Document:

exv10w2

 

Exhibit 10.2

November 1, 2004

FirstCity Financial Corporation

6400 Imperial Drive

Waco, Texas 76712

Attention: Mr. Jim Sartain, President

Dear Jim:

Closing Statement

     Reference is made to the letter agreement (the “Proceeds Letter”) dated as
of September 21, 2004 among FirstCity Financial Corporation (“FC”), Bank of
Scotland, acting through its New York branch, The Governor & Company of the
Bank of Scotland (“BoS-UK”) and BoS (USA) Inc. relating to the contemplated use
of the $86,800,000 in proceeds from the sale of the Subject Securities by FC
and FirstCity Consumer Lending Corporation (“CLC”) and as contemplated in
Section 2.8 of the Securities Purchase Agreement. All capitalized terms used
in this letter agreement shall have the meaning set forth in the Securities
Purchase Agreement unless such term is defined in this letter agreement in
which case such defined term shall have the meaning set forth herein.

     This letter sets forth the distribution of funds as at November 1, 2004
(the “Payment Date”) as contemplated by the Securities Purchase Agreement and
in addition provides for a Closing Statement of those loans referenced in the
Proceeds Letter.

     FC, CLC, BOS-UK, Bank of Scotland, acting through its New York branch, and
BoS (USA), Inc. acknowledge that the payments and distributions set forth below
were made and received on the Payment Date as contemplated by in Section 2.8 of
the Securities Purchase Agreement and by the Proceeds Letter.

     The Purchase Price payable to CLC by the Buying Entities and CLC’s portion
of the Funding Distributions were applied on Payment Date, as follows:

	 	(i)	 	the amount of $16,003,946.67 was paid to BOS-UK in full
satisfaction of the outstanding principal balance of $16,000,000 on
the Non-Recourse Loan and accrued interest in the amount of
$3,946.67 payable as of the Payment Date; and
	 
	 	(ii)	 	the balance of $70,796,053.33 was distributed to FCFC.

     The balance of the Purchase Price and the Funding Distributions
distributed by CLC to FCFC on the Payment Date ($70,796,053.33) was applied on
the Payment Date, as follows:

 

 

	 	(iii)	 	the amount of $12,113,993.54 was paid to BoS (USA) Inc. in
full satisfaction of the outstanding principal balance due under the
Tranche II Loans (as defined in the Restated Agreement) under the
Restated Agreement in the amount of $12,000,000, interest in the
amount of $8,767.50 accrued and payable thereon and breakage costs
in the amount of $105,226.04 as of the Payment Date);
	 
	 	(iv)	 	the amount of $24,621,688.09 was paid to BoS (USA) Inc. in
full satisfaction of the outstanding principal balance due under the
Tranche I Loans (as defined in the Restated Agreement) under the
Restated Agreement in the amount of $24,607,025.00 and interest in
the amount of $14,663.09 accrued and payable thereon as of the
Payment Date);
	 
	 	(v)	 	the amount of $500,000.00 was paid to the Bank of Scotland,
acting through its New York branch, as agent for the benefit of the
lenders under the Restated Agreement in full satisfaction of the
Repayment Fee related to the Tranche II Loans under Section 4.2 of
the Restated Agreement;
	 
	 	(vi)	 	the amount of $4,007,675.40 was paid to Bank of Scotland,
acting through its New York branch, in full satisfaction of the
outstanding principal balance due under the Revolving Credit Loans
(as defined in the PFAL) in the amount of $4,006,103.00 and interest
in the amount of $1,572.40 accrued and payable thereon as of the
Payment Date;
	 
	 	(vii)	 	the amount of $29,552,696.30 was paid to Bank of Scotland,
acting through its New York branch, as agent for the “Lenders”
pursuant to the Cash Collateral Agreement dated November 1, 2004, to
deposit the balance in the amount of $29,552,696.30 in a cash
collateral account as security for obligations under the PFAL, held
at Bank of Scotland, New York branch to be utilized by FCFC as set
forth in paragraph (viii) of the Proceeds Letter.

[End of Page]

 

 

     Executed and acknowledged effective as of November 1, 2004.

	 	 	 	 	 
	 	Very truly yours,

BANK OF SCOTLAND, acting through its

New York branch, individually and as

Agent under the PFAL and Restated

Agreement

 	 
	 	By:  	 	 
	 	 	Name:  	Joseph Fratus 	 
	 	 	Title:  	First Vice President 	 
	 

	 	 	 	 	 
	 	THE GOVERNOR & COMPANY OF

THE BANK OF SCOTLAND

 	 
	 	By:  	 	 
	 	 	Name:  	James Halley 	 
	 	 	Title:  	Executive Vice President 	 
	 

	 	 	 	 	 
	 	BoS (USA) Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	Lolita M. Lazaro 	 
	 	 	Title:  	Secretary 	 
	 

CONFIRMED AND AGREED

FIRSTCITY FINANCIAL CORPORATION

	 	 	 	 
	 	 
	By:  	 	 
	 	Name:  	James T. Sartain 	 
	 	Title:  	President 	 
	 

FIRSTCITY CONSUMER LENDING CORPORATION

	 	 	 	 
	 	 
	By:  	 	 
	 	Name:  	James T. Sartain 	 
	 	Title:  	Chairman of the Boardexv4w1

 

EXHIBIT 4.1

EXHIBIT A

HORIZON OFFSHORE, INC.

CERTIFICATE OF DESIGNATION,

PREFERENCES AND RIGHTS

OF

SERIES A REDEEMABLE PARTICIPATING PREFERRED STOCK

Pursuant to Section 151 of the

Delaware General Corporation Law

               HORIZON OFFSHORE, INC. (the “Company”), a corporation organized and
existing under the laws of the State of Delaware, hereby certifies that
pursuant to the provisions of Section 151 of the Delaware General Corporation
Law, its Board of Directors, by unanimous written consent, dated November 4,
2004 adopted the following resolution, which resolution remains in full force
and effect as of the date hereof:

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

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

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

 

 

DESIGNATION, PREFERENCES AND RIGHTS

of

SERIES A REDEEMABLE PARTICIPATING PREFERRED STOCK

of

HORIZON OFFSHORE, INC.

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

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

               “Accretion Rate” shall mean 25% per annum calculated on a 360 day per year
basis, based on the actual number of days elapsed.

               “Applicable Fully Diluted Equity Value” shall mean, at any date of
determination, (a) (i) the product of (A) the aggregate number of Fully Diluted
Outstanding shares of Common Stock and (B) the Current Equity Entitlement
Factor multiplied by (ii) the Current Market Price, minus (b) $1,925,000.

               “Appraised Value” shall mean, in respect of any share of Common Stock on
any date herein specified, the fair saleable value of such share of Common
Stock (determined without giving effect to the discount for (i) a minority
interest or (ii) any lack of liquidity of the Common Stock or to the fact that
Company may have no class of equity registered under the Exchange Act) as of
the last day of the most recent fiscal month to end within 60 days prior to
such date specified, based on the value of Company, as determined by an
investment banking firm selected by the Company and the Required Holders,
divided by the number of Fully Diluted Outstanding shares of Common Stock.

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

               “Business Day” shall mean any day other than a Saturday, Sunday, or a day
on which banking institutions in the State of New York or the State of Texas
are authorized or obligated by law or executive order to close.

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

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

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               “Current Equity Entitlement Factor” shall mean, at any date of
determination, the quotient of (a) the number of shares of Redeemable Preferred
Stock issued on the Original Issue Date divided by (b) 10,000, as increased to
the date of determination by application of the Accretion Rate, compounded
quarterly, for the period commencing six months from the Original Issue Date to
the date of determination.

               “Current Market Price,” when used with reference to shares of Common Stock
on any date, shall mean the arithmetic average of the daily Weighted Average
Price for 20 consecutive Trading Days commencing 30 days before such date, or
if there shall not be a public market for such shares, the Appraised Value per
share of Common Stock at such date.

               “Event of Default” shall mean the failure of the Company to redeem shares
of Redeemable Preferred Stock should it be required or undertake to do so
pursuant to Section 6 hereof.

               “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Securities
and Exchange Commission thereunder, all as the same shall be in effect at the
time. Reference to a particular section of the Securities Exchange Act of
1934, as amended, shall include reference to the comparable section, if any, of
any such similar Federal statute.

               “Fully Diluted Outstanding” shall mean, with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, (a) all
shares of Common Stock outstanding at such date, (b) all shares of Common Stock
underlying any unexercised warrants issued by the Company to purchasers of the
Company’s 16% Subordinated Secured Notes, (c) all Pro Forma Warrant Shares as
of such date (calculated with respect to all shares of Redeemable Preferred
Stock outstanding at such date), and (d) all shares of Common Stock underlying
other options or warrants to purchase, or securities convertible into, shares
of Common Stock outstanding on such date excluding any such options, warrants
or securities with an exercise or conversion price in excess of the Current
Market Price.

               “GAAP” shall mean generally accepted accounting principles in the United
States of America as in effect from time to time.

               “Liquidation Preference” shall mean a per share amount for the Redeemable
Preferred Stock equal to the quotient of (a) the Applicable Fully Diluted
Equity Value divided by (b) the number of outstanding shares of Redeemable
Preferred Stock.

               “Notice Period” has the meaning set forth in Section 6(a)(i)(B) of this
Certificate of Designation.

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               “Organic Change” shall mean (a) any sale, lease, exchange or other
transfer of all or substantially all of the property and assets of the Company,
(b) any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, (c) any merger or consolidation to which the Company
is a party and which the holders of the voting securities of the Company
immediately prior thereto own less than a majority of the outstanding voting
securities of the surviving entity immediately following such transaction, or
(d) any Person or group of Persons (as such term is used in Section 13(d) of
the Exchange Act) shall beneficially own (as defined in Rule 13d-3 under the
Exchange Act) securities of the Company representing 50% or more of the voting
securities of the Company then outstanding, excluding for purposes of this
clause (d) any such ownership change which may be deemed to result from the
issuance of the shares of Redeemable Preferred Stock on the Original Issue Date
or which may result from the issuance of shares of Common Stock to holders of
Subordinated Notes pursuant to a Qualified Rights Offering. For purposes of
the preceding sentence, “voting securities” shall mean securities, the holders
of which are ordinarily, in the absence of contingencies, entitled to elect the
corporate directors (or Persons performing similar functions).

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

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

               “Pro Forma Warrant Shares” shall mean, at any date of determination, the
aggregate number of Warrant Shares purchasable under the number of Warrants
that would be required to be issued in redemption of a share of Redeemable
Preferred Stock at such date under Section 6(a)(ii)(B), as if such redemption
had occurred on such date.

               “Principal Market” shall mean the NASDAQ National Market.

               “Purchase Agreement” shall mean the Purchase Agreement, dated as of
November 4, 2004, by and among the Company and the Purchasers named therein, as
it may be amended from time to time, a copy of which is on file at the
principal office of the Company.

               “Qualified Rights Offering” has the meaning set forth in Section
6(a)(ii)(B).

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

               “Redemption Date” shall mean any date on which the shares of Redeemable
Preferred Stock are to be redeemed by the Company.

               “Redemption Price” shall mean, at any date of determination, a per share
amount equal to the Liquidation Preference thereof at such date.

4

 

               “Registration Rights Agreement” shall mean the Registration Rights
Agreement in the form of Exhibit C attached to the Purchase Agreement.

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

               “Stockholder Approval” shall mean the approval, by the holders of the
requisite number of shares of Common Stock entitled to vote thereon, of the
proposal described in Section 6.2 of the Purchase Agreement.

               “Subordinated Notes” shall mean Company’s 16% subordinated secured notes
due March 31, 2007 and its 18% subordinated secured notes due March 31, 2007.

               “Subscription Rights” has the meaning set forth in Section 3(b) of this
Certificate of Designation.

               “Subsidiary” of any Person shall mean any corporation or other entity of
which a majority of the voting power or the voting equity securities or equity
interest is owned, directly or indirectly, by such Person.

               “Trading Day” shall mean a Business Day or, if the Common Stock is listed
or admitted to trading on any national securities exchange or NASDAQ market, a
day on which such exchange or market is open for the transaction of business.

               “Warrant Shares” shall mean the shares of Common Stock from time to time
purchasable upon exercise of the Warrants.

               “Warrants” shall mean the Company’s Common Stock purchase warrants, with
an initial per share exercise price equal to the quotient of (a) $1,925,000
divided by (b) the aggregate number of Warrants Shares for which such warrants
issued in any redemption pursuant to Section 6(a)(ii)(B) and 6(a)(iv) of this
Certificate of Designation are exercisable, and each of which warrants shall be
issued pursuant to and evidenced by the Warrant Certificate in the form of
Exhibit B attached to the Purchase Agreement.

               “Weighted Average Price” shall mean, for any share of Common Stock as of
any date, the dollar volume-weighted average price for such Common Stock on the
Principal Market during the period beginning at 9:30:01 a.m., New York City
time (or such other time as the Principal Market publicly announces is the
official open of trading), and ending at 4:00:00 p.m., New York City time (or
such other time as the Principal Market publicly announces is the official
close of trading) as reported by Bloomberg through its “Volume at Price”
functions, or, if the foregoing does not apply, the dollar volume/weighted
average price of such Common Stock in the over-the-counter market on the
electronic bulletin board for such Common Stock during the period beginning at
9:30:01 a.m., New York City time (or such other time as the Principal Market
publicly announces is the official open of trading), and ending at 4:00:00
p.m., New York City time (or such other time as the Principal Market publicly
announces is the

5

 

official close of trading) as reported by Bloomberg, or, if no
dollar/volume weighted average price is reported for the Common Stock by
Bloomberg for such hours, the average of the highest closing bid price and the
lowest closing ask price of any of the market makers for such Common Stock as
reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). All such determinations are to be appropriately
adjusted for any stock dividend, stock split, stock combination or other
similar transaction during the applicable calculation period.

               2. Designation; Number of Shares. The designation of the preferred stock
authorized by this resolution shall be “Series A Redeemable Participating
Preferred Stock” and the number of shares of Series A Redeemable Participating
Preferred Stock authorized hereby shall be 1,400 shares.

               3. Dividends.

               (a) Except as otherwise provided in Section 3(b), no dividends shall be
declared or paid on shares of Redeemable Preferred Stock.

               (b) So long as any shares of Redeemable Preferred Stock shall be
outstanding, (i) no dividend whatsoever shall be paid or declared, and no
distribution shall be made, on account of any Common Stock unless an equivalent
additional dividend or distribution is simultaneously paid on the Redeemable
Preferred Stock based on the number of Pro Forma Warrant Shares which it then
represents and (ii) no shares of Common Stock shall be purchased, redeemed or
acquired by the Company and no funds shall be paid into or set aside or made
available for a sinking fund for the purchase, redemption or acquisition
thereof. Notwithstanding the foregoing subclause (i), the holders of
Redeemable Preferred Stock shall not be entitled to receive any dividend or
distribution paid in shares of Common Stock, or options or warrants to purchase
shares of Common Stock or subscription or purchase rights to acquire for a cash
purchase price newly issued shares of Common Stock effected as a distribution
on all outstanding shares of Common Stock (“Subscription Rights”).

               4. Liquidation Rights of Redeemable Preferred Stock.

               (a) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of Redeemable Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Company available for distribution to its stockholders, whether such assets are
capital, surplus or earnings, before any payment or declaration and setting
apart for payment of any amount shall be made in respect of any shares of
Common Stock or any share of any other class or series of the Company’s
preferred stock ranking junior to the Redeemable Preferred Stock with respect
to the payment of dividends or distribution of assets on liquidation,
dissolution or winding up of the Company, an amount in cash equal to the
Liquidation Preference plus all declared or accrued and unpaid dividends.

6

 

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

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

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

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

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

               6. Redemption of Redeemable Preferred Stock.

               (a) (i) Optional Redemption.

     (A) If any Organic Change occurs, at the option of any
holder of outstanding Redeemable Preferred Stock (as
exercised pursuant to Section 6(a)(i)(B) below), the
Company shall redeem,

7

 

for cash at the Redemption Price, those outstanding
shares of Redeemable Preferred Stock which the holders of
such Redeemable Preferred Stock have elected to redeem,
such redemption to occur immediately prior to or
simultaneously with the consummation of such Organic
Change. If the Required Holders so elect in connection
with such Organic Change by written notice to the Company
within the Notice Period referred to below, the Company
shall redeem all of the outstanding shares of Redeemable
Preferred Stock.

     (B) The Company will give written notice of any
Organic Change, stating the substance and intended date of
consummation thereof, not more than sixty (60) Business
Days nor fewer than forty (40) Business Days prior to the
date of consummation thereof, to each holder of Redeemable
Preferred Stock. The holders of the Redeemable Preferred
Stock shall have thirty-five (35) Business Days (the
“Notice Period”) from the date of the receipt of such
notice to demand (by written notice mailed to the Company)
redemption of all or any portion of the shares of
Redeemable Preferred Stock held by such holder. If, by the
expiration of the Notice Period, the Required Holders have
so elected to demand redemption of all of the outstanding
shares of Redeemable Preferred Stock as provided in Section
6(a)(i)(A) above, the Company shall give prompt written
notice of such election to each other holder of Redeemable
Preferred Stock within five (5) Business Days after the
expiration of the Notice Period.

(ii) Mandatory Redemption.

     (A) The Company shall redeem, and the holders of the
outstanding Redeemable Preferred Stock shall sell to the
Company, for cash at the Redemption Price, all of the
outstanding Redeemable Preferred Stock on the sixth
anniversary of the Original Issue Date.

     (B) If the Stockholder Approval is obtained, the
Company shall redeem, and the holders of the outstanding
Redeemable Preferred Stock shall surrender, transfer and
assign to the Company, for the equity consideration
described in Section 6(a)(iv) at the Redemption Price, all
of the outstanding Redeemable Preferred Stock upon the
expiration and closing of any offering of Subscription
Rights by the Company to the holders of its Common Stock,
pursuant to which shares of Common Stock offered for
purchase thereunder shall have been issued and sold to
stockholders subscribing therefor for aggregate net
proceeds of at least $65,000,000, or to the extent such
shares are not issued and

8

 

sold thereunder, holders of the Subordinated Notes as
standby purchasers shall have exchanged up to $65,000,000
in aggregate principal amount of Subordinated Notes for
shares of Common Stock such that the total of such net
proceeds so received and aggregate principal amount of
Subordinated Notes so exchanged equals $65,000,000 (a
“Qualified Rights Offering”).

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

     (iv) Payment or Satisfaction of Redemption Price. The
Redemption Price shall be payable in cash at the Redemption Date
upon any redemption pursuant to Section 6(a)(i)(A) or Section
6(a)(ii)(A). The Company’s obligation to pay the Redemption Price
in any redemption under Section 6(a)(ii)(B) shall be satisfied by
delivering to each holder in full redemption of all of such
holder’s shares of Redeemable Preferred Stock one or more
certificates representing Warrants to purchase, in the aggregate,
a number of Warrant Shares equal to the product of (A) (1) the
number of Fully Diluted Outstanding shares of Common Stock at the
Redemption Date multiplied by (2) the Current Equity Entitlement
Factor, multiplied by (B) a fraction, the numerator of which is
the number of such holder’s shares of Redeemable Preferred Stock
called for redemption and the denominator of which is the number
of all shares of Redeemable Preferred Stock then outstanding.

     (v) Warrant Certificate. In connection with any issuance of
Warrants in redemption of shares of Redeemable Preferred Stock,
the Company shall execute and issue a Warrant Certificate to and
in favor of each holder in the form of Exhibit B to the Purchase
Agreement with the blanks appropriately filled in, and the Company
and the holders shall execute and deliver the Registration Rights
Agreement.

               (b) Unless there shall occur an Event of Default, the Accretion Rate shall
be reduced to zero (0) with respect to any Redeemable Preferred Stock to be
redeemed upon and after the Redemption Date, and the holders of shares of
Redeemable Preferred Stock which are to be redeemed shall cease to have any
further rights with respect thereto on the Redemption Date, other than to
receive the applicable Redemption Price, which, in the case of any Redemption
Price paid in cash, shall be without interest.

9

 

               (c) If, at the time of any redemption pursuant to Section 6(a)(i)(A) or
Section 6(a)(ii)(A), the funds of the Company legally available for redemption
of Redeemable Preferred Stock are insufficient to redeem the number of shares
required to be redeemed, those funds which are legally available shall be used
to redeem the maximum possible number of such shares, pro rata based upon the
number of shares to be redeemed. At any time thereafter when additional funds
of the Company become legally available for the redemption of Redeemable
Preferred Stock, such funds shall immediately be used to redeem the balance of
the shares of Redeemable Preferred Stock which the Company has become obligated
to redeem pursuant to this Section 6(c), but which it has not redeemed; or, in
the case of a redemption pursuant to Section 6(a)(i) if a person other than the
Company is the surviving or resulting corporation in any Organic Change, such
person shall, at the consummation of such Organic Change, redeem such balance
of the shares of Redeemable Preferred Stock (and the Company shall so provide
in its agreements with such person relating to such Organic Change).

               (d) The Company may not otherwise redeem or repurchase the Redeemable
Preferred Stock.

               7. Reports as to Liquidation Preference. Not later than the forty-fifth
(45th) day following the end of each fiscal quarter of the Company commencing
with the fiscal quarter ended September 30, 2005, the Company shall deliver to
each holder of the Redeemable Preferred Stock a certificate signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Company setting forth the amount
of the Liquidation Preference as at the end of such quarter, describing in
reasonable detail the method by which such Liquidation Preference was
calculated, including without limitation the basis for the calculation of the
Applicable Fully Diluted Equity Value as of such date.

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

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

               10. Dispute Resolution. In the case of a dispute as to the determination
of the Weighted Average Price, the Redemption Price or any arithmetic
calculation required pursuant to this Certificate of Designation, the Company
shall submit the disputed determinations or arithmetic calculations via
facsimile within five Business Days of the notice of redemption or other event
giving rise to such dispute, as the case may be, to each Holder. If the
Required Holders and the Company are unable to agree upon such determination or
calculation, as applicable, within three Business Days of such disputed

10

 

determination or calculation being submitted to the Holders, then the
Company shall, within three Business Days, submit via facsimile the disputed
determination or arithmetic calculation to an independent, reputable investment
bank selected by the Company and approved by the Required Holders. The
Company, at the Company’s expense, shall use its reasonable best efforts to
cause the investment bank to perform the determinations or calculations and
notify the Company and each Holder of the results no later than five Business
Days from the time it receives the disputed determinations or calculations.
Such investment bank’s determination or calculation, as the case may be, shall
be binding upon all parties absent demonstrable error.

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

[Remainder of Page Intentionally Left Blank]

11

 

               IN WITNESS WHEREOF, Horizon Offshore, Inc. has caused this Certificate to
be signed by its President and Secretary, respectively, on this 4th day of
November, 2004.

	 	 	 
	

	 	/s/ Bill J. Lam
	

	 	
 
	

	 	President
	 
	 	 
	

	 	/s/ David W. Sharp
	

	 	
 
	

	 	Secretary

Signature Page

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