Document:

exv10w3

 

EXHIBIT 10.3

LOAN AGREEMENT

Between

BOEING CAPITAL CORPORATION,

as the Lender

and

HORIZON VESSELS INTERNATIONAL, LTD.

as the Borrower

Dated as of June 30, 2003

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 
	 	 	 	Page
	 	 	 	

	ARTICLE 1.The Loan
	 	 	4	 
	 	Section 1.1      Amount
	 	 	4	 
	 	Section 1.2      Repayment
	 	 	4	 
	 	Section 1.3      Interest
	 	 	5	 
	 	Section 1.4      Payments
	 	 	6	 
	 	Section 1.5      Prepayment
	 	 	7	 
	 	Section 1.6      Security
	 	 	9	 
	 	Section 1.7      Changes in Circumstances
	 	 	9	 
	ARTICLE 2.Conditions Precedent
	 	 	11	 
	 	Section 2.1      Conditions Precedent
	 	 	11	 
	 	Section 2.2      Conditions to the Second Advance
	 	 	13	 
	 	Section 2.3      Waiver of Conditions Precedent
	 	 	13	 
	ARTICLE 3.Representations, Warranties and Covenants
	 	 	13	 
	 	Section 3.1      Representations of the Borrower
	 	 	13	 
	 	Section 3.2      Covenants of the Borrower
	 	 	16	 
	ARTICLE 4.Events of Default
	 	 	23	 
	 	Section 4.1      Defaults
	 	 	23	 
	 	Section 4.2      Right to Perform
	 	 	25	 
	 	Section 4.3      Remedies Cumulative
	 	 	26	 
	ARTICLE 5.Miscellaneous
	 	 	26	 
	 	Section 5.1      Notices
	 	 	26	 
	 	Section 5.2      No Waiver
	 	 	27	 
	 	Section 5.3      Applicable Law and Jurisdiction
	 	 	27	 
	 	Section 5.4      Severability
	 	 	28	 
	 	Section 5.5      Amendment
	 	 	28	 
	 	Section 5.6      Assignment and Participation
	 	 	28	 
	 	Section 5.7      Costs, Expenses and Taxes
	 	 	28	 
	 	Section 5.8      Fees
	 	 	29	 
	 	Section 5.9      Counterparts
	 	 	29	 
	 	Section 5.10    Section Headings
	 	 	29	 
	 	Section 5.11    Merger
	 	 	29	 
	 	Section 5.12    Survival of Terms
	 	 	29	 

Exhibit A   Secured Promissory Note

Exhibit B   Notice of Drawing

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LOAN AGREEMENT

     THIS LOAN AGREEMENT is dated as of June 30, 2003 between HORIZON VESSELS
INTERNATIONAL, LTD., a Cayman Islands corporation (the “Borrower”) and BOEING
CAPITAL CORPORATION, a Delaware corporation (the “Lender”). Capitalized terms
used herein and not otherwise defined herein are used with the meanings given
to them in the Definitions Section of this Agreement.

R E C I T A L S :

     The Borrower is the owner of the Vanuatu flag derrick/pipe-lay barge SEA
HORIZON, Official No. 1340 (the “Vessel”).

     The Borrower has requested a loan from the Lender in a principal amount of
up to Thirty-Five Million United States Dollars (USD 35,000,000) (as more
specifically described in Section 1.1 hereof, the “Loan”) in order to repay
accounts payable and the loan secured by the existing mortgage on the Vessel,
supplement working capital and pay for upgrades to the Vessel upon the terms
and conditions contained herein and in the Note.

     The Loan shall be evidenced by a secured promissory note from the Borrower
to the Lender (the “Note”) substantially in form and substance of Exhibit A
annexed hereto and made a part hereof.

     NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

DEFINITIONS

     The following terms shall have the following meanings for all purposes of
this Agreement and shall be equally applicable to both the singular and the
plural forms of the terms herein defined.

     “Advance” means the two (2) advances of the Loan as provided in Section
1.1(a) below.

     “Affiliate” of any Person means (i) any Person directly or indirectly
controlled by, controlling or under common control with such first Person and
(ii) any director or officer of such first Person or of any Person referred to
in clause (i) above. For the purposes of this definition “control” of any
Person includes (a) with respect to any corporation or other Person having
voting shares or the equivalent and elected directors, managers, or Persons
performing similar functions, the ownership or power to vote, directly or
indirectly shares or the equivalent representing 50% or more of the power to
vote in the election of directors, managers or Persons performing similar
functions, (b) ownership of 50% or more of the equity or beneficial interest in
any other entity and (c) the ability to direct the business and affairs of any
Person by acting as a general partner, manager or otherwise.

 

 

     “Agreement”, “this Agreement”, “herein”, “hereunder” or other like words
mean this Loan Agreement as originally executed or as modified, amended or
supplemented from time to time pursuant to the provisions hereof.

     “Appraisal” shall mean each report appraising the Fair Market Value or the
Orderly Liquidation Value of the Vessel prepared by Merrill Marine Services,
Inc., or other marine surveyors chosen by the Borrower but acceptable to the
Lender, in form and substance satisfactory to the Lender.

     “Assignments” shall mean the Assignment of Insurances and the Assignment
of Charters concerning the Vessel both in form and substance satisfactory to
the Lender.

     “Base Rate” has the meaning given to it in Section 1.3(a) of this
Agreement.

     “Break Funding Fee” means an amount equal to the difference between (a)
the interest that would have accrued on the Loan from the date of the
prepayment in question to the end of the current calendar quarter assuming that
(i) the Loan had not been prepaid and (ii) the interest rate for such period
was the Base Rate in effect on the date of the prepayment, less (b) the
interest that would have accrued on the Loan, from the date of the prepayment
in question to the end of the current calendar quarter, assuming (i) the Loan
had not been prepaid and (ii) the interest rate for such period was the LIBOR
Rate in effect on the date of prepayment.

     “Business Day” means a day other than a Saturday or a Sunday or a day on
which commercial banks are authorized to be closed in the State of New York or
the State of Texas.

     “Closing Date” means any Business Day occurring on or prior to March 31,
2004 on which an Advance is made by the Lender to the Borrower.

     “Dollars” or “USD” means lawful currency of the United States of America.

     “Event of Default” has the meaning set forth in Article IV of this
Agreement.

     “Excluded Income Taxes” has the meaning set forth in Section 1.4(a) of
this Agreement.

     “Fair Market Value” has the meaning set forth in Section 1.5(a)(iv) of
this Agreement.

     “Fixed Charge Coverage Ratio” means the sum of the Parent Company’s
earnings on a consolidated basis before interest, taxes, depreciation and
amortization less the greater of the Parent Company’s actual consolidated
capital expenditures or USD 10,000,000.00 on an annualized basis divided by the
sum of the Parent Company’s consolidated (i) cash interest expenses and (ii)
the current portion of long term debt and capitalized lease expenses. For
purposes of this definition, the current portion of long term debt and
capitalized leases will be determined as of the last day of the calculation
period. The Fixed Charge Coverage Ratio will be calculated at the end of each
of the Parent Company’s fiscal quarters using the results of that quarter and
each of the three immediately preceding quarters.

     “GAAP” means generally accepted accounting principles in the United States
of America as applied to the applicable person or entity on a basis consistent
with all prior periods.

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     “Governmental Agencies” means any government or any state, department or
other political subdivision thereof or governmental body, agency, authority,
department or commission having jurisdiction over the Borrower or the
Borrower’s properties (including without limitation any court or tribunal)
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government and any corporation, partnership or
other entity directly or indirectly owned by the foregoing.

     “Guaranty” means the guaranty by the Guarantors, in favor of the Lender in
form and substance satisfactory to the Lender.

     “Guarantors” means Horizon Offshore, Inc. and Horizon Vessels, Inc., both
Delaware corporations.

     “Hazardous Substances” means petroleum and used oil, or any other
pollutant or contaminant, hazardous, dangerous or toxic waste, substance or
material as defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 § 9601, et seq. (hereinafter called
“CERCLA”); the Resource Conservation and Recovery Act, as amended, 42 § 6901,
et seq. (hereinafter called “RCRA”); the Toxic Substances Control Act, as
amended, 15 U.S.C. § 2601, et seq. (hereinafter called “TSCA”); the Hazardous
Materials Transportation Act, as amended, 49 § 1801, et seq. (hereinafter
called “HMTA”); the Oil Pollution Act of 1990, Pub.L. No. 101-380, 104 Stat.
484 (1990) (hereinafter called “OPA”); or any other statute, law, ordinance,
code or regulation of any Governmental Agency relating to or imposing liability
or standards of conduct concerning the use, production, generation, treatment,
storage, recycling, handling, transportation, release, threatened release or
disposal of any hazardous, dangerous or toxic waste, substance or material,
currently in effect or at any time hereafter adopted.

     “LIBOR Rate” shall mean the rate of interest set forth in the “Money
Rates” column of the Wall Street Journal under the heading “London Interbank
Offering Rates (LIBOR)” for ninety (90) days (presently described there as the
average of interbank offering rates for dollar deposits in the London market
presently based on quotations at sixteen major banks), in the event that such
rate does not appear in the Wall Street Journal, the LIBOR Rate shall be
determined from such source as the Lender shall determine. The LIBOR Rate
shall be determined as of the first Business Day of each calendar quarter and
be applicable for that calendar quarter.

     “Loan” has the meaning set forth in Section 1.1 of this Agreement.

     “Loan Documents” means this Agreement, the Note, the Mortgage, the
Assignments and the Guaranty.

     “Maturity Date” means June 30, 2010.

     “Maximum Rate” means the maximum rate of nonusurious interest permitted
from day to day by applicable law and calculated after taking into account any
and all relevant fees, payments, and other charges in respect of the Loan which
are deemed to be interest under applicable law.

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     “Mortgage” means the Vanuatu first preferred ship mortgage granted by the
Borrower in favor of the Lender on the Vessel as the same may be modified,
amended or supplemented from time to time, and any substantially similar
instruments that may be executed, delivered and recorded in substitution
therefor.

     “Note” has the meaning set forth in paragraph 3 of the Recitals of this
Agreement.

     “Notice of Drawing” means the Notice of Drawing from the Borrower to the
Lender, substantially in the form of Exhibit B attached hereto and made a part
hereof.

     “Orderly Liquidation Value” has the meaning given to it in Section 1.5(b)
of this Agreement.

     “Parent Company” means Horizon Offshore, Inc.

     “Payment Date” means each date on which a Payment is due under this
Agreement and the Note.

     “Responsible Officer” means, as to the Borrower, such corporation’s chief
executive officer, chief financial officer or any other officer having
principal responsibility for the financial affairs of such company.

     “Subordinated Debt” means indebtedness of the Guarantor or the Borrower
subordinated to the Loan on terms satisfactory to the Lender.

     “Taxes” has the meaning set forth in Section 1.4(a) of this Agreement.

     “Total Loss” has the meaning set forth in Section 1.5(a)(ii), of this
Agreement.

     “Vessel” has the meaning set forth in paragraph 1 of the Recitals of this
Agreement.

ARTICLE 1.

The Loan

     Section 1.1
Amount. (a) Subject to the terms and conditions of Section 2.1 of
this Agreement, the Lender agrees to loan to the Borrower by means of two (2)
Advances, an aggregate principal amount of USD 35,000,000 (the “Loan”). The
first Advance shall be in an amount of up to USD 30,000,000 and the second
Advance shall be in an amount of up to USD 5,000,000.

	 	(b)	 	The Borrower shall make a request for an Advance by sending
to the Lender a written Notice of Drawing not later than 11:00 a.m.,
Houston Time, two (2) Business Days prior to the date on which the
Advance is requested setting forth the information required by the
form of the Notice of Drawing. A Notice of Drawing shall be
irrevocable.

     Section 1.2 Repayment.

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	 	(a)	 	The Borrower shall repay the principal amount of the Loan in
eighty-four (84) consecutive monthly installments (each installment
referred to as a “Payment”), the first eighty-three (83) of which
Payments to be in the amount of USD 238,095.24 and the final Payment
to be in the amount of USD 15,238,095.24, such installments to be
paid by the Borrower to the Lender on a Payment Date commencing July
30, 2003 and ending on the Maturity Date; provided, however, that
the final such installment shall be sufficient to pay any accrued
and unpaid interest, unpaid principal and unpaid premium, if any, in
respect of the Loan.
	 
	 	(b)	 	The Loan shall be evidenced by and repayable in accordance
with the terms hereof and of the Note.

     Section 1.3 Interest.

	 	(a)	 	Interest on the Loan shall accrue at a rate equal to the
Libor Rate plus 4.80% per annum (the “Base Rate”) and shall be
payable monthly in arrears together with each Payment. Any amount
due hereunder which is not paid when due, whether at stated
maturity, by acceleration or otherwise, shall bear interest from the
date when due until such amount is paid in full, payable on demand,
at a rate per annum equal to the Base Rate plus 2% (the “Default
Rate”).
	 
	 	(b)	 	In no event shall any interest rate provided for in this
Agreement or the Note exceed the Maximum Rate. It is the intention
of the parties hereto to strictly comply with applicable usury laws;
accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Agreement, in the Note, or in the other Loan
Documents, in no event shall this Agreement, the Note, or the other
Loan Documents be construed to charge, contract for or require the
payment or permit the collection of interest in excess of the
Maximum Rate. If any such excess interest is contracted for,
charged or received under this Agreement, the Note or the other Loan
Documents, or in the event that all of the principal balance shall
be prepaid, so that under any of such circumstances the amount of
interest contracted for, charged or received on the principal
balance shall exceed the Maximum Rate, then in such event (i) the
provisions of this Section 1.3(b) shall govern and control, (ii) the
Borrower or any other person or entity now or hereafter liable for
the payment thereof shall not be obligated to pay the amount of such
interest to the extent that it is in excess of the Maximum Rate,
(iii) any such excess which may have been collected shall be either
applied as a credit against the then unpaid Payments under the Note
or any other amount then due to Lender or refunded to the Borrower,
at the option of Lender, and (iv) the effective rate or interest
shall be automatically reduced to the Maximum Rate. It is further
agreed that without limitation of the foregoing, all calculations at
the rate of interest contracted for, charged or received under this
Agreement, the Note and the other Loan Documents which are made for
the purpose of determining whether such rate exceeds the Maximum
Rate, shall be made, to the extent permitted by applicable law, by
amortizing, prorating, allocating and spreading in equal parts
during the period of the full stated term of the indebtedness
evidenced hereby, all interest at any time contracted for, charged
or received from the Borrower or otherwise by

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	 	 	 	the Lender in connection with such indebtedness; provided, however,
that if any applicable state law is amended or the law or the
United States of America preempts any applicable state law, so that
it becomes lawful for the Lender to receive a greater simple
interest per annum rate than is presently allowed, the Borrower
agrees that, on the effective date of such amendment or preemption
as the case may be, the Maximum Rate shall be increased to the
maximum simple interest per annum rate allowed by the higher of the
amended state law or the law of the United States of America.

     Section 1.4 Payments.

	 	(a)	 	The payment obligations of the Borrower under the Note and
all other amounts payable under this Agreement to the Lender shall
be paid, in immediately available funds, to the Lender at such place
as the Lender may designate not less than one (1) Business Day prior
to the due date therefor, not later than the close of business on
the due date thereof, in lawful money of the United States. All
payments shall be made (i) without set-off, counterclaim or
condition and (ii) free and clear of, and without deduction for or
on account of, any present or future taxes, levies, duties, imposts,
charges, fees, deductions or withholdings of any nature (“Taxes”),
unless the Borrower is required by law or regulation to make payment
subject to any Taxes. In the event that the Borrower is required by
law or regulation to make any deduction or withholding on account of
any Taxes from any payment due under this Agreement or any of the
other Loan Documents, then: (a) the Borrower shall notify the Lender
promptly as soon as it becomes aware of such requirement and shall
remit promptly the amount of such Taxes to the appropriate taxation
authority, and in any event prior to the date on which penalties
attach thereto; and (b) such payment shall be increased by such
amount as may be necessary to ensure that the Lender receives a net
amount, free and clear of all Taxes, equal to the full amount which
the Lender would have received had such payment not been subject to
such Taxes (other than Excluded Income Taxes as such term is defined
below). Notwithstanding the foregoing, the Borrower shall not be
liable for, or required to pay, any Taxes which are overall income
or franchise taxes imposed at any time on the Lender in the United
States of America or any state or local government or taxing
authority in any state in which the Lender conducts business
(“Excluded Income Taxes”). Each such payment or reimbursement by
the Borrower shall be net of any credit or the value of any
deduction received by the Lender thereon to the extent that the same
can be determined by the Lender (as certified by the Lender to the
Borrower, such certificate to be conclusive absent manifest error).
The Borrower shall indemnify the Lender, its successors, assigns,
directors, officers, shareholders, employees and agents harmless
from and against any and all liability of the Lender in respect of
such Taxes and shall supply copies of applicable tax receipts. This
indemnity shall survive the payment in full of the Note.
	 
	 	(b)	 	If any payment to be made by the Borrower hereunder or under
any of the other Loan Documents shall become due on a day which is
not a Business Day, such payment shall be made on the next
succeeding Business Day.

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	 	(c)	 	Each Payment shall be made on a Payment Date.
	 
	 	(d)	 	The Borrower shall indemnify the Lender, its successors,
assigns, directors, officers, shareholders, employees and agents on
demand against all costs, expenses (including, without limitation,
attorneys’ fees and expenses), liabilities and losses (including
funding losses) sustained or incurred by the Lender as a result of
or in connection with: (a) the occurrence and/or continuance of any
Event of Default; and/or (b) any judgment or order which relates to
any sum due hereunder being expressed in a currency other than the
currency expressed to be due hereunder and as a result of a
variation in rates of exchange between the rate at which such amount
is converted into such other currency for the purposes of such
judgment or order and the rate prevailing on the date of actual
payment of such amount pursuant thereto; and/or (c) any postponement
of funding of the Loan occurring because of one or more of the
conditions precedent set forth Article II below shall not have been
satisfied or waived. The above indemnities are separate and
independent obligations of the Borrower and apply irrespective of
any indulgence granted by the Lender and shall survive the payment
in full of the Note.

     Section 1.5 Prepayment.

	 	(a)	 	Mandatory Prepayment.
	 

	 	(i)	 	Total Loss. If there shall have occurred a Total
Loss as herein defined or a sale of the Vessel, then on the
earlier of (x) the date insurance or sale proceeds are
received or (y) ninety (90) days after the date of occurrence
of the Total Loss, the Borrower shall (A) prepay an amount
equal to the amount outstanding under the Note (B) together
with any other amount due hereunder or under any Loan
Document. No prepayment premium shall be payable with respect
to any Mandatory Prepayments made by the Borrower pursuant to
this Section 1.5(a)(i). The Lender shall apply payments
received pursuant to this Section 1.5(a)(i) in accordance with
Section 1.5(d) below.
	 
	 	(ii)	 	“Total Loss” means in respect of the Vessel: (A)
the actual or constructive or compromised or agreed or
arranged total loss of the Vessel; or (B) the requisition for
title or other compulsory acquisition of the Vessel otherwise
than by requisition for hire; or (C) the capture, seizure,
arrest, detention or confiscation of the Vessel by any
government or by persons acting or purporting to act on behalf
of any government unless the Vessel is released from such
capture, seizure, arrest, detention or confiscation within
thirty (30) days of the occurrence thereof. A Total Loss
shall be deemed to have occurred (1) in the event of an actual
total loss of the Vessel, on the date of such loss, (2) in the
event of damage to the Vessel which results in a constructive
or agreed or compromised or arranged total loss of the Vessel,
on the date of the occurrence of the event giving rise to such
damage, or a date which is thirty (30) days thereafter if the
Borrower

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	 	 	 	is diligently pursuing a determination of such constructive
or compromised or arranged total loss or (3) in the case of
any event referred to in Clauses (A) or (B) above, on the
date of the occurrence of such event. In the event of any
Total Loss or requisition for hire of the Vessel, the
Borrower shall give written (which may be delivered by
telecopier) or email notice to the Lender not later than ten
(10) days after a Responsible Officer of the Borrower has
actual knowledge of such occurrence.
	 
	 	(iii)	 	Collateral Value. At the election of the
Lender, (but no more than once in any twelve (12) month
period), the Lender may arrange to have the Fair Market Value
and the Orderly Liquidation Value of the Vessel determined at
the Lender’s expense by an independent appraisal firm. If the
Orderly Liquidation Value of the Vessel is less than the
outstanding principal amount of the Loan then the Borrower
shall prepay within five (5) days of the Lender’s demand an
amount equal to the amount of the Loan necessary to make the
Vessel’s Orderly Liquidation Value equal to the outstanding
principal amount of the Loan.
	 
	 	(iv)	 	Fair Market Value. The “Fair Market Value” of
the Vessel shall be the value determined by the independent
appraisal firm chosen by the Lender on the basis of an
arm’s-length purchase by a willing buyer from a willing seller
and without consideration of any charter party or other vessel
employment contract. The appraisal firm’s valuation shall be
made without physical inspection, unless otherwise required by
the Lender.
	 
	 	(v)	 	Orderly Liquidation Value. The “Orderly
Liquidation Value” of the Vessel shall have the meaning
customarily attributed to it in the equipment appraisal
industry at the time of the valuation, less the estimated
marshaling, reconditioning and sale expenses designed to
maximize the resale value of the Vessel (as determined by the
appraisal firm referred to above). The appraisal firm’s
valuation shall be made with or without physical inspection at
the Lender’s discretion; provided however, that no more than
one physical inspection shall be permitted in any one twelve
(12) month period.
	 

	 	(b)	 	Voluntary Prepayment.
	 

	 	(i)	 	On the third (3rd) anniversary of the Closing
Date and each anniversary of such date thereafter, the
Borrower may prepay the outstanding amount of the Loan on the
next Payment Date after giving at least thirty (30) Business
Days’ prior notice of the amount and date of the prepayment
and making payment to the Lender of any accrued but unpaid
interest under the Note and a prepayment premium of (w) 2% of
the amount prepaid, if the payment is made after the third
(3rd) anniversary of the Closing Date and on or before the
fourth (4th) anniversary; (x) 1.75% if the payment is made
after the fourth (4th) anniversary and on or before the fifth
(5th) anniversary; (y) 1.5% if the payment is made after the
fifth (5th)

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	 	 	 	anniversary and (z) 1% if the payment is made after the sixth
(6th) anniversary together with all other amounts due and
payable under this Agreement and the other Loan Documents,
including the Break Funding Fee. Any notice of prepayment
hereunder shall be deemed irrevocable on the sixth (6th)
Business Day preceding the date of prepayment set forth in
the prepayment notice.
	 

	 	(c)	 	No amount prepaid hereunder may be reborrowed.
	 
	 	(d)	 	The Lender shall apply all payments received under this
Section 1.5 to the installments of principal due hereunder in
inverse order of payment.

     Section 1.6 Security. All amounts due hereunder and under the Note shall
be secured by the Mortgage, the Assignments and the Guaranty.

     Section 1.7 Changes in Circumstances.

	 	(a)	 	If, by reason of any change subsequent to the date of this
Loan Agreement in applicable law or regulation or regulatory
requirement or directive whether or not having the force of law or
in the interpretation or application thereof by the governmental or
quasi-governmental or judicial authority or central bank charged
with the administration of interpretation of such law or regulation
(a “Change in Circumstance”), the Lender shall determine in good
faith that it has become unlawful or impossible for it to perform
its obligations hereunder, the Lender shall immediately notify the
Borrower and, after such notice, the liability of the Lender to
advance or maintain the Loan shall immediately cease or, if the Loan
has been made, the Borrower shall prepay to the Lender the Loan. In
any such event, but without prejudice to the aforesaid obligation of
the Borrower to prepay, the Borrower and the Lender shall negotiate
in good faith for a period not to exceed ninety (90) days commencing
from the date notice is given by the Lender as provided above, with
a view to agreeing to terms for making or continuing to make
available the Loan from another jurisdiction.
	 
	 	(b)	 	If the effect of any Change in Circumstance having effect
after the date hereof, is to:
	 

	 	(i)	 	change the basis of taxation to the Lender of
payment of principal or interest or any other payment due
pursuant to the terms of this Loan Agreement or the Note
(other than an increase in the rate of taxation on the
Lender’s overall net income); or
	 
	 	(ii)	 	impose of modify or deem applicable any reserve
requirements or require the making of any special deposits
against or in respect of any assets or liabilities of,
deposits with or for the account of or loans by the Lender;
	 
	 	(iii)	 	impose on the Lender any other condition
affecting the Loan or any part thereof, the result of which is
either to increase the cost to the Lender of making available
or maintaining the Loan or any part thereof or to reduce

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	 	 	 	the amount of any payment received by the Lender hereunder;
then and in any such case if such increase or reduction in
the opinion of the Lender materially affects the interests of
the Lender;
	 

	 	(A)	 	the Lender shall notify the Borrower
of any of the above circumstances and the Lender shall
use all reasonable efforts (without any financial
commitment on its part) to avoid the effects of any such
change and in particular, shall consider (without any
commitment on its part) fulfilling its obligations under
this Loan Agreement through another office or
transferring its interest in this Loan Agreement and the
Note at par to one or more of its Affiliates not
affected by the Change in Circumstances if such transfer
can be accomplished without material added cost to the
Lender and in a manner compatible with its operation
procedures; or
	 
	 	(B)	 	If the efforts referred to in (A)
above fail to have the effect of eliminating the
increased cost incurred by the Lender or the reduction
in the amount of any payment received, the Borrower
shall, within three (3) Business Days following demand
(whether made before or after any repayment of the
amounts outstanding under this Loan Agreement and the
Note), pay to the Lender such amount as the Lender shall
certify to be necessary to compensate the Lender for
such additional cost or reduction; provided, however,
that despite such payments, the Lender and the Borrower
shall continue to use their best efforts to reduce the
effect of such Change in Circumstance; and
	 
	 	(C)	 	At any time thereafter, so long as
the Change in Circumstance giving rise to the obligation
to make the compensating payment continues, the Borrower
may, upon giving the Lender not less than ten (10)
Business Days’ written notice which shall be
irrevocable, prepay to the Lender the Loan without
prepayment premium.
	 

	 	(c)	 	If any amounts outstanding under this Loan Agreement are to
be prepaid by the Borrower pursuant to any of the provisions of this
Section 1.7, the Borrower shall simultaneously with such prepayment
pay to the Lender all accrued interest and fees on the amounts to be
prepaid. No prepayment premium, penalty or Break Funding Fee shall
be due in connection with any payment required by this Section 1.7
	 
	 	(d)	 	The certificate of determination of the Lender, as to any
matters referred to in this Section 1.7 shall show in reasonable
detail the amount payable and the calculations used in good faith to
determine such amount and shall, save for any manifest error, be
conclusive and binding on the Borrower.

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ARTICLE 2.

Conditions Precedent

     Section 2.1 Conditions Precedent. The obligation of the Lender to make
the first Advance is subject to the following conditions having been satisfied
in the opinion of the Lender on or prior to the first Closing Date:

	 	(a)	 	Each of this Agreement and the other Loan Documents shall
have been duly authorized and executed with original counterparts
thereof delivered to the Lender.
	 
	 	(b)	 	The Borrower shall have delivered to the Lender evidence of
its and the Guarantors’ good standing, certificates of incumbency
and duly certified resolutions of the Boards of Directors of the
Borrower and the Guarantors and all such other corporate
documentation authorizing them to enter into the transactions
contemplated by this Agreement and the other Loan Documents to which
each is a party.
	 
	 	(c)	 	The Lender shall have received the legal opinion of (i)
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.,
counsel to the Borrower and the Guarantors and (ii) Solomon Harris,
Cayman Islands counsel to the Borrower, both in form and substance
satisfactory to the Lender.
	 
	 	(d)	 	The representations and warranties contained in Article III
of this Agreement and in each other Loan Document shall be true on
the Closing Date with the same effect as though such representations
and warranties had been made on and as of such date, and no Event of
Default specified in Article IV hereof and no event which, with the
lapse of time or the notice and lapse of time specified in Article
IV hereof, would become such an Event of Default, shall have
occurred and be continuing or shall have occurred at the completion
of the funding, and the Lender shall have received satisfactory
certificates signed by a Responsible Officer of the Borrower and the
Guarantors, as to all questions of fact involved in this condition.
	 
	 	(e)	 	The Lender shall have received the audited consolidated
financial statements dated as of the period ending on December 31,
2002 for the Parent Company prepared on a consolidated basis and in
accordance with GAAP, certified by a Responsible Officer of the
Parent Company.
	 
	 	(f)	 	There shall have been no material adverse change in the
business, financial condition or operations of the Borrower or the
Parent Company since December 31, 2002, and there shall not have
occurred any outbreak or significant escalation of hostilities or
other calamity or crisis in the nation or nations where the Vessel
is operating or is intended to operate, which in the Lender’s
opinion has had or will have a material adverse effect on the
transaction contemplated by this Agreement or on the ability of the
Borrower to do business in such nation or nations.
	 
	 	(g)	 	The Lender shall have received a certificate of the Borrower
signed by an officer in charge of environmental affairs and safety
of the Borrower as to compliance by

-11-

 

	 	 	 	the Borrower with all environmental, safety and public health laws
and regulations applicable to the Borrower, without limitation of
the foregoing, all other laws and regulations affecting or relating
to the Vessel, the non-compliance with which would have a material
adverse effect on the business, properties or condition (financial
or otherwise) of the Borrower.
	 
	 	(h)	 	The Vessel shall be duly registered in the name and ownership
of the Borrower under the laws and flag of the Republic of Vanuatu.
	 
	 	(i)	 	The Borrower shall have provided evidence of insurance
maintained by the Borrower on the Vessel, in form and substance
satisfactory to the Lender, from insurance underwriters providing
such coverage and conforming with the requirements of Article I,
Section 15 of the Mortgage.
	 
	 	(j)	 	The Mortgage shall have been duly executed and delivered and
shall constitute a perfected first preferred ship mortgage lien on
the Vessel under the laws of the Republic of Vanuatu.
	 
	 	(k)	 	Financing statements or other documents necessary to perfect
the Lender’s security interests under any of the Loan Documents in
each jurisdiction where filing of such documents is required shall
have been filed.
	 
	 	(l)	 	The Lender shall have received termination statements,
release of preferred fleet mortgages and other documents necessary
to ensure that the Lender has a first priority lien, mortgage and
security interest on the Vessel.
	 
	 	(m)	 	The Lender shall have received an Appraisal respecting the
Vessel.
	 
	 	(n)	 	The Vessel shall not have been the subject of a Total Loss
and shall not have sustained any material damage to its condition
since the date of the Appraisal delivered to the Lender pursuant to
Section 2.1(m) above, or materially decreased in value from the
value attributed to it in the Appraisal.
	 
	 	(o)	 	The Lender shall have received a Confirmation of Class
Certificate for the Vessel showing it in the highest class for such
vessels in its class society, with no recommendations affecting such
class.
	 
	 	(p)	 	The Lender shall have received the fees referred to in
Section 5.8 below.
	 
	 	(q)	 	The Lender shall have received the certification by a
Responsible Officer that no amount of the first Advance will be used
to repay indebtedness of the Borrower or any of its Affiliates
except (i) accounts payable related to the upgrades to the Vessel or
the operation of the Vessel or the operation of other vessels owned
by the Borrower or its Affiliates and (ii) the loan secured by the
existing mortgage on the Vessel.
	 
	 	(r)	 	The Lender shall have received the certification by a
Responsible Officer attaching (i) a list of the Borrower’s vendor
accounts payable related to the

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	 	 	 	upgrades to the Vessel and (ii) evidence of the payment of certain
of the larger vendor accounts payable.
	 
	 	(s)	 	The Lender shall have received such other documents and
instruments it may reasonably request, in each case in form and
substance reasonably satisfactory to it.

     Section 2.2 Conditions to the Second Advance. The Lender’s obligation to
make the second Advance is subject to the following conditions having been
satisfied in the opinion of the Lender on or prior to the date of the Second
Advance:

	 	(a)	 	The Lender shall have received the certification by a
Responsible Officer that no Event of Default or any event which
with the giving of notice or the passage or time would become an
Event of Default has occurred and is continuing.
	 
	 	(b)	 	The Borrower has provided the Lender with evidence that it
has received either:
	 

	 	(i)	 	A loan for at least USD 4,500,000 from The CIT
Group/Equipment Financing, Inc.; or
	 
	 	(ii)	 	A payment of at least USD 40,000,000 from Petroleos
de Mexico.
	 

	 	(c)	 	The Lender shall have received the certification by a
Responsible Officer that no amount of the second Advance will be
used to repay existing indebtedness of the Borrower or any of its
Affiliates except accounts payable related to the upgrades to the
Vessel or the operation of the Vessel or the operation of other
vessels owned by the Borrower or its Affiliates.

     Section 2.3 Waiver of Conditions Precedent. All of the conditions
precedent contained in Section 2.2 above are for the sole benefit of the Lender
and the Lender may waive any or all of them in its absolute discretion.

ARTICLE 3.

Representations, Warranties and Covenants

     Section 3.1 Representations of the Borrower. The Borrower represents and
warrants that:

	 	(a)	 	It is a corporation, duly organized and validly existing in
good standing under the laws of the Cayman Islands and has the
requisite power and authority (i) to carry on its business as
presently conducted, (ii) to enter into and perform its obligations
under each Loan Document, (iii) to borrow moneys, and (iv) to
mortgage the Vessel and give the security provided in the Loan
Documents.
	 
	 	(b)	 	The execution, delivery and performance by the Borrower of
each Loan Document and any other instrument or agreement provided
for by this Agreement, have been duly authorized by all necessary
corporate action, do not require stockholder approval other than
such as has been duly obtained or given, do not or

-13-

 

	 	 	 	will not contravene any of the terms of its articles of
incorporation or by-laws, or comparable documents, and will not
violate any provision of law or of any order of any court or
governmental agency or constitute (with or without notice or lapse
of time or both) a default under, or result (except as contemplated
by this Agreement and the Loan Documents) in the creation of any
security interest, lien, charge or encumbrance upon any of its
properties or assets of the Borrower pursuant to, any agreement,
indenture or other instrument to which the Borrower is a party or
by which the Borrower may be bound; each Loan Document has been
duly executed and delivered by the Borrower and constitutes its
legal, valid and binding agreement or instrument, enforceable in
accordance with the respective terms thereof. The enforceability
of the Loan Documents, however, is subject to all applicable
bankruptcy, insolvency, reorganization, moratorium and other laws
affecting the rights of creditors and to general equity principles.
	 
	 	(c)	 	There are no suits or proceedings pending or to its knowledge
threatened against or affecting the Borrower which if adversely
determined would have a material adverse effect upon its financial
condition, operations or business.
	 
	 	(d)	 	Other than such as have been obtained, no license, consent or
approval of any Governmental Agency or other regulatory authority is
required for the execution, delivery and performance of any Loan
Document or any instrument contemplated herein or therein. The
Borrower is the holder of all certificates and authorizations of
governmental authorities required by law to enable it to engage in
the business transacted by it.
	 
	 	(e)	 	No part of the proceeds of the Loan will be used for any
purpose that violates the provisions of any of Regulation T, U or X
of the Board of Governors of the Federal Reserve System or any other
regulation of such Board of Governors. The Borrower is not engaged
in the business of extending credit to others for the purpose of
purchasing or carrying margin stock within the meaning of
Regulations T, U and X of the Board of Governors of the Federal
Reserve System. If requested by the Lender, the Borrower will
furnish to the Lender in connection with the Loan hereunder a
statement in conformity with the requirements of Federal Reserve
Form U-1 referred to in said Regulation U. The Borrower is not an
investment company or a company “controlled” by an “investment
company” (as each of such terms is defined or used in the Investment
Company Act of 1940, as amended). No proceeds of the Loan will be
used to acquire any security in any transaction which is subject to
Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended.
	 
	 	(f)	 	The Vessel is and will be on the Closing Date: (i) owned by
the Borrower free and clear of all liens, charges and rights of
others except the Mortgage and (ii) duly documented, in good
condition, working order and repair.
	 
	 	(g)	 	The Borrower has filed or caused to be filed all tax returns
required by any applicable jurisdiction which are required to be
filed and has paid or caused to be paid all taxes as shown on such
returns or on any assessment received by it to the

-14-

 

	 	 	 	extent that such taxes have become due and except as to such taxes
being contested in good faith by appropriate proceedings for which
adequate reserves are being maintained. The Borrower has set up
reserves to the extent believed by it to be adequate for the
payment of additional taxes for years which have not been audited
by the respective tax authorities.
	 
	 	(h)	 	The Borrower has no subsidiaries.
	 

	(i)	(i)	 	The Borrower has duly complied in all material respects with,
and the Vessel and its other properties and operations are in
compliance in all material respects with, the provisions of all
applicable environmental, health and safety laws, codes and
ordinances and all rules and regulations promulgated thereunder of
all Governmental Agencies unless such compliance would violate the
Laws or regulations of the jurisdiction in which the Vessels are
operating.
	 
	 	(ii)	 	As of the date of this Agreement, except as
disclosed to the Lender in writing, the Borrower has received
no notice from any Governmental Agency, and has no knowledge,
of any fact(s) which constitute a violation of any applicable
environmental, health or safety laws, codes or ordinances, and
any rules or regulations promulgated thereunder of all
Governmental Agencies, which relate to the use or ownership of
the Vessel or other properties owned or operated by the
Borrower that would have a material adverse effect on the
business or operations of the Borrower.
	 
	 	(iii)	 	The Borrower has been issued all required
permits, licenses, certificates and approvals of all
Governmental Agencies relating to (A) air emissions, (B)
discharges to surface water or ground water, (C) noise
emissions, (D) solid or liquid waste disposal, (E) the use,
generation, storage, transportation, treatment, recycling or
disposal of Hazardous Substances or (F) other environmental,
health or safety matters which are material and necessary for
the ownership or operation of the Vessel or other properties
owned or operated by the Borrower, the failure to have issued
would have a material adverse effect on the Borrower’s
business or operations, and such permits, licenses,
certificates and approvals are in full force and effect on the
date of this Agreement.
	 
	 	(iv)	 	Except as disclosed to the Lender in writing, to
the best of the Borrower’s knowledge, except in accordance
with a valid governmental permit, license, certificate or
approval, there has been no spill or unauthorized discharge or
release of any Hazardous Substance to the environment at,
from, or as a result of any operations on the Vessel or other
properties and operations owned or operated by the Borrower
required to be reported to any Governmental Agency, which
would have a material adverse effect on the business or
operations of the Borrower.

-15-

 

	 	(v)	 	Except as disclosed to the Lender in writing,
there has been no complaint, compliance order, compliance
schedule, notice letter, notice of citation or other similar
notice from any applicable environmental agency which concerns
the operations of the Vessel or other properties owned or
operated by the Borrower, which, if adversely determined as to
the Borrowers, would have a material adverse effect on the
business or operations of the Borrowers.
	 

	 	(j)	 	All representations and warranties made by the Borrower
pursuant to any Loan Document or made in any certificate or written
statement delivered pursuant thereto (i) do not contain any untrue
statement of or omit to state a material fact necessary to make the
statements contained herein or therein not misleading and (ii) shall
survive the making of the Loan hereunder and the execution and
delivery to the Lender of the Note and any other Loan Document.
	 
	 	(k)	 	USA Patriot Act.
	 

	 	(i)	 	All of the information which the Borrower and the
Guarantors have provided to the Lender in connection with the
transaction contemplated by this Agreement, including, without
limitation, the information provided on the Customer Profile
Form, is true, correct and complete.
	 
	 	(ii)	 	The Borrower and the Guarantors are entering into
the Loan Documents and the transactions contemplated thereby
solely for their own account, risk and beneficial interest and
not for the account or beneficial interest of any third party.
	 
	 	(iii)	 	Neither the Borrower nor either Guarantor (a) is
an individual, entity or organization identified on (A) any
Office of Foreign Assets Control (“OFAC”) “watch list”,
including, without limitation, OFAC’s list of Specially
Designated Nationals and Blocked Persons, or (B) any Federal
Bureau of Investigation “watch list,” and does not have any
affiliation of any kind with any such individual, entity or
organization; (b) is a foreign shell bank or offshore bank;
and (c) is a person or entity resident in or whose (A) funds
are transferred from or through or (B) has operations in, a
jurisdiction identified as non-cooperative by the Financial
Action Task Force or sanctioned by OFAC.

     Section 3.2 Covenants of the Borrower. After the date of execution of
this Agreement and until payment in full of the Note and performance by the
Borrower of the Borrower’s obligations under the Loan Documents, the Borrower
agrees that it will:

	 	(a)	 	promptly inform the Lender of any event which constitutes or
will constitute, by giving of notice or lapse of time, or both, an
Event of Default or adversely affect its ability to fully perform
its obligations under the Loan Documents;

-16-

 

	 	(b)	 	pay and discharge, or cause to be paid and discharged, any
taxes, assessments and governmental charges or levies that may be
imposed upon the Borrower or upon its income or profits or upon any
of its properties prior to the date on which penalties attach
thereto and all lawful claims which, if unpaid, might become a lien
or charge upon its properties; provided, however, that this
provision shall not be deemed to require payment of any taxes,
assessments, governmental charge, levies or claims while the
Borrower contests the validity thereof by appropriate proceedings in
good faith and so long as it shall have set aside on its books
adequate reserves with respect thereto in accordance with GAAP;
	 
	 	(c)	 	preserve and maintain, or cause to be preserved or
maintained, (i) its existence in good standing in the jurisdiction
where it is incorporated and in all jurisdictions where it is
currently conducting business, and (ii) all its rights, privileges
and franchises thereunder;
	 
	 	(d)	 	file or cause to be filed in such offices as shall be
required or appropriate under any applicable Uniform Commercial Code
of any State or any other statute of any other jurisdiction, and in
such manner and form as the Lender may require or as may be
reasonably necessary or appropriate under applicable law, any
financing statement or statements or other instruments that may be
reasonably necessary or desirable or that the Lender may request in
order to create, perfect, preserve, continue, validate or satisfy
the Lender’s liens on and security interests and rights in
collateral arising out of or related to this Agreement and any other
Loan Document;
	 
	 	(e)	 	promptly obtain and upon the reasonable request, deliver to
the Lender all authorizations, approvals, consents and licenses and
renewals thereof required under any applicable law or regulation
with respect to this Agreement and the Vessel and it shall comply
with the terms of the same;
	 
	 	(f)	 	promptly notify the Lender of any suit or proceedings brought
against the Borrower or, to the knowledge of the Borrower,
threatened against or affecting the Borrower which, if adversely
determined, would have a material adverse effect upon the financial
condition, operations or business of the Borrower;
	 
	 	(g)	 	upon the request of the Lender, give the Lender or any
representative of the Lender access during normal business hours to,
and permit the Lender or such representative to inspect all
properties belonging to the Borrower and permit such representative
to examine, copy and make extracts from such books, records and
documents in the possession of the Borrower, relating to the affairs
of the Borrower, as such representative may reasonably request;
	 
	 	(h)	 	comply with and use its best efforts to cause its agents,
contractors and sub-contractors (while such persons are acting
within the scope of their contractual relationship with the
Borrower) to so comply with all material, applicable environmental,
health and safety laws, codes and ordinances, and all rules and
regulations promulgated thereunder of all Governmental Agencies; and
with the

-17-

 

	 	 	 	terms and conditions of all applicable permits, licenses,
certificates and approvals of all Governmental Agencies now or
hereafter granted or obtained with respect to the Vessel or other
properties owned or operated by the Borrower unless such compliance
would violate the laws or regulations of the jurisdictions in which
the Vessel is operating.
	 

	 	(i)	 	It will use its best efforts and safety practices
to prevent the unauthorized release, discharge, disposal,
escape or spill of Hazardous Substances on or about the Vessel
or other properties owned or operated by the Borrower.
	 
	 	(ii)	 	It shall notify the Lender, in writing, within
five (5) Business Days of any of the following events
occurring after the date of this Agreement:
	 

	 	(A)	 	Any written notification made by the
Borrower to any federal, state or local environmental
agency required under any federal, state or local
environmental statute, regulation or ordinance relating
to a spill or unauthorized discharge or release of any
Hazardous Substance to the environment at, from, or as a
result of any operations on, the Vessel or other
properties and operations owned or operated by the
Borrower, which, if adversely determined as to the
Borrower, would have a material adverse effect on the
business or operations of the Borrower.
	 
	 	(B)	 	Receipt of service by the Borrower of
any complaint, compliance order, compliance schedule,
notice letter, notice of violation, citation or other
similar notice or any judicial demand by any court,
federal, state or local environmental agency, alleging
(i) any spill, unauthorized discharge or release of any
Hazardous Substance to the environment from, or as a
result of the operations on, the Vessel or other
properties owned or operated by the Borrower or (ii)
violations of applicable laws, regulations or permits
regarding the generation, storage, handling, treatment,
transportation, recycling, release or disposal of
Hazardous Substances on or as a result of operations on
the Vessel or other properties and operations owned or
operated by the Borrower, which, if adversely determined
as to the Borrower, would have a material adverse effect
on the business or operations of the Borrowers.
	 
	 	(C)	 	It is understood by the parties
hereto that the aforementioned notices are solely for
the Lender’s information, may not otherwise be required
by any federal, state or local environmental laws,
regulations or ordinances, and are to be considered
confidential information by the Lender.
	 
	 	(D)	 	The term “environmental agency” as
used herein shall include, but not be limited to, the
United States Environmental Protection

-18-

 

	 	 	 	Agency, the United States Coast Guard, the United
States Department of Transportation (in its
administration of the Hazardous Materials
Transportation Act, 49 § 1801, et seq.) and other
analogous or similar Governmental Agencies regulating
or administering statutes, regulations or ordinances
relating to or imposing liability or standards of
conduct concerning the generation, storage, use,
production, transportation, handling, treatment,
recycling, release or disposal of any Hazardous
Substance.
	 

	 	(iii)	 	The Borrower hereby agrees to indemnify and hold
the Lender, its successors, assigns, directors, officers,
shareholders, employees and agents harmless from and against
any and all claims, losses, liabilities, damages, expenses
(including attorneys, fees and expenses and consultant fees)
and injuries of any kind whatsoever asserted against the
Lender with respect to or as a direct result of the presence,
escape, seepage, spillage, release, leaking, discharge or
migration from the Vessel or other properties owned or
operated by the Borrower of any Hazardous Substance, including
without limitation, any claims asserted or arising under any
applicable environmental, health and safety laws, codes and
ordinances, and all rules and regulations promulgated
thereunder of all Governmental Agencies, regardless of whether
or not caused by or within the control of the Borrower subject
to the following:
	 

	 	(A)	 	It is the parties understanding that
the Lender does not now, has never and does not intend
in the future to exercise any operational control or
maintenance over the Vessel or any other properties and
operations owned or operated by the Borrower, nor has it
in the past, presently, or intends in the future to,
maintain an ownership interest in the Vessel or any
other properties owned or operated by the Borrower
except as may arise upon enforcement of the Lender’s
rights under the Mortgage or the Assignments.
	 
	 	(B)	 	The indemnity and hold harmless
contained in this Section 3.2(h) shall not extend to the
Lender in its capacity as an equity investor in the
Borrower or as an owner of any property or interest as
to which the Borrower is also an owner but only to its
capacity as a lender, a holder of security interests, or
a beneficiary of security interests.
	 

	 	(i)	 	not permit the Vessel to be bareboat chartered or time
chartered for a period longer than six (6) months (including any
committed extensions or renewals) to an entity not an affiliate of
the Borrower, except upon prior written notice to the Lender and the
collateral assignment of such charter in favor of the Lender;

-19-

 

	 	(j)	 	create, incur, assume or suffer to exist any lien (including
any encumbrance or security interest) of any kind upon the Vessel,
except for the liens and other encumbrances set forth below (the
“Permitted Liens”);
	 

	 	(i)	 	liens for Taxes not at the time delinquent or
thereafter payable without penalty or being contested in good
faith, provided provision is made to the extent required by
GAAP for the eventual payment thereof in the event it is found
that such are payable by the Borrower;
	 
	 	(ii)	 	liens of carriers, warehousemen, mechanics,
materialmen and landlords incurred in the ordinary course of
business for sums not overdue or being contested in good
faith, provided provision is made to the extent required by
GAAP for the eventual payment thereof in the event it is found
that such sums are payable by the Borrower;
	 
	 	(iii)	 	maritime liens:
	 

	 	(A)	 	arising in the ordinary course of
business by operation of law that are being contested in
good faith by appropriate proceedings and for which
reserves have been made to the reasonable satisfaction
of the Lender; or
	 
	 	(B)	 	arising in connection with salvage
and general average; or
	 
	 	(C)	 	arising in connection with crew wages
claimed but not paid;
	 

	 	(iv)	 	liens incurred in the ordinary course of business
in connection with workmen’s compensation, unemployment
insurance or other forms of governmental insurance or
benefits, or to secure performance of tenders and statutory
obligations entered into in the ordinary course of business or
to secure obligations on surety or appeal bonds in the
ordinary course of business or easements, rights of way and
similar encumbrances incurred in the ordinary course of
business and not interfering with the ordinary conduct of the
business of the Borrower;
	 
	 	(v)	 	judgment liens in existence less than thirty (30)
days after the entry thereof or with respect to which
execution has been stayed or the payment of which is covered
in full by insurance and;
	 
	 	(vi)	 	liens required by the terms of this Loan
Agreement;
	 

	 	(k)	 	not, without the prior written consent of the Lender: (i)
conduct or manage any business or activity other than as presently
conducted or managed or as is contemplated by the Loan Documents; or
(ii) liquidate or dissolve or consolidate or amalgamate with, or
merge into, any other entity;
	 
	 	(l)	 	not, without the prior written consent of the Lender make any
loans or advances to any other person, other than advances made to
employees in the ordinary

-20-

 

	 	 	 	course of business (which advances to employees shall not exceed
USD 100,000 in the aggregate);
	 
	 	(m)	 	not without the prior written consent of the Lender repay any
stockholders’ loans; except that the Borrower may repay;
	 

	 	(i)	 	up to USD 5,000,000 in stockholders’ loans upon
certification by a Responsible Officer to the Lender that the
Borrower has received at least a USD 40,000,000 payment from
Petroleos de Mexico; and
	 
	 	(ii)	 	up to an additional USD 10,000,000 in
stockholders’ loans upon certification by a Responsible
Officer to the Lender that either (x) the Parent Company’s
Fixed Charge Coverage Ratio is greater than 1.1 to 1.0 based
on the aggregate result of any four consecutive quarters; or
(y) the Parent Company has received new equity investments in
cash, in which case stockholders’ loans may be repaid on a
dollar for dollar basis with the new equity investments up to
the USD 10,000,000 limit referred to above.
	 

	 	(n)	 	at all times conduct its business in a manner so as to
qualify and maintain its qualification to register the Vessel under
the laws and flag of the Republic of Vanuatu.
	 
	 	(o)	 	immediately upon receipt from the Commissioner of Maritime
Affairs of the Republic of Vanuatu or other Governmental Agency
having jurisdiction over the Vessel of notice in respect of the
invalidity or possible invalidity of the registration of the Vessel
or the disqualification or possible disqualification to maintain the
registration of the Vessel, (i) give written notice to the Lender of
the receipt of such notice and (ii) take all action as may be
required by the Lender to effect the proper registration of the
Vessel;
	 
	 	(p)	 	forthwith upon demand by the Lender and at the Borrower’s
sole cost and expense, execute and provide all such assurances and
do all acts and things as the Lender or any receiver in its absolute
discretion may require for: (i) perfecting or protecting the
security created (or intended to be created) by any of the Loan
Documents, including, without limitation, granting in favor of the
Lender a security interest covering the security created (or
intended to be created) by any of the Loan Documents with respect to
any obligations of the Borrower hereafter owing to the Lender; or
(ii) preserving or protecting any of the rights of the Lender under
any of the Loan Documents; or (iii) facilitating the appropriation
or realization of any of the collateral assigned or granted to the
Lender under any of the Loan Documents and enforcing the security
constituted by any of the Loan Documents on or at any time after the
same shall have become enforceable; or (iv) the exercise of any
power, authority or discretion vested in the Lender under any of the
Loan Documents;

-21-

 

	 	(q)	 	deliver to the Lender such financial or other information
relating to the Borrower, any of the transactions contemplated by
any of the Loan Documents, as may be requested by the Lender;
	 
	 	(r)	 	upon the request of the Lender, give the Lender or any
representative of the Lender at any reasonable time, access to the
Vessel and permit the Lender or such representative to inspect the
Vessel and any part thereof, as the Lender or such representative
may reasonably request, all at the sole cost and expense of the
Borrower;
	 
	 	(s)	 	obtain an agreement in form and substance reasonably
satisfactory to the Lender from any person retained by or for, the
benefit of the Borrower relating to the management of the Vessel
that any indebtedness incurred by such manager for the benefit of
the Vessel and any fees and expenses paid to such manager shall be
subject and subordinate to the lien of the Mortgage;
	 
	 	(t)	 	deliver to the Lender at least two copies and as many
additional copies as the Lender may reasonably require from time to
time of, (i) the Parent Company’s audited annual consolidated
financial statements, in a form consistent with GAAP, as soon an is
practicable after the same have been issued but in any case within
one hundred twenty (120) days of the end of its fiscal year
certified by a firm of nationally recognized certified public
accountants or other auditors as may be acceptable to the Lender
that the consolidated financial statements present fairly, in all
material respects, the financial position of the Parent Company and
the Borrower as of the date thereof, (ii) the Parent Company’s
quarterly consolidated financial statements in a form consistent
with GAAP, as soon as is practicable after the end of each financial
quarter but in any case within ninety (45) days of the end of its
financial quarter certified by its chief financial officer that the
consolidated financial statements present fairly, in all material
respects, the financial position of the Parent Company and the
Borrower as of the date thereof, (iii) such financial or other
information relating to it or to any of the transactions
contemplated by any of the Loan Documents, as may reasonably be
requested by the Lender or generally made available to its other
creditors, its shareholders and to any governmental authorities;
	 
	 	(u)	 	deliver to the Lender, contemporaneously with the delivery to
the Lender of the annual and quarterly financial statements
specified in clause (t) above, a certificate (in form and substance
satisfactory to the Lender), signed by the chief financial officer
of the Parent Company, (i) stating that such officer has reviewed
the relevant terms of this Agreement, the other Loan Documents and
all other agreements of the Borrower which evidence indebtedness for
borrowed money, lease or other financial obligations on the part of
the entity in excess of USD 500,000 (the “Financial Obligation
Agreements”) and has made or caused to be made under his
supervision, a review of the transactions and condition of the
Borrower during the relevant fiscal quarter or year, as the case may
be, and that such review has not disclosed the existence during such
period, nor does such chief financial officer have knowledge of the
existence as at the date of such

-22-

 

	 	 	 	certificate, of any condition or event which constitutes an event
of default under any of the Loan Documents or Financial Obligation
Agreements, or which, after notice or lapse of time or both would
constitute an event of default under any of the Loan Documents or
Financial Obligation Agreements, or if any such condition or event
existed or exists, specifying the nature and period of existence
thereof and what action the Borrower has taken or proposes to take
with respect thereto, (ii) for purposes of the annual certificate
only, attaching and certifying as true and correct copies, the
insurance certificates required to be provided to the Lender
pursuant to Article I, Section 15 of the Mortgage;
	 
	 	(v)	 	provide to the Lender any information deemed necessary by the
anti-money laundering compliance officer of the Lender in its sole
discretion to comply with the USA PATRIOT Act, the Lender’s
anti-money laundering program and related responsibilities from time
to time; provided that the Lender agrees to keep any such
information confidential and agrees not to disclose such information
to third parties without the Borrower’s written consent, except as
may be required by law;
	 
	 	(w)	 	not, without the prior written consent of the Lender, (i)
enter into any transactions of merger or consolidation unless the
Borrower is the surviving corporation; (ii) liquidate or dissolve;
(iii) sell, lend, lease, transfer or otherwise dispose of all or any
substantial part of its assets; (iv) change the form of organization
of its business; or (v) without thirty (30) days, prior written
notice to Lender, change its name or its chief place of business;
	 
	 	(x)	 	deliver to the Lender contemporaneously with the delivery to
the Lender of the annual and quarterly financial statements
specified in clause (t) above, certification by a Responsible
Officer that (i) the proceeds of the Loan have been used to pay
accounts payable related to the upgrades to the Vessel or the
operation of the Vessel or the operation of other vessels by the
Borrower or its Affiliates and the loan secured by the existing
mortgage on the Vessel or (ii) the accounts payable related to the
upgrades to the Vessel have been paid from sources other than the
proceeds of the Loan; which certifications shall attach as exhibits
copies of the invoices and payments in connection with such upgrades
and operation; and
	 
	 	(y)	 	not, without prior written notice to the Lender, remove the
AmClyde Model 52, Serial No. CW-4025 crane from the Vessel. In the
case such crane is to be removed from the Vessel, the written notice
shall specify the proposed new location of such crane and the
Borrower shall enter into a security agreement concerning such crane
in form and substance satisfactory to the Lender.

-23-

 

ARTICLE 4.

Events of Default

     Section 4.1 Defaults. If any of the following events shall occur and be
continuing, (each an “Event of Default”):

	 	(a)	 	the Borrower shall fail to pay any principal of or interest
on the Note when due and payable, which failure shall continue for
five (5) days after the date when due;
	 
	 	(b)	 	any representation or warranty made by the Borrower herein or
made in any certificate or financial statement furnished to the
Lender hereunder or under any of the Loan Documents shall prove to
have been false or misleading in any respect when made or omit to
state a material fact necessary to make any representation,
warranty, certification or statement not misleading in light of the
circumstances under which it was furnished;
	 
	 	(c)	 	default in the performance of any agreement, covenant, term
or condition contained herein or in any Loan Document to be
performed by the Borrower which shall continue for ten (10) days
after the giving of notice thereof to the Borrower by the Lender;
	 
	 	(d)	 	a Default under the Mortgage or under any of the other Loan
Documents;
	 
	 	(e)	 	an event of default under any loan agreement, credit
agreement, security agreement, guaranty agreement, lease agreement
or other agreement now existing or hereafter entered into by the
Borrower shall have occurred and shall not have been remedied during
such time as USD 1,000,000 or more is outstanding under such
agreement;
	 
	 	(f)	 	any license, consent or approval of any governmental body or
other regulatory authority required for the making and performance
of this Agreement or any instrument contemplated hereby or thereby
shall have been revoked, withdrawn, materially modified or withheld
or shall otherwise fail to remain in full force and effect;
	 
	 	(g)	 	Any of the following events shall occur:
	 

	 	(i)	 	the Borrower commences a voluntary case under
Title 11 of the United States Code as now or hereafter in
effect, or any successor thereto (the “Bankruptcy Code”); or
	 
	 	(ii)	 	an involuntary case is commenced against the
Borrower under the Bankruptcy Code and relief is ordered
against the Borrower or the petition is controverted but is
not dismissed or stayed within sixty (60) days after the
commencement of the case; or
	 
	 	(iii)	 	a custodian (as defined in the Bankruptcy Code)
or a similar official is appointed for, or takes charge of,
all or substantially all of the property of the Borrower and
such appointment is not terminated within sixty (60) days; or
	 
	 	(iv)	 	the Borrower commences any other proceeding under
any reorganization, arrangement, readjustment of debt, relief
of debtors, dissolution,

-24-

 

	 	 	 	insolvency, liquidation or similar law of any jurisdiction
relating to the Borrower (whether now or hereafter in
effect), or there is commenced against the Borrower any such
proceeding which remains undismissed or unstayed for a period
of sixty (60) days or the Borrower is adjudicated insolvent
or bankrupt; or the Borrower fails to controvert in a timely
manner any such case under the Bankruptcy Code or any such
proceeding, or any order of relief or other order approving
any such case or proceeding is entered; or
	 
	 	(v)	 	the Borrower by any act or failure to act
indicates its consent to, approval of or acquiescence in any
such case or proceeding or in the appointment of any custodian
of or for it or any substantial part of its property or
suffers any such appointment to continue undischarged or
unstayed for a period of ninety (90) days; or
	 
	 	(vi)	 	the Borrower makes a general assignment for the
benefit of creditors; or
	 
	 	(vii)	 	any corporate action is taken by the Borrower
for the purpose of effecting any of the foregoing.
	 

	 	(h)	 	an order, judgment or decree shall be entered, without the
application, approval or consent of the Borrower by any court of
competent jurisdiction, approving a petition seeking reorganization
of the Borrower or seizure or attachment of all or a substantial
part of the Borrower’s assets, and such order, judgment or decree
shall continue unstayed and in effect for any period of sixty (60)
consecutive days; or
	 
	 	(i)	 	judgments or orders for the payment of monies in excess of
USD 100,000 in aggregate shall be rendered against the Borrower and
such judgments or orders shall continue unsatisfied, or unstayed for
a period of thirty (30) days

	 	 	then the Lender may by written notice to the Borrower (i) immediately
terminate the commitment of the Lender hereunder or (ii) declare all
Payments under, and all interest accrued to the date of such declaration
on, the Note together with all other amounts due hereunder or under any
of the Loan Documents, to be forthwith due and payable, whereupon the
same shall become forthwith due and payable (provided, however, no notice
or declaration shall be required and such amounts shall be immediately
due and payable upon the occurrence of an event described in Section
4.1(h) or (i) hereof) and (iii) exercise any remedies to which it may be
entitled by any Loan Document or by applicable law.

     Section 4.2 Right to Perform. If the Borrower shall fail to pay the Note
or otherwise fail to perform, observe or comply with any of the terms or
conditions of this Agreement or any of the other Loan Documents, the Lender,
whether or not an Event of Default exists, without notice to or demand upon the
Borrower, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of the
Borrower, and may enter upon the premises of the Borrower for that purpose and
take all such

-25-

 

action thereon as the Lender may consider necessary or appropriate for such
purpose. Such payment or performance shall not be deemed or construed a waiver
or cure of any default to relieve the Borrower from the payment and performance
of its obligations hereunder and under the other Loan Documents. All sums so
paid or advanced by the Lender and all costs and expenses (including, without
limitation, attorneys’ fees and expenses) incurred in connection therewith,
together with interest thereon at the default rate specified in the Notes form
the date incurred until paid in full, (the “Performance Payments”) shall be
paid by the Borrower to the Lender on demand and shall be secured by the
Mortgages and the Assignments.

     Section 4.3 Remedies Cumulative. Each right, power and remedy of the
Lender as provided for in this Agreement or in any of the other Loan Documents
or now or hereafter existing at law, in equity or otherwise shall be cumulative
and concurrent and shall be in addition to every other right, power or remedy
provided for in this Agreement or in any of the other Loan Documents or now or
hereafter existing at law, in equity or otherwise, and the exercise or
beginning of the exercise by the Lender of any one or more of such rights,
powers or remedies shall not preclude the simultaneous or later exercise by the
Lender of any or all such other rights, powers or remedies.

ARTICLE 5.

Miscellaneous

     Section 5.1 Notices. All notices, requests and demands shall be in
writing (including telecopier transmission) given to or made upon the
respective parties hereto as follows:

	 	 	 
	In the case of the Borrower at	 	
Horizon Vessels International, Ltd.
	 	 	
2500 CityWest Blvd.
	 	 	
Suite 2200
	 	 	
Houston, Texas 77042
	 	 	
Attention: Chief Financial Officer
	 	 	
Telecopier: (713) 361-2677
	 	 	 
	In the case of the Lender at	 	
Boeing Capital Corporation
	 	 	
3780 Kilroy Airport Way, Suite 750
	 	 	
Long Beach, California 90806
	 	 	
Attention: Documentation Department
	 	 	
Telecopier: (562) 997-3328
	 	 	 
	 	 	
(b) Legal Department
	 	 	
Telecopier: (562) 997-3335

or in such other manner an any party hereto shall designate by written notice
to the other parties hereto. All such notices shall be effective upon delivery
or three (3) days after being deposited in the United States mail with postage
prepaid certified, return receipt requested in a correctly addressed wrapper,
or upon receipt if delivered to Federal Express or similar courier company or
transmitted by telefax during normal business hours, except that all notices,
requests and demands to the Lender shall not be effective until received by the
Lender. All notices, demands, requests, communications and other documents
delivered hereunder or under the Loan

-26-

 

Documents, unless submitted in the English language, shall be accompanied by
certified English translation thereof.

     Section 5.2 No Waiver. No failure on the part of the Lender to exercise,
and no delay in exercising, any right hereunder shall operate an a waiver
thereof, nor shall any single or partial exercise by the Lender of any right
hereunder preclude any other or further exercise thereof or the exercise of any
other right.

     Section 5.3 Applicable Law and Jurisdiction.

	 	(a)	 	THIS AGREEMENT AND THE LOAN DOCUMENTS PROVIDED FOR HEREIN
(INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY
HEREOF AND THEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, OTHER THAN
CONFLICT OF LAWS RULES THEREOF. ANY LEGAL ACTION OR PROCEEDING
AGAINST THE BORROWER WITH RESPECT TO THIS AGREEMENT OR ANY LOAN
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK, THE
U.S. FEDERAL COURTS IN SUCH STATE, SITTING IN THE COUNTY OF NEW
YORK, OR IN THE COURTS OF ANY OTHER JURISDICTION WHERE SUCH ACTION
OR PROCEEDING MAY BE PROPERLY BROUGHT, AND THE BORROWER HEREBY
IRREVOCABLY ACCEPTS THE JURISDICTION OF SUCH COURTS FOR THE PURPOSE
OF ANY ACTION OR PROCEEDING. The Borrower further irrevocably
consents to the service of process out of said courts by the mailing
thereof by the Lender by U.S. registered or certified mail postage
prepaid to the party to be served at its address designated in
Section 5.1. The Borrower agrees that a final judgment in any action
or proceeding shall be conclusive and may be enforced in any other
jurisdiction by suit on the judgment or in any other manner provided
by law. Nothing in this Section 5.3 shall affect the right of the
Lender to serve legal process in any other manner permitted by law
or affect the right of the Lender to bring any action or proceeding
against the Borrower or Borrower’s properties in the courts of any
other jurisdiction. To the extent that the Borrower have or
hereafter may acquire any immunity from jurisdiction of any court or
from any legal process (whether through service of notice,
attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to the Borrower’s property, the
Borrower hereby irrevocably waives such immunity in respect of their
obligations under this agreement and the other Loan Documents. The
Borrower hereby irrevocably waives any objection which it may now or
hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this agreement or any loan
document brought in the Supreme Court of the State of New York,
County of New York or the U.S. District Court for the Southern
District of New York, and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum.

-27-

 

	 	(b)	 	THE LENDER AND THE BORROWER IRREVOCABLY WAIVE ALL RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

     Section 5.4 Severability. In the event that any provision of this
Agreement is held to be void or unenforceable in any jurisdiction, all other
provisions shall remain unaffected and be enforceable in accordance with their
terms in such jurisdiction, and all provisions of this Agreement shall remain
unaffected and shall be enforceable in accordance with their terms in all other
jurisdictions.

     Section 5.5 Amendment. Neither this Agreement nor any provision hereof,
including without limitation this Section 5.5, may be amended, modified,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the amendment, modification,
waiver, discharge or termination is sought. This Agreement shall be binding
upon and inure to the benefit of the Borrower and the Lender and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Lender.

     Section 5.6 Assignment and Participation. The Lender shall have the right
to assign or grant participations in all or any portion of the Loan outstanding
under this Agreement or the Note to any affiliate of the Lender or to any
foreign, federal or state banking institution, savings and loan institution or
finance company after giving prior written notice to the Borrower of such
assignment or participation. The Borrower shall fully cooperate with the
Lender in connection with any such assignment and shall execute and deliver
such consents and acceptances to any such assignment necessary or desirable, in
Lender’s sole discretion, to effect any such assignment.

     Section 5.7 Costs, Expenses and Taxes. The Borrower agrees to pay on
demand, whether or not the Loan is made, all reasonable fees, costs and
expenses in connection (a) with the preparation, execution, delivery,
administration, amendment and enforcement of this Agreement, the Note, any
other Loan Document and any other documents to be delivered hereunder and
thereunder (including, without limitation, the appraisal and inspection and
survey reports required hereunder) and any amendment, modification or
supplement hereto or thereto, including, without limitation, the reasonable
fees and out-of-pocket expenses of counsel for the Lender, and any special
counsel associated with them, and with respect thereto and the filing of any
document or instrument in connection with any of the foregoing, (b) with fees
and expenses of counsel for advising the Lender as to its rights and
responsibilities under this Agreement and the transactions contemplated thereby
after an Event of Default or an event which, with the giving of notice or lapse
of time, or both, shall become an Event of Default shall have occurred, and (c)
with any filing or recording of any document or instrument. In addition, the
Borrower shall pay any and all stamp and other taxes (including, without
limitation penalties and interest assessed thereon) other than Excluded Taxes
payable or determined to be payable in connection with the execution, delivery
or performance of this Agreement and the Loan Documents and any other documents
to be delivered hereunder and thereunder and agrees to save the Lender

-28-

 

 harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes.

     Section 5.8 Fees. The Borrower has paid to the Lender an application fee
of USD 150,000,00. If the Loan is not made because of the failure or refusal
of the Borrower to satisfy the conditions precedent contained in Section 2.1 or
2.2 above, the Lender shall retain all of the application fee. If the Loan is
not made because of substantive disagreements between the Lender and the
Borrower concerning the Loan Documents, the application fee shall be refunded
to the Borrower less the actual expenses of the Lender (including the
reasonable fees and expenses of the Lender’s outside counsel) in reviewing,
approving and documenting the transaction contemplated by this Agreement.
After the Loan has been made, the application fee shall be credited by the
Lender to amounts due under the Loan Documents, including the expenses referred
to in Section 5.7 above.

     Section 5.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument.

     Section 5.10 Section Headings. The headings of the various Sections and
subsections of this Agreement are for convenience of reference only and shall
not define or limit any of the terms or provisions hereof.

     Section 5.11 Merger. THIS AGREEMENT AND THE LOAN DOCUMENTS EMBODY THE
ENTIRE AGREEMENT BETWEEN THE BORROWER ON THE ONE HAND AND THE LENDER ON THE
OTHER HAND AND SUPERSEDE ALL PRIOR AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, IF ANY, RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF.

     Section 5.12 Survival of Terms. All covenants, agreements,
representations and warranties made by the Borrower herein and in the other
Loan Documents and in any certificates, instruments or documents delivered
pursuant hereto shall survive the making of the Loan and the execution and
delivery of the Note, and shall continue in full force and effect until, except
as otherwise provided herein, the Note is paid in full.

-29-

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

	 	 	 	 	 	 	 	 	 
	 	 	
HORIZON VESSELS INTERNATIONAL, LTD.

	 	 	 	 	 	 	 	 	 
	 	 	
By:	 	 	 	 	 	 
	 	 	 	

	 	 	 	 	 	 	Name:	 	 
	 	 	 	 	 	 	 	

	 	 	 	 	 	 	Title:	 	 
	 	 	 	 	 	 	 	

	 	 	 	 	 	 	 	 	 
	 	 	
BOEING CAPITAL CORPORATION

	 	 	 	 	 	 	 	 	 
	 	 	
By:	 	 	 	 	 	 
	 	 	 	

	 	 	 	 	 	 	Name:	 	 
	 	 	 	 	 	 	 	

	 	 	 	 	 	 	Title:	 	 
	 	 	 	 	 	 	 	

-30-

 

EXHIBIT B TO LOAN AGREEMENT

NOTICE OF DRAWING

      , 2003

BY TELECOPIER

Boeing Capital Corporation

3780 Kilroy Airport Way, Suite 750

Long Beach, CA 90806

Attention: Documentation Department

Ladies and Gentlemen:

     The undersigned, Horizon Vessels International Ltd., refers to the Loan
Agreement, dated as of June 30, 2003 (the “Loan Agreement”) among the
undersigned as Borrower and the Lender, and hereby gives you notice,
irrevocably, that the undersigned hereby requests an Advance under the Loan
Agreement, and in that connection sets forth below the information relating to
the Advance:

	 	(i)	 	The Drawdown Date of the Advance is      , 2003.
	 
	 	(ii)	 	The amount of the Advance is USD     .
	 
	 	(iii)	 	The bank account to which the Advance is to be remitted is as follows:

	 
	Receiving Bank:
	ABA Number:
	Account Name:
	Account Number:

     The undersigned hereby certifies that the following are true on the date
hereof, and will be true on the date of the Advance:

	 	(i)	 	the representations and warranties contained in the Loan
Agreement will be correct, before and after giving effect to the
Advance and to the application of the proceeds therefrom, as though
made on and as of such date; and

 

 

	 	(ii)	 	no Event of Default will have occurred and be continuing, or
will result from the Advance or from the application of the proceeds
therefrom;

     The undersigned agrees that the Lender may fund fees and expenses incurred
by the Lender and payable under the Loan Agreement from the Advance, which
shall not affect the principal amount of the Advance repayable under the Loan
Agreement. If the Advance fails to take place or is delayed for any reason,
the undersigned hereby agrees to indemnify the Lender against any loss incurred
as a result of the giving of this Notice of Drawing.

     All capitalized terms used in this Notice of Drawing and not defined
herein are used with the meanings given to them in the Loan Agreement.

	 	 	 	 	 	 	 	 	 
	 	 	
Very truly yours,

	 	 	 	 	 	 	 	 	 
	 	 	
HORIZON VESSELS INTERNATIONAL, LTD.

	 	 	 	 	 	 	 	 	 
	 	 	
By:	 	 	 	 	 	 
	 	 	 	

	 	 	 	 	 	 	Name:	 	 
	 	 	 	 	 	 	 	

	 	 	 	 	 	 	Title:	 	 
	 	 	 	 	 	 	 	

-2-exv10w4

 

EXHIBIT 10.4

AMENDMENT NO. 2

TO

CREDIT AGREEMENT

     AMENDMENT NO. 2 (“Amendment No. 2”) dated as of June 30, 2003 (the
“Amendment Date”) to the Credit Agreement dated as of May 10, 2001, as amended
(the “Credit Agreement”), among HORIZON VESSELS, INC., a Delaware corporation
(the “Borrower”), HORIZON OFFSHORE CONTRACTORS, INC., a Delaware corporation,
HORIZON OFFSHORE, INC., a Delaware corporation (together the “Guarantors”), THE
CIT GROUP/EQUIPMENT FINANCING, INC., a Delaware corporation as the Lender (the
“Lender”).

W I T N E S S E T H:

     WHEREAS, pursuant to the Credit Agreement, the Lender made available to
the Borrower a revolving loan facility of up to USD 26,840,000; and

     WHEREAS, the parties wish to amend the Credit Agreement to provide for a
short-term increase in the Commitment of up to USD 5,000,000.

     NOW THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the Credit Agreement as follows:

     1.     The Definitions of the Credit Agreement are hereby amended as follows:

		
	 	     (a) A definition of “Amendment No. 2” is hereby added and reads as
follows:

		
	 	“Amendment No. 2” means the Amendment No. 2 to Credit
Agreement dated as of June 30, 2003.

		
	 	     (b) The definition of “Commitment” is hereby amended to read as
follows:

		
	 	“Commitment” means USD 26,840,000; provided that from the
period commencing with the date of Amendment No. 2 and
ending on the Overadvance Maturity Date, Commitment shall
mean 31,840,000.

		
	 	     (c) A definition of “Pemex” is hereby added and reads as follows:

		
	 	“Pemex” means Petroleos Mexicanos.

		
	 	     (d) A definition of “Overadvance” is hereby added and reads as
follows:

		
	 	“Overadvance” means any amount of the Loan in excess of USD
26,840,000.

1

 

		
	 	     (e) A definition of “Overadvance Maturity Date” is hereby added and
reads as follows:

		
	 	“Overadvance Maturity Date” means the earlier of (a) October
31, 2003 and (b) the receipt after the date of Amendment No.
2 by the Borrower or the Guarantor of proceeds of any
account or accounts receivable from Pemex in respect of
Borrower’s or its Affiliates’ claims against Pemex arising
out of the EPC 64 contract which, in the aggregate, are
equal to or exceed the then current principal balance of the
Overadvance, plus accrued and unpaid interest thereon.

     2.     Section 2.1A is hereby added to the Credit Agreement and reads as
follows:

		
	 	“2.1A Overadvances; Repayment. The Lender agrees to make
the Overadvance available to the Borrower, in principal
amount not to exceed USD 5,000,000, in a single Advance on
the date of Amendment No. 2. The Lender shall make the
Overadvance available to the Borrower upon the Borrower’’s
delivery of the documents set forth in Section 9 of
Amendment No. 2. The principal amount of the Overadvance
shall be repaid by the Borrower in a single installment,
plus accrued and unpaid interest, on the Overadvance
Maturity Date. The Borrower shall prepay the Overadvance in
an amount (a) equal to the proceeds of any account
receivable of Borrower or any Guarantor from Pemex arising
out of the EPC 64 contract, and (b) by which the proceeds of
the sale of the vessels subject to the Second Mortgages
exceed the amounts claimed under the First Preferred Fleet
Mortgages therefor. The Borrower may not reborrow any
amounts of the Overadvance that are repaid or prepaid. All
amounts paid hereunder by the Borrower from the date of
Amendment No. 2 to the Overadvance Maturity Date shall be
applied first to expenses reimbursable by the Borrower,
second to interest accrued on the Loan, third to the
principal amount of the Overadvance then outstanding, and
fourth to the remaining principal balance of the Loan.”

     3.     Section 5.1(a) is hereby amended to read as follows:

		
	 	“(a) The Borrower agrees to pay interest in respect on the
average daily balance of all amounts outstanding under the
Loan at a rate per annum of the Governing Rate plus 3.25%.”

     4.     The following is hereby added as Section 12.29 to the Credit Agreement:

		
	 	“12.29. Pemex Receivables. Sell, transfer, factor or grant
any security interest on any account receivable from Pemex
to the Borrower or any Guarantor, other than security
interests thereon existing on the date hereof.”

     5.     The following is hereby added as Section 12.30 to the Credit Agreement:

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	 	“12.30. Payment on Subordinated Debt. Until the
Overadvance is repaid in full, make any payments on any
Indebtedness that is subordinated to the Loan.”

     6.     All references in the Credit Agreement to an “Advance” or “Advances”
shall hereafter include, without limitation, the unpaid principal amount of the
Overadvance.

     7.     All references in the Credit Agreement to the “Note” shall hereafter
refer to the Note as amended by Endorsement No. 1 to the Note, dated the date
hereof.

     8.     All references in the Loan Documents to the “Credit Agreement” shall
hereafter refer to the Credit Agreement as amended by this Amendment No. 2.

     9.     Conditions Precedent.

          9.1 Documents Required as Conditions Precedent to Amendment No. 2. The
effectiveness of the modifications to the Credit Agreement contemplated by this
Amendment No. 2 is subject to the condition precedent that the Lender shall
have received at or prior to the Amendment Date all of the following, each
dated on or before the Amendment Date and each in form and substance
satisfactory to the Lender and its counsel:

		
	 	     (a) Each of the following documents (the “Amendment Documents”)
shall have been duly authorized and executed with original counterparts
thereof delivered to the Lender:

		
	 	     (i) This Amendment No. 2;
	 
	 	     (ii) Endorsement No. 1 to Note;
	 
	 	     (iii) Amendments to the Mortgages;
	 
	 	     (iv) Second Preferred Fleet Mortgages covering the U.S. and
Vanuatu flag vessels of the Borrower and the Guarantors that are
not covered by the Mortgages;
	 
	 	     (v) A Ratification of Guaranty executed by the Guarantors;
	 
	 	     (vi) A Subordination Agreement with Elliott Partners, L.P.
subordinating any Indebtedness to Elliott Partners, L.P. to the
Overadvance; and
	 
	 	     (vii) such further documents as the Lender may reasonably
request.

		
	 	     (b) The Borrower shall have paid a fee of USD 50,000 to the Lender
on or before the date hereof.

		
	 	     (c) The representations and warranties contained in Section 10 of
the Credit Agreement shall be true on the Amendment Date with the same
effect as though such representations and warranties had been made on and
as of such date, and no Event of

3

 

		
	 	Default specified in Section 13 of the Credit Agreement and no event
which, with the lapse of time or the giving of notice and the lapse of
time specified in Sections 11 and 12 of the Credit Agreement, would
become such an Event of Default, shall have occurred and be continuing.

          9.2 Waiver of Conditions Precedent. All of the conditions precedent
contained in this Section 9 are for the sole benefit of the Lender and the
Lender may waive any of them in its absolute discretion, and on such conditions
as it deems proper.

     10.     Representations of the Borrower and Guarantors. The Borrower and the
Guarantors represent and warrant that:

		
	 	     (a) Each of the Borrower and the Guarantors is a corporation, duly
organized and validly existing in good standing under the laws of the
State of Delaware, and has the requisite power and authority (i) to carry
on its business as presently conducted; and (ii) to enter into and
perform its obligations under the Amendment Documents.

		
	 	     (b) The execution, delivery and performance by each of the Borrower
and the Guarantors of the Amendment Documents and any other instrument or
agreement provided for by this Amendment No. 2 to which it is a party,
have been duly authorized by all necessary corporate action, do not
require stockholder approval other than such as has been duly obtained or
given, do not or will not contravene any of the terms of its Certificate
of Incorporation or Bylaws, and will not violate any provision of law or
of any order of any court or governmental agency or constitute (with or
without notice or lapse of time or both) a default under, or result
(except as contemplated by this Amendment No. 2) in the creation of any
security interests, lien, charge or encumbrance upon any of its
properties or assets pursuant to, any agreement, indenture or other
instrument to which it is a party or by which it may be bound other than
is in favor of the Lender; the Amendment Documents have been duly
executed and delivered by the Borrower and the Guarantors and constitute
the respective legal, valid and binding agreements, enforceable in
accordance with the respective terms thereof as to which each of the
Borrower and the Guarantors is a party. The enforceability of this
Amendment No. 2, however, is subject to all applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws affecting the
rights or creditors and to general equity principles.

		
	 	     (c) Except as set forth in the Credit Agreement, there are no suits
or proceedings pending or to its knowledge threatened against or
affecting any Borrower or Guarantor which if adversely determined would
have a material adverse effect upon its business, financial condition or
operations.

		
	 	     (d) Other than such as have been obtained, no license, consent or
approval of any Governmental Agency or other regulatory authority is
required for the execution, delivery or performance of this Amendment No.
2 or any other Amendment Document or any instrument contemplated herein
or therein. The Borrower is the holder of all certificates and
authorizations of governmental authorities required by law to enable it
to engage in the business transacted by them.

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     11.     Expenses. The Borrower and the Guarantors agree to promptly, whether
or not the modifications to the Credit Agreement contemplated by this Amendment
No. 2 become effective, (x) reimburse the Lender for all fees and disbursements
of external counsel to the Lender and all reasonable out of pocket fees and
disbursements of the Lender incurred in connection with the preparation,
execution and delivery of this Amendment No. 2 and all other documents referred
to herein, and all amendments or waivers to or termination of this Amendment
No. 2 or any agreement referred to herein; and (y) reimburse the Lender for all
fees and disbursements of internal and external counsel to the Lender and all
reasonable out of pocket fees, disbursements and travel-related expenses of the
Lender incurred in connection with the protection of the rights of the Lender
under this Amendment No. 2 and all other documents referred to herein, whether
by judicial proceedings or otherwise. The obligations of the Borrower and the
Guarantors under this Section 11 shall survive payment of the Loan.

     12.     Except as specifically amended by this Amendment No. 2, all of the
terms and provisions of the Credit Agreement shall remain in full force and
effect.

     13.     All capitalized terms used herein but not defined herein shall have
the meanings given to them in the Credit Agreement.

     14.     THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.

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     IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 2 to Credit Agreement on the date first written above.

	 	 	 	 	 
	 	 	
BORROWER:
	 	 	 	 	 
	 	 	
HORIZON VESSELS, INC.

	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	

	 	 	
Name:	 	 
	 	 	 	 	

	 	 	
Title:	 	 
	 	 	 	 	

	 	 	

GUARANTORS:
	 	 	 	 	 
	 	 	
HORIZON OFFSHORE, INC.

	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	

	 	 	
Name:	 	 
	 	 	 	 	

	 	 	
Title:	 	 
	 	 	 	 	

	 	 	 	 	 
	 	 	
HORIZON OFFSHORE CONTRACTORS, INC.

	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	

	 	 	
Name:	 	 
	 	 	 	 	

	 	 	
Title:	 	 
	 	 	 	 	

	 	 	 	 	 
	 	 	 LENDER:
	 	 	 	 	 	 	 
	 	 	
THE CIT GROUP/EQUIPMENT FINANCING, 
INC.

	 	 	 	 	 
	 	 	
By:	 
	 	 	 	

	 	 	
Name:	 	 
	 	 	 	 	

	 	 	
Title:	 	 
	 	 	 	 	

6

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