exv10w2



 




Exhibit 10.2


HORIZON OFFSHORE, INC.

2500 CityWest Boulevard, Suite 2200

Houston, Texas 77042




March 31, 2005




The Holders of Subordinated Notes Signatory Hereto




Ladies and Gentlemen:




     Reference is made to the Financing Agreement (the “Financing Agreement”) dated as of March 31,
2005 among Horizon Offshore, Inc. (the “Company”), each of its subsidiaries party thereto,
Manchester Securities Corp., as collateral and administrative agent (“Manchester”), and the other
lenders specified therein (collectively, the “Senior Lenders”), whereby, subject to satisfaction of
all conditions precedent set forth therein, the Senior Lenders propose to extend credit in the form
of a $70 million senior secured financing facility (the “New Credit Facility”). By your execution
of a counterpart of this letter agreement, you acknowledge receipt of a copy of the Financing
Agreement. Capitalized terms used and not otherwise defined herein are used with the meanings
ascribed thereto in the Financing Agreement.



     The Company and each holder of Subordinated Notes signatory hereto (the “Investors”), in
consideration of the mutual agreements and covenants of the parties hereto and the Company’s
agreement to issue to the Investors the Recap Common Stock and the New Preferred Stock (as such
terms are defined below), hereby agree as follows:



     1. Upon the consummation of the Recap (as defined in paragraph 3 below), you agree that
without the need for any further act or evidence, the Subordinated Notes and the Subordinated Note
Debt Documents are and shall be deemed amended effective as of the Recap Closing Date (as defined
in paragraph 4 below) to (i) reduce the interest rate to 8% per annum; (ii) extend the maturity
date to March 31, 2010; and (iii) delete the provisions of the Subordinated Note Debt Documents and
events of default specified in Schedule II attached hereto. You agree to take such action
and deliver, or cause to be delivered, such agreements, instruments or other documents as the
Company and Manchester may reasonably request in order to reflect the amendments and release
contemplated by paragraphs 1 and 2 hereof.



     2. You consent to all transactions contemplated by this letter, the Financing Agreement and
the other Loan Documents, and agree that the Obligations to be incurred thereunder shall constitute
“Refinancing Indebtedness” as that term is defined and used in the Subordinated Note Debt
Documents, and you further consent to the assignment to, or releases in favor of, Manchester, as
Collateral Agent for the Senior Lenders of all of your rights to the collateral securing the
Subordinated Note Debt you hold and the proceeds of such collateral, and you consent to the
execution by Elliott Associates, L.P., as collateral agent for the Holders (as defined in the
Subordinated Note Debt Documents), of any assignments or releases of security interests and liens
existing for your benefit with respect to such collateral (including authorization to file UCC-3
assignment and/or termination statements) and the return to the Company of any cash or other
collateral or proceeds thereof held by Elliott Associates, L.P., as such collateral agent.



1









 





     3. The Company will use its best efforts to consummate a series of recapitalization
transactions (collectively, the “Recap”) promptly following the funding of the Loans pursuant to
which $84,972,823 in aggregate principal amount of Subordinated Notes, representing the aggregate
principal amount thereof as of March 31, 2005, and all accrued and unpaid interest for any period
after such date prior to the Recap (such that only $25,000,000 aggregate principal amount of
Subordinated Notes would remain outstanding, modified as described above) and all 1,400 shares of
the Company’s Series A Redeemable Participating Preferred Stock (“Series A Preferred Stock”) would
be exchanged for a portion of a new series of one million shares of a convertible preferred stock
of the Company (“New Preferred Stock”) and a portion of 60 million newly issued shares of the
Company’s common stock (the “Recap Common Stock”). The conversion rate under the New Preferred
Stock will be set such that the total outstanding Recap Common Stock and the New Preferred Stock,
on an “as converted” basis, will represent in the aggregate 95% of the Company’s common stock on a
fully diluted basis (which calculation excludes out-of-the-money director and employee stock
options), pro forma for the Recap and the other transactions described herein. The Recap Common
Stock and the New Preferred Stock shall also be deemed issued to you by the Company as an
inducement to, and as additional consideration for, your agreements to amend the Subordinated Notes
and Subordinated Debt Documents set forth in paragraph 1; your consents set forth in paragraph 2;
and, if applicable, your commitment to and/or participation in the New Credit Facility as a Senior
Lender.



     4. The New Preferred Stock will be issued immediately prior to the issuance of the Recap
Common Stock, and will carry an aggregate liquidation preference equal to the greater of (i)
$40,000,000 and (ii) the amount the New Preferred Stock would receive on an “as converted” basis
(as if the amendment to the Company’s certificate of incorporation referred to below had been
adopted). The New Preferred Stock will not entitle holders to any dividend or voting rights
(except as required by the Delaware General Corporation Law (the “DGCL”)), will be mandatorily
convertible upon amendment to the Company’s certificate of incorporation to increase the number of
authorized shares of common stock to accommodate the conversion and to reduce or eliminate any par
value for the common shares as deemed necessary or appropriate by the Company and Manchester in
connection therewith (but in no event will such mandatory conversion occur prior to six months and
one day after the date of initial issuance). The Certificate of Designation, Preferences and
Rights of the New Preferred Stock will be substantially in the form of Exhibit A attached
hereto. The New Preferred Stock and the Recap Common Stock will be earned (subject to performance
by each Investor at the Recap Closing Date as contemplated herein) at the time of funding of the
Loans (the “Equity Earned Date”) (with the New Preferred Stock being deemed earned immediately
prior to the earning of the Recap Common Stock), and will be issued as promptly as possible
following the Equity Earned Date upon consummation of the Recap in accordance with paragraph 3 (the
“Recap Closing Date”) after the Company completes the voluntary de-listing of its common stock from
the Nasdaq Stock Market and expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 if a filing thereunder is determined to be required by the Company and any
Investor in connection with the Recap. If any such filing is determined to be required and is
applicable to you, you agree to prepare and make such filing although the Company will reimburse
you for your expenses and any filing fee incurred in connection therewith.



     5. The Company will call a meeting of shareholders to be held not earlier than September 15,
2005 nor later than October 31, 2005, to accomplish the amendments to the



2









 







Company’s certificate of incorporation described above, and an amendment to delete the
prohibition of action by stockholder consent in lieu of a meeting. You agree to participate in the
Recap on a pro rata basis (based upon the aggregate principal amount of Subordinated Notes you hold
relative to the aggregate principal amount of all such notes) and to exercise any voting power you
may have to approve the amendments to the Company’s certificate of incorporation described above,
and to execute such documentation and take such other action as may reasonably be required in
connection therewith.



     6. Certain Investors by their execution hereof have agreed to participate in the New Credit
Facility as Senior Lenders, and Schedule I hereto sets forth the Term Loan A Commitment and
Term Loan B Commitment of each such Senior Lender and Manchester. Schedule I hereto also
sets forth for each Investor the number of shares of Recap Common Stock and New Preferred Stock to
be received by it as aggregate consideration for the actions to be taken by such Investor reflected
in this Agreement (including the commitment to finance). All such shares shall be earned as of the
Equity Earned Date, as provided in paragraph 4, and all such shares of New Preferred Stock will be
issued in a single transaction on the Recap Closing Date, and all such shares of Recap Common Stock
will be issued in a single transaction immediately thereafter.



     7. At the Recap Closing Date, the Company will execute with Manchester, the Senior Lenders and
each of you a registration rights agreement in customary form providing for demand, piggyback and
resale shelf registration rights concerning (i) the shares of common stock received or receivable
by Manchester, each Senior Lender and each of you as a result of the Recap (including upon
conversion of New Preferred Stock) and (ii) the Subordinated Notes which remain outstanding after
the Recap Closing Date. Such agreement will, among other things, (x) require the Company to file a
resale shelf registration statement within 90 days of the Recap Closing Date, to use its best
efforts to secure the effectiveness thereof at the earliest possible date, and to maintain such
effectiveness at all times thereafter (subject to customary suspension period provisions), and (y)
contain customary indemnification and expense reimbursement provisions for your benefit.



     8. You agree that the letter agreement dated October 28, 2004 (effective November 4, 2004)
among the Company and the investors party thereto is superseded by this letter and that upon the
occurrence of the Equity Earned Date, such agreement shall be of no further effect, except for
paragraph 7 thereof, which shall survive such termination.



     9. The Company represents that at the date hereof there are 32,252,658 shares of common stock
outstanding and that except for out-of-the money stock options (which do not contain anti-dilution
provisions which would be triggered by the Recap) and the Series A Preferred Stock there are no
other equity securities outstanding. You represent that the number of shares of the Company’s
common stock specified beneath your signature hereto is a true and correct representation of all of
the Company’s common stock of which you are a beneficial owner (within the meaning of Rule
16a-1(a)(1) promulgated under the Securities Exchange Act of 1934) as of the date hereof. You
further represent that the aggregate original principal amount of each issuance of the Company’s
Subordinated Notes that you hold is specified beneath your signature hereto; that such notes are
held by you free of any liens or encumbrances; and that you have full authority to execute this
letter agreement and to consummate all of the Proposed



3









 







Transactions (as defined below in paragraph 11) as it pertains to you without the requirement
of obtaining the consent or authorization of any other person, entity or governmental authority
except for any requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, if
applicable to you. You agree that, except for sales of common stock pursuant to the resale shelf
registration statement contemplated by paragraph 7 hereof (but in no event earlier than the later
of (x) the date which is six months and one day following the Recap Closing Date and (y) the
automatic conversion of the New Preferred Stock), you will not sell, transfer, pledge or otherwise
dispose of any Subordinated Notes you own or any shares of Recap Common Stock or New Preferred
Stock you acquire on the Recap Closing Date (each, a “Transfer”) unless you (i) provide at least 10
business days’ prior written notice of such proposed Transfer to the Company, (ii) secure an
agreement in writing from the proposed Transferee to adopt, ratify and agree to be bound by and
perform this letter agreement as if it were a signatory hereto and furnish the Company with a fully
executed counterpart thereof prior to completing such Transfer, which agreement shall expressly
name the Company and the other Investors as third party beneficiaries with the right to enforce the
Transferee’s obligations thereunder and hereunder, and (iii) otherwise comply with any applicable
requirements governing Transfers of Subordinated Notes set forth in the applicable Subordinated
Note Debt Documents under which such notes were issued, and applicable requirements of laws
governing the Transfer of unregistered securities. You agree that the certificates evidencing New
Preferred Stock and Recap Common Stock to be issued to you will bear a legend setting for the
Transfer restrictions, voting obligations and the other agreements set forth herein.



     10. Notwithstanding any term to the contrary contained in this letter agreement, the
agreements and covenants of the Investors set forth herein are conditioned upon the occurrence of
the Equity Earned Date not later than March 31, 2005.



     11. The Company agrees to, and will cause each of its subsidiaries to, indemnify, defend and
hold harmless each Investor, each partner, member, shareholder and affiliate of each Investor and
each of its and their respective representatives (each, an “Indemnified Party”) from and against
any and all claims, actions, damages, losses, liabilities, costs and expenses (including, without
limitation, fees and disbursements of counsel), that may be incurred by, asserted or awarded
against or imposed upon any Indemnified Party, in each case arising out of or in connection with or
relating to any investigation, litigation or proceeding or the preparation of any defense with
respect thereto, arising out of or in connection with or relating to this letter agreement, the
Recap, the New Credit Facility or any other transaction or action described herein (collectively,
the “Proposed Transactions”), whether or not such investigation, litigation or proceeding is
brought by the Company, any of its subsidiaries, shareholders or creditors, an Indemnified Party or
any other person, or an Indemnified Party is otherwise a party thereto and whether or not the
Proposed Transactions are consummated, except to the extent such claim, action, damage, loss,
liability, cost or expense is found in a final non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct.
IT IS THE INTENT OF THE PARTIES HERETO THAT EACH INDEMNIFIED PARTY BE INDEMNIFIED FOR ITS
ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE. The Company further agrees that no Indemnified Party
shall have any liability (whether direct or indirect, in contract, tort or otherwise) to the
Company or any of its subsidiaries, shareholders or creditors for or in connection with this letter
agreement or the Proposed Transactions or other actions contemplated hereby, except to the extent
such



4









 







liability is expressly set forth in a definitive agreement to which such Indemnified Party is
bound or is found in a final non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party’s gross negligence or willful misconduct. In no event,
however, shall any Indemnified Party be liable on any theory of liability for any special,
indirect, consequential or punitive damages. In connection with the foregoing obligation to
indemnify, defend and hold harmless the Indemnified Parties, the Company agrees that, in the event
of anticipated, threatened or actual litigation, it shall, upon demand of an Indemnified Party who
determines that it is or is likely to be a party to such anticipated, threatened or actual
litigation, advance a reasonable amount of monies relative to such anticipated, threatened or
actual litigation in order to fulfill the obligation to defend such Indemnified Party against any
and all losses, claims, damages, expenses and liabilities to which such Indemnified Party may
become subject in connection with the transactions described herein or the financing contemplated
hereby.



     12. (a) From and after the Recap Closing Date, the Company will and you acknowledge that the
Company will (and you will not, directly or indirectly, oppose or object to actions taken by the
Company to), indemnify and hold harmless each present director and officer of the Company and its
Subsidiaries (the “Indemnified Company Parties”), against any costs or expenses (including
attorneys’ fees), judgments, fines, losses, claims, damages, liabilities or amounts paid in
settlement (collectively, “Costs”) incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or investigative, arising out of or
pertaining to any act or omission in their capacity as a director or officer occurring on or prior
to the Recap Closing Date (including for acts or omissions in connection with the approval of this
letter agreement and the consummation of the transactions contemplated hereby), whether asserted or
claimed prior to, at or after the Recap Closing Date, to the fullest extent permitted under
applicable law (and the Company shall also advance reasonable expenses as incurred to the fullest
extent permitted under applicable law; provided that, if required by applicable law, the
Indemnified Company Party to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such Indemnified Party is not entitled to
indemnification). For four years from the Recap Closing Date, the Company will, and you
acknowledge that the Company will (and you will not, directly or indirectly, oppose or object to
any actions taken by the Company to) maintain in effect for the benefit of the Company’s current
directors and officers an insurance and indemnification policy that provides coverage for acts or
omissions occurring prior to the Recap Closing Date (the “D&O Insurance”) covering each such person
currently covered by the officers’ and directors’ liability insurance policies of the Company on
terms with respect to coverage and in amounts no less favorable than those of the Company’s
policies in effect on the date hereof with the same or comparable quality insurance carriers;
provided, however, that the Company shall not be required to pay an annual premium for the D&O
Insurance in excess of 200% of the premium for the 2004 fiscal year (the “Maximum Premium”);
provided, further, however, if such D&O Insurance coverage cannot be obtained at all, or can only
be obtained at an annual premium in excess of the Maximum Premium, the Company shall obtain the
most advantageous policies of directors’ and officers’ insurance obtainable for an annual premium
equal to the Maximum Premium. The provisions of this paragraph 12 are intended to be in addition
to the rights otherwise available to the current and former officers and directors of the Company
by applicable law, charter, by-law or agreement. You acknowledge that the Company will (and you
will not, directly or indirectly, oppose or object to actions taken by the Company to) keep in



5









 







effect after the Recap Closing Date provisions in its certificate of incorporation and bylaws
providing for exculpation of director and officer liability and its indemnification of the
Indemnified Company Parties to the fullest extent permitted under the DGCL, which provisions will
not be amended except as required by applicable law or except to make changes permitted by law that
would enlarge the Indemnified Company Parties’ right of indemnification. You acknowledge that the
Company will (and you will not, directly or indirectly, oppose or object to actions taken by the
Company to) honor any of the indemnification agreements entered into with its directors and keep in
effect after the Recap Closing Date all of the provisions in its certificate of incorporation and
bylaws providing for exculpation of director and officer liability and its indemnification of the
Indemnified Company Parties to the fullest extent permitted under the DGCL, which provisions will
not be amended except as required by applicable law or except to make changes permitted by law that
would enlarge the “Indemnified Company Parties” right of indemnification.



     (b) In the event that the Company or its successors or assigns (i) consolidates with or merges
into any other person and is not the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all its properties and
assets to any person, then, and in each such case, the Company shall, as a condition precedent to
any such transaction, cause proper provisions to be made so that the successors and assigns of the
Company assume the obligations set forth in this paragraph 12. The obligations of the Company
under this paragraph 12 shall not be terminated or modified in such a manner as to adversely affect
any indemnitee to whom this paragraph 12 applies without the express written consent of such
affected indemnitee (it being expressly agreed that the indemnitees to whom this paragraph 12
applies shall be third party beneficiaries of this paragraph 12).



     13. Except as provided in paragraph 12(b), this letter agreement may not be amended or waived
except by an instrument in writing signed by the Company and each Investor. This letter agreement
may be executed in any number of counterparts, no one of which need be signed by all parties but
each of which shall be an original, and all of which, when taken together, shall constitute one
agreement. Delivery of an executed signature page of this letter agreement by facsimile
transmission shall be effective as delivery of a manually executed counterpart hereof. This letter
agreement will become effective upon execution of a counterpart hereof by each Investor.



     14. Each of the Investors hereby represents and warrants that in making its decision to enter
into this letter agreement, to undertake the obligations to performed by it hereunder and to
participate in the Recap, it has independently, and without reliance upon Manchester or any of its
affiliates, and based on such information as such Investor has deemed appropriate, made its own
investment and credit analyses and decision to enter into this letter agreement.



     15. The Company and each Investor hereby 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 letter agreement or the Proposed Transactions or the actions of the Company, any
Investor or any of its respective representatives in the negotiation, performance or enforcement
hereof.



6









 





     16. You acknowledge and agree that Manchester and its affiliates are intended third party
beneficiaries under this letter agreement.



     17. This letter agreement shall be construed in accordance with, and this letter agreement and
all matters arising out of or relating in any way whatsoever to it (whether in contract, tort or
otherwise) shall be governed by the laws of the State of New York.



[Signature pages to follow]




7









 





     Please confirm that the foregoing is our mutual understanding by signing and returning to the
Company an executed counterpart of this letter agreement.



	 	 	 	 	 
	 	 	Very truly yours,
	 
	 	 	 	 
	 	 	HORIZON OFFSHORE, INC.
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	

	

	 	 	 	     Name:
	

	 	 	 	     Title:






[Recapitalization Letter]





 









 








	 	 	 	 	 	 	 
	 	 	ELLIOTT ASSOCIATES, L.P.	 	 
	 
	 	 	 	 	 	 
	 	 	By:	 	Elliott Capital Advisors, L.P.,

as General Partner
	 
	 	 	 	 	 	 
	

	 	By:
	 	Braxton Associates, Inc.,

as General Partner	 	 
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	

	 	 	 	     Name:	 	 
	

	 	 	 	     Title:	 	 
	 
	 	 	 	 	 	 
	 	 	Address: 712 Fifth Avenue	 	 
	 	 	 	 	        36th Floor
	 	 	 	 	        New York, New York 10019
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$6,186,276.66
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$3,526,057.58
	 
	 	 	 	 	 	 
	 	 	ELLIOTT INTERNATIONAL, L.P.	 	 
	 
	 	 	 	 	 	 
	 	 	By:	 	Elliott International Capital Advisors Inc.,

as Attorney-in-Fact
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	

	 	 	 	     Name:	 	 
	

	 	 	 	     Title:	 	 
	 
	 	 	 	 	 	 
	 	 	Address: 712 Fifth Avenue	 	 
	 	 	 	 	        36th Floor
	 	 	 	 	        New York, New York 10019
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$12,372,553.35
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$  5,289,086.17






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	FALCON MEZZANINE PARTNERS, LP
	 
	 	 	 	 	 	 
	 	 	By:	 	Falcon Mezzanine Investments, LLC, its

General Partner
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	

	 	 	 	     Name:	 	 
	

	 	 	 	     Title:	 	 
	 
	 	 	 	 	 	 
	 	 	Address: 60 Kendrick Street	 	 
	 	 	 	 	        Needham, Massachusetts 02494
	 	 	 	 	        Telecopier No.: (781) 247-7299
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$22,085,007.68
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$  7,051,464.97






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	D. E. SHAW LAMINAR PORTFOLIOS, L.L.C.
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	

	 	 	 	     Name:	 	 
	

	 	 	 	     Title:	 	 
	 
	 	 	 	 	 	 
	 	 	Address: 120 West 45th St.	 	 
	 	 	 	 	        New York, New York 10036
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$3,897,354.30
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$   766,648.36






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	LANGLEY PARTNERS, L.P.	 	 
	 
	 	 	 	 	 	 
	 	 	By:	 	Langley Capital, LLC,

as General Partner
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Jeffrey Thorp
	 	 	 	 	     Title: Managing Member
	 
	 	 	 	 	 	 
	 	 	Address: 535 Madison Avenue, 7th Floor	 	 
	 	 	 	 	        New York, New York 10022
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	103,100 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$1,239,714.43
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                   0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	SACC PARTNERS, LP	 	 
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Tom Kelleher
	 	 	 	 	     Title: General Partner
	 
	 	 	 	 	 	 
	 	 	Address: 11150 Santa Monica Blvd., Suite 750	 	 
	 	 	 	 	        Los Angeles, CA 90025
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$5,066,560.58
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$3,525,536.79






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	KEVIN G. DOUGLAS AND MICHELLE M. DOUGLAS, JTWROS
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Kevin Douglas
	 	 	 	 	     in his capacity as joint tenant with right of survivorship
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Michelle Douglas
	 	 	 	 	     in her capacity as joint tenant with right of survivorship
	 
	 	 	 	 	 	 
	 	 	Address: 1101 5th Ave., Suite 360	 	 
	 	 	 	 	        San Rafael, CA 94901
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$2,598,236.20
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                   0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	DOUGLAS FAMILY TRUST
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: James E. Douglas Jr.
	 	 	 	 	     Title: Trustee
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Jean A. Douglas
	 	 	 	 	     Title: Trustee
	 
	 	 	 	 	 	 
	 	 	Address: 1101 5th Ave., Suite 360	 	 
	 	 	 	 	        San Rafael, CA 94901
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$1,299,118.10
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                   0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	JAMES DOUGLAS AND JEAN DOUGLAS IRREVOCABLE DESCENDANT’S TRUST
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Kevin Douglas
	 	 	 	 	     Title: Trustee
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Michelle Douglas
	 	 	 	 	     Title: Trustee
	 
	 	 	 	 	 	 
	 	 	Address: 1101 5th Ave., Suite 360	 	 
	 	 	 	 	        San Rafael, CA 94901
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$1,299,118.10
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                   0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	B. RILEY & CO. PROFIT SHARING, INC.
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Bryant Riley
	 	 	 	 	     Title: Trustee
	 
	 	 	 	 	 	 
	 	 	Address: 11150 Santa Monica Blvd., Suite 750	 	 
	 	 	 	 	        Los Angeles, CA 90025
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$129,911.81
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	B. RILEY & CO., INC.
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Bryant Riley
	 	 	 	 	     Title: Chairman
	 
	 	 	 	 	 	 
	 	 	Address: 11150 Santa Monica Blvd., Suite 750	 	 
	 	 	 	 	        Los Angeles, CA 90025
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$844,426.77
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$310,694.38






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	L. MILLER III GST dtd 12/31/91
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Lloyd I. Miller
	 	 	 	 	     Title: Trustee
	 
	 	 	 	 	 	 
	 	 	Address: 4550 Gordon Drive	 	 
	 	 	 	 	        Naples, FL 34102
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$324,779.53
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	MILFAM, LLC
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Lloyd I. Miller
	 	 	 	 	     Title: General Partner
	 
	 	 	 	 	 	 
	 	 	Address: 4550 Gordon Drive	 	 
	 	 	 	 	        Naples, FL 34102
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$324,779.53
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	CATHERINE C. MILLER IRREV TR DTD 3/26/91
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Lloyd I. Miller
	 	 	 	 	     Title: Trustee
	 
	 	 	 	 	 	 
	 	 	Address: 4550 Gordon Drive	 	 
	 	 	 	 	        Naples, FL 34102
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$324,779.53
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	ALEXANDRA B. MILLER
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Lloyd I. Miller
	 	 	 	 	     Title: Custodian FL/UTMA
	 
	 	 	 	 	 	 
	 	 	Address: 4550 Gordon Drive	 	 
	 	 	 	 	        Naples, FL 34102
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$324,779.53
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	LLOYD I. MILLER
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Lloyd I. Miller
	 	 	 	 	     in his individual capacity
	 
	 	 	 	 	 	 
	 	 	Address: 4550 Gordon Drive	 	 
	 	 	 	 	        Naples, FL 34102
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$3,897,354.28
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$3,992,446.11






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	LLOYD I. MILLER TRUST A-4
	 
	 	 	 	 	 	 
	 	 	By: PNC Bank
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Alan Goldman
	 	 	 	 	     Title: Trustee
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$2,598,236,20
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                   0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	MILFAM I, L.P.
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Lloyd I. Miller
	 	 	 	 	     Title:
  Limited Partner
	 
	 	 	 	 	 	 
	 	 	Address:   4550 Gordon Drive	 	 
	 	 	 	 	        Naples, FL 34102
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$2,598,236.20
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$3,992,446.11






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	MILFAM II, L.P.
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Lloyd I. Miller
	 	 	 	 	     Title:
  Limited Partner
	 
	 	 	 	 	 	 
	 	 	Address:  4550 Gordon Drive	 	 
	 	 	 	 	        Naples, FL 34102
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$2,598,236.20
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                   0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	HIGHLAND CRUSADER OFFSHORE PARTNERS
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	

	 	 	 	     Name:	 	 
	

	 	 	 	     Title:	 	 
	 
	 	 	 	 	 	 
	 	 	Address:  13455 Noel Road, Suite 1300	 	 
	 	 	 	 	        Dallas, TX 75240
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$5,196,472.40
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$   898,962.84






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	RICHARD RILEY
	 
	 	 	 	 	 	 
	 	 	
	 
	 	 	Name:	 	Richard Riley
	 	 	 	 	in his individual capacity
	 
	 	 	 	 	 	 
	 	 	Address:   133 Shorecliff Road,	 	 
	 	 	 	 	     Corona del Mar, CA 92625
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$324,779.53
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	BRYANT AND CARLEEN RILEY
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Bryant Riley in his capacity as joint
	 	 	 	 	     tenant with right of survivorship
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	 	 	 	 	     Name: Carleen Riley in her capacity as
	 	 	 	 	     joint tenant with right of survivorship
	 
	 	 	 	 	 	 
	 	 	Address:  12710 Marlboro Street	 	 
	 	 	 	 	        Brentwood, CA 90049
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$129,911.81
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	HEDGEHOG CAPITAL
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	

	 	 	 	     Name:	 	 
	

	 	 	 	     Title:	 	 
	 
	 	 	 	 	 	 
	 	 	Address:  1117 East Putnam Avenue, Suite 320	 	 
	 	 	 	 	        Riverside, CT 06878
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$3,120,000.00
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                   0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	THE CONUS FUND, L.P.
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	

	 	 	 	     Name:	 	 
	

	 	 	 	     Title:	 	 
	 
	 	 	 	 	 	 
	 	 	Address:  1 Rockefeller Plaza, 18th Floor	 	 
	 	 	 	 	        New York, New York 10020
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$1,096,297.72
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                   0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	EAST HUDSON INC. (BVI)
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	

	 	 	 	     Name:	 	 
	

	 	 	 	     Title:	 	 
	 
	 	 	 	 	 	 
	 	 	Address:  1 Rockefeller Plaza, 18th Floor	 	 
	 	 	 	 	        New York, New York 10020
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$194,480.00
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	THE CONUS FUND OFFSHORE LIMITED
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	

	 	 	 	     Name:	 	 
	

	 	 	 	     Title:	 	 
	 
	 	 	 	 	 	 
	 	 	Address:  1 Rockefeller Plaza, 18th Floor	 	 
	 	 	 	 	        New York, New York 10020
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$201,760.00
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                0






[Recapitalization Letter]




 









 








	 	 	 	 	 	 	 
	 	 	THE CONUS FUND (QP), L.P.
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	
	 
	

	 	 	 	     Name:	 	 
	

	 	 	 	     Title:	 	 
	 
	 	 	 	 	 	 
	 	 	Address:  1 Rockefeller Plaza, 18th Floor	 	 
	 	 	 	 	        New York, New York 10020
	 
	 	 	 	 	 	 
	 	 	Common Stock Beneficially Owned:	 	0 Shares
	 
	 	 	 	 	 	 
	 	 	16% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$346,320.00
	 
	 	 	 	 	 	 
	 	 	18% Subordinated Notes Held	 	 
	 	 	(Original Principal Amount):	 	$                0






[Recapitalization Letter]




 









 






SCHEDULE I



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Shares of Recap	 	 	Shares of New	 
	 	 	Term Loan A	 	 	Term Loan B	 	 	Common Stock to be	 	 	Preferred Stock to	 
	Investor	 	Commitment	 	 	Commitment	 	 	Received	 	 	be Received	 
	Elliott Associates, L.P.
	 	$	—	 	 	$	—	 	 	 	5,298,946.0	 	 	 	88,315.8	 
	Elliott International, L.P.
	 	 	—	 	 	 	—	 	 	 	9,636,002.2	 	 	 	160,600.0	 
	Manchester Securities Corp.
	 	 	18,880,491.14	 	 	 	15,023,988.18	 	 	 	9,008,825.9	 	 	 	150,147.1	 
	Falcon Mezzanine Partners, LP
	 	 	—	 	 	 	4,150,000.00	 	 	 	7,280,339.63	 	 	 	121,338.99	 
	D.E. Shaw Laminar Portfolios, L.L.C.
	 	 	—	 	 	 	—	 	 	 	803,567.41	 	 	 	13,392.79	 
	Langley Partners, L.P.
	 	 	338,187.49	 	 	 	450,916.65	 	 	 	612,297.34	 	 	 	10,204.96	 
	SACC Partners, LP
	 	 	—	 	 	 	4,520,000.00	 	 	 	5,193,933.22	 	 	 	86,565.55	 
	Kevin G. Douglas and Michelle M. Douglas
	 	 	—	 	 	 	—	 	 	 	369,314.28	 	 	 	6,155.24	 
	Douglas Family Trust
	 	 	—	 	 	 	—	 	 	 	184,657.14	 	 	 	3,077.62	 
	James Douglas and Jean Douglas
Irrevocable Descendant’s Trust
	 	 	—	 	 	 	—	 	 	 	184,657.14	 	 	 	3,077.62	 
	B. Riley & Co. Profit Sharing, Inc.
	 	 	—	 	 	 	80,000.00	 	 	 	70,042.69	 	 	 	1,167.38	 
	B. Riley & Co., Inc.
	 	 	—	 	 	 	350,000.00	 	 	 	459,042.41	 	 	 	7,650.71	 
	L. Miller III GST dtd 12/31/91
	 	 	—	 	 	 	—	 	 	 	29,843.58	 	 	 	497.39	 
	MilFam LLC
	 	 	—	 	 	 	—	 	 	 	29,843.58	 	 	 	497.39	 
	Catherine C. Miller Irrev Tr dtd 3/26/91
	 	 	—	 	 	 	—	 	 	 	29,843.58	 	 	 	497.39	 
	Alexandra B. Miller
	 	 	—	 	 	 	—	 	 	 	29,843.58	 	 	 	497.39	 
	Lloyd I. Miller
	 	 	2,142,857.14	 	 	 	2,857,142.86	 	 	 	4,928,040.82	 	 	 	82,134.01	 
	Lloyd I. Miller Trust A-4
	 	 	1,285,714.29	 	 	 	1,714,285.71	 	 	 	1,998,147.12	 	 	 	33,302.45	 
	MilFam I, L.P.
	 	 	1,285,714.29	 	 	 	1,714,285.71	 	 	 	3,635,734.18	 	 	 	60,595.57	 
	MilFam II, L.P.
	 	 	1,285,714.29	 	 	 	1,714,285.71	 	 	 	1,998,147.12	 	 	 	33,302.45	 
	Highland Crusader Offshore Partners
	 	 	3,428,571.43	 	 	 	4,571,428.57	 	 	 	5,107,470.23	 	 	 	85,124.50	 
	Richard Riley
	 	 	—	 	 	 	—	 	 	 	29,843.58	 	 	 	497.39	 
	Bryant and Carleen Riley
	 	 	—	 	 	 	50,000.00	 	 	 	48,253.22	 	 	 	804.22	 
	Hedgehog Capital LLC
	 	 	351,119.37	 	 	 	1,634,825.82	 	 	 	1,620,809.05	 	 	 	27,013.48	 






 









 





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Shares of Recap	 	 	Shares of New	 
	 	 	Term Loan A	 	 	Term Loan B	 	 	Common Stock to be	 	 	Preferred Stock to	 
	Investor	 	Commitment	 	 	Commitment	 	 	Received	 	 	be Received	 
	The Conus Fund, L.P.
	 	 	597,156.22	 	 	 	696,844.28	 	 	 	842,142.83	 	 	 	14,035.71	 
	East Hudson Inc. (BVI)
	 	 	105,933.76	 	 	 	123,618.13	 	 	 	149,393.67	 	 	 	2,489.89	 
	The Conus Fund Offshore Ltd.
	 	 	109,899.20	 	 	 	128,245.55	 	 	 	154,985.95	 	 	 	2,583.10	 
	The Conus Fund (QP), L.P.
	 	 	188,641.40	 	 	 	220,132.82	 	 	 	266,032.57	 	 	 	4,433.88	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	$	30,000,000	 	 	$	40,000,000	 	 	 	60,000,000	 	 	 	1,000,000	 







 









 








SCHEDULE II




Each of the Purchase Agreement related to the Company’s 18% Subordinated Secured Notes due March
31, 2007 and the Purchase Agreement related to the Company’s 16% Subordinated Secured Notes due
March 31, 2007 (in each case before giving effect to paragraph 1 of the letter agreement to which
this Schedule II is attached) is amended, by execution of the letter agreement, without the need
for further act or evidence, to delete therefrom:




     Terms of the Notes: Section 2.2(c)



     Covenants: All of Article 6



     Events of Default: All of Section 7.1, except Sections 7.1.1, 7.1.4, 7.1.6 and 7.1.8



provided, however, if required by the holders of a majority of the outstanding Subordinated Notes,
in lieu of deletion of certain affirmative covenants, those covenants may be retained and amended
or revised as would be appropriate for publicly traded debt securities of an investment grade
issuer.




[Recapitalization Letter]





 









 





Exhibit A



HORIZON OFFSHORE, INC.




CERTIFICATE OF DESIGNATION,

PREFERENCES AND RIGHTS

OF

SERIES B MANDATORILY CONVERTIBLE REDEEMABLE




PREFERRED STOCK










Pursuant to Section 151 of the

Delaware General Corporation Law










      HORIZON OFFSHORE, INC. (the “Company”), a corporation organized and existing under the laws of
the State of Delaware, hereby certifies that pursuant to the provisions of Section 151 of the
Delaware General Corporation Law, its Board of Directors, at a duly noticed and convened meeting
held on March 29, 2005 adopted the following resolution, which resolution remains in full force
and effect as of the date hereof:



      WHEREAS, the Board of Directors of the Company is authorized, within the limitations and
restrictions stated in the Certificate of Incorporation, to fix by resolution or resolutions the
designation of preferred stock and the powers, preferences and relative participating, optional or
other special rights and qualifications, limitations or restrictions thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, conversion or exchange, and such
other subjects or matters as may be fixed by resolution or resolutions of the Board of Directors
under the Delaware General Corporation Law; and



      WHEREAS, it is the desire of the Board of Directors of the Company, pursuant to its authority
as aforesaid, to authorize and fix the terms of the preferred stock to be designated the Series B
Mandatorily Convertible Redeemable Preferred Stock of the Company and the number of shares
constituting such preferred stock;



      NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized the Series B Mandatorily
Convertible Redeemable Preferred Stock on the terms and with the provisions herein set forth:



1








 





DESIGNATION, PREFERENCES AND RIGHTS




of




SERIES B MANDATORILY CONVERTIBLE REDEEMABLE PREFERRED STOCK




of




HORIZON OFFSHORE, INC.




      The relative rights, preferences, powers, qualifications, limitations and restrictions granted
to or imposed upon the Series B Mandatorily Convertible Redeemable Preferred Stock or the holders
thereof are as follows:



      1. Definitions. For purposes of this Certificate of Designation, Preferences and
Rights of Series B Mandatorily Convertible Redeemable Preferred Stock (this “Certificate of
Designation”) the following definitions shall apply:



      “Amendment” shall mean receipt by the Company from the Delaware Secretary of State of
confirmation of filing of a Certificate of Amendment of the Company’s Certificate of Incorporation,
as amended, that (a) increases the number of authorized shares of Common Stock to one billion shares
and (b) reduces the par value for such shares to not more than $.00001 per share duly approved and
adopted by the Board and the Company’s stockholders in accordance with Section 242 of the Delaware
General Corporation Law and all other applicable laws, rules and regulations.



      “Board” shall mean the Board of Directors of the Company.



      “Common Stock” shall mean the Common Stock, par value $1.00 per share, of the Company, as
constituted from time to time; provided however, the Common Stock as constituted from time to time
shall have only the voting powers and rights appurtenant to the Common Stock existing at the
Original Issue Date.



      “Company” shall mean Horizon Offshore, Inc., a Delaware corporation.



      “Conversion Rate” has the meaning set forth in Section 7(a) of this Certificate of
Designation.



      “Current Market Price,” when used with reference to shares of Common Stock or other securities
on any date, shall mean the average of the daily market prices for 20 consecutive trading days
commencing 30 days before such date. The daily market price for each such trading day shall be the
average of the last reported closing bid and asked prices on such day as officially quoted on the
NASDAQ National Market, (a) if the Common Stock is not then listed or admitted to trading on any
stock exchange or such market, the average of the last reported closing bid and asked prices on
such day on the OTC Bulletin Board (or similar system on such day) as furnished by NASDAQ or Pink
Sheets, LLC, (b) if neither such entity at the time is engaged in the business of reporting



2








 






such prices, as furnished by any similar firm then engaged in such business, or (c) if there
is no such firm, as furnished by any member of the National Association of Securities Dealers
(“NASD”) selected mutually by the Required Holders and the Company or, if they cannot agree upon
such selection, as selected by two such members of the NASD, one of which shall be selected by the
Required Holders and one of which shall be selected by the Company.



      “Fully Diluted Outstanding” shall mean, with reference to Common Stock, at any date as of
which the number of shares thereof is to be determined, (a) all shares of Common Stock outstanding
at such date and (b) all shares of Common Stock underlying other options or warrants to purchase,
or other securities convertible into or exchangeable for, shares of Common Stock outstanding on
such date excluding any such options, warrants or securities with an exercise or conversion price
in excess of the Current Market Price.



      “Liquidation Preference” shall mean $40.00 per share for each share of the Mandatorily
Convertible Preferred Stock.



      “Mandatorily Convertible Preferred Stock” shall refer to shares of Series B Mandatorily
Convertible Redeemable Participating Preferred Stock, $1.00 par value per share, of the Company.



      “Original Issue Date” shall mean the date of the original issuance of shares of Mandatorily
Convertible Preferred Stock.



      “Person” shall mean any individual, firm, corporation or other entity, and shall include any
successor (by merger or otherwise) of such entity.



      “Redemption Date” shall mean March 31, 2011.



      “Redemption Price” shall mean, at any date of determination, a per share amount equal to the
Liquidation Preference hereof increased at a rate of 10% per annum, compounded quarterly at the end
of each fiscal quarter of the Company (commencing June 30, 2005).



      “Required Holders” shall mean the holders of at least of a majority of the outstanding shares
of Mandatorily Convertible Preferred Stock.



      “Six Month Anniversary Date” has the meaning set forth in Section 7(a) of this Certificate of
Designation.



      2. Designation; Number of Shares. The designation of the preferred stock authorized
by this resolution shall be “Series B Mandatorily Convertible Redeemable Participating Preferred
Stock” and the number of shares of Series B Mandatorily Convertible Redeemable Participating
Preferred Stock authorized hereby shall be 1,000,000 shares.



3








 





      3. Dividends.



      (a) No dividends shall be declared or paid on shares of Mandatorily Convertible Preferred
Stock.



      (b) So long as any shares of Mandatorily Convertible Preferred Stock shall be outstanding, no
dividend whatsoever shall be paid or declared, and no distribution shall be made, on account of any
Common Stock or of Common Stock (or any security convertible or exchangeable therefor.



      4. Liquidation Rights of Mandatorily Convertible Preferred Stock.



      (a) In the event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of Mandatorily Convertible Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Company available for distribution to its
stockholders, whether such assets are capital, surplus or earnings, before any payment or
declaration and setting apart for payment of any amount shall be made in respect of any shares of
Common Stock or any share of any other class or series of the Company’s preferred stock ranking
junior to the Mandatorily Convertible Preferred Stock with respect to the payment of dividends or
distribution of assets on liquidation, dissolution or winding up of the Company, an amount in cash
equal to the greater of (i) the Liquidation Preference and (ii) such amount per share as would have
been payable had each such share been converted to Common Stock pursuant to Section 7 immediately
prior to such liquidation, dissolution or winding up of the Company.



      (b) If upon any liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the assets to be distributed among the holders of Mandatorily Convertible Preferred
Stock shall be insufficient to permit the payment to such stockholders of the full preferential
amounts aforesaid, then the entire assets of the Company to be distributed shall be distributed
ratably among the holders of Mandatorily Convertible Preferred Stock, based on the full
preferential amounts for the number of shares of Mandatorily Convertible Preferred Stock held by
each holder.



      (c) After payment to the holders of Mandatorily Convertible Preferred Stock of the amounts set
forth in Section 4(a) hereof, the entire remaining assets and funds of the Company legally
available for distribution, if any, shall be distributed among the holders of any Company stock
entitled to a preference over the Common Stock in accordance with the terms thereof and,
thereafter, to the holders of Common Stock.



4








 





      5. Voting Rights. Holders of Mandatorily Convertible Preferred Stock shall have no
voting rights, except as provided by law; provided, however that the affirmative vote of the
Required Holders, voting together as a class, in person or by proxy, at a special or annual meeting
of such holders called for the purpose, or pursuant to a written consent of such holders, shall be
necessary to:



      (a) authorize, adopt or approve an amendment or alteration to, or repeal of, the Certificate
of Incorporation of the Company (whether pursuant to Section 242 or 251(e) of the Delaware General
Corporation Law, merger, consolidation or otherwise) which would alter or change in any manner the
terms, powers, preferences or special rights of the shares of the Mandatorily Convertible Preferred
Stock or grant waivers thereof, or which would otherwise adversely affect the rights of the
Mandatorily Convertible Preferred Stock, provided that no such modification or amendment may,
without the consent of each holder of Mandatorily Convertible Preferred Stock affected thereby; (i)
change the Conversion Rate; (ii) change the Redemption Date; (iii) reduce the Liquidation
Preference or Redemption Price of the Mandatorily Convertible Preferred Stock; or (iv) reduce the
percentage of outstanding Mandatorily Convertible Preferred Stock necessary to modify or amend the
terms thereof or to grant waivers thereof; or



      (b) issue any shares of the Common Stock, or shares of other capital stock of the Company
ranking senior to, or pari passu with, or junior to (either as to dividends or upon voluntary or
involuntary liquidation, dissolution or winding up) the Mandatorily Convertible Preferred Stock, or
issue any securities, notes, warrants, options or other instruments convertible into, exercisable
for or exchangeable for such shares.



      6. Redemption of Mandatorily Convertible Preferred Stock.



      (a) The Company shall redeem, and the holders of the outstanding Mandatorily Convertible
Preferred Stock shall sell to the Company on the Redemption Date, for cash at the Redemption Price,
all of the outstanding Mandatorily Convertible Preferred Stock.



      (b) On or before the Redemption Date, each holder of Mandatorily Convertible Preferred Stock
shall surrender the certificate or certificates representing such shares of Mandatorily Convertible
Preferred Stock to the Company, in the manner and at the place designated in the written notice of
redemption provided by the Company, and thereupon the Redemption Price for such shares shall be
payable in the manner described in Section 6(c) on the Redemption Date to the person whose name
appears on such certificate or certificates as the owner thereof, and each surrendered certificate
shall be cancelled and retired.



      (c) The Redemption Price shall be payable in cash at the Redemption Date upon any redemption
pursuant to Section 6(a).



      (d) Unless the Company shall fail to redeem the shares of Mandatorily Convertible Preferred
Stock when the Company is required to do so, the holders of shares



5








 






of Mandatorily Convertible Preferred Stock which are to be redeemed shall cease to have any
further rights with respect thereto on the Redemption Date, other than to receive the applicable
Redemption Price, which shall be without interest.



      (e) If, at the time of any redemption pursuant to Section 6(a), the funds of the Company
legally available for redemption of Mandatorily Convertible Preferred Stock are insufficient to
redeem the number of shares required to be redeemed, those funds which are legally available shall
be used to redeem the maximum possible number of such shares, pro rata based upon the number of
shares to be redeemed. At any time thereafter when additional funds of the Company become legally
available for the redemption of Mandatorily Convertible Preferred Stock, such funds shall
immediately be used to redeem the balance of the shares of Mandatorily Convertible Preferred Stock
which the Company has become obligated to redeem pursuant to this Section 6(e).



      (f) The Company may not otherwise redeem or repurchase the Mandatorily Convertible Preferred
Stock.



      7. Conversion.



      (a) Automatic Conversion. Upon the occurrence of the Amendment, all the shares of
Mandatorily Convertible Preferred Stock shall automatically convert into fully paid and
nonassessable shares of Common Stock at the Conversion Rate; provided, however, if the Amendment
occurs prior to the date which is six months and one day from and after the Original Issue Date (
the “Six Month Anniversary Date”), no conversion will occur until the Six Month Anniversary Date .
The “Conversion Rate” means, for each share of Mandatorily Convertible Preferred Stock, a number of
shares of Common Stock calculated as follows:



Conversion Rate = (X — [60,000,000 plus the number of Fully Diluted Outstanding

Shares of Common Stock on March 31, 2005])/1,000,000;



where X equals the number of Fully Diluted Outstanding shares of Common Stock on March 31, 2005
divided by .05, as such rate may be adjusted from time to time as provided in Section 7(e) below.




      (b) Fractional Shares. No fractional shares of Common Stock will be issued upon
conversion of the Mandatorily Convertible Preferred Stock. In lieu of fractional shares, the
Company will round up to the nearest whole share the number of shares of Common Stock issued upon
conversion of the Mandatorily Convertible Preferred Stock.



      (c) Exchange of Certificates. The conversion of the Mandatorily Convertible Preferred
Stock into Common Stock shall be effective immediately upon public announcement by the Company of
the automatic conversion provided for in Section 7(a) and each certificate representing shares of
Convertible Preferred Stock shall then be deemed thereafter to represent shares of Common Stock
without any further



6








 






action on the part of the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company; provided, however, that promptly after
such conversion, the Company shall provide notice of such conversion to the holders of the
Convertible Preferred Stock and from and after such notice, each holder will be entitled to
surrender the certificate or certificates for the shares of Mandatorily Convertible Preferred Stock
at the office of the transfer agent (or at the principal office of the Company if the Company
serves as its own transfer agent) together with a notice as to whether the certificate or
certificates for shares of Common Stock to be issued shall be in such holder’s name or the names of
such holder’s nominee(s). If required by the Company, certificates surrendered after conversion
will be endorsed or accompanied by a written instrument or instruments of transfer, in form
reasonably satisfactory to the Company, duly executed by the holder or his, her or its attorney
duly authorized in writing. The Company will, as soon as practicable after the Amendment, issue
and deliver at such office to such holder, or to such holder’s nominee(s), a certificate or
certificates for the number of shares of Common Stock to which such holder is entitled. Such
conversion will be deemed to have been made immediately after the Amendment, and the Person or
Persons entitled to receive the shares of Common Stock issuable upon such conversion will be
treated for all purposes as the record holder or holders of such shares of Common Stock as of such
date.



      (d) Stock Splits, Dividends and Distributions. So long as any shares of Mandatorily
Convertible Preferred Stock are outstanding, the Company will not effect any split or subdivision
of the outstanding shares of Common Stock.



      (e) Adjustment for Reorganization, Reclassification or Exchange. If the Common Stock
issuable upon the conversion of the Mandatorily Convertible Preferred Stock is changed into or
exchanged for the same or a different number of shares of any class or classes of stock of the
Company or another entity, whether by capital reorganization, merger, consolidation,
reclassification, or otherwise then and in each such event the holders will have the right upon
conversion to receive such shares of the kind and amount of shares of stock and other securities
and property receivable upon such capital reorganization, merger, consolidation, reclassification,
or other change such that its conversion rights and the Conversion Rate with respect to Common
Stock of the Company or such other entity will be maintained upon the occurrence of the Amendment.



      (f) No Impairment. The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, modify, amend, abrogate,
avoid or seek to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist in the carrying out
of all the provisions of this Certificate of Designation and in the taking of all such action as
may be necessary or appropriate to protect the conversion rights and other rights and preferences
of the holders of the Mandatorily Convertible Preferred Stock against impairment.



7








 





      (g) Certificate as to Adjustments. The Company will, upon the written request at any
time of any holder of Mandatorily Convertible Preferred Stock, furnish or cause to be furnished to
such holder a certificate setting forth the number of shares of Common Stock and the amount, if
any, of other property which then would be received upon the conversion of Mandatorily Convertible
Preferred Stock.



      8. Remedies. Any registered holder of Mandatorily Convertible Preferred Stock may
proceed to protect and enforce its rights and the rights of such holders by any available remedy by
proceeding at law or in equity to protect and enforce any such rights, whether for the specific
enforcement of any provision in this Certificate of Designation or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.



      9. No Reissuance of Mandatorily Convertible Preferred Stock. No Mandatorily
Convertible Preferred Stock acquired by the Company by reason of redemption, purchase, or otherwise
shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares
which the Company shall be authorized to issue.



      10. Notices. All notices to the Company permitted hereunder shall be personally
delivered or sent by first class mail, postage prepaid, addressed to its principal office located
at 2500 CityWest Boulevard, Suite 2200, Houston, Texas 77042, or to such other address at which its
principal office is located and as to which notice thereof is similarly given to the holders of the
Mandatorily Convertible Preferred Stock at their addresses appearing on the books of the Company.



8








 





      11. Legend. Each certificate representing shares of Mandatorily Convertible Preferred
Stock shall bear the following legend:




“THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND THE OFFER AND SALE OF THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES OR
BLUE SKY LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT
OR APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. ADDITIONALLY, THE
TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN
A LETTER AGREEMENT DATED AS OF MARCH 31, 2005, AMONG THE ISSUER
HEREOF AND CERTAIN OTHER PARTIES THERETO, AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF THE ISSUER HEREOF.”



[Remainder of Page Intentionally Left Blank]




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      IN WITNESS WHEREOF, Horizon Offshore, Inc. has caused this Certificate to be signed by its
President and Secretary, respectively, on this 31 day of March, 2005.



	 	 	 	 	 
	

	 	 	 	 
	

	 	President	 	 
	

	 	 	 	 
	

	 	 	 	 
	

	 	 	 	 
	

	 	Secretary