<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1998.
REGISTRATION NO. 333-43965
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
HORIZON OFFSHORE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1629 76-0494934
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
HORIZON OFFSHORE, INC.
2500 CITYWEST BOULEVARD, SUITE 2200
HOUSTON, TEXAS 77042
(713) 361-2600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID W. SHARP
CHIEF FINANCIAL OFFICER
HORIZON OFFSHORE, INC.
2500 CITYWEST BOULEVARD, SUITE 2200
HOUSTON, TEXAS 77042
(713) 361-2600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
WILLIAM B. MASTERS WILLIAM N. FINNEGAN
JONES, WALKER, WAECHTER, POITEVENT, MICHAEL J. SWIDLER
CARRERE & DENEGRE, L.L.P. ANDREWS & KURTH L.L.P.
201 ST. CHARLES AVENUE 600 TRAVIS STREET, SUITE 4200
NEW ORLEANS, LOUISIANA 70170 HOUSTON, TEXAS 77002
PHONE: (504) 582-8000 PHONE: (713) 220-4200
FAX: (504) 582-8012 FAX: (713) 220-4285
---------------
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. [_]
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. [_]
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. [_]
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.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 6, 1998
PROSPECTUS
5,000,000 SHARES
HORIZON OFFSHORE, INC.
COMMON STOCK
--------
The 5,000,000 shares of common stock, par value $1.00 per share (the "Common
Stock"), of Horizon Offshore, Inc. ( "Horizon" or the "Company") offered hereby
(the "Offering") are being sold by the Company. Prior to this Offering, there
has not been a public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price for the Common Stock
will be between $12.00 and $14.00 per share. See "Underwriting" for information
relating to the factors considered in determining the initial public offering
price. The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "HOFF."
--------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ----------------------------------------------------
Total(3) $ $ $
- ----------------------------------------------------
- ----------------------------------------------------
</TABLE>
(1) For information concerning indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 750,000 additional shares of Common Stock solely to cover over-
allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $ , $ and $ , respectively.
--------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1998, at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York, 10001.
--------
SALOMON SMITH BARNEY
PAINEWEBBER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
, 1998
<PAGE>
[PHOTO APPEARS HERE]
The Gulf Horizon is a 350 foot long pipelay/pipebury barge capable of laying
up to 36 inch diameter pipelines. The vessel completed refurbishment in
January 1998 and is capable of installing pipelines in water depths of up to
800 feet.
[PHOTO APPEARS HERE]
The Lone Star Horizon is a 320 foot long pipelay/pipebury barge capable of
laying up to 48 inch diameter pipelines. The vessel completed refurbishment in
January 1998 and is capable of installing pipelines in water depths of up to
800 feet.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto included elsewhere
in this Prospectus. Unless otherwise indicated, the information in this
Prospectus (i) assumes that the Underwriters' over-allotment option will not be
exercised and (ii) has been adjusted to give effect to a 220 for one stock
split of the outstanding shares of Common Stock effected by means of a stock
dividend in January 1998. As used herein, unless the context requires
otherwise, references to Horizon or the Company include its predecessors and
subsidiaries.
THE COMPANY
Horizon provides marine construction services to the offshore oil and gas
industry primarily in the United States Gulf of Mexico (the "Gulf of Mexico" or
the "Gulf"). The Company's marine fleet is used primarily to install marine
pipelines to transport oil and gas from newly installed production platforms
and other subsea production systems. During 1997, the Company (i) assembled new
leadership with an entrepreneurial philosophy, significant operational
expertise and established customer relationships, (ii) aggressively expanded
its operating capabilities through the addition of strategic assets and (iii)
focused on delivering superior execution to its customers.
The Company has assembled a fleet of seven vessels, four of which are
currently operational, with one vessel expected to be operational in April 1998
and the remaining two vessels expected to be operational during the third
quarter of 1998. The Company's fleet will be capable of a wide range of marine
construction activities, including (i) installing up to 48-inch pipelines and
smaller diameter rigid and coiled-line pipe in water depths up to 800 feet,
(ii) providing pipebury and all other services necessary to commence
transporting oil and gas through an installed pipeline and (iii) installing and
salvaging production platforms and other marine structures. Management believes
that the Company's expanded fleet allows it to compete in the Gulf for
substantially all pipeline installation projects in shallow water depths of 200
feet and less and a substantial number of projects in intermediate water depths
of between 200 and 800 feet.
BUSINESS STRATEGY
The Company's business strategy is designed to capitalize on the positive
trends and current opportunities in the marine construction industry. Key
elements of the Company's strategy are to:
. MAINTAIN FOCUS IN GULF. Horizon intends to maintain its focus on the
shallow and intermediate water depths of the Gulf of Mexico because of
its strong competitive position in this market segment, its management
team's substantial expertise in this market segment and the positive
outlook for new oil and gas exploration and development activity in these
water depths.
. EXPAND OPERATING CAPABILITIES. Management believes that the ability to
offer a full range of pipeline construction services in varying water
depths is an important component in providing superior execution,
establishing and maintaining customer relationships and in implementing
the Company's strategy. Since mid-1997 the Company has significantly
expanded its operating capabilities through (i) the acquisition of two
pipelay/pipebury barges, one pipebury barge and a diving support vessel
and (ii) its alliance with DSND (described below).
. PURSUE SELECTED INTERNATIONAL EXPANSION OPPORTUNITIES. The Company is
considering and carefully evaluating expanding offshore into selected
international market areas in which members of the Company's management
team have extensive prior experience.
. PROVIDE DERRICK SERVICES. The Company is upgrading the Phoenix Horizon to
perform derrick services. The Company also intends to construct a second
derrick barge to be named the Pacific Horizon to take advantage of any
increase in demand for platform installation and removal services and
related activities in the Gulf.
. DELIVER SUPERIOR EXECUTION. During 1997, in response to increasing demand
and customer requests and to implement its business strategy, the Company
identified and assembled the individuals that comprise
3
<PAGE>
its current management team. The team was selected primarily due to its
entrepreneurial philosophy, significant operational expertise and
established customer relationships in the Gulf and international markets.
Since assuming their present operational responsibilities in mid-1997,
management has focused on and delivered superior execution of projects
for its customers through improved asset utilization and operating
efficiencies.
STRATEGIC ALLIANCE
On December 4, 1997, the Company entered into a definitive agreement with
Det Sondenfjelds-Norske Dampskibsselskab ASA ("DSND") to form a strategic
alliance. DSND is a Norwegian-based full-service contractor in the subsea
construction business with operations in the North Sea and offshore Brazil. As
part of the DSND strategic alliance, (i) DSND acquired 30% of the Company's
outstanding Common Stock from a subsidiary of Elliott Associates, L.P. and
Westgate International, L.P., the Company's principal stockholders
(collectively, the "Principal Stockholders"), (ii) DSND agreed to sell to the
Company the DSND Stephaniturm, a 230-foot diving support vessel equipped with
a dynamic positioning system that allows the vessel to stay in position
without the use of anchors, for $17.5 million, and (iii) the Company and DSND
agreed to form a joint venture (the "DSND Joint Venture"), which will be 30%
owned by the Company, to conduct primarily deep water pipelaying operations in
the Gulf, offshore Mexico and Canada, and in the Caribbean. The DSND Joint
Venture will have available to it a reel pipelaying vessel that is being
constructed and chartered by DSND. This reel pipelaying vessel is anticipated
to be deployed during the third quarter of 1999 and to be able to install 10
inch diameter pipe in water depths as great as 6,000 feet. The DSND Joint
Venture will also have access to DSND's other deep water pipelaying vessels
for any deep water pipelaying projects that may be obtained by the DSND Joint
Venture.
The Company is incorporated under the laws of the State of Delaware. Its
principal office is located at 2500 CityWest Boulevard, Suite 2200, Houston,
Texas 77042, and its telephone number is (713) 361-2600.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company........................... 5,000,000 shares
Common Stock to be outstanding af-
ter the Offering.................. 19,076,480 shares(1)
Use of Proceeds.................... The Company intends to use the net proceeds
of the Offering as follows (i) $17.5
million to acquire the DSND Stephaniturm,
(ii) approximately $14 million to construct
the Pacific Horizon and (iii) the remaining
proceeds will be used to repay indebtedness
incurred primarily for vessel acquisitions
and upgrades. See "Use of Proceeds."
Nasdaq National Market Symbol...... HOFF
</TABLE>
- -------
(1) Does not include (i) 750,000 shares issuable upon exercise of options that
will be granted at the initial public offering price in connection with
the Offering and (ii) 1,200,000 additional shares reserved for issuance
under the Company's Stock Incentive Plan (the "Incentive Plan"). See
"Management--Stock Incentive Plan."
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In particular, prospective investors should be aware of the potential
effects on the Company of the risks presented by the factors listed under
"Risk Factors."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents for the periods indicated certain summary
historical financial information and operating data of the Company. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated historical financial statements and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
INCEPTION
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996(1) 1997
------------ --------------
(IN THOUSANDS, EXCEPT PER
SHARE AND OPERATING DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Contract revenues.................................. $ 14,088 $ 36,144
Costs of contract revenues......................... 21,616 30,104
-------- --------
Gross profit (loss).............................. (7,528) 6,040
Selling, general and administrative expenses....... 2,047 2,788
-------- --------
Operating income (loss).......................... (9,575) 3,252
Other income (expense):
Interest......................................... (1,662) (1,619)
Gain on sale of asset............................ -- 614
Other............................................ 40 29
-------- --------
Net income (loss) before income taxes.............. (11,197) 2,276
Income tax benefit................................. (1,617) --
-------- --------
Net income (loss).................................. $ (9,580) $ 2,276
======== ========
Net income (loss) per share........................ $ (0.70) $ 0.17
======== ========
Pro forma net income per share(2).................. $ 0.28
========
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in) operating
activities........................................ $ (9,568) $ 3,491
Net cash used in investing activities.............. (25,916) (28,306)
Net cash provided by financing activities.......... 38,134 25,011
OTHER NON-GAAP FINANCIAL DATA:
EBITDA(3).......................................... $ (8,860) $ 4,254
OTHER FINANCIAL DATA:
Depreciation....................................... $ 715 $ 1,002
Capital expenditures............................... 29,999 38,267
OPERATING DATA:
Number of vessels operating at end of period....... 2 2
Barge days(4)...................................... 347 568
Miles of pipe laid................................. 65 125
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------
AS ADJUSTED(5)
HISTORICAL (UNAUDITED)
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).......................... $ (2,113) $ 17,335
Property and equipment, net........................ 55,040 72,540
Total assets....................................... 72,989 107,606
Long-term debt, net of current maturities.......... 34,729 10,777
Stockholders' equity............................... 20,059 80,959
</TABLE>
5
<PAGE>
- --------
(1) Results are from inception (December 20, 1995) through December 31, 1996.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."
(2) Pro forma net income per share is calculated by adding back interest
expense related to the debt anticipated to be paid off upon consummation
of the Offering to net income divided by the shares used in computing net
income per share.
(3) The Company calculates EBITDA (earnings before interest expense, income
taxes, depreciation and amortization) as operating income plus depreciation
and amortization. EBITDA is a supplemental financial measurement used by
the Company and investors in the marine construction industry in the
evaluation of its business. Management believes that EBITDA provides
supplemental information about the Company's ability to meet its future
requirements for debt service, capital expenditures and working capital and
is not intended to depict funds available for reinvestment or other
discretionary uses. Management of the Company believes that factors that
should be considered by investors in evaluating EBITDA include, but are not
limited to, trends in EBITDA as compared to cash flow from operations, debt
service requirements and capital expenditures. Management believes that the
trends predicted by the Company's historical EBITDA reflect the Company's
operating loss in 1996 and the Company's improved operating performance in
1997. The Company's measurement of EBITDA may not be comparable to
similarly titled measures reported by other companies. Further, EBITDA
should not be considered in isolation or as an alternative to, or more
meaningful than, net income, cash flow provided by operations or any other
measure of performance determined in accordance with generally accepted
accounting principles as an indicator of the Company's profitability or
liquidity.
(4) Number of days vessels are offshore performing services, in transit or
waiting on inclement weather, while under contract.
(5) As adjusted to give effect to the Offering and the application of the net
proceeds from the Offering as described under "Use of Proceeds" and the
collection of the subscription receivable in January 1998.
6
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
risk factors set forth below, as well as other information contained in this
Prospectus.
INDUSTRY VOLATILITY
Demand for the Company's services depends on the condition of the oil and
gas industry and, in particular, the level of capital expenditures by oil and
gas companies for developmental construction. These activities traditionally
have been cyclical and influenced by prevailing oil and gas prices,
expectations about future demand and prices, the cost of exploring for,
producing and developing oil and gas reserves, the discovery rate of new oil
and gas reserves, sale and expiration dates of offshore leases in the United
States and abroad, political and economic conditions, governmental regulations
and the availability and cost of capital. Historically, oil and gas prices and
the level of exploration and development activity have fluctuated
substantially resulting in significant fluctuations in demand for pipeline and
other developmental construction services. The Company's results in recent
periods have benefited from improved market conditions for the Company's
services as a result of increased oil and gas exploration and development
activity. There can be no assurance that the current market conditions will
continue. Recently, oil prices have decreased primarily as a result of, among
other things, decreased international demand and economic uncertainty in the
Far East. The Company is unable to predict whether these industry conditions
will continue and what impact they may have on the Company's operations.
However, any significant decline in worldwide demand for oil and gas or a
prolonged reduction in oil or gas prices in the future would likely depress
development activity and could have a material adverse effect on the Company's
revenues and profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General" and "Business--
Seasonality, Cyclicality and Factors Affecting Demand."
RISKS OF RAPID GROWTH
The Company has grown rapidly over the last year through internal growth and
acquisitions of additional marine equipment. The Company increased the size of
its original fleet in 1997 from two to seven vessels by purchasing two
pipelay/pipebury barges, one pipebury barge, one barge that is being upgraded
and refurbished to serve as a derrick barge and one diving support vessel. The
Company also intends to acquire another diving support vessel and construct a
derrick barge with a portion of the proceeds of the Offering. During 1997, the
Company generated $3.5 million in net cash from its operating activities as a
result of the expansion of the Company's operations and improved operating
results. If the Company experiences delays in completing the refurbishment and
upgrade of the remaining vessels acquired in 1997 that have not commenced
operations, constructing the derrick barge or any other vessels the Company
may construct or acquire and upgrade in the future, the Company's operations
may be negatively affected until the vessels are completed and placed in
service. Managing the rapid growth experienced by the Company will be
important for its future success and will demand increased responsibilities
for its executive management team. Several factors, including the need for
talented executive-level personnel, increased marketing, estimating, bidding,
planning and administrative burdens and the increased logistical problems of
expanding operations in the Gulf and international market areas, operating new
equipment and commencing international operations, could present difficulties,
which if not managed successfully, could have a material adverse effect on the
Company's revenues and profitability.
In addition, the Company anticipates that part of its growth will come from
the installation and removal or salvaging of offshore fixed platforms, which
the Company expects to commence in the third quarter of 1998. While the
Company believes that the need to salvage platforms in the Gulf will increase
and that the Company will be able to compete for this business due to the
experience of its management team, the Company has no prior experience in
installing and salvaging platforms, and thus there can be no assurance that
the Company will be successful in installing and salvaging platforms.
7
<PAGE>
NEED FOR ADDITIONAL FINANCING
The Company's acquisition strategy may require significant amounts of
additional capital. Although the Company will substantially reduce its debt
after the application of the net proceeds of the Offering, it may be required
to incur substantial indebtedness to finance future acquisitions and also may
issue equity securities in connection with such acquisitions. Such additional
debt service requirements may represent a significant burden on the Company's
results of operations and financial condition. The issuance of additional
equity securities could result in significant dilution to stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
1996 OPERATING LOSS; LACK OF OPERATING HISTORY
The Company was incorporated in December 1995 and incurred a $9.6 million
net loss and had a negative cash flow of approximately $9.6 million from its
operating activities for the period from its inception (December 20, 1995)
through December 31, 1996. This loss resulted primarily from actions
undertaken by the Company under the direction of its former management team,
in attempting to expand the Company's operations into the Middle East. Under
prior management, the Company agreed to acquire and refurbish a barge for
purposes of providing construction services in the Middle East. In connection
with the purchase, the Company undertook certain actions to perform
construction services for a customer of the seller. The Company encountered
title disputes over the barge, higher than anticipated barge refurbishing
costs and the subsequent rejection of the barge by the customer. Present
management of the Company has resolved title, contractual and other legal
disputes pertaining to the barge and related project through negotiation with
the seller and customer and is in the process of upgrading and refurbishing
the barge, which has been renamed the Phoenix Horizon. The Company acquired
the barge for $4.8 million and paid $4.9 million to the customer to settle the
claims. The Company financed $3.0 million of the acquisition price with a note
payable to the seller and $4.4 million is payable to the customer in monthly
installments beginning in January 1998 until March 2003. In April 1997, a
former member and employee of a subsidiary of the Company filed actions in a
Texas District Court in Harris County, Texas seeking $10 million in
compensatory damages and $20 million in punitive damages against the
subsidiary, a Principal Stockholder and other persons alleging that he was
wrongfully terminated as an employee following the difficulties experienced
with this barge and the related project in the Middle East and that the
defendants deprived him of his equity interest in the subsidiary of the
Company. The actions were settled in February 1998 with the Principal
Stockholder paying $150,000 and each party completely releasing the other from
any further liability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company, which was organized in December 1995, has limited experience in
conducting business and operations and its business strategy has been recently
developed. Primarily as a result of the net loss incurred by the Company in
1996, the Company had a negative cash flow of approximately $9.6 million from
its operating activities in 1996. Prior to this Offering, the Company has used
borrowings and proceeds from the sale of assets to fund the cash used in
operations and capital expenditures. As with any new enterprise, the business
plans and strategy of the Company are being continually evaluated and revised
and there can be no assurance that the Company's business plans and strategies
will be implemented or, if implemented, that they will be successful.
INTERNATIONAL OPERATIONS
A key element of the Company's strategy is to expand its operations into
international offshore oil and gas producing areas. The Company's
international operations will be subject to a number of risks inherent in any
business operating in foreign countries, including political, social and
economic instability, potential vessel seizure, increased operating costs,
nationalization of assets, currency restrictions and exchange rate
fluctuations, nullification, modification or renegotiation of contracts,
import-export quotas and other forms of public and governmental regulation,
all of which are beyond the control of the Company. Additionally, the ability
of the Company to compete in international market areas may be adversely
affected by foreign governmental regulations that favor or require the
awarding of contracts to local contractors, or by regulations requiring
foreign
8
<PAGE>
contractors to employ citizens of, establish foreign subsidiaries with
significant ownership positions reserved for citizens of, or purchase supplies
from, that country. Furthermore, any foreign subsidiaries of the Company may
face governmentally imposed restrictions from time to time on their ability to
transfer funds to the Company. No predictions can be made as to what foreign
governmental regulations applicable to the Company's operations may be enacted
in the future. Although it is impossible to predict the nature and the
likelihood of any of these types of events, if such an event should occur, it
could have a material adverse effect on the Company's financial condition and
results of operations. The Company encountered significant difficulties in
attempting to establish operations offshore Middle East under the supervision
of its prior management team and does not intend to pursue any opportunities
in the Middle East. See "--1996 Operating Loss; Lack of Operating History."
RISKS OF JOINT VENTURE OPERATIONS
The Company believes that many of its international operations will be
conducted through joint ventures, which will be jointly managed and controlled
by the Company and the joint venture partner. The DSND Joint Venture, which
will be owned 30% by the Company, will operate the vessels made available to
it by DSND to lay pipe in deep and intermediate water depths in the Gulf,
offshore Mexico and Canada, and in the Caribbean. The Company anticipates
entering into additional joint ventures with other entities if it expands into
other international market areas. Under the terms of the DSND Joint Venture,
the Company will not have the ability to control the business and affairs of
the joint venture. In addition, any future foreign joint ventures may, from
time to time, face governmentally imposed restrictions on their ability to
transfer funds to the Company. See "--International Operations."
SHORTAGE OF SKILLED WORKERS
The Company's ability to increase its profitability depends on its ability
to attract and retain workers. The Company's number of employees has increased
from three at January 1, 1996 to approximately 327 at February 15, 1998. The
Company expects that the total number of employees will increase further in
order to support the Company's anticipated growth. The Company estimates that
it will need to hire approximately 400 additional workers to staff the four
barges it purchased in 1997 that are expected to be operational in 1998. As a
result, management must devote significant time, effort and expense to hire,
train and retain qualified workers. While the Company believes that its wage
rates are competitive and that its relationship with its workforce is good, a
significant increase in the wages paid by other employers could result in a
reduction in the Company's workforce, increases in the wage rates paid by the
Company, or both. If either of these events occur for any significant period
of time, the Company's profitability could be diminished and the growth
potential of the Company could be impaired. See "Business--Employees."
RISKS OF OPERATIONS AND INADEQUATE INSURANCE COVERAGE
Offshore construction involves a high degree of operational risk. Hazards,
such as vessels capsizing, sinking, grounding, colliding and sustaining damage
from severe weather conditions, are inherent in offshore operations. These
hazards can cause significant personal injury or loss of life, severe damage
to and destruction of property and equipment, pollution or environmental
damage and suspension of operations. Litigation arising from such an
occurrence may result in the Company being named as a defendant in lawsuits
asserting large claims. The Company maintains such insurance protection as it
deems prudent, including hull insurance on its vessels. There can be no
assurance that any such insurance will be sufficient or effective under all
circumstances or against all hazards to which the Company may be subject. A
successful claim for which the Company is not fully insured could have a
material adverse effect on the Company. Moreover, no assurance can be given
that the Company will be able to maintain adequate insurance in the future at
rates that it considers reasonable. See "Business--Insurance."
9
<PAGE>
COMPETITION
The Company's business is highly competitive. Marine construction companies
operating offshore in the Gulf of Mexico compete vigorously for available
projects. Contracts for the Company's services are generally awarded on a
competitive bid basis, and while customers may consider, among other things,
the availability and capabilities of equipment, and the reputation, safety
record and experience of the contractor, intense price competition is the
primary factor in determining which qualified contractor is awarded the job.
As the Company increases the portion of its operations conducted in water
depths in excess of 200 feet and internationally, it will encounter additional
competitors, many of whom have greater experience than the Company in such
markets. Many of the Company's competitors and potential competitors are
larger and have greater financial and other resources than the Company.
Competitors with greater financial resources may be willing to sustain losses
on certain projects to prevent further market entry by other competitors. In
addition, marine construction vessels have few alternative uses and, because
of their nature and the environment in which they work, have relatively high
maintenance costs whether or not operating. Because these costs are
essentially fixed, and in order to avoid the additional expenses associated
with temporarily idling or "stacking" its vessels, some competitors may from
time to time bid contracts at rates below those of the Company in order to
cover their variable operating expenses and contribute to their fixed
operating expenses. Moreover, increased activity levels in the Gulf of Mexico
may attract additional competitors or marine equipment to the Gulf of Mexico
market area. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends on, among other things, the continued active
participation of the Company's executive officers and certain of the Company's
other key operating personnel. Several members of management and operating and
professional personnel have had extensive experience with other providers of
marine construction services in a variety of projects in domestic and
international market areas. The loss of the services of any one of these
persons could have a material adverse effect on the Company. The Company has
entered into employment agreements with each of its executive officers that
expire three years from the date of the Offering.
CONTRACT BIDDING RISKS
Due to the nature of the offshore construction industry, substantially all
of the Company's projects are performed on a fixed-price basis. The revenue,
costs and gross profit realized on a contract will often vary from the
estimated amount because of changes in offshore job conditions and variations
in labor and equipment productivity from the original estimates. These
variations and the risk generally inherent in the marine construction industry
may result in gross profits realized by the Company being different from those
originally estimated and reduced profitability or losses on projects. In
addition, during the summer construction season, the Company typically bears
the risk of delays caused by adverse weather conditions.
PERCENTAGE-OF-COMPLETION ACCOUNTING
The Company's contract revenues are recognized on a percentage-of-completion
basis. Accordingly, contract revenue and cost estimates are reviewed
periodically as the work progresses, and adjustments are reflected in income
in the period when such revisions are determined. To the extent that these
adjustments result in a reduction or elimination of previously reported
profits, the Company would recognize a charge against current earnings that
may be significant depending on the size of the project or the adjustment. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" and the notes to the Company's consolidated
financial statements.
10
<PAGE>
RISKS OF GROWTH STRATEGY
Future acquisitions of other complementary businesses and marine equipment
are a key element of the Company's growth and expansion strategy. The Company
may use a portion of the net proceeds of the Offering to pursue acquisitions
of additional marine equipment or acquisitions of other companies with
operations related or complementary to its current operations. See "Use of
Proceeds." There can be no assurance that the Company will be able to identify
and acquire acceptable marine equipment or acquisition candidates on financial
or other terms favorable to the Company. The acquisition and refurbishment or
construction of marine equipment involves potential delays and increased costs
due to unanticipated delays in equipment deliveries, scheduling service
providers, equipment condition and assembly or construction. Any inability on
the part of the Company to purchase additional marine equipment or other
complementary vessels on favorable financial or other terms or to integrate
and manage acquired businesses could have a material adverse effect on the
Company's revenues and profitability.
SEASONALITY AND WEATHER RISKS
The offshore construction industry in the Gulf of Mexico is highly seasonal
as a result of weather conditions and historically as a result of the timing
of capital expenditures by oil and gas companies. Historically, the greatest
demand for marine construction services has been during the period from May
through September. As a result, a disproportionate amount of the Company's
contract revenues are earned during the last half of each fiscal year. Because
of seasonality, full year results are not likely to be a direct multiple of
any particular quarter or combination of quarters. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company intends to partially offset the seasonality of its operations in the
Gulf by pursuing selected international expansion opportunities. No assurances
can be given that such expansion opportunities, if successful, will result in
the anticipated offset of the seasonality of the Company's Gulf operations.
REGULATORY AND ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to and affected by
various types of governmental regulation. Violations of various statutory and
regulatory programs that apply to the Company's operations can result in civil
penalties, remediation expenses, monetary damages, potential injunctions,
cease and desist orders and criminal penalties. Some environmental statutes
impose strict liability, rendering a person liable for environmental damage
without regard to negligence or fault on the part of such person. To date the
Company's cost of complying with such laws and regulations has not been
material, but because such laws and regulations are changed frequently, it is
not possible for the Company to accurately predict the cost or impact of such
laws and regulations on its future operations. In addition, the loss by the
Company of any of the licenses required for its operations for any reason
could have a material adverse effect on the Company's operations.
The Company depends on the demand for its services from the oil and gas
industry and is affected by changing taxes and other laws and regulations
relating to the oil and gas industry generally. The adoption of laws and
regulations curtailing exploration and development drilling for oil and gas in
the Company's areas of operations, or delays in taking action, for staffing,
economic, environmental or other policy reasons would adversely affect the
Company's operations by limiting demand for its services. The Company cannot
determine to what extent future operations and earnings of the Company may be
affected by new legislation, new regulations or changes in existing
regulations. See "Business--Regulation."
DEPENDENCE ON SIGNIFICANT CUSTOMERS
The Company's business depends on maintaining strong working relationships
with the oil and gas companies operating in the Gulf of Mexico. Coastal Oil &
Gas Corporation and Santa Fe Energy Resources Corporation accounted for
approximately 15% and 11%, respectively, of the Company's revenues for the
year period ended December 31, 1997. The loss of any significant customer for
any reason could result in a substantial loss of revenue and have a material
adverse effect on the Company's profitability. See "Business--Customers."
11
<PAGE>
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of the Offering, the Principal Stockholders and DSND will
beneficially own approximately 72.1% (69.4% if the Underwriters' over-
allotment option is exercised in full) of the outstanding shares of Common
Stock. The Principal Stockholders' and DSND's stock ownership gives them the
ability to control the election of the Company's directors and the business
and affairs of the Company. DSND has agreed with the Principal Stockholders
and the Company to vote its shares of Common Stock for the director nominees
proposed for election by the Company's Board of Directors. Jonathan D.
Pollock, the Company's Chairman of the Board, is affiliated with the Principal
Stockholders. The Company intends to use approximately $19 million of the net
proceeds of the Offering to pay indebtedness owed to the Principal
Stockholders. The interests of the Principal Stockholders and DSND may not
always be the same as the interests of the Company's other stockholders. See
"Management--Stockholder's Agreement" and "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
19,076,480 shares of Common Stock (excluding approximately 750,000 shares
issuable upon the exercise of options to be issued in connection with the
Offering). All of the 5,000,000 shares of Common Stock offered hereby will be
eligible for sale in the public market without restriction upon completion of
the Offering by persons who are not deemed to be affiliates of the Company or
acting as underwriters. All of the remaining outstanding shares of Common
Stock are "restricted securities" as that term is defined in Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"). The Company,
the Principal Stockholders, DSND and each of the Company's directors and
executive officers have agreed not to offer, sell or otherwise dispose of any
shares of Common Stock in the public market for 180 days from the date of this
Prospectus without the prior written consent of Smith Barney Inc. See
"Underwriting." DSND and the Principal Stockholders also have rights to
require the Company under certain circumstances to register under the
Securities Act all of the shares of Common Stock owned by them. DSND and the
Principal Stockholders have waived their registration rights with respect to
the Offering. Although the Company cannot predict the timing or amount of
future sales of Common Stock or the effect that the availability of such
shares for sale will have on the market price prevailing from time to time,
sales of substantial amounts of Common Stock in the public market following
this Offering, including sales in connection with a registered offering of
Common Stock, could adversely affect the market price of the Common Stock. See
"Principal Stockholders" and "Shares Eligible for Future Sale."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF MARKET PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although application has been made to list the Common Stock offered hereby on
the Nasdaq National Market, there can be no assurance that a market for the
Common Stock will develop or, if developed, will be sustained. The initial
public offering price of the Common Stock will be determined by negotiations
between the Company and the Underwriters. For the factors considered in such
negotiations, see "Underwriting." There can be no assurance that future market
prices at which the Common Stock will sell in the public market after the
Offering will not be lower than the initial public offering price. Following
the Offering, the market price of the Common Stock may fluctuate depending on
various factors, including the general economy, stock market conditions,
general trends in the marine construction business, fluctuations in oil and
gas prices, announcements by the Company or its competitors and variations in
the Company's quarterly and annual operating results.
DILUTION
Purchasers of the Common Stock in the Offering will incur immediate dilution
of $8.76 per share in the pro forma net tangible book value of their
investment (assuming an initial public offering price of $13.00 per share).
See "Dilution."
12
<PAGE>
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION, BYLAWS AND THE DELAWARE GENERAL CORPORATION LAW
The Company's Certificate of Incorporation and Bylaws contain, among other
things, provisions establishing a classified Board of Directors, authorizing
shares of preferred stock with respect to which the Board of Directors of the
Company has the power to fix the rights, preferences, privileges and
restrictions without any further vote or action by the stockholders, and
requiring an 80% vote of stockholders in order to remove directors, amend the
Certificate of Incorporation, Bylaws and approve certain business combinations
with respect to an "interested stockholder." Such provisions could delay,
deter or prevent a merger, consolidation, tender offer, or other business
combination or change of control involving the Company that some or a majority
of the Company's stockholders might consider to be in their best interest,
including offers or attempted takeovers that might otherwise result in such
stockholders receiving a premium over the market price for the Common Stock.
The potential issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the Company, may discourage
bids for the Common Stock at a premium over the market price of the Common
Stock and may adversely affect the market price of, and the voting and other
rights of the holders of, Common Stock. The Company has not issued, and
currently has no plans to issue, any shares of preferred stock. See
"Description of Capital Stock--Certain Charter and Bylaw Provisions."
DIVIDENDS
The Company currently intends to retain earnings, if any, to meet its
working capital requirements and to finance the future operation and growth of
the Company's business and, therefore, does not plan to declare or pay cash
dividends to holders of its Common Stock in the foreseeable future. In
addition, the ability of the Company to make distributions to its shareholders
is prohibited by its revolving credit and term loan facility with Den norske
Bank (the "Credit Facility"). See "Dividend Policy."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that may be deemed "forward-
looking statements." All statements, other than statements of historical fact,
included in this Prospectus that address activities, events or developments
that the Company intends, expects, projects, believes or anticipates will or
may occur in the future, including, without limitation, statements regarding
the Company's business strategy, plans and objectives, statements expressing
beliefs and expectations regarding future demand for the Company's services
and other events and conditions that may influence the demand for and prices
received for marine construction services in the Gulf of Mexico and elsewhere
and the Company's performance in the future, statements concerning future
growth and expansion into international producing areas, including the
anticipated level of capital expenditures for, and the nature and scheduling
of construction projects and other such matters are forward-looking
statements. Such statements are based on certain assumptions and analyses made
by management of the Company in light of its experience and its perception of
historical trends, current conditions, expected future developments and other
factors it believes to be appropriate. The forward-looking statements included
in this Prospectus are also subject to a number of material risks and
uncertainties. Important factors that could cause actual results to differ
materially from the Company's expectations are discussed herein under the
captions "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Prospective investors are cautioned that
such forward-looking statements are not guarantees of future performance and
that actual results, developments and business decisions may differ from those
envisaged by such forward-looking statements.
13
<PAGE>
DIVIDEND POLICY
After the Offering, the Company intends to retain earnings, if any, to meet
its working capital requirements and to finance the future growth of its
business and, therefore, does not plan to declare or pay cash dividends to
holders of its Common Stock in the foreseeable future. In addition, the
Company is prohibited from making distributions to its stockholders by the
Credit Facility. See "Risk Factors--Dividends" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
DILUTION
Dilution is the difference between the initial public offering price per
share of the Common Stock offered hereby and the net tangible book value per
share of the Common Stock after giving effect to the Offering. Net tangible
book value per share of Common Stock represents the amount of the Company's
tangible net worth (total tangible assets less total liabilities) divided by
the total number of shares of Common Stock outstanding. The net tangible book
value of the Company at December 31, 1997 was $20.1 million, or $1.43 per
share of Common Stock. After giving effect to the Offering (assuming an
initial public offering price of $13.00 per share and deducting the estimated
underwriting discounts and commissions and offering expenses) and the
collection of the subscription receivable in January 1998, the net tangible
book value of the Company at December 31, 1997 would have been approximately
$80.9 million or $4.24 per share of Common Stock. This represents an immediate
increase in net tangible book value of $2.81 per share of Common Stock to
current holders of Common Stock and an immediate dilution of approximately
$8.76 per share to the new investors purchasing shares in the Offering.
The following table illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $13.00
Net tangible book value per share as of December 31, 1997........ $1.43
Increase attributable to new investors........................... 2.81
-----
Adjusted net tangible book value per share after the Offering...... 4.24
------
Dilution per share to new investors................................ $ 8.76
======
</TABLE>
The following table summarizes, on an as adjusted basis, at December 31,
1997, the number of shares of Common Stock to be issued by the Company in
connection with the Offering, the total consideration received by the Company
and the average price per share of Common Stock paid by existing stockholders
and by new investors in the Offering (assuming an initial public offering
price of $13.00 per share) before deducting the underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 14,076,480 74% $28,312,500 30% $ 2.01
New investors.................. 5,000,000 26% 65,000,000 70% $13.00
---------- --- ----------- ---
Total........................ 19,076,480 100% $93,312,500 100%
========== === =========== ===
</TABLE>
The above computations do not give effect to (i) 750,000 shares issuable
upon exercise of options that will be granted at the initial public offering
price in connection with the Offering and (ii) 1,200,000 additional shares
reserved for issuance under the Company's Incentive Plan. See "Management--
Stock Incentive Plan."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby, after deducting underwriting discounts and commissions and estimated
offering expenses, will be approximately $60 million, assuming an initial
public offering price of $13.00 per share ($69.0 million if the Underwriters'
over-allotment option is exercised in full). The Company will use $17.5
million of the net proceeds to purchase the DSND Stephaniturm from DSND and
anticipates using approximately $14 million to construct the Pacific Horizon.
The Company also intends to use approximately $23 million of the net proceeds
from the Offering to repay all outstanding indebtedness owed to the Principal
Stockholders and approximately $5.5 million to repay a portion of the
outstanding indebtedness under the Credit Facility. If the over-allotment
option is exercised, any proceeds will be used to repay outstanding
indebtedness under the Credit Facility.
Borrowings under the Credit Facility bear interest at 9% per annum and
mature on June 30, 2002. Borrowings from the Principal Stockholders bear
interest at 10% per annum with quarterly principal payments required
commencing March 31, 2003 and final maturity on December 31, 2005. Funds
borrowed under the Credit Facility and from the Principal Stockholders within
the past year were used to acquire the Lone Star Horizon, the Canyon Horizon,
the Gulf Horizon and the Phoenix Horizon and for general corporate purposes.
Upon completion of the Offering, the Company anticipates that the Credit
Facility will be amended to provide for a $30 million term loan facility and a
$20 million revolving credit facility. The full amount of the Credit Facility
will be available to the Company for general corporate purposes.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 on an actual basis and as adjusted to give effect to the
Offering (at an assumed initial public offering price of $13.00 per share) and
the application of the estimated net proceeds therefrom as described under
"Use of Proceeds" and the collection of the subscription receivable in January
1998. The table set forth below should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
ACTUAL AS ADJUSTED
----------- ------------
(UNAUDITED)
<S> <C> <C>
Long-term debt, less current maturities.......... $ 34,729 $10,777
----------- -----------
Stockholders' equity:
Preferred stock, par value $1.00 per share;
5,000,000 shares authorized; no shares issued
and outstanding............................... -- --
Common stock, par value $1.00 per share;
35,000,000 shares authorized; 14,076,480
shares issued and outstanding (actual),
19,076,480 shares issued and outstanding (as
adjusted)(1).................................. 3,369 8,369
Additional paid-in capital..................... 24,944 79,894
Subscription receivable........................ (950) --
Accumulated deficit............................ (7,304) (7,304)
----------- -----------
Total stockholders' equity................... 20,059 80,959
----------- -----------
Total capitalization............................. $ 54,788 $ 91,736
=========== ===========
</TABLE>
- --------
(1) Does not include (i) 750,000 shares issuable upon exercise of options that
will be granted at the initial public offering price in connection with
the Offering and (ii) 1,200,000 additional shares reserved for issuance
under the Incentive Plan.
16
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The selected financial and operating data for the periods ended December 31,
1996 and 1997 are derived from the audited financial statements of the Company.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
INCEPTION
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996(1) 1997
------------ ------------
(IN THOUSANDS, EXCEPT PER
SHARE AND OPERATING DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Contract revenues..................................... $ 14,088 $ 36,144
Costs of contract revenues............................ 21,616 30,104
-------- --------
Gross profit (loss)................................. (7,528) 6,040
Selling, general and administrative expenses.......... 2,047 2,788
-------- --------
Operating income (loss)............................. (9,575) 3,252
Other income (expense)
Interest expense.................................... (1,662) (1,619)
Gain on sale of asset............................... -- 614
Other expense....................................... 40 29
-------- --------
Net income (loss) before income taxes................. (11,197) 2,276
Income tax benefit.................................... (1,617) --
-------- --------
Net income (loss)..................................... $ (9,580) $ 2,276
======== ========
Net income (loss) per share........................... $ (0.70) $ 0.17
======== ========
Pro forma net income per share(2)..................... $ 0.28
========
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in) operating activities... $ (9,568) $ 3,491
Net cash used in investing activities................. (25,916) (28,306)
Net cash provided by financing activities............. 38,134 25,011
OTHER NON-GAAP FINANCIAL DATA:
EBITDA(3)............................................. $ (8,860) $ 4,254
OTHER FINANCIAL DATA:
Depreciation.......................................... $ 715 $ 1,002
Capital expenditures.................................. 29,999 38,267
OPERATING DATA:
Number of vessels operating at end of period.......... 2 2
Barge days(4)......................................... 347 568
Miles of pipe laid.................................... 65 125
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................. $ 534 $ (2,113)
Property and equipment, net........................... 29,284 55,040
Total assets.......................................... 39,690 72,989
Long-term debt, net of current maturities............. 38,104 34,729
Stockholders' equity (deficit)........................ (6,550) 20,059
</TABLE>
17
<PAGE>
- --------
(1) Results are from inception (December 20, 1995) through December 31, 1996.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."
(2) Pro forma net income per share is calculated by adding back interest
expense related to the debt anticipated to be paid off upon consummation
of the Offering to net income divided by the shares used in computing net
income per share.
(3) The Company calculates EBITDA (earnings before interest expense, income
taxes, depreciation and amortization) as operating income plus
depreciation and amortization. EBITDA is a supplemental financial
measurement used by the Company and investors in the marine construction
industry in the evaluation of its business. Management believes that
EBITDA provides supplemental information about the Company's ability to
meet its future requirements for debt service, capital expenditures and
working capital and is not intended to depict funds available for
reinvestment or other discretionary uses. Management of the Company
believes that factors that should be considered by investors in evaluating
EBITDA include, but are not limited to, trends in EBITDA as compared to
cash flow from operations, debt service requirements and capital
expenditures. Management believes that the trends predicted by the
Company's historical EBITDA reflect the Company's operating loss in 1996
and the Company's improved operating performance in 1997. The Company's
measurement of EBITDA may not be comparable to similarly titled measures
reported by other companies. Further, EBITDA should not be considered in
isolation or as an alternative to, or more meaningful than, net income,
cash flow provided by operations or any other measure of performance
determined in accordance with generally accepted accounting principles as
an indicator of the Company's profitability or liquidity.
(4) Number of days vessels are offshore performing services, in transit or
waiting on inclement weather, while under contract.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and notes thereto included
elsewhere in this Prospectus. The following information contains forward-
looking statements, which are subject to risks and uncertainties. Should one
or more of these risks or uncertainties materialize, actual results may differ
from those expressed or implied by the forward-looking statements. See "Risk
Factors" and "Forward-Looking Statements."
GENERAL
The Company provides marine construction services to the oil and gas
industry primarily in the Gulf of Mexico. The Company's marine fleet is used
primarily to install marine pipelines to transport oil and gas from newly
installed production platforms and other subsea production systems. Over the
past several years, improvements in seismic and drilling technology and
production techniques, which have increased drilling success rates and
efficiencies, together with improved oil and gas prices have resulted in
increased exploration and development in the Gulf and have improved the
economics of developing smaller oil and gas fields, especially in shallow
water. According to Offshore Data Services reports, the number of offshore
rigs operating in the Gulf has increased from less than 60 in May 1992 to
approximately 170 in December 1997.
The present management team, which assumed its current role in July 1997,
has aggressively expanded the Company's operations and has assembled a fleet
of seven vessels, which includes four vessels capable of pipelaying
operations, one bury barge, one derrick vessel and one diving support vessel.
Two of the pipelaying vessels, the American Horizon and the Cajun Horizon,
were placed into service in April 1996 and July 1996, respectively. The
American Horizon and the Cajun Horizon installed approximately 125 miles of
pipe ranging in diameter from three to ten inches during the year ended
December 31, 1997 compared to approximately 65 miles during the year ended
December 31, 1996. In the third quarter of 1997, the Company completed the
purchase of the Phoenix Horizon, which will be upgraded and refurbished to
serve as a combination derrick/pipelay vessel and is anticipated to be placed
into service during the third quarter of 1998. Two pipelaying vessels, the
Gulf Horizon and Lone Star Horizon, a bury barge, the Canyon Horizon, and a
diving support vessel, the Pearl Horizon, were acquired in the second half of
1997. The Gulf Horizon and Lone Star Horizon became operational during the
first quarter of 1998, the Pearl Horizon is expected to become operational in
April 1998 and the Canyon Horizon is expected to be placed into service during
the third quarter of 1998. The Company's expanded fleet will allow it to
compete in the Gulf for substantially all pipeline installation projects in
shallow water depths of 200 feet and less and a significant number of projects
in intermediate water depths between 200 and 800 feet.
The demand for offshore construction services in the Gulf depends largely on
the condition of the oil and gas industry and, in particular, the level of
capital expenditures by oil and gas companies for developmental construction.
These expenditures are influenced by prevailing oil and gas prices,
expectations about future demand and prices, the cost of exploring for,
producing and developing oil and gas reserves, the discovery rates of new oil
and gas reserves, sale and expiration dates of offshore leases in the United
States and abroad, political and economic conditions, governmental regulations
and the availability and cost of capital. Historically, oil and gas prices and
the level of exploration and development activity have fluctuated
substantially, impacting the demand for pipeline and marine construction
services. See "Risk Factors--Industry Volatility."
Factors affecting the Company's profitability include competition, equipment
and labor productivity, contract estimating, weather conditions and the other
risks inherent in marine construction. The marine construction industry in the
Gulf is highly seasonal as a result of weather conditions with the greatest
demand for these services occurring during the second and third calendar
quarters of the year. Full year results are not a direct multiple of any
quarter or combination of quarters because of this seasonality. See "Risk
Factors."
RESULTS OF OPERATIONS
The discussion below describes the Company's results of operations. Three
factors in particular make the results of the following periods difficult to
compare. First, the Company's new management team assumed its
19
<PAGE>
current role in July 1997 and has implemented operational systems and
procedures that include improved bidding and profitability analyses for
projects, project supervision and review procedures, and increased equipment
utilization achieved through vessel and project scheduling. Second, in the
fourth quarter of 1996, the Company experienced difficulties in the Middle
East primarily related to the acquisition of a barge and related pipelay
project which resulted in significant financial losses described in the
results of operations for the period from inception to December 31, 1996.
Third, the Company's two vessels that operated in 1997, the American Horizon
and Cajun Horizon, commenced operations in April and July 1996, respectively.
During the last quarter of 1997, the Company has made significant
acquisitions and improvements to its fleet. The Company anticipates that due
to the substantial growth in the size and operating capabilities of its fleet,
the Company's operating results in the future will not be comparable to the
Company's historical results. The Company's recent vessel acquisitions have
expanded its operating capabilities and increased its operating cost
structure. The Company's ability to integrate these vessels into its
operations will directly impact the Company's future results of operations.
The aggregate amount of selling, general and administrative expenses is also
expected to increase to support this growth.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE PERIOD FROM INCEPTION (DECEMBER
20, 1995) THROUGH DECEMBER 31, 1997
Contract Revenues. Contract revenues were $36.1 million for the year ended
December 31, 1997 compared to $14.1 million for the period from inception
(December 20, 1995) through December 31, 1996 (Fiscal 1996). The American
Horizon and the Cajun Horizon, which were placed into service in April and
July 1996, respectively, were operational for the entire year in 1997. There
was a significant increase in the number of construction contracts awarded to
the Company in 1997 as compared to 1996. The Company installed approximately
125 miles of pipe ranging from three to ten inches in diameter during 1997
compared to approximately 65 miles for Fiscal 1996. The Company's results of
operations for 1997 reflect the level of offshore activity in the Gulf and
current management's ability to competitively bid, win and successfully manage
projects.
Gross Profit (Loss). Gross profit was $6.0 million (16.7% of contract
revenues) for the year ended December 31, 1997 as compared to a gross loss of
$7.5 million for Fiscal 1996. Under the guidance of present management, the
Company has improved its gross profit margin in the last half of 1997 through
more efficient execution of projects, greater equipment utilization, an
increase in the number of contracts awarded and increased contract revenue.
The gross loss for Fiscal 1996 was primarily attributable to $7.4 million in
charges relating to actions undertaken by the Company, under former
management, in attempting to expand operations into the Middle East. At the
time, the Company agreed to acquire and refurbish a barge for purposes of
providing construction services in the Middle East. In connection with the
acquisition, the Company undertook certain actions to perform construction
services for a customer of the seller. The Company encountered title disputes
over the barge, higher than anticipated refurbishment costs and the subsequent
rejection of the barge by the customer. Present management of the Company has
resolved title, contractual and other legal disputes pertaining to the barge
and related project. The Company acquired the barge for $4.8 million with $3.0
million being payable over a three year period and agreed to pay $4.9 million
with $4.4 million payable in monthly installments commencing January 1, 1998
until December 31, 2001 to the customer to settle the claims. The Company is
in the process of upgrading and refurbishing the barge, since renamed the
Phoenix Horizon, to serve as a derrick barge in the Gulf.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $2.8 million (7.7% of contract revenues)
for 1997 from $2.0 million (14.5% of contract revenues) for Fiscal 1996
primarily due to the addition of personnel and other expenses associated with
the growth of the Company. The Company incurred $.5 million (3.5% of contract
revenues) of travel and other costs in Fiscal 1996 related to the Company's
unsuccessful expansion into the Middle East.
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<PAGE>
Interest Expense. Interest expense was $1.6 million for 1997 and $1.7
million for Fiscal 1996. The Company's total outstanding debt increased during
the last quarter of 1996 due to additional borrowings to fund acquisitions,
capital improvements and working capital requirements. In April 1997, in
connection with a recapitalization of the Company, the Principal Stockholders
contributed $21.0 million of debt to additional paid-in capital. The Company
applied $12.0 million of the proceeds from the sale of assets in 1997, as
described below, to reduce debt to the Principal Stockholders. The Company's
outstanding debt increased significantly during the fourth quarter of 1997 as
a result of the vessel acquisitions and improvements made to expand the
Company's fleet and the acquisition of marine bases in Houma, Louisiana and
Port Arthur, Texas.
Other Income. The Company sold one of its vessels to an unaffiliated third
party in February 1997 for $3.3 million cash resulting in the recognition of a
$.6 million gain.
Income Taxes. The Company uses the liability method of accounting for income
taxes. As of December 31, 1997, the Company had net operating loss
carryforwards of approximately $2.1 million, which expire in 2012 and may be
available to reduce future income taxes. For financial reporting purposes, a
valuation allowance has been established as of December 31, 1997 and 1996 to
offset the Company's net deferred tax assets, including those related to
carryforwards, to the extent they were not realizable through the sale of
appreciated assets. See note 7 of the notes to the Company's consolidated
financial statements.
A tax benefit of $1.6 million was recorded in Fiscal 1996 based upon the
Company's estimates of the timing of reversals of certain temporary
differences and on the generation of taxable income before such reversals. The
deferred tax asset relates to the $4.8 million gain from the sale of assets
which was included in taxable income for 1997. The Company accounted for the
$3.2 million gain on the sale, net of taxes of approximately $1.6 million, as
a capital contribution.
Net Income (Loss). Net income was $2.3 million for the year ended December
31, 1997 as compared to a net loss for Fiscal 1996 of $9.6 million. The net
loss for Fiscal 1996 was primarily the result of the $7.4 million in charges
relating to the unsuccessful expansion into the Middle East.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $2.1 million at December 31,
1997, compared to positive working capital of $.5 million at December 31,
1996. The working capital deficit at December 31, 1997 was primarily due to
vessel and property acquisitions and improvements financed through short-term
borrowings. The significant growth in the number of construction contracts and
related contract revenues in 1997 resulted in an increase in contract
receivables. Cash provided by operations was $3.5 million for the year ended
December 31, 1997, compared to cash used by operations of $9.6 million for
Fiscal 1996. The Company has used borrowings and proceeds from the sale of
assets to fund the cash used in operations and capital expenditures. The
Company anticipates borrowing additional amounts under the Credit Facility to
fund equipment acquisitions and meet its working capital requirements prior to
completion of the Offering.
Cash used for capital expenditures during 1997 totaled $31.9 million,
including $27.2 million primarily related to the acquisition, refurbishment
and upgrading of the Gulf Horizon, Lone Star Horizon, Canyon Horizon and Pearl
Horizon and improvements to existing marine equipment. The Company also
acquired and made improvements to marine bases in Houma, Louisiana and Port
Arthur, Texas for $4.0 million in 1997. In Fiscal 1996 the Company made $21.0
million of capital expenditures primarily to acquire and refurbish the
American Horizon and Cajun Horizon and relating to the acquisition of the
Phoenix Horizon. Four boats and a tugboat, acquired and upgraded for a total
of $10.4 million in 1996, were subsequently sold in 1997.
The Principal Stockholders funded substantially all of the Company's cash
requirements prior to the establishment of the Credit Facility. These advances
were represented by promissory notes bearing interest at the rate of 10% per
annum. In 1997, the Company was recapitalized through a series of
transactions. The Principal Stockholders contributed $21.0 million of the
principal indebtedness and accrued interest to additional paid-in
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<PAGE>
capital. The Company issued 10% Subordinated Notes due December 31, 2005 (the
"Subordinated Notes") to the Principal Stockholders to evidence the remaining
outstanding indebtedness and provide for any future advances in an aggregate
amount not to exceed $20 million (see Note 6 to the financial statements). In
February 1998, the Subordinated Notes were amended to provide for advances of
up to $24 million. The Company does not anticipate making any further
borrowings from the Principal Stockholders after the Offering.
On October 27, 1997, the Company entered into the Credit Facility with Den
norske Bank, which was amended in December 1997, that currently provides for
$20 million of borrowings. The Credit Facility includes both a $13 million
term loan (the "Term Loan") to be repaid in 48 monthly installments of $.2
million beginning July 31, 1998 with the balance due at maturity and a $7
million revolving line of credit (the "Revolver") due June 30, 2002. The
Credit Facility is secured by substantially all assets of the Company,
including a mortgage on all vessels owned by the Company, as well as a support
agreement between Den norske Bank and Elliott Associates, L.P., one of the
Principal Stockholders, that requires Elliott Associates, L.P., to assume the
liability under the Credit Facility should the Company default on its
obligations under the Credit Facility. It is anticipated that the support
agreement will be terminated following the Offering. The Credit Facility
requires that certain conditions be met in order for the Company to obtain
advances under the Term Loan. Advances under the Revolver may be obtained in
accordance with a borrowing base defined as a percentage of accounts
receivable balances. The Credit Facility requires the Company to maintain
certain financial ratios and contains certain covenants that limit the ability
of the Company to incur additional indebtedness, pay dividends, create certain
liens, sell assets and limits capital expenditures to the extent such amounts
are not funded by the Principal Stockholders. Interest is calculated on
advances under the Credit Facility based upon either Den norske Bank's prime
rate plus one half percent or LIBOR plus three percent. Upon completion of the
Offering, it is anticipated that the Credit Facility will be amended to
provide for a $30 million term loan facility, a $20 million revolving credit
facility and covenants consistent with the Company's improved financial
condition, results of operation and increased stockholders' equity.
The Company increased its borrowings under the Subordinated Notes and the
Credit Facility to make the acquisitions and upgrades in 1997. As of December
31, 1997, $16.8 million was due under the Subordinated Notes, including
accrued interest. As of December 31, 1997, the Company had $13.0 million
outstanding under the Term Loan and $1.7 million outstanding under the
Revolver bearing interest at 9.0% per annum. The Company expects to repay the
outstanding borrowings under the Subordinated Notes and a portion of the
amounts outstanding under the Credit Facility with the proceeds from the
Offering. The Company will use $17.5 million of the net proceeds of the
Offering to acquire the DSND Stephaniturm and expects to use approximately $14
million to construct the Pacific Horizon.
On December 4, 1997, the Company entered into an agreement with DSND to form
a strategic alliance. DSND acquired 30% of the Company's Common Stock from the
Principal Stockholders. DSND has agreed to sell the DSND Stephaniturm to the
Company for $17.5 million. In addition the Company will obtain a 30% interest
in the DSND Joint Venture to be formed to operate a reel pipelay vessel in the
Gulf, offshore Canada and Mexico, and in the Caribbean. The Company and DSND
will be required to fund, in proportion to their ownership, the funds required
to operate the DSND Joint Venture to the extent not provided from operations.
The Company is unable to predict at this time the working capital requirements
of the DSND Joint Venture.
Planned capital expenditures for 1998 are estimated to total approximately
$19 million to complete improvements to the Company's existing fleet.
Management believes that cash generated from operations, together with
available borrowings under the Credit Facility, will be sufficient to fund the
Company's currently planned capital projects and working capital requirements
for 1998. The Company's strategy, however, is to make other acquisitions to
expand its operating capabilities and expand into selected international
markets. To the extent the Company is successful in identifying acquisition
opportunities, it most likely will require additional debt or equity financing
depending on the size of any transaction. See "Risk Factors--Need for
Additional Financing."
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<PAGE>
BUSINESS
THE COMPANY
Horizon provides marine construction services to the offshore oil and gas
industry primarily in the Gulf. The Company's marine fleet is used primarily
to install marine pipelines to transport oil and gas from newly installed
production platforms and other subsea production systems. During 1997, the
Company (i) assembled new leadership with an entrepreneurial philosophy,
significant operational expertise and established customer relationships, (ii)
aggressively expanded its operating capabilities through the addition of
strategic assets and (iii) focused on delivering superior execution to its
customers.
The Company has assembled a fleet of seven vessels, four of which are
currently operational, with one vessel expected to be operational in April
1998 and the remaining two vessels expected to be operational during the third
quarter of 1998. The Company's fleet will be capable of a wide range of marine
construction activities, including (i) installing up to 48-inch pipelines and
smaller diameter rigid and coiled-line pipe in water depths up to 800 feet,
(ii) providing pipebury and all other services necessary to commence
transporting oil and gas through an installed pipeline and (iii) installing
and salvaging production platforms and other marine structures. Management
believes that the Company's expanded fleet allows it to compete in the Gulf
for substantially all pipeline installation projects in shallow water depths
of 200 feet and less and a substantial number of projects in intermediate
water depths of between 200 and 800 feet.
BUSINESS STRATEGY
The Company's business strategy is designed to capitalize on the positive
trends and current opportunities in the marine construction industry. Key
elements of the Company's strategy are to:
. MAINTAIN FOCUS IN GULF. Horizon intends to maintain its focus on the
shallow and intermediate water depths of the Gulf of Mexico because of
its strong competitive position in this market segment, its management
team's substantial expertise in this market segment and the positive
outlook for new oil and gas exploration and development activity in these
water depths. The Company also believes that it will benefit from the
continued consolidation in the marine construction industry in the Gulf
as a number of publicly owned companies perform an increasing portion of
the available projects in shallow and intermediate waters.
. EXPAND OPERATING CAPABILITIES. Management believes that the ability to
offer a full range of pipeline construction services in varying water
depths is an important component in providing superior execution,
establishing and maintaining customer relationships and implementing the
Company's strategy. Although the Company historically has focused on
installing smaller diameter pipelines in shallow water depths, the
Company has expanded its operating capabilities substantially through the
expansion of its fleet since mid-1997. The acquisition of two
pipelay/pipebury barges, one pipebury barge and a diving support vessel
will enable the Company to install larger diameter pipelines in
intermediate water depths and to perform platform support services.
Additionally, through the Company's alliance with DSND (described below),
the Company will gain immediate access to DSND's deep water technology
and expertise and anticipates further expansion of its capabilities to
include the ability to install pipelines in deep water and to install
coiled-line pipe under adverse weather conditions.
. PURSUE SELECTED INTERNATIONAL EXPANSION OPPORTUNITIES. To respond to
increasing demand and customer requests, the Company is considering and
carefully evaluating expanding into selected international market areas
in which members of the Company's management team have extensive prior
experience. Horizon has commenced a project offshore Venezuela and is
concentrating its international expansion efforts on areas with similar
operating conditions to those found in the Gulf, particularly offshore
West Africa and Venezuela. There can be no assurance that the Company
will successfully obtain or perform any other international projects.
23
<PAGE>
. PROVIDE DERRICK SERVICES. The Company expects demand for platform
installation and removal services to increase as a result of increased
drilling activity and the implementation of governmental regulations
governing the abandonment of offshore wells and removal of platforms in
the Gulf of Mexico. The Company is upgrading the Phoenix Horizon to
perform derrick services. The Company also intends to construct a second
derrick barge to be named the Pacific Horizon that will be capable of
lifting 800 tons. The Company has options to acquire the hull, crane,
winches and quarters facilities and believes that the barge will be
constructed and be available to commence operations late in 1998.
. DELIVER SUPERIOR EXECUTION. During 1997, to implement its business
strategy, the Company identified and assembled the individuals that
comprise its current management team. The team was selected primarily due
to its entrepreneurial philosophy, significant operational expertise and
established customer relationships in the Gulf and international markets.
Since assuming their present operational responsibilities in mid-1997,
management has focused on and delivered superior execution of projects
for its customers through improved asset utilization and operating
efficiencies. As a result of this focus, the Company improved its gross
profit margins to $5.9 million (24.3% of contract revenues) for the six
months ended December 31, 1997 from a gross loss of $8.1 million in the
prior year period and increased its backlog to $16.4 million at December
31, 1997 from $2.9 million at December 31, 1996.
INDUSTRY CONDITIONS
Demand for marine construction services is primarily a function of the level
of oil and gas activity in the Gulf. Over the past several years, improvements
in seismic and drilling technology and production techniques have resulted in
more intensive drilling activity in the Gulf. The number of active drilling
rigs in the Gulf of Mexico increased from less than 60 in May 1992 to
approximately 170 in December 1997 and many industry analysts believe that the
industry is operating at full capacity. See "Risk Factors--Industry
Volatility."
Due to the time required to drill an exploratory offshore well, formulate a
development plan and install a production platform, the demand for marine
construction services to install platforms and related pipelines in shallow
and intermediate water depths usually lags exploratory drilling by six months
to one year. The Company believes that its expanded fleet of marine vessels
and international operations will provide it with a competitive advantage in
its targeted market areas that, coupled with continued strong oil and gas
activity, should enable the Company to continue to grow profitably in the
future.
SCOPE OF OPERATIONS
The Company is a leading provider of marine construction services in the
shallow waters of the Gulf of Mexico. The Company installed approximately 125
miles of pipe of various diameters in various water depths in the Gulf during
1997. When the Company's current upgrade and refurbishment program for its
recently purchased vessels is completed, the Company will be capable of
installing and burying pipelines with an outside diameter (including concrete
coating) of up to 48 inches and smaller diameter pipe in water depths up to
800 feet.
The Company's pipelay and pipebury vessels are highly specialized vessels,
capable of installing pipelines of various diameters. The Company's pipelay
vessels employ conventional S-lay technology, which is appropriate for shallow
and intermediate water depths. Conventional pipeline installation involves the
sequential assembly of pipeline joints through an assembly line of welding
stations that runs the length of the pipelay vessel, testing and coating the
welds on the deck of the pipelay barge and then lowering the pipe off the
stern and into the water via a ramp that is referred to as a "pontoon" or
"stinger." The ramp supports the pipe to some distance under the water and
prevents over-stressing as it curves into a horizontal position downward
toward the sea floor. The barge is then moved forward by its anchor winches
and the pipeline is laid on the sea floor. The suspended pipe forms an
elongated "S" shape as it undergoes a second bend above the contact point on
the sea
24
<PAGE>
floor. During the pipelay process, divers regularly inspect the pipeline to
ensure that there are no obstructions on the sea floor, that the ramp is
providing proper support and that the pipeline is settling correctly.
Pipelines installed on the Outer Continental Shelf that are greater than
8.75 inches in diameter or located in water depths of 200 feet or less are
required by the regulations of the United States Department of Interior's
Minerals Management Service ("MMS") to be buried at least three feet below the
sea floor. Each of the Company's shallow water pipelay vessels is equipped
with a towed jet sled that uses high pressure bursts of air and water to
create a trench underneath the pipeline as it settles into the seabed in order
to bury the pipe. In soft ocean floors and water depths of less than 200 feet
towed jet sleds generally are more efficient than using a bury barge or other
procedures followed by some competitors to bury small diameter pipelines and
is less likely to damage the pipeline being laid or any existing pipelines
which the pipeline may be crossing. Unlike a conventional "plow" trencher,
towed jet sleds use a high pressure stream of water which is pumped from the
barge to create a trench into which the pipe is then laid. The Company also
owns a bury barge, the Canyon Horizon, which is expected to be placed into
service during the third quarter of 1998 and will be capable of burying marine
pipelines to depths of more 20 feet in hard rocky ocean floors. The Company
will use this large bury barge for deep burying projects in shipping lanes,
harbors and hard ocean floors and its towed jet sleds for burying projects in
soft ocean floors thereby allowing the Company to match its burying approach
to the requirements of each specific contract.
The Company's fleet also includes a multi-purpose vessel, the Pearl Horizon,
that is being converted to serve as a diving support vessel to perform
pipeline support services such as connecting pipelines to platforms and other
pipelines (tie-ins), filling pipelines with water under pressure to test for
tensile strength (hydrostatic testing) and commencing production from a
platform (commissioning services). This vessel is expected to commence
operations in April 1998.
The Company expects to commence installing and removing or "salvaging"
offshore fixed platforms in the third quarter of 1998 when the upgrade of the
Phoenix Horizon is completed and the derrick barge Pacific Horizon is
constructed. Derrick barges are equipped with cranes designed to lift and
place platforms, structures or equipment into position for installation. In
addition, they can be used to disassemble and remove platforms and prepare
them for salvage or refurbishment. The Company believes that the need to
salvage platforms in the Gulf will increase as older structures are
decommissioned and are required to be removed pursuant to MMS regulations
relating to the abandonment of wells and removal of platforms.
The Company is awarded contracts from its customers by means of a highly
competitive bidding process. In preparing a bid, the Company must consider a
variety of factors, including its estimate of the time necessary to complete
the project. It must also take into account the location and duration of its
current projects and projects that have been awarded for future performance.
Present management of the Company has placed a strong emphasis on the
sequential structuring of its scheduled work in adjacent areas to reduce the
mobilization and de-mobilization time and cost associated with each project in
order to increase the Company's profitability on those projects. The Company
has also increased its bidding successes by employing and maintaining core
groups of experienced foremen and deck hands that routinely work together on
particular types of projects. The Company often obtains the services of
workers outside its core employee groups by subcontracting with other parties.
In subcontracting with other parties for certain key services, the Company
attempts to utilize the same personnel. The Company examines the results of
each bid it submits, reevaluates its bids, and implements a system of controls
to maintain and improve the accuracy of its bidding process. The accuracy of
the Company's various estimates in preparing a bid is critical to its
profitability. See "Risk Factors--Contract Bidding Risks."
The Company's contracts are typically of short duration, being completed in
periods as short as several days to periods of up to several months for
projects involving the Company's larger pipelay vessels. A substantial number
of the Company's projects are performed on a fixed-price or "turnkey" basis,
although some projects are performed on a cost-plus basis. Under a fixed-price
contract, the price stated in the contract is subject to adjustment only for
change orders placed by the customer. As a result, the Company is responsible
for all cost overruns. Furthermore, the profitability of the Company under a
fixed-price contract is reduced when the task
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<PAGE>
takes longer to complete than estimated and, conversely, the Company's
profitability is increased if the task is completed ahead of schedule. Under
cost-plus arrangements, the Company receives a specified fee in excess of its
direct labor and material cost and so is protected against cost overruns but
does not benefit directly from cost savings. See "Risk Factors--Contract
Bidding Risks."
MARINE EQUIPMENT
The Company owns a fleet of four pipelay/pipebury vessels, one pipebury
vessel and one derrick vessel. The Company holds one diving support vessel
under a lease/purchase agreement and will purchase an additional diving
support vessel with a portion of the proceeds of the Offering. The following
table describes the Company's marine vessels.
<TABLE>
<CAPTION>
MAXIMUM
MAXIMUM PIPELAY MONTH AND
VESSEL VESSEL TYPE LENGTH DERRICK LIFT DIAMETER YEAR ACQUIRED
------ ----------- ------ ------------ -------- -------------
(FEET) (TONS) (INCHES)
<S> <C> <C> <C> <C> <C>
Gulf Horizon(1)......... Pipelay/Pipebury 350 -- 36 July 1997
Lone Star Horizon(1).... Pipelay/Pipebury 320 -- 48 November 1997
Phoenix Horizon(2)...... Derrick/Pipelay 300 300 18 July 1997
Canyon Horizon(2)....... Pipebury 300 -- -- November 1997
American Horizon........ Pipelay/Pipebury 180 -- 12 February 1996
Cajun Horizon........... Pipelay/Pipebury 140 -- 12 June 1996
Pearl Horizon (3)....... Diving Support Vessel 180 -- -- October 1997
DSND Stephaniturm (4)... Diving Support Vessel 230 -- 4 (4)
</TABLE>
- --------
(1) This vessel commenced operations during the first quarter of 1998.
(2) This vessel is being upgraded and refurbished and is expected to commence
operations during the third quarter of 1998.
(3) This vessel is being upgraded and is expected to commence operations in
the second quarter of 1998. The vessel is held by the Company under a
lease/purchase agreement pursuant to which the Company will acquire title
to the vessel upon expiration of the lease term for a nominal sum.
(4) This vessel will be purchased from DSND for $17.5 million with a portion
of the proceeds of the Offering.
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<PAGE>
The following table describes the capabilities and the present or near-term
status of the Company's fleet:
<TABLE>
<CAPTION>
VESSEL CAPABILITIES STATUS
------ ------------ ------
<S> <C> <C>
Gulf Horizon............ Lays up to 369 diameter pipe in Currently deployed in
shallow water and up to 129 Venezuela
diameter pipe in intermediate
water depths
Lone Star Horizon....... Lays up to 489 diameter pipe in Currently deployed in Gulf
shallow water and up to 129
diameter pipe in intermediate
water depths
Phoenix Horizon......... Derrick/pipelay barge. Lays up to Currently being upgraded;
189 diameter pipe in shallow scheduled for deployment in
water depths and up to 109 third quarter of 1998 in Gulf
diameter pipe in intermediate
water depths
Canyon Horizon.......... Buries up to 609 diameter pipe in Currently being upgraded;
shallow water depths; buries pipe scheduled for deployment in
in ocean floor as deep as 208 third quarter of 1998 in Gulf
below the sea floor
American Horizon........ Lays up to 129 diameter pipe in Currently deployed in Gulf
shallow water depths
Cajun Horizon........... Lays up to 129 diameter pipe in Currently deployed in Gulf
shallow water depths
Pearl Horizon........... Diving support vessel capable of Currently being upgraded;
pipeline tie-in, hydrostatic scheduled for deployment in
testing, and reeling coiled the second quarter of 1998 in
tubing Gulf
DSND Stephaniturm....... Diving support vessel capable of To be purchased from DSND with
laying coiled tubing and pipeline proceeds of the Offering,
tie-in, hydrostatic testing, and bareboat chartered by DSND and
commissioning services, equipped delivered to the Company in
with a dynamic positioning system the third quarter of 1998
</TABLE>
The Company owns all of its marine vessels other than the Pearl Horizon,
which is held under a lease/purchase arrangement pursuant to which the Company
will acquire title to the vessel upon expiration of the lease term. All of the
Company's vessels are subject to ship mortgages securing debt under the Credit
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." Under governmental
regulations and its insurance policies, the Company is required to maintain
its vessels in accordance with standards of seaworthiness, safety and health
prescribed by governmental regulations and applicable vessel classification
societies. The Company believes it is in compliance with all governmental
regulations and insurance policies regulating such aspects of the operation
and maintenance of its vessels.
In the normal course of its operations, the Company also leases or charters
other vessels, such as diving support vessels, tugboats, cargo barges, utility
boats and support vessels.
THE DSND TRANSACTION
On December 4, 1997, the Company entered into a definitive agreement with
DSND to form a strategic alliance. DSND is a Norwegian-based full-service
contractor in the subsea construction business with operations in the North
Sea and offshore Brazil. As part of the DSND alliance, (i) DSND acquired 30%
of the Company's outstanding Common Stock for $12.0 million from the Principal
Stockholders, (ii) DSND agreed to sell to the Company the DSND Stephaniturm, a
230-foot North Sea class dynamically positioned diving support vessel, for
$17.5 million, which the Company will purchase with a portion of the proceeds
of the Offering and (iii) the
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<PAGE>
Company and DSND agreed to form the DSND Joint Venture, which will be 30%
owned by the Company, to primarily conduct deep water pipelaying operations in
the Gulf, offshore Mexico and Canada, and in the Caribbean. In connection with
DSND's purchase of Common Stock, DSND negotiated for, and obtained, an option
to purchase from the Principal Stockholders, if the Offering does not occur
prior to December 31, 1998, up to an additional 20% of the Company's
outstanding Common Stock for $45.0 million. The Company also obtained from
DSND an option expiring 90 days after the Offering to purchase a 12-man
saturation diving system for $4.0 million.
The DSND Stephaniturm will be modified by the Company to lay coiled-line
pipe and support the Company's conventional pipelay vessels and will offer
saturation diving, riser installation tie-ins and commissioning services to
allow the Company to perform more complex projects and operate in deeper
water. The Company anticipates that it will cost approximately $2 million to
modify the DSND Stephaniturm, which the Company will fund from working capital
or advances under the Credit Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." The installation of coiled-line pipe is generally faster
and cheaper than the installation of small diameter rigid pipe, and the DSND
Stephaniturm is capable of working during most weather conditions experienced
during the winter in the Gulf, a period when many competitors are unable to
continue operating due to the limitations of their vessels. The Company
believes that upgrading the capability of the DSND Stephaniturm to lay coiled-
line pipe will strengthen the Company's position as a leader in pipeline
installation in the Gulf. The transfer of the DSND Stephaniturm will be deemed
effective as of January 1, 1998 and DSND will pay the Company $3.0 million of
charter hire as if the Company had bareboat chartered the vessel to DSND on
January 1, 1998. The vessel is expected to be delivered to Horizon during the
third quarter of 1998.
The DSND Joint Venture will have available to it a reel pipelaying vessel
that is being constructed and chartered by DSND that is anticipated to be able
to install 10 inch diameter pipe in water depths as great as 6,000 feet. The
reel vessel is presently being constructed for DSND and is expected to be
available for operation during the third quarter of 1999. The Company believes
that the capability of the reel vessel to reel pipe will allow the Company to
compete more effectively in all water depths with other competitors that have
reel pipeline capability because of the faster installation rates and reduced
labor expense of reeling pipelines when compared to conventional pipelay
methods. The dynamically positioned reel vessel will also allow the Company to
participate in the deep water market segment to install small diameter
pipelines and provide subsea construction services. The DSND Joint Venture
will be able to charter this deep water pipelay vessel and its marine crew for
$75,000 per day to perform any pipelay projects awarded to the DSND Joint
Venture. DSND will charter the reel ship for five years from its completion in
1999 with five additional one year renewal options at DSND's sole election.
The DSND Joint Venture will be able to charter this vessel on a "first call"
basis as long as it is chartered by DSND. DSND will then provide at cost the
supervisory members of the construction crew with deep water pipelay
experience and Horizon will supply at cost all of the other construction crew
members. The Company and DSND will be required to fund, in proportion to their
equity ownership, the funds required to operate the DSND Joint Venture to the
extent not provided from operations. The Company is unable at this time to
predict the working capital requirements of the DSND Joint Venture. The DSND
Joint Venture will also have access to DSND's other deep water pipelaying
vessels on terms to be agreed for any deep water pipelaying projects that may
be obtained by the DSND Joint Venture.
Horizon believes the DSND alliance provides it with certain strategic
benefits, including:
. An association with a highly regarded international marine contractor
with a leading presence in providing pipeline installation and subsea
construction services in the North Sea and offshore Brazil.
. The ability of the DSND Stephaniturm to lay coiled-line pipe and operate
in the Gulf under adverse weather conditions.
. Immediate access to deep water technology and the ability to provide
pipeline reel ship services in the deep and intermediate water depth
areas of the Gulf and offshore Mexico and Canada, and in the Caribbean.
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<PAGE>
SAFETY AND QUALITY ASSURANCE
Management is concerned with the safety and health of the Company's
employees and maintains a stringent safety assurance program to reduce the
possibility of costly accidents. The Company's health, safety and
environmental ("HSE") department establishes guidelines to ensure compliance
with all applicable state and federal safety regulations and provides training
and safety education through new employee orientations, which include first
aid and CPR training. In addition, prospective employees must submit to
alcohol and drug testing. After each accident or other health or safety
occurrence, the HSE department promptly collects data concerning the incident,
performs further investigations, and evaluates its safety procedures to help
prevent similar incidents. Failure of employees to adhere to the Company's
health, safety and environmental guidelines may result in immediate
termination of employment. The Company believes that its safety program and
commitment to quality are vital to attracting and retaining customers and
employees and controlling costs.
CUSTOMERS
The Company's customers are primarily major and independent oil and gas
producers operating in the Gulf of Mexico. During the year ended December 31,
1997, the Company provided offshore marine construction services to
approximately 36 customers, of which Coastal Oil & Gas Corporation and Santa
Fe Energy Resources Corporation accounted for approximately 15% and 11%,
respectively, of the Company's revenues. As a result of the emergence of a
number of independent engineering firms during the past several years that
manage the award and provision of marine construction services for many of the
independent oil and gas producers, the Company's management team has also
concentrated on maintaining close relationships with these engineering firms.
The Company's revenues do not depend on any one customer. The level of
construction services required by any particular customer depends on the size
of that customer's capital expenditure budget devoted to construction plans in
a particular year. Consequently, customers that account for a significant
portion of contract revenues in one fiscal year may represent an immaterial
portion of contract revenues in subsequent fiscal years. The Company's
contracts are typically of short duration, being completed in periods as short
as several days to two months.
BACKLOG
As of December 31, 1997, the Company's backlog supported by written
agreements amounted to $16.4 million, compared to the Company's backlog at
December 31, 1996 of $2.9 million. Management expects all of its current
backlog to be performed during the first two quarters of 1998. As the Company
moves into international market areas, where projects tend to have longer lead
times and result in earlier awards, its backlog may increase. The Company does
not consider its backlog amounts to be a reliable indicator of future revenues
because most of the Company's projects are awarded and performed within a
relatively short period of time.
SEASONALITY, CYCLICALITY AND FACTORS AFFECTING DEMAND
The marine construction industry in the Gulf of Mexico historically has been
highly seasonal with contracts being awarded in the spring and early summer
and performed before the onset of adverse weather conditions in the winter.
The scheduling of much of the Company's work is affected by weather conditions
and other factors and many of the Company's projects are performed within a
relatively short period of time. The Company intends to offset partially the
seasonality of its operations in the Gulf by pursuing selected international
expansion opportunities.
The level of activity in the marine construction business in the Gulf of
Mexico has traditionally been seasonal and cyclical, depending primarily on
weather conditions offshore in the Gulf and the capital expenditure budgets of
oil and gas companies for developmental construction. The level and volatility
of oil and gas prices have a strong effect on exploration and production
activities offshore which ultimately affect the demand for the Company's
services. These expenditures are influenced by the price of oil and gas, the
cost of exploring for,
29
<PAGE>
producing and delivering oil and gas, sale and expiration dates of offshore
leases in the United States and abroad, discovery rates of new oil and gas
reserves in offshore areas, local and international political and economic
conditions and the ability of the oil and gas industry to access capital. See
"Risk Factors--Industry Volatility."
INSURANCE
The Company's operations are subject to the inherent risks of offshore
marine activity, including accidents resulting in the loss of life or
property, environmental mishaps, mechanical failures and collisions. The
Company insures against these risks at levels it believes are consistent with
industry standards. The Company believes that its insurance should protect it
against, among other things, the cost of replacing the constructive total loss
of its vessels. However, certain risks are either not insurable or insurance
is available only at rates that the Company considers not to be economical.
There can be no assurance that any such insurance will be sufficient or
effective under all circumstances or against all hazards to which the Company
may be subject.
COMPETITION
The offshore marine construction industry is highly competitive. Competition
is influenced by such factors as price, availability and capability of
equipment and personnel, and reputation and experience of management.
Contracts for work in the Gulf of Mexico are typically awarded on a
competitive bid basis one to three months prior to commencement of operations
with customers usually requesting bids from all companies they believe
technically qualified to perform the project. The Company's marketing staff
contacts offshore operators known to have projects scheduled to ensure the
Company has an opportunity to bid for these projects. Although the Company
believes customers consider, among other things, the availability and
technical capabilities of equipment and personnel, the condition of equipment
and the efficiency and safety record of the contractor, price is the primary
factor in determining which qualified contractor is awarded the contract.
Because of the lower degree of complexity and capital costs involved in
shallow water marine construction activities, there are a number of companies
with one or more pipelay barges capable of installing pipelines in shallow
water. The Company currently competes in the Gulf in water depths of 200 feet
or less primarily with Global Industries, Ltd. and Torch, Inc. and several
other smaller contractors. In projects in water depths of 200 feet or more or
where a higher degree of complexity is involved, competition generally is
limited to Global Industries, Ltd. and J. Ray McDermott, S.A. ("McDermott").
The Company believes that its reputation, experienced management team and
competitive pricing are its key advantages.
Internationally, the marine construction industry is dominated by a small
number of major international construction companies and government owned or
controlled companies that operate in specific areas or on a joint venture
basis with one or more of the major international construction companies. In
Mexico, the primary competitors for any operations that may be conducted by
the Company are joint ventures involving Mexican contractors and each of
Global Industries, Ltd. and McDermott. Competition in the West African
offshore construction market is limited primarily to McDermott/ETPM West, a
joint venture between a French contractor and McDermott, Global Industries,
Ltd. and a joint venture involving another French contractor.
FACILITIES
The Company's corporate headquarters are located in Houston, Texas, in
approximately 46,000 square feet of leased space under a four-year lease which
expires in 2001.
The Company owns approximately 11 acres on the Houma Navigational Channel in
Houma, Louisiana, that includes a private, bulkheaded canal capable of docking
the Company's barges and vessels and allows the barges and vessels direct
access to the Gulf of Mexico. In December 1997, the Company acquired
approximately 23 acres with approximately 6,000 feet of water front on a
peninsula in Sabine Lake near Port Arthur, Texas with direct access to the
Gulf. The facility has more than 3,000 feet of deep water frontage in water
depths as deep as 30 feet for docking the Company's barges and vessels. The
Company intends to use this facility as its primary
30
<PAGE>
marine and support base and as a storage facility for marine structures that
may be salvaged by the Company's fleet of marine equipment.
REGULATION
Many aspects of the offshore marine construction industry are subject to
extensive governmental regulation. The Company's United States operations are
subject to the jurisdiction of the United States Coast Guard, the National
Transportation Safety Board and the Customs Service, as well as private
industry organizations such as the American Bureau of Shipping. The Coast
Guard and the National Transportation Safety Board set safety standards and
are authorized to investigate vessel accidents and recommend improved safety
standards, and the Customs Service is authorized to inspect vessels at will.
The Company is required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses and certificates with respect to
its operations. The kinds of permits, licenses and certificates required in
the operations of the Company depend upon a number of factors. The Company
believes that it has obtained or will be able to obtain, when required, all
permits, licenses and certificates necessary to the conduct of its business.
In addition, the Company depends on the demand for its services from the oil
and gas industry and, therefore, the Company's business is affected by laws
and regulations, as well as changing taxes and policies relating to the oil
and gas industry generally. In particular, the exploration and development of
oil and gas properties located on the Outer Continental Shelf of the United
States is regulated primarily by the MMS. The MMS must approve and grant
permits in connection with drilling and development plans submitted by oil and
gas companies. Delays in the approval of plans and issuance of permits by the
MMS because of staffing, economic, environmental or other reasons could
adversely affect the Company's operations by limiting demand for its services.
See "Risk Factors--Regulatory and Environmental Matters."
Certain employees of the Company are covered by provisions of the Jones Act,
the Death on the High Seas Act and general maritime law, which laws operate to
make liability limits established by state workers' compensation laws
inapplicable to these employees and permit the employees and their
representatives to pursue actions against the Company for job related injuries
with generally no limits on the Company's potential liability.
The operations of the Company are affected by numerous federal, state and
local laws and regulations relating to protection of the environment,
including the Outer Continental Shelf Lands Act, the Federal Water Pollution
Control Act of 1972 and the Oil Pollution Act of 1990. The technical
requirements of these laws and regulations are becoming increasingly complex
and stringent, and compliance is becoming increasingly difficult and
expensive. However, the Company does not believe that compliance with current
environmental laws and regulations is likely to have a material adverse effect
on the Company's business or financial condition. Certain environmental laws
provide for "strict liability" for remediation of spills and releases of
hazardous substances and some provide liability for damages to natural
resources or threats to public health and safety. Sanctions for noncompliance
may include revocation of permits, corrective action orders, administrative or
civil penalties, and criminal prosecution. The Company's compliance with these
laws and regulations has entailed certain changes in operating procedures and
approximately $75,000 in expenditures in fiscal 1997. It is possible that
changes in the environmental laws and enforcement policies thereunder, or
claims for damages to persons, property, natural resources or the environment
could result in substantial costs and liabilities to the Company. The
Company's insurance policies provide liability coverage for sudden and
accidental occurrences of pollution and/or clean-up and containment of the
foregoing in amounts that the Company believes are comparable to policy limits
carried by others in the offshore construction industry.
Several of the Company's vessels are documented or registered in the United
States, subjecting the Company to the citizenship restrictions of certain
federal laws and regulations. Under these laws and regulations, the Company's
chairman of the board, its chief executive officer and a specified minimum
number of its directors must be United States citizens. Certain provisions of
the Company's Bylaws are intended to aid in compliance
31
<PAGE>
with the foregoing requirements regarding United States citizenship of certain
of the Company's directors and officers.
LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings primarily
involving claims for personal injury under the Jones Act and general maritime
laws which the Company believes are incidental to the conduct of its business.
The Company believes that none of these proceedings, if adversely determined,
would have a material adverse effect on the Company's business or financial
condition.
EMPLOYEES
As of February 15, 1998, the Company had approximately 327 employees,
including approximately 235 operating personnel and approximately 92
corporate, administrative and management personnel. These employees are not
unionized or employed pursuant to any collective bargaining agreement or any
similar agreement. The Company believes its relationship with its employees is
good.
The Company's ability to increase profitability depends substantially on its
ability to attract and retain skilled construction workers, primarily welders,
riggers and equipment operators. In addition, the Company's ability to expand
its operations depends on its ability to increase its workforce. The demand
for such workers is high, and the supply is extremely limited. In view of the
relationships developed by the Company's current management while engaged by
other providers of marine construction services and the entrepreneurial
emphasis of its management, the Company anticipates that it can compete
effectively for skilled, experienced workers. While the Company believes its
relationship with its skilled labor force is good, a significant increase in
the wages paid by competing employers could result in a reduction in the
Company's skilled labor force, increases in the wage rates paid by the
Company, or both. If either of these occurs to the extent such wage increases
could not be passed on to the Company's customers, the Company's growth and
profitability could be impaired. See "Risk Factors--Shortage of Skilled
Workers."
32
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth, as of December 31, 1997, certain information
with respect to the Company's directors, executive officers and key employees.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
Jonathan D. Pollock... 34 Chairman of the Board
Bill J. Lam........... 31 President, Chief Executive Officer and Director
David W. Sharp........ 44 Executive Vice President and Chief Financial Officer
James K. Cole......... 50 Senior Vice President
James Devine.......... 39 Director
Gunnar Hirsti......... 43 Director
Edward L. Moses, Jr... 61 Director
Joseph R. Greer....... 57 Vice President and General Superintendent
Richard A. Stanford... 49 Vice President and General Counsel
John F. Swinden....... 53 Vice President--International Business Development
Thomas N. Whittington. 37 Vice President--Procurement Services
Robert T. Stonecipher. 57 Manager--Technical Services
Michael L. Ballard.... 42 Manager--Special Projects
Thomas F. Cunningham.. 43 Director--Sub-Sea Operations
Russell L. Baldwin.... 40 Operations Manager
John R. Abadie........ 27 Manager--Estimating
William E. Breen...... 29 Projects Manager
Keith W. Huddleston... 46 Manager--Special Projects
</TABLE>
The following biographies describe the business experience of the directors
and executive officers of the Company during the past five years. Except as
described in "Executive Employment Agreements" below, all executive officers
of the Company serve at the pleasure of the Board of Directors of the Company.
The Company's Certificate and Bylaws provide for the Board of Directors to be
divided into three classes of directors serving staggered three-year terms.
One class of directors is elected at each annual meeting of stockholders of
the Company and serve for three-year terms or until their successors are
elected and qualified or until their earlier resignation or removal in
accordance with the Company's Certificate of Incorporation and Bylaws. For the
respective terms of office of Messrs. Lam, Sharp and Cole as Company officers,
see "--Executive Employment Agreements" below.
Jonathan D. Pollock has been the Chairman of the Board of the Company since
its inception. Mr. Pollock is a Portfolio Manager of Elliott Associates, L.P.,
a private investment firm and a principal stockholder in the Company. He is
responsible for the oil and gas investments of Elliott Associates, L.P. and
has been associated with Elliott Associates, L.P. since 1989. He is a director
of Tatham Offshore, Inc. ("Tatham Offshore"), an independent oil and gas
company. Mr. Pollock is also Chairman of the Board of Grant Geophysical, Inc.,
a seismic data acquisition company.
Bill J. Lam is the President, Chief Executive Officer and a Director of the
Company. Mr. Lam has been Chief Executive Officer and a Director since
December 1997. From July 1997 to November 1997 he was Vice President--
Operations of the Company. Prior to being employed by the Company, Mr. Lam has
held various supervisory positions for the following providers of marine
construction services to the offshore oil and gas
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<PAGE>
industry: Lowe Offshore, Inc. (from January 1997 to July 1997), McDermott
(from January 1995 to January 1997) and OPI International, Inc. ("OPI") (from
August 1990 to January 1995). Mr. Lam graduated from Texas A&M University in
1990 with a B.A. degree in economics.
David W. Sharp is an Executive Vice President and the Chief Financial
Officer of the Company and has held those positions since December 1997. From
October 1996 to November 1997, Mr. Sharp was Vice President--Finance of the
Company. He held various positions with McDermott, including world-wide
project leader for the implementation of accounting and financial systems,
from January 1995 to October 1996. Prior thereto, he held various positions
with OPI, including controller-atlantic division and director of management
information of OPI from November 1990 to January 1995. Mr. Sharp is a
certified public accountant and graduated from the University of Texas in 1975
with a B.B.A. degree in business management.
James K. Cole is Senior Vice President of the Company and has held that
position since December 1997. From November 1996 to November 1997, Mr. Cole
was Vice President--Human Resources and Risk Management of the Company. He was
manager of corporate safety and health of McDermott from January 1995 to
September 1996 and director of corporate health, safety and environment for
OPI from April 1991 to January 1995. Mr. Cole graduated from Louisiana State
University (New Orleans) in 1973 with a B.A. degree in english. He served in
the United States Army from 1967 to 1969. On the advice of counsel, Mr. Cole
filed a voluntary petition for personal bankruptcy in July 1997.
James Devine has served as a director since January 1998. Mr. Devine has
been a commercial consultant to the oil and gas industry since 1996. From 1994
to 1996, he served as corporate vice president and general counsel of Coflexip
S.A. From 1989 to 1994, Mr. Devine served as a director and general counsel of
Stena Offshore N.V. and, from 1985 to 1989, as an attorney for Brown & Root,
Inc. in the United Kingdom. Prior thereto, he was in private practice as a
solicitor in Aberdeen, Scotland.
Gunnar Hirsti has served as a director since December 1997. Mr. Hirsti has
served as the Chief Executive Officer of DSND since July 1995. From 1990 to
July 1995 Mr. Hirsti was marketing director, general manager and managing
director of Stena Offshore AS. Mr. Hirsti joined Stena Offshore AS when Seatec
Offshore AS, a company founded and owned by Mr. Hirsti and four partners, was
acquired by Stena Offshore AS in 1990. Mr. Hirsti served as assistant
operations manager of Dyvi Offshore from 1984 to 1988 as well as in a number
of positions with Offshore Drilling Contractors from 1976 to 1984. Mr. Hirsti
holds an engineering degree with specialization in drilling.
Edward L. Moses, Jr. has served as a director of the Company since January
1998. Mr. Moses has also agreed to serve as a consultant to the Company's
executive management for a two-year period ending December 31, 1999 and has
received options to purchase 50,000 shares of Common Stock at an exercise
price equal to the initial per share public offering price. Mr. Moses has
served as senior vice president--engineering and production of DeepTech
International Inc. since 1992 and managing director of Deepwater Systems since
August 1993. From 1991 to 1992, he served as senior vice president of Tatham
Offshore. From 1989 to 1991, Mr. Moses served as vice president--engineering
of Tatham Offshore. Mr. Moses has worked for over 30 years in the oil and gas
industry. Prior to joining DeepTech International, Inc., he worked for 12
years as an independent consultant in the oil and gas industry. Prior thereto,
he spent 18 years working for Superior Oil Company where he served as manager
of international drilling operations. Mr. Moses is also a director of Tatham
Offshore. Mr. Moses has a B.S. in petroleum engineering from Texas A&M
University.
The following biographies describe the business experience of the key
employees of the Company during the past five years.
Joseph R. Greer is a Vice President and General Superintendent of the
Company. Mr. Greer has been a Vice President since December 1997 and General
Superintendent since February 1997. Prior to his service with the Company, Mr.
Greer held the position of general superintendent, assistant general
superintendent or barge superintendent with the following providers of marine
construction services: McDermott (from January 1995 to
34
<PAGE>
February 1997), OPI (from August 1990 to January 1995) and Brown & Root (from
March 1968 to August 1990).
Richard A. Stanford is Vice President and General Counsel for the Company
and has held that position since March 2, 1998. Prior to this date, Mr.
Stanford was in private practice specializing in maritime commercial matters
and provided legal services to the Company as outside counsel. He graduated
from the University of Texas in 1971 and received his law degree from the
University of Houston in 1976. Until 1991, Mr. Stanford was a partner in the
Houston law firm of Vinson and Elkins, and then was in private practice until
joining the Company.
John F. Swinden is Vice President--International Business Development with
the Company and has held that position since January 1998. Prior to his
service with the Company, Mr. Swinden served as a vice president - general
manager of McDermott from January 1995 until July 1997. Mr. Swinden also
served as a vice president of OPI from February 1990 until January 1995 and he
was a co-founder and served as president of Maritime Offshore, a marine
construction company, from 1986 until February 1990. He co-founded Cal Dive
International, Inc. in 1979 and served as the president of its international
division until 1986. He also served in a number of management positions,
including corporate vice president, overseas with Oceaneering International,
Inc. from 1970 until 1978. Mr. Swinden attended St. Mary's College in England
and the British Naval Diving School.
Thomas N. Whittington is Vice President--Procurement Services with the
Company and has held that position since December 1997. From February 1997 to
December 1997, Mr. Whittington served as Manager of Purchasing. Prior to his
service with the Company, Mr. Whittington was senior purchasing agent for
McDermott from January 1995 until February 1997 and purchasing manager for OPI
from August 1986 until January 1995. Mr. Whittington also has five years
experience in marine operations management with Ingram Marine Constructors,
Inc. Mr. Whittington graduated from the University of Southern Mississippi in
1982 with B.S. degrees in business administration and industrial engineering.
Robert T. Stonecipher is Manager--Technical Services for the Company and has
held that position since October 1997. Prior to his service with the Company,
Mr. Stonecipher held various consulting and equipment management positions
with the following providers of marine construction services: Stonecipher
Enterprises, Inc. (from January 1997 until October 1997), Global Industries,
Inc. (from January 1995 to January 1997) and OPI (from January 1990 to January
1995). Mr. Stonecipher graduated from Louisiana State University in 1965 with
a B.S. degree in mechanical engineering.
Michael L. Ballard is Manager--Special Projects with the Company and has
held that position since December 1997. Prior to his service with the Company,
Mr. Ballard held various consulting and operational management positions with
the following providers of marine construction services: OPE Inc. (from
October 1994 until December 1997) as a principal and offshore construction
manager; OPI (from August 1990 until October 1994) as project manager and
barge superintendent; and, Brown & Root (from May 1985 until August 1990) as
barge superintendent. Mr. Ballard also has an additional seven years
experience in marine operations management with Shell Development Company and
Brown & Root. Mr. Ballard attended the University of Houston where he majored
in mathematics and computer science.
Thomas F. Cunningham is Director--Sub-Sea Operations with the Company and
has held that position since January 1998. Prior to his service with the
Company, Mr. Cunningham was project/vessel manager for Cal Dive International,
Inc. (from January 1995 until January 1998) and diving superintendent, project
manager and area manager for Offshore Petroleum Divers, Inc., a wholly-owned
subsidiary of OPI (from January 1990 until January 1995). Mr. Cunningham has
an additional 15 years experience as a diver and diving superintendent with
Seacon Services, McDermott International, Oceaneering International, Global
Divers and James Dean Divers. Mr. Cunningham attended Adirondack Community
College.
Russell L. Baldwin is Operations Manager for the Company and has held that
position since October 1997. Prior to his service with the Company, Mr.
Baldwin was an engineering consultant (from April 1997 to October
35
<PAGE>
1997) and a project manager for the following providers of marine construction
services: McDermott (from February 1995 to April 1997), OPI (from February
1994 to February 1995) and Aker Omega, Inc. (from May 1992 to February 1994).
Mr. Baldwin graduated from Texas A&M University in 1980 with a B.S. degree in
civil engineering and is a licensed registered engineer.
John R. Abadie is Manager--Estimating with the Company and has held that
position since August 1997. Prior to his service with the Company, Mr. Abadie
was a project manager with the following providers of marine construction
services: McDermott (from January 1995 to August 1997) and OPI (from May 1993
to January 1995). Mr. Abadie graduated in 1993 from Louisiana Tech University
with a B.S. degree in civil engineering.
William E. Breen is Projects Manager with the Company and has held that
position since August 1997. Prior to joining the Company, Mr. Breen was
project manager and project engineer with the following providers of marine
construction services: SOFEC, Inc. (from January 1995 to August 1997) and OPI
(from August 1991 to January 1995). Mr. Breen graduated in 1991 from Texas A&M
University with a B.S. degree in ocean engineering.
Keith W. Huddleston is Manager--Special Projects with the Company and has
held that position since November 1996. Prior to his service with the Company,
Mr. Huddleston held various engineering project management and consulting
positions with the following providers of marine construction services:
Momentum Engineering (from April 1996 to October 1996) and Keble Offshore
(from May 1991 to February 1996). Mr. Huddleston also had eight years of
experience with Brown & Root as a field engineer, project engineer and project
manager. Mr. Huddleston graduated from the University of Newcastle (England)
in 1972 with a B.S. degree in civil engineering.
The Company's Certificate and Bylaws provide for the Board of Directors to
be divided into three classes of directors with each class to be as nearly
equal in number of directors as possible, serving staggered three-year terms.
The term of the Class I director, Mr. Hirsti, will expire in 1999. The terms
of the Class II directors, Mr. Devine and Mr. Moses, will expire in 2000. The
terms of the Class III directors, Mr. Lam and Mr. Pollock, will expire in
2001. Each director serves until the end of his term or until his successor is
elected and qualified. See "Description of Capital Stock--Certain Charter and
Bylaw Provisions--Classified Board of Directors."
STOCKHOLDER'S AGREEMENT
As part of the DSND alliance, the Company, DSND and the Principal
Stockholders entered into a Stockholder's Agreement (the "Stockholder's
Agreement") pursuant to which, among other things, the Board of Directors will
consist of five directors, one of which will be nominated by DSND and the
other four by a majority vote of the entire Board of Directors. The
Stockholder's Agreement provides that Horizon and the Principal Stockholders
will take all necessary action to nominate the DSND designee to the Board of
Directors and that the Company will recommend that stockholders vote in favor
of the DSND nominee, and shall use reasonable efforts to solicit stockholders'
proxies in favor of such nominee.
The Stockholder's Agreement also provides that DSND and the Principal
Stockholders will vote all shares of Common Stock they are entitled to vote
for the election of all directors nominated by the Board of Directors,
including the nominee designated by DSND. See "Risk Factors--Control by
Existing Stockholders."
BOARD COMMITTEES
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee reviews the Company's financial
statements and annual audit and meets with the Company's independent public
accountants to review the Company's internal controls and financial management
practices. The current members of the Audit Committee are Messrs. Devine,
Hirsti and Pollock, none of whom is an officer or employee of the Company or
any of its subsidiaries.
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<PAGE>
The Compensation Committee recommends to the Board of Directors compensation
for the Company's executive officers, administers the Company's Incentive Plan
and performs such other similar functions as may be prescribed by the Board of
Directors. The current members of the Compensation Committee are Messrs.
Devine, Moses and Pollock, none of whom is an officer or employee of the
Company or any of its subsidiaries.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company is paid an annual
retainer of $12,000. All directors are reimbursed for reasonable out-of-pocket
expenses incurred by them in attending board and committee meetings.
Each director who is not an employee of the Company will be entitled to
receive non-qualified stock options under the Stock Incentive Plan of the
Company. For information with respect to such grants, see "--Stock Incentive
Plan" below.
EXECUTIVE COMPENSATION
The following table presents certain information regarding the compensation
awarded, earned or paid for services rendered in 1997 to the Company by its
Chief Executive Officer and each of its other executive officers
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
---------------
NAME AND POSITION SALARY BONUS
----------------- -------- ------
<S> <C> <C>
Bill J. Lam
President and Chief Executive Officer(1)...................... $ 97,144 $ --
Howard D. Loyd(2).............................................. $ 92,885 $ --
David W. Sharp
Executive Vice President and Chief Financial Officer.......... $122,692 $ --
James K. Cole
Senior Vice President......................................... $ 99,486 $ --
</TABLE>
- --------
(1) Mr. Lam was employed by the Company in July 1997 and became its Chief
Executive Officer in December 1997.
(2) Mr. Loyd served as the Company's Chief Executive Officer until December
1997.
EXECUTIVE EMPLOYMENT AGREEMENTS
All of the Company's current executive officers have entered into employment
agreements with the Company. All such contracts also contain agreements of
each of the executive officers to refrain from using or disclosing proprietary
information of the Company, as defined therein, and to refrain from competing
with the Company in specified geographic areas for one year after the
termination of the officer's employment.
The term of the employment agreements for each Messrs. Lam, Sharp and Cole
expire on the third anniversary of the Offering and provide annual base
salaries of $200,000, $175,000 and $143,000, respectively. Each of the
executive officer's employment may be terminated at any time by the Company
for cause or for breach of the employment agreement.
STOCK INCENTIVE PLAN
In January 1998, the Company adopted and its stockholders approved the Stock
Incentive Plan (the "Incentive Plan") to provide long-term incentives to its
key employees and officers, including directors who are employees of the
Company, and consultants and advisors to the Company when designated by the
Compensation
37
<PAGE>
Committee of the Board of Directors (the "Eligible Participants"), and non-
employee directors. Under the Incentive Plan, which is administered by the
Compensation Committee of the Board of Directors, the Company may grant
incentive stock options, non-qualified stock options, restricted stock, other
stock-based awards or any combination thereof (the "Incentives") to Eligible
Participants. The Compensation Committee will establish the exercise price of
any stock options granted to Eligible Participants under the Incentive Plan,
but the exercise price may not be less than the fair market value of the
Common Stock on the date of grant. The option exercise price may be paid in
cash, in Common Stock, in a combination of cash and Common Stock, or through a
broker-assisted exercise arrangement approved by the Compensation Committee.
A total of 1.9 million shares of Common Stock are available for issuance
under the Incentive Plan. Incentives with respect to no more than 400,000
shares of Common Stock may be granted to any single Eligible Participant in
one calendar year. Proportionate adjustments will be made to the number of
shares subject to the Incentive Plan, including the shares subject to
outstanding Incentives, in the event of any recapitalization, stock dividend,
stock split, combination of shares or other change in the Common Stock. In the
event of such adjustments, the purchase price of any outstanding option, the
performance objectives of any Incentive, and the shares of Common Stock
issuable pursuant to any Incentive will be adjusted as and to the extent
appropriate, in the reasonable discretion of the Compensation Committee, to
provide participants with the same relative rights before and after such
adjustment.
Restricted stock consists of shares of Common Stock that are transferred to
a participant for past services but are subject to restrictions regarding
their sale, pledge or other transfer by the participant for a specified period
(the "Restricted Period"). The Compensation Committee has the power to
determine the number of shares to be transferred to a participant as
restricted stock. All shares of restricted stock will be subject to such
restrictions as the Compensation Committee may designate in the incentive
agreement with the participant, including, among other things, that the shares
of Common Stock are required to be forfeited or resold to the Company in the
event of termination of employment or in the event specified performance goals
or targets are not met. A Restricted Period of at least three years is
required, except that if vesting is subject to the attainment of performance
goals, a minimum Restricted Period of one year is required. Subject to the
restrictions provided in the incentive agreement, each participant receiving
restricted stock will have the rights of a stockholder with respect thereto,
including voting rights and rights to receive dividends. To the extent that
restricted stock is intended to vest based upon the achievement of pre-
established performance goals rather than solely upon continued employment
over a period of time, the performance goals pursuant to which the restricted
stock shall vest shall be any or a combination of the following performance
measures: earnings per share, return on assets, an economic value added
measure, stockholder return, earnings, stock price, return on equity, return
on total capital, safety performance, reduction of expenses or increase in
cash flow of the Company, a division of the Company or a subsidiary of the
Company. For any performance period, such performance objectives may be
measured on an absolute basis or relative to a group of peer companies
selected by the Compensation Committee, relative to internal goals or relative
to levels attained in prior years.
The Compensation Committee is authorized to grant to Eligible Participants
an other stock-based award ("Other Stock-Based Award"), which consists of an
award, the value of which is based in whole or in part on the value of shares
of Common Stock, other than a stock option or a share of restricted stock.
Other Stock-Based Awards may be awards of shares of Common Stock or may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares of Common Stock. The Compensation
Committee shall determine the terms and conditions of any such Other Stock-
Based Award and may provide that such awards would be payable in whole or in
part in cash. Except in the case of an Other Stock-Based Award granted in
assumption of or in substitution for an outstanding award of a Company
acquired by the Company or with which the Company combines, the price at which
securities may be purchased pursuant to any Other Stock-Based Award or the
provision, if any, of any such award that is analogous to the purchase or
exercise price, shall not be less than 100% of the fair market value of the
securities to which such award relates on the date of grant. In the sole and
complete discretion of the Compensation Committee, an Other Stock-Based Award
may provide the holder thereof with dividends or dividend equivalents, payable
in cash or shares of Common Stock on a current
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<PAGE>
or deferred basis. Other Stock-Based Awards intended to qualify as
"performance-based compensation" shall be paid based upon the achievement of
pre-established performance goals. The performance goals pursuant to which
Other Stock-Based Awards shall be earned shall be any or a combination of the
following performance measures: earnings per share, return on assets, an
economic value added measure, stockholder return, earnings, stock price,
return on equity, return on total capital, safety performance, reduction of
expenses or increase in cash flow of the Company, a division of the Company or
a subsidiary of the Company. For any performance period, such performance
goals may be measured on an absolute basis or relative to a group of peer
companies selected by the Compensation Committee, relative to internal goals
or relative to levels attained in prior years. The grant of an Other Stock-
Based Award to a participant shall not create any rights in such participant
as a stockholder of the Company until the issuance of shares of Common Stock
with respect to such Other Stock-Based Award.
To assist a participant in acquiring shares of Common Stock pursuant to an
Incentive granted under the Incentive Plan, the Compensation Committee may
authorize the extension of a loan by the Company to the participant to cover
the aggregate purchase price of such shares and the maximum tax liability that
arises in connection with the Incentive. The terms of any such loan will be
determined by the Compensation Committee.
Upon consummation of the Offering, each director who is not an employee of
the Company (an "Outside Director") will be granted under the Incentive Plan a
non-qualified stock option to purchase 5,000 shares of Common Stock at an
exercise price equal to the initial per share public offering price. Each
person who subsequently becomes an Outside Director will be granted under the
Incentive Plan, effective as of the date that he or she becomes an Outside
Director, a non-qualified stock option to purchase 5,000 shares of Common
Stock at an exercise price equal to the fair market value of a share of Common
Stock as of that date. In 1998 and in each subsequent year during which the
Incentive Plan is in effect and a sufficient number of shares of Common Stock
are available thereunder, each person who is an Outside Director as of the day
following the annual meeting of Company stockholders in such year will be
granted under the Incentive Plan a non-qualified stock option to purchase
5,000 shares of Common Stock at an exercise price equal to the fair market
value of a share of Common Stock as of such date. Each non-qualified stock
option granted to an Outside Director shall become fully exercisable on the
first anniversary of its grant and shall expire on the tenth anniversary of
its grant, unless such Outside Director terminates his position as a Company
director, in which event such Outside Director's then exercisable non-
qualified stock options will expire within three months after his termination
or, if his termination is as a result of his death, disability or retirement
after the age of 65, within eighteen months after his termination, but in no
event later than the tenth anniversary of the grant thereof.
All outstanding stock options granted under the Incentive Plan will
automatically become fully exercisable, all restrictions or limitations on any
Incentives will lapse and all performance criteria and other conditions
relating to the payment of Incentives will be deemed to be achieved or waived
by the Company upon (i) approval by the stockholders of the Company of a
reorganization, merger or consolidation of the Company or sale of all or
substantially all of the assets of the Company, unless (x) all or
substantially all of the individuals and entities who were the beneficial
owners of the Company's outstanding Common Stock and voting securities
entitled to vote generally in the election of directors immediately prior to
such transaction have direct or indirect beneficial ownership, respectively,
of more than 50% of the then outstanding shares of common stock and more than
50% of the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors of the resulting
corporation; (y) except to the extent that such ownership existed prior to the
transaction, no person (excluding any corporation resulting from the
transaction or any employee benefit plan or related trust of the Company or
the resulting corporation) beneficially owns, directly or indirectly, 30% or
more of the then outstanding shares of common stock of the resulting
corporation or 30% or more of the combined voting power of the then
outstanding voting securities of the resulting corporation; or (z) a majority
of the board of directors of the resulting corporation were members of the
Company's board of directors at the time of the execution of the initial
agreement or of the action of the Board providing for the transaction; (ii)
approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company; (iii) a person or group of persons becoming the
beneficial owner of more than 50% of the Company's Common Stock (subject to
certain
39
<PAGE>
exceptions); or (iv) the individuals who as of the adoption of the Incentive
Plan constitute the Board (the "Incumbent Board") or who subsequently become a
member of the Board with the approval of at least a majority of the directors
then comprising the Incumbent Board other than in connection with an actual or
threatened election contest cease to constitute at least a majority of the
Board (each, a "Significant Transaction").
The Compensation Committee also has the authority to take several actions
regarding outstanding Incentives upon the occurrence of a Significant
Transaction, including (i) requiring that all outstanding options remain
exercisable only for a limited time, (ii) making equitable adjustments to
Incentives as the Compensation Committee deems in its discretion necessary to
reflect the Significant Transaction or (iii) providing that an option under
the Incentive Plan shall become an option relating to the number and class of
shares of stock or other securities or property (including cash) to which the
participant would have been entitled in connection with the Significant
Transaction if the participant had been immediately prior to the Significant
Transaction the holder of record of the number of shares of Common Stock then
covered by such options.
When an optionee exercises a non-qualified option, the difference between
the exercise price and any higher fair market value of the Common Stock on the
date of exercise will be ordinary income to the optionee (subject to
withholding) and will generally be allowed as a deduction at that time for
federal income tax purposes to the Company.
Any gain or loss recognized by an optionee on disposition of the Common
Stock acquired upon exercise of a non-qualified option will generally be
capital gain or loss to the optionee. Under recent amendments to the Code, the
maximum capital gains rate for individuals on gain on certain assets, such as
shares of Common Stock, which are sold after July 28, 1997 and which are held
for more than eighteen months is reduced to 20%. The optionee's basis in the
Common Stock for determining gain or loss on the disposition will be the fair
market value of the Common Stock determined generally at the time of exercise.
The disposition by an optionee of Common Stock acquired upon exercise of a
non-qualified option will not result in any additional federal income tax
consequences to the Company.
When an optionee exercises an incentive stock option while employed by the
Company or a subsidiary or within three months after termination of employment
by reason of retirement or death (one year for disability), no ordinary income
will be recognized by the optionee at that time, but the excess (if any) of
the fair market value of the Common Stock acquired upon such exercise over the
option price will be an adjustment to taxable income for purposes of the
federal alternative minimum tax applicable to individuals. If the Common Stock
acquired upon exercise of the incentive stock option is not disposed of prior
to the expiration of one year after the date of acquisition and two years
after the date of grant of the option, the excess (if any) of the sale
proceeds over the aggregate option exercise price of such Common Stock will be
long-term capital gain, but the Company will not be entitled to any tax
deduction with respect to such gain. Generally, if the Common Stock is
disposed of prior to the expiration of such periods (a "Disqualifying
Disposition"), the excess of the fair market value of such Common Stock at the
time of exercise over the aggregate option exercise price (but not more than
the gain on the disposition if the disposition is a transaction on which a
loss, if realized, would be recognized) will be ordinary income at the time of
such Disqualifying Disposition (and the Company will generally be entitled to
a federal income tax deduction in a like amount). Any gain realized by the
optionee as the result of a Disqualifying Disposition that exceeds the amount
treated as ordinary income will be capital gain. If an incentive stock option
is exercised more than three months after termination of employment (one year
for disability), the federal income tax consequences are the same as described
above for non-qualified stock options.
If the exercise price of an option is paid by the surrender of previously
owned shares, the basis of the previously owned shares carries over to the
shares received in replacement therefor. If the option is a non-qualified
option, the income recognized on exercise is added to the basis. If the option
is an incentive stock option, the optionee will recognize gain if the shares
surrendered were acquired through the exercise of an incentive stock option
and have not been held for the applicable holding period. This gain will be
added to the basis of the shares received in replacement of the previously
owned shares.
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<PAGE>
Awards under the Incentive Plan that are granted, accelerated or enhanced
upon the occurrence of a change of control may give rise, in whole or in part,
to excess parachute payments within the meaning of Section 280G of the
Internal Revenue Code of 1986 (the "Code") to the extent that such payments,
when aggregated with other payments subject to Section 280G, exceed the
limitations contained therein. Such excess parachute payments will be
nondeductible to the Company and subject the recipient of the payments to a
20% excise tax.
If permitted by the Compensation Committee, at any time that a participant
is required to pay the Company the amount required to be withheld under
applicable tax laws in connection with the exercise of a stock option, the
participant may elect to have the Company withhold from the shares that the
participant would otherwise receive shares of Common Stock having a value
equal to the amount to be withheld. This election must be made prior to the
date on which the amount of tax to be withheld is determined.
The foregoing discussion summarizes the federal income tax consequences
pertaining to stock options granted under the Incentive Plan based on current
provisions of the Code, which are subject to change. This summary does not
cover any foreign, state or local tax consequences of participation in the
Incentive Plan.
The following table sets forth information about the stock options that are
anticipated to be granted pursuant to the provisions of the Incentive Plan in
1998 to (i) each of the Named Executive Officers, (ii) all executive officers
as a group, (iii) all directors who are not executive officers as a group and
(iv) all employees other than the executive officers as a group (which
includes all non-executive officers). Each such stock option will have an
exercise price equal to the initial per share public offering price.
NEW PLAN BENEFITS
STOCK INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
NAME AND POSITION UNDERLYING OPTIONS(1)
----------------- ---------------------
<S> <C>
Bill J. Lam
President and Chief Executive Officer.................... 20,000
David W. Sharp
Executive Vice President and Chief Financial Officer..... 20,000
James K. Cole
Senior Vice President.................................... 20,000
Executive Officer Group................................... 60,000
Non-Executive Officer Director Group...................... 20,000
Non-Executive Officer Employee Group...................... 620,000
</TABLE>
- --------
(1) Half of the options to be granted to each employee, including executive
officers, will become exercisable in three equal installments on each of
the first three anniversaries of the date of the Offering and will remain
exercisable until the tenth anniversary of the date of the Offering. The
remaining options to be granted to each employee will become exercisable
if the closing sales price of the Common Stock exceeds 150% of the initial
public offering price for 60 consecutive trading days and, if not
otherwise exercisable, five years from the date of the Offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors had no Compensation Committee or other committee
performing similar functions in 1997.
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<PAGE>
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation (the "Certificate") contains
provisions eliminating the personal liability of the directors to the Company
and its stockholders for monetary damages for breaches of their fiduciary
duties as directors to the fullest extent permitted by the Delaware General
Corporation Law. By virtue of these provisions, under current Delaware law a
director of the Company will not be personally liable for monetary damages for
a breach of his or her fiduciary duty except for liability for (a) a breach of
his or her duty of loyalty to the Company or to its stockholders, (b) acts or
omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (c) dividends or stock repurchases or redemptions
that are unlawful under Delaware law and (d) any transaction from which he or
she receives an improper personal benefit. In addition, the Certificate
provides that if Delaware law is amended to authorize the further elimination
or limitation of the liability of a director, then the liability of the
directors shall be eliminated or limited to the fullest extent permitted by
Delaware law, as amended. These provisions pertain only to breaches of duty by
directors as directors and not in any other corporate capacity, such as
officers, and limit liability only for breaches of fiduciary duties under
Delaware corporate law and not for violations of other laws such as the
federal securities laws.
As a result of the inclusion of such provisions, stockholders may be unable
to recover monetary damages against directors for actions taken by them that
constitute negligence or gross negligence or that are in violation of their
fiduciary duties, although it may be possible to obtain injunctive or other
equitable relief with respect to such actions. If equitable remedies are found
not to be available to stockholders in any particular case, stockholders may
not have any effective remedy against the challenged conduct. These provisions
may have the effect of reducing the likelihood of derivative litigation
against directors that might have benefitted the Company.
The Company believes that such provisions are necessary to attract and
retain qualified individuals to serve as directors. In addition, such
provisions will allow directors to perform their duties in good faith without
undue concern about personal liability if a court finds their conduct to have
been negligent or grossly negligent. On the other hand, the potential remedies
available to a Company stockholder will be limited, and it is possible,
although unlikely, that directors protected by these provisions may not
demonstrate the same level of diligence or care that they would otherwise
demonstrate.
The Company's Bylaws require the Company to indemnify its directors and
officers against certain expenses and costs, judgments, settlements and fines
incurred in the defense of any claim, including any claim brought by or in the
right of the Company, to which they were made parties by reason of being or
having been directors and officers, subject to certain conditions and
limitations.
In addition, each of the Company's directors has entered into an indemnity
agreement with the Company, pursuant to which the Company has agreed under
certain circumstances to purchase and maintain directors' and officers'
liability insurance. The agreements also provide that the Company will
indemnify the directors against any costs and expenses, judgments, settlements
and fines incurred in connection with any claim involving a director by reason
of his position as a director that are in excess of the coverage provided by
such insurance; provided that the director or executive officer meets certain
standards of conduct. A form of indemnity agreement containing such standards
of conduct is included as an exhibit to the Registration Statement of which
this Prospectus forms a part. Under the indemnity agreements, the Company is
not required to purchase and maintain directors' and officers' liability
insurance if it is not reasonably available or, in the reasonable judgment of
the Board of Directors, there is insufficient benefit to the Company from the
insurance.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of the date of this Prospectus certain
information regarding beneficial ownership of the Common Stock by (i) each of
the Named Executive Officers, (ii) each director of the Company, (iii) all of
the Company's directors and executive officers as a group and (iv) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock.
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
COMMON STOCK
-----------------
NUMBER OF
SHARES BEFORE AFTER
BENEFICIALLY THE THE
NAME OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
------------------------ ------------ -------- --------
<S> <C> <C> <C>
Elliott Associates, L.P.(2)..................... 4,812,500 34.2% 25.2%
Westgate International, L.P.(3)................. 4,812,500 34.2% 25.2%
Det Sondenfjelds-Norske Dampskibsselskab ASA(4). 4,125,000 29.3% 21.6%
Jonathan D. Pollock(5).......................... 9,625,000 68.4% 50.4%
Bill J. Lam(6).................................. 309,760 2.2% 1.6%
David W. Sharp(6)............................... 265,540 1.9% 1.4%
James K. Cole(6)................................ 177,100 1.3% *
James Devine.................................... 326,480 2.3% 1.7%
Gunnar Hirsti(7)................................ 4,125,000 29.3% 21.6%
Edward L. Moses, Jr............................. -- --
All Executive Officers and Directors as a group
(7 persons).................................... 13,970,440 99.2% 73.2%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, the persons noted in the table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them. Does not include any options that will be
granted at the initial public offering price in connection with the
Offering, none of which are currently exercisable.
(2) The address of Elliott Associates, L.P. is 712 Fifth Avenue, New York, New
York 10019. Elliott Associates, L.P. beneficially owns such shares
indirectly through one of its subsidiaries. Includes 429,220 shares owned
by the Company's executive officers, Messrs. Greer, Whittington and two
other key employees as to which Elliott Associates, L.P. has voting power
as a result of the shares securing the executive officers' and key
employees' indebtedness incurred to acquire these shares. See "Management"
and "Certain Transactions."
(3) The address of Westgate International, L.P. is c/o Midland Bank & Trust
(Cayman), Post Office Box 1109, Georgetown, Grand Cayman, British West
Indies. Includes 429,220 shares owned by the Company's executive officers,
Messrs. Greer, Whittington and two other key employees as to which
Westgate International, L.P. has voting power as described in Note (2),
above.
(4) The address of Det Sondenfjelds-Norske Dampskibsselskab ASA is Radhausgt
23, Post Office Box 752, Sentrum 0106 Oslo, Norway.
(5) Consists of 8,766,560 shares owned by the Principal Stockholders and
858,440 owned by the Company's executive officers, Messrs. Greer,
Whittington and two other key employees as to which the Principal
Stockholders have voting power as a result of the shares securing the
executive officers', Messrs. Greer, Whittington and two other key
employees' indebtedness incurred to acquire these shares. See "Management"
and "Certain Transactions."
(6) Voting power for these shares is held by the Principal Stockholders as
described in Notes (2) and (3), above.
(7) Consists of 4,125,000 shares owned by Det Sondenfjelds-Norske
Dampskibsselskab ASA.
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<PAGE>
CERTAIN TRANSACTIONS
Since its inception in December 1995, the Company has been controlled by the
Principal Stockholders. By means of capital stock investments and loans, the
Principal Stockholders have been the principal source of financing for the
working capital and asset acquisitions of the Company since its inception.
Through December 31, 1996, the Principal Stockholders had made advances to
the Company in the aggregate amount of approximately $36.7 million, including
accrued interest, which were used by the Company for working capital and to
purchase assets for use in the operations of the Company, including various
marine vessels. These advances were represented by promissory notes bearing
interest at the rate of 10% per annum.
In 1997, the Company was recapitalized in a series of transactions. In March
1997, the Principal Stockholders contributed $5.0 million of the principal
indebtedness and accrued interest owed to them by the Company as additional
capital. Subsequently in 1997, the Principal Stockholders contributed a total
of $16.0 million of the principal indebtedness owed to them by the Company as
additional capital. To evidence the outstanding borrowings from the Principal
Stockholders and to provide for future revolving credit loans from the
Principal Stockholders, in April 1997 the Company issued 10% subordinated
notes due March 31, 2003 (the "Notes") to the Principal Stockholders in an
aggregate amount not to exceed $20 million. In February 1998, the Notes were
amended to provide for advances of up to $24 million.
In May 1997, the Company sold three vessels to CGI Marine Corporation, a
wholly-owned subsidiary of the Principal Stockholders, for $12.0 million, the
proceeds of which were used to prepay indebtedness outstanding under the
Notes. The Company was also reimbursed for $1.1 million of expenses
attributable to the vessels. In December 1997, the Company sold a tugboat to
Horizon Barge & Towing, Inc., a wholly-owned subsidiary of the Principal
Stockholders subsequently renamed Odyssea Vessels, Inc. ("Odyssea"), for a
purchase price of $650,000. In determining the purchase price for each of
these transactions, the parties relied on appraisals of the vessels prepared
by independent third parties. All such vessels were sold at a price equal to
or exceeding the appraised value. The Company considers such transactions to
be on terms at least as favorable to the Company as would be obtained from
unaffiliated independent third parties.
As a result of advances for working capital and asset acquisitions, the
contribution of portions of the Principal Stockholders' indebtedness to
additional capital of the Company, and the application of a portion of the
vessel sales proceeds to such indebtedness, the outstanding indebtedness of
the Company under the Notes fluctuated throughout 1997. The aggregate
indebtedness outstanding under the Notes as of December 31, 1997 was
approximately $16.8 million. The Company intends to use a portion of the
proceeds of the Offering to repay in full the indebtedness outstanding under
the Notes which is expected to approximate $23 million at that time.
Effective as of September 30, 1997, the Company entered into a services
agreement with Odyssea to provide administrative and support services,
including certain administrative, accounting, financial, tax and other
services. The Company is reimbursed by Odyssea for all direct costs and its
allocable general and administrative costs plus a margin of 5% incurred in
providing these services. The services agreement terminates on September 30,
1998 and is terminable prior to that date by the Company or Odyssea at any
time upon 60 days' notice. During 1997, the Company billed Odyssea $76,000 for
reimbursement of its general and administrative expenses.
Elliott Associates, L.P. has issued two letters of credit and provided two
guarantees in favor of a former customer in the Middle East and the seller of
the Phoenix Horizon, as required under the terms of a settlement agreement
among them and the Company. The letters of credit and the guarantees secure
the obligations of the Company under the settlement agreement. See "Risk
Factors--1996 Operating Loss; Lack of Operating History."
In connection with the Credit Facility, Elliott Associates, L.P. entered
into a support agreement with Den norske Bank whereby Elliott Associates, L.P.
agreed under certain conditions to purchase from Den norske Bank
44
<PAGE>
all amounts of principal, interest, fees, expenses and costs owed by the
Company under the Credit Facility. The support agreement also requires that
Elliott Associates, L.P. make advances to the Company to avoid certain
shortfalls under the Credit Facility. It is anticipated that the support
agreement will be terminated following the Offering.
DSND and the Company entered into a strategic alliance in December 1997
pursuant to which DSND acquired 30% of the Company's then outstanding shares
of Common Stock from the Principal Stockholders for $12.0 million and DSND and
the Company will establish the DSND Joint Venture. In addition, DSND has
agreed to sell the DSND Stephaniturm to the Company for $17.5 million and has
granted the Company the option to purchase for $4.0 million a 12-man, 1,000-
foot saturation diving system within 90 days after the Offering. The Company
agreed to pay a $750,000 fee to a company owned by Mr. Devine for assistance
in effecting the strategic alliance with DSND. In addition, in December 1997,
the Company sold 326,480 shares of Common Stock to a company controlled by Mr.
Devine for $950,000, the same per share price paid by DSND to purchase shares
from the Principal Stockholders. From time to time, Mr. Devine and companies
owned or controlled by him have provided services to the Principal
Stockholders and are expected to do so in the future. For information with
respect to such strategic alliance, the sale of the diving support vessel, and
the option to purchase the saturation diving system, see "Prospectus Summary--
The Company" and "Business--The DSND Transaction."
The Company has entered into the Stockholder's Agreement with DSND and a
registration rights agreement with the Principal Stockholders pursuant to
which DSND and each of the Principal Stockholders have, independently, limited
rights to require the Company to register under the Securities Act shares of
Common Stock owned by each of them. After the consummation of the Offering,
DSND and each of the Principal Stockholders are entitled to three demand
registrations. If either of the Principal Stockholders makes such a demand,
the other is entitled to include its shares in such registration. If the
Company proposes to register any Common Stock under the Securities Act in
connection with a public offering, DSND and each of the Principal Stockholders
may require the Company to include all or a portion of the shares of Common
Stock held by them, respectively. DSND and the Principal Stockholders have
waived their registration rights with respect to the Offering. The Company has
agreed to pay all the expenses of any of these registrations, other than
underwriting discounts and commissions. See "Risk Factors--Shares Eligible for
Future Resale."
In December 1997, the Principal Stockholders sold an aggregate of 752,400
shares of Common Stock to Messrs. Lam, Sharp and Cole for $2.2 million, the
same per share price paid by DSND. The Principal Stockholders advanced the
funds necessary to purchase the shares of Common Stock to Messrs. Lam, Sharp
and Cole by promissory notes bearing interest at 9.0% per annum and maturing
in March 2000. The Principal Stockholders also sold 106,040 shares of Common
Stock on the same terms to four other key employees of the Company. The shares
purchased were pledged to the Principal Stockholders to secure the executive
officers' and key employees' obligations under the promissory notes. See
"Principal Stockholders."
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 35,000,000 shares of
Common Stock, $1.00 par value per share, and 5,000,000 shares of preferred
stock, $1.00 par value per share, issuable in series (the "Preferred Stock").
No shares of Preferred Stock are outstanding. Prior to the Offering, there has
been no public market for the Common Stock. Although application has been made
to have the Common Stock listed on the Nasdaq National Market, there can be no
assurance that a market for the Common Stock will develop or, if developed,
will be sustained. See "Risk Factors--No Prior Market; Possible Volatility of
Market Price." The following summary description of the capital stock of the
Company is qualified in its entirety by reference to the Company's Certificate
of Incorporation and Bylaws, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of stockholders;
stockholders may not cumulate votes for the election of directors. Subject to
any preferences accorded to the holders of the Preferred Stock, if and when
issued by the Board of Directors, holders of Common Stock are entitled to
dividends at such times and in such amounts as the Board of Directors may
determine. The Company currently does not intend to declare or pay dividends
for the foreseeable future. In addition, the Credit Facility prohibits
distributions to the Company's stockholders. See "Risk Factors--Dividends,"
"Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." Upon
the dissolution, liquidation or winding up of the Company, after payment of
debts, expenses and the liquidation preference plus any accrued dividends on
any outstanding shares of Preferred Stock, the holders of Common Stock will be
entitled to receive all remaining assets of the Company ratably in proportion
to the number of shares held by them. Holders of Common Stock have no
preemptive, subscription or conversion rights and are not subject to further
calls or assessments or rights of redemption by the Company. The shares of
Common Stock to be issued in the Offering will be validly issued, fully paid
and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority, without approval of the
stockholders, to issue shares of Preferred Stock in one or more series and to
fix the number of shares and rights, preferences and limitations of each
series. Among the specific matters with respect to the Preferred Stock that
may be determined by the Board of Directors are the dividend rights, the
redemption price, if any, the terms of a sinking fund, if any, the amount
payable in the event of any voluntary liquidation, dissolution or winding up
of the affairs of the Company, conversion rights, if any, and voting powers,
if any.
One of the effects of the existence of authorized but unissued Common Stock
and undesignated Preferred Stock may be to enable the Board of Directors to
make more difficult or to discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest or otherwise, and
thereby to protect the continuity of the Company's management. If, in the
exercise of its fiduciary obligations, the Board of Directors were to
determine that a takeover proposal was not in the Company's best interest,
such shares could be issued by the Board of Directors without stockholder
approval in one or more transactions that might prevent or make more difficult
or costly the completion of the takeover transaction by diluting the voting or
other rights of the proposed acquiror or insurgent stockholder group, by
creating a substantial voting block in institutional or other hands that might
undertake to support the position of the incumbent Board of Directors, by
effecting an acquisition that might complicate or preclude the takeover, or
otherwise. In this regard, the Company's Certificate grants the Board of
Directors broad power to establish the rights and preferences of the
authorized and unissued Preferred Stock, one or more series of which could be
issued that would entitle holders (i) to vote separately as a class on any
proposed merger or consolidation, (ii) to cast a proportionately larger vote
together with the Common Stock on any such transaction or for all purposes,
(iii) to elect directors having terms of office or voting rights greater than
those of other directors, (iv) to convert Preferred Stock into a greater
number of
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<PAGE>
shares of Common Stock or other securities, (v) to demand redemption at a
specified price under prescribed circumstances related to a change of control
or (vi) to exercise other rights designated to impede a takeover. The issuance
of shares of Preferred Stock pursuant to the Board of Directors' authority
described above may adversely effect the rights of holders of the Common
Stock.
In addition, certain other charter provisions that are described below may
have the effect of, either alone or in combination with each other or with the
existence of authorized but unissued capital stock, of making more difficult
or discouraging an acquisition of the Company deemed undesirable by the Board
of Directors.
CERTAIN CHARTER AND BYLAW PROVISIONS
Classified Board of Directors. The Company's Certificate and Bylaws divide
the members of the Board of Directors into three classes of directors with
each class to be as nearly equal in number of directors as possible serving
staggered three-year terms. See "Management--Directors, Executive Officers and
Key Employees."
Size of the Board of Directors; Removal of Directors; Filling of Vacancies
on the Board of Directors. The Company's Certificate and Bylaws provide that
the number of directors shall be fixed from time to time by the Board of
Directors, but shall not be fewer than the number required by Delaware law.
Under the Company's Certificate, a vote of 80% of the outstanding shares of
capital stock entitled to vote generally in an election of directors (the
"Voting Stock") is required to remove a director. The Company's Certificate
and Bylaws also provide that a newly created directorship resulting from an
increase in the number of directors may be filled by the Board of Directors
and any vacancies on the Board of Directors resulting from death, resignation,
removal or other cause may be filled only by the affirmative vote of a
majority of all Continuing Directors (as defined below).
Stockholder Action by Unanimous Consent. Under Delaware law, unless a
corporation's certificate of incorporation specifies otherwise, most action
that could be taken by its stockholders at an annual or special meeting may be
taken, instead, without a meeting and without notice to or a vote of other
stockholders, if a consent in writing is signed by holders of outstanding
stock having voting power that would be sufficient to take such action at a
meeting at which all outstanding shares were present and voted. The Company's
Certificate provides that stockholder action may be taken only at an annual or
special meeting of stockholders or by unanimous written consent. As a result,
stockholders may not act upon any matter except at a duly called meeting or by
unanimous written consent.
Amendment of the Bylaws. Under Delaware law, the power to adopt, amend or
repeal bylaws is conferred upon the stockholders; however, a corporation may
in its certificate of incorporation also confer upon the board of directors
the power to adopt, amend or repeal its bylaws. The Company's Certificate and
Bylaws grant the Board of Directors the power to adopt, amend and repeal the
Bylaws at any regular or special meeting of the Board of Directors but only
upon the affirmative vote of a majority of the Continuing Directors. The
Company's stockholders may adopt, amend or repeal the Bylaws but only at any
regular or special meeting of stockholders by an affirmative vote of 80% of
the Voting Stock.
Advance Notice of Stockholder Nominations and Stockholder Business. The
Company's Bylaws permit stockholders to nominate a person for election as a
director or bring other matters before a stockholders' meeting only if such
stockholder has been, for at least one year, the beneficial owner of at least
1% of the Voting Stock and only if written notice of such intent to nominate
or bring business before a meeting is given as described below.
The notice from a stockholder intending to nominate a person for election as
a director or to propose other matters at a stockholders' meeting must be
furnished to the Company's Secretary not more than 270 days and not less than
60 days in advance of the first anniversary of the preceding year's annual
stockholders' meeting, subject to certain exceptions applicable principally to
special meetings. In addition, the notice must contain information, including
the name, age and address of the stockholder proposing such action and any
persons
47
<PAGE>
acting in concert with such stockholder, the number of shares of Voting Stock
held by the stockholder and the dates such stock was acquired, and a
representation by such stockholder that he or she is a holder of record of the
Company's capital stock and intends to appear at the meeting in person and
make the nomination or bring up the specified matter.
In the case of nominations for directors, the notice must also include (i)
the name, age, address and principal occupation of each nominee, (ii) a
description of all arrangements between the nominating stockholder and each
nominee, (iii) other information required to be included in a proxy statement
pursuant to the proxy rules of the Securities and Exchange Commission and (iv)
the consent of each nominee to serve as a director of the Company if elected
and an affidavit of each such nominee certifying that such nominee meets the
qualifications necessary to serve as a director of the Company. In the case of
other proposed business, the notice must set forth a brief description of the
business, the reasons for conducting such business at the meeting and any
material interest of the stockholder therein. The Chairman of the
stockholders' meeting will have the power to disregard any nomination or other
matter that fails to comply with these procedures. In addition, the Company's
Secretary may require any stockholders submitting a notice of intent to make a
nomination or bring up other business to furnish such documentary information
as may be necessary to determine that such stockholder has been for at least
one year the beneficial owner of at least 1% of the Voting Stock.
With respect to any proposal by a stockholder to bring before a meeting any
matter other than the nomination of directors, the Company's Bylaws provide
that the Company may disregard proposals that (i) are substantially
duplicative of a prior-received proposal to be voted upon at an upcoming
meeting, (ii) deal with substantially the same subject matter as a prior
proposal that was voted upon within the preceding five years and that failed
to receive affirmative votes in excess of certain specified levels, which
range, depending on the circumstances, between 3% and 10% or (iii) in the
judgment of the Board of Directors, are not proper subjects for action by
stockholders under Delaware law.
Amendment of Certain Provisions of the Certificate of Incorporation. Under
Delaware law, unless the certificate of incorporation specifies otherwise, a
corporation's certificate of incorporation may be amended by the affirmative
vote of the majority of the stockholders. The Company's Certificate requires
the affirmative vote of 80% of the Voting Stock to amend, alter or repeal
certain provisions of the Certificate regarding (i) stockholder unanimous
written consents, (ii) filling of vacancies and removal of members of the
Board of Directors, (iii) the limitation of liability of directors, (iv)
business combinations and (v) amendments to the Certificate and the Bylaws.
Special Meetings of the Stockholders. The Company's Bylaws permit the
stockholders to call special meetings of the stockholders only upon the
written request to the Company's Secretary of the beneficial owners of at
least 35% of the outstanding Voting Stock. This provision requires the request
to set forth a brief description of the action proposed to be taken at such
special meeting and the reasons for the action, the name and address of each
beneficial owner comprising the group making the request, any material
interest that each such person making the request may have in the matter, the
number of shares of Voting Stock of which each such person is the beneficial
owner and the dates upon which each person acquired his or her stock, a
representation that at least one such beneficial owner or a representative
thereof intends to appear in person at such meeting to propose the action
specified in the request and, if the proposed action includes a proposal to
amend the Company's Certificate or Bylaws, the language of the proposed
amendment. The Secretary may require any person or persons submitting a
request to furnish documentary support of the claim that the person or persons
as a group beneficially owns at least 35% of the outstanding Voting Stock. The
Secretary may also refuse to call a special meeting unless the request is made
in compliance with the foregoing procedures.
Business Combinations. Delaware law provides that a merger, sale of
substantially all of the assets or dissolution of a Company requires the
approval of the holders of a majority of the outstanding capital stock.
Pursuant to the Company's Certificate, if one of these transactions or certain
issuances, reclassifications or other transactions affecting the Company's
capital stock involves an Interested Stockholder (as defined below), the
transaction must be approved by a majority of the Continuing Directors (as
defined below) and by the affirmative
48
<PAGE>
vote of (A) the holders of 80% of the Voting Stock, voting together as a
single class, and (B) 75% of the Voting Stock other than Voting Stock
beneficially owned by the Interested Stockholder. An Interested Stockholder is
any person who (i) is a beneficial owner of 10% of the Voting Stock or (ii) is
an affiliate of the Company and, at any time within two years prior to the
date in question, was a beneficial owner of 10% or more of the then
outstanding Voting Stock, other than the Company or its subsidiaries, the
Principal Stockholders and any person whose beneficial ownership of any
capital of the Company arises solely as a result of a trusteeship or a
custodial relationship with any employee stock ownership or other employee
benefit plan of the Company. A Continuing Director is any member of the Board
of Directors who is not an Interested Stockholder or an affiliate thereof and
(i) was a director prior to the time the Interested Stockholder became an
Interested Stockholder or (ii) was recommended or elected by a majority of the
Continuing Directors at a meeting at which a quorum consisting of a majority
of the Continuing Directors was present. In the absence of an Interested
Stockholder, the Continuing Directors shall mean all the directors then in
office.
This additional voting requirement does not apply if the transaction has
been approved by a majority of the Continuing Directors, or if all of the
following conditions have been met: (i) the aggregate amount of consideration
received per share by the holders meet certain "fair price" criteria, (ii)
prior to the consummation of the transaction (a) there has been no failure to
declare or pay dividends on any outstanding Preferred Stock or Common Stock,
(b) the Interested Stockholder has not received the benefits (except
proportionately as a stockholder) of any loans, advances or other financial
assistance or tax advantages provided by the Company, and (c) the Interested
Stockholder has not caused any material change in the Company's equity capital
structure and (iii) the Interested Stockholder has not become the beneficial
owner of any additional shares of Voting Stock except as part of the
transaction that resulted in such Interested Stockholder becoming an
Interested Stockholder or as a result of a pro rata stock dividend.
The Company is also subject to Section 203 of the Delaware General
Corporation Law, which prohibits Delaware corporations from engaging in a wide
range of specified transactions with any interested stockholder, defined to
include, among others, any person other than such corporation and any of its
majority-owned subsidiaries who owns 15% or more of any class or series of
stock entitled to vote generally in the election of directors, unless, among
other exceptions, the transaction is approved by (i) the Board of Directors
prior to the date the interested stockholder obtained such status or (ii) the
holders of two-thirds of the outstanding shares of each class or series of
stock entitled to vote generally in the election of directors, not including
those shares owned by the interested stockholder.
The provisions described above may tend to deter any potential unfriendly
offers or other efforts to obtain control of the Company that are not approved
by the Board of Directors and thereby deprive the stockholders of
opportunities to sell shares of Common Stock at prices higher than the
prevailing market price. On the other hand, these provisions will tend to
insure continuity of management and corporate policies and to induce any
person seeking control of the Company or a business combination with the
Company to negotiate on terms acceptable to the then elected Board of
Directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 19,076,480 shares of
Common Stock outstanding. The 5,000,000 shares of Common Stock sold in the
Offering (plus any additional shares sold upon the Underwriters' exercise of
their over-allotment option) will be freely transferable without restriction
under the Securities Act by persons who are not deemed to be affiliates of the
Company or acting as underwriters, as those terms are defined in the
Securities Act. The remaining 14,076,480 shares of Common Stock held by
existing stockholders were acquired in transactions not requiring registration
under the Securities Act and will be "restricted" stock within the meaning of
Rule 144. Consequently, such shares may not be resold unless they are
registered under the Securities Act or are sold pursuant to an applicable
exemption from registration, such as Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, if at least one year has
elapsed since shares of Common Stock that constitute restricted stock were
last acquired from the Company or an affiliate of the Company, the holder is
entitled to sell within any three-month period a number of shares that does
not exceed the greater of one percent of the total shares of Common Stock then
outstanding or the average weekly trading volume of the Common Stock in the
over-the-counter market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 are subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. If at least two years have elapsed since the shares were last
acquired from the Company or an affiliate, a person who has not been an
affiliate of the Company at any time during the three months preceding the
sale is entitled to sell such shares under Rule 144(k) without regard to
volume limitations, manner of sale provisions, notice requirements or the
availability of current public information concerning the Company. All of the
shares of restricted stock within the meaning of Rule 144 held by the
Principal Stockholders will be eligible for sale following the Offering in
reliance on Rule 144, subject to volume limitations and subject to the
contractual "lock-up" restrictions described below.
The Company has granted the Principal Stockholders and DSND certain
registration rights with respect to the Common Stock held by each of them,
including the right, subject to certain conditions and limitations, to demand
registration of shares of Common Stock held by them and to include shares of
Common Stock held by them in any registration of securities proposed by the
Company. The exercise of such registration rights is subject to the
contractual "lock-up" restrictions described below. See "Certain
Transactions."
The Company, the Principal Stockholders, DSND and each of the Company's
directors and its executive officers have agreed that they will not, with
certain limited exceptions, issue, offer for sale, sell, or otherwise dispose
of any shares of Common Stock (other than stock issued or options granted
pursuant to the Incentive Plan) for 180 days following the date of this
Prospectus without the prior written consent of Smith Barney Inc. See
"Underwriting."
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after the Offering. Any future sale of
substantial amounts of Common Stock in the open market may adversely affect
the market price of the Common Stock offered hereby.
50
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, the Underwriters named below
(the "Underwriters"), for whom Smith Barney Inc., PaineWebber Incorporated and
Raymond James & Associates, Inc., are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company, and
the Company has agreed to sell to each Underwriter, the aggregate number of
shares of Common Stock set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Smith Barney Inc. ..............................................
PaineWebber Incorporated........................................
Raymond James & Associates, Inc.................................
---------
Total......................................................... 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby
are subject to approval of certain legal matters by counsel and to certain
other conditions, including the condition that no stop order suspending the
effectiveness of the Registration Statement is in effect and no proceedings
for such purpose are pending or threatened by the Securities and Exchange
Commission and that there has been no material adverse change or development
involving a prospective material adverse change in the condition of the
Company from that set forth in the Registration Statement otherwise than as
set forth or contemplated in this Prospectus, and that certain certificates,
opinions and letters have been received from the Company and its counsel. The
Underwriters are obligated to take and pay for all of the above shares of
Common Stock if any such shares are taken.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page hereof, and to certain
dealers at such initial public offering price less a selling concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
Underwriters or to certain other brokers or dealers. After the initial
offering to the public, the offering price and other selling terms may be
changed by the Representatives. The Representatives have informed the Company
that the Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
The Company and the Underwriters have agreed in the Underwriting Agreement
to indemnify each other against certain liabilities, including liabilities
under the Securities Act, and to contribute to payments that such parties may
be required to make in respect thereof.
The Company has granted to the Underwriters an option to purchase up to an
additional 750,000 shares of Common Stock, exercisable solely to cover over-
allotments, at the initial public offering price, less the underwriting
discounts and commissions shown on the cover page of this Prospectus. Such
option may be exercised at any time until 30 days after the date of the
Underwriting Agreement. To the extent that the option is exercised, each
Underwriter will be committed, subject to certain conditions, to purchase a
number of the additional shares of Common Stock that is proportionate to such
Underwriter's initial commitment as indicated on the preceding table.
The Company, the Principal Stockholders, DSND and the executive officers and
directors of the Company have agreed that they will not, without the prior
written consent of Smith Barney Inc., during the 180 days following the date
of this Prospectus, (i) offer, sell, contract to sell, pledge or otherwise
dispose of any shares of Common Stock or any securities convertible into, or
exchangeable for, shares of Common Stock, other than in the case of the
Company, shares issued or options granted pursuant to the Incentive Plan or
(ii) enter into any
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<PAGE>
swap or other derivatives transaction that transfers to another, in whole or
in part, any of the economic benefits or risks of ownership of such shares of
Common Stock.
In connection with the Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appears above) and
may effect transactions which stabilize, maintain or otherwise affect the
market price of the Common Stock at levels above those which might otherwise
prevail in the open market. Such transactions may include placing bids for the
Common Stock or effecting purchases of the Common Stock for the purpose of
pegging, fixing or maintaining the price of the Common Stock or for the
purpose of reducing a syndicate short position created in connection with the
Offering. A syndicate short position may be covered by exercise of the option
described above in lieu of or in addition to open market purchases. In
addition, the contractual arrangements among the Underwriters include a
provision whereby, if the Representatives purchase Common Stock in the open
market for the account of the underwriting syndicate and the securities
purchased can be traced to a particular Underwriter or member of the selling
group, the underwriting syndicate may require the Underwriter or selling group
member in question to purchase the Common Stock in question at the cost price
to the syndicate or may recover from (or decline to pay to) the Underwriter or
selling group member in question the selling concession applicable to the
securities in question. The Underwriters are not required to engage in any of
these activities and any such activities, if commenced, may be discontinued at
any time.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offering.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be negotiated between the Company and
the Representatives. Among the factors considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, are recent financial and operating results of the Company, the
proposed capital structure, assets and liabilities of the Company, estimates
of the business potential and earnings prospects of the Company, the prospects
for the industry in which the Company operates, an assessment of the Company's
management, consideration of the above factors in relation to market valuation
of companies in related businesses and other factors deemed relevant. The
initial public offering price set forth on the cover page of this Prospectus
should not, however, be considered an indication of the actual value of the
Common Stock. Such price will be subject to change as a result of market
conditions and other factors. There can be no assurance that an active trading
market will develop for the Common Stock or that the Common Stock will trade
in the public market subsequent to the Offering at or above the initial public
offering price.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P., New Orleans, Louisiana. Certain legal matters in connection with the
Common Stock offered hereby will be passed upon for the Underwriters by
Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The Company's financial statements as of and for the periods ended December
31, 1996 and 1997, appearing elsewhere in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said report.
52
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to
the Common Stock being offered pursuant to this Prospectus. This Prospectus
does not contain all information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Statements contained herein concerning the
provisions of any documents are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit
to the Registration Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement, including exhibits
filed therewith, may be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
such materials may also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. The Commission maintains a World Wide Web site on the Internet
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission
(http://www.sec.gov).
The Company will be required to file reports and other information with the
Commission pursuant to the Securities Exchange Act of 1934, as amended. The
Company intends to furnish its stockholders with annual reports containing
audited financial statements certified by independent public accountants.
53
<PAGE>
HORIZON OFFSHORE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets............................................. F-3
Consolidated Statements of Operations................................... F-4
Consolidated Statements of Stockholders' Equity......................... F-5
Consolidated Statements of Cash Flows................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Horizon Offshore, Inc.:
We have audited the accompanying consolidated balance sheets of Horizon
Offshore, Inc. (a Delaware corporation), and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the year ended December 31,
1997 and for the period from inception (December 20, 1995) through December
31, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Horizon Offshore, Inc., and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the year ended December 31, 1997 and for
the period from inception (December 20, 1995) through December 31, 1996, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
January 16, 1998
F-2
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................... $ 2,650 $ 2,846
Accounts receivable--
Contract receivables.................................. 3,020 9,165
Costs in excess of billings........................... 2,745 2,958
Related parties....................................... 155 577
Other current assets.................................... 100 542
------- --------
Total current assets................................ 8,670 16,088
PROPERTY AND EQUIPMENT, net............................... 29,284 55,040
DEFERRED INCOME TAXES..................................... 1,617 137
OTHER ASSETS.............................................. 119 1,724
------- --------
$39,690 $ 72,989
======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................ $ 1,275 $ 4,145
Accrued liabilties...................................... 884 2,540
Accrued job costs....................................... 3,125 5,501
Accrued interest........................................ 1,852 681
Billings in excess of costs............................. -- 148
Current maturities of long-term debt.................... 1,000 5,101
Income taxes payable.................................... -- 85
------- --------
Total current liabilities........................... 8,136 18,201
LONG-TERM DEBT, net of current maturities................. 38,104 34,729
------- --------
Total liabilities................................... 46,240 52,930
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $1 par value, 5,000,000 shares
authorized, none issued and outstanding................ -- --
Common stock, $1 par value, 35,000,000 shares autho-
rized, 14,076,480 shares issued and outstanding........ 3,030 3,369
Subscription receivable................................. -- (950)
Additional paid-in capital.............................. -- 24,944
Accumulated deficit..................................... (9,580) (7,304)
------- --------
Total stockholders' equity (deficit)................ (6,550) 20,059
------- --------
$39,690 $ 72,989
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 20, 1995) YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, 1996 1997
------------------- ------------
<S> <C> <C>
CONTRACT REVENUES............................. $ 14,088 $ 36,144
COST OF CONTRACT REVENUES..................... 21,616 30,104
---------- ----------
Gross profit (loss)......................... (7,528) 6,040
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.. 2,047 2,788
---------- ----------
Operating income (loss)..................... (9,575) 3,252
OTHER INCOME (EXPENSE):
Interest.................................... (1,662) (1,619)
Gain on sale of asset....................... -- 614
Other....................................... 40 29
---------- ----------
(1,622) (976)
---------- ----------
NET INCOME (LOSS) BEFORE INCOME TAXES......... (11,197) 2,276
INCOME TAX BENEFIT............................ (1,617) --
---------- ----------
NET INCOME (LOSS)............................. $ (9,580) $ 2,276
========== ==========
NET INCOME (LOSS) PER SHARE................... $ (0.70) $ 0.17
========== ==========
SHARES USED IN COMPUTING NET INCOME (LOSS) PER
SHARE........................................ 13,750,000 13,777,207
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK COMMON ADDITIONAL STOCKHOLDERS'
----------------- STOCK PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SUBSCRIPTION CAPITAL DEFICIT (DEFICIT)
---------- ------ ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, Inception...... -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock at $.28 per
share................ 11,000,000 3,030 -- -- -- 3,030
Net loss.............. -- -- -- -- (9,580) (9,580)
---------- ------ ----- ------- ------- -------
BALANCE, December 31,
1996................... 11,000,000 3,030 -- -- (9,580) (6,550)
Contribution of
stockholders' debt to
additional paid-in
capital.............. -- -- -- 21,000 -- 21,000
Contribution related
to sales of assets to
related party, net of
tax effect of $1,631. -- -- -- 3,170 -- 3,170
Exercise of stock
warrants at $.004 per
share................ 2,750,000 13 -- -- -- 13
Subscription for
common stock at $2.91
per share............ 326,480 326 (950) 624 -- --
Contribution related
to litigation
settlement paid by a
Principal
Stockholder.......... -- -- -- 150 -- 150
Net income............ -- -- -- -- 2,276 2,276
---------- ------ ----- ------- ------- -------
BALANCE, December 31,
1997................... 14,076,480 $3,369 $(950) $24,944 $(7,304) $20,059
========== ====== ===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 20, 1995) YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, 1996 1997
------------------- ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ (9,580) $ 2,276
Adjustments to reconcile net income (loss) to
net cash used in operating activities--
Depreciation................................ 715 1,002
Deferred income taxes....................... (1,617) (137)
Gain on sale of asset....................... -- (614)
Changes in operating assets and
liabilities--
Accounts receivable........................ (3,175) (6,567)
Costs in excess of billings................ (2,745) (213)
Billings in excess of costs................ -- 148
Other assets............................... -- (713)
Accounts payable........................... 1,013 2,871
Accrued liabilities........................ 844 1,656
Accrued job costs.......................... 3,125 2,376
Accrued interest........................... 1,852 1,321
Income taxes payable....................... -- 85
-------- -------
Net cash provided by (used in) operating
activities.............................. (9,568) 3,491
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases and additions to equipment......... (25,699) (31,883)
Purchase of other assets..................... (217) --
Proceeds from sale of assets................. -- 3,577
-------- -------
Net cash used in investing activities.... (25,916) (28,306)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings under notes payable and long-term
debt........................................ 35,104 30,441
Principal payments on long-term debt......... -- (5,593)
Issuance of common stock..................... 3,030 13
Capital contribution related to legal
settlement.................................. -- 150
-------- -------
Net cash provided by financing
activities.............................. 38,134 25,011
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS..... 2,650 196
CASH AND CASH EQUIVALENTS AT BEGINNING OF PE-
RIOD......................................... -- 2,650
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 2,650 $ 2,846
======== =======
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest....................... $ -- $ 107
Non-cash investing and financing activities:
Purchase and additions to equipment with the
issuance of notes payable.................. $ 4,300 $ 6,384
Gain on sale of assets to related party
reflected as a capital contribution, net of
tax effect of $1,631....................... $ -- $ 3,170
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
Horizon Offshore, Inc. (a Delaware corporation) and its subsidiaries
(Horizon or the Company), provide offshore construction services to the oil
and gas industry. These services generally consist of laying and burying
marine pipelines for the transportation of oil and gas. Work is performed
primarily on a fixed-price or day-rate basis or a combination thereof.
Horizon, which was incorporated on December 20, 1995 did not commence
operations until March 1996 and until December 1997 was wholly owned by
Elliott Associates, L.P. and Westgate International, L.P. (the Principal
Stockholders). Accordingly, the results of operations for the year ended
December 31, 1996 are the same as those presented in the accompanying
financial statements. The Principal Stockholders have funded substantially all
of the Company's cash requirements. Through December 31, 1996, the Principal
Stockholders advanced $36.7 million to the Company, including accrued interest
at 10% per annum, to fund its operating activities, working capital
requirements and capital expenditures for the acquisition and improvement of
assets and equipment. These advances were represented by promissory notes
bearing interest at the rate of 10% per annum.
In 1997, the Company was recapitalized through a series of transactions. The
Principal Stockholders converted $21 million of the principal indebtedness and
accrued interest to additional paid-in capital. The Company issued 10%
Subordinated Notes due December 31, 2005 (Subordinated Notes) to the Principal
Stockholders to evidence the remaining outstanding indebtedness and provide
for any future advances in an aggregate amount not to exceed $20 million.
Additionally, the Company issued a warrant to a Principal Stockholder to
purchase 2,750,000 shares at $.004 per share, which approximated fair value at
the date of the transaction. The warrant was exercised in December 1997. In
1997 the Company sold three boats, a tugboat and certain equipment to
affiliated entities of the Principal Stockholders for a purchase price of
$12.7 million and $12.0 million of the proceeds was used to reduce the
indebtedness under the Subordinated Notes. The Company accounted for the $3.2
million gain on the sale, net of taxes of approximately $1.6 million, as a
capital contribution. As of December 31, 1997 the balances outstanding on the
Subordinated Notes totaled $16.1 million (see note 6).
DSND Alliance
On December 4, 1997, the Company entered into an agreement with Det
Sondenfjelds-Norske Dampskibsselskab ASA (DSND) to form a strategic alliance.
DSND is a Norwegian-based, full service contractor in the subsea construction
business. DSND acquired 30% of the Company's common stock from the Principal
Stockholders. If the Company consummates a public offering in 1998, DSND has
agreed to sell the DSND Stephaniturm, a dynamically positioned diving support
vessel, to the Company for $17.5 million and has given the Company an option
to purchase a saturation diving system for an additional $4.0 million. In
addition, the Company will obtain a 30% interest in a joint venture to be
formed to operate a multi-purpose field supply and reel pipelay vessel in the
Gulf, offshore Mexico and Canada, and in the Caribbean.
Business Risks
The Company's level of activity depends largely on the condition of the oil
and gas industry and, in particular, the level of capital expenditures by oil
and gas companies for developmental construction. These expenditures are
influenced by prevailing oil and gas prices, expectations about future demand
and prices, the cost of exploring for, producing and developing oil and gas
reserves, the discovery rates of new oil and gas reserves, sale and expiration
dates of offshore leases in the United States and abroad, political and
economic conditions, governmental regulations and the availability and cost of
capital. Historically, oil and gas prices and the level of exploration and
development activity have fluctuated substantially, impacting the demand for
pipeline and marine construction services.
F-7
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Factors affecting the Company's profitability include competition, equipment
and labor productivity, contract estimating, weather conditions and the other
risks inherent in marine construction. The marine construction industry in the
Gulf is highly seasonal as a result of weather conditions with the greatest
demand for these services occurring during the second and third quarters of
the year. Full year results are not a direct multiple of any quarter or
combination of quarters because of this seasonality. See "Risk Factors"
elsewhere herein.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated.
Revenue Recognition
Contract revenues are recognized on the percentage-of-completion method,
measured by the percentage of costs incurred to date to the total estimated
costs for each contract. This method is used because management considers
costs incurred to be the best available measure of progress on these
contracts. Changes in job performance, job conditions and estimated
profitability, including those arising from final contract settlements, may
result in revisions to costs and revenues and are recognized in the period in
which the revisions are determined. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. The asset "Costs in excess of billings" represents revenues
recognized in excess of amounts billed. The liability "Billings in excess of
costs" represents amounts billed in excess of revenues recognized.
Cost Recognition
Costs of contract revenues include all direct material and labor costs and
certain indirect costs which are allocated to contracts based on utilization,
such as supplies, tools, repairs and depreciation. Selling, general and
administrative costs are charged to expense as incurred.
Interest Capitalization
Interest is capitalized on the average amount of accumulated expenditures
for equipment that has been purchased and is undergoing major modifications
prior to being placed into service. Interest is capitalized using an effective
rate based on related debt until the equipment is placed into service.
Interest expense for the year ended December 31, 1997 is net of interest
capitalized in the amount of $.3 million.
Earnings Per Share
Earnings per share data for all periods presented has been computed pursuant
to Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" that requires a presentation of basic earnings per share (basic EPS)
and diluted earnings per share (diluted EPS). Basic EPS excludes dilution and
is determined by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if securities and
other contracts to issue common stock were exercised or converted into common
stock. There are no differences in basic EPS and diluted EPS for all periods
presented.
Pursuant to the Securities and Exchange Commission's Staff Accounting
Bulletin No. 98, nominal issuances of common and common equivalent shares by
the Company during the 12 months immediately preceding the initial filing of
the Registration Statement relating to the Offering have been included in the
calculation of the
F-8
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
shares used in computing earnings (loss) per share (for the periods prior to
the completion of the Offering) as if these shares were outstanding for such
periods. The Company's nominal issuances relate to the warrant issued in
conjunction with the Company's recapitalization in 1997.
Cash and Cash Equivalents
The Company considers all cash in banks and highly liquid investments with
original maturity dates of three months or less to be cash equivalents.
Restricted cash of $.2 million is included in the cash balance at December 31,
1996, and such restriction was released in 1997.
Property and Equipment
Equipment is carried at cost. Depreciation is provided using the straight-
line method based on the following estimated useful lives:
<TABLE>
<S> <C>
Barges, boats and related equipment........................ 15 to 18 years
Buildings.................................................. 15 years
Machinery and equipment.................................... 8 years
Office furniture and equipment............................. 5 years
Leasehold improvements..................................... 3 years
</TABLE>
Major additions and improvements to barges, boats and related equipment are
capitalized over the useful life of the vessel. Maintenance and repairs
including major overhauls are expensed as incurred. When equipment is sold or
otherwise disposed of, the cost of the equipment and accumulated depreciation
are removed from the accounts and any gain or loss is reflected in income.
In 1996 the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement
establishes the recognition and measurement standards related to the
impairment of long-lived assets. The Company periodically assesses the
realizability of its long-term assets pursuant to the provisions of SFAS No.
121. Based on the Company's analysis of the undiscounted future cash flows for
its long-term assets, no impairments would have been recognized under SFAS No.
121.
Other Assets
Other assets consist principally of deferred interest, deposits and prepaid
loan fees at December 31, 1997. Deferred interest was imputed at 10 percent on
aggregate non-interest bearing debt of $7.4 million at December 31, 1997 and
will be amortized over the life of the debt agreements using the effective
interest rate method. Deposits consist of a security deposit on the corporate
office lease and a deposit for the purchase of marine equipment. Loan fees
paid in connection with the Credit Facility (see note 6) will be amortized
over the four-year term of the loans.
At December 31, 1996, other assets include deferred dry-dock costs of the
boats sold to an affiliated entity in April 1997 (see note 5). Dry-dock costs
are third-party costs associated with scheduled maintenance on the Company's
marine construction vessels. Costs incurred in connection with dry dockings
are deferred and amortized over the period to the next scheduled dry docking.
The Company includes in Other current assets the portion of these deferred
charges expected to be amortized during the next twelve month period, with the
residual balance in Other assets.
F-9
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
-------------
<S> <C> <C>
Deposits................................................... 5 596
Deferred dry-dock costs.................................... 114 --
Deferred interest expense.................................. -- 645
Prepaid loan fees.......................................... -- 322
Deferred offering costs.................................... -- 146
Other...................................................... -- 15
----- -------
$ 119 $ 1,724
===== =======
</TABLE>
Federal Income Taxes
The Company uses the liability method of accounting for income taxes. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to reverse. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In February 1997, SFAS No. 129, "Disclosure of Information About Capital
Structure," was issued, establishing standards for disclosing information
about an entity's capital structure. The Company will adopt this pronouncement
in 1998 in accordance with the implementation requirements.
In July 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued,
establishing standards for reporting and display of comprehensive income and
its components. The Company will adopt this pronouncement in 1999 in
accordance with the implementation requirements.
Management believes neither SFAS No. 129 nor SFAS No. 130 will have a
material impact on the Company's financial statements.
2. ACCOUNTS RECEIVABLE:
Contract receivables are generally billed upon completion of each contract,
and retainage is not included in contract receivables until such time as it
becomes payable by the customer. Costs in excess of billings solely
F-10
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
represent costs incurred on jobs in process. Claims for extra work and changes
in scope of work are included in revenues when collection is determined by
management to be probable.
The Company has not experienced material losses from uncollected
receivables. The principal customers of the Company are the major and
independent oil and gas companies and their affiliates. The concentration of
customers in the energy industry may impact the Company's overall credit
exposure, either positively or negatively, since these customers may be
similarly affected by changes in economic or other conditions. However,
management believes that the diversification of the Company's portfolio of
receivables within the energy industry reduces any potential credit risk
associated with any particular customer. Two customers accounted for 14.7
percent and 10.9 percent of revenues for the year ended December 31, 1997.
Included in accounts receivable from related parties at December 31, 1997 is
$.3 million due from an affiliated entity owned by the Principal Stockholders
for costs incurred by the Company related to the boats sold to this affiliated
entity (see note 1). During 1997 the affiliated entity repaid $1.2 million to
the Company for such costs related to the boats, and the Company then paid
$1.2 million on the Subordinated Notes.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Barges, boats and related equipment..................... $29,444 $51,349
Land and buildings...................................... -- 4,039
Machinery............................................... 206 245
Office furniture and equipment.......................... 324 424
Leasehold improvements.................................. 25 237
------- -------
29,999 56,294
Less--Accumulated depreciation.......................... (715) (1,254)
------- -------
Property and equipment, net............................. $29,284 $55,040
======= =======
Depreciation expense is included in the following
expense accounts:
Costs of contract revenues............................ $ 695 $ 903
Selling, general and administrative................... 20 99
------- -------
$ 715 $ 1,002
======= =======
</TABLE>
4. ACQUISITION OF ASSETS:
During 1996, the Company acquired certain marine equipment for $5 million.
This transaction was funded with $4 million cash and a $1 million demand note.
The assets acquired included a pipelay barge, tugboat and other related
equipment.
In a separate transaction with an unrelated party in 1996, the Company paid
$5.4 million for an additional pipelay barge and $6.7 million for four boats
proposed to be used for offshore construction work. The Company expended an
additional $1.2 million and $2.9 million for improvements to the barge and the
four boats, respectively, during 1996. The Company sold the four boats during
1997 (see note 5).
Prior to December 31, 1996, members of the Company's former management team
undertook certain actions in an attempt to expand the Company's operations
into the Middle East. Under prior management, the Company agreed to acquire
and refurbish a barge for purposes of providing construction services in the
Middle
F-11
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
East. The Company acquired the barge for $4.8 million, of which $1.5 million
was paid in 1996 and $.3 million was paid in 1997. The remaining $3.0 million
was financed with a note payable to the seller. The Company incurred
improvement costs to refurbish the barge of $3.3 million in 1996 and $6.7
million during 1997. In connection with the purchase, the Company undertook
certain actions to perform construction services for a customer of the seller.
The Company encountered title disputes over the barge, higher than anticipated
barge refurbishing costs and the subsequent rejection of the barge by the
customer. In August 1997, present management of the Company resolved the
title, contractual and other legal disputes pertaining to the barge and the
related project. Included in costs of contract revenues for 1996 is $7.4
million in charges related to the Company's attempt to expand operations into
the Middle East. The Company paid $.5 million to the customer in the third
quarter of 1997 and has a $4.4 million note payable to the customer. The
Principal Stockholders provided guarantees of the Company's notes and secured
two letters of credit in favor of the seller and the customer, respectively.
The Company has agreed to indemnify the Principal Stockholders for any amounts
paid with respect to the guarantees and letters of credit. As amounts are
drawn on the letters of credit to make payments on the $3.0 million note
payable to the seller and the $4.4 million note payable to the customer, such
amounts have been advanced pursuant to the Subordinated Notes.
The Company acquired two pipelay/pipebury barges, one pipebury barge and one
diving support vessel during the last half of 1997. Acquisition and
improvement costs relating to these vessels totaled $25.5 million during the
last half of 1997. In July 1997, the Company acquired land and buildings in
Louisiana for $.8 million to use as a marine base to support offshore
operations. In December 1997, the Company acquired a facility near Port
Arthur, Texas as its primary marine and support base and as a storage facility
for marine structures for a total of $3.2 million, including improvements.
5. DISPOSITION OF ASSETS:
The Company sold one of its boats to an unaffiliated third party in February
1997 for $3.3 million in cash. A $.6 million gain was recognized on the sale.
As discussed in Note 1, three boats and certain equipment were sold to
affiliated entities owned by the Principal Stockholders for $12.7 million. The
Company used the $12.0 million of sales proceeds to repay a portion of the
Principal Stockholders' debt. The Company accounted for the $3.2 million gain
on the sale, net of taxes of approximately $1.7 million, as a capital
contribution.
F-12
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. NOTES PAYABLE (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
10% Subordinated Notes payable to Highwood Partners, L.P.
due in quarterly installments beginning March 31, 2003,
maturing December 31, 2005. Interest at 10% due semi-
annually beginning September 30, 1997...................... $20,419 $ 7,163
10% Subordinated Note payable to Westgate International,
L.P. due in quarterly installments beginning March 31,
2003, maturing December 31, 2005. Interest at 10% due semi-
annually beginning September 30, 1997...................... 14,685 8,939
Note payable to a foreign marine company including imputed
interest at 10%, due in three annual installments of $1
million, maturing August 3, 2000, secured by a letter of
credit and guaranteed by a Principal Stockholder........... 3,000 3,000
Note payable to a foreign marine company including imputed
interest at 10%, due in monthly installments beginning
January 1, 1998, maturing December 31, 2001, secured by a
letter of credit and guaranteed by a Principal Stockholder. -- 4,425
Term loan payable to Den norske Bank in 48 monthly
installments beginning July 31, 1998, maturing June 30,
2002, secured by mortgages on all owned vessels and
accounts receivable from customers. Interest at Den norske
Bank's prime rate plus one half percent or LIBOR plus three
percent, 9.0% at December 31, 1997......................... -- 13,000
Revolving note payable to Den norske Bank due June 30, 2002,
secured by mortgages on all owned vessels and accounts
receivable from customers. Interest at Den norske Bank's
prime rate plus one half percent or LIBOR plus three
percent, 9.0% at
December 31, 1997.......................................... -- 1,650
Lease payable to a marine transportation company in monthly
installments beginning January 22, 1998, maturing January
22, 1999, secured by a vessel.............................. -- 1,159
Note payable to a bank in monthly payments including
interest at 9.5%, secured by land and buildings, maturing
July 27, 2002.............................................. -- 494
Note payable to an individual for purchase of equipment
payable on demand together with interest at 6%............. 1,000 --
------- -------
Total long term debt...................................... 39,104 39,830
Less--Current maturities.................................. (1,000) (5,101)
------- -------
Long-term debt, net of current maturities................. $38,104 $34,729
======= =======
</TABLE>
Indebtedness to Related Parties
Through December 31, 1996, the Principal Stockholders advanced $36.7 million
to the Company, including accrued interest at 10% per annum, to fund its
operating activities, working capital requirements and capital expenditures
for the acquisition and improvement of assets and equipment. These advances
were represented by two promissory notes bearing interest at the rate of 10%
per annum. In 1997, the Company was recapitalized through a series of
transactions. The Principal Stockholders converted $21 million of the
principal indebtedness and accrued interest to additional paid-in capital. The
Company issued 10% Subordinated Notes due December 31, 2005 (Subordinated
Notes) to the Principal Stockholders to evidence the remaining outstanding
indebtedness and provide for any future advances in an aggregate amount not to
exceed $24 million, as amended. In 1997 the Company sold three boats, a
tugboat and certain equipment to affiliated entities of the Principal
Stockholders for a purchase price of $12.7 million and $12.0 million of the
proceeds were used to reduce the indebtedness under the Subordinated Notes.
F-13
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Credit Facility
On October 27, 1997, the Company entered into a credit facility, which was
amended in December 1997, with Den norske Bank providing for $20.0 million of
borrowings (Credit Facility). The Credit Facility includes both a $13.0
million term loan (the "Term Loan") to be repaid in forty-eight monthly
installments of $.2 million beginning July 31, 1998 and a $7.0 million
revolving line of credit (the "Revolver") due June 30, 2002. The Credit
Facility is secured by substantially all assets of the Company, including
mortgages on all vessels owned by the Company, as well as a support agreement
between Den norske Bank and one of the Principal Stockholders which requires
the Principal Stockholder to assume the liability under the Credit Facility
should the Company default on its obligations under the Credit Facility. The
Credit Facility requires that certain conditions be met in order for the
Company to obtain advances under the Term Loan. Advances for the Revolver may
be obtained in accordance with a borrowing base defined as a percentage of
accounts receivable balances. The Credit Facility requires the Company to
maintain certain financial ratios and contains certain covenants that limit
the ability of the Company to incur additional indebtedness, pay dividends,
create certain liens, sell assets and limits capital expenditures to the
extent such amounts are not funded by the Principal Stockholders. Interest is
calculated on advances under the Credit Facility based upon either Den norske
Bank's prime rate plus one half percent or LIBOR plus three percent. As of
December 31, 1997, the Company had $13.0 million outstanding under the Term
Loan and $1.7 million outstanding under the Revolver bearing interest at 9.0%.
Maturities of long-term debt for the each of the years ending December 31
are as follows (in thousands):
<TABLE>
<S> <C>
1998.............................................................. $ 5,101
1999.............................................................. 5,368
2000.............................................................. 5,370
2001.............................................................. 4,372
2002.............................................................. 1,462
Thereafter........................................................ 18,157
-------
$39,830
=======
</TABLE>
7. INCOME TAXES:
Income tax expense (benefit) for the years ended December 31, 1997 and 1996
consists of (in thousands):
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 20,
1995) THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------- ------------
<S> <C> <C>
Federal
Current...................................... $ -- $ 1,480
Deferred..................................... (1,617) (1,480)
------- -------
$(1,617) $ --
======= =======
</TABLE>
F-14
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The income tax expense (benefit) for the years ended December 31, 1997 and
1996 differs from the amount computed by applying the statutory federal income
tax rate of 34 percent to consolidated income before income taxes as follows
(dollars in thousands):
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 20,
1995) THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
---------------- --------------
<S> <C> <C> <C> <C>
Expense (benefit) computed at federal
statutory rate.............................. $ (3,807) 34.0% $ 774 34.0%
Increase (decrease) in provision from:
Nondeductible expenses..................... -- -- 92 4.0%
Increase (decrease) in valuation allowance
for deferred tax assets................... 2,190 19.6 (866) (38.0)%
-------- ----- ------ ------
$ (1,617) 14.4% $ -- --
======== ===== ====== ======
</TABLE>
The tax effects of the temporary differences that give rise to the
significant portions of the deferred tax assets and liabilities are presented
below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
------ ------
<S> <C> <C>
Assets--
Net operating loss carryforward............................... $2,942 $ 930
Gain on asset sales........................................... -- 899
Interest not currently deductible............................. 565 1,115
Fixed asset basis difference.................................. 1,469 1,469
Alternative minimum tax....................................... -- 137
------ ------
Total gross deferred tax asset.............................. 4,976 4,550
Liabilities--
Book/tax depreciation difference.............................. 1,169 3,089
------ ------
3,807 1,461
Less--Valuation allowance....................................... (2,190) (1,324)
------ ------
Net deferred tax asset...................................... $1,617 $ 137
====== ======
</TABLE>
A valuation allowance was provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. The Company has
established a valuation allowance for certain deferred tax assets due to
realization uncertainties inherent regarding future operating results. The
realization of a significant portion of net deferred tax assets is based in
part on the Company's estimates of the timing of reversals of certain
temporary differences and on the generation of taxable income before such
reversals. The Company recognized a net deferred tax asset at December 31,
1996 for the benefit of utilizing the net operating loss carryforward from the
sale of appreciated assets to a related party in March 1997. The $1.6 million
tax effect of the resulting gain was netted with the gain and treated as a
capital contribution in the accompanying financial statements. The net
operating loss carryforward of approximately $2.2 million at December 31, 1997
expires in the year 2012. The Company's ability to utilize the net operating
loss carryforward could be limited by a change in ownership as defined by
federal income tax regulations.
8. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in various routine legal proceedings primarily
involving claims for personal injury under the Jones Act and general maritime
laws which the Company believes are incidental to the conduct of its
F-15
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
business. The Company believes that none of these proceedings in the
aggregate, if adversely determined, would have a material adverse effect on
the Company's business.
Leases
The Company leases office space at various locations under noncancelable
operating leases that expire through November 2001. Rental expense under these
leases was $.1 million for the year ended December 31, 1996 and $.3 million
for the year ended December 31, 1997. Future minimum lease commitments under
these agreements for the years ended December 31 are as follows (in
thousands):
<TABLE>
<S> <C>
1998............................................................... $ 744
1999............................................................... 777
2000............................................................... 784
2001............................................................... 710
------
$3,015
======
</TABLE>
Insurance
The Company participates in a retrospectively rated insurance agreement. In
the opinion of management the Company has adequately accrued for all
liabilities arising from these agreements based upon the total incremental
amount that would be paid based upon the with-and-without calculation assuming
experience to date and assuming termination.
Employment Agreements
The Company has entered into employment agreements with three of its
executive officers that expire three years from the date of the Company's
anticipated initial public offering and has purchased $5 million in "key-man"
life insurance with respect to its chief executive officer, for which the
Company is the named beneficiary.
9. EMPLOYEE BENEFIT PLAN:
The Company has a qualified profit-sharing plan for all eligible employees
and, at the discretion of management makes annual contributions to the plan.
The Company elected not to make any contributions to the plan for the period
from inception to December 31, 1997.
10. STOCKHOLDERS' EQUITY:
Stock Sales
In December 1997, the Company issued to a company controlled by a director
of the Company, pursuant to a subscription agreement, 326,480 shares of the
Company's common stock at $2.91 per share, the same per share price paid by
DSND. The receivable was fully paid in January 1998. In addition, the
Principal Stockholders sold 858,440 shares of the Company's common stock at
$2.91 per share, the same per share price paid by DSND, to officers and key
employees of the Company.
Stock Split
In January 1998, the Company effected a 220 for one stock split. The effect
of the stock split has been retroactively reflected in the accompanying
financial statements as of the earliest period.
F-16
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Options
In January 1998, the Company adopted and its stockholders approved the Stock
Incentive Plan (the "Plan") to provide long-term incentives to its key
employees and officers, including directors who are employees of the Company
and certain other individuals as designated by the Compensation Committee of
the Board of Directors of the Company. The Plan has 1.9 million shares
available for issuance under the Plan. No grants of options have been made as
of the date of this report.
The Company plans to account for employee stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees" and not the fair value
accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation." Pro forma results assuming the application of the fair value
method under SFAS No. 123 will not affect the Company's reported results of
operations and will be included as separate pro forma disclosures only.
Litigation Settlement
A subsidiary of the Company, a Principal Stockholder and other persons were
defendants in a lawsuit filed by a former member and employee of the Company's
subsidiary. The actions were settled in February 1998 with the Principal
Stockholder paying $150,000 and each party completely releasing the other from
any further liability. As the Company benefited from this settlement, the
Company has recorded the $150,000 as an expense and a capital contribution in
the accompanying consolidated financial statements.
Public Offering of Common Stock
The Board of Directors authorized the filing of a registration statement
with the Securities and Exchange Commission permitting the Company to sell
shares of its common stock to the public. If the offering is consummated under
the terms presently anticipated, the Company intends to complete the purchase
of the DSND Stephaniturm, construct a derrick barge, pay off all debt under
the Credit Facility and to the Principal Stockholders, and use the remainder
of the proceeds for general corporate purposes. It is anticipated that the
Credit Facility will be increased upon consummation of the Offering and the
current agreement will be revised.
11. RELATED PARTY TRANSACTIONS:
Effective as of September 30, 1997, the Company entered into a services
agreement with an affiliated entity owned by the Principal Stockholders to
provide administrative and support services, including certain administrative,
accounting, financial, tax and other services. The service agreement
terminates on September 30, 1998 and may be terminated prior to that date upon
60 days' notice by the Company or the affiliated entity. Included in accounts
receivable from related parties at December 31, 1997 is $76,000 receivable for
direct and general and administrative costs including a 5% margin.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPEC-
TUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PER-
SON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Forward-Looking Statements................................................ 13
Dividend Policy........................................................... 14
Dilution.................................................................. 14
Use of Proceeds........................................................... 15
Capitalization............................................................ 16
Selected Financial and Operating Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 23
Management................................................................ 33
Principal Stockholders.................................................... 43
Certain Transactions...................................................... 44
Description of Capital Stock.............................................. 46
Shares Eligible for Future Sale........................................... 50
Underwriting.............................................................. 51
Legal Matters............................................................. 52
Experts................................................................... 52
Additional Information.................................................... 53
Index to Consolidated Financial Statements................................ F-1
</TABLE>
-----------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 SHARES
HORIZON OFFSHORE, INC.
COMMON STOCK
-------
PROSPECTUS
, 1998
-------
SALOMON SMITH BARNEY
PAINEWEBBER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 1. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses payable in connection with the proposed sale of Common
Stock covered hereby are as follows:
<TABLE>
<S> <C>
SEC registration fee............................................ $ 27,140
NASD filing fee................................................. 9,700
Nasdaq listing fee.............................................. 29,000
Printing expenses............................................... 75,000
Legal fees and expenses......................................... 150,000
Accounting fees and expenses.................................... 200,000
Transfer agent fees and expenses................................ 2,500
Miscellaneous expenses.......................................... 6,660
--------
Total expenses................................................ $500,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify its directors and officers in a variety of
circumstances, which may include liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). In addition, the Registrant's Bylaws, a
copy of which is included as Exhibit 3.2 and incorporated herein by reference,
provides for the indemnification of directors and officers against expenses
and liabilities incurred in connection with defending actions brought against
them for negligence or misconduct in their official capacities.
The Company maintains a liability policy to indemnify its officers and
directors against loss arising from claims by reason of their legal liability
for acts as officers and directors, subject to limitations and conditions to
be set forth in the policies.
In the Underwriting Agreement, a form of which is included as Exhibit 1.1,
the Underwriters have also agreed to indemnify the directors and certain of
the Company's officers against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments that such directors and
officers may be required to make in respect thereof.
Each of the Company's directors has entered into an indemnity agreement with
the Company, pursuant to which the Company has agreed under certain
circumstances to purchase and maintain directors' and officers' liability
insurance. The agreements also provide that the Company will indemnify the
directors against any costs and expenses, judgments, settlements and fines
incurred in connection with any claim involving a director by reason of his
position as director that are in excess of the coverage provided by any such
insurance, provided that the director meets certain standards of conduct. A
form of indemnity agreement containing such standards of conduct is included
as Exhibit 10.1 to this Registration Statement. Under the indemnity
agreements, the Company is not required to purchase and maintain directors'
and officers' liability insurance if it is not reasonably available or, in the
reasonable judgment of the Board of Directors, there is insufficient benefit
to the Company from the insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In March 1996, the Company issued 8,250,000 shares of its Class A common
stock, $1.00 par value per share ("Class A Stock"), to Highwood Partners, L.P.
("Highwood"), an affiliate of Elliott Associates, L.P., for $2.2 million cash
and it issued 2,750,000 shares of its Class B nonvoting common stock, $1.00
par value per
II-1
<PAGE>
share ("Class B Stock"), to Westgate International, L.P. ("Westgate"), for $.8
million cash. On April 30, 1997, the Company issued $12,000,000 principal
amount of its 10% subordinated notes due March 31, 2003 ("Notes") to Highwood
and it issued $8,000,000 principal amount of its Notes to Westgate. On May 1,
1997, the Company issued to Westgate warrants (the "Warrants") to purchase
2,750,000 shares of its Class B Stock at a per share price of $.004.
On December 2, 1997, the Company was recapitalized, and Westgate exercised
all the Warrants held by it. In accordance with the terms of the
recapitalization of the Company, all of the outstanding shares of Class A
Stock and Class B Stock were reclassified into an equal number of shares of
Common Stock.
In December 1997, the Company sold 326,480 shares to a company controlled by
James Devine for $950,000.
All of these securities were offered and sold without registration under the
Securities Act inasmuch as they are deemed not subject to registration
pursuant to the exception provided in Section 4(2) of the Securities Act as
securities sold in transactions not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation of the Company**
3.2 Bylaws of the Company**
4.1 See Exhibits 3.1 and 3.2 for provisions of the Company's Certificate
of Incorporation and Bylaws defining the rights of holders of Common
Stock
4.2 Specimen Common Stock certificate**
5.1 Opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P.**
10.1 Form of Indemnity Agreement by and between the Company and each of
its directors**
10.2 Reimbursement and Indemnity Agreement between the Company and
Elliott Associates, L.P., dated as of June 10, 1997**
10.3 The Company's Stock Incentive Plan**
10.4 Form of Stock Option Agreement under the Company's Stock Incentive
Plan**
10.5 Employment Agreement between the Company and Bill J. Lam*
10.6 Employment Agreement between the Company and David W. Sharp*
10.7 Employment Agreement between the Company and James K. Cole*
10.8 Credit Agreement among Den norske Bank ASA, Horizon Vessels, Inc.
and Horizon Offshore Contractors, Inc., dated as of October 27,
1997**
10.9 Amendment No. 1 to Credit Agreement dated as of December 30, 1997
among Den norske Bank ASA, Horizon Vessels, Inc. and Horizon
Offshore Contractors, Inc.**
10.10 Alliance Agreement among Det Sondenfjelds-Norske Dampskibsselskab
ASA, the Company, Highwood Partners, L.P., and Westgate
International, L.P. dated as of December 4, 1997**
10.11 Stockholder's Agreement among Det Sondenfjelds-Norske
Dampskibsselskab ASA, the Company, Highwood Partners, L.P., and
Westgate International, L.P., dated as of December 4, 1997**
10.12 Memorandum of Agreement among DSND Shipping AS and HorizonVessels,
Inc. dated as of December 4, 1997, and "Barecon 89" Standard
Bareboat Charter**
10.13 Option Agreement between the Company and DSND Oceantech, Ltd. dated
as of December 4, 1997**
10.14 Registration Rights Agreement among the Company, Highwood Partners,
L.P., and Westgate International, L.P., dated as of December 4,
1997**
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.15 10% Subordinated Note due March 31, 2003 payable to the order of
Westgate International, L.P.*
10.16 10% Subordinated Note due March 31, 2003 payable to the order of
Highwood Partners, L.P.*
10.17 Form of Purchase Agreement**
10.18 Services Agreement between the Company and Horizon Barge & Towing,
Inc., dated as of September 30, 1997**
10.19 Agreement for Purchase and Sale of Vessels between HLS Offshore,
L.L.C. and CGI Marine Corporation dated as of May 30, 1997**
10.20 Vessel Purchase Agreement between Horizon Barge & Towing, Inc. and
Horizon Vessels, Inc. dated as of December 2, 1997**
10.21 Settlement Agreement between HLS Offshore L.L.C., Mannai Marine Co.
Limited and RANA S.r.l. dated June 10, 1997**
10.22 Consulting Agreement dated January 1, 1998 between the Company and
Edward L. Moses, Jr.**
10.23 Letter Agreement dated December 5, 1997 between the Company and
Crossbay Ventures Ltd.**
10.24 Letter Agreement dated December 5, 1997 between the Company and
Crossbay Ventures Ltd.**
11.1 Statement regarding computation of net income (loss) per share*
21.1 Subsidiaries of the Company**
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P. (included in Exhibit 5.1)**
24.1 Power of Attorney**
27.1 Financial Data Schedule**
</TABLE>
--------
* Filed herewith
** Previously filed
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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act 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, 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or
II-3
<PAGE>
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 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 and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on March 6, 1998.
HORIZON OFFSHORE, INC.
/s/ David W. Sharp
By __________________________________
David W. Sharp
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jonathan D. Pollock* Chairman of the Board March 5, 1998
____________________________________
Jonathan D. Pollock
/s/ Bill J. Lam* President and Director March 5, 1998
____________________________________ (Principal Executive
Bill J. Lam Officer)
/s/ David W. Sharp Chief Financial Officer March 5, 1998
____________________________________ (Principal Financial and
David W. Sharp Accounting Officer)
/s/ James Devine* Director March 5, 1998
____________________________________
James Devine
/s/ Gunnar Hirsti* Director March 5, 1998
____________________________________
Gunnar Hirsti
/s/ Edward L. Moses, Jr.* Director March 5, 1998
____________________________________
Edward L. Moses, Jr.
</TABLE>
/s/ David W. Sharp
*By: __________________________
Attorney-in-Fact and Agent
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- --------------------------------------------------------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation of the
Company**
3.2 Bylaws of the Company**
4.1 See Exhibits 3.1 and 3.2 for provisions of the Company's
Certificate of Incorporation and Bylaws defining the
rights of holders of Common Stock
4.2 Specimen Common Stock certificate**
5.1 Opinion of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P.**
10.1 Form of Indemnity Agreement by and between the Company
and each of its directors**
10.2 Reimbursement and Indemnity Agreement between the Company
and Elliott Associates, L.P., dated as of June 10, 1997**
10.3 The Company's Stock Incentive Plan**
10.4 Form of Stock Option Agreement under the Company's Stock
Incentive Plan**
10.5 Employment Agreement between the Company and Bill J. Lam*
10.6 Employment Agreement between the Company and David W.
Sharp*
10.7 Employment Agreement between the Company and James K.
Cole*
10.8 Credit Agreement among Den norske Bank ASA, Horizon
Vessels, Inc. and Horizon Offshore Contractors, Inc.,
dated as of October 27, 1997**
10.9 Amendment No. 1 to Credit Agreement dated as of December
30, 1997 among Den norske Bank ASA, Horizon Vessels, Inc.
and Horizon Offshore Contractors, Inc.**
10.10 Alliance Agreement among Det Sondenfjelds-Norske
Dampskibsselskab ASA, the Company, Highwood Partners,
L.P., and Westgate International, L.P. dated as of
December 4, 1997**
10.11 Stockholder's Agreement among Det Sondenfjelds-Norske
Dampskibsselskab ASA, the Company, Highwood Partners,
L.P., and Westgate International, L.P., dated as of
December 4, 1997**
10.12 Memorandum of Agreement among DSND Shipping AS and
HorizonVessels, Inc. dated as of December 4, 1997, and
"Barecon 89" Standard Bareboat Charter**
10.13 Option Agreement between the Company and DSND Oceantech,
Ltd. dated as of December 4, 1997**
10.14 Registration Rights Agreement among the Company, Highwood
Partners, L.P., and Westgate International, L.P., dated
as of December 4, 1997**
10.15 10% Subordinated Note due March 31, 2003 payable to the
order of Westgate International, L.P.*
10.16 10% Subordinated Note due March 31, 2003 payable to the
order of Highwood Partners, L.P.*
10.17 Form of Purchase Agreement**
10.18 Services Agreement between the Company and Horizon Barge
& Towing, Inc., dated as of September 30, 1997**
10.19 Agreement for Purchase and Sale of Vessels between HLS
Offshore, L.L.C. and CGI Marine Corporation dated as of
May 30, 1997**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- --------------------------------------------------------- ----------
<C> <S> <C>
10.20 Vessel Purchase Agreement between Horizon Barge & Towing,
Inc. and Horizon Vessels, Inc. dated as of December 2,
1997**
10.21 Settlement Agreement between HLS Offshore L.L.C., Mannai
Marine Co. Limited and RANA S.r.l. dated June 10, 1997**
10.22 Consulting Agreement dated January 1, 1998 between the
Company and Edward L. Moses, Jr.**
10.23 Letter Agreement dated December 5, 1997 between the
Company and Crossbay Ventures Ltd.**
10.24 Letter Agreement dated December 5, 1997 between the
Company and Crossbay Ventures Ltd.**
11.1 Statement regarding computation of net income (loss) per
share*
21.1 Subsidiaries of the Company**
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P. (included in Exhibit 5.1)**
24.1 Power of Attorney**
27.1 Financial Data Schedule**
</TABLE>
--------
* Filed herewith
** Previously filed
<PAGE>
EXHIBIT 1.1
5,000,000 Shares
HORIZON OFFSHORE, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
March __, 1998
Salomon Smith Barney
Smith Barney Inc.
PaineWebber Incorporated
Raymond James & Associates, Inc.
As Representatives of the Several Underwriters
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Horizon Offshore, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell an aggregate of 5,000,000 shares (the "Firm Shares") of its
common stock, $1.00 par value per share (the "Common Stock"), to the several
Underwriters named in Schedule I hereto (the "Underwriters"). The Company also
proposes to sell to the Underwriters, upon the terms and conditions set forth in
Section 2 hereof, up to an additional 750,000 shares (the "Additional Shares")
of Common Stock. The Firm Shares and the Additional Shares are hereinafter
collectively referred to as the "Shares".
The Company wishes to confirm as follows its agreement with you (the
"Representatives") and the other several Underwriters on whose behalf you are
acting, in connection with the several purchases of the Shares by the
Underwriters (collectively, such agreement and this Underwriting Agreement
evidencing such agreement referred to herein as the "Agreement").
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Act"), a registration statement on
Form S-1, including a prospectus, relating to the Shares. The registration
statement, as amended at the time it became effective, including the information
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Act, is
<PAGE>
hereinafter referred to as the "Registration Statement"; and the prospectus in
the form first used to confirm sales of Shares is hereinafter referred to as the
"Prospectus".
1. Agreements to Sell and Purchase. The Company hereby agrees, subject to all
the terms and conditions set forth herein, to issue and sell to each Underwriter
and, upon the basis of the representations, warranties and agreements of the
Company herein contained and subject to all the terms and conditions set forth
herein, each Underwriter agrees, severally and not jointly, to purchase from the
Company, at a purchase price of $00.00 per Share (the "purchase price per
share"), the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto (or such number of Firm Shares increased as set
forth in Section 9 hereof).
The Company also agrees, subject to all the terms and conditions set forth
herein, to sell to the Underwriters, and, upon the basis of the representations,
warranties and agreements of the Company herein contained and subject to all the
terms and conditions set forth herein, the Underwriters shall have the right to
purchase from the Company, at the purchase price per share, pursuant to an
option (the "Over-allotment Option") which may be exercised at any time and from
time to time prior to 5:00 P.M., New York time, on the 30th day after the date
of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock Exchange is
open for trading), up to an aggregate of 750,000 Additional Shares. Additional
Shares may be purchased only for the purpose of covering over-allotments made in
connection with the offering of the Firm Shares. Upon any exercise of the Over-
allotment Option, each Underwriter, severally and not jointly, agrees to
purchase from the Company the number of Additional Shares (subject to such
adjustments as you may determine in order to avoid fractional shares) which
bears the same proportion to the number of Additional Shares to be purchased by
the Underwriters as the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I hereto (or such number of Firm Shares increased
as set forth in Section 9 hereof) bears to the aggregate number of Firm Shares.
2. Terms of Public Offering. The Company has been advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
3. Delivery of the Shares and Payment Therefor. Delivery to the Underwriters
of and payment for the Firm Shares shall be made at the office of Smith Barney
Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New York City
time, on , 1998 (the "Closing Date"). The place of closing for the
Firm Shares and the Closing Date may be varied by agreement between you and the
Company.
Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at the aforementioned office of
Smith Barney Inc. at such time on such date (the "Option Closing Date"), which
may be the same as the Closing Date but shall in no event be earlier than the
Closing Date nor earlier than two nor later than ten business days after the
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<PAGE>
giving of the notice hereinafter referred to, as shall be specified in a written
notice from you on behalf of the Underwriters to the Company of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional Shares. The place of closing for any Additional Shares and the
Option Closing Date for such Shares may be varied by agreement between you and
the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor in immediately available funds.
4. Agreements of the Company. The Company agrees with the several Underwriters
as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Company will endeavor to cause the Registration Statement or such post-effective
amendment to become effective as soon as possible and will advise you promptly
and, if requested by you, will confirm such advice in writing, when the
Registration Statement or such post-effective amendment has become effective.
(b) The Company will advise you promptly and, if requested by you, will
confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any preliminary
prospectus (a "Prepricing Prospectus") or the Prospectus or for additional
information; (ii) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction or the
initiation of any proceeding for such purpose; and (iii) within the period of
time referred to in paragraph (f) below, of any change in the Company's
condition (financial or other), business, prospects, properties, net worth or
results of operations, or of the happening of any event, which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
(as then amended or supplemented) in order to state a material fact required by
the Act, or the regulations thereunder to be stated therein or necessary in
order to make the statements therein not misleading, or of the necessity to
amend or supplement the Prospectus (as then amended or supplemented) to comply
with the Act or any other law. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement, the
Company will make every reasonable effort to obtain the withdrawal of such order
at the earliest possible time.
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<PAGE>
(c) The Company will furnish to you, without charge, four signed copies of
the Registration Statement as originally filed with the Commission and of each
amendment thereto, including financial statements and all exhibits thereto, and
will also furnish to you, without charge, such number of conformed copies of the
Registration Statement as originally filed and of each amendment thereto, but
without exhibits, as you may request.
(d) The Company will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which you
shall not previously have been advised or to which you shall object after being
so advised or (ii) so long as, in the opinion of counsel for the Underwriters, a
Prospectus is required to be delivered in connection with sales by any
Underwriter or dealer, file any information, documents or reports pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), without
delivering a copy of such information, documents or reports to you, as
Representatives of the Underwriters, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the Company has
delivered to you, without charge, in such quantities as you have requested,
copies of each form of the Prepricing Prospectus. The Company consents to the
use, in accordance with the provisions of the Act and with the securities or
Blue Sky laws of the jurisdictions in which the Shares are offered by the
several Underwriters and by dealers, prior to the date of the Prospectus, of
each Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as possible
and thereafter from time to time for such period as in the opinion of counsel
for the Underwriters a Prospectus is required by the Act to be delivered in
connection with sales by any Underwriter or dealer, the Company will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus to comply with the Act or any other law, the Company will
forthwith prepare and, subject to the provisions of paragraph (d) above, file
with the Commission an appropriate supplement or amendment thereto, and will
expeditiously furnish to the Underwriters and dealers a reasonable number of
copies thereof. In the event that the Company and you, as Representatives of the
several Underwriters, agree that the Prospectus should be amended or
supplemented, the Company, if requested by you, will promptly issue a press
release announcing or disclosing the matters to be covered by the proposed
amendment or supplement.
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<PAGE>
(g) The Company will cooperate with you and with counsel for the Underwriters
in connection with the registration or qualification of the Shares for offering
and sale by the several Underwriters and by dealers under the securities or Blue
Sky laws of such jurisdictions as you may designate and will file such consents
to service of process or other documents necessary or appropriate in order to
effect such registration or qualification; provided that in no event shall the
Company be obligated to qualify to do business in any jurisdiction where it is
not now so qualified or to take any action which would subject it to service of
process in suits, other than those arising out of the offering or sale of the
Shares, in any jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security holders a
consolidated earnings statement, which need not be audited, covering a twelve-
month period commencing after the effective date of the Registration Statement
and ending not later than 15 months thereafter, as soon as practicable after the
end of such period, which consolidated earnings statement shall satisfy the
provisions of Section ll(a) of the Act.
(i) During the period of three years hereafter, the Company will furnish to
you (i) as soon as available, a copy of each report of the Company mailed to
stockholders or filed with the Commission, and (ii) from time to time such other
information concerning the Company as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated after execution
pursuant to any provisions hereof (otherwise than pursuant to the second
paragraph of Section 9 hereof or by notice given by you terminating this
Agreement pursuant to Section 9 or Section 10 hereof) or if this Agreement shall
be terminated by the Underwriters because of any failure or refusal on the part
of the Company to comply with the terms or fulfill any of the conditions of this
Agreement, the Company agrees to reimburse the Representatives for all
reasonable out-of-pocket expenses (including fees and expenses of counsel for
the Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of the Shares
substantially in accordance with the description set forth in the
Prospectus.
(l) If Rule 430A of the Act is employed, the Company will timely file the
Prospectus pursuant to Rule 424(b) under the Act and will advise you of the
time and manner of such filing.
(m) Except as provided in this Agreement, the Company will not sell, contract
to sell or otherwise dispose of any Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, or grant any options or
warrants to purchase Common Stock (other than pursuant to its stock incentive
plan in existence on the date of hereof), for a period of 180 days after the
date of the Prospectus, without the prior written consent of Smith Barney Inc.
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<PAGE>
(n) The Company has furnished or will furnish to you "lock-up" letters, in
form and substance satisfactory to you, signed by each of its current executive
officers and directors and each of its stockholders designated by you.
(o) The Company has not taken, nor will it take, directly or indirectly, any
action designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Shares.
(p) The Common Stock has been listed, subject to notice of issuance, on the
Nasdaq National Market concurrently with the effectiveness of the Registration
Statement.
5. Representations and Warranties of the Company. The Company represents and
warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the Registration Statement
as originally filed or as part of any amendment or supplement thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the provisions of the Act. The Commission has not issued any order
preventing or suspending the use of any Prepricing Prospectus.
(b) The Registration Statement in the form in which it became or becomes
effective and also in such form as it may be when any post-effective amendment
thereto shall become effective and the Prospectus and any supplement or
amendment thereto when filed with the Commission under Rule 424(b) under the
Act, complied or will comply in all material respects with the provisions of the
Act and did not or will not at any such times contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except that this
representation and warranty does not apply to statements in or omissions from
the Registration Statement or the Prospectus made in reliance upon and in
conformity with information relating to any Underwriter furnished to the Company
in writing by or on behalf of any Underwriter through you expressly for use
therein.
(c) All the outstanding shares of Common Stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable and are free of
any preemptive or similar rights; the Shares have been duly authorized and, when
issued and delivered to the Underwriters against payment therefor in accordance
with the terms hereof, will be validly issued, fully paid and nonassessable and
free of any preemptive or similar rights; and the capital stock of the Company
conforms to the description thereof in the Registration Statement and the
Prospectus.
(d) The Company is a corporation duly organized and validly existing in good
standing under the laws of the State of Delaware with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectus, and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify does not
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<PAGE>
have a material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company and the
Subsidiaries (as hereinafter defined) taken as a whole.
(e) All the Company's subsidiaries (collectively, the "Subsidiaries") are
listed in an exhibit to the Registration Statement. Each Subsidiary is a
corporation duly organized, validly existing and in good standing in the
jurisdiction of its incorporation, with full corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Registration Statement and the Prospectus, and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify does not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of the Company and the Subsidiaries, taken as a whole; all the outstanding
shares of capital stock of each of the Subsidiaries have been duly authorized
and validly issued, are fully paid and nonassessable, and are owned by the
Company directly, or indirectly through one of the other Subsidiaries, free and
clear of any lien, adverse claim, security interest, equity, or other
encumbrance.
(f) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or to which
any of their respective properties is subject, that are required to be described
in the Registration Statement or the Prospectus but are not described as
required, and there are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement that
are not described or filed as required by the Act.
(g) The Company and all of the Subsidiaries are in compliance with the terms
and provisions of their respective certificate or articles of incorporation and
by-laws, and all other organizational documents, and, in all material respects,
in compliance with each and every law, ordinance, administrative or governmental
rule or regulation applicable to the Company or any of the Subsidiaries and any
decree of any court or governmental agency or body having jurisdiction over the
Company or any of the Subsidiaries, and is not in default in any material
respect in the performance of any obligation, agreement or condition contained
in any bond, debenture, note or any other evidence of indebtedness or in any
material agreement, indenture, lease or other instrument to which the Company or
any of the Subsidiaries is a party or by which any of them or any of their
respective properties may be bound.
(h) Neither the issuance and sale of the Shares, the execution, delivery or
performance of this Agreement by the Company, nor the consummation by the
Company of the transactions contemplated hereby (i) requires any consent,
approval, authorization or other order of or registration or filing with, any
court, regulatory body, administrative agency or other governmental body, agency
or official (except such as may be required for the registration of the Shares
under the Act and the Exchange Act and compliance with the securities or Blue
Sky laws of various
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<PAGE>
jurisdictions, all of which have been or will be effected in accordance with
this Agreement) or conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, the certificate or articles of
incorporation or bylaws, or other organizational documents, of the Company or
any of the Subsidiaries or (ii) conflicts or will conflict with or constitutes
or will constitute a breach of, or a default under, any agreement, indenture,
lease or other instrument to which the Company or any of the Subsidiaries is a
party or by which any of them or any of their respective properties may be
bound, or violates or will violate any statute, law, regulation or filing or
judgment, injunction, order or decree applicable to the Company or any of the
Subsidiaries or any of their respective properties, or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries pursuant to the terms of any
agreement or instrument to which any of them is a party or by which any of them
may be bound or to which any of the property or assets of any of them is
subject.
(i) The accountants, Arthur Andersen LLP, who have certified the
financial statements included in the Registration Statement and the Prospectus
(or any amendment or supplement thereto) are independent public accountants as
required by the Act.
(j) The financial statements, together with related schedules and notes,
included in the Registration Statement and the Prospectus (and any amendment or
supplement thereto), present fairly the consolidated financial position, results
of operations and changes in financial position of the Company and the
Subsidiaries on the basis stated in the Registration Statement at the respective
dates or for the respective periods to which they apply; such statements and
related schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial and statistical
information and data included in the Registration Statement and the Prospectus
(and any amendment or supplement thereto) are accurately presented and prepared
on a basis consistent with such financial statements and the books and records
of the Company and the Subsidiaries.
(k) The execution and delivery of, and the performance by the Company of
its obligations under, this Agreement have been duly and validly authorized by
the Company, and this Agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as rights
to indemnity and contribution hereunder may be limited by federal or state
securities laws.
(l) Except as disclosed in the Registration Statement and the Prospectus
(or any amendment or supplement thereto), subsequent to the respective dates as
of which such information is given in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), neither the Company nor any
of the Subsidiaries has incurred any liability or obligation, direct or
contingent, or entered into any transaction, not in the ordinary course of
business, that is material to the Company and the Subsidiaries taken as a whole,
and there has not been any change in the capital stock, or material increase in
the short-term debt or long-term debt, of the Company or any of the
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<PAGE>
Subsidiaries, or any material adverse change, or any development involving or
which may reasonably be expected to involve, a prospective material adverse
change, in the condition (financial or other), business, net worth or results of
operations of the Company and the Subsidiaries taken as a whole.
(m) Each of the Company and the Subsidiaries has good and marketable
title to all property (real and personal) described in the Prospectus as being
owned by it, free and clear of all liens, claims, security interests or other
encumbrances except such as are described in the Registration Statement and the
Prospectus or in a document filed as an exhibit to the Registration Statement
and all the property described in the Prospectus as being held under lease by
each of the Company and the Subsidiaries is held by it under valid, subsisting
and enforceable leases.
(n) The Company has not distributed and, prior to the later to occur of
(i) the Closing Date and (ii) completion of the distribution of the Shares, will
not distribute any offering material in connection with the offering and sale of
the Shares other than the Registration Statement, the Prepricing Prospectus, the
Prospectus or other materials, if any, permitted by the Act.
(o) The Company and each of the Subsidiaries has all permits, licenses,
franchises and authorizations of governmental or regulatory authorities
("permits") as are necessary to own its respective properties and to conduct its
business in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus; the Company and each of
the Subsidiaries has fulfilled and performed all its material obligations with
respect to such permits and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any such permit,
subject in each case to such qualification as may be set forth in the
Prospectus; and, except as described in the Prospectus, none of such permits
contains any restriction that is materially burdensome to the Company or any of
the Subsidiaries.
(p) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(q) To the Company's knowledge, neither the Company nor any of its
Subsidiaries nor any employee or agent of the Company or any Subsidiary has made
any payment of funds of the Company or any Subsidiary or received or retained
any funds in violation of any law, rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed in the Prospectus.
(r) The Company and each of the Subsidiaries have filed all tax returns
required to be filed, which returns are complete and correct, and neither the
Company nor any Subsidiary is
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in default in the payment of any taxes which were payable pursuant to said
returns or any assessments with respect thereto.
(s) Except as disclosed in the Registration Statement and the Prospectus
(or any amendment or supplement thereto), no holder of any security of the
Company has any right to require registration of shares of Common Stock or any
other security of the Company because of the filing of the Registration
Statement or consummation of the transactions contemplated by this Agreement.
(t) The Company and the Subsidiaries own or possess all patents,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by them or any of them or necessary
for the conduct of their respective businesses, and the Company is not aware of
any claim to the contrary or any challenge by any other person to the rights of
the Company and the Subsidiaries with respect to the foregoing.
(u) The Company is not now, and after sale of the Shares to be sold by
it hereunder and application of the net proceeds from such sale as described in
the Prospectus under the caption "Use of Proceeds" will not be, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(v) The Company has complied with all provisions of Florida Statutes,
(S)517.075, relating to issuers doing business with Cuba.
6. Indemnification and Contribution. (a) The Company agrees to indemnify and
hold harmless each of you and each other Underwriter and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Prepricing Prospectus or in the Registration
Statement or the Prospectus or in any amendment or supplement thereto, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which has been made therein or
omitted therefrom in reliance upon and in conformity with the information
relating to such Underwriter furnished in writing to the Company by or on behalf
of any Underwriter through you expressly for use in connection therewith;
provided, however, that the foregoing indemnity agreement with respect to any
Prepricing Prospectus shall not inure to the benefit of any Underwriter who
failed to deliver a Prospectus (as then amended or supplemented, provided by the
Company to the several Underwriters in the requisite quantity and on a timely
basis to permit proper delivery on or prior to the Closing Date) to the person
asserting any losses, claims, damages and liabilities and judgments caused by
any untrue statement or alleged untrue statement of a material fact contained in
any Prepricing Prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the
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statements therein not misleading, if such material misstatement or omission or
alleged material misstatement or omission was cured in such Prospectus and such
Prospectus was required by law to be delivered at or prior to the written
confirmation of sale to such person. The foregoing indemnity agreement shall be
in addition to any liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the Company has agreed in writing to pay such fees and expenses, (ii)
the Company has failed to assume the defense and employ counsel, or (iii) the
named parties to any such action, suit or proceeding (including any impleaded
parties) include both such Underwriter or such controlling person and the
Company and such Underwriter or such controlling person shall have been advised
by its counsel that representation of such indemnified party and the Company by
the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the Company shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such Underwriter or such controlling
person). It is understood, however, that the Company shall, in connection with
any one such action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such Underwriters and controlling persons not
having actual or potential differing interests with you or among themselves,
which firm shall be designated in writing by Smith Barney Inc., and that all
such fees and expenses shall be reimbursed as they are incurred. The Company
shall not be liable for any settlement of any such action, suit or proceeding
effected without its written consent, but if settled with such written consent,
or if there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Company agrees to indemnify and hold harmless any Underwriter,
to the extent provided in the preceding paragraph, and any such controlling
person from and against any loss, claim, damage, liability or expense by reason
of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement, and any person who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with respect
to information relating to such Underwriter furnished in writing by or on behalf
of such Underwriter through you expressly for use in the Registration Statement,
the Prospectus or any Prepricing Prospectus, or any amendment or supplement
thereto. If any action, suit or proceeding shall be brought against the Company,
any of its directors, any such officer, or any
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such controlling person based on the Registration Statement, the Prospectus or
any Prepricing Prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Underwriter pursuant to
this paragraph (c), such Underwriter shall have the rights and duties given to
the Company by paragraph (b) above (except that if the Company shall have
assumed the defense thereof such Underwriter shall not be required to do so, but
may employ separate counsel therein and participate in the defense thereof, but
the fees and expenses of such counsel shall be at such Underwriter's expense),
and the Company, its directors, any such officer, and any such controlling
person shall have the rights and duties given to the Underwriters by paragraph
(b) above. The foregoing indemnity agreement shall be in addition to any
liability which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 6 is unavailable
to an indemnified party under paragraphs (a) or (c) hereof in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then an
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other hand from the offering of the
Shares, or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or by the Underwriters on the other hand
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 6 were determined by a pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in paragraph (d) above. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities and expenses referred to in paragraph (d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
any claim or defending any such action, suit or proceeding. Notwithstanding the
provisions of this Section 6, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price of the Shares
underwritten by it and
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distributed to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 6 are several in proportion to the respective numbers
of Firm Shares set forth opposite their names in Schedule I hereto (or such
numbers of Firm Shares increased as set forth in Section 9 hereof) and not
joint.
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 6 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 6 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers, or any person
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution, and reimbursement agreements
contained in this Section 6.
7. Conditions of Underwriters' Obligations. The several obligations of the
Underwriters to purchase the Firm Shares hereunder are subject to the following
conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Registration Statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or any Underwriter,
threatened by the Commission, and any request of the Commission for additional
information (to be included in the Registration Statement or the prospectus or
otherwise) shall have been complied with to your satisfaction.
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(b) Subsequent to the effective date of this Agreement, there shall not
have occurred (i) any change, or any development involving a prospective change,
in or affecting the condition (financial or other), business, properties, net
worth, or results of operations of the Company or the Subsidiaries not
contemplated by the Prospectus, which in your opinion, as Representatives of the
several Underwriters, would materially, adversely affect the market for the
Shares, or (ii) any event or development relating to or involving the Company or
any officer or director of the Company which makes any statement made in the
Prospectus untrue or which, in the opinion of the Company and its counsel or the
Underwriters and their counsel, requires the making of any addition to or change
in the Prospectus in order to state a material fact required by the Act or any
other law to be stated therein or necessary in order to make the statements
therein not misleading, if amending or supplementing the Prospectus to reflect
such event or development would, in your opinion, as Representatives of the
several Underwriters, materially adversely affect the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of Jones,
Walker, Waechter, Poitevent Carrere & Denegre, L.L.P., counsel for the Company,
dated the Closing Date and addressed to you, as Representatives of the several
Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly
registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the
conduct of its business requires such registration or qualification, except
where the failure so to register or qualify does not have a material
adverse effect on the condition (financial or other), business, properties,
net worth or results of operations of the Company and the Subsidiaries
taken as a whole;
(ii) Each of the Subsidiaries is a corporation duly organized and
validly existing in good standing under the laws of the jurisdiction of its
organization, with full corporate power and authority to own, lease, and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto); and all the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable, and are owned by the Company directly, or indirectly
through one of the other Subsidiaries, free and clear of any perfected
security interest, or, to the best knowledge of such counsel after
reasonable inquiry, any other security interest, lien, adverse claim,
equity or other encumbrance;
(iii) The Company and each of the Subsidiaries has full corporate power
and authority, and all necessary governmental authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental regulatory officials and bodies (except where the failure so
to have any such authorizations, approvals, orders,
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licenses, certificates, franchises or permits, individually or in the
aggregate, would not have a material adverse effect on the business,
properties, operations or financial condition of the Company and the
Subsidiaries taken as a whole), to own their respective properties and to
conduct their respective businesses as now being conducted, as described in
the Prospectus;
(iv) Except as disclosed in the Prospectus, the Company owns of record,
directly or indirectly, all the outstanding shares of capital stock of each of
the Subsidiaries free and clear of any lien, adverse claim, security interest,
equity, or other encumbrance;
(v) The authorized and outstanding capital stock of the Company is as
set forth under the caption "Capitalization" in the Prospectus; and the
authorized capital stock of the Company conforms in all material respects as to
legal matters to the description thereof contained in the Prospectus under the
caption "Description of Capital Stock";
(vi) All the shares of capital stock of the Company outstanding prior to
the issuance of the Shares have been duly authorized and validly issued, and are
fully paid and nonassessable;
(vii) The Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable and free of
any preemptive, or to the best knowledge of such counsel after reasonable
inquiry, similar rights that entitle or will entitle any person to acquire any
Shares upon the issuance thereof by the Company;
(viii) Except as described in the Prospectus, there are no outstanding
options, warrants or other rights calling for the issuance of, and such counsel
does not know of any commitment, plan or arrangement to issue, any shares of
capital stock of the Company or any security convertible into or exchangeable or
exercisable for capital stock of the Company;
(ix) Except as described in the Prospectus, there is no holder of any
security of the Company or any other person who has the right, contractual or
otherwise, to cause the Company to sell or otherwise issue to them, or to permit
them to underwrite the sale of, the Shares or the right to have any Common Stock
or other securities of the Company included in the Registration Statement or the
right, as a result of the filing of the Registration Statement, to require
registration under the Act of any shares of Common Stock or other securities of
the Company;
(x) The form of certificates for the Shares conforms to the requirements
of the Delaware General Corporation Law;
(xi) The Registration Statement and all post-effective amendments, if
any, have become effective under the Act and, to the best knowledge of such
counsel after reasonable inquiry, no stop order suspending the effectiveness of
the Registration Statement
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has been issued and no proceedings for that purpose are pending before or
contemplated by the Commission; and any required filing of the Prospectus
pursuant to Rule 424(b) has been made in accordance with Rule 424(b);
(xii) The Company has corporate power and authority to enter into this
Agreement and to issue, sell and deliver the Shares to the Underwriters as
provided herein, and this Agreement has been duly authorized, executed and
delivered by the Company;
(xiii) Neither the Company nor any of the Subsidiaries is in violation
of its respective certificate or articles of incorporation or bylaws, or other
organizational documents, or to the best knowledge of such counsel after
reasonable inquiry, is in default in the performance of any material obligation,
agreement or condition contained in any bond, debenture, note or other evidence
of indebtedness, except as may be disclosed in the Prospectus;
(xiv) Neither the offer, sale or delivery of the Shares, the execution,
delivery or performance of this Agreement, compliance by the Company with the
provisions hereof nor consummation by the Company of the transactions
contemplated hereby conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, the certificate or articles of
incorporation or bylaws, or other organizational documents, of the Company or
any of the Subsidiaries or any agreement, indenture, lease or other instrument
to which the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties is bound that is an exhibit to the
Registration Statement, or is known to such counsel after reasonable inquiry, or
will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of the Subsidiaries, nor will
any such action result in any violation of any existing law, regulation, ruling
(assuming compliance with all applicable state securities and Blue Sky laws),
judgment, injunction, order or decree known to such counsel after reasonable
inquiry, applicable to the Company, the Subsidiaries or any of their respective
properties;
(xv) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency, or official is required on the part of the
Company (except as have been obtained under the Act and the Exchange Act or such
as may be required under state securities or Blue Sky laws governing the
purchase and distribution of the Shares) for the valid issuance and sale of the
Shares to the Underwriters as contemplated by this Agreement;
(xvi) The Registration Statement and the Prospectus and any supplements
or amendments thereto (except for the financial statements and the notes thereto
and the schedules and other financial and statistical data included therein, as
to which such counsel need not express any opinion) comply as to form in all
material respects with the requirements of the Act;
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(xvii) To the best knowledge of such counsel after reasonable inquiry,
(A) other than as described or contemplated in the Prospectus (or any supplement
thereto), there are no legal or governmental proceedings pending or threatened
against the Company or any of the Subsidiaries, or to which the Company or any
of the Subsidiaries, or any of their property, is subject, which are required to
be described in the Registration Statement or Prospectus (or any amendment or
supplement thereto) and (B) there are no agreements, contracts, indentures,
leases or other instruments, that are required to be described in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto) or to be filed as an exhibit to the Registration Statement that are not
described or filed as required, as the case may be;
(xviii) To the best knowledge of such counsel after reasonable inquiry,
neither the Company nor any of the Subsidiaries is in violation of any law,
ordinance, administrative or governmental rule or regulation applicable to the
Company or any of the Subsidiaries or of any decree of any court or governmental
agency or body having jurisdiction over the Company or any of the Subsidiaries,
the violation of which would have a material adverse effect on the Company or
its Subsidiaries;
(xix) The statements in the Registration Statement and Prospectus,
insofar as they are descriptions of contracts, agreements or other legal
documents, or refer to statements of law or legal conclusions, are accurate and
present fairly the information required to be shown; and
(xx) Although counsel has not undertaken, except as otherwise indicated
in their opinion, to determine independently, and does not assume any
responsibility for, the accuracy or completeness of the statements in the
Registration Statement, such counsel has participated in the preparation of the
Registration Statement and the Prospectus, including review and discussion of
the contents thereof, and nothing has come to the attention of such counsel that
has caused it to believe that the Registration Statement at the time the
Registration Statement became effective, or the Prospectus, as of its date and
as of the Closing Date or the Option Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that any amendment or supplement to the Prospectus, as of its
respective date, and as of the Closing Date or the Option Closing Date, as the
case may be, contained any untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and the notes thereto and the schedules and other financial
and statistical data included in the Registration Statement or the Prospectus).
In rendering their opinion as aforesaid, counsel may rely upon an opinion or
opinions, each dated the Closing Date, of other counsel retained by them or the
Company as to laws of any
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jurisdiction other than the United States or the State of Delaware, provided
that (1) each such local counsel is acceptable to the Representatives, (2) such
reliance is expressly authorized by each opinion so relied upon and a copy of
each such opinion is delivered to the Representatives and is, in form and
substance satisfactory to them and their counsel, and (3) counsel shall state in
their opinion that they believe that they and the Underwriters are justified in
relying thereon.
(d) You shall have received on the Closing Date an opinion of Andrews &
Kurth L.L.P., counsel for the Underwriters, dated the Closing Date and addressed
to you, as Representatives of the several Underwriters, with respect to the
matters referred to in clauses (v), (xi), (xii), (xvi) and (xx) of the foregoing
paragraph (c) and such other related matters as you may request.
(e) You shall have received letters addressed to you, as Representatives
of the several Underwriters, and dated the date hereof and the Closing Date from
Arthur Andersen LLP, independent certified public accountants, in form and
substance satisfactory to you, confirming that they are independent accountants
within the meaning of the Act and the applicable published rules and regulations
thereunder and that they have performed a review of the audited financial
information of the Company for the fiscal year ended December 31, 1997, in
accordance with Statement on Auditing Standards No. 71 and stating in effect
that:
(i) In their opinion, the audited financial statements and
financial statement schedules and pro forma financial statements included
in the Registration Statement and the Prospectus and reported on by them
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations;
(ii) carrying out certain specified procedures (but not an
examination in accordance with generally accepted auditing standards) which
would not necessarily reveal matters of significance with respect to the
comments set forth in such letter; a reading of the minutes of the meetings
of the directors, committees of the Company and the Subsidiaries; and
inquiries of certain officials of the Company who have responsibility for
financial and accounting matters of the Company and its subsidiaries as to
transactions and events subsequent to December 31, 1997, nothing came to
their attention which caused them to believe that with respect to the
period subsequent to December 31, 1997, there were any changes, at a
specified date not more than five days prior to the date of the letter, in
the long-term debt of the Company and its subsidiaries or capital stock of
the Company or decreases in the stockholders' equity of the Company as
compared with the amounts shown on the December 31, 1997 consolidated
balance sheet included in the Registration Statement and the Prospectus, or
for the period from December 31, 1997 to such specified date there were any
decreases, as compared with the corresponding period in the preceding year
in net revenues or income before income taxes or in total or per share
amounts of net income of the Company and its subsidiaries, except in all
instances for changes or decreases set forth in
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such letter, in which case the letter shall be accompanied by an
explanation by the Company as to the significance thereof unless said
explanation is not deemed necessary by you;
(iii) Nothing has come to their attention which has caused them
to believe that the information included in the Registration Statement and
Prospectus in response to Regulation S-K, Item 301 (Selected Financial
Data), Item 302 (Supplementary Financial Information) and Item 402
(Executive Compensation) is not in conformity with the applicable
disclosure requirements of Regulation S-K; and
(iv) They have performed certain other specified procedures as a
result of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting, financial
or statistical information derived from the general accounting records of
the Company and its subsidiaries) set forth in the Registration Statement
and the Prospectus, including the information set forth under the captions
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Prospectus, agrees with the accounting records of the
Company and its subsidiaries, excluding any questions of legal
interpretation;
References to the Prospectus in this paragraph (e) include any supplement
thereto at the date of the letter.
(f) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company, shall be contemplated by the
Commission at or prior to the Closing Date; (ii) there shall not have been any
change in the capital stock of the Company nor any material increase in the
short-term or long-term debt of the Company (other than in the ordinary course
of business) from that set forth or contemplated in the Registration Statement
or the Prospectus (or any amendment or Supplement thereto); (iii) there shall
not have been, since the respective dates as of which information is given in
the Registration Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse change
in the condition (financial or other), business, prospects, properties, net
worth or results of operations of the Company and the Subsidiaries taken as a
whole; (iv) the Company and the Subsidiaries shall not have any liabilities or
obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and the Subsidiaries, taken as a
whole, other than those reflected in the Registration Statement or the
Prospectus (or any amendment or supplement thereto); and (v) all the
representations and warranties of the Company contained in this Agreement shall
be true and correct on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company (or such other officers as are
acceptable to you), to the effect set forth in this Section 7(f) and in Section
7(g) hereof.
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(g) The Company shall not have failed at or prior to the Closing Date to
have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(h) The Shares shall have been listed or approved for listing upon
notice of issuance on the Nasdaq National Market.
(i) The Company shall have furnished or caused to be furnished to you
such further certificates and documents as you shall have reasonably requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.
Any certificate or document signed by any officer of the Company and
delivered to you, as Representatives of the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by the Company to
each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the satisfaction on and as of any Option Closing Date
of the conditions set forth in this Section 7, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (f) shall be dated the Option
Closing Date in question and the opinions called for by paragraphs (c) and (d)
shall be revised to reflect the sale of Additional Shares.
8. Expenses. The Company agrees to pay the following costs and expenses and
all other costs and expenses incident to the performance by it of its
obligations hereunder: (i) the preparation, printing or reproduction, and filing
with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the Registration Statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp taxes
in connection with the original issuance and sale of the Shares; (iv) the
printing (or reproduction) and delivery of this Agreement, the Blue Sky
Memorandum and all other agreements or documents printed (or reproduced) and
delivered in connection with the offering of the Shares; (v) the registration of
the Common Stock under the Exchange Act and the listing of the Shares on the
Nasdaq National Market; (vi) the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several states as
provided in Section 5(g) hereof (including the reasonable fees, expenses and
disbursements of counsel for the Underwriters relating to the preparation,
printing or reproduction, and delivery of the Blue Sky Memorandum and such
registration and qualification); (vii) the filing fees and the fees and expenses
of counsel for the Underwriters in connection with any filings required to be
made with
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the National Association of Securities Dealers, Inc.; (viii) the transportation
and other expenses incurred by or on behalf of Company representatives in
connection with presentations to prospective purchasers of the Shares; (ix) the
fees and expenses of the Company's accountants and the fees and expenses of
counsel (including local and special counsel) for the Company.
9. Effective Date of Agreement. This Agreement shall become effective: (i)
upon the execution and delivery hereof by the parties hereto; or (ii) if, at the
time this Agreement is executed and delivered, it is necessary for the
Registration Statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the Registration Statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Company, by notifying you, or
by you, as Representatives of the several Underwriters, by notifying the
Company.
If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than one-
tenth of the aggregate number of Shares which the Underwriters are obligated to
purchase on the Closing Date, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule I hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in accordance with Section 20 of the
Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares
which such defaulting Underwriter or Underwriters are obligated, but fail or
refuse, to purchase. If any one or more of the Underwriters shall fail or
refuse to purchase Shares which it or they are obligated to purchase on the
Closing Date and the aggregate number of Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Shares which
the Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Company for the purchase of such Shares by one or
more non-defaulting Underwriters or other party or parties approved by you and
the Company are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any such default of any such Underwriter under this Agreement. The
term "Underwriter" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule I hereto who, with your approval and
the approval of the Company, purchases Shares which a defaulting Underwriter is
obligated, but fails or refuses, to purchase.
Any notice under this Section 9 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
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10. Termination of Agreement. This Agreement shall be subject to termination
in your absolute discretion, without liability on the part of any Underwriter to
the Company, by notice to the Company, if prior to the Closing Date or any
Option Closing Date (if different from the Closing Date and then only as to the
Additional Shares), as the case may be, (i) trading in securities generally on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market shall have been suspended or materially limited, (ii) a general
moratorium on commercial banking activities in New York or Texas shall have been
declared by either federal or state authorities, or (iii) there shall have
occurred any outbreak or escalation of hostilities or other international or
domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States is
such as to make it, in your judgment, impracticable or inadvisable to commence
or continue the offering of the Shares at the offering price to the public set
forth on the cover page of the Prospectus or to enforce contracts for the resale
of the Shares by the Underwriters. Notice of such termination may be given to
the Company by telegram, telecopy or telephone and shall be subsequently
confirmed by letter.
11. Information Furnished by the Underwriters. The statements set forth in
the last paragraph on the cover page, the stabilization legend on the inside
cover page, and the statements in the first, second and seventh paragraphs under
the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 5(b) and 6 hereof.
12. Miscellaneous. Except as otherwise provided in Sections 4, 9 and 10
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 2500 City West Boulevard, Suite 220, Houston, Texas 77042, Attention:
David W. Sharp, Chief Financial Officer; or (ii) if to you, as Representatives
of the several Underwriters, care of Smith Barney Inc., 388 Greenwich Street,
New York, New York 10013, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company, its directors and officers, and the other controlling
persons referred to in Section 6 hereof and their respective successors and
assigns, to the extent provided herein, and no other person shall acquire or
have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Shares in his
status as such purchaser.
13. Applicable Law; Counterparts. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
22
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement between
the Company and the several Underwriters.
Very truly yours,
HORIZON OFFSHORE, INC.
By
------------------------------
Chairman of the Board
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
Salomon Smith Barney
Smith Barney Inc.
PaineWebber Incorporated
Raymond James & Associates, Inc.
As Representatives of the Several Underwriters
By Smith Barney Inc.
By
------------------------------
Managing Director
23
<PAGE>
SCHEDULE I
HORIZON OFFSHORE, INC.
Number of
Firm Shares
-----------
Underwriter
- -----------
Salomon Smith Barney
Smith Barney Inc.
PaineWebber Incorporated
Raymond James & Associates, Inc.
24
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This Employment Agreement (this "Agreement") between Horizon Offshore,
Inc., a Delaware corporation ("Company"), and Bill J. Lam ("Employee") is dated
as of January 1, 1998.
The Company and the Employee agree as follows:
1. Employment. The Company has hired the Employee and the Employee
agreed to be employed upon the terms and conditions hereinafter set forth.
2. Term. (a) Subject to the provisions for termination as hereinafter
provided, Employee's employment pursuant to the terms of this Agreement shall be
for the period expiring on the earlier to occur of (i) December 31, 2001 or (ii)
three years from the date that the Company's common stock commences trading on
the Nasdaq National Market or another securities market or exchange. Such
period of employment is referred to herein as the "Employment Term."
(b) If Employee continues to serve as an employee of the Company after the
Employment Term, such continued employment shall be subject to the terms of this
Agreement but shall be terminable at will by either the Company or Employee.
(c) Following Employee ceasing for whatever reason to be an employee of the
Company, each party shall have the right to enforce all rights, and shall be
bound by all obligations, of such party that are continuing rights and
obligations under the terms of this Agreement.
3. Duties. The Employee shall perform such duties, consistent with the
Employee's job title, as may be prescribed from time to time by the Board of
Directors of the Company (the "Board") or officers to whom such authority has
been delegated.
4. Compensation and Benefits. The Company will provide or will cause to
be provided to Employee a minimum annual base salary of $200,000. The Employee
shall be entitled to all benefits and perquisites provided to similarly situated
employees of the Company.
5. Termination of Employment.
(a) During the Employment Term, the Employee's status as an employee will
terminate immediately and automatically upon the earliest to occur of:
(i) the death or "Disability" (as defined below) of the Employee;
(ii) the discharge of the Employee by the Company "For Cause" (as
defined below);
(iii) the expiration of the Employment Term.
The Employee hereby accepts such employment subject to the terms and conditions
hereof.
1
<PAGE>
(b) As used herein, "For Cause" shall mean any one or more of the
following:
(i) material or repeated violations by the Employee (after notice
thereof from the Company) of the terms of this Agreement or the Employee's
material or repeated failure (after notice thereof from the Company) to
perform the Employee's duties in a manner consistent with the Employee's
position;
(ii) excessive absenteeism on the part of the Employee not related to
illness or disability;
(iii) the Employee's indictment for a felony;
(iv) the Employee's commission of fraud, embezzlement, theft or other
acts involving dishonesty, or crimes constituting moral turpitude, in any
case whether or not involving the Company, that, in the opinion of the
Board, renders the Employee's continued employment harmful to the Company;
(v) substance abuse on the part of the Employee; or
(vi) the Employee acting in bad faith relative to the Company's
business interests.
Anything in this Agreement to the contrary notwithstanding, the Employee's
employment may not be terminated "For Cause" unless and until there shall have
been delivered to the Employee a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board (without giving effect to the Employee's status as a director or any vote
of the Employee) at a meeting of the Board called and held for the purpose
(after reasonable notice to the Employee and an opportunity for the Employee to
be heard before the Board), finding that in the good faith opinion of the Board
the Employee was guilty of any of the conduct set forth in clauses (i) through
(vi) of this subparagraph (b) and specifying the particulars thereof in detail.
(c) As used herein, "Disability" shall mean a physical or mental incapacity
of the Employee that, in the good faith determination of the Board has prevented
the Employee from performing the duties assigned the Employee by the Company for
60 consecutive days or for a period of more than 90 days in the aggregate in any
12-month period and that, in the determination of the Company after consultation
with a medical doctor appointed by the Company, may be expected to prevent the
Employee for any period of time thereafter from devoting the Employee's full
time and energies (or such lesser time and energies as may be acceptable to the
Company in its sole discretion) to the Employee's duties as provided hereunder.
The Employee's employment hereunder, except as otherwise agreed to in writing
between the Company and the Employee, shall cease as of the date of such
determination. The Employee agrees to submit to medical examinations, at the
Company's sole cost and expense, to determine whether a Disability exists
pursuant to reasonable requests that the Company may make from time to time.
During the period of any such physical or mental incapacity as provided above,
the salary otherwise payable to the Employee may, in the absolute discretion of
the Company, be reduced by the amount of any disability benefits or payments
received
2
<PAGE>
by the Employee from the Company or any disability or health plan funded in
whole or in part by the Company (excluding health insurance benefits or other
reimbursement of medical expenses attributable to insurance policies that have
not been funded in any part by the Company).
6. Trade Secrets, Etc. The Employee shall hold, both during the
Employment Term and thereafter, in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or data relating to
the Company or any of its subsidiaries or corporate affiliates and their
respective businesses and operations, which shall have been obtained by the
Employee during the Employee's employment (whether prior to or after the date
hereof) and which shall not have become public knowledge (other than by acts of
the Employee or his representatives in violation of this Agreement). The
Employee agrees (i) that, without the prior written consent of the Company or as
may be otherwise required by law or legal process, he will not communicate or
divulge any such information, knowledge or data to any party other than the
Company and (ii) to deliver promptly to the Company upon its written request any
confidential information, knowledge or data in his possession, whether produced
by the Company or any of its subsidiaries and corporate affiliates or by the
Employee, that relates to the business of the Company or any of its subsidiaries
and joint ventures or any past, current or prospective activity of the Company
or any of its subsidiaries and joint ventures. The Employee shall be permitted
to retain copies of such data as are necessary in order to enable the Employee
to assert any rights under this Agreement, provided that such data shall be used
solely for such purpose.
7. Limited Covenant Not to Compete. (a) While Employee is employed by
the Company and for a period of one year following the termination of Employee's
employment with the Company the Employee will not, directly or indirectly, own,
manage, operate, control, be employed by, participate in, or be connected in any
manner with the ownership, management, operation or control of any company or
other business enterprise engaged in a line or lines of business similar to that
of the Company or any of its subsidiaries or joint ventures, within the State of
Texas, Louisiana, Mississippi, Alabama or Florida (including any area offshore
in the Gulf of Mexico or any such state) or any other jurisdiction, whether
within or outside the United States in which the business of the Company or any
of its subsidiaries or joint ventures is carried on, so long as the Company or
any of its subsidiaries or joint ventures carries on a like line of business
therein; provided, however, that nothing contained herein shall prohibit the
Employee from making investments in any publicly held company which do not
exceed in the aggregate two percent of the equity interest of such company.
(b) As part of the consideration for the compensation and benefits to
be paid to the Employee hereunder; to protect the trade secrets and confidential
information of Company and its affiliates that have been and will in the future
be disclosed or entrusted to the Employee, the business good will of the Company
and its affiliates that has been and will in the future be developed in the
Employee, or the business opportunities that have been and will in the future be
disclosed or entrusted to the Employee by the Company and its affiliates; and,
as an additional incentive for the Company to enter in this Agreement, the
Company and the Employee agree to the non-competition obligations hereunder.
The obligations of the Employee set forth in this Section 7 shall apply during
the term of this Agreement and shall survive termination of this Agreement
and/or the termination of the Employee's services under this Agreement
regardless of the reason for such termination.
3
<PAGE>
8. No Tampering. While Employee is employed by the Company and for one
year following the termination of Employee's employment with the Company, the
Employee shall not (a) request, induce or attempt to influence any supplier of
goods or services to the Company curtail or cancel any business they may
transact with the Company; (b) request, induce or attempt to influence any
customers of the Company that have done business with or potential customers
which have been in contact with the Company to curtail or cancel any business
they may transact with the Company; or (c) request, induce or attempt to
influence any employee of the Company to terminate his or her employment with
the Company.
9. Statements Concerning the Company. The Employee shall refrain, both
during the Employment Term and following the termination of Employee's
employment by the Company for any reason, from publishing any oral or written
statements about the Company, any of its affiliates, or any of such entities'
officers, employees, agents or representatives that are slanderous, libelous, or
defamatory; or that disclose private or confidential information about the
Company, any of its affiliates, or any of such entities' business affairs,
officers, employees, agents or representatives; or that constitute an intrusion
into the seclusion or private lives of the Company, any of its affiliates, or
any of such entities' officers, employees, agents or representatives or that
give rise to unreasonable publicity about the private lives of the Company, any
of its affiliates, or any of such entities' officers, employees, agents or
representatives; or that place the Company, any of its affiliates, or any of
such entities' officers, employee, agents or representatives in a false light
before the public; or that constitute a misappropriation of the name or likeness
of the Company, any of its affiliates, or any of such entities; officers,
employees, agents or representatives. A violation or threatened violation of
this prohibition may be enjoined by the courts. The rights afforded the Company
and its affiliates under this provision are in addition to any and all rights
and remedies otherwise afforded by law.
10. Injunctive Relief. In the event of a breach or threatened breach by
the Employee of the provisions of Sections 6, 7, 8 or 9 of this Agreement during
or after the term of this Agreement, the Company shall be entitled to injunctive
relief restraining the Employee from violation of such paragraph. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedy at law or in equity it may have in the event of breach or threatened
breach of this Agreement by the Employee.
11. Binding Effect.
(a) This Agreement shall be binding upon and inure to the benefit of
the Company and any of its successors or assigns.
(b) This Agreement is personal to the Employee and shall not be
assignable by the Employee without the consent of the Company (there being no
obligation to give such consent) other than such rights or benefits as are
transferred by will or the laws of descent and distribution.
(c) The Company will require any successor or assign (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the assets or businesses of the Company (i) to assume
unconditionally and expressly this Agreement and (ii) to agree to perform all of
the obligations under this Agreement in the same manner and to the same extent
as
4
<PAGE>
would have been required of the Company had no assignment or succession
occurred, such assumption to be set forth in a writing reasonably satisfactory
to the Employee. In the event of any such assignment or succession, the term
"Company" as used in this Agreement shall refer also to such successor or
assign.
12. Notices. Any notice or other communication required under this
Agreement shall be in writing, shall be deemed to have been given and received
when delivered in person, or, if mailed, shall be deemed to have been given when
deposited in the United States mail, first class, registered or certified,
return receipt requested, with proper postage prepaid, and shall be deemed to
have been received on the third business day thereafter, and shall be addressed
as follows:
If to the Company, addressed to:
Horizon Offshore, Inc.
2500 City West Boulevard, Suite 2200
Houston, Texas 77042
If to the Employee, addressed to:
Bill J. Lam
c/o Horizon Offshore, Inc.
2500 City West Boulevard, Suite 2200
Houston, Texas 77042
or such other address as to which any party hereto may have notified the other
in writing.
13. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Texas.
14. Entire Agreement. This Agreement and the documents referred to
herein, contain or refer to the entire arrangement or understanding between the
Employee and the Company relating to the employment of the Employee by the
Company. No provision of the Agreement, may be modified or amended except by an
instrument in writing signed by or for both parties hereto.
15. Severability. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, shall at any time or to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and each term and provision of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
16. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
5
<PAGE>
17. Remedies Not Exclusive. No remedy specified herein shall be deemed to
be such party's exclusive remedy, and accordingly, in addition to all of the
rights and remedies provided for in this Agreement, the parties shall have all
other rights and remedies provided to them by applicable law, rule or
regulation.
18. Beneficiaries. Whenever this Agreement provides for any payment to be
made to the Employee or his estate, such payment may be made instead to such
beneficiary or beneficiaries as the Employee may have designated in writing and
filed with the Company. The Employee shall have the right to revoke any such
designation from time to time and to redesignate any beneficiary or
beneficiaries by written notice to the Company.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
just above written.
HORIZON OFFSHORE, INC.
By: /s/ DAVID W. SHARP
-----------------------------------
David W. Sharp
Executive Vice President
EMPLOYEE:
/s/ BILL J. LAM
--------------------------------------
Bill J. Lam
6
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This Employment Agreement (this "Agreement") between Horizon Offshore,
Inc., a Delaware corporation ("Company"), and David W. Sharp ("Employee") is
dated as of January 1, 1998.
The Company and the Employee agree as follows:
1. Employment. The Company has hired the Employee and the Employee
agreed to be employed upon the terms and conditions hereinafter set forth.
2. Term. (a) Subject to the provisions for termination as hereinafter
provided, Employee's employment pursuant to the terms of this Agreement shall be
for the period expiring on the earlier to occur of (i) December 31, 2001 or (ii)
three years from the date that the Company's common stock commences trading on
the Nasdaq National Market or another securities market or exchange. Such
period of employment is referred to herein as the "Employment Term."
(b) If Employee continues to serve as an employee of the Company after the
Employment Term, such continued employment shall be subject to the terms of this
Agreement but shall be terminable at will by either the Company or Employee.
(c) Following Employee ceasing for whatever reason to be an employee of the
Company, each party shall have the right to enforce all rights, and shall be
bound by all obligations, of such party that are continuing rights and
obligations under the terms of this Agreement.
3. Duties. The Employee shall perform such duties, consistent with the
Employee's job title, as may be prescribed from time to time by the Board of
Directors of the Company (the "Board") or officers to whom such authority has
been delegated.
4. Compensation and Benefits. The Company will provide or will cause to
be provided to Employee a minimum annual base salary of $175,000. The Employee
shall be entitled to all benefits and perquisites provided to similarly situated
employees of the Company.
5. Termination of Employment.
(a) During the Employment Term, the Employee's status as an employee will
terminate immediately and automatically upon the earliest to occur of:
(i) the death or "Disability" (as defined below) of the Employee;
(ii) the discharge of the Employee by the Company "For Cause" (as
defined below);
(iii) the expiration of the Employment Term.
<PAGE>
The Employee hereby accepts such employment subject to the terms and conditions
hereof.
(b) As used herein, "For Cause" shall mean any one or more of the
following:
(i) material or repeated violations by the Employee (after notice
thereof from the Company) of the terms of this Agreement or the Employee's
material or repeated failure (after notice thereof from the Company) to
perform the Employee's duties in a manner consistent with the Employee's
position;
(ii) excessive absenteeism on the part of the Employee not related to
illness or disability;
(iii) the Employee's indictment for a felony;
(iv) the Employee's commission of fraud, embezzlement, theft or other
acts involving dishonesty, or crimes constituting moral turpitude, in any
case whether or not involving the Company, that, in the opinion of the
Board, renders the Employee's continued employment harmful to the Company;
(v) substance abuse on the part of the Employee; or
(vi) the Employee acting in bad faith relative to the Company's
business interests.
Anything in this Agreement to the contrary notwithstanding, the Employee's
employment may not be terminated "For Cause" unless and until there shall have
been delivered to the Employee a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board (without giving effect to the Employee's status as a director or any vote
of the Employee) at a meeting of the Board called and held for the purpose
(after reasonable notice to the Employee and an opportunity for the Employee to
be heard before the Board), finding that in the good faith opinion of the Board
the Employee was guilty of any of the conduct set forth in clauses (i) through
(vi) of this subparagraph (b) and specifying the particulars thereof in detail.
(c) As used herein, "Disability" shall mean a physical or mental incapacity
of the Employee that, in the good faith determination of the Board has prevented
the Employee from performing the duties assigned the Employee by the Company for
60 consecutive days or for a period of more than 90 days in the aggregate in any
12-month period and that, in the determination of the Company after consultation
with a medical doctor appointed by the Company, may be expected to prevent the
Employee for any period of time thereafter from devoting the Employee's full
time and energies (or such lesser time and energies as may be acceptable to the
Company in its sole discretion) to the Employee's duties as provided hereunder.
The Employee's employment hereunder, except as otherwise agreed to in writing
between the Company and the Employee, shall cease as of the date of such
determination. The Employee agrees to submit to medical examinations, at the
Company's sole cost and expense, to determine whether a Disability exists
pursuant to reasonable requests that the Company may make from time to time.
During the period of any such physical or mental incapacity as provided above,
the salary otherwise payable to the Employee may, in the absolute
2
<PAGE>
discretion of the Company, be reduced by the amount of any disability benefits
or payments received by the Employee from the Company or any disability or
health plan funded in whole or in part by the Company (excluding health
insurance benefits or other reimbursement of medical expenses attributable to
insurance policies that have not been funded in any part by the Company).
6. Trade Secrets, Etc. The Employee shall hold, both during the
Employment Term and thereafter, in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or data relating to
the Company or any of its subsidiaries or corporate affiliates and their
respective businesses and operations, which shall have been obtained by the
Employee during the Employee's employment (whether prior to or after the date
hereof) and which shall not have become public knowledge (other than by acts of
the Employee or his representatives in violation of this Agreement). The
Employee agrees (i) that, without the prior written consent of the Company or as
may be otherwise required by law or legal process, he will not communicate or
divulge any such information, knowledge or data to any party other than the
Company and (ii) to deliver promptly to the Company upon its written request any
confidential information, knowledge or data in his possession, whether produced
by the Company or any of its subsidiaries and corporate affiliates or by the
Employee, that relates to the business of the Company or any of its subsidiaries
and joint ventures or any past, current or prospective activity of the Company
or any of its subsidiaries and joint ventures. The Employee shall be permitted
to retain copies of such data as are necessary in order to enable the Employee
to assert any rights under this Agreement, provided that such data shall be used
solely for such purpose.
7. Limited Covenant Not to Compete. (a) While Employee is employed by
the Company and for a period of one year following the termination of Employee's
employment with the Company the Employee will not, directly or indirectly, own,
manage, operate, control, be employed by, participate in, or be connected in any
manner with the ownership, management, operation or control of any company or
other business enterprise engaged in a line or lines of business similar to that
of the Company or any of its subsidiaries or joint ventures, within the State of
Texas, Louisiana, Mississippi, Alabama or Florida (including any area offshore
in the Gulf of Mexico or any such state) or any other jurisdiction, whether
within or outside the United States in which the business of the Company or any
of its subsidiaries or joint ventures is carried on, so long as the Company or
any of its subsidiaries or joint ventures carries on a like line of business
therein; provided, however, that nothing contained herein shall prohibit the
Employee from making investments in any publicly held company which do not
exceed in the aggregate two percent of the equity interest of such company.
(b) As part of the consideration for the compensation and benefits to
be paid to the Employee hereunder; to protect the trade secrets and confidential
information of Company and its affiliates that have been and will in the future
be disclosed or entrusted to the Employee, the business good will of the Company
and its affiliates that has been and will in the future be developed in the
Employee, or the business opportunities that have been and will in the future be
disclosed or entrusted to the Employee by the Company and its affiliates; and,
as an additional incentive for the Company to enter in this Agreement, the
Company and the Employee agree to the non-competition obligations hereunder.
The obligations of the Employee set forth in this Section 7 shall apply during
3
<PAGE>
the term of this Agreement and shall survive termination of this Agreement
and/or the termination of the Employee's services under this Agreement
regardless of the reason for such termination.
8. No Tampering. While Employee is employed by the Company and for one
year following the termination of Employee's employment with the Company, the
Employee shall not (a) request, induce or attempt to influence any supplier of
goods or services to the Company curtail or cancel any business they may
transact with the Company; (b) request, induce or attempt to influence any
customers of the Company that have done business with or potential customers
which have been in contact with the Company to curtail or cancel any business
they may transact with the Company; or (c) request, induce or attempt to
influence any employee of the Company to terminate his or her employment with
the Company.
9. Statements Concerning the Company. The Employee shall refrain, both
during the Employment Term and following the termination of Employee's
employment by the Company for any reason, from publishing any oral or written
statements about the Company, any of its affiliates, or any of such entities'
officers, employees, agents or representatives that are slanderous, libelous, or
defamatory; or that disclose private or confidential information about the
Company, any of its affiliates, or any of such entities' business affairs,
officers, employees, agents or representatives; or that constitute an intrusion
into the seclusion or private lives of the Company, any of its affiliates, or
any of such entities' officers, employees, agents or representatives or that
give rise to unreasonable publicity about the private lives of the Company, any
of its affiliates, or any of such entities' officers, employees, agents or
representatives; or that place the Company, any of its affiliates, or any of
such entities' officers, employee, agents or representatives in a false light
before the public; or that constitute a misappropriation of the name or likeness
of the Company, any of its affiliates, or any of such entities; officers,
employees, agents or representatives. A violation or threatened violation of
this prohibition may be enjoined by the courts. The rights afforded the Company
and its affiliates under this provision are in addition to any and all rights
and remedies otherwise afforded by law.
10. Injunctive Relief. In the event of a breach or threatened breach by
the Employee of the provisions of Sections 6, 7, 8 or 9 of this Agreement during
or after the term of this Agreement, the Company shall be entitled to injunctive
relief restraining the Employee from violation of such paragraph. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedy at law or in equity it may have in the event of breach or threatened
breach of this Agreement by the Employee.
11. Binding Effect.
(a) This Agreement shall be binding upon and inure to the benefit of
the Company and any of its successors or assigns.
(b) This Agreement is personal to the Employee and shall not be
assignable by the Employee without the consent of the Company (there being no
obligation to give such consent) other than such rights or benefits as are
transferred by will or the laws of descent and distribution.
4
<PAGE>
(c) The Company will require any successor or assign (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the assets or businesses of the Company (i) to assume
unconditionally and expressly this Agreement and (ii) to agree to perform all of
the obligations under this Agreement in the same manner and to the same extent
as would have been required of the Company had no assignment or succession
occurred, such assumption to be set forth in a writing reasonably satisfactory
to the Employee. In the event of any such assignment or succession, the term
"Company" as used in this Agreement shall refer also to such successor or
assign.
12. Notices. Any notice or other communication required under this
Agreement shall be in writing, shall be deemed to have been given and received
when delivered in person, or, if mailed, shall be deemed to have been given when
deposited in the United States mail, first class, registered or certified,
return receipt requested, with proper postage prepaid, and shall be deemed to
have been received on the third business day thereafter, and shall be addressed
as follows:
If to the Company, addressed to:
Horizon Offshore, Inc.
2500 City West Boulevard, Suite 2200
Houston, Texas 77042
If to the Employee, addressed to:
David W. Sharp
c/o Horizon Offshore, Inc.
2500 City West Boulevard, Suite 2200
Houston, Texas 77042
or such other address as to which any party hereto may have notified the other
in writing.
13. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Texas.
14. Entire Agreement. This Agreement and the documents referred to
herein, contain or refer to the entire arrangement or understanding between the
Employee and the Company relating to the employment of the Employee by the
Company. No provision of the Agreement, may be modified or amended except by an
instrument in writing signed by or for both parties hereto.
15. Severability. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, shall at any time or to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and each term and provision of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
5
<PAGE>
16. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
17. Remedies Not Exclusive. No remedy specified herein shall be deemed to
be such party's exclusive remedy, and accordingly, in addition to all of the
rights and remedies provided for in this Agreement, the parties shall have all
other rights and remedies provided to them by applicable law, rule or
regulation.
18. Beneficiaries. Whenever this Agreement provides for any payment to be
made to the Employee or his estate, such payment may be made instead to such
beneficiary or beneficiaries as the Employee may have designated in writing and
filed with the Company. The Employee shall have the right to revoke any such
designation from time to time and to redesignate any beneficiary or
beneficiaries by written notice to the Company.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
just above written.
HORIZON OFFSHORE, INC.
By: /s/ BILL J. LAM
--------------------------------------
Bill J. Lam
President
EMPLOYEE:
/s/ DAVID W. SHARP
-----------------------------------------
David W. Sharp
6
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This Employment Agreement (this "Agreement") between Horizon Offshore,
Inc., a Delaware corporation ("Company"), and James K. Cole ("Employee") is
dated as of January 1, 1998.
The Company and the Employee agree as follows:
1. Employment. The Company has hired the Employee and the Employee
agreed to be employed upon the terms and conditions hereinafter set forth.
2. Term. (a) Subject to the provisions for termination as hereinafter
provided, Employee's employment pursuant to the terms of this Agreement shall be
for the period expiring on the earlier to occur of (i) December 31, 2001 or (ii)
three years from the date that the Company's common stock commences trading on
the Nasdaq National Market or another securities market or exchange. Such
period of employment is referred to herein as the "Employment Term."
(b) If Employee continues to serve as an employee of the Company after the
Employment Term, such continued employment shall be subject to the terms of this
Agreement but shall be terminable at will by either the Company or Employee.
(c) Following Employee ceasing for whatever reason to be an employee of the
Company, each party shall have the right to enforce all rights, and shall be
bound by all obligations, of such party that are continuing rights and
obligations under the terms of this Agreement.
3. Duties. The Employee shall perform such duties, consistent with the
Employee's job title, as may be prescribed from time to time by the Board of
Directors of the Company (the "Board") or officers to whom such authority has
been delegated.
4. Compensation and Benefits. The Company will provide or will cause to
be provided to Employee a minimum annual base salary of $143,000. The Employee
shall be entitled to all benefits and perquisites provided to similarly situated
employees of the Company.
5. Termination of Employment.
(a) During the Employment Term, the Employee's status as an employee will
terminate immediately and automatically upon the earliest to occur of:
(i) the death or "Disability" (as defined below) of the Employee;
(ii) the discharge of the Employee by the Company "For Cause" (as
defined below);
(iii) the expiration of the Employment Term.
The Employee hereby accepts such employment subject to the terms and conditions
hereof.
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(b) As used herein, "For Cause" shall mean any one or more of the
following:
(i) material or repeated violations by the Employee (after notice
thereof from the Company) of the terms of this Agreement or the Employee's
material or repeated failure (after notice thereof from the Company) to
perform the Employee's duties in a manner consistent with the Employee's
position;
(ii) excessive absenteeism on the part of the Employee not related to
illness or disability;
(iii) the Employee's indictment for a felony;
(iv) the Employee's commission of fraud, embezzlement, theft or other
acts involving dishonesty, or crimes constituting moral turpitude, in any
case whether or not involving the Company, that, in the opinion of the
Board, renders the Employee's continued employment harmful to the Company;
(v) substance abuse on the part of the Employee; or
(vi) the Employee acting in bad faith relative to the Company's
business interests.
Anything in this Agreement to the contrary notwithstanding, the Employee's
employment may not be terminated "For Cause" unless and until there shall have
been delivered to the Employee a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board (without giving effect to the Employee's status as a director or any vote
of the Employee) at a meeting of the Board called and held for the purpose
(after reasonable notice to the Employee and an opportunity for the Employee to
be heard before the Board), finding that in the good faith opinion of the Board
the Employee was guilty of any of the conduct set forth in clauses (i) through
(vi) of this subparagraph (b) and specifying the particulars thereof in detail.
(c) As used herein, "Disability" shall mean a physical or mental incapacity
of the Employee that, in the good faith determination of the Board has prevented
the Employee from performing the duties assigned the Employee by the Company for
60 consecutive days or for a period of more than 90 days in the aggregate in any
12-month period and that, in the determination of the Company after consultation
with a medical doctor appointed by the Company, may be expected to prevent the
Employee for any period of time thereafter from devoting the Employee's full
time and energies (or such lesser time and energies as may be acceptable to the
Company in its sole discretion) to the Employee's duties as provided hereunder.
The Employee's employment hereunder, except as otherwise agreed to in writing
between the Company and the Employee, shall cease as of the date of such
determination. The Employee agrees to submit to medical examinations, at the
Company's sole cost and expense, to determine whether a Disability exists
pursuant to reasonable requests that the Company may make from time to time.
During the period of any such physical or mental incapacity as provided above,
the salary otherwise payable to the Employee may, in the absolute discretion of
the Company, be reduced by the amount of any disability benefits or payments
received
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by the Employee from the Company or any disability or health plan funded in
whole or in part by the Company (excluding health insurance benefits or other
reimbursement of medical expenses attributable to insurance policies that have
not been funded in any part by the Company).
6. Trade Secrets, Etc. The Employee shall hold, both during the
Employment Term and thereafter, in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or data relating to
the Company or any of its subsidiaries or corporate affiliates and their
respective businesses and operations, which shall have been obtained by the
Employee during the Employee's employment (whether prior to or after the date
hereof) and which shall not have become public knowledge (other than by acts of
the Employee or his representatives in violation of this Agreement). The
Employee agrees (i) that, without the prior written consent of the Company or as
may be otherwise required by law or legal process, he will not communicate or
divulge any such information, knowledge or data to any party other than the
Company and (ii) to deliver promptly to the Company upon its written request any
confidential information, knowledge or data in his possession, whether produced
by the Company or any of its subsidiaries and corporate affiliates or by the
Employee, that relates to the business of the Company or any of its subsidiaries
and joint ventures or any past, current or prospective activity of the Company
or any of its subsidiaries and joint ventures. The Employee shall be permitted
to retain copies of such data as are necessary in order to enable the Employee
to assert any rights under this Agreement, provided that such data shall be used
solely for such purpose.
7. Limited Covenant Not to Compete. (a) While Employee is employed by
the Company and for a period of one year following the termination of Employee's
employment with the Company the Employee will not, directly or indirectly, own,
manage, operate, control, be employed by, participate in, or be connected in any
manner with the ownership, management, operation or control of any company or
other business enterprise engaged in a line or lines of business similar to that
of the Company or any of its subsidiaries or joint ventures, within the State of
Texas, Louisiana, Mississippi, Alabama or Florida (including any area offshore
in the Gulf of Mexico or any such state) or any other jurisdiction, whether
within or outside the United States in which the business of the Company or any
of its subsidiaries or joint ventures is carried on, so long as the Company or
any of its subsidiaries or joint ventures carries on a like line of business
therein; provided, however, that nothing contained herein shall prohibit the
Employee from making investments in any publicly held company which do not
exceed in the aggregate two percent of the equity interest of such company.
(b) As part of the consideration for the compensation and benefits to
be paid to the Employee hereunder; to protect the trade secrets and confidential
information of Company and its affiliates that have been and will in the future
be disclosed or entrusted to the Employee, the business good will of the Company
and its affiliates that has been and will in the future be developed in the
Employee, or the business opportunities that have been and will in the future be
disclosed or entrusted to the Employee by the Company and its affiliates; and,
as an additional incentive for the Company to enter in this Agreement, the
Company and the Employee agree to the non-competition obligations hereunder.
The obligations of the Employee set forth in this Section 7 shall apply during
the term of this Agreement and shall survive termination of this Agreement
and/or the termination of the Employee's services under this Agreement
regardless of the reason for such termination.
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<PAGE>
8. No Tampering. While Employee is employed by the Company and for one
year following the termination of Employee's employment with the Company, the
Employee shall not (a) request, induce or attempt to influence any supplier of
goods or services to the Company curtail or cancel any business they may
transact with the Company; (b) request, induce or attempt to influence any
customers of the Company that have done business with or potential customers
which have been in contact with the Company to curtail or cancel any business
they may transact with the Company; or (c) request, induce or attempt to
influence any employee of the Company to terminate his or her employment with
the Company.
9. Statements Concerning the Company. The Employee shall refrain, both
during the Employment Term and following the termination of Employee's
employment by the Company for any reason, from publishing any oral or written
statements about the Company, any of its affiliates, or any of such entities'
officers, employees, agents or representatives that are slanderous, libelous, or
defamatory; or that disclose private or confidential information about the
Company, any of its affiliates, or any of such entities' business affairs,
officers, employees, agents or representatives; or that constitute an intrusion
into the seclusion or private lives of the Company, any of its affiliates, or
any of such entities' officers, employees, agents or representatives or that
give rise to unreasonable publicity about the private lives of the Company, any
of its affiliates, or any of such entities' officers, employees, agents or
representatives; or that place the Company, any of its affiliates, or any of
such entities' officers, employee, agents or representatives in a false light
before the public; or that constitute a misappropriation of the name or likeness
of the Company, any of its affiliates, or any of such entities; officers,
employees, agents or representatives. A violation or threatened violation of
this prohibition may be enjoined by the courts. The rights afforded the Company
and its affiliates under this provision are in addition to any and all rights
and remedies otherwise afforded by law.
10. Injunctive Relief. In the event of a breach or threatened breach by
the Employee of the provisions of Sections 6, 7, 8 or 9 of this Agreement during
or after the term of this Agreement, the Company shall be entitled to injunctive
relief restraining the Employee from violation of such paragraph. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedy at law or in equity it may have in the event of breach or threatened
breach of this Agreement by the Employee.
11. Binding Effect.
(a) This Agreement shall be binding upon and inure to the benefit of
the Company and any of its successors or assigns.
(b) This Agreement is personal to the Employee and shall not be
assignable by the Employee without the consent of the Company (there being no
obligation to give such consent) other than such rights or benefits as are
transferred by will or the laws of descent and distribution.
(c) The Company will require any successor or assign (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the assets or businesses of the Company (i) to assume
unconditionally and expressly this Agreement and (ii) to agree to perform all of
the obligations under this Agreement in the same manner and to the same extent
as
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<PAGE>
would have been required of the Company had no assignment or succession
occurred, such assumption to be set forth in a writing reasonably satisfactory
to the Employee. In the event of any such assignment or succession, the term
"Company" as used in this Agreement shall refer also to such successor or
assign.
12. Notices. Any notice or other communication required under this
Agreement shall be in writing, shall be deemed to have been given and received
when delivered in person, or, if mailed, shall be deemed to have been given when
deposited in the United States mail, first class, registered or certified,
return receipt requested, with proper postage prepaid, and shall be deemed to
have been received on the third business day thereafter, and shall be addressed
as follows:
If to the Company, addressed to:
Horizon Offshore, Inc.
2500 City West Boulevard, Suite 2200
Houston, Texas 77042
If to the Employee, addressed to:
James K. Cole
c/o Horizon Offshore, Inc.
2500 City West Boulevard, Suite 2200
Houston, Texas 77042
or such other address as to which any party hereto may have notified the other
in writing.
13. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Texas.
14. Entire Agreement. This Agreement and the documents referred to
herein, contain or refer to the entire arrangement or understanding between the
Employee and the Company relating to the employment of the Employee by the
Company. No provision of the Agreement, may be modified or amended except by an
instrument in writing signed by or for both parties hereto.
15. Severability. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, shall at any time or to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and each term and provision of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
16. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
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17. Remedies Not Exclusive. No remedy specified herein shall be deemed to
be such party's exclusive remedy, and accordingly, in addition to all of the
rights and remedies provided for in this Agreement, the parties shall have all
other rights and remedies provided to them by applicable law, rule or
regulation.
18. Beneficiaries. Whenever this Agreement provides for any payment to be
made to the Employee or his estate, such payment may be made instead to such
beneficiary or beneficiaries as the Employee may have designated in writing and
filed with the Company. The Employee shall have the right to revoke any such
designation from time to time and to redesignate any beneficiary or
beneficiaries by written notice to the Company.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
just above written.
HORIZON OFFSHORE, INC.
By: /s/ BILL J. LAM
----------------------------------
Bill J. Lam
President
EMPLOYEE:
/s/ JAMES K. COLE
-----------------------------------
James K. Cole
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<PAGE>
EXHIBIT 10.15
_________________________________
HORIZON OFFSHORE, INC.
10% SUBORDINATED NOTE
DUE MARCH 31, 2003
_________________________________
$13,000,000.00 Houston, Texas
February 25, 1998
FOR VALUE RECEIVED, Horizon Offshore, Inc., a Delaware corporation (the
"Maker"), promises to pay to the order of Westgate International, L.P.
("Payee"), as provided below, at 712 Fifth Avenue, New York, New York 10019 (or
at such other address as any holders hereof may designate in writing), the sum
of thirteen million and no/100 dollars ($13,000,000.00), or such lesser amount
as may have been advanced by the Payee on or before March 31, 2003 (the
"Conversion Date"), together with interest on the unpaid principal balance at
the rate of 10% per annum, on the earlier to occur of December 31, 2005 or such
earlier date as such amount may become due and payable in accordance with the
terms hereof (the "Maturity Date"). Payment for all amounts due hereunder shall
be made in lawful money of the United States of America paid at the address of
the Payee, or in such other form or by such other means as the Maker and any
holder shall agree. This Note is made by Maker in substitution of that certain
10% Subordinated Note dated December 4, 1997 and represents an increase in the
amount that may be advanced to Maker hereunder but does not represent a
novation, rearrangement or other extension of the indebtedness and shall not be
deemed a payment of any amount of principal or interest thereunder.
1. PAYMENT. The unpaid principal balance of this Note shall be paid in
twelve installments, on March 31, June 30, September 30 and December 31 of each
year, commencing March 31, 2003. The first eleven installments of principal
shall be in the amount of one-twentieth of the unpaid principal balance on the
Conversion Date, and the last installment of principal shall be paid on the
Maturity Date in the amount of all of the remaining unpaid principal balance.
The outstanding principal amount of this Note from time to time shall bear
interest until paid at the rate of 10 percent (10%) per annum. Interest shall
be calculated on a 365 day per year basis and paid for the actual number of days
elapsed (including the first but excluding the last day) during any period and
shall be paid semi-annually on March 31 and September 30 of each year,
commencing September 30, 1997, and with a final interest payment in the amount
of all outstanding interest then unpaid being due on the Maturity Date.
<PAGE>
If a payment of principal or interest falls due on a Saturday, Sunday, or
any other day on which financial institutions are generally not open for
business in Houston, Texas, payment shall be made on the next preceding business
day.
Any amount paid pursuant to Section 2 shall be applied first to any accrued
and unpaid interest then accrued, if any, and, then to the principal amounts due
hereunder in the inverse order of maturity.
2. PREPAYMENT. The Maker may at any time prepay any amount (and reborrow
until the Conversion Date in accordance with the terms hereof) outstanding under
the Note in whole or in part without notice or penalty.
3. SUBORDINATION. The indebtedness evidenced by this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of all the Maker's Senior
Indebtedness, as hereinafter defined.
3.1 Senior Indebtedness. As used in this Note, the term "Senior
Indebtedness" shall mean the principal of, premium, if any, and unpaid interest
on the following, whether outstanding at the date hereof or thereafter incurred,
together with all charges, fees, costs and expenses required to be paid by the
Maker under the terms thereof: (i) indebtedness of the Maker for money borrowed
evidenced by promissory notes, debentures or other written obligations, (ii)
indebtedness of the Maker evidenced by debentures, bonds or other securities
issued under the provisions of an indenture or similar instrument, (iii)
indebtedness of others of any of the kinds described in the preceding clauses
(i) and (iii) assumed or guaranteed by the Maker, and (iv) renewals, extensions
and refundings of, and indebtedness and obligations of a successor person issued
in exchange for or in replacement of, indebtedness or obligations of the kinds
described in the preceding clauses (i) through (iii); provided, however, that
the following shall not constitute Senior Indebtedness; (i) any indebtedness or
obligation as to which, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is expressly provided that such
indebtedness or obligation is subordinate in right of payment to all other
indebtedness of the Maker not expressly subordinated to such indebtedness or
obligation; (ii) any indebtedness or obligation which by its terms refers
explicitly to the Note and states that such indebtedness or obligation shall not
be senior in right of payment thereto; and (iii) any indebtedness or obligation
of the Maker in respect of the Note.
3.2 Prior Payment to Senior Indebtedness Upon Acceleration of the
Note. If this Note is declared due and payable prior to its maturity under
circumstances when Section 3.4 shall not be applicable, the Holder of the Note
shall be entitled to payments only after (i) there shall first have been paid in
full all Senior Indebtedness outstanding, or contingently payable pursuant to a
guaranty or other contingent obligation, at the time such Note becomes due and
payable because of any such event, or (ii) payment or other adequate provision
shall have been provided for in a manner satisfactory to the holders of such
Senior Indebtedness.
3.3 Payment When Senior Indebtedness in Default. If there has
occurred and is continuing a default in the payment of all or any portion of any
Senior Indebtedness, unless and until such default shall have been cured or
waived, the Maker shall not make any payment on or with respect to the Note or
acquire this Note (or any portion thereof) for cash, property, securities or
otherwise during the period (a "Payment Default Blockage Period") in which such
default is
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<PAGE>
continuing; or (b) if an event (not involving the non-payment of any Senior
Indebtedness) shall have occurred or, with the giving of notice, or passage of
time, or both, would occur, that would allow holders of any Senior Indebtedness
to accelerate or otherwise demand the payment thereof, and, in the case of this
clause (b) the holders of the Senior Indebtedness give written notice of such
event to the Maker (the date that such notice is received by the Maker is the
"Notice Date"), the Maker shall not make any payment on or with respect to the
Note or acquire this Note (or any portion hereof) for cash, property, securities
or otherwise during the period (a "Nonpayment Default Blockage Period" and
together with Payment Default Blockage Period, each also sometimes herein called
a "Blockage Period") commencing on the Notice Date and ending on the earlier of
(1) 180 days after the Notice Date if at the end of such 180 day period such
event is not the subject of judicial proceedings and such Senior Indebtedness
shall not have been accelerated, (2) the date such event is cured or waived to
the satisfaction of the holders of the Senior Indebtedness, or (3) the date the
holders of such Senior Indebtedness shall have given notice to the Maker of the
voluntary termination of such Nonpayment Default Blockage Period. By virtue of
accepting this Note and the benefits hereof, during any Blockage Period, the
Note Holder shall not be entitled, and will not take any action, including any
judicial process, to accelerate, demand payment or enforce any Indebtedness in
respect of this Note or any other claim with regard to the Note. Interest will
accrue on any installment of the principal (and on the interest) actually
payable during any Blockage Period. Upon the expiration of any Blockage Period,
principal and interest will be paid in accordance with the terms of this Note,
except that the principal and interest payable during the Blockage Period will
be deferred, and become principal due on the Maturity Date. Any such deferred
principal shall continue to bear interest, and any deferred interest shall bear
interest. All such deferred principal and interest amounts shall be payable only
on the Maturity Date. All interest on the deferred interest and principal shall
be paid on the same dates as interest is paid under Section 1 hereof.
3.4 Payment Over of Proceeds Upon Dissolution, Etc. (i) In the event
of any liquidation, dissolution or winding-up of the Maker, or of any execution,
sale, receivership, insolvency, bankruptcy, liquidation, readjustment,
reorganization, or other similar proceeding relative to the Maker or a
substantial part of its property, all principal and interest owing on all Senior
Indebtedness shall first be paid in full before any payment is made upon the
indebtedness evidenced by the Note, and in any event any payment or distribution
of any kind, whether in cash, property or securities (other than in securities
or other evidences of indebtedness, the payment of which is subordinated to the
payment of all Senior Indebtedness which may at the time be outstanding), which
shall be made upon or in respect of the Note shall be paid to the holders of
such Senior Indebtedness for application in payment thereof in accordance with
the priorities then existing among such holders unless and until such Senior
Indebtedness shall have been paid or satisfied in full.
(ii) The consolidation of the Maker with, or the merger of the Maker
into, another person, or the liquidation or dissolution of the Maker following
the transfer of its properties and assets substantially as an entirety to
another person, shall not be deemed a dissolution, winding-up, liquidation,
reorganization, or other similar proceeding for the purposes of this Section if
the person formed by such consolidation or into which the Maker is merged or
which acquires such properties and assets substantially as an entirety, as the
case may be, shall, as a part of such consolidation, merger, or transfer, comply
with the conditions set forth in Section 3.3
3.5 Subrogation to Rights of Holders of Senior Indebtedness. After
the indefeasible payment in full of all Senior Indebtedness, the Holder of the
Note shall be subrogated
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<PAGE>
(equally and ratably with the holders of all indebtedness of the Maker which by
its express terms is subordinated to Senior Indebtedness of the Maker to the
same extent as the Note is subordinated and which is entitled to like rights of
subrogation) to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets of the Maker applicable to the Senior
Indebtedness until all amounts owing on the Note shall be paid in full, and for
the purpose of such subrogation, no such payments or distributions to the
holders of Senior Indebtedness by or on behalf of the Maker or by or on behalf
of the Holder of the Note by virtue of this Section which otherwise would have
been made to the Holder of the Note shall, as between the Maker and the Holder
of the Note, be deemed to be payments by the Maker to or on account of Senior
Indebtedness.
3.6 No Waiver of Subordination Provisions. No right of any holder of
any Senior Indebtedness to enforce subordination as herein provided shall at any
time or in any way be affected or impaired by any failure to act on the part of
the Maker or the holders of Senior Indebtedness, or by any noncompliance by the
Maker with any of the terms, provisions and covenants of this Note, regardless
of any knowledge thereof that any such holder of Senior Indebtedness may have or
be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may without the consent of or notice to the
Holder of the Note, without incurring responsibility to the Holder and without
impairing or releasing the subordination provided in this Note or the obligation
hereunder of the Holder of the Note to the holders of Senior Indebtedness, do
any one or more of the following: (i) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Maker and any other person.
3.7 Undertaking. By its acceptance of this Note, the Holder agrees
to execute and deliver such documents as may be reasonably requested from time
to time by the Maker or the lender of any Senior Indebtedness in order to
implement the foregoing provisions of this Section 3.
4. DEFAULT.
4.1 Events of Default. The following events or actions shall
constitute an event of default ("Events of Default"):
(i) If the Maker shall default in the payment of any installment of
interest on the Note for more than 10 days after the same shall have become due
and payable; or
(ii) If the Maker shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or shall file a voluntary petition in bankruptcy, or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
dissolution or similar relief under any present or future statute, law or
regulation, or shall file any answer admitting the material allegations of a
petition filed against the Maker in any such proceeding, or shall seek or
consent to
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<PAGE>
or acquiesce in the appointment of any trustee, receiver or liquidator of the
Maker or of all or any substantial part of the properties of the Maker, or the
Maker or its directors or majority stockholders shall take any action providing
for the dissolution or liquidation or suspension of the business of the Maker;
or
(iii) If within sixty (60) days after the commencement of any
proceeding against the Maker seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such proceeding shall not have
been dismissed, or if, within sixty (60) days after the appointment without the
consent or acquiescence of the Maker of any trustee, receiver or liquidator of
the Maker or of all or any substantial part of the properties of the Maker, such
appointment shall not have been vacated.
4.2 Remedies Upon Default. If any Event of Default shall occur, the
holder of the Note may, by written notice to the Maker, declare the principal
amount of the Note to be due and payable. Subject to the foregoing and subject
to the subordination provisions herein, thereafter, the holder of such
accelerated Note may proceed to protect and enforce its rights under the Note by
a suit in equity, action at law or other appropriate proceeding whether for the
specific performance of any agreements contained herein or for an injunction
against a violation of any of the terms or provisions hereof; or in aid of the
exercise of any power granted hereby or at law; provided, however, than any sums
otherwise payable to or collectible by the holder shall be subject to the
subordination provisions of the Note and be held for the benefit of holders of
Senior Indebtedness as provided in the Note. No right shall operate as a waiver
thereof or otherwise prejudice the rights of such holder and no consent or
waiver shall extend beyond the particular case and purpose involved. No remedy
conferred hereby shall be exclusive of any other remedy referred to herein or
now or hereafter available at law, in equity, by statute or otherwise.
5. WAIVER PROVISIONS/COSTS. Maker and any and all endorsers and
guarantors of this Note waive presentment for payment, notice of nonpayment,
notice of intent to accelerate and notice of acceleration, protest, notice of
protest, notice of dishonor or nonpayment, bringing of suit, diligence in taking
any action to collect amounts called for hereunder or enforcing any of the
security hereof, and agree to any substitution, exchange or release of any of
such security or the release of any party primarily or secondarily liable hereon
and further agree that it will not be necessary for any holder hereof, in order
to enforce payment by them of this Note, to first institute suit or exhaust its
remedies against any maker or others liable herefor, or to enforce its rights
against any security hereof, and consent to any extensions or postponements of
time of payment of this Note or any other indulgences with respect hereto,
without notice thereof to any of them and hereby bind themselves, in solido for
the payment hereof in principal, interest, costs and attorneys' fees, and shall
be directly and primarily liable for the payment of all sums owing and to be
owing hereon, regardless of and without any notice, diligence, act or omission
as or with respect to the collection of any amount called for hereunder or in
connection with any lien at any time existing as security for any amount called
for hereunder.
6. CHOICE OF LAW. THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN AND IS
INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF SUCH STATE.
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<PAGE>
IN WITNESS WHEREOF, the Maker has caused this Note to be issued this 25th
day of February, 1997.
HORIZON OFFSHORE, INC.
By: /s/ BILL LAM
-------------------------------------
Bill Lam
President
6
<PAGE>
EXHIBIT 10.16
_________________________________
HORIZON OFFSHORE, INC.
10% SUBORDINATED NOTE
DUE MARCH 31, 2003
_________________________________
$11,000,000.00 Houston, Texas
February 25, 1998
FOR VALUE RECEIVED, Horizon Offshore, Inc., a Delaware corporation (the
"Maker"), promises to pay to the order of Highwood Partners, L.P. ("Payee"), as
provided below, at 712 Fifth Avenue, New York, New York 10019 (or at such other
address as any holders hereof may designate in writing), the sum of eleven
million and no/100 dollars ($11,000,000.00), or such lesser amount as may have
been advanced by the Payee on or before March 31, 2003 (the "Conversion Date"),
together with interest on the unpaid principal balance at the rate of 10% per
annum, on the earlier to occur of December 31, 2005 or such earlier date as such
amount may become due and payable in accordance with the terms hereof (the
"Maturity Date"). Payment for all amounts due hereunder shall be made in lawful
money of the United States of America paid at the address of the Payee, or in
such other form or by such other means as the Maker and any holder shall agree.
This Note is made by Maker in substitution of that certain 10% Subordinated Note
dated December 4, 1997 and represents an increase in the amount that may be
advanced to Maker hereunder but does not represent a novation, rearrangement or
other extension of the indebtedness and shall not be deemed a payment of any
amount of principal or interest thereunder.
1. PAYMENT. The unpaid principal balance of this Note shall be paid in
twelve installments, on March 31, June 30, September 30 and December 31 of each
year, commencing March 31, 2003. The first eleven installments of principal
shall be in the amount of one-twentieth of the unpaid principal balance on the
Conversion Date, and the last installment of principal shall be paid on the
Maturity Date in the amount of all of the remaining unpaid principal balance.
The outstanding principal amount of this Note from time to time shall bear
interest until paid at the rate of 10 percent (10%) per annum. Interest shall
be calculated on a 365 day per year basis and paid for the actual number of days
elapsed (including the first but excluding the last day) during any period and
shall be paid semi-annually on March 31 and September 30 of each year,
commencing September 30, 1997, and with a final interest payment in the amount
of all outstanding interest then unpaid being due on the Maturity Date.
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If a payment of principal or interest falls due on a Saturday, Sunday, or
any other day on which financial institutions are generally not open for
business in Houston, Texas, payment shall be made on the next preceding business
day.
Any amount paid pursuant to Section 2 shall be applied first to any accrued
and unpaid interest then accrued, if any, and, then to the principal amounts due
hereunder in the inverse order of maturity.
2. PREPAYMENT. The Maker may at any time prepay any amount (and reborrow
until the Conversion Date in accordance with the terms hereof) outstanding under
the Note in whole or in part without notice or penalty.
3. SUBORDINATION. The indebtedness evidenced by this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of all the Maker's Senior
Indebtedness, as hereinafter defined.
3.1 Senior Indebtedness. As used in this Note, the term "Senior
Indebtedness" shall mean the principal of, premium, if any, and unpaid interest
on the following, whether outstanding at the date hereof or thereafter incurred,
together with all charges, fees, costs and expenses required to be paid by the
Maker under the terms thereof: (i) indebtedness of the Maker for money borrowed
evidenced by promissory notes, debentures or other written obligations, (ii)
indebtedness of the Maker evidenced by debentures, bonds or other securities
issued under the provisions of an indenture or similar instrument, (iii)
indebtedness of others of any of the kinds described in the preceding clauses
(i) and (iii) assumed or guaranteed by the Maker, and (iv) renewals, extensions
and refundings of, and indebtedness and obligations of a successor person issued
in exchange for or in replacement of, indebtedness or obligations of the kinds
described in the preceding clauses (i) through (iii); provided, however, that
the following shall not constitute Senior Indebtedness; (i) any indebtedness or
obligation as to which, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is expressly provided that such
indebtedness or obligation is subordinate in right of payment to all other
indebtedness of the Maker not expressly subordinated to such indebtedness or
obligation; (ii) any indebtedness or obligation which by its terms refers
explicitly to the Note and states that such indebtedness or obligation shall not
be senior in right of payment thereto; and (iii) any indebtedness or obligation
of the Maker in respect of the Note.
3.2 Prior Payment to Senior Indebtedness Upon Acceleration of the
Note. If this Note is declared due and payable prior to its maturity under
circumstances when Section 3.4 shall not be applicable, the Holder of the Note
shall be entitled to payments only after (i) there shall first have been paid in
full all Senior Indebtedness outstanding, or contingently payable pursuant to a
guaranty or other contingent obligation, at the time such Note becomes due and
payable because of any such event, or (ii) payment or other adequate provision
shall have been provided for in a manner satisfactory to the holders of such
Senior Indebtedness.
3.3 Payment When Senior Indebtedness in Default. If there has
occurred and is continuing a default in the payment of all or any portion of any
Senior Indebtedness, unless and until such default shall have been cured or
waived, the Maker shall not make any payment on or with respect to the Note or
acquire this Note (or any portion thereof) for cash, property, securities or
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otherwise during the period (a "Payment Default Blockage Period") in which such
default is continuing; or (b) if an event (not involving the non-payment of any
Senior Indebtedness) shall have occurred or, with the giving of notice, or
passage of time, or both, would occur, that would allow holders of any Senior
Indebtedness to accelerate or otherwise demand the payment thereof, and, in the
case of this clause (b) the holders of the Senior Indebtedness give written
notice of such event to the Maker (the date that such notice is received by the
Maker is the "Notice Date"), the Maker shall not make any payment on or with
respect to the Note or acquire this Note (or any portion hereof) for cash,
property, securities or otherwise during the period (a "Nonpayment Default
Blockage Period" and together with Payment Default Blockage Period, each also
sometimes herein called a "Blockage Period") commencing on the Notice Date and
ending on the earlier of (1) 180 days after the Notice Date if at the end of
such 180 day period such event is not the subject of judicial proceedings and
such Senior Indebtedness shall not have been accelerated, (2) the date such
event is cured or waived to the satisfaction of the holders of the Senior
Indebtedness, or (3) the date the holders of such Senior Indebtedness shall have
given notice to the Maker of the voluntary termination of such Nonpayment
Default Blockage Period. By virtue of accepting this Note and the benefits
hereof, during any Blockage Period, the Note Holder shall not be entitled, and
will not take any action, including any judicial process, to accelerate, demand
payment or enforce any Indebtedness in respect of this Note or any other claim
with regard to the Note. Interest will accrue on any installment of the
principal (and on the interest) actually payable during any Blockage Period.
Upon the expiration of any Blockage Period, principal and interest will be paid
in accordance with the terms of this Note, except that the principal and
interest payable during the Blockage Period will be deferred, and become
principal due on the Maturity Date. Any such deferred principal shall continue
to bear interest, and any deferred interest shall bear interest. All such
deferred principal and interest amounts shall be payable only on the Maturity
Date. All interest on the deferred interest and principal shall be paid on the
same dates as interest is paid under Section 1 hereof.
3.4 Payment Over of Proceeds Upon Dissolution, Etc. (i) In the event
of any liquidation, dissolution or winding-up of the Maker, or of any execution,
sale, receivership, insolvency, bankruptcy, liquidation, readjustment,
reorganization, or other similar proceeding relative to the Maker or a
substantial part of its property, all principal and interest owing on all Senior
Indebtedness shall first be paid in full before any payment is made upon the
indebtedness evidenced by the Note, and in any event any payment or distribution
of any kind, whether in cash, property or securities (other than in securities
or other evidences of indebtedness, the payment of which is subordinated to the
payment of all Senior Indebtedness which may at the time be outstanding), which
shall be made upon or in respect of the Note shall be paid to the holders of
such Senior Indebtedness for application in payment thereof in accordance with
the priorities then existing among such holders unless and until such Senior
Indebtedness shall have been paid or satisfied in full.
(ii) The consolidation of the Maker with, or the merger of the Maker
into, another person, or the liquidation or dissolution of the Maker following
the transfer of its properties and assets substantially as an entirety to
another person, shall not be deemed a dissolution, winding-up, liquidation,
reorganization, or other similar proceeding for the purposes of this Section if
the person formed by such consolidation or into which the Maker is merged or
which acquires such properties and assets substantially as an entirety, as the
case may be, shall, as a part of such consolidation, merger, or transfer, comply
with the conditions set forth in Section 3.3
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3.5 Subrogation to Rights of Holders of Senior Indebtedness. After
the indefeasible payment in full of all Senior Indebtedness, the Holder of the
Note shall be subrogated (equally and ratably with the holders of all
indebtedness of the Maker which by its express terms is subordinated to Senior
Indebtedness of the Maker to the same extent as the Note is subordinated and
which is entitled to like rights of subrogation) to the rights of the holders of
Senior Indebtedness to receive payments or distributions of assets of the Maker
applicable to the Senior Indebtedness until all amounts owing on the Note shall
be paid in full, and for the purpose of such subrogation, no such payments or
distributions to the holders of Senior Indebtedness by or on behalf of the Maker
or by or on behalf of the Holder of the Note by virtue of this Section which
otherwise would have been made to the Holder of the Note shall, as between the
Maker and the Holder of the Note, be deemed to be payments by the Maker to or on
account of Senior Indebtedness.
3.6 No Waiver of Subordination Provisions. No right of any holder of
any Senior Indebtedness to enforce subordination as herein provided shall at any
time or in any way be affected or impaired by any failure to act on the part of
the Maker or the holders of Senior Indebtedness, or by any noncompliance by the
Maker with any of the terms, provisions and covenants of this Note, regardless
of any knowledge thereof that any such holder of Senior Indebtedness may have or
be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may without the consent of or notice to the
Holder of the Note, without incurring responsibility to the Holder and without
impairing or releasing the subordination provided in this Note or the obligation
hereunder of the Holder of the Note to the holders of Senior Indebtedness, do
any one or more of the following: (i) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Maker and any other person.
3.7 Undertaking. By its acceptance of this Note, the Holder agrees
to execute and deliver such documents as may be reasonably requested from time
to time by the Maker or the lender of any Senior Indebtedness in order to
implement the foregoing provisions of this Section 3.
4. DEFAULT.
4.1 Events of Default. The following events or actions shall
constitute an event of default ("Events of Default"):
(i) If the Maker shall default in the payment of any installment of
interest on the Note for more than 10 days after the same shall have become due
and payable; or
(ii) If the Maker shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or shall file a voluntary petition in bankruptcy, or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
dissolution or similar
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relief under any present or future statute, law or regulation, or shall file any
answer admitting the material allegations of a petition filed against the Maker
in any such proceeding, or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of the Maker or of all or any
substantial part of the properties of the Maker, or the Maker or its directors
or majority stockholders shall take any action providing for the dissolution or
liquidation or suspension of the business of the Maker; or
(iii) If within sixty (60) days after the commencement of any
proceeding against the Maker seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such proceeding shall not have
been dismissed, or if, within sixty (60) days after the appointment without the
consent or acquiescence of the Maker of any trustee, receiver or liquidator of
the Maker or of all or any substantial part of the properties of the Maker, such
appointment shall not have been vacated.
4.2 Remedies Upon Default. If any Event of Default shall occur, the
holder of the Note may, by written notice to the Maker, declare the principal
amount of the Note to be due and payable. Subject to the foregoing and subject
to the subordination provisions herein, thereafter, the holder of such
accelerated Note may proceed to protect and enforce its rights under the Note by
a suit in equity, action at law or other appropriate proceeding whether for the
specific performance of any agreements contained herein or for an injunction
against a violation of any of the terms or provisions hereof; or in aid of the
exercise of any power granted hereby or at law; provided, however, than any sums
otherwise payable to or collectible by the holder shall be subject to the
subordination provisions of the Note and be held for the benefit of holders of
Senior Indebtedness as provided in the Note. No right shall operate as a waiver
thereof or otherwise prejudice the rights of such holder and no consent or
waiver shall extend beyond the particular case and purpose involved. No remedy
conferred hereby shall be exclusive of any other remedy referred to herein or
now or hereafter available at law, in equity, by statute or otherwise.
5. WAIVER PROVISIONS/COSTS. Maker and any and all endorsers and
guarantors of this Note waive presentment for payment, notice of nonpayment,
notice of intent to accelerate and notice of acceleration, protest, notice of
protest, notice of dishonor or nonpayment, bringing of suit, diligence in taking
any action to collect amounts called for hereunder or enforcing any of the
security hereof, and agree to any substitution, exchange or release of any of
such security or the release of any party primarily or secondarily liable hereon
and further agree that it will not be necessary for any holder hereof, in order
to enforce payment by them of this Note, to first institute suit or exhaust its
remedies against any maker or others liable herefor, or to enforce its rights
against any security hereof, and consent to any extensions or postponements of
time of payment of this Note or any other indulgences with respect hereto,
without notice thereof to any of them and hereby bind themselves, in solido for
the payment hereof in principal, interest, costs and attorneys' fees, and shall
be directly and primarily liable for the payment of all sums owing and to be
owing hereon, regardless of and without any notice, diligence, act or omission
as or with respect to the collection of any amount called for hereunder or in
connection with any lien at any time existing as security for any amount called
for hereunder.
6. CHOICE OF LAW. THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN AND IS
INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF SUCH STATE.
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IN WITNESS WHEREOF, the Maker has caused this Note to be issued this 25th
day of February, 1998.
HORIZON OFFSHORE, INC.
By: /s/ BILL LAM
----------------------------------
Bill Lam
President
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EXHIBIT 11.1
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF NET INCOME
(LOSS) PER SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 20, 1995) YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, 1996 1997
------------------- ------------
<S> <C> <C>
NET INCOME (LOSS)............................. $ (9,580) $ 2,276
=========== ===========
Weighted average shares outstanding........... 11,000,000 11,256,373
Effect of nominal issuance of shares pursuant
to warrant issued in conjunction with the
Company's recapitalization in 1997........... 2,750,000 2,520,834
----------- -----------
SHARES USED IN COMPUTING NET INCOME (LOSS) PER
SHARE........................................ 13,750,000 13,777,207
=========== ===========
NET INCOME (LOSS) PER SHARE................... $ (0.70) $ 0.17
=========== ===========
</TABLE>
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Houston, Texas
March 6, 1998
