Exhibit 10.3

REIMBURSEMENT AGREEMENT

THIS REIMBURSEMENT AGREEMENT (“Agreement”) is made and entered into this 7th day
of April 2006 by and among Horizon Lines, LLC, a Delaware limited liability
company (“HLL”), Ship Finance International Limited, a Bermuda company (“SFL”),
SFL Holdings LLC, a Delaware limited liability company (“SFL Holdings”), and the
five companies listed in Appendix 1 hereto, each a Delaware limited liability
company and direct wholly-owned subsidiary of SFL Holdings (each an “Owner” and
collectively, the “Owners”).

RECITALS

WHEREAS, pursuant to an Agreement to Acquire and Charter, dated the date hereof
(the “Agreement to Acquire and Charter”), among SFL, SFL Holdings, the Owners
and HLL, SFL will, among other things, cause SFL Holdings to purchase five 2,824
TEU containerships (each a “Vessel” and collectively, the “Vessels”), and upon
the purchase of each Vessel by SFL Holdings, SFL Holdings will immediately sell
the Vessel to the intended Owner thereof for an amount equal to the Adjusted
Average Purchase Price (as defined in the Agreement to Acquire and Charter) of
the Vessel and the Owners will, in turn, demise charter the Vessels to HLL under
the terms of five separate bareboat charter parties, dated the date hereof (each
a “Charter” and, collectively, the “Charters”), each between one of the Owners
and HLL (the foregoing transactions being, collectively, the “Transactions”);

WHEREAS, the Vessels will be built by Hyundai MIPO Dockyard Co., Ltd., a Korean
company (the “Builder”), under five separate Shipbuilding Contracts, two of
which are with wholly-owned subsidiaries of E.R. Schiffahrt GMBH & Cie. KG
(“ER”; each such wholly-owned subsidiary, an “ER Subsidiary”), and three of
which are with wholly-owned subsidiaries of Tsakos Shipping & Trading S.A.
(“Tsakos”; each such wholly-owned subsidiary, a “Tsakos Subsidiary”; each ER
Subsidiary and Tsakos Subsidiary, a “Seller” and such subsidiaries,
collectively, the “Sellers”);

WHEREAS, SFL Holdings has entered into five separate Memoranda of Agreement,
each dated the date hereof (each an “MOA” and, collectively, the “MOAs”),
pursuant to which SFL Holdings has agreed to purchase, and the Seller party
thereto has agreed to sell, the Vessel covered by such MOA;

WHEREAS, each MOA with an ER Subsidiary requires that SFL Holdings deliver a
cash deposit to the relevant Seller (each a “Cash Deposit” and, collectively,
the “Cash Deposits”), in an amount equal to $5,485,000 per Vessel under the
relevant MOA, which Cash Deposit may be drawn upon by the Seller if SFL Holdings
defaults under such MOA;

WHEREAS, each MOA with a Tsakos Subsidiary requires that SFL Holdings deliver as
a deposit a letter of credit (each a “Tsakos L/C” and, collectively, the “Tsakos
L/Cs”) in an amount equal to $8,512,500 per Vessel under the relevant MOA, which
Tsakos L/C may be drawn upon by the Seller if SFL Holdings defaults under such
MOA;

 

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WHEREAS, in order to finance a portion of the purchase price of each Vessel, the
Owners have entered into a Credit Agreement, dated the date hereof (the “Credit
Agreement’), with Fortis Capital Corp. and the other lenders named therein (each
a “Lender” and, collectively, the “Lenders”), pursuant to which the Lenders have
agree to advance to each Owner the lesser of (i) 75% of the Recalculated
Adjusted Average Purchase Price (as defined in the Credit Agreement) of the
Vessel to be purchased by such Owner, or (ii) $42,000,000;

WHEREAS, the Credit Agreement includes a Letter of Credit Facility of up to
$38,000,000, a portion of which will be used to issue the Tsakos L/Cs that will
be used to satisfy the deposit requirements of the MOA’s with the Tsakos
Subsidiaries;

WHEREAS, the Owners have entered into certain forward-starting interest rate
swap agreements (the “Swaps”) in order to fix the interest rate payable by the
Owners with respect to amounts advanced under the Credit Agreement;

WHEREAS, SFL has entered into an Interest Guarantee, dated the date hereof (the
“Interest Guarantee”), pursuant to which SFL has guaranteed the Owners’
liability under the Swaps with respect to the period prior to delivery of the
Vessels that is unrelated to any Event of HLL Default under the Agreement to
Acquire and Charter;

WHEREAS, SFL has entered into an L/C Guarantee, dated the date hereof (the “L/C
Guarantee”), pursuant to which SFL has guaranteed the Owners’ liability under
the Tsakos L/Cs with respect to the period prior to delivery of the Vessels that
is unrelated to any Event of HLL Default under the Agreement to Acquire and
Charter;

WHEREAS, concurrently with SFL Holdings’ delivery of all of the Cash Deposits
and Tsakos L/Cs to the Sellers, HLL is causing UBS AG, Stamford Branch (“UBS”),
to issue to Fortis Capital Corp., as Security Trustee for the Lenders and the
Swap Providers (each as defined in the Credit Agreement), eight (8) letters of
credit (each, a “Back-Up L/C” and collectively, the “Back-Up L/Cs”) issued
pursuant to HLL’s senior credit facility, in the aggregate amount of
$29,337,500; three of such letters of credit shall each be in the amount of
$8,512,500 and shall each support HLL’s obligation hereunder to reimburse the
relevant Owner in respect of such Owner’s liability under the Credit Agreement
for amounts drawn under a Tsakos L/C issued under the Credit Agreement as a
deposit under an MOA with a Tsakos Subsidiary; and five of such letters of
credit shall each be in the amount of $760,000 and shall support HLL’s
obligation hereunder to reimburse the relevant Owner in respect of such Owner’s
liability under the Swaps in respect of a particular Vessel;

WHEREAS, HLL, SFL and the Security Trustee have entered into a certain Interest
and L/C Liability Agreement dated as of the date hereof (the “Interest and L/C
Liability Agreement”);

WHEREAS, as an integral part of the Transaction, including entering into the
Charters, HLL has agreed to reimburse SFL, SFL Holdings and the Owners, with
respect to each Vessel, for certain amounts and in certain circumstances, as
more fully set forth herein;

 

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THEREFORE, in consideration of the premises, and for good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:

1. Defined Terms. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Charters.

2. Reimbursement Obligations. In consideration of the agreement of SFL, SFL
Holdings and the Owners to enter into the Transaction, HLL agrees as follows:

(a) Obligations Covered by Back-Up L/Cs. HLL shall reimburse SFL, SFL Holdings
and the relevant Owner (each an “SFL Party” and, collectively, the “SFL
Parties”), without duplication, for the following:

 

  (i) any liabilities under the Credit Agreement in respect of amounts drawn
under any Tsakos L/C (a “Tsakos L/C Draw”) as a result of a default under the
MOA with respect to such Tsakos L/C or paid by SFL under the L/C Guarantee with
respect thereto (collectively, “L/C Liability”), plus interest thereon to the
date of reimbursement by HLL at the interest rate required under the Credit
Agreement (“Tsakos L/C Draw Interest”); and

 

  (ii) any liabilities of the Owners in respect of the Swaps during the
Pre-Delivery Period (as defined in the Credit Agreement), or paid by SFL under
the Interest Guarantee with respect thereto (collectively, a “Swap Breakage
Liability”), in either case, following a default under the related MOA and the
termination of the Swap related to such Vessel.

(b) Obligations Not Covered by Back-Up L/Cs. HLL shall reimburse the SFL Parties
for the amount of any Cash Deposit forfeited to a Seller that is an ER
Subsidiary as a result of a default under the MOA with such Seller, together
with interest accrued on such amount that is in excess of amounts due and unpaid
by HLL pursuant to Section 1.4(e) of the Agreement to Acquire and Charter
(collectively, a “Cash Deposit Liability”).

(c) Limitations. Notwithstanding anything herein or in any Transaction Document
(as defined in the Credit Agreement) to the contrary the reimbursement
obligations of HLL hereunder shall be subject to the following limitations:

 

  (i) HLL shall not be obligated to reimburse any SFL Party for any L/C
Liability, , Tsakos L/C Draw Interest, Swap Breakage Liability, or Cash Deposit
Liability in respect of or resulting from any MOA default that was due to or
resulted from an Event of SFL Default under the Agreement to Acquire and
Charter;

 

  (ii) the total amount of HLL’s reimbursement obligations to the SFL Parties
hereunder in respect of L/C Liability, Tsakos L/C Draw Interest and Swap
Breakage Liability pursuant to Section 2(a) hereof shall not exceed $40,000,000
in the aggregate;

 

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  (iii) HLL’s reimbursement obligation pursuant to Section 2(a)(i) hereof in
connection with any L/C Liability shall be satisfied solely by a draw under the
corresponding Back-Up L/C, and no SFL Party, or any assignee of any SFL Party,
shall have any recourse to HLL for any amounts due with respect to any L/C
Liability that cannot be paid with the proceeds of a draw under the relevant
Back-Up L/C; provided, however, that each SFL Party and the Security Trustee, as
assignee of any SFL Party, shall have recourse to HLL for any Tsakos L/C Draw
Interest;

 

  (iv) HLL’s reimbursement obligation pursuant to Section 2(a)(ii) hereof in
connection with any Swap Breakage Liability shall be satisfied first and to the
maximum extent possible by a draw under the corresponding Back-Up L/C; and

 

  (v) HLL’s obligation to reimburse the SFL Parties pursuant to Section 2(b)
hereof in respect of a Cash Deposit Liability and Section 2(a)(ii) hereof in
respect of a Swap Breakage Liability to the extent exceeding the stated amount
of the relevant Back-Up L/C, shall be unsecured obligations of HLL.

(d) In addition to the foregoing, HLL shall reimburse the SFL Parties for the
amount of any L/C Liability or Swap Breakage Liability after the relevant MOA
shall have been assigned by SFL Holdings to a third party either with HLL’s
prior written consent or after the occurrence and during the continuance of an
Event of HLL Default (as defined in the Agreement to Acquire and Charter),
without regard to the provisions of the Interest and L/C Liability Agreement (as
defined in the Credit Agreement).

3. Reimbursement Procedure. (a) If any SFL Party incurs any loss, cost or
expense for which it is entitled to reimbursement under Sections 2(a)(i) or
(ii) hereof, HLL shall pay any such reimbursement amount due pursuant to and in
accordance with the Interest and L/C Liability Agreement.

(b) In the event that any SFL Party incurs any loss, cost or expense for which
it is entitled to reimbursement hereunder pursuant to Section 2(b), it shall
deliver to HLL a written request for reimbursement, including a reasonably
detailed accounting of the amount for which reimbursement is sought with
supporting documentation. HLL shall pay any such reimbursement amount due within
three (3) Business Days after receipt of such request for reimbursement.

4. Return of Back-Up L/Cs. SFL shall cause the Security Trustee to return the
Back-Up L/Cs to HLL as follows: (i) each Back-Up L/C relating to a Tsakos Vessel
that has been delivered to and accepted by SFL Holdings under the relevant MOA
shall be returned to HLL undrawn on the date of such delivery and acceptance
promptly upon the Seller’s return to the Security Trustee or the Agent of the
Tsakos L/C related to such MOA, (ii) following a Deemed Dispute (as defined in
the Interest and L/C Liability Agreement) with respect to any Vessel, SFL shall
cause the Security Trustee to either (a) return the related Back-Up L/C to UBS
promptly after 50% of the amount thereof has been drawn by the Security Trustee
in accordance with the Interest and L/C Liability Agreement, or (b) upon
instruction from HLL to do so,

 

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transfer such Back-Up L/C to SFL, in either case, to secure HLL’s potential
reimbursement obligation to SFL in the event that such Deemed Dispute is decided
in favor of SFL under Section 6(c) hereof. SFL may hold such Replacement Back-Up
L/C or transferred Back-Up L/C until the earlier of the date on which (x) the
related Deemed Dispute has been settled by the parties pursuant to a written
agreement, or (y) a final award in respect of such Deemed Dispute has been
issued pursuant to an arbitration proceeding, as contemplated by Section 6(b)
below. SFL shall be entitled to draw an amount under such Replacement Back-Up
L/C to the extent it is entitled to payment pursuant to any such settlement or
award and shall promptly thereafter return such Back-Up L/Cs to HLL.

5. Swap Collateral; Allocation of Settlement Amounts. (a) In the event that any
Owner shall receive notice from any Swap Provider that the Exposure of the
Exposed Parties to the Related Parties exceeds the Exposure Threshold stated in
the Master Agreements (as defined in the Credit Agreement), such Owner shall
promptly notify HLL in writing of its receipt of such notice (each such notice
to HLL, a “Swap Exposure Notice”).

(b) Upon its receipt of a Swap Exposure Notice, HLL shall have the right, but
not the obligation, to take any single action or any combination of the actions
set forth in subparagraphs (i) and (ii) below such that, after giving effect
thereto, the Exposure of the Exposed Parties to the Related Parties under the
Master Agreements and the Related ISDAs does not exceed the Exposure Threshold:

 

  (i) unilaterally increase the limitation set forth in Section 2(c)(ii) of this
Agreement by sending written notice of such increase to SFL and the Agent under
the Credit Agreement, provided that in no event shall such amount exceed
$50,000,000 without the prior written consent of the Security Trustee and the
Owners; and/or

 

  (ii) deliver to the Security Trustee under the Credit Agreement, as additional
collateral security for the pro rata benefit of the Swap Providers (as defined
in the Credit Agreement), cash and/or a standby letter of credit in favor of the
Security Trustee (all such cash and standby letters of credit, collectively, the
“Swap Collateral”).

(c) All Swap Collateral delivered by HLL to the Security Trustee shall be
subject to security documents in form and substance satisfactory to HLL. In no
event shall any Swap Collateral be used as security for the SFL Parties’
Obligations (as defined in the Credit Agreement) under the Loan Documents (as
defined in the Credit Agreement) other than such Obligations in respect of the
aggregate Exposure in excess of the Exposure Threshold. In the event that the
circumstances giving rise to any Swap Exposure Notice shall cease to exist, HLL
may at any time and from time to time thereafter, upon written notice to SFL and
the Agent, unilaterally decrease the limitation set forth in Section 2(c)(ii) of
this Agreement, provided, that, in no event shall such amount be less than
$40,000,000. Capitalized terms used in this Section, unless otherwise defined
herein, shall have the meanings set forth in the Schedules to the Master
Agreements (as defined in the Credit Agreement).

 

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(d) In the event that: (a) during the Pre-Delivery Period (as defined in the
Credit Agreement), any Designated Transaction shall have been terminated in
whole or in part in accordance with the terms of the related Master Agreement
(as defined in the Credit Agreement); (b) such termination shall not have
resulted from an Event of SFL Default; and (c) any SFL Party shall be entitled
to receive a Settlement Amount under the related Master Agreement with respect
to such termination, then such SFL Party shall cause such Settlement Amount to
be paid to HLL instead.

6. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.

7. Jurisdiction; Dispute Resolution. (a) Each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York County, and any appellate court
thereof, in any action or proceeding arising out of or relating to this
Agreement (other than any action or proceeding relating to a Deemed Dispute (as
defined in the Interest and L/C Liability Agreement)), and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims in respect
of any such action or proceeding may be heard and determined in such New York
State or Federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. Subject to the foregoing and to paragraph (c) below, nothing in this
Agreement shall affect any right that any party hereto may otherwise have to
bring any action or proceeding relating to this Agreement. Each of the parties
hereto hereby irrevocably and unconditionally waives, to the fullest extent they
may legally and effectively do so, any objection which they may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement in any New York State or Federal court and the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court and any immunity from jurisdiction of any court or from any
legal process with respect to themselves or their property

(b) Notwithstanding anything in this Agreement or any Transaction Document to
the contrary, each of the parties hereto hereby irrevocably agrees that any
Deemed Dispute (as defined in the Interest and L/C Liability Agreement) shall be
settled by arbitration in New York County before a panel of one mutually agreed
upon arbitrator or, failing agreement, three persons consisting of one
arbitrator to be appointed by SFL Parties, one arbitrator to be appointed by
HLL, and one arbitrator by the two so appointed. The decision of any two of the
three on any point or points shall be final and binding, and may include costs,
including reasonable attorney fees. Judgment may be entered upon any award made
pursuant thereto in any court of competent jurisdiction. The arbitration
proceedings shall be conducted in accordance with the Rules of the Society of
Maritime Arbitrators, Inc. current at the time when the arbitration proceedings
are commenced. In cases where neither the claim nor any counterclaim exceeds the
sum of $250,000 (or such other sum as the parties may agree) the arbitration
shall be conducted in accordance with the Shortened Arbitration Procedure of the
Society of Maritime Arbitrators, Inc. current at the time when the arbitration
proceedings are commenced. Any claim by any party shall be waived unless
arbitration is commenced by serving notice of demand within one (1) year of the
occurrence of the event giving rise to the Deemed Dispute.

 

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8. Notices. All notices and other communications under this Agreement shall be
in writing and shall be deemed given when (i) delivered by hand,
(ii) transmitted by telecopier (assuming clear transmission), or
(iii) delivered, if sent by Express Mail, Federal Express or other express
delivery service, or registered or certified mail, return receipt requested, to
the addressee at the following addresses or telecopier numbers (or to such other
addresses or telecopier number as a party may specify by notice given to the
other party pursuant to this provision):

If to SFL:

Ship Finance International Ltd.

PO Box HM 1393

Par-la-Ville Place

14 Par-la-Ville Road

Hamilton HM 08 Bermuda

Attn.: Vice President, Finance

Fax No.: +1 441 295 69 35

with a copy to:

Frontline Management AS

Bryggegata 3

P.O. Box 1327-VIKA

Oslo 0112 Norway

Attn.: Vice President, Finance

Fax No.: +4723114040

Seward & Kissel LLP

One Battery Park Plaza

New York, New York 10004

Attn: Gary J. Wolfe, Esquire

Fax No.: 212-480-8421

If to SFL Holdings:

SFL Holdings LLC

PO Box HM 1393

Par-la-Ville Place

14 Par-la-Ville Road

Hamilton HM 08 Bermuda

Attn.: Vice President, Finance

Fax No.: +1 441 295 69 35

 

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with a copy to:

Frontline Management AS

Bryggegata 3

P.O. Box 1327-VIKA

Oslo 0112 Norway

Attn.: Vice President

Fax No.: +4723114040

Seward & Kissel LLP

One Battery Park Plaza

New York, New York 10004

Attn: Gary J. Wolfe, Esquire

Fax No.: 212-480-8421

If to any Owner:

To the address of such Owner indicated on Appendix 1 hereto.

With a copy to:

Frontline Management AS

Bryggegata 3

P.O. Box 1327-VIKA

Oslo 0112 Norway

Attn.: Vice President

Fax No.: +4723114040

Seward & Kissel LLP

One Battery Park Plaza

New York, New York 10004

Attn: Gary J. Wolfe, Esquire

Fax No.: 212-480-8421

If to HLL:

Horizon Lines, LLC

4064 Colony Road

Suite 200

Charlotte, NC 28211

Attn.: M. Mark Urbania

          Sr. Vice President & CFO

Fax No.: 704-973-7034

 

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With a copy to:

Blank Rome LLP

600 New Hampshire Avenue, N.W.

Suite 1200

Washington, D.C. 20037

Attn.: T. Michael Dyer, Esquire

Fax No.: (202) 772-5858

9. Amendments. This Agreement may not be amended, modified or revised, in whole
or in part, except by written instrument signed by all parties hereto.

10. Assignment. Neither party hereto may assign any of the rights or obligations
created by this Agreement except with the express written consent of the other
parties hereto.

11. Severability. Each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by applicable law. Should any term
or provision of this Agreement be held invalid, illegal or unenforceable, the
remainder of this Agreement, including the application of such term to the
extent not invalid, illegal or unenforceable, shall not be affected thereby, and
this Agreement shall be interpreted as if such term or provision, to the extent
invalid, illegal or unenforceable, did not exist.

12. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.

13. Termination. HLL’s obligation hereunder to make reimbursement payments with
respect to any L/C, Cash Deposit or breakage costs relating to a Vessel shall
terminate immediately upon delivery of such Vessel to SFL Holdings. All of HLL’s
obligations hereunder shall terminate immediately upon delivery of the last
Vessel to SFL Holdings.

14. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.

[SIGNATURES ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, the parties have caused this Reimbursement Agreement to be
executed by their duly authorized representatives as of the date first above
written.

 

HORIZON LINES, LLC By:  

/s/ M. Mark Urbania

  M. Mark Urbania   Sr. Vice President & CFO SHIP FINANCE INTERNATIONAL LIMITED
By:  

/s/ Inger M. Klemp

  Inger M. Klemp   Attorney-In-Fact/Authorized Person SFL HOLDINGS, LLC By:  

/s/ Kenneth Becker

Name:   Kenneth Becker Title:   Management Committee Member HL EAGLE LLC By:  

/s/ Kenneth Becker

Name:   Kenneth Becker Title:   Management Committee Member

 

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HL FALCON LLC By:  

/s/  Kenneth Becker

Name:   Kenneth Becker Title:   Management Committee Member HL HAWK LLC By:  

/s/  Kenneth Becker

Name:   Kenneth Becker Title:   Management Committee Member HL HUNTER LLC By:  

/s/  Kenneth Becker

Name:   Kenneth Becker Title:   Management Committee Member HL TIGER LLC By:  

/s/  Kenneth Becker

Name:   Kenneth Becker Title:   Management Committee Member

 

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APPENDIX 1

NAMES AND ADDRESSES OF THE OWNERS

 

Name and Address of Owner

  

Vessel Name

    

Hull No.

     HL Tiger LLC    Horizon Tiger      0387    Corporation Trust Center        
   1209 Center Street            Wilmington, Delaware 19801-1134            HL
Hunter LLC    Horizon Hunter      0388    Corporation Trust Center           
1209 Center Street            Wilmington, Delaware 19801-1134            HL Hawk
LLC    Horizon Hawk      0389    Corporation Trust Center           
1209 Center Street            Wilmington, Delaware 19801-1134            HL
Falcon LLC    Horizon Falcon      0409    Corporation Trust Center           
1209 Center Street            Wilmington, Delaware 19801-1134            HL
Eagle LLC    Horizon Eagle      0427    Corporation Trust Center           
1209 Center Street            Wilmington, Delaware 19801-1134           

 

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