Document:

Exhibit 10.4

 

Exhibit 10.4

EXECUTION COPY

Opening Transaction

	 	 	 
	To:

	 	Horizon Lines, Inc.
	 

	 	4064 Colony Road, Suite 200
	 

	 	Charlotte, North Carolina 28211
	 
	 	 
	From:

	 	From: Bank of America, N.A.
	 

	 	c/o Banc of America Securities LLC
	 

	 	Equities Legal Department
	 

	 	9 West 57th Street, 40th Floor
	 

	 	New York, NY 10019
	 
	 	 
	Re:

	 	Convertible Bond Hedge Transaction
	 
	 	 
	Ref. No:

	 	NY-30800
	 
	 	 
	Date:

	 	August 1, 2007

Dear Sir(s):

     The purpose of this communication (this “Confirmation”) is to set forth the terms and
conditions of the above-referenced transaction entered into on the Trade Date specified below (the
“Transaction”) between Bank of America, N.A. (“Dealer”) and Horizon Lines, Inc. (“Counterparty”).
This communication constitutes a “Confirmation” as referred to in the ISDA Master Agreement
specified below.

     1. This Confirmation is subject to, and incorporates, the definitions and provisions of the
2000 ISDA Definitions (including the Annex thereto) (the “2000 Definitions”) and the definitions
and provisions of the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions”, and
together with the 2000 Definitions, the “Definitions”), in each case as published by the
International Swaps and Derivatives Association, Inc. (“ISDA”). In the event of any inconsistency
between the 2000 Definitions and the Equity Definitions, the Equity Definitions will govern.
Certain defined terms used herein have the meanings assigned to them in the First Supplemental
Indenture to be dated as of August 8, 2007 between Counterparty and Bank of New York Trust Company,
N.A., as trustee (the “Indenture”) relating to the USD 300,000,000 principal amount of 4.25%
convertible senior notes due 2012 (the “Convertible Notes”). In the event of any inconsistency
between the terms defined in the Indenture and this Confirmation, this Confirmation shall govern.
For the avoidance of doubt, (i) the Transaction shall be the only transaction under the Agreement
and (ii) references herein to sections of the Indenture are based on the draft of the Indenture
most recently reviewed by the parties at the time of execution of this Confirmation. If any
relevant sections of the Indenture are changed, added or renumbered between the execution of this
Confirmation and the execution of the Indenture, the parties will amend this Confirmation in good
faith to preserve the economic intent of the parties. The parties further acknowledge that
references to the Indenture herein are references to the Indenture as in effect on the date of its
execution and if the Indenture is amended following its execution, any such amendment will be
disregarded for purposes of this Confirmation unless the parties agree otherwise in writing. The
Transaction is subject to early unwind if the closing of the Convertible Notes is not consummated
for any reason, as set forth below in Section 8(k).

     Each party is hereby advised, and each such party acknowledges, that the other party has
engaged in, or refrained from engaging in, substantial financial transactions and has taken other
material actions in

 

 

reliance upon the parties’ entry into the Transaction to which this
Confirmation relates on the terms and conditions set forth below.

     This Confirmation evidences a complete and binding agreement between Dealer and Counterparty
as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall be
subject to an agreement (the “Agreement”) in the form of the 1992 ISDA Master Agreement
(Multicurrency—Cross Border) as if Dealer and Counterparty had executed an agreement in such form
on the date hereof (but without any Schedule except for (i) the election of Loss and Second Method,
New York law (without regard to the conflicts of law principles) as the governing law and US
Dollars (“USD”) as the Termination Currency, (ii) the election that the “Cross Default” provisions
of Section 5(a)(vi) shall apply to Counterparty with a “Threshold Amount” of USD 15 million) and
(iii) the amendment of Section 5(a)(vi) to delete the words “or becoming capable at such time of
being declared,”.

     All provisions contained in, or incorporated by reference to, the Agreement will govern this
Confirmation except as expressly modified herein. In the event of any inconsistency between this
Confirmation and either the Definitions or the Agreement, this Confirmation shall govern.

     2. The Transaction constitutes a Share Option Transaction for purposes of the Equity
Definitions. The terms of the particular Transaction to which this Confirmation relates are as
follows:

General Terms:

	 	 	 
	Trade Date:

	 	August 1, 2007
	 
	 	 
	Effective Date:

	 	August 8, 2007
	 
	 	 
	Option Style:

	 	Modified American, as described under
“Procedures for Exercise” below.
	 
	 	 
	Option Type:

	 	Call
	 
	 	 
	Seller:

	 	Dealer
	 
	 	 
	Buyer:

	 	Counterparty
	 
	 	 
	Shares:

	 	The Common Stock of Counterparty, par
value USD0.01 per share (Ticker Symbol:
	 

	 	“HRZ”).
	 
	 	 
	Number of Options:

	 	The number of Convertible Notes in
denominations of USD1,000 principal
amount issued by Counterparty on the
closing date for the initial issuance
of the Convertible Notes; provided that
the Number of Options shall be
automatically increased as of the date
of exercise by Goldman, Sachs & Co., as
representative of the Initial
Purchasers (as defined in the Purchase
Agreement), of their option pursuant to
Section 2 of the Purchase Agreement
dated as of August 1, 2007 between
Counterparty and Goldman, Sachs & Co.,
as representative of the Initial
Purchasers party thereto (the “Purchase
Agreement”) by the number of
Convertible Notes in denominations of
USD1,000 principal amount issued
pursuant to such exercise (such
Convertible Notes, the “Additional
Convertible Notes”). For the avoidance
of doubt, the Number of Options
outstanding shall be reduced by each
exercise of Options hereunder.
	 
	 	 
	Option Entitlement:

	 	As of any date, a number of Shares per
Option equal

2

 

	 	 	 
	 

	 	to the “Applicable
Conversion Rate” (as defined in the
Indenture, but without regard to any
adjustments to the Applicable
Conversion Rate pursuant to Section
12.05(h) of the Indenture) as of such
date.
	 
	 	 
	Strike Price:

	 	As of any date, an amount in USD,
rounded to the nearest cent (with 0.5
cents being rounded upwards), equal to
USD1,000 divided by the Option
Entitlement as of such date.
	 
	 	 
	Number of Shares:

	 	The product of the Number of Options,
the Option Entitlement and the
Applicable Percentage.
	 
	 	 
	Applicable Percentage:

	 	 30%
	 
	 	 
	Premium:

	 	USD $14,329,350.00 (Premium per Option
USD $47.7645); provided that if the
Number of Options is increased pursuant
to the proviso to the definition of
“Number of Options” above, an
additional Premium equal to the product
of the number of Options by which the
Number of Options is so increased and
the Premium per Option shall be paid on
the Additional Premium Payment Date.
	 
	 	 
	Premium Payment Date:

	 	The Effective Date
	 
	 	 
	Additional Premium Payment Date:

	 	The closing date for the purchase and
sale of the Additional Convertible
Notes.
	 
	 	 
	Exchange:

	 	New York Stock Exchange
	 
	 	 
	Related Exchange:

	 	All Exchanges

Procedures for Exercise:

	 	 	 
	Exercise Date:

	 	Each Conversion Date.
	 
	 	 
	Conversion Date:

	 	Each “Conversion Date” (as defined in
the Indenture) occurring during the
Exercise Period for Convertible Notes
(such Convertible Notes, each in
denominations of USD1,000 principal
amount, the “Relevant Convertible
Notes” for such Conversion Date). For
the avoidance of doubt, if a
“Conversion Notice” (as defined in the
Indenture) is retracted for any
Convertible Notes pursuant to the terms
of the Indenture, a Conversion Date
shall not have occurred with respect to
such Convertible Notes, and such
Convertible Notes shall not constitute
Relevant Convertible Notes for such
Conversion Date, subject to the last
sentence of “Notice of Exercise” below.
	 
	 	 
	Exercise Period:

	 	The period from and excluding the Trade
Date to and including the Expiration
Date.
	 
	 	 
	Expiration Date:

	 	The earlier of (i) the last day on
which any Convertible Notes remain
outstanding and (ii) the fourth
“Scheduled Trading Day” (as defined in
the Indenture) immediately preceding
the “Maturity Date” (as defined in the
Indenture).
	 
	 	 
	Automatic Exercise on 

Conversion Dates:

	 	
On each Conversion Date, a number of
Options equal

3

 

	 	 	 
	 

	 	to the number of Relevant
Convertible Notes for such Conversion
Date in denominations of USD1,000
principal amount shall be automatically
exercised, subject to “Notice of
Exercise” below.
	 
	 	 
	Notice Deadline:

	 	In respect of any exercise of Options
hereunder, the Scheduled Trading Day
immediately preceding the first
Scheduled Trading Day of the relevant
“Observation Period” (as defined in the
Indenture), subject to “Notice of
Exercise” below.
	 
	 	 
	Notice of Exercise:

	 	Notwithstanding anything to the
contrary in the Equity Definitions,
Dealer shall have no obligation to make
any payment or delivery in respect of
any exercise of Options hereunder
unless Counterparty notifies Dealer in
writing prior to 5:00 P.M., New York
City time, on the Notice Deadline in
respect of such exercise, of (i) the
number of Relevant Convertible Notes
being converted on the related
Conversion Date, (ii) the scheduled
settlement date under the Indenture for
the Relevant Convertible Notes for such
Conversion Date, (iii) the first
Scheduled Trading Day of the relevant
Observation Period, (iv) the Cash
Percentage (as defined in the
Indenture), and (v) the delivery of any
Jones Act Notice, to the extent such
notice is delivered to holders of
Relevant Convertible Notes for such
Conversion Date (and, if any Jones Act
Notice is so delivered, Counterparty
shall notify Dealer prior to the Notice
Deadline of the number, if any, of
Convertible Notes that Counterparty had
previously notified Dealer were being
converted pursuant to clause (i) above
that are not Relevant Convertible Notes
by reason of the retraction of the
related Conversion Notice pursuant to
the Indenture). “Jones Act Notice”
means any notice to holders of
Convertible Notes pursuant to Section
12.02(c) of the Indenture.
Notwithstanding the foregoing, in the
case of any exercise of Options
hereunder in connection with the
conversion of any Relevant Convertible
Notes for any Conversion Dates
occurring during the period starting on
the 65th Scheduled Trading
Day prior to the Maturity Date and
ending on the Maturity Date (the “Final
Conversion Period”), (a) the Notice
Deadline shall be 12:00 P.M. (New York
City time) on the Scheduled Trading Day
immediately following the relevant
Exercise Date and the content of such
notice shall be as set forth in clauses
(i) and (ii) above, and (b)
Counterparty shall notify Dealer of (x)
the applicable Cash Percentage on the
date it notifies the Trustee (as
defined in the Indenture) thereof, (y)
the delivery of any Jones Act Notice
(if any such notice is delivered), on
the date it gives holders such Jones
Act Notice, and (z) if any Jones Act
Notice is so delivered, the number, if
any, of Convertible Notes that
Counterparty had previously

4

 

	 	 	 
	 

	 	notified
Dealer were being converted pursuant to
clause (i) above that are not Relevant
Convertible Notes by reason of the
retraction of the related Conversion
Notice pursuant to the Indenture, on
the date it receives notice of such
retraction, but in the case of any of
either (x), (y) or (z) no later than
the first Exchange Business Day
following the last day of the
“Conversion Retraction Period” (as
defined in the Indenture) for the Final
Conversion Period. Notwithstanding any
election or notice pursuant to the
terms of the Convertible Notes to the
contrary, the Cash Percentage for any
Relevant Convertible Notes shall be
deemed to be zero for purposes of the
Transaction (including, without
limitation, for purposes of determining
the Delivery Obligation) unless, in the
Conversion Notice relating to such
Relevant Convertible Notes (or, if the
Conversion Dates for such Relevant
Convertible Notes occur during the
Final Conversion Period, in the notice
to Dealer specifying the Cash
Percentage for such Relevant
Convertible Notes), Counterparty makes
the representations, warranties and
agreements set forth in Section 7(a)(i)
hereof as of the date of such notice.
For the avoidance of doubt, if
Counterparty fails to give such notice
when due in respect of any exercise of
Options hereunder, Dealer’s obligation
to make any payment or delivery in
respect of such exercise shall be
permanently extinguished, and late
notice shall not cure such failure. If
Counterparty notifies Dealer that any
Convertible Note is being converted and
such Convertible Note is not being
converted, or fails to notify Dealer of
the retraction of the Conversion Notice
with respect to any Convertible Note
that Counterparty had previously
notified Dealer was being converted,
(i) such Convertible Note shall be
treated for all purposes under this
Transaction as if it had been converted
as described in Counterparty’s notice
to Dealer, (ii) the Delivery Obligation
shall be calculated as if a Convertible
Note had been converted pursuant to the
Indenture and (iii) the Calculation
Agent shall thereafter treat
conversions of outstanding Convertible
Notes as resulting in Relevant
Convertible Notes under the Transaction
in its commercially reasonably
discretion using a “first in, first
out” methodology.

Settlement Terms:

	 	 	 
	 
	 	 
	Settlement Date:

	 	For any Exercise Date, the settlement
date for the Shares and/or cash to be
delivered in respect of the Relevant
Convertible Notes for the relevant
Conversion Date under the terms of the
Indenture; provided that the Settlement
Date shall not be prior to the latest
of (i) the date one Settlement Cycle
following the final day of the relevant
Observation Period, (ii) the Exchange
Business Day immediately

5

 

	 	 	 
	 

	 	following the
date on which Counterparty gives notice
to Dealer of such Settlement Date prior
to 5:00 P.M., New York City time, and
(iii) the Exchange Business Day
immediately following the date
Counterparty provides the Notice of
Delivery Obligation prior to 5:00 P.M.,
New York City time.
	 
	 	 
	Delivery Obligation:

	 	In lieu of the obligations set forth in
Sections 8.1 and 9.1 of the Equity
Definitions, and subject to “Notice of
Exercise” above, in respect of any
Exercise Date, Dealer will deliver to
Counterparty on the related Settlement
Date (the “Delivery Obligation”) (i) a
number of Shares equal to the product
of (x) the Applicable Percentage and
(y) the aggregate number of Deliverable
Shares (as defined in the Indenture),
if any, that Counterparty is obligated
to deliver to the holder(s) of the
Relevant Convertible Notes for such
Conversion Date pursuant to Section
12.02(a) of the Indenture (except that
such aggregate number of Shares shall
be determined without taking into
consideration any rounding pursuant to
Section 12.04 of the Indenture and
shall be rounded down to the nearest
whole number) and cash in lieu of
fractional shares, if any, resulting
from such rounding, and/or (ii) cash in
an amount equal to the product of (x)
the Applicable Percentage and (y) the
amount of cash, if any, in excess of
the aggregate principal amount of the
Relevant Convertible Notes for such
Conversion Date that Counterparty is
obligated to pay to the holder(s) of
such Relevant Convertible Notes in lieu
of delivering such Deliverable Shares
pursuant to Section 12.02(a) of the
Indenture (such Shares and/or cash
deliverable to the holder(s) of the
Relevant Convertible Notes,
collectively, the “Convertible
Obligation”); provided that the
Convertible Obligation shall be
determined excluding any Shares and
cash that Counterparty is obligated to
deliver to holder(s) of the Relevant
Convertible Notes as a direct or
indirect result of any adjustments to
the Applicable Conversion Rate pursuant
to Section 12.05(h) of the Indenture
and any interest payment that the
Counterparty is (or would have been)
obligated to deliver to holder(s) of
the Relevant Convertible Notes for such
Conversion Date; and provided further
that, if the Convertible Obligation
includes any amount of Shares or cash
that Counterparty is obligated to
deliver to holder(s) of the Relevant
Convertible Notes as a direct or
indirect result of any adjustments to
the Applicable Conversion Rate pursuant
to Section 12.01(e) of the Indenture,
the Delivery Obligation shall be such
that the fair value of the Delivery
Obligation, as determined by the
Calculation Agent in a commercially
reasonable manner, equals the lesser of
(i) the fair value of the Convertible
Obligation, as determined by the
Calculation Agent in a

6

 

	 	 	 
	 

	 	commercially
reasonable manner, and (ii) the amount
that would be payable by Dealer to
Counterparty pursuant to Section 6 of
the Agreement if the Settlement Date
were the Early Termination Date in
respect of an Additional Termination
Event (with Counterparty as the sole
Affected Party) under a hypothetical
transaction with the same terms as the
Transaction, but (x) with a Number of
Options equal to the number of Relevant
Convertible Notes for such Conversion
Date and (y) such amount payable
determined as if Section 12.01(e) of
the Indenture were deleted (and any
Delivery Obligation determined pursuant
to clause (ii) above shall include
proportions of Shares and/or cash
determined by the Calculation Agent
applying the applicable Cash
Percentage). For the avoidance of
doubt, if the “Daily Conversion Value”
(as defined in the Indenture) for each
of the VWAP Trading Days (as defined in
the Indenture) occurring in the
relevant Observation Period is less
than or equal to USD 20.00, Dealer will
have no delivery obligation hereunder
in respect of the related Exercise
Date.
	 
	 	 
	Notice of Delivery Obligation:

	 	No later than the Exchange Business Day
immediately following the last day of
the relevant Observation Period),
Counterparty shall give Dealer notice
of the final number of Shares and/or
the amount of cash comprising the
relevant Convertible Obligation;
provided that, with respect to any
Exercise Date occurring during the
Final Conversion Period, Counterparty
may provide Dealer with a single notice
of the aggregate number of Shares
and/or amount of cash comprising the
Convertible Obligations for all
Exercise Dates occurring during such
period (it being understood, for the
avoidance of doubt, that the
requirement of Counterparty to deliver
such notice shall not limit
Counterparty’s obligations with respect
to Notice of Exercise or Dealer’s
obligations with respect to Delivery
Obligation, each as set forth above, in
any way).
	 
	 	 
	Other Applicable Provisions:

	 	To the extent Dealer is obligated to
deliver Shares hereunder, the
provisions of Sections 9.1(c), 9.8,
9.9, 9.10, 9.11 and 9.12 of the Equity
Definitions will be applicable as if
“Physical Settlement” applied to the
Transaction; provided that the
Representation and Agreement contained
in Section 9.11 of the Equity
Definitions shall be modified by
excluding any representations therein
relating to restrictions, obligations,
limitations or requirements under
applicable securities laws that exist
as a result of the fact that Buyer is
the issuer of the Shares.
	 
	 	 
	Restricted Certificated Shares:

	 	Notwithstanding anything to the
contrary in the Equity Definitions,
Dealer may, in whole or in part,
deliver Shares in certificated form
representing the Number of Shares to be
Delivered to Counterparty in lieu of
delivery through the Clearance System.

7

 

Adjustments:

	 	 	 
	Method of Adjustment:

	 	Notwithstanding Section 11.2 of the
Equity Definitions, upon the occurrence
of any event or condition set forth in
Section 12.05(a), (b), (c), (d), (e) or
(f) of the Indenture, the Calculation
Agent shall make the corresponding
adjustment in respect of any one or
more of the Number of Options, the
Option Entitlement and any other
variable relevant to the exercise,
settlement or payment of the
Transaction, to the extent an analogous
adjustment is made under the Indenture.
Immediately upon the occurrence of any
“Adjustment Event” (as defined in the
Indenture) Counterparty shall notify
the Calculation Agent of such
Adjustment Event; and once the
adjustments to be made to the terms of
the Indenture and the Convertible Notes
in respect of such Adjustment Event
have been determined, Counterparty
shall immediately notify the
Calculation Agent in writing of the
details of such adjustments.

Extraordinary Events:

	 	 	 
	Merger Events:

	 	Notwithstanding Section 12.1(b) of the
Equity Definitions, a “Merger Event”
means the occurrence of any event or
condition set forth in Section 12.12 of
the Indenture.
	 
	 	 
	Consequences of Merger Events:

	 	Notwithstanding Section 12.2 of the
Equity Definitions, upon the occurrence
of a Merger Event, the Calculation
Agent shall make the corresponding
adjustment in respect of any adjustment
under the Indenture to any one or more
of the nature of the Shares, the Number
of Options, the Option Entitlement and
any other variable relevant to the
exercise, settlement or payment for the
Transaction, to the extent an analogous
adjustment is made under the Indenture
in respect of such Merger Event;
provided that such adjustment shall be
made without regard to any adjustment
to the Applicable Conversion Rate for
the issuance of additional Shares as
set forth in Section 12.05(h) of the
Indenture.
	 
	 	 
	Notice of Merger Consideration and
Consequences:

	 	
Upon the occurrence of a Merger Event
that causes the Shares to be converted
into the right to receive more than a
single type of consideration
(determined based in part upon any form
of stockholder election), Counterparty
shall reasonably promptly (but in any
event prior to the Merger Date) notify
the Calculation Agent of (i) the
weighted average of the types and
amounts of consideration received by
the holders of Shares entitled to
receive cash, securities or other
property or assets with respect to or
in exchange for such Shares in any
Merger Event who affirmatively make
such an election and (ii) the details
of the

8

 

	 	 	 
	 

	 	adjustment made under the
Indenture in respect of such Merger
Event.
	 
	 	 
	Nationalization, Insolvency 

or Delisting:

	 	
Cancellation and Payment (Calculation
Agent Determination); provided that in
addition to the provisions of Section
12.6(a)(iii) of the Equity Definitions,
it will also constitute a Delisting if
the Exchange is located in the United
States and the Shares are not
immediately re-listed, re-traded or
re-quoted on any of the New York Stock
Exchange, the NASDAQ Global Select
Market or the NASDAQ Global Market (or
their respective successors); if the
Shares are immediately re-listed,
re-traded or re-quoted on any such
exchange or quotation system, such
exchange or quotation system shall
thereafter be deemed to be the
Exchange.
	 
	 	 
	Additional Disruption Events:
	 	 
	 
	 	 
	     (a) Change in Law:

	 	Applicable
	 
	 	 
	     (b) Insolvency Filing:

	 	Applicable
	 
	 	 
	     (c) Hedging Disruption:

	 	Applicable
	 
	 	 
	     (d) Increased Cost of Hedging:

	 	Applicable
	 
	 	 
	Hedging Party:

	 	Dealer
	 
	 	 
	Determining Party:

	 	Dealer
	 
	 	 
	Non-Reliance:

	 	Applicable
	 
	 	 
	Agreements and Acknowledgments
Regarding Hedging Activities:

	 	
Applicable
	 
	 	 
	Additional Acknowledgments:

	 	Applicable
	 
	 	 
	3.  Calculation Agent:

	 	Dealer
	 
	4.  Account Details:
	 	 

Dealer Payment Instructions:

Bank of America, N.A.

New York, NY

SWIFT: BOFAUS3N

Bank Routing: 026-009-593

Account Name: Bank of America

Account No. : 0012333-34172

Counterparty Payment Instructions:

To be provided by Counterparty.

5.  Offices:

The Office of Dealer for the Transaction is:

Bank of America, N.A.

c/o Banc of America Securities LLC

Equities Legal Department

9 West 57th Street, 40th Floor

New York, NY 10019

9

 

The Office of Counterparty for the Transaction is:

Horizon Lines, Inc.

4064 Colony Road, Suite 200

Charlotte, North Carolina 28211

     6. Notices: For purposes of this Confirmation:

     (a) Address for notices or communications to Counterparty:

	 	 	 	 	 
	 

	 	To:
	 	 Horizon Lines, Inc.
	 

	 	 	 	 4064 Colony Road, Suite 200
	 

	 	 	 	 Charlotte, North Carolina 28211
	 

	 	Attn:
	 	 M. Mark Urbania, Senior Vice President and Chief Financial Officer
	 

	 	Telephone:
	 	 (704) 973-7049
	 

	 	Facsimile:
	 	 (704) 973-7010
	 
	 	 	 	 
	 

	 	With a copy to:	 	 
	 
	 	 	 	 
	 

	 	Attn:
	 	 Robert S. Zuckerman, Vice President and General Counsel
	 

	 	Telephone:
	 	 (704) 973-7012
	 

	 	Facsimile:
	 	 (704) 973-7010

     (b) Address for notices or communications to Dealer:

	 	 	 	 	 
	 

	 	To:
	 	 Bank of America, N.A.
	 

	 	 	 	 c/o Banc of America Securities LLC
	 

	 	 	 	 Equities Legal Department
	 

	 	 	 	 9 West 57th Street, 40th Floor
	 

	 	 	 	 New York, NY 10019
	 
	 	 	 	 
	 

	 	Attn:
	 	 John Servidio
	 

	 	Telephone:
	 	 (212) 583-8373
	 

	 	Facsimile:
	 	 (212) 230-8610

     7. Representations, Warranties and Agreements:

     (a) In addition to the representations and warranties in the Agreement and those contained
elsewhere herein, Counterparty represents and warrants to and for the benefit of, and agrees with,
Dealer as follows:

     (i) On the Trade Date, (A) none of Counterparty and its officers and directors is
aware of any material nonpublic information regarding Counterparty or the Shares and (B)
all reports and other documents filed by Counterparty with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
when considered as a whole (with the more recent such reports and documents deemed to amend
inconsistent statements contained in any earlier such reports and documents), do not
contain any untrue statement of a material fact or any omission of a material fact required
to be stated therein or necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading.

     (ii) On the Trade Date, neither Counterparty nor any “affiliate” or “affiliated
purchaser” (each as defined in Rule 10b-18 of the Exchange Act (“Rule 10b-18”)) shall
directly or indirectly (including, without limitation, by means of any cash-settled or
other derivative instrument other than the Transaction) purchase, offer to purchase, place
any bid or limit order that would effect a purchase of, or commence any tender offer
relating to, any Shares (or an equivalent interest, including a unit of beneficial interest
in a trust or limited partnership or a depository share) or any security convertible into
or exchangeable or exercisable for Shares.

10

 

     (iii) Without limiting the generality of Section 13.1 of the Equity Definitions,
Counterparty acknowledges that Dealer is not making any representations or warranties with
respect to the treatment of the Transaction under any accounting standards including FASB
Statements 128, 133 ( as amended), 149 or 150, EITF Issue No. 00-19, 01-6 or 03-6 (or
any successor issue statements) or under FASB’s Liabilities & Equity Project.

     (iv) Without limiting the generality of Section 3(a)(iii) of the Agreement, the
Transaction will not violate Rule 13e-1 or Rule 13e-4 under the Exchange Act.

     (v) Prior to the Trade Date, Counterparty shall deliver to Dealer a resolution of
Counterparty’s board of directors authorizing the Transaction and such other certificate or
certificates as Dealer shall reasonably request.

     (vi) Counterparty is not entering into this Confirmation to create actual or apparent
trading activity in the Shares (or any security convertible into or exchangeable for
Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any
security convertible into or exchangeable for Shares) or to otherwise violate the Exchange
Act.

     (vii) Counterparty is not, and after giving effect to the transactions contemplated
hereby will not be, required to register as, an “investment company” as such term is
defined in the Investment Company Act of 1940, as amended.

     (viii) On each of the Trade Date, the Premium Payment Date and the Additional Premium
Payment Date, if any, Counterparty is not “insolvent” (as such term is defined under
Section 101(32) of the U.S. Bankruptcy Code (Title 11 of the United States Code) (the
“Bankruptcy Code”)) and Counterparty would be able to purchase the Shares hereunder in
compliance with the laws of the jurisdiction of Counterparty’s incorporation..

     (ix) The representations and warranties of Counterparty set forth in Section 3 of the
Agreement and Section 1 of the Purchase Agreement are true and correct as of the Trade
Date, the Effective Date and the Additional Premium Payment Date and are hereby deemed to
be repeated to Dealer as if set forth herein.

     (b) Each of Dealer and Counterparty agrees and represents that it is an “eligible contract
participant” as defined in Section 1a(12) of the U.S. Commodity Exchange Act, as amended.

     (c) Each of Dealer and Counterparty acknowledges that the offer and sale of the Transaction to
it is intended to be exempt from registration under the Securities Act of 1933, as amended (the
“Securities Act”), by virtue of Section 4(2) thereof. Accordingly, Counterparty represents and
warrants to Dealer that (i) it has the financial ability to bear the economic risk of its
investment in the Transaction and is able to bear a total loss of its investment and its
investments in and liabilities in respect of the Transaction, which it understands are not readily
marketable, are not disproportionate to its net worth, and it is able to bear any loss in
connection with the Transaction, including the loss of its entire investment in the Transaction,
(ii) it is an “accredited investor” as that term is defined in Regulation D as promulgated under
the Securities Act, (iii) it is entering into the Transaction for its own account and without a
view to the distribution or resale thereof, (iv) the assignment, transfer or other disposition of
the Transaction has not been and will not be registered under the Securities Act and is restricted
under this Confirmation, the Securities Act and state securities laws, and (v) its financial
condition is such that it has no need for liquidity with respect to its investment in the
Transaction and no need to dispose of any portion thereof to satisfy any existing or contemplated
undertaking or indebtedness and is capable of assessing the merits of and understanding (on its own
behalf or through independent professional advice), and understands and accepts, the terms,
conditions and risks of the Transaction.

     (d) Each of Dealer and Counterparty agrees and acknowledges that Dealer is a “financial
institution,” “swap participant” and/or “financial participant” within the meaning of Sections
101(22), 101(53C) and 101(22A) of Title 11 of the United States Code (the “Bankruptcy Code”). The
parties hereto further agree and acknowledge (A) that this Confirmation is (i) a “securities
contract,” as such term is defined in Section 741(7) of the Bankruptcy Code, with respect to which
each payment and delivery hereunder is a “settlement payment,” as such term is defined in Section
741(8) of the Bankruptcy Code, and (ii) a “swap agreement,” as such term is defined in Section
101(53B) of the Bankruptcy Code, with respect

11

 

to which each payment and delivery hereunder is a
“transfer,” as such term is defined in Section 101(54) of the Bankruptcy Code, and (B) that Dealer
is entitled to the protections afforded by, among other sections, Sections 362(b)(6), 362(b)(17),
546(e), 546(g), 555 and 560 of the Bankruptcy Code.

     (e) Counterparty shall deliver to Dealer an opinion of counsel, dated as of the Trade Date and
reasonably acceptable to Dealer in form and substance, with respect to the matters set forth in
Section 3(a) of the Agreement.

     8. Other Provisions:

     (a) Right to Extend. Dealer may postpone any Settlement Date or any other date of valuation
or delivery by Dealer, with respect to some or all of the relevant Options (in which event the
Calculation Agent shall make appropriate adjustments to the Delivery Obligation), if Dealer
determines, in its reasonable discretion, that such extension is reasonably necessary or
appropriate to preserve Dealer’s hedging or hedge unwind activity hereunder in light of existing
liquidity conditions in the cash market, the stock borrow market or other relevant market or to
enable Dealer to effect purchases of Shares in connection with its hedging, hedge unwind or
settlement activity hereunder in a manner that would, if Dealer were Counterparty or an affiliated
purchaser of Counterparty, be in compliance with applicable legal, regulatory or self-regulatory
requirements, or with related policies and procedures applicable to Dealer.

     (b) Additional Termination Events. The occurrence of (i) an event of default with respect to
Counterparty under the terms of the Convertible Notes as set forth in Section 5.01 of the
Indenture, or (ii) an Amendment Event shall be an Additional Termination Event with respect to
which the Transaction is the sole Affected Transaction and Counterparty is the sole Affected Party,
and Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section
6(b) of the Agreement.

     “Amendment Event” means that Counterparty amends, modifies, supplements or obtains a waiver in
respect of any term of the Indenture or the Convertible Notes governing the principal amount,
coupon, maturity, repurchase obligation of Counterparty, redemption right of Counterparty, any term
relating to conversion of the Convertible Notes (including changes to the conversion price,
conversion settlement dates or conversion conditions), or any term that would require consent of
the holders of not less than 100% of the principal amount of the Convertible Notes to amend, in
each case without the prior consent of Dealer.

     (c) Alternative Calculations and Payment on Early Termination and on Certain Extraordinary
Events. If Dealer shall owe Counterparty any amount pursuant to Section 12.2 of the Equity
Definitions and “Consequences of Merger Events” above, or Sections 12.3, 12.6, 12.7 or 12.9 of the
Equity Definitions (except in the event of a Merger Event, Insolvency, or Nationalization, in which
the consideration or proceeds to be paid to holders of Shares consists solely of cash) or pursuant
to Section 6(d)(ii) of the Agreement (except in the event of an Event of Default in which
Counterparty is the Defaulting Party or a Termination Event in which Counterparty is the Affected
Party, that resulted from an event or events within Counterparty’s control) (a “Payment
Obligation”), Counterparty shall have the right, in its sole discretion, to require Dealer to
satisfy any such Payment Obligation by the Share Termination Alternative (as defined below) by
giving irrevocable telephonic notice to Dealer, confirmed in writing within one Scheduled Trading
Day, between the hours of 9:00 A.M. and 4:00 P.M. New York City time on the Merger Date,
Announcement Date or Early Termination Date, as applicable (“Notice of Share Termination”). If no
Notice of Share Termination is received by Dealer within the time specified in the preceding
sentence, Dealer shall have the right, in its sole discretion, to satisfy the Payment Obligation by
the Share Termination Alternative by promptly giving Counterparty a Notice of Share Termination.
Upon delivery of a Notice of Share Termination by either party, the following provisions shall
apply on the Scheduled Trading Day immediately following the Merger Date, Announcement Date or
Early Termination Date, as applicable:

	 	 	 
	Share Termination Alternative:

	 	Applicable and means that Dealer shall deliver to Counterparty the Share Termination Delivery
Property on the date on which the Payment Obligation would otherwise be due pursuant to Section
12.7 or 12.9 of the Equity Definitions or Section 6(d)(ii) of the Agreement, as

12

 

	 	 	 
	 

	 	applicable (the
“Share Termination Payment Date”), in satisfaction of the Payment Obligation.
	 
	 	 
	Share Termination Delivery Property:

	 	A number of Share Termination Delivery Units, as calculated by the
Calculation Agent, equal to the Payment Obligation divided by the Share
Termination Unit Price. The Calculation Agent shall adjust the Share
Termination Delivery Property by replacing any fractional portion of the
aggregate amount of a security therein with an amount of cash equal to the
value of such fractional security based on the values used to calculate the
Share Termination Unit Price.
	 
	 	 
	Share Termination Unit Price:

	 	The value of property contained in one
Share Termination Delivery Unit on the
date such Share Termination Delivery
Units are to be delivered as Share
Termination Delivery Property, as
determined by the Calculation Agent in
its reasonable discretion by commercially
reasonable means and notified by the
Calculation Agent to Dealer at the time
of notification of the Payment
Obligation.
	 
	 	 
	Share Termination Delivery Unit:

	 	In the case of a Termination Event, Event
of Default or Delisting, one Share or, in
the case of an Insolvency,
Nationalization or Merger Event, one
Share or a unit consisting of the number
or amount of each type of property
received by a holder of one Share
(without consideration of any requirement
to pay cash or other consideration in
lieu of fractional amounts of any
securities) in such Insolvency,
Nationalization or Merger Event. If such
Insolvency, Nationalization or Merger
Event involves a choice of consideration
to be received by holders, such holder
shall be deemed to have elected to
receive the maximum possible amount of
cash.
	 
	 	 
	Failure to Deliver:

	 	Applicable
	 
	 	 
	Other applicable provisions:

	 	If Share Termination Alternative is
applicable, the provisions of Sections
9.8, 9.9, 9.11 and 9.12 of the Equity
Definitions will be applicable as if
“Physical Settlement” applied to the
Transaction, except that all references
to “Shares” shall be read as references
to “Share Termination Delivery Units”;
provided that the Representation and
Agreement contained in Section 9.11 of
the Equity Definitions shall be modified
by excluding any representations therein
relating to restrictions, obligations,
limitations or requirements under
applicable securities laws as a result of
the fact that Buyer is the issuer of any
Share Termination Delivery Units (or any
part thereof).

The parties hereby agree that, notwithstanding anything to the contrary herein or in the Agreement,
following the payment of the Premium, in the event that an Early Termination Date (whether as a
result of an Event of Default or a Termination Event) occurs or is designated with respect to the
Transaction or the Transaction is terminated or cancelled pursuant to Article 12 of the Equity
Definitions and, as a result, Counterparty would owe to Dealer an amount calculated under Section
6(e) of the Agreement or Article 12 of the Equity Definitions, such amount shall be deemed to be
zero.

     (d) Disposition of Hedge Shares. Counterparty hereby agrees that if, in the good faith
reasonable judgment of Dealer, the Shares (the “Hedge Shares”) acquired by Dealer for the purpose
of hedging its obligations pursuant to the Transaction cannot be sold in the U.S. public market by
Dealer without registration under the Securities Act, Counterparty shall, at its election: (i) in
order to allow Dealer to sell the Hedge Shares in a registered offering, make available to Dealer
an effective registration statement under the Securities Act to cover the resale of such Hedge
Shares and (A) enter into an agreement, in form and substance satisfactory to Dealer, substantially
in the form of an underwriting agreement for a registered offering, (B) provide accountant’s
“comfort” letters in customary form for registered offerings of equity securities, (C) provide
disclosure opinions of nationally recognized outside

13

 

counsel to Counterparty reasonably acceptable
to Dealer, (D) provide other customary opinions, certificates and closing documents customary in
form for registered offerings of equity securities and (E) afford Dealer a reasonable opportunity
to conduct a “due diligence” investigation with respect to Counterparty customary in scope for
underwritten offerings of equity securities; provided, however, that if Dealer, in its reasonable
discretion, is not satisfied with access to due diligence materials, the results of its due
diligence
investigation, or the procedures and documentation for the registered offering referred to
above, then clause (ii) or clause (iii) of this Section 8(d) shall apply at the election of
Counterparty; (ii) in order to allow Dealer to sell the Hedge Shares in a private placement, to
enter into a private placement agreement substantially similar to private placement purchase
agreements customary for private placements of equity securities, in form and substance
satisfactory to Dealer, including customary representations, covenants, blue sky and other
governmental filings and/or registrations, indemnities to Dealer, due diligence rights (for Dealer
or any designated buyer of the Hedge Shares from Dealer), opinions and certificates and such other
documentation as is customary for private placements agreements, all reasonably acceptable to
Dealer (in which case, the Calculation Agent shall make any adjustments to the terms of the
Transaction that are necessary, in its reasonable judgment, to compensate Dealer for any discount
from the public market price of the Shares incurred on the sale of Hedge Shares in a private
placement); or (iii) purchase the Hedge Shares from Dealer at the VWAP Price on such Exchange
Business Days, and in the amounts, requested by Dealer.

     (e) Repurchase Notices. Counterparty shall, on any day on which Counterparty effects any
repurchase of Shares, promptly give Dealer a written notice of such repurchase (a “Repurchase
Notice”) on such day if, following such repurchase, the Notice Percentage as determined on such day
is (i) greater than 6% and (ii) greater by 0.5% than the Notice Percentage included in the
immediately preceding Repurchase Notice (or, in the case of the first such Repurchase Notice,
greater than the Notice Percentage as of the date hereof). The “Notice Percentage” as of any day
is the fraction, expressed as a percentage, the numerator of which is the Number of Shares and the
denominator of which is the number of Shares outstanding on such day. In the event that
Counterparty fails to provide Dealer with a Repurchase Notice on the day and in the manner
specified in this Section 8(e) then Counterparty agrees to indemnify and hold harmless Dealer, its
affiliates and their respective directors, officers, employees, agents and controlling persons
(Dealer and each such person being an “Indemnified Party”) from and against any and all losses,
claims, damages and liabilities (or actions in respect thereof), joint or several, to which such
Indemnified Party may become subject under applicable law or as a result of any provisions in the
Certificate (as defined below), including without limitation, Section 16 of the Exchange Act,
relating to or arising out of such failure. If for any reason the foregoing indemnification is
unavailable to any Indemnified Party or insufficient to hold harmless any Indemnified Party, then
Counterparty shall contribute, to the maximum extent permitted by law, to the amount paid or
payable by the Indemnified Party as a result of such loss, claim, damage or liability. In
addition, Counterparty will reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and expenses) as they are incurred (after notice to Counterparty) in connection with
the investigation of, preparation for or defense or settlement of any pending or threatened claim
or any action, suit or proceeding arising therefrom, whether or not such Indemnified Party is a
party thereto and whether or not such claim, action, suit or proceeding is initiated or brought by
or on behalf of Counterparty. This indemnity shall survive the completion of the Transaction
contemplated by this Confirmation and any assignment and delegation of the Transaction made
pursuant to this Confirmation or the Agreement shall inure to the benefit of any permitted assignee
of Dealer.

     (f) Transfer and Assignment. Counterparty shall have the right to assign its rights and
obligations under the Transaction with the written consent of Dealer, such consent not to be
unreasonably withheld. Dealer may condition such consent on (i) receipt by Dealer of opinions and
documents reasonably satisfactory to Dealer in connection with such assignment, (ii) such
assignment being effected on terms reasonably satisfactory to Dealer with respect to any legal and
regulatory requirements relevant to the Dealer, and (iii) Counterparty continuing to be obligated
to provide notices hereunder relating to the Convertible Notes and continuing to be obligated with
respect to “Disposition of Hedge Shares” and “Repurchase Notices” above; provided that the transfer
or assignment (or the absence of such transfer or assignment) of any other transaction between the
parties shall not be the basis on which Dealer may withhold such consent. Dealer may transfer or
assign without any consent of Counterparty its rights and obligations hereunder, in whole or in
part, to any nationally recognized (in the United States) bank or dealer

14

 

or affiliate thereof, or
any such bank or dealer or affiliate whose obligations hereunder would be guaranteed by a person,
in either case, of credit quality equivalent to or better than Dealer (or its guarantor); provided
that at any time at which any Excess Ownership Position occurs, if Dealer, in its discretion, is
unable to effect a transfer or assignment to a third party in accordance with the requirements set
forth above after using its commercially reasonable efforts on pricing terms reasonably acceptable
to Dealer such that an
Excess Ownership Position no longer exists, Dealer may designate any Scheduled Trading Day as
an Early Termination Date with respect to a portion (the “Terminated Portion”) of the Transaction,
such that such Excess Ownership Position no longer exists. In the event that Dealer so designates
an Early Termination Date with respect to a portion of the Transaction, a payment or delivery shall
be made pursuant to Section 6 of the Agreement and Section 8(c) of this Confirmation as if (i) an
Early Termination Date had been designated in respect of a Transaction having terms identical to
the Terminated Portion of the Transaction, (ii) Counterparty shall be the sole Affected Party with
respect to such partial termination and (iii) such portion of the Transaction shall be the only
Terminated Transaction. “Excess Ownership Position” means any of the following: (i) the Beneficial
Ownership of Dealer Group is equal to or greater than 8.5% of the outstanding Shares, (ii) Dealer
or any “affiliate” or “associate” of Dealer would own in excess of 13% of the outstanding Shares
for purposes of Section 203 of the Delaware General Corporation Law, (iii) the Maritime Law
Ownership Percentage of the Maritime Law Dealer Group would be equal to or greater than 4% of the
outstanding Shares, or (iv) the aggregate percentage of non-U.S. citizen owners (as determined
pursuant to Counterparty’s Amended and Restated Certificate of Incorporation (the “Certificate”))
of Shares shall equal or exceed 18% of the outstanding Shares. “Beneficial Ownership” means the
“beneficial ownership” (within the meaning of Section 13 of the Exchange Act and the rules
promulgated thereunder) of Shares by Dealer or any affiliate of Dealer subject to aggregation with
Dealer under such Section 13 and rules (collectively, “Dealer Group”). “Maritime Law Ownership
Percentage” means the ownership, as construed under the Maritime Laws, of Shares by Dealer or any
person whose ownership would be aggregated with that of Dealer or Dealer’s parent entity under the
Maritime Laws (collectively, the “Maritime Law Dealer Group”). “Maritime Laws” means, collectively
and without duplication, Chapters 121 and 505 of Title 46 of the United States Code and any
successor statute thereto, and the regulations promulgated under such Title or successor statute
or, to the extent remaining in force, under any predecessor statute, in each case as amended or
supplemented from time to time, or any “Maritime Laws” as defined in the Certificate. Counterparty
shall promptly notify Dealer if at any time either (i) any purported transfer of any shares of any
class or series of capital stock of Counterparty is void and ineffective pursuant to paragraph 4(a)
of Article V of the Certificate or (ii) any shares of any class or series of capital stock of
Counterparty are “Excess Shares” pursuant to paragraph 5 of Article V of the Certificate.
Counterparty shall provide Dealer with a copy of any filings submitted to any regulatory authority
relating to Counterparty’s or Counterparty’s stockholders’ citizenship under the Maritime Laws so
long as Dealer (or any assignee of Dealer) has agreed to keep any such filings and the information
contained therein confidential on terms reasonably acceptable to Counterparty and Dealer.
Counterparty acknowledges that it will not treat Dealer (or any affiliate of Dealer) as the owner,
for purposes of the Maritime Laws or Article V of the Certificate, of any Shares by virtue of any
swap transactions relating to Shares that Dealer (or any affiliate of Dealer) may enter into in
connection with its hedging activities in respect of the Transaction or otherwise in the course of
its business, so long as such swap transactions may only be cash settled and do not require any
party to such swap transactions to own or hold any Shares according to their terms and do not
provide Dealer (or any such affiliate) with any contractual rights to acquire Shares or exercise
voting rights with respect to any Shares.

     (g) Staggered Settlement. Dealer may, by notice to Counterparty prior to any Settlement Date
(a “Nominal Settlement Date”), elect to deliver the Shares on one or more dates (each, a “Staggered
Settlement Date”) or at two or more times on the Nominal Settlement Date as follows:

     (i) in such notice, Dealer will specify to Counterparty the related Staggered
Settlement Dates (each of which will be on or prior to such Nominal Settlement Date by, but
not prior to the earlier of the relevant Conversion Date and the first day of the relevant
Observation Period) or delivery times and how it will allocate the Shares it is required to
deliver under “Delivery Obligation” (above) among the Staggered Settlement Dates or
delivery times; and

15

 

     (ii) the aggregate number of Shares that Dealer will deliver to Counterparty hereunder
on all such Staggered Settlement Dates and delivery times will equal the number of Shares
that Dealer would otherwise be required to deliver on such Nominal Settlement Date.

     (h) Disclosure. Effective from the date of commencement of discussions concerning the
Transaction, Counterparty and each of its employees, representatives, or other agents may disclose
to any and all persons, without limitation of any kind, the tax treatment and tax structure of the
Transaction and all materials of any kind (including opinions or other tax analyses) that are
provided to Counterparty relating
to such tax treatment and tax structure.

     (i) No Netting and Set-off. The provisions of Section 2(c) of the Agreement shall not apply
to the Transaction. Each party waives any and all rights it may have to set-off delivery or
payment obligations it owes to the other party under the Transaction against any delivery or
payment obligations owed to it by the other party, whether arising under the Agreement, under any
other agreement between parties hereto, by operation of law or otherwise.

     (j) Equity Rights. Dealer acknowledges and agrees that this Confirmation is not intended to
convey to it rights with respect to the Transaction that are senior to the claims of common
stockholders in the event of Counterparty’s bankruptcy. For the avoidance of doubt, the parties
agree that the preceding sentence shall not apply at any time other than during Counterparty’s
bankruptcy to any claim arising as a result of a breach by Counterparty of any of its obligations
under this Confirmation or the Agreement. For the avoidance of doubt, the parties acknowledge that
this Confirmation is not secured by any collateral that would otherwise secure the obligations of
Counterparty herein under or pursuant to any other agreement.

     (k) Early Unwind. In the event the sale by Counterparty of the Convertible Notes is not
consummated with the Initial Purchasers pursuant to the Purchase Agreement for any reason by the
close of business in New York on August 8, 2007 (or such later date as agreed upon by the parties,
which in no event shall be later than August 10, 2007) (August 8, 2007 or such later date being the
“Early Unwind Date”), the Transaction shall automatically terminate (the “Early Unwind”) on the
Early Unwind Date and the Transaction and all of the respective rights and obligations of Dealer
and Counterparty thereunder shall be cancelled and terminated. Following such termination and
cancellation, each party shall be released and discharged by the other party from, and agrees not
to make any claim against the other party with respect to, any obligations or liabilities of either
party arising out of, and to be performed in connection with, the Transaction either prior to or
after the Early Unwind Date. Dealer and Counterparty represent and acknowledge to the other that
upon an Early Unwind, all obligations with respect to the Transaction shall be deemed fully and
finally discharged.

     (l) Termination Amounts. Notwithstanding anything to the contrary in the Agreement or the
Equity Definitions, any determination of Loss or any amount payable upon cancellation or
termination of the Transaction pursuant to Article 12 of the Equity Definitions shall, in a
commercially reasonable manner, take into account any costs or losses incurred by Dealer or any of
its affiliates in connection with Dealer’s (or such affiliate’s) hedging activities in respect of
the Transaction as a result of the provisions of Article V of the Certificate (whether before or in
connection with the termination or cancellation of the Transaction).

     (m) Governing Law. The Agreement, this Confirmation and all matters arising in connection
with the Agreement and this Confirmation shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York (without reference to its choice of laws
doctrine, other than Title 14 of the New York General Obligations Law).

     (n) Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable
law, any right it may have to a trial by jury in respect of any suit, action or proceeding relating
to the Transaction. Each party (i) certifies that no representative, agent or attorney of the
other party has represented, expressly or otherwise, that such other party would not, in the event
of such a suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges
that it and the other party have been induced to enter into the Transaction by, among other things,
the mutual waivers and certifications provided herein.

     (o) Submission to Jurisdiction. Section 13(b) of the Agreement is deleted in its entirety and
replaced by the following:

16

 

     “Each party hereby irrevocably and unconditionally submits for itself and its property in any
legal action or proceeding by the other party against it relating to this Agreement and/or any
Transaction, or for recognition and enforcement of any judgment in respect thereof, to the
exclusive jurisdiction of the Supreme Court of the State of New York, sitting in New York County,
the courts of the United States of America for the Southern District of New York and appellate
courts from any thereof. Nothing in any Confirmation or this Agreement precludes either party from
bringing Proceedings in any other jurisdiction if (A) the courts of the State of New York or the
United States
of America for the Southern District of New York lack jurisdiction over the parties or the
subject matter of the Proceedings or declines to accept the Proceedings on the grounds of lacking
such jurisdiction; (B) the Proceedings are commenced by a party for the purpose of enforcing
against the other party’s property, assets or estate any decision or judgment rendered by any court
in which Proceedings may be brought as provided hereunder; (C) the Proceedings are commenced to
appeal any such court’s decision or judgment to any higher court with competent appellate
jurisdiction over that court’s decisions or judgments if that higher court is located outside the
State of New York or Borough of Manhattan, such as a federal court of appeals or the U.S. Supreme
Court; or (D) any suit, action or proceeding has been commenced in another jurisdiction by or
against the other party or against its property, assets or estate and, in order to exercise or
protect its rights, interests or remedies under this Agreement or any Confirmation, the party (1)
joins, files a claim, or takes any other action, in any such suit, action or proceeding, or (2)
otherwise commences any Proceeding in that other jurisdiction as the result of that other suit,
action or proceeding having commenced in that other jurisdiction.”

     (p) Counterparts. This Confirmation may be executed in several counterparts, each of which
shall be deemed an original but all of which together shall constitute one and the same instrument.

     (q) Designation by Dealer. Notwithstanding any other provision in this Confirmation to the
contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other
securities to or from Counterparty, Dealer may designate any of its affiliates to purchase, sell,
receive or deliver such Shares or other securities and otherwise to perform Dealer’s obligations in
respect of the Transaction and any such designee may assume such obligations. Dealer shall be
discharged of its obligations to Counterparty to the extent of any such performance.

17

 

     Counterparty hereby agrees (a) to check this Confirmation carefully and immediately upon
receipt so that errors or discrepancies can be promptly identified and rectified and (b) to confirm
that the foregoing (in the exact form provided by Dealer) correctly sets forth the terms of the
agreement between Dealer and Counterparty with respect to the Transaction, by manually signing this
Confirmation or this page hereof as evidence of agreement to such terms and providing the other
information requested herein and immediately returning an executed copy to John Servidio at Banc of
America Securities LLC, 9 West 57th Street, 40th Floor, New York, NY 10019, Facsimile No.
212-230-8610.

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Yours faithfully,	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	BANK OF AMERICA, N.A.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	Name:
	 	 

	 	 
	 

	 	 	 	 	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Agreed and Accepted By:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	HORIZON LINES, INC.	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Robert S. Zuckerman	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	Name: Robert S. Zuckerman	 	 	 	 	 	 	 	 
	 

	 	Title: SecretaryExhibit 10.5

 

Exhibit 10.5

EXECUTION COPY

Opening Transaction

	 	 	 
	To:

	 	Horizon Lines, Inc.

4064 Colony Road, Suite 200

Charlotte, North Carolina 28211

	 
	 	 
	From:

	 	Wachovia Capital Markets, LLC, solely as agent of Wachovia Bank, National Association
	 
	 	 
	Re:

	 	Convertible Bond Hedge Transaction
	 
	 	 
	Date:

	 	August 1, 2007

Dear Sir(s):

          The purpose of this communication (this “Confirmation”) is to set forth the terms and
conditions of the above-referenced transaction entered into on the Trade Date specified below (the
“Transaction”) between Wachovia Capital Markets, LLC (“Agent”), solely as agent of Wachovia Bank,
National Association (“Dealer”) and Horizon Lines, Inc. (“Counterparty”). This communication
constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below.

          1. This Confirmation is subject to, and incorporates, the definitions and provisions of the
2000 ISDA Definitions (including the Annex thereto) (the “2000 Definitions”) and the definitions
and provisions of the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions”, and
together with the 2000 Definitions, the “Definitions”), in each case as published by the
International Swaps and Derivatives Association, Inc. (“ISDA”). In the event of any inconsistency
between the 2000 Definitions and the Equity Definitions, the Equity Definitions will govern.
Certain defined terms used herein have the meanings assigned to them in the First Supplemental
Indenture to be dated as of August 8, 2007 between Counterparty and Bank of New York Trust Company,
N.A., as trustee (the “Indenture”) relating to the USD 300,000,000 principal amount of 4.25%
convertible senior notes due 2012 (the “Convertible Notes”). In the event of any inconsistency
between the terms defined in the Indenture and this Confirmation, this Confirmation shall govern.
For the avoidance of doubt, (i) the Transaction shall be the only transaction under the Agreement
and (ii) references herein to sections of the Indenture are based on the draft of the Indenture
most recently reviewed by the parties at the time of execution of this Confirmation. If any
relevant sections of the Indenture are changed, added or renumbered between the execution of this
Confirmation and the execution of the Indenture, the parties will amend this Confirmation in good
faith to preserve the economic intent of the parties. The parties further acknowledge that
references to the Indenture herein are references to the Indenture as in effect on the date of its
execution and if the Indenture is amended following its execution, any such amendment will be
disregarded for purposes of this Confirmation unless the parties agree otherwise in writing. The
Transaction is subject to early unwind if the closing of the Convertible Notes is not consummated
for any reason, as set forth below in Section 8(k).

          Each party is hereby advised, and each such party acknowledges, that the other party has
engaged in, or refrained from engaging in, substantial financial transactions and has taken other
material actions in reliance upon the parties’ entry into the Transaction to which this
Confirmation relates on the terms and conditions set forth below.

          This Confirmation evidences a complete and binding agreement between Dealer and Counterparty
as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall be
subject to an agreement (the “Agreement”) in the form of the 1992 ISDA Master Agreement
(Multicurrency—Cross

 

 

Border) as if Dealer and Counterparty had executed an agreement in such form on the date
hereof (but without any Schedule except for (i) the election of Loss and Second Method, New York
law (without regard to the conflicts of law principles) as the governing law and US Dollars (“USD”)
as the Termination Currency, (ii) the election that the “Cross Default” provisions of Section
5(a)(vi) shall apply to Counterparty with a “Threshold Amount” of USD 15 million) and (iii) the
amendment of Section 5(a)(vi) to delete the words “or becoming capable at such time of being
declared,”.

          All provisions contained in, or incorporated by reference to, the Agreement will govern this
Confirmation except as expressly modified herein. In the event of any inconsistency between this
Confirmation and either the Definitions or the Agreement, this Confirmation shall govern.

          2. The Transaction constitutes a Share Option Transaction for purposes of the Equity
Definitions. The terms of the particular Transaction to which this Confirmation relates are as
follows:

General Terms:

	 	 	 	 	 
	 
	 	Trade Date:	 	August 1, 2007
	 
	 	 	 	 
	 
	 	Effective Date:	 	August 8, 2007
	 
	 	 	 	 
	 
	 	Option Style:	 	Modified American, as described under "Procedures for Exercise" below.
	 
	 	 	 	 
	 
	 	Option Type:	 	Call
	 
	 	 	 	 
	 
	 	Seller:	 	Dealer
	 
	 	 	 	 
	 
	 	Buyer:	 	Counterparty
	 
	 	 	 	 
	 
	 	Shares:	 	The Common Stock of Counterparty, par value USD0.01 per share (Ticker Symbol: “HRZ”).
	 
	 	 	 	 
	 
	 	Number of Options:	 	The number of Convertible Notes in denominations of USD1,000 principal amount issued by Counterparty on the closing date for the initial issuance of the Convertible Notes; provided that the Number of Options shall be automatically increased as of the date of exercise by Goldman, Sachs & Co., as representative of the Initial Purchasers (as defined in the Purchase Agreement), of their option pursuant to
Section 2 of the Purchase Agreement dated as of August 1, 2007 between Counterparty and Goldman, Sachs & Co., as
representative of the Initial Purchasers party thereto (the “Purchase Agreement”) by the number of Convertible Notes in denominations of USD1,000 principal amount issued pursuant to such exercise (such Convertible Notes, the “Additional Convertible Notes”).  For the avoidance of doubt, the Number of Options outstanding shall be reduced by each exercise of Options hereunder.
	 
	 	 	 	 
	 
	 	Option Entitlement:	 	As of any date, a number of Shares per Option equal to the “Applicable Conversion Rate” (as defined in the Indenture, but without regard to any adjustments to the Applicable Conversion Rate pursuant to Section 12.05(h) of the Indenture) as of such date.
	 
	 	 	 	 
	 
	 	Strike Price:	 	As of any date, an amount in USD, rounded to the nearest cent (with 0.5 cents being rounded upwards),

2

 

	 	 	 	 	 
	 
	 	 	 	equal to USD1,000 divided by the Option Entitlement as of such date.
	 
	 	 	 	 
	 
	 	Number of Shares:	 	The product of the Number of Options, the Option Entitlement and the Applicable Percentage.
	 
	 	 	 	 
	 
	 	Applicable Percentage:	 	30%
	 
	 	 	 	 
	 
	 	Premium:	 	USD  $14,329,350.00 (Premium per Option USD  $47.7645); provided that if the Number of Options is increased pursuant to the proviso to the definition of “Number of Options” above, an additional Premium equal to the product of the number of Options by which the Number of Options is so increased and the Premium per Option shall be paid on the Additional Premium Payment Date.
	 
	 	 	 	 
	 
	 	Premium Payment Date:	 	The Effective Date
	 
	 	 	 	 
	 
	 	Additional Premium Payment Date:	 	The closing date for the purchase and sale of the Additional Convertible Notes.
	 
	 	 	 	 
	 
	 	Exchange:	 	New York Stock Exchange
	 
	 	 	 	 
	 
	 	Related Exchange:	 	All Exchanges

Procedures for Exercise:

	 	 	 	 	 
	 

	 	Exercise Date:
	 	Each Conversion Date.
	 
	 	 	 	 
	 

	 	Conversion Date:
	 	Each “Conversion Date” (as defined in the Indenture) occurring during the
Exercise Period for Convertible Notes (such Convertible Notes, each in denominations
of USD1,000 principal amount, the “Relevant Convertible Notes” for such Conversion
Date). For the avoidance of doubt, if a “Conversion Notice” (as defined in the
Indenture) is retracted for any Convertible Notes pursuant to the terms of the
Indenture, a Conversion Date shall not have occurred with respect to such Convertible
Notes, and such Convertible Notes shall not constitute Relevant Convertible Notes for
such Conversion Date, subject to the last sentence of “Notice of Exercise” below.
	 
	 	 	 	 
	 

	 	Exercise Period:
	 	The period from and excluding the Trade Date to and including the
Expiration Date.
	 
	 	 	 	 
	 

	 	Expiration Date:
	 	The earlier of (i) the last day on which any Convertible Notes remain
outstanding and (ii) the fourth “Scheduled Trading Day” (as defined in the Indenture)
immediately preceding the “Maturity Date” (as defined in the Indenture).
	 
	 	 	 	 
	 

	 	Automatic Exercise on

Conversion Dates:
	 	
On each Conversion Date, a number of Options equal to the number of
Relevant Convertible Notes for such Conversion Date in denominations of USD1,000
principal amount shall be automatically exercised, subject to “Notice of Exercise”
below.
	 
	 	 	 	 
	 

	 	Notice Deadline:
	 	In respect of any exercise of Options hereunder, the Scheduled Trading Day
immediately preceding the

3

 

	 	 	 	 	 
	 

	 	 	 	first Scheduled Trading Day of the relevant
“Observation Period” (as defined in the
Indenture), subject to “Notice of Exercise”
below.
	 
	 	 	 	 
	 

	 	Notice of Exercise:
	 	Notwithstanding anything to the contrary in the Equity Definitions,
Dealer shall have no obligation to make any payment or delivery in respect of any
exercise of Options hereunder unless Counterparty notifies Dealer in writing prior to
5:00 P.M., New York City time, on the Notice Deadline in respect of such exercise, of
(i) the number of Relevant Convertible Notes being converted on the related Conversion
Date, (ii) the scheduled settlement date under the Indenture for the Relevant
Convertible Notes for such Conversion Date, (iii) the first Scheduled Trading Day of
the relevant Observation Period, (iv) the Cash Percentage (as defined in the
Indenture), and (v) the delivery of any Jones Act Notice, to the extent such notice is
delivered to holders of Relevant Convertible Notes for such Conversion Date (and, if
any Jones Act Notice is so delivered, Counterparty shall notify Dealer prior to the
Notice Deadline of the number, if any, of Convertible Notes that Counterparty had
previously notified Dealer were being converted pursuant to clause (i) above that are
not Relevant Convertible Notes by reason of the retraction of the related Conversion
Notice pursuant to the Indenture). “Jones Act Notice” means any notice to holders of
Convertible Notes pursuant to Section 12.02(c) of the Indenture. Notwithstanding the
foregoing, in the case of any exercise of Options hereunder in connection with the
conversion of any Relevant Convertible Notes for any Conversion Dates occurring during
the period starting on the 65th Scheduled Trading Day prior to the Maturity
Date and ending on the Maturity Date (the “Final Conversion Period”), (a) the Notice
Deadline shall be 12:00 P.M. (New York City time) on the Scheduled Trading Day
immediately following the relevant Exercise Date and the content of such notice shall
be as set forth in clauses (i) and (ii) above, and (b) Counterparty shall notify
Dealer of (x) the applicable Cash Percentage on the date it notifies the Trustee (as
defined in the Indenture) thereof, (y) the delivery of any Jones Act Notice (if any
such notice is delivered), on the date it gives holders such Jones Act Notice, and (z)
if any Jones Act Notice is so delivered, the number, if any, of Convertible Notes that
Counterparty had previously notified Dealer were being converted pursuant to clause
(i) above that are not Relevant Convertible Notes by reason of the retraction of the
related Conversion Notice pursuant to the Indenture, on the date it receives notice of
such retraction, but in the case of any of either (x), (y) or (z) no later than the

4

 

	 	 	 	 	 
	 

	 	 	 	first Exchange Business Day following the last
day of the “Conversion Retraction Period” (as
defined in the Indenture) for the Final
Conversion Period. Notwithstanding any election
or notice pursuant to the terms of the
Convertible Notes to the contrary, the Cash
Percentage for any Relevant Convertible Notes
shall be deemed to be zero for purposes of the
Transaction (including, without limitation, for
purposes of determining the Delivery Obligation)
unless, in the Conversion Notice relating to such
Relevant Convertible Notes (or, if the Conversion
Dates for such Relevant Convertible Notes occur
during the Final Conversion Period, in the notice
to Dealer specifying the Cash Percentage for such
Relevant Convertible Notes), Counterparty makes
the representations, warranties and agreements
set forth in Section 7(a)(i) hereof as of the
date of such notice. For the avoidance of doubt,
if Counterparty fails to give such notice when
due in respect of any exercise of Options
hereunder, Dealer’s obligation to make any
payment or delivery in respect of such exercise
shall be permanently extinguished, and late
notice shall not cure such failure. If
Counterparty notifies Dealer that any Convertible
Note is being converted and such Convertible Note
is not being converted, or fails to notify Dealer
of the retraction of the Conversion Notice with
respect to any Convertible Note that Counterparty
had previously notified Dealer was being
converted, (i) such Convertible Note shall be
treated for all purposes under this Transaction
as if it had been converted as described in
Counterparty’s notice to Dealer, (ii) the
Delivery Obligation shall be calculated as if a
Convertible Note had been converted pursuant to
the Indenture and (iii) the Calculation Agent
shall thereafter treat conversions of outstanding
Convertible Notes as resulting in Relevant
Convertible Notes under the Transaction in its
commercially reasonably discretion using a “first
in, first out” methodology.

Settlement Terms:

	 	 	 	 	 
	 

	 	Settlement Date:
	 	For any Exercise Date, the settlement date for the Shares and/or cash to
be delivered in respect of the Relevant Convertible Notes for the relevant Conversion
Date under the terms of the Indenture; provided that the Settlement Date shall not be
prior to the latest of (i) the date one Settlement Cycle following the final day of
the relevant Observation Period, (ii) the Exchange Business Day immediately following
the date on which Counterparty gives notice to Dealer of such Settlement Date prior to
5:00 P.M., New York City time, and (iii) the Exchange Business Day immediately
following the date Counterparty provides the Notice of Delivery Obligation prior to
5:00 P.M., New York City time.

5

 

	 	 	 	 	 
	 

	 	Delivery Obligation:
	 	In lieu of the obligations set forth in Sections 8.1 and 9.1 of the
Equity Definitions, and subject to “Notice of Exercise” above, in respect of any
Exercise Date, Dealer will deliver to Counterparty on the related Settlement Date (the
“Delivery Obligation”) (i) a number of Shares equal to the product of (x) the
Applicable Percentage and (y) the aggregate number of Deliverable Shares (as defined
in the Indenture), if any, that Counterparty is obligated to deliver to the holder(s)
of the Relevant Convertible Notes for such Conversion Date pursuant to Section
12.02(a) of the Indenture (except that such aggregate number of Shares shall be
determined without taking into consideration any rounding pursuant to Section 12.04 of
the Indenture and shall be rounded down to the nearest whole number) and cash in lieu
of fractional shares, if any, resulting from such rounding, and/or (ii) cash in an
amount equal to the product of (x) the Applicable Percentage and (y) the amount of
cash, if any, in excess of the aggregate principal amount of the Relevant Convertible
Notes for such Conversion Date that Counterparty is obligated to pay to the holder(s)
of such Relevant Convertible Notes in lieu of delivering such Deliverable Shares
pursuant to Section 12.02(a) of the Indenture (such Shares and/or cash deliverable to
the holder(s) of the Relevant Convertible Notes, collectively, the “Convertible
Obligation”); provided that the Convertible Obligation shall be determined excluding
any Shares and cash that Counterparty is obligated to deliver to holder(s) of the
Relevant Convertible Notes as a direct or indirect result of any adjustments to the
Applicable Conversion Rate pursuant to Section 12.05(h) of the Indenture and any
interest payment that the Counterparty is (or would have been) obligated to deliver to
holder(s) of the Relevant Convertible Notes for such Conversion Date; and provided
further that, if the Convertible Obligation includes any amount of Shares or cash that
Counterparty is obligated to deliver to holder(s) of the Relevant Convertible Notes as
a direct or indirect result of any adjustments to the Applicable Conversion Rate
pursuant to Section 12.01(e) of the Indenture, the Delivery Obligation shall be such
that the fair value of the Delivery Obligation, as determined by the Calculation Agent
in a commercially reasonable manner, equals the lesser of (i) the fair value of the
Convertible Obligation, as determined by the Calculation Agent in a commercially
reasonable manner, and (ii) the amount that would be payable by Dealer to Counterparty
pursuant to Section 6 of the Agreement if the Settlement Date were the Early
Termination Date in respect of an Additional Termination Event (with Counterparty as
the sole Affected Party) under a hypothetical transaction with the same terms as the

6

 

	 	 	 	 	 
	 

	 	 	 	Transaction, but (x) with a Number of Options
equal to the number of Relevant Convertible Notes
for such Conversion Date and (y) such amount
payable determined as if Section 12.01(e) of the
Indenture were deleted (and any Delivery
Obligation determined pursuant to clause (ii)
above shall include proportions of Shares and/or
cash determined by the Calculation Agent applying
the applicable Cash Percentage). For the avoidance
of doubt, if the “Daily Conversion Value” (as
defined in the Indenture) for each of the VWAP
Trading Days (as defined in the Indenture)
occurring in the relevant Observation Period is
less than or equal to USD 20.00, Dealer will have
no delivery obligation hereunder in respect of the
related Exercise Date.
	 
	 	 	 	 
	 

	 	Notice of Delivery Obligation:
	 	No later than the Exchange Business Day immediately
following the last day of the relevant Observation Period), Counterparty shall give
Dealer notice of the final number of Shares and/or the amount of cash comprising the
relevant Convertible Obligation; provided that, with respect to any Exercise Date
occurring during the Final Conversion Period, Counterparty may provide Dealer with a
single notice of the aggregate number of Shares and/or amount of cash comprising the
Convertible Obligations for all Exercise Dates occurring during such period (it being
understood, for the avoidance of doubt, that the requirement of Counterparty to
deliver such notice shall not limit Counterparty’s obligations with respect to Notice
of Exercise or Dealer’s obligations with respect to Delivery Obligation, each as set
forth above, in any way).
	 
	 	 	 	 
	 

	 	Other Applicable Provisions:
	 	To the extent Dealer is obligated to deliver Shares
hereunder, the provisions of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11 and 9.12 of the
Equity Definitions will be applicable as if “Physical Settlement” applied to the
Transaction; provided that the Representation and Agreement contained in Section 9.11
of the Equity Definitions shall be modified by excluding any representations therein
relating to restrictions, obligations, limitations or requirements under applicable
securities laws that exist as a result of the fact that Buyer is the issuer of the
Shares.
	 
	 	 	 	 
	 

	 	Restricted Certificated Shares:
	 	Notwithstanding anything to the contrary in the Equity
Definitions, Dealer may, in whole or in part, deliver Shares in certificated form
representing the Number of Shares to be Delivered to Counterparty in lieu of delivery
through the Clearance System.

Adjustments:

	 	 	 	 	 
	 

	 	Method of Adjustment:
	 	Notwithstanding Section 11.2 of the Equity Definitions, upon the
occurrence of any event or condition set forth in Section 12.05(a), (b), (c), (d), (e)
or (f) of the Indenture, the Calculation Agent shall

7

 

	 	 	 	 	 
	 

	 	 	 	make the corresponding adjustment in respect of
any one or more of the Number of Options, the
Option Entitlement and any other variable
relevant to the exercise, settlement or payment
of the Transaction, to the extent an analogous
adjustment is made under the Indenture.
Immediately upon the occurrence of any
“Adjustment Event” (as defined in the Indenture)
Counterparty shall notify the Calculation Agent
of such Adjustment Event; and once the
adjustments to be made to the terms of the
Indenture and the Convertible Notes in respect of
such Adjustment Event have been determined,
Counterparty shall immediately notify the
Calculation Agent in writing of the details of
such adjustments.

Extraordinary Events:

	 	 	 	 	 
	 

	 	Merger Events:
	 	Notwithstanding Section 12.1(b) of the Equity Definitions, a “Merger Event”
means the occurrence of any event or condition set forth in Section 12.12 of the
Indenture.
	 
	 	 	 	 
	 

	 	Consequences of Merger Events:
	 	Notwithstanding Section 12.2 of the Equity Definitions, upon
the occurrence of a Merger Event, the Calculation Agent shall make the corresponding
adjustment in respect of any adjustment under the Indenture to any one or more of the
nature of the Shares, the Number of Options, the Option Entitlement and any other
variable relevant to the exercise, settlement or payment for the Transaction, to the
extent an analogous adjustment is made under the Indenture in respect of such Merger
Event; provided that such adjustment shall be made without regard to any adjustment to
the Applicable Conversion Rate for the issuance of additional Shares as set forth in
Section 12.05(h) of the Indenture.
	 
	 	 	 	 
	 

	 	Notice of Merger Consideration and
Consequences:
	 	
Upon the occurrence of a Merger Event that causes the Shares to be converted
into the right to receive more than a single type of consideration (determined based
in part upon any form of stockholder election), Counterparty shall reasonably promptly
(but in any event prior to the Merger Date) notify the Calculation Agent of (i) the
weighted average of the types and amounts of consideration received by the holders of
Shares entitled to receive cash, securities or other property or assets with respect
to or in exchange for such Shares in any Merger Event who affirmatively make such an
election and (ii) the details of the adjustment made under the Indenture in respect of
such Merger Event.
	 
	 	 	 	 
	 

	 	Nationalization, Insolvency or Delisting:
	 	Cancellation and Payment (Calculation Agent Determination);
provided that in addition to the provisions of Section 12.6(a)(iii) of the Equity
Definitions, it will also constitute a Delisting if the

8

 

	 	 	 	 	 
	 

	 	 	 	Exchange is located in the United States and the
Shares are not immediately re-listed, re-traded
or re-quoted on any of the New York Stock
Exchange, the NASDAQ Global Select Market or the
NASDAQ Global Market (or their respective
successors); if the Shares are immediately
re-listed, re-traded or re-quoted on any such
exchange or quotation system, such exchange or
quotation system shall thereafter be deemed to be
the Exchange.
	 
	 	 	 	 
	 

	Additional Disruption Events:	 	 
	 
	 	 	 	 
	 

	 	     (a) Change in Law:
	 	Applicable
	 
	 	 	 	 
	 

	 	     (b) Insolvency Filing:
	 	Applicable
	 
	 	 	 	 
	 

	 	     (c) Hedging Disruption:
	 	Applicable
	 
	 	 	 	 
	 

	 	     (d) Increased Cost of Hedging:
	 	Applicable
	 
	 	 	 	 
	 

	Hedging Party:
	 	Dealer
	 
	 	 	 	 
	 

	Determining Party:
	 	Dealer
	 
	 	 	 	 
	 

	Non-Reliance:
	 	Applicable
	 
	 	 	 	 
	 

	Agreements and Acknowledgments
Regarding Hedging Activities:
	 	
Applicable
	 
	 	 	 	 
	 

	Additional Acknowledgments:
	 	Applicable
	 
	 	 	 	 
	 

	3. Calculation Agent:
	 	Dealer
	 
	 	 	 	 
	 

	4. Account Details:	 	 

     Dealer Payment Instructions:

ABA: 053-000-219

Wachovia Bank, National Association

Charlotte, NC

A/C: 04659360009768

Attn: Equity Derivatives

     Counterparty Payment Instructions:

To be provided by Counterparty.

5. Offices:

    The Office of Dealer for the Transaction is:

Wachovia Bank, National Association

375 Park Avenue

New York, NY 10152

     The Office of Counterparty for the Transaction is:

Horizon Lines, Inc.

4064 Colony Road, Suite 200

Charlotte, North Carolina 28211

    6. Notices: For purposes of this Confirmation:

	(a)	 	Address for notices or communications to Counterparty:

	 	 	 
	          To:

	 	Horizon Lines, Inc.
	 

	 	4064 Colony Road, Suite 200
	 

	 	Charlotte, North Carolina 28211

9

 

	 	 	 
	          Attn:

	 	M. Mark Urbania, Senior Vice President and Chief Financial Officer
	          Telephone:

	 	(704) 973-7049
	          Facsimile:

	 	(704) 973-7010
	 
	          With a copy to:
	 	 
	 
	          Attn:

	 	Robert S. Zuckerman, Vice President and General Counsel
	          Telephone:

	 	(704) 973-7012
	          Facsimile:

	 	(704) 973-7010

     (b) Address for notices or communications to Dealer:

	 	 	 
	           To:

	 	Wachovia Bank, National Association
	 

	 	375 Park Avenue
	 

	 	New York, NY 10152
	           Attn:

	 	Head of Documentation
	           Telephone:

	 	212-214-6100
	           Facsimile:

	 	212-214-5913

     7. Representations, Warranties and Agreements:

     (a) In addition to the representations and warranties in the Agreement and those contained
elsewhere herein, Counterparty represents and warrants to and for the benefit of, and agrees with,
Dealer as follows:

     (i) On the Trade Date, (A) none of Counterparty and its officers and directors is
aware of any material nonpublic information regarding Counterparty or the Shares and (B)
all reports and other documents filed by Counterparty with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
when considered as a whole (with the more recent such reports and documents deemed to amend
inconsistent statements contained in any earlier such reports and documents), do not
contain any untrue statement of a material fact or any omission of a material fact required
to be stated therein or necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading.

     (ii) On the Trade Date, neither Counterparty nor any “affiliate” or “affiliated
purchaser” (each as defined in Rule 10b-18 of the Exchange Act (“Rule 10b-18”)) shall
directly or indirectly (including, without limitation, by means of any cash-settled or
other derivative instrument other than the Transaction) purchase, offer to purchase, place
any bid or limit order that would effect a purchase of, or commence any tender offer
relating to, any Shares (or an equivalent interest, including a unit of beneficial interest
in a trust or limited partnership or a depository share) or any security convertible into
or exchangeable or exercisable for Shares.

     (iii) Without limiting the generality of Section 13.1 of the Equity Definitions,
Counterparty acknowledges that Dealer is not making any representations or warranties with
respect to the treatment of the Transaction under any accounting standards including FASB
Statements 128, 133 ( as amended), 149 or 150, EITF Issue No. 00-19, 01-6 or 03-6 (or any
successor issue statements) or under FASB’s Liabilities & Equity Project.

     (iv) Without limiting the generality of Section 3(a)(iii) of the Agreement, the
Transaction will not violate Rule 13e-1 or Rule 13e-4 under the Exchange Act.

     (v) Prior to the Trade Date, Counterparty shall deliver to Dealer a resolution of
Counterparty’s board of directors authorizing the Transaction and such other certificate or
certificates as Dealer shall reasonably request.

10

 

     (vi) Counterparty is not entering into this Confirmation to create actual or apparent
trading activity in the Shares (or any security convertible into or exchangeable for
Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any
security convertible into or exchangeable for Shares) or to otherwise violate the Exchange
Act.

     (vii) Counterparty is not, and after giving effect to the transactions contemplated
hereby will not be, required to register as, an “investment company” as such term is
defined in the Investment Company Act of 1940, as amended.

     (viii) On each of the Trade Date, the Premium Payment Date and the Additional Premium
Payment Date, if any, Counterparty is not “insolvent” (as such term is defined under
Section 101(32) of the U.S. Bankruptcy Code (Title 11 of the United States Code) (the
“Bankruptcy Code”)) and Counterparty would be able to purchase the Shares hereunder in
compliance with the laws of the jurisdiction of Counterparty’s incorporation..

     (ix) The representations and warranties of Counterparty set forth in Section 3 of the
Agreement and Section 1 of the Purchase Agreement are true and correct as of the Trade
Date, the Effective Date and the Additional Premium Payment Date and are hereby deemed to
be repeated to Dealer as if set forth herein.

     (b) Each of Dealer and Counterparty agrees and represents that it is an “eligible contract
participant” as defined in Section 1a(12) of the U.S. Commodity Exchange Act, as amended.

     (c) Each of Dealer and Counterparty acknowledges that the offer and sale of the Transaction to
it is intended to be exempt from registration under the Securities Act of 1933, as amended (the
“Securities Act”), by virtue of Section 4(2) thereof. Accordingly, Counterparty represents and
warrants to Dealer that (i) it has the financial ability to bear the economic risk of its
investment in the Transaction and is able to bear a total loss of its investment and its
investments in and liabilities in respect of the Transaction, which it understands are not readily
marketable, are not disproportionate to its net worth, and it is able to bear any loss in
connection with the Transaction, including the loss of its entire investment in the Transaction,
(ii) it is an “accredited investor” as that term is defined in Regulation D as promulgated under
the Securities Act, (iii) it is entering into the Transaction for its own account and without a
view to the distribution or resale thereof, (iv) the assignment, transfer or other disposition of
the Transaction has not been and will not be registered under the Securities Act and is restricted
under this Confirmation, the Securities Act and state securities laws, and (v) its financial
condition is such that it has no need for liquidity with respect to its investment in the
Transaction and no need to dispose of any portion thereof to satisfy any existing or contemplated
undertaking or indebtedness and is capable of assessing the merits of and understanding (on its own
behalf or through independent professional advice), and understands and accepts, the terms,
conditions and risks of the Transaction.

     (d) Each of Dealer and Counterparty agrees and acknowledges that Dealer is a “financial
institution,” “swap participant” and/or “financial participant” within the meaning of Sections
101(22), 101(53C) and 101(22A) of Title 11 of the United States Code (the “Bankruptcy Code”). The
parties hereto further agree and acknowledge (A) that this Confirmation is (i) a “securities
contract,” as such term is defined in Section 741(7) of the Bankruptcy Code, with respect to which
each payment and delivery hereunder is a “settlement payment,” as such term is defined in Section
741(8) of the Bankruptcy Code, and (ii) a “swap agreement,” as such term is defined in Section
101(53B) of the Bankruptcy Code, with respect to which each payment and delivery hereunder is a
“transfer,” as such term is defined in Section 101(54) of the Bankruptcy Code, and (B) that Dealer
is entitled to the protections afforded by, among other sections, Sections 362(b)(6), 362(b)(17),
546(e), 546(g), 555 and 560 of the Bankruptcy Code.

     (e) Counterparty shall deliver to Dealer an opinion of counsel, dated as of the Trade Date and
reasonably acceptable to Dealer in form and substance, with respect to the matters set forth in
Section 3(a) of the Agreement.

     8. Other Provisions:

     (a) Right to Extend. Dealer may postpone any Settlement Date or any other date of valuation
or delivery by Dealer, with respect to some or all of the relevant Options (in which event the
Calculation

11

 

Agent shall make appropriate adjustments to the Delivery Obligation), if Dealer determines, in
its reasonable discretion, that such extension is reasonably necessary or appropriate to preserve
Dealer’s hedging or hedge unwind activity hereunder in light of existing liquidity conditions in
the cash market, the stock borrow market or other relevant market or to enable Dealer to effect
purchases of Shares in connection with its hedging, hedge unwind or settlement activity hereunder
in a manner that would, if Dealer were Counterparty or an affiliated purchaser of Counterparty, be
in compliance with applicable legal, regulatory or self-regulatory requirements, or with related
policies and procedures applicable to Dealer.

     (b) Additional Termination Events. The occurrence of (i) an event of default with respect to
Counterparty under the terms of the Convertible Notes as set forth in Section 5.01 of the
Indenture, or (ii) an Amendment Event shall be an Additional Termination Event with respect to
which the Transaction is the sole Affected Transaction and Counterparty is the sole Affected Party,
and Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section
6(b) of the Agreement.

          “Amendment Event” means that Counterparty amends, modifies, supplements or obtains a waiver in
respect of any term of the Indenture or the Convertible Notes governing the principal amount,
coupon, maturity, repurchase obligation of Counterparty, redemption right of Counterparty, any term
relating to conversion of the Convertible Notes (including changes to the conversion price,
conversion settlement dates or conversion conditions), or any term that would require consent of
the holders of not less than 100% of the principal amount of the Convertible Notes to amend, in
each case without the prior consent of Dealer.

     (c) Alternative Calculations and Payment on Early Termination and on Certain Extraordinary
Events. If Dealer shall owe Counterparty any amount pursuant to Section 12.2 of the Equity
Definitions and “Consequences of Merger Events” above, or Sections 12.3, 12.6, 12.7 or 12.9 of the
Equity Definitions (except in the event of a Merger Event, Insolvency, or Nationalization, in which
the consideration or proceeds to be paid to holders of Shares consists solely of cash) or pursuant
to Section 6(d)(ii) of the Agreement (except in the event of an Event of Default in which
Counterparty is the Defaulting Party or a Termination Event in which Counterparty is the Affected
Party, that resulted from an event or events within Counterparty’s control) (a “Payment
Obligation”), Counterparty shall have the right, in its sole discretion, to require Dealer to
satisfy any such Payment Obligation by the Share Termination Alternative (as defined below) by
giving irrevocable telephonic notice to Dealer, confirmed in writing within one Scheduled Trading
Day, between the hours of 9:00 A.M. and 4:00 P.M. New York City time on the Merger Date,
Announcement Date or Early Termination Date, as applicable (“Notice of Share Termination”). If no
Notice of Share Termination is received by Dealer within the time specified in the preceding
sentence, Dealer shall have the right, in its sole discretion, to satisfy the Payment Obligation by
the Share Termination Alternative by promptly giving Counterparty a Notice of Share Termination.
Upon delivery of a Notice of Share Termination by either party, the following provisions shall
apply on the Scheduled Trading Day immediately following the Merger Date, Announcement Date or
Early Termination Date, as applicable:

	 	 	 
	Share Termination Alternative:

	 	Applicable and means that Dealer shall deliver to Counterparty the Share Termination Delivery
Property on the date on which the Payment Obligation would otherwise be due pursuant to Section
12.7 or 12.9 of the Equity Definitions or Section 6(d)(ii) of the Agreement, as applicable (the
“Share Termination Payment Date”), in satisfaction of the Payment Obligation.
	 
	 	 
	Share Termination Delivery 

Property:

	 	
A number of Share Termination Delivery Units, as calculated by the Calculation Agent, equal to
the Payment Obligation divided by the Share Termination Unit Price. The Calculation Agent shall
adjust the Share Termination Delivery Property by replacing any fractional portion of the
aggregate amount of a security therein with an amount of cash equal to the value of such
fractional security based on the values used to calculate the Share Termination Unit Price.
	 
	 	 
	Share Termination Unit Price:

	 	The value of property contained in one Share Termination Delivery

12

 

	 	 	 
	 

	 	Unit on the date such Share Termination Delivery Units are to be delivered as
Share Termination Delivery Property, as determined by the Calculation Agent in
its reasonable discretion by commercially reasonable means and notified by the
Calculation Agent to Dealer at the time of notification of the Payment
Obligation.
	 
	 	 
	Share Termination Delivery Unit:

	 	In the case of a Termination Event, Event
of Default or Delisting, one Share or, in
the case of an Insolvency,
Nationalization or Merger Event, one
Share or a unit consisting of the number
or amount of each type of property
received by a holder of one Share
(without consideration of any requirement
to pay cash or other consideration in
lieu of fractional amounts of any
securities) in such Insolvency,
Nationalization or Merger Event. If such
Insolvency, Nationalization or Merger
Event involves a choice of consideration
to be received by holders, such holder
shall be deemed to have elected to
receive the maximum possible amount of
cash.
	 
	 	 
	Failure to Deliver:

	 	Applicable
	 
	 	 
	Other applicable provisions:

	 	If Share Termination Alternative is
applicable, the provisions of Sections
9.8, 9.9, 9.11 and 9.12 of the Equity
Definitions will be applicable as if
“Physical Settlement” applied to the
Transaction, except that all references
to “Shares” shall be read as references
to “Share Termination Delivery Units”;
provided that the Representation and
Agreement contained in Section 9.11 of
the Equity Definitions shall be modified
by excluding any representations therein
relating to restrictions, obligations,
limitations or requirements under
applicable securities laws as a result of
the fact that Buyer is the issuer of any
Share Termination Delivery Units (or any
part thereof).

The parties hereby agree that, notwithstanding anything to the contrary herein or in the Agreement,
following the payment of the Premium, in the event that an Early Termination Date (whether as a
result of an Event of Default or a Termination Event) occurs or is designated with respect to the
Transaction or the Transaction is terminated or cancelled pursuant to Article 12 of the Equity
Definitions and, as a result, Counterparty would owe to Dealer an amount calculated under Section
6(e) of the Agreement or Article 12 of the Equity Definitions, such amount shall be deemed to be
zero.

     (d) Disposition of Hedge Shares. Counterparty hereby agrees that if, in the good faith
reasonable judgment of Dealer, the Shares (the “Hedge Shares”) acquired by Dealer for the purpose
of hedging its obligations pursuant to the Transaction cannot be sold in the U.S. public market by
Dealer without registration under the Securities Act, Counterparty shall, at its election: (i) in
order to allow Dealer to sell the Hedge Shares in a registered offering, make available to Dealer
an effective registration statement under the Securities Act to cover the resale of such Hedge
Shares and (A) enter into an agreement, in form and substance satisfactory to Dealer, substantially
in the form of an underwriting agreement for a registered offering, (B) provide accountant’s
“comfort” letters in customary form for registered offerings of equity securities, (C) provide
disclosure opinions of nationally recognized outside counsel to Counterparty reasonably acceptable
to Dealer, (D) provide other customary opinions, certificates and closing documents customary in
form for registered offerings of equity securities and (E) afford Dealer a reasonable opportunity
to conduct a “due diligence” investigation with respect to Counterparty customary in scope for
underwritten offerings of equity securities; provided, however, that if Dealer, in its reasonable
discretion, is not satisfied with access to due diligence materials, the results of its due
diligence investigation, or the procedures and documentation for the registered offering referred
to above, then clause (ii) or clause (iii) of this Section 8(d) shall apply at the election of
Counterparty; (ii) in order to allow Dealer to sell the Hedge Shares in a private placement, to
enter into a private placement agreement substantially similar to private placement purchase
agreements customary for private placements of equity securities, in form and substance
satisfactory to Dealer, including customary representations, covenants, blue sky and other
governmental filings and/or registrations, indemnities to Dealer, due diligence rights (for Dealer
or any designated buyer of the Hedge Shares from Dealer), opinions and certificates and such other

13

 

documentation as is customary for private placements agreements, all reasonably acceptable to
Dealer (in which case, the Calculation Agent shall make any adjustments to the terms of the
Transaction that are necessary, in its reasonable judgment, to compensate Dealer for any discount
from the public market price of the Shares incurred on the sale of Hedge Shares in a private
placement); or (iii) purchase the Hedge Shares from Dealer at the VWAP Price on such Exchange
Business Days, and in the amounts, requested by Dealer.

     (e) Repurchase Notices. Counterparty shall, on any day on which Counterparty effects any
repurchase of Shares, promptly give Dealer a written notice of such repurchase (a “Repurchase
Notice”) on such day if, following such repurchase, the Notice Percentage as determined on such day
is (i) greater than 6% and (ii) greater by 0.5% than the Notice Percentage included in the
immediately preceding Repurchase Notice (or, in the case of the first such Repurchase Notice,
greater than the Notice Percentage as of the date hereof). The “Notice Percentage” as of any day
is the fraction, expressed as a percentage, the numerator of which is the Number of Shares and the
denominator of which is the number of Shares outstanding on such day. In the event that
Counterparty fails to provide Dealer with a Repurchase Notice on the day and in the manner
specified in this Section 8(e) then Counterparty agrees to indemnify and hold harmless Dealer, its
affiliates and their respective directors, officers, employees, agents and controlling persons
(Dealer and each such person being an “Indemnified Party”) from and against any and all losses,
claims, damages and liabilities (or actions in respect thereof), joint or several, to which such
Indemnified Party may become subject under applicable law or as a result of any provisions in the
Certificate (as defined below), including without limitation, Section 16 of the Exchange Act,
relating to or arising out of such failure. If for any reason the foregoing indemnification is
unavailable to any Indemnified Party or insufficient to hold harmless any Indemnified Party, then
Counterparty shall contribute, to the maximum extent permitted by law, to the amount paid or
payable by the Indemnified Party as a result of such loss, claim, damage or liability. In
addition, Counterparty will reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and expenses) as they are incurred (after notice to Counterparty) in connection with
the investigation of, preparation for or defense or settlement of any pending or threatened claim
or any action, suit or proceeding arising therefrom, whether or not such Indemnified Party is a
party thereto and whether or not such claim, action, suit or proceeding is initiated or brought by
or on behalf of Counterparty. This indemnity shall survive the completion of the Transaction
contemplated by this Confirmation and any assignment and delegation of the Transaction made
pursuant to this Confirmation or the Agreement shall inure to the benefit of any permitted assignee
of Dealer.

     (f) Transfer and Assignment. Counterparty shall have the right to assign its rights and
obligations under the Transaction with the written consent of Dealer, such consent not to be
unreasonably withheld. Dealer may condition such consent on (i) receipt by Dealer of opinions and
documents reasonably satisfactory to Dealer in connection with such assignment, (ii) such
assignment being effected on terms reasonably satisfactory to Dealer with respect to any legal and
regulatory requirements relevant to the Dealer, and (iii) Counterparty continuing to be obligated
to provide notices hereunder relating to the Convertible Notes and continuing to be obligated with
respect to “Disposition of Hedge Shares” and “Repurchase Notices” above; provided that the transfer
or assignment (or the absence of such transfer or assignment) of any other transaction between the
parties shall not be the basis on which Dealer may withhold such consent. Dealer may transfer or
assign without any consent of Counterparty its rights and obligations hereunder, in whole or in
part, to any nationally recognized (in the United States) bank or dealer or affiliate thereof, or
any such bank or dealer or affiliate whose obligations hereunder would be guaranteed by a person,
in either case, of credit quality equivalent to or better than Dealer (or its guarantor); provided
that at any time at which any Excess Ownership Position occurs, if Dealer, in its discretion, is
unable to effect a transfer or assignment to a third party in accordance with the requirements set
forth above after using its commercially reasonable efforts on pricing terms reasonably acceptable
to Dealer such that an Excess Ownership Position no longer exists, Dealer may designate any
Scheduled Trading Day as an Early Termination Date with respect to a portion (the “Terminated
Portion”) of the Transaction, such that such Excess Ownership Position no longer exists. In the
event that Dealer so designates an Early Termination Date with respect to a portion of the
Transaction, a payment or delivery shall be made pursuant to Section 6 of the Agreement and Section
8(c) of this Confirmation as if (i) an Early Termination Date had been designated in respect of a
Transaction having terms identical to the Terminated Portion of the Transaction, (ii) Counterparty
shall be the sole Affected Party with respect to such partial termination and (iii) such

14

 

portion of the Transaction shall be the only Terminated Transaction. “Excess Ownership
Position” means any of the following: (i) the Beneficial Ownership of Dealer Group is equal to or
greater than 8.5% of the outstanding Shares, (ii) Dealer or any “affiliate” or “associate” of
Dealer would own in excess of 13% of the outstanding Shares for purposes of Section 203 of the
Delaware General Corporation Law, (iii) the Maritime Law Ownership Percentage of the Maritime Law
Dealer Group would be equal to or greater than 4% of the outstanding Shares, or (iv) the aggregate
percentage of non-U.S. citizen owners (as determined pursuant to Counterparty’s Amended and
Restated Certificate of Incorporation (the “Certificate”)) of Shares shall equal or exceed 18% of
the outstanding Shares. “Beneficial Ownership” means the “beneficial ownership” (within the meaning
of Section 13 of the Exchange Act and the rules promulgated thereunder) of Shares by Dealer or any
affiliate of Dealer subject to aggregation with Dealer under such Section 13 and rules
(collectively, “Dealer Group”). “Maritime Law Ownership Percentage” means the ownership, as
construed under the Maritime Laws, of Shares by Dealer or any person whose ownership would be
aggregated with that of Dealer or Dealer’s parent entity under the Maritime Laws (collectively, the
“Maritime Law Dealer Group”). “Maritime Laws” means, collectively and without duplication, Chapters
121 and 505 of Title 46 of the United States Code and any successor statute thereto, and the
regulations promulgated under such Title or successor statute or, to the extent remaining in force,
under any predecessor statute, in each case as amended or supplemented from time to time, or any
“Maritime Laws” as defined in the Certificate. Counterparty shall promptly notify Dealer if at any
time either (i) any purported transfer of any shares of any class or series of capital stock of
Counterparty is void and ineffective pursuant to paragraph 4(a) of Article V of the Certificate or
(ii) any shares of any class or series of capital stock of Counterparty are “Excess Shares”
pursuant to paragraph 5 of Article V of the Certificate. Counterparty shall provide Dealer with a
copy of any filings submitted to any regulatory authority relating to Counterparty’s or
Counterparty’s stockholders’ citizenship under the Maritime Laws so long as Dealer (or any assignee
of Dealer) has agreed to keep any such filings and the information contained therein confidential
on terms reasonably acceptable to Counterparty and Dealer. Counterparty acknowledges that it will
not treat Dealer (or any affiliate of Dealer) as the owner, for purposes of the Maritime Laws or
Article V of the Certificate, of any Shares by virtue of any swap transactions relating to Shares
that Dealer (or any affiliate of Dealer) may enter into in connection with its hedging activities
in respect of the Transaction or otherwise in the course of its business, so long as such swap
transactions may only be cash settled and do not require any party to such swap transactions to own
or hold any Shares according to their terms and do not provide Dealer (or any such affiliate) with
any contractual rights to acquire Shares or exercise voting rights with respect to any Shares.

     (g) Staggered Settlement. Dealer may, by notice to Counterparty prior to any Settlement Date
(a “Nominal Settlement Date”), elect to deliver the Shares on one or more dates (each, a “Staggered
Settlement Date”) or at two or more times on the Nominal Settlement Date as follows:

     (i) in such notice, Dealer will specify to Counterparty the related Staggered
Settlement Dates (each of which will be on or prior to such Nominal Settlement Date by, but
not prior to the earlier of the relevant Conversion Date and the first day of the relevant
Observation Period) or delivery times and how it will allocate the Shares it is required to
deliver under “Delivery Obligation” (above) among the Staggered Settlement Dates or
delivery times; and

     (ii) the aggregate number of Shares that Dealer will deliver to Counterparty hereunder
on all such Staggered Settlement Dates and delivery times will equal the number of Shares
that Dealer would otherwise be required to deliver on such Nominal Settlement Date.

     (h) Disclosure. Effective from the date of commencement of discussions concerning the
Transaction, Counterparty and each of its employees, representatives, or other agents may disclose
to any and all persons, without limitation of any kind, the tax treatment and tax structure of the
Transaction and all materials of any kind (including opinions or other tax analyses) that are
provided to Counterparty relating to such tax treatment and tax structure.

     (i) No Netting and Set-off. The provisions of Section 2(c) of the Agreement shall not apply
to the Transaction. Each party waives any and all rights it may have to set-off delivery or
payment obligations it owes to the other party under the Transaction against any delivery or
payment obligations owed to it by the other party, whether arising under the Agreement, under any
other agreement between parties hereto, by operation of law or otherwise.

15

 

     (j) Equity Rights. Dealer acknowledges and agrees that this Confirmation is not intended to
convey to it rights with respect to the Transaction that are senior to the claims of common
stockholders in the event of Counterparty’s bankruptcy. For the avoidance of doubt, the parties
agree that the preceding sentence shall not apply at any time other than during Counterparty’s
bankruptcy to any claim arising as a result of a breach by Counterparty of any of its obligations
under this Confirmation or the Agreement. For the avoidance of doubt, the parties acknowledge that
this Confirmation is not secured by any collateral that would otherwise secure the obligations of
Counterparty herein under or pursuant to any other agreement.

     (k) Early Unwind. In the event the sale by Counterparty of the Convertible Notes is not
consummated with the Initial Purchasers pursuant to the Purchase Agreement for any reason by the
close of business in New York on August 8, 2007 (or such later date as agreed upon by the parties,
which in no event shall be later than August 10, 2007) (August 8, 2007 or such later date being the
“Early Unwind Date”), the Transaction shall automatically terminate (the “Early Unwind”) on the
Early Unwind Date and the Transaction and all of the respective rights and obligations of Dealer
and Counterparty thereunder shall be cancelled and terminated. Following such termination and
cancellation, each party shall be released and discharged by the other party from, and agrees not
to make any claim against the other party with respect to, any obligations or liabilities of either
party arising out of, and to be performed in connection with, the Transaction either prior to or
after the Early Unwind Date. Dealer and Counterparty represent and acknowledge to the other that
upon an Early Unwind, all obligations with respect to the Transaction shall be deemed fully and
finally discharged.

     (l) Termination Amounts. Notwithstanding anything to the contrary in the Agreement or the
Equity Definitions, any determination of Loss or any amount payable upon cancellation or
termination of the Transaction pursuant to Article 12 of the Equity Definitions shall, in a
commercially reasonable manner, take into account any costs or losses incurred by Dealer or any of
its affiliates in connection with Dealer’s (or such affiliate’s) hedging activities in respect of
the Transaction as a result of the provisions of Article V of the Certificate (whether before or in
connection with the termination or cancellation of the Transaction).

     (m) Governing Law. The Agreement, this Confirmation and all matters arising in connection
with the Agreement and this Confirmation shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York (without reference to its choice of laws
doctrine, other than Title 14 of the New York General Obligations Law).

     (n) Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable
law, any right it may have to a trial by jury in respect of any suit, action or proceeding relating
to the Transaction. Each party (i) certifies that no representative, agent or attorney of the
other party has represented, expressly or otherwise, that such other party would not, in the event
of such a suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges
that it and the other party have been induced to enter into the Transaction by, among other things,
the mutual waivers and certifications provided herein.

     (o) Submission to Jurisdiction. Section 13(b) of the Agreement is deleted in its entirety and
replaced by the following:

     “Each party hereby irrevocably and unconditionally submits for itself and its property in any
legal action or proceeding by the other party against it relating to this Agreement and/or any
Transaction, or for recognition and enforcement of any judgment in respect thereof, to the
exclusive jurisdiction of the Supreme Court of the State of New York, sitting in New York County,
the courts of the United States of America for the Southern District of New York and appellate
courts from any thereof. Nothing in any Confirmation or this Agreement precludes either party from
bringing Proceedings in any other jurisdiction if (A) the courts of the State of New York or the
United States of America for the Southern District of New York lack jurisdiction over the parties
or the subject matter of the Proceedings or declines to accept the Proceedings on the grounds of
lacking such jurisdiction; (B) the Proceedings are commenced by a party for the purpose of
enforcing against the other party’s property, assets or estate any decision or judgment rendered by
any court in which Proceedings may be brought as provided hereunder; (C) the Proceedings are
commenced to appeal any such court’s decision or judgment to any higher court with competent
appellate jurisdiction over that court’s decisions or judgments if that higher court is located
outside the State of New York or

16

 

Borough of Manhattan, such as a federal court of appeals or the U.S. Supreme Court; or (D) any
suit, action or proceeding has been commenced in another jurisdiction by or against the other party
or against its property, assets or estate and, in order to exercise or protect its rights,
interests or remedies under this Agreement or any Confirmation, the party (1) joins, files a claim,
or takes any other action, in any such suit, action or proceeding, or (2) otherwise commences any
Proceeding in that other jurisdiction as the result of that other suit, action or proceeding having
commenced in that other jurisdiction.”

     (p) Counterparts. This Confirmation may be executed in several counterparts, each of which
shall be deemed an original but all of which together shall constitute one and the same instrument.

     (q) Designation by Dealer. Notwithstanding any other provision in this Confirmation to the
contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other
securities to or from Counterparty, Dealer may designate any of its affiliates to purchase, sell,
receive or deliver such Shares or other securities and otherwise to perform Dealer’s obligations in
respect of the Transaction and any such designee may assume such obligations. Dealer shall be
discharged of its obligations to Counterparty to the extent of any such performance.

     9. Terms Relating to the Agent:

     (a) The Agent is registered as a broker-dealer with the U.S. Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., is acting hereunder for and on
behalf of Dealer solely in its capacity as agent for Dealer pursuant to instructions from Dealer,
and is not and will not be acting as the Counterparty’s agent, broker, advisor or fiduciary in any
respect under or in connection with the Transaction.

     (b) In addition to acting as Dealer’s agent in executing the Transaction, the Agent is
authorized from time to time to give written payment and/or delivery instructions to the
Counterparty directing it to make its payments and/or deliveries under the Transaction to an
account of the Agent for remittance to Dealer (or its designee), and for that purpose any such
payment or delivery by the Counterparty to the Agent shall be treated as a payment or delivery to
Dealer.

     (c) Except as otherwise provided herein, any and all notices, demands, or communications of
any kind transmitted in writing by either Dealer or the Counterparty under or in connection with
the Transaction will be transmitted exclusively by such party to the other party through the Agent
at the following address:

Wachovia Capital Markets, LLC

201 South College Street, 6th Floor

Charlotte, NC 28288-0601

Facsimile No.: (704) 383-8425

Telephone No.: (704) 715-8086

Attention: Equity Derivatives

     (d) The Agent shall have no responsibility or liability to Dealer or the Counterparty for or
arising from (i) any failure by either Dealer or the Counterparty to perform any of their
respective obligations under or in connection with the Transaction, (ii) the collection or
enforcement of any such obligations, or (iii) the exercise of any of the rights and remedies of
either Dealer or the Counterparty under or in connection with the Transaction. Each of Dealer and
the Counterparty agrees to proceed solely against the other to collect or enforce any such
obligations, and the Agent shall have no liability in respect of the Transaction except for its
gross negligence or willful misconduct in performing its duties as the agent of Dealer.

     (e) Upon written request, the Agent will furnish to Dealer and the Counterparty the date and
time of the execution of the Transaction and a statement as to the source and amount of any
remuneration received or to be received by the Agent in connection with the Transaction.

17

 

     Counterparty hereby agrees (a) to check this Confirmation carefully and immediately upon
receipt so that errors or discrepancies can be promptly identified and rectified and (b) to confirm
that the foregoing (in the exact form provided by Dealer) correctly sets forth the terms of the
agreement between Dealer and Counterparty with respect to the Transaction, by manually signing this
Confirmation or this page hereof as evidence of agreement to such terms and providing the other
information requested herein and immediately returning an executed copy to Dealer, Equity
Derivatives Documentation Unit, Facsimile No. (212) 214-5913 or by email to
equity.confirms@wachovia.com.

	 	 	 	 	 
	 	 	Yours faithfully,
	 
	 	 	 	 
	 	 	WACHOVIA BANK, NATIONAL ASSOCIATION
	 
	 	 	 	 
	 

	 	By:
	 	Wachovia Capital Markets, LLC, acting solely in its
	 	 	 	 	capacity as its Agent
	 
	 	 	 	 
	 

	 	By:	 	/s/ Cathleen Burke
	 

	 	 	 	 
	 

	 	Name:	 	Cathleen Burke
	 

	 	Title:	 	Managing Director
	 
	 	 	 	 	 	 
	 
	 	 	 	 
	 	 	WACHOVIA CAPITAL MARKETS, LLC, acting solely in its
	 	 	capacity as Agent of Wachovia Bank, National Association
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	By:	 	/s/ Cathleen Burke
	 

	 	 	 	 
	 

	 	Name:	 	Cathleen Burke
	 

	 	Title:	 	Managing Director

	 	 	 	 	 
	Agreed and Accepted By:	 	 
	 
	HORIZON LINES, INC.	 	 
	 
	By:
	 	/s/ Robert S. Zuckerman	 	 
	 

	 	 

Name: Robert S. Zuckerman
	 	 
	 

	 	Title:   Secretary

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