coast regions of the United States. KSP monitors the supply and distribution patterns of its actual and prospective customers and focuses its efforts on providing services that are responsive to the current and future needs of these customers.

The following chart sets forth KSP's major customers and the number of years each of them has been a customer.

Major Customers

Major Customers		Years as Customer
BP		34
Chevron		18
ConocoPhillips		11
ExxonMobil		11
Rio Energy		9

KSP's two largest customers in fiscal 2007, were ExxonMobil and ConocoPhillips, each of which accounted for more than 10% of its fiscal 2007 consolidated revenue.

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KSP's Vessels

Tank Vessel Fleet

At December 31, 2007, KSP's fleet consisted of the following tank vessels:

K-Sea Transportation Partners L.P. Tank Vessel Fleet

Vessel(1)			Year Built	Capacity (barrels)	Gross Tons	OPA 90 Phase-Out
*Double-Hull Barges*
	DBL 155(2)		2004	165,882	12,152	N.A.
	DBL 151		1981	150,000	8,710	N.A.
	DBL 140		2000	140,000	10,303	N.A.
	DBL 134(3)		1994	134,000	9,514	N.A.
	DBL 105(4)		2004	105,000	11,438	N.A.
	DBL 101		2002	102,000	6,774	N.A.
	DBL 102		2004	102,000	6,774	N.A.
	DBL 103		2006	102,000	6,774	N.A.
	DBL 104		2007	102,000	6,774	N.A.
	Casablanca(5)		1987	89,293	5,736	N.A.
	Lemon Creek(5)		1987	89,293	5,736	N.A.
	Spring Creek(5)		1987	89,293	5,736	N.A.
	Nale(*)		2007	86,000	6,508	N.A.
	McCleary's Spirit(6)		1969	85,000	6,554	N.A.
	Antares(*)		2004	84,000	5,855	N.A.
	Deneb(*)		2006	84,000	5,855	N.A.
	DBL 81		2003	82,000	5,667	N.A.
	DBL 82		2003	82,000	5,667	N.A.
	Capella(*)(7)		2002	81,751	5,159	N.A.
	Leo(*)		2003	81,540	5,954	N.A.
	Pacific		1993	81,000	5,669	N.A.
	Rigel(*)		1993	80,861	5,669	N.A.
	Sasanoa		2001	81,000	5,790	N.A.
	DBL 78		2000	80,000	5,559	N.A.
	DBL 70		1972	73,024	5,248	N.A.
	Kays Point(7)		1999	67,000	4,720	N.A.
	Noa(*)		2002	67,000	4,826	N.A.
	Cascades(7)		1993	67,000	4,721	N.A.
	Columbia		1993	58,000	4,286	N.A.
	Na-Kao(*)		2005	52,000	4,076	N.A.
	Ne'ena(*)		2004	52,000	4,076	N.A.
	DBL 53		1965	53,000	4,543	N.A.
	DBL 31		1999	30,000	2,146	N.A.
	DBL 32		1999	30,000	2,146	N.A.
	DBL 28		2006	28,000	2,146	N.A.
	DBL 29		2006	28,000	2,146	N.A.
	DBL 26		2006	28,000	2,146	N.A.
	DBL 27		2007	28,000	2,146	N.A.
	DBL 22		2007	28,000	2,146	N.A.
	DBL 23		2007	28,000	2,146	N.A.
	DBL 24		2007	28,000	2,146	N.A.
	Puget Sounder		1992	25,000	1,870	N.A.
	DBL 2202		1962	22,000	1,830	N.A.
	DBL 16		1954	20,000	1,420	N.A.
	DBL 19		1998	18,000	1,499	N.A.
	DBL 18		1998	18,000	1,499	N.A.
	DBL 17		1998	18,000	1,499	N.A.

		Subtotal		3,225,937	231,754

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*Single-Hull Tanker*
	Great Gull		1969	30,000	1,729	2015
*Single-Hull Barges*
	KTC 80		1981	82,878	4,576	2015
	KTC 71		1975	81,759	4,719	2015
	BB 110(7)		1976	78,000	4,754	2015
	SCT 340		1983	75,000	4,395	2015
	344(7)		1984	75,000	5,214	2015
	Noho Hele(*)		1982	67,880	4,185	2015
	KTC 60		1980	61,638	3,824	2015
	KTC 55		1972	53,012	3,113	2015
	KTC 50		1974	54,716	3,367	2015
	SCT 280		1977	48,000	3,081	2015
	SCT 282		1978	48,000	3,081	2015
	Hui Mana(*)(7)		1988	40,000	2,299	2015
	Essex		1967	35,160	2,307	2015
	DBL 3201		1968	31,000	2,033	2015
	KTC 30		1960	30,000	1,807	2015
	Wallabout Bay		1986	28,330	1,687	2015
	Newark Bay		1969	27,390	1,595	2015
	PM 230(7)		1983	25,000	1,610	2015
	KTC 21		1961	20,000	1,214	2015
	KTC 20		1980	20,000	1,065	2015
	American 21		1968	19,500	1,262	2015
	Oyster Bay		1951	19,370	1,278	2015
	SCT 180		1980	16,250	1,053	2015
	Josiah Bartlett		1955	14,000	1,287	2015
	SEA 76		1969	13,313	830	2015
	KTC 14		1941	13,000	820	2015

		Subtotal		1,108,196	68,185

		Total Fleet		4,334,133	299,939

(*): Acquired in the Smith Maritime Group acquisition on August 14, 2007.
(1): Excludes one potable water barge and one deck barge which we also operate.
(2): Built in 1974; double-hulling was completed and the vessel redelivered in September 2004.
(3): Built in 1986 and rebuilt in 1994.
(4): Built in 1982 and rebuilt for petroleum transportation in 2004.
(5): Vessel not qualified for Jones Act trade due to foreign construction.
(6): Built in 1969 and rebuilt in 2001.
(7): Chartered-in vessel.

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Newbuildings

The following sets forth the size and expected delivery date for vessels in KSP's newbuilding program:

Vessels		Expected Delivery
One 28,000-barrel tank barge		3^rd Quarter fiscal 2008
Three 80,000-barrel tank barges		4^th Quarter fiscal 2008—1^st Quarter fiscal 2009
Four 50,000-barrel tank barges		2^nd Quarter fiscal 2010—2^nd Quarter fiscal 2011
One 185,000-barrel articulated tug-barge unit		2^nd Quarter fiscal 2010
One 100,000-barrel tank barge		2^nd Quarter fiscal 2010

The total cost of the barges described above, in the aggregate and after the addition of certain special equipment, is approximately $175.0 million, of which approximately $30.2 million has been spent as of December 31, 2007. For more information on KSP's newbuilding program, please read "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Ongoing Capital Expenditures."

Tugboat Fleet

KSP uses tugboats as the primary means of propelling KSP's tank barge fleet and generally do not charter them out to third parties. Therefore, KSP seeks to maintain the proper balance between the number of tugboats and the number of tank barges in its fleet. This balance is influenced by a variety of factors, including the condition of the vessels in KSP's fleet, the mix of KSP's coastwise business and KSP's local business and the level of longer-term contracts versus shorter-term business. KSP is also able to maintain a proper balance between tugboats and tank barges by analyzing the historical trading patterns of KSP's customers and the nature of their cargoes. While a tank barge is unloading, KSP often dispatches its tugboat to perform other work.

At December 31, 2007, KSP operated the following tugboats:

K-Sea Transportation Partners L.P. Tugboat Fleet

Name(1)	Year Built	Horsepower	Dimensions
Lincoln Sea	2000	8000	119' × 40' × 22'
Rebel	1975	7200	150' × 46' × 22'
Yankee	1976	7200	150' × 46' × 22'
Jimmy Smith(*)	1976	7200	150' × 40' × 22'
Barents Sea	1976	6200	136' × 40' × 16'
Irish Sea	1969	5750	135' × 35' × 18'
Sirius(*)	1974	5750	135' × 38' × 19'
Nakolo(*)	1974	5750	125' × 38' × 14'
El Lobo Grande(*)	1978	5750	128' × 36' × 19'
Nakoa(*)	1976	5500	118' × 34' × 17'
Volunteer	1982	4860	120' × 37' × 18'
Adriatic Sea(2)	2004	4800	126' × 34' × 15'
Java Sea(3)	2005	4800	119' × 34' × 15'
Namahoe(*)	1997	4400	105' × 34' × 16'
Pacific Freedom(4)	1998	4500	120' × 31' × 15'
Viking	1972	4300	133' × 34' × 18'
Beaufort Sea	1971	4300	113' × 32' × 16'
Pacific Wolf	1975	4100	111' × 24' × 13'
William J. Moore	1970	4000	135' × 35' × 20'
Niolo(*)	1982	4000	117' × 34' × 17'

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Nokea(*)	1975	4000	105' × 30' × 14'
Nunui(*)	1978	4000	185' × 40' × 12'
Tasman Sea	1976	3900	124 × 34' × 16'
Norwegian Sea(5)	2006	3900	133' × 34' × 17'
Sea Hawk(6)	2006	3900	112' × 32' × 15'
John Brix(7)	1999	3900	141' × 35' × 8'
Pacific Avenger	1977	3900	140' × 34' × 17'
Altair(*)	1981	3800	106' × 33' × 17'
Kara Sea	1974	3520	111' × 32' × 14'
Coral Sea	1973	3280	111' × 32' × 14'
Nathan E. Stewart	2001	3200	95' × 32' × 14"
Maryland	1962	3010	110' × 28' × 14'
Baltic Sea	1973	3000	101' × 30' × 13'
Pacific Challenger	1976	3000	118' × 34' × 16'
Paragon	1978	3000	99' × 32' × 15'
Pacific Raven	1970	3000	112' × 31' × 14'
Na Hoku(*)	1981	3000	105' × 34' × 17'
Nalani(*)	1981	3000	105' × 34' × 17'
Nohea(*)	1983	3000	98' × 30' × 14'
Pacific Pride(8)	1989	2500	84' × 28' × 13'
Sargasso Sea	1972	2460	105' × 30' × 15"
Labrador Sea	2002	2400	82' × 26' × 12'
Bering Sea	1975	2250	105' × 29' × 13'
Caspian Sea	1981	2000	65' × 24' × 9'
Inland Sea	2000	2000	76' × 26' × 10'
Pacific Patriot	1981	2000	77' × 27' × 12'
Davis Sea	1982	2000	77.4' × 26' × 9'
Pacific Eagle(9)	2001	2000	98' × 27' × 13'
Tiger	1966	2000	88' × 27' 12'
Chukchi Sea	1979	2000	92' × 26' x 9'
Houma	1970	1950	90' × 29' × 11'
Timor Sea	1960	1920	80' × 24' × 10'
Odin	1982	1860	72' × 28' × 12'
Taurus	1979	1860	79' × 25' × 12'
Falcon	1978	1800	80' × 25' × 12'
Naupaka(*)	1983	1800	75' × 26' × 10'
Fidalgo	1973	1400	98' × 25' × 8'
Banda Sea	1966	1350	75' × 23' × 8'

(*): Acquired in the Smith Maritime Group acquisition, which was completed on August 14, 2007.
(1): Excluding certain workboats and other small vessels most of which are less than 1,000 HP.
(2): Built in 1978 and rebuilt in 2004.
(3): Built in 1981 and rebuilt in 2005.
(4): Built in 1969 and rebuilt in 1998.
(5): Built in 1976 and rebuilt in 2006.
(6): Built in 1978 and rebuilt in 2006.
(7): Built in 1963 and rebuilt in 1999.
(8): Built in 1976 and rebuilt in 1989.
(9): Built in 1966 and rebuilt in 1985 and 2001.

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Integrated Tug-Barge Units

KSP currently operates twenty ITBs. At December 31, 2007, ITBs represented approximately 38% of the barrel-carrying capacity of KSP's tank barge fleet.

Bunkering

For over 30 years, KSP has specialized in the shipside delivery of fuel, known as bunkering, for the major and independent bunker suppliers in New York Harbor. KSP also provides bunkering services in the port of Norfolk, Virginia. Demand for bunkering services is driven primarily by the number of ship arrivals. A ship's time in port generally is limited, and the cost of delaying sailing due to bunkering or other activities can be significant. Therefore, KSP continually strives to improve the level of service and on-time deliveries it provides to its customers.

The majority of KSP's bunker delivery tank vessels are equipped with advanced, whole-load sampling devices to provide the supplier and receiver a representative sample. KSP's bunker delivery tank barges are also equipped with extended booms for hose handling ease alongside ships, remote pump engine shut-offs, spill rails, spill containment equipment and supplies, VHF and UHF radio communication and fendering.

Preventative Maintenance

KSP has a computerized preventative maintenance program that tracks U.S. Coast Guard and American Bureau of Shipping inspection schedules and establishes a system for the reporting and handling of routine maintenance and repair.

Vessel captains submit monthly inspection reports, which are used to note conditions that may require maintenance or repair. Vessel superintendents are responsible for reviewing these reports, inspecting identified discrepancies, assigning a priority classification and generating work orders. Work orders establish job type, assign personnel responsible for the task and record target start and completion dates. Vessel superintendents inspect repairs completed by the crew, supervise outside contractors as needed and conduct quarterly inspections following the same criteria as the captains. Drills and training exercises are conducted in conjunction with these inspections, which are typically more comprehensive in scope. In addition, an operations duty officer is available on a 24-hour basis to handle any operational issues. The operations duty officer is prepared to respond on scene whenever required and is trained in technical repair issues, spill control and emergency response.

The American Bureau of Shipping and the U.S. Coast Guard establish drydocking schedules. Typically, KSP drydocks its vessels twice every five years. Prior to sending a vessel to a shipyard, KSP develops comprehensive work lists to ensure all required maintenance is completed. Repair facilities bid on these work lists, and jobs are awarded based on price and time to complete. Vessels then report to a cleaning facility to prepare for shipyard. Once the vessel is gas-free, a certified marine chemist issues paperwork certifying that no dangerous vapors are present. The vessel proceeds to the shipyard where the vessel superintendent and certain crewmembers assist in performing the maintenance and repair work. The planned maintenance period is considered complete when all work has been tested to the satisfaction of American Bureau of Shipping or U.S. Coast Guard inspectors or both.

Safety

General

KSP is committed to operating its vessels in a manner that protects the safety and health of its employees, the general public and the environment. KSP's primary goal is to minimize the number of safety- and health-related accidents on its vessels and its property. Its primary concerns are to avoid personal injuries and to reduce occupational health hazards. KSP wants to prevent accidents that may

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cause damage to its personnel, equipment or the environment, such as fire, collisions, petroleum spills and groundings of its vessels. In addition, KSP is committed to reducing overall emissions and waste generation from each of its facilities and vessels and to the safe management of associated cargo residues and cleaning wastes.

KSP's policy is to follow all laws and regulations as required, and it is actively participating with government, trade organizations and the public in creating responsible laws, regulations and standards to safeguard the workplace, the community and the environment. KSP's Operations Department is responsible for coordinating all facets of KSP's health and safety program and identifies areas that may require special emphasis, including new initiatives that evolve within the industry. KSP's Human Resources Department is responsible for all training, whether conducted in-house or at a training facility. Supervisors are responsible for carrying out and monitoring compliance for all of the safety and health policies on their vessels.

Tank Barge Characteristics

To protect the environment, today's tank barge hulls are required not only to be leak-proof into the body of water in which they float but also to be vapor-tight to prevent the release of any fumes or vapors into the atmosphere. KSP's tank barges that carry light products such as gasoline or naphtha have alarms that indicate when the tank is full (95% of capacity) and when it is overfull (98% of capacity). Each tank barge also has a vapor recovery system that connects the cargo tanks to the shore terminal via pipe and hose to return to the plant the vapors generated while loading.

The majority of KSP's bunker delivery tank barges are equipped with advanced, whole load sampling devices to provide the supplier and receiver a representative sample. KSP's bunker delivery tank barges are also equipped with extended booms for hose handling ease alongside ships, remote pump engine shut-offs, spill rails, spill containment equipment and supplies, VHF and UHF radio, satellite and internet communication.

Safety Management Systems

KSP belongs to and adheres to the recommendations of the American Waterways Operators, or AWO, Responsible Carrier Program. The program is designed as a framework for continuously improving the industry's and member companies' safety performance. The program complements and builds upon existing government regulations, requiring company safety and training standards that in many instances exceed those required by federal law or regulation.

Developed by the AWO, the Responsible Carrier Program incorporates best industry practices in three primary areas:

•: management and administration;
•: equipment and inspection; and
•: human factors.

The Responsible Carriers Program has been recognized by many groups, including the U.S. Coast Guard and shipper organizations. KSP is periodically audited by an AWO-certified auditor to verify compliance. KSP was last audited in early 2007, and KSP's Responsible Carrier Program certificate remains in effect until March 2010.

KSP is also certified to the standards of the International Safety Management, or ISM, system. The ISM standards were promulgated by the International Maritime Organization, or IMO, and have been adopted through treaty by many IMO member countries, including the United States. Although ISM is not required for coastal tug and barge operations, KSP has determined that an integrated safety

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management system including the ISM and Responsible Carriers Program standards promotes safer operations and provides KSP with necessary operational flexibility as it continues to grow.

Ship Management, Crewing and Employees

KSP maintains an experienced and highly qualified work force of shore-based and seagoing personnel. As of December 31, 2007, KSP employed 937 persons, comprising 156 shore staff and 781 fleet personnel. KSP's tug and tanker captains are non-union management supervisors. Effective July 1, 2004, KSP entered into a new four-year collective bargaining agreement with its maritime union covering certain of its seagoing personnel comprising 44% of its workforce. The collective bargaining agreement provides for wage increases totaling 15% over its term, and requires KSP to make contributions to certain pension and other welfare programs. No unfunded pension liability exists under any of these programs. KSP's vessel employees are paid on a daily or hourly basis and typically work 14 days on and 14 days off. KSP's shore-based personnel are generally salaried and most are located at its headquarters in East Brunswick, New Jersey or at its facilities in Staten Island, New York, Seattle, Washington and Norfolk, Virginia. KSP believes that its relations with its employees are satisfactory.

KSP's shore staff provides worldwide support for all aspects of its fleet and business operations, including sales and scheduling, crewing and human resources functions, engineering, compliance and technical management, financial and insurance services, and information technology. A staff of dispatchers and schedulers maintain a 24-hour duty rotation to monitor communications and to coordinate fleet operations with KSP's customers and terminals. Communication with KSP's vessels is accomplished by various methods, including wireless data links, cellular telephone, VHF, UHF and HF radio.

KSP's crews regularly inspect each vessel, both at sea and in port, and perform most of the ordinary course maintenance. KSP's procedures call for a member of its shore-based staff to inspect each vessel at least once each fiscal quarter, making specific notations and recommendations regarding the overall condition of the vessel, maintenance, safety and crew welfare. In addition, selected vessels are inspected each year by independent consultants. All of the vessels that are on bareboat charters to third parties are managed and operated by the customer.

Classification, Inspection and Certification

Most of KSP's coastwise vessels have been certified as being "in class" by the American Bureau of Shipping and, in the case of one vessel, by Lloyds of London. Other vessels, primarily in KSP's West Coast operations, have the required "loadline" certification. The American Bureau of Shipping is one of several internationally recognized classification societies that inspect vessels at regularly scheduled intervals to ensure compliance with American Bureau of Shipping classification rules and some applicable federal safety regulations. Most insurance underwriters require at least a loadline certification by a classification society before they will extend coverage to a coastwise vessel. The classification society certifies that the pertinent vessel has been built and maintained in accordance with the rules of the society and complies with applicable rules and regulations of the vessel's country of registry and the international conventions of which that country is a member. Inspections are conducted on the pertinent vessel by a surveyor of the classification society in three surveys of varying frequency and thoroughness: annual surveys each year, an intermediate survey every two to three years and a special survey every four to five years. As part of the intermediate survey, a vessel may be required to be drydocked every 24 to 30 months for inspection of its underwater parts and for any necessary repair work related to such inspection.

KSP's vessels are also inspected at periodic intervals by the U.S. Coast Guard to ensure compliance with Federal safety regulations. All of KSP's tank vessels carry Certificates of Inspection issued by the U.S. Coast Guard.

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KSP's vessels and shoreside operations are also inspected and audited periodically by its customers, in some cases as a precondition to chartering its vessels. KSP maintains all necessary approvals required for its vessels to operate in their normal trades. KSP believes that the high quality of its tonnage, its crews and its shoreside staff are advantages when competing against other vessel operators for long-term business.

Insurance Program

KSP maintains insurance coverage consistent with industry practice that it believes is adequate to protect against the accident-related risks involved in the conduct of its business and risks of liability for environmental damage and pollution. Nevertheless, KSP cannot provide assurance that all risks are adequately insured against, that any particular claims will be paid or that it will be able to procure adequate insurance coverage at commercially reasonable rates in the future. KSP GP, KSP's general partner, maintains a key man insurance policy on Mr. Timothy J. Casey, its President and Chief Executive Officer.

KSP's hull and machinery insurance covers risks of actual or constructive loss from collision, towers' liabilities, fire, grounding and engine breakdown up to an agreed value per vessel. KSP's war-risks insurance covers risks of confiscation, seizure, capture, vandalism, sabotage and other war-related risks. While some tanker owners and operators obtain loss-of-hire insurance covering the loss of revenue during extended tanker off-hire periods, KSP does not have this type of coverage. KSP believes that, given its diversified marine transportation operations and high utilization rate, this type of coverage is not economical and is of limited value to it. However, KSP evaluates the need for such coverage on an ongoing basis taking into account insurance market conditions and the employment of its vessels.

KSP's protection and indemnity insurance covers third-party liabilities and other related expenses from, among other things, injury or death of crew, passengers and other third parties, claims arising from collisions, damage to cargo, damage to third-party property, asbestos exposure and pollution arising from oil or other substances. KSP's current protection and indemnity insurance coverage for pollution is $1 billion per incident and is provided by West of England Ship Owners Insurance Services Ltd., or West of England, a mutual insurance association. West of England is a member of the International Group of protection and indemnity mutual assurance associations. The protection and indemnity associations that comprise the International Group insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. Each protection and indemnity association has capped its exposure to this pooling agreement at approximately $4.3 billion per non-pollution incident. As a member of West of England, KSP is subject to calls payable to the association based on its claim records, as well as the claim records of all other members of the individual associations and members of West of England.

KSP is not currently the subject of any claims alleging exposure to asbestos or second-hand smoke, although such claims have been brought against KSP's predecessors and may be brought against KSP in the future. KSP's predecessor company, EW LLC, has contractually agreed to retain any such liabilities that occurred prior to KSP's initial public offering in January 2004, will indemnify KSP for up to $10 million of such liabilities until January 2014, and will make available to KSP the benefit of certain indemnities it received in connection with the purchase of certain vessels. If, notwithstanding the foregoing, KSP is ultimately obligated to pay any asbestos-related or similar claims for any reason, KSP believes that it or EW LLC would have adequate insurance coverage for periods after March 1986 to pay such claims. However, EW LLC and its predecessors may not have insurance coverage prior to March 1986. If KSP was subject to claims related to that period, including claims from current or former employees, EW LLC may not have insurance to pay the liabilities, if any, that could be imposed on it. If KSP had to pay claims solely out of its own funds, it could have a material adverse effect on its financial condition. Furthermore, any claims covered by insurance would be subject to deductibles,

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and because it is possible that a large number of claims could be brought, the aggregate amount of these deductibles could be material.

KSP may not be able to obtain insurance coverage in the future to cover all risks inherent in its business, and insurance, if available, may be at rates that it does not consider to be commercially reasonable. In addition, as more single-hull vessels are retired from active service, insurers may be less willing to insure, and customers less willing to hire, single-hull vessels.

Competition

The domestic tank vessel industry is highly competitive. The Jones Act restricts U.S. point-to-point maritime shipping to vessels built in the United States, owned and operated by U.S. citizens and manned by U.S. crews. In KSP's market areas, its primary direct competitors are the operators of U.S.-flag ocean-going tank barges and U.S.-flag refined petroleum product tankers, including the captive fleets of major oil companies.

In the voyage and short-term charter market, KSP's vessels compete with all other vessels of a size and type required by a charterer that can be available at the date specified. In the voyage market, competition is based primarily on price and availability, although charterers have become more selective with respect to the quality of vessels they hire, with particular emphasis on factors such as age, double hulls and the reliability and quality of operations. Increasingly, major charterers are demonstrating a preference for modern vessels based on concerns about the environmental risks associated with older vessels. Consequently, KSP believes that owners of large modern fleets have been able to gain a competitive advantage over owners of older fleets.

U.S.-flag tank vessels also compete with petroleum product pipelines and are affected by the level of imports on foreign flag products carriers. The Colonial Pipeline system, which originates in Texas and terminates at New York Harbor, the Plantation Pipe Line system, which originates in Louisiana and terminates in Washington D.C., and smaller regional pipelines between Philadelphia and New York carry refined petroleum products to the major storage and distribution facilities that KSP currently serves. KSP believes that high capital costs, tariff regulation and environmental considerations make it unlikely that a new refined product pipeline system will be built in KSP's market areas in the near future. It is possible, however, that new pipeline segments, including pipeline segments that connect with existing pipeline systems, could be built or that existing pipelines could be converted to carry refined petroleum products. Either of these occurrences could have an adverse effect on KSP's ability to compete in particular locations.

Regulation

KSP's operations are subject to significant federal, state and local regulation, the principal provisions of which are described below.

Environmental

General. Government regulation significantly affects the ownership and operation of KSP's tank vessels. KSP's tank vessels are subject to international conventions, federal, state and local laws and regulations relating to safety and health and environmental protection, including the generation, storage, handling, emission, transportation, and discharge of hazardous and non-hazardous materials. Although KSP believes that it is in substantial compliance with applicable environmental laws and regulations, it cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of its tank vessels. The recent trend in environmental legislation is toward stricter requirements, and this trend will likely continue. In addition, a future serious marine incident occurring in U.S. waters, or internationally, that results in significant

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oil pollution or causes significant environmental impact could result in additional legislation or regulation that could affect KSP's profitability.

Various governmental and quasi-governmental agencies require KSP to obtain permits, licenses and certificates for the operation of its tank vessels. While KSP believes that it is in substantial compliance with applicable environmental laws and regulations and have all permits, licenses and certificates necessary for the conduct of its operations, frequently changing and increasingly stricter requirements, future non-compliance or failure to maintain necessary permits or approvals could require KSP to incur substantial costs or temporarily suspend operation of one or more of KSP's tank vessels.

KSP maintains operating standards for all its tank vessels that emphasize operational safety, quality maintenance, continuous training of its crews and officers, care for the environment and compliance with U.S. regulations. KSP's tank vessels are subject to both scheduled and unscheduled inspections by a variety of governmental and private entities, each of which may have unique requirements. These entities include the local port authorities (U.S. Coast Guard, harbor master or equivalent), classification societies, flag state administration and charterers, particularly terminal operators and oil companies.

Finally, KSP manages its exposure to losses from potential discharges of pollutants through the use of well-maintained and well-managed facilities, well maintained and well equipped vessels and safety and environmental programs, including a maritime compliance program and its insurance program. Moreover, KSP believes it will be able to accommodate reasonably foreseeable environmental regulatory changes. However, the risks of substantial costs, liabilities, and penalties are inherent in marine operations. As a result, there can be no assurance that any new regulations or requirements or any discharge of pollutants by KSP will not have a material adverse effect on it.

The Oil Pollution Act of 1990. The Oil Pollution Act of 1990, or OPA 90, affects all vessels trading in U.S. waters including the exclusive economic zone extending 200 miles seaward. OPA 90 sets forth various technical and operating requirements for tank vessels operating in U.S. waters. Existing single-hull, double-sided and double-bottomed tank vessels are to be phased out of service at varying times based on their tonnage and age, with all such vessels being phased out by January 2015. As of August 15, 2007, 28 of KSP's tank vessels, which are single-hulled, will be precluded from transporting petroleum products as of January 1, 2015.

Under OPA 90, owners or operators of tank vessels and certain non-tank vessels operating in U.S. waters must file vessel spill response plans with the U.S. Coast Guard and operate in compliance with the plans. These vessel response plans must, among other things:

•: address a "worst case" scenario and identify and ensure, through contract or other approved means, the availability of necessary private response resources;
•: describe crew training and drills; and
•: identify a qualified individual with specific authority and responsibility to implement removal actions in the event of an oil spill.

KSP's vessel response plans have been approved by the U.S. Coast Guard, and all of its tankermen have been trained to comply with these guidelines. In addition, KSP conduct regular oil-spill response drills in accordance with the guidelines set out in OPA 90. KSP believes that all of its tank vessels are in substantial compliance with OPA 90.

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Environmental Spill and Release Liability. OPA 90 and various state laws substantially increased over historic levels the statutory liability of owners and operators of vessels for the discharge or substantial threat of a discharge of oil and the resulting damages, both regarding the limits of liability and the scope of damages. OPA 90 imposes joint and several strict liability on responsible parties, including owners, operators and bareboat charterers, for all oil spill and containment and clean-up costs and other damages arising from spills attributable to their vessels. A complete defense is available only when the responsible party establishes that it exercised due care and took precautions against foreseeable acts or omissions of third parties and when the spill is caused solely by an act of God, act of war (including civil war and insurrection) or a third party other than an employee or agent or party in a contractual relationship with the responsible party. These limited defenses may be lost if the responsible party fails to report the incident or reasonably cooperate with the appropriate authorities or refuses to comply with an order concerning clean-up activities. Even if the spill is caused solely by a third party, the owner or operator must pay removal costs and damage claims and then seek reimbursement from the third party or the trust fund established under OPA 90. Finally, in certain circumstances involving oil spills, OPA 90 and other environmental laws may impose criminal liability on personnel and/or the corporate entity.

OPA 90 limits the liability of each responsible party for oil pollution from vessels, and these limits were increased substantially in 2006. The limits for a tank vessel without a qualifying double hull are the greater of (1) $3,000 per gross ton or (2) $22 million for a tank vessel of greater than 3,000 tons or $6 million for a tank vessel of 3,000 gross tons or less. The limits for a tank vessel with a qualifying double hull are the greater of (1) $1,900 per gross ton or (2) $16 million for a tank vessel of greater than 3,000 gross tons or $4 million for a tank vessel of 3,000 gross tons or less. The limits for any vessel other than a tank vessel are the greater of $950 per gross ton or $0.8 million. The limits of liability are subject to periodic increase to account for inflation. These limits do not apply where, among other things, the spill is caused by gross negligence or willful misconduct of, or a violation of an applicable federal safety, construction or operating regulation by, a responsible party or its agent or employee or any person acting in a contractual relationship with a responsible party. In addition to removal costs, OPA 90 provides for recovery of damages, including:

•: natural resource damages and related assessment costs;
•: real and personal property damages;
•: net loss of taxes, royalties, rents, fees and other lost revenues;
•: net costs of public services necessitated by a spill response, such as protection from fire, safety or health hazards;
•: loss of profits or impairment of earning capacity due to the injury, destruction or loss of real property, personal property or natural resources; and
•: loss of subsistence use of natural resources.

OPA 90 requires owners and operators of vessels operating in U.S. waters to establish and maintain with the U.S. Coast Guard evidence of their financial responsibility sufficient to meet their potential liabilities imposed by OPA 90. Under the regulations, we may provide evidence of insurance, a surety bond, a guarantee, letter of credit, qualification as a self-insurer or other evidence of financial responsibility. KSP has qualified as a self-insurer under the regulations and have received Certificates of Financial Responsibility from the U.S. Coast Guard for all of KSP's tank vessels subject to this requirement.

OPA 90 expressly provides that individual states are entitled to enforce their own oil pollution liability laws, even if inconsistent with or imposing greater liability than OPA 90. There is no uniform liability scheme among the states. Some states have OPA 90-like schemes for limiting liability to various amounts, some rely on common law fault-based remedies and others impose strict and/or unlimited liability on an owner or operator. Virtually all coastal states have enacted their own pollution

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prevention, liability and response laws, whether statutory or through court decisions, with many providing for some form of unlimited liability. KSP believes that the liability provisions of OPA 90 and similar state laws have greatly expanded potential liability in the event of an oil spill, even where KSP is not at fault. Some states have also established their own requirements for financial responsibility. However, at least two states have repealed regulations concerning the operation, manning, construction or design of tank vessels as a result of the U.S. Supreme Court's 2000 ruling in United States v. Locke. In Locke, the Court held that the regulation of maritime commerce is generally a federal responsibility because of the need for national and international uniformity.

Parties affected by oil pollution that do not fully recover from a responsible party may pursue relief from the Oil Spill Liability Trust Fund. Responsible parties may seek reimbursement from the fund for costs incurred that exceed the liability limits of OPA 90. In order to obtain reimbursement of excess costs, the responsible party would need to establish that it is entitled to a statutory limitation of liability as discussed above. If we are deemed a responsible party for an oil pollution incident and are ineligible for reimbursement of excess costs, the costs of responding to an oil pollution incident could have a material adverse effect on KSP's results of operations, financial condition and cash flows. KSP presently maintains oil pollution liability insurance in an amount in excess of that required by OPA 90. Through West of England, KSP's current coverage for oil pollution is $1 billion per incident. It is possible, however, that KSP's liability for an oil pollution incident may be in excess of the insurance coverage it maintains.

KSP is also subject to potential liability arising under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, which applies to the discharge of hazardous substances, whether on land or at sea. Specifically, CERCLA provides for liability of owners and operators of vessels for cleanup and removal of hazardous substances. Liability under CERCLA for releases of hazardous substances from vessels is limited to the greater of $300 per gross ton or $5 million per incident unless attributable to willful misconduct or neglect, a violation of applicable standards or rules, or upon failure to provide reasonable cooperation and assistance. CERCLA liability for releases from facilities other than vessels is generally unlimited.

KSP is required to show proof of insurance, surety bond, self insurance or other evidence of financial responsibility to pay damages under OPA 90 and CERCLA in the amount of $1,500 per gross ton for vessels, consisting of the sum of the OPA 90 liability limit of $1,200 per gross ton or $10 million per discharge and the CERCLA liability limit of $300 per gross ton or $5 million per discharge. KSP has satisfied these requirements and obtained a U.S. Coast Guard Certificate of Financial Responsibility for each of KSP's tank vessels. OPA 90 and CERCLA each preserve the right to recover damages under other existing laws, including maritime tort law.

Water. The federal Clean Water Act, or CWA, imposes restrictions and strict controls on the discharge of pollutants into navigable waters, and such discharges generally require permits. The CWA provides for civil, criminal and administrative penalties for any unauthorized discharges and imposes substantial liability for the costs of removal, remediation and damages. State laws for the control of water pollution also provide varying civil, criminal and administrative penalties and liabilities in the case of a discharge of petroleum, its derivatives, hazardous substances, wastes and pollutants into state waters. In addition, the Coastal Zone Management Act authorizes state implementation and development of programs of management measures for non-point source pollution to restore and protect coastal waters.

A 2005 United States district court decision could result in certain of KSP's vessels being required to obtain Clean Water Act permits for the discharge of ballast water. Under current CWA regulations, KSP's vessels are exempt from such permitting requirements, but in the March 2005 Northwest Environmental Advocates v. EPA decision, the federal district court in California ordered the EPA to repeal the exemption. Under the court's ruling owners and operators of vessels would be required to comply with the Clean Water Act permitting requirements or face penalties. The remedy phase of the

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proceeding is ongoing. However, if the permitting exemption is repealed, KSP will incur certain costs to obtain Clean Water Act permits for KSP's vessels. Because KSP does not yet know how or when this matter ultimately will be resolved, KSP cannot estimate its potential financial impact at this time. However, KSP believes that any financial impacts resulting from the repeal of the permitting exemption for ballast water discharge will not be material.

Solid Waste. KSP's operations occasionally generate and require the transportation, treatment and disposal of both hazardous and non-hazardous solid wastes that are subject to the requirements of the federal Resource Conservation and Recovery Act, or RCRA, and comparable state and local requirements. In addition, in the course of KSP's tank vessel operations, KSP engages contractors to remove and dispose of waste material, including tank residue. In the event that such waste is found to be "hazardous" under either RCRA or the CWA, and is disposed of in violation of applicable law, KSP could be found jointly and severally liable for the cleanup costs and any resulting damages. Finally, the EPA does not currently classify "used oil" as "hazardous waste," provided certain recycling standards are met. However, some states in which KSP operates have classified "used oil" as "hazardous" under state laws patterned after RCRA. The cost of managing wastes generated by tank vessel operations has increased in recent years under stricter state and federal standards. Additionally, from time to time KSP arranges for the disposal of hazardous waste or hazardous substances at offsite disposal facilities. If such materials are improperly disposed of by third parties, KSP could be liable for clean up costs under CERCLA or the equivalent state laws. KSP uses only certified haulers for this work.

EW Transportation Corp. (formerly K-Sea Transportation Corp., a predecessor company) was previously notified that it is potentially responsible for the cleanup of hazardous substances at the "Palmer Barge Site" in Port Arthur, Texas, where cleaning was performed on two of its barges in 1996 and 1997. KSP assumed this liability at the time of its initial public offering, subject to insurance and certain indemnification from its predecessors (see "Certain Relationships and Related Transactions—Omnibus Agreement and Non-Compete Agreement—Indemnification"). In August 2007, KSP agreed to settle its share of liability for the EPA-mandated investigation and site cleanup of $25,000, which it anticipates will be indemnified by its predecessor. KSP believes that further costs, if any, will be immaterial to its financial position, results of operations and cash flows.

Air Emissions. The federal Clean Air Act, or CAA, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. KSP's vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. KSP's tank barges are equipped with vapor control systems that satisfy these requirements. In addition, the EPA issued final rules regarding emissions standards for various classes of marine diesel engines. While these rules are currently limited to new engines beginning with the 2004 model year, the EPA has noted that it may revisit the application of emissions standards to rebuilt or remanufactured engines if the industry does not take steps to introduce new pollution control technologies. Adoption of such standards could require modifications to some existing marine diesel engines and may require substantial expenditures.

The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in primarily major metropolitan and/or industrial areas. Where states fail to present approvable SIPs or SIP revisions by certain statutory deadlines, the federal government is required to draft a Federal Implementation Plan. Several SIPs regulate emissions resulting from barge loading and degassing operations by requiring the installation of vapor control equipment. As stated above, KSP's tank barges are already equipped with vapor control systems that satisfy these requirements. Although a risk exists that new regulations could require significant capital expenditures and otherwise increase KSP's costs, it believes, based upon the regulations that have been proposed to date, that no material capital expenditures beyond those currently contemplated and no material increase in costs are likely to be required.

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Coastwise Laws

A substantial portion of KSP's operations are conducted in the U.S. domestic trade, which is governed by the coastwise laws of the United States. The U.S. coastwise laws reserve marine transportation between points in the United States, including harbor tug services, to vessels built in and documented under the laws of the United States (U.S.-flag) and owned and manned by U.S. citizens. Generally, an entity is deemed a U.S. citizen for these purposes so long as:

•: it is organized under the laws of the United States or a state;
•: each of its chief executive officer (by whatever title) and the chairman of its board of directors is a U.S. citizen;
•: no more than a minority of the number of its directors necessary to constitute a quorum for the transaction of business are non-U.S. citizens;
•: at least 75.0% of the interest and voting power in the corporation is held by U.S. citizens free of any trust, fiduciary arrangement or other agreement, arrangement or understanding whereby voting power may be exercised directly or indirectly by non-U.S. citizens; and
•: in the case of a limited partnership, the general partner meets U.S. citizenship requirements for U.S. coastwise trade.

Because KSP could lose the privilege of operating its vessels in the U.S. coastwise trade if non-U.S. citizens were to own or control in excess of 25.0% of KSP's outstanding interests, KSP's limited partnership agreement restricts foreign ownership and control of KSP's common and subordinated units to not more than 15.0% of KSP's outstanding interests.

There have been repeated efforts aimed at repeal or significant change of the Jones Act. Although KSP believe it is unlikely that the Jones Act will be substantially modified or repealed, there can be no assurance that Congress will not substantially modify or repeal such laws. Such changes could have a material adverse effect on KSP's operations and financial condition.

Other

KSP's vessels are subject to the jurisdiction of the U.S. Coast Guard, the National Transportation Safety Board, the U.S. Customs and Border Protection (CBP) and the U.S. Maritime Administration, as well as subject to rules of private industry organizations such as the American Bureau of Shipping. These agencies and organizations establish safety standards and are authorized to investigate vessels and accidents and to recommend improved maritime safety standards. Moreover, to ensure compliance with applicable safety regulations, the U.S. Coast Guard is authorized to inspect vessels at will.

Occupational Health Regulations

KSP's shoreside facilities are subject to occupational safety and health regulations issued by the U.S. Occupational Safety and Health Administration, or OSHA, and comparable state programs. These regulations currently requires KSP to maintain a workplace free of recognized hazards, observe safety and health regulations, maintain records, and keep employees informed of safety and health practices and duties. KSP's vessel operations are also subject to occupational safety and health regulations issued by the U.S. Coast Guard and, to an extent, OSHA. These regulations currently require KSP to perform monitoring, medical testing and recordkeeping with respect to mariners engaged in the handling of the various cargoes transported by KSP's chemical and petroleum product carriers.

Vessel Condition

KSP's vessels are subject to periodic inspection and survey by, and drydocking and maintenance requirements of, the U.S. Coast Guard and/or the American Bureau of Shipping. KSP believes it is currently in compliance in all material respects with the environmental and other laws and regulations, including health and safety requirements, to which its operations are subject. KSP is unaware of any

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pending or threatened litigation or other judicial, administrative or arbitration proceedings against it occasioned by any alleged non-compliance with such laws or regulations. The risks of substantial costs, liabilities and penalties are, however, inherent in marine operations, and there can be no assurance that significant costs, liabilities or penalties will not be incurred by or imposed on KSP in the future.

Properties

KSP leases pier facilities and approximately 7,000 square feet of office space in Staten Island, New York. The lease expires in April 2009; however, KSP has the option to renew it for two additional ten-year periods. KSP owns and uses a 2,100 square-foot modular facility for additional office space on the premises.

KSP leases pier facilities, a water treatment facility and approximately 10,500 square feet of office space in Norfolk, Virginia. This lease expires in January 2010, and KSP has an option to purchase the facility.

KSP leases approximately 9,500 square feet of office space for its principal executive office in East Brunswick, New Jersey, for which the lease expires in December 2013.

KSP leases pier facilities and approximately 16,000 square feet of office space in Seattle, Washington. This lease expires in October 2008 with a renewal option for one additional five-year term.

KSP also leases pier facilities and approximately 22,000 square feet of office and warehouse space in Philadelphia, Pennsylvania, which terminates in December 2009, and KSP also leases pier facilities and approximately 2,800 square feet of office and warehouse space, on a month-to-month basis, in Honolulu, Hawaii.

Legal Proceedings

KSP is a party to various suits in the ordinary course of business for monetary relief arising principally from personal injury, collision or other casualty and to claims arising under vessel charters. All of these personal injury, collision and casualty claims against us are fully covered by insurance, subject to deductibles ranging from $10,000 to $100,000 in amount. KSP reserves on a current basis for amounts it expects to pay. Although the outcome of any individual claim or action cannot be predicted with certainty, KSP believes that any adverse outcome, individually or in the aggregate, would be substantially mitigated by applicable insurance or indemnification from previous owners of its assets, and would not have a material adverse effect on its financial position, results of operations or cash flows.

In November 2005, one of KSP's tank barges struck submerged debris in the U.S. Gulf of Mexico, causing significant damage which resulted in the barge eventually capsizing. At the time of the incident, the barge was carrying approximately 120,000 barrels of No. 6 fuel oil, a heavy oil product. In January 2006, submerged oil recovery operations were suspended and a monitoring program, which sought to determine if any recoverable oil could be found on the ocean floor, was begun. In February 2007, the Coast Guard agreed to end the cleanup and response phase, including KSP's obligation to conduct any further monitoring of the area around the spill site.

KSP's insurers responded to the pollution-related costs and environmental damages resulting from the incident, paying approximately $65 million less $60,000 in total deductibles, and are pursuing their own financial recovery efforts. In December 2007, a court made a final determination of liability in this case, resulting in a defined financial recovery by KSP's insurers, and also by KSP. As a result of the ruling, KSP was awarded a reimbursement of certain expenses totaling $2.1 million, which has been included in other expense (income) in our consolidated statement of operations and in prepaid expenses and other assets in the December 31, 2007 consolidated balance sheet. This amount was received in January 2008. KSP's incident response effort is complete. KSP is not aware of any further recovery, cleanup or other costs. However, if any such costs are incurred, they are expected to be paid by the insurers.

KSP's predecessors have agreed to indemnify us for certain liabilities. For more information, please read "Certain Relationships and Related Transactions—Omnibus Agreement and Non-Compete Agreement—Indemnification."

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MANAGEMENT

K-Sea GP Holdings LP and K-Sea Transportation Partners L.P.

Partnership Management and Governance

Our general partner's limited liability company agreement establishes a board of directors that will be responsible for the oversight of our business and operations. Our general partner's board of directors will be elected by the members of our general partner.

Our general partner will manage our operations and activities. Unitholders are limited partners and will not participate in the management of our operations. As a general partner, our general partner is liable for all of our debts (to the extent not paid from our assets), except for indebtedness or other obligations that are made specifically non-recourse to it. Our general partner has the sole discretion to incur indebtedness or other obligations on our behalf on a non-recourse basis to the general partner.

We and our general partner have no employees. All of our officers and other personnel necessary for our business to function (to the extent not out-sourced) will be employed by KSP pursuant to an administrative agreement. As a result, the administrative agreement will provide for our payment of an annual fee to KSP for general and administrative services. This fee will initially be $350,000 per year. The fee will also be subject to upward adjustment if a material event occurs that impacts the general and administrative services provided to us such as acquisitions, entering into new lines of business or changes in laws, regulations or accounting rules. In addition to this fee for general and administrative services provided to us by KSP, we expect to incur direct annual expenses of approximately $1,000,000 for recurring costs associated with becoming a separate publicly traded entity, including legal, tax and accounting expenses. All of the officers and a majority of the directors of our general partner are also officers or directors of KSP. Our general partner's executive officers expect to spend the substantial majority of their time managing the business of KSP, which benefits us as KSP's performance will determine our success. We currently anticipate that these officers will spend approximately 5% to 15% of their time on our business as distinct from KSP's. The actual time devoted by these officers to managing our business as well as KSP's will fluctuate as a result of KSP's relative activity levels between the two entities. The amount of incremental time spent by non-officer directors who serve on both boards will depend to some extent on committee assignments, but we estimate that such directors will spend on average an incremental 15% to 20% more time by serving on our board. Upon completion of the offering, we will have one independent director as defined by the rules of the NYSE. This director may also serve as an independent director of KSP. Following completion of this offering, two additional independent directors will be appointed to the board of directors of our general partner in accordance with applicable NYSE and SEC rules.

We will reimburse KSP for expenses incurred (1) on our behalf; (2) on behalf of our general partner; or (3) to maintain KSP's legal existence and good standing. We will also reimburse our general partner for any additional expenses incurred on our behalf or to maintain its legal existence and good standing.

The directors of our general partner will be designated and elected by agreement of the owners of our general partner.

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Directors and Executive Officers of Our General Partner and KSP GP

The following table provides information concerning the directors and executive officers of our general partner and KSP GP as of December 2007.

Name	Age	Position with Our General Partner	Position with KSP GP
James J. Dowling	61	Chairman of the Board	Chairman of the Board
Timothy J. Casey	46	President, Chief Executive Officer and Director	President, Chief Executive Officer and Director
John J. Nicola	53	Chief Financial Officer	Chief Financial Officer
Thomas M. Sullivan	48	Vice President, Operations
Richard P. Falcinelli	46	Vice President, Administration and Secretary
Gregory J. Haslinsky	44	Vice President, Sales and Marketing
Charles Kauffman	56	Vice President, Corporate Development
Anthony S. Abbate	67	Director
Barry J. Alperin	67	Director
Brian P. Friedman	52	Director	Director
Frank Salerno	48	Director

James J. Dowling has served as Chairman of the Board of our general partner since December 2007 and as Chairman of the Board of KSP GP since July 2003, has served as Chairman of the Board of EW LLC (formerly K-Sea Transportation LLC) since January 2002 and has served as a director of EW LLC since its formation in April 1999. Mr. Dowling has been a Managing Director of Jefferies Capital Partners, a private investment firm, since January 2002, and is a director of various private companies in which Jefferies Capital Partners has an interest. Jefferies Capital Partners is the manager of Furman Selz Investors II L.P. and its affiliated entities, principal owners of our general partner.

Timothy J. Casey has served as President, Chief Executive Officer and Director of our general partner since December 2007 and as President, Chief Executive Officer and Director of KSP GP since July 2003. Mr. Casey has served as President, Chief Executive Officer and Director of EW LLC since April 1999. Mr. Casey is also a board member for American Waterways Operators and The Seamen's Church Institute.

John J. Nicola has served as Chief Financial Officer of our general partner since December 2007 and as Chief Financial Officer of KSP GP since July 2003, and has served as Chief Financial Officer of EW LLC since July 2000. Mr. Nicola was employed from November 1993 to July 2000 by Maersk Sealand, a container shipping company, in various senior financial management roles, including Chief Financial Officer of Maersk's East Coast and Gulf terminal operating subsidiary. Mr. Nicola is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.

Thomas M. Sullivan has served as Vice President of Operations of KSP GP since July 2003. Mr. Sullivan served as Vice President of Operations for EW LLC since April 1999. Mr. Sullivan also served as Vessel Supervisor for EW LLC's predecessor from March 1995 until April 1999.

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Richard P. Falcinelli has served as Vice President of Administration and Secretary of KSP GP since July 2003. Mr. Falcinelli has served as Vice President of Administration and Secretary of EW LLC since April 1999.

Gregory J. Haslinsky has served as Vice President of Sales and Marketing of KSP GP since October 2005 and has been employed by K-Sea Transportation since December 1999 in various sales capacities. Mr. Haslinsky was employed from November 1988 to November 1999 by Maritrans, a marine transportation company, holding various sales and marketing positions within the organization.

Charles Kauffman has served as Vice President of Corporate Development of KSP GP since the acquisition of Sea Coast in October 2005. Mr. Kauffman was employed from February 1984 to October 2005 by Saltchuk Resources Inc., a privately held maritime company, where he held various senior management positions, including President of Sea Coast since July 2002.

Anthony S. Abbate has served as a Director of KSP GP since February 2004. Mr. Abbate was President, Chief Executive Officer and a director of Interchange Financial Services Corporation, a bank holding company, from 1984 until his retirement in 2007 and President, Chief Executive Officer and a director of its principal subsidiary, Interchange Bank, from 1981 until his retirement in 2007. In April 2007, Mr. Abbate joined the Board of Directors of Sussex Bancorp, a bank holding company.

Barry J. Alperin has served as a Director of KSP GP since February 2004. Mr. Alperin is a business consultant who retired from Hasbro Inc. in 1996 after 11 years in various senior executive positions, including Vice Chairman and Director. Mr. Alperin is currently on the board of Henry Schein, Inc., a distributor of healthcare products to office-based practitioners, and The Hain Celestial Group, Inc., a natural and organic beverage, snack, specialty food and personal care products company.

Brian P. Friedman has served as a Director of our general partner since December 2007 and as a Director of KSP GP since July 2003. Since 1997, Mr. Friedman has been President of Jefferies Capital Partners, a private equity investment firm. Mr. Friedman also serves as Chairman of the Executive Committee of Jefferies & Company, Inc., a global securities and investment banking firm, and as a director of Jefferies Group, Inc. As a result of his management of various private equity funds and the significant equity positions those funds hold in their portfolio companies, Mr. Friedman serves on several boards of directors of private portfolio companies.

Frank Salerno has served as a Director of KSP GP since February 2004. Mr. Salerno has served as a director for WisdomTree Investments, Inc. (formerly known as Index Development Partners) since July 2005 and as a director for Crystal International Travel Group since April 2006. From mid-1999 until his retirement in February 2004, Mr. Salerno was Managing Director and Chief Operating Officer of Merrill Lynch Investment Advisors—Americas Institutional Division, an investment advisory company.

Our Board Committees

Because we are a limited partnership, the listing standards of the NYSE do not require that we or our general partner have a majority of independent directors or a nominating or compensation committee of the board of directors. We are, however, required to have an audit committee, and all of its members are required to be independent as defined by the NYSE.

To be considered independent under NYSE listing standards, a director must have no material relationship with us other than as a director, as determined by our board of directors. The standards specify the criteria by which the independence of directors will be determined, including guidelines for directors and their immediate family members with respect to employment or affiliation with us or with our independent public accountants.

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Audit Committee. Our general partner's board of directors will establish an audit committee consisting of three independent directors. Our general partner's audit committee reviews our external financial reporting, engages our independent auditors and reviews the adequacy of our internal accounting controls.

As required by the Sarbanes-Oxley Act of 2002, the SEC has adopted rules that direct national securities exchanges and associations to prohibit the listing of securities of a public company if members of its audit committee do not satisfy a heightened independence standard. In order to meet this standard, a member of an audit committee may not receive any consulting fee, advisory fee or other compensation from the public company other than fees for service as a director or committee member, and may not be considered an affiliate of the public company. The board of directors of our general partner expects that all members of its audit and conflicts committees will satisfy this heightened independence requirement.

Further, SEC rules require that a public company disclose whether or not its audit committee has an "audit committee financial expert" as a member. An "audit committee financial expert" is defined as a person who, based on his or her experience, possesses the attributes outlined in such rules. The board of directors of our general partner anticipates that at least one of its independent directors will satisfy the definition of "audit committee financial expert."

Conflicts Committee. Our partnership agreement provides for the establishment or activation of a conflicts committee as circumstances warrant to review conflicts of interest between us and our general partner or the owners of our general partner or between us and KSP or its affiliates. Such a committee would consist of a minimum of two members, none of whom can be officers or employees of our general partner or directors, officers or employees of its affiliates and each of whom must meet the independence standards for service on an audit committee established by the NYSE and the SEC. Any matters approved by the conflicts committee will be conclusively deemed to be fair and reasonable to us, approved by all of our partners, and not a breach by our general partner of any duties owed to us or our unitholders.

Governance Matters

Independence of Board Members. Our general partner will have a board of directors that includes at least three independent directors. Pursuant to the NYSE listing standards, a director will be considered independent if the board determines that he or she does not have a material relationship with our general partner or us (either directly or as a partner, unitholder or officer of an organization that has a material relationship with our general partner or us) and otherwise meets the board's stated criteria for independence. These three will serve as the members of the audit committee.

Upon completion of the offering, we will have at least one director who satisfies the applicable NYSE and SEC requirements for independence and eligibility to serve on the audit committee. This individual may also be an independent director of KSP GP. Within 90 days of the closing of this offering, we will have a total of two independent directors who meet the requirements for audit committee service. Within one year of the closing of this offering, we will have a total of three independent directors who meet the requirements for audit committee service.

Executive Sessions of Board. The board of directors of our general partner will hold regular executive sessions in which non-management board members meet without any members of management present. The purpose of these executive sessions is to promote open and candid discussion among the non-management directors. During each executive session, a different director (in alphabetical order) will be designated as the "presiding director," who will be responsible for leading and facilitating such executive sessions.

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Code of Ethics. The board of directors of our general partner will adopt a code of ethics that applies to the principal executive officer, principal financial officer and principal accounting officer. In addition to other matters, this code of ethics will establish policies to prevent wrongdoing and to promote honest and ethical conduct, including ethical handling of actual and apparent conflicts of interest, compliance with applicable laws, rules and regulations, full, fair, accurate, timely and understandable disclosure in public communications and prompt internal reporting violations of the code.

Web Access. We will provide access through a website to current information relating to governance, including a copy of the Executive and Financial Officer Code of Ethics and other matters impacting our governance principles. You will be able to contact our investor relations department for paper copies of these documents free of charge.

Our Long-Term Incentive Plan

We will adopt the K-Sea GP Holdings LP Long-Term Incentive Plan for the employees, directors and consultants of our general partner and its affiliates, including KSP, who perform services for us. The long-term incentive plan will consist of restricted units, phantom units, unit options and deferred common units. The long-term incentive plan will limit the number of units that may be delivered pursuant to awards to units. Units forfeited or withheld to satisfy tax withholding obligations are available for delivery pursuant to other awards. The long-term incentive plan will be administered by the board of directors of our general partner.

The board of directors of our general partner may terminate or amend the long-term incentive plan at any time with respect to any units for which a grant has not yet been made. Our board of directors also has the right to alter or amend the long-term incentive plan or any part of the long-term incentive plan from time to time, including increasing the number of units that may be granted, subject to unitholder approval as may be required by the exchange upon which the common units are listed at that time, if any. However, no change in any outstanding grant may be made that would materially reduce the benefits of the participant without the consent of the participant. The long-term incentive plan will expire upon its termination by the board of directors or, if earlier, when no units remain available under the long-term incentive plan for awards. Upon termination of the long-term incentive plan, awards then outstanding will continue pursuant to the terms of their grants.

Restricted Units. A restricted unit is a common unit that vests over a period of time and that during such time is subject to forfeiture. In the future, the board of directors may determine to make grants of restricted units under the long-term incentive plan to employees, directors and consultants containing such terms as the board of directors determines. The board of directors will determine the period over which restricted units granted to participants will vest. The board of directors, in its discretion, may base its determination upon the achievement of specified financial objectives or other events. In addition, the restricted units will vest upon a change in control, as defined in the long-term incentive plan. Distributions made on restricted units may be subjected to the same vesting provisions as the restricted unit. If a grantee's employment, consulting or membership on the board of directors terminates for any reason, the grantee's restricted units will be automatically forfeited unless, and to the extent, the board of directors or the terms of the award agreement provide otherwise.

Common units to be delivered as restricted units may be common units acquired by us in the open market, common units acquired by us from any other person or any combination of the foregoing. If we issue new common units upon the grant of the restricted units, the total number of common units outstanding will increase.

We intend the restricted units under the long-term incentive plan to serve as a means of incentive compensation for performance and not primarily as an opportunity to participate in the equity

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appreciation of our common units. Therefore, participants will not pay any consideration for the common units they receive, and we will receive no remuneration for the units.

Phantom Units. A phantom unit entitles the grantee to receive a common unit upon the vesting of the phantom unit or, in the discretion of the board of directors, cash equivalent to the value of a common unit. In the future, the board of directors may determine to make grants of phantom units under the plan to employees, consultants and directors containing such terms as the board of directors determines. The board of directors will determine the period over which phantom units granted to employees and members of our board will vest. The board, in its discretion, may base its determination upon the achievement of specified financial objectives or other events. In addition, the phantom units will vest upon a change in control. If a grantee's employment, consulting or membership on the board of directors terminates for any reason, the grantee's phantom units will be automatically forfeited unless, and to the extent, the board of directors or the terms of the award agreement provide otherwise.

The board of directors, in its discretion, may grant distribution equivalent rights, or DERs, with respect to a phantom unit. DERs entitle the grantee to receive a cash payment equal to the cash distributions made on a common unit during the period the phantom unit is outstanding. The board of directors will establish whether the DERs are paid currently, when the tandem phantom unit vests or on some other basis.

Common units to be delivered upon the vesting of phantom units may be common units acquired by us in the open market, common units acquired by us from any other person or any combination of the foregoing. If we issue new common units upon vesting of the phantom units, the total number of common units outstanding will increase.

We intend the issuance of any common units upon vesting of the phantom units under the plan to serve as a means of incentive compensation for performance and not primarily as an opportunity to participate in the equity appreciation of our common units. Therefore, plan participants will not pay any consideration for the common units they receive, and we will receive no remuneration for the units.

Deferred Common Units. The board of directors may determine to make grants of deferred common units to non-employee directors of our general partner. A deferred common unit represents one common unit, which vests immediately upon issuance and is available to the holder upon termination or retirement from the board of directors of our general partner. Common units delivered in connection with deferred common units may be common units acquired by us in the open market, common units acquired by us from any other person or any combination of the foregoing. Deferred common units awarded to directors receive all cash or other distributions paid by us on account of our common units.

U.S. Federal Income Tax Consequences of Awards Under the long-Term Incentive Plan. Generally, when phantom units, restricted units or deferred common units are granted, there are no income tax consequences for the participant or us. Upon the payment to the participant of common units and/or cash in respect of the award of phantom units or deferred common units or the release of restrictions on restricted units, including any distributions that have been made thereon, the participant recognizes compensation equal to the fair market value of the cash and/or units as of the date of delivery or release.

Compensation of Our Officers

We and our general partner have no employees. All of our officers and other personnel necessary for our business to function (to the extent not out-sourced) will be employed by KSP and we will pay KSP an annual fee for general and administrative services. See "Certain Relationships and Related Transactions—Administrative Agreement."

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Compensation of Our Directors

Compensation of our independent directors will be set by our general partner's board of directors upon recommendation from our general partner's compensation committee.

The member-designated directors who serve on both our general partner's board of directors and KSP GP's board of directors will be compensated by KSP GP and will not receive additional compensation for service on our general partner's board of directors. Our chief executive officer will not receive additional compensation for his service as a director.

Each director will be indemnified for his actions associated with being a director to the fullest extent permitted under Delaware law.

Compensation Committee Interlocks and Insider Participation

While certain of our executive officers and directors serve in similar roles with our general partner, none of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of the board of directors or compensation committee of our general partner.

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K-SEA TRANSPORTATION PARTNERS L.P.'S COMPENSATION DISCUSSION AND ANALYSIS

We and our general partner have no employees. All of our officers and other personnel necessary for our business to function (to the extent not out-sourced) will be employed by KSP, and we will pay KSP an annual fee for general and administrative services pursuant to an administrative services agreement. Please read "Certain Relationships and Related Transactions—Administrative Agreement."

Applicable disclosure rules require us to discuss certain aspects of the compensation of certain "named executive officers," consisting of the CEO, the CFO and the three most highly compensated officers, to the extent these three receive in excess of $100,000 during the relevant period as compensation for such services. Our executive officers received no compensation from us for the fiscal year ended June 30, 2007. We do not intend to compensate our officers in the future; rather, their management of our business will be part of the service provided by KSP under the administrative services agreement. As a result, references to our named executive officers are limited to Messrs. Casey and Nicola, except as otherwise indicated. Moreover, we anticipate that substantially all responsibility and authority for compensation-related decisions will reside with the compensation committee of KSP GP. Accordingly, the information set forth in this section is the compensation discussion and analysis of KSP for the fiscal year ended June 30, 2007. References to "KSP's Named Executive Officers" are to Messrs. Casey and Nicola, as well as Messrs. Falcinelli, Sullivan and Kauffman, who were named executive officers of KSP GP as of June 30, 2007, but do not serve as officers of our general partner.

Background

This compensation discussion and analysis is intended to provide investors with an understanding of KSP's compensation policies and decisions regarding KSP's named executive officers for fiscal 2007. KSP's named executive officers are its Chief Executive Officer, its Chief Financial Officer and its three other most highly compensated executive officers for fiscal 2007.

Executive Compensation Philosophy

In establishing executive compensation, KSP believes that:

•: base salaries should reflect the basic duties and responsibilities of the executive and be reasonably competitive with comparator group companies;
•: annual cash bonuses should reflect KSP's annual results, performance against budget, progress toward KSP's short and long-term strategic and operating goals, and individual performance and contribution; and
•: equity awards encourage significant executive equity ownership to further align executive interests to KSP's unitholders.

Purpose of KSP's Executive Compensation Program

KSP's primary business objective is to increase its distributable cash flow, or DCF, per unit, which serves as a basis for its distribution payments to unitholders, by executing the following business strategies:

•: expanding its fleet through newbuildings and accretive and strategic acquisitions;
•: maximizing fleet utilization and improving productivity;
•: maintaining safe, low-cost and efficient operations;
•: balancing its fleet deployment between longer-term contracts and shorter-term business to provide stable cash flows through business cycles, while preserving flexibility to respond to changing market conditions; and

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•: attracting and maintaining customers by adhering to high standards of performance, reliability and safety.

For additional information regarding KSP's business strategies, please see "Business of K-Sea Transportation Partners L.P.—Business Strategies."

The purpose of KSP's executive compensation program is to assist KSP in achieving its business objectives by developing and retaining talented senior executives with a competitive compensation package, and to motivate them to achieve KSP's strategic goals and increase KSP's DCF and unitholder value. DCF is a non-GAAP financial measure which is among the measures used to evaluate KSP's operating performance and its ability to make cash distributions.

Role of KSP GP's Compensation Committee

Responsibilities and Authority

The Compensation Committee of KSP GP, or the Compensation Committee, has overall responsibility for determining the compensation of KSP's named executive officers. The Compensation Committee, among other tasks, determines and approves the Chief Executive Officer's compensation, makes recommendations to the board with respect to other executive officer compensation, and reviews from time to time the compensation and benefits of non-employee directors.

For fiscal 2007, the compensation payable to all of KSP's named executive officers was reviewed and approved by the Compensation Committee. The Compensation Committee seeks input from Timothy J. Casey, KSP's President and Chief Executive Officer, regarding the amount of compensation payable to, and the individual performance of, KSP's named executive officers (other than Mr. Casey).

Independent Compensation Consultant

During fiscal 2007, the Compensation Committee retained Pearl Meyer and Partners, or PMP, as an independent consultant on executive compensation matters. The Compensation Committee met with PMP multiple times over several months to review and refine KSP's compensation methodology. The Compensation Committee considered advice and information from PMP in determining the amount and form of compensation for named executive officers and other employees. This work included establishing a comparator group of companies, providing relevant market data and alternatives to consider for named executive officer compensation, and meeting with the Compensation Committee and Mr. Casey to discuss executive compensation matters. KSP has not engaged PMP for any other purpose.

Timing of Decisions

The Compensation Committee meets after the end of each fiscal year to review base salaries for the then-current year, to consider incentive compensation (consisting of cash bonuses and equity-based awards) and to review and, as appropriate, make changes to KSP's executive compensation program. The Compensation Committee also meets at other times during the year and acts by written consent when necessary and appropriate. During fiscal 2007, the Compensation Committee met five times. The Chairman of the Compensation Committee also met with members of KSP's management team and representatives of PMP on several occasions to discuss KSP executive compensation policies and programs.

KSP does not time the release of material non-public information for the purpose of affecting the values of executive compensation. At the time of making equity-based compensation decisions, the Compensation Committee may be aware of material non-public information and takes such information into account, but it does not adjust the size of grants to reflect possible market reaction. Prior to August 2007, the Compensation Committee made grants of equity-based compensation on a periodic

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basis to reflect specific achievements. In August 2007, the Compensation Committee decided to consider grants of equity-based compensation on an annual basis. In the future, the Compensation Committee expects to consider grants of equity-based compensation shortly after the end of the fiscal year, although specific grants may be made at other times to recognize the promotion of an employee, a change in responsibility or a specific achievement.

Elements of Compensation

KSP's executive compensation program includes three main elements: a base salary, an annual cash bonus and an annual equity-based incentive award. These individual components are designed to:

•: through a market-competitive base salary that is consistent with the executive's position and level of responsibility, provide a minimum level of compensation to each individual;
•: through an annual cash bonus, reward individuals who contribute to the financial and operational success of KSP during the current fiscal year; and
•: through equity-based incentive awards, reward individuals who contribute to the financial and operational success of KSP during the current fiscal year and, at the same time, further align the executives' interests with the long-term interests of KSP's unitholders.

KSP views the various components of compensation as related, but distinct, and emphasize "pay for performance." A significant portion of total executive compensation reflects a risk aspect, and is tied to KSP's financial and strategic goals. KSP's compensation philosophy is to foster entrepreneurship at all levels of the organization by making long-term equity-based incentives, in particular through participation in the growth of KSP's quarterly distributions, a significant component of executive compensation. KSP determines the appropriate level for each compensation component based in part, but not exclusively, on KSP's view of internal equity and consistency, and other considerations KSP deems relevant, such as rewarding extraordinary performance. The Compensation Committee has not yet adopted any policies for allocating compensation between long-term and currently paid out compensation, between cash and non-cash compensation, or among different forms of non-cash compensation. The Compensation Committee is currently evaluating KSP's executive compensation program and may adopt such policies in the future.

As described in more detail below, these elements are designed to reward partnership and individual performance.

•: Partnership Performance: KSP's performance is measured by various metrics, such as EBITDA (earnings before interest, taxes and depreciation), DCF on an aggregate and per unit basis, vessel utilization and average daily rates, other vessel operating measures, and financing and compliance objectives. The Compensation Committee also considers other achievements during the year when evaluating KSP's performance.
•: Individual Performance: Individual performance is evaluated based on individual expertise, leadership, ethics and personal performance against goals and objectives.

Employment Agreements

Timothy J. Casey, John J. Nicola, Thomas M. Sullivan and Richard P. Falcinelli have entered into employment agreements with K-Sea Transportation Inc., one of KSP's indirect wholly owned subsidiaries. The employment agreements contemplate that each employee will serve as an officer of KSP's general partner and other affiliates. Each of the employment agreements had an initial term of one year. The term of each employment agreement is automatically extended for successive one-year terms unless either party gives 30 days written notice prior to the end of the term that such party desires not to renew the employment agreement.

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Each employment agreement established an annual base salary for the named executive officer, which has been subsequently increased by the Compensation Committee. Under the employment agreement, each employee is eligible to receive an annual incentive bonus based upon the financial performance of KSP and its subsidiaries. The board of directors of KSP GP will determine the amount of any incentive bonus award and may issue additional awards to each employee in the amounts and at the times it so determines. Further, Messrs. Casey, Nicola, Sullivan and Falcinelli are furnished an automobile for business use and reimbursed for reasonable costs of insurance, gasoline and repairs for the automobile in accordance with KSP's reimbursement policies and upon submission of satisfactory evidence of such costs.

Each employment agreement also provides for certain payments upon termination of employment. For more information, please read "—KSP Executive Compensation Tables—Potential Payments upon Termination or Change-in-Control" below. The Compensation Committee is currently in the process of evaluating potential revisions to the employment agreements based on a review of current market practice and after receiving input from PMP.

Comparator Group

The Compensation Committee evaluates the executive compensation programs and practices for KSP's executive officers against a comparator group in order to achieve a competitive level of compensation. The comparator group was selected based on, among other things, industry, EBITDA, equity market capitalization and enterprise value. For fiscal 2007, the comparator group consists of the following 12 transportation companies and six master limited partnerships:

Transportation Companies

•: Celadon Group, Inc.
•: Covenant Transportation Group, Inc.
•: International Shipholding Corporation
•: Maritrans, Inc.
•: Marten Transport, Ltd.
•: P.A.M. Transportation Services, Inc.
•: Patriot Transportation Holding, Inc.
•: Saia, Inc.
•: U.S. Shipping Partners L.P.
•: U.S. Xpress Enterprises, Inc.
•: Universal Truckload Services, Inc.
•: USA Truck, Inc.

Master Limited Partnerships

•: Atlas Pipeline Partners, L.P.
•: Global Partners L.P.
•: Hiland Partners, L.P.
•: Holly Energy Partners, L.P.

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•: Martin Midstream Partners, L.P.
•: Exterran Partners, L.P.

The Compensation Committee compares the companies' executive compensation programs as a whole, and also compares the pay of individual executives if the jobs are sufficiently similar to make a comparison meaningful. Moreover, when comparing a named executive officer's compensation with others in the comparator group, the Compensation Committee seeks comparisons based on the executive's duties and responsibilities and not merely based on the executive's title. For example, KSP does not have a chief operating officer and the traditional duties performed by a person with that title are allocated among several different people at KSP.

The Compensation Committee uses the comparator group data to ensure that executive officer compensation as a whole is appropriately competitive, given KSP's performance. The Compensation Committee, however, does not target a specific percentile of comparator group compensation in determining the level of KSP's executive officer compensation. The composition of the comparator group is subject to change from time to time based on a review by the Compensation Committee to reflect, among other things, best practices in executive compensation, changes in KSP's business including the size and complexity thereof, and changes in the competitive marketplace resulting from mergers and acquisitions or other activity.

Partnership Performance

The Compensation Committee evaluates KSP's financial condition and results of operations, KSP's performance in light of industry fundamentals and how effectively management adapts to changing industry conditions and opportunities during the year in preparing KSP to capitalize on opportunities in the future. In addition, the Compensation Committee considered the following accomplishments, among others, in measuring partnership performance during fiscal 2007:

•: fiscal 2007 DCF was a record and meaningfully above the prior year's DCF;
•: increases in per unit distributions to KSP unitholders for each quarter of fiscal 2007;
•: the execution of definitive agreements for the acquisition of the Smith Maritime Group;
•: KSP's progress toward replacing its single-hull vessels, including recent newbuilding orders;
•: the acquisition of several tugboats to improve the efficiency of KSP's tank barge fleet;
•: improvements in average daily rates for KSP's coastwise and local tank barge fleets;
•: consistency in KSP's net utilization of its tank barges; and
•: improvements in safety results.

Base Salary

In evaluating the base salaries of KSP's named executive officers, the Compensation Committee considered the historical and expected future performance of each such executive and competitive market data provided by PMP. In general, the Compensation Committee targets base salaries that are competitive with similar positions in the comparator group. Based on a review of base salaries for the comparator group and after considering KSP's performance and the individual performance of each

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executive, the Compensation Committee increased the base salaries of KSP's named executive officers as follows:

Name	Fiscal 2008 Base Salary(1)		Increase Over Fiscal 2007
Timothy J. Casey	$	300,000	$	50,000
John J. Nicola	$	210,000	$	10,000
Thomas Sullivan	$	210,000	$	10,000
Richard P. Falcinelli	$	210,000	$	10,000
Charles Kauffman	$	210,000	$	8,311

(1): Effective July 1, 2007.

Annual Cash Bonus

The amount of the annual cash bonus is determined by the Compensation Committee on an annual basis after considering partnership and individual performance. For fiscal 2007, the Compensation Committee had targeted an annual cash bonus of 80% of base salary for Mr. Casey and 40% of base salary for other named executive officers. KSP performed significantly above the Compensation Committee's expectations in fiscal 2007. Based on that performance and after considering the individual performance of each named executive officer, the Compensation Committee decided to award cash bonuses in excess of the targeted amounts. The following table sets forth the amount of each named executive officer's annual cash bonus for fiscal 2007 and the percentage of such bonus in relation to the named executive officer's salary for fiscal 2007:

Name	Total Annual Cash Bonus for Fiscal 2007		Percentage of Fiscal 2007 Salary
Timothy J. Casey	$	300,750	120	%
John J. Nicola	$	90,225	45	%
Thomas Sullivan	$	90,225	45	%
Richard P. Falcinelli	$	90,225	45	%
Charles Kauffman	$	90,225	45	%

Equity-Based Incentive Awards

In respect of fiscal 2007, the Compensation Committee made phantom unit grants in amounts intended to result in approximately 50% of the executive's total annual incentive compensation being equity based. A "phantom" unit entitles the grantee to receive a KSP common unit upon the vesting of the phantom unit or, in the discretion of the Compensation Committee, cash equivalent to the fair market value of a KSP common unit. Holders of phantom units also have the right to receive an amount in cash equal to, and payable at the same time as, the cash distribution made with respect to a KSP common unit during the period the phantom unit is outstanding. The Compensation Committee believes that making a portion of an executive's compensation contingent on long-term unit price performance more closely aligns the executive's interests with those of KSP's unitholders. Like cash bonuses, phantom unit awards reflect progress toward KSP's partnership goals and individual performance.

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The following table sets forth awards of phantom units on August 7, 2007, with respect to each named executive officer's performance in fiscal 2007:

Name	Phantom Units	Grant Date Fair Value(1)
Timothy J. Casey	7,000	$	299,250
John J. Nicola	2,100	$	89,775
Thomas Sullivan	2,100	$	89,775
Richard P. Falcinelli	2,100	$	89,775
Charles Kauffman	2,100	$	89,775

(1): Determined by multiplying the number of phantom units granted to a named executive officer by $42.75, the closing price of our common units on the NYSE on August 7, 2007, which was the date of grant.

The awards of phantom units for fiscal 2007 vest in five equal annual installments beginning on October 1, 2008, subject to earlier vesting or forfeiture as provided in the applicable award agreement.

Perquisites and Other Benefits

Messrs. Casey, Nicola, Sullivan and Falcinelli are furnished an automobile for business use and reimbursed for reasonable costs of insurance, gasoline and repairs for the automobile in accordance with KSP's reimbursement policies and upon submission of satisfactory evidence of such costs. Mr. Kauffman receives an automobile allowance.

KSP seeks to provide benefit plans, such as medical, life and disability insurance, in line with market conditions. Executive officers are eligible for the same benefit plans provided to other exempt employees, including insurance plans and supplemental plans chosen and paid for by employees who wish additional coverage. KSP does not have any special insurance plans for executive officers.

Other Compensation Related Matters

Equity Ownership

Although KSP encourages its executive officers to retain ownership in KSP, KSP does not have a policy requiring maintenance of a specified equity ownership level. In the aggregate, as of June 30, 2007, KSP's named executive officers beneficially owned an aggregate of 29,300 KSP common units and 46,000 phantom units. Additionally, certain of KSP's named executive officers receive approximately 9.4% of the cash distributions received by KSP GP and its affiliates through their ownership interest in these entities. These arrangements further tie the interests of these executive officers to the interests of KSP's unitholders.

KSP's policies prohibit KSP's executive officers from using puts, calls or options to hedge the economic risk of their ownership.

Recovery of Prior Awards

KSP does not have a policy with respect to adjustment or recovery of awards or payments if relevant performance measures upon which previous awards were based are restated or otherwise adjusted in a manner that would reduce the size of such award or payment.

Impact of Tax and Accounting Treatment

Accounting Treatment

Effective July 1, 2005, KSP adopted SFAS 123R, which requires that companies recognize in their financial statements the cost of employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards.

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Tax Treatment

Section 162(m) of the Code generally disallows a tax deduction to publicly traded corporations for compensation in excess of $1 million paid to the Chief Executive Officer or any of the four other most highly compensated officers. Because KSP is organized as a limited partnership, KSP is not subject to the provisions of Section 162(m) of the Code.

Section 409A of the Code imposes new constraints on nonqualified deferred compensation, and some awards under KSP's long-term incentive plan and severance benefits under employment agreements with KSP's officers may be subject to these new rules. Failure to comply with Section 409A may result in the early taxation of deferred compensation and the imposition of a 20% penalty. Employers generally will have until December 31, 2007 to amend plans and arrangements to comply with Section 409A. KSP intends to design its compensation arrangements to be either exempt from Section 409A or to comply with Section 409A, and KSP may be required to amend certain arrangements before December 31, 2007 to achieve this result.

KSP Executive Compensation Tables

Summary Compensation Table

Name and Principal Position	Fiscal Year	Salary($)		Bonus($)		Stock Awards($)(1)		Option Awards($)		Non-Equity Incentive Plan Compensation($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings($)		All Other Compensation ($)(2)		Total($)
Timothy J. Casey President and Chief Executive Officer	2007	$	250,000	$	300,750	$	202,117	$	—	$	—	$	—	$	21,616	$	774,483
John J. Nicola Chief Financial Officer	2007	$	200,000	$	90,225	$	67,372	$	—	$	—	$	—	$	18,194	$	375,791
Thomas M. Sullivan Vice President, Operations	2007	$	200,000	$	90,225	$	67,372	$	—	$	—	$	—	$	18,911	$	376,508
Richard P. Falcinelli Vice President, Administration and Secretary	2007	$	200,000	$	90,225	$	67,372	$	—	$	—	$	—	$	20,741	$	378,338
Charles Kauffman Vice President, Corporate Development	2007	$	201,689	$	90,225	$	34,100	$	—	$	—	$	—	$	10,942	$	336,956

(1): This amount reflects the compensation cost recognized by us during fiscal 2007 under SFAS 123R for grants made in fiscal 2007 and prior years. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. These amounts reflect our recognized compensation expense for these awards under SFAS 123R, and do not correspond to the actual value that will be recognized by the named executive officers.
(2): Represents contributions to our 401(k) Savings Plan during fiscal 2007 and the value of personal use of an automobile.

Grants of Plan-Based Awards Table

KSP did not make any grants of plan-based awards during fiscal 2007.

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Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information concerning the outstanding equity awards made to each named executive officer of KSP as of June 30, 2007.

	Stock Awards(1)
Name	Number of Shares or Units of Stock That Have Not Vested(#)	Market Value of Shares or Units of Stock That Have Not Vested($)(2)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(#)
T. Casey	21,000	$	990,150	—	—
J. Nicola	7,000	$	330,050	—	—
T. Sullivan	7,000	$	330,050	—	—
R. Falcinelli	7,000	$	330,050	—	—
C. Kauffman	4,000	$	188,600	—	—

(1): Represents phantom unit awards that vest in five annual installments. All phantom unit awards are subject to accelerated vesting on a change in control or the termination of the employee's employment due to death, disability or retirement and to such other terms as are set forth in the award agreement. Holders of phantom units have the right to receive an amount in cash equal to, and payable at the same time as, the cash distribution made with respect to a common unit during the period the phantom unit is outstanding.
(2): Determined by multiplying the number of unvested common units as of June 30, 2007 by $47.15, which was the closing price of KSP's common units on the NYSE on June 29, 2007.

Option Exercises and Stock Vested Table

The following table sets forth the number of shares acquired upon the vesting of phantom unit awards, and the value realized upon exercise or vesting of such awards, for each of KSP's named executive officers in fiscal 2007.

	Stock Awards
Name	Number of Shares Acquired on Vesting(#)	Value Realized on Vesting($)(1)
T. Casey	6,000	$	204,060
J. Nicola	2,000	$	68,020
T. Sullivan	2,000	$	68,020
R. Falcinelli	2,000	$	68,020
C. Kauffman	1,000	$	34,010

(1): Represents the number of common units multiplied by the closing price of our common units on the NYSE on the vesting date.

Pension Benefits

KSP does not maintain any plans that provide for payments or other benefits at, following or in connection with retirement, other than a 401(k) plan that is available to all U.S. employees.

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Non-Qualified Deferred Compensation

KSP does not maintain any defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified under the Internal Revenue Code.

Potential Payments upon Termination or Change-in-Control

Timothy J. Casey, John J. Nicola, Thomas M. Sullivan and Richard P. Falcinelli have entered into employment agreements with K-Sea Transportation Inc., one of KSP's indirect wholly owned subsidiaries. The employment agreements do not provide for any payments in the event of a change in control. If the employee's employment is terminated without cause or if the employee resigns for good reason, the employee is entitled to severance in an amount equal to the greater of (a) the product of 1.3125 (1.75 multiplied by .75) multiplied by the employee's base salary at the time of termination or resignation and (b) the product of 1.75 multiplied by the remaining term of the employee's non-competition provisions multiplied by the employee's base salary at the time of termination or resignation. In addition, KSP will make COBRA payments on behalf of the employee for a period of one year. If the employee is terminated for cause or terminates employment without good reason (other than death or disability), the employee is entitled to receive only earned but unpaid compensation and benefits. If the employee is terminated due to death, the employee's designated beneficiary or, if none, his estate, is entitled to receive an amount equal to one-half of the employee's annual base salary at the time of death. If the employee is terminated due to disability, the employee is entitled to receive an amount equal to one-half of the employee's annual base salary at the time of disability and, if the employee so elects, COBRA payments for one year following termination.

Under the employment agreements, "cause" and "good reason" are defined as follows:

•: Cause: the employee (1) after repeated notices and warnings, fails to perform his reasonably assigned duties as reasonably determined by us, (2) materially breaches certain provisions of the employment agreement, or (3) commits or engages in a felony or any intentional dishonest, unethical or fraudulent act which materially damages KSP's reputation.
•: Good reason: the resignation of the employee after the relocation of our principal office outside of a 75 mile radius of our current location unless the new location is mutually agreed upon by KSP and the employee.

If a change in control were to have occurred as of June 30, 2007, all phantom units awarded to named executive officers awards under our long-term incentive plan would have immediately vested. In addition, all such awards would immediately vest upon the death, disability or retirement (after reaching age 65) of the named executive. If the named executive officer is terminated other than in connection with a change in control or the executive's death, disability or retirement (after reaching age 65), any unvested phantom units awarded to such executive would be forfeited.

The following tables set forth potential amounts payable to KSP's named executive officers upon termination of employment under various circumstances, as if terminated on June 30, 2007.

		Change in Control
		Casey			Nicola			Sullivan			Falcinelli			Kauffman
Accelerated vesting of phantom units(1)		$	990,150		$	330,050		$	330,050		$	330,050		$	188,600

(1): Determined by multiplying the number of unvested phantom units as of June 30, 2007 by $47.15, which was the closing price of KSP's common units on the NYSE on June 29, 2007.

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	Termination Without Cause or Resignation for Good Reason(1)
	Casey		Nicola		Sullivan		Falcinelli		Kauffman
Severance payment	$	328,125	$	262,500	$	262,500	$	262,500	—
COBRA payments		13,886		4,980		13,886		13,886	—

Total	$	342,011	$	267,480	$	276,386	$	276,386	—

(1): If the employee is terminated for cause or terminates employment without good reason (other than death or disability), the employee is entitled to receive only earned but unpaid compensation and benefits.

	Termination in the Event of Death
	Casey		Nicola		Sullivan		Falcinelli		Kauffman
Severance payment	$	125,000	$	100,000	$	100,000	$	100,000	$	—
COBRA payments		13,886		4,980		13,886		13,886		—
Accelerated vesting of phantom units		990,150		330,050		330,050		330,050		188,600

Total	$	1,129,036	$	435,030	$	443,936	$	443,936	$	188,600

	Termination in the Event of Disability
	Casey		Nicola		Sullivan		Falcinelli		Kauffman
Severance payment	$	125,000	$	100,000	$	100,000	$	100,000	$	—
COBRA payments		13,886		4,980		13,886		13,886		—
Accelerated vesting of phantom units		990,150		330,050		330,050		330,050		188,600

Total	$	1,129,036	$	435,030	$	443,936	$	443,936	$	188,600

Director Compensation

KSP GP pays no additional remuneration to its employees for serving as directors. Also, neither Mr. Dowling nor Mr. Friedman receives any remuneration for serving as a director; however, they are reimbursed for expenses attendant to board membership.

The following table sets forth a summary of the compensation paid by KSP to non-employee directors of KSP GP in fiscal 2007:

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)(1)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)(2)(3)
Brian P. Friedman	$	—	$	—	$	—	$	—	$	—	$	—	$	—
James J. Dowling		—	$	93,750		—		—		—		—	$	93,750
Anthony S. Abbate	$	13,000	$	29,802		—		—		—		—	$	42,802
Barry J. Alperin	$	23,000	$	29,802		—		—		—		—	$	52,802
Frank Salerno	$	13,000	$	29,802		—		—		—		—	$	42,802

(1): Represents the number of previously issued KSP phantom units that vested during 2007 multiplied by the closing price of KSP's common units on the date of grant.
(2): Each of Messrs. Abbate, Alperin and Salerno received an annual retainer of $5,000 during fiscal 2007 in consideration of their services as director of KSP GP. In addition, for each board meeting attended by Messrs. Abbate, Alperin and Salerno, they receive a fee of $1,000. Furthermore, Messrs. Abbate, Alperin and Salerno receive $1,000 for each committee meeting they attend (or $500 in the case of an audit committee meeting that falls on the same day as a board meeting). Mr. Alperin receives an additional $1,000 for each audit committee meeting for his services as chairman of the audit committee. On August 7, 2007, the Compensation Committee of KSP GP increased the annual retainer for independent directors to $10,000 and granted each independent director 5,000 phantom units of KSP, which vest in five equal annual installments beginning on October 1, 2008. Holders of phantom units also have the right to receive an amount in cash equal to, and payable at the same time as, the cash distribution made with respect to a KSP common unit during the period the phantom unit is outstanding.
(3): KSP also reimburses directors for out-of-pocket expenses attendant to Board membership.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED SECURITYHOLDER MATTERS

K-Sea GP Holdings LP

The following table sets forth certain information regarding the beneficial ownership of our common units following the consummation of this offering and the related transactions by:

•: each person who is known to us to beneficially own more than 5% of such units to be outstanding;
•: our general partner;
•: each of the executive officers of our general partner;
•: each of the directors of our general partner; and
•: all of the directors and executive officers of our general partner as a group.

The table assumes that the underwriters do not exercise their option to purchase additional common units.

All information with respect to beneficial ownership has been furnished by the respective directors, officers or 5% or more unit holders, as the case may be.

	Beneficially Owned Before Offering		Beneficially Owned After Offering
Name of Beneficial Owner(1)	Common Units	Percent	Common Units	Percent
KSP Investors A L.P.
KSP Investors B L.P.
KSP Investors C L.P.
Park Avenue Transportation Inc.(2)
James J. Dowling
Timothy J. Casey
Brian P. Friedman(2)
John J. Nicola
All directors and named executive officers of K-Sea General Partner GP LLC as a group (4 persons)

(1): Unless otherwise noted, each beneficial owner has sole voting and dispositive power with respect to the common units set forth opposite such holder's name. The address of each beneficial owner is One Tower Center Boulevard, 17th Floor, East Brunswick, New Jersey 08816.
(2): Park Avenue Transportation Inc. is the general partner of each of KSP Investors A L.P., KSP Investors B L.P. and KSP Investors C L.P. (each, a "KSP Entity") and, therefore, has sole voting and dispositive power with respect to the equity interests in us owned by each KSP Entity. Mr. Friedman owns 51% of the outstanding shares of capital stock of Park Avenue Transportation Inc., the general partner of each KSP Entity. In addition, Mr. Friedman has an economic interest in FS Private Investments LLC, which in turn has an economic interest in each KSP Entity. Mr. Friedman also has direct economic interests in certain of the KSP Entities.

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K-Sea Transportation Partners L.P.

The following table sets forth the beneficial ownership of units of K-Sea Transportation Partners L.P. as of December 31, 2007 by beneficial owners of 5% or more of such units by each director and named executive officer of KSP GP and by all directors and named executive officers as a group.

All information with respect to beneficial ownership has been furnished by the respective directors, officers or greater than 5% unitholders, as the case may be.

Name of Beneficial Owners(1)	Common Units(2)	Percentage of Common Units		Subordinated Units	Percentage of Subordinated Units		Percentage of Total Common and Subordinated Units
*Beneficial Owners of 5% or More*
EW Transportation LLC(1)	2,082,500	17.9	%	2,082,500	100.0	%	30.4	%
EW Holding Corp.(2)	—	—		1,181,818	56.7	%	8.6	%
EW Transportation Corp.(2)	—	—		454,545	21.8	%	3.3	%
Tortoise Energy Infrastructure Corporation(3)	612,800	5.3	%	—	—		4.5	%
Tortoise Capital Advisors, L.L.C.(3)	1,165,685	10.0	%	—	—		8.5	%
*Directors and Executive Officers*
James J. Dowling	12,000	*		—	—		*
Timothy J. Casey	16,000	*		—	—		*
Anthony S. Abbate	14,750	*		—	—		*
Barry J. Alperin	5,750	*		—	—		*
Brian P. Friedman(4)	2,126,412	18.3	%	2,082,500	100.0	%	30.7	%
Frank Salerno	4,050	*		—	—		*
John J. Nicola	12,500	*		—	—		*
Thomas M. Sullivan	5,600	*		—	—		*
Richard P. Falcinelli	6,200	*		—	—		*
Charles Kauffman	2,000	*		—	—		*
All directors and executive officers as a group (11 persons)	2,205,262	19.0	%	2,082,500	100.0	%	31.3	%

*: Less than 1%.
(1): EW Transportation LLC is owned by individual investors, including certain of our directors and executive officers, and by KSP Investors A L.P., KSP Investors B L.P. and KSP Investors C L.P. (each, a "KSP Entity"). EW Transportation LLC's beneficial ownership includes units beneficially owned by EW Holding Corp. and EW Transportation Corp., its wholly owned subsidiaries. The address of EW Transportation LLC is One Tower Center Blvd. 17^th Floor, East Brunswick, New Jersey 08816.
(2): EW Holding Corp.'s beneficial ownership includes units beneficially owned by EW Transportation Corp., its wholly owned subsidiary. The address of each entity is One Tower Center Blvd. 17^th FL, East Brunswick, New Jersey 08816.
(3): Based solely on a Schedule 13G/A filed with the Securities and Exchange Commission on February 12, 2008 by Tortoise Energy Infrastructure Corporation ("TYG") and Tortoise Capital Advisors, L.L.C., an investment advisor to TYG and certain managed accounts ("TCA"). TCA acts as an investment advisor to certain closed-end investment companies, including TYG. TCA, by virtue of investment advisory agreements with these investment companies, has all investment and voting power over securities owned of record by these investment companies. However, despite

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their delegation of investment and voting power to TCA, these investment companies may be deemed to be the beneficial owner of the securities they own of record because they have the right to acquire investment and voting power through termination of their investment advisory agreement with TCA. Thus, TCA has reported that it shares voting power and dispositive power over the securities owned of record by these investment companies, and TYG has reported that it shares voting power and dispositive power over the securities owned of record by it. TCA also acts as an investment advisor to certain managed accounts. Under contractual agreements with individual account holders, TCA, with respect to the securities held in the managed accounts, shares investment and voting power with certain account holders, and has no voting power but shares investment power with certain other account holders. Including shares owned of record by TYG and certain managed accounts, TCA has shared voting power with respect to 1,102,163 common units and shared dispositive power with respect to 1,165,685 common units. TYG has shared voting and dispositive power with respect to 612,800 common units. TCA is not the record owner of any common units and disclaims any beneficial interest in such common units. The address of each entity is 10801 Mastin Boulevard, Suite 222, Overland Park, Kansas 66210.

(4): Mr. Friedman owns 51% of Park Avenue Transportation Inc., the general partner of each KSP Entity and, therefore, may be deemed to beneficially own the common and subordinated units held by EW Transportation LLC. The address of each KSP Entity and Park Avenue Transportation Inc. is 520 Madison Avenue, 12th Floor, New York, New York 10022.

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SELLING UNITHOLDERS

The selling unitholders named below are contributing parties that will acquire our common units in connection with the formation transactions described under "Prospectus Summary—Formation Transactions and Our Structure and Ownership After This Offering." The following table sets forth information concerning the ownership of common units by the selling unitholders immediately before and after this offering assuming:

•: the underwriters do not exercise their option to purchase additional common units; and
•: the underwriters exercise their option to purchase additional common units in full.

				Beneficial Ownership After the Offering (Assuming No Exercise of Over-Allotment Option)		Beneficial Ownership After the Offering (Assuming Exercise of Over-Allotment Option in Full)
	Beneficial Ownership Prior to the Offering
	Beneficial Ownership Prior to the Offering		Number of Common Units to be Sold in Offering
Name of Selling Unitholder(1)	Common Units	Percent	Number of Common Units to be Sold in Offering	Common Units	Percent	Common Units	Percent
KSP Investors A L.P.
KSP Investors B L.P.

(1): The address of each selling unitholder is One Tower Center Boulevard, 17th Floor, East Brunswick, New Jersey 08816. Park Avenue Transportation Inc. is the general partner of each of KSP Investors A L.P. and KSP Investors B L.P. and, therefore, has sole voting and dispositive power with respect to the equity interests in us owned by each of KSP Investors A L.P. and KSP Investors B L.P. Brian P. Friedman owns 51% of the outstanding shares of capital stock of Park Avenue Transportation Inc., the general partner of each of KSP Investors A L.P. and KSP Investors B L.P. In addition, Mr. Friedman has an economic interest in FS Private Investments LLC, which in turn has an economic interest in each of KSP Investors A L.P. and KSP Investors B L.P. Mr. Friedman also has direct economic interests in certain of such entities.
(2): Assuming the underwriters' option to purchase additional common units is exercised in full.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Our Relationship with KSP and its General Partner, KSP GP

General

Our only cash generating assets consist of our partnership interests in KSP, which, upon completion of this offering, will initially consist of the following:

•: 100% of the incentive distribution rights in KSP, which we hold through our 100% ownership interest in KSP GP;
•: all of the 1.5% general partner interest in KSP, which we hold through our 100% ownership interest in KSP GP; and
•: 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP.

Our Relationship with KSP

We are the sole member of KSP's general partner, KSP GP. Distributions and payments are made by KSP to its general partner, and its affiliates in connection with the ongoing operation of KSP. These distributions and payments are determined by and among affiliated entities and are not the result of arm's length negotiations.

Cash distributions from KSP are generally made approximately 98.5% to limited partner unitholders, including affiliates of its general partner as holders of limited partner units and 1.5% to KSP GP, as owner of KSP's general partner interest. In addition, if distributions exceed the target levels in excess of the minimum quarterly distribution, KSP GP is entitled to receive incentive distributions equal to an increasing percentage of such cash distributions.

If KSP's general partner withdraws or is removed and a successor general partner is elected by KSP's limited partners, the successor general partner is required to buy the general partner units from KSP's general partner for a cash price equal to the fair market value. The fair market value of the GP units includes the value of all the rights associated with being KSP's general partner, including, without limitation, the general partner's pro rata interest in KSP and the right to receive incentive distributions.

Upon KSP's liquidation, its partners, including KSP's general partner, will be entitled to receive liquidating distributions according to their particular capital account balances.

Indemnification of Our Directors and Officers

Under our partnership agreement and subject to specified limitations, we will indemnify to the fullest extent permitted by Delaware law, from and against all losses, claims, damages or similar events any director or officer or, while serving as a director of officer, any person who is or was serving as a tax matters partner or as a director, officer, tax matters member, employee, partner, manager, fiduciary or trustee of our partnership or any of our affiliates. Additionally, we will indemnify to the fullest extent permitted by law, from and against all losses, claims, damages or similar events any person who is or was our employee (other than an officer) or agent.

Any indemnification under our partnership agreement will be only out of our assets. We are authorized to purchase insurance against liabilities asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the person against liabilities under our partnership agreement.

Related Party Transactions Involving KSP

KSP and its operating subsidiaries are managed by KSP GP. KSP GP and its affiliates do not receive a management fee or other compensation for the management of KSP. KSP GP and its affiliates are entitled to be reimbursed, however, for all direct and indirect expenses incurred on behalf of KSP. KSP GP has sole discretion in determining the amount of these expenses. Other than director

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fees and expenses, KSP reimbursed KSP GP for approximately $0 and $7,290 of direct and indirect expenses in fiscal 2007 and fiscal 2006, respectively. KSP also pays expenses relating to non-employee directors of KSP GP. For more information, please read "KSP Compensation Discussion and Analysis—Director Compensation."

Contribution Agreement

In connection with the closing of this offering, we, KSP GP, EW LLC and the contributing parties will enter into a contribution agreement pursuant to which, at or prior to the closing of this offering: (1) all of the membership interests in KSP GP, which owns all of the 1.5% general partner interest and 100% of the incentive distribution rights in KSP, will be contributed to us, and (2) all of the membership interests in EW LLC, which owns 4,165,000 units in KSP (consisting of 2,082,500 common units and 2,082,500 subordinated units representing an aggregate 29.9% limited partner interest in KSP), will be contributed to us. As consideration for this contribution and in accordance with the terms of the contribution agreement, we will issue to the contributing parties of our common units, and we will assume certain liabilities, including tax and environmental liabilities, of EW LLC. The terms of the contribution agreement will be determined by the contributing parties and, with respect to our interests thereunder, will not be the result of arm's-length negotiations.

Administrative Agreement

Business Opportunities

In connection with the closing of this offering, we, our general partner, KSP and KSP GP will enter into an administrative agreement to address, among other things, potential conflicts with respect to business opportunities that may arise among us, our general partner, KSP and KSP GP. The agreement will provide that if any business opportunity is presented to us, our general partner, KSP or KSP GP, then KSP will have the first right to pursue such business opportunity. KSP will be presumed to desire to pursue the business opportunity until such time as KSP GP advises our general partner and us that KSP has abandoned the pursuit of such business opportunity. In the event that KSP abandons the business opportunity and so notifies our general partner and us, we will have the second right to pursue such business opportunity.

Administrative Services and Fees

We and our general partner have no employees. All of our officers and other personnel necessary for our business to function (to the extent not out-sourced) will be employed by K-Sea Transportation Inc., an indirect, wholly owned subsidiary of KSP. As a result, the administrative agreement will provide for our payment of an annual fee to K-Sea Transportation Inc. for general and administrative services. This fee will initially be $350,000 per year and will be subject to upward adjustment if a material event occurs that impacts the general and administrative services provided to us such as acquisitions, entering into new lines of business or changes in laws, regulations or accounting rules. In addition to this fee for general and administrative costs allocated to us by KSP, we estimate that we will incur direct annual expenses of approximately $1,000,000 for recurring costs associated with becoming a separate publicly traded entity, including legal, tax and accounting expenses.

Our General Partner's Limited Liability Company Agreement

Our general partner's management and operations will be governed by its limited liability company agreement, which will be amended and restated at the closing of this offering. The limited liability company agreement will establish a board of directors that will be responsible for the oversight of our business and operations. Our general partner's board of directors will be elected by its members. For additional information regarding the election of directors to our general partner's board of directors, please read "Management—Election of Directors."

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Omnibus Agreement and Non-Compete Agreement

We are a party to an omnibus agreement with KSP, KSP Investors A L.P. ("KSP A"), KSP Investors B L.P. ("KSP B"), KSP Investors C L.P. ("KSP C" and, together with KSP A and KSP B, the "KSP Entities"), EW LLC, EW Acquisition Corp., EW Holding Corp., EW Transportation Corp., KSP GP (KSP's general partner), K-Sea OLP GP LLC and K-Sea Operating Partnership L.P.

Noncompetition

Under the omnibus agreement, neither the KSP Entities nor their controlled affiliates may engage, either directly or indirectly, in the business of providing refined petroleum product marine transportation, distribution and logistics services in the United States to the extent such business generates qualifying income for federal income tax purposes. The restriction does not apply to the assets that were retained by KSP's predecessors at the closing of KSP's initial public offering in January 2004. Except as provided above, neither the KSP Entities nor their controlled affiliates are prohibited from engaging in activities in which they compete directly or indirectly with KSP. Jefferies Capital Partners, and the funds it manages, are not prohibited from owning assets or engaging in businesses that compete directly or indirectly with KSP.

Indemnification

Under the omnibus agreement, the KSP Entities, EW LLC and the subsidiaries of EW Transportation LLC (collectively, the "Indemnitors") have jointly and severally agreed to indemnify KSP until January 14, 2009 against certain environmental and toxic tort liabilities and, until January 14, 2014, against certain other toxic tort liabilities associated with the operation of the assets before January 14, 2004. Liabilities resulting from changes in law after the closing of KSP's initial public offering are excluded from the environmental indemnity. KSP has agreed to indemnify the Indemnitors for events and conditions associated with the operation of KSP's assets that occur on or after January 14, 2004 to the extent the Indemnitors are not required to indemnify KSP. There is an aggregate cap of $10 million on the amount of indemnity coverage provided by the Indemnitors for the environmental and toxic tort liabilities.

The Indemnitors have also agreed to indemnify KSP for liabilities related to:

•: certain defects in title to the assets contributed to KSP and failure to obtain certain consents and permits necessary to conduct KSP's business that arise before January 14, 2008;
•: events and conditions associated with any assets retained by the Indemnitors or any of their respective affiliates, whether occurring before or after January 14, 2004;
•: certain liabilities retained by EW Holding Corp., EW LLC and EW Transportation Corp.; and
•: certain income tax liabilities attributable to the operation of the assets contributed to KSP prior to the time they were contributed to KSP in connection with its initial public offering.

Amendments

The omnibus agreement may not be amended without the prior approval of the conflicts committee of KSP if the proposed amendment will, in the reasonable discretion of KSP's general partner, adversely affect holders of KSP's common units.

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CONFLICTS OF INTEREST AND FIDUCIARY DUTIES

Conflicts of Interest

Conflicts of interest exist and may arise in the future as a result of the relationships among us, KSP and our and their respective general partners and affiliates on the one hand, and us and our limited partners, on the other hand. Like KSP, our general partner is controlled by affiliates of Jefferies Capital Partners. Accordingly, affiliates of Jefferies Capital Partners have the ability to elect, remove and replace our directors and officers and the directors and officers of our general partner and the directors and officers of the general partner of KSP. The directors and officers of our general partner have fiduciary duties to manage our general partner in a manner beneficial to its owners. At the same time, our general partner has a fiduciary duty to manage us in a manner beneficial to us and our unitholders.

Certain of the executive officers and non-independent directors of our general partner also serve as executive officers and directors of the general partner of KSP. Consequently, these directors and officers may encounter situations in which their fiduciary obligations to KSP, on the one hand, and us, on the other hand, are in conflict.

The board of directors of KSP's general partner or its conflicts committee will resolve, on behalf of the public unitholders of KSP, any conflicts between KSP and us or affiliates of Jefferies Capital Partners. The board of directors of our general partner or its conflicts committee will resolve, on behalf of our public unitholders, any conflicts between us and KSP or affiliates of Jefferies Capital Partners. The resolution of these conflicts may not always be in our best interest or that of our unitholders. Our partnership agreement contains provisions that modify and limit our general partner's fiduciary duties to our unitholders. Our partnership agreement also restricts the remedies available to unitholders for actions taken that, without those limitations, might constitute breaches of fiduciary duty.

Our general partner is responsible for identifying any such conflict of interest and our general partner may choose to resolve the conflict of interest by any one of the methods described in the following sentence. Our general partner will not be in breach of its obligations under our partnership agreement or its duties to us or our unitholders if the resolution of the conflict is:

•: approved by the conflicts committee, if established, although our general partner is not obligated to seek such approval;
•: approved by the vote of holders of a majority of the outstanding common units, excluding any units owned by our general partner or any of its affiliates;
•: on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or
•: fair and reasonable to us, taking into account the totality of the relationships among the parties involved, including other transactions that may be particularly favorable or advantageous to us.

If a conflicts committee is established, our general partner may, but is not required to, seek the approval of such resolution from the conflicts committee. If our general partner does not seek approval from such conflicts committee and its board of directors determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the third and fourth bullet points above, then it will be presumed that, in making its decision, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or us, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Unless the resolution of a conflict is specifically provided for in our partnership agreement, our general partner or the conflicts committee may consider any factors it determines in good faith to consider when resolving the conflict. When our partnership agreement requires someone to act in good faith, it requires that person to reasonably believe that he is acting in the best interests of the partnership, unless the context otherwise requires.

Conflicts of interest could arise in the situations described below, among others.

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Actions taken by our general partner may affect the amount of cash available for distribution to our unitholders.

The amount of cash that is available for distribution to our unitholders is affected by decisions of our general partner regarding such matters as:

•: the expenses associated with being a public company and other general and administrative expenses;
•: interest expense related to current and future indebtedness;
•: expenditures, at our election, to maintain or increase our general partner interest in KSP;
•: reserves our general partner believes are prudent to maintain for the proper conduct of our business or to provide for future distributions; and
•: a decision by our general partner's board of directors to limit or modify the incentive distributions we are entitled to receive.

In addition, borrowings by us and our affiliates do not constitute a breach of any duty owed by our general partner to our unitholders

We do not have any officers or employees and rely solely on officers and employees of our general partner. In addition, all of our general partner's officers also serve as executive officers of KSP's general partner.

Affiliates of our general partner conduct businesses and activities of their own in which we have no economic interest. If these separate activities are significantly greater than our activities, there could be material competition for the time and effort of the officers and employees who provide services to our general partner. The officers of our general partner are not required to work full time on our affairs.

We will reimburse our general partner and its affiliates for expenses.

We will reimburse our general partner and its affiliates for costs incurred in managing and operating us, including costs incurred in rendering corporate staff and support services to us. Our partnership agreement provides that our general partner will determine the expenses that are allocable to us in good faith. Please read "Certain Relationships and Related Transactions."

Our general partner intends to limit its liability regarding our obligations.

Our general partner intends to limit its liability under contractual arrangements so that the other party has recourse only to our assets, and not against our general partner or its assets. Our partnership agreement provides that any action taken by our general partner to limit its liability or our liability is not a breach of our general partner's fiduciary duties, even if we could have obtained more favorable terms without the limitation on liability.

Unitholders will have no right to enforce obligations of our general partner and its affiliates under agreements with us.

Any agreements between us on the one hand, and our general partner and its affiliates, on the other, will not grant to our unitholders, separate and apart from us, the right to enforce the obligations of our general partner and its affiliates in our favor.

Contracts between us, on the one hand, and our general partner and its affiliates, on the other, will not be the result of arm's-length negotiations.

Our partnership agreement allows our general partner to determine, in good faith, any amounts to pay itself or its affiliates for any services rendered to us. Our general partner may also enter into

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additional contractual arrangements with any of its affiliates on our behalf. Neither our partnership agreement nor any of the other agreements, contracts and arrangements between us, on the one hand, and our general partner and its affiliates, on the other, are or will be the result of arm's-length negotiations.

Our general partner will determine, in good faith, the terms of any of these transactions entered into after the sale of the common units offered in this offering.

Our general partner and its affiliates will have no obligation to permit us to use any facilities or assets of our general partner and its affiliates, except as may be provided in contracts entered into specifically dealing with that use. There will not be any obligation of our general partner and its affiliates to enter into any contracts of this kind.

Common units are subject to our general partner's call right.

Our general partner may exercise its right to call and purchase common units as provided in our partnership agreement or assign this right to one of its affiliates or to us. Our general partner may use its own discretion, free of fiduciary duty restrictions, in determining whether to exercise this right. As a result, a common unitholder may have his common units purchased from him at an undesirable time or price. Please read "Description of Our Partnership Agreement—Limited Call Right."

We may not choose to retain separate counsel for ourselves or for the holders of units.

The attorneys, independent accountants and others who have performed services for us regarding this offering have been retained by our general partner. Attorneys, independent accountants and others who will perform services for us are selected by our general partner or the conflicts committee, if established, and may perform services for our general partner and its affiliates. We may retain separate counsel for ourselves or the holders of our units in the event of a conflict of interest between our general partner and its affiliates, on the one hand, and us or the holders of our units, on the other, depending on the nature of the conflict. We do not intend to do so in most cases.

Fiduciary Duties

Our general partner may be accountable to us and our unitholders as a fiduciary. Fiduciary duties owed to unitholders by our general partner are prescribed by law and our partnership agreement. The Delaware Revised Uniform Limited Partnership Act, which we refer to in this prospectus as the Delaware Act, provides that Delaware limited partnerships may, in their partnership agreements, modify, restrict or expand the fiduciary duties otherwise owed by a general partner to limited partners and the partnership.

Our partnership agreement contains various provisions modifying and restricting the fiduciary duties that might otherwise be owed by our general partner. We have adopted these restrictions to allow our general partner or its affiliates to engage in transactions with us that would otherwise be prohibited by state-law fiduciary duty standards and to take into account the interests of other parties in addition to our interests when resolving conflicts of interest. We believe this is appropriate and necessary because our general partner's board of directors has fiduciary duties to manage our general partner in a manner beneficial to its owners, as well as to you. Without these modifications, the general partner's ability to make decisions involving conflicts of interest would be restricted. The modifications to the fiduciary standards enable our general partner to take into consideration all parties involved in the proposed action, so long as the resolution is fair and reasonable to us as described below. These modifications also enable our general partner to attract and retain experienced and capable directors. These modifications are detrimental to the unitholders because they restrict the remedies available to unitholders for actions that, without those limitations, might constitute breaches of fiduciary duty, as

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described below, and permit our general partner to take into account the interests of third parties in addition to our interests when resolving conflicts of interest. The following is a summary of the material restrictions of the fiduciary duties owed by our general partner to the limited partners:

State-law fiduciary duty standards		Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a partnership agreement providing otherwise, would generally require a general partner to act for the partnership in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a partnership agreement providing otherwise, would generally prohibit a general partner of a Delaware limited partnership from taking any action or engaging in any transaction where a conflict of interest is present.
		The Delaware Act generally provides that a limited partner may institute legal action on behalf of the partnership to recover damages from a third party where a general partner has refused to institute the action or where an effort to cause a general partner to do so is not likely to succeed. In addition, the statutory or case law of some jurisdictions may permit a limited partner to institute legal action on behalf of himself and all other similarly situated limited partners to recover damages from a general partner for violations of its fiduciary duties to the limited partners.
Partnership agreement modified standards		Our partnership agreement contains provisions that waive or consent to conduct by our general partner and its affiliates that might otherwise raise issues about compliance with fiduciary duties or applicable law. For example, our partnership agreement provides that when our general partner is acting in its capacity as our general partner, as opposed to in its individual capacity, it must act in "good faith" and will not be subject to any other standard under applicable law. In addition, when our general partner is acting in its individual capacity, as opposed to in its capacity as our general partner, it may act without any fiduciary obligation to us or the unitholders whatsoever. These standards reduce the obligations to which our general partner would otherwise be held.

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		In addition to the other more specific provisions limiting the obligations of our general partner, our partnership agreement further provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that the general partner or its officers and directors acted in bad faith or engaged in fraud or willful misconduct, or in the case of a criminal matter, acted with the knowledge that such conduct was unlawful.
		Special provisions regarding affiliated transactions. Our partnership agreement generally provides that affiliated transactions and resolutions of conflicts of interest not involving a vote of unitholders and that are not approved by the conflicts committee of the board of directors of our general partner must be:
		•		on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or
		•		"fair and reasonable" to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us).
		If our general partner does not seek approval from the conflicts committee and its board of directors determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the bullet points above, then it will be presumed that, in making its decision, the board of directors, which may include board members affected by the conflict of interest, acted in good faith and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. These standards reduce the obligations to which our general partner would otherwise be held.

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Rights and remedies of unitholders

The Delaware Act generally provides that a limited partner may institute legal action on behalf of the partnership to recover damages from a third party where a general partner has refused to institute the action or where an effort to cause a general partner to do so is not likely to succeed. These actions include actions against a general partner for breach of its fiduciary duties or of the partnership agreement. In addition, the statutory or case law of some jurisdictions may permit a limited partner to institute legal action on behalf of himself and all other similarly situated limited partners to recover damages from a general partner for violations of its fiduciary duties to the limited partners.

By purchasing our units, each unitholder automatically agrees to be bound by the provisions in our partnership agreement, including the provisions discussed above. This is in accordance with the policy of the Delaware Act favoring the principle of freedom of contract and the enforceability of partnership agreements. The failure of a limited partner or assignee to sign a partnership agreement does not render the partnership agreement unenforceable against that person.

We must indemnify our general partner and its officers, directors, managers and certain other specified persons, to the fullest extent permitted by law, against liabilities, costs and expenses incurred by our general partner or these other persons. We must provide this indemnification unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that these persons acted in bad faith or engaged in fraud or willful misconduct. We must also provide this indemnification for criminal proceedings unless our general partner or these other persons acted with knowledge that their conduct was unlawful. Thus, our general partner could be indemnified for its negligent acts if it met the requirements set forth above. To the extent these provisions purport to include indemnification for liabilities arising under the Securities Act, in the opinion of the Commission, such indemnification is contrary to public policy and, therefore, unenforceable. Please read "Description of Our Partnership Agreement—Indemnification."

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DESCRIPTION OF OUR COMMON UNITS

Common Units

Our common units represent limited partner interests in us. The holders of our common units are entitled to participate in our distributions and exercise the rights or privileges available to limited partners under our partnership agreement. For a description of the rights and preferences of holders of our common units in and to our distributions, please read "Our Cash Distribution Policy and Restrictions on Distributions." For a description of the rights and privileges of limited partners under our partnership agreement, including voting rights, please read "Description of Our Partnership Agreement."

We intend to apply to list our common units on the New York Stock Exchange under the symbol " ."

Transfer Agent and Registrar

Duties. American Stock Transfer and Trust Company will serve as registrar and transfer agent for our common units. We will pay all fees charged by the transfer agent for transfers of our common units except the following fees that will be paid by unitholders:

•: surety bond premiums to replace lost or stolen certificates, taxes and other governmental charges;
•: special charges for services requested by a holder of a common unit; and
•: other similar fees or charges.

There will be no charge to holders for disbursements of our cash distributions. We will indemnify the transfer agent, its agents and each of their shareholders, directors, officers and employees against all claims and losses that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence or intentional misconduct of the indemnified person or entity.

Resignation or Removal. The transfer agent may at any time resign, by notice to us, or be removed by us. The resignation or removal of the transfer agent will become effective upon our appointment of a successor transfer agent and registrar and its acceptance of the appointment. If no successor has been appointed and has accepted the appointment within 30 days after notice of the resignation or removal, we are authorized to act as the transfer agent and registrar until a successor is appointed.

Transfer of Common Units

By transfer of our common units in accordance with our partnership agreement, each transferee of our common units will be admitted as a unitholder with respect to the common units transferred when such transfer and admission is reflected in our books and records. Additionally, each transferee of our common units:

•: represents that the transferee has the capacity, power and authority to become bound by our partnership agreement;
•: automatically agrees to be bound by the terms and conditions of, and is deemed to have executed, our partnership agreement; and
•: gives the consents and approvals contained in our partnership agreement, such as the approval of all transactions and agreements that we are entering into in connection with our formation and this offering.

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A transferee will become a substituted limited partner for the transferred common units automatically upon the recording of the transfer on our books and records. Our general partner will cause any transfers to be recorded on our books and records no less frequently than quarterly.

We may, at our discretion, treat the nominee holder of a common unit as the absolute owner. In that case, the beneficial holder's rights are limited solely to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.

Common units are securities and are transferable according to the laws governing transfers of securities. In addition to other rights acquired upon transfer, the transferor gives the transferee the right to become a substituted limited partner in our partnership for the transferred common units.

Until a common unit has been transferred on our books, we and the transfer agent, notwithstanding any notice to the contrary, may treat the record holder of the unit as the absolute owner for all purposes, except as otherwise required by law or stock exchange regulations.

Limited Call Right

If at any time our affiliates own more than 80% of our outstanding common units, our general partner has the right, but not the obligation, to assign in whole or in part to any of its affiliates or us, to acquire all, but not less than all, of the remaining common units held by unaffiliated persons as of a record date to be selected by our general partner, on at least ten but not more than 60 days' notice, at a price not less than the then-current market price of the common units.

As a result of our general partner's right to purchase outstanding common units, a holder of common units may have his common units purchased at an undesirable time or price. The tax consequences to a unitholder of the exercise of this call right are the same as a sale by that unitholder of his units in the market. Please read "Material Tax Consequences—Disposition of Common Units."

Upon completion of this offering, the contributing parties will own of our common units, representing approximately % of our outstanding common units.

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COMPARISON OF RIGHTS OF HOLDERS OF KSP'S COMMON UNITS AND OUR COMMON UNITS

It is not likely that our common units and KSP's common units will trade in simple relation or proportion to one another. Instead, while the trading prices of our common units and KSP's common units are likely to follow generally similar broad trends, the trading prices may diverge because, among other things:

•: with respect to KSP's distributions, KSP's common unitholders have a priority over our incentive distribution rights in KSP;
•: we participate in KSP's general partner's distributions and the incentive distribution rights, and KSP's common unitholders do not; and
•: we may enter into other businesses separate from KSP or any of its affiliates. The following table compares certain features of KSP's common units and our common units.

	KSP's Common Units	Our Common Units

Taxation of Entity and Entity Owners	KSP is a flow-through entity that is not subject to an entity-level federal income tax.	Similarly, we are a flow-through entity that is not subject to an entity-level federal income tax.
	KSP expects that holders of its common units will benefit for a period of time from tax basis adjustments and remedial allocations of deductions.	We also expect that holders of our common units will benefit for a period of time from tax basis adjustments and remedial allocations of deductions as a result of our ownership of common units of KSP.
	KSP common unitholders will receive Schedule K-1s from KSP reflecting the unitholders' share of KSP's items of income, gain, loss and deduction at the end of each fiscal year.	Our common unitholders also will receive Schedule K-1s from us reflecting the unitholders' share of our items of income, gain, loss and deduction at the end of each fiscal year.
Distributions and Incentive Distribution Rights	KSP pays its limited partners and general partner quarterly distributions equal to the cash it receives from its operations, less certain reserves for expenses and other uses of cash. As general partner of KSP, we own the incentive distribution rights in KSP.	We expect to pay our limited partners quarterly distributions equal to the cash we receive from KSP, less certain reserves for expenses and other uses of cash. Our general partner is not entitled to any distributions.

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Sources of Cash Flow		KSP currently generates its cash flow from providing marine transportation, distribution and logistics services for refined petroleum products in the United States.		Our cash-generating assets consist of our partnership interests, including the incentive distribution rights, in KSP, and we currently have no independent operations. Accordingly, our financial performance and our ability to pay cash distributions to our unitholders is currently completely dependent upon the performance of KSP.
Limitation on Issuance of Additional Units		Subject to certain exceptions, KSP may not issue equity securities ranking senior to the common units or an aggregate of more than 2,082,500 additional units or units on parity with the common units, in each case, without the approval of the holders of a unit majority.		Similarly, we may issue an unlimited number of additional partnership interests and other equity securities without obtaining unitholder approval.

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DESCRIPTION OF OUR PARTNERSHIP AGREEMENT

The following is a summary of the material provisions of our partnership agreement. The form of our partnership agreement is included in this prospectus as Appendix A and will be adopted contemporaneously with the closing of this offering.

We summarize the following provisions of our partnership agreement elsewhere in this prospectus:

•: with regard to distributions of available cash, please read "Our Cash Distribution Policy and Restrictions on Distributions" and "How We Make Cash Distributions";
•: with regard to the rights of holders of common units, please read "Description of Our Common Units";
•: with regard to the fiduciary duties of our general partner, please read "Conflicts of Interest and Fiduciary Duties;" and
•: with regard to allocations of taxable income and taxable loss, please read "Material Tax Consequences."

Organization and Duration

We were formed on December 11, 2007 and have a perpetual existence.

Purpose

Under our partnership agreement we are permitted to engage, directly or indirectly, in any business activity that is approved by our general partner and that lawfully may be conducted by a limited partnership organized under Delaware law; provided, however, that our general partner may not cause us to engage, directly or indirectly, in any business activity that our general partner determines would cause us to be treated as an association taxable as a corporation or otherwise taxable as an entity for federal income tax purposes.

Although our general partner has the ability to cause us, our affiliates or our subsidiaries to engage in activities other than the ownership of partnership interests in KSP, our general partner has no current plans to do so and may decline to do so free of any fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interest of us or our limited partners. Our general partner is authorized in general to perform all acts it determines to be necessary or appropriate to carry out our purposes and to conduct our business, including, but not limited to, the following:

•: the making of expenditures and the incurrence of debt and other obligations;
•: the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of our assets or the merger or other combination of us with or into another person;
•: the negotiation, execution and performance of contracts;
•: the distribution of our cash;
•: the purchase, sale or other acquisition or disposition of our partnership securities or the issuance of partnership securities or options or other rights relating thereto;
•: any action in connection with our participation and management of KSP; and
•: the approval and authorization of any action taken by KSP GP to waive, reduce, limit or modify KSP's incentive distribution rights.

For a further description of limits on our business, please read "Certain Relationships and Related Transactions."

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Restrictions on Foreign Ownership

To enjoy the benefits of U.S. coastwise trade, we must maintain U.S. citizenship for U.S. coastwise trade purposes as defined in the Merchant Marine Act of 1936, as amended, the Shipping Act of 1916, as amended, and the regulations thereunder. Under these regulations, to maintain U.S. citizenship and, therefore, be qualified to engage in U.S. coastwise trade:

•: not less than 75% of the interests in our general partner must be owned by U.S. citizens;
•: the president or chief executive officer, the chairman of the board and a majority of a quorum of the board of directors of our general partner must be U.S. citizens; and
•: at least 75% of the ownership and voting power of our units must be held by U.S. citizens free of any trust, fiduciary arrangement or other agreement, arrangement or understanding whereby voting power may be exercised directly or indirectly by non-U.S. citizens, as defined in the Merchant Marine Act, the Shipping Act and the regulations thereunder.

In order to protect our ability to register our vessels under federal law and operate our vessels in U.S. coastwise trade, our partnership agreement restricts foreign ownership of our interests to a percentage equal to not more than 24.0% as determined from time to time by our general partner. The general partner has determined to limit foreign ownership of our interests to 15.0%. We refer to the percentage limitation on foreign ownership as the permitted percentage.

Our partnership agreement provides that:

•: any transfer, or attempted transfer, of any units that would result in the ownership or control, in each case, in excess of the permitted percentage by one or more persons who is not U.S. citizen for purposes of U.S. coastwise shipping (as defined in the Merchant Marine Act and the Shipping Act) will be void and ineffective as against us; and
•: if, at any time, persons other than U.S. citizens own units or possess voting power over units, in each case, (either of record or beneficially) in excess of the permitted percentage, we will withhold payment of distributions on and suspend the voting rights of such units and may redeem such units.

Unit certificates bear legends concerning the restrictions on ownership by persons other than U.S. citizens. In addition, our partnership agreement:

•: permits us to require, as a condition precedent to the transfer of units on our records, representations and other proof as to the identity of existing or prospective unitholders; and
•: permits us to establish and maintain a dual unit certificate system under which different forms of certificates may be used to reflect whether or not the owner thereof is a U.S. citizen.

Power of Attorney

Each limited partner, and each person who acquires a unit from a unitholder by accepting a unit, automatically grants to our general partner and, if appointed, a liquidator, a power of attorney to, among other things, execute and file documents required for our qualification, continuance or dissolution. The power of attorney also grants our general partner the authority to amend, and to grant consents and waivers under, our partnership agreement.

Capital Contributions

Our unitholders are not obligated to make additional capital contributions, except as described below under "—Limited Liability."

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Limited Liability

Assuming that a limited partner does not participate in the control of our business within the meaning of the Delaware Act and that he otherwise acts in conformity with the provisions of our partnership agreement, his liability under the Delaware Act will be limited, subject to possible exceptions, to the amount of capital he is obligated to contribute to us for his common units plus his share of any undistributed profits and assets. If it were determined, however, that the right, or exercise of the right, by the limited partners as a group:

•: to remove or replace our general partner,
•: to approve some amendments to our partnership agreement, or
•: to take other action under our partnership agreement,

constituted "participation in the control" of our business for the purposes of the Delaware Act, then our limited partners could be held personally liable for our obligations under the laws of Delaware, to the same extent as our general partner. This liability would extend to persons who transact business with us who reasonably believe that the limited partner is a general partner. Neither our partnership agreement nor the Delaware Act specifically provides for legal recourse against our general partner if a limited partner were to lose limited liability through any fault of our general partner. While this does not mean that a limited partner could not seek legal recourse, we know of no precedent for this type of a claim in Delaware case law.

Under the Delaware Act, a limited partnership may not make a distribution to a partner if, after the distribution, all liabilities of the limited partnership, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property of the partnership, would exceed the fair value of the assets of the limited partnership. For the purpose of determining the fair value of the assets of a limited partnership, the Delaware Act provides that the fair value of property subject to liability for which recourse of creditors is limited will be included in the assets of the limited partnership only to the extent that the fair value of that property exceeds the nonrecourse liability. The Delaware Act provides that a limited partner who receives a distribution and knew at the time of the distribution that the distribution was in violation of the Delaware Act will be liable to the limited partnership for the amount of the distribution for three years. Under the Delaware Act, a substituted limited partner of a limited partnership is liable for the obligations of his assignor to make contributions to the partnership, except that such person is not obligated for liabilities unknown to him at the time he became a limited partner and that could not be ascertained from the partnership agreement.

Limitations on the liability of limited partners for the obligations of a limited partner have not been clearly established in many jurisdictions. While we currently have no operations distinct from KSP, if in the future, by our ownership in an operating company or otherwise, it were determined that we were conducting business in any state without compliance with the applicable limited partnership or limited liability company statute, or that the right or exercise of the right by the limited partners as a group to remove or replace our general partner, to approve some amendments to our partnership agreement, or to take other action under our partnership agreement constituted "participation in the control" of our business for purposes of the statutes of any relevant jurisdiction, then the limited partners could be held personally liable for our obligations under the law of that jurisdiction to the same extent as our general partner under the circumstances. We will operate in a manner that our general partner considers reasonable and necessary or appropriate to preserve the limited liability of the limited partners.

Limited Voting Rights

Our general partner will manage and operate us. Unlike the holders of common stock in a corporation, you will have only limited voting rights on matters affecting our business. You will not have the right to elect our general partner or its directors on an annual or other continuing basis.

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The following is a summary of the unitholder vote required for the matters specified below. The holders of a majority of the outstanding units, represented in person or by proxy, will constitute a quorum unless any action by the unitholders requires approval by holders of a greater percentage of the units, in which case the quorum will be the greater percentage. In voting their units, our general partner and its affiliates will have no fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interests of us or the limited partners.

Issuance of additional units		No approval right.
Amendment of our partnership agreement		Certain amendments may be made by our general partner without the approval of our unitholders. Other amendments generally require the approval of a majority of our outstanding units. Please read "—Amendments to Our Partnership Agreement."
Merger of our partnership or the sale of all or substantially all of our assets		A majority of our outstanding units in certain circumstances. Please read "—Merger, Sale or Other Disposition of Assets."
Dissolution		A majority of our outstanding units. Please read "—Termination or Dissolution."
Reconstitution upon dissolution		A majority of our outstanding units. Please read "—Termination or Dissolution."
Withdrawal of our general partner		Under most circumstances, the approval of a majority of our outstanding units, excluding units held by our general partner and its affiliates, is required for the withdrawal of the general partner prior to December 31, 2017 in a manner that would cause our dissolution. Please read "—Withdrawal or Removal of the General Partner."
Removal of our general partner		Not less than 66²/3% of our outstanding units, including units held by our general partner and its affiliates. Please read "—Withdrawal or Removal of the General Partner."
Transfer of the general partner interest		Our general partner may transfer all, but not less than all, of its general partner interest in us without a vote of our unitholders to (1) an affiliate (other than an individual) or (2) another entity in connection with its merger or consolidation with or into, or sale of all or substantially all of its assets to, such entity. The approval of a majority of the units, excluding units held by our general partner and its affiliates, is required in other circumstances for a transfer of the general partner interest to a third party prior to December 31, 2017. Please read "—Transfer of General Partner Interest."

Transfer of Ownership Interests in Our General Partner

At any time, the members of our general partner may sell or transfer all or part of its ownership interest in our general partner without the approval of our unitholders.

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Issuance of Additional Securities

Our partnership agreement authorizes us to issue an unlimited number of additional limited partner interests and other equity securities for the consideration and on the terms and conditions established by our general partner in its sole discretion without the approval of our unitholders.

It is possible that we will fund acquisitions through the issuance of additional units or other equity securities. Holders of any additional units we issue will be entitled to share equally with the then-existing holders of units in our cash distributions. In addition, the issuance of additional partnership interests may dilute the value of the interests of the then-existing holders of units in our net assets.

In accordance with Delaware law and the provisions of our partnership agreement, we may also issue additional partnership interests that have special voting rights to which the common units are not entitled.

Amendments to Our Partnership Agreement

General

Amendments to our partnership agreement may be proposed only by or with the consent of our general partner. However, our general partner will have no duty or obligation to propose any amendment and may decline to do so free of any fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interests of us or the limited partners. To adopt a proposed amendment, other than the amendments discussed below, our general partner must seek written approval of the holders of the number of units required to approve the amendment or call a meeting of the limited partners to consider and vote upon the proposed amendment. Except as described below, an amendment must be approved by a majority of our outstanding units.

Prohibited Amendments

No amendment may be made that would:

(1): enlarge the obligations of any limited partner without its consent, unless approved by at least a majority of the type or class of limited partner interests so affected, or
(2): enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by us to our general partner or any of its affiliates without the consent of our general partner, which may be given or withheld in its sole discretion.

The provision of our partnership agreement preventing the amendments having the effects described in clauses (1) or (2) above can be amended upon the approval of the holders of at least 90% of the outstanding units.

No Unitholder Approval

Our general partner may generally make amendments to our partnership agreement without the approval of any limited partner or assignee to reflect:

(1): a change in our name, the location of our principal place of business, our registered agent or its registered office,
(2): the admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement,

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(3): a change that our general partner determines is necessary or appropriate for us to qualify or to continue our qualification as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any state or to ensure that we will not be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes,
(4): an amendment that is necessary, in the opinion of our counsel, to prevent us or our general partner or its directors, officers, agents or trustees, from in any manner being subjected to the provisions of the Investment Company Act of 1940, the Investment Advisors Act of 1940, or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, whether or not substantially similar to plan asset regulations currently applied or proposed,
(5): an amendment that our general partner determines to be necessary or appropriate for the authorization of additional partnership securities or rights to acquire partnership securities,
(6): any amendment expressly permitted in our partnership agreement to be made by our general partner acting alone,
(7): an amendment effected, necessitated or contemplated by a merger agreement that has been approved under the terms of our partnership agreement,
(8): an amendment that our general partner determines to be necessary or appropriate for the formation by us, or our investment in, any corporation, partnership or other entity, as otherwise permitted by our partnership agreement,
(9): a change in our fiscal year or taxable year and related changes,
(10): a merger with or conveyance to another limited liability entity that is newly formed and has no assets, liabilities or operations at the time of the merger or conveyance other than those it receives by way of the merger or conveyance,
(11): an amendment effected, necessitated or contemplated by an amendment to KSP's partnership agreement that requires KSP unitholders to provide a statement, certificate or other proof of evidence to KSP regarding whether such unitholder is subject to United States federal income tax on the income generated by KSP, or
(12): any other amendments substantially similar to any of the matters described in (1) through (11) above.

In addition, our general partner may make amendments to our partnership agreement without the approval of any limited partner or assignee if those amendments, in the discretion of our general partner:

(1): do not adversely affect our limited partners (or any particular class of limited partners) in any material respect,
(2): are necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute,
(3): are necessary or appropriate to facilitate the trading of our limited partner interests or to comply with any rule, regulation, guideline or requirement of any securities exchange on which our limited partner interests are or will be listed for trading,
(4): are necessary or appropriate for any action taken by our general partner relating to splits or combinations of units under the provisions of our partnership agreement, or

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(5): are required to effect the intent of the provisions of our partnership agreement or are otherwise contemplated by our partnership agreement.

Opinion of Counsel and Unitholder Approval

Our general partner will not be required to obtain an opinion of counsel that an amendment will not result in a loss of limited liability to the limited partners or result in KSP or us being treated as an entity for federal income tax purposes if one of the amendments described above under "—No Unitholder Approval" should occur. No other amendments to our partnership agreement will become effective without the approval of holders of at least 90% of the outstanding units, unless we obtain an opinion of counsel to the effect that the amendment will not affect the limited liability under applicable law of any of our limited partners.

In addition to the above restrictions, any amendment that would have a material adverse effect on the rights or preferences of any type or class of outstanding units in relation to other classes of units will require the approval of at least a majority of the type or class of units so affected. Any amendment that reduces the voting percentage required to take any action must be approved by the affirmative vote of limited partners whose aggregate outstanding units constitute not less than the voting requirement sought to be reduced.

Merger, Sale or Other Disposition of Assets

Our partnership agreement generally prohibits our general partner, without the prior approval of a majority of our outstanding units, from causing us to, among other things, sell, exchange or otherwise dispose of all or substantially all of our assets in a single transaction or a series of related transactions, including by way of merger, consolidation or other combination, or approving on our behalf the sale, exchange or other disposition of all or substantially all of the assets of KSP and its subsidiaries in a single transaction or a series of related transactions, including by way of merger, consolidation or other combination. Our general partner may, however, mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets without that approval. Our general partner may also sell all or substantially all of our assets under a foreclosure or other realization upon those encumbrances without that approval.

A merger, consolidation or conversion of us requires the prior consent of the general partner. In addition, our partnership agreement provides that, to the maximum extent permitted by law, our general partner will have no duty or obligation to consent to any merger, consolidation or conversion of us, and may decline to do so free of any fiduciary duty or obligation whatsoever to us or any of our unitholders. Further, in declining to consent to a merger, consolidation or conversion, our general partner will not be required to act in good faith or pursuant to any other standard imposed by our partnership agreement, any other agreement, under the Delaware Limited Partnership Act or any other law, rule or regulation or at equity.

If conditions specified in our partnership agreement are satisfied, our general partner may merge us or any of our subsidiaries into, or convey some or all of our assets to, a newly formed entity if the sole purpose of that merger or conveyance is to effect a mere change in our legal form into another limited liability entity. Our unitholders are not entitled to dissenters' rights or appraisal rights (and, therefore, will not be entitled to demand payment of a fair price for their units) under our partnership agreement or applicable Delaware law in the event of a merger or consolidation, a sale of substantially all of our assets or any other transaction or event.

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Termination or Dissolution

We will continue as a limited partnership until terminated under our partnership agreement. We will dissolve upon:

(1): the election of our general partner to dissolve us, if approved by a majority of our outstanding units,
(2): there being no limited partners, unless we are continued without dissolution in accordance with applicable Delaware law,
(3): the entry of a decree of judicial dissolution of us, or
(4): the withdrawal or removal of our general partner or any other event that results in its ceasing to be our general partner other than by reason of a transfer of its general partner interest in accordance with our partnership agreement or withdrawal or removal of our general partner following approval and admission of a successor.

Upon a dissolution under clause (4) above, the holders of a majority of our outstanding units may also elect, within specific time limitations, to continue our business on the same terms and conditions described in our partnership agreement by appointing as a successor general partner an entity approved by the holders of a majority of the outstanding units, subject to our receipt of an opinion of counsel to the effect that:

(1): the action would not result in the loss of limited liability of any limited partner, and
(2): neither our partnership nor KSP would be treated as an association taxable as a corporation or otherwise be taxable as an entity for federal income tax purposes upon the exercise of that right to continue.

Liquidation and Distribution of Proceeds

Upon our dissolution, unless we are reconstituted and continued as a new limited partnership, the person authorized to wind up our affairs (the liquidator) will, acting with all of the powers of our general partner that the liquidator deems necessary or desirable in its judgment, liquidate our assets. The proceeds of the liquidation will be applied as follows:

•: first, towards the payment of all of our creditors and the settlement of or creation of a reserve for contingent liabilities; and
•: then, to all partners in accordance with the positive balance in the respective capital accounts.

If the liquidator determines that a sale would be impractical or would cause a loss to our partners, it may defer liquidation of our assets for a reasonable period of time or distribute assets to partners in kind if it determines that a sale would be impractical or would cause undue loss to the partners.

Withdrawal or Removal of the General Partner

Except as described below, our general partner has agreed not to withdraw voluntarily as our general partner prior to December 31, 2017 without obtaining the approval of the holders of at least a majority of the outstanding units, excluding units held by our general partner and its affiliates, voting as a single class, and furnishing an opinion of counsel regarding limited liability and tax matters. On or after December 31, 2017, our general partner may not withdraw as general partner without first giving 90 days' written notice to unitholders, and that withdrawal will not constitute a violation of our partnership agreement. In addition, our general partner may withdraw without unitholder approval upon 90 days' notice to our limited partners if at least 50% of our outstanding common units are held or controlled by one person and its affiliates other than our general partner and its affiliates. Following completion of this offering, the owners of our general partner, affiliates of Jefferies Capital Partners,

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initially will own a sufficient number of common units to allow it to block any attempt to remove our general partner.

Upon the voluntary withdrawal of our general partner, the holders of a majority of our outstanding units, may elect a successor to that withdrawing general partner. If a successor is not elected, or is elected but an opinion of counsel regarding limited liability and tax matters cannot be obtained, we will be dissolved, wound up and liquidated, unless within 180 days after that withdrawal, the holders of a majority of the outstanding units, agree in writing to continue our business and to appoint a successor general partner. Please read "—Termination or Dissolution" above.

Our general partner may not be removed unless that removal is approved by the vote of the holders of not less than 66²/3% of our outstanding units, including units held by our general partner and its affiliates, and we receive an opinion of counsel regarding limited liability and tax matters. Any removal of our general partner is also subject to the approval of a successor general partner by the vote of the holders of a majority of the outstanding units. The ownership of more than 33¹/3% of our outstanding units by our general partner and its affiliates would give it the practical ability to prevent its removal. Upon completion of this offering, affiliates of our general partner will own approximately % of our outstanding units.

In addition, we will be required to reimburse the departing general partner for all amounts due the departing general partner, including, without limitation, all employee-related liabilities, including severance liabilities, incurred for the termination of any employees employed by the departing general partner or its affiliates for our benefit.

Transfer of General Partner Interest

Except for transfer by our general partner of all, but not less than all, of its general partner interests in us to:

•: an affiliate of the general partner (other than an individual); or
•: another entity as part of the merger or consolidation of the general partner with or into another entity or the transfer by the general partner of all or substantially all of its assets to another entity,

our general partner may not transfer all or any part of its general partner interest in us to another person prior to December 31, 2017 without the approval of the holders of at least a majority of the outstanding units, excluding units held by our general partner and its affiliates. As a condition of this transfer, the transferee must assume the rights and duties of the general partner to whose interest that transferee has succeeded, agree to be bound by the provisions of our partnership agreement and furnish an opinion of counsel regarding limited liability and tax matters.

On or after December 31, 2017, our general partner may transfer all or any of its general partner interest in us without obtaining approval of any unitholder.

Change of Management Provisions

Our partnership agreement contains specific provisions that are intended to discourage a person or group from attempting to remove our general partner as general partner or otherwise change management. If any person or group other than our general partner and its affiliates acquires beneficial ownership of 20% or more of any class of our units, that person or group loses voting rights on all of its units. This loss of voting rights does not apply to (1) any person or group that acquires the units from our general partner or its affiliates, (2) any transferees of that person or group approved by our general partner, or (3) any person or group that acquires 20% of any class of units with the prior approval of the board of directors of our general partner.

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Limited Call Right

If at any time not more than 10% of the then-issued and outstanding limited partner interests of any class are held by persons other than our general partner and its affiliates, our general partner will have the right, which it may assign in whole or in part to any of its affiliates or to us, to acquire all, but not less than all, of the remaining limited partner interests of the class held by unaffiliated persons as of a record date to be selected by our general partner, on at least ten but not more than 60 days' notice. The purchase price in the event of such a purchase will be the greater of:

•: the highest price paid by our general partner or any of its affiliates for any limited partner interests of the class purchased within the 90 days preceding the date that notice is mailed; and
•: the current market price of the limited partner interests of the class as of the date three days prior to the date that notice is mailed.

Upon completion of this offering, affiliates of our general partner will own approximately % of our common units.

As a result of our general partner's right to purchase outstanding limited partner interests, a holder of limited partner interests may have his limited partner interests purchased at an undesirable time or price. The tax consequences to a unitholder of the exercise of this call right are the same as a sale by that unitholder of his units in the market. Please read "Material Tax Consequences—Disposition of Common Units."

Meetings; Voting

Except as described below regarding a person or group owning 20% or more of units then outstanding, unitholders on the record date will be entitled to notice of, and to vote at, meetings of our limited partners and to act upon matters for which approvals may be solicited. Common units that are owned by non-citizen assignees will be voted by our general partner on behalf of non-citizen assignees and our general partner will distribute the votes on those common units in the same ratios as the votes of limited partners on other units are cast.

Our general partner does not anticipate that any meeting of unitholders will be called in the foreseeable future. Any action that is required or permitted to be taken by the unitholders may be taken either at a meeting of the unitholders or without a meeting if consents in writing describing the action so taken are signed by holders of the number of units as would be necessary to authorize or take that action at a meeting. Meetings of the unitholders may be called by our general partner or by unitholders owning at least 20% of the outstanding units. Unitholders may vote either in person or by proxy at meetings. The holders of a majority of the outstanding units, represented in person or by proxy, will constitute a quorum unless any action by the unitholders requires approval by holders of a greater percentage of the units, in which case the quorum will be the greater percentage.

Each record holder of a unit has a vote according to his percentage interest in us, although additional limited partner interests having special voting rights could be issued. Please read "—Issuance of Additional Securities" above. However, if at any time any person or group, other than our general partner and its affiliates, or a direct or subsequently approved transferee of our general partner or its affiliates, acquires, in the aggregate, beneficial ownership of 20% or more of any class of units then outstanding, that person or group will lose voting rights on all of its units and the units may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes, determining the presence of a quorum or for other similar purposes. For more information on persons and groups to which this loss of voting rights does not apply, please read "—Change of Management Provisions" above. Common units held in nominee or street name account will be voted by the broker or other nominee in accordance with the instruction of the beneficial owner unless the arrangement between the beneficial owner and his nominee provides otherwise.

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Any notice, demand, request, report or proxy material required or permitted to be given or made to record holders of common units under our partnership agreement will be delivered to the record holder by us or by the transfer agent.

Status as Limited Partner

By transfer of common units in accordance with our partnership agreement, each transferee of common units shall be admitted as a limited partner with respect to the common units transferred when such transfer and admission is reflected in our books and records. Except as described under "—Limited Liability" above, the common units will be fully paid, and unitholders will not be required to make additional contributions.

Non-Citizen Assignees; Redemption

If we are or become subject to federal, state or local laws or regulations that, in the reasonable determination of our general partner, create a substantial risk of cancellation or forfeiture of any property that we have an interest in because of the nationality, citizenship or other related status of any limited partner, we may redeem the units held by the limited partner or assignee at their current market price. To avoid any cancellation or forfeiture, our general partner may require each limited partner or assignee to furnish information about his nationality, citizenship or related status. If a limited partner or assignee fails to furnish information about his nationality, citizenship or other related status within 30 days after a request for the information or our general partner determines after receipt of the information that the limited partner or assignee is not an eligible citizen, the limited partner or assignee may be treated as a non-citizen assignee. In addition to other limitations on the rights of an assignee that is not a substituted limited partner, a non-citizen assignee does not have the right to direct the voting of his units and may not receive distributions in kind upon our liquidation.

Indemnification

Under our partnership agreement, in most circumstances, we will indemnify the following persons, to the fullest extent permitted by law, from and against all losses, claims, damages or similar events:

•: our general partner,
•: any departing general partner,
•: any person who is or was an affiliate of our general partner or any departing general partner,
•: any person who is or was a member, partner, officer, director, employee, fiduciary or trustee of our general partner or any departing general partner or any affiliate of our general partner or any departing general partner,
•: any person who is or was serving at the request of our general partner or any departing general partner or any affiliate of our general partner or any departing general partner as an officer, director, member, partner, fiduciary or trustee of another person, or
•: any person designated by our general partner.

Any indemnification under these provisions will only be out of our assets. Unless it otherwise agrees, our general partner will not be personally liable for, or have any obligation to contribute or loan funds or assets to us to enable it to effectuate, indemnification. We may purchase insurance against liabilities asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the person against liabilities under our partnership agreement.

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Reimbursement of Expenses

Our partnership agreement requires us to reimburse our general partner for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our general partner in connection with operating our business. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our general partner by its affiliates. The general partner is entitled to determine in good faith the expenses that are allocable to us.

Books and Reports

Our general partner is required to keep appropriate books of our business at our principal offices. The books will be maintained for both tax and financial reporting purposes on an accrual basis. For fiscal reporting and tax reporting purposes, our year ends on June 30 and December 31 each year, respectively.

We will furnish or make available to record holders of units, within 120 days after the close of each fiscal year, an annual report containing audited financial statements and a report on those financial statements by our independent public accountants. Except for our fourth quarter, we will also furnish or make available summary financial information within 90 days after the close of each quarter.

We will furnish each record holder of a unit with information reasonably required for tax reporting purposes within 90 days after the close of each calendar year. This information is expected to be furnished in summary form so that some complex calculations normally required of partners can be avoided. Our ability to furnish this summary information to unitholders will depend on the cooperation of unitholders in supplying us with specific information. Every unitholder will receive information to assist him in determining his federal and state tax liability and filing his federal and state income tax returns, regardless of whether he supplies us with information.

Right to Inspect Our Books and Records

Our partnership agreement provides that a limited partner can, for a purpose reasonably related to his interest as a limited partner, upon reasonable written demand and at his own expense, have furnished to him:

•: a current list of the name and last known address of each partner;
•: a copy of our tax returns;
•: information as to the amount of cash, and a description and statement of the agreed value of any other property or services, contributed or to be contributed by each partner and the date on which each became a partner;
•: copies of our partnership agreement, the certificate of limited partnership of the partnership, related amendments and powers of attorney under which they have been executed;
•: information regarding the status of our business and financial condition; and
•: any other information regarding our affairs as is just and reasonable.

Our general partner may, and intends to, keep confidential from the limited partners, trade secrets or other information the disclosure of which our general partner believes is not in our best interests or which we are required by law or by agreements with third parties to keep confidential.

Registration Rights

Under our partnership agreement, we have agreed to register for resale under the Securities Act and applicable state securities laws any units or other partnership securities proposed to be sold by our general partner or any of its affiliates or their assignees if an exemption from the registration requirements is not otherwise available. We are obligated to pay all expenses incidental to the registration, excluding underwriting discounts and commissions. Please read "Units Eligible for Future Sale."

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K-SEA TRANSPORTATION PARTNERS L.P.'S CASH DISTRIBUTION POLICY

Distributions of Available Cash

General. KSP's partnership agreement requires cash distributions to be made to its unitholders within approximately 45 days after the end of each quarter. Distributions are made concurrently to all record holders on the record date set for purposes of such distribution.

Definition of Available Cash. Available cash is defined in KSP's partnership agreement and generally means, for any quarter ending prior to liquidation:

•

the sum of:

•: all cash and cash equivalents of KSP and its subsidiaries on hand at the end of that quarter; and
•: all additional cash and cash equivalents of KSP and its subsidiaries on hand on the date of determination of available cash for that quarter resulting from working capital borrowings made after the end of that quarter;

•

less the amount of cash reserves that is necessary or appropriate in the reasonable discretion of KSP's general partner to:

•: provide for the proper conduct of the business of KSP and its subsidiaries (including reserves for future capital and maintenance expenditures);
•: comply with applicable law or any debt instruments, or other agreements; and
•: provide funds to our unitholders and to its general partner for any one or more of the next four quarters;

provided, however, that KSP's general partner may not establish cash reserves for distributions to the subordinated units unless KSP's general partner has determined that, in its judgment, the establishment of reserves will not prevent KSP from distributing the minimum quarterly distribution on all common units and any cumulative common unit arrearages thereon for the next four quarters; and provided, further, that disbursements made by KSP or any of its subsidiaries or cash reserves established, increased or reduced after the end of that quarter but on or before the date of determination of available cash for that quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining available cash, within that quarter if KSP's general partner so determines.

Minimum Quarterly Distribution. Holders of KSP's common units are entitled to receive distributions from operating surplus of $0.50 per quarter, or $2.00 on an annualized basis, before any distributions are paid on KSP's subordinated units. There is no guarantee that KSP will pay the minimum quarterly distribution on the common units in any quarter, and KSP will be prohibited from making any distributions to unitholders if it would cause a default or an event of default under its debt instruments.

Operating Surplus and Capital Surplus

General. All cash distributed to KSP's unitholders will be characterized either as "operating surplus" or "capital surplus." KSP distributes available cash from operating surplus differently than available cash from capital surplus.

Definition of Operating Surplus. Operating surplus is defined in KSP's partnership agreement and for any period it generally means:

•: KSP's cash balance of $1.1 million at the closing of its initial public offering; plus

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•: $5.0 million (as described below); plus
•: all of KSP's cash receipts since the closing of its initial public offering, excluding cash from borrowings that are not working capital borrowings and excluding sales of equity and debt securities and sales or other dispositions of assets outside the ordinary course of business; plus
•: working capital borrowings made after the end of a quarter but before the date of determination of operating surplus for the quarter; less
•: all of KSP's operating expenditures since the closing of KSP's initial public offering, including estimated maintenance capital expenditures and the repayment of working capital borrowings, but not the repayment of other borrowings; less
•: the amount of cash reserves that KSP's general partner deems necessary or advisable to provide funds for future operating expenditures and estimated maintenance capital expenditures.

As reflected above, KSP's definition of operating surplus includes $5.0 million in addition to KSP's cash balance of $1.1 million at the closing of its initial public offering, cash receipts from KSP's operations and cash from working capital borrowings. This amount does not reflect actual cash on hand at closing that is available for distribution to KSP's unitholders. Rather, it is a provision that will enable us, if KSP chooses, to distribute as operating surplus up to $5.0 million of cash KSP receives in the future from non-operating sources, such as asset sales, issuances of securities and long-term borrowings, that would otherwise be distributed as capital surplus. KSP has not made and does not anticipate that it will make any distributions from capital surplus.

Operating surplus is reduced by the amount of KSP's maintenance capital expenditures, but not its expansion capital expenditures. Maintenance capital expenditures are those capital expenditures required to maintain, over the long term, the operating capacity of KSP's capital assets, and expansion capital expenditures are those capital expenditures that increase, over the long term, the operating capacity of KSP's capital assets. Examples of maintenance capital expenditures include capital expenditures associated with drydocking a vessel, retrofitting an existing vessel or acquiring a new vessel to the extent such expenditures maintain the operating capacity of KSP's fleet. If, however, capital expenditures associated with retrofitting an existing vessel or acquiring a new vessel increase the operating capacity of KSP's fleet over the long term, whether through increasing KSP's aggregate barrel-carrying capacity, improving the operational performance of a vessel or otherwise, those capital expenditures would be classified as expansion capital expenditures. Because maintenance capital expenditures can be very large and irregular, the amount of actual maintenance capital expenditures may differ substantially from period to period, which would cause similar fluctuations in the amount of operating surplus, adjusted operating surplus and available cash for distribution to KSP's unitholders if it subtracted actual maintenance capital expenditures from operating surplus.

To eliminate the effect on operating surplus of fluctuations in actual maintenance capital expenditures, KSP's partnership agreement requires that an estimate of the average quarterly maintenance capital expenditures necessary to maintain the operating capacity of KSP's capital assets over the long-term be subtracted from operating surplus each quarter as opposed to the actual amounts spent. The determination of the estimate will be made by the board of directors of KSP GP in any manner it determines is reasonable in its sole discretion. The conflicts committee of the board of directors of KSP GP must concur with this determination. The estimate will be made at least annually and whenever an event occurs that is likely to result in a material adjustment to the amount of KSP's maintenance capital expenditures over the long-term, such as a major acquisition or new governmental regulations. For purposes of calculating operating surplus, any adjustment to this estimate will be prospective only.

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The use of estimated maintenance capital expenditures in calculating operating surplus will have the following effects:

•: it will reduce the risk that maintenance capital expenditures in any one quarter will be large enough to render operating surplus insufficient to pay the minimum quarterly distribution on all the units;
•: it will reduce the need for KSP to borrow under its working capital facility to pay distributions;
•: prior to the time KSP begins incurring material capital expenditures related to retrofitting or replacing single-hull tank vessels that must be phased out by January 1, 2015 under OPA 90, it will be more difficult for KSP to raise its distribution; and
•: it will reduce the likelihood that a large capital expenditure in a period will prevent the conversion of some or all of the subordinated units into common units.

Definition of Capital Surplus. Capital surplus is defined in KSP's partnership agreement and it generally will be generated only by:

•: borrowings other than working capital borrowings;
•: sales of debt and equity securities; and
•: sales or other disposition of assets for cash, other than inventory, accounts receivable and other current assets sold in the ordinary course of business or as part of normal retirements or replacements of assets.

Characterization of Cash Distributions. KSP will treat all available cash distributed as coming from operating surplus until the sum of all available cash distributed since KSP began operations equals the operating surplus as of the most recent date of determination of available cash. KSP will treat any amount distributed in excess of operating surplus, regardless of its source, as capital surplus.

Subordination Period

General. During the subordination period, which is defined below and in KSP's partnership agreement, KSP's common units will have the right to receive distributions of available cash from operating surplus in an amount equal to the minimum quarterly distribution of $0.50 per quarter, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating surplus may be made on the subordinated units. The purpose of the subordinated units is to increase the likelihood that during the subordination period there will be available cash to be distributed on KSP's common units. Upon expiration of the subordination period, each outstanding subordinated unit will convert into one common unit and will participate pro rata with the other common units in distributions of available cash.

Definition of Subordination Period. The subordination period will extend until the first day of any quarter beginning after December 31, 2008 that each of the following tests are met:

•: distributions of available cash from operating surplus on each of KSP's outstanding common units and subordinated units equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;
•: the "adjusted operating surplus" (as described below) generated during each of the three consecutive, non-overlapping four quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of KSP's outstanding common

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units and subordinated units during those periods on a fully diluted basis and the related distribution on the general partner interest during those periods; and

•: there are no arrearages in payment of the minimum quarterly distribution on KSP's common units.

Early Conversion of Subordinated Units. Before the end of the subordination period, 50% of KSP's the subordinated units, or up to 2,082,500 subordinated units, may convert into common units of KSP on a one-for-one basis immediately after the distribution of available cash to the partners in respect of any quarter ending on or after:

•: December 31, 2006 with respect to 25% of the subordinated units; and
•: December 31, 2007 with respect to 25% of the subordinated units.

The early conversions will occur if at the end of the applicable quarter each of the following occurs:

•: distributions of available cash from operating surplus on each of KSP's then outstanding common units and the subordinated units equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;
•: the adjusted operating surplus generated during each of the three consecutive non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of KSP's then outstanding common units and subordinated units during those periods on a fully diluted basis and the related distribution on the general partner interest during those periods; and
•: there are no arrearages in payment of the minimum quarterly distribution on KSP's then outstanding common units.

The second early conversion of the subordinated units may not occur until at least one year following the first early conversion of the subordinated units. KSP met the required tests of the first 25% of subordinated units and, as a result, 1,041,250 of these subordinated units converted to common units on February 14, 2007. KSP also met the required tests of the second 25% of subordinated units, and, as a result, an additional 1,041,250 of these subordinated units converted to common units on February 14, 2008.

Definition of Adjusted Operating Surplus. Adjusted operating surplus is defined in KSP's partnership agreement and for any period it generally means:

•: operating surplus generated with respect to that period; less
•: any net increase in working capital borrowings with respect to that period; less
•: any net reduction in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; plus
•: any net decrease in working capital borrowings with respect to that period; plus
•: any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium.

KSP's adjusted operating surplus is intended to reflect the cash generated from KSP's operations during a particular period and therefore excludes net increases in working capital borrowings and net drawdowns of reserves of cash generated in prior periods.

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Effect of Expiration of the Subordination Period. Upon expiration of the subordination period, each outstanding subordinated unit of KSP will convert into one common unit of KSP and will then participate pro rata with KSP's other common units in distributions of KSP's available cash. In addition, if KSP's unitholders remove its general partner other than for cause and units held by KSP's general partner and its affiliates are not voted in favor of such removal:

•: the subordination period will end and each subordinated unit of KSP will immediately convert into one common unit of KSP;
•: any existing arrearages in payment of the minimum quarterly distribution on KSP's common units will be extinguished; and
•: KSP's general partner will have the right to convert its general partner interest and its incentive distribution rights into common units of KSP or to receive cash in exchange for those interests.

Distributions of Available Cash from Operating Surplus During the Subordination Period

KSP will make distributions of available cash from operating surplus for any quarter during the subordination period in the following manner:

•: first, 98.5% to KSP's common unitholders, pro rata, and 1.5% to KSP's general partner, until KSP distributes for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter;
•: second, 98.5% to KSP's common unitholders, pro rata, and 1.5% to KSP's general partner, until KSP distributes for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period;
•: third, 98.5% to KSP's subordinated unitholders, pro rata, and 1.5% to KSP's general partner, until KSP distributes for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and
•: thereafter, in the manner described in "—Incentive Distribution Rights" below.

Distributions of Available Cash from Operating Surplus After the Subordination Period

KSP will make distributions of available cash from operating surplus for any quarter after the subordination period in the following manner:

•: first, 98.5% to all KSP unitholders, pro rata, and 1.5% to KSP's general partner until KSP distributes for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter; and
•: thereafter, in the manner described in "—Incentive Distribution Rights" below.

Incentive Distribution Rights

KSP's incentive distribution rights represent the right to receive an increasing percentage of quarterly distributions of available cash from operating surplus after KSP's minimum quarterly distribution and certain target distribution levels have been achieved. KSP's general partner currently holds the incentive distribution rights, but may transfer these rights separately from its general partner interest, subject to restrictions in the partnership agreement.

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If for any quarter:

•: KSP has distributed available cash from operating surplus to its common and subordinated unitholders in an amount equal to the minimum quarterly distribution; and
•: KSP has distributed available cash from operating surplus on its outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution;

then, KSP will distribute any additional available cash from operating surplus for that quarter among its unitholders and its general partner in the following manner:

•: first, 98.5% to all unitholders, pro rata, and 1.5% to its general partner, until each unitholder receives a total of $0.55 per unit for that quarter (the "first target distribution");
•: second, 85.5% to all unitholders, pro rata, and 14.5% to its general partner, until each unitholder receives a total of $0.625 per unit for that quarter (the "second target distribution");
•: third, 75.5% to all unitholders, pro rata, and 24.5% to its general partner, until each unitholder receives a total of $0.75 per unit for that quarter (the "third target distribution"); and
•: thereafter, 50.5% to all unitholders, pro rata, and 49.5% to its general partner.

In each case, the amount of the target distribution set forth above is exclusive of any distributions to common unitholders to eliminate any cumulative arrearages in payment of the minimum quarterly distribution. The percentage interests set forth above for KSP's general partner include its 1.5% general partner interest and assume that KSP's general partner has not transferred the incentive distribution rights.

Percentage Allocations of Available Cash from Operating Surplus

The following table illustrates the percentage allocations of the additional available cash from operating surplus among the unitholders and KSP GP up to the various target distribution levels. The amounts set forth under "Marginal Percentage Interest in Distributions" are the percentage interests of KSP's unitholders and its general partner in any available cash from operating surplus KSP distributes up to and including the corresponding amount in the column "Total Quarterly Distribution Target Amount," until available cash from operating surplus KSP distributes reaches the next target distribution level, if any. The percentage interests shown for the unitholders and KSP's general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests shown for KSP GP include its 1.5% general partner interest and assume the general partner has not transferred the incentive distribution rights.

		Marginal Percentage Interest in Distributions
	Total Quarterly Distribution Target Amount	Marginal Percentage Interest in Distributions
	Total Quarterly Distribution Target Amount	Unitholders	General Partner
Minimum Quarterly Distribution	$0.50	98.5%	1.5%
First Target Distribution	up to $0.55	98.5%	1.5%
Second Target Distribution	above $0.55 up to $0.625	85.5%	14.5%
Third Target Distribution	above $0.625 up to $0.75	75.5%	24.5%
Thereafter	above $0.75	50.5%	49.5%

Distributions of Available Cash from Capital Surplus

How Distributions from Capital Surplus Will Be Made. KSP will make distributions of available cash from capital surplus, if any, in the following manner:

•: first, 98.5% to all unitholders, pro rata, and 1.5% to its general partner, until KSP distributes for each common unit that was issued in the initial public offering, an amount of available cash from capital surplus equal to the initial public offering price;

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•: second, 98.5% to KSP's common unitholders, pro rata, and 1.5% to its general partner, until KSP distributes for each common unit, an amount of available cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution on the common units; and
•: thereafter, KSP will make all distributions of available cash from capital surplus as if they were from operating surplus.

Effect of a Distribution from Capital Surplus. KSP's partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price from the KSP initial public offering, which is a return of capital. The initial public offering price less any distributions of capital surplus per KSP unit is referred to as the "unrecovered initial unit price." Each time a distribution of capital surplus is made, the minimum quarterly distribution and the target distribution levels will be reduced in the same proportion as the corresponding reduction in the unrecovered initial unit price. Because distributions of capital surplus will reduce the minimum quarterly distribution, after any of these distributions are made, it may be easier for KSP's general partner to receive incentive distributions and for KSP's subordinated units to convert into common units. However, any distribution of capital surplus before the unrecovered initial unit price is reduced to zero cannot be applied to the payment of the minimum quarterly distribution or any arrearages.

Once KSP distributes capital surplus on a unit in an amount equal to the initial unit price, KSP will reduce the minimum quarterly distribution and the target distribution levels to zero. KSP will then make all future distributions from operating surplus, with 50.5% being paid to the holders of KSP's units and 49.5% to KSP's general partner. The percentage interests shown for KSP's general partner include its 1.5% general partner interest and assume the general partner has not transferred the incentive distribution rights.

Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels

In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if KSP combines its units into fewer units or subdivide its units into a greater number of units, KSP will proportionately adjust:

•: the minimum quarterly distribution;
•: the target distribution levels;
•: the unrecovered initial unit price;
•: the number of common units issuable during the subordination period without a unitholder vote; and
•: the number of common units into which a subordinated unit is convertible.

For example, if a two-for-one split of the common units should occur, the minimum quarterly distribution, the target distribution levels and the unrecovered initial unit price would each be reduced to 50% of its initial level, the number of common units issuable during the subordination period without a unitholder vote would double and each subordinated unit would be convertible into two common units. KSP will not make any adjustment by reason of the issuance of additional units for cash or property.

In addition, if legislation is enacted or if existing law is modified or interpreted by a governmental taxing authority so that KSP becomes taxable as a corporation or otherwise subject to taxation as an entity for federal, state or local income tax purposes, KSP will reduce the minimum quarterly distribution and the target distribution levels for each quarter by multiplying each distribution level by a fraction, the numerator of which is available cash for that quarter and the denominator of which is the

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sum of available cash for that quarter plus its general partner's estimate of KSP's aggregate liability for such income taxes payable by reason of such legislation or interpretation. To the extent that the actual tax liability differs from the estimated tax liability for any quarter, the difference will be accounted for in subsequent quarters.

Distributions of Cash Upon Liquidation

General. If KSP dissolves in accordance with its partnership agreement, KSP will sell or otherwise dispose of its assets in a process called a liquidation. KSP will first apply the proceeds of liquidation to the payment of its creditors. KSP will distribute any remaining proceeds to its unitholders and its general partner, in accordance with their capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of KSP's assets in liquidation.

The allocations of gain and loss upon liquidation are intended, to the extent possible, to entitle the holders of KSP's outstanding common units to a preference over the holders of KSP's outstanding subordinated units upon KSP's liquidation, to the extent required to permit KSP's common unitholders to receive their unrecovered initial unit price plus the minimum quarterly distribution for the quarter during which liquidation occurs plus any unpaid arrearages in payment of the minimum quarterly distribution on the common units. However, there may not be sufficient gain upon KSP's liquidation to enable the holders of KSP's common units to fully recover all of these amounts, even though there may be cash available for distribution to the holders of KSP's subordinated units. Any further net gain recognized upon KSP's liquidation will be allocated in a manner that takes into account the incentive distribution rights of KSP's general partner.

Manner of Adjustments for Gain. The manner of the adjustment for gain is set forth in KSP's partnership agreement. If KSP's liquidation occurs before the end of the subordination period, KSP will allocate any gain to the partners in the following manner:

•

first, to KSP's general partner and the holders of KSP's units who have negative balances in their capital accounts to the extent of and in proportion to those negative balances;

•

second, 98.5% to KSP's common unitholders, pro rata, and 1.5% to KSP's general partner, until the capital account for each common unit is equal to the sum of:

(1): the unrecovered initial unit price;
(2): the amount of the minimum quarterly distribution for the quarter during which KSP's liquidation occurs; and
(3): any unpaid arrearages in payment of the minimum quarterly distribution;

•

third, 98.5% to KSP's subordinated unitholders, pro rata, and 1.5% to KSP's general partner, until the capital account for each subordinated unit is equal to the sum of:

(1): the unrecovered initial unit price; and
(2): the amount of the minimum quarterly distribution for the quarter during which KSP's liquidation occurs;

•

fourth, 98.5% to all KSP unitholders, pro rata, and 1.5% to KSP's general partner, until KSP allocates under this paragraph an amount per unit equal to:

(1): the sum of the excess of the first target distribution per unit over the minimum quarterly distribution per unit for each quarter of KSP's existence; less
(2): the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the minimum quarterly distribution per unit that KSP distributed 98%

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to the unitholders, pro rata, and 2% to KSP's general partner for each quarter of KSP's existence;

•

fifth, 85.5% to all KSP unitholders, pro rata, and 14.5% to KSP's general partner, until KSP allocates under this paragraph an amount per unit equal to:

(1): the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter of KSP's existence; less
(2): the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the first target distribution per unit that KSP distributed 85.5% to the unitholders, pro rata, and 14.5% to KSP's general partner for each quarter of KSP's existence;

•

sixth, 75.5% to all KSP unitholders, pro rata, and 24.5% to KSP's general partner, until KSP allocates under this paragraph an amount per unit equal to:

(1): the sum of the excess of the third target distribution per unit over the second target distribution per unit for each quarter of KSP's existence; less
(2): the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the second target distribution per unit that KSP distributed 75.5% to the unitholders, pro rata, and 24.5% to KSP's general partner for each quarter of KSP's existence;

•

thereafter, 50.5% to all KSP unitholders, pro rata, and 49.5% to KSP's general partner.

The percentage interests set forth above for KSP's general partner include its 1.5% general partner interest and assume the general partner has not transferred the incentive distribution rights.

If the liquidation occurs after the end of the subordination period, the distinction between KSP's common units and subordinated units will disappear, so that clause (3) of the second bullet point above and all of the third bullet point above will no longer be applicable.

Manner of Adjustments for Losses. Upon KSP's liquidation, KSP will generally allocate any loss to KSP's general partner and its unitholders in the following manner:

•: first, 98.5% to holders of KSP's subordinated units in proportion to the positive balances in their capital accounts and 1.5% to KSP's general partner, until the capital accounts of KSP's subordinated unitholders have been reduced to zero;
•: second, 98.5% to the holders of KSP's common units in proportion to the positive balances in their capital accounts and 1.5% to KSP's general partner, until the capital accounts of KSP's common unitholders have been reduced to zero; and
•: thereafter, 100% to KSP's general partner.

If the liquidation occurs after the end of the subordination period, the distinction between KSP's common units and subordinated units will disappear, so that all of the first bullet point above will no longer be applicable.

Adjustments to Capital Accounts. KSP will make adjustments to capital accounts upon the issuance of additional units. In doing so, KSP will allocate any unrealized and, for tax purposes, unrecognized gain or loss resulting from the adjustments to KSP's unitholders and its general partner in the same manner as KSP allocates gain or loss upon liquidation. In the event that KSP makes positive adjustments to the capital accounts upon the issuance of additional units, KSP will allocate any later negative adjustments to the capital accounts resulting from the issuance of additional units or upon KSP's liquidation in a manner which results, to the extent possible, in KSP's general partner's capital account balances equaling the amount which they would have been if no earlier positive adjustments to the capital accounts had been made.

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MATERIAL PROVISIONS OF THE PARTNERSHIP AGREEMENT OF
K-SEA TRANSPORTATION PARTNERS L.P.

The following is a summary of the material provisions of the partnership agreement of K-Sea Transportation Partners L.P., which could impact our results of operations and those of KSP. KSP's partnership agreement is included as an exhibit to the registration statement of which this prospectus constitutes a part. Unless the context otherwise requires, reference in this prospectus to the "KSP partnership agreement," constitute references to the partnership agreement of K-Sea Transportation Partners L.P.

For more information on distributions of KSP's available cash, please read "K-Sea Transportation Partners L.P.'s Cash Distribution Policy."

Purpose

KSP's purpose under its partnership agreement is limited to serving as a partner of K-Sea Operating Partnership L.P., its operating partnership, and engaging in any business activities that may be engaged in by its operating partnership and its subsidiaries or that are approved by its general partner. The partnership agreement of KSP's operating partnership provides that the operating partnership may, directly or indirectly, engage in:

•: its operations as conducted immediately before its initial public offering;
•: any other activity approved by the general partner but only to the extent that the general partner reasonably determines that, as of the date of the acquisition or commencement of the activity, the activity generates "qualifying income" as this term is defined in Section 7704 of the Internal Revenue Code of 1986, as amended; or
•: any activity that enhances the operations of an activity that is described in either of the two preceding clauses or any other activity provided such activity does not affect our treatment as a partnership for federal income tax purposes.

Although KSP's general partner has the ability to cause KSP, KSP's operating partnership or its subsidiaries to engage in activities other than the marine transportation of refined petroleum products, it has no current plans to do so. KSP's general partner is authorized in general to perform all acts deemed necessary to carry out KSP's purposes and to conduct its business.

Restrictions on Foreign Ownership

To enjoy the benefits of U.S. coastwise trade, KSP must maintain U.S. citizenship for U.S. coastwise trade purposes as defined in the Merchant Marine Act of 1936, as amended, the Shipping Act of 1916, as amended, and the regulations thereunder. Under these regulations, for KSP to maintain U.S. citizenship and, therefore, be qualified to engage in U.S. coastwise trade:

•: not less than 75% of the interests in KSP's general partner must be owned by U.S. citizens;
•: the president or chief executive officer, the chairman of the board and a majority of a quorum of the board of directors of KSP's general partner must be U.S. citizens; and
•: at least 75% of the ownership and voting power of KSP's units must be held by U.S. citizens free of any trust, fiduciary arrangement or other agreement, arrangement or understanding whereby voting power may be exercised directly or indirectly by non-U.S. citizens, as defined in the Merchant Marine Act, the Shipping Act and the regulations thereunder.

In order for KSP to protect its ability to register vessels under federal law and operate its vessels in U.S. coastwise trade, KSP's partnership agreement restricts foreign ownership of their interests to a percentage equal to not more than 24.0% as determined from time to time by its general partner.

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KSP's general partner has determined to limit foreign ownership of KSP's interests to 15.0%. We refer to the percentage limitation on foreign ownership as the permitted percentage.

KSP's partnership agreement provides that:

•: any transfer, or attempted transfer, of any units that would result in the ownership or control, in each case, in excess of the permitted percentage by one or more persons who is not a U.S. citizen for purposes of U.S. coastwise shipping (as defined in the Merchant Marine Act and the Shipping Act) will be void and ineffective as against KSP; and
•: if, at any time, persons other than U.S. citizens own units or possess voting power over units, in each case, (either of record or beneficially) in excess of the permitted percentage, we will withhold payment of distributions on and suspend the voting rights of such units and may redeem such units.

Unit certificates bear legends concerning the restrictions on ownership by persons other than U.S. citizens.

In addition, KSP's partnership agreement:

•: permits KSP to require, as a condition precedent to the transfer of units on its records, representations and other proof as to the identity of existing or prospective unitholders; and
•: permits KSP to establish and maintain a dual unit certificate system under which different forms of certificates may be used to reflect whether or not the owner thereof is a U.S. citizen.

Issuance of Additional Securities

The KSP partnership agreement authorizes KSP to issue an unlimited number of additional common units and other partnership securities and rights to buy partnership securities for the consideration and on the terms and conditions established by KSP's general partner in its sole discretion without the approval of the unitholders. During the subordination period, however, except as set forth in the following paragraph, KSP may not issue equity securities ranking senior to the common units or an aggregate of more than 2,082,500 additional common units or units on a parity with the common units, in each case, without the approval of the holders of a unit majority.

During or after the subordination period, KSP may issue an unlimited number of common units, without the approval of unitholders, as follows:

•: in connection with an acquisition or a capital improvement that increases cash flow from operations per unit on a pro forma basis;
•: if the proceeds of the issuance are used exclusively to repay indebtedness the cost of which to service is greater than the distribution obligations associated with the units issued in connection with its retirement;
•: the redemption of common units or other equity securities of equal rank with the common units from the net proceeds of an issuance of common units or parity units provided that the redemption price equals the net proceeds per unit, before expenses, to KSP;
•: upon conversion of the subordinated units;
•: upon conversion of units of equal rank with the common units into common units under some circumstances;
•: under employee benefit plans;

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•: upon conversion of the general partner interest and incentive distribution rights into common units as a result of a withdrawal of our general partner; or
•: in the event of a combination or subdivision of common units.

It is possible that KSP will fund acquisitions through the issuance of additional common units or other equity securities. Holders of any additional common units KSP issues will be entitled to share equally with the then-existing holders of common units, GP units and other securities in KSP's distributions of available cash. In addition, the issuance of additional common units or other equity securities interests may dilute the value of the interests of the then-existing holders of common units in KSP's net assets.

In accordance with Delaware law and the provisions of KSP's partnership agreement, KSP may also issue additional partnership securities interests that, in the sole discretion of KSP's general partner, have special voting rights to which the common units are not entitled.

Upon the issuance of additional common units or other partnership securities, KSP's general partner may make additional capital contributions to the extent necessary to maintain its 1.5% general partner interest in KSP. Moreover, KSP's general partner will have the right, which it may from time to time assign in whole or in part to any of its affiliates, to purchase common units, subordinated units or other equity securities whenever, and on the same terms that, KSP issues those securities to persons other than its general partner and its affiliates, to the extent necessary to maintain the general partner's and its affiliates' percentage interest, including its interest represented by common units and subordinated units, that existed immediately prior to each issuance. The holders of common units will not have preemptive rights to acquire additional common units or other partnership securities.

Limited Liability

Participation in the Control of KSP's Partnership. Assuming that a limited partner does not participate in the control of KSP's business within the meaning of the Delaware Revised Uniform Limited Partnership Act, or Delaware Act, and that he otherwise acts in conformity with the provisions of KSP's partnership agreement, his liability under the Delaware Act will be limited, subject to possible exceptions, to the amount of capital he is obligated to contribute to its general partner for his common units plus his share of any undistributed profits and assets. If it were determined, however, that the right, or exercise of the right, by the limited partners as a group:

•: to remove or replace its general partner;
•: to approve some amendments to KSP's partnership agreement; or
•: to take other action under KSP's partnership agreement;

constituted "participation in the control" of KSP's business for the purposes of the Delaware Act, then the limited partners could be held personally liable for our obligations under Delaware law, to the same extent as its general partner. This liability would extend to persons who transact business with KSP who reasonably believe that the limited partner is a general partner. Neither KSP's partnership agreement nor the Delaware Act specifically provides for legal recourse against KSP if a limited partner were to lose limited liability through any fault of the general partner. While this does not mean that a limited partner could not seek legal recourse, we have found no precedent for this type of a claim in Delaware case law.

Unlawful Partnership Distributions. Under the Delaware Act, a limited partnership may not make a distribution to a partner if, after the distribution, all liabilities of the limited partnership, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property of the partnership, would exceed the fair value of the assets of the limited partnership. For the purpose of determining the fair value of the assets of a limited partnership, the Delaware Act provides that the fair value of property subject to liability for which

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recourse of creditors is limited shall be included in the assets of the limited partnership only to the extent that the fair value of that property exceeds the nonrecourse liability. The Delaware Act provides that a limited partner who receives a distribution and knew at the time of the distribution that the distribution was in violation of the Delaware Act shall be liable to the limited partnership for the amount of the distribution for three years. Under the Delaware Act, an assignee who becomes a substituted limited partner of a limited partnership is liable for the obligations of his assignor to make contributions to the partnership, except the assignee is not obligated for liabilities unknown to him at the time he became a limited partner and that could not be ascertained from the partnership agreement.

Failure to Comply with the Limited Liability Provisions of Jurisdictions in Which KSP Does Business. KSP's subsidiaries conduct business in Alaska, Hawaii, New York, New Jersey, Pennsylvania, Washington, Virginia and certain foreign jurisdictions. Maintenance of KSP's limited liability, as a limited partner of KSP's operating partnership, may require compliance with legal requirements in the jurisdictions in which KSP's operating partnership conducts business, including qualifying KSP's subsidiaries to do business there. Limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in many jurisdictions. If, by virtue of KSP's limited partner interest in KSP's operating partnership or otherwise, it were determined that we were conducting business in any state without compliance with the applicable limited partnership or limited liability company statute, or that the right or exercise of the right by the limited partners as a group to remove or replace KSP's general partner, to approve some amendments to KSP's partnership agreement, or to take other action under the partnership agreement constituted "participation in the control" of our business for purposes of the statutes of any relevant jurisdiction, then the limited partners could be held personally liable for KSP's obligations under the law of that jurisdiction to the same extent as us under the circumstances. KSP will operate in a manner that we consider reasonable and necessary or appropriate to preserve the limited liability of the limited partners.

Voting Rights

The following matters require the unitholder vote specified below. Matters requiring the approval of a "unit majority" require:

•: during the subordination period, the approval of at least a majority of the common units, excluding those common units held by KSP's general partner and its affiliates, and a majority of the subordinated units, voting as separate classes; and
•: after the subordination period, the approval of a majority of the common units.

Matter		Vote Requirement

Issuance of additional common units or units of equal rank with the common units during the subordination period		Unit majority, with certain exceptions described under "—Issuance of Additional Securities."
Issuance of units senior to the common units during the subordination period		Unit majority.
Issuance of units junior to the common units during the subordination period		No approval right.
Issuance of additional units after the subordination period		No approval right.

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Amendment of KSP's partnership agreement		Certain amendments may be made by KSP's general partner without the approval of the unitholders. Other amendments generally require the approval of a unit majority. Please read "—Amendment of KSP's Partnership Agreement."
Merger of KSP or the sale of all or substantially all of KSP's assets		Unit majority.
Amendment of the limited partnership agreement of the operating partnership and other action taken by KSP as a limited partner of the operating partnership		Unit majority if such amendment or other action would adversely affect KSP's limited partners (or any particular class of limited partners) in any material respect.
Dissolution of KSP		Unit majority.
Reconstitution of KSP upon dissolution		Unit majority.
Withdrawal of KSP's general partner		Under most circumstances, the approval of a majority of the common units, excluding common units held by KSP's general partner and its affiliates, is required for the withdrawal of KSP's general partner prior to December 31, 2013 in a manner which would cause a dissolution of our partnership. Please read "—Withdrawal or Removal of KSP's General Partner."
Removal of KSP's general partner		Not less than 66²/3% of the outstanding units, including units held by KSP's general partner and its affiliates. Please read "—Withdrawal or Removal of KSP's General Partner."
Transfer of the general partner interest		KSP's general partner may transfer all, but not less than all, of its general partner interest in KSP without a vote of KSP's unitholders to an affiliate or to another person in connection with its merger or consolidation with or into, or sale of all or substantially all of its assets to such person. The approval of a majority of the common units, excluding common units held by the general partner and its affiliates, is required in other circumstances for a transfer of the general partner interest to a third party prior to December 31, 2013.

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Transfer of incentive distribution rights		Except for transfers to an affiliate or another person as part of KSP general partner's merger or consolidation with or into, or sale of all or substantially all of its assets to, or sale of all or substantially all its equity interest to, such person, the approval of a majority of the common units, excluding common units held by KSP's general partner and its affiliates, is required in most circumstances for a transfer of the incentive distribution rights to a third party prior to December 31, 2013.
Transfer of ownership interests in KSP's general partner		No approval required at any time.

Amendment of KSP's Partnership Agreement

General. Amendments to the KSP partnership agreement may be proposed only by or with the consent of KSP's general partner, which consent may be given or withheld in its sole discretion. In order to adopt a proposed amendment, other than the amendments discussed below, KSP's general partner is required to seek written approval of the holders of the number of units required to approve the amendment or call a meeting of the limited partners to consider and vote upon the proposed amendment. Except as described below, an amendment must be approved by a unit majority.

Prohibited Amendments. No amendment may be made that would:

•: enlarge the obligations of any limited partner without its consent, unless approved by at least a majority of the type or class of limited partner interests so affected;
•: enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by us to KSP's general partner or any of its affiliates without the consent of KSP's general partner, which may be given or withheld in its sole discretion;
•: change the term of KSP's partnership;
•: provide that KSP's partnership is not dissolved upon an election to dissolve KSP's partnership by KSP's general partner that is approved by a unit majority; or
•: give any person the right to dissolve KSP's partnership other than KSP's general partner's right to dissolve KSP's partnership with the approval of a unit majority.

The provision of KSP's partnership agreement preventing the amendments having the effects described in any of the clauses above can be amended upon the approval of the holders of at least 90% of the outstanding units voting together as a single class (including units owned by KSP's general partner and its affiliates).

No Unitholder Approval. We may generally make amendments to the partnership agreement without the approval of any limited partner or assignee to reflect:

•: a change in KSP's name, the location of KSP's principal place of business, KSP's registered agent or our registered office;
•: the admission, substitution, withdrawal or removal of partners in accordance with the partnership agreement;
•: a change that, in the sole discretion of KSP's general partner, is necessary or advisable for us to qualify or to continue KSP's qualification as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any state or to ensure that neither we,

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the operating partnership nor any of its subsidiaries will be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes;

•: an amendment that is necessary, in the opinion of KSP's counsel, to prevent KSP, KSP's general partner, KSP GP or the directors, officers, agents or trustees of KSP GP from in any manner being subjected to the provisions of the Investment Company Act of 1940, the Investment Advisors Act of 1940, or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, whether or not substantially similar to plan asset regulations currently applied or proposed;
•: subject to the limitations on the issuance of additional partnership securities described above, an amendment that in the discretion of KSP's general partner is necessary or advisable for the authorization of additional partnership securities or rights to acquire partnership securities;
•: any amendment expressly permitted in the partnership agreement to be made by KSP's general partner acting alone;
•: an amendment effected, necessitated or contemplated by a merger agreement that has been approved under the terms of the partnership agreement;
•: any amendment that, in the discretion of our general partner, is necessary or advisable for the formation by us of, or KSP's investment in, any corporation, partnership or other entity, as otherwise permitted by KSP's partnership agreement;
•: certain mergers or conveyances as set forth in KSP's partnership agreement;
•: a change in KSP's fiscal year or taxable year and related changes; or
•: any other amendments substantially similar to any of the matters described in the preceding clauses.

In addition, we may make amendments to the partnership agreement without the approval of any limited partner or assignee if those amendments, in our discretion:

•: do not adversely affect the limited partners (or any particular class of limited partners as compared to other classes of limited partners) in any material respect;
•: are necessary or advisable to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute;
•: are necessary or advisable to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline or requirement of any securities exchange on which the limited partner interests are or will be listed for trading, compliance with any of which we deem to be in KSP's best interest and the best interest of KSP's limited partners;
•: are necessary or advisable for any action taken by us relating to splits or combinations of units under the provisions of the partnership agreement; or
•: are required to effect the intent expressed in this prospectus or the intent of the provisions of KSP's partnership agreement or are otherwise contemplated by KSP's partnership agreement.

Opinion of Counsel and Unitholder Approval. We will not be required to obtain an opinion of counsel that an amendment will not result in a loss of limited liability to the limited partners or result in our being treated as an entity for federal income tax purposes if one of the amendments described above under "—No Unitholder Approval" should occur. No other amendments to the partnership agreement will become effective without the approval of holders of at least 90% of the outstanding units voting as a single class unless we obtain an opinion of counsel to the effect that the amendment will not affect the limited liability under applicable law of any limited partner in KSP's partnership.

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will require the approval of at least a majority of the type or class of units so affected. Any amendment that reduces the voting percentage required to take any action is required to be approved by the affirmative vote of limited partners whose aggregate outstanding units constitute not less than the voting requirement sought to be reduced.

Liquidation and Distribution of Proceeds

Upon KSP's dissolution, unless we are reconstituted and continued as a new limited partnership, the liquidator authorized to wind up our affairs will, acting with all of the powers of KSP's general partner that the liquidator deems necessary or desirable in its judgment, liquidate KSP's assets and apply the proceeds of the liquidation as provided in "How We Make Cash Distributions—Distributions of Cash Upon Liquidation." The liquidator may defer liquidation or distribution of our assets for a reasonable period of time or distribute assets to partners in kind if it determines that a sale would be impractical or would cause undue loss to KSP's partners.

Withdrawal or Removal of KSP's General Partner

Except as described below, KSP's general partner has agreed not to withdraw voluntarily as its general partner prior to December 31, 2013 without obtaining the approval of the holders of at least a majority of the outstanding common units, excluding common units held by KSP's general partner and its affiliates, and furnishing an opinion of counsel regarding limited liability and tax matters. On or after December 31, 2013 KSP's general partner may withdraw as general partner without first obtaining approval of any unitholder by giving 90 days' written notice, and that withdrawal will not constitute a violation of the partnership agreement. Notwithstanding the information above, KSP's general partner may withdraw without unitholder approval upon 90 days' notice to the limited partners if at least 50% of the outstanding common units are held or controlled by one person and its affiliates other than KSP's general partner and its affiliates. In addition, KSP's partnership agreement permits KSP's general partner in some instances to sell or otherwise transfer all of its general partner interest in KSP without the approval of the unitholders.

Upon the withdrawal of KSP's general partner under any circumstances, other than as a result of a transfer by KSP's general partner of all or a part of its general partner interest in KSP, the holders of a majority of the outstanding common units and subordinated units, voting as separate classes, may select a successor to that withdrawing general partner. If a successor is not elected, or is elected but an opinion of counsel regarding limited liability and tax matters cannot be obtained, KSP will be dissolved, wound up and liquidated, unless within 90 days after that withdrawal, the holders of units representing a unit majority agree in writing to continue KSP's business and to appoint a successor general partner.

KSP's general partner may not be removed unless that removal is approved by the vote of the holders of not less than 66²/3% of the outstanding units, voting together as a single class, including units held by KSP's general partner and its affiliates, and KSP receives an opinion of counsel regarding limited liability and tax matters. Any removal of the general partner is also subject to the approval of a successor general partner by the vote of the holders of a majority of the outstanding common units and subordinated units, voting as separate classes. The ownership of more than 33¹/3% of the outstanding units by KSP's general partner and its affiliates would give it the practical ability to prevent its removal.

The KSP partnership agreement also provides that if KSP GP is removed as KSP's general partner under circumstances where cause does not exist and units held by its general partner and its affiliates are not voted in favor of that removal:

•: the subordination period will end and all outstanding subordinated units will immediately convert into common units on a one-for-one basis;

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•: any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and
•: KSP's general partner will have the right to convert its general partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests based on the fair market value of those interests at the time.

In the event of removal of the general partner under circumstances where cause exists or withdrawal of a general partner where that withdrawal violates the partnership agreement, a successor general partner will have the option to purchase the general partner interest and incentive distribution rights of the departing general partner for a cash payment equal to the fair market value of those interests. Under all other circumstances where a general partner withdraws or is removed by the limited partners, the departing general partner will have the option to require the successor general partner to purchase the general partner interest of the departing general partner and its incentive distribution rights for fair market value. In each case, this fair market value will be determined by agreement between the departing general partner and the successor general partner. If no agreement is reached, an independent investment banking firm or other independent expert selected by the departing general partner and the successor general partner will determine the fair market value. If the departing general partner and the successor general partner cannot agree upon an expert, then an expert chosen by agreement of the experts selected by each of them will determine the fair market value.

If the option described above is not exercised by either the departing general partner or the successor general partner, the departing general partner's general partner interest and its incentive distribution rights will automatically convert into common units equal to the fair market value of those interests as determined by an investment banking firm or other independent expert selected in the manner described in the preceding paragraph.

Change of Management Provisions

The KSP partnership agreement contains specific provisions that are intended to discourage a person or group from attempting to remove KSP GP as KSP's general partner or otherwise change KSP's management. If any person or group other than KSP's general partner and its affiliates acquires beneficial ownership of 20% or more of any class of units, that person or group loses voting rights on all of its units. This loss of voting rights does not apply to any person or group that acquires the units from KSP's general partner or its affiliates and any transferees of that person or group approved by KSP's general partner or to any person or group who acquires the units with the prior approval of the board of directors of the general partner of KSP's general partner.

The KSP partnership agreement also provides that if KSP's general partner is removed under circumstances where cause does not exist and units held by KSP's general partner and its affiliates are not voted in favor of that removal:

•: the subordination period will end and all outstanding subordinated units will immediately convert into common units on a one-for-one basis;
•: any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and
•: KSP's general partner will have the right to convert its general partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests.

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Limited Call Right

If at any time KSP's general partner and its affiliates hold more than 80% of the then-issued and outstanding partnership securities of any class, it will have the right, which it may assign in whole or in part to any of its affiliates or to KSP, to acquire all, but not less than all, of the remaining partnership securities of the class held by unaffiliated persons as of a record date to be selected by KSP's general partner, on at least 10 but not more than 60 days notice. The purchase price in the event of this purchase is the greater of:

•: the highest price paid by KSP's general partner or any of its affiliates for any partnership securities of the class purchased within the 90 days preceding the date on which our general partner first mails notice of its election to purchase those partnership securities; or
•: the current market price as of the date three days before the date the notice is mailed.

As a result of KSP's general partner's right to purchase outstanding partnership securities, a holder of partnership securities may have his partnership securities purchased at an undesirable time or price. Our partnership agreement provides that the resolution of any conflict of interest that is fair and reasonable will not be a breach of the KSP partnership agreement. KSP's general partner may, but it is not obligated to, submit the conflict of interest represented by the exercise of the limited call right to the conflicts committee for approval or seek a fairness opinion from an investment banker. If KSP's general partner exercises its limited call right, it will make a determination at the time, based on the facts and circumstances, and upon the advice of counsel, as to the appropriate method of determining the fairness and reasonableness of the transaction. KSP's general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right.

There is no restriction in the KSP partnership agreement that prevents KSP's general partner from issuing additional common units and exercising its call right. If KSP's general partner exercised its limited call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended.

The tax consequences to a unitholder of the exercise of this call right are the same as a sale by that unitholder of his common units in the market. Please read "Material Tax Consequences—Disposition of Common Units."

Meetings; Voting

Except as described below regarding a person or group owning 20% or more of any class of units then outstanding, unitholders or assignees who are record holders of units on the record date will be entitled to notice of, and to vote at, meetings of KSP's limited partners and to act upon matters for which approvals may be solicited. Common units that are owned by an assignee who is a record holder, but who has not yet been admitted as a limited partner, will be voted by KSP's general partner at the written direction of the record holder. Absent direction of this kind, the common units will not be voted, except that, in the case of common units held by KSP's general partner on behalf of non-citizen assignees, KSP's general partner will distribute the votes on those common units in the same ratios as the votes of limited partners on other units are cast.

KSP's general partner does not anticipate that any meeting of unitholders will be called in the foreseeable future. Any action that is required or permitted to be taken by the unitholders may be taken either at a meeting of the unitholders or without a meeting if consents in writing describing the action so taken are signed by holders of the number of units necessary to authorize or take that action at a meeting. Meetings of the unitholders may be called by KSP's general partner or by unitholders owning at least 20% of the outstanding units of the class for which a meeting is proposed. Unitholders may vote either in person or by proxy at meetings. The holders of a majority of the outstanding units of the class or classes for which a meeting has been called, represented in person or by proxy, will

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constitute a quorum unless any action by the unitholders requires approval by holders of a greater percentage of the units, in which case the quorum will be the greater percentage.

Each record holder of a unit has a vote according to his percentage interest in KSP, although additional limited partner interests having special voting rights could be issued. Please read "—Issuance of Additional Securities" above. However, if at any time any person or group, other than KSP's general partner and its affiliates, or a direct or subsequently approved transferee of KSP's general partner or its affiliates or a person or group who acquires the units with the prior approval of the board of directors of KSP's general partner, acquires, in the aggregate, beneficial ownership of 20% or more of any class of units then outstanding, that person or group will lose voting rights on all of its units and the units may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes, determining the presence of a quorum or for other similar purposes. Common units held in nominee or street name accounts will be voted by the broker or other nominee in accordance with the instruction of the beneficial owner unless the arrangement between the beneficial owner and his nominee provides otherwise. Except as the partnership agreement otherwise provides, subordinated units will vote together with common units as a single class.

Indemnification

Under the KSP partnership agreement, in most circumstances, KSP will indemnify the following persons, to the fullest extent permitted by law, from and against all losses, claims, damages or similar events:

•: KSP's general partner;
•: any departing general partner of KSP;
•: any person who is or was an affiliate of KSP's general partner or any departing general partner;
•: any person who is or was a director, officer or manager of any entity described in the preceding three bullet points; or
•: any person designated by KSP's general partner.

Any indemnification under these provisions will only be out of KSP's assets. KSP's general partner will not be personally liable for, or have any obligation to contribute or lend funds or assets to KSP to enable KSP to effectuate, indemnification. KSP is authorized to purchase insurance against liabilities asserted against and expenses incurred by persons for KSP's activities, regardless of whether we would have the power to indemnify the person against liabilities under the KSP partnership agreement.

Registration Rights

Under KSP's partnership agreement, KSP has agreed to register for resale under the Securities Act of 1933 and applicable state securities laws any common units, subordinated units or other partnership securities proposed to be sold by our general partner or any of its affiliates or their assignees if an exemption from the registration requirements is not otherwise available. These registration rights continue for two years following any withdrawal or removal of K-Sea's general partner. We are obligated to pay all expenses incidental to the registration, excluding underwriting discounts and commissions.

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UNITS ELIGIBLE FOR FUTURE SALE

After the sale of the common units offered hereby, affiliates of our general partner will hold an aggregate of common units. The sale of these common units could have an adverse impact on the price of our common units or on any trading market that may develop.

The common units sold in this offering will generally be freely transferable without restriction or further registration under the Securities Act, except that any common units owned by an "affiliate" of ours may not be resold publicly except in compliance with the registration requirements of the Securities Act or under an exemption under Rule 144 or otherwise. Rule 144 permits securities acquired by an affiliate of the issuer to be sold into the market in an amount that does not exceed, during any three-month period, the greater of:

•: 1% of the total number of the securities outstanding; or
•: the average weekly reported trading volume of the common units for the four calendar weeks prior to the sale.

Sales under Rule 144 are also subject to specific manner of sale provisions, holding period requirements, notice requirements and the availability of current public information about us. A person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned his common units for at least two years, would be entitled to sell common units under Rule 144 without regard to the public information requirements, volume limitations, manner of sale provisions and notice requirements of Rule 144.

Our partnership agreement provides that we may issue an unlimited number of limited partner interests and other equity securities without a vote of the unitholders. Any issuance of additional common units or other equity securities would result in a corresponding decrease in the proportionate ownership interest in us represented by, and could adversely affect the cash distributions to and market price of, common units then outstanding. Please read "Description of Our Partnership Agreement—Issuance of Additional Securities."

The owner of our general partner may request that we register for resale under the Securities Act and applicable state securities laws any common units or other partnership securities that are held by such owner. We will bear all costs and expenses incidental to any registration, excluding any underwriting discounts and commissions. Except as described below, the owner of our general partner may sell its common units in private transactions at any time, subject to compliance with applicable laws.

The owner of our general partner and its affiliates, including our general partner and the directors and executive officers of our general partner, have agreed not to sell any units they beneficially own for a period of 180 days from the date of this prospectus. For a description of these lock-up provisions, please read "Underwriting."

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MATERIAL TAX CONSEQUENCES

This section is a summary of the material tax consequences that may be relevant to prospective unitholders who are individual citizens or residents of the United States and, unless otherwise noted in the following discussion, is the opinion of Baker Botts L.L.P., counsel to us and our general partner, insofar as it relates to matters of United States federal income tax law and legal conclusions with respect to those matters. This section is based upon current provisions of the Internal Revenue Code, existing and proposed regulations, and current administrative rulings and court decisions, all of which are subject to change. Later changes in these authorities may cause the tax consequences to vary substantially from the consequences described below. Unless the context otherwise requires, references in this section to "us" or "we" are references to K-Sea GP Holdings LP.

The following discussion does not comment on all federal income tax matters affecting us or the unitholders. Moreover, the discussion focuses on unitholders who are individual citizens or residents of the United States and has only limited application to corporations, estates, trusts, nonresident aliens or other unitholders subject to specialized tax treatment, such as tax-exempt institutions, foreign persons, individual retirement accounts (IRAs), real estate investment trusts (REITs), employee benefit plans, or mutual funds. Accordingly, we encourage each prospective unitholder to consult, and depend on, his own tax advisor in analyzing the federal, state, local and foreign tax consequences particular to him of the ownership or disposition of common units.

All statements as to matters of law and legal conclusions, but not as to factual matters, contained in this section, unless otherwise noted, are the opinion of Baker Botts L.L.P., and are based on the accuracy of the representations made by us.

The IRS has not provided any ruling regarding any matter affecting us or prospective unitholders. Instead, we will rely on opinions of Baker Botts L.L.P. Unlike a ruling, an opinion of counsel represents only that counsel's best legal judgment and does not bind the IRS or the courts. Accordingly, the opinions and statements made here may not be sustained by a court if contested by the IRS. Any contest of this sort with the IRS may materially and adversely impact the market for the common units and the prices at which the common units trade. In addition, the costs of any contest with the IRS, principally legal, accounting and related fees, will result in a reduction in cash available for distribution to our unitholders and our general partner and thus will be borne indirectly by our unitholders and our general partner. Furthermore, the tax treatment of us, or of an investment in us, may be significantly modified by future legislative or administrative changes or court decisions. Any modifications may or may not be retroactively applied.

For the reasons described below, Baker Botts L.L.P. has not rendered an opinion with respect to the following specific federal income tax issues:

•: the treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units (please read "—Tax Consequences of Unit Ownership—Treatment of Short Sales" below);
•: whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations (please read "—Disposition of Common Units—Allocations Between Transferors and Transferees" below); and
•: whether our method for depreciating Section 743 adjustments is sustainable (please read "—Tax Consequences of Unit Ownership—Section 754 Election" and "Uniformity of Units" below).

Partnership Status

A partnership is not a taxable entity and incurs no federal income tax liability. Instead, each partner of a partnership is required to take into account his share of items of income, gain, loss and

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deduction of the partnership in computing his federal income tax liability, regardless of whether cash distributions are made to him by the partnership. Distributions by a partnership to a partner are generally not taxable unless the amount of cash distributed is in excess of the partner's adjusted basis in his partnership interest.

The IRS has not made any determination as to our or KSP's status for federal income tax purposes or whether our or KSP's operations generate "qualifying income" under Section 7704 of the Internal Revenue Code. Instead, we will rely on the opinion of Baker Botts L.L.P. that, based upon the Internal Revenue Code and its regulations, we and KSP will each be treated as a partnership so long as:

•: we and KSP do not elect to be treated as a corporation; and
•: for each taxable year, more than 90% of each of our gross income and KSP's gross income is "qualifying income" within the meaning of Section 7704(d) of the Internal Revenue Code.

Qualifying income includes certain income and gains derived from the transportation and processing of crude oil, natural gas and products thereof. Other types of qualifying income include interest other than from a financial business, dividends, gains from the sale of real property and gains from the sale or other disposition of assets held for the production of income that otherwise constitutes qualifying income. We estimate that approximately % of our current income and % of KSP's gross income is within one or more categories of income that are qualifying income in the opinion of Baker Botts L.L.P. The portion of our or KSP's income that is qualifying income can change from time to time, but we believe that our and KSP's qualifying income has been, and will be, more than 90% of our respective gross income for all relevant tax periods.

Section 7704 of the Internal Revenue Code provides that publicly traded partnerships will, as a general rule, be taxed as corporations. However, an exception, referred to as the "Qualifying Income Exception," exists with respect to publicly traded partnerships of which 90% or more of the gross income for every taxable year consists of "qualifying income." In order to meet the Qualifying Income Exception, we or KSP may have to forego earning certain income or transfer assets to a corporation that will recognize that income. Such income will then be subject to a corporate level tax but will not affect whether we or KSP meets the Qualifying Income Exception. Although we expect that we and KSP will conduct business so as to meet the Qualifying Income Exception, if we or KSP fails to meet the Qualifying Income Exception, other than as a result of a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery, the entity suffering the failure will be treated as if it had transferred all of its assets, subject to liabilities, to a newly formed corporation, on the first day of the year in which it fails to meet the Qualifying Income Exception, in return for stock in that corporation, and then distributed that stock to its unitholders in liquidation of their interests. This deemed contribution and liquidation should be tax-free to unitholders and us so long as we or KSP, at that time, does not have liabilities in excess of the tax basis of our assets. Thereafter, the entity that failed to meet the Qualifying Income Exception would be treated as a corporation for federal income tax purposes.

If we were taxed as a corporation in any taxable year, either as a result of a failure to meet the Qualifying Income Exception or otherwise, our items of income, gain, loss and deduction would be reflected only on our tax return rather than being passed through to the unitholders, and our net earnings would be taxed to us at corporate rates. Moreover, if KSP were taxed as a corporation in any taxable year, our share of KSP's items of income, gain, loss and deduction would not be passed through to us, and KSP would pay tax on its income at corporate rates. In addition, any distribution made to a unitholder would be treated as either taxable dividend income, to the extent of our current or accumulated earnings and profits, or, in the absence of earnings and profits, a nontaxable return of capital, to the extent of the unitholder's tax basis in his common units, or taxable gain, after the unitholder's tax basis in his common units is reduced to zero. Accordingly, taxation of either us or KSP

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as a corporation would result in a material reduction in a unitholder's cash flow and after-tax return and thus would likely result in a substantial reduction of the value of the common units.

The discussion below assumes that we and KSP will each be treated as a partnership for federal income tax purposes. Please read the above discussion of the opinion of Baker Botts L.L.P. that we and KSP will each be treated as a partnership for federal income tax purposes.

Limited Partner Status

Unitholders who have become limited partners of K-Sea GP Holdings LP will be treated as partners of K-Sea GP Holdings LP for federal income tax purposes. Also,

•: assignees who have executed and delivered transfer applications and are awaiting admission as limited partners; and
•: unitholders whose common units are held in street name or by a nominee and who have the right to direct the nominee in the exercise of all substantive rights attendant to the ownership of their common units

will be treated as partners of K-Sea GP Holdings LP for federal income tax purposes. As there is no direct authority addressing assignees of units who are entitled to execute and deliver transfer applications and thereby become entitled to direct the exercise of attendant rights, but who fail to execute and deliver transfer applications, the opinion of Baker Botts L.L.P. does not extend to these persons. Furthermore, a purchaser or other transferee of common units who does not execute and deliver a transfer application may not receive some federal income tax information or reports furnished to record holders of units unless the common units are held in a nominee or street name account and the nominee or broker has executed and delivered a transfer application for those common units.

A beneficial owner of common units whose common units have been transferred to a short seller to complete a short sale would appear to lose his status as a partner with respect to those common units for federal income tax purposes. Please read "—Tax Consequences of Unit Ownership—Treatment of Short Sales" below.

Income, gain, deductions or losses would not appear to be reportable by a unitholder who is not a partner for federal income tax purposes, and any cash distributions received by a unitholder who is not a partner for federal income tax purposes would therefore appear to be fully taxable as ordinary income. These holders are urged to consult their own tax advisors with respect to their status as partners in K-Sea GP Holdings LP for federal income tax purposes.

Tax Consequences of Unit Ownership

Flow-Through of Taxable Income. We will not pay any federal income tax. Instead, each unitholder will be required to report on his income tax return his share of our income, gains, losses and deductions without regard to whether corresponding cash distributions are received by him. Consequently, we may allocate income to a unitholder even if he has not received a cash distribution. Each unitholder will be required to include in income his allocable share of our income, gains, losses and deductions for our taxable year or years ending with or within his taxable year. Please read "—Tax Treatment of Operations—Taxable Year and Accounting Method" below. Most of our items of income, gain, loss and deduction will be items of income, gain, loss and deduction allocated to us by KSP with respect to our ownership interest in KSP.

Treatment of Distributions. Distributions by us to a unitholder generally will not be taxable to the unitholder for federal income tax purposes to the extent of his tax basis in his common units immediately before the distribution. Our cash distributions in excess of a unitholder's tax basis in his common units generally will be considered to be gain from the sale or exchange of the common units,

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taxable in accordance with the rules described under "—Disposition of Common Units" below. Any reduction in a unitholder's share of our liabilities for which no partner, including our general partner, bears the economic risk of loss, known as "nonrecourse liabilities," will be treated as a distribution of cash to that unitholder. To the extent our distributions cause a unitholder's "at risk" amount to be less than zero at the end of any taxable year, he must recapture any losses deducted in previous years. Please read "—Limitations on Deductibility of Losses" below.

A decrease in a unitholder's percentage interest in us because of our issuance of additional common units will decrease his share of our nonrecourse liabilities and thus will result in a corresponding deemed distribution of cash. A non-pro rata distribution of money or property may result in ordinary income to a unitholder, regardless of his tax basis in his common units, if the distribution reduces the unitholder's share of our "unrealized receivables," including depreciation recapture, and/or substantially appreciated "inventory items," both as defined in Section 751 of the Internal Revenue Code, and collectively, "Section 751 Assets." To that extent, he will be treated as having been distributed his proportionate share of the Section 751 Assets and having exchanged those assets with us in return for the non-pro rata portion of the actual distribution made to him. This latter deemed exchange will generally result in the unitholder's realization of ordinary income, which will equal the excess of (1) the non-pro rata portion of that distribution over (2) the unitholder's tax basis for the share of Section 751 Assets deemed relinquished in the exchange.

Ratio of Taxable Income to Distributions. We estimate that a purchaser of units in this offering who owns those units from the date of closing of this offering through the record date for distributions for the period ending December 31, 2010, will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be % or less of the cash distributed with respect to that period. We anticipate that after the taxable year ending December 31, 2010, the ratio of allocable taxable income to cash distributions to the unitholders will increase. Moreover, if KSP is successful in increasing distributable cash flow over time, our income allocations from incentive distribution rights will increase, and, therefore, our ratio of taxable income to cash distributions will further increase. These estimates are based upon the assumption that the current rate of distributions from KSP will approximate the amount required to make a quarterly distribution of $ per common unit and other assumptions with respect to capital expenditures, cash flow, net working capital and anticipated cash distributions. These estimates and assumptions are subject to, among other things, numerous business, economic, regulatory, competitive and political uncertainties beyond our control. Further, the estimates are based on current tax law and tax reporting positions that we will adopt and with which the IRS could disagree. Accordingly, we cannot assure you that these estimates will prove to be correct. The actual ratio of taxable income to distributions could be higher or lower than our estimate of %, and any differences could be material and could materially affect the value of the units. For example, the ratio of allocable taxable income to cash distributions to a purchaser of common units in this offering will be greater than % with respect to the period described above if:

•: KSP's gross income from operations exceeds the amount required to make the current quarterly distribution on all KSP's units, yet KSP only distributes the current quarterly distribution on all its units or
•: KSP makes a future offering of common units and uses the proceeds of the offering in a manner that does not produce substantial additional deductions during the period described above, such as to repay indebtedness outstanding at the time of this offering or to acquire property that is not eligible for depreciation or amortization for federal income tax purposes or that is depreciable or amortizable at a rate significantly slower than the rate applicable to KSP's assets at the time of this offering.

Basis of Common Units. A unitholder's initial tax basis for his common units will be the amount he paid for the common units plus his share of our nonrecourse liabilities. That basis will be increased by

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his share of our income and by any increases in his share of our nonrecourse liabilities. That basis will be decreased, but not below zero, by distributions from us, by the unitholder's share of our losses, by any decreases in his share of our nonrecourse liabilities and by his share of our expenditures that are not deductible in computing taxable income and are not required to be capitalized. A unitholder will have no share of our debt that is recourse to our general partner, but will have a share, generally based on his share of profits, of our nonrecourse liabilities. Please read "—Disposition of Common Units—Recognition of Gain or Loss" below.

Limitations on Deductibility of Losses. The deduction by a unitholder of his share of our losses will be limited to the tax basis in his common units and, in addition, in the case of an individual unitholder or a corporate unitholder, if more than 50% of the value of the corporate unitholder's stock is owned directly or indirectly by five or fewer individuals or some tax-exempt organizations, the unitholder's deduction for his share of our losses is limited to the amount for which the unitholder is considered to be "at risk" with respect to our activities if that is less than his tax basis. A unitholder must recapture losses deducted in previous years to the extent that distributions cause his at risk amount to be less than zero at the end of any taxable year. Losses disallowed to a unitholder or recaptured as a result of these limitations will carry forward and will be allowable as a deduction in a later year to the extent that his tax basis or at risk amount, whichever is the limiting factor, is subsequently increased. Upon the taxable disposition of a unit, any gain recognized by a unitholder can be offset by losses that were previously suspended by the at risk limitation but may not be offset by losses suspended by the basis limitation. Any excess loss above that gain that was previously suspended by the at risk or basis limitations is no longer utilizable.

In general, a unitholder will be at risk to the extent of the tax basis of his common units, excluding any portion of that basis attributable to his share of our nonrecourse liabilities, reduced by any amount of money he borrows to acquire or hold his common units, if the lender of those borrowed funds owns an interest in us, is related to another unitholder or can look only to the common units for repayment. A unitholder's at risk amount will increase or decrease as the tax basis of the unitholder's common units increases or decreases, other than tax basis increases or decreases attributable to increases or decreases in his share of our nonrecourse liabilities.

The passive loss limitations generally provide that individuals, estates, trusts and some closely-held corporations and personal service corporations can deduct losses from passive activities, which are generally corporate or partnership activities in which the taxpayer does not materially participate, only to the extent of the taxpayer's income from those passive activities. The passive loss limitations are applied separately with respect to each publicly traded partnership. However, the application of the passive loss limitations to tiered publicly traded partnerships is uncertain. We will take the position that any passive losses we generate that are reasonably allocable to our investment in KSP will only be available to offset our passive income generated in the future that is reasonably allocable to our investment in KSP and will not be available to offset income from other passive activities or investments, including other investments in private businesses. Moreover, because the passive loss limitations are applied separately with respect to each publicly traded partnership, any passive losses we generate will not be available to offset a unitholder's income from other passive activities or investments, including his investments in other publicly traded partnerships, such as KSP, or his salary or other active business income. Passive losses that are not deductible because they exceed a unitholder's share of income we generate may be deducted in full when he disposes of his entire investment in us in a fully taxable transaction with an unrelated party.

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The IRS could take the position that, for purposes of applying the passive loss limitation rules to tiered publicly traded partnerships, such as KSP and us, the related entities are treated as one publicly traded partnership. In that case, any passive losses we generate would be available to offset income from a unitholder's investment in KSP. However, passive losses that are not deductible because they exceed a unitholder's share of income we generate would not be deductible in full until a unitholder disposes of his entire investment in both us and KSP in a fully taxable transaction with an unrelated party.

The passive activity loss rules are applied after other applicable limitations on deductions, including the at risk rules and the basis limitation.

Limitations on Interest Deductions. The deductibility of a non-corporate taxpayer's "investment interest expense" is generally limited to the amount of that taxpayer's "net investment income." Investment interest expense includes:

•: interest on indebtedness properly allocable to property held for investment;
•: our interest expense attributed to portfolio income; and
•: the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent attributable to portfolio income.

The computation of a unitholder's investment interest expense will take into account interest on any margin account borrowing or other loan incurred to purchase or carry a unit. Net investment income includes gross income from property held for investment and amounts treated as portfolio income under the passive loss rules, less deductible expenses, other than interest, directly connected with the production of investment income, but generally does not include gains attributable to the disposition of property held for investment. The IRS has indicated that the net passive income earned by a publicly traded partnership will be treated as investment income to its unitholders. In addition, the unitholder's share of our portfolio income will be treated as investment income.

Entity-Level Collections. If we are required or elect under applicable law to pay any federal, state, local or foreign income tax on behalf of any unitholder or our general partner or any former unitholder, we are authorized to pay those taxes from our funds. That payment, if made, will be treated as a distribution of cash to the partner on whose behalf the payment was made. If the payment is made on behalf of a person whose identity cannot be determined, we are authorized to treat the payment as a distribution to all current unitholders. We are authorized to amend the partnership agreement in the manner necessary to maintain uniformity of intrinsic tax characteristics of common units and to adjust later distributions, so that after giving effect to these distributions, the priority and characterization of distributions otherwise applicable under the partnership agreement is maintained as nearly as is practicable. Payments by us as described above could give rise to an overpayment of tax on behalf of an individual unitholder in which event the unitholder would be required to file a claim in order to obtain a credit or refund.

Allocation of Income, Gain, Loss and Deduction. In general, if we have a net profit, our items of income, gain, loss and deduction will be allocated among our general partner and the unitholders in accordance with their percentage interests in us. If we have a net loss for the entire year, that loss will be allocated first to the general partner and the unitholders in accordance with their percentage interests in us to the extent of their positive capital accounts and, second, to our general partner.

For tax purposes, each time a partnership, such as us or KSP, issues units it is required to adjust the "book" basis of all assets held by it immediately prior to the issuance of the new units to their fair market values at the time the new units are issued. A partnership is further required to adjust this book basis for each asset in proportion to tax depreciation or amortization it later claims with respect to the asset. Section 704(c) principles set forth in Treasury regulations require that subsequent

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allocations of depreciation, gain, loss and similar items with respect to the asset take into account, among other things, the difference between the "book" and tax basis of the asset. We plan to elect to take into account any such difference arising in this or any future issuance of our units using the "remedial allocation method." In this context, we use the term "book" as that term is used in Treasury regulations relating to partnership allocations for tax purposes. The "book" value of our property for this purpose may not be the same as the book value of our or KSP's property for financial reporting purposes.

Items of recapture income will be allocated to the extent possible to the unitholder who was allocated the deduction giving rise to the treatment of that gain as recapture income in order to minimize the recognition of ordinary income by unitholders that did not receive the benefit of such deduction.

Although we do not expect that our operations will result in the creation of negative capital accounts, if negative capital accounts nevertheless result, items of our income and gain will be allocated in an amount and manner to eliminate the negative balance as quickly as possible.

An allocation of items of our income, gain, loss or deduction, other than an allocation required under Section 704(c) principles, will generally be given effect for federal income tax purposes in determining a partner's share of an item of income, gain, loss or deduction only if the allocation has substantial economic effect. In any other case, a partner's share of an item will be determined on the basis of his interest in us, which will be determined by taking into account all the facts and circumstances, including:

•: his relative contributions to us;
•: the interest of all the partners in profits and losses;
•: the interest of all the partners in cash flow; and
•: the rights of all the partners to distributions of capital upon liquidation.

Baker Botts L.L.P. is of the opinion that, with the exception of the issues described in "—Tax Consequences of Unit Ownership—Section 754 Election," "—Disposition of Common Units—Uniformity of Units" and "—Disposition of Common Units—Allocations Between Transferors and Transferees," the allocations under our partnership agreement will be given effect for federal income tax purposes in determining a partner's share of an item of income, gain, loss or deduction.

Treatment of Short Sales. A unitholder whose common units are loaned to a "short seller" to cover a short sale of common units may be considered as having disposed of those common units. If so, he would no longer be treated for tax purposes as a partner for those common units during the period of the loan and may recognize gain or loss from the disposition. As a result, during this period:

•: any of our income, gain, loss or deduction with respect to those common units would not be reportable by the unitholder; and
•: any cash distributions received by the unitholder as to those common units would be fully taxable; and all of these distributions would appear to be ordinary income.

Baker Botts L.L.P. has not rendered an opinion regarding the treatment of a unitholder where common units are loaned to a short seller to cover a short sale of common units; therefore, unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their common units. The IRS has announced that it is actively studying issues relating to the tax treatment of short sales of partnership interests. Please also read "—Disposition of Common Units—Recognition of Gain or Loss" below.

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Alternative Minimum Tax. Each unitholder will be required to take into account his distributive share of any items of our income, gain, loss or deduction for purposes of the alternative minimum tax. The current minimum tax rate for noncorporate taxpayers is 26% on the first $175,000 of alternative minimum taxable income in excess of the exemption amount and 28% on any additional alternative minimum taxable income. Prospective unitholders are urged to consult with their tax advisors as to the impact of an investment in common units on their liability for the alternative minimum tax.

Tax Rates. In general, the highest federal income tax rate for individuals is currently 35% and the maximum federal income tax rate for net capital gains of an individual is currently 15% if the asset disposed of was held for more than 12 months at the time of disposition.

Section 754 Election. We will make, and KSP has made, the election permitted by Section 754 of the Internal Revenue Code. Those elections are irrevocable without the consent of the IRS. The election generally permits us to adjust a common unit purchaser's tax basis in our assets ("inside basis") under Section 743(b) of the Internal Revenue Code to reflect his purchase price. This election does not apply to a person who purchases common units directly from us, but it will apply to a purchaser of outstanding units from another unitholder. The Section 743(b) adjustment belongs to the purchaser and not to other unitholders. For purposes of this discussion, a unitholder's inside basis in our assets will be considered to have two components: (1) his share of our tax basis in our assets ("common basis") and (2) his Section 743(b) adjustment to that basis.

The timing of deductions attributable to Section 743(b) adjustments to our common basis will depend upon a number of factors, including the nature of the assets to which the adjustment is allocable, the extent to which the adjustment offsets any Section 704(c) type gain or loss with respect to an asset and certain elections we make as to the manner in which we apply Section 704(c) principles with respect to an asset to which the adjustment is applicable. Please read "—Allocation of Income, Gain, Loss and Deduction" above. The timing of these deductions may affect the uniformity of our units. Please read "—Disposition of Common Units—Uniformity of Units" below.

A Section 754 election is advantageous if the transferee's tax basis in his common units is higher than the common units' share of the aggregate tax basis of our assets immediately prior to the transfer. In that case, as a result of the election, the transferee would have, among other items, a greater amount of depreciation deductions and his share of any gain or loss on a sale of our assets would be less. Conversely, a Section 754 election is disadvantageous if the transferee's tax basis in his common units is lower than those common units' share of the aggregate tax basis of our assets immediately prior to the transfer.

Our Section 754 election will separately apply to any transferee of a unitholder who purchases outstanding common units from another unitholder based upon the values and bases of our assets at the time of the transfer to the transferee. Depending upon the relationship of the value and the basis of our assets at the time of such a transfer, our Section 754 election may favorably or unfavorably affect the price that a potential transferee will be willing to pay for the units. Thus, the fair market value of the units may be affected either favorably or unfavorably by the election. A basis adjustment is required regardless of whether a Section 754 election is made in the case of a transfer of an interest in us if we have a substantial built-in loss immediately after the transfer or if we distribute property and have a substantial basis reduction. Generally, a built-in loss or basis reduction is substantial if it exceeds $250,000.

The calculations involved in the Section 754 election are complex and will be made on the basis of assumptions as to the value of our assets and other matters. For example, the allocation of the Section 743(b) adjustment among our assets must be made in accordance with the Internal Revenue Code. The IRS could seek to reallocate some or all of any Section 743(b) adjustment allocated by us to our tangible assets or the tangible assets owned by KSP to goodwill instead. Goodwill, as an intangible asset, is generally amortizable over a longer period of time or under a less accelerated method than our

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tangible assets. We cannot assure prospective unitholders that the determinations we make will not be successfully challenged by the IRS and that the deductions resulting from them will not be reduced or disallowed altogether. Should the IRS require a different basis adjustment to be made, and should, in our opinion, the expense of compliance exceed the benefit of the election, we may seek permission from the IRS to revoke our Section 754 election. If permission is granted, a subsequent purchaser of common units may be allocated more income than he would have been allocated had the election not been revoked.

In order to preserve our ability to determine the tax attributes of a common unit (which includes the effect of the Section 743(b) adjustments) from its date of purchase and the amount that is paid therefor, our general partner may (as it is permitted to do under our partnership agreement) take positions in filing our tax returns that reduce for some unitholders the depreciation or amortization deductions to which they would otherwise be entitled. For example, we may not be able to depreciate Section 743(b) adjustments in respect of certain property in the same manner as we depreciate those adjustments in respect of recovery property. In addition, in order to preserve our ability to determine the tax attributes of a common unit from its date of purchase and the amount that is paid therefor, we may report a slower amortization of Section 743(b) adjustments for some unitholders than that to which they would otherwise be entitled. Other fact patterns could have the same effect. Counsel is unable to opine as to validity of any matter that is discussed above in this paragraph because there is no clear applicable authority. A unitholder's basis in a common unit is reduced by his or her share of our deductions (whether or not such deductions were claimed on an individual income tax return) so that any position that we take that understates deductions will overstate the unitholder's basis in his or her common units and may cause the unitholder to understate gain or overstate loss on any sale of such common units. Please read "—Disposition of Common Units—Uniformity of Units" below.

Tax Treatment of Operations

Taxable Year and Accounting Method. We will use the year ending December 31 as our taxable year and the accrual method of accounting for federal income tax purposes. Each unitholder will be required to include in income his share of our income, gain, loss and deduction for our taxable year ending within or with his taxable year. In addition, a unitholder who has a taxable year different from our taxable year and who disposes of all of his common units following the close of our taxable year but before the close of his taxable year must include his share of our income, gain, loss and deduction in income for his taxable year, with the result that he will be required to include in income for his taxable year his share of more than one year of our income, gain, loss and deduction. Please read "—Disposition of Common Units—Allocations Between Transferors and Transferees" below.

Tax Basis, Depreciation and Amortization. The tax bases of our assets and KSP's assets are used for purposes of computing depreciation and cost recovery deductions and, ultimately, gain or loss on the disposition of these assets. Please read "—Tax Consequences of Unit Ownership—Section 754 Election" above and "—Tax Consequences of Unit Ownership—Allocation of Income, Gain, Loss and Deduction" above.

To the extent allowable, we may elect to use the depreciation and cost recovery methods that will result in the largest deductions being taken in the early years after assets are placed in service. Property we subsequently acquire or construct may be depreciated using accelerated methods permitted by the Internal Revenue Code.

If we dispose or KSP disposes of depreciable property by sale, foreclosure, or otherwise, all or a portion of any gain, determined by reference to the amount of depreciation previously deducted and the nature of the property, may be subject to the recapture rules and taxed as ordinary income rather than capital gain. Similarly, a unitholder who has taken cost recovery or depreciation deductions with respect to property we own or KSP owns will likely be required to recapture some or all of those deductions as ordinary income upon a sale of his interest in us. Please read "—Tax Consequences of

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Unit Ownership—Allocation of Income, Gain, Loss and Deduction" above and "—Disposition of Common Units—Recognition of Gain or Loss" below.

The costs that we incur in selling our units (called "syndication expenses") must be capitalized and cannot be deducted currently, ratably or upon our termination. There are uncertainties regarding the classification of costs as organization expenses, which may be amortized by us, and as syndication expenses, which may not be amortized by us. The underwriting discounts and commissions we incur will be treated as syndication expenses.

Valuation and Tax Basis of Our Properties. The federal income tax consequences of the ownership and disposition of common units will depend in part on our estimates of the relative fair market values, and the tax bases, of our assets or KSP's assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we will make many of the relative fair market value estimates ourselves. These estimates of value and determination of basis are subject to challenge and will not be binding on the IRS or the courts. If the estimates of fair market value or basis are later found to be incorrect, the character and amount of items of income, gain, loss or deduction previously reported by unitholders might change, and unitholders might be required to adjust their tax liability for prior years and incur interest and penalties with respect to those adjustments.

Disposition of Common Units

Recognition of Gain or Loss. Gain or loss will be recognized on a sale of common units equal to the difference between the unitholder's amount realized and the unitholder's tax basis for the common units sold. A unitholder's amount realized will be measured by the sum of the cash or the fair market value of other property received by him plus his share of our nonrecourse liabilities. Because the amount realized includes a unitholder's share of our nonrecourse liabilities, the gain recognized on the sale of common units could result in a tax liability in excess of any cash received from the sale.

Prior distributions from us in excess of cumulative net taxable income for a common unit that decreased a unitholder's tax basis in that common unit will, in effect, become taxable income if the common unit is sold at a price greater than the unitholder's tax basis in that common unit, even if the price received is less than his original cost.

Except as noted below, gain or loss recognized by a unitholder, other than a "dealer" in common units, on the sale or exchange of a unit held for more than one year will generally be taxable as capital gain or loss. Capital gain recognized by an individual on the sale of common units held more than 12 months will generally be taxed at a maximum rate of 15%. However, a portion of this gain or loss will be separately computed and taxed as ordinary income or loss under Section 751 of the Internal

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Revenue Code to the extent attributable to assets giving rise to "unrealized receivables" or to "inventory items" we own or KSP owns. The term "unrealized receivables" includes potential recapture items, including depreciation recapture. Ordinary income attributable to unrealized receivables, inventory items and depreciation recapture may exceed net taxable gain realized upon the sale of a unit and may be recognized even if there is a net taxable loss realized on the sale of a unit. Thus, a unitholder may recognize both ordinary income and a capital loss upon a sale of common units. Net capital losses may offset capital gains and no more than $3,000 of ordinary income, in the case of individuals, and may only be used to offset capital gains in the case of corporations.

The IRS has ruled that a partner who acquires interests in a partnership in separate transactions must combine those interests and maintain a single adjusted tax basis for all those interests. Upon a sale or other disposition of less than all of those interests, a portion of that tax basis must be allocated to the interests sold using an "equitable apportionment" method. Treasury Regulations under Section 1223 of the Internal Revenue Code allow a selling unitholder who can identify common units transferred with an ascertainable holding period to elect to use the actual holding period of the common units transferred. Thus, according to the ruling, a common unitholder will be unable to select high or low basis common units to sell as would be the case with corporate stock, but, according to the regulations, may designate specific common units sold for purposes of determining the holding period of common units transferred. A unitholder electing to use the actual holding period of common units transferred must consistently use that identification method for all subsequent sales or exchanges of common units. A unitholder considering the purchase of additional common units or a sale of common units purchased in separate transactions is urged to consult his tax advisor as to the possible consequences of this ruling and application of the regulations.

Specific provisions of the Internal Revenue Code affect the taxation of some financial products and securities, including partnership interests, by treating a taxpayer as having sold an "appreciated" partnership interest, one in which gain would be recognized if it were sold, assigned or terminated at its fair market value, if the taxpayer or related persons enter(s) into:

•: a short sale;
•: an offsetting notional principal contract; or
•: a futures or forward contract with respect to the partnership interest or substantially identical property.

Moreover, if a taxpayer has previously entered into a short sale, an offsetting notional principal contract or a futures or forward contract with respect to the partnership interest, the taxpayer will be treated as having sold that position if the taxpayer or a related person then acquires the partnership interest or substantially identical property. The Secretary of the Treasury is also authorized to issue regulations that treat a taxpayer that enters into transactions or positions that have substantially the same effect as the preceding transactions as having constructively sold the financial position.

Allocations Between Transferors and Transferees. In general, our taxable income and losses will be determined annually, will be prorated on a monthly basis and will be subsequently apportioned among the unitholders in proportion to the number of common units owned by each of them as of the opening of the applicable exchange on the first business day of the month, which we refer to in this discussion as the "Allocation Date." However, gain or loss realized on a sale or other disposition of our assets other than in the ordinary course of business will be allocated among the unitholders on the Allocation Date in the month in which that gain or loss is recognized. As a result, a unitholder transferring units may be allocated income, gain, loss and deduction realized after the date of transfer.

The use of this method may not be permitted under existing Treasury Regulations as there is no controlling authority on this issue. Accordingly, Baker Botts L.L.P. is unable to opine on the validity of this method of allocating income and deductions between unitholders. If this method is not allowed

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under the Treasury Regulations, or only applies to transfers of less than all of the unitholder's interest, our taxable income or losses might be reallocated among the unitholders. We are authorized to revise our method of allocation between unitholders, as well as unitholders whose interests vary during a taxable year, to conform to a method permitted under future Treasury Regulations.

A unitholder who owns common units at any time during a quarter and who disposes of them prior to the record date set for a cash distribution for that quarter will be allocated items of our income, gain, loss and deductions attributable to that quarter but will not be entitled to receive that cash distribution.

Transfer Notification Requirements. A unitholder who acquires units generally is required to notify us in writing of that acquisition within 30 days after the purchase, unless a broker or nominee will satisfy such requirement. A unitholder who sells any of his units, other than through a broker, generally is required to notify us in writing of that sale within 30 days after the sale (or, if earlier, January 15 of the year following the sale). We are required to notify the IRS of any such transfers and to furnish specified information to the transferor and transferee. Failure to notify us of a transfer of units may, in some cases, lead to the imposition of penalties.

Constructive Termination. A partnership, such as us or KSP, will be considered to have been terminated for tax purposes if there is a sale or exchange of 50% or more of the total interests in its capital and profits within a 12-month period. A constructive termination of us or KSP would result in the closing of our or KSP's taxable year for all unitholders. In the case of a unitholder reporting on a taxable year different from our and KSP's taxable year, the closing of our or KSP's taxable year may result in more than 12 months of our taxable income or loss being includable in his taxable income for the year of termination. Please read "—Tax Treatment of Operations—Taxable Year and Accounting Method" above. A constructive termination could result in an increase in the amount of taxable income to be allocated to our unitholders if our termination results in a termination of KSP. Although the amount of increase cannot be estimated because it depends upon numerous factors, including the timing of the termination, the amount could be material. We would be required to make new tax elections after a termination, including a new election under Section 754 of the Internal Revenue Code, and a termination would result in a deferral of our deductions for depreciation. A termination could also result in penalties if we were unable to determine that the termination had occurred. Moreover, a termination might either accelerate the application of, or subject us to, any tax legislation enacted before the termination.

Uniformity of Units. Because neither we nor KSP can match transferors and transferees of units, we each must maintain uniformity of the economic and tax characteristics of the units to a purchaser of these units. In the absence of uniformity, we or KSP may be unable to completely comply with a number of federal income tax requirements, both statutory and regulatory. Any non-uniformity could have a negative impact on the value of the units. The timing of deductions attributable to Section 743(b) adjustments to the common basis of our or KSP's assets with respect to persons purchasing units after this offering may affect the uniformity of our units. Please read "—Tax Consequences of Unit Ownership—Section 754 Election" above. For example, KSP did not elect the remedial allocation method under Section 704(c) principles with respect to certain of its intangible assets in certain prior offerings of its units (Please read "—Tax Consequences of Unit Ownership—Allocation of Income, Gain, Loss and Deduction" above and "—Tax Consequences of Unit Ownership—Section 754 Election" above, and it is possible that we own, or will acquire, certain depreciable assets that are not subject to the typical rules governing depreciation (under Section 168 of the Internal Revenue Code) or amortization (under Section 197 of the Internal Revenue Code) of assets. Any or all of these factors could cause the timing of a purchaser's deductions to differ, depending on when the unit he purchased was issued.

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Our partnership agreement permits our general partner to take positions in filing our tax returns that preserve the uniformity of our units even under circumstances like those described above. These positions may include reducing for some unitholders the depreciation, amortization or loss deductions to which they would otherwise be entitled or reporting a slower amortization of Section 743(b) adjustments for some unitholders than that to which they would otherwise be entitled. Our counsel, Baker Botts L.L.P., is unable to opine as to validity of such filing positions. A unitholder's basis in units is reduced by his or her share of our deductions (whether or not such deductions were claimed on an individual income tax return) so that any position that we take that understates deductions will overstate the unitholder's basis in his or her common units, which may cause the unitholder to understate gain or overstate loss on any sale of such units. Please read "—Recognition of Gain or Loss" above and "—Tax Consequences of Unit Ownership—Section 754 Election" above. The IRS may challenge one or more of any positions we take to preserve the uniformity of units. If such a challenge were sustained, the uniformity of units might be affected, and, under some circumstances, the gain from the sale of units might be increased without the benefit of additional deductions.

Tax-Exempt Organizations and Non-United States Investors

Ownership of common units by employee benefit plans, other tax-exempt organizations, nonresident aliens, foreign corporations, and other foreign persons raises issues unique to those investors and, as described below, may have substantially adverse tax consequences to them.

Employee benefit plans and most other organizations exempt from federal income tax, including individual retirement accounts and other retirement plans, are subject to federal income tax on unrelated business taxable income. Virtually all of our income allocated to a unitholder that is a tax-exempt organization will be unrelated business taxable income and will be taxable to it.

Nonresident aliens and foreign corporations, trusts or estates that own common units will be considered to be engaged in business in the United States because of the ownership of common units. As a consequence, they will be required to file federal tax returns to report their share of our income, gain, loss or deduction and pay federal income tax at regular rates on their share of our net earnings or gain. Moreover, under rules applicable to publicly traded partnerships, we will withhold at the highest applicable effective tax rate from cash distributions made quarterly to foreign unitholders. Each foreign unitholder must obtain a taxpayer identification number from the IRS and submit that number to our transfer agent on a Form W-8BEN or applicable substitute form in order to obtain credit for these withholding taxes. A change in applicable law may require us to change these procedures.

In addition, because a foreign corporation that owns common units will be treated as engaged in a United States trade or business, that corporation may be subject to the United States branch profits tax at a rate of 30%, in addition to regular federal income tax, on its share of our income and gain, as adjusted for changes in the foreign corporation's "U.S. net equity," which is effectively connected with the conduct of a United States trade or business. That tax may be reduced or eliminated by an income tax treaty between the United States and the country in which the foreign corporate unitholder is a "qualified resident." In addition, this type of unitholder is subject to special information reporting requirements under Section 6038C of the Internal Revenue Code.

Under a ruling of the IRS, a foreign unitholder who sells or otherwise disposes of a unit will be subject to federal income tax on gain realized on the sale or disposition of that unit to the extent that this gain is effectively connected with a United States trade or business of the foreign unitholder. Apart from the ruling, a foreign unitholder will not be taxed or subject to withholding upon the sale or disposition of a unit if he has owned less than 5% in value of the common units during the five-year period ending on the date of the disposition and if the common units are regularly traded on an established securities market at the time of the sale or disposition.

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Administrative Matters

Information Returns and Audit Procedures. We intend to furnish to each unitholder, within 90 days after the close of each taxable year, specific tax information, including a Schedule K-1, which describes his share of our income, gain, loss and deduction for our preceding taxable year. In preparing this information, which will not be reviewed by counsel, we will take various accounting and reporting positions, some of which have been mentioned earlier, to determine his share of income, gain, loss and deduction. We cannot assure prospective unitholders that those positions will yield a result that conforms to the requirements of the Internal Revenue Code, Treasury Regulations or administrative interpretations of the IRS. Neither we nor Baker Botts L.L.P. can assure prospective unitholders that the IRS will not successfully contend in court that those positions are impermissible. Any challenge by the IRS could negatively affect the value of the common units.

The IRS may audit our federal income tax information returns. Adjustments resulting from an IRS audit may require each unitholder to adjust a prior year's tax liability, and possibly may result in an audit of his return. Any audit of a unitholder's return could result in adjustments not related to our returns as well as those related to our returns.

Partnerships generally are treated as separate entities for purposes of federal tax audits, judicial review of administrative adjustments by the IRS and tax settlement proceedings. The tax treatment of partnership items of income, gain, loss and deduction is determined in a partnership proceeding rather than in separate proceedings with the partners. The Internal Revenue Code requires that one partner be designated as the "Tax Matters Partner" for these purposes. The partnership agreement names our general partner as our Tax Matters Partner.

The Tax Matters Partner will make some elections on our behalf and on behalf of unitholders. In addition, the Tax Matters Partner can extend the statute of limitations for assessment of tax deficiencies against unitholders for items in our returns. The Tax Matters Partner may bind a unitholder with less than a 1% profits interest in us to a settlement with the IRS unless that unitholder elects, by filing a statement with the IRS, not to give that authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial review, by which all the unitholders are bound, of a final partnership administrative adjustment and, if the Tax Matters Partner fails to seek judicial review, judicial review may be sought by any unitholder having at least a 1% interest in profits or by any group of unitholders having in the aggregate at least a 5% interest in profits. However, only one action for judicial review will go forward, and each unitholder with an interest in the outcome may participate.

A unitholder must file a statement with the IRS identifying the treatment of any item on his federal income tax return that is not consistent with the treatment of the item on our return. Intentional or negligent disregard of this consistency requirement may subject a unitholder to substantial penalties.

Nominee Reporting. Persons who hold an interest in us as a nominee for another person are required to furnish to us:

•: the name, address and taxpayer identification number of the beneficial owner and the nominee;
•: whether the beneficial owner is:

(1) a person that is not a United States person;

(2) a foreign government, an international organization or any wholly owned agency or instrumentality of either of the foregoing; or

(3) a tax-exempt entity;

•: the amount and description of common units held, acquired or transferred for the beneficial owner; and

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•: specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales.

Brokers and financial institutions are required to furnish additional information, including whether they are United States persons and specific information on common units they acquire, hold or transfer for their own account. A penalty of $50 per failure, up to a maximum of $100,000 per calendar year, is imposed by the Internal Revenue Code for failure to report that information to us. The nominee is required to supply the beneficial owner of the common units with the information furnished to us.

Accuracy-Related Penalties. An additional tax equal to 20% of the amount of any portion of an underpayment of tax that is attributable to one or more specified causes, including negligence or disregard of rules or regulations, substantial understatements of income tax and substantial valuation misstatements, is imposed by the Internal Revenue Code. No penalty will be imposed, however, for any portion of an underpayment if it is shown that there was a reasonable cause for that portion and that the taxpayer acted in good faith regarding that portion.

For individuals, a substantial understatement of income tax in any taxable year exists if the amount of the understatement exceeds:

•: the greater of 10% of the tax required to be shown on the return for the taxable year; or
•: $5,000.

The amount of any understatement subject to penalty generally is reduced if any portion is attributable to a position adopted on the return:

•: for which there is, or was, "substantial authority;" or
•: as to which there is a reasonable basis and the pertinent facts of that position are disclosed on the return.

More stringent rules apply to "tax shelters," but we believe we are not a "tax shelter." If any item of income, gain, loss or deduction included in the distributive shares of unitholders might result in that kind of an "understatement" of income for which no "substantial authority" exists, we must disclose the pertinent facts on our return. In addition, we will make a reasonable effort to furnish sufficient information for unitholders to make adequate disclosure on their returns to avoid liability for this penalty.

A substantial valuation misstatement exists if the value of any property, or the adjusted basis of any property, claimed on a tax return is 150% or more of the amount determined to be the correct amount of the valuation or adjusted basis. No penalty is imposed unless the portion of the underpayment attributable to a substantial valuation misstatement exceeds $5,000 ($10,000 for most corporations). If the valuation claimed on a return is 200% or more than the correct valuation, the penalty imposed increases to 40%.

Reportable Transactions. If we were to engage in a "reportable transaction," we (and possibly our unitholders and others) would be required to make a detailed disclosure of the transaction to the IRS. A transaction may be a reportable transaction based upon any of several factors, including the fact that it is a type of tax avoidance transaction publicly identified by the IRS as a "listed transaction" or that it produces certain kinds of losses in excess of $2 million in any single year, or $4 million in any combination of tax years. Our participation in a reportable transaction could increase the likelihood that our federal income tax information return (and possibly the tax returns of our unitholders) would be audited by the IRS. Please read "—Information Returns and Audit Procedures" above. Moreover, if we were to participate in a reportable transaction with a significant purpose to avoid or evade tax, or in

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any listed transaction, our unitholders may be subject to the following provisions of the American Jobs Creation Act of 2004:

•: accuracy-related penalties with a broader scope, significantly narrower exceptions, and potentially greater amounts than described above at "—Accuracy-related Penalties;"
•: for those persons otherwise entitled to deduct interest on federal tax deficiencies, nondeductibility of interest on any resulting tax liability; and
•: in the case of a listed transaction, an extended statute of limitations.

We do not expect to engage in any "reportable transactions."

State, Local, Foreign and Other Tax Considerations

In addition to federal income taxes, a unitholder will be subject to other taxes, including state, local and foreign income taxes, unincorporated business taxes, and estate, inheritance or intangible taxes, that may be imposed by the various jurisdictions in which business is conducted or property is owned by us or KSP or in which the unitholder is a resident. Although an analysis of those various taxes is not presented here, each prospective unitholder should consider their potential impact on his investment in us. KSP owns property and conducts business in Alaska, Hawaii, New York, New Jersey, Pennsylvania, Washington and Virginia. KSP currently conducts certain operations in Puerto Rico, Canada and Venezuela in a manner that we believe does not subject us or our unitholders to direct liability to pay tax or file returns in those countries, but there can be no assurance that we will conduct our foreign operations in this manner in the future. KSP may also own property or conduct business in other jurisdictions in the future. Although a unitholder may not be required to file a return and pay taxes in some jurisdictions because the unitholder's income from those jurisdiction falls below the filing and payment requirement, a unitholder will be required to file income tax returns and to pay income taxes in many of the jurisdictions in which we conduct business or own property and may be subject to penalties for failure to comply with those requirements. In some jurisdictions, tax losses may not produce a tax benefit in the year incurred and may not be available to offset income in subsequent taxable years. Some of the jurisdictions may require us, or we may elect, to withhold a percentage of income from amounts to be distributed to a unitholder who is not a resident of the jurisdiction. Withholding, the amount of which may be greater or less than a particular unitholder's income tax liability to the jurisdiction, generally does not relieve a nonresident unitholder from the obligation to file an income tax return. We may, but are not required to, treat amounts withheld as if distributed to unitholders for purposes of determining the amounts distributed by us. Please read "—Tax Consequences of Unit Ownership—Entity-Level Collections" above. Based on current law and our estimate of our future operations, we anticipate that any amounts required to be withheld will not be material.

It is the responsibility of each unitholder to investigate the legal and tax consequences, under the laws of pertinent jurisdictions, of his investment in us. Accordingly, each prospective unitholder is encouraged to consult, and depend upon, his tax counsel or other advisor with regard to those matters. Further, it is the responsibility of each unitholder to file all state, local and foreign, as well as United States federal tax returns, that may be required of him. Baker Botts L.L.P. has not rendered an opinion on the state, local or foreign tax consequences of an investment in us.

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INVESTMENT IN US BY EMPLOYEE BENEFIT PLANS

An investment in our units by an employee benefit plan is subject to additional considerations because the investments of these plans are subject to the fiduciary responsibility and prohibited transaction provisions of ERISA, and restrictions imposed by Section 4975 of the Internal Revenue Code. For these purposes, the term "employee benefit plan" includes, but is not limited to, qualified pension, profit-sharing and stock bonus plans, Keogh plans, simplified employee pension plans and tax deferred annuities or IRAs established or maintained by an employer or employee organization. Among other things, consideration should be given to:

•: whether the investment is prudent under Section 404(a)(1)(B) of ERISA;
•: whether in making the investment, that plan will satisfy the diversification requirements of Section 404(a)(1)(C) of ERISA; and
•: whether the investment will result in recognition of unrelated business taxable income (please read "Material Tax Consequences—Tax-Exempt Organizations and Non-United States Investors") by the plan and, if so, the potential after-tax investment return.

In addition, the person with investment discretion with respect to the assets of an employee benefit plan, often called a fiduciary, should determine whether an investment in our units is authorized by the appropriate governing instrument and is a proper investment for the plan.

Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit employee benefit plans, and IRAs that are not considered part of an employee benefit plan, from engaging in specified transactions involving "plan assets" with parties that are "parties in interest" under ERISA or "disqualified persons" under the Internal Revenue Code with respect to the plan. Therefore, a fiduciary of an employee benefit plan or an IRA accountholder that is considering an investment in our units should consider whether the entity's purchase or ownership of such units would or could result in the occurrence of such a prohibited transaction.

In addition to considering whether the purchase of units is or could result in a prohibited transaction, a fiduciary of an employee benefit plan should consider whether the plan will, by investing in our units, be deemed to own an undivided interest in our assets, with the result that our general partner also would be a fiduciary of the plan and our operations would be subject to the regulatory restrictions of ERISA, including fiduciary standard and its prohibited transaction rules, as well as the prohibited transaction rules of the Internal Revenue Code.

The Department of Labor regulations provide guidance with respect to whether the assets of an entity in which employee benefit plans acquire equity interests would be deemed "plan assets" under some circumstances. Under these regulations, an entity's assets would not be considered to be "plan assets" if, among other things:

•: the equity interests acquired by employee benefit plans are publicly offered securities; i.e., the equity interests are widely held by 100 or more investors independent of the issuer and each other, freely transferable and registered under some provisions of the federal securities laws;
•: the entity is an "operating company;" i.e., it is primarily engaged in the production or sale of a product or service other than the investment of capital either directly or through a majority owned subsidiary or subsidiaries; or
•: there is no significant investment by benefit plan investors, which is defined to mean that less than 25% of the value of each class of equity interest, disregarding some interests held by our general partner, its affiliates, and some other persons, is held by the employee benefit plans referred to above, IRAs and other employee benefit plans not subject to ERISA, including governmental plans.

Our assets should not be considered "plan assets" under these regulations because it is expected that the investment will satisfy the requirements in the first bullet point above.

Plan fiduciaries contemplating a purchase of units should consult with their own counsel regarding the consequences under ERISA and the Internal Revenue Code in light of the serious penalties imposed on persons who engage in prohibited transactions or other violations.

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UNDERWRITING

Lehman Brothers Inc. and Citigroup Global Markets Inc. are acting as representatives of the underwriters and joint book-running managers in this offering. Under the terms of an underwriting agreement, which is filed as an exhibit to the registration statement, each of the underwriters named below has severally agreed to purchase from us and the selling unitholders the respective number of common units shown opposite the underwriter's name below:

Underwriters			Number of Common Units
Lehman Brothers Inc.
Citigroup Global Markets Inc.

	Total

The underwriting agreement provides that the underwriters' obligation to purchase common units depends on the satisfaction of the conditions contained in the underwriting agreement including:

•: the obligation to purchase all of the common units offered hereby (other than those common units covered by their option to purchase additional common units from the selling unitholders as described below), if any of the common units are purchased;
•: the representations and warranties made by the selling unitholders and us to the underwriters are true;
•: there is no material change in our business, including, among other things, any loss or interference with our business from certain calamities, labor disputes or in connection with certain legal actions, and a material adverse change affecting our results of operations, partners' equity, properties, management, business, capital accounts or long-term debt or prospects;
•: there is no material change in the financial markets, including, among other things, a suspension in trading, or a material disruption in settlement of securities generally, a federal or state banking moratorium, hostilities involving the United States or a declaration of a national emergency or war by the United States, or a material adverse change in general economic, political or financial conditions; and
•: we and the selling unitholders deliver customary closing documents to the underwriters.

Commissions and Expenses

The following table summarizes the underwriting discounts and commissions we and the selling unitholders will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional common units. The underwriting fee is the difference between the initial public offering price and the amount the underwriters pay to us and the selling unitholders for the common units.

			No Exercise			Full Exercise
Per common unit			$			$
	Total		$			$

The representatives of the underwriters have advised us that the underwriters propose to offer the common units directly to the public at the public offering price on the cover of this prospectus and to selected dealers, who may include the underwriters, at such offering price less a selling concession not in excess of $ per common unit. After the offering, the representatives may change the offering price and other selling terms.

206

The expenses of the offering that are payable by us are estimated to be approximately $ million (excluding underwriting discounts and commissions). In no event will the maximum amount of compensation to be paid to FINRA members in connection with this offering exceed 10%.

Option to Purchase Additional Common Units

The selling unitholders have granted the underwriters an option exercisable for 30 days after the date of this prospectus, to purchase, from time to time, in whole or in part, up to an aggregate of common units at the public offering price less underwriting discounts and commissions. This option may be exercised if the underwriters sell more than common units in connection with this offering. To the extent that this option is exercised, each underwriter will be obligated, subject to certain conditions, to purchase its pro rata portion of these additional common units based on the underwriter's underwriting commitment in the offering as indicated in the table at the beginning of this Underwriting section. If the underwriters exercise their option to purchase additional common units from the selling unitholders in full, the selling unitholders expect to receive additional net proceeds of approximately $ million, which they will use to repurchase an equal number of common units from some of the contributing parties at a price equal to the per unit net proceeds to the selling unitholders (before expenses).

Lock-Up Agreements

We, the selling unitholders, our affiliates that own common units, and the directors and executive officers of our general partner have agreed that, without the prior written consent of Lehman Brothers Inc. and Citigroup Global Markets Inc., we and they will not, subject to some exceptions, directly or indirectly, (1) offer for sale, sell, pledge, or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any common units (including, without limitation, common units that may be deemed to be beneficially owned by such person in accordance with the rules and regulations of the Securities and Exchange Commission and common units that may be issued upon exercise of any options or warrants) or securities convertible into or exercisable or exchangeable for common units, (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic consequences of ownership of the common units, (3) make any demand for or exercise any right or file or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any common units or securities convertible, exercisable or exchangeable into common units or any of our other securities, or (4) publicly disclose the intention to do any of the foregoing for a period of 180 days after the date of this prospectus, except with respect to (a) the filing by us of any registration statement on Form S-8 or (b) the transfer of common units, or securities convertible into or exercisable or exchangeable for common units, to one or more affiliates who agree to be bound by the foregoing restrictions.

The 180-day restricted period described in the preceding paragraph will be extended if:

•: during the last 17 days of the 180-day restricted period we or KSP issue an earnings release or material news or a material event relating to us or KSP occurs; or
•: prior to the expiration of the 180-day restricted period, we or KSP announce that we or KSP will release earnings results during the 16-day period beginning on the last day of the 180-day period,

in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or occurrence of the material event unless such extension is waived in writing by Lehman Brothers Inc. and Citigroup Global Markets Inc.

207

The representatives, in their sole discretion, may release the common units and other securities subject to lock-up agreements in whole or in part at any time with or without notice. When determining whether or not to release common units from lock-up agreements, the representatives will consider, among other factors, the holders' reasons for requesting the release, the number of common units and other securities for which the release is being requested and market conditions at the time. However, Lehman Brothers Inc. and Citigroup Global Markets Inc. have informed us that, as of the date of this prospectus, there are no agreements between them and any party that would allow such party to transfer any common units, nor do they have any intention at this time of releasing any of the common units subject to the lock-up agreements, prior to the expiration of the lock-up period.

Offering Price Determination

Prior to this offering, there has been no public market for our common units. The initial public offering price was negotiated between the representatives, the selling unitholders and us. In determining the initial public offering price of our common units, the representatives considered:

•: the history and prospects for the industry in which we compete,
•: our financial information,
•: the ability of our management and our business potential and earning prospects,
•: the prevailing securities markets at the time of this offering, and
•: the recent market prices of, and the demand for, publicly traded common units of generally comparable entities.

Indemnification

We and the selling unitholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.

Stabilization, Short Positions and Penalty Bids

The representatives may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common units, in accordance with Regulation M under the Securities Exchange Act of 1934:

•: Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
•: A short position involves a sale by the underwriters of common units in excess of the number of common units the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of common units involved in the sales made by the underwriters in excess of the number of common units they are obligated to purchase is not greater than the number of common units that they may purchase by exercising their option to purchase additional common units from the selling unitholders. In a naked short position, the number of common units involved is greater than the number of common units in their option to purchase additional common units from the selling unitholders. The underwriters may close out any short position by either exercising their option to purchase additional common units from the selling unitholders and/or purchasing common units in the open market. In determining the source of common units to close out the short position, the underwriters will consider, among other things, the price of common units available for purchase in the open

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market as compared to the price at which they may purchase common units through their option to purchase additional common units from the selling unitholders. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the common units in the open market after pricing that could adversely affect investors who purchase in the offering.

•: Syndicate covering transactions involve purchases of the common units in the open market after the distribution has been completed in order to cover syndicate short positions.
•: Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common units originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common units or preventing or retarding a decline in the market price of the common units. As a result, the price of the common units may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NYSE or otherwise and, if commenced, may be discontinued at any time.

Neither we, the selling unitholders nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common units. In addition, neither we, the selling unitholders nor any of the underwriters make representation that the representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.

Electronic Distribution

A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of common units for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representative on the same basis as other allocations.

Other than the prospectus in electronic format, the information on any underwriter's or selling group member's web site and any information contained in any other web site maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us, the selling unitholders or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.

Listing

We intend to apply to list our common units on the New York Stock Exchange, subject to official notice of issuance, under the symbol " ." In connection with that listing, the underwriters have undertaken to cause the common units to be distributed in such a manner that as of the original listing date of the common units

•: there will be at least 400 U.S. unitholders of 100 units or more, and
•: at least 1,100,000 publicly held common units will be outstanding in the United States, and
•: the aggregate market value of publicly held common units in the United States will be at least $60 million.

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Discretionary Sales

The underwriters have informed us that they do not intend to confirm sales to discretionary accounts that exceed 5% of the total number of common units offered by them.

Stamp Taxes

If you purchase common units offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.

Relationships/NASD Conduct Rules

Certain of the underwriters and their affiliates have performed and may perform investment banking, commercial banking and advisory services for KSP in the ordinary course of their business. They have received customary fees and expenses for these investment banking, commercial banking and advisory services. Citibank, N.A., an affiliate of one of the underwriters, is a lender under KSP's credit facility. In addition, Lehman Brothers Inc. and Citigroup Global Markets Inc. participated in KSP's secondary offering of common units in September 2007.

Because the Financial Industry Regulatory Authority views the common units offered hereby as interests in a direct participation program, the offering is being made in compliance with Rule 2810 of the NASD Conduct Rules. Investor suitability with respect to the common units should be judged similarly to the suitability with respect to other securities that are listed for trading on a national securities exchange.

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LEGAL MATTERS

The validity of the common units will be passed upon for us by Baker Botts L.L.P. Certain legal matters in connection with the common units offered hereby will be passed upon for the underwriters by Andrews Kurth LLP.

EXPERTS

The balance sheet of K-Sea GP Holdings LP as of December 11, 2007 included in this prospectus has been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

The balance sheet of K-Sea GP LLC as of December 11, 2007 included in this prospectus has been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

The consolidated financial statements of K-Sea GP Holdings LP Predecessor as of June 30, 2006 and 2007 and for each of the three years in the period ended June 30, 2007 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

The combined financial statements of the Smith Maritime Group as of December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration statement on Form S-1 regarding the common units offered by this prospectus. This prospectus does not contain all of the information found in the registration statement. For further information regarding us and the common units offered by this prospectus, you may desire to review the full registration statement, including its exhibits filed under the Securities Act of 1933.

The registration statement, including the exhibits, may be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of this material can also be obtained upon written request from the Public Reference Section of the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or from the Securities and Exchange Commission's web site on the Internet at http://www.sec.gov. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on public reference rooms. We intend to furnish or make available to our unitholders annual reports containing our audited financial statements and quarterly reports containing our unaudited interim financial information for the first three fiscal quarters of each fiscal year.

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INDEX TO FINANCIAL STATEMENTS

K-Sea GP Holdings LP
	Unaudited Pro Forma Combined Financial Statements
		Introduction	F-2
		Unaudited Pro Forma Combined Balance Sheet at December 31, 2007	F-4
		Unaudited Pro Forma Combined Statement of Operations for the Six Months Ended December 31, 2007	F-5
		Unaudited Pro Forma Combined Statement of Operations for the Year Ended June 30, 2007	F-6
		Notes to Unaudited Pro Forma Combined Financial Statements	F-7
K-Sea GP Holdings LP
	Balance Sheet
		Report of Independent Registered Public Accounting Firm	F-9
		Balance Sheet at December 11, 2007	F-10
		Note to Balance Sheet	F-11
K-Sea GP LLC
	Balance Sheet
		Report of Independent Auditors	F-12
		Balance Sheet at December 11, 2007	F-13
		Note to Balance Sheet	F-14
K-Sea GP Holdings LP Predecessor
	Combined Financial Statements
		Report of Independent Registered Public Accounting Firm	F-15
		Combined Balance Sheets at June 30, 2006 and 2007, and for the Six Months Ended December 31, 2007 (unaudited)	F-16
		Combined Statements of Operations for the Years Ended June 30, 2005, 2006 and 2007 and for the Six Months Ended December 31, 2006 and 2007	F-17
		Combined Statements of Changes in Partners' Capital for the Years Ended June 30, 2005, 2006 and 2007, and for the Six Months Ended December 31, 2007 (unaudited)	F-18
		Combined Statements of Cash Flows for the Years Ended June 30, 2005, 2006 and 2007, and for the Six Months Ended December 31, 2006 and 2007 (unaudited)	F-19
		Notes to Combined Financial Statements	F-21
The Smith Maritime Group
	Combined Financial Statements
		Report of Independent Auditors	F-44
		Combined Balance Sheets as of December 31, 2005 and 2006, and for the Six Months Ended June 30, 2007 (unaudited)	F-45
		Combined Statements of Operations for the Years Ended December 31, 2004, 2005 and 2006, and for the Six Months Ended June 30, 2006 and 2007 (unaudited)	F-46
		Combined Statements of Members' Equity for the Years Ended December 31, 2004, 2005 and 2006, and for the Six Months Ended June 30, 2007 (unaudited)	F-47
		Combined Statements of Cash Flows for the Years Ended December 31, 2004, 2005 and 2006, and for the Six Months Ended June 30, 2006 and 2007 (unaudited)	F-48
		Notes to Combined Financial Statements	F-49

F-1

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

Introduction

Unless the context requires otherwise, for purposes of this pro forma presentation, references to the "Company" are intended to mean the combined business and operations of K-Sea GP Holdings LP. References to the "Partnership" or "KSP" are intended to mean the consolidated business and operations of K-Sea Transportation Partners L.P. References to "KSP GP" refer to K-Sea General Partner GP LLC, the general partner of the Partnership.

These unaudited pro forma combined financial statements give pro forma effect to the following transactions:

•

the August 2007 acquisition by the Partnership of Smith Maritime, LLC, Go Big Chartering, LLC and Sirius Maritime, LLC (collectively, the "Smith Maritime Group"). The aggregate purchase price was approximately $203.4 million, consisting of $169.6 million in cash, $23.6 million of assumed debt and common units valued at approximately $10.2 million;

•

the sale by the Partnership of 3,500,000 common units in September 2007;

•

the contribution to the Company by members of the Partnership's management and companies controlled by funds managed by Jefferies Capital Partners, which are collectively referred to as the contributing parties, of the following:

•: all of the membership interests in KSP GP, which owns all of the 1.5% general partner interest and 100% of the incentive distribution rights in the Partnership; and
•: all of the membership interests in EW Transportation LLC, ("EW LLC") which owns 4,165,000 units of the Partnership, consisting of 2,082,500 common units and 2,082,500 subordinated units representing an aggregate 29.9% limited partner interest in the Partnership;

•

the merger of the corporate subsidiaries of EW LLC into EW LLC in a taxable liquidation for federal income tax purposes; and

•

the sale of common units in this offering and application of the net proceeds from this offering, as described in this prospectus.

The unaudited pro forma combined statements of operations for the six months ended December 31, 2007 and for the year ended June 30, 2007 assume the pro forma transactions described above occurred on July 1, 2006 (to the extent not already reflected in the historical statements of consolidated operations of each entity). The unaudited pro forma combined balance sheet shows the effects of the pro forma transactions noted herein as if they had occurred on December 31, 2007.

Basis of Presentation

The Company was formed on December 11, 2007. The ownership interests of KSP GP and EW LLC are to be transferred to us in connection with this offering, and there was no substantive change in the ownership structure of these entities as a result of the transaction. Therefore, the Company's historical consolidated financial information as of and for the years ended June 30, 2005, 2006 and 2007, and as of December 31, 2007 and for the six months ended December 31, 2006 and 2007, represents the combined financial information of KSP GP and EW LLC based on their carrying amounts.

The unaudited pro forma combined financial statements and related pro forma information are based on assumptions that the Company believes are reasonable under the circumstances and are included for informational purposes only. They are not necessarily indicative of the financial results

F-2

that would have occurred if the transactions described herein had taken place on the dates indicated, nor are they indicative of the future combined results of the Company.

The unaudited pro forma combined financial statements of the Company as of December 31, 2007 and for the six month and fiscal year periods ended December 31, 2007 and June 30, 2007, respectively should be read in conjunction with, and are qualified in their entirety by reference to (i) the notes accompanying such unaudited pro forma combined financial statements, (ii) the historical combined financial statements of K-Sea GP Holdings LP Predecessor as of June 30, 2006 and June 30, 2007 and for each of the years in the three year period ended June 30, 2007, (iii) the unaudited historical combined financial information of K-Sea GP Holdings LP Predecessor as of December 31, 2007 and for the six month periods ended December 31, 2006 and December 31, 2007, (iv) the historical combined financial statements and related notes of the Smith Maritime Group as of December 31, 2005 and December 31, 2006 and for each of the years in the three year period ended December 31, 2006 and (v) the unaudited historical combined financial information of the Smith Maritime Group as of June 30, 2007 and for the six month periods ended June 30, 2006 and June 30, 2007 each as included herein.

The unaudited pro forma combined financial information is presented for illustrative purposes only. The financial results may have been different if the companies had always been combined or if the transactions had actually occurred as of the dates indicated above. This financial information does not project the Company's financial position or results of operations for any future period.

F-3

K-Sea GP Holdings LP

Unaudited Pro Forma Combined Balance Sheet

December 31, 2007

(in thousands)

			Historical
			Historical		Formation Transaction Pro forma Adjustments
			K-Sea GP Holdings LP Predecessor		Formation Transaction Pro forma Adjustments		Offering Adjustments		K-Sea GP Holdings LP Pro Forma
Assets
	Cash and cash equivalents		$	1,751			$
	Accounts receivable			21,511
	Deferred taxes			1,018
	Prepaid expenses and other current assets			9,740

		Total current assets		34,020
	Vessels and equipment, net			542,604
	Construction in progress			30,207
	Deferred financing costs, net			2,759
	Goodwill			53,261
	Other assets			29,796		(b)

		Total assets	$	692,647	$		$

Liabilities and Partners' Capital
	Current portion of long-term debt			12,246
	Accounts payable			26,906
	Accrued expenses and other current liabilities			14,371

		Total current liabilities		53,523
	Term loans and capital lease obligations			172,871				(c)
	Credit line borrowings			180,350
	Other liabilities			5,302
	Deferred taxes			10,400				(c)

		Total liabilities		422,446

	Non-controlling interests			262,843
	Partners' capital			7,358				(a)

		Total liabilities and partners' capital	$	692,647	$		$

See accompanying notes to pro forma combined financial statements.

F-4

K-Sea GP Holdings LP

Unaudited Pro Forma Combined Statement of Operations

Six months ended December 31, 2007

(in thousands)

		Historical
		K-Sea GP Holdings LP Predecessor			Smith Maritime Group (July 1, 2007– August 14, 2007)		Smith Maritime Group Adjustments			Subtotal			Formation Transaction Adjustments		Offering Adjustments		K-Sea GP Holdings LP Pro Forma
Voyage revenue		$	149,361		$	5,723				$	155,084				$		$
Bareboat charter and other revenue			6,076			615					6,691

	Total revenues		155,437			6,338					161,775
Voyage expenses			35,375			938					36,313
Vessel operating expenses			59,891			2,004		(105	)(f)		61,790
General and administrative expenses			13,902			566					14,468
Depreciation and amortization			20,765			842		231	(f)		22,005
								54	(g)
								113	(h)
Net (gain) loss on sale of vessels			(300	)		—					(300	)

	Total operating expenses		129,633			4,350		293			134,276

	Operating income		25,804			1,988		(293	)		27,499
Interest expense, net			11,665			303		(746	)(i)		11,222					(d)
Net loss on reduction of debt			—			—					—
Other (income) expense, net			(2,301	)		—					(2,301	)		(e)

	Income before provision for income taxes and non-controlling interests		16,440			1,685		453			18,578
Provision for income taxes			765			—					765

	Income before non-controlling interests		15,675			1,685		453			17,813
Non-controlling interests			10,308					1,457			11,765

	Net income	$	5,367		$	1,685	$	(1,004	)	$	6,048		$
Basic and diluted earnings per unit:
	Number of limited partner units used in denominator

	Basic and diluted net income per limited partner unit																$

See accompanying notes to pro forma combined financial statements.

F-5

K-Sea GP Holdings LP

Unaudited Pro Forma Combined Statement of Operations

Fiscal year ended June 30, 2007

		Historical
		Historical						Smith Maritime Group Adjustments											K-Sea GP Holdings LP Pro Forma
		K-Sea GP Holdings LP Predecessor			Smith Maritime Group			Smith Maritime Group Adjustments			Subtotal			Formation Transaction Adjustments			Offering Adjustments		K-Sea GP Holdings LP Pro Forma
Voyage revenue		$	216,924		$	51,013					$	267,937					$		$
Bareboat charter and other revenue			9,650			5,959						15,609

	Total revenues		226,574			56,972						283,546
Voyage expenses			45,875			5,852						51,727
Vessel operating expenses			96,005			20,308			(2,412	)(f)		113,901
General and administrative expenses			20,731			6,905						27,636
Depreciation and amortization			33,415			6,628			1,804	(f)		45,027
									2,277	(g)
									903	(h)
Net (gain) loss on sale of vessels			102			(3,181	)					(3,079	)

	Total operating expenses		196,128			36,512			2,572			235,212
	Operating income		30,446			20,460			(2,572	)		48,334			—
Interest expense, net			15,598			2,341			2,858	(i)		21,552						(d)
									755	(j)
Net loss on reduction of debt			359			—						359
Other (income) expense, net			(301	)		38						(263	)			(e)

	Income before provision for income taxes and non-controlling interests		14,790			18,081			(6,185	)		26,686
Provision for income taxes			1,105			—						1,105

	Income before non-controlling interests		13,685			18,081			(6,185	)		25,581
Non-controlling interests			9,235						8,100			17,335

	Net income	$	4,450		$	18,081		$	(14,285	)	$	8,246		$
Basic and diluted earnings per unit:
	Number of limited partner units used in denominator

	Basic and diluted net income per limited partner unit																		$

See accompanying notes to pro forma combined financial statements.

F-6

Notes to Unaudited Pro Forma Combined Financial Information
(dollars in thousands)

Pro forma adjustments

The following adjustments relate to the formation of, and the initial public offering of units of K-Sea GP Holdings LP:

(a): Reflects underwriting commission and other expenses of $ associated with the offering and related formation transactions.
(b): Reflects the elimination of EW LLC's 50% interest in a joint venture, which has a net book value of $ and which will be sold prior to the closing of this transaction.
(c): Reflects the repayment of EW LLC's $ demand loan and $ of income taxes upon the liquidation of EW LLC's C corporation subsidiaries with a portion of the proceeds of the initial public offering.
(d): Excludes interest expense related to (1) the term loans to be repaid as described in (b) above and (2) certain predecessor term loans and subordinated debt.
(e): Excludes equity earnings from EW LLC's 50% interest in a joint venture described in (b) above.

The following adjustments relate to the acquisition of the Smith Maritime Group:

(f): Reflects a change from the Smith Maritime Group method of accounting for drydocking expenditures (expensed currently) to the Company's method of accounting for drydocking expenditures (capitalized and amortized over 36 months). Both methods are acceptable under U.S. generally accepted accounting principles.
(g): Reflects an increase in depreciation of acquired vessels, which results from a step up of book basis of the vessels to their fair market values.
(h): Reflects amortization of identifiable intangibles acquired; $17,500 of the purchase price of the Smith Maritime Group has been preliminarily allocated to identifiable intangible assets consisting of customer lists and non-compete agreements. These intangibles assets are being amortized over estimated useful lives ranging from 3 to 20 years.
(i): Borrowings of $168,923 were used to pay the cash portion of the purchase price and the estimated transaction costs at the acquisition date. Long-term borrowings consist of (1) $65,154 in borrowings under an expanded senior secured revolving credit facility, (2) a $45,000 364-day senior secured revolving facility, and (3) a bridge loan facility of $60,000 which bears interest at an annual rate of LIBOR plus 1.50%. The revolving facility and the 364-day facility bear interest at LIBOR plus a margin ranging from 0.7% to 1.5% depending on the Partnership's ratio of total funded debt to EBITDA (as defined in the credit agreement). A rate of LIBOR plus 1.5% on the revolving facility and the 364-day facility has been used.

On September 26, 2007, the Partnership closed a public offering of 3,500,000 common units representing limited partner interests. The price to the public was $39.50 per unit. The net proceeds of $131,918 from the offering, after payment of underwriting discounts and commissions and expenses, were used to partially repay the borrowings described above.

F-7

Notes to Unaudited Pro Forma Combined Financial Information (Continued)
(dollars in thousands)

The increased debt, net of the equity proceeds, resulted in a $2,596 increase in interest expense for the year ended June 30, 2007 at an annual interest rate of approximately 7.09%. On a pro forma basis, interest expense decreased $779 for the six months ended December 31, 2007 because the pro forma adjustment reflects that a substantial portion of the actual debt financing incurred for the period from August 14, 2007 to September 26, 2007 is repaid with proceeds of the equity offering thereby reducing such interest expense. A 0.125% change in the interest rate on these borrowings would change interest expense by $211 annually.

In addition, the Partnership incurred $1,823 of related debt financing costs. This resulted in increased amortization of deferred financing fees of $262 and $33 for the year ended June 30, 2007 and for the six months ended December 31, 2007, respectively.

(j): Reflects the reduction of investment income on cash in excess of $1,000 which cash was retained by the sellers of the Smith Maritime Group.

F-8

Report of Independent Registered Public Accounting Firm

To the Board of Directors of the General Partner and the Limited Partners of K-Sea GP Holdings LP:

In our opinion, the accompanying balance sheet presents fairly, in all material respects, the financial position of K-Sea GP Holdings LP at December 11, 2007 in conformity with accounting principles generally accepted in the United States of America. This financial statement is the responsibility of K-Sea GP Holdings LP's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit of this statement in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, and evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey
March 4, 2008

F-9

K-SEA GP HOLDINGS LP

BALANCE SHEET

		December 11, 2007
ASSETS
Receivable from limited partner		$	1,000

	Total assets	$	1,000

PARTNERS' CAPITAL
Limited partner's equity		$	1,000

	Total partners' capital	$	1,000

See accompanying note to balance sheet.

F-10

K-SEA GP HOLDINGS LP

Note to Balance Sheet

Nature of Operations

K-Sea GP Holdings LP is a Delaware limited partnership that was formed on December 11, 2007 in contemplation of becoming the sole member of K-Sea General Partner GP LLC ("KSP GP"), which is the general partner of K-Sea Transportation Partners L.P. ("KSP"). KSP is a publicly traded Delaware limited partnership formed in 2003 that provides marine transportation, distribution and logistics services for refined petroleum products in the United States.

After the closing of our initial public offering, we will own:

•: 100% of the incentive distribution rights in KSP, which we hold through our 100% ownership interest in KSP GP;
•: 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP; and
•: all of the 1.5% general partner interest in KSP, which we hold through our 100% ownership interest in KSP GP.

Receivable from Limited Partner

Receivable from limited partner of $1,000 that is included in the balance sheet represents amounts due from K-Sea GP Holdings LP's limited partner for its initial capital contribution.

F-11

Report of Independent Auditors

To the Board of Directors and Members of K-Sea GP LLC:

In our opinion, the accompanying consolidated balance sheet presents fairly, in all material respects, the financial position of K-Sea GP LLC at December 11, 2007 in conformity with accounting principles generally accepted in the United States of America. This financial statement is the responsibility of K-Sea GP LLC's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit of this statement in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated balance sheet presentation. We believe that our audit of the consolidated balance sheet provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey
March 4, 2008

F-12

K-SEA GP LLC

BALANCE SHEET

		December 11, 2007
ASSETS
Receivable from members		$	1,000
Receivable from limited partner			1,000

	Total assets	$	2,000

MEMBER'S EQUITY
Non-controlling interest in equity of subsidiary		$	1,000
Member's equity			1,000

	Total member's equity	$	2,000

See accompanying note to balance sheet.

F-13

K-SEA GP LLC

Note to Balance Sheet

Nature of Operations

K-Sea GP LLC is a Delaware limited liability company that was formed on December 11, 2007 in contemplation of becoming the general partner of K-Sea GP Holdings LP. We have a non-economic general partner interest (defined by the Partnership agreement as having no allocation of gains or losses and no rights to receive distributions) in K-Sea GP Holdings LP.

Consolidation of the Partnership

Under the provisions of EITF No. 04-05, "Determining Whether a General Partner, or the General Partner as a Group, Controls a Limited partnership or Similar Entity When the Limited Partners Have Certain Rights" ("EITF No. 04-05"), K-Sea GP Holdings L.P. is included herein as the consolidated subsidiary of K-Sea GP LLC effective December 11, 2007. All material inter-company transactions and balances have been eliminated in consolidation. EITF No. 04-05 has been applied prospectively using Transition Method B.

Receivable from Members

Receivable from members of $1,000 that is included in the balance sheet represents amounts due from members for KSP GP LLC's initial member capital contribution.

Receivable from Limited Partner

Receivable from limited partner of $1,000 that is included in the balance sheet represents amounts due from K-Sea GP Holdings LP's limited partner for its initial capital contribution.

F-14

Report of Independent Registered Public Accounting Firm

To the General Partner of K-Sea GP Holdings LP:

In our opinion, the accompanying combined balance sheets and the related combined statements of operations, of cash flows, and of changes in partners' capital present fairly, in all material respects, the financial position of K-Sea GP Holdings LP Predecessor and its subsidiaries at June 30, 2006 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2007 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinions.

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey
March 4, 2008

F-15

K-SEA GP HOLDINGS LP PREDECESSOR

COMBINED BALANCE SHEETS

(in thousands)

			June 30,				December 31,
			2006		2007		2007
							(unaudited)
Assets
	Cash and cash equivalents		$	829	$	927	$	1,751
	Accounts receivable, net			20,322		20,664		21,511
	Deferred taxes			497		948		1,018
	Prepaid expenses and other current assets			8,256		5,073		9,740

		Total current assets		29,904		27,612		34,020
	Vessels and equipment, net			316,237		358,580		542,604
	Construction in progress			5,452		13,285		30,207
	Deferred financing costs, net			1,226		1,106		2,759
	Goodwill			16,258		16,263		53,261
	Other assets			14,530		13,652		29,796

		Total assets	$	383,607	$	430,498	$	692,647

Liabilities and Partners' Capital
	Current portion of long-term debt		$	7,745	$	9,270	$	12,246
	Accounts payable			13,949		17,091		26,906
	Accrued expenses and other current liabilities			9,980		13,259		14,371

		Total current liabilities		31,674		39,620		53,523
	Term loans and capital lease obligations			143,729		153,446		172,871
	Credit line borrowings			54,015		97,071		180,350
	Subordinated debt			4,519		—		—
	Other liabilities			—		—		5,302
	Deferred taxes			9,679		10,703		10,400

		Total liabilities		243,616		300,840		422,446
	Non-controlling interests in equity of subsidiary			125,204		119,769		262,843
Commitments and contingencies
Partners' Capital				14,787		9,889		7,358

		Total liabilities and partners' capital	$	383,607	$	430,498	$	692,647

See accompanying notes to consolidated financial statements.

F-16

K-SEA GP HOLDINGS LP PREDECESSOR

COMBINED STATEMENTS OF OPERATIONS

(in thousands)

			For the Years Ended June 30,									For the Six Months Ended December 31,
			2005			2006			2007			2006			2007
												(unaudited)
Voyage revenue			$	118,811		$	176,650		$	216,924		$	105,668		$	149,361
Bareboat charter and other revenue				2,587			6,118			9,650			5,273			6,076

	Total revenues			121,398			182,768			226,574			110,941			155,437

Voyage expenses				24,220			37,973			45,875			22,046			35,375
Vessel operating expenses				49,550			77,367			96,005			47,761			59,891
General and administrative expenses				11,365			17,473			20,731			10,118			13,902
Depreciation and amortization				21,420			26,810			33,415			15,812			20,765
Net (gain) loss on sale of vessels				(281	)		(313	)		102			(16	)		(300	)

	Total operating expenses			106,274			159,310			196,128			95,721			129,633

	Operating income			15,124			23,458			30,446			15,220			25,804
Interest expense, net				7,178			11,739			15,598			7,585			11,665
Net loss on reduction of debt				1,359			7,224			359			—			—
Other (income) expense, net				(239	)		(338	)		(301	)		(145	)		(2,301	)

	Income before provision for income taxes and non-controlling interests in equity of subsidiary			6,826			4,833			14,790			7,780			16,440
Provision for income taxes				430			801			1,105			662			765

	Income before non-controlling interests in equity of subsidiary			6,396			4,032			13,685			7,118			15,675
Non-controlling interest				4,006			3,276			9,235			4,573			10,308

	Net income		$	2,390		$	756		$	4,450		$	2,545		$	5,367
Other Comprehensive Income:
	Fair market value adjustment for interest rate swap, net of taxes			—			490			(301	)		(833	)		(1,912	)
	Foreign currency translation adjustment			—			37			1			(9	)		12

		Comprehensive income	$	2,390		$	1,283		$	4,150		$	1,703		$	3,467

See accompanying notes to consolidated financial statements.

F-17

K-SEA GP HOLDINGS LP PREDECESSOR

COMBINED STATEMENT OF PARTNERS' CAPITAL

(in thousands)

				Accumulated Other Comprehensive Income			Total
Balance of Partners' Capital at June 30, 2004	$	31,254					$	31,254
Capital contribution		386						386
Distributions to partners		(7,364	)					(7,364	)
Net income		2,390						2,390

Balance of Partners' Capital at June 30, 2005		26,666						26,666
Capital contribution		839						839
Fair market value adjustment for interest rate swap, net of taxes					490			490
Foreign currency translation adjustment					37			37
Distributions to partners		(14,001	)					(14,001	)
Net income		756						756

Balance of Partners' Capital at June 30, 2006		14,260			527			14,787
Capital contributions		38						38
Fair market value adjustment for interest rate swap, net of taxes					(301	)		(301	)
Foreign currency translation adjustment					1			1
Distributions to partners		(9,086	)					(9,086	)
Net income		4,450						4,450

Balance of Partners' Capital at June 30, 2007		9,662			227			9,889
Fair market value adjustment for interest rate swap, net of taxes (unaudited)					(1,912	)		(1,912	)
Foreign currency translation adjustment (unaudited)					12			12
Distributions to partners (unaudited)		(5,998	)					(5,998	)
Net income (unaudited)		5,367						5,367

Balance of Partners' Capital at December 31, 2007 (unaudited)	$	9,031		$	(1,673	)	$	7,358

See accompanying notes to consolidated financial statements.

F-18

K-SEA GP HOLDINGS LP PREDECESSOR

COMBINED STATEMENTS OF CASH FLOWS

(in thousands)

				For the Years Ended June 30,									For the Six Months Ended December 31,
				2005			2006			2007			2006			2007
													(unaudited)
Cash flows from operating activities:
	Net income			$	2,390		$	756		$	4,450		$	2,545		$	5,367
	Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				22,023			27,212			33,774			15,991			20,955
	Payment of drydocking expenditures				(7,654	)		(12,506	)		(15,357	)		(8,523	)		(9,928	)
	Provision for doubtful accounts				213			232			454			331			119
	Deferred income taxes				102			437			560			267			443
	Net (gain) loss on sale of vessels				(281	)		(313	)		102			(16	)		(300	)
	Unit compensation costs				310			499			803			380			562
	Gain on settlement of legal proceedings				—			—			—			—			(2,073	)
	Net loss on reduction of debt				1,359			7,224			359			—			—
	Prepayment costs on long-term debt				(293	)		(4,196	)		(194	)		—			—
	Equity earnings in investment in joint venture				(212	)		(274	)		(238	)		(114	)		(128	)
	Non-controlling interests in equity of subsidiary, net of distributions				(4,929	)		(9,463	)		(5,770	)		(2,691	)		(612	)
	Other				136			71			167			52			36
	Changes in operating working capital:
		Accounts receivable			(2,702	)		(2,301	)		(796	)		1,120			(1,367	)
		Prepaid expenses and other current assets			(1,882	)		(2,410	)		3,158			1,652			1,066
		Accounts payable			3,966			2,600			1,014			2,404			3,939
		Accrued expenses and other current liabilities			1,284			(1,578	)		2,089			1,246			(2,724	)
		Other assets			(233	)		535			(14	)		(32	)		179

			Net cash provided by operating activities		13,597			6,525			24,561			14,612			15,534

Cash flows from investing activities:
	Vessel acquisitions				(30,684	)		(13,105	)		(16,184	)		(7,125	)		(13,810	)
	Acquisition of Sea Coast, net of cash acquired				—			(76,512	)		—			—			—
	Acquisition of Smith Maritime Group, net of cash acquired				—			—			—			—			(168,923	)
	Construction of tank vessels				(16,816	)		(20,702	)		(33,315	)		(14,688	)		(22,057	)
	Other capital expenditures				(9,023	)		(9,050	)		(14,756	)		(7,864	)		(6,508	)
	Proceeds from Title XI reserve funds				—			2,876			—			—			—
	Net proceeds on disposal of vessels				1,522			11,095			740			339			962
	Other				55			173			(64	)		—			(1,836	)

			Net cash used in investing activities		(54,946	)		(105,225	)		(63,579	)		(29,338	)		(212,172	)

Cash flows from financing activities:
	Net increase in credit line borrowings				42,712			6,903			43,056			14,385			83,279
	Gross proceeds from issuance of common units				16,000			34,010			—			—			138,250
	Payments to Title XI reserve funds				(1,618	)		(674	)		—			—			—
	Proceeds from issuance of long-term debt				38,794			116,437			30,391			11,009			105,000
	Redemption of Title XI bonds				—			(36,788	)		—			—			—
	Payment of term loans				(46,293	)		(4,056	)		(19,831	)		(5,472	)		(113,774	)
	Payment of subordinated debt				—			—			(4,519	)		—			—
	Financing costs paid—equity offerings				(54	)		(1,645	)		(98	)		—			(6,234	)
	Financing costs paid—debt issuance				(930	)		(942	)		(368	)		(158	)		(1,862	)
	Capital contribution from general partner				386			839			38			—			—
	Distributions to partners				(7,364	)		(14,001	)		(9,086	)		(3,527	)		(5,998	)
	Other				(853	)		(702	)		(467	)		(1,715	)		(1,199	)

			Net cash provided by financing activities		40,780			99,381			39,116			14,522			197,462

Cash and cash equivalents:
	Net increase (decrease)				(569	)		681			98			(204	)		824
	Balance at beginning of period				717			148			829			829			927

			Balance at end of period	$	148		$	829		$	927		$	625		$	1,751

F-19

					For the Years Ended June 30,							For the Six Months Ended December 31,
					2005		2006			2007		2006		2007
												(unaudited)
Supplemental disclosure of cash flow information:
	Cash paid during the year for:
		Interest, net of amounts capitalized			$	6,584	$	11,366		$	15,814	$	9,555	$	12,112

		Income taxes			$	81	$	416		$	48	$	82	$	26

Supplemental disclosure of non-cash investing and financing activities:
		Acquisition of Sea Coast Transportation LLC:
			Fair value of net assets acquired				$	82,382
			Less: Value of common units issued to seller					(4,376	)

			Cash paid for the transaction (see note 3)				$	78,006
			Less: Cash acquired					(1,494	)

				Net cash paid for the transaction			$	76,512

		Acquisition of the Smith Maritime Group:
			Value of common units issued to sellers											$	10,235

			Debt assumed											$	23,511

			Purchase of vessel with note payable											$	3,000

			Receivable from settlement of legal proceedings											$	2,073

See accompanying notes to consolidated financial statements.

F-20

K-SEA GP HOLDINGS LP PREDECESSOR

NOTES TO COMBINED FINANCIAL STATEMENTS

(dollars in thousands, except per unit amounts)

Note 1: Basis of Presentation

K-Sea GP Holdings LP (the "Company") is a Delaware limited partnership that was formed on December 11, 2007. The ownership interests of K-Sea General Partner GP LLC the ("General Partner"), K-Sea General Partner L.P. (the "Partnership") and EW Transportation LLC ("EW LLC") are to be transferred to us in connection with this offering, and there was no substantive change in the control of these entities as a result of the transaction. Therefore, the Company's historical consolidated financial information as of and for the years ended June 30, 2005, 2006 and 2007, and as of December 31, 2007 and for the six months ended December 31, 2006 and 2007, represents the combined financial information of the General Partner, the Partnership and EW LLC based on their carrying amounts. KSP GP, including the Partnership, and EW LLC are collectively referred to herein as the "Predecessor."

The Partnership provides refined petroleum products marine transportation, distribution and logistics services in the U.S. domestic marine transportation business. On January 14, 2004, the Partnership completed its initial public offering of common units representing limited partner interests and, in connection therewith, also issued to EW LLC an aggregate of 4,165,000 subordinated units representing limited partner interests. During the subordination period the subordinated units are not entitled to receive any distributions until the common units have received their minimum quarterly distribution plus any arrearages from prior quarters. The subordination period will end once the Partnership meets certain financial tests described in the partnership agreement, but it generally cannot end before December 31, 2008. When the subordination period ends, all subordinated units will convert into common units on a one-for-one basis, and the common units will no longer be entitled to arrearages. If the Partnership meets certain financial tests described in the partnership agreement, 25% of the subordinated units can convert into common units on or after December 31, 2006, and an additional 25% can convert into common units on or after December 31, 2007. The Partnership met the required tests for early conversion of the first 50% of subordinated units and, as a result, 1,041,250 of these subordinated units converted to common units on both February 14, 2007 and 2008.

The General Partner holds 202,447 general partner units (representing an approximate 1.45% general partner interest) and certain incentive distribution rights in the Partnership. Incentive distribution rights represent the right to receive an increasing percentage of cash distributions after the minimum quarterly distribution, any cumulative arrearages on common units, and certain target distribution levels have been achieved. The target distribution levels entitle the General Partner to receive an additional 13% of quarterly cash distributions in excess of $0.55 per unit until all unitholders have received $0.625 per unit, an additional 23% of quarterly cash distributions in excess of $0.625 per unit until all unitholders have received $0.75 per unit, and an additional 48% of quarterly cash distributions in excess of $0.75 per unit. The Partnership is required to distribute all of its available cash from operating surplus, as defined in the Partnership's partnership agreement. Additional contributions by the General Partner to the Partnership upon the Partnership's issuance of new common units are not mandatory.

All information presented in these combined financial statements as of December 31, 2007, and for the six month periods ended December 31, 2006 and 2007, is unaudited. The unaudited combined financial statements as of December 31, 2007, and for the six months ended December 31, 2006 and 2007, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and

F-21

notes required by accounting principles generally accepted in the United States for complete combined financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Operating results for the six months ended December 31, 2007, are not necessarily indicative of the results that may be expected for the year ending June 30, 2008.

Note 2: Summary of Significant Accounting Policies

Consolidation of the Partnership. Under the provisions of EITF No. 04-05, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights" ("EITF No. 04-05"), the Partnership and its consolidated subsidiaries are included herein as consolidated subsidiaries of the General Partner effective July 1, 2005. All material inter company transactions and balances have been eliminated in consolidation. EITF No. 04-05 has been applied retroactively using Transition Method B. The adoption of this new pronouncement had no impact on consolidated partners' capital. During the years ended June 30, 2005, 2006 and 2007, the Partnership paid distributions to limited partners representing the non controlling interests in the Partnership, of $8,935, $12,739 and $15,005, respectively, plus $8,934, $9,663 and $10,829 in distributions to EW LLC's limited partner units. Additionally, distributions by the Partnership to the General Partner totaled $364, $641 and $1,311, respectively, during such periods.

Cash and Cash Equivalents. All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.

Vessels and Equipment. Vessels and equipment are owned and operated by the Partnership and are recorded at cost, including capitalized interest where appropriate, and depreciated using the straight-line method over the estimated useful lives of the individual assets as follows: tank vessels—ten to twenty-five years; tugboats—ten to twenty years; and pier and office equipment—five years. For single hull tank vessels, such useful lives are limited to the remaining period of operation prior to mandatory retirement as required by the Oil Pollution Act of 1990 ("OPA 90"). OPA 90 requires that the 27 (including four chartered-in) single-hull vessels currently operated by the Partnership, representing approximately 26% (unaudited) of total barrel-carrying capacity as of December 31, 2007 (unaudited), be retired or retrofitted to double-hull by December 31, 2014.

Included in vessels and equipment are drydocking expenditures that are capitalized and amortized over three years. Drydocking of vessels is required both by the United States Coast Guard and by the applicable classification society, which in the Partnership's case is the American Bureau of Shipping. Such drydocking activities include, but are not limited to, the inspection, refurbishment and replacement of steel, engine components, tailshafts, mooring equipment and other parts of the vessel.

Major renewals and betterments of assets are capitalized and depreciated over the remaining useful lives of the assets. Leasehold improvements are capitalized and depreciated over the shorter of their useful lives or the remaining term of the lease. Maintenance and repairs that do not improve or extend the useful lives of the assets are expensed.

The Predecessor assesses impairment on long-lived assets used in operations when indicators of impairment are present. An impairment loss would be recognized if the undiscounted cash flows

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estimated to be generated by those assets are less than the assets' carrying amounts, and to the extent the carrying value exceeds fair value by appraisal.

When property items are retired, sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts with any gain or loss on the dispositions included in income. Assets to be disposed of are reported at the lower of their carrying amounts or fair values, less the estimated costs of disposal.

Fuel Supplies. Fuel used to operate the Predecessor's vessels, and on hand at the end of the period, is recorded at cost. Such amounts totaled $3,158, $2,660 and $4,121 (unaudited) as of June 30, 2006 and 2007 and December 31, 2007, respectively, and are included in prepaid expenses and other current assets in the consolidated balance sheets.

Deferred Financing Costs. Direct costs associated with obtaining long-term financing are deferred and amortized over the terms of the related financings. Deferred financing costs are stated net of accumulated amortization which, at June 30, 2006 and 2007 and December 31, 2007 were $322, $457 and $670 (unaudited), respectively.

Goodwill. Goodwill represents the excess of the purchase price over the fair value of the net assets of the acquired business at the date of the acquisition. The Predecessor tests for impairment at least annually using a two-step process. The first step identifies potential impairment by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired and the second step is not necessary. If the carrying value exceeds the fair value, the second step calculates the possible impairment loss by comparing the implied fair value of goodwill with the carrying amount. If the implied fair value of goodwill is less than the carrying amount, a write-down is recorded.

Intangible Assets. Included in other assets are intangible assets acquired as part of business combinations which are recorded at fair value at their acquisition date and are amortized on a straight-line basis over their estimated useful lives. The Predecessor reviews intangible assets to evaluate whether events or changes have occurred that would suggest an impairment of carrying value. An impairment would be recognized when expected undiscounted future operating cash flows are lower than the carrying value, and to the extent the carrying value exceeds fair value. Intangible assets are stated net of accumulated amortization, which at June 30, 2006 and 2007 and December 31, 2007 are $2,690, $4,694 and $6,015 (unaudited), respectively.

Revenue Recognition. The Predecessor earns revenue under contracts of affreightment, voyage charters, time charters and bareboat charters. For contracts of affreightment and voyage charters, revenue is recognized based upon the relative transit time in each period, with expenses recognized as incurred. Although contracts of affreightment and certain contracts for voyage charters may be effective for a period in excess of one year, revenue is recognized over the transit time of individual voyages, which are generally less than ten days in duration. For time charters and bareboat charters, revenue is recognized ratably over the contract period, with expenses recognized as incurred. Estimated losses on contracts of affreightment and charters are accrued when such losses become evident.

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Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. The most significant estimates relate to depreciation of the vessels, liabilities incurred from workers' compensation, commercial and other claims, the allowance for doubtful accounts and deferred income taxes. Actual results could differ from these estimates.

Concentrations of Credit Risk. Financial instruments which potentially subject the Predecessor to concentrations of credit risk are primarily cash and cash equivalents and trade accounts receivable. Cash and cash equivalents are maintained on deposit at a financial institution in amounts that, at times, may exceed insurable limits.

With respect to accounts receivable, the Predecessor extends credit based upon an evaluation of a customer's financial condition and generally does not require collateral. The Predecessor maintains an allowance for doubtful accounts for potential losses, totaling $690, $939 and $1,533 (unaudited) at June 30, 2006 and 2007 and December 31, 2007, respectively, and does not believe it is exposed to concentrations of credit risk that are likely to have a material adverse effect on its financial position, results of operations or cash flows. For the fiscal years ended June 30, 2005, 2006 and 2007, and for the six months ended December 31, 2006 and 2007, the allowance for doubtful amounts was impacted by additional charges of $213, $232, $455, $330 (unaudited) and $119 (unaudited), and write-offs of $117, $209, $206, $1 (unaudited) and $0 (unaudited), respectively.

Currency Translation. Assets and liabilities related to the Partnership's Canadian subsidiary are translated at the exchange rate prevailing on the balance sheet date, and revenues and expenses are translated at the weighted average exchange rate for the period. Translation gains and losses represent other comprehensive income and are reflected in partners' capital.

Derivative instruments. The Predecessor utilizes derivative financial instruments to reduce interest rate risks, and does not hold or issue derivative financial instruments for trading purposes. Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, ("SFAS No. 133), as amended, establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. Changes in the fair value of those instruments are reported in earnings or other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. The accounting for gains and losses associated with changes in the fair value of the derivative and the effect on the consolidated financial statements will depend on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in fair value of cash flows of the asset or liability hedged.

Income Taxes. The Predecessor's effective tax rate comprises the New York City Unincorporated Business Tax and foreign taxes on its operating partnership, plus federal, state, local and foreign corporate income taxes on the income of the operating partnership's and EW LLC's corporate subsidiaries.

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Deferred taxes represent the tax effects of differences between the financial reporting and tax bases of the Predecessor's assets and liabilities, as applicable, at enacted tax rates in effect for the years in which the differences are expected to reverse. The recoverability of deferred tax assets is evaluated and a valuation allowance established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Unit-Based Compensation. The Predecessor has adopted a long-term incentive plan that permits the granting of awards to directors and employees in the form of restricted units and unit options. The Predecessor recognizes compensation cost for the restricted units on a straight-line basis over the vesting periods of the awards, which range from three to five years. No unit options have been granted.

Note 3: Acquisitions

The Smith Maritime Group

On August 14, 2007, the Partnership, through certain wholly owned subsidiaries, completed the acquisition of all of the equity interests in Smith Maritime, Ltd. ("Smith Maritime"), Go Big Chartering, LLC ("Go Big"), and Sirius Maritime, LLC ("Sirius Maritime" and together with Smith Maritime and Go Big, "the Smith Maritime Group"). This transaction is part of the Partnership's business strategy to expand its fleet through strategic and accretive acquisitions. The Smith Maritime Group provides marine transportation and logistics services to major oil companies, oil traders and refiners in Hawaii and along the West Coast of the United States. The aggregate purchase price was $203,352, subject to certain closing balance sheet-related adjustments. As further described in note 5 below, the Partnership financed the cash portion of the purchase through additional borrowings under its revolving credit agreement and a bridge loan.

Under the purchase method of accounting, the Partnership has included the Smith Maritime Group's results of operations from August 14, 2007, the acquisition date, through December 31, 2007. The aggregate recorded purchase price of $203,352 consisted of $169,606 of cash, including $1,467 of direct expenses, $23,511 of assumed debt, and $10,235 representing 250,000 common units valued at their market value on the acquisition date. The Partnership allocated the purchase price to the tangible assets, intangible assets, and liabilities acquired based on their fair values. The purchased identifiable intangible assets are being amortized on a straight-line basis over their respective estimated useful lives. The excess of the purchase price over the fair value of the acquired net assets has been recorded as goodwill, which is not amortized but which will be reviewed annually for impairment. The Partnership's

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preliminary allocation of the purchase price is as follows. This allocation has been adjusted at December 31, 2007 to reflect certain vessel purchase options acquired as part of the acquisition.

Current assets		$	8,490
Vessels and equipment, net			158,661
Intangible assets			20,115
Goodwill			37,302
Other assets			9

			224,577
Current Liabilities and capital lease obligations			21,225

	Total purchase price	$	203,352

The identifiable intangible assets purchased in the acquisition include customer relationships and covenants not to compete, valued at $17,500, which will be amortized over 20 and 3 years, respectively. The annual amortization expense for the identifiable intangibles is $903. A substantial portion of the goodwill is expected to be deductible for tax purposes. In connection with the acquisition, the Partnership assumed an excise tax liability of $2,705 for which it has been indemnified by the sellers. This liability was settled by sellers in December 2007 and is no longer reflected in the Partnership's consolidated balance sheet.

The acquisition also included an option to purchase a 50% interest in a tank barge, at less than fair market value, which resulted in recognition of an intangible asset of $2,615 at the acquisition date. Upon exercise of the option in October 2007, the Partnership obtained a 50% interest in a joint venture newly-formed to own and charter the tank barge, which joint venture is considered a variable interest entity and is consolidated in the accompanying financial statements. As a result, the consolidated balance sheet reflects $4,275 for the non-controlling interest in this joint venture at December 31, 2007. Other income (expense) includes an allocation of $66 for the non-controlling interest's portion of the joint venture's net loss.

Pro Forma Financial Information

The unaudited pro forma financial information for the three and six months ended December 31, 2007 and 2006 combines the historical results of the Predecessor with the historical results of the Smith Maritime Group for the period preceding the August 14, 2007 acquisition. The unaudited financial information in the table below summarizes the combined results of operations of the Predecessor and the Smith Maritime Group, on a pro forma basis, as though the acquisition had been completed as of the beginning of each period presented. This pro forma financial data is presented for information purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition actually taken place at those dates.

	For the Six Months Ended December 31,
	2007		2006
	(unaudited)
Revenues	$	161,775	$	139,455
Net income	$	6,330	$	3,916

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Sea Coast Transportation

On October 18, 2005, the Partnership completed the acquisition, through its wholly owned subsidiary, K-Sea Operating Partnership L.P. ("K-Sea OLP"), of all of the membership interests in Sea Coast Transportation LLC (formerly Sea Coast Towing, Inc.) ("Sea Coast") from Marine Resources Group, Inc. ("MRG"). Also on October 18, 2005, Sea Coast acquired four tugboats from MRG. Sea Coast is a provider of marine transportation and logistics services to major oil companies, oil traders and refiners along the West Coast of the United States and Alaska. The aggregate purchase price for Sea Coast and the four tugboats comprised $77,000 in cash and 125,000 common units representing limited partner interests in the Partnership. The Partnership financed the cash portion of the purchase price through additional borrowings under its credit agreement.

Under the purchase method of accounting, the Partnership has included Sea Coast's results of operations from October 18, 2005, the date of acquisition, through June 30, 2006. The aggregate recorded purchase price was $82,382, comprising $77,000 of cash, $4,376 in common units (based on the market value of the 125,000 common units at the acquisition date), and $1,006 of direct expenses. The Partnership allocated the purchase price to the tangible assets, intangible assets, and liabilities acquired based on their fair values. The purchased identifiable intangible assets are being amortized on a straight-line basis over their respective estimated useful lives. The excess of the purchase price over the fair value of the acquired net assets has been recorded as goodwill, which is not amortized but which will be reviewed annually for impairment. The amount of goodwill that is deductible for tax purposes was $14,693. The total purchase price has been allocated as follows:

Working capital	$	550
Vessels and equipment, net		55,931
Intangible assets		10,150
Goodwill		16,579
Other assets		711

		83,921
Capital lease obligation		1,539

Total purchase price	$	82,382

The identifiable intangible assets purchased in the Sea Coast acquisition included those in the table below. Amortization expense for the customer relationships and the covenant not to compete for the year ended June 30, 2006 were $647 and $75, respectively; the annual amortization expense is $970 and $112, respectively.

		Gross Value		Weighted-average Useful Life
Customer relationships		$	9,700	10 years
Covenant not to compete			450	4 years

	Total	$	10,150	9.7 years

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K-SEA GP HOLDINGS LP PREDECESSOR

NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per unit amounts)

The expected future amortization expense related to current intangible assets is as follows:

Year ending June 30,
2008		$	1,082
2009			1,082
2010			1,009
2011			970
2012 and thereafter			4,203

	Total	$	8,346

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of the Predecessor and Sea Coast, on a pro forma basis, as though the acquisition had been completed as of the beginning of each period presented. This pro forma financial data is presented for information purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition actually taken place at those dates. The unaudited pro forma financial information combines the historical results of the Predecessor with the historical results of Sea Coast for the fiscal 2006 period preceding the October 18, 2005 acquisition. The unaudited pro forma financial information for the year ended June 30, 2005 combines the historical results of the Predecessor and Sea Coast for that period.

	Pro Forma For the Year Ended June 30,
	2006		2005
	(unaudited)
Revenues	$	201,338	$	170,584
Net income	$	1,768	$	2,746

Note 4: Vessels and Equipment and Construction in Progress

Vessels and equipment and construction in progress comprised the following as of the dates indicated:

	June 30,
	June 30,						December 31, 2007
	2006			2007			December 31, 2007
							(unaudited)
Vessels	$	403,693		$	475,441		$	675,631
Pier and office equipment		4,967			5,967			5,760

		408,660			481,408			681,391
Less accumulated depreciation and amortization		(92,423	)		(122,828	)		(138,787	)

Vessels and equipment, net	$	316,237		$	358,580		$	542,604

Construction in progress	$	5,452		$	13,285		$	30,207

Depreciation and amortization of vessels and equipment for the fiscal years ended June 30, 2005, 2006 and 2007 and for the six months ended December 31, 2006 and 2007 was $20,605, $25,274, $31,411, $14,828 (unaudited) and $19,462 (unaudited), respectively. Such depreciation and amortization includes amortization of drydocking expenditures for the fiscal years ended June 30, 2005, 2006 and 2007 and for the six months ended December 31, 2006 and 2007 of $6,823, $7,391, $9,826, $4,799 (unaudited) and $5,908 (unaudited), respectively.

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In September 2007, the Partnership took delivery of a 28,000-barrel tank barge, the DBL 23, and in December 2007 took delivery of a 28,000-barrel tank barge, the DBL 24. In October 2007, the Partnership entered into an agreement with a shipyard to construct an 185,000-barrel articulated tug-barge unit. In December 2007, the Partnership entered into an agreement with a shipyard to construct a 100,000-barrel tank barge. The Partnership also has agreements with shipyards for the construction of eight additional new tank barges. Construction in progress at December 31, 2007 comprises expenditures for three 80,000-barrel tank barges, one 50,000-barrel tank barge, one 28,000-barrel tank barge, and one 185,000-barrel articulated tug-barge unit.

During fiscal 2007, the Partnership took delivery of the following newbuild vessels: in June 2007, a 28,000-barrel tank barge, the DBL 22; in March 2007, a 100,000-barrel tank barge, the DBL 104; in January 2007, a 28,000-barrel tank barge, the DBL 27; and in August 2006, a 28,000-barrel tank barge, the DBL 26. Additionally, the Partnership acquired five tugboats during fiscal 2007.

On March 15, 2006 and May 11, 2006, the Partnership took delivery of two new 28,000 barrel tank barges, the DBL 28 and DBL 29. On December 30, 2005, the Partnership took delivery of a new 100,000 barrel tank barge, the DBL 103. The total cost, after addition of certain special equipment and integration with existing tugboats, plus capitalized interest, was approximately $23,421. On October 18, 2005 the Partnership acquired Sea Coast Transportation LLC, including $55,931 of vessels, pier and office equipment. On October 20, 2005, the Partnership acquired an 85,000 barrel integrated tug-barge unit for $13,105, including transaction costs.

On June 28, 2005, the Partnership acquired an 80,000-barrel capacity double-hull tank barge for a purchase price of $10,000, excluding certain modifications made to the barge. On December 8, 2004, the Partnership acquired ten tank barges and seven tugboats for a purchase price of $21,184 (including acquisition related costs), which also included a water treatment facility. The purchase price was allocated to the individual assets acquired based on consideration of independent appraisals. In September 2004, the Partnership completed the double-hulling of the KTC 155, now renamed the DBL 155, and accepted delivery of the vessel.

Barge Incident

On November 11, 2005, one of the Partnership's tank barges, the DBL 152, struck submerged debris in the U.S. Gulf of Mexico, causing significant damage which resulted in the barge eventually capsizing. The barge was declared a constructive total loss, and the Partnership received the total $11,000 insured value from its hull and machinery insurers. The excess of this insurance recovery over the net book value of the barge, totaling $415, is included as a net gain on disposal of vessels in the consolidated statements of operations for the year ended June 30, 2006.

Note 5: Financing

Credit Agreement

The Partnership maintains a revolving credit agreement with a group of banks, with KeyBank National Association as administrative agent and lead arranger, to provide financing for its operations. On August 14, 2007, the Partnership amended and restated its revolving credit agreement to provide for (1) an increase in availability to $175,000 under the primary revolving facility, with an increase in the term to seven years, (2) an additional $45,000 364-day senior secured revolving credit facility, (3) amendments to certain financial covenants and (4) a reduction in interest rate margins. Under certain conditions, the Partnership has the right to increase the primary revolving facility by up to

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$75,000, to a maximum total facility amount of $250,000. On November 7, 2007, the Partnership partially exercised this right and increased the facility by $25,000 to $200,000. The primary revolving facility and the 364-day facility are collateralized by a first perfected security interest in vessels having a total fair market value of approximately $275,000 and certain equipment and machinery related to such vessels. These facilities bear interest at the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 0.7% to 1.5% depending on the Partnership's ratio of total funded debt to EBITDA (as defined in the agreement). On August 14, 2007, the Partnership borrowed $67,000 under the primary revolving facility and $45,000 under the 364-day facility to fund a portion of the purchase price of the Smith Maritime Group (see note 3).

Also on August 14, 2007, the Partnership entered into a bridge loan facility for up to $60,000 with an affiliate of KeyBank National Association in connection with the Smith Maritime Group acquisition. While outstanding, the bridge loan facility bore interest at an annual rate of LIBOR plus 1.5%, and was to mature on November 12, 2007. During an event of default, the bridge loan facility provided for interest at an annual rate of LIBOR plus 7.5%.

Both the $45,000 364-day senior secured facility and the $60,000 bridge loan were repaid on September 26, 2007 upon closing of an offering of common units by the Partnership, See "Equity Financing" below. As of December 31, 2007, the Partnership had $180,350 outstanding on the revolving facility. The Partnership also has a separate revolver with a commercial bank to support its daily cash management; there was no outstanding balance on this revolver at December 31, 2007 (unaudited).

The Partnership initially entered into this credit agreement on March 24, 2005. The five-year $80,000 credit agreement replaced the Partnership's existing $47,000 revolving credit agreement, which was repaid and terminated. On October 18, 2005, to partially finance the acquisition of Sea Coast Transportation LLC, the Partnership amended the credit agreement to increase the available borrowings to $120,000, of which $77,000 was drawn down to pay the cash portion of the purchase price. On November 29, 2005, to fund the redemption of its Title XI bonds (see Title XI Bonds" below), the Partnership further amended the credit agreement to increase the maximum borrowings to $155,000. On April 3, 2006, the Partnership used the net proceeds from the issuance of $80,000 in new term loans to repay outstanding borrowings under the credit agreement, and further amended it to reduce the available borrowings, to release certain vessels from the collateral pool, and to reduce certain covenant requirements. During fiscal 2007, the Partnership further amended the credit agreement to add additional bank participants, increase the available borrowings, amend certain financial covenants and reduce interest rates.

As of June 30, 2007, the credit agreement provided for available borrowings of $125,000, contained a $20,000 sublimit for letters of credit and allowed the Partnership to request an increase in the total borrowing availability by up to $25,000, up to a maximum of $150,000, so long as no default or event of default has occurred and is continuing. Obligations under the credit agreement are collateralized by a first priority security interest, subject to permitted liens, on certain of the Partnership's vessels having an orderly liquidation value equal to at least 1.25 times the amount of the obligations (including letters of credit) outstanding. Borrowings under the credit agreement bear interest, at the option of the Partnership, at a rate per annum equal to (a) the greater of the prime rate (7.25% and 8.25% at December 31, and June 30, 2007, respectively) and the federal funds rate (4.25% and 5.25% at December 31, and June 30, 2007, respectively) plus 0.5% (a "base rate loan"), or (b) the 30-day London Interbank Offered Rate, or LIBOR (4.60% and 5.32% at December 31, and June 30, 2007), plus a margin of 0.70% to 1.60% based upon the ratio of Total Funded Debt to EBITDA, as defined in

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the agreement. The Partnership also incurs commitment fees, payable quarterly, on the unused amount of the facility at a rate ranging from 0.15% to 0.30% based upon the ratio of Total Funded Debt to EBITDA, as defined in the agreement. As of June 30, 2007, outstanding borrowings under this facility totaled $94,350.

During the year, the Partnership also entered into a $5,000 revolver with a commercial bank to support its cash management activities. Advances under this facility bear interest at 30-day LIBOR plus a margin of 1.40%; amounts outstanding at June 30, 2007 totaled $2,721.

Term Loans and Capital Lease Obligations

Term loans and capital lease obligations outstanding at June 30, 2006 and 2007 and December 31, 2007 were as follows. Descriptions of these borrowings are included below:

		June 30,
		June 30,				December 31, 2007
		2006		2007		December 31, 2007
						(unaudited)
Term loans due:
	May 1, 2013.	$	79,696	$	75,923	$	73,950
	January 1, 2013		13,345		13,360		14,020
	June 1, 2014		5,430		20,321		19,595
	December 31, 2012		10,675		9,889		9,496
	March 24, 2008		10,656		9,821		9,404
	April 30, 2013		17,893		16,607		15,964
	November 4, 2008		—		23		15
	May 1, 2012		—		—		3,800
	August 1, 2018		—		—		18,874
	October 1, 2012		—		—		3,108
	March 31, 2009		5,881		—		—
	March 31, 2009		6,228		—		—
	Demand note		—		15,500		15,500
Capital lease obligations			1,670		1,272		1,391

Total term loans and capital lease obligations			151,474		162,716		185,117
	Less current portion		7,745		9,270		12,246

Long-term portion of term loans and capital lease obligations		$	143,729	$	153,446	$	172,871

On August 14, 2007 in connection with the acquisition of the Smith Maritime Group, the Partnership assumed two term loans totaling $23,511. The first, in the amount of $19,464, bears interest at LIBOR plus 1.25% and is repayable in equal monthly installments of $147 plus interest, through August 2018. The second, in the amount of $4,047, bears interest at LIBOR plus 1.0% and is repayable in monthly installments ranging from $59 to $81, plus interest, through May 2012. These loans are collateralized by three tank barges. The Partnership also agreed with the related lending institution to assume the two existing interest rate swaps relating to these two loans. The LIBOR-based, variable rate interest payments on these loans have been swapped for fixed payments at an average rate of 5.44%, plus a margin, over the same terms as the loans. Borrowings outstanding on these term loans were $22,674 (unaudited) at December 31, 2007.

On November 30, 2007, the Partnership entered into agreements with a financial institution to swap the LIBOR-based, variable rate interest payments on $104,850 of its credit agreement borrowings

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for fixed rates, for a term of three years. The fixed rates to be paid by the Partnership average 4.01% plus the applicable margin.

On April 3, 2006, the Partnership entered into an agreement with a lending institution under which the Partnership borrowed $80,000, for which it pledged six tugboats and six tank barges as collateral. The Partnership used the proceeds of these loans to repay indebtedness under its credit agreement. Borrowings are represented by six notes which have been assigned to other lending institutions. These loans bear interest at a rate equal to 30-day LIBOR plus 1.40%, and are repayable in 84 monthly installments with the remaining principal payable at maturity. The agreement contains certain prepayment premiums. Borrowings outstanding on these loans total $75,923 and $73,950 (unaudited) as of June 30 and December 31, 2007, respectively. Also on April 3, 2006, the Partnership entered into an agreement with the lending institution to swap the 30-day, LIBOR based, variable interest payments on the $80,000 of loans for a fixed payment at a rate of 5.2275%, over the same terms as the loans. This swap results in a fixed interest rate on the notes of 6.6275% for their seven-year term.

The swap contracts referred to above have been designated as cash flow hedges. Therefore, the unrealized gains and losses during fiscal 2007 and 2006 resulting from the change in fair value of the swap contracts have been reflected in other comprehensive income. The fair value of the swap contracts of $1,136 and $446 as of June 30, 2006 and 2007, respectively, is included in other assets in the consolidated balance sheet, and the fair value of the swap contract of $(5,302) (unaudited) as of December 31, 2007 is included in other liabilities in the consolidated balance sheet.

On December 19, 2005, one of the Partnership's subsidiaries entered into a seven year Canadian dollar term loan to refinance purchase of an integrated tug-barge unit. The proceeds of $13,000 were used to repay borrowings under the credit agreement which had been used to finance purchase of the unit. The loan bears interest at a fixed rate of 6.59%, is repayable in 84 monthly installments of CDN $136 with the remaining principal amount payable at maturity, and is collateralized by the related tug-barge unit and one other tank barge. Borrowings outstanding on this loan total $13,360 and $14,020 (unaudited) as of June 30 and December 31, 2007, respectively.

In May 2006, the Partnership entered into an agreement to borrow up to $23,000 to partially finance construction of two 28,000-barrel and one 100,000-barrel tank barges. The third and final vessel was delivered, and the note termed-out, during the fourth quarter of fiscal 2007. The loan bears interest at 30-day LIBOR plus 1.40%, and is repayable, plus accrued interest, over seven years, with the remaining principal amount payable at maturity. The loan is collateralized by the related tank barges and two other tank vessels. Borrowings outstanding on this loan total $20,321 and $19,595 (unaudited) at June 30 and December 31, 2007, respectively.

In March 2005, the Partnership entered into an agreement to borrow up to $11,000 to partially finance construction of a 100,000-barrel tank barge. The loan bears interest at 30-day LIBOR plus 1.05%, and is repayable in monthly principal installments of $66 with the remaining principal amount payable at maturity. The loan is collateralized by the related tank barge. Borrowings outstanding on this loan totaled $9,889 and $9,496 (unaudited) at June 30 and December 31, 2007, respectively.

In March 2005 the Partnership entered into a three-year term loan in the amount of $11,700. The loan bears interest at a fixed rate of 6.25% annually, and is repayable in monthly principal installments of $70 with the remaining principal amount payable at maturity. The loan is collateralized by three vessels and the proceeds were used to refinance an existing term loan. Borrowings outstanding on this loan total $9,821 and $9,404 (unaudited) at June 30 and December 31, 2007, respectively, and it is

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classified as a long-term liability because the Partnership intends to refinance it with its credit agreement.

In June 2005, the Partnership entered into an agreement to borrow up to $18,000 to finance the purchase of an 80,000-barrel double-hull tank barge and construction of two 28,000-barrel double-hull tank barges. The loan bears interest at 30-day LIBOR plus 1.71%, and is repayable in monthly principal installments of $107 with the remaining principal amount payable at maturity. The loan is collateralized by the related tank barges. Borrowings outstanding on this loan were $16,607 and $15,964 (unaudited) at June 30 and December 31, 2007, respectively.

In May 2004 and September 2006, EW LLC entered into term loans for $8,700 and $7,000, respectively. These loans bore interest, payable quarterly, at a rate of 8% per annum, plus a premium based upon the level of distributions paid by the Partnership to EW LLC. Principal was also payable quarterly based primarily upon the level of distributions paid to the members of EW LLC. The loans were collateralized by 2,082,500 Partnership units held by EW LLC. At June 30, 2006, borrowings outstanding on these term loans were $5,881 and $6,228, respectively. The term loans were repaid in April 2007.

In April 2007, EW LLC was issued a demand note for $15,500 to refinance term loans and subordinated notes payable. The note bears interest at one, two, three, six or twelve month LIBOR plus 0.6% and is repayable upon demand. Interest is payable monthly or quarterly based upon the LIBOR option. The note is collateralized by 900,000 Partnership units. Outstanding borrowings on the note were $15,500 at each of June 30, 2007 and December 31, 2007 (unaudited).

Subordinated notes payable

Subordinated notes payable include notes issued to the sellers of EW LLC's subsidiary companies, bearing interest at 9.5% annually, payable quarterly and which were repaid on March 31, 2007. The outstanding balance of these notes totaled $4,519 at June 30, 2006.

Title XI Bonds

On June 7, 2002, the EW LLC and its subsidiaries issued bonds aggregating $40,441, in four series, through a private placement for the purpose of providing long-term financing for the construction of four new double-hull tank vessels. The bonds were guaranteed by the Maritime Administration of the U.S. Department of Transportation pursuant to Title XI of the Merchant Marine Act of 1936 (the "Title XI bonds"). The liability for these bonds was contributed to the Partnership in connection with its initial public offering in January 2004. On November 29, 2005, the Partnership redeemed the outstanding $36,787 principal balance of Title XI bonds, paid $828 of accrued interest, and made a make-whole payment of $3,953 as required under the Trust Indenture. The Partnership funded the redemption using funds from its credit agreement. After writing off $2,702 in unamortized deferred financing costs relating to the Title XI bonds, and after costs and expenses relating to the transaction, the Partnership recorded a loss on reduction of debt of $6,898. Retirement of the Title XI bonds improved the Partnership's borrowing flexibility, and eliminated certain restrictive covenants, collateral requirements, and working capital constraints.

Restrictive Covenants

The agreements governing the credit agreement and the term loans contain restrictive covenants that, among others, (a) prohibit distributions under defined events of default, (b) restrict investments and sales of assets, and (c) require the Partnership to adhere to certain financial covenants, including defined ratios of fixed charge coverage and funded debt to EBITDA, as defined in the agreement.

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K-SEA GP HOLDINGS LP PREDECESSOR

NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per unit amounts)

Interest

Interest expense, net of amounts capitalized, and interest income, was as follows:

	For the Years Ended June 30,									For the Six Months Ended December 31,
	2005			2006			2007			2006			2007
										(unaudited)
Interest costs incurred	$	7,843		$	12,309		$	16,383		$	7,895		$	12,405
Less interest capitalized		570			471			738			288			673

Interest expense		7,273			11,838			15,645			7,607			11,732
Interest income		(95	)		(99	)		(47	)		(22	)		(67	)

Interest expense, net	$	7,178		$	11,739		$	15,598		$	7,585		$	11,665

The weighted average interest rate on the term loans was 6.8%, 6.6% and 6.5% (unaudited) at June 30, 2006 and 2007, and December 31, 2007, respectively, which debt is subject to prepayment fees. Interest payable totaled $1,124, $1,238 and $1,534 (unaudited) as of June 30, 2006 and 2007, and December 31, 2007, respectively, and is included in accrued expenses and other current liabilities in the consolidated balance sheets. At June 30, 2006 and 2007 and December 31, 2007, accounts payable included book overdrafts of $1,555, $2,022 and $3,176 (unaudited), respectively, representing outstanding checks.

Maturities of Long-Term Debt

As of June 30, 2007, maturities of long-term debt for each of the next five years were as follows:

2008	$	18,466
2009		8,957
2010		9,212
2011		103,874
2012		10,451

Common Unit Offerings

On October 14, 2005, the Partnership closed a public offering of 950,000 common units. Net proceeds of $33,060 from the offering, after payment of underwriting discounts and commissions but before payment of expenses associated with the offering, were used to repay borrowings under the Partnership's credit agreement. On June 1, 2005, the Partnership issued and sold 500,000 common units in a private placement for proceeds of $16,000, before expenses associated with the offering. The proceeds were used to repay indebtedness incurred under the Partnership's credit agreement in connection with its December 2004 vessel acquisition.

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Note 6: Income Taxes

The components of the provision for income taxes for the fiscal years ended June 30, 2005, 2006 and 2007 are as follows:

		2005			2006		2007
Current:
	Federal	$	32		$	6		119
	State and local		206			46		97
	Foreign		90			312		330

			328			364		546

Deferred:
	Federal		(162	)		263		352
	State and local		264			140		182
	Foreign		—			34		25

			102			437		559

Provision for income taxes		$	430		$	801	$	1,105

A reconciliation of income tax expense, as computed using the federal statutory income tax rate of 34%, to the Predecessor provision for income taxes for the fiscal years ended June 30, 2005, 2006 and 2007 is as follows:

		2005			2006			2007
Tax at federal statutory rate of 34%		$	5,446		$	5,042		$	8,791
Entities not subject to federal income taxes			(5,555	)		(4,544	)		(8,299	)
State and local income taxes, net of federal benefit			470			186			279
Foreign taxes, in excess of U.S. federal tax rate			188			318			340
Valuation allowance			201			(201	)		—
Other			(320	)		—			(6	)

	Total	$	430		$	801		$	1,105

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Significant components of deferred income tax liabilities and assets as of June 30, 2006 and 2007 are as follows:

			2006		2007
Deferred tax liabilities:
	Book basis of vessels and equipment in excess of tax basis		$	3,786	$	4,461
	Book basis of investments in excess of tax basis			13,966		14,029

		Total deferred tax liabilities	$	17,752	$	18,490

Deferred tax assets:
	Allowance for doubtful accounts		$	30	$	58
	Accrued expenses			467		898
	Net operating loss carry-forwards			6,540		6,222
	Alternative minimum tax carryforward credits			1,504		1,521
	Other			29		36

		Total deferred tax assets	$	8,570	$	8,735

The Partnership had temporary differences at June 30, 2007 primarily related to the excess of the book basis of vessels and equipment over the related tax basis in the amount of $121,508. EW LLC had temporary differences at June 30, 2007 primarily related to the excess of book basis of investments over the related tax basis in the amount of $63,101. These amounts will result in taxable income, in the years these differences reverse, that will be included in the overall allocation of taxable income to the unitholders of the Partnership and the Company, respectively.

At June 30, 2007, the Partnership had New York City Unincorporated Business Tax net operating losses of $2,026 and its corporate subsidiaries had state net operating losses of $29 which begin to expire in 2011, and foreign net operating losses of $1,886 which begin to expire in 2016. At June 30, 2007, EW LLC had New York City Unincorporated Business Tax net operating losses of $1,181. EW LLC's corporate subsidiaries had federal net operating losses of $15,844 which begin to expire in 2011, and state and local net operating losses of $16,093 which begin to expire in 2011.

Note 7: Commitments and Contingencies

The Partnership leases its New York office and pier facilities from an affiliate of an employee under an agreement which extends through April 2009. Terms of the agreement provide for annual rental payments of $400 annually through April 2009. Rent expense was $400 for the fiscal years ended June 30, 2005, 2006 and 2007 and $200 (unaudited) for the six months ended December 31, 2006 and 2007. In addition, a subsidiary of the Partnership leases office and pier facilities and a water treatment facility in Virginia under an agreement with a third party that extends through January 2010. The Virginia lease agreement requires annual rental payments of $250 through January 8, 2010. The subsidiary receives $84 from sublease of a portion of the Virginia property which extends to December 31, 2009. The subsidiary has an option to buy the Virginia premises for an aggregate purchase price of $4,200. Rent expense, net of the sublease, for the fiscal years ended June 30, 2005, 2006 and 2007 and for the six months ended December 31, 2006 and 2007 was $97, $166, $166, $83

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(unaudited) and $83 (unaudited), respectively. The Partnership and subsidiary are also responsible for real estate taxes, insurance and all other costs associated with occupying these properties. Effective July 1, 2006, the Partnership also leased office space in New Jersey under an agreement that extends through December 2013. The New Jersey lease required rental payments totaling $18 through December 2006, followed by annual rental payments of $234 through December 2008, $245 through December 2010 and $254 through December 2013. Rent expense was $220, $97 (unaudited) and $121 (unaudited) for the fiscal year ended June 30, 2007 and for the six months ended December 31, 2006 and 2007, respectively.

The Partnership has agreements with the port authority in Seattle, Washington covering the lease of terminal facilities and docking rights for its vessels. The lease expires in October 2008 with a renewal option for one additional five-year term. The lease requires monthly payments of $26 with escalation each year based on the consumer price index. Rent expense for the years ended June 30, 2006 and 2007 and for the six months ended December 31, 2006 and 2007 was $208, $265, $156 (unaudited) and $157 (unaudited), respectively. Additionally, the Partnership leases four barges under non-cancelable operating leases which expire in August 2007 through August 2009. The future minimum lease payments for the four barge operating leases as of June 30, 2007 are as follows:

Year ending June 30,
2008		$	1,927
2009			1,323
2010			83
2011			—
2012 and thereafter			—

	Total	$	3,333

Charter expenses were $2,092, $2,995, $1,502 (unaudited) and $1,465 (unaudited) for the barge operating leases for the years ended June 30, 2006 and 2007, and the six months ended December 31, 2006 and 2007, respectively.

Included in total revenues are time charter and bareboat charter revenues of $21,747, $60,582, $105,621, $51,417 (unaudited) and $79,449 (unaudited) for the fiscal years ended June 30, 2005, 2006 and 2007 and for the six months ended December 31, 2006 and 2007, respectively. Such revenues include $513 for the fiscal years ended June 30, 2005, 2006 and 2007 and $258 (unaudited) for the six months ended December 31, 2006 and 2007 related to vessels chartered to an affiliate of an employee. The Partnership also utilizes such affiliate for tank cleaning services at a cost of $2,318, $1,609, $1,894, $973 (unaudited) and $776 (unaudited) for the years ended June 30, 2005, 2006 and 2007 and for the six months ended December 31, 2006 and 2007, respectively. The Partnership's time charters and bareboat charters extend over various periods which expire between 2008 and 2012.

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At June 30, 2007, minimum contractually agreed future revenue under time and bareboat charters was as follows:

Year ending June 30,
2008		$	85,483
2009			19,729
2010			5,528
2011			5,528
2012 and thereafter			3,241

	Total	$	119,509

The Partnership has entered into employment agreements with certain of its executive officers. Each of the employment agreements had an initial term of one year, which is automatically extended for successive one-year terms unless either party gives 30-days written notice prior to the end of the term that such party desires not to renew the employment agreement. The employment agreements currently provide for annual base salaries aggregating $930. In addition, each employee is eligible to receive an annual bonus award based upon the performance of the Partnership and individual performance. If the employee's employment is terminated without cause or if the employee resigns for good reason, the employee will be entitled to severance in an amount equal to the greater of (a) the product of 1.3125 (1.75 multiplied by .75) multiplied by the employee's base salary at the time of termination or resignation and (b) the product of 1.75 multiplied by the remaining term of the employee's non-competition provisions multiplied by the employee's base salary at the time of termination or resignation.

The European Union is currently working toward a new directive for the insurance industry, called "Solvency 2", that is expected to become law within four to five years and require increases in the level of free, or unallocated, reserves required to be maintained by insurance entities, including protection and indemnity clubs that provide coverage for the maritime industry. The West of England Ship Owners Insurance Services Ltd. ("WOE"), a mutual insurance association based in Luxembourg, provides the Partnership's protection and indemnity insurance coverage and would be impacted by the new directive. In anticipation of these new regulatory requirements, the WOE has assessed its members an additional capital call which it believes will contribute to achievement of the projected required free reserve increases. The Partnership's capital call of $1,119 was paid during the calendar year 2007. A further request for capital may be made in the future; however, the amount of such further assessment, if any, cannot be reasonably estimated at this time. As a shipowner member of the WOE, the Partnership has an interest in the WOE's free reserves, and therefore has recorded the additional $1,119 capital call as an investment, at cost, subject to periodic review for impairment. This amount is included in other assets in the June 30, 2007 and December 31, 2007 balance sheets.

EW Transportation Corp., a subsidiary of EW LLC, and many other marine transportation companies operating in New York have come under audit with respect to the New York State Petroleum Business Tax ("PBT"), which is a tax on vessel fuel consumed while operating in New York State territorial waters. An industry group in which EW Transportation Corp. and the Partnership participate has come to a final agreement with the New York taxing authority on a calculation

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methodology for the PBT. Effective January 1, 2007, the Partnership and the other marine transportation companies began rebilling this tax to customers. For applicable periods prior to 2007, the Partnership accrued an estimated liability using the agreed methodology, which is currently under final audit by the New York Taxing Authority. In accordance with the agreements entered into in connection with the Partnership's initial public offering, any liability resulting from the PBT prior to January 14, 2004 (the effective date of the initial public offering) is a retained liability of EW Transportation Corp. The New York taxing authority has completed an audit of all open periods and has issued a proposed assessment which has been substantially accepted by EW Transportation Corp. and the Partnership. EW Transportation Corp's final liability has been paid in January 2008. The Partnership's final liability is not materially different from the accruals previously recorded and will be paid during the quarter ended March 31, 2008.

As discussed in note 4, one of the Partnership's tank barges struck submerged debris in the U.S. Gulf of Mexico, causing significant damage which resulted in the barge eventually capsizing. At the time of the incident, the barge was carrying approximately 120,000 barrels of No. 6 fuel oil, a heavy oil product. In January 2006, submerged oil recovery operations were suspended and a monitoring program, which sought to determine if any recoverable oil could be found on the ocean floor, was begun. In February 2007, the Coast Guard agreed to end the cleanup and response phase, including the Partnership's obligation to conduct any further monitoring of the area around the spill site. The Partnership's incident response effort is complete. The Partnership is not aware of any further recovery, cleanup or other costs. However, if any such costs are incurred, they are expected to be paid by the insurers.

The Partnership's insurers responded to the pollution-related costs and environmental damages resulting from the incident, paying approximately $65,000 less $60 in total deductibles, and are pursuing their own financial recovery efforts. In December 2007, a court made a final determination of liability in this case, resulting in a financial recovery by KSP's insurers, and also by KSP. As a result of the ruling, KSP was awarded a reimbursement of certain expenses totaling $2,073, which has been included in other expense (income) in the consolidated statement of operations and in prepaid expenses and other assets in the December 31, 2007 consolidated balance sheet. This amount was received in January 2008.

The Predecessor is the subject of various claims and lawsuits in the ordinary course of business for monetary relief arising principally from personal injuries, collisions and other casualties. Although the outcome of any individual claim or action cannot be predicted with certainty, the Predecessor believes that any adverse outcome, individually or in the aggregate, would be substantially mitigated by applicable insurance or indemnification from previous owners of the Predecessor's assets, and would not have a material adverse effect on the Predecessor's financial position, results of operations or cash flows. The Predecessor is also subject to deductibles with respect to its insurance coverage that range from $25 to $100 per incident and provides on a current basis for estimated payments thereunder.

Note 8: Long-Term Incentive Plan

In January 2004, the General Partner adopted the K-Sea Transportation Partners L.P. Long-Term Incentive Plan (the "Plan") for directors and employees of the General Partner and its affiliates. The Plan currently permits the grant of awards covering an aggregate of 440,000 common units in the form

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of restricted units and unit options and is administered by the Compensation Committee of the Board of Directors of the General Partner. The Board of Directors of the General Partner, in its discretion, may terminate the Plan at any time with respect to any restricted units for which a grant has not yet been made, and also reserves the right to alter or amend the Plan from time to time, including increasing the number of common units with respect to which awards may be granted subject to unitholder approval as required by the New York Stock Exchange. No change in any outstanding grant may be made, however, which would materially impair the rights of the participant without the consent of such participant. Subject to certain exceptions, restricted units are subject to forfeiture if employment is terminated prior to vesting. As the restricted units vest, the General Partner has the option to either acquire common units in the open market for delivery to the recipient or distribute newly issued common units from the Partnership. In all cases, the General Partner is reimbursed by the Partnership for such expenditures.

Unit compensation expense amounted to $413, $652, $1,007, $486 (unaudited) and $680 (unaudited) for the years ended June 30, 2005, 2006 and 2007 and for the six months ended December 31, 2006 and 2007, respectively. As of June 30, 2007, there was $2,014 of unamortized compensation cost related to non-vested restricted units, which is expected to be recognized over a remaining weighted-average vesting period of 2.7 years. A summary of the status of the Partnership's restricted unit awards as of June 30, 2006 and 2007 and December 31, 2007, and of changes in restricted units outstanding under the Plan during the year ended June 30, 2007 and the six months ended December 31, 2007, is as follows:

Restricted unit awards outstanding at June 30, 2006	$	94,350		$	31.97
Units granted		5,422		$	32.13
Units vested and issued		(22,900	)	$	31.89

Restricted unit awards outstanding at June 30, 2007		76,872		$	32.01
Units granted (unaudited)		48,912		$	43.02
Units vested and issued (unaudited)		(20,650	)	$	32.00

Restricted unit awards outstanding at December 31, 2007 (unaudited)	$	105,134		$	37.13

Note 9: Retirement Plans

Effective June 29, 2006, the Partnership's money purchase pension plan was terminated and all the assets were merged into the Partnership's 401(k) Savings Plan (the "Savings Plan"). Also effective June 29, 2006, Sea Coast's defined contribution plan (see below) was terminated and all the assets were merged into the Savings Plan. The Savings Plan is a defined contribution plan that qualifies under Section 401(k) of the Internal Revenue Code. The Savings Plan covers all eligible employees. The Savings Plan provides that eligible employees may make contributions, subject to Internal Revenue Code limitations, and the Partnership will match the first two percent of employee compensation contributed, subject to a maximum amount. In addition, the Savings Plan allows for an annual discretionary employer contribution up to five percent of an employee's annual compensation. Employer contribution expense under the Savings Plan totaled $2,981, $1,511 (unaudited) and $1,874

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(unaudited) for the year ended June 30, 2007 and for the six months ended December 31, 2006 and 2007. The Savings Plan expenses for the fiscal years ended June 30, 2006 and 2005, which excluded the money purchase pension plan and the Sea Coast defined contribution plan, totaled $499 and $443, respectively.

Under the terms of the money purchase pension plan, the Partnership contributed five percent of each eligible employee's annual compensation, as defined in the plan document. For the money purchase plan, expenses totaled $1,127 and $1,000 for the fiscal years ended June 30, 2006 and 2005, respectively.

In connection with the purchase of Sea Coast in October 2005, the Partnership acquired an additional defined contribution plan that qualified under Section 401(k) of the Internal Revenue Code. The plan covered all eligible employees and provided that eligible employees may make contributions, subject to Internal Revenue Code limitations, and the Partnership would match the first 25% of employee compensation contributed, up to a maximum of 4%. In addition, the plan allowed for an annual discretionary employer contribution up to 4% of an employee's annual compensation. Employer contribution expenses under this plan totaled $372 from the acquisition date through June 30, 2006.

Accrued expenses for all pension plans totaled $1,251, $2,173 and $3,474 (unaudited) as of June 30, 2006 and 2007 and December 31, 2007, respectively, and are included in accrued expenses and other current liabilities in the consolidated balance sheets. Additionally, accrued expenses for payroll-related costs totaled $3,048, $2,989 and $3,671 (unaudited) as of June 30, 2006 and 2007 and December 31, 2007, respectively, which are also included in accrued expenses and other current liabilities in the consolidated balance sheets.

Note 10: Major Customers

Two customers accounted for 26% and 16% of consolidated revenues for the fiscal year ended June 30, 2005, two customers accounted for 20% and 15% of consolidated revenues for the fiscal year ended June 30, 2006, and two customers accounted for 19% and 17% of consolidated revenues for the fiscal year ended June 30, 2007. Two customers accounted for 18% (unaudited) each of consolidated revenues for the six months ended December 31, 2006, and two customers accounted for 16% (unaudited) and 12% (unaudited) of consolidated revenues for the six months ended December 31, 2007.

Note 11: Fair Value of Financial Instruments

As of June 30, 2007, the fair value of long-term debt was approximately $259,185 based on the borrowing rates currently available to the Predecessor for bank loans with similar terms and average maturities. The fair value of the Predecessor's other financial instruments approximated their cost bases as such instruments are short-term in nature or were recently negotiated.

Note 12: New Accounting Pronouncements

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Changes in Interim Financial Statements" and changes the requirements for the accounting for and reporting of a change in accounting principle. FAS 154 applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. The Predecessor adopted FAS 154 as of July 1, 2006, and such adoption did not have a significant impact on its financial position, results of operations or cash flows.

On February 16, 2006 the FASB issued FASB Statement No. 155, "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140" ("FAS 155"). FAS 155 amends FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" and FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The Predecessor adopted FAS 155 as of July 1, 2007, and such adoption did not have any impact on its financial position, results of operations or cash flows.

In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes". FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Predecessor adopted FIN 48 as of July 1, 2007, and such adoption had no impact on its financial position, results of operations or cash flows.

At the date of the adoption, there were no material unrecognized tax benefits and consequently no related interest and penalties. The significant jurisdictions in which the Predecessor files tax returns and is subject to tax include New York City, Venezuela and Puerto Rico. The significant jurisdictions in which the Predecessor's corporate subsidiaries file tax returns and are subject to tax include the United States, Canada, New York, New Jersey and Virginia. The tax returns filed in the United States and state jurisdictions are subject to examination for the years 2004 through 2007 and in foreign jurisdictions for the years 2005 through 2007. The Predecessor has adopted a policy to record tax related interest and penalties under interest expense and general and administrative expenses, respectively.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB 108"). SAB 108 provides guidance on quantifying and evaluating the materiality of unrecorded misstatements. SAB 108 does not require prior period

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restatement as a result of adopting the new guidance if management properly applied its previous approach to assessing unrecorded misstatements and all relevant qualitative factors were considered. The cumulative effect of the initial application of SAB 108, if any, would be reported in the carrying amounts of assets and liabilities at the beginning of the year, with an offsetting adjustment to the beginning balance of retained earnings. The nature and amount of each of the individual misstatements corrected would be required to be disclosed. SAB 108 is effective for the first fiscal year ending after November 15, 2006. The Predecessor adopted SAB 108 for the fiscal year ended June 30, 2007, and such adoption did not have a significant impact on its financial position, results of operations or cash flows.

In December 2007, the FASB issued FASB Statement No. 141 (revised 2007), "Business Combinations" ("FAS 141(R)") which replaces FAS No. 141, "Business Combinations". FAS 141(R) retains the underlying concepts of FAS 141 in that all business combinations are still required to be accounted for at fair value under the purchase method of accounting, but FAS 141(R) changed the method of applying the purchase method in a number of significant aspects. FAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first fiscal year subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. FAS 141(R) amends FAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of FAS 141(R) would also apply the provisions of FAS 141(R). The Predecessor is currently analyzing the impact, if any, of this standard.

In December 2007, the FASB issued FASB Statement ("FAS") No. 160, "Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB 51" ("FAS 160"). FAS 160 amends ARB 51 to establish new standards that will govern the accounting for and reporting of (1) non-controlling interest in partially owned consolidated subsidiaries and (2) the loss of control of subsidiaries. FAS 160 is effective on a prospective basis for all fiscal years, and interim periods within those fiscal years beginning, on or after December 15, 2008, except for the presentation and disclosure requirements, which will be applied retrospectively. The Predecessor is currently analyzing the impact, if any, of this standard.

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Report of Independent Auditors

To K-Sea Transportation Partners L.P.:

In our opinion, the accompanying combined balance sheets and the related combined statements of operations, of members' equity and of cash flows present fairly, in all material respects, the financial position of the Smith Maritime Group at December 31, 2006 and December 31, 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
September 13, 2007

F-44

THE SMITH MARITIME GROUP

COMBINED BALANCE SHEETS

(in thousands)

							June 30,
			December 31,				June 30,
			December 31,				2007 (unaudited)
			2005		2006		2007 (unaudited)
Assets
Current Assets
	Cash and cash equivalents		$	20,445	$	19,457	$	15,848
	Accounts receivable, net			3,611		4,876		4,861
	Prepaid expenses and other current assets			692		611		1,524

		Total current assets		24,748		24,944		22,233
	Vessels and equipment, net			57,678		62,966		68,617
	Construction in progress			9,037		12,934		18,095
	Other assets			245		366		368

		Total assets	$	91,708	$	101,210	$	109,313

Liabilities and Members' Equity
Current Liabilities
	Current portion of long-term debt		$	3,193	$	22,774	$	21,774
	Accounts payable			2,962		3,279		3,615
	Accrued expenses and other current liabilities			3,381		3,547		3,540
	Deferred revenue			1,696		2,107		2,499

		Total current liabilities		11,232		31,707		31,428
	Term loans and capital lease obligation			26,184		12,622		11,541
	Other long-term liabilities			46		527		127

		Total liabilities		37,462		44,856		43,096
Commitments and contingencies
Members' equity				54,246		56,354		66,217

		Total liabilities and members' equity	$	91,708	$	101,210	$	109,313

See accompanying notes to consolidated financial statements.

F-45

THE SMITH MARITIME GROUP

COMBINED STATEMENTS OF OPERATIONS

(in thousands)

											For the Six Months Ended June 30,
		For the Years Ended December 31,									For the Six Months Ended June 30,
		For the Years Ended December 31,									2006 (unaudited)			2007 (unaudited)
		2004			2005			2006			2006 (unaudited)			2007 (unaudited)
Voyage revenue		$	36,936		$	42,241		$	48,175		$	21,621		$	24,459
Bareboat charter and other revenue			3,937			3,410			4,130			2,170			3,999

	Total revenues		40,873			45,651			52,305			23,791			28,458

Voyage expenses			3,748			4,195			5,355			2,518			3,015
Vessel operating expenses			14,711			16,917			19,951			9,560			9,917
General and administrative expenses			4,943			6,113			5,793			2,710			3,822
Depreciation and amortization			4,841			6,076			6,280			3,018			3,366
Net (gain) loss on sale of vessels			(740	)		436			(1,379	)		(778	)		(2,580	)

	Total operating expenses		27,503			33,737			36,000			17,028			17,540

	Operating income		13,370			11,914			16,305			6,763			10,918
Interest expense, net			2,724			2,307			2,090			980			1,231
Other (income) expense, net			438			(420	)		309			(411	)		(682	)

	Net income		10,208			10,027			13,906			6,194			10,369

See accompanying notes to consolidated financial statements.

F-46

THE SMITH MARITIME GROUP

COMBINED STATEMENT OF MEMBERS' EQUITY

(in thousands)

	Total Members' Equity
Balance of Members' Equity at January 1, 2004	$	39,995
Net income		10,208
Distributions		(2,931	)

Balance of Members' Equity at December 31, 2004		47,272
Net income		10,027
Distributions		(3,054	)
Capital contributions		1

Balance of Members' Equity at December 31, 2005		54,246
Net income		13,906
Distributions		(11,798	)

Balance of Members' Equity at December 31, 2006		56,354
Net income (unaudited)		10,369
Distributions (unaudited)		(506	)

Balance of Members' Equity at June 30, 2007 (unaudited)	$	66,217

See accompanying notes to consolidated financial statements.

F-47

THE SMITH MARITIME GROUP

COMBINED STATEMENTS OF CASH FLOWS

(in thousands)

				For the Years Ended December 31									For the Six Months Ended June 30,
				2004			2005			2006			2006 (unaudited)			2007 (unaudited)
Cash flows from operating activities:
	Net income			$	10,208		$	10,027		$	13,906		$	6,194		$	10,369
	Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				4,841			6,076			6,280			3,018			3,366
	Provision for doubtful accounts				165			96			88			96			—
	Loss (gain) on interest rate swap				485			(440	)		444			(309	)		(379	)
	Net (gain) loss on sale of vessels				(740	)		436			(1,379	)		(778	)		(2,580	)
	Changes in operating working capital:
		Accounts receivable			910			1,497			(1,353	)		11			99
		Prepaid expenses and other current assets			(17	)		(337	)		80			62			64
		Accounts payable			407			(198	)		318			139			335
		Accrued expenses and other current liabilities			519			562			275			186			(459	)
		Deferred revenue			1,100			(607	)		411			446			392
		Other assets			(78	)		58			(135	)		(85	)		(54	)

			Net cash provided by operating activities		17,800			17,170			18,935			8,980			11,153

Cash flows from investing activities:
	Vessel acquisitions				(15,392	)		(4	)		—			—			—
	Construction of tank vessels				(7,900	)		(8,905	)		(14,024	)		(12,971	)		(12,499	)
	Capital expenditures				(2,715	)		(824	)		(1,628	)		(538	)		(1,932	)
	Net proceeds on disposal of vessels				3,117			46			1,582			902			2,850
	Other				—			—			36			50			14

			Net cash used in investing activities		(22,890	)		(9,687	)		(14,034	)		(12,557	)		(11,567	)

Cash flows from financing activities:
	Borrowings on related-party demand notes				26			70			(58	)		(24	)		14
	Proceeds from issuance of long-term debt				14,000			5,600			9,749			9,292			—
	Payments on related party demand notes				(6	)		(123	)		(69	)		(69	)		(678	)
	Financing costs paid				(20	)		—			—			—			—
	Payments of term loans and capital lease obligations				(3,390	)		(9,796	)		(3,731	)		(1,892	)		(2,165	)
	Capital contributions				—			1			—			—			—
	Distributions to members				(2,931	)		(3,054	)		(11,780	)		(292	)		(366	)

			Net cash provided by (used in) financing activities		7,679			(7,302	)		(5,889	)		7,015			(3,195	)

Cash and cash equivalents:
	Net increase (decrease)				2,589			181			(988	)		3,438			(3,609	)
	Balance at beginning of period				17,675			20,264			20,445			20,445			19,457

			Balance at end of period	$	20,264		$	20,445		$	19,457		$	23,883		$	15,848

Supplemental disclosure of cash flow information:
	Cash paid during the year for:
		Interest		$	3,432		$	4,059		$	4,539		$	1,790		$	2,494

Supplemental disclosure of non-cash investing and financing activities:
	Note payable issued in lieu of member distributions			$	—		$	—		$	18		$	—		$	140

See accompanying notes to consolidated financial statements.

F-48

THE SMITH MARITIME GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

(dollars in thousands)

Note 1: The Combined Companies

The Smith Maritime Group includes a) Smith Maritime, Ltd., a Hawaii corporation and its wholly owned subsidiaries Hawaiian InterIsland Towing, Inc., Tow Boat Services & Management, Inc., Uaukewai Diving, Salvage & Fishing, Inc. and Marine Logistics, Inc. and Go Big Chartering, LLC, a Washington limited liability company (collectively "Smith"), which are engaged in the marine transportation of refined petroleum products and related businesses along the West Coast of the United States and Hawaii, and b) Sirius Maritime, LLC, a Washington limited liability company ("Sirius"), is engaged in the marine transportation of refined petroleum products in the Western and Northeastern United States.

On June 25, 2007 K-Sea Transportation Partners, L.P. ("K-Sea"), through certain wholly owned subsidiaries, entered into agreements to acquire all of the equity interests in Smith and Sirius.

Note 2: Summary of Significant Accounting Policies

Basis of Presentation. These financial statements include the combined results of operations for Smith and Sirius (collectively, the "Companies") for the periods presented. All material inter-company transactions and balances have been eliminated in combination.

Interim Financial Data. The interim financial data are unaudited. However, in the opinion of management, the interim financial data as of June 30, 2007 and for the six months ended June 30, 2007 and 2006 includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the financial results for such interim periods. The results of operations for interim periods are not necessarily indicative of the results of operations to be expected for a full year.

Cash and Cash Equivalents. The Companies consider all highly liquid investments with original maturities of three months or less to be cash equivalents.

Vessels and Equipment. Vessels and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the individual assets as follows: marine vessels—ten to thirty years; and pier and office equipment—five to ten years. Major renewals and betterments of assets are capitalized and depreciated over the remaining useful lives of the assets. Leasehold improvements are capitalized and depreciated over the shorter of their useful lives or the remaining term of the lease. Maintenance and repairs that do not improve or extend the useful lives of the assets, including mandatory drydocking expenditures, are expensed. When property items are retired, sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts with any gain or loss on the dispositions included in income. Assets to be disposed of are reported at the lower of their carrying amounts or fair values, less the estimated costs of disposal.

Deferred Revenue. Deferred revenue arises as a normal part of business from advance billings under charter agreements. Revenue is recognized ratably over the contract period.

Revenue Recognition. The Companies earn revenue under voyage charters, time charters and bareboat charters. For voyage charters, revenue is recognized based upon the relative transit time in each period, with expenses recognized as incurred. Although certain voyage charters may be effective for a period in excess of one year, revenue is recognized over the transit time of individual voyages, which are generally less than ten days in duration. For time charters and bareboat charters, revenue is

F-49

recognized ratably over the contract period, with expenses recognized as incurred. Estimated losses on contracts of affreightment and charters are accrued when such losses become evident.

Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. The most significant estimates relate to depreciation of the vessels, the allowance for doubtful accounts and valuation of contingent liabilities. Actual results could differ from these estimates.

Concentrations of Credit Risk. Financial instruments which potentially subject the Companies to concentrations of credit risk are primarily cash and cash equivalents and trade accounts receivable. The Companies maintain its cash and cash equivalents on deposit at a financial institution in amounts that, at times, may exceed insurable limits. With respect to accounts receivable, the Companies extend credit based upon an evaluation of a customer's financial condition and generally do not require collateral. The Companies maintain an allowance for doubtful accounts for potential losses, totaling $474, $500 and $474 (unaudited) at December 31, 2006 and 2005, and June 30, 2007 respectively, and do not believe they are exposed to concentrations of credit risk that are likely to have a material adverse effect on financial position, results of operations or cash flows. For the years ended December 31, 2006, 2005 and 2004, and for the six months ended June 30, 2007 and 2006, the Companies' allowance for doubtful amounts was impacted by additional charges of $88, $96, $165, $0 (unaudited) and $96 (unaudited), and write-offs of $115, $41, $0, $0 (unaudited) and $0 (unaudited), respectively.

Derivative instruments. The Companies utilize derivative financial instruments to reduce interest rate risks. The Companies do not hold or issue derivative financial instruments for trading purposes. Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), as amended, establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. Changes in fair value of those instruments are reported in earnings or other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. The accounting for gains and losses associated with changes in the fair value of the derivative and the effect on the financial statements will depend on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in fair value of cash flows of the asset or liability hedged.

Fair value information. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and demand notes payable approximate fair value due to the short term nature of these instruments. The revolving loan and term loan with the Bank of America which are carried at cost, which approximate fair value because the interest rates on such loans are based on floating rates identified by reference to market rates. The fair value of the term loan with GE Capital approximates cost based on the borrowing rates currently available for bank loans with similar terms and average maturities. The fair value of the Companies swap agreements reflects the estimated amounts that the Companies would receive or pay to terminate the contracts at December 31, 2006.

F-50

Income Taxes. The Companies are not tax paying entities for federal income tax purposes and thus no income tax expense has been recorded in the financial statements. Income of the Companies are taxable to the members in their respective member returns.

Note 3: Vessels and Equipment and Construction in Progress

At December 31, 2006 and 2005, and June 30, 2007, vessels and equipment and construction in progress comprised the following:

	December 31, 2005		December 31, 2006		June 30, 2007 (unaudited)
Vessels	$	91,358	$	102,861	$	109,098
Pier and office equipment		1,610		939		942

		92,968		103,800		110,040
Less accumulated depreciation and amortization		35,290		40,834		41,423

Vessels and equipment, net	$	57,678	$	62,966	$	68,617

Construction in progress	$	9,037	$	12,934	$	18,095

Depreciation and amortization of vessels and equipment for the years ended December 31, 2006, 2005 and 2004, and for the six months ended June 30, 2007 and 2006, was $6,263, $6,043, $4,810, $3,349 (unaudited) and $3,002 (unaudited), respectively.

On June 30, 2006, Sirius took delivery of the vessel "Deneb", an 80,000-barrel tank barge. The total cost to construct the vessel amounted to $10,349.

Restricted Cash. In September 2001, Smith entered into a Capital Construction Fund Agreement ("Agreement") with the United States of America, administered by the Maritime Administration of the Department of Transportation. Capital Construction Funds were established under the Merchant Marine Act of 1936 (the "Act"), and permitted Smith to make contributions from earnings of eligible vessels into a separate fund for the purpose of funding the acquisition, construction and/or reconstruction of vessels to be operated in the United States, Great Lakes, or noncontiguous domestic trades. Such contributions are deductible by Smith's owners for purposes of determining taxable income. Funding is deposited into a separate bank account, subject to reporting and withdrawal rules under the Act, and is invested in cash or cash equivalent accounts. Withdrawals are made to fulfill the vessel construction objectives set out in the Agreement. Restricted cash as of December 31, 2006 and 2005, and June 30, 2007 was $32, $18, and $18 (unaudited), respectively, and is included in other assets in the combined balance sheet.

F-51

Note 4: Financing

Term Loans and Capital Lease Obligation

Term loans and capital lease obligations outstanding at December 31, 2006 and 2005, and June 30, 2007 were as follows. Descriptions of these borrowings are included below:

	December 31, 2005		December 31, 2006		June 30, 2007 (unaudited)
Revolving loan—Bank of America	$	12,133	$	20,629	$	19,610
Term loan—Bank of America		5,218		4,526		4,169
Term loan—GE Capital		4,215		3,681		3,360
Term loan—Safeco		562
Capital lease obligation—Fuel Transport Co.		6,433		5,976		5,720
Capital lease obligation—Bank of Hawaii		816		584		456

		29,377		35,396		33,315
Less current portion		3,193		22,774		21,774

	$	26,184	$	12,622	$	11,541

On August 5, 2004, Sirius entered into a term loan agreement with Bank of America. The balance was payable in monthly installments of $117 plus interest at the British Bankers' Association London Interbank Offered Rate, or LIBOR, plus a margin of 1.9% and a maturity date of August 14, 2014. The loan was collateralized by one vessel ("Leo") owned by Smith. On June 2, 2004, Sirius entered into an agreement with Bank of America to swap the one-month, US dollar LIBOR based, variable interest rate payments on $14,000 of loans for a fixed payment rate of 4.86% over the same term as the loan. This swap resulted in a fixed interest rate of 6.76%.

On June 27, 2006, Sirius amended its credit agreement with Bank of America. The agreement was amended to provide additional funding for the construction cost of the vessel "Deneb" and provided for a reducing revolving loan with an initial balance of $21,066. Sirius had a balance outstanding on the note in the amount of $20,629 and $19,610 (unaudited) at December 31, 2006 and June 30, 2007, respectively. The balance is payable in 142 monthly installments of $146, plus interest at LIBOR plus a margin of 1.15% to 1.30% based upon the ratio of total funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA), as defined by the agreement. Sirius interest adjusted LIBOR rate was 6.62%, 5.69% and 6.62% (unaudited) at December 31, 2006 and 2005, and June 30, 2007, respectively. Additional borrowings are available at Sirius' request and upon the lender's approval through August 1, 2018. The loan is collateralized by three vessels ("Altair", "Antares" and "Deneb") owned by Sirius and one vessel ("Leo") owned by Smith. Sirius has a standby letter of credit in the amount of $50 with Bank of America related to a customs bond.

On July 24, 2006, Sirius entered into an agreement with Bank of America to swap the one-month, U.S. dollar LIBOR based, variable interest payments on $20,800 of loans for a fixed payment at a rate of 5.56%, over the same term as the loan. This swap will result in a fixed interest rate on the note of 6.71% to 6.86% depending on Sirius' total funded debt to EBITDA ratio. The fair value of the swap contract, a liability in the amount of $527, $46, and $127 (unaudited) at December 31, 2006 and 2005 and at June 30, 2007, is classified as noncurrent under other liabilities since management does not

F-52

intend to settle it during 2007. The unrealized gain (loss) of $(481), $440, $(485), $400 (unaudited), and $309 (unaudited) related to the change in fair value of the swap contract for the years ended December 31, 2006, 2005 and 2004 and for the six months ended June 30, 2007 and 2006 have been included under other income (expense), net in these financial statements.

On March 23, 2005, Smith entered into a term loan agreement with Bank of America. The balance is payable in 84 monthly installments ranging from $53 to $81, plus interest at LIBOR plus a margin of 1.00%. The LIBOR rate was 5.32%, 4.39% and 5.32% (unaudited) at December 31, 2006 and 2005, and June 30, 2007, respectively. The loan is collateralized by the vessel "Rigel".

On March 23, 2005, Smith entered into an agreement with Bank of America to swap the one-month, U.S. dollar LIBOR based, variable interest payments on the above mentioned term loan for a fixed payment at a rate of 4.87%, over the same term as the loan. This swap results in a fixed interest rate on the note of 5.87%. The fair value of the swap contract is an asset (liability) in the amount of $16, $(21) and $41 (unaudited) at December 31, 2006 and 2005, and at June 30, 2007, respectively, and is classified as noncurrent since management does not intend to settle it during 2007. The gain (loss) of $37, $(21), $25 (unaudited) and $107 (unaudited) for the years ended December 31, 2006 and 2005, and the six months ended June 30, 2007 and 2006, respectively, related to the fair value of the swap contract and have been included in other income (expense), net in these combined financial statements.

On February 8, 2002, Smith entered into a promissory note with GE Capital Corporation. This promissory note was amended and restated on September 7, 2005 upon which date the balance is payable in 72 monthly installments of $72, plus interest at a fixed interest rate of 5.7% per annum. The loan is collateralized by the vessel "Noa".

On September 27, 1996, Smith entered into a loan agreement with Safeco Credit Company Inc. The loan was payable in interest only payments from November 1, 1996 through June 1, 1997. Beginning July 1, 1997, the balance was payable in 120 monthly installments of $55, which includes interest at 9.25% per annum. The loan was collateralized by the vessel "Namahoe", and was paid in full as of December 31, 2006.

As of December 31, 2006, maturities of long-term debt, without regards to covenant compliance, for each of the next five years were as follows:

2007	$	3,141
2008		3,237
2009		3,326
2010		3,420
2011		3,423

Sirius is obligated under a capital lease with an unrelated party. The lease is payable monthly at the rate of $4 per day including interest at an effective annual rate of 14.8% maturing October 2012. The lease includes an option to purchase a one-half interest in the vessel at the end of the lease for an amount of $1,734, which Sirius considers a bargain purchase. The leased vessel has been recorded under property and equipment with a total cost of $7,669 with related accumulated depreciation of $2,160, $1,662 and $2,409 (unaudited) at December 31, 2006 and 2005 and June 30, 2007, respectively.

F-53

Smith charters the vessel "Hui Mana" from an unrelated party under a twenty-year lease which expires in March 2009, with five consecutive one year renewal options. This lease is accounted for as a capital lease; lease payments total $26 monthly. This vessel is recorded under vessels and equipment, net in the combined balance sheet with a cost of $2,672 and accumulated depreciation of $2,382, $2,249 and $2,450 (unaudited) at December 31, 2006 and 2005 and June 30, 2007, respectively.

As of December 31, 2006, future minimum lease payments on capital lease obligations for each of the next five years and thereafter were as follows:

2007	$	1,714
2008		1,714
2009		1,452
2010		1,400
2011		1,400
Thereafter		2,668

		10,348
Less amounts representing interest		(3,670	)

Present value of minimum lease payments		6,678
Less current portion		(785	)

Long-term portion	$	5,893

Restrictive Covenants

The agreements governing the term loans contain restrictive covenants that, among others, require the Companies to adhere to certain financial covenants including debt to worth, funded debt to EBITDA and debt service coverage. Sirius was not in compliance with its covenants at December 31, 2006 and June 30, 2007 and as a result the term loan to Bank of America has been classified under current liabilities at these dates in the combined balance sheets. For Smith, the lender has waived compliance with all covenants for all periods.

Interest

Interest expense and interest income was as follows:

	For the Years Ended December 31,								For the Six Months Ended June 30,
	2004			2005			2006		2006 (unaudited)			2007 (unaudited)
Interest expense	$	2,963		$	3,050		$	3,042	$	1,398		$	1,452
Interest income		(239	)		(743	)		(952)		(418	)		(221	)

Interest expense, net	$	2,724		$	2,307		$	2,090	$	980		$	1,231

F-54

THE SMITH MARITIME GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

(dollars in thousands)

The weighted average interest rate on the term loans was 6.6%, 6.4% and 6.6% at December 31, 2006 and 2005, and June 30, 2007 respectively, which debt is subject to prepayment fees. Interest payable totaled $133, $65 and $0 (unaudited) as of December 31, 2006 and 2005, and June 30, 2007, respectively, and is included in accrued expenses and other current liabilities in the combined balance sheets.

Note 5: Commitments and Contingencies

Sirius leases office space from an unrelated party under an agreement expiring February, 2008. Sirius also leases office equipment under operating lease agreements. Rent expense under the agreements amounted to $58, $61, $57, $30 (unaudited) and $29 (unaudited) for the years ended December 31, 2006, 2005, 2004 and the six months ended June 30, 2007 and 2006, respectively.

Smith leases office space from an unrelated party on a month to month basis. Smith also leases office equipment under operating lease agreements. Rent expense for the years ended December 31, 2006, 2005 and 2004 and for the six months ended June 30, 2007 and 2006 totaled $179, $276, $284, $138 (unaudited) and $135 (unaudited).

Sirius charters the vessel "El Lobo Grande II" from an unrelated party for an amount of $1 per day, payable monthly and maturing August, 2007. Sirius has an option to purchase the vessel at the end of the charter for an amount of $2,050. Charter expense incurred under this agreement and various other charters with non-related parties amounted to $1,590, $963, $2,256, $472 (unaudited) and $1,308 (unaudited), for the years ended December 31, 2006, 2005, 2004, and for the six months ended June 30, 2007 and 2006, respectively.

Minimum future rental payments for years ending December 31, 2006, are as follows:

Year ending December 31,
2007		$	329
2008			10
2009			—
2010			—
2011 and thereafter			—

	Total	$	339

F-55

The Companies charter vessels to customers under lease agreements expiring between 2007 and 2019. At December 31, 2006, minimum contractually agreed future revenue under these charters was as follows:

Year ending December 31,
2007		$	34,986
2008			20,104
2009			12,977
2010			9,572
2011			7,271
Thereafter			29,383

	Total	$	114,293

Smith has been in discussion with the Hawaii Department of Taxation (the "Department") relative to its collection and remittance of general excise tax for the years 1999 to 2005. The Department has indicated that it will issue an assessment for unremitted general excise tax for the periods under audit. As of December 31, 2006 and 2005, and June 30, 2007, Smith has recorded an accrual of $2,786, $2,633 and $2,863 (unaudited), respectively, based on management's estimate of tax, interest and penalties to be paid. Excise tax is included in general and administrative expenses. The related interest and penalties are included in interest expense.

The Companies are the subject of various claims and lawsuits in the ordinary course of business for monetary relief arising principally from personal injuries, collisions and other casualties. Although the outcome of any individual claim or action cannot be predicted with certainty, the Companies believe that any adverse outcome, individually or in the aggregate, would be substantially mitigated by applicable insurance and would not have a material adverse effect on the Companies' financial position, results of operations or cash flows.

Note 6: Retirement Plans

Sirius sponsors a salary deferral retirement plan for employees under section 401(k) of the Internal Revenue Service. The plan covers all employees who meet the plan's eligibility requirements. Employees may elect to contribute up to 25% of their compensation, not to exceed certain dollar limits. Sirius may elect, at its own discretion, to make matching and discretionary contributions to the plan. Sirius made matching and discretionary contributions in the amount of $91, $81, $39, $38 (unaudited) and $27 (unaudited) for the years ended December 31, 2006, 2005 and 2004, and for the six months ended June 30, 2007 and 2006, respectively.

Smith sponsors a salary deferral and profit sharing retirement plan for employees under section 401(k) of the Internal Revenue Service. The plan covers all employees who meet the plan's eligibility requirements. Employees may elect to contribute up to 75% of their compensation, not to exceed certain dollar limits. Smith may elect, at its own discretion, to make matching and discretionary contributions to the plan. The 401(k) plan expenses totaled $77, $108, $7, $0 (unaudited) and $38 (unaudited) for the years ended December 31, 2006, 2005 and 2004, and the six months ended June 30, 2007 and 2006, respectively.

F-56

Note 7: Major Customers

Three customers accounted for 48%, 13% and 11% of combined revenues for the year ended December 31, 2006, three customers accounted for 45%, 15% and 10% of combined revenues for the year ended December 31, 2005, three customers accounted for 40%, 20% and 12% of combined revenues for the year ended December 31, 2004, two customers accounted for 46% (unaudited) and 18% (unaudited) of combined revenues for the six months ended June 30, 2007, and three customers accounted for 50% (unaudited), 14% (unaudited) and 10% (unaudited) of combined revenues for the six months ended June 30, 2006.

Note 8: New Accounting Pronouncements

On June 2, 2005, the FASB issued FASB Statement No. 154, "Accounting Changes and Error Corrections-a replacement of APB No. 20 and FAS No. 3" ("FAS 154"). FAS 154 replaces APB Opinion No. 20, "Accounting Changes" and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements" and changes the requirements for the accounting for and reporting of a change in accounting principle. FAS 154 applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. The Companies adopted FAS 154 as of December 31, 2006, and such adoption did not have a significant impact on their financial position, results of operations or cash flows.

In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes". FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Companies adopted FIN 48 effective January 1, 2007 and such adoption of FIN 48 did not have a significant impact on the Companies' financial condition, results of operations or liquidity (unaudited).

Note 9: Related Party Transactions

Sirius has related party demand notes payable to: RCD Maritime LLC, a Company member; Robert Dorn, owner of RCD Maritime, LLC; WS Maritime Pacific, LLC, a Company member; Smith Maritime, LLC, a Company member; and Gordon Smith, owner of Smith Maritime, LLC. The notes accrue interest at 9% on the original principal balances only. Interest on these notes does not

F-57

compound resulting in lower effective interest rates. The demand notes payable included in accrued expenses and other current liabilities are as follow:

	December 31, 2005		December 31, 2006		June 30, 2007 (unaudited)
RCD Maritime, LLC.	$	95	$	—	$	—
Robert Dorn		5		17		17
WS Maritime Pacific, LLC		—		3		73
Gordon Smith		163		175		179
Smith Maritime, LLC		—		14		84

	$	263	$	209	$	353

Sirius incurred interest expense on these related party demand notes as follows:

	For the Years Ended December 31,							For the Six Months Ended June 30,
	2004		2005		2006			2006 (unaudited)		2007 (unaudited)
RCD Maritime, LLC.	$	6	$	6	$	2		$	2	$	—
Robert Dorn		—		—		1			1		—
WS Maritime Pacific, LLC		6		4		—			—		—
Gordon Smith		—		—		11			7		4
Smith Maritime, LLC		—		—		—			—		—

	$	12	$	10	$	14	]	$	10	$	4

Note 10: Subsequent events

On August 14, 2007, K-Sea, through certain wholly-owned subsidiaries, completed the acquisition of all of the equity interests in the Companies. The aggregate purchase price for the Companies was approximately $202,962, comprising $169,154 in cash, $23,573 of assumed debt, and K-Sea units valued at $10,235.

F-58

APPENDIX A

FORM OF

AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

OF

K-SEA GP HOLDINGS LP

[TO BE FILED BY AMENDMENT]

A-1

APPENDIX B

GLOSSARY OF SELECTED TERMS

Adjusted operating surplus:		For any period, operating surplus generated during that period is adjusted to:
		(a) decrease operating surplus by:
		(1) any net increase in working capital borrowings with respect to that period; and
		(2) any net reduction in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; and
		(b) increase operating surplus by:
		(1) any net decrease in working capital borrowings with respect to that period; and
		(2) any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium.
		Adjusted operating surplus does not include that portion of operating surplus included in clause (a) (1) of the definition of operating surplus.
Available cash:		For any quarter ending prior to liquidation:
		(a) the sum of:
		(1) all cash and cash equivalents of K-Sea Transportation Partners and its subsidiaries on hand at the end of that quarter; and
		(2) all additional cash and cash equivalents of K-Sea Transportation Partners and its subsidiaries on hand on the date of determination of available cash for that quarter resulting from working capital borrowings made after the end of that quarter;
		(b) less the amount of cash reserves that is necessary or appropriate in the reasonable discretion of our general partner to:
		(1) provide for the proper conduct of the business of K-Sea Transportation Partners and its subsidiaries (including reserves for future capital expenditures and for future credit needs of K-Sea Transportation Partners and its subsidiaries) after that quarter;

B-1

		(2) comply with applicable law or any debt instrument or other agreement or obligation to which K-Sea Transportation Partners or any of its subsidiaries is a party or its assets are subject; and
		(3) provide funds for minimum quarterly distributions and cumulative common unit arrearages for any one or more of the next four quarters;
		provided, however, that the general partner may not establish cash reserves for distributions to the subordinated units unless our general partner has determined that in its judgment the establishment of reserves will not prevent K-Sea Transportation Partners from distributing the minimum quarterly distribution on all common units and any cumulative common unit arrearages thereon for the next four quarters; and
		provided, further, that disbursements made by K-Sea Transportation Partners or any of its subsidiaries or cash reserves established, increased or reduced after the end of that quarter but on or before the date of determination of available cash for that quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining available cash, within that quarter if our general partner so determines.
Average daily rate:		The net voyage revenue earned by a tank vessel or group of tank vessels during a defined period, divided by the total number of days actually worked by that tank vessel or group of tank vessels during that period.
Barrel:		One barrel of petroleum products equals 42 U.S. gallons.
Barrel-carrying capacity:		The number of barrels of refined product that it takes to fill a vessel.
Black oil products:		Black oil products include residual fuel oil, which can be burned by utilities to generate electricity, bunker oil, which is used by marine vessels as fuel, asphalt, which is used in commercial, residential and highway construction, and petrochemical feedstocks, such as naphthas, which are used in making chemicals.
Capital account:		The capital account maintained for a partner under the partnership agreement. The capital account in respect of a general partner interest, a common unit, a subordinated unit, an incentive distribution right or other partnership interest will be the amount which that capital account would be if that general partner interest, common unit, subordinated unit, incentive distribution right or other partnership interest were the only interest in K-Sea Transportation Partners held by a partner.

B-2

Capital surplus:		All available cash distributed by us from any source will be treated as distributed from operating surplus until the sum of all available cash distributed since the closing of the initial public offering equals the operating surplus as of the end of the quarter before that distribution. Any excess available cash will be deemed to be capital surplus.
Cargo:		The type of commodity transported by a vessel.
Charter:		A contract for the usage of a vessel.
Charterer:		An entity that contracts with an owner for the usage of the owner's vessels.
Clean oil products:		Clean oil products include motor gasoline, distillate fuel oil (such as diesel fuel, heating oils and industrial oils), jet fuel, and kerosene.
Closing price:		The last sale price on a day, regular way, or in case no sale takes place on that day, the average of the closing bid and asked prices on that day, regular way. In either case, as reported in the principal consolidated transaction reporting system for securities listed or admitted to trading on the principal national securities exchange (other than the Nasdaq Stock Market) on which the units of that class are listed or admitted to trading. If the units of that class are not listed or admitted to trading on any national securities exchange (other than the Nasdaq Stock Market), the last quoted price on that day. If no quoted price exists, the average of the high bid and low asked prices on that day in the over-the-counter market, as reported by the Nasdaq Stock Market or any other system then in use. If on any day the units of that class are not quoted by any organization of that type, the average of the closing bid and asked prices on that day as furnished by a professional market maker making a market in the units of the class selected by our general partner. If on that day no market maker is making a market in the units of that class, the fair value of the units on that day as determined reasonably and in good faith by our general partner.
Coastwise fleet:		The coastwise fleet generally refers to commercial vessels that transport goods in the following areas: (a) along the Atlantic, Gulf and Pacific coasts; (b) between the U.S. mainland and Puerto Rico, Alaska, Hawaii and other U.S. Pacific Islands; and (c) between the Atlantic or Gulf and Pacific coasts by way of the Panama Canal.

B-3

Coastwise trade:		With respect to K-Sea Transportation Partners, trade generally comprising voyages of between 200 and 1,000 miles by K-Sea Transportation Partners' vessels with greater than 40,000 barrels of barrel-carrying capacity. These voyages originate from the middle Atlantic states to points as far north as Canada and as far south as Cape Hatteras and from points within the Gulf Coast region to other points within that region or to the Northeast.
Common unit arrearage:		The amount by which the minimum quarterly distribution for a quarter during the subordination period exceeds the distribution of available cash from operating surplus actually made for that quarter on a common unit, cumulative for that quarter and all prior quarters during the subordination period.
Consecutive voyage charter:		A variation of a voyage charter. Under this arrangement, the vessel owner and the charterer agree that consecutive voyages will be performed for a specified period of time. Under a consecutive voyage charter, the charterer pays for idle time.
Contract of affreightment:		A contract to provide transportation services for products over a specified trade route.
Current market price:		For any class of units listed or admitted to trading on any national securities exchange as of any date, the average of the daily closing prices for the 20 consecutive trading days immediately prior to that date.
Deadweight tonnage:		The number of long-tons (2,240 pounds) that a vessel can transport of cargo, stores and bunker fuel. A deadweight ton is equivalent to approximately 6.5 to 7.5 barrels of capacity, depending on the specific gravity of the cargo. In this prospectus, we have assumed that a deadweight ton is 7.0 barrels of capacity.
Adjusted EBITDA:		Earnings before interest, taxes, depreciation, amortization and non-controlling interest.
Estimated maintenance capital expenditures:		An estimate made in good faith by the board of directors of our general partner (with the concurrence of the conflicts committee of the board of directors of our general partner) of the average quarterly maintenance capital expenditures that K-Sea Transportation Partners will incur over the long-term. The board of directors of our general partner may make the estimate in any manner it determines is reasonable in its sole discretion. The estimate will be made annually and whenever an event occurs that is likely to result in a material adjustment to the amount of maintenance capital expenditures on a long-term basis. K-Sea Transportation Partners will disclose to its partners the amount of estimated maintenance capital expenditures.

B-4

Expansion capital expenditures:		Cash capital expenditures for acquisitions or capital improvements. Expansion capital expenditures do not include maintenance capital expenditures.
GAAP:		Generally accepted accounting principles in the United States.
General and administrative expenses:		General and administrative expenses consist of employment costs of shoreside staff and cost of facilities, as well as legal, audit and other administrative costs.
Great Lakes Fleet:		The Great Lakes fleet generally refers to commercial vessels normally navigating the waters among U.S. Great Lakes ports and connecting waterways.
Gross tonnage:		The total volume capacity of the interior space of a vessel, including non-cargo space, using a convention of 100 cubic feet per gross ton.
Hulls:		The body or framework of a vessel. Vessels can have more than one hull, which means they have additional compartments between the cargo and the outside of the vessel. Typical vessels are single- or double-hulled.
Incentive distribution right:		A non-voting limited partner partnership interest issued to the general partner. The partnership interest will confer upon its holder only the rights and obligations specifically provided in the partnership agreement for incentive distribution rights.
Incentive distributions:		The distributions of available cash from operating surplus initially made to the general partner that are in excess of the general partner's aggregate 1.5% general partner interest.
Inland waterways fleet:		The inland waterways fleet refers to commercial vessels that transport goods on the navigable internal waterways of the Atlantic, Gulf and Pacific Coasts, and the Mississippi River System. The main arteries of the inland waterways network for the mid-continent are the Mississippi and the Ohio Rivers. The inland waterways fleet consists primarily of tugboats and tank barges, which typically have a shallower depth, and are generally less costly, than many tank barges operating in the coastwise fleet. The vessels comprising the inland waterways fleet are generally not built to standards required for operation in coastal waters.
Interim capital transactions:		The following transactions if they occur prior to liquidation:
		(a) borrowings, refinancings or refundings of indebtedness and sales of debt securities (other than for working capital borrowings and other than for items purchased on open account in the ordinary course of business) by K-Sea Transportation Partners or any of its subsidiaries;
		(b) sales of equity interests by K-Sea Transportation Partners or any of its subsidiaries; or

B-5

		(c) sales or other voluntary or involuntary dispositions of any assets of K-Sea Transportation Partners or any of its subsidiaries (other than sales or other dispositions of inventory, accounts receivable and other assets in the ordinary course of business, and sales or other dispositions of assets as a part of normal retirements or replacements).
ITB:		Integrated tug barge unit.
Jones Act:		The U.S. federal statutes that govern the registration, ownership and operation of vessels documented to engage in the coastwise trade of the United States found primarily at 46 U.S.C. §12106, 46 App. U.S.C. §§802, 803 and 883 and all regulations relating thereto.
Local trade:		With respect to K-Sea Transportation Partners, trade generally comprising voyages by smaller vessels of less than 200 miles.
Maintenance capital expenditures:		Cash capital expenditures (including expenditures for the addition or improvement to our capital assets or for the acquisition of existing, or the construction of new, capital assets) if such expenditure is made to maintain over the long-term the operating capacity of K-Sea Transportation Partners' capital assets, as such assets existed at the time of such expenditure. Maintenance capital expenditures do not include expansion capital expenditures.
MARAD:		United States of America, Secretary of Transportation, Maritime Administration.
Net tonnage:		The volume capacity of a vessel determined by subtracting the engine room, crew quarters, stores and navigation space from the gross tonnage using a convention of 100 cubic feet per net ton.
Net utilization:		A percentage equal to the total number of days actually worked by a tank vessel or group of tank vessels during a defined period, divided by the number of calendar days in the period multiplied by the total number of tank vessels operating or in drydock during that period.
Net voyage revenue:		This type of revenue is equal to voyage revenue less voyage expenses.
OPA 90:		The Oil Pollution Act of 1990, as amended.
Operating expenditures:		All expenditures of K-Sea Transportation Partners and its subsidiaries, including, but not limited to, taxes, reimbursements of the general partner, repayment of working capital borrowings, debt service payments and capital expenditures, subject to the following:
		(a) Payments (including prepayments) of principal of and premium on indebtedness, other than working capital borrowings will not constitute operating expenditures.

B-6

		(b) Operating expenditures will not include expansion capital expenditures or actual maintenance capital expenditures but will include estimated maintenance capital expenditures.
		(c) Operating expenditures will not include:
		(1) payment of transaction expenses relating to interim capital transactions; or
		(2) distributions to partners.
		Where capital expenditures are made in part for acquisitions or for capital improvements and in part for other purposes, the general partner's good faith allocation between the amounts paid for each shall be conclusive.
Operating surplus:		For any period prior to liquidation, on a cumulative basis and without duplication:
		(a) the sum of
		(1) $5.0 million plus all the cash of K-Sea Transportation Partners and its subsidiaries on hand as of the closing date of its initial public offering;
		(2) all cash receipts of K-Sea Transportation Partners and its subsidiaries for the period beginning on the closing date of the initial public offering and ending with the last day of that period, other than cash receipts from interim capital transactions; and
		(3) all cash receipts of K-Sea Transportation Partners and its subsidiaries after the end of that period but on or before the date of determination of operating surplus for the period resulting from working capital borrowings; less
		(b) the sum of:
		(1) operating expenditures for the period beginning on the closing date of the initial public offering and ending with the last day of that period; and
		(2) the amount of cash reserves that is necessary or advisable in the reasonable discretion of the general partner to provide funds for future operating expenditures; provided however, that disbursements made (including contributions to a member of K-Sea Transportation Partners and its subsidiaries or disbursements on behalf of a member of K-Sea Transportation Partners and its subsidiaries) or cash reserves established, increased or reduced after the end of that period but on or before the date of determination of available cash for that period shall be deemed to have been made, established, increased or reduced for purposes of determining operating surplus, within that period if the general partner so determines.

B-7

Other revenue:		This type of revenue includes revenue from bareboat charters, where the charterer pays the voyage expenses and vessel operating expenses.
Scheduled drydocking days:		Days designated for the inspection and survey of tank vessels, and resulting maintenance work, as required by the U.S. Coast Guard and the American Bureau of Shipping to maintain the vessels' qualification to work in the U.S. coastwise trade. Generally, drydockings are required twice every five years and last between 30 and 60 days, based upon the size of the vessel and the type of work required.
Subordination period:		The subordination period will generally extend until the first to occur of:
		(a) the first day of any quarter beginning after December 31, 2008 for which:
		(1) distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units and subordinated units for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;
		(2) the adjusted operating surplus generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the common units and subordinated units that were outstanding during those periods on a fully diluted basis, and the related distribution on the general partner interest in K-Sea Transportation Partners; and
		(3) there are no outstanding cumulative common units arrearages; and
		(b) the date on which the general partner is removed as general partner of K-Sea Transportation Partners upon the requisite vote by the limited partners under circumstances where cause does not exist and units held by our general partner and its affiliates are not voted in favor of the removal.
Time charter:		A contract to charter a vessel for a fixed period of time at a set daily rate.
Total tank vessel days:		Total tank vessel days is equal to the number of calendar days in the period multiplied by the total number of tank vessels operating or in drydock during that period.
U.S.-flag vessel:		A vessel documented under the laws of the United States.
Voyage charter:		A contract to carry a specific cargo from a load port to a discharge port for a fixed dollar amount.

B-8

Vessel operating expenses:		K-Sea Transportation Partners' vessel operating expenses are primarily a function of fleet size and utilization levels. The most significant direct vessel operating expenses are wages paid to vessel crews, routine maintenance and repairs and marine insurance.
Voyage expenses:		Expenses associated with K-Sea Transportation Partners' performance under time charters and contracts of affreightment, which are paid by K-Sea Transportation Partners, as vessel operator. Voyage expenses include items such as fuel, port charters, pilot fees, tank cleaning costs and canal tolls, which are unique to a particular voyage.
Voyage revenue:		This type of revenue includes revenue from time charters, contracts of affreightment and voyage charters, where K-Sea Transportation Partners, as vessel operator, pays the vessel operating expenses.
Working capital borrowings:		Borrowings used exclusively for working capital purposes or to pay distributions to partners made pursuant to a credit agreement or other arrangement to the extent such borrowings are required to be reduced to a relatively small amount each year for an economically meaningful period of time.

B-9

K-Sea GP Holdings LP

Common Units

Representing Limited Partner Interests

PROSPECTUS
, 2008

LEHMAN BROTHERS
CITI

Part II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

Set forth below are the expenses (other than underwriting discounts and commissions) expected to be incurred in connection with the issuance and distribution of the securities registered hereby. With the exception of the Securities and Exchange Commission registration fee, the National Association of Securities Dealers' filing fee and the New York Stock Exchange listing fee, the amounts set forth below are estimates.

Securities and Exchange Commission registration fee		$	3,930
Financial Industry Regulatory Authority filing fee			10,500
New York Stock Exchange listing fee			*
Legal fees and expenses			*
Accounting fees and expenses			*
Transfer agent and registrar fees			*
Printing expenses			*
Miscellaneous			*

	Total		*

*: To be provided by amendment.

Item 14. Indemnification of Directors and Officers.

The section of the prospectus entitled "Description of Our Partnership Agreement—Indemnification" is incorporated herein by this reference. Reference is also made to the Underwriting Agreement to be filed as an exhibit to this registration statement. Subject to any terms, conditions or restrictions set forth in the partnership agreement, Section 17-108 of the Delaware Revised Uniform Limited Partnership Act empowers a Delaware limited partnership to indemnify and hold harmless any partner or other person from and against all claims and demands whatsoever.

To the extent that the indemnification provisions of our partnership agreement purport to include indemnification for liabilities arising under the Securities Act of 1933, in the opinion of the Securities and Exchange Commission such indemnification is contrary to public policy and is therefore unenforceable.

Item 15. Recent Sales of Unregistered Securities.

On December 11, 2007, in connection with the formation of the partnership, K-Sea GP Holdings LP issued (i) a noneconomic general partner interest to K-Sea GP LLC and (ii) a 100% limited partner interest to Timothy J. Casey for $1,000 in an offering exempt from registration under Section 4(2) of the Securities Act of 1933.

On , 2008, K-Sea GP Holdings LP redeemed the 100% limited partner interest in the partnership for $1,000 and issued an aggregate of common units to KSP Investors A LP, KSP Investors B LP, KSP Investors C LP and certain individuals in an offering exempt from registration under Section 4(2) of the Securities Act of 1933.

There have been no other sales of unregistered securities within the past three years.

II-1

Item 16. Exhibits and Financial Statement Schedules.

The following documents are filed as exhibits to this registration statement (with respect to exhibits that are incorporated by reference to Exchange Act filings, the SEC file number for K-Sea Transportation Partners L.P. ("KSP") is 1-31920):

Exhibit Number		Description
1.1*	—	Form of Underwriting Agreement.
3.1	—	Certificate of Limited Partnership of K-Sea GP Holdings LP.
3.2*	—	Form of Amended and Restated Agreement of Limited Partnership of K-Sea GP Holdings LP (included as Appendix A to the Prospectus).
3.3	—	Certificate of Formation of K-Sea GP LLC.
3.4*	—	Form of Amended and Restated Limited Liability Company Agreement of K-Sea GP LLC.
3.5†	—	Certificate of Limited Partnership of K-Sea Transportation Partners L.P. (incorporated by reference to Exhibit 3.1 to KSP's Registration Statement on Form S-1 (Registration No. 333-107084), as amended (the "KSP Registration Statement"), originally filed with the Securities and Exchange Commission on July 16, 2003).
3.6†	—	Third Amended and Restated Agreement of Limited Partnership of K-Sea Transportation Partners L.P. (including specimen unit certificate for the common units) (incorporated by reference to Exhibit 3.2 to the KSP's Current Report of Form 8-K filed with the Securities Exchange Commission on May 5, 2006).
3.7†	—	Certificate of Formation of K-Sea General Partner GP LLC (incorporated by reference to Exhibit 3.7 to the KSP Registration Statement).
3.8†	—	First Amended and Restated Limited Liability Company Agreement of K-Sea General Partner GP LLC (incorporated by reference to Exhibit 3.8 to KSP's Quarterly Report of Form 10-Q for the period ended December 31, 2003 (File No. 001-31920)).
3.9†	—	Certificate of Limited Partnership of K-Sea Operating Partnership L.P. (incorporated by reference to Exhibit 3.3 to the KSP Registration Statement).
3.10†	—	Amended and Restated Agreement of Limited Partnership of K-Sea Operating Partnership L.P. (incorporated by reference to Exhibit 3.4 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
4.1*	—	Specimen Unit Certificate (included as Exhibit A to the Amended and Restated Agreement of Limited Partnership of K-Sea GP Holdings LP, which is included as Appendix A to the Prospectus).
4.2†	—	Registration Rights Agreement, dated August 14, 2007, by and among K-Sea Transportation Partners L.P., RCD Maritime Enterprises, LLC, Smith Maritime, LLC, Robert C. Dorn and Gordon L.K. Smith (incorporated by reference to Exhibit 4.1 to KSP's Current Report on Form 8-K filed with the with the Securities and Exchange Commission on August 20, 2007).
5.1*	—	Opinion of Baker Botts L.L.P. as to the legality of the securities being registered.
8.1*	—	Opinion of Baker Botts L.L.P. relating to tax matters.
10.1*	—	Form of Non-Compete Agreement.
10.2*	—	Form of Contribution Agreement.

II-2

10.3*	—	Form of Administrative Services Agreement.
10.4.1†	—	K-Sea Transportation Partners L.P. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7 to KSP's Quarterly Report on Form 10-Q for the period ended March 31, 2004).
10.4.2†	—	Form of KSP Director Phantom Unit Award Agreement (incorporated by reference to Exhibit 10.1 to KSP's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 7, 2004).
10.4.3†	—	Form of KSP Employee Phantom Unit Award Agreement (incorporated by reference to Exhibit 10.2 to KSP's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 7, 2004).
10.5*		Form of K-Sea General Partner GP LLC Long-Term Incentive Plan.
10.6†	—	Contribution, Conveyance and Assumption Agreement, dated as of January 14, 2004, among K-Sea Investors L.P., K-Sea Transportation LLC, EW Holding Corp., K-Sea Transportation Corp., K-Sea Transportation Partners L.P. and K-Sea Operating Partnership L.P. (incorporated by reference to Exhibit 10.2 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
10.7†	—	Omnibus Agreement, dated as of January 14, 2004, among K-Sea Investors L.P., K-Sea Acquisition Corp., New EW Holding Corp., New K-Sea Transportation Corp., K-Sea General Partner L.P., K-Sea General Partner GP LLC, K-Sea Transportation Partners L.P., K-Sea OLP GP, LLC and K-Sea Operating Partnership L.P. (incorporated by reference to Exhibit 10.3 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
10.8†	—	K-Sea Transportation Partners L.P. Employee Unit Purchase Plan (incorporated by reference to Exhibit 4.2 to KSP's Registration Statement on Form S-8 (Registration No. 333 117251) filed on July 9, 2004).
10.9†	—	Employment Agreement, dated as of January 14, 2004, between K-Sea Transportation Inc. and Timothy J. Casey (incorporated by reference to Exhibit 10.9 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
10.10†	—	Employment Agreement, dated as of January 14, 2004, between K-Sea Transportation Inc. and John J. Nicola (incorporated by reference to Exhibit 10.10 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
10.11†	—	Employment Agreement, dated as of January 14, 2004, between K-Sea Transportation Inc. and Richard P. Falcinelli (incorporated by reference to Exhibit 10.11 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
10.12†	—	Employment Agreement, dated as of January 14, 2004, between K-Sea Transportation Inc. and Thomas M. Sullivan (incorporated by reference to Exhibit 10.12 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
10.13†	—	Form of Indemnification Agreement (incorporated by reference to Exhibit 10.12 to KSP's Annual Report on Form 10-K for the fiscal year ended June 30, 2005).

II-3

10.14†	—	Amended and Restated Loan and Security Agreement, dated as of August 14, 2007, among K-Sea Operating Partnership L.P., as borrower, 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, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to KSP's Current Report on Form-8 K filed with the with the Securities and Exchange Commission on August 20, 2007).
10.15†	—	Loan and Security Agreement dated as of March 24, 2005 by and between The CIT Group/Equipment Financing, Inc., as Lender, and K-Sea Operating Partnership L.P., as Borrower (incorporated by reference to Exhibit 10.2 to KSP's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 30, 2005).
10.16†	—	Master Loan and Security Agreement dated as of April 3, 2006 by and among K-Sea Operating Partnership L.P., as Borrower, Key Equipment Finance Inc., as Lender, and K-Sea Transportation Partners L.P., K-Sea Transportation Inc. and Sea Coast Transportation LLC, as Guarantors (incorporated by reference to Exhibit 10.1 to KSP's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 7, 2006).
21.1*	—	List of Subsidiaries of K-Sea GP Holdings LP.
23.1	—	Consent of PricewaterhouseCoopers LLP.
23.2	—	Consent of PricewaterhouseCoopers LLP.
23.3	—	Consent of PricewaterhouseCoopers LLP.
23.4	—	Consent of PricewaterhouseCoopers LLP.
23.5*	—	Consent of Baker Botts L.L.P. (contained in Exhibit 5.1).
23.6*	—	Consent of Baker Botts L.L.P. (contained in Exhibit 8.1).
24.1	—	Powers of Attorney (included on signature page).

*: To be filed by amendment.
†: Incorporated by reference as indicated.

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Item 17. Undertakings

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

The undersigned registrant undertakes to send to each limited partner at least on an annual basis a detailed statement of any transactions with K-Sea GP LLC, our general partner, or its affiliates, and of fees, commissions, compensation and other benefits paid, or accrued to K-Sea GP LLC or its affiliates for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed.

The undersigned registrant undertakes to provide to the limited partners the financial statements required by Form 10-K for the first full fiscal year of operations of the registrant.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of East Brunswick, State of New Jersey, on March 4, 2008.

		K-Sea GP Holdings LP
		By:	K-Sea GP LLC, its General Partner
		By:	/s/ TIMOTHY J. CASEY Timothy J. Casey President and Chief Executive Officer

Each person whose signature appears below appoints Timothy J. Casey and John J. Nicola, and each of them, as his true and lawful attorney or attorneys-in-fact and agents, with full power to act with or without the others and with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including pre-effective and post-effective amendments) to this Registration Statement and any registration statement for this offering that is to be effective upon filing pursuant to Rule 462 under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary and desirable to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying, approving and confirming all that said attorneys-in-fact and agents or their substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities indicated on March 4, 2008.

Signature		Title

/s/ TIMOTHY J. CASEY Timothy J. Casey		President and Chief Executive Officer and Director (Principal Executive Officer)
/s/ JOHN J. NICOLA John J. Nicola		Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ JAMES J. DOWLING James J. Dowling		Chairman of the Board and Director
/s/ BRIAN P. FRIEDMAN Brian P. Friedman		Director

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Exhibit Index

Exhibit Number		Description
1.1*	—	Form of Underwriting Agreement.
3.1	—	Certificate of Limited Partnership of K-Sea GP Holdings LP.
3.2*	—	Form of Amended and Restated Agreement of Limited Partnership of K-Sea GP Holdings LP (included as Appendix A to the Prospectus).
3.3	—	Certificate of Formation of K-Sea GP LLC.
3.4*	—	Form of Amended and Restated Limited Liability Company Agreement of K-Sea GP LLC.
3.5†	—	Certificate of Limited Partnership of K-Sea Transportation Partners L.P. (incorporated by reference to Exhibit 3.1 to KSP's Registration Statement on Form S-1 (Registration No. 333-107084), as amended (the "KSP Registration Statement"), originally filed with the Securities and Exchange Commission on July 16, 2003).
3.6†	—	Third Amended and Restated Agreement of Limited Partnership of K-Sea Transportation Partners L.P. (including specimen unit certificate for the common units) (incorporated by reference to Exhibit 3.2 to the KSP's Current Report of Form 8-K filed with the Securities Exchange Commission on May 5, 2006).
3.7†	—	Certificate of Formation of K-Sea General Partner GP LLC (incorporated by reference to Exhibit 3.7 to the KSP Registration Statement).
3.8†	—	First Amended and Restated Limited Liability Company Agreement of K-Sea General Partner GP LLC (incorporated by reference to Exhibit 3.8 to KSP's Quarterly Report of Form 10-Q for the period ended December 31, 2003 (File No. 001-31920)).
3.9†	—	Certificate of Limited Partnership of K-Sea Operating Partnership L.P. (incorporated by reference to Exhibit 3.3 to the KSP Registration Statement).
3.10†	—	Amended and Restated Agreement of Limited Partnership of K-Sea Operating Partnership L.P. (incorporated by reference to Exhibit 3.4 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
4.1*	—	Specimen Unit Certificate (included as Exhibit A to the Amended and Restated Agreement of Limited Partnership of K-Sea GP Holdings LP, which is included as Appendix A to the Prospectus).
4.2†	—	Registration Rights Agreement, dated August 14, 2007, by and among K-Sea Transportation Partners L.P., RCD Maritime Enterprises, LLC, Smith Maritime, LLC, Robert C. Dorn and Gordon L.K. Smith (incorporated by reference to Exhibit 4.1 to KSP's Current Report on Form 8-K filed with the with the Securities and Exchange Commission on August 20, 2007).
5.1*	—	Opinion of Baker Botts L.L.P. as to the legality of the securities being registered.
8.1*	—	Opinion of Baker Botts L.L.P. relating to tax matters.
10.1*	—	Form of Non-Compete Agreement.
10.2*	—	Form of Contribution Agreement.
10.3*	—	Form of Administrative Services Agreement.
10.4.1†	—	K-Sea Transportation Partners L.P. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7 to KSP's Quarterly Report on Form 10-Q for the period ended March 31, 2004).

10.4.2†	—	Form of KSP Director Phantom Unit Award Agreement (incorporated by reference to Exhibit 10.1 to KSP's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 7, 2004).
10.4.3†	—	Form of KSP Employee Phantom Unit Award Agreement (incorporated by reference to Exhibit 10.2 to KSP's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 7, 2004).
10.5*		Form of K-Sea General Partner GP LLC Long-Term Incentive Plan.
10.6†	—	Contribution, Conveyance and Assumption Agreement, dated as of January 14, 2004, among K-Sea Investors L.P., K-Sea Transportation LLC, EW Holding Corp., K-Sea Transportation Corp., K-Sea Transportation Partners L.P. and K-Sea Operating Partnership L.P. (incorporated by reference to Exhibit 10.2 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
10.7†	—	Omnibus Agreement, dated as of January 14, 2004, among K-Sea Investors L.P., K-Sea Acquisition Corp., New EW Holding Corp., New K-Sea Transportation Corp., K-Sea General Partner L.P., K-Sea General Partner GP LLC, K-Sea Transportation Partners L.P., K-Sea OLP GP, LLC and K-Sea Operating Partnership L.P. (incorporated by reference to Exhibit 10.3 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
10.8†	—	K-Sea Transportation Partners L.P. Employee Unit Purchase Plan (incorporated by reference to Exhibit 4.2 to KSP's Registration Statement on Form S-8 (Registration No. 333 117251) filed on July 9, 2004).
10.9†	—	Employment Agreement, dated as of January 14, 2004, between K-Sea Transportation Inc. and Timothy J. Casey (incorporated by reference to Exhibit 10.9 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
10.10†	—	Employment Agreement, dated as of January 14, 2004, between K-Sea Transportation Inc. and John J. Nicola (incorporated by reference to Exhibit 10.10 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
10.11†	—	Employment Agreement, dated as of January 14, 2004, between K-Sea Transportation Inc. and Richard P. Falcinelli (incorporated by reference to Exhibit 10.11 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
10.12†	—	Employment Agreement, dated as of January 14, 2004, between K-Sea Transportation Inc. and Thomas M. Sullivan (incorporated by reference to Exhibit 10.12 to KSP's Quarterly Report on Form 10-Q for the period ended December 31, 2003).
10.13†	—	Form of Indemnification Agreement (incorporated by reference to Exhibit 10.12 to KSP's Annual Report on Form 10-K for the fiscal year ended June 30, 2005).
10.14†	—	Amended and Restated Loan and Security Agreement, dated as of August 14, 2007, among K-Sea Operating Partnership L.P., as borrower, 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, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to KSP's Current Report on Form 8-K filed with the with the Securities and Exchange Commission on August 20, 2007).
10.15†	—	Loan and Security Agreement dated as of March 24, 2005 by and between The CIT Group/Equipment Financing, Inc., as Lender, and K-Sea Operating Partnership L.P., as Borrower (incorporated by reference to Exhibit 10.2 to KSP's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 30, 2005).

10.16†	—	Master Loan and Security Agreement dated as of April 3, 2006 by and among K-Sea Operating Partnership L.P., as Borrower, Key Equipment Finance Inc., as Lender, and K-Sea Transportation Partners L.P., K-Sea Transportation Inc. and Sea Coast Transportation LLC, as Guarantors (incorporated by reference to Exhibit 10.1 to KSP's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 7, 2006).
21.1*	—	List of Subsidiaries of K-Sea GP Holdings LP.
23.1	—	Consent of PricewaterhouseCoopers LLP.
23.2	—	Consent of PricewaterhouseCoopers LLP.
23.3	—	Consent of PricewaterhouseCoopers LLP.
23.4	—	Consent of PricewaterhouseCoopers LLP.
23.5*	—	Consent of Baker Botts L.L.P. (contained in Exhibit 5.1).
23.6*	—	Consent of Baker Botts L.L.P. (contained in Exhibit 8.1).
24.1	—	Powers of Attorney (included on signature page).

*: To be filed by amendment.
†: Incorporated by reference as indicated.

QuickLinks

APPENDIX A

FORM OF AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF K-SEA GP HOLDINGS LP [TO BE FILED BY AMENDMENT]

APPENDIX B

GLOSSARY OF SELECTED TERMS
Part II

Item 14. Indemnification of Directors and Officers.

Item 15. Recent Sales of Unregistered Securities.

Item 16. Exhibits and Financial Statement Schedules.

SIGNATURES
Exhibit Index