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April 9, 2009

U.S. Shipping Partners files suit against Blackstone

In an SEC filing today, U.S. Shipping Partners says that it has filed suit against its Blackstone Group partners in a joint venture to build five Jones Act product tankers.

Back in March, in an earlier filing, U.S. Shipping revealed that the Blackstone entities had informed it:

"(i) a board reduction event (as such term is defined in the joint venture's limited liability company agreement) has occurred and purporting to remove USS Product Carriers LLC, a wholly-owned subsidiary of the partnership, as the managing member of the joint venture and designating one of the Blackstone entities as the managing member of the joint venture, and

"(ii) a manager termination event (as such term is defined in that certain management and operating agreement, dated as of August 7, 2006, by and among USS Product Manager LLC, a wholly-owned subsidiary of the partnership ("Product Manager"), the joint venture and the other parties thereto (the "management agreement")) has occurred and purporting to terminate Product Manager's right to provide management and operating services under the management agreement with respect to all vessels owned by the joint venture other than the Golden State (the only vessel currently being operated by the joint venture).

"In addition, the partnership has received a notice from the agent for the lenders to the joint venture asserting events of default under that certain revolving notes facility agreement with the joint venture have occurred and that the lenders were intending to foreclose on the Golden State vessel owned by the joint venture that the partnership is managing pursuant to the management agreement.

Now U.S. Shipping is asking the court to rule that

no board reduction event has occurred;

that the purported removal of USS Product Carriers LLC as the managing member of the joint venture and designating one of the Blackstone entities as the managing member was unauthorized and invalid and that Product Carriers remains the managing member of the joint venture;

no manager termination event has occurred; and

the purported termination of Product Manager's right to provide management and operating services under the management agreement with respect to all vessels owned by the joint venture other than the Golden State was unauthorized and invalid and that Product Manager retains the right to provide management and operating services under the management agreement with respect to all vessels owned by the joint venture.

The lawsuit also seeks a declaration that any commencement by the lenders to the joint venture of foreclosure proceedings on the Golden State and the membership interests in the joint venture's subsidiary that owns the vessel was unauthorized and invalid.

Pending a final determination of the lawsuit, the partnership filed a motion for a preliminary injunction seeking to enjoin defendants from, among other things:

foreclosing upon the vessel Golden State or the membership interests in the joint venture's subsidiary that owns the vessel;

interfering with Product Carriers' functioning as the managing member of the joint venture; and

interfering with Product Manager's supervision of the operation of the vessel Golden State or the construction or operation of the other four vessels currently being constructed for the Joint Venture.

The partnership's motion is currently scheduled to be heard on April 30, 2009. Pending such hearing, the court, with defendants' consent, entered a temporary restraining order which restrains defendants from:

foreclosing upon the vessel Golden State or the membership interests in the joint venture's subsidiary that owns the vessel except upon five business days prior notice, which notice cannot be given before May 1, 2009; or

replacing Product Manager as vessel manager of the vessel Golden State and the other four vessels currently being constructed for the joint venture prior to May 7, 2009, with notice of replacement, if any, to be given at least five business days prior to such replacement.


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