================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-23653
------------------------
HORIZON OFFSHORE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0487309
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2500 CITYWEST BOULEVARD, SUITE 2200
HOUSTON, TEXAS 77042
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(713) 361-2600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
The number of shares of the registrant's Common Stock outstanding as of
August 12, 1999 was 18,800,980.
================================================================================
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 7,641 $ 9,649
Accounts receivable --
Contract receivables.......... 16,651 25,549
Costs in excess of billings... 14,183 9,546
Related parties............... 136 82
Income taxes receivable............ 481 481
Other current assets............... 618 642
----------- ------------
Total current assets.......... 39,710 45,949
PROPERTY AND EQUIPMENT, net............. 158,822 145,680
OTHER ASSETS............................ 6,085 2,040
----------- ------------
$ 204,617 $193,669
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................... $ 3,206 $ 7,654
Accrued liabilities................ 3,582 5,086
Accrued job costs.................. 10,162 10,334
Billings in excess of costs........ 1,578 2,608
Current maturities of long-term
debt.............................. 9,694 7,606
----------- ------------
Total current liabilities..... 28,222 33,288
LONG-TERM DEBT, net of current
maturities............................ 74,722 62,268
DUE TO RELATED PARTIES.................. 32 20
DEFERRED INCOME TAXES................... 4,500 3,633
----------- ------------
Total liabilities............. 107,476 99,209
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value,
5,000,000 shares authorized,
none issued and outstanding...... -- --
Common stock, $1 par value,
35,000,000 shares authorized,
19,826,480 shares issued at June
30, 1999 and December 31, 1998... 9,119 9,119
Additional paid-in capital......... 87,891 87,767
Retained earnings.................. 6,857 5,156
Treasury stock, 1,025,500 shares at
June 30, 1999 and 1,155,000 shares
at December 31, 1998.............. (6,726) (7,582)
----------- ------------
Total stockholders' equity.... 97,141 94,460
----------- ------------
$ 204,617 $193,669
=========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CONTRACT REVENUES.................... $ 23,437 $ 34,311 $ 35,793 $ 52,922
COST OF CONTRACT REVENUES............ 16,603 25,520 26,693 38,747
-------------- -------------- -------------- --------------
Gross profit.................... 6,834 8,791 9,100 14,175
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,129 1,803 4,470 3,742
-------------- -------------- -------------- --------------
Operating income................ 4,705 6,988 4,630 10,433
OTHER INCOME (EXPENSE):
Interest expense................ (1,508) (380) (2,467) (1,214)
Interest income and other....... 302 70 405 103
-------------- -------------- -------------- --------------
NET INCOME BEFORE INCOME TAXES....... 3,499 6,678 2,568 9,322
PROVISION FOR INCOME TAX............. 1,194 1,879 867 1,879
-------------- -------------- -------------- --------------
NET INCOME........................... $ 2,305 $ 4,799 $ 1,701 $ 7,443
============== ============== ============== ==============
NET INCOME PER SHARE -- BASIC AND
DILUTED............................ $ 0.12 $ 0.24 $ 0.09 $ 0.44
============== ============== ============== ==============
SHARES USED IN COMPUTING NET INCOME
PER SHARE --
BASIC AND DILUTED.................. 18,870,580 19,608,607 18,768,758 16,935,596
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 1,701 $ 7,443
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities --
Depreciation and amortization... 3,361 1,515
Deferred income taxes........... 867 1,102
Changes in operating assets and
liabilities --
Accounts receivable........... 8,844 (9,491)
Costs in excess of billings... (4,637) (17,256)
Billings in excess of costs... (1,030) (408)
Other current assets.......... 24 (458)
Accounts payable.............. (4,448) (305)
Accrued liabilities........... (1,504) 9,398
Accrued job costs............. (172) 12,534
Accrued interest.............. -- (673)
Due to related parties........ 12 --
Income taxes payable.......... -- 511
---------- ----------
Net cash provided by
operating activities.... 3,018 4,728
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases and additions to
equipment....................... (15,240) (55,768)
Drydock costs...................... (4,060) (601)
Purchase of other assets........... (250) 96
---------- ----------
Net cash used in investing
activities.............. (19,550) (56,273)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings under notes payable and
long-term debt.................. 18,000 13,954
Loan fees.......................... -- (792)
Principal payments on long-term
debt............................ (4,258) (24,232)
Issuance of common stock........... -- 950
Initial public offering proceeds,
net............................. -- 68,814
Purchase of treasury stock......... (18) --
---------- ----------
Net cash provided by
financing activities.... 14,524 58,694
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (2,008) 7,149
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 9,649 2,846
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 7,641 $ 9,995
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest............. $ 2,967 $ 1,914
Cash paid for income taxes......... $ -- $ 265
Non-cash investing and financing
activities:
Purchase and additions to
equipment with the issuance of
notes payable.................. $ -- $ 24,097
Purchase and additions to
equipment with the issuance of
treasury stock................. $ 998 $ --
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated interim financial statements included herein have been
prepared by Horizon Offshore, Inc. (a Delaware corporation) and its subsidiaries
(Horizon or the Company), and are unaudited, except for the balance sheet at
December 31, 1998, which has been prepared from the audited financial
statements. In the opinion of management, the unaudited consolidated interim
financial statements include all adjustments necessary for a fair presentation
of the financial position as of June 30, 1999, the statements of operations for
each of the three and six month periods ended June 30, 1999 and 1998, and the
statements of cash flows for the six month periods ended June 30, 1999 and 1998.
Although management believes the unaudited interim related disclosures in these
consolidated interim financial statements are adequate to make the information
presented not misleading, certain information and footnote disclosures normally
included in annual audited financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the rules of the Securities and Exchange Commission. The results of
operations for the six months ended June 30, 1999 are not necessarily indicative
of the result to be expected for the entire year ending December 31, 1999. The
consolidated interim financial statements included herein should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's 1998 Annual Report on Form 10-K.
ORGANIZATION
Horizon provides 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, and installing and salvaging
production platforms and other marine structures. Work is performed primarily on
a fixed-price or day-rate basis or a combination of these.
In April 1998, the Company completed its initial public offering (the
Offering) of 5,750,000 shares of its common stock at $13.00 per share and
received $68.6 million in net proceeds. The Company used the net proceeds of the
Offering to repay $23.8 million of indebtedness and to acquire the Stephaniturm,
a 230-foot diving support vessel, for $18.3 million. The remaining Offering
proceeds were used to upgrade and expand the Company's fleet and operating
capabilities.
INTEREST CAPITALIZATION
Interest is capitalized on the average amount of accumulated expenditures
for equipment that is undergoing major modification and refurbishment 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 three and six month periods ended June 30, 1999 is net of $103,000 and
$667,000 of capitalized interest, respectively. Interest capitalized during the
three and six month periods ended June 30, 1998 was $145,000 and $293,000,
respectively.
5
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
Barges, boats and related
equipment.......................... $ 157,496 $141,436
Land and buildings................... 7,295 7,084
Machinery and equipment.............. 245 245
Office furniture and equipment....... 1,215 1,121
Leasehold improvements............... 1,330 1,330
---------- ------------
167,581 151,216
Less -- Accumulated depreciation..... (8,759) (5,536)
---------- ------------
Property and equipment, net.......... $ 158,822 $145,680
========== ============
During the six months ended June 30, 1999, the Company spent $16.2 million
for vessel acquisitions, improvements and refurbishments to its fleet and for
improvements to its marine base in Port Arthur, Texas.
In April 1999, the Company purchased the Brazos Horizon, a pipelay/pipebury
barge for $5.8 million, which consisted of $4.8 million in cash and 133,300
shares of the Company's common stock with a fair value of $1.0 million. Treasury
stock was re-issued in this transaction.
1. STOCKHOLDERS' EQUITY
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. No options to purchase common stock were granted prior to April 1998. The
Company had outstanding options covering an aggregate of 1.2 million shares of
common stock and 0.1 million shares were exercisable as of June 30, 1999. There
are no material differences in basic EPS and diluted EPS for all periods
presented. Excluded from the EPS calculation is 0.7 million options which are
antidilutive.
TREASURY STOCK
In July 1998, the board of directors approved the repurchase of up to $10
million of the Company's outstanding common stock. Shares have been purchased
from time to time, subject to market conditions, in the open market or in
privately negotiated transactions. As of June 30, 1999, the Company had
repurchased 1,158,800 shares of common stock for a total cost of $7.6 million,
and the Company re-issued 133,300 shares of treasury stock in connection with
the purchase of the Brazos Horizon. As of June 30, 1999, the Company's treasury
stock consisted of 1,025,500 shares at a cost of $6.7 million. The Company
records inventory of treasury stock under the average cost basis.
4. RELATED PARTY TRANSACTIONS
The Company has chartered the Stephaniturm to Det Sondenfjelds-Norske
Dampskibsselskab ASA (DSND) until December 31, 1999, with a cancellation
provision at September 30, 1999, upon payment by DSND of a $250,000 cancellation
fee. The Company recognized $1.5 million in revenues and $0.9 million in gross
profit during the six months ended June 30, 1999, related to this charter. The
Company recognized
6
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$1.8 million in revenues and $1.5 million in gross profit related to this
charter for the six months ended June 30, 1998.
In August 1998, the Company entered into a master services agreement with
Odyssea Marine, Inc. (Odyssea), an entity wholly-owned by Westgate
International, L.P., and a subsidiary of Elliott Associates, L.P., the Company's
principal stockholders (Principal Stockholders), to charter certain marine
vessels from Odyssea. As of June 30, 1999, the Company owed Odyssea $0.1 million
as a result of services performed under this agreement, compared to $1.1 million
at December 31, 1998. During the six months ended June 30, 1999, Odyssea billed
Horizon $1.7 million and Horizon paid Odyssea $2.7 million for services rendered
under the agreement.
In August 1998, the Company entered into an agreement with Prime Natural
Resources, Inc. (Prime), an entity that is majority-owned by a subsidiary of one
of the Principal Stockholders, to perform marine construction work. Prime awards
contracts to Horizon on the basis of a competitive bid process. As of June 30,
1999, the outstanding receivable balance from Prime was $1.8 million, compared
to $1.3 million at December 31, 1998. The Company billed Prime $2.7 million for
services rendered under the agreement during the first half of 1999.
In the opinion of management of the Company, all of the transactions
described above were effected on terms at least as favorable to the Company as
those which could have been obtained from unaffiliated third parties.
7
<PAGE>
ITEM 2. 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 AND THE
DISCUSSION UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" INCLUDED IN THE COMPANY'S 1998 ANNUAL REPORT ON FORM
10-K. 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.
GENERAL
Horizon provides marine construction services to the oil and gas industry
primarily in the Gulf of Mexico. The Company's marine fleet is used to perform a
wide range of marine construction activities, including installation of marine
pipelines to transport oil and gas from newly installed production platforms and
other subsea production systems, and the installation and abandonment of
production platforms.
The Company's management team has aggressively expanded the Company's
operations. Horizon currently has a fleet of eleven vessels, ten of which were
operational during the second quarter. These vessels are capable of providing a
full range of pipeline and derrick services in varying water depths, and
included five pipelay/pipebury barges, a dedicated pipebury barge, two derrick
barges and two diving support vessels. In April 1999, the Company purchased the
Brazos Horizon, a pipelay/pipebury barge. The Company's expanded fleet competes
in the Gulf for substantially all pipeline installation projects in water depths
up to 850 feet. The Company also competes for projects in selected international
markets. Horizon has two derrick barges with lift capacities up to 550 and 800
tons deployed.
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.
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 because the most favorable weather
conditions for the Company's services generally occur during the second and
third quarters of the calendar year. Full year results are not a direct multiple
of any quarter or combination of quarters because of this seasonality.
RESULTS OF OPERATIONS
The discussion below describes the Company's results of operations.
Revenues and profits declined in the first half of 1999 compared to 1998 as
offshore construction activity in the Gulf decreased primarily in response to
lower oil and gas prices in late 1998 and early 1999. Reduced demand for
construction and lower margins bid on jobs impacted results for the first six
months of 1999.
With recent improvements in energy prices, some oil and gas companies
active in the Gulf have substantially increased their capital budgets for the
remainder of 1999. Horizon intends to focus on its established relationships
with many of these companies to capitalize on any increased construction
spending. Horizon began this year with a backlog of $19.0 million and ended the
second quarter of 1999 with a backlog of $33.0 million. The Company believes
this substantial increase in backlog is a result of the historical peak
construction season in the Gulf and the improvement in energy prices.
The Company's vessel acquisitions have expanded its operating capabilities
and increased its operating cost structure. The aggregate amount of selling,
general and administrative expenses has increased to support this growth. During
the first six months, the Company deployed two additional vessels, the Brazos
Horizon, a pipelay/pipebury barge, and the Pacific Horizon, an 800-ton derrick
barge. The Company's fleet
8
<PAGE>
expansion, along with reduced offshore construction demand, resulted in a
decrease in fleet utilization during the first six months of 1999 compared to
last year. The lower utilization for the pipelay vessels was at least partially
offset by increased utilization of the Company's derrick vessels. The Pacific
Horizon, an 800-ton derrick barge, successfully completed nine projects in the
second quarter.
Horizon has continued its expansion efforts into selected international
markets during the second quarter of 1999. An Ecuadorian oil and gas company has
signed a letter of intent to award Horizon a contract to transport and install a
production platform in Ecuador. This demonstrates the Company's commitment to
international expansion in Latin and South America. The Company is also
continuing its business development efforts in West Africa.
A weakness in energy prices or a prolonged decline in offshore drilling and
exploration could adversely affect the Company's future revenues and
profitability. In late 1998 and the first half of 1999, the Company experienced
a decline in demand for its marine construction services in the Gulf as oil and
gas companies reduced their levels of capital expenditures. The Company expects
reduced demand for its services to impact its results of operations for the
remainder of 1999.
QUARTER ENDED JUNE 30, 1999 COMPARED TO THE QUARTER ENDED JUNE 30, 1998
CONTRACT REVENUES. Contract revenues were $23.4 million for the quarter
ended June 30, 1999, compared to $34.3 million for the quarter ended June 30,
1998. Revenues for the second quarter of 1999 declined as a result of reduced
demand for offshore construction in the Gulf of Mexico.
GROSS PROFIT. Gross profit was $6.8 million (29.2% of contract revenues)
for the quarter ended June 30, 1999, compared to a gross profit of $8.8 million
(25.6% of contract revenues) for the quarter ended June 30, 1998. Lower margins
bid on jobs and the Company's increased operating cost structure associated with
its fleet expansion has resulted in lower gross profit. However, the increase in
gross profit as a percent of contract revenues was attributable to a major
project, which consists of laying and burying 80 miles of 20-inch pipeline to a
water depth of 365 feet in the Gulf of Mexico.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $2.1 million (9.1% of contract revenues)
for the three months ended June 30, 1999 from $1.8 million (5.3% of contract
revenues) for the same period in 1998, primarily due to the addition of
personnel and other expenses associated with the growth of the Company and the
fleet expansion. The decrease in revenues and the increase in the operating cost
structure caused selling, general and administrative expenses to increase
substantially as a percent of contract revenues.
INTEREST EXPENSE. Interest expense was $1.5 million for the three months
ended June 30, 1999, net of $0.1 million interest capitalized, and $0.4 million
for the same period last year, net of $0.1 million interest capitalized. The
Company's total outstanding debt was $84.4 million at June 30, 1999 compared to
$53.3 million at June 30, 1998. The outstanding debt increased significantly as
a result of the vessel acquisitions and improvements made to expand the
capabilities of the Company's fleet.
OTHER INCOME. Included in other income is interest income on cash
investments for the three months ended June 30, 1999 and the three months ended
June 30, 1998 is $144,000 and $70,000 respectively.
INCOME TAXES. The Company uses the liability method of accounting for
income taxes. For the quarter ended June 30, 1999, the Company recorded a
federal income tax provision of $1.2 million, at a net effective rate of 34.1%
on a pre-tax income of $3.5 million. For the quarter ended June 30, 1998, the
Company recorded a federal income tax provision of $1.9 million, at a net
effective rate of 28.1% due to losses carried forward from previous years. A
valuation allowance was previously established to offset the Company's net
deferred tax assets, including those related to loss carryforwards, to the
extent they were not realizable through the sale of appreciated assets at June
30, 1998.
NET INCOME. Net income was $2.3 million, or $0.12 per share (computed
based upon 18,870,580 shares), for the quarter ended June 30, 1999, compared to
a net income for the quarter ended June 30, 1998 of $4.8 million, or $0.24 per
share (computed based upon 19,608,607 shares). The decrease in net income is due
to the decline in revenues and gross profit.
9
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
CONTRACT REVENUES. Contract revenues were $35.8 million for the six months
ended June 30, 1999, compared to $52.9 million for the six months ended June 30,
1998. The Company's results of operations for the first half of 1999 reflect the
reduced demand for offshore construction in the Gulf of Mexico earlier in the
year.
GROSS PROFIT. Gross profit was $9.1 million (25.4% of contract revenues)
for the first six months of 1999, compared to a gross profit of $14.2 million
(26.8% of contract revenues) for the same period of 1998. The impact of reduced
demand for marine construction in the Gulf and lower margins bid on jobs
resulted in decreased gross profit. The Company's increased operating cost
structure associated with its fleet expansion has also decreased gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $4.5 million (12.5% of contract revenues)
for the six months ended June 30, 1999 from $3.7 million (7.1% of contract
revenues) for the same period of 1998 primarily due to the addition of personnel
and other expenses associated with the growth of the Company. The decrease in
revenues and the increase in the operating cost structure caused selling,
general and administrative expenses to increase substantially as a percent of
contract revenues.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 1999
was $2.5 million net of $0.7 million of interest capitalized. Interest expense
was $1.2 million for the six months ended June 30, 1998, net of $0.3 million of
interest capitalized. Interest expense increased during the first six months of
1999 due to the Company's debt borrowings for vessel acquisitions and
improvements made to expand the Company's fleet and improvements to the marine
base in Port Arthur, Texas.
OTHER INCOME. Included in other income is interest income on cash
investments for the six months ended June 30, 1999 and the six months ended June
30, 1998 is $233,000 and $103,000 respectively.
INCOME TAXES. The Company uses the liability method of accounting for
income taxes. For the six months ended June 30, 1999, the Company recorded a
federal income tax provision of $0.9 million, at a net effective rate of 33.8%
on pre-tax income of $2.6 million. For the same period last year, the Company
recorded a federal income tax provision of $1.9 million, at a net effective rate
of 20.2% on pre-tax income of $9.3 million. Prior to 1998, a valuation allowance
was established to offset the Company's net deferred tax assets, including those
related to loss carryforwards, to the extent they were not realizable through
the sale of appreciated assets. The Company utilized net operating loss
carryforwards that partially offset income taxes in the first six months of
1998.
NET INCOME. Net income was $1.7 million, or $0.09 per share (computed
based on 18,768,758 shares), for the six months ended June 30, 1999, compared to
net income for the six months ended June 30, 1998 of $7.4 million, or $0.44 per
share (computed based on 16,935,596 shares). The decrease in net income is due
to the decline in revenues and gross profit and the increase in operating
expenses.
LIQUIDITY AND CAPITAL RESOURCES
In December 1998, Horizon entered into a loan agreement with The CIT Group
providing for a $60 million term loan (the CIT Term Loan) at a rate of LIBOR
plus 2.65%. Initially, the Company borrowed $50 million in December 1998, and
borrowed an additional $5 million in March 1999 upon the completion of the
Pacific Horizon. In May 1999, the terms of this loan were amended to increase
the amount that may be borrowed to $73.8 million and the Company borrowed an
additional $13.8 million. The outstanding balance on the CIT Term Loan at June
30, 1999 was $65.7 million. The CIT Term Loan provides for additional borrowings
of $5 million upon deployment of the Phoenix Horizon. The first advance of $50
million under the CIT Term Loan is due in 84 monthly principal installments of
$463,000, the second advance of $5 million is due in 84 monthly principal
installments of $46,000, and the third advance of $13.8 million is due in 84
monthly principal installments of $128,000. The remaining principal balance is
due at the end of 84 months. No borrowings were outstanding under the $30
million revolving note payable to Den norske Bank (the DNB Revolver) at June 30,
1999.
10
<PAGE>
In 1997, one of the Principal Stockholders issued letters of credit and
provided guarantees to secure Horizon's notes payable to two foreign marine
companies pursuant to a settlement agreement. During 1998, Den norske Bank
issued two letters of credit on behalf of the Company to secure any obligation
paid by the Principal Stockholder under their letters of credit. These letters
of credit are deducted from the Company's borrowing base calculation under the
DNB Revolver.
Both the CIT Term Loan and the DNB Revolver require that certain conditions
be met in order for the Company to obtain advances under the loans. These loans
are secured by substantially all assets of the Company, including mortgages on
all vessels owned by the Company, as well as accounts receivable. Both loan
facilities require the Company to maintain certain financial ratios and contain
certain covenants that limit the Company's ability to incur additional
indebtedness, pay dividends, create certain liens, sell assets and make capital
expenditures. Horizon was in compliance with all loan covenants as of June 30,
1999.
In July 1998, the board of directors approved the repurchase of up to $10
million of the Company's outstanding common stock. As of June 30, 1999, the
Company had repurchased 1,158,800 shares of common stock for a total cost of
$7.6 million through borrowings provided by a wholly-owned subsidiary of one of
the Principal Stockholders. The $7.6 million was repaid from proceeds of the CIT
Term Loan in December 1998. The Company purchased 3,800 shares of common stock
during the first quarter of 1999 with cash provided by operations. In April
1999, the Company re-issued 133,300 shares of treasury stock in connection with
the purchase of the Brazos Horizon. The Company records the inventory of
treasury stock under the average cost basis.
Horizon had working capital of $11.5 million at June 30, 1999, compared to
working capital of $12.7 million at December 31, 1998. The second quarter
decline in working capital was primarily due to an increase in the current
maturities of long-term debt.
Cash provided by operations was $3.0 million for the six months ended June
30, 1999, compared to $4.7 million for the six months ended June 30, 1998. The
Company has used borrowings to fund capital expenditures. Cash used for capital
expenditures during the six months ended June 30, 1999 totaled $15.3 million,
compared to $55.8 million for the six months ended June 30, 1998. Principal
payments on long-term debt were $4.3 million and $24.2 million during the first
half of 1999 and 1998, respectively.
Planned capital expenditures for the remainder of 1999 are estimated to
total approximately $4.5 million, which include expenditures to complete
improvements to the Company's existing fleet. Management believes that cash
generated from operations, together with available borrowings under its loan
facilities, will be sufficient to fund the Company's currently planned capital
projects and working capital requirements for 1999. 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 equity or debt financing depending on the size of any transaction.
YEAR 2000
The Company has implemented a Year 2000 project plan to identify and assess
its risks associated with Year 2000 issues. Under the plan, the Company assessed
its major information and computing systems and has updated or replaced
applications that were not Year 2000 compliant. The Company has also contacted
its key vendors and customers to assess their efforts and progress with Year
2000 issues. The Company does not anticipate any material effects on its
business, operations or financial condition. Despite efforts to address Year
2000 issues in advance, there can be no assurance that the Company will not
experience unanticipated disruption, negative consequences or costs caused by
undetected errors in the technology used in its internal systems.
11
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 16, 1999, the Company re-issued 133,300 shares of treasury stock
to Terry Offshore, L.L.C. in partial consideration of the purchase of a pipelay
barge in reliance on Sections 4(2) and 4(6) under the Securities Act of 1933, as
amended, and the rules promulgated thereunder.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
The Company was not engaged in any transactions requiring disclosure at
June 30, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of the Company was held on May 6,
1999 (The "Annual Meeting").
(b) At the Annual Meeting, Gunnar Hirsti was re-elected as a director of
the Company to serve until the annual meeting of stockholders for the
year 2002. In addition to the director elected at the Annual Meeting,
the terms of Jonathan D. Pollock, Bill J. Lam, James Devine and Edward
L. Moses, Jr. continued after the Annual Meeting.
ITEM 5. OTHER INFORMATION
Forward-Looking Statements
In addition to historical information, Management's Discussion and Analysis
of Financial Condition and Results of Operations includes certain
forward-looking statements regarding events and financial trends that may affect
the Company's future operating results and financial position. Such
forward-looking statements are subject to uncertainties that could cause the
Company's actual results to differ materially from such statements. Such
uncertainties include but are not limited to: industry conditions and
volatility; prices of oil and gas; the Company's ability to obtain and the
timing of new projects, and changes in competitive factors, including the level
of capital expenditures by oil and gas companies due to fluctuations in the
price of oil and gas; risks of growth strategy, including the risks of rapid
growth; operating hazards, including the unpredictable effect of natural
occurrences on operations and the significant possibility of accidents resulting
in personal injury and property damage; seasonality of the offshore construction
industry in the Gulf; the Company's ability to attract and retain skilled
workers; the need for additional financing; the Company's lack of operating
history; contract bidding risks; percentage-of-completion accounting; continued
active participation of the Company's executive management and key personnel;
the effect on the Company's performance of regulatory programs and environmental
matters; risks involved in the Company's operations expansion into international
offshore oil and gas producing areas; and risks involved in joint venture
operations, including difficulty in resolving disputes with present partners or
reaching agreements with future partners. These and other uncertainties related
to the business are described in detail under the heading "Risk Factors" in
the Company's 1998 Annual Report on Form 10-K. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to update any of its
forward-looking statements for any reason.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
10.1 Amended and Restated Credit Agreement dated May 25, 1999 among
Horizon Vessels, Inc., Horizon Offshore Contractors, Inc., The CIT
Group/Equipment Financing, Inc., as agent, and the other lenders
specified therein. (2)
10.2 Termination Agreement dated July 19, 1999 among Det
Sondenfjelds-Norske Dampskibsselskab ASA and the Company (2)
27.1 Financial Data Schedule (2)
- ------------
1 Incorporated by reference to the Company's Registration Statement on Form S-1
(Registration Statement No. 333-43965).
2 Filed herewith
(b) Reports on Form 8-K:
None.
13
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
HORIZON OFFSHORE, INC.
By: /s/ DAVID W. SHARP
DAVID W. SHARP
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: August 12, 1999
14
EXHIBIT 10.1
AMENDMENT AND RATIFICATION OF GUARANTY
This Amendment and Ratification of Guaranty (this "Ratification") is made
and entered into as of the 25 day of May, 1999 by and between HORIZON OFFSHORE,
INC. (the "Guarantor") in favor of THE CIT GROUP/EQUIPMENT FINANCING, INC., a
New York corporation, as Agent for the Lenders named in the Loan Agreement
described below (the "Agent"). For and in consideration of the mutual covenants
and agreements herein contained, the Guarantor hereby ratifies as of the date of
this Ratification that certain Guaranty (the "Guaranty"), as amended and
restated, executed by Guarantor in favor of the Agent dated as of December 30,
1998.
WHEREAS, Guarantor, HORIZON OFFSHORE CONTRACTORS, INC. and HORIZON
VESSELS, INC. (the "Borrowers"), the Lenders and the Agent entered into that
certain Loan Agreement dated as of December 30, 1998 (the "Original Loan
Agreement") as amended and restated;
WHEREAS, the Borrowers, the Lenders and the Agent entered into that
certain Amendment No. 1 to Loan Agreement dated of even date herewith
("Amendment No. 1") amending the Original Loan Agreement, to, among other
things, add Transamerica Equipment Financial Services Corporation as a Lender
and amend certain payment terms. The Agent has required execution of this
Ratification by Guarantor to confirm the continued application of the Guaranty
to the Loan made pursuant to the Original Loan Agreement, as amended by
Amendment No. 1 (as so amended, the "Loan Agreement").
NOW THEREFORE, the parties agree as follows:
1. Section 12 of the Guaranty is amended to read as follows:
CONTINUING GUARANTY. This Guaranty is a continuing guaranty
and shall (i) remain in full force and effect until payment in full
of the Obligations and payment in full of all other amounts due
under this Guaranty, (ii) be binding upon the Guarantor, its
successors or assigns, as the case may be, and (iii) inure to the
benefit of and be enforceable by the Agent and its respective
successors, transferees and assigns, PROVIDED, HOWEVER, that the
Guarantor may not transfer its obligations under this Guaranty or
any part of it without the prior written consent of the Agent.
<PAGE>
2. The Guarantor agrees that the terms, conditions, representations and
warranties of the Guaranty shall remain unchanged, and the terms, conditions,
representations, warranties and covenants of the Guaranty are true as of the
date hereof, are ratified and confirmed in all respects and shall be continuing
and binding upon the Guarantor and the Guaranty shall be fully applicable to the
Loan made pursuant to the Loan Agreement, as it may be amended or restated from
time to time, subject only to the limitations of liability set forth in the
Guaranty.
3. All capitalized terms used in this Ratification of Guaranty and not
defined herein are used with the meanings given to them in the Loan Agreement.
4. This Ratification shall be deemed to be a contract under and subject
to, and shall be construed for all purposes in accordance with the internal laws
of the State of New York.
IN WITNESS WHEREOF, the parties have executed this Ratification to be
executed as of the 25th day of May, 1999.
HORIZON OFFSHORE, INC.
By:
Name:
Title:
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By:
Name:
Title:
2
<PAGE>
AMENDMENT NO. 1
TO
LOAN AGREEMENT
AMENDMENT NO. 1 dated as of January __, 1999 ("Amendment No. 1") to the
Loan Agreement dated as of December 30, 1998 (the "Loan Agreement"), among
HORIZON VESSELS, INC., a Delaware corporation, HORIZON OFFSHORE CONTRACTORS,
INC., a Delaware corporation (together, the "Borrowers"), HORIZON OFFSHORE,
INC., a Delaware corporation (the "Guarantor"), THE CIT GROUP/EQUIPMENT
FINANCING, INC., a New York corporation ("CIT"), HELLER FINANCIAL LEASING, INC.,
a Delaware corporation, U.S. BANCORP LEASING & FINANCIAL, an Oregon corporation
and SAFECO CREDIT COMPANY, INC., a Washington corporation (collectively, the
"Original Lenders") and CIT as Agent for the Lenders (the "Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Loan Agreement, the Lenders made available to the
Borrowers a loan facility of up to USD 60,000,000 (the "Loan"), as evidenced by
the secured promissory note of the Borrowers dated December 30, 1998 (the
"Note"); and
WHEREAS, CIT wishes to assign a portion of its Commitment to TransAmerica
Equipment Financial Service Corporation, a Delaware corporation (the "New
Lender", and together with the Original Lenders, the "Lenders"), and the New
Lender wishes to assume such Commitment.
NOW THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the Loan Agreement as follows:
1. The Definitions of the Loan Agreement are hereby amended as follows:
(a) Each reference in the Loan Agreement to "Lenders" is hereby
amended to include the New Lender.
(b) The definition of "Loan Documents" is hereby amended to read as
follows:
"LOAN DOCUMENTS" means this Agreement, the Mortgages, the
Security Agreement, the Guaranty, the Note, and the Amendment
Documents, as each may be amended, supplemented, restated or
endorsed from time to time.
2. Section 1.3(a) of the Loan Agreement is hereby amended to read as
follows:
<PAGE>
"(a) The Borrowers shall jointly and severally repay the principal amount
of the first Advance in eighty-four (84) consecutive monthly
installments of USD 462,963.00, the amount of the second Advance in
eighty-four (84) consecutive monthly installments of USD 46,296.00
and the amount of the third Advance in eighty-four (84) consecutive
monthly installments of USD 46,296.00, with each such installment to
be paid by the Borrowers to the Agent on a date commencing on the
day which is thirty (30) days after the date of such Advance, and on
the same day of each month thereafter and ending on the Maturity
Date (each such date a "Payment Date"); provided, however, that the
eighty-fourth (84th) installment for each Advance shall be in an
amount sufficient to repay all amounts of principal for such Advance
and, provided further, that the final payment on the Maturity Date
shall be in an amount sufficient to discharge the accrued and unpaid
interest and principal in respect of the Note."
3. Schedule 1 to the Loan Agreement is hereby replaced with Schedule 1
attached to this Amendment No. 1.
4. CONDITIONS PRECEDENT.
4.1 DOCUMENTS REQUIRED AS CONDITIONS PRECEDENT TO AMENDMENT NO. 1. The
effectiveness of the modifications to the Loan Agreement contemplated by this
Amendment No. 1 is subject to the condition precedent that the Agent shall have
received at or prior to the Amendment Date all of the following, each dated on
or before the Amendment Date and each in form and substance satisfactory to the
Agent and its counsel:
(a) Each of the following documents (the ?Amendment Documents?)
shall have been duly authorized and executed with original counterparts
thereof delivered to the Agent:
(i) This Amendment No. 1;
(ii) Amendment No. 1 to the United States First Preferred
Fleet Mortgage;
(iii) Amendment No. 1 to Vanuatu First Preferred Fleet
Mortgage;
(iv) Ratification of Guaranty executed by the Guarantor; and
(v) Assignment and Assumption Agreement executed by the New
Lender.
(b) The representations and warranties contained in Section 3.1 of
the Loan Agreement shall be true on the Amendment Date with the same
effect as though such representations and warranties had been made on and
as of such date, and no Event of Default specified in Article IV of the
Loan Agreement and no event which, with the lapse
2
<PAGE>
of time or the giving of notice and the lapse of time specified in Article
IV of the Loan Agreement, would become such an Event of Default, shall
have occurred and be continuing.
4.2 WAIVER OF CONDITIONS PRECEDENT. All of the conditions precedent
contained in this Section 4 are for the sole benefit of the Agent and the
Lenders and the Agent may waive any of them in its absolute discretion, and on
such conditions as it deems proper.
5. REPRESENTATIONS OF THE BORROWERS AND GUARANTOR. The Borrowers and the
Guarantor represent and warrant that:
(a) Each of the Borrowers and the Guarantor is a corporation, duly
organized and validly existing in good standing under the laws of the
State of Delaware, and has the requisite power and authority (i) to carry
on its business as presently conducted; and (ii) to enter into and perform
its obligations under the Amendment Documents.
(b) The execution, delivery and performance by each of the Borrowers
and the Guarantor of the Amendment Documents and any other instrument or
agreement provided for by this Amendment No. 1 to which it is a party,
have been duly authorized by all necessary corporate action, do not
require stockholder approval other than such as has been duly obtained or
given, do not or will not contravene any of the terms of its Certificate
of Incorporation or Bylaws, and will not violate any provision of law or
of any order of any court or governmental agency or constitute (with or
without notice or lapse of time or both) a default under, or result
(except as contemplated by this Amendment No. 1) in the creation of any
security interests, lien, charge or encumbrance upon any of its properties
or assets pursuant to, any agreement, indenture or other instrument to
which it is a party or by which it may be bound other than is in favor of
the Agent; the Amendment Documents have been duly executed and delivered
by the Borrowers and the Guarantor and constitute the respective legal,
valid and binding agreements, enforceable in accordance with the
respective terms thereof as to which each of the Borrowers and the
Guarantor is a party. The enforceability of this Amendment No. 1, however,
is subject to all applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws affecting the rights or creditors and to
general equity principles.
(c) Except as set forth in the Loan Agreement, there are no suits or
proceedings pending or to its knowledge threatened against or affecting
any Borrower or Guarantor which if adversely determined would have a
material adverse effect upon its business, financial condition or
operations.
(d) Other than such as have been obtained, no license, consent or
approval of any Governmental Agency or other regulatory authority is
required for the execution, delivery or performance of this Amendment No.
1 or any other Amendment Document or any instrument contemplated herein or
therein. The Borrowers are the holder of all certificates and
authorizations of governmental authorities required by law to enable it to
engage in the business transacted by them.
3
<PAGE>
6. EXPENSES. The Borrowers and the Guarantor agree to promptly, whether
or not the modifications to the Loan Agreement contemplated by this Amendment
No. 1 become effective, (x) reimburse the Agent for all fees and disbursements
of external counsel to the Agent and all reasonable out of pocket fees and
disbursements of the Agent incurred in connection with the preparation,
execution and delivery of this Amendment No. 1 and all other documents referred
to herein, and all amendments or waivers to or termination of this Amendment No.
1 or any agreement referred to herein; and (y) reimburse the Agent for all fees
and disbursements of internal and external counsel to the Agent and all
reasonable out of pocket fees, disbursements and travel-related expenses of the
Agent incurred in connection with the protection of the rights of the Agent
under this Amendment No. 1 and all other documents referred to herein, whether
by judicial proceedings or otherwise. The obligations of the Borrowers and the
Guarantor under this Section 6 shall survive payment of the Loan.
7. Wherever and in each such place the term "Loan Agreement" is used
throughout the Loan Agreement, such term shall be read to mean the Loan
Agreement as amended by this Amendment No. 1.
8. Except as specifically amended by this Amendment No. 1, all of the
terms and provisions of the Loan Agreement shall remain in full force and
effect.
9. All capitalized terms used herein but not defined herein shall have the
meanings given to them in the Loan Agreement.
10. THIS AMENDMENT NO. 1 TO LOAN AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 to Loan Agreement on the date first written above.
BORROWERS:
HORIZON OFFSHORE CONTRACTORS, INC.
By:
Name:
Title:
HORIZON VESSELS, INC.
4
<PAGE>
By:
Name:
Title:
GUARANTOR:
HORIZON OFFSHORE, INC.
By:
Name:
Title:
LENDERS:
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By:
Name:
Title:
SAFECO CREDIT COMPANY, INC.
By:
Name:
Title:
U.S. BANCORP LEASING & FINANCIAL
By:
Name:
Title:
HELLER FINANCIAL LEASING, INC.
By:
5
<PAGE>
Name:
Title:
TRANSAMERICA EQUIPMENT FINANCIAL
SERVICE CORPORATION
By:
Name:
Title:
AGENT:
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By:
Name:
Title:
6
<PAGE>
SCHEDULE 1 TO
LOAN AGREEMENT
LENDER PORTION OF COMMITMENT
1. The CIT Group/Equipment
Financing, Inc. .................................. USD 15,000,000
2. Heller Financial
Leasing, Inc. .................................... USD 15,000,000
3. TransAmerica Equipment
Financial Service Corp. .......................... USD 15,000,000
4. U.S. Bancorp Leasing
& Financial ...................................... USD 10,000,000
5. Safeco Credit Company,
Inc .............................................. USD 5,000,000
7
<PAGE>
AMENDMENT NO. 1
TO
FIRST PREFERRED FLEET MORTGAGE
AMENDMENT NO. 1 TO FIRST PREFERRED FLEET MORTGAGE dated January __, 1999
("Amendment No. 1") by HORIZON VESSELS, INC., a Delaware corporation with its
principal place of business at 2500 City West Boulevard, Suite 2200, Houston,
Texas 77042 (the "Shipowner"), to THE CIT GROUP/EQUIPMENT FINANCING, INC., a New
York corporation, as Agent, with an office at 1540 West Fountainhead Parkway,
Tempe, Arizona 85282 (the "Mortgagee").
W I T N E S S E T H:
WHEREAS, the Shipowner is the owner of 100% of the following U.S. flag
vessels (the "Vessels"):
NAME OFFICIAL NO. HAILING PORT
----------------- ------------ -----------------------
CAJUN HORIZON 620491 Houma, La.
AMERICAN HORIZON 294383 Houma, La.
GULF HORIZON 514595 Houston, Tx.
LONE STAR HORIZON 285456 Houston, Tx.
PACIFIC HORIZON 537871 Houston, Tx.
which Vessels have been duly registered in the name of the Shipowner in
accordance with the laws of the United States of America; and
WHEREAS, the Shipowner executed and delivered to the Mortgagee the First
Preferred Fleet Mortgage dated December 30, 1998, covering 100% of each of the
Vessels (the "Mortgage"; and the terms used herein, unless otherwise defined,
being used as defined in the Mortgage); and
WHEREAS, the Shipowner granted the Mortgage to secure, among other things,
payment of all amounts due and owing under the Loan Agreement dated as of
December 30, 1998, as amended (the "Loan Agreement"), among the Shipowner,
Horizon Offshore Contractors, Inc., Horizon Offshore, Inc. and the Mortgagee,
and under the Promissory Note issued by the Shipowner and Horizon Offshore
Contractors, Inc. in connection therewith, as amended and restated (the ?Note?);
and
WHEREAS, a true and correct copy of the Loan Agreement is attached to the
Mortgage as Exhibit A and forms a part thereof; and
<PAGE>
WHEREAS, the Mortgage was received for record on December 30, 1998 at the
United States Coast Guard National Vessel Documentation Office in Falling
Waters, West Virginia and recorded in Book PM-99-02, page 258; and
WHEREAS, pursuant to Amendment No. 1 to Loan Agreement dated as of the
date hereof ("Amendment No. 1") the Lender and the Borrowers have agreed, among
other things, to amend certain provisions of the Loan Agreement.
NOW, THEREFORE, THIS AMENDMENT NO. 1 WITNESSETH:
ARTICLE FIRST
SECTION I. The form of Loan Agreement as Exhibit A to the Mortgage is
hereby supplemented by adding thereto Amendment No. 1 in the form of Exhibit
A to this Amendment No. 1.
SECTION II. Hereinafter each reference in the Mortgage, as amended, to
the Loan Agreement shall refer to the Loan Agreement as amended by Amendment
No. 1.
SECTION III. For the purpose of recording this Amendment No. 1, as
required by 46 U.S. Code Ch. 313, it amends mortgage covenants, the discharge
amount is the same as the total amount; and there is no separate discharge
amount.
ARTICLE SECOND
SECTION 1. All of the covenants and agreements on the part of the
Shipowner which are set forth in, and all of the rights, privileges, powers and
immunities of the Mortgagee which are provided for in the Mortgage are
incorporated herein and shall apply to the Vessels hereby and heretofore
subjected to the lien of the Mortgage and otherwise with the same force and
effect as though set forth at length in this supplement.
SECTION 2. This instrument is executed as and shall constitute an
instrument supplemental to the Mortgage, and shall be construed in connection
with and as part of the Mortgage.
SECTION 3. Except as modified and expressly amended by this Amendment No.
1 and any other supplement, the Mortgage is in all respects ratified and
confirmed and all of the terms, provisions and conditions thereof shall be and
remain in full force and effect.
SECTION 4. THIS AMENDMENT NO. 1 TO FIRST PREFERRED FLEET MORTGAGE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE UNITED STATES OF
AMERICA AND, TO THE EXTENT THEY DO NOT APPLY, TO THE INTERNAL LAWS OF THE STATE
OF NEW YORK.
2
<PAGE>
IN WITNESS WHEREOF, this Amendment No. 1 has been executed and delivered
the day and year first above written.
HORIZON VESSELS, INC.
BY:
NAME:
TITLE:
THE CIT GROUP/EQUIPMENT
FINANCING, INC., as Agent
BY:
NAME:
TITLE:
3
<PAGE>
THE STATE OF TEXAS ]
]
COUNTY OF HARRIS ]
On this ___ day of January, 1999, before me personally came David Sharp,
to me known, who, being by me duly sworn, did depose and say that his address is
2500 CityWest Blvd., Suite 2200, Houston, Texas 77042; that he is the Vice
President of Horizon Vessels, Inc., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto pursuant
to authority granted to him by the Board of Directors of said corporation.
-------------------------------------------
Notary Public, State of Texas
4
<PAGE>
THE STATE OF ARIZONA ]
]
COUNTY OF MARICOPA ]
On this ____ day of January, 1999, before me personally came
_____________________, to me known, who, being by me duly sworn, did depose and
say that his address is 1450 Fountainhead Parkway, Tempe, Arizona 85282; that he
is a Vice President of The CIT Group/Equipment Financing, Inc., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto pursuant to authority granted to him by the Board of Directors of
said corporation.
-------------------------------------------
Notary Public, State of Arizona
5
<PAGE>
AMENDMENT NO. 2
TO
FIRST PREFERRED FLEET MORTGAGE
AMENDMENT NO. 2 TO FIRST PREFERRED FLEET MORTGAGE dated May __, 1999
("Amendment No. 2") by HORIZON VESSELS, INC., a Delaware corporation with its
principal place of business at 2500 City West Boulevard, Suite 2200, Houston,
Texas 77042 (the "Shipowner"), to THE CIT GROUP/EQUIPMENT FINANCING, INC., a New
York corporation, as Agent, with an office at 1540 West Fountainhead Parkway,
Tempe, Arizona 85282 (the "Mortgagee").
W I T N E S S E T H:
A. The Shipowner is the sole-owner of 100% of the following Vanuatu flag
vessels:
NAME OFF. NO. HOME PORT PLACE BUILT GROSS NET
- ------------------- -------- --------- --------------- ----- -----
PHOENIX HORIZON 1037 Port Vila Odense, Denmark 4,998 1,496
Glasgow,
PACIFIC HORIZON 1100 Port Vila Scotland 5950 1750
Rotterdam,
The
CANYON HORIZON 1093 Port Vila Netherlands 5560 4429
Houston,
PEARL HORIZON 1156 Port Vila Texas USA 1027 308
Rotterdam,
The
LONE STAR HORIZON 1157 Port Vila Netherlands 4191 1257
which vessels have been duly documented in the name of the Shipowner in
accordance with the laws of the Republic of Vanuatu (the "Vessels").
WHEREAS, the Shipowner executed and delivered to the Mortgagee the First
Preferred Ship Mortgage dated December 30, 1998 covering 100% of the first three
Vessels named above (the "Mortgage" and the terms herein, unless otherwise
defined, being used as defined in the Mortgage); and
WHEREAS, the Shipowner granted the Mortgage to secure, among other things,
payment of all amounts due and owing under the Loan Agreement dated as of
December 30, 1998, as amended (the "Loan Agreement"), among the Shipowner,
Horizon Offshore Contractors, Inc., Horizon Offshore, Inc., the Lenders named in
the Loan Agreement and the Mortgagee, and under the Promissory Note issued by
the Shipowner and Horizon Offshore Contractors, Inc. in connection therewith, as
amended and restated (the "Note"); and
WHEREAS, a true and correct copy of the Loan Agreement is attached to the
Mortgage as Exhibit A and forms a part thereof; and
<PAGE>
WHEREAS, the Mortgage was received for record on December 30, 1998 with
the Deputy Commissioner of Maritime Affairs of the Republic of Vanuatu at New
York, New York and recorded at Book PM-19, Page 101;
WHEREAS, pursuant to Amendment No. 1 to Loan Agreement dated as of January
30, 1999 ("Amendment No. 1") the Lenders and the Borrowers agreed, among other
things, to amend certain provisions of the Loan Agreement; and
WHEREAS, pursuant to Amendment No. 1 to Mortgage dated February 2, 1999
("Amendment No. 1 to Mortgage") the Shipowner, added the Vanuatu flag vessels
PEARL HORIZON, Official No. 1156 and LONE STAR HORIZON, Official No. 1157 to the
lien and operation of the Mortgage and added Amendment No. 1 to the form of the
Loan Agreement attached as an exhibit to the Mortgage; and
WHEREAS, Amendment No. 1 to Mortgage was received for record on February
10, 1999 with the Deputy Commissioner of Maritime Affairs of the Republic of
Vanuatu at New York, New York and recorded at Book PM 20, Page 5; and
WHEREAS, pursuant to Amendment No. 2 to Loan Agreement dated as of May
___, 1999 ("Amendment No. 2") the Lenders and the Borrowers have agreed, among
other things, to increase the Commitment and to amend certain other provisions
of the Loan Agreement; and
WHEREAS, the Mortgagee requires that the Shipowner add the Vanuatu flag
vessel BRAZOS HORIZON, Official No. 1194 (the "New Vessel," and together with
the Vessels, hereinafter referred to as the "Vessels") to the lien and operation
of the Mortgage.
NOW, THEREFORE, THIS AMENDMENT NO. 2 WITNESSETH:
That, in consideration of the premises and other valuable consideration,
the receipt whereof is hereby acknowledged, and in order to secure the payment
of all amounts due under the Loan Agreement and the Note and all other sums that
may be secured by the Mortgage, the Shipowner has granted, conveyed, mortgaged,
pledged, assigned, transferred, set over and confirmed, and by these presents
does grant, convey, mortgage, pledge, assign, transfer, set over and confirms,
unto the Mortgagee:
The whole of the following vessel:
NAME OFFICIAL NO. HOME PORT PLACE BUILT GROSS NET
- ---- ------------ --------- ----------- ----- ---
BRAZOS HORIZON ..... 1194 Port Vila Tampa, 2,255 667
Florida USA
which vessel has been duly documented in the name of the Shipowner under the
laws of the Republic of Vanuatu, together with all of the boilers, engines,
generators, air compressors, cranes, machinery, masts, spars, rigging, boats,
anchors, cables, chains, tackle, tools, pumps and pumping equipment, apparel,
furniture, fittings and equipment (excluding equipment not owned by the
Shipowner), and all other appurtenances thereunto appertaining or belonging,
whether now owned or hereafter
2
<PAGE>
acquired, whether on board or not, and all additions, improvements, renewals and
replacements hereafter made in or to such vessel, or any part thereof, or in or
to said appurtenances, all of which property shall be deemed to be included in
the term "Vessels" as used in the Mortgage.
TO HAVE AND TO HOLD all and singular the above mortgaged and described
property unto the Mortgagee, to its own use, benefit and behoof forever.
ARTICLE FIRST
SECTION 1. The Granting Clause of the Mortgage is hereby amended by adding
thereto an additional paragraph reading as follows:
"The whole of the following vessel:
NAME OFFICIAL NO. HOME PORT
BRAZOS HORIZON 1194 Port Vila
which vessel has been duly documented in the name of the Shipowner under the
laws of the Republic of Vanuatu, together with all of the boilers, engines,
generators, air compressors, cranes, machinery, masts, spars, rigging, boats,
anchors, cables, chains, tackle, tools, pumps and pumping equipment, apparel,
furniture, fittings and equipment (excluding equipment not owned by the
Shipowner), and all other appurtenances thereunto appertaining or belonging,
whether now owned or hereafter acquired, whether on board or not, and all
additions, improvements, renewals and replacements hereafter made in or to such
vessel, or any part thereof, or in or to said appurtenances, all of which
property shall be deemed to be included in the term "Vessels" as used in the
Mortgage."
SECTION 2. The form of Loan Agreement as Exhibit A to the Mortgage is
hereby supplemented by adding to it Amendment No. 2 in the form of Exhibit A to
this Amendment No. 2.
SECTION 3. Hereinafter each reference in the Mortgage, as amended, to the
Loan Agreement shall refer to the Loan Agreement as amended by Amendment No. 2.
ARTICLE SECOND
SECTION 1. All of the covenants and agreements on the part of the
Shipowner which are set forth in, and all of the rights, privileges, powers and
immunities of the Mortgagee which are provided for in the Mortgage are
incorporated herein and shall apply to the Vessels hereby and any vessel
heretofore subjected to the lien of the Mortgage and otherwise with the same
force and effect as though set forth at length in this supplement.
SECTION 2. This instrument is executed as and shall constitute an
instrument supplemental to the Mortgage, and shall be construed in connection
with and as part of the Mortgage.
SECTION 3. Except as modified and expressly amended by this Amendment No.
1 and any other supplement, the Mortgage is in all respects ratified and
confirmed and all the terms, provisions and conditions thereof shall be and
remain in full force and effect.
3
<PAGE>
ARTICLE THIRD
SECTION 1. Article III, Section 6 of the Mortgage is hereby amended to
read as follows:
"SECTION 6. The maximum principal amount that may be outstanding
under this Mortgage is Seventy-Three Million Eight Hundred Thousand
United States Dollars (USD 73,800,000.00) and for the purpose of
recording this Mortgage, the total amount of this First Preferred
Fleet Mortgage is Seventy-Three Million Eight Hundred Thousand
United States Dollars (USD 73,800,000.00), and interest and
performance of mortgage covenants. The maturity date is June 30,
2006. There is no separate discharge amount."
IN WITNESS WHEREOF, Amendment No. 2 has been executed and delivered on the
day and year date first above written.
HORIZON VESSELS, INC.
BY:
NAME:
TITLE:
THE CIT GROUP/EQUIPMENT
FINANCING, INC., as Agent
BY:
NAME:
TITLE:
4
<PAGE>
THE STATE OF TEXAS ]
]
COUNTY OF HARRIS ]
On this ___ day of May, 1999, before me personally came David Sharp, to me
known, who, being by me duly sworn, did depose and say that his address is 2500
CityWest Blvd., Suite 2200, Houston, Texas 77042; that he is the Vice President
of Horizon Vessels, Inc., the corporation described in and which executed the
foregoing instrument; and that he signed his name thereto pursuant to authority
granted to him by the Board of Directors of said corporation.
-------------------------------------------
Notary Public, State of Texas
4
<PAGE>
THE STATE OF ARIZONA ]
]
COUNTY OF MARICOPA ]
On this ____ day of May, 1999, before me personally came
_____________________, to me known, who, being by me duly sworn, did depose and
say that his address is 1450 Fountainhead Parkway, Tempe, Arizona 85282; that he
is a Vice President of The CIT Group/Equipment Financing, Inc., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto pursuant to authority granted to him by the Board of Directors of
said corporation.
-------------------------------------------
Notary Public, State of Arizona
5
EXHIBIT 10.2
TERMINATION AGREEMENT
This Termination Agreement (the "Agreement"), dated and effective as of
July 19, 1999, is by and among Horizon Offshore, Inc., a Delaware corporation
("Horizon"), Det Sondenfjelds-Norske Dampskibsselskab ASA, a Norwegian
corporation ("DSND"), Highwood Partners, L.P., a Delaware limited partnership
("Highwood"), and Westgate International, L.P., a Cayman Islands exempted
limited partnership ("Westgate").
WITNESSETH:
WHEREAS, the parties hereto entered into an Alliance Agreement dated
December 4, 1997 (the "Alliance Agreement"), pursuant to which DSND was granted,
among other things, the right to receive notice of the intention of Highwood and
Westgate to sell shares of Horizon's common stock, $1.00 par value per share
(the "Common Stock"), and the parties hereto deem it to be in their mutual best
interests to terminate such right as of the date hereof; and
WHEREAS, the parties hereto on that same date entered into a Stockholder's
Agreement (the "Stockholder's Agreement"), pursuant to which, among other
things, DSND was granted certain registration rights and the right to designate
one of Horizon's directors;
WHEREAS, Horizon has, in accordance with the terms of the Stockholder's
Agreement, prepared for filing with the Securities and Exchange Commission a
registration statement on Form S-3 under the Securities Act of 1933 (the
"Registration Statement") with respect to the registration of all of the shares
of Common Stock owned by DSND (the "Shares"), and upon the Registration
Statement becoming effective, DSND intends to sell all of the Shares pursuant to
such Registration Statement; and
WHEREAS, the parties hereto deem it to be in their mutual best interests
to terminate the Stockholder's Agreement and DSND desires to release Horizon and
its affiliates from any claims arising from DSND's ownership of shares of Common
Stock.
NOW, THEREFORE, the parties hereto agree as follows:
1. As of the date hereof, the force and effect of each provision of the
Alliance Agreement and all rights and obligations arising thereunder or
otherwise shall be terminated and revoked in their entirety and the parties
hereto waive and relinquish any rights that may have accrued under the Alliance
Agreement.
2. As of the date hereof, the force and effect of each provision of the
Stockholder's Agreement and all rights and obligations arising thereunder or
otherwise shall be terminated and revoked in their entirety and the parties
hereto waive and relinquish any rights that may have accrued under the
Stockholder's Agreement.
<PAGE>
3. As of the date hereof, DSND shall cause Gunnar Hirsti to submit in
writing his resignation from the Board of Directors of Horizon effective at such
time as DSND owns 10% or less of the outstanding shares of Common Stock.
4. As of the date hereof, DSND and its affiliates fully, irrevocably and
perpetually release, acquit and discharge Horizon, Highwood, Westgate and each
of their respective affiliates, officers, directors, employees, stockholders and
partners from any and all claims, demands, actions, causes of action of every
kind and character, damages, costs, expenses, obligations, debts and liabilities
whatsoever, against any of them or the assets of any of them, whether arising
under contract, tort law, or otherwise, and whether known or unknown, arising
out of DSND's ownership of Horizon's Common Stock, including, without limitation
any sale(s) of all or part of the Shares. DSND and its affiliates hereby
irrevocably covenant to refrain from, directly or indirectly, asserting any
claim or demand, or commencing, instituting or causing to be commenced, any
proceeding of any kind against Horizon, Highwood, Westgate or any of their
respective affiliates, officers, directors, employees, stockholders or partners
based upon any matters purported to be released hereby.
5. This Agreement constitutes the entire understanding and agreement among
the parties hereto with respect to the subject matter hereof.
6. This Agreement shall be governed by, construed, and interpreted, in
accordance with the laws of the State of Delaware without the application of any
conflicts of laws provisions.
7. This Agreement may be executed in counterparts, all of which shall be
deemed an original, and all of which taken together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
HORIZON OFFSHORE, INC.
By: /S/ DAVID SHARP
Name: David Sharp
Title: Executive Vice President
2
<PAGE>
DET SONDENFJELDS - NORSKE
DAMPSKIBSSELSKAB ASA
By: /S/ GUNNAR HIRSTI
Name: Gunnar Hirsti
Title: Chief Executive Officer
HIGHWOOD PARTNERS, L.P.
By: Highwood Associates, Inc.
Its General Partner
By: /S/ JON POLLOCK
Name: Jon Pollock
Title: President
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Its Attorney-in-Fact
By: /S/ PAUL E. SINGER
Name: Paul E. Singer
Title: President
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF HORIZON
OFFSHORE, INC. AND SUBSIDIARIES AS OF JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,641
<SECURITIES> 0
<RECEIVABLES> 16,651
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,710
<PP&E> 167,581
<DEPRECIATION> (8,759)
<TOTAL-ASSETS> 158,822
<CURRENT-LIABILITIES> 28,222
<BONDS> 0
0
0
<COMMON> 9,119
<OTHER-SE> 87,891
<TOTAL-LIABILITY-AND-EQUITY> 204,617
<SALES> 35,793
<TOTAL-REVENUES> 35,793
<CGS> 26,693
<TOTAL-COSTS> 26,693
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,467
<INCOME-PRETAX> 2,568
<INCOME-TAX> 867
<INCOME-CONTINUING> 1,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,701
<EPS-BASIC> .09
<EPS-DILUTED> .09
</TABLE>
