Exhibit 10.8
EXECUTION COPY
Opening Transaction

     
To:
  Horizon Lines, Inc.
 
  4064 Colony Road, Suite 200
 
  Charlotte, North Carolina 28211
 
   
From:
  Wachovia Capital Markets, LLC, solely as agent of Wachovia Bank, National
Association
 
   
Re:
  Issuer Warrant Transaction
 
   
Date:
  August 1, 2007

Dear Sir(s):
     The purpose of this communication (this “Confirmation”) is to set forth the
terms and conditions of the above-referenced transaction entered into on the
Trade Date specified below (the “Transaction”) between Wachovia Capital Markets,
LLC (“Agent”), solely as agent of Wachovia Bank, National Association (“Dealer”)
and Horizon Lines, Inc. (“Issuer”). This communication constitutes a
“Confirmation” as referred to in the ISDA Master Agreement specified below.
     1. This Confirmation is subject to, and incorporates, the definitions and
provisions of the 2000 ISDA Definitions (including the Annex thereto) (the “2000
Definitions”) and the definitions and provisions of the 2002 ISDA Equity
Derivatives Definitions (the “Equity Definitions”, and together with the 2000
Definitions, the “Definitions”), in each case as published by the International
Swaps and Derivatives Association, Inc. (“ISDA”). In the event of any
inconsistency between the 2000 Definitions and the Equity Definitions, the
Equity Definitions will govern. For purposes of the Equity Definitions, each
reference herein to a Warrant shall be deemed to be a reference to a Call Option
or an Option, as context requires.
     Each party is hereby advised, and each such party acknowledges, that the
other party has engaged in, or refrained from engaging in, substantial financial
transactions and has taken other material actions in reliance upon the parties’
entry into the Transaction to which this Confirmation relates on the terms and
conditions set forth below.
     This Confirmation evidences a complete and binding agreement between Dealer
and Issuer as to the terms of the Transaction to which this Confirmation
relates. This Confirmation shall be subject to an agreement (the “Agreement”) in
the form of the 1992 ISDA Master Agreement (Multicurrency—Cross Border) as if
Dealer and Issuer had executed an agreement in such form on the date hereof (but
without any Schedule except for (i) the election of Loss and Second Method, New
York law (without regard to the conflicts of law principles) as the governing
law and US Dollars (“USD”) as the Termination Currency, (ii) the election that
the “Cross Default” provisions of Section 5(a)(vi) shall apply to Issuer with a
“Threshold Amount” of USD 15 million) and (iii) the amendment of
Section 5(a)(vi) to delete the words “or becoming capable at such time of being
declared,”.
     All provisions contained in, or incorporated by reference to, the Agreement
will govern this Confirmation except as expressly modified herein. In the event
of any inconsistency between this Confirmation and either the Definitions or the
Agreement, this Confirmation shall govern.

 

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     2. The Transaction is a Warrant Transaction, which shall be considered a
Share Option Transaction for purposes of the Equity Definitions. The terms of
the particular Transaction to which this Confirmation relates are as follows:
General Terms:

     
Trade Date:
  August 1, 2007
 
   
Effective Date:
  August 8, 2007, or such other date as agreed between the parties, subject to
Section 8(k) below
 
   
Components:
  The Transaction will be divided into individual Components, each with the
terms set forth in this Confirmation, and, in particular, with the Number of
Warrants and Expiration Date set forth in this Confirmation. The payments and
deliveries to be made upon settlement of the Transaction will be determined
separately for each Component as if each Component were a separate Transaction
under the Agreement.
 
   
Warrant Style:
  European
 
   
Warrant Type:
  Call
 
   
Seller:
  Issuer
 
   
Buyer:
  Dealer
 
   
Shares:
  The Common Stock of Issuer, par value USD0.01 per share (Ticker Symbol:
“HRZ”).
 
   
Number of Warrants:
  For each Component, as provided in Annex A to this Confirmation.
 
   
Warrant Entitlement:
  One Share per Warrant
 
   
Strike Price:
  USD51.4080
 
   
Premium:
  USD3,261,330 (Premium per Warrant USD1.345404862)
 
   
Premium Payment Date:
  The Effective Date
 
   
Exchange:
  New York Stock Exchange
 
   
Related Exchange:
  All Exchanges
 
   
Procedures for Exercise:
   
 
   
In respect of any Component:
   
 
   
Expiration Time:
  Valuation Time
 
   
Expiration Date:
  As provided in Annex A to this Confirmation (or, if such date is not a
Scheduled Trading Day, the next following Scheduled Trading Day that is not
already an Expiration Date for another Component); provided that if that date is
a Disrupted Day, the Expiration Date for such Component shall be the first
succeeding Scheduled Trading Day that is not a Disrupted Day and is not or is
not deemed to be an Expiration Date in respect of any other Component of the
Transaction hereunder; and provided further that

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  if the Expiration Date has not occurred pursuant to the preceding proviso as
of the Final Disruption Date, the Final Disruption Date shall be the Expiration
Date (irrespective of whether such date is an Expiration Date in respect of any
other Component for the Transaction ). “Final Disruption Date” means April 19,
2013. Notwithstanding the foregoing and anything to the contrary in the Equity
Definitions, if a Market Disruption Event occurs on any Expiration Date, the
Calculation Agent may determine that such Expiration Date is a Disrupted Day
only in part, in which case the Calculation Agent shall make adjustments to the
number of Warrants for the relevant Component for which such day shall be the
Expiration Date and shall designate the Scheduled Trading Day determined in the
manner described in the immediately preceding sentence as the Expiration Date
for the remaining Warrants for such Component. Section 6.6 of the Equity
Definitions shall not apply to any Valuation Date occurring on an Expiration
Date.
 
   
Market Disruption Event:
  Section 6.3(a) of the Equity Definitions is hereby amended by deleting the
words “during the one hour period that ends at the relevant Valuation Time,
Latest Exercise Time, Knock-in Valuation Time or Knock-out Valuation Time, as
the case may be,” in clause (ii) thereof.
 
   
Automatic Exercise:
  Applicable; and means that the Number of Warrants for the corresponding
Expiration Date will be deemed to be automatically exercised at the Expiration
Time on such Expiration Date unless Dealer notifies Seller (by telephone or in
writing) prior to the Expiration Time on such Expiration Date that it does not
wish Automatic Exercise to occur, in which case Automatic Exercise will not
apply to such Expiration Date.
 
   
Issuer’s Telephone Number and Telex and/or Facsimile Number and Contact Details
for purpose of Giving Notice:
  Attn: M. Mark Urbania, Senior Vice President and Chief Financial Officer
 
  Telephone: (704) 973-7049
 
  Facsimile: (704) 973-7010
 
   
 
  With a copy to:
 
   
 
  Attn: Robert S. Zuckerman, Vice President and General Counsel
 
  Telephone: (704) 973-7012
 
  Facsimile: (704) 973-7010
 
   
Settlement Terms:
   
 
   
In respect of any Component:
   

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Settlement Currency:
  USD  
Settlement Method Election:
  Applicable1; provided that (a) Section 7.1 of the Equity Definitions is hereby
amended by deleting the word “Physical” in the sixth line thereof and replacing
it with the words “Net Share,” (b) the Electing Party shall make the same
settlement method election with respect to all Components, and (c) the Electing
Party may make a settlement method election only if the Electing Party
represents and warrants to Dealer in writing on the date it notifies Dealer of
its election that, as of such date, the representations, warranties and
agreements set forth in Section 7(a)(i) are true and correct, and it is electing
the settlement method in good faith and not as part of a plan or scheme to evade
compliance with the federal securities laws.
 
   
Electing Party:
  Issuer
 
   
Settlement Method Election Date:
  The date falling 30 calendar days prior to the Expiration Date for the first
Component.
 
   
Default Settlement Method:
  Net Share Settlement
 
   
Strike Price Differential:
  The greater of (i) the excess of the VWAP Price over the Strike Price, and
(ii) zero.
 
   
Net Share Settlement:
  On each Settlement Date, Issuer shall deliver to Dealer a number of Shares
equal to the Number of Shares to be Delivered for such Settlement Date to the
account specified by Dealer and cash in lieu of any fractional Shares valued at
the Relevant Price on the Valuation Date corresponding to such Settlement Date.
If, in the reasonable judgment of Dealer, for any reason, the Shares deliverable
upon Net Share Settlement would not be immediately freely transferable by Dealer
under Rule 144(k) under the Securities Act of 1933, as amended (the “Securities
Act”), then Dealer may elect to either (x) accept delivery of such Shares
notwithstanding any restriction on transfer or (y) have the provisions set forth
in Section 8(b) below apply.
 
   
 
  The Number of Shares to be Delivered shall be delivered by Issuer to Dealer no
later than 12:00 noon (local time in New York City) on the relevant Settlement
Date.
 
   
Number of Shares to be Delivered:
  In respect of any Exercise Date, subject to the last sentence of Section 9.5
of the Equity Definitions, the product of (i) the number of Warrants exercised
or deemed exercised on such Exercise Date, (ii) the Warrant Entitlement and
(iii) (A) the excess of the VWAP Price on the Valuation Date occurring on

 

1   Subject to continuing credit review by Dealers.

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  such Exercise Date over the Strike Price (or, if no such excess, zero) divided
by (B) such VWAP Price.
 
   
VWAP Price:
  For any Valuation Date, the New York Volume Weighted Average Price per share
of Shares for the regular trading session (including any extensions thereof) of
the Exchange on such Valuation Date (without regard to pre-open or after hours
trading outside of such regular trading session), as published by Bloomberg at
4:15 P.M. New York City time (or 15 minutes following the end of any extension
of the regular trading session) on such Valuation Date, on Bloomberg page “HRZ.N
<Equity> AQR” (or any successor thereto) (or if such published volume weighted
average price is unavailable or is manifestly incorrect, the market value of one
Share on such Valuation Date, as reasonably determined by the Calculation Agent
using a volume weighted method).
 
   
Other Applicable Provisions:
  The provisions of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11 (except that the
Representation and Agreement contained in Section 9.11 of the Equity Definitions
shall be modified by excluding any representations therein relating to
restrictions, obligations, limitations or requirements under applicable
securities laws as a result of the fact that Seller is the Issuer of the Shares
and under Maritime Laws (as defined below) applicable to Issuer) and 9.12 of the
Equity Definitions will be applicable, as if “Physical Settlement” applied to
the Transaction.
 
   
Adjustments:
   
 
   
In respect of any Component:
     
Method of Adjustment:
  Calculation Agent Adjustment; provided that in respect of an Extraordinary
Dividend, “Calculation Agent Adjustment” shall be as described in the provision
below. For the avoidance of doubt, Calculation Agent Adjustment (including,
without limitation, in respect of Extraordinary Dividends) shall continue to
apply until the obligations of the parties (including any obligations of Issuer
pursuant to Section 8(e) below) under the Transaction have been satisfied in
full.
 
   
Extraordinary Dividend:
  Any cash dividend or distribution on the Shares with an ex-dividend date
occurring on or after the Trade Date and on or prior to the Expiration Date (or,
if any Deficit Shares are owed pursuant to Section 8(e) below, such later date
on which Issuer’s obligations under this Transaction have been satisfied in
full) the amount of which is greater than the Ordinary Dividend Amount for such
dividend or distribution.
 
   
Ordinary Dividend Amount:
  For any cash dividend or distribution on the Shares, USD0.11 if the
ex-dividend date for such dividend or distribution (i) is the first ex-dividend
date for a cash

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  dividend or distribution on the Shares that occurs within any given calendar
quarter and (ii) occurs on or prior to the originally scheduled Expiration Date,
or earlier date of cancellation or early redemption; otherwise, zero.
 
   
Extraordinary Dividend Adjustment:
  If at any time during the period from and including the Trade Date, to but
excluding the last Expiration Date (or, if any Deficit Shares are owed pursuant
to Section 8(e) below, such later date on which Issuer's obligations under this
Transaction have been satisfied in full), an ex-dividend date for an
Extraordinary Dividend occurs, then the Calculation Agent will make adjustments
to the Strike Price, the Number of Warrants, the Warrant Entitlement and/or any
other variable relevant to the exercise, settlement, payment or other terms of
the Transaction to preserve the fair value of the Transaction to Dealer after
taking into account such Extraordinary Dividend.
 
   
Extraordinary Events:
   
 
   
Consequences of Merger Events:
   
 
   
(a) Share-for-Share:
  Modified Calculation Agent Adjustment
 
   
(b) Share-for-Other:
  Cancellation and Payment (Calculation Agent Determination)
 
   
(c) Share-for-Combined:
  Cancellation and Payment (Calculation Agent Determination); provided that the
Calculation Agent may elect Component Adjustment for all or part of the
Transaction.
 
   
Tender Offer:
  Applicable
 
   
Consequences of Tender Offers:
   
 
   
(a) Share-for-Share:
  Modified Calculation Agent Adjustment
 
   
(b) Share-for-Other:
  Modified Calculation Agent Adjustment
 
   
(c) Share-for-Combined:
  Modified Calculation Agent Adjustment
 
   
Modified Calculation Agent Adjustment:
  If, in respect of any Merger Event or Tender Offer to which Modified
Calculation Agent Adjustment applies, the adjustments to be made in accordance
with Section 12.2(e)(i) or Section 12.3(d)(i), as the case may be, of the Equity
Definitions would result in Issuer being different from the issuer of the
Shares, then with respect to such Merger Event or Tender Offer, as a condition
precedent to the adjustments contemplated in Section 12.2(e)(i) or Section
12.3(d)(i), as the case may be, of the Equity Definitions, Issuer and the issuer
of the Shares shall, prior to the Merger Date or Tender Offer, as the case may
be, have entered into such documentation containing representations, warranties
and agreements relating to securities law and other issues as requested by
Dealer that Dealer has determined, in

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  its reasonable discretion, to be reasonably necessary or appropriate to allow
Dealer to continue as a party to the Transaction, as adjusted under Section
12.2(e)(i) or Section 12.3(d)(i), as the case may be, of the Equity Definitions,
and to preserve its hedging or hedge unwind activities in connection with the
Transaction in a manner compliant with applicable legal, regulatory or
self-regulatory requirements, or with related policies and procedures applicable
to Dealer, an d if such conditions are not met or if the Calculation Agent
determines that no adjustment that it could make under Section 12.2(e)(i) or
Section 12.3(d)(i), as the case may be, of the Equity Definitions will produce a
commercially reasonable result, then the consequences set forth in Section
12.2(e)(ii) or Section 12.3(d)(ii), as the case may be, of the Equity
Definitions shall apply.
 
   
Reference Markets:
  For the avoidance of doubt, and without limiting the generality of the
foregoing provisions, any adjustment effected by the Calculation Agent pursuant
to Section 12.2(e) and/or Section 12.3(d) of the Equity Definitions may be
determined by reference to the adjustment(s) made in respect of Merger Events or
Tender Offers, as the case may be, in the convertible bond market.
 
   
Nationalization, Insolvency or Delisting:
  Cancellation and Payment (Calculation Agent Determination); provided that in
addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it
shall also constitute a Delisting if the Exchange is located in the United
States and the Shares are not immediately re-listed, re-traded or re-quoted on
any of the New York Stock Exchange, the American Stock Exchange, The NASDAQ
Global Select Market or The NASDAQ Global Market (or their respective
successors); if the Shares are immediately re-listed, re-traded or re-quoted on
any such exchange or quotation system, such exchange or quotation system shall
thereafter be deemed to be the Exchange.

     Additional Disruption Events:

         
 
  (a) Change in Law:   Applicable
 
       
 
  (b) Failure to Deliver:   Applicable
 
       
 
  (c) Insolvency Filing:   Applicable
 
       
 
  (d) Hedging Disruption:   Applicable
 
       
 
  (e) Increased Cost of Hedging:   Applicable
 
       
 
  (f) Loss of Stock Borrow:   Applicable
 
       
 
       Maximum Stock Loan Rate:   1% per annum
 
       
 
  (g) Increased Cost of Stock Borrow:   Applicable
 
       
 
       Initial Stock Loan Rate:   0.25% per annum

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  Hedging Party:   Dealer
 
       
 
  Determining Party:   Dealer
 
       
 
  Non-Reliance:   Applicable
 
       
 
  Agreements and Acknowledgments    
 
  Regarding Hedging Activities:   Applicable
 
       
 
  Additional Acknowledgments:   Applicable

     3. Calculation Agent:                                
                      Dealer.
     4. Account Details:
          Dealer Payment Instructions:
ABA: 053-000-219
Wachovia Bank, National Association
Charlotte, NC
A/C: 04659360009768
Attn: Equity Derivatives
Account for delivery of Shares to Dealer: To be provided by Dealer.
          Issuer Payment Instructions: To be provided by Issuer.
     5. Offices:
          The Office of Dealer for the Transaction is:
Wachovia Bank, National Association
375 Park Avenue
New York, NY 10152
          The Office of Issuer for the Transaction is:
Horizon Lines, Inc.
4064 Colony Road, Suite 200
Charlotte, North Carolina 28211
     6. Notices: For purposes of this Confirmation:
     (a) Address for notices or communications to Issuer:

         
 
  To:   Horizon Lines, Inc.
 
      4064 Colony Road, Suite 200
 
      Charlotte, North Carolina 28211
 
  Attn:   M. Mark Urbania, Senior Vice President and Chief Financial Officer
 
  Telephone:   (704) 973-7049
 
  Facsimile:   (704) 973-7010
 
            With a copy to:
 
       
 
  Attn:   Robert S. Zuckerman, Vice President and General Counsel
 
  Telephone:   (704) 973-7012
 
  Facsimile:   (704) 973-7010

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     (b) Address for notices or communications to Dealer:

         
 
  To:   Wachovia Bank, National Association
 
      375 Park Avenue
 
      New York, NY 10152
 
       
 
  Attn:   Head of Documentation
 
  Telephone:   212-214-6100
 
  Facsimile:   212-214-5913

     7. Representations, Warranties and Agreements:
     (a) In addition to the representations and warranties in the Agreement and
those contained elsewhere herein, Issuer represents and warrants to and for the
benefit of, and agrees with, Dealer as follows:
     (i) On the Trade Date, (A) none of Issuer and its officers and directors is
aware of any material nonpublic information regarding Issuer or the Shares and
(B) all reports and other documents filed by Issuer with the Securities and
Exchange Commission pursuant to the Exchange Act when considered as a whole
(with the more recent such reports and documents deemed to amend inconsistent
statements contained in any earlier such reports and documents), do not contain
any untrue statement of a material fact or any omission of a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances in which they were made, not misleading.
     (ii) Without limiting the generality of Section 13.1 of the Equity
Definitions, Issuer acknowledges that Dealer is not making any representations
or warranties with respect to the treatment of the Transaction under FASB
Statements 128, 133 (as amended), 149 or 150, EITF Issue No. 00-19, 01-6 or 03-6
(or any successor issue statements) or under any accounting standards including
FASB’s Liabilities & Equity Project.
     (iii) Prior to the Trade Date, Issuer shall deliver to Dealer a resolution
of Issuer’s board of directors authorizing the Transaction and such other
certificate or certificates as Dealer shall reasonably request.
     (iv) Issuer is not entering into this Confirmation to create actual or
apparent trading activity in the Shares (or any security convertible into or
exchangeable for Shares) or to raise or depress or otherwise manipulate the
price of the Shares (or any security convertible into or exchangeable for
Shares) or otherwise in violation of the Exchange Act.
     (v) Issuer is not, and after giving effect to the transactions contemplated
hereby will not be, required to register as an “investment company” as such term
is defined in the Investment Company Act of 1940, as amended.
     (vi) On the Trade Date and the Premium Payment Date (A) the assets of
Issuer at their fair valuation exceed the liabilities of Issuer, including
contingent liabilities, (B) the capital of Issuer is adequate to conduct the
business of Issuer and (C) Issuer has the ability to pay its debts and
obligations as such debts mature and does not intend to, or does not believe
that it will, incur debt beyond its ability to pay as such debts mature.
     (vii) Issuer shall not take any action to decrease the number of Available
Shares below the Capped Number (each as defined below).
     (viii) The representations and warranties of Issuer set forth in Section 3
of the Agreement and Section 1 of the Purchase Agreement dated as of the Trade
Date between Issuer and Goldman, Sachs & Co., as representative of the Initial
Purchasers party thereto (the “Purchase Agreement”) are true and correct as of
the Trade Date and the Effective Date and are hereby deemed to be repeated to
Dealer as if set forth herein.

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     (ix) Issuer understands no obligations of Dealer to it hereunder will be
entitled to the benefit of deposit insurance and that such obligations will not
be guaranteed by any affiliate of Dealer or any governmental agency.
     (x) (A) During the period starting on the first Expiration Date and ending
on the last Expiration Date (the “Settlement Period”), the Shares or securities
that are convertible into, or exchangeable or exercisable for Shares, are not,
and shall not be, subject to a “restricted period,” as such term is defined in
Regulation M under the Exchange Act (“Regulation M”) and (B) Issuer shall not
engage in any “distribution,” as such term is defined in Regulation M, other
than a distribution meeting the requirements of the exceptions set forth in
sections 101(b)(10) and 102(b)(7) of Regulation M, until the second Exchange
Business Day immediately following the Settlement Period.
     (xi) During the Settlement Period, neither Issuer nor any “affiliate” or
“affiliated purchaser” (each as defined in Rule 10b-18 of the Exchange Act
(“Rule 10b-18”)) shall directly or indirectly (including, without limitation, by
means of any cash-settled or other derivative instrument) purchase, offer to
purchase, place any bid or limit order that would effect a purchase of, or
commence any tender offer relating to, any Shares (or an equivalent interest,
including a unit of beneficial interest in a trust or limited partnership or a
depository share) or any security convertible into or exchangeable or
exercisable for Shares, except through Dealer.
     (b) Each of Dealer and Issuer agrees and represents that it is an “eligible
contract participant” as defined in Section 1a(12) of the U.S. Commodity
Exchange Act, as amended.
     (c) Each of Dealer and Issuer acknowledges that the offer and sale of the
Transaction to it is intended to be exempt from registration under the
Securities Act of 1933, as amended (the “Securities Act”), by virtue of
Section 4(2) thereof. Accordingly, Dealer represents and warrants to Issuer that
(i) it has the financial ability to bear the economic risk of its investment in
the Transaction and is able to bear a total loss of its investment and its
investments in and liabilities in respect of the Transaction, which it
understands are not readily marketable, are not disproportionate to its net
worth, and it is able to bear any loss in connection with the Transaction,
including the loss of its entire investment in the Transaction, (ii) it is an
“accredited investor” as that term is defined in Regulation D as promulgated
under the Securities Act, (iii) it is entering into the Transaction for its own
account without a view to the distribution or resale thereof, (iv) the
assignment, transfer or other disposition of the Transaction has not been and
will not be registered under the Securities Act and is restricted under this
Confirmation, the Securities Act and state securities laws, (v) its financial
condition is such that it has no need for liquidity with respect to its
investment in the Transaction and no need to dispose of any portion thereof to
satisfy any existing or contemplated undertaking or indebtedness and is capable
of assessing the merits of and understanding (on its own behalf or through
independent professional advice), and understands and accepts, the terms,
conditions and risks of the Transaction.
     (d) Each of Dealer and Issuer agrees and acknowledges that Dealer is a
“financial institution,” “swap participant” and “financial participant” within
the meaning of Sections 101(22), 101(53C) and 101(22A) of Title 11 of the United
States Code (the “Bankruptcy Code”). The parties hereto further agree and
acknowledge (A) that this Confirmation is (i) a “securities contract,” as such
term is defined in Section 741(7) of the Bankruptcy Code, with respect to which
each payment and delivery hereunder is a “settlement payment,” as such term is
defined in Section 741(8) of the Bankruptcy Code, and (ii) a “swap agreement,”
as such term is defined in Section 101(53B) of the Bankruptcy Code, with respect
to which each payment and delivery hereunder is a “transfer,” as such term is
defined in Section 101(54) of the Bankruptcy Code, and (B) that Dealer is
entitled to the protections afforded by, among other sections,
Sections 362(b)(6), 362(b)(17), 546(e), 546(g), 555 and 560 of the Bankruptcy
Code.
     (e) Issuer shall deliver to Dealer an opinion of counsel, dated as of the
Trade Date and reasonably acceptable to Dealer in form and substance, with
respect to the matters set forth in Section 3(a) of the Agreement.
     8. Other Provisions:
     (a) Alternative Calculations and Payment on Early Termination and on
Certain Extraordinary Events. If Issuer shall owe Dealer any amount pursuant to
Sections 12.2, 12.3, 12.6, 12.7 or

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12.9 of the Equity Definitions (except in the event of a Tender Offer, a Merger
Event, Insolvency or Nationalization in each case, in which the consideration or
proceeds to be paid to holders of Shares consists solely of cash) or pursuant to
Section 6(d)(ii) of the Agreement (except in the event of an Event of Default in
which Issuer is the Defaulting Party or a Termination Event in which Issuer is
the Affected Party that resulted from an event or events within Issuer’s
control, other than an Additional Termination Event of the type described in
Section 8(e)) (a “Payment Obligation”), Issuer shall have the right, in its sole
discretion, to satisfy any such Payment Obligation by the Share Termination
Alternative (as defined below) by giving irrevocable telephonic notice to
Dealer, confirmed in writing within one Scheduled Trading Day, between the hours
of 9:00 A.M. and 4:00 P.M. New York City time on the Merger Date, Tender Offer
Date, Announcement Date or Early Termination Date, as applicable (“Notice of
Share Termination”). Upon such Notice of Share Termination, the following
provisions shall apply on the Scheduled Trading Day immediately following the
Merger Date, the Tender Offer Date, Announcement Date or Early Termination Date,
as applicable:

     
Share Termination Alternative:
  Applicable and means that Issuer shall deliver to Dealer the Share Termination
Delivery Property on the date on which the Payment Obligation would otherwise be
due pursuant to Section 12.7 or 12.9 of the Equity Definitions or Section
6(d)(ii) of the Agreement, as applicable (the “Share Termination Payment Date”),
in satisfaction of the Payment Obligation.
 
   
Share Termination Delivery
Property:
 
A number of Share Termination Delivery Units, as calculated by the Calculation
Agent, equal to the Payment Obligation divided by the Share Termination Unit
Price. The Calculation Agent shall adjust the Share Termination Delivery
Property by replacing any fractional portion of the aggregate amount of a
security therein with an amount of cash equal to the value of such fractional
security based on the values used to calculate the Share Termination Unit Price.
 
   
Share Termination Unit Price:
  The value of property contained in one Share Termination Delivery Unit on the
date such Share Termination Delivery Units are to be delivered as Share
Termination Delivery Property, as determined by the Calculation Agent in its
discretion by commercially reasonable means and notified by the Calculation
Agent to Issuer at the time of notification of the Payment Obligation.
 
   
Share Termination Delivery Unit:
  In the case of a Termination Event, Event of Default or Delisting, one Share
or, in the case of an Insolvency, Nationalization, Merger Event or Tender Offer,
a Share or a unit consisting of the number or amount of each type of property
received by a holder of one Share (without consideration of any requirement to
pay cash or other consideration in lieu of fractional amounts of any securities)
in such Insolvency, Nationalization, Merger Event or Tender Offer. If such
Insolvency, Nationalization, Merger Event or Tender Offer involves a choice of
consideration to be received by holders, such holder shall be deemed to have
elected to receive the maximum possible amount of cash.
 
   
Failure to Deliver:
  Applicable
 
   
Other applicable provisions:
  If Share Termination Alternative is applicable, the provisions of Sections
9.8, 9.9, 9.10, 9.11 (except that the Representation and Agreement contained in
Section 9.11 of the Equity Definitions shall be modified by excluding any
representations therein relating to restrictions, obligations, limitations or
requirements under applicable securities laws as a result of the fact that
Seller is the Issuer of the Shares and under Maritime Laws (as defined below)
applicable to Issuer) and 9.12 of the Equity Definitions will be applicable as
if “Physical Settlement” applied to the Transaction, except that all

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  references to “Shares” shall be read as references to “Share Termination
Delivery Units”. If, in the reasonable judgment of Dealer, for any reason, any
securities comprising the Share Termination Delivery Units deliverable pursuant
to this Section 8(a) would not be immediately freely transferable by Dealer
under Rule 144(k) under the Securities Act, then Dealer may elect to either
(x) accept delivery of such securities notwithstanding any restriction on
transfer or (y) have the provisions set forth in Section 8(b) below apply.

The parties hereby agree that, notwithstanding anything to the contrary herein
or in the Agreement, following the payment of the Premium, in the event that an
Early Termination Date (whether as a result of an Event of Default or a
Termination Event) occurs or is designated with respect to the Transaction or
the Transaction is terminated or cancelled pursuant to Article 12 of the Equity
Definitions and, as a result, Dealer would owe to Issuer an amount calculated
under Section 6(e) of the Agreement or Article 12 of the Equity Definitions,
such amount shall be deemed to be zero.
     (b) Registration/Private Placement Procedures. (i) With respect to the
Transaction, the following provisions shall apply to the extent provided for
above opposite the caption “Net Share Settlement” in Section 2 or in paragraph
(a) of this Section 8. If so applicable, then, at the election of Issuer by
notice to Dealer within one Exchange Business Day after the relevant delivery
obligation arises, but in any event at least one Exchange Business Day prior to
the date on which such delivery obligation is due, either (A) all Shares or
Share Termination Delivery Units, as the case may be, delivered by Issuer to
Dealer shall be, at the time of such delivery, covered by an effective
registration statement of Issuer for immediate resale by Dealer (such
registration statement and the corresponding prospectus (the “Prospectus”)
(including, without limitation, any sections describing the plan of
distribution) in form and content commercially reasonably satisfactory to
Dealer) or (B) Issuer shall deliver additional Shares or Share Termination
Delivery Units, as the case may be, so that the value of such Shares or Share
Termination Delivery Units, as determined in a commercially reasonable manner by
the Calculation Agent to reflect an appropriate liquidity discount, equals the
value of the number of Shares or Share Termination Delivery Units that would
otherwise be deliverable if such Shares or Share Termination Delivery Units were
freely tradeable (without prospectus delivery) upon receipt by Dealer (such
value, the “Freely Tradeable Value”); provided that, if requested by Dealer,
Issuer shall make the election described in this clause (B) with respect to
Shares delivered on all Settlement Dates no later than one Exchange Business Day
prior to the first Expiration Date, and the applicable procedures described
below shall apply to all Shares delivered on the Settlement Dates on an
aggregate basis. (For the avoidance of doubt, as used in this paragraph
(b) only, the term “Issuer” shall mean the issuer of the relevant securities, as
the context shall require.)
     (ii) If Issuer makes the election described in clause (b)(i)(A) above:
     (A) Dealer (or an affiliate of Dealer designated by Dealer) shall be
afforded a reasonable opportunity to conduct a due diligence investigation with
respect to Issuer that is customary in scope for underwritten offerings of
equity securities and that yields results that are commercially reasonably
satisfactory to Dealer or such affiliate, as the case may be; and
     (B) Dealer (or an affiliate of Dealer designated by Dealer) and Issuer
shall enter into an agreement (a “Registration Agreement”) on commercially
reasonable terms in connection with the public resale of such Shares or Share
Termination Delivery Units, as the case may be, by Dealer or such affiliate
substantially similar to underwriting agreements customary for underwritten
offerings of equity securities, in form and substance commercially reasonably
satisfactory to Dealer or such affiliate and Issuer, which Registration
Agreement shall include, without limitation, provisions substantially similar to
those contained in such underwriting agreements relating to the indemnification
of, and contribution in connection with the liability of, Dealer and its
affiliates and Issuer, shall provide for the payment by Issuer of all expenses
in connection with such resale, including all registration costs and all fees
and expenses of counsel for Dealer, and shall provide for the delivery of
accountants’ “comfort letters” to Dealer or such affiliate with respect to the
financial statements and certain financial information contained in or
incorporated by reference into the Prospectus.

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     (iii) If Issuer makes the election described in clause (b)(i)(B) above:
     (A) Dealer (or an affiliate of Dealer designated by Dealer) and any
potential institutional purchaser of any such Shares or Share Termination
Delivery Units, as the case may be, from Dealer or such affiliate identified by
Dealer shall be afforded a commercially reasonable opportunity to conduct a due
diligence investigation in compliance with applicable law with respect to Issuer
customary in scope for private placements of equity securities (including,
without limitation, the right to have made available to them for inspection all
financial and other records, pertinent corporate documents and other information
reasonably requested by them), subject to execution by such recipients of
customary confidentiality agreements reasonably acceptable to Issuer;
     (B) Dealer (or an affiliate of Dealer designated by Dealer) and Issuer
shall enter into an agreement (a “Private Placement Agreement”) on commercially
reasonable terms in connection with the private placement of such Shares or
Share Termination Delivery Units, as the case may be, by Issuer to Dealer or
such affiliate and the private resale of such shares by Dealer or such
affiliate, substantially similar to private placement purchase agreements
customary for private placements of equity securities, in form and substance
commercially reasonably satisfactory to Dealer and Issuer, which Private
Placement Agreement shall include, without limitation, provisions substantially
similar to those contained in such private placement purchase agreements
relating to the indemnification of, and contribution in connection with the
liability of, Dealer and its affiliates and Issuer, shall provide for the
payment by Issuer of all expenses in connection with such resale, including all
fees and expenses of counsel for Dealer, shall contain representations,
warranties and agreements of Issuer reasonably necessary or advisable to
establish and maintain the availability of an exemption from the registration
requirements of the Securities Act for such resales, and shall use best efforts
to provide for the delivery of accountants’ “comfort letters” to Dealer or such
affiliate with respect to the financial statements and certain financial
information contained in or incorporated by reference into the offering
memorandum prepared for the resale of such Shares; and
     (C) Issuer agrees that any Shares or Share Termination Delivery Units so
delivered to Dealer, (i) may be transferred by and among Dealer and its
affiliates, and Issuer shall effect such transfer without any further action by
Dealer and (ii) after the minimum “holding period” within the meaning of Rule
144(d) under the Securities Act has elapsed with respect to such Shares or any
securities issued by Issuer comprising such Share Termination Delivery Units,
Issuer shall promptly remove, or cause the transfer agent for such Shares or
securities to remove, any legends referring to any such restrictions or
requirements from such Shares or securities upon delivery by Dealer (or such
affiliate of Dealer) to Issuer or such transfer agent of seller’s and broker’s
representation letters customarily delivered by Dealer in connection with
resales of restricted securities pursuant to Rule 144 under the Securities Act,
without any further requirement for the delivery of any certificate, consent,
agreement, opinion of counsel, notice or any other document, any transfer tax
stamps or payment of any other amount or any other action by Dealer (or such
affiliate of Dealer).
     (D) Issuer shall not take, or cause to be taken, any action that would make
unavailable either the exemption pursuant to Section 4(2) of the Securities Act
for the sale by Issuer to Dealer (or any affiliate designated by Dealer) of the
Shares or Share Termination Delivery Units, as the case may be, or the exemption
pursuant to Section 4(1) or Section 4(3) of the Securities Act for resales of
the Shares or Share Termination Delivery Units, as the case may be, by Dealer
(or any such affiliate of Dealer).
     (c) Make-whole Shares. If Issuer makes the election described in clause
(b)(i)(B) of paragraph (b) of this Section 8, then Dealer or its affiliate may
sell (which sale shall be made in a commercially reasonable manner) such Shares
or Share Termination Delivery Units, as the case may be, during a period (the
“Resale Period”) commencing on the Exchange Business Day following delivery of
such Shares or Share Termination Delivery Units, as the case may be, and ending
on the Exchange Business Day on which Dealer completes the sale of all such
Shares or Share Termination Delivery Units, as the case may be, or a sufficient
number of Shares or Share Termination Delivery Units, as the case may

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be, so that the realized net proceeds of such sales exceed the Freely Tradeable
Value. If any of such delivered Shares or Share Termination Delivery Units
remain after such realized net proceeds exceed the Freely Tradeable Value,
Dealer shall return such remaining Shares or Share Termination Delivery Units to
Issuer. If the Freely Tradeable Value exceeds the realized net proceeds from
such resale, Issuer shall transfer to Dealer by the open of the regular trading
session on the Exchange on the Exchange Trading Day immediately following the
last day of the Resale Period the amount of such excess (the “Additional
Amount”) in cash or in a number of additional Shares (“Make-whole Shares”) in an
amount that, based on the Relevant Price on the last day of the Resale Period
(as if such day was the “Valuation Date” for purposes of computing such Relevant
Price), has a dollar value equal to the Additional Amount. The Resale Period
shall continue to enable the sale of the Make-whole Shares in the manner
contemplated by this Section 8(c). This provision shall be applied successively
until the Additional Amount is equal to zero, subject to Section 8(e).
     (d) Ownership Limitations. Notwithstanding anything to the contrary in the
Agreement or this Confirmation, in no event shall Dealer be entitled to receive,
or shall be deemed to receive, any Shares if, immediately upon giving effect to
such receipt of such Shares, (i) the Beneficial Ownership of Dealer Group would
be equal to or greater than 8.5% of the outstanding Shares, (ii) Dealer or any
“affiliate” or “associate” of Dealer, would be an “interested stockholder” of
Issuer, as all such terms are defined in Section 203 of the Delaware General
Corporation Law, (iii) the Maritime Law Ownership Percentage of the Maritime Law
Dealer Group would be greater than 4.9% of the outstanding Shares, unless Dealer
has established to the reasonable satisfaction of Issuer that it (or the person
designated to take delivery) is a citizen of the United States for purposes of
the U.S. coastwise trade under the Maritime Laws, (iv) such Shares would be
“Excess Shares” (“Excess Shares”) as defined in Issuer’s Amended and Restated
Certificate of Incorporation (the “Certificate”), or (v) the receipt of such
Shares would require prior regulatory approval by any competent regulatory
authority, and such prior approval had not been obtained, or would otherwise be
prohibited under applicable state or Federal laws, regulations or regulatory
orders applicable to ownership of Shares (each of clause (i) through (v) above,
an “Ownership Limitation”). If any delivery owed to Dealer hereunder is not
made, in whole or in part, as a result of an Ownership Limitation, Issuer’s
obligation to make such delivery shall not be extinguished and Issuer shall make
such delivery as promptly as practicable after, but in no event later, in the
case of an Ownership Limitation of the type described in clause (i) or
(ii) above, than one Exchange Business Day after, Dealer gives notice to Issuer
that such delivery would not result in any of such Ownership Limitations being
breached. If any delivery owed to Dealer hereunder is not made, in whole or in
part, as a result of an Ownership Limitation of the type described in clause
(iii), (iv) or (v) above, the number of Shares owed by Issuer shall be
increased, on every calendar day (each, a “calculation day”) following the day
on which the Share delivery obligation that was not so satisfied was due (or
would have been due were it not for this Section 8(d)), by an amount equal to
the product of (i) the number of Shares so owed (and not yet delivered) on the
calendar day immediately preceding the calculation day, (ii) 0.02 and
(iii) 1/365. “Beneficial Ownership” means the “beneficial ownership” (within the
meaning of Section 13 of the Exchange Act and the rules promulgated thereunder)
of Shares by Dealer or any affiliate of Dealer subject to aggregation with
Dealer under such Section 13 and rules (collectively, “Dealer Group”). “Maritime
Law Ownership Percentage” means the ownership, as construed under the Maritime
Laws, of Shares by Dealer or any person whose ownership would be aggregated with
that of Dealer or Dealer’s parent entity under the Maritime Laws (collectively,
the “Maritime Law Dealer Group”). “Maritime Laws” means, collectively and
without duplication, Chapters 121 and 505 of Title 46 of the United States Code
and any successor statute thereto, and the regulations promulgated under such
Title or successor statute or, to the extent remaining in force, under any
predecessor statute, in each case as amended or supplemented from time to time,
or any “Maritime Laws” as defined in the Certificate. Issuer represents and
warrants that, assuming the accuracy of any factual information regarding Dealer
that is provided by Dealer to Issuer upon Issuer’s request, any Shares delivered
by Issuer to Dealer pursuant to the Transaction shall not be Excess Shares, and
the issuance and delivery of such Shares shall have been approved by the board
of directors of Issuer. If Dealer designates any person to receive any Shares
pursuant to Section 8(p), clauses (iii) and (iv) of this Section 8(d) shall
apply as if such person were Dealer. If Issuer is unable to deliver any Shares
to Dealer as a result of this Section 8(d), Issuer shall use commercially
reasonable efforts to enable itself to so deliver such Shares as promptly as
practicable; provided that Issuer may at any time following the Settlement Date
for the Component with the latest Settlement Date, upon one Exchange Business
Day’s prior written notice to

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Dealer, elect to deliver cash in lieu of any or all such Shares, in which case
the Shares for which cash delivery has been so elected shall be valued by the
Calculation Agent using a valuation period reasonably designed to allow Dealer
to unwind its hedging position in connection with the Transaction in compliance
with applicable law, including Rule 10b-18. Issuer’s right to elect cash
pursuant to the foregoing sentence shall be subject to Issuer giving
representations, warranties and covenants customary for transactions under
Rule 10b5-1 under the Exchange Act and satisfactory to Dealer. Issuer shall
promptly notify Dealer if at any time either (i) any purported transfer of any
shares of any class or series of capital stock of Issuer is void and ineffective
pursuant to paragraph 4(a) of Article V of the Certificate or (ii) any shares of
any class or series of capital stock of Issuer are “Excess Shares” pursuant to
paragraph 5 of Article V of the Certificate. Issuer shall provide Dealer with a
copy of any filings submitted to any regulatory authority relating to Issuer’s
or Issuer’s stockholders’ citizenship under the Maritime Laws so long as Dealer
(or any assignee of Dealer) has agreed to keep any such filings and the
information contained therein confidential on terms reasonably acceptable to
Issuer and Dealer. Dealer acknowledges that Dealer will not have any rights as a
holder of Issuer’s common stock with respect to Shares, prior to the delivery
thereof hereunder, that Issuer is unable to deliver as a result of this
Section 8(d). Issuer acknowledges that, as a result of this Section 8(d), it
will not treat Dealer (or any affiliate or designee of Dealer) as the owner, for
any purpose (including, without limitation, for purposes of the Maritime Laws or
Article V of the Certificate), of Shares, prior to the delivery of such Shares
hereunder, that Issuer is unable to deliver as a result of this Section 8(d).
     (e) Limitations on Settlement by Issuer. Notwithstanding anything herein or
in the Agreement to the contrary, in no event shall Issuer be required to
deliver Shares in connection with the Transaction in excess of 1,380,000 Shares
(as such number may be adjusted from time to time in accordance with the
provisions hereof) (the “Capped Number”). Issuer represents and warrants to
Dealer (which representation and warranty shall be deemed to be repeated on each
day that the Transaction is outstanding) that the Capped Number is equal to or
less than the number of authorized but unissued Shares of the Issuer that are
not reserved for future issuance in connection with transactions in the Shares
(other than the Transaction) on the date of the determination of the Capped
Number (such Shares, the “Available Shares”). Following the Trade Date, Issuer
agrees to use best efforts to obtain approval from its shareholders (including,
without limitation, to seek such approval at its next annual meeting of
shareholders and, if needed, the annual meeting for each following calendar
year) to increase the number of authorized but unissued Shares such that the
number of Available Shares shall be equal to at least two times the aggregate
Number of Shares for all Components. Upon Issuer obtaining such approval for
such an increase, the Capped Number shall automatically increase to two times
the aggregate Number of Shares for all Components. If Issuer does not succeed in
obtaining such approval for such an increase within 24 months following the
Trade Date, then an Additional Termination Event shall occur and be continuing
with respect to which the Transaction (or a portion of the Transaction, at the
reasonable discretion of the Calculation Agent) shall be the sole Affected
Transaction and Issuer shall be the sole Affected Party. For the avoidance of
doubt, such Additional Termination Event shall be continuing, and Dealer shall
have the right to designate an Early Termination Date in respect thereof, from
the date 24 months following the Trade Date until Issuer succeeds in getting
such approval. In the event Issuer shall not have delivered the full number of
Shares otherwise deliverable as a result of this Section 8(e) (the resulting
deficit, the “Deficit Shares”), Issuer shall be obligated to deliver, from time
to time until the obligations set forth in this paragraph have been satisfied in
full, the Deficit Shares when, and to the extent that, (A) Shares are
repurchased, acquired or otherwise received by Issuer or any of its subsidiaries
after the Trade Date (whether or not in exchange for cash, fair value or any
other consideration), (B) authorized and unissued Shares reserved for issuance
in respect of other transactions prior to such date which prior to the relevant
date become no longer so reserved and (C) Issuer additionally authorizes any
unissued Shares (such events as set forth in clauses (A), (B) and (C) above,
collectively, the “Share Issuance Events”). Issuer shall promptly notify Dealer
of the occurrence of any of the Share Issuance Events (including the number of
Shares subject to clause (A), (B) or (C) and the corresponding number of Shares
to be delivered) and, as promptly as reasonably practicable, deliver such Shares
thereafter. Issuer shall not, until Issuer’s obligations to Dealer under the
Transaction have been satisfied in full, use any Shares that become available
for potential delivery to Dealer as a result of any Share Issuance Event for the
settlement or satisfaction of any transaction or obligation other than the
Transaction or reserve any such Shares for future issuance for any purpose other
than to satisfy Issuer’s obligations to Dealer under the Transaction, except

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that Issuer may satisfy its obligations in respect of the Transaction out of any
such Shares on a pro rata basis with its obligations to any other dealers to
whom Issuer has issued substantially identical warrants on the same date as the
issuance of the Warrants issued hereunder.
     (f) Equity Rights. Dealer acknowledges and agrees that this Confirmation is
not intended to convey to it rights with respect to the Transaction that are
senior to the claims of common stockholders in the event of Issuer’s bankruptcy.
For the avoidance of doubt, the parties agree that the preceding sentence shall
not apply at any time other than during Issuer’s bankruptcy to any claim arising
as a result of a breach by Issuer of any of its obligations under this
Confirmation or the Agreement. For the avoidance of doubt, the parties
acknowledge that this Confirmation is not secured by any collateral that would
otherwise secure the obligations of Issuer herein under or pursuant to any other
agreement.
     (g) Amendments to Equity Definitions. The following amendments shall be
made to the Equity Definitions:
     (i) The first sentence of Section 11.2(c) of the Equity Definitions, prior
to clause (A) thereof, is hereby amended to read as follows: ‘(c) If
“Calculation Agent Adjustment” is specified as the Method of Adjustment in the
related Confirmation of a Share Option Transaction, then following the
announcement or occurrence of any Potential Adjustment Event, the Calculation
Agent will determine whether such Potential Adjustment Event has a material
effect on the theoretical value of the relevant Shares or options on the Shares
and, if so, will (i) make appropriate adjustment(s), if any, to any one or more
of:’ and, the portion of such sentence immediately preceding clause (ii) thereof
is hereby amended by deleting the words “diluting or concentrative” and the
words “(provided that no adjustments will be made to account solely for changes
in volatility, expected dividends, stock loan rate or liquidity relative to the
relevant Shares)” and replacing such latter phrase with the words “(and, for the
avoidance of doubt, adjustments may be made to account solely for changes in
volatility, expected dividends, stock loan rate or liquidity relative to the
relevant Shares)”; and
     (ii) Section 11.2(e)(vii) of the Equity Definitions is hereby amended by
deleting the words “diluting or concentrative” and replacing them with
“material”.
     (h) Transfer and Assignment. Dealer may transfer or assign its rights and
obligations hereunder and under the Agreement, in whole or in part, at any time
without the consent of Issuer.
     (i) Disclosure. Effective from the date of commencement of discussions
concerning the Transaction, Issuer and each of its employees, representatives,
or other agents may disclose to any and all persons, without limitation of any
kind, the tax treatment and tax structure of the Transaction and all materials
of any kind (including opinions or other tax analyses) that are provided to
Issuer relating to such tax treatment and tax structure.
     (j) Additional Termination Events. The occurrence of any of the following
shall constitute an Additional Termination Event with respect to which the
Transaction shall be the sole Affected Transaction and Issuer shall be the sole
Affected Party; provided that with respect to any Additional Termination Event,
Dealer may choose to treat part of the Transaction as the sole Affected
Transaction, and, upon the termination of the Affected Transaction, a
Transaction with terms identical to those set forth herein except with a Number
of Warrants equal to the unaffected number of Warrants shall be treated for all
purposes as the Transaction, which shall remain in full force and effect:
     (i) Dealer reasonably determines that it is advisable to terminate a
portion of the Transaction so that Dealer’s related hedging activities will
comply with applicable securities laws, rules or regulations;
     (ii) any Person (as defined below) acquires beneficial ownership
(determined in accordance with Rule 13d-3 under the Exchange Act), directly or
indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of shares of Issuer’s capital stock entitling the Person
to exercise 50% or more of the total voting power of all shares of Issuer’s
capital stock entitled to vote generally in elections of directors, other than
an acquisition by Issuer, any of Issuer’s subsidiaries or any of Issuer’s
employee benefit plans;

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     (iii) Issuer (x) merges or consolidates with or into any other Person,
other than a subsidiary of Issuer, another Person merges with or into Issuer, or
Issuer conveys, sells, transfers or leases all or substantially all of its
assets to another Person or (y) engages in any recapitalization,
reclassification or other transaction in which all or substantially all Shares
are exchanged for or converted into cash, securities or other property, in each
case, other than any merger or consolidation:

  (A)   that does not result in a reclassification, conversion, exchange or
cancellation of the outstanding Shares; or     (B)   which is effected solely to
change Issuer’s jurisdiction of incorporation and results in a reclassification,
conversion or exchange of outstanding Shares solely into shares of common stock
of the surviving entity;

     (iv) Issuer is liquidated or dissolved or holders of Issuer’s common stock
approve any plan or proposal for Issuer’s liquidation or dissolution;
     (v) at any time Issuer’s Continuing Directors (as defined below) do not
constitute a majority of Issuer’s board of directors (or, if applicable, a
successor Person to Issuer); or
     (vi) at any time at which any Excess Ownership Position (as defined below)
occurs, Dealer, in its discretion, is unable to effect a transfer or assignment
to a third party of the Transaction or any other transaction between the parties
after using its commercially reasonable efforts on pricing terms reasonably
acceptable to Dealer such that an Excess Ownership Position no longer exists;
provided that Dealer shall treat only that portion of the Transaction as the
Affected Transaction as necessary so that such Excess Ownership Position no
longer exists.
Notwithstanding the foregoing, a transaction set forth in clause (ii), (iii) or
(v) above will not constitute an Additional Termination Event if at least 95% of
the consideration paid for the Shares (excluding cash payments for fractional
shares and cash payments made pursuant to dissenters’ appraisal rights and cash
dividends) in a merger or consolidation or such other transaction otherwise
constituting an Additional Termination Event under clauses (ii) or (iii) above
consists of shares of common stock traded on any of the New York Stock Exchange,
The NASDAQ Global Select Market or The NASDAQ Global Market (or any of their
respective successors) (or will be so traded or quoted immediately following the
completion of the merger or consolidation or such other transaction) (“Listed
Shares”).
     “Person” includes any syndicate or group that would be deemed to be a
“person” under Section 13(d)(3) of the Exchange Act.
     “Continuing Directors” means (i) individuals who on the date hereof
constituted Issuer’s board of directors and (ii) any new directors whose
election to Issuer’s board of directors or whose nomination for election by
Issuer’s stockholders was approved by at least a majority of Issuer’s directors
then still in office (or a duly constituted committee thereof), either who were
directors on the date hereof or whose election or nomination for election was
previously so approved.
     “Excess Ownership Position” means any of the following: (i) the Beneficial
Ownership of Dealer Group is equal to or greater than 8.5% of the outstanding
Shares, (ii) Dealer or any “affiliate” or “associate” of Dealer would own in
excess of 13% of the outstanding Shares for purposes of Section 203 of the
Delaware General Corporation Law, (iii) the Maritime Law Ownership Percentage of
the Maritime Law Dealer Group would be equal to or greater than 4% of the
outstanding Shares, or (iv) the aggregate percentage of non-U.S. citizen owners
(as determined pursuant to the Certificate) of Shares shall equal or exceed 18%
of the outstanding Shares.
     (k) Effectiveness. If, prior to the Effective Date, Dealer reasonably
determines that it is advisable to cancel the Transaction because of concerns
that Dealer’s related hedging activities could be viewed as not complying with
applicable securities laws, rules or regulations, the Transaction shall be
cancelled and shall not become effective, and neither party shall have any
obligation to the other party in respect of the Transaction.

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     (l) Extension of Settlement. Dealer may divide any Component into
additional Components and designate the Expiration Date and the Number of
Warrants for each such Component if Dealer determines, in its reasonable
discretion, that such further division is necessary or advisable to preserve
Dealer’s hedging activity hereunder in light of existing liquidity conditions in
the cash market or stock loan market or to enable Dealer to effect purchases of
Shares in connection with its hedging activity hereunder in a manner that would,
if Dealer were Issuer or an affiliated purchaser of Issuer, be in compliance
with applicable legal and regulatory requirements.
     (m) No Netting and Set-off. The provisions of Section 2(c) of the Agreement
shall not apply to the Transaction. Each party waives any and all rights it may
have to set-off delivery or payment obligations it owes to the other party under
the Transaction against any delivery or payment obligations owed to it by the
other party, whether arising under the Agreement, under any other agreement
between parties hereto, by operation of law or otherwise.
     (n) Amendment. If the Initial Purchasers party to the Purchase Agreement
exercise their right to purchase additional convertible notes as set forth
therein, then, at the discretion of Issuer, Dealer and Issuer will either enter
into a new confirmation evidencing additional warrants to be issued by Issuer to
Dealer or amend this Confirmation to evidence such additional warrants (in each
case on pricing terms acceptable to Dealer and Issuer) (such additional
confirmation or amendment to this Confirmation to provide for the payment by
Dealer to Issuer of the additional premium related thereto in an amount to be
agreed between the parties).
     (o) Lock Up. Prior to the first anniversary of the Trade Date, if the
Initial Purchasers party to the Purchase Agreement exercise their right to
purchase additional convertible notes set forth therein and Issuer does not
elect to issue the maximum number of Additional Warrants as provided in
paragraph (n) above, Issuer shall not issue or enter into any warrant, a call
option, a variable forward or other derivative linked to the Shares
(collectively, “Warrants”), whether cash settled and/or physically settled
and/or net share settled, without a prior written consent of Dealer which shall
not be unreasonably withheld, unless such Warrants are issued (i) pursuant to
any present or future employee, director or consultant benefit plan or program
of Issuer or any hedging arrangements in respect thereof, (ii) to all Issuer’s
stockholders as a free distribution or a distribution for less than the fair
market value of such Warrants (as determined by the Calculation Agent), (iii) as
part of mandatorily convertible units in a bona fide capital raising transaction
unrelated to the convertible notes sold pursuant to the Purchase Agreement, or
(iv) as part of a bona fide Share repurchase transaction unrelated to the
convertible notes sold pursuant to the Purchase Agreement. “Additional Warrants”
shall equal the product of (i) the Warrant Entitlement, (ii) the initial
conversion rate of the convertible notes and (iii) the aggregate principal
amount of the additional convertible notes purchased by the Initial Purchasers
divided by USD1,000.
     (p) Designation by Dealer. Notwithstanding any other provision in this
Confirmation to the contrary requiring or allowing Dealer to purchase, sell,
receive or deliver any Shares or other securities to or from Issuer, Dealer may
designate any of its affiliates to purchase, sell, receive or deliver such
Shares or other securities and otherwise to perform Dealer’s obligations in
respect of the Transaction and any such designee may assume such obligations.
Dealer shall be discharged of its obligations to Issuer to the extent of any
such performance. In addition, Dealer may assign its right to receive and Shares
or other securities from Issuer to any person or designate any person to receive
such Shares or other securities (subject to Section 8(d)).
     (q) Termination Amounts. Notwithstanding anything to the contrary in the
Agreement or the Equity Definitions, any determination of Loss or any amount
payable upon cancellation or termination of the Transaction pursuant to
Article 12 of the Equity Definitions shall, in a commercially reasonable manner,
take into account any costs or losses incurred by Dealer or any of its
affiliates in connection with Dealer’s (or such affiliate’s) hedging activities
in respect of the Transaction as a result of the provisions of Article V of the
Certificate (whether before or in connection with the termination or
cancellation of the Transaction).
     (r) Governing Law. The Agreement, this Confirmation and all matters arising
in connection with the Agreement and this Confirmation shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York
(without reference to its choice of laws doctrine, other than Title 14 of the
New York General Obligations Law).

18

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     (s) Waiver of Jury Trial. Each party waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in respect
of any suit, action or proceeding relating to the Transaction. Each party
(i) certifies that no representative, agent or attorney of the other party has
represented, expressly or otherwise, that such other party would not, in the
event of such a suit, action or proceeding, seek to enforce the foregoing waiver
and (ii) acknowledges that it and the other party have been induced to enter
into the Transaction by, among other things, the mutual waivers and
certifications provided herein.
     (t) Submission to Jurisdiction. Section 13(b) of the Agreement is deleted
in its entirety and replaced by the following: “Each party hereby irrevocably
and unconditionally submits for itself and its property in any legal action or
proceeding by the other party against it relating to this Agreement and/or any
Transaction, or for recognition and enforcement of any judgment in respect
thereof, to the exclusive jurisdiction of the Supreme Court of the State of New
York, sitting in New York County, the courts of the United States of America for
the Southern District of New York and appellate courts from any thereof. Nothing
in any Confirmation or this Agreement precludes either party from bringing
Proceedings in any other jurisdiction if (A) the courts of the State of New York
or the United States of America for the Southern District of New York lack
jurisdiction over the parties or the subject matter of the Proceedings or
declines to accept the Proceedings on the grounds of lacking such jurisdiction;
(B) the Proceedings are commenced by a party for the purpose of enforcing
against the other party’s property, assets or estate any decision or judgment
rendered by any court in which Proceedings may be brought as provided hereunder;
(C) the Proceedings are commenced to appeal any such court’s decision or
judgment to any higher court with competent appellate jurisdiction over that
court’s decisions or judgments if that higher court is located outside the State
of New York or Borough of Manhattan, such as a federal court of appeals or the
U.S. Supreme Court; or (D) any suit, action or proceeding has been commenced in
another jurisdiction by or against the other party or against its property,
assets or estate and, in order to exercise or protect its rights, interests or
remedies under this Agreement or any Confirmation, the party (1) joins, files a
claim, or takes any other action, in any such suit, action or proceeding, or
(2) otherwise commences any Proceeding in that other jurisdiction as the result
of that other suit, action or proceeding having commenced in that other
jurisdiction.”
     (u) Counterparts. This Confirmation may be executed in several
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
     9. Terms Relating to the Agent:
     (a) The Agent is registered as a broker-dealer with the U.S. Securities and
Exchange Commission and the National Association of Securities Dealers, Inc., is
acting hereunder for and on behalf of Dealer solely in its capacity as agent for
Dealer pursuant to instructions from Dealer, and is not and will not be acting
as the Issuer’s agent, broker, advisor or fiduciary in any respect under or in
connection with the Transaction.
     (b) In addition to acting as Dealer’s agent in executing the Transaction,
the Agent is authorized from time to time to give written payment and/or
delivery instructions to the Issuer directing it to make its payments and/or
deliveries under the Transaction to an account of the Agent for remittance to
Dealer (or its designee), and for that purpose any such payment or delivery by
the Issuer to the Agent shall be treated as a payment or delivery to Dealer.
     (c) Except as otherwise provided herein, any and all notices, demands, or
communications of any kind transmitted in writing by either Dealer or the Issuer
under or in connection with the Transaction will be transmitted exclusively by
such party to the other party through the Agent at the following address:
Wachovia Capital Markets, LLC
201 South College Street, 6th Floor
Charlotte, NC 28288-0601
Facsimile No.: (704) 383-8425
Telephone No.: (704) 715-8086

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     Attention: Equity Derivatives
     (d) The Agent shall have no responsibility or liability to Dealer or the
Issuer for or arising from (i) any failure by either Dealer or the Issuer to
perform any of their respective obligations under or in connection with the
Transaction, (ii) the collection or enforcement of any such obligations, or
(iii) the exercise of any of the rights and remedies of either Dealer or the
Issuer under or in connection with the Transaction. Each of Dealer and the
Issuer agrees to proceed solely against the other to collect or enforce any such
obligations, and the Agent shall have no liability in respect of the Transaction
except for its gross negligence or willful misconduct in performing its duties
as the agent of Dealer.
     (e) Upon written request, the Agent will furnish to Dealer and the Issuer
the date and time of the execution of the Transaction and a statement as to the
source and amount of any remuneration received or to be received by the Agent in
connection with the Transaction.

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     Issuer hereby agrees (a) to check this Confirmation carefully and
immediately upon receipt so that errors or discrepancies can be promptly
identified and rectified and (b) to confirm that the foregoing (in the exact
form provided by Dealer) correctly sets forth the terms of the agreement between
Dealer and Issuer with respect to the Transaction, by manually signing this
Confirmation or this page hereof as evidence of agreement to such terms and
providing the other information requested herein and immediately returning an
executed copy to Dealer, Equity Derivatives Documentation Unit, Facsimile No.
(212) 214-5913 or by email to equity.confirms@wachovia.com.

              Yours faithfully,
 
            WACHOVIA BANK, NATIONAL ASSOCIATION
 
            By: Wachovia Capital Markets, LLC, acting solely in its
capacity as its Agent
 
       
 
  By:   /s/ Cathleen Burke
 
       
 
  Name:   Cathleen Burke
 
  Title:   Managing Director
 
            WACHOVIA CAPITAL MARKETS, LLC, acting solely in its capacity as
Agent of Wachovia Bank, National Association
 
       
 
  By:   /s/ Cathleen Burke
 
       
 
  Name:   Cathleen Burke
 
  Title:   Managing Director

Agreed and Accepted By:
HORIZON LINES, INC.

         
By:
  /s/ Robert S. Zuckerman
 
Name: Robert S. Zuckerman    
 
  Title: Secretary    

 

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Annex A
For each Component of the Transaction, the Number of Warrants and Expiration
Date is set forth below.

                  Component Number   Number of Warrants   Expiration Date   1  
  24,240     11/13/2012     2     24,240     11/14/2012     3     24,240    
11/15/2012     4     24,240     11/16/2012     5     24,240     11/19/2012     6
    24,240     11/20/2012     7     24,240     11/21/2012     8     24,240    
11/23/2012     9     24,240     11/26/2012     10     24,240     11/27/2012    
11     24,240     11/28/2012     12     24,240     11/29/2012     13     24,240
    11/30/2012     14     24,240     12/3/2012     15     24,240     12/4/2012  
  16     24,240     12/5/2012     17     24,240     12/6/2012     18     24,240
    12/7/2012     19     24,240     12/10/2012     20     24,240     12/11/2012
    21     24,240     12/12/2012     22     24,240     12/13/2012     23    
24,240     12/14/2012     24     24,240     12/17/2012     25     24,240    
12/18/2012     26     24,240     12/19/2012     27     24,240     12/20/2012    
28     24,240     12/21/2012     29     24,240     12/24/2012     30     24,240
    12/26/2012     31     24,240     12/27/2012     32     24,240     12/28/2012
    33     24,240     12/31/2012     34     24,240     1/2/2013     35    
24,240     1/3/2013     36     24,240     1/4/2013     37     24,240    
1/7/2013     38     24,240     1/8/2013     39     24,240     1/9/2013     40  
  24,240     1/10/2013     41     24,240     1/11/2013     42     24,240    
1/14/2013     43     24,240     1/15/2013     44     24,240     1/16/2013     45
    24,240     1/17/2013     46     24,240     1/18/2013     47     24,240    
1/22/2013     48     24,240     1/23/2013     49     24,240     1/24/2013     50
    24,240     1/25/2013     51     24,240     1/28/2013  

A-1

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                  Component Number   Number of Warrants   Expiration Date   52  
  24,240     1/29/2013     53     24,240     1/30/2013     54     24,240    
1/31/2013     55     24,240     2/1/2013     56     24,240     2/4/2013     57  
  24,240     2/5/2013     58     24,240     2/6/2013     59     24,240    
2/7/2013     60     24,240     2/8/2013     61     24,240     2/11/2013     62  
  24,240     2/12/2013     63     24,240     2/13/2013     64     24,240    
2/14/2013     65     24,240     2/15/2013     66     24,240     2/19/2013     67
    24,240     2/20/2013     68     24,240     2/21/2013     69     24,240    
2/22/2013     70     24,240     2/25/2013     71     24,240     2/26/2013     72
    24,240     2/27/2013     73     24,240     2/28/2013     74     24,240    
3/1/2013     75     24,240     3/4/2013     76     24,240     3/5/2013     77  
  24,240     3/6/2013     78     24,240     3/7/2013     79     24,240    
3/8/2013     80     24,240     3/11/2013     81     24,240     3/12/2013     82
    24,240     3/13/2013     83     24,240     3/14/2013     84     24,240    
3/15/2013     85     24,240     3/18/2013     86     24,240     3/19/2013     87
    24,240     3/20/2013     88     24,240     3/21/2013     89     24,240    
3/22/2013     90     24,240     3/25/2013     91     24,240     3/26/2013     92
    24,240     3/27/2013     93     24,240     3/28/2013     94     24,240    
4/1/2013     95     24,240     4/2/2013     96     24,240     4/3/2013     97  
  24,240     4/4/2013     98     24,240     4/5/2013     99     24,240    
4/8/2013     100     24,291     4/9/2013  

A-2