Document:

Form of Restructuring Support Agreement

 Exhibit 10.3 
 FORM OF RESTRUCTURING SUPPORT AGREEMENT 
 This RESTRUCTURING SUPPORT
AGREEMENT (this “RSA”), dated as of August 26, 2011, is by and between Horizon Lines, Inc. (the “Parent”), a corporation duly organized and existing under the laws of the State of Delaware, and all of its
subsidiaries and any successors thereto (collectively with the Parent, the “Company”) and the holder set forth on the signature page hereto (the “Exchanging Holder”) of the 4.25% convertible senior notes due 2012
(the “Notes”) issued under the Indenture, dated as of August 8, 2007 (as amended, supplemented, or modified from time to time, the “Indenture”), by and between the Parent, as issuer, and The Bank of New York
Trust Company, N.A., as Trustee, in the aggregate principal amount of $330,000,000.00. The principal amount of Notes held by the Exchanging Holders (as defined below) is set forth on a confidential schedule maintained by Paul, Weiss, Rifkind,
Wharton & Garrison LLP (“Paul, Weiss”). The Exchanging Holder, the Company, and each other person that becomes a party hereto in accordance with the terms hereof shall be referred to herein individually as a
“Party” and, collectively, as the “Parties.” Capitalized terms not herein defined shall have the meanings set forth in the Restructuring Term Sheet (as defined below). References herein to percentage of Exchanging
Holders refer to the principal amount of the Notes held by such Exchanging Holders. 
 RECITALS 

WHEREAS, prior to the date hereof, representatives of the Company and certain Exchanging Holders have discussed consummating a
financial restructuring (the “Restructuring”) of the Company’s consolidated indebtedness and other obligations on principal terms consistent with those set forth in this RSA and the Restructuring Term Sheet, attached hereto as
Exhibit A and expressly incorporated by reference herein and made a part of this RSA as if fully set forth herein (as it may be amended, supplemented or otherwise modified as provided herein, the “Restructuring Term
Sheet”); 
 WHEREAS, the Restructuring contemplates (i) a potential issuance of $225 million of new first
lien secured notes and $100 million of new second lien secured notes (with $75 million issued at closing and $25 million upon refinancing of the Bridge Loan Facility (as defined below)) (collectively, the “Secured Notes”) to the
Exchanging Holders and (ii) an exchange offer consisting of an issuance of $280 million of new Convertible Secured Notes (as defined below) and the issuance of $50 million of common stock in exchange for $330 million of the outstanding Notes;

 WHEREAS, the Restructuring also contemplates that (i) a $100 million asset-based revolving credit facility would
be provided by third party lenders to be used by the Company for the payment of fees and expenses in connection with the Restructuring and for working capital and other general corporate purposes; and (ii) a $25 million loan facility (the
“Bridge Loan Facility”) would be provided by certain Exchanging Holders to Parent to be used by the Company for working capital and other general corporate purposes; 

WHEREAS, the Parties have engaged in good faith negotiations with the objective of reaching an agreement with respect to the
Restructuring. Each Party has 

 
reviewed or has had the opportunity to review this RSA and the Restructuring Term Sheet with the assistance of professional legal advisors of its own choosing; 

WHEREAS, subject to the execution of the Definitive Documentation (as defined below), the following sets forth the agreement among
the Parties concerning their support, subject to the terms and conditions hereof and thereof, to implement the Restructuring. In the event the terms and conditions as set forth in the Restructuring Term Sheet and this RSA are inconsistent, the terms
and conditions contained in the Restructuring Term Sheet shall control. 
 AGREEMENT 

NOW, THEREFORE, in consideration of the covenants and agreements contained herein, and for other valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, each Party, intending to be legally bound hereby, agrees as follows: 
 1.
Definitions. The following terms shall have the following definitions: 
 “Affiliate” means, with respect
to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, “control” (including, with its correlative meanings,
“controlled by” and “under common control with”) shall mean, with respect to any Person, the possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through
ownership of securities or partnership, limited liability company or other ownership interests, by contract or otherwise) of such Person. 
 “Affiliated Transferee” means with respect to the Exchanging Holder, any entity that, as of the date an Exchanging Holder becomes a Party to this RSA, is an Affiliate of such Exchanging
Holder and, as of the date of any transfer of such Exchanging Holder’s Notes to such Affiliate, continues to be an Affiliate of that Exchanging Holder. 
 “Bankruptcy Code” means Title 11 of the United States Code, 11 U.S.C. §§ 101–1532. 
 “Bridge Loan Facility” has the meaning set forth in the preamble hereof. 
 “Business Day” means any day other than Saturday, Sunday and any day that is a legal holiday or a day on which banking institutions in New York, New York are authorized by law
or other governmental action to close. 
 “Certificate Amendment” has the meaning set forth in Section 3(c)
hereof. 
 “Company” has the meaning set forth in the preamble hereof. 

“Company Released Party” has the meaning set forth in Section 9.2 hereof. 

  
 2 

 “Confidentiality Agreement” means the separate Confidentiality Agreements
dated as of April 12, 2011, between each Exchanging Holder and the Parent. 
 “Consent Solicitation” means
the proposed solicitation of consents from Noteholders in connection with the Exchange Offer to amend certain covenants, events of default, and related provisions of the Indenture. 

“Critical Dates” has the meaning set forth in Section 5.4 hereof. 

“Definitive Documentation” means this RSA and such other documentation relating to the Restructuring, Consent
Solicitation, and Exchange Offer as is necessary to consummate the Restructuring, all on the same economic terms and otherwise in all material respects consistent with the terms set forth in the Restructuring Term Sheet. 

“Effective Date” means the date on which the Exchange Offer is completed and the transactions described herein are
consummated. 
 “Equity Record Date” has the meaning set forth in Section 4(d) hereof. 

“Exchange Offer” means the proposed tender offer, exempt from registration under the Securities Act or registered on Form
S-4, of the Notes in exchange for up to $280 million in aggregate principal amount of Convertible Secured Notes and up to $50 million in common stock, in exchange for the $330 million of outstanding Notes, as provided for in the Restructuring Term
Sheet and, as applicable, the Consent Solicitation. 
 “Exchanging Holder” has the meaning set forth in the
preamble hereof. 
 “Exchanging Holders” means each Noteholder that becomes a party to a Similar RSA.

 “Exchanging Holder Released Party” has the meaning set forth in Section 9.1 hereof. 

“Indenture” has the meaning set forth in the preamble herein. 

“Jones Act” means 46 U.S.C. §§ 50101 et seq. 

“Launch Date” means the date on which the Company shall commence the Exchange Offer, which shall be at least twenty
(20) Business Days prior to the anticipated Effective Date. 
 “Noteholders” means each of the entities
that is the beneficial holder of the Parent’s Notes. 

  
 3 

 “Note Claims” means the Noteholders’ rights and the Parent’s
obligations under the Notes, including any other obligations related thereto, including any accrued and accruing unpaid interest, costs, fees and indemnities thereunder. 
 “Notes” has the meaning set forth in the preamble hereto. 

“Parent” has the meaning set forth in the preamble hereto. 

“Party” or “Parties” has the meaning set forth in the preamble hereto. 

“Person” means an individual, a partnership, a joint venture, a limited liability company, a corporation, a trust, an
unincorporated organization, a group or any legal entity or association. 
 “Restructuring Term Sheet” has the
meaning set forth in the recitals hereto. 
 “Restructuring” has the meaning set forth in the recitals hereto.

 “Securities Act” means Securities Act of 1933, as amended. 

“Secured Notes” means (i) $225 million in aggregate principal amount of newly-issued first lien secured notes; and
(ii) $100 million in aggregate principal amount of newly-issued second lien secured notes, with $75 million issued at closing and $25 million upon refinancing of the Bridge Loan Facility, in each case issued on terms set forth in the
Restructuring Term Sheet. 
 “Secured Notes Subscription” means subscription by the Exchanging Holders, each
acting in their own capacity, who are “qualified institutional buyers” (as defined in Rule 144A under the Securities Act), in cash for $225 million in aggregate principal amount of newly-issued first lien secured notes and $100 million in
aggregate principal amount of newly issued second lien notes. 
 “Similar RSA” means a restructuring support
agreement with identical terms to this RSA entered into by the Company and a Noteholder. 
 “Termination Date”
has the meaning set forth in Section 5.4 hereof. 
 “Termination Event” has the meaning set forth in
Section 5 hereof. 
 “Transfer” has the meaning set forth in Section 3(b). 

“Trustee” means the Trustee to the Notes. 
 2. Effectuating the Restructuring. As long as a Termination Event has not occurred, subject to the (i) terms and conditions of this RSA and (ii) the terms and conditions set forth in the
Restructuring Term Sheet, as applicable, the Parties shall use their commercially reasonable efforts to: 

  
 4 

	 	(a)	effectuate and consummate the Restructuring on the terms described in this RSA and the Restructuring Term Sheet; 

 

	 	(b)	implement the Secured Notes Subscription or the Third Party Financing, as applicable, the Exchange Offer and the Consent Solicitation; 

 

	 	(c)	obtain all necessary approvals and consents for the Restructuring from all requisite governmental authorities and third parties; 

 

	 	(d)	complete each of the other transactions as contemplated by the Restructuring Term Sheet; and 

 

	 	(e)	take no actions inconsistent with this RSA, the Restructuring Term Sheet, and any other Definitive Documentation or the expeditious consummation of the Restructuring.

 Without limiting any other provision hereof, as long as a Termination Event has not occurred, each Party hereby
agrees to negotiate and cooperate in good faith in respect of all matters concerning the implementation and consummation of the Restructuring. Furthermore, each Party shall take such action (including executing and delivering any other agreement and
making and filing any required regulatory filings) as may be reasonably necessary to carry out the purposes and intent of this RSA. 
 3.
Support of Exchanging Holder. Subject to the (i) terms and conditions of this RSA and (ii) the terms and conditions set forth in the Restructuring Term Sheet, as applicable, the Exchanging Holder agrees that: 

 

	 	(a)	as long as a Termination Event (as defined herein) has not occurred or has occurred but has been duly waived in accordance with the terms hereof, so long as it is the
legal owner, beneficial owner and/or the investment advisor or manager of or with power and/or authority to bind any Noteholder, it shall (and shall cause each of its affiliates, subsidiaries, representatives, agents and employees to)
(i) validly tender and not withdraw such tender in the Exchange Offer of all Notes as to which it is the legal owner, beneficial owner or otherwise has the power and/or authority to bind any Noteholder; (ii) deliver consents with respect
to all such Notes in the Consent Solicitation if consistent with the terms set forth in the Restructuring Term Sheet; (iii) take no actions inconsistent with the RSA, the Restructuring Term Sheet, and any other related documents or the
expeditious consummation of the Restructuring; and (iv) use its commercially reasonable efforts to support the Restructuring; 

  

	 	(b)	 as long as a Termination Event (as defined herein) has not occurred or has occurred but has been duly waived in accordance with the terms hereof, it
shall not (and shall cause each of its affiliates, subsidiaries, representatives, agents, and employees not to) sell, transfer or assign, or grant, issue or sell any option, right to acquire, voting participation or

  
 5 

	 	
other interest in (each, a “Transfer”) any Notes, unless the following three criteria are met: (i) the Transfer is to occur after August 26, 2011; (ii) the
transferor Exchanging Holder notifies Paul, Weiss of the Transfer and the principal amount of Notes to be transferred thereby; and (iii) the transferee party first agrees in writing to be subject to the terms and conditions of this RSA or a
Similar RSA as an “Exchanging Holder,” and executes a counterpart signature page to a Similar RSA. Any Transfer that does not comply with the foregoing shall be deemed void ab initio. This RSA shall in no way be construed to preclude the
Exchanging Holder from acquiring additional Notes, provided that any such additional Notes shall automatically be deemed to be subject to the terms of this RSA. In addition, for so long as this RSA has not been terminated in accordance with its
terms, an Exchanging Holder may offer, sell or otherwise transfer any or all of its Notes to any Affiliated Transferee, who shall be automatically deemed bound by this RSA as an Exchanging Holder; provided, however, Paul, Weiss shall
be provided prompt notice of any such offer, sale, or transfer. The confidential schedule of the principal amount of Notes held by the Exchanging Holders and any transfer notices provided to Paul, Weiss in connection with the foregoing will be made
available on a name redacted basis to counsel for the Company on a confidential basis and shall not be disclosed by such counsel to the Company or any third party; 

 

	 	(c)	as long as a Termination Event (as defined herein) has not occurred or has occurred but has been duly waived in accordance with the terms hereof, (i) it shall (and
shall cause each of its affiliates, subsidiaries, representatives, agents, and employees to) vote in favor of amendments to the Company’s certificate of incorporation that are necessary to effectuate the Restructuring and related transactions
contemplated by the terms of this Agreement and the Restructuring Term Sheet (the “Certificate Amendment”) and (ii) it shall not (and shall not cause each of its affiliates, subsidiaries, representatives, agents, and employees
to) sell, transfer or assign any common stock of the Company received by the Exchanging Holder pursuant to the Exchange Offer until the second Business Day following the Effective Date; 

 

	 	(d)	all Definitive Documentation shall be in form and substance acceptable to the Company in its reasonable discretion; and 

 

	 	(e)	The Company will not consummate the Exchange Offer unless the “Conditions Precedent to Closing” the Restructuring transactions set forth in the Restructuring
Term Sheet have been satisfied or waived. 

 Notwithstanding anything to the contrary herein, this RSA shall not,
and shall not be deemed to, impair, prohibit, limit or restrict, any Exchanging Holder or its Affiliates, or their respective officers or representatives, from: 

  
 6 

	 	(a)	making any vote, objection, approval, decision, election, tender, consent, determination or other choice (i) if a Termination Event has occurred or (ii) that
is consistent with this RSA and the Restructuring Term Sheet, including without limitation, those permitted or contemplated by this RSA or the documents for, reflecting, or relating to the Restructuring, including, any of: (x) the Exchange
Offer and the Consent Solicitation and (y) the Secured Notes Subscription; or 

  

	 	(b)	exercising or asserting through litigation or otherwise any right, power or privilege under or term or provision of (including any dispute regarding the extent, terms,
enforceability, or meaning of any such right, term or provision) this RSA or the documents for, reflecting, or relating to, the Restructuring. 

 4. Support of the Company. 
  

	 	(a)	The Company agrees that from and after the date hereof, it will not directly or indirectly, seek, pursue, propose, support, or encourage the pursuit, proposal, or
support, of any offer of restructuring of the Company, including any alternative proposals that are inconsistent with and could reasonably be expected to prevent, delay or impede the Restructuring of the Company in accordance with the terms set
forth in the Restructuring Term Sheet, nor shall the Company solicit or direct any person or entity, including, without limitation, any member of the Company’s board of directors or any holder of equity in the Company, to undertake any of the
foregoing. 

  

	 	(b)	From and after August 26, 2011, the Company agrees that it will take no action, other than actions in furtherance of the Restructuring, direct or indirect, outside
the ordinary course of business prior to the Effective Date without the consent of at least 50% of the Exchanging Holders (such consent not be unreasonably withheld), nor shall the Company solicit or direct any person or entity, including, without
limitation, any member of the Company’s board of directors or any holder of equity in the Company, to undertake any of the foregoing. 

  

	 	(c)	The Company agrees that all Definitive Documentation shall be in form and substance acceptable to the Exchanging Holder in such Exchanging Holder’s reasonable
discretion. 

  

	 	(d)	The Company agrees that the record date for any shareholder to vote on the Certificate Amendment shall be no later than the first Business Day following the occurrence
of the Effective Date (the “Equity Record Date”) and further agrees to take such actions as necessary to establish the Equity Record Date in accordance with this section 4(d). 

  
 7 

 5. Termination. 
 Subject to Sections 5.4 and 5.6, this RSA (and Similar RSAs) may be terminated upon written notice of the occurrence of any of the following events by the Parties asserting termination to the other
Parties (each a “Termination Event”): 
 5.1 by 50% of the Exchanging Holders: 

 

	 	(a)	if the Company shall have breached any of its material obligations under the RSA or Similar RSA as set forth herein or therein; 

 

	 	(b)	upon acceleration of debt or leases in excess of $20 million by any creditor and any exercise of remedies by any creditor in connection therewith which is likely to
have a material adverse effect on the Company’s ability to complete the Restructuring or is likely to materially delay the consummation of the Restructuring, to the extent such acceleration is not withdrawn, revoked, or stayed within ten
(10) days thereof; 

  

	 	(c)	if Parent’s common stock is de-listed from a national securities exchange; 

 

	 	(d)	if the Company has not received commitments for the entire $325 million Secured Notes Subscription or Third Party Financing by August 26, 2011;

  

	 	(e)	if there shall have occurred and be continuing a MAC; 

  

	 	(f)	if the Company fails to launch the Secured Notes Subscription and the Exchange Offer, each on terms and conditions described herein and in the Restructuring Term Sheet,
by August 26, 2011; 

  

	 	(g)	if the Company fails to consummate the Secured Notes Subscription and the Exchange Offer, each on terms and conditions described herein and in the Restructuring Term
Sheet, by September 30, 2011; 

  

	 	(h)	if the Trustee objects in any respect to or takes action that could adversely affect the consummation of any of the transactions contemplated by the Restructuring and
takes action that challenges the validity or effectiveness of the procedures used by the Company in the making of the Exchange Offer or the Consent Solicitation; or 

 

	 	(i)	if any court of competent jurisdiction or other competent governmental or regulatory authority shall have issued an order making illegal or otherwise restricting,
preventing, or prohibiting the Restructuring in a material way that cannot be reasonably remedied by the Parties. 

  
 8 

 5.2 by the Company: 

 

	 	(a)	if an Exchanging Holder has failed to comply with its obligations in Section 3(a) of this RSA or any Similar RSA; 

 

	 	(b)	if the Company has not received commitments for the entire $325 million Secured Notes Subscription or Third Party Financing by August 26, 2011;

  

	 	(c)	if any court of competent jurisdiction or other competent governmental or regulatory authority shall have issued an order making illegal or otherwise restricting,
preventing, or prohibiting the Restructuring in a material way that cannot be reasonably remedied by the Parties; or 

  

	 	(d)	if the directors of the Parent determine in good faith that continued performance under this RSA would be inconsistent with the exercise of fiduciary duties under
applicable law; provided, however, that upon any such termination which occurs after the execution of a commitment letter or subscription agreement with respect to the Secured Notes, any commitment or other fees due thereunder shall be
paid in full; or 

 5.3 by the mutual consent of 50% of the Exchanging Holders and the Company for any reason.

 5.4 The date on which this RSA is terminated in accordance with the foregoing Section 5.1, 5.2, 5.3 or 5.5 and
Section 5.6 or 5.7 hereof shall be referred to as the “Termination Date”. Notwithstanding any provision in this RSA to the contrary, upon written consent of 50% of the Exchanging Holders, the dates set forth in section 5.1 (d),
(f), and (g) (the “Critical Dates”) may be extended prior to or upon such date and such later dates agreed to in lieu thereof and shall be of the same force and effect as the dates provided herein, and such consent shall not be
unreasonably withheld so long as good faith progress is being made towards meeting such Critical Date, provided, however, that any requested extension of more than ten (10) days may be denied for any reason; provided
further that consent of two-thirds of the Exchanging Holders is required to extend any date longer than ninety (90) days beyond the original date. 
 5.5 This RSA shall terminate automatically in the event cases under the Bankruptcy Code are commenced by or against the Company in any jurisdiction, and solely in the event of an involuntary filing
against the Company, such involuntary case is not dismissed within fifteen (15) days of filing. 
 5.6 If a Termination
Event occurs, this RSA shall terminate automatically unless 75% of the Exchanging Holders provide the Company written notice within three (3) Business Days (such 3 Business Day period to start on the day such Termination Event occurs, if such
day is a Business Day, and on the first Business Day after the day such Termination Event occurs, if such day is not a Business Day) that such Termination Event has been waived, cured, modified or the time to perform the requirements herein
extended. 

  
 9 

 5.7 The Exchanging Holder may terminate this RSA if Jones Act restrictions prevent the
Restructuring to be structured in form and substance satisfactory to such Exchanging Holder in its reasonable discretion. 
 5.8
In the event 50% of the Exchanging Holders or any other Party to this RSA asserts that a Termination Event has occurred, any Party may seek expedited relief with a court of competent jurisdiction, challenging such assertion, and no Party to this RSA
shall be permitted to challenge such request for expedited relief. 
 5.9 In the event that a bankruptcy filing is commenced by
or against the Company, the Company hereby waives any requirement under section 362 of the Bankruptcy Code to lift the automatic stay (the “Automatic Stay”) thereunder in connection with the giving of any notice of termination under
Section 5.6 of this RSA (and agrees not to object to any non-breaching Party seeking to lift the Automatic Stay in connection with giving any such notice, if necessary). 
 6. Good Faith Cooperation; Further Assurances; Transaction Documents. As long as a Termination Event has not occurred, the Exchanging Holder and the Company hereby covenant and agree to negotiate
in good faith the Definitive Documentation, each of which shall (i) contain the same economic terms as, and other terms consistent in all material respects with, the terms set forth in the Restructuring Term Sheet, (ii) except as otherwise
provided for herein, be in form and substance acceptable in all respects to the Parties in their reasonable discretion; and (iii) be consistent with this RSA and the Restructuring Term Sheet in all material respects. 

7. Effectiveness. This RSA will be effective and binding upon the Company and the undersigned Exchanging Holder as of the date on which:
(i) the Company shall have executed and delivered counterpart signature pages of this RSA and the Similar RSAs described in clause (iii) below to counsel to the Exchanging Holders, (ii) the Exchanging Holder shall have executed and
delivered counterpart signature pages of this RSA to counsel to the Company, and (iii) the Exchanging Holders representing the percentage of outstanding Notes agreed to by counsel for the Company and counsel for the Exchanging Holders shall
have executed and delivered counterpart signature pages of this RSA and the Similar RSAs to counsel to the Company. 
 8. Representations and
Warranties. Each Party hereby represents and warrants to the other Parties that the following statements are true and correct as of the date hereof: 
  

	 	(a)	it has all requisite corporate, partnership, limited liability company, or similar authority to enter into this RSA and carry out the transactions contemplated hereby
and perform its obligations contemplated hereunder; and the execution and delivery of this RSA and the performance of such Party’s obligations hereunder have been duly authorized by all necessary corporate, partnership, limited liability
company, or other similar action on its part; 

  
 10 

	 	(b)	the execution, delivery, and performance by such Party of this RSA does not and shall not (i) violate (A) any provision of law, rule, or regulation applicable
to it or any of its subsidiaries or (B) its charter or bylaws (or other similar governing documents) or those of any of its subsidiaries or (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both)
a default under any material contractual obligation to which it or any of its subsidiaries is a party; 

  

	 	(c)	the execution, delivery, and performance by such Party of this RSA does not and shall not require any registration or filing with, consent or approval of, notice to, or
other action to, with or by, any federal, state, or governmental authority or regulatory body; 

  

	 	(d)	this RSA is the legally valid and binding obligation of such Party, enforceable against it in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability or a ruling of a court of competent jurisdiction; and

  

	 	(e)	If such Party is an Exchanging Holder, such Exchanging Holder, as of the date of this RSA: 

 

	 	(i)	is the beneficial owner of the principal amount of the Notes set forth on the confidential schedule maintained by Paul, Weiss, or is the nominee, investment manager, or
advisor for one or more beneficial holders thereof, and has voting power or authority or discretion with respect to, the Notes including, without limitation, to vote, exchange, assign, and transfer such Notes; 

 

	 	(ii)	holds its Notes free and clear, other than pursuant to this RSA, of any claim, equity, option, proxy, voting restriction, right of first refusal, or other limitation on
disposition or encumbrances of any kind that could adversely affect in any way such Exchanging Holder’s performance of its obligations contained in this RSA at the time such obligations are required to be performed (except that a non-material
portion of Notes may be on loan); and 

  

	 	(iii)	is a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act. 

9. Mutual Release. 
 9.1
On the Effective Date, the Company and its subsidiaries will release the Exchanging Holder and managers, advisors, representatives, Affiliates, owners, employees, and partners thereof (each an “Exchanging Holder Released Party”)
from and against any and all claims, demands, causes of actions, or liabilities, of any and every 

  
 11 

 
character, kind, and nature whatsoever, in law or in equity, whether known or unknown, past, present or future, accrued or unaccrued, contingent or fixed, whether based on the law of torts,
conspiracy, breach of fiduciary duty, negligence, strict liability, real property rights, personal property rights or any other theories, in whole or in part, arising out of, resulting from, based upon, or related in any way to an Exchanging Holder
Released Party’s ownership, management, operation, status, tenure, actions, inactions, and conduct at any time as Noteholders, stockholder, director, officer, employee, servant, agent, representative, manager, advisor, attorney, creditor,
insurer, successor, assign, or any other relationship with the Company, at any time from the beginning of time to the consummation and effectiveness of the Restructuring; except that (i) no Exchanging Holder Released Party shall be
released from any claims, demands, causes of action or liabilities arising out of any act or omission of an Exchanging Holder Released Party that constitutes gross negligence, fraud, or willful misconduct; and (ii) without limiting or otherwise
altering the release of claims, demands, causes of action, or liability provided for above, the foregoing releases shall not apply to any contractual obligations owed by any Exchanging Holder Released Party or any right or obligation arising under
or that are part of any written agreement that is expressly entered into pursuant to, in connection with, or contemplated by, the Restructuring, including, without limitation, this RSA, the Restructuring Term Sheet, or any Definitive Documentation.

 9.2 The Definitive Documentation will provide that on the Effective Date, each Exchanging Holder and any other Noteholder
participating in the Exchange Offer and their respective managers, advisors, representatives, Affiliates, owners, employees, and partners thereof will release the Company and its managers, advisors, representatives, Affiliates, owners, employees,
and partners thereof (each a “Company Released Party”) from and against any and all claims, demands, causes of actions, or liabilities, of any and every character, kind, and nature whatsoever, in law or in equity, whether known or
unknown, past, present or future, accrued or unaccrued, contingent or fixed, whether based on the law of torts, conspiracy, breach of fiduciary duty, negligence, strict liability, real property rights, personal property rights or any other theories,
in whole or in part, arising out of, resulting from, based upon, or related in any way to the Notes; except that (i) no Company Released Party shall be released from any claims, demands, causes of action or liabilities arising out of any
act or omission of a Company Released Party that constitutes gross negligence, fraud, or willful misconduct; and (ii) without limiting or otherwise altering the release of claims, demands, causes of action, or liability provided for above, the
foregoing releases shall not apply to any contractual obligations owed by any Company Released Party or any right or obligation arising under or that are part of any written agreement that is expressly entered into pursuant to, in connection with,
or contemplated by, the Restructuring, including, without limitation, this RSA, the Restructuring Term Sheet, or any Definitive Documentation. 

10. Access. At all times prior to the Launch Date, the Exchanging Holders and their advisors shall have, upon reasonable advance notice and
subject to the Confidentiality Agreement or entry into another confidentiality agreement in form and substance satisfactory to the Company, complete and timely access to the Company’s books and records, as well as the Company’s management
and professional advisors, for the purpose of completing due diligence and negotiating the Definitive Documentation. At all times 

  
 12 

 
following the Launch Date and prior to the Effective Date, the Exchanging Holders and their advisors shall have, upon reasonable advance notice and subject to the Confidentiality Agreement or
entry into another confidentiality agreement in form and substance satisfactory to the Company, complete and timely access to the Company’s books and records, as well as the Company’s management and professional advisors, for the purpose
of conducting reasonable due diligence and negotiating the Definitive Documentation. 
 11. Entire Agreement. This RSA, including any
exhibits, schedules and annexes hereto constitutes the entire agreement of the Company and the Exchanging Holder with respect to the subject matter of this RSA, and supersedes all other prior negotiations, agreements and understandings, whether
written or oral, among the Parties with respect to the subject matter of this RSA, other than the Confidentiality Agreement which remains unaltered. 
 12. Reservation of Rights. Except as expressly provided in this RSA, nothing herein is intended to, or does, in any manner waive, limit, impair or restrict the ability of each Party to protect and
preserve its rights, remedies, and interests, including, without limitation, its claims against other Parties or their respective Affiliates. Nothing herein shall be deemed an admission of any kind. Nothing contained herein effects a modification of
the Parties’ or the Trustee’s rights under the Notes, the Indenture, or other documents and agreements unless and until the Effective Date has occurred. If the transactions contemplated herein are not consummated, or if this RSA terminates
for any reason prior to the Effective Date, the Parties fully reserve any and all of their rights. 
 13. Waiver. This RSA and the
Restructuring Term Sheet are part of a proposed settlement of matters that could otherwise be the subject of litigation among the Parties hereto. If the transactions contemplated herein are not consummated, or following the occurrence of the
Termination Date, if applicable, nothing shall be construed herein as a waiver by any Party of any or all of such Party’s rights and the Parties expressly reserve any and all of their respective rights. Pursuant to Federal Rule of Evidence 408
and any other applicable rules of evidence, this RSA and all negotiations relating hereto shall not be admissible into evidence in any proceeding other than a proceeding to enforce its terms. 
 14. Payment of Fees and Expenses. The Company agrees to pay all reasonable fees and expenses of Paul, Weiss, Houlihan Lokey, and any other specialty shipping advisors and other specialists, as
reasonably required and engaged upon advance written notice to the Company, in connection with conducting due diligence and negotiating, documenting and consummating the Restructuring. 
 15. Counterparts. This RSA may be executed in one or more counterparts, each of which, when so executed, shall constitute the same instrument and the counterparts may be delivered by facsimile
transmission or by electronic mail in portable document format (.pdf). 

  
 13 

 16. Amendments. Except as otherwise provided herein, this RSA, the Restructuring Term Sheet, the
Exchange Offer and the Definitive Documentation may not be modified, amended or supplemented, or any provisions herein or therein waived without the prior written consent of at least two-thirds of the Exchanging Holders (and may be modified, amended
or supplemented with such consent). Any modification, amendment or supplement to the terms of the Secured Notes Subscription or Secured Notes shall require the prior written consent of at least two-thirds of the Exchanging Holders, provided,
however, that no such modification, amendment or supplement shall treat any Exchanging Holder in a different manner than any other Exchanging Holder without first obtaining the consent of such Exchanging Holder. 

17. Headings. The headings of the sections, paragraphs and subsections of this RSA are inserted for convenience only and shall not affect the
interpretation hereof. 
 18. Relationship Among Parties. It is understood and agreed that any Exchanging Holder may trade in the Notes
or other debt or equity securities of the Company without the consent of the Company or any Exchanging Holder, subject to applicable securities laws and Section 3(b) hereof. No Party shall have any responsibility for any such trading by
any other entity by virtue of this RSA. No prior history, pattern or practice of sharing confidences among or between Parties shall in any way affect or negate this understanding and agreement. For the avoidance of doubt, (i) the execution of
this RSA by any Exchanging Holder shall not create, or be deemed to create, any fiduciary or other duties (actual or implied) to any other Exchanging Holder other than as expressly set forth in this RSA and (ii) no Exchanging Holder shall be
responsible for, or have any obligation with respect to, any duties or obligations of any other Exchanging Holder under a Similar RSA. 
 19.
Specific Performance. It is understood and agreed by the Parties that money damages would be an insufficient remedy for any breach of this RSA by any Party and each non-breaching Party shall be entitled to seek specific performance and
injunctive or other equitable relief as a remedy of any such breach, including, without limitation, an order of a court of competent jurisdiction requiring any Party to comply promptly with any of its obligations hereunder. 

20. Survival. Notwithstanding (i) any Transfer of the Notes in accordance with Section 3(b) of this RSA or (ii) the termination of
this RSA in accordance with its terms, the agreements and obligations of the Parties in Section 9, 12, 13, 14, 18, 24 and 25 shall survive such Transfer and/or termination and shall continue in full force and effect for the benefit of the
Exchanging Holder in accordance with the terms hereof. 
 21. Governing Law. This RSA shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to such state’s choice of law provisions which would require the application of the law of any other jurisdiction. 
 22. Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by

  
 14 

 
electronic mail transmission with first class mail confirmation to the Parties at the following addresses or email addresses: 

If to the Company: 
 Horizon Lines, LLC 
 Michael T. Avara 

4064 Colony Road, Suite 200 
 Charlotte, North Carolina 28211 
 with a copy to (which shall not constitute
notice): 
 Edward O. Sassower 
 Joshua A. Sussberg 
 Kirkland & Ellis LLP 

601 Lexington Avenue 
 New York, New York 10022 
 If to the Exchanging Holder: 

To the addresses and email addresses set forth on the signature pages hereto. 

with a copy to (which shall not constitute notice): 
 Andrew Rosenberg 
 Paul, Weiss, Rifkind, Wharton & Garrison LLP

 1285 Avenue of the Americas 
 New York, New York 10019 
 23. No Third-Party Beneficiaries. The terms and provisions of
this RSA are intended solely for the benefit of the Parties and their respective successors and permitted assigns, and it is not the intention of the Parties to confer third-party beneficiary rights upon any other Person. No Exchanging Holder shall
have any right to enforce the terms of any Similar RSA against any other Exchanging Holder. 
 24. Public Disclosure. The Company will
submit to the Exchanging Holder all press releases and public filings relating to this RSA or the transactions contemplated hereby and thereby and any amendments thereof. The Company shall not (a) use the name of the Exchanging Holder or its
manager, advisor, or Affiliates in any press release without the Exchanging Holder’s prior written consent or (b) disclose holdings of the Exchanging Holder to any Person; provided, however, that the Company shall be
permitted to disclose at any time the aggregate principal amount of and aggregate percentage of Notes held by the Exchanging Holders. 
 25.
Indemnification. The Company will reimburse and indemnify the Exchanging Holder and managers, advisors, representatives, Affiliates, owners, employees, and 

  
 15 

 
partners thereof for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which
may be imposed on, asserted against or incurred by the Exchanging Holder (and managers, advisors, representatives, Affiliates, owners, employees, and partners thereof) in performing its duties hereunder or under any other related document, or in any
way relating to or arising out of the Restructuring, this RSA or any other related document; provided that the Company shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, claims, actions, judgments,
suits, costs, expenses or disbursements resulting from the Exchanging Holder’s (or such Affiliate’s) gross negligence, bad faith or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable
decision). 

  
 16 

 IN WITNESS WHEREOF, the Parties hereto have caused their duly authorized officers to execute
and deliver this RSA as of the date first above written. 
  

			
	HORIZON LINES, INC.
		
	By:	 	  

		 	Name:
		 	Title:
	
	HORIZON LINES HOLDING CORP.
		
	By:	 	  

		 	Name:
		 	Title:
	
	HORIZON LINES, LLC
		
	By:	 	  

		 	Name:
		 	Title:
	
	HORIZON LINES OF PUERTO RICO, INC.
		
	By:	 	  

		 	Name:
		 	Title:
	
	HAWAII STEVEDORES, INC.
		
	By:	 	  

		 	Name:
		 	Title:

 Signature Page to Restructuring Support Agreement 

  
 17 

 
			
	HORIZON LOGISTICS, LLC
		
	By:	 	  

		 	Name:
		 	Title:
	
	H-L DISTRIBUTION SERVICE, LLC
		
	By:	 	  

		 	Name:
		 	Title:
	
	HORIZON LINES OF ALASKA, LLC
		
	By:	 	  

		 	Name:
		 	Title:
	
	HORIZON LINES OF GUAM, LLC
		
	By:	 	  

		 	Name:
		 	Title:
	
	HORIZON LINES VESSELS, LLC
		
	By:	 	  

		 	Name:
		 	Title:

 Signature Page to Restructuring Support Agreement 

  
 18 

 
			
	SEA-LOGIX, LLC
		
	By:	 	  

		 	Name:
		 	Title:
	
	AERO LOGISTICS, LLC
		
	By:	 	  

		 	Name:
		 	Title:
	
	HORIZON SERVICES GROUP, LLC
		
	By:	 	  

		 	Name:
		 	Title:

 Signature Page to Restructuring Support Agreement 

  
 19 

 
					
	EXCHANGING HOLDER:
	
	[INSERT NAME OF EXCHANGING HOLDER]
		
	By:	 	  

		 	Name:	 	  

		 	Title:	 	  

  
 Signature
Page to Restructuring Support Agreement 
 20 

 EXHIBIT A 

Restructuring Term Sheet 

 Summary of Proposed Terms and Conditions  

for Horizon Lines, Inc. 
 This term sheet (the “Term Sheet”) summarizing the principal terms of certain potential transactions concerning the Company (as defined below) is not legally binding or a complete
list of all the terms and conditions of the potential transactions described herein. This Term Sheet shall not constitute an offer to sell or buy, nor the solicitation of an offer to sell or buy any of the securities referred to herein. Furthermore,
nothing herein constitutes a commitment to lend funds to the Company or to negotiate, agree to or otherwise engage in, the Exchange Offer (as defined below). This Term Sheet is proffered in the nature of a settlement proposal in furtherance of
settlement discussions and is entitled to protection from any use or disclosure to any party or person pursuant to Federal Rule of Evidence 408 and any other rule of similar import. This Term Sheet contemplates the consummation of the Exchange Offer
through an out-of-court transaction, on the terms and subject to, among other things, the conditions described below. 
  

			
	Company:	  	Horizon Lines, Inc. (“Parent,” and together with its subsidiaries, the “Company”).
		
	Noteholders:	  	Each of the entities (each, a “Noteholder”) that is the beneficial holder of the Company’s Notes (as defined below).
		
	Current Capital Structure:	  	 The following outstanding indebtedness of the Company shall be restructured in connection with the Exchange Offer:

 

(a)     Indebtedness under the Credit Agreement dated as of August 8, 2007 (including
any refinancing, replacement, extension, renewal, amendment (including the First Amendment and Waiver dated as of June 11, 2009 and the Second Amendment dated as of March 9, 2011), supplement, or modification thereof, the “First
Lien Facility”), by and among the Parent, as borrower, certain guarantors thereunder, certain lenders and Wells Fargo Bank, N.A., as administrative agent, comprised of the term loan (the “First Lien Term Loan”),
the revolving loan (the “First Lien Revolving Loan”) and letter of credit obligations (the “LOC Obligations”). As of June 21, 2011, the aggregate outstanding principal amount of (i) the First Lien
Revolving Loan was $188,500,000.00, (ii) the First Lien Term Loan was $84,375,000.00 and (iii) LOC Obligations was $18,580,845.02.
  

(b)     4.25% convertible senior notes due 2012 (the “Notes”)
issued under the Indenture dated as of August 8, 2007 (as amended, supplemented or modified from time to time, the “Indenture”), by and between the Parent, as issuer, and The Bank of New York Trust Company, N.A., as Indenture
Trustee, in the aggregate principal amount of $330,000,000.00.

		
	Transaction:	  	As described below, the proposed transaction (the “Transaction”) contemplates a $655 million refinancing backstopped by certain Noteholders who subscribe
to the new secured notes (the

  
 A-1

			
		  	 “Participating Holders”) through (i) an issuance of a $225 million of new first lien secured notes to the
Participating Holders (the “First Lien Secured Notes”); (ii) an issuance of $100 million in new second lien secured notes (the “Second Lien Secured Notes”) to the Participating Holders (consisting of
new second lien notes issued in the principal amount of $25 million in exchange for a like principal amount of the Bridge Loan Facility (as defined below) plus an additional $75 million of new second lien notes issued at the Closing Date); and (ii)
an exchange offer consisting of an issuance of $280 million of new Convertible Secured Notes (as defined below), and the issuance of $50 million of common stock in exchange for $330 million of the outstanding Notes. It is further contemplated that a
$100 million New ABL Facility (as defined below) would be raised to be used by the Company for the payment of fees and expenses in connection with the Refinancing and the Exchange Offer (as such terms are defined below) and for working capital and
other general corporate purposes.
  
 Secured Notes

Subscription:
  

The Participating Holders, each acting in their own capacity, who are a “qualified institutional buyers” (as defined in Rule
144A under the Securities Act) will commit to subscribe in cash (the “Secured Notes Subscription”) for $225 million in aggregate principal amount of First Lien Secured Notes and $75 million in aggregate principal amount of
Second Lien Secured Notes, which combined with the Bridge Loan Facility will increase the total issuance size of the Second Lien Secured Notes to $100 million. The proceeds of the Secured Notes Subscription will be used to, among other things,
refinance the First Lien Facility and the original loans made under the Bridge Loan Facility (such refinancing, the “Refinancing”). The Participating Holders shall execute and deliver a subscription agreement/commitment
letter for the First Lien Secured Notes and the Second Lien Secured Notes prior to commencement of the Exchange Offer.
  

The Company will have the option to raise the $225 million contemplated by the First Lien Secured Notes or the $325 million
contemplated by both the First Lien Secured Notes and the Second Lien Secured Notes (the “Third Party Financing”) on materially better and reasonably acceptable terms to the Participating Holders.

 
 Exchange Offer:

 
 Concurrently with the Secured Notes Subscription, Parent will
also make an offer (the “Exchange Offer”), either exempt from registration under the Securities Act of 1933 (the “Securities Act”)
or

  
 A-2

			
		  	 registered on Form S-4, to issue to the Noteholders up to $280 million in aggregate principal amount of Convertible
Secured Notes (the “Convertible Secured Notes”) and up to $50 million in common stock at $1.00 per share (up to approximately 50.0 million shares), in exchange for the $330 million of outstanding Notes. Payment of accrued and
unpaid interest on the Notes will be made on the date on which the Exchange Offer is completed (the “Closing Date”). The number of shares issued and corresponding $50 million value are subject to adjustment on a pro rata
basis to the extent less than 100% of the Noteholders participate in the Exchange Offer provided that the Minimum Condition (as defined below) is met. The Exchange Offer will be subject to Rule 13e-4 under the Securities Exchange Act of 1934. To the
extent an exemption from registration under Section 3(a)(9) of the Securities Act is used, no party can be paid to solicit the Exchange Offer.
  

The Participating Holders, each acting in their own capacity, will have the option to purchase at par their individual pro rata
allocable share of the remaining Convertible Secured Notes that have not been subscribed to as part of the Exchange Offer.
  

All Noteholders participating in the exchange of the Convertible Secured Notes, including the Participating Holders, are hereinafter
referred to collectively as the “Exchanging Holders,” and each an “Exchanging Holder.”
  

In the event that less than $330 million is exchanged the amount of Convertible Secured Notes and common stock issued to the
Exchanging Holders as part of the Exchange Offer will be subject to adjustment on a pro rata basis.
  
 Asset Based
 Revolving
 Loan Facility:
  
 Concurrently with the Secured Notes Subscription and the Exchange Offer, a new asset-based revolving loan facility (“New ABL Facility”) will be provided by third party lenders to
Parent to be used by the Company for the payment of fees and expenses in connection with the Refinancing and the Exchange Offer and for working capital and other general corporate purposes. The Participating Holders are not committing to backstop or
otherwise subscribe to the New ABL Facility.

  
 A-3

			
		  	 Bridge
 Loan
Facility:
  
 Concurrently with or promptly following
the Launch Date (as defined below), a new $25 million loan facility (the “Bridge Loan Facility”) will be provided by certain Participating Holders to Parent to be used by the Company for working capital and other general
corporate purposes.

		
	Participating Holders’ Commitment:	  	Participating Holders will commit to fund $225 million of First Lien Secured Notes, the $100 million of Second Lien Secured Notes, and the $25 million Bridge Loan Facility (which
Bridge Loan Facility will be refinanced with $25 million of the Second Lien Secured Notes).
		
	Description of Bridge Loan Facility	  	 Description: A $25 million Bridge Loan Facility issued by Parent.

 
 Maturity The earlier of the closing of the Transaction and the maturity of
the First Lien Facility. The Bridge Loan Facility will provide that upon maturity, the principal amount of the Bridge Loan Facility (assuming all other conditions for consummation of the Transaction are satisfied or waived) will be exchanged for $25
million in Second Lien Secured Notes having terms identical to the terms of the other $100 million of Second Lien Secured Notes.
  

Commitment Fee: 3%.
  
 Amortization: None.
  

Interest: 15% per annum.
  

Structure: Second lien facility with intercreditor agreement in place to establish priority vis-à-vis the First Lien
Facility.

		
	Description of New ABL Facility:	  	 Description: $100 million maximum commitment amount including an up to $30 million letter of credit sub-facility and a
swingline subfacility up to a sublimit to be mutually agreed upon. Horizon Lines, LLC (“Opco”), as the borrower under the New ABL Facility (it being understood that the Parent and/or certain other subsidiaries of the Parent
may be the borrower or a co-borrower under the New ABL Facility), will have the option to request increases in the maximum commitment by up to $25,000,000 in the aggregate; however, such incremental facility increase is not committed. The term sheet
for the New ABL Facility will be agreed upon prior to commencement of the Exchange Offer, although the definitive documentation will be executed and delivered and the commitments for the extension of credit thereunder shall become effective and
available only substantially concurrently with successful consummation of the Refinancing and Exchange Offer.
  
 Guarantees: Guaranteed by the Parent’s present and future material domestic subsidiaries (other than a borrower with respect to its own obligations as a borrower).

 
 Maturity: Five year anniversary of the issuance of the
new

  
 A-4

			
		  	 Convertible Secured Notes (but 90 days earlier if the First Lien Secured Notes are not repaid or refinanced as of such date), subject
to the initial lender’s exercise of its limited right to reduce the term by no more than one year for purposes of achieving a successful syndication.
  

Interest: LIBOR + applicable margin ranging from 2.25% to 4.00%, based on leverage and excess availability grid.

 
 Collateral: Subject to permitted liens and except for certain excluded assets
and customary exceptions, a first priority lien on accounts, deposit accounts, securities accounts, investment property (other than equity interests of the subsidiaries of the Parent), cash, tax refunds and similar tax payments, and certain
intercompany loans, chattel paper, documents, instruments, letter-of-credit rights, supporting obligations, contract rights, general intangibles, commercial tort claims and related books and records (“ABL Priority
Collateral”) of the Company and the guarantors and a fourth priority lien on all or substantially all other non-current assets of the Company and the guarantors securing the First Lien Secured Notes and the Second Lien Secured Notes,
subject in each case to customary exceptions (“Secured Notes Priority Collateral”). The parties will discuss (but shall have no obligation to agree to) (i) additional collateral to be included in the New ABL Facility once the
advance rates for such collateral are determined prior to closing and (ii) possible additional $25 million incremental increase in the New ABL Facility.

		
	Description of First Lien Secured Notes:	  	 Description: $225 million of First Lien Secured Notes issued by Opco on the Closing Date.

 
 Guarantees: Guaranteed by the Parent and all of its current and future
domestic subsidiaries, subject to the same exceptions as are set forth in the New ABL Facility.
  
 Maturity: Five years from anniversary of the issuance of the First Lien Secured Notes.
  

Call Protection: Callable at 101.5% of the aggregate principal, plus accrued and unpaid interest thereon in year 1 and par plus accrued and unpaid
interest thereafter.
  
 Commitment Fee: 2.0% cash fee payable on the
full $225 million of First Lien Secured Notes, 50% upfront upon entry into subscription agreement/commitment letter and 50% upon closing of the Transaction or any other Third Party Financing in lieu of the First Lien Secured Notes and Second Lien
Secured Notes.
  
 Interest: 11% per annum, payable semi-annually in
cash, in arrears.
  
 Mandatory Prepayment: 1% annually.

 
 Collateral: Subject to agreed upon permitted liens and except for certain
excluded assets and customary exceptions, a first priority lien on all Secured Notes Priority Collateral and a second priority lien on

  
 A-5

			
		  	 all ABL Priority Collateral.
  

Covenants: Typical for senior secured high-yield notes with no maintenance based covenants. Other covenants to be negotiated. Covenants will
include:
  

•       Change of control put at 101% (subject to Permitted Holder
exception);
  

•       Limitation on asset sales;

 

•       Limitation on incurrence of indebtedness and preferred
stock;
  

•       Amount drawn on New ABL Facility subject to agreed upon leverage
test, if any;
  

•       Limitation on restricted payments;

 

•       Limitation on restricted investments;

 

•       Limitation on liens;

 

•       Limitation on dividend blockers;

 

•       Limitation on affiliate transactions;

 

•       Limitation on sale/leaseback transactions materially consistent
with such limitations currently in place under the Company’s existing loan documentation;
  

•       Limitation on guarantees by restricted subsidiaries;
and
  

•       Limitation on mergers, consolidations and sales of
all/substantially all of the assets of the Company.
  
 These covenants will
be subject to important exceptions and qualifications.
  
 Registration
Rights: Standard A/B Exchange Offer. Parent shall complete the A/B Exchange Offer as soon as practicable but in no event later than 180 days after issuance of the Secured Notes. Registration default will result in 0.25% of additional interest
per 90 days of registration default, up to a maximum of 1.00%.
  
 Credit
Rating: Public rating from either Standard & Poor’s or Moody’s credit rating agency.
  
 Settlement: DTC-eligible.

		
	Description of Second Lien Secured Notes:	  	 Description: $100 million of Second Lien Secured Notes issued by Opco on the Closing Date concurrently with refinancing of the
Bridge Loan Facility.
  
 Guarantees: Guaranteed by the Parent and all
of its current and future domestic subsidiaries, subject to the same exceptions as are set forth in the New ABL Facility.
  
 Maturity: Five years from the issuance of the new Second Lien Secured Notes.
  

Call Protection: Non callable for 2 years and thereafter callable at 106% of the aggregate principal, plus accrued and unpaid interest thereon in
year 3, 103% of the aggregate principal, plus accrued and unpaid interest thereon in year 4, and par plus accrued and unpaid interest thereafter.

  
 A-6

			
		  	 Commitment Fee: 2.0% cash fee payable on the full $100 million of Secured Notes, 50% upfront upon entry into subscription
agreement and 50% upon closing of the Transaction or any other restructuring transaction.
  
 Interest: At the Company’s option: (i) 13% per annum, payable semi-annually in cash in arrears; (ii) 14% per annum, 50% of which payable semi-annually in cash in arrears and 50% payable in
kind; or (iii) 15% per annum payable in kind.
  
 Amortization:
None.
  
 Collateral: Subject to agreed upon permitted liens and
except for certain excluded assets and customary exceptions, a second priority lien on all Secured Notes Priority Collateral and a third priority lien on all ABL Priority Collateral.

 
 Covenants: Typical for senior secured high-yield notes with no maintenance
based covenants. Other covenants to be negotiated. Covenants will include:
  
 •       Change of control put at 101% (subject to Permitted Holder exception);
  

•       Limitation on asset sales;

 

•       Limitation on incurrence of indebtedness and preferred
stock;
  

•       Amount drawn on New ABL Facility subject to agreed upon leverage
test, if any;
  

•       Limitation on restricted payments;

 

•       Limitation on restricted investments;

 

•       Limitation on liens;

 

•       Limitation on dividend blockers;

 

•       Limitation on affiliate transactions;

 

•       Limitation on sale/leaseback transactions materially consistent
with such limitations currently in place under the Company’s existing loan documentation;
  

•       Limitation on guarantees by restricted subsidiaries;
and
  

•       Limitation on mergers, consolidations and sales of
all/substantially all of the assets of the Company.
  
 These covenants will
be subject to important exceptions and qualifications.
  
 Registration
Rights: Standard A/B Exchange Offer. Parent shall complete the A/B Exchange Offer as soon as practicable but in no event later than 180 days after issuance of the Secured Notes. Registration default will result in 0.25% of additional interest
per 90 days of registration default, up to a maximum of 1.00%.
  
 Credit
Rating: Public rating from either Standard & Poor’s or Moody’s credit rating agency.
  
 Settlement: DTC-eligible.

		
	Description of Convertible	  	Description: $280 million of Convertible Secured Notes issued by

  
 A-7

			
	Secured Notes:	  	 Parent on the Closing Date.
  

Guarantees: Guaranteed by all current and future domestic subsidiaries of Parent, subject to the same exceptions as are set forth in the New ABL
Facility.
  
 Maturity: Five and a half years from the issuance of the
Convertible Secured Notes.
  
 Interest: 6.00% per annum.

 
 Conversion Price: The Convertible Secured Notes will be convertible into
shares of common stock of Parent, par value $0.01 per share (“Common Stock”), at a price of $.45 per share (the “Conversion Price”), which equates to 400.4 million shares of Common Stock , subject to
adjustment on a pro rata basis based on amount of Notes exchanged above the Minimum Condition and whether the Parent elects to exercise the Initial Mandatory Conversion (defined below) or the Second Mandatory Conversion (defined below). For the
avoidance of doubt, in the event that the Parent elects not to exercise the Initial Mandatory Conversion (defined below) and the Second Mandatory Conversion (defined below), the Conversion Price would be $0.52 per share, which equates to 537.2
million shares of Common Stock, subject to adjustment on a pro rata basis based on amount of Notes exchanged above the Minimum Condition.
  

Collateral: Subject to agreed upon permitted liens and except for certain excluded assets and customary exceptions, a third priority lien on all
Secured Notes Priority Collateral and a fourth priority lien on all ABL Priority Collateral.
  
 Covenants: Subject to similar covenants, as for the new Second Lien Secured Notes, with mutually agreed upon changes.

 
 Optional Conversion: So long as the issuance of the shares of Common Stock
upon conversion of the Convertible Secured Notes is permitted by all applicable laws, rules and regulations, holders of Convertible Secured Notes shall have the right to convert the Convertible Secured Notes at their option at any time and from time
to time prior to maturity thereof into 537.2 million shares of Common Stock, subject to adjustment on a pro rata basis based on amount of Notes exchanged above the Minimum Condition and whether the Parent elects to exercise the Initial Mandatory
Conversion (defined below) or the Second Mandatory Conversion (defined below). In connection with any such optional conversion, holders of Convertible Secured Notes shall also have the right to receive accrued and unpaid interest on the Convertible
Secured Notes to, but excluding, the date of conversion, payable in cash.
  

	Jones Act Compliance:	  	The parties will agree upon certain restrictions on the conversion, ownership or transfer of shares of Common Stock in order to comply with the Jones Act, Title 46 U.S.C.
§§ 50101 et seq., and work in good faith, if necessary, to adjust this Term Sheet accordingly to comply

  
 A-8

					
		 		 	with such restrictions.
			
	Other Terms of Convertible Secured Notes:	 	Conversion	 	
	 	Event:	 	 So long as the issuance of the full number of shares of Common Stock upon conversion of the Convertible Secured Notes is
permitted by all applicable law, rule and regulation, the Parent may convert into Common Stock the Convertible Secured Notes at its option, in whole or in part from time to time, on not more than 60 days and not less than 20 days prior notice at the
Conversion Price plus accrued and unpaid interest thereon up to (but excluding) the date set for conversion, provided that (i) 3 months have passed since the Second Mandatory Conversion (defined below) and (ii) the 30 trading days volume weighted
average price of the Common Stock is at least $.63 per share at conversion date. In addition, so long as the issuance of the full number of shares of Common Stock upon conversion of the Convertible Secured Notes is permitted by all applicable law,
rule and regulation, the Parent may, as long as it is in compliance with all of its financing documents, mandatorily convert (a) up to $50 million of the Convertible Secured Notes into Common Stock at its option at the three month anniversary of the
issuance of the Convertible Secured Notes (the “Initial Mandatory Conversion”) at $0.73 per share (the “Mandatory Conversion Price”), which equates to 68.4 million shares of Common Stock subject to adjustment on a pro rata basis
based on amount of Notes exchanged above the Minimum Condition, and (b) up to $50 million of the Convertible Secured Notes into Common Stock at its option at the nine month anniversary of the issuance of the Convertible Secured Notes (the
“Second Mandatory Conversion”) at the Mandatory Conversion Price, which equates to 68.4 million shares of Common Stock subject to adjustment on a pro rata basis based on amount of Notes exchanged above the Minimum Condition.

 
 Interest shall cease to accrue on any Convertible Secured Notes on the date such
Convertible Secured Notes have been converted (the “Conversion Date”). All accrued and unpaid interest will be paid in cash on any Conversion Date.

 
 Conversion will be subject to continued listing
on

  
 A-9

					
		 		 	a national securities exchange and other customary conditions.
			
		 	 Fundamental

Change of
	 	
		 	Control:	 	 Upon a change of control, the holders shall have the right to require Parent to repurchase for cash the outstanding Convertible Secured
Notes at 101% of the aggregate principal amount, plus accrued and unpaid interest thereon.
  
 A “change of control” will be deemed to occur at such time as: (i) any “person” or “group” (as such terms are used for purposes of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended, whether or not applicable), other than Parent or any of its subsidiaries, any employee benefit plan of it or such subsidiary or any Permitted Holder (which will include certain holders of Convertible
Secured Notes and any of their Affiliates), is or becomes the “beneficial owner,” as determined in accordance with Rule 13d-3 under the Exchange Act, directly or indirectly, of more than 50% of the total voting power in the aggregate of
all classes of Parent’s capital stock then outstanding and entitled to vote generally in elections of directors; (ii) Parent consolidates with or merges with or into another person (other than any subsidiary of Parent or a Permitted
Holder) and its outstanding voting securities are reclassified into, converted for or converted into the right to receive any other property or security, or Parent sells, conveys, transfers or leases all or substantially all of its properties and
assets to any person; (iii) during any period of 12 consecutive months after the date of original issuance of the Convertible Secured Notes, persons who at the beginning of such 12 month period constituted Parent’s Board of Directors,
together with any new persons whose election was approved by a vote of a majority of the persons then still comprising its Board of Directors who were either members of the Board of Directors at the beginning of such period or whose election,
designation or nomination for election was previously so approved, cease for any reason to constitute a majority of Parent’s Board of Directors; or (iv) Parent is liquidated or dissolved or holders of Parent’s Common Stock approve any
plan or proposal for Parent’s liquidation or dissolution.

			
		 	Fundamental	 	

  
 A-10

					
		 	Change	 	
		 	Make-Whole:	 	The conversion rate of the Convertible Secured Notes shall be increased to compensate the holders thereof for the loss of the time value of the conversion right (i) if at any time
the Common Stock is not listed on the NYSE or the NASDAQ Stock Market or (ii) if a Change of Control occurs, unless at least 90% of the consideration received or to be received by holders of Common Stock, excluding cash payments for fractional
shares, in connection with the transaction or transactions constituting the Change of Control, consists of shares of Common Stock, American Depositary Receipts or American Depositary Shares traded on a national securities exchange in the United
States or which will be so traded or quoted when issued or exchanged in connection with such Change of Control (these securities being referred to as “publicly traded securities”).
			
		 	 Registration

Rights:
	 	
		 		 	 As soon as is practicable following the issuance of the Convertible Secured Notes, Parent shall file a shelf registration statement
for the resale of both the Convertible Secured Notes and the underlying Common Stock, using commercially reasonable efforts to do so concurrently or immediately after the issuance of the Convertible Secured Notes, and to have such registration
statement declared effective as soon as practicable thereafter but in no event later than 120 days after filing. Failure to have such registration statement declared effective within 120 days after issuance of the Convertible Secured Notes will
result in payment of 0.25% of additional interest per 90 days of registration default, up to a maximum of 1.00%.
  
 In addition, the Convertible Secured Notes will be DTC eligible at issuance.

			
		 	 Adjustments to

Conversion
	 	
		 	Price:	 	Adjustments for (i) issuances of Common Stock or derivatives below the Conversion Price or below market, (ii) stock splits, combinations or dividends in the form of Common Stock,
(iii) other dividends or distributions on Common Stock (including cash dividends and spinoffs), and (iv) repurchases of Common Stock above the Conversion Price or market (including by way
of

  
 A-11

					
		 		 	a tender offer), in each case, subject to certain customary exceptions.
			
		 	Conversion Cap:	 	In no event will a Convertible Secured Note be forcibly convertible into a number of shares of Common Stock of Parent that would cause a holder to “beneficially own”
(as such term is used in the Exchange Act) more than 9.9% of the Common Stock of Parent at any time outstanding (the “Conversion Cap”); provided, however, that such Conversion Cap shall not apply during such
time as effective registration statement is in effect and Noteholders are free to sell thereunder.
			
		 	Redemption/	 	
		 	Conversion:	 	Other than as provided under “Conversion Event”, the Convertible Secured Notes shall not be converted or redeemed by Parent.
		
	Closing Date:	 	 Concurrently with the Exchange Offer, Parent will undertake a consent solicitation (the “Consent Solicitation”) in
which it will seek consents from the Noteholders to amend the Indenture governing the Notes, to remove substantially all of the restrictive covenants and certain events of default from the Indenture governing the Notes upon consummation of the
Exchange Offer. A portion of the total consideration in the Exchange Offer (equal to 0.5% of the total consideration described herein) will constitute a consent payment that is available only to Noteholders who give their consents in the Consent
Solicitation. The consent payment will not be paid to Noteholders who do not so consent.

		
	Conditions Precedent to Closing:	 	 The Participating Holders’ support for the Secured Notes Subscription and the Exchanging Holders support for the
Exchange Offer shall be contingent upon customary conditions precedent, including, but not limited to, the following:
  

•       entry into material financing documents with respect to the Third
Party Financing to permit the transactions contemplated hereby; alternatively, the Company may accept the commitment from the Participating Holders to provide $225 million of First Lien Secured Notes, $100 million of Second Lien Secured Notes and
raise the New ABL Facility;
  

•       definitive documentation reasonably acceptable to Participating
Holders;
  

•       all terms of the New ABL Facility, including related definitive
documentation, reasonably acceptable to Participating Holders;
  
 •       after March 31, 2011, except as specifically set forth on Schedule I attached hereto, no material adverse change (“MAC”)
in the business, affairs, properties, condition (financial or otherwise) or prospects of the Company shall have occurred on or prior to the Closing Date;
  

•       delivery of due diligence satisfactory to the Participating
Holders and their advisors concerning the Company’s antitrust issues,

  
 A-12

			
		  	 business and business plan, operations, financial condition, customer matters and other related matters, which
due diligence shall be completed by August 26, 2011 (plus customary “bring down” due diligence prior to funding);
  

•       continued listing of Parent’s Common Stock on a national
securities exchange, i.e., NYSE;
  

•       NYSE’s approval of the Exchange Offer without requiring
shareholder approval;
  

•       payment of reasonable documented fees and expenses of one counsel
and one financial advisor to the Participating Holders (such counsel to be augmented by any specialty shipping advisors and other specialists, as reasonably required and engaged upon advance written notice to the Company);

 

•       launch (the date of such launch, the “Launch
Date”) of the Secured Notes Subscription by August 26, 2011 and the Exchange Offer by August 26, 2011;
  

•       closing of the Secured Notes Subscription by September 30,
2011 and the Exchange Offer by September 30, 2011;
  
 •       there shall not have occurred (i) any general suspension of, or limitation on prices for, trading in securities in the United States securities or financial
markets, (ii) any material impairment in the trading market for debt securities, (iii) any declaration of a banking moratorium or any suspension of payments in respect to banks in the United States or other major financial markets, (iv) any
limitation (whether or not mandatory) by any stock exchange, government or governmental, administrative or regulatory authority or agency, domestic or foreign, or other event that might affect the extension of credit by banks or other lending
institutions, (v) a commencement of a war, armed hostilities, terrorist acts or other national or international calamity directly or indirectly involving the United States or (vi) in the case of any of the foregoing existing on the date hereof, a
material acceleration or worsening thereof;
  
 •       all requisite governmental authorities and third parties shall have approved or consented to the Transaction (other than approvals by the SEC in connection
with the Securities Act registration of the Convertible Secured Notes and the underlying Common Stock) and, to the extent required, all applicable appeal periods shall have expired;

 

•       Company shall not have entered into any agreement with any of the
class action optouts that is materially different as to its aggregate value from agreements previously disclosed to Paul, Weiss in connection with the optout settlements; and

 

•       other conditions typical for transactions of this
nature.

		
	Minimum Condition:	  	The Exchange Offer will be conditioned upon Noteholders of not less than 95% in aggregate principal amount of the Notes having validly tendered (and not validly withdrawn) their
Notes into the Exchange Offer (the “Minimum Condition”); provided, however, the Parent with more than 66-2/3% of the Participating Holders consent may lower the Minimum
Condition.

  
 A-13

			
	Corporate Governance:	  	The Participating Holders shall have the right to designate nominees to comprise a majority of the Board, provided that any existing directors who wish to remain on the Board
will be considered. The parties shall work in good faith to make other agreed upon changes to amend the Parent’s organizational documents consistent with best practices. The Parent will request a 1 to 25 reverse share split at the first
shareholder meeting after the Closing Date.
		
	Management/Employee Incentive Plan:	  	The Participating Holders and the Company will work in good faith to negotiate a management incentive plan (taking into account tax implications and potential need for a
shareholder approval) for Parent, which will provide for grants of options and/or restricted stock/equity reserve for management, directors, and employees, for which 10% (on a fully-diluted and fully distributed basis) of Parent’s equity will
be reserved. The amount, form, exercise price, allocation and vesting of such equity-based awards shall be approved by the Board of Directors immediately prior to the closing and implemented thereafter (the “Initial Grants”);
provided, however, prior to the launch of the Exchange Offer the parties shall agree upon the percentage of Initial Grants, amounts of restricted stock and SARs and vesting terms of the foregoing. The Company will not provide further
grants after the Initial Grants until such time as the Participating Holders have designated their nominees to the Board.
		
	Section 16 Officer Severance	  	The Participating Holders and the Company will work in good faith to negotiate, and the Company will adopt and maintain, a severance plan (the “Severance
Plan”) for each of the Company’s officers designated under section 16 of the Securities Exchange Act of 1934, 15 U.S.C. § 78a, et seq. (each, an “Officer”), which Officers do not currently have
severance benefits. The Severance Plan will provide for severance benefits equal to one year’s salary and non-equity benefits in the event the Officer is terminated without cause. The Severance Plan shall be approved by the Board of Directors
prior to the closing. It is anticipated that such Severance Plan will include five officers as of the date hereof.
		
	Transaction and Legal Fees and Expenses:	  	The Company shall pay the reasonable out of pocket documented costs and expenses incurred by the Participating Holders in connection with the Transaction, including the
reasonable fees and disbursements of one outside counsel and one financial advisor to the Participating Holders (plus any specialty shipping advisors and other specialists, as reasonably required and engaged upon advance written notice to the
Company), for the negotiation and documentation related to the Transaction.
		
	Indemnification:	  	The definitive documentation for the Secured Notes Subscription shall contain customary provisions limiting liability for, and indemnifying and holding harmless, Participating
Holders (and their affiliates and their respective officers, directors, employees and agents) for any losses, claims, damages, liabilities or expenses incurred in respect of the exchange contemplated hereby, except to the extent they are found by a
final, non-appealable judgment of a

  
 A-14

			
		  	court to arise primarily from the gross negligence or willful misconduct of the relevant indemnified person or such person’s affiliates and their respective officers,
directors, employees and agents.
		
	Governing Law:	  	New York governing law and consent to exclusive New York jurisdiction.

  
 A-15

 Schedule I 
 The following items shall not constitute MACs under the Term Sheet: 
 Notice of delisting of the
Company’s stock on the New York Stock Exchange (NYSE). 
 Settlement of non-antitrust litigation in the aggregate amount not to exceed $7.5
million. 
 Events described in the Company’s Form 10-Q for the quarterly period ended March 27, 2011 filed on April 29, 2011,
including those described in Section 15 (Commitment and Contingencies) and Section 17 (Subsequent Events) of Part I, and in Section 1 (Legal Proceedings) and Section 5 (Other Information) of Part II. 

Events described in the Company’s Form 10-Q for the quarterly period ended June 26, 2011 filed on July 29, 2011, including those described
in Section 16 (Commitment and Contingencies) of Part I, and in Section 1 (Legal Proceedings) of Part II. 
 The recent amendments to
the First Lien Facility, as described in the 10-Q for the period ending June 26, 2011. 
 Nonpayment of interest payment due
August 15, 2011 under the Indenture, until the later of the date on which (x) the Bridge Loan Facility closes and (y) the grace period set forth in the Indenture for the nonpayment of interest expires. 

Items disclosed in writing to, and acknowledged by, the Exchanging Holders or a representative of the Exchanging Holders on or prior to the date of the
commitment letters for the Bridge Loan Facility, the First Lien Secured Notes and the Second Lien Secured Notes. 

  
 A-16turv_s8joemckowenexh10.htm

 

EXHIBIT 10.1

NAVIDEC FINANCIAL SERVICES, INC.

2005 STOCK OPTION PLAN

ARTICLE I

ESTABLISHMENT AND PURPOSE

     1.1 Establishment. Navidec Financial Services, Inc., a Colorado corporation (the  "Company"),  hereby  establishes  a stock  option plan for key  employees, consultants  and  members  of the  Board of  Directors  of the  Company  or of a subsidiary of the Company,  providing  material  services to the Company,  which shall be known as the Navidec  Financial  Services  2005 Stock  Option Plan (the "Plan").  The Company shall enter into Option agreements with Optionees pursuant to the Plan.

     1.2  Purpose.  The purpose of the Plan is to enhance shareholder  value by attracting,  retaining and motivating key employees,  consultants and members of the Board of  Directors of the Company and of any  subsidiary  of the Company by providing  them with a means to acquire a proprietary  interest in the Company's success.

ARTICLE II

ELIGIBILITY AND PARTICIPATION

     All current and former  employees,  consultants and members of the Board of Directors of the Company (the  "Board"),  and of any  subsidiary of the Company, are  eligible to  participate  in the Plan and receive  Options  under the Plan. Optionees under the Plan shall be selected by the Board, in its sole discretion, from among those current and former  employees,  consultants  and members of the Board of the Company, and of any subsidiary of the Company,  who, in the opinion of the  Board,  are or  were  in a  position  to  contribute  materially  to the Company's continued growth and development and to its long-term success.

ARTICLE III

ADMINISTRATION

     3.1  Administration.  The Board shall be responsible for  administering the Plan.

     (a) The Board is authorized to interpret the Plan; to prescribe, amend, and rescind rules and  regulations  relating to the Plan; to provide for  conditions and  assurances  deemed  necessary or advisable to protect the  interests of the Company with respect to the Plan; and to make all other determinations necessary or   advisable   for   the   administration   of   the   Plan.   Determinations, interpretations, or other actions made or taken by the Board with respect to the Plan and  Options  granted  under  the  Plan  shall be  final  and  binding  and conclusive for all purposes and upon all persons.

     (b) At the  discretion  of the  Board  the  Plan may be  administered  by a Committee  of two or more  non-employee  Directors  appointed  by the Board (the "Committee").  The members of the Committee may be Directors who are eligible to receive  Options under the Plan, but Options may be granted to such persons only by action of the full Board and not by action of the  Committee.  The  Committee shall have full power and authority,  subject to the limitations of the Plan and any limitations imposed by the Board, to construe, interpret and administer the Plan and to make  determinations  which shall be final,  conclusive  and binding upon all  persons,  including  any persons  having any  interests in any Options which may be granted  under the Plan,  and,  by  resolution  or  resolutions  to provide for the creation and issuance of any Option, to fix the terms upon which and the time or times at or within  which,  and the price or prices at which any shares may be purchased  from the Company  upon the exercise of an Option.  Such terms,  time or times and price or prices shall,  in every case, be set forth or incorporated by reference in the instrument or instruments evidencing an Option, and shall be consistent with the provisions of the Plan.

     (c)  Where a  Committee  has been  created  by the Board  pursuant  to this Article III, references in the Plan to actions to be taken by the Board shall be deemed to refer to the Committee as well, except where limited by the Plan or by the Board.

  

  

  

    

 (d) No member of the Board or the Committee  shall be liable for any action or  determination  made in good  faith  with  respect  to the Plan or any Option granted under it.

ARTICLE IV

STOCK SUBJECT TO THE PLAN

     4.1 Number.  The total number of shares of common stock of the Company (the "Stock")  hereby made  available  and reserved for issuance  under the Plan upon  exercise of Options shall be 5,000,000 shares. The aggregate number of shares of Stock  available  under the Plan shall be subject to  adjustment  as provided in Section 4.3.

     4.2 Unused  Stock.  If an Option shall  expire or terminate  for any reason without having been exercised in full, or if an "immaculate  cashless  exercise" (as  described in Section  5.4)  results in the issuance of a reduced  number of shares in  satisfaction  of an option  grant,  the  unpurchased  shares of Stock subject thereto shall (unless the Plan shall have  terminated)  become available for other Options under the Plan.

     4.3  Adjustment  in  Capitalization.  In the  event  of any  change  in the outstanding  shares of Stock of the  Company  by reason of a stock  dividend  or split, recapitalization,  reclassification, or other similar capital change, the aggregate  number  of  shares  of  Stock  set  forth  in  Section  4.1  shall be appropriately adjusted by the Board, whose determination shall be conclusive. In any such case,  the  number and kind of shares of Stock that are  subject to any Option and the Option price per share shall be proportionately and appropriately adjusted  without any change in the  aggregate  Option price to be paid therefore upon exercise of the Option.

ARTICLE V

TERMS OF STOCK OPTIONS

     5.1 Grant of  Options.  Subject to Section  4.1,  Options may be granted to current  and  former  employees,  consultants  and  members  of the Board of the Company and of any  subsidiary  of the Company at any time and from time to time as  determined  by the  Board.  The Board  shall  have  complete  discretion  in determining  the terms and  conditions  and  number of  Options  granted to each Optionee.  In making such  determinations,  the Board may take into  account the nature of services  rendered by such current and former  employees,  consultants and members of the Board,  their  present  and  potential  contributions  to the Company  and such  other  factors  as the  Board in its  discretion  shall  deem relevant.

     5.2  Option  Agreement;  Terms and  Conditions  to Apply  Unless  Otherwise Specified. As determined by the Board on the date of grant, each Option shall be evidenced by an option agreement (the "Option  Agreement")  that specifies:  the Option price; the duration of the Option; the number of shares of Stock to which the Option applies; such vesting or exercisability  restrictions which the Board may impose;  and any other terms or conditions  which the Board may impose.  All such terms and conditions  shall be determined by the Board at the time of grant of the Option.

     (a) If not  otherwise  specified  by the  Board,  the  following  terms and conditions shall apply to Options granted under the Plan:

          (i) Term.  The  duration of the Option shall be for ten years from the date of grant.

          (ii)  Exercise  of  Option.  If an  Option  is  subject  to a  vesting schedule,  (A)  an  Option  held  by  an  Optionee  who  retires  from employment with the Company after having both reached the age of sixty  and completed  twelve years of service with the Company shall continue to vest in  accordance  with the  vesting  schedule  set  forth in the applicable  Option  Agreement  notwithstanding  the termination of the           Optionee's  employment  with the Company,  provided  that prior to the exercise of the Option such  Optionee  does not after such  retirement  become  employed on a full-time  basis by a competitor  of the Company prior  to  reaching  age  sixty-five,  and  (B) an  Option  held  by a  non-employee  Director of the Company who retires from the Board after completing  at least five years of service to the Company shall become fully vested.

          (iii)  Termination.  Each  Option  granted  pursuant to the Plan shall expire on the earliest to occur of:

  

  

  

              

     (A) The date set forth in such  Option,  not to exceed  ten years from the date of grant;

               (B) The third anniversary of the completion of the merger or sale of  substantially  all of the Stock or assets of the Company with or to another  company in a  transaction  in which the Company is not the  survivor,  except for the merger of the  Company  into a wholly-owned  subsidiary (and the Company shall not be considered the surviving  corporation  for purposes hereof if the Company or any of its  subsidiaries is the survivor of a reverse  triangular merger and the Company's  shareholders  immediately  prior to the merger  own less  than 50% of the  value of the  Company's  stock immediately after the merger); or

               (C) The termination of the employment of an Optionee for cause by the Company.

          (iv) Acceleration. An Option shall become fully vested and exercisable irrespective  of its other  provisions  (A)  immediately  prior to the completion of the merger or sale of substantially  all of the stock or assets of the Company in a transaction in which the Company is not the survivor,  except for the merger of the  Company  into a  wholly-owned subsidiary  (and the Company  shall not be  considered  the  surviving           corporation  for  purposes  hereof  if  the  Company  or  any  of  it   subsidiaries  is the survivor of a reverse  triangular  merger and the Company's  shareholders  immediately prior to the merger own less than 50% of the value of the Company's stock immediately after the merger); (B) upon termination of the Optionee's  employment with the Company or a subsidiary thereof because of death, disability or normal retirement upon  reaching  the age of  sixty-five;  or (C) in the event  that the Optionee is a non-employee member of the Company's Board of Directors, upon  retirement  from the Company's Board of Directors after reaching the age of seventy.

          (v)  Transferability.  In addition to the Optionee, the Option may be exercised, to the extent exercisable by the Optionee, by the person or persons to whom the Optionee's rights under the Option pass by will or the laws of descent and distribution, by the spouse or the descendants of the Optionee or by trusts for such  persons,  to whom or which the Optionee may have transferred the Option,  or by legal  representative of any of the  foregoing.  Any such  transfer  shall  be made  only in compliance with the  Securities  Act of  1933,  as  amended,  and the requirements therefor as set forth by the Company.

     (b) The Board shall be free to specify terms and conditions  other than and in addition to those set forth above, in its discretion.

     (c) All Option  Agreements shall  incorporate the provisions of the Plan by reference.

     5.3 Option  Price.  No Option  granted  pursuant  to the Plan shall have an Option  price that is less than the fair  market  value of Stock on the date the Option is granted,  as determined by the Board.  The Option exercise price shall be subject to adjustment as provided in Section 4.3 above.

     5.4 Payment. Payment for all shares of Stock shall be made at the time that an Option,  or any part  thereof,  is  exercised,  and no shares shall be issued until full payment therefor has been made. Payment shall be made (i) in cash, or (ii) in Stock, or, if acceptable to the Board, in some other form.

     5.5  Repricing.  An  outstanding  Option  may be  repriced  after the grant thereof to provide for a lower Option exercise price, whether through adjustment or  amendment  to the Option  exercise  price,  issuance  of an amended  Option, cancellation of the Option and issuance of a replacement Option, or by any other means with substantially the same economic effect, with approval of the Board.

ARTICLE VI

WRITTEN NOTICE, ISSUANCE OF STOCK

CERTIFICATES, SHAREHOLDER PRIVILEGES

     6.1 Written  Notice.  An Optionee  wishing to exercise an Option shall give written notice to the Company,  in the form and manner  prescribed by the Board. Full  payment  for the shares of Stock  acquired  pursuant  to the  Option  must accompany the written notice.

     6.2  Issuance  of Stock  Certificates.  As soon as  practicable  after  the receipt of written notice and payment, the Company shall deliver to the Optionee a certificate or certificates for the requisite number of shares of Stock.

  

  

  

     6.3 Privileges of a Shareholder.  An Optionee or any other person  entitled to  exercise an Option  under the Option  Agreement  shall not have  shareholder privileges  with  respect to any Stock  covered by the Option  until the date of issuance of a stock certificate for such Stock.

ARTICLE VII

RIGHTS OF OPTIONEES

     Nothing in the Plan shall  interfere  with or limit in any way the right of the  Company  or  a  subsidiary  corporation  to  terminate  any  employee's  or consultant's  employment at any time, nor confer upon any employee or consultant any right to continue in the employ of the Company or a subsidiary corporation.

ARTICLE VIII

AMENDMENT, MODIFICATION, AND

TERMINATION OF THE PLAN

     The  Board  may at any time  terminate  and from  time to time may amend or modify the Plan. Any amendment or  modification  of the Plan by the Board may be accomplished  without  approval  of  the  shareholders  of the  Company,  unless shareholder approval of such amendment or modification is required by any law or regulation governing the Company.

     No amendment,  modification, or termination of the Plan shall in any manner adversely  affect any  outstanding  Option under the Plan without the consent of the Optionee holding the Option.

ARTICLE IX

ACQUISITION, MERGER OR LIQUIDATION

     9.1 Acquisition.

     (a) In the event that an  acquisition  occurs with  respect to the Company, the Company shall have the option,  but not the  obligation,  to cancel  Options outstanding  as of the effective date of such  acquisition,  whether or not such Options  are then  exercisable,  in return for  payment to the  Optionees  of an amount equal to a reasonable  estimate of an amount  (hereinafter the "Spread"), determined  by the Board,  equal to the  difference  between  the net amount per share payable in the  acquisition  or as a result of the  acquisition,  less the exercise price of the Option. In estimating the Spread, appropriate adjustments to give effect to the  existence of the Options  shall be made,  such as deeming the Options to have been  exercised,  with the Company  receiving  the  exercise price payable thereunder, and treating the Stock receivable upon exercise of the Options as being outstanding in determining the net amount per share.

     (b)  For  purposes  of  this  section,  an  "acquisition"  shall  mean  any transaction in which  substantially  all of the Company's assets are acquired or in which a controlling amount of the Company's  outstanding shares are acquired, in each case by a single person or entity or an affiliated  group of persons and entities.  For purposes of this section,  a  controlling  amount shall mean more than fifty percent of the issued and outstanding shares of Stock of the Company. The Company shall have the above option to cancel Options  regardless of how the acquisition  is  effectuated,  whether by direct  purchase,  through a merger or similar  corporate  transaction,  or otherwise.  In cases where the  acquisition consists of the  acquisition of assets of the Company,  the net amount per share shall be  calculated on the basis of the net amount  receivable  with respect to shares upon a distribution and liquidation by the Company after giving effect to expenses and charges, including but not limited to taxes, payable by the Company before the liquidation can be completed.

     (c) Where the Company  does not  exercise its option under this Section 9.1 the  remaining  provisions  of  this  Article  IX  shall  apply,  to the  extent applicable.

  

  

  

     9.2  Merger  or  Consolidation.  If the  Company  shall  be  the  surviving corporation in any merger or  consolidation,  any Option granted hereunder shall pertain to and apply to the securities to which a holder of the number of shares of Stock  subject  to the  Option  would have been  entitled  in such  merger or consolidation,  provided that the Company shall not be considered  the surviving corporation for purposes hereof if the Company or any of its subsidiaries is the survivor  of  a  reverse  triangular  merger  and  the  Company's   shareholders immediately  prior to the merger and less than 50% of the value of the Company's stock immediately after the merger.

     9.3 Other Transactions.  A merger and consolidation in which the Company is not the surviving corporation (the Company shall not be considered the surviving corporation for purposes hereof if the Company or any of its subsidiaries is the survivor  of  a  reverse  triangular  merger  and  the  Company's   shareholders immediately  prior to the merger and less than 50% of the value of the Company's stock  immediately  after the  merger)  shall  cause  every  Option  outstanding hereunder to terminate on the third  anniversary  date of the effective  date of such merger or consolidation.  A dissolution or liquidation of the Company shall cause every Option outstanding  hereunder to terminate  effective as of the date of such dissolution or liquidation of the Company.  However,  if the Optionee is offered a firm  commitment  whereby the resulting or surviving  corporation in a merger or  consolidation  will tender to the Optionee an option (the "Substitute option") to  purchase  its shares on terms and  conditions  both as to number of shares and  otherwise,  which will  substantially  preserve to the  Optionee the rights and benefits of the Option outstanding  hereunder granted by the Company, the  Option  shall  remain  exercisable  upon its  terms.  The Board  shall have absolute and uncontrolled  discretion to determine whether the Optionee has been offered a firm  commitment  and  whether  the  tendered  Substitute  Option will substantially  preserve to the  Optionee  the rights and  benefits of the Option outstanding hereunder.

ARTICLE X

SECURITIES REGISTRATION

     10.1 Securities  Registration.  In the event that the Company shall deem it necessary or desirable to register  under the Securities Act of 1933, as amended (the  "Securities  Act"), or any other  applicable  statute,  any Options or any Stock  with  respect  to which an Option  may be or shall  have been  granted or exercised,  or to qualify any such Options or Stock under the Securities Act, or any other statute,  then the Optionee shall  cooperate with the Company and take such action as is  necessary to permit  registration  or  qualification  of such Options or Stock.

     10.2 Representations.  Unless the Company has determined that the following  representation  is unnecessary,  each person exercising an Option under the Plan may be required by the Company,  as a condition to the issuance of the shares of Stock pursuant to exercise of the Option,  to make a  representation  in writing (i) that he is acquiring  such shares for his own account for investment and not with a view to, or for sale in connection  with,  the  distribution  of any part thereof  within the  meaning of the  Securities  Act,  and (ii) that  before any transfer  in  connection  with the  resale of such  shares,  he will  obtain the written opinion of counsel for the Company,  or other counsel  acceptable to the Company,  that such shares may be transferred without registration  thereof. The Company may also require that the certificates  representing such shares contain legends reflecting the foregoing.  To the extent permitted by law, including the Securities Act,  nothing herein shall restrict the right of a person  exercising an Option to sell the shares received in an open market transaction.

ARTICLE XI

TAX WITHHOLDING

     Whenever  shares  of Stock  are to be issued  in  satisfaction  of  Options exercised  under the Plan,  the  Company  shall  have the power to  require  the recipient of the Stock to remit to the Company an amount  sufficient  to satisfy federal, state, and local withholding tax requirements, if any.

ARTICLE XII

INDEMNIFICATION

  

  

  

     To the extent  permitted  by law,  each  person who is or shall have been a member of the Board or the Committee  shall be indemnified  and held harmless by the Company against and from any loss, cost,  liability,  or expense that may be imposed upon or reasonably  incurred by him in connection with or resulting from any claim, action, suit, or proceeding to which he may be a party or in which he may be involved  by reason of any action  taken or failure to act under the Plan and against and from any and all amounts paid by him in settlement thereof, with the Company's  approval,  or paid by him in satisfaction of judgment in any such action,  suit, or proceeding  against him, provided he shall give the Company an opportunity,  at its own  expense,  to  handle  and  defend  the same  before he undertakes  to handle and defend it on his own behalf.  The  foregoing  right of indemnification shall not be exclusive of any other rights of indemnification to which  such  persons  may  be  entitled  under  the  Company's   certificate  of incorporation or bylaws, as a matter of law, or otherwise, or any power that the Company or a  Subsidiary  Corporation  may have to  indemnify  them or hold them harmless.

ARTICLE XIII

REQUIREMENTS OF LAW

     13.1  Requirements  of Law.  The  granting of Options  and the  issuance of shares  of  Stock  upon the  exercise  of an  Option  shall  be  subject  to all applicable  laws,  rules,  and  regulations,   and  to  such  approvals  by  any governmental agencies or national securities exchanges as may be required.

     13.2  Governing  Law.  The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Colorado.

ARTICLE XIV

EFFECTIVE DATE OF PLAN

     The Plan shall be effective on September 21, 2004.

 

 

ARTICLE XV

NO OBLIGATION TO EXERCISE OPTION

     The granting of an Option shall impose no obligation upon the holder thereof to exercise such Option.

     THIS STOCK OPTION PLAN was adopted by the Board of Directors of the Company on May 6, 2005.

                                                      By: /s/ John McKowen

John R. McKowen, President

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00193-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00193-of-00352.parquet"}]]