SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] 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 74-2162088
(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)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $1.00 par value per share
------------------------
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 15, 1999 was approximately $28.2 million.
The number of shares of the registrant's common stock, $1.00 par value per
share, outstanding as of March 15, 1999 was 19,826,480.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement prepared in
connection with the registrant's 1999 annual meeting of stockholders have been
incorporated by reference into Part III of this Form 10-K.
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HORIZON OFFSHORE, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
PAGE
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PART I
Item 1. and 2. Business and Properties.................................. 1
Item 3. Legal Proceedings........................................ 12
Item 4. Submission of Matters to a Vote of Security Holders...... 12
Item 4a. Executive Officers of the Registrant..................... 13
PART II
Item 5. Market for Registrant's Common Equity and Related 14
Stockholder Matters....................................
Item 6. Selected Financial Data.................................. 15
Item 7. Management's Discussion and Analysis of Financial 17
Condition and
Results of Operations..................................
Item 7a. Quantitative and Qualitative Disclosures About Market 22
Risk...................................................
Item 8. Financial Statements and Supplementary Data.............. 23
Item 9. Changes in and Disagreements with Accountants on 23
Accounting
and Financial Disclosure...............................
PART III
Item 10. Directors and Executive Officers of the Registrant....... 23
Item 11. Executive Compensation................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and 23
Management.............................................
Item 13. Certain Relationships and Related Transactions........... 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K............................................... 24
Financial Statements..................................................... F-1
Signatures............................................................... S-1
Exhibit Index............................................................ E-1
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CAUTIONARY STATEMENT
In addition to historical information, this Annual Report of Horizon
Offshore, Inc. and its subsidiaries ("Horizon" or the "Company") 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 oil and gas prices;
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
of Mexico; the Company's ability to attract and retain skilled workers; the need
for additional financing; the Company's limited 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 under "Cautionary Statements" below. 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.
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
GENERAL
Horizon and its subsidiaries provide 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 installs marine
pipelines to transport oil and gas from newly installed production platforms and
other subsea production systems, and installs and salvages production platforms
and other marine structures. During 1998, the Company established customer
relationships, aggressively expanded its operating capabilities through the
addition of strategic assets and focused on delivering superior execution to its
customers.
The Company has assembled a fleet of ten vessels, nine of which are
currently operational, with the Phoenix Horizon currently under refurbishment.
The Company's fleet is capable of a wide range of marine construction
activities, including installing up to 48-inch pipelines and smaller diameter
rigid and coiled-line pipe in water depths up to 800 feet, providing pipebury
and all other services necessary to commence transporting oil and gas through an
installed pipeline, and 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.
Horizon was incorporated in Delaware on December 20, 1995 and did not
commence operations until March 1996. Until December 1997, Horizon was wholly
owned by Elliott Associates, L.P. and Westgate International, L.P. (the
"Principal Stockholders").
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 net proceeds of $68.6 million, after $6.2 million of underwriting
commissions and discounts, and other expenses. The Company used the net proceeds
of the Offering to repay $23.8 million of outstanding indebtedness to the
Principal Stockholders and to acquire the Stephaniturm, a 230-foot diving
support vessel, for $18.3 million. The Company also repaid $18.3 million of its
indebtedness outstanding under its Credit Facility and used the remaining net
proceeds to expand the Company's fleet.
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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 was less than 60 in May 1992 compared to 170
in December 1997 and 133 in December 1998.
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 to eighteen
months. Management expects the decrease in energy prices that began in 1998 to
continue well into 1999, but believes that its business strategy has established
a solid foundation for the Company's future growth. Horizon believes that its
cost-conscious strategies and teaming arrangements with other companies will
help it remain competitive despite decreasing energy and related service prices.
A continued weakness in energy prices or a prolonged period of low levels
of offshore drilling and exploration could adversely affect the Company's future
revenues and profitability. The Company has experienced a decline in demand for
its marine construction services in the Gulf, as oil and gas companies have
reduced their levels of capital expenditures. The Company expects reduced demand
for its services to impact its results of operations for 1999.
SCOPE OF OPERATIONS
The Company is a leading provider of marine construction services in the
shallow waters of the Gulf of Mexico. The Company laid 220 miles and buried 210
miles of pipe of various diameters in various water depths in the Gulf during
1998, compared to 125 miles of pipe laid and buried in 1997 and 65 miles laid
and buried in 1996. The Company is 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, 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 supporting 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 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 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. Jet sleds towed behind pipelay/pipebury
barges are used to bury pipelines on shorter pipe installation projects. Towed
jet sleds are less likely to damage the pipeline being laid or any existing
pipelines which the pipeline may be crossing. Unlike a "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 settles. The Company also owns a dedicated
bury barge, the Canyon Horizon, which was placed into service during the second
quarter of 1998 and is capable of burying pipelines more efficiently and at
greater water depths than any vessel of its kind in the Gulf. By utilizing the
Canyon Horizon for burying larger projects and the Company's portable jet
systems for burying smaller projects, the Company is able 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, which was converted to serve as a diving support vessel to perform
diving support services such as connecting pipelines to
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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 was deployed in
April 1998.
The Company began installing and removing or "salvaging" offshore fixed
platforms with the acquisition of the Atlantic Horizon in June 1998. The Company
has also constructed a derrick barge, the Pacific Horizon that is capable of
lifting 800 tons. The Pacific Horizon commenced operations in March 1999. The
Company is also upgrading the Phoenix Horizon to perform derrick services.
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. The
Company's management 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.
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 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 increased
performance.
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MARINE EQUIPMENT
The Company owns a fleet of four pipelay/pipebury vessels, a dedicated
pipebury barge, two derrick barges, a derrick/pipelay barge and two diving
support vessels. The following table describes the Company's marine vessels.
<TABLE>
<CAPTION>
MAXIMUM
MAXIMUM PIPELAY MONTH AND DATE
VESSEL VESSEL TYPE LENGTH DERRICK LIFT DIAMETER YEAR ACQUIRED DEPLOYED
- ---------------------------------------- ---------------------- ------- ------------- ------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
(FEET) (TONS) (INCHES)
American Horizon........................ Pipelay/Pipebury 180 -- 18 Feb. 1996 Apr. 1996
Cajun Horizon........................... Pipelay/Pipebury 140 -- 10 Jun. 1996 Jul. 1996
Lone Star Horizon....................... Pipelay/Pipebury 320 -- 48 Nov. 1997 Jan. 1998
Gulf Horizon............................ Pipelay/Pipebury 350 -- 42 Jul. 1997 Feb. 1998
Pearl Horizon........................... Diving Support Vessel 180 -- -- Oct. 1997 Apr. 1998
DSND Stephaniturm....................... Diving Support Vessel 230 -- 4 Apr. 1998 May 1998
Canyon Horizon.......................... Pipebury 300 -- -- Nov. 1997 Jun. 1998
Atlantic Horizon........................ Derrick Barge 420 550 -- Jun. 1998 Jun. 1998
Pacific Horizon......................... Derrick Barge 350 800 -- May 1998 Mar. 1999
Phoenix Horizon(1)...................... Derrick/Pipelay 300 250 18 Jul. 1997 Late 1999
</TABLE>
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(1) This vessel is being upgraded and refurbished and is expected to commence
operations in late 1999.
The Company owns all of its marine vessels other than the Atlantic Horizon,
which is held under a capital lease agreement and the Company intends to acquire
title to the vessel upon expiration of the lease term in November 1999. All of
the Company's vessels, except the Atlantic Horizon, are subject to ship
mortgages securing indebtedness. See Note 6 to the financial statements and
"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
In December 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 alliance, (1) DSND acquired 4,125,000 shares of the Company's
common stock for $12.0 million from the Principal Stockholders, (2) the Company
purchased the DSND Stephaniturm, a 230-foot North Sea class dynamically
positioned diving support vessel, for $18.3 million, with a portion of the
proceeds of the Offering in April 1998 and (3) the Company and DSND formed DSND
Horizon, L.L.C. (the "DSND Horizon Joint Venture"), which is 30% owned by the
Company, to primarily conduct deep water pipelaying operations in the Gulf,
offshore Mexico and Canada, and in the Caribbean.
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
transfer of the DSND Stephaniturm was deemed effective as of January 1, 1998.
The Company has chartered the vessel to DSND until December 31, 1999 with a
cancellation provision at September 30, 1999 upon payment by DSND of a $250,000
cancellation fee. In 1998, DSND paid the Company $4.9 million of charter hire.
The DSND Horizon Joint Venture will have access to a reel pipelaying vessel
that is being constructed and chartered by DSND and will be able to install 10
inch diameter pipe in water depths as great as 6,000
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feet. The reel vessel is presently being constructed for DSND and is expected to
be available for operation during the first quarter of 2000. 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 Horizon 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 Horizon Joint
Venture. DSND will charter the reel ship for five years from its completion in
December 1999 with five additional one year renewal options at DSND's sole
election. The DSND Horizon Joint Venture will be able to charter this vessel and
other vessels on a "first-call" basis. DSND will 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 are required to fund, in proportion to their equity
ownership, the funds required to operate the DSND Horizon Joint Venture to the
extent not provided from operations. The DSND Horizon 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 Horizon
Joint Venture.
Horizon believes the DSND alliance provides it with certain strategic
benefits, including:
1. 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. DSND has built a substantial backlog of work in
Brazil, and Horizon is pursuing opportunities to provide services in
conjunction with DSND in Brazil.
2. The ability of the DSND Stephaniturm to operate in the Gulf under
adverse weather conditions.
3. Immediate access to deep water technology, equipment and the ability
to provide pipeline reel ship services in the deep and intermediate
water depth areas of the Gulf, offshore Mexico and Canada, and in
the Caribbean.
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,
1998, the Company provided offshore marine construction services to
approximately 68 customers, none of which accounted for 10% or more 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.
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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 several months.
BACKLOG
As of December 31, 1998, the Company's backlog which is supported by
written agreements amounted to $19.0 million, compared to the Company's backlog
at December 31, 1997 of $16.4 million and at December 31, 1996 of $2.9 million.
The Company's backlog has increased to $36.9 million as of March 15, 1999.
Backlog is typically lower in the fourth and first quarters of the year due to
the seasonality caused by weather conditions in the Gulf during the winter
months. 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, 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.
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 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
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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.,
Torch, Inc. and a few other smaller contractors. 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. The main competition in the West African offshore
construction market is generally limited to ETPM, a French contractor; Saibos, a
joint venture between a French and an Italian contractor; and Global Industries,
Ltd.
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.
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
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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 $85,000 in
expenditures in fiscal 1998 and $75,000 in 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 with the foregoing
requirements regarding United States citizenship of certain of the Company's
directors and officers.
EMPLOYEES
As of December 31, 1998, the Company had approximately 412 employees,
including approximately 299 operating personnel and approximately 113 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. 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.
PROPERTIES
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.
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 access for docking the Company's barges and vessels. This
facility serves as the Company's marine support base and as a storage facility
for marine structures that may be salvaged by the Company's fleet of marine
equipment.
8
<PAGE>
CAUTIONARY STATEMENT
Certain statements made in this Annual Report that are not historical facts
are "forward-looking statements" as defined in Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such
forward-looking statements may include statements that relate to:
o our business plans or strategies, and projected or anticipated
benefits or other consequences of such plans or strategies;
o our objectives;
o projected or anticipated benefits from future or past acquisitions;
and
o projections involving anticipated capital expenditures or revenues,
earnings or other aspects of capital projects or operating results.
Also, you can generally identify forward-looking statements by such
terminology as "may," "will," "expect," "believe," "anticipate,"
"project," "estimate" or similar expressions. We caution you that such
statements are only predictions and not guarantees of future performance or
events. In evaluating these statements, you should consider various risk
factors, including but not limited to the risks listed below. These risk factors
may affect the accuracy of the forward-looking statements and the projections on
which the statements are based.
All phases of our operations are subject to a number of uncertainties,
risks and other influences, many of which are beyond our control. Any one of
such influences, or a combination, could materially affect the results of our
operations and the accuracy of forward-looking statements made by us. Some
important factors that could cause actual results to differ materially from the
anticipated results or other expectations expressed in our forward-looking
statements include the following:
o industry volatility, including the level of capital expenditures by
oil and gas companies due to fluctuations in the price of oil and
gas;
o risks of growth strategy, including the risks of rapid growth;
o operating hazards, including the unpredictable effect of natural
occurrences on operations and the significant possibility of
accidents resulting in personal injury and property damage;
o the highly competitive nature of the marine construction business;
o dependence on the continued strong working relationships with
significant customers operating in the Gulf of Mexico (the
"'Gulf");
o seasonality of the offshore construction industry in the Gulf;
o our ability to attract and retain skilled workers;
o the need for additional financing;
o our lack of operating history;
o contract bidding risks;
o percentage-of-completion accounting;
o continued active participation of our executive directors and key
operating personnel;
o the effect on our performance of regulatory programs and
environmental matters;
o risks involved in the expansion of our operations into
international offshore oil and gas producing areas; and
o risks involved in joint venture operations, including difficulty in
resolving disputes with present partners or reaching agreements
with future partners.
Many of these factors are beyond our ability to control or predict. We
caution investors not to place undue reliance on forward-looking statements. We
disclaim any intent or obligation to update the
9
<PAGE>
forward-looking statements contained in this Report, whether as a result of
receiving new information, the occurrence of future events or otherwise.
A more detailed discussion of certain of the foregoing factors follows:
INDUSTRY VOLATILITY MAY ADVERSELY AFFECT RESULTS OF OPERATIONS
The demand for our services depends on the level of capital expenditures by
oil and gas companies for developmental construction. As a result, the cyclical
nature of the oil and gas industry has a significant effect on our revenues and
profitability. Historically, prices of oil and gas, as well as the level of
exploration and developmental activity, have fluctuated substantially. As a
result of the decline in energy prices that began in 1998, oil and gas companies
have reduced their level of capital expenditures. As a result, we have
experienced a seasonal decline in demand for our marine construction services in
the Gulf. We cannot predict when, or if, this condition will change. Any further
significant decline in the worldwide demand for oil and gas or prolonged low oil
or gas prices in the future would likely continue to depress development
activity. A prolonged low level of activity in offshore drilling and exploration
is likely to adversely affect our revenues and profitability.
RAPID GROWTH AND GROWTH STRATEGY INVOLVE RISKS
We have grown rapidly both through internal growth and acquisitions of
additional barges and vessels. We have assembled a fleet of ten vessels, nine of
which are currently operational. We are currently upgrading and refurbishing one
vessel. Future acquisitions of other complementary businesses and marine
equipment are key elements of our future growth strategy. If we are unable to
purchase additional equipment or other vessels on favorable financial or other
terms or to manage acquired businesses or vessels, this could adversely affect
our revenues and profitability. We cannot assure you that we will be able to
identify or acquire equipment or businesses. In addition, any such future
acquisitions may involve potential delays and increased costs. If we acquire new
vessels, we may need to upgrade or refurbish such vessels. If we experience
delays in the upgrading or refurbishment of such vessels or if the costs of such
upgrading or refurbishment would exceed the anticipated costs, our operations
could be negatively affected.
We anticipate that part of our growth will come from the installation and
removal or salvaging of offshore fixed platforms. We believe that the need to
salvage platforms in the Gulf will increase and that our management team
possesses the experience to compete for this business. However, we have only
performed fifteen contracts over the last six months in this area. Accordingly,
we cannot assure you that we will be successful in installing and salvaging
platforms.
OPERATING HAZARDS MAY INCREASE OPERATING COSTS; LIMITED INSURANCE COVERAGE
Offshore construction involves a high degree of operational risk. Risks of
vessels capsizing, sinking, grounding, colliding and sustaining damage from
severe weather conditions are inherent in offshore operations. These hazards may
cause significant personal injury or property damage, environmental damage, and
suspension of operations. In addition, we may be named as a defendant in
lawsuits involving potentially large claims as a result of such occurrences. We
maintain what we believe is prudent insurance protection. However, we cannot
assure that any such insurance will be sufficient or effective under all
circumstances. A successful claim for which we are not fully insured may have a
material adverse effect on our revenues and profitability.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY
Our business is highly competitive because construction companies operating
offshore compete vigorously for available projects, which are typically awarded
on a competitive bid basis. In addition, marine construction vessels have few
alternative uses and high maintenance costs whether they are operating or not.
As a result, some companies bid contracts at rates below our rates in order to
cover their variable operating expenses and contribute to their fixed operating
expenses. This may adversely affect the number of contracts that are awarded to
us.
10
<PAGE>
SEASONALITY MAY ADVERSELY AFFECT OPERATIONS
Historically, the greatest demand for marine construction services has been
during the period from May to September. This seasonality of the construction
industry in the Gulf is caused both by weather conditions and by the historical
timing of capital expenditures by oil and gas companies which accompanies this.
As a result, revenues are typically higher in the summer months and lower in the
winter months. Although we plan to offset Gulf seasonalities by pursuing
business opportunities in international areas, we cannot assure that such
expansion will offset the seasonality of our operations in the Gulf.
SHORTAGE OF SKILLED WORKERS MAY IMPAIR GROWTH POTENTIAL AND PROFITABILITY
Our profitability depends on our ability to attract and retain workers. As
a result, our management must devote significant time, effort, and expense to
hire, train, and retain qualified workers. A significant increase in wages paid
by other employers in our line of business could both result in a reduction of
our work force and increases in the wages paid by us. If any of these events
occur for a significant period of time, this could impair our profitability and
growth potential.
NEED FOR ADDITIONAL FINANCING
Our acquisition strategy may require significant amounts of additional
capital. We may have to incur substantial indebtedness to finance future
acquisitions and may issue additional equity securities in connection with such
acquisitions.
WE HAVE A LIMITED OPERATING HISTORY
The Company, which was organized in December 1995, has limited experience
in conducting business and operations. As with any new enterprise, our business
plans and strategies are being continually evaluated and revised. We cannot
assure you that our business plans and strategies will be implemented or, if
implemented, that they will be successful.
CONTRACT BIDDING RISKS
Substantially all of our projects are performed on a fixed-price basis.
Changes in offshore job conditions and variations in labor and equipment
productivity may affect the revenue and costs on a contract. These variations
may affect our gross profits. In addition, during the summer construction
season, we typically bear the risk of delays caused by adverse weather
conditions.
PERCENTAGE-OF-COMPLETION ACCOUNTING
Since our contract revenues are recognized on a percentage-of-completion
basis, we periodically review contract revenue and cost estimates as the work
progresses. Accordingly, adjustments are reflected in income in the period when
such revisions are determined. To the extent that these adjustments result in a
reduction of previously reported profits, we would recognize a charge against
current earnings that may be significant depending on the size of the
adjustment.
WE DEPEND ON KEY PERSONNEL
Our success depends on, among other things, the continued active
participation of our executive officers and certain of our other key operating
personnel. Our officers and personnel have extensive experience in the marine
construction industry, both in domestic and international areas. The loss of the
services of any one of these persons could have a material adverse effect on us.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS MAY IMPOSE ADDITIONAL EXPENDITURES
Our operations are subject to various governmental regulations, violations
of which may result in civil and criminal penalties, injunctions, and cease and
desist orders. In addition, some environmental statutes may impose liability
without regard to negligence or fault. Although our cost of compliance with such
laws has to date been immaterial, such laws are changed frequently. Accordingly,
it is impossible to predict the
11
<PAGE>
cost or impact of such laws on our future operations. Also, the loss by us of
any license required in our operations may have a material adverse effect on our
operations.
We depend on demand for our services from the oil and gas industry, and
this demand may be affected by changing tax laws and oil and gas regulations.
Accordingly, the adoption of laws which curtail oil and gas production in our
areas of operation may adversely affect us. We cannot determine to what extent
our operations may be affected by any new regulations or changes in existing
regulations.
EXPANSION OF INTERNATIONAL OPERATIONS INVOLVES RISKS
A key element of our expansion strategy is to expand our operations into
international oil and gas producing areas. These international operations will
be subject to a number of risks inherent in any business operating in foreign
countries including, but not limited to:
o political, social, and economic instability;
o potential seizure or nationalization of assets;
o increased operating costs;
o modification or renegotiating of contracts;
o import-export quotas; and
o other forms of government regulation which are beyond our control.
Additionally, our competitiveness in international market areas may be
adversely affected by regulations, including but not limited to regulations
requiring:
o the awarding of contracts to local contractors;
o the employment of local citizens; and
o the establishment of foreign subsidiaries with significant
ownership positions reserved by the foreign government for local
citizens.
We cannot predict what types of the above events may occur. If such an
event should occur, it could have a material adverse effect on our operations
and financial condition.
RISK OF JOINT VENTURE OPERATIONS
We may conduct many of our international operations through joint ventures,
jointly managed by us and the joint venture partner. Our joint venture with Det
Sondenfjelds-Norske Dampskibsselskab ASA (DSND) and the operating vessels that
DSND made available to us, will operate in the Gulf, offshore Mexico and Canada,
and in the Caribbean. Under its terms, we do not have the ability to control the
business and affairs of the joint venture. We anticipate entering into
additional joint ventures with other entities if we expand into other
international market areas. We cannot assure that we will undertake such joint
ventures or, if undertaken, that such joint ventures will be successful.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names, ages, and offices held by each of the Executive
Officers of the Company as of March 12, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ---------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Bill J. Lam............................. 32 President, Chief Executive Officer and Director
David W. Sharp.......................... 45 Executive Vice President and Chief Financial Officer
James K. Cole........................... 51 Senior Vice President
</TABLE>
Executive Officers are appointed by, and serve at the pleasure of, the
Company's Board of Directors, subject to rights under Employment Agreements.
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 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 the 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
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 a 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.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, $1.00 par value (the "Common Stock"), is
traded on the Nasdaq National Market under the symbol "HOFF." At March 15,
1999 the Company had approximately 29 holders of record of its Common Stock.
The following table sets forth the high and low closing bid prices per
share of the Common Stock, as reported by the Nasdaq National Market, for each
fiscal quarter since trading began on April 2, 1998.
<TABLE>
<CAPTION>
LOW HIGH
--------- ---------
<S> <C> <C>
1998:
Fourth Quarter.................. $ 4.25 $ 8.16
Third Quarter................... $ 5.00 $ 11.87
Second Quarter (commencing April
2, 1998)...................... $ 9.81 $ 16.88
</TABLE>
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 under the terms of its existing indebtedness.
See Note 6 to financial statements.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the periods ended December 31, 1998, 1997
and 1996 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
Annual Report.
<TABLE>
<CAPTION>
INCEPTION
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996(1)
------------- ------------- -------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER
SHARE AND OPERATING DATA)
INCOME STATEMENT DATA:
Contract revenues.................... $ 119,802 $36,144 $ 14,088
Costs of contract revenues........... 91,961 30,104 21,616
------------- ------------- -------------
Gross profit (loss)............. 27,841 6,040 (7,528)
Selling, general and administrative
expenses............................. 8,120 2,788 2,047
------------- ------------- -------------
Operating income (loss)......... 19,721 3,252 (9,575)
Other:
Interest expense................ (2,814) (1,619) (1,662)
Gain on sale of asset........... 20 614 --
Other income.................... 18 29 40
------------- ------------- -------------
Net income (loss) before income
taxes................................ 16,945 2,276 (11,197)
Provision (benefit) for income
taxes................................ 4,485 -- (1,617)
------------- ------------- -------------
Net income (loss).................... $ 12,460 $ 2,276 $ (9,580)
============= ============= =============
Net income (loss) per share -- basic
and diluted.......................... $ 0.69 $ 0.17 $ (0.70)
============= ============= =============
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in)
operating activities................. $ 10,481 $ 3,491 $ (9,568)
Net cash used in investing
activities........................... (79,267) (28,306) (25,916)
Net cash provided by financing
activities........................... 75,589 25,011 38,134
OTHER NON-GAAP FINANCIAL DATA:
EBITDA(2)............................ $ 24,169 $ 4,254 $ (8,860)
OTHER FINANCIAL DATA:
Depreciation and amortization........ $ 4,448 $ 1,002 $ 715
Capital expenditures................. 95,725 38,267 29,999
OPERATING DATA:
Number of vessels operating at end of
period............................... 8 2 2
Barge days(3)........................ 1,654 568 347
Miles of pipe laid................... 220 125 65
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............ $ 12,661 $(2,113)
Property and equipment, net.......... 145,680 55,040
Total assets......................... 193,669 72,989
Long-term debt, net of current
maturities........................... 62,268 34,729
Stockholders' equity................. 94,460 20,059
</TABLE>
- ------------
(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) EBITDA (earnings before interest expense, income taxes, depreciation and
amortization) 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 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. 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.
(3) Number of days vessels are offshore performing services, in transit or
waiting on inclement weather, while under contract.
16
<PAGE>
ITEM 7. 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 Annual Report. 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
"Cautionary Statements."
GENERAL
Horizon provides marine construction services to the oil and gas industry
primarily in the Gulf of Mexico. The Company's marine fleet installs marine
pipelines to transport oil and gas from newly installed production platforms and
other subsea production systems, and installs and salvages production platforms
and other marine structures. Over the past several years, improvements in
seismic and drilling technology and production techniques, which have increased
drilling success rates and efficiencies, 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 was 60
in May 1992, compared to approximately 170 in December 1997 and 133 in December
1998.
The Company's present management team, which assumed its current role in
July 1997, has aggressively expanded Horizon's operations. This management team
has assembled a fleet of ten vessels capable of providing a full range of
pipeline and derrick services in varying water depths. Horizon currently
operates nine of these vessels, consisting of four pipelay/pipebury barges, a
dedicated pipebury barge, two derrick barges and two diving support vessels. 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, as
well as a significant number of projects in intermediate water depths between
200 and 800 feet. Horizon has two derrick barges deployed, and a derrick/pipelay
barge undergoing refurbishment. These derrick barges have lift capacities
ranging from 250 to 800 tons. The growth in the size and operating capabilities
of the fleet is reflected in the Company's revenues and operating results. The
following table describes Horizon's marine vessels and the date each vessel was
deployed.
<TABLE>
<CAPTION>
DATE DEPLOYED VESSEL VESSEL TYPE
------------------- ----------------------
<S> <C> <C>
April 1996.............................. American Horizon Pipelay/Pipebury
July 1996............................... Cajun Horizon Pipelay/Pipebury
January 1998............................ Lone Star Horizon Pipelay/Pipebury
February 1998........................... Gulf Horizon Pipelay/Pipebury
April 1998.............................. Pearl Horizon Diving Support Vessel
May 1998................................ Stephaniturm Diving Support Vessel
June 1998............................... Canyon Horizon Pipebury
June 1998............................... Atlantic Horizon Derrick Barge
March 1999.............................. Pacific Horizon Derrick Barge
Late 1999*.............................. Phoenix Horizon Derrick/Pipelay
</TABLE>
- ------------
* ANTICIPATED DEPLOYMENT.
The Stephaniturm, a 230-foot dynamically positioned diving support vessel,
was acquired in April 1998 with Offering proceeds and was chartered to DSND
during 1998. DSND extended the charter term to December 31, 1999 with a
cancellation provision at September 30, 1999 upon payment by DSND of a $250,000
cancellation fee. The Company recognized $4.9 million in revenues and $4.1
million in gross profit during 1998 related to this charter. The Stephaniturm
offers saturation diving services in water depths up to 1,000 feet, riser
installation, tie-ins and commissioning services that will allow the Company to
perform more complex projects and operate in deeper water and under adverse
weather conditions.
In May 1998, the Company acquired the BB-316, a 350-foot pipebury barge,
subsequently renamed the Pacific Horizon, which was reconfigured as a derrick
barge by removing the pipebury equipment and
17
<PAGE>
installing an 800-ton, revolving crane. The Pacific Horizon was available for
operations in March 1999. The Phoenix Horizon, a derrick/pipelay barge, is
expected to become operational in late 1999. Adverse weather conditions in the
Gulf of Mexico during the third quarter of 1998 caused delays in the
refurbishment of the Phoenix Horizon and in the delivery of equipment needed to
complete the construction of the Pacific Horizon.
The Company entered into a capital lease in 1998 to acquire the Atlantic
Horizon, a 550-ton derrick barge, pursuant to which the Company intends to
acquire title to the vessel upon expiration of the lease term in November 1999.
Horizon formed a deepwater joint venture with DSND, its strategic alliance
partner, in the second quarter of 1998 to conduct deepwater pipelaying
operations in the Gulf. The Company will offer added capabilities to its
customers and expand its presence into the deepwater market through the joint
venture's operations.
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 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 because of this seasonality.
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 1998 operating results are not comparable to 1997 results
due to substantial growth in the size and operating capabilities of the
Company's fleet. 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
future results of operations. The aggregate amount of selling, general and
administrative expenses has also increased to support this growth. Second, when
the Company's new management team assumed its current role in July 1997, it
implemented operational systems and procedures that include improved bidding and
profitability analyses for projects, project supervision and review procedures.
The management team has increased equipment utilization achieved through vessel
and project scheduling and through an expansion in Horizon's client base. The
benefits of these systems and procedures were not realized until late in 1997
and during 1998. Third, 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.
A prolonged weakness in energy prices or a prolonged period of lower levels
of offshore drilling and exploration could adversely affect the Company's future
revenues and profitability. The Company has experienced a decline in demand for
its marine construction services in the Gulf as oil and gas companies have
reduced their levels of capital expenditures. The Company expects reduced demand
for its services may impact its results of operations for 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
CONTRACT REVENUES. Contract revenues were $119.8 million for the year
ended December 31, 1998 compared to $36.1 million for the year ended December
31, 1997. Revenues increased dramatically in 1998
18
<PAGE>
as the Company expanded its fleet to offer an extensive range of pipeline and
derrick services. The Company operated two vessels, the American Horizon and the
Cajun Horizon, for the entire year in 1997 compared to eight vessels in
operation by June 1998. All eight vessels were operational for the last six
months of 1998. Severe weather conditions in the Gulf in the third quarter of
1998 impacted both equipment productivity and profit margins, causing
construction and scheduling delays. The Company laid 220 miles and buried 210
miles of pipe of various diameters and in various water depths in the Gulf
during 1998 compared to approximately 125 miles of pipe laid and buried in 1997.
The Company recognized $4.9 million in revenues in 1998 for the Stephaniturm
charter to DSND. The Company's results of operations for 1998 reflect the
extensive capabilities of the Company's expanded fleet and current management's
ability to competitively bid, win and successfully manage projects.
GROSS PROFIT. Gross profit was $27.8 million (23.2% of contract revenues)
for the year ended December 31, 1998 as compared to a gross profit of $6.0
million (16.7% of contract revenues) for 1997. Higher revenues and gross profit
for 1998 were primarily attributable to the increased number of vessels that
were deployed during this period. The Company recognized $4.1 million in gross
profit from the Stephaniturm charter to DSND in 1998. In addition, the Company
has continued to improve its gross profit margin beginning in the last half of
1997 through more efficient execution of projects, greater equipment utilization
and an increase in the number of contracts awarded.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $8.1 million (6.8% of contract revenues)
for 1998 from $2.8 million (7.7% of contract revenues) for 1997 primarily due to
the addition of personnel and other expenses associated with the growth of the
Company and its fleet expansion. The percentage decrease was primarily due to
the significant increase in revenues without a commensurate increase in selling,
general and administrative expenses.
INTEREST EXPENSE. Interest expense was $2.8 million, net of $1.3 million
interest capitalized for 1998 and $1.6 million, net of $.3 million interest
capitalized for 1997. The Company's total outstanding debt was $69.9 million at
December 31, 1998 compared to $39.8 million at year end 1997. The outstanding
debt increased significantly during the fourth quarter of 1997 and throughout
1998 as a result of the vessel acquisitions and improvements made to expand the
Company's fleet and the acquisition of the marine base in Port Arthur, Texas.
The increase in indebtedness was partially offset by the repayment of $23.8
million of outstanding Subordinated Notes from Offering proceeds.
OTHER INCOME. In December 1998, the Company sold its marine base in Houma,
Louisiana to an unaffiliated third party for $.8 million cash resulting in a
$20,000 gain. In February 1997, the Company sold one of its vessels to an
unaffiliated third party for $3.3 million cash resulting in a $.6 million gain.
INCOME TAXES. The Company uses the liability method of accounting for
income taxes. Horizon utilized net operating loss carryforwards that offset
income taxes in 1997 and at least partially offset income taxes in 1998. The
Company provided federal income tax expense of $4.5 million, at a net effective
rate of 26% on pre-tax income of $16.9 million in 1998. The Company did not have
a valuation allowance at December 31, 1998 due to the Company's history of
profitable operations. For 1997, both pre-tax and net income were $2.3 million,
as no income tax expense was recorded due to net operating loss carryforwards. A
valuation allowance was established 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 at December 31, 1997. As of
December 31, 1998, the Company had net operating loss carryforwards of
approximately $5.3 million which expires in 2012. See Note 7 of the notes to the
Company's consolidated financial statements.
NET INCOME. Net income was $12.5 million or $0.69 per share for the year
ended December 31, 1998 compared to a net income for 1997 of $2.3 million or
$0.17 per share. The increase in net income is primarily the result of the
significant increase in revenues and gross profit generated by Horizon's
expanded fleet.
19
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE PERIOD FROM INCEPTION (DECEMBER 20,
1995)
THROUGH DECEMBER 31, 1996
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 the purpose 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 combination derrick/pipelay 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.
INTEREST EXPENSE. Interest expense was $1.6 million, net of interest
capitalized of $.3 million for 1997 and $1.7 million for Fiscal 1996. No
interest was capitalized in 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, and were utilized to reduce future
income taxes in 1998. 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,
20
<PAGE>
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
In April 1998, the Company completed the Offering of 5,750,000 shares of
its common stock and received net proceeds of approximately $68.6 million, after
$6.2 million of underwriting commissions and discounts, and other expenses. Of
the net proceeds, the Company used $23.8 million to repay its indebtedness to
the Principal Stockholders, acquired the Stephaniturm for $18.3 million and used
the remaining proceeds of the Offering to expand its fleet. Pending application
of the proceeds to expand its fleet, the Company repaid $13.0 million on the
term loan and $5.3 million on the revolving note payable to Den norske Bank
(DNB). The balance of the proceeds was invested in short-term securities.
In May 1998, Horizon amended its credit facility with DNB (the " Credit
Facility") to provide for up to $50 million of borrowings at LIBOR plus 3%. The
amended Credit Facility provided for a $30 million reducing revolver to be
reduced in monthly increments of $.6 million beginning September 30, 1999 and a
$20 million revolving note due September 30, 2000. In December 1998, the Company
replaced the $30 million reducing revolving note payable due to Den norske Bank
by entering into a loan agreement with The CIT Group. This loan provides for a
$60 million term loan (" CIT Term Loan") at a more favorable interest rate of
LIBOR plus 2.65% to be repaid in 84 monthly installments of $.5 million,
maturing January 30, 2006. The current amount borrowed at December 31, 1998 was
$50 million, however, the CIT Term Loan provides for additional borrowings of $5
million upon completion of the Pacific Horizon and another $5 million upon
completion of the Phoenix Horizon. The Company used the $50 million to repay the
reducing revolver note to DNB, pay down the revolving note payable to DNB, pay
indebtedness to a Principal Stockholder and invested the remaining proceeds for
future capital expenditures. The $20 million revolving note payable to DNB was
amended in December 1998 to provide for $30 million of borrowings ("DNB
Revolver") at a lower interest rate of LIBOR plus 2.5%. The DNB Revolver
matures December 31, 2001.
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. The CIT Loan
is secured by mortgages on all vessels owned by the Company, except the Atlantic
Horizon. The DNB Revolver is secured by accounts receivable. Other significant
terms and covenants under these loans are described in note 6 to the financial
statements. At December 31, 1998, the Company had $15.7 million available,
pursuant to the borrowing base calculation under the DNB Revolver. Horizon was
in compliance with all loan covenants at December 31, 1998.
In July 1998, Horizon announced that its board of directors approved the
repurchase of up to $10 million of the Company's outstanding common stock. The
shares may be purchased from time to time, subject to market conditions, in the
open market or in privately negotiated transactions, and such repurchases are
funded by borrowings provided by a wholly-owned subsidiary of one of the
Principal Stockholders. The Company borrowed $7.6 million during 1998 under a
promissory note payable to this subsidiary of the Principal Stockholder. The
$7.6 million outstanding balance was repaid from proceeds of the CIT Term Loan
in December 1998. The Company may borrow an additional $2.4 million from the
wholly-owned subsidiary of the Principal Stockholder. The note matures on March
31, 2003 and bears interest rate to be equal to that charged on the DNB
Revolver.
21
<PAGE>
The Company entered into a capital lease in 1998 to acquire the Atlantic
Horizon, a 550-ton derrick barge, for $16.4 million, pursuant to which the
Company intends to acquire title to the vessel upon expiration of the lease term
in November 1999. The lease term requires monthly lease payments of $.2 million
for 18 months with the final payment of $13.2 million to be paid in November
1999. In the event the Company elects not to purchase the Atlantic Horizon at
that time, the Company is required to pay $5 million as liquidated damages. This
payment obligation is secured by a corporate surety bond in the amount of $5
million.
Horizon had working capital of $12.7 million at December 31, 1998 compared
to a working capital deficit of $2.1 million at December 31, 1997. Prior to the
completion of the Offering and the amendment to the Credit Facility in May 1998,
the Company financed its vessel and property acquisitions and improvements
through operating cash flow and short-term borrowings. The significant growth in
the number of construction contracts and related contract revenues has resulted
in an increase in contract receivables.
Cash provided by operations was $10.5 million for the year ended December
31, 1998 and $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 the
additional $10 million under the CIT Term Loan and amounts available under the
DNB Revolver to fund future equipment acquisitions and meet its working capital
requirements.
Cash used for capital expenditures during 1998 totaled $79.3 million
compared to $31.9 million for 1997. The Company also made improvements to its
marine base in Port Arthur, Texas in 1998.
Planned capital expenditures for 1999 are estimated to total approximately
$15 million 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 areas. 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.
YEAR 2000
With respect to its internal systems, the Company is taking steps to
prepare its systems for the Year 2000 date change. Total amounts spent to date
on Year 2000 efforts are less than $100,000 and future efforts are also expected
to cost less than $100,000. The Company believes that its estimated costs
related to the Year 2000 issue will not be material to the Company's business,
operations, or financial condition. The Company makes use of computers in its
reporting of accounting, financial, administrative, and management information.
Additionally, the Company uses computers as a communication tool for its
employees to communicate among themselves and with other persons outside the
organization. Finally, certain equipment of the Company makes use of embedded
computer technology.
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 affects 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
In this Annual Report, the consolidated financial statements and
supplementary data of the Company appear on pages F-1 through F-18 and are
incorporated herein by reference. See Index to Consolidated Financial Statements
on page 23.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors and executive officers
called for by this item will be included in the Company's definitive Proxy
Statement prepared in connection with the 1999 annual meeting of stockholders
and is incorporated herein by reference. For additional information regarding
executive officers of the Company, see "Executive Officers of the Registrant"
of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning the compensation of the Company's executive officers
called for by this item will be included in the Company's definitive Proxy
Statement prepared in connection with the 1999 annual meeting of stockholders
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management called for by this item will be included in the Company's definitive
Proxy Statement prepared in connection with the 1999 annual meeting of
stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
called for by this item will be included in the Company's definitive Proxy
Statement prepared in connection with the 1999 annual meeting of stockholders
and is incorporated herein by reference.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements are filed as a part of this report:
1. Financial Statements
PAGE
----
Report of Independent Public
Accountants........................... F-1
Consolidated Balance Sheets as of
December 31, 1998 and 1997............ F-2
Consolidated Statements of Operations
for the Periods Ended December 31,
1998, 1997, and 1996.................. F-3
Consolidated Statements of Stockholders'
Equity for the Periods Ended December
31, 1998, 1997, and 1996.............. F-4
Consolidated Statements of Cash Flows
for the Periods Ended December 31,
1998, 1997, and 1996.................. F-5
Notes to Consolidated Financial
Statements............................ F-6
2. Financial Statement Schedules
Other schedules have not been included because they are not applicable,
immaterial or the information required has been included in the financial
statements or notes thereto.
3. Exhibits
See Index to Exhibits on page E-1. The Company will furnish to any eligible
stockholder, upon written request, a copy of any exhibit listed upon payment
of a reasonable fee equal to the Company's expenses in furnishing such
exhibit.
24
<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,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1998 and
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, 1998 and 1997, and the results of their
operations and their cash flows for the years ended December 31, 1998 and 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
February 26, 1999
F-1
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 9,649 $ 2,846
Accounts receivable --
Contract receivables....... 25,549 9,165
Costs in excess of
billings............... 9,546 2,958
Related parties............ 82 577
Income taxes receivable......... 481 --
Other current assets............ 642 542
------------ ------------
Total current
assets............ 45,949 16,088
PROPERTY AND EQUIPMENT, net.......... 145,680 55,040
DEFERRED INCOME TAXES................ -- 137
OTHER ASSETS......................... 2,040 1,724
------------ ------------
$193,669 $ 72,989
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 7,654 $ 4,145
Accrued liabilities............. 5,086 2,540
Accrued job costs............... 10,334 5,501
Accrued interest................ -- 681
Billings in excess of costs..... 2,608 148
Current maturities of long-term
debt........................... 7,606 5,101
Income taxes payable............ -- 85
------------ ------------
Total current
liabilities....... 33,288 18,201
LONG-TERM DEBT, net of current
maturities......................... 62,268 34,729
DUE TO RELATED PARTIES............... 20 --
DEFERRED INCOME TAXES................ 3,633 --
------------ ------------
Total liabilities..... 99,209 52,930
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 and 14,076,480
shares issued at December 31,
1998 and 1997, respectively.... 9,119 3,369
Subscription receivable......... -- (950)
Additional paid-in capital...... 87,767 24,944
Retained earnings (deficit)..... 5,156 (7,304)
Treasury stock, 1,155,000 shares
at cost at December 31, 1998... (7,582) --
------------ ------------
Total stockholders'
equity............ 94,460 20,059
------------ ------------
$193,669 $ 72,989
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
INCEPTION
YEAR ENDED YEAR ENDED (DECEMBER 20, 1995)
DECEMBER 31, DECEMBER 31, THROUGH
1998 1997 DECEMBER 31, 1996
------------ ------------ -------------------
<S> <C> <C> <C>
CONTRACT REVENUES....................... $ 119,802 $ 36,144 $ 14,088
COST OF CONTRACT REVENUES............... 91,961 30,104 21,616
------------ ------------ -------------------
Gross profit (loss)................ 27,841 6,040 (7,528)
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 8,120 2,788 2,047
------------ ------------ -------------------
Operating income (loss)............ 19,721 3,252 (9,575)
OTHER:
Interest expense................... (2,814) (1,619) (1,662)
Gain on sale of asset.............. 20 614 --
Other income....................... 18 29 40
------------ ------------ -------------------
NET INCOME (LOSS) BEFORE INCOME TAXES... 16,945 2,276 (11,197)
PROVISION (BENEFIT) FOR INCOME TAXES.... 4,485 -- (1,617)
------------ ------------ -------------------
NET INCOME (LOSS)....................... $ 12,460 $ 2,276 $ (9,580)
============ ============ ===================
NET INCOME (LOSS) PER SHARE -- BASIC AND
DILUTED............................... $ 0.69 $ 0.17 $ (0.70)
============ ============ ===================
SHARES USED IN COMPUTING NET INCOME
(LOSS) PER SHARE-BASIC AND DILUTED.... 18,114,393 13,777,207 13,750,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK COMMON ADDITIONAL RETAINED TREASURY STOCK
------------------ STOCK PAID-IN EARNINGS ---------------------
SHARES AMOUNT SUBSCRIPTION CAPITAL (DEFICIT) SHARES AMOUNT
------- ------- ------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, Inception................... -- $ -- $ -- $ -- $ -- -- $ --
Issuance of common stock at $.28
per share...................... 11,000 3,030 -- -- -- -- --
Net loss......................... -- -- -- -- (9,580) -- --
------- ------- ------------- ----------- --------- --------- ---------
BALANCE, December 31, 1996........... 11,000 3,030 -- -- (9,580) -- --
Contribution of stockholders'
debt to additional paid-in
capital........................ -- -- -- 21,000 -- -- --
Contribution related to sales of
assets to related party, net of
tax effect of $1,631........... -- -- -- 3,170 -- -- --
Exercise of stock warrants at
$.004 per share................ 2,750 13 -- -- -- -- --
Subscription for common stock at
$2.91 per share................ 326 326 (950) 624 -- -- --
Contribution related to
litigation settlement paid by a
Principal Stockholder.......... -- -- -- 150 -- -- --
Net income....................... -- -- -- -- 2,276 -- --
------- ------- ------------- ----------- --------- --------- ---------
BALANCE, December 31, 1997........... 14,076 3,369 (950) 24,944 (7,304) -- --
Payment received for common stock
subscription................... -- -- 950 -- -- -- --
Initial public offering of common
stock, net of offering costs... 5,750 5,750 -- 62,823 -- -- --
Purchase of treasury stock....... -- -- -- -- -- 1,155 (7,582)
Net income....................... -- -- -- -- 12,460 -- --
------- ------- ------------- ----------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998........... 19,826 $9,119 $ -- $87,767 $ 5,156 1,155 $(7,582)
======= ======= ============= =========== ========= ========= =========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
BALANCE, Inception................... $ --
Issuance of common stock at $.28
per share...................... 3,030
Net loss......................... (9,580)
-------------
BALANCE, December 31, 1996........... (6,550)
Contribution of stockholders'
debt to additional paid-in
capital........................ 21,000
Contribution related to sales of
assets to related party, net of
tax effect of $1,631........... 3,170
Exercise of stock warrants at
$.004 per share................ 13
Subscription for common stock at
$2.91 per share................ --
Contribution related to
litigation settlement paid by a
Principal Stockholder.......... 150
Net income....................... 2,276
-------------
BALANCE, December 31, 1997........... 20,059
Payment received for common stock
subscription................... 950
Initial public offering of common
stock, net of offering costs... 68,573
Purchase of treasury stock....... (7,582)
Net income....................... 12,460
-------------
BALANCE, DECEMBER 31, 1998........... $94,460
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
YEAR ENDED YEAR ENDED (DECEMBER 20, 1995)
DECEMBER 31, DECEMBER 31, THROUGH
1998 1997 DECEMBER 31, 1996
------------ ------------ -------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)................... $ 12,460 $ 2,276 $ (9,580)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities --
Depreciation and
amortization................. 4,448 1,002 715
Deferred income taxes.......... 3,770 (137) (1,617)
Gain on sale of asset.......... (20) (614) --
Changes in operating assets and
liabilities --
Accounts receivable........ (15,889) (6,567) (3,175)
Income tax receivable...... (481) -- --
Costs in excess of
billings................. (6,588) (213) (2,745)
Billings in excess of
costs.................... 2,460 148 --
Other assets............... 179 (713) --
Accounts payable........... 3,509 2,871 1,013
Accrued liabilities........ 2,546 1,656 844
Accrued job costs.......... 4,833 2,376 3,125
Accrued interest........... (681) 1,321 1,852
Due to related parties..... 20 -- --
Income taxes payable....... (85) 85 --
------------ ------------ -------------------
Net cash provided by
(used in) operating
activities.......... 10,481 3,491 (9,568)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases and additions to
equipment......................... (79,255) (31,883) (25,699)
Drydock costs....................... (777) -- --
Purchase of other assets............ -- -- (217)
Proceeds from sale of assets........ 765 3,577 --
------------ ------------ -------------------
Net cash used in
investing
activities.......... (79,267) (28,306) (25,916)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings under notes payable and
long-term debt.................... 123,865 30,441 35,104
Loan fees........................... (629) -- --
Principal payments on long-term
debt.............................. (109,588) (5,593) --
Issuance of common stock............ 950 13 3,030
Capital contribution related to
legal settlement.................. -- 150 --
Initial public offering proceeds,
net............................... 68,573 -- --
Purchase of treasury stock.......... (7,582) -- --
------------ ------------ -------------------
Net cash provided by
financing
activities.......... 75,589 25,011 38,134
------------ ------------ -------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... 6,803 196 2,650
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 2,846 2,650 --
------------ ------------ -------------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 9,649 $ 2,846 $ 2,650
============ ============ ===================
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest.............. $ 4,789 $ 107 $ --
Cash paid for income taxes.......... $ 1,281 $ -- $ --
Non-cash investing and financing
activities:
Purchase and additions to
equipment with the issuance
of notes payable............. $ 16,470 $ 6,384 $ 4,300
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-5
<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 and installing and salvaging production platforms and other marine
structures 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 funded substantially all of the Company's cash
requirements from inception through April 1998, 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 were 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).
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, net of $6.2 million of underwriting commissions and
discounts, and other expenses. The Company used the net proceeds of the Offering
to repay $23.8 million of outstanding Subordinated Notes and to acquire the
Stephaniturm, a 230-foot diving support vessel, for $18.3 million. The remaining
Offering proceeds were used to expand the Company's fleet.
DSND ALLIANCE
In December 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 4,125,000 shares of the Company's common stock from the
Principal Stockholders. Upon completion of the Offering in April 1998, DSND sold
the DSND Stephaniturm, a dynamically positioned diving support vessel, to the
Company. In addition, the Company obtained a 30% interest in a joint venture
(the "DSND Horizon Joint Venture") formed to operate a reel pipelaying vessel
in the Gulf, offshore Mexico and Canada, and in the Caribbean. The Company and
DSND are required to fund, in proportion to their equity ownership, the funds
required to operate the DSND Horizon Joint Venture to the extent not provided
from operations. The Company recognized equity in losses of the DSND Horizon
Joint Venture of $(158,000) and made contributions of $138,000 during 1998. The
Company also earned $127,000 from administrative fees billed to the DSND Horizon
Joint Venture. The
F-6
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company is unable at this time to predict future working capital requirements of
the DSND Horizon Joint Venture. The DSND Horizon Joint Venture will also have
access to DSND's other deep water pipelaying vessels on terms to be agreed upon
for any deep water pipelaying projects that may be obtained by the DSND Horizon
Joint Venture.
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.
A prolonged weakness in energy prices or a prolonged period of lower levels
of offshore drilling and exploration could adversely affect the Company's future
revenues and profitability. The Company has experienced a decline in demand for
its marine construction services in the Gulf as oil and gas companies have
reduced their levels of capital expenditures. The Company expects reduced demand
for its services may impact its results of operations for 1999.
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
because of this seasonality.
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
F-7
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
until the equipment is placed into service using an effective rate based on
related debt. Interest expense for the years ended December 31, 1998 and 1997,
is net of interest capitalized in the amount of $1.3 million and $.3 million,
respectively.
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 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.
PROPERTY AND EQUIPMENT
Equipment is carried at cost. Depreciation is provided using the
straight-line method based on the following estimated useful lives:
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
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 have been recognized under SFAS No. 121.
OTHER ASSETS
Other assets consist principally of prepaid loan fees, deferred drydock
cost, deferred interest and deposits. Deferred interest was imputed at 10% on
aggregate non-interest bearing debt of $5.1 million and $7.4 million at December
31, 1998 and 1997, respectively, 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
F-8
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
office lease and included a deposit for the purchase of marine equipment at
December 31, 1997. Loan fees paid in connection with the loan facilities (See
Note 6) will be amortized over the term of the loans.
Dry-dock costs are 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.
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Deposits............................. $ 114 $ 596
Deferred dry-dock costs.............. 733 --
Deferred interest expense............ 242 645
Prepaid loan fees.................... 951 322
Deferred offering costs.............. -- 146
Other................................ -- 15
--------- ---------
$ 2,040 $ 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. The Company reviews all significant estimates on a recurring basis and
records the effect of any necessary adjustments prior to their publication.
Adjustments made with respect to the use of estimates often relate to improved
information not previously available. Uncertainties with respect to such
estimates are inherent in the preparation of financial statements.
SEGMENT INFORMATION
In 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information," was issued and requires companies to report financial and
descriptive information about their reportable operating segments. The Company
has operations in one industry segment, the marine construction service industry
to offshore oil and gas companies, and the Company had no major customers whose
revenues were 10% or more of consolidated revenues. Based upon the Company's
interpretation of these requirements, it does not have any other reportable
operating segments.
F-9
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACCOUNTS RECEIVABLE:
Contract receivables are generally billed upon the completion of small
contracts and are progress billed on larger contracts. Costs in excess of
billings solely 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.
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 in 1997.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---------- ---------
<S> <C> <C>
Barges, boats and related equipment..... $ 141,436 $ 51,349
Land and buildings...................... 7,084 4,039
Machinery............................... 245 245
Office furniture and equipment.......... 1,121 424
Leasehold improvements.................. 1,330 237
---------- ---------
151,216 56,294
Less -- Accumulated depreciation........ (5,536) (1,254)
---------- ---------
Property and equipment, net............. $ 145,680 $ 55,040
========== =========
Depreciation expense is included in the
following expense accounts:
Costs of contract revenues......... $ 3,919 $ 903
Selling, general and
administrative................... 421 99
---------- ---------
$ 4,340 $ 1,002
========== =========
</TABLE>
4. ACQUISITION OF ASSETS:
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
East. The Company acquired the barge for $4.8 million, of which $3.0 million was
financed with a note payable to the seller. The Company incurred improvement
costs to refurbish the barge of $.2 million in 1998, $6.7 million in 1997 and
$3.3 million in 1996. 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
F-10
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $2.4 million in 1998 and $.5 million to the
customer in the third quarter of 1997.
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 and $23.8 million during 1998. In July 1997, the Company
acquired land and buildings in Louisiana for $.8 million to use as a marine base
to support offshore operations which were sold in 1998. This marine base was no
longer able to support the Company's expanded operations. The Company acquired a
facility near Port Arthur, Texas in December 1997 as its primary marine base and
storage facility for marine structures for a total of $7.1 million, including
improvements of $3.9 million made in 1998.
The Stephaniturm, a 230-foot dynamically positioned diving support vessel,
was acquired for $18.3 million in April 1998 with Offering proceeds and is
chartered to DSND. DSND extended the charter term 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 $4.9 million in revenues and $4.1
million in gross profit during 1998 related to this charter.
In May 1998, the Company acquired the BB-316, a 350-foot pipebury barge,
subsequently renamed the Pacific Horizon, which was reconfigured as a derrick
barge for a total cost of $20.2 million at December 31, 1998. The Pacific
Horizon was placed into service in March 1999.
The Company entered into a capital lease in 1998 to acquire the Atlantic
Horizon, a 550-ton derrick barge, for $16.4 million, pursuant to which the
Company intends to acquire title to the vessel upon expiration of the lease term
in November 1999. The lease term requires monthly lease payments of $.2 million
for 18 months with the final payment of $13.2 million to be paid in November
1999. In the event the Company elects not to purchase the Atlantic Horizon at
that time, the Company is required to pay $5 million as liquidated damages. This
payment obligation is secured by a corporate surety bond in the amount of $5
million.
5. DISPOSITION OF ASSETS:
The Company sold its marine base in Louisiana in December 1998 for $.8
million in cash and recognized a $20,000 gain on the sale.
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 in
1997. The Company used the $12.0 million of sales proceeds to repay a portion of
the debt to the Principal Stockholders. The Company accounted for the $3.2
million gain on the sale, net of taxes of approximately $1.6 million, as a
capital contribution.
F-11
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTES PAYABLE (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Term loan payable to The CIT Group
due in 84 monthly installments,
maturing January 30, 2006, secured
by mortgages on all Company owned
vessels. Interest at LIBOR + 2.65%,
8.25% at December 31, 1998......... $ 50,000 $ --
Lease payable to leasing company in
monthly installments beginning July
31, 1998, maturing November 27,
1999, secured by a vessel.......... 14,811 --
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........................... -- 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........................... -- 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............ 2,000 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.................. 3,063 4,425
Reducing revolving note payable to
Den norske Bank in 48 monthly
installments beginning July 1,
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 1/2%
or LIBOR plus 3%, 9.0% at December
31, 1997........................... -- 13,000
Revolving note payable to Den norske
Bank due December 31, 2001, secured
by accounts receivable from
customers. Interest at Den norske
Bank's prime rate plus 1/2% or
LIBOR plus 2.5%, 8.25% at December
31, 1998........................... -- 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
--------- ---------
Total long term debt....... 69,874 39,830
Less -- Current
maturities................. (7,606) (5,101)
--------- ---------
Long-term debt, net of
current maturities...... $ 62,268 $ 34,729
========= =========
</TABLE>
LOAN FACILITIES
On October 27, 1997, the Company entered into a credit facility, which was
amended in December 1997, with Den norske Bank ("DNB") providing for $20
million of borrowings. In May 1998, Horizon amended its credit facility with DNB
(the "Credit Facility") which provided for up to $50 million of borrowings at
LIBOR plus 3%. The amended Credit Facility provided for a $30 million reducing
revolver to be reduced in monthly increments of $.6 million beginning September
30, 1999 and a $20 million revolving note due September 30, 2000. In December
1998, the Company replaced the $30 million reducing revolving note payable due
to Den norske Bank by entering into a loan agreement with The CIT Group. This
loan
F-12
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provides for a $60 million term loan at LIBOR plus 2.65% ("CIT Term Loan") to
be repaid in 84 monthly installments of $.5 million beginning January 30, 1999,
maturing January 30, 2006. The current amount borrowed at December 31, 1998 was
$50 million, however, the CIT Term Loan provides for additional borrowings of $5
million upon completion of the Pacific Horizon and another $5 million upon
completion of the Phoenix Horizon. The Company used the proceeds from the CIT
Term Loan to pay off all outstanding debt to DNB and the outstanding debt to a
wholly-owned subsidiary of a principal stockholder. In December 1998, the
Company amended the $20 million revolving note to provide for $30 million of
borrowings ("DNB Revolver"). The DNB Revolver matures on December 31, 2001,
bears interest at LIBOR plus 2.5% and is secured by accounts receivable from
customers.
The CIT Term Loan and DNB Revolver loan covenants require that certain
conditions be met in order for the Company to obtain advances. The CIT Term Loan
is secured by mortgages on all vessels owned by the Company, except the Atlantic
Horizon. The DNB Revolver is secured by accounts receivable. Advances under the
DNB Revolver may be obtained in accordance with a borrowing base defined as a
percentage of accounts receivable balances. Both the CIT and DNB 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.
The Company acquired the Atlantic Horizon, a derrick barge, under a lease
purchase arrangement. The Company intends to refinance the vessel with proceeds
from the CIT Term Loan upon the expiration of the lease term. In the event the
Company elects not to purchase the Atlantic Horizon at that time, the Company is
required to pay $5 million as liquidated damages. This payment obligation is
secured by a corporate surety bond in the amount of $5 million.
Maturities of long-term debt for each of the years ending December 31 are
as follows (in thousands):
1999................................. $ 7,606
2000................................. 7,606
2001................................. 21,330
2002................................. 5,556
2003................................. 5,556
Thereafter........................... 22,220
---------
$ 69,874
=========
INDEBTEDNESS TO RELATED PARTIES
The Principal Stockholders made advances to the Company, including accrued
interest at 10% per annum, to fund 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. In April 1998, the Company repaid its $23.8 million indebtedness under
its Subordinated Notes with Offering proceeds.
In July 1998, Horizon announced that its board of directors approved the
repurchase of up to $10 million of the Company's outstanding common stock. The
shares may be purchased from time to time,
F-13
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subject to market conditions, in the open market or in privately negotiated
transactions, and such repurchases are funded by borrowings provided by a
wholly-owned subsidiary of one of the Principal Stockholders. The Company
borrowed $7.6 million during 1998 under a promissory note payable to this
subsidiary of the Principal Stockholder. The $7.6 million outstanding balance
was repaid from proceeds of the CIT Term Loan in December 1998. The Company may
borrow an additional $2.4 million from the wholly-owned subsidiary of the
Principal Stockholder to purchase shares up to $10 million. The note matures on
March 31, 2003 and bears an interest rate to be equal to that charged on the DNB
Revolver.
7. INCOME TAXES:
Income tax expense (benefit) for the years ended December 31, 1998, 1997
and 1996 consists of (in thousands):
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 20,
1995)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Federal..............................
Current......................... $ 715 $ 1,480 $ --
Deferred........................ 3,770 (1,480) (1,617)
------------ ------------ -------------
$4,485 $ -- $(1,617)
============ ============ =============
</TABLE>
The income tax expense (benefit) for the years ended December 31, 1998,
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,
YEAR ENDED YEAR ENDED 1995) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Expense (benefit) computed at federal
statutory rate..................... $ 5,761 34.0% $ 774 34.0% $ (3,807) (34.0%)
Increase (decrease) in provision
from:
Nondeductible expenses.......... 48 .3 92 4.0 -- --
Increase (decrease) in valuation
allowance for deferred tax
assets........................ (1,324) (7.8) (866) (38.0) 2,190 19.6
--------- --------- --------- --------- --------- ---------
$ 4,485 26.5% $ -- -- $ (1,617) (14.4%)
========= ========= ========= ========= ========= =========
</TABLE>
F-14
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Assets --
Net operating loss
carryforward.................... $ 1,791 $ 930
Gain on asset sales............. 965 899
Interest not currently
deductible...................... -- 1,115
Fixed asset basis difference.... 1,014 1,469
Alternative minimum tax......... 985 137
--------- ---------
Total gross deferred tax
asset...................... 4,755 4,550
Liabilities --
Book/tax depreciation
difference.................... 8,388 3,089
--------- ---------
(3,633) 1,461
Less -- Valuation allowance.......... -- (1,324)
--------- ---------
Net deferred tax asset
(liability)................ $ (3,633) $ 137
========= =========
</TABLE>
At December 31, 1997, a valuation allowance was provided to reduce the
deferred tax assets to a level which, more likely than not, will be realized.
The Company 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 $5.3 million at December 31, 1998 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 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.
F-15
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LEASES
The Company leases office space at various locations under non-cancelable
operating leases that expire through November 2001. Rental expense under these
leases was $.6 million, $.3 million, and $.1 million for the year ended December
31, 1998, 1997, and 1996 respectively. Future minimum lease commitments under
these agreements for the years ended December 31 are as follows (in thousands):
1999.................................... $ 675
2000.................................... 675
2001.................................... 620
---------
$ 1,970
=========
INSURANCE
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 April 1, 2001 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 401(k) Plan for all eligible employees and, at the
discretion of management makes annual contributions to the plan. The Company
made contributions of $.5 million to the plan during 1998. The Company did not
make any contributions to the plan prior to 1998. The Company intends to make
future contributions with stock.
10. STOCKHOLDERS' EQUITY:
PUBLIC OFFERING OF COMMON STOCK
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, net of $6.2 million of underwriting commissions and
discounts, and other expenses. The Company used the net proceeds of the Offering
to repay $23.8 million of outstanding subordinated notes, to acquire the
Stephaniturm, a 230-foot diving support vessel, for $18.3 million, and used the
remaining net proceeds to expand the Company's fleet.
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 Board of Directors and the stockholders of the Company
approved the Stock Incentive Plan (the "Plan"). The Plan provides for the
granting of stock options ("Options") to directors, executive officers, other
employees and certain non-employee consultants of the Company. The Company
accounts for grants to employees and directors under APB Opinion No. 25, and no
compensation expense has been recognized in the basic financial statements. The
Company has adopted the disclosure provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation."
The Plan has 1.9 million shares available for issuance as optioned shares
and terminates in April 2009. In general, the terms of the option awards
(including vesting schedules) will be established by the Compensation Committee
of the Company's Board of Directors. The Company granted options to purchase
694,000 shares of common stock at $13.00, the IPO price, on April 1, 1998. One
half of these options vest over a three year period, and the other one half are
fully vested at the end of a five year period which could be excellerated upon
certain events. As of December 31, 1998, the Company has outstanding options
covering an aggregate of 677,500 shares of Common Stock. At December 31, 1998,
no options were exercisable. Unexercised options expire ten years from the date
of issue.
The following table summarizes activity under the Plan for the year ended
December 31, 1998:
<TABLE>
<CAPTION>
EXERCISE
SHARES PRICE
----------- --------
<S> <C> <C>
Granted................................. 694,000 $ 13.00
Forfeited and canceled.................. (16,500) $ 13.00
-----------
Outstanding at December 31, 1998........ 677,500 $ 13.00
===========
Weighted average fair value of options
granted during 1998................... $13.00
Weighted average remaining
contractual life................. 9.25 years
</TABLE>
Had compensation cost for this plan been determined consistent with SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the following pro forma amounts:
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Net income:
As reported........................ $ 12,460
Pro Forma.......................... 11,392
Basic and diluted EPS:
As reported........................ $ .69
Pro Forma.......................... .63
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing module with the following
weighted-average assumptions used for grants in 1998: risk-free interest rate of
5.89%; no expected annual dividend yield; expected life of 10 years; and
expected volatility of 39.94%. Since no options were granted prior to 1998 pro
forma results have not been presented for such periods.
On January 1, 1999, the Company granted options to purchase 211,000 shares
of Common Stock at $5.50 per share which vest equally over a three year period.
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 releasing the other from any further
F-17
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
TREASURY STOCK
On July 31, 1998, Horizon announced that its board of directors approved
the repurchase of up to $10 million of the Company's outstanding common stock.
The shares may be purchased from time to time, subject to market conditions, in
the open market or in privately negotiated transactions. As of December 31,
1998, the Company had repurchased 1,155,000 shares of common stock for a total
cost of $7,582,000 through debt borrowings. See Note 6.
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 terminated
on September 30, 1998. Included in accounts receivable from related parties at
December 31, 1998 is $12,000 receivable for direct and general and
administrative costs.
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The marine construction industry in the Gulf of Mexico is seasonal, with
contracts being awarded in the spring and early summer and the work being
performed before the onset of adverse winter weather conditions. Seasonality and
adverse weather conditions historically have resulted in lower revenues in the
fourth and first quarters. Full year results are not a direct multiple of any
quarter because of this seasonality.
The following table sets forth selected quarterly information for 1998 and
1997. The Company believes that all necessary adjustments have been indicated in
the amount stated below to present fairly the results of such periods.
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------
QUARTER ENDED
--------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Contract revenues.................... $ 18,611 $ 34,311 $ 34,894 $ 31,986
Gross profit......................... 5,384 8,791 7,349 6,317
Operating income..................... 3,445 6,988 5,041 4,247
Net income........................... 2,644 4,799 2,949 2,068
Net income per share................. $ 0.19 $ 0.24 $ 0.15 $ 0.11
Weighted average shares.............. 14,076,480 19,608,607 19,740,572 18,867,213
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------
QUARTER ENDED
--------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Contract revenues.................... $ 4,505 $ 7,132 $ 10,594 $ 13,913
Gross profit (loss).................. (1,406) 1,537 3,205 2,704
Operating income (loss).............. (1,903) 866 2,415 1,874
Net income (loss).................... (2,154) 755 2,193 1,482
Net income (loss) per share.......... $ (0.16) $ 0.05 $ 0.16 $ 0.11
Weighted average shares.............. 13,750,000 13,750,000 14,016,324 13,858,827
</TABLE>
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 15, 1999.
HORIZON OFFSHORE, INC.
By: /s/ DAVID W. SHARP
DAVID W. SHARP
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------- ---------------
<C> <S> <C>
/s/ JONATHAN D. POLLOCK Chairman of the Board March 15, 1999
JONATHAN D. POLLOCK
/s/ BILL J. LAM President and Director March 15, 1999
BILL J. LAM (Principal Executive Officer)
/s/ DAVID W. SHARP Chief Financial Officer March 15, 1999
DAVID W. SHARP (Principal Financial and
Accounting Officer)
/s/ JAMES DEVINE Director March 15, 1999
JAMES DEVINE
/s/ GUNNAR HIRSTI Director March 15, 1999
GUNNAR HIRSTI
/s/ EDWARD L. MOSES, JR. Director March 15, 1999
EDWARD L. MOSES, JR.
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER
- ------------------------
3.1 -- Amended and Restated Certificate of
Incorporation of the Company(1)
3.2 -- Bylaws of the Company(1)
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(1)
10.1 -- Form of Indemnity Agreement by and
between the Company and each of its
directors(1)
10.2 -- Reimbursement and Indemnity Agreement
dated as of June 10, 1997 between the
Company and Elliott Associates, L.P.(1)
10.3 -- The Company's Stock Incentive Plan(1)*
10.4 -- Form of Stock Option Agreement under the
Company's Stock Incentive Plan(1)*
10.5 -- Employment and Non-Competition Agreement
dated as of January 1, 1998 between the
Company and Bill J. Lam(1)*
10.6 -- Employment and Non-Competition Agreement
dated as of January 1, 1998 between the
Company and David W. Sharp(1)*
10.7 -- Employment and Non-Competition Agreement
dated as of January 1, 1998 between the
Company and James K. Cole(1)*
10.8 -- Credit Agreement dated as of October 27,
1997 among Den norske Bank ASA, Horizon
Vessels, Inc. and Horizon Offshore
Contractors, Inc.(1)
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.(1)
10.10 -- Alliance Agreement dated as of December
4, 1997 among Det Sondenfjelds-Norske
Dampskibsselskab ASA, the Company,
Highwood Partners, L.P., and Westgate
International, L.P.(1)
10.11 -- Stockholder's Agreement dated as of
December 4, 1997 among Det Sondenfjelds-
Norske Dampskibsselskab ASA, the
Company, Highwood Partners, L.P., and
Westgate International, L.P.(1)
10.12 -- Memorandum of Agreement dated as of
December 4, 1997 among DSND Shipping AS
and Horizon Vessels, Inc. and "Barecon
89" Standard Bareboat Charter(1)
10.13 -- Option Agreement dated as of December 4,
1997 between the Company and DSND
Oceantech, Ltd.(1)
10.14 -- Registration Rights Agreement dated as
of December 4, 1997 among the Company,
Highwood Partners, L.P., and Westgate
International, L.P.(1)
10.15 -- 10% Subordinated Note due March 31, 2003
payable to the order of Westgate
International, L.P.(1)
10.16 -- 10% Subordinated Note due March 31, 2003
payable to the order of Highwood
Partners, L.P.(1)
10.17 -- Form of Purchase Agreement(1)
10.18 -- Services Agreement dated as of September
30, 1997 between the Company and Horizon
Barge & Towing, Inc.(1)
10.19 -- Agreement for Purchase and Sale of
Vessels dated as of May 30, 1997 between
HLS Offshore, L.L.C. and CGI Marine
Corporation(1)
10.20 -- Vessel Purchase Agreement dated as of
December 2, 1997 between Horizon Barge &
Towing, Inc. and Horizon Vessels,
Inc.(1)
10.21 -- Vessel Purchase Option Agreement dated
and effective as of May 15, 1998 between
Big Hook, L.L.C. and Horizon Vessels,
Inc.(2)
10.22 -- Bareboat Charter dated as of May 15,
1998 between Big Hook, L.L.C. and
Horizon Vessels, Inc.(2)
10.23 -- Vessel Purchase Agreement dated as of
May 27, 1998 between OPI Vessels, Inc.
and Horizon Vessels, Inc.(2)
E-1
<PAGE>
10.24 -- Settlement Agreement dated as of June
10, 1997 between HLS Offshore L.L.C.,
Mannai Marine Co. Limited and RANA
S.r.l.(1)
10.25 -- Consulting Agreement dated January 1,
1998 between the Company and Edward L.
Moses, Jr.(1)*
10.26 -- Letter Agreement dated December 5, 1997
between the Company and Crossbay and
Ventures, Ltd.(1)
10.27 -- Letter Agreement dated December 5, 1997
between the Company and Crossbay and
Ventures, Ltd.(1)
10.28 -- Loan Agreement dated December 30, 1998
among Horizon Vessels, Inc., Horizon
Offshore Contractors, Inc., The CIT
Group/Equipment Financing, Inc., as
agent, and the other lenders specified
therein.(3)
10.29 -- Amended and Restated Credit Agreement
dated as of December 30, 1998 among
Horizon Vessels, Inc., Horizon Offshore
Contractors, Inc., Den norske Bank ASA,
as agent, and the other lenders
specified therein.(3)
10.30 -- Promissory Note due June 30, 2003 dated
August 5, 1998 by the Company payable to
Highwood Associates, L.P.(3)
11.1 -- Statements Regarding Computation of Net
Income (Loss) Per Share(3)
21.1 -- Subsidiaries of the Company(3)
23.1 -- Consent of Arthur Andersen LLP.(3)
27.1 -- Financial Data Schedule(3)
- ------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration Statement No. 333-43965).
(2) Incorporated by reference to the Company's Current Report on Form 8-K dated
May 27, 1998 and filed with the Commission on June 11, 1998.
(3) Filed herewith.
* Management Contract or Compensatory Plan or Arrangement.
(B) REPORTS ON FORM 8-K
No Report 8-K has been filed during the last quarter of 1998.
E-2
EXHIBIT 10.28
LOAN AGREEMENT
AMONG
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
HELLER FINANCIAL LEASING, INC.,
U.S. BANCORP LEASING & FINANCIAL AND
SAFECO CREDIT COMPANY, INC.
AS LENDERS,
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
AS AGENT FOR THE LENDERS
AND
HORIZON VESSELS, INC. AND
HORIZON OFFSHORE CONTRACTORS, INC.
AS BORROWERS
AND
HORIZON OFFSHORE, INC.,
AS GUARANTOR
DATED AS OF DECEMBER 30, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I.
The Loan...............................................................8
Section 1.1 AMOUNT....................................................8
Section 1.2 NOTICE OF DRAWING.........................................9
Section 1.3 REPAYMENT.................................................9
Section 1.4 INTEREST..................................................9
Section 1.5 PAYMENTS.................................................12
Section 1.6 PREPAYMENT...............................................13
Section 1.7 SECURITY.................................................16
Section 1.8 COMMITMENT FEE...........................................16
Section 1.9 SHARING OF PAYMENTS, ETC.................................16
ARTICLE II.
Conditions Precedent..................................................17
Section 2.1 CONDITIONS PRECEDENT TO FIRST ADVANCE....................17
Section 2.2 CONDITIONS TO SUBSEQUENT ADVANCES........................20
Section 2.3 WAIVER OF CONDITIONS PRECEDENT...........................20
ARTICLE III.
Representations, Warranties and Covenants.............................21
Section 3.1 REPRESENTATIONS OF THE BORROWERs.........................21
Section 3.2 AFFIRMATIVE COVENANTS OF BORROWER........................24
Section 3.3. NEGATIVE COVENANTS OF BORROWERS..........................31
ARTICLE IV.
Events of Default.....................................................36
ARTICLE V.
The Agent.............................................................39
Section 5.1 APPOINTMENT AND DUTIES OF AGENT..........................39
Section 5.2 DISCRETION AND LIABILITY OF AGENT........................39
Section 5.3 EVENT OF DEFAULT.........................................40
Section 5.4 CONSULTATION.............................................41
Section 5.5 COMMUNICATIONS TO AND FROM AGENT.........................41
Section 5.6 LIMITATIONS OF AGENCY....................................41
Section 5.7 NO REPRESENTATIONS OR WARRANTY...........................41
Section 5.8 LENDER CREDIT DECISION...................................42
Section 5.9 INDEMNITY................................................42
Section 5.10 RESIGNATION..............................................42
Section 5.11 DISTRIBUTION.............................................42
Section 5.12 LIMITATION OF SUITS......................................43
Section 5.13 RIGHT OF SETOFF..........................................43
ARTICLE VI.
Miscellaneous.........................................................44
Section 6.1 NOTICES..................................................44
Section 6.2 NO WAIVER................................................45
Section 6.3 APPLICABLE LAW AND JURISDICTION..........................46
Section 6.4 SEVERABILITY.............................................47
<PAGE>
Section 6.5 AMENDMENT................................................47
Section 6.6 ASSIGNMENT AND PARTICIPATION.............................47
Section 6.7 COSTS, EXPENSES AND TAXES................................48
Section 6.8 COUNTERPARTS.............................................48
Section 6.9 SECTION HEADINGS.........................................48
Section 6.10 MERGER...................................................49
Schedule 1 - Lender Commitments
Schedule 2 - Vessels
Exhibit A - Note
Exhibit B - Notice of Drawing
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of December 30, 1998, among HORIZON VESSELS,
INC., a Delaware corporation, HORIZON OFFSHORE CONTRACTORS, INC., a Delaware
corporation (collectively the "Borrowers"), 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 with CIT, the
"Lenders") and CIT as Agent for the Lenders (the "Agent"). Capitalized terms
used herein and not otherwise defined herein are used with the meanings ascribed
thereto in the Definitions Section of this Agreement.
R E C I T A L S:
1. The Borrowers are in the business of owning and operating offshore
construction vessels.
2. The Borrowers have requested financing from the Lenders in the
principal amount of up to USD 60,000,000 (the "Loan") in order to repay existing
indebtedness, complete modifications and upgrades to the vessel PACIFIC HORIZON
and for working capital purposes.
3. The Loan shall be evidenced by the secured promissory note of the
Borrower (the "Note"), substantially in the form of Exhibit A attached hereto
and made a part hereof.
NOW, THEREFORE, in consideration of the above recitals, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
DEFINITIONS:
The following terms shall have the following meanings for all purposes of
this Agreement and shall be equally applicable to both the singular and the
plural forms of the terms herein defined.
"Advance" means a loan by the Lenders to the Borrowers under
this Loan Agreement.
"Affiliate" of any Person means (i) any Person directly or indirectly
controlled by, controlling or under common control with such first Person and
(ii) any director or officer of such first Person or of any Person referred to
in clause (i) above. For the purposes of this definition "control" of any Person
includes (a) with respect to any corporation or other Person having voting
1
<PAGE>
shares or the equivalent and elected directors, managers, or Persons performing
similar functions, the ownership or power to vote, directly or indirectly shares
or the equivalent representing 50% or more of the power to vote in the election
of directors, managers or Persons performing similar functions, (b) ownership of
50% or more of the equity or beneficial interest in any other entity and (c) the
ability to direct the business and affairs of any Person by acting as a general
partner, manager or otherwise.
"Agreement", "this Agreement", "herein", "hereunder"' or other like words
mean this Loan Agreement as originally executed or as modified, amended or
supplemented from time to time pursuant to the provisions hereof.
"Borrowers" means Horizon Vessels, Inc. and Horizon Offshore
Contractors, Inc. and their successors and permitted assigns.
"Business Day" means a day other than a Saturday or a Sunday or a day on
which commercial banks are authorized to be closed in the State of New York or
the State of Texas.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof having maturities of not more than one (1) year from the
date of acquisition, (ii) time deposits (including Eurodollar time deposits) and
certificates of deposit of any bank meeting the qualifications specified in
clause (iv) below with maturities of not more than 90 days from the date of
acquisition, (iii) fully secured repurchase obligations with a term of not more
than 90 days for underlying securities of the types described in clause (i)
entered into with any bank meeting the qualifications specified in clause (iv)
below, (iv) commercial paper issued by the parent corporation of any bank
referred to in this clause (iv) or any commercial bank of recognized standing
having capital and surplus in excess of USD 300,000,000.00 and commercial paper
rated at least A-2 or the equivalent thereof by Standard & Poor's Corporation or
at least P-2 or the equivalent thereof by Moody's Investor Services, Inc., and
in each case maturing within 90 days after the date of acquisition, and (v)
remarketed certificates of participation issued through any bank meeting the
qualifications specified in clause (iv) above rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investor Services, Inc. and maturing within 90
days after the date of acquisition.
"Closing Date" means any Business Day on or prior to December 30, 1998 on
which the first Advance is made as designated by the Borrowers in their Notice
of Drawing.
2
<PAGE>
"Collateral Value" has the meaning set forth in Section 1.6(a)(ii) hereof.
"Commitment" means USD 60,000,000.
"Controlled Group" means a "controlled group of corporations" as defined
in Section 1563(a) of the Internal Revenue Code of 1986, as amended, without
regard to Section 1563(a)(4) and (e)(3)(c) of such Code, of which either
Borrower is a part.
"Current Assets" means the assets of the Guarantor on a consolidated basis
which would in accordance with GAAP be classified as current assets of a
corporation conducting a business the same as or similar to the Borrowers and
the Guarantor.
"Current Ratio" means the ratio of the Guarantor's Current Assets to the
Guarantor's Current Liabilities.
"Current Liabilities" means indebtedness of the Guarantor on a
consolidated basis which would in accordance with GAAP be classified as current
liabilities of a corporation conducting a business the same as or similar to the
Borrowers and the Guarantor, but excluding other debt that is specifically
subordinated to the Loan on terms reasonably acceptable to the Agent.
"Debt Ratio" means the Guarantor's total consolidated long-term funded
debt plus capitalized lease obligations divided by the sum of such consolidated
long-term funded debt, capitalized lease obligations and stockholders' equity.
"DnB" means Den norske Bank ASA, a Norwegian bank.
"DnB Credit Facility" means the Amended and Restated Credit Agreement
dated as of the date hereof, among DnB, the Borrowers and the Guarantor as the
same may be extended, modified or replaced.
"Dollars" or "USD" means lawful currency of the United States of America.
"Drawdown Date" means the date upon which an Advance is made.
"Equipment" shall have the meaning set forth in Section 1.01 of the
Security Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" has the meaning set forth in Article IV hereof.
3
<PAGE>
"EBITDA" means, for any period, the consolidated earnings of the Guarantor
during such period from continuing operations, before gains or losses on sales
of assets (to the extent such gains or losses are included in earnings from
continuing operations) and extraordinary items, as determined under GAAP,
federal, state, foreign and local income taxes, Interest Expense, depreciation
and amortization.
"Excluded Income Taxes" has the meaning set forth in Section 1.5(a)
hereof.
"Fixed Charge Coverage Ratio" means for any period, EBITDA divided by the
sum total of Interest Expense on the Loan, actual Taxes paid and any required
payments under this Agreement and the DnB Credit Facility.
"Fixed Rate" means the sum of (i) the Treasury Rate, (ii) 265 basis points
and (iii) the swap spread on the date the Fixed Rate is elected by the Borrowers
as reported on page 883, or its successor, of the Dow Jones Telerate System.
"GAAP" means generally accepted accounting principles in effect from time
to time in the United States of America.
"Governmental Agencies" means any government or any state, department or
other political subdivision thereof or governmental body, agency, authority,
department or commission having jurisdiction over the Borrowers or their
properties (including without limitation any court or tribunal) exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and any corporation, partnership or other entity
directly or indirectly owned by the foregoing.
"Guaranty" means the guaranty of the Guarantor in favor of the Agent, in
form and substance reasonably acceptable to the Agent.
"Guarantor" means Horizon Offshore, Inc., a Delaware corporation.
"Hazardous Substances" means petroleum and used oil, or any other
pollutant or contaminant, hazardous, dangerous or toxic waste, substance or
material as defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601, ET SEQ. (hereinafter
called "CERCLA"); the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss. 6901, ET SEQ. (hereinafter called "RCRA"); the Toxic Substances
Control Act, as amended, 15 U.S.C. ss. 2601, ET SEQ. (hereinafter called
"TSCA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. ss.
1801, ET SEQ. (hereinafter called "HMTA"); the Oil Pollution Act of 1990, Pub.L.
No. 101-380, 104 Stat. 484 (1990) (hereinafter called "OPA"); or any other
statute, law, ordinance,
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code or regulation of any Governmental Agency relating to or imposing liability
or standards of conduct concerning the use, production, generation, treatment,
storage, recycling, handling, transportation, release, threatened release or
disposal of any hazardous, dangerous or toxic waste, substance or material,
currently in effect or at any time hereafter adopted.
"Highwood Note" means the promissory note of the Guarantor in favor of
Highwood Partners, L.P., a Delaware limited partnership, dated August 5, 1998 in
the principal amount of USD 10,000,000 issued in connection with the Guarantor's
stock repurchase program as adopted by the Board of Directors of the Guarantor
on July 29, 1998.
"Indebtedness" of the Borrowers or the Guarantor means all items of
indebtedness which, in accordance with GAAP, would be included in determining
liabilities as shown on the liability side of a balance sheet of the Borrowers
or the Guarantor, as of the date as of which indebtedness and liabilities is to
be determined and shall include all indebtedness and liabilities of others
assumed or guaranteed by the Borrowers or the Guarantor or in respect of which
the Borrowers or the Guarantor are secondarily or contingently liable (other
than by endorsement of instruments in the course of collection and performance
guarantees and similar transactions entered into in the ordinary course of
business) whether by reason of any agreement to acquire such indebtedness or to
supply or advance sums or otherwise but shall exclude deferred Taxes.
"Indemnitee" means the Agent, the Lenders and their officers, directors,
employees, representatives, agents and Affiliates.
"Intercreditor Agreement" means the Intercreditor Agreement dated as of
the date hereof between the Agent and DnB in form and substance satisfactory to
the Lenders, as amended, from time to time.
"Interest Period" has the meaning set forth in Section 1.4(d) hereof.
"Interest Rate" has the meaning set forth in Section 1.4(b) hereof.
"LIBOR Rate" means the one-month rate of interest per annum at which
deposits in Dollars are offered to major banks in the London interbank market at
approximately 11:00 a.m. (London time), as reported and published in the Wall
Street Journal for the 15th day of each month, or, if the 15th day of the month
is not a day for which the Wall Street Journal reports LIBOR, then on the first
preceding day on which the Wall Street Journal reports the LIBOR and shall
become effective as of the first day of the succeeding
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calendar month and shall continue in effect to, and including, the last day of
such month.
"Loan" means the current principal amount and unpaid interest outstanding
under this Agreement.
"Loan Documents" means the Note, this Agreement, the Mortgages, the
Security Agreement, the Guaranty and the Intercreditor Agreement.
"Majority Lenders" shall mean those Lenders holding at least 66% of the
Loan.
"Material adverse effect" means having a material adverse effect on the
business, properties or condition (financial or otherwise) of the Borrowers and
the Guarantor taken as a whole.
"Maturity Date" means the date eighty-four (84) months after the date of
the third Advance, but in no event later than June 30, 2006.
"Mortgages" means the United States First Preferred Fleet Mortgage on the
U.S. flag Vessels, the Vanuatu First Preferred Fleet Mortgage on the Vanuatu
flag Vessels and the Bahamian Statutory Mortgage and Deed of Covenants
concerning the Bahamas flag Vessel.
"Net Worth" means, at a particular date, the sum of the Guarantor's
capital stock (excluding treasury stock), warrants, surplus (including earned
surplus, capital surplus and the balance of the current profit and loss account
not transferred to surplus), debt that is specifically subordinated to the Loan
on terms acceptable to the Agent accounted on a consolidated basis appearing on
a consolidated balance sheet prepared in accordance with GAAP as of the date of
determination and after deducting therefrom the net book value of all assets
(after deducting any reserves applicable thereto) which would be treated as
intangibles under GAAP (including without limitation, such items as goodwill,
trademarks, trade names, patents and licenses, franchises and operating rights).
"Note" means the promissory note of the Borrowers in favor of the Agent,
substantially in the form of Exhibit A attached hereto and made a part hereof.
"Notice of Drawing" means the Notice of Drawing from the Borrowers to the
Agent, substantially in the form of Exhibit B attached hereto and made a part
hereof.
"Orderly Liquidation Value" has the meaning set forth in Section
1.6(a)(iii) hereof.
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"Payment Date" has the meaning set forth in Section 1.3(a) hereof.
"Permitted Acquisition" means an acquisition by the Borrowers of an asset
or an entity if such asset or entity is acquired in furtherance of the
Borrowers' current line of business.
"Person" means any natural person, corporation, partnership, limited
liability company, firm, association, government, Governmental Agency or any
other entity other than the Borrowers and whether acting in an individual,
fiduciary or other capacity.
"Plan" means any employee pension benefit plan subject to Title IV of
ERISA and maintained by either Borrower or any member of a Controlled Group, or
any such plan, to which either Borrower or any member of a Controlled Group is
required to contribute on behalf of any of its employees.
"Prepayment Premium" means the prepayment premiums required by Section
1.6(b) hereof.
"Prime Rate" means with respect to any Interest Period, the rate publicly
announced in New York, New York from time to time as the prime rate of The Chase
Manhattan Bank N.A. (or any successor thereof) ("Chase"). The Prime Rate shall
be determined by the Agent at the close of business two (2) Business Days before
a Payment Date, and shall be effective to but not including the next applicable
Payment Date. The Prime Rate is not intended to be the lowest rate of interest
charged by Chase or the Lenders in connection with extensions of credit to
debtors.
"Responsible Officer" means the Borrowers' chief executive officer, the
Borrowers' chief financial officer or any other officer having principal
responsibility for the financial affairs of the Borrowers.
"Security Agreement" means the Security Agreement among the Agent and the
Borrowers dated as of the date hereof in form and substance satisfactory to the
Agent.
"Taxes" has the meaning set forth in Section 1.5(a) of this Agreement.
"Total Loss" means in respect of a Vessel or an item of Equipment (i) the
actual or constructive or compromised or arranged total loss of such Vessel or
item of Equipment; or (ii) the requisition for title or other compulsory
acquisition of such Vessel or any item of Equipment otherwise than by
requisition for hire; or (iii) the capture, seizure, attachment, detention or
confiscation of such Vessel or any item of Equipment by any government or by
persons acting or purporting to act on behalf of
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any government unless such Vessel or any item of Equipment is released from such
seizure, attachment, detention or confiscation within thirty (30) days of the
occurrence thereof. A Total Loss shall be deemed to have occurred (a) in the
event of an actual total loss of a Vessel or any item of Equipment on the date
of such loss, (b) in the event of damage to a Vessel or any item of Equipment
which results in a constructive or compromised or arranged total loss of such
Vessel or any item of Equipment on the date of the occurrence of the event
giving rise to such damage, or (c) in the case of any event referred to in
clauses (ii) or (iii) above, on the date of the occurrence of such event.
"Treasury Rate" means the interpolated rate per annum for a U.S. Treasury
security with a maturity equal to the remaining term of the Loan at the time the
Borrowers elect to use the Fixed Rate. The Treasury Rate will be determined at
the close of business on the third Business Day after the Borrowers elect to use
the Fixed Rate based on the yields to maturity for U.S. Treasury securities
reported on page 5 ("U.S. Treasury and Money Markets") of the information
ordinarily provided by Dow Jones Telerate System.
"Vessels" means the five (5) U.S. flag vessels, the four (4) Vanuatu flag
vessels and the one (1) Bahamas flag vessel listed on Schedule 2 attached
hereto.
"Working Capital" means the excess of the Guarantor's Current Assets over
its Current Liabilities.
ARTICLE I.
THE LOAN
Section 1.1 AMOUNT.
(a) Subject to the terms and conditions of Section 2.1 of this Agreement,
each Lender agrees, severally and not jointly, to make its percentage share of
the Commitment available to the Borrowers by making Advances to the Borrowers in
an aggregate principal amount up to the lesser of (1) Collateral Value
determined in accordance with Section 1.6(a)(ii) and (2) the Commitment.
(b) Advances made under this Agreement are referred to as the "Loan." All
Advances shall be advanced and made ratably by the Lenders in accordance with
each Lender's portion of the Commitment on the date the Advance is made.
(c) The Loan shall be made in three (3) Advances. Subject to the
limitation contained in Section 1.1(a) above, the Advances shall be in the
following amounts:
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(i) First Advance - USD 50,000,000
(ii) Second Advance - USD 5,000,000
(iii) Third Advance - USD 5,000,000
(d) The second and third Advances may be made on the same date if the
conditions of Section 2.2 below are satisfied.
(e) If the third Advance is not made by June 30, 1999, the obligation of
the Lenders to make such amount available to the Borrowers shall terminate.
Section 1.2 NOTICE OF DRAWING.
The Borrower shall make a request for an Advance by sending to the Agent a
written Notice of Drawing not later than 11:00 a.m., Arizona Time, two (2)
Business Days prior to the date such Advance is requested setting forth the date
the Advance is required and the bank account or accounts to which the Advance is
to be remitted. The Notice of Drawing shall be received by the Agent no later
than two (2) Business Days immediately preceding the Drawdown Date. The Notice
of Drawing shall be irrevocable.
Section 1.3 REPAYMENT.
(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 final installment shall include an
amount sufficient to discharge the accrued and unpaid
interest and principal in respect of the Note.
(b) The Loan shall be evidenced by and repayable in accordance with the
terms hereof and of the Note.
Section 1.4 INTEREST.
(a) The Borrowers shall jointly and severally pay interest, in arrears,
on the unpaid principal amount of the Loan from the Closing Date
until the principal amount of the Loan is paid in full on the last
day of each calendar month, commencing January 30, 1999 up to and
including
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the Maturity Date (each such date an "Interest Payment Date") at a
rate of interest per annum (computed on the basis of a 365-day year
and actual days elapsed) equal to the Interest Rate; PROVIDED,
HOWEVER, that all interest accrued on the Loan and unpaid on the
Maturity Date shall be paid on the Maturity Date.
(b) The term "Interest Rate" shall mean, for an Interest Period (as
hereinafter defined), an interest rate per annum at the rate (i)
certified by the Lender to be the LIBOR Rate, plus two and
sixty-five hundredths percent (2.65%)or (ii) if the Borrowers have
exercised the option contained in Section 1.4(f) below, the Fixed
Rate.
(c) If at any time the Agent shall determine that by reason of
circumstances affecting the London interbank market adequate and
reasonable means do not exist for ascertaining the Interest Rate
based on the LIBOR Rate for the succeeding Interest Period or that
the making or continuance of the Loan at an Interest Rate based on
the LIBOR Rate has become impracticable as a result of a contingency
occurring after the date of this Agreement which materially and
adversely affects the London interbank market, the Agent shall
notify the Borrower that the Interest Rate shall be the Prime Rate,
plus one- half of one percent (.5%) per annum. As used in this
Agreement, "Interest Period" shall mean each respective and
successive calendar month commencing on the last day of the month in
which the Closing Date occurs; PROVIDED, HOWEVER, that no Interest
Period shall commence or extend past the Maturity Date.
(d) Any amount of principal or any other amount due hereunder which is
not paid when due, whether at stated maturity, by acceleration or
otherwise, shall bear interest from the date when due until such
amount is paid in full, payable on demand, at a rate per annum equal
at all times to two percent (2%) per annum above the Interest Rate.
(e) In no event shall any interest rate provided for in this Agreement
or the Note exceed the maximum rate permitted by the then applicable
law. It is the intention of the parties hereto to strictly comply
with applicable usury laws; accordingly, it is agreed that,
notwithstanding any provision to the contrary in this Agreement, in
the Notes, or in the other Loan Documents, in no event shall this
Agreement, the Note, or the other Loan Documents be construed to
charge, contract for or require the payment or permit the collection
of interest in excess of the maximum amount permitted by applicable
law. If any such excess interest is contracted for, charged or
received
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under this Agreement, the Note or the other Loan Documents, or in
the event that all of the principal balance shall be prepaid, so
that under any of such circumstances the amount of interest
contracted for, charged or received on the principal balance shall
exceed the maximum amount of interest permitted by applicable law,
then in such event (i) the provisions of this Section 1.4(e) shall
govern and control, (ii) neither the Borrowers nor any other person
or entity now or hereafter liable for the payment thereof shall be
obligated to pay the amount of such interest to the extent that it
is in excess of the maximum amount of interest permitted by
applicable law, (iii) any such excess which may have been collected
shall be either applied as a credit against the then unpaid
principal balance or refunded to the Borrower, at the option of the
Lenders, and (iv) the effective rate of interest shall be
automatically reduced to the maximum lawful contract rate allowed
under applicable law as now or hereafter construed by the courts
having jurisdiction thereof. It is further agreed that without
limitation of the foregoing, all calculations of the rate of
interest contracted for, charged or received under this Agreement,
the Note and the other Loan Documents which are made for the purpose
of determining whether such rate exceeds the maximum lawful contract
rate, shall be made, to the extent permitted by applicable law, by
amortizing, prorating, allocating and spreading in equal parts
during the period of the full stated term of the indebtedness
evidenced hereby, all interest at any time contracted for, charged
or received from the Borrowers or otherwise by the Lenders in
connection with such indebtedness; PROVIDED, HOWEVER, that if any
applicable state law is amended or the law of the United States of
America preempts any applicable state law, so that it becomes lawful
for the Lenders to receive a greater simple interest per annum rate
than is presently allowed, the Borrowers agree that, on the
effective date of such amendment or preemption as the case may be,
the lawful maximum hereunder shall be increased to the maximum
simple interest per annum rate allowed by the higher of the amended
state law or the law of the United States of America.
(f) The Borrowers may elect to pay interest on the Loan at the Fixed
Rate on the following terms:
(i) If no election is received by the Agent, the Borrowers
shall pay interest on the Loan at the LIBOR Rate plus 2.65%.
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(ii) The Borrowers may elect to pay interest on the Loan at
the Fixed Rate only once during the term of this Agreement.
(iii) Any election by the Borrowers to pay interest at the
Fixed Rate must be made by written notice, to the Agent, no later
than three (3) Business Days in advance of an Interest Payment Date.
(iv) Any election by the Borrowers to pay interest at the
Fixed Rate shall be irrevocable and shall be effective commencing on
the next month's Interest Payment Date and for the remaining term of
the Loan.
(v) The Fixed Rate shall be evidenced by a letter agreement
sent by the Agent to the Borrowers within three (3) Business Days
after the Borrowers' notice to the Agent of their election to pay
interest at the Fixed Rate.
Section 1.5 PAYMENTS.
(a) The payment obligations of the Borrowers under the Note and all
other amounts payable under this Agreement shall be paid to the
Agent at such address as the Agent may designate (not less than one
(1) Business Day prior to the due date therefor), not later than the
close of business on the due date thereof, in lawful money of the
United States. All payments shall be made (i) without set-off,
counterclaim or condition and (ii) free and clear of, and without
deduction for or on account of, any present or future taxes, levies,
duties, imposts, charges, fees, deductions or withholdings of any
nature ("Taxes"), unless the Borrowers are required by law or
regulation to make payment subject to any Taxes. In the event that
the Borrowers are required by law or regulation to make any
deduction or withholding on account of any Taxes from any payment
due under this Agreement, then: (a) the Borrowers shall notify the
Agent promptly as soon as they become aware of such requirement and
shall remit promptly the amount of such Taxes to the appropriate
taxation authority, and in any event prior to the date on which
penalties attach thereto; and (b) such payment shall be increased by
such amount as may be necessary to ensure that the Agent receives a
net amount, free and clear of all Taxes, equal to the full amount
which the Agent would have received had such payment not been
subject to such Taxes (other than Excluded Income Taxes as such term
is defined below). Notwithstanding the foregoing, the Borrowers
shall not be liable for, or required to pay, any Taxes
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which are based on the overall income of either the Agent or Lenders
or franchise taxes imposed at any time on either the Agent or the
Lenders by any Governmental Agency ("Excluded Income Taxes"). Each
such payment or reimbursement by the Borrowers shall be net of any
credit or the value of any deduction received by the Agent or the
Lenders thereon to the extent that the same can be determined by the
Agent (as certified by the Agent to the Borrowers, such certificate
to be conclusive absent manifest error). The Borrowers shall
indemnify the Agent and the Lenders against any liability of the
Lenders in respect of such Taxes (other than Excluded Income Taxes)
and shall supply copies of applicable tax receipts.
(b) If any payment to be made by the Borrowers shall become due on a day
which is not a Business Day, such payment shall be made on the next
succeeding Business Day.
(c) Each payment to be made on a Payment Date, an Interest Payment Date
and all prepayments, and other payments shall be applied first to
the payment of accrued and unpaid interest on the Loan, then to the
payment of all other amounts due under this Agreement and the other
Loan Documents, and the balance shall be applied to the payment of
principal due under the Note in inverse order of payment.
(d) The Borrowers shall jointly and severally indemnify the Lenders and
the Agent on demand against all costs, expenses, liabilities and
losses (including funding losses) actually incurred by the Lenders
and the Agent as a result of or in connection with: (a) the
occurrence and/or continuance of any Event of Default (or event
which, with the giving of notice and/or lapse of time or other
applicable condition would constitute an Event of Default); and/or
(b) any judgment or order which relates to any sum due hereunder
being expressed in a currency other than the currency expressed to
be due hereunder and as a result of a variation in rates of exchange
between the rate at which such amount is converted into such other
currency for the purposes of such judgment or order and the rate
prevailing on the date of actual payment of such amount pursuant
thereto; and/or (c) any postponement of the Closing Date occurring
because of one or more of the conditions precedent set forth in
Article II shall not have been satisfied or waived as a result of
the Borrowers' failure to satisfy such condition; and/or (d) any
payment of principal of or interest on the Note made on a Business
Day which is not a Payment Date. The above indemnities are separate
and independent obligations of
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the Borrowers and apply irrespective of any indulgence granted by
the Lenders or the Agent.
Section 1.6 PREPAYMENT.
(a) MANDATORY PREPAYMENT.
(i) (1) TOTAL LOSS. If there shall have occurred a Total Loss, on
the earlier of (x) the date insurance proceeds are received or
(y) one hundred twenty (120) days after the date of occurrence
of the Total Loss the Borrowers shall either provide as
collateral a replacement vessel or equipment acceptable to the
Agent which is, as determined by the appraiser referred to in
Section 1.6(a)(ii) below, of comparable or greater value to
the lost Vessel, or Equipment, which replacement vessel or
equipment will be added to the lien of the Mortgages or the
Security Agreement or, if after giving effect to the release
of such lost Vessel or Equipment from the lien of the
Mortgages or the Security Agreement, as applicable, the ratio
of the Collateral Value to the outstanding principal amount of
the Loan shall be less than 1.25 to 1, the Borrowers shall pay
within five (5) days of the Agent's demand, the amount of the
Loan necessary to restore such ratio and shall pay accrued
interest thereon to the date of such prepayment together with
any other amount due hereunder or under any Loan Document.
(2) PARTIAL LOSS. If there shall have occurred loss or damage
to a Vessel or any item of Equipment which does not rise to
the level of a Total Loss, the underwriters may pay direct for
the repair, salvage or other charges or, if the Borrowers
shall have first fully repaired the damage or paid all of the
salvage or other charges, may pay the Borrowers as
reimbursement therefore; provided, however, that if such
amounts are greater than USD 500,000.00 and the Borrowers
shall not have fully repaired the damage or paid all of the
salvage or other charges or if an Event of Default has
occurred and is continuing, the underwriters shall not make
such payment without first obtaining the written consent of
the Agent. If the Agent does not so consent, all such proceeds
shall be paid to the Agent for the purpose of prepaying
amounts outstanding hereunder or under any other Loan
Document.
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(3) The Agent shall apply payments received pursuant to this
Section 1.6(a)(i) in accordance with Section 1.5(c) hereof. No
Prepayment Premium shall be payable with respect to any
Mandatory Prepayment made by the Borrower pursuant to this
Section 1.6(a).
(ii) COLLATERAL VALUE. On such dates as may be requested by the
Agent, but not more than once in any twelve (12) month period,
the Agent shall arrange to have Orderly Liquidation Value of
each of the Vessels determined at the Borrowers' expense by an
independent appraisal firm chosen by the Agent and reasonably
acceptable to the Borrowers. The most recent determination of
the aggregate Orderly Liquidation Values of all of the Vessels
is hereinafter referred to as the "Collateral Value". If the
ratio of the Collateral Value to the outstanding principal
amount of the Loan shall be less than 1.25 to 1, then the
Borrowers shall either prepay within five (5) days of the
Agent's demand the amount of the Loan necessary to restore the
ratio referred to herein together with payment of accrued
interest thereon or provide additional security for the Loan
which shall be acceptable in the sole opinion of the Agent for
these purposes. The Agent shall apply payments received under
this Section 1.6(a)(ii) in accordance with Section 1.5(c)
hereof. No Prepayment Premium shall be payable with respect to
any prepayment required by this Section 1.6(a)(ii).
(iii) ORDERLY LIQUIDATION VALUE. The "Orderly Liquidation Value" of
any Vessel shall have the meaning customarily attributed to it
in the equipment appraisal industry at the time of the
valuation, less the estimated marshalling, reconditioning and
sale expenses designed to maximize the resale value of such
Vessel (as determined by the appraisal firm referred to
above). The appraisal firm's valuation shall be made with or
without physical inspection at the Agent's discretion;
PROVIDED HOWEVER, that no more than one physical inspection
shall be permitted in any one twelve (12) month period.
(b) VOLUNTARY PREPAYMENT.
(i) After the first anniversary of the Closing Date, the Borrowers
may prepay in full or in part amounts outstanding under the
Note and this Agreement on any subsequent Payment Date after
giving at least
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ten (10) Business Days prior notice of such prepayment and
payment to the Lender of accrued and unpaid interest under the
Note and all other amounts due under this Agreement and the
other Loan Documents, including the Prepayment Premium
referred to below. Any notice of prepayment hereunder shall be
irrevocable.
(ii) The Lender shall apply payments received pursuant to this
Section 1.6(b) in accordance with Section 1.5(c) above.
(iii) Prepayments made under this Section 1.6(b) shall include a
Prepayment Premium as follows:
(A) If made on or before the second anniversary of the
Closing Date - four percent (4%) of the aggregate
principal amount prepaid;
(B) If made on or before the third anniversary of the
Closing Date - three percent (3%) of the aggregate
principal amount prepaid;
(C) If made on or before the fourth anniversary of the
Closing Date - two percent (2%) of the aggregate
principal amount prepaid;
(D) If made on or before the fifth anniversary of the
Closing Date - one percent (1%) of the aggregate
principal amount prepaid; or
(E) If made after the fifth anniversary of the Closing Date
- no Prepayment Premium shall be
due.
Section 1.7 SECURITY.
All amounts due hereunder and under the Note shall be secured by the
Guaranty, the Mortgages and the Security Agreement. In addition, the Agent and
DnB will execute and deliver the Intercreditor Agreement and the Borrowers and
the Guarantor will consent to its terms.
Section 1.8 COMMITMENT FEE.
The Borrowers have paid to the Agent a non-refundable commitment fee of
USD 45,000.00.
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Section 1.9 SHARING OF PAYMENTS, ETC.
The Borrowers agree that, in addition to (and without limitation of) any
right of set-off, bankers' lien or counterclaim a Lender may otherwise have,
each Lender shall be entitled, at its option after an Event of Default has
occurred and is continuing to offset balances held by it for the account of the
Borrowers at any of its offices against any principal of or interest on any
portion of Loan attributable to such Lender hereunder or any other obligation of
the Borrowers hereunder which is not paid (regardless of whether such balances
are then due to the Borrower), in which case it shall promptly notify the
Borrowers and the Agent thereof, PROVIDED that such Lender's failure to give
such notice shall not affect the validity thereof. If a Lender shall obtain
payment of any principal of or interest on any portion of the Loan attributable
to it under this Agreement or other obligation then due to such Lender
hereunder, through the exercise of any right of set-off or lien granted under
Section 5.13 below), bankers' lien, counterclaim or similar right, or otherwise,
it shall promptly purchase from the other Lenders participations in the Loan
attributable to it, or the other obligations of the Borrowers hereunder of, the
other Lenders in such amounts, and make such other adjustments from time to time
as shall be equitable to the end that all the Lenders shall share the benefit of
such payment (net of any expenses which may be incurred by such Lender in
obtaining or preserving such benefit) pro-rata in accordance with their
respective portions of the Loan. To such end all the Lenders shall make
appropriate adjustments among themselves (by the resale of participations sold
or otherwise) if such payment is rescinded or must otherwise be restored. The
Borrowers agree, to the fullest extent they may effectively do so under
applicable law, that any Lender so purchasing a participation in the Loan may
exercise all rights of set-off, bankers' lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of the Loan or other obligations in the amount of such participation.
Nothing contained herein shall require any Lender to exercise any such right or
shall affect the right of any Lender to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness or obligations
of the Borrowers to such Lender.
ARTICLE II.
CONDITIONS PRECEDENT
Section 2.1 CONDITIONS PRECEDENT TO FIRST ADVANCE.
The Lenders execution and delivery of this Agreement and the making of the
first Advance are subject to the following conditions having been satisfied in
the reasonable opinion of the Lenders on or prior to the Closing Date:
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(a) Each of this Agreement and the other Loan Documents shall have been
duly authorized and executed with original counterparts thereof
delivered to the Lenders.
(b) The Borrowers and the Guarantor shall have delivered to the Lenders
evidence of good standing, certificates of incumbency and duly
certified resolutions of their Boards of Directors and all such
other corporate documentation authorizing them to enter into the
transactions contemplated by this Agreement and the other Loan
Documents.
(c) The Lenders shall have received opinions from Jones, Walker,
Waechter, Poitevent, Carrere & Denegre, L.L.P, counsel to the
Borrowers and the Guarantor, and an opinion of Agent's counsel,
Gardere Wynne Sewell & Riggs, L.L.P., each in form and substance
satisfactory to the Lenders.
(d) The representations and warranties contained in Article III of this
Agreement and in each other Loan Document shall be true on the
Closing 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 hereof and no event which, with the
lapse of time or the notice and lapse of time specified in Article
IV hereof, would become such an Event of Default, shall have
occurred and be continuing or shall have occurred at the completion
of the making of the Loan, and the Lenders shall have received
satisfactory certificates signed by Responsible Officers of the
Borrower and the Guarantors, as to all questions of fact involved in
this condition.
(e) There shall have been no material adverse change in the business,
financial condition or operations of the Borrowers and of the
Guarantor taken as a whole since September 30, 1998.
(f) The Lenders shall have received evidence that the person specified
to act as agent for service of process for the Borrowers and the
Guarantor pursuant to Section 6.3 has agreed to so act.
(g) The Lenders shall have received certificates of the Borrowers and
the Guarantor signed by an officer in charge of environmental
affairs and safety as to compliance by the Borrowers and the
Guarantor with all environmental, safety and public health laws and
regulations applicable to the Borrowers and the Guarantor, without
limitation of the foregoing, all other
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laws and regulations affecting or relating to the Vessels, in each
case the non-compliance with which would have a material adverse
effect.
(h) The Borrowers shall have provided evidence of insurance maintained
by the Borrowers or the Guarantor on the Vessels required by Article
I, Section 15 of the U.S. and Vanuatu Mortgages and Part II Section
5 of the Bahamas Deed of Covenants and Article 5 of the Security
Agreement accompanied by a report of the Borrowers' insurance broker
that such insurance complies with the terms of the Mortgages and the
Security Agreement.
(i) The Mortgages shall have duly executed and delivered and all actions
necessary to perfect the security interests created by the Mortgages
shall have been taken; except for the Bahamas Statutory Mortgage
which shall be filed within five (5) Business Days of the date of
the first Advance.
(j) The Security Agreement shall have been duly executed and delivered
and all actions necessary to perfect the security interests created
by the Security Agreement shall have been taken.
(k) All orders, consents, approvals, licenses, authorizations and
validations of, and filings, recordings and registrations with and
exemptions by any Governmental Agency or any Person (other than any
routine filings which may be required after the date hereof with
appropriate governmental authorities in connection with the
operation of the Vessels) required to (i) authorize the execution,
delivery and performance by the Borrowers and the Guarantor of the
Loan Documents to which they are parties or (ii) prevent the
execution, delivery and performance by the Borrowers and the
Guarantor of the Loan Documents to which they are parties from
resulting in a breach of any of the terms or conditions of, or
resulting in the imposition of any lien, charge or encumbrance upon
any properties of the Borrower or the Guarantor pursuant to, or
constituting a default (with due notice or lapse of time or both),
or resulting in an occurrence of any event for which any holder or
holders of Indebtedness may declare the same due and payable under,
any indenture, agreement, order, judgment or instrument under which
the Borrowers or the Guarantor is a party (other than the Mortgages,
or the Security Agreement) or to the Borrowers' knowledge after due
inquiry by which the Borrowers or the Guarantor or their property
may be bound or affected, or under the
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Certificates of Incorporation or By-Laws of the Borrowers or the
Guarantor, shall have been obtained or made.
(l) Confirmation of class certificates for the Vessels (except the PEARL
HORIZON, PACIFIC HORIZON (Derrick) and the PHOENIX HORIZON) from the
American Bureau of Shipping or Lloyds Register of Shipping,
respectively, showing such Vessels to be in the highest class with
such classification society for similar type of vessels, without
recommendations affecting class, dated within thirty (30) days of
the Closing Date.
(m) The Agent shall have received a report appraising the Orderly
Liquidation Value of the Vessels prepared by Marcon International in
form and substance satisfactory to the Lenders.
(n) The Agent shall have received evidence of the amendment and
restatement of the DnB Credit Facility to reduce its amount to USD
30,000,000 and to make such other changes acceptable to the Lenders.
(o) The Lenders shall have received such other documents and instruments
they reasonably request necessary to consummate the transactions
described in this Agreement, in each case in form and substance
reasonably satisfactory to them.
Section 2.2 CONDITIONS TO SUBSEQUENT ADVANCES. The Lenders' obligation to make
Advances subsequent to the first Advance is subject to the following conditions
having been satisfied in the opinion of the Lenders on or prior to the date of
each such subsequent Advance:
(a) Certification by a Responsible Officer that no Event of Default or any
event which with the giving of notice or the passage of time would become an
Event of Default has occurred and is continuing.
(b) For the second Advance, evidence satisfactory to the Agent that the
conversion of the PACIFIC HORIZON (Derrick) has been completed; which such
evidence shall include, but shall not be limited to, a confirmation of class
certificate for such Vessel showing it to be in the highest class of the
American Bureau of Shipping, Lloyds Register of Shipping or such other
classification Society as the Agent may approve for vessels of similar type
without recommendations affecting class, and evidence that the PEARL HORIZON has
become subject to the operation and lien of the Vanuatu First Preferred Fleet
Mortgage in favor of the Agent.
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(c) For the third Advance, evidence satisfactory to the Agent that the
conversion of the PHOENIX HORIZON has been completed; which such evidence shall
include, but shall not be limited to, a confirmation of class certificate for
such Vessel showing it to be in the highest class of the American Bureau of
Shipping for vessels of similar type without recommendations affecting class,
Section 2.3 WAIVER OF CONDITIONS PRECEDENT.
All of the conditions precedent contained in this Article II are for the
sole benefit of the Lenders and the Lenders may waive any or all of them in
their absolute discretion.
ARTICLE III.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 3.1 REPRESENTATIONS OF THE BORROWERs.
Each Borrower represents and warrants that:
(a) It 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, (ii) to enter into and perform its obligations
under each Loan Document to which it is a party, and (iii) to borrow
moneys and guarantee the debts of others.
(b) The execution, delivery and performance by it of each Loan Document
to which it is a party, and any other instrument or agreement
provided for by this Agreement, 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 by-laws, and will not violate any provision of law or of any
order of any court or governmental agency if such violation would
result in a material adverse effect, or constitute (with or without
notice or lapse of time or both) a default under, or result (except
as contemplated by this Agreement) in the creation of any security
interest, 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; this Agreement and
each Loan Document to which it is a party has been duly executed and
delivered by such Borrower and constitutes its legal, valid and
binding agreement or instrument, enforceable in accordance with the
respective terms thereof.
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(c) There are no suits or proceedings pending or to its knowledge
threatened against or affecting the Borrowers or the Guarantor which
if adversely determined would have a material adverse effect.
(d) The principal place of business of the Borrowers and the Guarantor
and the place where all records relating to the transactions
contemplated hereby, including records relating to the operations of
the Vessels are kept is 2500 CityWest Blvd., Suite 2200, Houston,
Texas 77042.
(e) Other than such as have been obtained, no license, consent, approval
of or filing or registration with any Governmental Agency or other
regulatory authority is required for the execution, delivery and
performance of this Agreement or any Loan Document or any instrument
contemplated herein or therein. The Borrowers and the Guarantor are
the holders of all certificates and authorizations of governmental
authorities required by law to enable them to engage in the business
transacted by them.
(f) No part of the proceeds of the Loan will be used for any purpose
that violates the provisions of any of Regulation T, U or X of the
Board of Governors of the Federal Reserve System or any other
regulation of such Board of Governors. The Borrowers are not engaged
in the business of extending credit to others for the purpose of
purchasing or carrying margin stock within the meaning of
Regulations T, U and X of the Board of Governors of the Federal
Reserve System. If requested by the Agent, the Borrowers will
furnish to the Lenders in connection with the Loan hereunder a
statement in conformity with the requirements of Federal Reserve
Form U-1 referred to in said Regulation U. Neither Borrower is an
"investment company" or a company "controlled" by an "investment
company" (as each of such terms is defined or used in the Investment
Company Act of 1940, as amended). No proceeds of the Loan will be
used to acquire any security in any transaction which is subject to
Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended.
(g) The Borrowers have no subsidiaries. The Guarantor has no active
subsidiaries other than the Borrowers. The inactive subsidiaries of
the Guarantor are Horizon Offshore International, Ltd. and Horizon
Group, LDC.
(h) Each of the Borrowers and the Guarantor has filed or caused to be
filed all tax returns required by the United States of America, the
state of its principal place of business and the states where its
business or operations
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require such filings which are required to be filed and has paid or
caused to be paid all taxes as shown on such returns or on any
assessment received by it to the extent that such taxes have become
due and except as to such taxes being contested in good faith by
appropriate proceedings for which adequate reserves are being
maintained. Each of the Borrowers and the Guarantor has established
reserves to the extent believed by it to be adequate for the payment
of additional taxes for years which have not been audited by the
respective tax authorities.
(i) The Guarantor is the sole shareholder of each of the Borrowers.
(j) (i) Each of the Borrowers and the Guarantor has duly complied
with, and the Vessels and its other properties and operations
are in compliance with, the provisions of all applicable
environmental, health and safety laws, codes and ordinances
and all rules and regulations promulgated thereunder of all
Governmental Agencies, the non-compliance with which would
have a material adverse effect.
(ii) As of the date of this Agreement, neither the Borrowers nor
the Guarantor has received notice from any Governmental
Agency, and has no knowledge, of any fact(s) which constitute
a violation of any applicable environmental, health or safety
laws, codes or ordinances, and any rules or regulations
promulgated thereunder of all Governmental Agencies, which
relate to the use or ownership of the Vessels or properties
owned or operated by the Borrowers or the Guarantor.
(iii) Each of the Borrowers and the Guarantor has been issued all
required permits, licenses, certificates and approvals of all
Governmental Agencies relating to (a) air emissions, (b)
discharges to surface water or ground water, (c) noise
emissions, (d) solid or liquid waste disposal, (e) the use,
generation, storage, transportation, treatment, recycling or
disposal of Hazardous Substances or (f) other environmental,
health or safety matters which are material and necessary for
the ownership or operation of the Vessels or other properties
owned or operated by the Borrowers or the Guarantor and such
permits, licenses, certificates and approvals are in full
force and effect on the date of this Agreement, except for
such permits, licenses, certificates and approvals as to which
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the failure to have issued or to have in effect would not
result in a material adverse effect.
(iv) Except in accordance with a valid governmental permit,
license, certificate or approval, there has been no spill or
unauthorized discharge or release of any Hazardous Substance
to the environment at, from, or as a result of any operations
on the Vessels or other properties and operations owned or
operated by either Borrower or the Guarantor required to be
reported to any Governmental Agency by either Borrower or the
Guarantor.
(v) There has been no material complaint, compliance order,
compliance schedule, notice letter, notice of citation or
other similar notice from any applicable environmental agency
delivered to either Borrower or the Guarantor which concerns
the operations of the Vessels or other properties owned or
operated by either Borrower or the Guarantor and which would
result in a material adverse effect.
(k) All representations and warranties made by the Borrower herein or by
either Borrower or the Guarantor pursuant to any Loan Document or
made in any certificate or written statement delivered pursuant
hereto or thereto (i) do not contain any untrue statement of or omit
to state a material fact necessary to make the statements contained
herein or therein not misleading and (ii) shall survive the making
of the Loan hereunder and the execution and delivery to the Agent of
the Note and any other Loan Document.
Section 3.2 AFFIRMATIVE COVENANTS OF BORROWERs.
Until the payment in full of all amounts due under this Agreement and the
Note by the Borrowers, unless compliance shall have been waived by the Lenders,
the Borrowers and the Guarantor agree that:
(a) FINANCIAL STATEMENTS, REPORTS AND INSPECTION.
(i) The Borrowers and the Guarantor will furnish to the Lender:
(A) as soon as possible and in any event within two (2)
Business Days after an officer of the Borrowers has
knowledge of the occurrence of any Event of Default or
of any default in the performance of the Loan Documents,
or any
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event which with the giving of notice or lapse of time,
or both, would constitute an Event of Default or such a
default, which is continuing on the date of such
statement, the statement of the chief financial officer
of the Borrowers setting forth the details of such Event
of Default or event or default and the action which the
Borrowers propose to take with respect thereto;
(B) as soon as available and in any event within forty-five
(45) days after the close of each quarter of the
Guarantor's fiscal years, a copy of quarterly
consolidated financial statements for the Guarantor
prepared in accordance with GAAP and certified by the
chief financial officer or chief accounting officer of
the Borrowers together with consolidating statements of
the Guarantor.
(C) as soon as available and in any event within ninety (90)
days after the close of the Guarantor's fiscal years, a
copy of the consolidated annual audited financial
statements for such year for the Guarantor certified by
Arthur Andersen, LLP or other independent public
accountants of recognized standing acceptable to the
Agent;
(D) as soon as available and in any event within thirty (30)
days after the end of each month, a barge locations
report in form and substance satisfactory to the Agent;
(E) a Barge Activity Schedule as often as is requested by
the Agent.
(F) as soon as possible and in any event by December 1 of
each year an annual business plan for the Borrowers for
the coming year, including projections of utilization of
the Vessels, expenses and revenues; and
(G) (x) as soon as possible, and in any event, within 30
days after the Borrowers or the Guarantor knows
that any Reportable Event with respect to any Plan
has occurred, a statement of an officer of the
Borrowers or the Guarantor setting forth details
as to such Reportable Event and the action which
the Borrowers or the Guarantor
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propose to take with respect thereto, together
with a copy of the notice of such Reportable Event
given to the Pension Benefit Guaranty Corporation
if a copy of such notice is available to the
Borrowers or the Guarantor and (y) promptly after
receipt thereof a copy of any notice relating to a
Reportable Event having a material adverse effect,
the Borrowers, or the Guarantor or any member of
the Controlled Group may receive from the Pension
Benefit Guaranty Corporation or the Internal
Revenue Service with respect to any Plan;
PROVIDED, HOWEVER, this Section 3.2(a)(i)(G)(y)
shall not apply to notice of general application
promulgated by the Department of Labor.
(ii) The Borrowers or the Guarantor will, upon request, furnish to
the Agent such information as the Agent may reasonably request
with respect to the business, affairs or condition (financial
or otherwise) of the Borrowers or the Guarantor and will
permit the Lenders or their representatives at any reasonable
time or times during normal business hours upon three (3)
Business Days' prior notice, to inspect the properties of the
Borrowers or the Guarantor, to inspect, audit and examine the
books or records of the Borrowers or the Guarantor and to take
extracts therefrom and will reimburse the Lenders for all
reasonable expenses incurred in connection therewith.
(iii) Within forty-five (45) days of the close of the first three
quarters of the Borrowers' fiscal year and on the dates that
the annual reports required pursuant to Section 3.2(a)(i)(C)
above are provided to the Lenders, the Borrowers shall furnish
to the Agent a certificate signed by the chief financial
officer or chief accounting officer of the Borrowers
certifying that (x) the representations and warranties
contained in Section 3.1 of this Agreement are correct on and
as of the date of such certificate as though made on and as of
such date except those expressly made as of another date and
(y) the Borrowers are in compliance with all of the covenants
contained in Sections 3.3(m), 3.3(n), 3.3(o), 3.3(p) and
3.3(q) of this Agreement, such certificates showing the
relevant computations for such compliance.
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(b) INSURANCE. The Borrowers shall insure, or cause to be insured, the
Vessels pursuant to the terms of Article I, Section 15 of the U.S.
and Vanuatu Mortgages and Part II, Section 5 of the Bahamas Deed of
Covenants and the Equipment pursuant to the terms of Article 5 of
the Security Agreement. The Borrowers will promptly notify the
Lenders of any material changes in such insurances or any change in
the underwriters or clubs providing such insurances. The Borrowers
shall annually but no later than the anniversary of the date of this
Agreement furnish the Lenders with evidence of all such insurance
policies currently in force.
(c) OTHER DEBT. The Borrowers and the Guarantor will promptly pay and
discharge any and all Indebtedness, liens, charges, and all Taxes
imposed upon them or upon their income or profits, or upon any of
their properties prior to the date on which penalties accrue
thereon, and lawful claims which, if unpaid, might become a lien or
charge upon the property of the Borrowers or the Guarantor, except
such as may in good faith be contested or disputed, provided
appropriate reserves are maintained in accordance with GAAP. A
portion of the proceeds of the first Advance will be used to prepay
all amounts outstanding under the Highwood Note.
(d) MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. The Borrowers and the
Guarantor will preserve and maintain their corporate existence,
their business as presently conducted, and all of their rights,
privileges and franchises necessary or desirable in the normal
conduct of said business, and will conduct their businesses in an
orderly, efficient and regular manner.
(e) FINANCIAL RECORDS. The Borrowers and the Guarantor will keep books
of record and account in which proper entries will be made of their
transactions in accordance with GAAP.
(f) MAINTENANCE OF VESSELS. The Borrowers will maintain, or cause to be
maintained, the Vessels in the highest classification for such
vessels with the American Bureau of Shipping, Lloyds Register of
Shipping or such other classification society as the Agent may
approve.
(g) ENVIRONMENTAL COMPLIANCE.
(i) The Borrowers will comply with, will cause the Guarantor to
comply with and will use their best efforts to cause their
agents, contractors and subcontractors (while such Persons are
acting within
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the scope of their contractual relationship with the
Borrowers) to so comply with (i) all applicable environmental,
health and safety laws, codes and ordinances, and all rules
and regulations promulgated thereunder of all Governmental
Agencies and (ii) the terms and conditions of all applicable
permits, licenses, certificates and approvals of all
Governmental Agencies now or hereafter granted or obtained
with respect to the Vessels or other properties owned or
operated by the Borrowers and the Guarantor unless such
compliance would violate the laws or regulations of the
jurisdictions in which the Vessels are located or operating.
(ii) The Borrowers will use their and will cause the Guarantor to
use its best efforts and safety practices to prevent the
unauthorized release, discharge, disposal, escape or spill of
Hazardous Substances on or about the Vessels or other
properties owned or operated by the Borrowers or the
Guarantor.
(h) ENVIRONMENTAL NOTIFICATIONS. The Borrowers shall notify the Agent,
in writing, within five (5) Business Days of any of the following
events occurring after the date of this Agreement:
(i) Any written notification made by the Borrowers or the
Guarantor to any U.S. or foreign federal, state or local
environmental agency required under any federal, state or
local environmental statute, regulation or ordinance relating
to a spill or unauthorized discharge or release of any
Hazardous Substance to the environment at, from, or as a
result of any operations on, the Vessels or other properties
owned or operated by the Borrowers or the Guarantor;
(ii) Knowledge by an officer of the Borrowers of receipt of service
by the Borrowers or the Guarantor of any complaint, compliance
order, compliance schedule, notice letter, notice of
violation, citation or other similar notice or any judicial
demand by any U.S. or foreign court, federal, state or local
environmental agency, alleging (A) any spill, unauthorized
discharge or release of any Hazardous Substance to the
environment from, or as a result of the operations on, the
Vessels or other properties owned or operated by the Borrowers
or the Guarantor, or (B) violations of applicable laws,
regulations or permits regarding the
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generation, storage, handling, treatment, transportation,
recycling, release or disposal of Hazardous Substances on or
as a result of operations on the Vessels or other properties
owned or operated by the Borrowers or the Guarantor.
(iii) It is understood by the parties hereto that the above
mentioned notices are solely for the Agent's and the Lenders'
information, may not otherwise be required by any U.S. or
foreign federal, state or local environmental laws,
regulations or ordinances, and are to be considered
confidential information by the Agent and the Lenders.
(iv) The term "environmental agency" as used herein shall include,
but not be limited to, the United States Environmental
Protection Agency, the United States Coast Guard, the United
States Minerals Management Service, the United States
Department of Transportation (in its administration of the
Hazardous Materials Transportation Act, 49 U.S.C. Sec. 1801,
ET SEQ.) and other analogous or similar Governmental Agencies
regulating or administering statutes, regulations or
ordinances relating to or imposing liability or standards of
conduct concerning the generation, storage, use, production,
transportation, handling, treatment, recycling, release or
disposal of any Hazardous Substance.
(i) ENVIRONMENTAL INDEMNIFICATION.
(i) The Borrowers hereby jointly and severally agree to indemnify
and hold the Indemnitees harmless from and against any and all
claims, losses, liability, damages and injuries of any kind
whatsoever asserted against any Indemnitee with respect to or
as a direct result of the presence, escape, seepage, spillage,
release, leaking, discharge or migration from the Vessels or
other properties owned or operated by the Borrowers or the
Guarantor of any Hazardous Substance, including without
limitation, any claims asserted or arising under any
applicable environmental, health and safety laws, codes and
ordinances, and all rules and regulations promulgated
thereunder of all Governmental Agencies, whether or not caused
by or within the control of the Borrowers.
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(ii) It is the parties' understanding that neither the Agent, the
Lenders nor any other Indemnitee does now, has never and does
not intend in the future to exercise any operational control
or maintenance over the Vessels or any other properties owned
or operated by the Borrowers or the Guarantor, nor has any of
them in the past, presently, or intends in the future to,
maintain an ownership interest in the Vessels or any other
properties owned or operated by the Borrowers or the Guarantor
except as may arise upon enforcement of the Agent's rights
under the Mortgages or the Security Agreement.
(iii) Should, however, the Agent, the Lenders or any other
Indemnitee hereafter exercise any ownership interest in or
operational control over the Vessels or any other properties
owned or operated by the Borrowers or the Guarantor, e.g.,
including but not limited to, through foreclosure, then the
above stated indemnity and hold harmless shall be limited with
respect to any actions or failures to act by the Agent, the
Lenders or other Indemnitee subsequent to exercising such
interest or operational control, to the extent such action or
inaction by the Agent, the Lenders or other Indemnitee is
admitted by the Agent, the Lenders or other Indemnitee or is
found by a court of competent jurisdiction to have caused or
made worse any condition for which liability is asserted,
including but not limited to, the presence, escape, seepage,
spillage, leaking, discharge or migration on or from the
Vessels or other properties owned or operated by the Borrowers
or the Guarantor of any Hazardous Substance.
(iv) The indemnity and hold harmless contained in this Section
3.2(i) shall not extend to the Agent, the Lenders or any other
Indemnitee in its capacity as an equity investor in the
Borrowers or the Guarantor or as an owner of any property or
interest as to which the Borrowers or the Guarantor, are also
an owner but only to the such Indemnitee's capacity as a
lender or a holder of security interests.
(j) NOTIFICATION OF TOTAL LOSS. In the event of any Total Loss or
requisition of any Vessel or any item of Equipment, the Borrowers
shall give written or telefax notice to the Agent not later than ten
(10) days after they have actual knowledge of such occurrence.
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(k) YEAR 2000 COMPLIANCE. On or prior to March 31, 1999 (the "COMPLIANCE
DATE"), the Borrowers and the Guarantor shall take all actions
necessary to insure that the automated systems used by the Borrowers
and the Guarantor that are material to their operations
(collectively, "MISSION-CRITICAL SYSTEMS"), including without
limitation, software, hardware and other data processing devices,
shall not fail, malfunction or produce incorrect results with
respect to data, calculations and other processing involving dates
before, as of or after December 31, 1999, regardless of the form of
the date data is received or processed (collectively "YEAR 2000
COMPLIANT" or "YEAR 2000 COMPLIANCE"). Without limiting the
generality of the foregoing, on or prior to the Compliance Date, the
Borrowers and the Guarantor shall test and certify that their
Mission-Critical Systems are Year 2000 Compliant in accordance with
commercially reasonable practices and industry standards. The
Borrowers and the Guarantor agree that upon the reasonable request
of the Agent, the Borrowers and the Guarantor will make their
employees, consultants, premises, records and documentation
available to the Lenders with respect to their Year 2000 Compliance
efforts.
(l) The Borrowers shall maintain in effect the DnB Credit Facility
or an equivalent revolving credit facility acceptable to the Agent.
Section 3.3. NEGATIVE COVENANTS OF BORROWERS.
Until the payment in full of all amounts due under this Agreement and the
Note by the Borrowers, the Borrowers and the Guarantor agree that they will not
without the prior written consent of the Lenders:
(a) Create, incur, assume or suffer to exist any lien (including any
encumbrance or security interest) of any kind upon the Vessels or
the Equipment, except for the liens and other encumbrances set forth
below (the "Permitted Liens"):
(i) liens for Taxes not at the time delinquent or thereafter
payable without penalty or being contested in good faith,
provided provision is made to the extent required by GAAP for
the eventual payment thereof in the event it is found that
such are payable by the Borrowers or the Guarantor;
(ii) liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary
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course of business for sums not overdue or being contested in
good faith, provided provision is made to the extent required
by GAAP for the eventual payment thereof in the event it is
found that such sums are payable by the Borrowers or the
Guarantor;
(iii) maritime liens:
(A) arising in the ordinary course of business by operation
of law that are being contested in good faith by
appropriate proceedings and for which reserves have been
made to the reasonable satisfaction of the Lenders or
(B) arising in connection with salvage and general average;
or
(C) arising in connection with crew wages claimed but not
paid;
(iv) liens incurred in the ordinary course of business in
connection with workmen's compensation, unemployment insurance
or other forms of governmental insurance or benefits, or to
secure performance of tenders and statutory obligations
entered into in the ordinary course of business or to secure
obligations on surety or appeal bonds in the ordinary course
of business or easements, rights of way and similar
encumbrances incurred in the ordinary course of business and
not interfering with the ordinary conduct of the business of
the Borrowers and the Guarantor;
(v) judgment liens in existence less than thirty (30) days after
the entry thereof or with respect to which execution has been
stayed or the payment of which is covered in full by
insurance;
(vi) liens required by the terms of this Agreement;
(vii) purchase money security interests in connection with capital
expenditures permitted by Section 3.3(y) below; and
(viii) a lien in favor of DnB to secure the DnB Credit Facility on
the Charters, the Accounts and the Holding Account as defined
in the Intercreditor Agreement.
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(b) LINE OF BUSINESS. Enter into any new line of business unrelated to
their present activities after the date of this Agreement.
(c) CONSOLIDATION, MERGER, ETC. Consolidate with or merge with, or sell
(whether in one transaction or in a series of transactions) all or
substantially all of their assets to any Person, except for
Permitted Acquisitions.
(d) MODIFICATION OF AGREEMENTS. Amend, modify or otherwise change any of
the Loan Documents.
(e) INDEBTEDNESS. Incur any Indebtedness, except:
(i) the Loan;
(ii) amounts due under the DnB Credit Facility;
(iii) accounts payable and accrued liabilities incurred in the
ordinary course of business;
(iv) letters of credit, performance and bid bonds obtained by the
Borrowers or the Guarantor in the ordinary course of their
business in an aggregate amount of the higher of the amount
permitted under the DnB Credit Facility or USD 10,000,000.00
at any time;
(v) supersedeas bonds obtained by the Borrowers or the Guarantor
in the ordinary course of their business;
(vi) purchase money indebtedness in connection with capital
expenditures permitted by Section 3.3(x).
(f) REPORTABLE EVENT. Cause or allow to occur a Reportable Event.
(g) CHANGE OF LEGAL STRUCTURE. Cause or allow to occur any material
change in their present Certificate of Incorporation or By-Laws that
would adversely affect the rights of the Lenders or change their
jurisdiction of incorporation.
(h) CHANGE OF PLACE OF BUSINESS. Make any change in the address of their
principal place of business or their chief executive office except
upon thirty (30) days' prior written notice to the Agent.
(i) MANAGEMENT OF VESSELS. Subject to subsection (j) below, change the
flag, class, ownership, management or control of any Vessel.
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(j) CHARTER. Cause or allow any Vessel to be bareboat chartered to any
Person for a period longer than six (6) months without the prior
written consent of the Agent, which consent shall not be
unreasonably withheld.
(k) MODIFICATIONS TO VESSELS. Other than the upgrades and modifications
commenced on or before the date of this Agreement, cause or allow
any change in the physical characteristics of any Vessel that would,
in the reasonable judgment of the Agent, materially interfere with
the suitability of such Vessel for normal commercial offshore
construction operations; the consent of the Agent to any such
modification not to be unreasonably withheld.
(l) SALE OF VESSEL, ETC. Sell, transfer or assign any Vessel or
Equipment, or any right to receive the revenue from any Vessel
provided, however, that:
(i) the Borrowers and the Guarantor may sell, transfer or assign
any surplus or scrap equipment from the Vessels or Vessel's
Equipment in the ordinary course of business in an amount of
up to USD 500,000.00 annually;
(ii) the Borrowers and the Guarantor may sell, transfer or assign
any item of Equipment or any other equipment from the Vessels
if they first replace such items with equipment of equal or
greater value; and
(iii) the Borrowers may sell the PACIFIC HORIZON (Barge) but an
amount equal to the most recent Orderly Liquidation Value of
such Vessel shall be paid by the Borrowers to the Agent within
ten (10) Business Days of such sale and shall be used to
prepay the Loan pursuant to Section 1.6(a) above.
(m) CURRENT RATIO. Permit their Current Ratio to be less than 1.1 to 1
at any time.
(n) WORKING CAPITAL. Permit their consolidated Working Capital to be
less than USD 3,000,000.00 at any time.
(o) FIXED CHARGE COVERAGE RATIO. Permit their Fixed Charge Coverage
Ratio to be less than:
(i) 1.25 to 1 at March 31, 1999;
(ii) 1.35 to 1 at June 30, 1999; and
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(iii) 1.50 to 1 at September 30, 1999 and at any time thereafter;
for the twelve (12) month period ending immediately prior to
the relevant date of determination.
(p) DEBT RATIO. Permit their Debt Ratio at any time to be greater than
55%.
(q) NET WORTH. Permit their Net Worth at any time to be less than USD
85,000,000 plus 75% of annual positive net income after December 31,
1998, plus 75% of the net proceeds received by the Borrowers or the
Guarantor from any future public or private sales of the common
stock of any of them.
(r) PAYMENTS ON SUBORDINATED DEBT. Pay any interest or principal on any
debt subordinated to the Loan except (i) regularly scheduled
payments of principal and interest under the DnB Credit Facility,
and (ii) the balance as of the date of the first Advance under the
Highwood Note.
(s) COMPLIANCE WITH FEDERAL RESERVE BOARD REGULATIONS. No part of the
proceeds of the Loan will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security within the
meaning of Regulation U of the Board of Governors of the Federal
Reserve System, or for the purpose of purchasing or carrying or
trading in any securities under such circumstances as to involve the
Borrowers or the Guarantor in a violation of Regulation X of said
Board or the Lenders in a violation of Regulation U of said Board.
In particular, without limitation of the foregoing, neither the
Borrowers nor the Guarantor will use any part of the proceeds of the
Loan to be made hereunder to acquire for itself or for any other
person any publicly-held securities of any kind. The assets of the
Borrowers and the Guarantor do not and will not include any margin
securities, and the Borrowers and the Guarantor have no present
intention of acquiring any margin securities. As used in this
Section 3.3(u), the terms "margin security" and "purpose of
purchasing or carrying" shall have the meanings assigned to them in
the aforesaid Regulation U, and the term "publicly-held", in respect
of securities, shall have the meaning assigned to it in Section
220.7(a) of Regulation T of said Board. If requested by the Lenders,
the Borrowers will furnish to the Lenders a statement or statements
in conformity with the requirements of Federal Reserve Form U-1
referred to in said Regulation U.
(t) LOANS AND INVESTMENTS. Advance funds to, or make investments in,
(whether by way of loan, stock purchase
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or capital contribution) any Person other than in Cash Equivalents.
(u) CONTRACTS WITH AFFILIATES. Enter into any transaction with any
director, officer, employee, shareholder or Affiliate of the
Borrowers or the Guarantor except on terms no less favorable to the
Borrowers than the Borrowers could obtain in an arms length
transaction with Persons not affiliated with the Borrowers.
(v) CHANGE OF MANAGEMENT OR OWNERSHIP. Cause or allow to occur any
material change in their present executive management.
(w) LEASE EXPENSE. Excluding capital leases, incur or pay more than USD
5,000,000.00 per year for the lease, charter or rental of equipment,
vessels or real property in excess of twelve (12) months, other than
rental for their principal place of business referred to in Section
3.1(d) above.
(x) CAPITAL EXPENDITURES. Capital expenditures may only be made for the
purpose of the acquisition or upgrading of marine construction
vessels and the acquisition of equipment and accessories related to
such vessels, or other equipment in the ordinary course of the
Borrower's business.
(y) DIVIDENDS. Allow the Guarantor to make any dividend payments or
other distributions to its stockholders or redeem or otherwise
acquire any of its stock; except for purchases by the Guarantor of
its stock pursuant to the stock repurchase program adopted by the
Board of Directors of the Guarantor on July 29, 1998 in an amount
after the date of the first Advance not to exceed USD 2,500,000.
(z) USE OF VESSELS. Cause or allow any Vessel to be used outside of the
Gulf of Mexico.
(aa) FISCAL YEARS. Change or allow to change the fiscal year of either
Borrower or the Guarantor from one ending on December 31.
ARTICLE IV.
EVENTS OF DEFAULT
If any of the following events shall occur and be continuing, (each an
"Event of Default"):
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(a) the Borrowers shall fail to pay any principal of or interest on the
Note, which failure shall continue for three Business Days after the
date when due;
(b) any representation or warranty made by the Borrowers or the
Guarantor herein or made in any certificate or financial statement
furnished to the Lenders or the Agent hereunder or under any of the
Loan Documents shall prove to have been incorrect in any material
respect when made;
(c) default in the performance of any agreement, covenant, term or
condition contained herein or in any Loan Document to be performed
by the Borrowers or the Guarantor other than (a). above, if such
default has continued for ten (10) days after notice thereof by the
Agent to the Borrowers;
(d) an event of default under the DnB Credit Facility or any other loan
agreement, credit agreement, security agreement, guaranty agreement
or lease agreement now existing or hereafter entered into by the
Borrowers or the Guarantor in an aggregate amount in excess of USD
100,000.00 shall not have been remedied within any stated grace
periods.
(e) Any of the following Events of Default shall occur:
(i) the entry by a court of competent jurisdiction of one or more
final judgments against either Borrower or the Guarantor in an
uninsured or unindemnified aggregate amount in excess of USD
150,000.00 which is not discharged, waived, appealed, stayed,
bonded or satisfied for a period of thirty (30) consecutive
days;
(ii) the entry by a court having jurisdiction in the premises of
(A) a decree or order for relief in respect of either Borrower
or the Guarantor in an involuntary case or proceeding under
U.S. bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state, or foreign bankruptcy,
insolvency, or other similar law or (B) a decree or order
adjudging either Borrower or the Guarantor a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or
in respect of either Borrower or the Guarantor under U.S.
bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal, state or foreign bankruptcy, insolvency,
or similar law, or appointing a custodian, receiver,
liquidator,
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assignee, trustee, sequestrator or other similar official of
either Borrower or the Guarantor or of any substantial part of
the property or assets of either Borrower or the Guarantor, or
ordering the winding up or liquidation of the affairs of
either Borrower or the Guarantor, and the continuance of any
such decree or order for relief or any such other decree or
order unstayed and in effect for a period of sixty (60)
consecutive days;
(iii) (A) the commencement by either Borrower or the Guarantor of a
voluntary case or proceeding under U.S. bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal,
state or foreign bankruptcy, insolvency or other similar law
or of any other case or proceeding to be adjudicated a
bankrupt or insolvent; or (B) the consent by either Borrower
or the Guarantor to the entry of a decree or order for relief
in respect of such Borrower or the Guarantor in an involuntary
case or proceeding under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state,
or foreign bankruptcy, insolvency or other similar law or to
the commencement of any bankruptcy or insolvency case or
proceeding against either Borrower or the Guarantor; or (C)
the filing by either Borrower or the Guarantor of a petition
or answer or consent seeking reorganization or relief under
U.S. bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state or foreign bankruptcy,
insolvency or other similar law; or (D) the consent by either
Borrower or the Guarantor to the filing of such petition or to
the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or
similar official of either Borrower or the Guarantor or of any
substantial part of the Property or assets of either Borrower
or the Guarantor or of any substantial part of the Property or
assets of either Borrower or the Guarantor, or the making by
either Borrower or the Guarantor of an assignment for the
benefit of creditors; or (E) the admission by either Borrower
or the Guarantor in writing of its inability to pay its debts
generally as they become due; or (F) the taking of corporate
action by either Borrower or the Guarantor in furtherance of
any such action; or
(f) the Guaranty shall for any reason cease to be, or be asserted by
either Borrower or the Guarantor, as
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applicable, not to be, in full force and effect (except pursuant to
the release of the Guaranty in accordance herewith),
then the Agent may by written notice to the Borrowers (1) immediately terminate
the commitment of the Lenders hereunder; (2)declare the principal of, and
interest accrued to the date of such declaration on, the Note together with all
other amounts due hereunder or under any of the Loan Documents, to be forthwith
due and payable, whereupon the same shall become forthwith due and payable
(PROVIDED, HOWEVER, no notice or declaration shall be required and such amounts
shall be immediately due and payable upon the occurrence of an event described
in Article IV(e)(iii) or (iv) hereof) and (3) exercise any remedies to which it
may be entitled by any Loan Document or by applicable law.
ARTICLE V.
THE AGENT
Section 5.1 APPOINTMENT AND DUTIES OF AGENT.
(a) The parties hereto agree that The CIT Group/Equipment Financing,
Inc. shall act, subject to the terms and conditions of this Article
V, as the Agent for the Lenders in connection with the Loan, and to
the extent set forth herein each Lender hereby irrevocably appoints,
authorizes, empowers and directs the Agent to take such action on
its behalf and to exercise such powers as are specifically delegated
to the Agent herein or are reasonably incidental thereto in
connection with the administration of and the enforcement of any
rights or remedies with respect to this Agreement, the Note and the
other Loan Documents. It is expressly understood and agreed that the
obligations of the Agent under the Loan Documents are only those
expressly set forth in this Agreement. The Agent shall use
reasonable diligence to examine the face of each document received
by it hereunder to determine whether such documents, on its face,
appears to be what it purports to be. However, the Agent shall not
under any duty to examine into and pass upon the validity or
genuineness of any documents received by it hereunder and the Agent
shall be entitled to assume that any of the same which appears
regular on its face is genuine and valid and what it purports to be.
(b) The Agent shall act pursuant to the instructions of the Majority
Lenders in all matters relating to the Loan Documents including but
not limited to, all collateral for the Loan and waivers or
amendments of the Loan Documents.
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Section 5.2 DISCRETION AND LIABILITY OF AGENT.
Subject to Sections 5.1(b) above and 5.3 and 5.5 below, the Agent shall be
entitled to use its discretion with respect to exercising or refraining from
exercising any rights which may be vested in it under any of the Loan Documents
or otherwise, or with respect to taking or refraining from taking any action or
actions which it may be able to take under any of the Loan Documents. Neither
the Agent nor any of its directors, officers, employees, agents or
representatives shall be liable for any action taken or omitted by it hereunder
or in connection herewith, except for its own gross negligence or wilful
misconduct. The Agent shall incur no liability under, or in respect of this
Agreement or the other Loan Agreements by acting upon a notice, certificate,
warranty or other paper or instrument reasonably believed by it to be genuine or
authentic or to be signed by the proper party or parties, or with respect to
anything which it may do or refrain from doing in the reasonable exercise of its
judgment, or which may seem to it to be necessary or desirable in the premises.
Section 5.3 EVENT OF DEFAULT.
(a) The Agent shall be entitled to assume that no Event of Default or
event which would constitute an Event of Default after notice or
lapse of time, or both, has occurred and is continuing, unless the
Agent has actual knowledge of such facts or has received notice from
a Lender in writing that such Lender considers that an Event of
Default or event which would constitute an Event of Default after
notice or lapse of time, or both, has occurred and is continuing and
which specifies the nature thereof.
(b) In the event that the Agent shall acquire actual knowledge of any
Event of Default or event which would constitute an Event of Default
after notice or lapse of time, or both, the Agent shall promptly
notify (either orally, confirmed in writing, or in writing) the
Lenders of such Event of Default or event and shall, take such
action and assert such rights as are contemplated under this
Agreement and in an emergency, or if requested in writing by the
Majority Lenders shall, take such action and assert such rights as
are contemplated under this Agreement. The Agent shall be
indemnified pro rata by the Lenders against any liability or
expenses, including, but not limited to, travel expenses and
external counsel fees and expenses, incurred in connection with
taking such action. The Agent may refrain from acting in accordance
with any instructions from the Majority
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Lenders until it shall have been indemnified to its satisfaction
against any and all costs and expenses which it will or may expend
or incur in complying with such instructions.
Section 5.4 CONSULTATION.
When acting in connection with this Agreement, or the other Loan
Documents, the Agent may engage and pay for the advice and services of any
lawyers, accountants, surveyors, appraisers or other experts whose advice or
services may to it appear necessary, expedient or desirable and the Agent shall
be entitled to fully rely upon any opinion or such advice so obtained.
Section 5.5 COMMUNICATIONS TO AND FROM AGENT.
When any notice, approval, consent, waiver or other communication or
action is required or may be delivered by the Lenders hereunder or the other
Loan Documents, action by the Agent shall be effective for all purposes
hereunder; provided, that upon any occasion requiring or permitting an approval,
consent, waiver, election or other action on the part of the Lenders, unless
action by the Agent alone, or only upon instruction of all of the Lenders, is
expressly permitted or required hereunder, action shall be taken by the Agent
for and on behalf of or for the benefit of all the Lenders as provided in
Section 5.3 above. The Borrowers and the Guarantor may rely on any communication
from the Agent hereunder or the other Loan Documents, and need not inquire into
the propriety of or authorization for such communication. Upon receipt by the
Agent from the Borrowers, the Guarantor or any Lender of any communication it
will, in turn, promptly forward such communication to the Lenders; PROVIDED,
HOWEVER, that the Agent shall not be liable for any costs, expenses or losses
arising from any failure to so forward any such communication.
Section 5.6 LIMITATIONS OF AGENCY.
Notwithstanding anything in the Loan Documents, expressed or implied, it
is agreed by the parties hereto, that the Agent will act under the Loan
Documents as Agent solely for the Lenders and only to the extent specifically
set forth herein, and will, under no circumstances, be considered to be an agent
or fiduciary of any nature whatsoever in respect to any other person. The Agent
may generally engage in any business with the Borrowers and the Guarantor or any
of their Affiliates as if it was not the Agent.
Section 5.7 NO REPRESENTATIONS OR WARRANTY.
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(a) No Lender (including the Agent) makes to any other Lender any
representation or any warranty, expressed or implied, or assumes any
responsibility with respect to the Loan or the execution,
construction or enforceability of the Loan Documents or any
instrument or agreement executed by the Borrowers, the Guarantor or
any other Person in connection therewith.
(b) The Agent takes no responsibility for the accuracy or completeness
of any information concerning the Borrowers and the Guarantor
distributed by the Agent in connection with the Loan nor for the
truth of any representation or warranty given or made herein, nor
for the validity, effectiveness, adequacy or enforceability of this
Agreement or any of the other Loan Documents.
Section 5.8 LENDER CREDIT DECISION.
Each Lender acknowledges that it has independent of and without reliance
upon any other Lender (including the Agent) or any information provided by any
other Lender (including the Agent) and based on the financial statements of the
Borrowers and the Guarantor and such other documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independent of and
without reliance upon any other Lender (including the Agent) and based on such
documents and information as it shall deem appropriate at that time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and any other documents relating thereto.
Section 5.9 INDEMNITY.
Notwithstanding any of the provisions hereof, to the extent the Agent has
not been so indemnified by the Borrowers, the Lenders shall severally indemnify
the Agent against any and all losses, costs, liabilities, damages or expenses,
including but not limited to, reasonable travel expenses and external counsel's
reasonable fees and expenses, arising from, or in connection with, its
performance as Agent hereunder and not caused by its gross negligence or willful
misconduct.
Section 5.10 RESIGNATION.
The Agent may resign as such at any time upon at least thirty (30) days'
prior notice to the Borrower and the Lenders, provided that such resignation
shall not take effect until a successor agent has been appointed. In the event
of a resignation by the Agent,
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the Lenders shall promptly appoint a successor agent from among the Lenders.
Section 5.11 DISTRIBUTION.
The Agent shall be responsible for promptly distributing each Lender's
share of all net amounts received by the Agent under any of the Loan Documents
pursuant to the letter agreements among the Agent and the Lenders dated the date
hereof. Each Lender shall be responsible for designating by written notice to
the Agent the account to which such distribution shall be deposited.
Section 5.12 LIMITATION OF SUITS.
All rights of action and claims under this Agreement, the Mortgages and
the Security Agreement of the Lenders shall be prosecuted and enforced only by
the Agent. The Lenders agree that they shall not independently institute any
proceedings, judicial or otherwise, to enforce their rights against the
Borrowers under this Agreement, the Mortgages or the Security Agreement.
However, notwithstanding anything contained in this Section 5.12, the Lenders
shall always retain their ability to retain independent counsel and to protect
their rights under this Agreement and the other Loan Documents.
Section 5.13 RIGHT OF SETOFF.
Upon the occurrence and during the continuation of any Event of Default,
the Lenders each are hereby authorized at any time and from time to time,
without notice to the Borrowers (any such notice being expressly waived by the
Borrowers), to setoff and apply any and all deposits (general or special, time
or demand, provisional or final, whether or not such setoff results in any loss
of interest or other penalty, and including without limitation all certificates
of deposit) at any time held by the Lenders and all of the indebtedness arising
in connection with this Agreement irrespective of whether or not such Lender
will have made any demand under this Agreement, the Note or any other Loan
Document. The Borrowers also hereby grant to each of the Lenders a security
interest in and hereby transfer, assign, set over and convey to each of the
Lenders, as security for payment of the Loan, all such deposits, funds or
property of the Borrowers or indebtedness of any Lender to the Borrowers. Should
the right of any Lender to realize funds in any manner set forth hereinabove be
challenged and any application of such funds be reversed, whether by court order
or otherwise, the Lenders shall make restitution or refund to the Borrower pro
rata in accordance with their respective portions of the Loan. Each Lender
agrees to promptly notify the Borrowers and
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the Agent after any such setoff and application, provided that the failure to
give such notice will not affect the validity of such setoff and application.
The rights of the Agent and the Lenders under this Section 5.13 are in addition
to other rights and remedies (including without limitation other rights of
setoff) which the Agent or the Lenders may have. Nothing contained herein shall
affect the right of any Lender to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness or obligation
of the Borrowers to such Lender.
ARTICLE VI.
MISCELLANEOUS
Section 6.1 NOTICES.
All notices, requests and demands shall be in writing (including
telecopier transmission) given to or made upon the respective parties hereto as
follows:
In the case of the Borrowers, at
Horizon Vessels, Inc.
Horizon Offshore Contractors, Inc.
2500 CityWest Blvd., Ste. 2200
Houston, Texas 77042
Attention: David Sharp, Executive Vice President and CFO
Telecopier: (713) 361-2677
In the case of the Guarantor, at
Horizon Offshore, Inc.
2500 CityWest Blvd., Ste. 2200
Houston, Texas 77042
Attention: David Sharp, Executive Vice President and CFO
Telecopier: (713) 361-2677
In the case of the Lenders, at
The CIT Group/Equipment Financing, Inc.
P.O. Box 27248
Tempe, Arizona 85285-7248
Attention: Vice President - Credit
Telecopier: (602) 858-1488
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Heller Financial, Inc.
Equipment Financial Leasing Group
500 W. Monroe Street
Chicago, Illinois 60661
Attention: Region Credit Manager
Telecopier: (312) 441-7519
U.S. Bancorp Leasing & Financial
7659 S.W. Mohawk Street
Tualatin, Oregon 97062
Attention: Clifford Swan
Telecopier: (503) 234-8193
Safeco Credit Company, Inc.
10915 Willows Road N.E.
Redmond, Washington 98052
Attention: Pat Andrus, Division Credit Manager
Telecopier: (425) 376-8770
In the case of the Agent, at
The CIT Group/Equipment Financing, Inc.
1540 Fountainhead Parkway
Tempe, Arizona 85282
Attention: Vice President-Credit
Telecopier: (602) 858-1488
or in such other manner as any party hereto shall designate by written notice to
the other parties hereto. All such notices shall be effective upon delivery or
three (3) days after being deposited in the United States mail with postage
prepaid certified, return receipt requested in a correctly addressed wrapper, or
upon receipt if delivered to Federal Express or similar courier company or
transmitted by telefax during normal business hours. All notices, demands,
requests, communications and other documents delivered hereunder or under the
Loan Documents, unless submitted in the English language, shall be accompanied
by certified English translation thereof.
Section 6.2 NO WAIVER.
No failure on the part of the Lenders or the Agent to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise by the Lenders or the Agent of any right
hereunder
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preclude any other or further exercise thereof or the exercise of any other
right.
Section 6.3 APPLICABLE LAW AND JURISDICTION.
(a) THIS AGREEMENT AND THE LOAN DOCUMENTS PROVIDED FOR HEREIN
(INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY
HEREOF AND THEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, OTHER THAN
CONFLICT OF LAWS RULES THEREOF. Any legal action or proceeding
against the Borrowers or the Guarantor with respect to this
Agreement or any Loan Document may be brought in the courts of the
State of New York, the U.S. Federal Courts in such state, sitting in
the County of New York, or in the courts of any other jurisdiction
where such action or proceeding may be properly brought, and the
Borrowers and the Guarantor hereby irrevocably accept the
jurisdiction of such courts for the purpose of any action or
proceeding. The Borrowers and the Guarantor hereby designate and
irrevocably appoint and empower CT Corporation System (the "Process
Agent"), currently located at 1633 Broadway, New York, New York
10019 in each case as its authorized agent to accept, receive and
acknowledge for and on behalf of each and its property service of
any and all process which may be served but only in any action, suit
or proceeding of the nature referred to above in the State of New
York and further agree that failure of such firm to give the
Borrowers or the Guarantor any notice of any such service shall not
impair or affect the validity of such service or of any judgment
rendered in any action or proceeding based thereon. The Borrowers
and the Guarantor hereby irrevocably authorize and direct the
Process Agent to accept such service on their behalf. The Borrowers
and the Guarantor further irrevocably consent to the service of
process out of said courts by the mailing thereof by the Agent by
U.S. registered or certified mail postage prepaid to the party to be
served at its address designated in Section 6.1. The Borrowers and
the Guarantor agree that a final judgment in any action or
proceeding shall be conclusive and may be enforced in any other
jurisdiction by suit on the judgment or in any other manner provided
by law. Nothing in this Section 6.3 shall affect the right of the
Lenders or the Agent to serve legal process in any other manner
permitted by law or affect the right of the Lenders or the Agent to
bring any action or proceeding against the Borrowers or the
Guarantor or their properties in the courts of any other
jurisdiction. To the extent that the Borrowers or the Guarantor has
or hereafter may acquire
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any immunity from jurisdiction of any court or from any legal
process (whether through service of notice, attachment prior to
judgment, attachment in aid of execution, execution or otherwise)
with respect to either itself or its property, the Borrowers and the
Guarantor hereby irrevocably waive such immunity in respect of their
obligations under this Agreement and the other Loan Documents. The
Borrowers and the Guarantor hereby irrevocably waive any objection
which they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this
Agreement or any Loan Document brought in the Supreme Court of the
State of New York, County of New York or the U.S. District Court for
the Southern District of New York, and hereby further irrevocably
waive any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum.
(b) THE LENDERS, THE AGENT, THE BORROWERS AND THE GUARANTOR IRREVOCABLY
WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE
OR THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY.
Section 6.4 SEVERABILITY.
In the event that any provision of this Agreement is held to be void or
unenforceable in any jurisdiction, all other provisions shall remain unaffected
and be enforceable in accordance with their terms in such jurisdiction, and all
provisions of this Agreement shall remain unaffected and shall be enforceable in
accordance with their terms in all other jurisdictions.
Section 6.5 AMENDMENT.
Neither this Agreement nor any provision hereof, including without
limitation this Section 6.5, may be amended, modified, waived, discharged or
terminated orally, but only by an instrument in writing signed by the parties
hereto. This Agreement shall be binding upon and inure to the benefit of the
Borrowers, the Guarantor, the Agent and the Lenders, and their respective
successors and assigns, except that the Borrowers and the Guarantor shall not
have the right to assign their rights hereunder or any interest herein without
the prior written consent of the Agent.
Section 6.6 ASSIGNMENT AND PARTICIPATION.
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The Lenders shall have the right, provided they comply with all applicable
state and federal securities laws, to assign or grant participation in all or
any portion of the Loan outstanding under this Agreement or the Note to any
affiliate of the Lenders or to any foreign, federal or state banking
institution, savings and loan institution or finance company upon thirty (30)
days written notice to the Borrowers of such assignment or participation.
Section 6.7 COSTS, EXPENSES AND TAXES.
The Borrowers jointly and severally agree to pay on demand all reasonable
fees, costs and expenses in connection (i) with the preparation, execution,
delivery, administration, amendment and enforcement of this Agreement, the Note,
the other Loan Documents and any other documents to be delivered hereunder and
thereunder (including, without limitation, the appraisal and inspection reports
required hereunder) and any amendment, modification or supplement hereto or
thereto, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for the Lenders and the Agent, and any special counsel
associated with them, and with respect thereto and the filing of any document or
instrument in connection with any of the foregoing, (ii) with respect to
reasonable fees and out of pocket expenses of counsel for advising the Lenders
and the Agent as to their rights and responsibilities under this Agreement and
the transactions contemplated thereby after an Event of Default or an event
which, with the giving of notice or lapse of time, or both, shall have occurred,
and (iii) with any filing or recording of any document or instrument. In
addition, the Borrowers shall jointly and severally pay any and all stamp and
other taxes (including, without limitation penalties and interest assessed
thereon) other than Excluded Income Taxes payable or determined to be payable in
connection with the execution, delivery or performance of this Agreement and the
Loan Documents and any other documents to be delivered hereunder and thereunder
and agrees to save the Agent and Lenders harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes.
Section 6.8 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall constitute an original, but all of which, when taken together, shall
constitute but one instrument.
Section 6.9 SECTION HEADINGS.
48
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The headings of the various Sections and subsections of this Agreement are
for convenience of reference only and shall not define or limit any of the terms
or provisions hereof.
Section 6.10 MERGER.
THIS AGREEMENT AND THE LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AMONG
THE BORROWERS, THE AGENT, THE LENDERS AND THE GUARANTOR AND SUPERSEDE ALL PRIOR
AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, IF ANY, RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
HORIZON OFFSHORE, INC.
By: ____________________________
Name: ___________________________
Title:___________________________
HORIZON VESSELS, INC.
By: ____________________________
Name: ___________________________
Title:___________________________
49
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HORIZON OFFSHORE CONTRACTORS, INC.
By: ____________________________
Name: ___________________________
Title:___________________________
THE CIT GROUP/EQUIPMENT FINANCING,
INC.
By: ____________________________
Name: ___________________________
Title:___________________________
HELLER FINANCIAL LEASING, INC.
By: ____________________________
Name: ___________________________
Title:___________________________
U.S. BANCORP LEASING & FINANCIAL
By: ____________________________
Name: ___________________________
Title:___________________________
SAFECO CREDIT COMPANY, INC.
By: ____________________________
Name: ___________________________
50
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Title:___________________________
THE CIT GROUP/EQUIPMENT FINANCING,
INC., AS AGENT
By: ____________________________
Name: ___________________________
Title:___________________________
51
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SCHEDULE 1 TO
LOAN AGREEMENT
LENDER PORTION OF COMMITMENT
1. The CIT Group/Equipment
Financing, Inc. USD 30,000,000
2. Heller Financial
Leasing, Inc. USD 15,000,000
3. U. S. Bancorp Leasing
& Financial USD 10,000,000
4. Safeco Credit Company,
Inc. USD 5,000000
52
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SCHEDULE 2 TO
LOAN AGREEMENT
VESSELS
NAME FLAG OFFICIAL NO.
---- ---- ------------
1. AMERICAN HORIZON U.S. 294383
2. CAJUN HORIZON U.S. 620491
3. GULF HORIZON U.S. 514595
4. LONE STAR HORIZON U.S. 285456
5. CANYON HORIZON Vanuatu 1093
6. PHOENIX HORIZON Vanuatu 1037
7. PACIFIC HORIZON (Derrick) U.S. 537871
8. PEARL HORIZON (presently Panama
flag but in the process of being
transferred to Vanuatu flag) Vanuatu _______
9. PACIFIC HORIZON (Barge) Vanuatu 1100
10. DSND STEPHANITURM Bahamas 725330
53
EXHIBIT 10.29
USD 30,000,000.00
AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
THE LENDERS,
DEN NORSKE BANK ASA, AS AGENT
FOR THE LENDERS,
HORIZON VESSELS, INC.
AND
HORIZON OFFSHORE CONTRACTORS, INC.
AS BORROWERS
AND
HORIZON OFFSHORE, INC.
AS GUARANTOR
DATED AS OF DECEMBER 30, 1998
<PAGE>
TABLE OF CONTENTS
Section 1. DEFINITIONS......................................................2
1.1 Certain Definitions..............................................2
1.2 Accounting Terms.................................................9
Section 2. .................................................................9
2.1 Revolving Credit Facility........................................9
2.2 Borrowing Base..................................................11
2.3 Counter Indemnity...............................................11
2.4 Drawings Under Letters of Credit................................11
2.5 Variations......................................................11
2.6 Security........................................................12
2.7 Certificates....................................................12
Section 3. The Note........................................................12
Section 4. Manner of Drawdown and Issuance of Letters of Credit............12
4.1 Manner of Drawdown or Issuance..................................12
4.2 Disbursement of Funds...........................................13
4.3 Failure to Borrow; Delay........................................13
Section 5. Interest........................................................13
5.1 Rate of Interest................................................13
5.2 Payment of Interest.............................................14
5.3 Conversion of LIBOR Advance to Prime Advance....................14
5.4 Overdue Payment of Principal and Interest.......................14
5.5 Compliance with Law.............................................14
Section 6. Loan Payments...................................................15
6.1 Payments on Non-Business Days...................................15
6.2 Repayment of Revolving Credit Facility..........................15
6.3 Payment Procedure...............................................15
6.4 Net Payments....................................................16
6.5 Rights of Set-off...............................................16
6.6 Changes in Circumstances........................................16
6.7 Unavailability of Dollars.......................................19
6.8 Holding Account. ..............................................20
6.9 Tax Treaty......................................................20
Section 7. Security........................................................21
7.1 Security Agreement..............................................21
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7.2 Guaranty........................................................21
7.3 Holding Account Agreement. ....................................21
7.4 Further Assurances..............................................21
Section 8. Conditions Precedent............................................21
8.1 Documents Required as Conditions Precedent to the Drawdown of the
First Advance...................................................21
8.2 Additional Conditions Precedent to Subsequent Advances and Letters
of Credit.......................................................24
8.3 Waiver of Conditions Precedent..................................24
Section 9. Fees and Expenses...............................................24
9.1 Fees............................................................24
9.2 Expenses........................................................25
9.3 General Indemnity...............................................25
9.4 Survival........................................................27
Section 10. Representations and Warranties of Borrowers.....................27
10.1 Due Incorporation, Qualification, Etc...........................27
10.2 Capacity........................................................27
10.3 Authority and Enforceability....................................27
10.4 Governmental Approvals..........................................28
10.5 Compliance with Other Instruments...............................28
10.6 Financial Statements............................................28
10.7 Material Adverse Events.........................................29
10.8 Litigation, Etc.................................................29
10.9 Principal Place of Business.....................................29
10.10 Patent and Other Rights.........................................29
10.11 Taxes...........................................................29
10.12 Employee Retirement Income Security Act of 1974.................30
10.13 Investment Company Act of 1940..................................30
10.14 Subsidiaries....................................................30
10.15 Environmental Compliance........................................30
10.16 Indebtedness....................................................31
Section 11. Affirmative Covenants of Borrowers..............................31
11.1 Financial Statements, Reports and Inspection....................32
11.2 Insurance.......................................................34
11.3 Other Debt......................................................34
11.4 Maintenance of Existence; Conduct of Business...................34
11.5 Financial Records...............................................34
11.6 Environmental Compliance........................................35
11.7 Environmental Notifications.....................................35
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11.8 Environmental Indemnification...................................36
11.9 Year 2000 Compliance............................................37
Section 12. Negative Covenants of Borrowers.................................37
12.1 Liens...........................................................37
12.2 Line of Business................................................39
12.3 Consolidation, Merger, Etc......................................39
12.4 Modification of Agreements......................................39
12.5 Indebtedness....................................................39
12.6 Reportable Event................................................39
12.7 Change of Legal Structure.......................................39
12.8 Change of Place of Business.....................................39
12.9 Subsidiaries....................................................39
12.10 Sale of Equipment, Etc..........................................40
12.11 Current Ratio...................................................40
12.12 Working Capital.................................................40
12.13 Fixed Charge Coverage Ratio.....................................40
12.14 Debt Ratio......................................................40
12.15 Net Worth.......................................................40
12.16 Compliance with Federal Reserve Board Regulations...............40
12.17 Loans and Investments...........................................41
12.18 Contracts with Affiliates.......................................41
12.19 Change of Management............................................41
12.20 Lease Expense...................................................41
12.21 Dividends.......................................................41
12.22 Fiscal Years....................................................41
Section 13. Events of Default...............................................41
13.1 Events..........................................................41
13.2 Change of Control...............................................44
Section 14. The Agent.......................................................44
14.1 Appointment and Duties of Agent.................................44
14.2 Discretion and Liability of Agent...............................45
14.3 Event of Default................................................45
14.4 Consultation....................................................46
14.5 Communications to and from Agent................................46
14.6 Limitations of Agency...........................................46
14.7 No Representations or Warranty..................................47
14.8 Lender Credit Decision..........................................47
14.9 Indemnity.......................................................47
14.10 Resignation.....................................................47
14.11 Distribution....................................................48
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14.12 Limitation of Suits.............................................48
14.13 Right of Setoff.................................................48
Section 15. Miscellaneous...................................................49
15.1 Entire Agreement................................................49
15.2 No Waiver.......................................................49
15.3 Survival........................................................49
15.4 Notices.........................................................49
15.5 Termination.....................................................50
15.6 Severability of Provisions......................................50
15.7 Successors and Assigns..........................................50
15.8 Assignment and Participation....................................50
15.9 Counterparts....................................................51
15.10 Jurisdiction....................................................51
15.11 Choice of Law...................................................52
15.12 Waiver of Jury Trial............................................52
15.13 Amendment and Waiver............................................52
15.14 No Oral Agreements..............................................52
15.15 Headings, Etc...................................................53
15.16 Taxes...........................................................53
15.17 Controlling Agreement...........................................53
Exhibit A - Amended and Restated Promissory Note
Exhibit B - Request for Borrowing
Exhibit C - Request for Letter of Credit
Exhibit D - Borrowing Base Report
Exhibit E - Form of Letter of Credit
iv
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AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of December __,
1998 (this "Credit Agreement"), among Horizon Vessels, Inc., a corporation
organized and existing under the laws of the State of Delaware, Horizon Offshore
Contractors, Inc., a corporation organized and existing under the laws of the
State of Delaware (individually a "Borrower" and collectively the "Borrowers"),
Horizon Offshore, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Guarantor"), the financial institutions from time to
time party hereto (the "Lenders"), and Den norske Bank ASA, a banking
corporation organized and existing under the laws of the Kingdom of Norway, as
Agent for the Lenders (the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrowers and the Agent as Lender entered into that certain
Credit Agreement dated as of October 27, 1997 (the "Original Credit Agreement"),
pursuant to which the Agent as Lender made a credit facility available to the
Borrowers in a principal amount of up to Sixteen Million United States Dollars
(USD 16,000,000.00) to repay existing debt of the Borrowers, assist with the
cost of upgrading certain equipment of the Borrowers and provide working capital
for the Borrowers; and
WHEREAS, the Borrowers and the Agent as Lender entered into Amendment No.
1 to the Original Credit Agreement to, among other things, increase the amount
available under the Original Credit Agreement to USD 20,000,000;
WHEREAS, the Borrowers and the Agent as Lender entered into Amendment No.
2 to the Original Credit Agreement to, among other things, increase the amount
available under the Original Credit Agreement to USD 50,000,000;
WHEREAS, the Borrowers intend to repay all amounts outstanding under
Facility A as of the date hereof;
WHEREAS, the Borrowers, the Lenders and the Agent wish to restate the
Original Credit Agreement to provide for a single Revolving Credit Facility as
herein described;
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NOW, THEREFORE, in consideration of the above recitals, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
Section 1. DEFINITIONS.
1.1 CERTAIN DEFINITIONS. As used herein, the following terms shall have
the following respective meanings:
"ADJUSTED AVAILABLE COMMITMENT" has the meaning set forth in Section 9(c)
hereof.
"ADVANCE" means a loan by the Lenders to the Borrowers under this Credit
Agreement.
"AFFILIATE" of any Person means (i) any Person directly or indirectly
controlled by, controlling or under common control with such first Person and
(ii) any director or officer of such first Person or of any Person referred to
in clause (i) above. For the purposes of this definition "control" of any Person
includes (a) with respect to any corporation or other Person having voting
shares or the equivalent and elected directors, managers, or Persons performing
similar functions, the ownership or power to vote, directly or indirectly shares
or the equivalent representing 50% or more of the power to vote in the election
of directors, managers or Persons performing similar functions, (b) ownership of
50% or more of the equity or beneficial interest in any other entity and (c) the
ability to direct the business and affairs of any Person by acting as a general
partner, manager or otherwise.
"AVAILABLE COMMITMENT" has the meaning set forth in Section 2.1(b) hereof.
"BORROWING BASE" means at any time an amount equal to 80% of the face
value of Eligible Accounts.
"BORROWING BASE REPORT" has the meaning set forth in Section 2.2(b)
hereof.
"BREAKAGE COST" means any amount reasonably necessary to compensate the
Lender for costs or expenses incurred by the Lenders in connection with the
payment or acceleration of the Loan, in whole or in part, whether voluntarily or
involuntarily, on a date which is not the last date of the then applicable
Interest Period for the portion of the Loan being paid, including (without
limitation) any loss incurred in obtaining, liquidating or employing deposits
from third parties.
"BUSINESS DAY" means any day on which commercial banks are open for
business in Houston, Texas, New York, New York and London, England.
2
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"CASH EQUIVALENTS" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof having maturities of not more than one (1) year from the
date of acquisition, (ii) time deposits (including Eurodollar time deposits) and
certificates of deposit of any bank meeting the qualifications specified in
clause (iv) below with maturities of not more than 90 days from the date of
acquisition, (iii) fully secured repurchase obligations with a term of not more
than 90 days for underlying securities of the types described in clause (i)
entered into with any bank meeting the qualifications specified in clause (iv)
below, (iv) commercial paper issued by the parent corporation of any bank
referred to in this clause (iv) or any commercial bank of recognized standing
having capital and surplus in excess of USD 300,000,000.00 and commercial paper
rated at least A-2 or the equivalent thereof by Standard & Poor's Corporation or
at least P-2 or the equivalent thereof by Moody's Investor Services, Inc., and
in each case maturing within 90 days after the date of acquisition, and (v)
remarketed certificates of participation issued through any bank meeting the
qualifications specified in clause (iv) above rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investor Services, Inc. and maturing within 90
days after the date of acquisition.
"COMMITMENT" means a maximum of USD 30,000,000.00 as it may be reduced
from time to time pursuant to the provisions of this Credit Agreement.
"COMMITMENT NOTICE" has the meaning set forth in Section 2.1(b) hereof.
"COMMITMENT PERIOD" has the meaning set forth in 2.1(b) hereof.
"CONTROLLED GROUP" means a "controlled group of corporations" as defined
in Section 1563(a) of the Internal Revenue Code of 1986, as amended, determined
without regard to Section 1563(a)(4) and (e) (3) (C) of such Code, of which
either Borrower is a part.
"CREDIT FACILITY" means the aggregate amount of Advances and Letters of
Credit made hereunder and the aggregate amount of the unused but still available
portion of the Commitment.
"CURRENT ASSETS" means those assets of the Guarantor which would in
accordance with GAAP be classified on a consolidated basis as current assets of
a corporation conducting a business the same as or similar to the business of
the Guarantor.
3
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"CURRENT LIABILITIES" means Indebtedness of the Guarantor which would in
accordance with GAAP be classified on a consolidated basis as current
liabilities of a corporation conducting a business the same as or similar to the
business of the Guarantor, including the current maturities of amounts
outstanding under this Credit Agreement and the current maturities of the
Borrowers' or the Guarantor's other long-term debt.
"CURRENT RATIO" means the ratio of the Guarantor's Current Assets to the
Guarantor's Current Liabilities.
"DEBT RATIO" means the Guarantor's total consolidated long-term funded
debt plus capitalized lease obligations divided by the sum of consolidated
long-term funded debt, capitalized lease obligations and stockholders' equity.
"DOLLARS" and the sign "USD" mean lawful money of the United States of
America.
"DRAWDOWN DATE" means the date upon which an Advance is made or a Letter
of Credit is issued.
"EBITDA" means, for any period, the consolidated earnings of the Guarantor
during such period from continuing operations, before gains or losses on sales
of assets (to the extent such gains or losses are included in earnings from
continuing operations) and extraordinary items, as determined under GAAP,
federal, state, foreign and local income taxes, Interest Expense, depreciation
and amortization.
"ELIGIBLE ACCOUNTS" means, at any time, the aggregate amount of the
Borrowers' accounts receivable for the shipment and sale of products or for
services rendered for which invoices have been issued and payment for which is
due within sixty (60) days. In determining accounts receivable constituting
Eligible Accounts, there shall be excluded (i) accounts receivable remaining
unpaid for a period of more than ninety (90) days from the date of invoice (or
due date in the case of instruments, lease agreements and chattel paper), (ii)
accounts receivable arising from sale to or services rendered for the Guarantor
or any subsidiary of the Guarantor or the Borrowers, (iii) accounts receivable
in which the Agent does not have a first priority perfected security interest,
(iv) accounts receivable which are subject to a right of offset, claim or
defense, (v) accounts receivable due from suppliers of materials or inventory to
the Borrowers to the extent that the Borrowers are indebted to such suppliers
with respect to materials or supplies purchased by the Borrowers from
4
<PAGE>
such suppliers, (vi) accounts receivable due from customers known to be
insolvent or in bankruptcy proceedings, (vii) accounts receivable due from
non-U.S. companies, except for accounts receivable from non-U.S. subsidiaries of
U.S. companies which accounts are payable in the U.S. and in U.S. Dollars,
(viii) accounts receivable which represent billings in advance for charter hire
or other contract of affreightment, and (ix) accounts receivable rejected in
whole or in part by the Lenders in their sole discretion as containing
unacceptable risk.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EVENT OF DEFAULT" means each of the Events of Default described in
Section 13 hereof.
"FIXED CHARGE COVERAGE RATIO" means for any period, EBITDA less amounts
used to repurchase stock of the Guarantor divided by the sum total of Interest
Expense, required principal payments on Indebtedness and capital leases, and
actual Taxes paid.
"GAAP" means generally accepted accounting principles in effect from time
to time in the United States of America.
"GOVERNMENTAL AGENCY" means any United States or foreign government or any
state, department or other political subdivision thereof or governmental body,
agency, authority, department or commission (including without limitation any
court or tribunal) exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government and any corporation,
partnership or other entity directly or indirectly owned by the foregoing.
"GUARANTY" means the guaranty by the Guarantor of the Borrowers'
obligations under this Credit Agreement and the Note dated as of the date
hereof, as amended and ratified from time to time.
"HAZARDOUS SUBSTANCES" means petroleum and used oil, or any other
pollutant or contaminant, hazardous, dangerous or toxic waste, substance or
material as defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601, ET SEQ. (hereinafter
called "CERCLA"); the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss. 9601, ET SEQ. (hereinafter called "RCRA"); the Toxic Substances
Control Act, as amended, 15 U.S. C. ss. 2601, ET SEQ. (hereinafter called
"TSCA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. ss.
1801, ET SEQ. (hereinafter called "HMTA"); the Oil Pollution Act of 1990, 33
U.S.C. ss. 2701 ET SEQ. (hereinafter called "OPA"); or any other statute, law,
ordinance, code or regulation of any Governmental Agency relating to or imposing
5
<PAGE>
liability or standards of conduct concerning the use, production, generation,
treatment, storage, recycling, handling, transportation, release, threatened
release or disposal of any waste, substance or material, currently in effect or
at any time hereafter adopted.
"HOLDING ACCOUNT AGREEMENT" means the agreement among The Frost National
Bank, the Borrowers and the Agent establishing the lock box arrangement for the
accounts receivable of the Borrowers, in form and substance satisfactory to the
Agent.
"INDEBTEDNESS" of the Borrowers or the Guarantor means all items of
indebtedness which, in accordance with GAAP, would be included in determining
liabilities as shown on the liability side of a balance sheet of the Borrowers
or the Guarantor, as of the date as of which indebtedness and liabilities is to
be determined and shall include all indebtedness and liabilities of others
assumed or guaranteed by the Borrowers or the Guarantor or in respect of which
the Borrowers or the Guarantor are secondarily or contingently liable (other
than by endorsement of instruments in the course of collection and performance
guarantees and similar transactions entered into in the ordinary course of
business) whether by reason of any agreement to acquire such indebtedness or to
supply or advance sums or otherwise but shall exclude deferred Taxes.
"INDEMNITY PAYMENT" means a payment by the Borrowers to the Agent equal to
the amount each Lender has paid to a beneficiary under a Letter of Credit in
accordance with the terms and conditions of such Letter of Credit and this
Credit Agreement.
"INTEREST EXPENSE" means, with respect to any Person, for any period of
determination, its interest expense determined in accordance with GAAP.
"INTEREST PAYMENT DATE" means, with respect to any Prime Advance, the last
Business Day of each month and, with respect to any LIBOR Advance, the end of
each Interest Period except if such Interest Period is longer than ninety (90)
days, every ninety (90) days and at the end of such Interest Period.
"INTEREST PERIOD" means with respect to any LIBOR Advance, each period
selected by the Borrowers for which the rate of interest on such LIBOR Advance
is fixed being the period commencing on the date of the LIBOR Advance or the
date of the expiration of the preceding Interest Period for such LIBOR Advance
and ending on the corresponding day in the calendar month selected by the
Borrowers which is one (1) month, two (2) months, three (3) months or six (6)
6
<PAGE>
months later or, if such month has no numerical corresponding day, on the last
Business Day of such month. If the last day of any such Interest Period is not a
Business Day, then such Interest Period shall end on the next succeeding
Business Day, subject to Section 6.1 hereof. If any Interest Period determined
hereunder would extend beyond the Maturity Date, such Interest Period shall end
on the Maturity Date.
"LETTER OF CREDIT" means a standby letter of credit issued by a Lender
pursuant to Section 2.3 below substantially in the form of Exhibit E attached
hereto.
"LIBOR ADVANCE" means an Advance as to which the Borrowers have selected
LIBOR to determine the interest rate.
"LIBOR RATE" means in respect of any Interest Period, the rate of interest
per annum at which deposits in U.S. Dollars are offered to major banks in the
London interbank market at approximately 11:00 a.m. (London time), as reported
by the Telerate System page 3750 or such other page as may replace such page
3750 on such system (rounded upwards, if necessary, to the nearest one-sixteenth
of one percent) for the purpose of reporting London Interbank Offered Rates of
major banks under the heading for British Bankers Association Interest
Settlement Rates in the column designated "USD" (U. S. Dollar), two (2) Business
Days before the first day of an Interest Period. In the event that LIBOR
interest rates are not reported on the Telerate System or such reported rates
are not applicable to the selected Interest Period, the Agent shall notify the
Borrowers and upon such notification, the LIBOR Rate shall mean in respect of
any Interest Period the rate of interest per annum (rounded upwards, if
necessary, to the nearest one sixteenth of one percent) at which the Lenders are
able to acquire funds in Dollars equal to the outstanding amount of the Advance
for which the rate is to be determined for the duration of the relevant Interest
Period in the London Interbank Eurocurrency Market at or about 11:00 a.m. London
time on the second Business Day prior to the commencement of the relevant
Interest Period for value on the first day of such Interest Period, or at such
time in any alternative market for such funds available to the Lenders, as
notified by the Agent to the Borrowers, such notification, absent manifest
error, to be conclusive.
"LOAN" means the principal amounts advanced by the Lenders hereunder and
outstanding, the face amount of all Letters of Credit outstanding hereunder, and
the principal amount of any unpaid Indemnity Payments outstanding hereunder.
7
<PAGE>
"LOAN DOCUMENTS" means this Credit Agreement, the Security Agreement, the
Guaranty, the Holding Account Agreement and the Note.
"MATERIAL ADVERSE EFFECT" or "MATERIALLY ADVERSELY AFFECTED" means, unless
specified otherwise, to affect in a material manner the ability of the Borrowers
to perform their obligations under this Credit Agreement or the ability of the
Guarantor to perform its obligations under the Guaranty.
"MATURITY DATE" means December 31, 2001.
"NET WORTH" means the sum of the (i) par value of the Guarantor's and the
Borrowers' common stock, (ii) capital in excess of par value of the Guarantor
and the Borrowers and (iii) retained earnings of the Guarantor and the
Borrowers, but excluding the amount of any write-up of any assets over their
depreciated cost.
"NOTE" means the amended and restated secured promissory note of the
Borrowers in the original principal amount of USD 30,000,000.00, substantially
in the form of Exhibit A hereto and all renewals, extensions, rearrangements and
replacements thereof.
"OBLIGATIONS" means and includes all loans, advances, debts, liabilities,
obligations, letters of credit or any other financial accommodations, howsoever
arising, owing by either Borrower to the Agent and the Lenders of every kind and
description (whether or not for the payment of money); direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising
pursuant to the terms of this Credit Agreement, the Note and the other Loan
Documents, including, without limitation, all interest and other expenses that
the Borrowers are obligated to pay thereunder.
"PERSON" means any natural person, corporation, partnership, limited
liability company, firm, association, government, Governmental Agency or any
other entity other than the Borrowers and whether acting in an individual,
fiduciary or other capacity.
"PLAN" means any employee pension benefit plan subject to Title IV of
ERISA and maintained by the Borrower or any member of a Controlled Group, or any
such plan, to which the Borrower or any member of a Controlled Group is required
to contribute on behalf of any of its employees.
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"PRIME ADVANCE" means an Advance as to which the Borrowers have selected
the Prime Rate to determine the interest rate or as to which the Prime Rate has
been applied pursuant to Section 6.3(b) below.
"PRIME RATE" means the rate announced by the Agent at its New York, New
York office from time to time as its prime rate.
"REPORTABLE EVENT" means a reportable event as defined in Section 4043 of
ERISA (29 U.S.C. ss.1343), except events for which the notice provision has been
waived by the Pension Benefit Guaranty Corporation.
"REQUEST FOR BORROWING" means each request for borrowing given by the
Borrowers pursuant to Section 4.1(c) hereof, substantially in the form attached
hereto as Exhibit B.
"REQUEST FOR LETTER OF CREDIT" means a Request for Letter of Credit given
by the Borrowers pursuant to Section 5.1(d) hereof, substantially in the form
attached hereto as Exhibit C.
"REVOLVING CREDIT FACILITY" means the USD 30,000,000.00 senior secured
revolving loan provided for in Section 2 of this Credit Agreement
"SECURITY AGREEMENT" means the amended and restated security agreement on
certain of the Borrowers' assets and revenues from the Borrowers to the Agent
dated as of the date hereof, as amended and ratified.
"TAXES" means any present or future taxes, levies, imposts, duties or
other charges of whatsoever nature imposed by any Governmental Agency or taxing
authority thereof.
"UNAVAILABLE COMMITMENT" has the meaning set forth in Section 2.1(b)
hereof.
"WORKING CAPITAL" means the excess of the Guarantor's Current Assets over
its Current Liabilities.
1.2 ACCOUNTING TERMS. Except as expressly stated herein, all accounting
terms not specifically defined herein shall be construed in accordance with GAAP
consistent with those applied in preparation of the consolidated financial
statements of the Borrowers referred to in Section 11.1 hereof.
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Section 2.
2.1 REVOLVING CREDIT FACILITY.
(a) Upon the terms and subject to the conditions herein set forth,
the Lenders severally agree to make the senior secured revolving credit
available to the Borrowers by, from time to time prior to the Maturity
Date, making an Advance or Advances to the Borrowers or issuing one or
more Letters of Credit for the account of the Borrowers, PROVIDED THAT the
aggregate face amount of all Letters of Credit outstanding hereunder shall
not at any time exceed USD 10,000,000, and PROVIDED FURTHER that the
principal amounts of all outstanding Advances and the face amount of
Letters of Credit shall not exceed, in the aggregate, the lesser of the
Available Commitment (as defined in Section 2.1(b) hereof) and USD
30,000,000.00 at any one time. No Letter of Credit shall have a duration
in excess of two (2) years and no Letter of Credit shall have a duration
beyond the Maturity Date. Within such limit, the Borrowers may borrow,
repay pursuant to Section 6.3(a) and reborrow under this Section 2.1. Each
borrowing by the Borrowers from the Lender under this Section shall be in
an aggregate principal amount of at least USD 200,000.00 and in integral
multiples of USD 100,000.00.
(b) On the date which is five (5) business days prior to the Closing
Date, and on each December 15 and June 15 thereafter until the Maturity
Date, the Borrowers shall provide irrevocable written notice (each a
"Commitment Notice") to the Agent setting forth that amount of the
Commitment that the Borrowers designate shall be available during the
immediately succeeding six-month period commencing with each January 1 and
July 1 (each, a "Commitment Period", provided that the first Commitment
Period shall commence on the Closing Date and end on June 30, 1999). Such
portion of the Commitment shall be in integral multiples of USD 1,000,000
and shall be referred to herein as the "Available Commitment". The
difference between the Commitment and the Available Commitment during any
Commitment Period shall be referred to herein as the "Unavailable
Commitment"; the sum of the Available and Unavailable Commitments shall at
no time exceed the Commitment. If no Commitment Notice is received by the
Agent, the Available
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Commitment for the next succeeding Commitment Period shall be the same as
for the existing Commitment Period.
(c) The Borrowers may, during any Commitment Period, request that
the Available Commitment be increased for such Commitment Period, in
integral multiples of USD 1,000,000 (the "Adjusted Available Commitment"),
upon five (5) days prior written notice to the Agent. The Commitment Fee
set forth in Section 9.1(a) hereof for such Commitment Period shall be
recalculated as if the Available Commitment on the first day of such
Commitment Period were the Adjusted Available Commitment, and the
resulting change in the commitment fee shall be paid by the Borrowers to
the Agent on the date the requested increase become effective. 2.2
BORROWING BASE.
(a) Notwithstanding any other provision of this Credit Agreement,
the aggregate principal amount of Advances and the face amount of Letters
of Credit at any time outstanding shall not be in excess of the Borrowing
Base.
(b) As an additional condition precedent to the initial Advance, all
subsequent Advances and any Letters of Credit issued under the Revolving
Credit Facility, the Borrowers shall provide to the Lender a Borrowing
Base Report substantially in the form of Exhibit D attached hereto PLUS a
report with detailed listing and aging of all accounts receivable of the
Borrowers (together, the "Borrowing Base Report").
(c) If at any time the test of Section 2.2(a) above is not met, the
Borrowers shall at the Agent's direction either (i) within ten (10)
Business Days provide to the Agent sufficient additional collateral in
form and substance satisfactory to the Agent as shall be necessary to
insure that the test of Section 2.2(a) above is satisfied or (ii) within
three (3) Business Days prepay pursuant to Section 6.4 hereof an amount as
may be necessary to reduce the aggregate principal amount outstanding
under the Revolving Credit Facility to an amount which will allow the test
of Section 2.2(a) above to be met. The cure periods listed above shall
start running on the date notice of the Agent's decision is given to the
Borrowers.
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2.3 COUNTER INDEMNITY. The Borrowers jointly and severally agree to make
each Indemnity Payment to the Agent for distribution to the Lenders immediately
on demand of the Agent.
2.4 DRAWINGS UNDER LETTERS OF CREDIT. No Lender shall concern itself with
the regularity or propriety of any demand made under any Letter of Credit,
provided that such demand is made in the manner called for in such Letter of
Credit and (subject to such proviso) it shall not be a defense to a claim of
such Lender under this Section 2.4 that such Lender could have resisted the
payment in respect of which such claim is made.
2.5 VARIATIONS. The Borrowers' obligations under this Section 2 shall not
be in any way discharged or impaired by any variation of the terms of any Letter
of Credit or this Credit Agreement or any document executed pursuant hereto to
which the Borrowers have expressly consented in writing.
2.6 SECURITY. The Borrowers' obligations under this Section 2 shall be in
addition to and not in substitution for any security now or hereafter held by
the Agent in respect of their obligations under this Credit Agreement.
2.7 CERTIFICATES. A certificate together with evidence of payment
submitted by a Lender to the Borrowers as to the amount of any Indemnity Payment
owed to such Lender in respect of a Letter of Credit shall (save for manifest
error) be conclusive and binding on the Borrowers for all purposes.
Section 3. THE NOTE.
(a) The Borrowers' joint and several obligations to pay the
principal of, and interest on, the Loan shall be evidenced by the Note.
(b) At the time of the making of each Advance, and upon each payment
of the principal of the Loan, the Agent shall, and is hereby authorized
to, make a notation on the Note specifying the date and the amount of such
Advance or such payment. Failure to make any such notation shall not limit
or otherwise affect the Borrowers' or any guarantor's obligations in
respect of this Credit Agreement or the Note.
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Section 4. MANNER OF DRAWDOWN AND ISSUANCE OF LETTERS OF CREDIT.
4.1 MANNER OF DRAWDOWN OR ISSUANCE. The Borrowers may draw an Advance or
have a Letter of Credit issued upon:
(a) The issuing Lender's prior satisfaction that the relevant
conditions set out in Section 8 herein have been complied with;
(b) No event having occurred to the actual knowledge of the
Borrowers which, with or without notice or lapse of time, would constitute
an Event of Default;
(c) The issuing Lender having received from the Borrowers, for an
Advance, an irrevocable Request for Borrowing (i) before 10:00 a.m. New
York time at least three (3) and not more than ten (10) Business Days in
the case of a LIBOR Advance and (ii) before 3:00 p.m. New York time at
least one (1) and not more than ten (10) Business Days in the case of a
Prime Advance prior to the Drawdown Date selected by the Borrowers.
(d) The issuing Lender having received from the Borrowers, for the
issuance of a Letter of Credit, an irrevocable Request for Letter of
Credit at least five (5) Business Days prior to the Drawdown Date on which
the Letter of Credit is to be issued.
4.2 DISBURSEMENT OF FUNDS. Disbursement of each Advance proceeds shall be
made by the issuing Lender to the Borrowers as directed by the Borrowers in the
Request for Borrowing.
4.3 FAILURE TO BORROW; DELAY. If the borrowing described in any Request
for Borrowing or the issuance of a Letter of Credit described in any Request for
Letter of Credit fails to take place or is delayed because any of the conditions
specified in Section 8 below are not satisfied, the Borrowers shall jointly and
severally indemnify the Lenders against any loss incurred as a result of the
giving of such Request for Borrowing or Request for Letter of Credit, including
without limitation any loss resulting from actions taken by the Lender to fund
the requested Advance, but excluding any loss resulting from the gross
negligence or willful misconduct of the Lenders. A certificate of any Lender
stating in reasonable detail the amount of, and basis for, any such loss
incurred by such Lender shall be conclusive absent manifest error.
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Section 5. INTEREST.
5.1 RATE OF INTEREST.
(a) The Borrowers agree to pay interest in respect of all amounts
outstanding under any LIBOR Advance at a rate per annum of the LIBOR Rate
plus 2 and 1/2%.
(b) The Borrowers agree to pay interest in respect of all amounts
outstanding under any Prime Advance at a rate per annum of the Prime Rate
plus 1/2%.
(c) Interest on unpaid principal amounts of LIBOR Advances shall be
computed on the basis of a year of 360 days and the actual number of days
elapsed.
(d) Interest on unpaid principal amounts of Prime Advances shall be
computed on the basis of a year of 365 days or, when applicable, 366 days.
(e) The Borrowers agree to pay interest in respect of all Indemnity
Payments at a rate per annum equal to the Prime Rate plus 2 and 1/2% from
the date the obligation to make an Indemnity Payment arises to the date of
payment. Interest on unpaid Indemnity Payments shall be computed on the
basis of a year of 365 days or, when applicable, 366 days.
5.2 PAYMENT OF INTEREST. Except as provided in Section 5.1(e) above with
respect to interest on Indemnity Payments, interest shall be paid by the
Borrowers on each Interest Payment Date.
5.3 CONVERSION OF LIBOR ADVANCE TO PRIME ADVANCE.
(a) At the end of any Interest Period for a LIBOR Advance, the
Borrowers may, by irrevocable written notice to the Agent received at
least three (3) Business Days prior to the end of such Interest Period,
elect to convert such Advance to a Prime Advance.
(b) The Borrowers shall notify the Agent before 10:00 a.m. New York
time three (3) Business Days prior to the end of each Interest Period for
any LIBOR Advance as to the length selected by the Borrowers for the next
Interest Period. If no such notice is given, such LIBOR Advance shall
automatically convert to a Prime Advance.
5.4 OVERDUE PAYMENT OF PRINCIPAL AND INTEREST. Overdue principal of, and
(to the extent permitted by law) overdue interest in respect of, amounts due
under this Credit Agreement shall bear
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interest, payable on demand, at a rate per annum which shall be 2% in excess of
the interest rate otherwise applicable pursuant to Section 5.1 above.
5.5 COMPLIANCE WITH LAW. Notwithstanding any provision of this Credit
Agreement or the Note to the contrary, in no event shall the aggregate amount of
consideration which constitutes interest under any applicable law which is
contracted for, charged or received hereunder or under this Credit Agreement or
the Note ("Interest") exceed the maximum amount of nonusurious interest allowed
by law, and any excess shall be credited on this Credit Agreement or the Note
(or if all obligations under this Credit Agreement and the Note shall have been
paid in full, refunded to the Borrowers). For purposes of the foregoing, the
maximum amount of interest allowed by law shall be calculated by determining the
amount of interest that could be contracted for, charged or received during the
term hereof at the maximum rate of nonusurious interest allowed from time to
time by applicable law as is now or, to the extent allowed by law, as may
hereafter be in effect (the "maximum nonusurious interest rate") and, if at any
time the rate of Interest to accrue would exceed the maximum nonusurious
interest rate, the rate of Interest to accrue under the Note shall be limited to
the maximum nonusurious interest rate, but any subsequent reductions in the
LIBOR Rate or the Prime Rate shall not reduce the rate of Interest to accrue
under this Credit Agreement or on the Note below the maximum nonusurious
interest rate until the total amount of Interest accrued and paid under this
Credit Agreement or on the Note equals the amount of Interest which could have
accrued if a rate per annum equal to the LIBOR Rate plus 2 and 1/2% or the Prime
Rate plus 1/2% had at all times been in effect.
Section 6. LOAN PAYMENTS
6.1 PAYMENTS ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder or under the Note shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day; provided, however, that if such next succeeding Business Day is in
a new month, then the payment required under this Credit Agreement or the Note
shall be made on the first Business Day preceding the original date on which
payment was due. If a payment of principal has been extended pursuant to this
Section 6.1, interest shall be payable on such principal at the applicable rate
during such extension.
6.2 REPAYMENT OF REVOLVING CREDIT FACILITY.
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(a) The Borrowers may repay any amounts outstanding under the
Revolving Credit Facility prior to the Maturity Date, on the following
terms and conditions:
(i) any amounts outstanding as LIBOR Advances may be repaid
upon irrevocable written notice to the Agent three (3) days prior to
the end of an Interest Period without prepayment fee or penalty, but
any repayment made before the end of an Interest Period must be
accompanied by Breakage Costs;
(ii) any amounts outstanding as Prime Advances may be repaid
upon irrevocable written notice to the Agent no later than 4:00 p.m.
New York time on the day before repayment and without prepayment fee
or penalty.
(b) The Borrowers shall jointly and severally repay all amounts
outstanding under the Revolving Credit Facility to the Lenders in one
payment on the Maturity Date.
6.3 PAYMENT PROCEDURE. All payments and prepayments made by the Borrowers
under the Note or this Credit Agreement shall be made by wire transfer in
immediately available funds before 12:00 noon, New York Time on the date such
payment is required to be made to the Lenders pursuant to the Agent's written
instructions. Any payment received and accepted by the Lenders after such time
shall be considered for all purposes (including the calculation of interest, to
the extent permitted by law) as having been made on the next following Business
Day. All payments and prepayments received shall be applied first to accrued
interest and then to the reduction of principal.
6.4 NET PAYMENTS.
(a) All sums payable by the Borrowers under this Credit Agreement,
or the Note, whether of principal, interest, fees or otherwise, shall be
paid in full without set-off or counterclaim and in such amounts as may be
necessary in order that all such payments (after deduction or withholding
for or on account of any Taxes, other than any Tax, on or measured by the
income of the Lenders) shall not be less than the amounts otherwise
specified to be paid under this Credit Agreement or the Note.
(b) A certificate as to any additional amounts payable to the
Lenders under this Section 6.4 submitted to the Borrowers by the Agent
shall show in reasonable detail the amount payable and the calculations
used to determine in good faith such amount and shall be conclusive absent
manifest error.
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(c) With respect to each deduction or withholding for or on account
of any Taxes, the Borrowers shall promptly furnish to the Agent such
certificates, receipts and other documents as may be required (in the
reasonable judgment of the Lender) to establish any income tax credit to
which a Lender may be entitled. In the event that such a deduction or
withholding for Taxes becomes so applicable, the Lenders and the Borrowers
will use their best efforts to minimize the effect of such Taxes.
6.5 RIGHTS OF SET-OFF. The Agent and the Lenders shall, with respect to
the Loan and all other amounts payable hereunder, have all rights of set-off,
banker's lien and counterclaim as they are entitled to exercise under the law of
the jurisdiction in which such rights are exercised.
6.6 CHANGES IN CIRCUMSTANCES.
(a) If, by reason of any change subsequent to the date of this
Credit Agreement in applicable law or regulation or regulatory requirement
or directive whether or not having the force of law or in the
interpretation or application thereof by the governmental or
quasi-governmental or judicial authority or central bank charged with the
administration or interpretation of such law or regulation (a "Change in
Circumstance"), a Lender shall determine in good faith that it has become
unlawful or impossible for it to perform its obligations hereunder, the
Agent shall immediately notify the Borrowers and, after such notice, the
liability of such Lender to advance or maintain the Advances or issue
Letters of Credit shall immediately cease or, (i) if any Advance has been
made, the Borrowers shall prepay to such Lender such Advance, or (ii) if
any Letter of Credit has been issued, the Borrowers, such Lender and the
Agent shall use their reasonable good faith efforts to secure a
replacement letter of credit at the sole expense of the Borrowers;
PROVIDED THAT if the Borrowers are unable to secure such replacement
letter of credit, the Borrowers shall deposit with such Lender at an
account designated by that Lender an amount equal to the face amount of
all then outstanding Letters of Credit. In any such event, but without
prejudice to the aforesaid obligation of the Borrowers to prepay, the
Borrowers, such Lender and the Agent shall negotiate in good faith for a
period not to exceed ninety (90) days commencing from the date notice is
given by the Agent as provided above, with a view to agreeing to terms for
making or continuing to make available the Commitment from another
jurisdiction
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or funding of the affected Advance and issuing or reissuing the affected
Letters of Credit from alternative sources.
(b) If the effect of any Change in Circumstance having effect after
the date hereof, is to:
(i) change the basis of taxation to a Lender of payment of
principal or interest or any other payment due pursuant to the terms
of this Credit Agreement or the Note (other than an increase in the
rate of taxation on the Lender's overall net income); or
(ii) impose or modify or deem applicable any reserve
requirements or require the making of any special deposits against
or in respect of any assets or liabilities of, deposits with or for
the account of or loans by a Lender; or
(iii) impose on any Lender any other condition affecting the
Commitment or the Loan or any part thereof, the result of which is
either to increase the cost to such Lender of making available or
maintaining the Commitment or the Loan or any part thereof or to
reduce the amount of any payment received by the Lender hereunder;
then and in any such case if such increase or reduction in the
opinion of the Lender materially affects the interests of the
Lender;
(A) the Lender shall notify the Borrowers of any of the
above circumstances and the Lender shall use all reasonable
efforts (without any financial commitment on its part) to
avoid the effects of any such change and in particular, shall
consider (without any commitment on its part) fulfilling its
obligations under this Credit Agreement through another office
or transferring its interest in this Credit Agreement and the
Note at par to one or more of its Affiliates not affected by
the Change in Circumstances if such transfer can be
accomplished without material added cost to the Lender and in
a manner compatible with its operational procedures; or
(B) If the efforts referred to in (A) above fail to have
the effect of eliminating the increased cost incurred by the
Lender or the reduction in the amount of any payment received,
the Borrowers shall within three (3)
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Business Days following demand (whether made before or after
any repayment of the amounts outstanding under this Credit
Agreement and the Note) pay to the Lender such amount as the
Lender shall certify to be necessary to compensate the Lender
for such additional cost or reduction; provided, however, that
despite such payments, the Lender and the Borrowers shall
continue to use their best efforts to reduce the effect of
such Change in Circumstance; and
(C) At any time thereafter, so long as the Change in
Circumstance giving rise to the obligation to make the
compensating payment continues, the Borrowers may, upon giving
the Lender not less than ten (10) Business Days' written
notice which shall be irrevocable, prepay to the Lender the
Loan (except for outstanding Letters of Credit) and shall
deposit with the Lender at an account designated by the Lender
an amount equal to the face amount of all then outstanding
Letters of Credit.
(c) If any amounts outstanding under this Credit Agreement are to be
prepaid by the Borrowers pursuant to any of the provisions of this Section
6.6, the Borrowers shall simultaneously with such prepayment pay to the
Lenders all Breakage Costs and all accrued interest and fees on the
amounts to be prepaid.
(d) The certificate of determination of a Lender, as to any matters
referred to in this Section 6.6 shall show in reasonable detail the amount
payable and the calculations used in good faith to determine such amount
and shall, save for any manifest error, be conclusive and binding on the
Borrowers.
6.7 UNAVAILABILITY OF DOLLARS.
(a) In the event that a Lender is not able to obtain Dollars in the
London Interbank Market, in the manner in effect on the date of this
Credit Agreement, the Dollars required by such Lender to fund the Loan
shall be made available from such other financial sources as may be
available to such Lender. In such an event the rate of interest applicable
to the Loan for the relevant Interest Period will be for LIBOR Advances,
the aggregate of 3% and for Prime Advances, 1/2% and the cost (expressed
as a per annum percentage) to the
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Lender from such financial sources and for periods as may be elected by
the Lender. Each change in such cost in respect of funding the Loan will
cause an immediate corresponding change in the rate of interest payable by
the Borrowers. This arrangement shall be temporary and should Dollars
subsequently become available to the Lender in the London Interbank
Market, in the manner in effect on the date of this Credit Agreement, then
from the conclusion of the then current Interest Period for funding from
alternative sources, the Loan will bear interest at the rate detailed in
Section 5.1(a) above.
(b) In the event that a Lender is unable (for any reason whatsoever)
to acquire the required Dollars from any source, the parties hereto shall
meet to discuss an alternative arrangement. In the absence of mutual
agreement and at the end of ten (10) Business Days after the meeting
referred to above the obligation of the Lender hereunder to make available
the Loan shall be extinguished forthwith and the Loan shall be repaid
forthwith by the Borrowers to such Lender along with all fees and Breakage
Costs for the Loan.
6.8 HOLDING ACCOUNT.
(a) On or before the first Drawdown Date, the Borrowers shall cause
to be established in the name of the Borrowers for the benefit of the
Lenders an account and lock box (the "Holding Account" and the "Lock Box")
at the Houston, Texas office of The Frost National Bank pursuant to the
Holding Account Agreement. The Borrowers shall instruct all of their
customers and account debtors to make all payments to the Lock Box or the
Holding Account of all accounts receivable of the Borrowers, including but
not limited to Accounts as defined in the Security Agreement. Any payments
received directly by the Borrowers from their customers or account debtors
will be deposited immediately in the Holding Account. Until an Event of
Default shall have occurred, the Borrowers shall have the right to
transfer from the Holding Account any amounts in the Holding Account.
After an Event of Default shall have occurred all amounts in the Holding
Account may be applied by the Agent for the benefit of the Lenders in
payment of any amounts due and outstanding under this Credit Agreement or
the Note.
(b) On each Interest Payment Date, the Maturity Date, and each day
on which any commitment fee is payable and only in the event that the
Borrowers have failed to make a
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payment in accordance with the terms of this Credit Agreement and the
Note, all amounts in the Holding Account (including interest accrued),
shall be used first to pay interest due on such Interest Payment Date,
second to pay any commitment fee due on such date and third to repay the
principal amount outstanding on the Note which is due and payable to the
Lenders on such date. After such payments have been made, all other funds
in the Holding Account shall be released to the Borrowers.
(c) The Holding Account shall terminate and any funds remaining in
it shall be paid the Borrowers upon the fulfillment of all of the
Borrowers' Obligations or upon the prior written consent of the Lenders.
6.9 TAX TREATY. Each Lender that is organized under the laws of a country
other than the United States of America agrees:
(a) To complete and deliver to the Borrowers on or before the first
Drawdown Date Internal Revenue Service Form 4224.
(b) To complete and deliver to the Borrowers from time to time,
provided the Lender is eligible to do so, any successor or additional
forms required in order to secure an exemption from, or reduction in the
rate of, income tax withholding imposed by the United States of America.
Each such Lender shall amend or supplement any such form as required and
permitted by applicable law to insure that it is in full force and effect,
accurate and complete at all times.
Section 7. SECURITY.
7.1 SECURITY AGREEMENT. The Credit Facility and all other amounts due
under this Credit Agreement shall be secured in accordance with the provisions
of the Security Agreement.
7.2 GUARANTY. The Credit Facility and all other amounts due under this
Credit Agreement shall be secured in accordance with the provisions of the
Guaranty.
7.3 HOLDING ACCOUNT AGREEMENT. The Credit Facility and all other amounts
due under this Credit Agreement shall be secured in accordance with the terms of
the Holding Account Agreement.
7.4 FURTHER ASSURANCES. The Borrowers agree to execute and deliver to the
Agent such financing statements or other instruments or documents as the Agent
may reasonably request in order
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to perfect the security created by the Security Agreement, and the Holding
Account Agreement or otherwise required by this Credit Agreement.
Section 8. CONDITIONS PRECEDENT.
8.1 DOCUMENTS REQUIRED AS CONDITIONS PRECEDENT TO THE DRAWDOWN OF THE
FIRST ADVANCE. The obligation of the Lenders to make the first Advance (or issue
the first Letter of Credit, whichever is earlier) is subject to the condition
precedent that the Agent shall have received at or prior to the first Drawdown
Date all of the following, each dated on or before the first Drawdown Date and
each in form and substance satisfactory to the Lenders.
(a) The executed Note and the other Loan Documents.
(b) Certified copies of the resolutions of the Boards of Directors
of the Borrowers and the Guarantor authorizing the execution and delivery
by the Guarantor and the Borrowers of the Loan Documents to which they are
parties and all documents evidencing other necessary corporate action with
respect to the Loan Documents.
(c) Certificates of the Secretaries or the Assistant Secretaries of
the Guarantor and the Borrowers certifying the names and true signatures
of the officers of the Guarantor and the Borrowers authorized to sign the
Loan Documents on behalf of the Guarantor and the Borrowers and the other
documents or certificates to be executed by the Guarantor and the
Borrowers pursuant to this Credit Agreement.
(d) Copies certified as of a recent date by the Secretaries or the
Assistant Secretaries of the Guarantor and the Borrowers of their By-Laws.
(e) Copies of the Guarantor's and the Borrowers' Certificates of
Incorporation certified by the relevant officials of their jurisdiction of
incorporation within thirty (30) days from the date of the first Drawdown
Date and certificates dated within thirty (30) days of the first Drawdown
Date of the relevant officials of their jurisdiction of incorporation as
to the existence and good standing of the Guarantor and the Borrower.
(f) An opinion of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, counsel to the Guarantor and the Borrowers, acceptable to the
Agent.
(g) An opinion of Gardere Wynne Sewell & Riggs, L.L.P., special
counsel to the Lender, acceptable to the Agent.
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(h) The Borrowers shall have executed and delivered to the Agent
copies of all documents and filings and shall have taken all actions
necessary to perfect the security interests created by the Holding Account
Agreement and the Security Agreement as first priority perfected security
interests.
(i) All orders, consents, approvals, licenses, authorizations and
validations of, and filings, recordings and registrations with and
exemptions by any Governmental Agency or any Person (other than any
routine filings which may be required after the date hereof with
appropriate governmental authorities in connection with the operation of
the Borrowers' assets) required to (i) authorize the execution, delivery
and performance by the Borrowers and the Guarantor of the Loan Documents
to which they are parties or (ii) prevent the execution, delivery and
performance by the Borrowers and the Guarantor of the Loan Documents to
which they are parties from resulting in a breach of any of the terms or
conditions of, or resulting in the imposition of any lien, charge or
encumbrance upon any properties of the Borrowers or the Guarantor pursuant
to, or constituting a default (with due notice or lapse of time or both),
or resulting in an occurrence of any event for which any holder or holders
of Indebtedness may declare the same due and payable under, any indenture,
agreement, order, judgment or instrument under which any Borrower or the
Guarantor is a party (other than the Holding Account Agreement or the
Security Agreement) or to the Borrowers' knowledge after due inquiry by
which the Borrowers or the Guarantor or their property may be bound or
affected, or under the Certificates of Incorporation or ByLaws of the
Borrowers or the Guarantor, shall have been obtained or made.
(j) Payment by the Borrowers of the fees referred to in Section 9.1
below and referred to in the side letter dated the date hereof among the
Agent and the Borrowers required to be paid on or before the first
Drawdown Date.
(k) Except for indebtedness referred to in Section 10.16 below, all
of the Indebtedness of the Borrowers for borrowed money arising in the
future shall be fully subordinated to the Obligations on terms and
conditions acceptable to the Lenders.
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(l) There shall have been no material adverse change in the
financial condition of any Borrower or the Guarantor since the financial
statements delivered to the Agent for the period ending September 30,
1998.
(m) If the first Drawdown Date is not the date hereof, certificates
dated the first Drawdown Date of an officer of the Borrowers and the
Guarantor, respectively, certifying that:
(i) The representations and warranties contained in Section 10
below and in Section 7 of the Guaranty are correct on and as of the
first Drawdown Date as through made on and as of such date except
those expressly made as of another date; and
(ii) No event has occurred and is continuing, or would result
from the first Advance or first issuance of a Letter of Credit which
constitutes an Event of Default or with the passing of time or the
giving of notice would constitute an Event of Default.
(n) A Commitment Notice for the Commitment Period commencing January
1, 1999.
8.2 ADDITIONAL CONDITIONS PRECEDENT TO SUBSEQUENT ADVANCES AND LETTERS OF
CREDIT. The obligation of the Lenders to make each subsequent Advance and to
issue each subsequent Letter of Credit shall be subject to the further condition
precedent that the Agent shall have received at or prior to the date of such
subsequent Advance or the date of issuance of such subsequent Letter of Credit,
each dated on or before the date of the subsequent Advance or subsequent Letter
of Credit and each in form and substance satisfactory to the Lenders:
(a) a certificate (dated the date of such Advance or Letter of
Credit) of an officer of the Borrowers and the Guarantor, respectively,
certifying that:
(i) The representations and warranties contained in
Section 10 below and in Section 6 of the Guaranty are correct
on and as of the date such Advance is made or Letter of Credit
is issued as though made on and as of such date except those
expressly made as of another date; and
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(ii) No event has occurred and is continuing, or would
result from such Advance, or from the issuance of such Letter
of Credit, which constitutes an Event of Default or with the
passing of time or the giving of notice would constitute an
Event of Default.
(b) payment by the Borrowers of the fees required to be paid on or
before such date by Section 9.1 below.
8.3 WAIVER OF CONDITIONS PRECEDENT. All of the conditions precedent
contained in this Section 8 are for the sole benefit of the Lenders and the
Lenders may waive any or all of them in their absolute discretion.
Section 9. FEES AND EXPENSES.
9.1 FEES.
(a) The Borrowers shall pay to the Agent for distribution to the
Lenders a commitment fee of one-half of one percent (1/2%) per annum of
the daily undrawn portion of the Available Commitment up to and including
the Maturity Date. Such commitment fee shall begin to accrue on the date
of this Credit Agreement and shall be payable quarterly in arrears, the
first such payment to be made on March 31, 1999 and quarterly thereafter.
The amount of the commitment fee shall be computed on the basis of a year
of 360 days and the actual number of days elapsed.
(b) The Borrowers shall pay to the Agent for distribution to the
Lenders a commitment fee of one-quarter of one percent (1/4%) per annum of
the Unavailable Commitment up to and including the Maturity Date, payable
quarterly in arrears, the first such payment to be made on March 31, 1999
and quarterly thereafter.
(c) The Borrowers shall pay to the Agent for distribution to the
issuing Lender a letter of credit fee equal to one and one half percent
(1-1/2%) per annum on the face amount of each Letter of Credit
outstanding, payable quarterly in arrears.
9.2 EXPENSES. The Borrowers jointly and severally agree, whether or not
any Advance is made or Letter of Credit is issued, to promptly pay or reimburse
the Agent upon demand for all reasonable fees and disbursement of the Agent,
including, but not limited to, travel and other out-of-pocket expenses of the
Agent and the reasonable fees and expenses of external counsel and technical
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consultants to the Agent, incurred in connection with (a) the preparation,
execution and delivery of the Loan Documents, the making of Advances and
issuance of Letters of Credit under this Credit Agreement and all other
documents referred to herein and any amendments, renegotiation, refinancing or
waivers to or termination of any thereof, (b) the recording, filing and
perfection of all security interests created by the Loan Documents and (c) the
protection of the rights of the Agent and the Lenders under this Credit
Agreement and all other documents referred to herein and the enforcement of
payment of the Obligations, whether by judicial proceedings or otherwise.
9.3 GENERAL INDEMNITY. The Borrowers hereby jointly and severally agree
to:
(a) pay and hold the Agent and the Lenders harmless from and against
any and all present and future stamp and other similar Taxes with respect
to the Note and the other Loan Documents and save the Agent and each
Lender harmless from and against any and all liabilities with respect to
or resulting from any delay or omission to pay such Taxes, and will
indemnify the Agent and each Lender for the full amount of Taxes paid by
the Lender in respect of payments made or to be made hereunder and any
liability (including penalties, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes were correctly or
legally asserted;
(b) indemnify the Agent and each Lender, and its officers,
directors, employees, representatives, agents, attorneys and Affiliates
(an "Indemnitee") from and hold each of them harmless against and promptly
upon demand pay or reimburse each of them for, any and all actions, suits,
proceedings (including any investigations, litigation or inquiries),
claims, demands and causes of action, and, in connection therewith, all
reasonable costs, losses, liabilities, damages or expenses of any kind or
nature whatsoever (collectively the "Indemnity Matters") which may be
incurred by or asserted against or involve any of them (whether or not any
of them is designated a party thereto) as a result of, arising out of or
in any way related to (i) any actual or proposed use by the Borrowers of
the proceeds of the Loan, (ii) the operations of the business of the
Borrowers, (iii) the failure of the Borrowers to comply with any
requirement of any Government Agency, or (iv) any other aspect of this
Credit Agreement, the Note and the other Loan Documents, including,
without limitation, the reasonable fees and disbursements of counsel and
all other expenses incurred in
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connection with investigating, defending or preparing to defend any such
action, suit, proceeding (including any investigations, litigation or
inquiries) or claim and including all Indemnity Matters arising by reason
of the negligence of any Indemnitee;
(c) In the case of any indemnification hereunder, the Agent, any
Lender or other Person indemnified hereunder shall give notice to the
Borrowers within a reasonable period of time of any such claim or demand
being made against it and the Borrower shall have the non-exclusive right
to join in the defense against any such claim or demand provided that if
the Borrowers provide a defense, the Indemnitee shall bear its own cost of
defense unless there is a conflict of interest between the Borrowers and
such Indemnitee.
(d) No Indemnitee may settle any claim to be indemnified pursuant to
this Section 9.3 without the consent of the indemnitor, such consent not
to be unreasonably withheld; PROVIDED, that the indemnitor may not
reasonably withhold consent to any settlement that an Indemnitee proposes,
if the indemnitor does not have the financial ability to pay all of its
obligations outstanding and asserted against the Indemnitee at that time,
including the maximum potential claims against the Indemnitee to be
indemnified pursuant to this Section 9.3.
(e) Notwithstanding anything to the contrary in this Credit
Agreement, the Borrowers shall have no indemnity obligation with respect
to any Indemnitee Matter caused by or resulting from the gross negligence
or willful misconduct of the Agent, any Lender or any other Indemnitee.
(f) The indemnity and hold harmless contained in this Section 9.3
shall not extend to the Agent, any Lender or any other Indemnitee in its
or his capacity as an equity investor in the Borrowers or as an owner of
any property or interest as to which the Borrowers are also an owner but
only to the Agent's or any Lender's capacity as a lender or a holder of
security interests.
9.4 SURVIVAL. The obligations of the Borrowers under this Section 9 shall
survive payment of all other amounts due under this Credit Agreement.
Section 10. REPRESENTATIONS AND WARRANTIES OF BORROWERS.
Each Borrower represents and warrants to the Lenders as follows:
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10.1 DUE INCORPORATION, QUALIFICATION, ETC. It is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is duly qualified and in good standing as a foreign corporation to
do business in the jurisdictions in which the failure to be so qualified would
have a material adverse effect on its business or financial condition, and it
has full corporate power and authority to own its properties and assets and to
conduct its business as presently conducted.
10.2 CAPACITY. It has full corporate power and authority to execute and
deliver, and to perform and observe the provisions of the Loan Documents to
which it is a party and to carry out the transactions contemplated hereby and
thereby.
10.3 AUTHORITY AND ENFORCEABILITY. The execution, delivery and performance
by such Borrower of the Loan Documents to which it is a party have been or will
be duly authorized by all necessary corporate action. This Credit Agreement
(including the New York choice of law) constitutes, and the other Loan Documents
to which it is a party constitute, or will constitute, legal, valid and binding
obligations of such Borrowers enforceable against it in accordance with their
respective terms, subject to laws affecting creditors' rights generally and
applicable equitable principles. The Security Agreement and the Holding Account
Agreement shall on the first Drawdown Date create and constitute valid and
perfected security interests in and to the properties covered thereby, subject
to the exceptions contained therein, enforceable against all third parties,
subject to laws affecting creditors' rights generally and applicable equitable
principles, and shall secure the Credit Facility.
10.4 GOVERNMENTAL APPROVALS. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with
(other than any routine filings which may be required after the date hereof with
appropriate governmental authorities required in connection with the perfection
of the security interests created by any of the Loan Documents), or exemption
by, any Governmental Agency, is required to authorize the execution, delivery
and performance by such Borrower of the Loan Documents to which it is a party.
10.5 COMPLIANCE WITH OTHER INSTRUMENTS. The execution and delivery of this
Credit Agreement and compliance with its terms, the issuance of the Note and the
execution and delivery of the Security Agreement and the Holding Account
Agreement and the compliance with their terms
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as contemplated herein, do not result in a breach of any of the terms or
conditions of, or result in the imposition of any lien, charge or encumbrance
(except those contemplated by this Credit Agreement) upon any properties of such
Borrower pursuant to, or constitute a default (with due notice or lapse of time
or both), or result in an occurrence of any event for which any holder or
holders of Indebtedness may declare the same due and payable under any
indenture, agreement, order, judgment or instrument under which such Borrower is
a party or to such Borrower's knowledge, after due inquiry, by which such
Borrower or its property may be bound or affected, or under the Certificate of
Incorporation or By-Laws of such Borrower, and, to such Borrower's knowledge,
after due inquiry, do not violate any provision of applicable law.
10.6 FINANCIAL STATEMENTS.
(a) The consolidated balance sheets of the Borrowers and the
Guarantor as of September 30, 1998 and the related consolidated statements
of income and cash flow of the Borrowers and the Guarantor for the month
and year to date period ended on that date, copies of which have been
furnished to the Agent, have been prepared in accordance with GAAP and
fairly present the financial conditions of the Borrowers and the Guarantor
as of such date and the results of the operations of the Borrowers and the
Guarantor for the period ended on such date.
(b) As of September 30, 1998 the Borrowers and the Guarantor have no
contingent liabilities which, if determined adversely to them (either
singly or in the aggregate), would have a material adverse effect.
10.7 MATERIAL ADVERSE EVENTS. Since September 30, 1998 neither the
business, the prospects, the properties nor the condition (financial or
otherwise) of any Borrower or the Guarantor have been materially adversely
affected.
10.8 LITIGATION, ETC. Except as disclosed in writing to the Agent, there
are no actions, suits or proceedings pending, or to the knowledge of the
Borrowers threatened, against or affecting the Borrowers or the Guarantor, at
law or in equity which, if adversely determined, would have a material adverse
effect on the Borrowers or the Guarantor. To the Borrowers' knowledge, as of
September 30, 1998, neither Borrower or the Guarantor was in violation with
respect to any applicable laws or regulations which non-compliance would have a
material adverse effect nor is any
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Borrower or the Guarantor in violation or default with respect to any order,
writ, injunction, demand or decree of any court or any Person or in violation or
default (nor is there any waiver in effect which, if not in effect, would result
in a violation or default) in any material respect under any indenture,
agreement or other instrument under which any Borrower or the Guarantor is a
party or may be bound, default under which would have a material adverse effect.
10.9 PRINCIPAL PLACE OF BUSINESS. The chief executive office and principal
place of business of the Borrowers and the Guarantor is located at 2500 CityWest
Boulevard, Suite 2200, Houston, Texas 77042.
10.10 PATENT AND OTHER RIGHTS. The Borrowers and the Guarantor have the
right to use all patents, licenses, trademarks, trade names, trade secrets,
copyrights and all rights with respect thereto, which are required to conduct
their businesses as now conducted without known conflict with the rights of
others which would materially and adversely affect such businesses.
10.11 TAXES. The Borrowers and the Guarantor have filed or caused to be
filed all tax returns which are required to be filed by them, pursuant to the
laws, regulations or orders of each Person with taxing power over the Borrowers
and the Guarantor or their assets. The Borrower and the Guarantor have paid, or
made provision for the payment of, all Taxes which have or may have become due
pursuant to said returns, or otherwise, or pursuant to any assessment received
by the Borrowers and the Guarantor, except such Taxes, if any, as are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided. The charges, accruals and reserves in
respect of Taxes on the books of the Borrowers and the Guarantor are adequate
(determined in accordance with GAAP). There are no proposed material tax
assessments against any Borrower or the Guarantor and no extension of time for
the assessment of federal, state or local Taxes of the Borrowers or the
Guarantor is in effect or has been requested.
10.12 EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974. No Reportable Event
has occurred and is continuing with respect to any Plan.
10.13 INVESTMENT COMPANY ACT OF 1940. Neither Borrower is an "investment
company" within the meaning of the Investment Company Act of 1940.
10.14 SUBSIDIARIES. The Borrowers have no subsidiaries. The Guarantor has
no active subsidiaries other than the Borrowers. The inactive subsidiaries of
the Guarantor are Horizon
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Offshore International, Ltd. and Horizon Group, LDC., each of which shall remain
inactive unless the Lenders otherwise agree in writing.
10.15 ENVIRONMENTAL COMPLIANCE.
(a) The Borrowers have duly complied in all material respects with,
and their properties and operations are in compliance in all material
respects with, the provisions of all applicable environmental, health and
safety laws, codes and ordinances and all rules and regulations
promulgated thereunder of all Governmental Agencies unless such compliance
would violate the laws or regulations of the jurisdiction in which their
properties or operations are located.
(b) As of the date of this Credit Agreement, the Borrowers have
received no notice from any Governmental Agency, and have no knowledge, of
any fact(s) which constitute a violation of any applicable environmental,
health or safety laws, codes or ordinances, and any rules or regulations
promulgated thereunder of all Governmental Agencies, which relate to the
use or ownership of the properties owned or operated by the Borrowers.
(c) The Borrowers have been issued all required permits, licenses,
certificates and approvals of all Governmental Agencies relating to (i)
air emissions, (ii) discharges to surface water of ground water, (iii)
noise emissions, (iv) solid or liquid waste disposal, (v) the use,
generation, storage, transportation, treatment, recycling or disposal of
Hazardous Substances or (vi) other environmental, health or safety matters
necessary for the ownership or operation of the properties owned or
operated by the Borrowers and such permits, licenses, certificates and
approvals are in full force and effect on the date of this Credit
Agreement.
(d) To the best of the Borrowers' knowledge, except in accordance
with a valid governmental permit, license, certificate or approval, there
has been no spill or unauthorized discharge or release of any Hazardous
Substance to the environment at, from or as a result of any operations or
any of the properties owned or operated by the Borrowers required to be
reported to any Governmental Agency.
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(e) There has been no material complaint, compliance order,
compliance schedule, notice letter, notice of citation or other similar
notice from any applicable environmental agency which concerns the
operations of the properties owned or operated by the Borrowers.
10.16 INDEBTEDNESS. The Borrowers have no indebtedness for borrowed money
other than the Indebtedness hereunder, and a loan of approximately USD
60,000,000 from the lenders under that certain Loan Agreement dated as of the
date hereof among the financial institutions named therein, The CIT
Group/Equipment Financing, Inc., as Agent for financial institutions, and the
Borrowers.
Section 11. AFFIRMATIVE COVENANTS OF BORROWERS.
Until the payment in full of all amounts due under this Credit Agreement
and the Note by the Borrowers, unless compliance shall have been waived by the
Lenders, the Borrowers and the Guarantor agree that:
11.1 FINANCIAL STATEMENTS, REPORTS AND INSPECTION.
(a) The Borrowers and the Guarantor will furnish to the Agent:
(i) as soon as possible and in any event within two (2)
Business Days after an officer of the Borrowers has knowledge of the
occurrence of any Event of Default or of any default in the
performance of the Loan Documents, or any event which with the
giving of notice or lapse of time, or both, would constitute an
Event of Default or such a default, which is continuing on the date
of such statement, the statement of the chief financial officer of
the Borrowers setting forth the details of such Event of Default or
event or default and the action which the Borrowers propose to take
with respect thereto;
(ii) as soon as available and in any event within forty-five
(45) days after the close of each quarter of the Guarantor's fiscal
years, a copy of quarterly consolidated financial statements for the
Guarantor prepared in accordance with GAAP and certified by the
chief financial officer or chief accounting officer of the Guarantor
together with consolidating statements of each Borrower;
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(iii) as soon as available and in any event within ninety (90)
days after the close of the Guarantor's fiscal years, a copy of the
consolidated annual audited financial statements for such year for
the Guarantor certified by Arthur Andersen, LLP or other independent
public accountants of recognized standing acceptable to the Lenders;
(iv) on the fifteenth (15th) day and the last day of each
month, a barge status report in form and substance satisfactory to
the Agent;
(v) as soon as possible and in any event by December 1 of each
year an annual business plan for the Borrowers for the coming year,
including projections of expenses and revenues; and
(vi) (A) as soon as possible, and in any event, within thirty
(30) days after either Borrower or the Guarantor knows that any
Reportable Event with respect to any Plan has occurred, a statement
of an officer of the Borrowers or the Guarantor setting forth
details as to such Reportable Event and the action which the
Borrowers or the Guarantor propose to take with respect thereto,
together with a copy of the notice of such Reportable Event given to
the Pension Benefit Guaranty Corporation if a copy of such notice is
available to the Borrowers or the Guarantor and (B) promptly after
receipt thereof a copy of any notice relating to a Reportable Event
having a material adverse effect, the Borrowers, or the Guarantor or
any member of the Controlled Group may receive from the Pension
Benefit Guaranty Corporation or the Internal Revenue Service with
respect to any Plan; PROVIDED, HOWEVER, this Section 11.1(a)(vii)(B)
shall not apply to notice of general application promulgated by the
Department of Labor.
(b) The Borrowers or the Guarantor will, upon request, furnish to
the Agent such information as the Agent may reasonably request with
respect to the business, affairs or condition (financial or otherwise) of
the Borrowers or the Guarantor and will permit the Agent or its
representatives at any reasonable time or times during normal business
hours upon three (3) Business Days' prior notice, to inspect the
properties of the Borrowers or the Guarantor, to inspect, audit and
examine the books or records of the Borrowers or the
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Guarantor and to take extracts therefrom and will reimburse the Agent for
all reasonable expenses incurred in connection therewith.
(c) Within forty-five (45) days of the close of the first three
quarters of the Guarantor's fiscal year and on the dates that the annual
reports required pursuant to Section 11.1(a)(iii) above are provided to
the Agent, the Guarantor shall furnish to the Agent a certificate signed
by the chief financial officer or chief accounting officer of the
Guarantor certifying that (A) the representations and warranties contained
in Section 10 of this Credit Agreement are correct on and as of the date
of such certificate as though made on and as of such date except those
expressly made as of another date and (B) the Guarantor is in compliance
with all of the covenants contained in Sections 12.11, 12.12, 12.13, 12.14
and 12.15 of this Credit Agreement, such certificates showing the relevant
computations for such compliance.
(d) As soon as possible and in any event within ninety (90) days of
the end of each of the Guarantor's fiscal years, a certificate from the
Guarantor's auditors referred to in Section 11.1(a)(iii) above, certifying
that (A) such auditor is not aware of any Events of Default and (B) the
Guarantor is in compliance with the covenants contained in Sections 12.11,
12.12, 12.13, 12.14 and 12.15 of this Credit Agreement, such certificates
showing the relevant computations for such compliance.
(e) In addition to the right of inspection referred to in Section
11.1(b) above, the Agent may call for up to four audits of the accounts
receivable of the Borrowers annually, or more if the Lenders have
reasonable cause to believe that the value of such accounts receivable or
the Borrowers' accounting practices are in doubt. The costs of any such
audits shall be for the account of the Borrowers and the Borrowers shall
cooperate with the Agent, the Lenders and their agents in connection with
such audits.
(f) In addition to the requirements of Section 2.2(b) above, the
Borrowers shall provide to the Agent a Borrowing Base Report each Friday,
or the next succeeding Business Day, if any Friday is not a Business Day.
11.2 INSURANCE. The Borrowers shall insure, or cause to be insured, the
properties of the Borrowers under policies of insurance customarily obtained by
businesses in the same or similar
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business as the Borrowers. The Borrowers will promptly notify the Agent of any
material changes in such insurances or any change in the underwriters or clubs
providing such insurances.
11.3 OTHER DEBT. The Borrowers will promptly pay and discharge any and all
Indebtedness, liens, charges, and all Taxes imposed upon them or upon their
income or profits, or upon any of their properties prior to the date on which
penalties accrue thereon, and lawful claims which, if unpaid, might become a
lien or charge upon the property of the Borrowers, except such as may in good
faith be contested or disputed, provided appropriate reserves are maintained in
accordance with GAAP.
11.4 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. The Borrowers and the
Guarantor will preserve and maintain their corporate existence, their business
as presently conducted, and all of their rights, privileges and franchises
necessary or desirable in the normal conduct of said business, and will conduct
their businesses in an orderly, efficient and regular manner.
11.5 FINANCIAL RECORDS. The Borrowers and the Guarantor will keep books of
record and account in which proper entries will be made of their transactions in
accordance with GAAP.
11.6 ENVIRONMENTAL COMPLIANCE.
(a) The Borrowers will comply with and will use their best efforts
to cause their agents, contractors and sub-contractors (while such Persons
are acting within the scope of their contractual relationship with the
Borrowers) to so comply with (i) all applicable environmental, health and
safety laws, codes and ordinances, and all rules and regulations
promulgated thereunder of all Governmental Agencies and (ii) the terms and
conditions of all applicable permits, licenses, certificates and approvals
of all Governmental Agencies now or hereafter granted or obtained with
respect to the properties owned or operated by the Borrowers unless such
compliance would violate the laws or regulations of the jurisdictions in
which the properties or operations of the Borrowers are located.
(b) The Borrowers will use their best efforts and safety practices
to prevent the unauthorized release, discharge, disposal, escape or spill
of Hazardous Substances on or about the properties owned or operated by
the Borrowers.
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11.7 ENVIRONMENTAL NOTIFICATIONS. The Borrowers shall notify the Agent, in
writing, within five (5) Business Days of any of the following events occurring
after the date of this Credit Agreement:
(a) Any written notification made by the Borrowers to any U.S. or
foreign federal, state or local environmental agency required under any
federal, state or local environmental statute, regulation or ordinance
relating to a spill or unauthorized discharge or release of any Hazardous
Substance to the environment at, from, or as a result of any operations
on, the properties and operations owned or operated by the Borrowers;
(b) Knowledge by an officer of the Borrowers of receipt of service
by the Borrowers of any complaint, compliance order, compliance schedule,
notice letter, notice of violation, citation or other similar notice or
any judicial demand by any U.S. or foreign court, federal, state or local
environmental agency, alleging (i) any spill, unauthorized discharge or
release of any Hazardous Substance to the environment from, or as a result
of the operations on, the properties owned or operated by the Borrowers or
(ii) violations of applicable laws, regulations or permits regarding the
generation, storage, handling, treatment, transportation, recycling,
release or disposal of Hazardous Substances on or as a result of
operations on the properties and operations owned or operated by the
Borrowers.
(c) It is understood by the parties hereto that the above mentioned
notices are solely for the Lenders' information, may not otherwise be
required by any U.S. or foreign federal, state or local environmental
laws, regulations or ordinances, and are to be considered confidential
information by the Agent and the Lenders.
(d) The term "environmental agency" as used herein shall include,
but not be limited to, the United States Environmental Protection Agency,
the United States Coast Guard, the United States Minerals Management
Service, the United States Department of Transportation (in its
administration of the Hazardous Materials Transportation Act, 49 U.S.C.
ss. 1801, ET SEQ.) and other analogous or similar Governmental Agencies
regulating or administering statutes, regulations or ordinances relating
to or imposing liability or standards of conduct concerning the
generation, storage, use, production, transportation, handling, treatment,
recycling, release or disposal of any Hazardous Substance.
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11.8 ENVIRONMENTAL INDEMNIFICATION.
(a) The Borrowers hereby agree to indemnify and hold the Indemnitees
harmless from and against any and all claims, losses, liability, damages
and injuries of any kind whatsoever asserted against any Indemnitee with
respect to or as a direct result of the presence, escape, seepage,
spillage, release, leaking, discharge or migration from the properties
owned or operated by the Borrowers of any Hazardous Substance, including
without limitation, any claims asserted or arising under any applicable
environmental, health and safety laws, codes and ordinances, and all rules
and regulations promulgated thereunder of all Governmental Agencies,
regardless of whether or not caused by or within the control of the
Borrowers.
(b) It is the parties' understanding that neither the Agent, the
Lenders nor any other Indemnitee does now, has never and does not intend
in the future to exercise any operational control or maintenance over of
the properties and operations owned or operated by the Borrowers, nor has
any of them in the past, presently, or intends in the future to, maintain
an ownership interest in the properties owned or operated by the Borrowers
except as may arise upon enforcement of the Agent's or the Lenders' rights
under the Security Agreement.
(c) The indemnity and hold harmless contained in this Section 11.8
shall not extend to the Agent, any Lender or any other Indemnitee in its
or his capacity as an equity investor in the Borrowers or as an owner of
any property or interest as to which the Borrowers are also an owner but
only to the Agent's and the Lenders' capacity as a lender or a holder of
security interests.
11.9 YEAR 2000 COMPLIANCE. On or prior to March 31, 1999 (the "COMPLIANCE
DATE"), the Borrowers and the Guarantor shall take all actions necessary to
insure that the automated systems used by the Borrowers and the Guarantor that
are material to their operations (collectively, "MISSION-CRITICAL SYSTEMS"),
including without limitation, software, hardware and other data processing
devices, shall not fail, malfunction or produce incorrect results with respect
to data, calculations and other processing involving dates before, as of or
after December 31, 1999, regardless of the form of the date data is received or
processed (collectively "YEAR 2000 COMPLIANT" or "YEAR 2000
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COMPLIANCE"). Without limiting the generality of the foregoing, on or prior to
the Compliance Date, the Borrowers and the Guarantor shall test and certify that
their Mission-Critical Systems are Year 2000 Compliant in accordance with
commercially reasonable practices and industry standards. The Borrowers and the
Guarantor agree that upon the reasonable request of the Lenders, the Borrowers
and the Guarantor will make their employees, consultants, premises, records and
documentation available to the Agent with respect to their Year 2000 Compliance
efforts. Section 12. NEGATIVE COVENANTS OF BORROWERS. Until the payment in full
of all amounts due under this Credit Agreement and the Note by the Borrowers,
the Borrowers and the Guarantor agree that they will not without the prior
written consent of the Lenders:
12.1 LIENS. Create, incur, assume or suffer to exist any lien (including
any encumbrance or security interest) of any kind upon any of their other
assets, revenues or right to receive revenue whether now owned or hereafter
acquired, except for the liens and other encumbrances set forth below (the
"Permitted Liens"):
(a) liens for Taxes not at the time delinquent or thereafter payable
without penalty or being contested in good faith, provided provision is
made to the extent required by GAAP for the eventual payment thereof in
the event it is found that such are payable by the Borrowers;
(b) liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being contested in good faith, provided provision is made to the extent
required by GAAP for the eventual payment thereof in the event it is found
that such sums are payable by the Borrowers;
(c) maritime liens:
(i) arising in the ordinary course of business by operation of
law that are being contested in good faith by appropriate
proceedings and for which reserves have been made to the reasonable
satisfaction of the Lenders or
(ii) arising in connection with salvage and general average;
or
(iii) arising in connection with crew wages claimed but not
paid;
(d) liens incurred in the ordinary course of business in connection
with workmen's compensation, unemployment insurance or other forms of
governmental
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insurance or benefits, or to secure performance of tenders and statutory
obligations entered into in the ordinary course of business or to secure
obligations on surety or appeal bonds in the ordinary course of business
or easements, rights of way and similar encumbrances incurred in the
ordinary course of business and not interfering with the ordinary conduct
of the business of the Borrowers;
(e) judgment liens in existence less than thirty (30) days after the
entry thereof or with respect to which execution has been stayed or the
payment of which is covered in full by insurance;
(f) liens required by the terms of this Credit Agreement;
(g) purchase money security interests in connection with
Indebtedness referred to in Section 12.5(e) below; and
(h) liens in favor of The CIT Group/Equipment Financing, Inc., as
Agent ("CIT") pursuant to the Loan Agreement dated as of the date hereof
among the Borrowers, CIT, as Agent and the lenders named therein, and any
replacements and extensions thereof.
12.2 LINE OF BUSINESS. Enter into any new line of business unrelated to
their present activities after the date of this Credit Agreement.
12.3 CONSOLIDATION, MERGER, ETC. Consolidate with or merge with, or sell
(whether in one transaction or in a series of transactions) all or substantially
all of their assets to any Person.
12.4 MODIFICATION OF AGREEMENTS. Amend, modify or otherwise change any of
the Loan Documents.
12.5 INDEBTEDNESS. Incur any Indebtedness, except:
(a) the Advances and the Letters of Credit;
(b) accounts payable and accrued liabilities incurred in the
ordinary course of business;
(c) letters of credit, performance and bid bonds obtained by the
Borrowers in the ordinary course of their business, other than the Letters
of Credit, up to an aggregate amount of USD 15,000,000.00 at any time;
(d) supersedeas bonds obtained by the Borrowers in the ordinary
course of their business;
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(e) purchase money indebtedness in connection with capital
expenditures but with no more than USD 3,000,000.00 of such debt being
outstanding at any time; and
(f) indebtedness to CIT in the principal amount of up to USD
60,000,000 (plus interest and fees) and replacements and extensions
thereof.
12.6 REPORTABLE EVENT. Cause or allow to occur a Reportable Event.
12.7 CHANGE OF LEGAL STRUCTURE. Cause or allow to occur any material
change in their present Certificate of Incorporation or By-Laws adversely
affecting the Lenders or change their jurisdiction of incorporation.
12.8 CHANGE OF PLACE OF BUSINESS. Make any change in the address of their
principal place of business or their chief executive office except upon thirty
(30) days' prior written notice to the Agent.
12.9 SUBSIDIARIES. Create or acquire any subsidiaries, unless the
Borrowers notify the Agent of the creation or the acquisition of such subsidiary
and such subsidiary, at the Lenders' request, guarantees the Borrowers'
obligations hereunder in form and substance satisfactory to the Lenders.
12.10 SALE OF FIXED ASSETS OR ACCOUNTS. Sell, transfer or assign any fixed
assets or any account receivable; provided, however, that the Borrowers may
sell, transfer or assign any surplus or scrap equipment in the ordinary course
of business in an amount of up to USD 5,000,000.00 annually.
12.11 CURRENT RATIO. Permit the Current Ratio to be less than 1.1 to 1 at
any time.
12.12 WORKING CAPITAL. Permit its consolidated Working Capital to be less
than USD 3,000,000.00 at any time.
12.13 FIXED CHARGE COVERAGE RATIO. Permit its Fixed Charge Coverage Ratio
to be less than 1.25 to 1.0 for the period from the Closing Date through March
31, 1999 and 1.5 to 1.0 thereafter on a rolling four quarter basis.
12.14 DEBT RATIO. Permit its Debt Ratio at any time to be greater than
55%.
12.15 NET WORTH. Permit its Net Worth to be less than the aggregate of (a)
USD 93,000,000, (b) seventy-five percent (75%) of positive net income for each
fiscal quarter, on a cumulative basis commencing with the quarter beginning
October 1, 1998, and (c) seventy-five
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percent (75%) of the net proceeds of future offerings by the Guarantor of common
stock or other equity of the Guarantor.
12.16 COMPLIANCE WITH FEDERAL RESERVE BOARD REGULATIONS. No part of the
proceeds of any Advance, and no Letter of Credit, will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System, or for the purpose of purchasing or carrying or trading in any
securities under such circumstances as to involve the Borrowers or the Guarantor
in a violation of Regulation X of said Board or the Lenders in a violation of
Regulation U of said Board. In particular, without limitation of the foregoing,
neither the Borrowers nor the Guarantor will use any part of the proceeds of any
Advance to be made hereunder to acquire for itself or for any other person any
publicly-held securities of any kind. The assets of the Borrowers and the
Guarantor do not and will not include any margin securities, and the Borrowers
and the Guarantor have no present intention of acquiring any margin securities.
As used in this Section 12.17, the terms "margin security" and "purpose of
purchasing or carrying" shall have the meanings assigned to them in the
aforesaid Regulation U, and the term "publicly-held", in respect of securities,
shall have the meaning assigned to it in Section 220.7(a) of Regulation T of
said Board. If requested by any Lender, the Borrowers will furnish to such
Lender a statement or statements in conformity with the requirements of Federal
Reserve Form U-1 referred to in said Regulation U.
12.17 LOANS AND INVESTMENTS. Advance funds to, or make investments in,
(whether by way of loan, stock purchase or capital contribution) any Person
other than in Cash Equivalents and other than for the payment of costs and
expenses as set forth in the Limited Liability Company Agreement between the
Guarantor and DSND Sondenfjeldske ASA in respect of DSND Horizon, LLC, a
Delaware limited liability company.
12.18 CONTRACTS WITH AFFILIATES. Enter into any transaction with any
director, officer, employee, shareholder or Affiliate of the Borrowers or the
Guarantor except on terms no less favorable to the Borrowers than the Borrowers
could obtain in an arms length transaction with Persons not affiliated with the
Borrowers.
12.19 CHANGE OF MANAGEMENT. Cause or allow to occur any material change in
their present executive management.
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12.20 LEASE PAYMENTS. Excluding capitalized leases, incur or pay more than
USD 2,000,000 per year in the aggregate for operating leases or rental of
equipment, vessels or real property having a term in excess of twelve (12)
months, other than rental for their principal place of business referred to in
Section 10.9 above.
12.21 DIVIDENDS. Allow the Guarantor to make any dividend payments or
other distributions to its stockholders or redeem or otherwise acquire any of
its stock, except as may be necessary or advisable to complete the transaction
contemplated by the USD 10,000,000 stock repurchase plan adopted by the Board of
Directors of the Guarantor on July 29, 1998 (which completion shall be no later
than December 31, 1999).
12.22 FISCAL YEARS. Change or allow to change, the fiscal year of either
Borrower or the Guarantor from one ending on December 31.
Section 13. EVENTS OF DEFAULT.
13.1 EVENTS. An "Event of Default" shall exist if any of the following
events shall occur and be continuing:
(a) The Borrowers shall default in the payment or prepayment when
due of any principal or interest on the Loan or any fees or other amount
payable by them hereunder or under any other Loan Document and such
default shall continue for three (3) Business Days after such amount is
due; or
(b) The Borrowers or the Guarantor shall default in the payment when
due of any principal of or interest on any of their other Indebtedness in
an aggregate amount in excess of USD 100,000.00; or any event specified in
any note, agreement, indenture or other document evidencing or relating to
any such Indebtedness shall occur if the effect of such event is to cause,
or (with the giving of any notice or the lapse of time or both) to permit
the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to cause, such Indebtedness to become
due prior to its stated maturity; or
(c) Any representation, warranty or certification made or deemed
made herein or in any other Loan Document by the Borrowers or the
Guarantor or any certificate furnished to the Agent or the Lenders
pursuant to the provisions hereof or any other Loan
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Document, shall prove to have been false or misleading as of the time made
or furnished in any material respect; or
(d) The Borrowers or the Guarantor shall fail to perform or observe
any provision of the Loan Documents to which they are parties and such
failure shall continue unremedied for a period of ten (10) Business Days
after (i) the failure arises and (ii) the Borrowers or the Guarantor have
knowledge of such failure, or ten (10) Business Days after the Agent gives
the Borrowers notice of such failure; or
(e) The Borrowers or the Guarantor shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts
become due; or
(f) The Borrowers or the Guarantor shall (i) apply for or consent to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of its creditors,
(iii) commence a voluntary case under the U.S. Bankruptcy Code (as now or
hereafter in effect), (iv) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or readjustment of debts, (v) fail to
controvert in a timely and appropriate manner, or acquiesce in writing to,
any petition filed against it in an involuntary case under the U.S.
Bankruptcy Code, or (vi) take any corporate action for the purpose of
effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application
or consent of the Borrowers or the Guarantor in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution or
winding-up, or the composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of
the Borrowers or the Guarantor or of all or any substantial part of the
assets of any of them, or (iii) similar relief in respect of the Borrowers
or the Guarantor under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order, judgment
or decree approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of sixty (60) days; or an
order for relief against the Borrowers or the Guarantor shall be entered
in an involuntary case under the U.S. Bankruptcy Code; or
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(h) A judgment for the payment of money in excess of USD 150,000.00
shall be rendered by a court against any of the Borrowers or the Guarantor
and the same shall not be discharged (or provision shall not be made for
such discharge), or a stay of execution thereof shall not be procured,
within thirty (30) days from the date of entry thereof and the Borrowers
or the Guarantor, respectively, shall not, within said period of thirty
(30) days, or such longer period during which execution of the same shall
have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal; or
(i) The Guaranty shall cease to be in full force and effect.
THEN, or at any time thereafter, while any such event remains unremedied or
uncured:
The Lenders may, upon written notice to the Borrowers, terminate the
Commitment to make Advances or to issue Letters of Credit and/or declare the
entire outstanding unpaid principal amount of the Note, all Breakage Costs and
all interest accrued and unpaid thereon and all other amounts payable hereunder
and thereunder to be forthwith due and payable, whereupon the same shall become
immediately due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrowers
and also demand that the Borrowers cooperate with it in order to permit any
outstanding Letters of Credit to be terminated, or if such termination cannot be
accomplished, the Borrowers shall deposit with each issuing Lender an amount
equal to the aggregate amounts of any outstanding Letters of Credit which
deposit shall be held by such Lender as security until all of the Letters of
Credit are terminated or expire. The Agent and the Lenders may immediately and
without expiration of any additional period of grace, enforce payment of all
obligations of the Borrowers under this Credit Agreement and under the Note. In
addition, the Agent and the Lenders may exercise any or all of such remedies as
may be available to it under applicable law or granted pursuant to the Loan
Documents.
Any declaration made pursuant to this Section 13.1 is subject to the
condition that, if at any time after the outstanding principal of the Note shall
have become due and payable, and before any foreclosure action has been taken by
the Agent or any Lender under any of the Loan Documents to realize upon the
security provided by such documents, all Breakage Costs and all arrears of
interest upon the Note and all other obligations owed to the Lenders (except
that principal of the Note which by such declaration shall have become payable)
shall have been duly paid, and every other default
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and Event of Default shall have been made good waived or cured, then the Lenders
may, by written notice to the Borrowers, rescind and annul such declaration and
its consequences; but no such rescission or annulment shall extend to or affect
any subsequent default or Event of Default or impair any right consequent
thereon.
13.2 CHANGE OF CONTROL. If at any time while any amount is outstanding
under this Credit Agreement or any Lender has a Commitment hereunder, any Person
other than DSND Sondenfjeldske ASA shall acquire after the date hereof more than
thirty percent (30%) of the then outstanding stock of the Guarantor having
ordinary voting power, a "Change of Control" shall be deemed to have occurred.
The Borrowers shall promptly, but in any event within ten (10) days give written
notice to the Agent upon obtaining knowledge of an event which is or would
constitute a Change of Control. The Lenders shall, upon the happening of a
Change of Control, have the privilege of declaring all amounts outstanding under
this Credit Agreement to be due and payable on a date not earlier than ten (10)
days from the date of the exercise of said privilege. All amounts outstanding
under this Credit Agreement shall thereupon become due and payable on the date
specified in the notice sent to the Borrowers by the Agent including the
principal amount thereof plus accrued interest thereon to the accelerated
maturity date and any amounts owed by the Borrowers or the Guarantor to the
Lender pursuant to this Credit Agreement.
Section 14. THE AGENT
14.1 APPOINTMENT AND DUTIES OF AGENT. The parties hereto agree that Den
norske Bank ASA shall act, subject to the terms and conditions of this Section
14, as the Agent for the Lenders in connection with the Loan, and to the extent
set forth herein each Lender hereby irrevocably appoints, authorizes, empowers
and directs the Agent to take such action on its behalf and to exercise such
powers as are specifically delegated to the Agent herein or are reasonably
incidental thereto in connection with the administration of and the enforcement
of any rights or remedies with respect to this Credit Agreement, the Note and
the other Loan Documents. It is expressly understood and agreed that the
obligations of the Agent under the Loan Documents are only those expressly set
forth in this Credit Agreement. The Agent shall use reasonable diligence to
examine the face of each document received by it hereunder to determine whether
such documents, on its face, appears to be what it purports to be. However, the
Agent shall not under any duty to examine into and pass upon
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the validity or genuineness of any documents received by it hereunder and the
Agent shall be entitled to assume that any of the same which appears regular on
its face is genuine and valid and what it purports to be.
14.2 DISCRETION AND LIABILITY OF AGENT. Subject to Sections 14.3 and 14.5
below, the Agent shall be entitled to use its discretion with respect to
exercising or refraining from exercising any rights which may be vested in it
under any of the Loan Documents or otherwise, or with respect to taking or
refraining from taking any action or actions which it may be able to take under
any of the Loan Documents. Neither the Agent nor any of its directors, officers,
employees, agents or representatives shall be liable for any action taken or
omitted by it hereunder or in connection herewith, except for its own gross
negligence or wilful misconduct. The Agent shall incur no liability under, or in
respect of this Credit Agreement or the other Loan Documents by acting upon a
notice, certificate, warranty or other paper or instrument reasonably believed
by it to be genuine or authentic or to be signed by the proper party or parties,
or with respect to anything which it may do or refrain from doing in the
reasonable exercise of its judgment, or which may seem to it to be necessary or
desirable in the premises.
14.3 EVENT OF DEFAULT.
(a) The Agent shall be entitled to assume that no Event of Default or
event which would constitute an Event of Default after notice or lapse of time,
or both, has occurred and is continuing, unless the Agent has actual knowledge
of such facts or has received notice from a Lender in writing that such Lender
considers that an Event of Default or event which would constitute an Event of
Default after notice or lapse of time, or both, has occurred and is continuing
and which specifies the nature thereof.
(b) In the event that the Agent shall acquire actual knowledge of any
Event of Default or event which would constitute an Event of Default after
notice or lapse of time, or both, the Agent shall promptly notify (either
orally, confirmed in writing, or in writing) the Lenders of such Event of
Default or event and shall, take such action and assert such rights as are
contemplated under this Credit Agreement and in an emergency, or if requested in
writing by the Lenders shall, take such action and assert such rights as are
contemplated under this Agreement. The Agent shall be indemnified pro rata by
the Lenders against any liability or expenses, including, but not limited to,
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travel expenses and internal and external counsel fees and expenses, incurred in
connection with taking such action. The Agent may refrain from acting in
accordance with any instructions from the Lenders until it shall have been
indemnified to its satisfaction against any and all costs and expenses which it
will or may expend or incur in complying with such instructions.
14.4 CONSULTATION. When acting in connection with this Credit Agreement,
or the other Loan Documents, the Agent may engage and pay for the advice and
services of any lawyers, accountants, surveyors, appraisers or other experts
whose advice or services may to it appear necessary, expedient or desirable and
the Agent shall be entitled to fully rely upon any opinion or such advice so
obtained.
14.5 COMMUNICATIONS TO AND FROM AGENT. When any notice, approval, consent,
waiver or other communication or action is required or may be delivered by the
Lenders hereunder or the other Loan Documents, action by the Agent shall be
effective for all purposes hereunder; provided, that upon any occasion requiring
or permitting an approval, consent, waiver, election or other action on the part
of the Lenders, unless action by the Agent alone, or only upon instruction of
all of the Lenders, is expressly permitted or required hereunder, action shall
be taken by the Agent for and on behalf of or for the benefit of all the Lenders
as provided in Section 14.3 above. The Borrowers and the Guarantor may rely on
any communication from the Agent hereunder or the other Loan Documents, and need
not inquire into the propriety of or authorization for such communication.
14.6 LIMITATIONS OF AGENCY. Notwithstanding anything in the Loan
Documents, expressed or implied, it is agreed by the parties hereto, that the
Agent will act under the Loan Documents as Agent solely for the Lenders and only
to the extent specifically set forth herein, and will, under no circumstances,
be considered to be an agent or fiduciary of any nature whatsoever in respect to
any other person. The Agent may generally engage in any business with the
Borrowers and the Guarantor or any of their affiliates as if it was not the
Agent.
14.7 NO REPRESENTATIONS OR WARRANTY.
(a) No Lender (including the Agent) makes to any other Lender any
representation or any warranty, expressed or implied, or assumes any
responsibility with respect to the Loan or the execution, construction or
enforceability of the Loan Documents or any instrument or agreement executed by
the Borrowers, the Guarantor or any other Person in connection therewith.
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(b) The Agent takes no responsibility for the accuracy or completeness of
any information concerning the Borrowers and the Guarantor distributed by the
Agent in connection with the Loan nor for the truth of any representation or
warranty given or made herein, nor for the validity, effectiveness, adequacy or
enforceability of this Agreement or any of the other Loan Documents.
14.8 LENDER CREDIT DECISION. Each Lender acknowledges that it has,
independent of and without reliance upon any other Lender (including the Agent)
or any information provided by any other Lender (including the Agent) and based
on the financial statements of the Borrowers and the Guarantor and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Credit Agreement. Each Lender also
acknowledges that it will, independent of and without reliance upon any other
Lender (including the Agent) and based on such documents and information as it
shall deem appropriate at that time, continue to make its own credit decisions
in taking or not taking action under this Agreement and any other documents
relating thereto.
14.9 INDEMNITY. Notwithstanding any of the provisions hereof, to the
extent the Agent has not been so indemnified by the Borrowers, the Lenders shall
severally indemnify the Agent against any and all losses, costs, liabilities,
damages or expenses, including but not limited to, reasonable travel expenses
and internal and external counsel's reasonable fees and expenses, arising from,
or in connection with, its performance as Agent hereunder and not caused by its
gross negligence or willful misconduct.
14.10 RESIGNATION. The Agent may resign as such at any time upon at least
thirty (30) days' prior notice to the Borrower and the Lenders, provided that
such resignation shall not take effect until a successor agent has been
appointed. In the event of a resignation by the Agent, the Lenders shall
promptly appoint a successor agent from among the Lenders.
14.11 DISTRIBUTION. The Agent shall be responsible for promptly
distributing each Lender's share of all net amounts received by the Agent under
any of the Loan Documents pursuant to the letter agreement among the Agent and
the Lenders dated the date hereof. Each Lender shall be responsible for
designating by written notice to the Agent the account to which such
distribution shall be deposited.
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14.12 LIMITATION OF SUITS. All rights of action and claims under this
Credit Agreement and the Security Agreement of the Lenders shall be prosecuted
and enforced only by the Agent. The Lenders agree that they shall not
independently institute any proceedings, judicial or otherwise, to enforce their
rights against the Borrowers under this Agreement or the Security Agreement.
However, notwithstanding anything contained in this Section 14.12, the Lenders
shall always retain their ability to retain independent counsel and to protect
their rights under this Credit Agreement and the other Loan Documents.
14.13 RIGHT OF SETOFF. Upon the occurrence and during the continuation of
any Event of Default, the Lenders each are hereby authorized at any time and
from time to time, without notice to the Borrowers (any such notice being
expressly waived by the Borrowers), to setoff and apply any and all deposits
(general or special, time or demand, provisional or final, whether or not such
setoff results in any loss of interest or other penalty, and including without
limitation all certificates of deposit) at any time held by the Lenders and all
of the indebtedness arising in connection with this Credit Agreement
irrespective of whether or not such Lender will have made any demand under this
Credit Agreement, the Note or any other Loan Document. The Borrowers also hereby
grant to each of the Lenders a security interest in and hereby transfer, assign,
set over and convey to each of the Lenders, as security for payment of the Loan,
all such deposits, funds or property of the Borrowers or indebtedness of any
Lender to the Borrowers. Should the right of any Lender to realize funds in any
manner set forth hereinabove be challenged and any application of such funds be
reversed, whether by court order or otherwise, the Lenders shall make
restitution or refund to the Borrower pro rata in accordance with their
respective portions of the Loan. Each Lender agrees to promptly notify the
Borrowers and the Agent after any such setoff and application, provided that the
failure to give such notice will not affect the validity of such setoff and
application. The rights of the Agent and the Lenders under this Section 14.13
are in addition to other rights and remedies (including without limitation other
rights of setoff) which the Agent or the Lenders may have. Nothing contained
herein shall affect the right of any Lender to exercise, and retain the benefits
of exercising, any such right with respect to any other indebtedness or
obligation of the Borrowers to such Lender.
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Section 15. MISCELLANEOUS.
15.1 ENTIRE AGREEMENT. This Credit Agreement with its Schedule and
Exhibits embodies the entire agreement and understanding between the parties
hereto and supersedes all prior agreements and understandings relating to the
subject matter hereof.
15.2 NO WAIVER. No failure to exercise, and no delay in exercising any
right, power or remedy hereunder or under any document delivered pursuant hereto
shall impair any right, power or remedy which the Lender may have, nor shall any
such delay be construed to be a waiver of any of such rights, powers or
remedies, or an acquiescence in any breach or default under this Credit
Agreement or any document delivered pursuant hereto, nor shall any waiver of any
breach or default of the Borrowers hereunder be deemed a waiver of any default
or breach subsequently occurring. The rights and remedies herein specified are
cumulative and not exclusive of any rights or remedies which the Agent or the
Lenders would otherwise have.
15.3 SURVIVAL. All representations, warranties and agreements herein
contained on the part of the Borrowers shall survive the making of the Advances
or the issuance of the Letters of Credit hereunder and all such representations,
warranties, and agreements shall be effective as long as any amount arising
pursuant to the terms of this Credit Agreement or the Note remains unpaid.
15.4 NOTICES.
(a) All notices, requests, consents, demands, and other
communications provided for or permitted hereunder shall be effective
three (3) days after being duly deposited in the mails, certified, return
receipt requested, or upon receipt if delivered to Federal Express or
similar courier company or transmitted by telefax, addressed to the
respective party at the address set forth below.
BORROWERS AND GUARANTOR: Horizon Offshore, Inc.
Horizon Vessels, Inc.
Horizon Offshore Contractors, Inc.
2500 CityWest Boulevard, Suite 2200
Houston, Texas 77042
Attention: Chief Financial Officer
Telefax No.: (713) 361-2677
50
<PAGE>
AGENT: Den norske Bank ASA, as Agent
333 Clay, Suite 4890
Houston, Texas 77002
Attention: Byron L. Cooley
Telefax No.: (713) 757-1167
with copies to: Den norske Bank ASA
200 Park Avenue
New York, N.Y. 10166-0396
Attention: Customer Service
Telefax No.: (212) 681-4123
15.5 TERMINATION. This Credit Agreement shall terminate when all
obligations of the Borrowers incurred under the Loan Documents shall have been
discharged in full.
15.6 SEVERABILITY OF PROVISIONS. In case any one or more of the provisions
contained in this Credit Agreement should be invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
15.7 SUCCESSORS AND ASSIGNS. This Credit Agreement shall be binding upon
and inure to the benefit of the Borrowers, the Agent and the Lenders and their
respective successors and permitted assigns; provided, however, that the
Borrowers may not transfer their rights to borrow under this Credit Agreement
without the prior written consent of the Lenders.
15.8 ASSIGNMENT AND PARTICIPATION.
(a) Subject to compliance with the provisions of this Section 15.8,
the Lenders shall have the right to assign all or part of the obligations
of the Borrowers outstanding under this Credit Agreement or the Note
evidencing such obligations to Affiliates of the Lenders or to any
foreign, federal or state banking institution, savings and loan
association or finance company, with the written consent of the Borrowers,
which shall not be unreasonably withheld or delayed. The Agent shall
inform the Borrowers in advance as to any proposed assignment by a Lender
and the identity of the prospective assignee.
(b) Any assigning Lender shall pay an assignment fee to the Agent of
USD 1,500 per assignment. Each assignment shall be in increments of USD
1,000,000 and shall be no less than USD 5,000,000.
51
<PAGE>
(c) The Lenders may sell participations (without the consent of the
Borrowers) to one or more parties, in or to all or a portion of their
rights and obligations under this Credit Agreement, the Note and the other
Loan Documents; provided, that (i) each such Lender's obligations under
this Credit Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance
of such obligations and (iii) the Borrowers, the Guarantor and the Agent
shall continue to deal solely and directly with such Lender in connection
with this Credit Agreement, the Note and the other Loan Documents.
(d) The Borrowers hereby agree to assist with any assignment made
pursuant to this Section 15.8 by executing and delivering any documents or
instruments reasonably requested by the Lenders in connection with any
such assignment, including but not limited to, amendments to this Credit
Agreement, consents to assignments or new promissory Note.
15.9 COUNTERPARTS. This Credit Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any party hereto may execute this Credit Agreement by signing any such
counterpart.
15.10 JURISDICTION. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO THIS CREDIT
AGREEMENT AND THE NOTE MAY BE INSTITUTED IN THE COURTS OF THE STATE OF NEW YORK
OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. BY
EXECUTION AND DELIVERY OF THIS CREDIT AGREEMENT THE LENDERS, THE AGENT, THE
BORROWERS AND THE GUARANTOR IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE
JURISDICTION OF EACH SUCH COURT, AND IRREVOCABLY AND UNCONDITIONALLY WAIVE (i)
ANY OBJECTION THE BORROWERS, THE GUARANTOR, THE AGENT OR THE LENDERS MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY OF SUCH COURTS, AND (ii) ANY CLAIMS
THAT ANY ACTION OR PROCEEDING BROUGHT IN ANY OF SUCH COURTS HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM. PROVIDED, HOWEVER, THAT NOTHING IN THIS SECTION 17.10
SHALL LIMIT OR RESTRICT THE RIGHT OF THE AGENT OR THE LENDERS TO BRING SUIT
AGAINST THE BORROWERS
52
<PAGE>
OR THE GUARANTOR ANYWHERE IN THE WORLD TO ENFORCE THE SECURITY PROVIDED IN THE
SECURITY AGREEMENT.
15.11 CHOICE OF LAW. THIS CREDIT AGREEMENT AND THE NOTE ISSUED HEREUNDER
AND ALL ISSUES ARISING IN CONNECTION WITH THIS CREDIT AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT THAT WITH
RESPECT TO THE PROVISIONS OF THIS CREDIT AGREEMENT AND THE NOTE WHICH PROVIDE
FOR OR RELATE TO THE PAYMENT OF INTEREST, PROVISIONS OF APPLICABLE FEDERAL LAW
WHICH PERMIT THE LENDERS TO CHARGE THE HIGHER OF THE RATE PERMITTED BY SUCH
APPLICABLE LAW OR BY THE LAWS OF THE STATE IN WHICH EACH LENDER IS LOCATED SHALL
BE DEEMED GOVERNING AND CONTROLLING.
15.12 WAIVER OF JURY TRIAL. THE BORROWERS, THE GUARANTOR, THE AGENT AND
THE LENDERS HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT, RELATED TO, OR
CONNECTED WITH THIS CREDIT AGREEMENT, ANY OF THE LOAN DOCUMENTS OR THE
RELATIONSHIP ESTABLISHED HEREUNDER.
15.13 AMENDMENT AND WAIVER. Except as otherwise provided herein, no
provision of this Credit Agreement may be amended, modified, supplemented,
changed, waived, discharged or terminated, unless all parties hereto consent in
writing.
15.14 NO ORAL AGREEMENTS. THIS WRITTEN CREDIT AGREEMENT WITH ITS SCHEDULE
AND EXHIBITS REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES CONCERNING THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
15.15 HEADINGS, ETC. The table of contents of this Credit Agreement and
the headings of various sections and subsections herein are for convenience of
reference only and shall not modify, define, expand or limit any of the terms or
provisions hereof. References to sections or subsections
53
<PAGE>
without reference to the document in which they are contained are references to
this Credit Agreement.
15.16 TAXES. Any Taxes payable or ruled payable by any Government Agency
in respect of this Credit Agreement, the Note or any other Loan Document, other
than any Tax on or measured by the income of the Lenders, shall be paid by the
Borrowers, together with any interest and penalties.
15.17 CONTROLLING AGREEMENT. In the event of a conflict between the
provisions of this Credit Agreement and those of any other Loan Document, the
provisions of this Credit Agreement shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement
to be executed as of the day and year first above written.
HORIZON VESSELS, INC.
By: ____________________________
Name: ___________________________
Title:___________________________
HORIZON OFFSHORE CONTRACTORS, INC.
By: ____________________________
Name: ___________________________
Title:___________________________
HORIZON OFFSHORE, INC.
By: ____________________________
Name: ___________________________
Title:___________________________
54
<PAGE>
LENDERS:
DEN NORSKE BANK ASA
By: ____________________________
Name: ___________________________
Title:___________________________
By: ____________________________
Name: ___________________________
Title:___________________________
AGENT:
DEN NORSKE BANK ASA
By: ____________________________
Name: ___________________________
Title:___________________________
By: ____________________________
Name: ___________________________
Title:___________________________
55
<PAGE>
EXHIBIT A TO
CREDIT AGREEMENT
AMENDED AND RESTATED PROMISSORY NOTE
USD 30,000,000.00 December ___, 1998
FOR VALUE RECEIVED, HORIZON VESSELS, INC., a corporation organized and
existing under the laws of the State of Delaware and HORIZON OFFSHORE
CONTRACTORS, INC., a corporation organized and existing under the laws of the
State of Delaware (collectively, the "Borrowers") hereby jointly and severally
promise to pay to DEN NORSKE BANK ASA, as Agent (the "Payee"), or order, on or
before December 31, 2001, or otherwise, as hereinafter provided, THIRTY MILLION
AND NO/100 DOLLARS OF THE UNITED STATES OF AMERICA (USD 30,000,000.00) and to
pay interest on the unpaid portion of said principal sum outstanding from time
to time, as hereinafter provided.
PRINCIPAL AND INTEREST
1.1 (a) Interest on this Note shall be payable at the times and the rates
as provided in Section 5.1 of the Amended and Restated Credit Agreement (the
"Credit Agreement") dated as of December ___, 1998, among the Borrowers, Horizon
Offshore, Inc., the Lenders named therein and the Payee as Agent for the
Lenders.
(b) In case any payment of principal or interest is not paid when
due, additional interest at the rate determined as provided in Section 5.4 of
the Credit Agreement shall be payable on all overdue principal and, to the
extent that the same may be lawful, on all overdue interest.
1.2 Interest shall be calculated on the outstanding principal amounts as
provided in Section 5.1(c) and 5.1(d) of the Credit Agreement.
1.3 The principal of this Note shall be payable as provided in Section 6.3
of the Credit Agreement.
1.4 Notwithstanding any provision of this Note to the contrary, in no
event shall the aggregate amount of consideration which constitutes interest
under any applicable law which is contracted for, charged or received hereunder
or under this Note ("Interest") exceed the maximum
1
<PAGE>
amount of nonusurious interest allowed by law, and any excess shall be credited
on this Note (or if all obligations under this Note shall have been paid in
full, refunded to the Borrowers). For purposes of the foregoing, the maximum
amount of interest allowed by law shall be calculated by determining the amount
of interest that could be contracted for, charged or received during the term
hereof at the maximum rate of nonusurious interest allowed from time to time by
applicable law as is now or, to the extent allowed by law, as may hereafter be
in effect (the "maximum nonusurious interest rate") and, if at any time the rate
of Interest to accrue would exceed the maximum nonusurious interest rate, the
rate of Interest to accrue under this Note shall be limited to the maximum
nonusurious interest rate, but any subsequent reductions in the LIBOR Rate (as
defined in the Credit Agreement) shall not reduce the rate of Interest to accrue
on this Note below the maximum nonusurious interest rate until the total amount
of Interest accrued and paid on this Note equals the amount of Interest which
could have accrued if a rate per annum equal to the LIBOR Rate plus 2 and 1/2%
or the Prime Rate plus 1/2% had at all times been in effect.
SECURITY
2.1 This Note is issued under and pursuant to the Credit Agreement and is
secured by, among other things, a Security Agreement on certain other assets and
revenues of the Borrowers (the "Security Agreement"). Reference is hereby made
to the Credit Agreement and the Security Agreement for a description of the
property thereby mortgaged, the nature and extent of the security afforded
thereby and the rights of the Borrowers and the Payee with respect to such
security as provided in the Security Agreement. Payment of this Note may be
demanded by the holder hereof prior to the maturity of this Note under certain
circumstances and conditions, in the manner, and with the effect, provided in
the Credit Agreement.
2.2 This Note evidences the advances made by the Lenders under the
Revolving Credit Facility of the Credit Agreement. This Note is given in
amendment, restatement and extension of that certain Amended and Restated
Promissory Note dated May 13, 1998 of the Borrower to the Payee in the original
amount of USD 20,000,000, which was given in amendment and restatement of that
certain Amended and Restated Promissory Note dated December 30, 1997 of the
Borrower to the Payee in the original principal amount of USD 20,000,000.00 and
the indebtedness evidenced thereby and liens securing such Promissory Note are
not extinguished hereby but carried forward.
2
<PAGE>
MISCELLANEOUS
3.1 All parties hereto, including endorsers hereof, hereby waive
presentment for payment, demand, protest and notice of protest and non-payment
hereof and hereby consent that any and all securities or other property, if any,
held by or for the holders hereof at any time as security for this Note may be
exchanged, released or surrendered and that the time of payment of this Note may
be extended, all in the sole discretion of the holder hereof and without notice
and without affecting in any manner the liability of the parties hereto.
3.2 No course of dealing between the Borrowers and the Payee in exercising
any rights hereunder shall operate as a waiver of any right of any holder except
to the extent expressly waived in writing by such holder.
3.3 Whenever any payment to be made hereunder shall be due on a day which
is not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day; provided, however, that if such next succeeding
Business Day is in a new calendar month, then the payment required hereunder
shall be made on the last Business Day preceding the original date on which
payment was due. If a payment of principal has been extended pursuant to this
Section 3.3, interest shall be payable on such principal at the applicable rate
during such extension.
3.4 Any notice to be given pursuant to this Note shall be given in
accordance with Section 15.4 of the Credit Agreement.
3.5 THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK EXCEPT THAT WITH RESPECT TO THE
PROVISIONS OF THIS NOTE WHICH PROVIDE FOR OR RELATE TO THE PAYMENT OF INTEREST,
ANY PROVISIONS OF APPLICABLE FEDERAL LAW WHICH PERMIT THE PAYEE TO CHARGE THE
HIGHER OF THE RATE PERMITTED BY SUCH APPLICABLE LAW OR BY THE LAWS OF THE STATE
IN WHICH THE PAYEE IS LOCATED SHALL BE DEEMED GOVERNING AND CONTROLLING.
3.6 THE BORROWERS HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO
WHICH THEY ARE A PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT OR
3
<PAGE>
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS NOTE OR
ANY OF THE LOAN DOCUMENTS.
3.7 Capitalized terms used in this Note but not defined herein shall have
the meanings given to them in the Credit Agreement.
IN WITNESS WHEREOF, the Borrowers have caused this Note to be duly
executed the day and year first above written.
HORIZON VESSELS, INC.
By:
Name:
Title:
HORIZON OFFSHORE CONTRACTORS, INC.
By:
Name:
Title:
4
EXHIBIT 10.30
THIS NOTE AND ANY INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATED TO ANY
INDEBTEDNESS, WHETHER NOW EXISTING OF HEREAFTER INCURRED, OF THE MAKER HEREOF
UNDER THAT CERTAIN AMENDED AND RESTATED CREDIT AGREEMENT, DATED MAY 13, 1998,
AMONG HORIZON VESSELS, INC., HORIZON OFFSHORE CONTRACTORS, INC., HORIZON
OFFSHORE, INC. AND DEN NORSKE BANK ASA.
HORIZON OFFSHORE, INC.
PROMISSORY NOTE
DUE JUNE 30, 2003
$10,000,000.00 Houston, Texas
August 5, 1998
FOR VALUE RECEIVED, Horizon Offshore, Inc., a Delaware corporation (the
"Maker"), promises to pay to the order of Highwood Partners, L.P., a Delaware
limited partnership ("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 ten million and no/100 dollars ($10,000,000.00), or such
lesser amount as may have been advanced by the Payee hereunder, together with
interest on the unpaid principal balance at the rate set forth below, on the
earlier to occur of June 30, 2003 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.
1. ADVANCEMENT OF FUNDS. Horizon may from time to time request advances
pursuant to this Note, provided that no event has occurred which would
constitute an event of default hereunder, by presenting to Highwood a request
for borrowing (a "Request"). Within three days of the receipt of such Request,
Highwood shall advance the requested funds to such account as Horizon may direct
by wire transfer of immediately available funds. Any amounts advanced hereunder
shall only be used to repurchase shares of Horizon's common stock, $1.00 par
value per share, in open market purchases or privately negotiated transactions
effected in accordance with Rule 10b-18 under the Securities Exchange Act of
1934, as amended.
2. PAYMENT. The unpaid principal balance of this Note shall be paid on the
Maturity Date.
-1-
<PAGE>
The outstanding principal amount of this Note from time to time shall bear
interest until paid at the rate set forth below. Interest shall be calculated on
a 360 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 quarterly on March 31, June 30, September 30 and December 31 of each year,
commencing September 30, 1998, and with a final interest payment in the amount
of all outstanding interest then unpaid being due on the Maturity Date. The rate
of interest to be charged from time to time on this Note shall be equal to, for
any particular period, the rate of interest payable during such period on
amounts borrowed under that certain Amended and Restated Credit Agreement, dated
May 13, 1998 among Horizon Vessels, Inc. and Horizon Offshore Contractors, Inc.,
as borrowers, the Maker as guarantor and Den norske Bank ASA, or any amendment,
renewal or extension thereof (the "Credit Facility"). If at any time during the
term of this Note the Credit Facility is no longer in effect, outstanding
balances under this Note shall bear interest at a rate of 9% per annum.
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 3 shall be applied first to any
accrued and unpaid interest then accrued, if any, and, then to the principal
amounts due hereunder.
3. PREPAYMENT. The Maker may at any time prepay any amount outstanding
under this Note in whole or in part without notice or penalty.
4. DEFAULT.
4.1 EVENTS OF DEFAULT. The following events or actions shall
constitute an event of default ("Events of Default"):
(a) Maker shall default in the payment when due of any
principal or interest under the Note and such default shall continue for
three (3) business days after such amount is due; or
(b) Maker shall be in default in the performance of or
compliance with any term of any evidence of any indebtedness in an
aggregate outstanding principal amount in excess of $100,000 or of any
mortgage, indenture or other agreement relating thereto or any other
condition exists, and as a consequence of such default or condition such
indebtedness has become, or has been declared due and payable prior to its
stated maturity or before its regularly scheduled dates of payment; or
(c) Maker shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of its creditors, (iii) commence
a voluntary case under the U.S. Bankruptcy Code (as now or hereafter in
effect), (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or readjustment of debts, (v) fail to controvert in a timely
and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the U.S. Bankruptcy Code, or (vi)
take any corporate action for the purpose of effecting any of the
foregoing; or
-2-
<PAGE>
(d) A proceeding or case shall be commenced, without the
application or consent of Maker in any court of competent jurisdiction,
seeking (i) its liquidation, reorganization, dissolution or winding-up, or
the composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of Maker or of all or
any substantial part of the assets of any of them, or (iii) similar relief
in respect or Maker under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order, judgment
or decree approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of sixty (60) days; or an
order for relief against Maker shall be entered in an involuntary case
under the U.S. Bankruptcy Code.
4.2 REMEDIES UPON DEFAULT. If any Event of Default shall occur, the
holder of the Note may declare the principal amount of the Note to be
immediately due and payable. 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. 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 waives 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.
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.
IN WITNESS WHEREOF, the Maker has caused this Note to be issued this 5th
day of August, 1998.
HORIZON OFFSHORE, INC.
By:____________________________
Bill J. Lam
President
-3-
EXHIBIT 11.1
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
STATEMENTS REGARDING COMPUTATION OF NET INCOME
(LOSS) PER SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 20,
YEAR ENDED YEAR ENDED 1995) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- ---------------
<S> <C> <C> <C>
Net income (loss).................... $ 12,460 $ 2,276 $ (9,580)
============= ============= ===============
Weighted average shares
outstanding........................ 18,114,393 11,256,373 11,000,000
Dilutive effect of shares issued
pursuant to warrant exercised
during 1997........................ -- 2,520,834 2,750,000
------------- ------------- ---------------
Shares used in computing net income
(loss) per share................... 18,114,393 13,777,207 13,750,000
------------- ------------- ---------------
Net income (loss) per share.......... $ 0.69 $ 0.17 $ (0.70)
============= ============= ===============
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES
The following is a list of all significant subsidiaries, as defined in Rule
1-02(w) of Regulation S-X, of the Company.
COMPANY STATE OF INCORPORATION
- ------------------------------------- -----------------------
Horizon Vessels, Inc................. Delaware
Horizon Offshore Contractors, Inc.... Delaware
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independant public accountants, we hereby consent to the incorporation of our
report dated February 26, 1999 included in this Form 10-K into the Company's
previously filed Registration Statements on Form S-1 filed on April 1, 1998 and
Form S-8 filed on March 22, 1999.
ARTHUR ANDERSEN LLP
Houston, Texas
March 18, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENT OF HORIZON OFFSHORE, INC. AND
SUBSIDIARIES AS OF DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,649
<SECURITIES> 0
<RECEIVABLES> 25,549
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45,949
<PP&E> 151,216
<DEPRECIATION> (5,536)
<TOTAL-ASSETS> 193,669
<CURRENT-LIABILITIES> 33,288
<BONDS> 0
0
0
<COMMON> 9,119
<OTHER-SE> 85,341
<TOTAL-LIABILITY-AND-EQUITY> 193,669
<SALES> 119,802
<TOTAL-REVENUES> 119,802
<CGS> 91,961
<TOTAL-COSTS> 91,961
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,814
<INCOME-PRETAX> 16,945
<INCOME-TAX> 4,485
<INCOME-CONTINUING> 12,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,460
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
