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UNITED STATES
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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-23653
HORIZON OFFSHORE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0487309
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2500 CITYWEST BOULEVARD, SUITE 2200
HOUSTON, TEXAS 77042
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES) (ZIP CODE)
(713) 361-2600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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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
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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. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 15, 2000 was approximately $79.6 million.
The number of shares of the registrant's common stock, $1.00 par value per
share, outstanding as of March 15, 2000 was 18,807,959.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement prepared in
connection with the registrant's 2000 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, 1999
TABLE OF CONTENTS
PAGE
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PART I
Items 1. and 2. Business and Properties.................................. 1
Item 3. Legal Proceedings........................................ 9
Item 4. Submission of Matters to a Vote of Security Holders...... 9
Item 4a. Executive Officers of the Registrant..................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related 11
Stockholder Matters....................................
Item 6. Selected Financial Data.................................. 12
Item 7. Management's Discussion and Analysis of Financial 13
Condition and Results of Operations....................
Item 7a. Quantitative and Qualitative Disclosure About Market 16
Risk...................................................
Item 8. Financial Statements and Supplementary Data.............. 16
Item 9. Changes in and Disagreements with Accountants on 16
Accounting and Financial Disclosure....................
PART III
Item 10. Directors and Executive Officers of the Registrant....... 17
Item 11. Executive Compensation................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and 17
Management.............................................
Item 13. Certain Relationships and Related Transactions........... 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on 17
Form 8-K...............................................
Financial Statements..................................................... F-1
Signatures............................................................... S-1
Exhibit Index............................................................ E-1
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PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
GENERAL
We provide marine construction services to the offshore oil and gas
industry primarily in the United States Gulf of Mexico and selected
international areas. Our 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 and 1999, we established new customer relationships,
enhanced our operating capabilities, and aggressively expanded our market share
in the Gulf. We also selectively bid on projects in international market areas.
We have assembled a fleet of eleven vessels, ten of which are currently
operational. Our 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. We believe that our expanded fleet allows us 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. We have also formed a joint venture
with Det Sondenfjelds-Norske Dampkibsselskab ASA (DSND) which allows us to
conduct deepwater pipelaying operations in the Gulf, offshore Mexico and Canada,
and in the Caribbean.
INDUSTRY CONDITIONS
Demand for marine construction services is primarily a function of the
level of oil and gas activity in the Gulf. The decline in demand for marine
construction services in the Gulf triggered by low oil prices that began in 1998
adversely affected our 1999 operating results. As oil prices began to improve at
mid-year 1999, drilling activity began to increase. Our operating results are
directly tied to industry demand for our services, most of which are performed
on the outer continental shelf in the Gulf. If the recent increase in oil and
gas prices and drilling levels are sustained, we expect demand for our services
to increase.
Due to the time required to drill a well and fabricate a production
platform, demand for our services usually lags exploratory drilling by six to
eighteen months. We believe our operating results will be highly leveraged to
any improvement in market conditions on the outer continental shelf due to our
fleet capabilities and management expertise in this market area.
SCOPE OF OPERATIONS
We are a leading provider of marine construction services in the Gulf of
Mexico. We laid 190 miles of pipe and buried 155 miles of pipe of various
diameters in various water depths in the Gulf during 1999. In 1998, we laid 220
and buried 210 miles of pipe. We can install and bury pipelines with an outside
diameter (including concrete coating) of up to 48 inches and smaller diameter
pipe in water depths up to 800 feet.
Our highly specialized pipelay and pipebury vessels, the AMERICAN HORIZON,
CAJUN HORIZON, LONE STAR HORIZON and GULF HORIZON install and bury pipelines of
various diameters. In April 1999, we acquired the BRAZOS HORIZON, a pipelay/bury
barge, capable of simultaneously laying and burying pipelines. Our pipelay
vessels employ conventional S-lay technology, which is appropriate for operating
on the outer continental shelf and in many international areas. Conventional
pipeline installation involves the sequential assembly of pieces of pipe through
an assembly line of welding stations that run the length of the pipelay vessel.
Welds are then tested and coated on the deck of the pipelay barge. The pipe is
then supported 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
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there are no obstructions on the sea floor, that the ramp is providing proper
support and that the pipeline is settling correctly.
In early 2000, we equipped most of our vessels operating in the Gulf with
diving gear to support our surface diving personnel. These divers inspect the
pipeline as it is laid, monitor the bury activities, connect pipelines to
production platforms and assist the derrick barges in the installation and
removal of structures. We believe the addition of surface diving operations will
allow us to further control scheduling and reduce operating costs.
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 to be buried at least three
feet below the sea floor. Jet sleds towed behind pipelay/pipebury barges are
used to bury pipelines on smaller 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 conventional "plow" trencher,
towed jet sleds use a high pressure stream of water which is pumped from the
barge to create a trench into which the pipe is then laid. For larger pipe
burying projects, or where deeper trenching is required, we placed the CANYON
HORIZON, a dedicated bury barge, into service during the second quarter of 1998.
It can bury pipelines more efficiently and to greater depths than any vessel of
its kind in the Gulf. We match our burying approach to the requirements of each
specific contract by utilizing the CANYON HORIZON for burying larger projects
and our towed jet sleds behind pipelay barges for burying smaller projects.
Our fleet also includes a multi-purpose vessel, the PEARL HORIZON, deployed
in April 1998. This vessel was converted to perform diving support services such
as connecting pipelines to platforms and other pipelines (tie-ins), filling
pipelines with water under pressure to test for tensile strength (hydrostatic
testing) and commencing production from a platform (commissioning services). The
PEARL HORIZON'S capabilities were also modified to permit it to tow other
vessels.
We install and remove or "salvage" offshore fixed platforms. In 1999, we
substantially expanded our operating capabilities in this market area. We
constructed a derrick barge, the PACIFIC HORIZON, which commenced operations in
March 1999, to complement the ATLANTIC HORIZON that was acquired in June 1998.
The PACIFIC HORIZON'S lift capacity was upgraded to 1,000 tons in March 2000 to
allow it to perform larger installation projects. 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. We believe that
the need to salvage platforms in the Gulf will increase as older structures are
decommissioned and are required to be removed pursuant to regulatory
requirements that require the removal of inactive platforms.
Our customers award contracts by means of a highly competitive bidding
process. In preparing a bid, we must consider a variety of factors, including
estimated time necessary to complete the project, and the location and duration
of current and future projects. We have placed a strong emphasis on the
sequential structuring of scheduled work in adjacent areas. Sequential
scheduling reduces mobilization and de-mobilization time and cost associated
with each project and increases profitability. We employ core groups of
experienced offshore personnel that work together on particular types of
projects to increase our bidding accuracy. We often obtain the services of
workers outside our core employee groups by subcontracting with other parties.
Our management examines the results of each bid submitted, re-evaluates bids,
and implements a system of controls to maintain and improve the accuracy of the
bidding process. The accuracy of the various estimates in preparing a bid is
critical to our profitability.
Our 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 our larger pipelay vessels. We perform most of our projects on a
fixed-price or "lump sum" 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, we are responsible for all cost overruns. Furthermore, our profitability
under a fixed-price contract is reduced when the task takes longer to complete
than estimated. Similarly, our profitability will be increased if we can perform
the task ahead of schedule. Under cost-plus arrangements,
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we receive a specified fee in excess of direct labor and material cost and are
protected against cost overruns, but do not benefit directly from improved
performance.
MARINE EQUIPMENT
The following table describes our 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 -- 12 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
Brazos Horizon.......................... Pipelay/Pipebury 210 -- 16 Apr. 1999 May 1999
Pearl Horizon........................... Diving Support Vessel 184 -- -- Oct. 1997 Apr. 1998
Stephaniturm............................ Diving Support Vessel 230 -- 4 Apr. 1998 May 1998
Canyon Horizon.......................... Pipebury 330 -- -- Nov. 1997 Jun. 1998
Atlantic Horizon........................ Derrick Barge 420 550 -- Jun. 1998 Jun. 1998
Pacific Horizon......................... Derrick Barge 350 1,000 -- May 1998 Mar. 1999
Phoenix Horizon......................... Derrick/Pipelay(1) 300 250 24 Jul. 1997
</TABLE>
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(1) Anticipated deployment in year 2000.
We own all of our marine vessels and have placed mortgages on them to
secure our debt. See Note 6 of our notes to the consolidated financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." Under governmental
regulations and our insurance policies, we are required to maintain the vessels
in accordance with standards of seaworthiness, safety and health prescribed by
governmental regulations and applicable vessel classification societies. We
believe we are in compliance with all governmental regulations and insurance
policies regarding the operation and maintenance of our vessels.
In the normal course of our operations, we also lease or charter other
vessels, such as diving support vessels, tugboats, cargo barges, utility boats
and support vessels.
DSND HORIZON JOINT VENTURE
We formed a joint venture with DSND which is 30% owned by us, primarily to
conduct deepwater pipelaying operations in the Gulf, offshore Mexico and Canada,
and in the Caribbean. The joint venture has access to a reel pipelaying vessel
and other vessels that are owned and operated by DSND. The reel pipelaying
vessel can install 10-inch diameter pipe in water depths as great as 6,000 feet.
We believe that the capability of the reel vessel allows us to compete more
effectively in all water depths with other competitors. The reel vessel is
capable of faster installation rates, which reduces expenses when compared to
conventional pipelay methods. The dynamically positioned reel vessel allows us
to participate in the deepwater market segment to install small diameter
pipelines and provide subsea construction services.
SAFETY AND QUALITY ASSURANCE
We are concerned with the safety and health of our employees and maintain a
stringent safety assurance program to reduce the possibility of costly
accidents. Our health, safety and environmental department establishes
guidelines to ensure compliance with all applicable state and federal safety
regulations. It also 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, we promptly collect data concerning the incident,
perform further investigations, and evaluate our safety procedures to help
prevent similar
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incidents. We believe that our safety program and commitment to quality are
vital to attracting and retaining customers and employees and controlling costs.
CUSTOMERS
Our customers are primarily the oil and gas companies operating on the
outer continental shelf. In 1999, we provided offshore marine construction
services to approximately 52 customers, one of which, a major oil and gas
company, accounted for 31% of 1999 revenues. Our management team concentrates on
maintaining close relationships with engineering firms that manage the award and
provision of marine construction services for many of the independent oil and
gas producers.
We do not believe that our revenues 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. Our contracts are typically of
short duration, being completed in periods as short as several days to several
months.
BACKLOG
As of December 31, 1999, our backlog supported by written agreements
amounted to $10.0 million, compared to our backlog at December 31, 1998 of $19.0
million. Our backlog has increased subsequent to year-end and was $17.0 million
as of March 9, 2000. Backlog is typically lower in the fourth and first quarters
of the year due to the seasonality and weather conditions in the Gulf during the
winter months. As we move into international market areas, where projects tend
to have longer lead times and result in earlier awards, our backlog may
increase. We do not consider backlog amounts to be a reliable indicator of
future revenues, because most 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 our work is affected by weather conditions and other
factors, and many projects are performed within a relatively short period of
time. We intend to partially offset the seasonality of our operations in the
Gulf by pursuing selected international expansion opportunities.
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 our services. Capital expenditures of oil and gas companies are
influenced by:
o the price of oil and gas and industry perception of future prices;
o the ability of the oil and gas industry to access capital;
o the cost of exploring for, producing and delivering oil and gas;
o sale and expiration dates of offshore leases in the United States and
abroad;
o discovery rates of new oil and gas reserves in offshore areas; and
o local and international political and economic conditions.
INSURANCE
Our 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. We insure against
these risks at levels we believe are consistent with industry standards. We
believe that our insurance should protect us against the cost of replacing any
of our vessels that are lost and most often offshore risks. However, certain
risks are either not insurable or insurance is available only at rates that are
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not economical. We cannot assure that any such insurance will be sufficient or
effective under all circumstances or against all hazards to which we 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 the project. Customers
usually request bids from companies they believe are technically qualified to
perform the project. Our marketing staff contacts offshore operators known to
have projects scheduled, to ensure an opportunity to bid for these projects.
Although we believe 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. We
currently compete in the Gulf in water depths of 200 feet or less primarily with
Global Industries, Ltd. (Global Industries), Torch, Inc. and a few other smaller
contractors. In projects in water depths of 200 feet or more, or where a higher
degree of complexity is involved, competition generally is limited to Global
Industries, J. Ray McDermott, S.A. (McDermott), and other international
companies from time to time. We compete primarily with Global Industries,
McDermott and Offshore Specialty Fabricators, Inc. for the installation and
removal of production platforms. We believe that our reputation, experienced
management and competitive pricing are 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.
REGULATION
Many aspects of the offshore marine construction industry are subject to
extensive governmental regulation. Our 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.
We are required by various governmental and quasi-governmental agencies to
obtain permits, licenses and certificates in connection with our operations. We
believe that we have obtained or will be able to obtain, when required, all
permits, licenses and certificates necessary to conduct our business.
In addition, we depend on the demand for our services from the oil and gas
industry and, therefore, our business is affected by laws and regulations, as
well as changing taxes and policies relating to the oil and gas industry. 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
Minerals Management Service. The Minerals Management Service 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 Minerals Management Service because of staffing, economic, environmental or
other reasons could adversely affect our operations by limiting demand for
services.
Certain of our employees are covered by provisions of the Jones Act, the
Death on the High Seas Act and general maritime law. These laws make liability
limits under state workers' compensation laws inapplicable and permit these
employees to bring suit for job related injuries with generally no limits on our
potential liability.
Our operations 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
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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.
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. Our compliance with
these laws and regulations has entailed certain changes in operating procedures
and approximately $63,000 in expenditures in fiscal 1999 and $85,000 in 1998. It
is possible that changes in the environmental laws and enforcement policies, or
claims for damages to persons, property, natural resources or the environment
could result in substantial costs and liabilities to Horizon. Our insurance
policies provide liability coverage for sudden and accidental occurrences of
pollution and/or clean-up and containment of the foregoing in amounts that we
believe are comparable to policy limits carried by others in the offshore
construction industry.
EMPLOYEES
As of December 31, 1999, we had approximately 344 employees, including 257
operating personnel and 87 corporate, administrative and management personnel.
These employees are not unionized or employed pursuant to any collective
bargaining agreement or any similar agreement. We believe our relationship with
our employees is good.
Our ability to expand operations and meet increased demand for our services
depends on our ability to increase the workforce. A significant increase in the
wages paid by competing employers could result in a reduction in the skilled
labor force, and/or increases in the wage rates paid. If either of these occurs
to the extent that such wage increases could not be passed on to our customers,
our growth and profitability could be impaired.
PROPERTIES
Our corporate headquarters is 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, we acquired approximately 23 acres with approximately
6,000 feet of waterfront 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
deepwater access for docking barges and vessels. This facility serves as a
marine support base and as a storage facility for marine structures that may be
salvaged by our marine fleet.
CAUTIONARY STATEMENT
Certain statements made in this Annual Report that are not historical facts
are intended to be "forward-looking statements". 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.
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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;
o seasonality of the offshore construction industry in the Gulf;
o the need for additional financing;
o contract bidding risks;
o percentage-of-completion accounting;
o continued active participation of our executive officers 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 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 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. Any
significant decline in the worldwide demand for oil and gas, or prolonged low
oil or gas prices in the future, will likely depress development activity. We
are unable to predict future oil and gas prices or the level of oil and gas
industry activity. A prolonged low level of activity in offshore drilling and
exploration will 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. Future acquisitions of other complementary
businesses and marine equipment are key elements of our 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 the vessels. If we
experience delays or cost increases in upgrading or refurbishing the vessels,
our operating results will be negatively affected.
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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 our 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 may 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.
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.
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.
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 domestic and internationally. The loss of the
services of any one of these persons could impact adversely our ability to
implement our expansion strategy.
8
<PAGE>
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 cost or impact of such laws on our future
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. As
a result, 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.
RISK OF JOINT VENTURE OPERATIONS
We believe that we will conduct many of our international operations
through joint ventures, jointly managed by us and the joint venture partner. Our
joint venture with DSND and the operating vessels made available to us will
operate in the Gulf of Mexico, 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
We are involved in various routine legal proceedings primarily involving
claims for personal injury under the Jones Act and general maritime laws which
we believe are incidental to the conduct of our business. We believe that none
of these proceedings, if adversely determined, would have a material adverse
effect on our business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names, ages and offices held by our executive officers
as of March 27, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ---------------------------------------- --- ------------------------------------------------------
<S> <C> <C>
Bill J. Lam............................. 33 President, Chief Executive Officer and Director
R. Clay Etheridge....................... 45 Executive Vice President and Chief Operating Officer
David W. Sharp.......................... 46 Executive Vice President and Chief Financial Officer
James K. Cole........................... 53 Senior Vice President
</TABLE>
Executive officers are appointed by our board of directors, subject to
rights under employment agreements.
BILL J. LAM is our President, Chief Executive Officer and a Director. Mr.
Lam has been Chief Executive Officer and a Director since December 1997. From
July 1997 to November 1997 he was Vice President -- Operations. Prior to being
employed by us, Mr. Lam held various supervisory positions for the following
marine construction services companies: Lowe Offshore, Inc. (from January 1997
to July 1997), McDermott (from January 1995 to January 1997) and OPI
International, Inc. (from August 1990 to January 1995). Mr. Lam graduated from
Texas A&M University in 1990 with a B.A. degree in economics.
R. CLAY ETHERIDGE is our Executive Vice President and Chief Operating
Officer. Prior to joining us, Mr. Etheridge served as Vice President of
International Operations for Global Industries. Mr. Etheridge has held executive
management positions with McDermott in southeast Asia, and OPI International,
with responsibility for Gulf of Mexico and West African operations, and served
as project manager for Heerema Marine Contractors. He received a B.S. degree in
civil engineering from the University of Mississippi in 1977.
DAVID W. SHARP is our Executive Vice President and Chief Financial Officer
and has held those positions since December 1997. From October 1996 to November
1997, Mr. Sharp was Vice President -- Finance. He held various positions from
January 1995 to October 1996 with McDermott, including world-wide project leader
for the implementation of accounting and financial systems. He was controller --
Atlantic division and director of management information of OPI International
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 our Senior Vice President and has held that position since
December 1997. From November 1996 to November 1997, Mr. Cole was Vice
President -- Human Resources and Risk Management. 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 International 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.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock, $1.00 par value, is traded on the Nasdaq National Market
under the symbol "HOFF". At March 15, 2000, we had approximately 40 holders of
record of the common stock.
The following table sets forth the high and low closing bid prices per
share of our common stock, as reported by the Nasdaq National Market, for each
fiscal quarter since trading began on April 2, 1998.
LOW HIGH
--------- ---------
2000:
First Quarter (through March 15,
2000)......................... $ 4.94 $ 9.19
1999:
Fourth Quarter.................. $ 4.63 $ 7.78
Third Quarter................... $ 7.00 $ 9.44
Second Quarter.................. $ 6.19 $ 8.31
First Quarter................... $ 4.50 $ 7.44
1998:
Fourth Quarter.................. $ 4.25 $ 8.16
Third Quarter................... $ 5.00 $ 11.87
Second Quarter (commencing April
2, 1998)...................... $ 9.81 $ 16.88
We intend to retain earnings, if any, to meet working capital requirements
and to finance our future growth. We do not plan to declare or pay cash
dividends to holders of the common stock in the foreseeable future. In addition,
we are prohibited from making distributions to stockholders under the terms of
our debt agreements.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the periods ended December 31, 1999, 1998,
1997 and 1996 are derived from our audited financial statements. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and notes thereto included in this Annual Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996(1)
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Contract revenues.................... $ 89,015 $ 119,802 $ 36,144 $ 14,088
Costs of contract revenues........... 72,181 91,961 30,104 21,616
---------- ---------- ---------- ----------
Gross profit (loss)............. 16,834 27,841 6,040 (7,528)
Selling, general and administrative
expenses........................... 9,043 8,120 2,788 2,047
---------- ---------- ---------- ----------
Operating income (loss)......... 7,791 19,721 3,252 (9,575)
Other:
Interest expense................ (5,759) (3,000) (1,703) (1,662)
Gain on sale of asset........... 10 20 614 --
Interest income and other....... 638 204 113 40
---------- ---------- ---------- ----------
Net income (loss) before income
taxes.............................. 2,680 16,945 2,276 (11,197)
Provision (benefit) for income
taxes.............................. 1,001 4,485 -- (1,617)
---------- ---------- ---------- ----------
Net income (loss).................... $ 1,679 $ 12,460 $ 2,276 $ (9,580)
---------- ---------- ---------- ----------
Net income (loss) per share.......... $ 0.09 $ 0.69 $ 0.17 $ (0.70)
========== ========== ========== ==========
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in)
operating activities............... $ 15,705 $ 10,481 $ 3,491 $ (9,568)
Net cash used in investing
activities......................... (26,475) (79,267) (28,306) (25,916)
Net cash provided by financing
activities......................... 9,238 75,589 25,011 38,134
OTHER NON-GAAP FINANCIAL DATA:
EBITDA(2)............................ $ 16,013 $ 24,393 $ 4,981 $ (8,820)
OTHER FINANCIAL DATA:
Depreciation and amortization........ $ 7,574 $ 4,448 $ 1,002 $ 715
Capital expenditures................. 24,396 95,725 38,267 29,999
DECEMBER 31,
----------------------
1999 1998
---------- ----------
BALANCE SHEET DATA:
Working capital...................... $ 3,978 $ 12,661
Property and equipment, net.......... 163,353 145,680
Total assets......................... 202,401 193,669
Long-term debt, net of current
maturities......................... 68,986 62,268
Stockholders' equity................. 97,100 94,460
</TABLE>
- ------------
(1) Results are from inception (December 20, 1995) through December 31, 1996.
(2) We calculate EBITDA as earnings before interest expense, income taxes,
depreciation and amortization. EBITDA is a supplemental financial
measurement we use to evaluate our business. We believe that EBITDA provides
supplemental information about our ability to meet future requirements for
debt service, capital expenditures and working capital. It is not intended
to depict funds available for reinvestment or other discretionary uses. We
believe 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. Our
measurement of EBITDA may not be comparable to EBITDA as calculated by other
companies. Further, you should not consider EBITDA in isolation 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 our
profitability or liquidity.
12
<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
our 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
Statement."
GENERAL
We provide marine construction services to the oil and gas industry
primarily in the Gulf of Mexico and selected international locations. Our marine
fleet installs 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.
Our present management team assumed its current role in July 1997 and has
aggressively expanded Horizon's operations. This management team has assembled a
fleet of eleven vessels capable of providing a full range of pipeline and
derrick services in varying water depths. We currently operate ten of these
vessels, consisting of five pipelay/pipebury barges, a dedicated pipebury barge,
two derrick barges and two diving support vessels.
We acquired two vessels in 1999 to expand our services. The BRAZOS HORIZON,
a 210-foot, pipelay/pipebury barge was purchased in April 1999 for $5.8 million,
which consisted of $4.8 million in cash and 133,300 shares of common stock, with
a fair value of $1.0 million. Treasury stock was reissued in this transaction.
In May 1998, we acquired THE PACIFIC HORIZON, a 350-foot pipebury barge. We
reconfigured the PACIFIC HORIZON as a derrick barge by removing the pipebury
equipment and installing an 800-ton revolving crane. The PACIFIC HORIZON was
available for operations in March 1999. The crane was upgraded to a lift
capacity from 800 tons to 1,000 tons in March 2000.
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 our profitability include competition, equipment and
labor productivity, contract estimating, weather conditions and the other risks
inherent in marine construction. The marine construction industry in the Gulf is
highly seasonal as a result of weather conditions with the greatest demand for
these services occurring during the second and third calendar quarters of the
year. Full year results are not a direct multiple of any quarter or combination
of quarters because of this seasonality.
A prolonged weakness in energy prices or a prolonged period of lower levels
of offshore drilling and exploration could adversely affect future revenues and
profitability. In 1999, we experienced a decline in demand for marine
construction services in the Gulf, as oil and gas companies reduced their levels
of capital expenditures.
13
<PAGE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
RESULTS OF OPERATIONS
CONTRACT REVENUES.
Contract revenues were $89.0 million for 1999 compared with $119.8 million
for 1998. Revenues for 1999 decreased due to reduced demand for offshore
construction services. We operated ten vessels in 1999, compared to eight
vessels operating in December 1998. We laid 190 miles and buried 155 miles of
pipe of various diameters and in various water depths in the Gulf during 1999,
compared to approximately 220 miles laid and 210 miles buried in 1998. We
recognized $3.2 million in revenues in 1999 and $4.9 million in 1998 for the
STEPHANITURM charter to DSND.
GROSS PROFIT.
Gross profit was $16.8 million (18.9% of contract revenues) for 1999 as
compared with a gross profit of $27.8 million (23.2% of contract revenues) for
1998. Lower gross profit for 1999 was primarily attributable to the lower level
of offshore construction and the intense price competition for pipeline
projects. We recognized gross profit of $2.0 million in 1999 and $4.1 million in
1998 from the STEPHANITURM charter to DSND.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Selling, general and administrative expenses increased to $9.0 million
(10.1% of contract revenues) for 1999 from $8.1 million (6.8% of contract
revenues) for 1998, primarily due to expenses associated with our fleet
expansion. The percentage increase was primarily due to the decrease in revenues
while selling general and administrative expenses increased.
INTEREST EXPENSE.
Interest expense was $5.8 million, net of $0.8 million interest capitalized
for 1999, compared with interest expense of $3.0 million, net of $1.3 million
interest capitalized for 1998. Total outstanding debt was $79.3 million at
December 31, 1999 compared to $69.9 million at year end 1998. The outstanding
debt increased during 1999 as a result of increasing debt to fund vessel
acquisitions and improvements.
INTEREST INCOME AND OTHER.
Interest income and other consisted of $480,000 of interest income,
$127,000 of insurance proceeds and $31,000 of miscellaneous income for 1999.
Interest income and other consisted of $187,000 of interest income and $17,000
of miscellaneous income for 1998.
INCOME TAXES.
We use the liability method of accounting for income taxes. We recorded a
deferred federal income tax expense of $1.0 million, at a net effective rate of
37.4% on pre-tax income of $2.7 million in 1999. This compares with a total
provision of $4.5 million for 1998 at a net effective rate of 26.5% due to
operating loss carryforwards from previous years. As of December 31, 1999, we
had net operating loss carryforwards of approximately $34.2 million which begin
to expire in 2012. See Note 7 of the notes to the consolidated financial
statements.
NET INCOME.
Net income was $1.7 million or $0.09 per share for the year ended December
31, 1999, compared to net income of $12.5 million or $0.69 per share for the
year ended December 31, 1998. The reduction of net income is primarily the
result of reduced demand for offshore construction in the Gulf during 1999.
14
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
RESULTS OF OPERATIONS
The 1998 operating results are not comparable to 1997 results due to
substantial growth in the size and operating capabilities of our fleet. The
vessel acquisitions expanded our operating capabilities and increased the
operating cost structure in 1998. The aggregate amount of selling, general and
administrative expenses increased to support this growth.
CONTRACT REVENUES.
Contract revenues were $119.8 million for 1998 compared with $36.1 million
for 1997. Revenues increased because we operated two vessels, the AMERICAN
HORIZON and the CAJUN HORIZON, for the entire year in 1997 compared with 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 caused construction and scheduling delays and adversely impacted
equipment productivity and profit margins. We laid 220 miles and buried 210
miles of pipe of various diameters and in various water depths in the Gulf
during 1998 compared with approximately 125 miles of pipe laid and buried in
1997. In 1998, we recognized $4.9 million in revenues from the charter hire of
the STEPHANITURM to DSND.
GROSS PROFIT.
Gross profit was $27.8 million (23.2% of contract revenues) for 1998 as
compared with 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. In 1998,
we recognized $4.1 million in gross profit from the STEPHANITURM charter to
DSND.
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 and 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 $3.0 million, net of $1.3 million interest capitalized
for 1998 and $1.7 million, net of $0.3 million interest capitalized for 1997.
The total outstanding debt was $69.9 million at December 31, 1998, compared with
$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 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 the initial
public offering proceeds.
GAIN ON SALE OF ASSETS.
In December 1998, we sold our marine base in Houma, Louisiana to an
unaffiliated third party for $0.8 million in cash resulting in a $20,000 gain.
In February 1997, we sold one of our vessels to an unaffiliated third party for
$3.3 million in cash resulting in a $0.6 million gain.
INCOME TAXES.
Horizon uses the liability method of accounting for income taxes. We
utilized net operating loss carryforwards that offset income taxes in 1997 and
at least partially offset income taxes in 1998. We recorded federal income tax
expense of $4.5 million, at a net effective rate of 26.5% on pre-tax income of
$16.9 million in 1998. We did not have a valuation allowance at December 31,
1998 due to taxable income for 1998. 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 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. See
Note 7 of the notes to the consolidated financial statements.
NET INCOME.
Net income was $12.5 million or $0.69 per share for the year ended December
31, 1998, compared with 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 our expanded fleet.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund acquisitions and improvements to
the fleet necessary to expand operations and to provide working capital. Cash
provided by operations was $15.7 million for 1999, $10.5 million for 1998 and
$3.5 million for 1997. The improvement in cash provided by operations during
1999 was the result of a decline in working capital attributable to decreases in
accounts receivable and costs in excess of billings. Horizon had working capital
of $4.0 million at December 31, 1999 compared to working capital of $12.7
million at December 31, 1998. Reduced demand for offshore construction in 1999
caused revenues to decrease from $119.8 million in 1998 to $89.0 million in
1999, and caused a decline in working capital.
In December 1998, Horizon entered into a term loan agreement with The CIT
Group, Inc. providing for a $60 million term loan at a rate of LIBOR plus 2.65%.
We initially borrowed $50 million in December 1998 and repaid the $36.4 million
total outstanding debt balance under a prior credit facility with Den Norske
Bank and a $7.6 million note payable to a subsidiary of one of our Principal
Stockholders. During 1999, the term loan was amended to increase the amount that
may be borrowed to $83.3 million, and we borrowed an additional $33.3 million.
The outstanding balance of the term loan at December 31, 1999 was $76.3 million.
The first advance of $50 million under the term loan is due in 84 monthly
principal installments of $463,000, the second advance of $5 million is due in
84 monthly principal installments of $46,000, the third advance of $13.8 million
is due in 84 monthly principal installments of $128,000, and the fourth advance
of $14.5 million is due in 73 monthly installments of $154,490. The remaining
principal balance is due at the end of the 84 months. The term loan is secured
by mortgages on all owned vessels.
We have a $30 million revolving credit facility with Wells Fargo Bank at
LIBOR plus 2%. At December 31, 1999, we had $8.1 million in cash and no
borrowings outstanding under the $30 million revolving credit facility. We had
$9.9 million available based on the borrowing base calculation. Outstanding
borrowings bear interest at LIBOR plus 2% and are secured by the accounts
receivable from customers. The revolving credit facility matures on December 31,
2001.
The term loan and revolving credit facility require that certain conditions
be met in order for us to obtain advances. The term loan is secured by mortgages
on all owned vessels. The revolving credit facility is secured by accounts
receivable. Advances under the credit facility may be obtained in accordance
with a borrowing base defined as a percentage of accounts receivable balances.
Both the term loan and revolving credit facility contain customary defaults and
require us to maintain certain financial ratios. The facilities also contain
certain covenants that limit our ability to incur additional debt, pay
dividends, create certain liens, sell assets and make capital expenditures.
Capital expenditures during 1999 totaled $23.4 million compared with $79.3
million for 1998 and $31.9 million for 1997. We have expanded our fleet from two
vessels at the beginning of 1997 to eleven vessels by the end of 1999. We have
financed our vessel and property acquisitions and improvements through operating
cash flow and borrowings.
Planned capital expenditures for 2000 are estimated to be approximately
$15.0 million to complete improvements to the existing fleet. Current maturities
of long-term debt were $10.3 million as of December 31, 1999. We believe that
cash generated from operations, together with available borrowings under our
revolving credit facility, will be sufficient to fund the planned capital
projects, debt payments and working capital requirements for 2000. Our strategy,
however, is to make other acquisitions to expand our operating capabilities and
expand into selected international areas. To the extent we are successful in
identifying acquisition opportunities, we may require additional equity or debt
financing depending on the size of any transaction.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and supplementary data appear on
pages F-1 through F-17 in this report and are incorporated herein by reference.
See Index to consolidated financial statements on page 17.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning our directors and executive officers called for by
this item will be included in our definitive Proxy Statement prepared in
connection with the 2000 annual meeting of stockholders and is incorporated
herein by reference. For additional information regarding executive officers,
see "Executive Officers of the Registrant" of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning the compensation of the executive officers called
for by this item will be included in our definitive Proxy Statement prepared in
connection with the 2000 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 our definitive Proxy
Statement prepared in connection with the 2000 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 our definitive Proxy Statement
prepared in connection with the 2000 annual meeting of stockholders and is
incorporated herein by reference.
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, 1999 and 1998............ F-2
Consolidated Statements of Operations
for the Years Ended December 31, 1999,
1998 and 1997......................... F-3
Consolidated Statements of Stockholders'
Equity for the Years Ended December
31, 1999, 1998 and 1997............... F-4
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1999,
1998 and 1997......................... 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
(a) 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 our
expenses in furnishing such exhibit.
(b) Reports on Form 8-K:
On September 13, 1999, we filed a report on Form 8-K, reporting
under Item 5, the appointment of R. Clay Etheridge as Executive
Vice President and Chief Operating Officer.
On October 20, 1999, we filed a report on Form 8-K, reporting
under Item 5, that James Devine had been named as Chairman of
the Board.
17
<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,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1999, 1998
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits provide 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, 1999 and 1998, and the results of their
operations and their cash flows for the years ended December 31, 1999, 1998 and
1997, in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Houston, Texas
February 24, 2000
F-1
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 8,117 $ 9,649
Accounts receivable --
Contract receivables....... 16,675 24,281
Costs in excess of
billings............... 4,172 9,546
Affiliated parties......... 3,086 1,350
Income taxes receivable......... -- 481
Inventory....................... 1,700 --
Other current assets............ 1,909 642
------------ ------------
Total current
assets............ 35,659 45,949
PROPERTY AND EQUIPMENT, net.......... 163,353 145,680
OTHER ASSETS......................... 3,389 2,040
------------ ------------
$202,401 $193,669
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 4,247 $ 7,654
Accrued liabilities............. 2,926 5,086
Accrued job costs............... 13,332 10,334
Billings in excess of costs..... 871 2,608
Current maturities of long-term
debt........................... 10,305 7,606
------------ ------------
Total current
liabilities....... 31,681 33,288
LONG-TERM DEBT, net of current
maturities......................... 68,986 62,268
DUE TO RELATED PARTIES............... -- 20
DEFERRED INCOME TAXES................ 4,634 3,633
------------ ------------
Total liabilities..... 105,301 99,209
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value,
5,000,000 shares authorized,
none issued and outstanding.... -- --
Common stock, $1 par value,
35,000,000 shares authorized,
19,826,480 shares issued and
outstanding.................... 9,119 9,119
Additional paid-in capital...... 87,872 87,767
Retained earnings............... 6,835 5,156
Treasury stock, 1,025,500 and
1,155,000 shares,
respectively................... (6,726) (7,582)
------------ ------------
Total stockholders'
equity............ 97,100 94,460
------------ ------------
$202,401 $193,669
============ ============
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>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
CONTRACT REVENUES....................... $ 89,015 $ 119,802 $ 36,144
COST OF CONTRACT REVENUES............... 72,181 91,961 30,104
-------------- -------------- --------------
Gross profit....................... 16,834 27,841 6,040
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 9,043 8,120 2,788
-------------- -------------- --------------
Operating income................... 7,791 19,721 3,252
OTHER:
Interest expense................... (5,759) (3,000) (1,703)
Gain on sale of assets............. 10 20 614
Interest income and other.......... 638 204 113
-------------- -------------- --------------
NET INCOME BEFORE INCOME TAXES.......... 2,680 16,945 2,276
PROVISION FOR INCOME TAXES.............. 1,001 4,485 --
-------------- -------------- --------------
NET INCOME.............................. $ 1,679 $ 12,460 $ 2,276
============== ============== ==============
NET INCOME PER SHARE -- BASIC AND
DILUTED............................... $ 0.09 $ 0.69 $ 0.17
============== ============== ==============
WEIGHTED AVERAGE SHARES USED IN
COMPUTING NET INCOME PER
SHARE -- BASIC AND DILUTED............ 18,820,646 18,114,393 13,777,207
</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
(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, 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) -- --
Subscriptions received for common
stock at $2.91 per share....... -- -- 950 -- -- -- --
Initial public offering of common
stock, net of offering costs... 5,750 5,750 -- 62,823 -- -- --
Purchase of treasury stock, at
cost........................... -- -- -- -- -- 1,155 (7,582)
Net income....................... -- -- -- -- 12,460 -- --
------- ------- ------------- ----------- --------- ------- -------
BALANCE, December 31, 1998........... 19,826 9,119 -- 87,767 5,156 1,155 (7,582)
Purchase of treasury stock, at
cost........................... -- -- -- -- -- 3 (18)
Issuance of treasury stock to
purchase assets................ -- -- -- 125 -- (133) 874
Stock registration costs......... -- -- -- (20) -- -- --
Net income....................... -- -- -- -- 1,679 -- --
------- ------- ------------- ----------- --------- ------- -------
BALANCE, December 31, 1999........... 19,826 $9,119 $ -- $87,872 $ 6,835 1,025 $(6,726)
======= ======= ============= =========== ========= ======= =======
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
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
Subscriptions received for common
stock at $2.91 per share....... 950
Initial public offering of common
stock, net of offering costs... 68,573
Purchase of treasury stock, at
cost........................... (7,582)
Net income....................... 12,460
-------------
BALANCE, December 31, 1998........... 94,460
Purchase of treasury stock, at
cost........................... (18)
Issuance of treasury stock to
purchase assets................ 999
Stock registration costs......... (20)
Net income....................... 1,679
-------------
BALANCE, December 31, 1999........... $97,100
=============
</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)
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income.......................... $ 1,679 $ 12,460 $ 2,276
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and
amortization................. 7,574 4,448 1,002
Deferred income taxes.......... 1,001 3,770 (137)
Gain on sale of assets......... (10) (20) (614)
Amortization of deferred
interest..................... 733 -- --
Changes in operating assets and
liabilities --
Accounts receivable........ 5,870 (15,889) (6,567)
Income taxes receivable.... 481 (481) --
Costs in excess of
billings................. 5,374 (6,588) (213)
Billings in excess of
costs.................... (1,737) 2,460 148
Inventory.................. (1,700) -- --
Other assets............... (971) 179 (713)
Accounts payable........... (3,407) 3,509 2,871
Accrued liabilities........ (2,160) 2,546 1,656
Accrued job costs.......... 2,998 4,833 2,376
Accrued interest........... -- (681) 1,321
Due to related parties..... (20) 20 --
Income taxes payable....... -- (85) 85
--------- --------- ---------
Net cash provided by
operating
activities.......... 15,705 10,481 3,491
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases and additions to
equipment......................... (23,397) (79,255) (31,883)
Drydock costs....................... (3,078) (777) --
Purchase of other assets............ -- -- --
Proceeds from sale of assets........ -- 765 3,577
--------- --------- ---------
Net cash used in
investing
activities.......... (26,475) (79,267) (28,306)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings under notes payable and
long-term debt.................... 33,300 123,865 30,441
Loan fees........................... (161) (629) --
Principal payments on long-term
debt.............................. (23,883) (109,588) (5,593)
Issuance of common stock............ -- 950 13
Capital contribution related to
legal settlement.................. -- -- 150
Initial public offering proceeds,
net............................... -- 68,573 --
Purchase of treasury stock.......... (18) (7,582) --
--------- --------- ---------
Net cash provided by
financing
activities............ 9,238 75,589 25,011
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (1,532) 6,803 196
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR............................... 9,649 2,846 2,650
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
YEAR.................................. $ 8,117 $ 9,649 $ 2,846
========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest.............. $ 5,864 $ 4,789 $ 107
Cash paid for income taxes.......... $ -- $ 1,218 $ --
Non-cash investing and financing
activities:
Purchase and additions to
equipment with the issuance
of notes payable............. $ -- $ 16,470 $ 6,384
Purchase and additions to
equipment with the issuance
of treasury stock............ $ 999 $ -- $ --
Gain on sale of assets to
related party reflected as a
capital contribution, net of
tax effect of $1,631......... $ -- $ -- $ 3,170
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), provide offshore construction services to the oil and gas industry.
These services generally consist of laying and burying marine pipelines for the
transportation of oil and gas. Work is performed primarily on a fixed-price or
day-rate basis or a combination thereof.
Horizon, which was incorporated on December 20, 1995, did not commence
operations until March 1996 and until December 1997 was wholly owned by Elliott
Associates, L.P. and Westgate International, L.P. (the Principal Stockholders).
The Principal Stockholders funded substantially all of Horizon's cash
requirements from inception through April 1998, including 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, Horizon was recapitalized through a series of transactions. The
Principal Stockholders contributed $21 million of the principal indebtedness and
accrued interest to additional paid-in capital. We issued 10% Subordinated Notes
due December 31, 2005 (Subordinated Notes) to the Principal Stockholders to
evidence the remaining outstanding indebtedness and to provide for any future
advances in an aggregate amount not to exceed $24 million. Additionally, we
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, we sold three boats, a
tugboat and certain equipment to affiliated entities of the Principal
Stockholders for a purchase price of $12.7 million. We used $12.0 million of the
proceeds to reduce the Subordinated Notes. We accounted for the $3.2 million
gain on the sale, net of taxes of approximately $1.6 million, as a capital
contribution.
In April 1998, we completed an initial public offering (the Offering) of
5,750,000 shares of common stock at $13.00 per share and received $68.6 million,
net of $6.2 million of underwriting commissions and discounts and expenses. We
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
our fleet.
DSND TRANSACTION
In December 1997, Det Sondenfjelds-Norske Dampskibsselskab ASA (DSND)
acquired 4,125,000 shares of our common stock from the Principal Stockholders.
On August 13, 1999, DSND sold all of its shares of Horizon common stock in the
public market and is no longer a stockholder. Upon completion of the Offering in
April 1998, DSND sold the STEPHANITURM, a dynamically positioned diving support
vessel, to us. In addition, we 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, Canada, and in the Caribbean. Horizon and DSND are
required to fund cash requirements for operating activities in proportion to
their equity ownership. We recognized equity in losses of the DSND Horizon Joint
Venture of $(12,000) and $(158,000) and made contributions of $39,000 and
$138,000 during 1999 and 1998, respectively. We earned $63,000 during 1999 and
$127,000 during 1998 from administrative fees billed to the DSND Horizon Joint
Venture. The DSND Horizon Joint Venture will also have access to DSND's other
deepwater pipelaying vessels on terms to be agreed for any deepwater pipelaying
projects that may be obtained by the DSND Horizon Joint Venture.
BUSINESS RISKS
Our 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
F-6
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 our future revenues
and profitability. We experienced a decline in demand for marine construction
services in the Gulf during 1999. As oil prices began to improve at mid-year
1999, drilling activity began to increase. Our operating results are directly
tied to industry demand for our services, most of which are performed in the
outer continental shelf in the Gulf. If the recent increase in oil and gas
prices and drilling levels are sustained, we expect demand for our services to
increase.
Factors affecting our profitability include competition, equipment and
labor productivity, contract estimating, weather conditions and the other risks
inherent in marine construction. The marine construction industry in the Gulf is
highly seasonal as a result of weather conditions with the greatest demand for
these services occurring during the second and third quarters of the year. Full
year results are not a direct multiple of any quarter or combination of quarters
because of this seasonality.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Horizon 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. We consider the percentage-of-completion method 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 until the equipment
is placed into service using an effective rate based on related debt. Interest
expense is net of interest capitalized in the amount of $0.8 million in 1999,
$1.3 million in 1998 and $0.3 million in 1997.
INVENTORY
Inventory consists of structures held for resale from derrick salvage
services. Inventory is reported as the lower of cost or market value. Horizon
periodically assesses the net realizable value of its inventory items.
F-7
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 per share (for the periods prior to the
completion of the Offering) as if these shares were outstanding for such
periods. The nominal issuances relate to the warrant issued in conjunction with
our recapitalization in 1997.
CASH AND CASH EQUIVALENTS
We consider 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
Effective July 1, 1999, we changed the estimated salvage value on certain
of our barges and vessels from zero to 10% to more accurately reflect our
estimate of the value of the assets at the end of their estimated useful lives.
The change is treated as an accounting estimate change. For the year ended
December 31, 1999, the change had the effect of reducing depreciation expense by
$0.4 million and increasing net income by $0.2 million or $0.01 per
share -- basic and diluted.
On January 1, 2000, we changed depreciation methods from the straight-line
method to the units-of-production method on our major barges and vessels.
Depreciation expense calculated under the units-of-production method may be
different than depreciation expense calculated under the straight-line method in
any period. The annual depreciation based on utilization of each vessel will not
be less than the greater of 25% of annual straight-line depreciation, and the
cumulative depreciation based on utilization of each vessel will not be less
than or 50% of cumulative straight-line depreciation.
Major additions and improvements to barges, boats and related equipment are
capitalized over the useful life of the vessel. Maintenance and repairs 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, we 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. We periodically assess the realizability of our long-
F-8
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
term assets pursuant to the provisions of SFAS No. 121. Based on our analysis of
the undiscounted future cash flows for our long-term assets, no impairments have
been recognized under SFAS No. 121.
OTHER LONG-TERM ASSETS
Other assets consist principally of prepaid loan fees, deferred dry-dock
cost, deferred interest and deposits. Deferred interest was imputed at 10% on
aggregate non-interest bearing debt of $3.0 million and $5.1 million at December
31, 1999 and 1998, 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 office lease as of December 31, 1999. 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 third-party costs associated with scheduled maintenance
on the marine construction vessels. Costs incurred in connection with
dry-dockings are deferred and amortized over the period to the next scheduled
dry-docking. Other current assets includes the portion of these deferred charges
expected to be amortized during the next twelve month period, with the residual
balance in other assets.
Other long-term assets consist of the following (in thousands):
DECEMBER 31
--------------------
1999 1998
--------- ---------
Deposits............................. $ 114 $ 114
Deferred dry-dock costs.............. 2,779 733
Deferred interest expense............ 47 242
Prepaid loan fees.................... 379 951
Other................................ 70 --
--------- ---------
$ 3,389 $ 2,040
========= =========
FEDERAL INCOME TAXES
We use 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 us 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. We
review all significant estimates on a recurring basis and record 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. We have
domestic operations in one industry segment, the marine construction service
F-9
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
industry to offshore oil and gas companies. We had one major oil and gas
customer whose revenues accounted for 31% of consolidated revenues in 1999. Our
revenues do not depend on any one customer. The level of construction services
required by a customer depends on the size of their capital expenditure budget
for construction for the year. Consequently, customers that account for a
significant portion of contract revenues in one year may represent an immaterial
portion of contract revenues in subsequent years. Based upon our interpretation
of these requirements, Horizon does not have more than one reportable operating
segment.
2. ACCOUNTS RECEIVABLE:
Contract receivables are generally billed upon the completion of small
contracts and are progressed 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 to be probable.
We have not experienced material losses from uncollected receivables. Our
principal customers are major and independent oil and gas companies and their
affiliates. The concentration of customers in the energy industry may impact our
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 our portfolio of receivables
within the energy industry reduces any potential credit risk associated with any
particular customer.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
DECEMBER 31,
----------------------
1999 1998
---------- ----------
Barges, boats and related equipment..... $ 165,266 $ 141,436
Land and buildings...................... 7,586 7,084
Machinery and equipment................. 245 245
Office furniture and equipment.......... 1,292 1,121
Leasehold improvements.................. 1,409 1,330
---------- ----------
175,798 151,216
Less -- Accumulated depreciation........ (12,445) (5,536)
---------- ----------
Property and equipment, net............. $ 163,353 $ 145,680
========== ==========
Depreciation expense is included in the
following expense accounts:
Costs of contract revenues......... $ 6,366 $ 3,919
Selling, general and
administrative................... 543 421
---------- ----------
$ 6,909 $ 4,340
========== ==========
4. ACQUISITION OF ASSETS:
The purchase and improvement costs relating to the fleet totaled $24.4
million in 1999 and $95.7 million in 1998. We acquired a facility near Port
Arthur, Texas in December 1997 for $3.2 million as our primary marine base and
storage facility for marine structures and made improvements of $0.5 million in
1999 and $3.9 million in 1998, for a total cost of $7.6 million at December 31,
1999.
The STEPHANITURM, a 230-foot dynamically positioned diving support vessel,
was acquired for $18.3 million in April 1998 with Offering proceeds and was
chartered to DSND until December 31, 1999. We recognized $3.2 million in
revenues and $2.0 million in gross profit during 1999 and $4.9 million in
F-10
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
revenues and $4.1 million in gross profit during 1998 related to this charter.
The STEPHANITURM is currently on a two-year charter in the North Sea with an
unrelated subsea contractor.
In May 1998, we acquired the PACIFIC HORIZON, a 350-foot pipebury barge,
which was reconfigured as a derrick barge for a total cost of $23.4 million at
December 31, 1999. Improvements totaled $3.2 million in 1999. The PACIFIC
HORIZON was placed into service in March 1999. This vessel was upgraded from an
800 ton lift capacity to a 1,000 ton lift capacity in March 2000.
The ATLANTIC HORIZON, a derrick barge, was acquired for $16.4 million in
1998 under a lease purchase arrangement, and we acquired title to the vessel by
exercising the purchase option in November 1999. The BRAZOS HORIZON, a
pipelay/pipebury barge, was acquired in April 1999 for $5.8 million, which
included the issuance of 133,300 shares of treasury stock with a fair value of
$1.0 million.
5. DISPOSITION OF ASSETS:
We sold the marine base in Louisiana in December 1998 for $0.8 million in
cash and recognized a $20,000 gain 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. We used $12.0 million of the sales proceeds to repay a portion of the
Principal Stockholders' debt. We accounted for the $3.2 million gain on the
sale, net of taxes of approximately $1.6 million, as a capital contribution.
6. NOTES PAYABLE (IN THOUSANDS):
DECEMBER 31,
--------------------
1999 1998
--------- ---------
Term loan payable to The CIT Group
due in 84 monthly installments,
maturing June 30, 2006 secured by
mortgages on all owned vessels.
Interest at LIBOR plus 2.65%,
(8.09% and 8.25% at December 31,
1999 and 1998, respectively)....... $ 76,279 $ 50,000
Lease payable to leasing company in
monthly installments beginning July
31, 1998, maturing November 27,
1999, secured by a vessel.......... -- 14,811
Note payable to a foreign marine
company including imputed interest
at 10%, due in three annual
installments of $1 million,
maturing August 3, 2000............ 1,000 2,000
Note payable to a foreign marine
company including imputed interest
at 10%, due in monthly installments
beginning January 1, 1998, maturing
December 31, 2001.................. 2,012 3,063
Revolving note payable to Wells Fargo
Bank due December 31, 2001, secured
by accounts receivables from
customers. Interest at Wells Fargo
Bank's prime rate plus 1/2% or
LIBOR plus 2.0%, (7.44% and 8.25%
at December 31, 1999 and 1998,
respectively)...................... -- --
--------- ---------
Total long-term debt................. 79,291 69,874
Less -- Current maturities........... (10,305) (7,606)
--------- ---------
Long-term debt, net of current
maturities........................... $ 68,986 $ 62,268
========= =========
LOAN FACILITIES
In December 1998, Horizon entered into a loan agreement with The CIT Group,
Inc. providing for a $60 million term loan at a rate of LIBOR plus 2.65%. We
initially borrowed $50 million in December 1998 and repaid the $36.4 million
total outstanding debt balance under a prior credit facility with Den Norske
F-11
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Bank and the $7.6 million note payable to a subsidiary of the Principal
Stockholder. During 1999, the term loan was amended to increase the amount that
may be borrowed to $83.3 million, and we borrowed an additional $33.3 million.
The outstanding balance of the term loan at December 31, 1999 was $76.3 million.
The first advance of $50 million under the term loan is due in 84 monthly
principal installments of $463,000, the second advance of $5 million is due in
84 monthly principal installments of $46,000, the third advance of $13.8 million
is due in 84 monthly principal installments of $128,000, and the fourth advance
of $14.5 million is due in 73 monthly installments of $154,490. The remaining
principal balance is due at the end of the 84 months. The term loan is secured
by mortgages on all owned vessels.
We have a $30 million revolving credit facility with Wells Fargo Bank at
LIBOR plus 2%. There were no borrowings outstanding under the $30 million
revolver, and we had $9.9 million available based on the borrowing base
calculation at December 31, 1999. Outstanding borrowings bear interest at LIBOR
plus 2% and are secured by the accounts receivable from customers. The revolving
credit facility matures on December 31, 2001.
The term loan and revolving credit facility require that certain conditions
be met in order for us to obtain advances. The term loan is secured by mortgages
on all owned vessels. The revolving credit facility is secured by accounts
receivable. Advances under the revolving credit facility may be obtained in
accordance with a borrowing base defined as a percentage of accounts receivable
balances. Both the CIT and Wells Fargo loan facilities require us to maintain
certain financial ratios and contain certain covenants that limit our ability to
incur additional debt, pay dividends, create certain liens, sell assets and make
capital expenditures.
We acquired the BRAZOS HORIZON in April 1999 for $5.8 million with proceeds
from the term loan and the issuance of 133,300 shares of treasury stock with a
fair value of $1.0 million. We acquired the ATLANTIC HORIZON, a derrick barge,
under a lease purchase arrangement. We exercised the purchase option in November
1999, and refinanced the vessel with proceeds from the term loan.
Maturities of long-term debt for each of the years ending December 31 are
as follows (in thousands):
2000................................. $ 10,305
2001................................. 11,218
2002................................. 9,255
2003................................. 9,255
2004................................. 9,255
Thereafter........................... 30,003
---------
$ 79,291
=========
INDEBTEDNESS TO RELATED PARTIES
In 1997, Horizon 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. We issued 10% Subordinated Notes
due December 31, 2005 (Subordinated Notes) to the Principal Stockholders for the
remaining outstanding indebtedness and for future advances in an aggregate
amount not to exceed $24 million. In April 1998, we repaid our $23.8 million
indebtedness under our Subordinated Notes with Offering proceeds.
In July 1998, Horizon announced that its board of directors approved the
repurchase of up to $10 million of outstanding common stock. The shares were
purchased from time to time, subject to market conditions, in the open market or
in privately negotiated transactions, and such repurchases were funded by
borrowings provided by a wholly-owned subsidiary of one of the Principal
Stockholders. We borrowed $7.6
F-12
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 term loan in December 1998.
7. INCOME TAXES:
Income tax expense for the years ended December 31, 1999, 1998 and 1997
consists of (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
Federal
Current......................... $ -- $ 715 $ 1,480
Deferred........................ 1,001 3,770 (1,480)
--------- --------- ---------
$ 1,001 $ 4,485 $ --
========= ========= =========
The income tax expense for the years ended December 31, 1999, 1998 and 1997
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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Expense computed at federal statutory
rate............................... $ 911 34.0% $ 5,761 34.0% $ 774 34.0%
Increase (decrease) in provision
from:
Nondeductible expenses.......... 90 3.4 48 .3 92 4.0
Decrease in valuation
allowance for deferred tax
assets........................ -- -- (1,324) (7.8) (866) (38.0)
--------- --------- --------- --------- --------- ---------
$ 1,001 37.4% $ 4,485 26.5% $ -- --
========= ========= ========= ========= ========= =========
</TABLE>
The tax effects of the temporary differences that give rise to the
significant portions of the deferred tax assets and liabilities are presented
below (in thousands):
DECEMBER 31,
--------------------
1999 1998
--------- ---------
Assets --
Net operating loss
carryforward.................. $ 11,967 $ 1,791
Gain on asset sales............. 965 965
Contributions carryover......... 5 --
Fixed asset basis difference.... 585 1,014
Alternative minimum tax......... 917 985
--------- ---------
Total gross deferred tax
asset................... 14,439 4,755
Liabilities --
Book/tax depreciation
difference.................... 19,073 8,388
--------- ---------
Net deferred tax
liability............... $ (4,634) $ (3,633)
========= =========
The realization of a significant portion of net deferred tax assets is
based in part on our estimates of the timing of reversals of certain temporary
differences and on the generation of taxable income before such reversals. The
net operating loss carryforwards of approximately $34.2 million at December 31,
1999 begin to expire in the year 2012. Our ability to utilize the net operating
loss carryforward could be limited by a change in ownership as defined by
federal income tax regulations.
F-13
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
LITIGATION
We are involved in various routine legal proceedings primarily involving
claims for personal injury under the Jones Act and general maritime laws which
we believe are incidental to the conduct of our business. We believe that none
of these proceedings in the aggregate, if adversely determined, would have a
material adverse effect on our business.
LEASES
We lease office space at various locations under operating leases that
expire through November 2001. Rental expense was $0.7 million for 1999, $0.6
million for 1998 and $0.3 million for 1997. Future minimum non-cancelable lease
commitments under these agreements for the years ended December 31 are as
follows (in thousands):
2000................................. $ 675
2001................................. 620
---------
$ 1,295
=========
INSURANCE
We participate in a retrospectively rated insurance agreement. In our
opinion, we have 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
We have entered into employment agreements with four executive officers
that expire beginning in April 2001 through August 2002 and we have purchased $5
million in "key-man" life insurance with respect to our Chief Executive
Officer, for which Horizon is the named beneficiary.
9. EMPLOYEE BENEFIT PLAN:
We have a 401(k) Plan for all eligible employees and we make annual
contributions to the plan, at the discretion of management. We made
contributions of $238,000 to the plan during 1999 and $123,000 during 1998. We
did not make any contributions to the plan prior to 1998. We intend to make
future contributions with Horizon common stock or cash.
10. STOCKHOLDERS' EQUITY:
PUBLIC OFFERING OF COMMON STOCK
In April 1998, we completed the Offering of 5,750,000 shares of common
stock at $13.00 per share and received $68.6 million, net of $6.2 million of
underwriting commissions and discounts and expenses. We 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 our fleet.
STOCK SALES
In December 1997, we issued 326,480 shares of the common stock to a company
controlled by one of our directors, pursuant to a subscription agreement. The
shares were sold 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 common stock to our officers and key
employees at $2.91 per share, the same per share price paid by DSND.
F-14
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK SPLIT
In January 1998, we 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.
STOCK OPTIONS
In January 1998, the board of directors and the stockholders approved the
Stock Incentive Plan (the Plan). The Plan provides for the granting of stock
options to directors, executive officers, other employees and certain
non-employee consultants. 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 board of directors. We granted options to purchase
694,000 shares of common stock at $13.00, the IPO price, on April 1, 1998. These
options will be fully vested at April 1, 2003. We had outstanding options
covering an aggregate of 677,500 shares of common stock as of December 31, 1998,
and 1.9 million shares of common stock as of December 31, 1999.
Horizon follows Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," which permits one of two methods
for accounting for stock options. We have elected the method that only requires
note disclosure of stock based compensation. Because of this election, we are
required to account for our employee stock-based compensation plan under
Accounting Principles Board (APB) Opinion No. 25 and its related
interpretations. In accordance with APB No. 25, deferred compensation is
recorded for stock-based compensation grants based on the excess of the
estimated fair value of the common stock on the measurement date over the
exercise price. The deferred compensation is amortized over the vesting period
of each unit of stock-based compensation grant, which is generally three years.
If the exercise price of the stock-based compensation grants is equal to the
estimated fair value of Horizon's stock on the date of grant, no compensation
expense is recorded.
The following pro forma information is required by SFAS No. 123, and has
been determined as if Horizon had accounted for its employee stock options under
the fair-value method as defined by SFAS No. 123. The fair value of these
options was estimated at the date of grant using the Black-Scholes method and
the following assumptions for 1999: volatility of 53.22%, risk-free interest
rate of 5.46%, expected option lives of ten years, and no dividends, and 1998:
volatility of 39.94%, risk-free interest rate of 5.89%, expected option lives of
ten years, and no dividends.
For purposes of pro forma disclosures, the estimated fair value of the
option is amortized to expense over the vesting period of the options using the
straight-line method. Horizon's pro forma information follows:
1999 1998
--------- ---------
Net Income:
As reported........................ $ 1,679 $ 12,460
Pro Forma.......................... (79) 11,392
Basic and diluted EPS:
As reported........................ $ 0.09 $ 0.69
Pro Forma.......................... (0.00) 0.63
F-15
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes activity under the Plan for the years ended
December 31, 1999 and 1998:
WEIGHTED
SHARES AVERAGE PRICE
--------- -------------
Granted................................. 694,000 $ 13.00
Forfeited and canceled.................. (16,500) $ 13.00
---------
Outstanding at December 31, 1998........ 677,500 $ 13.00
Granted................................. 1,328,000 $ 6.28
Forfeited and canceled.................. (96,500) $ 5.69
---------
Outstanding at December 31, 1999........ 1,909,000 $ 8.67
=========
The following table summarizes information on stock options outstanding and
exercisable as of December 31, 1999, pursuant to the Incentive Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE -------------------------------
RANGE OF SHARES REMAINING WEIGHTED AVERAGE SHARES WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------------------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$12.00 to 13.00...................... 686,000 8.23 $13.00 135,121 $13.00
$ 5.50 to 7.50...................... 1,223,000 9.55 $ 6.24 -- --
----------- ----- -------- ----------- --------
$ 5.50 to 13.00...................... 1,909,000 9.08 $ 8.67 135,121 $13.00
=========== ===== ======== =========== ========
</TABLE>
Unexercised options expire ten years from the date of issue.
LITIGATION SETTLEMENT
One of our subsidiaries, a Principal Stockholder and other persons were
defendants in a lawsuit filed by a former member and employee of the subsidiary.
The actions were settled in February 1998 with the Principal Stockholder paying
$150,000 and each party completely releasing the other from any further
liability. Since we benefited from this settlement, we recorded the $150,000 as
an expense and a capital contribution in the accompanying consolidated financial
statements.
TREASURY STOCK
In July 1998, the board of directors approved the repurchase of up to $10
million of outstanding common stock. Shares have been purchased from time to
time, subject to market conditions, in the open market or in privately
negotiated transactions. As of December 31, 1999, we had repurchased 1,158,800
shares of common stock for a total cost of $7.6 million, and we re-issued
133,300 shares of treasury stock in connection with the purchase of the BRAZOS
HORIZON. As of December 31, 1999, treasury stock consisted of 1,025,500 shares
at a cost of $6.7 million. Treasury stock is stated at the average cost basis.
See Note 6.
11. RELATED PARTY TRANSACTIONS:
In our opinion, all of the transactions described below were effected on
terms at least as favorable to us as those which could have been obtained from
unaffiliated third parties.
In August 1998, we entered into a master services agreement with Odyssea
Marine, Inc. (Odyssea), an entity wholly owned by the Principal Stockholders, to
charter certain marine vessels from Odyssea. As of December 31, 1999, we owed
Odyssea $30,000 for charter services compared to $1.1 million at December 31,
1998. During 1999, Odyssea billed Horizon $3.7 million and Horizon paid Odyssea
$4.8 million for services rendered under the agreement.
F-16
<PAGE>
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1998, we entered into an agreement with Prime Natural Resources,
Inc. (Prime), an entity that is majority-owned by one of the Principal
Stockholders, to perform marine construction work. Prime awards contracts to us
on the basis of a competitive bid process. As of December 31, 1999, the
outstanding receivable balance from Prime was $3.1 million, which was paid in
full as of March 15, 2000, compared to $1.3 million at December 31, 1998. We
billed Prime $5.4 million for services rendered under the agreement during 1999
and $1.6 million in 1998.
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 or combination of quarters because of this seasonality.
The following table sets forth selected quarterly information for 1999 and
1998. We believe that all necessary adjustments have been indicated in the
amount stated below to present fairly the results of such years.
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------
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.................... $ 12,357 $ 23,437 $ 36,286 $ 16,935
Gross profit (loss).................. 2,266 6,834 8,113 (379)
Operating income (loss).............. (76) 4,705 5,837 (2,675)
Net income (loss).................... (605) 2,305 2,748 (2,769)
Net income (loss) per share.......... $ (.03) $ 0.12 $ 0.15 $ (0.15)
Weighted average shares.............. 18,669,793 18,870,580 18,921,705 18,800,980
</TABLE>
<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>
F-17
<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
our behalf by the undersigned, thereunto duly authorized on March 15, 2000.
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/JAMES DEVINE Chairman of the Board March 15, 2000
JAMES DEVINE
/s/BILL J. LAM President and Director March 15, 2000
BILL J. LAM (Principal Executive Officer)
/s/DAVID W. SHARP Chief Financial Officer March 15, 2000
DAVID W. SHARP (Principal Financial and
Accounting Officer)
/s/JONATHAN D. POLLOCK Director March 15, 2000
JONATHAN D. POLLOCK
/s/EDWARD L. MOSES, JR. Director March 15, 2000
EDWARD L. MOSES, JR.
/s/MICHAEL R. LATINA Director March 15, 2000
MICHAEL R. LATINA
/s/DEREK LEACH Director March 15, 2000
DEREK LEACH
</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)*
10.6 -- Employment and Non-Competition Agreement
dated as of January 1, 1998 between the
Company and Bill J. Lam(1)*
10.7 -- First Amendment effective April 1, 2000
to Employment and Non-Competition
Agreement dated as of January 1, 1998
between the Company and Bill J. Lam(2)*
10.8 -- Employment and Non-Competition Agreement
dated as of January 1, 1998 between the
Company and David W. Sharp(1)*
10.9 -- Employment and Non-Competition Agreement
dated as of January 1, 1998 between the
Company and James K. Cole(1)*
10.10 -- Credit Agreement dated as of October 27,
1997 among Den norske Bank ASA, Horizon
Vessels, Inc. and Horizon Offshore
Contractors, Inc.(1)
10.11 -- 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)
10.12 -- Registration Rights Agreement dated as
of December 4, 1997 among the Company,
Highwood Partners, L.P., and Westgate
International, L.P.(1)
10.13 -- Settlement Agreement dated as of June
10, 1997 between HLS Offshore L.L.C.,
Mannai Marine Co. Limited and RANA
S.r.l. (1)
10.14 -- Letter Agreement dated December 5, 1997
between the Company and Crossbay and
Ventures, Ltd.(1)*
10.15 -- Amendment No. 1 to Amended and Restated
Credit Agreement dated as of September
28, 1999 between Horizon Vessels, Inc.,
Horizon Offshore Contractors, Inc. and
Wells Fargo Bank.(2)
10.16 -- Amendment No. 2 to Amended and Restated
Credit Agreement dated as of December
31, 1999 between Horizon Vessels, Inc.,
Horizon Offshore Contractors, Inc. and
Wells Fargo Bank.(2)
10.17 -- Amendment No. 1 to Loan Agreement dated
as of January 30, 1999 among Horizon
Vessels, Inc., Horizon Offshore
Contractors, Inc., The CIT
Group/Equipment Financing, Inc., as
agent, and the other lenders specified
therein.(2)
10.18 -- Amendment No. 2 to Loan Agreement dated
as of May 25, 1999 among Horizon
Vessels, Inc., Horizon Offshore
Contractors, Inc., The CIT
Group/Equipment Financing, Inc., as
agent, and the other lenders specified
therein.(2)
10.19 -- Amendment No. 3 to Loan Agreement dated
as of November 30, 1999 among Horizon
Vessels, Inc., Horizon Offshore
Contractors, Inc., The CIT
Group/Equipment Financing, Inc., as
agent, and the other lenders specified
therein.(2)
10.20 -- Amendment No. 4 to Loan Agreement dated
as of January 31, 2000 among Horizon
Vessels, Inc., Horizon Offshore
Contractors, Inc., The CIT
Group/Equipment Financing, Inc., as
agent, and the other lenders specified
therein.(2)
11.1 -- Statements Regarding Computation of Net
Income per share(2)
21.1 -- Subsidiaries of the Company(2)
23.1 -- Consent of Arthur Andersen LLP.(2)
27.1 -- Financial Data Schedule(2)
- ------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration Statement No. 333-43965).
(2) Filed herewith
* Management Contract or Compensatory Plan or Arrangement.
E-1
EXHIBIT 10.7
AMENDMENT NO. 1
TO
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This Amendment No. 1 to Employment and Non-Competition Agreement (this
"Agreement") is made as of the 1st day of April, 2000, by and between Horizon
Offshore, Inc., a Delaware corporation (the "Company"), and Bill J. Lam (the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company has entered into an Employment and Non-Competition
Agreement with the Employee dated as of January 1, 1998 (the "Employment
Agreement"); and
WHEREAS, the Company and the Employee have agreed to certain changes to
the Employment Agreement, effective April 1, 2000, as set forth herein.
NOW THEREFORE, the Company and the Employee agree as follows:
Section 1. AMENDMENTS.
(a) Paragraph 2(a) of the Employment Agreement is hereby amended to
read in its entirety as follows:
"2. TERM. (a) Subject to the provisions for termination as hereinafter
provided, Employee's employment pursuant to the terms of this Agreement
shall be for the period expiring on June 30, 2003. Such period of
employment is referred to herein as the "Employment Term.""
Section 2. (b) Paragraph 4 of the Employment Agreement is hereby amended
to read in its entirety as follows:
"4. COMPENSATION AND BENEFITS. The Company will provide or will cause to
be provided to Employee a minimum annual base salary of $300,000
appropriately pro rated for periods of less than a full calendar year. The
Employee shall be entitled to all benefits and perquisites provided to
similarly situated employees of the Company."
2. MISCELLANEOUS.
(a) Except as expressly set forth herein, this Amendment shall not
by implication or otherwise alter, modify, amend or in any way affect any
of the terms, conditions, obligations, covenants or agreements contained
in the Employment Agreement, all of which are ratified
1
<PAGE>
and affirmed by the Company and the Employee in all respects and shall
continue in full force and effect.
(b) This Amendment, including the validity hereof and the rights and
obligations of the parties hereunder, shall be construed in accordance with and
governed by the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and signed as of the date indicated above.
HORIZON OFFSHORE, INC.
By:_____________________________
David W. Sharp
Executive Vice President
EMPLOYEE:
_________________________________
Bill J. Lam
2
EXHIBIT 10.15
AMENDMENT NO. 1
TO
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT NO. 1 dated as of September 28, 1999 ("Amendment No. 1") to the
Amended and Restated Credit Agreement dated as of December 30, 1998 (the "Credit
Agreement"), among HORIZON VESSELS, INC., a Delaware corporation, HORIZON
OFFSHORE CONTRACTORS, INC., a Delaware corporation (together, the "Borrowers"),
HORIZON OFFSHORE, INC., a Delaware corporation (the "Guarantor") and WELLS FARGO
BANK (TEXAS), NATIONAL ASSOCIATION, a national banking association (the
"Lender").
W I T N E S S E T H:
- -------------------------
WHEREAS, pursuant to the Credit Agreement, the Lender made available to
the Borrowers a loan facility of up to USD 30,000,000 (the "Loan"), as evidenced
by the secured promissory note of the Borrowers dated December 30, 1998,
endorsed to the Lender (the "Note"); and
WHEREAS, the parties wish to amend certain provisions of the Credit
Agreement as set forth herein.
NOW THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the Credit Agreement as follows:
A. AMENDMENTS TO THE CREDIT AGREEMENT.
- ----------------------------------------
B.
1. The definition of "Billings in Excess of Cost" is hereby added to
the Credit Agreement and reads as follows:
2.
3. "BILLINGS IN EXCESS OF COST" means amounts recorded on the
Guarantor's consolidated balance sheet under the Billings in Excess of Cost
account which are calculated in accordance with GAAP.
4.
5. The definition of "Borrowing Base" is amended to read as follows:
6.
7. "BORROWING BASE" means the aggregate of (a) eighty percent (80%) of
the face amount of Eligible Accounts, LESS (b) Billings in Excess of Cost, but
only to the extent that Billings in Excess of Cost arise out of or in connection
with Eligible Accounts.
8.
9. The definition of "Eligible Accounts" is hereby amended to read as
follows:
10.
<PAGE>
11. "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 any subsidiary
or Affiliate of the Borrowers, if any, (iii) accounts receivable in which the
Lender 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 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 due from non-U.S. subsidiaries of U.S. entities,
provided such accounts are payable in U.S. Dollars and are payable in the United
States, (viii) accounts receivable reflecting advance billings for unearned
charter hire, (ix) accounts receivable due from the Borrowers' insurance
carriers, and (x) accounts receivable rejected in whole or in part by the Lender
in its sole discretion as containing unacceptable risk.
12.
13. Section 2.1 is hereby amended to read in its entirety as follows:
14.
15. REVOLVING CREDIT FACILITY.
16.
17. Upon the terms and subject to the conditions herein set forth, the
Lender agrees 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, 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 2.1 shall be in an aggregate
principal amount of at least USD 200,000.00 and in integral multiples of USD
100,000.00.
18.
19. Sections 2.1(b) and (c) are deleted in their entirety.
20.
21. Section 5.1(a) of the Credit Agreement is hereby amended to read as
follows:
EXHIBIT 10.15
2
<PAGE>
(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%. " \l 2 The first sentence of Section 9.1(a) is hereby amended to read as
follows:
(a) 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
daily undrawn portion of the Commitment up to and including the Maturity Date.
1. Section 9.1(b) is hereby deleted in its entirety.
2.
3. Section 11.1(f) is hereby amended to read as follows:
4.
5. In addition to the requirements of Section 2.2(b) above, the
Borrowers shall provide to the Lender a Borrowing Base Report on the 15th day of
each month based on information on the last Business Day of the immediately
preceding month, or the next succeeding Business Day, if the 15th day of the
month is not a Business Day.
6.
B. CONDITIONS PRECEDENT.
C.
1. DOCUMENTS REQUIRED AS CONDITIONS PRECEDENT TO AMENDMENT NO. 1.
The effectiveness of the modifications to the Credit Agreement contemplated
by this Amendment No. 1 is subject to the condition precedent that the Lender
shall have received all of the following, each in form and substance
satisfactory to the Lender and its counsel:
2.
3. (a) Each of the following documents (the "Amendment Documents")
shall have been duly authorized and executed with original counterparts thereof
delivered to the Lender:
4.
(i) This Amendment No. 1; and
(ii) Ratification of Guaranty executed by Guarantor.
(b) The representations and warranties contained in Section 11 of
the Credit Agreement shall be true on the date hereof 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 14 of the Credit Agreement and no
event which, with the lapse of time or the giving of notice and the lapse of
time specified in Article 14 of the Credit Agreement, would become such an Event
of Default, shall have occurred and be continuing.
(c) The Lender shall have received evidence that the Borrowers
maintain all depository and treasury management accounts with the Lender.
EXHIBIT 10.15
3
<PAGE>
1. WAIVER OF CONDITIONS PRECEDENT. All of the conditions precedent
contained in this Article B are for the sole benefit of the Lender and the
Lender may waive any of them in its absolute discretion, and on such
conditions as it deems proper.
2.
3.
4.
B. REPRESENTATIONS.
C.
1. REPRESENTATIONS OF THE BORROWERS AND GUARANTOR. The Borrowers and the
Guarantor represent and warrant that:
2.
3. (a) Each of the Borrowers and the Guarantor is a corporation, duly
organized and validly existing in good standing under the laws of the State of
Delaware, and has the requisite power and authority (i) to carry on its business
as presently conducted; and (ii) to enter into and perform its obligations under
the Amendment Documents.
4.
5. (b) The execution, delivery and performance by each of the Borrowers
and the Guarantor of the Amendment Documents and any other instrument or
agreement provided for by this Amendment No. 1 to which it is a party, have been
duly authorized by all necessary corporate action, do not require stockholder
approval other than such as has been duly obtained or given, do not or will not
contravene any of the terms of its Certificate of Incorporation or Bylaws, and
will not violate any provision of law or of any order of any court or
governmental agency or constitute (with or without notice or lapse of time or
both) a default under, or result (except as contemplated by this Amendment No.
1) in the creation of any security interests, lien, charge or encumbrance upon
any of its properties or assets pursuant to, any agreement, indenture or other
instrument to which it is a party or by which it may be bound other than is in
favor of the Lender; the Amendment Documents have been duly executed and
delivered by the Borrowers and the Guarantor and constitute the respective
legal, valid and binding agreements, enforceable in accordance with the
respective terms thereof as to which each of the Borrowers and the Guarantor is
a party. The enforceability of this Amendment No. 1, however, is subject to all
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws
affecting the rights or creditors and to general equity principles.
6.
7. (c) Except as set forth in the Credit Agreement, there are no suits
or proceedings pending or to its knowledge threatened against or affecting any
Borrower or Guarantor which if adversely determined would have a material
adverse effect upon its business, financial condition or operations.
8.
9. (d) Other than such as have been obtained, no license, consent or
approval of any Governmental Agency or other regulatory authority is required
for the execution, delivery or performance of this Amendment No. 1 or any other
Amendment Document or any instrument contemplated herein or therein. The
Borrowers are the holder of all certificates and
EXHIBIT 10.15
4
<PAGE>
authorizations of governmental authorities required by law to enable it to
engage in the business transacted by them.
10.
11. EXPENSES. The Borrowers and the Guarantor agree to promptly, whether or
not the modifications to the Credit Agreement contemplated by this Amendment No.
1 become effective, (x) reimburse the Lender for all fees and disbursements of
external counsel to the Lender and all reasonable out of pocket fees and
disbursements of the Lender incurred in connection with the preparation,
execution and delivery of this Amendment No. 1 and all other documents referred
to herein, and all amendments or waivers to or termination of this Amendment No.
1 or any agreement referred to herein; and (y) reimburse the Lender for all fees
and disbursements of internal and external counsel to the Lender and all
reasonable out of pocket fees, disbursements and travel-related expenses of the
Lender incurred in connection with the protection of the rights of the Lender
under this Amendment No. 1 and all other documents referred to herein, whether
by judicial proceedings or otherwise. The obligations of the Borrowers and the
Guarantor under this Section 2 shall survive payment of the Loan.
12.
D. MISCELLANEOUS.
E.
1. Wherever and in each such place the term "Credit Agreement" is
used throughout the Credit Agreement, such term shall be read to mean the
Credit Agreement as amended by this Amendment No. 1.
2.
3. Except as specifically amended by this Amendment No. 1, all of
the terms and provisions of the Credit Agreement shall remain in full force
and effect.
4.
5. All capitalized terms used herein but not defined herein shall
have the meanings given to them in the Credit Agreement.
6.
7. THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
8. OF NEW YORK.
EXHIBIT 10.15
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 to Credit Agreement on the date first written above.
HORIZON OFFSHORE CONTRACTORS, INC.
By:_____
Name:___
Title:__
HORIZON VESSELS, INC.
By:_____
Name:___
Title:__
HORIZON OFFSHORE, INC.
By:_____
Name:___
Title:__
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By:_____
Name:___
Title:__
EXHIBIT 10.15
6
EXHIBIT 10.16
AMENDMENT NO. 2
TO
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT NO. 2 dated as of December 31, 1999 ("Amendment No. 2") to
the Amended and Restated Credit Agreement dated as of December 30, 1998 (the
"Credit Agreement"), among HORIZON VESSELS, INC., a Delaware corporation,
HORIZON OFFSHORE CONTRACTORS, INC., a Delaware corporation (together, the
"Borrowers"), HORIZON OFFSHORE, INC., a Delaware corporation (the
"Guarantor") and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, a national
banking association (the "Lender").
W I T N E S S E T H:
- -------------------------
WHEREAS, pursuant to the Credit Agreement, the Lender made available to
the Borrowers a loan facility of up to USD 30,000,000 (the "Loan"), as evidenced
by the secured promissory note of the Borrowers dated December 30, 1998,
endorsed to the Lender (the "Note"); and
WHEREAS, the Guarantor wishes to incorporate a new subsidiary, Horizon
Subsea Services, Inc., a Delaware corporation (the "New Subsidiary"); and
WHEREAS, the parties wish to amend certain provisions of the Credit
Agreement as set forth herein.
NOW THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the Credit Agreement as follows:
A. AMENDMENTS TO THE CREDIT AGREEMENT.
B.
C. 1. The Definitions of the Credit Agreement are hereby amended
as follows:
D.
(a) Each reference in the Credit Agreement to "Amendment
Documents" is hereby amended to include the Amendment Documents listed
in Section B.1 of this Amendment No. 2.
(b) The definition of "Eligible Accounts" is hereby amended to
read as follows:
"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,
<PAGE>
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); PROVIDED THAT accounts receivable remaining unpaid for up to
120 days from (X) U.S. companies with investment grade ratings from
Standard & Poor's Corporation and Moody's Investor Service, Inc. and
(Y) Unocal Corporation, Anadarko Petroleum Corporation, El Paso
Energy, The Coastal Corporation, Barrett Resources Corporation,
Consolidated Natural Gas Company, Apache Corporation, Newfield
Exploration Company, Pogo Producing Company, Tana Oil and Gas, and
Seneca Resources, Inc., and their subsidiaries shall constitute
Eligible Accounts, (ii) accounts receivable arising from sale to or
services rendered for any subsidiary or Affiliate of the Borrowers,
if any, (iii) accounts receivable in which the Lender 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 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 due from non-U.S. subsidiaries of U.S. entities, provided
such accounts are payable in U.S. Dollars and are payable in the
United States, (viii) accounts receivable reflecting advance
billings for unearned charter hire, (ix) accounts receivable due
from the Borrowers' insurance carriers, and (x) accounts receivable
rejected in whole or in part by the Lender in its sole discretion as
containing unacceptable risk.
2. Section 12.13 of the Credit Agreement is hereby amended to read
as follows:
12.13 FIXED CHARGE COVERAGE RATIO. Permit their Fixed Charge Coverage
Ratio to be less than:
(i) 1.10 to 1 at December 31, 1999;
(ii) 1.05 to 1 at March 31, 2000; and
(iii) .90 to 1 at June 30, 2000;
(iv) 1.05 to 1 at September 30, 2000; and
(v) 1.50 to 1 at December 31, 2000 and at any time thereafter; for
the twelve (12) month period ending immediately prior to the
relevant date of determination.
EXHIBIT 10.16
2
<PAGE>
" \l 2 3, The first sentence of Section 9.1(a) of the Credit Agreement is
hereby amended to read as follows:
(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 Commitment up to and including the Maturity Date.
A. CONDITIONS PRECEDENT.
B.
1. DOCUMENTS REQUIRED AS CONDITIONS PRECEDENT TO AMENDMENT NO. 2.
The effectiveness of the modifications to the Credit Agreement contemplated
by this Amendment No. 2 is subject to the condition precedent that the Lender
shall have received all of the following, each in form and substance
satisfactory to the Lender and its counsel:
2.
3. (a) Each of the following documents (the "Amendment
Documents") shall have been duly authorized and executed with original
counterparts thereof delivered to the Lender:
4.
(i) This Amendment No. 2; and
(ii) Ratification and Amendment of Guaranty executed by
the Guarantor and the New Subsidiary.
(b) The representations and warranties contained in Section 11 of
the Credit Agreement shall be true on the date hereof 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 14 of the Credit Agreement and no
event which, with the lapse of time or the giving of notice and the lapse of
time specified in Article 14 of the Credit Agreement, would become such an Event
of Default, shall have occurred and be continuing.
(c) The Lender shall have received evidence that the Borrowers
maintain all depository and treasury management accounts with the Lender.
1. WAIVER OF CONDITIONS PRECEDENT. All of the conditions precedent
contained in this Article B are for the sole benefit of the Lender and the
Lender may waive any of them in its absolute discretion, and on such
conditions as it deems proper.
2.
B. REPRESENTATIONS.
C.
1. REPRESENTATIONS OF THE BORROWERS AND GUARANTOR. The Borrowers
and the Guarantor represent and warrant that:
2.
EXHIBIT 10.16
3
<PAGE>
3. (a) Each of the Borrowers and the Guarantor is a
corporation, duly organized and validly existing in good standing under the
laws of the State of Delaware, and has the requisite power and authority (i)
to carry on its business as presently conducted; and (ii) to enter into and
perform its obligations under the Amendment Documents.
4.
5. (b) The execution, delivery and performance by each of the Borrowers
and the Guarantor of the Amendment Documents and any other instrument or
agreement provided for by this Amendment No. 2 to which it is a party, have been
duly authorized by all necessary corporate action, do not require stockholder
approval other than such as has been duly obtained or given, do not or will not
contravene any of the terms of its Certificate of Incorporation or Bylaws, and
will not violate any provision of law or of any order of any court or
governmental agency or constitute (with or without notice or lapse of time or
both) a default under, or result (except as contemplated by this Amendment No.
2) in the creation of any security interests, lien, charge or encumbrance upon
any of its properties or assets pursuant to, any agreement, indenture or other
instrument to which it is a party or by which it may be bound other than is in
favor of the Lender; the Amendment Documents have been duly executed and
delivered by the Borrowers and the Guarantor and constitute the respective
legal, valid and binding agreements, enforceable in accordance with the
respective terms thereof as to which each of the Borrowers and the Guarantor is
a party. The enforceability of this Amendment No. 2, however, is subject to all
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws
affecting the rights or creditors and to general equity principles.
6.
7. (c) Except as set forth in the Credit Agreement, there are no suits
or proceedings pending or to its knowledge threatened against or affecting any
Borrower or Guarantor which if adversely determined would have a material
adverse effect upon its business, financial condition or operations.
8.
9. (d) Other than such as have been obtained, no license, consent or
approval of any Governmental Agency or other regulatory authority is required
for the execution, delivery or performance of this Amendment No. 2 or any other
Amendment Document or any instrument contemplated herein or therein. The
Borrowers are the holder of all certificates and authorizations of governmental
authorities required by law to enable it to engage in the business transacted by
them.
10.
11. EXPENSES. The Borrowers and the Guarantor agree to promptly, whether or
not the modifications to the Credit Agreement contemplated by this Amendment No.
2 become effective, (x) reimburse the Lender for all fees and disbursements of
external counsel to the Lender and all reasonable out of pocket fees and
disbursements of the Lender incurred in connection with the preparation,
execution and delivery of this Amendment No. 2 and all other documents referred
to herein, and all amendments or waivers to or termination of this Amendment No.
2 or any agreement referred to herein; and (y) reimburse the Lender for all fees
and disbursements of internal and external counsel to the Lender and all
reasonable out of pocket fees, disbursements
EXHIBIT 10.16
4
<PAGE>
and travel-related expenses of the Lender incurred in connection with the
protection of the rights of the Lender under this Amendment No. 2 and all other
documents referred to herein, whether by judicial proceedings or otherwise. The
obligations of the Borrowers and the Guarantor under this Section 2 shall
survive payment of the Loan.
12.
EXHIBIT 10.16
5
<PAGE>
D. MISCELLANEOUS.
E.
1. Wherever and in each such place the term "Credit Agreement" is
used throughout the Credit Agreement, such term shall be read to mean the
Credit Agreement as amended by this Amendment No. 2.
2.
3. Except as specifically amended by this Amendment No. 2, all of
the terms and provisions of the Credit Agreement shall remain in full force
and effect.
4.
5. All capitalized terms used herein but not defined herein shall
have the meanings given to them in the Credit Agreement.
6.
7. THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
8. OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 2 to Credit Agreement on the date first written above.
HORIZON OFFSHORE CONTRACTORS, INC.
By:___
Name: David Sharp
Title: Vice President
HORIZON VESSELS, INC.
By:___
Name: David Sharp
Title: Vice President
EXHIBIT 10.16
6
<PAGE>
HORIZON OFFSHORE, INC.
By:___
Name: David Sharp
Title: Vice President
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By:___
Name: Joseph P. Maxwell
Title: Vice President
EXHIBIT 10.16
7
EXHIBIT 10.17
AMENDMENT NO. 1
TO
LOAN AGREEMENT
AMENDMENT NO. 1 dated as of January __, 1999 ("Amendment No. 1") to the
Loan Agreement dated as of December 30, 1998 (the "Loan Agreement"), among
HORIZON VESSELS, INC., a Delaware corporation, HORIZON OFFSHORE CONTRACTORS,
INC., a Delaware corporation (together, the "Borrowers"), HORIZON OFFSHORE,
INC., a Delaware corporation (the "Guarantor"), THE CIT GROUP/EQUIPMENT
FINANCING, INC., a New York corporation ("CIT"), HELLER FINANCIAL LEASING,
INC., a Delaware corporation, U.S. BANCORP LEASING & FINANCIAL, an Oregon
corporation and SAFECO CREDIT COMPANY, INC., a Washington corporation
(collectively, the "Original Lenders") and CIT as Agent for the Lenders (the
"Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Loan Agreement, the Lenders made available to the
Borrowers a loan facility of up to USD 60,000,000 (the "Loan"), as evidenced by
the secured promissory note of the Borrowers dated December 30, 1998 (the
"Note"); and
WHEREAS, CIT wishes to assign a portion of its Commitment to TransAmerica
Equipment Financial Service Corporation, a Delaware corporation (the "New
Lender", and together with the Original Lenders, the "Lenders"), and the New
Lender wishes to assume such Commitment.
NOW THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the Loan Agreement as follows:
1. The Definitions of the Loan Agreement are hereby amended as
follows:
(a) Each reference in the Loan Agreement to "Lenders" is hereby
amended to include the New Lender.
(b) The definition of "Loan Documents" is hereby amended to
read as follows:
"LOAN DOCUMENTS" means this Agreement, the Mortgages, the
Security Agreement, the Guaranty, the Note, and the Amendment
Documents, as each may be amended, supplemented, restated or
endorsed from time to time.
2. Section 1.3(a) of the Loan Agreement is hereby amended to read as
follows:
<PAGE>
"(a) The Borrowers shall jointly and severally repay the principal amount
of the first Advance in eighty-four (84) consecutive monthly
installments of USD 462,963.00, the amount of the second Advance in
eighty-four (84) consecutive monthly installments of USD 46,296.00
and the amount of the third Advance in eighty-four (84) consecutive
monthly installments of USD 46,296.00, with each such installment to
be paid by the Borrowers to the Agent on a date commencing on the
day which is thirty (30) days after the date of such Advance, and on
the same day of each month thereafter and ending on the Maturity
Date (each such date a "Payment Date"); provided, however, that the
eighty-fourth (84th) installment for each Advance shall be in an
amount sufficient to repay all amounts of principal for such Advance
and, provided further, that the final payment on the Maturity Date
shall be in an amount sufficient to discharge the accrued and unpaid
interest and principal in respect of the Note."
3. Schedule 1 to the Loan Agreement is hereby replaced with Schedule
1 attached to this Amendment No. 1.
4. CONDITIONS PRECEDENT.
4.1 DOCUMENTS REQUIRED AS CONDITIONS PRECEDENT TO AMENDMENT NO. 1. The
effectiveness of the modifications to the Loan Agreement contemplated by this
Amendment No. 1 is subject to the condition precedent that the Agent shall have
received at or prior to the Amendment Date all of the following, each dated on
or before the Amendment Date and each in form and substance satisfactory to the
Agent and its counsel:
(a) Each of the following documents (the "Amendment Documents")
shall have been duly authorized and executed with original counterparts
thereof delivered to the Agent:
(i) This Amendment No. 1;
(ii) Amendment No. 1 to the United States First Preferred
Fleet Mortgage;
(iii) Amendment No. 1 to Vanuatu First Preferred Fleet
Mortgage;
(iv) Ratification of Guaranty executed by the Guarantor;
and
(v) Assignment and Assumption Agreement executed by the
New Lender.
EXHIBIT 10.17
2
<PAGE>
(b) The representations and warranties contained in Section 3.1 of
the Loan Agreement shall be true on the Amendment Date with the same
effect as though such representations and warranties had been made on and
as of such date, and no Event of Default specified in Article IV of the
Loan Agreement and no event which, with the lapse of time or the giving of
notice and the lapse of time specified in Article IV of the Loan
Agreement, would become such an Event of Default, shall have occurred and
be continuing.
4.2 WAIVER OF CONDITIONS PRECEDENT. All of the conditions precedent
contained in this Section 4 are for the sole benefit of the Agent and the
Lenders and the Agent may waive any of them in its absolute discretion, and on
such conditions as it deems proper.
5. REPRESENTATIONS OF THE BORROWERS AND GUARANTOR. The Borrowers
and the Guarantor represent and warrant that:
(a) Each of the Borrowers and the Guarantor is a corporation, duly
organized and validly existing in good standing under the laws of the
State of Delaware, and has the requisite power and authority (i) to carry
on its business as presently conducted; and (ii) to enter into and perform
its obligations under the Amendment Documents.
(b) The execution, delivery and performance by each of the Borrowers
and the Guarantor of the Amendment Documents and any other instrument or
agreement provided for by this Amendment No. 1 to which it is a party,
have been duly authorized by all necessary corporate action, do not
require stockholder approval other than such as has been duly obtained or
given, do not or will not contravene any of the terms of its Certificate
of Incorporation or Bylaws, and will not violate any provision of law or
of any order of any court or governmental agency or constitute (with or
without notice or lapse of time or both) a default under, or result
(except as contemplated by this Amendment No. 1) in the creation of any
security interests, lien, charge or encumbrance upon any of its properties
or assets pursuant to, any agreement, indenture or other instrument to
which it is a party or by which it may be bound other than is in favor of
the Agent; the Amendment Documents have been duly executed and delivered
by the Borrowers and the Guarantor and constitute the respective legal,
valid and binding agreements, enforceable in accordance with the
respective terms thereof as to which each of the Borrowers and the
Guarantor is a party. The enforceability of this Amendment No. 1, however,
is subject to all applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws affecting the rights or creditors and to
general equity principles.
(c) Except as set forth in the Loan Agreement, there are no suits or
proceedings pending or to its knowledge threatened against or affecting
any Borrower or Guarantor which if adversely determined would have a
material adverse effect upon its business, financial condition or
operations.
EXHIBIT 10.17
3
<PAGE>
(d) Other than such as have been obtained, no license, consent or
approval of any Governmental Agency or other regulatory authority is
required for the execution, delivery or performance of this Amendment No.
1 or any other Amendment Document or any instrument contemplated herein or
therein. The Borrowers are the holder of all certificates and
authorizations of governmental authorities required by law to enable it to
engage in the business transacted by them.
. 6. EXPENSES. The Borrowers and the Guarantor agree to promptly, whether or
not the modifications to the Loan Agreement contemplated by this Amendment No. 1
become effective, (x) reimburse the Agent for all fees and disbursements of
external counsel to the Agent and all reasonable out of pocket fees and
disbursements of the Agent incurred in connection with the preparation,
execution and delivery of this Amendment No. 1 and all other documents referred
to herein, and all amendments or waivers to or termination of this Amendment No.
1 or any agreement referred to herein; and (y) reimburse the Agent for all fees
and disbursements of internal and external counsel to the Agent and all
reasonable out of pocket fees, disbursements and travel-related expenses of the
Agent incurred in connection with the protection of the rights of the Agent
under this Amendment No. 1 and all other documents referred to herein, whether
by judicial proceedings or otherwise. The obligations of the Borrowers and the
Guarantor under this Section 6 shall survive payment of the Loan.
7. Wherever and in each such place the term "Loan Agreement" is used
throughout the Loan Agreement, such term shall be read to mean the Loan
Agreement as amended by this Amendment No. 1.
8. Except as specifically amended by this Amendment No. 1, all of
the terms and provisions of the Loan Agreement shall remain in full force and
effect.
9. All capitalized terms used herein but not defined herein shall have the
meanings given to them in the Loan Agreement.
10. THIS AMENDMENT NO. 1 TO LOAN AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK.
EXHIBIT 10.17
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 to Loan Agreement on the date first written above.
BORROWERS:
HORIZON OFFSHORE CONTRACTORS, INC.
By:___
Name:__
Title:_
HORIZON VESSELS, INC.
By:___
Name:__
Title:_
GUARANTOR:
HORIZON OFFSHORE, INC.
By:___
Name:__
Title:_
LENDERS:
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By:___
Name:__
Title:_
EXHIBIT 10.17
5
<PAGE>
SAFECO CREDIT COMPANY, INC.
By:___
Name:__
Title:_
U.S. BANCORP LEASING & FINANCIAL
By:___
Name:__
Title:_
HELLER FINANCIAL LEASING, INC.
By:___
Name:__
Title:_
TRANSAMERICA EQUIPMENT FINANCIAL
SERVICE CORPORATION
By:___
Name:__
Title:_
AGENT:
THE CIT GROUP/EQUIPMENT FINANCING,
INC.
By:___
Name:__
Title:_
EXHIBIT 10.17
6
<PAGE>
EXHIBIT 10.17
7
<PAGE>
SCHEDULE 1 TO
LOAN AGREEMENT
LENDER PORTION OF COMMITMENT
1. The CIT Group/Equipment
Financing, Inc. USD 15,000,000
2. Heller Financial
Leasing, Inc. USD 15,000,000
3. TransAmerica Equipment
Financial Service Corp. USD 15,000,000
4. U. S. Bancorp Leasing
& Financial USD 10,000,000
5. Safeco Credit Company,
Inc. USD 5,000,000
EXHIBIT 10.17
8
EXHIBIT 10.18
AMENDMENT NO. 2
TO
LOAN AGREEMENT
AMENDMENT NO. 2 dated as of May __, 1999 ("Amendment No. 2") to the
Loan Agreement dated as of December 30, 1998 as amended by Amendment No. 1
dated as of January 30, 1999 (as so amended) (the "Loan Agreement"), among
HORIZON VESSELS, INC., a Delaware corporation, HORIZON OFFSHORE CONTRACTORS,
INC., a Delaware corporation (together, the "Borrowers"), HORIZON OFFSHORE,
INC., a Delaware corporation (the "Guarantor"), THE CIT GROUP/EQUIPMENT
FINANCING, INC., a New York corporation ("CIT"), HELLER FINANCIAL LEASING,
INC., a Delaware corporation, U.S. BANCORP LEASING & FINANCIAL, an Oregon
corporation, SAFECO CREDIT COMPANY, INC., a Washington corporation and
TRANSAMERICA EQUIPMENT FINANCIAL SERVICES CORPORATION (collectively, the
"Original Lenders") and CIT as Agent for the Lenders (the "Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Loan Agreement, the Lenders made available to the
Borrowers a loan facility of up to USD 60,000,000 (the "Loan"), as evidenced by
the secured promissory note of the Borrowers dated December 30, 1998 (the
"Note"); and
WHEREAS, Phoenixcor, Inc., a Delaware corporation (the "New Lender,"
and together with the Original Lenders, the "Lenders") wishes to become a
Lender; and
WHEREAS, the Borrowers, the Guarantor and the Lenders wish to increase the
Commitment and to amend certain other provisions of the Loan Agreement.
NOW THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the Loan Agreement as follows:
1. The Definitions of the Loan Agreement are hereby amended as follows:
(a) Each reference in the Loan Agreement to "Lenders" is hereby amended
to include the New Lender.
(b) The definition of "Commitment" is hereby amended to read as
follows: "Commitment means USD 73,800,000.00."
(c) The definition of "Loan Documents" is hereby amended to read as
follows:
<PAGE>
"Loan Documents" means this Agreement, the Mortgages, the Security
Agreement, the Guaranty, the Note, the Amendment Documents and the
Second Amendment Documents, as each may be amended, supplemented,
restated or endorsed from time to time.
(d) The definition of "Note" is hereby amended to read as follows:
"Note" means the Amended and Restated Secured Promissory Note of the
Borrowers in favor of the Agent, substantially in the form of
Exhibit A attached to Amendment No. 2 and made a part thereof.
2. Sections 1.1(c)(d) and (e) of the Loan Agreement are hereby amended to
read as follows:
"(c) The Loan shall be made in four (4) Advances. Subject to the
limitation contained in Section 1.1(a) above, the Advances shall be
in the following amounts:
(i) First Advance - USD 50,000,000
(ii) Second Advance - USD 5,000,000
(iii) Third Advance - USD 13,800,000
(iv) Fourth Advance - USD 5,000,000
(d) Intentionally omitted.
(e) If the Fourth Advance is not made by June 30, 1999, the obligations
of the Lenders to make such amount available to the Borrowers shall
terminate."
3. Section 1.3(a) of the Loan Agreement is hereby amended to read as
follows:
"(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,
the amount of the third Advance in eighty-four (84) consecutive
monthly installments of USD 127,778.00, and the amount of the fourth
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
EXHIBIT 10.18
2
<PAGE>
day which is thirty (30) days after the date of such Advance, and on
the same day of each month thereafter and ending on the Maturity
Date (each such date a "Payment Date"); provided, however, that the
eighty-fourth (84th) installment for each Advance shall be in an
amount sufficient to repay all amounts of principal for such Advance
and, provided further, that the final payment on the Maturity Date
shall be in an amount sufficient to discharge the accrued and unpaid
interest and principal in respect of the Note."
4. The reference in the first line of Section 2.2(c) of the Loan Agreement to
"third Advance" is hereby changed to "fourth Advance."
5. Schedule 1 to the Loan Agreement is hereby replaced with Schedule 1
attached to this Amendment No. 2.
6. Schedule 2 to the Loan Agreement is hereby replaced with Schedule 2 to
this Amendment No. 2.
7. CONDITIONS PRECEDENT.
7.1 DOCUMENTS REQUIRED AS CONDITIONS PRECEDENT TO AMENDMENT NO. 2. The
effectiveness of the modifications to the Loan Agreement contemplated by
this Amendment No. 2 is subject to the condition precedent that the Agent
shall have received at or prior to the date of such effectiveness (the
"Amendment Date") all of the following, each dated on or before the
Amendment Date and each in form and substance satisfactory to the Agent
and its counsel:
(a) Each of the following documents (the "Second Amendment Documents")
shall have been duly authorized and executed with original
counterparts thereof delivered to the Agent:
(i) This Amendment No. 2;
(ii) Amendment No. 2 to the United States First Preferred Fleet
Mortgage;
(iii) Amendment No. 2 to Vanuatu First Preferred Fleet Mortgage;
(iv) the Amended and Restated Note;
(v) Ratification of Guaranty executed by the Guarantor; and
EXHIBIT 10.18
3
<PAGE>
(vi) Amendment No. 1 to Deed of Covenants.
(b) The representations and warranties contained in Section 3.1 of
the Loan Agreement shall be true on the Amendment Date with the
same effect as though such representations and warranties had
been made on and as of such date, and no Event of Default
specified in Article IV of the Loan Agreement and no event which,
with the lapse of time or the giving of notice and the lapse of
time specified in Article IV of the Loan Agreement, would become
such an Event of Default, shall have occurred and be continuing.
7.2 WAIVER OF CONDITIONS PRECEDENT. All of the conditions precedent
contained in this Section 7 are for the sole benefit of the Agent and the
Lenders and the Agent may waive any of them in its absolute discretion,
and on such conditions as it deems proper.
8. REPRESENTATIONS OF THE BORROWERS AND GUARANTOR. The Borrowers and the
Guarantor represent and warrant that:
(a) Each of the Borrowers and the Guarantor is a corporation, duly
organized and validly existing in good standing under the laws of
the State of Delaware, and has the requisite power and authority (i)
to carry on its business as presently conducted; and (ii) to enter
into and perform its obligations under the Second Amendment
Documents.
(b) The execution, delivery and performance by each of the Borrowers
and the Guarantor of the Second Amendment Documents and any other
instrument or agreement provided for by this Amendment No. 2 to
which it is a party, have been duly authorized by all necessary
corporate action, do not require stockholder approval other than
such as has been duly obtained or given, do not or will not
contravene any of the terms of its Certificate of Incorporation
or Bylaws, and will not violate any provision of law or of any
order of any court or governmental agency or constitute (with or
without notice or lapse of time or both) a default under, or
result (except as contemplated by this Amendment No. 2) in the
creation of any security interests, lien, charge or encumbrance
upon any of its properties or assets pursuant to, any agreement,
indenture or other instrument to which it is a party or by which
it may be bound other than is in favor of the Agent; the Second
Amendment Documents have been duly
EXHIBIT 10.18
4
<PAGE>
executed and delivered by the Borrowers and the Guarantor and
constitute the respective legal, valid and binding agreements,
enforceable in accordance with the respective terms thereof as to
which each of the Borrowers and the Guarantor is a party. The
enforceability of this Amendment No. 2 or any other Second Amendment
Document, however, is subject to all applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws affecting the
rights or creditors and to general equity principles.
(c) Except as set forth in the Loan Agreement, there are no suits or
proceedings pending or to its knowledge threatened against or
affecting any Borrower or Guarantor which if adversely determined
would have a material adverse effect upon its business, financial
condition or operations.
(d) Other than such as have been obtained, no license, consent or
approval of any Governmental Agency or other regulatory authority
is required for the execution, delivery or performance of this
Amendment No. 2 or any other Second Amendment Document or any
instrument contemplated herein or therein. The Borrowers are the
holder of all certificates and authorizations of governmental
authorities required by law to enable it to engage in the
business transacted by them.
9. EXPENSES. The Borrowers and the Guarantor agree to promptly, whether
or not the modifications to the Loan Agreement contemplated by this
Amendment No. 2 become effective, (x) reimburse the Agent for all fees
and disbursements of external counsel to the Agent and all reasonable
out of pocket fees and disbursements of the Agent incurred in
connection with the preparation, execution and delivery of this
Amendment No. 2 and all other documents referred to herein, and all
amendments or waivers to or termination of this Amendment No. 2 or any
agreement referred to herein; and (y) reimburse the Agent for all fees
and disbursements of internal and external counsel to the Agent and all
reasonable out of pocket fees, disbursements and travel-related
expenses of the Agent incurred in connection with the protection of the
rights of the Agent under this Amendment No. 2 and all other documents
referred to herein, whether by judicial proceedings or otherwise. The
obligations of the Borrowers and the Guarantor under this Section 9
shall survive payment of the Loan.
10. Wherever and in each such place the term "Loan Agreement" is used
throughout the Loan Agreement, such term shall be read
EXHIBIT 10.18
5
<PAGE>
to mean the Loan Agreement as amended by this Amendment No. 2.
11. Except as specifically amended by this Amendment No. 2, all of the
terms and provisions of the Loan Agreement shall remain in full force
and effect.
12. All capitalized terms used herein but not defined herein shall have the
meanings given to them in the Loan Agreement.
13. THIS AMENDMENT NO. 2 TO LOAN AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 2 to Loan Agreement on the date first written above.
BORROWERS:
HORIZON OFFSHORE CONTRACTORS, INC.
By:___
Name:____
Title:___
HORIZON VESSELS, INC.
By:___
Name:____
Title:___
GUARANTOR:
HORIZON OFFSHORE, INC.
By:___
Name:____
Title:___
EXHIBIT 10.18
6
<PAGE>
LENDERS:
THE CIT GROUP/EQUIPMENT FINANCING,
INC.
By:___
Name:____
Title:___
SAFECO CREDIT COMPANY, INC.
By:___
Name:____
Title:___
U.S. BANCORP LEASING & FINANCIAL
By:___
Name:____
Title:___
HELLER FINANCIAL LEASING, INC.
By:___
Name:____
Title:___
TRANSAMERICA EQUIPMENT FINANCIAL
SERVICES CORPORATION
By:___
Name:____
Title:___
PHOENIXCOR, INC.
EXHIBIT 10.18
7
<PAGE>
By:________________________________
Name:_________________________
Title:________________________
AGENT:
THE CIT GROUP/EQUIPMENT FINANCING,
INC.
By:___
Name:____
Title:___
EXHIBIT 10.18
<PAGE>
SCHEDULE 1 TO
LOAN AGREEMENT
LENDER PORTION OF COMMITMENT
1. The CIT Group/Equipment
Financing, Inc. USD 20,000,000
2. Heller Financial
Leasing, Inc. USD 15,000,000
3. TransAmerica Equipment
Financial Service Corp. USD 18,800,000
4. U. S. Bancorp Leasing
& Financial USD 10,000,000
5. Safeco Credit Company,
Inc. USD 5,000,000
6. Phoenixcor, Inc. USD 5,000,000
EXHIBIT 10.18
<PAGE>
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. PACIFIC HORIZON (Derrick) U.S. 537871
5. LONE STAR HORIZON Vanuatu 1157
6. CANYON HORIZON Vanuatu 1093
7. PHOENIX HORIZON Vanuatu 1037
8. PEARL HORIZON Vanuatu 1156
9. PACIFIC HORIZON (Barge) Vanuatu 1100
10. BRAZOS HORIZON Vanuatu 1194
11. DSND STEPHANITURM Bahamas 725330
EXHIBIT 10.18
EXHIBIT 10.19
AMENDMENT NO. 3
TO
LOAN AGREEMENT
AMENDMENT NO. 3 ("Amendment No. 3") dated as of November __, 1999 (the
"Amendment Date") to the Loan Agreement dated as of December 30, 1998, as
amended (the "Loan Agreement"), among HORIZON VESSELS, INC., a Delaware
corporation, HORIZON OFFSHORE CONTRACTORS, INC., a Delaware corporation
(together, the "Borrowers"), HORIZON OFFSHORE, INC., a Delaware corporation
(the "Guarantor"), THE CIT GROUP/EQUIPMENT FINANCING, INC., a New York
corporation ("CIT"), HELLER FINANCIAL LEASING, INC., a Delaware corporation,
U.S. BANCORP LEASING & FINANCIAL, an Oregon corporation, SAFECO CREDIT
COMPANY, INC., a Washington corporation, TRANSAMERICA EQUIPMENT FINANCIAL
SERVICE CORPORATION, a Delaware corporation, and PHOENIXCOR, INC., a Delaware
corporation (collectively, the "Original Lenders") and CIT as Agent for the
Original Lenders (the "Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Loan Agreement, the Original Lenders made
available to the Borrowers a loan facility of up to USD 73,800,000, as evidenced
by the amended and restated secured promissory note of the Borrowers dated
January 30, 1999; and
WHEREAS, the Borrowers wish to acquire the United States flag vessel
ATLANTIC HORIZON (the "New Vessel"); and
WHEREAS, the Borrowers have requested that the loan facility be increased
up to a maximum amount of USD 83,300,000; and
WHEREAS, Deutsche Financial Services Corporation, a Nevada corporation
(the "New Lender", and together with the Original Lenders, the "Lenders") wishes
to subscribe to that portion of the Commitment equal to USD 10,000,000; and
WHEREAS, the parties wish to amend the Loan Agreement to reflect the
foregoing and to amend certain provisions thereof.
NOW THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the Loan Agreement as follows:
1. The Definitions of the Loan Agreement are hereby amended as
follows:
<PAGE>
(a) Each reference in the Loan Agreement to "Lenders" is hereby
amended to include the New Lender.
(b) Each reference in the Loan Agreement to "Amendment
Documents" is hereby amended to include the Amendment Documents listed
in Section 4.1 of this Amendment No. 3.
(c) Each reference in the Loan Agreement to the Note shall refer to
the Amended and Restated Promissory Note dated the date hereof by the
Borrowers in favor of the Agent.
(d) The definition of "Commitment" is hereby amended to read as
follows:
"Commitment" means USD 83,300,000.
2. Section 1.3(a) of the Loan Agreement is hereby amended to read as
follows:
"(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, the amount of the second Advance in
eighty-four (84) consecutive monthly installments of USD 46,296, the
amount of the third Advance in eighty-four (84) consecutive monthly
installments of USD 127,778, and the amount of the fourth Advance in
seventy-three (73) consecutive monthly installments of USD 154,490,
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 for each Advance shall
be in an amount sufficient to repay all amounts of principal for
such Advance and, provided further, that the final payment on the
Maturity Date shall be in an amount sufficient to discharge the
accrued and unpaid interest and principal in respect of the Note."
3. The final clause of Article IV of the Loan Agreement (immediately
following Article IV(f)) is hereby amended to read as follows:
"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
EXHIBIT 10.19
2
<PAGE>
in Article IV(e)(ii) or (iii) hereof) and (3) exercise any remedies
to which it may be entitled by any Loan Document or by applicable
law."
4. Schedule 1 to the Loan Agreement is hereby replaced with Schedule
1 attached to this Amendment No. 3.
4. CONDITIONS PRECEDENT.
4.1 DOCUMENTS REQUIRED AS CONDITIONS PRECEDENT TO AMENDMENT NO. 3. The
effectiveness of the modifications to the Loan Agreement contemplated by this
Amendment No. 3 is subject to the condition precedent that the Agent shall have
received at or prior to the Amendment Date all of the following, each dated on
or before the Amendment Date and each in form and substance satisfactory to the
Agent and its counsel:
(a) Each of the following documents (the "Amendment Documents")
shall have been duly authorized and executed with original counterparts
thereof delivered to the Agent:
(i) This Amendment No. 3;
(ii) Amended and Restated Promissory Note;
(iii) Amendment No. 3 to the United States First Preferred
Fleet Mortgage;
(iv) Amendment No. 3 to Vanuatu First Preferred Fleet
Mortgage;
(v) Ratification of Guaranty executed by the Guarantor;
(vi) Amendment and Ratification of Security Agreement;
(vii) Ratification of Intercreditor Agreement;
(viii) Amendment No. 2 to Deed of Covenants; and
(ix) such further documents as the Lenders may reasonably
request.
(b) The representations and warranties contained in Section 3.1 of
the Loan Agreement shall be true on the Amendment Date with the same
effect as though such representations and warranties had been made on and
as of such date, and no Event of Default specified in Article IV of the
Loan Agreement and no event which, with the lapse of time or the giving of
notice and the lapse of time specified in Article IV of the Loan
EXHIBIT 10.19
3
<PAGE>
Agreement, would become such an Event of Default, shall have occurred and
be continuing.
4.2 WAIVER OF CONDITIONS PRECEDENT. All of the conditions precedent
contained in this Section 4 are for the sole benefit of the Agent and the
Lenders and the Agent may waive any of them in its absolute discretion, and on
such conditions as it deems proper.
5. REPRESENTATIONS OF THE BORROWERS AND GUARANTOR. The Borrowers
and the Guarantor represent and warrant that:
(a) Each of the Borrowers and the Guarantor is a corporation, duly
organized and validly existing in good standing under the laws of the
State of Delaware, and has the requisite power and authority (i) to carry
on its business as presently conducted; and (ii) to enter into and perform
its obligations under the Amendment Documents.
(b) The execution, delivery and performance by each of the Borrowers
and the Guarantor of the Amendment Documents and any other instrument or
agreement provided for by this Amendment No. 3 to which it is a party,
have been duly authorized by all necessary corporate action, do not
require stockholder approval other than such as has been duly obtained or
given, do not or will not contravene any of the terms of its Certificate
of Incorporation or Bylaws, and will not violate any provision of law or
of any order of any court or governmental agency or constitute (with or
without notice or lapse of time or both) a default under, or result
(except as contemplated by this Amendment No. 3) in the creation of any
security interests, lien, charge or encumbrance upon any of its properties
or assets pursuant to, any agreement, indenture or other instrument to
which it is a party or by which it may be bound other than is in favor of
the Agent; the Amendment Documents have been duly executed and delivered
by the Borrowers and the Guarantor and constitute the respective legal,
valid and binding agreements, enforceable in accordance with the
respective terms thereof as to which each of the Borrowers and the
Guarantor is a party. The enforceability of this Amendment No. 3, however,
is subject to all applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws affecting the rights or creditors and to
general equity principles.
(c) Except as set forth in the Loan Agreement, there are no suits or
proceedings pending or to its knowledge threatened against or affecting
any Borrower or Guarantor which if adversely determined would have a
material adverse effect upon its business, financial condition or
operations.
(d) Other than such as have been obtained, no license, consent or
approval of any Governmental Agency or other regulatory authority is
required for the execution, delivery or performance of this Amendment No.
3 or any other Amendment Document or any instrument contemplated herein or
therein. The Borrowers are the holder of all
EXHIBIT 10.19
4
<PAGE>
certificates and authorizations of governmental authorities required by
law to enable it to engage in the business transacted by them.
6. EXPENSES. The Borrowers and the Guarantor agree to promptly, whether or
not the modifications to the Loan Agreement contemplated by this Amendment No. 3
become effective, (x) reimburse the Agent for all fees and disbursements of
external counsel to the Agent and all reasonable out of pocket fees and
disbursements of the Agent incurred in connection with the preparation,
execution and delivery of this Amendment No. 3 and all other documents referred
to herein, and all amendments or waivers to or termination of this Amendment No.
3 or any agreement referred to herein; and (y) reimburse the Agent for all fees
and disbursements of internal and external counsel to the Agent and all
reasonable out of pocket fees, disbursements and travel-related expenses of the
Agent incurred in connection with the protection of the rights of the Agent
under this Amendment No. 3 and all other documents referred to herein, whether
by judicial proceedings or otherwise. The obligations of the Borrowers and the
Guarantor under this Section 6 shall survive payment of the Loan.
7. Wherever and in each such place the term "Loan Agreement" is used
throughout the Loan Agreement, such term shall be read to mean the Loan
Agreement as amended by this Amendment No. 3.
8. Except as specifically amended by this Amendment No. 3, all of
the terms and provisions of the Loan Agreement shall remain in full force and
effect.
9. All capitalized terms used herein but not defined herein shall have the
meanings given to them in the Loan Agreement.
10. THIS AMENDMENT NO. 3 TO LOAN AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 3 to Loan Agreement on the date first written above.
BORROWERS:
HORIZON OFFSHORE CONTRACTORS, INC.
By:____
EXHIBIT 10.19
5
<PAGE>
Name:__
Title:_
HORIZON VESSELS, INC.
By:____
Name:__
Title:_
GUARANTOR:
HORIZON OFFSHORE, INC.
By:____
Name:__
Title:_
LENDERS:
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By:____
Name:__
Title:_
SAFECO CREDIT COMPANY, INC.
By:____
Name:__
Title:_
U.S. BANCORP LEASING & FINANCIAL
EXHIBIT 10.19
6
<PAGE>
By:____
Name:__
Title:_
HELLER FINANCIAL LEASING, INC.
By:____
Name:__
Title:_
TRANSAMERICA EQUIPMENT FINANCIAL SERVICE
CORPORATION
By:____
Name:__
Title:_
PHOENIXCOR, INC.
By:____
Name:__
Title:_
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:____
Name:__
Title:_
AGENT:
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By:____
EXHIBIT 10.19
7
<PAGE>
Name:__
Title:_
EXHIBIT 10.19
8
<PAGE>
SCHEDULE 1 TO
LOAN AGREEMENT
LENDER PORTION OF COMMITMENT
1. The CIT Group/Equipment
Financing, Inc. USD 23,300,000
2. Heller Financial
Leasing, Inc. USD 15,000,000
3. TransAmerica Equipment
Financial Service Corp. USD 15,000,000
4. U. S. Bancorp Leasing
& Financial USD 10,000,000
5. Safeco Credit Company,
Inc. USD 5,000,000
6. Phoenixcor, Inc. USD 5,000,000
7. Deutsche Financial Services
Corporation USD 10,000,000
EXHIBIT 10.19
9
EXHIBIT 10.20
AMENDMENT NO. 4
TO
LOAN AGREEMENT
AMENDMENT NO. 4 ("Amendment No. 4") dated as of January 31, 2000 (the
"Amendment Date") to the Loan Agreement dated as of December 30, 1998, as
amended (the "Loan Agreement"), among HORIZON VESSELS, INC., a Delaware
corporation, HORIZON OFFSHORE CONTRACTORS, INC., a Delaware corporation
(together, the "Borrowers"), HORIZON OFFSHORE, INC., a Delaware corporation
(the "Guarantor"), THE CIT GROUP/EQUIPMENT FINANCING, INC., a New York
corporation ("CIT"), HELLER FINANCIAL LEASING, INC., a Delaware corporation,
U.S. BANCORP LEASING & FINANCIAL, an Oregon corporation, SAFECO CREDIT
COMPANY, INC. ("Safeco"), a Washington corporation, TRANSAMERICA EQUIPMENT
FINANCIAL SERVICE CORPORATION, a Delaware corporation, PHOENIXCOR, INC., a
Delaware corporation, and DEUTSCHE FINANCIAL SERVICES CORPORATION, a Nevada
corporation (collectively, the "Original Lenders") and CIT as Agent for the
Original Lenders (the "Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Loan Agreement, the Original Lenders made
available to the Borrowers a loan facility of up to USD 83,300,000, as evidenced
by the amended and restated secured promissory note of the Borrowers dated
November 30, 1999; and
WHEREAS, the Borrowers have requested that certain covenants of the Loan
Agreement be amended as set forth herein; and
WHEREAS, Safeco wishes to purchase a portion of CIT's portion of the
Commitment equal to USD 3,300,000; and
WHEREAS, the Guarantor wishes to incorporate a new subsidiary, Horizon
Subsea Services, Inc., a Delaware corporation (the "New Subsidiary"); and
WHEREAS, the parties wish to amend the Loan Agreement to reflect the
foregoing and to amend certain provisions thereof.
NOW THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the Loan Agreement as follows:
1. The Definitions of the Loan Agreement are hereby amended as
follows:
(a) Each reference in the Loan Agreement to "Amendment
Documents" is hereby amended to include the Amendment Documents listed
in Section 4.1 of this Amendment No. 4.
2. Section 3.3(o) of the Loan Agreement is hereby amended to read as
follows:
<PAGE>
(o) FIXED CHARGE COVERAGE RATIO. Permit their Fixed Charge Coverage
Ratio to be less than:
(i) 1.10 to 1 at December 31, 1999;
(ii) 1.05 to 1 at March 31, 2000; and
(iii) .90 to 1 at June 30, 2000;
(iv) 1.05 to 1 at September 30, 2000; and
(v) 1.50 to 1 at December 31, 2000 and at any time thereafter; for
the twelve (12) month period ending immediately prior to the
relevant date of determination.
3. Schedule 1 to the Loan Agreement is hereby replaced with Schedule
1 attached to this Amendment No. 4.
4. CONDITIONS PRECEDENT.
4.1 DOCUMENTS REQUIRED AS CONDITIONS PRECEDENT TO AMENDMENT NO. 4. The
effectiveness of the modifications to the Loan Agreement contemplated by this
Amendment No. 4 is subject to the condition precedent that the Agent shall have
received at or prior to the Amendment Date all of the following, each dated on
or before the Amendment Date and each in form and substance satisfactory to the
Agent and its counsel:
(a) Each of the following documents (the "Amendment Documents")
shall have been duly authorized and executed with original counterparts
thereof delivered to the Agent:
(i) This Amendment No. 4;
(ii) Amendment No. 4 to the United States First Preferred
Fleet Mortgage;
(iii) Amendment No. 4 to Vanuatu First Preferred Fleet
Mortgage; and
(iv) such further documents as the Lenders may reasonably
request.
(b) In consideration of Amendment No. 4 to this Agreement and in
consideration of the Lenders' agreement to (i) amend the financial
covenants in accordance with Amendment No. 4 to this Agreement and (ii)
not require an increase in
EXHIBIT 10.20
2
<PAGE>
the Fixed Rate or the margin applicable to the LIBOR Rate as consideration
for such amendment to the financial covenants amended hereby, Borrowers
shall pay to the Agent, for the ratable benefit of the Lenders, an
amendment fee ("Amendment Fee") of $188,718 and the Lenders hereby consent
to such payment. Payment by the Borrowers of the Amendment Fee and the
Lenders' acceptance thereof shall in no event prejudice the ability of the
Lenders to increase the Fixed Rate or the margin applicable to the LIBOR
Rate pursuant to (X) the terms of the Loan Agreement, (Y) any future
amendment of any Loan Document or (Z) any waivers or consents requested of
the Lenders or the Agent under any Loan Document by the Borrowers.
(c) The representations and warranties contained in Section 3.1 of
the Loan Agreement shall be true on the Amendment Date with the same
effect as though such representations and warranties had been made on and
as of such date, and no Event of Default specified in Article IV of the
Loan Agreement and no event which, with the lapse of time or the giving of
notice and the lapse of time specified in Article IV of the Loan
Agreement, would become such an Event of Default, shall have occurred and
be continuing.
4.2 WAIVER OF CONDITIONS PRECEDENT. All of the conditions precedent
contained in this Section 4 are for the sole benefit of the Agent and the
Lenders and the Agent may waive any of them in its absolute discretion, and on
such conditions as it deems proper.
5. REPRESENTATIONS OF THE BORROWERS AND GUARANTOR. The Borrowers
and the Guarantor represent and warrant that:
(a) Each of the Borrowers and the Guarantor is a corporation, duly
organized and validly existing in good standing under the laws of the
State of Delaware, and has the requisite power and authority (i) to carry
on its business as presently conducted; and (ii) to enter into and perform
its obligations under the Amendment Documents.
(b) The execution, delivery and performance by each of the Borrowers
and the Guarantor of the Amendment Documents and any other instrument or
agreement provided for by this Amendment No. 4 to which it is a party,
have been duly authorized by all necessary corporate action, do not
require stockholder approval other than such as has been duly obtained or
given, do not or will not contravene any of the terms of its Certificate
of Incorporation or Bylaws, and will not violate any provision of law or
of any order of any court or governmental agency or constitute (with or
without notice or lapse of time or both) a default under, or result
(except as contemplated by this Amendment No. 4) in the creation of any
security interests, lien, charge or encumbrance upon any of its properties
or assets pursuant to, any agreement, indenture or other instrument to
which it is a party or by which it may be bound other than is in favor of
the Agent; the Amendment Documents have been duly executed and delivered
by the Borrowers and the Guarantor and constitute the respective legal,
valid and binding agreements, enforceable in accordance with the
respective terms thereof as to which each of the Borrowers and the
EXHIBIT 10.20
3
<PAGE>
Guarantor is a party. The enforceability of this Amendment No. 4, however,
is subject to all applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws affecting the rights or creditors and to
general equity principles.
(c) Except as set forth in the Loan Agreement, there are no suits or
proceedings pending or to its knowledge threatened against or affecting
any Borrower or Guarantor which if adversely determined would have a
material adverse effect upon its business, financial condition or
operations.
(d) Other than such as have been obtained, no license, consent or
approval of any Governmental Agency or other regulatory authority is
required for the execution, delivery or performance of this Amendment No.
4 or any other Amendment Document or any instrument contemplated herein or
therein. The Borrowers are the holder of all certificates and
authorizations of governmental authorities required by law to enable it to
engage in the business transacted by them.
6. EXPENSES. The Borrowers and the Guarantor agree to promptly, whether or
not the modifications to the Loan Agreement contemplated by this Amendment No. 4
become effective, (x) reimburse the Agent for all fees and disbursements of
external counsel to the Agent and all reasonable out of pocket fees and
disbursements of the Agent incurred in connection with the preparation,
execution and delivery of this Amendment No. 4 and all other documents referred
to herein, and all amendments or waivers to or termination of this Amendment No.
4 or any agreement referred to herein; and (y) reimburse the Agent for all fees
and disbursements of internal and external counsel to the Agent and all
reasonable out of pocket fees, disbursements and travel-related expenses of the
Agent incurred in connection with the protection of the rights of the Agent
under this Amendment No. 4 and all other documents referred to herein, whether
by judicial proceedings or otherwise. The obligations of the Borrowers and the
Guarantor under this Section 6 shall survive payment of the Loan.
7. Wherever and in each such place the term "Loan Agreement" is used
throughout the Loan Agreement, such term shall be read to mean the Loan
Agreement as amended by this Amendment No. 4.
8. Except as specifically amended by this Amendment No. 4, all of
the terms and provisions of the Loan Agreement shall remain in full force and
effect.
9. All capitalized terms used herein but not defined herein shall have the
meanings given to them in the Loan Agreement.
10. THIS AMENDMENT NO. 4 TO LOAN AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK.
EXHIBIT 10.20
4
<PAGE>
EXHIBIT 10.20
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 4 to Loan Agreement on the date first written above.
BORROWERS:
HORIZON OFFSHORE CONTRACTORS, INC.
By:____
Name:__
Title:_
HORIZON VESSELS, INC.
By:____
Name:__
Title:_
GUARANTOR:
HORIZON OFFSHORE, INC.
By:____
Name:__
Title:_
LENDERS:
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By:____
Name:__
Title:_
SAFECO CREDIT COMPANY, INC.
By:____
Name:__
Title:_
EXHIBIT 10.20
6
<PAGE>
EXHIBIT 10.20
7
<PAGE>
U.S. BANCORP LEASING & FINANCIAL
By:____
Name:__
Title:_
HELLER FINANCIAL LEASING, INC.
By:____
Name:__
Title:_
TRANSAMERICA EQUIPMENT FINANCIAL SERVICE
CORPORATION
By:____
Name:__
Title:_
PHOENIXCOR, INC.
By:____
Name:__
Title:_
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:____
Name:__
Title:_
AGENT:
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By:____
EXHIBIT 10.20
8
<PAGE>
Name:__
Title:_
SCHEDULE 1 TO
AMENDMENT NO. 4 TO LOAN AGREEMENT
LENDER PORTION OF COMMITMENT
1. The CIT Group/Equipment
Financing, Inc. USD 20,000,000
2. Heller Financial
Leasing, Inc. USD 15,000,000
3. TransAmerica Equipment
Financial Service Corp. USD 15,000,000
4. U. S. Bancorp Leasing
& Financial USD 10,000,000
5. Safeco Credit Company,
Inc. USD 8,300,000
6. Phoenixcor, Inc. USD 5,000,000
7. Deutsche Financial Services
Corporation USD 10,000,000
EXHIBIT 10.20
9
EXHIBIT 11.1
HORIZON OFFSHORE, INC. AND SUBSIDIARIES
STATEMENTS REGARDING COMPUTATION OF NET INCOME
PER SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net income........................... $ 1,679 $ 12,460 $ 2,276
============== ============== ==============
Weighted average shares
outstanding.......................... 18,820,646 18,114,393 11,256,373
Dilutive effect of shares issued
pursuant to warrant exercised
during 1997........................ -- -- 2,520,834
-------------- -------------- --------------
Shares used in computing net income
per share.......................... 18,820,646 18,114,393 13,777,207
============== ============== ==============
Net income per share................. $ .09 $ 0.69 $ 0.17
============== ============== ==============
</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.
<TABLE>
<CAPTION>
COMPANY STATE OF INCORPORATION
- ------------------------------------- -----------------------
<S> <C>
Horizon Vessels, Inc................. Delaware
Horizon Offshore Contractors, Inc.... Delaware
Horizon Subsea Services, Inc......... Delaware
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 24, 2000, included in this Form 10-K into the
Company's previously filed Registration Statements on Form S-3 filed on July
21, 1999, (File No. 333-83401) and Forms S-8 filed on March 23, 1999, (File
No. 333-74867) and July 31, 1998, (File No. 333-60263).
ARTHUR ANDERSEN LLP
Houston, Texas
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF HORIZON OFFSHORE, INC. AND
SUBSIDIARIES AS OF DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,117
<SECURITIES> 0
<RECEIVABLES> 16,675
<ALLOWANCES> 0
<INVENTORY> 1,700
<CURRENT-ASSETS> 35,659
<PP&E> 175,798
<DEPRECIATION> (12,445)
<TOTAL-ASSETS> 202,401
<CURRENT-LIABILITIES> 31,681
<BONDS> 0
0
0
<COMMON> 9,119
<OTHER-SE> 87,981
<TOTAL-LIABILITY-AND-EQUITY> 202,401
<SALES> 89,015
<TOTAL-REVENUES> 89,015
<CGS> 72,181
<TOTAL-COSTS> 72,181
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,759
<INCOME-PRETAX> 2,680
<INCOME-TAX> 1,001
<INCOME-CONTINUING> 1,679
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,679
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
